<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q/A
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
454,223 shares of no par value common stock
issued as of March 31, 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 ........................................... 6-7
Notes to Financial Statements..................... 8-9
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
2
<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 THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED 3-31-99 ENDED 3-31-98
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 1,812,325 $ 2,075,456
Fees received 441,945 193,344
Interest paid (619,524) (476,113)
Cash paid to suppliers and employees (1,008,967) (1,009,863)
Income taxes paid (125,000) (113,864)
------------ ------------
Net cash provided by operating activities 500,779 668,960
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in time deposits with
other financial institutions (5,940,000) (396,000)
Maturity of investment securities 5,000,000 4,599,066
Purchase of investment securities (5,000,000) (5,000,295)
Net (increase) decrease in loans to customers 1,427,426 5,301,879
Recoveries on loans previously charged-off 0 750
(Increase) decrease in premises and equipment (41,265) (42,198)
------------ ------------
Net cash provided by (used in) investing activities (4,553,839) 4,166,202
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in demand, interest
bearing transaction, and savings deposits 1,431,486 (1,463,774)
Net increase (decrease) in time deposits (5,322,161) (4,046)
(Increase) decrease in other assets (121,794) (143,775)
Exercise of stock options 90,000 10,000
Repurchase of common stock (24,544) (6,270)
Dividends paid 0 0
------------ ------------
Net cash provided by (used in) financing activities (3,946,653) (1,607,865)
------------ ------------
Net increase (decrease) in cash and cash equivalents (7,999,713) 3,227,297
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 $ 18,766,354 $ 24,801,312
------------ ------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net income $ 446,124 $ 435,399
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 63,250 52,984
Provision for loan losses and OREO losses 0 75,000
(Increase) decrease in interest receivable (159,338) 91,413
Increase (decrease) in unearned loan fees 140,426 (43,209)
Increase (decrease) in accrued interest payable (32,305) 25,430
(Increase) decrease in prepaid expenses (14,810) 38,490
Increase (decrease) in accounts payable (129,696) (126,762)
Increase (decrease) in income taxes payable 187,128 197,195
------------ ------------
Total adjustments 54,655 233,561
------------ ------------
Net cash provided by operating activities $ 500,779 $ 668,960
------------ ------------
</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.
3
<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.
4
<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 RISK
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 primarily due to the company maintaining
it's lending standards. 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 $64,342,000 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.
5
<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>
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 19.1% 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.
DEPOSIT COMPARATIVE
($000.00 Omitted)
<TABLE>
<CAPTION>
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
Trans. Deposits 33,273 37% 35,351 32% 35,793 34%
Other time 24,088 27% 34,326 31% 29,004 27%
</TABLE>
6
<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>
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 71%
Real estate-const 8,635 15% 5,060 9% 4,989 9%
Real estate-other 4,043 7% 5,673 10% 4,668 9%
Installment/other 5,618 10% 5,196 10% 5,631 11%
</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>
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 $1,585
------ ------ ------
------ ------ ------
Non-performing assets to
period end loans plus
other real estate owned 3.32% 2.81% 2.97%
Allowance to non-performing
loans 199% 100% 83%
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
7
<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 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, and the second property
consists of 3 vacant lots in Pacheco. The Bank is currently in escrow on
both properties.
8
<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.
9
<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 $60,000 for the present quarter
associated with the sale of real estate last year.
10
<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 loan
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.
11
<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.
12
<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
13
<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
14
<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
<TABLE>
<S> <C>
DATE: By: /s/Shirley W. Nelson
----------------------- -------------------------
SHIRLEY W. NELSON
CHAIRMAN AND CEO
(PRINCIPAL EXECUTIVE OFFICER)
DATE: By: /s/ Kikuo Nakahara
------------------------ ---------------------------
KIKUO NAKAHARA
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
</TABLE>
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15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
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