SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Mark One
[ X ] Quarterly report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1995; or
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 For the Transition period from
_______________ to _________________.
Commission File Number 0-11986
SUMMIT BANCSHARES, INC.
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 75-1694807
------------------------ --------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
1300 Summit Avenue, Fort Worth, Texas 76102
-------------------------------------------------
(Address of principal executive offices)
(817) 336-6817
---------------------------------------------------
(Registrant's telephone number, including area code)
No Change
---------------------------------------------------------------
(Former name, former address and former fiscal year
if changed since last report)
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 required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
---- ----
The number of shares of common stock, $1.25 par value, outstanding at
March 31, 1995 was 1,578,923 shares.
<PAGE>
SUMMIT BANCSHARES, INC.
INDEX
PART I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1995 and 1994
and at December 31, 1994 4
Consolidated Statements of Income for the Three Months
Ended March 31, 1995 and 1994 and for the Year Ended
December 31, 1994 5
Consolidated Statements of Changes in Shareholders'
Equity for the Three Months Ended March 31, 1995 and
1994 and for the Year Ended December 31, 1994 6
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1995 and 1994 and for the Year
Ended December 31, 1994 7-8
Notes to Consolidated Financial Statements for the Three
Months Ended March 31, 1995 and 1994 and the Year Ended
December 31, 1994 9-19
The March 31, 1995 and 1994 and the December 31, 1994
financial statements included herein are unaudited;
however, such information reflects all adjustments
(consisting solely of normal recurring adjustments),
which are, in the opinion of management of the
registrant, necessary to a fair statement of the results
for the interim periods.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Three Months
Ended March 31, 1995 and 1994 20-25
-2-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Change in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
-3-
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
March 31, December 31,
------------------------------- -------------
1995 1994 1995
------------ ------------ ------------
ASSETS (In Thousands)
<S> <C> <C> <C>
CASH AND DUE FROM BANKS $ 17,647 $ 15,172 $ 18,420
FEDERAL FUNDS SOLD 4,945 13,405 9,740
INVESTMENT SECURITIES - NOTE 2
(Market Value of $109,738,000
and $113,389,000 at March 31, 1995 and 1994
and $112,498,000 at December 31, 1994) 110,809 113,590 114,722
LOANS - NOTE 3
Loans, Net of Unearned Discount 148,274 128,429 138,966
Allowance for Loan Losses (2,355) (2,678) (2,410)
-------- -------- ---------
LOANS, NET 145,919 125,751 136,556
PREMISES AND EQUIPMENT, NET - NOTE 4 6,734 6,338 6,602
ACCRUED INCOME RECEIVABLE 2,728 2,515 2,732
OTHER REAL ESTATE - NOTE 5 391 565 649
OTHER ASSETS 1,094 1,351 1,590
-------- -------- --------
TOTAL ASSETS $ 290,267 $ 278,687 $ 291,011
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS - NOTE 6
Noninterest-Bearing Demand $ 69,537 $ 62,158 $ 72,992
Interest-Bearing 186,891 188,805 186,547
-------- -------- --------
TOTAL DEPOSITS 256,428 250,963 259,539
SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE 5,736 1,612 4,528
NOTE PAYABLE -0- 375 250
ACCRUED INTEREST PAYABLE 497 346 487
OTHER LIABILITIES 937 1,402 873
-------- -------- --------
TOTAL LIABILITIES 263,598 254,698 265,677
-------- -------- --------
COMMITMENTS AND CONTINGENCIES - NOTE 10
SHAREHOLDERS' EQUITY - NOTES 11, 13 and 17
Common Stock - $1.25 Par Value; 8,000,000 shares
authorized; 1,578,923, 1,570,418 and 1,578,723 shares
issued and outstanding at March 31, 1995 and 1994 and
at December 31, 1994, respectively 1,974 1,963 1,973
Capital Surplus 6,049 6,001 6,047
Retained Earnings 19,089 15,880 18,187
Unrealized Gain (Loss) on Investment Securities
Available for Sale, Net of Tax (233) 145 (873)
Treasury Stock at Cost (March 31, 1995 - 10,000 Shares) (210) -0- -0-
------- -------- --------
TOTAL SHAREHOLDERS' EQUITY 26,669 23,989 25,334
------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 290,267 $ 278,687 $ 291,011
======== ======== ========
</TABLE>
The accompanying Notes should be read with these financial statements.
-4-
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
For the Three Months Ended March 31, Year Ended December 31,
------------------------------------ -----------------------
1995 1994 1994
------------ ------------- -------------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 3,395 $ 2,598 $ 11,455
Interest and Dividends on Investment Securities:
Taxable 1,639 1,475 6,042
Exempt from Federal Income Taxes 8 9 32
Interest on Federal Funds Sold 61 96 614
------ ------ -------
TOTAL INTEREST INCOME 5,103 4,178 18,143
------ ------ -------
INTEREST EXPENSE
Interest on Deposits 1,683 1,204 5,510
Interest on Securities Sold Under
Agreements to Repurchase 62 14 91
Interest on Notes Payable 1 6 24
------ ------ ------
TOTAL INTEREST EXPENSE 1,746 1,224 5,625
------ ------ ------
NET INTEREST INCOME 3,357 2,954 12,518
LESS: PROVISION (CREDIT) FOR LOAN LOSSES - NOTE 3 42 20 (114)
------ ------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,315 2,934 12,632
------ ------ ------
NON-INTEREST INCOME
Service Charges and Fees on Deposits 384 392 1,548
Gain (Loss) on Sale of Investment Securities (10) 20 (152)
Other Income 353 223 972
------ ------ ------
TOTAL NON-INTEREST INCOME 727 635 2,368
------ ------ ------
NON-INTEREST EXPENSE
Salaries and Employee Benefits 1,380 1,181 5,003
Occupancy Expense - Net 167 159 646
Furniture and Equipment Expense 152 123 547
Other Real Estate Owned Expense - Net (77) (39) (41)
Other Expense 790 667 2,711
------ ------ ------
TOTAL NON-INTEREST EXPENSE 2,412 2,091 8,866
------ ------ ------
INCOME BEFORE INCOME TAXES 1,630 1,478 6,134
APPLICABLE INCOME TAXES - NOTE 8 554 499 2,094
------ ------ ------
NET INCOME $ 1,076 $ 979 $ 4,040
====== ====== ======
NET INCOME PER SHARE - NOTE 13 $ .68 $ .62 $ 2.58
====== ====== ======
</TABLE>
The accompanying Notes should be read with these financial statements.
-5-
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
AND FOR THE YEAR ENDED DECEMBER 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
Unrealized
Common Stock Gain (Loss)
-------------------- Capital Retained on 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, 1994 1,559,324 $1,949 $5,987 $15,042 $ -0- $ -0- $22,978
Net Income for the
Three Months Ended
March 31, 1994 979 979
Stock Options Exercised 11,094 14 14 28
Cash Dividend $.09
Per Share (141) (141)
Securities Available for
Sale Adjustment 145 145
--------- ------ ------- ------- ------- ------ -------
BALANCE AT
MARCH 31, 1994 1,570,418 1,963 6,001 15,880 145 -0- 23,989
Net Income for the
Nine Months Ended
December 31, 1994 3,061 3,061
Stock Options Exercised 28,195 35 46 81
Purchases of Stock Held in
Treasury (353) (353)
Retirement of Stock Held in
Treasury (19,890) (25) (328) 353
Cash Dividend $.27
Per Share (426) (426)
Securities Available for
Sale Adjustment (1,018) (1,018)
--------- ------ ------ ------- ------- ------ -------
BALANCE AT
DECEMBER 31, 1994 1,578,723 1,973 6,047 18,187 (873) -0- 25,334
Purchase of Stock Held
in Treasury (210) (210)
Net Income for the
Three Months Ended
March 31, 1995 1,076 1,076
Stock Options Exercised 200 1 2 3
Cash Dividend $.11
Per Share (174) (174)
Securities Available for
Sale Adjustment 640 640
--------- ------ ------- ------- ------- ------- -------
BALANCE AT
MARCH 31, 1995 1,578,923 $ 1,974 $ 6,049 $ 19,089 $ (233) $ (210) $ 26,669
========= ===== ===== ====== ===== ===== ======
</TABLE>
The accompanying Notes should be read with these financial statements.
-6-
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
AND FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
March 31, December 31,
--------------------------- ------------
1995 1994 1994
-------- -------- ------------
(In Thousands)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 1,076 $ 979 $ 4,040
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 140 135 545
Net Premium Amortization or (Discount
Accretion) on Investment Securities 130 234 831
Provision (Credit) for Loan Losses 42 20 (114)
Net Decrease in Deferred Income Taxes -0- (22) (248)
(Gain) Loss on Sale of Investment Securities 10 (20) 152
Writedown of Other Real Estate 2 -0- -0-
Net Gain From Sale of Other Real Estate (60) (35) (55)
Net Loss on Sale of Fixed Assets -0- -0- 2
Increase in Accrued Income and Other Assets (395) (442) (718)
Increase in Accrued Expenses and Other Liabilities 629 488 500
------ ------ ------
Total Adjustments 498 358 895
------ ------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,574 1,337 4,935
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Decrease in Federal Funds Sold 4,795 6,345 10,010
Proceeds from Matured and Prepaid Investment Securities
- Held-to-Maturity 2,179 2,071 11,453
- Available for Sale 655 4,470 17,047
Proceeds from Sales of Investment Securities 2,951 12,012 26,885
Purchase of Investment Securities
- Held-to-Maturity (1,041) (8,194) (19,126)
- Available for Sale -0- (11,628) (40,972)
Loans Originated or Acquired Less Payments,
Charge-offs and Other Real Estate Acquired (9,463) (1,172) (12,314)
Recoveries of Loans Previously Charged-Off 66 64 243
Proceeds from Sale of Fixed Assets -0- -0- 29
Proceeds from Sale of Other Real Estate 318 152 548
Capital Expenditures (272) (98) (802)
------ ------ ------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 188 4,022 (6,999)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease) in Demand Deposits, Savings
Accounts and Interest Bearing Transaction Accounts (4,682) (2,904) 7,564
Increase (Decrease) in Certificates of Deposit 1,570 (285) (2,175)
Net Increase (Decrease) in Repurchase Agreements 1,208 (67) 2,849
Principal Payments of Notes Payable (250) (125) (250)
Dividends to Shareholders (174) (141) (567)
Purchase of Treasury Stock (210) -0- (353)
Proceeds from Stock Options Exercised 3 28 109
------ ------ ------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (2,535) (3,494) 7,177
------ ------ ------
NET INCREASE (DECREASE) IN CASH AND DUE FROM
BANKS (773) 1,865 5,113
CASH AND DUE FROM BANKS AT BEGINNING
OF PERIOD 18,420 13,307 13,307
------ ------ ------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 17,647 $ 15,172 $ 18,420
====== ====== ======
</TABLE>
-7-
<TABLE>
<CAPTION>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONT'D
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
AND FOR THE YEAR ENDED DECEMBER 31, 1994
(Unaudited)
SUPPLEMENTAL SCHEDULE OF OPERATING AND INVESTING ACTIVITIES:
(Unaudited) (Unaudited)
March 31, December 31,
---------------------------- ------------
1995 1994 1994
---------- ---------- ------------
(In Thousands)
<S> <C> <C> <C>
(1) Interest Paid $ 1,735 $ 1,254 $ 5,516
(2) Income Taxes Paid (Refund Received) -0- (65) 1,825
(3) Other Real Estate Acquired in Settlement of Loans -0- 67 528
(4) Bank Financed Sales of Other Real Estate -0- -0- 234
</TABLE>
-8-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1994 (UNAUDITED)
NOTE 1 - Summary of Significant Accounting Policies
The accounting and reporting policies of Summit Bancshares, Inc.
(the "Corporation") and Subsidiaries are in accordance with generally
accepted accounting principles. 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., a wholly-
owned operations subsidiary. 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 levels of deposits. During
the first three months of 1995 the average cash balance maintained
at the Federal Reserve Bank was $10,930,000. Compensating balances
held at correspondent banks, to minimize service charges, averaged
approximately $1,111,000 during the same three month period of
1995.
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 determined 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 in a separate component of shareholders' equity.
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.
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 the principal and no interest income is
recorded until the loan is returned to accrual status or the
principal has been reduced to zero.
-9-
NOTE 1 - Summary of Significant Accounting Policies (cont'd.)
In January 1995, the Corporation adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan." Under the new standard, the 1995 allowance
for loan losses related to loans that are identified for evaluation
in accordance with Statement No. 114 (impaired loans) is based on
discounted cash flows using the loan's initial effective rate or
the fair value of the collateral for certain collateral dependent
loans. Prior to 1995, the allowance for loan losses related to
these loans was based on undiscounted cash flows or the fair value
of the collateral for collateral dependent loans.
The allowance for loan losses is comprised of amounts charged
against income in the form of a 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 the discounted cash flow values
of impaired loans and its evaluation of the quality of the loan
portfolio. Loans are placed on non-accrual status when management
believes that the borrower's financial condition, after giving
consideration to economic and business conditions and collection
efforts, is such that collection of interest is doubtful. Loans
are charged against the allowance for loan losses when management
believes that the collectibility of the principal is unlikely.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation expense is computed on the straight-
line method based upon the estimated useful lives of the assets
ranging from three to forty years. Maintenance and repairs are
charged to operating expenses. Renewals and betterments are added
to the asset accounts and depreciated over the periods benefitted.
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 bank'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 to
the parent a charge equivalent to their current federal income tax
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 income taxes are
provided for accumulated temporary differences due to basic
differences for assets and liabilities for financial reporting and
income tax purposes.
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 1994 or during the first three
months of 1995.
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 and federal
funds sold approximate those assets' fair values.
Investment securities (including mortgage-backed securi-
ties: 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.
-10-
NOTE 1 - Summary of Significant Accounting Policies (cont'd.)
Deposit liabilities: The fair value disclosed for interest
bearing and noninterest-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.
Note payable: The fair value of the Corporation's note
payable is based on its carrying amount 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 1994 financial
statements to conform to the 1995 presentation.
AUDITED FINANCIAL STATEMENTS
The consolidated balance sheet as of December 31, 1994, and the
consolidated statements of income, changes in shareholders' equity
and cash flows for the year ended December 31, 1994 are headed
"unaudited" in these financial statements. These statements were
reported in the Securities Exchange Commission Form 10-K as of
December 31, 1994 as "audited" but are required to be reflected in
these statements as unaudited because of the absence of an
independent auditor's report.
NOTE 2 - Investment Securities
A summary of amortized cost and estimated fair values of investment
securities is as follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1995
-------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Investment Securities - Held-to-Maturity
U.S. Treasury Securities $ 37,204 $ 133 $ (787) $ 36,550
U.S. Government Agencies
and Corporations 15,218 -0- (185) 15,033
U.S. Government Agency Mortgage
Backed Securities 6,403 1 (239) 6,165
Obligations of States and
Political Subdivisions 391 6 -0- 397
------- ----- ------ -------
Total Held-to-Maturity Securities 59,216 140 (1,211) 58,145
------- ----- ------ -------
Investment Securities - Available for Sale
U.S. Treasury Securities 45,073 101 (469) 44,705
U.S. Government Agencies
and Corporations 3,028 38 (27) 3,039
U.S. Government Agency Mortgage
Backed Securities 3,591 23 (19) 3,595
Federal Reserve Bank Stock 254 -0- -0- 254
------- ----- ------ -------
Total Available for Sale Securities 51,946 162 (515) 51,593
------- ----- ------ -------
Total Investment Securities $ 111,162 $ 302 $ (1,726) $ 109,738
======= === ======= =======
</TABLE>
In the above schedule the amortized cost of Total Held-to-Maturity
Securities of $59,216,000 and the fair value of Total Available for Sale
Securities of $51,593,000 are reflected in Investment Securities on the
consolidated balance sheet as of March 31, 1995 for a total of
$110,809,000. A net unrealized loss of $353,000 is included in the
Available for Sale Investment Securities balance. The unrealized loss,
net of tax benefit, is included in Shareholders' Equity.
-11-
NOTE 2 - Investment Securities (cont'd)
The carrying value of investment securities totaling $18,092,000 at
March 31, 1995, were pledged to secure federal, state and municipal
deposits and for other purposes as required or permitted by law. The
fair value of these pledged securities totaled $17,666,000 at March 31,
1995.
<TABLE>
<CAPTION>
March 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 $ 32,902 $ 243 $ (360) $ 32,785
U.S. Government Agencies
and Corporations 18,029 48 (82) 17,995
U.S. Government Agency Mortgage
Backed Securities 6,912 13 (83) 6,842
Obligations of States and
Political Subdivisions 463 20 -0- 483
------- ----- ----- -------
Total Held-to-Maturity Securities 58,306 324 (525) 58,105
------- ----- ----- -------
Investment Securities - Available for Sale
U.S. Treasury Securities 43,917 348 (191) 44,074
U.S. Government Agencies
and Corporations 6,259 54 (22) 6,291
U.S. Government Agency Mortgage
Backed Securities 4,635 36 (6) 4,665
Federal Reserve Bank Stock 254 -0- -0- 254
------- ----- ----- -------
Total Available for Sale Securities 55,065 438 (219) 55,284
------- ----- ----- -------
Total Investment Securities $ 113,371 $ 762 $ (744) $ 113,389
======= ==== ===== =======
</TABLE>
Proceeds from sales of investment securities were $2,951,000 and
$12,012,000 during the first three months of 1995 and 1994, respectively
and $26,885,000 during the year 1994. In the three months ended March
31, 1995, a loss of $10,000 was realized; gains of $20,000 and losses of
$172,000 were realized for the year ended December 31, 1994. Gains of
$20,000 were realized from those sales during the three months ended
March 31, 1994.
NOTE 3 - Loans and Allowance for Loan Losses
The book values and fair values of loans by major type follow (in
thousands):
<TABLE>
<CAPTION>
March 31, 1995 March 31, 1994
------------------------------- -------------------------------
Book Fair Book Fair
Value Value Value Value
------- ------- ------- -------
<S> <C> <C> <C> <C>
Commercial $ 69,443 $ 69,460 $ 63,061 $ 63,228
Real Estate Mortgage 54,781 54,699 46,231 46,584
Real Estate Construction 3,972 3,954 2,922 2,917
Loans to Individuals, Less
Unearned Discount 20,078 20,072 16,215 16,546
------- ------- -------- --------
148,274 148,185 128,429 129,275
Allowance for Loan Losses (2,355) (2,355) (2,678) (2,678)
-------- ------- -------- --------
Loans - Net $ 145,919 $ 145,830 $ 125,751 $ 126,597
======= ======= ======= =======
</TABLE>
The preceding table indicates that the Corporation had an
unrealized loss of approximately $89,000 in its loan portfolio at March
31, 1995 and an unrealized gain of approximately $846,000 in its loan
portfolio at March 31, 1994 before the respective allowances for loan
losses were applied. The unrealized losses and gains are the direct
result of the current posted rates for loans higher or lower,
respectively, than the average yields in the current loan portfolio.
-12-
NOTE 3 - Loans and Allowance for Loan Losses (cont'd.)
In the above schedule the amortized cost of Total Held-to-Maturity
Securities of $58,306,000 and the fair value of Total Available for Sale
Securities of $55,284,000 are reflected in Investment Securities on the
consolidated balance sheet as of March 31, 1994 for a total of
$113,590,000. A net unrealized gain of $219,000 is included in the
Available for Sale Investment Securities balance. The unrealized gain,
net of tax benefit, is included in Shareholders' Equity.
Transactions in the allowance for loan losses are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended
------------------------------------- December 31,
1995 1994 1994
-------- -------- ----------
<S> <C> <C> <C>
Balance, Beginning of Period $ 2,410 $ 2,594 $ 2,594
Provisions, Charged (Credited)
to Income 42 20 (114)
Loans Charged-Off (163) -0- (313)
Recoveries of Loans Previously
Charged-Off 66 64 243
------ ------ ------
Net Loans Charged-Off (97) 64 (70)
------ ------ ------
Balance, End of Period $ 2,355 $ 2,678 $ 2,410
===== ===== =====
</TABLE>
The provisions for loan losses charged to operating expenses during
the three months ended March 31, 1994 and March 31, 1995 of $20,000 and
$42,000, respectively, were considered adequate to maintain the
allowance in accordance with the policy discussed in Note 1. For the
year ended December 31, 1994 a credit of $114,000 was recorded reducing
the Allowance for Loan Losses. This reduction in the Allowance was
warranted as the level of non-performing loans continued to decline.
At March 31, 1995, the recorded investment in loans that are considered
to be impaired under Statement of Financial Accounting Standards No. 114
was $324,000 (of which $324,000 were on non-accrual status). The
related allowance for loan losses for these loans was $149,000. The
average recorded investment in impaired loans during the three months
ended March 31, 1995 was approximately $27,000. For this period the
Corporation recognized no interest income on these impaired loans.
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>
March 31,
---------------------------- December 31,
1995 1994 1994
-------- -------- ------------
<S> <C> <C> <C>
Land $ 1,264 $ 1,179 $ 1,264
Buildings and Improvements 6,816 6,557 6,742
Furniture & Equipment 4,661 4,167 4,470
------- ------- -------
Total Cost 12,741 11,903 12,476
Less: Accumulated Amortization and Depreciation (6,007) (5,565) (5,874)
------- ------- -------
Net Book Value $ 6,734 $ 6,338 $ 6,602
===== ===== =====
</TABLE>
NOTE 5 - Other Real Estate
The carrying value of other real estate is as follows (in
thousands):
<TABLE>
<CAPTION>
March 31,
---------------------------- December 31,
1995 1994 1994
-------- -------- -----------
<S> <C> <C> <C>
Other Real Estate $ 426 $ 806 $ 684
Valuation Reserve (35) (241) (35)
---- ---- ----
Net Other Real Estate $ 391 $ 565 $ 649
=== === ===
</TABLE>
-13-
NOTE 5 - Other Real Estate (cont'd.)
Transactions in the valuation reserve are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended
------------------------------ December 31,
1995 1994 1994
-------- -------- -----------
<S> <C> <C> <C>
Balance, Beginning of Period $ 35 $ 279 $ 279
Provisions Charged to Income -0- -0- -0-
Reductions from Sales -0- (38) (244)
---- ---- -----
Balance, End of Period $ 35 $ 241 $ 35
=== === ===
</TABLE>
In addition to the above provisions, direct writedowns of other real
estate charged to income were $2,000 for the three months ended March
31, 1995. There were no direct writedowns to other real estate during
the first three months of 1994 or for the year ended December 31, 1994.
NOTE 6 - Deposits
The book values and fair values of deposits by major type follow.
For deposits with no defined maturities, Statement of Financial
Accounting Standards No. 107 defines fair values as the amount payable
on demand (in thousands):
<TABLE>
<CAPTION>
March 31, 1995 March 31, 1994
-------------------------------- -------------------------------
Book Fair Book Fair
Value Value Value Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Noninterest-Bearing Demand Deposits $ 69,537 $ 69,537 $ 62,158 $ 62,158
Interest-Bearing Deposits: -------- -------- -------- --------
Interest-Bearing Transaction
Accounts 99,603 99,603 99,715 99,715
Savings 17,501 17,501 18,752 18,752
Savings Certificates - Time 46,389 46,454 47,849 47,988
Certificates of Deposits $100,000 or more 23,161 23,156 22,259 22,256
Other 237 237 230 230
------- ------- ------- -------
Total 186,891 186,951 188,805 188,941
------- ------- ------- -------
Total Deposits $ 256,428 $ 256,488 $ 250,963 $ 251,099
======= ======= ======= =======
</TABLE>
The preceding table indicates that the Corporation had unrealized
gains of approximately $60,000 and approximately $136,000 in its deposit
accounts at March 31, 1995 and 1994, respectively.
NOTE 7 - Other Non-Interest Expense
The significant components of other non-interest expense are as
follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended
---------------------------- December 31,
1995 1994 1994
-------- -------- ------------
<S> <C> <C> <C>
Business Development $ 103 $ 71 $ 392
Legal and Professional Fees 112 67 357
Printing and Supplies 48 69 303
Regulatory Fees and Assessments 170 167 666
Other 357 293 993
---- ---- ----
Total $ 790 $ 667 $ 2,711
=== === =====
</TABLE>
-14-
NOTE 8 - Income Taxes
Federal income taxes included in the consolidated balance sheets
were as follows (in thousands):
<TABLE>
<CAPTION>
March 31,
------------------------------ December 31,
1995 1994 1994
-------- -------- ------------
<S> <C> <C> <C>
Current Tax Asset (Liability) $ (525) $ (467) $ 29
Deferred Tax Asset 569 565 901
----- ----- -----
Total Included in Other Assets $ 44 $ 98 $ 930
==== ==== ====
</TABLE>
The deferred tax asset at March 31, 1995 of $569,000 included
$120,000 related to an unrealized loss on Available for Sale Securities.
The components of income tax expense were as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended
---------------------------- December 31,
1995 1994 1994
-------- -------- ------------
<S> <C> <C> <C>
Federal Income Tax Expense
Current $ 525 $ 499 $ 1,846
Deferred 29 -0- 248
----- ------ ------
Total Federal Income Tax Expense $ 554 $ 499 $ 2,094
===== ===== =====
Effective Tax Rates 34.0% 33.8% 34.1%
===== ===== =====
</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>
Three Months Ended March 31, Year Ended
-------------------------------- December 31,
1995 1994 1994
-------- -------- ------------
<S> <C> <C> <C>
Federal Income Taxes at Statutory
Rate of 34% $ 554 $ 502 $ 2,085
Effect of Tax Exempt Interest Income (17) (6) (23)
Other 17 3 32
---- ---- -----
Income Taxes Per Income Statement $ 554 $ 499 $ 2,094
==== ==== ======
</TABLE>
NOTE 9 - Related Party Transactions
The Subsidiary Banks have transactions made in the ordinary course of
business with certain of its officers, directors and their affiliates.
All loans included in such transactions are made on substantially the
same terms, including interest rate and collateral, as those prevailing
at the time for comparable transactions with other persons. Total loans
outstanding to such parties amounted to approximately $4,156,000 at
December 31, 1994.
NOTE 10 - Commitments and Contingent Liabilities
In the normal course of business, there are various outstanding
commitments and contingent liabilities, such as guarantees and
commitments to extend credit, which are not reflected in the financial
statements. No losses are anticipated as a result of these
transactions. Commitments are most frequently extended for real estate,
commercial and industrial loans.
At March 31, 1995, outstanding documentary and standby letters of
credit totaled $3,876,000 and commitments to extend credit totaled
$47,945,000.
-15-
NOTE 11 - Stock Option Plans
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 are exercisable for periods of five to ten years
from the date of grant.
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 laws. The options under the 1993 plan will be exercisable
for ten years from the date of the grant.
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 the 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 during the periods
presented:
<TABLE>
<CAPTION>
Shares Under Option
-----------------------------------------------
Three Months
Ended Year Ended
March 31, 1995 December 31, 1994
--------------- -----------------
<S> <C> <C>
Outstanding, Beginning of Period 151,700 186,200
Additional Options Granted During
the Period 2,500 22,500
Forfeited During the Period -0- (11,100)
Exercised During the Period (200) (45,900)
------- -------
Outstanding, End of Period 154,000 151,700
======= =======
</TABLE>
Options outstanding at March 31, 1995 ranged in price from $3.75 to
$21.00 per share with 113,488 shares exercisable.
NOTE 12 - Employee Benefit Plans
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 contributions to trust
funds in amounts determined by actuarial assumptions 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.
-16-
NOTE 12 - Employee Benefit Plans (cont'd.)
The table below 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 stock
and U.S. Treasury Securities 1,616 1,414
------ ------
Plan assets net of projected benefit obligation (115) (163)
Unrecognized net gain from past experience
different from that assumed and effect 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 cost included the following components (in thousands): Year Ended December 31,
-------------------------
1994 1993
-------- --------
<S> <C> <C>
Service Cost - benefits earned during the period $ 111 $ 87
Interest cost on projected benefit obligation 130 121
Less: Actual return on plan assets (133) (116)
Net amortization and deferral 5 5
---- ----
Net periodic pension cost $ 113 $ 97
==== ====
</TABLE>
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.
The market value of plan assets at March 31, 1995 was $1,308,000.
There was a contribution to the plan during 1994 of $156,000 and accrued
pension cost at March 31, 1995 was $80,000.
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 for such future obligations was $42,000 and $34,000 during
the first three months of 1995 and 1994, respectively, and $141,000 for
the year 1994.
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).
-17-
NOTE 13 - Earnings per Share
Earnings per share of common stock are based on the weighed average
number of shares outstanding during the periods as follows:
Shares
Periods of Three Months Ended: ----------
March 31, 1995 1,575,130
March 31, 1994 1,567,554
Year Ended December 31, 1994 1,567,885
NOTE 14 - Financial Instruments with Off-Balance Sheet Risk
The Corporation is a party to 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 of these 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 contractual amounts of financial instruments with off-
balance sheet risk are as follows (in thousands):
March 31,
------------------------------------
1995 1994
------------ ----------
Financial Instruments Whose
Contract Amounts Represent
Credit Risk:
Commitments to Extend Credit $ 47,945,000 $ 36,492,000
Documentary and Standby
Letters of Credit 3,876,000 3,096,000
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.
NOTE 15 - Concentrations of Credit Risk
The Subsidiary Banks grant commercial, consumer and real estate
loans in their direct market which is defined as Fort Worth and its
surrounding area. Although its Subsidiary Banks have diversified loan
portfolios, a substantial portion of its debtors' abilities to honor
their contracts is dependent upon the strength of the local and state
economy.
NOTE 16 - 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.
-18-
NOTE 17 - Stock Repurchase Plan
On April 19, 1994, the Board of Directors approved a stock
repurchase plan. The plan authorizes management to purchase up to
78,377 shares of the Corporation's common stock over the next twelve
months through the open market or in privately negotiated transactions
in accordance with all applicable state and federal laws and
regulations.
In 1994, 19,890 shares were purchased by the Corporation through the
open market and canceled. In the first three months of 1995, 10,000
shares were purchased.
NOTE 18 - Subsequent Event
On April 18, 1995, the Board of Directors of the Corporation
approved a quarterly dividend of $.11 per share to be paid on May 15,
1995 to shareholders of record on May 1, 1995.
Also on April 18, 1995, the Board of Directors approved a renewal of
the stock repurchase plan, thereby authorizing the purchase of up to
78,446 shares of the Corporation's common stock over the next twelve
months.
-19-
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SUMMARY
Net income for the first quarter of 1995 was $1,076,000, or $.68
per share, compared with $979,000, or $.62 per share, for the first
quarter of 1994. Per share amounts are based on average shares
outstanding of 1,575,130 for the first quarter of 1995 and 1,567,554 for
the comparable period of 1994. On a per share basis, net income
increased 9.7% over the first quarter of the prior year.
Outstanding loans at March 31, 1995 of $148.3 million represented
an increase of $19.8 million, or 15.5%, over March 31, 1994 and an
increase of $9.3 million, or 6.7%, from December 31, 1994.
Total deposits at March 31, 1995 of $256.4 million represented an
increase of $5.5 million, or 2.2%, over March 31, 1994 and a decrease of
$3.1 million, or 1.2%, from December 31, 1994.
In the first quarter net interest income increased 13.5% over the
previous year. An increase in non-interest income of 14.5%, after
considering a $10,000 loss on sale of investment securities, also
contributed to the earnings increase. These increases were partially
offset by a 15.4% increase in non-interest expense.
The following table summarizes the Corporation's performance for
the three months ended March 31, 1995 and 1994 (tax equivalent basis and
dollars in thousands).
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
1995 1994
-------- --------
<S> <C> <C>
Interest Income $ 5,105 $ 4,188
Interest Expense 1,740 1,224
----- -----
Net Interest Income 3,365 2,964
Provision for Loan Loss 42 20
----- -----
Net Interest Income After
Provision for Loan Loss 3,323 2,944
Non-Interest Income 727 635
Non-Interest Expense 2,412 2,091
----- ------
Income Before Income Tax 1,638 1,488
Income Tax Expense 562 509
----- -----
Net Income $ 1,076 $ 979
===== =====
Net Income per Share $ .68 $ . 62
Return on Average Assets 1.54% 1.44%
Return on Average Stockholders' Equity* 16.55% 17.09%
<FN>
* Before adjustment for unrealized gains and losses on Available for Sale securities.
</FN>
</TABLE>
-20-
SUMMARY OF EARNING ASSETS AND INTEREST-BEARING LIABILITIES
The following schedule presents average balance sheets that
highlight earning assets and interest-bearing liabilities and their
related rates earned and paid for the first quarter of 1995 and 1994
(rates on tax equivalent basis).
<TABLE>
<CAPTION>
Three Months ended March 31,
-------------------------------------------------------------------------------------
1995 1994
------------------------------------ ------------------------------------
Average Average Average Average
Balances Interest Yield/Rate Balances Interest Yield/Rate
-------- -------- ---------- -------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Federal Funds Sold $ 3,811 $ 55 5.65% $ 12,176 $ 96 3.14%
Investment Securities (Taxable) 112,424 1,638 5.85 112,948 1,475 5.25
Investment Securities (Tax-exempt) 393 12 11.78 470 14 11.49
Loans, Net of Unearned Discount(1) 142,731 3,400 9.66 127,214 2,603 8.30
------- ----- ------- -----
Total Earning Assets 259,359 5,105 7.98 252,808 4,188 6.72
----- -----
Non-interest Earning Assets:
Cash and Due From Banks 15,683 15,482
Other Assets 10,872 10,118
Allowance for Loan Losses (2,383) (2,630)
------ ------
Total Assets $ 283,531 $ 275,778
======= =======
Interest-Bearing Liabilities:
Interest-Bearing Transaction
Accounts $ 73,876 600 3.29 $ 73,008 405 2.25
Savings 17,008 112 2.67 18,545 110 2.41
Savings Certificates 45,568 488 4.34 47,914 365 3.09
Certificates of Deposit
$100,000 or more 22,757 255 4.55 22,321 166 3.02
Other Time 27,120 228 3.41 27,924 158 2.29
Other Borrowings 4,235 56 5.36 2,090 14 2.72
Notes Payable 44 1 9.56 401 6 6.54
------- ----- ------- -----
Total Interest-Bearing Liabilities 190,608 1,740 3.70 192,203 1,224 2.58
----- -----
Non-interest Bearing Liabilities:
Demand Deposits 66,009 58,657
Other Liabilities 1,228 1,369
Shareholders' Equity 25,686 23,549
------ ------
Total Liabilities and
Shareholders' Equity $ 283,531 $ 275,778
======= =======
Net Interest Income and Margin
(Tax-equivalent Basis)(2) $ 3,365 5.26 $ 2,964 4.75
===== =====
<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 both years.
</FN>
</TABLE>
-21-
NET INTEREST INCOME
Net interest income (tax equivalent) for the first quarter of 1995
was $3,365,000 which represented an increase of $401,000, or 13.5%, over
the first quarter of 1994. This increase was heavily contributed to by
a 12.2% increase in average loans for the first quarter of 1995 versus
the same quarter last year.
The following table summarizes the effects of changes in interest
rates and average volumes of earning assets and interest bearing
liabilities on tax equivalent net interest income for the periods ended
March 31, 1995 and 1994.
<TABLE>
<CAPTION>
ANALYSIS OF CHANGES IN NET INTEREST INCOME
(Dollars in Thousands)
1st Qtr. 1995 vs. 1st Qtr. 1994 1st Qtr. 1994 vs. 1st Qtr. 1993
Increase (Decrease) Increase (Decrease)
Due to Changes in: Due to Changes in:
-------------------------------- -------------------------------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Federal Funds Sold $ (301) $ 260 $ (41) $ (5) $ 6 $ 1
Investment Securities (Taxable) (47) 210 163 977 (973) 4
Investment Securities (Tax-exempt) (4) 2 (2) (28) 15 (13)
Loans, Net of Unearned Discount 340 457 797 215 (287) (72)
--- --- --- ----- ----- ---
Total Interest Income (12) 929 917 1,159 (1,239) (80)
--- --- --- ----- ----- ---
Interest-Bearing Liabilities:
Deposits (147) 626 479 301 (416) (115)
Other Borrowings 19 23 42 -0- -0- -0-
Notes Payable (20) 15 (5) (3) -0- (3)
--- --- --- --- --- ---
Total Interest Expense (148) 664 516 298 (416) (118)
--- --- --- --- --- ---
Net Interest Income $ 136 $ 265 $ 401 $ 861 $ (823) $ 38
=== === === === === ===
</TABLE>
ALLOWANCE FOR LOAN LOSSES AND NON-PERFORMING ASSETS
The Corporation's allowance for loan losses was $2,355,000, or 1.59% of
total loans, as of March 31, 1995 compared to $2,678,000, or 2.09% of
total loans, as of March 31, 1994.
Transactions in the allowance for loan losses are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------------
1995 1994
-------- --------
<S> <C> <C>
Balance, Beginning of Period $ 2,410 $ 2,594
Provisions, Charged to Income 42 20
Loans Charged-Off (163) -0-
Recoveries of Loans Previously
Charged-Off 66 64
----- -----
Net Loans Charged-Off (97) 64
----- -----
Balance, End of Period $ 2,355 $ 2,678
===== =====
</TABLE>
-22-
The following table summarizes the non-performing assets as of the
end of the last five quarters (in thousands).
<TABLE>
<CAPTION>
March 31, December 31, September 30, June 30, March 31,
1995 1994 1994 1994 1994
--------- ------------ ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Non-Accrual Loans $ 368 $ 643 $ 350 $ 1,029 $ 1,095
Other Real Estate Owned 391 649 710 347 565
Renegotiated Loans -0- -0- -0- -0- 18
--- ----- ----- ----- -----
Total Non-Performing Assets $ 759 $ 1,292 $ 1,060 $ 1,376 $ 1,678
=== ===== ===== ===== =====
</TABLE>
Total non-performing assets have continued to decline over the past
several quarters as presented in the previous table.
Non-accrual loans to total loans were .25% at March 31, 1995 and
non-performing assets were .51% of loans and other real estate owned at
the same date.
NON-INTEREST INCOME
The major component of non-interest income is service charges on
deposits. Other service fees are the majority of other non-interest
income.
The following table reflects the changes in non-interest income
during the periods presented (dollars in thousands).
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------------------
1995 1994 % Change
------- -------- --------
<S> <C> <C> <C>
Service Charges on Deposit Accounts $ 384 $ 392 (2.0%)
Gains (Loss) on Sale of Investment Securities (10) 20 --
Non-recurring Income 126 38 --
Other Non-interest Income 227 185 22.7
--- ---
Total Non-interest Income $ 727 $ 635 14.5%
=== ===
</TABLE>
Service charges on deposits declined in 1995 as a result of a
somewhat lower volume of account overdraft fees charged and account
service fees collected. Non-recurring income in 1995 is primarily
interest recovered on loans charged-off in prior years.
NON-INTEREST EXPENSE
Non-interest expenses include all expenses other than interest
expense, loan loss provision and income tax expense.
The following table summarizes the changes in non-interest expense
during the periods presented (dollars in thousands).
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------------
1995 1994 % Change
------ ------ --------
<S> <C> <C> <C>
Salaries & Employee Benefits 1,380 1,181 16.9%
Occupancy Expense - Net 167 159 5.0
Furniture and Equipment Expense 152 123 23.6
Other Real Estate Expense - Net (77) (39) --
Other Expenses:
Business Development 103 71 45.1
Insurance - Other 25 34 (26.5)
Legal & Professional Fees 112 67 67.2
Taxes - Other 22 19 15.8
Postage & Courier 60 57 5.3
Printing & Supplies 48 69 (30.4)
Regulatory Fees & Assessments 170 167 1.8
Other Operating Expenses 250 183 36.6
----- -----
Total Other Expenses 790 667 18.4
----- -----
Total Non-interest Expense $ 2,412 $ 2,091 15.4
===== =====
</TABLE>
-23-
Salary expense increased for the three months of 1995 as a result
of salary merit increases, and a change in reporting of commissions paid
certain employees and the accrual of projected performance compensation.
If the change in reporting were reflected the same in both periods, the
increase would have been 8.6%.
The increase in furniture and equipment expenses was due to
increased depreciation expense related to the refurbishing of leasehold
improvements at two facilities in late 1994.
Business development expenses have increased in 1995 because of
increased expenses for public relations and customer relations.
INTEREST RATE SENSITIVITY
Interest rate sensitivity is the relationship between changes in
market interest rates and net interest income due to the repricing
characteristics of assets and liabilities.
The following table, commonly referred to as a "static gap report",
indicates the interest rate sensitivity position at March 31, 1995 and
may not be reflective of positions in subsequent periods (dollars in
thousands):
<TABLE>
<CAPTION>
Total Repriced
Matures or Reprices within: Rate After
------------------------------------------------- Sensitive 1 Year or
30 Days 31-90 91-180 181 to One Year Non-interest
or Less Days Days One Year or Less Sensitive Total
--------- -------- -------- -------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans $ 81,502 $ 7,779 $ 7,900 $ 15,432 $ 112,613 $ 35,661 $ 148,274
Investment Securities 6,020 1,633 4,430 20,688 32,771 78,391 111,162
Federal Funds Sold 4,945 -0- -0- -0- 4,945 -0- 4,945
------ ------ ------ ------ ------- ------- -------
Total Earning Assets 92,467 9,412 12,330 36,120 150,329 114,052 264,381
------ ------ ------ ------ ------- ------- -------
Interest Bearing Liabilities:
Interest-Bearing Transaction
Accounts and Savings 117,104 -0- -0- -0- 117,104 -0- 117,104
Certification of Deposits
>$100,000 7,096 6,159 3,937 5,720 22,912 249 23,161
Other Time Deposits 8,335 8,035 10,565 12,596 39,531 7,095 46,626
Repurchase Agreements 5,736 -0- -0- -0- 5,736 -0- 5,736
------ ------ ------- ------ ------- ------- -------
Total Interest Bearing
Liabilities 138,271 14,194 14,502 18,316 185,283 7,344 192,627
------- ------- ------- ------- ------- ------- -------
Interest Sensitivity
Gap $ (45,804) $ (4,782) $ (2,172) $ 17,804 $ (34,954) $ 106,708 $ 71,754
======= ======= ======= ======= ======= ======= =======
Cumulative Gap $ (45,804) $ (50,586) $ (52,758) $ (34,954)
======= ======= ======= =======
Cumulative Gap to
Total Earning Assets (17.3%) (19.1%) (20.0%) (13.2%)
Cumulative Gap to
Total Assets (15.8%) (17.4%) (18.2%) (12.0%)
</TABLE>
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 NOW 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 negative cumulative gap to total
assets ratio at one year of 12.0% was reversed to a positive 10.2% "beta
adjusted" gap position.
-24-
Management feels that the "beta adjusted" gap risk technique more
accurately reflects the Corporation's gap position.
CAPITAL
The Federal Reserve Board has guidelines for capital to total
assets (leverage) and capital standards for bank holding companies. The
Comptroller of the Currency also has similar guidelines for national
banks. These new guidelines require a minimum level of Tier I 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 I 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.
At March 31, 1995, total capital, before adjustment for the
unrealized loss on Available for Sale Securities, to total assets was
9.26%.
Also, the Federal Reserve Board and Comptroller of the Currency
officially announced risk-adjusted capital adequacy guidelines that
became effective in stages at the end of 1990. Capital under these new
guidelines is defined as Tier I and Tier II. At Summit Bancshares, Inc.
the only components of Tier I and Tier II capital are shareholders'
equity and a portion of the allowance for loan losses, respectively.
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 whereby 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.
The regulatory minimum ratio for total qualifying capital is 8.00%
of which 4.00% must be Tier I capital. At March 31, 1995, the
Corporation's Tier I capital represented 16.7% of risk weighted assets
and total qualifying capital (Tier I and Tier II) represented 18.0% of
risk weighted assets. Both ratios are well above current regulatory
guidelines.
-25-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUMMIT BANCSHARES, INC.
Registrant
Date: May 1, 1995 By: /s/ Philip E. Norwood
-----------------------------
Philip E. Norwood, President
and Chief Executive Officer
Date: May 1, 1995 By: /s/ Bob G. Scott
------------------------------
Bob G. Scott, Senior Vice
President and Chief Financial
Officer
-26-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Change in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Computation of Earnings Per Common Share
27 Financial Data Schedule
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the period
ending March 31, 1995
<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
The details of computation of earnings per common share are disclosed in
the Consolidated Statements of Income and Note 13 of the Notes to
Consolidated Financial Statements for the Periods of Three Months Ended
March 31, 1995 and 1994 (unaudited) and the Year Ended December 31, 1994
(audited), contained in the Quarterly Report on Form 10-Q of registrant
for the quarter Ended March 31, 1995.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated balance sheets of Summit Bancshares, Inc. and Subsidiaries
as of March 31, 1995, and the related statements of income, changes in
shareholders' equity and cash flows for the three months ended March 31, 1995
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> MAR-31-1995
<CASH> 17,647
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,945
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 51,593
<INVESTMENTS-CARRYING> 110,809
<INVESTMENTS-MARKET> 109,738
<LOANS> 148,274
<ALLOWANCE> 2,355
<TOTAL-ASSETS> 290,267
<DEPOSITS> 256,428
<SHORT-TERM> 0
<LIABILITIES-OTHER> 7,170
<LONG-TERM> 0
<COMMON> 1,974
0
0
<OTHER-SE> 24,695
<TOTAL-LIABILITIES-AND-EQUITY> 290,267
<INTEREST-LOAN> 3,395
<INTEREST-INVEST> 1,647
<INTEREST-OTHER> 61
<INTEREST-TOTAL> 5,103
<INTEREST-DEPOSIT> 1,683
<INTEREST-EXPENSE> 1,746
<INTEREST-INCOME-NET> 3,357
<LOAN-LOSSES> 42
<SECURITIES-GAINS> (10)
<EXPENSE-OTHER> 2,412
<INCOME-PRETAX> 1,630
<INCOME-PRE-EXTRAORDINARY> 1,076
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,076
<EPS-PRIMARY> .68
<EPS-DILUTED> .68
<YIELD-ACTUAL> 4.90
<LOANS-NON> 368
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,021
<ALLOWANCE-OPEN> 2,410
<CHARGE-OFFS> 163
<RECOVERIES> 66
<ALLOWANCE-CLOSE> 2,355
<ALLOWANCE-DOMESTIC> 2,355
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
