<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 June 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 August 2,1999
----- ----------------------------
<S> <C>
Common Stock. $.0l par value 1,708,324
</TABLE>
The Exhibit Index Appears on Page 13
Page 1 of 16
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUMMIT BANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
(In thousands except share amounts) 1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and due from banks $ 13,212 $ 10,559
Federal funds sold 3,000 10,725
Interest-bearing deposits in other banks 181 156
Investment securities available for sale 74,538 94,787
Other investments 1,096 1,314
Loans, net of unearned income 150,076 127,824
Loans held for sale 6,426 5,672
Less: allowance for loan losses (2,370) (2,336)
- --------------------------------------------------------------------------------------------
Net loans 154,132 131,160
- --------------------------------------------------------------------------------------------
Premises and equipment, net 4,562 4,633
Customers' acceptance liability 1,799 2,319
Goodwill 1,622 1,651
Other assets 6,008 5,857
============================================================================================
Total assets $ 260,150 $ 263,161
============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non-interest-bearing demand $ 55,107 $ 48,246
Interest-bearing:
Demand 41,637 42,350
Savings 8,713 8,438
Time, $100,000 and over 42,037 41,240
Other time 67,423 78,373
- --------------------------------------------------------------------------------------------
Total deposits 214,917 218,647
- --------------------------------------------------------------------------------------------
Obligation under capital lease 16 39
Federal Home Loan Bank advance 10,000 10,000
Other borrowed funds 8,777 5,987
Acceptances outstanding 1,799 2,319
Other liabilities 1,687 1,664
- --------------------------------------------------------------------------------------------
Total liabilities 237,196 238,656
- --------------------------------------------------------------------------------------------
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 (1,797) (447)
Retained earnings 9,559 8,731
Accumulated other comprehensive (loss)/income (1,004) 25
- --------------------------------------------------------------------------------------------
Total stockholders' equity 22,954 24,505
- --------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 260,150 $ 263,161
============================================================================================
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
Page 2 of 16
<PAGE> 3
SUMMIT BANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
(Dollars in thousands, except share and per share amounts) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income
Loans, including fees $ 3,578 $ 2,678 $ 6,785 $ 5,267
Interest-bearing deposits in other banks 2 4 5 6
Federal funds sold 69 85 204 167
Investment securities 334 401 848 810
Mortgage-backed securities 816 634 1,517 1,238
- ----------------------------------------------------------------------------------------------------------------------
Total interest income 4,799 3,802 9,359 7,488
- ----------------------------------------------------------------------------------------------------------------------
Interest expense
Time deposits, $100,000 and over 485 385 1,004 758
Other deposits 1,134 1,023 2,400 1,983
FederalHome Loan Bank advance 124 124 247 250
Short-term borrowings and obligation
under capital lease 65 44 115 78
- ----------------------------------------------------------------------------------------------------------------------
Total interest expense 1,808 1,576 3,766 3,069
- ----------------------------------------------------------------------------------------------------------------------
Net interest income 2,991 2,226 5,593 4,419
Provision for loan losses 325 195 424 355
- ----------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 2,666 2,031 5,169 4,064
- ----------------------------------------------------------------------------------------------------------------------
Non-interest income
Fees for international banking services 314 292 617 576
SBA loan servicing fees 69 61 136 137
Service charge income 118 74 233 147
Non-sufficient funds charges 143 159 283 290
Gains on sales of loans -- 216 79 373
Net gains (losses) on sales of investment securities (6) 31 (5) 48
Other 150 108 287 221
- ----------------------------------------------------------------------------------------------------------------------
Total non-interest income 788 941 1,630 1,792
- ----------------------------------------------------------------------------------------------------------------------
Non-interest expenses
Salaries and employee benefits 1,197 985 2,407 1,969
Equipment 184 195 350 342
Net occupancy 191 139 380 278
Other operating expenses 969 693 1,786 1,340
- ----------------------------------------------------------------------------------------------------------------------
Total non-interest expenses 2,541 2,012 4,923 3,929
- ----------------------------------------------------------------------------------------------------------------------
Income before income taxes 913 960 1,876 1,927
- ----------------------------------------------------------------------------------------------------------------------
Income tax expense 320 341 661 683
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 593 $ 619 $ 1,215 $ 1,244
- ----------------------------------------------------------------------------------------------------------------------
Basic net income per common share $ .34 $ .34 $ .69 $ .72
Diluted net income per common share and
common share equivalents $ .34 $ .34 $ .69 $ .69
- ----------------------------------------------------------------------------------------------------------------------
Weighted-average shares outstanding - basic 1,727,128 1,815,363 1,749,006 1,735,086
Weighted-average shares outstanding - diluted 1,727,128 1,821,161 1,749,006 1,802,091
- ----------------------------------------------------------------------------------------------------------------------
Dividends declared per common share $ .12 $ .10 $ .22 $ .19
======================================================================================================================
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
Page 3 of 16
<PAGE> 4
SUMMIT BANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months
ended June 30,
--------------------
(In thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 1,215 $ 1,244
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment 199 214
Net amortization of premiums/discounts on investment securities 350 49
Amortization of negative goodwill -- (55)
Amortization of goodwill 43 --
Provision for loan losses 424 355
Proceeds from sales of loans 1,419 4,229
Gains on sales of loans (79) (373)
Losses on sales of other real estate owned 21 --
Net losses (gains) on sales of investment securities 5 (48)
Changes in other assets and liabilities:
Net (increase) decrease in loans held for sale (754) 888
Decrease in other assets 1,261 1,054
Increase in other liabilities 23 246
- -------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,127 7,803
- -------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from maturities of investment securities 26,997 11,260
Principal collections on investment securities 12,199 4,616
Proceeds from sales of investment securities 8,498 2,855
Purchases of investment securities available for sale (29,233) (22,311)
Loans made to customers, net of principal collected on loans (24,807) (8,090)
Purchases of premises and equipment (128) (172)
Purchase of California Security Bank, net of cash and cash equivalents acquired -- (320)
- -------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (6,474) (12,162)
- -------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in demand and savings deposits 6,423 1,598
Net increase in time deposits (10,153) 18,645
Principal payments for obligation under capital lease (23) (21)
Purchase of treasury shares (1,350) --
Dividends paid (387) (333)
Issuance of common stock upon exercise of warrants and options -- 3,248
Net increase in borrowed funds 2,790 2,253
- -------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (2,700) 25,390
- -------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (5,047) 21,031
Cash and cash equivalents at beginning of period 21,440 9,360
- -------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $16,393 $ 30,391
=============================================================================================================
Supplemental disclosures of cash paid during the period:
Interest $3,989 $ 2,908
Income taxes $ 634 $ 831
=============================================================================================================
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
Page 4 of 16
<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. Certain information and footnote disclosures
normally included in consolidated financial statements prepared in
accordance with generally accepted accounting principles have been
omitted, although the Company believes that the 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
The total comprehensive loss for the three months ended June 30, 1999 was
$245,000 compared to total comprehensive income for the three months
ended June 30, 1998 of $516,000. The total comprehensive income for the
six months ended June 30, 1999 was $186,000 compared to total
comprehensive income for the six months ended June 30, 1998 of
$1,138,000. Currently, "other comprehensive income" for the Company
consists solely of unrealized gains or losses on investment securities
available for sale.
Page 5 of 16
<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 us and our subsidiary. 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 $593,000 for the second quarter of 1999
compared to earnings for the same period last year of $619,000. Net earnings
per share for second quarter 1999 and 1998 were identical at $.34 (basic and
diluted). Current year to date net income through June 30 was $1,215,000, a
slight decline from 1998 year to date earnings of $1,244,000. Diluted earnings
per share for the six-month periods of 1999 and 1998 were each $.69 while basic
earnings per share for the same periods were $.69 and $.72, respectively.
Earnings were flat from second quarter 1998 to second quarter 1999 as a result
of the Bank electing not to sell SBA loans in second quarter 1999 while it
recognized $216,000 in gains from sales in the second quarter of last year.
Also, in addition to acquiring a bank in San Jose, California on June 30, 1998,
the Bank has continued to expand its existing infrastructure to accommodate
general growth resulting in increased overhead, which partially offset the
increase in net interest income from second quarter 1998 to the current
quarter. The annualized return on average stockholders' equity for the 1999
six-month period was 10.1% versus 11.1% for the 1998 six-month period, while
the returns on average assets for the comparable periods were .94% and 1.31%.
The decline in the return on average assets for 1999 was primarily due to the
increase in assets resulting from the bank acquisition effective June 30, 1998.
That acquisition added approximately $40 million in assets which outpaced
growth in net earnings. Book value per share was $13.43 at June 30, 1999
compared to $13.68 at December 31, 1998 and $13.13 at June 30, 1998. The
decline in book value per share was due mainly to the purchase of approximately
82,000 shares of treasury stock since December 31, 1998, which has reduced
shareholder equity by $1.4 million. In second quarter 1999, the Company paid a
dividend of $.12 per share to its shareholders, a 20% increase from the prior
quarter.
Total assets for the Company at June 30, 1999 were $260 million, an increase of
7% during the last twelve months and relatively flat compared to total assets
at December 31, 1998. Total loans were $157 million at June 30 compared to $133
million at year-end 1998, an increase of 17%. Most of this growth occurred in
late second quarter 1999 and consists of commercial loans. For the trailing
twelve months, total loans have increased 28% from $122 million. The San Jose
office, acquired on June 30, 1998, has contributed $3 million to the loan
portfolio growth in the past twelve months, an increase of 13%. The strong
growth in the loan portfolio was partially funded by a decline in the
investment security portfolio of $20 million since December 31, 1998 resulting
from sales and maturities of securities. Total investment securities at June
30, 1999 were $76 million. Total deposits have increased $14 million, or 7%,
during the last twelve months although they have declined since the year-end
$3.7 million, due mainly to a maturing CD promotion that occurred in 1998. The
declining CD balances were largely offset by increases in non-interest-bearing
demand deposits, which has favorably affected the Company's interest margin.
Summit has continued its efforts to expand small business relationships in both
the Atlanta and San Jose markets, resulting in an increase of $7 million of
non-interest-bearing deposits since year-end. As of June 30, 1999,
non-interest-bearing deposits represented 26% of total deposits compared to 22%
at December 31, 1998 and 21% at June 30, 1998.
In fourth quarter 1998, the Company announced a stock repurchase plan. The
Company completed this plan in May 1999 and subsequently announced a second
share repurchase plan of up to an additional 60,000 shares of its outstanding
common stock. At June 30, 1999, the Company had repurchased a total of 106,704
shares under both plans. Total stockholders' equity reflects these shares as
treasury stock. The cost of these repurchases totaled $1.8 million at June 30,
1999, up from $400,000 at December 31, 1998.
Net interest income increased 34% to $3 million during second quarter 1999
compared to the same period in 1998, primarily due to a higher volume of
interest earning assets. For the six-month periods of 1999 and 1998, net
interest income increased 27% to $5.6 million. Much of this increase was due to
the addition of the San Jose
Page 6 of 16
<PAGE> 7
office on June 30, 1998. The Company's net interest margin through June 30,
1999 declined to 4.80% from 5.13% for the comparable period in 1998, due
primarily to a higher cost of funds during the early part of 1999 as a result
of the CD promotion mentioned previously. The interest margin for second
quarter 1999 showed improvement to 5.21% as a result of the combined loan and
non-interest bearing deposit growth and lower CD volume.
The provision for loan losses increased to $325,000 from $195,000 for the
respective second quarters of 1999 and 1998 due to strong loan volume growth in
the second quarter of 1999. Gross charged off loans for the quarter ended June
30, 1999 were $256,000 while recoveries for the period were $77,000, which,
combined with first quarter activity resulted in an annualized net charge-off
rate of .56% 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 previously charged-off. Net loan charge-offs
were 1.08% of total loans for the year ended December 31, 1998. See further
discussion of asset quality below.
Non-interest income declined in second quarter 1999 compared to second quarter
1998 as a result of fewer gains on sales of SBA loans. As the secondary market
for selling SBA loans softened in second quarter 1999, the Company elected to
refrain from selling SBA loans, which in return increased interest income. The
Company remains focused on core earnings such as service charge income and
international banking fees which have increased $44,000 and $22,000,
respectively from second quarter 1998 to the current quarter. The increase in
service charge fees were a result of higher demand deposit volumes primarily
due to the acquisition of the San Jose office. International fee income was
higher due to growth in the Bank's trade finance transaction volume. Year to
date non-interest income was $1.6 million, a 9% decline from June 30, 1998
non-interest income, primarily due to recognized gains on sales of SBA loans in
1998 of $373,000 compared to $79,000 in 1999.
Non-interest expenses increased $529,000, or 26%, in the second quarter of 1999
as compared to the same period last year. Approximately half of this increase
was due to the addition of the San Jose office and its applicable overhead
expenses which began on June 30, 1998. A portion of the increase was due to the
costs allocated to ensure that the Bank is ready for Year 2000 within the time
frame set by the Office of the Comptroller of the Currency. In second quarter
1999, $20,000 was earmarked for this cause, and the Bank completed the tasks of
assessment, renovation, validation and implementation of all mission-critical
systems. Personnel costs of $1.2 million also increased from second quarter
1998 by $212,000 primarily due to the addition of San Jose employees. Also, the
new branch location in San Jose caused occupancy costs to increase from
$139,000 in second quarter 1998 to $191,000 in the same quarter of 1999. Other
operating expenses increased $276,000, or 40%, to $969,000 for second quarter
1999 compared to the same quarter last year. The additional office fueled
increases in non-interest expenses including data and item processing costs, up
$81,000 from second quarter 1998 and goodwill amortization of $22,000 in second
quarter 1999 compared to none in the same period last year. To a lesser degree,
general Bank growth has also contributed to the increases. Other professional
fees increased $26,000 over second quarter 1998 primarily as a result of
outsourced information technology assistance, some of which was related to Year
2000 efforts. Legal fees during second quarter 1999 were $50,000 higher than
the same period in 1998 due mainly to collection and workout efforts on
non-performing loans.
The Company's efficiency ratio, defined as non-interest expenses divided by net
interest income plus non-interest income, for the three-month period of 1999
was 67%, somewhat higher than the ratio for the same period last year of 64%,
primarily due to the increase in non-interest expenses. Year to date
non-interest expenses increased 25% from 1998 to the current year total of $4.9
million. The increase was largely due to higher personnel costs and other
operating expenses related to the addition of the San Jose office, as well as
an increase in other professional fees of $66,000 for information technology
support.
Asset Quality
Non-performing assets decreased to $3,233,000 at June 30, 1999 compared to
$3,610,000 at year-end 1998. Non-performing assets represented 2.07% of total
loans as of June 30, 1999 compared to 2.70% at December 31, 1998.
Non-performing loans at June 30, 1999 primarily include four fully guaranteed
SBA credits, totaling $1.2 million, two partially guaranteed SBA credits,
totaling $439,000 of which $378,000 is fully guaranteed, and two real estate
credits totaling $1.2 million which the Bank believes are well secured. Also
included in non-performing loans at June 30, 1999 was a $200,000 San Jose
credit collateralized with business assets for which a specific reserve of
$100,000 was allocated. One of the SBA credits included in non-performing
assets at June 30, 1999 was reclassified in January 1998 as a restructured loan
because of interest rate, term, and collateral
Page 7 of 16
<PAGE> 8
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
loans past due 90 days or more as to principal and still accruing at June 30,
1999, there was one loan past due 90 days or more as to interest payments and
still accruing at June 30, 1999. Management elected not to classify this loan
as non-accrual on June 30 because a payment equal to two months of interest was
imminent, and was subsequently received. There were no loans past due 90 days
or more as to principal or interest payments and still accruing at June 30,
1998. Subsequent to June 30, 1999 the Company received full payout from the SBA
on loans carried as non-performing assets at quarter-end approximating $
635,000, thus reducing non-performing assets to $2.6 million.
Non-performing Assets
<TABLE>
<CAPTION>
June 30, December 31,
(Dollars in thousands) 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Loans on non-accrual
SBA guaranteed $ 1,220 $ 1,495
Non-SBA guaranteed 1,635 1,724
Other real estate -- --
Restructured loans -
SBA guaranteed 378 391
- -----------------------------------------------------------------------------
Total non-performing assets $ 3,233 $ 3,610
=============================================================================
Loans 90 days past due and still accruing interest $ 227 $ --
Total non-performing assets as a
percentage of total loans and ORE 2.07% 2.70%
Loans ninety days past due and still accruing
interest as a percentage of total loans .15% --%
</TABLE>
The allowance for loan losses was $2,370,000 as of June 30, 1999 compared to
$2,336,000 at year-end 1998. Loan losses have increased this year to date with
gross charge-offs of $491,000 offset by recoveries of $101,000, resulting in a
slightly higher net annualized charge-off rate of .56% of average total loans
compared to .35% for the entire year of 1998. The charge-off rate in 1999 is
higher than the 1998 rate because recoveries of SBA loans that were fully
guaranteed in early 1998, totaling $230,000, caused a reduction in the 1998
charge-off rate. The allowance for loan losses represented 1.51% and 1.75%,
respectively, of total loans outstanding at June 30, 1999 and December 31,
1998. Despite the decline in the allowance percentage when compared to total
loans, improvement in overall quality of the portfolio allowed the Company's
loan growth to absorb amounts previously identified for non-performing loans
that have been reduced or removed.
Page 8 of 16
<PAGE> 9
Analysis of Allowance for Loan Losses at June 30, 1999
<TABLE>
<CAPTION>
(In thousands)
- ----------------------------------------------------------------------
<S> <C>
Allowance for loan losses at December 31, 1998 $2,336
- ----------------------------------------------------------------------
Charge-offs:
Commercial, financial, and agricultural 300
SBA 8
Real estate 154
Installment loans to individuals 29
- ----------------------------------------------------------------------
Total 491
Recoveries:
Commercial, financial, and agricultural 56
SBA 39
Real estate --
Installment loans to individuals 6
- ----------------------------------------------------------------------
Total 101
- ----------------------------------------------------------------------
Net charge-offs 390
- ----------------------------------------------------------------------
Provision for loan losses charged to income 424
- ----------------------------------------------------------------------
Allowance for loan losses at June 30, 1999 $2,370
- ----------------------------------------------------------------------
</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 June 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 volume
growth. At June 30, 1999, the Company's average net loan to deposit ratio was
72%, up 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 $16 million, secured line of
credit from the Federal Home Loan Bank of Atlanta, of which $10 million was
outstanding at June 30, 1999. Based on this analysis, management believes that
the Company has adequate liquidity to meet short-term operational requirements.
Stockholders' equity of the Company decreased $1.6 million to $23 million at
June 30, 1999, a decrease of 6% from stockholders' equity at December 31, 1998,
and a decrease of 4% from June 30, 1998. Offsetting additions from earnings,
stockholders' equity decreased $1.4 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 million since
year-end due to unrealized losses on investment securities available for sale.
The capital level of the subsidiary 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
slightly to 6.6% at June 30, 1999 compared to 6.2% 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 June 30, 1999,
the Bank had a risk-weighted total capital ratio of 11.3% and a Tier 1
risk-weighted capital ratio of 10.2% which was consistent with year end 1998
ratios of 11.6% and 10.3%, respectively.
Page 9 of 16
<PAGE> 10
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 is 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 tested the contingency
plans for these systems in early 1999, with a successful outcome.
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 June 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-to-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 performed a review 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 that analysis, 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 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 being
addressed through mailings, statement stuffers, and pamphlets placed in the
branches.
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 $35,000. An additional $25,000 of expenses are anticipated
and budgeted for the remainder of 1999 relative to Year 2000, bringing the
total estimated Year 2000 project costs to $200,000. 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.
Page 10 of 16
<PAGE> 11
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 will use 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 16
<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
The 1999 Annual Meeting of the Shareholders (the "Meeting")
of the Company was held on May 1, 1999. Proxies were
solicited prior to the meeting from shareholders of record at
the close of business on March 15, 1999, for the primary
purposes of electing six members to the Board of Directors.
Article Fourteen of the Company's Amended and Restated
Articles of Incorporation provides that the Board of
Directors shall be divided into three classes with each class
to be as nearly equal in number as possible. Article Fourteen
also provides that the three classes of directors are to have
staggered terms, so that the terms of only approximately
one-third of the Board will expire at each annual meeting of
shareholders and each director serves a three-year term. Six
Class I Directors were nominated at the meeting to serve
until the Annual Shareholders Meeting in 2002: Aaron I.
Alembik, Jack N. Halpern, Sion Nyen (Francis) Lai, Shih Chien
(Raymond) Lo, W. Clayton Sparrow, Jr., and Pin Pin Chau. All
six nominees were elected.
Proxies for 80%, or 1,391,058 of the 1,739,718 outstanding
common shares, were received prior to the meeting. A quorum
was present by proxy. Votes were cast as follows:
<TABLE>
<CAPTION>
Votes Votes
Director For Against
------- -- -------
<S> <C> <C>
Aaron I. Alembik 1,388,058 3,000
Jack N. Halpern 1,388,058 3,000
Sion Nyen (Francis) Lai 1,388,058 3,000
Shih Chien (Raymond) Lo 1,388,058 3,000
W. Clayton Sparrow, Jr. 1,388,058 3,000
Pin Pin Chau 1,387,658 3,400
</TABLE>
The following Class II and Class III directors, whose terms
did not expire at the Annual Shareholders Meeting, continued
to serve as directors following the meeting: Peter M. Cohen,
Donald R. Harkleroad, Daniel T. Huang, Shafik H. Ladha, Paul
C. Y. Chu, Cecil M. Phillips, Howard H. L. Tai, P. Carl
Unger, Gerald L. Allison, Jose Gonzalez, James S. Lai, Nack
Paek, Carl L. Patrick, Jr., and David Yu.
Pursuant to Rule 14a-4(c)(1) promulgated under the Securities
Exchange Act of 1934, as amended, shareholders desiring to
present a proposal for consideration at the Company's 2000
Annual Meeting of Shareholders must notify the Company in
writing at its principal office at 4360 Chamblee Dunwoody
Road, Atlanta, Georgia, 30341 of the contents of such
proposal no later than February 15, 2000. Failure to timely
submit such a proposal will enable the proxies appointed by
management to exercise their discretionary voting authority
when the proposal is raised at the Annual Meeting of
Shareholders without any discussion of the matter in the
proxy statement.
Page 12 of 16
<PAGE> 13
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
Page 13 of 16
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed 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: August 12, 1999
----------------------------------
Page 14 of 16
<PAGE> 1
Exhibit 11.1
STATEMENT REGARDING COMPUTATION
OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Statement Regarding Computation of Three months Six months
Per Share Earnings ended June 30, ended June 30,
-------------------------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic earnings per share:
Weighted-average shares outstanding 1,727,128 1,815,363 1,749,006 1,735,086
Net income per share $ .34 $ .34 $ .69 $ .72
Diluted earnings per share:
Weighted average shares outstanding 1,727,128 1,815,363 1,749,006 1,735,086
Dilutive warrants -- -- -- 103,863
Dilutive stock options -- 20,000 -- 26,377
Assumed repurchased under treasury
stock method -- (14,202) -- (63,235)
---------- ---------- ---------- ----------
Weighted-average common shares
outstanding and common share
equivalents 1,727,128 $1,821,161 1,749,006 1,802,091
---------- ---------- ---------- ---------
Net income $ 593,000 $ 619,000 $1,215,000 $1,244,000
========== ========== ========== ==========
Diluted net income per share $ .34 $ .34 $ .69 $ .69
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 13,212
<INT-BEARING-DEPOSITS> 181
<FED-FUNDS-SOLD> 3,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 74,538
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 156,502
<ALLOWANCE> 2,370
<TOTAL-ASSETS> 260,150
<DEPOSITS> 214,917
<SHORT-TERM> 18,793
<LIABILITIES-OTHER> 3,486
<LONG-TERM> 0
0
0
<COMMON> 18
<OTHER-SE> 22,936
<TOTAL-LIABILITIES-AND-EQUITY> 260,150
<INTEREST-LOAN> 6,785
<INTEREST-INVEST> 2,365
<INTEREST-OTHER> 209
<INTEREST-TOTAL> 9,359
<INTEREST-DEPOSIT> 3,404
<INTEREST-EXPENSE> 3,766
<INTEREST-INCOME-NET> 5,593
<LOAN-LOSSES> 424
<SECURITIES-GAINS> (5)
<EXPENSE-OTHER> 4,923
<INCOME-PRETAX> 1,876
<INCOME-PRE-EXTRAORDINARY> 1,876
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,215
<EPS-BASIC> .69
<EPS-DILUTED> .69
<YIELD-ACTUAL> 4.80
<LOANS-NON> 2,855
<LOANS-PAST> 0
<LOANS-TROUBLED> 378
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,336
<CHARGE-OFFS> 491
<RECOVERIES> 101
<ALLOWANCE-CLOSE> 2,370
<ALLOWANCE-DOMESTIC> 2,370
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
