-----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, BSZ3Qhjw7DQPSfwjBlmSzlm4nNBHtGpBRU3+d0zAnx+KtGL9fs1lJP/pLbNUDX4E KxRYzHswjXuP4F9IqKrC8g== 0000930661-97-001834.txt : 19970807 0000930661-97-001834.hdr.sgml : 19970807 ACCESSION NUMBER: 0000930661-97-001834 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970806 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: 97652167 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 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 June 30, 1997; 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 June 30, 1997 was 3,236,286 shares. SUMMIT BANCSHARES, INC. INDEX PART I - FINANCIAL INFORMATION PAGE NO. Item 1. Financial Statements Consolidated Balance Sheets at June 30, 1997 and 1996 and at December 31, 1996 4 Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 1997 and 1996 and for the Year Ended December 31, 1996 5-6 Consolidated Statements of Changes in Shareholders' Equity for the Six Months Ended June 30, 1997 and 1996 and for the Year Ended December 31, 1996 7 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1996 and for the Year Ended December 31, 1996 8-9 Notes to Consolidated Financial Statements for the Six Months Ended June 30, 1997 and 1996 and for the Year Ended December 31, 1996 10-21 The June 30, 1997 and 1996 and the December 31, 1996 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 Six Months Ended June 30, 1997 and 1996 22-28 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) June 30, (Unaudited) ---------------------- December 31, 1997 1996 1996 ---------- ---------- ------------ ASSETS (In Thousands) CASH AND DUE FROM BANKS - NOTE 1 $ 28,170 $ 21,854 $ 28,339 FEDERAL FUNDS SOLD 10,900 14,815 20,350 INVESTMENT SECURITIES - NOTE 2 Securities Available-for-Sale, at fair value 61,276 59,700 58,576 Securities Held-to-Maturity, at cost (fair value of 52,379 66,420 58,437 $52,462,000, $65,797,000, and $58,629,000 June 30, 1997 and 1996 and December 31, 1996, respectively) LOANS - NOTE 3 Loans, Net of Unearned Discount 246,816 201,973 220,006 Allowance for Loan Losses (3,512) (2,829) (2,972) -------- -------- -------- LOANS, NET 243,304 199,144 217,034 PREMISES AND EQUIPMENT - NOTE 4 7,665 7,320 7,105 ACCRUED INCOME RECEIVABLE 3,310 3,491 3,189 OTHER REAL ESTATE - NOTE 5 151 172 166 OTHER ASSETS 2,776 2,033 2,052 -------- -------- -------- TOTAL ASSETS $409,931 $374,949 $395,248 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY DEPOSITS - NOTE 6 Noninterest-Bearing Demand $105,226 $ 94,051 $103,695 Interest-Bearing 255,723 235,419 241,328 -------- -------- -------- TOTAL DEPOSITS 360,949 329,470 345,023 SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE - NOTE 7 9,027 11,514 13,209 ACCRUED INTEREST PAYABLE 616 581 638 OTHER LIABILITIES 1,466 1,391 1,298 -------- -------- -------- TOTAL LIABILITIES 372,058 342,956 360,168 -------- -------- -------- COMMITMENTS AND CONTINGENCIES - NOTE 11 SHAREHOLDERS' EQUITY - NOTES 12, 14 AND 18 Common Stock - $1.25 Par Value; 20,000,000 shares authorized; 3,236,286, 3,209,386 and 3,233,036 shares issued and outstanding at June 30, 1997 and 1996 and at December 31, 1996, respectively 4,045 4,012 4,041 Capital Surplus 4,183 4,121 4,167 Retained Earnings 29,505 23,979 26,644 Unrealized Gain (Loss) on Investment Securities Available for Sale, Net of Tax 140 (119) 228 -------- -------- -------- TOTAL SHAREHOLDERS' EQUITY 37,873 31,993 35,080 -------- -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $409,931 $374,949 $395,248 ======== ======== ========
The accompanying Notes should be read with these financial statements. 4 SUMMIT BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) For the Six Months (Unaudited) Ended June 30, Year Ended ------------------ December 31, 1997 1996 1996 ------- ------- ------- (In Thousands, Except Per Share Data) INTEREST INCOME Interest and Fees on Loans $11,330 $ 9,060 $19,274 Interest and Dividends on Investment Securities: Taxable 3,538 3,666 7,405 Exempt from Federal Income Taxes 9 1 1 Interest on Federal Funds Sold 319 492 897 ------- ------- ------- TOTAL INTEREST INCOME 15,196 13,219 27,577 ------- ------- ------- INTEREST EXPENSE Interest on Deposits 4,996 4,488 9,243 Interest on Securities Sold Under Agreements to Repurchase 257 236 528 ------- ------- ------- TOTAL INTEREST EXPENSE 5,253 4,724 9,771 ------- ------- ------- NET INTEREST INCOME 9,943 8,495 17,806 LESS: PROVISION FOR LOAN LOSSES - NOTE 3 352 288 819 ------- ------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 9,591 8,207 16,987 ------- ------- ------- NON-INTEREST INCOME Service Charges and Fees on Deposits 900 787 1,645 Loss on Sale of Investment Securities -0- (7) (14) Other Income 682 680 1,345 ------- ------- ------- TOTAL NON-INTEREST INCOME 1,582 1,460 2,976 ------- ------- ------- NON-INTEREST EXPENSE Salaries and Employee Benefits 3,575 3,352 6,753 Occupancy Expense - Net 387 387 772 Furniture and Equipment Expense 431 400 800 Other Real Estate Owned Expense - Net (8) 16 10 Other Expense 1,537 1,425 2,582 ------- ------- ------- TOTAL NON-INTEREST EXPENSE 5,922 5,580 10,917 ------- ------- ------- INCOME BEFORE INCOME TAXES 5,251 4,087 9,046 APPLICABLE INCOME TAXES - NOTE 9 1,807 1,407 3,103 ------- ------- ------- NET INCOME $ 3,444 $ 2,680 $ 5,943 ======= ======= ======= NET INCOME PER SHARE - NOTE 14 $ 1.06 $ .84 $ $1.86 ======= ======= =======
The accompanying Notes should be read with these financial statements. 5 SUMMIT BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) For the Three Months Ended June 30, -------------------------- 1997 1996 ------ ------ (In Thousands, Except Per Share Data) INTEREST INCOME Interest and Fees on Loans $5,946 $4,627 Interest and Dividends on Investment Securities: Taxable 1,802 1,876 Exempt from Federal Income Taxes 6 -0- Interest on Federal Funds Sold 116 218 ------ ------ TOTAL INTEREST INCOME 7,870 6,721 ------ ------ INTEREST EXPENSE Interest on Deposits 2,586 2,242 Interest on Securities Sold Under Agreements to Repurchase 127 119 ------ ------ TOTAL INTEREST EXPENSE 2,713 2,361 ------ ------ NET INTEREST INCOME 5,157 4,360 LESS: PROVISION FOR LOAN LOSSES - NOTE 3 197 164 ------ ------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,960 4,196 ------ ------ NON-INTEREST INCOME Service Charges and Fees on Deposits 463 402 Loss on Sale of Investment Securities -0- (10) Other Income 357 339 ------ ------ TOTAL NON-INTEREST INCOME 820 731 ------ ------ NON-INTEREST EXPENSE Salaries and Employee Benefits 1,828 1,697 Occupancy Expense - Net 190 207 Furniture and Equipment Expense 220 203 Other Real Estate Owned Expense - Net (5) 21 Other Expense 843 674 ------ ------ TOTAL NON-INTEREST EXPENSE 3,076 2,802 ------ ------ INCOME BEFORE INCOME TAXES 2,704 2,125 APPLICABLE INCOME TAXES - NOTE 9 932 730 ------ ------ NET INCOME $1,772 $1,395 ====== ====== NET INCOME PER SHARE - NOTE 14 $ .54 $ .43 ====== ======
The accompanying Notes should be read with these financial statements. 6 SUMMIT BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 AND FOR THE YEAR ENDED DECEMBER 31, 1996 (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, 1996 3,149,886 $3,937 $4,109 $21,745 $ 334 $ -0- $30,125 Net Income for the Six Months Ended June 30, 1996 2,680 2,680 Stock Options Exercised 59,500 75 12 87 Cash Dividend $.14 Per Share (446) (446) Securities Available-for- Sale Adjustment (453) (453) --------- ------ ------ ------- ----- ----- ------- BALANCE AT JUNE 30, 1996 3,209,386 4,012 4,121 23,979 (119) -0- 31,993 Net Income for the Six Months Ended December 31, 1996 3,263 3,263 Stock Options Exercised 32,650 40 46 86 Purchases of Stock Held in Treasury (157) (157) Retirement of Stock Held In Treasury (9,000) (11) (146) 157 -0- Cash Dividend $.14 Per Share (452) (452) Securities Available-for- Sale Adjustment 347 347 --------- ------ ------ ------- ----- ----- ------- BALANCE AT DECEMBER 31, 1996 3,233,036 4,041 4,167 26,644 228 -0- 35,080 Net Income for the Six Months Ended June 30, 1997 3,444 3,444 Stock Options Exercised 3,250 4 16 20 Cash Dividend $.18 Per Share (583) (583) Securities Available-for- Sale Adjustment (88) (88) --------- ------ ------ ------- ----- ----- ------- BALANCE AT JUNE 30, 1997 3,236,286 $4,045 $4,183 $29,505 $ 140 $ -0- $37,873 ========= ====== ====== ======= ====== ===== =======
The accompanying Notes should be read with these financial statements. 7 SUMMIT BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 AND FOR THE YEAR ENDED DECEMBER 31, 1996
(Unaudited) June 30, (Unaudited) --------------------- December 31, 1997 1996 1996 --------- --------- ------------ (In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 3,444 $ 2,680 $ 5,943 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 396 376 762 Net Premium Amortization of Investment Securities 44 180 310 Provision for Loan Losses 352 288 819 Deferred Income Taxes (Benefit) 48 (13) (159) Loss on Sale of Investment Securities -0- 7 14 Writedown of Other Real Estate 4 6 12 Net Gain on Sale of Other Real Estate (21) -0- -0- Net (Gain) Loss on Sale of Premises and Equipment (1) 1 (1) Increase in Accrued Income and Other Assets (887) (548) (270) Increase in Accrued Expenses and Other Liabilities 146 317 280 -------- -------- -------- Total Adjustments 81 614 1,767 -------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 3,525 3,294 7,710 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Net Decrease in Federal Funds Sold 9,450 10,865 5,330 Proceeds from Matured and Prepaid Investment Securities . Held-to-Maturity 9,494 12,150 20,001 . Available-for-Sale 8,172 10,438 20,486 Proceeds from Sales of Investment Securities 3,505 9,016 14,527 Purchase of Investment Securities . Held-to-Maturity (7,029) (15,164) (19,174) . Available-for-Sale (10,961) (24,066) (33,969) Loans Originated and Principal Repayments, Net (26,842) (23,677) (42,171) Recoveries of Loans Previously Charged-Off 259 68 115 Proceeds from Sale of Other Real Estate 32 -0- -0- Proceeds from Sale of Premises and Equipment 1 1 1 Purchases of Premises and Equipment (956) (539) (710) -------- -------- -------- NET CASH USED BY INVESTING ACTIVITIES (14,875) (20,908) (35,564) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net Increase in Demand Deposits, Savings Accounts and Interest Bearing Transaction Accounts 10,341 20,467 36,011 Net Increase (Decrease) in Certificates of Deposit 5,585 (1,106) (1,097) Net Decrease in Repurchase Agreements (4,182) (2,014) (319) Payments of Cash Dividends (583) (446) (898) Purchase of Treasury Stock -0- -0- (157) Proceeds from Stock Options Exercised 20 87 173 -------- -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 11,181 16,988 33,713 -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (169) (626) 5,859 CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 28,339 22,480 22,480 -------- -------- -------- CASH AND DUE FROM BANKS AT END OF PERIOD $ 28,170 $ 21,854 $ 28,339 ======== ======== ========
8 SUMMIT BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONT'D FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 AND FOR THE YEAR ENDED DECEMBER 31, 1996 (Unaudited) SUPPLEMENTAL SCHEDULE OF OPERATING AND INVESTING ACTIVITIES:
(Unaudited) June 30, (Unaudited) -------------- December 31, 1997 1996 1996 ------ ------ ------------ (In Thousands) (1) Interest Paid $5,275 $4,778 $9,769 (2) Income Taxes Paid 1,866 1,468 3,285 (3) Other Real Estate Acquired in Settlement of Loans -0- 65 65
9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SUMMIT BANCSHARES, INC. AND SUBSIDIARIES FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND FOR THE YEAR ENDED DECEMBER 31, 1996 (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 and Summit Community Bank, National Association (the "Subsidiary Banks") and Summit Bancservices, Inc., a wholly-owned operations subsidiary. 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 six months of 1997 the average cash balance maintained at the Federal Reserve Bank was $3,876,000. Compensating balances held at correspondent banks, to minimize service charges, averaged approximately $14,075,000 during the same period. Investment Securities --------------------- The Corporation follows Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" in 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. In 1997 and 1996 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. 10 NOTE 1 - Summary of Significant Accounting Policies (cont'd.) - ------ 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. The Corporation follows 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 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. 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 1996 financial statements to conform to the 1997 presentation. 11 NOTE 1 - Summary of Significant Accounting Policies (cont'd.) - ------ Audited Financial Statements ---------------------------- The consolidated balance sheet as of December 31, 1996, and the consolidated statements of income, changes in shareholders' equity and cash flows for the year ended December 31, 1996 are headed "unaudited" in these financial statements. These statements were reported in the Securities Exchange Commission Form 10-K as of December 31, 1996 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):
June 30, 1997 --------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ----------- --------- Investment Securities - Held-to-Maturity U.S. Treasury Securities $ 23,980 $108 $ (57) $ 24,031 U.S. Government Agencies and Corporations 18,113 28 (40) 18,101 U.S. Government Agency Mortgage Backed Securities 9,693 59 (18) 9,734 Obligations of States and Political Subdivisions 593 3 -0- 596 -------- ---- ----- -------- Total Held-to-Maturity Securities 52,379 198 (115) 52,462 -------- ---- ----- -------- Investment Securities - Available-for-Sale U.S. Treasury Securities 55,445 249 (113) 55,581 U.S. Government Agencies and Corporations 2,988 20 -0- 3,008 U.S. Government Agency Mortgage Backed Securities 2,377 56 -0- 2,433 Federal Reserve Bank Stock 254 -0- -0- 254 -------- ---- ----- -------- Total Available-for-Sale Securities 61,064 325 (113) 61,276 -------- ---- ----- -------- Total Investment Securities $113,443 $523 $(228) $113,738 ======== ==== ===== ========
In the above schedule the amortized cost of Total Held-to-Maturity -------------- Securities of $52,379,000 and the fair value of Total Available-for-Sale ---------- Securities of $61,276,000 are reflected in Investment Securities on the consolidated balance sheet as of June 30, 1997 for a total of $113,655,000. A net unrealized gain of $212,000 is included in the Available-for-Sale Investment Securities balance. The unrealized gain, net of tax, is included in Shareholders' Equity. 12 NOTE 2 - Investment Securities (cont'd.) - ------ Investment securities with carrying value of $35,498,000 at June 30, 1997, 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 $35,499,000 at June 30, 1997.
June 30, 1996 --------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ----------- --------- Investment Securities - Held-to-Maturity U.S. Treasury Securities $ 31,044 $109 $ (243) $ 30,910 U.S. Government Agencies and Corporations 24,802 4 (344) 24,462 U.S. Government Agency Mortgage Backed Securities 10,574 5 (154) 10,425 -------- ---- ------- -------- Total Held-to-Maturity Securities 66,420 118 (741) 65,797 -------- ---- ------- -------- Investment Securities - Available-for-Sale U.S. Treasury Securities 51,530 160 (396) 51,294 U.S. Government Agencies and Corporations 4,490 35 (18) 4,507 U.S. Government Agency Mortgage Backed Securities 3,606 49 (10) 3,645 Federal Reserve Bank Stock 254 -0- -0- 254 -------- ---- ------- -------- Total Available-for-Sale Securities 59,880 244 (424) 59,700 -------- ---- ------- -------- Total Investment Securities $126,300 $362 $(1,165) $125,497 ======== ==== ======= ========
In the above schedule the amortized cost of Total Held-to-Maturity -------------- Securities of $66,420,000 and the fair value of Total Available-for-Sale ---------- Securities of $59,700,000 are reflected in Investment Securities on the consolidated balance sheet as of June 30, 1996 for a total of $126,120,000. A net unrealized loss of $180,000 is included in the Available-for-Sale Investment Securities balance. The unrealized loss, net of tax, is included in Shareholders' Equity. Proceeds from sales of securities were $3,505,000 and $9,016,000 during the first six months of 1997 and 1996, respectively and $14,527,000 during the year 1996. In the six months ended June 30, 1997, gains of $2,000 and losses of $2,000 were realized. In the six months ended June 30, 1996, gains of $11,000 and losses of $18,000 were realized. For the year ended December 31, 1996, losses from sales of securities of $27,000 were realized, but were partially offset by gains of $13,000. NOTE 3 - Loans and Allowance for Loan Losses - ------ The book values of loans by major type follow (in thousands):
June 30, ---------------------- December 31, 1997 1996 1996 ---- ---- ---- Commercial $118,311 $ 94,263 $103,414 Real Estate Mortgage 78,459 69,730 76,771 Real Estate Construction 21,430 13,258 12,862 Loans to Individuals 29,370 25,412 27,674 Less: Unearned Discount (754) (690) (715) -------- -------- -------- 246,816 201,973 220,006 Allowance for Loan Losses (3,512) (2,829) (2,972) -------- -------- -------- Loans - Net $243,304 $199,144 $217,034 ======== ======== ========
13 NOTE 3 - Loans and Allowance for Loan Losses (cont'd.) - ------ Transactions in the allowance for loan losses are summarized as follows (in thousands):
Six Months Ended June 30, Year Ended -------------------------- December 31, 1997 1996 1996 ------ ------ ------------ Balance, Beginning of Period $2,972 $2,500 $2,500 Provisions, Charged to Income 352 288 819 Loans Charged-Off (71) (27) (462) Recoveries of Loans Previously Charged-Off 259 68 115 ------ ------ ------ Net Loans (Charged-Off) Recovered 188 41 (347) ------ ------ ------ Balance, End of Period $3,512 $2,829 $2,972 ====== ====== ======
The provisions for loan losses charged to operating expenses during the six months ended June 30, 1997 and June 30, 1996 of $352,000 and $288,000, respectively, were considered adequate to maintain the allowance in accordance with the policy discussed in Note 1. For the year ended December 31, 1996, a provision of $819,000 was recorded. At June 30, 1997, the recorded investment in loans that are considered to be impaired under Statement of Financial Accounting Standards No. 114 was $433,000 (of which $433,000 were on non-accrual status). The related allowance for loan losses for these loans was $183,000. The average recorded investment in impaired loans during the six months ended June 30, 1997 was approximately $426,000. For this period the Corporation recognized interest income of $2,000 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):
June 30, ------------------ December 31, 1997 1996 1996 -------- -------- ------------ Land $ 2,170 $ 1,446 $ 1,446 Buildings and Improvements 7,375 7,359 7,375 Furniture & Equipment 5,415 5,146 5,182 ------- ------- ------- Total Cost 14,960 13,951 14,003 Less: Accumulated Amortization and Depreciation (7,295) (6,631) (6,898) ------- ------- ------- Net Book Value $ 7,665 $ 7,320 $ 7,105 ======= ======= =======
NOTE 5 - Other Real Estate - ------ The carrying value of other real estate is as follows (in thousands):
June 30, ------------------- December 31, 1997 1996 1996 -------- -------- ------------ Other Real Estate $ 186 $ 207 $ 201 Valuation Reserve (35) (35) (35) ----- ----- ----- Net Other Real Estate $ 151 $ 172 $ 166 ===== ===== =====
14 NOTE 5 - Other Real Estate (cont'd.) - ------ Transactions in the valuation reserve are summarized as follows (in thousands):
Six Months Ended June 30, Year Ended ------------------------- December 31, 1997 1996 1996 ------ ------ ------------ Balance, Beginning of Period $ 35 $ 35 $ 35 Provisions Charged to Income -0- -0- -0- Reductions from Sales -0- -0- -0- ---- ---- ---- Balance, End of Period $ 35 $ 35 $ 35 ==== ==== ====
Direct writedowns of other real estate charged to income were $4,000 for the six months ended June 30, 1997 and $6,000 for the six months ended June 30, 1996 and $12,000 for the year ended December 31, 1996. NOTE 6 - Deposits - ------ The book values of deposits by major type follow (in thousands):
June 30, --------------------- December 31, 1997 1996 1996 ---------- ---------- ------------ Noninterest-Bearing Demand Deposits $105,226 $ 94,051 $103,695 -------- -------- -------- Interest-Bearing Deposits: Interest-Bearing Transaction Accounts and Money Market Funds 128,077 115,327 119,316 Savings 49,600 47,641 49,048 Savings Certificates - Time 47,503 47,581 47,025 Certificates of Deposits $100,000 or more 29,838 24,431 25,434 Other 705 439 505 -------- -------- -------- Total 255,723 235,419 241,328 -------- -------- -------- Total Deposits $360,949 $329,470 $345,023 ======== ======== ========
NOTE 7 - Securities Sold Under Repurchase Agreements - ------ 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):
Six Months Ended June 30, Year Ended ------------------------- December 31, 1997 1996 1996 -------- -------- ------------- Securities Sold Under Repurchase Agreements: Average $12,038 $11,059 $12,181 Period-End 9,027 11,514 13,209 Maximum Month-End Balance During Period 13,212 12,199 14,453 Interest Rate Average 4.28% 4.31% 4.33% Period-End 4.50 4.31 4.35
15 NOTE 8 - Other Non-Interest Expense - ------ The significant components of other non-interest expense are as follows (in thousands):
Six Months Ended June 30, Year Ended ------------------------- December 31, 1997 1996 1996 ------ ------ ------------ Business Development $ 273 $ 218 $ 426 Legal and Professional Fees 248 205 442 Printing and Supplies 174 154 303 Regulatory Fees and Assessments 85 102 134 Other 757 746 1,277 ------ ------ ------ Total $1,537 $1,425 $2,582 ====== ====== ======
NOTE 9 - Income Taxes - ------ Federal income taxes included in the consolidated balance sheets were as follows (in thousands):
June 30, -------------- December 31, 1997 1996 1996 ---- ---- ------------ Current Tax Asset $ 37 $ 46 $ 26 Deferred Tax Asset 542 481 449 ---- ---- ---- Total Included in Other Assets $579 $527 $475 ==== ==== ====
The deferred tax asset at June 30, 1997 of $542,000 included $72,000 related to unrealized gains on Available-for-Sale Securities. The components of income tax expense were as follows (in thousands):
Six Months Ended June 30, Year Ended -------------------------- December 31, 1997 1996 1996 ------ ------ ------------ C> Federal Income Tax Expense Current $1,857 $1,420 $3,240 Deferred (50) (13) (137) ------ ------ ------ Total Federal Income Tax Expense $1,807 1,407 $3,103 ====== ====== ====== Effective Tax Rates 34.4% 34.4% 34.3% ====== ====== ======
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):
Six Months Ended June 30, Year Ended ------------------------- December 31, 1997 1996 1996 ------ ------ ------------ Federal Income Taxes at Statutory Rate of 34% $1,785 $1,389 $3,076 Effect of Tax Exempt Interest Income (5) (5) (8) Non-deductible Expenses 23 24 39 Other 4 (1) (4) ------ ------ ------ Income Taxes Per Income Statement $1,807 $1,407 $3,103 ====== ====== ======
16 NOTE 10 - 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 $3,819,000 at December 31, 1996. NOTE 11 - 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 June 30, 1997, outstanding documentary and standby letters of credit totaled $3,098,000 and commitments to extend credit totaled $82,853,000. NOTE 12 - Stock Option Plans - ------- The Corporation adopted an Incentive Stock Option Plan ("1993 Plan") with 300,000 shares (adjusted for the April 1993 and December 1995 two-for-one stock splits) of common stock reserved for grants thereunder. The Board of Directors and the Shareholders have approved a new plan, the 1997 Incentive Stock Option Plan ("1997 Plan"). The 1997 Plan reserved 300,000 shares for grants thereunder. These plans provide for the granting to management employees of Summit Bancshares, Inc. and subsidiaries, incentive stock options, as defined under the current tax law. The options will be exercisable for ten years from the date of grant and generally vest ratably over a five year period. Options under both plans will be 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, 1996, or the six months ended June 30, 1997. The following is a summary of transactions during the periods presented:
Shares Under Option ---------------------------------- Six Months Ended Year Ended June 30, 1997 December 31, 1996 -------------- ------------------ Outstanding, Beginning of Period 232,050 301,400 Additional Options Granted During the Period 36,076 29,800 Forfeited During the Period (400) (1,000) Exercised During the Period (3,250) (98,150) ------- ------- Outstanding, End of Period 264,476 232,050 ======= =======
Options outstanding at June 30, 1997 ranged in price from $6.00 to $26.38 per share with a weighted average exercise price of $8.12 and with 188,975 shares exercisable. At June 30, 1997, there remained 94 shares reserved for future grants of options under the 1993 Plan and 288,750 shares reserved for future grants of options under the 1997 Plan. NOTE 13 - 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. 17 NOTE 13 - 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):
1996 1995 -------- -------- Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $1,647,000 in 1996 and $1,152,000 in 1995 $1,762 $1,183 ====== ====== Projected benefit obligation for service rendered to date $1,997 $1,912 Plan assets at fair value, primarily listed stocks and U.S. bonds 2,192 1,786 ------ ------ Plan assets in excess of (less than) projected benefit obligation 195 (126) Unrecognized net loss from past experience different from that assumed and effect of changes in assumptions 21 197 Prior service cost not yet recognized in net periodic pension cost 15 17 ------ ------ Net pension cost included in other assets/(other liabilities) $ 231 $ (88) ====== ====== Prepaid (accrued) pension cost included the following components (in thousands): Year Ended December 31, ----------------------- 1996 1995 -------- -------- Service Cost - benefits earned during the period $ 195 $ 154 Interest cost on projected benefit obligation 131 140 Less: Actual return on plan assets (153) (260) Net amortization and deferral (2) 145 ------ ------ Net periodic pension cost $ 171 $ 179 ====== ======
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 percent and 5 percent, respectively. The expected long-term rate of return on plan assets was 8 percent. The market value of plan assets at June 30, 1997 was $2,747,000. There was a contribution to the plan during 1997 of $370,000 and prepaid pension cost at June 30, 1997 was $479,000. 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 $168,000 and $112,000 during the first six months of 1997 and 1996, respectively, and $239,000 for the year 1996. 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). 18 NOTE 14 - 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 Six Months Ended: June 30, 1997 3,235,245 June 30, 1996 3,173,646 Year Ended December 31, 1996 3,199,480
NOTE 15 - 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):
June 30, ----------------- 1997 1996 ------- ------- Financial Instruments Whose Contract Amounts Represent Credit Risk: Commitments to Extend Credit $82,853 $72,199 Documentary and Standby Letters of Credit 3,098 6,128
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 16 - 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 17 - 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. 19 NOTE 18 - Stock Repurchase Plan - ------- On April 15, 1997, the Board of Directors approved a stock repurchase plan. The plan authorized management to purchase up to 161,782 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 1996, 9,000 shares were purchased by the Corporation through a similar repurchase plan through the open market. Such shares were canceled and returned to authorized and unissued status. In the first six months of 1997, no shares were purchased. NOTE 19 - Subsequent Event - ------- On July 16, 1997, the Board of Directors of the Corporation approved a quarterly dividend of $.09 per share to be paid on August 15, 1997 to shareholders of record on August 1, 1997. NOTE 20 - 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. 20 NOTE 20 - Fair Values of Financial Instruments (cont'd.) - ------- The estimated fair values of the Corporation's financial instruments are as follows (in thousands):
June 30, -------------------------------------- 1997 1996 ------------------ ------------------ Carrying Fair Carrying Fair Amount Value Amount Value -------- -------- -------- -------- Financial Assets Cash and due from banks $ 28,170 $ 28,170 $ 21,854 $ 21,854 Federal funds sold 10,900 10,900 14,815 14,815 Securities 113,655 113,738 126,120 125,497 Loans 246,816 245,620 201,973 202,477 Financial Liabilities Deposits 360,949 361,026 329,470 329,648 Securities sold under repurchase agreements 9,027 9,027 11,514 11,514 Off-balance Sheet Financial Instruments Loan commitments 82,853 72,199 Letters of credit 3,098 6,128
21 Item 2 - Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations - ------------- Summary - ------- Net income for the second quarter of 1997 was $1,772,000, or $.54 per share, compared with $1,395,000, or $.43 per share, for the second quarter of 1996. On a per share basis, net income increased 25.6% over the second quarter of the prior year. Net income for the first six months of 1997 was $3,444,000, or $1.06 per share, compared with $2,680,000, or $.84 per share for the first six months of 1996. Per share amounts are based on average shares outstanding of 3,235,245 for the first six months of 1997 and 3,173,646 for the first six months of 1996. Outstanding loans at June 30, 1997 of $246.8 million represented an increase of $44.8 million, or 22.2%, over June 30, 1996 and an increase of $26.8 million, or 12.2%, from December 31, 1996. Total deposits at June 30, 1997 of $361.0 million represented an increase of $31.5 million, or 9.6%, over June 30, 1996 and an increase of $15.9 million, or 4.6%, from December 31, 1996. In the second quarter, net interest income increased 18.3% over the previous year. An increase in non-interest expense of 9.8% partially offset the increase in net interest income. The following table summarizes the Corporation's performance for the six months ended June 30, 1997 and 1996 (tax equivalent basis and dollars in thousands).
Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------ 1997 1996 1997 1996 -------- -------- -------- -------- Interest Income $7,874 $6,725 $15,204 $13,226 Interest Expense 2,713 2,361 5,253 4,724 ------ ------ ------- ------- Net Interest Income 5,161 4,364 9,951 8,502 Provision for Loan Loss 197 164 352 288 ------ ------ ------- ------- Net Interest Income After Provision for Loan Loss 4,964 4,200 9,599 8,214 Non-Interest Income 820 731 1,582 1,460 Non-Interest Expense 3,076 2,802 5,922 5,580 ------ ------ ------- ------- Income Before Income Tax 2,708 2,129 5,259 4,094 Income Tax Expense 936 734 1,815 1,414 ------ ------ ------- ------- Net Income $1,772 $1,395 $ 3,444 $ 2,680 ====== ====== ======= ======= Net Income per Share $ .54 $ .43 $ 1.06 $ .84 Return on Average Assets 1.76% 1.53% 1.75% 1.50% Return on Average Stockholders' Equity* 19.15% 17.86% 19.07% 17.41%
* Before adjustment for unrealized gains and losses on Available-for-Sale securities. 22 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 1997 and 1996 (rates on tax equivalent basis).
Three Months ended June 30, ------------------------------------------------------------------- 1997 1996 -------------------------------- -------------------------------- Average Average Average Average Balances Interest Yield/Rate Balances Interest Yield/Rate ---------- -------- ---------- ---------- -------- ---------- (Dollars in Thousands) Earning Assets: Federal Funds Sold $ 8,442 $ 116 5.44% $ 16,523 $ 218 5.25% Investment Securities (Taxable) 115,598 1,801 6.25 124,817 1,875 6.04 Investment Securities (Tax-exempt) 595 10 6.45 25 1 8.12 Loans, Net of Unearned Discount/(1)/ 245,235 5,947 9.73 194,352 4,631 9.58 -------- ------ -------- ------ Total Earning Assets 369,870 7,874 8.54 335,717 6,725 8.05 ------ ------ Non-interest Earning Assets: Cash and Due From Banks 24,083 21,074 Other Assets 13,056 12,189 Allowance for Loan Losses (3,413) (2,714) -------- -------- Total Assets $403,596 $366,266 ======== ======== Interest-Bearing Liabilities: Interest-Bearing Transaction Accounts and Money Market Funds $128,018 1,133 3.55 $115,116 925 3.23 Savings 49,882 516 4.15 45,729 455 4.00 Savings Certificates 47,008 571 4.87 48,069 563 4.71 Certificates of Deposit $100,000 or more 28,184 358 5.09 24,339 295 4.87 Other Time 566 8 5.43 380 4 4.54 Other Borrowings 11,248 127 4.49 11,283 119 4.26 -------- ------ -------- ------ Total Interest-Bearing Liabilities 264,906 2,713 4.11 244,916 2,361 3.88 ------ ------ Non-interest Bearing Liabilities: Demand Deposits 99,359 87,939 Other Liabilities 2,210 2,093 Shareholders' Equity 37,121 31,318 -------- -------- Total Liabilities and Shareholders' Equity $403,596 $366,266 ======== ======== Net Interest Income and Margin (Tax-equivalent Basis)/(2)/ $5,161 5.60 $4,364 5.23 ====== ======
(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. 23
Six Months ended June 30, ------------------------------------------------------------------ 1997 1996 -------------------------------- -------------------------------- Average Average Average Average Balances Interest Yield/Rate Balances Interest Yield/Rate --------- -------- ----------- --------- -------- ----------- (Dollars in Thousands) Earning Assets: Federal Funds Sold $ 11,863 $ 320 5.35% $ 18,423 $ 492 5.34% Investment Securities (Taxable) 115,436 3,537 6.18 121,778 3,666 6.03 Investment Securities (Tax-exempt) 413 13 6.50 47 1 8.12 Loans, Net of Unearned Discount/(1)/ 236,007 11,334 9.68 189,403 9,067 9.63 -------- ------- -------- ------- Total Earning Assets 363,719 15,204 8.43 329,651 13,226 8.06 ------- ------- Non-interest Earning Assets: Cash and Due From Banks 23,371 20,407 Other Assets 12,980 12,037 Allowance for Loan Losses (3,273) (2,630) -------- -------- Total Assets $396,797 $359,465 ======== ======== Interest-Bearing Liabilities: Interest-Bearing Transaction Accounts & Money Market Funds $125,331 2,169 3.49 $114,182 1,853 3.26 Savings 50,113 1,013 4.08 43,174 864 4.03 Savings Certificates 47,059 1,127 4.83 48,473 1,161 4.82 Certificates of Deposit $100,000 or more 27,123 679 5.05 24,398 600 4.95 Other Time 538 14 5.09 359 10 4.94 Other Borrowings 12,038 251 4.28 11,059 236 4.31 -------- ------- -------- ------- Total Interest-Bearing Liabilities 262,202 5,253 4.04 241,645 4,724 3.93 ------- ------- Non-interest Bearing Liabilities: Demand Deposits 96,001 85,064 Other Liabilities 2,180 2,039 Shareholders' Equity 36,414 30,717 -------- -------- Total Liabilities and Shareholders' Equity $396,797 $359,465 ======== ======== Net Interest Income and Margin (Tax-equivalent Basis)/(2)/ $ 9,951 5.52 $ 8,502 5.18 ======= =======
(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. 24 Net Interest Income - ------------------- Net interest income (tax equivalent) for the second quarter of 1997 was $5,161,000 which represented an increase of $797,000, or 18.3%, over the second quarter of 1996. This increase was heavily contributed to by a 26.2% increase in average loans for the second quarter of 1997 versus the same quarter last year. 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 June 30, 1997 and 1996.
ANALYSIS OF CHANGES IN NET INTEREST INCOME (Dollars in Thousands) 2nd Qtr. 1997 vs. 2nd Qtr. 1996 Six Mos. 1997 vs. Six Mos. 1996 Increase (Decrease) Increase (Decrease) Due to Changes in: Due to Changes in: ------------------------------- ------------------------------- Volume Rate Total Volume Rate Total -------- ---- ------ -------- ---- ------- Interest Earning Assets: Federal Funds Sold $ (153) $ 51 $ (102) $ (175) $ 3 $ (172) Investment Securities (Taxable) (407) 333 (74) (335) 206 (129) Investment Securities (Tax-exempt) 10 (1) 9 13 (1) 12 Loans, Net of Unearned Discount 1,242 74 1,316 2,220 47 2,267 ------ ---- ------ ------ ---- ------ Total Interest Income 692 457 1,149 1,723 255 1,978 ------ ---- ------ ------ ---- ------ Interest-Bearing Liabilities: Deposits 203 141 344 378 136 514 Other Borrowings (2) 10 8 20 (5) 15 ------ ---- ------ ------ ---- ------ Total Interest Expense 201 151 352 398 131 529 ------ ---- ------ ------ ---- ------ Net Interest Income $ 491 $306 $ 797 $1,325 $124 $1,449 ====== ==== ====== ====== ==== ======
Provision for Loan Losses and Non-Performing Assets - --------------------------------------------------- The Corporation's provision for loan losses was $3,512,000, or 1.42% of total loans, as of June 30, 1997 compared to $2,829,000, or 1.40% of total loans, as of June 30, 1996. Transactions in the provision for loan losses are summarized as follows (in thousands):
Three Months Ended Six Months Ended June 30, June 30, -------------------- ------------------- 1997 1996 1997 1996 --------- --------- -------- --------- Balance, Beginning of Period $3,327 $2,653 $2,972 $2,500 Provisions, Charged to Income 197 164 352 288 Loans Charged-Off (52) (27) (71) (27) Recoveries of Loans Previously Charged-Off 40 39 259 68 ------ ------ ------ ------ Net Loans (Charged-Off) Recovered (12) 12 188 41 ------ ------ ------ ------ Balance, End of Period $3,512 $2,829 $3,512 $2,829 ====== ====== ====== ======
25 The following table summarizes the non-performing assets as of the end of the last five quarters (in thousands).
June 30, March 31, December 31, September 30, June 30, 1997 1997 1996 1996 1996 -------- --------- ------------ ------------- -------- Non-Accrual Loans $ 901 $1,005 $1,102 $1,282 $1,356 Other Real Estate Owned 151 163 166 169 172 ------ ------ ------ ------ ------ Total Non-Performing Assets $1,052 $1,168 $1,268 $1,451 $1,528 ====== ====== ====== ====== ======
Non-accrual loans to total loans were .37% at June 30, 1997 and non- performing assets were .43% 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 Six Months Ended June 30, June 30, ------------------------ ---------------------------- 1997 1996 % Change 1997 1996 % Change ----- ------ --------- ------- -------- --------- Service Charges on Deposit Accounts $ 463 $ 402 15.2% $ 900 $ 787 14.4% Loss on Sale of Investment Securities -0- (10) -- -0- (7) -- Non-recurring Income 34 37 (8.1) 87 69 26.1 Other Non-interest Income 323 302 7.0 595 611 (2.6) ----- ----- ------ ------ Total Non-interest Income $ 820 $ 731 12.2 $1,582 $1,460 8.4 ===== ===== ====== ======
Non-recurring income is primarily interest recovered on loans charged-off in prior years. The decrease in other non-interest income for the six months ended June 30, 1997 was primarily due to decreases in fees earned from investment brokerage services and issuances of letters of credit. 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 June 30, Six Months Ended June 30, -------------------------- ---------------------------- 1997 1996 % Change 1997 1996 % Change ------ ------ -------- -------- ------- --------- Salaries & Employee Benefits $1,828 $1,697 7.7% $3,575 $3,352 6.7% Occupancy Expense - Net 190 207 (8.2) 387 387 -- Furniture and Equipment Expense 220 203 8.4 431 400 7.8 Other Real Estate Expense - Net (5) 21 -- (8) 16 -- Other Expenses: Business Development 172 113 52.2 273 218 25.2 Insurance - Other 20 24 (16.7) 47 51 (7.8) Legal & Professional Fees 139 107 29.9 248 205 21.0 Taxes - Other 45 24 87.5 73 47 55.3 Postage & Courier 64 56 14.3 132 130 1.5 Printing & Supplies 97 74 31.1 174 154 13.0 Regulatory Fees & Assessments 43 51 (15.7) 85 102 (16.7) Other Operating Expenses 263 225 16.9 505 518 (2.5) ------ ------ ------ ------ Total Other Expenses 843 674 25.1 1,537 1,425 7.9 ------ ------ ------ ------ Total Non-interest Expense $3,076 $2,802 9.8 $5,922 $5,580 6.1 ====== ====== ====== ======
26 Total non-interest expense increased 9.8% in the second quarter of 1997 over 1996, reflecting increases in salaries and benefits, furniture and equipment expenses, business development, legal and professional expense, taxes-other and printing and supplies. As a percent of average assets, non-interest expenses were 3.07% in the second quarter of 1997, the same as in the second quarter of 1996. The "efficiency ratio" (non-interest expenses divided by total non- interest income plus net interest income) was 51.5% for the second quarter of 1997. These measures of operating efficiency compare very favorably to other financial institutions in the Corporation's peer group. The increase in salaries and employee benefits for the second quarter of 1997 is due to salary merit increases, incentive compensation accrual increases, and an increase in pension plan expense. Also, the average number of full-time equivalent employees increased by three in the second quarter of 1997 to an average full-time equivalent of 138 compared to the same quarter last year. The increase in furniture and equipment expense is primarily a result of increased depreciation for new furniture and equipment acquired in the past year. Business development expense increased as a result of increased advertising expenses related to the new name for Summit Community Bank. Legal and professional fees increased due to increased miscellaneous legal fees and miscellaneous other professional fees. Taxes-other increased due to additional state franchise taxes paid on increased levels of capital and additional taxes due as a result of audits of franchise tax returns of all SBI entities for the four years prior to 1996. The increase in printing and supplies was also primarily related to the expenses of the Summit Community Bank name change. Other operating expenses increased in the second quarter of 1997 due to increases in various miscellaneous operating costs. 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 June 30, 1997 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 $137,717 $ 6,538 $ 9,775 $ 15,744 $169,774 $ 77,042 $246,816 Investment Securities 367 4,118 6,617 19,172 30,274 83,381 113,655 Federal Funds Sold 10,900 -0- -0- -0- 10,900 -0- 10,900 -------- -------- -------- -------- -------- -------- -------- Total Earning Assets 148,984 10,656 16,392 34,916 210,948 160,423 371,371 -------- -------- -------- -------- -------- -------- -------- Interest Bearing Liabilities: Interest-Bearing Transaction Accounts and Savings 177,677 -0- -0- -0- 177,677 -0- 177,677 Certificate of Deposits >$100,000 6,399 5,638 7,668 8,564 28,269 1,569 29,838 Other Time Deposits 6,038 9,661 11,136 16,034 42,869 5,339 48,208 Repurchase Agreements 9,027 -0- -0- -0- 9,027 -0- 9,027 -------- -------- -------- -------- -------- -------- -------- Total Interest Bearing Liabilities 199,141 15,299 18,804 24,598 257,842 6,908 264,750 -------- -------- -------- -------- -------- -------- -------- Interest Sensitivity Gap $(50,157) $ (4,643) $ (2,412) $ 10,318 $(46,894) $153,515 $106,621 ======== ======== ======== ======== ======== ======== ======== Cumulative Gap $(50,157) $(54,800) $(57,212) $(46,894) ======== ======== ======== ======== Cumulative Gap to Total Earning Assets (13.5%) (14.8%) (15.4%) (12.6%) Cumulative Gap to Total Assets (12.2%) (13.4%) (14.0%) (11.4%)
27 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 of assets liability 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 six 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 (11.4%) was reversed to a positive 13.3% "beta adjusted" gap position. 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 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 June 30, 1997, total capital to total assets was 9.24%. 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 June 30, 1997, the Corporation's Tier I capital represented 14.41% of risk weighted assets and total qualifying capital (Tier I and Tier II) represented 15.66% of risk weighted assets. Both ratios are well above current regulatory guidelines. 28 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 At the Corporation's annual shareholders' meeting, held on April 15, 1997, the shareholders of the Corporation: . ratified the appointment by the Board of Directors of Stovall, Grandey & Whatley as independent auditors of the Corporation for its fiscal year ending December 31, 1997. The shareholder vote in this matter was 2,724,299 for, 99,366 against, and none abstaining. . ratified the adoption of the 1997 Incentive Stock Option Plan of the Corporation. The shareholder vote in this matter was 2,390,398 for, 427,107 against, and 6,160 abstaining. . elected the Board of Directors, consisting of thirteen (13) persons. The following directors, constituting the entire Board of Directors, were elected: For Against Abstain --------- ------- ------- Robert E. Bolen 2,749,565 -0- 74,100 Joe L. Bussey, M.D. 2,711,009 38,556 74,100 Elliott S. Garsek 2,749,565 -0- 74,100 Ronald J. Goldman 2,748,069 1,496 74,100 F.S. Gunn 2,746,565 3,000 74,100 Jeffrey M. Harp 2,746,565 3,000 74,100 William W. Meadows 2,705,565 44,000 74,100 Edward P. Munson, Jr. 2,748,669 896 74,100 James L. Murray 2,746,565 3,000 74,100 Philip E. Norwood 2,746,565 3,000 74,100 Byron B. Searcy 2,749,565 -0- 74,100 Edgar Snelson 2,749,565 -0- 74,100 Lloyd J. Weaver 2,749,565 -0- 74,100 29 Item 5. Other Information Not applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10 1997 Incentive Stock Option Plan of Summit Bancshares, Inc. 11 Computation of Earnings Per Common Share 27 Financial Data Schedule (b) No Reports on Form 8-K were filed during the period ending June 30, 1997 30 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: July 31, 1997 By: /s/ Philip E. Norwood -------------------- -------------------------------------- Philip E. Norwood, President and Chief Executive Officer Date: July 31, 1997 By: /s/ Bob G. Scott -------------------- -------------------------------------- Bob G. Scott, Senior Vice President and Chief Financial Officer 31 EXHIBIT INDEX Exhibit Page No. - ------- -------- 10 1997 Incentive Stock Option Plan of Summit Bancshares, Inc. 11 Computation of Earnings Per Common Share 27 Financial Data Schedule EX-10 2 1997 INCENTIVE STOCK OPTION PLAN EXHIBIT 10 1997 INCENTIVE STOCK OPTION PLAN OF SUMMIT BANCSHARES, INC. This is the 1997 Incentive Stock Option Plan (the "Plan") of Summit Bancshares, Inc., a Texas corporation (the "Corporation") under which incentive stock options may be granted to the officers and other key employees of the Corporation and its subsidiaries to purchase shares of common stock, $1.25 par value, of the Corporation. Options granted pursuant to this Plan are intended to be "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code (the "Code"). The purpose of the Plan is to advance the best interests of the Corporation by providing executives and other key personnel of the Corporation and its subsidiaries, who have substantial responsibility for the management and growth of the Corporation and its subsidiaries, with additional incentive by increasing their proprietary interest in the success of the Corporation--thereby encouraging them to remain in the employ of the Corporation or its subsidiaries. ARTICLE I COMMITTEE --------- SECTION 1.1. ADMINISTRATION. The Plan shall be administered by a ----------- -------------- committee appointed by the Board of Directors of the Corporation (the "Committee") from among the member of the Board of Directors of the Corporation, and consisting of such number as the Board of Directors of the Corporation may, from time to time, determine. The Board of Directors of the Corporation may, from time to time, remove members from, or add members to, the Committee. Vacancies on the Committee, howsoever caused, shall be filed by the Board of Directors of the Corporation. The Committee shall select one of its members as Chairman, and shall hold meetings at such times and places as it may determine. Decisions by a majority of the Committee, at which a quorum is present, or acts reduced to or approved in writing by a majority of the members of the Committee, shall be valid acts of the Committee. No person shall serve as a member of the Committee if at any time within one year prior to his service as a member of the Committee or during such service he shall have received a grant or award pursuant to the Plan or any other plan of the Corporation or any of its subsidiaries. SECTION 1.2. POWERS. Subject to the provisions of the Plan and the ----------- ------ approval, within 12 months of the date of the adoption of the Plan by the Board of Directors, of the Plan by holders of at least a majority of the outstanding shares of common stock entitled to vote, the Committee shall have plenary authority to determine, in its discretion, the employees of the Corporation, or any subsidiary of the Corporation, to whom options shall be granted, the number of shares to be covered by each of the options, and the time or times at which options shall be granted. The Committee shall also have the authority to interpret the Plan, and to prescribe, amend or rescind rules and regulations relating to it. The interpretation and construction by the Committee of any provision of the Plan or of any option granted under it shall be final unless otherwise determined by the Board of Directors of the Corporation. ARTICLE II PARTICIPANTS ------------ SECTION 2.1. ELIGIBILITY. The persons who shall be eligible to receive ----------- ----------- options shall be the executives and other key personnel of the Corporation, or of any subsidiary of the Corporation, as the Committee shall select. In selecting the individuals to whom options shall be granted, as well as in determining the number of shares subject to each option, the Committee shall weigh the positions and responsibilities of the individuals being considered, the nature of their services, their present and potential contributions to the success of the Corporation, or any subsidiary of the Corporation, and such other factors as the Committee shall deem relevant to accomplish the purpose of the Plan. SECTION 2.2. NUMBER OF OPTIONS. A participant may hold more than one ----------- ----------------- option, but only on the terms and subject to the restrictions hereafter set forth. No person shall be eligible to receive an option for a larger number of shares than is granted to him by Committee. SECTION 2.3. NO RIGHTS AS SHAREHOLDER. No participant shall have rights ----------- ------------------------ as a shareholder with respect to shares covered by his option until the date of issuance of a stock certificate for such shares. SECTION 2.4. ELIGIBILITY FOR OTHER PLANS. Participation in the Plan shall ----------- --------------------------- not affect eligibility for any profit-sharing, bonus, insurance, pension or other extra-compensation plan which the Corporation, or any subsidiary of the Corporation, may at any time adopt for employees. SECTION 2.5. EMPLOYMENT OBLIGATION. The granting of an option shall not ----------- --------------------- impose any obligation upon the Corporation, or any subsidiary of the Corporation, to continue to employ any participant, and the right of the Corporation, or any subsidiary of the Corporation, to terminate the employment of any officer or other employee shall not be diminished or affected by reason of the fact that an option has been granted to him. SECTION 2.6. CONTINUOUS EMPLOYMENT. (a) An option granted to a ----------- --------------------- participant under the Plan shall not be exercisable by the participant unless at all times beginning with the date of grant of an option hereunder and (except as otherwise provided in Section 4.8 hereof) ending on the date of exercise of such option, the participant shall have been in the continuous employment of the Corporation or any subsidiary of the Corporation. (b) Notwithstanding Section 2.6(a), the requisite employment relationship with respect to an option granted hereunder will be treated as continuing intact while the participant (with the prior approval of the Board of Directors of the Corporation or any subsidiary of the Corporation) is on military leave, sick leave, or other bona fine leave of absence (such as temporary employment by the Government) if the period is of such leave does not exceed ninety (90) days, or, if longer, so long as the participant's right to reemployment is guaranteed by statute or by contract. -2- SECTION 2.7. NO OBLIGATION TO EXERCISE OPTION. The granting of an option ----------- -------------------------------- shall not impose any obligation upon the participant to exercise the option. The participant may, at any time, elect in writing to abandon, in whole or in part, an option granted hereunder. ARTICLE III SHARES SUBJECT TO OPTION ------------------------ SECTION 3.1. SHARES AVAILABLE. The stock subject to options shall be the ----------- ---------------- Corporation's authorized but unissued one Dollar and 25/100 ($1.25) par value common stock (the "Common Stock"). The aggregate number of shares for which options may be granted under the Plan shall not exceed 300,000 shares of Common Stock, subject to adjustment pursuant to Section 5.3. SECTION 3.2. ALLOTMENT OF SHARES. The Committee shall determine the ----------- ------------------- number of shares of Common Stock to be offered (from time to time) to each participant. Subject to the eligibility requirements of Section 2.1, in any offering after the initial offering under the Plan, the Committee may offer available shares to new participants or to then participants or to a greater or lesser number of participants, and may include or exclude previous participants in accordance with such determinations as the Committee shall make from time to time. SECTION 3.3. SHARES FROM UNEXERCISED OPTION. In the event that ----------- ------------------------------ outstanding option under the Plan for any reason expires or is terminated, the shares of Common Stock allocable to the unexercised portion of the option may again be subjected to any option under the Plan. ARTICLE IV TERMS AND CONDITIONS OF OPTIONS ------------------------------- Stock options granted pursuant to the Plan shall be evidenced by agreements in such form as the Committee shall, from time to time, recommend, which (although they need not be identical in form) shall be subject to the following terms and conditions: SECTION 4.1. OPTION PRICE. Except as provided in Section 4.4 of the Plan, ----------- ------------ the price at which shares of Common Stock may be purchased pursuant to options shall be no less than one hundred percent (100%) of the fair market value of the shares of Common Stock on the date the option is granted. The Committee in fixing the option price shall have full authority and discretion and be fully protected in doing so. SECTION 4.2. TIME OF GRANTING OPTION. Neither anything contained in the ----------- ----------------------- Plan or in any resolution adopted or to be adopted by the Board of Directors of the Corporation or the -3- shareholders of the Corporation nor any action taken by the Committee shall constitute the granting of an option. The granting of an option shall take place only when a written option agreement shall have been duly executed by or on behalf of the Corporation and the participant to whom such option shall be granted. Notwithstanding anything herein to the contrary, no options shall be granted under the Plan after January 15, 2006. SECTION 4.3. DURATION OF OPTIONS. Except as provided in Section 4.4 of ----------- ------------------- the Plan, no option shall be exercisable after the expiration of ten (10) years from the date such option is granted, and the Committee in its discretion may provide that an option shall be exercisable during such ten (10) year period or any lesser period of time. SECTION 4.4. TEN PERCENT SHAREHOLDERS. Notwithstanding anything to the ----------- ------------------------ contrary contained herein, options granted by the Committee to any eligible participant who at the time of the grant of the option, owned, directly or indirectly, more than ten percent (10%) of the total combined voting power of all classes of capital stock of the Corporation, shall not qualify as incentive stock options unless (i) the purchase price for the Common Stock subject to the option is at least one hundred ten percent (110%) of the fair market value of the Common Stock determined at the time such option is granted and (ii) the option by its terms is not exercisable after five (5) years from the time the option is granted. The attribution rules of Section 425(d) of the Code shall apply in the determination of the indirect ownership of capital stock of the Corporation. SECTION 4.5. AMOUNT EXERCISABLE. (a) Each incentive stock option may be ----------- ------------------ exercised by a participant so long as it is valid and outstanding, in part or in whole as the Committee in its discretion may provide in the written option agreement between the Corporation and such participant. The Committee may also prescribe a minimum number of shares of Common Stock subject to options which must be purchased at any one time in connection with the exercise of any such options. (b) Options granted under the Plan may be exercised in any order, regardless of when such options were granted. SECTION 4.6. METHOD OF EXERCISE. (a) Notice of Exercise. An option ----------- ------------------ ------------------ shall be exercised by delivery of written notice to the Corporation setting forth the number of shares of Common Stock with respect to which the option is being exercised, and specifying the address to which the certificates for such shares are to be delivered. (b) Payment. Such notice shall be accompanied by payment of the full ------- purchase price of such shares, and the Corporation shall deliver a certificate or certificates representing such shares as soon as practicable after the notice shall be received. Payment shall be made: -4- (i) by the tender of cash, check, postal or express money order in the amount of the purchase price payable to the order of the Corporation, or (ii) by the tender of shares of Common Stock of the Corporation having the fair market value equal to the purchase price, if the Corporation is not then prohibited from purchasing or acquiring shares of Common Stock. If and while payment with Common Stock is permitted for the exercise of an option granted under the Plan in accordance with the foregoing provisions, the person then entitled to exercise that option may, in lieu of using previously outstanding shares of Common Stock therefor, use some of the shares of Common Stock as to which the option is then being exercised. (c) Designation. The certificate or certificates for shares as to ----------- which the option is exercised shall be registered in the name of the person or persons exercising the option. In the event the option shall be exercised pursuant to Section 4.8(b) by any person or persons other than the participant, the notice shall be accompanied by appropriate proof of the right of such person or persons to exercise the option. (d) Delivery. The Corporation shall deliver to the participant the -------- certificate or certificates for the number of shares with respect to which the option has been exercised to the address specified in accordance with Section 4.6(a) above, and delivery shall be deemed effected for all purposes when the Corporation or its transfer agent shall have deposited such certificate or certificates in the United States mail addressed to the participant at such address. If the participant (or other person entitled to exercise the option) fails to accept delivery of and pay for all or any part of the number of shares specified in such notice upon tender of delivery thereof, his right to exercise the option with respect to such undelivered shares may be terminated. SECTION 4.7. NON-TRANSFERABILITY OF OPTIONS. Options shall not be ----------- ------------------------------ transferable by the participant other than by will or under the laws of descent and distribution and shall be exercisable, during his lifetime, only by him. SECTION 4.8. SEVERANCE OF EMPLOYMENT. (a) Termination of Employment ----------- ----------------------- ------------------------- other than by Death, Retirement or Disability. If the participant ceases to be - --------------------------------------------- employed by the Corporation, or any subsidiary of the Corporation, for any reason, whether by his own volition or otherwise (except that this paragraph will not apply if the termination of employment is caused by death, retirement or disability), then the option granted to the participant shall terminate on the date of the participant's cessation of employment. (b) Death or Retirement of Participant. In the event of the death or ---------------------------------- retirement of the participant upon reaching the age of sixty-five (65) while in the employ of the Corporation, or any subsidiary of the Corporation, and before the date of expiration of an option granted to -5- him, the option shall terminate on the earlier of the date of its expiration or the day which is three (3) months after the date of death or retirement, as the case may be. After the retirement or death of the participant, the participant, in the event of his retirement, or his executors, administrators or any person or persons to whom his option may be transferred by will or by the laws of descent and distribution, in the event of his death, shall have the right at any time during the time specified in this Section 4.8(b) to exercise the option, in whole or in part. (c) Disability of Participant. If before the date of expiration of ------------------------- the option the participant shall terminate his employment with the Corporation, or any subsidiary of the Corporation, for reason of disability, the option shall terminate on the earlier of its date of expiration or a day which is one (1) year after the date of such termination of employment. SECTION 4.9. REQUIREMENTS OF REGULATORY AGENCIES. (a) The Corporation ----------- ----------------------------------- shall not be required to sell or issue any shares of Common Stock under any option if the issuance of such shares of Common Stock shall constitute a violation by the participant or the Corporation of any provisions of any law or regulation of any governmental authority. (b) If, at any time, the Board of Directors of the Corporation shall determine, in its discretion, that the listing, registration or qualification of any of the shares subject to options under the Plan upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of or in connection with the granting of options or the purchase or issue of shares thereunder, then if the Board of Directors deems it necessary, no further options may be granted and outstanding options may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board of Directors. The Board of Directors shall have the authority to cause the Corporation at its expense to take any action related to the Plan which may be required in connection with such listing, registration, qualification, consent or approval; provided, however, that the Corporation is not obligated to register any securities covered by this Plan, nor is the Corporation required to take any other affirmative action in order to cause the exercise of an option or the issuance of shares pursuant thereto to comply with any law or regulation of any governmental authority. (c) If requested by the Corporation at the time of exercise of any option, the participant shall execute an agreement (in a form acceptable to the Corporation) stating that he is purchasing the shares subject to the option for investment and without any present intention of selling the same. ARTICLE V MODIFICATIONS ------------- SECTION 5.1. AMENDMENT OR TERMINATION OF PLAN. The Board of Directors of ----------- -------------------------------- the Corporation may modify, revise or terminate this Plan at any time and from time to time; -6- provided, however, that without the further approval of the shareholders of the Corporation, the Board may not (i) increase the maximum number of shares of Common Stock which may be issued under options pursuant to the provisions of the Plan; (ii) reduce the option price at which options may be granted to an amount less than the fair market value per share at the time the option is granted; (iii) change the class of employees eligible to receive options; or (iv) change any provisions of the Plan which would affect the income tax status of the options granted hereunder. The Board shall have the power to make such changes in the Plan and in the regulations and administrative provisions thereunder or in any outstanding option as, in the opinion of counsel for the Corporation, may be necessary or appropriate from time to time to enable the options granted pursuant to the Plan to comply with the requirements of any governmental or regulatory agency. SECTION 5.2. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. Subject to ----------- ---------------------------------------------- the terms and conditions and within the limitations of the Plan, the Board of Directors of the Corporation may modify, extend or renew outstanding options granted under the Plan, or accept the surrender of outstanding options (to the extent not substitution theretofore exercised) and authorize the granting of new options in substitution therefor (to the extent not theretofore exercised). Notwithstanding the foregoing, however, no modification of an option shall, without the consent of the participant, alter or impair any rights or obligations under any option theretofore granted under the Plan. SECTION 5.3. ADJUSTMENTS. (a) In the event that the outstanding shares ----------- ----------- of Common Stock of the Corporation are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Corporation or reclassification, stock split-up, combination of shares, dividend or other distribution payable in capital stock, appropriate adjustment shall be made by the Committee in the number and kind of shares for the purchase of which options may be granted under the Plan. In addition, the Committee shall make appropriate adjustment in the number and kind of shares as to which outstanding options, or portions thereof then unexercised, shall be exercisable, to the end that the proportionate interest of the holder of the option shall, to the extent practicable, be maintained as before the occurrence of such event. Such adjustment in outstanding options shall be made without change in the total price applicable to the unexercised portion of the option but with a corresponding adjustment in the option price per share. (b) Upon the dissolution or liquidation of the Corporation, or upon a reorganization, merger or consolidation of the Corporation as a result of which the outstanding securities of the class then subject to options hereunder are changed into or exchanged for cash or property or securities not of the Corporation's issue, or any combination thereof, or upon a sale of substantially all the property of the Corporation to, or the acquisition of stock representing more than eighty percent (80%) of the voting power of the stock of the Corporation then outstanding by, another corporation or person, the Plan shall terminate, and all options theretofore granted hereunder shall terminate, unless provision shall be made in writing in connection with such transaction for the continuance of the Plan and/or for the assumption of options theretofore -7- granted, or the substitution for such options or options covering the stock of a successor employer corporation, or a parent or a subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices, in which event the Plan and options theretofore granted shall continue in the manner and under the terms so provided. If the Plan and unexercised options shall terminate pursuant to the foregoing sentence, all persons entitled to exercise any unexercised options then outstanding shall have the right, at such time prior to the consummation of the transaction causing such termination as the Corporation shall designate, to exercise the unexercised portions of their options, including the portions thereof which would, but for this Section 5.3(b), not yet be exercisable. (c) Adjustments and determinations under this Section 5.3 shall be made by the Committee, whose decisions as to what adjustments or determinations shall be made, and the extent thereof, shall be final, binding and conclusive. ARTICLE VI MISCELLANEOUS PROVISIONS ------------------------ SECTION 6.1. WRITTEN AGREEMENT. Each option granted hereunder shall be ----------- ----------------- embodied in a written option agreement which shall be subject to the terms and conditions prescribed above, and shall be signed by the participant and by the President or any Vice President of the Corporation for and on behalf of the Corporation. Such an option agreement shall be approved as to its terms by the participant's spouse (if any) and shall contain such other provisions as the Committee, in its discretion, shall deem advisable. SECTION 6.2. APPLICATION OF FUNDS. The proceeds received by the ----------- -------------------- Corporation from the sale of shares of Common Stock pursuant to options shall be used for general corporate purposes. SECTION 6.3. DEFINITIONS. (a) The term "Plan" means the 1996 Incentive ----------- ----------- Stock Option Plan adopted by Summit Bancshares, Inc. as may be amended and restated from time to time. (b) The term "Corporation" means Summit Bancshares, Inc. and its successors. (c) The term "Common Stock" means the One Dollar and 25/100 ($1.25) par value common stock of the Corporation. (d) The term "option" shall mean the rights granted to an employee to purchase shares of Common Stock of the Corporation in accordance with the Plan. (e) The term "participant" shall mean an eligible employee of the Corporation, or of any subsidiary of the Corporation, who has been granted an option to purchase shares of Common Stock by the Committee. -8- (f) The term "Code" means the Internal Revenue Code of 1986, as amended and any successor revenue law hereto, and as same may be interpreted from time to time by Treasury Income Tax Regulation, Treasury Department Administrator ruling and court decisions. SECTION 6.4. PLAN EXPENSES. The expenses of administering the Plan shall ----------- ------------- be borne by the Corporation. Member of the Committee shall receive compensation for serving on the Committee, as from time to time determined by the Board of Directors of the Corporation. SECTION 6.5. EFFECTIVE DATE OF PLAN. The Plan shall become effective and ----------- ---------------------- shall be deemed to have been adopted on January 21, 1997. -9- EX-11 3 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 14 of the Notes to Consolidated Financial Statements for the Periods of Six Months Ended June 30, 1997 and 1996 (unaudited) and the Year Ended December 31, 1996 (audited), contained in the Quarterly Report on Form 10-Q of registrant for the quarter Ended June 30, 1997. EX-27 4 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS OF SUMMIT BANCSHARES, INC., AS OF JUNE 30, 1997, AND THE RELATED STATEMENTS OF INCOME, CHANGES IN SHAREHOLDERS' EQUITY AND CASH FLOWS FOR THE PERIOD ENDING JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1996 JAN-01-1997 JUN-30-1997 28,170 0 10,900 0 61,276 113,655 113,738 246,816 3,512 409,931 360,949 0 11,109 0 0 0 4,045 33,828 409,931 11,330 3,547 319 15,196 4,996 5,253 9,943 352 0 5,922 5,251 3,444 0 0 3,444 1.06 1.06 5.60 901 0 0 8,318 2,972 71 259 3,512 3,512 0 0
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