<PAGE>1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED: SEPTEMBER 30, 1996
COMMISSION FILE NUMBER: 0-11108
SUMMIT BANCSHARES, INC.
STATE OF CALIFORNIA I.R.S. IDENTIFICATION
NUMBER 94-2767067
2969 BROADWAY, OAKLAND CALIFORNIA 94611
(510) 839-8800
Indicate by the 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 outstanding of the registrant's common stock
was:
424,659 shares of no par value common stock
issued as of September 30, 1996
<PAGE>2
PART I - FINANCIAL INFORMATION
---- - --------- -----------
ITEM 1 PAGE
SUMMIT BANCSHARES, INC. AND SUBSIDIARY FINANCIAL STATEMENTS
------ ----------- ---- --- ---------- --------- ----------
Consolidated Balance Sheets ..................................... 2
Consolidated Statements of Income ............................... 3-4
Consolidated Statements of Changes in
Shareholders' Equity ......................................... 5
Consolidated Statement of Cash Flows ............................ 6-7
Notes to Financial Statements.................................... 8
Interest Rate Risk Reporting Schedule............................ 9
ITEM 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................... 10-16
PART II - OTHER INFORMATION
---- -- ----- -----------
ITEMS 1-6 ................................................................ 17
1
<PAGE>3
PART I - FINANCIAL INFORMATION
---- - --------- -----------
ITEM 1.
---- --
<TABLE>
<CAPTION>
SUMMIT BANCSHARES, INC. AND SUBSIDIARY
------ ----------- ---- --- ----------
CONSOLIDATED BALANCE SHEETS
------------ ------- ------
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
--------- --- ---- --- -------- --- ----
(Unaudited)
(Stated in Thousands)
ASSETS 9-30-96 12-31-95
- ------ ------- --------
<S> <C> <C>
Cash and Due from Banks $ 4,976 $ 6,828
Federal Funds Sold 13,622 9,600
------ ------
Cash and Cash Equivalents 18,598 16,428
Interest-bearing Deposits with
Other Financial Institutions 9,608 11,002
Investment Securities (Held-to- 9,705 6,018
Maturity) Market Value of $9,790
at September 30, 1996 and $6,090
at December 31, 1995)
Loans 50,725 50,670
Less: Allowance for loan losses (1,090) (1,025)
------ ------
Net Loans 49,635 49,645
Premises and Equipment, net 866 872
Other Real Estate Owned 1,283 1,303
Interest Receivable and Other
Assets 1,644 1,555
------ ------
TOTAL ASSETS $91,339 $86,822
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------- --- ------------- ------
Deposits:
Demand $23,686 $27,573
Savings 2,951 2,365
Interest-bearing Transaction
Accounts 31,492 26,394
Other Time 20,755 18,919
------ ------
Total Deposits 78,884 75,251
Interest Payable and Other
Liabilities 671 469
------ ------
TOTAL LIABILITIES 79,555 75,720
------ ------
SHAREHOLDERS' EQUITY:
Preferred Stock, no par value:
2,000,000 shares authorized, no
shares outstanding --- ---
Common Stock, no par value;
3,000,000 shares authorized;
424,259 shares issued and
outstanding at December 31, 1995
and 424,659 at September 30, 1996 3,751 3,767
Retained Earnings 8,033 7,335
------ ------
TOTAL SHAREHOLDERS' EQUITY 11,784 11,102
------ ------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $91,339 $86,822
====== ======
</TABLE>
2
<PAGE>4
<TABLE>
<CAPTION>
SUMMIT BANCSHARES, INC. AND SUBSIDIARY
------ ----------- ---- --- ----------
CONSOLIDATED STATEMENTS OF INCOME FOR THE
------------ ---------- -- ------ --- ---
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
----- --- ---- ------ ----- --------- --- ---- --- ----
(unaudited)
THREE THREE NINE NINE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
9-30-96 9-30-95 9-30-96 9-30-95
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest Income:
Interest and Fees on Loans $1,531,120 $1,402,669 $4,224,082 $4,115,584
Interest on Investment Sec. 150,017 135,385 371,134 438,115
Interest on Federal Funds Sold 183,117 128,936 433,235 274,402
Interest on Time Deposits with
Other Financial Institutions 127,726 142,783 427,059 341,316
--------- --------- --------- ---------
TOTAL INTEREST INCOME 1,991,980 1,809,773 5,455,510 5,169,417
Interest Expense:
Interest on Deposits 594,670 427,859 1,428,693 1,108,663
--------- --------- --------- ---------
TOTAL INTEREST EXPENSE 594,670 427,859 1,428,693 1,108,663
--------- --------- --------- ---------
NET INTEREST INCOME 1,397,310 1,381,914 4,026,817 4,060,754
Provision for Loan Losses 50,000 125,000 165,000 415,000
--------- --------- --------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,347,310 1,256,914 3,861,817 3,645,754
--------- --------- --------- ---------
Other Operating Income:
Service Charges on Deposit
Accts. 80,881 90,878 241,673 282,867
Other 58,678 42,602 161,311 127,780
--------- --------- --------- ---------
TOTAL OTHER OPERATING INCOME 139,559 133,480 402,984 410,647
--------- --------- --------- ---------
Other Operating Expenses:
Salaries and Employee Benefits 497,835 471,531 1,416,317 1,344,201
Occupancy Expense 92,057 92,918 274,572 273,999
Furniture and Equipment Expense 24,491 23,120 63,458 72,632
Other 266,632 253,161 752,156 868,482
--------- --------- --------- ---------
TOTAL OTHER OPERATING EXPENSE 881,015 840,730 2,506,503 2,559,314
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 605,854 549,664 1,758,298 1,497,087
Provision for Income Taxes (257,724) (233,422) (740,747) (615,282)
--------- --------- --------- ---------
NET INCOME $ 348,130 $ 316,242 $1,017,551 $ 881,805
========= ========= ========= =========
</TABLE>
3
<PAGE>5
<TABLE>
<CAPTION>
THREE THREE NINE NINE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
9-30-96 9-30-95 9-30-96 9-30-95
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET INCOME APPLICABLE TO
COMMON STOCK $348,130 $316,242 $1,017,551 $881,805
======== ======== ========== ========
PRIMARY EARNINGS:
Weighted Average Shares
Outstanding: 464,313 456,224 456,780 457,038
PRIMARY EARNINGS PER SHARE $.75 $.69 $2.23 $1.93
======= ======= ======= =======
</TABLE>
4
<PAGE>6
<TABLE>
<CAPTION>
SUMMIT BANCSHARES, INC. AND SUBSIDIARY
------ ----------- ---- --- ----------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
------------ ---------- -- ------- -- ------------- ------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
--- --- ---- ------ ----- --------- --- ---- --- ----
(Unaudited)
NUMBER
OF SHARES COMMON RETAINED
OUTSTANDING STOCK EARNINGS
----------- ------ --------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 424,259 $3,767,258 $7,335,003
Repurchase of Common Stock (1,250) (36,437) ---
Exercise of Stock Options 1,650 20,246 ---
Payment of $.75 Cash Dividend
for Holders of Record as of
May 13, 1996 and Payable on
June 7, 1996 --- --- (319,431)
Net Income for the Nine Months
ended September 30, 1996 --- --- 1,017,551
------- --------- ---------
BALANCE AT SEPTEMBER 30, 1996 424,659 $3,751,067 $8,033,123
======= ========== ==========
BALANCE AT DECEMBER 31, 1994 427,485 $3,837,684 $6,656,072
Purchase of Common Stock (3,226) (70,246) ---
Payment of $.25 Cash Dividend
for Holders of Record as of
May 12, 1995 and Payable on
June 9, 1995 --- --- (106,252)
Net Income for the Nine Months
ended September 30, 1995 --- --- 881,805
------- ---------- ----------
BALANCE AT SEPTEMBER 30, 1995 424,259 $3,767,438 $7,431,625
======= ========= =========
</TABLE>
5
<PAGE>7
<TABLE>
<CAPTION>
SUMMIT BANCSHARES, INC. AND SUBSIDIARY
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
- --------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 5,103,346
Fees received 744,102
Interest paid (1,469,030)
Cash paid to suppliers and employees (2,199,614)
Income taxes paid (687,000)
----------
Net cash provided by operating activities 1,491,804
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in time deposits with other
financial institutions 1,394,000
Maturity of investment securities 3,540,012
Purchase of investment securities (7,227,004)
Net decrease in loans made to customers (319,983)
Recoveries on loans previously charged off 2,750
Capital expenditures (97,605)
----------
Net cash used in investing activities (2,707,830)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand, MRA, NOW,
and savings accounts 1,796,800
Net increase in time deposits 1,836,674
Increase in other miscellaneous assets 109,026
Purchase of common stock (36,438)
Dividends paid (319,432)
----------
Net cash provided by financing activities 3,386,630
----------
Net increase in cash and cash equivalents 2,170,604
Cash and cash equivalents at 12-31-95 16,427,803
----------
Cash and cash equivalents at 9-30-96 $18,598,407
===========
Reconciliation of net income to net cash provided by operating activities:
Net Income $ 1,017,551
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation 103,285
Provision for loan losses 165,000
Decrease in accrued interest receivable 5,701
Decrease in unearned loan fees (16,747)
Decrease in accrued interest payable (40,337)
Decrease in prepaid expenses 53,531
Increase in accounts payable 150,073
Increase in income tax payable 53,747
-------
Total adjustments 474,253
----------
Net cash provided by operating activities $1,491,804
=========
</TABLE>
6
<PAGE>8
<TABLE>
<CAPTION>
SUMMIT BANCSHARES, INC. AND SUBSIDIARY
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(Unaudited)
- --------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 4,741,684
Fees received 799,792
Interest paid (991,961)
Cash paid to suppliers and employees (2,349,817)
Income taxes paid (791,654)
----------
Net cash provided by operating activities 1,408,044
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in time deposits with other
financial institutions (3,071,000)
Maturity of investment securities 6,476,325
Purchase of investment securities (4,081,780)
Net decrease in loans made to customers (1,483,221)
Recoveries on loans previously charged off 10,639
Capital expenditures (123,197)
----------
Net cash used in investing activities (2,272,234)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand, MRA, NOW,
and savings accounts (83,851)
Net increase in time deposits 5,248,906
Decrease in other miscellaneous assets 1,738,464
Purchase of common stock (70,426)
Dividends paid (106,252)
----------
Net cash provided by financing activities 6,726,841
----------
Net increase in cash and cash equivalents 5,862,651
Cash and cash equivalents at 12-31-94 9,246,342
----------
Cash and cash equivalents at 6-30-95 $15,108,993
===========
Reconciliation of net income to net cash provided by operating activities:
Net Income $881,805
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation 107,961
Provision for loan losses 415,000
Increase in accrued interest receivable (61,041)
Increase in unearned loan fees 22,453
Increase in accrued interest payable 116,702
Increase in prepaid expenses (24,693)
Increase in accounts payable 126,229
Decrease in income tax payable (176,372)
---------
Total adjustments 526,239
----------
Net cash provided by operating activities $1,408,044
==========
</TABLE>
7
<PAGE>9
NOTES TO FINANCIAL STATEMENTS
- ----- -- --------- ----------
1. CONSOLIDATED FINANCIAL STATEMENTS
------------ --------- ----------
In the opinion of management, the unaudited interim consolidated
financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the
financial position at September 30, 1996 and the results of operations
for the nine months ended September 30, 1996 and 1995 and cash flows
for the nine months ended September 30, 1996 and 1995.
Certain information and footnote disclosures presented in the
Corporation's annual consolidated financial statements are not
included in these interim financial statements. Accordingly, the
accompanying unaudited interim consolidated financial statements
should be read in conjunction with the consolidated financial
statements and notes thereto included in the Corporation's 1995 Annual
Report to Shareholders, which is incorporated by reference in the
Company's 1995 annual report on Form 10-K. The results of operations
for the nine months ended September 30, 1996 are not necessarily
indicative of the operating results for the full year.
2. SIGNIFICANT ACCOUNTING POLICIES
----------- ---------- --------
Net income per common and common equivalent share is computed using
the weighted average number of shares outstanding during the period
and the dilutive effect of stock options.
8
<PAGE>10
INTEREST RATE SENSITIVITY/INTEREST RATE RISK ANALYSIS
The following table provides an interest rate sensitivity and interest rate
risk analysis for the quarter ended September 30, 1996. The table presents each
major category of interest-earning assets and interest-bearing liabilities.
<TABLE>
<CAPTION>
INTEREST RATE RISK REPORTING SCHEDULE
REPORTING INSTITUTION: SUMMIT BANK REPORTING DATE: 9/30/96
REMAINING TIME BEFORE MATURITY OR INTEREST RATE ADJUSTMENT
<S> <C> <C> <C> <C> <C> <C> <C>
($000.00)
OMITTED UP > 3 > 1 > 3 > 5 OVER
TOTAL 3 < 1 < 3 < 5 < 10 10 YRS
I. EARNING ASSETS
------- ------
A. INVESTMENTS:
-----------
1. U. S. TREASURIES $ 9,705 $ 4,991 $ 473 $4,241 $0 $0 $0
2. FED FUNDS 13,622 13,622 0 0 0 0 0
3. PURCHASED CDS 9,608 2,379 4,654 2,575 0 0 0
------ ------ ----- ----- - - -
TOTAL INVESTMENTS $32,935 $20,992 $ 5,127 $6,816 $0 $0 $0
B. LOANS:
-----
1. COMMERCIAL LOANS $46,928 $43,636 $ 1,418 $ 774 $632 $468 $0
2. REAL ESTATE LOANS 1,549 1,549 0 0 0 0 0
3. INSTALLMENT 16 16 0 0 0 0 0
------ ------ ----- ------ --- --- ---
TOTAL LOANS $48,493 $45,201 $ 1,418 $ 774 $632 $468 $0
C. TOTAL EARNING ASSETS $81,428 $66,193 $ 6,545 $7,590 $632 $468 $0
----- ------- ------
II. COST OF FUNDS (DEPOSITS)
---- -- ----- ----------
A. CERTIFICATES OF DEPOSITS $21,446 $12,251 $ 9,035 $ 133 $ 0 $27 $0
B. MONEY MARKET ACCOUNTS 24,464 0 12,232 12,232 0 0 0
C. TRANSACTIONS ACCOUNTS 7,885 0 0 3,943 1,971 1,971 0
D. SAVINGS ACCOUNTS 2,153 0 0 1,077 538 538 0
----- ------ ------ ------ ----- ----- -
TOTAL COST OF FUNDS $55,948 $12,251 $21,267 $17,385 $2,509 $2,536 $0
III. INTEREST SENSITIVE ASSETS $81,429 $66,193 $ 6,546 $ 7,590 $ 632 $ 468 $0
IV. INTEREST SENSITIVE LIABILITIES $55,948 $12,250 $21,267 $17,385 $2,510 $2,536 $0
------- ------- ------- ------- ------ ------ -
V. GAP $25,481 $53,943 $(14,721) $( 9,795) $(1,878) $(2,068) $0
VI. CUMULATIVE GAP $25,481 $53,943 $39,222 $29,427 $27,549 $25,481 $25,481
VII. GAP RATIO 1.46 5.40 0.31 0.44 0.25 0.18
VIII.CUMULATIVE RATIO 1.45 5.40 2.17 1.58 1.52 1.46 1.46
IX. GAP AS % OF TOTAL ASSETS 28.69 60.73 (16.57) (11.03) (2.11) (2.33)
X. CUMULATIVE GAP AS A % OF
TOTAL ASSETS 28.69 60.73 44.16 33.13 31.01 28.69 28.69
</TABLE>
9
<PAGE>11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- ------------ ---------- --- -------- -- --------- --------- --- ------- --
OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
---------- --- --- ---- ------ ----- --------- --- ----
The registrant is a bank holding company whose only operating subsidiary is
Summit Bank. The following discussion primarily concerns the financial condition
and results of operations of the Holding Company ("Company") on a consolidated
basis including the subsidiary bank. All adjustments made in the compilation of
this information are of a normal recurring nature.
FINANCIAL CONDITION
- --------- ---------
Liquidity Management
- --------- ----------
The consolidated loan-to-deposit ratio at September 30, 1996 was 64.3% which was
a decrease from 67.3% for the same period in 1995. The average loan-to-deposit
ratio for the third quarter of 1996 was 62.5%, down from 66.1% for the same
period last year. Although the average loan-to-deposit ratio is down from last
year, average total deposits for the year through September 30, 1996 increased
$4,864,000 in 1996 versus 1995. The higher cost public deposit, time
certificates and market rate accounts increased $2,826,000, while interest free
demand deposit accounts increased $2,038,000. Average outstanding loans
increased $1,362,000 due to increased loan participations by the Bank with the
holding company. Management continues to seek the acquisition of quality
credits.
Net liquid assets, which consists primarily of cash, due from banks,
interest-bearing deposits with other financial institutions, short term
securities and federal funds sold totaled $37,911,000 on September 30, 1996.
This amount represented 48.1% of total deposits in comparison to the liquidity
ratio of 45.4% as of September 30, 1995. This increase is primarily the result
of an increase in total deposits and a decrease in the company's loan to deposit
ratio. It is management's belief that the current liquidity level is appropriate
given current economic uncertainties and is sufficient to meet current needs.
The issuer is not aware of any current recommendations by the regulatory
authorities which, if they were implemented, would have a material effect on the
Company.
10
<PAGE>12
The following table sets forth book value of investments by category and the
percent of total investments at the dates specified.
<TABLE>
<CAPTION>
Investment Comparative
----------------------
(000.00 Omitted)
9-30-96 % 12-31-95 % 9-30-95 %
------- - -------- - ------- -
<S> <C> <C> <C> <C> <C> <C>
Fed Funds Sold $13,622 41% $ 9,600 36% $ 8,300 32%
Interest bearing
Deposits 9,608 29% 11,002 41% 10,110 38%
Securities 9,705 30% 6,018 23% 7,930 30%
------ --- ------ --- ------ ---
$32,935 100% $26,620 100% $26,340 100%
======= === ======= === ======= ===
</TABLE>
Interest bearing deposits are comprised of time certificates of deposit with
other banks and savings and loan institutions with no more than $100,000 in any
institution.
Securities on September 30, 1996 were comprised of $9,705,000 in U.S. gov't and
agency instruments maturing between 3 months and 2 years. Securities on
September 30, 1995 were comprised of $7,570,000 in U.S. gov't and agency
instruments maturing between 3 months and 3 years, and $360,000 in bank
qualified 1 year Tax Anticipation Revenue Notes used to fund annual school
district budgets.
Changes in Financial Position
- ------- -- --------- --------
As of September 30, 1996, deposits increased $3,633,000 from year end 1995 while
at the same time loans outstanding increased $55,000. Total deposits as of
September 30, 1996 were $78,884,000, an increase of 8% from $73,024,000 as of
September 30, 1995. Total loans as of September 30, 1996 were $50,725,000, an
increase of 3% from $49,113,000 as of September 30, 1995.
The following table sets forth the amount of deposits by each category and the
percent of total deposits at the dates specified.
<TABLE>
<CAPTION>
Deposit Comparative
------- -----------
(000.00 Omitted)
9-30-96 % 12-31-95 % 9-30-95 %
------- - -------- - ------- -
<S> <C> <C> <C> <C> <C> <C>
Demand $23,686 30% $27,573 37% $22,306 31%
Savings 2,951 4% 2,365 3% 2,533 3%
Interest bearing
transactions accts 31,492 40% 26,394 35% 29,467 40%
Other Time 20,755 26% 18,919 25% 18,718 26%
------ --- ------ --- ------ ---
$78,884 100% $75,251 100% $73,024 100%
======= === ======= === ======= ===
</TABLE>
11
<PAGE>13
The following table sets forth the amount of loans outstanding by each category
and the percent of total loans outstanding at the dates specified.
<TABLE>
<CAPTION>
Loan Comparative
---- -----------
(000.00 Omitted)
9-30-96 % 12-31-95 % 9-30-95 %
------- - -------- - ------- -
<S> <C> <C> <C> <C> <C> <C>
Commercial $33,194 65% $30,472 60% $32,114 65%
Real estate-const. 6,987 14% 8,432 17% 7,192 15%
Real estate-other 4,779 9% 6,193 12% 4,745 9%
Installment/Other 5,765 12% 5,573 11% 5,062 11%
------- --- ------- --- ------- ---
$50,725 100% $50,670 100% $49,113 100%
======= === ======= === ======= ===
</TABLE>
Non-Performing Assets
- -------------- ------
The following table provides information with respect to the subsidiary Bank's
past due loans and components for non- performing assets at the dates indicated.
<TABLE>
<CAPTION>
Non-Performing Assets
---------------------
(000.00 Omitted)
9-30-96 12-31-95 9-30-95
------- -------- -------
<S> <C> <C> <C>
Loans 90 days or more past
due & still accruing $ 18 $ 367 $ 392
Non-accrual loans 0 39 694
Other real estate owned 1,283 1,303 1,303
----- ----- -----
Total non-performing assets $1,301 $1,709 $2,389
====== ===== =====
Non-performing assets to
period end loans plus
other real estate owned 2.50% 3.28% 4.74%
Allowance to non-performing
loans 6056% 252% 117%
Allowance to non-performing
assets 84% 60% 53%
</TABLE>
The subsidiary Bank's policy is to recognize interest income on an accrual basis
unless the full collectibility of principal and interest is uncertain. Loans
that are delinquent 90 days as to principal or interest are placed on a
non-accrual basis, unless they are well secured and in the process of
collection, and any interest earned but uncollected is reversed from income.
Collectibility is determined by considering the borrower's financial condition,
cash flow, quality of management, the existence of collateral or guarantees and
the state of the local economy.
12
<PAGE>14
Other real estate owned is comprised of properties acquired through foreclosure.
These properties are carried at the lower of the recorded loan balance or their
estimated fair market value based on appraisal. When the loan balance plus
accrued interest exceeds the fair value of the property, the difference is
charged to the allowance for loan losses at the time of acquisition. Subsequent
declines in value from the recorded amount, if any, and gains or losses upon
disposition are included in noninterest expense. Operating expenses related to
other real estate owned are charged to noninterest expense in the period
incurred.
The decrease in non-performing assets from 9-30-95 to 9-30-96 is due primarily
to a decrease of $694,000 in non-accrual loans. Loans 90 days or more past due
and still accruing also decreased $374,000 from previous year.
The amount in other real estate owned represents a parcel of improved land and
two parcels of partially improved land. The Bank is actively marketing these
parcels and an additional $10,000 write-down was taken in the month of October
to reflect market conditions on one of these properties.
Capital Position
- ------- --------
As of September 30, 1996, Shareholders' Equity was $11,784,000. This represents
an increase of $585,000, or 5.2% over the same period last year. Since the
inception of the stock repurchase program in 1989, the Company has authorized
the repurchase of $2,100,000 of its stock. As of September 30, 1996, the Company
has repurchased a total of 151,538 shares of the Company's stock constituting
28.0% of the Company's original stock prior to the repurchase program, at a
total cost of $2,067,000, or an average price per share of $13.64. The Company
plans to continue its repurchase program as an additional avenue for liquidity
for its shareholders. The program has not affected the Company's liquidity or
capital positions or its ability to operate as the Company's capital growth has
exceeded its asset growth. In addition, the Company's subsidiary Bank remains
more than well capitalized under current regulations.
On March 14, 1989, the Board of Directors of the Federal Deposit Insurance
Corporation approved a Statement of Policy on Risk-Based Capital which became
effective December 31, 1990. Under this statement banks are required to meet
certain capital standards in addition to leverage standards as previously
outlined under FDIC Rules and Regulations. The Bank does not foresee any
material or significant impact to its manner of operation in the foreseeable
future. Total qualifying capital allowable under risk-based capital guidelines
for the subsidiary bank is $8,552,000. The following table shows the risk-based
capital ratios and the leverage ratios for 1996 as well as the minimum
regulatory requirements as of September 30, 1996:
13
<PAGE>15
<TABLE>
<CAPTION>
Minimum
Capital Ratio Regulatory Requirement
<S> <C> <C>
Tier 1 Capital 13.11% 4.00%
Total Capital 14.22% 8.00%
Leverage Ratio 9.79% 3.00%
</TABLE>
The issuer is not aware of any current recommendations by the regulatory
authorities which if they were implemented would have a material effect on the
Company.
RESULTS OF OPERATIONS
- ------- -- ----------
Net Interest Income
- --- -------- ------
Total interest income including loan fees increased from $4,116,000 for the
first nine months of 1995 to $4,224,000 for the same period in 1996. This
increase was due to an increase in the average loan volume of $1,362,000
compared to to same period last year. However, prime rate during the first nine
months of 1996 was .61% lower than the same period last year. Yield on loans
decreased from 10.88% to 10.83% compared to the same period last year. Loan fees
showed a decrease of $8,800 from the same period last year primarily due to
decrease in fee related credit demand. Total interest income on investments
increased $178,000 or 16.89% for the nine months of 1996 compared to the same
period last year. Average outstanding investments increased $5,419,000 due to an
higher growth in total deposits without the corresponding rate of growth in the
loan portfolio. This increase provided the Bank with funds to invest in time
certificate of deposits with other banks, securities, and fed funds. The yield
on investments showed a decrease of .56% related to lower interest rates and
lower prime lending rate.
Interest expense increased from $1,109,000 as of the end of the first nine
months of 1995 to $1,429,000 in 1996. Average outstanding interest-bearing
deposit accounts increased $2,826,000 during the first nine months of 1996
versus the same period last year. The average cost of funds for the period
ending September 30, 1996 was .56% more than the same period last year. Since
yields from investments are generally lower than yields on loans, interest
margin for the nine months ended September 30, 1996 is 6.82% compared to 7.78%
in the same period last year.As a result of these factors, net interest income
for the first nine months of 1996 decreased .84% over the same period last year.
For the third quarter, total interest income increased from
14
<PAGE>16
$1,810,000 in 1995 to $1,992,000 for the same period in 1996. The average loans
for the 1996 period showed an increase of $2,120,000 from the same period last
year. However, the average prime rate during the third quarter was .75% less
than the same period last year which caused the yield on loans in the third
quarter of 1996 to be approximately .23% lower than 1995. Loan fees showed a
decrease of $20,300 over the same period last year. Following the trend in the
prime lending rate, the investment portfolio showed an decrease of .69% in its
yield. For the third quarter of 1996 interest expense increased from $428,000 to
$595,000. Average outstanding interest-bearing deposit accounts increased
$3,394,000 during the third quarter versus the same period last year. The
average cost of funds for the third quarter of 1996 increased .25% compared to
the same period last year. As a result of these factors, net interest income for
the third quarter of 1996 increased 1.11% over the third quarter of 1995.
Other Operating Income
- ----- --------- ------
Service charges on deposit accounts as of the end of the first nine months of
1996 decreased to $242,000 versus $283,000 for the same period in 1995 and was
centered in service charges related to return check and overdraft charges which
decreased $24,000. Other charges and fees increased $34,000 compared to 1995,
primarily due to increase in wire transfer fees of $18,300 in 1996.
Service charges on deposit accounts for the third quarter of 1996 decreased
$10,000 over the same period last year and was primarily centered in lower
collection of return check charges and overdraft fees. Other charges and fees
increased $16,000 primarily due to an increase in collection of wire transfer
fees and safe deposit box fees.
Loan Loss Provision
- ---- ---- ---------
The decrease in loan loss provision was primarily due to management's assessment
of the adequacy of the allowance account. The balance in the allowance for loan
losses at September 30, 1996 was $1,090,000 or 2.15% of total loans compared to
$1,272,000 or 2.59% at September 30, 1995.
The allowance for loan losses is maintained at a level that management of
Company considers to be adequate for losses that can be reasonably anticipated.
The allowance is increased by charges to operating expenses and reduced by
net-charge-offs. The level of the allowance for loan losses is based on
management's evaluation of potential losses in the loan portfolio, as well as
prevailing and anticipated economic conditions.
Management employs a systematic methodology on a monthly
15
<PAGE>17
basis to determine the adequacy of the allowance for current and future loan
losses. Each loan is graded at the time of extension or renewal by the credit
administrator. Gradings are assigned a risk factor which is calculated to assess
the adequacy of the allowance for loan losses. Further, management considers
other factors such as overall portfolio quality, trends in the level of
delinquent and classified loans, specific problem loans, and current and
anticipated economic conditions.
Other Operating Expenses
- ----- --------- --------
Total other operating expenses decreased $53,000 as of the end of the first nine
months of 1996 compared to the same period last year. Total salary expense
increased $72,000 directly related to incentive program based on growth goals.
Foreclosure and OREO expense decreased $86,000 primarily related to maintenance
of properties held in 1995. Data processing fees decreased $5,700 and insurance
costs decrease $7,400. These decreases were offset by consulting fees increase
of $15,600 directly related to the Bank's SBA loan program and assisting the
Bank to develop a formal sales culture.
For the third quarter 1996 operating expenses increased $40,300 compared to the
same period last year and was centered in salaries and employee benefits of
$26,300 for the same reason as mentioned above and expense charged to
foreclosure and OREO expense associated with property foreclosed and sold in the
current quarter amounting to $7,400.
Provision for Income Taxes
- --------- --- ------ -----
The Company's provision for income taxes as of the end of the first nine months
of 1996 increased from $615,000 in 1995 to $741,000. This increase was primarily
related to the growth in income and is considered normal. For the first nine
months of 1996 the company's total effective tax rate was 42.1% compared to
41.1% in 1995.
For the third quarter 1996 the provision for income taxes increased $24,300
compared to the third quarter of 1995. This increase was related to the items
mentioned above. The Company's total effective tax rate was 42.5% for the third
quarter of 1996 versus 42.5% for the same period last year.
Net Income
- --- ------
Net income for the first nine months of 1996 increased from $882,000 for the
same period in 1995 to $1,018,000, or an increase of 15.4%. Third quarter net
income increased $32,000 or 10.0% over the same period last year.
16
<PAGE>18
PART II - OTHER INFORMATION
---- -- ----- -----------
ITEM 1 - LEGAL PROCEEDINGS
----- -----------
No material developments from that which was reported in the 10-K dated
March 29, 1996 for the year ended December 31, 1995.
ITEM 2 - CHANGE IN SECURITIES
------ -- ----------
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
-------- ---- ------ ----------
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------- -- ------- -- - ---- -- -------- -------
None
ITEM 5 - OTHER INFORMATION
----- -----------
None
ITEM 6 - REPORTS ON FORM 8-K
------- -- ---- ---
No reports on Form 8-K have been filed by the registrant during the
third quarter of 1996 for which this report is filed.
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: November 14, 1996 By: /s/ Shirley W. Nelson
---------------------------
Shirley W. Nelson
Chairman and
Chief Executive Officer
DATE: November 14, 1996 By: /s/ Kikuo Nakahara
---------------------------
Kikuo Nakahara
Chief Financial Officer
17
<PAGE>19
<TABLE>
<CAPTION>
WEIGHTED AVERAGE SHARES
Nine Months Ended September 30, 1996
PRIMARY FULLY
------- -----
<S> <C> <C>
A. Common Stock 424,780 424,780
424,259 12-31-95 (Bal. Fwd.)
424,259 to 03-21-96 80 days = 33,940,720
425,359 to 04-10-96 20 days = 8,507,180
425,909 to 05-17-96 37 days = 15,758,633
425,659 to 05-22-96 5 days = 2,128,295
424,659 to 09-30-96 132 days = 56,054,988
274 days = 116,389,816
Average shares outstanding for period = 424,780
Options - Fully 39,654
------- -----
Use Higher of Year End Price
or Average Price
Year End Price = $26.00
Average Price = $31.75
Use Avg Price of $31.75
SN 8,250 X (31.75 - 10.45) = 5,535
---------------
31.75
MZ 1,000 X (31.75 - 10.00) = 685
---------------
31.75
SN 10,000 X (31.75 - 10.00) = 6,850
---------------
31.75
SN 15,689 X (31.75 - 10.00) 10,758
---------------
31.75
SN 8,333 X (31.75 - 12.00) = 5,184
---------------
31.75
MZ 2,900 X (31.75 - 13.50) = 1,667
---------------
31.75
TW 400 X (31.75 - 12.25) = 246
---------------
31.75
SN 978 X (31.75 - 13.25) = 570
---------------
31.75
</TABLE>
18
<PAGE>20
<TABLE>
<CAPTION>
<S> <C>
DD 2,500 X (31.75 - 13.00) = 1,476
---------------
31.75
MZ 1,045 X (31.75 - 13.00) = 617
---------------
31.75
FD 1,950 X (31.75 - 13.00) = 1,152
---------------
31.75
AC 400 X (31.75 - 13.00) = 236
---------------
31.75
TW 1,500 X (31.75 - 13.00) = 886
---------------
31.75
SN 4,000 X (31.75 - 17.75) = 1,764
---------------
31.75
MZ 2,000 X (31.75 - 17.75) = 882
---------------
31.75
DD 1,000 X (31.75 - 17.75) = 441
---------------
31.75
TW 1,000 X (31.75 - 17.75) = 441
--------------
31.75
FD 500 X (31.75 - 17.75) = 220
---------------
31.75
AC 100 X (31.75 - 17.75) = 44
---------------
31.75
Options - Primary 37,446
------- -------
Average Price for the Year
$29.08
SN 8,250 X (29.08 - 10.45) = 5,285
---------------
29.08
MZ 1,000 X (29.08 - 10.00) = 656
---------------
29.08
SN 10,000 X (29.08 - 10.00) = 6,561
---------------
29.08
SN 15,689 X (29.08 - 10.00) 10,294
---------------
29.08
SN 8,333 X (29.08 - 12.00) = 4,894
---------------
29.08
</TABLE>
19
<PAGE>21
<TABLE>
<CAPTION>
<S> <C>
MZ 2,900 X (29.08 - 13.50) = 1,554
---------------
29.08
TW 400 X (29.08 - 12.25) = 231
---------------
29.08
SN 978 X (29.08 - 13.25) = 532
---------------
29.08
DD 2,500 X (29.08 - 13.00) = 1,382
---------------
29.08
MZ 1,045 X (29.08 - 13.00) = 578
---------------
29.08
FD 1,950 X (29.08 - 13.00) = 1,078
---------------
29.08
AC 400 X (29.08 - 13.00) = 221
---------------
29.08
TW 1,500 X (29.08 - 13.00) = 829
---------------
29.08
SN 4,000 X (29.08 - 17.75) = 1,558
---------------
29.08
MZ 2,000 X (29.08 - 17.75) = 779
---------------
29.08
DD 1,000 X (29.08 - 17.75) = 390
---------------
29.08
TW 1,000 X (29.08 - 17.75) = 390
---------------
29.08
FD 500 X (29.08 - 17.75) = 195
---------------
29.08
AC 100 X (29.08 - 17.75) = 39
---------------
29.08
</TABLE>
20
<PAGE>22
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL SHARES 3RD QUARTER 464,313 462,105
======= =======
TOTAL SHARES YEAR END 456,780 457,038
======= =======
NET INCOME 3RD QUARTER $348,131 $348,131
======= =======
NET INCOME YEAR END 1996 NA NA
========= =========
EARNINGS PER SHARE 3RD QTR $ .75 $ .75
======= =======
EARNINGS PER SHARE YTD NA NA
======= =======
</TABLE>
21
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary information extracted from the Form 10-Q and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000353203
<NAME> SUMMIT BANCSHARES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 4,976,407
<INT-BEARING-DEPOSITS> 9,608,000
<FED-FUNDS-SOLD> 13,622,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 9,705,449
<INVESTMENTS-MARKET> 9,790,000
<LOANS> 50,724,723
<ALLOWANCE> 1,090,452
<TOTAL-ASSETS> 91,339,181
<DEPOSITS> 78,884,388
<SHORT-TERM> 0
<LIABILITIES-OTHER> 670,603
<LONG-TERM> 0
0
0
<COMMON> 3,751,067
<OTHER-SE> 8,033,123
<TOTAL-LIABILITIES-AND-EQUITY> 50,724,723
<INTEREST-LOAN> 4,224,082
<INTEREST-INVEST> 1,231,428
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 5,455,510
<INTEREST-DEPOSIT> 1,428,693
<INTEREST-EXPENSE> 1,428,693
<INTEREST-INCOME-NET> 4,026,817
<LOAN-LOSSES> 165,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,506,503
<INCOME-PRETAX> 1,758,298
<INCOME-PRE-EXTRAORDINARY> 1,758,298
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,017,551
<EPS-PRIMARY> 2.23
<EPS-DILUTED> 1.93
<YIELD-ACTUAL> 0<F1>
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 173,409
<ALLOWANCE-OPEN> 1,024,922
<CHARGE-OFFS> 0
<RECOVERIES> 2,000
<ALLOWANCE-CLOSE> 1,090,452
<ALLOWANCE-DOMESTIC> 1,090,452
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Not contained in document.
</FN>
</TABLE>
