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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
Commission File Number 000-21267
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SUMMIT BANK CORPORATION
GEORGIA 58-1722476
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4360 CHAMBLEE DUNWOODY ROAD, ATLANTA, GEORGIA 30341
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 454-0400
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock par value $.01
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] or No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 15, 2000, the aggregate market value of the Common Stock held
by persons other than directors and executive officers of the registrant was
$12,112,355 as determined by the most recent trades of registrant's Common Stock
known to the registrant. The exclusion of all directors and executive officers
of the registrant for purposes of this calculation should not be construed as a
determination that any particular director or executive officer is an affiliate
of the registrant.
As of March 15, 2000, there were 1,655,263 shares of the Registrant's
common stock outstanding.
Documents Incorporated by Reference
Part III information is incorporated herein by reference, pursuant to
Instruction G to Form 10-K, from Summit's Proxy Statement for its 2000 Annual
Shareholders' Meeting. Certain Part II information required by Form 10-K is
incorporated by reference from the Summit Bank Corporation Annual Report to
Shareholders as indicated below, which is included as an exhibit hereto.
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SUMMIT BANK CORPORATION
FORM 10-K CROSS-REFERENCE INDEX
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FORM ANNUAL PROXY
10-K REPORT STATEMENT
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PART 1.
<S> <C> <C> <C> <C>
ITEM 1. Business 3-14
(a) Overview 3-4
(b) Banking Services 4-5
(c) Locations and Service Areas 5
(d) Asian-and Latin-American Markets 5
(e) International Services Market 6
(f) New Company Subsidiary 6
(g) Supervision and Regulation 6-13
(h) Competition 13
(i) Fiscal and Monetary Policy 13
(j) Employees 13-14
ITEM 2. Properties 14-15
ITEM 3. Legal Proceedings 15
ITEM 4. Submission of Matters to a Vote of
Security Holders 15
PART II.
ITEM 5. Market for Registrant's Common Equity
and Related Stockholder Matters 16
ITEM 6. Selected Financial Data 17
ITEM 7. Management's Discussion and Analysis
of Financial Condition and Results
of
Operations 9-19
ITEM 8. Financial Statements and Supplementary
Data 20-35
ITEM 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure 18
PART III.
ITEM 10. Directors and Executive Officers of the
Registrant 2-6
ITEM 11. Executive
Compensation 8-11
ITEM 12. Security Ownership of Certain
Beneficial Owners and Management 7,13-14
ITEM 13. Certain Relationships and Related
Transactions 6
PART IV.
ITEM 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K 20-21
SIGNATURES 22-23
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CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Various matters discussed in this Annual Report on Form 10-K may constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act. Forward-looking statements may involve known and unknown
risks, uncertainties, and other factors which may cause the actual results,
performance or achievements of Summit Bank Corporation ("Summit" or the
"Company") to be materially different from the results described in such
forward-looking statements.
Actual results may differ materially from the results anticipated in
forward-looking statements in our 10-K due to a variety of factors including,
without limitation:
- The effects of future economic conditions;
- Government monetary and fiscal policies;
- Legislative and regulatory changes;
- The effects of changes in interest rates on the level and
composition of deposits, loan demand, the value of loan
collateral, and interest rate risks; and
- The effects of competition from commercial banks, thrifts,
consumer finance companies, and other financial institutions
operating in our market area and elsewhere.
All forward-looking statements attributable to the Company are expressly
qualified in their entirety by this cautionary notice. The Company disclaims any
intent or obligation to update these forward-looking statements, whether as a
result of new information, future events or otherwise.
PART 1.
ITEM 1. BUSINESS
OVERVIEW
Summit was organized as a Georgia corporation on October 15, 1986, primarily to
become a bank holding company by acquiring all of the common stock of The Summit
National Bank (the "Bank") upon its formation. The Bank commenced business on
March 10, 1988, and the Company's primary activity since then has been the
ownership and operation of the Bank.
The Bank is a banking association organized under the laws of the United States.
The Bank engages in commercial banking from its main office and five branch
offices, four of which are located in its primary service area of northern
metropolitan Atlanta, Georgia. The fifth branch office was added on June 30,
1998 with the Bank's acquisition of California Security Bank ("CSB") in San
Jose, California. This office is in an ethnic community of San Jose that is very
similar to part of the Bank's primary service area in Atlanta. The Bank seeks to
serve four principal markets:
- individuals, professionals, and small to medium-sized
businesses in the Bank's primary service areas;
- ethnic communities, principally Asian-Americans and Latin
Americans, located in the primary service areas, including
businesses operated by members of such communities;
- individuals, professionals, and businesses in the primary
service areas requiring the international financial
transaction services offered by the Bank; and
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- foreign corporations and individuals requiring specialized
banking services (international private banking) in the
Atlanta and San Jose metropolitan areas.
Management believes that the identified markets continue to provide significant
growth opportunities for the Bank. The Bank offers these markets a variety of
traditional and specialized banking services, and emphasizes personal service,
cultural sensitivity and accessibility of management.
BANKING SERVICES
The Bank offers the full range of deposit services typically offered by most
banks and other financial institutions, including checking accounts, NOW
accounts, savings accounts and other time deposits of various types, ranging
from daily money market accounts to longer-term certificates of deposits.
However, the Bank tailors its transaction accounts and time certificates to the
principal market areas at rates competitive to those offered in the area. In
addition, retirement accounts such as Individual Retirement Accounts ("IRAs")
are available. The Bank solicits these accounts from individuals, businesses,
associations, and government entities. All deposit accounts are insured by the
Federal Deposit Insurance Corporation (the "FDIC") up to the maximum amount
(generally $100,000 per depositor).
There are certain risks in making loans. A principal economic risk in making
loans is the creditworthiness of the borrower. Other lending risks include the
period of time over which loans may be repaid, changes in economic and industry
conditions and in the circumstances of individual borrowers, and uncertainties
about the future value of any collateral. The Bank's management maintains an
allowance for loan losses based on, among other things, an evaluation of
economic conditions and other lending risks, and its regular reviews of
delinquencies and loan portfolio quality. The Bank's allowance for loan losses
is based upon a percentage of the total outstanding loan portfolio and upon a
percentage of the balance of specific loans when their ultimate collectibility
is considered questionable.
The Bank offers a full range of short to medium-term commercial and personal
loans. Commercial loans include both secured and unsecured loans for working
capital (including inventory and receivables), business expansion (including
acquisition of real estate and improvements), and purchase of equipment and
machinery. The Bank offers government guaranteed loans under the Small Business
Administration ("SBA") loan program. After originating a guaranteed loan, the
Bank may sell the guaranteed portion (approximately 75%) resulting in a gain on
the sale of the portion of the loan sold. In addition, the Bank retains the
servicing rights to these loans, which generate servicing income on the portion
sold. Personal (or consumer) loans include secured and unsecured loans for
financing automobiles, home improvements, education, and personal investments.
The Bank also offers residential mortgages, through a brokering arrangement with
Century Mortgage Corporation.
In addition to deposit and loan services, the Bank's other domestic services
include 24-hour multi-lingual telephone banking, cash management services,
investment sweep accounts, safe deposit boxes, travelers checks, direct deposit
of payroll and social security checks, as well as automatic drafts for various
accounts. The Bank is a member of the STAR and CIRRUS ATM networks. These ATM
networks may be used by Bank customers in major cities throughout Georgia and
California, and in various other cities in the United States and worldwide. The
ATM located at the Asian Banking Center branch location also offers
multi-lingual screens for Asian patrons. The Bank also offers both VISA and
MasterCard credit cards to its customers through a third party vendor.
The Bank's international banking services include inbound and outbound
international funds transfers, foreign collections, and import and export
letters of credit. The Bank also issues bankers acceptances. The Bank issues
drafts or bills of exchange facilitate international trade and are available
only after it completes a diligent credit review process. In addition, the Bank
offers private banking services to qualified foreign individuals and
corporations establishing business operations in Atlanta. These specialized
private banking services include bill paying, statement and mail holding,
currency exchange, international funds transfers and personal lines of credit
(including credit card services).
In addition, the Bank's private banking group assists executives living in the
United States with personal banking services that support international business
objectives. These services include introductions to
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correspondent financial services as well as to the Company's general business
contacts in international trade markets. The Bank's customers also may to invest
in equity stocks and mutual funds through an arrangement with a third party
brokerage firm, giving customers more flexibility in their investment options.
The Bank does not offer personal or corporate trust services (other than
retirement custodial services for IRAs and similar plans).
LOCATIONS AND SERVICE AREAS
The Bank leases its main office at 4360 Chamblee Dunwoody Road, Atlanta, Georgia
30341. The main office is in a five-story office building near the intersection
of Interstate 285 and Chamblee Dunwoody Road, in DeKalb County. The Bank has a
6,000 square foot branch facility in its 18,000 square foot office building at
3490 Shallowford Road, Chamblee, DeKalb County, Georgia. The Bank also leases a
branch facility at One Paces West, Suite 150, 2727 Paces Ferry Road in Vinings.
The Bank owns a 4,560 square foot building on approximately 1.2 acres located at
595 Franklin Road, Marietta, Georgia which serves as its third branch office. In
February 2000, management decided to close this office and consolidate the East
Marietta customers with the Vinings location. The Bank plans to close the East
Marietta branch in June 2000. Until February 2000, the Bank owned a 7,700 square
foot building on approximately 1.3 acres at 3280 Holcomb Bridge Road, Norcross,
Georgia that serves as its fourth branch office. The Bank sold this building to
a third party. The Bank plans to leaseback approximately 2,500 square feet to
continue its Peachtree Corners branch operations upon completion of renovations
currently underway. In 1998, the Bank assumed a lease for the office acquired
through the purchase of CSB. This facility has 8,142 square feet at 1694 Tully
Road, San Jose, California and is the Bank's fifth branch location.
One of the Bank's two primary service areas covers a section of North Atlanta,
Georgia including portions of DeKalb, Fulton, Cobb, and Gwinnett Counties. This
area includes the city of Chamblee, portions of the cities of Doraville and
Norcross, the DeKalb-Peachtree Airport area, the Northlake and Perimeter Malls
in DeKalb County, Cumberland and Town Center Malls in Cobb County and the
Perimeter Business Park and the Peachtree Corners area including Technology
Park. This area is crossed by major thoroughfares such as Interstate 285 to the
North, Buford Highway and Peachtree Industrial Boulevard in the South, Clairmont
and Shallowford Roads in the East, and Interstate 75 in the West. The Bank's
second primary service area covers the city of San Jose, California. San Jose is
located in the south San Francisco bay area and is crossed by the major
thoroughfares of Highway 101 and Interstates 880, 680, and 280.
ASIAN- AND LATIN-AMERICAN MARKETS
One of the Bank's principal target markets is the Atlanta Asian-American
population, including members of the Korean, Chinese, Japanese, Indian, and
Southeast Asian communities. The 1990 United States census indicates that the
Atlanta Asian-American population exceeds 75,000 people, with the majority of
this population located in north Atlanta, including parts of DeKalb, Fulton, and
Cobb counties. The San Jose market consists largely of Vietnamese-American and
Latin-American individuals and businesses.
Management believes that the locations of the Bank's main office and Atlanta
branch offices are convenient to a large number of both Asian- and
Latin-Americans. The population of Latin-Americans in Atlanta has been growing
rapidly during the past few years and is also one of the Bank's target markets.
At year-end 1999, approximately 50% of the Bank's Atlanta customers were
Asian-American. Vietnamese and Latin-American individuals comprise the majority
of the Bank's San Jose branch customer base.
Management believes that the Asian-American community has a high savings rate,
low unemployment, and a commitment to economic advancement through education and
hard work. In addition, a significant percentage of Asian-Americans in the
Bank's market are first generation U.S. immigrants who may be constrained in
their current use of banking services at other financial institutions by
language and other cultural barriers.
The Bank has employed, and will continue to employ, personnel with Asian and
Spanish language skills and first-hand knowledge of the communities to be
served. Management believes that language ability and
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cultural sensitivity, combined with accessibility to senior management, enhances
the Bank's competitive position in its market.
INTERNATIONAL SERVICES MARKET
Management believes that a growing number of domestic businesses in the
metropolitan areas served by the Bank (and, in particular, a growing number of
small- to medium-sized businesses) require its international banking services.
While a number of financial institutions operating in the Bank's markets offer
such services, they are typically offered from international banking departments
located in downtown office facilities or from an out-of-state location;
personnel in branch facilities closer to smaller businesses generally are not
trained to address these specialized needs. Management believes that the Bank
has penetrated, and will be able to further penetrate, this market by providing
businesses with convenient access to personnel specially trained to provide
international services.
The Bank does not engage in offshore buyer financing or cross border lending.
Occasionally, the Bank discounts short-term letters of credit drafts for
selected correspondent banks under approved facilities. Management believes that
the commercial and political risks of these activities are acceptable based on
our assessment of available information on the correspondent banks and the
respective countries. As of December 31, 1999, there were no amounts outstanding
under such facilities.
In addition to domestic businesses requiring international banking services,
management believes that a growing number of foreign businesses in Atlanta and
San Jose, along with their executives and employees, frequently require the
international banking services provided by the Bank. Foreign nationals doing
business in the United States are often unfamiliar with our banking practices.
The Bank has personnel with the language and cultural skills suited to serve
this clientele. Management further believes the international banking experience
of management of the Bank, along with the contacts of the directors of the
Company and the Bank in the international and domestic business communities,
enhances the Bank's ability to compete in this target market.
NEW COMPANY SUBSIDIARY
In September 1999, the Company formed a subsidiary, CashMart, Inc., of which it
owns 80% of the outstanding common stock. The Federal Reserve Bank approved the
Company's notice of its intent to engage in check cashing services and the sale
of money orders and prepaid telephone cards prior to commencement of these
operations. The subsidiary plans to provide payroll check-cashing services and
the sale of money orders and prepaid telephone cards to individuals in Atlanta
who may not have the credit quality needed for accounts at financial
institutions. The primary types of checks cashed are payroll checks, and the
primary source of income for the business is a fee deducted from each check
processed. The subsidiary began business operations in March 2000. CashMart,
Inc. currently operates at one location, and has plans for a second location in
the Atlanta metro area in second quarter 2000.
SUPERVISION AND REGULATION
The following discussion sets forth the material elements of the regulatory
framework applicable to banks and bank holding companies and provides certain
specific information about the Company.
THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
The Company is a bank holding company registered with the Board of Governors of
the Federal Reserve System (the "Federal Reserve") under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"). As such, the Company is subject
to the supervision, examination, and reporting requirements of the BHC Act and
the regulations of the Federal Reserve.
The BHC Act requires every bank holding company to obtain the prior approval of
the Federal Reserve before:
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- it may acquire direct or indirect ownership or control of any
voting shares of any bank if, after such acquisition, the bank
holding company will directly or indirectly own or control
more than 5% of the voting shares of the bank;
- it or any of its subsidiaries, other than a bank, may acquire
all or substantially all of the assets of any bank; or
- it may merge or consolidate with any other bank holding
company.
The BHC Act further provides that the Federal Reserve may not approve any
transaction that:
- would result in a monopoly, or
- would be in furtherance of any combination or conspiracy to
monopolize or attempt to monopolize the business of banking in
any section of the United States, or
- the effect of which may be substantially to lessen competition
or tend to create a monopoly in any section of the country, or
- that in any other manner would be in restraint of trade,
unless the anticompetitive effects of the proposed transaction are clearly
outweighed by the public interest in meeting the convenience and needs of the
community to be served. The Federal Reserve is also required to consider the
financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the community to
be served. Consideration of financial resources generally focuses on capital
adequacy, which is discussed below.
Under the BHC Act, the Company may acquire a bank in another state, and any bank
holding company located outside Georgia may acquire a Georgia-based bank,
regardless of state law to the contrary, but subject to certain
deposit-percentage, aging, and other restrictions. Also, as of June 1, 1997,
national and state-chartered banks may branch interstate through acquisitions of
banks in other states. By adopting legislation prior to that date, a state had
the ability either to "opt in" and accelerate the date after which interstate
branching is permissible or "opt out" and prohibit interstate branching
altogether.
PERMITTED ACTIVITIES
Until recently, the BHC Act generally prohibited the Company from engaging in
activities other than banking or managing or controlling banks or other
permissible subsidiaries and from acquiring or retaining direct or indirect
control of any company engaged in any activities other than those activities
determined by the Federal Reserve to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. In determining
whether a particular activity was permissible, the Federal Reserve considered
whether the performance of such an activity reasonably could be expected to
produce benefits to the public, that outweigh possible adverse effects. The
Federal Reserve has determined that the following are among activities
permissible for BHC's:
- factoring accounts receivable,
- acquiring or servicing loans,
- leasing personal property,
- conducting discount securities brokerage activities,
- performing certain data processing services,
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- acting as agent or broker in selling credit life insurance and
certain other types of insurance in connection with credit
transactions, and
- performing certain insurance underwriting activities.
Despite prior approval, the Federal Reserve has the power to order a holding
company or its subsidiaries to terminate any activity or to terminate its
ownership or control of any subsidiary when it has reasonable cause to believe
that continuation of such activity or such ownership or control constitutes a
serious risk to the financial safety, soundness, or stability of any bank
subsidiary of that bank holding company.
NEW LEGISLATION
On November 12, 1999, President Clinton signed the Gramm-Leach-Bliley Act, which
amends the BHC Act and greatly expands the activities in which bank holding
companies and affiliates of banks are permitted to engage. The Act eliminates
many federal and state law barriers to affiliations among banks and securities
firms, insurance companies, and other financial service providers. The
provisions of the Act relating to permitted activities of bank holding companies
and affiliates of banks became effective on March 11, 2000. The following
discussion describes the activities in which the Company will be permitted to
engage under the BHC Act, as amended by the Gramm-Leach-Bliley Act.
Generally, if the Company qualifies and elects to become a financial holding
company, which is described below, it may engage in activities that are:
- Financial in nature;
- Incidental to a financial activity; or
- Complementary to a financial activity and do not pose a
substantial risk to the safety or soundness of depository
institutions or the financial system generally.
In determining whether a particular activity is financial in nature or
incidental or complementary to a financial activity, the Federal Reserve must
consider (1) the purpose of the BHC and Gramm-Leach-Bliley Act, (2) changes or
reasonable expected changes in the marketplace in which financial holding
companies compete and in the technology for delivering financial services, and
(3) whether the activity is necessary or appropriate to allow financial holding
companies to effectively compete with other financial service providers and to
efficiently deliver information and services. The Act expressly lists the
following activities as financial in nature:
- Lending, trust and other banking activities;
- Insuring, guaranteeing, or indemnifying against loss or harm,
or providing and issuing annuities, and acting as principal,
agent, or broker for these purposes, in any state;
- Providing financial, investment, or advisory services;
- Issuing or selling instruments representing interests in pools
of assets permissible for a bank to hold directly;
- Underwriting, dealing in or making a market in securities;
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- Other activities that the Federal Reserve may determine to be
so closely related to banking or managing or controlling banks
as to be a proper incident to managing or controlling banks;
- Foreign activities permitted outside of the United States if
the Federal Reserve has determined them to be usual in
connection with banking operations abroad;
- Merchant banking through securities or insurance affiliates;
and
- Insurance company portfolio investments.
To qualify to become a financial holding company, any depository institution
subsidiaries of the Company must be well capitalized and will managed and must
have a Community Reinvestment Act rating of at least "satisfactory."
Additionally, we must file an election with the Federal Reserve to become a
financial holding company and provide the Federal Reserve with 30 days written
notice prior to engaging in a permitted financial activity. Although we do not
have any immediate plans to file an election with the Federal Reserve to become
a financial holding company, if deemed appropriate in the future, we may elect
to become a financial holding company.
The Act also contains provisions that directly impact the following activities
and operations of the Bank:
- Its insurance activities,
- The activities of and qualifications for any Bank financial
subsidiaries, and
- Its privacy policies and practices concerning disclosure of
consumer information.
OTHER BANKING REGULATORS
The Bank is a member of the Federal Deposit Insurance Corporation (the "FDIC"),
and as such, its deposits are insured by the FDIC to the maximum extent provided
by law. The Bank is also subject to numerous state and federal statutes and
regulations that affect its business, activities, and operations.
The Office of the Comptroller of the Currency (the "OCC") regularly examines the
Bank's operations and has authority to approve or disapprove any bank mergers,
consolidations, establishment of branches, and similar corporate actions. The
OCC also may prohibit unsafe or unsound banking practices or other violations of
law.
PAYMENT OF DIVIDENDS
The Company is a legal entity separate and distinct from its banking subsidiary.
The Company's principal sources of cash flow, including cash flow to pay
dividends to its shareholders, are dividends by the Bank. There are statutory
and regulatory limitations on the payment of dividends by the Bank to the
Company, as well as the payment of dividends by the Company to its shareholders.
If, in the opinion of the federal banking regulator, a depository institution
under its jurisdiction is engaged in or is about to engage in an unsafe or
unsound practice (which, depending on the financial condition of the depository
institution, could include the payment of dividends), such authority may
require, after notice and hearing, that such institution cease and desist from
such practice. The federal banking agencies have indicated that paying dividends
that deplete a depository institution's capital base to an inadequate level is
an unsafe and unsound banking practice. Under the Federal Deposit Insurance
Corporation Improvement Act
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of 1991 ("FDICIA"), a depository institution may not pay dividends if payment
would cause it to become undercapitalized or if it already is undercapitalized.
See "-- Prompt Corrective Action." Moreover, the federal agencies have policies
that provide that bank holding companies and insured banks should generally pay
dividends out of current operating earnings.
At December 31, 1999, under federal and state dividend rules, the Bank, without
obtaining regulatory approvals, could declare aggregate dividends to the Company
of up to approximately $4 million, plus net income of the Bank in 2000.
Dividend payments by the Company and the Bank may also be affected or limited by
other factors, such as the regulatory requirements to maintain adequate capital.
CAPITAL ADEQUACY
The Company and the Bank are required to comply with the capital adequacy
standards established by the Federal Reserve and by the appropriate federal
banking regulator in the case of the Bank. The Federal Reserve has two basic
measures of capital adequacy for bank holding companies: a risk-based measure
and a leverage measure.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance-sheet items.
The minimum guideline for the ratio (the "Total Risk-Based Capital Ratio") of
total capital ("Total Capital") to risk-weighted assets (including certain
off-balance-sheet items, such as standby letters of credit) is 8%. At least half
of Total Capital must comprise common stock, minority interests in the equity
accounts of consolidated subsidiaries, noncumulative perpetual preferred stock,
and a limited amount of cumulative perpetual preferred stock, less goodwill and
certain other intangible assets ("Tier 1 Capital"). The remainder may consist of
subordinated debt, other preferred stock, and a limited amount of loan loss
reserves ("Tier 2 Capital"). At December 31, 1999, the Company's consolidated
Total Risk-Based Capital Ratio and its Tier 1 Risk-Based Capital Ratio (i.e.,
the ratio of Tier 1 Capital to risk-weighted assets) were 13.3% and 12.0%,
respectively.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio (the "Leverage Ratio") of Tier 1 Capital to average assets, less goodwill
and certain other intangible assets, of 3% for bank holding companies that meet
certain specified criteria, including having the highest regulatory rating. All
other bank holding companies generally are required to maintain a Leverage Ratio
of at least 3%, plus an additional cushion of 100 to 200 basis points. The
Company's Leverage Ratio at December 31, 1999 was 8.1%. The guidelines also
provide that bank holding companies experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels without significant reliance on intangible
assets. Furthermore, the Federal Reserve has indicated that it will consider a
"tangible Tier 1 Capital Leverage Ratio" (deducting all intangibles) and other
indicia of capital strength in evaluating proposals for expansion or new
activities.
The Bank is subject to the risk-based and leverage capital requirements of the
OCC, which are substantially similar to those of the Federal Reserve for bank
holding companies.
The Bank exceeded applicable minimum capital requirements as of December 31,
1999. No federal banking agency has imposed any additional capital requirements
on the Company or the Bank. Failure to meet
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regulatory capital guidelines could subject a bank to a variety of enforcement
remedies, including issuance of a capital directive, the termination of deposit
insurance by the FDIC, a prohibition on the taking of brokered deposits, and
certain other restrictions on its business. As described below, substantial
additional restrictions can be imposed upon FDIC-insured depository institutions
that fail to meet applicable capital requirements. See "-- Prompt Corrective
Action."
In addition, Federal Reserve and FDIC regulations, which became mandatory on
January 1, 1998, require bank regulators to consider interest rate risk (when
the interest rate sensitivity of an institution's assets does not match the
sensitivity of its liabilities or its off-balance-sheet position) in the
evaluation of a bank's capital adequacy. The bank regulatory agencies'
methodology for evaluating interest rate risk requires banks with excessive
interest rate risk exposure to hold additional amounts of capital against such
exposures. The interest rate risk rules apply to any bank or bank holding
company whose trading activity equals 10% or more of its total assets, or whose
trading activity equals $1 billion or more.
SUPPORT OF THE BANK
Under Federal Reserve policy, the Company is expected to be a source of
financial strength for, and to commit resources to support the Bank. In
addition, any capital loans by a bank holding company to its banking subsidiary
are subordinate in right of payment to deposits and to certain other
indebtedness of the Bank. In the event of a bank holding company's bankruptcy,
any commitment by the bank holding company to a federal bank regulatory agency
to maintain the capital of a banking subsidiary will be assumed by the
bankruptcy trustee and entitled to a priority of payment.
Under the Federal Deposit Insurance Act ("FDIA"), a depository institution
insured by the FDIC may be liable for any loss incurred by, or reasonably
expected to be incurred by, the FDIC after August 9, 1989, in connection with:
- the default of a commonly controlled FDIC-insured depository
institution, or
- any assistance provided by the FDIC to any commonly controlled
FDIC-insured depository institution "in danger of default."
"Default" is defined generally as the appointment of a conservator or receiver,
and "in danger of default" is defined generally as the existence of certain
conditions indicating that a default is likely to occur in the absence of
regulatory assistance. The FDIC's claim for damages is superior to claims of
shareholders of the insured depository institution or its holding company, but
is subordinate to claims of depositors, secured creditors, and holders of
subordinated debt (other than affiliates) of the commonly controlled insured
depository institution. The subsidiary depository institution of the Company is
subject to these cross-guarantee provisions. As a result, any loss suffered by
the FDIC in respect of the subsidiary would likely result in assertion of the
cross-guarantee provisions, the assessment of such estimated losses against the
depository institution's banking affiliates, and a potential loss of the
Company's investment in such other subsidiary depository institutions.
PROMPT CORRECTIVE ACTION
FDICIA establishes a system of prompt corrective action to resolve the problems
of undercapitalized institutions. The Act, which was effective in December 1992,
requires the federal banking regulators to establish five capital categories
(well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized) and to take certain mandatory
supervisory actions, and to consider other discretionary actions, with respect
to institutions in the three undercapitalized categories. The severity of the
regulatory actions depends upon the capital category in which the institution is
placed. Generally, subject to a narrow exception, FDICIA requires a banking
regulator to appoint a receiver or conservator for an institution that is
critically undercapitalized. The federal banking agencies have specified by
regulation the relevant capital level for each category.
11
<PAGE> 12
The capital levels established for each of the categories are as follows:
<TABLE>
<CAPTION>
================================================================================================================
Total Tier 1 Risk-
Capital Category Tier 1 Capital Risk-Based Capital Based Capital Other
================================================================================================================
<S> <C> <C> <C> <C>
Well 5% or more 10% or more 6% or more Not subject to
Capitalized a capital
directive
- ----------------------------------------------------------------------------------------------------------------
Adequately 4% or more 8% or more 4% or more --
Capitalized
- ----------------------------------------------------------------------------------------------------------------
Undercapitalized less than 4% Less than 8% less than 4% --
- ----------------------------------------------------------------------------------------------------------------
Significantly less than 3% Less than 6% less than 3% --
Undercapitalized
- ----------------------------------------------------------------------------------------------------------------
Critically 2% or less -- -- --
Undercapitalized tangible equity
================================================================================================================
</TABLE>
For purposes of the regulation, the term "tangible equity" includes core capital
elements counted as Tier 1 Capital for purposes of the risk-based capital
standards, plus the amount of outstanding cumulative perpetual preferred stock
(including related surplus), minus all intangible assets with certain
exceptions. A depository institution may be deemed to be in a capitalization
category that is lower than is indicated by its actual capital position if it
receives an unsatisfactory examination rating.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency.
Under FDICIA, a bank holding company must guarantee that a subsidiary depository
institution meets its capital restoration plan, subject to certain limitations.
The obligation of a controlling holding company under FDICIA to fund a capital
restoration plan is limited to the lesser of 5% of an undercapitalized
subsidiary's assets or the amount required to meet regulatory capital
requirements. An undercapitalized institution is also generally prohibited from
increasing its average total assets, making acquisitions, establishing any
branches, or engaging in any new line of business, except in accordance with an
accepted capital restoration plan or with the approval of the FDIC. In addition,
the appropriate federal banking agency is given authority with respect to any
undercapitalized depository institution to take any of the actions it is
required to or may take with respect to a significantly undercapitalized
institution as described below if it determines "that those actions are
necessary to carry out the purpose" of FDICIA.
At December 31, 1999, the Bank met each of the capital levels to qualify as a
well-capitalized financial institution under regulatory standards.
FDIC INSURANCE ASSESSMENTS
Pursuant to FDICIA, the FDIC adopted a risk-based assessment system for insured
depository institutions that takes into account the risks attributable to
different categories and concentrations of assets and liabilities. The system
assigns an institution to one of three capital categories: (a) well capitalized;
(b) adequately capitalized; and (c) undercapitalized. These three categories are
substantially similar to the prompt corrective action categories described
above, with the "undercapitalized" category including institutions that are
undercapitalized, significantly undercapitalized, and critically
undercapitalized for prompt corrective action purposes. An institution is also
assigned by the FDIC to one of three supervisory subgroups within each capital
group. The supervisory subgroup to which an institution is assigned is based on
a supervisory evaluation provided to the FDIC by the institution's primary
federal regulator and
12
<PAGE> 13
information which the FDIC determines to be relevant to the institution's
financial condition and the risk posed to the deposit insurance funds (which may
include, if applicable, information provided by the institution's state
supervisor). An institution's insurance assessment rate is then determined based
on the capital category and supervisory category to which it is assigned.
Under the FDIA, the FDIC may terminate insurance of deposits upon a finding that
the institution has engaged in unsafe and unsound practices, is in an unsafe or
unsound condition to continue operations, or has violated any applicable law,
regulation, rule, order, or condition imposed by the FDIC.
Based on the Bank's risk classification, the Bank was not required to pay an
assessment for deposit insurance in 1999, nor will it be required to pay a
deposit insurance assessment in 2000. The Bank was required to pay the special
interim Bank Insurance Fund Financing Corporation ("FICO") assessments in 1999
and will also be required to pay this assessment in 2000. During fourth quarter
1999, the annualized rate for this assessment was 1.184 cents per $100 of Bank
deposits, and for first quarter 2000, the annualized rate will be 2.120 cents
per $100 of Bank deposits.
PROPOSED LEGISLATION AND REGULATORY ACTION
New regulations and statutes are regularly proposed that contain wide-ranging
proposals for altering the structures, regulations and competitive relationships
of the nation's financial institutions. It cannot be predicted whether or what
form any proposed regulation or statute will be adopted or the extent to which
the business of the Company may be affected by such regulation or statute.
COMPETITION
The banking business is highly competitive, particularly in the metropolitan
areas served by the Bank. In one or more aspects of their businesses, the
Company and the Bank compete with commercial banks, savings and loan
associations, credit unions, finance companies, mutual funds, insurance
companies, and brokerage and investment banking companies operating in the
metropolitan Atlanta area, the San Jose area and elsewhere. Many of these
competitors have substantially greater resources and lending limits than the
Bank and may offer services, such as trust services, that the Company and the
Bank do not provide. The Bank has employees fluent in foreign languages
including Mandarin, Cantonese, Korean, Vietnamese, German, French, Spanish, and
others, which enhances the Bank's ability to compete in its target markets.
FISCAL AND MONETARY POLICY
The business of banking depends on interest rate differentials. In general, the
difference between the interest paid by a bank on its deposits and its other
borrowings, and the interest received by a bank on its loans and securities
holdings, accounts for the major portion of a bank's earnings. Thus, the
earnings and growth of the Company and the Bank are subject to economic
conditions generally, both domestic and foreign, and also to the monetary and
fiscal policies of the United States and its agencies, particularly the Federal
Reserve. The Federal Reserve regulates the supply of money through various
means, including open market dealings in United States government securities,
the discount rate at which banks may borrow from the Federal Reserve, and the
reserve requirements on deposits.
The Federal Reserve's monetary policies historically have had a significant
effect on the operating results of commercial banks and will continue to do so
in the future. Management cannot predict the national and international economic
conditions and money markets, changes in policy by monetary and fiscal
authorities, and the effect of such factors on the Company and the Bank.
13
<PAGE> 14
EMPLOYEES
As of March 15, 2000, the Company and the Bank had 103 full-time equivalent
employees. Management does not anticipate additional hiring in 2000, except to
support normal growth of business. The employees are not part of any collective
bargaining agreement and employee relations with the Company are considered
good.
ITEM 2. PROPERTIES
MAIN OFFICE
The Bank's main office is at 4360 Chamblee Dunwoody Road, Atlanta, DeKalb
County, Georgia 30341, on the ground floor of a five-story, 100,000 square foot,
office building near the intersection of Interstate 285 and Chamblee Dunwoody
Road. The Bank has a lease for 19,403 square feet on the first and third floors
of the building. The lease provided base rental at $14.25 per square foot per
year during the term of the lease and rights to extend its occupancy of the
leased space twice, for one additional year each, at a base rate of $14.50 per
square foot per year. The initial term of the lease expired in December 1998,
and the lease was extended to December 2000. Including escalations, the rent per
square foot during 2000 is $16.92. A new lease was signed in March 2000 with an
initial base rate of $17.25 per square foot per year. The first floor space,
which includes the main branch, contains 8,941 square feet of space with six
teller stations, two customer service stations, the small business lending
department, the loan operations department, offices for loan officers, and the
main conference room. The Bank also has an ATM attached to the building. The
term under the new lease is from January 1, 2001 through December 31, 2010 for
the first floor space. The third floor space houses the international
department, personnel department, the operations department, and the
administration offices for a total of 10,462 square feet. The term under the new
lease is from January 1, 2001 through December 31, 2007 for the third floor
space.
ASIAN BANKING CENTER
The Bank owns an office building containing 16,639 square feet of leasable space
located on 2.77 acres of land in Atlanta's Asian-American business district on
Shallowford Road near Buford Highway. The Bank occupies 6,000 square feet of
space as a branch office. The Bank currently leases 10,639 square feet to other
tenants which leases provide base rental rates from $12.53 to $14.19 per square
foot per year. This building was built and owned by the Company until October
1999 when the Company transferred it to the Bank as a contribution to capital.
The Company's total cost was $2.2 million for the land and building including
improvements and tenant finishes. In addition, the branch has approximately
$200,000 in furniture, fixtures and equipment at this site. This branch office
has six teller stations, five customer service stations, and five offices for
lending officers and management. In addition, the Bank has installed a
drive-through ATM and drive-through teller window.
VININGS
The Bank's branch office in the Vinings area of Cobb County is located at One
Paces West, Suite 150, 2727 Paces Ferry Road, NW, Atlanta, Georgia 30339. The
office building has 246,515 square feet of leasable space near the intersection
of Interstate 285 and Paces Ferry Road. The Vinings branch office contains 5,266
square feet of space, which the Bank has leased at a base rate of $17.25 per
square foot per year. This space consists of four teller stations, two drive-in
windows, four customer service stations, five offices for management and lending
officers and a conference room. The Bank also has a walk-up ATM at this
location. The initial term of the lease expires in June 2002.
EAST MARIETTA
In January 1996, the Bank acquired a 4,560 square foot building situated on 1.2
acres located at 595 Franklin Road, Marietta, Georgia. This office, which opened
in May 1996, has six teller stations, one drive-up window, three drive-in lanes,
a walk-up ATM, and three offices for lending officers and management.
14
<PAGE> 15
Due to slower than anticipated growth results, this office will be closed in
June 2000. We have not finalized our plans for the disposition of the building.
PEACHTREE CORNERS
In August 1996, the Bank acquired a two-story 7,700 square foot building on 1.3
acres at 3280 Holcomb Bridge Road, Norcross, Georgia. The branch opened in
November 1996. In February 2000, the Bank sold the building and land housing
this branch to an unrelated party with a leaseback arrangement for approximately
2,500 square feet on the first floor. This branch office, when renovated, will
have six teller stations, one drive-up window, one drive-in lane, a
drive-through ATM, and two offices for a lending officer and branch management.
The term of the lease is five years at a base rent of $10.00 per square foot per
year and includes three options to extend the lease for five years each at the
same base rate.
SAN JOSE OFFICE
The Bank's San Jose branch office is in leased office space at 1694 Tully Road.
The branch, as anchor tenant in the building, occupies 8,142 square feet. This
branch has five teller stations, in addition to a merchant booth for large
commercial transactions, and two walk-up ATM machines. The base rent for this
office is $24.23 per square foot per year, and the term of the lease, which was
renewed in April 1999, is seven years.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings, other than ordinary routine litigation
incidental to their business, pending against or involving assets of the Company
or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matter was submitted during the fourth quarter of the fiscal year covered by
this report to a vote of security-holders, through the solicitation of proxies
or otherwise.
15
<PAGE> 16
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company currently has three market makers for shares of its common stock.
The Company's shares are listed on the Nasdaq National Market under the symbol
"SBGA". All sales and purchases of shares of the common stock known to the
Company were made through the three market makers. As of March 15, 2000, the
quoted purchase price for the Company's shares was $11.63 per share. There were
approximately 302 holders of record of the Company's common stock at March 15,
2000.
The Company began paying cash dividends in 1995 and paid $.28 per share in that
year. The Company paid $.39 and $.52 per share in cash dividends in 1998 and
1999, respectively. Although the Company currently plans to pay cash dividends
on a quarterly basis, Summit's dividend policy may change in the future. The
declaration and payment of dividends will depend upon business conditions,
operating results, capital and reserve requirements, and the Board of Directors'
consideration of other relevant factors. In addition, our ability to pay
dividends in the future will depend, in part, on the earnings of the Bank and
its ability to pay dividends to the Company.
For additional information concerning the Company's quarterly stock prices and
quarterly cash dividends see page 10, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Company's 1999 Annual
Report of Shareholders which is incorporated by reference herein.
The Bank may only pay dividends out of its net profits then on hand, after
deducting expenses, including losses and bad debts. In addition, the Bank is
prohibited from declaring a dividend on its shares of common stock until its
surplus equals its stated capital, unless there has been transferred to surplus
no less than one-tenth of the Bank's net profits of the preceding two
consecutive half-year periods (in the case of an annual dividend). The approval
of the OCC is required if the total of all dividends declared in any calendar
year by the Bank exceeds the Bank's net profits to date, as defined, for that
year combined with its retained net profits for the preceding two years less any
required transfers to surplus. The Bank declared and paid cash dividends of
$875,000 to the Company in 1999. As of December 31, 1999, the Bank had
cumulative net retained profits for 1998 and 1999 of $3,989,000, which is
entirely available for dividends to the Company in 2000, plus the Bank's 2000
net earnings, if any, provided that the necessary transfers of net profits to
surplus were made. The OCC also may to enjoin a national bank from engaging in
an unsafe or unsound practice, which can include the payment of a dividend under
certain circumstances.
16
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below as of and for the years
ended December 31, 1999, 1998, 1997, 1996, and 1995 is unaudited and has been
derived from the Consolidated Financial Statements of the Company and its
subsidiaries, and from records of the Company. The information presented below
should be read in conjunction with the Consolidated Financial Statements, the
Notes to Consolidated Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Averages are derived
from daily balances.
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) As of December 31,
Balance Sheet Data 1999 1998 1997 1996 1995
- ------------------ ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets $ 281,268 $ 263,161 180,296 $ 154,248 $ 130,076
Investment securities 70,440 96,101 63,962 38,584 32,702
Loans 167,719 133,496 98,892 85,808 78,177
Allowance for loan losses 2,525 2,336 1,468 1,931 1,686
Deposits 232,941 218,647 144,795 132,899 109,816
Federal Home Loan Bank advances 10,000 10,000 10,000 1,000 --
Other borrowed funds 11,371 5,987 2,756 657 --
Stockholders' equity 22,786 24,505 19,778 16,936 15,413
<CAPTION>
Year Ended December 31,
Statement of Income Data 1999 1998 1997 1996 1995
- ------------------------ ----------------------------------------------------------------------------------
Interest income $ 19,744 $ 17,253 $ 13,475 $ 11,356 $ 10,101
Interest expense 7,742 7,309 5,470 4,520 4,070
Net interest income 12,002 9,944 8,005 6,836 6,031
Provision for loan losses 899 455 540 404 397
Net interest income after
provision for loan losses 11,103 9,489 7,465 6,432 5,634
Non-interest income 3,326 3,575 3,460 3,361 3,311
Non-interest expenses 10,215 8,792 7,156 6,411 5,802
Income tax expense 1,489 1,503 1,319 1,174 1,042
Net income $ 2,725 $ 2,769 $ 2,450 $ 2,208 $ 2,101
Per Share Data
Book value per share at year end $ 13.76 $ 13.68 $ 13.28 $ 12.03 $ 10.95
Basic earnings per share 1.59 1.56 1.71 1.57 1.49
Diluted earnings per share 1.59 1.53 1.50 1.43 1.49
Weighted-average shares outstanding - basic 1,713,318 1,773,010 1,436,023 1,407,688 1,407,688
Weighted-average shares outstanding - diluted 1,713,318 1,804,828 1,632,586 1,546,332 1,414,670
Dividends declared $ .52 $ .39 $ .35 $ .31 $ .28
Dividend payout ratio 32.70% 25.00% 20.47% 19.75% 18.79%
Ratios
Return on average assets 1.04% 1.24% 1.47% 1.59% 1.74%
Return on average equity 11.60% 11.89% 13.36% 13.80% 15.09%
Average equity/average assets 8.98% 10.47% 11.03% 11.53% 11.51%
Net interest margin 5.07% 4.90% 5.26% 5.44% 5.50%
Non-performing assets/total loans
and other real estate .77% 2.70% 1.80% 1.07% .14%
Allowance for loan losses/total loans 1.51% 1.75% 1.48% 2.25% 2.16%
Non-interest expense/net
interest income and non-interest income 66.65% 65.03% 62.42% 62.87% 62.11%
</TABLE>
17
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Incorporated by reference to the 1999 Annual Shareholders' Report -- See Cross
Reference Index on page 2.
The Company has not provided quantitative and qualitative disclosures of market
risk as required by Item 305 of Regulation S-K because it meets the requirements
of a small business issuer.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference to the 1999 Annual Shareholders' Report -- See Cross
Reference Index on page 2.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
18
<PAGE> 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to our Proxy Statement for the 2000 Annual
Shareholders' Meeting -- See Cross Reference Index on page 2.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to our Proxy Statement for the 2000 Annual
Shareholders' Meeting -- See Cross Reference Index on page 2.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to our Proxy Statement for the 2000 Annual
Shareholders' Meeting -- See Cross Reference Index on page 2.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to our Proxy Statement for the 2000 Annual
Shareholders' Meeting -- See Cross Reference Index on page 2.
19
<PAGE> 20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
1. Financial Statements - The consolidated financial statements,
notes to consolidated financial statements, and independent
auditors' report thereon, are incorporated by reference to the
2000 Annual Shareholders' Report -- See Cross Reference Index
on page 2.
2. Financial Statement Schedules - These are omitted as they are
not required or are not applicable.
3. Exhibits (numbered in accordance with Item 601 of Regulation
S-K).
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------ -------
<S> <C>
2.1 Agreement and Plan of Merger by and between The Summit National Bank
and California Security Bank dated as of March 27, 1998 (incorporated
by reference to Exhibit 2.1 of Summit Bank Corporation's Current Report
on Form 8-K dated March 27, 1998.)
3.1 Amended and Restated Articles of Incorporation of Summit Bank
Corporation (incorporated by reference to Exhibit 3.2 of Summit Bank
Corporation's Registration Statement on Form S-1, Amendment No. 3
(Registration Number 33-16366)).
3.2 Bylaws of Summit Bank Corporation, as amended (incorporated by
reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1987.)
4.1 The rights of security holders are defined in (i) Articles Five, Six,
Nine, Ten, Eleven, Thirteen, Fourteen, and Sixteen of the Amended and
Restated Articles of Incorporation of Summit Bank Corporation and (ii)
Articles Two, Three, Eight, Ten, and Eleven of the amended Bylaws of
Summit Bank Corporation, (see Exhibits 3.1 and 3.2, respectively).
10.1* Summit Bank Corporation 1998 Stock Incentive Plan, as of February 23,
1998 (incorporated by reference to Appendix A to the Company's Proxy
Statement filed on March 18, 1998).
10.2 Lease Agreement dated December 3, 1993, between Baker Dennard Co.,
Lessor, and Summit National Bank, Lessee (incorporated by reference to
Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993) (Main office).
10.3 Lease Agreement dated June 16, 1995, between ZML-Paces Limited
Partnership, Lessor and Summit National Bank, Lessee (incorporated by
reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995) (Vinings office).
10.4* Change in Control Agreement dated August 25, 1995 by and between Pin Pin
Chau, President of the Summit National Bank, and the Summit National
Bank (incorporated by reference to Exhibit 10.7 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.)
10.5* Change in Control Agreement dated August 25, 1995 by and between David
Yu, Chairman of the Summit National Bank, and the Summit National Bank
(incorporated by reference to Exhibit 10.8 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.)
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C>
10.6* Change in Control Agreement dated August 25, 1995 by and between Alec
Dudley, Executive Vice President of the Summit National Bank, and the
Summit National Bank (incorporated by reference to Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995.)
10.7* Change in Control Agreement dated August 25, 1995 by and between Gary
McClung, Executive Vice President of the Summit National Bank, and the
Summit National Bank (incorporated by reference to Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995.)
10.8 Lease agreement dated August 18, 1999, between Borrett, Inc., Lessor
and The Summit National Bank, Lessee (San Jose office).
10.9 Agreement to sell real estate dated November 17, 1999 between The
Summit National Bank and Three Rivers Land Development, L.L.C.
11.1 Statement Regarding Computation of Per Share Earnings
13.1 Annual Report to Shareholders
21.1 Subsidiaries of Summit Bank Corporation
23.1 Consent of Independent Public Accountants
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
* Denotes a management contract, compensatory plan or arrangement.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of 1999.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SUMMIT BANK CORPORATION
By /s/ Pin Pin Chau
--------------------------------------
Pin Pin Chau, Chief Executive Officer
Date March 23, 2000
-------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Pin Pin Chau Director, Chief Executive Dated: March 23, 2000
- ------------------------------------- Officer
Pin Pin Chau
/s/ David Yu Director, President Dated: March 22, 2000
- ------------------------------------
David Yu
/s/ Gary K. McClung Executive Vice President Dated: March 27, 2000
- ------------------------------------- and Secretary; Principal Financial
Gary K. McClung and Accounting Officer
/s/ Jack N. Halpern Director, Chairman Dated: March 27, 2000
- ------------------------------------ of the Board
Jack N. Halpern
/s/ Gerald L. Allison Director, Dated: March 27, 2000
- ------------------------------------- Vice Chairman
Gerald L. Allison of the Board
/s/ Aaron I. Alembik Director Dated: March 22, 2000
- -------------------------------------
Aaron I. Alembik
- ------------------------------------- Director Dated:
Paul C.Y. Chu
/s/ Peter M. Cohen Director Dated: March 23, 2000
- ------------------------------------
Peter M. Cohen
/s/ Jose I. Gonzalez Director Dated: March 24, 2000
- ------------------------------------
Jose I. Gonzalez
/s/ Donald R. Harkleroad Director Dated: March 22, 2000
- -------------------------------------
Donald R. Harkleroad
/s/ Daniel T. Huang Director Dated: March 22, 2000
- ------------------------------------
Daniel T. Huang
</TABLE>
22
<PAGE> 23
<TABLE>
<S> <C> <C>
/s/ Shafik H. Ladha Director Dated: March 27, 2000
- -------------------------------------
Shafik H. Ladha
/s/ James S. Lai Director Dated: March 24, 2000
- -------------------------------------
James S. Lai
/s/ Sion Nyen (Francis) Lai Director Dated: March 23, 2000
- -------------------------------------
Sion Nyen (Francis) Lai
/s/ Shih Chien (Raymond) Lo Director Dated: March 21, 2000
- -------------------------------------
Shih Chien (Raymond) Lo
/s/ Nack Paek Director Dated: March 22, 2000
- -------------------------------------
Nack Paek
/s/ Carl L. Patrick, Jr. Director Dated: March 27, 2000
- -------------------------------------
Carl L. Patrick, Jr.
/s/ Cecil M. Phillips Director Dated: March 22, 2000
- -------------------------------------
Cecil M. Phillips
/s/ W. Clayton Sparrow, Jr. Director Dated: March 22, 2000
- -------------------------------------
W. Clayton Sparrow, Jr.
/s/ Howard H. L. Tai Director Dated: March 22, 2000
- -------------------------------------
Howard H. L. Tai
/s/ P. Carl Unger Director Dated: March 23, 2000
- -------------------------------------
P. Carl Unger
</TABLE>
23
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Pages
<S> <C> <C>
2.1 Agreement and Plan of Merger by and between The Summit National Bank
and California Security Bank dated as of March 27, 1998 (incorporated
by reference to Exhibit 2.1 of Summit Bank Corporation's Current Report
on Form 8-K dated March 27, 1998.)
3.1 Amended and Restated Articles of Incorporation of Summit Bank
Corporation (incorporated by reference to Exhibit 3.2 of Summit Bank
Corporation's Registration Statement on Form S-1, Amendment No.
3(Registration Number 33-16366).
3.2 Bylaws of Summit Bank Corporation, as amended (incorporated by
reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1987.)
4.1 The rights of security holders are defined in (i) Articles Five, Six,
Nine, Ten, Eleven, Thirteen, Fourteen, and Sixteen of the Amended and
Restated Articles of Incorporation of Summit Bank Corporation and (ii)
Articles Two, Three, Eight, Ten, and Eleven of the amended Bylaws of
Summit Bank Corporation, as provided in Exhibits 3.1 and 3.2
respectively.
10.1 Summit Bank Corporation 1998 Stock Incentive Plan, as of February 23,
1998 (incorporated by reference to Appendix A to the Company's Proxy
Statement filed on March 18, 1998).
10.2 Lease Agreement dated December 3, 1993, between Baker Dennard Co.,
Lessor, and Summit National Bank, Lessee (incorporated by reference to
Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993).
10.3 Lease agreement dated June 16, 1995, between ZML-Paces Limited
Partnership, Lessor and Summit National Bank, Lessee (incorporated by
reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995.)
10.4 Change in Control Agreement dated August 25, 1995 by and between Pin
Pin Chau, President of the Summit National Bank, and the Summit
National Bank (incorporated by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995.)
10.5 Change in Control Agreement dated August 25, 1995 by and between David
Yu, Chairman of the Summit National Bank, and the Summit National Bank
(incorporated by reference to Exhibit 10.8 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.)
10.6 Change in Control Agreement dated August 25, 1995 by and between Alec
Dudley, Executive Vice President of the Summit National Bank, and the
Summit National Bank (incorporated by reference to Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995.)
10.7 Change in Control Agreement dated August 25, 1995 by and between Gary
McClung, Executive Vice President of the Summit National Bank, and the
Summit National Bank (incorporated by reference to Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995.)
10.8 Lease agreement dated August 18, 1999, between Borrett, Inc., Lessor
and The Summit National Bank, Lessee.
10.9 Agreement to sell real estate dated November 17, 1999 between The
Summit National Bank and Three Rivers Land Development, L.L.C.
11.1 Statement Regarding Computation of Per Share Earnings
13.1 Annual Report to Shareholders
21.1 Subsidiaries of Summit Bank Corporation
23.1 Consent of Independent Public Accountants
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
24
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EXHIBIT 10.8
STANDARD OFFICE LEASE--GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[AIR LOGO]
1. BASIC LEASE PROVISIONS ("Basic Lease Provisions")
1.1 PARTIES: This Lease, dated, for reference purposes only, August 18,
1999, is made by and between BORRETT, INC., (herein called "Lessor") and THE
SUMMIT NATIONAL BANK, doing business under the name of _________________,
(herein called "Lessee").
1.2 PREMISES: Suite Number(s) n/a, 1st floor, consisting of approximately
8,142 rentable square feet, more or less, as defined in paragraph 2 and as
shown on Exhibit "A" hereto (the "Premises").
1.3 BUILDING: Commonly described as being located at 1694 Tully Road, in
the City of San Jose, County of Santa Clara, State of California, as more
particularly described in Exhibit A hereto, and as defined in paragraph 2.
1.4 USE: commercial bank and/or legal office use, subject to paragraph 6.
1.5 TERM: seven (7) years commencing April 1, 1999 ("Commencement Date")
and ending March 31, 2006, as defined in paragraph 3.
1.6 BASE RENT: $16,438.90 per month, payable on the 1st day of each month,
per paragraph 4.1 from April 1, 1999 through March 31, 2000.
1.7 BASE RENT INCREASE: On 4/1/2000, 4/1/2001, 4/1/2002, 4/1/2003,
4/1/2004, 4/1/2005 the monthly Base Rent payable under paragraph 1.6 above shall
be adjusted as provided in paragraph 4.3 below.
1.8 RENT PAID UPON EXECUTION: none for ___________________________________.
1.9 SECURITY DEPOSIT: $29,576.00.
1.10 LESSEE'S SHARE OF OPERATING EXPENSE INCREASE: 60.463% as defined in
paragraph 4.2.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 PREMISES: The Premises are a portion of a building, herein sometimes
referred to as the "Building" identified in paragraph 1.3 of the Basic Lease
Provisions. "Building" shall include adjacent parking structures used in
connection therewith. The Premises, the Building, the Common Areas, the land
upon which the same are located, along with all other buildings and
improvements thereon or thereunder, are herein collectively referred to as the
"Office Building Project." Lessor hereby leases to Lessee and Lessee leases
from Lessor for the term, at the rental, and upon all of the conditions set
forth herein, the real property referred to in the Basic Lease Provisions,
paragraph 1.2, as the "Premises," including rights to the Common Areas as
hereinafter specified.
2.2 VEHICLE PARKING: So long as Lessee is not in default and subject to the
rules and regulations attached hereto, and as established by Lessor from time
to time, Lessee shall be entitled to rent and use it prorata share of the
existing parking spaces at no additional charge.
2.2.1 If Lessee commits, permits or allows any of the prohibited activities
described in the Lease or the rules then in effect, then Lessor shall have the
right, without notice, in addition to such other rights and remedies that it
may have, to remove or tow away the vehicle involved and charge the cost to
Lessee, which cost shall be immediately payable upon demand by Lessor.
2.3 COMMON AREAS--DEFINITION. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Office Building Project that are provided and designated by the Lessor
from time to time for the general non-exclusive use of Lessor, Lessee and other
lessees of the Office Building Project and their respective employees,
suppliers, shippers, customers and invitees, including but not limited to
common entrances, lobbies, corridors, stairways and stairwells, public
restrooms, elevators, escalators, parking areas to the extent not otherwise
prohibited by this Lease, loading and unloading areas, trash areas, roadways,
sidewalks, walkways, parkways, ramps, driveways, landscaped areas and
decorative walls.
2.4 COMMON AREAS--RULES AND REGULATIONS. Lessee agrees to abide by and
conform to the rules and regulations attached hereto as Exhibit B with respect
to the Office Building Project and Common Areas, and to cause its employees,
suppliers, shippers, customers, and invitees to so abide and conform. Lessor or
such other person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time, to
modify, amend and enforce said rules and regulations. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees, their agents, employees and invitees of the Office Building
Project,
2.5 COMMON AREAS--CHANGES. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Building interior and exterior and Common
Areas, including, without limitation, changes in the location, size, shape,
number, and appearance thereof, including but not limited to the lobbies,
windows, stairways, air shafts, elevators, escalators, restrooms, driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, decorative walls, landscaped areas and walkways;
provided, however, Lessor shall at all times provide the parking facilities
required by applicable law;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land and improvements outside the boundaries of
the Office Building Project to be a part of the Common Areas, provided that
such other land and improvements have a reasonable and functional relationship
to the Office Building Project;
(d) To add additional buildings and improvements to the Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Office Building Project, or any
portion thereof;
(f) To do and perform such other acts and make such other changes in,
to or with respect to the Common Areas and Office Building Project as Lessor
may, in the exercise of sound business judgment deem to be appropriate.
3. TERM.
3.1 TERM. The term and Commencement Date of this Lease shall be as
specified in paragraph 1.5 of the Basic Lease Provisions.
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4. RENT
4.1 BASE RENT. Subject to adjustment as hereinafter provided in paragraph
4.3, and except as maybe otherwise expressly provided in this Lease, Lessee
shall pay to Lessor the Base Rent for the Premises set forth in paragraph 1.6 of
the Basic Lease Provisions, without offset or deduction. Lessee shall pay
Lessor upon execution hereof the advance Base Rent described in paragraph 1.6
of the Basic Lease Provisions. Rent for any period during the term thereof
which is for less than one month shall be prorated based upon the actual number
of days of the calendar month involved. Rent shall be payable in lawful money
of the United States to Lessor at the address stated herein or to such other
persons or at such other places as Lessor may designate in writing.
4.2 OPERATING EXPENSE INCREASE. Lessee shall pay to Lessor during the term
hereof, in addition to the Base Rent, Lessee's Share, as hereinafter defined,
of the amount by which all Operating Expenses, as hereinafter defined, for
each Comparison Year exceeds the amount of all Operating Expenses for the Base
Year, such excess being hereinafter referred to as the "Operating Expense
Increase," in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease, as the
percentage set forth in paragraph 1.10 of the Basic Lease Provisions, which
percentage has been determined by dividing the approximate square footage of the
Premises by the total approximate square footage of the rentable space
contained in the Officer Building Project. It is understood and agreed that the
square footage figures set forth in the Basic Lease Provision are
approximations which Lessor and Lessee agree are reasonable and shall not be
subject to revision except in connection with an actual change in the size of
the Premises or a change in the space available for lease in the Officer
Building Project.
(b) "Base Year" is defined as the calendar year in which the Lease
term commences. Base Year is 1999.
(c) "Comparison Year" is defined as each year during the term of this
Lease subsequent to the Base Year; provided, however, Lessee shall have no
obligation to pay a share of the Operating Expense Increase applicable to the
first twelve (12) months of the Lease Term. Lessee's Share of the Operating
Expense Increase for the first and last Comparison Years of the Lease Term
shall be prorated according to that portion of such Comparison Year as to which
Lessee is responsible for a share of such increase.
(d) "Operating Expenses" is defined, for purposes of this Lease, to
include all costs, if any, incurred by Lessor in the exercise of its reasonable
discretion, for:
(i) The operation, repair, maintenance, and replacement, in
neat, clean, safe, good order and condition, of the Office Building Project,
including but not limited to, the following:
(aa) The Common Areas, including their surfaces, coverings,
decorative items, carpets, drapes and window coverings, and including parking
areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways,
stairways, parkways, driveways, landscaped areas, striping, bumpers, irrigation
systems, Common Area lighting facilities, building exteriors and roofs, fences
and gates;
(bb) All heating, air conditioning, plumbing, electrical
systems, life safety equipment, telecommunication and other equipment used in
common by, or the benefit of, lessees or occupants of the Office Building
Project, including elevators and escalators, tenant directories, fire detection
systems including sprinkler system maintenance and repair.
(ii) Trash disposal, janitorial and security services;
(iii) Any other service to be provided by Lessor that is
elsewhere in this Lease stated to be an "Operating Expense";
(iv) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under paragraph 8 hereof;
(v) The amount of the real property taxes to be paid by Lessor
under paragraph 10.1 hereof:
(vi) The cost of water, sewer, gas, electricity, and other
publicly mandated services to the Office Building Project;
(vii) Labor, salaries and applicable fringe benefits and costs,
materials, supplies and tools, used in maintaining and/or cleaning the Office
Building Project and accounting and a management fee attributable to the
operation of the Office Building Project;
(viii) Replacing and/or adding improvements mandated by any
governmental agency and any repairs or removals necessitated thereby amortized
over its useful life according to Federal income tax regulations or guidelines
for depreciation thereof (including interest on the unamortized balance as is
then reasonable in the judgement of Lessor's accountants);
(ix) Replacements of equipment or improvements that have a
useful life for depreciation purposes according to Federal income tax
guidelines of five (5) years or less, as amortized over such life.
(e) Operating Expenses shall not include the costs of replacements of
equipment or improvements that have a useful life for Federal income tax
purposes in excess of five (5) years unless it is of the type described in
paragraph 4.2(d)(viii), in which case their cost shall be included as above
provided.
(f) Operating Expenses shall not include any expenses paid by any
lessee directly to third parties, or as to which Lessor is otherwise reimbursed
by any third arty, other tenant, or by insurance proceeds.
(g) Lessee's Share of Operating Expense Increase shall be payable by
Lessee within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time in advance of Lessee's Share
of the Operating Expense Increase for any Comparison Year, and the same shall be
payable monthly or quarterly, as Lessor shall designate, during each Comparison
Year of the Lease term, on the same day as the Base Rent is due hereunder. In
the event that Lessee pays Lessor's estimate of Lessee's Share of Operating
Expense Increase as aforesaid, Lessor shall deliver to Lessee within sixty (60)
days after the expiration of each Comparison Year a reasonably detailed
statement showing Lessee's Share of the actual Operating Expense Increase
incurred during such year. If Lessee's payments under this paragraph 4.2(g)
during said Comparison Year exceed Lessee's Share as indicated on said
statement, Lessee shall be entitled to credit the amount of such overpayment
against Lessee's Share of Operating Expense Increase next falling due. If
Lessee's payments under this paragraph during said Comparison Year were less
than Lessee's Share as indicated on said statement, Lessee shall pay to Lessor
the amount of the deficiency within (10) days after delivery by Lessor to Lessee
of said statement. Lessor and Lessee shall forthwith adjust between them by cash
payment any balance determined to exist with respect to that portion of the last
Comparison Year for which Lessee is responsible as to Operating Expense
Increases, notwithstanding that the Lease term may have terminated before the
end of such Comparison Year.
4.3 RENT INCREASE
4.3.1 At the time set forth in paragraph 1.7 of the Basic Lease
Provisions, the monthly Base Rent payable under paragraph 4.1 of this Lease
shall be adjusted by the increase, if any, in the Consumer Price Index of the
Bureau of Labor Statistics of the Department of Labor for All Urban Consumers,
(1967=100), "All Items," for the city nearest the location of the Building,
herein referred to as "C.P.I.," since the date of this Lease.
4.3.2 The monthly Base Rent payable pursuant to paragraph 4.3.1 shall be
calculated as follows: the Base Rent payable for the first month of the term of
this Lease, as set forth in paragraph 4.1 of this Lease, shall be multiplied by
a fraction the numerator of which shall be the C.P.I. for the calendar month in
which the original lease commences. The sum so calculated shall constitute the
new monthly Base Rent hereunder, but, in no event, shall such new monthly Base
Rent be less than the Base Rent payable for the month immediately preceding the
date for the rent adjustment.
4.3.3 In the event the compilation and/or publication of the C.P.I. shall
be transferred to any other governmental department or bureau or
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agency or shall be discontinued, then the index most nearly the same as the
C.P.I. shall be used to make such calculations. In the event that Lessor and
Lessee cannot agree on such alternative index, then the matter shall be
submitted for decision to the American Arbitration Association in the County in
which the Premises are located, in accordance with the then rules of said
association and the decision of the arbitrators shall be binding upon the
parties, notwithstanding one party failing to appear after due notice of the
proceeding. The cost of said Arbitrators shall be paid equally by Lessor and
Lessee.
4.3.4 Lessee shall not continue to pay the rent at the rate previously
in effect until the increase, if any, is determined. Within five (5) days
following the date on which the increase is determined, Lessee shall make such
payment to Lessor as will bring the increased rental current, commencing with
the effective date of such increase through the date of any metal installments
then due. Thereafter the rental shall be paid at the increased rate.
4.3.5 At such time as the amount of any change in rental required by
this Lease is known or determined, Lessor and Lessee shall execute an amendment
to this Lease setting forth such change.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the
security deposit set forth in paragraph 1.9 of the Basic Lease Provisions as
security for Lessee's faithful performance of Lessee's obligations hereunder.
If Lessee fails to pay rent or other charges due hereunder, or otherwise
defaults with respect to any provision of this Lease, Lessor may use, apply or
retain all or any portion of said deposit for the payment of any rent or other
charge in default for the payment of any other sum to which Lessor may become
obligated by reason of Lessee's default, or to compensate Lessor for any loss
or damage which Lessor may suffer thereby. If Lessor so uses or applies all or
any portion of said deposit. Lessee shall within ten (10) days after written
demand therefor deposit cash with Lessor in an amount sufficient to restore
said deposit to the full amount then required of Lessee. If the monthly Base
Rent shall, from time to time, increase during the term of this Lease, Lessee
shall, at the time of such increase, deposit with Lessor additional money as a
security deposit so that the total amount of the security deposit held by
Lessor shall at all times bear the same proportion to the then current Base
Rent as the initial security deposit bears to the initial Base Rent set forth
in paragraph 1.6 of the Basic Lease Provisions. Lessor shall not be required to
keep security deposit separate from its general accounts. If Lessee performs
all of Lessee's obligations, hereunder, said deposit, or so much thereof as has
not heretofore been applied by Lessor, shall be returned, without payment of
interest or other increment for its use, to Lessee (or, at Lessor's option, to
the last assignee, if any, of Lessee's interest hereunder) at the expiration of
the term hereof, and after Lessee has vacated the Premises. No trust
relationship is created herein between Lessor and Lessee with respect to said
Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for the purpose set
forth in paragraph 1.4 of the Basic Lease Provisions or any other use which is
reasonably comparable to that use and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in the state
existing on the date that the Lease term commences, but without regard to
alterations or improvements made by Lessee or the use for which Lessee will
occupy the Premises, does not violate any covenants or restrictions of record,
or any applicable building code, regulation or ordinance in effect on such
Lease term Commencement Date. In the event it is determined that this warranty
has been violated, then it shall be the obligation of the Lessor, after written
notice from Lessee, to promptly, at Lessor's sole cost and expense, rectify any
such violation.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's
expense, promptly comply with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements of
any fire insurance underwriters or rating bureaus, now in effect or which may
hereafter come into effect, whether or not they reflect a change in policy from
that now existing, during the term or any part of the term hereof, relating in
any manner to the Premises and the specific occupation and use by Lessee of the
Premises. Lessee shall conduct its business in a lawful manner and shall not use
or permit the use of the Premises or the Common Areas in any manner that will
tend to create waste or a nuisance or shall tend to disturb other occupants of
the Office Building Project.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee in a clean condition
on the Lease Commencement Date (unless Lessee is already in possession) and
Lessor warrants to Lessee that the plumbing, lighting, air conditioning, and
heating system in the Premises shall be in good operating condition. In the
event that it is determined that this warranty has been violated, then it shall
be the obligation of Lessor, after receipt of written notice from Lessee setting
forth with specificity the nature of the violation, to promptly, at Lessor's
sole cost, rectify such violation.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises and the Office Building Project in their condition existing as of
the Lease Commencement Date or the date that Lessee takes possession of the
Premises, whichever is earlier, subject to all applicable zoning, municipal,
county and state laws, ordinances and regulations governing and regulating the
use of the Premises, and any easements, covenants or restrictions of record, and
accepts this Lease subject thereto and to all matters disclosed thereby and by
any exhibits attached hereto. Lessee acknowledges that is has satisfied itself
by its own independent investigation that the Premises are suitable for its
intended use.
7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.
7.1 LESSOR'S OBLIGATIONS. Lessor shall keep the Office Building Project,
including the Premises, interior and exterior walls, roof, and common areas, and
the equipment whether used exclusively for the Premises or in common with other
premises, in good condition and repair; provided, however, Lessor shall not be
obligated to paint, repair or replace wall coverings, or to repair or replace
any improvements that are not ordinarily a part of the Building or are above
then Building standards. Except as provided in paragraph 9.5, there shall be no
abatement of rent or liability of Lessee on account of any injury or
interference with Lessee's business with respect to any improvements,
alterations or repairs made by Lessor to the Office Building Project or any part
thereof. Lessee expressly waives the benefits of any statute now or hereafter in
effect which would otherwise afford Lessee the right to make repairs at Lessor's
expense or to terminate this Lease because of Lessor's failure to keep the
Premises in good order, condition and repair.
7.2 LESSEE'S OBLIGATIONS.
(a) Notwithstanding Lessor's obligation to keep the Premises in good
condition and repair, Lessee shall be responsible for payment of the cost
thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the premises, or any equipment (wherever located)
that serves only Lessee or the Premises, to the extent such cost is
attributable to causes beyond normal wear and tear. Lessor may, at its option,
upon reasonable notice, elect to have Lessee perform any particular such
maintenance or repairs the cost of which is otherwise Lessee's responsibility
hereunder.
(b) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as received,
ordinary wear and tear excepted, clean and free of debris. Any damage or
deterioration of the Premises shall not be deemed ordinary wear and tear if the
same could have been prevented by good use practices by Lessee. Lessee shall
repair any damage to the Premises occasioned by the installation or removal of
Lessee's trade fixtures, alterations, furnishings and equipment. Except as
otherwise stated in this Lease, Lessee shall leave the air lines, power panels,
electrical distribution systems, lighting fixtures, air conditioning, window
coverings, wall coverings, carpets, wall panelling, ceilings and plumbing on the
Premises and in good operating condition.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, Utility Installations or repairs in, on or
about the Premises, or the Office Building Project. As used in this paragraph
7.3 the term "Utility Installation" shall mean carpeting, window and wall
coverings, power panels, electrical distribution systems, lighting fixtures, air
conditioning, plumbing, and telephone and telecommunication wiring and
equipment. At the expiration of the term, Lessor may require the removal of any
or all of said alterations, improvements, additions or Utility Installations,
and the restoration of the Premises and the Office Building Project to their
prior condition, at Lessee's expense. Should Lessor permit Lessee to make its
own alterations, improvements, additions or Utility Installations, Lessee shall
use only such contractor as has been expressly approved by Lessor, and Lessor
may require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien
and completion bond in an amount equal to one and one-half times the estimated
cost of such improvements, to insure Lessor against any liability for mechanic's
and materialmen's liens and to insure completion of the work. Should Lessee make
any alterations, improvements, additions or Utility Installations without the
prior approval of Lessor, or use a contractor not expressly approved by Lessor,
Lessor may, at any time during the term of this Lease, require that Lessee
remove any part or all of the same.
(b) Any alterations, improvements, additions or Utility Installations
in or about the Premises or the Office Building Project that Lessee shall desire
to make shall be presented to Lessor in written form, with proposed detailed
plans. If Lessor shall give its consent to Lessee's making such alteration,
improvement, addition or Utility Installation, the consent shall be deemed
conditioned upon Lessee acquiring a permit to do so from the applicable
governmental agencies, furnishing a copy thereof to Lessor prior to the
commencement of the work, and compliance by Lessee with all conditions of said
permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are of may be secured by any mechanic's or
materialmen's lien against the Premises, the Building or the Office Building
Project, or any interest therein.
(d) Lessee shall give Lessor not less than ten (10) days' notice
prior to the commencement of any work in the Premises by Lessee, and Lessor
shall have the right to post notices of non-responsibility in or on the Premises
or the Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy
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any such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises, the Building or the Office Building
Project, upon the condition that if Lessor shall require, Lessee shall furnish
to Lessor a surety bond satisfactory to Lessor in an amount equal to such
contested lien claim or demand indemnifying Lessor against liability for the
same and holding the Premises, the Building and the Office Building Project
free from the effect of such lien or claim. In addition, Lessor may require
Lessee to pay Lessor's reasonable attorneys' fees and costs in participating in
such action if Lessor shall decide it is to Lessor's best interest so to do.
(e) All alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of Lessee),
which may be made to the Premises by Lessee, including but not limited to, floor
coverings, panelings, doors, drapes, built-ins, moldings, sound attenuation, and
lighting and telephone or communication systems, conduit, wiring and outlets,
shall be made and done in a good and workmanlike manner and of good and
sufficient quality and materials and shall be the property of Lessor and remain
upon and be surrendered with the Premises at the expiration of the Lease term,
unless Lessor requires their removal pursuant to paragraph 7.3(a). Provided
Lessee is not in default, notwithstanding the provisions of this paragraph
7.3(e), Lessee's personal property and equipment, other than that which is
affixed to the Premises so that it cannot be removed without material damage to
the Premises or the Building, and other than Utility Installations, shall remain
the property of Lessee and may be removed by Lessee subject to the provisions of
paragraph 7.2.
(f) Lessee shall provide Lessor with as-built plans and specifications
for any alterations, improvements, additions or Utility Installations.
7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building Project,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, communication systems, and fire protection and detection systems, so
long as such installations do not unreasonably interfere with Lessee's use of
the Premises.
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE -- LESSEE. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of Comprehensive
General Liability insurance utilizing an Insurance Services Office standard form
with Broad Form General Liability Endorsement (GL0404), or equivalent, in an
amount of not less than $1,000,000 per occurrence of bodily injury and property
damage combined or in a greater amount as reasonably determined by Lessor and
shall insure Lessee with Lessor as an additional insured against liability
arising out of the use, occupancy or maintenance of the Premises. Compliance
with the above requirement shall not, however, limit the liability of Lessee
hereunder.
8.2 LIABILITY INSURANCE -- LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Broad Form Property Damage Insurance, plus coverage against such other risks
Lessor deems advisable from time to time, insuring Lessor, but not Lessee,
against liability arising out of the ownership, use, occupancy or maintenance of
the Office Building Project in an amount not less than $5,000,000.00 per
occurrence.
8.3 PROPERTY INSURANCE -- LESSEE. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease for the benefit of Lessee,
replacement cost fire and extended coverage insurance, with vandalism and
malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, in an amount sufficient to cover not less than 100% of the full
replacement cost, as the same may exist from time to time, of all of Lessee's
personal property, fixtures, equipment and tenant improvements.
8.4 PROPERTY INSURANCE -- LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies of insurance covering loss or
damage to the Office Building Project improvements, but not Lessee's personal
property, fixtures, equipment or tenant improvements, in the amount of the full
replacement cost thereof, as the same may exist from time to time, utilizing
Insurance Services Office standard form, or equivalent, providing protection
against all perils included within the classification of fire, extended
coverage, vandalism, malicious mischief, plate glass, and such other perils as
Lessor deems advisable or may be required by a lender having a lien on the
Office Building Project. In addition, Lessor shall obtain and keep in force,
during the term of this Lease, a policy of rental value insurance covering a
period of one year, with loss payable to Lessor, which insurance shall also
cover all Operating Expenses for said period. Lessee will not be named in any
such policies carried by Lessor and shall have no right to any proceeds
therefrom. The policies required by these paragraphs 8.2 and 8.4 shall contain
such deductibles as Lessor or the aforesaid lender may determine. In the event
that the Premises shall suffer an insured loss as defined in paragraph 9.1(f)
hereof, the deductible amounts under the applicable insurance policies shall be
deemed an Operating Expense. Lessee shall not do or permit to be done anything
which shall invalidate the insurance policies carried by Lessor. Lessee shall
pay the entirety of any increase in the property insurance premium for the
Office Building Project over what it was immediately prior to the commencement
of the term of this Lease if the increase is specified by Lessor's insurance
carrier as being caused by the nature of Lessee's occupancy or any act or
omission of Lessee.
8.5 INSURANCE POLICIES. Lessee shall deliver to Lessor copies of liability
insurance policies required under paragraph 8.1 or certificates evidencing the
existence and amounts of such insurance within seven (7) days after the
Commencement Date of this Lease. No such policy shall be cancellable or subject
to reduction of coverage or other modification except after thirty (30) days
the expiration of such policies, furnish Lessor with renewals thereof.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other,
for direct or consequential loss or damage arising out of or incident to the
perils covered by property insurance carried by such party, whether due to the
negligence of Lessor or Lessee or their agents, employees, contractors and/or
invitees. If necessary all property insurance policies required under this Lease
shall be endorsed to so provide.
8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor and its
agents, Lessor's master or ground lessor, partners and lenders, from and against
any and all claims for damage to the person or property of anyone or any entity
arising from Lessee's use of the Office Building Project, or from the conduct of
Lessee's business or from any activity, work or things done, permitted or
suffered by Lessee in or about the Premises or elsewhere and shall further
indemnify and hold harmless Lessor from and against any and all claims, costs
and expenses arising from any breach or default in the performance of any
obligation on Lessee's part to be performed under the terms of this Lease, or
arising from any act or omission of Lessee, or any of Lessee's agents,
contractors, employees, or invitees, and from and against all costs, attorney's
fees, expenses and liabilities incurred by Lessor as the result of any such use,
conduct, activity, work, things done, permitted or suffered, breach, default or
negligence, and in dealing reasonably therewith, including but not limited to
the defense or pursuit of any claim or any action or proceeding involved
therein; and in case any action or proceeding be brought against Lessor by
reason of any such matter, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified. Lessee, as a material part of the
consideration to Lessor, hereby assumes all risk of damage to property of Lessee
or injury to persons, in, upon or about the Office Building Project arising from
any cause, other than Lessor's negligence or willful misconduct and Lessee
hereby waives all claims in respect thereof against Lessor.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for loss of or damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other person
in or about the Premises or the Office Building Project, nor shall Lessor be
liable for injury to the person of Lessee, Lessee's employees, agents or
contractors, whether such damage or injury is caused by or results from theft,
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other cause, whether said
damage or injury results from conditions arising upon the Premises or upon other
portions of the Office Building Project, or from other sources or places, or
from new construction or the repair, alteration or improvement of any part of
the Office Building Project, or of the equipment, fixtures or appurtenances
applicable thereto, and regardless of whether the cause of such damage or injury
or the means of repairing the same is inaccessible, Lessor shall not be liable
for any damages arising from any act or neglect of any other lessee, occupant or
user of the Office Building Project, nor from the failure to Lessor to enforce
the provisions of any other lease of any other lessee of the Office Building
Project.
8.9 NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no representation
that the limits or forms of coverage of insurance specified in this paragraph 8
are adequate to cover Lessee's property or obligations under this Lease.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Damage" shall mean if the Premises are damaged or
destroyed to any extent.
(b) "Premises Building Partial Damage" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is less than fifty percent (50%) of the then Replacement Cost of
the building.
(c) "Premises Building Total Destruction" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair if fifty percent (50%) or more of the then Replacement Cost of
the Building.
(d) "Office Building Project Buildings" shall mean all of the buildings
on the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction" shall mean if
the Office Building Project Buildings are damaged or destroyed to the extent
that the cost of repair is fifty percent (50%) or more of the then Replacement
Cost of the Office Building Project Buildings.
(f) "Insured Loss" shall mean damage or destruction which was caused by
an event required to be covered by the insurance described in paragraph 8. The
fact that an Insured Loss has a deductible amount shall not make the loss an
uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary to be
spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring, excluding all improvements
made by lessees, other than those installed by Lessor at Lessee's expense.
(C) 1984 American Industrial Real Estate Association FULL SERVICE -- GROSS
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9.2 PREMISES DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and 9.5,
if at any time during the term of this Lease there is damage which is an
Insured Loss and which falls into the classification of either Premises Damage
or Premises Building Partial Damage, then lessor shall, as soon as reasonably
possible and to the extent the required materials and labor are readily
available through usual commercial channels, at Lessor's expense, repair such
damage (but not Lessee's fixtures, equipment or tenant improvements originally
paid for by Lessee) to its condition existing at the time of the damage, and
this Lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is not
an Insured Loss and which falls within the classification of Premises Damage or
Premises Building Partial Damage, unless caused by a negligent or willful act
of Lessee (in which event Lessee shall make the repairs at Lessee's expense),
which damage prevents Lessee from making any substantial use of the Premises,
Lessor may at Lessor's option either (i) repair such damage as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after the date of the occurrence of such damage of Lessor's
intention to cancel and terminate this Lease as of the date of the occurrence
of such damage, in which event this Lease shall terminate as of the date of the
occurrence of such damage.
9.3 PREMISES BUILDING TOTAL DESTRUCTION; OFFICE BUILDING PROJECT TOTAL
DESTRUCTION. Subject to the provisions of paragraphs 9.4 and 9.5, if at any
time during the term of this Lease there is damage, whether or not it is an
Insured Loss, which falls into the classifications of either (i) Premises
Building Total Destruction, or (ii) Office Building Project Total Destruction,
then Lessor may at Lessor's option either (i) repair such damage or destruction
as soon as reasonably possible at Lessor's expense (to the extent the required
materials are readily available through usual commercial channels) to its
condition existing at the time of the damage, but not Lessee's fixtures,
equipment or tenant improvements, and this Lease shall continue in full force
and effect, or (ii) give written notice to Lessee within thirty (30) days after
the date of occurrence of such damage of Lessor's intention to cancel and
terminate this Lease, in which case this Lease shall terminate as of the date
of the occurrence of such damage.
9.4 DAMAGE NEAR END OF TERM.
(a) Subject to paragraph 9.4(b), if at any time during the last twelve
(12) months of the term of this Lease there is substantial damage to the
Premises, Lessor may at Lessor's option cancel and terminate this Lease as of
the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within 30 days after the date of occurrence of such
damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has
an option to extend or renew this Lease, and the time within which said option
may be exercised has not yet expired, Lessee shall exercise such option, if it
is to be exercised at all, no later than twenty (20) days after the occurrence
of an Insured Loss falling within the classification of Premises Damage during
the last twelve (12) months of the term of this Lease. If Lessee duly exercises
such option during said twenty (20) day period, Lessor shall, at Lessor's
expense, repair such damage, but not Lessee's fixtures, equipment or tenant
improvements, as soon as reasonably possible and this Lease shall continue
in full force and effect. If Lessee fails to exercise such option during said
twenty (20) day period, then Lessor may at Lessor's option terminate and cancel
this Lease as of the expiration of said twenty (20) day period by giving
written notice to Lessee of Lessor's election to do so within ten (10) days
after the expiration of said twenty (20) day period, notwithstanding any term
or provision in the grant of option to the contrary.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event Lessor repairs or restores the Building or Premises
pursuant to the provisions of this paragraph 9, and any part of the Premises
are not usable (including loss of use due to loss of access or essential
services), the rent payable hereunder (including Lessee's Share of Operating
Expense Increase) for the period during which such damage, repair or
restoration continues to the extent not reimbursed by rental value insurance
shall be abated, provided (1) the damage was not the result of the negligence
of Lessee, and (2) such abatement shall only be to the extent the operation and
profitability of lessee's business as operated from the Premises is adversely
affected. Except for said abatement of rent, if any, Lessee shall have no claim
against Lessor for any damage suffered by reason of any such damage,
destruction, repair or restoration.
(b) if lessor shall be obligated to repair or restore the Premises or
the Building under the provisions of this Paragraph 9 and shall not commence
such repair or restoration within ninety (90) days after such occurrence, or if
Lessor shall not complete the restoration and repair within six (6) months
after such occurrence, Lessee may at Lessee's option cancel and terminate this
Lease by giving Lessor written notice of Lessee's election to do so at any
time prior to the commencement or completion, respectively, of such repair or
restoration. In such event this Lease shall terminate as of the date of such
notice.
(c) Lessee agrees to cooperate with Lessor in connection with any such
restoration and repair, including but not limited to the approval and/or
execution of plans and specifications required.
9.6 TERMINATION -- ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall,
in addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 WAIVER. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree
that such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. lessor shall pay the real property tax, as defined
in paragraph 10.3, applicable to the Office Building Project subject to
reimbursement by Lessee of Lessee's Share of such taxes in accordance with the
provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2.
10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for paying
any increase in real property tax specified in the tax assessor's records and
work sheets as being caused by additional improvements placed upon the Office
Building Project by other lessees or by Lessor for the exclusive enjoyment of
any other lessee. Lessee shall, however, pay to Lessor at the time that
Operating Expenses are payable under paragraph 4.2(c) the entirety of any
increase in real property tax if assessed solely by reason of additional
improvements placed upon the Premises by Lessee or at Lessee's request.
10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Office Building Project or any portion thereof
by any authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Office Building Project or in any
portion thereof, as against Lessor's right to rent or other income therefrom,
and as against Lessor's business of leasing the Office Building Project. The
term "real property tax" shall also include any tax, fee, levy, assessment, or
charge (i) in substitution of, partially or totally, any tax, fee, levy,
assessment or charge hereinabove included within the definition of "real
property tax," or (ii) the nature of which was hereinbefore included within the
definition of "real property tax," or (iii) which is imposed for a service or
right not charged prior to June 1, 1978, or, if previously charged, has been
increased since June 1, 1978, or (iv) which is imposed as a result of a change
in ownership, as defined by applicable local statutes for property tax purposes,
of the Office Building Project or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such change of
ownership, or (v) which is imposed by reason of this transaction, any
modifications or changes hereto, or any transfers hereof.
10.4 JOINT ASSESSMENT. If the improvements or property, the taxes for which
are to be paid separately by Lessee under paragraph 10.2 or 10.5 are not
separately assessed, Lessee's portion of that tax shall be equitably determined
by Lessor from the respective valuations assigned in the assessor's work sheets
or such other information (which may include the cost of construction) as may
be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Lessee's property.
11. UTILITIES.
11.1 SERVICES PROVIDED BY LESSOR. Lessor shall provide heating,
ventilation, air conditioning, and janitorial service as reasonably
required, reasonable amounts of electricity for normal lighting and office
machines, water for reasonable and normal drinking and lavatory use, and
replacement light bulbs and/or fluorescent tubes and ballasts for standard
overhead fixtures.
11.2 SERVICES EXCLUSIVE TO LESSEE. Lessee shall pay for all water,
gas, heat, light, power, telephone and other utilities and services specially
or exclusively supplied and/or metered exclusively to the Premises or to
Lessee, together with any taxes thereon. If any such services are not
separately metered to the Premises, Lessee shall pay at Lessor's option, either
Lessee's Share or a reasonable proportion to be determined by Lessor of all
charges jointly metered with other premises in the Building.
11.3 HOURS OF SERVICE. Said services and utilities shall be provided during
generally accepted business days and hours or such other days or hours as may
hereafter be set forth. Utilities and services required at other times shall
be subject to advance request and reimbursement by Lessee to Lessor of the cost
thereof.
(C) 1984 American Industrial Real Estate Association FULL SERVICE -- GROSS
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11.4 EXCESS USAGE BY LESSEE. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water, lighting
or power, or suffer or permit any act that causes extra burden upon the
utilities or services, including but not limited to security services, over
standard office usage for the Office Building Project. Lessor shall require
Lessee to reimburse Lessor for any excess expenses or costs that may arise out
of a breach of this subparagraph by Lessee. Lessor may, in its sole discretion,
install at Lessee's expense supplemental equipment and/or separate metering
applicable to Lessee's excess usage or loading.
11.5 INTERRUPTIONS. There shall be no abatement of rent and Lessor shall
not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
reasonable control.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a material
default and breach of this Lease without the need for notice to Lessee under
paragraph 13.1. "Transfer" within the meaning of this paragraph 12 shall
include the transfer or transfers aggregating: (a) if Lessee is a corporation,
more than twenty-five percent (25%) of the voting stock of such corporation, or
(b) if Lessee is a partnership, more than twenty-five percent (25%) of the
profit and loss participation in such partnership.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by
or is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate";
provided that before such assignment shall be effective, (a) said assignee
shall assume, in full, the obligations of Lessee under this Lease and (b)
Lessor shall be given written notice of such assignment and assumption. Any
such assignment shall not, in any way, affect or limit the liability of Lessee
under the terms of this Lease even if after such assignment or subletting the
terms of this Lease are materially changed or altered without the consent of
Lessee, the consent of whom shall not be necessary.
12.3 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, no assignment or subletting shall
release Lessee of Lessee's obligations hereunder or alter the primary liability
of Lessee to pay the rent and other sums due Lessor hereunder including
Lessee's Share of Operating Expense Increase, and to perform all other
obligations to be performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee pending
approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such assignment
or subletting, nor the acceptance of rent, shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the breach of any of
the terms or conditions of this paragraph 12 or this Lease.
(d) If Lessee's obligations under this Lease have been guaranteed by
third parties, then an assignment or sublease, and Lessor's consent thereto,
shall not be effective unless said guarantors give their written consent to
such sublease and the terms thereof.
(e) The consent by Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their consent
and such action shall not relieve such persons from liability under this Lease
or said sublease; however, such persons shall not be responsible to the extent
any such amendment or modification enlarges or increases the obligations of the
Lessee or sublessee under this Lease or such sublease.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or any one else responsible for the
performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting of the
Premises by Lessee shall not constitute an acknowledgement that no default then
exists under this Lease of the obligations to be performed by Lessee nor shall
such consent be deemed a waiver of any then existing default, except as may be
otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement relied upon
by Lessor in giving its consent to an assignment or subletting was materially
false shall, at Lessor's election, render Lessor's said consent null and void.
12.4 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. Regardless
of Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be deemed
included in all subleases under this Lease whether or not expressly incorporated
therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease heretofore or
hereafter made by Lessee, and Lessor may collect such rent and income and apply
same toward Lessee's obligations under this Lease; provided, however, that
until a default shall occur in the performance of Lessee's obligations under
this Lease, Lessee may receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor nor by reason of the collection of the rents from a
sublessee under such sublease. Lessee hereby irrevocably authorizes and directs
any such sublessee, upon receipt of a written notice from Lessor stating that a
default exists in the performance of Lessee's obligations under this Lease, to
pay to Lessor the rents due and to become due under the sublease. Lessee agrees
that such sublessee shall have the right to rely upon any such statement and
request from Lessor, and that such sublessee shall pay such rents to Lessor
without any obligation or right to inquire as to whether such default exists
and notwithstanding any notice from or claim from Lessee to the contrary.
Lessee shall have no right or claim against said sublessee or Lessor for any
such rents so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless and
until it has been approved in writing by Lessor. In entering into any sublease,
Lessee shall use only such form of sublessee as is satisfactory to Lessor, and
once approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublease shall, by reason of entering into
a sublease under this Lease, be deemed, for the benefit of Lessor, to have
assumed and agreed to conform and comply with each and every obligation herein
to be performed by Lessee other than such obligations as are contrary to or
inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing.
(c) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee under such sublease from the time of
the exercise of said option to the termination of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to Lessee or for any other prior defaults of Lessee
under such sublease.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within three (3) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset
from and against Lessee for any such defaults cured by the sublessee.
12.5 LESSOR'S EXPENSES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable costs and expenses incurred in
connection therewith, including attorneys', architects', engineers' or other
consultants' fees.
12.6 CONDITIONS TO CONSENT. Lessor reserves the right to condition any
approval to assign or sublet upon Lessor's determination that (a) the proposed
assignee or sublessee shall conduct a business on the Premises of a quality
substantially equal to that of Lessee and consistent with the general character
of the other occupants of the Office Building Project and not in violation of
any exclusives or rights then held by other tenants, and (b) the proposed
assignee or sublessee be at least as financially responsible as Lessee was
expected to be at the time of the execution of this Lease or of such assignment
or subletting, whichever is greater.
13. DEFAULT; REMEDIES.
13.1 DEFAULT. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacation or abandonment of the Premises by Lessee. Vacation of
the Premises shall include the failure to occupy the Premises for a continuous
period of sixty (60) days or more, whether or not the rent is paid.
(b) The breach by Lessee of any of the covenants, conditions or
provisions of paragraphs 7.3(a), (b) or (d) (alterations), 12.1 (assignment or
subletting), 13.1(a) (vacation or abandonment), 13.1(e) (insolvency), 13.1(f)
(false statement), 16(a) (estoppel certificate), 30(b) (subordination), 33
(auctions), or 41.1 (easements), all of which are hereby deemed to be material,
non-curable defaults without the necessity of any notice by Lessor to Lessee
thereof.
(c) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
(C) 1984 American Industrial Real Estate Association FULL SERVICE -- GROSS
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(d) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee
other than those referenced in subparagraphs (b) and (c), above, where such
failure shall continue for a period of thirty (30) days after written notice
thereof from Lessor to Lessee; provided, however, that if the nature of
Lessee's noncompliance is such that more than thirty (30) days are reasonably
required for its cure, then Lessee shall not be deemed to be in default if
Lessee commenced such cure within said thirty (30) day period and thereafter
diligently pursues such cure to completion. To the extent permitted by law,
such thirty (30) day notice shall constitute the sole and exclusive notice
required to be given to Lessee under applicable Unlawful Detainer statutes.
(e)(i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becoming a "debtor" as
defined in 11 U.S.C. ss.101 or any successor statute thereto (unless, in the
case of a petition filed against Lessee, the same is dismissed within sixty (60)
days; (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(e) is contrary to
any applicable law, such provision shall be of no force or effect.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee, or its successor in interest or by any guarantor of Lessee's
obligation hereunder, was materially false.
13.2 REMEDIES. In the event of any material default or breach of this
Lease by Lessee, Lessor may at any time thereafter, with or without notice or
demand and without limiting Lessor in the exercise of any right or remedy which
Lessor may have by reason of such default:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee all damages incurred
by Lessor by reason of Lessee's default including, but not limited to, the cost
of recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys'
fees, and any real estate commission actually paid; the worth at the time of
awarded by the court having jurisdiction thereof of the amount by which the
unpaid rent for the balance of the term after the tie of such award exceeds the
amount of such rental loss for the same period that Lessee proves could be
reasonably avoided; that portion of the leasing commission paid by Lessor
pursuant to paragraph 15 applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have vacated or abandoned
the Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent
as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located. Unpaid installments of rent and other unpaid monetary obligations of
Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have theretofore been furnished to Lessee in
writing, specifying wherein Lessor has failed to perform such obligation;
provided, however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance then Lessor shall not be in
default if Lessor commences performance within such 30-day period and
thereafter diligently pursues the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of Base Rent, Lessee's Share of Operating Expense increase or other
sums due hereunder will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain. Such
costs include, but are not limited to, processing and accounting charges, and
late charges which may be imposed on Lessor by the terms of any mortgage or
trust deed covering the Office Building Project. Accordingly, if any
installment of Base Rent, Operating Expense Increase, or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee within ten (10)
days after such amount shall be due, then, without any requirement for notice
to Lessee, Lessee shall pay to Lessor a late charge equal to 6% of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's default with respect to such overdue amount, nor prevent
Lessor from exercising any of the other rights and remedies granted hereunder.
14. CONDEMNATION. If the Premises or any portion thereof or the Office
Building Project are taken under the power of eminent domain, or sold under the
threat of the exercise of said power (all of which are herein called
"condemnation"), this Lease shall terminate as to the part so taken as of the
date the condemning authority takes title or possession, whichever first
occurs; provided that if so much of the Premises or the Office Building Project
are taken by such condemnation as would substantially and adversely affect the
operation and profitability of Lessee's business conducted from the Premises,
Lessee shall have the option, to be exercised only in writing within thirty
(30) days after Lessor shall have given Lessee written notice of such taking
(or in the absence of such notice, within thirty (30) days after the condemning
authority shall have taken possession), to terminate this Lease as of the date
the condemning authority takes such possession. If Lessee does not terminate
this Lease in accordance with the foregoing, this Lease shall remain in full
force and effect as to the portion of the Premises remaining, except that the
rent and Lessee's Share of Operating Expense Increase shall be reduced in the
proportion that the floor area of the Premises taken bears to the total floor
area of the Premises. Common Areas taken shall be excluded from the Common
Areas usable by Lessee and no reduction of rent shall occur with respect
thereto or by reason thereof. Lessor shall have the option in its sole
discretion to terminate this Lease as of the taking of possession by the
condemning authority, by giving written notice to Lessee of such election
within thirty (30) days after receipt of notice of a taking by condemnation of
any part of the Premises or the Office Building Project. Any award for the
taking of all or any part of the Premises or the Office Bukdong Project under
the power of eminent domain or any payment made under threat of the exercise of
such power shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any separate award for loss of or damage to Lessee's trade fixtures,
removable personal property and unamortized tenant improvements that have been
paid for by Lessee. For that purpose the cost of such improvements shall be
amortized over the original term of this Lease excluding any options. In the
event that this Lease is not terminated by reason of such condemnation, Lessor
shall to the extent of severance damages received by Lessor in connection with
such condemnation, repair any damage to the Premises caused by such
condemnation except to the extent that Lessee has been reimbursed therefor by
the condemning authority. Lessee shall pay any amount in excess of such
severance damages required to complete such repair.
15. BROKER'S FEE.
(a) The brokers involved in this transaction are none as "listing
broker" and none as "cooperating broker," licensed real estate broker(s). A
"cooperating broker" is defined as any broker other than the listing broker
entitled to a share of any commission arising under this Lease.
(b) Lessor further agrees that (i) if Lessee exercises any Option, as
defined in paragraph 39.1 of this Lease, which is granted to lessee under this
Lease, or any subsequently granted option which is substantially similar to an
Option granted to Lessee under this Lease, or (ii) if Lessee acquires any
rights to the Premises or other premises described in this Lease which are
substantially similar to what Lessee would have acquired had an Option herein
granted to Lessee been exercised, or (iii) if Lessee remains in possession of
the Premises after the expiration of the term of this Lease after having failed
to exercise an Option, or (iv) if said broker(s) are the procuring cause of any
other lease or sale entered into between the parties pertaining to the Premises
and/or any adjacent property in which Lessor has an interest, or (v) if the
Base Rent is increased, whether by agreement or operation of an escalation
clause contained herein, then as to any of said transactions or rent increases,
Lessor shall pay said broker(s) a fee in accordance with the schedule of said
broker(s) in effect at the time of execution of this Lease. Said fee shall be
paid at the time such increased rental is determined.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but
also on behalf of any person, corporation, association, or other entity having
an ownership interest in said real property or any part thereof, when such fee
is due hereunder. Any transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this paragraph 15. Each listing and
cooperating broker shall be a third party beneficiary of the provisions of this
paragraph 15 to the extent of their interest in any commission arising under
this Lease and may enforce that right directly against Lessor; provided,
however, that all brokers having a right to any part of such total commission
shall be a necessary party to any suit with respect thereto.
(d) Lessee and Lessor each represent and warrant to the other that
neither has had any dealings with any person, firm, broker or finder (other
than the person(s), if any, whose names are set forth in paragraph 15(a),
above) in connection with the negotiation of this Lease and/or the consummation
of the transaction contemplated hereby, and no other broker or other person,
firm or entity is entitle to any commission or finder's fee in connection with
said transaction and Lessee and Lessor do each hereby indemnify and hold the
other harmless from and against any costs, expenses, attorney's fees or
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying party.
16. ESTOPPEL CERTIFICATE.
(a) Each party (as "responding party") shall at any time upon not
less than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect) and the date
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to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Office Building Project or
of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (i) this Lease is in full force and effect,
without modification except as may be represented by the requesting party, (ii)
there are no uncured defaults in the requesting party's performance, and (iii)
if Lessor is the requesting party, not more than one month's rent has been
paid in advance.
(c) If Lessor desires to finance, refinance, or sell the Office Building
Project, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three (3) years' financial statements of Lessee. All such financial
statements shall be received by lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided in paragraph 15, in the event of any transfer of such title
or interest, Lessor herein named (and in case of any subsequent transfers then
the grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of
transfer, in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall,
subject as aforesaid, be binding on Lessor's successors and assigns, only
during their respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law or judgments form the date due. Payment of such interest
shall not excuse or cure any default by Lessee under this Lease; provided,
however, that interest shall not be payable on late charges incurred by Lessee
nor on any amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence with respect to the obligations to
be performed under this Lease.
21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expense Increase and any other expenses payable by Lessee hereunder shall be
deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in paragraph 15 hereof nor any cooperating broker on this transaction nor
the Lessor or any employee or agents of any of said persons has made any oral
or written warranties or representations to Lessee relative to the condition or
use by Lessee of the Premises or the Office Building Project and Lessee
acknowledges that Lessee assumes all responsibility regarding the Occupational
Safety Health Act, the legal use and adaptability of the Premises and the
compliance thereof with all applicable laws and regulations in effect during
the term of this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified or registered
mail, and shall be deemed sufficiently given if delivered or addressed to
Lessee or to Lessor at the address noted below or adjacent to the signature of
the respective parties, as the case may be. Mailed notices shall be deemed
given upon actual receipt at the address required, or forty-eight hours
following deposit in the mail, postage prepaid, whichever first occurs. Either
party may by notice to the other specify a different address for notice
purposes except that upon Lessee's taking possession of the Premises, the
Premises shall constitute Lessee's address for notice purposes. A copy of all
notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
24. WAIVERS. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder
by Lessor shall not be a waiver of any preceding breach by Lessee of any
provision hereof, other than the failure of Lessee to pay the particular rent
so accepted, regardless of Lessor's knowledge of such preceding breach at the
time of acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of
this Lease pertaining to the obligations of Lessee, except that the rent
payable shall be one hundred twenty-five percent (125%) of the rent payable
immediately preceding the termination date of this Lease, and all Options, if
any, granted under the terms of this Lease shall be deemed terminated and be of
no further effect during said month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. Binding Effect; Choice of Law. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Office Building Project is located and any litigation concerning this
Lease between the parties hereto shall be initiated in the county in which the
Office Building Project is located.
30. SUBORDINATION.
(a) This Lease, and any Option or right of first refusal granted hereby,
at Lessor's option, shall be subordinate to any ground lease, mortgage, deed of
trust, or any other hypothecation or security now or hereafter placed upon the
Office Building Project and to any and all advances made on the security
thereof and to all renewals, modifications, consolidations, replacements and
extensions thereof. Notwithstanding such subordination, Lessee's right to quiet
possession of the Premises shall not be disturbed if Lessee is not in default
and so long as Lessee shall pay the rent and observe and perform all of the
provisions of this Lease, unless this Lease is otherwise terminated pursuant to
its terms. If any mortgagee, trustee or ground lessor shall elect to have this
Lease and any Options granted hereby prior to the lien of its mortgage, deed of
trust or ground lease, and shall given written notice thereof to Lessee, this
Lease and such Options shall be deemed prior to such mortgage, deed of trust or
ground lease, whether this Lease or such Options are dated prior to subsequent
to the date or such mortgage, deed of trust or ground lease or the date of
recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option, Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact
and in Lessee's name, place and stead, to execute such documents in accordance
with this paragraph 30(b).
31. ATTORNEYS' FEES.
31.1 If either party or the broker(s) named herein bring an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, trial or appeal thereon, shall be entitled to his reasonable
attorneys' fees to be paid by the losing party as fixed by the court in the
same or a separate suit, and whether or not such action is pursued to decision
or judgment. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
31.2 The attorney's fee award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorneys' fees
reasonably incurred in good faith.
32. LESSOR'S ACCESS.
32.1 Lessor and Lessor's agents shall have the right to enter the Premises
at reasonable times for the purposes of inspecting the same, performing any
such services required of Lessor, showing the same to prospective purchasers,
lenders, or lessees, taking such safety measures, erecting such scaffolding or
other necessary structures, making such alterations, repairs, improvements or
additions to the Premises or to the Office Building Project as Lessor may
reasonably deem necessary or desirable and the erecting, using and maintaining
of utilities, services, pipes and conduits through the Premises and/or other
premises as long as there is no material adverse effect to Lessee's use of the
Premises. Lessor may at any time place on or about the Premises or the Building
any ordinary "For Sale" signs and Lessor may at any time during the last 120
days of the term hereof place on or about the Premises any ordinary "For Lease"
signs.
32.2 All activities of Lessor pursuant to this paragraph shall be without
abatement of rent, nor shall Lessor have any liability to Lessee for the same.
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32.3 Lessor shall have the right to retain keys to the Premises and to
unlock all doors in or upon the Premises other than to files, vaults and safes,
and in the case of emergency to enter the Premises by any reasonably
appropriate means, and any such entry shall not be deemed a forceable or
unlawful entry or detainer of the Premises or an eviction.
33. Auctions. Lessee shall not conduct, nor permit to be conducted,
either voluntarily or involuntarily, any auction upon the Premises or the common
Areas without first having obtained Lessor's prior written consent.
Notwithstanding anything to the contrary in this Lease, Lessor shall not be
obligated to exercise any standard of reasonableness in determining whether to
grant such consent. The holding of any auction on the Premises or Common Areas
in violation of this paragraph shall constitute a material default of this
Lease.
34. Signs. Lessee shall not place any sign upon the Premises or the
Office building Project without Lessor's prior written consent. Under no
circumstances shall Lessee place a sign on any roof of the Office building
Project.
35. Merger. The voluntary or other surrender of this Lease by Lessee, or
a mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to
Lessor of any or all of such subtenancies.
36. Consents. Except for paragraphs 33 (auctions) and 34 (signs) hereof,
wherever in this Lease the consent of one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
37. Guarantor. In the event that there is a guarantor of this Lease,
said guarantor shall have the same obligations as Lessee under this Lease.
38. Quiet Possession. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Office Building Project.
39. Options.
39.1 Definition. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option of right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of
first refusal to lease other space within the Office Building Project or other
property of Lessor or the right of first offer to lease other space within the
Office Building Project or other property of Lessor; (3) the right or option to
purchase the Premises or the Office Building Project, or the right of first
refusal to purchase the Premises or the Office Building Project or the right of
first offer to purchase the Premises or the Office Building Project, or the
right or option to purchase other property of Lessor, or the right of first
refusal to purchase other property of Lessor or the right of first offer to
purchase other property of Lessor.
39.2 Options Personal. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original
Lessee while occupying the Premises who does so without the intent of
thereafter assigning this Lease or subletting the Premises or any portion
thereof, and may not be exercised or be assigned, voluntarily or involuntarily,
by or to any person or entity other than Lessee; provided, however, that an
Option may be exercised by or assigned to any Lessee Affiliate as defined in
paragraph 12.2 of this Lease. The Options, if any, herein granted to Lessee
are not assignable separate and apart from this Lease, nor may any Option be
separated from this Lease in any manner, either by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple options
to extend or renew this Lease a later option cannot be exercised unless the
prior option to extend or renew this Lease has been so exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary, (i) during the time
commencing from the date Lessor gives to Lessee a notice of default pursuant to
paragraph 13.1(c) or 13.1(d) and continuing until the noncompliance alleged in
said notice of default is cured, or (ii) during the period of time commencing
on the day after a monetary obligation to Lessor is due from Lessee and unpaid
(without any necessity for notice thereof to Lessee) and continuing until the
obligations paid, or (iii) in the event that Lessor has given to Lessee three
or more notices of default under paragraph 13.1(c), or paragraph 13.1(d),
whether or not the defaults are cured, during the 12 month period of time
immediately prior to the time that Lessee attempts to exercise the subject
Option, (iv) if Lessee has committed any non-curable breach, including without
limitation those described in paragraph 13.1(b), or is otherwise in default of
any of the terms, covenants or conditions of this Lease.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a)
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due
and timely exercise of the Option if, after such exercise and during the term
of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessee fails to commence to cure a default specified in paragraph 13.1(d)
within thirty (30) days after the date that Lessor gives notice to Lessee of
such default and/or Lessee fails thereafter to diligently prosecute said cure
to completion, or (iii) Lessor gives to Lessee three or more notices of default
under paragraph 13.1(c), or paragraph 13.1(d), whether or not the defaults are
cured, or (iv) if Lessee has committed any non-curable breach, including
without limitation those described in paragraph 13.1(b), or is otherwise in
default of any of the terms, covenants and conditions of this Lease.
40. Security Measures -- Lessor's reservations.
40.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties.
40.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Office Building
Project or building in which the Premises are located upon not less than 90
days prior written notice;
(c) To permit any lessee the exclusive right to conduct any business
as long as such exclusive does not conflict with any rights expressly given
herein;
(d) To place such signs, notices or displays as Lessor reasonably
deems necessary or advisable upon the roof, exterior of the buildings or the
Office Building Project or on pole signs in the Common Areas;
40.3 Lessee shall not:
(b) Suffer or permit anyone, except in emergency, to go upon the roof
of the Building.
41. Easements.
41.1 Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or
desirable, and to cause the recordation of Parcel Maps and restrictions, so
long as such easements, rights, dedications, Maps and restrictions do not
unreasonably interfere with the use of the Premises by Lessee. Lessee shall
sign any of the aforementioned documents upon request of Lessor and failure to
do so shall constitute a material default of this Lease by Lessee without the
need for further notice to Lessee.
41.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the building, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon Lessor.
42. Performance Under Protest. If at any time a dispute shall arise as
to any amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment, and there shall survive the right
on the part of said party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said party
to pay such sum or any part thereof, said party to pay such sum or any pert
thereof, said party shall be entitled to recover such sum or so much thereof as
it was not legally required to pay under the provisions of this Lease.
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43 AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of such
entity represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44 CONFLICT. Any conflict between the printed provisions, Exhibits or Addenda
of this Lease and the typewritten or handwritten provisions, if any, shall be
controlled by the typewritten or handwritten provisions.
45 NO OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully executed
by both parties.
46 LENDER MODIFICATION. Lessee agrees to make such reasonable modifications to
this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the Office
Building Project.
47 MULTIPLE PARTIES. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein, the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee, respectively.
49 ATTACHMENTS. Attached hereto are the following documents which constitute a
part of this Lease:
Exhibit A
Exhibit B
Exhibit C
Addendum to Lease
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE ES EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR
SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE
BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE
OR THE TRANSACTION RELATING THERETO; THE PARTIES SHALL RELY
SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE
LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
LESSOR LESSEE
BORRETT, INC. THE SUMMIT NATIONAL BANK
- ---------------------------------- -----------------------------------
By /s/ Joan Kwok By /s/ Gary McClung
-------------------------------- ---------------------------------
Its President Its Executive Vice President
------------------------ ------------------------
By By
-------------------------------- ---------------------------------
Its Its
------------------------ ------------------------
Executed at Portland, Oregon Executed at Summit National Bank
----------------------- ------------------------
on August 31, 1999 on August 24, 1999
------------------------------- ---------------------------------
Address P.O. Box 12506, Address 4360 Chamblee Dunwoody Rd
Portland, OR 97212 #300
--------------------------- Atlanta, GA 30341
---------------------------
@ 1984 American Industrial Real Estate Association FULL SERVICE -- GROSS
PAGE 10 OF 10 PAGES
For these forms write or call the American Industrial Real Estate Association,
350 South Figueroa Street, Suite 275, Los Angeles, CA 90071, (213) 687-8777.
@ 1984--By American Industrial Real Estate Association. All rights reserved. No
part of these words may be reproduced in any form without permission in
writing.
<PAGE> 11
ADDENDUM TO LEASE
BY AND BETWEEN
BORRETT, INC., LESSOR, AND
THE SUMMIT NATIONAL BANK, LESSEE
50. Rent Increase.
Pursuant to Paragraph 4.3, the monthly base rent shall be increased by
the Consumer Price Index:
a) Not to be less than two (2%) percent or more than four (4%)
percent from:
i) April 1, 2000 through March 31, 2001;
ii) April 1, 2001 through March 31, 2002.
b) Not to be less than two (2 %) percent or more than five (5 %)
percent from:
i) April 1, 2002 through March 31, 2003;
ii) April 1, 2003 through March 31, 2004;
iii) April 1, 2004 through March 31, 2005;
iv) April 1, 2005 through March 31, 2006.
51. Tenant Improvements.
51.1. Lessor, at Lessor's sole cost and expense, shall provide
improvements to the premises as outlined on Exhibit "C" attached for a total
cost of $40,308.00.
51.2. Lessee shall be responsible for, at Lessee's sole cost and
expense, any and all change orders in excess of the items listed in Paragraph
51.1 and Exhibit " C ".
51.3. Notwithstanding Paragraph 51.1 and 51.2 above, Lessee is taking
possession of the premises in its "as is" condition and shall be solely
responsible for any and all improvements to the premises. Lessee shall not make
or permit to any other person to make any alterations or improvements to the
premises without Lessor's prior written consent which shall not be unreasonably
withheld. All requests by Lessee shall be in writing with scaled drawings
attached. All work shall be performed by a licensed contractor. Any work shall
be permitted and approved by the appropriate agencies (building department, fire
department, etc.) of the City of San Jose.
52. SECURITY DEPOSIT.
Pursuant to Paragraph 1.9, the security deposit at the commencement
date of this Lease is $29,576.00. Lessor agrees to reduce the security deposit
to $20,000.00 on the following schedule:
a) Payment by check to Lessee in the amount of $3,192.00 on or
before April 2000;
b) Payment by check to Lessee in the amount of $3,192.00 on or
before April 2001;
C) Payment by check to Lessee in the amount of $3,192.00 on or
before April 2002.
53. OPERATING EXPENSES.
a) Lessee shall pay for all janitorial and electricity specially
or exclusively supplied and/or metered exclusively to the
Premises or to Lessee. These utilities and/or services
include, but are not limited to, electricity and janitorial.
i) Lessee shall not be responsible as part of Operating
Expenses for electricity or janitorial service
supplied exclusively to the other suites for which
Lessee does not occupy.
b) Lessee will reimburse Lessor its prorata share of natural gas
usage for the one gas meter servicing the building on a
quarterly basis.
54. HAZARDOUS SUBSTANCES.
a) Lessor represents that to the best of Lessor's knowledge, no leak,
spill, release, discharge, emission or disposal or hazardous or toxic substances
has occurred on the premises or in the building to date and that to the best of
the Lessor's knowledge, the soil, groundwater, and soil vapor on or under the
building is free of toxic or hazardous substances as of the date that the term
of this Lease commences.
Page 1 of 2
<PAGE> 12
ADDENDUM TO LEASE
BY AND BETWEEN
BORRETT, INC., LESSOR, AND
THE SUMMIT NATIONAL BANK, LESSEE
b) Without Lessor's advance written consent, Lessee shall not knowingly
bring, use or permit upon the Leased Premises, temporarily or otherwise, or
generate at, or emit any toxic or hazardous substances, including, without
limitation, substances or materials which are in violation of any of the
Environmental Protection Agency's list of hazardous wastes or identified in any
statute or regulation of the State of California dealing with hazardous wastes
as the same may be amended from time to time, excluding normal day-to-day office
products such as opaquing fluid ("white out") and copier toner. Lessee agrees to
properly dispose of such office products as may be required by applicable law.
Notwithstanding Lessor's consent, Lessee shall comply, at its sole cost, with
all laws pertaining to, and shall indemnify and hold Lessor harmless from any
claims, liabilities, costs or expenses incurred or suffered by Lessor arising
from such bringing, using, permitting, generating, or emitting or disposing.
Lessee's indemnification and hold harmless obligations include, without
limitation, (i) claims, liability, costs or expense resulting from or based upon
administrative, judicial (civil or criminal) action brought by any private or
public person under common law or under any Federal, State, County or Municipal
law, ordinance or regulation, (ii) claims, liabilities, costs or expenses
pertaining to the cleanup or containment of wastes, the identification of the
pollutants or the waste, the identification of scope of any environmental
contamination, the removal of pollutants from soils, riverbeds or aquifers, the
provision of an alternative public drinking water source, or the long-term
monitoring of ground water and surface water, and (iii) all costs of defending
such claims.
55. CONFIDENTIALITY.
Lessee hereby agrees to keep the terms, i.e. rent schedule, tenant
improvements, etc. of this Lease and any negotiations confidential.
56. TERMINATION OF LEASE.
This Lease when fully executed, shall supercede and terminate that
Lease dated March 10, 1993 between Borrett, Inc., Lessor, and California
Security Bank, Lessee, whose interest has been acquired by The Summit National
Bank, covering said premises at 1694 Tully Road, San Jose, California, effective
April 1, 1999.
Page 2 of 2
<PAGE> 13
STANDARD OFFICE LEASE
FLOOR PLAN
[LOGO]
[DIAGRAM]
EXHIBIT A
<PAGE> 14
RULES AND REGULATIONS FOR
STANDARD OFFICE LEASE
[AIR LOGO]
Dated: August 18, 1999
By and Between BORRETT. INC., as Lessor and THE SUMMIT NATIONAL BANK, as Lessee
GENERAL RULES
1. Lessee shall not suffer or permit the obstruction of any Common
Areas, Including driveways, walkways and stairways.
2. Lessor reserves the right to refuse access to any persons Lessor In
good faith judges to be a threat to the safety, reputation. or property of the
Off ice Building Project and Its occupants.
3. Lessee shall not make or permit any noise or odors that annoy or
Interfere with other lessees or persons having business within the Office
Building Project.
4. Lessee shall not keep animals or birds within the Office Building
Project, and shall not bring bicycles, motorcycles or other vehicles into areas
not designated as authorized for same.
5. Lessee shall not make, suffer or permit litter except In appropriate
receptacles for that purpose.
6. Lessee shall not alter any lock or install new or additional locks
or bolts.
7. Lessee shall be responsible for the Inappropriate use of any toilet
rooms, plumbing or other utilities. No foreign substances of any kind are to be
Inserted therein.
8. Lessee shall not deface the walls, partitions or other surfaces of
the premises or Office Building Project.
9. Lessee shall not suffer or permit any thing In or around the
Premises or Building that causes excessive vibration or floor loading In any
part of the Office Building Project.
10, Furniture, significant freight and equipment shall be moved into or
out of the building only with the LESSOR'S KNOWLEDGE AND CONSENT. and subject to
such reasonable limitations, techniques and timing, as may be designated by
Lessor. Lessee shall be responsible for any damage to the Office Building
Project arising from any such activity.
11. Lessee shall not employ any service or contractor for services or
work to be performed in the Building, except as approved by Lessor.
12. Lessor reserves the right to close and lock the Building on
Saturdays, Sundays and legal holidays, and on other days between the hours of
6:00 P.M. and 8:00 A.M. of the following day. If Lessee uses the Premises during
such periods, Lessee shall be responsible for SECURELY LOCKING ANY DOORS IT MAY
HAVE opened for entry.
13. Lessee shall return all keys at the termination of its tenancy and
shall be responsible for the cost of replacing any keys that are lost.
14. No window coverings, shades or awnings shall be installed or used
by Lessee.
15. No Lessee. employees or Invitee shall go upon the roof of the
Building.
16. Lessee shall not suffer or permit smoking or carrying of lighted
cigars or cigarettes In areas reasonably designated by Lessor or by applicable
governmental agencies as non-smoking areas.
17. Lessee shall not use any method of heating or air conditioning
other than as provided by Lessor.
18. Lessee shall not install, maintain or operate any vending machines
upon the Premises without Lessor's written consent.
19. The Premises shall not be used for lodging or manufacturing,
cooking or food preparation.
20. Lessee shall comply with all safety, fire protection and evacuation
regulations established by Lessor or any applicable governmental agency.
21. Lessor reserves the right to waive any one of these rules or
regulations, and/or as to any particular Lessee, and any such waiver shall not
constitute a waiver of any other rule or regulation or any subsequent
application thereof to such Lessee.
22. Lessee assumes all risks from theft or vandalism and agrees to keep
its Premises locked as may be required.
23. Lessor reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the appropriate
operation and safety of the Office Building Project and its occupants. Lessee
agrees to abide by these and such rules and regulations.
PARKING RULES
1. Parking areas shall be used only for parking by vehicles no longer
than full size, passenger automobiles herein called "Permitted Size Vehicles"
Vehicles other than Permitted Size Vehicles are herein referred to as "Oversized
Vehicles."
2. Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or
Invitees to be loaded, unloaded, or parked in areas other than those designated
by Lessor for such activities.
3. Parking stickers or Identification devices shall be the property of
Lessor and be returned to Lessor by the holder thereof upon termination of the
holder's parking privileges. Lessee will pay such replacement charge as Is
reasonably established by Lessor for the loss of such devices.
4. Lessor reserves the right to refuse the sale of monthly
identification devices to any person or entity that willfully refuses to comply
with the applicable rules, regulations, laws and/or agreements.
5. Lessor reserves the right to relocate all or a part of parking
spaces from floor to floor. within one floor, and/or to reasonably adjacent
offsite location(s), and to reasonably allocate them between compact and
standard size spaces, as long as the same complies with applicable laws,
ordinances and regulations.
6. Users of the parking area will obey all posted signs and park only
in the areas designated for vehicle parking.
7. Unless otherwise Instructed. every person using the parking area Is
required to park and lock his own vehicle. Lessor will not be responsible for
any damage to vehicles, Injury to persons or loss of property, all of which
risks are assumed by the party using the parking area.
8. Validation, If established, will be permissible only by such method
or methods as Lessor and/or Its licensee may establish at rates generally
applicable to visitor parking.
9. The maintenance, washing, waxing or cleaning of vehicles In the
parking structure or Common Areas Is prohibited.
10. Lessee shall be responsible for seeing that all of Its employees,
agents and invitees comply with the applicable parking rules. regulations, laws
and agreements.
11. Lessor reserves the right to modify these rules and/or adopt such
other reasonable and non-discriminatory rules and regulations as it may deem
necessary for the proper operation of the parking area.
12. Such parking use as is herein provided is Intended merely as a
license only and no bailment Is Intended or shall be created hereby
FULL SERVICE-GROSS
EXHIBIT B
PAGE 1 OF 1 PAGES
<PAGE> 15
All Bay Contractors, Inc. Page 1
** DETAILED BID SHEET ** 07/07/99
CLIENT: JOB: BID:
Wakimoto Management Summit Natl Bank 106-01.02
1530 Meridien Ave 1694 Tully Rd. 07/03/99
San Jose, Ca 95125 San Jose, Ca
(408) 265-4460
<TABLE>
<CAPTION>
====================================================================================================================
QUAN BID
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
011000 GENERAL CONDITIONS
Job set-up, blue printing, staging area, dust 6,878
protection, wall and floor protection, plastic
partition, manlift equipment rental, material
delivery, daily clean-up, debris removal, dump
fees, furniture moving service, final clean-up,
new appliances, job close-out, and administrative
fees.
011120 SUPERVISION 2,170
022110 DEMOLITION 2,710
Remove all existing finishes to be replaced.
066410 MILLWORK/CABINETWORK 3,828
New lower and upper cabinets in lunchroom.
088100 DOORS/FRAMES/HDWE. 1,480
New hardware at existing exterior door and new
security gate.
088390 EXTERIOR FENCE/GATE 1,540
Security fencing and gate.
099510 ACOUSTICAL CEILINGS 11989
Relevel ceiling grid and replace tile.
099550 FLOOR COVERING 0
carpet and base $8,229.00 9,458
VCT and base $1,229.00
099900 PAINTING 1,180
Exterior fencing, gate, and interior touch-up.
151000 PLUMBING 1,477
Lunchroom sink and dishwasher.
160000 ELECTRICAL 4,786
New 2x2 Parobolic light fixtures and lunchroom circuits.
202000 OVERHEAD & PROFIT 2,812
======
BID SHEET TOTALS:
TOTAL BID 40,308
</TABLE>
EXHIBIT "C"
<PAGE> 1
EXHIBIT 10.9
PURCHASE AND SALE AGREEMENT
THIS AGREEMENT is made and entered into this 13-day of November, 1999,
by and among THE SUMMIT NATIONAL BANK, a wholly-owned subsidiary of SUMMIT BANK
CORPORATION, a Georgia corporation (hereinafter called "Seller"), and THREE
RIVERS LAND DEVELOPMENT, L.L.C., a Georgia limited liability company
(hereinafter called "Buyer") and SILFEN, SEGAL, FRYER & SHUSTER, P.C., a Georgia
professional corporation (hereinafter called "Escrow Agent").
W I T N E S S E T H:
1. Agreement to Sell and Purchase. For and in consideration of the
Earnest Money, hereinafter defined, in hand paid by Buyer to the Escrow Agent
(as specified in Section 3 of this Agreement), the mutual covenants and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by Seller and Buyer,
Seller hereby agrees to sell and convey to Buyer, and Buyer hereby agrees to
purchase and take from Seller, subject to and in accordance with all of the
terms and conditions of this agreement the following:
(a) All that certain lot, tract or parcel of improved real
estate more particularly described on Exhibit "A" attached hereto, together with
all plants, shrubs and trees located thereon, and together with all rights, ways
and easements appurtenant thereto, including, without limitation, all of
Seller's right, title and interest in and to the land underlying and the air
space overlying any public or private ways or streets crossing or abutting said
real estate (hereinafter called the "Land");
(b) All buildings, structures and other improvements of any
and every nature located on the Land and all fixtures attached or affixed,
actually or constructively, to the Land or to any such buildings, structures or
other improvements (hereinafter collectively called "Improvements"), including
but not limited to the buildings collectively known as 3280 Holcomb Bridge Road,
Norcross, Gwinnett County, Georgia (i.e., the Peachtree Comers Branch of Summit
National Bank) located on the Land (hereinafter called the "Building");
(c) All of the right, title and interest accruing to the owner
of the Land and Improvements in, to and under (i) those management, service and
other contracts and agreements, if any, scheduled and identified on Exhibit "B"
attached hereto (hereinafter called the "Service Agreements"); and (ii) all
warranties, guaranties, certificates, licenses, permits, authorizations,
consents and approvals with respect to the use, occupancy, possession and
operation of the Land and Improvements (hereinafter called the "Permits").
The Land, Improvements, Service Agreements and Permits are hereinafter
collectively referred to as the "Property". In no event shall the Property
include any signage containing Seller's name (limited, however to only panels
containing Seller's name on any monument sign, and excluding any monument or
pylon structure), or Seller's automated
<PAGE> 2
teller machines (i.e., ATM), night deposit box, drive-in equipment, or safes,
safe deposit boxes, TELLER COUNTERS, furniture, fixtures or equipment used in
the ordinary course of Seller's business, Buyer acknowledging that same shall
remain the property of the Seller and Seller's affiliates. Notwithstanding the
foregoing, should Seller elect to remove such items from the Property, Seller
shall promptly repair any damage caused by such removal, if any, and shall
restore the Property to a complete and suitable condition following such
removal.
2. Purchase Price; Method of Payment. The purchase price for the
Property (hereinafter called the "Purchase Price"), shall be Eight Hundred
Thousand and No/100 Dollars ($800,000.00). The Purchase Price, after crediting
the Earnest Money, and subject to the prorations and adjustments hereinafter
described, shall be paid by Buyer to Seller on the Closing Date by wire transfer
of funds to an account designated in writing by Seller.
3. Escrow Agent. Silfen, Segal, Fryer & Shuster, P.C. shall serve as
Escrow Agent pursuant to the terms and conditions of this Agreement. In
performing any of its duties hereunder, the Escrow Agent shall not -incur any
liability to anyone for any damages, losses or expenses, except for willful
default or breach of trust, and it shall accordingly not incur any such
liability with respect (i) to any action taken or omitted in good faith upon
advice of its counsel, or (b) to any action taken or omitted in reliance upon
any instrument, including any written notice or instruction provided for in this
Agreement not only as to its due execution and the validity and effectiveness of
its provisions, but also as to the truth and accuracy of any information
contained therein, which the Escrow Agent shall in good faith believe to be
genuine, to have been signed or presented by a proper person or persons, and to
conform with the provisions of this Agreement. The Escrow Agent is hereby
specifically authorized to refuse to act except upon the written consent of
Seller and Buyer. Seller and Buyer hereby agree to indemnify and hold harmless
the Escrow Agent against any and all losses, claims, damages, liabilities and
expenses, including, reasonable costs of investigation and counsel fees and
disbursements, which may be imposed upon the Escrow Agent or incurred by the
Escrow Agent in connection with its acceptance or the performance of its duties
hereunder, including any litigation arising from this Contract or involving the
subject matter hereof. In the event of a dispute between Seller and Buyer
sufficient in the discretion of the Escrow Agent to justify its doing so, the
Escrow agent shall be entitled to tender into the registry or custody of any
court of competent jurisdiction, all money or property in its hands under this
Contract, together with such legal pleadings as it deems appropriate, and
thereupon be discharged from all further duties and liabilities under this
Contract. Any such legal action may be brought in any court of competent
jurisdiction located in Fulton County, Georgia or in such other court as the
Escrow Agent shall determine to have jurisdiction thereof. Seller and Buyer
shall bear all costs and expenses of any such legal proceedings. Seller
acknowledges, understands and agrees that (i) Escrow Agent is Buyer's counsel
and as such Escrow Agent has not and will not exercise any independent
professional judgment on Seller's behalf, and (ii) notwithstanding its role as
Escrow Agent hereunder, Escrow Agent may, in the event of a dispute between
Seller and Buyer act as Buyer's counsel and represent
-2-
<PAGE> 3
Buyer in any dispute or litigation, whether or not Escrow Agent resigns and
appoints a successor or substitute escrow agent, which Seller and Buyer
specifically agree Escrow Agent may do. By executing this Agreement, Escrow
Agent acknowledges receipt of the Earnest Money.
4. Earnest Money. Within twenty-four (24) hours of full execution of
this Agreement, Buyer shall deliver to Escrow Agent the sum of Ten Thousand and
No/100 ($10,000.00) Dollars (hereinafter referred to as the "Earnest Money")
which shall be held by the Escrow Agent in accordance with the terms hereof. On
the Closing Date, the Earnest Money shall be applied as part payment of the
Purchase Price and paid to Seller. By executing the Escrow
Agreement, Escrow Agent acknowledges receipt of the Earnest Money.
5. Closing. The closing of the purchase and sale of the Property
(hereinafter called "Closing,") shall be held at the offices of Silfen, Segal,
Fryer & Shuster, P.C., Suite 410, 1050 Crown Pointe Parkway, Atlanta, Georgia
30338, at such time and on such date (hereinafter called the "Closing Date") as
may be specified by written notice from Buyer to Seller not less than three (3)
business days prior thereto; provide, however, that the Closing Date shall be
not more than thirty (30) days after expiration of the Due Diligence Period.
6. Access and Inspection; Delivery of Documents and Information by
Seller; Examination by Buyer.
(a) Between the date of this Agreement and the Closing Date,
Buyer and Buyer's agents and designees shall have the right to enter the
Property during normal business hours only for the purposes of inspecting the
Property, conducting, soil tests, and making surveys, mechanical and structural
engineering studies, zoning and permitting studies, lender feasibility studies,
appraisals, and any other investigations and inspections as Buyer may reasonably
require to assess the condition of the Property; provided, however, that such
activities by or on behalf of Buyer on the Property shall not materially damage
the Property, or unreasonably interfere with the use and occupancy of the
Property by Seller. Seller grants Buyer the right, during the period between the
date of this Agreement and the Closing Date, to commission any necessary or
prudent environmental assessments of the Property in a scope and by an
environmental firm acceptable to Buyer, and Seller shall assist and cooperate in
and with said assessment as reasonably requested by Buyer. The costs of the
foregoing examinations, studies and inspections shall be paid by Buyer. Buyer
shall and hereby does indemnify and hold Seller harmless from and against any
and all liability due to the acts or negligence of Buyer and its agents due to
such parties' entry upon the Property for the purpose of either inspecting the
Property or any other exercise of the rights of Buyer under this Agreement.
(b) Within five (5) days after the execution hereof, Seller
shall deliver to Buyer, if not previously delivered, or make available to Buyer
for examination and/or
-3-
<PAGE> 4
copying by Buyer, at the address for Buyer set forth herein, the following
documents and information with respect to the Property:
(i) All plans, specifications, engineering and
mechanical and reports, including environmental reports, relating to the
Property which are in Seller's possession;
(ii) Copies of all maintenance records, Permits and
Service Agreements relating to the
Property;
(iii) Unless other-wise provided hereunder, copies of
all maintenance records relating to Capital Repairs of the Property. For
purposes of this Agreement, "Capital Repairs" shall mean the repair or
replacement of the roof, floors, appliances, structural elements, or the
plumbing, HVAC or electrical systems serving, the Property, and such other items
having a useful economic life of at least three (3) years, which do not
constitute maintenance or repair of "ordinary wear and tear" to the Property,
and which add value to the Property;
(iv) Seller's title insurance policies with respect
to the Property; and
(v) Such other documents in Seller's possession or
control regarding the Property which Buyer may reasonably request.
(c) Buyer shall have until forty-five (45) days after deposit
of the Earnest Money (the "Due Diligence Period"), in which to examine and
investigate the Property, and to determine whether the Property is suitable and
satisfactory to Buyer. In the event that Buyer shall determine, in Buyer's sole
and absolute judgment and discretion, that the Property is in any manner
unsuitable or unsatisfactory to Buyer, Buyer shall have the right, at Buyer's
option, to terminate this Agreement by giving written notice thereof to Seller
on or before such date, in which event the Earnest Money shall be refunded to
Buyer immediately upon request, all rights and obligations of the parties under
this agreement shall expire, and this Agreement shall become null and void.
Seller acknowledges that Buyer will expend time, money and other resources in
connection with the examination and investigation of the Property hereinabove
described, and that, notwithstanding the fact that Buyer may terminate this
Agreement pursuant to this paragraph, such time, money and other resources
expended constitutes good, valuable, sufficient and adequate consideration for
Seller's execution of and entry into this Agreement. In the event that Buyer
does not terminate this Agreement on or before expiration of the Due Diligence
Period, the Earnest Money shall be non-refundable, except as otherwise may be
provided hereunder,
7. Prorations and Adjustments to Purchase Price. The following
prorations and adjustments shall be made between Buyer and Seller as of the day
of Closing, or thereafter if Buyer and Seller shall agree:
-4-
<PAGE> 5
(a) All city, state and county ad valorem taxes and similar
impositions levied or imposed upon or assessed against the Property (hereinafter
called the "Taxes"), for the year in which Closing occurs shall be prorated as
of the Closing Date. In the event the Taxes for such year are not determinable
at the time of Closing, said taxes shall be prorated on the basis of the best
available information, and the parties shall re-prorate the Taxes for such year
promptly upon the receipt of the tax bills for such year and shall make between
themselves any equitable adjustment required by reason of any difference between
the estimated amount of the Taxes used as a basis for the proration at Closing
and the actual amount of the Taxes for such year. In the event any of the Taxes
are due and payable at the time of Closing, the same shall be paid at Closing.
If the Taxes are not paid at Closing, Seller shall deliver to Buyer the bills
for the Taxes promptly upon receipt thereof and Buyer shall thereupon be
responsible for the payment in full of the Taxes within the time fixed for
payment thereof and before the same shall become delinquent.
(b) All utility charges for the Property (including, without
limitation, telephone, water, storm and sanitary sewer, electricity, gas,
garbage and waste removal) shall be prorated as of the Closing Date, transfer
fees required with respect to any such utility shall be paid by or charged to
Buyer, and Seller shall be credited with any deposits transferred to the account
of Buyer; provided, however, that at either party's election any one or more of
such utility accounts shall be closed as of the Closing Date, in which event
Seller shall be liable and responsible for all charges for service incurred by
Seller through the Closing Date and shall be entitled to all deposits
theretofore made by Seller with respect to such utility, and Buyer shall be
responsible for reopening and reinstituting such service in Buyer's name, and
shall be responsible for any fees, charges and deposits required in connection
with such new account.
(c) Any other items which are customarily prorated in
connection with the purchase and sale of properties similar to
the Property shall be prorated as of the Closing Date.
8. Title.
(a) Seller covenants to convey to Buyer at Closing a good and
marketable fee simple title in and to the Property via Warranty Deed. For the
purposes of this agreement, "good and marketable fee simple title" shall mean
fee simple ownership which is: (i) free of all defects, claims, liens and
encumbrances of any kind or nature whatsoever other than the Permitted
Exceptions, hereinafter defined; and (ii) insurable by a title insurance company
reasonably acceptable to Buyer, at then current standard rates under the
standard form of ALTA owner's policy of title insurance, with the standard
printed exceptions therein deleted and without exception other than for the
Permitted Exceptions.
-5-
<PAGE> 6
(b) For the purposes of this Agreement, the term "Permitted
Exceptions" shall mean: (i) Seller's existing first mortgage; (ii) current city,
state and county ad valorem taxes not yet due and payable; (iii) easements for
the installation or maintenance of public utilities serving only the Property;
and (iv) such other matters, if any, as may be listed as permanent exceptions in
Seller's title insurance policy together with subsequent matters not materially
or adversely affecting the marketability of Seller's title.
Buyer shall have until thirty (30) days after deposit of the Earnest Money in
which to examine title to the Property and in which to give Seller written
notice of objections which render Seller's title to the Property less than good
and marketable fee simple. Thereafter, Buyer shall have until the Closing Date
in which to reexamine title to the Property and in which to give Seller written
notice of any additional objections of any subsequent matters arising since the
initial title examination disclosed by such reexamination. Seller shall have
until the Closing Date in which to satisfy all valid objections specified in any
notice by Buyer of title objections.
9. Survey. Buyer shall have the right to cause an as-built survey of
the Property to be prepared by a surveyor registered and licensed in the State
of Georgia and designated by Buyer. Such survey shall depict such information as
Buyer shall require. In addition to delivery of the Warranty Deed to the
Property, the Seller shall be obligated to deliver to Buyer at Closing a Quit
Claim Deed to any land depicted on said survey not included within the
description of the Property described on Exhibit "A" hereto.
10. Proceedings at Closing. On the Closing Date, the Closing shall
take place as follows:
(a) Seller shall deliver to Buyer the following documents and
instruments, duly executed by Seller:
(i) a Warranty Deed in recordable form conveying and
demising the Property as described on Exhibit "A";
(ii) a Quitclaim Deed in recordable form conveying
the land described by the survey but not included in the Property;
(iii) a seller's affidavit with respect to the
Property in a form and substance reasonably satisfactory to Buyer and Buyer's
title insurer;
(iv) if Seller is not a Foreign Person (as defined in
Section 1445 of the Internal Revenue Code of 1986, as amended), a certificate
and affidavit of non-foreign status in a form and substance reasonably
satisfactory to counsel for Buyer;
-6-
<PAGE> 7
(v) all such certificates and affidavits, in a form
and substance reasonably satisfactory to counsel for Buyer, with respect to any
tax withholding requirements imposed on sellers of real property under the laws
of the State of Georgia;
(vi) a certificate in form and substance reasonably
satisfactory to counsel for Buyer that the representations and warranties of
Seller in this Agreement are true and correct on and as of the Closing Date; and
(vii) the signed lease referenced in Section 14(b).
(b) Seller shall deliver to Buyer the following, if the same
have not been theretofore delivered by Seller to Buyer:
(i) Evidence in form and substance reasonably
satisfactory to Buyer that Seller has the power and authority to execute and
enter into this Agreement and to consummate the purchase and sale of the
Property, and that any and all actions required to authorize and approve the
execution of and entry into this Agreement by Seller, the performance by Seller
of all of Seller's duties and obligations under this Agreement, and the
execution and delivery by Seller of all documents and other items to be executed
and delivered to Buyer at Closing have been accomplished;
(ii) To the extent the same are in the possession of
Seller on the date of Seller's execution of this Agreement, the most recent
prior survey of the Land or any portion thereof and all plans and specifications
for any of the Improvements; and
(iii) The Service Agreements and the Permits.,
(c) Buyer shall deliver to Seller the following documents,
instruments and things, duly executed by Buyer:
(i) The Purchase Price, in accordance with the
provisions of this Agreement;
(ii) A certificate, in form and substance reasonably
satisfactory to counsel for Seller, to the effect that the representations and
warranties of Buyer in this Agreement are true and correct on and as of the
Closing Date;
(iii) The signed lease referenced in Section 14(b);
and
(iv) Evidence in form and substance reasonably
satisfactory to Seller that Buyer has the power and authority to execute and
enter into this Agreement and to consummate the purchase and sale of the
Property, and that any and all actions required to
-7-
<PAGE> 8
authorize and approve the execution of and entry into this Agreement by Buyer,
the performance by Buyer of all of Buyer's duties and obligations under this
Agreement, and the execution and delivery by Buyer of all documents and other
items to be executed and delivered to Seller at Closing have been accomplished.
11. Costs of Closing. Seller shall pay Seller's attorneys' fees, the
State of Georgia Realty Transfer Tax payable on the transfer of the Property and
all recording costs of the conveyance documents but not the Buyer's loan
documents. Buyer shall pay the cost of any survey obtained pursuant to Section 9
hereof, the premium for any owner's policy of title insurance issued in favor of
Buyer insuring Buyer's title to the Property (if Buyer elects to purchase same),
and Buyer's attorneys' fees. All other costs and expenses of the transaction
contemplated hereby shall be borne by the party incurring the same.
12. Warranties, Representations and Additional Covenants of Seller.
Seller represents, warrants and covenants to and with Buyer, knowing that Buyer
is relying on each such representation, warranty and covenant, that:
(a) Seller is duly organized, validly existing, and in good
standing under the laws of the State of Georgia. Seller has the power to own its
properties and assets and to carry on its business as it is now being conducted.
Seller has good and marketable fee simple title to all of the Property (other
than deeds to secure debt and related collateral documentation securing
indebtedness which will be cancelled and satisfied of record at Closing). Seller
has full power to execute and perform this Agreement and to transfer the
Property as herein provided, and such execution and performances does not
conflict with any provisions of its organizational documents or with any
contract or other instrument to which Seller is a party or to which it is bound.
This Agreement, and the covenants and agreements of Seller under this Agreement,
are the valid and binding obligations of Seller, enforceable in accordance with
their terms;
(b) Neither the execution of this Agreement nor the
consummation of the transactions contemplated hereby will cause, or give any
person ground to cause, the maturity, acceleration or increase of any liability
or obligation of Seller. There are no actions, suits or proceedings pending or
threatened against, by or affecting Seller which affect title to the Property,
or which question the validity or enforceability of this Agreement or of any
action taken by Seller under this Agreement, in any court or before any
governmental authority, domestic or foreign. There are no pending, threatened or
contemplated condemnation actions involving all or any portion of the Property;
(c) The Property is not subject to any special taxes,
assessments, or unrecorded agreements. The Seller has not received any notice
that the Property has been constructed, occupied, used or operated in violation
of any zoning, building, health, environmental or other laws, codes, ordinances,
regulations, orders or requirements of any
-8-
<PAGE> 9
city, county, state or other governmental authority having jurisdiction
thereof, or any private restrictive covenants affecting the Property. To the
best of Seller's knowledge, information and belief, all certificates, licenses,
permits, authorizations, consents and approvals required by any such
governmental authority for the continued use, occupancy and operation of the
Property have been obtained;
(d) There are no management, maintenance service or other
contracts with respect to the Property, other than those listed on Exhibit "B"
hereto. On the Closing Date, Seller will not be indebted to any contractor,
laborer, mechanic, materialman, architect or engineer for work, labor or
services performed or rendered, or for materials supplied or furnished, in
connection with the Property for which any such person could claim a lien
against the Property;
13. Warranties, Representations and Covenants of Buyer. Buyer
represents, warrants and covenants to and with Seller, knowing that Seller is
relying on each representation, warranty and covenant, that:
(a) Buyer is a limited liability company duly organized,
validly existing, and in good standing under the laws of the State of Georgia.
Buyer has the power to own its properties and assets and to carry on its
business as it is now being conducted;
(b) There are no actions, suits or proceedings pending or
threatened against, by or affecting Buyer which question the validity or
enforceability of this Agreement or of any action taken by Buyer under this
Agreement, in any court or before any governmental authority, domestic or
foreign;
(c) The execution of and entry into this Agreement and the
performance by Buyer of Buyer's duties and obligations under this Agreement and
of all other acts necessary and appropriate for the full consummation of the
purchase and sale of the Property as contemplated by and provided for in this
Agreement, are consistent with and not in violation of, and will not create any
adverse condition under, any contract, agreement or other instrument to which
Buyer is a party, or any judicial order or judgment of any nature by which
Buyer, or any officer of Buyer, is bound;
(d) This Agreement, and the covenants and agreements of Buyer
under this Agreement, are the valid and binding obligations of Buyer,
enforceable in accordance with their terms; and
(e) Buyer will deliver on the Closing Date all documents and
instruments required by this Agreement and perform all acts necessary or
appropriate for the consummation of the purchase and sale of the Property as
contemplated by and provided for in this Agreement.
-9-
<PAGE> 10
14. Conditions of Buyer's Obligations. Buyer's obligation to
consummate the purchase and sale of the Property on the Closing Date shall be
subject to the satisfaction or performance of the following, terms and
conditions, any one or more of which may be waived by Buyer, in whole or in
part, on or as of the Closing Date:
(a) Seller shall have fully and completely kept, observed,
performed, satisfied and complied with all terms, covenants, conditions,
agreements, requirements, restrictions and provisions required by this Agreement
to be kept, observed, performed, satisfied or complied with by Seller before, on
or as of the-Closing Date;
(b) The execution of a Lease Agreement between Buyer (as
Landlord) and Seller (as Tenant) for a portion of the Property, upon such terms
and conditions as are outlined in a non-binding letter of intent dated August
27, 1999 and accepted by Seller on September 2, 1999, together with such
additional terms and conditions as are agreed to by the parties.
(c) The representations and warranties of Seller in this
Agreement shall be true and correct, and certified by Seller to Buyer as such,
on and as of the Closing Date, in the same manner and with the same effect as
though such representations and warranties had been made on and as of the
Closing Date; and, notwithstanding the fact that such representations and
warranties may be limited to Seller's knowledge and belief of the truth of the
facts, assertions and matters contained therein, the facts, assertions and
matters contained in each of such representations and warranties shall be true
and correct on and as of the Closing Date; and
(d) Buyer shall not have terminated this Agreement pursuant to
an express right so to terminate set forth in this Agreement.
If any of the foregoing conditions have not been satisfied or performed on or as
of the Closing Date, Buyer shall have the right, at Buyer's option, either (i)
to terminate this Agreement by giving written notice to Seller on or before the
Closing Date, in which event all rights and obligations of the parties under
this Agreement shall expire, and this Agreement shall become null and void, or
(ii) if such failure of condition constitutes a default by Seller under this
Agreement, to exercise such rights and remedies as may be provided for in
Section 18(b) of this Agreement. In either of such events, the Earnest Money
shall be refunded to Buyer immediately upon request.
15. Conditions of Seller's Obligations. Seller's obligation to
consummate the purchase and sale of the Property on the Closing Date shall be
subject to the satisfaction or performance of the following terms and
conditions, any one or more of which may be waived by Seller, in whole or in
part, on or as of the Closing Date:
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<PAGE> 11
(a) Buyer shall have fully and completely kept, observed,
performed, satisfied and complied with all terms, covenants, conditions,
agreements, requirements, restrictions and provisions required by this Agreement
to be kept, observed, performed, satisfied or complied with by Buyer before, on
or as of the Closing Date;
(b) The execution of a Lease Agreement between Buyer (as
Landlord) and Seller (as Tenant) for a portion of the Property, upon such terms
and conditions as are outlined in a non-binding letter of intent dated August
27, 1999 and accepted by Seller on September 2, 1999, together with such
additional terms and conditions as are agreed to' by the parties; and
(c) The representations and warranties of Buyer in this
Agreement shall be true and correct, and certified by Buyer to Seller as such,
on and as of the Closing Date, in the same manner and with the same effect as
though such representations and warranties had been made on and as of the
Closing Date; and, notwithstanding the fact that such representations and
warranties may be limited to Buyer's knowledge and belief of the truth of the
facts, assertions and matters contained therein, the facts, assertions and
matters contained in each of such representations and warranties shall be true
and correct on and as of the Closing Date.
If any of the foregoing conditions have not been satisfied or performed on or as
of the Closing Date, Seller shall have the right, at Seller's option, either (i)
to terminate this Agreement by giving written notice to Buyer on or before the
Closing Date, in which event all rights and obligations of the parties under
this Agreement shall expire, and this Agreement shall become null and void, or
(ii) if such failure of condition constitutes a default by Buyer under this
Agreement, to exercise such rights and remedies as may be provided for in
Section 18(a) of this Agreement.
16. Other Offers and Exclusive Dealing. Unless and until this
Agreement is terminated or the transactions described herein consummated, Seller
shall neither directly nor indirectly, (a) solicit, initiate, encourage or
entertain submission of proposals or offers from any person or entity relating
to the sale of the Property or any portion thereof, (b) participate in any
discussions or negotiations regarding, or, except as required by a legal or
judicial process, furnish to any other person or entity any information with
respect to, or otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any other person or entity to
purchase the Property or any portion thereof, or (c) consummate any transaction
involving sale or conveyance of the Property or any portion thereof. Seller
shall promptly communicate to Buyer the terms of any such proposal or offer upon
knowledge or receipt of such proposal or offer or upon knowledge that such a
proposal or offer is likely to be made.
-11
<PAGE> 12
17. Possession at Closing. Seller shall surrender possession of the
Property to Buyer on the Closing Date.
18. Remedies.
(a) If the purchase and sale of the Property is not
consummated in accordance with the terms and conditions of this Agreement due to
circumstances or conditions which constitutes a default by Buyer under this
Agreement, the Earnest Money shall be delivered to Seller, and such amounts are
not intended as a penalty against Buyer, but rather as a pre estimate of the
probable loss and shall constitute the full liquidated damages for such default.
The parties acknowledge that Seller's actual damages in the event of a default
by Buyer under this Agreement will be difficult to ascertain, and that such
liquidated damages represent the parties' best estimate of such damages. The
parties expressly acknowledge that the foregoing liquidated damages, as
permitted by O.C.G.A. ss. 13-6-7, in the event of Buyer's default and as
compensation for Seller's taking the Property off the market during the term of
this Agreement. Such liquidated damages shall be the sole and exclusive remedy
of Seller by reason of a default by Buyer under this Agreement, and Seller
hereby waives and releases any right to sue Buyer, and hereby covenants not to
sue Buyer, for specific performance of this Agreement or to prove that Seller's
actual damages exceed the amount which is herein provided Seller as full
liquidated damages.
(b) If the purchase and sale of the Property is not
consummated in accordance with the terms and conditions of this Agreement due to
circumstances or conditions which constitute a default by Seller under this
Agreement, the Earnest Money shall be refunded to Buyer, immediately upon
request, and Buyer may exercise as its sole and exclusive remedies an action for
specific performance and/or damages up to, but not in excess of, $50,000.00 in
damages. In no event shall Buyer be entitled to assert a claim against Seller
for damages in excess of $50,000.00. Further, in the event Buyer desires to
assert a claim for specific performance against Seller, then Buyer must do so
within ninety (90) days of a default under this Agreement by Seller. After such
ninety (90) day period, Buyer shall not be entitled to bring a claim against
Seller for specific performance but shall be limited to a claim for damages up
to, but not in excess of, $50,000.00.
19. Risk of Loss and Insurance. (a) Between the date of this Agreement
and Closing, the risks and obligations of ownership and loss of the Property and
the correlative rights against insurance carriers and third parties shall belong
to Seller.
(b) In the event of the damage or destruction of a material
portion of the Property (which, for purposes hereof, shall mean that the cost of
repair shall be more than fifty percent (50%) of the Purchase Price), Buyer
shall have the right, at Buyer's option, to terminate this Agreement by giving
written notice thereof to Seller prior to Closing, in which event the Earnest
Money shall be refunded to Buyer, immediately upon request, all rights and
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<PAGE> 13
obligations of the parties under this Agreement shall expire, and this Agreement
shall become null and void. If Buyer does not so terminate this Agreement, at
Seller's option, (i) the parties shall consummate this transaction, without any
reduction in the Purchase Price, and the Seller promptly shall repair or restore
the Property to substantially the same condition as existed before the casualty,
or to such other condition consistent with the provisions of Section 19(d) as
Buyer and Seller shall mutually agree, or (ii) the Purchase Price shall be
reduced by Seller's insurance deductible and upon consummation of this
transaction, Seller shall assign to Buyer all insurance proceeds paid or payable
thereafter by reason of such damage or destruction, and following consummation
of this transaction, Buyer shall construct the improvements upon the Property in
accordance with the provisions of Section 19(d).
(c) Should the cost of repair of the damage to the Property
not be more than fifty percent (50%) of the Purchase Price, Buyer shall not have
the right to terminate this Agreement, and the Purchase Price shall be reduced
by Seller's insurance deductible and Seller shall assign to Buyer all insurance
proceeds paid or payable thereafter by reason of such damage or destruction, and
the Buyer shall construct the improvements upon the Property in accordance with
the provisions of Section 19(d).
(d) The exterior of the Property shall be restored, and the
interior of the Property shall be rebuilt in a manner to provide Seller with
approximately 2,500 rentable square feet on the first floor thereof, with
comparable finishes as existed prior to such casualty, together with such space
on the second floor thereof necessary to provide Seller with men's and women's
restrooms, a break room, a conference room, and a storage area. The parties
shall negotiate in good faith the exact configuration and other construction
details of the rebuilt improvements, and shall cooperate in the preparation of
plans and specifications for same.
20. Condemnation. In the event of the taking of all or any part of the
Property by eminent domain proceedings, or the commencement of any such
proceedings, prior to Closing, Buyer shall have the right, at Buyer's option, to
terminate this Agreement by giving written notice thereof to Seller prior to
Closing, in which event the Earnest Money shall be refunded to Buyer,
immediately upon request, and all rights and obligations of the parties under
this Agreement shall expire, and this Agreement shall become null and void. If
Buyer does not so terminate this Agreement, the Purchase Price shall not be
reduced, but Seller shall assign to Buyer all rights of Seller in and to any
awards or other proceeds paid or payable thereafter by reason of any taking.
Seller shall notify Buyer of eminent domain proceedings within five (5) days
after Seller learns thereof.
21. Assignment. This Agreement may be assigned by Buyer, in whole or in
part, to any entity under the control of Buyer or its members, and such
assignment shall relieve Buyer of liability for the performance of Buyer's
duties and obligations under this Agreement. For purposes of this Agreement, the
term "Buyer" shall include any assignee of the interest of Buyer under this
Agreement. No other assignments by Buyer shall be
-13-
<PAGE> 14
permitted except with the prior written consent of Seller, which consent shall
not be unreasonably withheld, delayed or conditioned.
22. Parties. This Agreement shall be binding upon and enforceable
against, and shall inure to the benefit of, Buyer and Seller and their
respective heirs, legal representatives, successors and permitted assigns.
23. Broker and Commission. None of the parties hereto have employed the
services of any other broker or sales agent, licensed or otherwise, in
connection with this purchase and sale of the Property. In the event of a claim
for any commission or fee by any other broker, agent, sales person or finder,
the party through whom such claim arose hereby agrees to indemnify and hold the
other parties hereto harmless from any and all such claims and any and all
demands, costs, expenses, and causes of action in connection therewith.
24. Further Assurances. At Closing, and from time to time thereafter,
Buyer and Seller shall do all such additional and further acts, and shall
execute and deliver all such additional and further deeds, affidavits,
instruments, certificates and documents, as Seller, Seller's counsel, Buyer,
Buyer's counsel or Buyer's title insurer may reasonably require fully to vest in
and assure to Buyer full right, title and interest in and to the Property to the
full extent contemplated by this Agreement and otherwise to effectuate the
purchase and sale of the Property as contemplated by and provided for in this
Agreement.
25. Survival. Each party's representations and warranties as set forth
in this Agreement, shall survive the consummation of the purchase and sale of
the Property on the Closing Date, the delivery of the deed and the payment of
the Purchase for a period of six (6) months, and shall not be deemed merged into
the deed of conveyance. Following such six (6) month period, each party's
representations and warranties shall be deemed merged into the deed of
conveyance.
26. Modification. This Agreement supersedes all prior discussions and
agreements between Seller and Buyer with respect to the purchase and sale of the
Property, including but not limited to that certain non-binding letter of intent
dated August 27, 1999, and other matters contained herein, and this Agreement
contains the sole and entire understanding between Seller and Buyer with respect
thereto. This Agreement shall not be modified or amended except by an instrument
in writing executed by or on behalf of Seller and Buyer.
27. Applicable Law. This Agreement shall be governed by, construed
under and interpreted and enforced in accordance with the laws of the State of
Georgia.
28. Time. Time is and shall be of the essence of this Agreement.
-14-
<PAGE> 15
29. Captions. The captions and headings used in this Agreement are for
convenience only and do not in any way restrict, modify or amplify the terms of
this Agreement.
30. Exhibits. Each and every Exhibit referred to or otherwise mentioned
in this Agreement is attached to this Agreement and is and shall be construed to
be made a part of this Agreement by such reference or other mention occurs, in
the same manner and with the same effect as if each Exhibit were set forth in
full and at length every time it is referred to or otherwise mentioned.
31. Notices. All notices, requests, demands, tenders and other
communications under this Agreement shall be in writing. Any such notice,
request, demand, tender or other communication shall be deemed to have been duly
given if personally delivered or deposited in the United States Mail, Certified
Mail, Return Receipt Requested, with all postage prepaid, to the address for
each party as follows:
If to Buyer: Three Rivers Land Development, L.L.C.
Suite 101
3312 Piedmont Road
Atlanta, Georgia 30305
With a copy to: Charles I. Pollack, Esq.
Silfen, Segal, Fryer & Shuster, P.C.
1050 Crown Pointe Parkway, Suite 410
Atlanta, Georgia 30338
If to Seller: The Summit National Bank
Attn: President
4360 Chamblee Dunwoody Road
Atlanta, Georgia 30341
If to Escrow Agent: Silfen, Segal, Fryer & Shuster, P.C.
Attn: Michael H. Shuster, Esq.
1050 Crown Pointe Parkway, Suite 410
Atlanta, Georgia 30338
or at such address as may be furnished in writing from time to time by any party
hereto.
32. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all of such
counterparts together shall constitute one and the same instrument.
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<PAGE> 16
33. Mutual Representation as to Authority. Each individual whose
signature appears below warrants and represents to all parties hereto that such
individual has full right and authority to execute this Agreement in the
capacity designated, and further warrants and represents that all to the best of
such individual's knowledge, information and belief, that such signatures are
sufficient to bind the party on whose behalf this Agreement is being executed to
the terms and provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered under seal as of the date first above written.
BUYER: SELLER:
THREE RIVERS LAND
DEVELOPMENT L.L.C. THE SUMMIT NATIONAL BANK
By: /s/ Mark Harris (SEAL) By: /s/ Pin Pin Chau
-------------------- ---------------------
Mark Harris Pin Pin Chau
Member/Manger President
[CORPORATE SEAL]
ESCROW AGENT:
SILFEN, SEGAL, FRYER & SHUSTER,
P.C.
By: /s/ Michael H. Shuster
-----------------------
Michael H. Shuster
Vice President
[CORPORATE SEAL]
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<PAGE> 17
EXHIBIT "A"
All that tract or parcel of land lying and being in Land Lots 274 &
283, 6th Land District, Gwinnett County, Georgia, containing 1,452 acres on
survey for Gwinnett County Bank, dated August 4, 1980, prepared by Michael A.
Royston, Registered Land Surveyor, recorded in Plat Book 13, Page 146A,
Gwinnett County Plat Records, which plat is by reference incorporated herein
and made a part hereof.
<PAGE> 18
EXHIBIT "B"
LIST OF SERVICE AGREEMENTS
<PAGE> 1
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION
OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------
1999 1998 1997
---------- ----------- -----------
<S> <C> <C> <C>
Basic net income per share:
Weighted-average shares outstanding 1,713,318 1,773,010 1,436,023
========== =========== ===========
Net income per share $ 1.59 $ 1.56 $ 1.71
========== =========== ===========
Diluted earnings per share:
Weighted-average shares outstanding 1,713,318 1,773,010 1,436,023
Dilutive warrants -- 51,505 392,478
Dilutive stock options -- 23,162 52,900
Repurchased under treasury stock method -- (42,849) (248,815)
---------- ----------- -----------
1,713,318 1,804,828 1,632,586
========== =========== ===========
Net income $2,725,000 $ 2,769,000 $ 2,450,000
Diluted net income per share $ 1.59 $ 1.53 $ 1.50
========== =========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 13.1
SUMMIT BANK CORPORATION
SUMMIT MEANS BUSINESS
1999 ANNUAL REPORT
COMPANY PROFILE
Summit Bank Corporation is an Atlanta-based holding company. Its
wholly-owned subsidiary, The Summit National Bank, is a full service bank
specializing in commercial banking and international trade finance for small and
medium sized businesses. Summit serves a wide range of customers through its six
branches in metropolitan Atlanta, Georgia and San Jose, California, and is the
leading commercial bank in several ethnic communities within those cities.
Summit Bank Corporation lists its common stock on the The Nasdaq Stock Market
under the trading symbol "SBGA."
<PAGE> 2
SELECTED FINANCIAL DATA
As of December 31,
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) 1999 1998 199 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Total assets $ 281,268 $ 263,161 $ 180,296 $ 154,248 $ 130,076
Loans 167,719 133,496 98,892 85,808 78,177
Deposits 232,941 218,647 144,795 132,899 109,816
Stockholders' equity 22,786 24,505 19,778 16,936 15,413
<CAPTION>
Year Ended December 31,
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Statement of Income Data
Net interest income $ 12,002 $ 9,944 $ 8,005 $ 6,836 $ 6,031
Provision for loan losses 899 455 540 404 397
Non-interest income 3,326 3,575 3,460 3,361 3,311
Non-interest expenses 10,215 8,792 7,156 6,411 5,802
Net income $ 2,725 $ 2,769 $ 2,450 $ 2,208 $ 2,101
Per Share Data
Book value per share at year end $ 13.76 $ 13.68 $ 13.28 $ 12.03 $ 10.95
Basic earnings per share 1.59 1.56 1.71 1.57 1.49
Diluted earnings per share 1.59 1.53 1.50 1.43 1.49
Weighted-average shares outstanding--basic 1,713,318 1,773,010 1,436,023 1,407,688 1,407,688
Weighted-average shares outstanding--diluted 1,713,318 1,804,828 1,632,586 1,546,332 1,414,670
Dividends declared $ .52 $ .39 $ .35 $ .31 $ .28
Ratios
Return on average assets 1.04% 1.24% 1.47% 1.59% 1.74%
Return on average equity 11.60% 11.89% 13.36% 13.80% 15.09%
Net interest margin 5.07% 4.90% 5.26% 5.44% 5.50%
Non-performing assets/total loans and other real estate .77% 2.70% 1.80% 1.07% .1%
</TABLE>
Graphs ><Total Assets in thousands> <Net Income in thousands> <Book Value/Share>
2
<PAGE> 3
Our expertise in commercial banking and international trade finance
has enabled us to further solidify our position in both Atlanta
and San Jose.
TO OUR SHAREHOLDERS
SEVERAL ACHIEVEMENTS DURING THE LAST YEAR HAVE POSITIONED SUMMIT FOR AN
EVEN STRONGER FUTURE. Our focus on improving the asset mix was realized through
exceptional loan growth of 26%. This increase in loans required additional
provisions for loan losses which contributed to a slight decline in net income
for 1999. We funded the loan growth by reducing our lower-yielding securities
and by increasing our non-interest bearing deposits. The result has been a
continually increasing net interest margin, which should continue to produce
increased interest income in the months and years to come.
The Company completed the repurchase of 160,000 shares of outstanding
common stock during the last 14 months, thus improving earnings per share for
the remaining shareholders. Through the concentrated efforts of our branch
network, Summit continued to expand its deposit customer base, resulting in
increases in every deposit category over the last year. Our commitment to
quality customer service providing a seamless passage into the new millennium
was evidenced by the absence of computer related problems. Summit was again
recognized in 1999 as one of the top SBA lenders in Georgia, a prominent
position that we have held for the last eight years. The San Jose office,
catering to a vibrant small business market, also played a crucial role in our
1999 loan growth.
Net income for 1999 was $2,725,000 compared to $2,769,000 in 1998.
Earnings per share increased to $1.59, from $1.53 in 1998, due to there being
fewer outstanding common shares. Our board also voted to increase dividends per
share in 1999, to $.18 cents per quarter, the highest in the Company's history.
Our expertise in commercial banking and international trade finance has
enabled us to further solidify our position in both Atlanta and San Jose. Our
longstanding commitment to "serving the under-served" continues to be a source
of strength, as we are a leading commercial bank in our chosen niches within
these two cities. A large segment of our customer base is from the Chinese,
Korean, Vietnamese and Spanish-speaking communities. We take pride in our
ability to understand and address the particular needs of these customers with
such services as our multi-lingual staff and our tri-lingual ATMs and 24-Hour
telephone banking system.
Summit expanded its array of products and services during 1999 by
entering into a partnership with LPL, Inc., that has given us the ability to
offer investment products and financial planning services to small business
owners. Also, we continued to expand our Latin American Banking initiative,
which expands the reach of our ethnic community marketing efforts.
Additionally, our office in San Jose, acquired in June 1998, became
fully integrated into the Summit branch system during 1999, and experienced a
sharp increase in loan portfolio growth. Indeed, San Jose accounted for more
than 25% of Summit's total loan growth in 1999. We are pleased by these results
and believe it confirms that our entry into the rapidly growing San Jose market
is consistent with our strategy of successfully positioning ourselves in
high-growth communities.
These and other accomplishments have not recently been reflected in the
price of the company's common stock, which slipped during late 1999 and early
2000. We attribute much of that decline to a market-wide phenomenon, i.e. the
diversion of investment money away from "brick and mortar" companies and into
Internet-oriented stocks. This is, in our view, a short-term market phenomenon.
Based on our commitment to sound banking principles and business strategies, we
believe that 2000 should again be a year of strong asset and loan growth for
Summit and also the year that our Company will return to its longstanding
stellar earnings performance.
Sincerely,
Pin Pin Chau Chief Executive Officer
Jack N. Halpern Chairman
3
<PAGE> 4
PICTURES EXECUTIVE MANAGEMENT TEAM David Yu Pin Pin Chau Alec Dudley
Gary McClung
MEET THE PEOPLE WHO MAKE IT HAPPEN.
Mergers. Consolidations. Streamlining. Computerization. All have combined to
make a handful of mega-banks veritable supermarkets of goods and services that
are broad enough to appeal to the masses of customers, literally from sea to
shining sea. And that's fine for a customer if all that's needed is a checking
account and an ATM card and maybe a certificate of deposit. But what if a new
international expansion is bearing fruit, and the business owner is unfamiliar
with the process for obtaining pre-export financing? What if a family business
owner needs a Small Business Administration (SBA) loan, but barely speaks
English? The modern mega-banker may not be equipped to serve these
out-of-the-ordinary situations, or give a business customer the hands-on care
they desire.
IF SOME OF THESE MEGA-BANK APPROACHES ARE "MODERN" AS WE ENTER A NEW CENTURY AND
MILLENNIUM, THEN SUMMIT BANK IS PROUDLY OLD FASHIONED. Certainly, we've embraced
the technological innovations that give our customers efficient, safe cash
management services or the remote access funds transfer capabilities of
BankTouch, our 24-Hour telephone banking system. Since our inception, Summit has
focused on delivering customers personalized service suited to their individual
requirements.
4
<PAGE> 5
SUMMIT'S EMPHASIS ON PERSONAL BANKING STARTS AT THE TOP. The company's loan
management reviews every loan request, and works directly with loan officers and
their clients in assessing their business and determining the most appropriate
solution for their circumstances. There are no computerized loan scoring systems
at Summit. Just people helping people.
INDEED, ACCORDING TO SURVEYS CONDUCTED FOR SUMMIT, MORE THAN 80% OF SUMMIT
CUSTOMERS HAVE CHOSEN THE BANK BECAUSE OF THE QUALITY AND CORDIALITY OF ITS
EMPLOYEES. And most customers come to Summit through a reference from an
existing satisfied customer, be it friend, colleague or family member.
"We are keenly aware that our success is directly related to the one-on-one
personalized approach we employ," explains Pin Pin Chau, Chief Executive Officer
of Summit Bank Corporation. "This is a people oriented business and responding
to a customer's specific need is paramount."
That's a mindset that permeates every corner of every department and branch at
Summit, from the Asian Banking Center in Chamblee, Georgia to the full-service
branch in San Jose, California, to the Private Banking unit at our Vinings
branch in Atlanta, Georgia. Employees are friendly, courteous and knowledgeable.
WE ARE EXPERTS IN BUSINESS BANKING, BECAUSE WE TAKE THE TIME TO UNDERSTAND OUR
CUSTOMERS AND THEIR BUSINESSES.
Summit's mission is to reach out to the under-served communities, and to deliver
a complete range of commercial banking services. Those communities include
ethnic neighborhoods in Atlanta and San Jose, small companies seeking to expand
into competitive international markets and mid-sized businesses that have
outgrown community banks but are too small to draw the attention of the
conglomerates. And our track record, especially our steady deposit and loan
portfolio growth--speaks volumes about the Summit approach to banking.
Still, a warm smile and a caring manner alone won't keep customers happy.
Summit's employees are experienced, highly trained professionals who bring
expertise in such areas as international trade finance, federal lending
programs, cash management and real estate loans. And since many of our customers
are newcomers to the United States, many of our employees are multi-lingual.
Conversations in Korean, Chinese, Vietnamese or Spanish are almost as frequent
at Summit as chats in English. Our track record, especially our steady deposit
and loan portfolio growth--speaks volumes about the Summit approach to banking.
5
<PAGE> 6
SUMMIT MEANS BUSINESS.
Nothing makes us happier than a happy customer with a growing business.
WE WANT YOUR BUSINESS TO GROW.
From the corner grocery to a multi-national corporation, businesses today must
anticipate and respond to the whims of the marketplace, governmental mandates
and ever-heightening competition. Delays or breakdowns in order fulfillment,
cash flow, funds transfers or product launches can mean the difference between
success and failure in today's instant information age.
SUMMIT PARTNERS WITH ITS CUSTOMERS TO GIVE THEM THE FINANCIAL TOOLS NEEDED TO
EFFICIENTLY RUN THEIR BUSINESSES. Given the time and resource constraints of
many entrepreneurs and small business managers, Summit is increasingly called on
to provide a "one-stop shopping" approach for their banking and investment
needs. The more we can do for the customer, the more time they have to get the
job done.
At the core of any customer's business banking relationship are checking and
savings accounts, and Summit offers a complete array of both regular and
interest bearing options. Our experienced branch employees are proficient in
analyzing a customer's particular needs, and helping them choose the accounts
that are best suited for their situation.
6
<PAGE> 7
Customers with businesses that generate high volumes of cash also rely on Summit
to efficiently manage those accounts. That process is highly refined at Summit,
beginning with a cheerful team of efficient tellers who accept the deposits and
a highly computerized back-office process that ensures adequate funds are
available to cover the customer's immediate needs; the remainder is invested in
interest-bearing overnight sweep accounts that maximize earning power.
Busy business managers don't have time to shop all over town for their consumer
banking needs either. And they don't have to at Summit, where a suite of highly
competitive consumer checking, savings and investment options are available. The
recent addition of investment products and financial planning services, through
our partnership with LPL, Inc., gives Summit clients even greater flexibility to
manage their personal and business portfolios.
Thanks to the Internet and the globalization of economies, the world is getting
smaller by the minute. But international opportunities for small businesses can
result in big problems or big rewards, depending on the level of resources at
the manager's fingertips. At Summit, we don't expect our clients to be experts
in trade finance, international letters of credit or loan guaranty programs
offered by the US government. That's our job.
SUMMIT'S PARTNERSHIP WITH ITS CUSTOMERS EXTENDS ACROSS US BORDERS. We maintain
correspondent banking relationships with more than 200 institutions in Asia,
Europe and Latin America. Our customers can rely on us for pre-shipment
advances, letters of credit, currency exchange contracts and documentary
collections, among other services. We also navigate the intricacies of federal
programs available through the Export-Import Bank of the United States and other
agencies.
Just as foreign trade can literally be foreign to many US businesses, so can the
US culture and marketplace be foreign territory for many immigrants seeking to
realize the American dream. At Summit, we've made a special commitment to
serving Chinese, Korean, Vietnamese, Spanish-speaking and other ethnic groups
with multi-lingual employees who speak over 12 different languages and maintain
a culturally sensitive approach to banking.
STILL, THE BACKBONE OF BUSINESS BANKING IS DEPLOYING ASSETS THAT WILL ENABLE OUR
CUSTOMERS TO EXPAND THEIR BUSINESSES. We ensure that working capital is
available with construction, real estate and SBA loans. We walk our customers
through the lending process, which can be a maze of confusion at larger banks.
The result is a streamlined, personalized lending process that has enabled
Summit to grow its quality loan portfolio while simultaneously meeting the needs
of its customers. SUMMIT MEANS BUSINESS.
7
<PAGE> 8
WE'RE A FULL SERVICE BANK.
SUMMIT'S BUSINESS IS BUSINESS BANKING.
Our suite of products and services--a mix of traditional and technologically
enhanced offerings--give customers the breadth, variety, efficiency and
reliability their businesses demands.
INTERNATIONAL BANKING SERVICES
Collections
Letters of Credit
Wire Transfer
INTERNATIONAL LENDING SERVICES
Export Financing
Import Financing
Pre-Export Financing (guaranteed by federal programs, including the
Export-Import Bank and the Small Business Administration)
DOMESTIC LENDING SERVICES
Commercial Loans
Construction Loans
Real Estate Loans
Small Business Administration (SBA) Loans
Working Capital Lines of Credit
BUSINESS DEPOSIT ACCOUNTS
Commercial Checking
Commercial Money Market
Commercial Savings
Small Business Checking
Simplified Employee Pension Plan (SEP)
8
<PAGE> 9
CASH MANAGEMENT
Automated Reconcilement
Overnight Sweep Investments
PC Banking
PERSONAL BANKING
Checking
Savings
Certificates of Deposit
Premium Installment Savings Account (PISA)
Individual Retirement Account (IRA)
Consumer Lending
OTHER SERVICES
Private Banking
Investment Products and Financial Planning
Merchant Services
Credit Cards
BankTouch--Tri-lingual 24-Hour Telephone Banking
24-Hour ATM
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Performance Overview for 1999
Summit Bank Corporation (the "Company" or "Summit") reported net income of
$2,725,000 in 1999 representing a slight decline from the prior year of 2%.
Management attributes this decrease in net earnings to additional provision for
loan losses associated with strong loan growth during the year. Total loans grew
to $168 million from $133 million at December 31, 1998, a 26% increase. Much of
the focus of the Company during 1999 was on repositioning the balance sheet to
improve the yield on earning assets. Considerable progress was made toward this
goal with growth in loans, aided by the strong economic conditions in the
Atlanta area as well as in San Jose. Loan growth was partially funded by
liquidations in lower yielding securities held in the investment portfolio.
Investment securities decreased to $70 million from $96 million at the end of
last year. The Company's average earning assets grew 17% in 1999, while the net
interest margin improved to 5.07% from 4.90% at the end of 1998. During 1999,
Summit's average total assets increased $39 million to $261 million compared to
$222 million in 1998.
Diluted net income per share for 1999 increased to $1.59 from $1.53 in 1998, an
improvement of 4%. Diluted net income per share in 1997 was $1.50. In November
1998, the Company announced a stock repurchase plan to acquire up to 90,000
shares, or approximately 5% of its common stock outstanding. Through December
31, 1998, the Company had purchased 24,375 shares under this plan. The Company
purchased the remaining 65,265 shares during early 1999. In May 1999, Summit
announced a plan to repurchase an additional 70,000 shares of its common stock,
which was accomplished by October 1999. The increase in the net income per share
was due to the reduced number of shares issued and outstanding. The
weighted-average shares and potential common shares outstanding were 1,713,318,
1,804,828, and 1,632,586 in 1999, 1998, and 1997, respectively.
The Company's return on average assets was 1.0% in 1999 as compared to 1.2% for
the previous year. The decline is attributable to the high growth rate in total
assets, which outpaced the growth in 1999 earnings. By comparison, according to
the Uniform Bank Performance Report as of September 30, 1999, the Bank's peer
group, i.e., commercial banks with assets between $100 million and $300 million
and three or more branches in a metropolitan area, posted a return of 1.1% of
average assets. For the past five years, the Company has posted returns on
average assets of 1.0% or better. Despite strong net earnings, Summit's return
on average equity declined slightly to 11.6% in 1999 from 11.9% in 1998 as a
result of increased equity from retained earnings.
The Company's common stock is listed on the Nasdaq National Market under the
trading symbol of "SBGA." The following table sets forth: (1) the high and low
sales price for the common stock as reported by Nasdaq; and (2) the amount of
the
10
<PAGE> 11
quarterly dividends declared on the common stock during the periods indicated.
<TABLE>
<CAPTION>
Sales Price Cash Dividend
Calendar Period High Low Declared
<S> <C> <C> <C>
1998
- --------------------------------------------------------------------------------
First Quarter $ 25.50 $ 18.75 $.09
Second Quarter 25.88 19.75 .10
Third Quarter 21.75 16.75 .10
Fourth Quarter 20.00 16.00 .10
1999
- --------------------------------------------------------------------------------
First Quarter $ 19.00 $ 14.75 $.10
Second Quarter 17.38 14.31 .12
Third Quarter 17.44 14.31 .12
Fourth Quarter 16.50 11.00 .18
</TABLE>
The Company is a legal entity separate and distinct from The Summit National
Bank (the "Bank"), its banking subsidiary, and its revenues depend primarily on
the payment of dividends from the Bank. Banking regulations limit the amount of
dividends that may be paid without prior approval of the Bank's regulatory
agencies. Further restrictions could result from a review by regulatory
authorities of the Bank's capital adequacy. The amount of cash dividends
available from the Bank for payment in 2000 is $3,870,000 plus 2000 net earnings
of the Bank. At December 31, 1999, $17,457,000 of the Company's investment in
the Bank is restricted as to dividend payments from the Bank to the Company. In
1999, the Company's cash dividend to shareholders was $.52 per share, an
increase of 33% over 1998 dividends of $.39 per share.
The Company has three brokerage firms that make a market in its stock. Liquidity
in the Company's stock softened during 1999 despite consistent earnings and
asset growth. During 1999, 798,700 shares of the Company traded on the open
market. At December 31, 1999, the most recent trade of the Company's stock was
$11.75 per share, compared to $16.50 per share at year-end 1998.
Total assets reported by the Company at December 31, 1999 were $281 million
compared to $263 million at the prior year-end, reflecting an increase of 7%.
Asset growth is primarily attributable to strong loan growth. The San Jose
office contributed approximately $8 million, or 23%, of the new loan growth. The
majority of the Company's loan growth was centered in commercial loans. New SBA
loans generated in 1999 totaled $15 million, of which the Bank subsequently sold
$6.6 million of the guaranteed portions in the secondary markets. Cash and cash
equivalents were higher than normal, at $17 million and $14 million,
respectively, exceeding the prior year-end balance by nearly $10 million, in
preparation for possible year-end contingency needs of Bank customers. Excess
cash reserves were returned to the Federal Reserve Bank in January 2000.
Deposits grew a total of $14 million, or 7% during 1999. While certificates of
deposits increased by $6 million, or 5%, non-interest-bearing demand deposits
also increased by $6 million. This growth rate for non-interest-bearing
deposits, 12%, was a contributing factor to the improvement in the net interest
margin to 5.07%
11
<PAGE> 12
at December 31, 1999 from 4.90% at December 31, 1998. Non-interest-bearing
deposits accounted for 23% of the Bank's deposit base at the end of the year.
The Bank has been very successful in marketing the overnight sweep account
product to small businesses as evidenced by the total invested in these accounts
at year-end of $11.4 million compared to $6 million at December 31, 1998. These
accounts pay tiered rates that averaged about 4% last year.
Net interest income increased $2.1 million to $12 million in 1999, a growth of
21%. The net interest margin for 1999, at 5.07%, compared favorably to the peer
group average of 4.77%. While the average balance of interest-bearing deposits
increased $23 million during 1999, average interest-earning assets grew $34
million, which also helped improve the interest margin. The mix of earning
assets resulting from the shift of funds into loans from lower-yielding
investment securities also contributed to the interest margin improvement. The
provision for loan losses increased to $899,000 in 1999 from $455,000 in 1998,
primarily due to the strong loan growth in 1999. Non-interest income of $3.3
million decreased 7% in 1999 as the Company recognized net losses on sales of
certain investment securities in 1999 versus net gains taken during the prior
year. The losses were the result of declining market values, in a rising rate
environment, of the long-term fixed-rate securities that were sold. Gains
recognized on sales of SBA loans were also lower than the previous year because
of a softening of prices in the secondary market.
Year to year comparisons of service charge and overdraft income as well as all
non-interest expenses were influenced by the San Jose office acquisition which
took place on June 30, 1998. For the year ended December 31, 1999, non-interest
expenses totaled $10.2 million, an increase of 16% over the 1998 total of $8.8
million. Personnel expenses accounted for $400,000 of the increase, while
occupancy costs and other general operating expenses represented another
$130,000 and $970,000 of the increase, respectively. In addition to increases
due to the California acquisition, the Company incurred $75,000 for expenses
related to the Year 2000 readiness project during 1999. The Company's operating
efficiency ratio (operating expenses as a percentage of net interest income and
non-interest income) increased in 1999 compared to past years as a result of the
California acquisition as well as higher legal fees and operating losses. The
operating efficiency ratio in 1999, 1998, and 1997 was 67%, 65%, and 62%,
respectively.
Fourth Quarter 1999 Results
Net income for the fourth quarter of 1999 was $805,000, a 1% increase over
income of $795,000 for the same period in 1998. The increase was due in part to
higher net interest income, which was $3.3 million in the fourth quarter of 1999
compared to $2.8 million in the same period of 1998. This increase was partially
offset by a much higher loan loss provision, up $265,000 over fourth quarter
1998. Comparing fourth quarter 1998 and 1999, the increase in net interest
income was due to the mix of higher average earning assets resulting from the
movement from investment securities to loans in 1999. The large increase in net
interest income was also offset by higher non-interest expenses, which were $2.8
million and $2.5 million for the quarters ended December 31, 1999 and 1998,
respectively. The Bank also incurred a fraud loss of $320,000 during December
1999 resulting from a check-kiting scheme involving a Summit customer. Exclusive
of this loss, non-interest expenses for the fourth quarter would have been flat
compared to the fourth quarter of last year. Basic and diluted net earnings per
share for the fourth quarter were $.48 and $.44 per share for 1999 and 1998,
respectively. The increase was primarily due to the repurchase of outstanding
shares of common stock during 1999. The Company increased its quarterly dividend
in fourth quarter 1999 to $.18 per share, an 80% increase over the dividend paid
in fourth quarter 1998.
Bank Acquisition
On June 30, 1998, Summit completed the acquisition of California Security Bank
("CSB") located in San Jose, Santa Clara County, California. Management believes
this acquisition provides Summit an entrance into a vibrant market sharing
demographics very similar to the Atlanta market which the Company has served for
eleven years. The similarities include: (1) strong Small Business Administration
loan opportunities (Summit has been a leading SBA lender in Georgia for the last
eight years; Santa Clara County, California is the leading county in the
Northern California SBA region), (2) opportunities to provide banking services
to various ethnic groups (Summit has long-served Atlanta's Chinese-, Korean-,
and German-American populations and began a Latin-American banking unit in 1998;
the San Jose branch is located in a market highly populated with Vietnamese and
Latin American individuals), and (3) strong international trade finance
activities (another stronghold Summit has established in Atlanta during the last
eleven years; San Jose has been recognized as the leading export city in the
United States fueled largely by the Silicon Valley business activities).
At the closing of the acquisition on June 30, 1998, CSB had total assets of
approximately $39 million, net loans of $20 million, cash and investment
securities of approximately $19 million, and total deposits of $36 million.
Summit purchased all outstanding shares of CSB stock for $6 million in cash. The
transaction was accounted for using the purchase method of accounting.
Net Interest Income
Net interest income, the primary source of revenue for the Company, is a
function of the yield earned on average interest-earning assets and the rate
paid on average interest-bearing liabilities. Changes in net interest income
from period to period reflect the increases or decreases in average
interest-earning assets, average interest-bearing liabilities and the interest
rate spread which is affected by the degree of mismatch in maturity and
repricing characteristics of the Company's interest-earning assets and
interest-bearing liabilities.
12
<PAGE> 13
Net interest income increased $2.1 million, or 21%, to $12 million in 1999
compared to 1998. Average interest-earning assets increased 17%, or $34 million,
which helped offset the decline in the yield due to falling interest rates for
loans and investment products during 1999. Average loan balances represented a
large portion of the increase in average interest-earning assets,
13
<PAGE> 14
increasing $36 million in 1999, while average investment securities volumes
declined $440,000. Average interest-bearing liabilities increased 17%, or $26
million, in 1999, the largest contributor to this volume increase being average
time deposits, which grew $20 million. Volume increases in interest-bearing
deposits were partially offset by the rate declines.
Net interest income for 1998 increased $1.9 million, or 24%, to $10 million
compared to 1997. The net interest margin for 1998 declined to 4.90% compared to
5.26% in 1997. Average interest-earning assets increased 33%, or $51 million,
helping to offset the decline in the yield due to a falling interest rate
environment during 1998. Average investment security balances represented a
large portion of the increase in average interest-earning assets, increasing $25
million in 1998, while average loan volumes grew $22 million. Average
interest-bearing liabilities increased 35%, or $41 million, in 1998, with other
time deposits and Federal Home Loan Bank advances increasing $31 million and $4
million, respectively.
The following table sets forth information with respect to the average balances,
interest income, and average yield by major categories of assets; the average
balances, interest expense, and average rate by major categories of liabilities;
the average balances of non-interest-earning assets, non-interest-bearing
liabilities, and stockholders' equity; and net interest income, interest rate
spread, and net interest margin for the years ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
Average Balance Sheet Data
(Dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
Average Income/ Yields/ Average Income/ Yields/
Balances Expense Rates Balances Expense Rates
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans(1) $150,755 $14,859 9.86% $114,986 $11,932 10.38%
Investment securities 77,098 4,431 5.75% 77,540 4,758 6.14%
Federal funds sold 8,779 442 5.03% 10,340 550 5.32%
Interest-bearing deposits in other banks 208 12 5.77% 214 13 6.07%
Total interest-earning assets 236,840 19,744 8.34% 203,080 17,253 8.50%
- --------------------------------------------------------------------------------------------------------------------------
Non-interest-earning assets:
Cash and due from banks 13,258 9,436
Premises and equipment, net 4,541 4,520
Allowance for loan losses (2,393) (2,264)
Other assets 9,251 7,700
Total non-interest-earning assets 24,657 19,392
Total assets $261,497 $222,472
- --------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts $ 14,700 $ 206 1.40% $ 11,463 $ 198 1.73%
Money market accounts 26,247 748 2.85% 27,326 950 3.48%
Savings deposits 8,925 212 2.38% 7,542 238 3.16%
Other time deposits 115,230 5,749 4.99% 95,615 5,229 5.47%
Total interest-bearing deposits 165,102 6,915 4.12% 141,946 6,615 4.66%
- --------------------------------------------------------------------------------------------------------------------------
Other interest-bearing liabilities:
Federal funds purchased 184 8 4.35% 42 3 7.14%
Federal Home Loan Bank advances 9,553 504 5.28% 10,000 501 5.01%
Short-term borrowings and obligations under capital lease 7,561 316 4.18% 4,271 190 4.45%
Total interest-bearing liabilities 182,400 7,743 4.25% 156,259 7,309 4.68%
- --------------------------------------------------------------------------------------------------------------------------
Non-interest-bearing liabilities
and stockholders' equity:
Demand deposits 51,757 39,297
Other liabilities 3,850 3,618
Stockholders' equity 23,490 23,298
Total non-interest-bearing liabilities and stockholders'
equity 79,097 66,213
Total liabilities and stockholders' equity $261,497 $222,472
- --------------------------------------------------------------------------------------------------------------------------
Interest rate spread 4.09% 3.82%
Net interest income $12,001 $ 9,944
Net interest margin(2) 5.07% 4.90%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Average loans include non-performing loans. Interest on loans includes loan
fees of $929,000 in 1999 and $872,000 in 1998.
(2) Net interest margin is net interest income divided by average total
interest-earning assets.
14
<PAGE> 15
Changes in Net Interest Income
The table below details the components of the changes in net interest income for
the last two years. For each major category of interest-earning assets and
interest-bearing liabilities, information is provided with respect to changes
due to average volumes, changes due to rates, and the proportionate allocation
of changes in both volumes and rates to the changes due to volumes and the
changes due to rates.
1999 Compared with 1998(1)1998 Compared with 1997(1)
<TABLE>
<CAPTION>
(In thousands) Due to Changes in Due to Changes in
- -----------------------------------------------------------------------------------------------------------------------
Net Net
Average Average Increase Average Average Increase
Interest income Volume Rate (Decrease) Volume Rate (Decrease)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans $3,476 $(590) $2,886 $2,280 $ (8) $2,272
Investment securities (131) (307) (438) 1,509 (215) 1,294
Federal funds sold (80) (28) (108) 208 (3) 205
Interest-bearing deposits in other banks -- (1) (1) 7 -- 7
- -----------------------------------------------------------------------------------------------------------------------
Total interest income 3,265 (926) 2,339 4,004 (226) 3,778
Interest expense
- -----------------------------------------------------------------------------------------------------------------------
NOW accounts 24 (16) 8 36 (18) 18
Money market accounts (36) (156) (192) 83 (88) (5)
Savings deposits 75 (101) (26) 34 (10) 24
Other time deposits 908 (388) 520 1,667 (71) 1,596
Federal funds purchased 6 (1) 5 (20) 2 (18)
Federal Home Loan Bank advances (16) 19 3 191 (40) 151
Short-term borrowings and obligations under capital lease 131 (16) 115 75 (2) 73
Total interest expense 1,092 (659) 433 2,066 (227) 1,839
Change in net interest income $2,173 $(267) $1,906 $1,938 $ (1) $1,939
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)The change in interest due to both rate and volume has been allocated to the
volume and rate components in proportion to the relationship of the dollar
amounts of the absolute change in each.
Non-interest Income
The following table presents the principal components of non-interest income for
the years ended December 31, 1999, 1998, and 1997.
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Fees for international banking services $ 1,264 $1,172 $1,210
Overdraft charges 652 571 426
Service charge income 505 352 272
Other 502 531 396
Gains on sales of loans 271 463 616
SBA servicing fees 259 275 378
Net (losses) gains on sales
of investment securities (127) 211 162
Total non-interest income $ 3,326 $3,575 $3,460
- --------------------------------------------------------------------------------
</TABLE>
Non-interest income decreased $249,000 in 1999 to $3.3 million compared to $3.6
million in 1998. The decrease was due primarily to net losses recognized on
sales of investment securities in 1999 of $127,000, versus net gains of $211,000
realized in the prior year. Exclusive of the investment gains/losses,
non-interest income increased 10% in 1999 over 1998. Service charges on deposit
accounts and overdraft charges were up 14% and 43%, respectively, over 1998 for
a combined total of $1.2 million, due in part to the full-year impact of the San
Jose office, as well as the strong growth in demand deposit volumes this year.
Average demand deposit balances grew $12 million in 1999. Other non-interest
income was down slightly since 1998 income included recoveries of
pre-acquisition losses recognized by California Security Bank. International fee
income increased to $1.3 million for 1999 compared to $1.2 million for 1998. The
growth in the international department from business development during 1999 was
due to increased import and export transaction volumes and slightly higher fees
on these transactions compared to prior years. Summit's fees from international
operations are generated solely from import and export transactions as the
Company does not provide loans to any non-US resident companies.
SBA loan sales produced gains of $271,000 for 1999 compared to $463,000 in the
prior year due to lower premiums on sales in the secondary market. During 1999,
the Company originated $15.3 million of new SBA loans compared to $15.2 million
in 1998. Total guaranteed amounts sold for the comparable years were $6.6
million and $6.3 million in 1999 and 1998, respectively. The Company has been
recognized by SBA as the most active lending institution in the state of Georgia
for six of the last eight years. The Company's loan servicing portfolio for
third parties was $57 million at year-end 1999, compared to $59 million at
year-end 1998. This portfolio provided fee income of $259,000 in 1999 and
$275,000 in 1998.
Total non-interest income increased $115,000 to $3.6 million during 1998 as
compared to 1997 due primarily to increases in service charges on deposit
accounts, including overdraft fees, and other non-interest income. Service
charges on deposit accounts
15
<PAGE> 16
and overdraft fees were up 29% and 34%, respectively, over 1997 as a result of
higher demand deposit volume due in part to the California Security Bank
acquisition and branch marketing efforts. International fee income also rose to
a new level of more than $1.2 million in 1998, a 14% increase over 1997. Gains
on sales of SBA loans were $463,000 for 1998 compared to $616,000 in 1997 due to
lower premiums on sales in the secondary market despite the sales of
approximately the same amount of loans in each year.
Non-interest Expenses
The following table presents the principal components of non-interest expenses
for the years ended December 31, 1999, 1998, and 1997.
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and employee benefits $ 4,718 $4,309 $3,649
Net occupancy 794 668 516
Accounting, legal, and
other professional 789 519 363
Equipment 710 791 584
Data/item processing 660 486 323
Other losses 464 80 161
Telephone 321 268 233
Postage and courier 273 268 198
Marketing and community relations 266 290 228
Office supplies 192 183 147
Insurance 113 96 96
Travel 103 115 73
Property and business taxes 103 91 167
Directors fees 99 96 83
Goodwill amortization 86 45 --
Dues and memberships 64 66 45
Other operating expenses 460 421 290
Total non-interest expenses $10,215 $8,792 $7,156
- --------------------------------------------------------------------------------
</TABLE>
Non-interest expenses grew $1.4 million, or 16%, in 1999 primarily due to the
full-year impact of the San Jose office acquired on June 30, 1998. Salaries and
employee benefits increased $409,000 in 1999 to $4.7 million compared to the
prior year, largely for this same reason. However, the year-end full-time
equivalent staff actually declined to 101 from the December 31, 1998 total of
107, due to vacancies. Legal fees, the largest portion of the accounting, legal
and professional total, exceeded the prior year costs by $200,000 for a total in
1999 of $505,000. This increase corresponds directly to the increased
non-performing loans, which peaked in the early part of the year. Considerable
efforts were made to reduce the non-performing loans through collections and
work-out plans with very favorable results, albeit with increased legal fees.
Increases in occupancy costs, up $126,000, were due to the lease costs of the
new office in San Jose.
Costs incurred during 1999 for the Year 2000 compliance project were $75,000,
which are included in equipment costs. Since costs incurred for this project in
1998 were $144,000, total equipment costs declined in 1999. No additional costs
are anticipated in 2000 for the Year 2000 computer date issue as all systems are
currently functioning properly. Data processing expenses increased $174,000 over
1998 expenses, also largely due to the addition of the San Jose office in
mid-1998.
In addition to the new office operations, 4% of the increase in non-interest
expenses was caused by a single occurrence of fraud in fourth quarter 1999
resulting in a loss of $320,000. The loss resulted from a check-kiting scheme
involving a Summit customer. Legal efforts are underway to prosecute the
individual involved. Recovery amounts are undeterminable at this time. Total
operating losses during 1999 were $464,000, compared to $80,000 during the prior
year.
The operating efficiency ratio of the Bank moved up unfavorably to 66.6% for the
current year compared to 65.5% for 1998, primarily due to increased overhead
expenses. The previously mentioned fraud loss represented a 2% impact to the
efficiency ratio. Without this loss, the efficiency ratio would have declined to
64.6%. The Bank's peer group showed an operating efficiency ratio for the nine
months ended September 30, 1999 of 63.4%.
Non-interest expenses increased $1.6 million, or 23%, in 1998 compared to 1997,
primarily due to the mid-year acquisition of California Security Bank. Much of
the increases in staffing costs, occupancy expenses and data processing expenses
were related to the new San Jose office. Additionally, Year 2000 costs and legal
fees were major contributors to the higher non-interest expenses. Nearly half of
the increase in staffing costs, up $660,000, was attributed to the San Jose
operation. The remaining increase was largely due to growth in the Atlanta
offices where an additional 10.5 full-time equivalent positions were filled.
Occupancy cost increases included additional lease expenses for the San Jose
office for six months totaling $120,000. The Bank converted the San Jose office
to its data processing system in September 1998, in an effort to realize
projected consolidation savings. Costs incurred in 1998 to ensure the Bank's
readiness for the Year 2000 date rollover was $144,000. Legal fees incurred were
mainly loan-related.
16
<PAGE> 17
Year 2000
The Bank's Year 2000 Committee has worked diligently over the past three years
to ensure that all hardware and computer software was functional upon the
century date change, and, consequently the Company successfully passed critical
dates without event. Prior to the end of 1999, the Company identified all
material deposit and credit relationships and worked with these customers on a
one-to-one basis, as appropriate, to stay informed of their compliance efforts.
These customers will continue to be monitored for future problems that could
negatively affect our banking relationship; however, to date no problems have
been identified by these customers and communicated to the Company. Total actual
costs accrued or incurred through 1999 for the Year 2000 project were $219,000,
not including indirect salary expense for personnel working on the project.
Costs incurred just during 1999 for this project totaled $75,000. The Company
will continue to monitor systems through future identified critical dates in
2000 and into 2001. Based on information currently available, management does
not believe that the Company will incur significant additional costs in
connection with the Year 2000 issue. 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 future Year 2000-related problems.
The Company's contingency plans have addressed these issues in both the Atlanta
and San Jose markets.
17
<PAGE> 18
Loan Portfolio
Loans are expected to produce higher yields than investment securities and other
interest-earning assets (assuming that credit losses are not excessive). Thus,
the absolute volume of loans and the volume as a percentage of total earning
assets are important determinants of the net interest margin. The Company
experienced a strong increase in average net loan volumes in 1999 of $36
million. Net loans outstanding increased to $165 million as compared to $131
million at year-end 1998, an increase of 26%, due in large part to concentrated
efforts by the lending department to make high-quality loans as well as
favorable economic conditions. Building and business expansion have continued a
trend of strong activity despite the increases in the prime rate by the Federal
Reserve Bank during the year. Consequently, during 1999, the growth in the loan
portfolio was primarily realized in commercial loans, with a $3.2 million
increase to $41 million, and commercial loans secured by real estate, with a $33
million increase to $116 million. Consumer loans remained constant for a third
year at approximately $5 million as of December 31, 1999 compared to the prior
year-end.
Overall loan growth was also strong in 1998 compared to 1997. Net loans
increased 35% to $131 million at year-end 1998 from $97 million at year-end
1997. The addition of the San Jose office accounted for $19 million of this
increase, mainly with commercial loans. Commercial loans secured by real estate
accounted for $25.6 million of the increase. Consumer loans remained stable at
approximately $5 million during 1998.
At year-end 1999 and 1998, the Company had loans held for sale of $3.6 million
and $5.7 million, respectively. The Company makes an effort to originate loans
with rates that fluctuate with the prime lending rate. At year-end 1999, 63% of
the total loan portfolio had floating or adjustable rates, consistent with the
prior year.
The following table presents the composition of the Company's loan portfolio at
December 31, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
% of % of
(Dollars in thousands) Amount Loans Amount Loans
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial,
and agricultural $ 44,881 27% $ 37,724 29%
Real estate--construction 3,238 2 2,722 2
Real estate mortgage--
primarily commercial 112,815 69 83,808 66
Installment loans
to individuals 4,769 3 5,084 4
Less: unearned income (1,559) (1) (1,514) (1)
Loans, net of
unearned income 164,144 100% 127,824 100%
Loans held for sale--SBA 3,575 5,672
Less: allowance
for loan losses (2,525) (2,336)
Net loans $165,194 $131,160
- --------------------------------------------------------------------------------
</TABLE>
The following table presents a maturity analysis of the Company's loan portfolio
segregated between loans with predetermined interest rates and loans with
floating or adjustable rates at December 31, 1999.
<TABLE>
<CAPTION>
Loans Maturing
- --------------------------------------------------------------------------------
Within 1-5 After 5
(In thousands) 1 Year Years Years Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans with:
Predetermined
interest rates $16,631 $39,311 $ 5,679 $ 61,621
Floating or
adjustable rates 33,057 23,475 49,566 106,098
Total loans $49,688 $62,786 $55,245 $167,719
- --------------------------------------------------------------------------------
</TABLE>
Allowance and Provision for Loan Losses
The allowance for loan losses represents a reserve for potential losses in the
loan portfolio. The adequacy of the allowance for loan losses is evaluated
periodically based on a review of all significant loans, with particular
emphasis on impaired, non-accruing, past due, and other loans that management
believes require special attention.
For purposes of determining the required allowance for loan losses and resulting
periodic provisions, the Company segregates the loan portfolio into broad
segments, such as: consumer, commercial, and SBA loans. The Company provides for
a general allowance for losses inherent in the portfolio by the above
categories. The general allowance for losses on problem loans in these
categories is based on a review and evaluation of these loans, taking into
consideration financial condition and strengths of the borrower, related
collateral, cash flows available for debt repayment, and known and expected
economic trends and conditions. General loss percentages for the problem loans
are determined based upon historical loss experience and regulatory
requirements. Specific allowances are provided in the event that the specific
collateral analysis on each problem loan indicates that the probable loss upon
liquidation of collateral would be in excess of the general percentage
allocation. For the remainder of the portfolio, general allowances for losses
are calculated based on estimates of inherent losses which
18
<PAGE> 19
probably exist as of the evaluation date even though they might not have been
identified by the more objective processes used for the portion of the allowance
described above. Loss percentages used for this portion of the portfolio are
generally based on historical loss factors adjusted where necessary for
qualitative factors. This portion of the allowance is particularly subjective
and requires judgments based on qualitative factors which do not lend themselves
to exact mathematical calculations, such as: trends in delinquencies and
non-accruals, migration trends in the portfolio, trends in volume, the risk
identification process, changes in the outlook for local and regional economic
conditions, concentrations of credit, and peer group comparisons. In addition to
the Company's internal loan review process, the Company also utilizes an
independent loan review process in assessing the overall adequacy of the
allowance for loan losses.
19
<PAGE> 20
The provision for loan losses is a charge to income in the current period to
replenish the allowance for loan losses and maintain it at a level that
management has determined to be adequate. The Company's provision for loan
losses for 1999 was $899,000, compared to $455,000 in 1998. The increase is
attributed to strong increases in loan volumes in 1999 coupled with higher net
charge-offs, which are a result of fewer recoveries in 1999. Non-performing
assets decreased to $1.3 million at year-end 1999 from $3.2 million at year-end
1998. At year-end 1999, non-performing loans consisted of two SBA
fully-guaranteed portions of credits totaling $494,000, a credit for $677,000
secured by real estate, and a credit for $118,000 secured by business assets.
The December 31, 1998 balance included three credits totaling $1.7 million
secured by real estate and fully guaranteed SBA loans totaling $1.5 million.
Net loan charge-offs in 1999 increased only slightly to .47% of average net
loans outstanding from .35% in 1998. Gross charge-offs remained stable at
$965,000 this year compared to last year. The charge-offs in 1999 included a
total of approximately $165,000 for the unguaranteed portions of three SBA
loans. The remaining charge-offs consisted largely of commercial loans ranging
in size from $20,000 to $160,000. Installment loan charge-offs represented
$45,000 of the total gross amount, none of which was individually significant.
Net loan charge-offs in 1998 decreased significantly to .35% of average net
loans outstanding from 1.08% in 1997. Gross charge-offs decreased approximately
$951,000 in 1998 compared to $1.3 million in 1997. Included in gross charge-offs
in 1998 were five SBA loans of which approximately $200,000 represented the
unguaranteed amounts of SBA loans. The remainder of the charge-offs consisted of
commercial loans of various sizes up to $200,000. Recoveries increased in 1998
by $215,000 from $336,000 in 1997 as the result of recoveries of three
fully-guaranteed SBA loans that were charged off in late 1997.
The allowance for loan losses represented 1.51% of total loans at December 31,
1999 compared to 1.75% at December 31, 1998 when non-performing loans were
substantially higher. The determination of the allowance for loan losses rests
upon management's judgment about factors affecting loan quality, assumptions
about the economy, and other factors; however, management's judgment is based
upon a number of assumptions about future events, which are believed to be
reasonable, but which may or may not prove valid. Thus, there can be no
assurance that charge-offs in future periods will not exceed the allowance for
loan losses or that additional increases in the allowance for loan losses will
not be required. In addition, various regulatory agencies, as an integral part
of their examination process, periodically review the Company's allowance for
loan losses. Such agencies may require the Company to recognize additions to the
allowance based on their judgments about information available to them at the
time of their examination.
The following table represents an analysis of the Company's allowance for loan
losses including the provision for loan losses and net loan charge-offs for the
years ended December 31, 1999, 1998, 1997, 1996, and 1995.
<TABLE>
<CAPTION>
Years Ended December 31,
- ------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for loan losses at beginning of year $2,336 $1,468 $1,931 $1,686 $1,603
Charge-offs:
Commercial, financial, and agricultural 601 174 1,071 271 364
Real estate 319 714 76 -- 453
Installment loans to individuals 45 63 192 41 79
Total 965 951 1,339 312 896
- ------------------------------------------------------------------------------------------------------
Recoveries:
Commercial, financial, and agricultural 79 419 300 99 500
Real estate 156 105 -- 16 6
Installment loans to individuals 20 27 36 38 76
Total 255 551 336 153 582
- ------------------------------------------------------------------------------------------------------
Net charge-offs 710 400 1,003 159 314
Provision for loan losses 899 455 540 404 397
Loan loss allowance of acquired bank -- 813 -- -- --
Allowance for loan losses at end of year $2,525 $2,336 $1,468 $1,931 $1,686
- ------------------------------------------------------------------------------------------------------
Allowance for loan losses to average loans outstanding 1.67% 2.03% 1.58% 2.30% 2.29%
Allowance for loan losses to net charge offs 3.6x 5.8x 1.5x 12.1x 5.0x
</TABLE>
20
<PAGE> 21
The amounts and percentages of such components of the allowance for loan losses
at December 31, 1999 and 1998, and the percentage of loans in each category to
total loans are presented in the table below.
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------------------------------
Allowance % of Allowance % of
(Dollars in thousands) $ (%) Loans $ (%) Loans
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial, and agricultural $1,226 49% 25% $1,310 56% 27%
Real estate 1,196 47% 71% 922 40% 69%
Installment loans to individuals 103 4% 4% 104 4% 4%
Total $2,525 100% 100% $2,336 100% 100%
- ---------------------------------------------------------------------------------------------
</TABLE>
Non-performing Assets
As a result of management's ongoing review of the loan portfolio, loans are
classified as non-accrual when reasonable doubt exists as to the full or timely
collection of interest or principal or when a loan becomes contractually past
due by 90 days or more with respect to interest or principal. These loans are
classified as non-accrual, even though the presence of collateral or the
borrower's financial strength may be sufficient to provide for ultimate
repayment. When a loan is placed on non-accrual status, all interest previously
accrued but not collected is reversed against current period interest income.
Interest on non-accrual loans is recognized only when received. The additional
amount of interest that would have been recorded during 1999 and 1998, had such
loans classified as non-accrual been current in accordance with their original
terms, amounted to $95,000 and $246,000, respectively.
Non-performing assets are defined as non-accrual and renegotiated loans and
other real estate acquired by foreclosure. The Company's non-performing assets
as a percentage of total loans and other real estate were .77% at December 31,
1999 as compared to 2.41% in the prior year. At December 31, 1999, the Company
had non-accrual loans representing one loan secured by real estate totaling
$677,000, two fully-guaranteed SBA loans totaling $494,000 and a commercial loan
for $118,000 which is secured by business assets of the borrower. The December
31, 1998 balance reflected three loans totaling $1.7 million secured by real
estate, two fully guaranteed SBA loans totaling $1.3 million, and three SBA
loans totaling $230,000, of which $166,000 is guaranteed by the SBA. There were
no loans past due 90 days or more as to principal or interest payments and still
accruing at either December 31, 1999 or 1998.
The following table presents an analysis of the Company's non-performing assets
as of December 31, 1999 and 1998.
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Loans on non-accrual $1,289 $3,219
Restructured loans -- 391
Total non-performing assets $1,289 $3,610
- --------------------------------------------------------------------------------
Loans 90 days past due and still accruing interest $ -- $ --
Total non-performing assets as a percentage of
total loans and other real estate .77% 2.70%
Loans 90 days past due and still accruing
interest as a percentage of total loans --% --%
- --------------------------------------------------------------------------------
</TABLE>
Impaired loans are defined as those loans as to which management believes it is
probable that the Company will be unable to collect all principal or interest
according to the contractual terms of the note agreement. At year-end 1999 and
1998, respectively, the Company had loans totaling $1,289,000 and $3,610,000
which were considered impaired. Impaired loans at year-end 1999 included all
non-accrual loans. Included in the allowance for loan losses at the end of 1999
and 1998, respectively, the Company specifically allocated $53,000 and $104,000
for these loans.
Management is not aware of any loans classified for regulatory purposes as loss,
doubtful, substandard, or special mention that have not been disclosed which (1)
represent or result from trends or uncertainties, which management reasonably
expects will materially impact future operating results, liquidity, or capital
resources, or (2) represent material credits about which management is aware of
any information which causes management to have serious doubts as to the ability
of such borrowers to comply with the loan repayment terms.
21
<PAGE> 22
Liquidity and Interest Rate Sensitivity
Liquidity represents the ability to provide steady sources of funds for loan
commitments and investment activities, as well as to provide sufficient funds to
cover deposit withdrawals and payment of debt, off-balance-sheet obligations,
and operating obligations. These funds can be obtained by converting assets to
cash or by attracting new deposits. The Company also has lines of credit
available from other funding sources to provide additional funds as needed.
These sources include the Federal Home Loan Bank and other correspondent
financial institutions.
At December 31, 1999, the Company's net loan to deposit ratio was 71% compared
to a ratio of 59% at December 31, 1998, as a result of the strong loan growth in
1999. This growth was largely fueled by liquidations and maturities of
investment securities rather than by deposit growth, which was slower than loan
growth. Management monitors and assesses the adequacy of the Company's liquidity
position on a monthly basis to ensure that sufficient sources of liquidity are
maintained and available.
Interest rate sensitivity refers to the responsiveness of interest-bearing
assets and liabilities to changes in market interest rates. The rate-sensitive
position, or gap, is the difference in the volume of rate-sensitive assets and
liabilities, at a given interval. The general objective of gap management is to
actively manage rate-sensitive assets and liabilities to reduce the impact of
interest rate fluctuations on the net interest margin. Management and the
Asset/Liability Committee generally attempt to maintain a balance between
rate-sensitive assets and liabilities, as the exposure period is lengthened, to
minimize the overall interest rate risk to the Company. The asset mix of the
balance sheet is continually evaluated in terms of several variables: yield,
credit quality, appropriate funding sources, and liquidity. Management of the
liability mix of the balance sheet focuses on expanding the various funding
sources.
The Company's interest rate sensitivity position at December 31, 1999 is
presented in the table below.
<TABLE>
<CAPTION>
Assets and Liabilities Repricing Within
- --------------------------------------------------------------------------------------------------------------
3 Months 4-6 7-12 1-5 Over 5
(Dollars in thousands) or less Months Months Years Years Total
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $115,286 $ 5,501 $ 8,948 $37,984 $ -- $167,719
Investment securities 2,546 1,757 8,593 25,572 30,027 68,495
Interest-bearing deposits in other banks 446 -- -- -- -- 446
Federal funds sold 14,440 -- -- -- -- 14,440
Total interest-earning assets 132,718 7,258 17,541 63,556 30,027 251,100
- --------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits 110,575 40,090 21,202 7,067 49 178,983
Federal Home Loan Bank advances 10,000 -- -- -- -- 10,000
Other borrowed funds 11,371 -- -- -- -- 11,371
Total interest-bearing liabilities 131,946 40,090 21,202 7,067 49 200,354
Interest sensitivity gap 772 (32,832) (3,661) 56,489 29,978 50,746
Cumulative interest sensitivity gap 772 (32,060) (35,721) 20,768 50,746 50,746
- --------------------------------------------------------------------------------------------------------------
Cumulative sensitivity ratio
(Cumulative interest-earning assets/cumulative
interest-bearing liabilities) 1.01 .81 .82 1.10 1.25 1.25
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The Company is liability sensitive, comparing its interest-earning assets to
interest-bearing liabilities through the next twelve months. This suggests that
the Company's net interest income could be impacted by significant adverse
changes in market rates. Since all interest rates and yields do not adjust at
the same velocity, the gap is only a general indicator of rate sensitivity. For
purposes of the above repricing presentation, all demand and savings deposits
are considered repriceable within the shortest time period, 3 months or less,
while time deposits are presented based on their contractual terms. It is the
Company's policy to maintain its one-year gap position in the .8 to 1.2 range.
The one-year gap reflected by the interest rate sensitivity table is .82,
indicating adherence to Company policy. The Bank has historically maintained a
more closely matched gap; however, in fourth quarter 1999, management elected to
increase short-term deposits for liquidity purposes related to the Year 2000
date change. Management closely monitors the Company's position, and, if rates
should change in either direction, management will take steps to reposition its
interest-earning assets and interest-bearing liabilities to minimize the impact
of a gap exposure.
22
<PAGE> 23
Investment Portfolio
The following table presents maturity distribution and yields of investment
securities available for sale.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
- --------------------------------------------------------------------------------------------------------------------
Year-end
Amortized Fair Weighted Amortized Fair
(Dollars in thousands) Cost Value Avg. Yield Cost Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury
One year or less $ 1,501 $ 1,480 4.56% $ 2,499 $ 2,504
Total U.S. Treasury 1,501 1,480 4.56% 2,499 2,504
- --------------------------------------------------------------------------------------------------------------------
U.S. Government Agencies
One year or less 5,456 5,455 6.21% 17,207 17,160
Over one through five years 12,509 12,335 5.38% 15,519 15,571
Over five years 2,202 2,117 6.53% 4,500 4,530
Total U.S. Government Agencies 20,167 19,907 5.73% 37,226 37,261
- --------------------------------------------------------------------------------------------------------------------
Mortgage-Backed Securities
One year or less -- -- -- -- --
Over one through five years 3,196 3,166 6.44% 3,842 3,873
Over five through ten years 3,701 3,645 5.61% 5,100 5,116
Over ten years 39,313 38,015 6.60% 44,182 44,133
Total mortgage-backed securities 46,210 44,826 6.51% 53,124 53,122
- --------------------------------------------------------------------------------------------------------------------
Tax-exempt Municipal Securities
Over five through ten years 500 462 4.10% 250 250
Over ten years 2,067 1,820 4.58% 750 750
Total tax-exempt municipal securities 2,567 2,282 4.49% 1,000 1,000
- --------------------------------------------------------------------------------------------------------------------
Other Investments
Over ten years 900 774 -- 900 900
Total other investments 900 774 -- 900 900
Total investment securities available for sale $71,345 $69,269 6.17% $94,749 $94,787
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
There were no investment securities classified as held to maturity at December
31, 1999 or December 31, 1998.
Deposits
The following table presents the average amount outstanding and the average rate
paid on deposits by the Company for the years ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------
Average Average Average Average
(Dollars in thousands) Amount Rate Amount Rate
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Non-interest-
bearing deposits $ 51,757 --% $ 39,297 --%
Interest-bearing
deposits:
NOW accounts 14,700 1.40% 11,463 1.73%
Money market
accounts 26,247 2.85% 27,326 3.48%
Savings deposits 8,925 2.38% 7,542 3.16%
Other time
deposits 115,230 4.99% 95,615 5.47%
Total $216,859 3.19% $181,243 3.65%
- --------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 24
The following table presents the maturity of the Company's time deposits at
December 31, 1999.
<TABLE>
<CAPTION>
Other Time Other Time
Deposits Deposits
$100,000 Less Than
(In thousands) and Greater $100,000 Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Months to maturity:
3 or less $22,634 $34,965 $ 57,599
Over 3 through 6 21,279 18,828 40,107
Over 6 through 12 8,711 12,491 21,202
Over 12 874 6,243 7,117
Total $53,498 $72,527 $126,025
- --------------------------------------------------------------------------------
</TABLE>
Market Risk
Market risk reflects the risk of economic loss resulting from adverse changes in
market prices and interest rates. This risk of loss can be reflected in either
diminished current market values or reduced potential net interest income in
future periods. The Company's primary market risk exposure is currently in the
interest rate risk inherent in its lending and deposit taking activities. The
structure of the Company's loan and deposit portfolios is such that a
significant decline in the prime rate may adversely impact net market values and
interest income. The Company manages its interest rate risk through the use of
various tools, including managing the composition and size of the investment
portfolio so as to reduce the interest rate risk in the deposit and loan
portfolios, at the same time maximizing the yield generated by the portfolio.
The table below presents the contractual balances and the estimated fair value
of the Company's financial instruments at their expected maturity dates as of
December 31, 1999. The expected maturity categories for investment securities
take into consideration historical prepayment experience as well as management's
expectations based on the interest rate environment as of December 31, 1999. For
core deposits without contractual maturity (i.e., interest-bearing checking,
savings, and money market accounts), the table presents principal cash flows
based on management's judgment concerning their most likely runoff or repricing
behaviors. Weighted average variable rates are based on implied forward rates in
the yield curve as of December 31, 1999.
<TABLE>
<CAPTION>
Expected Maturity Date
There- Estimated
(Dollars in thousands) 2000 2001 2002 2003 2004 after Total Fair Value
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Investment Securities
Fixed rate $ 6,112 $14,068 $ 4,278 $1,155 $ 7,528 $25,056 $ 58,197 $ 58,197
Average interest rate 5.78% 5.68% 7.85% 7.84% 7.01% 6.86% 6.57%
Variable rate 463 979 1,810 790 1,414 5,616 11,072 11,072
Average interest rate 7.21% 8.27% 6.91% 6.73% 6.96% 6.83% 7.00%
Loans
Fixed rate 7,750 7,815 11,291 8,231 11,966 7,501 54,554 54,181
Average interest rate 9.11% 9.27% 9.22% 9.13% 8.87% 8.37% 9.00%
Variable rate 27,950 5,051 4,880 5,354 10,195 52,360 105,790 105,790
Average interest rate 9.88% 9.65% 9.83% 10.09% 10.11% 10.71% 10.31%
Other Interest-bearing Assets
Variable rate 14,886 -- -- -- -- -- 14,886 14,886
Average interest rate 5.05% -- -- -- -- -- 5.05%
Liabilities
Interest-bearing Deposits and Savings 26,479 8,826 8,826 8,826 -- -- 52,958 52,958
Average interest rate 2.35% 2.35% 2.35% 2.35% -- -- 2.35%
Time Deposits
Fixed rate 118,909 5,166 785 951 165 49 126,025 125,997
Average interest rate 5.18% 5.03% 5.42% 5.53% 5.21% 6.25% 5.18%
Variable Rate Short-term Borrowings 21,371 -- -- -- -- -- 21,371 21,371
Average interest rate 4.51% -- -- -- -- -- 4.51%
</TABLE>
Capital Adequacy
There are various primary measures of capital adequacy for banks and bank
holding companies such as risk-based capital guidelines and the leverage capital
ratio.
Minimum capital requirements for adequacy purposes consist of a total capital to
risk-weighted assets ratio of 8%, Tier 1 capital to risk-weighted assets and
Tier 1 leverage ratios of 4%. As of December 31, 1999, the Bank exceeded all
required levels of capital, and was well-capitalized by regulatory standards.
The Bank's risk-based capital ratio of Tier 1 capital to risk-weighted assets
was 11.2%; its risk-based ratio of total capital to risk-weighted assets was
12.5%; and its Tier 1 leverage ratio was 7.6%.
Inflation
Inflation has an important impact on the growth of total assets in the banking
industry and causes a need to increase equity capital at higher than normal
rates in order to maintain an appropriate equity to assets ratio. The Company
has been able to maintain an adequate level of equity, as previously mentioned,
and, though inflation has not been a material factor during the last four years,
management will address any future effects of inflation by managing its interest
rate sensitivity gap position
24
<PAGE> 25
through its asset/liability management program, and by periodically adjusting
its pricing of services and banking products to take into consideration current
costs.
Business Segment Information
During the past eleven years, the consolidated income of the Company and its
subsidiaries has been provided primarily through banking activities.
Recent Accounting Pronouncements
In September 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 is effective for
financial statements for 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, An
Amendment of FASB Statement No. 133. SFAS No. 133, as amended, is now effective
for all fiscal quarters of all fiscal years beginning after June 15, 2000. The
Company has not made an assessment of the expected impact that SFAS No. 133 will
have on its financial statements.
25
<PAGE> 26
December 31,
<TABLE>
<CAPTION>
(In thousands, except share and per share amounts) 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks (note 7) $ 16,721 $ 10,559
Federal funds sold 14,440 10,725
Interest-bearing deposits in other banks 446 156
Investment securities available for sale (note 2) 69,269 94,787
Other investments (note 3) 1,171 1,314
Loans, net of unearned income of $1,559 and $1,514 in 1999 and 1998, respectively 164,144 127,824
Loans held for sale 3,575 5,672
Less allowance for loan losses (2,525) (2,336)
Net loans (note 4) 165,194 131,160
- ------------------------------------------------------------------------------------------------------------------------
Premises and equipment, net (note 5) 4,351 4,633
Customers' acceptance liability 2,030 2,319
Deferred income taxes (note 11) 2,561 1,981
Goodwill, net (note 19) 1,708 1,651
Other assets (note 6) 3,377 3,876
Total assets $281,268 $263,161
- ------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Non-interest-bearing demand $ 53,958 $ 48,246
Interest-bearing:
Demand 44,310 42,350
Savings 8,648 8,438
Time, $100,000 and over 53,498 41,240
Other time 72,527 78,373
Total deposits (note 8) 232,941 218,647
- ------------------------------------------------------------------------------------------------------------------------
Acceptances outstanding 2,030 2,319
Federal Home Loan Bank advances (note 10) 10,000 10,000
Other borrowed funds (note 9) 11,371 5,987
Other liabilities 2,111 1,703
Total liabilities 258,453 238,656
- ------------------------------------------------------------------------------------------------------------------------
Minority interest in non-bank subsidiary 29 --
Stockholders' equity (note 13):
Common stock, $0.01 par value; 100,000,000 shares authorized; 1,655,263 shares issued and
outstanding in 1999; 1,790,988 shares issued and outstanding in 1998 18 18
Additional paid-in capital 13,498 15,731
Accumulated other comprehensive (loss) income (1,295) 25
Retained earnings 10,565 8,731
Total stockholders' equity 22,786 24,505
- ------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (note 12)
Total liabilities and stockholders' equity $281,268 $263,161
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE> 27
Consolidated Statements of Income
Summit Bank Corporation and Subsidiaries
Years Ended December 31,
<TABLE>
<CAPTION>
(In thousands, except share and per share amounts) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans, including fees $14,859 $11,932 $ 9,660
Federal funds sold 442 550 345
Interest-bearing deposits in other banks 12 13 6
Investment securities--taxable 1,419 1,821 1,243
Mortgage-backed securities 3,012 2,937 2,221
Total interest income 19,744 17,253 13,475
- ------------------------------------------------------------------------------------------------------------------------
Interest expense:
Time deposits, $100,000 and over 2,149 1,826 1,381
Other deposits 4,766 4,789 3,601
Federal Home Loan Bank advances 504 501 350
Short-term borrowings and obligation under capital lease 323 193 138
Total interest expense 7,742 7,309 5,470
- ------------------------------------------------------------------------------------------------------------------------
Net interest income 12,002 9,944 8,005
Provision for loan losses (note 4) 899 455 540
- ------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 11,103 9,489 7,465
Non-interest income:
Gains on sales of loans 271 463 616
Fees for international banking services 1,264 1,172 1,210
SBA loan servicing fees 259 275 378
Overdraft and NSF charges 652 571 426
Service charge income 505 352 272
Net (losses) gains on sales of investment securities (note 2) (127) 211 162
Other 502 531 396
Total non-interest income 3,326 3,575 3,460
- ------------------------------------------------------------------------------------------------------------------------
Non-interest expenses:
Salaries and employee benefits (note 14) 4,718 4,309 3,649
Equipment 710 791 584
Net occupancy 794 668 516
Other (note 18) 3,992 3,024 2,407
Minority interest in non-bank subsidiary's net loss 1 -- --
Total non-interest expenses 10,215 8,792 7,156
- ------------------------------------------------------------------------------------------------------------------------
Income before income taxes 4,214 4,272 3,769
Income tax expense (note 11) 1,489 1,503 1,319
Net income $ 2,725 $ 2,769 $ 2,450
- ------------------------------------------------------------------------------------------------------------------------
Basic net income per share (note 1) 1.59 1.56 1.71
Diluted net income per share and common share equivalents (note 1) 1.59 1.53 1.50
- ------------------------------------------------------------------------------------------------------------------------
Weighted-average shares outstanding--basic (note 1) 1,713,318 1,773,010 1,436,023
Weighted-average shares outstanding--diluted (note 1) 1,713,318 1,804,828 1,632,586
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE> 28
Consolidated Statements of Stockholders' Equity and Comprehensive Income
Summit Bank Corporation and Subsidiaries
Years Ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
Accumulated
Compre- Common Additional Other Total
hensive Stock Paid-In Comprehensive Retained Stockholders'
(In thousands, except share amounts) Income Shares Amount Capital Income Earnings Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 1,407,688 $ 14 $ 12,123 $ 89 $ 4,710 $ 16,936
Comprehensive income:
Net income $ 2,450 -- -- -- -- 2,450 2,450
Net unrealized gains (losses) on
investment securities available for sale,
net of tax effect and reclassification
adjustment (note 20) 83 -- -- -- 83 -- 83
Total comprehensive income $ 2,533
- -----------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock upon exercise
of options and warrants (note 13) 81,082 1 810 -- -- 811
Cash dividends declared, $.35 per share -- -- -- -- (502) (502)
Balance, December 31, 1997 1,488,770 15 12,933 172 6,658 19,778
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income $ 2,769 -- $ -- $ -- $ -- $ 2,769 $ 2,769
Net unrealized gains (losses) on
investment securities available for sale,
net of tax effect and reclassification
adjustment (note 20) (147) -- -- -- (147) -- (147)
Total comprehensive income $ 2,622
- -----------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock upon exercise
of options and warrants (note 13) 326,593 3 3,245 -- -- 3,248
Repurchase of common stock,
classified as unissued (24,375) -- (447) -- -- (447)
Cash dividends declared, $.39 per share -- -- -- -- (696) (696)
Balance, December 31, 1998 1,790,988 18 15,731 25 8,731 24,505
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income $ 2,725 -- $ -- $ -- $ -- $ 2,725 $ 2,725
Net unrealized gains (losses) on
investment securities available for sale,
net of tax effect and reclassification
adjustment (note 20) (1,320) -- -- -- (1,320) -- (1,320)
Total comprehensive income $ 1,405
- -----------------------------------------------------------------------------------------------------------------------------------
Repurchase of common stock,
classified as unissued (135,725) -- (2,233) -- -- (2,233)
Cash dividends declared, $.52 per share -- -- -- -- (891) (891)
Balance, December 31, 1999 1,655,263 $ 18 $ 13,498 $(1,295) $ 10,565 $ 22,786
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 29
Consolidated Statements of Cash Flows
Summit Bank Corporation and Subsidiaries
Years Ended December 31,
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,725 $ 2,769 $ 2,450
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises and equipment 515 463 406
Deferred tax expense 86 262 206
Net amortization of premiums/discounts on investment securities 622 294 79
Amortization of servicing assets 257 237 170
Amortization of goodwill 86 46 --
Amortization of negative goodwill -- (110) (110)
Provision for loan losses 899 455 540
Gains on sales of loans (271) (463) (616)
Proceeds from sales of loans 6,984 6,251 5,340
Net losses (gains) on sales of investment securities 127 (211) (162)
Loss on disposal of premises and equipment -- 68 --
Changes in other assets and liabilities:
Net decrease (increase) in loans held for sale 2,097 (8,041) (5,113)
Decrease (increase) in other assets 1,053 1,192 (2,508)
Increase (decrease) in other liabilities 447 (48) 145
Net cash provided by operating activities 15,627 3,164 827
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sales of investment securities available for sale 15,017 27,916 21,949
Purchases of investment securities available for sale and other investments (37,248) (89,190) (58,957)
Proceeds from maturities of investment securities available for sale 27,797 28,100 6,550
Principal collections on investment securities available for sale 17,231 13,662 6,298
Loans made to customers, net of principal collected on loans (44,568) (13,196) (13,698)
Purchases of premises and equipment and leasehold improvements (233) (629) (293)
Purchase of California Security Bank, net of cash and cash equivalents acquired (note 20) -- (537) --
Net cash used in investing activities (22,004) (33,874) (38,151)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in demand and savings deposits $ 7,882 $ 10,322 $ 3,066
Net increase in time deposits 6,412 27,174 8,830
Principal payments for obligation under capital lease (39) (42) (37)
Net increase in Federal Home Loan Bank advances -- -- 9,000
Net increase in other borrowed funds 5,384 3,231 2,099
Net increase in minority interest of non-bank subsidiary 29 -- --
Issuance of common stock upon exercise of options and warrants -- 3,248 811
Repurchase of common stock, classified as unissued (2,233) (447) --
Dividends paid (891) (696) (502)
Net cash provided by financing activities 16,544 42,790 23,267
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 10,167 12,080 (14,057)
Cash and cash equivalents at beginning of year 21,440 9,360 23,417
Cash and cash equivalents at end of year $ 31,607 $ 21,440 $ 9,360
- ----------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash paid during the year:
Interest, net of amounts capitalized $ 7,635 $ 6,733 $ 5,404
Income taxes $ 977 $ 1,329 $ 930
Supplemental disclosure of noncash investing activities--purchase adjustment related to
California Security Bank acquisition $ 129 $ -- $ --
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 30
Notes to Consolidated Financial Statements--December 31, 1999, 1998, 1997
(1) Summary of Significant Accounting Policies
(a) General
Summit Bank Corporation (the "Company") was organized on October 15, 1986 for
the purpose of becoming a bank holding company. The Company was approved to
become a bank holding company by the Federal Reserve Bank of Atlanta on
September 11, 1987. On March 4, 1988, the Company acquired 100% of the stock of
The Summit National Bank (the "Bank"). The organizers received final approval
for the charter of the Bank from the Office of the Comptroller of the Currency
on March 10, 1988, and the Bank began operations on that date.
In 1999, the Company invested $120,000 into a newly created subsidiary,
Cashmart, Inc., a check cashing company. The consolidated subsidiary is 80%
owned by the Company.
(b) Business
The Company operates through one segment, providing a full range of banking
services to individual and corporate customers through its subsidiary bank. The
Company is subject to competition from other financial institutions. The
Company is subject to the regulations of certain state and federal agencies and
undergoes periodic examinations by those regulatory authorities.
(c) Basis of Presentation
The consolidated financial statements include the accounts of Summit Bank
Corporation and its subsidiaries, the Bank, Cashmart, Inc., and the Merchant
Bank (inactive), after elimination of all significant intercompany balances and
transactions.
In preparing the consolidated financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities as of the date of the balance
sheet and revenues and expenses for the period. Actual results could differ
significantly from those estimates. Material estimates that are particularly
susceptible to significant change in the near term relate to the determination
of the allowance for loan losses and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans. In connection with
the determination of the allowance for loan losses and the valuation of other
real estate, management obtains independent appraisals for significant
properties. A substantial portion of the Company's loans are secured by real
estate in the northeast metropolitan Atlanta area and in San Jose, California
as a result of the 1998 acquisition of California Security Bank. Accordingly,
the ultimate collectibility of a substantial portion of the Company's loan
portfolio is susceptible to changes in the real estate market conditions of
these market areas.
(d) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash
and due from banks, interest-bearing deposits in other banks with maturities
less than 90 days, and federal funds sold. Federal funds are generally sold for
one-day periods.
(e) Investment Securities
Investment securities at December 31, 1999 and 1998 consist of U.S. Treasury
securities, obligations of U.S. Government agencies, tax-exempt municipal
securities, mortgage-backed securities, and equity securities. The Company's
investment securities are classified as available for sale securities and are
reported at fair value.
Unrealized holding gains or losses, net of the related tax effect, on available
for sale securities are excluded from income and are reported as a separate
component of stockholders' equity until realized. The Company does not have any
financial derivative instruments other than fixed rate loan commitments.
Purchase premiums and discounts on investment securities are amortized and
accreted to interest income using the level yield method on the outstanding
principal balances. In establishing the accretion of discounts and amortization
of premiums, the Company utilizes market based prepayment assumptions. Interest
and dividend income are recognized when earned. Realized gains and losses for
securities sold are included in income and are derived using the specific
identification method for determining the costs of securities sold.
A decline in the fair value of any security below cost that is deemed other
than temporary is charged to income resulting in the establishment of a new
cost basis for the security.
(f) Loans
Loans are stated at the amount of unpaid principal, reduced by unearned income
and the allowance for loan losses. Unearned income, primarily arising from
discount basis installment loans and deferred gains on the sale of the Small
Business Administration ("SBA") guaranteed portion of loans, is recognized as
interest income over the terms of the loans using the interest method. Interest
on loans is recorded by using the simple interest method on the daily balance
of the principal amount outstanding.
Loans held for sale are stated at the lower of aggregate cost or market value
with market determined on the basis of open purchase commitments from
independent buyers. Gains or losses on disposition are recorded in non-interest
income, based on the net proceeds received and the recorded investment in the
loan sold. For sales of the SBA guaranteed portion of loans, the
30
<PAGE> 31
basis in the portion of the loan sold is determined by allocating a portion of
the loan carrying value to the portion sold based on its fair value relative to
the fair values of the portion of the loan retained and the related servicing
asset, if any.
Accrual of interest on loans is discontinued either when reasonable doubt
exists as to the full or timely collection of interest or principal or when a
loan becomes contractually past due by 90 days or more with respect to interest
or principal. When a loan is placed on non-accrual status, all interest
previously accrued but not collected is reversed against current period
interest income. Income on such loans is then recognized only to the extent
that cash is received and where the future collection of principal is probable.
Loans are returned to accruing status only when they are brought fully current
with respect to interest and principal and when, in the judgment of management,
the loans are estimated to be fully collectible as to both principal and
interest.
Loan fees, net of certain origination costs, are deferred and amortized over
the lives of the underlying loans using a method which approximates a level
yield.
Impaired loans are measured based on the present value of expected future cash
flows, discounted at the loan's effective interest rate, or at the loan's
observable market price, or the fair value of the collateral if the loan is
collateral dependent. Loans that are determined to be impaired require a
valuation allowance equivalent to the amount of the impairment. The valuation
allowance is established through the provision for loan losses.
A loan is considered impaired when, based on current information and events, it
is probable that the Company will be unable to collect all amounts due
according to the contractual terms of the note agreement. Cash receipts on
impaired loans which are accruing interest are applied to principal and
interest under the contractual terms of the loan agreement. Cash receipts on
impaired loans for which the accrual of interest has been discontinued are
applied to reduce the principal amount of such loans until the principal has
been recovered and are recognized as interest income thereafter.
(g) Allowance for Loan Losses
The allowance for loan losses is established through provisions for loan losses
charged to operations. Loans are charged against the allowance for loan losses
when management believes that the collection of the principal is not probable.
Subsequent recoveries are added to the allowance. The allowance is an amount
that management believes will be adequate, determined through use of its
allowance for loan losses methodology, to absorb losses on existing loans and
commitments to extend credit. The allowance is established through
consideration of such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans, the
underlying value of the collateral, and current economic conditions that may
affect the borrowers' ability to pay.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions, the financial condition of borrowers and other factors. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the Company's allowance for loan losses. Such
agencies may require the Company to recognize additions to the allowance based
on their judgments about information available to them at the time of their
examination.
(h) Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation is computed on a straight-line basis over the
estimated useful lives of the assets, which are from three to forty years.
Leasehold improvements are amortized over the shorter of the estimated useful
lives of the improvements or the term of the related lease, including expected
renewal periods for which there are renewal options, using the straight-line
method.
(i) Other Real Estate
Other real estate, consisting of properties obtained through foreclosure
proceedings or acceptance of a deed in lieu of foreclosure, is reported on an
individual asset basis at the lower of cost (carrying value at date of
foreclosure) or fair value less disposal costs. Fair value is determined on the
basis of current appraisals, comparable sales, and other estimates of value
obtained principally from independent sources. When properties are acquired
through foreclosure, any excess of the loan balance at the time of foreclosure
over the fair value of the real estate held as collateral is recognized as a
loss and charged to the allowance for loan losses. Subsequent write-downs are
charged to operations. Gains recognized on the disposition of the properties
are recorded in non-interest income.
Costs of improvements to other real estate are capitalized, while costs
associated with holding other real estate are charged to operations.
(j) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
31
<PAGE> 32
(k) Loan Servicing Assets
The guaranteed portion of SBA loans originated are normally sold on a servicing
retained basis. At the time of sale, a servicing asset is recorded if expected
servicing revenues exceed an amount approximating adequate servicing
compensation. The servicing asset is initially recorded based on its fair value
relative to the fair values of the portions of the loan sold and retained. The
servicing asset, included in other assets, is amortized on a method which
approximates a level yield over the estimated life of the serviced loans
considering assumed prepayment patterns.
The carrying value of the servicing asset is periodically evaluated for
impairment if the Company experiences unanticipated principal prepayments which
causes the present value of future net servicing fee revenue to be less than
the carrying value. If the servicing asset is determined to be impaired, a
valuation allowance is recorded equivalent to the amount of the impairment. The
valuation allowance is established through a charge to earnings.
(l) Goodwill
Goodwill represents the excess of the purchase price and related costs over the
fair value of the net assets acquired. Goodwill is being amortized over 20
years using the straight-line method. The Company re-evaluates goodwill based
on undiscounted operating cash flows whenever significant events or changes
occur which might impair recovery of the recorded costs.
32
<PAGE> 33
(m) Net Income Per Share
Basic earnings per share (EPS) excludes dilution and is computed by dividing
net income by weighted-average shares outstanding. Diluted EPS is computed by
dividing net income by weighted-average shares outstanding plus potential
common stock resulting from dilutive stock options and warrants.
(n) Reclassifications
Certain 1998 and 1997 amounts have been reclassified for comparative purposes
in order to conform the prior periods to the 1999 presentation. Such
reclassifications had no impact on net income or stockholders' equity.
(o) Recent Accounting Pronouncements
In September 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 is effective for
financial statements for 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,
An Amendment of FASB Statement No. 133. SFAS No. 133, as amended, is now
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. The Company has not made an assessment of the expected impact that SFAS
No. 133 will have on its financial statements.
(2) Investment Securities
Investment securities available for sale at December 31, 1999 are summarized as
follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury
Securities and
Obligations of
U.S. Government
Agencies $ 21,668 $ -- $ 280 $ 21,388
Tax-exempt
Municipal Securities 2,567 -- 285 2,282
Mortgage-backed
Securities 46,210 37 1,422 44,825
Other Investments 900 -- 126 774
Total $ 71,345 $ 37 $ 2,113 $ 69,269
- ----------------------------------------------------------------------------------
<CAPTION>
Investment securities available for sale at December 31, 1998 are summarized as
follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury
Securities and
Obligations of
U.S. Government
Agencies $ 39,725 $ 89 $ 49 $ 39,765
Tax-exempt
Municipal Securities 1,000 -- -- 1,000
Mortgage-backed
Securities 53,124 233 235 53,122
Other Investments 900 -- -- 900
Total $ 94,749 $ 322 $ 284 $ 94,787
- ----------------------------------------------------------------------------------
The amortized costs and estimated fair values of investment securities at
December 31, 1999, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because issuers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<CAPTION>
Amortized Estimated
(In thousands) Cost Fair Value
- ----------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 6,957 $ 6,935
Due after one year through five years 12,509 12,336
Due after five years through ten years 2,702 2,579
Due after ten years 2,967 2,594
Mortgage-backed securities 46,210 44,825
Total $ 71,345 $ 69,269
- ----------------------------------------------------------------------------------
</TABLE>
33
<PAGE> 34
Proceeds from the sales of investment securities available for sale during
1999, 1998, and 1997 were $15,017,000, $27,916,000, and $21,949,000,
respectively. Gross gains of $16,000, $212,000, and $190,000 and gross losses
of $143,000, $1,000, and $28,000 were realized on those sales in 1999, 1998,
and 1997, respectively.
Investment securities with aggregate carrying amounts of approximately
$39,225,000 and $20,758,000 at December 31, 1999 and 1998, respectively, were
pledged to secure public deposits and for other purposes required or permitted
by law.
(3) Other Investments
Other investments consist of Federal Home Loan Bank of Atlanta stock and
Federal Reserve Bank of Atlanta stock. Investment in stock of the Federal Home
Loan Bank of Atlanta is required for membership. Investment in stock of the
Federal Reserve Bank of Atlanta is required for national banks. Investment in
stock of the Federal Home Loan Bank of Atlanta and Federal Reserve Bank of
Atlanta are restricted stocks, as defined in SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities; accordingly, the provisions
of SFAS No. 115 are not applicable to these stocks. Both stocks are reported in
the consolidated financial statements at cost.
(4) Loans
Classifications of loans at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Commercial, financial, and agricultural $ 44,881 $ 37,724
Real estate--construction 3,238 2,722
Real estate--mortgage 112,815 83,808
Installment loans to individuals 4,769 5,084
Less unearned income (1,559) (1,514)
- ------------------------------------------------------------------------------
Loans, net of unearned income 164,144 127,824
Loans held for sale--SBA 3,575 5,672
Less allowance for loan losses (2,525) (2,336)
Net loans $165,194 $131,160
- ------------------------------------------------------------------------------
</TABLE>
In the ordinary course of business the Company extends loans to its directors,
executive officers, and principal stockholders and their affiliates at terms
and rates comparable to those prevailing at the time for comparable
transactions with other customers. In the opinion of management, these loans do
not involve more than the normal credit risk nor present other unfavorable
features.
34
<PAGE> 35
The following is a summary of activity during 1999 with respect to such
aggregate loans to these individuals and their associates:
<TABLE>
<CAPTION>
(In thousands)
- -----------------------------------------------------------------------------
<S> <C>
Balance at December 31, 1998 $ 35
New loans --
Repayments 7
Balance at December 31, 1999 $ 28
- -----------------------------------------------------------------------------
Activity in the allowance for loan losses for the years ended December 31,
1999, 1998, and 1997 was as follows:
<CAPTION>
(In thousands) 1999 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 2,336 $ 1,468 $ 1,931
Loan loss allowance of acquired bank -- 813 --
Provision for loan losses 899 455 540
Loans charged off (965) (951) (1,339)
Recoveries 255 551 336
Balance at end of year $ 2,525 $ 2,336 $ 1,468
- -----------------------------------------------------------------------------
Impaired loans and related amounts included in the allowance for loan losses
at December 31, 1999 and 1998 are as follows:
<CAPTION>
1999 1998
(In thousands) Balance Allowance Balance Allowance
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Impaired loans,
with a related
allowance $ 676 $ 34 $ 2,086 $ 104
Impaired loans,
without allowance 387 -- 1,524 --
</TABLE>
The allowance for impaired loans was primarily determined based on the fair
value of the respective loans' collateral. Impaired loans of $387,000 and
$1,524,000 at December 31, 1999 and 1998, respectively, did not have a related
allowance because the majority of these loans were fully guaranteed by the SBA.
The average recorded investment in impaired loans for the years ended December
31, 1999, 1998, and 1997 was $2,188,000, $2,068,000, and $1,198,000,
respectively. Interest income recognized on impaired loans for the years ended
December 31, 1999 and 1998 was approximately $39,000 and $41,000, respectively.
There was no interest income recognized on impaired loans for the year ended
December 31, 1997.
Nonaccrual loans amounted to approximately $1,289,000 and $3,219,000 at
December 31, 1999 and 1998, respectively. Interest income on nonaccrual loans
at December 31, 1999, 1998, and 1997, which would have been reported on an
accrual basis in 1999, 1998, and 1997, amounted to approximately $95,000,
$246,000, and $167,000, respectively.
At December 31, 1999, 1998, and 1997, the Company was servicing loans for
others with aggregate principal balances of approximately $57,262,000,
$59,418,000, and $57,534,000, respectively.
35
<PAGE> 36
(5) Premises and Equipment
Premises and equipment at December 31, 1999 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Land $ 985 $ 985
Building 2,482 2,784
Furniture and equipment
under capital lease 183 183
Other furniture and equipment 1,972 1,744
Leasehold improvements 580 573
- -------------------------------------------------------------------------------
6,202 6,269
Less accumulated depreciation and amortization (1,851) (1,636)
Premises and equipment, net $ 4,351 $ 4,633
- -------------------------------------------------------------------------------
The Company is the lessor under several noncancelable operating leases,
primarily for office space, that expire over the next two years. Future minimum
lease income under noncancelable operating leases (with initial or remaining
lease terms in excess of one year) as of December 31, 1999 are as follows:
<CAPTION>
(In thousands) Year Ending December 31,
- -------------------------------------------------------------------------------
<S> <C>
2000 $ 117
2001 2
(6) Loan Servicing Assets
The following is a summary of activity with respect to loan servicing assets
included in other assets at December 31, 1999, 1998, and 1997:
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 1,177,050 $ 1,114,860 $ 855,108
Servicing asset additions 209,304 299,536 430,235
Amortization of
servicing assets (257,251) (237,346) (170,483)
Balance at end of year $ 1,129,103 $ 1,177,050 $ 1,114,860
- -------------------------------------------------------------------------------
The results of the Company's impairment analysis have not identified any
significant impairment in the recorded servicing assets. Accordingly, the
Company has no valuation allowance for impairment at December 31, 1999 and
1998.
(7) Reserve Requirements
At December 31, 1999 and 1998, the Federal Reserve Bank required that the Bank
maintain an average reserve balance of $3,097,000 and $1,901,000, respectively.
(8) Deposits
A summary of time deposits by maturity as of December 31, 1999 follows:
<CAPTION>
(In thousands)
- -------------------------------------------------------------------------------
<S> <C>
Time to maturity:
One year or less $118,907
Over one year through two years 5,167
Over two years through three years 785
Over three years through four years 951
Over four years through five years 166
Over five years 49
Total $126,025
- -------------------------------------------------------------------------------
</TABLE>
36
<PAGE> 37
At December 31, 1999, the Company had approximately $4,800,000 in deposits from
its directors, executive officers, and principal stockholders and their
affiliates.
(9) Other Borrowed Funds
During 1999 and 1998, the Company had available under a line of credit with
SunTrust Bank approximately $3,000,000. As renewed, the line of credit bears
interest at prime, less 1%, and matures August 9, 2000. The Company had pledged
approximately 40% or 4,000 shares of the Bank's stock as collateral for this
line of credit. At December 31, 1999 and 1998, the Company had no borrowings
outstanding under this credit line.
Other borrowed funds at December 31, 1999 and 1998,
include retail repurchase agreements totaling $11,371,000 and $5,987,000,
respectively. Retail repurchase agreements principally represent overnight
borrowings from commercial customers. The weighted-average interest rate on
these repurchase agreements was 4.09% and 4.37% at December 31, 1999 and 1998,
respectively. The repurchase agreements are collateralized by U.S. Treasury
securities with an aggregate carrying value of $15,800,000 and $5,008,000 at
December 31, 1999 and 1998, respectively. The maximum amount of outstanding
repurchase agreements at any month-end during 1999 and 1998, respectively, was
$11,371,000 and $6,518,000. The average amount of outstanding repurchase
agreements for 1999 and 1998, respectively, was $7,561,000 and $4,207,000. All
securities underlying these repurchase agreements were under the Bank's
control.
(10) Federal Home Loan Bank Advances
The Bank has available under a line of credit with the Federal Home Loan Bank
of Atlanta approximately $25,000,000. At December 31, 1999 and 1998, the Bank
had drawn and outstanding $10,000,000, under this credit line. Such outstanding
amounts bore interest at a weighted-average of 6.05% and 4.91%, respectively.
The Bank has pledged approximately $16,000,000 in U.S. Government securities as
collateral for this line of credit. $5,000,000 of the line of credit matures on
January 15, 2003 and is callable on a quarterly basis, and $5,000,000 matures
on February 17, 2000.
(11) Income Taxes
Income tax expense (benefit) attributable to income before income taxes for the
years ended December 31, 1999, 1998, and 1997 consists of:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal--current $ 1,249 $ 1,153 $ 1,028
State--current 154 88 85
Federal--deferred 100 231 176
State--deferred (14) 31 30
Total $ 1,489 $ 1,503 $ 1,319
- -------------------------------------------------------------------------------
</TABLE>
37
<PAGE> 38
Income tax expense (benefit) attributable to income before income taxes for the
years ended December 31, 1999, 1998, and 1997 differed from the amount computed
by applying the U.S. federal income tax rate of 34% to income before income
taxes as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" income
tax expense $ 1,433 $ 1,452 $ 1,281
Increase (decrease) resulting from:
State income taxes,
net of federal tax benefit 92 77 76
Amortization of negative goodwill -- (37) (37)
Amortization of goodwill 29 15 --
Meals and entertainment expenses 11 14 11
Tax-exempt interest (37) -- --
Other (39) (18) (12)
Total $ 1,489 $ 1,503 $ 1,319
- -------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and liabilities at December 31, 1999 and 1998 are
presented below:
<CAPTION>
(In thousands) 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets (liabilities):
Loans, principally due to allowance for
loan losses $ 336 $ 278
Premises and equipment, principally due to
differences in depreciation (1) 26
Nonaccrual interest 91 102
Other 13 7
Net federal and state operating
loss carryforwards 4,081 4,322
Net unrealized holding gains on investment
securities available for sale 782 (13)
- -------------------------------------------------------------------------------
Total deferred tax assets 5,302 4,722
Less valuation allowance (2,741) (2,741)
Deferred tax assets,
net of valuation allowance $ 2,561 $ 1,981
- -------------------------------------------------------------------------------
</TABLE>
As a result of the CSB acquisition, the valuation allowance increased $363,000
in 1998. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. Based
upon the level of historical taxable income and projection for future taxable
income over the periods which the temporary differences resulting in the
deferred tax assets are deductible, management believes it is more likely than
not that the Company will realize the benefits of these deductible differences,
net of the existing valuation allowance at December 31, 1999.
38
<PAGE> 39
At December 31, 1999 and 1998, the Company has net operating loss carryforwards
for federal and state income tax purposes of approximately $11,027,000 and
$11,349,000, respectively, which are available to offset future federal and
state taxable income, subject to certain annual maximum limitations. The net
operating loss carryforwards expire at various amounts through 2008.
(12) Commitments and Contingencies
In August 1995, the Company's Board of Directors entered into agreements with
each of the four executive officers of the Bank. The agreements basically
provide that in the event of involuntary termination or a change in the
executive's position or compensation resulting from a change in the control of
the Company due to a merger, consolidation, or reorganization, each executive
would be entitled to receive an amount equal to 100% of the executive's base
salary. These agreements have continuing three-year terms.
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. These instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
consolidated balance sheets.
The Company's exposure to credit loss in the event of nonperformance by the
counterparty to the financial instrument for commitments to extend credit is
represented by the contractual amount of these instruments. The Company uses
the same credit policies in making commitments and conditional obligations as
it does for on-balance-sheet instruments. The Company does not anticipate any
material losses as a result of these commitments and conditional obligations.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being funded, the total commitment amounts do not necessarily represent
future liquidity requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral held varies, but
may include accounts receivable, inventory, property, plant and equipment,
residential real estate, income producing properties, and cash on deposit. At
December 31, 1999, the Company had outstanding loan commitments totaling
$27,810,963 primarily at floating rates of interest with terms of less than one
year.
39
<PAGE> 40
Standby and commercial letters of credit are conditional commitments issued by
the Bank guaranteeing the performance of a customer to a third party. These
guarantees are primarily issued to support public and private borrowing
arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers. The Company holds collateral supporting these commitments, as deemed
necessary. At December 31, 1999, commitments under standby and commercial
letters of credit and guarantees aggregated $5,818,000.
The Company has several noncancelable operating leases, primarily for banking
offices, that expire over the next five years. Rental expense for operating
leases (except those with lease terms of a month or less that were not renewed)
during 1999, 1998, and 1997 was $670,000, $547,000, and $404,000, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1999
are:
<TABLE>
<CAPTION>
(In thousands) Year Ending December 31,
- -------------------------------------------------------------------------------
<S> <C>
2000 $ 650
2001 331
2002 277
2003 212
2004 217
Thereafter 277
Total minimum lease payments $1,964
- -------------------------------------------------------------------------------
</TABLE>
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations, or liquidity.
(13) Stockholders' Equity
The organizers of the Company were issued warrants to purchase one share of
common stock for each share purchased by them in connection with the initial
public offering of the Company's common stock. Subject to certain limitations,
these warrants were exercisable at any time through March 10, 1998, at a per
share exercise price of $10. In 1998, 293,693 warrants were exercised in
addition to 70,757 exercised in 1997. All unexercised warrants have expired.
In November 1998, the Company announced a stock repurchase plan that was
completed in May of 1999. Shares of common stock repurchased under this plan
totaled 90,000 of which 24,375 were repurchased in 1998. The Company
repurchased an additional 70,000 shares of stock under a second plan, completed
in October 1999. The 160,000 shares cost a total of $2,680,000 and are
classified as unissued shares.
The Company is authorized to issue up to 20,000,000 shares of special stock,
with no par value. Liquidation preferences and other such items are subject to
future determination by the Company's Board of Directors. At December 31, 1999,
no special stock had been issued.
40
<PAGE> 41
(14) Employee Benefit Plans
The Company adopted a new Key Employee Incentive Stock Option Plan (the "Plan")
in 1998. The exercise price for incentive options issued under the Plan is
determined by the Board or Stock Option Committee as of the date the option is
granted. The period for the exercise of options shall not exceed ten years from
the date of grant. The Company has reserved 200,000 shares of common stock for
the Plan. As of December 31, 1999, 43,225 options under a prior Plan were
exercised.
Stock option activity during the years ended December 31, 1999, 1998, and 1997
is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding
at beginning of year 20,000 52,900 41,225
Options granted -- -- 22,000
Options exercised -- (32,900) (10,325)
Options outstanding
at end of year 20,000 20,000 52,900
Options exercisable
at end of year 20,000 20,000 52,900
- -----------------------------------------------------------------------
Option prices per share:
Options granted during
the year $ -- $ -- $10.00-16.75
Options exercised during
the year -- 10.00 10.00
Options outstanding at
end of year 16.75 16.75 10.00-16.75
</TABLE>
The options outstanding at December 31, 1999 had a weighted-average exercise
price of $16.75 and a weighted-average contractual maturity of 4.5 years.
The per share weighted-average fair value of stock options granted with an
exercise price equal to market and the per share weighted-average fair value of
stock options granted with an exercise price below market during 1999 and 1998
was $4.15 and $5.05, respectively, using the Black Scholes option-pricing model
with the following weighted-average assumptions: expected life of five years in
1999 and 1998; expected annual dividend rates of 6% and 2% in 1999 and 1998,
respectively; risk-free interest rate of 5.45% in 1999 and 1998; and expected
volatilities of 42% and 31% in 1999 and 1998, respectively. There were no stock
options granted during 1999 and 1998.
The Company applies Accounting Principles Board (APB) Opinion No. 25 in
accounting for stock options. Compensation cost determined under SFAS No. 123
did not differ from the compensation cost determined under APB Opinion No. 25
for the years ended December 31, 1999 and 1998.
The Company has a savings plan (the "Savings Plan") administered under the
provisions of the Internal Revenue Code Section 401(k). During 1999, 1998, and
1997, the Company and Bank made contributions totaling $66,014, $49,561, and
$37,292, respectively, to the Savings Plan. The Company computes contributions
based on matching of 50% of employee contributions up to 5%.
(15) Regulatory Matters
The Company and the Bank are subject to various regulatory capital requirements
administered by federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory--and possibly additional
discretionary--actions by regulators that, if undertaken, could have a direct
material effect on the consolidated financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company and the Bank must meet specific capital guidelines that involve
quantitative measures of the assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Qualitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December
31, 1999, that the Company and the Bank meet all capital adequacy requirements
to which they are subject.
As of December 31, 1999 the most recent notification from the Office of the
Comptroller of the Currency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier 1
risk-based, and Tier 1 leverage ratios as set forth in the table below. There
are no conditions or events since that notification that management believes
have changed the Bank's capital category.
41
<PAGE> 42
The actual capital amounts and ratios are also presented in the table below:
<TABLE>
<CAPTION>
Minimum to Be
Well Capitalized
Minimum for Under
Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------ ----------------- ------------------
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- ---------------------- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total capital--risk-based (to risk-weighted assets):
Bank $23,009 12.5% $14,743 8.0% $18,429 10.0%
Consolidated 24,571 13.3 14,817 8.0 N/A N/A
Tier 1 capital--risk-based (to risk-weighted assets):
Bank 20,703 11.2 7,371 4.0 11,057 6.0
Consolidated 22,265 12.0 7,408 4.0 N/A N/A
Tier 1 capital--leverage (to average assets):
Bank 20,703 7.6 10,893 4.0 13,617 5.0
Consolidated 22,265 8.1 10,930 4.0 N/A N/A
As of December 31, 1998:
Total capital--risk-based (to risk-weighted assets):
Bank $17,809 11.4% $12,455 8.0% $15,568 10.0%
Consolidated 23,602 14.8 12,722 8.0 N/A N/A
Tier 1 capital--risk-based (to risk-weighted assets):
Bank 15,858 10.2 6,227 4.0 9,341 6.0
Consolidated 21,651 13.6 6,361 4.0 N/A N/A
Tier 1 capital--leverage (to average assets):
Bank 15,858 7.3 8,643 4.0 10,804 5.0
Consolidated 21,651 9.8 8,858 4.0 N/A N/A
</TABLE>
(16) Fair Values of Financial Instruments
SFAS No. 107, Disclosures about Fair Value of Financial Instruments, requires
disclosure of fair value information about financial instruments, whether or
not recognized in the balance sheet, for which it is practicable to estimate
that value. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of
the instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore, cannot be
determined with precision. Changes in assumptions would significantly affect
the estimates. SFAS No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements.
Fair value estimates are based on existing on- and off-balance-sheet financial
instruments and other recorded assets and liabilities without attempting to
estimate the value of anticipated future business. In addition, tax
ramifications related to the realization of unrealized gains and losses can
have a significant effect on fair value estimates and have not been considered
in any of the estimates. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments and certain other assets
and liabilities:
Cash and Due from Banks: The carrying amounts of cash and due from banks
approximate those assets' fair values.
Federal Funds Sold: The carrying amounts of federal funds sold approximate
their fair value.
Interest-bearing Deposits in Other Banks: The carrying amounts of
interest-bearing deposits in other banks approximate their fair value.
Investment Securities: Fair values for investment securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Other Investments: The carrying amounts of other investments approximate their
fair value.
Loans: For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying values. The fair
values for all other loans are estimated based upon a discounted cash flow
analysis, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
Off-balance-sheet Instruments: Fair values for the Company's off-balance-sheet
instruments are based on a comparison with terms, including interest rate and
commitment period, currently prevailing to enter into similar agreements,
taking into account credit standings. The carrying and fair values of
off-balance-sheet instruments at December 31, 1999 and 1998 were not material.
42
<PAGE> 43
Deposits: Fair values for fixed-rate time deposits are estimated using a
discounted cash flow analysis that applies interest rates currently being
offered on deposits of similar terms of maturity. The carrying amounts of all
other deposits, due to their short-term nature, approximate their fair values.
Federal Home Loan Bank Advances: The carrying value of the Federal Home Loan
Bank advances, due to their short-term nature, approximates fair value.
Other Borrowed Funds: The carrying amounts of other borrowed funds, due to
their short-term nature, approximate their fair values.
Obligation Under Capital Lease: The carrying amount of the obligation under
capital lease approximates its fair value.
The estimated fair value of the Company's financial instruments as of December
31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
---------------------- ----------------------
Carrying Fair Carrying Fair
(In thousands) Value Value Value Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash and due
from Banks $ 16,721 $ 16,721 $ 10,559 $ 10,559
Federal funds sold 14,440 14,440 10,725 10,725
Interest-bearing
deposits in
other Banks 446 446 156 156
Investment securities 69,269 69,269 94,787 94,787
Other investments 1,171 1,171 1,314 1,314
Loans, net 165,194 164,791 131,160 131,923
Liabilities:
Deposits:
Noninterest-bearing $ 53,958 $ 53,958 $ 48,246 $ 48,246
Interest-bearing
demand and
savings 52,958 52,958 50,788 50,788
Time deposits 126,025 125,997 119,613 119,516
Federal Home Loan
Bank advances 10,000 10,000 10,000 10,000
Other borrowed funds 11,371 11,371 5,987 5,987
Obligation under
capital lease -- -- 39 39
</TABLE>
(17) Condensed Financial Information of Summit Bank Corporation (Parent
Company Only)
Condensed Balance Sheets
<TABLE>
<CAPTION>
December 31,
----------------------
(In thousands, except share and per share amounts) 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from Bank $ 652 $ 947
Investment in the Bank, at equity 21,327 18,710
Investment securities available for sale 774 2,903
Investment in non-Bank subsidiary 145 --
Premises and equipment, net 2 2,034
Other assets 11 71
Total assets $ 22,911 $24,665
- ------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Accrued liabilities $ 96 $ 160
Minority interest in non-Bank subsidiary 29 --
Stockholders' equity:
Common stock, $0.01 par value; 100,000,000
shares authorized; 1,655,263 shares
issued and outstanding in 1999; 1,790,988
shares issued and outstanding in 1998 18 18
Additional paid-in capital 13,498 15,731
Accumulated other comprehensive
(loss) income (1,295) 25
Retained earnings 10,565 8,731
Total stockholders' equity 22,786 24,505
Total liabilities and stockholders' equity $ 22,911 $24,665
- ------------------------------------------------------------------------------
</TABLE>
Condensed Statements of Income
43
<PAGE> 44
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Interest on investment securities $ 112 $ 211 $ 3
Other (loss) income (32) 10 7
Dividend income received from Bank 875 690 505
- ----------------------------------------------------------------------------------------
Total income 955 911 515
Operating expenses 116 90 92
- ----------------------------------------------------------------------------------------
Income before taxes and equity
in undistributed net income
of subsidiaries 839 821 423
Income tax (expense) benefit 13 (46) 32
- ----------------------------------------------------------------------------------------
Income before equity in
undistributed net income
of subsidiaries 852 775 455
Equity in undistributed net income
of subsidiaries 1,873 1,994 1,995
Net income $2,725 $2,769 $2,450
- ----------------------------------------------------------------------------------------
</TABLE>
44
<PAGE> 45
Condensed Statements of Cash Flows
(Parent Company Only)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,725 $ 2,769 $ 2,450
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 56 72 70
Net losses (gains) on sales of
investment securities
available for sale 32 (10) --
Equity in undistributed net
income of subsidiaries (1,873) (1,994)
Decrease (increase) in
other assets 60 (7) (9)
(Decrease) increase in
other liabilities (18) 58 (5)
Net cash provided by
operating activities 982 888 511
- ------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of investment
securities available for sale (2,000) (3,699) (700)
Proceeds from sales of investment
securities available for sale 1,966 1,508 --
Proceeds from maturities of
investment securities available
for sale 2,000 -- --
Contributions to non-Bank subsidiary (119) -- --
Purchases of premises and equipment -- (17) (17)
Net cash provided by (used in)
investing activities 1,847 (2,208) (717)
- ------------------------------------------------------------------------------------------
Cash flows from financing activities:
Dividends paid to shareholders (891) (696) (502)
Issuance of common stock upon
exercise of options and warrants -- 3,248 811
Repurchase of common stock
classified as unissued (2,233) (447) --
Net cash (used in) provided
by financing activities (3,124) 2,105 309
- ------------------------------------------------------------------------------------------
Net (decrease) increase in
cash and cash equivalents (295) 785 103
Cash and cash equivalents at
beginning of year 947 162 59
Cash and cash equivalents at
end of year $ 652 947 162
Supplemental disclosure of cash paid
during the year--income taxes $ 977 1,329 930
Supplemental disclosure of noncash
investing activities--pushdown of
building to Bank $ 1,976 $ -- $ --
- ------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE> 46
The primary source of funds available to the Parent Company to pay shareholder
dividends and other expenses is from the Bank. Bank regulatory authorities
impose restrictions on the amounts of dividends that may be declared by the
Bank. Further restrictions could result from a review by regulatory authorities
of the Bank's capital adequacy. The amount of cash dividends available from the
Bank for payment in 2000 is $3,870,000 plus 2000 net earnings of the Bank. At
December 31, 1999, $17,457,000 of the Parent Company's investment in the Bank
is restricted as to dividend payments from the Bank to the Parent Company.
(18) Supplemental Financial Data
Components of other noninterest expenses in excess of 1% of total interest and
other income for any of the respective years are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Data/item processing $ 660 $ 486 $ 323
Legal fees 511 301 181
Marketing and community relations 266 290 228
Telephone 321 268 233
Postage and courier 273 268 198
Accounting and other professional 278 218 182
Other losses 464 80 161
</TABLE>
(19) Acquisition
On June 30, 1998, the Company acquired all of the issued and outstanding common
stock of California Security Bank ("CSB"), a single-office California state
chartered bank located in San Jose, California, for a cash price of $6,217,000,
including acquisition costs. The acquisition was recorded by the Company under
the purchase method of accounting. Goodwill of approximately $1,697,000 was
recorded in connection with the purchase and is being amortized over 20 years
on a straight-line basis. Amortization expense of approximately $86,000 and
$46,000 was recorded during the years ended December 31, 1999 and 1998.
The fair values of assets acquired and liabilities assumed were as follows:
<TABLE>
<CAPTION>
(In thousands)
- ---------------------------------------------------------
<S> <C>
Cash and due from Banks $ 1,845
Federal funds sold 3,835
Investment securities available for sale 13,948
Loans, net 18,742
Premises and equipment 74
Deferred tax assets 2,017
Other assets 747
Deposits (36,356)
Other liabilities (332)
Fair value of net assets acquired 4,520
- ---------------------------------------------------------
Cash paid to shareholders 6,000
Acquisition costs 217
Total purchase price 6,217
Cost over fair value of net assets acquired $ 1,697
- ---------------------------------------------------------
</TABLE>
The net cash paid was $537,000.
46
<PAGE> 47
(20) Comprehensive Income
SFAS No. 130, Reporting Comprehensive Income, was adopted by the Company on
January 1, 1998. SFAS No. 130 establishes standards for reporting comprehensive
income. Comprehensive income includes net income and other comprehensive income
which is defined as non-owner related transactions in stockholders' equity.
Prior period amounts have been reclassified to reflect the application of the
provisions of SFAS No. 130. The following table sets forth the amounts of other
comprehensive income included in stockholders' equity along with the related
tax effect for the years ended December 31, 1999, 1998, and 1997.
<TABLE>
<CAPTION>
Tax
Pretax (Expense) Net of Tax
(In thousands) Amount Benefit Amount
-------------- ------ ------- ------
<S> <C> <C> <C>
December 31, 1999:
Net unrealized holding losses
on investment securities
available for sale $(1,988) $ 747 $(1,241)
Add reclassification adjustment
for net losses realized in
net income (127) 48 (79)
Other comprehensive income (loss) $(2,115) $ 795 $(1,320)
--------------------------------------------------------------------------------------
December 31, 1998:
Net unrealized holding losses
on investment securities
available for sale $ (25) $ 9 $ (16)
Less reclassification adjustment
for net gains realized in
net income 211 (80) 131
Other comprehensive income (loss) $ (236) $ 89 $ (147)
--------------------------------------------------------------------------------------
December 31, 1997:
Net unrealized holding gains
on investment securities
available for sale $ 295 $ (111) $ 184
Less reclassification
adjustment for net gains
realized in net income 162 (61) 101
Other comprehensive income $ 133 $ (50) $ 83
--------------------------------------------------------------------------------------
</TABLE>
47
<PAGE> 48
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Summit Bank Corporation:
We have audited the accompanying consolidated balance sheets of Summit Bank
Corporation and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity and comprehensive
income, and cash flows for each of the years in the three-year period ended
December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Summit Bank
Corporation and subsidiaries as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles.
Atlanta, Georgia
January 28, 2000
48
<PAGE> 49
CORPORATE AND SHAREHOLDER INFORMATION
BOARD OF DIRECTORS
Jack N. Halpern, President, Halpern Enterprises, Inc.,
Chairman, Summit Bank Corporation
Gerald L. Allison, CEO and Chairman, AJC International, Inc.,
Vice Chairman, Summit Bank Corporation
Pin Pin Chau, Chief Executive Officer,
Summit Bank Corporation,
President and CEO, The Summit National Bank
David Yu, President, Summit Bank Corporation,
Chairman, The Summit National Bank
James S. Lai, Professor, Georgia Institute of Technology,
Owner, Pavtec Engineering Technology, Inc.,
Vice Chairman, The Summit National Bank
Aaron I. Alembik, Retired, Attorney at Law
Peter M. Cohen, President, Trident Corporate Services, Inc.
Paul C. Y. Chu, Chairman, Novax Group
Jose I. Gonzalez, President, PanAmerican Logistics, LLC
Donald R. Harkleroad, Partner, Harkleroad & Hermance, P.C.
Daniel T. Huang, President, Polyarn Corporation
Shafik H. Ladha, President, Ladha International, Inc.
Sion Nyen Lai, President, Fulton Beverage Center, Inc.
Shih Chien Lo, President, Lo Brothers Associates
Nack Paek, President, Government Loan Service Corp., Inc.
Carl L. Patrick, Jr., Director, Carmike Cinemas, Inc.
Cecil M. Phillips, Principal, Phillips International, L.P.
W. Clayton Sparrow, Jr., Partner, McCullough Sherrill, LLC
Howard H.L Tai, Private Investor
P. Carl Unger, Ph.D., President, Boxtree Farm Enterprises
49
<PAGE> 50
EXECUTIVE OFFICERS
Pin Pin Chau, Chief Executive Officer,
Summit Bank Corporation,
President and CEO, The Summit National Bank
David Yu, President, Summit Bank Corporation,
Chairman, The Summit National Bank
Gary K. McClung, Secretary, Executive Vice President and
Principal Financial Officer, Summit Bank Corporation, Executive Vice
President and Chief Financial Officer, The Summit National Bank
H. A. Dudley, Jr., Executive Vice President,
Summit Bank Corporation,
Executive Vice President, The Summit National Bank
TRANSFER AGENT
SunTrust Bank
Corporate Trust Department
58 Edgewood Avenue
Room 225
Annex Building
Atlanta, Georgia 30303
ANNUAL MEETING
The Annual Meeting of Stockholders will be held on Saturday, April 29, 2000, at
10:00 a.m., at the Atlanta Marriott Perimeter Center, 246 Perimeter Center
Parkway, N.E., Atlanta, Georgia 30346.
FORM 10-K
The Company's Annual Report on Form 10-K for the year ended December 31, 1999,
is available without charge to stockholders upon request. Write or call Gary K.
McClung, Executive Vice President, The Summit National Bank, 4360 Chamblee
Dunwoody Road, Atlanta, Georgia 30341, (770) 454-0400.
50
<PAGE> 51
THE SUMMIT NATIONAL BANK
CORPORATE HEADQUARTERS/MAIN OFFICE
4360 Chamblee Dunwoody Road
Atlanta, Georgia 30341
(770) 454-0400
ASIAN BANKING CENTER
3490 Shallowford Road
Chamblee, Georgia 30341
(770) 455-1772
VININGS OFFICE
2727 Paces Ferry Road NW
One Paces West, Suite 150
Atlanta, Georgia 30339
(770) 432-1000
EAST MARIETTA OFFICE
595 Franklin Road
Marietta, Georgia 30067
(770) 421-0200
PEACHTREE CORNERS OFFICE
3280 Holcomb Bridge Road NW
Norcross, Georgia 30092
(770) 582-0705
SAN JOSE OFFICE
1694 Tully Road
San Jose, California 95122
(408) 270-1500
www.summitbk.com
51
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF SUMMIT BANK CORPORATION
a) The Summit National Bank, a national bank organized under the laws of
the United States
b) Summit Merchant Banking Corporation (Inactive)
c) CashMart, Inc., organized under the laws of the state of Georgia
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT ACCOUNTANTS' CONSENT
THE BOARD OF DIRECTORS AND STOCKHOLDERS
Summit Bank Corporation:
We consent to incorporation by reference in the registration statement (No.
33-29199) on Form S-8 of Summit Bank Corporation of our report dated January
28, 2000, relating to the consolidated balance sheets of Summit Bank
Corporation and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity and comprehensive
income, and cash flows for each of the years in the three-year period ended
December 31, 1999, which report appears in the December 31, 1999 annual report
on Form 10-K of Summit Bank Corporation.
KPMG LLP
Atlanta, Georgia
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1999 10-K 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> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 16,721
<INT-BEARING-DEPOSITS> 446
<FED-FUNDS-SOLD> 14,440
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 69,269
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 167,719
<ALLOWANCE> (2,525)
<TOTAL-ASSETS> 281,268
<DEPOSITS> 232,941
<SHORT-TERM> 21,371
<LIABILITIES-OTHER> 2,111
<LONG-TERM> 0
0
0
<COMMON> 18
<OTHER-SE> 22,768
<TOTAL-LIABILITIES-AND-EQUITY> 281,268
<INTEREST-LOAN> 14,859
<INTEREST-INVEST> 4,873
<INTEREST-OTHER> 12
<INTEREST-TOTAL> 19,744
<INTEREST-DEPOSIT> 6,915
<INTEREST-EXPENSE> 7,742
<INTEREST-INCOME-NET> 12,002
<LOAN-LOSSES> 899
<SECURITIES-GAINS> (127)
<EXPENSE-OTHER> 10,215
<INCOME-PRETAX> 4,214
<INCOME-PRE-EXTRAORDINARY> 4,214
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,725
<EPS-BASIC> 1.59
<EPS-DILUTED> 1.59
<YIELD-ACTUAL> 5.07
<LOANS-NON> 1,289
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,336
<CHARGE-OFFS> 965
<RECOVERIES> 255
<ALLOWANCE-CLOSE> 2,525
<ALLOWANCE-DOMESTIC> 2,525
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
