-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P2YfOhyZ+TLUCrS7ChdwJk8YQ2RllZGstmTDsjOG+Lte4B+/Tvkxd5B00sE4vAJb 8XBaHi6MSeNe4o8+D8eyOA== 0000930661-01-500606.txt : 20010515 0000930661-01-500606.hdr.sgml : 20010515 ACCESSION NUMBER: 0000930661-01-500606 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010514 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: SEC FILE NUMBER: 000-11986 FILM NUMBER: 1633943 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 d10q.txt FORM 10-Q 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, 2001; 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, 2001 was 6,379,478 shares. SUMMIT BANCSHARES, INC. INDEX PART I - FINANCIAL INFORMATION Page No. Item 1. Financial Statements Consolidated Balance Sheets at March 31, 2001 and 2000 and at December 31, 2000 4 Consolidated Statements of Income for the Three Months Ended March 31, 2001 and 2000 and for the Year Ended December 31, 2000 5 Consolidated Statements of Changes in Shareholders' Equity for the Three Months Ended March 31, 2001 and 2000 and for the Year Ended December 31, 2000 6 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2001 and 2000 and for the Year Ended December 31, 2000 7 Notes to Consolidated Financial Statements for the Three Months Ended March 31, 2001 and 2000 and for the Year Ended December 31, 2000 8-18 The March 31, 2001 and 2000 and the December 31, 2000 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, 2001 and 2000 19-25 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
PART I - FINANCIAL INFORMATION Item 1 - Financial Statements - ----------------------------- SUMMIT BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) March 31, (Unaudited) ------------------------------ December 31, 2001 2000 2000 ----------------- ------------ ------------ ASSETS (In Thousands) CASH AND DUE FROM BANKS - NOTE 1 $ 28,494 $ 26,506 $ 27,595 FEDERAL FUNDS SOLD & DUE FROM TIME 111,229 25,820 46,461 INVESTMENT SECURITIES - NOTE 2 Securities Available-for-Sale, at fair value 134,206 119,272 127,626 Securities Held-to-Maturity, at cost (fair value of $10,084,000 $25,345,000, and $21,949,000 March 31, 2001 and 2000 and December 31, 2000, respectively) 10,018 26,032 22,021 LOANS - NOTE 3 AND 11 Loans, Net of Unearned Discount 387,798 370,125 380,016 Allowance for Loan Losses (5,537) (5,440) (5,399) -------------- --------------- ------------- LOANS, NET 382,261 364,685 374,617 PREMISES AND EQUIPMENT - NOTE 4 7,930 8,442 8,124 ACCRUED INCOME RECEIVABLE 4,732 4,557 5,133 OTHER REAL ESTATE - NOTE 5 283 1,945 286 OTHER ASSETS 5,931 5,287 7,258 -------------- --------------- ------------- TOTAL ASSETS $685,084 $582,546 $619,121 ============== =============== ============= LIABILITIES AND SHAREHOLDERS' EQUITY DEPOSITS - NOTE 6 Noninterest-Bearing Demand $131,995 $133,389 $146,083 Interest-Bearing 474,782 368,435 393,583 -------------- --------------- ------------- TOTAL DEPOSITS 606,777 501,824 539,666 SHORT TERM BORROWINGS - NOTE 7 16,831 28,438 19,910 ACCRUED INTEREST PAYABLE 1,137 610 1,091 OTHER LIABILITIES 2,987 2,091 2,883 -------------- --------------- ------------- TOTAL LIABILITIES 627,732 532,963 563,550 -------------- --------------- ------------- COMMITMENTS AND CONTINGENCIES - NOTE 12, 14, 16 AND 18 SHAREHOLDERS' EQUITY - NOTES 13, 15 AND 19 Common Stock - $1.25 Par Value; 20,000,000 shares authorized; 6,379,478, 6,431,285 and 6,362,278 shares issued and outstanding at March 31, 2001 and 2000 and at December 31, 2000, respectively 7,974 8,039 7,953 Capital Surplus 6,730 6,641 6,678 Retained Earnings 42,066 37,281 40,655 Accumulated Other Comprehensive Income - Unrealized Gain (Loss) on Available-for-Sale Investment Securities, Net of Tax 1,159 (1,498) 285 Treasury Stock at Cost (30,005 and 51,644 shares at March 31, 2001 and 2000, respectively) (577) (880) -0- -------------- --------------- ------------- TOTAL SHAREHOLDERS' EQUITY 57,352 49,583 55,571 -------------- --------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $685,084 $582,546 $619,121 ============== =============== ============= The accompanying Notes should be read with these financial statements.
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SUMMIT BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) For the Three Months (Unaudited) March 31, Year Ended -------------------------------------- December 31, 2001 2000 2000 ------------------ ------------------ ------------------ (In Thousands, Except Per Share Data) INTEREST INCOME Interest and Fees on Loans $ 9,084 $ 8,681 $36,768 Interest and Dividends on Investment Securities: Taxable 2,145 2,287 9,253 Exempt from Federal Income Taxes 3 6 17 Interest on Federal Funds Sold and Due From Time 854 176 1,571 -------------- ------------- -------------- TOTAL INTEREST INCOME 12,086 11,150 47,609 -------------- ------------- -------------- INTEREST EXPENSE Interest on Deposits 4,689 3,740 17,470 Interest on Short Term Borrowings 211 351 1,400 -------------- ------------- -------------- TOTAL INTEREST EXPENSE 4,900 4,091 18,870 -------------- ------------- -------------- NET INTEREST INCOME 7,186 7,059 28,739 LESS: PROVISION FOR LOAN LOSSES - NOTE 3 180 232 2,606 -------------- ------------- -------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 7,006 6,827 26,133 -------------- ------------- -------------- NON-INTEREST INCOME Service Charges and Fees on Deposits 554 482 1,998 Loss on Sale of Investment Securities -0- -0- (2) Other Income 484 426 1,782 -------------- ------------- -------------- TOTAL NON-INTEREST INCOME 1,038 908 3,778 -------------- ------------- -------------- NON-INTEREST EXPENSE Salaries and Employee Benefits - NOTE 14 2,539 2,357 9,480 Occupancy Expense - Net 309 258 993 Furniture and Equipment Expense 361 338 1,391 Other Real Estate Owned Expense - Net (6) (12 324 Merger Related Expense - NOTE 9 598 -0- -0- Other Expense - NOTE 9 1,022 1,052 3,982 -------------- ------------- -------------- TOTAL NON-INTEREST EXPENSE 4,823 3,993 16,170 -------------- ------------- -------------- INCOME BEFORE INCOME TAXES 3,221 3,742 13,741 APPLICABLE INCOME TAXES - NOTE 10 1,110 1,292 4,765 -------------- ------------- -------------- NET INCOME $ 2,111 $ 2,450 $ 8,976 ============== ============= ============== NET INCOME PER SHARE - NOTE 15 Basic $0.33 $0.38 $1.41 Diluted 0.32 0.37 1.38 The accompanying Notes should be read with these financial statements.
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SUMMIT BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 AND FOR THE YEAR ENDED DECEMBER 31, 2000 (Unaudited) Accumulated Other Comprehensive Income - Net Unrealized Gain Total Common Stock (Loss) on Share- ----------------------------- Capital Retained Investment Treasury Holder's Shares Amount Surplus Earnings Securities Stock Equity - ------------------------------------------------------------------------------------------------------------------------------ (Dollars in Thousands, Except Per Share Data) BALANCE AT January 1, 2000 6,361,247 $7,952 $6,469 $35,474 $(1,186) $ -0- $48,709 Stock Options Exercised 70,038 87 172 259 Purchases of Stock Held in Treasury (880) (880) Cash Dividend $.10 Per Share (643) (643) Net Income for the Three Months Ended March 31, 2000 2,450 2,450 Securities Available- for-Sale Adjustment (312) (312) --------- Total Comprehensive Income NOTE 22 2,138 ---------- --------- --------- --------- ---------- --------- --------- BALANCE AT March 31, 2000 6,431,285 8,039 6,641 37,281 (1,498) (880) 49,583 Stock Options Exercised 11,200 14 37 51 Purchases of Stock Held in Treasury (468) (468) Retirement of Stock Held in Treasury (80,207) (100) (1,248) 1,348 -0- Cash Dividend - $.30 Per Share (1,904) (1,904) Net Income for the Months Nine Months Ended December 31, 2000 6,526 6,526 Securities Available- for-Sale Adjustment 1,783 1,783 --------- Total Comprehensive Income NOTE 22 8,309 ---------- --------- --------- --------- ---------- --------- --------- BALANCE AT December 31, 2000 6,362,278 7,953 6,678 40,655 285 -0- 55,571 Stock Options Exercised 17,200 21 52 73 Purchases of Stock Held in Treasury (577) (577) Cash Dividend - $.11 Per Share (700) (700) Net Income for the Three Months Ended March 31, 2001 2,111 2,111 Securities Available- for-Sale Adjustment 874 874 --------- Total Comprehensive Income NOTE 22 2,985 ---------- --------- --------- --------- ---------- --------- --------- BALANCE AT March 31, 2001 6,379,478 $7,974 $6,730 $42,066 $ 1,159 $ (577) $57,352 ========== ========= ========= ========= ========= ========= ========= The accompanying Notes should be read with these financial statements.
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SUMMIT BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 AND FOR THE YEAR ENDED DECEMBER 31, 2000 (Unaudited) For Three Months Ended (Unaudited) March 31, Year Ended --------------------------------- December 31, 2001 2000 2000 ------------------ -------------- ------------ (In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 2,111 $ 2,450 $ 8,976 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 267 264 1,054 Net Premium Accretion of Investment Securities (70) (15) (142) Provision for Loan Losses 180 232 2,606 Deferred Income Taxes Benefit (127) (48) (194) Net Loss on Sale of Investment Securities -0- -0- 2 Writedown of Other Real Estate 3 5 426 Net Gain From Sale of Other Real Estate -0- -0- (151) Net Decrease (Increase) in Accrued Income and Other Assets 1,147 900 (1,280) Net Decrease (Increase) in Accrued Expenses and and Other Liabilities 150 (738) 232 ------------- ------------ ------------ Total Adjustments 1,550 600 2,553 ------------- ------------ ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 3,661 3,050 11,529 ------------- ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Increase in Federal Funds Sold & Due From Time (64,768) (7,808) (28,449) Proceeds from Matured and Prepaid Investment Securities . Held-to-Maturity 12,000 285 1,285 . Available-for-Sale 31,996 625 82,218 Proceeds from Sales of Investment Securities -0- 18,991 59,922 Purchase of Investment Securities . Available-for-Sale (37,179) (9,227) (134,263) Loans Originated and Principal Repayments, Net (7,858) (14,788) (27,367) Recoveries of Loans Previously Charged-Off 48 70 224 Proceeds from Sale of Premises and Equipment 124 -0- 23 Proceeds from Sale of Other Real Estate/Foreclosed Assets 244 -0- 666 Purchases of Premises and Equipment (197) (145) (639) ------------- ------------ ------------ NET CASH USED BY INVESTING ACTIVITIES (65,590) (11,997) (46,380) ------------- ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net Increase in Demand Deposits, Savings Accounts and Interest Bearing Transaction Accounts 63,457 18,494 14,728 Net Increase in Certificates of Deposit 3,654 2,784 44,392 Net Decrease in Repurchase Agreements (3,079) (3,653) (12,181) Payments of Cash Dividends (700) (643) (2,547) Proceeds from Stock Options Exercised 73 259 310 Purchase of Treasury Stock (577) (880) (1,348) ------------- ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 62,828 16,361 43,354 ------------- ------------ ------------ NET INCREASE IN CASH AND DUE FROM BANKS 899 7,414 8,503 CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 27,595 19,092 19,092 ------------- ------------ ------------ CASH AND DUE FROM BANKS AT END OF PERIOD $ 28,494 $ 26,506 $ 27,595 ============= ============ ============ SUPPLEMENTAL SCHEDULE OF OPERATING AND INVESTING ACTIVITIES Interest Paid $ 4,854 $ 3,961 $ 18,355 Income Taxes Paid -0- 75 5,097 Other Real Estate Acquired in Settlement of Loans -0- 3 1,538 Bank Financed Sales of Other Real Estate -0- -0- 1,250 The accompanying Notes should be read with these financial statements.
7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SUMMIT BANCSHARES, INC. AND SUBSIDIARIES FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED) AND FOR THE YEAR ENDED DECEMBER 31, 2000 (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 accounting principles generally accepted in the United States of America and the prevailing practices within the banking industry. 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 and Summit Community Bank, National Association (the "Subsidiary Banks") and Summit Bancservices, Inc., a wholly-owned operations subsidiary. Effective May 14, 2001, Summit Community Bank, N.A. will be merged with and into Summit National Bank and Summit National Bank will change its name to Summit Bank, National Association. Also Summit Bancservices, Inc. will be liquidated effective May 14, 2001 and its assets will be contributed by the Corporation to Summit Bank, N.A. All operations of Summit Bancservices will be continued in the Bank. All significant intercompany balances and transactions have been eliminated in consolidation. Use of Estimates - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. 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 2001 the average cash balance maintained at the Federal Reserve Bank was $700,000. Compensating balances held at correspondent banks, to minimize service charges, averaged approximately $18,433,000 during the same period. Investment Securities - --------------------- The Corporation has adopted Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities ("SFAS 115"). At the date of purchase, the Corporation is required to classify debt and equity securities into one of three categories: held-to-maturity, trading or available-for-sale. At each reporting date, the appropriateness of the classification is reassessed. Investments in debt securities are classified as held-to-maturity and measured at amortized cost in the financial statements only if management has the positive intent and ability to hold those securities to maturity. Securities that are bought and held principally for the purpose of selling them in the near term are classified as trading and measured at fair value in the financial statements with unrealized gains and losses included in earnings. Investments not classified as either held-to-maturity or trading are classified as available-for-sale and measured at fair value in the financial statements with unrealized gains and losses reported, net of tax, in a separate component of shareholders' equity until realized. 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 at the time of purchase of securities, 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. In the periods reported for 2001 and 2000 the Corporation held no securities that would have been classified as trading securities. 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 simple interest method. Direct costs related to loan originations are not separately allocated to loans but are charged to non-interest expense in the period incurred. The net effect of not recognizing such fees and related costs over the life of the related loan is not considered to be material to the financial statements. 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. After loans are placed on 8 NOTE 1 - Summary of Significant Accounting Policies (cont'd.) - ------ non-accrual all payments received are applied to principal and no interest income is recorded until the loan is returned to accrual status or the principal has been reduced to zero. The Corporation has adopted Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosure." Under this standard, the 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. 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 charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. The evaluation of the adequacy of loan collateral is often based upon estimates and appraisals. Because of changing economic conditions, the valuations determined from such estimates and appraisals may also change. Accordingly, the Corporation may ultimately incur losses which vary from management's current estimates. Adjustments to the allowance for loan losses will be reported in the period such adjustments become known or are reasonably estimable. Premises and Equipment - ---------------------- Premises and equipment are stated at cost less accumulated depreciation and amortization. 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 non-interest expense. Renewals and betterments are added to the asset accounts and depreciated over the periods benefited. 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, less estimated costs to sell, of the real estate acquired is less than the Corporation'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. Realization of net deferred tax assets is dependent on generating sufficient future taxable income. Although realization is not assured, management believes it is more likely than not that all of the net deferred tax assets will be realized. The amount of the net deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced. 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 2000 financial statements to conform to the 2001 presentation. 9 NOTE 1 - Summary of Significant Accounting Policies (cont'd.) - ------ Earnings Per Common and Common Equivalent Share - ----------------------------------------------- Earnings per common and common equivalent share is calculated by dividing net income by the weighted average number of common shares and common share equivalents. Stock options are regarded as common share equivalents and are therefore considered in earnings per share calculations, if dilutive. The number of common share equivalents is determined using the treasury stock method. Audited Financial Statements - ---------------------------- The consolidated balance sheet as of December 31, 2000, and the consolidated statements of income, changes in shareholders' equity and cash flows for the year ended December 31, 2000 are headed "unaudited" in these financial statements. These statements were reported in the Securities Exchange Commission Form 10-K as of December 31, 2000 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, 2001 ---------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---------------- ------------------ ------------------ -------------- Investment Securities - Held-to-Maturity U.S. Treasury Securities $ 3,000 $ 18 -0- $ 3,018 U.S. Government Agencies and Corporations 7,018 48 -0- 7,066 ------------ -------------- ------------- ------------ Total Held-to-Maturity Securities 10,018 66 -0- 10,084 ------------ -------------- ------------- ------------ Investment Securities - Available-for-Sale U.S. Treasury Securities 23,049 222 -0- 23,271 U.S. Government Agencies and Corporations 78,629 1,576 -0- 80,205 U.S. Government Agency Mortgage Backed Securities 29,222 29 (73) 29,178 Obligations of States and Political Subdivisions 240 3 -0- 243 Federal Reserve and Federal Home Loan Bank Stock 1,309 -0- -0- 1,309 ------------ -------------- ------------- ------------ Total Available-for-Sale Securities 132,449 1,830 (73) 134,206 ------------ -------------- ------------- ------------ Total Investment Securities $142,467 $1,896 $(73) $144,290 ============ ============== ============= ============
In the above schedule the amortized cost of Total Held-to-Maturity Securities of $10,018,000 and the fair value of Total Available-for-Sale Securities of $134,206,000 are reflected in Investment Securities on the consolidated balance sheet as of March 31, 2001 for a total of $144,224,000. A net unrealized gain of $1,757,000 is included in the Available-for-Sale Investment Securities balance. The unrealized gain, net of tax, is included in Shareholders' Equity. 10 NOTE 2 - Investment Securities (cont'd) - ------ A summary of amortized cost and estimated fair values of investment securities is as follows (in thousands):
March 31, 2000 -------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ------------- ------------- -------------- ----------- Investment Securities - Held-to-Maturity U.S. Treasury Securities $ 7,997 $ 2 $ (9) $ 7,990 U.S. Government Agencies 18,035 -0- (680) 17,355 ----------- ---------- ----------- --------- Total Held-to-Maturity Securities 26,032 2 (689) 25,345 ----------- ---------- ----------- --------- Investment Securities - Available-for-Sale U.S. Treasury Securities 16,997 5 (94) 16,908 U.S. Government Agencies and Corporations 90,376 9 (2,022) 88,363 U.S. Government Agency Mortgage Backed Securities 12,593 52 (222) 12,423 Obligations of States and Political Subdivisions 350 -0- (1) 349 Federal Reserve and Federal Home Loan Bank Stock 1,229 -0- -0- 1,229 ----------- ---------- ----------- --------- Total Available-for-Sale Securities 121,545 66 (2,339) 119,272 ----------- ---------- ----------- --------- Total Investment Securities $147,577 $ 68 $(3,028) $144,617 =========== ========== =========== =========
In the above schedule the amortized cost of Total Held-to-Maturity Securities of $26,032,000 and the fair value of Total Available-for-Sale Securities of $119,272,000 are reflected in Investment Securities on the consolidated balance sheet as of March 31, 2000 for a total of $145,304,000. A net unrealized loss of $2,273,000 is included in the Available-for-Sale Investment Securities balance. The unrealized loss, net of tax benefit, is included in Shareholders' Equity. NOTE 3 - Loans and Allowance for Loan Losses - ------ The book values of loans by major type follow (in thousands):
March 31, December 31, ----------------------------------- 2001 2000 2000 ---------- ----------- -------------- Commercial $173,409 $164,383 $167,818 Real Estate Mortgage 131,096 124,158 132,062 Real Estate Construction 49,244 48,368 47,183 Loans to Individuals 34,078 33,339 32,996 Less: Unearned Discount (29) (123) (43) -------- ----------- ----------- 387,798 370,125 380,016 Allowance for Loan Losses (5,537) (5,440) (5,399) -------- ----------- ----------- Loans - Net $382,261 $364,685 $374,617 ======== =========== ===========
11 NOTE 3 - Loans and Allowance for Loan Losses (cont'd.) - ------ Transactions in the allowance for loan losses are summarized as follows (in thousands):
Three Months Ended Year Ended March 31, December 31, ----------------------------------- 2001 2000 2000 --------- --------- ---------- Balance, Beginning of Period $5,399 $5,169 $ 5,169 Provisions, Charged to Income 180 232 2,606 Loans Charged-Off (90) (31) (2,600) Recoveries of Loans Previously Charged-Off 48 70 224 --------- --------- ---------- Net Loans (Charged-Off) Recovered (42) 39 (2,376) --------- --------- ---------- Balance, End of Period $5,537 $5,440 $ 5,399 ========= ========= ==========
The provisions for loan losses charged to operating expenses during the three months ended March 31, 2001 and March 31, 2000 of $180,000 and $232,000, respectively, were considered adequate to maintain the allowance in accordance with the policy discussed in Note 1. For the year ended December 31, 2000, a provision of $2,606,000 was recorded. At March 31, 2001, the recorded investment in loans that are considered to be impaired under Statement of Financial Accounting Standards No. 114 was $2,847,000 (of which $2,847,000 were on non-accrual status). The related allowance for loan losses for these loans was $977,000. The average recorded investment in impaired loans during the three months ended March 31, 2001 was approximately $2,481,000. 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, ------------------------------------- 2001 2000 2000 --------------- --------------- -------------------- Land $ 2,317 $ 2,320 $ 2,320 Buildings and Improvements 7,867 7,783 7,845 Furniture & Equipment 7,900 8,010 8,134 --------------- --------------- -------------------- Total Cost 18,084 18,113 18,299 Less: Accumulated Amortization and Depreciation 10,154 9,671 10,175 --------------- --------------- -------------------- Net Book Value $ 7,930 $ 8,442 $ 8,124 =============== =============== ====================
NOTE 5 - Other Real Estate - ------ The carrying value of other real estate is as follows (in thousands):
March 31, December 31, ------------------------------------- 2001 2000 2000 --------------- --------------- -------------------- Other Real Estate $ 283 $1,945 $ 286 ============= ============= ===================
There were direct writedowns of other real estate charged to income for the three months ended March 31, 2001 of $3,000. There were direct writedowns of other real estate charged to income for the three months ended March 31, 2000 of $5,000. For the year ended December 31, 2000, $426,000 was charged to income. 12 NOTE 6 - Deposits - ------ The book values of deposits by major type follow (in thousands):
March 31, December 31, ------------------------------- ----------- 2001 2000 2000 --------- -------- -------- Noninterest-Bearing Demand Deposits $131,995 $133,389 $146,083 Interest-Bearing Deposits: Interest-Bearing Transaction Accounts and Money Market Funds 217,081 172,354 156,348 Savings 110,826 94,468 94,014 Savings Certificates - Time 83,562 59,164 82,248 Certificates of Deposits $100,000 or more 62,535 41,671 60,195 Other 778 778 778 -------- -------- -------- Total 474,782 368,435 393,583 -------- -------- -------- Total Deposits $606,777 $501,824 $539,666 ======== ======== ========
NOTE 7 - Short Term Borrowings - ------ Securities sold under repurchase agreements generally represent borrowings with maturities ranging from one to thirty days. Information relating to these borrowings is summarized as follows (in thousands):
Three Months Ended March 31, Year Ended -------------------------------- December 31, 2001 2000 2000 -------- -------- ------------- Securities Sold Under Repurchase Agreements: Average $18,724 $25,420 $20,797 Period-End 16,831 24,438 19,910 Maximum Month-End Balance During 20,374 25,019 25,019 Period Interest Rate: Average 4.58% 4.66% 5.19% Period-End 4.23% 4.80% 5.44%
The Corporation, through one of its subsidiaries, has available a line of credit with the Federal Home Loan Bank of Dallas which allows the subsidiary to borrow on a collateralized basis at a fixed term. At March 31, 2001, the subsidiary had no borrowings outstanding. For the three months ended March 31, 2000, the subsidiary had borrowed an average balance of $4,000,000 bearing an average interest rate of 5.58%. For the year ended December 31, 2000, the subsidiary had borrowed an average balance of $4,929,000 under the line of credit, bearing an average interest rate of 6.49%. NOTE 8 - Notes Payable - ------ On July 15, 2000, the Corporation obtained lines of credit from a bank under which the Corporation may borrow $9,000,000 at prime rate. The lines of credit are secured by stock of one of the Subsidiary Banks and mature in July 2001, whereupon, if balances are outstanding, the lines convert to term notes having five year terms. The Corporation will not pay a fee for any unused portion of the lines. As of March 31, 2001, no funds had been borrowed under these lines nor were any borrowings outstanding. 13 NOTE 9 - 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, 2001 2000 2000 ------ ------ ------------ Business Development $ 137 $ 176 $ 601 Legal and Professional Fees 158 188 866 Printing and Supplies 78 100 369 Regulatory Fees and Assessments 63 60 237 Other 586 528 1,909 ------ ------ ------ Total $1,022 $1,052 $3,982 ====== ====== ======
The Merger-Related Expenses include expenses, accrued and incurred, related to the merger of the Corporation's subsidiaries as reported in Note 1 Basis of -------- Presentation and Principles of Consolidation. The expenses include the cost of - -------------------------------------------- severance payments to a former chief executive officer of one of the units, legal and professional fees and expenses related to the name change of Summit Bank, N.A. NOTE 10 - Income Taxes - ------- Federal income taxes included in the consolidated balance sheets were as follows (in thousands):
March 31, 2001 --------------------------------------- December 31, 2001 2000 2000 --------------- --------------- ------------ Current Tax Asset (Liability) $(1,169) $(1,335) $ 68 Deferred Tax Asset 1,369 2,470 1,693 ------- ------- ------ Total Included in Other Assets $ 200 $ 1,135 $1,761 ======= ======= ======
The deferred tax asset at March 31, 2001 of $1,369,000 included $(597,000) related to unrealized gains 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, 2001 2000 2000 ------------ ------------- -------------- Federal Income Tax Expense Current $1,237 $1,340 $4,959 Deferred (benefit) (127) (48) (194) ------ ------ ------ Total Federal Income Tax Expense $1,110 $1,292 $4,765 ====== ====== ====== Effective Tax Rates 34.40% 34.50% 34.70%
14 NOTE 10 - Income Taxes (con't) - ------- 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 ------------------------------------- Decmber 31, 2001 2000 2000 ------------- ------------- -------------- Federal Income Taxes at Statutory Rate of 34.3% $1,106 $1,285 $4,716 Effect of Tax Exempt Interest Income (1) (2) (6) Non-deductible Expenses 13 15 66 Other (8) (6) (11) ------ ------ ------ Income Taxes Per Income Statement $1,110 $1,292 $4,765 ====== ====== ======
Deferred income tax expense (benefit) results from differences between amounts of assets and liabilities as measured for income tax return and financial reporting purposes. The significant components of federal deferred tax assets and liabilities are in the following table (in thousands):
Three Months Ended March 31, Year Ended ------------------------------------- Decmber 31, 2001 2000 2000 ------------- ------------- -------------- Federal Deferred Tax Assets: Allowance for Loan Losses $1,580 $1,437 $1,494 Valuation Reserves - Other Real Estate 6 2 5 Interest on Non-accrual Loans 267 180 238 Deferred Compensation 502 455 505 Unrealized Losses on -0- 775 -0- Available-for-Sale Securities Other 19 18 20 ------ ------ ------ Gross Federal Deferred Tax Assets 2,374 2,867 2,262 ------ ------ ------ Federal Deferred Tax Liabilities: Depreciation and Amortization 302 325 318 Accretion 106 72 104 Unrealized Gains on 597 -0- 147 Available-for-Sale Securities Other -0- -0- -0- ------ ------ ------ Gross Federal Deferred Tax Liabilities 1,005 397 569 ------ ------ ------ Net Deferred Tax Asset $1,369 $2,470 $1,693 ====== ====== ======
NOTE 11 - 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 $3,241,000 at December 31, 2000. NOTE 12 - 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, 2001, outstanding documentary and standby letters of credit totaled $5,369,000 and commitments to extend credit totaled $121,642,000. 15 NOTE 13 - Stock Option Plans - ------- The Corporation has two Incentive Stock Option Plans, the 1993 Plan and the 1997 Plan, ("the Plans"). Each Plan has reserved 600,000 shares (adjusted for two-for-one stock splits in 1995 and 1997) of common stock for grants thereunder. The Plans provide for the granting to executive management and other key employees of Summit Bancshares, Inc. and subsidiaries incentive stock options, as defined under the current tax law. The options under the Plans will be exercisable for ten years from the date of grant and generally vest ratably over a five year period. Options 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 grant. The Corporation applies APB Opinion No. 25 and related Interpretations in accounting for its plans. Since the option prices are considered to approximate fair market value at date of grant, no compensation expense has been reported. Had compensation cost for these plans been determined consistent with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" the Corporation's net income and earnings per share would have been reduced by insignificant amounts on a proforma basis for the year ended December 31, 2000, and the three months ended March 31, 2001. The following is a summary of transactions during the periods presented:
Shares Under Option -------------------------------------------------------- Three Months Ended Year Ended March 31, 2001 December 31, 2000 ------------------------ ------------------- Outstanding, Beginning of Period 359,559 445,497 Additional Options Granted During the Period 4,000 15,000 Forfeited During the Period -0- (19,700) Exercised During the Period (17,200) (81,238) ------- ------- Outstanding, End of Period 346,359 359,559 ======= =======
Options outstanding at March 31, 2001 ranged in price from $3.00 to $19.375 per share with a weighted average exercise price of $10.35 and 298,559 shares exercisable. At March 31, 2001, there remained 483,300 shares reserved for future grants of options under the 1997 Plan. NOTE 14 - Employee Benefit Plans - ------- 401(k) Plan - ----------- The Corporation implemented a 401(k) plan in December 1997 covering substantially all employees. The Corporation made no contribution to this plan in 1999 or 1998. In 2000, the Corporation made matching contributions to the participant's deferrals of compensation up to 100% of the employee contributions not to exceed 6% of the employee's annual compensation. For the first three months of 2001, the Corporation expensed $90,000 in support of the plan. 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 $39,000 and $50,000 during the first three months of 2001 and 2000, respectively, and $203,000 for the year 2000. 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). 16 NOTE 15 - Earnings per Share - ------- The following data shows the amounts used in computing earnings per share and the weighted average number of shares of dilutive potential common stock (dollars in thousands).
Three Months Ended Year Ended March 31, December 31, ---------------- -------------- -------------- 2001 2000 2000 ---------------- -------------- -------------- Net income $ 2,111 $ 2,450 $ 8,976 ---------- ---------- ---------- Weighted average number of common shares used in Basic EPS 6,368,562 6,384,238 6,364,492 Effect of dilutive stock options 157,721 163,669 159,467 ---------- ---------- ---------- Weighted number of common shares and dilutive potential common stock used in Diluted EPS 6,526,283 6,547,907 6,523,959 ========== ========== ==========
NOTE 16 - 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, ------------------------------------- 2001 2000 -------------- -------------- Financial Instruments Whose Contract Amounts Represent Credit Risk: Loan Commitments Including Unfunded Lines of Credit $121,642 $113,787 Standby Letters of Credit 5,369 3,353
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 17 - 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. The Board of Directors of each Subsidiary Bank monitors concentrations of credit by purpose, collateral and industry at least quarterly. Certain limitations for concentration are set by the Boards. Additional loans in excess of these limits must have prior approval of the bank's directors' loan committee. 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 18 - Litigation - ------- Certain of the Subsidiary Banks are involved in legal actions arising in the ordinary course of business. It is the opinion of management, after reviewing such actions with outside legal counsel, that the settlement of these matters will not materially affect the Corporation's financial position. 17 NOTE 19 - Stock Repurchase Plan - ------- On April 17, 2001, the Board of Directors approved a stock repurchase plan. The plan authorized management to purchase up to 318,973 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 the three months of 2001, 30,005 shares were purchased by the Corporation through a similar repurchase plan through the open market. NOTE 20 - Subsequent Event - ------- On April 17, 2001, the Board of Directors of the Corporation approved a quarterly dividend of $.11 per share to be paid on May 15, 2001 to shareholders of record on May 1, 2001. NOTE 21 - 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 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. 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. 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. The estimated fair values of the Corporation's financial instruments are as follows (in thousands):
March 31, ----------------------------------------------------------------------------------- 2001 2000 -------------------------------------- -------------------------------------- Carrying Fair Carrying Fair Amount Value Amount Value -------------------------------------- -------------------------------------- Financial Assets Cash and due from banks $ 28,494 $ 28,494 $ 26,506 $ 26,506 Federal funds sold and Due From Time 111,229 111,245 25,820 25,820 Securities 144,224 144,290 145,304 144,617 Loans 387,798 391,146 370,125 366,096 Allowance for loan losses (5,537) (5,537) (5,440) (5,440) Financial Liabilities Deposits 606,777 608,239 501,824 501,362 Short Term Borrowings 16,831 16,829 28,438 28,441 Off-balance Sheet Financial Instruments Loan commitments 121,642 113,787 Letters of credit 5,369 3,353
18 NOTE 22 - Comprehensive Income - ------- The Corporation has adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income". This new standard requires an entity to report and display comprehensive income and its components. Comprehensive income is as follows (in thousands):
Three Months Ended March 31, Year Ended -------------------------------- December 31, 2001 2000 2000 ------------ ----------- ----------- Net Income $2,111 $2,450 $ 8,976 Other Comprehensive Income: Unrealized gain (loss) on securities available-for-sale, net of tax 874 (312) 1,471 ------ ------ ------- Comprehensive Income $2,985 $2,138 $10,447 ====== ====== =======
19 Item 2 - Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations - ------------- Summary - ------- Management's Discussion and Analysis of Financial Condition and Results of Operations of the Corporation analyzes the major elements of the Corporation's consolidated balance sheets and statements of income. This discussion should be read in conjunction with the consolidated financial statements and accompanying notes. Net income for the first quarter of 2001 was $2,111,000, or $.32 diluted earnings per share, compared with $2,450,000, or $.37 diluted earnings per share, for the first quarter of 2000. On a per share basis, diluted earnings per share decreased 13.5% over the first quarter of the prior year. For the first quarter of 2001 net income was impacted negatively by merger-related expenses of $598,000 before tax effect. After taxes the amount was $392,000 or $.06 per diluted share. Per share amounts are based on average diluted shares outstanding of 6,526,283 for the first three months of 2001 and 6,547,907 for the comparable period of 2000 adjusted to reflect stock options granted. Outstanding loans at March 31, 2001 of $387.8 million represented an increase of $17.7 million, or 4.8%, over March 31, 2000 and an increase of $7.8 million, or 2.0%, from December 31, 2000. Total deposits at March 31, 2001 of $606.8 million represented an increase of $105.0 million, or 20.9%, over March 31, 2000 and an increase of $67.1 million, or 12.4%, from December 31, 2000. At March 31, 2001, deposits included approximately $72.0 million of funds that are not considered core deposits and remained on deposit for a short time. The following table summarizes the Corporation's performance for the three months ended March 31, 2001 and 2000 (tax equivalent basis and dollars in thousands).
Three Months Ended March 31, 2001 2000 ------------- ------------ Interest Income $12,088 $11,153 Interest Expense 4,900 4,091 ------- ------- Net Interest Income 7,188 7,062 Provision for Loan Loss 180 232 ------- ------- Net Interest Income After Provision for Loan Loss 7,008 6,830 Non-Interest Income 1,038 908 Non-Interest Expense 4,823 3,993 ------- ------- Income Before Income Tax 3,223 3,745 Income Tax Expense 1,112 1,295 Net Income $ 2,111 $ 2,450 ======= ======= Net Income per Share- Basic $ 0.33 $ 0.38 Diluted 0.32 0.37 Return on Average Assets 1.38% 1.74% Return on Average Stockholders' Equity 15.15% 20.06%
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 2001 and 2000 (rates on tax equivalent basis).
Three Months Ended March 31, ------------------------------------------------------------------------------------- 2001 2000 -------------------------------------------- -------------------------------------- Average Average Average Average Balances Interest Yield/Rate Balances Interest Yield/Rate ---------------- ---------- ------------ ----------- ---------- ------------ (Dollars in Thousands) Earning Assets: Federal Funds Sold & Due From Time $ 64,286 $ 854 5.39% $ 13,068 $ 184 5.68% Investment Securities (Taxable) 137,519 2,145 6.33% 148,404 2,279 6.18% Investment Securities (Tax-exempt) 240 5 7.65% 491 9 7.29% Loans, Net of Unearned Discount(1) 381,849 9,084 9.65% 364,750 8,681 9.57% ---------------- --------- ----------- ---------- --------- ----------- Total Earning Assets 583,894 12,088 8.40% 526,713 11,153 8.52% --------- --------- Non-interest Earning Assets: Cash and Due From Banks 23,317 24,115 Other Assets 18,506 19,293 Allowance for Loan Losses (5,464) (5,309) ---------------- ---------- Total Assets $620,253 $564,812 ================ ========== Interest-Bearing Liabilities: Interest-Bearing Transaction Accounts and Money Market Funds $167,548 1,394 3.38% $159,846 1,432 3.60% Savings 98,511 1,085 4.47% 96,059 1,059 4.43% Savings Certificates 83,365 1,248 6.07% 58,607 727 4.99% Certificates of Deposit $100,000 or more 61,842 950 6.23% 39,275 512 5.24% Other Time 778 12 6.29% 778 10 5.38% Other Borrowings 18,724 211 4.58% 29,483 351 4.79% ---------------- --------- ----------- ---------- --------- ----------- Total Interest-Bearing Liabilities 430,768 4,900 4.61% 384,048 4,091 4.28% --------- --------- Non-interest Bearing Liabilities: Demand Deposits 129,967 130,197 Other Liabilities 3,005 1,460 Shareholders' Equity 56,513 49,107 ---------------- ---------- Total Liabilities and Shareholders' Equity $620,253 $564,812 ================ ========== Net Interest Income and Margin (Tax-equivalent Basis)(2) $ 7,188 4.99% $ 7,062 5.39% ========= =========
(1) Loan interest income includes fees and loan volumes include loans on non- accrual. (2) Presented on tax equivalent basis ("T/E") using a federal income tax rate of 34% both years. 21 Net Interest Income - ------------------- Net interest income (tax equivalent) for the first quarter of 2001 was $7,188,000 which represented an increase of $126,000 or 1.8%, over the first quarter of 2000. In this same period, total interest income increased 8.4% and total interest expense increased 19.8% and reflects a 150 basis point decrease in market interest rates from the first of January 2001 to mid-March 2001. The following table summarizes the effects of changes in interest rates, average volumes of earning assets and interest bearing liabilities on net interest income (tax equivalent) for the periods ended March 31, 2001 and 2000.
ANALYSIS OF CHANGES IN NET INTEREST INCOME (Dollars in Thousands) 1st Qtr. 2001 vs. 1st Qtr. 2000 1st Qtr. 2000 vs. 1st Qtr. 1999 Increase (Decrease) Increase (Decrease) Due to Changes in: Due to Changes in: -------------------------------------- ------------------------------------ Volume Rate Total Volume Rate Total ----------- --------- ---------- ----------- -------- --------- Interest Earning Assets: Federal Funds Sold $ 737 $(67) $ 670 $ (403) $284 $ (119) Investment Securities (Taxable) (434) 300 (134) 48 159 207 Investment Securities (Tax-exempt) (7) 3 (4) (9) 3 (6) Loans, Net of Unearned Discount 345 58 403 1,304 368 1,672 -------- ------- -------- ------- ------ -------- Total Interest Income 641 294 935 940 814 1,754 -------- ------- -------- ------- ------ -------- Interest-Bearing Liabilities: Deposits 615 334 949 312 334 646 Other Borrowings (125) (15) (140) 138 53 191 -------- ------- -------- ------- ------ -------- Total Interest Expense 490 319 809 450 387 837 -------- ------- -------- ------- ------ -------- Net Interest Income $ 151 $(25) $ 126 $ 490 $427 $ 917 ======== ======= ======== ======= ====== ========
Allowance for Loan Losses and Non-Performing Assets - --------------------------------------------------- The Corporation's allowance for loan losses was $5,537,000, or 1.43% of total loans, as of March 31, 2001 compared to $5,440,000, or 1.47% of total loans, as of March 31, 2000. Transactions in the provision for loan losses are summaried as follows (in thousands):
Three Months Ended March 31, ---------------------- 2001 2000 --------- -------- Balance, Beginning of Period $5,399 $5,169 Provisions, Charged to Income 180 232 Loans Charged-Off (90) (31) Recoveries of Loans Previously Charged-Off 48 70 -------- ------- Net Loans (Charged-Off) Recovered (42) 39 -------- ------- Balance, End of Period $5,537 $5,440 ======== =======
For the Three Months ended March 31, 2001 and 2000, net charge-offs were .01% and (.01)% of loans, respectively, not annualized. 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, 2001 2000 2000 2000 2000 ------- -------- -------- --------- ------- Non-Accrual Loans $2,904 $2,182 $5,273 $5,440 $2,518 Renegotiated Loans -0- -0- -0- 1 2 Other Real Estate Owned and Other Foreclosed Assets 1,348 1,595 1,329 1,343 1,945 ------- -------- -------- -------- ------- Total Non-Performing Assets $4,252 $3,777 $6,602 $6,784 $4,465 ======= ======== ======== ======== ======= March 31, December 31, September 30, June 30, March 31, 2001 2000 2000 2000 2000 ------- -------- -------- --------- ------- As a Percent of: Total Assets 0.62% 0.61% 1.11% 1.16% 0.77% Total Loans and Other Real Estate/ Foreclosed Assets 1.10% 0.99% 1.73% 1.79% 1.20% Loans Past Due 90 days or More and Still Accruing $ 32 $ 10 $ -0- $ -0- $ 105
Non-accrual loans to total loans were .75% at March 31, 2001 and non- performing assets were 1.10% of loans and other real estate owned at the same date. As of March 31, 2001, the Company had two large credits that were on non- accrual loan status and represented 73% of the Company's non-performing loans. The first with a balance of approximately $1.3 million has been on non-accrual status since the second quarter of 1998. The balance of this loan has been reduced from approximately $2.1 million as the borrower has continued to make monthly payments. These payments, principal and interest, have reduced the balance. The second large credit was placed on non-accrual status in the current quarter. A reserve of $.5 million has been allocated for this credit. This loan has a balance of approximately $.9 million and some amount of charge- off is expected on this credit before year-end. The balance of Other Real Estate Owned as of March 31, 2001, was $283,000. Of this balance, $230,000 is projected to be sold in the second quarter at a gain. Also the Company has $1.1 million in Other Foreclosed Assets which represents an inventory of textbooks. These assets are in process of liquidation, however the process is expected to take several months. The cost of liquidation is recorded as a current period expense and all proceeds from sale of inventory reduces the carrying-value of the inventory. The following table summarizes the relationship between non-performing loans, criticized loans and the allowance for loan losses (dollars in thousands).
March 31, December 31, September 30, June 30, March 31, 2001 2000 2000 2000 2000 ------- -------- -------- -------- --------- Non-Performing Loans $ 2,904 $ 2,182 $ 5,273 $ 5,441 $ 2,520 Criticized Loans 11,586 11,536 16,562 13,064 12,367 Allowance for Loan Losses 5,537 5,399 6,918 6,899 5,440 Allowance for Loan Losses as a Percent of: Non-Performing Loans 191% 247% 131% 127% 216% Criticized Loans 48 47 42 53 44
23 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, ------------------------------ 2001 2000 % Change --------- ------- ---------- Service Charges on Deposit Accounts $ 554 $ 482 15.0 % Non-recurring Income -0- 61 - Other Non-interest Income 484 365 32.6 -------- ------ --------- Total Non-interest Income $1,038 $ 908 14.3 ======== ====== =========
The increase in other non-interest income in the first quarter of 2001 is primarily due to increases in mortgage brokerage/origination fees and fees earned on investment services to customers. Non-interest Expense - -------------------- Non-interest expenses include all expenses other than interest expense, provision for loan losses 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, ------------------------------------ 2001 2000 % Change --------- ----------- ------------ Salaries & Employee Benefits $2,539 $2,357 7.7 % Occupancy Expense - Net 309 258 19.8 Furniture and Equipment Expense 361 338 6.8 Other Real Estate Expense - Net (6) (12) 50.0 Merger Related Expense 598 # -0- - Other Expenses: Business Development 137 176 (22.2) Insurance - Other 33 27 22.2 Legal & Professional Fees 158 188 (16.0) Taxes - Other 36 56 (35.7) Postage & Courier 86 83 3.6 Printing & Supplies 78 100 (22.0) Regulatory Fees & Assessments 63 60 5.0 Other Operating Expenses 431 362 19.1 ------- ------- ------- Total Other Expenses 1,022 1,052 (2.9) ------- ------- ------- Total Non-interest Expense $4,823 $3,993 20.8 ======= ======= =======
Total non-interest expense increased 20.8% in the first quarter of 2001 over 2000, reflecting increases in salaries and benefits, occupancy expense, merger related expenses, and other operating expenses partially offset by decreases in business development expense, legal and professional expense and state franchise taxes. As a percent of average assets, non-interest expenses were 3.16% in the first quarter of 2001 (annualized) and 2.83% in the same period of 2000. The "efficiency ratio" (non-interest expenses divided by total non-interest income plus net interest income) was 58.7% for the first quarter of 2001. The increase in occupancy expense is primarily due to a decline in rent income because of a vacancy at one bank facility that has third party rental space. The property has subsequently been rented. The Merger Related Expenses include expenses, accrued and incurred, related to the merger of the Company's two banking subsidiaries and its non-banking subsidiary to form one unit. The expenses include the cost of severance payment to a former chief executive officer of one of the units, legal and professional fees and expenses related to the name change of Summit Bank, N.A. Other Operating Expense in the first quarter of 2001 includes $88,000 of expense related to Other Foreclosed Assets. These expenses are the costs to liquidate the inventory of textbooks. 24 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, 2001 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 31-180 181 to One Year Non-interest or Less Days One Year or Less Sensitive Total ------------ ---------- ---------- ---------- ------------ --------- Earning Assets: Loans $224,655 $ 22,890 $ 13,960 $261,505 $126,293 $387,798 Investment Securities 23,348 32,618 32,899 88,865 55,359 144,224 Federal Funds Sold and Due From Time 111,229 -0- - 0- 111,229 -0- 111,229 --------- ---------- ---------- ---------- ------------ --------- Total Earning Assets 359,232 55,508 46,859 461,599 181,652 643,251 --------- ---------- ---------- ---------- ------------ --------- Interest Bearing Liabilities: Interest-Bearing Transaction Accounts and Savings 327,907 -0- -0- 327,907 -0- 327,907 Certificate of Deposits >$100,000 9,923 35,868 13,033 58,824 3,711 62,535 Other Time Deposits 6,425 42,206 26,840 75,471 8,869 84,340 Short Term Borrowings 16,831 -0- -0- 16,831 -0- 16,831 --------- ---------- ---------- ---------- ------------ --------- Total Interest Bearing Liabilities 361,086 78,074 39,873 479,033 12,580 491,613 --------- --------- ---------- ---------- ------------ --------- Interest Sensitivity Gap $ (1,854) $(22,566) $ 6,986 $(17,434) $169,072 $151,638 ========= ========= ========== ========== ============ ========= Cumulative Gap $ (1,854) $(24,420) $(17,434) ========= ========= ========== Cumulative Gap to Total Earning Assets (0.29%) (3.80%) (2.71%) Cumulative Gap to Total Assets (0.27%) (3.56%) (2.54%)
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 (2.54%) was reversed to a positive 15.12% "beta adjusted" gap position. Management feels that the "beta adjusted" gap risk technique more accurately reflects the Corporation's gap position. 25 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 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. The Federal Reserve Board and Comptroller of the Currency also have risk- adjusted capital adequacy guidelines. 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, 2001, the Corporation's Tier I capital represented 13.2% of risk weighted assets and total qualifying capital (Tier I and Tier II) represented 14.4% of risk weighted assets. Both ratios are well above current regulatory guidelines. Also, as of March 31, 2001, the Corporation and its Subsidiary Banks met the criteria for classification as a "well-capitalized" institution under the rules of the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). The Corporation and Subsidiary Banks' regulatory capital positions as of March 31, 2001, were as follows:
For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions ------------------- ----------------------- ------------------------- Amount Ratio Amount Ratio Amount Ratio --------- -------- ------------ ------- ------------- ---------- CONSOLIDATED: As of March 31, 2001 Total Capital (to Risk Weighted Assets) $61,502 14.49% $33,963 8.00% Tier I Capital (to Risk Weighted Assets) 56,193 13.24% 16,982 4.00% Tier I Capital (to Average Assets) 56,193 9.06% 18,608 3.00% SUMMIT NATIONAL BANK: As of March 31, 2001 Total Capital (to Risk Weighted Assets) $23,686 14.65% $12,932 8.00% $16,165 10.00% Tier I Capital (to Risk Weighted Assets) 21,998 13.61% 6,466 4.00% 9,699 6.00% Tier I Capital (to Average Assets) 21,998 9.18% 7,189 3.00% 11,981 5.00% 5 SUMMIT COMMUNITY BANK, N.A.: As of March 31, 2001 Total Capital (to Risk Weighted Assets) $33,577 13.01% $20,650 8.00% $25,813 10.00% Tier I Capital (to Risk Weighted Assets) 30,343 11.76% 10,325 4.00% 15,488 6.00% Tier I Capital (to Average Assets) 30,343 8.04% 11,324 3.00% 18,874 5.00% 5
Forward-Looking Statements - -------------------------- The Corporation may from time to time make forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) with respect to earnings per share, credit quality, expected Year 2001 compliance program, corporate objectives and other financial and business matters. The Corporation cautions the reader that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, including economic conditions; actions taken by the Federal Reserve Board; legislative and regulatory actions and reforms; competition; as well as other reasons, all of which change over time. Actual results may differ materially from forward-looking statements. 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) During February a report on Form 8-K was filed reflecting a transaction made by Philip E. Norwood, Chairman of the Board of the Corporation. Mr. Norwood sold 12,000 shares of common stock of the Corporation. The sale of stock was made for the purpose of gaining cash to be used to pay Federal Income Taxes related to the exercise of stock options in 2000 previously granted to this individual. 27 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: 04-23-01 By: /s/ Philip E. Norwood -------- ----------------------------------- Philip E. Norwood, Chairman & President Date: 04-23-01 By: /s/ Bob G. Scott -------- ----------------------------------- Bob G. Scott, Executive Vice President and Chief Operating Officer (Chief Accounting Officer) 28 EXHIBIT INDEX Exhibit Page No. ------- -------- 11 Computation of Earnings Per Common Share 30 29 EX-11 2 dex11.txt COMPUTATION OF EARNINGS PER COMMON SHARE 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 15 of the Notes to Consolidated Financial Statements for the Periods of Three Months Ended March 31, 2001 and 2000 (unaudited) and the Year Ended December 31, 2000 (audited), contained in the Quarterly Report on Form 10-Q of registrant for the quarter Ended March 31, 2001. -----END PRIVACY-ENHANCED MESSAGE-----