SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1994 Commission File Number 0-11986
SUMMIT BANCSHARES, INC.
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(Exact name of registrant as specified in its charter)
TEXAS 75-1694807
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(State of Incorporation) (I.R.S. Employer
Identification No.)
1300 Summit Avenue, Fort Worth, Texas 76102
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(Address of principal executive offices)
(817) 336-6817
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.25 par value
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(Title of Class)
Indicate by 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 authorized to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [x]
The aggregate market value of the shares of voting stock held by non-
affiliates of the registrant at March 1, 1995 was approximately $25,027,496.
The number of shares of common stock, $1.25 par value, outstanding at March 1,
1995 was 1,570,723 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement dated March 21, 1994, filed pursuant
to Regulation 14A of the Securities Exchange Act of 1934 for the 1995 Annual
Meeting of Shareholders of Summit Bancshares, Inc., are incorporated by
reference into Part III.
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PART I
ITEM 1. BUSINESS.
THE CORPORATION. Summit Bancshares, Inc. (the "Corporation"), a corporation
incorporated under the laws of the state of Texas in 1979, is a bank holding
company registered under the Bank Holding Company Act of 1956, as amended (the
"BHC Act"). At December 31, 1994 the Corporation owned all of the issued and
outstanding shares of capital stock of three national banking associations,
Summit National Bank, Alta Mesa National Bank and Camp Bowie National Bank
(the "Subsidiary Banks") and a nonbank subsidiary, Summit Bancservices, Inc.,
all located in Fort Worth, Texas.
At December 31, 1994 the Corporation had consolidated total assets of
$291,011,000, consolidated total loans of $138,966,000, consolidated total
deposits of $259,539,000 and consolidated total shareholders' equity of
$25,334,000.
The Corporation provides advice and services to the Subsidiary Banks and
coordinates their activities in the areas of financial accounting controls and
reports, internal audit programs, regulatory compliance, financial planning
and employee benefit programs. However, each Subsidiary Bank operates under
the day-to-day management of its own officers and directors.
The Corporation's major source of income is dividends received from the
Subsidiary Banks. Dividend payments by the Subsidiary Banks are determined on
an individual basis, generally in relation to each Subsidiary Bank's earnings,
deposits and capital.
The Corporation's business is neither seasonal in nature nor in any manner
related to or dependent upon patents, licenses, franchises or concessions and
the Corporation has not spent material amounts on research activities.
THE SUBSIDIARY BANKS. The services offered by the Subsidiary Banks are
generally those offered by commercial banks of comparable size in their
respective areas. Certain of the principle services offered by the Subsidiary
Banks are described below.
Commercial Banking. The Subsidiary Banks provide general commercial
banking services for corporate and other business clients located in
Tarrant County, Texas. Loans are made for a wide variety of purposes,
including interim construction and mortgage financing on real estate and
financing of equipment and inventories.
Consumer Banking. The Subsidiary Banks provide a full range of consumer
banking services, including interest and non-interest-bearing checking
accounts, various savings programs, installment and real estate loans,
money transfers, on-site ATM facilities and safe deposit facilities.
Securities Services. Summit Bancshares, Inc. through an agreement with
BFP Financial Partners, Inc. offers investment brokerage services. BFP
Financial Partners, Inc., a subsidiary of Legg Mason, Inc. is a registered
broker-dealer and member of the National Association of Securities
Dealers, Inc. Investment Executives are available at each of the
Subsidiary Banks and can provide information about the tax free
municipals, government securities, stocks, mutual funds, or annuities.
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Certain information with respect to each Subsidiary Bank as of December 31,
1994 is set forth in the following table. Interbank balances have not been
eliminated in the table as such balances are not material to total deposits or
total assets.
<TABLE>
<CAPTION>
As of December 31, 1994
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(In Thousands)
Organiza- Acqui- Share-
Name and Address of tion sition Total Total Total holder's
Subsidiary Bank Date Date Assets Loans Deposits Equity
------------------- -------- ------- ------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Summit National Bank 1975 1980 $136,753 $ 66,350 $120,848 $11,713
1300 Summit Avenue
Fort Worth, TX 76102
Alta Mesa National Bank 1981 1983 $ 76,881 $ 39,754 $ 70,740 $ 5,883
3000 Alta Mesa Drive
Fort Worth, TX 76133
Camp Bowie National Bank 1984 1984 $ 75,677 $ 34,077 $ 69,256 $ 6,228
3859 Camp Bowie Blvd.
Fort Worth, TX 76107
</TABLE>
NON-BANK SUBSIDIARY. Effective January 1, 1993 the Corporation activated its
non-bank subsidiary, Summit Bancservices, Inc. ("SBS"), as an operations
center to provide data processing and bookkeeping services for the Subsidiary
Banks. These services were previously provided to the Subsidiary Banks by
Summit National Bank. Before commencing operations, SBS purchased data
processing equipment, furniture and fixtures from Summit National Bank for
their appraised fair market value as well as certain additional data
processing equipment from an unrelated third party vendor. To enable SBS to
finance the purchase of such data processing equipment, furniture and fixtures
and to provide for working capital, the Corporation contributed $265,000 in
cash to SBS, and Summit National Bank loaned SBS $290,000. The loan is
evidenced by a promissory note dated January 21, 1993 providing for monthly
payments of $9,000, including interest. The note matures on January 15, 1996,
is secured by a blanket security interest in all of the assets of SBS, and is
guaranteed by the Corporation.
COMPETITION. There is significant competition among bank holding companies in
Tarrant County, Texas and the Corporation believes that such competition among
such bank holding companies will continue in the future.
Additionally, the Subsidiary Banks encounter intense competition in their
commercial banking businesses, primarily from other banks represented in their
respective market areas, many of which have far greater assets and financial
resources. The Subsidiary Banks also encounter intense competition in their
commercial banking businesses from savings and loan associations, credit
unions, factors, insurance companies, commercial and captive finance companies
and certain other types of financial institutions located in other major
metropolitan areas in the United States, many of which are larger in terms of
capital, resources and personnel.
EMPLOYEES. As of December 31, 1994 the Corporation and the Subsidiary Banks
collectively had a total of 119 full-time employees and 6 part-time employees.
SUPERVISION AND REGULATION.
GENERAL. The Corporation and the Subsidiary Banks are extensively regulated
under federal and state law. These laws and regulations are generally
intended to protect depositors, not shareholders.
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To the extent that the following information describes statutory or regulatory
provisions, it is qualified in its entirety by reference to the particular
statutory and regulatory provisions. Any change in applicable laws or
regulations may have a material effect on the business and prospects of the
Corporation and the Subsidiary Banks. The operations of the Corporation and
the Subsidiary Banks may be affected by legislative changes and by the
policies of various regulatory authorities. The Corporation is unable to
predict the nature or the extent of the effects on its business and earnings
that fiscal or monetary policies, economic control or new federal or state
legislation may have in the future.
FEDERAL BANK HOLDING COMPANY REGULATION. The Corporation is a bank holding
company within the meaning of the BHC Act and as such is subject to
regulation, supervision and examination by the Board of Governors of the
Federal Reserve System (the "FRB"). A bank holding company is required to
file with the FRB an annual report and to provide such additional information
regarding its business operations and those of its subsidiaries as the FRB may
require.
With certain limited exceptions, the BHC Act requires every bank holding
company to obtain the prior approval of the FRB before: (i) acquiring direct
or indirect ownership or control of any voting shares of another bank or bank
holding company if, after such acquisition, it would own or control more than
five percent (5%) of such shares (unless it already owns or controls the
majority of such shares); (ii) acquiring all or substantially all of the
assets of another bank or bank holding company; or (iii) merging or
consolidating with another bank holding company. The FRB will not approve any
acquisition, merger or consolidation that would have a substantially anti-
competitive result, unless the anti-competitive effects of the proposed
transaction are clearly outweighed by a greater public interest in meeting the
convenience and needs of the community to be served. The FRB also considers
capital adequacy and other financial and managerial factors in reviewing
acquisitions or mergers.
With certain exceptions, the BHC Act also prohibits a bank holding company
from acquiring or retaining direct or indirect ownership or control of more
than five percent (5%) of the voting shares of any company which is not a bank
or bank holding company, or from engaging directly or indirectly in activities
other than those of banking, managing or controlling banks, or providing
services for its subsidiaries. The principal exceptions to these prohibitions
involve certain non-bank activities which, by statute or by FRB regulation or
order, have been identified as activities closely related to the business of
banking or of managing or controlling banks. In making this determination,
the FRB considers whether the performance of such activities by a bank holding
company can be expected to produce benefits to the public such as greater
convenience, increased competition or gains in efficiency of resources, which
can be expected to outweigh the risks of possible adverse effects such as
decreased or unfair competition, conflicts of interest or unsound banking
practices.
Prior to September 29, 1994, the BHC Act prohibited the acquisition by a bank
holding company of shares of a bank located outside the home state of such
bank holding company unless such acquisition was specifically authorized by
statute of the state in which the bank is located. Under the BHC Act, an
interstate banking corporation was previously required to establish a separate
bank holding company in each state where it intended to acquire a national or
state bank unless the laws of a particular state permitted acquisition by out-
of-state bank holding companies. However, under the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994, Public Law 103-328 (the
"Interstate Banking Act"), the Federal Reserve Board may now approve
applications by a bank holding company to acquire control of, or substantially
all of the assets of, a bank located in a state other than the home state of
such bank holding company. The Interstate Banking Act also permits merger
transactions between banks with different home states including, under limited
circumstances, an interstate merger transaction involving the acquisition of a
branch of an insured bank without the acquisition of the bank itself. The
Interstate Banking Act also permits national banks to engage in consolidations
or mergers with out-of-state banks and permits the Comptroller of the Currency
to approve applications by a national bank to establish and operate a de novo
branch in a state other than the national bank's home state, if the law of the
state where the branch will be located permits all out-of-state banks to
establish de novo branches in such state. The Interstate Banking Act will
also permit foreign banks, under certain conditions, to establish and operate
a foreign bank. Subject to the terms of the Interstate Banking Act, and to
regulations to be adopted by the Federal Reserve Board, Comptroller of the
Currency and Federal Deposit Insurance Corporation under this Act, it will
now be substantially easier for interstate banking corporations and bank
holding companies to acquire banks and establish branch facilities
throughout the United States, thereby increasing competition between and
among banks and bank holding companies, as well as between commercial banks
and other financial institutions.
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Notwithstanding the foregoing description of the Interstate Banking Act, the
provisions regarding out-of-state mergers, acquisition and branch banking will
not generally apply to the Corporation or its Subsidiary Banks until June 1,
1997, unless the State of Texas enacts a law accelerating the effective date
of the provision permitting interstate merger transactions. Conversely, the
Interstate Banking Act also permits the State of Texas, prior to June 1,
1997 effective date of the Interstate Banking Act, to enact a law expressly
prohibiting merger transactions involving out-of-state banks and bank
holding companies. Currently the Texas Banking Code of 1943, as amended,
permits the acquisition of banks domiciled in Texas by out-of-state bank
holding companies. However, an out-of-state bank holding company cannot own
or control (i) a newly formed bank, (ii) both a bank and a savings and loan
association located in Texas, or (iii) both a bank and a non-bank located in
Texas. Texas banks acquired by an out-of-state bank holding company must be
adequately capitalized and the board of directors of any such bank must have
a Texas resident majority (which majority does not include insiders of the bank
or the bank holding company). Unlike similar laws which have been adopted
in other states, Texas law does not limit the geographic region of
out-of-state bank holding companies that may acquire a Texas bank, nor does
it require a reciprocal law in the out-of-state bank holding company's home
state. The lack of such requirements significantly increases the number of
bank holding companies eligible to invest in Texas. An out-of-state bank
holding company seeking to acquire ownership or control of a Texas state
bank, national bank located in Texas or any bank holding company owning or
controlling a state bank or a national bank located in Texas must obtain the
prior approval of both the FRB and the Banking Commissioner of Texas.
Subsidiary banks of a bank holding company are subject to certain restrictions
imposed by the Federal Reserve Act on extensions of credit to the bank holding
company or its subsidiaries, on investments in their securities and on the use
of their securities as collateral for loans to any borrower. These
regulations and restrictions may limit the Corporation's ability to obtain
funds from the Subsidiary Banks for its cash needs, including funds for
payment of dividends, interest and operating expenses.
Under the BHC Act and certain regulations of the FRB, a bank holding company
and its subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit or lease or sale of
property or furnishing of services. For example, a Subsidiary Bank may not
generally require a customer to obtain other services from the Subsidiary Bank
or the Corporation, and may not require that customer to promise not to obtain
other services from a competitor, as a condition to an extension of credit to
the customer.
Additionally, under the BHC Act the FRB is endowed with cease and desist
powers over bank holding companies and non-banking subsidiaries to forestall
activities which represent unsafe or unsound practices or constitute
violations of law. The FRB is also empowered to assess civil penalties
against companies or individuals who violate the BHC Act in amounts up to
$25,000 for each day's violation, to order termination of non-banking
activities of non-banking subsidiaries of bank holding companies and to order
termination of ownership and control of a non-banking subsidiary by a bank
holding company.
Beginning January 1, 1994, the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") expanded the FRB's authority to prohibit
activities of bank holding companies and their non-banking subsidiaries which
represent unsafe and unsound banking practices or which constitute violations
of laws or regulations. Notably, FIRREA increased the amount of civil money
penalties which the FRB can assess for certain activities conducted on a
knowing and reckless basis, if those activities caused a substantial loss to a
depository institution. The penalties can be high as $1,000,000 per day.
FIRREA also expanded the scope of individuals and entities against which such
penalties may be assessed.
The FRB has adopted risk-based capital standards and a minimum leverage ratio
applicable to bank holding companies. See "ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Capital Resources."
NATIONAL BANK REGULATION. The Subsidiary Banks are national banking
associations organized under the laws of the United States pursuant to the
provisions of the National Bank Act.
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The Subsidiary Banks are subject to regulation and supervision, of which
regular bank examinations are a part, by the Office of the Comptroller of the
Currency (the "OCC"), which may prohibit the Subsidiary Banks from engaging in
what the OCC believes constitutes unsafe or unsound banking practices.
The interest and usury laws of the state of Texas, which laws are preempted to
a certain extent by federal law, generally limit the amount of interest which
lenders, including the Subsidiary Banks, may charge on loans. This limit may
vary depending upon, among other things, the identity, nature and location of
the lender and the particular state or federal law applicable thereto, and the
type of loan.
Under the McFadden Act of 1927, national banks may only establish branches to
the extent specifically authorized by statute for banks chartered by the state
in which the national bank is located and subject to the restrictions as to
location imposed by state law on state banks. Texas law permits state banks
to engage in unlimited branch banking. Accordingly, national banks domiciled
in Texas are permitted to engage in unlimited branch banking. A national bank
seeking to establish such a branch must obtain the prior approval of the OCC.
Substantially all of the Corporation's cash flow is derived from dividends
paid by the Subsidiary Banks. The Subsidiary Banks are subject to various
restrictions imposed by the National Bank Act relating to the declaration and
payment of dividends. See "ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS - Dividends."
The Community Reinvestment Act ("CRA") requires that, in connection with
examinations of financial institutions within their jurisdiction, the FRB or
the OCC evaluate the record of the financial institutions in meeting the
credit needs of their local communities, including low and moderate income
neighborhoods, consistent with the safe and sound operation of those banks.
The federal banking agencies are required to make public a rating of a bank's
performance under CRA. These factors are also considered by the FRB and the
OCC in evaluating mergers, acquisitions and applications to open a branch or
facility.
The Subsidiary Banks are also subject to certain restrictions imposed by the
Federal Reserve Act on extensions of credit to executive officers, directors,
principal shareholders or any related interest of such persons. Extensions of
credit (i) must be made on substantially the same terms, including interest
rates and collateral as, and following credit underwriting procedures that are
not less stringent than, those prevailing at the time for comparable
transactions with persons not covered above and who are not employees, and
(ii) must not involve more than the normal risk of repayment or present other
unfavorable features. The Subsidiary Banks are also subject to certain
lending limits and restrictions on overdrafts to such persons. A violation of
these restrictions may result in the assessment of substantial civil monetary
penalties on a Subsidiary Bank or any officer, director, employee, agent or
other person participating in the conduct of the affairs of the Subsidiary
Bank, the imposition of a cease and desist order, and other regulatory
sanctions.
The OCC has adopted risk-based capital standards and a minimum leverage ratio
for national banks which are substantially similar to the risk-based capital
standards and the minimum leverage ratio adopted by the FRB for bank holding
companies. The Subsidiary Banks are currently, and expect to continue to be,
in compliance with the risk-based capital standards and the minimum leverage
ratio. See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Capital Resources."
DEPOSIT INSURANCE. As Federal Deposit Insurance Corporation ("FDIC") member
institutions, the deposits of the Subsidiary Banks are currently insured to a
maximum of $100,000 per depositor through the Bank Insurance Fund ("BIF")
administered by the FDIC, and the Subsidiary Banks are required to pay semi-
annual deposit insurance premium assessments to the FDIC.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
included provisions to reform the federal deposit insurance system, including
the implementation of risk-based deposit insurance premiums, and permits the
FDIC to make special assessments on insured depository institutions, in
amounts determined by the FDIC to be necessary to give it adequate assessment
income to repay amounts borrowed from the U.S. Treasury and other sources
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or for any other purpose the FDIC deems necessary. Pursuant to FDICIA, the FDIC
implemented a transitional risk-based insurance premium system on January 1,
1993 which became the permanent risk-based premium system on January 1,
1994. Generally, under this system banks are assessed insurance premiums
according to how much risk they are deemed to present the BIF. Such premiums
currently range from 0.23% of insured deposits to 0.31% of insured deposits.
Banks with higher levels of capital and involving a low degree of supervisory
concern are assessed lower premiums than banks with lower levels of capital
or involving a higher degree of supervisory concern. All of the Subsidiary
Banks are currently being assessed at the lowest rate of $0.23 per $100 of
deposits.
Also, under FIRREA a depository institution insured by the FDIC can be held
liable for any loss incurred by the FDIC in connection with (i) the failure of
a commonly controlled FDIC-insured depository institution or (ii) any
assistance provided by the FDIC to a commonly controlled FDIC-insured
depository institution in danger of failure (the "Cross Guarantee"). The
Cross Guarantee thus enables the FDIC to assess a bank holding company's
healthy BIF members for the losses of any of such bank holding company's
failed BIF members. Cross Guarantee liabilities are generally superior in
priority to obligations of the depository institution to its shareholders due
solely to their status as shareholders and obligations to other affiliates.
CORRECTIVE MEASURES FOR CAPITAL DEFICIENCIES. FDICIA requires federal banking
regulators to take "prompt corrective action" with respect to capital-
deficient institutions. In addition to requiring the submission of a capital
restoration plan, FDICIA contains broad restrictions on certain activities of
undercapitalized institutions involving asset growth, acquisitions, branch
establishment, and expansion into new lines of business. With certain
exceptions, an insured depository institution is prohibited from making
capital distributions, including dividends, and is prohibited from paying
management fees to control persons if the institution would be
undercapitalized after any such distribution or payment.
As an institution's capital decreases, the powers of the federal regulators
become greater. A significantly undercapitalized institution is subject to
mandated capital raising activities, restrictions on interest rates paid and
transactions with affiliates, removal of management, and other restrictions.
The regulators have very limited discretion in dealing with a critically
undercapitalized institution and are required to appoint a receiver or
conservator if the capital deficiency is not corrected promptly.
INTERNAL OPERATING REQUIREMENTS. FDICIA requires financial institutions with
over $500 million in assets to file an annual report with its primary federal
regulator and any appropriate state banking agency within 90 days after the
end of its fiscal year. The report must contain financial statements audited
by an independent public accountant; a statement of management's
responsibilities for (1) preparing the financial statements and for
maintaining internal controls; (2) for financial reporting and complying with
designated safety and soundness laws and regulations; (3) a separate
assessment by management of the effectiveness of the internal controls and the
institutions' internal controls for financial reporting. The independent
public accountant also must report separately on the institution's compliance
with designated safety and soundness laws and rules.
MONETARY POLICY. The earnings of a bank holding company are affected by the
policies of regulatory authorities, including the FRB, in connection with the
FRB's regulation of the money supply. Various methods employed by the FRB are
open market operations in United States government securities, changes in the
discount rate on member bank borrowings and changes in reserve requirements
against member bank deposits. These methods are used in varying combinations
to influence overall growth and distribution of bank loans, investments and
deposits, and their use may also affect interest rates charged on loans or
paid on deposits. The monetary policies of the FRB have had a significant
effect on the operating results of commercial banks in the past and are
expected to continue to do so in the future.
ITEM 2. PROPERTIES.
THE CORPORATION. The Corporation is located on the sixth floor of an eight-
story office building located at 1300 Summit Avenue, Fort Worth, Texas. The
building is owned by an unrelated third-party. The Corporation occupies 4,978
square feet of floor space in the building pursuant to a lease agreement which
expires on December 31, 1999 and pays monthly rental of $4,771 for such space.
-7-
In 1985 the Corporation entered into a ground lease agreement with Alta Mesa
National Bank pursuant to which the Corporation leases a 2.25 acre tract of
land owned by Alta Mesa National Bank at a monthly rental of $5,600. See
"ITEM 2. PROPERTIES - Alta Mesa National Bank." During 1986 the Corporation
constructed a three-story building (containing approximately 43,000 square
feet) on such 2.25 acre tract of land at a cost of approximately $2,500,000.
On October 1, 1986 the Corporation entered into a 15-year lease agreement with
Alta Mesa National Bank pursuant to which the Corporation leases approximately
9,700 square feet of floor space in such building to Alta Mesa National Bank.
The lease agreement requires monthly rental payments to the Corporation of
approximately $14,288.
SUMMIT NATIONAL BANK. Summit National Bank is located on the first floor of
the same office building in which the Corporation's offices are located.
Summit National Bank occupies 12,264 square feet of floor space in the
building which is owned by an unrelated third-party. The space is leased by
Summit National Bank under a lease agreement expiring in December 1999 that
requires monthly base rental payments of $8,176. Under the terms of the lease
agreement, Summit National Bank has the option of extending the lease
agreement for two (2) successive additional terms of five (5) years each at
90% of market rate.
Summit National Bank owns in fee a tract of land consisting of approximately
0.5 acres located near its principal place of business upon which it is
operating a detached motor bank facility.
Summit National Bank also owns in fee an improved tract of land consisting of
approximately 18,000 square feet located at 500 Eighth Avenue, Fort Worth,
Texas. Pursuant to a lease agreement dated January 1, 1993, Summit National
Bank leases this tract of land, together with the one-story building thereon,
to SBS. The lease agreement is for a term of three (3) years and provides for
monthly rental payments of $3,069.50 to Summit National Bank.
ALTA MESA NATIONAL BANK. Alta Mesa National Bank is located on the first
floor of a three-story building located at 3000 Alta Mesa Boulevard,
Fort Worth, Texas. The building, which contains approximately 43,000 square
feet of floor space, was completed by the Corporation in 1986. On October 1,
1986 the Corporation entered into a lease agreement with Alta Mesa National
Bank pursuant to which the Corporation leases approximately 9,700 square feet
of floor space to Alta Mesa National Bank. The tract of land upon which the
building is located is owned by Alta Mesa National Bank and consists of
approximately 2.25 acres. In 1985 the Corporation entered into a ground lease
agreement with Alta Mesa National Bank pursuant to which the Corporation
leases the 2.25 acre tract of land from Alta Mesa National Bank. See "ITEM 2.
PROPERTIES - The Corporation."
Alta Mesa National Bank also owns a 1.5 acre tract of land located adjacent to
its principal place of business which it purchased in 1982 from an
unaffiliated third party for $214,500. Alta Mesa National Bank is operating a
detached motor bank facility on such 1.5 acre tract of land.
CAMP BOWIE NATIONAL BANK. Camp Bowie National Bank is located at 3859 Camp
Bowie Boulevard, Fort Worth, Texas. The tract of land upon which the offices
of Camp Bowie National Bank are situated consists of approximately 1.2 acres
of land. The tract of land and building presently located thereon were
acquired by Camp Bowie National Bank from an unaffiliated third-party for
approximately $747,941. In 1985 the Corporation completed renovating the
existing improvements presently located on the 1.2 acre tract of land at a
cost of $1,887,800. Camp Bowie National Bank subsequently purchased the
improvements from the Corporation at book value. The building contains
approximately 15,000 square feet of floor space. Camp Bowie National Bank
also owns a 13,000 square foot parking lot on Crestline Road.
ITEM 3. LEGAL PROCEEDINGS.
In the opinion of management, there are no material pending legal proceedings,
other than ordinary routine litigation incidental to the Corporation's
business, to which it or any of its subsidiaries is a party or of which any of
their property is the subject.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders through the
solicitation of proxies or otherwise, during the fourth quarter of 1994.
ITEM 4A. EXECUTIVE OFFICERS OF THE CORPORATION.
The executive officers of the Corporation, each elected to serve at the
pleasure of the Board of Directors until the next annual meeting of the Board
of Directors to be held on April 18, 1995, their respective ages, and their
present positions with the Corporation are as follows:
Position With Position Held
Name Age the Corporation Since
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Philip E. Norwood 45 President and Chief 1993
Executive Officer
James L. Murray 62 Chairman of the Board 1985
F. S. Gunn 61 Vice Chairman 1993
Jeffrey M. Harp 46 Executive Vice President, 1993
Chief Operating Officer
and Secretary/Treasurer
Bob G. Scott 57 Senior Vice President and 1994
Chief Financial Officer
The business experience of each of these executive officers during the past
five (5) years is set forth below:
Mr. Norwood became President of Camp Bowie National Bank in July 1994,
President and Chief Executive Officer of the Corporation in October 1993 and
Chairman of the Board and Chief Executive Officer of Alta Mesa National Bank
in December 1992, and continues to serve in these capacities. He has served
as a director of the Corporation since March 1984. From January 1990 to
October 1993 Mr. Norwood served as Secretary of the Corporation, from December
1992 to October 1993 he served as Executive Vice President of the Corporation,
and from March 1984 to January 1990 he served as Secretary and Treasurer of
the Corporation. From April 1981 to December 1992 Mr. Norwood served as
President of Alta Mesa National Bank. Mr. Norwood has served as a director of
Alta Mesa National Bank since April 1981, as a director of Summit National
Bank since March 1983 and as a director of Camp Bowie National Bank since
January 1990.
Mr. Murray became Chairman of the Board of the Corporation in January 1985,
and Chairman of the Board of Camp Bowie National Bank in January 1990, and
continues to serve in these capacities. Mr. Murray served as Chief Executive
Officer of the Corporation From January 1990 to October 1993, as President of
the Corporation from 1979 to January 1985, as President of Camp Bowie National
Bank from January 1990 to January 1994, and as Chairman of the Board of
Directors of Summit National Bank from October 1981 to January 1990. He has
served as a director of Summit National Bank since January 1975 and of Camp
Bowie National Bank since April 1985. Additionally, Mr. Murray was a director
of Alta Mesa National Bank from April 1981 to April 1985. He was reelected to
the Board of Directors of Alta Mesa National Bank in January 1990.
Mr. Gunn became Vice Chairman of the Board of the Corporation in October 1993.
From January 1990 to October 1993 Mr. Gunn served as President of the
Corporation, and from January 1985 to January 1990 he previously served as
Vice Chairman of the Board of the Corporation. Mr. Gunn has served as
Chairman of the Board of Summit National Bank since January 1991, and served
as President of Summit National Bank from October 1981 to January 1991. He
-9-
has served as a director of Summit National Bank since January 1975, as a
director of Alta Mesa National Bank since March 1982 and as a director of Camp
Bowie National Bank since January 1990.
Mr. Harp became Chief Operating Officer and Secretary of the Corporation in
October 1993, Executive Vice President of the Corporation in December 1992,
and Treasurer and a director of the Corporation in January 1990, and continues
to serve in these capacities. He has served as President and Chief Executive
Officer of Summit National Bank since January 1991, and served as Executive
Vice President of Summit National Bank from February 1985 to December 1990.
He has served as a director of Summit National Bank, Alta Mesa National Bank
and Camp Bowie National Bank since January 1990.
Mr. Scott became Senior Vice President and Chief Financial Officer in June
1994, and continues to serve in that capacity. From February 1992 to June
1994 Mr. Scott was a Senior Vice President with Alexander and Alexander of
Texas, Inc. Prior to February 1992, Mr. Scott was a financial officer with
Team Bancshares, Inc., Fort Worth, Texas and with Texas American Bancshares,
Inc.
No family relationships exist among the executive officers and directors of
the Corporation.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
MARKET INFORMATION. Since May 3, 1993 the Corporation's Common Stock has been
traded on the Nasdaq Stock Market under the symbol "SBIT." The following
table sets forth the high and low closing bid quotations of the Corporation's
Common Stock for the periods indicated:
Bid
----------------------
High Low
-------- --------
1993 Fiscal Year:
Second Quarter $ 14.75 $ 11.75
Third Quarter 20.00 13.00
Fourth Quarter 20.50 16.75
1994 Fiscal Year:
First Quarter 19.50 17.00
Second Quarter 19.00 16.875
Third Quarter 21.00 17.50
Fourth Quarter 22.75 20.00
On March 1, 1995 the closing bid and asked quotations reported for the Common
Stock were $20.75 and $21.75, respectively. The foregoing quotations reflect
prices quoted by market makers of the Corporation's Common Stock, without
retail markup, markdown or commissions, and may not necessarily represent
actual transactions.
Prior to May 3, 1993 there was no established public trading market for the
issued and outstanding shares of Common Stock of the Corporation. According-
ly, there exists no published information with respect to market prices before
that date. From time to time, however, moderate numbers of shares of Common
Stock were transferred on the books of the Corporation. During the first
quarter of 1993, 38,016 shares of Common Stock traded in 14 transactions at an
average price per share of $8.68. This data has been restated to reflect a
two-for-one stock split effected on April 21, 1993. Due to the limited
trading volume, however, this average price may not reflect true market value.
-10-
SHAREHOLDERS. At the close of business on March 1, 1995 there were 682
shareholders of record of Common Stock of the Corporation.
DIVIDENDS. The Corporation has paid regular cash dividends on its common
stock on a quarterly basis since the beginning of 1993. The Corporation also
paid a special non-recurring dividend in the first quarter of 1993. The
following table sets forth, for each quarter since the beginning of 1993, the
quarterly dividends paid by the Corporation on its Common Stock for the
indicated periods. Data has been restated to reflect a two-for-one stock
split effected on April 21, 1993.
<TABLE>
<CAPTION>
1993 Dividends Per Share
------------------- -------------------
<S> <C>
First Quarter(1) $ 0.125
Second Quarter 0.03
Third Quarter 0.03
Fourth Quarter 0.03
<CAPTION>
1994
-------------------
<S> <C>
First Quarter $ 0.09
Second Quarter 0.09
Third Quarter 0.09
Fourth Quarter 0.09
<FN>
-------------------------------------
<FN1>
(1) Includes a $0.10 special non-recurring dividend.
</FN>
Although the Board of Directors intends to continue to pay quarterly cash
dividends in the future, there can be no assurance that cash dividends will
continue to be paid in the future or, if paid, that such cash dividends will
be comparable to cash dividends previously paid by the Corporation, since
future dividend policy is subject to the discretion of the Board of Directors
of the Corporation and will depend upon a number of factors, including future
earnings of the Corporation, the financial condition of the Corporation, the
Corporation's cash needs, general business conditions and the amount of
dividends paid to the Corporation by the Subsidiary Banks.
The principal source of the Corporation's cash revenues is dividends received
from the Subsidiary Banks. Pursuant to the National Bank Act, no national
bank may pay dividends from its paid-in capital. All dividends must be paid
out of current or retained net profits, after deducting reserves for losses
and bad debts. The National Bank Act further restricts the payment of
dividends out of net profits by prohibiting a national bank from declaring a
dividend on its shares of common stock until the surplus fund equals the
amount of capital stock or, if the surplus fund does not equal the amount of
capital stock, until one-tenth of a bank's net profits for the preceding half
year in the case of quarterly or semi-annual dividends, or the preceding two
half-year periods in the case of annual dividends, are transferred to the
surplus fund. The approval of the OCC is required prior to the payment of a
dividend if the total of all dividends declared by a national bank in any
calendar year would exceed the total of its net profits for that year combined
with its net profits for the two preceding years. Under FDICIA, a Subsidiary
Bank may not pay a dividend if, after paying the dividend, the Subsidiary Bank
would be undercapitalized.
In addition, the appropriate regulatory authorities are authorized to prohibit
banks and bank holding companies from paying dividends which would constitute
an unsafe and unsound banking practice. The Subsidiary Banks and the
Corporation are not currently subject to any regulatory restrictions on their
dividends.
-11-
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth summary historical data for the past
five years (in thousands except ratios and per share data):
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Summary of Earnings:
Interest Income $ 18,143 $ 17,095 $ 18,092 $ 20,000 $ 20,385
Interest Expense 5,625 5,235 6,860 10,915 12,199
------- ------- ------- ------- ------
Net Interest Income 12,518 11,860 11,232 9,085 8,186
Provision (Credit) for Loan Losses (114) 23 421 1,357 1,495
Securities Gains (Losses) (152) 3 69 9 -0-
Non-interest Income 2,520 2,646 2,314 2,054 1,674
Non-interest Expense 8,866 8,946 8,793 7,941 7,780
------ ------ ------ ------ ------
Earnings Before Income Taxes 6,134 5,540 4,401 1,850 585
Income Tax Expense 2,094 1,809 1,397 612 105
------ ------ ------ ------ ------
Income Before Extraordinary Item 4,040 3,731 3,004 1,238 480
Net Income 4,040 3,731 3,236 1,238 480
Balance Sheet Data (at period-end):
Total Assets $291,011 $280,688 $266,549 $256,425 $244,428
Investment Securities 114,722 112,315 96,036 84,758 69,704
Loans, Net of Unearned Discount 138,966 127,250 124,843 120,677 120,498
Reserve for Loan Losses 2,410 2,594 2,810 2,934 3,276
Demand Deposits 72,992 61,165 57,607 49,992 43,607
Total Deposits 259,539 254,151 242,929 232,528 221,981
Long-term Debt and Notes Payable 250 500 750 1,700 2,200
Stockholders' Equity 25,334 22,978 19,501 16,304 15,121
Per Share Data:
Net Income Before Extraordinary Item $ 2.58 $ 2.41 $ 1.94 $ .80 $ .31
Book Value - Period-End* 16.60 14.74 12.63 10.50 9.65
Dividends Paid .36 .215 -0- -0- -0-
Weighted Average Shares Outstanding 1,568 1,548 1,549 1,559 1,569
Selected Performance Ratios:
Return on Average Assets 1.43% 1.40% 1.28% .50% .20%
Return on Average Stockholders' Equity* 16.55 17.75 18.24 7.91 3.23
Net Interest Margin (tax equivalent) 4.85 4.90 4.91 4.08 3.93
Asset Quality Ratios:
Non-Performing Loans to Total
Loans - Period-End .46% 1.17% 1.18% 4.53% 6.23%
Allowance for Loan Losses to
Total Loans - Period-End 1.73 2.04 2.25 2.43 2.72
Allowance for Loan Losses to
Non-performing Loans - Period-End 375.0 174.0 190.0 54.0 44.0
Net Charge-Offs to Average Loans .05 .19 .45 1.40 1.62
Capital Ratios:
Stockholders' Equity * to Total
Assets - Period-End 9.04% 8.19% 7.32% 6.36% 6.19%
Average Stockholders' Equity*
to Average Assets 8.64 7.89 6.99 6.30 6.33
Total Risk-based Capital to Risk
Weighted Assets - at Period-End** 18.09 17.53 15.62 13.38 12.35
Leverage Ratio - at Period-End** 8.69 8.18 7.32 6.36 6.19
<FN>
* Before adjustment for unrealized gains and losses on Available
for Sale securities.
** Calculated in accordance with Federal Reserve guidelines
currently in effect.
</FN>
</TABLE>
-12-
<TABLE>
Quarterly Results (Unaudited)
A summary of the unaudited results of operations for each quarter of 1994 and
1993 follows (in thousands except for per share data):
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1994:
---------
Interest Income $4,178 $4,396 $4,652 $4,917
Interest Expense 1,224 1,315 1,462 1,624
Net Interest Income 2,954 3,081 3,190 3,293
Provision (Credit) for Loan Losses 20 10 (113) (31)
Non-interest Income 635 589 522 622
Non-interest Expense 2,091 2,146 2,268 2,361
Income Tax Expense 499 517 530 548
Net Income 979 997 1,027 1,037
Per Share Data:
Net Income $ .62 $ .64 $ .66 $ .66
Dividends Paid .09 .09 .09 .09
Stock Price Range:
High 19.50 19.00 21.00 22.75
Low 17.00 16.87 17.50 20.00
Close 17.00 17.75 21.00 20.00
1993:
--------
Interest Income $4,253 $4,300 $4,294 $4,248
Interest Expense 1,342 1,305 1,308 1,280
Net Interest Income 2,911 2,995 2,986 2,968
Provision for Loan Losses 10 13 -0- -0-
Non-interest Income 679 731 665 574
Non-interest Expense 2,246 2,271 2,220 2,209
Income Tax Expense 436 481 480 412
Net Income 898 961 951 921
Per Share Data:
Net Income $ .58 $ .62 $ .62 $ .59
Dividends Paid .125 .03 .03 .03
Stock Price Range:
High n/a 14.75 20.00 20.50
Low n/a 11.75 13.00 16.75
Close n/a 13.12 19.00 18.25
<FN>
Note: Prior to May 3, 1993 there was no established public trading market for the issued and outstanding
shares of common stock of the Corporation.
</FN>
</TABLE>
-13-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Corporation analyzes the major elements of the Corporation's
consolidated balance sheets and statements of income. This discussion should
be read in conjunction with the consolidated financial statements, accompanying
notes, and selected financial data appearing elsewhere in this report.
PERFORMANCE SUMMARY
Net income for 1994 was $4.0 million, an increase of $309,000, or 8.3%, over
the $3.7 million recorded for 1993. On a weighted average share basis, net
income for 1994 was $2.58 per share as compared to $2.41 per share for 1993, an
increase of 7.1%. The major contribution to the improved earnings during 1994
was a 5.5% increase in net interest income. Net income for 1994 also benefited
from a $114,000 credit to the provision for loan losses as compared to a
charge to the provision of $23,000 in 1993 as the continued improvement in loan
quality presented the opportunity to reduce the allowance for loan losses. In
1994 non-interest expense declined 0.9% primarily due to significantly lower
cost related to other real estate owned ($303,000 expense in 1993 as compared
to $41,000 income in 1994). The improvement in earnings was marginally offset
by a loss on the sale of investment securities of $152,000 and lower fee income
for deposit services of $95,000.
During 1994, the Corporation's return on assets was 1.43% compared to 1.40% and
1.28% for 1993 and 1992, respectively. The Corporation's return on
stockholders' equity for 1994 was 16.55% compared to 17.75% and 18.24% for the
previous two years. The 1994 measurement considers stockholders' equity before
adjustment for unrealized gains and losses related to investment securities
that are designated available for sale. See a discussion later in this report
for an explanation of this adjustment. The decline in the return on
stockholders' equity is due to the increased capital of the Corporation as
reflected in the indicator of average stockholders' equity to total average
assets which was 8.64%, 7.89%, and 6.99% for the years 1994, 1993 and 1992,
respectively, which reflects the Corporation's strong, growing capital
position. At December 31, 1994, this indicator was 9.04%.
Net income for 1993 was $3.7 million compared to net income of $3.2 million for
1992 which included an extraordinary gain of $.2 million related to
extinguishment of debt in 1992. The increase in earnings for 1993 was also
attributable to increased net interest income and reduced provision for loan
losses.
The following table shows selected key performance ratios over the last three
(3) years:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Return on Average Assets 1.43% 1.40% 1.28%
Return on Average Stockholders' Equity* 16.55 17.75 18.24
Stockholders' Equity* to Assets - Average 8.64 7.89 6.99
<FN>
* Before adjustment for unrealized gains and losses on Available for Sale securities.
</FN>
</TABLE>
The ratio, return on assets, is calculated by dividing net income by average
total assets for the year. The return on equity ratio is calculated by
dividing net income by average shareholders' equity for the year. The equity
to assets ratio is calculated by dividing average shareholders' equity by
average total assets for the year.
NET INTEREST INCOME. Net interest income is the difference between interest
earned on earning assets and interest paid for the funds supporting those
assets. The largest category of earning assets consists of loans to businesses
and individuals. The second largest is investment securities. Net interest
income is the principal source of the Corporation's earnings. Interest rate
fluctuations, as well as changes in the amount and type of earning assets and
liabilities, effect net interest income. For analytical purposes, income from
tax-exempt assets, primarily securities issued by state and local governments,
is adjusted by an increment which equates tax-exempt income to interest from
taxable assets.
-14-
Net interest income (tax equivalent) for 1994 was $12.6 million, an increase of
$646,000, or 5.4% compared to the prior year. The net increase reflected a
$1.04 million increase in interest income which was offset by a $390,000
increase in interest expense. The Corporation's yield on earning assets
decreased to 7.03% in 1994, from 7.05% for 1993. Rates paid on the
Corporation's interest-bearing liabilities in 1994, primarily time deposits,
increased 14 basis points reflecting the general increase in market interest
rates during the year. Also contributing to the improved net interest income
for 1994 was the increase in non-interest bearing demand deposits. In 1994,
the average balance of demand deposits increased 14.8%, with demand deposits
representing 25% of total deposits.
SUMMARY OF EARNING ASSETS AND INTEREST BEARING LIABILITIES
Although the year-end detail provides satisfactory indicators of general
trends, the daily average balance sheets are more meaningful for analysis
purposes than year-end data because averages reflect the day-to-day
fluctuations that are common to bank balance sheets. Also, average balances
for earning assets and interest-bearing liabilities can be related directly to
the components of interest income and interest expense on the statements of
income. This provides the basis for analysis of rates earned and paid, and
sources of increases and decreases in net interest income as derived from
changes in volumes and rates. The following schedule presents average balance
sheets for the most recent three years in a format that highlights earning
assets and interest-bearing liabilities.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------------------------------
1994 1993 1992
------------------------------ ------------------------------- --------------------------------
Average Average Average Average Average Average
(Dollars in Thousands) Balance Interest Yield/Rate Balance Interest Yield/Rate Balance Interest Yield/Rate
------- -------- ---------- ------- -------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning Assets:
Time Deposits in Banks $ -0- $ -0- -- $ 67 $ 2 2.99% $ 40 $ 2 7.55%
Federal Funds Sold 14,373 614 4.28% 17,685 535 3.03 18,617 646 3.47
Investment Securities
(Taxable) 111,917 6,042 5.40 97,200 5,693 5.86 87,749 6,142 7.00
Investment Securities
(Tax-exempt) 419 48 11.46 801 90 11.24 1,434 156 10.88
Loans, Net of Unearned
Discount (1) 132,079 11,480 8.69 127,375 10,828 8.50 122,398 11,227 9.17
------- ------ ------- ------ ------- ------
Total Earning Assets 258,788 18,184 7.03 243,128 17,148 7.05 230,238 18,173 7.89
------ ------ ------
Non-interest Earning Assets:
Cash and Due From Banks 15,968 15,406 14,828
Other Assets 10,252 10,541 11,582
Allowance for Loan Losses (2,604) (2,801) (2,837)
-------- -------- --------
Total Assets $282,404 $266,274 $253,811
======== ======== ========
Interest-Bearing Liabilities:
Interest-Bearing Transaction
Accounts $102,199 2,694 2.64 $ 96,421 2,370 2.46 $ 84,293 2,643 3.14
Savings 18,435 467 2.53 16,718 426 2.55 14,546 483 3.32
Savings Certificates 47,102 1,582 3.36 50,238 1,664 3.32 57,676 2,553 4.43
Certificates of Deposit
$100,000 or more 21,976 759 3.46 22,060 681 3.09 24,069 959 3.98
Other Time 232 8 3.29 205 8 2.93 107 4 3.74
Other Borrowings 2,477 91 3.67 2,022 49 2.42 4,790 135 2.81
Notes Payable 323 24 7.55 570 37 6.49 1,276 83 6.50
-------- ----- -------- ----- -------- -----
Total Interest-Bearing
Liabilities 192,744 5,625 2.92 188,234 5,235 2.78 186,757 6,860 3.67
----- ----- -----
Non Interest-Bearing
Liabilities:
Demand Deposits 64,431 56,101 48,603
Other Liabilities 1,000 920 713
Shareholders' Equity 24,229 21,019 17,738
-------- -------- --------
Total Liabilities and
Shareholders' Equity $282,404 $266,274 $253,811
======== ======== ========
Net Interest Income and
Margin (T/E Basis)(2) $12,559 4.85 $11,913 4.90 $11,313 4.91
======= ======= =======
<FN>
(1) Loan interest income includes fees and loan volumes include loans on non-accrual.
(2) Presented on a tax equivalent basis (T/E") using a federal income tax rate of 34% in all three years.
</FN>
</TABLE>
-15-
Net interest margin, the net return on earning assets which is computed by
dividing net interest income by average total earning assets, was 4.85% for
1994, a five basis point decline from the previous year. This decline in the
margin reflected the somewhat higher cost of funds in 1994.
The table below analyzes the increase in net interest income for each of the
years ended December 31, 1994 and 1993 on a fully tax equivalent basis. Non-
accruing loans have been included in assets for these computations, thereby
reducing yields on these investments. The changes in interest due to both rate
and volume in the rate/volume analysis table below have been allocated to
volume or rate change in proportion to the absolute amounts of the change in
each.
<TABLE>
<CAPTION>
1994 vs. 1993 1993 vs. 1992
Increase (Decrease) Increase (Decrease)
Due to Changes in: Due to Changes in:
----------------------------- -------------------------------
(Dollars in Thousands) Volume Rate Total Volume Rate Total
------ ----- ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Federal Funds Sold and Deposits with Banks $ (117) $ 194 $ 77 $ (27) $ (84) $ (111)
Investment Securities (Taxable) 839 (490) 349 592 (1,040) (448)
Investment Securities (Tax-exempt) (44) 2 (42) (69) 3 (66)
Loans, Net of Unearned Discount 410 242 652 433 (833) (400)
------- ------ ------ ------- ------- -------
Total Interest Income 1,088 (52) 1,036 929 (1,954) (1,025)
------- ------ ----- ------ ------- -------
Interest-Bearing Liabilities:
Deposits (54) 415 361 141 (1,634) (1,493)
Other Borrowings 21 21 42 (77) (9) (86)
Notes Payable (16) 3 (13) (46) -0- (46)
------ ------ ------ ------- ------- -------
Total Interest Expense (49) 439 390 18 (1,643) (1,625)
------ ------ ------ ------- ------- -------
Net Interest Income $1,137 $(491) $ 646 $ 911 $ (311) $ 600
======= ====== ====== ======= ======= =======
</TABLE>
Net interest income for 1993 increased $600,000, or 5.3% over the prior year.
In this same period interest expense declined $1.6 million as interest rates
declined. In 1993 the net interest margin averaged 4.90%, one basis point
lower than the prior year.
Non-interest Income. Non-interest income is an important contributor to net
earnings. The major component of the Corporation's non-interest income is
various charges and fees earned on deposit accounts and related services. The
following table summarizes the changes in non-interest income during the past
three years (dollars in thousands).
<TABLE>
<CAPTION>
1994 1993 1992
----------------------- ----------------------- ------
Amount % Change Amount % Change Amount
------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C>
Service Charges on
Deposit Accounts $1,548 (5.8%) $1,643 1.9% $1,613
Non-recurring Income 250 15.7 216 78.5 121
Gain (loss) on Sale of
Investment Securities (152) -- 3 -- 69
Other Non-interest Income 722 (8.3) 787 35.7 580
------ ------ ------
Total Non-interest Income $2,368 (10.6) $2,649 11.2 $2,383
====== ====== ======
</TABLE>
The decrease in non-interest income in 1994 is primarily due to the loss on the
sale of investment securities. The sale of securities provided an opportunity
to reinvest the proceeds at higher earning rates and restructure the maturity
structure of the portfolio for future benefits.
Service charges on deposits declined in 1994 as a result of a decrease in
account overdraft fees and service fees because of higher demand deposit
account balances.
Non-recurring income in 1994 is interest recovered on loans charged-off in
prior years. The 1993 non-recurring income reflects a $106,000 gain on the
sale of land previously held for expansion and interest recovered on loans
charged-off in previous years.
-16-
NON-INTEREST EXPENSE. Non-interest expense includes all expenses of the
Corporation other than interest expense, loan loss provision and income tax
expense. The following table summarizes the changes in the non-interest
expenses for the past three years (dollars in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
--------------------- ---------------------- ------
Amount % Change Amount % Change Amount
------ -------- ------ -------- -------
<S> <C> <C> <C> <C> <C>
Salaries and Employee Benefits $5,003 8.4% $4,615 9.8% $4,202
Occupancy Expense - Net 646 (8.5) 706 10.8 636
Furniture and Equipment Expense 547 11.9 489 28.3 381
Other Real Estate Owned Expense (41) -- 303 (62.6) 811
Other Expenses:
Business Development 392 18.1 332 8.8 305
Insurance - Other 135 6.3 127 (13.6) 147
Legal and Professional Fees 357 (15.8) 424 9.3 388
Other Taxes 83 13.7 73 15.9 63
Postage and Courier 228 -- 228 (14.0) 265
Printing and Supplies 303 4.8 289 7.4 269
Regulatory Fees and Assessments 666 .6 661 11.1 596
Other Operating Expenses 547 (21.6) 699 (4.4) 730
------ ------ ------
Total Other Expenses 2,711 (4.3) 2,833 2.5 2,763
------ ------ ------
Total Non-interest Expense $8,866 (.9) $8,946 1.7 $8,793
====== ====== ======
</TABLE>
Total non-interest expense declined .9% in 1994 over 1993 reflecting declines
in other real estate owned expenses, occupancy expenses, legal and professional
expenses and other operating expenses. As a percent of average assets, non-
interest expenses declined from 3.36% in 1993 to 3.14% in 1994 and resulted in
an "efficiency ratio" (non-interest expenses divided by total non-interest
income plus net interest income) of 59.7%. These measures of operating
efficiency compare very favorably to other financial institutions in the
Corporation's peer group.
The increase in salaries and employee benefits for 1994 is due to salary merit
increases, incentive compensation increases and an increase in other employee
benefits, such as training. Also, the number of full-time equivalent employees
increased by three in 1994 to an average full-time equivalent of 121.
The decrease in occupancy expense is primarily due to a decline in building
maintenance costs and lower amortization expense of tenant improvements in the
Corporation-owned Alta Mesa National Bank Building.
The increase in furniture and equipment expense is primarily a result of
increased depreciation for new data processing equipment acquired in 1993.
The decline in other real estate owned expense reflects a 46% decline in the
average balance of other real estate owned and that there were no writedowns of
other real estate in 1994 compared to $58,000 of writedowns in the prior year.
Other real estate owned expense includes operating expenses net of rental
income, writedowns and net gains and losses from sales.
Other operating expenses declined in 1994 due to a decrease in various
miscellaneous operating costs.
Regulatory fees and assessments increased in 1993 due to the increase in FDIC
insurance premiums on deposits. It is expected that in 1995 these insurance
premium rates will decline providing an opportunity for the Corporation to
reflect somewhat lower expense in this category.
Other operating expenses in 1992 include $184,000 accrued for interest to the
Internal Revenue Service related to the IRS examination of tax years 1989 and
1990 and approximately $130,000 in other non-recurring expenses.
-17-
FEDERAL AND STATE INCOME TAX EXPENSE. The Corporation adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" in 1993.
See Note 9 of the Corporation's Notes to Consolidated Financial Statements for
details of tax expense. The Corporation provided $2.1 million for federal
income taxes for 1994, resulting in an effective tax rate of 34.1%.
INVESTMENT SECURITIES. The following table presents the consolidated
investment securities portfolio at amortized cost as of December 31, 1994,
classified as to whether the security is to be Held-to-Maturity or is Available
for Sale (see Note 1 of the Notes to Consolidated Financial Statements for a
discussion of these designations), by stated maturity and with the weighted
average interest yield for each range of maturities. The yields on tax-exempt
obligations are computed on a fully taxable equivalent basis using statutory
rates for federal income taxes.
<TABLE>
<CAPTION>
December 31, 1994
---------------------------------------------------------------------------------------------
Due 1 to Due 5 to Due After
Due 1 Year or Less 5 Years 10 Years 10 Years
------------------ ---------------- -------------- ---------------
(Dollars in Thousands) Amount Yield Amount Yield Amount Yield Amount Yield Total
------ ----- ------ ----- ------ ----- ------ ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities - HTM $ 9,029 5.96% $29,171 5.52% $ -0- -- $ -0- -- $ 38,200
U.S. Treasury Securities - AFS 6,994 5.74 41,579 6.08 -0- -- -0- -- 48,573
------- ------- ------ ------ --------
Total 16,023 5.87 70,750 5.85 -0- -0- 86,773
------- ------- ------ ------ --------
U.S. Government Agencies - HTM -0- -- 14,244 5.50 1,047 7.42% -0- -- 15,291
U.S. Government Agencies - AFS 503 4.26 1,998 7.77 532 6.51 -0- -- 3,033
------- ------- ------ ------ --------
Total 503 4.26 16,242 5.78 1,579 7.11 -0- 18,324
------- ------- ------ ------ --------
U.S. Government Agency Mortgage
Backed Securities - HTM -0- -- 3,416 5.45 -0- -- 3,136 5.47% 6,552
U.S. Government Agency Mortgage
Backed Securities - AFS -0- -- 869 7.39 -0- -- 2,879 5.19 3,748
------- ------- ------ ------ --------
Total -0- 4,285 5.85 -0- 6,015 5.34 10,300
------- ------- ------ ------ --------
Other Securities - HTM 322 11.81 72 10.68 -0- -- -0- -- 394
Other Securities - AFS -0- -- -0- -- -0- -- 254 6.00 254
------- ------- ------ ------ --------
Total $16,848 5.93 $91,349 5.84 $1,579 7.11 $6,269 5.12 $116,045
======= ======= ====== ====== ========
Held-to-Maturity ("HTM") $ 9,351 6.17% $46,903 5.52% $1,047 7.42% $3,136 5.06% $ 60,437
Available for Sale ("AFS") 7,497 5.64 44,446 6.18 532 6.51 3,133 5.19 55,608
</TABLE>
The yield on the investment securities portfolio of the Corporation at December
31, 1994 was 5.82% and the weighted average life of the portfolio on that date
was approximately 2.4 years. At December 31, 1993, the yield of the portfolio
was 5.25% and the weighted average life was 2.0 years.
Note 2 to the Corporation's Notes to Consolidated Financial Statements shown in
this report reflects the estimated fair values for various categories of
investment securities as of December 31, 1994 and 1993. As of December 31,
1994, there was a net unrealized loss of $3,547,000 in the portfolio of which
$1,323,000 related to Available for Sale securities, or 2.4% of the amortized
cost of those securities.
The following table summarizes the book value of investment securities held by
the Corporation as of December 31 for the past five years (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
U.S. Treasury Securities $ 85,601 $ 78,746 $ 62,526 $ 42,217 $ 23,820
U.S. Government Agencies
and Corporations 18,277 21,769 23,057 35,696 38,141
U.S. Government Agency
Mortgage Backed Securities 10,196 10,830 9,057 4,889 5,151
Obligations of States and
Political Subdivisions 394 716 1,142 1,704 2,340
Federal Reserve Stock 254 254 254 252 252
-------- -------- -------- -------- --------
Total $114,722 $112,315 $ 96,036 $ 84,758 $ 69,704
======== ======== ======== ======== ========
</TABLE>
-18-
In 1994, approximately $27 million of investment securities were sold,
resulting in a net loss on sale of securities of $152,000. The proceeds from
the sale of these securities were reinvested in securities that provided a
higher yield on investment and will result in a recovery of the net loss in a
relatively short period of time. Management of the Corporation views these
trades as an opportunity to increase the earnings capacity of the Corporation
into the future.
Loans. The following schedule classifies loans according to type as of
December 31 for the past five years (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------------------------
% of % of % of % of % of
1994 Total 1993 Total 1992 Total 1991 Total 1990 Total
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 69,610 50.1% $ 61,638 48.4% $ 57,126 45.8% $ 53,141 44.0% $ 51,274 42.6%
Real Estate Mortgage 51,684 37.2 46,558 36.6 50,983 40.8 50,820 42.2 54,574 45.3
Real Estate Construction 3,656 2.6 3,019 2.4 2,599 2.1 3,892 3.2 3,791 3.1
Loans to Individuals,
Net of Unearned
Discount 14,016 10.1 16,035 12.6 14,135 11.3 12,824 10.6 10,859 9.0
-------- ------ -------- ----- ------- ----- -------- ------ ------- -----
Total Loans Net of
Unearned Income $138,966 100.0% $127,250 100.0% $124,843 100.0% $120,677 100.0% $120,498 100.0%
======== ======== ======== ======== ========
</TABLE>
The preceding loan distribution table reflects that total loans increased $11.7
million (9.2%) between year-end 1993 and 1994. Although this increase was
significantly above the increase in recent years, the Corporation is continuing
to apply stringent credit criteria on all loan applications. At December 31,
1994, loans were 53.5% of deposits compared to 50.1% at the previous year-end.
Primarily, the commercial loan customers of the Subsidiary Banks are small to
medium-sized businesses and professionals and executives. The banks offer a
variety of commercial loan products that include revolving lines of credit,
letters of credit, working capital loans and loans to finance accounts
receivable, inventory and equipment. Generally, these commercial loans have
floating rates of interest with terms of maturity of three years or less.
A significant portion of the real estate mortgage portfolio is loans to finance
owner-occupied real estate. At December 31, 1994 approximately $32 million of
loans had been made for this purpose. Also approximately 40% of the loans in
the real estate mortgage portfolio have variable rates of interest with a
significant portion of the remaining portfolio having balloon terms and/or rate
adjustment clauses.
The following table presents commercial and real estate construction loans at
December 31, 1994, based on scheduled principal repayments and the total amount
of loans due after one year classified according to sensitivity to changes in
interest rates (in thousands):
<TABLE>
<CAPTION>
Over
One Year
One Year Through Over Five
or Less Five Years Years Total
-------- ---------- --------- --------
<S> <C> <C> <C> <C>
Commercial $33,672 $35,891 $ 47 $69,610
Real Estate Construction 3,282 374 -0- 3,656
------- ------- ------- -------
Totals $36,954 $36,265 $ 47 $73,266
======= ======= ======= =======
</TABLE>
Of the loans maturing after one year $6,776,000 have fixed rates of interest
and $29,536,000 have variable rates of interest.
Allowance for Loan Losses. The allowance for loan losses is established
through charges to earnings in the form of a provision for loan losses. Loans,
or portions thereof, which are considered to be uncollectible are charged
against this allowance and subsequent recoveries, if any, are credited to the
allowance. The allowance represents the amount which, in management's
judgement, will be adequate to absorb future charge-offs of existing loans
which may become uncollectible. The adequacy of the allowance is determined by
management's continuous evaluation of the loan portfolio and by the employment
of third party loan review specialists. All known problem loans, unknown
inherent risks generally associated with bank lending, past loan loss
experience, delinquency ratios and current and projected economic conditions
are taken into account in evaluating the adequacy of the allowance.
-19-
Loans are generally placed on non-accrual status when principal or interest is
past due 90 days or more and the loan is not both well-secured and in the
process of collection, or immediately, if in the opinion of management, full
collection of principal or interest is doubtful. Loans are charged against the
allowance for loan losses when management believes that the collectibility of
the principal is unlikely.
The following table represents average loans net of unearned income and an
analysis of the consolidated allowance for loan losses (dollars in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Average Loans Outstanding $132,079 $127,375 $122,398 $121,070 $124,543
======== ======== ======== ======== ========
Analysis of Allowance for
Loan Losses:
Balance, Beginning of Year $ 2,594 $ 2,810 $ 2,934 $ 3,276 $ 3,793
Charge-Offs:
Commercial 101 142 507 1,228 1,482
Real Estate Mortgage 180 173 419 390 587
Real Estate Construction -0- -0- -0- 300 181
Loans to Individuals 32 134 33 51 64
-------- -------- -------- -------- --------
Total Charge-Offs 313 449 959 1,969 2,314
-------- -------- -------- -------- --------
Recoveries:
Commercial 129 136 348 206 246
Real Estate Mortgage 79 63 58 45 40
Real Estate Construction -0- -0- -0- -0- -0-
Loans to Individuals 35 11 8 19 16
-------- -------- -------- -------- --------
Total Recoveries 243 210 414 270 302
-------- -------- -------- -------- --------
Net Charge-Offs 70 239 545 1,699 2,012
-------- -------- -------- -------- --------
Provision Charged (Credited)
to Operating Expense (114) 23 421 1,357 1,495
-------- -------- -------- -------- --------
Balance, End of Year $ 2,410 $ 2,594 $ 2,810 $ 2,934 $ 3,276
======== ======== ========= ======== ========
Ratio of Net Charge-Offs
to Average Loans Outstanding .05% .19% .45% 1.40% 1.62%
======== ======== ========= ======== ========
</TABLE>
The following table reflects the allowance for loan losses compared to total
loans at the end of each year (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total Loans $138,966 $127,250 $124,843 $120,677 $120,498
Allowance for Loan Losses 2,410 2,594 2,810 2,934 3,276
Allowance for Loan Losses
as a Percent of Total Loans 1.73% 2.04% 2.25% 2.43% 2.72%
Allowance for Loan Losses As
a Percent of Non-Performing Loans 375.0 174.0 190.0 54.0 44.0
</TABLE>
Net charge-offs decreased to $70,000 in 1994 from $239,000 in 1993. Net
charge-offs on real estate mortgages were $101,000. The credit to the
allowance for loan losses in 1994 recognizes the Corporation's improved loan
quality as evidenced by the declining non-performing loans shown later in this
report.
-20-
The following table illustrates the allocation of the allowance for loan losses
to the various loan categories (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
-------------- -------------- ---------------- -------------- ---------------
% % % % %
Amount Total Amount Total Amount Total Amount Total Amount Total
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Allowance For
Loan Losses:
Commercial $ 953 39.5% $ 983 37.9% $ 803 28.6% $ 922 31.4% $1,072 32.7%
Real Estate Mortgage 648 26.9 796 30.7 729 25.9 559 19.1 883 26.9
Real Estate
Construction 28 1.2 37 1.4 143 5.1 283 9.6 79 2.4
Loans to Individuals 198 8.2 169 6.5 155 5.5 49 1.7 64 2.0
Unallocated 583 24.2 609 23.5 980 34.9 1,121 38.2 1,178 36.0
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total $2,410 100.0% $2,594 100.0% $2,810 100.0% $2,934 100.0% $3,276 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
The allocation is determined by providing specific reserves against each
criticized loan plus a general allocation against the remaining balance of the
portfolio based on experience factors. Management of the Corporation believes
that the allowance for loan losses at December 31, 1994, is adequate to cover
losses inherent in the portfolio. There can be no assurance that the
Corporation will not sustain loan losses in future periods, which could be
substantial in relation to the size of the current allowance.
Non-Performing Assets. Non-performing assets consist of non-accrual loans,
renegotiated loans and other real estate. Non-accrual loans are those on which
the accrual of interest has been suspended and on which the interest is
recorded as earned when it is received. Loans are generally placed on non-
accrual status when principal or interest is past due 90 days or more, and the
loan is not both well-secured and in the process of collection, or immediately,
if in the opinion of management, full collection of principal or interest is
doubtful. At the time a loan is placed on non-accrual status, interest
previously recorded but not collected is reversed and charged against current
income.
Renegotiated loans are loans on which the interest and/or the principal has
been reduced due to a deterioration in the borrower's financial condition.
Even though these loans are actually performing, they are included in non-
performing assets because of the loss of revenue related to the reduction of
interest and/or principal.
Other real estate is real estate acquired through foreclosure or through
partial settlement of debts which is awaiting sale and disposition. At the
time of acquisition other real estate is recorded at the lower of estimated
fair value or the loan balance or settlement agreement with any write-down
charged to the allowance for loan losses. Any further write-downs, expenses
related to the property and any gain or loss resulting from the sale of the
property are recorded in current operating expenses.
The following table summarizes the non-performing assets and loans 90 days past
due and still accruing as of December 31, (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Non-accrual Loans $ 643 $ 1,471 $ 1,344 $ 5,017 $ 6,971
Renegotiated Loans -0- 18 134 452 532
Other Real Estate 649 615 1,541 3,900 3,704
------- ------- ------- ------- -------
Total Non-Performing
Assets $ 1,292 $ 2,104 $ 3,019 $ 9,369 $11,207
======= ======= ======= ======= =======
As a Percentage of:
Total Assets .45% .75% 1.13% 3.65% 4.58%
Total Loans and Other
Real Estate .93 1.65 2.39 7.52 9.02
Loans Past Due 90 Days or
More and Still Accruing $ 32 $ 41 $ 1,379 $ 1 $ 9
</TABLE>
-21-
In loans past due 90 days or more and still accruing at December 31, 1992,
$1,295,000 of the balance was represented by one loan.
Non-accrual loans at December 31, 1994, were comprised of $271,000 in
commercial loans, $57,000 in real estate mortgages, $28,000 in real estate
construction and $287,000 in loans to individuals.
The impact on interest income from the above non-accrual loans and renegotiated
loans for the past five (5) years is provided below (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Gross Amount of Interest
That Would Have Been
Recorded at Original Rate $ 35 $ 165 $ 147 $ 481 $ 994
Interest Included in Income 25 41 44 38 168
----- ----- ----- ----- -----
Interest Not Recorded
in Income $ 10 $ 124 $ 103 $ 443 $ 826
===== ===== ===== ===== =====
</TABLE>
The Subsidiary Banks are required, by the regulatory authorities, to have other
real estate appraised periodically. In the event the new appraised value is
less than the carrying value of the property, the excess is written off to
expense. Some properties are written down below their appraised values when
management feels the economic value of the property has declined below the
appraised value.
Loans of each Subsidiary Bank are graded on a system similar to that used by
the regulators. The first level of criticized loans is "Other Assets
Especially Mentioned" (OAEM). These loans are normally fundamentally sound but
have potential weaknesses which may, if not corrected, weaken the asset or
inadequately protect the bank's credit position at some future date. The
second level is "Substandard", which are loans inadequately protected by
current sound net worth, paying capacity or pledged collateral. The last level
of criticized loans before they are charged off is "Doubtful". Doubtful loans
are considered to have inherent weaknesses because collection or liquidation in
full is highly questionable.
Non-accrual loans normally include weaker Substandard loans and loans that are
considered to be Doubtful.
The level of the allowance for loan losses deemed adequate by management and
the board of directors of each bank is determined by providing a specific
allocation against each criticized loan plus a general allocation against the
remaining portfolio which is determined by various experience factors of each
Subsidiary Bank.
The following table summarizes the relationship between non-performing loans,
criticized loans and the allowance for loan losses (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Non-Performing Loans $ 643 $ 1,489 $ 1,478 $ 5,469 $ 7,503
Criticized Loans 4,497 5,920 6,742 8,999 16,586
Allowance for Loan Losses 2,410 2,594 2,810 2,934 3,276
Allowance for Loan Losses
as a Percent of:
Non-Performing Loans 375.0% 174.0% 190.0% 54.0% 44.0%
Criticized Loans 54.0 44.0 42.0 33.0 20.0
</TABLE>
Independent third party loan reviews of the Subsidiary Banks were completed in
the summer of 1994. The loans were reviewed again by the Comptroller of the
Currency during their annual examinations of the banks in late 1994. Based on
the findings of these reviews the banks appear to be adequately reserved.
Management is not aware of any potential loan problems, that have not been
disclosed, to which serious doubts exist as to the ability of the borrower to
substantially comply with the present repayment terms.
-22-
Deposits. The primary source of the Corporation's funds is the deposits of the
Subsidiary Banks. The majority of the Corporation's deposits could be
considered "core" deposits, that is, deposits that are not subject to material
changes due to customer withdrawal due to market rate changes. The Corporation
does not accept brokered deposits. The deposit types' daily average balance
and related average rates paid during each of the last three (3) years are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
--------------------- --------------------- --------------------
Amount Rate Paid Amount Rate Paid Amount Rate Paid
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-Bearing Demand Deposits $ 64,431 $ 56,101 $ 48,603
Interest-Bearing Deposits:
Interest-Bearing Transaction
Accounts 102,199 2.64% 96,421 2.46% 84,293 3.14%
Savings 18,435 2.53 16,718 2.55 14,546 3.32
Savings Certificates - Time 47,102 3.36 50,238 3.32 57,676 4.43
Certificates of Deposit
Greater Than $100,000 21,976 3.46 22,060 3.09 24,069 3.98
Other Time Deposits 232 3.29 205 2.93 107 3.74
-------- -------- --------
Total Interest-Bearing Deposits 189,944 2.90 185,642 2.77 180,691 3.68
-------- -------- --------
Total Deposits $254,375 $241,743 $229,294
======== ======== ========
<CAPTION>
The remaining maturity on certificates of deposit of $100,000 or more as of December 31, 1994, 1993 and 1992 is
presented below (in thousands):
Maturity 1994 1993 1992
-------------- -------- -------- --------
<S> <C> <C> <C>
3 months or less $ 14,558 $ 12,107 $ 14,580
3 to 6 months 4,988 6,829 4,130
6 to 12 months 2,884 3,110 3,154
Over 12 months 251 -0- 337
</TABLE>
INTEREST RATE SENSITIVITY. The objectives of monitoring and managing the
interest rate risk of the balance sheet are to contribute to earnings by
minimizing adverse changes in net interest income as a result of changes in the
direction and level of interest rates and to provide liquidity to satisfy cash
flow requirements to meet customers' fluctuating demands.
Interest rate sensitivity is the relationship between changes in the market
interest rates and changes in net interest income due to the repricing
characteristics of assets and liabilities.
An asset-sensitive position in a given period will result in more assets than
liabilities being subject to repricing; therefore, market interest-rate changes
will be reflected more quickly in asset rates. If interest rates decline, such
position will have an adverse effect on net interest income. Conversely, in a
liability-sensitive position, where liabilities reprice more quickly than
assets in a given period, a decline in market rates will benefit net interest
income.
A mix of earning assets and interest-bearing liabilities in which relatively
equal volumes reprice each period represents a matched interest sensitivity
"gap" position; any excess of these assets or liabilities results in an
interest sensitive gap.
-23-
The following table, commonly referred to as a "static gap report", indicates
the interest rate-sensitivity position at December 31, 1994 and may not be
reflective of positions in subsequent periods (dollars in thousands):
<TABLE>
<CAPTION>
Repriced
Due in After 1
30 Due in Due in Due in Total Year or
Days 31-90 91-180 181 Days Rate Non-Rate
Or Less Days Days to One Year Sensitive Sensitive Total
-------- -------- ------- ----------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans $ 81,245 $ 6,423 $ 9,912 $ 12,101 $109,681 $ 29,285 $138,966
Investment Securities 3,015 5,452 6,465 16,067 30,999 83,723 114,722
Federal Funds Sold 9,740 -0- -0- -0- 9,740 -0- 9,740
-------- -------- -------- -------- -------- -------- --------
Total Earning Assets $ 94,000 $ 11,875 $16,377 $ 28,168 $150,420 $113,008 $263,428
======== ======== ======== ======== ======== ======== ========
Interest-Bearing Liabilities:
Interest-Bearing
Transaction Accounts
and Savings $118,094 $ -0- $ -0- $ -0- $118,094 $ -0- $118,094
Certificates of
Deposits > $100,000 11,617 2,942 4,987 2,884 22,430 251 22,681
Other Time Deposits 14,022 9,437 9,780 8,338 41,577 4,195 45,772
Repurchase Agreements 4,528 -0- -0- -0- 4,528 -0- 4,528
Borrowed Funds 250 -0- -0- -0- 250 -0- 250
-------- -------- -------- -------- -------- -------- --------
Total Interest-
Bearing Liabilities $148,511 $ 12,379 $ 14,767 $ 11,222 $186,879 $ 4,446 $191,325
======== ======== ======== ======== ======== ======== ========
Interest Sensitivity Gap $(54,511) $ (504) $ 1,610 $ 16,946 $(36,459) $108,562 $ 72,103
========= ========= ======== ======== ========= ======== ========
Cumulative Gap $(54,511) $(55,015) $(53,405) $(36,459)
========= ========= ========= =========
Cumulative Gap To
Total Earning Assets (20.7%) (20.9%) (20.3%) (13.8%)
Cumulative Gap To
Total Assets (18.7%) (18.9%) (18.4%) (12.5%)
</TABLE>
In the preceding table under the "After 1 Year" category, $68,426,000 in
investment securities will reprice or mature within one to three years and
another $13,754,000 will reprice or mature within three to five years. The
average maturity of the investment portfolio is approximately 2.4 years. Also,
the above table reflects the call dates versus maturity dates and periodic
principal amortization of investment securities.
The preceding static gap report reflects a cumulative liability sensitive
position during the one year horizon. An inherent weakness of this report is
that it ignores the relative volatility any one category may have in relation
to other categories or market rates in general. For instance, the rate paid on
certain interest-bearing transaction accounts typically moves slower than the
three month T-Bill. Management attempts to capture this relative volatility by
utilizing a simulation model with a "beta factor" adjustment which estimates
the volatility of rate sensitive assets and/or liabilities in relation to other
market rates.
Beta factors are an estimation of the long term, multiple interest rate
environment relation between an individual account and market rates in general.
For instance, NOW, savings and money market accounts, which are repriceable
within 30 days will have considerably lower beta factors than variable rate
loans and most investment categories. Taking this into consideration, it is
quite possible for a bank with a negative cumulative gap to total asset ratio
to have a positive "beta adjusted" gap risk position.
As a result of applying the beta factors established by management to the
earning assets and interest-bearing liabilities in the static gap report via a
simulation model, the cumulative gap to total assets ratio at one year of
(12.5%) was reversed to a positive 9.6% "beta adjusted" gap position.
Management feels that the "beta adjusted" gap risk technique more accurately
reflects the Corporation's gap position.
It is anticipated that sudden fluctuations in interest rates will not have a
great impact on the spreads and margins of the Subsidiary Banks and on the
Corporation as a whole because the Corporation is matching its rate sensitive
assets with its rate sensitive liabilities in situations where it is most
feasible.
-24-
The following table reflects the spreads and margins for the past three (3)
years:
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Yield on Earning Assets (T/E) 7.03% 7.05% 7.89%
Cost of Funds 2.92 2.78 3.67
Net Interest Spread (T/E) 4.11 4.27 4.22
Net Interest Margin (T/E) 4.85 4.90 4.91
</TABLE>
CAPITAL RESOURCES. In January 1989, the Federal Reserve Board and the Office
of the Comptroller of the Currency issued new risk-based capital guidelines for
U.S. banking organizations. The objective of these efforts was to provide a
more consistent system for comparing capital positions of banking organizations
and to reflect the level of risk associated with holding various categories of
assets.
The guidelines define Tier 1 capital and Tier 2 capital. The only components
of Tier 1 and Tier 2 capital, for the Corporation, are equity capital and
equity capital plus a portion of the allowance for loan losses, respectively.
There was a transition period that extended through the end of 1992 over which
the allowance for loan losses became more restrictive by limiting the amount of
allowance for loan losses in Tier 2 capital.
The guidelines also stipulate that four categories of risk weights (0, 20, 50,
and 100 percent), primarily based on the relative credit risk of the
counterparty, be applied to the different types of balance sheet assets. Risk
weights for all off-balance sheet exposures are determined by a two step
process whereas the face value of the off-balance sheet item is converted to a
"credit equivalent amount" and that amount is assigned to the appropriate risk
category. Off-balance sheet items at December 1992, 1993 and 1994 included
unfunded loan commitments and letters of credit.
The minimum ratio for qualifying total capital is 8.00 percent, of which 4.00
percent must be Tier 1 capital.
In 1990 the Federal Reserve Board and the Comptroller of the Currency approved
new capital to total assets (leverage) guidelines and transitional capital
standards for bank holding companies. These new guidelines establish a minimum
level of Tier 1 capital to total assets of 3 percent. A banking organization
operating at or near these levels is expected to have well-diversified risk,
excellent asset quality, high liquidity, good earnings and in general be
considered a strong banking organization. Organizations not meeting these
characteristics are expected to operate well above these minimum capital
standards. Thus, for all but the most highly rated organizations, the minimum
Tier 1 leverage ratio is to be 3 percent plus minimum additional cushions of at
least 100 to 200 basis points. At the discretion of the regulatory
authorities, additional capital may be required.
The table below illustrates the Corporation and its Subsidiary Banks
compliance with the new guidelines as of December 31, 1994 (dollars in
thousands):
<TABLE>
<CAPTION>
The Summit Alta Mesa Camp Bowie
Consolidated National National National
Corporation Bank Bank Bank
------------ --------- --------- ---------
<S> <C> <C> <C> <C>
Total Assets $ 291,011 $ 136,753 $ 76,881 $ 75,677
Risk Weighted Assets 150,663 69,458 41,203 38,686
Equity Capital (Tier 1) 25,334 11,713 5,883 6,228
Qualifying Allowance For
Loan Losses 1,883 869 410 484
--------- --------- -------- --------
Total Tier 2 Capital $ 27,217 $ 12,582 $ 6,293 $ 6,712
========= ========= ======== ========
Leverage Ratio 8.69% 8.51% 7.61% 8.18%
Risk Capital Ratio:
Tier 1 16.84% 16.86% 14.28% 16.10%
Total Tier 2 18.09 18.11 15.27 17.35
</TABLE>
As can be seen in the preceding table, the Corporation and its Subsidiary Banks
exceed the risk-based capital and leverage requirements set by the regulators
as of December 31, 1994.
-25-
Also, as of December 31, 1994, the Corporation and its Subsidiary Banks met the
criteria for classification as a "well-capitalized" institution under the rules
of the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA").
Liquidity. Liquidity is defined as the Corporation's ability to meet deposit
withdrawals, provide for the legitimate credit needs of customers, and take
advantage of certain investment opportunities as they arise. While maintaining
adequate liquid assets to fulfill these functions, it must also maintain
compatible levels of maturity and rate concentrations between its sources of
funds and earning assets. The liability structure of the Corporation is short-
term in nature and the asset structure is likewise oriented towards short
maturities.
The Corporation's primary "internal" source of liquidity is its federal funds
sold and its marketable investment securities, particularly those with shorter
maturities. At December 31, 1994, federal funds sold and investment securities
maturing within 90 days represented $17.1 million or 5.9% of total assets.
Additionally, the Corporation's ability to sell loan participations and
purchase federal funds serve as secondary sources of liquidity. Each of the
Subsidiary Banks have approved federal funds lines at other banks.
The liquidity of the Corporation is enhanced by the fact that 91% of total
deposits at December 31, 1994, were "core" deposits. Core deposits are defined
as total deposits less public funds and certificates of deposit greater than
$100,000.
-26-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Financial Statements and Supplementary Data: Page
_____________________________________________________ ____
Independent Auditor's Report 28
Consolidated Balance Sheets of Summit Bancshares, Inc.
and Subsidiaries as of December 31, 1994 and 1993 29
Consolidated Statements of Income of Summit Bancshares,
Inc. and Subsidiaries for the Years Ended
December 31, 1994, 1993 and 1992 30
Statements of Changes in Shareholders' Equity of Summit
Bancshares, Inc. and Subsidiaries for the Years
Ended December 31, 1994, 1993 and 1992
(Consolidated and Parent Company Only) 31
Consolidated Statement of Cash Flows of Summit Bancshares,
Inc. and Subsidiaries for the Years Ended
December 31, 1994, 1993 and 1992 32
Notes to Financial Statements 33 - 49
-27-
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Summit Bancshares, Inc.
Fort Worth, Texas
We have audited the accompanying consolidated balance sheets of Summit
Bancshares, Inc. and Subsidiaries as of December 31, 1994 and 1993, and the
related statements of income, changes in shareholders' equity and cash flows
for each of the three years in the period ending December 31, 1994. These
financial statements are the responsibility of the Corporation's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Summit Bancshares, Inc. and
Subsidiaries, as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period
ending December 31, 1994, in conformity with generally accepted accounting
principles.
/s/Stovall, Grandey, & Whatley
--------------------------------
STOVALL, GRANDEY, & WHATLEY
Fort Worth, Texas
January 20, 1995
-28-
<TABLE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
DECEMBER 31,
--------------------------------
ASSETS 1994 1993
------ ----------- -----------
(In Thousands)
<S> <C> <C>
CASH AND DUE FROM BANKS $ 18,420 $ 13,307
FEDERAL FUNDS SOLD 9,740 19,750
INVESTMENT SECURITIES - NOTE 2
(market value of $112,498,000 in 1994
and $113,738,000 in 1993) 114,722 112,315
LOANS - NOTE 3
Loans, Net of Unearned Discount 138,966 127,250
Allowance for Loan Losses (2,410) (2,594)
--------- ---------
LOANS, NET 136,556 124,656
PREMISES AND EQUIPMENT, NET - NOTE 4 6,602 6,376
ACCRUED INCOME RECEIVABLE 2,732 2,311
OTHER REAL ESTATE - NOTE 5 649 615
OTHER ASSETS - NOTE 9 1,590 1,358
--------- ---------
TOTAL ASSETS $ 291,011 $ 280,688
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS - NOTE 6
Noninterest-Bearing Demand $ 72,992 $ 61,165
Interest-Bearing 186,547 192,986
--------- ---------
TOTAL DEPOSITS 259,539 254,151
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE 4,528 1,679
NOTES PAYABLE - NOTE 7 250 500
ACCRUED INTEREST PAYABLE 487 376
OTHER LIABILITIES 873 1,004
--------- ---------
TOTAL LIABILITIES 265,677 257,710
--------- ---------
COMMITMENTS AND CONTINGENCIES - NOTES 4, 7, 12, 17 and 18
SHAREHOLDERS' EQUITY - NOTES 11, 13, 19 and 20
Common Stock - $1.25 par value; 8,000,000 shares authorized;
1,578,723 and 1,559,324 shares issued and outstanding
at December 31, 1994 and 1993, respectively 1,973 1,949
Capital Surplus 6,047 5,987
Retained Earnings 18,187 15,042
Unrealized Gain (Loss) on Investment Securities Available for Sale,
Net of Tax (873) -0-
---------- ---------
TOTAL SHAREHOLDERS' EQUITY 25,334 22,978
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 291,011 $ 280,688
========= =========
</TABLE>
The accompanying Notes should be read with these financial statements.
-29-
<TABLE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1994 1993 1992
--------- --------- ---------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C>
INTEREST INCOME:
Interest and Fees on Loans $ 11,455 $ 10,805 $ 11,199
Interest and Dividends on Investment Securities:
Taxable 6,042 5,693 6,142
Exempt from Federal Income Taxes 32 60 103
Interest on Federal Funds Sold 614 535 646
Interest on Time Deposits with Banks -0- 2 2
--------- --------- ---------
TOTAL INTEREST INCOME 18,143 17,095 18,092
--------- --------- ---------
INTEREST EXPENSE:
Interest on Deposits - NOTE 6 5,510 5,149 6,642
Interest on Securities Sold Under
Agreements to Repurchase 91 49 135
Interest on Notes Payable - NOTE 7 24 37 83
--------- --------- ---------
TOTAL INTEREST EXPENSE 5,625 5,235 6,860
--------- --------- ---------
NET INTEREST INCOME 12,518 11,860 11,232
LESS: PROVISION (CREDIT)
FOR LOAN LOSSES - NOTE 3 (114) 23 421
--------- --------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 12,632 11,837 10,811
--------- --------- ---------
NON-INTEREST INCOME:
Service Charges and Fees on Deposits 1,548 1,643 1,613
Gain (Loss) on Sale of Investment Securities (152) 3 69
Other Income 972 1,003 701
--------- --------- ---------
TOTAL NON-INTEREST INCOME 2,368 2,649 2,383
--------- --------- ---------
NON-INTEREST EXPENSE:
Salaries and Employee Benefits 5,003 4,615 4,202
Occupancy Expense - Net 646 706 636
Furniture and Equipment Expense 547 489 381
Other Real Estate Owned Expense - Net (41) 303 811
Other Expense - NOTE 8 2,711 2,833 2,763
---------- --------- ---------
TOTAL NON-INTEREST EXPENSE 8,866 8,946 8,793
--------- --------- ---------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 6,134 5,540 4,401
APPLICABLE INCOME TAXES - NOTE 9 2,094 1,809 1,397
--------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEM 4,040 3,731 3,004
EXTRAORDINARY ITEM - GAIN ON EXTINGUISHMENT OF DEBT
(NET OF INCOME TAX OF $120,000) -0- -0- 232
--------- --------- ---------
NET INCOME $ 4,040 $ 3,731 $ 3,236
========= ========= =========
EARNINGS PER SHARE OF COMMON STOCK - NOTE 13:
INCOME BEFORE EXTRAORDINARY ITEM $ 2.58 $ 2.41 $ 1.94
EXTRAORDINARY ITEM -0- -0- .15
--------- --------- ---------
NET INCOME PER SHARE $ 2.58 $ 2.41 $ 2.09
========= ========= =========
</TABLE>
The accompanying Notes should be read with these financial statements.
-30-
<TABLE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
CONSOLIDATED AND COMPANY ONLY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<CAPTION>
Unrealized
Gain (Loss) on
Common Stock Capital Retained Investment Treasury
Shares Amount Surplus Earnings Securities-Net Stock Total
-------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
JANUARY 1, 1992 1,552,780 $ 1,941 $ 5,929 $ 8,434 $ -0- $ -0- $ 16,304
Purchases of
Stock Held in
Treasury (39) (39)
Retirement of Stock
Held in Treasury (9,196) (12) (27) 39
Net Income for Year
Ended 1992 3,236 3,236
--------- -------- -------- ------- --------- -------- --------
BALANCE AT
DECEMBER 31,
1992 1,543,584 1,929 5,929 11,643 -0- -0- 19,501
Stock Options
Exercised 15,740 20 58 78
Cash Dividend -
$.215 Per Share (332) (332)
Net Income for
Year Ended 1993 3,731 3,731
--------- -------- ------- ------- -------- -------- -------
BALANCE AT
DECEMBER 31,
1993 1,559,324 1,949 5,987 15,042 -0- -0- 22,978
Stock Options
Exercised 39,289 49 60 109
Purchases of
Stock Held in
Treasury (353) (353)
Retirement of Stock
Held in Treasury (19,890) (25) (328) 353
Cash Dividend -
$.36 Per Share (567) (567)
Securities Available
for Sale Adjustment (873) (873)
Net Income for
Year Ended 1994 4,040 4,040
---------- -------- -------- -------- -------- -------- -------
BALANCE AT
DECEMBER 31, 1,578,723 $ 1,973 $ 6,047 $18,187 $ (873) $ -0- $25,334
1994 ========= ======== ======= ======== ======== ======== =======
</TABLE>
The accompanying Notes should be read with these financial statements.
-31-
<TABLE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(Dollars In Thousands) YEAR ENDED DECEMBER 31,
----------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Net Income $ 4,040 $ 3,731 $ 3,236
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Forgiveness of Debt -0- -0- (352)
Depreciation and Amortization 545 498 431
Net Premium Amortization or (Discount
Accretion) on Investment Securities 831 896 810
Provision (Credit) for Loan Losses (114) 23 421
Net Increase (Decrease) in Deferred Income Taxes (248) 230 156
(Gain) Loss on Sale of Investment Securities 152 (3) (69)
Writedown of or Provision for Other Real Estate -0- 261 781
Net Gain From Sale of Other Real Estate (55) (21) (31)
Net (Gain) Loss on Sale of Premises and Equipment 2 (106) (26)
(Increase) Decrease in Accrued Income and Other Assets (718) (343) 138
Increase (Decrease) in Accrued Expenses and Other Liabilities 500 140 (1,058)
-------- ------- -------
TOTAL ADJUSTMENTS 895 1,575 1,201
-------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,935 5,306 4,437
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Decrease in Interest Bearing Deposits with Banks -0- -0- 1,000
Net (Increase) Decrease in Federal Funds Sold 10,010 (2,075) 5,455
Proceeds from Matured and Prepaid Investment Securities 31,431 27,197
Held-to-Maturity 11,453
Available for Sale 17,047
Proceeds from Sales of Investment Securities 26,885 1,110 9,099
Purchase of Investment Securities (49,713) (48,314)
Held-to-Maturity (19,126)
Available for Sale (40,972)
Loans Originated and Principal Repayments, Net (12,314) (2,935) (5,546)
Recoveries of Loans Previously Charged-Off 243 210 414
Proceeds from Sale of Premises and Equipment 29 170 75
Proceeds from Sale of Other Real Estate 548 662 1,231
Purchases of Premises and Equipment (802) (660) (225)
-------- -------- -------
NET CASH USED BY INVESTING ACTIVITIES (6,999) (21,800) (9,614)
--------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Demand Deposits, Savings
Accounts and Interest Bearing Transaction Accounts 7,564 15,702 28,559
Decrease in Certificates of Deposit (2,175) (4,481) (18,158)
Net Increase (Decrease) in Repurchase Agreements 2,849 (450) (1,686)
Principal Payments on Notes Payable (250) (250) (1,360)
Proceeds from Note Payable -0- -0- 750
Payments of Cash Dividends (567) (332) -0-
Proceeds from Stock Options Exercised 109 78 -0-
Purchase of Treasury Stock (353) -0- (39)
--------- --------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,177 10,267 8,066
--------- --------- -------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 5,113 (6,227) 2,889
CASH AND DUE FROM BANKS - BEGINNING OF YEAR 13,307 19,534 16,645
-------- -------- -------
CASH AND DUE FROM BANKS - END OF YEAR $18,420 $13,307 $19,534
========= ======== =======
SUPPLEMENTAL SCHEDULE OF OPERATING AND INVESTING ACTIVITIES:
Interest Paid $ 5,516 $ 5,297 $ 7,112
Income Taxes Paid 1,825 1,597 2,312
Other Real Estate Acquired in Settlement of Loans 528 184 420
Bank Financed Sales of Other Real Estate 234 60 128
</TABLE>
The accompanying Notes should be read with these financial statements.
-32-
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
The accounting and reporting policies of Summit Bancshares, Inc. ("the
Corporation") and its Subsidiaries are in accordance with generally accepted
accounting principles and the prevailing practices within the banking industry.
A summary of the more significant policies follows:
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Corporation include its accounts
and those of its wholly-owned subsidiaries, Summit National Bank, Alta Mesa
National Bank and Camp Bowie National Bank (the "Subsidiary Banks") and Summit
Bancservices, Inc. ("Bancservices"). All significant intercompany balances and
transactions have been eliminated.
CASH AND DUE FROM BANKS
The Subsidiary Banks are required to maintain certain balances at the Federal
Reserve Bank based on their level of deposits. During 1994 the average cash
balance maintained at the Federal Reserve Bank was approximately $10,813,000.
Compensating balances held at correspondent banks, to minimize service charges,
averaged approximately $1,249,000 in 1994.
INVESTMENT SECURITIES
Effective January 1, 1994, the Corporation adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". This statement addresses the accounting and reporting for
investments in equity securities that have readily determinable fair values and
for all investments in debt securities. Those investments are to be classified
in three categories and accounted for as follows:
- Debt securities that the Corporation has the positive intent and
ability to hold to maturity are classified as HELD-TO-MATURITY
securities and reported at amortized cost.
- Debt and equity securities that are bought and held principally for
the purpose of selling them in the near term are classified as
TRADING SECURITIES and reported at fair value, with unrealized gains
and losses included in earnings.
- Debt and equity securities not classified as either held-to-maturity
securities or trading securities are classified as AVAILABLE FOR SALE
securities and reported at fair value, with unrealized gains and
losses excluded from earnings and reported net of tax in a separate
component of shareholders' equity.
As a result of the adoption of this statement, the Corporation transferred, as
of January 1, 1994, securities with a fair value of $60,413,965 to the
AVAILABLE FOR SALE classification and the net after tax excess of fair value
over amortized cost of $592,970 was recorded in a separate component of
shareholders' equity. The prior years' financial statements have not been
restated in accordance with the provisions of the pronouncement. The
Corporation has the ability and intent to hold to maturity its investment
securities classified as held-to-maturity; accordingly, no adjustment has been
made for the excess, if any, of amortized cost over market. In determining
the investment category classifications, management considers its
asset/liability strategy, changes in interest rates and prepayment risk, the
need to increase capital and other factors. Under certain circumstances
(including the deterioration of the issuer's creditworthiness, a change in tax
law, or statutory or regulatory requirements), the Corporation may change the
investment security classification.
-33-
All investment securities are adjusted for amortization of premiums and
accretion of discounts. Amortization of premiums and accretion of discounts
are recorded to income over the contractual maturity or estimated life of the
individual investment on the level yield method. Gain or loss on sale of
investments is based upon the specific identification method and the gain or
loss is recorded in non-interest income. Income earned on the Corporation's
investments in state and political subdivisions is not taxable.
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are stated at the principal amount outstanding less unearned discount
and the allowance for loan losses. Unearned discount on installment loans is
recognized as income over the terms of the loans by a method approximating the
interest method. Interest income on all other loans is recognized based upon
the principal amounts outstanding. The accrual of interest on a loan is
discontinued when, in the opinion of management, there is doubt about the
ability of the borrower to pay interest or principal. Interest previously
earned, but uncollected on such loans, is written off. When loans are put on
non-accrual all payments received are applied to principal and no interest
income is recorded until the loan is returned to accrual status or the
principal has been reduced to zero.
The allowance for loan losses is comprised of amounts charged against income
in the form of the provision for loan losses as determined by management.
Management's evaluation is based on a number of factors, including the
Subsidiary Banks' loss experience in relation to outstanding loans and the
existing level of the allowance, prevailing and prospective economic
conditions, and management's continuing review of nonperformance loans and its
evaluation of the quality of the loan portfolio. Loans are charged against
the allowance for loan losses when management believes that the collectability
of the principal is unlikely.
In May 1993 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan", which addresses the accounting by creditors for
impairment of certain loans, as defined. This pronouncement is effective for
fiscal years beginning after December 15, 1994. The Corporation will be
required to implement this statement for the year of 1995. Implementation of
this statement should have no material adverse effect on the Corporation's
financial statements.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation expense is computed on the straight-line method
based upon the estimated useful lives of the assets ranging from 3 to 40
years. Maintenance and repairs are charged to operating expenses. Renewals
and betterments are added to the asset accounts and depreciated over the
periods benefited. Depreciable assets sold or retired are removed from the
asset and related accumulated depreciation accounts and any gain or loss is
reflected in the income and expense accounts.
OTHER REAL ESTATE
Other real estate is foreclosed property held pending disposition and is
valued at the lower of its fair value or the recorded investment in the
related loan. At foreclosure, if the fair value of the real estate acquired
is less than the Corporation's recorded investment in the related loan, a
writedown is recognized through a charge to the allowance for loan losses.
Any subsequent reduction in value is recognized by a charge to income.
Operating expenses of such properties, net of related income, and gains and
losses on their disposition are included in non-interest expense.
FEDERAL INCOME TAXES
The Corporation joins with its Subsidiaries in filing a consolidated federal
income tax return. The Subsidiaries pay a charge equivalent to their current
federal income tax to the Corporation based on the separate taxable income of
the Subsidiaries.
The Corporation and the Subsidiaries maintain their records for financial
reporting and income tax reporting purposes on the accrual basis of
accounting. Deferred income taxes are provided in accordance with Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes".
Deferred taxes are provided for accumulated temporary differences due to basic
differences for assets and liabilities for financial reporting and income tax
purposes.
-34-
STATE INCOME TAXES
The Corporation and each of the Subsidiaries file separate state franchise tax
returns. As a result of a state franchise tax law passed by the Texas
Legislature in 1991, the Corporation and the Subsidiaries are subject to a
"state income tax." Since the basis for the state income tax is "federal
income tax taxable income", less interest on U.S. Government Obligations, the
Corporation had no state income tax liability in 1993 or 1994.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the balance
sheet for cash and due from banks approximate those assets' fair values.
INVESTMENT SECURITIES (including mortgage-backed securities): Fair values
for investment securities are based on quoted market prices, where
available. If quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments.
LOANS: For variable-rate loans, fair values are based on carrying values.
The fair values for fixed rate loans such as mortgage loans (e.g., one-to-
four family residential) and installment loans are estimated using
discounted cash flow analysis. The carrying amount of accrued interest
receivable approximates its fair value.
DEPOSIT LIABILITIES: The fair value disclosed for interest bearing and non-
interest bearing demand deposits, passbook savings, and certain types of
money market accounts are, by definition, equal to the amount payable on
demand at the reporting date or their carrying amounts. Fair values for
fixed-rate certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on
time deposits.
SHORT-TERM BORROWINGS: The carrying amounts of borrowings under repurchase
agreements, approximate their fair values.
NOTES PAYABLE: The fair value of the Corporation's notes payable is based
on their carrying amounts at the reporting date.
CASH AND CASH EQUIVALENTS
For the purpose of presentation in the Statements of Cash Flows, cash and cash
equivalents are defined as those amounts included in the balance sheet caption
"Cash and Due from Banks".
RECLASSIFICATION
Certain reclassifications have been made to the 1993 and 1992 financial
statements to conform to the 1994 presentation.
-35-
NOTE 2 - INVESTMENT SECURITIES
A summary of amortized cost and estimated fair values of investment securities
is as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1994
-------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Investment Securities - Held-to-Maturity
U.S. Treasury Securities $ 38,200 $ 15 $ (1,376) $ 36,839
U.S. Government Agencies
and Corporations 15,291 6 (436) 14,861
U.S. Government Agency
Mortgage Backed Securities 6,552 -0- (440) 6,112
Obligations of States and
Political Subdivisions 394 7 -0- 401
-------- -------- --------- --------
Total Held-to-Maturity Securities 60,437 28 (2,252) 58,213
-------- -------- --------- --------
Investment Securities - Available for Sale
U.S. Treasury Securities 48,573 8 (1,180) 47,401
U.S. Government Agencies
and Corporations 3,033 1 (48) 2,986
U.S. Government Agency
Mortgage Backed Securities 3,748 3 (107) 3,644
Federal Reserve Bank Stock 254 -0- -0- 254
-------- -------- --------- --------
Total Available for Sale Securities 55,608 12 (1,335) 54,285
-------- -------- -------- --------
Total Investment Securities $116,045 $ 40 $ (3,587) $112,498
======== ======== ======== ========
</TABLE>
In the above schedule, the AMORTIZED COST of Total Held-to-Maturity Securities
of $60,437,000 and the estimated FAIR VALUE of Total Available for Sale
Securities of $54,285,000 are reflected in Investment Securities on the
consolidated balance sheet as of December 31, 1994 for a total of
$114,722,000. A net unrealized loss of $1,323,000 is included in the
Available for Sale Investment Securities balance. The unrealized loss, net of
tax benefit, is included in Shareholders' Equity.
<TABLE>
<CAPTION>
December 31, 1993
-------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 78,746 $ 1,146 $ (56) $ 79,836
U.S. Government Agencies
and Corporations 21,769 210 (5) 21,974
U.S. Government Agency
Mortgage Backed Securities 10,830 127 (25) 10,932
Obligations of States and
Political Subdivisions 716 26 -0- 742
Federal Reserve Bank Stock 254 -0- -0- 254
--------- ------- ------ ---------
Total Investment Securities $ 112,315 $ 1,509 $ (86) $ 113,738
========= ======= ====== =========
</TABLE>
-36-
A summary of the amortized cost and estimated fair value of debt securities by
contractual maturity as of December 31, 1994, is shown below (in thousands).
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or repay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
December 31, 1994
-----------------------------------------------------------------------
Held-to-Maturity Available for Sale
------------------------------ ------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Due in One Year or Less $ 9,351 $ 9,281 $ 7,497 $ 7,429
Due after One Year
through Five Years 46,903 45,000 44,446 43,330
Due after Five Years
through Ten Years 1,047 998 532 487
Due after Ten Years 3,136 2,934 3,133 3,039
-------- -------- -------- --------
Total $ 60,437 $ 58,213 $ 55,608 $ 54,285
======== ========= ======== ========
</TABLE>
Included in the investment securities is $6,015,000 and $6,448,000 at
December 31, 1994 and December 31, 1993, respectively of mortgage-backed
securities having stated maturities after the year 1999. The estimated
maturities on these securities are between four and eleven years as of
December 31, 1994, based on estimated prepayments of the underlying mortgages.
Investment securities with carrying value of $14,712,000 and $8,598,000 at
December 31, 1994 and 1993, respectively, were pledged to secure federal,
state and municipal deposits and for other purposes as required or permitted
by law. Also, the fair values of those pledged securities totaled $14,106,000
and $8,897,000 at December 31, 1994 and 1993, respectively.
Proceeds from sales of investment securities were $26,885,000 during 1994,
$1,110,000 during 1993 and $9,099,000 in 1992. Gross losses of $184,000 were
realized in 1994, but were partially offset by gross gains of $32,000. Gross
gains of $3,000 and $69,000 were realized on sales for 1993 and 1992,
respectively. Of the total amount of proceeds from securities sales in 1994
all were from sales of securities included in the Available for Sale category.
The Corporation or Subsidiaries do not own any investment securities of any
one issuer of which aggregate adjusted cost exceeds 10% of the consolidated
shareholders' equity at December 31, 1994 and 1993, respectively.
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES
The loan portfolio consists of various types of loans made principally to
borrowers located in Tarrant County, Texas. The book values and fair values
of loans by major type follow (in thousands):
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
---------------------------- ------------------------------
Book Fair Book Fair
Value Value Value Value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Commercial $ 69,610 $ 69,544 $ 61,638 $ 61,823
Real Estate Mortgage 51,684 51,448 46,558 47,191
Real Estate Construction 3,656 3,636 3,019 3,015
Loans to Individuals, Less Unearned Discount 14,016 13,942 16,035 16,944
--------- --------- --------- ---------
138,966 138,570 127,250 128,973
Allowance for Loan Losses (2,410) (2,410) (2,594) (2,594)
---------- -------- --------- ---------
Loans, Net $ 136,556 $ 136,160 $ 124,656 $ 126,379
========= ========= ========= =========
</TABLE>
-37-
The preceding table indicates that the Corporation had unrealized losses of
approximately $396,000 and unrealized gains of approximately $1,723,000 in its
loan portfolio at December 31, 1994 and 1993, respectively, before the
allowance for loan losses was applied. The unrealized losses and gains are
the direct result of the current posted rates for loans being higher or lower,
respectively, than the average yields in the current loan portfolio.
Loans on which accrued interest has been discontinued or reduced amounted to
approximately $643,000 and $1,489,000 at December 31, 1994 and 1993,
respectively. If interest on these loans had been recorded in accordance with
their original terms such income would have approximated $35,000 for 1994,
$165,000 for 1993 and $147,000 for 1992. Interest income on those loans
included in net income was $25,000 for 1994, $41,000 for 1993 and $44,000 for
1992.
Transactions in the allowance for loan losses are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Balance, Beginning of Year $ 2,594 $ 2,810 $ 2,934
Provision, Charged (Credited) to Income (114) 23 421
Loans Charged Off (313) (449) (959)
Recoveries of Loans Previously
Charged Off 243 210 414
Net Charge-Offs (70) (239) (545)
------- ------- -------
Balance, End of Year $ 2,410 $ 2,594 $ 2,810
======= ======= =======
</TABLE>
NOTE 4 - PREMISES AND EQUIPMENT
The investment in premises and equipment stated at cost and net of accumulated
amortization and depreciation is as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Land $ 1,264 $ 1,179 $ 1,241
Buildings and Improvements 6,742 6,563 6,442
Furniture & Equipment 4,470 4,087 3,693
------- ------- -------
12,476 11,829 11,376
Less: Accumulated Amortization and Depreciation 5,874 5,453 5,099
------- ------- -------
Net Book Value $ 6,602 $ 6,376 $ 6,277
======= ======= =======
</TABLE>
Depreciation and amortization charged to expense amounted to $545,000,
$498,000 and $431,000 for the years ended December 31, 1994, 1993 and 1992,
respectively.
Alta Mesa National Bank owns the land upon which the Corporation built the
Alta Mesa National Bank building and a reciprocal lease arrangement exists
between the two companies. The Corporation has a "ground lease" with Alta
Mesa National Bank whereby the Corporation pays Alta Mesa National Bank $5,600
per month and Alta Mesa National Bank has a "premise lease" with the
Corporation whereby Alta Mesa National Bank pays the Corporation $14,288 per
month. Rental receipts and expenses from these leases are eliminated in
consolidation. The Alta Mesa National Bank building was leased to 100%
capacity in 1992 and 1993 and to 98% capacity in 1994.
Camp Bowie National Bank owns it's bank premises, and, therefore, it has no
operating leases.
-38-
Summit National Bank has a long-term operating lease of banking premises which
expires in December 1999. The lease contains two (2) renewal options for
additional periods of five (5) years each. The Corporation also has an
operating lease of its facilities that expires in December 1999. Its lease
does not have any extension options. Both leases contain escalation clauses
which provide for increased rentals based on increases in real estate taxes
and the lessor's operating expenses.
Rental income and expense of premises included in the consolidated financial
statements is computed as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Total Rental Income $ 329 $ 330 $ 321
Less: Rental Expense 178 150 146
------- ------- -------
Net Rental Income $ 151 $ 180 $ 175
======= ======= =======
</TABLE>
Assuming the renewal of the leases in the preceding schedule, the approximate
future minimum total rental expense per year for each of the next five (5)
years is $155,000 which aggregates $775,000.
NOTE 5 - Other Real Estate
The carrying value of other real estate was as follows ( in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Other Real Estate $ 684 $ 894 $ 1,632
Valuation Reserve (35) (279) (299)
------- ------- -------
Net Other Real Estate $ 649 $ 615 $ 1,333
======= ======= =======
</TABLE>
Transactions in the valuation reserve are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Balance, Beginning of Year $ 279 $ 299 $ 418
Provisions Charged to Income -0- 203 274
Reductions from Sales (244) (223) (393)
------ ------ ------
Balance, End of Year $ 35 $ 279 $ 299
====== ====== ======
</TABLE>
In addition to the above provisions, direct writedowns of other real estate
charged to income were: 1993 - $58,000 and 1992 - $507,000. There were no
direct writedowns of other real estate during 1994.
-39-
NOTE 6 - Deposits and Related Expense
At December 31, 1994, 1993 and 1992, deposits and related interest expense for
the related years ended December 31, consisted of the following (in
thousands):
<TABLE>
<CAPTION>
Deposits Interest Expenses
---------------------------------------- --------------------------------------
1994 1993 1992 1994 1993 1992
-------- -------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-Bearing
Demand Deposits $ 72,992 $ 61,165 $ 57,607
Interest-Bearing Deposits:
Interest-Bearing
Transaction Accounts 100,417 103,940 94,970 $ 2,694 $ 2,370 $ 2,643
Savings 17,677 18,425 15,402 467 426 483
Savings Certificates - Time 45,537 48,346 52,672 1,582 1,664 2,553
Certificates of Deposit
$100,000 or More 22,681 22,046 22,201 759 681 959
Other 235 229 77 8 8 4
-------- ------- ------- ------- ------- -------
Total 186,547 192,986 185,322 $ 5,510 $ 5,149 $ 6,642
-------- ------- -------- ======= ======= ========
Total Deposits $ 259,539 $ 254,151 $ 242,929
========= ========= =========
</TABLE>
The following table reflects the book values and fair values of deposits, by
major type (in thousands). For deposits with no defined maturities, FASB
Statement No. 107 defines fair values as the amount payable on demand.
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
---------------------------- ---------------------------
Book Fair Book Fair
Value Value Value Value
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Demand Deposits $ 72,992 $ 72,992 $ 61,165 $ 61,165
Interest-Bearing Transaction Accounts 100,417 100,417 103,940 103,940
Savings 17,677 17,677 18,425 18,425
Savings Certificates - Time 45,537 45,401 48,346 48,473
Certificates of Deposits $100,000 or more 22,681 22,648 22,046 22,057
Other 235 235 229 229
--------- --------- --------- ---------
Total Deposits $ 259,539 $ 259,370 $ 254,151 $ 254,289
========= ========= ========= =========
</TABLE>
The preceding table indicates that the Corporation had unrealized losses of
approximately $169,000 and unrealized gains of approximately $138,000 in its
deposit accounts at December 31, 1994 and 1993, respectively.
The Corporation has no brokered deposits, and there are no major
concentrations of deposits.
-40-
NOTE 7 - Notes Payable
The following is a summary of Notes Payable (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------------
1994 1993
-------- --------
<S> <C> <C>
Parent Company secured borrowing from a bank that
is secured by all the issued and outstanding common
stock of Summit National Bank. The principal of this
note is payable in six semi-annual payments of
$125,000 each and began January 21, 1993.
The interest rate on this note is prime floating plus
.50% (9.0% at December 31, 1994) and is payable
semi-annually in January and July. $ 250 $ 500
Parent Company secured note with Summit National
Bank and is to be repaid in monthly installments of $14,000.
The note matures December 15, 1999 and the interest rate
is adjusted annually on the anniversary date. This note is
secured by the Alta Mesa National Bank Office Building which
had a carrying value of $1,815,194 at December 31, 1994.
The interest rate at December 31, 1994 was 8.5%. 1,106 1,198
------- -------
Total Notes Payable 1,356 1,698
Less Current Maturities 326 342
------- -------
Long-Term Debt $ 1,030 $ 1,356
======= =======
</TABLE>
The note payable to Summit National Bank is an intercompany note and,
therefore, is reflected in the Parent Company financial statements but is
eliminated in the consolidated financial statements.
The bank note was paid in full on January 17, 1995.
The fair value of the notes payable at December 31, 1994 is their carrying
value since the bank note is a variable rate loan and the Summit National Bank
note adjusts its rate annually in December of each year at Summit National
Bank's prime rate.
The Corporation had no bank lines of credit at December 31, 1994 or 1993.
NOTE 8 - Other Non-Interest Expense
The significant components of other non-interest expense are presented below
(in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Business Development $ 392 $ 332 $ 305
Legal and Professional Fees 357 424 388
Printing and Supplies 303 289 269
Regulatory Fees and Assessments 666 661 596
Other 993 1,127 1,205
------- ------- -------
Total $ 2,711 $ 2,833 $ 2,763
======= ======= =======
</TABLE>
-41-
NOTE 9 - Income Taxes
The consolidated provision for income taxes consisted of the following (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Federal Income Tax Expense
Current $ 1,846 $ 1,579 $ 1,439
Deferred 248 230 156
Total Federal Income Tax Expense 2,094 1,809 1,595
State Income Tax Expense
Current (Benefit) -0- -0- (96)
Deferred -0- -0- 18
------- ------- -------
Total State Income Tax Expense (Benefit) -0- -0- (78)
------- ------- -------
Total Income Tax Expense $ 2,094 $ 1,809 $ 1,517
======= ======= =======
Effective Tax Rates 34.1% 32.7% 32.0%
======= ======= =======
</TABLE>
The reasons for the difference between income tax expense and the amount
computed by applying the statutory federal income tax rate to operating
earnings are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Federal Income Taxes at Statutory Rate of 34% $ 2,085 $ 1,883 $ 1,616
State Income Taxes, Net of Federal Tax Benefit -0- -0- (51)
Effect of Tax Exempt Interest Income (23) (35) (61)
SFAS No. 109 Adjustment -0- (33) -0-
Other 32 (6) 13
------- ------- -------
Income Taxes Per Income Statement $ 2,094 $ 1,809 $ 1,517
======= ======= =======
</TABLE>
Federal income taxes included in the consolidated balance sheets were as
follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1994 1993
---------- ----------
<S> <C> <C>
Current Tax Asset $ 29 $ 75
Deferred Tax Asset 901 677
------ ------
Total Included in Other Assets $ 930 $ 752
====== ======
</TABLE>
-42-
Deferred income tax expense (benefit) results from differences between amounts
of assets and liabilities as measured for income tax return and financial
reporting purposes. The significant components of federal deferred tax assets
and liabilities are in the following table (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Federal Deferred Tax Assets:
Unrealized Losses on AFS Securities $ 450 $ -0- $ -0-
Reserves for Loan Losses 344 383 392
Valuation Reserves - Other Real Estate 97 241 316
Interest on Non-accrual Loans 48 64 251
Other 171 144 102
------ ------ ------
Gross Federal Deferred Tax Assets 1,110 832 1,061
------ ------ ------
Federal Deferred Tax Liabilities:
Depreciation and Amortization 188 149 133
Other 21 6 23
------ ------ ------
Gross Federal Deferred Tax Liabilities 209 155 156
------ ------ ------
Net Deferred Tax Asset $ 901 $ 677 $ 905
====== ====== ======
</TABLE>
The Corporation adopted FASB Statement No. 109, "Accounting for Income Taxes"
in 1993 which resulted in a credit to federal income tax expense in 1993 of
$33,000.
NOTE 10 - Related Party Transactions
During 1994 and 1993 the Subsidiary Banks had transactions which were made in
the ordinary course of business with certain of its and the Corporation's
officers, directors and their affiliates. All loans included in such
transactions were made on substantially the same terms, including interest
rate and collateral, as those prevailing at the time for comparable
transactions with other persons and all loans are current as to principal and
interest payments. A summary of these transactions follows (in thousands):
<TABLE>
<CAPTION>
Balance Net
Beginning Net Amounts Balance at
Debtor of Year Additions Collected End of Year
------------------------------------------- -------- --------- --------- -----------
<S> <C> <C> <C> <C>
For the Year ended December 31, 1994:
23 Directors and Officers $ 3,814 $ 1,052 $ (710) $ 4,156
For the Year ended December 31, 1993:
23 Directors and Officers $ 4,292 $ 986 $ (1,464) $ 3,814
</TABLE>
NOTE 11 - Stock Option Plan
In March 1982, the Corporation established an Incentive Stock Option Plan and
reserved 30,000 shares of common stock for sale thereunder. The 30,000 option
shares were subsequently amended to 60,000 shares and increased again to
120,000 in April 1993 as a result of the two-for-one stock split. The plan,
which expired in 1992, provided for the granting to management employees of
Summit Bancshares, Inc. and subsidiaries incentive stock options, as defined
under current tax laws. The outstanding options continue to be exercisable
and will be exercisable for periods of five to ten years from the date of
grant.
-43-
In April 1993, the Corporation established a similar Incentive Stock Option
Plan and reserved 150,000 shares (after the April 1993 two-for-one stock
split) of common stock for sale thereunder. The 1993 plan provides for the
granting to management employees of Summit Bancshares, Inc. and subsidiaries,
incentive stock options, as defined under the current tax law. The options
under the 1993 plan will be exercisable for 10 years from the date of grant
and generally vest ratably over a three to five year period.
Options under both plans will be and have been granted at prices which will
not be less than 100-110% of the fair market value of the underlying common
stock at the date of grant. Since the option prices are considered to
approximate fair market value at date of grant, no compensation expense has
been reported.
The following is a summary of transactions for the years presented:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1994 1993
---------- ----------
<S> <C> <C>
Outstanding, beginning of year 186,200 109,000
Additional options granted during the year 22,500 98,000
Forfeited during the year (11,100) (5,060)
Exercised during the year (45,900) (15,740)
-------- --------
Outstanding, End of Year
(at prices ranging from $3.75 to
$18.00 a share at December 31, 1994) 151,700 186,200
======== ========
At December 31, 1994, 113,188 shares were exercisable.
</TABLE>
NOTE 12 - Financial Instruments with Off-Balance Sheet Risk
The Corporation is a party to various financial instruments with off-balance
sheet risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include loan commitments, standby
letters of credit and documentary letters of credit. The instruments involve,
to varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the financial statements.
The Corporation's exposure to credit loss in the event of non-performance by
the other party to the financial instrument for loan commitments and standby
letters of credit is represented by the contractual amount of those
instruments. The Corporation uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments.
The total contract amounts of financial instruments with off-balance sheet
risk are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------
1994 1993
-------- --------
<S> <C> <C>
Financial Instruments Whose Contract
Amounts Represent Credit Risk:
Commitments to Extend Credit $ 45,856 $ 36,917
Documentary and Standby Letters of Credit 2,774 2,466
</TABLE>
Since many of the loan commitments may expire without being drawn upon, the
total commitment amount does not necessarily represent future cash
requirements. The Corporation evaluates each customer's credit worthiness on
a case-by-case basis. The amount of collateral obtained, if deemed necessary
by the Corporation upon extension of credit, is based on management's credit
evaluation of the counterparty. Collateral held varies but may include
accounts receivable, inventory, property, plant and equipment, owner occupied
real estate and income-producing commercial properties.
The credit risk involved in issuing letters of credit is essentially the same
as that involved in extending loan facilities to customers.
-44-
NOTE 13 - Earnings Per Share
Earnings per share of common stock are based on the weighted average number of
shares outstanding during the years as follows:
Shares
---------
1994 1,567,885
1993 1,547,759
1992 1,548,750
NOTE 14 - Employee Benefit Plans
PENSION PLAN
The Corporation has a defined benefit pension plan covering substantially all
of its employees. The benefits are based on years of service and the
employee's compensation history. The employee's compensation used in the
benefit calculation is the highest average for any five consecutive years of
employment within the employee's last ten years of employment.
Funding for the plan is provided by employer contribution to trust funds in
amounts determined by actuarial assumption and valuation of the plan.
Contributions are intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the future.
The following table sets forth the plan's funded status and amounts recognized
in the Corporation's consolidated balance sheets at December 31 (in
thousands):
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $1,034,000 in 1994 and $983,000 in 1993 $ (1,072) $ (1,019)
========= =========
Projected benefit obligation for service rendered to date $ (1,731) $ (1,577)
Plan assets at fair value, primarily listed stocks and U.S. bonds 1,616 1,414
--------- ---------
Plan assets in excess of projected benefit obligation (115) (163)
Unrecognized net loss from past experience different from that
assumed and effects of changes in assumptions 48 50
Prior service cost not yet recognized in net periodic pension cost 20 23
--------- ---------
Unrecognized net obligation at January 1, 1995 and 1994 68 73
--------- ---------
Net Pension Cost - included in Other Liabilities $ (47) $ ( 90)
========= =========
<CAPTION>
Net pension expense included the following components (in thousands):
Year ended December 31,
-------------------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Service Cost - benefits earned during the period $ 111 $ 87 $ 105
Interest cost on projected benefit obligation 130 121 109
Less: Actual return on plan assets (133) (116) (99)
Net amortization and deferral 5 5 5
------- ------- -------
Net periodic pension expense $ 113 $ 97 $ 120
======= ======= =======
</TABLE>
-45-
The discount rate and rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation
were 8.5 percent and 5 percent at December 31,1994 and 1993. The expected
long-term rate of return on plan assets in 1994 was 9 percent.
During 1994 and 1993 the Corporation contributed $156,000 and $130,000 to the
plan, respectively.
Management Security Plan
In 1992, the Corporation established a Management Security Plan to provide key
employees with retirement, death or disability benefits in addition to those
provided by the Pension Plan. The expense charged to operations in 1994, 1993
and 1992 for such future obligations was $141,000, $142,000, and $48,000
respectively.
Other Post Retirement Benefits
The Corporation provides certain health care benefits for certain retired
employees who bear all costs of these benefits. These benefits are covered
under the "Consolidated Omnibus Budget Reconciliation Act" (COBRA).
NOTE 15 - Dividends From Subsidiaries
The primary source of funds for the Parent Company is cash dividends received
from the Subsidiary Banks. The amount of dividends that the Subsidiary Banks
may pay in any one year, without approval of the Comptroller of the Currency,
is the sum of the retained net profits for the preceding two years plus its
total of the net profits for the current year. The Subsidiary Banks are also
restricted from paying dividends that would cause the Bank to be under-
capitalized. Under this formula, in 1995 the Subsidiary Banks can legally
initiate dividend payments of $5,519,000 plus an additional amount equal to
their net profits, as defined, for 1995 up to the date of any such dividend.
Internal dividend policies limit dividends from Subsidiary Banks if their
equity capital levels fall below certain minimums.
NOTE 16 - Concentrations of Credit Risk
The Subsidiary Banks of Summit Bancshares, Inc. grant commercial, real estate
and consumer loans in their direct market which is defined as Fort Worth and
its surrounding area. The board of directors of each bank monitor
concentrations of credit by purpose, collateral and industry at least
quarterly. Certain limitations for concentration are set by the boards.
Additional loans in excess of these limits must have prior approval of the
bank's directors' loan committee.
NOTE 17 - Compensated Absences
Employees of the Corporation are entitled to paid vacation, paid sick days and
other personal days off, depending on job classification, length of service,
and other factors. It is impracticable to estimate the amount of compensation
for future absences, and, accordingly, no liability has been recorded in the
accompanying financial statements. The Corporation's policy is to recognize
the costs of compensated absences when actually paid to employees.
NOTE 18 - Litigation
Certain of the Subsidiary Banks are involved in legal actions arising in the
ordinary course of business. It is the opinion of legal counsel that the
settlement of these matters will not materially affect the Corporation's
financial position.
-46-
NOTE 19 - Stock Split
On April 20, 1993, the shareholders of Summit Bancshares, Inc. authorized a
two-for-one stock split of the Corporation's common stock. The par value of
the common stock was reduced to $1.25 from $2.50 and the authorized shares
were increased to 8,000,000 from 4,000,000. All references in the
accompanying financial statements to the number of common shares and per share
amounts for 1992 have been restated to reflect the stock split.
NOTE 20 - Subsequent Events
On January 17, 1995, the Board of Directors of Summit Bancshares, Inc.
approved a quarterly dividend of $.11 per share to be paid on February 15,
1995 to shareholders of record on February 1, 1995.
-47-
NOTE 21 - Condensed Parent Company Financial Statements
<TABLE>
<CAPTION>
BALANCE SHEETS
December 31,
------------------------------------
1994 1993
------------ ------------
ASSETS (In Thousands)
<S> <C> <C>
CASH IN SUBSIDIARY BANKS:
Demand $ 99 $ 27
Time 765 161
INVESTMENTS IN SUBSIDIARIES:
Bank Subsidiaries 23,781 22,330
Non-Bank Subsidiary 236 232
PROPERTY AND EQUIPMENT - NET 1,961 2,070
OTHER ASSETS 301 181
------- -------
TOTAL ASSETS $ 27,143 $ 25,001
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Notes Payable $ 1,356 $ 1,698
Other Liabilities 453 325
SHAREHOLDERS' EQUITY 25,334 22,978
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 27,143 $ 25,001
======= =======
<CAPTION>
STATEMENTS OF INCOME Year Ended December 31,
-----------------------------------------------------------
1994 1993 1992
------------ ------------ -----------
(In Thousands)
<S> <C> <C> <C>
INCOME:
Dividends from Subsidiaries $ 2,100 $ 900 $ 1,395
Interest 5 1 5
Other 341 324 263
------- ------- -------
TOTAL INCOME 2,446 1,225 1,663
------- ------- -------
EXPENSES:
Interest 101 119 189
Salaries and Benefits 535 417 314
Occupancy and Furniture-Net (3) 24 2
Other 296 262 133
------- ------- -------
TOTAL EXPENSES 929 822 638
------- ------- -------
INCOME BEFORE INCOME TAX BENEFIT,
EQUITY IN UNDISTRIBUTED EARNINGS
OF SUBSIDIARIES AND EXTRAORDINARY ITEM 1,517 403 1,025
INCOME TAX BENEFIT - NOTE 9 196 166 92
------- ------- -------
INCOME BEFORE EQUITY IN
UNDISTRIBUTED EARNINGS OF
SUBSIDIARIES AND EXTRAORDINARY ITEM 1,713 569 1,117
EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 2,327 3,162 1,887
------- ------- -------
INCOME BEFORE EXTRAORDINARY ITEM 4,040 3,731 3,004
EXTRAORDINARY ITEM - GAIN ON EXTINGUISHMENT OF
DEBT (NET OF INCOME TAX OF $120,000) -0- -0- 232
-------- -------- --------
NET INCOME $ 4,040 $ 3,731 $ 3,236
======== ======== ========
</TABLE>
-48-
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOW
Year Ended December 31,
------------------------------------------------
1994 1993 1992
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 4,040 $ 3,731 $ 3,236
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Forgiveness of Debt -0- -0- (352)
Depreciation and Amortization 151 165 159
Deferred Income Taxes 48 57 23
Undistributed Earnings of Subsidiaries (2,327) (3,162) (1,887)
(Increase) Decrease in Other Assets (169) 120 (51)
Increase (Decrease) in Other Liabilities 128 124 (467)
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,871 1,035 661
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Contribution to Non-Bank Subsidiary -0- (266) -0-
Purchases of Premises and Equipment (42) (63) (120)
------- ------ -------
NET CASH USED BY INVESTING ACTIVITIES (42) (329) (120)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal Payments on Notes Payable (342) (336) (1,420)
Payments of Cash Dividends (567) (332) -0-
Proceeds from Note Payable -0- -0- 750
Receipts from Stock Options Exercised 109 78 -0-
Purchase of Treasury Stock (353) -0- (39)
------- ------ -------
NET CASH USED BY FINANCING ACTIVITIES (1,153) (590) (709)
------- ------ -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 676 116 (168)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 188 72 240
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 864 $ 188 $ 72
======= ======= =======
</TABLE>
-49-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no changes in accountants and no disagreements with
accountants on any matter of accounting principles or practices or financial
statement disclosures during the twenty-four (24) month period ended
December 31, 1994.
-50-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information set forth under the caption "PROPOSAL NO. 1: ELECTION OF
DIRECTORS" on pages 3 through 6 of the Corporation's Proxy Statement dated
March 21, 1995, relating to the 1995 Annual Meeting of Shareholders of the
Corporation, the information set forth under the caption "STOCK OWNERSHIP -
Compliance with Section 16(a) of the Securities Exchange Act of 1934" on page
17 of such Proxy Statement, and the information set forth under the caption
"EXECUTIVE OFFICERS OF THE CORPORATION" on pages 9 through 10 of Part I of this
report is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under the caption "EXECUTIVE COMPENSATION AND OTHER
INFORMATION" on pages 17 through 25 of the Corporation's Proxy Statement dated
March 21, 1995, relating to the 1995 Annual Meeting of Shareholders of the
Corporation, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information with respect to shareholders of the Corporation who are known
to be beneficial owners of more than five percent (5%) of the outstanding
shares of Common Stock of the Corporation set forth under the caption "STOCK
OWNERSHIP - By Others" on pages 16 through 17 of the Corporation's Proxy
Statement dated March 21, 1995, relating to the 1995 Annual Meeting of
Shareholders of the Corporation, is incorporated herein by reference. The
information relating to the beneficial ownership of the outstanding shares of
Common Stock of the Corporation by its directors and executive officers set
forth under the caption "STOCK OWNERSHIP - By Management" on pages 14 through
16 of the Corporation's Proxy Statement dated March 21, 1995, relating to the
1995 Annual Meeting of Shareholders of the Corporation, is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth under the caption "CERTAIN TRANSACTIONS" on pages 26
and 27 of the Corporation's Proxy Statement dated March 21, 1995, relating
to the 1995 Annual Meeting of Shareholders of the Corporation, is incorporated
herein by reference.
-51-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a)(1) Financial Statements. The following financial statements are
included in Part II, Item 8:
Independent Auditor's Report
Consolidated Balance Sheets of Summit Bancshares, Inc. and
Subsidiaries as of December 31, 1994 and 1993
Consolidated Statements of Income of Summit Bancshares, Inc. and
Subsidiaries for the Years Ended December 31, 1994, 1993 and
1992
Statements of Changes in Shareholders' Equity of Summit
Bancshares, Inc. and Subsidiaries for the Years Ended December
31, 1994, 1993 and 1992 (Consolidated and Parent Company Only)
Consolidated Statement of Cash Flows of Summit Bancshares, Inc.
and Subsidiaries for the Years Ended December 31, 1994, 1993 and
1992
Notes to Financial Statements
(2) Financial Statement Schedules. Financial statement schedules
are omitted because of the absence of conditions under which
they are required or because the required information is given
in the financial statements or notes thereto.
(3) Exhibits. The following exhibits are filed as a part of this
report:
3(a) Articles of Incorporation of the Corporation
(incorporated herein by reference to Exhibit 3.1 to
the Corporation's Registration Statement No. 2-92405
filed November 7, 1984).*
3(b) Articles of Amendment to the Articles of Incorporation
of the Corporation filed with the Secretary of State
of Texas on May 4, 1988 (incorporated herein by
reference to Exhibit 3(b) to the Corporation's Annual
Report on Form 10-K for the year ended December 31,
1988).*
3(c) Restated Bylaws of the Corporation (incorporated
herein by reference to Exhibit 3(b) to the
Corporation's Annual Report on Form 10-K for the year
ended December 31, 1986).*
3(d) Articles of Amendment to the Articles of Incorporation
of the Corporation filed with the Secretary of State
of Texas on April 25, 1990 (incorporated herein by
reference to Exhibit 3(d) to the Corporation's Annual
Report on Form 10-K for the year ended December 31,
1992).*
3(e) Articles of Amendment to the Articles of Incorporation
of the Corporation filed with the Secretary of State
of Texas on April 22, 1993 (incorporated herein by
reference to Exhibit 3(e) to the Corporation's Annual
Report on Form 10-K for the year ended December 31,
1993).*
4(a) Summit Bancshares, Inc.'s Rights Agreement dated April
17, 1990 (incorporated herein by reference to Exhibit
1 to the Corporation's Current Report on Form 8-K
dated April 18, 1990 filed on April 24, 1990).*
10(a) Lease Agreement dated August 28, 1985 by and between
Alta Mesa National Bank, as lessor, and the
Corporation, as lessee (incorporated herein by
reference to Exhibit 10(a) to the Corporation's Annual
Report on Form 10-K for the year ended December 31,
1985).*
-52-
10(b) Lease Agreement dated October 1, 1986 by and between
the Corporation, as lessor, and Alta Mesa National
Bank, as lessee (incorporated herein by reference to
Exhibit 10(f) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1986).*
10(c) Summit Bancshares, Inc.'s 1982 Incentive Stock Option
Plan (incorporated herein by reference to Exhibit 10.3
to the Corporation's Registration Statement No. 2-
92405 filed November 7, 1984).*
10(d) Summit Bancshares, Inc.'s Defined Benefit Pension Plan
(effective as of January 1, 1985) (incorporated herein
by reference to Exhibit 10(d) to the Corporation's
Annual Report on Form 10-K for the year ended December
31, 1985).*
10(e) Amendment No. 1 to Summit Bancshares, Inc.'s Defined
Benefit Pension Plan dated June 29, 1987 (incorporated
herein by reference to Exhibit 10(f) to the
Corporation's Annual Report on Form 10-K for the year
ended December 31, 1988).*
10(f) Amendment No. 2 to Summit Bancshares, Inc.'s Defined
Benefit Pension Plan dated December 16, 1988
(incorporated herein by reference to Exhibit 10(g) to
the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1988).*
10(g) Amendment No. 3 to Summit Bancshares, Inc.'s Defined
Benefit Pension Plan dated October 17, 1989
(incorporated herein by reference to Exhibit 10(h) to
the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1989).*
10(h) Amendment No. 4 to Summit Bancshares, Inc.'s Defined
Benefit Pension Plan dated October 18, 1994.**
10(i) Promissory Note dated December 21, 1989 in the
original principal amount of $1,400,000 executed by
Summit Bancshares, Inc. and payable to the order of
Summit National Bank (incorporated herein by reference
to Exhibit 10(s) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1989).*
10(j) Lease Agreement dated February 14, 1992 by and between
Zell/Merrill Lynch Real Estate Opportunity Partners
Limited Partnership, as landlord, and Summit
Bancshares, Inc., as tenant (incorporated herein by
reference to Exhibit 10(i) to the Corporation's Annual
Report on Form 10-K for the year ended December 31,
1992).*
10(k) First Amendment dated May 3, 1994 to Lease Agreement
dated February 14, 1992 by and between Zell/Merrill
Lynch Real Estate Opportunity Partners Limited
Partnership, as landlord, and Summit Bancshares, Inc.,
as tenant.**
10(l) Loan Agreement dated June 4, 1992 between Summit
Bancshares, Inc., as borrower, and Bank of Commerce,
as lender; Promissory Note in the original principal
amount of $750,000; and related Security Agreement
(incorporated herein by reference to Exhibit 10(j) to
the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1992).*
10(m) Management Security Plan of Summit Bancshares, Inc.
effective September 1, 1992; Management Security Plan
Agreement between Summit Bancshares, Inc. and F. S.
Gunn; and Management Security Plan Agreement between
Summit Bancshares, Inc. and James L. Murray (incorpo-
rated herein by reference to Exhibit 10(k) to the
Corporation's Annual Report on Form 10-K for the year
ended December 31, 1992).*
-53-
10(n) Promissory Note dated January 21, 1993 in the original
principal amount of $290,000 executed by Summit
Bancservices, Inc. and payable to the order of Summit
National Bank; related Security Agreements; and
related Unconditional Guaranty executed by Summit
Bancshares, Inc. (incorporated herein by reference to
Exhibit 10(l) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1992).*
10(o) Commercial-Industrial Lease Agreement dated January 1,
1993 by and between Summit National Bank, as landlord,
and Summit Bancservices, Inc., as tenant (incorporated
herein by reference to Exhibit 10(m) to the
Corporation's Annual Report on Form 10-K for the year
ended December 31, 1992).*
10(p) 1993 Incentive Stock Option Plan of Summit Bancshares,
Inc. (incorporated herein by reference to Exhibit
10(n) to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1993).*
11 Computation of Earnings Per Common Share.**
21 Subsidiaries of the Corporation.**
27 Financial Data Schedule.**
(b) Reports on Form 8-K.
The Corporation did not file during the last quarter covered by this
report any reports on Form 8-K.
-----------------------------------
* A copy of this Exhibit is available to any shareholders, at the actual
cost of reproduction upon written request to the Corporation.
** Filed herewith.
-54-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
DATE: March 22, 1995 By:/s/ Philip E. Norwood
------------------------------
Philip E. Norwood, President
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on this 22nd day of March, 1995.
SIGNATURE TITLE
/s/ Philip E. Norwood President, Chief Executive Officer
----------------------------- and Director (Principal Executive
Philip E. Norwood Officer)
/s/ Bob G. Scott Senior Vice President and Chief
----------------------------- Financial Officer (Chief
Bob G. Scott Accounting Officer)
/s/ James L. Murray Chairman of the Board
-----------------------------
James L. Murray
/s/ F.S. Gunn Vice Chairman and Director
-----------------------------
F.S. Gunn
/s/ Jeffrey M. Harp Chief Operating Officer,
----------------------------- Executive Vice President,
Jeffrey M. Harp Secretary and Treasurer and
Director
/s/ Robert E. Bolen Director
-----------------------------
Robert E. Bolen
/s/ Joe L. Bussey, M.D. Director
-----------------------------
Joe L. Bussey, M.D.
/s/ Elliott S. Garsek Director
-----------------------------
Elliott S. Garsek
-55-
/s/ Ronald J. Goldman Director
-----------------------------
Ronald J. Goldman
/s/ William W. Meadows Director
-----------------------------
William W. Meadows
/s/ Edward P. Munson Director
-----------------------------
Edward P. Munson
Director
-----------------------------
Lynn C. Perkins, M.D.
/s/ Byron B. Searcy Director
-----------------------------
Byron B. Searcy
/s/ Lloyd J. Weaver Director
-----------------------------
Lloyd J. Weaver
-56-
EXHIBIT INDEX
Exhibit Page No.
------- --------
3(a) Articles of Incorporation of the Corporation (incorporated
herein by reference to Exhibit 3.1 to the Corporation's
Registration Statement No. 2-92405 filed November 7, 1984).*
3(b) Articles of Amendment to the Articles of Incorporation of
the Corporation filed with the Secretary of State of Texas
on May 4, 1988 (incorporated herein by reference to
Exhibit 3(b) to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1988).*
3(c) Restated Bylaws of the Corporation (incorporated herein by
reference to Exhibit 3(b) to the Corporation's Annual Report
on Form 10-K for the year ended December 31, 1986).*
3(d) Articles of Amendment to the Articles of Incorporation of
the Corporation filed with the Secretary of State of Texas
on April 25, 1990 (incorporated herein by reference to
Exhibit 3(d) to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1992.)*
3(e) Articles of Amendment to the Articles of Incorporation of
the Corporation filed with the Secretary of State of Texas
on April 22, 1993 (incorporated herein by reference to
Exhibit 3(e) to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1993).*
4(a) Summit Bancshares, Inc.'s Rights Agreement dated April 17, 1990
(incorporated herein by reference to Exhibit 1 to the
Corporation's Current Report on Form 8-K dated April 18, 1990
filed on April 24, 1990).*
10(a) Lease Agreement dated August 28, 1985 by and between Alta
Mesa National Bank, as lessor, and the Corporation, as lessee
(incorporated herein by reference to Exhibit 10(a) to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1985).*
10(b) Lease Agreement dated October 1, 1986 by and between the
Corporation, as lessor, and Alta Mesa National Bank, as
lessee (incorporated herein by reference to Exhibit 10(f)
to the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1986).*
10(c) Summit Bancshares, Inc.'s 1982 Incentive Stock Option Plan
(incorporated herein by reference to Exhibit 10.3 to the
Corporation's Registration Statement No. 2-92405 filed
November 7, 1984).*
10(d) Summit Bancshares, Inc.'s Defined Benefit Pension Plan
(effective as of January 1, 1985)(incorporated herein by
reference to Exhibit 10(d) to the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1985).*
10(e) Amendment No. 1 to Summit Bancshares, Inc.'s Defined Benefit
Pension Plan dated June 29, 1987 (incorporated herein by
reference to Exhibit 10(f) to the Corporation's Annual Report
on Form 10-K for the year ended December 31, 1988).*
10(f) Amendment No. 2 to Summit Bancshares, Inc.'s Defined Benefit
Pension Plan dated December 16, 1988 (incorporated herein
by reference to Exhibit 10(g) to the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1988).*
10(g) Amendment No. 3 to Summit Bancshares, Inc.'s Defined Benefit
Pension Plan dated October 17, 1989 (incorporated herein by
reference to Exhibit 10(h) to the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1989).*
10(h) Amendment No. 4 to Summit Bancshares, Inc.'s Defined Benefit
Pension Plan dated October 18, 1994.**
10(i) Promissory Note dated December 21, 1989 in the original
principal amount of $1,400,000 executed by Summit Bancshares,
Inc. and payable to the order of Summit National Bank
(incorporated herein by reference to Exhibit 10(s) to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1989).*
10(j) Lease Agreement dated February 14, 1992 by and between
Zell/Merrill Lynch Real Estate Opportunity Partners Limited
Partnership, as landlord, and Summit Bancshares, Inc., as
tenant (incorporated herein by reference to Exhibit 10(i)
to the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1992).*
10(k) First Amendment dated May 3, 1994 to Lease Agreement
dated February 14, 1992 by and between Zell/Merrill
Lynch Real Estate Opportunity Partners Limited
Partnership, as landlord, and Summit Bancshares, Inc.,
as tenant.**
10(l) Loan Agreement dated June 4, 1992 between Summit Bancshares,
Inc., as borrower, and Bank of Commerce, as lender;
Promissory Note in the original principal amount of
$750,000; and related Security Agreement (incorporated
herein by reference to Exhibit 10(j) to the Corporation's
Annual Report on Form 10-K for the year ended
December 31, 1992).*
10(m) Management Security Plan of Summit Bancshares, Inc. effective
September 1, 1992; Management Security Plan Agreement between
Summit Bancshares, Inc. and F. S. Gunn; and Management
Security Plan Agreement between Summit Bancshares, Inc. and
James L. Murray (incorporated herein by reference to
Exhibit 10(k) to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1992).*
10(n) Promissory Note dated January 21, 1993 in the original
principal amount of $290,000 executed by Summit Bancservices,
Inc. and payable to the order of Summit National Bank;
related Security Agreements; and related Unconditional
Guaranty executed by Summit Bancshares, Inc. (incorporated
herein by reference to Exhibit 10(l) to the Corporation's
Annual Report on Form 10-K for the year ended December 31,
1992).*
10(o) Commercial-Industrial Lease Agreement dated January 1, 1993
by and between Summit National Bank, as landlord, and
Summit Bancservices, Inc., as tenant (incorporated herein
by reference to Exhibit 10(m) to the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1992).*
10(p) 1993 Incentive Stock Option Plan of Summit Bancshares, Inc.
(incorporated herein by reference to Exhibit 10(n) to the
Corporation's Annual Report on Form 10-K for the year
ended December 31, 1993).*
11 Computation of Earnings Per Common Share.**
21 Subsidiaries of the Corporation.**
27 Financial Data Schedule.**
------------------------
* A copy of this Exhibit is available to any shareholders, at the
actual cost of reproduction upon written request to the Corporation.
** Filed herewith.
EXHIBIT 10(h)
<PAGE>
AMENDMENT NUMBER FOUR
TO THE
SUMMIT BANCSHARES, INC.
DEFINED BENEFIT PENSION PLAN
WHEREAS, effective January 1, 1985 the Board of Directors of Summit
Bancshares, Inc. (the "Sponsoring Employer") approved an amendment and
restatement in its entirety of the CPI Master Defined Benefit Pension Plan to
be known as the Summit Bancshares, Inc., Defined Benefit Pension Plan (the
("Plan"); and
WHEREAS, the Sponsoring Employers has adopted various amendments since
that time; and
WHEREAS, the Sponsoring Employer desires to make further changes to the
Plan by adopting Amendment Number Four herein; and
NOW, THEREFORE, the Plan is hereby amended effective January 1,1994 as
follows:
Section 2.22 is amended to add a third exclusion to the
definition of "Employee", and "and (iii) any Employee whose
compensation for service to an Employer consists entirely of
commissions."
IN WITNESS WHEREOF, the Sponsoring Employer has caused this Amendment
Number Four to be executed and adopted this 18th day of October, 1994 to be
effective January 1, 1994.
SUMMIT BANCSHARES, INC.
the "Sponsoring Employer"
By: /s/ Jeffrey M. Harp
-----------------------------
Jeffrey M. Harp
Title: Executive Vice President/
Treasurer/Secretary
EXHIBIT 10(k)
<PAGE>
FIRST AMENDMENT
This First Amendment (the "Amendment") is made and entered into as of
the 3rd day of May, 1994, by and between Zell/Merrill Lynch Real Estate
Opportunity Partners Limited Partnership ("Lessor") by its agent, Equity
Office Properties, Inc., and Summit Bancshares, Inc. ("Lessee").
WITNESSETH
A. WHEREAS, Lessor and Lessee are parties to that certain lease dated
February, 1992 currently containing approximately 2,151 rentable square
feet of space described as Suite No(s). 604 on the sixth floor(s)
("Original Premises") of the buildings commonly known as 1300 Summit
Office Park and the address of which is 1300 Summit Ave., Fort Worth, TX
(the "Building");
B. WHEREAS, Lessee has requested that additional space consisting of
approximately 2,827 rentable square feet on the sixth floor of 1300 Summit
Office Park be added to the Premises and that the Lease be appropriately
amended (the Original Premises and Expansion Space are sometimes
collectively referred to as the "Premises"), and Lessor is willing to do
the same on the terms and conditions set forth below;
C. WHEREAS, the Lease by its terms shall expire on March 31, 1995
("Prior Termination Date"), and the parties desire to extend the Lease,
all on the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, Lessor and
Lessee agree as follows:
I. EXPANSION. Effective as of the Expansion Effective Date (as
hereinafter defined), the Premises, as shown on Exhibit A hereto (the
"Premises"), is increased from 2,151 rentable square feet on the sixth
floor of the 1300 Summit Office Park Building to 4,978 rentable square
feet on the sixth floor of the 1300 Summit Office Park Building by the
addition of the Expansion Space. The lease term for the Expansion Space
shall commence on the Expansion Effective Date and end on the Extended
Termination Date (as hereinafter defined). The Expansion Space is subject
to all the terms and conditions of the Lease except as expressly modified
herein and except that Lessee shall not be entitled to receive any
allowances, abatements or other financial concessions granted with respect
to the Premises unless such concessions are expressly provided for herein.
A. The Expansion Effective Date shall be the later to occur of (i)
July 1, 1994 ("Target Expansion Effective Date"), and (ii) the date
upon which Lessor's improvement work in the Expansion Space has been
substantially completed; provided, however, that if Lessor shall be
delayed in substantially completing the Lessor's work in the
Expansion Space as a result of the occurrence of any of the following
(a "Delay"):
1. Lessee's failure to furnish information or to respond to any
request by Lessor for any approval or information within any
time period prescribed or, if no time period is prescribed,
then within two (2) Business Days of such request; or
2. Lessee's insistence on materials, finishes or installations
that have long lead times after having first been informed
by Lessor that such materials, finishes or installations
will cause a Delay; or
3. Changes in any plans and specifications; or
4. The performance or nonperformance by a person or entity
employed by Lessee in the completion of any work (all such
work and such persons or entities being subject to the prior
approval of Lessor); or
5. Any request by Lessee that Lessor delay the completion of
any of the Lessor's work; or
6. Any breach or default by Lessee in the performance of
Lessee's obligations under this Amendment or the Lease; or
7. Any delay resulting from Lessee's having taken possession of
the Expansion Space for any reason prior to substantial
completion of the Lessor's work; or
8. Any other delay chargeable to Lessee, its agents, employees
or independent contractors; or
then, for purposes of determining the Expansion Effective Date, the
date of substantial completion shall be deemed to be the day that said
Lessor's work would have been substantially completed absent any such
Delay(s). The Expansion Space shall be deemed to be substantially
completed on the date that Lessor reasonably determines that all
Lessor's work has been performed (or would have been performed absent
any Delays), other than any details of construction, mechanical
adjustment or any other matter, the noncompletion of which does not
materially interfere with Lessee's use of the Expansion Space. The
adjustment of the Expansion Effective Date and, accordingly, the
postponement of Lessee's obligation to pay Rent on the Expansion Space
shall be Lessee's sole remedy and shall constitute full settlement of
all claims that Lessee might otherwise have against Lessor by reason
of the Expansion Space not being ready for occupancy by Lessee on the
Target Expansion Effective Date.
B. In addition to the postponement, if any, of the Expansion
Effective Date as a result of the applicability of Paragraph I.A. of
this Amendment, the Expansion Effective Date shall be delayed to the
extent that Lessor fails to deliver possession of the Expansion Space
for any other reason, including but not limited to, holding over by
prior occupants. Any such delay in the Expansion Effective Date shall
not subject Lessor to any liability for any loss or damage resulting
therefrom. If the Expansion Effective Date is delayed, the Extended
Termination Date (as hereinafter defined) under the Lease shall be
similarly extended.
II. EXTENSION. The Lease Term is hereby modified from three (3)
years, zero (0) months, and zero (0) days expiring on March 31, 1995
("Prior Termination Date") to seven (7) years, nine (9) months, and zero
(0) days expiring on December 31, 1999 ("Extended Termination Date"),
unless sooner terminated in accordance with the terms of the Lease. That
portion of the Lease Term commencing the day immediately following the
Prior Termination Date ("Extension Date") and ending on the Extended
Termination Date shall be referred to herein as the "Extended Term."
III. BASE MONTHLY RENT
A. ORIGINAL PREMISES UP TO THE EXPANSION EFFECTIVE DATE. The Base
Monthly Rent, Additional Rent and all other charges under the Lease
shall be payable as provided therein with respect to the Original
Premises through and including the day prior to the Expansion
Effective Date.
B. PREMISES FROM AND AFTER EXTENSION DATE. As of the Expansion
Effective Date, the schedule of monthly installments of Base Monthly
Rent payable with respect to the Premises from and after the Expansion
Effective Date is the following:
Lessee shall pay Lessor the sum of Three Hundred Fourteen Thousand
Eight Hundred Eighty-Six Dollars($314,886.00) as Base Monthly Rent for
the Premises for the Extended Term in sixty-six (66) monthly
installments as follows:
(i). Sixty-six (66) equal installments of $4,771.00 each payable on
or before the first day of each month during the period beginning July
1, 1994 and ending December 31, 1999.
Lessor and Lessee acknowledge that the foregoing schedule is based on
the assumption that the Expansion Effective Date is the Target
Expansion Effective Date. If the Expansion Effective Date is
postponed, the beginning date set forth above with respect to the
payment of any installment(s) of Base Monthly Rent shall be
appropriately adjusted on a per diem basis and set forth in a
confirmation letter to be prepared by Lessor. All such Base Monthly
Rent shall be payable by Lessee in accordance with the terms of
Exhibit "A" of the Lease.
IV. LESSEE'S PRO RATA SHARE. For the period commencing with the
Expansion Effective Date and ending on the Extended Termination Date,
Lessee's Proportionate Share for the Premises is Two and Six/One Hundredths
percent (2.06%).
V. LESSEE'S BASE YEAR
A. PREMISES FOR THE EXTENDED TERM. For the period commencing with
the Expansion Effective Date and ending on the Extended Termination
Date, the Base Year for the computation of Lessee's Pro Rata Share of
Operating Expenses and Real Estate Taxes applicable to the Premises is
amended from 1991 to 1994;
VI. IMPROVEMENTS TO EXPANSION SPACE.
A. Lessee has inspected the Expansion Space and agrees to accept the
same "as is" without any agreements, representations, understandings
or obligations on the part of Lessor to perform any alterations,
repairs or improvements, except as may be expressly provided otherwise
in this Amendment.
B. COST OF IMPROVEMENTS TO EXPANSION SPACE. Provided Lessee is not
in default, any initial construction, alteration or improvement of the
Premises shall be done at Lessor's sole cost and expense using
Building Standard material and finishes.
C. RESPONSIBILITY FOR IMPROVEMENTS TO EXPANSION SPACE.
(i) Lessor shall enter into a direct contract with a
general contractor selected by Lessor for the initial Tenant
Standard improvements to the Premises which are to be
performed in accordance with the Plans and Specifications
attached hereto as Exhibit B, dated April 27, 1994. Lessor
and Lessee have approved the Plans and Specifications.
Above Building Standard improvements are noted on the Plans
and Specifications as Alternates and are at the Lessee's
sole cost and expense.
VII. EARLY ACCESS TO EXPANSION SPACE. During any period that Lessee
shall be permitted to enter the Premises prior to the Expansion Effective Date
(e.g., to perform alterations or improvements), Lessee shall comply with all
terms and provisions of the Lease, except those provisions requiring payment
of Base Monthly Rent or Additional Rent. If Lessee takes possession of the
Premises prior to the Expansion Effective Date for any reason whatsoever
(other than the performance of work in the Premises with Lessor's prior
approval), such possession shall be subject to all the terms and conditions of
the Lease and this Amendment, and Lessee shall pay Base Monthly Rent and
Additional Rent as applicable to the Premises to Lessor on a per diem basis
for each day of occupancy prior to the Expansion Effective Date.
VIII. OTHER PERTINENT PROVISIONS. Lessor and Lessee agree that the
Lease shall be amended in the following additional respects:
A. Lessee's possession of the Original Premises, Suite 604, 1300
Summit Building shall terminate on the day prior to the Expansion
Effective Date as defined in Paragraph I.A. of this First Amendment.
IX. MISCELLANEOUS.
A. This Amendment sets forth the entire agreement between the
parties with respect to the matters set forth herein. There have been
no additional oral or written representations or agreements. Under no
circumstances shall Lessee be entitled to any Rent abatement,
improvement allowance, leasehold improvements, or other work to the
Premises, or any similar economic incentives that may have been
provided Lessee in connection with entering into the Lease, unless
specifically set forth in this Amendment.
B. Except as herein modified or amended, the provisions, conditions
and terms of the Lease shall remain unchanged and in full force and
effect.
C. In the case of any inconsistency between the provisions of the
Lease and this Amendment, the provisions of this Amendment shall
govern and control. Under no circumstances shall this Amendment be
deemed to grant Lessee any further right to expand the Premises or
extend the Lease, provided, however, any such additional rights
specifically provided Lessee in the Lease are not hereby relinquished
or waived.
D. Submission of this Amendment by Lessor is not an offer to enter
into this Amendment but rather is a solicitation for such an offer by
Lessee. Lessor shall not be bound by this Amendment until Lessor has
executed and delivered the same to Lessee.
E. The capitalized terms used in this Amendment shall have the same
definitions as set forth in the Lease to the extent that such
capitalized terms are defined therein and not redefined in this
Amendment.
F. This Amendment shall be of no force and effect unless and until
accepted by any guarantors of the Lease, who by signing below shall
agree that their guarantee shall apply to the Lease as amended herein,
unless such requirement is waived by Lessor in writing.
G. Lessee hereby represents to Lessor that Lessee has dealt with no
broker in connection with this Amendment. Lessee agrees to indemnify
and hold Lessor and the Lessor Related Parties harmless from all
claims of any brokers claiming to have represented Lessee in
connection with this Amendment.
IN WITNESS WHEREOF, Lessor and Lessee have duly executed this
Amendment as of the day and year first above written.
WITNESSES; ATTESTATION Lessor: Zell/Merrill Lynch Real Estate
Opportunity Partners Limited Partnership
BY: EQUITY OFFICE PROPERTIES, INC.,
as Agent
By: /s/ E. Valjean Wheeler
----------------------------
Name: E. Valjean Wheeler
Title: Vice Chairman
Lessee: Summit Bancshares, Inc.
By: /s/ Philip E. Norwood
-----------------------------
Name: Phillip E. Norwood
Title: President
<PAGE>
EXHIBIT A
First Amendment
Premises
[Drawing of Premises]
1300 SUMMIT OFFICE PARK
Lessee Name: Summit Bancshares, Inc.
Suite Number: 604
Square Feet: 4,927 rentable
IN WITNESS WHEREOF this First Amendment is entered into by the parties
hereto on the date and year first set forth above.
Lessee: Summit Bancshares, Inc. Lessor: Zell/Merrill Lynch Real Estate
Opportunity Partners Limited
Partnership
By: Equity Office Properties,
By: /s/ Philip E. Norwood Inc., as agent
---------------------------
Name: Phillip E. Norwood By: /s/ E. Valjean Wheeler
Title: President --------------------------
Name: E. Valjean Wheeler
Title: Vice Chairman
EXHIBIT 11
<PAGE>
<TABLE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
EXHIBIT 11
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE
(Dollars in Thousands, Except Per Share Data)
<CAPTION>
December 31,
-----------------------------------------------------
Primary Basis 1994 1993 1992
------------- ---------- ---------- ----------
<S> <C> <C> <C>
Net Income Before Extraordinary Item $ 4,040 $ 3,731 $ 3,004
========== ========== ==========
Net Income 4,040 3,731 3,236
========== ========== ==========
Weighted average number of Common Shares
outstanding during the year 1,567,885 1,547,759 1,548,750
========== ========== ==========
Primary Income per Common Share Before
Extraordinary Item $ 2.58 $ 2.41 $ 1.94
========== ========== ==========
Primary Income per Common Share $ 2.58 $ 2.41 $ 2.09
========== ========== ==========
</TABLE>
The assumed exercise of stock options does not result in material dilution.
Therefore, the computation of net income per share is not set forth on a fully
diluted basis.
EXHIBIT 21
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
EXHIBIT 21
SUBSIDIARIES OF THE CORPORATION
Subsidiaries State of Incorporation
------------ ----------------------
Summit National Bank, Fort Worth, Texas National Association
Alta Mesa National Bank, Fort Worth, Texas National Association
Camp Bowie National Bank, Fort Worth, Texas National Association
Summit Bancservices, Inc., Fort Worth, Texas Texas
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets of Summit Bancshares, Inc. and Subsidiaries as of
December 31, 1994, and the related statements of income, changes in
shareholders' equity and cash flows for the period ending December 31, 1994
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 18,420
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 9,740
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 54,285
<INVESTMENTS-CARRYING> 60,437
<INVESTMENTS-MARKET> 58,213
<LOANS> 138,966
<ALLOWANCE> 2,410
<TOTAL-ASSETS> 291,011
<DEPOSITS> 259,539
<SHORT-TERM> 0
<LIABILITIES-OTHER> 5,888
<LONG-TERM> 250
<COMMON> 1,973
0
0
<OTHER-SE> 23,361
<TOTAL-LIABILITIES-AND-EQUITY> 291,011
<INTEREST-LOAN> 11,455
<INTEREST-INVEST> 6,074
<INTEREST-OTHER> 614
<INTEREST-TOTAL> 18,143
<INTEREST-DEPOSIT> 5,510
<INTEREST-EXPENSE> 5,625
<INTEREST-INCOME-NET> 12,518
<LOAN-LOSSES> (114)
<SECURITIES-GAINS> (152)
<EXPENSE-OTHER> 8,866
<INCOME-PRETAX> 6,134
<INCOME-PRE-EXTRAORDINARY> 4,040
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,040
<EPS-PRIMARY> 2.58
<EPS-DILUTED> 2.58
<YIELD-ACTUAL> 4.84
<LOANS-NON> 643
<LOANS-PAST> 32
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,497
<ALLOWANCE-OPEN> 2,594
<CHARGE-OFFS> 313
<RECOVERIES> 243
<ALLOWANCE-CLOSE> 2,410
<ALLOWANCE-DOMESTIC> 1,827
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 583
</TABLE>
