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 June 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
June 30, 1996 was 3,209,386 shares.
Page 1
SUMMIT BANCSHARES, INC.
INDEX
PART I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Consolidated Balance Sheets at June 30,
1996 and 1995 and at December 31, 1995 4
Consolidated Statements of Income for
the Six Months Ended June 30, 1996 and
1995 and for the Year Ended December 31,
1995 5
Consolidated Statements of Income for
the Three Months Ended June 30, 1996
and 1995 and for the Year Ended December
31, 1995 6
Consolidated Statements of Changes in
Shareholders' Equity for the Six Months
Ended June 30, 1996 and 1995 and for the
Year Ended December 31, 1995 7
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1996
and 1995 and for the Year Ended December
31, 1995 8-9
Notes to Consolidated Financial Statements
for the Six Months Ended June 30, 1996
and 1995 and for the Year Ended December
31, 1995 10-20
The June 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 Six Months Ended
June 30, 1996 and 1995 21-27
Page 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
Page 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, (Unaudited)
------------------------------- December 31
1996 1995 1995
------------ --------------- ------------
(In Thousands)
<S> <C> <C> <C>
ASSETS
CASH AND DUE FROM BANKS $ 21,854 $ 20,637 $ 22,480
FEDERAL FUNDS SOLD 14,815 25,045 25,680
INVESTMENT SECURITIES - NOTE 2
(Market Value of $125,497,000
and $101,654,000 at June 30, 1996 and 1995
and $119,575,000 at December 31, 1995) 126,120 101,693 119,368
LOANS - NOTE 3
Loans, Net of Unearned Discount 201,973 156,695 178,493
Allowance for Loan Losses (2,829) (2,464) (2,500)
--------- --------- ---------
LOANS, NET 199,144 154,231 175,993
PREMISES AND EQUIPMENT - NOTE 4 7,320 6,780 7,157
ACCRUED INCOME RECEIVABLE 3,491 2,456 3,288
OTHER REAL ESTATE - NOTE 5 172 348 113
OTHER ASSETS 2,033 1,246 1,338
--------- --------- ---------
TOTAL ASSETS $ 374,949 $ 312,436 $ 355,417
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS - NOTE 6
Noninterest-Bearing Demand $ 94,051 $ 76,565 $ 89,184
Interest-Bearing 235,419 200,339 220,925
--------- --------- ---------
TOTAL DEPOSITS 329,470 276,904 310,109
SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE 11,514 6,049 13,528
ACCRUED INTEREST PAYABLE 581 545 635
OTHER LIABILITIES 1,391 1,095 1,020
--------- --------- ---------
TOTAL LIABILITIES 342,956 284,593 325,292
--------- --------- ---------
SHAREHOLDERS' EQUITY - NOTES 11, 13 and 17
Common Stock - $1.25 Par Value; 20,000,000 shares
authorized; 3,209,386, 1,560,441 and 3,149,886
shares issued and outstanding at June 30, 1996
and 1995 and at December 31, 1995, respectively 4,012 1,950 3,937
Capital Surplus 4,121 6,054 4,109
Retained Earnings 23,979 19,619 21,745
Unrealized Gain (Loss) on Investment Securities
Available for Sale, Net of Tax (119) 220 334
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY 31,993 27,843 30,125
--------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 374,949 $ 312,436 $ 355,417
========= ========= =========
The accompanying Notes should be read with these financial statements.
</TABLE>
Page 4
<TABLE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
(Unaudited) (Unaudited)
For the Six Months Year Ended
Ended June 30, December 31
-----------------------------
1996 1995 1995
---------- ---------- -----------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 9,060 $ 7,127 $ 15,331
Interest and Dividends on Investment Securities:
Taxable 3,666 3,207 6,479
Exempt from Federal Income Taxes 1 1423
Interest on Federal Funds Sold 492 228 1,096
------- ------- -------
TOTAL INTEREST INCOME 13,219 10,576 22,929
------- ------- -------
INTEREST EXPENSE
Interest on Deposits 4,488 3,609 7,936
Interest on Securities Sold Under
Agreements to Repurchase 236 132 340
Interest on Notes Payable -0- 1 1
TOTAL INTEREST EXPENSE 4,724 3,742 8,277
------- ------- -------
NET INTEREST INCOME 8,495 6,834 14,652
LESS: PROVISION FOR LOAN LOSSES - NOTE 3 288 86 236
------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 8,207 6,748 14,416
------- ------- -------
NON-INTEREST INCOME
Service Charges and Fees on Deposits 787 772 1,525
Loss on Sale of Investment Securities (7) (10) (10)
Other Income 680 685 1,239
------- ------- -------
TOTAL NON-INTEREST INCOME 1,460 1,447 2,754
------- ------- -------
NON-INTEREST EXPENSE
Salaries and Employee Benefits 3,352 2,794 5,903
Occupancy Expense - Net 387 347 712
Furniture and Equipment Expense 400 321 691
Other Real Estate Owned Expense - Net 16 (86) (99)
Other Expense 1,425 1,475 2,766
------- ------- -------
TOTAL NON-INTEREST EXPENSE 5,580 4,851 9,973
------- ------- -------
INCOME BEFORE INCOME TAXES 4,087 3,344 7,197
APPLICABLE INCOME TAXES - NOTE 8 1,407 1,139 2,468
------- ------- -------
NET INCOME $ 2,680 $ 2,205 $ 4,729
======= ======= =======
NET INCOME PER SHARE - NOTE 13 $ .84 $ .70 $ 1.51
======= ======= =======
The accompanying Notes should be read with these financial statements.
</TABLE>
Page 5
<TABLE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
(Unaudited)
For the Three Months Ended
June 30,
---------------------------------------
1996 1995
--------- --------
(In Thousands, Except Per Share Data)
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 4,627 $ 3,732
Interest and Dividends on Investment Securities:
Taxable 1,876 1,568
Exempt from Federal Income Taxes -0- 6
Interest on Federal Funds Sold 218 167
------- -------
TOTAL INTEREST INCOME 6,721 5,473
------- -------
INTEREST EXPENSE
Interest on Deposits 2,242 1,926
Interest on Securities Sold Under Agreements
to Repurchase 119 70
Interest on Note Payable -0- -0-
------- -------
TOTAL INTEREST EXPENSE 2,361 1,996
------- -------
NET INTEREST INCOME 4,360 3,477
LESS: PROVISION FOR LOAN LOSSES - NOTE 3 164 44
------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,196 3,433
------- -------
NON-INTEREST INCOME
Service Charges and Fees on Deposits 402 388
Gain (Loss) on Sale of Investment Securities (10) -0-
Other Income 339 332
------- -------
TOTAL NON-INTEREST INCOME 731 720
------- -------
NON-INTEREST EXPENSE
Salaries and Employee Benefits 1,697 1,414
Occupancy Expense - Net 207 180
Furniture and Equipment Expense 203 169
Other Real Estate Owned Expense - Net 21 (9)
Other Expense 674 685
------- -------
TOTAL NON-INTEREST EXPENSE 2,802 2,439
------- -------
INCOME BEFORE INCOME TAXES 2,125 1,714
APPLICABLE INCOME TAXES - NOTE 8 730 585
------- -------
NET INCOME $ 1,395 $ 1,129
======= =======
NET INCOME PER SHARE - NOTE 13 $ .43 $ .36
======= =======
The accompanying Notes should be read with these financial statements.
</TABLE>
Page 6
<TABLE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
AND FOR THE YEAR ENDED DECEMBER 31, 1995
(Unaudited)
<CAPTION>
Unrealized
Common Stock Gain (Loss)
------------------------ Capital Retained on Investment Treasury
Shares Amount Surplus Earnings Securities-Net Stock Total
--------- -------- -------- --------- -------------- -------- --------
<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 (453) (453)
Retirement of Stock
Held in Treasury (20,482) (26) (427) 453 -0-
Net Income for the
Six Months Ended
June 30, 1995 2,205 2,205
Stock Options
Exercised 2,200 3 7 10
Cash Dividend $.11
Per Share (346) (346)
Securities Available-
for-Sale Adjustment 1,093 1,093
--------- -------- -------- --------- ------- ------- -------
BALANCE AT
JUNE 30, 1995 1,560,441 1,950 6,054 19,619 220 -0- 27,843
Purchaes of Stock
Held in Treasury (55) (55)
Retirement of Stock
Held in Treasury (2,298) (3) (52) 55 -0-
Net Income for the
Six Months Ended
December 31, 1995 2,524 2,524
Stock Options
Exercised 16,800 21 24 45
Cash Dividend $.11
Per Share (346) (346)
Two-for-One Stock Split 1,574,943 1,969 (1,969) -0-
Securities Available-
for-Sale Adjustment 114 114
--------- ------- ------- ------- ------- ------- -------
BALANCE AT
DECEMBER 31, 1995 3,149,886 3,937 4,109 21,745 334 -0- 30,125
Net Income for the
Six Months Ended
June 30, 1996 2,680 2,680
Stock Options Exercised 59,500 75 12 87
Cash Dividend $.14
Per Share (446) (446)
Securities Available-
for-Sale Adjustment --------- ----- ------- ------- ------- ------- -------
BALANCE AT
JUNE 30, 1996 3,209,386 $ 4,012 $ 4,121 $ 23,979 $ (119) $ -0- $ 31,993
========= ======= ======= ======== ======= ======= ========
The accompanying Notes should be read with these financial statements.
</TABLE>
Page 7
<TABLE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
AND FOR THE YEAR ENDED DECEMBER 31, 1995
<CAPTION>
(Unaudited) (Unaudited)
June 30, December 31,
--------------------------------
1996 1995 1995
------------- ------------- ---------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 2,680 $ 2,205 $ 4,729
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 376 296 652
Net Premium Amortization of Investment Securities 180 122 445
Provision for Loan Losses 288 86 236
Net (Increase) Decrease in Deferred Income Taxes (13) -0- 68
Loss on Sale of Investment Securities 7 10 10
Writedown of Other Real Estate 6 5 12
Net Gain From Sale of Other Real Estate -0- (73) (78)
Net Gain on Sale of Premises and Equipment 1 -0- -0-
(Increase) Decrease in Accrued Income and Other Assets (548) 21 (1,044)
Increase in Accrued Expenses and Other Liabilities 317 326 297
-------- -------- --------
Total Adjustments 614 793 598
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,294 2,998 5,327
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (Increase) Decrease in Federal Funds Sold 10,865 (15,305) (15,940)
Proceeds from Matured and Prepaid Investment Securities
- Held-to-Maturity 12,150 10,272 21,154
- Available-for-Sale 10,438 2,372 12,703
Proceeds from Sales of Investment Securities 9,016 2,951 2,969
Purchase of Investment Securities
- Held-to-Maturity (15,164) (1,041) (27,616)
- Available-for-Sale (24,066) -0- (12,482)
Loans Originated and Principal Repayments, Net (23,677) (17,905) (39,724)
Recoveries of Loans Previously Charged-Off 68 134 201
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 (539) (474) (1,207)
-------- -------- --------
NET CASH USED BY INVESTING ACTIVITIES (20,908) (18,627) (59,440)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Demand Deposits, Savings
Accounts and Interest Bearing Transaction Accounts 20,467 14,199 45,230
Net (Decrease) Increase in Certificates of Deposit (1,106) 3,165 5,338
Net Increase (Decrease) in Repurchase Agreements (2,014) 1,521 9,000
Principal Payments of Notes Payable -0- (250) (250)
Payments of Cash Dividends (446) (346) (692)
Purchase of Treasury Stock -0- (453) (508)
Proceeds from Stock Options Exercised 87 10 55
------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 16,988 17,846 58,173
------- -------- --------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (626) 2,217 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 $ 21,854 $ 20,637 $ 22,480
======== ======== ========
</TABLE>
Page 8
<TABLE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONT'D
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
AND FOR THE YEAR ENDED DECEMBER 31, 1995
(Unaudited)
SUPPLEMENTAL SCHEDULE OF OPERATING AND INVESTING ACTIVITIES:
<CAPTION>
(Unaudited) (Unaudited)
June 30, December 31,
----------------------------- -------------
1996 1995 1995
----------- --------- -------------
(In Thousands)
<S> <C> <C> <C>
(1) Interest Paid $ 4,778 $ 3,684 $ 8,129
(2) Income Taxes Paid 1,468 1,094 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>
Page 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
FOR THE SIX MONTHS ENDED JUNE 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 six months of 1996 the average cash balance
maintained at the Federal Reserve Bank was $2,841,000.
Compensating balances held at correspondent banks, to minimize
service charges, averaged approximately $12,559,000 during the
same six 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.
Page 10
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 six 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.
Page 11
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>
June 30, 1996
---------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Investment Securities - Held-to-Maturity
U.S. Treasury Securities $ 31,044 $ 109 $ (243) $ 30,910
U.S. Government Agencies
and Corporations 24,802 4 (344) 24,462
U.S. Government Agency Mortgage
Backed Securities 10,574 5 (154) 10,425
--------- ----- -------- ---------
Total Held-to-Maturity Securities 66,420 118 (741) (65,797)
--------- ----- -------- ---------
Investment Securities - Available-for-Sale
U.S. Treasury Securities 51,530 160 (396) 51,294
U.S. Government Agencies
and Corporations 4,490 35 (18) 4,507
U.S. Government Agency Mortgage
Backed Securities 3,606 49 (10) 3,656
Federal Reserve Bank Stock 254 -0- -0- 254
--------- ------ -------- ---------
Total Available-for-Sale Securities 59,880 244 (424) 59,700
--------- ------ -------- ---------
Total Investment Securities $ 126,300 $ 362 $(1,165) $ 125,497
========= ====== ======== =========
</TABLE>
In the above schedule the AMORTIZED COST of Total Held-to-
Maturity Securities of $66,420,000 and the FAIR VALUE of Total
Available-for-Sale Securities of $59,700,000 are reflected in
Investment Securities on the consolidated balance sheet as of June 30,
1996 for a total of $126,120,000. A net unrealized loss of $180,000
is included in the Available-for-Sale Investment Securities balance.
The unrealized loss, net of tax, is included in Shareholders' Equity.
Page 12
NOTE 2 - Investment Securities (cont'd.)
The carrying value of investment securities totaling $27,825,000
at June 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 $27,664,000 at June
30, 1996.
<TABLE>
<CAPTION>
June 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 $ 36,167 $ 294 $ (305) $ 36,156
U.S. Government Agencies and Corporations 8,388 25 (30) 8,383
U.S. Government Agency Mortgage
Backed Securities 6,241 6 (33) 6,214
Obligations of States and Political Subdivisions 324 4 -0- 328
------- ------- ------ --------
Total Held-to-Maturity Securities 51,120 329 (368) 51,081
------- ------- ------ --------
Investment Securities - Available-for-Sale
U.S. Treasury Securities 44,048 405 (134) 44,319
U.S. Government Agencies
and Corporations 2,524 70 (16) 2,578
U.S. Government Agency Mortgage
Backed Securities 3,414 19 (11) 3,422
Federal Reserve Bank Stock 254 -0- -0- 254
------- ------- ------- --------
Total Available-for-Sale Securities 50,240 494 (161) 50,573
------- ------- ------- --------
Total Investment Securities $ 101,36 $ 823 $ (529) $101,654
======== ======= ======= ========
</TABLE>
In the above schedule the AMORTIZED COST of Total Held-to-Maturity
Securities of $51,120,000 and the FAIR VALUE of Total Available-for-
Sale Securities of $50,573,000 are reflected in Investment Securities
on the consolidated balance sheet as of June 30, 1995 for a total of
$101,693,000. A net unrealized gain of $333,000 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 $9,016,000 and
$2,951,000 during the first six months of 1996 and 1995, respectively
and $2,969,000 during the year 1995. In the six months ended June 30,
1996, gains from sale of securities of $11,000 and losses of $18,000
were realized; a loss of $10,000 was realized for the six months ended
June 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>
June 30,
---------------------------------------- December 31,
1996 1995 1995
------------ ------------- ------------
<S> <C> <C> <C>
Commercial $ 94,263 $ 74,998 $ 81,542
Real Estate Mortgage 69,730 56,721 64,200
Real Estate Construction 13,258 4,854 10,189
Loans to Individuals, Less
Unearned Discount 24,722 20,122 22,562
-------- -------- ---------
201,973 156,695 178,493
Allowance for Loan Losses (2,829) (2,464) (2,500)
-------- --------- ---------
Loans - Net $199,144 $ 154,231 $ 175,993
======== ========= =========
</TABLE>
Page 13
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>
Six Months Ended June 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 288 86 236
Loans Charged-Off (27) (166) (347)
Recoveries of Loans Previously
Charged-Off 68 134 201
------- ------- -------
Net Loans Charged-Off 41 (32) 146
------- ------- -------
Balance, End of Period $ 2,829 $ 2,464 $ 2,500
======= ======= =======
</TABLE>
The provisions for loan losses charged to operating expenses during
the six months ended June 30, 1996 and June 30, 1995 of $288,000 and
$86,000, 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 June 30, 1996, the recorded investment in loans that are
considered to be impaired under Statement of Financial Accounting
Standards No. 114 was $695,000 (of which $695,000 were on non-accrual
status). The related allowance for loan losses for these loans was
$375,000. The average recorded investment in impaired loans during
the three months ended June 30, 1996 was approximately $864,000. 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>
June 30,
------------------------------- December 31,
1996 1995 1995
-------- -------- ------------
<S> <C> <C> <C>
Land $ 1,446 $ 1,264 $ 1,279
Buildings and Improvements 7,359 6,855 7,115
Furniture & Equipment 5,146 4,826 5,051
------- ------- --------
Total Cost 13,951 12,945 13,445
Less: Accumulated Amortization and Depreciation (6,631) (6,165) (6,288)
------- -------- --------
Net Book Value $ 7,320 $ 6,780 $ 7,157
======= ======== ========
</TABLE>
NOTE 5 - Other Real Estate
The carrying value of other real estate is as follows (in
thousands):
<TABLE>
<CAPTION>
June 30,
---------------------------------- December 31,
1996 1995 1995
-------- ------- --------
<S> <C> <C> <C>
Other Real Estate $ 207 $ 383 $ 148
Valuation Reserve (35) (35) (35)
------- ------ -------
Net Other Real Estate $ 172 $ 348 $ 113
======== ====== =======
</TABLE>
Page 14
NOTE 5 - Other Real Estate (cont'd.)
Transactions in the valuation reserve are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
Six Months Ended June 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 $6,000 for the six months ended
June 30, 1996 and $5,000 for the six months ended June 30, 1995.
NOTE 6 - Deposits
The book values of deposits by major type follow (in thousands):
<TABLE>
<CAPTION>
June 30,
-------------------------------- December 31,
1996 1995 1995
-------- ---------- ----------------
<S> <C> <C> <C>
Noninterest-Bearing Demand Deposits $ 94,051 $ 76,565 $ 89,184
--------- --------- ---------
Interest-Bearing Deposits:
Interest-Bearing Transaction Accounts 115,327 103,259 110,160
Savings 47,641 25,457 36,870
Savings Certificates - Time 47,581 47,858 49,005
Certificates of Deposits $100,000 or more 24,431 23,526 24,551
Other 439 239 339
--------- --------- ---------
Total 235,419 200,339 220,925
--------- --------- ---------
Total Deposits $ 329,470 $ 276,904 $ 310,109
========= ========= =========
</TABLE>
NOTE 7 - Other Non-Interest Expense
The significant components of other non-interest expense are as
follows (in thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended
---------------------------------- December 31,
1996 1995 1995
--------- --------- -----------
<S> <C> <C> <C>
Business Development $ 218 $ 198 $ 443
Legal and Professional Fees 205 207 479
Printing and Supplies 154 119 289
Regulatory Fees and Assessments 102 340 411
Other 746 611 1,144
------- ------- -------
Total $ 1,425 $ 1,475 $ 2,766
======= ======= =======
</TABLE>
Page 15
NOTE 8 - Income Taxes
Federal income taxes included in the consolidated balance sheets
were as follows (in thousands):
<TABLE>
<CAPTION>
June 30,
---------------------------------- December 31,
1996 1995 1996
-------- --------- ------------
<S> <C> <C> <C>
Current Tax Asset (Liability) $ 46 $ (7) $ 10
Deferred Tax Asset 481 299 235
------ ------- ------
Total Included in Other Assets/
(Other Liabilities) $ 527 $ 292 $ 245
====== ======= ======
</TABLE>
The deferred tax asset at June 30, 1996 of $481,000 included
$61,000 related to unrealized losses on Available-for-Sale Securities.
The components of income tax expense were as follows (in
thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended
------------------------------- December 31,
1996 1995 1995
--------- ------- ---------
<S> <C> <C> <C>
Federal Income Tax Expense
Current $ 1,420 $ 1,101 $ 2,400
Deferred (13) 38 68
--------- -------- -------
Total Federal Income Tax Expense $ 1,407 $ 1,139 $ 2,468
========= ======== ========
Effective Tax Rates 34.4% 34.0% 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>
Six Months Ended June 30, Year Ended
-------------------------------- December 31,
1996 1995 1995
--------- ---------- ------------
<S> <C> <C> <C>
Federal Income Taxes at Statutory
Rate of 34% $ 1,389 $ 1,137 $ 2,447
Effect of Tax Exempt Interest Income (5) (11) (19)
Other 23 13 40
------- ------- --------
Income Taxes Per Income Statement $ 1,407 $ 1,139 $ 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 June 30, 1996, outstanding documentary and standby letters of
credit totaled $6,128,000 and commitments to extend credit totaled
$72,199,000.
Page 16
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. The outstanding options continue to be exercisable and will be
exercisable for ten years from the date of grant of May 1991.
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 will be and have been granted at prices
which will not be less than 100-110% of the fair market value of the
underlying common stock at the date of grant. 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
----------------------------------------------
Six Months
Ended Year Ended
June 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 -0- -0-
Exercised During the Period (64,500) (40,000)
-------- --------
Outstanding, End of Period 236,900 301,400
======== ========
</TABLE>
Options outstanding at June 30, 1996 ranged in price from $1.875
to $13.94 per share with 186,940 shares exercisable. There remain
53,320 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.
Page 17
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)
======== ========
<CAPTION>
Net pension cost included the following components (in thousands): Year Ended December 31,
----------------------------------
1995 1994
--------- ---------
<S> <C> <C>
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 June 30, 1996 was $2,149,000.
There was a contribution to the plan during 1996 of $313,000 and
prepaid pension cost at June 30, 1996 was $239,000.
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 $112,000 and $87,000
during the first six 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).
Page 18
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 Six Months Ended:
June 30, 1996 3,173,411
June 30, 1995 3,141,646
Year Ended December 31, 1995 3,139,230
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>
<TABLE>
<CAPTION>
June 30,
------------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Financial Instruments Whose
Contract Amounts Represent
Credit Risk:
Commitments to Extend Credit $ 72,199 $ 56,915
Documentary and Standby
Letters of Credit 6,128 5,407
</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.
Page 19
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 six months of 1996, no
shares were purchased.
NOTE 18 - Subsequent Event
On July 16, 1996, the Board of Directors of the Corporation
approved a quarterly dividend of $.07 per share to be paid on August
15, 1996 to shareholders of record on August 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>
June 30,
-----------------------------------------------
1996 1995
------------------------ -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Cash and due from banks $ 21,854 $ 21,854 $ 20,637 $ 20,637
Federal funds sold 14,815 14,815 25,045 25,045
Securities 126,120 125,497 101,693 101,654
Loans 201,973 202,477 156,695 156,733
Financial Liabilities
Deposits 329,470 329,648 276,904 277,358
Securities sold under repurchase agreements 11,514 11,514 6,049 6,049
Off-balance Sheet Financial Instruments
Loan commitments 72,199 56,915
Letters of credit 6,128 5,407
</TABLE>
Page 20
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SUMMARY
Net income for the second quarter of 1996 was $1,395,000, or $.43
per share, compared with $1,129,000, or $.36 per share, for the
second quarter of 1995. Per share amounts are based on average shares
outstanding of 3,192,496 for the second quarter of 1996 and 3,133,128
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 19.4% over the second quarter of the prior year.
Net income for the first six months of 1996 was $2,680,000, or
$.84 per share, compared with $2,205,000, or $.70 per share for the
first six months of 1995. Per share amounts are based on average
shares outstanding of 3,173,41 for the first six months of 1996 and
3,141,646 for the first six months of 1995.
Outstanding loans at June 30, 1996 of $202.0 million represented
an increase of $45.3 million, or 28.9%, over June 30, 1995 and an
increase of $23.5 million, or 13.2%, from December 31, 1995.
Total deposits at June 30, 1996 of $329.5 million represented an
increase of $52.6 million, or 19.0%, over June 30, 1995 and a increase
of $19.4 million, or 6.2%, from December 31, 1995.
In the second quarter, net interest income increased 25.4% over
the previous year. An increase in non-interest expense of 14.9%
partially offset the increase in net interest income.
The following table summarizes the Corporation's performance for
the three and six months ended June 30, 1996 and 1995 (tax equivalent
basis and dollars in thousands):
<TABLE>
<CAPTION>
Three Months ended Six Months ended
June 30, June 30,
-------------------------- --------------------------
1996 1995 1996 1995
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Interest Income $ 6,725 $ 5,478 $13,226 $10,583
Interest Expense 2,361 1,996 4,724 3,742
------- -------- ------- -------
Net Interest Income 4,364 3,482 8,502 6,841
Provision for Loan Loss 164 44 288 86
------- ------- ------- -------
Net Interest Income After
Provision for Loan Loss 4,200 3,438 8,214 6,755
Non-Interest Income 731 720 1,460 1,447
Non-Interest Expense 2,802 2,439 5,580 4,851
------- ------- ------- -------
Income Before Income Tax 2,129 1,719 4,094 3,351
Income Tax Expense 734 590 1,414 1,146
------- ------- ------- -------
Net Income $ 1,395 $ 1,129 $ 2,680 $ 2,205
======= ======= ======= =======
Net Income per Share $ .43 $ .36 $ .84 $ .70
Return on Average Assets 1.53% 1.54% 1.50% 1.54%
Return on Average Stockholders' Equity<F1> 17.86% 16.74% 17.41% 16.64%
<FN>
<F1>
Before adjustment for unrealized gains and losses on Available-for-Sale securities.
</FN>
Page 21
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 second quarter of 1996 and 1995
(rates on tax equivalent basis).
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 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 $ 16,523 $ 218 5.25% $ 11,456 $ 161 5.57%
Investment Securities (Taxable) 124,817 1,876 6.04 106,914 1,567 5.88
Investment Securities (Tax-exempt) 25 -0- -0- 355 9 10.77
Loans, Net of Unearned Discount<F1> 194,352 4,631 9.58 151,524 3,741 9.89
-------- ------- -------- --------
Total Earning Assets 335,717 6,725 8.05 270,249 5,478 8.13
------- --------
Non-interest Earning Assets:
Cash and Due From Banks 21,074 16,496
Other Assets 12,189 10,730
Allowance for Loan Losses (2,714) (2,407)
-------- ---------
Total Assets $366,266 $295,068
========= =========
Interest-Bearing Liabilities:
Interest-Bearing Transaction
Accounts & Money Market Funds $ 115,116 925 3.23 $ 99,936 865 3.50
Savings 45,729 455 4.00 21,247 178 3.35
Savings Certificates 48,069 563 4.71 47,408 576 4.34
Certificates of Deposit
$100,000 or more 24,339 295 4.87 23,498 298 5.08
Other Time 380 4 4.54 237 3 4.69
Other Borrowings 11,283 119 4.26 5,423 76 4.88
--------- ------ --------- ------
Total Interest-Bearing Liabilities 244,916 2,361 3.88 197,749 1,996 4.03
------ ------
Non-interest Bearing Liabilities:
Demand Deposits 87,939 68,474
Other Liabilities 2,093 1,773
Shareholders' Equity 31,318 27,072
--------- ---------
Total Liabilities and
Shareholders' Equity $366,266 $295,068
========= =========
Net Interest Income and Margin
(Tax-equivalent Basis)<F2> $ 4,364 5.23 $ 3,482 5.18
======= =======
<FN>
<F1>
Loan interest income includes fees and loan volumes include loans on non-accrual.
<F2>
Presented on a tax equivalent basis ("T/E") using a federal income tax rate of 34% in both years.
</FN>
</TABLE>
Page 22
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------------------------------------------------------------
1996 1996
------------------------------------ ---------------------------------
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 $ 18,423 $ 492 5.34% $ 7,654 $ 216 5.59%
Investment Securities (Taxable) 121,778 3,666 6.03 110,164 3,205 5.86
Investment Securities (Tax-exempt) 47 1 -0- 374 21 11.30
Loans, Net of Unearned Discount<F1> 189,403 9,067 9.63 147,152 7,141 9.78
-------- -------- -------- -------
Total Earning Assets 329,651 13,226 8.06 265,344 10,583 8.06
-------- -------
Non-interest Earning Assets:
Cash and Due From Banks 20,407 16,092
Other Assets 12,037 10,238
Allowance for Loan Losses (2,630) (2,395)
--------- ---------
Total Assets $ 359,465 $ 289,279
========= =========
Interest-Bearing Liabilities:
Interest-Bearing Transaction
Accounts & Money Market Funds $ 114,182 1,853 3.26 $ 100,346 1,697 3.41
Savings 43,174 864 4.03 19,139 290 3.05
Savings Certificates 48,473 1,161 4.82 46,493 1,064 4.62
Certificates of Deposit
$100,000 or more 24,398 600 4.95 23,130 553 4.82
Other Time 359 10 4.94 236 5 4.57
Other Borrowings 11,059 236 4.31 4,833 132 5.69
Notes Payable -0- -0- -0- 22 1 9.56
-------- ------- ----- -------- ------
Total Interest-Bearing
Liabilities 241,645 4,724 3.93 194,199 3,742 3.87
------- ------
Non-interest Bearing Liabilities:
Demand Deposits 85,064 67,248
Other Liabilities 2,039 1,484
Shareholders' Equity 30,717 26,348
--------- ---------
Total Liabilities and
Shareholders' Equity $ 359,465 $ 289,279
========= =========
Net Interest Income and Margin
(Tax-equivalent Basis)<F2> $ 8,502 5.18 $ 6,841 5.22
========= =========
<FN>
<F1>
Loan interest income includes fees and loan volumes include loans on non-accrual.
<F2>
Presented on a tax equivalent basis ("T/E") using a federal income tax rate of 34% in both years.
</FN>
</TABLE>
Page 23
NET INTEREST INCOME
Net interest income (tax equivalent) for the second quarter of
1996 was $4,364,000 which represented an increase of $882,000, or
25.3%, over the second quarter of 1995. This increase was heavily
contributed to by a 28.3% increase in average loans for the second
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
six months ended June 30, 1996.
<TABLE>
ANALYSIS OF CHANGES IN NET INTEREST INCOME
(Dollars in Thousands)
2nd Qtr. 1996 vs. 2nd Qtr. 1995 Six Mos. 1996 vs. Six 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 $ 115 $ (58) $ 57 $ 305 $ (29) $ 276
Investment Securities (Taxable) 266 43 309 362 99 461
Investment Securities (Tax-exempt) (4) (5) (9) (9) (11) (20)
Loans, Net of Unearned Discount 1,647 (757) 890 2,246 (320) 1,926
-------- ------- ------- -------- -------- --------
Total Interest Income 2,024 (777) 1,247 2,904 (261) 2,643
-------- ------- ------- -------- -------- --------
Interest-Bearing Liabilities:
Deposits 791 (469) 322 811 68 879
Other Borrowings 99 (56) 43 200 (96) 104
Notes Payable -0- -0- -0- (1) -0- (1)
-------- ------- ------- -------- -------- --------
Total Interest Expense 890 (525) 365 1,010 (28) 982
-------- ------- ------- -------- -------- --------
Net Interest Income $ 1,134 $ (252) $ 882 $ 1,894 $(233) $ 1,661
======= ======== ======= ======== ======== ========
</TABLE>
ALLOWANCE FOR LOAN LOSSES AND NON-PERFORMING ASSETS
The Corporation's allowance for loan losses was $2,829, or 1.40%
of total loans, as of June 30, 1996 compared to $2,464 or 1.57% of
total loans, as of June 30, 1995.
Transactions in the allowance for loan losses are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, June 30,
---------------------- ------------------------
1996 1995 1996 1995
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance, Beginning of Period $ 2,653 $ 2,355 $ 2,500 $ 2,410
Provisions, Charged to Income 164 44 288 86
Loans Charged-Off (27) (3) (27) (166)
Recoveries of Loans Previously
Charged-Off 39 68 68 134
-------- -------- ------- --------
Net Loans Charged-Off 12 65 41 (32)
-------- -------- ------- --------
Balance, End of Period $ 2,829 $ 2,464 $ 2,829 $ 2,464
======== ======== ======= ========
</TABLE>
Page 24
The following table summarizes the non-performing assets as of the
end of the last five quarters (in thousands).
<TABLE>
<CAPTION>
June 30, March 31, December 31, September 30, June 30,
1996 1996 1995 1995 1995
-------- -------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Non-Accrual Loans $ 1,356 $ 1,066 $ 990 $ 1,247 $ 372
Other Real Estate Owned 172 110 113 345 348
Renegotiated Loans -0- -0- -0- -0- -0-
------- ------- ------- ------- ------
Total Non-Performing Assets $ 1,528 $ 1,176 $ 1,103 $ 1,592 $ 720
======= ======= ======= ======= ======
</TABLE>
Non-accrual loans to total loans were .67% at June 30, 1996 and
non-performing assets were .76% 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 Six Months Ended
June 30, June 30,
-------------------------------- ------------------------------
1996 1995 % Change 1996 1995 % Change
----- ----- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Service Charges on Deposit Accounts $ 402 $ 388 (3.6%) $ 787 $ 772 1.9%
Gains (Loss) on Sale of Investment Securities (10) -0- -- (7) (10) 30.0
Non-recurring Income 37 70 -- 69 196 --
Other Non-interest Income 302 262 15.3 611 489 22.9
----- ---- ---- -------
Total Non-interest Income $ 731 $ 720 1.5% $ 1,460 $ 1,447 0.9%
===== ===== ==== =======
</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 June 30, Six Months Ended June 30,
------------------------------- ----------------------------------
1996 1995 % Change 1996 1995 % Change
-------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Salaries & Employee Benefits $ 1,697 $ 1,414 20.0% $ 3,352 $ 2,794 20.0%
Occupancy Expense - Net 207 180 15.0 387 347 11.5
Furniture and Equipment Expense 203 169 20.1 400 321 24.6
Other Real Estate Expense - Net 21 (9) -- 16 (86) --
Other Expenses:
Business Development 113 95 18.9 218 198 10.1
Insurance - Other 24 23 4.3 51 48 6.3
Legal & Professional Fees 107 96 11.5 205 208 (1.4)
Taxes - Other 24 21 14.3 47 43 9.3
Postage & Courier 56 61 (8.2) 130 121 7.4
Printing & Supplies 74 71 4.2 154 119 29.4
Regulatory Fees & Assessments 51 170 (70.0) 102 340 (70.0)
Other Operating Expenses 225 148 52.0 518 398 30.2
------ ------- ------- --------
Total Other Expenses 674 685 -- 1,425 1,475 (3.4)
------ ------- ------- --------
Total Non-interest Expense $ 2,802 $ 2,439 14.9% $ 5,580 $ 4,851 15.0%
======= ======= ======= =======
</TABLE>
Total non-interest expense increased 14.9% in the second quarter
of 1996 over the same quarter of 1995, reflecting increases in
salaries and benefits, occupancy expense, furniture and equipment
expenses, business development expenses and other operating
Page 25
expenses. As a percent of average assets, non-interest expenses were
3.07% in the second quarter of 1996 and 3.32% in the same period of
1995. The "efficiency ratio" (non-interest expenses divided by total
non-interest income plus net interest income) was 55.0% for the second
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 second
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 eleven in the second quarter of 1996 to an average full-
time equivalent of 135. The increases for salaries and number of
employees include additions for a branch office opened in mid year of
1995.
The increase in occupancy expense is primarily due to the expense
related to the branch office noted above.
The increase in furniture and equipment expense is primarily a
result of increased depreciation for a new communication system
installed in 1995, furniture acquired in late 1995 for the new branch
office, and acceleration of depreciation on certain item processing
equipment.
Postage and courier expenses increased because of additional
customer mailings in the second quarter of 1996.
Regulatory fees and assessments declined in the second quarter of
1996 because of a decrease in mid 1995 in FDIC insurance premiums on
deposits.
Other operating expenses increased in the second quarter 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 June 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 $ 111,040 $ 9,806 $ 12,099 $ 20,646 $ 153,591 $ 48,382 $ 201,973
Investment Securities 3,162 5,279 9,928 13,759 32,128 93,992 126,120
Federal Funds Sold 14,815 -0- -0- -0- 14,815 -0- 14,815
---------- ---------- --------- --------- ---------- --------- ---------
Total Earning Assets 129,017 15,085 22,027 34,405 200,534 142,374 342,908
---------- ---------- --------- --------- ---------- --------- ---------
Interest Bearing Liabilities:
Interest-Bearing Transaction
Accounts and Savings 162,967 -0- -0- -0- 162,967 -0- 162,967
Certificates of Deposits
>$100,000 6,886 5,012 4,987 6,742 23,627 804 24,431
Other Time Deposits 3,315 10,878 11,473 16,325 41,991 6,030 48,021
Repurchase Agreements 11,514 -0- -0- -0- 11,514 -0- 11,514
---------- --------- -------- -------- --------- --------- ---------
Total Interest Bearing
Liabilities 184,682 15,890 16,460 23,067 240,099 6,834 246,933
---------- --------- -------- --------- -------- --------- ---------
Interest Sensitivity
Gap $ (55,665) $ (805) $ 5,567 $ 11,338 $ (39,565) $ 135,540 $ 95,975
========== ========= ========= ======== ========= ========= =========
Cumulative Gap $ (55,665) $ (56,470) $ (50,903) $(39,565)
========== ========= ========= ========
Cumulative Gap to
Total Earning Assets (16.2%) (16.5%) (14.8%) (11.5%)
Cumulative Gap to
Total Assets (14.8%) (15.1%) (13.6%) (10.6%)
</TABLE>
Page 26
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 10.6% was reversed to a positive
12.2% "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 June 30, 1996, total capital to total assets was 8.48%.
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 June 30, 1996, the
Corporation's Tier I capital represented 14.34% of risk weighted
assets and total qualifying capital (Tier I and Tier II) represented
15.59% of risk weighted assets. Both ratios are well above current
regulatory guidelines.
Page 27
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 June 30, 1996
Page 28
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: July 31, 1996 By: /s/ Philip E. Norwood
---------------------------
Philip E. Norwood, President
and Chief Executive Officer
Date: July 31, 1996 By: /s/ Bob G. Scott
---------------------------
Bob G. Scott, Senior Vice
President and Chief Financial
Officer
Page 29
EXHIBIT INDEX
Exhibit Page No.
11 Computation of Earnings Per Common Share
27 Financial Data Schedule
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 Six Months Ended
June 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 June 30, 1996.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets of Summit Bancshares, Inc., as of June 30,
1996, and the related statements of income, changes in shareholders'
equity and cash flows for the period ending June 30, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 21,854
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 14,815
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 59,700
<INVESTMENTS-CARRYING> 126,120
<INVESTMENTS-MARKET> 125,497
<LOANS> 201,973
<ALLOWANCE> 2,829
<TOTAL-ASSETS> 374,949
<DEPOSITS> 329,470
<SHORT-TERM> 0
<LIABILITIES-OTHER> 13,486
<LONG-TERM> 0
0
0
<COMMON> 4,012
<OTHER-SE> 27,981
<TOTAL-LIABILITIES-AND-EQUITY> 374,949
<INTEREST-LOAN> 9,060
<INTEREST-INVEST> 3,667
<INTEREST-OTHER> 492
<INTEREST-TOTAL> 13,219
<INTEREST-DEPOSIT> 4,488
<INTEREST-EXPENSE> 4,724
<INTEREST-INCOME-NET> 8,495
<LOAN-LOSSES> 288
<SECURITIES-GAINS> (7)
<EXPENSE-OTHER> 5,580
<INCOME-PRETAX> 4,087
<INCOME-PRE-EXTRAORDINARY> 2,680
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,680
<EPS-PRIMARY> .84
<EPS-DILUTED> .84
<YIELD-ACTUAL> 5.18
<LOANS-NON> 1,356
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,697
<ALLOWANCE-OPEN> 2,500
<CHARGE-OFFS> 27
<RECOVERIES> 68
<ALLOWANCE-CLOSE> 2,829
<ALLOWANCE-DOMESTIC> 2,829
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
