-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, EF46uQOtc+ByRq6DwR5h8/6cD6evS0cJpO85tHLbreE1KgsbpbgL8B43vT8KWgQe jcKLldge5pXSMn8RFpWxhQ== 0000919297-95-000001.txt : 19950517 0000919297-95-000001.hdr.sgml : 19950516 ACCESSION NUMBER: 0000919297-95-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950512 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUMMIT BANCSHARES INC /TX/ CENTRAL INDEX KEY: 0000745344 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 751694807 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11986 FILM NUMBER: 95537408 BUSINESS ADDRESS: STREET 1: 1300 SUMMIT AVE CITY: FORT WORTH STATE: TX ZIP: 76102 BUSINESS PHONE: 8173368383 MAIL ADDRESS: STREET 1: 1300 SUMMIT AVENUE CITY: FORT WORTH STATE: TX ZIP: 76102 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Mark One [ X ] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1995; or [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition period from _______________ to _________________. Commission File Number 0-11986 SUMMIT BANCSHARES, INC. ------------------------------------------------------- (Exact name of registrant as specified in its charter) Texas 75-1694807 ------------------------ -------------------- (State of Incorporation) (I.R.S. Employer Identification No.) 1300 Summit Avenue, Fort Worth, Texas 76102 ------------------------------------------------- (Address of principal executive offices) (817) 336-6817 --------------------------------------------------- (Registrant's telephone number, including area code) No Change --------------------------------------------------------------- (Former name, former address and former fiscal year if changed since last report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- The number of shares of common stock, $1.25 par value, outstanding at March 31, 1995 was 1,578,923 shares. SUMMIT BANCSHARES, INC. INDEX PART I - FINANCIAL INFORMATION Page No. Item 1. Financial Statements Consolidated Balance Sheets at March 31, 1995 and 1994 and at December 31, 1994 4 Consolidated Statements of Income for the Three Months Ended March 31, 1995 and 1994 and for the Year Ended December 31, 1994 5 Consolidated Statements of Changes in Shareholders' Equity for the Three Months Ended March 31, 1995 and 1994 and for the Year Ended December 31, 1994 6 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1995 and 1994 and for the Year Ended December 31, 1994 7-8 Notes to Consolidated Financial Statements for the Three Months Ended March 31, 1995 and 1994 and the Year Ended December 31, 1994 9-19 The March 31, 1995 and 1994 and the December 31, 1994 financial statements included herein are unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management of the registrant, necessary to a fair statement of the results for the interim periods. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for the Three Months Ended March 31, 1995 and 1994 20-25 -2- PART II - OTHER INFORMATION Item 1. Legal Proceedings Item 2. Change in Securities Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K -3- SUMMIT BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
(Unaudited) (Unaudited) March 31, December 31, ------------------------------- ------------- 1995 1994 1995 ------------ ------------ ------------ ASSETS (In Thousands) CASH AND DUE FROM BANKS $ 17,647 $ 15,172 $ 18,420 FEDERAL FUNDS SOLD 4,945 13,405 9,740 INVESTMENT SECURITIES - NOTE 2 (Market Value of $109,738,000 and $113,389,000 at March 31, 1995 and 1994 and $112,498,000 at December 31, 1994) 110,809 113,590 114,722 LOANS - NOTE 3 Loans, Net of Unearned Discount 148,274 128,429 138,966 Allowance for Loan Losses (2,355) (2,678) (2,410) -------- -------- --------- LOANS, NET 145,919 125,751 136,556 PREMISES AND EQUIPMENT, NET - NOTE 4 6,734 6,338 6,602 ACCRUED INCOME RECEIVABLE 2,728 2,515 2,732 OTHER REAL ESTATE - NOTE 5 391 565 649 OTHER ASSETS 1,094 1,351 1,590 -------- -------- -------- TOTAL ASSETS $ 290,267 $ 278,687 $ 291,011 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY DEPOSITS - NOTE 6 Noninterest-Bearing Demand $ 69,537 $ 62,158 $ 72,992 Interest-Bearing 186,891 188,805 186,547 -------- -------- -------- TOTAL DEPOSITS 256,428 250,963 259,539 SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE 5,736 1,612 4,528 NOTE PAYABLE -0- 375 250 ACCRUED INTEREST PAYABLE 497 346 487 OTHER LIABILITIES 937 1,402 873 -------- -------- -------- TOTAL LIABILITIES 263,598 254,698 265,677 -------- -------- -------- COMMITMENTS AND CONTINGENCIES - NOTE 10 SHAREHOLDERS' EQUITY - NOTES 11, 13 and 17 Common Stock - $1.25 Par Value; 8,000,000 shares authorized; 1,578,923, 1,570,418 and 1,578,723 shares issued and outstanding at March 31, 1995 and 1994 and at December 31, 1994, respectively 1,974 1,963 1,973 Capital Surplus 6,049 6,001 6,047 Retained Earnings 19,089 15,880 18,187 Unrealized Gain (Loss) on Investment Securities Available for Sale, Net of Tax (233) 145 (873) Treasury Stock at Cost (March 31, 1995 - 10,000 Shares) (210) -0- -0- ------- -------- -------- TOTAL SHAREHOLDERS' EQUITY 26,669 23,989 25,334 ------- -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 290,267 $ 278,687 $ 291,011 ======== ======== ========
The accompanying Notes should be read with these financial statements. -4- SUMMIT BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (Unaudited) For the Three Months Ended March 31, Year Ended December 31, ------------------------------------ ----------------------- 1995 1994 1994 ------------ ------------- ------------- (In Thousands, Except Per Share Data) INTEREST INCOME Interest and Fees on Loans $ 3,395 $ 2,598 $ 11,455 Interest and Dividends on Investment Securities: Taxable 1,639 1,475 6,042 Exempt from Federal Income Taxes 8 9 32 Interest on Federal Funds Sold 61 96 614 ------ ------ ------- TOTAL INTEREST INCOME 5,103 4,178 18,143 ------ ------ ------- INTEREST EXPENSE Interest on Deposits 1,683 1,204 5,510 Interest on Securities Sold Under Agreements to Repurchase 62 14 91 Interest on Notes Payable 1 6 24 ------ ------ ------ TOTAL INTEREST EXPENSE 1,746 1,224 5,625 ------ ------ ------ NET INTEREST INCOME 3,357 2,954 12,518 LESS: PROVISION (CREDIT) FOR LOAN LOSSES - NOTE 3 42 20 (114) ------ ------ ------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,315 2,934 12,632 ------ ------ ------ NON-INTEREST INCOME Service Charges and Fees on Deposits 384 392 1,548 Gain (Loss) on Sale of Investment Securities (10) 20 (152) Other Income 353 223 972 ------ ------ ------ TOTAL NON-INTEREST INCOME 727 635 2,368 ------ ------ ------ NON-INTEREST EXPENSE Salaries and Employee Benefits 1,380 1,181 5,003 Occupancy Expense - Net 167 159 646 Furniture and Equipment Expense 152 123 547 Other Real Estate Owned Expense - Net (77) (39) (41) Other Expense 790 667 2,711 ------ ------ ------ TOTAL NON-INTEREST EXPENSE 2,412 2,091 8,866 ------ ------ ------ INCOME BEFORE INCOME TAXES 1,630 1,478 6,134 APPLICABLE INCOME TAXES - NOTE 8 554 499 2,094 ------ ------ ------ NET INCOME $ 1,076 $ 979 $ 4,040 ====== ====== ====== NET INCOME PER SHARE - NOTE 13 $ .68 $ .62 $ 2.58 ====== ====== ======
The accompanying Notes should be read with these financial statements. -5- SUMMIT BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 AND FOR THE YEAR ENDED DECEMBER 31, 1994 (Unaudited)
Unrealized Common Stock Gain (Loss) -------------------- Capital Retained on Investment Treasury Shares Amount Surplus Earnings Securities-Net Stock Total --------- -------- --------- --------- -------------- -------- -------- (Dollars in Thousands, Except Per Share Data) BALANCE AT JANUARY 1, 1994 1,559,324 $1,949 $5,987 $15,042 $ -0- $ -0- $22,978 Net Income for the Three Months Ended March 31, 1994 979 979 Stock Options Exercised 11,094 14 14 28 Cash Dividend $.09 Per Share (141) (141) Securities Available for Sale Adjustment 145 145 --------- ------ ------- ------- ------- ------ ------- BALANCE AT MARCH 31, 1994 1,570,418 1,963 6,001 15,880 145 -0- 23,989 Net Income for the Nine Months Ended December 31, 1994 3,061 3,061 Stock Options Exercised 28,195 35 46 81 Purchases of Stock Held in Treasury (353) (353) Retirement of Stock Held in Treasury (19,890) (25) (328) 353 Cash Dividend $.27 Per Share (426) (426) Securities Available for Sale Adjustment (1,018) (1,018) --------- ------ ------ ------- ------- ------ ------- BALANCE AT DECEMBER 31, 1994 1,578,723 1,973 6,047 18,187 (873) -0- 25,334 Purchase of Stock Held in Treasury (210) (210) Net Income for the Three Months Ended March 31, 1995 1,076 1,076 Stock Options Exercised 200 1 2 3 Cash Dividend $.11 Per Share (174) (174) Securities Available for Sale Adjustment 640 640 --------- ------ ------- ------- ------- ------- ------- BALANCE AT MARCH 31, 1995 1,578,923 $ 1,974 $ 6,049 $ 19,089 $ (233) $ (210) $ 26,669 ========= ===== ===== ====== ===== ===== ======
The accompanying Notes should be read with these financial statements. -6- SUMMIT BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 AND FOR THE YEAR ENDED DECEMBER 31, 1994
(Unaudited) (Unaudited) March 31, December 31, --------------------------- ------------ 1995 1994 1994 -------- -------- ------------ (In Thousands) CASH FLOW FROM OPERATING ACTIVITIES: Net Income $ 1,076 $ 979 $ 4,040 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 140 135 545 Net Premium Amortization or (Discount Accretion) on Investment Securities 130 234 831 Provision (Credit) for Loan Losses 42 20 (114) Net Decrease in Deferred Income Taxes -0- (22) (248) (Gain) Loss on Sale of Investment Securities 10 (20) 152 Writedown of Other Real Estate 2 -0- -0- Net Gain From Sale of Other Real Estate (60) (35) (55) Net Loss on Sale of Fixed Assets -0- -0- 2 Increase in Accrued Income and Other Assets (395) (442) (718) Increase in Accrued Expenses and Other Liabilities 629 488 500 ------ ------ ------ Total Adjustments 498 358 895 ------ ------ ------ NET CASH PROVIDED BY OPERATING ACTIVITIES 1,574 1,337 4,935 ------ ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES: Net Decrease in Federal Funds Sold 4,795 6,345 10,010 Proceeds from Matured and Prepaid Investment Securities - Held-to-Maturity 2,179 2,071 11,453 - Available for Sale 655 4,470 17,047 Proceeds from Sales of Investment Securities 2,951 12,012 26,885 Purchase of Investment Securities - Held-to-Maturity (1,041) (8,194) (19,126) - Available for Sale -0- (11,628) (40,972) Loans Originated or Acquired Less Payments, Charge-offs and Other Real Estate Acquired (9,463) (1,172) (12,314) Recoveries of Loans Previously Charged-Off 66 64 243 Proceeds from Sale of Fixed Assets -0- -0- 29 Proceeds from Sale of Other Real Estate 318 152 548 Capital Expenditures (272) (98) (802) ------ ------ ------ NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 188 4,022 (6,999) ------ ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES: Net Increase (Decrease) in Demand Deposits, Savings Accounts and Interest Bearing Transaction Accounts (4,682) (2,904) 7,564 Increase (Decrease) in Certificates of Deposit 1,570 (285) (2,175) Net Increase (Decrease) in Repurchase Agreements 1,208 (67) 2,849 Principal Payments of Notes Payable (250) (125) (250) Dividends to Shareholders (174) (141) (567) Purchase of Treasury Stock (210) -0- (353) Proceeds from Stock Options Exercised 3 28 109 ------ ------ ------ NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (2,535) (3,494) 7,177 ------ ------ ------ NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (773) 1,865 5,113 CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 18,420 13,307 13,307 ------ ------ ------ CASH AND DUE FROM BANKS AT END OF PERIOD $ 17,647 $ 15,172 $ 18,420 ====== ====== ======
-7-
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONT'D FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 AND FOR THE YEAR ENDED DECEMBER 31, 1994 (Unaudited) SUPPLEMENTAL SCHEDULE OF OPERATING AND INVESTING ACTIVITIES: (Unaudited) (Unaudited) March 31, December 31, ---------------------------- ------------ 1995 1994 1994 ---------- ---------- ------------ (In Thousands) (1) Interest Paid $ 1,735 $ 1,254 $ 5,516 (2) Income Taxes Paid (Refund Received) -0- (65) 1,825 (3) Other Real Estate Acquired in Settlement of Loans -0- 67 528 (4) Bank Financed Sales of Other Real Estate -0- -0- 234
-8- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SUMMIT BANCSHARES, INC. AND SUBSIDIARIES FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED) AND FOR THE YEAR ENDED DECEMBER 31, 1994 (UNAUDITED) NOTE 1 - Summary of Significant Accounting Policies The accounting and reporting policies of Summit Bancshares, Inc. (the "Corporation") and Subsidiaries are in accordance with generally accepted accounting principles. A summary of the more significant policies follows: BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION The consolidated financial statements of the Corporation include its accounts and those of its wholly-owned subsidiaries, Summit National Bank, Alta Mesa National Bank and Camp Bowie National Bank (the "Subsidiary Banks") and Summit Bancservices, Inc., a wholly- owned operations subsidiary. All significant intercompany balances and transactions have been eliminated. CASH AND DUE FROM BANKS The Subsidiary Banks are required to maintain certain balances at the Federal Reserve Bank based on their levels of deposits. During the first three months of 1995 the average cash balance maintained at the Federal Reserve Bank was $10,930,000. Compensating balances held at correspondent banks, to minimize service charges, averaged approximately $1,111,000 during the same three month period of 1995. INVESTMENT SECURITIES Effective January 1, 1994, the Corporation adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." This statement addresses the accounting and reporting for investments in equity securities that have readily determined fair values and for all investments in debt securities. Those investments are to be classified in three categories and accounted for as follows: - Debt securities that the Corporation has the positive intent and ability to hold to maturity are classified as held-to- maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to- maturity securities or trading securities are classified as available for sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. The Corporation has the ability and intent to hold to maturity its investment securities classified as held-to-maturity; accordingly, no adjustment has been made for the excess, if any, of amortized cost over market. In determining the investment category classifications, management considers its asset/liability strategy, changes in interest rates and prepayment risk, the need to increase capital and other factors. Under certain circumstances (including the deterioration of the issuer's creditworthiness, a change in tax law, or statutory or regulatory requirements), the Corporation may change the investment security classification. All investment securities are adjusted for amortization of premiums and accretion of discounts. Amortization of premiums and accretion of discounts are recorded to income over the contractual maturity or estimated life of the individual investment on the level yield method. Gain or loss on sale of investments is based upon the specific identification method and the gain or loss is recorded in non-interest income. Income earned on the Corporation's investments in state and political subdivisions is not taxable. LOANS AND ALLOWANCE FOR LOAN LOSSES Loans are stated at the principal amount outstanding less unearned discount and the allowance for loan losses. Unearned discount on installment loans is recognized as income over the terms of the loans by a method approximating the interest method. Interest income on all other loans is recognized based upon the principal amounts outstanding. The accrual of interest on a loan is discontinued when, in the opinion of management, there is doubt about the ability of the borrower to pay interest or principal. Interest previously earned, but uncollected on such loans, is written off. When loans are put on non-accrual all payments received are applied to the principal and no interest income is recorded until the loan is returned to accrual status or the principal has been reduced to zero. -9- NOTE 1 - Summary of Significant Accounting Policies (cont'd.) In January 1995, the Corporation adopted Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan." Under the new standard, the 1995 allowance for loan losses related to loans that are identified for evaluation in accordance with Statement No. 114 (impaired loans) is based on discounted cash flows using the loan's initial effective rate or the fair value of the collateral for certain collateral dependent loans. Prior to 1995, the allowance for loan losses related to these loans was based on undiscounted cash flows or the fair value of the collateral for collateral dependent loans. The allowance for loan losses is comprised of amounts charged against income in the form of a provision for loan losses as determined by management. Management's evaluation is based on a number of factors, including the Subsidiary Banks' loss experience in relation to outstanding loans and the existing level of the allowance, prevailing and prospective economic conditions, and management's continuing review of the discounted cash flow values of impaired loans and its evaluation of the quality of the loan portfolio. Loans are placed on non-accrual status when management believes that the borrower's financial condition, after giving consideration to economic and business conditions and collection efforts, is such that collection of interest is doubtful. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. PREMISES AND EQUIPMENT Premises and equipment are stated at cost less accumulated depreciation. Depreciation expense is computed on the straight- line method based upon the estimated useful lives of the assets ranging from three to forty years. Maintenance and repairs are charged to operating expenses. Renewals and betterments are added to the asset accounts and depreciated over the periods benefitted. Depreciable assets sold or retired are removed from the asset and related accumulated depreciation accounts and any gain or loss is reflected in the income and expense accounts. OTHER REAL ESTATE Other real estate is foreclosed property held pending disposition and is valued at the lower of its fair value or the recorded investment in the related loan. At foreclosure, if the fair value of the real estate acquired is less than the bank's recorded investment in the related loan, a writedown is recognized through a charge to the allowance for loan losses. Any subsequent reduction in value is recognized by a charge to income. Operating expenses of such properties, net of related income, and gains and losses on their disposition are included in non-interest expense. FEDERAL INCOME TAXES The Corporation joins with its Subsidiaries in filing a consolidated federal income tax return. The Subsidiaries pay to the parent a charge equivalent to their current federal income tax based on the separate taxable income of the Subsidiaries. The Corporation and the Subsidiaries maintain their records for financial reporting and income tax reporting purposes on the accrual basis of accounting. Deferred income taxes are provided in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Deferred income taxes are provided for accumulated temporary differences due to basic differences for assets and liabilities for financial reporting and income tax purposes. STATE INCOME TAXES The Corporation and each of the Subsidiaries file separate state franchise tax returns. As a result of a state franchise tax law passed by the Texas Legislature in 1991, the Corporation and the Subsidiaries are subject to a "state income tax." Since the basis for the state income tax is "federal income tax taxable income", less interest on U.S. Government Obligations, the Corporation had no state income tax liability in 1994 or during the first three months of 1995. FAIR VALUES OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Corporation in estimating its fair value disclosures for financial instruments: Cash and cash equivalents: The carrying amounts reported in the balance sheet for cash and due from banks and federal funds sold approximate those assets' fair values. Investment securities (including mortgage-backed securi- ties: 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. Loans: For variable-rate loans, fair values are based on carrying values. The fair values for fixed rate loans such as mortgage loans (e.g., one-to-four family residential) and installment loans are estimated using discounted cash flow analysis. The carrying amount of accrued interest receivable approximates its fair value. -10- NOTE 1 - Summary of Significant Accounting Policies (cont'd.) Deposit liabilities: The fair value disclosed for interest bearing and noninterest-bearing demand deposits, passbook savings, and certain types of money market accounts are, by definition, equal to the amount payable on demand at the reporting date or their carrying amounts. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. Short-term borrowings: The carrying amounts of borrowings under repurchase agreements approximate their fair values. Note payable: The fair value of the Corporation's note payable is based on its carrying amount at the reporting date. CASH AND CASH EQUIVALENTS For the purpose of presentation in the Statements of Cash Flows, cash and cash equivalents are defined as those amounts included in the balance sheet caption "Cash and Due from Banks." RECLASSIFICATION Certain reclassifications have been made to the 1994 financial statements to conform to the 1995 presentation. AUDITED FINANCIAL STATEMENTS The consolidated balance sheet as of December 31, 1994, and the consolidated statements of income, changes in shareholders' equity and cash flows for the year ended December 31, 1994 are headed "unaudited" in these financial statements. These statements were reported in the Securities Exchange Commission Form 10-K as of December 31, 1994 as "audited" but are required to be reflected in these statements as unaudited because of the absence of an independent auditor's report. NOTE 2 - Investment Securities A summary of amortized cost and estimated fair values of investment securities is as follows (in thousands):
March 31, 1995 ------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- ---------- Investment Securities - Held-to-Maturity U.S. Treasury Securities $ 37,204 $ 133 $ (787) $ 36,550 U.S. Government Agencies and Corporations 15,218 -0- (185) 15,033 U.S. Government Agency Mortgage Backed Securities 6,403 1 (239) 6,165 Obligations of States and Political Subdivisions 391 6 -0- 397 ------- ----- ------ ------- Total Held-to-Maturity Securities 59,216 140 (1,211) 58,145 ------- ----- ------ ------- Investment Securities - Available for Sale U.S. Treasury Securities 45,073 101 (469) 44,705 U.S. Government Agencies and Corporations 3,028 38 (27) 3,039 U.S. Government Agency Mortgage Backed Securities 3,591 23 (19) 3,595 Federal Reserve Bank Stock 254 -0- -0- 254 ------- ----- ------ ------- Total Available for Sale Securities 51,946 162 (515) 51,593 ------- ----- ------ ------- Total Investment Securities $ 111,162 $ 302 $ (1,726) $ 109,738 ======= === ======= =======
In the above schedule the amortized cost of Total Held-to-Maturity Securities of $59,216,000 and the fair value of Total Available for Sale Securities of $51,593,000 are reflected in Investment Securities on the consolidated balance sheet as of March 31, 1995 for a total of $110,809,000. A net unrealized loss of $353,000 is included in the Available for Sale Investment Securities balance. The unrealized loss, net of tax benefit, is included in Shareholders' Equity. -11- NOTE 2 - Investment Securities (cont'd) The carrying value of investment securities totaling $18,092,000 at March 31, 1995, were pledged to secure federal, state and municipal deposits and for other purposes as required or permitted by law. The fair value of these pledged securities totaled $17,666,000 at March 31, 1995.
March 31, 1994 ----------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- --------- Investment Securities - Held-to-Maturity U.S. Treasury Securities $ 32,902 $ 243 $ (360) $ 32,785 U.S. Government Agencies and Corporations 18,029 48 (82) 17,995 U.S. Government Agency Mortgage Backed Securities 6,912 13 (83) 6,842 Obligations of States and Political Subdivisions 463 20 -0- 483 ------- ----- ----- ------- Total Held-to-Maturity Securities 58,306 324 (525) 58,105 ------- ----- ----- ------- Investment Securities - Available for Sale U.S. Treasury Securities 43,917 348 (191) 44,074 U.S. Government Agencies and Corporations 6,259 54 (22) 6,291 U.S. Government Agency Mortgage Backed Securities 4,635 36 (6) 4,665 Federal Reserve Bank Stock 254 -0- -0- 254 ------- ----- ----- ------- Total Available for Sale Securities 55,065 438 (219) 55,284 ------- ----- ----- ------- Total Investment Securities $ 113,371 $ 762 $ (744) $ 113,389 ======= ==== ===== =======
Proceeds from sales of investment securities were $2,951,000 and $12,012,000 during the first three months of 1995 and 1994, respectively and $26,885,000 during the year 1994. In the three months ended March 31, 1995, a loss of $10,000 was realized; gains of $20,000 and losses of $172,000 were realized for the year ended December 31, 1994. Gains of $20,000 were realized from those sales during the three months ended March 31, 1994. NOTE 3 - Loans and Allowance for Loan Losses The book values and fair values of loans by major type follow (in thousands):
March 31, 1995 March 31, 1994 ------------------------------- ------------------------------- Book Fair Book Fair Value Value Value Value ------- ------- ------- ------- Commercial $ 69,443 $ 69,460 $ 63,061 $ 63,228 Real Estate Mortgage 54,781 54,699 46,231 46,584 Real Estate Construction 3,972 3,954 2,922 2,917 Loans to Individuals, Less Unearned Discount 20,078 20,072 16,215 16,546 ------- ------- -------- -------- 148,274 148,185 128,429 129,275 Allowance for Loan Losses (2,355) (2,355) (2,678) (2,678) -------- ------- -------- -------- Loans - Net $ 145,919 $ 145,830 $ 125,751 $ 126,597 ======= ======= ======= =======
The preceding table indicates that the Corporation had an unrealized loss of approximately $89,000 in its loan portfolio at March 31, 1995 and an unrealized gain of approximately $846,000 in its loan portfolio at March 31, 1994 before the respective allowances for loan losses were applied. The unrealized losses and gains are the direct result of the current posted rates for loans higher or lower, respectively, than the average yields in the current loan portfolio. -12- NOTE 3 - Loans and Allowance for Loan Losses (cont'd.) In the above schedule the amortized cost of Total Held-to-Maturity Securities of $58,306,000 and the fair value of Total Available for Sale Securities of $55,284,000 are reflected in Investment Securities on the consolidated balance sheet as of March 31, 1994 for a total of $113,590,000. A net unrealized gain of $219,000 is included in the Available for Sale Investment Securities balance. The unrealized gain, net of tax benefit, is included in Shareholders' Equity. Transactions in the allowance for loan losses are summarized as follows (in thousands):
Three Months Ended March 31, Year Ended ------------------------------------- December 31, 1995 1994 1994 -------- -------- ---------- Balance, Beginning of Period $ 2,410 $ 2,594 $ 2,594 Provisions, Charged (Credited) to Income 42 20 (114) Loans Charged-Off (163) -0- (313) Recoveries of Loans Previously Charged-Off 66 64 243 ------ ------ ------ Net Loans Charged-Off (97) 64 (70) ------ ------ ------ Balance, End of Period $ 2,355 $ 2,678 $ 2,410 ===== ===== =====
The provisions for loan losses charged to operating expenses during the three months ended March 31, 1994 and March 31, 1995 of $20,000 and $42,000, respectively, were considered adequate to maintain the allowance in accordance with the policy discussed in Note 1. For the year ended December 31, 1994 a credit of $114,000 was recorded reducing the Allowance for Loan Losses. This reduction in the Allowance was warranted as the level of non-performing loans continued to decline. At March 31, 1995, the recorded investment in loans that are considered to be impaired under Statement of Financial Accounting Standards No. 114 was $324,000 (of which $324,000 were on non-accrual status). The related allowance for loan losses for these loans was $149,000. The average recorded investment in impaired loans during the three months ended March 31, 1995 was approximately $27,000. For this period the Corporation recognized no interest income on these impaired loans. NOTE 4 - Premises and Equipment The investment in premises and equipment stated at cost and net of accumulated amortization and depreciation is as follows (in thousands):
March 31, ---------------------------- December 31, 1995 1994 1994 -------- -------- ------------ Land $ 1,264 $ 1,179 $ 1,264 Buildings and Improvements 6,816 6,557 6,742 Furniture & Equipment 4,661 4,167 4,470 ------- ------- ------- Total Cost 12,741 11,903 12,476 Less: Accumulated Amortization and Depreciation (6,007) (5,565) (5,874) ------- ------- ------- Net Book Value $ 6,734 $ 6,338 $ 6,602 ===== ===== =====
NOTE 5 - Other Real Estate The carrying value of other real estate is as follows (in thousands):
March 31, ---------------------------- December 31, 1995 1994 1994 -------- -------- ----------- Other Real Estate $ 426 $ 806 $ 684 Valuation Reserve (35) (241) (35) ---- ---- ---- Net Other Real Estate $ 391 $ 565 $ 649 === === ===
-13- NOTE 5 - Other Real Estate (cont'd.) Transactions in the valuation reserve are summarized as follows (in thousands):
Three Months Ended March 31, Year Ended ------------------------------ December 31, 1995 1994 1994 -------- -------- ----------- Balance, Beginning of Period $ 35 $ 279 $ 279 Provisions Charged to Income -0- -0- -0- Reductions from Sales -0- (38) (244) ---- ---- ----- Balance, End of Period $ 35 $ 241 $ 35 === === ===
In addition to the above provisions, direct writedowns of other real estate charged to income were $2,000 for the three months ended March 31, 1995. There were no direct writedowns to other real estate during the first three months of 1994 or for the year ended December 31, 1994. NOTE 6 - Deposits The book values and fair values of deposits by major type follow. For deposits with no defined maturities, Statement of Financial Accounting Standards No. 107 defines fair values as the amount payable on demand (in thousands):
March 31, 1995 March 31, 1994 -------------------------------- ------------------------------- Book Fair Book Fair Value Value Value Value ---------- ---------- ---------- ---------- Noninterest-Bearing Demand Deposits $ 69,537 $ 69,537 $ 62,158 $ 62,158 Interest-Bearing Deposits: -------- -------- -------- -------- Interest-Bearing Transaction Accounts 99,603 99,603 99,715 99,715 Savings 17,501 17,501 18,752 18,752 Savings Certificates - Time 46,389 46,454 47,849 47,988 Certificates of Deposits $100,000 or more 23,161 23,156 22,259 22,256 Other 237 237 230 230 ------- ------- ------- ------- Total 186,891 186,951 188,805 188,941 ------- ------- ------- ------- Total Deposits $ 256,428 $ 256,488 $ 250,963 $ 251,099 ======= ======= ======= =======
The preceding table indicates that the Corporation had unrealized gains of approximately $60,000 and approximately $136,000 in its deposit accounts at March 31, 1995 and 1994, respectively. NOTE 7 - Other Non-Interest Expense The significant components of other non-interest expense are as follows (in thousands):
Three Months Ended March 31, Year Ended ---------------------------- December 31, 1995 1994 1994 -------- -------- ------------ Business Development $ 103 $ 71 $ 392 Legal and Professional Fees 112 67 357 Printing and Supplies 48 69 303 Regulatory Fees and Assessments 170 167 666 Other 357 293 993 ---- ---- ---- Total $ 790 $ 667 $ 2,711 === === =====
-14- NOTE 8 - Income Taxes Federal income taxes included in the consolidated balance sheets were as follows (in thousands):
March 31, ------------------------------ December 31, 1995 1994 1994 -------- -------- ------------ Current Tax Asset (Liability) $ (525) $ (467) $ 29 Deferred Tax Asset 569 565 901 ----- ----- ----- Total Included in Other Assets $ 44 $ 98 $ 930 ==== ==== ====
The deferred tax asset at March 31, 1995 of $569,000 included $120,000 related to an unrealized loss on Available for Sale Securities. The components of income tax expense were as follows (in thousands):
Three Months Ended March 31, Year Ended ---------------------------- December 31, 1995 1994 1994 -------- -------- ------------ Federal Income Tax Expense Current $ 525 $ 499 $ 1,846 Deferred 29 -0- 248 ----- ------ ------ Total Federal Income Tax Expense $ 554 $ 499 $ 2,094 ===== ===== ===== Effective Tax Rates 34.0% 33.8% 34.1% ===== ===== =====
The reasons for the difference between income tax expense and the amount computed by applying the statutory federal income tax rate to operating earnings are as follows (in thousands):
Three Months Ended March 31, Year Ended -------------------------------- December 31, 1995 1994 1994 -------- -------- ------------ Federal Income Taxes at Statutory Rate of 34% $ 554 $ 502 $ 2,085 Effect of Tax Exempt Interest Income (17) (6) (23) Other 17 3 32 ---- ---- ----- Income Taxes Per Income Statement $ 554 $ 499 $ 2,094 ==== ==== ======
NOTE 9 - Related Party Transactions The Subsidiary Banks have transactions made in the ordinary course of business with certain of its officers, directors and their affiliates. All loans included in such transactions are made on substantially the same terms, including interest rate and collateral, as those prevailing at the time for comparable transactions with other persons. Total loans outstanding to such parties amounted to approximately $4,156,000 at December 31, 1994. NOTE 10 - Commitments and Contingent Liabilities In the normal course of business, there are various outstanding commitments and contingent liabilities, such as guarantees and commitments to extend credit, which are not reflected in the financial statements. No losses are anticipated as a result of these transactions. Commitments are most frequently extended for real estate, commercial and industrial loans. At March 31, 1995, outstanding documentary and standby letters of credit totaled $3,876,000 and commitments to extend credit totaled $47,945,000. -15- NOTE 11 - Stock Option Plans In March 1982, the Corporation established an Incentive Stock Option Plan and reserved 30,000 shares of common stock for sale thereunder. The 30,000 option shares were subsequently amended to 60,000 shares and increased again to 120,000 in April 1993 as a result of the two-for-one stock split. The plan, which expired in 1992, provided for the granting to management employees of Summit Bancshares, Inc. and Subsidiaries incentive stock options, as defined under current tax laws. The outstanding options are exercisable for periods of five to ten years from the date of grant. In April 1993, the Corporation established a similar Incentive Stock Option Plan and reserved 150,000 shares (after the April 1993 two-for- one stock split) of common stock for sale thereunder. The 1993 plan provides for the granting to management employees of Summit Bancshares, Inc. and Subsidiaries incentive stock options, as defined under the current tax laws. The options under the 1993 plan will be exercisable for ten years from the date of the grant. Options under both plans will be and have been granted at prices which will not be less than 100-110% of the fair market value of the underlying common stock at the date of the grant. Since the option prices are considered to approximate fair market value at date of grant, no compensation expense has been reported. The following is a summary of transactions during the periods presented:
Shares Under Option ----------------------------------------------- Three Months Ended Year Ended March 31, 1995 December 31, 1994 --------------- ----------------- Outstanding, Beginning of Period 151,700 186,200 Additional Options Granted During the Period 2,500 22,500 Forfeited During the Period -0- (11,100) Exercised During the Period (200) (45,900) ------- ------- Outstanding, End of Period 154,000 151,700 ======= =======
Options outstanding at March 31, 1995 ranged in price from $3.75 to $21.00 per share with 113,488 shares exercisable. NOTE 12 - Employee Benefit Plans The Corporation has a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and the employee's compensation history. The employee's compensation used in the benefit calculation is the highest average for any five consecutive years of employment within the employee's last ten years of employment. Funding for the plan is provided by employer contributions to trust funds in amounts determined by actuarial assumptions and valuation of the plan. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. -16- NOTE 12 - Employee Benefit Plans (cont'd.) The table below sets forth the plan's funded status and amounts recognized in the Corporation's consolidated balance sheets at December 31 (in thousands):
1994 1993 ---------- ---------- Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $1,034,000 in 1994 and $983,000 in 1993 $ (1,072) $ (1,019) ====== ====== Projected benefit obligation for service rendered to date $ (1,731) $(1,577) Plan assets at fair value, primarily listed stock and U.S. Treasury Securities 1,616 1,414 ------ ------ Plan assets net of projected benefit obligation (115) (163) Unrecognized net gain from past experience different from that assumed and effect of changes in assumptions 48 50 Prior service cost not yet recognized in net periodic pension cost 20 23 ----- ----- Unrecognized net obligation at January 1, 1995 and 1994 68 73 ----- ----- Net pension cost included in other liabilities $ (47) $ (90) ===== ===== Net pension cost included the following components (in thousands): Year Ended December 31, ------------------------- 1994 1993 -------- -------- Service Cost - benefits earned during the period $ 111 $ 87 Interest cost on projected benefit obligation 130 121 Less: Actual return on plan assets (133) (116) Net amortization and deferral 5 5 ---- ---- Net periodic pension cost $ 113 $ 97 ==== ====
The discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 8.5 percent and 5 percent at December 31, 1994 and 1993. The expected long-term rate of return on plan assets in 1994 was 9 percent. The market value of plan assets at March 31, 1995 was $1,308,000. There was a contribution to the plan during 1994 of $156,000 and accrued pension cost at March 31, 1995 was $80,000. MANAGEMENT SECURITY PLAN In 1992, the Corporation established a Management Security Plan to provide key employees with retirement, death or disability benefits in addition to those provided by the Pension Plan. The expense charged to operations for such future obligations was $42,000 and $34,000 during the first three months of 1995 and 1994, respectively, and $141,000 for the year 1994. OTHER POST RETIREMENT BENEFITS The Corporation provides certain health care benefits for certain retired employees who bear all costs of these benefits. These benefits are covered under the "Consolidated Omnibus Budget Reconciliation Act" (COBRA). -17- NOTE 13 - Earnings per Share Earnings per share of common stock are based on the weighed average number of shares outstanding during the periods as follows: Shares Periods of Three Months Ended: ---------- March 31, 1995 1,575,130 March 31, 1994 1,567,554 Year Ended December 31, 1994 1,567,885 NOTE 14 - Financial Instruments with Off-Balance Sheet Risk The Corporation 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 loan commitments, standby letters of credit and documentary letters of credit. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. The Corporation's exposure to credit loss in the event of non- performance by the other party of these loan commitments and standby letters of credit is represented by the contractual amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The total contractual amounts of financial instruments with off- balance sheet risk are as follows (in thousands): March 31, ------------------------------------ 1995 1994 ------------ ---------- Financial Instruments Whose Contract Amounts Represent Credit Risk: Commitments to Extend Credit $ 47,945,000 $ 36,492,000 Documentary and Standby Letters of Credit 3,876,000 3,096,000 Since many of the loan commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The Corporation evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation 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, owner occupied real estate and income-producing commercial properties. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. NOTE 15 - Concentrations of Credit Risk The Subsidiary Banks grant commercial, consumer and real estate loans in their direct market which is defined as Fort Worth and its surrounding area. Although its Subsidiary Banks have diversified loan portfolios, a substantial portion of its debtors' abilities to honor their contracts is dependent upon the strength of the local and state economy. NOTE 16 - Litigation Certain of the Subsidiary Banks are involved in legal actions arising in the ordinary course of business. It is the opinion of legal counsel that the settlement of these matters will not materially affect the Corporation's financial position. -18- NOTE 17 - Stock Repurchase Plan On April 19, 1994, the Board of Directors approved a stock repurchase plan. The plan authorizes management to purchase up to 78,377 shares of the Corporation's common stock over the next twelve months through the open market or in privately negotiated transactions in accordance with all applicable state and federal laws and regulations. In 1994, 19,890 shares were purchased by the Corporation through the open market and canceled. In the first three months of 1995, 10,000 shares were purchased. NOTE 18 - Subsequent Event On April 18, 1995, the Board of Directors of the Corporation approved a quarterly dividend of $.11 per share to be paid on May 15, 1995 to shareholders of record on May 1, 1995. Also on April 18, 1995, the Board of Directors approved a renewal of the stock repurchase plan, thereby authorizing the purchase of up to 78,446 shares of the Corporation's common stock over the next twelve months. -19- ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SUMMARY Net income for the first quarter of 1995 was $1,076,000, or $.68 per share, compared with $979,000, or $.62 per share, for the first quarter of 1994. Per share amounts are based on average shares outstanding of 1,575,130 for the first quarter of 1995 and 1,567,554 for the comparable period of 1994. On a per share basis, net income increased 9.7% over the first quarter of the prior year. Outstanding loans at March 31, 1995 of $148.3 million represented an increase of $19.8 million, or 15.5%, over March 31, 1994 and an increase of $9.3 million, or 6.7%, from December 31, 1994. Total deposits at March 31, 1995 of $256.4 million represented an increase of $5.5 million, or 2.2%, over March 31, 1994 and a decrease of $3.1 million, or 1.2%, from December 31, 1994. In the first quarter net interest income increased 13.5% over the previous year. An increase in non-interest income of 14.5%, after considering a $10,000 loss on sale of investment securities, also contributed to the earnings increase. These increases were partially offset by a 15.4% increase in non-interest expense. The following table summarizes the Corporation's performance for the three months ended March 31, 1995 and 1994 (tax equivalent basis and dollars in thousands).
Three Months Ended March 31, -------------------------------- 1995 1994 -------- -------- Interest Income $ 5,105 $ 4,188 Interest Expense 1,740 1,224 ----- ----- Net Interest Income 3,365 2,964 Provision for Loan Loss 42 20 ----- ----- Net Interest Income After Provision for Loan Loss 3,323 2,944 Non-Interest Income 727 635 Non-Interest Expense 2,412 2,091 ----- ------ Income Before Income Tax 1,638 1,488 Income Tax Expense 562 509 ----- ----- Net Income $ 1,076 $ 979 ===== ===== Net Income per Share $ .68 $ . 62 Return on Average Assets 1.54% 1.44% Return on Average Stockholders' Equity* 16.55% 17.09% * Before adjustment for unrealized gains and losses on Available for Sale securities.
-20- SUMMARY OF EARNING ASSETS AND INTEREST-BEARING LIABILITIES The following schedule presents average balance sheets that highlight earning assets and interest-bearing liabilities and their related rates earned and paid for the first quarter of 1995 and 1994 (rates on tax equivalent basis).
Three Months ended March 31, ------------------------------------------------------------------------------------- 1995 1994 ------------------------------------ ------------------------------------ Average Average Average Average Balances Interest Yield/Rate Balances Interest Yield/Rate -------- -------- ---------- -------- -------- ---------- (Dollars in Thousands) Earning Assets: Federal Funds Sold $ 3,811 $ 55 5.65% $ 12,176 $ 96 3.14% Investment Securities (Taxable) 112,424 1,638 5.85 112,948 1,475 5.25 Investment Securities (Tax-exempt) 393 12 11.78 470 14 11.49 Loans, Net of Unearned Discount(1) 142,731 3,400 9.66 127,214 2,603 8.30 ------- ----- ------- ----- Total Earning Assets 259,359 5,105 7.98 252,808 4,188 6.72 ----- ----- Non-interest Earning Assets: Cash and Due From Banks 15,683 15,482 Other Assets 10,872 10,118 Allowance for Loan Losses (2,383) (2,630) ------ ------ Total Assets $ 283,531 $ 275,778 ======= ======= Interest-Bearing Liabilities: Interest-Bearing Transaction Accounts $ 73,876 600 3.29 $ 73,008 405 2.25 Savings 17,008 112 2.67 18,545 110 2.41 Savings Certificates 45,568 488 4.34 47,914 365 3.09 Certificates of Deposit $100,000 or more 22,757 255 4.55 22,321 166 3.02 Other Time 27,120 228 3.41 27,924 158 2.29 Other Borrowings 4,235 56 5.36 2,090 14 2.72 Notes Payable 44 1 9.56 401 6 6.54 ------- ----- ------- ----- Total Interest-Bearing Liabilities 190,608 1,740 3.70 192,203 1,224 2.58 ----- ----- Non-interest Bearing Liabilities: Demand Deposits 66,009 58,657 Other Liabilities 1,228 1,369 Shareholders' Equity 25,686 23,549 ------ ------ Total Liabilities and Shareholders' Equity $ 283,531 $ 275,778 ======= ======= Net Interest Income and Margin (Tax-equivalent Basis)(2) $ 3,365 5.26 $ 2,964 4.75 ===== ===== (1) Loan interest income includes fees and loan volumes include loans on non-accrual. (2) Presented on a tax equivalent basis ("T/E") using a federal income tax rate of 34% in both years.
-21- NET INTEREST INCOME Net interest income (tax equivalent) for the first quarter of 1995 was $3,365,000 which represented an increase of $401,000, or 13.5%, over the first quarter of 1994. This increase was heavily contributed to by a 12.2% increase in average loans for the first quarter of 1995 versus the same quarter last year. The following table summarizes the effects of changes in interest rates and average volumes of earning assets and interest bearing liabilities on tax equivalent net interest income for the periods ended March 31, 1995 and 1994.
ANALYSIS OF CHANGES IN NET INTEREST INCOME (Dollars in Thousands) 1st Qtr. 1995 vs. 1st Qtr. 1994 1st Qtr. 1994 vs. 1st Qtr. 1993 Increase (Decrease) Increase (Decrease) Due to Changes in: Due to Changes in: -------------------------------- ------------------------------- Volume Rate Total Volume Rate Total ------ ---- ----- ------ ---- ----- Interest Earning Assets: Federal Funds Sold $ (301) $ 260 $ (41) $ (5) $ 6 $ 1 Investment Securities (Taxable) (47) 210 163 977 (973) 4 Investment Securities (Tax-exempt) (4) 2 (2) (28) 15 (13) Loans, Net of Unearned Discount 340 457 797 215 (287) (72) --- --- --- ----- ----- --- Total Interest Income (12) 929 917 1,159 (1,239) (80) --- --- --- ----- ----- --- Interest-Bearing Liabilities: Deposits (147) 626 479 301 (416) (115) Other Borrowings 19 23 42 -0- -0- -0- Notes Payable (20) 15 (5) (3) -0- (3) --- --- --- --- --- --- Total Interest Expense (148) 664 516 298 (416) (118) --- --- --- --- --- --- Net Interest Income $ 136 $ 265 $ 401 $ 861 $ (823) $ 38 === === === === === ===
ALLOWANCE FOR LOAN LOSSES AND NON-PERFORMING ASSETS The Corporation's allowance for loan losses was $2,355,000, or 1.59% of total loans, as of March 31, 1995 compared to $2,678,000, or 2.09% of total loans, as of March 31, 1994. Transactions in the allowance for loan losses are summarized as follows (in thousands):
Three Months Ended March 31, -------------------------------------- 1995 1994 -------- -------- Balance, Beginning of Period $ 2,410 $ 2,594 Provisions, Charged to Income 42 20 Loans Charged-Off (163) -0- Recoveries of Loans Previously Charged-Off 66 64 ----- ----- Net Loans Charged-Off (97) 64 ----- ----- Balance, End of Period $ 2,355 $ 2,678 ===== =====
-22- The following table summarizes the non-performing assets as of the end of the last five quarters (in thousands).
March 31, December 31, September 30, June 30, March 31, 1995 1994 1994 1994 1994 --------- ------------ ------------ -------- --------- Non-Accrual Loans $ 368 $ 643 $ 350 $ 1,029 $ 1,095 Other Real Estate Owned 391 649 710 347 565 Renegotiated Loans -0- -0- -0- -0- 18 --- ----- ----- ----- ----- Total Non-Performing Assets $ 759 $ 1,292 $ 1,060 $ 1,376 $ 1,678 === ===== ===== ===== =====
Total non-performing assets have continued to decline over the past several quarters as presented in the previous table. Non-accrual loans to total loans were .25% at March 31, 1995 and non-performing assets were .51% of loans and other real estate owned at the same date. NON-INTEREST INCOME The major component of non-interest income is service charges on deposits. Other service fees are the majority of other non-interest income. The following table reflects the changes in non-interest income during the periods presented (dollars in thousands).
Three Months Ended March 31, ------------------------------------------ 1995 1994 % Change ------- -------- -------- Service Charges on Deposit Accounts $ 384 $ 392 (2.0%) Gains (Loss) on Sale of Investment Securities (10) 20 -- Non-recurring Income 126 38 -- Other Non-interest Income 227 185 22.7 --- --- Total Non-interest Income $ 727 $ 635 14.5% === ===
Service charges on deposits declined in 1995 as a result of a somewhat lower volume of account overdraft fees charged and account service fees collected. Non-recurring income in 1995 is primarily interest recovered on loans charged-off in prior years. NON-INTEREST EXPENSE Non-interest expenses include all expenses other than interest expense, loan loss provision and income tax expense. The following table summarizes the changes in non-interest expense during the periods presented (dollars in thousands).
Three Months Ended March 31, ----------------------------------------- 1995 1994 % Change ------ ------ -------- Salaries & Employee Benefits 1,380 1,181 16.9% Occupancy Expense - Net 167 159 5.0 Furniture and Equipment Expense 152 123 23.6 Other Real Estate Expense - Net (77) (39) -- Other Expenses: Business Development 103 71 45.1 Insurance - Other 25 34 (26.5) Legal & Professional Fees 112 67 67.2 Taxes - Other 22 19 15.8 Postage & Courier 60 57 5.3 Printing & Supplies 48 69 (30.4) Regulatory Fees & Assessments 170 167 1.8 Other Operating Expenses 250 183 36.6 ----- ----- Total Other Expenses 790 667 18.4 ----- ----- Total Non-interest Expense $ 2,412 $ 2,091 15.4 ===== =====
-23- Salary expense increased for the three months of 1995 as a result of salary merit increases, and a change in reporting of commissions paid certain employees and the accrual of projected performance compensation. If the change in reporting were reflected the same in both periods, the increase would have been 8.6%. The increase in furniture and equipment expenses was due to increased depreciation expense related to the refurbishing of leasehold improvements at two facilities in late 1994. Business development expenses have increased in 1995 because of increased expenses for public relations and customer relations. INTEREST RATE SENSITIVITY Interest rate sensitivity is the relationship between changes in market interest rates and net interest income due to the repricing characteristics of assets and liabilities. The following table, commonly referred to as a "static gap report", indicates the interest rate sensitivity position at March 31, 1995 and may not be reflective of positions in subsequent periods (dollars in thousands):
Total Repriced Matures or Reprices within: Rate After ------------------------------------------------- Sensitive 1 Year or 30 Days 31-90 91-180 181 to One Year Non-interest or Less Days Days One Year or Less Sensitive Total --------- -------- -------- -------- ---------- ------------ --------- Earning Assets: Loans $ 81,502 $ 7,779 $ 7,900 $ 15,432 $ 112,613 $ 35,661 $ 148,274 Investment Securities 6,020 1,633 4,430 20,688 32,771 78,391 111,162 Federal Funds Sold 4,945 -0- -0- -0- 4,945 -0- 4,945 ------ ------ ------ ------ ------- ------- ------- Total Earning Assets 92,467 9,412 12,330 36,120 150,329 114,052 264,381 ------ ------ ------ ------ ------- ------- ------- Interest Bearing Liabilities: Interest-Bearing Transaction Accounts and Savings 117,104 -0- -0- -0- 117,104 -0- 117,104 Certification of Deposits >$100,000 7,096 6,159 3,937 5,720 22,912 249 23,161 Other Time Deposits 8,335 8,035 10,565 12,596 39,531 7,095 46,626 Repurchase Agreements 5,736 -0- -0- -0- 5,736 -0- 5,736 ------ ------ ------- ------ ------- ------- ------- Total Interest Bearing Liabilities 138,271 14,194 14,502 18,316 185,283 7,344 192,627 ------- ------- ------- ------- ------- ------- ------- Interest Sensitivity Gap $ (45,804) $ (4,782) $ (2,172) $ 17,804 $ (34,954) $ 106,708 $ 71,754 ======= ======= ======= ======= ======= ======= ======= Cumulative Gap $ (45,804) $ (50,586) $ (52,758) $ (34,954) ======= ======= ======= ======= Cumulative Gap to Total Earning Assets (17.3%) (19.1%) (20.0%) (13.2%) Cumulative Gap to Total Assets (15.8%) (17.4%) (18.2%) (12.0%)
The preceding static gap report reflects a cumulative liability sensitive position during the one year horizon. An inherent weakness of this report is that it ignores the relative volatility any one category may have in relation to other categories or market rates in general. For instance, the rate paid on NOW accounts typically moves slower than the three month T-Bill. Management attempts to capture this relative volatility by utilizing a simulation model with a "beta factor" adjustment which estimates the volatility of rate sensitive assets and/or liabilities in relation to other market rates. Beta factors are an estimation of the long term, multiple interest rate environment relation between an individual account and market rates in general. For instance, NOW, savings and money market accounts, which are repriceable within 30 days will have considerably lower beta factors than variable rate loans and most investment categories. Taking this into consideration, it is quite possible for a bank with a negative cumulative gap to total asset ratio to have a positive "beta adjusted" gap risk position. As a result of applying the beta factors established by management to the earning assets and interest bearing liabilities in the static gap report via a simulation model, the negative cumulative gap to total assets ratio at one year of 12.0% was reversed to a positive 10.2% "beta adjusted" gap position. -24- Management feels that the "beta adjusted" gap risk technique more accurately reflects the Corporation's gap position. CAPITAL The Federal Reserve Board has guidelines for capital to total assets (leverage) and capital standards for bank holding companies. The Comptroller of the Currency also has similar guidelines for national banks. These new guidelines require a minimum level of Tier I capital to total assets of 3 percent. A banking organization operating at or near these levels is expected to have well-diversified risk, excellent asset quality, high liquidity, good earnings and in general be considered a strong banking organization. Organizations not meeting these characteristics are expected to operate well above these minimum capital standards. Thus, for all but the most highly rated organizations, the minimum Tier I leverage ratio is to be 3 percent plus minimum additional cushions of at least 100 to 200 basis points. At the discretion of the regulatory authorities, additional capital may be required. At March 31, 1995, total capital, before adjustment for the unrealized loss on Available for Sale Securities, to total assets was 9.26%. Also, the Federal Reserve Board and Comptroller of the Currency officially announced risk-adjusted capital adequacy guidelines that became effective in stages at the end of 1990. Capital under these new guidelines is defined as Tier I and Tier II. At Summit Bancshares, Inc. the only components of Tier I and Tier II capital are shareholders' equity and a portion of the allowance for loan losses, respectively. The guidelines also stipulate that four categories of risk weights (0, 20, 50 and 100 percent), primarily based on the relative credit risk of the counterparty, be applied to the different types of balance sheet assets. Risk weights for all off-balance sheet exposures are determined by a two-step process whereby the face value of the off-balance sheet item is converted to a "credit equivalent amount" and that amount is assigned to the appropriate risk category. The regulatory minimum ratio for total qualifying capital is 8.00% of which 4.00% must be Tier I capital. At March 31, 1995, the Corporation's Tier I capital represented 16.7% of risk weighted assets and total qualifying capital (Tier I and Tier II) represented 18.0% of risk weighted assets. Both ratios are well above current regulatory guidelines. -25- SIGNATURES Pursuant to the requirements 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 BANCSHARES, INC. Registrant Date: May 1, 1995 By: /s/ Philip E. Norwood ----------------------------- Philip E. Norwood, President and Chief Executive Officer Date: May 1, 1995 By: /s/ Bob G. Scott ------------------------------ Bob G. Scott, Senior Vice President and Chief Financial Officer -26- PART II - OTHER INFORMATION Item 1. Legal Proceedings Not applicable Item 2. Change in Securities Not applicable Item 3. Defaults Upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holders Not applicable Item 5. Other Information Not applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 11 Computation of Earnings Per Common Share 27 Financial Data Schedule (b) Reports on Form 8-K No Reports on Form 8-K were filed during the period ending March 31, 1995 EXHIBIT 11 COMPUTATION OF EARNINGS PER COMMON SHARE The details of computation of earnings per common share are disclosed in the Consolidated Statements of Income and Note 13 of the Notes to Consolidated Financial Statements for the Periods of Three Months Ended March 31, 1995 and 1994 (unaudited) and the Year Ended December 31, 1994 (audited), contained in the Quarterly Report on Form 10-Q of registrant for the quarter Ended March 31, 1995. EX-27 2
9 This schedule contains summary financial information extracted from the unaudited consolidated balance sheets of Summit Bancshares, Inc. and Subsidiaries as of March 31, 1995, and the related statements of income, changes in shareholders' equity and cash flows for the three months ended March 31, 1995 and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1994 MAR-31-1995 17,647 0 4,945 0 51,593 110,809 109,738 148,274 2,355 290,267 256,428 0 7,170 0 1,974 0 0 24,695 290,267 3,395 1,647 61 5,103 1,683 1,746 3,357 42 (10) 2,412 1,630 1,076 0 0 1,076 .68 .68 4.90 368 0 0 4,021 2,410 163 66 2,355 2,355 0 0
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