<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED: SEPTEMBER 30, 2000
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
459,289 shares of no par value common stock
issued as of September 30, 2000
<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
---------------------------
ITEM 1 ...................................................... 18
ITEMS 2-6.................................................... 19
</TABLE>
2
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF
FINANCIAL POSITION SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
(UNAUDITED)
ASSETS 09/30/00 12/31/99
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 7,154,543 $ 5,875,500
Federal funds sold 8,985,000 21,760,000
------------ ------------
Cash and cash equivalents 16,139,543 27,635,500
Time deposits with other financial institutions 33,617,636 27,888,634
Investment securities held to maturity (fair value
of $17,392,262 at September 30, 2000
and $20,336,862 at December 31, 1999) 17,465,000 19,465,133
Loans, net of allowance for loan losses of
$1,414,158 at September 30, 2000 and
$1,273,364 at December 31, 1999 68,070,436 56,071,617
Other real estate owned 0 0
Premises and equipment, net 785,435 913,435
Interest receivable and other assets 4,075,021 3,929,371
------------ ------------
Total Assets $140,153,071 $135,903,690
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand $ 42,094,923 $ 39,566,546
Interest-bearing transaction 34,236,089 48,225,818
accounts
Savings 2,481,529 2,327,328
Time certificates $100,000 and over 36,069,506 23,047,736
Other time certificates 7,794,678 6,828,925
------------ ------------
Total Deposits 122,676,725 119,996,353
Interest payable and other 981,909 754,210
liabilities
------------ ------------
Total Liabilities 123,658,634 120,750,563
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; 459,289 shares outstanding at September 30, 2000
and
455,438 shares outstanding at September 30, 1999 3,697,719 3,741,923
Retained Earnings 12,796,718 11,411,204
------------ ------------
Total Shareholders' Equity 16,494,437 15,153,127
Total Liabilities and Shareholders'Equity $140,153,071 $135,903,690
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
3
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF
INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
9-30-2000 9-30-99 9-30-2000 9-30-99
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 2,052,021 $ 1,401,276 $ 5,383,703 $ 4,212,942
Interest on time deposits with other
financial institutions 540,458 383,542 1,378,595 1,127,012
Interest on U.S. government
agency securities 252,013 242,717 787,338 592,505
Interest on federal funds sold 220,927 247,905 742,070 560,455
------------ ------------ ------------ ------------
Total interest $3,065,419 2,275,440 8,291,706 6,492,914
income
INTEREST EXPENSE:
Interest on 838,656 572,567 2,157,444 1,695,011
deposits
------------ ------------ ------------ ------------
Total interest expense 838,656 572,567 2,157,444 1,695,011
------------ ------------ ------------ ------------
Net interest income 2,226,763 1,702,873 6,134,262 4,797,903
Provision for loan losses 90,000 -- 120,000 0
------------ ------------ ------------ ------------
Net interest income after
provision for loan losses $2,136,763 1,702,873 6,014,262 4,797,903
NON-INTEREST INCOME:
Service charges on deposit accounts 90,370 106,113 267,604 337,296
Other customer fees and charges 1,248 1,720 5,614 90,602
------------ ------------ ------------ ------------
Total non-interest income $ 91,618 107,833 273,218 427,898
NON-INTEREST EXPENSE:
Salaries and employee benefits 701,668 602,019 1,980,442 1,668,267
Occupancy expense 99,890 99,969 308,485 305,904
Equipment expense 69,042 68,337 205,674 192,573
Other 244,586 251,622 816,154 745,003
------------ ------------ ------------ ------------
Total non-interest expense 1,115,187 1,021,947 3,310,755 2,911,747
Income before income taxes 1,113,194 788,759 2,976,725 2,314,054
Provision for income taxes 462,522 329,188 1,246,962 966,489
------------ ------------ ------------ ------------
Net Income $ 650,672 $ 459,571 $ 1,729,763 $ 1,347,565
============ ============ ============ ============
EARNINGS PER SHARE:
Earnings per common share $ 1.42 $ 1.01 $ 3.77 $ 2.95
Earnings per common share assuming dilution $ 1.40 $ 0.99 $ 3.73 $ 2.90
Weighted average shares outstanding 457,988 455,755 458,318 456,755
Weighted average shares assuming dilution 463,756 464,556 464,850 465,172
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
4
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF
CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED 9-30-00 ENDED 9-30-99
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 7,665,206 $ 6,054,499
Fees received 731,101 811,460
Interest paid (2,187,072) (1,686,735)
Cash paid to suppliers and employees (2,850,636) (2,713,514)
Income taxes paid (1,250,962) (820,000)
------------------- --------------------
Net cash provided by operating activities 2,107,637 1,645,710
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in time deposits with
other financial institutions (5,729,002) (3,952,203)
Maturity of investment securities 2,000,133 7,499,670
Purchase of investment securities 0 (12,465,718)
Net (increase) decrease in loans to customers (11,963,316) 621,172
Recoveries on loans previously charged-off 21,000 22,792
(Increase) decrease in premises and equipment (78,678) (73,065)
------------------- --------------------
Net cash provided by (used in) investing activities (15,749,863) (8,347,352)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in demand, interest
bearing transaction, and savings deposits (11,307,151) 3,085,833
Net increase (decrease) in time deposits 13,987,523 (5,036,536)
(Increase) decrease in other assets (145,650) (815,049)
Exercise of stock options 50,810 90,000
Repurchase of common stock (95,014) (210,163)
Dividends paid (344,249) (344,135)
------------------- --------------------
Net cash provided by (used in) financing activities 2,146,269 (3,230,050)
------------------- --------------------
Net increase (decrease) in cash and cash equivalents (11,495,957) (9,931,692)
Cash and cash equivalents at the
beginning of the period 27,635,500 26,766,067
------------------- --------------------
Cash and cash equivalents at the end of the year $ 16,139,543 $ 16,834,375
------------------- --------------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net Income $ 1,729,763 $ 1,347,567
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 206,677 196,727
Provision for loan losses 120,000 0
(Increase) decrease in interest receivable (244,592) (122,691)
Increase (decrease) in unearned loan fees 75,974 67,837
Increase (decrease) in accrued interest payable (29,628) 8,276
(Increase) decrease in prepaid expenses 5,178 (48,242)
Increase (decrease) in accounts payable 248,264 49,747
Increase (decrease) in income taxes payable (3,999) 146,489
------------------- --------------------
Total adjustments 377,874 298,143
------------------- --------------------
Net cash provided by operating activities $ 2,107,637 $ 1,645,710
------------------- --------------------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements
5
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES COMMON RETAINED
OUTSTANDING STOCK EARNINGS TOTAL
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1999 458,021 $3,741,923 $11,411,204 15,153,127
Stock Options Exercised 3,780 50,810 0 50,810
Repurchase of Common Stock (2,512) (95,014) 0 (95,014)
Issuance of cash dividends of $.75 per share 0 0 (344,249) (344,249)
Net Income 0 0 1,729,763 1,729,763
Balance at September 30, 2000 459,289 3,697,719 12,796,718 16,494,437
Balance at December 31, 1998 452,684 3,829,341 10,259,075 14,088,416
Stock Options Exercised 7,500 90,000 -- 90,000
Repurchase of Common Stock (4,746) (210,163) 0 (210,163)
Issuance of cash dividends of $.75 per share 0 0 (344,135) (344,135)
Net Income 0 0 1,347,567 1,347,567
Balance at September 30, 1999 455,438 3,709,178 11,262,507 14,971,685
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the unaudited interim consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position at September
30, 2000 and the results of operations for the three months and nine months
ended September 30, 2000 and 1999 and cash flows for the nine months ended
September 30, 2000 and 1999.
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 1999 Annual Report to Shareholders, which is incorporated by
reference in the Company's 1999 annual report on Form 10-K. The results of
operations for the three months and nine months ended September 30, 2000 are
not necessarily indicative of the operating results for the full year.
2. COMPREHENSIVE INCOME
The Company had no items of other comprehensive income for the three month and
nine month periods ended September, 2000 and 1999. Accordingly, total
comprehensive income was equal to net income for each of those periods
3. SEGMENT REPORTING
The Company is principally engaged in community banking activities through the
four banking offices of its subsidiary bank. The community banking activities
include accepting deposits, providing loans and lines of credit to local
individuals and businesses, investing in investment securities and money market
instruments. The four banking offices have been aggregated in to a single
reportable segment. Because the Company's financial information is internally
evaluated as a single operating segment, no separate segment information is
presented. The combined results are reflected in these financial statements.
7
<PAGE>
4. EARNINGS PER SHARE
The following table reconciles the numerator and denominator of the basic and
diluted earnings per share computations:
<TABLE>
<CAPTION>
NET INCOME WEIGHTED PER SHARE
(LOSS) AVG. SHARES AMOUNT
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
<S> <C> <C> <C>
Basic Earnings
(Loss) per share $651 457,988 $1.42
Stock Options 5,593
Diluted Earnings
(Loss) per share $651 463,756 $1.40
NET INCOME WEIGHTED PER SHARE
(LOSS) AVG. SHARES AMOUNT
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
Basic Earnings
(Loss) per share $460 455,755 $1.01
Stock Options 8,801
Diluted Earnings
(Loss) per share $460 464,556 $.99
NET INCOME WEIGHTED PER SHARE
(LOSS) AVG. SHARES AMOUNT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
Basic Earnings
(Loss) per share $1,730 458,318 $3.77
Stock Options 5,438
Diluted Earnings
(Loss) per share $1,730 463,756 $3.73
NET INCOME WEIGHTED PER SHARE
(LOSS) AVG. SHARES AMOUNT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
Basic Earnings
(Loss) per share $1,348 456,755 $2.95
Stock Options 8,417
Diluted Earnings
(Loss) per share $1,348 465,172 $2.90
</TABLE>
For the periods reported, the "Company" had no reconciling items between net
income (loss) and income (loss) available to common shareholders.
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 September 30,
2000. 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: 9-30-00
REMAINING TIME BEFORE MATURITY OR INTEREST RATE ADJUSTMENT
($000.00)
GREATER GREATER GREATER GREATER
THAN 3Mo. THAN 1Yrs. THAN 3Yrs. THAN 5Yrs.
OMITTED UP LESS LESS LESS LESS OVER
TOTAL 3 Mo. THAN 1Yrs. THAN 3Yrs. THAN 5Yrs. THAN 10Yrs. 10 YEARS
<S> <C> <C> <C> <C> <C> <C> <C>
I. EARNING ASSETS
--------------
A. INVESTMENTS:
------------
1. U. S. TREASURIES $0 $0 $0 $0 $0 $0 $0
2. U. S. AGENCIES 17,465 5,000 12,465 0 0 0 0
3. FED FUNDS SOLD 8,985 8,985 0 0 0 0 0
4. PURCHASED CDS 33,618 10,994 17,916 4,708 0 0 0
------- ------- ------- ------- ------ ------ -------
TOTAL INVESTMENTS $60,068 $24,979 $30,381 $4,708 $0 $0 $0
B. LOANS $64,778 $58,854 $1,602 $793 $3,529 $0 $0
-----
--------------------------------------------------------------------------
TOTAL LOANS $64,778 $58,854 $1,602 $793 $3,529 $0 $0
C. TOTAL EARNING ASSETS $124,846 $83,833 $31,983 $5,501 $3,529 $0 $0
II. COST OF FUNDS (DEPOSITS)
------------------------
A. CERTIFICATE OF DEPOSITS $43,864 $31,899 $11,569 $396 $0 $0 $0
B. MONEY MARKET ACCOUNTS 29,009 3,956 11,153 13,900 0 0 0
C. TRANSACTION ACCOUNTS 5,720 245 735 1,939 1,394 1,406 0
D. SAVINGS ACCOUNTS 2,482 106 319 841 605 610 0
------- ------- ------- ------- ------ ------ -------
TOTAL COST OF FUNDS $81,075 $36,206 $23,776 $17,076 $1,999 $2,016 $0
III. INTEREST SENSITIVE ASSETS $124,846 $83,833 $31,983 $5,501 $3,529 $0 $0
IV. INTEREST SENSITIVE LIABILITIES $81,075 $36,206 $23,776 $17,076 $1,999 $2,016 $0
------- ------- ------- ------- ------ ------ -------
V. GAP $43,771 $47,627 $8,207 ($11,575) $1,530 ($2,016) $0
VI. CUMULATIVE GAP $43,771 $47,627 $55,834 $44,259 $45,789 $43,773 $43,773
VII. GAP RATIO 1.54 2.32 1.35 0.32 1.77 0.00 0.00
VIII. CUMULATIVE RATIO 1.54 2.32 1.93 1.57 1.58 1.54 1.54
IX. GAP AS A % OF TOTAL ASSETS 32.12 34.95 6.02 -8.50 1.12 -1.48
X. CUMULATIVE GAP AS A % OF 32.12 34.95 40.98 32.48 33.60 32.12 32.12
TOTAL ASSETS
</TABLE>
9
<PAGE>
ITEM 2.
-------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
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 September 30, 2000 was 55.5% which was
an increase from 48.9% for the same period in 1999. Total outstanding loans as
of September 30, 2000 increased $15,329,000 compared to the same period a year
ago while total deposits increased $14,738,000 versus the same time last year.
The increase in loans and deposits was mainly due to Summit's effort in
marketing its products and the formation of the Real Estate Capital Markets
Group. The average loan-to-deposit ratio at the end of the third quarter of 2000
was 52.3%, an increase from 46.4% for the same period last year. This increase
was caused by an increase in average total deposits of $18,497,000 or 17.5%
while average total loans increased $15,886,000 or 32.3%.
One of the company's customers manages accounts for medical offices and
physicians. This customer has brought approximately 80 of the accounts they
manage to the company. As of September 30, 2000 the aggregate monthly average
balance in these accounts was approximately $20,000,000.
Due to the actual ownership of the accounts being different entities, the
company believes the chances of these deposits moving to another institution are
low. An analysis of the loan to deposit ratio shows that without this
concentration of deposits, the loan to deposit ratio would be over 60%.
Net liquid assets, which consists primarily of cash, due from banks,
interest-bearing deposits with other financial institutions, investment
securities and federal funds sold
10
<PAGE>
totaled $67,223,000 on September 30, 2000. This amount represented 54.8% of
total deposits in comparison to the liquidity ratio of 62.3% as of September 30,
1999. This decrease is primarily a result of a rise in loan growth which caused
a decrease in investments. It is management's belief that the current liquidity
level is appropriate given current economic conditions and is sufficient to meet
current needs.
The following table sets forth book value of investments by category and the
percent of total investments at the dates specified.
INVESTMENT COMPARATIVE
($000.00 Omitted)
<TABLE>
<CAPTION>
9-30-00 % 12-31-99 % 9-30-99 %
<S> <C> <C> <C> <C> <C> <C>
Fed funds sold $ 8,985 15% $21,760 32% $11,335 19%
Interest bearing
deposits 33,618 56% 27,889 40% 28,087 47%
Securities 17,465 29% 19,465 28% 20,466 34%
</TABLE>
Interest bearing deposits are comprised of Time Certificates of Deposit with
other banks and savings and loan institutions with no more than $100,000 in any
institution.
Securities on September 30, 2000 were comprised of U.S. Gov't agencies.
CHANGES IN FINANCIAL POSITION
As of September 30, 2000, total deposits increased $2,680,000 from December 31,
1999 while at the same time net loans outstanding increased $11,999,000. Total
deposits as of September 30, 2000 were $122,677,000, an increase of 13.7% from
$107,939,000 as of September 30, 1999. Net loans as of September 30, 2000 were
$68,070,000, an increase of 28.9% from $52,823,000 as of September 30, 1999.
The following table sets forth the amount of deposits by each category and the
percent of total deposits at the dates specified.
11
<PAGE>
DEPOSIT COMPARATIVE
($000.00 Omitted)
<TABLE>
<CAPTION>
9-30-00 % 12-31-99 % 9-30-99 %
<S> <C> <C> <C> <C> <C> <C>
Demand $42,095 34% $39,567 33% $36,464 34%
Savings 2,482 2% 2,327 2% 3,024 3%
Interest bearing 34,236 28% 48,226 40% 39,161 36%
Trans. Deposits
Other time 43,865 36% 29,877 25% 29,290 27%
</TABLE>
The following table sets forth the amount of loans outstanding by category
and the percent of total loans outstanding at the dates specified.
LOAN COMPARATIVE
($000.00 Omitted)
<TABLE>
<CAPTION>
9-30-99 % 12-31-99 % 9-30-99 %
<S> <C> <C> <C> <C> <C> <C>
Commercial $34,859 52% $33,368 58% $30,343 56%
Real estate-const 14,230 21% 9,463 17% 7,024 13%
Real estate-other 12,914 15% 7,627 13% 9,709 18%
Installment/other 7,481 12% 6,887 12% 6,899 13%
</TABLE>
NON-PERFORMING ASSETS
The following table provides information with respect to the Bank's past due
loans and components for non-performing assets at the dates indicated.
NON-PERFORMING ASSETS
($000.00 Omitted)
<TABLE>
<CAPTION>
9-30-00 12-31-99 9-30-99
<S> <C> <C> <C>
Loans 90 days or more past
due & still accruing $ 0 $ 0 $ 6
Non-accrual loans 16 158 271
Other real estate owned 0 0 422
------ ------ ------
Total non-performing assets $ 16 $ 158 $ 699
====== ====== =====
</TABLE>
12
<PAGE>
<TABLE>
<S> <C> <C> <C>
Non-performing assets to
period end loans plus
other real estate owned 0.02% 0.28% 1.28%
Allowance to non-performing
loans 8,838% 806% 484%
Allowance to non-performing
assets 8,838% 806% 190%
</TABLE>
The Bank's policy is to recognize interest income on an accrual basis unless
the full collectibility of principal and interest is uncertain. Loans that
are delinquent 90 days as to principal or interest are placed on a
non-accrual basis, unless they are well secured and in the process of
collection, and any interest earned but uncollected is reversed from income.
Collectibility is determined by considering the borrower's financial
condition, cash flow, quality of management, the existence of collateral or
guarantees and the state of the local economy.
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, less
estimated costs to sell. When the loan balance plus accrued interest exceeds
the fair value of the property less disposal costs, the difference is charged
to the allowance for loan losses at the time of foreclosure. Subsequent
declines in value from the recorded amount, if any, and gains or losses upon
disposition are included in noninterest expense. Operating expenses related
to other real estate owned are charged to non-interest expense in the period
incurred.
The decrease in non-performing assets from September 30, 1999 to September
30, 2000 is due primarily to a decrease in non-accrual loans of $255,000 and
a decrease of $422,000 in OREO. The $16,000 total non accrual loans in 2000,
is scheduled to be charged off in October, 2000. The decrease in OREO
property was due to the sale of the property during the fourth quarter of
1999. A $58,000, no gain was recognized in connection with the sale.
13
<PAGE>
CAPITAL POSITION
As of September 30, 2000, Shareholders' Equity was $16,494,000. This
represents an increase of $1,522,000 or 10.0% over the same period last year.
Since the inception of the repurchase program in 1989, the Company has
authorized the repurchase of $3,500,000 of its stock. As of September 30,
2000, the Company has repurchased a total of 167,170 shares of the Company
stock constituting 31.1% of the Company's original stock prior to the
repurchase program, at a total cost of $2,667,714, or an average price per
share of $15.96. The Company plans to continue its repurchase program as an
additional avenue for liquidity for its shareholders. The program has not
significantly affected the Company's liquidity or capital position or its
ability to operate as the Company's capital growth has exceeded its asset
growth. In addition, the Company's subsidiary Bank remains more than
well-capitalized under current regulations.
The following table shows the risk-based capital and leverage ratios as well as
the minimum regulatory requirements for the same as of September 30, 2000:
<TABLE>
<CAPTION>
Capital Ratio Minimum
Regulatory requirement
<S> <C> <C>
Tier 1 Capital 15.35% 4.00%
Total Capital 16.35% 8.00%
Leverage Ratio 10.62% 3.00%
</TABLE>
14
<PAGE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
Total interest income including loan fees increased from $6,493,000 for the
first nine months of 1999 to $8,292,000 for the same period in 2000.
The increase in loan income was due primarily to the increase in outstanding
loans. Average outstanding loans increased from $52,429,000 in 1999 to
$61,626,000 in 2000. The yield on loans and fees increased from 10.78% in 1999
to 11.65% in 2000.
The increase in interest income from investments was due to an increase in yield
of 55 basis points compared to the same period in 1999. Average total
investments were $9,006,000 higher than the same period last year.
Interest expense increased from $1,695,000 at the end of the first nine months
of 1999 to $2,157,000 in 2000. This increase was due to an increase in average
interest-bearing deposit accounts of $13,945,000 during the first nine months of
2000 versus the same period last year. The average cost of funds for the period
ending September 30, 2000 was 20 basis points more than the same period last
year. As a result of these factors, net interest margin for the first nine
months of 2000 was 6.34% compared to 5.79% for the same period last year.
For the third quarter, total interest income including loan fees increased
from $2,275,000 in 1999 to $3,065,000 for the same period in 2000. This
increase is due to an increase in loan income and interest on time deposits
with other institutions. Average loan volume for the third quarter of 2000
showed an increase of $15,015,000 from the same period last year. Yield on
loans for the third quarter of 2000 was 12.34% compared to 10.92% for the
same period last year. For the third quarter of 2000, total interest income
on investments increased $139,000. This increase was attributable to an
average investment volume increase of $1,428,000 along with an interest yield
increase from 5.48% in the third quarter of 1999 to 6.21% for the same period
in 2000.
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<PAGE>
For the third quarter of 2000, interest expense increased $266,000 compared to
the same period in 1999. Average outstanding interest bearing deposits increased
from $70,636,000 in the third quarter of 1999 to $84,581,000 in the third
quarter of 2000. Average cost of funds for the same period was 3.97% in 2000
compared to 3.24% in 1999. As a result of these factors, net interest income for
the third quarter of 2000 increased $524,000, or 30.77%, compared to the same
period in 1999.
OTHER OPERATING INCOME
Service charges on deposit accounts as of the end of the nine months of
2000 decreased to $267,000 versus $337,000 for the same period in 1999. The
decrease was due to decreased fees collected in service charges related to
NSF fees on commercial accounts.
Other customer fees and charges for the first nine months decreased $85,000.
This was primarily related to a gain on sale of other real estate owned of
$41,000 in 1999. In addition, $24,000 in 1999 was recognized from a
reimbursement of real estate taxes previously paid on leased property. The
remainder was lease income realized in 1999 from rental property who's lease has
expired. Rental income from this property in 1999 was $13,000.
Service charges on deposit accounts for the third quarter of 2000 decreased
$16,000 compared to the same period last year due to decreased collection of
NSF fees on commercial accounts.
LOAN LOSS PROVISION
The allowance for loan losses is maintained at a level that management of the
Company considers 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 losses in the loan portfolio, as well as
prevailing economic conditions.
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Management employs a systematic methodology on a monthly basis to determine
the adequacy of the allowance for current 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 economic conditions.
The following table summarizes the activity in the Bank's allowance for credit
losses for the nine months ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
(000.00 Omitted)
9/30/00 9/30/99
<S> <C> <C>
Balance, beginning of the period $1,273 $1,319
Provision for loan losses 120 0
Recoveries 21 28
Loans Charged-off 0 (15)
----- -----
$1,414 $1,332
</TABLE>
The balance in the allowance for loan losses at September 30, 2000 was 2.08% of
net loans compared to 2.52% of net loans at September 30, 1999.
OTHER OPERATING EXPENSES
Total other operating expenses increased $399,000 as of the end of the
nine months of 2000 compared to the same period last year. This increase was
primarily due to an increase in staff expense.
For the third quarter of 2000, operating expenses increased $93,000 compared to
the same period last year primarily due to the items previously mentioned.
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<PAGE>
PROVISION FOR INCOME TAXES
The Company's provision for income taxes as of the end of the first nine months
of 2000 increased from $966,000 in 1999 to $1,247,000. This increase is
attributable to increased income from regular business operations. For the same
period in 2000 the Company's total effective tax rate was 41.9% compared to
41.8% in 1999.
For the third quarter of 2000, the provision for income taxes increased $133,000
compared to the third quarter of 1999. The effective tax rate for this period
was 41.5% versus 41.7% for the same period last year.
NET INCOME
Net income for the first nine months of 2000 increased to $1,730,000 from
$1,348,000 for the same period in 1999, or an increase of 28.3%. Third quarter
net income increased $191,000 or 41.5% over the same period last year.
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. 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.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
No material developments from that which was reported in the Form
10-K dated March 31, 2000 for the year ended December 31, 1999.
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<PAGE>
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None
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<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)
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