<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED: SEPTEMBER 30, 1999
COMMISSION FILE NUMBER: 0-11108
SUMMIT BANCSHARES, INC.
STATE OF CALIFORNIA I.R.S. IDENTIFICATION
NUMBER 94-2767067
2969 BROADWAY, OAKLAND CALIFORNIA 94611
(510) 839-8800
Indicate by the check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
The number of shares outstanding of the registrant's common stock was 455,438
shares of no par value common stock issued as of September 30, 1999
1
<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1 PAGE
<S> <C>
SUMMIT BANCSHARES, INC. AND SUBSIDIARY FINANCIAL STATEMENTS
Consolidated Balance Sheets .................................... 3
Consolidated Statements of Income .............................. 4
Consolidated Statement of Cash Flows ........................... 5
Consolidated Statement of Changes in Shareholders' Equity ...... 6
Notes to Financial Statements .................................. 7-8
Interest Rate Risk Reporting Schedule .......................... 10
ITEM 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................ 11-19
PART II - OTHER INFORMATION
ITEMS 1-6 ...................................................... 20-21
</TABLE>
2
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF
FINANCIAL POSITION SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS 09/30/99 12/31/98
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 5,499,375 $ 8,126,067
Federal funds sold 11,335,000 18,640,000
----------------- -----------------
Cash and cash equivalents 16,834,375 26,766,067
Time deposits with other financial institutions 28,087,690 24,135,487
Investment securities (fair value of $20,336,862 at
September 30, 1999 and $15,489,100 at
December 31, 1998 ) held to maturity 20,465,718 15,499,670
Loans, net of allowance for loan losses of
$ 1,332,348 at September 30, 1999 and
$ 1,319,451 at December 31, 1998 52,822,891 53,013,148
Other real estate owned 422,845 212,262
Premises and equipment, net 854,405 976,388
Interest receivable and other assets 4,779,713 4,052,554
------------------ ----------------
Total Assets $124,267,637 $124,655,576
-================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand $ 36,464,354 $ 38,076,664
Interest-bearing transaction accounts 39,161,027 35,350,967
Savings 3,023,819 2,135,736
Time certificates $100,000 and over 21,968,039 26,147,116
Other time certificates 7,321,416 8,178,876
------------------ ----------------
Total Deposits 107,938,655 109,889,359
Interest payable and other liabilities 1,357,296 677,802
------------------ ----------------
Total Liabilities 109,295,952 110,567,161
SHAREHOLDERS' EQUITY
Preferred Stock, no par value:
2,000,000 shares authorized, no shares outstanding 0 0
Common Stock, no par value:
3,000,000 shares authorized;
455,438 shares outstanding at September 30, 1999 and
452,684 shares outstanding at December 31, 1998 3,709,178 3,829,340
Retained Earnings 11,262,507 10,259,075
------------------ ----------------
Total Shareholders' Equity 14,971,685 14,088,415
Total Liabilities and Shareholders' Equity $124,267,637 $124,655,576
================== ================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
3
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF
INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED 9-30-99 ENDED 9-30-98 ENDED 9-30-99 ENDED 9-30-98
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $1,401,276 $1,494,579 $ 4,212,942 $ 4,637,926
Interest on time deposits with
other financial institutions 383,542 128,126 1,127,012 311,401
Interest on U.S. government
treasury securities 242,717 197,020 592,505 574,862
Interest on federal funds sold 247,905 403,006 560,455 891,124
-------------------- --------------------- --------------------- -------------------
Total interest income 2,275,439 2,222,731 6,492,914 6,415,313
INTEREST EXPENSE:
Interest on deposits 572,567 605,167 1,695,011 1,622,908
-------------------- --------------------- --------------------- -------------------
Total interest expense 572,567 605,167 1,695,011 1,622,908
-------------------- --------------------- --------------------- -------------------
Net interest income 1,702,872 1,617,564 4,797,903 4,792,405
Provision for loan losses - - - 100,000
-------------------- --------------------- --------------------- -------------------
Net interest income after
provision for loan losses 1,702,872 1,617,564 4,797,903 4,692,405
NON-INTEREST INCOME:
Service charges on deposit accounts 106,113 115,837 337,296 348,861
Other customer fees and charges 1,720 21,079 90,602 50,991
-------------------- --------------------- --------------------- -------------------
Total non-interest income 107,833 136,916 427,899 399,852
NON-INTEREST EXPENSE:
Salaries and employee benefits 602,019 589,643 1,668,267 1,608,950
Occupancy expense 99,969 103,257 305,904 305,341
Equipment expense 68,337 65,147 192,573 166,275
Other 251,622 227,039 745,003 747,488
-------------------- --------------------- --------------------- -------------------
Total non-interest expense 1,021,946 985,086 2,911,746 2,828,054
Income before income taxes 788,759 769,394 2,314,056 2,264,204
Provision for income taxes 329,188 324,863 966,489 948,156
-------------------- --------------------- --------------------- -------------------
Net Income $459,571 $444,531 $1,347,567 $1,316,048
==================== ===================== ===================== ===================
EARNINGS PER SHARE:
Earnings per common share $1.01 $1.01 $2.95 $3.01
Earnings per common
assuming dilution share $0.99 $0.95 $2.90 $2.80
Weighted average shares outstanding 455,755 438,035 456,755 437,636
Weighted avg. shrs. outsdg.
assuming dilution 464,556 469,973 465,172 469,574
==================== ===================== ===================== ===================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
4
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF
CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED 9-30-99 ENDED 9-30-98
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 6,054,499 $ 6,050,029
Fees received 811,460 706,317
Interest paid (1,686,735) (1,623,415)
Cash paid to suppliers and employees (2,713,514) (2,717,211)
Income taxes paid (820,000) (1,049,365)
--------------------- ----------------------
Net cash provided by operating activities 1,645,710 1,366,355
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in time deposits with
other financial institutions (3,952,203) (8,301,742)
Maturity of investment securities 7,499,670 10,997,392
Purchase of investment securities (12,465,718) (12,000,000)
Net (increase) decrease in loans to customers 621,172 6,679,776
Recoveries on loans previously charged-off 22,792 31,462
(Increase) decrease in premises and equipment (73,065) (337,513)
--------------------- ----------------------
Net cash provided by (used in) investing activities (8,347,352) (2,930,625)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in demand, interest
bearing transaction, and savings deposits 3,085,833 7,103,821
Net increase (decrease) in time deposits (5,036,536) 7,637,736
(Increase) decrease in other assets (815,049) (2,184,089)
Exercise of stock options 90,000 18,755
Repurchase of common stock (decrease) (210,163) (6,270)
Dividends paid (decrease) (344,135) (338,891)
--------------------- -----------------------
Net cash provided by (used in) financing activities (3,230,050) 12,231,062
--------------------- ----------------------
Net increase (decrease) in cash and cash equivalents (9,931,692) 10,666,792
Cash and cash equivalents at the
beginning of the year 26,766,067 21,574,015
--------------------- ----------------------
Cash and cash equivalents at the end of the year $ 16,834,375 $ 32,240,807
--------------------- ----------------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net Income $ 1,347,567 $ 1,316,047
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 196,727 178,938
Provision for loan losses and OREO losses 0 100,000
(Increase) decrease in interest receivable (122,691) (31,434)
Increase (decrease) in unearned loan fees 67,837 (27,385)
Increase (decrease) in accrued interest pay 8,276 (507)
(Increase) decrease in prepaid expenses (48,242) (85,872)
Increase (decrease) in accounts payable 49,747 17,777
Increase (decrease) in income taxes payable 146,489 (101,209)
--------------------- ----------------------
298,143 50,308
--------------------- ----------------------
Net cash provided by operating activities $1,645,710 $ 1,366,355
--------------------- ----------------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
5
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES COMMON RETAINED
OUTSTANDING STOCK EARNINGS TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998 452,684 $3,829,341 $10,259,075 14,088,416
Stock Options Exercised 7,500 90,000 0 90,000
Repurchase of Common Stock (4,746) (210,163) 0 (210,163)
Issuance of cash dividends of $.75
per share 0 0 (344,135) (344,135)
Net Income 0 0 1,347,567 1,347,567
Balance at September 30, 1999 455,438 3,709,178 11,262,507 14,971,685
Balance at December 31, 1997 436,565 3,709,145 9,169,524 12,878,669
Stock Options Exercised 15,700 159,875 - 159,875
Repurchase of Common Stock (110) (6,270) 0 (6,270)
Issuance of cash dividends of $.75
per share 0 0 (338,891) (338,891)
Net Income 0 0 1,316,048 1,316,048
Balance at September 30, 1998 452,155 3,862,750 10,146,681 14,009,431
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the unaudited interim consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position at September 30,
1999 and the results of operations for the nine months ended September 30, 1999
and 1998 and cash flows for the nine months ended September 30, 1999 and 1998.
Certain information and footnote disclosures presented in the
Corporation's annual consolidated financial statements are not included in these
interim financial statements. Accordingly, the accompanying unaudited interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Corporation's 1998 Annual Report to Shareholders, which is incorporated by
reference in the Company's 1998 annual report on Form 10-K. The results of
operations for the nine months ended September 30, 1999 are not necessarily
indicative of the operating results for the full year.
2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February of 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). The
Bank was required to adopt SFAS 128 in the fourth quarter of 1997 and restated
at that time earnings per share data for prior periods to conform with SFAS 128.
Earlier application is not permitted.
SFAS 128 replaces current earnings per share reporting requirements and requires
a dual presentation of basic and diluted earnings per share. Earnings per share
excludes dilution and is computed by dividing net income by the weighted average
common shares outstanding of 455,755 and 438,035 during the nine months ended
September 30, 1999 and 1998, respectively. Diluted earnings per share reflects
the potential dilution that could occur if common shares were issued pursuant to
the exercise of options under the Bank's Stock Option Plans. Diluted earnings
per share under SFAS 128 would not have been significantly different than
primary earnings per share currently reported for the periods.
7
<PAGE>
In June of 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income", which
establishes standards for reporting and display of comprehensive income and its
components; and No. 131, "Disclosures about Segments of an Enterprise and
Related Information", which establishes annual and interim reporting standards
for an enterprise's operating segments and related disclosures about its
products, services, geographic areas, and major customers. Adoption of these
statements will not impact the Bank's consolidated financial position, results
of operations or cash flows, and any effect will be limited to the form and
content of its disclosures. Both statements are effective in 1999, with earlier
application permitted.
8
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
The registrant, Summit Bancshares, Inc. (the "Company") is a bank holding
company whose only operating subsidiary is Summit Bank (the "Bank"). The
following discussion primarily concerns the financial condition and results of
operations of the Company on a consolidated basis including the subsidiary Bank.
All adjustments made in the compilation of this information are of a normal
recurring nature.
FINANCIAL CONDITION
LIQUIDITY MANAGEMENT
The consolidated loan-to-deposit ratio at September 30, 1999 was 48.9% which was
a decrease from 51.4% for the same period in 1998. Total outstanding loans as of
September 30, 1999 decreased $1,288,000 compared to the same period a year ago
while total deposits increased $2,765,000 versus the same time last year. The
decrease in loans was mainly due to Summit maintaining it's lending standards
during a period of increased competition that resulted in a lowering of lending
standards throughout the marketplace. The increase in deposits is mainly due to
Bank's effort in marketing its products. The average loan-to-deposit ratio for
the third quarter of 1999 was 45.9%, a decrease from 49.5% for the same period
last year. This decrease was caused by an increase in average total deposits of
$10,830,000 or 10.8% while average total loans decreased $1,309,000 or 2.5%.
Management continues to seek growth and acquisition of quality credits.
Net liquid assets, which consists primarily of cash, due from banks,
interest-bearing deposits with other financial institutions, investment
securities and federal funds sold totaled $65,388,000 on September 30, 1999.
This amount represented 60.6% of total deposits in comparison to the liquidity
ratio of 56.8% as of September 30, 1998. This increase is primarily a result of
a decline in loan growth and an increase in deposits. It is management's belief
that the current liquidity level is appropriate given current economic
conditions and is sufficient to meet current needs.
9
<PAGE>
The Company is not aware of any current recommendations by the regulatory
authorities, which, if they were implemented, would have a material effect on
the Company.
The following table sets forth book value of investments by category and the
percent of total investments at the dates specified.
INVESTMENT COMPARATIVE
($000.00 Omitted)
<TABLE>
<CAPTION>
9-30-99 % 12-31-98 % 9-30-98 %
<S> <C> <C> <C> <C> <C> <C>
Fed funds sold $11,335 19% $18,640 32% $26,740 49%
Interest bearing
deposits 28,087 47% 24,135 41% 13,946 26%
Securities 20,465 34% 15,500 27% 13,499 25%
</TABLE>
Interest bearing deposits are comprised of Time Certificates of Deposit with
other banks and savings and loan institutions with no more than $100,000 in any
institution.
Securities on September 30, 1999 were comprised of U.S. Gov't agencies.
CHANGES IN FINANCIAL POSITION
As of September 30, 1999, total deposits increased $1,951,000 from December 31,
1998 while at the same time total loans outstanding decreased $190,000. Total
deposits as of September 30, 1999 were $107,939,000, an increase of 2.6% from
$105,173,000 as of September 30, 1998. Total loans as of September 30, 1999 were
$52,823,000, a decrease of 2.38% from $54,111,000 as of September 30, 1999.
The following table sets forth the amount of deposits by each category and the
percent of total deposits at the dates specified.
DEPOSIT COMPARATIVE
($000.00 Omitted)
<TABLE>
<CAPTION>
9-30-99 % 12-31-98 % 9-30-98 %
<S> <C> <C> <C> <C> <C> <C>
Demand $36,464 34% $38,076 35% $36,466 35%
Savings 3,024 3% 2,136 2% 2,986 3%
Interest bearing 39,161 36% 35,351 32% 33,991 32%
Trans. Deposits
Other time 29,290 27% 34,326 28% 31,730 30%
</TABLE>
10
<PAGE>
The following table sets forth the amount of loans outstanding by each category
and the percent of total loans outstanding at the dates specified.
LOAN COMPARATIVE
($000.00 Omitted)
<TABLE>
<CAPTION>
9-30-99 % 12-31-98 % 9-30-98 %
<S> <C> <C> <C> <C> <C> <C>
Commercial $30,343 56% $38,335 71% $40,767 74%
Real estate-const 7,204 13% 5,060 9% 4,429 8%
Real estate-other 9,709 18% 5,751 11% 5,512 10%
Installment/other 6,899 8% 5,187 9% 4,721 8%
</TABLE>
NON-PERFORMING ASSETS
The following table provides information with respect to the subsidiary Bank's
past due loans and components for non-performing assets at the dates indicated.
NON-PERFORMING ASSETS
($000.00 Omitted)
<TABLE>
<CAPTION>
9-30-99 12-31-98 9-30-98
<S> <C> <C> <C>
Loans 90 days or more past
due & still accruing $ 6 $ 662 $ 0
Non-accrual loans 271 651 406
Other real estate owned 422 212 1,359
------ ------ ------
Total non-performing assets $ 699 $1,525 $1,765
====== ====== ======
Non-performing assets to
period end loans plus
other real estate owned 1.31% 2.81% 3.11%
Allowance to non-performing
loans 481% 100% 325%
Allowance to non-performing
assets 190% 86% 75%
</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
11
<PAGE>
delinquent 90 days as to principal or interest are placed on a non-accrual
basis, unless they are well secured and in the process of collection, and any
interest earned but uncollected is reversed from income. Collectibility is
determined by considering the borrower's financial condition, cash flow, quality
of management, the existence of collateral or guarantees and the state of the
local economy.
Other real estate owned ("OREO")is comprised of properties acquired through
foreclosure. These properties are carried at the lower of the recorded loan
balance or their estimated fair market value based on appraisal. When the loan
balance plus accrued interest exceeds the fair value of the property, the
difference is charged to the allowance for loan losses at the time of
acquisition. Subsequent declines in value from the recorded amount, if any, and
gains or losses upon disposition are included in noninterest expense. Operating
expenses related to other real estate owned are charged to non-interest expense
in the period incurred.
The decrease in non-performing assets from September 30, 1998 to September 30,
1999 is due primarily to a decrease in non-accrual loans of $135,000 and a
decrease of $937,000 in OREO. Of the $271,000 total non accrual loans in 1999,
$129,000 is guaranteed by Small Business Administration.
The total OREO amount, $422,000, is related to one property that is located in
Contra Costa County. This property is currently under contract to be sold, and
is expected to be liquidated before the end of the year.
12
<PAGE>
CAPITAL POSITION
As of September 30, 1999, Shareholders' Equity was $14,972,000. This represents
an increase of $1,103,000 or 8.0% over the same period last year. Since the
inception of the repurchase program in 1989, the Company has authorized the
repurchase of $3,500,000 of its stock. As of September 30, 1999, the Company has
repurchased a total of 164,658 shares of the Company stock constituting 30.6% of
the Company's original stock prior to the repurchase program, at a total cost of
$2,572,700, or an average price per share of $15.62. The Company plans to
continue its repurchase program as an additional avenue for liquidity for its
shareholders. The program has not affected the Company's liquidity or capital
position or its ability to operate as the Company's capital growth has exceeded
its asset growth. In addition, the Company's subsidiary Bank remains more than
well-capitalized under current regulations.
The following table shows the risk-based capital and leverage ratios as well as
the minimum regulatory requirements for the same as of September 30, 1999:
<TABLE>
<CAPTION>
Capital Ratio Minimum
Regulatory requirement
<S> <C> <C>
Tier 1 Capital 20.49% 4.00%
Total Capital 21.72% 8.00%
Leverage Ratio 11.77% 3.00%
</TABLE>
The Company is not aware of any current recommendations by the regulatory
authorities which if they were implemented would have a material effect on the
Company.
13
<PAGE>
INTEREST RATE SENSITIVITY/INTEREST RATE RISK ANALYSIS
The following table provides an interest rate sensitivity and interest rate
risk analysis for the quarter ended September 30, 1999. 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: 9-30-99
REMAINING TIME BEFORE MATURITY OR INTEREST RATE ADJUSTMENT
<TABLE>
<CAPTION>
($000.00)
OMITTED UP > 3Mo. > 1Yrs. > 3Yrs. > 5Yrs. OVER
TOTAL 3 Mo. < 1Yrs. < 3Yrs. < 5Yrs. < 10Yrs. 10 YEARS
<S> <C> <C> <C> <C> <C> <C> <C>
I. EARNING ASSETS
A. INVESTMENTS:
1. U. S. TREASURIES $0 $0 $0 $0 $0 $0 $0
2. U. S. AGENCIES 20,466 1,000 2,000 17,466 0 0 0
3. FED FUNDS SOLD 11,335 11,335 0 0 0 0 0
4. PURCHASED CDS 28,088 5,249 9,776 13,062 0 0 0
--------- ------- -------- -------- ------- ------- --------
TOTAL INVESTMENTS $59,889 $17,584 $11,776 $30,528 $0 $0 $0
B. LOANS $52,651 $48,385 $1,541 $500 $2,225 $0 $0
--------- ------- -------- -------- ------- ------- --------
TOTAL LOANS $52,651 $48,385 $1,541 $500 $2,225 $0 $0
C. TOTAL EARNING ASSETS $112,540 $65,969 $13,317 $31,028 $2,225 $0 $0
II. COST OF FUNDS (DEPOSITS)
A. CERTIFICATE OF DEPOSITS $29,290 $19,771 $9,448 $71 $0 $0 $0
B. MONEY MARKET ACCOUNTS 37,123 5,062 14,273 17,788 0 0 0
C. TRANSACTION ACCOUNTS 5,135 220 660 1,741 1,252 1,262 0
D. SAVINGS ACCOUNTS 3,024 130 389 1,025 737 743 0
--------- ------- -------- -------- ------- ------- --------
TOTAL COST OF FUNDS $74,572 $25,183 $24,770 $20,625 $1,989 $2,005 $0
III. INTEREST SENSITIVE ASSETS $112,540 $65,969 $13,317 $31,028 $2,225 $0 $0
IV. INTEREST SENSITIVE LIABILITIES $74,572 $25,183 $24,770 $20,625 $1,989 $2,005 $0
--------- ------- -------- -------- ------- ------- --------
V. GAP $37,968 $40,786 ($11,453) $10,403 $236 ($2,005) $0
VI. CUMULATIVE GAP $37,968 $40,786 $29,333 $39,736 $39,972 $37,967 $37,967
VII. GAP RATIO 1.51 2.62 0.54 1.50 1.12 0.00 0.00
VIII. CUMULATIVE RATIO 1.51 2.62 1.59 1.56 1.55 1.51 1.51
IX. GAP AS A % OF TOTAL ASSETS 31.04 33.34 -9.36 8.50 0.19 -1.64 0.00
X. CUMULATIVE GAP AS A % OF 31.04 33.34 23.98 32.48 32.67 31.04 31.04
TOTAL ASSETS
</TABLE>
14
<PAGE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
Total interest income including loan fees increased from $6,415,000 for the
first nine months of 1998 to $6,493,000 for the same period in 1999. Although
loan income decreased, the increase in deposits caused an increase in investment
income. Loan fees showed a decrease of $18,000 compared to the same period last
year reflective of the decrease in loan growth. The yield on loans and fees
decreased 53 basis points over the same period last year. The increase in
interest income from investments was due to an increase in volume as the yield
decreased 50 basis points compared to the same period in 1998. Average total
investments was $16,868,000 higher than the same period last year due to deposit
growth.
Interest expense increased from $1,623,000 at the end of the first nine months
of 1998 to $1,695,000 in 1999. This increase was due to an increase in average
interest-bearing deposit accounts of $6,001,000 during the first nine months of
1999 versus the same period last year. The average cost of funds for the period
ending September 30, 1999 was 15 basis points less than the same period last
year. As a result of these factors, net interest margin for the first nine
months of 1999 was 6.52% compared to 5.79% for the same period last year.
For the third quarter, total interest income including loan fees increased
from $2,223,000 in 1998 to $2,275,000 for the same period in 1999. This
increase is due to an increase in securities income. Average loan volume for
the third quarter of 1999 showed a decrease of $1,309,000 from the same
period last year. Yield on loans for the third quarter of 1999 was 10.86%
compared to 11.29% for the same period last year. For the third quarter of
1999, total interest income on investments increased $146,000. This increase
was attributable to an average investment volume increase of $13,118,000, along
with an interest yield decrease from 5.56% in the third quarter of 1998 to
5.33% for the same period in 1999.
15
<PAGE>
For the third quarter of 1999, interest expense decreased $33,000 compared to
the same period in 1998. Average outstanding interest bearing deposits increased
from $69,000,000 in the third quarter of 1998 to $76,000,000 in the third
quarter of 1999. Average cost of funds for the same period was 2.99% in 1999
compared to 3.46% in 1998. As a result of these factors, net interest income for
the third quarter of 1999 increased $85,000, or 5.27%, compared to the same
period in 1998.
OTHER OPERATING INCOME
Service charges on deposit accounts as of the end of the first nine months of
1999 decreased to $337,000 versus $349,000 for the same period in 1998. The
decrease was due to decreased fees collected in service charges related to the
collection of NSF fees on commercial accounts.
Service charges on deposit accounts for the third quarter of 1999 increased
$9,700 compared to the same period last year due to increased collection of fees
associated with the collection of NSF fees on commercial accounts. Other
customer fees and charges decreased $19,300 for the present quarter due to the
loss of rental income.
LOAN LOSS PROVISION
The allowance for loan losses is maintained at a level that management of the
Company considers to be adequate for losses that can be reasonably anticipated.
The allowance is increased by charges to operating expenses and reduced by
net-charge-offs. The level of the allowance for loan losses is based on
management's evaluation of potential losses in the loan portfolio, as well as
prevailing and anticipated economic conditions.
16
<PAGE>
Management employs a systematic methodology on a monthly basis to determine the
adequacy of the allowance for current and future loan losses. Each loan is
graded at the time of extension or renewal by the credit administrator. Gradings
are assigned a risk factor which is calculated to assess the adequacy of the
allowance for loan losses. Further, management considers other factors such as
overall portfolio quality, trends in the level of delinquent and classified
loans, specific problem loans, and current and anticipated economic conditions.
The following table summarizes the activity in the Bank's allowance for credit
losses for the nine months ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------
(000.00 Omitted)
9/30/99 9/30/98
<S> <C> <C>
Balance, beginning of the period 1,319 1,238
Provision for loan losses 0 100
Recoveries 28 31
Loans Charged-off (15) (51)
------- -------
1,332 1,318
</TABLE>
The balance in the allowance for loan losses at September 30, 1999 was 2.46% of
total loans compared to 2.38% of total loans at September 30, 1998.
OTHER OPERATING EXPENSES
Total other operating expenses increased $84,000 as of the end of the first
nine months of 1999 compared to the same period last year. This increase was
primarily due to an increase in staff expense and the purchase of fixed
assets to our LAN/WAN system.
For the third quarter of 1999, operating expenses increased $37,000 compared to
the same period last year primarily due to the items previously mentioned.
17
<PAGE>
PROVISION FOR INCOME TAXES
The Company's provision for income taxes as of the end of the first nine months
of 1999 increased from $948,000 in 1998 to $966,000. This increase is
attributable to increased income from regular business operations. For the same
period in 1999 the Company's total effective tax rate was 41.8% compared to
41.9% in 1998.
For the third quarter of 1999, the provision for income taxes increased $4,000
compared to the third quarter of 1998. The effective tax rate for this period
was 41.7% versus 42.3% for the same period last year.
NET INCOME
Net income for the first nine months of 1999 increased to $1,348,000 from
$1,316,000 for the same period in 1998, or an increase of 2.4%. Third quarter
net income increased $15,000 or 3.38% over the same period last year.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
In regard to the year 2000 issue, the Company has conducted a review of its
computer systems to identify the systems that could be affected and has
developed an implementation plan to resolve the issue. The year 2000 problem is
the result of computer programs being written using two digits rather than four
to define the applicable year. Any of the Company's programs that have time
sensitive software may recognize a date using "00" as the year 1900 rather than
2000. This could result in a major system failure or miscalculations including
but not limited to, a temporary inability to process transactions, send
statements, or engage in similar day to day business activities. The extent of
the potential impact of the Year 2000 Problem is not yet known and if not timely
corrected, it could affect the global economy.
Management has assessed the extent of vulnerability of the Bank's computer
systems to the problem, and expects its year 2000 date conversion project to be
completed on a timely basis.
To date, the Company has completed the testing deemed to be required on the
Bank's computer systems. Included in this process, was an upgrade to the Banker
II system that performs the Bank's core processing. This upgrade has been
installed and tested by several other banks that use the Banker II systems with
no apparent problems.
18
<PAGE>
The Company also replaced the NCR 7770 proof machine with a new POD sorter that
is Y2K compliant. This new sorter is now up and running with no apparent
problems.
During the execution of this project, the Company has incurred internal staff
costs as well as other expenses related to enhancements necessary to prepare the
systems for the year 2000.
The Company believes that, with modifications to existing software and
conversions to new software that have been completed, the Year 2000 problem will
not pose a significant operational problem for the Company. However, because
most computer systems are, by their very nature, interdependent, it is possible
that no-compliant third party computers could impact the Company's computer
systems. Therefore, the Company has taken steps to communicate with the third
parties, such as wire transfer systems, telephone systems, electric companies
and other companies with which it deals to coordinate Year 2000 compliance but
could be adversely affected if it or the unrelated third parties are
unsuccessful. The Company is also assessing the impact, if any, the Year 2000
may have on its large loan (credit risk) and deposit customers.
The expense of the year 2000 project as well as the related potential effect on
the Company's earning is not expected to have a material effect on its financial
position or results of operations. As of September 30, 1999, the costs related
to the Year 2000 project are approximately $65,000. Remaining expenses regarding
Y2K are not expected to be significant as testing and modifications to both
software and hardware are basically complete.
Contingency Plans
Management, in conjunction with its Year 2000 and Disaster Recovery program, has
modified its disaster recovery plans to include the response to a Year 2000
problem in a most likely worst case scenario.
19
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
No material developments from that which was reported in the Form 10-K
dated March 31, 1999 for the year ended December 31, 1998.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUMMIT BANCSHARES, INC.
REGISTRANT
DATE: November 15, 1999 BY: /s/ Shirley W. Nelson
------------------- ------------------------------
SHIRLEY W. NELSON
CHAIRMAN AND CEO
(PRINCIPAL EXECUTIVE OFFICER)
DATE: November 15, 1999 BY: /s/ Kihuo Nakahara
------------------- ------------------------------
KIKUO NAKAHARA
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
The remainder of this page is intentionally left blank
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,499
<INT-BEARING-DEPOSITS> 28,088
<FED-FUNDS-SOLD> 11,335
<TRADING-ASSETS> 20,466
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 20,466
<INVESTMENTS-MARKET> 20,337
<LOANS> 54,155
<ALLOWANCE> 1,332
<TOTAL-ASSETS> 124,268
<DEPOSITS> 107,939
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,357
<LONG-TERM> 0
0
0
<COMMON> 3,709
<OTHER-SE> 11,263
<TOTAL-LIABILITIES-AND-EQUITY> 124,266
<INTEREST-LOAN> 4,213
<INTEREST-INVEST> 2,280
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 6,493
<INTEREST-DEPOSIT> 1,695
<INTEREST-EXPENSE> 1,695
<INTEREST-INCOME-NET> 4,798
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,912
<INCOME-PRETAX> 2,314
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,348
<EPS-BASIC> 2.95
<EPS-DILUTED> 2.90
<YIELD-ACTUAL> 0
<LOANS-NON> 271
<LOANS-PAST> 6
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,319
<CHARGE-OFFS> 15
<RECOVERIES> 28
<ALLOWANCE-CLOSE> 1,332
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,332
</TABLE>
