<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: MARCH 31, 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
459,634 shares of no par value common stock
issued as of March 31, 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
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF
FINANCIAL POSITION MARCH 31, 1999 AND DECEMBER 31, 1998
(UNAUDITED)
ASSETS 03/31/99 12/31/98
- -------------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Cash and due from banks $ 6,416,354 $ 8,126,067
Federal funds sold 12,350,000 18,640,000
------------ ------------
Cash and cash equivalents 18,766,354 26,766,067
Time deposits with other financial institutions 30,075,487 24,135,487
Investment securities (fair value of
$15,437,254 at
March 31, 1999 and $15,489,100 at
December 31, 1998 ) held to maturity 15,499,865 15,499,670
Loans, net of allowance for loan losses of
$1,319,451 at March 31, 1999 and
$1,319,451 at December 31, 1998 52,012,604 53,013,148
Other real estate owned 212,262 212,262
Premises and equipment, net 954,402 976,388
Interest receivable and other assets 4,174,348 4,052,554
------------ ------------
Total Assets $121,695,322 $124,655,576
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------------- ------------ ------------
Deposits:
Demand $ 39,017,447 $ 38,076,664
Interest-bearing transaction accounts 35,793,449 35,350,967
Savings 2,184,317 2,135,736
Time certificates $100,000 and over 21,533,330 26,147,116
Other time certificates 7,470,500 8,178,876
------------ ------------
Total Deposits 105,999,043 109,889,359
------------
Interest payable and other liabilities 1,096,284 677,802
------------ ------------
Total 107,095,327 110,567,161
Liabilities
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; 454,223 shares outstanding at March 31, 1999 and
459,634 shares outstanding at December 31, 1998 3,894,796 3,829,340
Retained Earnings 10,705,199 10,259,075
------------ ------------
Total Shareholders' Equity 14,599,995 14,088,415
Total Liabilities and Shareholders' Equity $121,695,322 $124,655,576
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF
INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED 3-31-99 ENDED 3-31-98
- ------------------------------------- ------------ ------------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $1,375,009 $1,621,840
Interest on time deposits with
other financial institutions 363,680 90,015
Interest on U.S. government
treasury securities 160,768 167,261
Interest on federal funds sold 184,002 212,100
---------- ----------
Total interest income 2,083,460 2,091,216
INTEREST EXPENSE:
Interest on deposits 587,219 501,543
---------- ----------
Total interest expense 587,219 501,543
---------- ----------
Net interest income 1,496,241 1,589,673
Provision for loan losses
-- 75,000
---------- ----------
Net interest income after
provision for loan losses 1,496,241 1,514,673
NON-INTEREST INCOME:
Service charges on deposit accounts 86,821 86,002
Other customer fees and charges 102,901 43,378
---------- ----------
Total non-interest income 189,722 129,380
NON-INTEREST EXPENSE:
Salaries and employee benefits 521,448 506,219
Occupancy expense 102,579 103,835
Equipment expense 60,317 44,154
Other 243,367 243,387
---------- ----------
Total non-interest expense 927,711 897,595
Income before income taxes 758,252 746,458
Provision for income taxes 312,128 311,059
---------- ----------
Net Income $ 446,124 $ 435,399
---------- ----------
---------- ----------
EARNINGS PER SHARE:
Earnings per common share $ 0.98 $ 1.00
Earnings per common share assuming dilution $ 0.96 $ 0.93
Weighted average shares outstanding 454,323 437,193
Weighted avg. shrs. outsdg. assuming dilution 465,934 469,252
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF
CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED 9-30-98 ENDED 9-30-97
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 6,050,029 $ 5,511,818
Fees received 706,317 800,017
Interest paid (1,623,415) (1,395,529)
Cash paid to suppliers and employees (2,717,211) (2,464,407)
Income taxes paid (1,049,365) (850,000)
------------ ------------
Net cash provided by operating activities 1,366,355 1,601,899
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in time deposits with
other financial institutions (8,301,742) 3,268,000
Maturity of investment securities 10,997,392 3,011,047
Purchase of investment securities (12,000,000) (6,296,420)
Net (increase) decrease in loans to customers 6,679,776 (10,436,646)
Recoveries on loans previously charged-off 31,462 2,250
(Increase) decrease in premises and equipment (337,513) (143,920)
------------ ------------
Net cash provided by (used in) investing activities (2,930,625) (10,595,689)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Increase) decrease in demand, interest
bearing transaction, and savings deposits 7,103,821 5,781,923
Net increase (decrease) in time deposits 7,637,736 465,852
(Increase) decrease in other assets (2,184,089) 361,447
Exercise of stock options 18,755 0
Repurchase of common stock (6,270) (221,198)
Dividends paid (338,891) (320,756)
------------ ------------
Net cash provided by (used in) financing activities 12,231,062 6,067,268
------------ ------------
Net increase (decrease) in cash and cash equivalents 10,666,792 (2,926,522)
Cash and cash equivalents at the
beginning of the year 21,574,015 19,168,515
------------ ------------
Cash and cash equivalents at the end of the year $ 32,240,807 $ 16,241,993
------------ ------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net income $ 1,316,047 $ 1,233,639
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 178,938 145,025
Provision for loan losses and OREO losses 100,000 165,000
(Increase) decrease in interest receivable (31,434) (150,183)
Increase (decrease) in unearned loan fees (27,385) (27,309)
Increase (decrease) in accrued interest payable (507) 17,093
Increase (decrease) in prepaid expenses (85,872) (20,678)
Increase (decrease) in accounts payable 17,777 189,136
Increase (decrease) in income taxes payable (101,209) 50,176
------------ ------------
Total adjustments 50,308 368,260
------------ ------------
Net cash provided by operating activities $ 1,366,355 $ 1,601,899
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 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 $3,829,340 $10,259,075 14,088,415
Stock Options Exercised 7,500 90,000 0 90,000
Repurchase of Common Stock (550) (24,544) 0 (24,544)
Issuance of cash dividends of $.75 per share 0 0 0 0
Net income 0 0 446,124 446,124
Balance at March 31, 1999 459,634 3,894,796 10,705,199 14,599,995
Balance at December 31, 1997 436,565 3,709,145 9,169,524 12,878,669
Stock Options Exercised 1,000 10,000 - 10,000
Repurchase of Common Stock (110) (6,270) 0 (6,270)
Issuance of cash dividends of $.75 per share 0 0 0 0
Net income 0 0 435,399 435,399
Balance at March 31, 1998 437,455 3,712,875 9,604,923 13,317,798
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
WEIGHTED AVERAGE SHARES
THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
EARNINGS
PRIMARY PER SHARE
<S> <C> <C>
ANNUAL 454323.44 454323.44
A. COMMON STOCK (1ST QTR) 454323.44 454323.44
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
NO OF
DAYS
436565.00 12-31-98(BAL FWD) -----------
452684.00 TO 2-1-99 31.00 14033204.00
452134.00 TO 3-8-99 35.00 15824690.00
459634.00 TO 3-31-99 24.00 11031216.00
0.00
0.00
0.00
0.00
0.00
------------------------
90.00 40889110.00
AVERAGE SHARES OUTSTANDING
FOR THE YEAR 454323.44
AVERAGE SHARES OUTSTANDING
FOR THE 1ST QUARTER 454323.44
OPTIONS-FULLY
USE HIGHER OF YEAR END PRICE OR AVERAGE PRICE
YEAR END PRICE/QTR END 44.750
AVERAGE PRICE 48.920
USE AVERAGE PRICE OF 48.920 11610.80
---------
</TABLE>
<TABLE>
<CAPTION>
NO OF YEAR END OPTION NO OF
SHARES PRICE PRICE SHARES
---------------------------------------------
<S> <C> <C> <C> <C>
MZ 2800.00 48.920 13.50 2,100
SN 1667.00 48.920 12.00 1,258
SN 978.00 48.920 13.25 713
DO 2500.00 48.920 13.00 1,836
MZ 1045.00 48.920 13.00 767
AC 400.00 48.920 13.00 294
SN 4000.00 48.920 17.75 2,549
MZ 2000.00 48.920 17.75 1,274
DO 1000.00 48.920 17.75 637
AC 100.00 48.920 17.75 64
EA 2000.00 48.920 46.00 119
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
AVERAGE PRICE FOR THE YEAR 48.920
TOTAL SHARES 1ST QUARTER 465934.24 454323.44
TOTAL SHARES YEAR-TO-DATE 465934.24 454323.44
NET INCOME 1ST QUARTER $446,124 $446,124
NET INCOME YEAR TO DATE, 1998 $446,124 $446,124
EARNINGS PER SHARE 1ST QUARTER $0.957 $0.982
EARNINGS PER SHARE, YTD $0.957 $0.982
</TABLE>
<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 March 31,
1999 and the results of operations for the three months ended March 31, 1999 and
1998 and cash flows for the three months ended March 31, 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 three months ended March 31, 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 454,323 and 437,193 during the three months ended
March 31, 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.
<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.
<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, 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: 3-31-99
<TABLE>
<CAPTION>
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 $ 1,500 $ 1,500 $ 0 $ 0 $ 0 $ 0 $ 0
2. U. S. AGENCIES 14,000 1,000 1,000 12,000 0 0 0
3. FED FUNDS SOLD 12,350 12,350 0 0 0 0 0
4. PURCHASED CDS 30,075 2,574 11,281 16,220 0 0 0
-------- -------- -------- -------- -------- -------- --------
TOTAL INVESTMENTS $ 57,925 $ 17,424 $ 12,281 $ 28,220 $ 0 $ 0 $ 0
B. LOANS $ 49,781 $ 47,571 $ 421 $ 1,286 $ 38 $ 466 $ 0
-------- -------- -------- -------- -------- -------- --------
TOTAL LOANS $ 49,781 $ 47,571 $ 421 $ 1,286 $ 38 $ 466 $ 0
C. TOTAL EARNING ASSETS $107,706 $ 64,995 $ 12,702 $ 29,506 $ 38 $ 466 $ 0
II. COST OF FUNDS (DEPOSITS)
A. CERTIFICATE OF DEPOSITS $ 29,004 $ 18,553 $ 10,208 $ 220 $ 20 $ 1 $ 1
B. MONEY MARKET ACCOUNTS 30,748 4,193 11,822 14,733 0 0 0
C. TRANSACTION ACCOUNTS 5,756 247 740 1,951 1,403 1,415 0
D. SAVINGS ACCOUNTS 2,184 94 281 740 532 537 0
-------- -------- -------- -------- -------- -------- --------
TOTAL COST OF FUNDS $ 67,692 $ 23,087 $ 23,051 $ 17,644 $ 1,955 $ 1,953 $ 1
III. INTEREST SENSITIVE ASSETS $107,706 $ 64,995 $ 12,702 $ 29,506 $ 38 $ 466 $ 0
IV. INTEREST SENSITIVE LIABILITIES $ 67,692 $ 23,087 $ 23,051 $ 17,644 $ 1,955 $ 1,953 $ 1
-------- -------- -------- -------- -------- -------- --------
V. GAP $ 40,014 $ 41,908 ($10,349) $ 11,862 ($ 1,917) ($ 1,487) ($ 1)
VI. CUMULATIVE GAP $ 40,014 $ 41,908 $ 31,559 $ 43,421 $ 41,504 $ 40,017 $ 40,016
VII. GAP RATIO 1.59 2.82 0.55 1.67 0.02 0.24 0.00
VIII. CUMULATIVE RATIO 1.59 2.82 1.68 1.68 1.63 1.59 1.59
IX. GAP AS A % OF TOTAL ASSETS 33.89 35.50 -8.77 10.05 -1.62 -1.26 0.00
X. CUMULATIVE GAP AS A % OF 33.89 35.50 26.73 36.78 35.15 33.89 33.89
TOTAL ASSETS
</TABLE>
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 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 RISE
(None)
FINANCIAL CONDITION
LIQUIDITY MANAGEMENT
The consolidated loan-to-deposit ratio at March 31, 1999 was 49.1% which was a
decrease from 62.2% for the same period in 1998. Total outstanding loans as of
March 31, 1999 decreased $3,341,000 compared to the same period a year ago while
total deposits increased $17,035,000 versus the same time last year. The
decrease in loans was mainly due to Summit maintaining it's lending standards.
The increase in deposits is mainly due to 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 $64,342,000 on March 31, 1999. This
amount represented 60.7% of total deposits in comparison to the liquidity ratio
of 49.5% as of March 31, 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. 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.
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT COMPARATIVE
($000.00 Omitted)
3-31-98 % 12-31-98 % 3-31-99 %
<S> <C> <C> <C> <C> <C> <C>
Fed funds sold $18,677 49% 18,640 32% 12,350 21%
Interest bearing
deposits 6,337 17% 24,135 41% 30,075 52%
Securities 12,898 34% 15,500 27% 15,500 27%
</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 March 31, 1999 were comprised of $1,500,000 in U. S. Gov't notes
and $14,000,000 in U.S. Gov't agencies.
CHANGES IN FINANCIAL POSITION
As of March 31, 1999, total deposits decreased $3,890,000 from December 31, 1998
and loans outstanding decreased $1,000,000. Total deposits as of March 31, 1999
were $105,999,000, an increase of 19.2% from $88,964,000 as of March 31, 1998.
Total loans as of March 31, 1999 were $52,013,000, a decrease of 6.0% from
$55,354,000 as of March 31, 1998.
The following table sets forth the amount of deposits by each category and the
percent of total deposits at the dates specified.
<TABLE>
<CAPTION>
DEPOSIT COMPARATIVE
($000.00 Omitted)
3-31-98 % 12-31-98 % 3-31-99 %
<S> <C> <C> <C> <C> <C> <C>
Demand $28,156 32% 38,077 35% 39,017 37%
Savings 3,447 4% 2,136 2% 2,184 2%
Interest bearing 33,273 37% 35,351 32% 35,793 34%
Trans. Deposits
Other time 24,088 27% 34,326 31% 29,004 27%
</TABLE>
The following table sets forth the amount of loans outstanding by each category
and the percent of total loans outstanding at the dates specified.
<PAGE>
<TABLE>
<CAPTION>
LOAN COMPARATIVE
($000.00 Omitted)
3-31-98 % 12-31-98 % 3-31-99 %
<S> <C> <C> <C> <C> <C> <C>
Commercial $38,371 68% 38,403 71% 38,044 75%
Real estate-const 8,635 15% 5,060 9% 4,989 10%
Real estate-other 4,043 7% 5,673 10% 4,668 9%
Installment/other 5,618 10% 5,196 10% 5,631 6%
</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.
<TABLE>
<CAPTION>
NON-PERFORMING ASSETS
($000.00 Omitted)
3-31-98 12-31-98 3-31-99
<S> <C> <C> <C>
Loans 90 days or more past
due & still accruing $ 0 $ 662 $ 631
Non-accrual loans 661 651 742
Other real estate owned 1,222 212 212
------ ------ ------
Total non-performing assets $1,883 $1,525 $1,858
------ ------ -----
------ ------ -----
Non-performing assets to
period end loans plus
other real estate owned 3.22% 2.80% 3.47%
Allowance to non-performing
loans 199% 100% 96%
Allowance to non-performing
assets 70% 86% 71%
</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,
<PAGE>
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 March 31, 1998 to March 31, 1999 is
due primarily to an increase in loans 90 days past due and non-accrual loans of
$712,000 and a decrease of $1,010,000 in OREO. Of the $631,000 total loans 90
days or more past due and still accruing in 1999, $144,000 is guaranteed by
Small Business Administration.
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 consists of
3 vacant lots in Pacheco. The Bank is currently in escrow on both properties.
<PAGE>
CAPITAL POSITION
As of March 31, 1999, Shareholders' Equity was $14,600,000. This represents an
increase of $1,282,000 or 9.6% 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 March 31, 1999, the Company has
repurchased a total of 160,462 shares of the Company stock constituting 29.9% of
the Company's original stock prior to the repurchase program, at a total cost of
$2,387,000, or an average price per share of $14.88. 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 March 31, 1999:
<TABLE>
<CAPTION>
Minimum
Capital Ratio Regulatory Requirement
<S> <C> <C>
Tier 1 Capital 20.49% 4.00%
Total Capital 21.75% 8.00%
Leverage Ratio 12.09% 4.00%
</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.
<PAGE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
Total interest income including loan fees decreased from $2,091,000 for the
first three months of 1998 to $2,083,000 for the same period in 1999. Although
loan income decreased, the increase in deposits caused an increase in investment
income. Loan fees showed an increase of $5,000 compared to the same period last
year.
The yield on loans and fees decreased 70 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 88 basis points compared to the same period in
1998. Average total investments were $25,081,000 higher than the same period
last year due to deposit growth.
Interest expense increased from $502,000 at the end of the first three months of
1998 to $587,000 in 1999. This increase was due to an increase in average
interest-bearing deposit accounts of $9,300,000 during the first three months of
1999 versus the same period last year. The average cost of funds for the period
ending March 31, 1999 was 23 basis points less than the same period last year.
As a result of these factors, net interest margin for the first three months of
1999 was 5.42% compared to 6.97% for the same period last year.
OTHER OPERATING INCOME
Service charges on deposit accounts as of the end of the first three months of
1999 increased slightly to $87,000 versus $86,000 for the same period in 1998.
The increase was due to increased fees collected in miscellaneous service
charges.
Other customer fees and charges increased $59,000 for the present quarter
associated with the sale of real estate last year
<PAGE>
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.
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 three months ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended
------------------
(000.00 Omitted)
3-31-98 3-31-99
<S> <C> <C>
Balance, beginning of the period $1,238 $1,319
Provision for loan losses 75 0
Recoveries 1 0
Loans charged-off 0 0
------ ------
Balance, end of the period $1,314 $1,319
</TABLE>
The balance in the allowance for loan losses at March 31, 1999 was 2.47% of
total loans compared to 2.32% of total loans at March 31, 1998.
OTHER OPERATING EXPENSES
Total other operating expenses increased $30,000 as of the end of the first
three 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 an upgrade in our computer delivery system to include
the installation of a new WAN/LAN system.
<PAGE>
PROVISION FOR INCOME TAXES
The Company's provision for income taxes as of the end of the first three months
of 1999 increased from $311,000 in 1998 to $312,000. For the same period in 1999
the Company's total effective tax rate was 41.1% compared to 41.7% in 1998.
NET INCOME
Net income for the first three months of 1999 increased to $446,000 from
$435,000 for the same period in 1998, or an increase of 2.5%.
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 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.
<PAGE>
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 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
<PAGE>
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.
Contingency Plans
Management, in conjunction with its Year 2000 and Disaster Recovery program, is
in the process of modifying its disaster recovery plans to include the response
to a Year 2000 problem in a most likely worst case scenario.
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 (Article 9)
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUMMIT BANCSHARES, INC.
REGISTRANT
DATE: BY:
------------------- --------------------------
SHIRLEY W. NELSON
CHAIRMAN AND CEO
(PRINCIPAL EXECUTIVE OFFICER)
DATE: BY:
------------------- --------------------------
KIKUO NAKAHARA
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
The remainder of this page is intentionally left blank
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 6,416,354
<INT-BEARING-DEPOSITS> 30,075,487
<FED-FUNDS-SOLD> 12,350,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 15,499,865
<INVESTMENTS-MARKET> 15,437,254
<LOANS> 52,012,604
<ALLOWANCE> 1,319,451
<TOTAL-ASSETS> 121,695,322
<DEPOSITS> 105,999,043
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,096,284
<LONG-TERM> 0
0
0
<COMMON> 3,994,796
<OTHER-SE> 10,705,199
<TOTAL-LIABILITIES-AND-EQUITY> 121,695,322
<INTEREST-LOAN> 1,375,009
<INTEREST-INVEST> 708,450
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 2,083,460
<INTEREST-DEPOSIT> 587,219
<INTEREST-EXPENSE> 587,219
<INTEREST-INCOME-NET> 1,496,241
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 927,711
<INCOME-PRETAX> 758,252
<INCOME-PRE-EXTRAORDINARY> 758,252
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 446,124
<EPS-PRIMARY> .98
<EPS-DILUTED> .96
<YIELD-ACTUAL> 0
<LOANS-NON> 736
<LOANS-PAST> 631
<LOANS-TROUBLED> 0
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<ALLOWANCE-OPEN> 1,319,451
<CHARGE-OFFS> 0
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<ALLOWANCE-CLOSE> 1,319,451
<ALLOWANCE-DOMESTIC> 1,319,451
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</TABLE>
