<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED COMMISSION FILE NUMBER
DECEMBER 31, 1995 0-11108
SUMMIT BANCSHARES, INC.
-----------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2767067
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(State of Incorporation) (I.R.S. Employer Identification No.)
2969 Broadway, Oakland, California 94611
----------------------------------------
(Address of principal executive offices and zip code)
(510) 839-8800
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(Registrant's area code and telephone number)
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, No Par Value
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 registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 day period.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. | X |
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average of bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing:
$7,788,492.00 (1)
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Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
424,259 shares no par common stock
issued as of February 29, 1996
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Documents Incorporated By Reference
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1
For purposes of this calculation only, shares are deemed to have market
value of $26.50, the average of bid and asked prices on February 29, 1995, and
each of the executive officers, directors and persons holding 5% or more of the
outstanding common stock is deemed to be an affiliate.
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The Registrant's Proxy Notice and Statement
of Annual Meeting of Shareholders to be Held on
April 25, 1996 -- Part III,
Items 10, 11, 12, and 13 of this Report
PART I
The matters addressed in this Report on Form 10K, with the exception of the
historical information presented, may incorporate certain forward-looking
statements involving risks and uncertainties, including the risks discussed
under the heading "Certain Factors That May Affect Future Results" and elsewhere
in this Report.
ITEM 1. BUSINESS
--------
Summit Bancshares, Inc. (the "Company") is a one-bank holding company
registered under the Bank Holding Company Act of 1956, as amended. It was
incorporated under the laws of the State of California on July 22, 1981. Its
principal office is located at 2969 Broadway, Oakland, California 94611, and its
telephone number is (510) 839-8800.
On March 1, 1985, the Bank opened a banking facility at 112 La Casa Via,
Walnut Creek, California 94596, which moved into new quarters located at 1700 N.
Main, Walnut Creek, California 94598 in September, 1990. The telephone number is
(510) 935-9220. In addition, a full service branch began operation in December,
1985, in the Watergate III Tower at 2000 Powell Street, Emeryville, California
94608. The telephone number is (510) 428-1868.
Summit Bancshares, Inc. owns all of the capital stock of Summit Bank (the
"Bank"), its subsidiary bank, and its activities during 1995 were limited to
acting as the Bank's holding company.
The Bank has conducted the business of a commercial bank since July 1,
1982. The Bank provides commercial credit and other banking services to small
and mid-sized businesses and professionals, including professional firms of
physicians, attorneys, accountants, retailers and service firms, wholesalers and
distributors. Because of the concentration of medical facilities and related
organizations, the growth of real estate opportunities and commercial/industrial
businesses in the Bank's service area, the Bank primarily focuses its marketing
efforts on health service businesses, real estate construction and commercial
industrial loans; however, the Bank also offers a broad spectrum of financial
services to the business community at large. The Bank offers various checking
and savings accounts for both personal and business purposes, time certificates
of deposit, cashier's checks, money orders, travelers checks, safe deposit
boxes, installment collection services, night depository, depository pickup and
courier services, telephone transfers, collection services for notes, Individual
Retirement and Business Planning (formerly Keogh) Accounts. The Bank has not
requested and does not have regulatory approval to offer trust services,
although it may provide such services in the future. The Bank
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assists customers requiring services not offered by the Bank in obtaining
such services from its correspondent banks and other financial services firms.
Although the Bank does not actively solicit consumer business from the general
public, it does offer banking services and facilities compatible with the need
of its consumer customers.
The banking office in Walnut Creek offers virtually the same services listed
above with the exception of safe deposit boxes. The Emeryville Office offers all
the same services as the Oakland Office.
On March 30, 1989, the State Banking Department approved the Bank's
application to establish a new subsidiary, Summit Equities, Inc, whose purpose
is to engage in real property investment activities as authorized by Section
751.3 of the California Financial Code. On November 13, 1992 the FDIC imposed
regulations limiting real estate investment to those authorized by national
banks, thus no real estate transactions are allowed to be transacted under this
subsisdiary. The corporation is exploring other avenues or types of approved
investment activities. As of this date, the subsidiary has not conducted any
business.
SERVICE AREA
- ------------
The primary geographic market served by the Bank encompasses the "Pill Hill"
area of the City of Oakland and extends to the northern portion of Alameda
County to the Contra Costa County line along the boundary cities of Richmond and
Albany; running south along the bay front (including the city of Alameda) to
Highway 238/580 to the Castro Valley "Y"; east along Highway 580 to encompass
the communities of Livermore and Blackhawk; northerly along Highway 680 to the
Highway 24 corridor to encompass the cities of Walnut Creek and Concord and
west to the starting point in northern Alameda County. This area includes a
substantial number of commercial businesses, a large health services complex
and substantial residential population. In Alameda County, the health services
complex includes two major hospitals, approximately 482 physicians and a wide
variety of health related and other professionals, and small and medium-sized
businesses.
The Walnut Creek office is about 16 miles northeast of the head
office in Oakland and located in the central business district in Walnut Creek.
The site is approximately 1 mile west of John Muir Hospital, which is a 343-bed
hospital employing approximately 1180 people and accommodates a large staff of
approximately 310 visiting physicians. The surrounding service area includes 4
convalescent hospitals, an acute psychiatric care facility, and the 204-bed
Kaiser Foundation Hospital, which employs over 1100 people in downtown Walnut
Creek and is staffed by approximately 92 physicians.
The Emeryville branch is a further extension of the Bank's plan to expand
into areas which will further utilize specialized services directed at
medium-sized businesses and professionals. Located west of Interstate 880 at
2000 Powell Street, it is servicing a commercial sector and an up-scale employee
population.
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The Bank also obtains business clients from areas adjacent to the Pill Hill
area in Oakland, the John Muir and Kaiser areas of Walnut Creek and in
Emeryville, and from other sections of those metropolitan areas. The Bank's
customers are primarily business and professional persons working in the
vicinity of each branch, officers and employees of businesses and professional
firms serviced by the Bank, and residents of areas close to the Bank.
COMPETITION
- -----------
The banking business in the Oakland/East Bay metropolitan area is very
competitive with respect to both loans and deposits, and is dominated by
relatively few major banks which have offices operating throughout California.
Among the advantages such banks have are their ability to finance wide-ranging
advertising campaigns, to offer certain services (for example, trust services)
which are not offered directly by the Bank, and to have substantially higher
legal lending limits due to their greater capitalization. There are five other
independent banks in Oakland, five in Walnut Creek and none in Emeryville.
In competing for deposits, the Bank is subject to certain limitations not
applicable to non-bank financial institution competitors. Over the past years,
legislative changes have enabled the Bank to compete more effectively for
deposits with savings and loan institutions but still remains at a competitive
disadvantage when competing with money market funds.
To compete with major financial institutions and other independent banks in
its primary service areas, the Bank relies upon the experience of its executive
officers in serving business clients, its specialized services, local
promotional activity, personal contacts by its officers, directors, and
employees of the Company. For customers whose loan demands exceed the Bank's
legal lending limit, the Bank arranges for such loans on a participation basis
with correspondent banks as well as other independent banks.
REGULATION AND SUPERVISION
- ---------- --- -----------
THE COMPANY. The Company is a bank holding company within the meaning of
-----------
the Bank Holding Company Act of 1956, as amended (the "BHC Act"), and is
registered as such with the Federal Reserve Board (FRB). A bank holding company
is required to file with the FRB annual reports and other information regarding
its business operations and those of its subsidiaries. It is also subject to
examination by the FRB and is required to obtain FRB approval before acquiring,
directly or indirectly, ownership or control of any voting shares of any bank,
if after such acquisition, it would directly or indirectly own or control more
than 5% of the voting stock of that bank. The BHC Act further provides that the
FRB shall not approve any such acquisition that would result in or further the
creation of a monopoly, or the effect of which may be to substantially lessen
competition, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the probable effect in meeting the convenience and needs
of the community to be served.
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Furthermore, under the BHC Act, a bank holding company is, with
limited exceptions, prohibited from (i) acquiring direct or indirect ownership
or control of more than 5% of the voting shares of any company which is not a
bank, or (ii) engaging in any activity other than managing or controlling banks.
With the prior approval of the FRB, however, a bank holding company may own
shares of a company engaged in activities which the FRB has determined to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto.
The FRB has by regulation determined that certain activities are
so closely related to banking as to be a proper incident thereto within the
meaning of the BHC Act. These activities include, but are not limited to:
operating an industrial loan company, industrial bank, Morris Plan Bank, savings
association, mortgage company, finance company, credit card company or factoring
company; performing certain data processing operations; providing investment and
financial advice; operating as a trust company in certain instances, selling
traveler's checks, United States savings bonds and certain money orders;
providing certain courier services; providing management consulting advice to
nonaffiliated depository institutions in some instances; acting as insurance
agent for certain types of credit-related insurance; leasing property or acting
as agent, broker or advisor for leasing property on a "full pay-out basis";
acting as a consumer financial counselor, including tax planning and return
preparation; performing futures and options advisory services, check guarantee
services and discount brokerage activities; operating a collection or credit
bureau; or performing personal property appraisals. The Company has no present
intention to engage in any of such permitted activities at this time.
The FRB also has determined that certain activities are not so
closely related to banking to be a proper incident thereto within the meaning of
the BHC Act. Such activities include: real estate brokerage and syndication;
land development; property management; underwriting of life insurance not
related to credit transactions; and with certain exceptions, securities
underwriting and equity funding. In the future, the FRB may add or delete from
the list of activities permissible for bank holding companies. Under the BHC
Act, a bank holding company and its subsidiaries are prohibited from acquiring
any voting shares of or interest in all or substantially all of the assets of
any bank located outside the state in which the operations of the bank holding
company's banking subsidiaries are principally conducted, unless the acquisition
is specifically authorized by the law of the state in which the bank to be
acquired is located or unless the transaction qualifies under federal law as an
"emergency interstate acquisition" of a closed or failing bank. The California
interstate banking bill is described under "Interstate Banking" (below).
A bank holding company and its subsidiaries are prohibited from
certain tie-in arrangements in connection with any extension of credit, sale or
lease of a property or furnishing of services. For example, with certain
exceptions, a bank may not condition an extension of credit on a promise by its
customer to obtain other services provided by it, its holding company or other
subsidiaries, or on a promise by
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its customer not to obtain other services from a competitor. In addition,
federal law imposes certain restrictions on transactions between the Company and
its subsidiaries, including the Bank. As an affiliate of the Bank, the Company
is subject, with certain exceptions, to provisions of federal law imposing
limitations on, and requiring collateral for, extensions of credit by the Bank
to its affiliates.
Directors of the Company, and the companies with which they are
associated, have had and will continue to have banking transactions with the
Bank in the ordinary course of the Bank's business. It is the firm intention of
the Company that any loans and commitments to loan included in such transactions
be made in accordance with applicable law, on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons of similar creditworthiness, and on
terms not involving more than the normal risk of collectability or presenting
other unfavorable features. At December 31, 1995, loans to directors totalled
$.2 million or 2.2% of the Company's shareholders' equity.
THE BANK. The Bank is a member of the FDIC which currently insures the
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deposits of each member bank to a maximum of $100,000 per depositor. For this
protection, the Bank pays a semi-annual assessment and is subject to the rules
and regulations of the FDIC pertaining to deposit insurance and other matters.
The Bank is subject to regulation, supervision and regular examination by
the California State Banking Department (the "Department"). Although the Bank
is a non-member of the Federal Reserve System, it is subject to regulation,
supervision, but not examination by the FRB. The regulations of these agencies
govern most aspects of the Bank's business, including the making of periodic
reports by the Bank and the Bank's activities, branching, mergers and
acquisitions, reserves against deposits and numerous other areas.
Subject to the regulations of the California Superintendent of Banks
(the "Superintendent"), the Bank may invest in capital stock, obligations or
other securities of other corporations, provided such corporations are not
insurance companies, agents or brokers. In addition, the Bank may acquire any
or all of the securities of a company that engages in activities that the Bank
may engage in directly under California law without the prior approval of the
FRB. California state-chartered banks are also specifically authorized to
provide real estate appraisal services, management consulting and advisory
services and electronic data processing services.
The Company's primary source of income (other than interest earned
on Company capital) is the receipt of dividends and management fees from the
Bank. The ability of the Bank to pay management fees and dividends to the
Company and its affiliates is subject to restrictions set forth in the
California Financial Code and, under certain circumstances, is subject to
approval of the Department. The board of directors of a state-chartered bank may
declare a dividend out of so much of net profits as such board deems
appropriate, subject to California law which restricts the amount available for
cash dividends to the lesser of retained earnings or the bank's net income less
cash dividends paid for its last three fiscal years.
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In the event that a bank has no retained earnings or net income for the
prior three fiscal years, cash dividends may be paid out of net income for such
bank's last preceding fiscal year or current fiscal year upon the prior
approval of the Department. Although there are not specific regulations
restricting dividend payments by bank holding companies other than state
corporation law, supervisory concern focuses on the holding company's capital
position, its ability to meet its financial obligations as they come due and the
capacity to act as a source of financial strength to its subsidiary banks.
The FRB and the Superintendent have authority to prohibit a bank from
engaging in business practices which are considered to be unsafe or unsound.
Depending upon the financial condition of the Bank and upon other factors, the
FRB or Superintendent could assert that the payments of dividends or other
payments by the Bank to the Company might be such an unsafe or unsound practice.
Also, if the Bank were to experience either significant loan losses or rapid
growth in loans or deposits, or some other event resulting in a depletion or
deterioration of the Bank's capital account were to occur, the Company might
be compelled by federal banking authorities to invest additional capital in the
Bank necessary to return the capital account to a satisfactory level.
IMPACT OF ECONOMIC CONDITIONS AND MONETARY POLICIES. The earnings and
---------------------------------------------------
growth of the Company are and will be affected by general economic conditions,
both domestic and international, and by the monetary and fiscal policies of the
United States Government and its agencies, particularly the FRB. One function
of the FRB is to regulate the national supply of bank credit in order to
mitigate recessionary and inflationary pressures. Among the instruments of
monetary policy used to implement those objectives are open market transactions
in United States Government securities and changes in the discount rate on
member bank borrowings. The monetary policies of the FRB have had a significant
effect on the operating results of commercial banks in the past and are expected
to continue to do so in the future. However, the effect, if any, of such
policies on the future business and earnings of the Company cannot be accurately
predicted.
ACCOUNTING CHANGES. In May 1993, the FASB issued Statement of Financial
------------------
Accounting Standards (SFAS) No. 114, Accounting by Creditors for Impairment
of a Loan as amended by SFAS No. 118. This statement is applicable to all
creditors and to all loans, uncollateralized as well as collateralized, except
large groups of smaller-balance homogeneous loans that are collectively
evaluated for impairment and loans that are measured at fair value or at the
lower of cost or fair value. The statement also applies to all loans that are
restructured in a troubled debt restructuring involving a modification of terms.
The statement requires that impaired loans that are within the scope of this
statement be measured based on the present value of expected cash flows
discounted at the loan's effective interest rate, or as a practical expedient,
at the loan's observable market price or the fair value of the collateral if
the loan is collateral dependent. The Company adopted this statement effective
January 1, 1995, and the impact of this statement on the Company's financial
position or results of operation has been immaterial.
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In May 1993, the FASB issued Statement of Financial Accounting Standards
No. 115, Accounting for Certain Investments in Debt and Equity Securities.
This statement requires that investments in debt and equity securities be
classified as "held-to-maturity," "trading securities" or "available
- -for-sale." It requires that investments classified as held-to-maturity be
reported at amortized cost, that investments classified as trading securities
be reported at fair value with unrealized gains and losses included in
earnings and that investments classified as available-for-sale be reported at
fair value with unrealized gains and losses, net of related tax, if any,
reported as a separate component of stockholders' equity. The Company adopted
this statement effective January 1, 1994. This statement specifically
precludes retroactive application to prior years' financial statements. As
the Company generally holds its investments until maturity, the impact of
this accounting statement has been immaterial.
LEGISLATION AND PROPOSED CHANGES. From time to time, legislation
--------------------------------
is enacted which has the effect of increasing the cost of doing business,
limiting or expanding permissible activities or affecting the competitive
balance between banks and other financial institutions. Proposals to change the
laws and regulations governing the operations and taxation of banks, bank
holding companies and other financial institutions are frequently made in
Congress, in the California legislature and before various bank regulatory
agencies. No prediction can be made as to the likelihood of any major changes or
the impact such changes might have on the Company. Certain changes of potential
significance to the Company which have been enacted recently or others which are
currently under consideration by Congress or various regulatory or professional
agencies are discussed below.
FINANCIAL INSTITUTIONS REFORM, RECOVERY AND ENFORCEMENT ACT OF 1989.
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On August 9, 1989, President Bush signed into law the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"). FIRREA
contains provisions, which among other things: (1) establish two separate
financial industry insurance funds, both administered by the FDIC - the Bank
Insurance Fund and the Savings Association Fund; (2) abolish the Federal Home
Loan Bank Board and establish the Office of Thrift Supervision as an office of
the Treasury Department, with responsibility for examination and supervision of
all savings and loan associations; (3) increase the insurance premiums paid by
FDIC-insured institutions; (4) permit bank holding companies to acquire healthy
savings and loan associations; (5) enhance federal banking agencies' enforcement
authority over the operations of all insured depository institutions and
increase the civil and criminal penalties that may be imposed in connection with
violations of laws and regulations; (6) curtail investments and certain
activities of state-chartered savings and loan associations; and (7) increase
the capital requirements of savings and loan associations. Management of the
Company does not believe that the provisions of FIRREA have had or will have a
material adverse impact on the Company's consolidated financial position or
results of operations.
COMPETITIVE EQUALITY BANKING ACT. The Competitive Equality Banking Act of
--------------------------------
1987 contained provisions which, among other
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things: (1) permanently closed the loophole which formerly allowed for the
creation of "non-bank banks"; (2) limited the restrictions imposed on banks on
the availability of funds deposited by check; and (3) provided explicit leasing
authority for national banks. The enactment of this legislation has not had a
material adverse effect on the Company's consolidated financial condition or
results of operations.
INTERSTATE BANKING. In September, 1986, California adopted an interstate
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banking law. The law allows California banks and bank holding companies to be
acquired by banking organizations in other states on a reciprocal basis
(i.e., provided the other state's laws permit California banking organizations
to acquire banking organizations in that state on substantially the same terms
and conditions applicable to banking organizations solely within that state).
The law took effect in two stages. The first stage, which became effective
July 1, 1987, allowed acquisitions on a reciprocal basis within a region
consisting of all 11 states (Alaska, Arizona, Colorado, Hawaii, Idaho, Nevada,
New Mexico, Oregon, Texas, Utah and Washington) which currently permit
acquisitions by California banking organizations of banks and bank holding
companies in such states. The second stage, which became effective January 1,
1991, allows interstate acquisitions on a national reciprocal basis. The
Company believes that this legislation will further increase competition as
out-of-state financial institutions enter the California market. Most recently
U.S. Bancorp purchased California Bancshares, Inc., a community-based holding
company with approximately 21 independent banks in the surrounding area in which
the Bank operates. Although the purchase has yet to be approved, it is
anticipated that such a purchase may in fact be beneficial to the Bank as it may
open opportunities to prospects that enjoy dealing with a community bank. If
there is a negative effect on the Bank it might be that this merger may increase
the resources available to the 21 independent banks being purchased.
CAPITAL ADEQUACY GUIDELINES. The FRB has issued capital adequacy guidelines
---------------------------
establishing a risk-based capital framework consisting of a definition of
capital comprised of a core component (essentially shareholders' equity less
goodwill) ("Tier 1 capital"), a supplementary component ("Tier 2 capital"), a
system for assigning assets & off- balance sheet items to four weighted risk
categories (with higher levels of capital being required for the categories
being perceived as representing greater credit risk ) and a schedule for
achieving a minimum risk-based capital ratio of 7.25% by the end of 1990
(which at least 3.625% should be in the form of common shareholders' equity) and
8% by the end of 1992 (which at least 4% should be in the form of common
shareholders' equity). An institution's risk-based capital would be determined
by dividing its qualifying capital by its risk - weighted assets.
The guidelines make regulatory capital requirements more sensitive to the
differences in risk profiles among banking institutions, take off-balance sheet
items into account when assessing capital adequacy and minimize disincentives
to holding liquid low-risk assets. In addition, the guidelines may require some
banking institutions to increase the level of their common shareholders' equity.
It is not
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anticipated that the guidelines will have a material adverse effect on the
Company's financial condition or results of operations over the short term. At
the end of 1995, the guidelines provided for a minimum risk-based capital ratio
of 8%, and this provision may limit the Company's ability to increase its assets
or require the Company to raise additional equity to facilitate growth.
On August 2, 1990, the FRB adopted standards for compliance by
banking organizations with risk-based capital guidelines to include a minimum
leverage ratio of 3% of Tier 1 capital to total average assets (the "leverage
ratio") based upon the definition of Tier 1 capital for 1995.
The FRB emphasized that the leverage ratio constitutes a minimum
requirement for well-run banking organizations having diversified risk,
including no undue interest rate risk exposure, excellent asset quality, high
liquidity, good earnings and a favorable composite rating under the applicable
regulatory rating system. Banking organizations experiencing or anticipating
significant growth, as well as those organizations which do not exhibit the
characteristics of a strong well-run banking organization described above, will
be required to maintain minimum capital ranging from 100 to 200 basis points in
excess of the leverage ratio.
The FRB leverage ratio establishes a new limit on the ability of
banking organizations to increase assets and liabilities without increasing
capital proportionately. In management's opinion, the leverage ratio will have
no material effect on its capital needs in the foreseeable future. The Bank's
leverage ratio at December 31, 1995 was 9.2% (See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Capital Adequacy"
under Item #7).
EMPLOYEES
- ---------
On December 31, 1995 the Bank employed 37 full time employees and 2 part time
employees for a total equivalent of 37.9 full time employees. At the present
time there are no salaried employees of the Company.
STATISTICAL DATA
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The following statistical data relating to the Company should be read in
conjunction with the Consolidated Financial Statements which are included
elsewhere in this 10-K Annual Report.
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DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------------------------------
The following table summarizes the distribution, by amount (in thousands) and
percentage of the daily average assets, liabilities, and shareholders' equity of
Summit Bancshares, Inc. (consolidated) for the year ended December 31, 1995.
Comparative figures for the years ended December 31, 1994 and 1993, are also
provided:
<TABLE>
<CAPTION>
ASSETS 1995 1994 1993
- ------ ---- ---- ----
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Cash and Due
From Banks $ 5,494 6.88% $ 6,118 7.92% $ 6,108 7.65%
Time Deposits with Other
Financial Institutions 8,467 10.60 10,487 13.57 12,650 15.84
Investment
Securities:
Taxable 8,346 10.45 3,649 4.72 2,276 2.85
Non-taxable 836 1.05 497 .64 0 0
Federal Funds
Sold 6,573 8.23 3,560 4.61 5,923 7.42
Loans, Net 45,818 57.38 48,975 63.40 49,888 62.48
Other Assets 4,320 5.41 3,970 5.14 3,002 3.76
------- ------ ------- ------ ------- ------
TOTAL ASSETS $79,854 100.00% $77,256 100.00% $79,847 100.00%
======= ====== ======= ====== ======= ======
LIABILITIES & SHAREHOLDERS' EQUITY
- ----------------------------------
Deposits:
Demand $20,005 25.05% $18,883 24.44% $17,740 22.21%
Interest bearing
transaction accounts 28,714 35.96 29,719 38.47 31,705 39.71
Savings 2,701 3.38 3,189 4.13 3,259 4.08
Time 17,072 21.38 15,090 19.53 17,110 21.43
Other Liabilities 573 .72 338 .44 623 .78
Shareholders' Equity 10,789 13.51 10,037 12.99 9,410 11.79
------- ------ ------- ----- ------- ------
TOTAL LIABILITIES &
SHAREHOLDERS' EQUITY $79,854 100.00% $77,256 100.00% $79,847 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
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The following is an analysis of Net Interest Income for 1995. Comparative
figures for 1994 and 1993 are also presented on the following pages. Non-accrual
loans are included in the average balances. Balances are expressed in thousands
of dollars.
<TABLE>
<CAPTION>
For the year ended December 31, 1995
------------------------------------
Interest Rates
Average Income/ Earned/
Balance Expense Paid
------- ------- ----
ASSETS
- ------
<S> <C> <C> <C>
Time Deposits with Other
Financial Institutions $ 8,467 $ 493 5.82 %
Investment Securities (footnote #<F1>) 9,182 559 6.09
Federal Funds Sold 6,573 374 5.69
Loans (Interest and Fees) 45,818 5,574 12.17
------ -----
Total Earning Assets $70,040 $7,000 9.99 %
===== =====
Cash and Due from Banks 5,494
Premises and Equipment 827
Other Assets 3,493
------
TOTAL ASSETS $79,854
======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Deposits:
Demand $20,005 $ --- --- %
Savings 2,701 53 1.96
Interest-bearing Transaction 28,714 620 2.16
Time 17,072 863 5.06
------ ------
Total Deposits $68,492 $1,536 2.24 %
===== =====
Other Liabilities 573
Shareholders' Equity 10,789
------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $79,854
======
AS A PERCENTAGE OF AVERAGE
TOTAL EARNING ASSETS:
Interest and Fee Income $ 7,000
Interest Expense 1,536
------
NET INTEREST INCOME AND MARGIN $ 5,464 7.75 %
====== =====
*Includes loan fees of $483,000
<FN>
<F1> Investment income rate is not calculated on a tax equivalent basis.
</FN>
</TABLE>
-13-
<PAGE> 14
<TABLE>
<CAPTION>
For the year ended December 31, 1994
------------------------------------
Interest Rates
Average Income/ Earned/
Balance Expense Paid
------- ------- ----
ASSETS
- ------
<S> <C> <C> <C>
Time Deposits with Other
Financial Institutions $10,487 $ 410 3.91 %
Investment Securities (footnote #<F1>) 4,146 212 5.11
Federal Funds Sold 3,560 159 4.47
Loans (Interest and Fees) 48,975 5,044* 10.12
------ -----
Total Earning Assets $67,168 $5,825 8.67 %
===== =====
Cash and Due from Banks 6,118
Premises and Equipment 923
Other Assets 3,047
------
TOTAL ASSETS $77,256
======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Deposits:
Demand $18,883 $ --- --- %
Savings 3,189 64 2.01
Interest-bearing Transaction 29,719 607 2.04
Time 15,090 477 3.16
------ ------
Total Deposits $66,881 $ 1,148 1.72 %
====== =====
Other Liabilities 338
Shareholders' Equity 10,037
------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $77,256
======
AS A PERCENTAGE OF AVERAGE
TOTAL EARNING ASSETS:
Interest and Fee Income $ 5,825
Interest Expense 1,148
------
NET INTEREST INCOME AND MARGIN $ 4,677 6.96 %
====== =====
*Includes loan fees of $490,000
<FN>
<F1> Investment income rate is not calculated on a tax equivalent basis.
</FN>
</TABLE>
-14-
<PAGE> 15
<TABLE>
<CAPTION>
For the year ended December 31, 1993
------------------------------------
Interest Rates
Average Income/ Earned/
Balance Expense Paid
------- ------- ----
ASSETS
<S> <C> <C> <C>
Time Deposits with Other
Financial Institutions $12,650 $ 455 3.60 %
Investment Securities (footnote #<F1>) 2,276 74 3.25
Federal Funds Sold 5,923 171 2.89
Loans (Interest and Fees) 49,888 4,858 * 9.73
------ -----
Total Earning Assets $70,737 $5,558 7.86 %
===== =====
Cash and Due from Banks 6,108
Premises and Equipment 1,054
Other Assets 1,948
------
TOTAL ASSETS $79,847
======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Deposits:
Demand $17,740 $ --- --- %
Savings 3,259 75 2.30
Interest-bearing Transaction 31,705 720 2.27
Time 17,110 523 3.06
------ ------
Total Deposits $69,814 $ 1,318 1.89 %
====== =====
Other Liabilities 623
Shareholders' Equity 9,410
------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $79,847
======
AS A PERCENTAGE OF AVERAGE
TOTAL EARNING ASSETS:
Interest and Fee Income $ 5,558
Interest Expense 1,318
------
NET INTEREST INCOME AND MARGIN $ 4,240 5.99 %
====== =====
*Includes loan fees of $596,000
<FN>
<F1> Investment income rate is not calculated on a tax equivalent basis.
</FN>
</TABLE>
-15-
<PAGE> 16
Following is an analysis of changes in Interest Income and Expense (in
thousands of dollars) for 1995 over 1994. A similar comparison for 1994 over
1993 is on the following page. Changes not solely attributed to volume or rates
have been allocated proportionately to volume and rate components.
<TABLE>
<CAPTION>
1995 over 1994
INCREASE (DECREASE) IN --------------
INTEREST AND FEE INCOME Volume Rate Total
- ----------------------- ------ ---- -----
<S> <C> <C> <C>
Time Deposits with Other
Financial Institutions $(90) $ 173 $ 83
Investment Securities 300 47 347
Federal Funds Sold 163 52 215
Loans, Net (357) 887 530
--- ---- ----
Total Increase in
Interest and Fee Income 16 1,159 1,175
--- ----- -----
INCREASE IN
INTEREST EXPENSE
- ----------------
Savings Deposits (21) 34 13
Interest-bearing Transaction (9) (2) (11)
Time Deposits 69 317 386
--- ---- ----
Total Increase in
Interest Expense 39 349 388
--- ----- ----
INCREASE IN
NET INTEREST INCOME $ 23 $ 810 $ 787
=== ==== ====
</TABLE>
-16-
<PAGE> 17
<TABLE>
<CAPTION>
1994 over 1993
INCREASE (DECREASE) IN --------------
INTEREST AND FEE INCOME Volume Rate Total
- ----------------------- ------ ---- -----
<S> <C> <C> <C>
Time Deposits with Other
Financial Institutions $(82) $ 37 $ (45)
Investment Securities 89 49 138
Federal Funds Sold (84) 72 (12)
Loans, Net (64) 250 186
----- ----- -----
Total Increase in
Interest and Fee Income (141) 408 267
----- ----- -----
INCREASE IN
INTEREST EXPENSE
- ----------------
Savings Deposits (2) (9) (11)
Interest-bearing Transaction (43) (70) (113)
Time Deposits (63) 17 (46)
----- ----- -----
Total Increase in
Interest Expense (108) (62) (170)
----- ----- -----
INCREASE IN
NET INTEREST INCOME $(33) $ 470 $ 437
===== ===== =====
</TABLE>
-17-
<PAGE> 18
INVESTMENT SECURITIES
- ---------------------
The following table sets forth the book value as of December 31 for the
securities indicated:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
U. S. Treasury
Securities $6,018,457 8,981,172 693,613
Obligations of
States and
Political
Subdivisions 0 1,343,820 4,900
--------- ---------- -------
TOTAL $6,018,457 $10,324,992 $698,513
========= ========== =======
</TABLE>
The increase or decrease in municipal bonds in 1995, 1994 and 1993 was brought
about by by a corresponding increase or decrease in interest rates in the
marketplace. The amortized cost and estimated fair values of investment in debt
securties for 1995 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury
securities $6,018,457 $71,305 $ 0 $6,089,762
========= ====== ====== =========
</TABLE>
The amortized cost and estimated market value of debt securities at December
31, 1995 by contractual maturity are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
----- -----
<S> <C> <C>
Due in one year or less $5,030,670 $5,080,388
Due after one year through
five years 987,787 1,009,374
------- ---------
$6,018,457 $6,089,762
========== ==========
</TABLE>
There were no sales of investments in debt securities during 1995.
-18-
<PAGE> 19
The following table is a summary of the relative maturities and yields of
Summit Bancshares, Inc. investment securities as of December 31, 1995 and 1994.
Yields on securities have been computed by dividing interest income, adjusted
for amortization of premium and accretion of discount, by book values of the
related securities. Investment yield is not calculated on a tax equivalent
basis.
<TABLE>
<CAPTION>
Maturing Maturing After One
Within One Year Through Five Years Total
--------------- ------------------ -----
Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ -----
December 31, 1995
-----------------
<S> <C> <C> <C> <C> <C> <C>
U. S. Treasury
Security $5,030,670 6.14% $ 987,787 6.50% $6,018,457 6.20%
========= ==== ======= ==== ========= ====
December 31, 1994
-----------------
U. S. Treasury
Security $3,999,365 5.64% $4,981,807 6.36% $8,981,172 6.06%
States and
Political Sub-
divisions 1,338,920 4.65 4,900 10.14 1,343,820 4.67%
--------- ----- --------- ----- --------- ----
TOTAL $5,338,285 5.40% $4,986,707 6.39% $10,324,992 5.88%
========= ===== ========= ===== ========== ====
</TABLE>
-19-
<PAGE> 20
LOAN PORTFOLIO
- --------------
COMPOSITION OF LOANS
- --------------------
The following table shows the composition of loans (in thousands of dollars)
of Summit Bancshares, Inc. as of December 31 for each respective year
designated.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Commercial and
Financial $30,471 $30,355 $30,928
Real Estate, Including
Construction 14,625 10,695 12,501
Installment 5,524 6,450 7,646
Leases 51 132 219
------ ------ ------
50,671 47,632 51,294
Less Unearned Income (1) (9) (25)
Less Reserve for
Possible Loan Losses (1,025) (932) (728)
------ ------ ------
TOTAL $49,645 $46,691 $50,541
====== ====== ======
</TABLE>
MATURITY, DISTRIBUTION AND INTEREST RATE
- ----------------------------------------
SENSITIVITY OF LOANS
- --------------------
The following table shows the maturity distribution of loans (in thousands
of dollars) as of December 31, 1995.
<TABLE>
<CAPTION>
Loans with a Maturity of
----- ---- - -------- --
One Year One through Over Five
or Less Five Years Years Total
-- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C>
Commercial and
Financial $15,955 $14,311 $205 $30,471
Real Estate
Construction 7,910 522 0 8,432
------ ----- --- ------
TOTAL $23,865 $14,833 $205 $38,903
====== ====== === ======
</TABLE>
All but five loans for $1,489,366 reported above which have maturities of
over one year are at floating interest rates.
-20-
<PAGE> 21
COMMITMENTS AND LINES OF CREDIT
----------- --- ----- -- ------
The Company 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 commitments to extend credit,
and standby letters of credit. Those instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the statement of
financial position. The contract amount of those instruments reflects the
extent of involvement the Company has in particular classes of financial
instruments.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual notional
amount of those instruments. The Company uses the same credit policies in
making commitments and conditional obligations as it does for on-balance-sheet
instruments.
<TABLE>
<CAPTION>
Contract Amount
-------- ------
<S> <C>
Financial instruments whose contract
amount represents credit risk:
Commitments to extend credit in the future $12,397,150
Standby letters of credit 1,696,865
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each
customer's credit worthiness on a case-by-case basis. The amount of
collateral obtained if deemed necessary by the Company upon extension of
credit is based on management's credit evaluation of the counter-party.
Collateral held varies but may include accounts receivable, inventory,
property, plant, and equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. Most all
guarantees expire within a 1 year. The credit risk involved in issuing letters
of credit is essentially the same as that involved in extending loan
facilities to customers.
A part of the subsidiary Bank's marketing strategy is to offer quality
financial services to the professional and small business communities. The
Company has been especially successful in targeting health care professionals.
This segment has traditionally provided high levels of deposits and low loan
losses. While approximately 15% of the Company's loans are concentrated with
health care professionals, the Bank has had only two charge-offs totalling
$133,206 since it was founded in 1982.
-21-
<PAGE> 22
<TABLE>
<CAPTION>
NON-PERFORMING LOANS AND
- -------------- ----- ---
SUMMARY OF LOAN LOSS EXPERIENCE
- ------- -- ---- ---- ----------
(In thousands of dollars)
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
----------------- ----------------- -------------
<S> <C> <C> <C>
Non-accrual loans $ 39 $ 572 $ 966
90 days past due but
still accruing 367 207 4
----- ----- -----
Total non-accrual
and 90 days past
due loans 406 779 970
Other real estate owned 1,303 2,866 1,509
----- ----- -----
Total Non-performing
assets $1,709 $3,645 $2,479
===== ===== =====
</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.
The total OREO amount, $1,303,000, is related to two properties.
One of the properties is vacant land in the Oakland Hills. The second property
is two continguous parcels in the Danville/Diablo Mountain area of Alameda
County. These two parcels are currently on the market for sale.
The allowance for loan losses is maintained at a level considered
adequate to provide for losses that can be reasonably anticipated. The reserve
is increased by provisions and reduced by net charge-offs. The Bank makes credit
reviews of the loan portfolio, considers current economic conditions, loan loss
experience, and other factors in determining the adequacy of the reserve
balance. The allowance for loan losses is based on estimates and ultimate losses
may vary from current estimates. As adjustments become necessary, they are
reported in earnings in the periods in which they become known.
Any loans classified for regulatory purposes as loss, doubtful,
substandard, or special mention that have not been disclosed under Item III of
Industry Guide 3 do not (i) represent or result from trends or uncertainties
which management reasonably expects will materially impact future operating
results, liquidity or capital resources, or (ii) represent material credits
about which management is aware of any information which causes management to
have serious doubts as to the ability of such borrowers to comply with the loan
repayment program.
-22-
<PAGE> 23
An analysis of activity in the allowance for loan losses for the years
ended December 31 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance at beginning
of period $931,878 $728,353 $899,083
------- ------- -------
Provision for possible
loan losses 415,000 670,000 430,800
------- ------- -------
Loan charged off
Commercial 302,640 262,005 552,274
Real Estate Construction 2,384 0 0
Installment 28,684 255,850 64,850
------- ------- ------
Total chargeofffs 333,708 517,855 617,124
------- ------- -------
Recoveries
Commercial 8,677 47,500 12,594
Real Estate Construction 0 0 0
Installment 3,075 3,880 3,000
Total recoveries 11,752 51,380 15,594
------- ------ ------
Net chargeoffs 321,956 466,475 601,530
------- ------- -------
Balance at end of period
$1,024,922 $931,878 $728,353
========= ======= =======
Ratio of net charge-
offs to average
loans outstanding .70% .95% 1.20%
=== === ====
</TABLE>
Although it cannot be accurately predicted, it is estimated that in 1996,
loan losses in the Commercial loan category may approximate $350,000 while
losses in the Instalment loan category may approximate $75,000. No losses are
anticipated in the Real Estate Loan category.
<TABLE>
<CAPTION>
Allocations for Loan Loss Reserves for the next two years are as follows:
1996
<S> <C>
Commercial Loans $ 621,000
Real Estate Loans 410,000
Installment Loans 135,000
-------
$1,166,000
=========
1997
Commercial Loans $ 732,000
Real Estate Loans 468,000
Installment Loans 75,000
------
$1,275,000
=========
</TABLE>
-23-
<PAGE> 24
TIME DEPOSITS IN THE AMOUNT OF $100,000 AND OVER
- ---- -------- -- --- ------ -- -------- --- ----
The following table sets forth by time remaining to maturity, Summit Bank's
issuance of time deposits in the amount of $100,000 or more (in thousands of
dollars) as of December 31 of the respective year designated:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- -----
Amount Percentage Amount Percentage Amount Percentage
<S> <C> <C> <C> <C> <C> <C>
3 months or less $ 8,049 61.5% $ 7,362 71.7% $ 7,472 74.3%
Over 3 through
6 months 3,546 27.1 1,015 9.9 1,150 10.0
Over 6 through
12 months 1,403 10.7 1,891 18.4 1,651 14.4
Over 12 months 100 .7 0 0 150 1.3
------ ----- ------ ----- ------ -----
TOTAL $13,098 100.0% $10,268 100.0% $10,423 100.0%
====== ===== ====== ===== ====== =====
</TABLE>
RETURN ON EQUITY AND ASSETS
- ---------------------------
The following table shows key financial ratios for the years ending December
31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Return on average assets 1.65% 1.17% 1.06%
Return on average shareholders'
equity 12.19% 9.04% 9.00%
Dividend payout ratio 48.39% 22.39% 11.87%
Average shareholders' equity
as a percent of:
Average Assets 13.51% 12.99% 11.78%
Average Deposits 15.75% 15.01% 13.49%
</TABLE>
-24-
<PAGE> 25
INTEREST RATE SENSITIVITY/INTEREST RATE RISK ANALYSIS
- -------- ---- -------------------- ---- ---- --------
The following table provides an interest rate sensitivity and interest rate
risk analysis for the year ended 1995. 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: 12/31/95
REMAINING TIME BEFORE MATURITY OR INTEREST RATE ADJUSTMENT
($000.00)
OMITTED UP > 3 > 1 > 3 > 5 OVER
TOTAL 3 < 1 < 3 < 5 < 10 10 YRS
I. EARNING ASSETS
------- ------
A. INVESTMENTS:
-----------
<S> <C> <C> <C> <C> <C> <C> <C>
1. U. S. TREASURIES $ 6,018 $ 584 $ 4,447 $ 987 $0 $0 $0
2. FED FUNDS 9,600 9,600 0 0 0 0 0
3. PURCHASED CDS 11,002 2,973 6,345 1,684 0 0 0
------ ----- ----- ------ - - -
TOTAL INVESTMENTS $26,620 $13,157 $10,792 $ 2,671 $0 $0 $0
B. LOANS:
-----
1. COMMERCIAL LOANS $47,447 $44,707 $ 1,580 $ 808 $346 $6 $0
2. REAL ESTATE LOANS 1,561 7 1,554 0 0 0 0
3. INSTALLMENT 27 27 0 0 0 0 0
------ ------ ----- ------- --- - -
TOTAL LOANS $49,035 $44,741 $ 3,134 $ 808 $346 $6 $0
C. TOTAL EARNING ASSETS $75,655 $57,898 $13,926 $ 3,479 $346 $6 $0
------ ------- ------
II. COST OF FUNDS (DEPOSITS)
---- -- ----- ----------
A. CERTIFICATES OF DEPOSITS $20,018 $11,453 $ 8,158 $ 387 $0 $20 $0
B. MONEY MARKET ACCOUNTS 20,484 0 10,242 10,242 0 0 0
C. TRANSACTIONS ACCOUNTS 5,942 0 0 3,565 1,189 1,189 0
D. SAVINGS ACCOUNTS 2,365 0 0 1,419 473 473 0
----- ------ ------ ----- ----- ----- -
TOTAL COST OF FUNDS $48,810 $11,453 $18,400 $ 15,614 $1,662 $1,682 $0
III. INTEREST SENSITIVE ASSETS $75,655 $57,898 $13,926 $ 3,479 $ 346 $ 6 $0
IV. INTEREST SENSITIVE LIABILITIES $48,810 $11,453 $18,400 $ 15,614 $1,662 $1,682 $0
------- ------- ------- ------- ------ ------ --
V. GAP $26,845 $46,445 $(4,474) $(12,135) $(1,316) $(1,676) $0
VI. CUMMULATIVE GAP $26,845 $46,445 $41,971 $ 29,835 $28,520 $26,845 $26,845
VII. GAP RATIO 5.06 0.76 0.22 0.21
VIII.CUMMULATIVE RATIO 1.55 5.06 2.41 1.66 1.61 1.55 1.55
IX. GAP AS % OF TOTAL ASSETS 31.79 55.00 (5.30) (14.37) (1.56) (1.98)
X. CUMMULATIVE GAP AS A % OF
TOTAL ASSETS 31.79 55.00 49.70 35.33 33.77 31.79 31.79
</TABLE>
-25-
<PAGE> 26
ITEM 2. PROPERTIES
When the Bank first entered into its initial lease agreement it signed a
ten-year lease which commenced September 1, 1981 (with options to extend the
lease on the same terms and conditions for two additional five-year periods).
This space housed the permanent Head Offices for the Bank and the Company at
2969 Broadway, Oakland, California 94611 at the intersection of Broadway and
30th Street in the "Pill Hill" area. The premises consisted of approximately
3,800 square feet located in a portion of a single story building on the
southwest corner at the intersection. The Bank spent approximately $388,448 on
leasehold improvements at this location. Improvements consisted of a complete
remodeling of the facility, including a new roof, new facade, new floor,
partitions and structural improvements.
In September, 1987 the Bank entered into an additional ten year
lease for 6,010 sq. ft. adjacent to its location in Oakland. The Bank
utilizes approximately 2,900 sq. ft. of this new area. The Bank's cost
of leasehold improvements in this new location was approximately
$294,000. Improvements consisted of a complete remodeling of the
facility, including a new facade, new floor, partitions and structural
improvements. The initial lease in the above paragraph has expired
and has been rolled into this new lease. The current monthly rent for
the entire 9,810 sq. ft. is $5,226.00 subject to yearly CPI adjustments.
Commencing on December 1, 1984, the Bank leased 720 square feet of office
space in a new building at 112 La Casa Via in Walnut Creek, California. This
location housed the Bank's initial branch office. The building was fully
serviced and the base rental was $1,274 per month subject to cost-of-living
adjustments on the anniversary of each rental year. Necessary leasehold
improvements were completed within the landlord's authorized allowance. The term
of this lease expired on November 30, 1989, however, the Bank negotiated a month
to month lease pending its move to new quarters in September, 1990. Monthly rent
was $1,502.83.
In September, 1989, the Bank entered into a new lease for 1,500 sq. ft. of
office space located at the corner of No. Main Street and Civic Drive in
downtown Walnut Creek. This new location is twice the physical size of the old
location and is closer to the financial district of Walnut Creek. The Bank moved
into this new location in September, 1990. The new lease is for a term of 12
years commencing November 1, 1989 and terminates January 14, 2001. The Bank's
cost for leasehold improvement in this new location was approximately $210,000.
Improvements consisted of a complete remodeling of the facility, including
enclosing an existing drive through facility, partitions and structural
improvements. The lease provides for a monthly rent of $4,769.80, fixed for 12
years and beginning January 1, 1991.
The Emeryville Branch began operations in December, 1985 on the
ground floor of the Watergate III Building at 2000 Powell Street. The
Bank currently occupies approximately 2,200 square feet of space at this
location, at a base rent of $2.00 per net rentable square foot ($4,390
per month). The term of this lease expired August 31, 1992 with two
successive options to extend the lease by one three year option and one
-26-
<PAGE> 27
five year option. The Bank renewed the lease at a base rent of $1.95 per net
rentable square foot ($4,329 per month) with two three year options effective
1-1-93 which expired December 31, 1995. The Bank subsequently renewed the lease
at a base rent of $2.05 per net rentabel square foot ($4,651 per month) with two
three year options effective 1-1-96.
In September, 1990 the Company purchased two contiguous parcels totaling
10,000 sq. ft. adjacent to the Bank's Walnut Creek Office for a price of
$544,644. Included on one of the parcels is a single story, 2,500 sq. ft.
concrete block building suitable for a restaurant. The Company entered into a
five year lease on April 1, 1991 with an individual who operates a Japanese
restaurant at this location for a monthly rent of $4,350, triple net commencing
April 1, 1992. The leasee in turn made improvements to the building to bring it
to today's standards.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company is a party to claims and legal proceedings
arising in the ordinary course of business. Currently, the Company has no
outstanding suits brought against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------- -- ------- -- - ---- -- -------- -------
Neither the Company nor the Bank submitted any matter covered by this report
to a vote of security holders, through the solicitation of proxies or otherwise,
during the fourth quarter of 1995.
EXECUTIVE OFFICERS OF SUMMIT BANCSHARES, INC.
--------- -------- -- ------ ----------- ----
Pursuant to General Instruction G(3), the information required by Item
401(b) and (e) of Regulation S-K concerning executive officers of the Company
and the Bank is presented here rather than in the Company's Proxy Statement for
the Annual Meeting of Shareholders to be held on April 25, 1996.
<TABLE>
<CAPTION>
The following individuals are the executive officers of the Company as of
February 29, 1996:
<S> <C> <C> <C>
Name Age Position Since
Shirley W. Nelson 54 Chairman and Chief 1982
Executive Officer
George H. Hollidge 52 Secretary 1981
Kikuo Nakahara 63 Chief Financial 1985
Officer
</TABLE>
-27-
<PAGE> 28
The following individuals are the executive officers of the Bank as of
February 29, 1996:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name Age Position Since
Shirley W. Nelson 54 Chairman, and 1982
Chief Executive
Officer
C. Michael Ziemann 51 President and 1996
Chief Operating
Officer
Denise Dodini 43 Senior Vice 1994
President and
Senior Loan
Officer
</TABLE>
The business experience of the executive officers follows:
Shirley W. Nelson was President and Chief Executive Officer of the Bank and
-----------------
Holding Company since May, 1983 and was elected in July, 1989 to the position of
Chairman. Prior to this assignment she was the Senior Vice President, Senior
Loan Officer. She is currently a member of the Board of Directors' Audit
Commitee, Asset and Liability Committee, Loan Committee, and Personnel
Committee.
Kikuo Nakahara is Managing Director of IDS Tax and Business
--------------
Services, a division of IDS Financial Services Inc. Prior to this
positon he was a partner of Greene & Nakahara, an accounting firm in Walnut
Creek since 1993, and which merged with IDS Financial Services Inc. in 1994.
From 1978 to 1993 he was managing Director of Greene, Nakahara and Lew
Accountancy Corporation in Oakland. He is a corporate member of Blue Shield and
a speaker at continuing education courses sponsored by the California Society of
Certified Public Accountants.
George H. Hollidge has been President of Hollidge Transmissions, Inc.,
------------------
Oakland, transmission specialists, since 1980. Prior to 1980, Mr. Hollidge was a
partner in Hollidge Hydramatic, transmission specialists.
C. Michael Ziemann has been President and Chief Operating Officer since
------------------
January 1, 1996. Prior to this position he was Chief Administrative Officer
subsequent to his position as CFO and Cashier to which he was appointed in
April, 1987. Prior to that he was active in the administration of the Bank and
was the manager of the Bank's Walnut Creek Office since April 1985. Prior to
joining the Bank, he held various positions during his 16 years with Bank of
America in operations, branch management, and regional administration where he
was a district administrator.
-28-
<PAGE> 29
Denise Dodini has been the Senior Vice President - Senior Loan Officer at
-------------
the Bank since July, 1994. Prior to joining the Bank, Denise had fifteen years
of Banking experience with Bank of America, where she was involved in consumer,
commercial, real estate, and corporate lending. Denise joined the Bank in
October, 1989 as a Vice President, Loan Officer where she assisted clients in
the Oakland Office.
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
------ --- --- ------------ ------ ----- --- -------
SECURITY HOLDER MATTERS
-------- ------ -------
(A) MARKET INFORMATION. The stock of the Company is not listed on any stock
-------------------
exchange but is publicly traded in limited and infrequent transactions in the
"over the counter" market. According to information made available to the
Company by the Market Maker, Marc F.Arnett, Hoefer & Arnett, Investment Bankers,
100 Pine Street, San Francisco, CA., the range of high and low bids for such
common stock for each calendar quarter since January 1994 is as follows:
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW DECLARED
---- --- --------
1995
<S> <C> <C> <C>
First Quarter...... $22 3/4 21 1/4 $ ---
Second Quarter..... 21 3/4 21 3/4 .25
Third Quarter...... 25 1/4 22 3/4 ---
Fourth Quarter..... 26 --- 26 --- 1.25
----
$1.50
=====
1994
First Quarter...... $14 1/4 $13 --- $ ---
Second Quarter..... 16 3/4 16 --- .12
Third Quarter...... 17 3/4 16 1/2 .25
Fourth Quarter..... 25 --- 18 1/2 .12
----
$ .49
=====
</TABLE>
As of February 29, 1996, there were 424,259 shares of common stock of the
Company issued.
(B) SHAREHOLDERS. As of February 29, 1996, there were 326 shareholders
-------------
of the common stock. There were no other classes of securities outstanding.
-29-
<PAGE> 30
(C) DIVIDENDS. On June 9, 1995 the Company paid a 25 cent per share cash
----------
dividend. On December 8, 1995 the Company paid an increased dividend of $1.00
per share along with its regular semi-annual dividend of $0.25 per share. It is
the present intention of the Company to issue semi-annual cash dividends so long
as said dividends do not inhibit future development. Additionally, payment of
cash dividends by the Company is dependent upon payment of dividends by the Bank
to the Company. Payment of cash dividends by the Bank may under certain
circumstances require approval of the California Superintendent of Banks, and as
a matter of law, the Bank may only declare cash dividends from the lesser of its
retained earnings or its undistributed net income from the last three
years. less any dividends paid during those three years. In the event that the
Bank does not have retained earnings or net income for the last three fiscal
years, the Bank may declare dividends only with the prior written consent of the
Superintendent.
-30-
<PAGE> 31
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial information of Summit Bancshares, Inc. for
the years from the period January 1, 1991 through December 31, 1995 should be
read in conjunction with the consolidated financial statements and the
accompanying notes included elsewhere in this Annual Report.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1995 1994 1993 1992 1991
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Income $1,315,507 $907,603 $846,771 $812,538 $1,016,324
Per Common Share $2.86 $2.09 $1.97 $1.76 $2.07
Cash Dividends per Share, declared $1.50 $0.49 $0.24 $0.24 $0.24
AT YEAR END
(In Thousands)
Deposits $75,251 $67,862 $70,462 $70,452 $62,554
Loans (Net) 49,645 46,691 50,541 52,047 50,800
Assets 86,822 78,601 80,356 79,778 71,626
Shareholders' Equity 11,102 10,494 9,626 8,969 8,603
Non-performing Loans to Total Loans .82% 1.66% 1.88% 1.29% 1.42%
Allowance to Non-performing Loans 252% 120% 75% 131% 119%
Allowance to Non-performing Assets 60% 26% 29% 131% 119%
Tier 1 Capital 12.19% 13.33% 11.55% 10.87% 9.92%
Total Tier Capital 13.29% 14.44% 12.66% 11.98% 11.02%
Leverage Ratio 9.24% 10.40% 8.95% 9.81% 8.96%
</TABLE>
-31-
<PAGE> 32
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This section is a review of Summit Bancshares, Inc.'s (the Company) results as
reflected in the Consolidated Financial Statements. It discusses the principal
items of income and expense and the factors affecting the Company's financial
position. This discussion should be read together with the Selected Financial
Data and Consolidated Financial Statements included elsewhere in the Annual
Report.
The Company's wholly owned subsidiary, Summit Bank (the "Bank"), has conducted
the business of a commercial bank since 1982. It provides commercial credit and
various checking and savings account products for small and midsized businesses
and for professionals as well as individual consumers.
The matters addressed in this Report on Form 10K, with the exception of the
historical information presented, may incorporate certain forward-looking
statements involving risks and uncertainties, including the risks discussed
under the heading "Certain Factors That May Affect Future Results" and
elsewhere in this Report.
SUMMARY OF EARNINGS
The Company's net income for 1995 was $1,316,000 compared to $908,000 in 1994
and $847,000 in 1993. The increase in 1995 net income from 1994 is mainly
attributed to an increase in net interest margin, as was the increase in 1994
net income from 1993. The net income of $1,316,000 for 1995 represents $2.86
per share earnings, compared to $2.09 per share in 1994 and $1.97 per share in
1993.
NET INTEREST INCOME
The primary source of income for the Company is Net Interest Income or "Gross
Margin" which is the difference between interest earned on loans and
investments and interest paid on deposits and other liabilities. In general,
net interest income is affected by a change in interest rates. As interest
rates rise or fall, so will the Company's net interest income, excluding
changes in total assets. The primary reasons for this is that the Company's
investment portfolio earns income on a fixed interest rate basis while a
majority of the lending portfolio earns income on a floating interest rate
basis. In addition, all investments are held to maturity and 84% of the
investment portfolio matures in one year. Regarding loans, approximately 59% of
the loans outstanding mature within one year, while the longest maturity is 7
years. In a declining interest rate environment interest income on loans will
generally decline faster than the investment income and vice versa. To offset
any decline in interest income due to a declining interest rate environment,
the Company monitors closely its interest expense on deposits. Of the total
time certificates of deposit outstanding at year end, all but 2% mature within
one year while 57% mature within 90 days. Thus the
-32-
<PAGE> 33
Company is able to minimize the effects of a declining interest rate
environment by repricing these instruments on a more frequent basis than if the
average maturity were longer than 1 year. Most economists agree with the
Company that interest rates may decrease in the short term but should stabilize
for the remainder of 1996. As such, net interest income may further decrease in
the short term, however, that potential decrease would be minimized by an
increase in assets.
Net interest income for 1995 was $5,464,000, an increase of 16.8% over the
$4,677,000 posted in 1994, and as compared to $4,240,000 in 1993. The increase
in 1995 was primarily the result of an increase in the average prime rate which
increased from 7.14% in 1994 to 8.85% in 1995. In addition, net interest income
improved due to an increase in average earning assets which increased 5.1% from
$67,769,000 in 1994 to $71,245,000 in 1995. Average total deposits also
increased .7% from $68,022,000 in 1994 to $68,492,000 in 1995, and as compared
to $69,805,000 in 1993. $459,000 of the 1995 increase was centered in
interest bearing accounts.
The increase in 1994 was primarily the result of an increase in the average
prime rate from 6.00% in 1993 to 7.14% in 1994. This increase partially
offset the effects of the decline in average earning assets
which decreased 5.5% from $71,785,000 in 1993 to $67,769,000 in 1994. This
decline was partly caused by a decline in average total deposits which
decreased 2.5% from $69,805,000 in 1993 to $68,022,000 in 1994. This decrease
was a reflection of the marketplace which saw higher yielding treasury
investments than standard bank investment products. In addition, the decline in
average earning assets was brought about by a lack of quality credit requests
in the marketplace.
Average loans outstanding decreased by 5.2% in 1995 to $47,023,000 as
compared to $49,583,000 in 1994 and $51,037,000 in 1993. Average outstanding
investments increased 33.1% to $24,222,000 in 1995 as compared to $18,186,000
in 1994 and $20,748,000 in 1993. The average loan to deposit ratio declined in
1995 to 67.2% as compared to 72.9% in 1994 and 73.1% in 1993. The yield on
average earning assets was 9.8% in 1995 as compared to 8.6% in 1994 and 7.7% in
1993. The increase in 1995 and in 1994 were caused by the rise in the prime
rate.
Interest expense increased 33.7% to $1,536,000 in 1995 from $1,148,000 in
1994 and $1,318,000 in 1993. Average interest-bearing deposits increased .1% in
1995 to $48,599,000 as compared to $48,140,000 in 1994 and $52,065,000 in 1993
and were primarily centered in the more expensive time certificate deposit
accounts. Average non-interest bearing deposits increased 5.4% in 1995 to
$19,893,000 as compared to $18,882,000 in 1994 and $17,740,000 in 1993.
Overall cost of funds in 1995 was 3.2% as compared to 2.4% in 1994 and
2.5% in 1993.
NON-INTEREST INCOME AND EXPENSE
Non-interest income, consisting primarily of service charges on deposit
accounts, other customer fees and charges including rents and gain on sale of
other real estate owned (REO), was $550,000 in 1995, a decrease
-33-
<PAGE> 34
from $682,000 in 1994 and $620,000 in 1993. Total service charge income from
deposit accounts increased by 3.1% from $357,000 in 1994 to $368,000 in 1995
while total income from other charges decreased 44.2% from $325,000 in 1994 to
$182,000 in 1995. This compares to 1993 figures of $374,000 in deposit accounts
income and $246,000 in income from other charges. The deposit income increase
in 1995 was primarily related to an increase in service charges related to
return check charges which was $25,000 more than 1994 receipts. The decrease in
other income charges in 1995 was related to the sale of an other real estate
owned property for a gain of $192,000 in 1994. The deposit income decrease in
1994 was associated with a reduction in service charge related to return check
charges. The increase in 1994 in other charges was primarily related to the
gain on sale of other real estate owned previously mentioned.
Non-interest expenses increased 6.8% to $3,355,000 in 1995, from $3,142,000 in
1994 and $3,019,000 in 1993. The increase in 1995 can be attributed to an
increase in foreclosure and real estate owned expense which increased from
$84,000 in 1994 to $118,000 in 1995, and was related to carrying costs on
properties. Salary expense increased 6.2% from $1,681,000 in 1994 to
$1,786,000 in 1995 and was due to normal staffing needs. In addition, data
processing expense increased from $56,000 in 1994 to $90,000 in 1995 primarily
due to a enhancement to our in-house computer system. The increase in non-
interest expense in 1994 can be attributed to an increase in foreclosure and
real estate owned expense which increased from $7,000 in 1993 to $84,000 in
1994 and was related to carrying costs on properties. In addition, legal
expense increased 26.5% from the 1993 figure of $98,000 to $124,000 in 1994 and
was related to other real estate owned, pursuing charged-off loans, taking
legal action against those clients who had filed under bankruptcy protection
and other general related expenses.
Occupancy and equipment expense decreased to $457,000 in 1995 from $484,000 in
1994 and $480,000 in 1993. The decrease was primarily related to a reduction in
F & E depreciation expense and a reduction in repair and maintenance.
The Bank's allowance for loan losses as a percent of loans was 2.1% and 1.9% as
of December 31, 1995 and 1994, respectively. The average in the industry for
banks our size is approximately 2.2%. Total gross loans charged off in 1995
were $334,000 compared to $518,000 in 1994 and $617,000 in 1993.
Operating expenses increased 13.7% to $1,111,000 in 1995 compared to $977,000
in 1994 and $925,000 in 1993. Increases in business development, consulting
fees, data processing, director fees, and foreclosure and REO expense was the
primary reason for the increase in 1995.
PROVISION FOR INCOME TAXES
The provision for income taxes reflects a combined Federal and California
effective tax rate of 41.4% in 1995, compared to 41.3% in 1994 and 40.2% in
1993 as described in Note 7 to the Financial Statements.
-34-
<PAGE> 35
LIQUIDITY AND CAPITAL
Liquidity is defined as the ability to meet present and future obligations
either through the sale or maturity of existing assets or by the acquisition of
funds through liability management. Additionally, the Bank's investment
portfolio is managed to provide liquidity as well as appropriate rates of
return. It is the Bank's practice to hold securities until maturity rather than
actively trade its portfolio. As of December 31, 1995 the Bank had $16,428,000
in cash and cash equivalents compared to $9,246,000 as of December 31, 1994,
and $10,387,000 as of December 31, 1993. The ratio of net loans to deposits as
of December 31, 1995, was 66.0% compared to 68.8% as of December 31, 1994, and
71.7% as of December 31, 1993.
The Bank maintains a portion of its assets in loans and investments with
short-term maturities. More specifically, loans and investments due within one
year totaled $52,455,000 at December 31, 1995, as compared to $44,482,000 at
December 31, 1994, and $54,915,000 at December 31, 1993, which is equivalent to
60.4%, 56.7%, and 68.3% of total assets at the corresponding year ends,
respectively.
During 1995, the Company repurchased 3,226 shares of its common stock for a
total price of $70,426. The Company plans to continue its repurchase program as
an additional avenue for liquidity for its shareholders as long as it is
economically appropriate to do so. 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 regulatory
requirements.
CREDIT CONCENTRATION
A part of the subsidiary Bank's marketing strategy is to offer quality
financial services to the professional and small business communities. The
Company has been especially successful in targeting health care professionals.
This segment has traditionally provided high levels of deposits and low loan
losses. While approximately 15.6% of the Company's loans are concentrated with
health care professionals, the Bank has had only two charge-offs related to
this business segment totaling $133,206 since it was founded in 1982. Health
care reform has received close scrutiny over the past few years as the Clinton
administration continues to attempt to restructure the method by which health
care is provided to the public. To date it appears that such reform is not
likely to occur in the immediate future. However, over the past few years, the
doctors and health care providers in the Company's communities have been
adjusting to the emerging trends in this industry. This includes higher
percentages of patients on Medicare; closer scrutiny from insurance carriers;
and movement to managed care and "capitation" contracts. Through this process,
the Company has not experienced any noticeable deterioration in credit
quality. The Company cannot predict the ultimate outcome of health care reform.
However, the Company closely monitors the status of reform and considers the
potential impact of any reform on its current customers and its underwriting of
loans to health care professionals.
-35-
<PAGE> 36
NON-PERFORMING ASSETS
The decrease in non-performing assets from December 31, 1994 to December 31,
1995 is due primarily to a decrease in other real estate owned and a reduction
of non-accrual loans. Other real estate owned consists of 3 vacant land parcels
in the California counties of Alameda and Contra Costa. All properties are
being actively marketed. Current comparables favor a complete recovery at the
time of sale. At December 31, 1995 the $39,000 placed on non-accrual status
represents one loan and no principle loss is anticipated.
CAPITAL ADEQUACY
In 1989, the Federal Deposit Insurance Corporation (FDIC) established
risk-based capital guidelines requiring banks to maintain certain ratios of
"qualifying capital" to "risk-weighted assets". Under the guidelines,
qualifying capital is classified into two tiers, referred to as Tier 1 (core)
and Tier 2 (supplementary) capital. Currently, the Bank's Tier 1 capital
consists of shareholders' equity, while Tier 2 capital consists of eligible
allowance for loan losses. Risk-weighted assets are calculated by applying the
risk percentage specified by the FDIC to categories of both balance-sheet
assets and off-balance-sheet assets.
The Bank's Tier 1 and total risk-based capital (which includes Tier 1 and Tier
2) ratios exceeded the current regulatory minimum at both December 31, 1995 and
December 31, 1994.
At year-end 1990, the FDIC also adopted a leverage ratio requirement. This
ratio supplements the risk-based capital ratios and is defined as Tier 1
capital divided by the quarterly average assets during the reporting period.
The following table shows the risk-based capital ratios and the leverage ratios
for 1995 and 1994, as well as the minimum regulatory requirements.
The Bank does not foresee any material or significant impact to its manner of
operation in the foreseeable future that would prevent it from meeting these
requirements.
<TABLE>
<CAPTION>
Minimum
Capital Ratios Regulatory
December 31, Requirements
Risk-based capital ratios: 1995 1994 1995
---------- ------- ------- ---- ---- ----
<S> <C> <C> <C>
Tier 1 capital 12.19% 13.33% 4.00%
Total capital 13.29% 14.44% 8.00%
Leverage ratio 9.24% 10.40% 3.00%
</TABLE>
The decrease in the 1995 ratios is attributed to a $1,700,000 dividend paid to
the Holding Company during 1995.
-36-
<PAGE> 37
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The primary factor which may affect future results is the fluctuation of
interest rates in the market place more commonly referred to as interest rate
risk. Interest rate risk is the exposure of a bank's current and future
earnings and equity capital arising from adverse movements in interest rates.
It results from the possibility that changes in interest rates may have an
adverse effect on a bank's earnings and its underlying economic value. Changes
in interest rates affect a bank's earnings by changing its net interest income
and the level of other interest-sensitive income and operating expenses. As
mentioned previously, the potential decrease in an declining interest rate
environment would be minimized by an increase in assets. In addition, earnings
and growth of the company are and will be affected by general economic
conditions, both domestic and international, and by monetary and fiscal
policies of the United States Government, particularly the Federal Reserve
Bank. See "Business-Impact of Economic Conditions and Monetary Policies".
-37-
<PAGE> 38
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated statement of financial position as of December 31,
1995 and 1994 and the consolidated statements of income, changes in
shareholders' equity and cash flows for the years ended December 31, 1995, 1994,
and 1993, together with the report of independent public accountant, follow:
-38-
<PAGE> 39
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED 1995 1994 1993 1992 1991
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Income $1,315,507 $907,603 $846,771 $812,538 $1,016,324
Per Common Share $2.86 $2.09 $1.97 $1.76 $2.07
Cash Dividends per Share, declared $1.50 $0.49 $0.24 $0.24 $0.24
AT YEAR END
(In Thousands)
Deposits $75,251 $67,862 $70,462 $70,452 $62,554
Loans (Net) 49,645 46,691 50,541 52,047 50,800
Assets 86,822 78,601 80,356 79,778 71,626
Shareholders' Equity 11,102 10,494 9,626 8,969 8,603
Non-performing Loans to Total Loans .82% 1.66% 1.88% 1.29% 1.42%
Allowance to Non-performing Loans 252% 120% 75% 131% 119%
Allowance to Non-performing Assets 60% 26% 29% 131% 119%
Tier 1 Capital 12.19% 13.33% 11.55% 10.87% 9.92%
Total Tier Capital 13.29% 14.44% 12.66% 11.98% 11.02%
Leverage Ratio 9.24% 10.40% 8.95% 9.81% 8.96%
</TABLE>
-39-
<PAGE> 40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The matters addressed in this Annual Report, with the exception of the
historical information presented, may incorporate certain forward-looking
statements involving risks and uncertainties, including the risks discussed
under the heading "Certain Factors That May Affect Future Results" and elsewhere
in this Report.
This section is a review of Summit Bancshares, Inc.'s (the Company) results as
reflected in the Consolidated Financial Statements. It discusses the principal
items of income and expense and the factors affecting the Company's financial
position. This discussion should be read together with the Selected Financial
Data and Consolidated Financial Statements included elsewhere in the Annual
Report.
The Company's wholly owned subsidiary, Summit Bank (the "Bank"), has
conducted the business of a commercial bank since 1982. It provides
commercial credit and various checking and savings account products
for small and midsized businesses and for professionals as well as
individual consumers.
SUMMARY OF EARNINGS
The Company's net income for 1995 was $1,316,000 compared to $908,000 in 1994
and $847,000 in 1993. The increase in 1995 net income from 1994 is mainly
attributed to an increase in net interest margin, as was the increase in 1994
net income from 1993. The net income of $1,316,000 for 1995 represents $2.86 per
share earnings, compared to $2.09 per share in 1994 and $1.97 per share in 1993.
-40-
<PAGE> 41
NET INTEREST INCOME
The primary source of income for the Company is Net Interest Income or "Gross
Margin" which is the difference between interest earned on loans and investments
and interest paid on deposits and other liabilities. In general, net interest
income is affected by a change in interest rates. As interest rates rise or
fall, so will the Company's net interest income, excluding changes in total
assets. The primary reasons for this is that the Company's investment portfolio
earns income on a fixed interest rate basis while a majority of the lending
portfolio earns income on a floating interest rate basis. In addition, all
investments are held to maturity and 84% of the investment portfolio matures in
one year. Regarding loans, approximately 59% of the loans outstanding mature
within one year, while the longest maturity is 7 years. In a declining interest
rate environment interest income on loans will generally decline faster than the
investment income and vice versa. To offset any decline in interest income due
to a declining interest rate environment, the Company monitors closely its
interest expense on deposits. Of the total time certificates of deposit
outstanding at year end, all but 2% mature within one year while 57% mature
within 90 days. Thus the Company is able to minimize the effects of a declining
interest rate environment by repricing these instruments on a more frequent
basis than if the average maturity were longer than 1 year. Most economists
agree that interest rates may decrease .50% in the short term but should
stabilize for the remainder of 1996. As such, net interest income may further
decrease in the short term, however, that potential decrease would be minimized
by an increase in assets.
-41-
<PAGE> 42
Net interest income for 1995 was $5,464,000, an increase of 16.8% over the
$4,677,000 posted in 1994, and as compared to $4,240,000 in 1993. The increase
in 1995 was primarily the result of an increase in the average prime rate which
increased from 7.14% in 1994 to 8.85% in 1995. In addition, net interest income
improved due to an increase in average earning assets which increased 5.1% from
$67,769,000 in 1994 to $71,245,000 in 1995. Average total deposits also
increased .7% from $68,022,000 in 1994 to $68,492,000 in 1995, and as compared
to $69,805,000 in 1993. $459,000 of the 1995 increase was centered in interest
bearing accounts.
The increase in 1994 was primarily the result of an increase in the average
prime rate from 6.00% in 1993 to 7.14% in 1994. This increase partially offset
the effects of the decline in average earning assets which decreased 5.5% from
$71,785,000 in 1993 to $67,769,000 in 1994. This decline was partly caused by a
decline in average total deposits which decreased 2.5% from $69,805,000 in 1993
to $68,022,000 in 1994. This decrease was a reflection of the marketplace which
saw higher yielding treasury investments than standard bank investment products.
In addition, the decline in average earning assets was brought about by a lack
of quality credit requests in the marketplace.
Average loans outstanding decreased by 5.2% in 1995 to $47,023,000 as
compared to $49,583,000 in 1994 and $51,037,000 in 1993. Average outstanding
investments increased 33.1% to $24,222,000 in 1995 as compared to $18,186,000 in
1994 and $20,748,000 in 1993. The average loan to deposit ratio declined in 1995
to 67.2% as compared
-42-
<PAGE> 43
to 72.9% in 1994 and 73.1% in 1993. The yield on average earning assets was
9.8% in 1995 as compared to 8.6% in 1994 and 7.7% in 1993. The increase in 1995
and in 1994 were caused by the rise in the prime rate.
Interest expense increased 33.7% to $1,536,000 in 1995 from $1,148,000 in
1994 and $1,318,000 in 1993. Average interest-bearing deposits increased .1% in
1995 to $48,599,000 as compared to $48,140,000 in 1994 and $52,065,000 in 1993
and were primarily centered in the more expensive time certificate deposit
accounts. Average non-interest bearing deposits increased 5.4% in 1995 to
$19,893,000 as compared to $18,882,000 in 1994 and $17,740,000 in 1993. Overall
cost of funds in 1995 was 3.2% as compared to 2.4% in 1994 and 2.5% in 1993.
NON-INTEREST INCOME AND EXPENSE
Non-interest income, consisting primarily of service charges on deposit
accounts, other customer fees and charges including rents and gain on sale of
other real estate owned (REO), was $550,000 in 1995, a decrease from $682,000 in
1994 and $620,000 in 1993. Total service charge income from deposit accounts
increased by 3.1% from $357,000 in 1994 to $368,000 in 1995 while total income
from other charges decreased 44.2% from $325,000 in 1994 to $182,000 in 1995.
This compares to 1993 figures of $374,000 in deposit accounts income and
$246,000 in income from other charges. The deposit income increase in 1995 was
primarily related to an increase in service charges related to return check
charges which was $25,000 more than 1994 receipts. The decrease in
-43-
<PAGE> 44
other income charges in 1995 was related to the sale of an other real
estate owned property for a gain of $192,000 in 1994. The deposit income
decrease in 1994 was associated with a reduction in service charge related to
return check charges. The increase in 1994 in other charges was primarily
related to the gain on sale of other real estate owned previously mentioned.
Non-interest expenses increased 6.8% to $3,355,000 in 1995, from $3,142,000
in 1994 and $3,019,000 in 1993. The increase in 1995 can be attributed to an
increase in foreclosure and real estate owned expense which increased from
$84,000 in 1994 to $118,000 in 1995, and was related to carrying costs on
properties. Salary expense increased 6.2% from $1,681,000 in 1994 to $1,786,000
in 1995 and was due to normal staffing needs. In addition, data processing
expense increased from $56,000 in 1994 to $90,000 in 1995 primarily due to a
enhancement to our in-house computer system. The increase in non-interest
expense in 1994 can be attributed to an increase in foreclosure and real estate
owned expense which increased from $7,000 in 1993 to $84,000 in 1994 and was
related to carrying costs on properties. In addition, legal expense increased
26.5% from the 1993 figure of $98,000 to $124,000 in 1994 and was related to
other real estate owned, pursuing charged-off loans, taking legal action against
those clients who had filed under bankruptcy protection and other general
related expenses.
-44-
<PAGE> 45
Occupancy and equipment expense decreased to $457,000 in 1995 from $484,000 in
1994 and $480,000 in 1993. The decrease was primarily related to a reduction in
F & E depreciation expense and a reduction in repair and maintenance.
The Bank's allowance for loan losses as a percent of loans was 2.1% and 1.9% as
of December 31, 1995 and 1994, respectively. The average in the industry for
banks our size is approximately 2.2%. Total gross loans charged off in 1995 were
$334,000 compared to $518,000 in 1994 and $617,000 in 1993.
Operating expenses increased 13.7% to $1,111,000 in 1995 compared to $977,000
in 1994 and $925,000 in 1993. Increases in business development, consulting
fees, data processing, director fees, and foreclosure and REO expense was the
primary reason for the increase in 1995.
PROVISION FOR INCOME TAXES
The provision for income taxes reflects a combined Federal and California
effective tax rate of 41.4% in 1995, compared to 41.3% in 1994 and 40.2% in 1993
as described in Note 7 to the Financial Statements.
LIQUIDITY AND CAPITAL
Liquidity is defined as the ability to meet present and future obligations
either through the sale or maturity of existing assets or by the acquisition of
funds through liability management. Additionally, the Bank's investment
portfolio is managed to provide liquidity as well as
-45-
<PAGE> 46
appropriate rates of return. It is the Company's practice to hold
securities until maturity rather than actively trade its portfolio. As of
December 31, 1995 the Company had $16,428,000 in cash and cash equivalents
compared to $9,246,000 as of December 31, 1994, and $10,387,000 as of December
31, 1993. The ratio of net loans to deposits as of December 31, 1995, was 66.0%
compared to 68.8% as of December 31, 1994, and 71.7% as of December 31, 1993.
The Bank maintains a portion of its assets in loans and investments with
short-term maturities. More specifically, loans and investments due within one
year totaled $52,455,000 at December 31, 1995, as compared to $44,482,000 at
December 31, 1994, and $54,915,000 at December 31, 1993, which is equivalent to
60.4%, 56.7%, and 68.3% of total assets at the corresponding year ends,
respectively.
During 1995, the Company repurchased 3,226 shares of its common stock
for a total price of $70,426. The Company plans to continue its repurchase
program as an additional avenue for liquidity for its shareholders as long
as it is economically appropriate to do so. 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 regulatory requirements.
CREDIT CONCENTRATION
A part of the subsidiary Bank's marketing strategy is to offer quality
financial services to the professional and small business communities.
-46-
<PAGE> 47
The Company has been especially successful in targeting health care
professionals. This segment has traditionally provided high levels of deposits
and low loan losses. While approximately 15.6% of the Company's loans are
concentrated with health care professionals, the Bank has had only two
charge-offs related to this business segment totaling $133,206 since it was
founded in 1982. Health care reform has received close scrutiny over the past
few years as the Clinton administration continues to attempt to
restructure the method by which health care is provided to the public. To date
it appears that such reform is not likely to occur in the immediate future.
However, over the past few years, the doctors and health care providers in the
Company's communities have been adjusting to the emerging trends in this
industry. This includes higher percentages of patients on Medicare; closer
scrutiny from insurance carriers; and movement to managed care and "capitation"
contracts. Through this process, the Company has not experienced any noticeable
deterioration in credit quality. The Company cannot predict the ultimate outcome
of health care reform. However, the Company closely monitors the status of
reform and considers the potential impact of any reform on its current customers
and its underwriting of loans to health care professionals.
NON-PERFORMING ASSETS
The decrease in non-performing assets from December 31, 1994 to
December 31, 1995 is due primarily to a decrease in other real estate
owned and a reduction of non-accrual loans. Other real estate
-47-
<PAGE> 48
owned consists of 3 vacant land parcels in the California counties
of Alameda and Contra Costa. All properties are being actively marketed.
Current comparables favor a complete recovery at the time of sale.
At December 31, 1995 the $39,000 placed on non-accrual status
represents one loan and no principle loss is anticipated.
CAPITAL ADEQUACY
In 1989, the Federal Deposit Insurance Corporation (FDIC) established
risk-based capital guidelines requiring banks to maintain certain ratios
of "qualifying capital" to "risk-weighted assets". Under the guidelines,
qualifying capital is classified into two tiers, referred to as Tier 1
(core) and Tier 2 (supplementary) capital. Currently, the Bank's Tier 1
capital consists of shareholders' equity, while Tier 2 capital consists
of eligible allowance for loan losses. Risk-weighted assets are
calculated by applying the risk percentage specified by the FDIC to
categories of both balance-sheet assets and off-balance-sheet assets.
The Bank's Tier 1 and total risk-based capital (which includes Tier 1
and Tier 2) ratios exceeded the current regulatory minimum at both
December 31, 1995 and December 31, 1994.
At year-end 1990, the FDIC also adopted a leverage ratio requirement.
This ratio supplements the risk-based capital ratios and is defined
as Tier 1 capital divided by the quarterly average assets during the
reporting period.
-48-
<PAGE> 49
The following table shows the risk-based capital ratios and the leverage
ratios for 1995 and 1994, as well as the minimum regulatory requirements.
The Bank does not foresee any material or significant impact to its manner
of operation in the foreseeable future that would prevent it from meeting
these requirements.
<TABLE>
<CAPTION>
Minimum
Capital Ratios Regulatory
December 31, Requirements
Risk-based capital ratios: 1995 1994 1995
- ---------- ------- ------- ---- ---- ----
<S> <C> <C> <C>
Tier 1 capital 12.19% 13.33% 4.00%
Total capital 13.29% 14.44% 8.00%
Leverage ratio 9.24% 10.40% 3.00%
</TABLE>
The decrease in the 1995 ratios is attributed to a $1,700,000 dividend paid
to the Holding Company during 1995.
-49-
<PAGE> 50
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The primary factor which may affect future results is the fluctuation of
interest rates in the market place more commonly referred to as interest
rate risk. Interest rate risk is the exposure of a bank's current and
future earnings and equity capital arising from adverse movements in
interest rates. It results from the possibility that changes in
interest rates may have an adverse effect on a bank's earnings and its
underlying economic value. Changes in interest rates affect a bank's
earnings by changing its net interest income and the level of other
interest-sensitive income and operating expenses. As mentioned
previously, the potential decrease in an declining interest rate
environment would be minimized by an increase in assets. In addition,
earnings and growth of the company are and will be affected by general
economic conditions, both domestic and international, and by monetary
and fiscal policies of the United States Government, particularly the
Federal Reserve Bank. See "Business-Impact of Economic Conditions and
Monetary Policies".
-50-
<PAGE> 51
Market Price of the Company's Stock and Dividends
According to the Company's records, there were 326 record holders of its stock
at December 31, 1995. The following table reflects the cash dividends declared
as well as the high and low bid prices which were obtained from the Market
Maker. These prices reflect retail mark-up and may not represent actual
transactions.
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW DECLARED
---- --- --------
1995
<S> <C> <C> <C>
First Quarter...... $22 3/4 21 1/4 $ ---
Second Quarter..... 21 3/4 21 3/4 .25
Third Quarter...... 25 1/4 22 3/4 ---
Fourth Quarter..... 26 --- 26 --- 1.25
-----
$1.50
=====
1994
First Quarter...... $14 1/4 $13 --- $ ---
Second Quarter..... 16 3/4 16 --- .12
Third Quarter...... 17 3/4 16 1/2 .25
Fourth Quarter..... 25 --- 18 1/2 .12
-----
$ .49
=====
</TABLE>
The Company presently intends to continue the policy of paying regular
semi-annual cash dividends. Future dividends will depend upon the earnings of
the Company and management's assessment of the future needs for funds.
-51-
<PAGE> 52
Market Maker
Marc F. Arnett
Hoefer & Arnett
Investment Bankers
100 Pine, Fifth Floor
San Francisco, CA 94111
(415) 362-7111
-52-
<PAGE> 53
<TABLE>
<CAPTION>
SUMMIT BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 1995 AND 1994
- -----------------------------------------------------------------------------------------------------------
ASSETS 1995 1994
----------- -----------
<S> <C> <C>
Cash and due from banks $ 6,827,803 $ 5,746,342
Federal funds sold 9,600,000 3,500,000
- -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents (Note 1) 16,427,803 9,246,342
Time deposits with other financial institutions 11,002,000 7,039,000
Investment securities (fair value of $6,089,762 at December 31, 1995
and $10,218,634 at December 31, 1994 - Note 2) held-to-maturity 6,018,457 10,324,992
Loans, net of allowance for loan losses of
$1,024,922 at December 31, 1995 and $931,878
at December 31, 1994 (Notes 3, 4, and 5) 49,644,756 46,691,459
Other real estate owned (Note 3) 1,302,554 2,865,747
Premises and equipment, net (Note 6) 871,553 848,703
Interest receivable and other assets 1,554,589 1,585,109
- -----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $86,821,712 $78,601,352
- -----------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand $27,572,629 $22,468,813
Interest-bearing transaction accounts 26,394,225 28,814,712
Savings 2,365,403 3,109,239
Time certificates $100,000 and over 13,098,049 10,267,686
Other time certificates 5,820,608 3,201,626
- -----------------------------------------------------------------------------------------------------------
-53-
<PAGE> 54
Total Deposits 75,250,914 67,862,076
- -----------------------------------------------------------------------------------------------------------
Interest payable and other liabilities 468,537 245,520
- -----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 75,719,451 68,107,596
- -----------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities (Note 11)
Shareholders' Equity (Notes 8, 9, and 10):
Preferred Stock, no par value:
2,000,000 shares authorized, no shares outstanding 0 0
Common Stock, no par value:
3,000,000 shares authorized;
424,259 shares outstanding at December 31, 1995 and
427,485 shares outstanding at December 31, 1994 3,767,258 3,837,684
Retained earnings 7,335,003 6,656,072
- -----------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 11,102,261 10,493,756
- -----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $86,821,712 $78,601,352
- -----------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-54-
<PAGE> 55
<TABLE>
<CAPTION>
SUMMIT BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- ----------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $5,574,272 $5,044,315 $4,858,060
Interest on time deposits with other financial institutions 493,250 409,858 455,306
Interest on U. S. government treasury securities 521,808 193,253 10,702
Interest on investment securities exempt from federal income taxes 36,722 18,850 63,061
Interest on federal funds sold 374,010 159,175 170,938
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 7,000,062 5,825,451 5,558,067
- ----------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on savings deposits 53,248 63,575 75,212
Interest on interest-bearing transaction accounts 619,574 607,289 719,988
Interest on time deposits 863,034 477,394 522,647
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 1,535,856 1,148,258 1,317,847
- ----------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 5,464,206 4,677,193 4,240,220
Provision for loan losses (Note 3) 415,000 670,000 430,800
- ----------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 5,049,206 4,007,193 3,809,420
- ----------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Service charges on deposit accounts 368,293 356,853 374,084
Other customer fees and charges 181,530 325,417 246,065
-55-
<PAGE> 56
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL NON-INTEREST INCOME 549,823 682,270 620,149
- ----------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE:
Salaries and employee benefits 1,786,070 1,681,273 1,612,634
Occupancy expense (Notes 6 and 11) 360,020 350,450 334,715
Equipment expense (Notes 6 and 11) 97,189 133,569 145,438
FDIC assessment 83,797 151,135 155,447
Legal expense 116,872 123,849 97,931
Insurance expense 80,324 85,101 89,249
Foreclosure and REO expense 117,920 84,101 7,087
Other 712,510 532,978 576,141
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL NON-INTEREST EXPENSE 3,354,702 3,142,456 3,018,642
- ----------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 2,244,327 1,547,007 1,410,927
Provision for income taxes (Note 7) 928,820 639,404 564,156
- ----------------------------------------------------------------------------------------------------------------------------
NET INCOME $1,315,507 $ 907,603 $ 846,771
- ----------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE (Note 8):
Weighted average shares outstanding 460,097 434,616 429,029
- ----------------------------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE $2.86 $2.09 $1.97
- ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-56-
<PAGE> 57
<TABLE>
<CAPTION>
SUMMIT BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- ----------------------------------------------------------------------------------------------------------------------------
Number of Shares Retained
Outstanding Common Stock Earnings Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1992 421,284 $3,764,011 $5,205,317 $ 8,969,328
Issuance of Cash Dividends, $.24 per share (Note 10) 0 0 (100,447) (100,447)
Repurchase of Common Stock (6,882) (89,052) 0 (89,052)
Net Income 0 0 846,771 846,771
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 414,402 $3,674,959 $5,951,641 $ 9,626,600
Issuance of Cash Dividends, $.49 per share (Note 10) 0 0 (203,172) (203,172)
Stock Options Exercised (Note 9) 16,800 219,912 0 219,912
Repurchase of Common Stock (3,717) (57,187) 0 (57,187)
Net Income 0 0 907,603 907,603
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 427,485 $3,837,684 $6,656,072 $10,493,756
Issuance of Cash Dividends, $1.50 per share (Note 10) 0 0 (636,576) (636,576)
Repurchase of Common Stock (3,226) (70,426) 0 (70,426)
Net Income 0 0 1,315,507 1,315,507
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 424,259 $3,767,258 $7,335,003 $11,102,261
- ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-57-
<PAGE> 58
<TABLE>
<CAPTION>
SUMMIT BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
- ---------------------------------------------------------------------------------------------------------------
1995 1994 1993
------------- ------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 6,502,009 $ 5,146,813 $ 5,034,356
Fees received 1,058,317 1,149,840 1,165,529
Interest paid (1,375,953) (1,130,943) (1,349,985)
Cash paid to suppliers and employees (3,245,453) (2,934,212) (2,890,781)
Income taxes paid (1,111,654) (625,947) (612,000)
------------ ------------ ------------
Net cash provided by operating activities 1,827,266 1,605,551 1,347,119
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in time deposits with other
financial institutions (3,963,000) 8,125,000 (5,753,000)
Maturity of investment securities 7,607,380 2,846,509 3,309,972
Purchase of investment securities (3,300,845) (12,472,988) (796,891)
Net (increase) decrease in loans to customers (3,068,584) 2,160,530 295,991
Recoveries on loans previously charged off 11,752 51,380 15,594
(Increase) decrease in premises and equipment (112,869) 121,687 (1,330)
------------ ------------ ------------
Net cash provided by (used in) investing activities (2,826,166) 832,118 (2,929,664)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand, interest
bearing transaction, and savings deposits 1,939,493 96,455 1,508,121
Net increase (decrease) in time deposits 5,449,345 (2,699,716) (1,497,893)
(Increase) decrease in other assets 1,498,525 (935,074) (959,764)
Exercise of stock options 0 219,912 0
Repurchase of common stock (70,426) (57,187) (89,052)
Dividends paid (636,576) (203,172) (100,447)
------------ ------------ ------------
Net cash provided by (used in) financing activities 8,180,361 (3,578,782) (1,139,035)
----------- ------------ ------------
Net increase (decrease) in cash and cash equivalents 7,181,461 (1,141,113) (2,721,580)
Cash and cash equivalents at the beginning of the year 9,246,342 10,387,455 13,109,035
----------- ----------- -----------
Cash and cash equivalents at the end of the year $16,427,803 $ 9,246,342 $10,387,455
=========== =========== ===========
-58-
<PAGE> 59
Reconciliation of net income to net cash provided by operating activities:
Net Income $ 1,315,507 $ 907,603 $ 846,771
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 142,154 155,284 178,678
Provision for loan losses 415,000 670,000 430,800
(Increase) decrease in interest receivable (14,808) (188,857) 71,833
Increase (decrease) in unearned loan fees 25,249 (22,211) (50,164)
Increase (decrease) in accrued interest payable 159,903 17,315 (32,138)
(Increase) decrease in prepaid expenses (33,272) 10,233 4,710
Increase (decrease) in accounts payable 367 42,727 (55,527)
Increase (decrease in income tax payable (182,834) 13,457 (47,844)
--------- -------- --------
Total adjustments 511,759 697,948 500,348
-------- --------- --------
Net cash provided by operating activities $ 1,827,266 $ 1,605,551 $ 1,347,119
========== ========== =========
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-59-
<PAGE> 60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Summit Bancshares, Inc. (the
Company) and its wholly owned subsidiary, Summit Bank (the Bank),
a California state-chartered bank, conform with generally accepted
accounting principles and general practice within the banking industry.
The following are descriptions of the more significant of these policies.
NATURE OF OPERATION
The Bank has conducted the business of a commercial bank since
July 1, 1982. The Bank operates 3 branches and provides commercial
credit and other banking services to small and mid-sized businesses
and professionals, including professional firms of physicians, attorneys,
accountants, real estate developers, retailers and service firms, wholesalers
and distributors.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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 period. Actual results could differ from those
estimates.
-60-
<PAGE> 61
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Company and the Bank. Significant intercompany transactions have been
eliminated in consolidation. Certain prior years' amounts have been
reclassified to conform with present year presentation.
INVESTMENT SECURITIES
All investment securities are classified as held to maturity and are
carried at cost, adjusted for amortization of premium and accretion of
discount using a method that approximates the effective interest method.
Gains and losses on sale or redemption of securities are determined using
the specific identification method.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost, net of accumulated
depreciation and amortization. Depreciation on furniture and equipment
is calculated on a straight-line basis over the estimated useful life
of the property, generally seven years for furniture and three to fifteen
years for equipment. Leasehold improvements are amortized over the life
of the related lease or the estimated life of the improvements,
whichever is shorter.
LOANS
Loans are stated at the principal amount outstanding. Interest income is
accrued daily using the simple interest method. Loans are placed on
nonaccrual status when management believes that there is serious doubt
-61-
<PAGE> 62
as to the collection of principal or interest, or when they become
contractually past-due 90 days or more with respect to principal or
interest, except for loans that are well secured and in the process
of collection. When loans are placed on nonaccrual status, any accrued
but uncollected interest is reversed from current income, and additional
income is recorded only as payments are received. Loan origination and
commitments fees, offset by certain direct loan origination costs, are
deferred and amortized as yield adjustments over the contractual lives of
the related loans.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is based upon estimates of potential loan
losses and is maintained at a level considered adequate to provide for
losses that can be reasonably anticipated. The allowance is increased by
provisions charged to expense and reduced by net charge-offs. The Bank
considers its past loan loss experience, known and inherent risks in
the portfolio, adverse situations that may affect the borrower's ability to
repay, the estimated value of any underlying collateral, current economic
conditions and other factors in periodic evaluations of the adequacy of the
allowance balance. The allowance for loan losses is based on estimates,
and ultimate losses may vary from current estimates.
OTHER REAL ESTATE OWNED
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 recorded loan balance exceeds the fair value of
-62-
<PAGE> 63
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 or income as appropriate. Operating expenses
related to other real estate owned are charged to noninterest expense in
the period incurred.
INCOME TAXES
Income taxes reported in the statements of income are computed at
current tax rates, including deferred taxes resulting from timing
differences between the recognition of items for tax and financial
reporting purposes.
The Company records deferred taxes based on the liability method. The
net deferred tax liability or asset is determined based on the tax
effects of the differences between the book and tax bases of the various
balance sheet assets and liabilities. Under this method, the computation
of the net deferred tax liability or asset gives current recognition to
changes in tax laws and rates.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks, and federal funds sold.
Generally, federal funds sold are purchased and sold for one-day periods.
-63-
<PAGE> 64
2. INVESTMENT SECURITIES
The amortized cost and estimated fair values of investments in debt
securities held-to-maturity as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury
securities $ 6,018,457 $71,305 $ 0 $ 6,089,762
The amortized cost and estimated fair values of investments in debt
securities held-to-maturity as of December 31, 1994 are as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
U.S. Treasury
securities $ 8,981,172 $ 0 $103,445 $ 8,877,727
Obligations of
states and political
subdivisions 1,343,820 0 2,913 1,340,907
- ----------------------------------------------------------------------------
TOTAL $10,324,992 $ 0 $106,358 $10,218,634
- ----------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated fair value of debt securities at December
31, 1995 by contractual maturity are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
-64-
<PAGE> 65
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
--------- ---------
<S> <C> <C>
Due in one year or less $5,030,670 $5,080,388
Due after one year through
five years 987,787 1,009,374
---------- ----------
$6,018,457 $6,089,762
========== ==========
There were no sales of investments in debt securities during 1995 or 1994.
At December 31, 1995, securities carried at $2,988,413 were pledged
to secure public deposits, as required by law.
</TABLE>
-65-
<PAGE> 66
3. LOANS AND ALLOWANCE FOR LOAN LOSSES
A summary of loans as of December 31, 1995 and 1994 (net of unearned loan
fees of $253,535 and $228,286, respectively), is as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Commercial loans $30,471,500 $30,355,200
Real estate loans 6,192,518 4,872,953
Real estate construction loans 8,432,480 5,822,380
Installment loans 5,523,598 6,449,741
Lease financing 50,971 132,206
- -----------------------------------------------------------------------------
50,671,067 47,632,480
Less: Unearned income on leases (1,389) (9,143)
- -----------------------------------------------------------------------------
50,669,678 47,623,337
Less: Allowance for loan losses (1,024,922) (931,878)
- -----------------------------------------------------------------------------
$49,644,756 $46,691,459
- -----------------------------------------------------------------------------
</TABLE>
The changes in the allowance for loan losses for the years ended
December 31, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- -------- --------
<S> <C> <C> <C>
Balance, beginning of period $ 931,878 $728,353 $899,083
Provision for loan losses 415,000 670,000 430,800
Recoveries 11,752 51,380 15,594
Loans charged-off (333,708) (517,855) (617,124)
- -----------------------------------------------------------------------------
Balance, end of period $1,024,922 $931,878 $728,353
- -----------------------------------------------------------------------------
</TABLE>
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.
-66-
<PAGE> 67
<TABLE>
<CAPTION>
Non-Performing Assets
---------------------
(000 Omitted)
December 31,
1995 1994 1993
-------------- ----
- ----------------------------------------------------------------------------
Loans 90 days or more past
due & still accruing:
<S> <C> <C> <C>
Commercial $ 367 $ 207 $ 0
- ----------------------------------------------------------------------------
Non-accrual loans:
Commercial 39 232 480
Real Estate 0 340 338
Consumer 0 0 148
- ----------------------------------------------------------------------------
TOTAL 39 572 966
- ----------------------------------------------------------------------------
Other Real Estate Owned 1,303 2,866 1,509
- ----------------------------------------------------------------------------
TOTAL NON-PERFORMING ASSETS $1,709 $3,645 $2,475
===== ===== =====
</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.
As mentioned previously, 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.
As of December 31, 1995 and 1994, loans totalling $38,616 and $571,500,
respectively, were on nonaccrual. Interest foregone on nonaccrual loans
as of December 31, 1995 and December 31, 1994 were $5,544 and $144,577,
respectively. The Bank grants commercial, construction and installment
-67-
<PAGE> 68
loans to customers mainly in the California counties of Alameda and Contra
Costa. Although the Bank has a diversified loan portfolio, a substantialportion
of its commercial loan portfolio is concentrated in loans tocustomers in or
related to the medical profession. The greater portion of these loans are
secured by real estate located within the two counties. Theamount in other
real estate owned is comprised of three vacant land parcels.
-68-
<PAGE> 69
4. IMPAIRED LOANS
The Bank adopted SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan," and SFAS No. 118, " Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures," as of January 1, 1995. SFAS No. 114
requires that certain impaired loans be measured based on the present value of
expected future cash flows discounted at the loans's original effective interest
rate. As a practical expedient, impairment may be measured based on the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. When the measure of the impaired loan is less than
the recorded investment in the loan, the impairment is recorded through a
valuation allowance.
The Bank had previously measured the allowance for credit losses using
methods similar to those prescribed in SFAS No. 114. As a result of adopting
these statements, no additional allowance for loan losses was required as of
January 1, 1995.
As of December 31, the Bank's recorded investment in impaired loans and the
related valuation allowance calculated under SFAS No. 114 are as follows:
<TABLE>
<CAPTION>
1995
---------------------------
Recorded Valuation
Investment Allowance
Impaired loans -
<S> <C> <C>
Valuation allowance required 0 0
No valuation allowance required 616,289 0
The average recorded investment in impaired loans for the year ended 1995
was $713,336.
</TABLE>
-69-
<PAGE> 70
Interest payments received on impaired loans are recorded as interest income
unless collection of the remaining recorded investment is doubtful at which
time payments received are recorded as reductions of principal. The Bank
recognized interest income on impaired loans of $82,370 for the year ended
December 31, 1995.
-70-
<PAGE> 71
5. RELATED PARTY TRANSACTIONS
The Bank has, and expects to have in the future, banking transactions in the
ordinary course of its business with directors, officers, principal
shareholders and their associates. In management's opinion and as required
by federal law, loans to related parties are granted on the same terms,
including interest rates and collateral, as those prevailing at the same time
for comparable transactions with others, and do not involve more than normal
risk of collectibility or present other unfavorable features. As of December
31, 1995 and 1994, loans outstanding to directors, officers, principal
shareholders and their known associates were $243,355 and $775,993,
respectively. In 1995 advances on such loans were $443,709 and collections
were $319,930. In 1994 advances on such loans were $283,208 and
collections were $307,700. In 1994, a Director resigned from the Board of
Directors who has outstanding loans of $656,417 as of December 31, 1995 that
were not included in the 1995 totals.
-71-
<PAGE> 72
6. PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:
<TABLE>
<CAPTION>
Accumulated
Depreciation/ Net Book
Cost Amortization Value
---- ------------ -----
<S> <C> <C> <C>
December 31, 1995:
Land and building $ 497,912 $ 84,585 $413,327
Leasehold improvements 1,033,200 737,108 296,092
Furniture and equipment 412,896 250,762 162,134
--------- --------- -------
Total $1,944,008 $1,072,455 $871,553
---------- ---------- --------
December 31, 1994:
Land and building $ 497,912 $ 66,779 $431,133
Leasehold improvements 1,035,345 662,363 372,982
Furniture and equipment 297,882 253,294 44,588
--------- --------- -------
Total $1,831,139 $ 982,436 $848,703
---------- --------- --------
- -----------------------------------------------------------------------------
</TABLE>
Depreciation and amortization included in occupancy and equipment expenses
were $142,154, $155,284 and $178,678 for the years ended December 31, 1995,
1994 and 1993, respectively.
-72-
<PAGE> 73
7. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal $714,000 $562,000 $438,000
State 223,000 202,000 159,000
--------- --------- -------
Total current 937,000 764,000 597,000
Deferred:
Federal (37,000) (95,000) (27,000)
State 29,000 (30,000) (6,000)
--------- --------- --------
Total deferred ( 8,000) (125,000) (33,000)
Total taxes $929,000 $639,000 $564,000
- -------------------------------------------------------------------------------
</TABLE>
The components of the net deferred tax asset of the Company as of December
31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Deferred Tax Assets:
Allowance for loan losses $351,000 $357,000
State taxes 65,000 27,000
Depreciation 54,000 49,000
Other 3,000 25,000
- --------------------------------------------------------------------------------
Deferred Tax Liabilities:
Lease Income and Other (13,000) (6,000)
- --------------------------------------------------------------------------------
Total $460,000 $452,000
- --------------------------------------------------------------------------------
</TABLE>
The provisions for income taxes applicable to operating income differ from the
amount computed by applying the statutory federal tax rate to operating income
before taxes. The reasons for these differences are as follows:
-73-
<PAGE> 74
<TABLE>
<CAPTION>
1995 1994 1993
------------------ ------------------ ------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Federal income tax
expense, based on the
statutory federal
income tax rate $763,000 34.0% $526,000 34.0% $480,000 34.0%
Municipal income (13,000) (0.6%) (20,000) (1.3%) (56,000) (3.7%)
State franchise taxes,
net of federal income
tax benefit 166,000 7.4% 111,000 7.2% 102,000 7.2%
Other, net 13,000 0.6% 22,000 1.4% 38,000 2.7%
- --------------------------------------------------------------------------------------------
Tax Provision $929,000 41.4% $639,000 41.3% $564,000 40.2%
- --------------------------------------------------------------------------------------------
</TABLE>
-74-
<PAGE> 75
8. SHAREHOLDERS' EQUITY AND EARNINGS PER SHARE
The Company has 2,000,000 authorized shares of no par value, serial preferred
stock of which no shares have been issued. Earnings per share amounts have
been computed on the basis of the weighted average number of shares of common
stock and common stock equivalents outstanding during the years, including the
effect of stock options.
-75-
<PAGE> 76
9. STOCK OPTION PLAN
The Company adopted an incentive stock option plan in 1982 and reserved
40,000 shares of the Company's common stock for issuance under this plan.
In 1986 the Directors and shareholders approved increasing the number of
shares in this plan to 90,000. The additional shares were registered in
accordance with federal and state securities laws in 1987. In 1987, the
Company issued a 10% stock dividend which increased the number of shares
in this plan to 99,000. Options may be granted at a price not less than
the fair market value of the stock at the date of grant, become exercisable
in cumulative 10% annual installments commencing one year after the date of
grant and expire 10 years from the date of grant.
In 1992, the Shareholders approved the 1992 Employee and Consultant Stock
Option Plan ( the "1992 Plan") which was designed to replace the 1982
Incentive Stock Option Plan which expired on February 28, 1992, after which
no new unallocated stock options may be granted. The 1992 Plan was designed
to carryforward the remaining 82,995 options issued but not exercised under
the 1982 Incentive Plan at the then current market price. No new additional
shares of the Company have been reserved for issuance under the 1992 Plan.
-76-
<PAGE> 77
Following is a summary of stock option activity under the 1982 Incentive Stock
Option Plan during the years ended December 31, 1993, 1994 and 1995:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------
SHARES
AVAILABLE
FOR NUMBER OF PRICE
GRANT SHARES PER SHARE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance December 31, 1992 0 82,995 $10.00 - $13.63
Options Terminated 6,200 (6,200) $11.25 - $13.00
- --------------------------------------------------------------------------------
Balance December 31, 1993 6,200 76,795 $10.00 - $13.63
Options Exercised 0 (16,800) $11.25 - $13.63
Options Terminated 2,900 (2,900) $11.25 - $13.00
Options Transferred to
1992 Plan (9,100) 0 $ 0.00
- ------------------------------------------------------------------------------
Balance December 31, 1994 0 57,095 $10.00 - $13.63
Options Terminated 500 (500) $11.25 - $13.00
Options Transferred to
1992 Plan (500) 0 $ 0.00
- ------------------------------------------------------------------------------
Balance December 31, 1995 0 56,595 $10.00 - $13.63
- ------------------------------------------------------------------------------
</TABLE>
Options for 33,623 shares at an average price of $10.84 per share were
exercisable at December 31, 1995.
-77-
<PAGE> 78
Following is a summary of stock option activity under the 1992 Employee and
Consultant Stock Option Plan during the years ended December 31, 1993, 1994
and 1995:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------
SHARES
AVAILABLE
FOR NUMBER OF PRICE
GRANT SHARES PER SHARE
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance December 31, 1992 82,995 0 0
- ------------------------------------------------------------------------------
Balance December 31, 1993 82,995 0 0
Options Granted (9,100) 9,100 $17.75
Option Exercised Under 1982 Plan (16,800) 0 N/A
- ------------------------------------------------------------------------------
Balance December 31, 1994 57,095 9,100 $17.75
Options Terminated 500 (500) $17.75
Additional Options
Available for Grant
from 1982 Plan 500 0 $0.00
- ------------------------------------------------------------------------------
Balance December 31, 1995 58,095 8,600 $17.75
- ------------------------------------------------------------------------------
</TABLE>
Options for 860 shares at an average price of $17.75 per share were
exercisable at December 31, 1995.
In addition to the above plan, shareholders approved, in 1989, the 1989
Non-Qualified Stock Option Plan for Directors, including Advisory Board
members, and reserved 35,000 shares of the Company's common stock for issuance
under this plan. The plan was established to give appropriate recognition
to this group of individuals for their continuing responsibility for the
Company's growth and profitability. As of December 31, 1995, of the 10,750
options granted at an exercise price of $11.00 per share, 4,250 had been
-78-
<PAGE> 79
exercised in prior years and the remainder forfeited leaving 30,750 shares
available for options under this plan.
-79-
<PAGE> 80
10. RESTRICTIONS
The Bank is regulated by the Federal Deposit Insurance Corporation, whose
regulations do not specifically limit payment of dividends, and the
California State Banking Department. California banking laws limit dividends
to the lesser of retained earnings or net income less cash dividends paid for
the last three years. Under these restrictions, at December 31, 1995, the
Bank could pay dividends to the Company of up to approximately $466,101
without prior regulatory approval.
Generally, banks are required to maintain reserves with the Federal Reserve
Bank equal to a percentage of their reservable deposits. In 1994 and 1995
the Bank was required to maintain average reserve balances of $23,000 and
$94,000, respectively.
-80-
<PAGE> 81
11. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is obligated for rental payments under certain operating lease and
contract agreements. Total rental expense for all leases included in
occupancy and equipment expenses was $208,215, $182,974 and $177,072 for the
years ended December 31, 1995, 1994 and 1993. At December 31, 1995, the
approximate future minimum payments for noncancelable leases with initial or
remaining terms in excess of one year were as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $190,363
1997 158,151
1998 113,055
1999 57,238
2000 57,238
Thereafter 4,770
</TABLE>
The Company is subject to various pending and threatened legal actions which
arise out of the normal course of business. In the opinion of management,
the disposition of claims currently pending will not have a material adverse
effect on the Company's financial position.
-81-
<PAGE> 82
12. PENSION PLAN
The Company provides pension benefits for all its eligible employees
through a 401(k) Profit Sharing Program which was adopted in 1984.
Under the terms of the plan, eligible employees are allowed to
contribute, under the 401(k) portion of the plan, up to 15% of their
salaries. The Company in turn will match 25% of the employee's
contribution up to a maximum of $500 annually. Under this part of the
plan, $4,425 was contributed in 1995, $3,608 in 1994 and $5,403 in 1993.
In addition, the Company may contribute up to 15% of eligible
employees' annual compensation to the profit sharing portion of this
plan. Such contributions were $92,156 in 1995, $56,650 in 1994, and
$49,715 in 1993. Employees' interest in the contributions made by
the Company on their behalf become 100% vested in accordance with a 7
year program. Any forfeited amounts are redistributed among the
remaining participants in the plan.
-82-
<PAGE> 83
13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company 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 commitments to extend credit, and standby
letters of credit. These instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the statement of financial
position. The contract amount of those instruments reflects the extent of
involvement the Company has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount
of those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
<TABLE>
<CAPTION>
Contract Amount
-------- ------
<S> <C>
At December 31, 1995, financial instruments
whose contract amounts represent credit risk:
Commitments to extend credit in the future $12,397,150
Standby letters of credit 1,696,865
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
-83-
<PAGE> 84
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each
customer's credit worthiness on a case-by-case basis. The amount of
collateral obtained if deemed necessary by the Company upon extension of
credit is based on management's credit evaluation of the counter-party.
Collateral held varies but may include accounts receivable, inventory,
property, plant, and equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Most all
guarantees expire within one year. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending
loan facilities to customers.
Approximately 15.6% of the Company's loans are concentrated with health care
professionals.
-84-
<PAGE> 85
14. NEW ACCOUNTING PRONOUNCEMENTS
In November, 1995, the FASB issued Statement of Financial Accounting
Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation."
The Company will adopt the statement on January 1, 1996. The statement
recommends that companies change the accounting method for their
stock-based compensation plans, but also allows companies to use pro
forma disclosure. The Company has decided to maintain its current
accounting policies and will disclose pro forma information in the
footnotes, as described in SFAS No. 123.
-85-
<PAGE> 86
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 (SFAS No.107),
"Disclosures about Fair Value of Financial Instruments," requires
the Bank to disclose the fair value of financial instruments, both assets
and liabilities recognized and not recognized in the balance sheet, for
which it is practical to estimate fair value. Following is a summary of
the estimated fair value for each class of financial instrument as of
December 31, 1995 and the methods and assumptions used to evaluate them:
<TABLE>
<CAPTION>
Carrying Fair
Value Value
----- -----
<S> <C> <C>
Cash and due from banks $ 6,827,803 $ 6,827,803
Federal funds sold 9,600,000 9,600,000
Investment securities 6,018,457 6,089,762
Due from bank - time 11,002,000 11,034,580
Loans 49,644,756 49,656,813
Deposits
Demand 27,572,629 27,572,629
Interest - bearing transaction accts 26,394,225 26,394,225
Savings 2,365,403 2,365,403
Time certificates 18,918,657 18,942,792
</TABLE>
Cash and due from banks have a relatively short period of time between their
origination and their expected realization and are valued at their carrying
amounts. The fair value of investment securities and due from banks - time
were estimated using quoted market prices or dealer quotes.
The allowance for loan losses and overdrafts are valued at the carrying amount.
All other loans are valued by loan type. Loans are spread monthly by maturity
and repricing date. To determine the fair value the interest rate used to
discount the cash flows is the current market rate for a like class of loans.
Loan fees were not taken into consideration.
-86-
<PAGE> 87
The fair value of noninterest-bearing, interest-bearing transaction
accounts and savings deposits is the amount payable on demand as of
December 31, 1995. The fair value of fixed-maturity certificates of
deposits is estimated using the rates currently offered for deposits
of similar remaining maturities.
The Bank has off balance sheet commitments comprising of letters of credit
and loan commitments with a contract amount of $1,696,865, and $12,397,150,
respectively. The fair value of these off balance sheet commitments is
not material.
-87-
<PAGE> 88
16. SUMMIT BANCSHARES, INC. (PARENT COMPANY ONLY)
The following are the statements of financial position as of December 31,
1995 and 1994 and the related statements of income and cash flows for the
years ended December 31, 1995, 1994 and 1993 for Summit Bancshares, Inc.
(parent company only):
<TABLE>
<CAPTION>
STATEMENTS OF FINANCIAL POSITION
- -----------------------------------------------------------------------------
December 31,
--------------------------
1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash $ 21,339 $ 56,719
Short term investments 1,100,000 1,395,000
Loan participation with subsidiary 1,844,771 353,289
Land and building 413,327 431,133
Investment in subsidiary 7,637,180 8,077,222
Other assets 128,659 208,159
- -----------------------------------------------------------------------------
TOTAL ASSETS $11,145,276 $10,521,522
- -----------------------------------------------------------------------------
Liabilities:
Accounts payable $ 4,350 $ 4,350
Income taxes payable 38,665 23,416
- -----------------------------------------------------------------------------
TOTAL LIABILITIES 43,015 27,766
- -----------------------------------------------------------------------------
-88-
<PAGE> 89
Shareholders' equity:
Common stock 3,767,258 3,837,684
Retained earnings 7,335,003 6,656,072
- -----------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 11,102,261 10,493,756
- -----------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 11,145,276 $10,521,522
- -----------------------------------------------------------------------------
</TABLE>
-89-
<PAGE> 90
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
- ------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------
Income:
<S> <C> <C> <C>
Interest on short-term
investments and loan $ 97,810 $ 92,777 $ 61,163
Rental and other income 41,760 42,055 42,543
- ------------------------------------------------------------------------------
TOTAL INCOME 139,570 134,832 103,706
- ------------------------------------------------------------------------------
Expense:
Miscellaneous expense 45,000 34,317 36,431
- ------------------------------------------------------------------------------
TOTAL EXPENSE 45,000 34,317 36,431
- ------------------------------------------------------------------------------
Income before income tax
and equity in earnings
of subsidiary 94,570 100,515 67,275
- ------------------------------------------------------------------------------
Provision for income taxes 39,020 41,804 27,756
- ------------------------------------------------------------------------------
Income before equity in
earnings of subsidiary 55,550 58,711 39,519
Equity in earnings of
subsidiary 1,259,957 848,892 807,252
- ------------------------------------------------------------------------------
NET INCOME $1,315,507 $907,603 $846,771
- ------------------------------------------------------------------------------
</TABLE>
-90-
<PAGE> 91
<TABLE>
<CAPTION>
SUMMIT BANCSHARES, INC.
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
- ----------------------------------------------------------------------------------------------------------------
1995 1994 1993
------------ ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 85,249 $ 92,777 $ 61,163
Forward lease payments received 0 0 0
Rental income 52,200 52,200 43,500
Other income 12,561 295 783
Cash paid to suppliers (27,192) (16,509) (18,623)
Property taxes paid 0 (4,060) 0
Property tax refund 4,060 0 0
Income taxes paid (23,774) (37,789) (22,556)
Income tax refund 0 53 27,855
----------- --------- ---------
Net cash provided by operating activities 103,104 86,967 92,122
----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in short term investments 295,000 (221,000) (355,000)
Net (increase) decrease in loans (1,491,482) 430,295 (299,919)
(Increase) decrease in land and building 0 (18,800) 0
Dividend received from subsidiary 1,700,000 0 750,000
----------- --------- ---------
Net cash provided by (used in) investing activities 503,518 190,495 95,081
----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock options exercised 0 219,912 0
(Increase) decrease in other assets 65,000 (191,049) 0
Purchase of common stock (70,426) (57,186) (89,053)
Dividends paid (636,576) (203,173) (100,446)
----------- --------- ---------
Net cash used in financing activities (642,002) (231,496) (189,499)
----------- --------- ---------
Net increase (decrease) in cash and cash equivalents (35,380) 45,966 (2,296)
Cash at the beginning of the year 56,719 10,753 13,049
----------- --------- ---------
Cash at the end of the year $ 21,339 $ 56,719 $ 10,753
=========== ========= ==========
Reconciliation of net income to net cash provided by operating activities:
Net Income $ 1,315,507 $ 907,603 $ 846,771
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 17,808 17,808 17,808
Non-cash earnings from subsidiary (1,259,957) (848,892) (807,252)
(Increase) decrease in account receivables 14,500 6,380 10,440
Increase (decrease) in account payables 0 0 (8,700)
Increase (decrease) in income tax payable 15,246 4,068 33,055
------- ------- -------
Total adjustments (1,212,403) (820,636) (754,649)
Net cash provided by operating activities $ 103,104 $ 86,967 $ 92,122
========== ======== ========
</TABLE>
-91-
<PAGE> 92
This annual report is furnished to shareholders and customers of the bank
pursuant to the requirements of the Federal Deposit Insurance Corporation
(FDIC) to provide an annual disclosure statement. This annual report has
not been reviewed or confirmed for accuracy or relevance by the FDIC.
-92-
<PAGE> 93
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Summit Bancshares, Inc.:
We have audited the accompanying consolidated statements of financial
position of SUMMIT BANCSHARES, INC. (a California corporation) AND SUBSIDIARY as
of December 31, 1995 and 1994, and the related consolidated statements of
income, changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Summit Bancshares, Inc. and
subsidiary as of December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995 in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
San Francisco, California
January 12, 1996
-93-
<PAGE> 94
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
------------- -- ---------- --- --------- ----------
Since the date of organization of the Company, there have been no
disagreements on accounting and financial disclosures or changes in accountants.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------- --- --------- -------- -- --- ----------
The information required by paragraphs (a), (c) (d), (f) and (g) of
this item is presented in the Company's Proxy Statement issued in connection
with the Annual Meeting of Shareholders to be held on April 25, 1996 under
"Election of Directors," which is incorporated in this Report by reference
thereto and will be filed within 120 days after the end of the Company's fiscal
year. The information concerning executive officers requested by paragraphs (b)
and (e) is set forth under Part I in a separate Item captioned Executive
Officers of Summit Bancshares, Inc.
ITEM 11. EXECUTIVE COMPENSATION
--------- ------------
The information required by this item in presented in the Company's Proxy
Statement issued in connection with the Annual Meeting of Shareholders to be
held on April 25, 1996. under "Executive Compensation," which is incorporated in
this Report by reference thereto and will be filed within 120 days after the end
of the Company's fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
-------- --------- -- ------- ---------- ------ ---
MANAGEMENT
----------
The information required by this item is presented in the Company's Proxy
Statement issued in connection with the Annual Meeting of Shareholders to be
held on April 25, 1996, under "Principal Security Holders" and "Security
Ownership of Management," which is incorporated in this Report by reference
thereto and will be filed within 120 days after the end of the Company's fiscal
year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
------- ------------- --- ------- ------------
The information required by this item is presented in the Company's Proxy
Statement issued in connection with the Annual Meeting of Shareholders to be
held April 25, 1996, under "Certain Relationships and Related Transactions,"
which is incorporated in this Report by reference thereto and will be filed
within 120 days after the end of the Company's fiscal year.
-94-
<PAGE> 95
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(A) 1. CONSOLIDATED FINANCIAL STATEMENTS.
------------ --------- -----------
The following Financial Statements are included in this Report in Item 8.
Consolidated Statement of Financial Position - December 31, 1995 and
1994
Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993
Statements of Changes in Shareholders' Equity (Consolidated and Parent
Company Only) for the years ended December 31, 1995, 1994 and 1993, and
Consolidated Statements of Cash Flows for the years ended December 31, 1995,
1994 and 1993.
Notes to Consolidated Financial Statements
Auditors' Report
(B) 2. FINANCIAL STATEMENT SCHEDULES.
--------- --------- ----------
Not Applicable
In accordance with the rules of Regulation S-X, the required schedules are
not submitted because they are not applicable to or required of the Company.
(C) 3. INDEX TO EXHIBITS.
----- -- ---------
The following exhibits are incorporated by reference pursuant to Item 601 of
Regulation S-K:
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit Number Exhibit Page
- -------------- ------- ----
<S> <C> <C>
3.1 Articles of Incorporation Footnote #<F1>
of Summit Bancshares, Inc.
3.2 Bylaws of Summit
Bancshares, Inc. Footnote #<F2>
-95-
<PAGE> 96
Sequentially
Numbered
Exhibit Number Exhibit Page
- -------------- ------- ----
4.1 Specimen Stock Certificate Footnote #<F3>
10.1 Lease - Broadway Property Footnote #<F4>
10.2 Summit Bancshares, Inc.
Incentive Stock Option Plan Footnote #<F5>
10.3 Organizational Stock
Agreement Footnote #<F6>
10.4 Employment Agreement/
Shirley W. Nelson Footnote #<F7>
10.5 Agreement for Sale
of Stock Footnote #<F8>
10.6 Lease-Walnut Creek
Property Footnote #<F9>
10.7 Lease-Emeryville
Property Footnote #<F10>
10.8 Lease-Oakland Office
Expansion Footnote #<F11>
10.9 Lease-Walnut Creek
New Premises Footnote #<F12>
10.10 Lease-Emeryville
Renegotiated Footnote #<F13>
10.11 Summit Bancshares, Inc.
1989 Non-Qualified Stock Option
Plan for Directors Footnote #<F14>
10.12 Stock Option Agreement Form
Summit Bancshares, Inc.
Incentive Stock Option Plan Footnote #<F15>
10.13 Stock Option Agreement Form
1989 Non-Qualified Stock Option
Plan for Directors Footnote #<F16>
10.14 Amendment to By-Laws of
Summit Bancshares, Inc. Footnote #<F17>
-96-
<PAGE> 97
Sequentially
Numbered
Exhibit Number Exhibit Page
- -------------- ------- ----
10.15 Lease - Walnut Creek
Summit Banchsares, Inc. owned
Property . Footnote #<F18>
10.16 Lease - Emeryville
Renegotiated Footnote #<F19>
11 Statement Re: Computation
of Per Share Earnings
22 Wholly Owned Subsidiary of
Summit Bank - Summit Equities,
Inc.
25.1 Power of Attorney - see
Signature Page Page #44
27 Financial Data Schedule
- ----------------
<FN>
<F1> Incorporated by reference to Exhibit 2.1 of Registrant's Exhibits to Form
S-18 Registration Statement, as filed with the Securities and Exchange
Commission on December 21, 1981.
<F2> Incorporated by reference to Exhibit 2.2 of Registrant's Exhibits to Form
S-18 Registration Statement, as filed with the Securities and Exchange
Commission on December 21, 1981.
<F3> Incorporated by reference to Exhibit 3.1 of Registrant's Exhibits to Form
S-18 Registration Statement, as filed with the Securities and Exchange
Commission on December 21, 1981.
<F4> Incorporated by Reference to Exhibit 9.1 of Registrant's Exhibits to Form
S-18 Registration Statement, as filed with the Securities and Exchange
Commission on December 21, 1981.
<F5> Incorporated by reference to Exhibit 9.2 of Registrant's Exhibits
to Post-Effective Amendment No. 1 to Form S-18 Registration
Statement, as filed with the Securities and Exchange Commission on
March 11, 1982.
<F6> Incorporated by reference to Exhibit 9.4 of Registrant's Exhibits
to Post-Effective Amendment No. 1 to Form S-18 Registration
Statement, as filed with the Securities and Exchange Commission on
March 11, 1982.
<F7> Incorporated by reference to Exhibit 10.4 of Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1983.
-97-
<PAGE> 98
<F8> Incorporated by reference to Exhibit 10.6 of Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1984.
<F9> Incorporated by reference to Exhibit 10.9 of Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1985.
<F10> Incorporated by reference to Exhibit 10.10 of Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1985.
<F11> Incorporated by reference to Exhibit 10.6 of Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1987.
<F12> Incorporated by reference to Exhibit 10.9 of Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1989.
<F13> Incorporated by reference to Exhibit 10.10 of Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1989.
<F14> Incorporated by reference to Exhibit 10.11 of Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1989.
<F15> Incorporated by reference to Exhibit 10.12 of Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1989.
<F16> Incorporated by reference to Exhibit 10.13 of Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1989.
<F17> Incorporated by reference to Exhibit 2.2 of Registrant's Exhibits to Form
S-18 Registration Statement, as filed with the Securities and Exchange
Commission on December 21, 1981.
<F18> Incorporated by reference to Exhibit 10.15 of Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993.
<F19> Incorporated by reference to Exhibit 10.16 of Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993.
</FN>
</TABLE>
(B) REPORTS ON FORM 8-K
-------------------
None submitted for the year.
-98-
<PAGE> 99
SIGNATURES
Pursuant to the requirements of Section 13 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.
Date: March 25, 1996 By: /s/ Shirley W. Nelson
---------------------
Shirley W. Nelson, Chief
Chairman and CEO
(Principle Executive Officer)
Date: March 28, 1996 By: /s/ Kikuo Nakahara
------------------
Kikuo Nakahara
(Chief Financial Officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints SHIRLEY W. NELSON and KIKUO NAKAHARA, and each or
any one of them, as his or her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments
to this Report, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agents or any of them, or their substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Report has been executed in Oakland, California, by the following persons
on behalf of the Registrant on the capacities and on the dates indicated.
-99-
<PAGE> 100
Signature Title Date
/s/SHIRLEY W. NELSON Chairman of the Board, 3-28-96
- --------------------- Chief Executive Officer -------
SHIRLEY W. NELSON and President
/s/KIKUO NAKAHARA Chief Financial 3-28-96
- ----------------- Officer and Director -------
KIKUO NAKAHARA
/s/GEORGE H. HOLLDIGE Secretary and Director 3-28-96
- --------------------- -------
GEORGE H. HOLLIDGE
/s/JERRALD R. GOLDMAN, M.D. Director 3-28-96
- --------------------------- -------
JERRALD R. GOLDMAN
/s/THOMAS H. STATE Director 3-28-96
- ------------------ -------
THOMAS H. STATE
/s/BARBARA J. WILLIAMS Director 3-28-96
- ---------------------- -------
BARBARA J. WILLIAMS
-100-
<PAGE> 1
WEIGHTED AVERAGE SHARES
Twelve Months Ended December 31, 1995
PRIMARY FULLY
------- -----
A. Common Stock 424,868 424,868
427,485 12-31-94 (Bal. Fwd.)
427,485 to 01-23-95 22 days = 9,404,670
426,109 to 01-31-95 8 days = 3,408,872
425,559 to 03-06-95 34 days = 14,469,006
425,449 to 04-14-95 39 days = 16,592,511
425,009 to 06-14-94 61 days = 25,925,549
424,259 to 12-31-95 201 days = 85,276,059
365 days = 155,076,667
Average shares outstanding for period = 424,868
Options - Fully 35,229
------- -------
Use Higher of Year End Price
or Average Price
Year End Price = $26.00
Ave Price = $24.00
Use Year End Price of $26.00
MZ 1,100 X (26.00 - 12.27) = 581
---------------
26.00
FD 550 X (26.00 - 12.27) = 290
---------------
26.00
SN 8,250 X (26.00 - 10.45) = 4,934
---------------
26.00
MZ 1,000 X (26.00 - 10.00) = 615
---------------
26.00
SN 10,000 X (26.00 - 10.00) = 6,154
---------------
26.00
SN 15,689 X (26.00 - 10.00) 9,655
---------------
26.00
SN 8,333 X (26.00 - 12.00) = 4,487
---------------
26.00
MZ 2,900 X (26.00 - 13.50) = 1,394
---------------
26.00
<PAGE> 2
TW 400 X (26.00 - 12.25) = 212
---------------
26.00
SN 978 X (26.00 - 13.25) = 480
---------------
26.00
DD 2,500 X (26.00 - 13.00) = 1,250
---------------
26.00
MZ 1,045 X (26.00 - 13.00) = 523
---------------
26.00
FD 1,950 X (26.00 - 13.00) = 975
---------------
26.00
AC 400 X (26.00 - 13.00) = 200
---------------
26.00
TW 1,500 X (26.00 - 13.00) = 750
---------------
26.00
SN 4,000 X (26.00 - 17.75) = 1,269
---------------
26.00
MZ 2,000 X (26.00 - 17.75) = 635
---------------
26.00
DD 1,000 X (26.00 - 17.75) = 317
---------------
26.00
TW 1,000 X (26.00 - 17.75) = 317
---------------
26.00
FD 500 X (26.00 - 17.75) = 159
---------------
26.00
AC 100 X (26.00 - 17.75) = 32
---------------
26.00
<PAGE> 3
Options - Primary 32,731
------- -------
Average Price for the Year
01-01-95 = $22.00
12-31-95 = $26.00
Average Price = $24.00
MZ 1,100 X (24.00 - 12.27) = 538
---------------
24.00
FD 550 X (24.00 - 12.27) = 269
---------------
24.00
SN 8,250 X (24.00 - 10.45) = 4,658
---------------
24.00
MZ 1,000 X (24.00 - 10.00) = 583
---------------
24.00
SN 10,000 X (24.00 - 10.00) = 5,833
---------------
24.00
SN 15,689 X (24.00 - 10.00) 9,152
---------------
24.00
SN 8,333 X (24.00 - 12.00) = 4,167
---------------
24.00
MZ 2,900 X (24.00 - 13.50) = 1,269
---------------
24.00
TW 400 X (24.00 - 12.25) = 196
---------------
24.00
SN 978 X (24.00 - 13.25) = 438
---------------
24.00
DD 2,500 X (24.00 - 13.00) = 1,146
---------------
24.00
MZ 1,045 X (24.00 - 13.00) = 479
---------------
24.00
FD 1,950 X (24.00 - 13.00) = 894
---------------
24.00
AC 400 X (24.00 - 13.00) = 183
---------------
24.00
TW 1,500 X (24.00 - 13.00) = 687
---------------
24.00
<PAGE> 4
SN 4,000 X (24.00 - 17.75) = 1,042
---------------
24.00
MZ 2,000 X (24.00 - 17.75) = 521
---------------
24.00
DD 1,000 X (24.00 - 17.75) = 260
---------------
24.00
TW 1,000 X (24.00 - 17.75) = 260
---------------
24.00
FD 500 X (24.00 - 17.75) = 130
---------------
24.00
AC 100 X (24.00 - 17.75) = 26
---------------
24.00
TOTAL SHARES 4TH QUARTER 459,488 456,990
======= =======
TOTAL SHARES YEAR END 460,097 457,599
======= =======
NET INCOME 4TH QUARTER $433,702 $433,702
======= =======
NET INCOME YEAR END 1996 $1,315,507 $1,315,507
========= =========
EARNINGS PER SHARE 4TH QTR $ .94 $ .95
======= =======
EARNINGS PER SHARE YTD $2.86 $2.87
======= =======
<PAGE> 1
<TABLE>
<CAPTION>
SUMMIT EQUITIES. INC.
(PARENT COMPANY ONLY)
DECEMBER 31, 1995
==========================================================================
ASSETS
========
<S> <C>
CASH $10,605.00
TOTAL ASSETS $10,605.00
================= ==============
LIABILITIES AND SHAREHOLDERS EQUITY
============================================
LIABILITIES
==============
RESERVE FOR FED TAXES $0.00
RESERVE FOR STATE TAXES $0.00
TOTAL RESERVE FOR TAXES $0.00
--------------
TOTAL LIABILITIES $0.00
====================
SHAREHOLDERS EQUITY
===================
COMMON STOCK $10,000.00
RETAINED EARNINGS $348.00
PROFIT/LOSS YEAR-TO-DATE $257.00
----------------
$10,605.00
TOTAL SHAREHOLDERS EQUITY $10,605.00
------------------------- --------------
TOTAL LIABILITIES &
SHAREHOLDERS EQUITY $10,605.00
======================= ==============
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
SUMMIT EQUITIES, INC.
(PARENT COMPANY ONLY)
DECEMBER 31, 1995
===========================================================================
INCOME
========
<S> <C>
INTEREST INCOME - MMA & TCD $257.00
INTEREST INCOME - LOANS $0.00
OTHER INCOME $0.00
--------
TOTAL INCOME $257.00
============
EXPENSE
========
BUILDING DEPRECIATION $0.00
ANNUAL REPORT & MEETING EXPENSE $0.00
MISCELLANEOUS EXPENSE $0.00
LEGAL $0.00
PROPERTY/TAXES $0.00
--------
TOTAL EXPENSES $0.00
================== --------
INCOME BEFORE TAXES &
EARNINGS OF SUBSIDIARY $257.00
======================
PROVISION FOR TAXES
==================
FEDERAL INCOME TAX PROVISION $0.00
STATE INCOME TAX PROVISION $0.00
TOTAL TAX PROVISION $0.00
-------
NET INCOME $257.00
========== =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This legend contains summary information extracted from the Form 10-K and is
qualifed in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000353203
<NAME> SUMMIT BANCSHARES, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 6,827,803
<INT-BEARING-DEPOSITS> 11,002,000
<FED-FUNDS-SOLD> 9,600,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 6,018,457
<INVESTMENTS-MARKET> 6,089,762
<LOANS> 50,669,678
<ALLOWANCE> 1,024,922
<TOTAL-ASSETS> 86,821,712
<DEPOSITS> 75,250,914
<SHORT-TERM> 0
<LIABILITIES-OTHER> 468,537
<LONG-TERM> 0
0
0
<COMMON> 3,767,258
<OTHER-SE> 7,335,003
<TOTAL-LIABILITIES-AND-EQUITY> 86,821,712
<INTEREST-LOAN> 5,574,272
<INTEREST-INVEST> 1,425,790
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 7,000,062
<INTEREST-DEPOSIT> 1,535,856
<INTEREST-EXPENSE> 1,535,856
<INTEREST-INCOME-NET> 5,464,206
<LOAN-LOSSES> 415,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,354,702
<INCOME-PRETAX> 2,244,327
<INCOME-PRE-EXTRAORDINARY> 2,244,327
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,315,507
<EPS-PRIMARY> 2.87
<EPS-DILUTED> 2.86
<YIELD-ACTUAL> 0<F1>
<LOANS-NON> 39
<LOANS-PAST> 367
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 139,000
<ALLOWANCE-OPEN> 931,878
<CHARGE-OFFS> (333,708)
<RECOVERIES> 11,752
<ALLOWANCE-CLOSE> 1,024,922
<ALLOWANCE-DOMESTIC> 1,024,922
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Not contained in document.
</FN>
</TABLE>
