<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED: SEPTEMBER 30, 1997
COMMISSION FILE NUMBER: 0-11108
SUMMIT BANCSHARES, INC.
STATE OF CALIFORNIA I.R.S. IDENTIFICATION
NUMBER 94-2767067
2969 BROADWAY, OAKLAND CALIFORNIA 94611
(510) 839-8800
Indicate by the check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES_____X____ NO__________
The number of shares outstanding of the registrant's common stock was
435,565 shares of no par value common stock
issued as of September 30, 1997
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 PAGE
----
SUMMIT BANCSHARES, INC. AND SUBSIDIARY FINANCIAL STATEMENTS
Consolidated Balance Sheets ............................ 3
Consolidated Statements of Income ...................... 4
Consolidated Statement of Cash Flows ................... 5
Notes to Financial Statements........................... 6-7
Interest Rate Risk Reporting Schedule................... 8
ITEM 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations .................... 9-17
PART II - OTHER INFORMATION
ITEMS 1-6 ....................................................... 18-19
-2-
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF
FINANCIAL POSITION SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS 9-30-1997 12-31-1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 9,901,993 $ 7,188,515
Federal funds sold 6,340,000 11,980,000
--------------- ------------
Cash and cash equivalents 16,241,993 19,168,515
Time deposits with other financial institutions 6,339,000 9,607,000
Investment securities (fair value of $12,080,090 at
September 30, 1997 and $8,830,810 at
December 31, 1996 ) held to maturity 12,045,223 8,759,850
Loans, net of allowance for loan losses of
$1,194,216 at September 30, 1997 and
$1,070,318 at December 31, 1996 61,563,606 51,408,038
Other real estate owned 1,222,080 1,291,459
Premises and equipment, net 893,007 896,856
Interest receivable and other assets 1,975,770 1,814,083
--------------- ------------
Total Assets $100,280,679 $ 92,945,801
--------------- ------------
--------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------
Deposits:
Demand $ 28,364,862 $ 27,833,067
Interest-bearing transaction accounts 33,685,033 28,663,828
Savings 2,894,462 2,665,539
Time certificates $100,000 and over 15,892,320 15,324,980
Other time certificates 5,920,682 6,022,170
--------------- ------------
Total Deposits 86,757,359 80,509,584
Interest payable and other liabilities 802,493 497,074
--------------- ------------
Total Liabilities 87,559,852 81,006,658
Shareholders' Equity
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;
435,565 shares outstanding at September 30, 1997
and 433,209 shares outstanding at December 31, 1996 3,699,146 3,830,343
Retained Earnings 9,021,681 8,108,800
--------------- ------------
Total Shareholders' Equity 12,720,827 11,939,143
Total Liabilities and Shareholders' Equity $100,280,679 $92,945,801
--------------- ------------
--------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements
-3-
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF
INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED 9-30-97 ENDED 9-30-96 ENDED 9-30-97 ENDED 9-30-96
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $1,734,955 $1,368,528 $4,862,668 $4,081,184
Interest on time deposits with other
financial institutions 109,901 127,726 361,721 427,059
Interest on U.S. government
treasury securities 164,809 150,017 476,864 371,134
Interest on federal funds sold 123,935 183,117 403,649 433,235
-------------- -------------- ------------- -------------
Total interest income 2,133,600 1,829,388 6,104,902 5,312,612
INTEREST EXPENSE:
Interest on deposits 490,047 432,078 1,412,622 1,285,795
Total interest expense 490,047 432,078 1,412,622 1,285,795
-------------- -------------- ------------- -------------
Net interest income 1,643,553 1,397,310 4,692,280 4,026,817
Provision for loan losses 65,000 50,000 165,000 165,000
-------------- -------------- ------------- -------------
Net interest income after
provision for loan losses 1,578,553 1,347,310 4,527,280 3,861,817
NON-INTEREST INCOME:
Service charges on deposit accounts 78,432 80,881 223,058 241,673
Other customer fees and charges 61,889 58,678 161,367 161,311
-------------- -------------- ------------- -------------
Total non-interest income 140,321 139,559 384,425 402,984
NON-INTEREST EXPENSE:
Salaries and employee benefits 541,675 497,835 1,549,253 1,416,317
Occupancy expense 95,497 92,057 278,115 274,572
Equipment expense 36,239 24,491 107,389 63,458
Other 276,504 266,632 843,132 752,156
-------------- -------------- ------------- -------------
Total non-interest expense 949,915 881,015 2,777,889 2,506,503
Income before income taxes 768,959 605,854 2,133,816 1,758,298
Provision for income taxes 330,128 257,724 900,177 740,747
-------------- -------------- ------------- -------------
Net Income $ 438,831 $ 348,130 $1,233,639 $1,017,551
-------------- -------------- ------------- -------------
-------------- -------------- ------------- -------------
PRIMARY EARNINGS:
Weighted average shares outstanding 456,768 464,313 457,477 456,780
-------------- -------------- ------------- -------------
PRIMARY EARNINGS PER SHARE $0.96 $0.75 $2.70 $2.23
-------------- -------------- ------------- -------------
-------------- -------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements
-4-
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF
CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED 9-30-97 ENDED 9-30-96
- -------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 5,511,818 $ 5,103,346
Fees received 800,017 744,102
Interest paid (1,395,529) (1,469,030)
Cash paid to suppliers and employees (2,464,407) (2,199,614)
Income taxes paid (850,000) (687,000)
------------- --------------
Net cash provided by operating activities 1,601,899 1,491,804
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in time deposits with
other financial institutions 3,268,000 1,394,000
Maturity of investment securities 3,011,047 3,540,012
Purchase of investment securities (6,296,420) (7,227,004)
Net increase in loans to customers (10,436,646) (319,983)
Recoveries on loans previously charged-off 2,250 2,750
Increase in premises and equipment (143,920) (97,605)
------------- --------------
Net cash used in investing activities (10,595,689) (2,707,830)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in demand, interest
bearing transaction, and savings deposits 5,781,923 1,796,800
Net increase in time deposits 465,852 1,836,674
Decrease in other assets 361,447 109,026
Exercise of stock options 0 0
Repurchase of common stock (221,198) (36,438)
Dividends paid (320,756) (319,432)
------------- --------------
Net cash provided by financing activities 6,067,268 3,386,630
------------- --------------
Net increase (decrease) in cash and cash equivalents (2,926,522) 2,170,604
Cash and cash equivalents at the
beginning of the year 19,168,515 16,427,803
------------- --------------
Cash and cash equivalents at the end of the year $ 16,241,993 $ 18,598,407
------------- --------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net Income $ 1,233,639 $ 1,017,551
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 145,025 103,285
Provision for loan losses and OREO losses 165,000 165,000
(Increase) decrease in interest receivable (150,183) 5,701
Decrease in unearned loan fees (27,309) (16,747)
Increase (decrease) in accrued interest payable 17,093 (40,337)
(Increase) decrease in prepaid expenses (20,678) 53,531
Increase in accounts payable 189,136 150,073
Increase in income taxes payable 50,176 53,747
------------- --------------
Total adjustments 368,260 474,253
------------- --------------
Net cash provided by operating activities $ 1,601,899 $ 1,491,804
------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements
-5-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the unaudited interim consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position at September
30, 1997 and the results of operations for the nine months ended September
30, 1997 and 1996 and cash flows for the nine months ended September 30, 1997
and 1996.
Certain information and footnote disclosures presented in the Corporation's
annual consolidated financial statements are not included in these interim
financial statements. Accordingly, the accompanying unaudited interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Corporation's 1996 Annual Report to Shareholders, which is incorporated by
reference in the Company's 1996 annual report on Form 10-K. The results of
operations for the nine months ended September 30, 1997 are not necessarily
indicative of the operating results for the full year.
2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February of 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(SFAS 128). The Bank is required to adopt SFAS 128 in the fourth quarter of
1997 and will restate at that time earnings per share data for prior periods
to conform with SFAS 128. Earlier application is not permitted.
SFAS 128 replaces current earnings per share reporting requirements and
requires a dual presentation of basic and diluted earnings per share.
Earnings per share excludes dilution and is computed by dividing net income
by the weighted average common shares outstanding of 457,477 and 456,780
during the nine months ended September 30, 1997 and 1996, respectively.
Diluted earnings per share reflects the potential dilution that could occur
if common shares were issued pursuant to the exercise of options under the
Bank's Stock Option Plans. Diluted earnings per share under SFAS 128 would
not have been significantly different than primary earnings per share
currently reported for the periods.
-6-
<PAGE>
In June of 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income",
which establishes standards for reporting and display of comprehensive income
and its components; and No. 131, "Disclosures about Segments of an Enterprise
and Related Information", which establishes annual and interim reporting
standards for an enterprise's operating segments and related disclosures
about its products, services, geographic areas, and major customers. Adoption
of these statements will not impact the Bank's consolidated financial
position, results of operations or cash flows, and any effect will be limited
to the form and content of its disclosures. Both statements are effective in
1998, with earlier application permitted.
-7-
<PAGE>
INTEREST RATE SENSITIVITY/INTEREST RATE RISK ANALYSIS
The following table provides an interest rate sensitivity and interest
rate risk analysis for the quarter ended September 30, 1997. The table
presents each major category of interest-earning assets and interest
bearing-liabilities.
<TABLE>
<CAPTION>
INTEREST RATE RISK REPORTING SCHEDULE
REPORTING INSTITUTION: SUMMIT BANK REPORTING DATE: 9-30-97
REMAINING TIME BEFORE MATURITY OR INTEREST RATE ADJUSTMENT
($000.00) Less Than Greater Than Greater Than Greater Than
OMITTED UP TO 3MOS 1YR 3YRS 5YRS
TOTAL 3MOS Greater Than Less Than Less Than Less Than OVER
1YR 3YRS 5YRS 10YRS 10 YEARS
--------- ------- -------- --------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
I. EARNING ASSETS
A. INVESTMENTS:
-----------
1. U. S. TREASURIES $ 6,745 $ 1,249 $ 2,999 $ 2,497 $ 0 $ 0 $ 0
2. U. S. AGENCIES 5,300 2,000 1,500 1,800 0 0 0
3. FED FUNDS SOLD 6,340 6,340 0 0 0 0 0
4. PURCHASED CDS 6,339 2,676 3,168 495 0 0 0
------- ------- ------- ------- ------- -------- -------
TOTAL INVESTMENTS $24,724 $12,265 $ 7,667 $ 4,792 $ 0 $ 0 $ 0
B. LOANS
-----
1. COMMERCIAL $60,331 $57,295 $ 1,428 $ 590 $ 311 $ 707 $ 0
2. REAL ESTATE 0 0 0 0 0 0 0
3. INSTALLMENT 15 15 0 0 0 0 0
------- ------- ------- ------- ------- -------- -------
TOTAL LOANS $60,346 $57,310 $ 1,428 $ 590 $ 311 $ 707 $ 0
C. TOTAL EARNING ASSETS $85,070 $69,575 $ 9,095 $ 5,382 $ 311 $ 707 $ 0
II. COST OF FUNDS (DEPOSITS)
------------------------
A. CERTIFICATE OF DEPOSITS $21,813 $12,751 $ 8,726 $ 310 $ 20 $ 6 $ 0
B. MONEY MARKET ACCOUNTS 28,732 0 14,366 14,366 0 0 0
C. TRANSACTION ACCOUNTS 5,691 0 0 2,845 1,423 1,423 0
D. SAVINGS ACCOUNTS 2,328 0 0 1,164 582 582 0
------- ------- ------- ------- ------- -------- -------
TOTAL COST OF FUNDS $58,564 $12,751 $23,092 $18,685 $ 2,025 $ 2,011 $ 0
III. INTEREST SENSITIVE ASSETS $85,070 $69,575 $ 9,095 $ 5,382 $ 311 $ 707 $ 0
IV. INTEREST SENSITIVE LIABILITIES $58,564 $12,751 $23,092 $18,685 $ 2,025 $ 2,011 $ 0
------- ------- ------- ------- ------- -------- -------
V. GAP $26,506 $56,824 ($13,997) ($13,303) ($1,714) ($1,304) $ 0
VI. CUMULATIVE GAP $26,506 $56,824 $42,827 $29,524 $27,810 $ 26,506 $26,506
VII. GAP RATIO 1.45 5.46 0.39 0.29 0.15 0.35
VIII. CUMULATIVE RATIO 1.45 5.46 2.16 1.54 1.49 1.45 1.45
IX. GAP AS A % OF TOTAL ASSETS 27.23 58.39 (14.38) (13.67) (1.76) (1.34)
X. CUMULATIVE GAP AS A % OF
TOTAL ASSETS 27.23 58.39 44.00 30.34 28.57 27.23 27.23
</TABLE>
-8-
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
The registrant, Summit Bancshares,Inc. (the "Company") is a bank holding
company whose only operating subsidiary is Summit Bank (the "Bank"). The
following discussion primarily concerns the financial condition and results
of operations of the Company on a consolidated basis including the subsidiary
Bank. All adjustments made in the compilation of this information are of a
normal recurring nature.
FINANCIAL CONDITION
LIQUIDITY MANAGEMENT
The consolidated loan-to-deposit ratio at September 30, 1997 was 72.3% which
was an increase from 64.3% for the same period in 1996. Total outstanding
loans as of September 30, 1997 increased $12,033,000 compared to the same
period a year ago while total deposits increased $7,874,000 versus the same
time last year. The increases in loans and deposits are mainly due to Bank's
effort in marketing its products. The average loan-to-deposit ratio for the
third quarter of 1997 was 71.5%, up from 62.5% for the same period last year.
This increase was caused by an increase in average total deposits of
$5,487,000 or 7.0% while average total loans increased $10,965,000 or 22.5%.
Management continues to seek growth and acquisition of quality credits.
Net liquid assets, which consists primarily of cash, due from banks,
interest-bearing deposits with other financial institutions, investment
securities and federal funds sold totaled $34,626,000 on September 30, 1997.
This amount represented 39.9% of total deposits in comparison to the
liquidity ratio of 48.1% as of September 30, 1996. This decrease is
primarily a result of loan growth. It is management's belief that the
current liquidity level is appropriate given current economic conditions and
is sufficient to meet current needs.
-9-
<PAGE>
The Company is not aware of any current recommendations by the regulatory
authorities which, if they were implemented, would have a material effect on
the Company.
The following table sets forth book value of investments by category and the
percent of total investments at the dates specified.
INVESTMENT COMPARATIVE
($000.00 Omitted)
<TABLE>
<CAPTION>
9-30-97 % 12-31-96 % 9-30-96 %
-------- --- -------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C>
Fed funds sold 6,340 26% 11,980 39% 13,922 41%
Interest bearing
deposits 6,339 26% 9,607 32% 9,608 29%
Securities 12,045 48% 8,760 29% 9,705 30%
</TABLE>
Interest bearing deposits are comprised of Time Certificates of Deposit with
other banks and savings and loan institutions with no more than $100,000 in
any institution.
Securities on September 30, 1997 were comprised of $6,745,000 in U. S. Gov't
notes and $5,300,000 in U.S. Gov't agencies.
CHANGES IN FINANCIAL POSITION
As of September 30, 1997, total deposits increased $6,248,000 from December
31, 1996 while at the same time total loans outstanding increased
$10,279,000. Total deposits as of September 30, 1997 were $86,757,000, an
increase of 10.0% from $78,884,000 as of September 30, 1996. Total loans as
of September 30, 1997 were $62,758,000, an increase of 26.4% from $49,635,000
as of September 30, 1996.
The following table sets forth the amount of deposits by each category and
the percent of total deposits at the dates specified.
DEPOSIT COMPARATIVE
($000.00 Omitted)
<TABLE>
<CAPTION>
9-30-97 % 12-31-96 % 9-30-96 %
-------- --- -------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C>
Demand $28,365 33% $27,833 34% $23,686 30%
Savings 2,894 3% 2,666 3% 2,951 4%
Interest bearing
trans. deposits 33,685 39% 28,664 36% 31,492 40%
Other time 21,813 25% 21,347 27% 20,755 26%
</TABLE>
-10-
<PAGE>
The following table sets forth the amount of loans
outstanding by each category and the percent of total loans
outstanding at the dates specified.
LOAN COMPARATIVE
($000.00 Omitted)
<TABLE>
<CAPTION>
9-30-97 % 12-31-96 % 9-30-96 %
<S> <C> <C> <C> <C> <C> <C>
Commercial $43,521 69% $35,788 68% $33,194 65%
Real estate-const 10,017 16% 7,508 14% 6,987 14%
Real estate-other 3,540 6% 3,063 6% 4,779 9%
Installment/other 5,680 9% 6,119 12% 5,765 12%
</TABLE>
NON-PERFORMING ASSETS
The following table provides information with respect to the subsidiary
Bank's past due loans and components for non-performing assets at the dates
indicated.
NON-PERFORMING ASSETS
---------------------
(000.00 Omitted)
9-30-97 12-31-96 9-30-96
Loans 90 days or more past
due & still accruing $ 404 $ 0 $ 18
Non-accrual loans 157 0 0
Other real estate owned 1,222 1,291 1,283
------ ------ ------
Total non-performing assets $1,783 $1,291 $1,301
====== ====== =====
Non-performing assets to
period end loans plus
other real estate owned 2.84% 2.46% 2.50%
Allowance to non-performing
loans 213% 0% 6056%
Allowance to non-performing
assets 67% 83% 84%
-11-
<PAGE>
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.
Other real estate owned ("OREO")is comprised of properties acquired through
foreclosure. These properties are carried at the lower of the recorded loan
balance or their estimated fair market value based on appraisal. When the
loan balance plus accrued interest exceeds the fair value of the property,
the difference is charged to the allowance for loan losses at the time of
acquisition. Subsequent declines in value from the recorded amount, if any,
and gains or losses upon disposition are included in noninterest expense.
Operating expenses related to other real estate owned are charged to
noninterest expense in the period incurred.
The increase in non-performing assets from September 30, 1996 to September
30, 1997 is due primarily to an increase in loans 90 days past due and
non-accrual loans of $543,000 and a decrease of $61,000 in OREO. Of the
$404,000 total loans 90 days or more past due and still accruing in 1997,
$200,000 was paid after the end of the quarter. Of the $157,000 total
non-accrual loans, $80,000 is guaranteed by Small Business Administration.
The total OREO amount, $1,222,000, is related to two properties. One of the
properties is vacant land in the Oakland Hills and the second property is two
continguous parcels in the Danville/Diablo Mountain area of Alameda County.
The Bank is actively marketing these two parcels.
-12-
<PAGE>
CAPITAL POSITION
As of September 30, 1997, Shareholders' Equity was $12,721,000. This
represents an increase of $937,000, or 8.0% over the same period last year.
Since the inception of the repurchase program in 1989, the Company has
authorized the repurchase of $2,500,000 of its stock. As of September 30,
1997, the Company has repurchased a total of 158,762 shares of the Company
stock constituting 29.5% of the Company's original stock prior to the
repurchase program, at a total cost of $2,307,168, or an average price per
share of $14.53. The Company plans to continue its repurchase program as an
additional avenue for liquidity for its shareholders. The program has not
affected the Company's liquidity or capital position or its ability to
operate as the Company's capital growth has exceeded its asset growth. In
addition, the Company's subsidiary Bank remains more than well-capitalized
under current regulations.
The following table shows the risk-based capital and leverage ratios as well
as the minimum regulatory requirements for the same as of September 30, 1997:
Minimum
Capital Ratio Regulatory Requirement
Tier 1 Capital 14.68% 4.00%
Total Capital 15.89% 8.00%
Leverage Ratio 10.26% 3.00%
The Company is not aware of any current recommendations by the regulatory
authorities which if they were implemented would have a material effect on
the Company.
-13-
<PAGE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
Total interest income including loan fees increased from $5,313,000 for the
first nine months of 1996 to $6,105,000 for the same period in 1997. The
prime lending rate increased 25 basis points for the current period compared
to the same period last year and a factor in the increased interest income on
loans. Another reason for the increase in interest income on loans was due to
an $8,561,000 increase in average loans compared to the same period a year
ago. Loan fees showed an increase of $85,036 over the same period last year.
The yield on loans and fees increased 30 basis points over the same period
last year. The increase in interest income from investments was due to an
increased yield of 18 basis points compared to the same period in 1996
reflective of market conditions. Average total investments was $695,000 lower
compared to the same period last year due to loan growth.
Interest expense increased from $1,286,000 at the end of the first nine
months of 1996 to $1,413,000 in 1997. This increase was due to an increase
in average interest-bearing deposit accounts of $4,114,000 during the first
nine months of 1997 versus the same period last year. The average cost of
funds for the period ending September 30, 1997 was 11 basis points more than
the same period last year. As a result of these factors, net interest margin
for the first nine months of 1997 was 7.31% compared to 6.82% for the same
period last year.
For the third quarter, total interest income including loan fees increased
from $1,829,000 in 1996 to $2,134,000 for the same period in 1997. This
increase is due to an increase in yield and an increase in loan volume.
Average loan volume for the third quarter of 1997 showed an increase of
$11,079,000 from the same period last year. Yield on loans for the third
quarter of 1997 was 11.06% compared to 10.83% for the same period last year.
For the third quarter of 1997, total interest income on investments decreased
$62,200. This decrease was attributable to an average investment volume
decrease of $5,819,000 and an interest yield increase from 5.49% in the third
quarter of 1996 to 5.74% for the same period in 1997.
-14-
<PAGE>
For the third quarter of 1997, interest expense increased $57,700 compared to
the same period in 1996. Average outstanding interest bearing deposits
increased from $55,524,000 in the third quarter of 1996 to $58,131,000 in the
third quarter of 1997. Average cost of funds for the same period was 3.37% in
1997 compared to 3.11% in 1996. As a result of these factors, net interest
income for the third quarter of 1997 increased $246,000, or 1.76%, compared
to the same period in 1996.
OTHER OPERATING INCOME
Service charges on deposit accounts as of the end of the first nine months of
1997 decreased to $223,000 versus $242,000 for the same period in 1996. The
decrease was due to lower fees collected in service charges related to
analysis of service charges on commercial accounts. Other charges and fees
remained the same.
Service charges on deposit accounts for the third quarter of 1997 decreased
$2,500 compared to the same period last year due to decreased collection of
fees associated with analysis of service charges to commercial accounts.
Other customer fees and charges increased $3,200 for the present quarter
associated with increased fees from merchant activities.
LOAN LOSS PROVISION
The allowance for loan losses is maintained at a level that management of the
Company considers to be adequate for losses that can be reasonably
anticipated. The allowance is increased by charges to operating expenses and
reduced by net-charge-offs. The level of the allowance for loan losses is
based on management's evaluation of potential losses in the loan portfolio,
as well as prevailing and anticipated economic conditions.
-15-
<PAGE>
Management employs a systematic methodology on a monthly basis to determine
the adequacy of the allowance for current and future loan losses. Each loan
is graded at the time of extension or renewal by the credit administrator.
Gradings are assigned a risk factor which is calculated to assess the
adequacy of the allowance for loan losses. Further, management considers
other factors such as overall portfolio quality, trends in the level of
delinquent and classified loans, specific problem loans, and current and
anticipated economic conditions.
The following table summarizes the activity in the Bank's allowance for
credit losses for the nine months ended September 30, 1997 and 1996.
NINE MONTHS ENDED
------------------
(000.00 Omitted)
9-30-97 9-30-96
Balance, beginning of the period $1,070 $1,025
Provision for loan losses 165 165
Recoveries 2 2
Loans charged-off (43) (102)
------ ------
Balance, end of the period $1,194 $1,090
The balance in the allowance for loan losses at September 30, 1997 was 1.90%
of total loans compared to 2.15% of total loans at September 30, 1996.
OTHER OPERATING EXPENSES
Total other operating expenses increased $271,000 as of the end of the first
nine months of 1997 compared to the same period last year. This increase was
primarily due to an increase in salaries and employee expense. The Bank's
commitment to grow increased the number of employees from 39 to 40 primarily
in the sales area. The increase was also attributed to increase in regular
raises in pay, increased cost of benefits and bonuses related to sales. Other
expenses increased due to increased foreclosure expenses and business
development costs.
For the third quarter 1997, operating expenses increased $68,900 compared to
the same period last year for the same reasons mentioned above.
-16-
<PAGE>
PROVISION FOR INCOME TAXES
The Company's provision for income taxes as of the end of the first nine
months of 1997 increased from $741,000 in 1996 to $900,000. This increase is
attributable to increased income from regular business operations. For the
same period in 1997 the Company's total effective tax rate was 41.8% compared
to 41.9% in 1996.
For the third quarter of 1997, the provision for income taxes increased
$72,400 compared to the third quarter of 1996. The effective tax rate for
this period was 42.9% versus 42.5% for the same period last year.
NET INCOME
Net income for the first nine months of 1997 increased from $1,018,000 for
the same period in 1996 to $1,234,000, or a increase of 21.2%. Third quarter
net income increased $90,700 or 26.1% over the same period last year.
-15-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
No material developments from that which was reported in the
Form 10-K dated March 31, 1997 for the year ended December 31, 1996.
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None
-18-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUMMIT BANCSHARES, INC.
REGISTRANT
DATE:___________________ BY:__________________________
SHIRLEY W. NELSON
CHAIRMAN AND CEO
(PRINCIPAL EXECUTIVE OFFICER)
DATE:___________________ BY:___________________________
KIKUO NAKAHARA
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
The remainder of this page is intentionally left blank
-19-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 9,901,993
<INT-BEARING-DEPOSITS> 6,339,000
<FED-FUNDS-SOLD> 6,340,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 12,045,223
<INVESTMENTS-MARKET> 12,080,090
<LOANS> 62,757,822
<ALLOWANCE> 1,194,216
<TOTAL-ASSETS> 100,280,679
<DEPOSITS> 86,757,359
<SHORT-TERM> 0
<LIABILITIES-OTHER> 802,493
<LONG-TERM> 0
0
0
<COMMON> 3,699,146
<OTHER-SE> 9,021,681
<TOTAL-LIABILITIES-AND-EQUITY> 100,280,679
<INTEREST-LOAN> 4,862,668
<INTEREST-INVEST> 361,721
<INTEREST-OTHER> 880,513
<INTEREST-TOTAL> 6,104,902
<INTEREST-DEPOSIT> 1,412,622
<INTEREST-EXPENSE> 1,412,622
<INTEREST-INCOME-NET> 4,692,280
<LOAN-LOSSES> 165,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,777,889
<INCOME-PRETAX> 2,133,816
<INCOME-PRE-EXTRAORDINARY> 2,133,816
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,233,639
<EPS-PRIMARY> $2.70
<EPS-DILUTED> $2.70
<YIELD-ACTUAL> 0
<LOANS-NON> 157,000
<LOANS-PAST> 404,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 231,044
<ALLOWANCE-OPEN> 1,070,318
<CHARGE-OFFS> 43,000
<RECOVERIES> 2,000
<ALLOWANCE-CLOSE> 1,194,216
<ALLOWANCE-DOMESTIC> 1,194,216
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
