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Manually signed, sequentially numbered
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to _________
Commission File Number 33-16366
SUMMIT BANK CORPORATION
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(Exact name of registrant as specified in its charter)
GEORGIA 58-1722476
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4360 CHAMBLEE-DUNWOODY ROAD, ATLANTA, GEORGIA 30341
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 454-0400
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock par value $.01
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X or No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 1, 1997, the aggregate market value of the Common Stock
held by persons other than directors and executive officers of the registrant
was $17,501,157 as determined by the most recent trades of registrant's Common
Stock known to the registrant.
The exclusion of all directors and executive officers of the registrant
for purposes of this calculation should not be construed as a determination that
any particular director or executive officer is an affiliate of the registrant.
As of March 1, 1997, there were 1,407,688 shares of the Registrant's
Common Stock outstanding.
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SUMMIT BANK CORPORATION
INDEX TO
ANNUAL REPORT ON FORM 10-K
<TABLE>
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PART I.
PAGE
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ITEM 1. Business........................................................................3
(a) Overview....................................................................3
(b) Banking Services............................................................3
(c) Location and Service Area...................................................4
(d) Asian-American Market.......................................................5
(e) International Services Market...............................................5
(f) Vinings Acquisition.........................................................6
(g) Supervision and Regulation..................................................6
(h) Competition................................................................14
(i) Fiscal and Monetary Policy.................................................14
(j) Employees..................................................................15
ITEM 2. Properties.....................................................................15
ITEM 3. Legal Proceedings..............................................................16
ITEM 4. Submission of Matters to a Vote of Security Holders............................16
PART II.
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters..........16
ITEM 6. Selected Financial Data........................................................18
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations..........................................................19
ITEM 8. Financial Statements and Supplementary Data....................................34
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure...........................................................59
PART III.
ITEM 10. Directors and Executive Officers of the Registrant.............................60
ITEM 11. Executive Compensation.........................................................68
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.................70
ITEM 13. Certain Relationships and Related Transactions.................................72
PART IV.
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...............73
SIGNATURES 75
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PART I.
ITEM 1. BUSINESS
OVERVIEW
Summit Bank Corporation (the "Company" or "Summit") was organized as a Georgia
corporation 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 Company had been conducting certain merchant banking related
activities since the early stages of its formation, and on July 1, 1989,
established a merchant banking subsidiary. This subsidiary, The Summit Merchant
Banking Corporation (the "Merchant Bank"), was deactivated effective January 31,
1991.
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.
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
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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.
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 city of
Doraville and Norcross, the Dekalb-Peachtree Airport, the Northlake and
Perimeter Malls
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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.
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,
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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 Counties), and Cobb County is the home of
numerous small to medium-sized businesses serving this important suburban area
of Atlanta.
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.
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Federal Bank Holding Company Regulation
The Company is a bank holding company within the meaning of the Bank Holding
Company Act of 1956 (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.
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
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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 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.
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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 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
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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.
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
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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 gen eral 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
11
<PAGE> 12
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.
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 Item 7. 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.
12
<PAGE> 13
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>
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
13
<PAGE> 14
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.
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.
14
<PAGE> 15
EMPLOYEES
As of March 1, 1997, the Bank had 86.5 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.
ITEM 2. 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
15
<PAGE> 16
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.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings, other than ordinary routine litigation
incidental to their business, pending against or involving assets of the Company
or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matter was submitted during the fourth quarter of the fiscal year covered by
this report to a vote of security-holders, through the solicitation of proxies
or otherwise.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company currently has three market makers in the common stock of the
Company, two of which were added in 1996. The additions are J.C. Bradford and
Company and Stearne, Agee and Leach. 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 were facilitated through the three market makers. As of March 1,
1997 the quoted purchase price for the Company's shares was $19.25 per share.
There were approximately 378 holders of record of the Company's Common Stock at
March 1, 1997.
The Company began paying cash dividends at the beginning of 1995. The Company
paid a total of $.28 per share in cash dividends during 1995. In second quarter
1996, the quarterly cash dividend was increased from $.07 per share to $.08 per
share. The Company paid a total of $.31 per share in cash dividends in 1996.
Although the Company currently anticipates continuing the payment of cash
dividends on a quarterly basis, there can be no assurance that Summit's dividend
policy will remain unchanged in the future. The declaration and payment of
dividends, thereafter, will depend upon business conditions, operating results,
capital and reserve requirements, and the Board of Directors' consideration of
other relevant factors. In addition, the ability to pay dividends in the future
will depend, in part, on the earnings of the Bank and its ability to pay
dividends to the Company, as to which there can be no assurance.
The Bank may only pay dividends out of its net profits then on hand, after
deducting expenses, including losses and bad debts. In addition, the 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 will be required if the total of all dividends declared in any
calendar year by the Bank exceeds the Bank's net profits to date, as defined,
for that year combined with its retained net profits for the preceding two years
less any required transfers to surplus. The Bank declared and paid cash
dividends of $675,000 to the Company in 1996. As of December 31, 1996, the Bank
had cumulative profits for 1995 and 1996 of $3,526,000, which
16
<PAGE> 17
is entirely available for dividends to the Company in 1997 plus 1997 net
earnings, if any, of the Bank, provided that the necessary transfers of net
profits to surplus were made. The OCC also has the authority under federal law
to enjoin a national bank from engaging in what in its opinion constitutes an
unsafe or unsound practice in conducting its business, including the payment of
a dividend under certain circumstances.
17
<PAGE> 18
ITEM 6. SELECTED 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
<CAPTION>
Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------------
Statement of Income Data 1996 1995 1994 1993 1992
- ------------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
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>
18
<PAGE> 19
ITEM 7. 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 antidulitive 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 3 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
Stock 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 this year was Summit's fourth branch
which opened in May and posted $7 million in new deposits by year end. 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
19
<PAGE> 20
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 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-
20
<PAGE> 21
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.
21
<PAGE> 22
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.
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEETS 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.
22
<PAGE> 23
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 Dues 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.
23
<PAGE> 24
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.
24
<PAGE> 25
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.
25
<PAGE> 26
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.
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 outstandings 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.
26
<PAGE> 27
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 ade quacy 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.
27
<PAGE> 28
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>
28
<PAGE> 29
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>
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.
29
<PAGE> 30
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
30
<PAGE> 31
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.
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
-------- ------- -------- ------- ------- --------
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
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 the next twelve months. 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.
31
<PAGE> 32
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>
32
<PAGE> 33
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 "Business - 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.
33
<PAGE> 34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report - KPMG Peat Marwick LLP 35
Consolidated Balance Sheets 36
Consolidated Statements of Income 37
Consolidated Statements of Stockholders' Equity 38
Consolidated Statements of Cash Flows 39
Notes to Consolidated Financial Statements 40
</TABLE>
34
<PAGE> 35
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
35
<PAGE> 36
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.
36
<PAGE> 37
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.
37
<PAGE> 38
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
---------------------- Paid-In Available (Accumulated
(In thousands, except 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.
38
<PAGE> 39
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUMMIT BANK CORPORATION AND SUBSIDIARIES
<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 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.
39
<PAGE> 40
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
40
<PAGE> 41
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.
(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
41
<PAGE> 42
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 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
42
<PAGE> 43
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.
(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
43
<PAGE> 44
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.
(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 Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses 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 Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses 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
Mortgaged-backed securities 25,969 452 23 26,398
- ------------------------------------------------------------------------------------------------
Total $31,570 $563 $ 23 $32,110
================================================================================================
</TABLE>
44
<PAGE> 45
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>
- --------------------------------------------------------------------------
Estimated
Amortized 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>
45
<PAGE> 46
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>
- ------------------------------------------------------------------------------
(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>
46
<PAGE> 47
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>
47
<PAGE> 48
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,
- ---------------------------------------------------------------------
<C> <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>
48
<PAGE> 49
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>
- ---------------------------------------------------------------------------------------------------------------------
(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)
- ----------------------------------------------------------------------------------------------
Deferred tax assets (liabilities) 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.
49
<PAGE> 50
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.
50
<PAGE> 51
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.
51
<PAGE> 52
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.
52
<PAGE> 53
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 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
capital capitalized under prompt corrective
(Dollars in thousands) Actual adequacy purposes action 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 greater than/equal to 8% $9,798 greater than/equal to 10%
Consolidated 17,323 17.3 8,016 greater than/equal to 8% N/A N/A
Tier 1 capital - risk-based
(to risk-weighted assets):
Bank 13,913 14.2 3,919 greater than/equal to 4 5,879 greater than/equal to 6
Consolidated 16,062 16.0 4,008 greater than/equal to 4 N/A N/A
Tier 1 capital - leverage
(to average assets):
Bank 13,913 10.2 5,467 greater than/equal to 4 6,833 greater than/equal to 5
Consolidated 16,062 11.6 5,552 greater than/equal to 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 greater than/equal to 8 8,878 greater than/equal to 10
Consolidated 15,696 17.3 7,271 greater than/equal to 8 N/A N/A
Tier 1 capital - risk-based
(to risk-weighted assets):
Bank 12,568 14.2 3,551 greater than/equal to 4 5,327 greater than/equal to 6
Consolidated 14,560 16.0 3,635 greater than/equal to 4 N/A N/A
Tier 1 capital - leverage
(to average assets):
Bank 12,568 10.6 4,753 greater than/equal to 4 5,944 greater than/equal to 5
Consolidated 14,560 12.0 4,836 greater than/equal to 4 N/A N/A
</TABLE>
53
<PAGE> 54
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.
54
<PAGE> 55
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.
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>
55
<PAGE> 56
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>
56
<PAGE> 57
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.
57
<PAGE> 58
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>
58
<PAGE> 59
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
59
<PAGE> 60
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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 69 Chairman of the Director
Board of Directors
Jack N. Halpern 48 Vice Chairman of --
the Board of
Directors
David Yu 47 Director, President Chairman of
and Chief Executive the Board of
Officer Directors
James S. Lai 59 Director Vice Chairman
of the Board
of Directors
Pin Pin Chau 57 Director, Executive Director,
Vice President President and
Chief Executive
Officer
H.A. Dudley, Jr. 48 Executive Vice Executive Vice
President President,
Senior Lending
Officer
Gary K. McClung 41 Executive Vice Executive Vice
President, Chief President, Chief
Financial Officer Financial
and Secretary Officer and
Secretary
Aaron I. Alembik 66 Director Director
Gerald L. Allison 59 Director Director
Albert P. Behler 45 Director --
Bruno C. Bucari 55 Director Director
</TABLE>
60
<PAGE> 61
<TABLE>
<CAPTION>
Position Position
Name Age with the Company with the Bank
- ---- --- ---------------- -------------
<S> <C> <C> <C>
Paul C. Y. Chu 47 Director --
Peter M. Cohen 49 Director --
Donald R. Harkleroad 53 Director --
Daniel T. Huang 48 Director --
Shafik H. Ladha 50 Director --
Sion Nyen (Francis) Lai 43 Director Director
Roger C.C. Lin 50 Director --
Shih Chien (Raymond) Lo 51 Director --
Nack Y. Paek 55 Director Director
Carl L. Patrick, Jr. 51 Director --
Cecil M. Phillips 50 Director --
W. Clayton Sparrow, Jr. 51 Director --
Howard H.L. Tai 65 Director --
</TABLE>
61
<PAGE> 62
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, Behler, James Lai, Lin, Paek, Patrick and
Yu.
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.
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 Cheshunt
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).
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.
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.
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<PAGE> 63
Mr. Yu received his MBA degree in International Business from Georgia State
University and his BS degree in Business Administration from Virginia
Commonwealth University. He and his wife, Enying, have two children: Jennifer,
age 15 and Michael, age 14.
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.
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.
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.
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
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<PAGE> 64
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 Virginia. Mr. McClung received
his Bachelors Degree in Business Administration/Accounting from West Virginia
State College.
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.
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.
Albert P. Behler a director of the Company since its inception in July 1987, has
been Chairman since 1974 and principal stockholder since 1984 of Heinrich Behler
GmbH, a 125 year-old family owned German construction and engineering
corporation. Since 1991 he has been head of an affiliate of a German real estate
investment conglomerate headquartered in New York. In addition, Mr. Behler is
Chairman and member of the Executive Board of the Association of Foreign
Investors in U.S. Real Estate (AFIRE), Trustee of The Real Estate Board of New
York, Executive member of the Advisory Committee of the Wharton University Real
Estate Center, as well as member of the International Council of Shopping
Centers and the Urban Land Institute.
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.
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<PAGE> 65
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.
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.
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.
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.
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.
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<PAGE> 66
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.
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.
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 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.
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.
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.
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
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<PAGE> 67
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.
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.
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 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.
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.
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<PAGE> 68
ITEM 11. 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
------------------- ------
SECURITIES
NAME AND PRINCIPAL COMPANY OTHER 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.
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<PAGE> 69
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.
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<PAGE> 70
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 1, 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>
P. Carl Unger 30,123 (2) 1.85%
Jack N. Halpern 35,000 (3) 2.15%
David Yu 47,719 (4) 2.93%
James S. Lai 20,000 (5) 1.23%
Pin Pin Chau 13,500 (6) .83%
Aaron I. Alembik 25,980 (7) 1.60%
Gerald L. Allison 6,602 (8) .41%
Albert P. Behler 30,000 (9) 1.84%
Bruno C. Bucari 2,800 (10) .17%
Peter M. Cohen 16,543 (11) 1.02%
Paul C.Y. Chu 131,188 (12) 8.06%
H.A. Dudley, Jr. 5,000 (13) .31%
Donald R. Harkleroad 31,400 (14) 1.93%
Daniel T. Huang 130,100 (15) 8.00%
Shafik H. Ladha 20,000 (16) 1.23%
Sion Nyen (Francis) Lai 40,000 (17) 2.46%
Roger C.C. Lin 30,000 (18) 1.84%
Shih Chien (Raymond) Lo 2,708 (19) .17%
Gary K. McClung 3,000 (20) .18%
Nack Y. Paek 20,100 (21) 1.24%
Carl L. Patrick, Jr. 38,990 (22) 2.40%
Cecil M. Phillips 4,390 (23) .27%
W. Clayton Sparrow, Jr. 12,637 (24) .77%
Howard H.L. Tai 20,000 (25) 1.23%
All directors and executive
Officers as a group (24 people) 717,780 (26) 44.12%
</TABLE>
(1) Based on 1,407,688 shares outstanding as of March 1, 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
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<PAGE> 71
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.
(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 15,000 shares subject to warrants received for service as an
organizer of the Company.
(10) Includes 1,300 shares subject to warrants received for service as an
organizer of the Company.
(11) 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.
(12) 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.
(13) Represents 5000 shares subject to options received under The Company's
Key Employee Stock Option Plan.
(14) 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.
(15) Includes 130,100 shares held by Mr. Huang, his wife and various family
members.
(16) 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.
(17) 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.
(18) 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.
(19) Includes 208 shares subject to warrants received for service as an
organizer of the Company.
(20) 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.
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<PAGE> 72
(21) 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.
(22) Includes 19,495 shares subject to warrants received for service as an
organizer of the Company.
(23) Represents 4,390 shares subject to warrants received for service as an
organizer of the Company.
(24) 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.
(25) 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.
(26) Includes 189,243 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.
ITEM 13. 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 for 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, a
director of the Company , and the bank, of which Mr. Alembik, a director of the
Company, and the bank, is a partner; Harkleroad & Hermance, 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 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 loans originated under this agreement in 1996.
72
<PAGE> 73
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
1. Financial Statements - The consolidated financial statements, notes
to consolidated financial statements, and independent auditors'
report thereon, are included in Part II, Item 8 of this Report.
2. Financial Statement Schedules - These are omitted as they are not
required or are not applicable.
3. Exhibits (numbered in accordance with Item 601 of Regulation S-K.)
Exhibit
Number Exhibit
2.1 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.)
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
73
<PAGE> 74
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.)
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.
11.1 Statement Regarding Computation of Per Share Earnings.
21.1 Subsidiaries of Summit Bank Corporation.
27.1 Financial Data Schedule (for SEC use only)
* Denotes a management contract compensatory plan or arrangement.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of 1996.
74
<PAGE> 75
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SUMMIT BANK CORPORATION
By /s/ David Yu
------------------------------------
David Yu, President, and
Chief Executive Officer
Date March 11, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ David Yu Director, President and Chief Dated: 3/11/97
- ------------------------------ Executive Officer
David Yu
/s/ Pin Pin Chau Director, Executive Dated: 3/11/97
- ------------------------------ Vice President
Pin Pin Chau
/s/ Gary K. McClung Principal Financial Officer Dated: 3/13/97
- ------------------------------ and Principal Accounting
Gary K. McClung Officer and Secretary
/s/ P. Carl Unger Director, Chairman Dated: 3/11/97
- ------------------------------ of the Board
P. Carl Unger
/s/ Jack N. Halpern Director, Dated: 3/11/97
- ------------------------------ Vice Chairman of the Board
Jack N. Halpern
/s/ Aaron I. Alembik Director Dated: 3/11/97
- ------------------------------
Aaron I. Alembik
/s/ Gerald L. Allison Director Dated: 3/12/97
- ------------------------------
Gerald L. Allison
Director Dated:
- ------------------------------
Albert F. Behler
Director Dated:
- ------------------------------
Bruno C. Bucari
</TABLE>
75
<PAGE> 76
<TABLE>
<S> <C> <C>
Director Dated:
- ------------------------------
Paul C.Y. Chu
Director Dated:
- ------------------------------
Peter M. Cohen
/s/ Daniel T. Huang Director Dated: 3/13/97
- ------------------------------
Daniel T. Huang
Director Dated:
- ------------------------------
Donald R. Harkleroad
Director Dated:
- ------------------------------
Shafik H. Ladha
/s/ James S. Lai Director Dated: 3/11/97
- ------------------------------
James S. Lai
/s/ Sion Nyen Lai Director Dated: 3/11/97
- ------------------------------
Sion Nyen (Francis) Lai
Director Dated:
- ------------------------------
Roger C.C. Lin
Director Dated:
- ------------------------------
Shih Chien (Raymond) Lo
/s/ Nack Paek Director Dated: 3/13/97
- ------------------------------
Nack Paek
/s/ Carl L. Patrick, Jr. Director Dated: 3/13/97
- ------------------------------
Carl L. Patrick, Jr.
Director Dated:
- ------------------------------
Cecil M. Phillips
/s/ W. Clayton Sparrow, Jr. Director Dated: 3/11/97
- ------------------------------
W. Clayton Sparrow, Jr.
/s/ Howard H.L. Tai Director Dated: 3/13/97
- ------------------------------
Howard H. L. Tai
</TABLE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT
REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
At the time of this filing, the registrant has not sent any annual report or
proxy material to shareholders. Such annual report and proxy material will be
furnished to shareholders subsequent to the filing of this Form 10-K and the
registrant shall furnish copies of such material to the Commission when it is
sent to shareholders.
76
<PAGE> 77
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Pages
<S> <C> <C>
2.1 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, as provided in Exhibits 3.1 and 3.2
respectively.
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, 1993.)
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 (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>
77
<PAGE> 78
<TABLE>
<S> <C> <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 82
Summit National Bank and Nationsbank, NA.
11.1 Statement Regarding Computation of Per Share Earnings 79
21.1 Subsidiaries of Summit Bank Corporation 80
27.1 Financial Data Schedule (for SEC use only) 81
</TABLE>
78
<PAGE> 1
EXHIBIT 10.11
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT ("Agreement") is made between
NationsBank, N.A. (South), a national banking association ("Seller"), and The
Summit National Bank ("Purchaser").
In consideration of the mutual covenants and representations herein
contained, Seller and Purchaser agree as follows:
1.
PURCHASE AND SALE
1.1 Purchase and Sale. Subject to the terms and conditions of this
Agreement, Seller hereby agrees to sell and convey to Purchaser, and Purchaser
hereby agrees to purchase from Seller, the following described property (herein
collectively called the "Property"):
(a) Land. That certain tract of land (the "Land") in Gwinette County,
Georgia being more particularly described on EXHIBIT A attached hereto and
incorporated herein by reference;
(b) Improvements. All improvements (the "Improvements") in and on the
Land;
(c) Tangible Personal Property. Subject to the provisions of Section
9.2 hereafter, all of Seller's rights, title and interest in all appliances,
fixtures, equipment, machinery, furniture, carpet, drapes and other personal
property, if any, located on or about the Land and the Improvements (the
"Tangible Personal Property");
(d) EASEMENTS. All easements, if any, benefiting the Land or the
Improvements;
(e) RIGHTS AND APPURTENANCES. All rights and appurtenances pertaining
to the foregoing, including any right, title and interest of Seller in and to
adjacent streets, alleys or rights-of-way; and
(f) KEYS. All keys to locks on the Property.
2.
PURCHASE PRICE
PURCHASE PRICE. The purchase price (the "Purchase Price") for the Property
shall be SEVEN HUNDRED FIFTY-FIVE THOUSAND DOLLARS ($755,000.00) in cash and
shall be paid by Purchaser to Seller at the closing (as defined in Section
6.1).
3.
EARNEST MONEY
3.1 EARNEST MONEY. Upon execution of this Agreement, Purchaser shall
deliver to Dodson, Feldman & Dorough, L.L.P. ("Escrow Agent"), the sum of
SEVENTY-FIVE THOUSAND
<PAGE> 2
DOLLARS ($75,000.00) in cash (the "Earnest Money'). If the sale of the
Property is consummated pursuant to the terms of this Agreement, the Earnest
Money shall be retained by Seller and applied to the payment of the Purchase
Price. If Purchaser terminates this Agreement in accordance with any right to
terminate granted by this,Agreement, the Earnest Money shall be immediately
returned to Purchaser, and no party hereto shall have any further obligations
under this Agreement. Except as otherwise provided herein, in the event the
sale of the Property is not consummated after Purchaser has approved the
matters set forth in Section 4.1 and 4.2 of this Agreement, all Earnest Money
deposited hereunder shall be retained by Seller, and no party shall have any
further obligations under this Agreement. Seller and Purchaser shall enter
into an Escrow Agreement with Escrow Agent in the form attached hereto as
Exhibit "B" with regard to the Earnest Money.
4.
CONDITIONS TO CLOSING
4.1 Title and Survey. Within twenty (20) days after the date of
this Agreement, Seller shall (at Purchaser's expense) provide Purchaser with a
Commitment for an Owner's Policy of Title Insurance (the 'Title Commitment"),
such Policy to name Purchaser as the insured, in the amount of the Purchase
Price, and insuring that Purchaser owns good and indefeasible fee simple title
to the Property, subject only to the Permitted Exceptions, as hereinafter
defined. Purchaser shall have thirty (30) days after the date of this
Agreement within which to approve or disapprove the Title Commitment and Survey
(to be obtained by Purchaser), including the information reflected therein,
such approvals or disapprovals to be within Purchaser's sole discretion. If
Purchaser fails to disapprove any such item by written notice to Seller within
such period, Purchaser shall be deemed to have approved such items. If
Purchaser disapproves any such item by written notice to Seller during such
period, Purchaser may terminate this Agreement in its sole and absolute
discretion. The title exceptions listed in Schedule B of the Commitment for
Title Insurance and all items shown on the survey specified in this Section 4.1
which Purchaser approves or is deemed to approve pursuant to this Section 4.1
and all leases affecting the Property are hereinafter called the "Permitted
Exceptions. At Purchaser's option and expense, Purchaser may obtain a current
survey of the Property (the "Survey") prepared by a licensed surveyor.
4.2 Inspection. Purchaser may inspect the Property at any
reasonable time during business hours within thirty (30) days from the date of
this Agreement. If such inspection reveals any fact or condition unacceptable
to Purchaser, Purchaser shall notify Seller of such unacceptable fact or
condition and may terminate this Agreement, and neither party shall have any
further rights, duties or obligations hereunder. In the event Purchaser does
not give such notification to Seller within such time period, the said
inspection of the Property shall be deemed satisfactory to Purchaser.
Purchaser shall be liable for all damage or injury to person or property
resulting from any such inspection occasioned by the acts of Purchaser, its
employees, agents or representatives, and Purchaser shall indemnify and hold
harmless Seller from any liability resulting therefrom. This indemnification
by Purchaser shall survive the Closing or the termination of this Agreement, as
applicable.
4.3 Termination, If this Agreement is terminated pursuant to
Section 4.1 or " above, the Earnest Money will be promptly refunded to
Purchaser, and neither party shall have any further obligations under this
Agreement.
PURCHASE AND SALE AGREEMENT
PAGE 2
<PAGE> 3
5.
NO REPRESENTATIONS OR WARRANTIES BY SELLER
PURCHASER ACKNOWLEDGES AND AGREES THAT SELLER HAS NOT MADE, DOES NOT MAKE AND
SPECIFICALLY NEGATES AND DISCLAIMS ANY REPRESENTATIONS, WARRANTIES, PROMISES,
COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER,
WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE, OF, AS
TO, CONCERNING OR WITH RESPECT TO (A) THE VALUE, NATURE, QUALITY OR CONDITION
OF THE PROPERTY, INCLUDING, WITHOUT LIMITATION, THE WATER, SOIL AND GEOLOGY;
(B) THE INCOME TO BE DERIVED FROM THE PROPERTY; (C) THE SUITABILITY OF THE
PROPERTY FOR ANY AND ALL ACTIVITIES AND USES WHICH PURCHASER OR ANYONE ELSE MAY
CONDUCT THEREON; (D) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS OPERATION WITH
ANY LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE GOVERNMENTAL
AUTHORITY OR BODY; (E) THE HABITABILITY, MERCHANTABILITY, MARKETABILITY,
PROFITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY; (F) THE
MANNER OR QUALITY OF THE CONSTRUCTION OF MATERIALS, IF ANY, INCORPORATED INTO
THE PROPERTY; (G) THE MANNER, QUALITY, STATE OF REPAIR OR LACK OF REPAIR OF THE
PROPERTY; OR (H) ANY OTHER MATTER WITH RESPECT TO THE PROPERTY, AND
SPECIFICALLY, THAT SELLER HAS NOT MADE, DOES NOT MAKE AND SPECIFICALLY
DISCLAIMS ANY REPRESENTATIONS REGARDING COMPLIANCE WITH ANY ENVIRONMENTAL
PROTECTION, POLLUTION OR LAND USE LAWS, RULES, REGULATIONS, ORDERS OR
EQUIPMENTS, INCLUDING SOLID WASTE, AS DEFINED BY THE U.S. ENVIRONMENTAL
PROTECTION AGENCY REGULATIONS AT 40 C.F.R., PART 261, OR THE DISPOSAL OR
EXISTENCE, IN OR ON THE PROPERTY, OF ANY HAZARDOUS SUBSTANCE AS DEFINED BY THE
COMPREHENSIVE ENVIRONMENTAL RESPONSE COMPENSATION AND LIABILITY ACT OF 1980, AS
AMENDED, AND REGULATIONS PROMULGATED THEREUNDER. PURCHASER FURTHER
ACKNOWLEDGES AND AGREES THAT, HAVING BEEN GIVEN THE OPPORTUNITY TO INSPECT THE
PROPERTY, PURCHASER IS RELYING SOLELY ON ITS OWN INVESTIGATION OF THE PROPERTY
AND NOT ON ANY INFORMATION PROVIDED OR TO BE PROVIDED BY SELLER. PURCHASER
FURTHER ACKNOWLEDGES AND AGREES THAT ANY INFORMATION PROVIDED OR TO BE PROVIDED
WITH RESPECT TO THE PROPERTY WAS OBTAINED FROM A VARIETY OF SOURCES AND THAT
SELLER HAS NOT MADE ANY INDEPENDENT INVESTIGATION OR VERIFICATION OF SUCH
INFORMATION AND MAKES NO REPRESENTATIONS AS TO THE ACCURACY OR COMPLETENESS OF
SUCH INFORMATION. SELLER IS NOT LIABLE OR BOUND IN ANY MANNER BY ANY VERBAL OR
WRITTEN STATEMENTS, REPRESENTATIONS OR INFORMATION PERTAINING TO THE PROPERTY,
OR THE OPERATION THEREOF, FURNISHED BY ANY REAL ESTATE BROKER, AGENT, EMPLOYEE,
SERVANT OR OTHER PERSON. PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT TO
THE MAXIMUM EXTENT PERMITTED BY LAW, THE SALE OF THE PROPERTY AS PROVIDED FOR
HEREIN IS MADE ON AN "AS-IS" CONDITION AND BASIS WITH ALL FAULTS. IT IS
UNDERSTOOD AND AGREED THAT THE PURCHASE PRICE HAS BEEN ADJUSTED BY PRIOR
NEGOTIATION TO REFLECT THAT THE PROPERTY IS SOLD BY SELLER AND PURCHASED BY
PURCHASER SUBJECT TO THE FOREGOING.
PURCHASE AND SALE AGREEMENT
PAGE 3
<PAGE> 4
6.
CLOSING
6.1 Closing. The closing ("Closing") shall be held at the offices
of Escrow Agent at 6000 Lake Forest Drive, N. W., Suite 300, Atlanta, Georgia
30328, on or before forty-five (45) days from the date of this Agreement (the
"Closing Date"), unless the parties mutually agree upon another place or date.
6.2 Seller's Obligations at Closing, At Closing, Seller shall
deliver to Purchaser the following documents:
(a) Deed. Limited Warranty Deed (the "Deed") executed by
Seller conveying the Land to Purchaser in the form attached to this Agreement
as Exhibit C subject to no exceptions other than the Permitted Exceptions.
(b) Evidence of Authority. Copy of Seller's resolutions,
certified by Seller as true and complete, as of the Closing Date, so as to
evidence the authority of the persons signing the Deed and other documents to
be executed by Seller at Closing and the power and authority of Seller to
convey the Property to Purchaser in accordance with this Agreement.
(c) Foreign Person. An affidavit of Seller certifying
that Seller is not a "foreign person" as defined in the federal Foreign
Investment in Real Property Tax Act of 1980.
(d) Georgia Resident. An affidavit of Seller certifying
that Seller is a resident of the State of Georgia.
(e) Owner's Affidavit. An affidavit of Seller
satisfactory to the Title Company stating that no repairs or improvements have
been made to the Property ninety (90) days prior to the Closing Date in the
form attached hereto as Exhibit D.
(f) Bill of Sale and Assignment. A Bill of Sale and Assignment
(the "Bill of Sale") executed by Seller and assigning to Purchaser the Tangible
Personal Property in the form attached hereto as Exhibit E.
(g) Transfer Tax Declaration. Transfer Tax Declarations in
compliance with Georgia law.
6.3 Purchaser's Obligations at Closing. At Closing, Purchaser shall
deliver to Seller the Purchase Price by cashier's check or wire transfer of
immediately available funds.
6.4 Proration. All rents, if any, with respect to the Property
for the month in which the Closing occurs, and real estate taxes and other
assessments with respect to the Property for the year in which the Closing
occurs, shall be prorated to the Closing Date.
(a) If the Closing shall occur before rents, all other
amounts payable by the tenants under Leases and all other income from the
Property have actually been paid for the month in which the Closing occurs, the
apportionment of such rents, other amounts and other income shall be upon the
basis of such rents, other amounts and other income actually received by
Seller. Subsequent to the Closing, if any such rents, other amounts and other
income, are collected by Purchaser, Purchaser shall pay to Seller its
proportionate share thereof for such month.
PURCHASE AND SALE AGREEMENT
PAGE 4
<PAGE> 5
Purchaser shall make a good faith effort and attempt to collect any such rents,
other amounts and other income not apportioned at the Closing for the benefit
of Seller.
(b) If the Closing shall occur before the actual amount
of utilities and other operating expenses with respect to the Property for the
month in which the Closing occurs are determined, the apportionment of such
utilities and other operating expenses shall be upon the basis of an estimate
by Seller of such utilities and other operating expenses for such month.
Subsequent to the Closing, when the actual amount of such utilities and other
operating expenses with respect to the Property for the month in which the
Closing occurs are determined, the parties agree to adjust the proration of
such utilities and other operating expenses and, if necessary, to refund or
repay such sums as shall be necessary to effect such adjustment.
(c) If the Closing shall occur before the tax rate or the
assessed valuation of the Property is fixed for the then current year, the
apportionment of taxes for the year in which the Closing occurs shall be upon
the basis of the tax rate for the preceding year applied to the latest assessed
valuation. If the Property is not assessed as a separate parcel for tax or
assessment purposes, then such taxes and assessments attributable to the
Property shall be determined by Seller in its sole and absolute discretion.
If, as of the Closing, the Property is not being treated as a separate tax
parcel, then within thirty (30) days after the Closing, Purchaser shall, as its
sole cost and expense have the Property assessed separately for tax and
assessment purposes. (*) See page 5 (a) This agreement of Seller and Purchaser
set forth in this Section 6.4 shall survive the Closing.
6.5 Possession. Possession of the Property shall be delivered to
Purchaser at closing, subject to the Permitted Exceptions.
6.6 Closing Costs. Except as otherwise expressly provided herein,
Purchaser shall pay, on the Closing Date, the title insurance premium and
related title search expenses for the Owner's Commitment and Policy, any escrow
fees and other customary charges of the title company, the cost of any audits,
surveys and inspections, and any sales tax or similar tax due in connection
with the transfer of the Tangible Personal Property, and Seller shall pay, on
the Closing Date, all recording costs and any transfer tax due in connection
with the recording of the Deed. Each party shall pay its own attorneys' fees.
7.
RISK OF LOSS
7.1 Casualty. If the Property, or any part thereof suffers any
damage prior to Closing from fire or other casualty, which Seller shall have no
obligation to repair, Purchaser may either (a) terminate this Agreement or (b)
consummate the Closing, in which latter event the proceeds of any insurance
covering such damage, up to the amount of the Purchase price, shall be assigned
to Purchaser at Closing.
7.2 Condemnation. If, prior to Closing, action is initiated or
threatened to take any of the Property by eminent domain proceedings or by deed
in lieu thereof, Purchaser shall have ten (10) days from receipt of written
notice of such event from Seller to advise Seller that it intends to (a)
terminate this Agreement or (b) consummate the Closing, in which latter event
the award of the condemning authority shall be assigned to Purchaser at the
Closing. If Seller does not receive any such notice from Purchaser within such
ten (10) day period, then Purchaser shall be deemed to have elected option (b)
of this section 7.2.
PURCHASE AND SALE AGREEMENT
PAGE 5
<PAGE> 6
Section 6 (d) Purchaser agrees to pay prorata share of personal
property taxes for the year of closing as evidenced by
personal property tax return and property tax bill for 1995
only on the personal property conveyed to Purchaser as shown
on said personal property tax return.
Purchaser & Sale Agreement
Page 5 (a)
<PAGE> 7
8.
DEFAULT
8.1 Breach by Seller. If Seller breaches this Agreement, Purchaser
may terminate this Agreement and thereupon shall be entitled to the immediate
return of the Earnest Money, together with all accrued interest thereon, as its
sole and exclusive remedy and relief thereunder. In no event shall Seller be
liable to Purchaser for any actual, punitive, speculative, consequential or
other damages.
8.2 Breach by Purchaser. If Purchaser breaches this Agreement,
Seller shall be entitled to the Earnest Money together with all interest
accrued thereon, if any, as liquidated damages (and not as a penalty) and as
Seller's sole remedy and relief hereunder. Seller and Purchaser have made this
provision for liquidated damages because it would be difficult to calculate on
the date hereof the amount of actual damages for such breach, and these sums
represent reasonable compensation to Seller for such breach.
9.
FUTURE OPERATIONS
9.1 Future Operations. From the date of this Agreement
until the Closing or earlier termination of this Agreement:
(a) Maintenance, Litigation. Except for condemnation and
casualty which are provided for in Section 7, Seller (i) will keep and maintain
the Property in its condition as of the date of this Agreement (reasonable wear
and tear excepted), and (ii) will use its beat effort promptly to advise
Purchaser of any litigation, arbitration, or administrative hearing concerning
the Property arising or threatened after the date of this Agreement.
(b) Contracts. Seller will not, without the prior written
consent of Purchaser, modify, enter into, or renew any contract which cannot be
canceled upon thirty (30) days' prior written notice.
PURCHASE AND SALE AGREEMENT
PAGE 6
<PAGE> 8
9.2 Seller's Property. Purchaser acknowledges that Seller is currently
operating a branch banking facility on the Property. Seller shall be entitled,
at Seller's option, to remove from the Property prior to the closing, all
supplies, records, documents, cash, coin, furniture and furnishings (other than
the furniture and furnishings located on the first floor), decorations,
equipment(other than the equipment which has been removed by Seller prior to
Seller's execution of this Agreement and equipment that is leased by Seller),
trade fixtures (including, without limitation, all security systems, but not
the wiring for such systems, alarms, cameras, nameplates of any pylon signs,
nameplates of any monument signs, nameplates of any drive-through signage, and
safe deposit boxes), computers and computer-related equipment,
telecommunication equipment, and other miscellaneous items of personal property
relating to the operation of Seller's business, and such items removed by
Seller shall be excluded from the Tangible Personal Property to be conveyed
hereunder and shall remain the property of Seller. The following items shall
be left by Seller at the Property (if the same are currently located thereon)
and included in the Tangible Personal Property to be conveyed to Purchaser:
ATM, vault door, night depository, undercounter equipment, drive-in equipment
and directional signage.
/s/
---------------------
6-20-96
Page 6(a)
<PAGE> 9
10.
CONFIDENTIALITY
10.1 Non-Disclosure. From and after the Effective Date of
this Agreement or unless with the prior written consent of the other party,
neither Purchaser nor Seller shall prior to the Closing (i) make or permit to be
made any announcements or press releases concerning the existence of this
Agreement, the terms of the purchase of the Property or any other information
concerning this Agreement or the transaction contemplated herein or (ii)
disclose or permit to be disclosed, directly or indirectly, to any person or
entity any information in respect of the Property which is obtained pursuant to
this Agreement or through Property or records concerning the Property. (* -
continued on page 7 (a))
10.2 Limited Disclosure to Advisors. Each party shall have the
right to disclose information in respect of the Property to its attorneys,
accountants, prospective lenders and their Counsel so long as they agree to be
bound by the terms of this Section 10.
MISCELIANEOUS
11.1 Notice. Whenever this Agreement requires or permits any
consent, approval, notice, request, or demand from one party to the other
(collectively "Notice"), such Notice must be in writing to be effective and
shall be effective on the date of actual receipt of such Notice by the
addressee or when the attempted initial delivery is refused or when it cannot
be made because of a change of address of which the sending party has not been
notified. The following shall, without limitation, be prima facia evidence of
actual receipt of Notice by the addressee: (a) if mailed, by a United States
certified mail return receipt, signed by the addressee or the addressee's
agent; (b) if by telegram, by a telegram receipt signed by the addressee or the
addressee's agent; or (c) if handdelivered, by a delivery receipt, signed by
the addressee or the addressee's agent. The parties' respective addresses for
delivery of any Notice are set forth below unless another address within the
state of Georgia is designated in writing by any party to the other.
If to Seller:
NationsBank, N.A. (South)
715 Peachtree Street (30308)
P.O. Box 105249
Atlanta, Georgia 30348-5249
Attention: George Snow
GA2-002-10-02
With a copy to:
Gary R. Preston, Esq.
NationsBank, N.A. (South)
400 North Ashley Drive
15th Floor
Tampa, Florida 33602
FL1-010-15-02
PURCHASE AND SALE AGREEMENT
PAGE 7
<PAGE> 10
Continuation
Section 10.1 However, the parties acknowledge that Purchaser shall be
permitted to disclose its purchase of the Property as
necessary to fulfill the application for authorization from
the Comptroller of Currency to operate Purchaser's business
at the Property.
Purchase & Sale Agreement
Page 7(a)
<PAGE> 11
If to Purchaser:
The Summit National Bank c.c. Aaron Alembik
4360 Chamblee-Dunwoody Road Alembik & Alembik
Atlanta, Georgia 30341 3033 Maple Drive
Atlanta, GA 30305-2679
If to Escrow Agent:
Dodson, Feldman & Dorough, L.L.P.
6000 Lake Forest Drive, N.W.
Suite 300
Atlanta, Georgia 30328
Attention: William H. Dodson, 11, Esquire
11.2 Real Estate Commissions. Neither Seller nor Purchaser has
contacted any real estate broker, finder or similar person in connection with
the transaction contemplated hereby, except Lincoln Property Company Commercial
Service Enterprises, Inc. and Baker Dennard Co. (the "Brokers"). Seller shall
pay to the Brokers at the Closing a brokerage fee in the aggregate amount of
six (6.O%) percent of the Purchase Price; provided, however, that Brokers' right
to such brokerage fee shall vest only at Closing, and no commission shall be
due if the Closing does not occur for any reason. The aforesaid commission
shall be divided between the Brokers as follows: three percent (3.0%) to
Lincoln Property Company Commercial Service Enterprises, Inc. and three percent
(3.0%) to Baker Dennard Co. To the actual knowledge of Seller and Purchaser, no
other Acquisition Fees (as hereafter defined) have been paid or are due and
owing to any other person or entity other than to the Brokers. Neither of the
Brokers shall be entitled to any portion of the Earnest Money in the event the
same or any part thereof is forfeited to Seller. As used herein, "Acquisition
Fees" shall mean all fees paid to any person or entity in connection with the
selection and purchase of the Property, including real estate commissions,
selection fees, and non-recurring management and start-up fees, development
fees or any other fee of similar nature. Seller and Purchaser each hereby
agree to indemnify and hold harmless the other from and against any and all
claims for Acquisition Fees or similar charges with respect to this transaction
arising by, through or under the indemnifying party and each further agrees to
indemnify and hold harmless the other from any loss or damage resulting from
an inaccuracy in the representations contained in this Section 11.2. This
indemnification agreement of the parties shall survive the Closing.
11.3 Entire Agreement. This Agreement embodies the entire
agreement between the parties relative to the subject matter hereof, and there
are no oral or written agreements between the parties nor any representations
made by either party relative to the subject matter hereof which are not
expressly set forth herein.
11.4 Amendment. This Agreement may be amended only by a written
instrument executed by the party or parties to be bound thereby.
11.5 Headings. The captions and headings used in this Agreement are
for convenience only and do not in any way limit, amplify, or otherwise modify
the provisions of this Agreement.
11.6 Time of Essence. Time is of the essence of this Agreement.
However, if the final date of any period which is not set out in any provision
of this Agreement falls on a Saturday, Sunday or legal holiday under the law of
the United States or the State of Georgia, then in such event, the time of such
period shall be extended to the next day which is not a Saturday, Sunday or
legal holiday.
PURCHASE AND SALE AGREEMENT
PAGE 8
<PAGE> 12
11.7 Governing Law. This Agreement shall be governed by the laws of
the State of Georgia and the applicable federal laws of the United States.
11.8 Successors and Assigns. This Agreement shall bind and inure to
the benefit of Seller and Purchaser and their respective heirs, executors,
administrators, personal and legal representatives, successors and assigns.
Purchaser shall not assign Purchaser's rights under this Agreement without the
prior written consent of Seller.
11.9 Invalid Provision. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under present or future laws, such
provision shall be fully severable; this Agreement shall be construed and
enforced as if such illegal, invalid or unenforceable provisions had never
comprised a part of this Agreement, and the remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid, or unenforceable provision or by its severance from this
Agreement.
11.10 Attorneys' Fees. In the event it becomes necessary for either
party hereto to file suit to enforce this Agreement or any provision contained
herein, the party prevailing in such suit shall be entitled to recover, in
addition to all other remedies or damages as herein provided, reasonable
attorneys' fees incurred in such suit.
11.11 Multiple Counterparts. This Agreement may be executed in a
number of identical counterparts, each of which for all purposes is deemed an
original, and all of which constitute collectively one (1) agreement.
11.12 Date of This Agreement. This Agreement shall be null and void
unless Purchaser, no later than May 10, 1996, delivers five (5) executed copies
of this Agreement to Seller at the address shown in Section 11.1. I hereof. As
used in this Agreement, the terms "date of this Agreement" or "date hereof"
shall mean and refer to the date of execution of this Agreement by Seller.
PURCHASE AND SALE AGREEMENT
PAGE 9
<PAGE> 13
11.13 Exhibit. The following exhibits are attached to this
Agreement and are incorporated into this Agreement and made a part hereof:
(a) Exhibit A, the land;
(b) Exhibit B, the Escrow Agreement;
(c) Exhibit C, the Limited Warranty Deed;
(d) Exhibit D, the Affidavit of Ownership; and
(e) Exhibit E, the Bill of Sale.
SELLER:
DATE OF EXECUTION BY SELLER: NationsBank, N.A. (South), a national
banking association
6-19-96 By: /s/ George M. Snow
------- ---------------------------
Name: George M. Snow
-------------------------
Title: Vice President
------------------------
PURCHASER:
DATE OF EXECUTION BY PURCHASER: THE SUMMIT NATIONAL BANK
5-3-96 BY: /s/ Gary McClung
------ ---------------------------
Name: Gary McClung
-------------------------
Title: Executive Vice President
------------------------
PURCHASE AND SALE AGREEMENT
PAGE 10
<PAGE> 14
ACKNOWLEDGMENT AND AGREEMENT BY THE AGENT
The undersigned joins in execution of this Agreement for the purpose of
representing and warranting to Purchaser and Seller that the undersigned (i) is
a duly licensed real estate broker under the real estate licensing
act(s) of the State of Georgia and any applicable regulations, (ii) is duly
authorized to earn and receive a commission in connection with the transaction
evidenced by this Agreement, and (iii) acknowledges and agrees to the terms and
provisions of Section 11.2 hereof, including, without limitation, the
entitlement to commission only accruing upon a final closing of the
transaction. The undersigned shall indemnify and hold Purchaser and Seller
harmless from any loss, liability, damage, cost or expense (including
attorneys' fees) resulting by reason of a breach of the representations and
warranties made herein.
BROKER:
LINCOLN PROPERTY COMPANY
COMMERCIAL SERVICE ENTERPRISES,
INC.
By: /s/ Ronald K. Steen
-------------------------------------
Name: Ronald K. Steen
-----------------------------------
Title: Broker
----------------------------------
Date: 6-20-96
-----------------------------------
PURCHASE AND SALE AGREEMENT
PAGE 11
<PAGE> 15
ACKNOWLEDGMENT AND AGREEMENT BY THE AGENT
The undersigned joins in execution of this Agreement for the purpose of
representing and warranting to Purchaser and Seller that the undersigned (i) is
a duly licensed real estate broker under the real estate licensing act(s) of
the State of Georgia and any applicable regulations, (ii) is duly authorized to
earn and receive a commission in connection with the transaction evidenced by
this Agreement, and (iii) acknowledges and agrees to the terms and provisions
of Section 11.2 hereof, including, without limitation, the entitlement to
commission only accruing upon a final closing of the transaction. The
undersigned shall indemnify and hold Purchaser and Seller harmless from any
loss, liability, damage, cost or expense (including attorneys' fees) resulting
by reason of a breach of the representations and warranties made herein.
BROKER:
BAKER DENNARD CO.
By: /s/ John K. Baker
-------------------------------------
Name: John K. Baker
-----------------------------------
Title: Secretary
----------------------------------
Date: 5/3/96
-----------------------------------
PURCHASE AND SALE AGREEMENT
PAGE 12
<PAGE> 16
FIRST AMENDMENT TO PURCHASE AND
SALES AGREEMENT
THIS FIRST AMENDMENT TO PURCHASE AND SALES AGREEMENT ("Agreement") is
made between NationsBank, N.A. (South), a national banking association
("Seller"), and the Summit National Bank ("Purchaser"), and Dodson, Feldman &
Dorough, L.L.P. ("Escrow Agent") and the Real Estate Brokers herein named.
In consideration of the mutual covenants and representations herein
contained, Seller and Purchaser agree to amend the Purchase and Sales Agreement
as follows:
1.
PURCHASE AND SALE
1. Notwithstanding anything to the contrary set forth in Paragraph
6.1 of the Purchase and Sales Agreement now existing between the parties, the
closing shall take place on or before August 20, 1996.
2. It is agreed between the parties hereto that all of the other
terms and conditions of the aforementioned Purchase and Sales Agreement shall
remain in full force and effect except as modified herein.
3. Upon execution by all parties, this First Amendment shall be
attached to and form a part of said Purchase and Sales Agreement.
IN WITNESS WHEREOF, the parties have hereto set their hands and seals
through their duly authorized officers.
DATE OF EXECUTION BY SELLER: SELLER:
NationsBank, N.A. (South), a national
banking association
7-2-96
- ---------------------------
By: /s/ George M. Show
--------------------------------
Name: George M. Show
--------------------------------
Title: V.P.
--------------------------------
DATE OF EXECUTION BY PURCHASER:
PURCHASER: THE SUMMIT NATIONAL BANK
- --------------------------- By:
-----------------------------------
Name: Gary McClung
Title: Executive Vice President
<PAGE> 17
FIRST AMENDMENT TO PURCHASE AND
SALES AGREEMENT
THIS FIRST AMENDMENT TO PURCHASE AND SALES AGREEMENT ("Agreement") is
made between NationsBank, N.A. (South), a national banking association
("Seller"), and the Summit National Bank ("Purchaser"), and Dodson, Feldman &
Dorough, L.L.P. ("Escrow Agent") and the Real Estate Brokers herein named.
In consideration of the mutual covenants and representations herein
contained, Seller and Purchaser agree to amend the Purchase and Sales Agreement
as follows:
1.
PURCHASE AND SALE
1. Notwithstanding anything to the contrary set forth in
Paragraph 6.1 of the Purchase and Sales Agreement now existing between the
parties, the closing shall take place on or before August 20, 1996.
2. It is agreed between the parties hereto that all of the other
terms and conditions of the aforementioned Purchase and Sales Agreement shall
remain in full force and effect except as modified herein.
3 Upon execution by all parties, this First Amendment shall be
attached to and form a part of said Purchase and Sales Agreement.
IN WITNESS WHEREOF, the parties have hereto set their hands and seals
through their duly authorized officers.
DATE OF EXECUTION BY SELLER: SELLER:
NationsBank, N.A. (South), a national
- ---------------------------- banking association
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
DATE OF EXECUTION BY PURCHASER:
PURCHASER: THE SUMMIT NATIONAL BANK
By: /s/ Gary McClung
-------------------------------------
July 3, 1996 Name: Gary McClung
- ------------ -----------------------------------
Title: Executive Vice President
----------------------------------
<PAGE> 18
ESCROW AGENT:
DODSON, FELDMAN &
DOROUGH, L.L.P.
By:
---------------------------
Name: William H. Dodson, II
Title: Partner
Date:
-------------------------
BROKER:
BAKER DENNARD CO.
By:
---------------------------
Name:
-------------------------
Title:
------------------------
Date:
-------------------------
BROKER:
LINCOLN PROPERTY COMPANY
COMMERCIAL SERVICE
ENTERPRISES, INC.
By: /s/ Ronald K. Steen
---------------------------
Name: Ronald K. Steen
------------------------
Title: Broker
------------------------
Date: 7-2-96
------------------------
<PAGE> 19
ESCROW AGENT:
DODSON, FELDMAN &
DOROUGH, L.L.P.
By:
------------------------------
Name: William H. Dodson, II
Title: Partner
Date:
----------------------------
BROKER:
BAKER DENNARD CO.
By: /s/ John K. Baker
------------------------------
Name: John K. Baker
----------------------------
Title: Secretary
---------------------------
Date: 7/3/96
----------------------------
BROKER:
LINCOLN PROPERTY COMPANY
COMMERCIAL SERVICE
ENTERPRISES, INC.
By:
-----------------------------
Name:
----------------------------
Title:
---------------------------
Date:
----------------------------
<PAGE> 20
SECOND AMENDMENT TO PURCHASE AND
SALES AGREEMENT
THIS SECOND AMENDMENT TO PURCHASE AND SALES AGREEMENT ("Agreement") is
made between NationsBank, N.A. (South), a national banking association
("Seller"), and the Summit National Bank ("Purchaser"), and Dodson, Feldman &
Dorough, L.L.P. ("Escrow Agent") and the Real Estate Brokers herein named.
In consideration of the mutual covenants and representations herein
contained, Seller and Purchaser agree to amend the Purchase and Sales Agreement
as follows:
1. Notwithstanding anything to the contrary set forth in Paragraph
2 "Purchase Price" of the Purchase and Sales Agreement now existing between the
parties, the purchase price of the property shall be Seven Hundred Forty
Thousand Dollars ($740,000.00) and shall be paid in cash by Purchaser to Seller
at closing (as defined in Section 6.1).
2. It is agreed between the parties hereto that all of the other
terms and conditions of the aforementioned Purchase and Sales Agreement as
originally modified by the First Amendment to said Purchase and Sales
Agreement, shall remain if full force and effect except as modified herein.
3. Upon execution by all parties, this Second Amendment shall be
attached to and form a part of said Purchase and Sales Agreement.
IN WITNESS WHEREOF, the parties have hereto set their hands and seals
through their duly authorized officers.
DATE OF EXECUTION BY SELLER: SELLER:
NationsBank, N.A. (South), a national
banking association
8/9/96
- ---------------------------
By: /s/ George M. Show
----------------------------------
Name: George M. Show
--------------------------------
Title: V.P.
-------------------------------
DATE OF EXECUTION BY PURCHASER:
PURCHASER: THE SUMMIT NATIONAL BANK
8/9/96 By: /s/ Gary McClung
- --------------------------- ---------------------------------
Name: Gary McClung
Title: Executive Vice President
-1-
<PAGE> 21
ESCROW AGENT:
DODSON, FELDMAN &
DOROUGH, L.L.P.
By: /s/ William H. Dodson, II
--------------------------------
Name: William H. Dodson, II
Title: Partner
Date: 8/9/96
------------------------------
BROKER:
BAKER DENNARD CO.
By: /s/ John K. Baker
--------------------------------
Name: John K. Baker
------------------------------
Title: Secretary
-----------------------------
Date: 8/9/96
-----------------------------
BROKER:
LINCOLN PROPERTY COMPANY
COMMERCIAL SERVICE
ENTERPRISES, INC.
By: /s/ George W. Lancaster
--------------------------------
Name: George W. Lancaster
------------------------------
Title: Broker
-----------------------------
Date: 8/9/96
-----------------------------
-2-
<PAGE> 1
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION
OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995
----------- -----------
<S> <C> <C>
Net income per share:
Weighted-average shares outstanding 1,407,688 1,407,688
=========== ===========
Net income per share $ 1.57 $ 1.49
=========== ===========
Primary earnings per share:
Weighted-average shares outstanding 1,407,688 1,407,688
Dilutive warrants 463,235 463,235
Dilutive stock options 41,225 41,225
Repurchased under treasury stock method(1) (281,538) (281,538)
----------- -----------
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 21.1
SUBSIDIARIES OF SUMMIT BANK CORPORATION
A) THE SUMMIT NATIONAL BANK
B) SUMMIT MERCHANT BANKING CORPORATION
<TABLE> <S> <C>
<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>
<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
0
0
<COMMON> 14
<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>
