<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number 000-21267
SUMMIT BANK CORPORATION
(Exact name of Registrant as specified in its charter)
GEORGIA 58-1722476
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4360 Chamblee-Dunwoody Road
Atlanta, Georgia 30341
(Address of principal executive offices, including Zip Code)
(770) 454-0400
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of capital stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at November 2, 1999
----- -------------------------------
<S> <C>
Common Stock. $.0l par value 1,655,363
</TABLE>
The Exhibit Index Appears on Page 13
Page 1 of 14
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUMMIT BANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands except share amounts) 1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and due from banks $ 11,432 $ 10,559
Federal funds sold 660 10,725
Interest-bearing deposits in other banks 155 156
Investment securities available for sale 67,168 94,787
Other investments 1,146 1,314
Loans, net of unearned income 158,994 127,824
Loans held for sale 5,115 5,672
Less: allowance for loan losses (2,464) (2,336)
- ------------------------------------------------------------------------------------------------------
Net loans 161,645 131,160
- ------------------------------------------------------------------------------------------------------
Premises and equipment, net 4,445 4,633
Customers' acceptance liability 1,264 2,319
Goodwill 1,601 1,651
Other assets 5,973 5,857
- ------------------------------------------------------------------------------------------------------
Total assets $ 255,489 $ 263,161
======================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non-interest-bearing demand $ 50,020 $ 48,246
Interest-bearing:
Demand 43,723 42,350
Savings 9,356 8,438
Time, $100,000 and over 40,637 41,240
Other time 66,895 78,373
- ------------------------------------------------------------------------------------------------------
Total deposits 210,631 218,647
- ------------------------------------------------------------------------------------------------------
Federal Home Loan Bank advance 10,000 10,000
Other borrowed funds 9,094 5,987
Acceptances outstanding 1,264 2,319
Other liabilities 1,800 1,703
- ------------------------------------------------------------------------------------------------------
Total liabilities 232,789 238,656
- ------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock 18 18
Additional paid-in capital 16,178 16,178
Treasury stock, at cost; 106,704 and 24,375 shares in 1999
and 1998, respectively (2,486) (447)
Retained earnings 10,058 8,731
Accumulated other comprehensive (loss)/income (1,068) 25
- ------------------------------------------------------------------------------------------------------
Total stockholders' equity 22,700 24,505
- ------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 255,489 $ 263,161
======================================================================================================
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
Page 2 of 14
<PAGE> 3
SUMMIT BANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
(Dollars in thousands, except share and per share amounts) 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income
Loans, including fees $ 3,929 $ 3,299 $ 10,714 $ 8,566
Interest-bearing deposits in other banks 3 5 8 11
Federal funds sold 39 223 243 390
Investment securities 269 516 1,117 1,326
Mortgage-backed securities 771 852 2,288 2,090
- -------------------------------------------------------------------------------------------------------------------------------
Total interest income 5,011 4,895 14,370 12,383
- -------------------------------------------------------------------------------------------------------------------------------
Interest expense
Time deposits, $100,000 and over 522 532 1,526 1,290
Other deposits 1,110 1,421 3,510 3,404
Federal Home Loan Bank advance 133 126 380 376
Short-term borrowings and obligation
under capital lease 88 65 203 143
- -------------------------------------------------------------------------------------------------------------------------------
Total interest expense 1,853 2,144 5,619 5,213
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income 3,158 2,751 8,751 7,170
Provision for loan losses 200 90 624 445
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 2,958 2,661 8,127 6,725
- -------------------------------------------------------------------------------------------------------------------------------
Non-interest income
Fees for international banking services 334 306 951 882
SBA loan servicing fees 63 65 199 202
Service charge income 126 99 359 246
Non-sufficient funds charges 162 134 445 424
Gains on sales of loans -- 95 79 468
Net gains (losses) on sales of investment securities (122) 29 (127) 77
Other 113 107 400 328
- -------------------------------------------------------------------------------------------------------------------------------
Total non-interest income 676 835 2,306 2,627
- -------------------------------------------------------------------------------------------------------------------------------
Non-interest expenses
Salaries and employee benefits 1,241 1,135 3,648 3,104
Equipment 196 201 546 543
Net occupancy 203 196 583 474
Other operating expenses 902 854 2,688 2,194
- -------------------------------------------------------------------------------------------------------------------------------
Total non-interest expenses 2,542 2,386 7,465 6,315
- -------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,092 1,110 2,968 3,037
- -------------------------------------------------------------------------------------------------------------------------------
Income tax expense 387 380 1,048 1,063
- -------------------------------------------------------------------------------------------------------------------------------
Net income $ 705 $ 730 $ 1,920 $ 1,974
- -------------------------------------------------------------------------------------------------------------------------------
Basic net income per common share $ .42 $ .40 $ 1.11 $ 1.12
Diluted net income per common share and
common share equivalents $ .42 $ .40 $ 1.11 $ 1.09
- -------------------------------------------------------------------------------------------------------------------------------
Weighted-average shares outstanding - basic 1,701,045 1,815,363 1,732,844 1,762,139
Weighted-average shares outstanding - diluted 1,701,045 1,817,620 1,732,844 1,805,920
- -------------------------------------------------------------------------------------------------------------------------------
Dividends declared per common share $ .12 $ .10 $ .35 $ .29
===============================================================================================================================
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
Page 3 of 14
<PAGE> 4
SUMMIT BANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months
ended September 30,
-------------------------------
(In thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,920 $ 1,974
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment 384 333
Net amortization of premiums/discounts on investment securities 511 180
Amortization of negative goodwill -- (82)
Amortization of goodwill 64 22
Provision for loan losses 624 445
Proceeds from sales of loans 1,419 6,251
Gains on sales of loans (79) (468)
Losses on sales of other real estate owned 21 --
Net losses (gains) on sales of investment securities 127 (77)
Changes in other assets and liabilities:
Net decrease (increase) in loans held for sale 557 (169)
Decrease in other assets 1,339 1,210
Increase in other liabilities 132 621
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 7,019 10,240
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from maturities of investment securities 27,297 22,210
Principal collections on investment securities 15,345 8,810
Proceeds from sales of investment securities 15,017 9,875
Purchases of investment securities available for sale (32,268) (56,641)
Loans made to customers, net of principal collected on loans (33,831) (15,601)
Purchases of premises and equipment (196) (332)
Purchase of California Security Bank, net of cash and cash equivalents acquired
- -------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (8,636) (32,197)
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in demand and savings deposits 4,065 7,199
Net increase in time deposits (12,081) 23,907
Principal payments for obligation under capital lease (35) (31)
Purchase of treasury shares (2,039) --
Dividends paid (593) (515)
Issuance of common stock upon exercise of warrants and options -- 3,248
Net increase in borrowed funds 3,107 1,666
- -------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (7,576) 35,474
- -------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (9,193) 13,517
Cash and cash equivalents at beginning of period 21,440 9,360
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $12,247 $22,877
=========================================================================================================================
Supplemental disclosures of cash paid during the period:
Interest $ 5,836 $ 4,869
Income taxes $ 977 $ 1,226
=========================================================================================================================
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
Page 4 of 14
<PAGE> 5
SUMMIT BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
Summit Bank Corporation and its wholly owned subsidiaries (the "Company")
prepared the consolidated financial statements included herein, without
audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. The Company omitted certain information and footnote
disclosures normally included in consolidated financial statements
prepared in accordance with generally accepted accounting principles,
although the Company believes that its disclosures are adequate to make
the information presented not misleading. In the opinion of management,
the information in the condensed consolidated financial statements
reflects all adjustments necessary to present fairly the Company's
financial position, results of operations and cash flows for such interim
periods. Management believes that all interim period adjustments are of a
normal, recurring nature. You should read these consolidated financial
statements in conjunction with the Company's audited financial statements
and the notes thereto as of December 31, 1998, included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998.
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, The Summit National Bank (the "Bank")
and The Summit Merchant Banking Corporation (inactive). All intercompany
accounts and transactions have been eliminated in consolidation.
The Company operates through one segment, providing a full range of
banking services to individual and corporate customers through its
subsidiary Bank.
2. ACCOUNTING POLICIES
We refer to the Company's accounting policies described in the notes to
consolidated financial statements contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
3. COMPREHENSIVE INCOME
Total comprehensive income for the three months ended September 30, 1999
was $641,000 compared to total comprehensive income for the three months
ended September 30, 1998 of $906,000. Total comprehensive income for the
nine months ended September 30, 1999 was $827,000 compared to total
comprehensive income for the nine months ended September 30, 1998 of
$2,044,000. Currently, "other comprehensive income" for the Company
consists solely of unrealized gains or losses on investment securities
available for sale.
4. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133). SFAS 133 is
effective for financial statements for all fiscal quarters of fiscal
years beginning after June 15, 1999. In June 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the effective date of FASB Statement No. 133." SFAS 133, as
amended, is now effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The Company does not believe the
provisions of SFAS 133 will have a significant impact on the financial
statements upon adoption.
Page 5 of 14
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This quarterly report contains forward-looking statements and information
relating to the Company. The words "believes," "expects," "may," "will,"
"should," "projects," "contemplates," "anticipates," "forecasts," "intends" or
similar terminology identify forward-looking statements. These statements are
based on the beliefs of management as well as on assumptions made using
information currently available to management. Because these statements reflect
the current views of management concerning future events, they involve risks,
uncertainties and assumptions. Actual results may differ significantly from the
results discussed in the forward-looking statements. We undertake no obligation
to update publicly any forward-looking statement for any reason, even if new
information becomes available.
Performance Overview
The Company reported net income of $705,000 for the third quarter of 1999
compared to earnings for the same period last year of $730,000. Net earnings
per share for third quarter 1999 and 1998 were $.42 and $.40 (basic and
diluted), respectively. Current year to date net income through September 30,
1999 was $1,920,000, a small decline from 1998 year to date earnings for the
same period of $1,974,000. Earnings per share, both basic and diluted, for the
nine-month period of 1999 were $1.11. Earnings per share, basic and diluted,
for the same period in 1998 were $1.12 and $1.09, respectively. Total earnings
were lower for third quarter 1999 compared to third quarter 1998 as a result of
the difference in the amount of gains and losses recognized on sales of assets
during these time periods. In third quarter 1998, the Bank recognized gains of
$95,000 on sales of SBA loans and $29,000 on sales of investment securities.
The Bank elected not to sell SBA loans in third quarter 1999 due to current
market conditions and additionally recognized a loss of $122,000 on sales of
investment securities. Proceeds from the investment securities sales were used
to fund loan growth and reduce the Bank's overall interest rate risk on its
investment securities portfolio. Eliminating these assets sales from both third
quarters in 1999 and 1998, net income would have increased by $45,000 to
$750,000 compared to $686,000 in 1998, reflecting increased core earnings of
the Company.
The annualized return on average stockholders' equity for the 1999 nine-month
period was 10.8% versus 11.2% for the 1998 nine-month period, while the returns
on average assets for the comparable periods were 1.00% and 1.22%,
respectively. The decline in the return on average assets for 1999 was
primarily due to growth in average assets which was faster than the relative
income earlier in the year. With the strong increase in loan volume this year,
the return on average assets has shown much improvement during the most recent
quarter. Book value per share was $13.61 at September 30, 1999 compared to
$13.68 at December 31, 1998 and $13.53 at September 30, 1998. The decline in
book value per share this year was due mainly to the purchase of approximately
148,000 shares of treasury stock since December 31, 1998, which has reduced
shareholder equity by $2.5 million as well as a decrease in other comprehensive
income $1.0 million. In third quarter 1999, the Company paid a dividend of $.12
per share to its shareholders. In November 1999, the Board announced an
increase in the quarterly dividend to $.18 per share.
Total assets for the Company at September 30, 1999 were $255 million,
reflecting no change from total assets at September 30, 1998 and a decline of
3%, or $7.7 million, from total assets at December 31, 1998. The decline was
primarily due to the maturities of premium rate time deposits from a 1998
Certificate of Deposit ("CD") promotion. Although total assets were flat for
the trailing twelve months, there was a significant change in the mix of
earning assets. Total loans were $164 million at September 30, 1999 compared to
$126 million at September 30, 1998, an increase of 30%. Offsetting much of this
growth was a reduction in the investment portfolio to $68 million at September
30, 1999 from $93 million a year earlier, as a result of both sales and
maturities of investment securities during 1999. The growth in the loan volume
consisted primarily of commercial loan growth while $7 million, or 18%, of the
past year's increase was SBA loans. Management did not sell SBA loans in the
secondary market for most of 1999, resulting in the SBA loan increase. A
weakening in the secondary market has significantly reduced potential gains on
sales, thus management opted to retain these loans to build a stronger net
interest margin for future periods. Since December 31, 1998, total loans have
increased 23% from $133 million. Total investment securities at December 31,
1998 were $96 million, resulting in a decline for the nine-month period of 29%.
Total deposits decreased $14 million, or 7%, during the last twelve months and
$8.0 million since the year-end, mainly due to a maturing CD promotion that
occurred in 1998. The declining CD balances were partially offset by increases
in non-interest bearing demand deposits, which has favorably affected the
Company's
Page 6 of 14
<PAGE> 7
interest margin. As of September 30, 1999, non-interest bearing deposits
accounted for 24% of total deposits compared to 22% at December 31, 1998 and
21% at September 30, 1998.
In fourth quarter 1998, the Company announced a stock repurchase plan. The
Company completed that plan in May 1999 and subsequently announced a second
share repurchase plan in second quarter 1999 for a combined repurchase total of
up to 160,000 shares, or approximately 9%, of its outstanding common stock. At
September 30, 1999, the Company had repurchased a total of 147,978 shares under
both plans. The Company fulfilled this second plan on October 1, 1999 with the
purchase of the final 12,022 shares. Total stockholders' equity reflects the
147, 978 shares purchased prior to September 30, 1999 as treasury stock. The
cost of these repurchases totaled $2.5 million at September 30, 1999, up from
$400,000 at December 31, 1998.
Net interest income increased 2% to $5 million during third quarter 1999
compared to the same period in 1998, primarily due to the growth in loan
volume. Comparing the nine-month periods of 1999 and 1998, net interest income
increased 22% to $8.8 million. Much of this increase was due to the San Jose
branch acquisition on June 30, 1998. The Company's net interest margin through
September 30, 1999 was 5.01%, equal to the comparable period in 1998. While
interest rates in the market have generally trended upward for the past year on
loans and deposits, the Company has maintained a consistent spread between its
yield on earning assets and its cost of funds. The interest margin for third
quarter 1999 showed continued improvement to 5.43% as a result of the
combination of strong loan and non-interest bearing deposit growth coupled with
the reduction in higher cost CD's.
The provision for loan losses increased to $200,000 from $90,000 for the
respective third quarters of 1999 and 1998 due to strong loan growth in the
third quarter of 1999. Gross charged off loans for the quarter ended September
30, 1999 were $174,000 while recoveries for the same period were $68,000,
which, combined with first and second quarter activity resulted in an
annualized net charge-off rate of .45% of total loans for the current year. The
annualized net recovery rate for the year to date 1998 was .20%. Recoveries
recorded in 1998 included guaranteed portions of SBA loans charged-off in prior
years. Net loan charge-offs were .35% of total loans for the year ended
December 31, 1998. See further discussion of asset quality below.
Non-interest income declined in third quarter 1999 compared to third quarter
1998 as a result of losses totaling $122,000 that were recognized this quarter
on sales of investment securities. Additionally, the Bank did not sell SBA
loans in the third quarter this year while it recognized $95,000 in gains on
sales of SBA loans in third quarter last year. Excluding all loan and
investment securities gains and losses, non-interest income increased 13% in
the first nine months of 1999 as compared to the same period last year. As the
volume of demand deposit accounts has grown over the past year, the fees
related to these products have proportionately increased. Total service charge
income and non-sufficient funds charges increased to $162,000 for third quarter
1999 from $134,000 for the same period in 1998. International fees, another
revenue source for the Bank, increased $28,000 over last year's third quarter
results. International fee income was higher due to growth in the Bank's trade
finance transaction volume. Year to date non-interest income was $2.3 million,
a 12% decline from September 30, 1998 non-interest income, primarily due to the
assets sales, or lack thereof, comparing the two nine-month periods.
Non-interest expenses were $2.5 million for the third quarter 1999, an increase
of $156,000 over third quarter 1998. The majority of the increase, $106,000,
was due to normal growth in salaries and benefits. Other operating expenses
increased $48,000 to $902,000 for third quarter 1999 compared to the same
quarter last year. This increase was due to increased data/item processing
costs and legal fees. The legal fees were a result of the settlement efforts
related to several non-performing loans earlier in the year. For the year to
date through September 30, 1999, non-interest expenses were $7.5 million, which
was $1.2 million, or 18%, over the same period last year. Much of this increase
was due to the addition of the San Jose branch on June 30, 1998 and the related
costs of operations for an additional six months in 1999.
The Company's efficiency ratio, defined as non-interest expenses divided by net
interest income plus non-interest income, for the nine-month period of 1999 was
67.5%, higher than the ratio for the same period last year of 64.5%, primarily
due to the increase in non-interest expenses.
Page 7 of 14
<PAGE> 8
Asset Quality
Non-performing assets decreased to $1,739,000 at September 30, 1999 compared to
$3,610,000 at year-end 1998, a reduction of 52%. Non-performing assets
represented 1.06% of total loans as of September 30, 1999 compared to 2.70% at
December 31, 1998. Non-performing loans at September 30, 1999 primarily include
one fully guaranteed SBA credit, totaling $391,000, three partially guaranteed
SBA credits, totaling $480,000 of which $474,000 is fully guaranteed, and a
real estate credit totaling $686,000 which the Bank believes is well secured
and which was restructured in September 1999. Also included in non-performing
loans at September 30, 1999 was a $182,000 credit collateralized with business
assets for which a reserve of 50% was allocated. One SBA credit included in
non-performing assets at September 30, 1999 was reclassified in January 1998 as
a restructured loan because of interest rate, term, and collateral
modifications. Management believes the restructuring of the loan has enhanced
its collectibility, even though the loan will remain a non-performing asset.
Additionally, the loan is fully guaranteed by the SBA. Although there were no
commercial loans past due 90 days or more as to principal or interest and still
accruing at September 30, 1999, there was one consumer loan past due more than
90 days as to principal and interest payments and still accruing at September
30, 1999. This loan totaled $7,555 and was collateralized by an automobile.
Management elected not to classify this loan as non-accrual on September 30,
1999 because settlement was imminent due to collection efforts, and the loan
was subsequently paid off in full upon liquidation of the collateral. There
were no loans past due 90 days or more as to principal or interest payments and
still accruing at September 30, 1998.
NON-PERFORMING ASSETS
- ---------------------
<TABLE>
<CAPTION>
September 30, December 31,
(Dollars in thousands) 1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Loans on non-accrual
SBA guaranteed $ 489 $ 1,495
Non-SBA guaranteed 874 1,724
Other real estate -- --
Restructured loans
SBA guaranteed 376 391
- ---------------------------------------------------------------------------------------
Total non-performing assets $ 1,739 $ 3,610
=======================================================================================
Loans 90 days past due and still accruing interest $ 8 $ --
Total non-performing assets as a
percentage of total loans and ORE 1.06% 2.70%
Loans 90 days past due and still accruing
interest as a percentage of total loans --% --%
</TABLE>
The allowance for loan losses was $2,464,000 as of September 30, 1999 compared
to $2,336,000 at year-end 1998. Loan losses have increased year to date with
gross charge-offs of $665,000 offset by recoveries of $169,000, resulting in a
slightly higher net annualized charge-off rate of .45% of average total loans
compared to .35% for the entire year of 1998. The lower charge-off rate in 1998
was the result of aggressive charge-offs in 1997 by management of fully
guaranteed SBA loans of $230,000 that resulted in complete recovery in 1998.
The allowance for loan losses represented 1.50% and 1.75%, respectively, of
total loans outstanding at September 30, 1999 and December 31, 1998.
Page 8 of 14
<PAGE> 9
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES AT SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
(In thousands)
-----------------------------------------------------------
<S> <C>
Allowance for loan losses at December 31, 1998 $2,336
-----------------------------------------------------------
Charge-offs:
Commercial, financial, and agricultural 388
SBA 82
Real estate 154
Installment loans to individuals 41
-----------------------------------------------------------
Total 665
-----------------------------------------------------------
Recoveries:
Commercial, financial, and agricultural 64
SBA 72
Real estate --
Installment loans to individuals 33
-----------------------------------------------------------
Total 169
-----------------------------------------------------------
Net charge-offs 496
-----------------------------------------------------------
Provision for loan losses charged to income 624
-----------------------------------------------------------
Allowance for loan losses at September 30, 1999 $2,464
-----------------------------------------------------------
</TABLE>
The loan portfolio is periodically reviewed to evaluate the outstanding loans
and to measure both the performance of the portfolio and the adequacy of the
allowance for loan losses. This analysis includes a review of delinquency
trends, actual losses and internal credit ratings. Based on this analysis,
management considers the allowance for loan losses at September 30, 1999 to be
adequate to cover loan losses in the portfolio as of that date. However,
because of the inherent uncertainty of assumptions made during the evaluation
process, we cannot assure that loan losses in future periods will not exceed
the allowance for loan losses or that additional allocations to the allowance
will not be required.
Liquidity and Capital Adequacy
Liquidity has decreased since the end of 1998 as a result of strong loan
growth. At September 30, 1999, the Company's average net loan to deposit ratio
was 77%, up sharply from 59% at year-end. Management also analyzes the level of
off-balance sheet assets such as unfunded loan commitments and outstanding
letters of credit as they relate to the levels of cash, cash equivalents,
liquid investments, and available federal funds lines to ensure that no
potential shortfall exists. Additionally, the Bank has a $25 million secured
line of credit from the Federal Home Loan Bank of Atlanta, of which $10 million
was outstanding at September 30, 1999. On October 15, 1999, the Bank repaid $5
million of this advance, thus increasing the available line of credit to $20
million. Based on this analysis, management believes that the Company has
adequate liquidity to meet short-term operational requirements.
Stockholders' equity of the Company decreased $1.8 million to $23 million at
September 30, 1999, a decrease of 7% from stockholders' equity at December 31,
1998, and a decrease of 8% from September 30, 1998. Despite additions from
earnings, stockholders' equity decreased $2 million since December 31, 1998 due
to the repurchase of common stock under the Company's stock repurchase plan.
Additionally, accumulated other comprehensive income declined $1.1 million
since year-end due to increased unrealized losses on investment securities
available for sale. The capital level of the Bank exceeds all prescribed
regulatory capital guidelines. Regulations require that the most highly rated
banks maintain a minimum Tier 1 leverage ratio of 3%, and require other banks
to maintain a minimum Tier 1 leverage ratio of 3% plus an additional cushion of
at least 1 to 2 percentage points. Tier 1 capital consists of stockholders'
equity less certain intangible assets. The Bank's Tier 1 leverage ratio
increased to 8.2% at September 30, 1999 compared to 7.3% at year-end 1998.
Regulations require that the Bank maintain a minimum total risk-weighted
capital ratio of 8% with 50%, or 4%, of this amount made up of Tier 1 capital.
Risk-weighted assets consist of balance sheet assets adjusted by risk category
and off-balance sheet asset equivalents similarly adjusted. At September 30,
1999, the Bank had
Page 9 of 14
<PAGE> 10
a risk-weighted total capital ratio of 13.3% and a Tier 1 risk-weighted capital
ratio of 12.0% which were also higher than year end 1998 ratios of 11.4% and
10.2%, respectively.
Year 2000
The Company considers the Year 2000 computer processing risk to be a serious
risk for all businesses that depend on computer hardware and software to
perform the critical functions of their businesses. Year 2000 computer
processing risk is defined as the risk associated with computer hardware or
software that fails to process data or operate in the manner for which it was
designed as a result of century date changes.
The Company's State of Readiness
The Company's Year 2000 Committee, headed by senior management, has continued
its efforts to address the issue with regular meetings, reporting its progress
monthly to the Board of Directors. The Committee's goal has been to address
Year 2000 technology issues so that they will not materially adversely affect
the Company's operations or customer service. In 1998, the Company engaged a
third party to assist in the testing of any computer hardware, which was not
Year 2000 compliant. Hardware testing and any necessary replacement was
completed last year.
The Company outsources its data processing and item processing services to
third party vendors. The completion of the Company's Year 2000 project and its
ability to adequately service its customers in 2000 largely depends on the
compliance of these third party vendors. The Company has monitored the progress
of these vendors in their efforts to become Year 2000 compliant over the past
year. To date, all mission-critical systems, including the Bank's data
processing system, have been fully tested for Year 2000 compliance, and no
material problems were encountered during testing. Another critical system is
utilized in the Bank's international department to process customer letters of
credit and other trade finance products. This system has been certified as Year
2000 compliant by the third party vendor and has been tested by the Bank this
year, with no material problems encountered. The Company initially tested the
contingency plans for these systems in early 1999, with a successful outcome.
Testing is in progress and will continue throughout the remainder of 1999 to
ensure all staff is properly prepared for the century date change.
The Company has also completed an analysis of non-information technology
related systems to determine the impact that the century date change may have
on them. These include all HVAC systems, telecommunications systems (both wired
and wireless), controlled-access systems and elevators. As of September 30,
1999, the Company had completed substantially all upgrades and replacements.
The Company also recognizes the importance of ensuring that significant
borrowers are addressing the problem in a timely manner to avoid deterioration
of the Company's loan portfolio solely due to Year 2000 problems. The Company
has identified all material relationships, mailed relevant questionnaires to
assess the risk, and is working with these customers on a one-on-one basis, as
appropriate, to continue monitoring their Year 2000 risk. Identification of
borrower risks associated with the failure to adequately prepare for Year 2000
issues is considered in the lending function.
The Company also has performed reviews of significant customer deposit
relationships with the Bank to determine those customers' efforts to address
the Year 2000 issue. The purpose of this analysis was to determine any special
funding needs that the Bank may incur as a result of a significant depositor
needing to draw against reserve cash to meet Year 2000 critical operations.
Management of the Bank believes, based on these analyses, that it has
sufficient funding sources available, to meet any extra currency needs
customers may have as December 31, 1999 approaches and, also, into early year
2000. Funding sources include available credit lines with the Federal Home Loan
Bank and correspondent banks, as well as unpledged investment securities.
Ongoing reviews of both loan and deposit customers will continue during the
remainder of 1999 to ensure the Bank makes every effort to provide services to
its customers through the century change. Commercial and retail deposit
customer awareness is continually addressed through mailings, statement
stuffers, and pamphlets placed in the branches.
Page 10 of 14
<PAGE> 11
The Costs to Address the Company's Year 2000 Issues
Actual costs accrued or incurred this year to date for the Year 2000 project
are approximately $70,000. An additional $10,000 of expenses are anticipated
and budgeted for the remainder of 1999 relative to Year 2000, bringing the
total estimated Year 2000 project costs to $225,000. The Company does not
expect the amounts required to be expensed to resolve Year 2000 issues to have
a material adverse effect on its financial position or results of operations.
The Risks of the Company's Year 2000 Issues
The Year 2000 issue presents a number of risks to the business and financial
condition of the Company and the Bank. External factors, which include but are
not limited to interruptions in electric, telephone, and water service, are
beyond the control of the Company. The failure of such services could have a
negative impact on the Company, its customers and third parties on whom the
Company relies for its day-to-day operations.
The Company believes that its internal systems and the software and the network
connections it maintains will be adequately programmed to address the Year 2000
issue. Based on information currently available, management does not believe
that the Company will incur significant additional costs in connection with the
Year 2000 issue. Nevertheless, we cannot assure that all hardware and software
that the Company uses will be Year 2000 compliant, and the Company cannot
predict with any certainty the costs the Company will incur to respond to any
Year 2000 issues. Further, since the business of the Company's customers and
vendors may be negatively affected by the Year 2000 issue, any financial
difficulties incurred by the Company's customers and vendors in solving Year
2000 issues could negatively affect their ability to perform their agreements
with the Company. Therefore, even if the Company does not expect to incur
significant direct costs in connection with responding to the Year 2000 issue,
we cannot assure that the failure or delay of the Company's customers, vendors
or other third parties in addressing the Year 2000 issue or the costs involved
in such process will not have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's Contingency Plans
As part of the Company's normal business practice, it maintains contingency
plans to follow in the event of emergency situations, some of which could arise
from Year 2000-related problems. The Company has completed the formulation of a
detailed Year 2000 contingency plan, which assesses several possible scenarios
to which the Company may be required to react. Additionally, the Company
completed an initial test of its contingency plan in April 1999 in its efforts
to ensure continued operations in the event of an unforeseen problem. The
Company is continuing tests of various parts of the plan to provide a continual
training forum for all employees.
The foregoing are forward-looking statements reflecting management's current
assessment and estimates with respect to the Company's Year 2000 compliance
efforts and the impact of Year 2000 issues on the Company's business and
operations. Various factors could cause actual plans and results to differ
materially from those contemplated by such assessments, estimates and
forward-looking statements, many of which are beyond the control of the
Company. Some of these factors include, but are not limited to, inaccurate
representations by the Company's vendors and counterparties, technological
advances, economic considerations, and consumer perceptions. The Company's Year
2000 compliance program is an ongoing process involving continual evaluation
and may be subject to change in response to new developments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has not provided quantitative and qualitative disclosures about
market risk as required by Item 305 of Regulation S-K because it met the
requirements of a small business issuer. The Company will be required to
provide this disclosure in its 10-K for the year ended December 31, 1999.
Page 11 of 14
<PAGE> 12
PART II. - OTHER INFORMATION
ITEM 1. Legal Proceedings - Not Applicable
ITEM 2. Changes in Securities - Not Applicable
ITEM 3. Defaults Upon Senior Securities - Not Applicable
ITEM 4. Submission of Matters to a Vote of Security Holders - None
ITEM 5. Other Information - None
ITEM 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 11.1
Statement Regarding Computation of Per Share Earnings.
Exhibit 27.1
Financial Data Schedule (for SEC use only)
b) Reports on Form 8-K - None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SUMMIT BANK CORPORATION
BY: /s/ Pin Pin Chau
-----------------------------------------
Pin Pin Chau
Chief Executive Officer
BY: /s/ Gary K. McClung
-----------------------------------------
Gary K. McClung
Executive Vice President
(Principal Financial Officer
and Principal Accounting Officer)
DATE: November 12, 1999
---------------------------------------
Page 12 of 14
<PAGE> 1
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION
OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Basic earnings per share:
Weighted-average shares outstanding 1,701,045 1,815,363 1,732,844 1,762,139
Net income $ 705,000 $ 730,000 $ 1,920,000 $ 1,974,000
=========== =========== =========== ===========
Net income per share $ .42 $ .40 $ 1.11 $ 1.12
=========== =========== =========== ===========
Diluted earnings per share:
Weighted average shares outstanding 1,701,045 1,815,363 1,732,844 1,762,139
Dilutive warrants -- -- -- 68,861
Dilutive stock options -- 20,000 -- 24,228
Assumed repurchased under treasury
stock method -- (17,743) -- (49,308)
----------- ----------- ----------- -----------
Weighted-average common shares
outstanding and common share
equivalents 1,701,045 1,817,620 1,732,844 1,805,920
----------- ----------- ----------- -----------
Net income $ 705,000 $ 730,000 $ 1,920,000 $ 1,974,000
=========== =========== =========== ===========
Diluted net income per share $ .42 $ .40 $ 1.11 $ 1.09
=========== =========== =========== ===========
</TABLE>
Page 13 of 14
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1999 10-Q FINANCIAL STATEMENTS OF SUMMIT BANK CORPORATION AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 11,432
<INT-BEARING-DEPOSITS> 155
<FED-FUNDS-SOLD> 660
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 68,314
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 164,109
<ALLOWANCE> 2,464
<TOTAL-ASSETS> 255,489
<DEPOSITS> 210,631
<SHORT-TERM> 19,098
<LIABILITIES-OTHER> 3,060
<LONG-TERM> 0
0
0
<COMMON> 18
<OTHER-SE> 22,682
<TOTAL-LIABILITIES-AND-EQUITY> 255,489
<INTEREST-LOAN> 10,714
<INTEREST-INVEST> 3,405
<INTEREST-OTHER> 251
<INTEREST-TOTAL> 14,370
<INTEREST-DEPOSIT> 5,036
<INTEREST-EXPENSE> 5,619
<INTEREST-INCOME-NET> 0
<LOAN-LOSSES> 624
<SECURITIES-GAINS> (127)
<EXPENSE-OTHER> 7,465
<INCOME-PRETAX> 2,968
<INCOME-PRE-EXTRAORDINARY> 2,968
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,920
<EPS-BASIC> 1.11
<EPS-DILUTED> 1.11
<YIELD-ACTUAL> 5.01
<LOANS-NON> 1,363
<LOANS-PAST> 0
<LOANS-TROUBLED> 376
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,336
<CHARGE-OFFS> 665
<RECOVERIES> 169
<ALLOWANCE-CLOSE> 2,464
<ALLOWANCE-DOMESTIC> 2,464
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
