<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: JUNE 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 458,347 shares of no par value common stock
issued as of JUNE 30, 1999
<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................... 9
ITEM 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations ................ 10-18
PART II - OTHER INFORMATION
ITEMS 1-6 ..................................................... 19-20
</TABLE>
2
<PAGE>
SUMMIT BANKSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF
FINANCIAL POSITION JUNE 30, 1999 AND DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS 06/30/99 12/31/98
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 7,573,026 $ 8,126,067
Federal funds sold 15,168,000 18,640,000
------------ ------------
Cash and cash equivalents 22,741,026 26,766,087
Time deposits with other financial institutions 25,590,487 24,135,487
Investment securities (fair value of $12,865,840 at
June 30, 1999 and $15,489,100 at
December 31, 1998) held to maturity 13,000,000 15,499,670
Loans, net of allowance for loan losses of
$1,314,794, at June 30, 1999 and
$1,319,451 at December 31,1998 53,518,676 53,013,148
Other real estate owned 560,107 212,262
Premises and equipment, net 898,291 976,388
Interest receivable and other assets 7,480,400 4,052,554
------------ ------------
Total Assets $126,788,987 $124,655,576
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Deposits:
Demand $ 42,219,272 $ 38,076,664
Interest-bearing transaction accounts 40,485,687 35,350,967
Savings 2,268,121 2,135,736
Time certificates $100,000 and over 19,836,651 26,147,116
Other time certicficates 6,582,180 8,178,876
------------ ------------
Total Deposits 111,391,911 109,889,359
Interest payable and other liabilies 756,691 877,802
------------ ------------
Total Liabilities 112,148,602 110,587,161
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;
458,347 shares outstanding at June 30,1999 and
452,684 shares outstanding at December 31, 1998 3,837,449 3,829,340
Retained Earnings 10,802,937 10,259,075
------------ ------------
Total Shareholders'Equity 14,640,386 14,088,415
Total Liabilities and Shareholder's Equity $126,788,988 $124,655,576
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE>
SUMMIT BANKSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF
INCOME FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED 6-30-99 ENDED 6-30-98 ENDED 6-30-99 ENDED 6-30-98
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $1,436,657 $1,521,508 $2,811,666 $3,143,348
Interest on time deposits with other
financial institutions 379,791 93,260 743,471 183,275
Interest on U.S. government
treasury securities 189,020 210,581 349,788 377,842
Interest on federal funds sold 128,548 276,018 312,550 488,118
------------- ------------- ------------- ------------
Total interest income 2,134,015 2,101,367 4,217,475 4,192,583
INTEREST EXPENSE:
Interest on deposits 535,226 516,198 1,122,444 1,017,740
------------- ------------- ------------- ------------
Total interest expense 535,226 516,198 1,122,444 1,017,740
------------- ------------- ------------- ------------
Net interest income 1,598,790 1,585,169 3,095,031 3,174,843
Provision for loan losses - 25,000 - 100,000
------------- ------------- ------------- ------------
Net interest income after
provision for loan losses 1,598,790 1,560,169 3,095,031 3,074,843
NON-INTEREST INCOME:
Service charges on deposit accounts 86,238 90,953 173,059 176,955
Other customer fees and charges 44,106 42,603 147,007 85,981
------------- ------------- ------------- ------------
Total non-interest income 130,344 133,556 320,066 262,936
NON-INTEREST EXPENSE:
Salaries and employee benefits 544,800 513,088 1,066,248 1,019,307
Occupancy expense 103,356 98,249 205,935 202,084
Equipment expense 63,919 56,974 124,236 101,129
Other 250,013 277,062 493,381 520,449
------------- ------------- ------------- ------------
Total non-interest expense 962,089 945,373 1,889,800 1,842,969
Income before income taxes 767,045 748,352 1,525,297 1,494,810
Provision for income taxes 325,172 312,234 637,301 623,293
------------- ------------- ------------- ------------
Net Income $441,873 $436,118 $887,996 $871,517
------------- ------------- ------------- ------------
------------- ------------- ------------- ------------
EARNINGS PER SHARE:
Earnings per common share $0.96 $1.00 $1.94 $1.99
Earnings per common share assuming dilution $0.94 $0.93 $1.90 $1.86
Weighted average shares outstanding 459,030 437,678 456,684 437,434
Weighted avg. shrs. outsdg. assuming dilution 470,033 469,528 467,687 469,284
------------- ------------- ------------- ------------
------------- ------------- ------------- ------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
4
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF
CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED 6-30-99 ENDED 6-30-98
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 3,928,256 $ 4,041,361
Fees received 572,523 425,959
Interest paid (1,173,387) (1,057,921)
Cash paid to suppliers and employees (1,853,267) (1,914,864)
Income taxes paid (765,000) (634,364)
----------------------- -----------------------
Net cash provided by operating activities 709,125 860,171
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in time deposits with
other financial institutions (4,455,000) (693,000)
Maturity of investment securities 7,499,670 5,598,079
Purchase of investment securities (5,000,000) (8,000,000)
Net (increase) decrease in loans to customers (469,474) 10,181,099
Recoveries on loans previously charged-off 0 2,123
(Increase) decrease in premises and equipment (48,042) (242,394)
----------------------- -----------------------
Net cash provided by (used in) investing activities (2,472,846) 6,845,907
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in demand, interest
bearing transaction, and savings deposits 9,409,713 3,179,589
Net increase (decrease) in time deposits (7,907,160) 1,960,212
(Increase) decrease in other assets (3,427,846) (533,138)
Exercise of stock options 90,000 159,875
Repurchase of common stock (decrease) (81,892) 6,270
Dividends paid (decrease) (344,135) (338,891)
----------------------- -----------------------
Net cash provided by (used in) financing activities (2,261,320) 4,421,377
----------------------- -----------------------
Net increase (decrease) in cash and cash equivalents (4,025,041) 12,127,455
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 $ 22,741,026 $ 33,701,470
----------------------- -----------------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Net Income $ 887,996 $ 871,517
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 118,914 111,982
Provision for loan losses and OREO losses 0 100,000
(Increase) decrease in interest receivable (64,493) 58,677
Increase (decrease) in unearned loan fees 27,731 (46,876)
Increase (decrease) in accrued interest payable (50,943) (40,181)
(Increase) decrease in prepaid expenses (50,491) (92,663)
Increase (decrease) in accounts payable (31,890) (91,214)
Increase (decrease) in income taxes payable (127,699) (11,071)
----------------------- -----------------------
Total adjustments (178,871) (11,346)
----------------------- -----------------------
Net cash provided by operating activities $ 709,125 $ 860,171
----------------------- -----------------------
</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 JUNE 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 (1,837) (81,892) 0 (81,892)
Issuance of cash dividends of $.75 per share 0 0 (344,135) (344,135)
Net Income 0 0 887,997 887,997
Balance at June 30, 1999 458,347 3,837,449 10,802,937 14,640,386
Balance at December 31, 1997 436,565 3,709,145 9,169,524 12,878,669
Stock Options Exercised 1,580 18,755 - 10,000
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 0 871,517 871,517
Balance at June 30, 1998 438,035 3,721,630 9,702,150 13,423,780
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
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 June 30,
1999 and the results of operations for the six months ended June 30, 1999 and
1998 and cash flows for the six months ended June 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 six months ended June 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 456,684 and 437,434 during the six months ended
June 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>
INTEREST RATE SENSITIVITY/INTEREST RATE RISK ANALYSIS
The following table provides an interest rate sensitivity and interest
rate risk analysis for the quarter ended June 30, 1999. The table presents
each major category of interest-earning assets and interest
bearing-liabilities.
INTEREST RATE RISK REPORTING SCHEDULE
<TABLE>
<CAPTION>
REPORTING INSTITUTION: SUMMIT BANK REPORTING DATE: 6/30/99
REMAINING TIME BEFORE MATURITY OR INTEREST RATE ADJUSTMENT
$(000.00)
OMITTED UP greater than 3 greater than 1 greater than 3 greater than 5 OVER
TOTAL 3 less than 1 less than 3 less than 5 less than 10 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 13,000 0 1,000 12,000 0 0 0
3. FED FUNDS SOLD 15,168 15,168 0 0 0 0 0
4. PURCHASED CDS 28,590 3,761 9,894 14,935 0 0 0
--------- ------ ------------- ------------- ------------- --------------- ---------
TOTAL INVESTMENTS $56,758 $18,929 $10,894 $26,935 $0 $0 $0
B. LOANS $50,824 $48,273 $44 $1,219 $835 $452 $0
--------- ------ ------------- ------------- ------------- --------------- ---------
TOTAL LOANS $50,824 $48,273 $44 $1,219 $835 $452 $0
C. TOTAL EARNING ASSETS $107,582 $67,202 $10,938 $28,154 $835 $452 $0
II. COST OF FUNDS (DEPOSITS)
A. CERTIFICATE OF DEPOSITS $26,219 $18,969 $7,193 $27 $0 $30 $0
B. MONEY MARKET ACCOUNTS 36,546 4,984 14,051 17,512 0 0 0
C. TRANSACTION ACCOUNTS 5,274 226 678 1,788 1,286 1,297 0
D. SAVINGS ACCOUNTS 2,268 97 292 769 553 558 0
--------- ------ ------------- ------------- ------------- --------------- ---------
TOTAL COSTS OF FUNDS $70,307 $24,276 $22,214 $20,096 $1,839 $1,885 $0
III. INTEREST SENSITIVE
ASSETS $107,582 $67,202 $10,938 $28,154 $835 $452 $0
IV. INTEREST SENSITIVE
LIABILITIES $70,307 $24,276 $22,214 $20,096 $1,839 $1,885 $0
--------- ------ ------------- ------------- ------------- --------------- ---------
V. GAP $37,275 $42,926 ($11,276) $8,058 ($1,004) ($1,433) $0
VI. CUMULATIVE GAP $37,275 $42,926 $31,650 $39,708 $38,704 $37,271 $37,271
VII. GAP RATIO 1.53 2.77 0.49 1.40 0.45 0.24 0.00
VIII. CUMULATIVE RATIO 1.53 2.77 1.68 1.60 1.57 1.53 1.53
IX. GAP AS A % OF TOTAL
ASSETS 30.36 34.96 -9.18 6.56 -0.82 1.17 0.00
X. CUMULATIVE GAP AS A %
OF TOTAL ASSETS 30.36 34.96 25.78 32.34 31.52 30.36 30.36
</TABLE>
9
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE SIX MONTHS ENDED JUNE 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
NONE
FINANCIAL CONDITION
LIQUIDITY MANAGEMENT
The consolidated loan-to-deposit ratio at June 30, 1999 was 48.0% which was a
decrease from 54.2% for the same period in 1998. Total outstanding loans as of
June 30, 1999 increased $3,015,000 compared to the same period a year ago while
total deposits increased $15,820,000 versus the same time last year. The
decrease in loans was primarily due to the company maintaining it's lending
standards and increased competition in the marketplace. The increase in deposits
is primarily due to the Bank's effort in marketing its products.
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 $64,332,000 on June 30, 1999. This
amount represented 57.8% of total deposits in comparison to the liquidity ratio
of 57.4% as of June 30, 1998. This relative stability is primarily a result of
both a rise in loan growth and an increase in deposits. It is management's
belief that the current liquidity level is sufficient to meet current needs. 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.
10
<PAGE>
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>
6-30-99 % 12-31-98 % 6-30-98 %
<S> <C> <C> <C> <C> <C> <C>
Fed funds sold $15,168 26% 18,640 32% 25,510 54%
Interest bearing Deposits 28,590 48% 24,135 41% 6,337 14%
Securities 13,000 26% 15,500 27% 14,898 32%
</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 June 30, 1999 were comprised of U.S. Gov't agencies.
CHANGES IN FINANCIAL POSITION
As of June 30, 1999, total deposits increased $1,503,000 from December 31, 1998
and loans outstanding increased $501,000. Total deposits as of June 30, 1999
were $111,392,000, an increase of 16.6% from $95,572,000 as of June 30, 1998.
Total loans as of June 30, 1999 were $54,833,000, a slight increase from
$54,332,000 as of June 30, 1998.
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>
6-30-99 % 12-31-98 % 6-30-98 %
<S> <C> <C> <C> <C> <C> <C>
Demand $42,219 38% 38,077 35% 32,679 34%
Savings 2,268 2% 2,136 2% 3,063 3%
Interest bearing Trans. Deposits 40,486 36% 35,351 32% 33,778 35%
Other time 26,419 24% 34,326 31% 26,052 28%
</TABLE>
11
<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>
6-30-99 % 12-31-98 % 6-30-98 %
<S> <C> <C> <C> <C> <C> <C>
Commercial $36,495 67% 38,403 71% 37,042 72%
Real estate-const 5,789 11% 5,060 9% 4,773 9%
Real estate-other 7,271 13% 5,673 10% 4,724 9%
Installment/other 5,298 10% 5,196 10% 5,279 10%
</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>
6-30-99 12-31-98 6-30-98
<S> <C> <C> <C>
Loans 90 days or more past
due & still accruing $ 50 $ 662 $ 0
Non-accrual loans 522 651 413
Other real estate owned 560 212 1,359
------ ------ ------
Total non-performing assets $1,132 $1,525 $1,772
------ ------ ------
------ ------ ------
Non-performing assets to
period end loans plus
other real estate owned 2.04% 2.81% 3.43%
Allowance to non-performing loans 230% 100% 312%
Allowance to non-performing assets 116% 86% 73%
</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
12
<PAGE>
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 June 30, 1998 to June 30, 1999 is
the result of an increase in loans 90 days past due and non-accrual loans of
$159,000 and a decrease of $799,000 in OREO. Of the $572,000 total loans 90
days or more past due and still accruing in 1999, $217,000 is guaranteed by
Small Business Administration.
The total OREO amount, $560,000 is related to two properties. One of the
properties consists of 3 vacant lots in Pacheco. The second is a single
family home in Alamo. The Bank is currently in escrow on the pacheco
property, and has received an offer for the single family home in Alamo.
13
<PAGE>
CAPITAL POSITION
As of June 30, 1999, Shareholders' Equity was $14,640,000. This represents an
increase of $1,216,000 or 9.1% over the same period last year. Since the
inception of the repurchase program in 1989, the Company has authorized the
repurchase of $2,500,000 of its stock. As of JUNE 30, 1999, the Company has
repurchased a total of 161,749 shares of the Company stock constituting 30.1% of
the Company's original stock prior to the repurchase program, at a total cost of
$2,444,000, or an average price per share of $15.11. 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 June 30, 1999:
<TABLE>
<CAPTION>
Minimum
Capital Ratio Regulatory Requirement
<S> <C> <C>
Tier 1 Capital 19.12% 4.00%
Total Capital 20.37% 8.00%
Leverage Ratio 12.06% 4.00%
</TABLE>
The Company is not aware of any current recommendations by the regulatory
authorities that, if they were implemented, would have a material effect on
the Company.
14
<PAGE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
Total interest income including loan fees increased from $4,193,000 for the
first six months of 1998 to $4,217,000 for the same period in 1999.
The yield on loans and fees increased 111 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 4 basis points compared to the same
period in 1998. Average total investments were $19,449,000 higher than the
same period last year due to deposit growth.
Interest expense increased from $3,075,000 at the end of the first six months
of 1998 to $3,095,000 in 1999. This increase was due to an increase in
average interest-bearing deposit accounts of $6,386,000 during the first six
months of 1999 versus the same period last year. The average cost of funds
for the period ending June 30, 1999 was 6 basis points more than the same
period last year.
As a result of these factors, net interest margin for the first six months of
1999 was 5.71% compared to 5.81% for the same period last year.
OTHER OPERATING INCOME
Service charges on deposit accounts as of the end of the first six months of
1999 decreased slightly to $173,000 versus $177,000 for the same period in
1998.
Other customer fees and charges increased $61,000 for the present quarter
associated with the sale of real estate.
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
15
<PAGE>
is based on management's evaluation of potential losses in the loan portfolio,
as well as prevailing and anticipated economic conditions.
Management employs a systematic methodology on a monthly 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 loan
losses for the six months ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
($000.00 Omitted)
6-30-99 6-30-98
<S> <C> <C>
Balance, beginning of the period $1,319 $1,238
Provision for loan losses 0 100
Recoveries 1 2
Loans charged-off 5 50
------ ------
Balance, end of the period $1,315 $1,290
</TABLE>
The balance in the allowance for loan losses at June 30, 1999 was 2.46% of
total loans compared to 2.49% of total loans at June 30, 1998.
OTHER OPERATING EXPENSES
Total other operating expenses increased $47,000 as of the end of the first
six months of 1999 compared to the same period last year. This increase was
primarily due to an increase in salaries and employee expense. Equipment
Expense increase was related to continued upgrades in our computer delivery
system.
PROVISION FOR INCOME TAXES
The Company's provision for income taxes as of the end of the first six
months of 1999 increased from $623,000 in 1998 to $637,000. For the same
period in 1999 the Company's total effective tax rate was 41.8% compared to
41.7% in 1998.
16
<PAGE>
NET INCOME
Net income for the first six months of 1999 increased to $888,000 from $872,000
for the same period in 1998, or an increase of 1.8%.
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 has reviewed 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, 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 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
17
<PAGE>
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 $100,000.
The Company has completed its contingency plan with respect to year 2000
requirements and is currently testing the plan.
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 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
18
<PAGE>
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.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
No material developments from that which was
reported in the Form 10-K dated 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
Annual Meeting of shareholders minutes are attached
(Exhibit #1) The annual meeting was held May 19, 1999.
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (Article 9)
(a) Exhibits
2 Weighted Average Shares
27 Financial Data Schedule
(b) Reports on Form 8-K
None
19
<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: August 13, 1999 BY: /s/ Shirley W. Nelson
------------------- -----------------------------
SHIRLEY W. NELSON
CHAIRMAN AND CEO
(PRINCIPAL EXECUTIVE OFFICER)
DATE: August 13, 1999 BY: /s/ Kikuo Nakahara
------------------- -----------------------------
KIKUO NAKAHARA
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
The remainder of this page is intentionally left blank
20
<PAGE>
MINUTES OF AN ANNUAL MEETING OF
THE SHAREHOLDERS OF SUMMIT BANCSHARES, INC.
MAY 19, 1999
--------------------------------------------
A meeting of the Shareholders of Summit Bancshares, Inc., was conducted on May
19, 1999, in the board room of Summit Bank at 2969 Broadway, Oakland,
California.
The meeting was called to order by Shirley W. Nelson, Chairman of the Board, at
4:30 p.m. The Chairman asked George H. Hollidge, Corporate Secretary, to present
proof of the due calling of the meeting.
Secretary Hollidge presented a copy of the printed Notice of Annual Meeting of
Shareholders dated April 15, 1999, stating the meeting's time, place, and
purpose. The Secretary suggested that the reading of the notice be dispensed
unless there was a request to do so. No request was made. He then stated if any
of the Shareholders present had an objection to the contents of the notice or
the manner in which the notice was served, such objection should be stated or it
would be deemed waived. No objection was voiced.
Second, the Secretary presented a complete list certified by ChaseMellon
Shareholder Services, L.L.C., the stock transfer agent for the Company, of the
holders of the common stock of the Company at the close of business on March 26,
1999, the record date fixed by the Board of Directors for Shareholders entitled
to notice of and to vote at the meeting. This list, which was kept open to the
inspection of Shareholders throughout the meeting, showed that at the close of
business on March 26, 1999, there were 460,167 common shares of the Company
issued and outstanding.
Third, the Secretary requested that the Chairman instruct that there be attached
to the minutes of the meeting the declaration of Patricia Walker, an employee of
ChaseMellon Shareholder Services, L.L.C., showing that she caused to be mailed
on April 21, 1999, to each of the Shareholders of Record, a copy of the Notice
of Annual Meeting of Shareholders.
Chairman Nelson directed Secretary Hollidge to incorporate a copy of the notice
of meeting, together with the declaration of mailing of the notice, in the
Minute Book of the Company as a part of the Minutes of this meeting. The
Chairman stated that the Minute Book would be kept open to the inspection of
Shareholders throughout the meeting.
The Chairman then introduced Mr. Asa Drew., of ChaseMellon Shareholder Services,
L.L.C., who was appointed by the Board of Directors as the Inspector of
Elections, and indicated that Mr. Drew had duly taken his oath of office in
writing. The Secretary was directed to file said oath
<PAGE>
SUMMIT BANCSHARES, INC.
ANNUAL MEETING OF SHAREHOLDERS
MAY 19, 1999
PAGE 2
with the minutes of the meeting. The Chairman then requested that the Inspector
make a poll of the shares represented at the meeting in person or by proxy.
Mr. Drew reported that there were represented in person or by proxy 367,631
common shares of the Company, for a total percentage of shares of the Company
present, in person or by proxy, of 79.89%.
Chairman Nelson stated that, based upon these numbers, a quorum was present. The
meeting was declared lawfully and properly convened and competent to proceed to
the transaction of the business as stated in the notice.
Chairman Nelson then announced that there were two items on the agenda for the
meeting and briefly discussed voting procedures. She briefly described the
agenda items:
Item 1 pertained to election of Directors to serve until the 2000 Annual Meeting
of Shareholders or until their successors are elected and qualified. Those seven
(7) nominees receiving the highest number of votes will be those elected.
Item 2 involved the proposal to approve the appointment of
PricewaterhouseCoopers, L.L.P., as public auditors for the year 1999.
Chairman Nelson explained that, in addition, the Shareholders may consider such
other business as may be properly come before the Annual Meeting and any
adjournment or adjournments thereof. She further indicated that the meeting
would take up the agenda items in the order described and that any Shareholder
voting in person at the meeting had been provided a ballot for use in voting on
the agenda items and would be given time after each item was discussed to mark
the ballot, entering in the appropriate space the number of shares being voted
on each matter.
The Chairmen next indicated that the first item was election of Directors to
serve until the 2000 Annual Meeting or until their successors are elected and
qualified. The Board of Directors nominated seven individuals for election as
Directors, to serve until the 2000 Annual Meeting of Shareholders or until their
successors are elected and qualified, to wit: Stuart J. Kahn; George H.
Hollidge; Kikuo Nakahara; Shirley W. Nelson; Thomas H. State; Mary C. Warren;
and Barbara J. Williams. The Secretary announced that there were no further
nominees; and, accordingly, nominations were declared closed. The Chairman
requested that any Shareholders voting in person mark their ballots and hold the
same pending later matters to be voted.
Next on the agenda was Item 2, the ratification of the selection of
PricewaterhouseCoopers, L.L.P., to audit the financial statement of the Company
for the fiscal year 1999. The following resolution was proposed by the
Secretary:
RESOLVED THAT THE APPOINTMENT OF THE ACCOUNTING FIRM OF
PRICEWATERHOUSECOOPERS, L.L.P., AS THE INDEPENDENT AUDITORS FOR THE
COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999, BE APPROVED AND
RATIFIED.
<PAGE>
SUMMIT BANCSHARES, INC.
ANNUAL MEETING OF SHAREHOLDERS
MAY 19, 1999
PAGE 3
The resolution was moved by Mr. State and seconded by Mrs. Williams. The
Chairman asked if there was any discussion. Hearing none, the discussion was
closed.
The Chairman thereupon inquired whether there was any further business to come
before the meeting. Hearing none, she then asked Mr. Drew to provide the tally
of votes.
Mr. Drew as Inspector of Elections then reported to the persons present that the
seven (7) highest number of votes of the common shares of the Company for the
office of Director were as follows: Stuart J. Kahn; George H. Hollidge; Kikuo
Nakahara; Shirley W. Nelson; Thomas H. State; Mary C. Warren; and Barbara J.
Williams. Those individuals were declared elected to serve as Directors of the
Company for the following year or until their successors are elected and
qualified.
In addition, the Inspector of Elections indicated that holders of 366,131 common
shares of the Company, being in excess of the majority of the 367,631 common
shares represented at the meeting, in person or by proxy, voted to approve Item
2, the appointment of PricewaterhouseCoopers, L.L.P., as auditors of the Company
for the fiscal year ending December 31, 1999.
The Chairman announced that the Report of the Inspector of Elections was
approved and ordered it appended to the minutes of the meeting.
There being no other business to come before the meeting, the Chairman asked for
a motion to adjourn. Mr. Nakahara moved that the meeting be adjourned, and Mrs.
Warren seconded the motion. Hearing no objection, the meeting was adjourned at
4:45 p.m.
Respectfully submitted:
/s/ Xristi Megas
-------------------------------
Xristi Megas
Recording Secretary
Attested: Attested:
/s/ George H. Hollidge /s/ Shirley W. Nelson
- ------------------------------------ --------------------------------
George H. Hollidge Shirley W. Nelson
Corporate Secretary Chairman of the Board
<PAGE>
WEIGHTED AVERAGE SHARES
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
EARNINGS
PRIMARY PER SHARE
A. COMMON STOCK ANNUAL 456684.49 456684.49
(2ND QTR) 459029.86 459029.86
NO OF
DAYS
---------
<S><C> <C> <C> <C> <C> <C>
452684.00 12-31-98(BAL FWD)
452684.00 TO 2-1-99 31.00 14033204.00
452134.00 TO 2-5-99 4.00 1808536.00
452117.00 TO 3-8-99 31.00 14016627.00
459617.00 TO 3-31-99 24.00 11030808.00
459617.00 TO 5-3-99 32.00 14707744.00
458847.00 TO 6-15-99 43.00 19730421.00
458347.00 TO 6-30-99 16.00 7333552.00
0.00
------------------------
181.00 82659892.00
</TABLE>
<TABLE>
<S> <C>
AVERAGE SHARES OUTSTANDING
FOR THE YEAR 456684.49
AVERAGE SHARES OUTSTANDING
FOR THE 2ND QUARTER 459029.86
</TABLE>
OPTIONS-FULLY
-------------
USE HIGHER OF YEAR END PRICE OR AVERAGE PRICE
YEAR END PRICE/QTR END 44.750
AVERAGE PRICE 45.000
<TABLE>
<CAPTION>
USE AVERAGE PRICE OF 45.000 11002.83
-----------
NO OF YEAR END OPTION NO OF
SHARES PRICE PRICE SHARES
------------------------------------------------
<S> <C> <C> <C> <C>
MZ 2900.00 45.000 13.50 2,030
SN 1667.00 45.000 12.00 1,222
SN 978.00 45.000 13.25 690
DD 2500.00 45.000 13.00 1,778
MZ 1045.00 45.000 13.00 743
AC 400.00 45.000 13.00 284
5N 4000.00 45.000 17.75 2,422
MZ 2000.00 45.000 17.75 1,211
DD 1000.00 45.000 17.75 606
AC 100.00 45.000 17.75 61
EA 2000.00 45.000 46.00 (44)
</TABLE>
<TABLE>
<S> <C> <C> <C>
AVERAGE PRICE FOR THE YEAR 45.000
TOTAL SHARES 2ND QUARTER 470032.69 459029.86
TOTAL SHARES YEAR-TO-DATE 487687.32 456584.49
NET INCOME 2ND QUARTER $441,873 $441,873
NET INCOME YEAR TO DATE, 1999 $887,996 $887,996
EARNINGS PER SHARE 2ND QUARTER $0.940 $0.963
EARNINGS PER SHARE, YTD $1.899 $1.944
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 7,573
<INT-BEARING-DEPOSITS> 28,590
<FED-FUNDS-SOLD> 15,168
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 13,000
<INVESTMENTS-MARKET> 12,866
<LOANS> 54,834
<ALLOWANCE> 1,315
<TOTAL-ASSETS> 126,789
<DEPOSITS> 111,392
<SHORT-TERM> 0
<LIABILITIES-OTHER> 757
<LONG-TERM> 0
0
0
<COMMON> 3,837
<OTHER-SE> 10,803
<TOTAL-LIABILITIES-AND-EQUITY> 126,789
<INTEREST-LOAN> 2,812
<INTEREST-INVEST> 1,406
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 4,217
<INTEREST-DEPOSIT> 1,122
<INTEREST-EXPENSE> 1,122
<INTEREST-INCOME-NET> 3,095
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,890
<INCOME-PRETAX> 1,525
<INCOME-PRE-EXTRAORDINARY> 1,525
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 888
<EPS-BASIC> .96
<EPS-DILUTED> .94
<YIELD-ACTUAL> 7.44
<LOANS-NON> 522
<LOANS-PAST> 50
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,319
<CHARGE-OFFS> 5
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 1,315
<ALLOWANCE-DOMESTIC> 2
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
