<PAGE>
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 September 30, 1996; 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 September
30, 1996 was 3,234,186 shares.
<PAGE>
SUMMIT BANCSHARES, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1996 and
1995 and at December 31, 1995 4
Consolidated Statements of Income for the Nine Months
Ended September 30, 1996 and 1995 and for the Year Ended
December 31, 1995 5
Consolidated Statements of Income for the Three Months
Ended September 30, 1996 and 1995 6
Consolidated Statements of Changes in Shareholders' Equity
for the Nine Months Ended September 30, 1996 and 1995 and
for the Year Ended December 31, 1995 7
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1996 and 1995 and for the Year Ended
December 31, 1995 8-9
Notes to Consolidated Financial Statements for the Nine Months
Ended September 30, 1996 and 1995 and for the Year Ended
December 31, 1995 10-20
The September 30, 1996 and 1995 and the December 31, 1995 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 Nine Months Ended
September 30, 1996 and 1995 21-27
2
<PAGE>
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
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
- -----------------------------
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, (Unaudited)
----------------------- December 31,
1996 1995 1995
--------- --------- ------------
(In Thousands)
<S> <C> <C> <C>
ASSETS
CASH AND DUE FROM BANKS $ 24,962 $ 19,197 $ 22,480
FEDERAL FUNDS SOLD 8,330 23,890 25,680
INVESTMENT SECURITIES - NOTE 2
(Market Value of $122,541,000 and
$112,540,000 at September 30, 1996 and 1995
and $119,575,000 at December 31, 1995) 123,019 112,493 119,368
LOANS - NOTE 3
Loans, Net of Unearned Discount 213,962 165,720 178,493
Allowance for Loan Losses (3,008) (2,513) (2,500)
-------- -------- --------
LOANS, NET 210,954 163,207 175,993
PREMISES AND EQUIPMENT - NOTE 4 7,159 7,034 7,157
ACCRUED INCOME RECEIVABLE 3,281 2,865 3,288
OTHER REAL ESTATE - NOTE 5 169 345 113
OTHER ASSETS 2,020 1,376 1,338
-------- -------- --------
TOTAL ASSETS $379,894 $330,407 $355,417
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS - NOTE 6
Noninterest-Bearing Demand $ 91,528 $ 83,551 $ 89,184
Interest-Bearing 238,270 209,483 220,925
-------- -------- --------
TOTAL DEPOSITS 329,798 293,034 310,109
SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE 14,453 6,606 13,528
ACCRUED INTEREST PAYABLE 589 591 635
OTHER LIABILITIES 1,711 1,292 1,020
-------- -------- --------
TOTAL LIABILITIES 346,551 301,523 325,292
-------- -------- --------
SHAREHOLDERS' EQUITY - NOTES 11, 13 and 17
Common Stock - $1.25 Par Value; 20,000,000
shares authorized; 3,234,186, 1,568,041
and 3,149,886 shares issued and outstanding
at September 30, 1996 and 1995 and at
December 31, 1995, respectively 4,043 1,960 3,937
Capital Surplus 4,130 6,052 4,109
Retained Earnings 25,386 20,703 21,745
Unrealized Gain (Loss) on Investment
Securities Available for Sale, Net of Tax (59) 224 334
Treasury Stock at Cost (9,000 and 2,298 shares
at September 30, 1996 and 1995, respectively) (157) (55) -0-
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY 33,343 28,884 30,125
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $379,894 $330,407 $355,417
======== ======== ========
</TABLE>
The accompanying Notes should be read with these financial statements.
4
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Unaudited)
For the Nine Months Ended September 30, (Unaudited)
----------------------------------------- Year Ended December 31,
1996 1995 1995
-------------------- ------------------- -----------------------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $14,051 $11,081 $15,331
Interest and Dividends on Investment Securities:
Taxable 5,559 4,757 6,479
Exempt from Federal Income Taxes 1 20 23
Interest on Federal Funds Sold 672 654 1,096
------- ------- -------
TOTAL INTEREST INCOME 20,283 16,512 22,929
------- ------- -------
INTEREST EXPENSE
Interest on Deposits 6,833 5,705 7,936
Interest on Securities Sold Under Agreements
to Repurchase 381 218 340
Interest on Notes Payable -0- 1 1
------- ------- -------
TOTAL INTEREST EXPENSE 7,214 5,924 8,277
------- ------- -------
NET INTEREST INCOME 13,069 10,588 14,652
LESS: PROVISION FOR LOAN LOSSES - NOTE 3 480 136 236
------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 12,589 10,452 14,416
------- ------- -------
NON-INTEREST INCOME
Service Charges and Fees on Deposits 1,210 1,154 1,525
Loss on Sale of Investment Securities (15) (10) (10)
Other Income 1,050 959 1,239
------- ------- -------
TOTAL NON-INTEREST INCOME 2,245 2,103 2,754
------- ------- -------
NON-INTEREST EXPENSE
Salaries and Employee Benefits 5,043 4,301 5,903
Occupancy Expense - Net 566 524 712
Furniture and Equipment Expense 606 514 691
Other Real Estate Owned Expense - Net 12 (89) (99)
Other Expense 2,040 2,039 2,766
------- ------- -------
TOTAL NON-INTEREST EXPENSE 8,267 7,289 9,973
------- ------- -------
INCOME BEFORE INCOME TAXES 6,567 5,266 7,197
APPLICABLE INCOME TAXES - NOTE 8 2,253 1,804 2,468
------- ------- -------
NET INCOME $ 4,314 $ 3,462 $ 4,729
======= ======= =======
NET INCOME PER SHARE - NOTE 13 $1.35 $1.10 $1.51
======= ======= =======
</TABLE>
The accompanying Notes should be read with these financial statements.
5
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Unaudited)
For the Three Months Ended
September 30,
---------------------------
1996 1995
---------------------------
(In Thousands, Except Per Share Data)
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $4,991 $3,954
Interest and Dividends on Investment Securities:
Taxable 1,893 1,550
Exempt from Federal Income Taxes -0- 6
Interest on Federal Funds Sold 180 426
------ ------
TOTAL INTEREST INCOME 7,064 5,936
------ ------
INTEREST EXPENSE
Interest on Deposits 2,345 2,096
Interest on Securities Sold Under Agreements
to Repurchase 145 86
------ ------
TOTAL INTEREST EXPENSE 2,490 2,182
------ ------
NET INTEREST INCOME 4,574 3,754
LESS: PROVISION FOR LOAN LOSSES - NOTE 3 192 50
------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,382 3,704
------ ------
NON-INTEREST INCOME
Service Charges and Fees on Deposits 423 382
Loss on Sale of Investment Securities (8) -0-
Other Income 370 274
------ ------
TOTAL NON-INTEREST INCOME 785 656
------ ------
NON-INTEREST EXPENSE
Salaries and Employee Benefits 1,691 1,507
Occupancy Expense - Net 179 177
Furniture and Equipment Expense 206 193
Other Real Estate Owned Expense - Net (4) (3)
Other Expense 615 564
------ ------
TOTAL NON-INTEREST EXPENSE 2,687 2,438
------ ------
INCOME BEFORE INCOME TAXES 2,480 1,922
APPLICABLE INCOME TAXES - NOTE 8 846 665
------ ------
NET INCOME $1,634 $1,257
====== ======
NET INCOME PER SHARE - NOTE 13 $ .51 $ .40
====== ======
</TABLE>
The accompanying Notes should be read with these financial statements.
6
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
AND FOR THE YEAR ENDED DECEMBER 31, 1995
(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, 1995 1,578,723 $1,973 $ 6,047 $18,187 $ (873) $ -0- $25,334
Purchases of Stock Held in
Treasury (508) (508)
Retirement of Stock Held in
Treasury (20,482) (25) (428) 453 -0-
Net Income for the
Nine Months Ended
September 30, 1995 3,462 3,462
Stock Options Exercised 9,800 12 5 17
Cash Dividend $.33
Per Share (518) (518)
Securities Available-for-
Sale Adjustment 1,097 1,097
--------- ------ ------- -------- ------ ----- -------
BALANCE AT
SEPTEMBER 30, 1995 1,568,041 1,960 6,052 20,703 224 (55) 28,884
Retirement of Stock Held in
Treasury (2,298) (4) (51) 55 -0-
Net Income for the
Three Months Ended
December 31, 1995 1,267 1,267
Stock Options Exercised 9,200 12 26 38
Cash Dividend $.11
Per Share (174) (174)
Two-for-One Stock Split 1,574,943 1,969 (1,969) -0-
Securities Available-for-
Sale Adjustment 110 110
--------- ------ ------- -------- ------ ----- -------
BALANCE AT
DECEMBER 31, 1995 3,149,886 3,937 4,109 21,745 334 -0- 30,125
Purchases of Stock Held in
Treasury (157) (157)
Net Income for the
Nine Months Ended
September 30, 1996 4,314 4,314
Stock Options Exercised 84,300 106 21 127
Cash Dividend $.21
Per Share (673) (673)
Securities Available-for-
Sale Adjustment (393) (393)
--------- ------ ------- -------- ------ ----- -------
BALANCE AT
SEPTEMBER 30, 1996 3,234,186 $4,043 $ 4,130 $ 25,386 $ (59) $(157) $33,343
========= ====== ======= ======== ====== ===== =======
</TABLE>
The accompanying Notes should be read with these financial statements.
7
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
AND FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
(Unaudited)
September 30, (Unaudited)
----------------------------- December 31,
1996 1995 1995
-------------- ------------- -----------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 4,314 $ 3,462 $ 4,729
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 565 470 652
Net Premium Amortization of Investment Securities 253 200 445
Provision for Loan Losses 480 136 236
Net (Increase) Decrease in Deferred Income Taxes (114) (93) 68
Loss on Sale of Investment Securities 15 10 10
Writedown of Other Real Estate 9 8 12
Net Gain From Sale of Other Real Estate -0- (73) (78)
Net Gain on Sale of Premises and Equipment 1 -0- -0-
Increase in Accrued Income and Other Assets (223) (619) (1,044)
Increase in Accrued Expenses and Other Liabilities 645 754 297
-------- -------- --------
Total Adjustments 1,631 793 598
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,945 4,255 5,327
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (Increase) Decrease in Federal Funds Sold 17,350 (14,150) (15,940)
Proceeds from Matured and Prepaid Investment Securities
. Held-to-Maturity 16,560 13,802 21,154
. Available-for-Sale 15,600 2,457 12,703
Proceeds from Sales of Investment Securities 12,524 2,951 2,969
Purchase of Investment Securities
. Held-to-Maturity (18,183) (13,057) (27,616)
. Available-for-Sale (31,016) (2,471) (12,482)
Loans Originated and Principal Repayments, Net (35,738) (26,968) (39,724)
Recoveries of Loans Previously Charged-Off 97 176 201
Proceeds from Sale of Premises and Equipment 1 -0- -0-
Proceeds from Sale of Other Real Estate -0- 369 502
Purchases of Premises and Equipment (569) (902) (1,207)
-------- -------- --------
NET CASH USED BY INVESTING ACTIVITIES (23,374) (37,793) (59,440)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Demand Deposits, Savings
Accounts and Interest Bearing Transaction Accounts 20,574 29,427 45,230
Net (Decrease) Increase in Certificates of Deposit (885) 4,069 5,338
Net Increase in Repurchase Agreements 925 2,078 9,000
Principal Payments of Notes Payable -0- (250) (250)
Payments of Cash Dividends (673) (518) (692)
Purchase of Treasury Stock (157) (508) (508)
Proceeds from Stock Options Exercised 127 17 55
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 19,911 34,315 58,173
-------- -------- --------
NET INCREASE IN CASH AND DUE FROM
BANKS 2,482 777 4,060
CASH AND DUE FROM BANKS AT BEGINNING
OF PERIOD 22,480 18,420 18,420
-------- -------- --------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 24,962 $ 19,197 $ 22,480
======== ======== ========
</TABLE>
8
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONT'D
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
AND FOR THE YEAR ENDED DECEMBER 31, 1995
(Unaudited)
SUPPLEMENTAL SCHEDULE OF OPERATING AND INVESTING ACTIVITIES:
<TABLE>
<CAPTION>
(Unaudited)
September 30, (Unaudited)
---------------------------- December 31,
1996 1995 1995
-------------- ------------ -----------
(In Thousands)
<S> <C> <C> <C>
(1) Interest Paid $7,261 $5,819 $8,129
(2) Income Taxes Paid 2,331 1,670 2,410
(3) Other Real Estate Acquired in Settlement of Loans 65 -0- -0-
(4) Bank Financed Sales of Other Real Estate -0- -0- 100
</TABLE>
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1995 (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 nine months of 1996 the average cash balance maintained at the
Federal Reserve Bank was $2,873,000. Compensating balances held at
correspondent banks, to minimize service charges, averaged
approximately $12,684,000 during the same nine month period of 1996.
Investment Securities
---------------------
The Corporation follows Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities"
in 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.
10
<PAGE>
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 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, 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 1995 or during the first nine
months of 1996.
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 1995 financial
statements to conform to the 1996 presentation.
11
<PAGE>
NOTE 1 - Summary of Significant Accounting Policies (cont'd.)
- ------
Audited Financial Statements
----------------------------
The consolidated balance sheet as of December 31, 1995, and the
consolidated statements of income, changes in shareholders' equity and
cash flows for the year ended December 31, 1995 are headed "unaudited"
in these financial statements. These statements were reported in the
Securities Exchange Commission Form 10-K as of December 31, 1995 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>
September 30, 1996
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ----------- ------
<S> <C> <C> <C> <C>
Investment Securities - Held-to-Maturity
U.S. Treasury Securities $ 28,014 $103 $(173) $ 27,944
U.S. Government Agencies
and Corporations 23,774 -0- (301) 23,473
U.S. Government Agency Mortgage
Backed Securities 11,162 11 (118) 11,055
-------- ---- ----- --------
Total Held-to-Maturity Securities 62,950 114 (592) 62,472
-------- ---- ----- --------
Investment Securities - Available-for-Sale
U.S. Treasury Securities 51,975 152 (297) 51,830
U.S. Government Agencies
and Corporations 4,489 26 (15) 4,500
U.S. Government Agency Mortgage
Backed Securities 3,440 54 (9) 3,485
Federal Reserve Bank Stock 254 -0- -0- 254
-------- ---- ----- --------
Total Available-for-Sale Securities 60,158 232 (321) 60,069
-------- ---- ----- --------
Total Investment Securities $123,108 $346 $(913) $122,541
======== ==== ===== ========
</TABLE>
In the above schedule the amortized cost of Total Held-to-Maturity
--------------
Securities of $62,950,000 and the fair value of Total Available-for-Sale
----------
Securities of $60,069,000 are reflected in Investment Securities on the
consolidated balance sheet as of September 30, 1996 for a total of $123,019,000.
A net unrealized loss of $89,000 is included in the Available-for-Sale
Investment Securities balance. The unrealized loss, net of tax, is included in
Shareholders' Equity.
12
<PAGE>
NOTE 2 - Investment Securities (cont'd.)
- ------
The carrying value of investment securities totaling $28,518,000 at
September 30, 1996, 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 $28,399,000 at September 30, 1996.
<TABLE>
<CAPTION>
September 30, 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 $ 38,111 $273 $(265) $ 38,119
U.S. Government Agencies
and Corporations 14,132 45 (13) 14,164
U.S. Government Agency Mortgage
Backed Securities 6,994 28 (23) 6,999
Obligations of States and
Political Subdivisions 321 2 -0- 323
-------- ---- ----- --------
Total Held-to-Maturity Securities 59,558 348 (301) 59,605
-------- ---- ----- --------
Investment Securities - Available-for-Sale
U.S. Treasury Securities 45,021 347 (110) 45,258
U.S. Government Agencies
and Corporations 3,994 69 (9) 4,054
U.S. Government Agency Mortgage
Backed Securities 3,327 43 (1) 3,369
Federal Reserve Bank Stock 254 -0- -0- 254
-------- ---- ----- --------
Total Available-for-Sale Securities 52,596 459 (120) 52,935
-------- ---- ----- --------
Total Investment Securities $112,154 $807 $(421) $112,540
======== ==== ===== ========
</TABLE>
In the above schedule the amortized cost of Total Held-to-Maturity
--------------
Securities of $59,558,000 and the fair value of Total Available-for-Sale
----------
Securities of $52,935,000 are reflected in Investment Securities on the
consolidated balance sheet as of September 30, 1995 for a total of $112,493,000.
A net unrealized gain of $339,000 is included in the Available-for-Sale
Investment Securities balance. The unrealized gain, net of tax benefit, is
included in Shareholders' Equity.
Proceeds from sales of investment securities were $12,524,000 and
$2,951,000 during the first nine months of 1996 and 1995, respectively and
$2,969,000 during the year 1995. In the nine months ended September 30, 1996,
gains from sale of securities of $11,000 and losses of $26,000 were realized; a
loss of $10,000 was realized for the nine months ended September 30, 1995 and
for the year ended December 31, 1995.
NOTE 3 - Loans and Allowance for Loan Losses
- ------
The book values of loans by major type follow (in thousands):
<TABLE>
<CAPTION>
September 30,
----------------------------- December 31,
1996 1995 1995
-------------- ------------- ------------
<S> <C> <C> <C>
Commercial $ 99,963 $ 76,413 $ 81,542
Real Estate Mortgage 73,686 60,731 64,200
Real Estate Construction 15,140 6,912 10,189
Loans to Individuals, Less
Unearned Discount 25,173 21,664 22,562
-------- -------- --------
213,962 165,720 178,493
Allowance for Loan Losses (3,008) (2,513) (2,500)
-------- -------- --------
Loans - Net $210,954 $163,207 $175,993
======== ======== ========
</TABLE>
13
<PAGE>
NOTE 3 - Loans and Allowance for Loan Losses (cont'd.)
- ------
Transactions in the allowance for loan losses are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended
------------------------------- December 31,
1996 1995 1995
------------------------------- ------------
<S> <C> <C> <C>
Balance, Beginning of Period $2,500 $2,410 $2,410
Provisions, Charged to Income 480 136 236
Loans Charged-Off (69) (209) (347)
Recoveries of Loans Previously
Charged-Off 97 176 201
------ ------ ------
Net Loans Charged-Off 28 (33) (146)
------ ------ ------
Balance, End of Period $3,008 $2,513 $2,500
====== ====== ======
</TABLE>
The provisions for loan losses charged to operating expenses during
the nine months ended September 30, 1996 and September 30, 1995 of $480,000 and
$136,000, respectively, were considered adequate to maintain the allowance in
accordance with the policy discussed in Note 1. For the year ended December 31,
1995 a provision of $236,000 was recorded.
At September 30, 1996, the recorded investment in loans that are
considered to be impaired under Statement of Financial Accounting Standards No.
114 was $493,000 (of which $493,000 were on non-accrual status). The related
allowance for loan losses for these loans was $213,000. The average recorded
investment in impaired loans during the three months ended September 30, 1996
was approximately $688,000. 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>
September 30,
------------------------ December 31,
1996 1995 1995
--------- -------- ------------
<S> <C> <C> <C>
Land $ 1,446 $ 1,264 $ 1,279
Buildings and Improvements 7,367 7,021 7,115
Furniture & Equipment 5,168 4,996 5,051
------- ------- -------
Total Cost 13,981 13,281 13,445
Less: Accumulated Amortization
and Depreciation (6,822) (6,247) (6,288)
------- ------- -------
Net Book Value $ 7,159 $ 7,034 $ 7,157
======= ======= =======
</TABLE>
NOTE 5 - Other Real Estate
- ------
The carrying value of other real estate is as follows (in thousands):
<TABLE>
<CAPTION>
September 30,
----------------------------- December 31,
1996 1995 1995
-------------- ------------- ------------
<S> <C> <C> <C>
Other Real Estate $ 204 $ 380 $ 148
Valuation Reserve (35) (35) (35)
----- ----- -----
Net Other Real Estate $ 169 $ 345 $ 113
===== ===== =====
</TABLE>
14
<PAGE>
NOTE 5 - Other Real Estate (cont'd.)
- ------
Transactions in the valuation reserve are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended
------------------------------- December 31,
1996 1995 1995
------------ -------------- ------------
<S> <C> <C> <C>
Balance, Beginning of Period $ 35 $ 35 $ 35
Provisions Charged to Income -0- -0- -0-
Reductions from Sales -0- -0- -0-
----- ----- -----
Balance, End of Period $ 35 $ 35 $ 35
===== ===== =====
</TABLE>
In addition to the above provisions, direct writedowns of other real
estate charged to income were $9,000 for the nine months ended September 30,
1996 and $8,000 for the nine months ended September 30, 1995.
NOTE 6 - Deposits
- ------
The book values of deposits by major type follow (in thousands):
<TABLE>
<CAPTION>
September 30,
------------------------------- December 31,
1996 1995 1995
------------ -------------- ------------
<S> <C> <C> <C>
Noninterest-Bearing Demand
Deposits $ 91,528 $ 83,551 $ 89,184
-------- -------- --------
Interest-Bearing Deposits:
Interest-Bearing Transaction
Accounts 115,365 103,628 110,160
Savings 50,233 33,568 36,870
Savings Certificates - Time 47,741 48,474 49,005
Certificates of Deposits
$100,000 or more 24,426 23,574 24,551
Other 505 239 339
-------- -------- --------
Total 238,270 209,483 220,925
-------- -------- --------
Total Deposits $329,798 $293,034 $310,109
======== ======== ========
</TABLE>
NOTE 7 - Other Non-Interest Expense
- ------
The significant components of other non-interest expense are as follows
(in thousands):
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended
------------------------------- December 31,
1996 1995 1995
------------ ----------- ------------
<S> <C> <C> <C>
Business Development $ 318 $ 303 $ 443
Legal and Professional Fees 309 319 479
Printing and Supplies 236 198 289
Regulatory Fees and Assessments 154 355 411
Other 1,023 864 1,144
------ ------ ------
Total $2,040 $2,039 $2,766
====== ====== ======
</TABLE>
15
<PAGE>
NOTE 8 - Income Taxes
- ------
Federal income taxes included in the consolidated balance sheets were
as follows (in thousands):
<TABLE>
<CAPTION>
September 30,
------------------------------- December 31,
1996 1995 1995
------------ -------------- ------------
<S> <C> <C> <C>
Current Tax Asset (Liability) $ (26) $ (59) $ 10
Deferred Tax Asset 552 284 235
----- ----- -----
Total Included in Other Assets/
(Other Liabilities) $ 526 $ 225 $ 245
===== ===== =====
</TABLE>
The deferred tax asset at September 30, 1996 of $552,000 included
$31,000 related to unrealized losses on Available-for-Sale Securities.
The components of income tax expense were as follows (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended
------------------------------- December 31,
1996 1995 1995
------------ ----------- ------------
<S> <C> <C> <C>
Federal Income Tax Expense
Current $2,368 $1,785 $2,400
Deferred (115) 19 68
------ ------ ------
Total Federal Income Tax
Expense $2,253 $1,804 $2,468
====== ====== ======
Effective Tax Rates 34.3% 34.3% 34.3%
====== ====== ======
</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>
Nine Months Ended September 30, Year Ended
-------------------------------- December 31,
1996 1995 1995
-------------------------------- ------------
<S> <C> <C> <C>
Federal Income Taxes at
Statutory Rate of 34% $2,233 $1,790 $2,447
Effect of Tax Exempt
Interest Income (7) (17) (19)
Other 27 31 40
------ ------ ------
Income Taxes Per
Income Statement $2,253 $1,804 $2,468
====== ====== ======
</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 $3,769,000 at December 31, 1995.
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 September 30, 1996, outstanding documentary and standby letters of
credit totaled $4,665,000 and commitments to extend credit totaled $76,542,000.
16
<PAGE>
NOTE 11 - Stock Option Plans
- -------
In 1982, the Corporation established an Incentive Stock Option Plan
("1982 Plan") and reserved 30,000 shares of common stock for grant thereunder.
The 30,000 reserved shares were subsequently amended and increased in April 1993
and December 1995 to 240,000 as a result of two-for-one stock splits. 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. There are no outstanding options under this plan.
In 1993, the Corporation established a similar Incentive Stock Option
Plan ("1993 Plan") and reserved 300,000 shares (adjusted for the April 1993 and
December 1995 two-for-one stock splits) of common stock for grant 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 ten
years from the date of grant and generally vest ratably over a five year period.
Options under both plans have been granted at prices that are not less
than 100-110% of the fair market value of the underlying common stock at the
date of grant. The Corporation applies APB Opinion No. 25 and related
Interpretations in accounting for its plans. 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
---------------------------------------
Nine Months
Ended Year Ended
September 30, 1996 December 31, 1995
------------------- ------------------
<S> <C> <C>
Outstanding, Beginning of Period 301,400 303,400
Additional Options Granted During
the Period -0- 38,000
Forfeited During the Period (400) -0-
Exercised During the Period (90,300) (40,000)
------- -------
Outstanding, End of Period 210,700 301,400
======= =======
</TABLE>
Options outstanding at September 30, 1996 ranged in price from $1.875
to $13.94 per share with 162,940 shares exercisable. There remain 53,720 shares
reserved for future grants of options under the 1993 Plan.
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.
17
<PAGE>
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>
1995 1994
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $1,152,000 in 1995 and $1,034,000
in 1994 $(1,183) $(1,072)
======= =======
Projected benefit obligation for service rendered
to date $(1,912) $(1,731)
Plan assets at fair value, primarily listed stocks
and U.S. bonds 1,786 1,616
------- -------
Plan assets in excess of projected benefit
obligation (126) (115)
Unrecognized net loss from past experience
different from that assumed and effect of
changes in assumptions 197 48
Prior service cost not yet recognized in net
periodic pension cost 17 20
------- -------
Net pension cost included in other assets/
(other liabilities) $ 88 $ (47)
======= =======
Year Ended December 31,
-----------------------
1995 1994
-----------------------
Net pension cost included the following
components (in thousands):
Service Cost - benefits earned during the period $ 151 $ 111
Interest cost on projected benefit obligation 140 130
Less: Actual return on plan assets (260) (133)
Net amortization and deferral 148 5
---- -----
Net periodic pension cost $179 $ 113
==== =====
</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, 1995 and 1994. The
expected long-term rate of return on plan assets in 1995 was 9 percent.
The market value of plan assets at September 30, 1996 was $2,149,000.
There was a contribution to the plan during 1996 of $313,000 and prepaid pension
cost at September 30, 1996 was $230,000.
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 $170,000 and $127,000 during the first nine months
of 1996 and 1995, respectively, and $173,000 for the year 1995.
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).
18
<PAGE>
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:
<TABLE>
<CAPTION>
Shares
---------
<S> <C>
Periods of Nine Months Ended:
September 30, 1996 3,189,359
September 30, 1995 3,137,598
Year Ended December 31, 1995 3,137,598
</TABLE>
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):
<TABLE>
<CAPTION>
September 30,
------------------
1996 1995
-------- --------
<S> <C> <C>
Financial Instruments Whose
Contract Amounts Represent
Credit Risk:
Commitments to Extend Credit $76,542 $61,628
Documentary and Standby
Letters of Credit 4,665 4,615
</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.
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.
19
<PAGE>
NOTE 17 - Stock Repurchase Plan
- -------
On April 16, 1996, the Board of Directors approved a stock repurchase
plan. The plan authorized management to purchase up to 157,819 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 1995, 22,780 shares were purchased by the Corporation through the
open market and canceled. In the first nine months of 1996, 9,000 shares were
purchased.
NOTE 18 - Subsequent Event
- -------
On October 22, 1996, the Board of Directors of the Corporation
approved a quarterly dividend of $.07 per share to be paid on November 15, 1996
to shareholders of record on November 1, 1996.
NOTE 19 - 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 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
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. Notes payable:
The fair value of the Corporation's note payable is based on its
carrying amount at the reporting date.
The estimated fair values of the Corporation's financial instruments
are as follows (in thousands):
<TABLE>
<CAPTION>
September 30,
------------------------------------------
1996 1995
----------------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------- -------- -------- -------
<S> <C> <C> <C> <C>
Financial Assets
Cash and due from banks $ 24,962 $ 24,962 $ 19,197 $ 19,197
Federal funds sold 8,330 8,330 23,890 23,890
Securities 123,019 122,541 112,493 112,540
Loans 213,962 214,543 165,720 165,780
Financial Liabilities
Deposits 329,798 329,910 293,034 293,336
Securities sold under repurchase
agreements 14,453 14,453 6,606 6,606
Off-balance Sheet Financial Instruments
Loan commitments 76,542 61,628
Letters of credit 4,665 4,615
</TABLE>
20
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
Summary
- -------
Net income for the third quarter of 1996 was $1,634,000, or $.51 per
share, compared with $1,257,000, or $.40 per share, for the third quarter of
1995. Per share amounts are based on average shares outstanding of 3,220,909
for the third quarter of 1996 and 3,129,640 for the comparable period of 1995
(restated for a two-for-one stock split that occurred in December 1995). On a
per share basis, net income increased 27.5% over the third quarter of the prior
year.
Net income for the first nine months of 1996 was $4,314,000, or $1.35
per share, compared with $3,462,000, or $1.10 per share for the first nine
months of 1995. Per share amounts are based on average shares outstanding of
3,189,359 for the first nine months of 1996 and 3,137,598 for the first nine
months of 1995.
Outstanding loans at September 30, 1996 of $214.0 million represented
an increase of $48.2 million, or 29.1%, over September 30, 1995 and an increase
of $35.5 million, or 19.9%, from December 31, 1995.
Total deposits at September 30, 1996 of $329.8 million represented an
increase of $36.8 million, or 12.5%, over September 30, 1995 and a increase of
$19.7 million, or 6.4%, from December 31, 1995.
In the third quarter, net interest income increased 21.8% over the
previous year. An increase in non-interest expense of 10.2% partially offset
the increase in net interest income.
The following table summarizes the Corporation's performance for the
three and nine months ended September 30, 1996 and 1995 (tax equivalent basis
and dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1996 1995 1996 1995
------- ------ ------- -------
<S> <C> <C> <C> <C>
Interest Income $7,067 $5,941 $20,293 $16,524
Interest Expense 2,490 2,182 7,214 5,924
------ ------ ------- -------
Net Interest Income 4,577 3,759 13,079 10,600
Provision for Loan Loss 192 50 480 136
------ ------ ------- -------
Net Interest Income After
Provision for Loan Loss 4,385 3,709 12,599 10,464
Non-Interest Income 785 656 2,245 2,103
Non-Interest Expense 2,687 2,438 8,267 7,289
------ ------ ------- -------
Income Before Income Tax 2,483 1,927 6,577 5,278
Income Tax Expense 849 670 2,263 1,816
------ ------ ------- -------
Net Income $1,634 $1,257 $ 4,314 $ 3,462
====== ====== ======= =======
Net Income per Share $ .51 $ .40 $ 1.35 $ 1.10
Return on Average Assets 1.73% 1.55% 1.58% 1.54%
Return on Average Stockholders' Equity* 19.97% 17.88% 18.30% 17.07%
</TABLE>
* Before adjustment for unrealized gains and losses on Available-for-Sale
securities.
21
<PAGE>
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 third quarter of 1996 and 1995 (rates on tax equivalent basis).
<TABLE>
<CAPTION>
Three Months ended September 30,
--------------------------------------------------------------------
1996 1995
--------------------------------- ---------------------------------
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 $ 13,083 $ 185 5.37% $ 28,932 $ 425 5.80%
Investment Securities (Taxable) 124,332 1,888 6.04 105,179 1,551 5.85
Investment Securities (Tax-exempt) -0- -0- -0- 321 10 12.06
Loans, Net of Unearned Discount/(1)/ 208,236 4,994 9.54 159,287 3,955 9.85
-------- ------ -------- ------
Total Earning Assets 345,651 7,067 8.13 293,719 5,941 8.02
------ ------
Non-interest Earning Assets:
Cash and Due From Banks 21,350 18,336
Other Assets 12,549 11,378
Allowance for Loan Losses (2,882) (2,494)
-------- --------
Total Assets $376,668 $320,939
======== ========
Interest-Bearing Liabilities:
Interest-Bearing Transaction
Accounts & Money Market Funds $118,321 985 3.31 $104,418 897 3.39
Savings 48,770 495 4.04 29,571 287 3.86
Savings Certificates 47,738 562 4.68 48,344 609 5.00
Certificates of Deposit
$100,000 or more 24,253 300 4.92 23,270 300 5.11
Other Time 487 5 4.18 239 3 4.67
Other Borrowings 13,505 143 4.33 7,006 86 4.87
-------- ------ -------- ------
Total Interest-Bearing Liabilities 253,074 2,490 3.91 212,848 2,182 4.07
------ ------
Non-interest Bearing Liabilities:
Demand Deposits 88,637 77,959
Other Liabilities 2,405 2,081
Shareholders' Equity 32,552 28,051
-------- --------
Total Liabilities and
Shareholders' Equity $376,668 $320,939
======== ========
Net Interest Income and Margin
(Tax-equivalent Basis)/(2)/ $4,577 5.27 $3,759 5.08
====== ======
</TABLE>
(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.
22
<PAGE>
<TABLE>
<CAPTION>
Nine Months ended September 30,
---------------------------------------------------------------------
1996 1995
---------------------------------- ---------------------------------
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 $ 16,576 $ 677 5.35% $ 14,815 $ 641 5.78%
Investment Securities (Taxable) 122,880 5,553 6.04 108,483 4,756 5.86
Investment Securities (Tax-exempt) 32 2 8.15 356 31 11.54
Loans, Net of Unearned Discount/(1)/ 195,727 14,061 9.57 151,241 11,096 9.81
-------- ------- -------- -------
Total Earning Assets 335,215 20,293 8.09 274,895 16,524 8.04
------- -------
Non-interest Earning Assets:
Cash and Due From Banks 20,778 16,848
Other Assets 12,209 10,944
Allowance for Loan Losses (2,715) (2,428)
-------- --------
Total Assets $365,487 $300,259
======== ========
Interest-Bearing Liabilities:
Interest-Bearing Transaction
Accounts & Money Market Funds $115,572 2,837 3.28 $101,718 2,594 3.41
Savings 45,053 1,359 4.03 22,654 577 3.40
Savings Certificates 48,226 1,723 4.77 47,117 1,673 4.74
Certificates of Deposit
$100,000 or more 24,350 900 4.94 23,177 853 4.92
Other Time 402 14 4.63 237 8 4.60
Other Borrowings 11,880 381 4.32 5,565 218 5.25
Notes Payable -0- -0- -0- 15 1 9.56
-------- ------- -------- -------
Total Interest-Bearing Liabilities 245,483 7,214 3.93 200,483 5,924 3.95
------- -------
Non-interest Bearing Liabilities:
Demand Deposits 86,264 70,857
Other Liabilities 2,245 1,997
Shareholders' Equity 31,495 26,922
-------- --------
Total Liabilities and
Shareholders' Equity $365,487 $300,259
======== ========
Net Interest Income and Margin
(Tax-equivalent Basis)/(2)/ $13,079 5.21 $10,600 5.16
======= =======
</TABLE>
(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.
23
<PAGE>
Net Interest Income
- -------------------
Net interest income (tax equivalent) for the third quarter of 1996 was
$4,577,000 which represented an increase of $818,000, or 22.0%, over the third
quarter of 1995. This increase was heavily contributed to by a 30.7% increase
in average loans for the third quarter of 1996 versus the same quarter last
year.
The following table summarizes the effects of changes in interest
rates, average volumes of earning assets and interest bearing liabilities on net
interest income ( tax equivalent) for the three and nine months ended September
30, 1996.
<TABLE>
<CAPTION>
ANALYSIS OF CHANGES IN NET INTEREST INCOME
(Dollars in Thousands)
3rd Qtr. 1996 vs. 3rd Qtr. 1995 Nine Mos. 1996 vs. Nine Mos. 1995
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 $ (225) $ (15) $ (240) $ 101 $ (65) $ 36
Investment Securities (Taxable) 293 44 337 647 150 797
Investment Securities (Tax-exempt) (5) (5) (10) (22) (7) (29)
Loans, Net of Unearned Discount 1,932 (893) 1,039 3,408 (443) 2,965
------ ----- ------ ------ ----- ------
Total Interest Income 1,995 (869) 1,126 4,134 (365) 3,769
------ ----- ------ ------ ----- ------
Interest-Bearing Liabilities:
Deposits 689 (438) 251 1,143 (15) 1,128
Other Borrowings 119 (62) 57 231 (68) 163
Notes Payable -0- -0- -0- (1) -0- (1)
------ ----- ------ ------ ----- ------
Total Interest Expense 808 (500) 308 1,373 (83) 1,290
------ ----- ------ ------ ----- ------
Net Interest Income $1,187 $(369) $ 818 $2,761 $(282) $2,479
====== ===== ====== ====== ===== ======
</TABLE>
Allowance for Loan Losses and Non-Performing Assets
- ---------------------------------------------------
The Corporation's allowance for loan losses was $3,008, or 1.41% of
total loans, as of September 30, 1996 compared to $2,513 or 1.52% of total
loans, as of September 30, 1995.
Transactions in the allowance for loan losses are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ----------------------
1996 1995 1996 1995
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
Balance, Beginning of Period $2,829 $2,464 $2,500 $2,410
Provisions, Charged to Income 192 50 480 136
Loans Charged-Off (42) (43) (69) (209)
Recoveries of Loans Previously
Charged-Off 29 42 97 176
------ ------ ------ ------
Net Loans Charged-Off (13) (1) 28 (33)
------ ------ ------ ------
Balance, End of Period $3,008 $2,513 $3,008 $2,513
====== ====== ====== ======
</TABLE>
24
<PAGE>
The following table summarizes the non-performing assets as of the end
of the last five quarters (in thousands).
<TABLE>
<CAPTION>
September 30, June 30, March 31, December 31, September 30,
1996 1996 1996 1995 1995
------------- -------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Non-Accrual Loans $1,282 $1,356 $1,066 $ 990 $1,247
Other Real Estate Owned 169 172 110 113 345
Renegotiated Loans -0- -0- -0- -0- -0-
------ ------ ------ ------ ------
Total Non-Performing Assets $1,451 $1,528 $1,176 $1,103 $1,592
====== ====== ====== ====== ======
</TABLE>
Non-accrual loans to total loans were .60% at September 30, 1996 and
non-performing assets were .68% 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 Nine Months Ended
September 30, September 30,
------------------------ -----------------------------
1996 1995 % Change 1996 1995 % Change
------ ----- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Service Charges on Deposit Accounts $ 423 $ 382 10.7% $1,210 $1,154 4.9%
Gains (Loss) on Sale of Investment
Securities (8) -0- -- (15) (10) (27.6)
Non-recurring Income 88 21 -- 157 217 --
Other Non-interest Income 282 253 11.5 893 742 20.4
----- ----- ------ ------
Total Non-interest Income $ 785 $ 656 19.7% $2,245 $2,103 6.8%
===== ===== ====== ======
</TABLE>
Non-recurring income is primarily interest recovered on loans charged-
off in prior years. The increase in other non-interest income was primarily due
to increases in letter of credit fees, merchant credit card fees and fees earned
from investment brokerage services.
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 September 30, Nine Months Ended September 30,
---------------------------------- ---------------------------------
1996 1995 % Change 1996 1995 % Change
---------- ----------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Salaries & Employee Benefits $1,691 $1,507 12.2% $5,043 $4,301 17.3%
Occupancy Expense - Net 179 177 1.1 566 524 8.0
Furniture and Equipment Expense 206 193 6.7 606 514 17.9
Other Real Estate Expense - Net (4) (3) -- 12 (89) --
Other Expenses:
Business Development 100 105 (4.8) 318 303 5.0
Insurance - Other 25 25 -- 76 73 4.1
Legal & Professional Fees 104 111 (6.3) 309 319 (3.1)
Taxes - Other 27 25 8.0 74 68 8.8
Postage & Courier 68 65 4.6 198 186 6.5
Printing & Supplies 82 79 3.8 236 198 19.2
Regulatory Fees &
Assessments 52 15 -- 154 355 (56.6)
Other Operating Expenses 157 139 12.9 675 537 25.7
------ ------ ------ ------
Total Other Expenses 615 564 9.0 2,040 2,039 .1
------ ------ ------ ------
Total Non-interest
Expense $2,687 $2,438 10.2% $8,267 $7,289 13.4%
====== ====== ====== ======
</TABLE>
Total non-interest expense increased 10.2% in the third quarter of
1996 over the same quarter of 1995, primarily reflecting increases in salaries
and benefits, regulatory fees and other operating expenses. As a percent of
average assets, non-interest
25
<PAGE>
expenses were 2.85% in the third quarter of 1996 and 3.04% in the same period of
1995. The "efficiency ratio" (non-interest expenses divided by total non-
interest income plus net interest income) was 50.2% for the third quarter of
1996. 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 the third quarter
of 1996 is due to salary merit increases, incentive compensation accrual
increases, and an increase in pension plan expense. Also, the average number of
full-time equivalent employees increased by seven in the third quarter of 1996
over the same period of the prior year to an average full-time equivalent of
135. The increases for salaries and number of employees include additions for a
branch office opened in August of 1995.
Regulatory fees and assessments increased in the third quarter of 1996
because of refund credits taken in 1995 on FDIC insurance premiums on deposits.
The increase in furniture and equipment expense for the nine months is
primarily a result of increased depreciation and service contract expense for a
new communication system installed in mid 1995, furniture acquired in late 1995
for the new branch office, and acceleration of depreciation on certain item
processing equipment.
Other operating expenses increased in the third quarter and nine
months of 1996 due to an increase in various miscellaneous operating costs.
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 September 30, 1996 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 $116,464 $ 11,029 $ 12,059 $ 22,679 $162,231 $ 51,731 $213,962
Investment Securities 3,201 4,780 5,904 13,373 27,258 95,761 123,019
Federal Funds Sold 8,330 -0- -0- -0- 8,330 -0- 8,330
-------- -------- -------- -------- -------- -------- --------
Total Earning Assets 127,995 15,809 17,963 36,052 197,819 147,492 345,311
-------- -------- -------- -------- -------- -------- --------
Interest Bearing Liabilities:
Interest-Bearing Transaction
Accounts and Savings 165,598 -0- -0- -0- 165,598 -0- 165,598
Certificates of Deposits
>$100,000 7,267 4,026 5,569 5,986 22,848 1,579 24,427
Other Time Deposits 4,206 10,717 12,550 14,705 42,178 6,067 48,245
Repurchase Agreements 14,453 -0- -0- -0- 14,453 -0- 14,453
-------- -------- -------- -------- -------- -------- --------
Total Interest Bearing
Liabilities 191,524 14,743 18,119 20,691 245,077 7,646 252,723
-------- -------- -------- -------- -------- -------- --------
Interest Sensitivity
Gap $(63,529) $ 1,066 $ (156) $ 15,361 $(47,258) $139,846 $ 92,588
======== ======== ======== ======== ======== ======== ========
Cumulative Gap $(63,529) $(62,463) $(62,619) $(47,258)
======== ======== ======== ========
Cumulative Gap to
Total Earning Assets (18.4%) (18.1%) (18.1%) (13.7%)
Cumulative Gap to
Total Assets (16.7%) (16.4%) (16.5%) (12.4%)
</TABLE>
26
<PAGE>
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 of assets
liability 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 12.4% was reversed to a positive 10.8% "beta adjusted" gap position.
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 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 September 30, 1996, total capital to total assets was 8.78%.
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 September 30, 1996, the Corporation's
Tier I capital represented 14.38% of risk weighted assets and total qualifying
capital (Tier I and Tier II) represented 15.63% of risk weighted assets. Both
ratios are well above current regulatory guidelines.
27
<PAGE>
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) No Reports on Form 8-K were filed during the period ending
September 30, 1996
28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUMMIT BANCSHARES, INC.
Registrant
Date: November 1, 1996 By: /s/ Philip E. Norwood
---------------------- -------------------------------------
Philip E. Norwood, President and
Chief Executive Officer
Date: November 1, 1996 By: /s/ Bob G. Scott
---------------------- -------------------------------------
Bob G. Scott, Senior Vice President
and Chief Financial Officer
29
<PAGE>
EXHIBIT INDEX
Exhibit Page No.
- ------- --------
11 Computation of Earnings Per Common Share
27 Financial Data Schedule
30
<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 Nine Months Ended September 30, 1996 and
1995 (unaudited) and the Year Ended December 31, 1995 (audited), contained in
the Quarterly Report on Form 10-Q of registrant for the quarter Ended September
30, 1996.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS OF SUMMIT BANCSHARES, INC., AS OF SEPTEMBER 30,
1996, AND THE RELATED STATEMENTS OF INCOME, CHANGES IN SHAREHOLDERS' EQUITY AND
CASH FLOWS FOR THE PERIOD ENDING SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 24,962
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8,330
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 60,069
<INVESTMENTS-CARRYING> 123,019
<INVESTMENTS-MARKET> 122,541
<LOANS> 213,962
<ALLOWANCE> 3,008
<TOTAL-ASSETS> 379,894
<DEPOSITS> 329,798
<SHORT-TERM> 0
<LIABILITIES-OTHER> 16,753
<LONG-TERM> 0
0
0
<COMMON> 4,043
<OTHER-SE> 29,300
<TOTAL-LIABILITIES-AND-EQUITY> 379,894
<INTEREST-LOAN> 14,051
<INTEREST-INVEST> 5,560
<INTEREST-OTHER> 672
<INTEREST-TOTAL> 20,283
<INTEREST-DEPOSIT> 6,833
<INTEREST-EXPENSE> 7,214
<INTEREST-INCOME-NET> 13,069
<LOAN-LOSSES> 480
<SECURITIES-GAINS> (15)
<EXPENSE-OTHER> 8,267
<INCOME-PRETAX> 6,567
<INCOME-PRE-EXTRAORDINARY> 4,314
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,314
<EPS-PRIMARY> 1.35
<EPS-DILUTED> 1.35
<YIELD-ACTUAL> 5.21
<LOANS-NON> 1,282
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,050
<ALLOWANCE-OPEN> 2,500
<CHARGE-OFFS> 69
<RECOVERIES> 97
<ALLOWANCE-CLOSE> 3,008
<ALLOWANCE-DOMESTIC> 3,008
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
