-----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, WQE4WZl+lGmMTxLSdtXyINZ6XHlPTGZ1RJOS8Qg1cgA0XjjP6SEIwEE2m92od6CM lfWrHR81+jD1ojUGIYZ6Tg== 0000930661-99-001837.txt : 19990812 0000930661-99-001837.hdr.sgml : 19990812 ACCESSION NUMBER: 0000930661-99-001837 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUMMIT BANCSHARES INC /TX/ CENTRAL INDEX KEY: 0000745344 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 751694807 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-11986 FILM NUMBER: 99683529 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, 1999; or [_] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition period from __________ to __________. Commission File Number 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, 1999 was 6,453,497 shares. SUMMIT BANCSHARES, INC. INDEX PART I - FINANCIAL INFORMATION Page No. Item 1. Financial Statements Consolidated Balance Sheets at June 30, 1999 and 1998 and at December 31, 1998 4 Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 1999 and 1998 and for the Year Ended December 31, 1998 5-6 Consolidated Statements of Changes in Shareholders' Equity for the Six Months Ended June 30, 1999 and 1998 and for the Year Ended December 31, 1998 7 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999 and 1998 and for the Year Ended December 31, 1998 8-9 Notes to Consolidated Financial Statements for the Six Months Ended June 30, 1999 and 1998 and for the Year Ended December 31, 1998 10-21 The June 30, 1999 and 1998 and the December 31, 1998 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, 1999 and 1998 22-29 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, 1999 1998 1998 -------- -------- ----------- ASSETS (In Thousands) CASH AND DUE FROM BANKS - NOTE 1 $ 23,117 $ 25,602 $ 26,735 FEDERAL FUNDS SOLD 8,980 27,675 38,706 INVESTMENT SECURITIES - NOTE 2 Securities Available-for-Sale, at fair value 108,358 60,223 121,417 Securities Held-to-Maturity, at cost (fair value of 29,336 47,749 26,595 $29,175,000, $48,011,000, and $26,959,000 June 30, 1999 and 1998 and December 31, 1998, respectively) LOANS - NOTE 3 Loans, Net of Unearned Discount 339,212 292,846 305,833 Allowance for Loan Losses (4,895) (4,413) (4,724) -------- -------- -------- LOANS, NET 334,317 288,433 301,109 PREMISES AND EQUIPMENT - NOTE 4 8,964 7,781 9,082 ACCRUED INCOME RECEIVABLE 4,313 3,575 3,823 OTHER REAL ESTATE - NOTE 5 1,467 71 281 OTHER ASSETS 5,479 4,506 5,016 -------- -------- -------- TOTAL ASSETS $524,331 $465,615 $532,764 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY DEPOSITS - NOTE 6 Noninterest-Bearing Demand $128,753 $116,822 $141,170 Interest-Bearing 325,145 289,150 324,330 -------- -------- -------- TOTAL DEPOSITS 453,898 405,972 465,500 SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE - NOTE 7 20,340 13,728 17,839 NOTE PAYABLE - NOTE 8 250 -0- -0- ACCRUED INTEREST PAYABLE 546 657 1,037 OTHER LIABILITIES 2,367 1,911 2,153 -------- -------- -------- TOTAL LIABILITIES 477,401 422,268 486,529 -------- -------- -------- COMMITMENTS AND CONTINGENCIES - NOTE 12, 14, 18 SHAREHOLDERS' EQUITY - NOTES 13, 15 AND 19 Common Stock - $1.25 Par Value; 20,000,000 shares authorized; 6,453,497, 6,514,794 and 6,471,827 shares issued and outstanding at June 30, 1999 and 1998 and at December 31, 1998, respectively 8,067 8,143 8,090 Capital Surplus 6,428 6,218 6,329 Retained Earnings 33,529 29,114 31,271 Accumulated Other Comprehensive Income - Unrealized Gain (Loss) on Available for Sale Investment Securities, Net of Tax (273) 286 560 Treasury Stock at Cost (43,500 shares at June 30, 1999) (821) (414) (15) -------- -------- -------- TOTAL SHAREHOLDERS' EQUITY 46,930 43,347 46,235 -------- -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $524,331 $465,615 $532,764 ======== ======== ========
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 Ended June 30, (Unaudited) --------------------------------- Year Ended December 31, 1999 1998 1998 ------------- ------------- -------- (In Thousands, Except Per Share Data) INTEREST INCOME Interest and Fees on Loans $ 14,546 $ 13,653 $ 28,000 Interest and Dividends on Investment Securities: Taxable 4,091 3,272 6,963 Exempt from Federal Income Taxes 19 26 50 Interest on Federal Funds Sold 459 989 2,052 -------- -------- -------- TOTAL INTEREST INCOME 19,115 17,940 37,065 -------- -------- -------- INTEREST EXPENSE Interest on Deposits 6,094 6,230 12,786 Interest on Securities Sold Under Agreements to Repurchase 314 307 692 Interest on Note Payable 3 -0- -0- -------- -------- -------- TOTAL INTEREST EXPENSE 6,411 6,537 13,478 -------- -------- -------- NET INTEREST INCOME 12,704 11,403 23,587 LESS: PROVISION FOR LOAN LOSSES - NOTE 3 638 408 785 -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 12,066 10,995 22,802 -------- -------- -------- NON-INTEREST INCOME Service Charges and Fees on Deposits 967 1,004 2,018 Loss on Sale of Investment Securities -0- -0- 35 Other Income 966 822 1,797 -------- -------- -------- TOTAL NON-INTEREST INCOME 1,933 1,826 3,850 -------- -------- -------- NON-INTEREST EXPENSE Salaries and Employee Benefits 4,491 4,102 8,576 Occupancy Expense - Net 550 471 928 Furniture and Equipment Expense 590 584 1,150 Other Real Estate Owned (Income) Expense - Net 25 -0- (1) Other Expense - Note 9 1,760 1,784 3,520 -------- -------- -------- TOTAL NON-INTEREST EXPENSE 7,416 6,941 14,173 -------- -------- -------- INCOME BEFORE INCOME TAXES 6,583 5,880 12,479 APPLICABLE INCOME TAXES - NOTE 10 2,276 2,013 4,333 -------- -------- -------- NET INCOME $ 4,307 $ 3,867 $ 8,146 ======== ======== ======== NET INCOME PER SHARE - NOTE 15 Basic $ .67 $ .59 $ 1.25 Diluted .64 .56 1.20
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, --------------------------- 1999 1998 ------------ ----------- (In Thousands, Except Per Share Data) INTEREST INCOME Interest and Fees on Loans $7,537 $6,975 Interest and Dividends on Investment Securities: Taxable 2,019 1,648 Exempt from Federal Income Taxes 9 13 Interest on Federal Funds Sold 156 431 ------ ------ TOTAL INTEREST INCOME 9,721 9,067 ------ ------ INTEREST EXPENSE Interest on Deposits 3,000 3,144 Interest on Securities Sold Under Agreements to Repurchase 154 144 Interest on Note Payable 3 -0- ------ ------ TOTAL INTEREST EXPENSE 3,157 3,288 ------ ------ NET INTEREST INCOME 6,564 5,779 LESS: PROVISION FOR LOAN LOSSES - NOTE 3 418 250 ------ ------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 6,146 5,529 ------ ------ NON-INTEREST INCOME Service Charges and Fees on Deposits 489 518 Other Income 413 438 ------ ------ TOTAL NON-INTEREST INCOME 902 956 ------ ------ NON-INTEREST EXPENSE Salaries and Employee Benefits 2,350 2,061 Occupancy Expense - Net 305 232 Furniture and Equipment Expense 307 289 Other Real Estate Owned (Income) Expense - Net (2) 3 Other Expense 718 850 ------ ------ TOTAL NON-INTEREST EXPENSE 3,678 3,435 ------ ------ INCOME BEFORE INCOME TAXES 3,370 3,050 APPLICABLE INCOME TAXES - NOTE 10 1,159 1,047 ------ ------ NET INCOME $2,211 $2,003 ====== ====== NET INCOME PER SHARE Basic $ .34 $ .30 Diluted .33 .29
The accompanying Notes should be read with these financial statements. 6 SUMMIT BANCSHARES, INC. AND SUBSIDIARIES STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY CONSOLIDATED AND COMPANY ONLY FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1998 (Unaudited)
Accumulated Other Comprehensive Income - Net Unrealized Gain (Loss) on Total Common Stock Capital Retained Investment Treasury Shareholders' Shares Amount Surplus Earnings Securities Stock Equity - ------------------------------------------------------------------------------------------------------------------------------------ (Dollars in Thousands, Except Per Share Data) BALANCE AT JANUARY 1, 1998 6,501,332 $8,127 $ 6,251 $ 26,491 $ 243 $ -0- $ 41,112 Purchases of Stock Held in Treasury (908) (908) Retirement of Stock Held in Treasury (25,000) (31) (463) 494 -0- Stock Options Exercised 38,462 47 (33) 14 Cash Dividend - $.12 Per Share (781) (781) Net Income for the Six Months Ended June 30,1998 3,867 3,867 Securities Available- for-Sale Adjustment 43 43 -------- Total Comprehensive Income 3,910 ----------- ------- -------- --------- --------- --------- -------- BALANCE AT JUNE 30, 1998 6,514,794 8,143 6,218 29,114 286 (414) 43,347 Purchases of Stock Held in Treasury (1,040) (1,040) Retirement of Stock Held in Treasury (76,700) (96) (1,343) 1,439 -0- Stock Options Exercised 33,733 43 111 154 Cash Dividend - $.12 Per Share (779) (779) Net Income for the Six Months Ended December 31, 1998 4,279 4,279 Securities Available- for-Sale Adjustment 274 274 -------- Total Comprehensive Income 4,553 ----------- ------- -------- --------- --------- --------- -------- BALANCE AT DECEMBER 31, 1998 6,471,827 8,090 6,329 31,271 560 (15) 46,235 Purchases of Stock Held in Treasury (1,902) (1,902) Retirement of Stock Held in Treasury (62,500) (78) (1,018) 1,096 -0- Stock Options Exercised 44,170 55 99 154 Cash Dividend - $.08 Per Share (1,031) (1,031) Net Income for the Six Months Ended June 30, 1999 4,307 4,307 Securities Available- for-Sale Adjustment (833) (833) -------- Total Comprehensive Income 3,474 ----------- ------- -------- --------- --------- --------- -------- BALANCE AT JUNE 30, 1999 6,453,497 $ 8,067 $ 6,428 $ 33,529 $ (273) $ (821) $ 46,930 =========== ======= ======== ========= ========= ========= ========
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, 1999 AND 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1998
(Unaudited) June 30, (Unaudited) ----------------------- December 31, 1999 1998 1998 ---------- ----------- ------------- (In Thousands) CASH FLOW FROM OPERATING ACTIVITIES: Net Income $ 4,307 $ 3,867 $ 8,146 -------- -------- --------- Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 537 516 1,037 Net Premium Amortization (Discount Accretion) of Investment Securities (17) 84 (31) Provision for Loan Losses 638 408 785 Deferred Income Taxes (Benefit) (115) (167) (465) Loss on Sale of Investment Securities -0- -0- (35) Writedown of Other Assets 1 -0- -0- Net Gain From Sale of Other Real Estate (9) (2) (2) Net (Gain) Loss on Sale of Premises and Equipment -0- 1 (3) Increase in Accrued Income and Other Assets (205) 10 (523) Increase (Decrease) in Accrued Expenses and Other Liabilities (277) 299 921 -------- -------- --------- Total Adjustments 553 1,149 1,684 -------- -------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 4,860 5,016 9,830 -------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: (Increase) Decrease in Federal Funds Sold 29,726 8,085 (2,946) Proceeds from Matured and Prepaid Investment Securities . Held-to-Maturity 3,280 13,457 21,627 . Available-for-Sale 55,184 14,614 63,334 Proceeds from Sales of Investment Securities 3,997 -0- 11,992 Purchase of Investment Securities . Held-to-Maturity (6,037) (15,118) (20,644) . Available-for-Sale (47,352) (15,317) (118,148) Loans Originated and Principal Repayments, Net (35,368) (16,990) (30,482) Recoveries of Loans Previously Charged-Off 92 55 217 Proceeds from Sale of Premises and Equipment -0- 2 6 Proceeds from Sale of Other Real Estate 49 82 82 Purchases of Premises and Equipment (419) (383) (2,206) -------- -------- --------- NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 3,152 (11,513) (77,168) -------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net Increase (Decrease) in Demand Deposits, Savings Accounts and Interest Bearing Transaction Accounts (8,642) 2,778 60,585 Net Increase (Decrease) in Certificates of Deposit (2,960) 1 470 3,191 Net Increase (Decrease) in Repurchase Agreements 2,501 (961) 3,150 Proceeds from Note Payable 250 -0- -0- Payments of Cash Dividends (1,031) (781) (1,560) Proceeds from Stock Options Exercised 154 14 168 Purchase of Treasury Stock (1,902) (908) (1,948) -------- -------- --------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (11,630) 1,612 63,586 -------- -------- --------- NET DECREASE IN CASH AND DUE FROM BANKS (3,618) (4,885) (3,752) CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 26,735 30,487 30,487 -------- -------- --------- CASH AND DUE FROM BANKS AT END OF PERIOD $ 23,117 $ 25,602 $ 26,735 ======== ======== =========
7 SUMMIT BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONT'D FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1998 (Unaudited) SUPPLEMENTAL SCHEDULE OF OPERATING AND INVESTING ACTIVITIES:
(Unaudited) June 30, (Unaudited) ------------------------- December 31, 1999 1998 1998 ---------- ----------- ----------- (In Thousands) (1) Interest Paid $6,902 $6,558 $13,120 (2) Income Taxes Paid (Refund Received) 2,419 2,215 4,815 (3) Other Real Estate Acquired in Settlement of Loans 1,226 -0- 210
9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SUMMIT BANCSHARES, INC. AND SUBSIDIARIES FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED) AND FOR THE YEAR ENDED DECEMBER 31, 1998 (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 the generally accepted accounting principles and the prevailing practices within the banking industry. A summary of the more significant policies follows: Basis of Presentation and Principles of Consolidation ----------------------------------------------------- The consolidated financial statements of the Corporation include its accounts and those of its wholly-owned subsidiaries, Summit National Bank and Summit Community Bank, National Association (the "Subsidiary Banks") and Summit Bancservices, Inc., a wholly-owned operations subsidiary. 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 1999 the average cash balance maintained at the Federal Reserve Bank was $950,000. Compensating balances held at correspondent banks, to minimize service charges, averaged approximately $17,554,000 during the same period. Investment Securities --------------------- The Corporation has adopted Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities ("SFAS 115"). At the date of purchase, the Corporation is required to classify debt and equity securities into one of three categories: held-to- maturity, trading or available-for-sale. At each reporting date, the appropriateness of the classification is reassessed. Investments in debt securities are classified as held-to-maturity and measured at amortized cost in the financial statements only if management has the positive intent and ability to hold those securities to maturity. Securities that are bought and held principally for the purpose of selling them in the near term are classified as trading and measured at fair value in the financial statements with unrealized gains and losses included in earnings. Investments not classified as either held-to-maturity or trading are classified as available-for-sale and measured at fair value in the financial statements with unrealized gains and losses reported, net of tax, in a separate component of shareholders' equity until realized. The Corporation has the ability and intent to hold to maturity its investment securities classified as held-to-maturity; accordingly, no adjustment has been made for the excess, if any, of amortized cost over market. In determining the investment category classifications at the time of purchase of securities, management considers its asset/liability strategy, changes in interest rates and prepayment risk, the need to increase capital and other factors. Under certain circumstances (including the deterioration of the issuer's creditworthiness, a change in tax law, or statutory or regulatory requirements), the Corporation may change the investment security classification. In the periods reported for 1999 and 1998 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 simple interest method. Generally, loan origination and commitment fees are recognized at the time of funding and are considered adjustments to interest income. Related direct costs are not separately allocated to loans but are charged to non-interest expense in the period incurred. The net effect of not recognizing such fees and related costs over the life of the related loan is not considered to be material to the financial statements. The accrual of interest on a loan is discontinued when, in the opinion of management, there is doubt about the ability of the borrower to pay interest or principal. Interest previously earned, but uncollected on such loans, is written off. After loans are placed on non-accrual all payments received are applied to principal and no interest income is recorded until the loan is returned to accrual status or the principal has been reduced to zero. The Corporation has adopted Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosure." Under this standard, the allowance for loan losses related to loans that are identified for evaluation in accordance with Statement No. 114 (impaired loans) is based on discounted cash flows using the loan's initial effective rate or the fair value of the collateral for certain collateral dependent loans. The allowance for loan losses is comprised of amounts charged against income in the form of a provision for loan losses as determined by management. Management's evaluation is based on a number of factors, including the Subsidiary Banks' loss experience in relation to outstanding loans and the existing level of the allowance, prevailing and prospective economic conditions, and management's continuing review of the discounted cash flow values of impaired loans and its evaluation of the quality of the loan portfolio. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. The evaluation of the adequacy of loan collateral is often based upon estimates and appraisals. Because of changing economic conditions, the valuations determined from such estimates and appraisals may also change. Accordingly, the Corporation may ultimately incur losses which vary from management's current estimates. Adjustments to the allowance for loan losses will be reported in the period such adjustments become known or are reasonably estimable. Premises and Equipment ---------------------- Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation expense is computed on the straight-line method based upon the estimated useful lives of the assets ranging from three to forty years. Maintenance and repairs are charged to non-interest expenses. Renewals and betterments are added to the asset accounts and depreciated over the periods benefited. Depreciable assets sold or retired are removed from the asset and related accumulated depreciation accounts and any gain or loss is reflected in the income and expense accounts. Other Real Estate ----------------- Other real estate is foreclosed property held pending disposition and is valued at the lower of its fair value or the recorded investment in the related loan. At foreclosure, if the fair value, less estimated costs to sell, of the real estate acquired is less than the Corporation's recorded investment in the related loan, a writedown is recognized through a charge to the allowance for loan losses. Any subsequent reduction in value is recognized by a charge to income. Operating expenses of such properties, net of related income, and gains and losses on their disposition are included in non-interest expense. Federal Income Taxes -------------------- The Corporation joins with its Subsidiaries in filing a consolidated federal income tax return. The Subsidiaries pay to the parent a charge equivalent to their current federal income tax based on the separate taxable income of the Subsidiaries. The Corporation and the Subsidiaries maintain their records for financial reporting and income tax reporting purposes on the accrual basis of accounting. Deferred income taxes are provided in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Deferred income taxes are provided for accumulated temporary differences due to basic differences for assets and liabilities for financial reporting and income tax purposes. Realization of net deferred tax assets is dependent on generating sufficient future taxable income. Although realization is not assured, management believes it is more likely than not that all of the net deferred tax assets will be realized. The amount of the net deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced. Cash and Cash Equivalents ------------------------- For the purpose of presentation in the Statements of Cash Flows, cash and cash equivalents are defined as those amounts included in the balance sheet caption "Cash and Due from Banks." 11 NOTE 1 - Summary of Significant Accounting Policies (cont'd.) - ------ Reclassification ---------------- Certain reclassifications have been made to the 1998 financial statements to conform to the 1999 presentation. Earnings Per Common and Common Equivalent Share ----------------------------------------------- Earnings per common and common equivalent share is calculated by dividing net income by the weighted average number of common shares and common share equivalents. Stock options are regarded as common share equivalents and are therefore considered in earnings per share calculations, if dilutive. The number of common share equivalents is determined using the treasury stock method. Audited Financial Statements ---------------------------- The consolidated balance sheet as of December 31, 1998, and the consolidated statements of income, changes in shareholders' equity and cash flows for the year ended December 31, 1998 are headed "unaudited" in these financial statements. These statements were reported in the Securities Exchange Commission Form 10-K as of December 31, 1998 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, 1999 --------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ----------- --------- Investment Securities - Held-to-Maturity U.S. Treasury Securities $ 8,992 $100 $ -0- $ 9,092 U.S. Government Agencies and Corporations 20,055 -0- (263) 19,792 Obligations of States and Political Subdivisions 289 2 -0- 291 -------- ---- ----- -------- Total Held-to-Maturity Securities 29,336 102 (263) 29,175 -------- ---- ----- -------- Investment Securities - Available-for-Sale U.S. Treasury Securities 26,020 186 (22) 26,184 U.S. Government Agencies and Corporations 65,598 34 (572) 65,060 U.S. Government Agency Mortgage Backed Securities 15,509 52 (95) 15,466 Obligations of States and Political Subdivisions 455 3 -0- 458 Federal Reserve and Federal Home Loan Bank Stock 1,190 -0- -0- 1,190 -------- ---- ----- -------- Total Available-for-Sale Securities 108,772 275 (689) 108,358 -------- ---- ----- -------- Total Investment Securities $138,108 $377 $(952) $137,533 ======== ==== ===== ========
In the above schedule the amortized cost of Total Held-to-Maturity Securities of $29,336,000 and the fair value of Total Available-for-Sale Securities of $108,358,000 are reflected in Investment Securities on the consolidated balance sheet as of June 30, 1999 for a total of $137,694,000. A net unrealized loss of $414,000 is included in the Available-for-Sale Investment Securities balance. The unrealized loss, net of tax benefit, is included in Shareholders' Equity. 12 NOTE 2 - Investment Securities (cont'd) - ------ A summary of amortized cost and estimated fair values of investment securities is as follows (in thousands):
June 30, 1998 --------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ----------- --------- Investment Securities - Held-to-Maturity U.S. Treasury Securities $ 14,993 $175 $ (2) $ 15,166 U.S. Government Agencies and Corporations 25,405 63 (27) 25,441 U.S. Government Agency Mortgage Backed Securities 6,216 53 (6) 6,263 Obligations of States and Political Subdivisions 1,135 6 -0- 1,141 -------- ---- ---- -------- Total Held-to-Maturity Securities 47,749 297 (35) 48,011 -------- ---- ---- -------- Investment Securities - Available-for-Sale U.S. Treasury Securities 39,533 366 (20) 39,879 U.S. Government Agencies and Corporations 11,104 49 -0- 11,153 U.S. Government Agency Mortgage Backed Securities 8,104 39 -0- 8,143 Federal Reserve and Federal Home Loan Bank Stock 1,048 -0- -0- 1,048 -------- ---- ---- -------- Total Available-for-Sale Securities 59,789 454 (20) 60,223 -------- ---- ---- -------- Total Investment Securities $107,538 $751 $(55) $108,234 ======== ==== ==== ========
In the above schedule the amortized cost of Total Held-to-Maturity Securities of $47,749,000 and the fair value of Total Available-for-Sale Securities of $60,223,000 are reflected in Investment Securities on the consolidated balance sheet as of June 30, 1998 for a total of $107,972,000. A net unrealized gain of $434,000 is included in the Available-for-Sale Investment Securities balance. The unrealized gain, net of tax, is included in Shareholders' Equity. Effective October 1, 1998, the Corporation adopted Statement of Financial Accounting Standards Board No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133") which establishes accounting and reporting standards for derivative instruments and requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. At the effective date, the Corporation transferred approximately $17,448,000 of securities from Held-to-Maturity to Available-for-Sale classification. At the time of transfer the securities had an approximate unrealized gain of $349,000. NOTE 3 - Loans and Allowance for Loan Losses - ------ The book values of loans by major type follow (in thousands):
June 30, ------------------------- December 31, 1999 1998 1998 ---------- ----------- ----------- Commercial $157,320 $129,424 $133,066 Real Estate Mortgage 111,323 96,994 100,421 Real Estate Construction 37,968 35,338 40,456 Loans to Individuals 32,894 31,654 32,388 Less: Unearned Discount (293) (564) (498) -------- -------- -------- 339,212 292,846 305,833 Allowance for Loan Losses (4,895) (4,413) (4,724) -------- -------- -------- Loans - Net $334,317 $288,433 $301,109 ======== ======== ========
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, 1999 1998 1998 ------------- ------------- ----------- Balance, Beginning of Period $4,724 $4,065 $4,065 Provisions, Charged to Income 638 408 785 Loans Charged-Off (559) (115) (343) Recoveries of Loans Previously Charged-Off 92 55 217 ------ ------ ------ Net Loans (Charged-Off) Recovered (467) (60) (126) ------ ------ ------ Balance, End of Period $4,895 $4,413 $4,724 ====== ====== ======
The provisions for loan losses charged to operating expenses during the six months ended June 30,1999 and June 30,1998 of $638,000 and $408,000, respectively, were considered adequate to maintain the allowance in accordance with the policy discussed in Note 1. For the year ended December 31, 1998, a provision of $785,000 was recorded. At June 30,1999, the recorded investment in loans that are considered to be impaired under Statement of Financial Accounting Standards No. 114 was $2,861,000 (of which $2,861,000 were on non-accrual status). The related allowance for loan losses for these loans was $893,000. The average recorded investment in impaired loans during the six months ended June 30, 1999 was approximately $3,410,000. For this period the Corporation recognized no interest income on these impaired loans. NOTE 4 - Premises and Equipment - ------ The investment in premises and equipment stated at cost and net of accumulated amortization and depreciation is as follows (in thousands):
June 30, -------------------- December 31, 1999 1998 1998 --------- --------- ------------ Land $ 2,783 $ 1,446 $ 2,783 Buildings and Improvements 7,560 7,573 7,537 Furniture & Equipment 7,600 6,816 7,234 ------- ------- ------- Total Cost 17,943 15,835 17,554 Less: Accumulated Amortization and Depreciation (8,979) (8,054) (8,472) ------- ------- ------- Net Book Value $ 8,964 $ 7,781 $ 9,082 ======= ======= =======
NOTE 5 - Other Real Estate - ------ The carrying value of other real estate is as follows (in thousands):
June 30, -------------------------- December 31, 1999 1998 1998 ----------- ----------- ----------- Other Real Estate $1,467 $ 71 $ 281 Valuation Reserve -0- -0- -0- ------ ----- ----- Net Other Real Estate $1,467 $ 71 $ 281 ====== ===== =====
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, 1999 1998 1998 ------ ------ ------ Balance, Beginning of Period $ -0- $ 34 $ 34 Provisions Charged to Income -0- -0- -0- Reductions from Sales -0- (34) (34) ------ ----- ----- Balance, End of Period $ -0- $ -0- $ -0- ====== ===== =====
There were no direct writedowns of other real estate charged to income for the six months ended June 30, 1999 or June 30, 1998, respectively, or for the year ended December 31, 1998. NOTE 6 - Deposits - ------ The book values of deposits by major type follow (in thousands):
June 30, ----------------------- December 31, 1999 1998 1998 --------- --------- ----------- Noninterest-Bearing Demand Deposits $128,753 $116,822 $141,170 -------- -------- ---------- Interest-Bearing Deposits: Interest-Bearing Transaction Accounts and Money Market Funds 156,658 137,165 151,557 Savings 80,177 62,435 81,503 Savings Certificates - Time 53,242 52,162 53,394 Certificates of Deposits $100,000 or more 34,290 36,610 37,099 Other 778 778 777 -------- -------- -------- Total 325,145 289,150 324,330 -------- -------- -------- Total Deposits $453,898 $405,972 $465,500 ======== ======== ========
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, 1999 1998 1998 ------------- ------------- ----------- Securities Sold Under Repurchase Agreements: Average $16,806 $13,461 $15,742 Period-End 20,340 13,728 17,839 Maximum Month-End Balance During Period 20,340 15,249 19,354 Interest Rate Average 3.77% 4.60% 4.40% Period-End 3.83 4.55 3.83
NOTE 8 - Notes Payable - ------ On July 15, 1998, the Corporation obtained lines of credit from a bank under which the Corporation may borrow $9,000,000 at prime rate. The lines of credit are secured by stock of one of the Subsidiary Banks and mature in July 1999, whereupon, if balances are outstanding, the lines convert to term notes having five year terms. The Corporation will not pay a fee for any unused portion of the lines. As of June 30, 1999, $250,000 had been borrowed under these lines and was outstanding on that date. It is anticipated this advance under the line of credit will be paid before converting to a term note. 15 NOTE 9 - 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, 1999 1998 1998 ----------- ------------ ------------ Business Development $ 269 $ 303 $ 611 Legal and Professional Fees 288 252 511 Printing and Supplies 196 202 387 Regulatory Fees and Assessments 91 84 169 Other 916 943 1,842 ------ ------ ------ Total $1,760 $1,784 $3,520 ====== ====== ======
NOTE 10 - Income Taxes - ------- Federal income taxes included in the consolidated balance sheets were as follows (in thousands):
June 30, ---------------------- December 31, 1999 1998 1998 -------- -------- ------------ Current Tax Asset $ 38 $ 28 $ 10 Deferred Tax Asset 1,517 816 973 ------ ----- ----- Total Included in Other Assets $1,555 $ 844 $ 983 ====== ===== =====
The deferred tax asset at June 30, 1999 of $1,517,000 included $141,000 related to unrealized losses 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, 1999 1998 1998 ------------- ------------ ------------- Federal Income Tax Expense Current $2,391 $2,180 $4,798 Deferred (benefit) (115) (167) (465) ------ ------ ------ Total Federal Income Tax Expense $2,276 $2,013 $4,333 ====== ====== ====== Effective Tax Rates 34.6% 34.2% 34.7% ====== ====== ======
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, 1999 1998 1998 ------------- ------------ ------------- Federal Income Taxes at Statutory Rate of 34.3% $2,258 $1,999 $4,278 Effect of Tax Exempt Interest Income (6) (10) (19) Non-deductible Expenses 25 25 58 Other (1) (1) 16 ------ ------ ------ Income Taxes Per Income Statement $2,276 $2,013 $4,333 ====== ====== ======
16 NOTE 10 - Income Taxes (con't) - ------- Deferred income tax expense (benefit) results from differences between amounts of assets and liabilities as measured for income tax return and financial reporting purposes. The significant components of federal deferred tax assets and liabilities are in the following table (in thousands):
Six Months Ended Year Ended June 30, December 31, 1999 1998 ---------------- ------------ Federal Deferred Tax Assets: Allowance for Loan Losses $1,221 $1,107 Valuation Reserves - Other Real Estate 1 1 Interest on Non-accrual Loans 173 199 Deferred Compensation 417 414 Unrealized Losses on Available for Sale Securities 141 -0- Other 16 18 ------ ------ Gross Federal Deferred Tax Assets 1,969 1,739 ------ ------ Federal Deferred Tax Liabilities: Depreciation and Amortization 297 301 Accretion 45 78 Unrealized Gains on Available-for-Sale Securities -0- 289 Other 110 98 ------ ------ Gross Federal Deferred Tax Liabilities 452 766 ------ ------ Net Deferred Tax Asset $1,517 $ 973 ====== ======
NOTE 11 - Related Party Transactions - ------- The Subsidiary Banks have transactions made in the ordinary course of business with certain of its officers, directors and their affiliates. All loans included in such transactions are made on substantially the same terms, including interest rate and collateral, as those prevailing at the time for comparable transactions with other persons. Total loans outstanding to such parties amounted to approximately $2,848,000 at December 31, 1998. NOTE 12 - Commitments and Contingent Liabilities - ------- In the normal course of business, there are various outstanding commitments and contingent liabilities, such as guarantees and commitments to extend credit, which are not reflected in the financial statements. No losses are anticipated as a result of these transactions. Commitments are most frequently extended for real estate, commercial and industrial loans. At June 30, 1999, outstanding documentary and standby letters of credit totaled $4,032,000 and commitments to extend credit totaled $118,199,000. NOTE 13 - Stock Option Plans - ------- The Corporation has two Incentive Stock Option Plans, the 1993 Plan and the 1997 Plan, ("the Plans"). Each Plan has reserved 600,000 shares (adjusted for two-for-one stock splits in 1995 and 1997) of common stock for grants thereunder. The Plans provide for the granting to executive management and other key employees of Summit Bancshares, Inc. and subsidiaries incentive stock options, as defined under the current tax law. The options under the Plans will be exercisable for ten years from the date of grant and generally vest ratably over a five year period. Options will be and have been granted at prices which will not be less than 100-110% of the fair market value of the underlying common stock at the date of grant. The Corporation applies APB Opinion No. 25 and related Interpretations in accounting for its plans. Since the option prices are considered to approximate fair market value at date of grant, no compensation expense has been reported. Had compensation cost for these plans been determined consistent with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" the Corporation's net income and earnings per share would have been reduced by insignificant amounts on a proforma basis for the year ended December 31, 1998, and the six months ended June 30, 1999. 17 NOTE 13 - Stock Option Plans (con't) - ------- The following is a summary of transactions during the periods presented:
Shares Under Option ----------------------------------- Six Months Ended Year Ended June 30, 1999 December 31, 1998 --------------- ------------------ Outstanding, Beginning of Period 461,717 543,112 Additional Options Granted During the Period 39,500 3,000 Forfeited During the Period (2,400) (5,400) Exercised During the Period (44,170) (78,995) ------- ------- Outstanding, End of Period 454,647 461,717 ======= =======
Options outstanding at June 30, 1999 ranged in price from $3.00 to $19.25 per share with a weighted average exercise price of $8.02 and 345,785 shares exercisable. At June 30, 1999, there remained 494,800 shares reserved for future grants of options under the 1997 Plan. NOTE 14 - Employee Benefit Plans - ------- Pension Plan - ------------ 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. Effective August 31, 1998, the accrual of benefits under this plan were suspended. In February 1999, the Board of Directors chose to terminate the plan effective April 15, 1999. The assets held in trust will be distributed to the plan participants under terms of the plan as soon as administratively possible. 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. 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):
1998 1997 ------- ------- Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $1,719,000 in 1998 and $2,240,000 in 1997 $1,852 $2,420 ====== ====== Projected benefit obligation for service rendered to date $2,958 $3,035 Plan assets at fair value, primarily listed stocks and U.S. bonds 2,176 2,883 ------ ------ Projected benefit obligation in excess of (less than) plan assets 782 152 Unrecognized net loss from past experience different from that assumed and effect of changes in assumptions (930) (396) Prior service cost not yet recognized in net periodic pension cost (10) 12 ------ ------ Prepaid pension cost included in other assets $ (158) $ (232) ====== ======
18 NOTE 14 - Employee Benefit Plans (con't) - ------- Net pension expense included the following components (in thousands):
Year Ended December 31, ----------------------- 1998 1997 ------ ------ Service Cost - benefits earned during the period $ 355 $ 227 Interest cost on projected benefit obligation 170 157 Less: Actual return on plan assets (126) (196) Net amortization and deferral 39 5 ------ ------ Net periodic pension cost $ 438 $ 193 ====== ======
The discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 7 percent and 6 percent, respectively. The expected long-term rate of return on plan assets was 7 percent. The market value of plan assets at June 30, 1999 was $2,132,000. There has not been a contribution to the plan during 1999. Prepaid pension cost at June 30, 1999 was $77,000. 401(k) Plan - ----------- The Corporation implemented a 401(k) plan in December 1997 covering substantially all employees. The Corporation has not matched the employee's contributions to date nor made any other contribution to the plan. Management Security Plan - ------------------------ In 1992, the Corporation established a Management Security Plan to provide key employees with retirement, death or disability benefits in addition to those provided by the Pension Plan. The expense charged to operations for such future obligations was $103,000 and $110,000 during the six months of 1999 and 1998, respectively, and $237,000 for the year 1998. 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). NOTE 15 - Earnings per Share - ------- The following data shows the amounts used in computing earnings per share and the weighted average number of shares of dilutive potential common stock. The number of shares used in the calculations reflect a two-for-one stock split in December 1997 (dollars in thousands)
June 30, ------------------------ December 31, 1999 1998 1998 ---------- ---------- ------------ Net income $ 4,307 $ 3,867 $ 8,146 ========== ========== ========== Weighted average number of common shares used in Basic EPS 6,439,205 6,508,425 6,496,595 Effect of dilutive stock options 249,749 343,130 316,702 ---------- ---------- ---------- Weighted number of common shares and dilutive potential common stock used in Diluted EPS 6,688,954 6,851,555 6,813,297 ========== ========== ==========
NOTE 16 - Financial Instruments with Off-Balance Sheet Risk - ------- The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include loan commitments, standby letters of credit and documentary letters of credit. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. The Corporation's exposure to credit loss in the event of non-performance by the other party of these loan commitments and standby letters of credit is represented by the contractual amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. 19 NOTE 16 - Financial Instruments with Off-Balance Sheet Risk (con't) - -------- The total contractual amounts of financial instruments with off-balance sheet risk are as follows (in thousands):
June 30, ------------------ 1999 1998 -------- -------- Financial Instruments Whose Contract Amounts Represent Credit Risk: Commitments to Extend Credit $118,199 $109,019 Documentary and Standby Letters of Credit 4,032 3,502
Since many of the loan commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The Corporation evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, owner occupied real estate and income-producing commercial properties. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. NOTE 17 - Concentrations of Credit Risk - ------- The Subsidiary Banks grant commercial, consumer and real estate loans in their direct market which is defined as Fort Worth and its surrounding area. The Board of Directors of each Subsidiary Bank monitors concentrations of credit by purpose, collateral and industry at least quarterly. Certain limitations for concentration are set by the Boards. Additional loans in excess of these limits must have prior approval of the bank's directors' loan committee. Although its Subsidiary Banks have diversified loan portfolios, a substantial portion of its debtors' abilities to honor their contracts is dependent upon the strength of the local and state economy. NOTE 18 - Litigation - ------- Certain of the Subsidiary Banks are involved in legal actions arising in the ordinary course of business. It is the opinion of management, after reviewing such actions with outside legal counsel, that the settlement of these matters will not materially affect the Corporation's financial position. NOTE 19 - Stock Repurchase Plan - ------- On April 20, 1999, the Board of Directors approved a stock repurchase plan. The plan authorized management to purchase up to 322,232 shares of the Corporation's common stock over the next twelve months through the open market or in privately negotiated transactions in accordance with all applicable state and federal laws and regulations. In the six months of 1999, 105,200 shares were purchased by the Corporation through a similar repurchase plan through the open market. NOTE 20 - Subsequent Event - ------- On July 20, 1999, the Board of Directors of the Corporation approved a quarterly dividend of $.08 per share to be paid on August 16, 1999 to shareholders of record on August 2, 1999. 20 NOTE 21 - Fair Values of Financial Instruments - ------- The following methods and assumptions were used by the Corporation in estimating its fair value disclosures for financial instruments: Cash and cash equivalents: The carrying amounts reported in the balance sheet for cash and due from banks and federal funds sold approximate those assets' fair values. Investment securities (including mortgage-backed securities): Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Loans: For variable-rate loans, fair values are based on carrying values. The fair values for fixed rate loans such as mortgage loans (e.g., one-to- four family residential) and installment loans are estimated using discounted cash flow analysis. The carrying amount of accrued interest receivable approximates its fair value. Deposit liabilities: The fair value disclosed for interest bearing and noninterest-bearing demand deposits, passbook savings, and certain types of money market accounts are, by definition, equal to the amount payable on demand at the reporting date or their carrying amounts. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. Short-term borrowings: The carrying amounts of borrowings under repurchase agreements approximate their fair values. The estimated fair values of the Corporation's financial instruments are as follows (in thousands):
June 30, ------------------------------------------ 1999 1998 -------------------- -------------------- Carrying Fair Carrying Fair Amount Value Amount Value --------- --------- --------- --------- Financial Assets Cash and due from banks $ 23,117 $ 23,117 $ 25,602 $ 25,602 Federal funds sold 8,980 8,980 27,675 27,675 Securities 137,694 137,533 107,972 108,677 Loans 339,212 340,327 292,846 292,170 Reserve for loan losses (4,895) (4,895) (4,413) (4,413) Financial Liabilities Deposits 453,898 454,166 405,972 406,241 Securities sold under repurchase agreements 20,340 20,340 13,728 13,731 Note Payable 250 250 -0- -0- Off-balance Sheet Financial Instruments Loan commitments 118,199 109,019 Letters of credit 4,032 3,502
NOTE 22 - Comprehensive Income - ------- The Corporation has adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income". This new standard requires an entity to report and display comprehensive income and its components. Comprehensive income is as follows (in thousands):
For the Six Months Ended June 30, ---------------------------------- Year Ended 1999 1998 December 31, 1998 ---------------- ---------------- ----------------- Net Income $4,307 $3,867 $8,146 Other Comprehensive Income: Unrealized gain (loss) on securities available-for-sale, net of tax (833) 43 317 ------ ------ ------ Comprehensive Income $3,474 $3,910 $8,463 ====== ====== ======
21 Item 2 - Management's Discussion and Analysis of Financial Condition and - ------------------------------------------------------------------------ Results of Operations - --------------------- Summary - ------- Management's Discussion and Analysis of Financial Condition and Results of Operations of the Corporation analyzes the major elements of the Corporation's consolidated balance sheets and statements of income. This discussion should be read in conjunction with the consolidated financial statements and accompanying notes. Net income for the second quarter of 1999 was $2,211,000, or $.33 diluted earnings per share, compared with $2,003,000, or $.29 diluted earnings per share, for the second quarter of 1998. Net income for the first six months of 1999 was $4,307,000, or $.64 diluted earnings per share, compared with $3,867,000, or $.56 diluted earnings per share, for the first six months of the prior year. On a per share basis, diluted earnings per share increased 13.8% over the second quarter of the prior year. Per share amounts are based on average shares outstanding of 6,688,954 for the first six months of 1999 and 6,851,555 for the comparable period of 1998 adjusted to reflect stock options granted. Outstanding loans at June 30, 1999 of $339.2 million represented an increase of $46.4 million, or 15.8%, over June 30,1998 and an increase of $33.4 million, or 10.9%, from December 31, 1998. Total deposits at June 30, 1999 of $453.9 million represented an increase of $47.9 million, or 11.8%, over June 30,1998 and a decrease of $11.6 million, or 2.5%, from December 31, 1998. In the second quarter, net interest income increased 13.6% over the previous year. Non-interest expense increased 7.1% in the second quarter over that of the same period in the prior year. The following table summarizes the Corporation's performance for the three months and six months ended June 30, 1999 and 1998 (tax equivalent basis and dollars in thousands).
Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------- 1999 1998 1999 1998 ------ ------ ------- ------- Interest Income $9,725 $9,075 $19,124 $17,956 Interest Expense 3,157 3,288 6,411 6,537 ------ ------ ------- ------- Net Interest Income 6,568 5,787 12,713 11,419 Provision for Loan Loss 418 250 638 408 ------ ------ ------- ------- Net Interest Income After Provision for Loan Loss 6,150 5,537 12,075 11,011 Non-Interest Income 902 956 1,933 1,826 Non-Interest Expense 3,678 3,435 7,416 6,941 ------ ------ ------- ------- Income Before Income Tax 3,374 3,058 6,592 5,896 Income Tax Expense 1,163 1,055 2,285 2,029 ------ ------ ------- ------- Net Income $2,211 $2,003 $ 4,307 $ 3,867 ====== ====== ======= ======= Net Income per Share- Basic $ .34 $ .30 $ .67 $ .59 Diluted .33 .29 .64 .56 Return on Average Assets 1.71% 1.73% 1.67% 1.69% Return on Average Stockholders' Equity 18.89% 18.65% 18.59% 18.42%
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 second quarter of 1999 and 1998 (rates on tax equivalent basis).
Three Months ended June 30, -------------------------------------------------------------------- 1999 1998 --------------------------------- --------------------------------- Average Average Average Average Balances Interest Yield/Rate Balances Interest Yield/Rate ---------- -------- ----------- ---------- -------- ----------- (Dollars in Thousands) Earning Assets: Federal Funds Sold & Due From $ 12,930 $ 156 4.84% $ 31,338 $ 431 5.53% Investment Securities (Taxable) 138,384 2,019 5.85 107,658 1,648 6.14 Investment Securities (Tax-exempt) 745 13 7.11 1,137 20 6.88 Loans, Net of Unearned Discount(1) 330,685 7,537 9.14 290,811 6,976 9.62 -------- ------ -------- ------ Total Earning Assets 482,744 9,725 8.08 430,944 9,075 8.45 ------ ------ Non-interest Earning Assets: Cash and Due From Banks 23,095 22,130 Other Assets 18,850 15,506 Allowance for Loan Losses (4,720) (4 ,306) -------- -------- Total Assets $519,969 $464,274 ======== ======== Interest-Bearing Liabilities: Interest-Bearing Transaction Accounts and Money Market Funds $153,200 1,188 3.11 $139,867 1,283 3.68 Savings 82,527 792 3.85 64,202 710 4.43 Savings Certificates 52,674 597 4.54 51,866 660 5.10 Certificates of Deposit $100,000 or more 34,722 413 4.77 35,931 478 5.34 Other Time 778 10 5.05 956 13 5.56 Other Borrowings 16,569 157 3.80 12,730 144 4.53 -------- ------ -------- ------ Total Interest-Bearing Liabilities 340,470 3,157 3.72 305,552 3,288 4.32 ------ ------ Non-interest Bearing Liabilities: Demand Deposits 130,200 113,223 Other Liabilities 2,735 2,419 Shareholders' Equity 46,564 43,080 -------- -------- Total Liabilities and Shareholders' Equity $519,969 $464,274 ======== ======== Net Interest Income and Margin (Tax-equivalent Basis)(2) $6,568 5.46 $5,787 5.39 ====== ======
(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 The following schedule presents average balance sheets that highlight earning assets and interest-bearing liabilities and their related rates earned and paid for the six months ended June 30, 1999 and 1998 (rates on tax equivalent basis).
Six Months Ended June 30, -------------------------------------------------------------------- 1999 1998 --------------------------------- -------------------------------- Average Average Average Average Balances Interest Yield/Rate Balances Interest Yield/Rate ---------- -------- ----------- ---------- -------- ----------- (Dollars in Thousands) Earning Assets: Federal Funds Sold & Due From $ 19,135 $ 459 4.82% $ 36,104 $ 991 5.53% Investment Securities (Taxable) 141,868 4,091 5.82 107,026 3,271 6.16 Investment Securities (Tax-exempt) 817 28 7.08 1,139 39 6.98 Loans, Net of Unearned Discount(1) 321,058 14,546 9.14 283,944 13,655 9.70 -------- ------- -------- ------- Total Earning Assets 482,878 19,124 7.99 428,213 17,956 8.46 ------- ------- Non-interest Earning Assets: Cash and Due From Banks 23,186 22,169 Other Assets 18,870 15,490 Allowance for Loan Losses (4,754) (4,224) -------- -------- Total Assets $520,180 $461,648 ======== ======== Interest-Bearing Liabilities: Interest-Bearing Transaction Accounts & Money Market Funds $153,973 2,400 3.14 $138,328 2,498 3.64 Savings 82,723 1,607 3.92 65,137 1,438 4.45 Savings Certificates 52,949 1,211 4.61 51,767 1,308 5.09 Certificates of Deposit $100,000 or more 35,407 856 4.88 36,346 960 5.33 Other Time 778 20 5.13 931 26 5.63 Other Borrowings 16,900 317 3.78 13,461 307 4.60 -------- ------- -------- ------- Total Interest-Bearing Liabilities 342,730 6,411 3.77 305,970 6,537 4.31 ------- ------- Non-interest Bearing Liabilities: Demand Deposits 128,363 111,004 Other Liabilities 2,548 2,337 Shareholders' Equity 46,539 42,337 -------- -------- Total Liabilities and Shareholders' Equity $520,180 $461,648 ======== ======== Net Interest Income and Margin (Tax-equivalent Basis)(2) $12,713 5.31 $11,419 5.38 ======= =======
(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 1999 was $6,568,000 which represented an increase of $781,000, or 13.5%, over the second quarter of 1998. This increase was heavily contributed to by a 13.7% increase in average loans for the second quarter of 1999 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, 1999 and 1998.
ANALYSIS OF CHANGES IN NET INTEREST INCOME (Dollars in Thousands) 2nd Qtr. 1999 vs. 2nd Qtr. 1998 Six Months 1999 vs. Six Months 1998 Increase (Decrease) Increase (Decrease) Due to Changes in: Due to Changes in: --------------------------------- ------------------------------------- Volume Rate Total Volume Rate Total --------- --------- --------- ----------- ---------- ---------- Interest Earning Assets: Federal Funds Sold $ (227) $ (48) $(275) $ (418) $ (114) $ (532) Investment Securities (Taxable) 851 (480) 371 1,334 (514) 820 Investment Securities (Tax-exempt) (11) 4 (7) (13) 2 (11) Loans, Net of Unearned Discount 2,458 (1,897) 561 2,827 (1,936) 891 ------ ------- ----- ------ ------- ------ Total Interest Income 3,071 (2,421) 650 3,730 (2,562) 1,168 ------ ------- ----- ------ ------- ------ Interest-Bearing Liabilities: Deposits 1,447 (1,591) (144) 1,413 (1,549) (136) Other Borrowings 130 (117) 13 136 (126) 10 ------ ------- ----- ------ ------- ------ Total Interest Expense 1,577 (1,708) (131) 1,549 (1,675) (126) ------ ------- ----- ------ ------- ------ Net Interest Income $1,494 $ (713) $ 781 $2,181 $ (887) $1,294 ====== ======= ===== ====== ======= ======
Allowance for Loan Losses and Non-Performing Assets - --------------------------------------------------- The Corporation's allowance for loan losses was $4,895,000, or 1.44% of total loans, as of June 30, 1999 compared to $4,413,000, or 1.51% of total loans, as of June 30,1998. Transactions in the provision for loan losses are summarized as follows (in thousands):
Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------ 1999 1998 1999 1998 ------- ------- ------- -------- Balance, Beginning of Period $4,749 $4,192 $4,724 $4,065 Provisions, Charged to Income 418 250 638 408 Loans Charged-Off (325) (68) (559) (115) Recoveries of Loans Previously Charged-Off 53 39 92 55 ------ ------ ------ ------ Net Loans (Charged-Off) Recovered (272) (29) (467) (60) ------ ------ ------ ------ Balance, End of Period $4,895 $4,413 $4,895 $4,413 ====== ====== ====== ======
For the six months ended June 30, 1999 and 1998, net charge-offs were .14% and .02% of loans, respectively, not annualized. 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, 1999 1999 1998 1998 1998 --------- ---------- ------------- -------------- --------- Non-Accrual Loans $2,952 $4,207 $5,049 $6,213 $6,830 Other Real Estate Owned 1,467 1,711 281 71 71 ------ ------ ------ ------ ------ Total Non-Performing Assets $4,419 $5,918 $5,330 $6,284 $6,901 ====== ====== ====== ====== ====== June 30, March 31, December 31, September 30, June 30, 1999 1999 1998 1998 1998 --------- ---------- ------------- -------------- --------- As a Percent of: Total Assets .84% 1.14% 1.00% 1.28% 1.48% Total Loans and Other Assets 1.30 1.85 1.74 2.08 2.36 Loans Past Due 90 days or More and Still Accruing $ 17 $ 7 $ 3 $ 269 $ 6
Non-accrual loans to total loans were .87% at June 30, 1999 and non- performing assets were 1.30% of loans and other real estate owned at the same date. As of June 30, 1999, loans to five borrowers represent approximately 93% of the loans on non-accrual and three of these borrowers are current as to payment of principal and interest on their loans. The Corporation does not see the increase in non-accrual loans in mid 1998 as a signal of a weakened local economy or a change in the Corporation's lending standards, rather this is the enforcement of the Corporation's strict policy of identifying problem loans as soon as any difficulty a borrower may be experiencing is noted. The following table summarizes the relationship between non-performing loans, criticized loans and the allowance for loan losses (dollars in thousands).
June 30, March 31, December 31, September 30, June 30, 1999 1999 1998 1998 1998 --------- ---------- ------------- -------------- --------- Non-Performing Loans $2,952 $4,207 $ 5,055 $ 6,482 $ 6,830 Criticized Loans 9,755 9,597 10,468 11,524 11,737 Allowance for Loan Losses 4,895 4,749 4,724 4,663 4,413 Allowance for Loan Losses as a Percent of: Non-Performing Loans 166% 129% 94% 72% 65% Criticized Loans 50 50 45 40 38
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, ----------------------------- ----------------------------- 1999 1998 % Change 1999 1998 % Change -------- -------- --------- ------- --------- --------- Service Charges on Deposit Accounts $ 489 $ 518 (5.6)% $ 967 $1,004 (3.7)% Non-recurring Income 46 88 -- 244 154 -- Other Non-interest Income 367 350 4.9 722 668 8.1 ----- ----- ----- ------ ------ Total Non-interest Income $ 902 $ 956 (5.7) $1,933 $1,826 5.9 ===== ===== ====== ======
Non-recurring income is primarily franchise tax refunds, interest recovered on loans charged-off in prior years and gains on sales of assets taken in satisfaction of debt in prior years. The increase in other non-interest income in the second quarter of 1999 is primarily due to increases in mortgage brokerage/origination fees and fees earned on investment services to customers. 26 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, ----------------------------- --------------------------------- 1999 1998 % Change 1999 1998 % Change --------- ------- --------- ---------- ---------- --------- Salaries & Employee Benefits $2,350 $2,061 14.0% $4,491 $4,102 9.5% Occupancy Expense - Net 305 232 31.5 550 471 16.8 Furniture and Equipment Expense 307 289 6.2 590 584 1.03 Other Real Estate Expense - Net (2) 3 -- 25 -0- -- Other Expenses: Business Development 145 159 (8.8) 269 303 (11.2) Insurance - Other 36 21 71.4 71 46 54.3 Legal & Professional Fees 121 121 -- 288 252 14.3 Taxes - Other 47 82 (42.7) 112 167 (32.9) Postage & Courier 80 69 15.9 158 141 12.1 Printing & Supplies 91 107 (15.0) 196 202 (3.0) Regulatory Fees & Assessments 45 44 2.3 91 84 8.3 Other Operating Expenses 153 247 (38.1) 575 589 (2.4) ------ ------ ------ ------ Total Other Expenses 718 850 (15.5) 1,760 1,784 (1.3) ------ ------ ------ ------ Total Non-interest Expense $3,678 $3,435 7.1 $7,416 $6,941 6.8 ====== ====== ====== ======
Total non-interest expense increased 7.1% in the second quarter of 1999 over 1998, reflecting increases primarily in salaries and benefits and occupancy expense. As a percent of average assets, non-interest expenses were 2.84% in the second quarter of 1999 and 2.97% in the same period of 1998. The "efficiency ratio" (non-interest expenses divided by total non-interest income plus net interest income) was 49.2% for the second quarter of 1999. 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 1999 is due to salary merit increases and additions to staff. The average number of full-time equivalent employees increased by 3.5 to an average full-time equivalent of 170.5 from the twelve months prior. This increase in number of employees was required because of the increase in assets over the past year. The increase in occupancy expense is primarily due to increased repairs, increased property taxes and increased rent as a result of one branch office relocating from temporary quarters to a permanent facility. Other operating expenses decreased in the second quarter of 1999 due to decreases in various miscellaneous operating costs. 27 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, 1999 and may not be reflective of positions in subsequent periods (dollars in thousands):
Total Repriced Matures or Reprices within: Rate After ------------------------------------------ Sensitive 1 Year or 30 Days 31-180 181 to One Year Non-interest or Less Days One Year or Less Sensitive Total ------------- ------------ --------- ---------- ------------ --------- Earning Assets: Loans $220,958 $ 12,278 $ 9,492 $242,728 $ 96,484 $339,212 Investment Securities 4,479 17,398 19,450 41,327 96,367 137,694 Federal Funds Sold 8,980 -0- -0- 8,980 -0- 8,980 -------- -------- -------- -------- -------- -------- Total Earning Assets 234,417 29,676 28,942 293,035 192,851 485,886 -------- -------- -------- -------- -------- -------- Interest Bearing Liabilities: Interest-Bearing Transaction Accounts and Savings 236,835 -0- -0- 236,835 -0- 236,835 Certificate of Deposits >$100,000 12,750 9,723 10,588 33,061 1,229 34,290 Other Time Deposits 17,055 16,641 16,704 50,400 3,620 54,020 Repurchase Agreements 20,340 -0- -0- 20,340 -0- 20,340 Note Payable 250 -0- -0- 250 -0- 250 -------- -------- -------- -------- -------- -------- Total Interest Bearing Liabilities 287,230 26,364 27,292 340,886 4,849 345,735 -------- -------- -------- -------- -------- -------- Interest Sensitivity Gap $(52,813) $ 3,312 $ 1,650 $(47,851) $188,002 $140,151 ======== ======== ======== ======== ======== ======== Cumulative Gap $(52,813) $(49,501) $(47,851) ======== ======== ======== Cumulative Gap to Total Earning Assets (10.87%) (10.19%) ( 9.85%) Cumulative Gap to Total Assets (10.07%) ( 9.44%) (9.13%)
The preceding static gap report reflects a cumulative liability sensitive position during the one year horizon. An inherent weakness of this report is that it ignores the relative volatility any one category may have in relation to other categories or market rates in general. For instance, the rate paid on NOW accounts typically moves slower than the three month T-Bill. Management attempts to capture this relative volatility by utilizing a simulation model with a "beta factor" adjustment which estimates the volatility of rate sensitive assets and/or liabilities in relation to other market rates. Beta factors are an estimation of the long term, multiple interest rate environment relation between an individual account and market rates in general. For instance, NOW, savings and money market accounts, which are repriceable within 30 days will have considerably lower beta factors than variable rate loans and most investment categories. Taking this into consideration, it is quite possible for a bank with a negative cumulative gap to total asset ratio to have a positive "beta adjusted" gap risk position. As a result of applying the beta factors established by management to the earning assets and interest bearing liabilities in the static gap report via a simulation model, the negative cumulative gap to total assets ratio at one year of (9.13%) was reversed to a positive 12.99% "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. 28 Capital (con't) - ------- At June 30, 1999, total capital to total assets was 8.95%. 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, 1999, the Corporation's Tier I capital represented 13.36% of risk weighted assets and total qualifying capital (Tier I and Tier II) represented 14.61% of risk weighted assets. Both ratios are well above current regulatory guidelines. Also, as of June 30, 1999, the Corporation and its Subsidiary Banks met the criteria for classification as a "well-capitalized" institution under the rules of the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). Impact of the Year 2000 Issue - ----------------------------- The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Corporation's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions or engage in normal business activities. Based on assessments, the Corporation determined that it would be required to modify or replace portions of its software so that its computer systems will properly utilize dates beyond December 31, 1999. The Corporation presently believes that with modifications made to existing software, the Year 2000 Issue will be mitigated. The Corporation has utilized both internal and external resources to correct and test the software for Year 2000 modifications. The Corporation has substantially completed the Year 2000 project. The remaining work on the project includes finalization of the Corporation's contingency plans should any area not function as tested or any external event impact the operation of the Corporation. The total cost of the Year 2000 project has not been material to the financial condition of the Corporation. Forward-Looking Statements - -------------------------- The Corporation may from time to time make forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) with respect to earnings per share, credit quality, expected Year 2000 compliance program, corporate objectives and other financial and business matters. The Corporation cautions the reader that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, including economic conditions; actions taken by the Federal Reserve Board; legislative and regulatory actions and reforms; competition; as well as other reasons, all of which change over time. Actual results may differ materially from forward- looking statements. 29 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 30, 1999 By: /s/ Philip E. Norwood ------------- -------------------------------------------- Philip E. Norwood, Chairman Date: July 30, 1999 By: /s/ Bob G. Scott ------------- -------------------------------------------- Bob G. Scott, Executive Vice President and Chief Operating Officer (Chief Accounting Officer) 30 PART II - OTHER INFORMATIONM 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 20, 1999, 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, 1999. The shareholder vote in this matter was 5,636,661 for, 16,740 against, and 10,484 abstaining. . elected the Board of Directors, consisting of ten (10) persons. The following directors, constituting the entire Board of Directors, were elected: For Against Abstain --------- ------- ------- D. Jerrell Farr 5,606,359 7,900 49,626 Elliott S. Garsek 5,601,659 12,600 49,626 Ronald J. Goldman 5,605,259 9,000 49,626 F.S. Gunn 5,606,659 7,600 49,626 Jeffrey M. Harp 5,606,659 7,600 49,626 Robert L. Herchert 5,606,459 7,800 49,626 William W. Meadows 5,606,659 7,600 49,626 James L. Murray 5,606,659 7,600 49,626 Philip E. Norwood 5,606,659 7,600 49,626 Byron B. Searcy 5,606,659 7,600 49,626 Item 5. Other Information Not applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 11 Computation of Earnings Per Common Share 27 Financial Data Schedule (b) No Reports on Form 8-K were filed during the period ending June 30, 1999 EXHIBIT INDEX Exhibit Page No. - ------- -------- 11 Computation of Earnings Per Common Share 27 Financial Data Schedule EX-11 2 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 Three Months Ended June 30, 1999 and 1998 (unaudited) and the Year Ended December 31, 1998 (audited), contained in the Quarterly Report on Form 10-Q of registrant for the quarter Ended June 30, 1999. EX-27 3 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS OF SUMMIT BANCSHARES, INC., AS OF JUNE 30, 1999, AND THE RELATED STATEMENTS OF INCOME, CHANGES IN SHAREHOLDERS' EQUITY AND CASH FLOWS FOR THE PERIOD ENDING JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS JAN-01-1999 JUN-30-1999 23,117 0 8,980 0 108,358 137,694 137,533 339,212 4,895 524,331 453,898 20,340 3,163 0 0 0 8,067 38,863 524,331 14,546 4,110 459 19,115 6,094 6,411 12,704 638 0 7,416 6,583 4,307 0 0 4,307 .67 .64 5.31 2,952 0 0 9,755 4,724 559 92 4,895 4,895 0 0
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