<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 March 31, 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 May 1, 1999
----- --------------------------
<S> <C>
Common Stock. $.0l par value 1,735,282
</TABLE>
The Exhibit Index Appears on Page 15
Page 1 of 17
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUMMIT BANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
(In thousands) 1999 1998
- --------------------------------------------------------------------------------------------------
ASSETS:
<S> <C> <C>
Cash and due from banks $ 12,037 $ 10,559
Federal funds sold 10,400 10,725
Interest-bearing deposits in other banks 180 156
Investment securities available for sale, at fair value 82,607 94,787
Other investments 1,314 1,314
Loans, net of unearned income 130,425 127,824
Loans held for sale 5,713 5,672
Less: allowance for loan losses (2,224) (2,336)
- --------------------------------------------------------------------------------------------------
Net loans 133,914 131,160
- --------------------------------------------------------------------------------------------------
Premises and equipment, net 4,634 4,633
Customers' acceptance liability 1,997 2,319
Goodwill, net 1,630 1,651
Other assets 6,478 5,857
- --------------------------------------------------------------------------------------------------
Total assets $ 255,191 $ 263,161
==================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing demand $ 50,100 $ 48,246
Interest-bearing:
Demand 41,618 42,350
Savings 8,885 8,438
Time, $100,000 and over 37,908 41,240
Other time 73,607 78,373
- --------------------------------------------------------------------------------------------------
Total deposits 212,118 218,647
- --------------------------------------------------------------------------------------------------
Obligation under capital lease 27 39
Federal Home Loan Bank advance 10,000 10,000
Other borrowed funds 5,081 5,987
Acceptances outstanding 1,997 2,319
Other liabilities 2,068 1,664
- --------------------------------------------------------------------------------------------------
Total liabilities 231,291 238,656
- --------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock 18 18
Additional paid-in capital 16,178 16,178
Treasury stock, at cost; 77,545 and 24,375 shares in 1999
and 1998, respectively (1,305) (447)
Retained earnings 9,175 8,731
Accumulated other comprehensive (loss) income (166) 25
- --------------------------------------------------------------------------------------------------
Total stockholders' equity 23,900 24,505
- --------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 255,191 $ 263,161
==================================================================================================
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
Page 2 of 17
<PAGE> 3
SUMMIT BANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three months
ended March 31,
(Dollars in thousands, except share and per share amounts) ----------------------------
1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income
Loans, including fees $ 3,207 $ 2,589
Interest-bearing deposits in other banks 3 2
Federal funds sold 135 82
Investment securities 514 409
Mortgage-backed securities 701 604
- -----------------------------------------------------------------------------------------------------
Total interest income 4,560 3,686
- -----------------------------------------------------------------------------------------------------
Interest expense
Time deposits, $100,000 and over 519 373
Other deposits 1,266 960
Federal Home Loan Bank advance 123 126
Short-term borrowings and obligation under capital lease 50 34
- -----------------------------------------------------------------------------------------------------
Total interest expense 1,958 1,493
- -----------------------------------------------------------------------------------------------------
Net interest income 2,602 2,193
Provision for loan losses 99 160
- -----------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 2,503 2,033
- -----------------------------------------------------------------------------------------------------
Non-interest income
Fees for international banking services 303 284
SBA loan servicing fees 67 76
Service charge income 115 73
Overdraft and NSF charges 140 131
Gains on sales of loans 79 157
Net gains on sales of investment securities 1 17
Other 137 113
- -----------------------------------------------------------------------------------------------------
Total non-interest income 842 851
- -----------------------------------------------------------------------------------------------------
Non-interest expenses
Salaries and employee benefits 1,210 984
Equipment 166 147
Net occupancy 189 139
Other operating expenses 817 647
- -----------------------------------------------------------------------------------------------------
Total non-interest expenses 2,382 1,917
- -----------------------------------------------------------------------------------------------------
Income before income taxes 963 967
- -----------------------------------------------------------------------------------------------------
Income tax expense 341 342
- -----------------------------------------------------------------------------------------------------
Net income $ 622 $ 625
- -----------------------------------------------------------------------------------------------------
Basic net income per common share $ .35 $ .38
Diluted net income per common share and common share equivalents $ .35 $ .38
- -----------------------------------------------------------------------------------------------------
Weighted-average common shares outstanding - basic 1,771,127 1,653,917
Weighted-average common shares outstanding - diluted 1,772,071 1,658,634
- -----------------------------------------------------------------------------------------------------
Dividends declared per common share $ .10 $ .09
=====================================================================================================
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
Page 3 of 17
<PAGE> 4
SUMMIT BANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months
ended March 31,
-------------------------
(In thousands) 1999 1998
- -----------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 622 $ 625
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment 124 105
Net amortization of premiums/discounts on investment securities 175 11
Amortization of negative goodwill -- (28)
Amortization of goodwill 21 --
Provision for loan losses 99 160
Proceeds from sales of loans 1,419 --
Gains on sales of loans (79) (157)
Net gains on sales of investment securities (1) (17)
Changes in other assets and liabilities:
Net (increase) decrease in loans held for sale (41) 1,263
(Increase) decrease in other assets 319 1,699
Increase in other liabilities 404 267
- -----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,062 3,928
- -----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from maturities of investment securities available for sale 22,773 6,260
Principal collections on investment securities available for sale 8,111 1,858
Proceeds from sales of investment securities available for sale 495 1,835
Purchases of investment securities available for sale (19,679) (9,955)
Loans made to customers, net of principal collected on loans (4,977) (4,641)
Purchases of premises and equipment (125) (84)
- -----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (6,598) (4,727)
- -----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in demand and savings deposits 1,569 4,420
Net (decrease) increase in time deposits (8,098) 2,986
Principal payments for obligation under capital lease (12) (10)
Purchase of treasury shares (858) --
Dividends paid (178) (152)
Issuance of common stock upon exercise of warrants and options -- 3,237
Net decrease in borrowed funds (906) (356)
- -----------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (8,483) 10,125
- -----------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 1,177 9,326
Cash and cash equivalents at beginning of period 21,440 9,360
Cash and cash equivalents at end of period $ 22,617 $ 18,686
===========================================================================================================
Supplemental disclosures of cash paid during the period:
Interest $ 1,827 $ 1,430
Income taxes $ 294 $ 72
Supplemental disclosures of non-cash items:
Loans held for sale transferred to other assets pending receipt of
cash proceeds $ -- $ 1,661
Loans transferred to other real estate $ 825 --
===========================================================================================================
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
Page 4 of 17
<PAGE> 5
SUMMIT BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
Summit Bank Corporation and 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
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130") establishes standards for reporting
and displaying of comprehensive income and its components in a full set
of general purpose financial statements. For interim period financial
statements, enterprises are required to disclose a total for
comprehensive income in those financial statements. The term
"comprehensive income" is used in SFAS 130 to describe the total of all
components of comprehensive income including net income. "Other
comprehensive income" refers to revenues, expenses, gains, and losses
that are included in comprehensive income but excluded from earnings
under current accounting standards. Currently, "other comprehensive
income" for the Company consists solely of items previously recorded as a
component of stockholders' equity under SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities". The Company adopted the
interim-period disclosure requirements of SFAS 130 effective March 31,
1998 and adopted the annual financial statement reporting and disclosure
requirements of SFAS 130 effective December 31, 1998.
Total comprehensive income for the three months ended March 31, 1999 was
$431,000 compared to $620,000 for the three months ended March 31, 1998.
Page 5 of 17
<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 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. Therefore, 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.
For the three-month period ended March 31, 1999
Performance Overview
The Company reported net income of $622,000 for the first quarter of 1999,
compared to $625,000 in first quarter of 1998. A strong increase in net
interest income, from first quarter 1998 to the same period in 1999, was offset
by a similar increase in non-interest expenses. Both of these increases were
largely due to the acquisition of California Security Bank ("CSB") in June,
1998. Net earnings per share for first quarter 1999 were $.35 (basic and
diluted) as compared to $.38 (basic and diluted) for first quarter 1998.
Earnings per share declined because approximately 400,000 more shares of
Company common stock were outstanding due to the exercise of organizers'
warrants in first quarter 1998. All unexercised warrants expired in March 1998.
The annualized return on average stockholders' equity for the 1999 three-month
period was 10.2% versus 11.8% for the 1998 three-month period, while the return
on average assets was .94% compared to 1.34% in 1998. Book value per share was
$13.75 at March 31, 1999 compared to $13.68 at December 31, 1998 and $12.95 at
March 31, 1998. In first quarter 1999, the Company approved a dividend increase
from $.10 to $.12 per share per quarter beginning in the second quarter. The
increase continues a trend of annual increases in dividends since the Company
began paying dividends to shareholders in 1995.
Total assets at March 31, 1999 were $255 million, an increase of 33%, or $63
million, during the last twelve months, although a slight decline of 3% from
December 31, 1998. The twelve-month increase was largely due to the acquisition
of CSB which added approximately $40 million in total assets to the Company's
balance sheet. The first quarter decline in total assets from December 31, 1998
was due to investment security maturities early in the quarter which offset
maturities of premium-priced time deposits generated from a 1998 certificate of
deposit ("CD") promotion. Investment securities available for sale totaled $83
million at March 31, 1999 compared to $95 million at December 31, 1998 and $62
million at March 31, 1998. The CSB acquisition contributed $14 million to the
Company's investment portfolio in June of last year.
Net loans have increased $2.8 million, or 2%, to $134 million, since December
31, 1998. During the last twelve months net loans grew 35%, or $35 million. Of
this growth, $19 million was a result of the acquisition. The remainder of the
growth was realized in the Atlanta market. Total deposits have grown $60
million, or 39%, during the last twelve months while declining in the first
quarter of 1999 by $6.5 million primarily due to the maturing CD's discussed
above. The Company continues to focus on small business deposit relationships
as evidenced by an increase in non-interest bearing deposits which now total
24% of all deposits compared to 23% at March 31, 1998.
In fourth quarter 1998, the Company announced a stock repurchase plan. Under
the plan, the Company intends to repurchase up to 90,000 shares of its
outstanding common stock. At March 31, 1999, the Company had repurchased 77,545
shares. Total stockholders' equity reflects these shares as treasury stock. The
cost of these repurchases totaled $1.3 million at March 31, 1999, up from
$400,000 million at December 31, 1998.
Net interest income increased 23% to $2.5 million during first quarter 1999
compared to the same period in 1998, primarily due to a higher volume of
interest earning assets from both growth in Atlanta and the acquisition in
California. The Company's net interest margin through March 31, 1999 has
continued to experience pressure from the declining rate environment, declining
to 4.41% from 5.19% for the comparable period in 1998. The cost of funds has
increased over the past three quarters because of a 1998 promotion on time
deposits, which provided an approximate $16 million increase in deposits in
1998. These time deposits are currently maturing and repricing to current
rates. Therefore, the Company expects its costs of funds to decline throughout
1999.
Page 6 of 17
<PAGE> 7
The provision for loan losses decreased to $99,000 for the quarter ended March
31, 1999 compared to $160,000 for the quarter ended March 31, 1998 due
primarily to slow loan volume growth and an adequate reserve determined in
accordance with the Company's allowance for loan losses methodology. Gross
charged off loans for the quarter ended March 31, 1999 were $235,000 while
recoveries for the period were $24,000, for an annualized net charge-off rate
of .63% of total loans. The charge-offs recorded in first quarter included a
$154,000 write-down on foreclosed property upon transfer of the property to
Other Real Estate Owned. Net loan charge-offs were -.03% for the first quarter
of 1998, primarily because of substantial recoveries of fully guaranteed SBA
loan charge-offs taken in late 1997.
Non-interest income of $842,000 in first quarter 1999 was flat compared to the
same period in 1998 at $851,000. Increases in service charge income, coupled
with overdraft and nonsufficient funds charges, and international fees of
$51,000 and $19,000, respectively, were offset by lower gains on sales of SBA
loans and investment securities. Service charge income increased in first
quarter 1999 compared to the comparable period in 1998 primarily as a result of
higher demand deposit volumes. The increase in international fee income was due
to growth in the Bank's trade finance transaction volume. The total decline in
gains on sales of assets from first quarter 1998 to the same period in 1999 was
$94,000 and was due to a lower volume of sales, as well as a decline in the
premiums received on SBA loan sales.
Non-interest expenses increased $465,000, or 24%, in the first quarter of 1999
compared to the same period last year. Most of this increase was related to the
CSB acquisition and absorbing the operating expenses of this new branch in San
Jose. First quarter 1999 personnel costs were $1.2 million compared to first
quarter 1998 personnel costs of $1 million primarily reflecting new branch
staffing. Year to date occupancy costs increased $50,000 for a total of
$189,000 compared to the same period last year. Other operating expenses
increased 26% to $817,000 for first quarter 1999 compared to the same quarter
in 1998. The primary reasons for this increase were that data processing,
telecommunications, and goodwill amortization, were higher this year by
$67,000, $25,000, and $22,000, respectively. These increases were mainly
related to the acquisition of CSB. The Company's 69% efficiency ratio for the
three-month period of 1999 was 6% higher than the first quarter of 1998
primarily due to the increase in operating expenses associated with the new
branch.
Asset Quality
Non-performing assets increased to $4,237,000 at March 31, 1999 compared to
$3,610,000 at year-end 1998. Non-performing assets represented 3.09% of total
loans and other real estate owned as of March 31, 1999 compared to 2.70% at
December 31, 1998. Non-performing loans at March 31, 1999 primarily include
four fully guaranteed SBA credits, totaling $1.2 million, four partially
guaranteed SBA credits, totaling $809,000 of which $359,000 is fully
guaranteed, and two real estate credits totaling $1.2 million for which the
Bank believes it is well secured. One of the SBA credits included in
non-performing loans at March 31, 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 non-performing. Additionally,
the loan is fully guaranteed by the SBA. Also included in non-performing assets
was other real estate owned at March 31, 1999 of $825,000 that resulted from
the foreclosure on a loan secured by a non-residential building. At present,
there is a contract to sell this property, which is expected to close in May
1999. There were no loans past due 90 days or more as to principal or interest
payments and still accruing at March 31, 1999.
Page 7 of 17
<PAGE> 8
NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
(Dollars in thousands) 1999 1998
- -----------------------------------------------------------------------------------
<S> <C> <C>
Loans on non-accrual
SBA guaranteed $1,590 $1,495
Non-SBA guaranteed 1,437 1,724
Other real estate 825 --
Restructured loans - SBA guaranteed 385 391
- -----------------------------------------------------------------------------------
Total non-performing assets $4,237 $3,610
===================================================================================
Loans 90 days past due and still accruing interest $ -- --
Total non-performing assets as a
percentage of total loans and ORE 3.09% 2.70%
Loans ninety days past due and still accruing
interest as a percentage of total loans --% --%
</TABLE>
The allowance for loan losses decreased to $2,224,000 at March 31, 1999 from
$2,336,000 at year-end 1998, a decrease of 5%. Loan losses have increased this
year to date compared to first quarter 1998, with gross charge-offs of $235,000
offset by recoveries of $24,000, resulting in a net annualized charge-off rate
of .63% of average total loans compared to -.03% for the first quarter of 1998.
The allowance for loan losses represented 1.63% and 1.75%, respectively, of
total loans outstanding at March 31, 1999 and December 31, 1998.
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES AT MARCH 31, 1999
<TABLE>
<CAPTION>
(In thousands)
===============================================================
<S> <C>
Allowance for loan losses at December 31, 1998 $2,336
---------------------------------------------------------------
Charge-offs:
Commercial, financial, and agricultural 79
SBA --
Real estate 154
Installment loans to individuals 2
---------------------------------------------------------------
Total 235
---------------------------------------------------------------
Recoveries:
Commercial, financial, and agricultural 2
SBA 19
Real estate --
Installment loans to individuals 3
---------------------------------------------------------------
Total 24
---------------------------------------------------------------
Net charge-offs 211
---------------------------------------------------------------
Provision for loan losses charged to income 99
---------------------------------------------------------------
Allowance for loan losses at March 31, 1999 $2,224
---------------------------------------------------------------
</TABLE>
Page 8 of 17
<PAGE> 9
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 March 31, 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, there can be no assurance 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 remained fairly stable since the end of 1998. At March 31, 1999,
the Company's average net loan to deposit ratio was 63%, 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 $16 million of borrowing capacity under a secured line of credit
available from the Federal Home Loan Bank of Atlanta, of which $10 million was
being utilized at March 31, 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 $605,000 to $23.9
million at March 31, 1999, a decrease of 2.5% from December 31, 1998, and an
increase of 1.7% over equity at March 31, 1998. Offset by normal earnings
growth, stockholders' equity decreased $858,000 since December 31, 1998 due to
the repurchase of common stock under the Company's stock repurchase plan. 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 remained fairly
stable at 7.4% at March 31, 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 March 31, 1999, the
Bank had a risk-weighted total capital ratio of 11.6% and a Tier 1
risk-weighted capital ratio of 10.4% which compares favorably to 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 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
Page 9 of 17
<PAGE> 10
systems (both wired and wireless), controlled-access systems and elevators. The
Company expects that all necessary upgrades to these systems will be completed
by June 30, 1999.
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 $20,000. An additional $40,000 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.
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 electric, telephone, and water service, are beyond the control
of the Company and the failure of such systems 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, there can be no assurances 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,
there can be no assurance 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 a test of its contingency plan in April 1999 in its efforts to ensure
continued operations in the event of an unforseen problem.
Page 10 of 17
<PAGE> 11
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.
Page 11 of 17
<PAGE> 12
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 has previously
met the requirements of a small business issuer. The Company will be required
to provide this disclosure for the year ending December 31, 1999 and interim
periods subsequent to that date.
Page 12 of 17
<PAGE> 13
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 - Not Applicable
ITEM 5. Other Information - Not Applicable
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 17
<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/ David Yu
--------------------------------------
David Yu
President and Chief Executive Officer
BY: /s/ Gary K. McClung
--------------------------------------
Gary K. McClung
Executive Vice President
(Principal Financial Officer
and Principal Accounting Officer)
DATE: May 13, 1999
------------------------------------
Page 14 of 17
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Page
- ------- ----
<S> <C> <C>
11.1 Statement Regarding Computation of Per Share Earnings 16
27.1 Financial Data Schedule 17
</TABLE>
Page 15 of 17
<PAGE> 1
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION
OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Statement Regarding Computation of Year to Date
Per Share Earnings ended March 31,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
Basic earnings per share:
Weighted-average shares outstanding 1,771,127 1,653,917
Net income per share $ .35 $ .38
Diluted earnings per share:
Weighted average shares outstanding 1,771,127 1,653,917
Dilutive stock options 20,000 20,000
Assumed repurchased under treasury
stock method (19,056) (15,283)
----------- -----------
Weighted-average common shares
outstanding and common share
equivalents 1,772,071 1,658,634
----------- -----------
Net income $ 622,000 $ 625,000
=========== ===========
Diluted net income per share $ .35 $ .38
=========== ===========
</TABLE>
Page 16 of 17
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1999 10-Q FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 12,037
<INT-BEARING-DEPOSITS> 180
<FED-FUNDS-SOLD> 10,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 82,607
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 136,138
<ALLOWANCE> 2,224
<TOTAL-ASSETS> 255,191
<DEPOSITS> 212,118
<SHORT-TERM> 15,108
<LIABILITIES-OTHER> 4,065
<LONG-TERM> 0
18
0
<COMMON> 0
<OTHER-SE> 23,882
<TOTAL-LIABILITIES-AND-EQUITY> 255,191
<INTEREST-LOAN> 3,207
<INTEREST-INVEST> 1,215
<INTEREST-OTHER> 138
<INTEREST-TOTAL> 4,560
<INTEREST-DEPOSIT> 1,785
<INTEREST-EXPENSE> 1,958
<INTEREST-INCOME-NET> 2,602
<LOAN-LOSSES> 99
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 2,382
<INCOME-PRETAX> 963
<INCOME-PRE-EXTRAORDINARY> 963
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 622
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
<YIELD-ACTUAL> 4.41
<LOANS-NON> 3,027
<LOANS-PAST> 0
<LOANS-TROUBLED> 385
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,336
<CHARGE-OFFS> 235
<RECOVERIES> 24
<ALLOWANCE-CLOSE> 2,224
<ALLOWANCE-DOMESTIC> 2,224
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
