<PAGE>
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, 1998 0-11108
SUMMIT BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2767067
(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
(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/
The aggregate market value of the common stock held by non-affiliates of the
registrant as of March 7, 1999 was $13,956,541. For purposes of this calculation
only, shares of common stock are deemed to have market value of $46.63 per
share. The average of bid and asked prices on March 7, 1999, 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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Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
452,667 shares no par common stock
issued and outstanding as of March 7, 1999
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Portions of Registrant's Annual Report to Shareholders
for the Fiscal Year Ended December 31, 1998
are incorporated by Reference into
Part II of This Form 10-K Report
Portions of Registrant's Proxy Notice and Statement
of Annual Meeting of Shareholders to be Held on
May 19, 1999 are Incorporated by
Reference into Part III, Items 10, 11,
12 and 13 of this Form 10-K 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.
The Bank's main branch is located at 2969 Broadway, Oakland, California
94611 the telephone number is (510) 839-8800. In addition, the Bank has full
service branches located at 1700 N. Main, Walnut Creek, California 94598. The
telephone number is (925) 935-9220. An additional full service branch is
located at Watergate III Tower at 2000 Powell Street, Emeryville, California
94608. The telephone number is (510) 428-1868. Also, on January 28, 1998, the
Bank opened a new full service branch at 5820 Stoneridge Mall Road, Suite 100,
Pleasanton, California 94588 which moved to new quarters located at 5673 W. Las
Positas Blvd. Ste. 208, Pleasanton, California, 94588 in July of 1998. The
telephone number is (925) 224-7788.
Summit Bancshares, Inc. owns all of the capital stock of Summit Bank (the
"Bank"), its subsidiary bank, and its activities during 1998 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
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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 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 Oakland and Emeryville branches of the Bank offer all of the services.
The banking offices in Walnut Creek and Pleasanton offer the same services
listed above, with the exception of safe deposit boxes.
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 subsidiary. 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 is considered to be all of
Alameda County and most of Contra Costa County, except several cities and
sparsely populated areas in the northern and easternmost sections. The excluded
areas are Pinole, Hercules, Rodeo, Crockett, Port Costa, West Pittsburg and
cities east of it and the sparsely populated areas east of Mt. Diablo. The
areas served by the Bank include a substantial number of commercial businesses,
a large health services complex and substantial residential population. In
Alameda County, the health services complex includes three major hospitals,
approximately 432 physicians and a wide variety of health related and other
professionals, and small and medium-sized businesses. Contra Costa County
includes three major hospitals, approximately 410 physicians some of which are
also affiliated with the hospitals in Alameda County 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 one mile west of John Muir Hospital, which is a 343-bed
hospital employing approximately 1200 people and accommodates a large staff
of approximately 290 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 1000 people in
downtown Walnut Creek and is staffed by approximately 89 physicians.
The Emeryville office is a further extension of the Bank's plan to expand
into areas, which will further utilize specialized services directed at
medium-sized businesses
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and professionals. Located west of Interstate 80 at 2000 Powell Street, it
services a commercial sector and an up-scale employee population.
The Pleasanton office is about 30 miles southeast of the head office in
Oakland and located in a commercial development known as Hacienda Industrial
Park in the city of Pleasanton. It is also two blocks from Valleycare Medical
Center.
The Bank also obtains business clients from the various areas within the
city of Oakland, adjacent to the John Muir and Kaiser areas of Walnut Creek, and
in the industrial and commercial areas of Emeryville and Pleasanton. 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 eleven
other independent banks in Oakland, Walnut Creek, Pleasanton, 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 the Bank 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, and 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,
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unless the anti competitive effects of the proposed transaction are clearly
outweighed by the probable effect in meeting the convenience and needs of the
community to be served.
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 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
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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, 1998, loans to directors totaled $366,000
or 2.6% of the Company's shareholders' equity.
THE BANK. The Bank is a member of the Federal Deposit Insurance
Corporation ("FDIC"), which currently insures the 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 not a 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.
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
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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.
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. 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
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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 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
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. U. S. Bancorp was subsequently purchased by First Bank headquartered
in Minneapolis. 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 might 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
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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 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 1998, 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 4% of Tier 1 capital to total average assets (the "leverage ratio")
based upon the definition of Tier 1 capital for 1998. 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, 1998 was 8.0% (See "Summit Bancshares, Inc. 1998
Annual Report - Footnote #8).
EMPLOYEES
As of December 31, 1998, the Bank employed 43 full time employees and 3
part time employees for a total equivalent of 44.7 full time employees. At the
present time there are no salaried employees of the Company.
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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, 1998.
Comparative figures for the years ended December 31, 1997 and 1996, are also
provided:
<TABLE>
<CAPTION>
ASSETS 1998 1997 1996
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
<S> <C> <C> <C> <C> <C> <C>
Cash and Due
From Banks $ 7,231 6.49% $ 6,858 7.20 % $ 5,874 6.71%
Time Deposits with Other
Financial Institutions 10,948 9.82% 7,986 8.20 % 10,039 11.47
Investment
Securities:
Taxable 13,397 12.02% 10,923 11.39 8,522 9.74
Non-taxable
Federal Funds
Sold 21,888 19.64% 10,105 10.54 11,428 13.05
Loans, Net 53,992 48.44% 56,746 59.17 47,253 53.99
Other Assets 3,994 3.59% 3,360 3.50 4,417 5.04
---------------------------------------------------------------------
Total Assets $ 111,450 100.00% 95,888 100.00% $87,533 100.00%
---------------------------------------------------------------------
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<CAPTION>
LIABILITIES & SHAREHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C> <C>
Deposits:
Demand 31,301 28.09% $25,082 26.16% $22,037 25.18%
Interest Bearing-
Transaction accounts 35,004 31.41% 32,914 34.33 29,751 33.99
Savings 2,878 2.58% 2,345 2.44 2,287 2.61
Time 28,106 25.22% 22,750 23.73 20,677 23.62
Other Liabilities 1,074 0.96% 768 0.80 1,130 1.29
Shareholders Equity 13,087 11.74% 12,029 12.54 11,651 13.31
---------------------------------------------------------------------
Total Liabilities &
Shareholders Equity $ 111,450 100.00% $95,888 100.00% $87,533 100.00%
---------------------------------------------------------------------
---------------------------------------------------------------------
</TABLE>
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The following is an analysis of Net Interest Income for 1998. Comparative
figures for 1997 and 1996 are also presented on the following pages.
Non-accrual loans are included in the average balances. Balances are expressed
in thousands of dollars.
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Interest Rates
Average Income/ Earned/
Balance Expense Paid
------- -------- --------
<S> <C> <C> <C>
ASSETS
Time Deposits with Other
Financial Institutions $ 10,948 $ 629 5.75%
Investment Securities (footnote #1) 13,397 769 5.74
Federal Funds Sold 21,888 1,178 5.38
Loans (Interest and Fees) 53,992 6,150 * 11.39
-------------------------------------------------------
Total Earning Assets $100,225 $8,726 8.71%
-------------------------------------------------------
-------------------------------------------------------
Cash and Due from Banks 7,231
Premises and Equipment 582
Other Assets 3412
--------------
TOTAL ASSETS $111,450
--------------
--------------
LIABILITIES AND SHAREHOLDERS EQUITY
Deposits:
Demand $ 31,301 $ ---- ----%
Savings 2,878 54 1.88
Interest-bearing Transaction 35,004 737 2.11
Time 28,106 1,476 5.25
-------------------------------------------------------
Total Deposits $ 97,289 $2,267 2.33%
-------------------------------------------------------
-------------------------------------------------------
Other Liabilities 1,074
Shareholders Equity 13,087
-------------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $111,450
-------------
-------------
AS A PERCENTAGE OF AVERAGE
TOTAL EARNING ASSETS:
Interest and Fee Income $8,726
Interest Expense 2,267
----------
NET INTEREST INCOME AND MARGIN $6,459 6.38%
--------------------------------
--------------------------------
</TABLE>
*Includes loan fees of $516,000
1.) Investment income rate is not calculated on a tax equivalent basis.
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FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Interest Rates
Average Income/ Earned/
Balance Expense Paid
------- ------- ----
<S> <C> <C> <C>
ASSETS
Time Deposits with Other
Financial Institutions $7,896 $450 5.70%
Investment Securities (footnote #1) 10,923 665 6.09
Federal Funds Sold 10,105 556 5.50
Loans (Interest and Fees) 56,746 6,726 * 11.85
-------------------------------------------------------------
Total Earning Assets $85,670 $8,397 9.80%
-------------------------------------
-------------------------------------
Cash and Due from Banks 6,858
Premises and Equipment 826
Other Assets 2,534
--------------
TOTAL ASSETS $95,888
--------------
--------------
LIABILITIES AND SHAREHOLDERS EQUITY
Deposits:
Demand $25,082 $--- ---%
Savings 2,345 45 1.92
Interest-bearing Transaction 32,914 637 1.93
Time 22,750 1,258 5.53
-------------------------------------------------------------
Total Deposits $83,091 $1,940 2.33%
-------------------------------------
-------------------------------------
Other Liabilities 768
Shareholders Equity 12,029
-------------
TOTAL LIABILITIES AND $95,888
SHAREHOLDERS EQUITY
-------------
-------------
AS A PERCENTAGE OF AVERAGE
TOTAL EARNING ASSETS:
Interest and Fee Income $8,397
Interest Expense 1,940
----------
NET INTEREST INCOME AND MARGIN $6,457 7.47%
-------------------------------------
-------------------------------------
</TABLE>
*Includes loan fees of $ 594,000
1.) Investment income rate is not calculated on a tax equivalent basis.
13
<PAGE>
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Interest Rates
Average Income/ Earned/
Balance Expense Paid
------- ------- ----
<S> <C> <C> <C>
ASSETS
Time Deposits with Other
Financial Institutions $10,039 $564 5.62%
Investment Securities (footnote #1) 8,522 511 6.00
Federal Funds Sold 11,428 602 5.27
Loans (Interest and Fees) 47,253 5,699 12.07
------------------------------------------------------------
Total Earning Assets $77,242 $7,376 9.55%
--------------------------------------
--------------------------------------
Cash and Due from Banks 5,874
Premises and Equipment 872
Other Assets 3,545
--------------
TOTAL ASSETS $87,533
--------------
--------------
LIABILITIES AND SHAREHOLDERS EQUITY
Deposits:
Demand $22,037 $--- ---%
Savings 2,287 43 1.88
Interest-bearing Transaction 29,751 628 2.11
Time 20,677 1,267 6.13
------------------------------------------------------------
Total Deposits $74,752 $1,938 2.59%
--------------------------------------
--------------------------------------
Other Liabilities 1,130
Shareholders Equity 11,651
-------------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $87,533
--------------
--------------
AS A PERCENTAGE OF AVERAGE
TOTAL EARNING ASSETS:
Interest and Fee Income $7,376
Interest Expense 1,938
-----------
NET INTEREST INCOME AND MARGIN $5,438 6.96%
--------------------------------------
--------------------------------------
</TABLE>
*Includes loan fees of $ 457,000
1.) Investment income rate is not calculated on a tax equivalent basis.
14
<PAGE>
Following is an analysis of changes in Interest Income and Expense (in
thousands of dollars) for 1998 over 1997. A similar comparison for 1997 over
1996 is on the following page. Changes not solely attributed to volume or rates
have been allocated proportionately to volume and rate components.
<TABLE>
<CAPTION>
1998 over 1997
INCREASE (DECREASE) IN --------------
INTEREST AND FEE INCOME Volume Rate Total
------ ---- -----
<S> <C> <C> <C>
Time Deposits with Other
Financial Institutions $300 $(121) $ 179
Investment Securities 265 (161) 104
Federal funds Sold 932 (310) 622
Loans, Net (27) (549) (576)
---- ----- -----
Total Increase in
Interest and Fee Income 1,470 (1,141) 329
INCREASE IN
INTEREST EXPENSE
Savings Deposits 18 (9) 9
Interest-bearing Transaction 82 18 100
Time Deposits 516 (298) 218
Total Increase in
Interest Expense 616 (289) 327
--- ----- ---
INCREASE IN
NET INTEREST INCOME 854 (852) 2
-----------------------------------------------------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
1997 over 1996
INCREASE (DECREASE) IN --------------
INTEREST AND FEE INCOME Volume Rate Total
------ ---- -----
<S> <C> <C> <C>
Time Deposits with Other
Financial Institutions $ (122) $ 8 $ (114)
Investment Securities 144 10 154
Federal funds Sold (72) 26 (46)
Loans, Net 1133 (106) 1027
--------------------------------------------------------------
Total Increase in
Interest and Fee Income 1083 (62) 1021
--------------------------------------------------------------
INCREASE IN
INTEREST EXPENSE
Savings Deposits 2 0 2
Interest-bearing Transaction 64 (55) 9
Time Deposits 126 (135) (9)
--------------------------------------------------------------
Total Increase in
Interest Expense 192 (190) 2
--------------------------------------------------------------
INCREASE IN
NET INTEREST INCOME $891 $128 $1019
--------------------------------------------------------------
</TABLE>
16
<PAGE>
INVESTMENT SECURITIES
The following table sets forth the book value as of December 31 for the
securities indicated:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
U.S. Treasury
Securities $1,499,445 $ 5,496,831 $ 7,759,850
U.S. Agencies 14,000,225 6,999,820 1,000,000
TOTAL $15,499,670 $12,496,651 $8,759,850
-----------------------------------------------
</TABLE>
The amortized cost and estimated fair values of investment in debt securities
for 1998 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 $ 1,499,445 $8,993 $ 0 $ 1,508,438
U.S. Agencies 14,000,225 0 22,975 13,977,250
TOTAL $15,499,670 $8,993 $22,975 $15,485,688
--------------------------------------------------------
</TABLE>
The amortized cost and estimated market value of debt securities at December 31,
1998 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 $6,499,445 $ 6,506,763
Due after one year through
Five years 9,000,225 8,978,925
TOTAL $15,499,670 $15,485,688
------------ -------------
</TABLE>
There were no sales of investments in debt securities during 1998.
17
<PAGE>
The following table is a summary of the relative maturities and yields of
Summit Bancshares, Inc. investment securities as of December 31, 1998 and 1997.
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.
<TABLE>
<CAPTION>
Maturing Maturing After One
Within One Year Through Five Years Total
--------------- ------------------ -----
Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1998
U.S. Treasury
Security 1,499,445 6.38% $ 0 0 1,499,445 6.38%
U.S. Agencies 5,000,000 4.91% 9,000,225 5.23% 14,000,225 5.12%
-------------------------------------------------------------------------
TOTAL $6,499,445 5.16% $9,000,225 5.23% $15,499,670 5.20%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
DECEMBER 31, 1997
U.S. Treasury
Security $3,999,088 6.02% $1,497,743 6.38% $5,496,831 6.10%
U.S. Agencies 3,799,820 6.23% 3,200,000 6.15% 6,999,820 6.19%
-------------------------------------------------------------------------
TOTAL 7,798,908 6.09% 4,697,743 6.22% $12,496,651 6.14%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
</TABLE>
18
<PAGE>
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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Commercial and
Financial $38,403 $44,044 $35,789
Real Estate, Including
Construction 10,733 12,321 10,571
Installment 5,196 5,706 6,119
Leases 0 0 0
-----------------------------------
Sub Total 54,332 62,071 52,478
Less Unearned Lease Income 0 0 0
Less Reserve for
Possible Loan Losses (1,319) (1,238) (1,070)
-----------------------------------
TOTAL $53,013 $60,833 $51,408
-----------------------------------
-----------------------------------
</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, 1998.
<TABLE>
<CAPTION>
Loans with a Maturity of
--------------------------------------------------
One Year One through Over Five Total
Or Less Five Years Years -----
------- ---------- -----
<S> <C> <C> <C> <C>
Commercial and $22,605 $11,096 $4,702 $38,403
Financial
Real Estate
Construction 4,210 850 0 5,060
-------------------------------------------------------------------------
TOTAL $26,815 $11,946 $4,702 $43,463
-------------------------------------------------------------------------
-------------------------------------------------------------------------
</TABLE>
All but eight loans for $1,582,463 reported above which have maturities of over
one year are at floating interest rates.
19
<PAGE>
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. 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. At December 31, 1998, financial instruments whose contract amounts
represent credit risk:
Financial instruments whose contract
Amount represents credit risk:
<TABLE>
<CAPTION>
CONTRACT AMOUNT
-------------------------------
<S> <C>
Commitments to extend credit in the Future $ 20,139,328
Standby letters of credit 1,130,767
</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 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 8.4% of the Company's loans are concentrated with health care
professionals.
20
<PAGE>
<TABLE>
<CAPTION>
NON-PERFORMING LOANS AND
SUMMARY OF LOAN LOSS EXPERIENCE
(In thousands of dollars)
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1996
------------- ------------- -------------
<S> <C> <C> <C>
Non-Accrual Loans $651 $ 176 $ 0
90 days past due &
Still accruing 662 408 0
-------------------------------------------------
Total non-accrual
and 90 days past
due loans 1,313 584 0
Other real estate owned 212 1,222 1,291
-------------------------------------------------
Total non-performing
assets $1,525 $1,806 $1,291
-------------------------------------------------
-------------------------------------------------
</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, $212 ,000, is related to two properties. One of the
properties is vacant land in the Oakland Hills. The second property is three
lots located in Pacheco.
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.
21
<PAGE>
An analysis of activity in the allowance for loan losses for the years
ended December 31 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance at beginning
of period $1,238,012 $1,070,318 1,024,922
----------------------------------------
Provision for possible
loan losses 100,000 270,000 125,000
----------------------------------------
Loan charged off
Commercial 25,000 96,934 16,952
Real Estate Construction 0 0 0
Installment 26,374 8,372 66,152
----------------------------------------
Total chargeoffs 51,374 105,306 83,104
----------------------------------------
Recoveries
Commercial 0 0 0
Real Estate Construction 0 0 0
Installment 32,813 3,000 3,500
----------------------------------------
Total recoveries 32,813 3,000 3,500
Net Chargeoffs 18,561 102,306 79,604
----------------------------------------
Balance at end of period $1,319,451 $1,238,012 $1,070,318
----------------------------------------
Ratio of net chargeoffs
to average loans outstanding 0.03% .18% .18%
----------------------------------------
----------------------------------------
</TABLE>
22
<PAGE>
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>
1998 1997 1996
---- ---- ----
Amount Percentage Amount Percentage Amount Percentage
<S> <C> <C> <C> <C> <C> <C>
3 months or less $22,407 78.7% $12,171 64.6% $10,621 69.5%
Over 3 through
6 months 3,854 13.5% 4,230 22.5 3,499 22.7
Over 6 through
12 months 2,201 7.7% 2,227 11.8 1,205 7.8
Over 12 months 0 0.0% 200 1.1 0 0
-----------------------------------------------------------------------
TOTAL $28,462 100.0% $18,828 100.0% $15,325 100.0%
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>
RETURN ON EQUITY AND ASSETS
The following table shows key financial ratios for the years ending
December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Return on average assets 1.59% 1.78% 1.61%
Return on average
shareholders equity 13.50% 14.20% 12.11%
Dividend payout ratio 49.69% 37.88% 48.70%
Average shareholders
equity as a percent of:
Average Assets 11.74% 12.54% 13.31%
Average Deposits 13.54% 14.48% 15.59%
</TABLE>
23
<PAGE>
INTEREST RATE SENSITIVITY/INTEREST RATE RISK ANALYSIS
The following table provides an interest rate sensitivity and interest rate
risk analysis for the year ended 1998. The table presents each major category
of interest-earning assets and interest-bearing liabilities.
INTEREST RATE RISK REPORTING SCHEDULE
REPORTING INSTITUTION: SUMMIT BANK REPORTING DATE: 12/31/98
<TABLE>
<CAPTION>
UP > 3 MO > 1 YR > 3 YRS > 5 YRS OVER
TOTAL 3 MO < 1 YR < 3 YRS < 5 YRS < 10 YRS 10 YRS
<S> <C> <C> <C> <C> <C> <C> <C>
I. EARNING ASSETS
A. INVESTMENTS
1. U.S. TREASURIES $1,499 $0 $1,499 $0 $0 $0 $0
2. U.S. AGENCIES $14,000 1,000 6,000 7,000 0 0 0
3. FED FUNDS $18,640 18,640 0 0 0 0 0
4. PURCHASED CD's $24,135 2,180 9,010 12,945 0 0 0
-------------------------------------------------------------------------
TOTAL INVESTMENTS $58,274 $21,820 $16,509 $19,945 $0 $0 $0
B. LOANS $51,410 $49,200 $627 $1,543 $40 $0 $0
-------------------------------------------------------------------------
$51,410 $49,200 $627 $1,543 $40 $0 $0
C. TOTAL EARNING ASSETS $109,684 $71,020 $17,136 $21,488 $40 $0 $0
ii. COST OF FUNDS (DEPOSITS)
A. CERTIFICATES OF DEPOSIT $34,326 $25,282 $8,873 $149 $20 $2 $0
B. MONEY MARKET ACCOUNTS 28,565 3,895 10,982 13,687 0 0 0
C. TRANSACTION ACCOUNTS 8,230 352 1,058 2,790 2,006 2,023 0
D. SAVINGS ACCOUNTS 2,136 92 275 724 521 525 0
-------------------------------------------------------------------------
TOTAL COST OF FUNDS 73,257 29,621 21,189 17,350 2,547 2,550 0
iii. INTEREST SENSITIVE ASSETS $109,685 $71,020 $17,136 $21,488 $40 $0 $0
IV. INTEREST SENSITIVE LIABILITIES $73,257 $29,621 $21,188 $17,350 $2,547 $2,550 $0
-------------------------------------------------------------------------
V. GAP 36,428 41,399 (4,052) 4,138 (2,587) (2,550) 0
VI. CUMMULATIVE GAP $36,428 $41,399 $37,347 $41,485 $38,978 $36,428 $36,428
VII. GAP RATIO 1.50 2.40 .081 1.24 .02 0.00
VIII. CUMMULATIVE RATIO 1.50 2.40 1.74 1.61 1.55 1.50 1.50
IX. GAP AS A % OF TOTAL ASSETS 29.22 33.21 (3.25) 3.32 (2.01) (2.05) 0
X. CUMMULATIVE GAP AS A % OF 29.22 33.21 29.96 33.28 31.27 29.22 29.22
TOTAL ASSETS
</TABLE>
24
<PAGE>
ITEM 2. PROPERTIES
The Bank leases the premises housing the permanent Head Offices for the
Bank and the Company and a full service branch of the Bank, at 2969 Broadway,
Oakland, California 94611, at the intersection of Broadway and 30th Street in
the "Pill Hill" area. The premises consist of approximately 9,810 square feet
located in a portion of a single story building on the southwest corner at the
intersection. The lease terminates on July 31, 2002. The current monthly rent
for the premises is $5,597.50 subject to yearly CPI adjustments.
Since 1989, the Bank leased 1,400-sq. ft. of office space located at the
corner of No. Main Street and Civic Drive in downtown Walnut Creek, for a full
service branch. The new lease terminates on January 14, 2001. The lease
provides for a monthly rent of $4,769.80, fixed for 12 years.
The Emeryville Branch began operations in December 1985 on the ground floor
of the Watergate III Building at 2000 Powell Street. The Bank currently leases
approximately 2,200 square feet of space at this location, at a base rent of
$2.05 per net rentable square foot ($5,105 per month). The term of this lease
expires on 12/31/2001 with one three-year option.
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. On April 1, 1996, the Bank
entered into a three-year lease agreement with an individual who operates a
Japanese restaurant in the building for a monthly rent of $4,350, triple net.
This lease terminates on March 31, 1999.
Since June of 1998, the Pleasanton Branch has operated a 1,889 square foot
facility at 5673 W. Las Positas Blvd. Ste. 208, 94588. The telephone number is
(925) 224-7788 pursuant to a lease that terminates on 3/31/03. The base rent is
$2,964.16 per month.
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 1998
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 May 19, 1999.
25
<PAGE>
The following individuals are the executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Position Since
<S> <C> <C> <C>
Shirley W. Nelson 54 Chairman and Chief 1982
Executive Officer
George H. Hollidge 55 Secretary 1981
Kikuo Nakahara 65 Chief Financial 1985
Officer
</TABLE>
The following individuals are the executive officers of the Bank as of
December 31, 1998:
<TABLE>
<CAPTION>
Name Age Position Since
<S> <C> <C> <C>
Shirley W. Nelson 54 Chairman and Chief 1982
Executive Officer
C. Michael Ziemann 54 President and 1996
Chief Operating
Officer
Denise Dodini 46 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
Committee, Asset and Liability Committee, Loan Committee, and Personnel
Committee.
Kikuo Nakahara joined the Bank as Director in 1981. He has also served as
Managing Director of American Express Tax and Business Services Inc. in Walnut
Creek, California since 1995. Prior to this position 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 was 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 secretary of the Bank since 1981. He has also
been President of Hollidge Transmissions, Inc., Oakland, transmission
specialists, since 1980. Prior to 1980, Mr. Hollidge was a partner in Hollidge
Hydramatic, transmission specialists.
26
<PAGE>
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.
Denise Dodini has been the Senior Vice President - Senior Loan
Officer at the Bank since July 1994. Denise joined the Bank in October 1989 as a
Vice President, Loan Officer where she assisted clients in the Oakland Office.
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.
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 1997 is as follows:
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW DECLARED
---- --- --------
<S> <C> <C> <C>
1998
First Quarter $61 53 $ ---
Second Quarter 55 1/2 52 2/3 .75
Third Quarter 51 1/2 48 ---
Fourth Quarter 50 1/2 50 .75
---------------
1997
First Quarter $33 3/4 32 3/4 $ ---
Second Quarter 37 1/2 33 1/8 .75
Third Quarter 47 --- 37 --- ---
Fourth Quarter 56 --- 43 --- .75
---
$ 1.50
---------------
</TABLE>
As of March 7, 1999 there were 452,667 shares of common stock of the Company
issued and outstanding.
27
<PAGE>
(b) SHAREHOLDERS. As of March 7, 1999 there were 309 shareholders of
record of the common stock. There were no other classes of securities
outstanding.
(c) DIVIDENDS. On June 10, 1998 the Company paid a 75-cent per share cash
dividend in addition to a similar 75 cent per share dividend on December 3,
1998. 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.
28
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial information of Summit Bancshares, Inc. for
the years from the period January 1, 1994 through December 31, 1998 should be
read in conjunction with the consolidated financial statements and the
accompanying notes included elsewhere in this Annual Report.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
For the year ended December 31, 1998 1997 1996 1995 1994
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Income $1,767,392 $1,708,154 $1,411,871 $1,315,507 $907,603
Earnings Per Common Share $3.95 $3.97 $3.32 $3.10 $2.19
Earnings Per Common $3.81 $3.72 $3.11 $2.87 $2.08
Share assuming dilution
Cash Dividends per Share $1.50 $1.50 $1.50 $1.50 $0.49
declared
AT YEAR END
(In Thousands)
Deposits $109,889 $90,432 80,510 75,251 67,862
Loans (Net) 53,013 $60,833 51,408 49,645 46,691
Assets 124,656 $104,342 92,946 86,822 78,601
Shareholders' Equity 14,088 $12,879 11,939 11,102 10,494
Non-performing Loans to
Total Loans 2.48% 0.96% 0.00% 0.82% 1.66%
Allowance to
Non-performing Loans 100.46% 212% N/A 252% 120%
Allowance to
Non-Performing Assets 86% 68% .82% 60% 26%
Tier 1 Capital 19.49% 13.71% 14.41% 12.19% 13.33%
Total Tier Capital 20.71% 14.92% 15.61% 13.29% 14.44%
Leverage Ratio 11.07% 9.12% 9.63% 9.24% 10.40%
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The section labeled Management's Discussion and Analysis of Financial
Condition and Results of Operation appearing in the Registrant's Annual Report
to Shareholders for the year ended December 31, 1998 are incorporated by
reference herein.
29
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated statement of financial position as of December 31, 1998
and 1997 and the consolidated statements of income, changes in shareholders'
equity and cash flows for the years ended December 31, 1998, 1997, and 1996,
together with the report of independent public accountants appearing in the
Registrant's Annual Report to Shareholders for the year ended December 31, 1998
are incorporated by reference herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
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 May 19, 1999 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 is presented in the Company's Proxy
Statement issued in connection with the Annual Meeting of Shareholders to be
held on May 19, 1999, 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 May 19, 1999, 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.
30
<PAGE>
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 May 19, 1999, 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.
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 the Registrant's
Annual Report to Shareholders for the year ended December 31, 1998 and
are incorporated by reference herein pursuant to Item 8.
Consolidated Statement of Financial Position - December 31, 1998 and
1997
Consolidated Statements of Income for the years ended December 31, 1998,
1997 and 1996
Statements of Changes in Shareholders' Equity (Consolidated and Parent
Company Only) for the years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996 Notes to Consolidated Financial Statements Report
of Independent Accountants
(a) 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.
31
<PAGE>
(a) 3. INDEX TO EXHIBITS.
The following exhibits are attached hereto or 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 #1
Of Summit Bancshares Inc.
3.2 Bylaws of Summit Footnote #2
Bancshares Inc.
3.3 Amendment to By-Laws of Summit
Bancshares, Inc. Footnote #17
4.1 Specimen Stock Certificate Footnote #3
10.1 Lease - Broadway Property Footnote #4
10.2 Summit Bancshares, Inc.
Incentive Stock Option Plan Footnote #5
10.4 Employment Agreement/
Shirley W. Nelson Footnote #7
10.6 Lease-Walnut Creek Footnote #9
10.7 Lease-Emeryville Property Footnote #10
10.8 Lease-Oakland Office Page
----
Expansion Footnote #11
10.9 Lease Walnut Creek
New Premises Footnote #12
10.10 Lease-Emeryville
Renegotiated Footnote #13
10.11 Summit Bancshares, Inc. 1989
Non-Qualified Stock Option Plan for
Directors Footnote #14
10.12 Stock Option Agreement Form Summit
Bancshares, Inc. Incentive Stock Option
Plan Footnote #15
32
<PAGE>
<CAPTION>
Sequentially
Numbered
Exhibit Number Exhibit Page
-------------- ------- ----
<S> <C> <C>
10.13 Stock Option Agreement Form 1989
Non-Qualified Stock Option Plan for
Directors Footnote #16
10.14 Lease-Walnut Creek Summit Bancshares,
Inc. owned Property Footnote #18
10.15 Lease-Emeryville Renegotiated Footnote #19
10.16 Lease-Pleasanton New Premises -------
10.17 Promissory Note -
Shirley W. Nelson 9/29/97
10.18 Promissory Note -
Shirley W. Nelson 12/30/97
10.19 Promissory Note -
Shirley W. Nelson 4/23/98
10.20 Promissory Note -
Shirley W. Nelson 12/28/98
11 Earnings Per Share Calculation
13 Portions of Annual Report to Shareholders
for the Year Ended December 31, 1998
21 Wholly Owned Subsidiary of Summit
Bank-Summit Equities, Inc.
23 Consent of PriceWaterhouseCoopers LLP
Accountant
24 Power of Attorney-see Signature Page
27 Financial Data Schedule
</TABLE>
33
<PAGE>
- ----------------
1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.
7. Incorporated by reference to Exhibit 10.4 of Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1983.
8. Incorporated by reference to Exhibit 10.6 of Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1984.
9. Incorporated by reference to Exhibit 10.9 of Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1985.
10. Incorporated by reference to Exhibit 10.10 of Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1985.
11. Incorporated by reference to Exhibit 10.6 of Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987.
12. Incorporated by reference to Exhibit 10.9 of Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1989.
13. Incorporated by reference to Exhibit 10.10 of Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1989.
14. Incorporated by reference to Exhibit 10.11 of Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1989.
34
<PAGE>
15. Incorporated by reference to Exhibit 10.12 of Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1989.
16. Incorporated by reference to Exhibit 10.13 of Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1989.
17. 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.
18. Incorporated by reference to Exhibit 10.15 of Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.
19. Incorporated by reference to Exhibit 10.16 of Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.
(b) Reports on Form 8-K
None.
WEIGHTED AVERAGE SHARES
TWELVE MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
FULLY BASIC
<S> <C> <C> <C> <C> <C>
A. COMMON STOCK ANNUAL 447386.93 447386.93
(4TH QTR) 451598.66 451598.66
NO OF
DAYS
436565.00 12-31-97(BAL FWD) -
436565.00 TO 1-14-98 13.00 5675345.00
436455.00 TO 1-26-98 12.00 5237460.00
437455.00 TO 4-23-98 87.00 38058585.00
451575.00 TO 5-27-98 34.00 15353550.00
452155.00 TO 10-28-98 154.00 69631870.00
451505.00 TO 11-20-98 23.00 10384615.00
451285.00 TO 11-30-98 10.00 4512850.00
451115.00 TO 12-28-98 28.00 12631220.00
452684.00 TO 1-1-99 4.00 1810736.00
- -
365.00 163296231.00
AVERAGE SHARES OUTSTANDING
FOR THE YEAR 447386.93
AVERAGE SHARES OUTSTANDING
FOR THE 4TH QUARTER 451598.66
</TABLE>
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: , 1999 By:
------------- ----------------------------
Shirley W. Nelson, Chief
Chairman and CEO
(Principal Executive Officer)
Date: , 1999 By:
------------- ----------------------------
Kikuo Nakahara
(Principal Financial and Accounting
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 singed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
36
<PAGE>
Signature Title Date
- -------------------- Chairman of the Board, ---------
SHIRLEY W. NELSON Chief Executive Officer
and President
- -------------------- Chief Financial ---------
KIKUO NAKAHARA Officer and Director
- -------------------- Secretary and Director ---------
GEORGE H. HOLLIDGE
- -------------------- Director ---------
JERRALD R. GOLDMAN, M.D.
- -------------------- Director ---------
THOMAS H. STATE
- -------------------- Director ---------
MARY C. WARREN
- -------------------- Director ---------
BARBARA J. WILLIAMS
37
<PAGE>
[LOGO]
OFFICE SERVICE AGREEMENT
This Agreement is dated October 8, 1997 and is entered into in Pleasanton, CA
by and between Rostex, Inc., dba HQ Business Centers (hereinafter "HQ") and
Summit Bank (hereinafter "Client").
HQ and Client agree that HQ shall grant to Client for and in consideration of
the agreements and fee(s) set forth herein, a license to use the Office(s) as
from time to time designated by HQ and, in common with HQ's other clients, a
license to use HQ's Business Center facilities and services, in accordance
with the terms hereof.
1. BASIC TERMS. This Section 1 contains the basic terms of this Agreement
and all provisions of this Agreement are to be read in accord therewith:
A. Base Services: HQ's Complete Executive Office Program, including the
use of executive offices complete with professional administrative
staff, telephone answering and such other inclusive services as defined
in Schedule "A".
B. Additional Services: Access to additional business services for
purchase as needed by Client, including secretarial, administrative,
telecommunications support and such other services are as defined in
Schedule "B".
C. HQ Business Center Pleasanton
D. Building 5820 Stoneridge Mall Road, Pleasanton, CA 94588
E. Office [(number(s)] 23 having a maximum occupancy of 2 person(s).
F. Commencement Date December 1, 1997
G. Initial Term 12 Months
H. End of Initial Term November 30, 1998
I. Monthly Base Services Fee $1669.00
J. Refundable Services Retainer $2503.50
2. OFFICE. Client shall, as part of the Base Services, be granted a
license to use the Office and shall have access to the Office twenty-four
(24) hours a day, seven (7) days a week. HQ agrees to provide office
cleaning, maintenance services, electric heating and air conditioning to the
Office for normal office use in such reasonable quantities and during such
reasonable hours as shall be determined by HQ or the Building. In addition,
Client will have reasonable use of HQ common area facilities. Client shall
use the Office and common areas of the HQ Business Center solely for general
office use in the conduct of the Client's business.
If, for any reason whatsoever, HQ is unable to provide use of the Office
or a mutually agreed upon alternative Office at the time herein agreed,
Client may either extend the Commencement time herein agreed, Client may
either extend the Commencement Date until the Office becomes available or, as
its sole remedy for such failure, cancel and terminate this Agreement if the
use of the Office is not available to Client within five (5) business days
after written notice to HQ by Client, in which case any prior payments shall
be fully refunded. No such failure to provide use of the Office shall subject
HQ to any liability for loss or damage, nor affect the validity of this
Agreement or the obligations of the Client hereunder.
HQ will have the right to relocate Client, AT HQ'S EXPENSE, to another
office in the HQ Business Center, and to substitute such other office for the
Office licensed hereby, provided such other office is substantially similar
in area and configuration to Client's contracted office and provided Client
shall incur no increase in the Monthly Base Services Fee.
3. SERVICES. HQ agrees, in consideration of the Monthly Base Services Fee,
to provide Base Services to Client as described in Schedule "A". From time to
time during the Term, HQ may, at its option, make other services available to
Client of the nature described in Schedule "B", at fees that are from time to
time established by HQ. In the event Client is in default of this Agreement,
HQ may, at its option, cease furnishing any and all services including
telephone services.
Client will not offer to any party in the HQ Business Center or the
Building, any of the services that HQ provides to its clients including, but
not limited to, the services described in Schedule "A" or "B".
HQ will answer all incoming telephone calls, unless otherwise mutually
agreed, during normal business hours, as determined by HQ. Answering service
will be limited to normal business communications, excluding inbound
telemarketing and advertising response which requires pre-approval by HQ and
shall be subject to fees established from time to time by HQ.
Client will use only telecommunications systems and services as provided
by HQ. Client will pay to HQ a monthly equipment rental fee for the use of
each telephone instrument and voice lines. In the event HQ discontinues the
offering of long distance service, Client will provide its own long distance
service through a locally accessed long distance carrier.
Client acknowledges that due to the imperfect nature of verbal, written
and electronic communications, neither HQ nor any of its officers, directors,
employees, shareholders, partners, agents or representatives shall be
responsible for damages, direct or consequential, that may result from the
failure of HQ to furnish any service, including but not limited to the
service of conveying messages, communications and other utility or services
required under this Agreement or agreed to by HQ. Client's sole remedy and
HQ's sole obligation for any failure to render any service, any error or
omission, or any delay or interruption with respect thereto, is limited to an
adjustment to Client's billing in an amount equal to the charge for such
service for the period during which the failure, delay or interruption
continues.
CLIENT EXPRESSLY WAIVES, AND AGREES NOT TO MAKE ANY CLAIM FOR DAMAGES,
DIRECT OR CONSEQUENTIAL, ARISING OUT OF ANY FAILURE TO FURNISH ANY UTILITY,
SERVICE OR FACILITY, ANY ERROR
Page 1 of 6 -C- 1995 HQ NETWORD SYSTEMS INC.
<PAGE>
OR OMISSION WITH RESPECT THERETO, OR ANY DELAY OR INTERRUPTION OF THE SAME.
4. DURATION OF AGREEMENT. Upon the End of Initial Term, or any extension
thereof, the term of this Agreement and the license herein granted shall be
automatically extended for the same period of time as the Initial Term, upon
the same terms and conditions as contained herein, unless either party gives
notice to the other in writing to the contrary at least sixty (60) days prior
to the End of Initial Term (90 days if Client has licensed the use of three
or more offices).
Tenant hereby agrees to pay HQ, the total monthly rent for each full
month, or part thereof, in which the tenant occupies the premises. Tenant is
deemed to occupy the premises during the required notice period herein,
whether or not tenant is physically in the premises. (Eg: 30 day notice
presented on the 15th day of month 1 requires payment of total monthly rent
for month 2).
Upon any termination of this Agreement, whether by lapse of time or
otherwise, or upon any revocation of Client's license herein granted, the
Client shall cease all use of the Office, the HQ Business Center and all
services immediately. For each and every month or portion thereof that Client
continues use of the Office after the termination of this Agreement by lapse
of time or otherwise, without the express written consent of HQ, Client shall
pay HQ an amount equal to double the Monthly Base Services Fee computed on a
per-month basis for each month or portion thereof that Client continues the
use of the Office.
5. PAYMENTS AND ESCALATIONS. Client agrees to pay to HQ the Monthly Base
Services Fee plus applicable sales or use taxes, in advance, on the first day
of each calendar month during the Initial Term and all extensions thereof,
without any deduction, offset, notice or demand. If the Commencement Date
shall be other than the first day of a month or end of the last day of a
month, fees for any such month shall be prorated. Charges for any Schedule
"B" service purchased by Client from HQ shall be due and payable on the 10th
of the month following the offer for any such service.
One year after the Commencement Date of this Agreement and each and
every anniversary date thereafter, the Monthly Base Service Fee will
automatically increase by FOUR PERCENT (4%) of the Monthly Base Services Fee
due for the month preceding such anniversary date.
All Monthly Base Services Fees and other sums payable hereunder shall be
payable at the office of HQ or at such other location or to any agent
designated in writing by HQ. In addition to any other sums due, Client shall
pay monthly late charges equal to five percent (5%) of all amounts that have
not been paid to HQ within five (5) days of their respective due dates. The
parties agree that such late charges are fair and reasonable compensation for
costs incurred by HQ where there is default in any payment due under this
Agreement.
Upon the execution of this Agreement, Client shall pay HQ or its agent
the Refundable Services Retainer. The Refundable Services Retainer need not
be kept separate and apart from other funds of HQ, no interest shall be paid
thereon, and may be used by HQ to provide Schedule "A" and "B" services under
this Agreement. In addition to the Refundable Services Retainer, Client will,
upon execution hereof, pay to HQ the Monthly Base Services Fee for the first
full month of the Initial Term.
Client agrees that the Refundable Services Retainer shall not be used by
Client as payment for the Monthly Base Services Fee for the last month of the
Initial Term, or any extension thereof, in the event Client defaults in the
performance of any of the terms hereof, HQ may terminate this Agreement and
the license herein granted and may also use, apply or retain the whole, or
any part, of the Refundable Services Retainer for the payment of any service
fee or any other payment due hereunder, or for payment of any other sum that
HQ may spend by reason of Client's default. If Client shall, at the end of
the term of this Agreement, have fully and faithfully complied with all of
the terms and provisions of this Agreement, and surrendered all keys, access
cards and building passes, the Refundable Services Retainer, or any balance
thereof, shall be returned to Client within forty-five (45) days thereafter.
6. DAMAGES AND INSURANCE. Client will not damage or deface the furnishings,
walls, floors or ceilings, nor make holes for the hanging of pictures or make
or suffer to be made any waste, obstruction or unlawful, improper or
offensive use of the Office or the common area facilities. Client will not
cause damage to any part of the Building or the property of HQ or disturb the
quiet enjoyment of any other licensee or occupant of the Building. At the
termination of this Agreement, the Office shall be in as good condition as
when Client commenced the use thereof, normal wear and tear excepted. Client
agrees to pay for repainting each Office used less than twelve (12) months by
Client, at a cost not to exceed One Hundred Fifty Dollars ($150.00) per
Office. HQ will have the right, at any time and from time to time, to enter
the Office to inspect the same, to make such repairs and alterations as HQ
reasonably deems necessary, and the cost of any such repair resulting from
the act or omission of Client shall be reimbursed to HQ by Client upon
demand. HQ shall have the right to show the Office to prospective Clients,
provided HQ will use reasonable efforts not to disrupt Client's business.
HQ and its respective directors, licensors, officers, agents, servants
and employees shall not, to the extent permitted by law, except upon the
affirmative showing of HQ's gross negligence or willful misconduct, be liable
for, and Client waives all right of recovery against such entities and
individuals for any damage or claim with respect to any injury to person or
damage to, or loss or destruction of any property of Client, its employees,
authorized persons and invitees due to any act, omission or occurrence in or
about the HQ Business Center or the Building. Without limitation of any other
provision hereof, each party hereto hereby agrees to indemnify, defend and
hold harmless the other party hereto, and such other party's officers,
directors, employees, shareholders, partners, agents and representatives from
and against any liability to third parties arising out of, in the case of
Client as an indemnifying party, Client's use and occupancy of the Office or
any negligent act or omission of Client or Client's officers, directors,
employees, shareholders, partners, agents, representatives, contractors,
customers or invitees and, in the case of HQ as an indemnifying party, any
act or omission constituting gross negligence or willful misconduct of HQ or
HQ's officers, directors, employees, shareholders, partners, agents or
representatives. Subject to the foregoing, Client assumes all risk of loss
with respect to all personal property of Client, its agents employees,
contractors, and invitees, within or about the HQ Business Center or the
Building. Client acknowledges that it is the Client's responsibility to
maintain insurance to cover the risks set forth in this paragraph.
HQ and Client each hereby waive any and all rights of recovery against
the other, or against the directors, licensors, officers, agents, servants
and employees of the other, for loss of or damage to its property or the
property of others under its control, to the extent such loss or damage is
covered by any insurance policy.
If the HQ Business Center is made unusable, in whole or in part, by fire
or other casualty not due to negligence of Client, HQ may, at its option,
terminate the Agreement upon notice to Client, effective upon such casualty,
or may elect to repair, restore or rehabilitate, or cause to be repaired,
restored or rehabilitated, the HQ Business Center, without expense to Client,
within ninety (90) days or within such longer period of time as may be
required because of events beyond HQ's control. The Monthly Base Services Fee
shall be abated on a per diem basis for the portions of the Office that are
unusable.
7. DEFAULT. Client shall be deemed to be in default under this Agreement:
(a) if Client defaults in the payment of the Monthly Base Services Fee or
other sums due hereunder or (b) if Client defaults in the prompt and full
performance of any other provision of this Agreement and any such default
continues in excess of five (5) business days after written notice by HQ.
Should Client be in default hereunder, HQ shall have the option to
pursue any one or more of the following remedies
Page 2 of 6
<PAGE>
without any additional notice or demand whatsoever and without limitation to
HQ in the exercise of any remedy.
(1) HQ may, if HQ so elects, without any additional notice of such
election or demand to Client, either forthwith terminate this Agreement and
the license to use any portion of the HQ Business Center, and may enter into
the Office and take and hold possession of the contents thereof, without
releasing Client, in whole or in part, from the Client's obligations
hereunder. In the event of such termination, HQ may, at its option, declare
the entire amount of the Monthly Base Services Fee which would become due
and payable during the remainder of the term, to be due and payable
immediately, in which event, Client agrees to pay the same at once.
(2) Pursue any other remedy now or hereafter available to HQ. HQ's
exercise of any right or remedy shall not prevent it from exercising any
other right or remedy.
Client agrees to pay all costs and expenses, including reasonable
attorneys' fees, expended or incurred by HQ in connection with the
enforcement of this Agreement, the collection of any sums due hereunder, any
action for declaratory relief in any way related to this Agreement, or the
protection or preservation of any rights of HQ hereunder.
8. RESTRICTION ON HIRING. Client agrees that during the term of this
Agreement and within one (1) year of the termination of this Agreement,
neither Client nor any of its principals, employees or affiliates will hire
directly or as an independent contractor, any person who is at that time, or
was during the term of this Agreement, an employee of HQ. In the event of a
breach of any obligation of Client contained in this paragraph. Client shall
be liable to HQ for, and shall pay to HQ, on demand, liquidated damages in
the sum of $10,000.00 for each employee with respect to whom such breach
shall occur, it being mutually agreed that the actual damage that would be
sustained by HQ as the result of any such breach would be, from the nature of
the case, extremely difficult to fix and that the aforesaid liquidated damage
amount is fair and reasonable.
9. MISCELLANEOUS.
A. This is the only Agreement between the parties. No other agreements
are effective. All amendments to this Agreement shall be in writing and
signed by all parties. Any other attempted amendment shall be void. The
invalidity or unenforceability of any provision hereof shall not affect the
remainder hereof.
B. All waivers must be in writing and signed by the waiving party. HQ's
failure to enforce any provision of this Agreement or its acceptance of fees
shall not be a waiver and shall not prevent HQ from enforcing any provision
of this Agreement in the future. No receipt of money by HQ shall be deemed to
waive any default of Client or to extend, reinstate or continue the term
hereof.
C. All Schedules and Addenda attached hereto are hereby incorporated
herein by this reference. The laws of the State in which the HQ Business
Center is located shall govern this Agreement.
D. All parties signing this Agreement as a partnership or co-signing
individuals shall be jointly and severally liable for all obligations of
Client.
E. Client represents and warrants to HQ that there are no agents,
brokers, finders or other parties except _____________ with whom Client has
dealt who are or may be entitled to any commission or fee with respect to
this Agreement.
F. Neither Client nor anyone claiming by, through or under Client shall
assign this Agreement or permit the use of any portion of the HQ Business
Center by any person other than Client; provided, however, Client may assign
this Agreement to an affiliated corporation of Client. In the event of any
such permitted assignment, Client shall not thereby be relieved of any of its
obligations under this Agreement.
G. The Rules and Regulations of the Building and of HQ as defined on
Schedule "C" hereto and any additional schedules that may be attached hereto
are expressly made a part of this Agreement and Client expressly covenants
and agrees to abide by all of such Rules and Regulations and such additional
terms, as well as such reasonable modifications to such Rules and Regulations
as may be hereafter adopted by HQ.
H. All notices hereunder shall be in writing. Notices to Client shall be
deemed to be duly given if mailed by registered or certified mail, postage
prepaid, addressed to Client at:
Summit Bank
2969 Broadway
Oakland, CA 94611
Notice to HQ shall be deemed to be duly given if mailed by registered or
certified mail, postage prepaid, to HQ at the Building and as follows:
HQ Pleasanton
5820 Stoneridge Mall Road, Suite 100
Pleasanton, CA 94588
I. THIS AGREEMENT IS NOT INTENDED TO CREATE A LEASE OR ANY OTHER
INTEREST IN REAL PROPERTY IN FAVOR OF THE CLIENT, BUT MERELY CREATES A
REVOCABLE LICENSE IN ACCORDANCE WITH THE TERMS HEREOF. This Agreement grants
Client the license to use the HQ Business Center and the Office for the
specific purposes herein set forth without diminution of the legal possession
or control thereof by HQ and shall be revocable at the option of HQ upon the
destruction of the HQ Business Center or the breach by Client of any term or
condition herein set forth. This Agreement is subject and subordinate to any
underlying lease or contract of the Building or of the premises comprising
the Office or the HQ Business Center as such lease or contract may be amended
from time to time (such underlying lease or contract together with any
amendments, is hereinafter referred to as the "Master Lease"). This agreement
shall terminate simultaneously with the termination of the HQ Business Center
operation for any reason. Client is not a party to nor shall Client have any
rights under the Master Lease.
J. Client acknowledges that HQ Business Centers will comply with U.S.
Postal Service regulations regarding Client mail and, upon termination of
this Agreement, it will be Client's responsibility to notify all parties of
termination of the use of the above described address, assigned telephone
number, telex and facsimile numbers. For a period of thirty (30) days after
the termination of this Agreement, HQ will, at Client's written request and
cost, provide Client's new telephone number and address to all incoming
callers and will hold or forward to Client once a week all mail, packages,
facsimiles and telexes.
K. HQ may assign this Agreement and/or any fees hereunder and Client
agrees to attorn to any such assignee.
Page 3 of 6
<PAGE>
HQ
Rostex, Inc., dba HQ Business Centers
- -------------------------------------------------
- -------------------------------------------------
- -------------------------------------------------
A(n) California Corporation
---------------------------------------------
By: S. Kermabon
---------------------------------------------
Sylvia J. Kermabon
---------------------------------------------
Its: Center Manager
---------------------------------------------
CLIENT
CORPORATION: Summit Bank
-------------------------------------
A(n) [ILLEGIBLE] Corporation
---------------------------------------------
By: [ILLEGIBLE]
---------------------------------------------
---------------------------------------------
Its: [ILLEGIBLE]
---------------------------------------------
PARTNERSHIP: ------------------------------------
A(n) Partnership
---------------------------------------------
By: ---------------------------------------------
---------------------------------------------
Its: General Partner
INDIVIDUALS:
---------------------------------------------
(signature)
---------------------------------------------
(print name)
Address: ----------------------------------------
- -------------------------------------------------
---------------------------------------------
(signature)
---------------------------------------------
(print name)
Address: ----------------------------------------
- -------------------------------------------------
- -------------------------------------------------------------------------------
PERSONAL GUARANTEE:
For value received, the undersigned does hereby unconditionally and
irrevocably guarantee the prompt payment and full performance of all terms,
covenants, conditions and agreements as contained herein.
BY: --------------------- BY: ---------------------- BY: ----------------------
- -------------------------------------------------------------------------------
SCHEDULE "A"
BASE SERVICES: see attached - Schedule "A"
in Addition to the following:
- - Individual Executive Office
- - Professional Receptionist, Message Center Secretaries, and Office Manager
- - Prestigious Business Address
- - Business Identity on Building Lobby Directory
- - Facsimile Number for Client's Use
- - Mail and Package Receipt
- - Utilities and Janitorial Service
- - Building Operating Expenses
SCHEDULE "B"
ADDITIONAL SERVICES
Secretarial Services and Errands
Binding Services
Postage for Outgoing Mail (plus 20%)
Express Delivery Services (plus 20%)
UPS Services (plus 20%)
Mail Reads and Mail Checks
Handling all Pick-up and Deliveries
Paging and Cross Connecting
Specialized Telephone Services
Specialized Equipment Rental
Printing
Office Supplies
Miscellaneous Purchasing Services
Catering
Local and Long Distance Telephone Services
Other Tenant Requested Services
Page 4 of 6
<PAGE>
Exhibit 10.17
PROMISSORY NOTE
$ 90,000.00 SEPTEMBER 29, 1997
OAKLAND, CALIFORNIA
FOR VALUE RECEIVED, the undersigned SHIRLEY W. NELSON (the "MAKER"), promises to
pay to SUMMIT BANCSHARES, INC. (the "PAYEE"), or order, in Oakland, California,
or at such other place as PAYEE may from time to time designate, in United
States of America currency, the sum of NINETY THOUSAND AND NO/100 DOLLARS
($90,000.00), with interest on the unpaid principal balance. Interest shall
accrue from the date of this Note at the rate of six per cent (6.00%) per annum.
Accrued interest, if any, shall be payable annually, commencing on the first
anniversary date of this Note. Any unpaid accrued interest and principal shall
be due and payable on or before the third anniversary date of this Note.
The MAKER shall have the right to prepay all or any part of the unpaid principal
of this Note from time to time without any penalty or premium, provided that any
such prepayments shall be applied first against any accrued interest, and then
against principal.
The MAKER shall be deemed to be in default if MAKER fails to pay any installment
of interest within thirty (30) days after the due date. In such event, the
total sum of principal and accrued interest shall become immediately due and
payable at the option of PAYEE or other assignee of this Note.
If a party breaches this Note, the breaching party shall pay all costs and
attorneys' fees incurred by the other party in connection with such breach,
whether or not any litigation is commenced.
This Note is secured by a pledge of certain of PAYEE's Common Stock held by
MAKER pursuant to a Pledge Agreement dated of even date herewith.
Consent by PAYEE or other assignee of the Note to waive one default shall not be
deemed to be a waiver of the right to waive future or successive defaults.
This Note shall be governed as to its construction, interpretation, and
enforcement and in all other respects by the laws of the State of California.
This Note shall not be modified, amended, or canceled except in writing by the
MAKER and PAYEE or other assignee of this Note.
The MAKER waives demand, presentment, protest, notice of nonpayment, notice of
protest, and any and all lack of diligence or delays which may occur in the
collection of this Note.
IN WITNESS WHEREOF, the MAKER has caused this Note to be duly executed at
Oakland, California.
/s/ Shirley W. Nelson
---------------------------------------
SHIRLEY W. NELSON
<PAGE>
Exhibit 10.18
PROMISSORY NOTE
$ 10,000.00 DECEMBER 30, 1997
OAKLAND, CALIFORNIA
FOR VALUE RECEIVED, the undersigned SHIRLEY W. NELSON (the "MAKER"), promises to
pay to SUMMIT BANCSHARES, INC. (the "PAYEE"), or order, in Oakland, California,
or at such other place as PAYEE may from time to time designate, in United
States of America currency, the sum of TEN THOUSAND AND NO/100 DOLLARS
($10,000.00), with interest on the unpaid principal balance. Interest shall
accrue from the date of this Note at the rate of five and three-fourths per cent
(5.75%) per annum.
Accrued interest, if any, shall be payable annually, commencing on the first
anniversary date of this Note. Any unpaid accrued interest and principal shall
be due and payable on or before the third anniversary date of this Note.
The MAKER shall have the right to prepay all or any part of the unpaid principal
of this Note from time to time without any penalty or premium, provided that any
such prepayments shall be applied first against any accrued interest, and then
against principal.
The MAKER shall be deemed to be in default if MAKER fails to pay any installment
of interest within thirty (30) days after the due date. In such event, the
total sum of principal and accrued interest shall become immediately due and
payable at the option of PAYEE or other assignee of this Note.
If a party breaches this Note, the breaching party shall pay all costs and
attorneys' fees incurred by the other party in connection with such breach,
whether or not any litigation is commenced.
This Note is secured by a pledge of certain of PAYEE's Common Stock held by
MAKER pursuant to a Pledge Agreement dated of even date herewith.
Consent by PAYEE or other assignee of the Note to waive one default shall not be
deemed to be a waiver of the right to waive future or successive defaults.
This Note shall be governed as to its construction, interpretation, and
enforcement and in all other respects by the laws of the State of California.
This Note shall not be modified, amended, or canceled except in writing by the
MAKER and PAYEE or other assignee of this Note.
The MAKER waives demand, presentment, protest, notice of nonpayment, notice of
protest, and any and all lack of diligence or delays which may occur in the
collection of this Note.
IN WITNESS WHEREOF, the MAKER has caused this Note to be duly executed at
Oakland, California.
/s/ Shirley W. Nelson
---------------------------------------
SHIRLEY W. NELSON
<PAGE>
Exhibit 10.19
PROMISSORY NOTE
$ 141,200.00 APRIL 23, 1998
OAKLAND, CALIFORNIA
FOR VALUE RECEIVED, the undersigned SHIRLEY W. NELSON (the "MAKER"), promises to
pay to SUMMIT BANCSHARES, INC. (the "PAYEE"), or order, in Oakland, California,
or at such other place as PAYEE may from time to time designate, in United
States of America currency, the sum of ONE HUNDRED FORTY ONE THOUSAND TWO
HUNDRED DOLLARS ($141,200.00), with interest on the unpaid principal balance.
Interest shall accrue from the date of this Note at the rate of five and
seventy-six one hundredths per cent (5.76%) per annum.
Accrued interest, if any, shall be payable annually, commencing on the first
anniversary date of this Note. Any unpaid accrued interest and principal shall
be due and payable (a) on or before the third anniversary date of this Note, or
(b) upon the resignation or termination of employment of MAKER, whichever first
occurs.
The MAKER shall have the right to prepay all or any part of the unpaid principal
of this Note from time to time without any penalty or premium, provided that any
such prepayments shall be applied first against any accrued interest, and then
against principal.
The MAKER shall be deemed to be in default if MAKER fails to pay any installment
of interest within thirty (30) days after the due date. In such event, the
total sum of principal and accrued interest shall become immediately due and
payable at the option of PAYEE or other assignee of this Note.
If a party breaches this Note, the breaching party shall pay all costs and
attorneys' fees incurred by the other party in connection with such breach,
whether or not any litigation is commenced.
This Note is secured by a pledge of certain of PAYEE's Common Stock held by
MAKER pursuant to a Pledge Agreement dated of even date herewith.
Consent by PAYEE or other assignee of the Note to waive one default shall not be
deemed to be a waiver of the right to waive future or successive defaults.
This Note shall be governed as to its construction, interpretation, and
enforcement and in all other respects by the laws of the State of California.
This Note shall not be modified, amended, or canceled except in writing by the
MAKER and PAYEE or other assignee of this Note.
The MAKER waives demand, presentment, protest, notice of nonpayment, notice of
protest, and any and all lack of diligence or delays which may occur in the
collection of this Note.
IN WITNESS WHEREOF, the MAKER has caused this Note to be duly executed at
Oakland, California.
/s/ Shirley W. Nelson
---------------------------------------
SHIRLEY W. NELSON
<PAGE>
Exhibit 10.20
PROMISSORY NOTE PER CW MR. Z 01/04/98, RATE = 4.5%; MANUALLY COMPLETED
WHEN SIGNED.
$ 15,690.00 DECEMBER 28, 1998
OAKLAND, CALIFORNIA
FOR VALUE RECEIVED, the undersigned SHIRLEY W. NELSON (the "MAKER"), promises to
pay to SUMMIT BANCSHARES, INC. (the "PAYEE"), or order, in Oakland, California,
or at such other place as PAYEE may from time to time designate, in United
States of America currency, the sum of FIFTEEN THOUSAND SIX HUNDRED NINETY AND
NO/100 DOLLARS ($15,690.00), with interest on the unpaid principal balance.
Interest shall accrue from the date of this Note at the rate of four and
one-half per cent (4-1/2%) per annum.
Accrued interest, if any, shall be payable annually, commencing on the first
anniversary date of this Note. Any unpaid accrued interest and principal shall
be due and payable (a) on or before the third anniversary date of this Note, or
(b) upon the resignation or termination of employment of MAKER, whichever first
occurs.
The MAKER shall have the right to prepay all or any part of the unpaid principal
of this Note from time to time without any penalty or premium, provided that any
such prepayments shall be applied first against any accrued interest, and then
against principal.
The MAKER shall be deemed to be in default if MAKER fails to pay any installment
of interest within thirty (30) days after the due date. In such event, the
total sum of principal and accrued interest shall become immediately due and
payable at the option of PAYEE or other assignee of this Note.
If a party breaches this Note, the breaching party shall pay all costs and
attorneys' fees incurred by the other party in connection with such breach,
whether or not any litigation is commenced.
This Note is secured by a pledge of certain of PAYEE's Common Stock held by
MAKER pursuant to a Pledge Agreement dated of even date herewith.
Consent by PAYEE or other assignee of the Note to waive one default shall not be
deemed to be a waiver of the right to waive future or successive defaults.
This Note shall be governed as to its construction, interpretation, and
enforcement and in all other respects by the laws of the State of California.
This Note shall not be modified, amended, or canceled except in writing by the
MAKER and PAYEE or other assignee of this Note.
The MAKER waives demand, presentment, protest, notice of nonpayment, notice of
protest, and any and all lack of diligence or delays which may occur in the
collection of this Note.
IN WITNESS WHEREOF, the MAKER has caused this Note to be duly executed at
Oakland, California.
/s/ Shirley W. Nelson
---------------------------------------
SHIRLEY W. NELSON
<PAGE>
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 mid-sized businesses and for professionals as well as
individual consumers.
SUMMARY OF EARNINGS
The Company's net income for 1998 was $1,767,392 compared to $1,708,000
in 1997, and $1,412,000 in 1996. The increase in 1998 net income over
1997 is attributed to an increase in investment income. The increase in
1997 net income from 1996 is attributed to an increase in higher yielding
assets brought about by an increase in loans and improved interest
margins. The net income of $1,767,000 for 1998 represents $3.81 per share
earnings, compared to $3.72 per share in 1997 and $3.11 per share in
1996.
<PAGE>
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 45% of the investment portfolio matures in one
year. Regarding loans, approximately 61% of the loans outstanding mature
within one year, while the longest maturity is twenty-five 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 1% mature within one year while 73% 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.
Net interest income for 1998 was $6,458,000, which is slightly higher
than the $6,457,000 posted in 1997 and as compared to $5,439,000 in 1996.
The performance in 1998 was primarily the result of an decrease in the
average prime rate, which decreased from 8.44% in 1997 to 8.37% in 1998.
Average earning assets increased 16.9% from $86,830,000 in 1997 to
$101,531,000 in 1998; average total deposits also increased 17.0% from
$83,091,000 in 1997 to $97,288,000 in 1998, and as compared to
$74,752,000 in 1996. $8,476,000 of the 1998 increase was centered in
interest bearing accounts.
<PAGE>
The increase in 1997 was primarily the result of an increase in the
average prime rate, which increased from 8.25% in 1996 to 8.44% in 1997.
Average earning assets increased 11.2% from $78,107,000 in 1996 to
$86,830,000 in 1997; average total deposits also increased 11.2% from
$74,752,000 in 1996 to $83,091,000 in 1997, and as compared to
$68,492,000 in 1995. $4,475,000 of the 1997 increase was centered in
interest bearing accounts.
Average loans outstanding decreased by 4.5% in 1998 to $55,299,000 as
compared to $57,906,000 in 1997 and $48,355,000 in 1996. Average
outstanding investments increased 59.8% to $46,232,000 in 1998 as
compared to $28,924,000 in 1997 and $29,989,000 in 1996. The average
loan to deposit ratio decreased in 1998 to 56.8% as compared to 69.7% in
1997 and 65.2% in 1996. The yield on average earning assets was 8.6% in
1998 as compared to 9.7% in 1997 and 9.3% in 1996.
Interest expense increased 16.9% to $2,267,000 in 1998 from $1,940,000 in
1997 and $1,938,000 in 1996. Average interest-bearing deposits increased
14.7% in 1998 to $65,987,000 as compared to $57,512,000 in 1997 and
$52,715,000 in 1996 and were primarily centered in the time certificates
of deposit. Average non-interest bearing deposits increased 23.3% in
1998 to $31,300,000 as compared to $25,579,000 in 1997 and $22,037,000 in
1996. Overall cost of funds in 1998 was 2.3% as compared to 2.6% in 1997
and 2.5% in 1996.
NON-INTEREST INCOME AND EXPENSE
Non-interest income, consisting primarily of service charges on deposit
accounts, and other customer fees and charges including rents, was
$596,000 in 1998, a increase from $516,000 in 1997, and a increase from
$539,000 in 1996. Total service charge income from deposit accounts
increased by 14.4% from $304,000 in 1997 to $348,000 in 1998, while total
income from other charges increased 7.4% from $211,000 in 1997 to
$247,000 in 1998.
The deposit income increase in 1998 was the result of increases in
service charges related to return check charges.
<PAGE>
The increase in other income charges in 1998 was related to the sale of
other real estate owned.
The deposit income decrease in 1997 resulted primarily from a decrease in
service charges related to analysis, which were $12,000 less than 1996
receipts. The decrease in other income charges in 1997 was related to a
$14,000 decrease in wire transfer fees.
Non-interest expenses increased 4.5% to $3,908,000 in 1998, from
$3,738,000 in 1997 and $3,408,000 in 1996. Salary expense increased 6.5%
from $2,111,000 in 1997 to $2,249,000 in 1998, and was due to normal
staffing needs and the first full year of operations of our Pleasanton
office. In addition, business development and entertainment expense
decreased from $111,000 in 1997 to $102,000 in 1998. Foreclosures and
OREO expense decreased from $129,000 to $19,000, primarily due to the
sale of the largest other real estate owned properties. In addition,
consulting fees decreased from $84,000 in 1997 to $49,000 in 1998.
postage expense also decreased from $56,000 in 1997 to $42,000 in 1998.
Non-interest expenses increased 9.6% to $3,738,000 in 1997, from
$3,408,000 in 1996 and $3,355,000 in 1995. Salary expense increased 12.4%
from $1,878,000 in 1996 to $2,111,000 in 1997, and was due to normal
staffing needs and an increase in profit sharing and 401(k)
contributions. In addition, business development and entertainment
expense increased from $78,000 in 1996 to $111,000 in 1997, which was due
to an aggressive sales program. Foreclosures and OREO expense increased
from $85,000 to $129,000, primarily due to a write down of $75,000 on one
of the Bank's properties. Marketing expense increased from $8,000 in
1996 to $46,000 in 1997, primarily due to changes in the Bank's marketing
brochures. This was also a primary factor in the increase in postage
expense from $37,000 in 1996 to $56,000 in 1997. Offsetting these
increases were decreases in audit and accounting expenses, which went
from $46,000 in 1996 to $39,000 in 1997. In addition, consulting fees
decreased from $99,000 in 1996 to $84,000 in 1997. Legal expenses also
decreased from $127,000 in 1996 to $41,000 in 1997.
<PAGE>
The Bank's allowance for loan losses as a percent of loans was 2.5% and
2.0% as of December 31, 1998 and 1997, respectively. The average in the
industry for banks our size is approximately 1.77%. Total gross loans
charged off in 1998, was $51,000 compared to $105,000 in 1997 and $83,000
in 1996.
PROVISION FOR INCOME TAXES
The provision for income taxes reflects a combined Federal and California
effective tax rate of 42% in 1998, compared to 42.4% in 1997 and 41.2% in
1996, as described in Note 6 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
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, 1998 the Company had 26,000,000 in cash and cash
equivalents compared to $21,574,000 as of December 31, 1997, and
$21,169,000 as of December 31, 1996. The ratio of net loans to deposits
as of December 31, 1998 was 48.2% compared to 67.3% as of December 31,
1997, and 63.9% as of December 31, 1996.
The Bank maintains a portion of its assets in loans, time deposits with
other financial institutions and investments with short-term maturities.
More specifically, loans, time deposits with other financial institutions
and investments due within one year totaled $67,643,000 at December 31,
1998, $46,590,000 at December 31, 1997, as compared to $56,323,000 at
December 31, 1996. This is equivalent to 54.3%, 44.6% and 60.6% of total
assets at the corresponding year-ends, respectively. During 1998, the
Company repurchased 1,150 shares of its common stock for a total price of
$55,370. The Company plans to continue its repurchase program as an
additional avenue for liquidity for its shareholders as long as it is
<PAGE>
economically appropriate to do so. The program has not affected the
Company's liquidity or capital positions or its ability to operate. 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 8.4% 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 healthcare
professionals.
NON-PERFORMING ASSETS
The decrease in non-performing assets from December 31, 1997, to December
31, 1998 is due primarily to the sale of a large other real estate owned
property. The increase in loans 90 days or more past due and still
accruing and non-accrual loans are being monitored appropriately. At
December 31, 1998, four loans were on non-accrual status.
<PAGE>
IMPACT OF YEAR 2000
Many computer systems and software products now in use around the world
experience problems handling dates beyond the year 1999 and will need to
be modified before the year 2000 in order to remain functional. As a
result, before the year 2000, computer systems and/or software products
and applications used by many companies may need to be upgraded to comply
with such year 2000 requirements.
The Company is currently expending resources to review its internal
systems, products and the readiness of third parties with whom it has
business relationships and has assigned a dedicated task force to develop
and implement a year 2000 plan (the "Plan") which is designed to cover
all of the Company's activities. The Plan, which has executive
sponsorship, is reviewed regularly by senior management and the Board of
Directors and includes the evaluations of both information technology
("IT") and non-IT systems, consists of five steps.
Step one involved increasing awareness by educating and involving the
Board of Directors and all levels of management, and all employees
regarding the need to address year 2000 issues. Step two consisted of
identifying all of the Company's systems, products and relationships that
may be impacted by year 2000. Step three involved determining the
Company's current state of year 2000 readiness for those areas identified
in step two and prioritizing areas that need to be fixed. Step four
consisted of developing a plan for those areas identified as needing
<PAGE>
correction. Step five consists of the implementation and execution of
the Company's Plan and completing the steps identified to attain year
2000 readiness. The company is currently executing step five. The
Company has upgraded all of its IT and non-IT systems and has tested the
majority of these systems. Based on the Company's assessment to date, it
believes that all of the Company's internal IT and non-IT systems that
have been tested are year 2000 compliant.
The Company believes that any modifications deemed necessary will be made
on a timely basis and does not believe that the cost of such
modifications will have a material effect on the Company's operating
results. To date, the Company's costs related to the year 2000 issues
have amounted to approximately $85,000 and the Company does not expect
the aggregate amount spent on the year 2000 to exceed $125,000. The
Company is currently preparing a contingency plan with respect to year
2000 requirements.
The Company's expectations as to the extent and timeliness of
modifications required in order to achieve year 2000 compliance is a
forward-looking statement subject to risks and uncertainties. Actual
results may vary materially as a result of a number of factors,
including, among others, those described above in this section. There
can be no assurance that unexpected delays or problems, including the
failure to ensure year 2000 compliance by systems or products supplied to
the Company by third parties, will not have an adverse effect on the
Company, its financial performance and results of operations. In
addition, the Company cannot predict the effects of the year 2000 issue
<PAGE>
on its customers or the resulting effects on the Company. As a result,
if such customers do not take preventative and/or corrective actions in a
timely manner, the year 2000 issue could have an adverse effect on their
operations and accordingly have a material adverse effect on the
Company's business, financial condition and results of operations.
Furthermore, the Company's current understanding of expected costs is
subject to change as the project progresses and does not include the cost
of internal software and hardware replaced in the normal course of
business whose installation otherwise may be accelerated to provide
solutions to the year 2000 compliance issues.
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 a 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.
MARKET PRICE OF THE COMPANY'S STOCK AND DIVIDENDS
According to the Company's records, there were 290 record holders of its
stock on December 31, 1998. The following table reflects the cash
<PAGE>
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
1998 HIGH LOW DECLARED
- ---- ---- --- --------
<S> <C> <C> <C>
First Quarter 61 53 $ --
Second Quarter 55 52-7/8 .75
Third Quarter 51-1/2 48 --
Fourth Quarter 50-1/2 46 .75
Total $ 1.50
1997
- ----
First Quarter 61-3/4 32-3/4 $ --
Second Quarter 37-1/2 33-1/8 .75
Third Quarter 47 37 --
Fourth Quarter 56 43 .75
Total $ 1.50
</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.
<PAGE>
MARKET MAKERS
Justin S. Mazzon
American Blue Chip
Investment Management
700 Larkspur Landing Circle
Larkspur, CA 94939
(415) 925-4322
L. Jack Block
Senior Vice President
Van Kasper & Company
600 California Street, Ste #1700
San Francisco, CA 94108-2704
(415) 954-0689
<PAGE>
Exhibit 21
<TABLE>
<CAPTION>
OPTIONS-FULLY
-
USE HIGHER OF YEAR END PRICE OR
AVERAGE PRICE
YEAR END PRICE/QTR END 46.000
AVERAGE 50.000
PRICE
<C>
USE YEAR END PRICE OF 46.000 16301.34
-
NO OF YEAR END OPTION NO OF
SHARES PRICE PRICE SHARES
<S> <C> <C> <C> <C>
- - - -
MZ 2900.00 46.000 13.50 2,049
SN 8333.00 46.000 12.00 6,159
TW 400.00 46.000 12.25 293
SN 978.00 46.000 13.25 696
DD 2500.00 46.000 13.00 1,793
MZ 1045.00 46.000 13.00 750
AC 400.00 46.000 13.00 287
SN 4000.00 46.000 17.75 2,457
MZ 2000.00 46.000 17.75 1,228
DD 1000.00 46.000 17.75 614
AC 100.00 46.000 17.75 61
EA 2000.00 46.000 48.00 (87)
TOTAL SHARES 4TH QUARTER 467,701 451,598.66
TOTAL SHARES YEAR-TO-DATE 463688.27 447386.93
NET INCOME 4TH QUARTER $451,113 $451,113
NET INCOME YEAR TO DATE, 1998 $1,767,392 $1,767,392
EARNINGS PER SHARE 4TH QUARTER $0.965 $0.999
EARNINGS PER SHARE, YTD $3.812 $3.951
</TABLE>
<PAGE>
SUMMIT EQUITIES, INC.
(PARENT COMPANY ONLY)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
<S> <C>
ASSETS
CASH $10,864.21
TOTAL ASSETS $10,864.21
----------
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 $ 864.21
PROFIT/LOSS YEAR-TO-DATE $ 0.00
-------------
$ 10,864.21
TOTAL SHAREHOLDERS EQUITY $ 10,864.21
TOTAL LIABILITIES &
SHAREHOLDERS EQUITY $ 10,864.21
-------------
-------------
</TABLE>
SUMMIT EQUITIES, INC.
- --------------------------------------------------------------------------------
<PAGE>
(PARENT COMPANY ONLY)
<TABLE>
<S> <C> <C>
INCOME
INTEREST INCOME - MMA & TCD $0.00
INTEREST INCOME - LOANS $0.00
OTHER INCOME $0.00
-----
TOTAL INCOME $0.00
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 $0.00
-----
PROVISION FOR TAXES
FEDERAL INCOME TAX PROVISION $0.00
STATE INCOME TAX PROVISION $0.00
TOTAL TAX PROVISION $0.00
-----
-----
NET INCOME $0.00
-----
</TABLE>
<PAGE>
Exhibit 23
[Letterhead of PricewaterhouseCoopers LLP]
Consent of Independent Accountants
March 31, 1999
We consent to the incorporation by reference in this Form S-8 of our report
dated January 27, 1999 on our audits of the consolidated financial statements
of Summit Bancshares, Inc. as of December 31, 1998 and 1997 and for the three
year period then ended, appearing in the Annual Report on Form 10K of Summit
Bancshares, Inc. for 1998.
/s/ PricewaterhouseCoopers LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 8,126
<INT-BEARING-DEPOSITS> 24,135
<FED-FUNDS-SOLD> 18,640
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 15,500
<INVESTMENTS-MARKET> 15,486
<LOANS> 53,013
<ALLOWANCE> 1,319
<TOTAL-ASSETS> 124,656
<DEPOSITS> 109,889
<SHORT-TERM> 0
<LIABILITIES-OTHER> 678
<LONG-TERM> 0
0
0
<COMMON> 3,829
<OTHER-SE> 14,088
<TOTAL-LIABILITIES-AND-EQUITY> 124,656
<INTEREST-LOAN> 6,149
<INTEREST-INVEST> 2,576
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 8,725
<INTEREST-DEPOSIT> 2,267
<INTEREST-EXPENSE> 2,267
<INTEREST-INCOME-NET> 6,458
<LOAN-LOSSES> 100
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,909
<INCOME-PRETAX> 3,045
<INCOME-PRE-EXTRAORDINARY> 3,045
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,767
<EPS-PRIMARY> 3.95
<EPS-DILUTED> 3.81
<YIELD-ACTUAL> 10.91
<LOANS-NON> 651
<LOANS-PAST> 662
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,238
<CHARGE-OFFS> 51
<RECOVERIES> 33
<ALLOWANCE-CLOSE> 1,319
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,319
</TABLE>
