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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER 0-11986
SUMMIT BANCSHARES, INC.
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(Exact name of registrant as specified in its charter)
TEXAS 75-1694807
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(State of Incorporation) (I.R.S. Employer
Identification No.)
1300 SUMMIT AVENUE, FORT WORTH, TEXAS 76102
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(Address of principal executive offices)
(817) 336-6817
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None Not Applicable
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(Title of Class) (Name of each exchange
on which registered)
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $1.25 PAR VALUE
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(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was authorized to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
The aggregate market value of the shares of voting stock held by non-affiliates
of the registrant at March 14, 1997 was approximately $62,159,897.
The number of shares of common stock, $1.25 par value, outstanding at March 14,
1997 was 3,235,636 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement dated March 17, 1997 filed pursuant to
Regulation 14A of the Securities Exchange Act of 1934 for the 1997 Annual
Meeting of Shareholders of Summit Bancshares, Inc., are incorporated by
reference into Part III.
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PART I
ITEM 1. BUSINESS.
THE CORPORATION. Summit Bancshares, Inc. (the "Corporation"), a corporation
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incorporated under the laws of the state of Texas in 1979, is a bank holding
company registered under the Bank Holding Company Act of 1956, as amended (the
"BHC Act"). The Corporation maintains its principal office at 1300 Summit
Avenue, Suite 604, Fort Worth, Texas 76102. The Corporation's principal
activity is the ownership and management of its subsidiaries. The Corporation
owns all of the issued and outstanding shares of capital stock of two national
banking associations, Summit National Bank and Summit Community Bank, N.A. (the
"Subsidiary Banks") and a nonbank subsidiary, Summit Bancservices, Inc., all
located in Fort Worth, Texas. In January, 1997 Camp Bowie National Bank changed
its name to Summit Community Bank, N.A. and in March 1997 Alta Mesa National
Bank merged with Summit Community Bank, N.A. Alta Mesa National Bank was a
former wholly-owned subsidiary of the Corporation.
At December 31, 1996 the Corporation had consolidated total assets of
$395,248,000, consolidated total loans of $220,006,000, consolidated total
deposits of $345,023,000 and consolidated total shareholders' equity of
$35,080,000.
The Corporation provides advice and services to the Subsidiary Banks and
coordinates their activities in the areas of financial accounting controls and
reports, internal audit programs, regulatory compliance, financial planning and
employee benefit programs. However, each Subsidiary Bank operates under the
day-to-day management of its own officers and directors.
The Corporation's major source of income is dividends received from the
Subsidiary Banks which are restricted as discussed below. Dividend payments by
the Subsidiary Banks are determined on an individual basis, generally in
relation to each Subsidiary Bank's earnings, deposits and capital.
The Corporation's business is neither seasonal in nature nor in any manner
related to or dependent upon patents, licenses, franchises or concessions and
the Corporation has not spent material amounts on research activities.
THE SUBSIDIARY BANKS. The services offered by the Subsidiary Banks are
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generally those offered by commercial banks of comparable size in their
respective areas. Certain of the principle services offered by the Subsidiary
Banks are described below.
COMMERCIAL BANKING. The Subsidiary Banks provide general commercial banking
services for corporate and other business clients principally located in
Tarrant County, Texas. Loans are made for a wide variety of purposes,
including interim construction and mortgage financing on real estate and
financing of equipment and inventories.
CONSUMER BANKING. The Subsidiary Banks provide a full range of consumer
banking services, including interest and non-interest-bearing checking
accounts, various savings programs, installment and real estate loans,
money transfers, on-site ATM facilities and safe deposit facilities.
SECURITIES SERVICES. Summit Bancshares, Inc. through an agreement with BFP
Financial Partners, Inc. offers investment brokerage services. BFP
Financial Partners, Inc., a subsidiary of Legg Mason, Inc. is a registered
broker-dealer and member of the National Association of Securities Dealers,
Inc. Investment executives are available at each of the Subsidiary Banks
and can provide information about tax-free municipals, government
securities, stocks, mutual funds, or annuities.
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Certain information with respect to each Subsidiary Bank as of March 14, 1996 is
set forth in the following table. Interbank balances have not been eliminated
in the table as such balances are not material to total deposits or total
assets.
<TABLE>
<CAPTION>
As of March 14, 1996
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(In Thousands)
Organiza- Acqui- Share-
Name and Address of tion sition Total Total Total holders'
Subsidiary Bank Date Date Assets Loans Deposits Equity
- --------------------- --------- ------ -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
SUMMIT NATIONAL BANK 1975 1980 $183,272 $ 89,932 $156,224 $15,812
1300 Summit Avenue
Fort Worth, TX 76102
SUMMIT COMMUNITY BANK, N.A. 1984 1984 $215,576 $142,694 $195,702 $17,344
3859 Camp Bowie Blvd.
Fort Worth, TX 76107
</TABLE>
COMPETITION. There is significant competition among bank holding companies in
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Tarrant County, Texas and the Corporation believes that such competition among
such bank holding companies will continue in the future.
Additionally, the Subsidiary Banks encounter intense competition in their
commercial banking businesses, primarily from other banks represented in their
respective market areas, many of which have far greater assets and financial
resources. The Subsidiary Banks also encounter intense competition in their
commercial banking businesses from savings and loan associations, credit unions,
factors, insurance companies, commercial and captive finance companies and
certain other types of financial institutions located in its own and in other
major metropolitan areas in the United States, many of which are larger in terms
of capital, resources and personnel.
EMPLOYEES. As of December 31, 1996 the Corporation and the Subsidiary Banks
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collectively had a total of 131 full-time employees and 9 part-time employees.
REGULATION AND SUPERVISION.
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The Corporation and the Subsidiary Banks are subject to extensive regulation
under federal and state law and regulations. Those laws and regulations are
generally intended to protect depositors and not shareholders.
The following description of statutory and regulatory provisions is qualified in
its entirety by reference to the applicable statutes and regulations. A change
in applicable statutes or regulations or the policies of various regulatory
authorities may have a material effect on the business and prospects of the
Corporation and the Subsidiary Banks. The Corporation is unable to predict the
nature or extent of the affect on its business and earnings that fiscal or
monetary policies, economic controls, or changes in federal or state statutes or
regulations may have in the future.
THE CORPORATION
GENERAL. The Corporation is a bank holding company within the meaning of the
BHC Act and as such is subject to regulation, supervision, and examination by
the Board of Governors of the Federal Reserve System (the "FRB"). Federal law
subjects bank holding companies to particular restrictions on the types of
activities in which they may engage and to a wide range of supervisory
requirements and activities, including periodic examination and reporting
requirements and regulatory enforcement actions for any violations of laws and
policies.
SCOPE OF PERMISSIBLE ACTIVITIES. The BHC Act prohibits a bank holding company,
with certain limited exceptions, from acquiring direct or indirect ownership or
control of more than 5% of the outstanding shares of any class of voting shares
of any company engaged in nonbanking business unless the business is determined
by the FRB, by order or regulation, to be so closely related to banking as to be
proper incident thereto. Some of the activities that have been determined by
regulation to be closely related to banking are making or servicing loans,
performing certain data processing services, acting as an investment or
financial advisor to certain investment trusts or investment companies, and
providing certain securities brokerage services. In approving acquisitions of
entities engaged in banking-related activities, the FRB considers a number
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of factors, including the expected benefits to the public, such as greater
convenience and increased competition or gains in efficiency, which would be
weighed against the risk of potential negative effects, such as undue
concentration of resources, decreased or unfair competition, conflicts of
interest or unsound banking practices.
SAFETY AND SOUNDNESS. Bank holding companies are not permitted to engage in
unsafe or unsound banking practices. For example, the FRB's Regulation Y
requires a holding company to give the FRB prior notice of any redemption or
repurchase of its own equity securities, if the consideration to be paid,
together with the consideration paid for any repurchases or redemptions in the
preceding twelve-month period, is equal to 10% or more of the company's
consolidated net worth. The FRB may oppose the transaction if it would
constitute an unsafe or unsound practice or would violate any law or regulation.
A holding company may not impair the financial soundness of a subsidiary bank by
causing it to make funds available to nonbanking subsidiaries or their customers
when such a transaction would not be prudent. The FRB may exercise several
administrative remedies, including cease-and-desist powers over parent holding
companies and nonbanking subsidiaries, when the actions of such companies would
constitute a serious threat to the safety, soundness or stability of a
subsidiary bank.
ENFORCEMENT. The Financial Institution Reform, Recovery and Enforcement Act of
1989 ("FIRREA") expanded the FRB's authority to prohibit activities of bank
holding companies and their nonbanking subsidiary which are unsafe and unsound
banking practices or constitute violations of laws or regulations. FIRREA
authorizes the appropriate banking agency to issue cease and desist orders which
may, among other things, require affirmative action to correct any harm
resulting from such a violation or practice, including restitution,
reimbursement, indemnification or guarantee against loss. A financial
institution may also be ordered to restrict its growth, dispose of certain
assets or take other appropriate action as determined by the ordering agency.
FIRREA increased the amount of civil money penalties that the FRB and other
regulatory agencies may assess for certain activities conducted on a knowing and
reckless basis, if those activities cause a substantial loss to a depository
institution. The penalties may reach as much as $1,000,000 per day. FIRREA also
expanded the scope of individuals and entities against whom such penalties may
be assessed. In addition, FIRREA contains a "cross-guarantee" provision that
makes commonly controlled insured depository institutions liable to the Federal
Deposit Insurance Corporation (the "FDIC") for any losses incurred, or
reasonably anticipated to be incurred, in connection with the failure of an
affiliated insured depository institution.
ANTI-TYING RESTRICTIONS. Bank holding companies and their affiliates are
prohibited from tying the provision of certain services, such as extensions of
credit, to certain other services offered by a holding company or its
affiliates.
REPORTING AND EXAMINATION. The Corporation is required to file quarterly and
annual reports with the Federal Reserve Bank of Dallas (the "Federal Reserve
Bank") and provide such additional information as the Federal Reserve Bank may
require pursuant to the BHC Act. The Federal Reserve Bank may examine a bank
holding company or any of its subsidiaries and charge the company for the cost
of such an examination. The Corporation is also subject to reporting and
disclosure requirements under state and federal securities laws.
CAPITAL ADEQUACY REQUIREMENTS. The FRB monitors the capital adequacy of bank
holding companies. The FRB has adopted a system using a combination of risk-
based guidelines and leverage ratios to evaluate the capital adequacy of bank
holding companies. Under the risk-based capital guidelines, each category of
assets is assigned a different risk weight, based generally on the perceived
credit risk of the asset. These risk weights are multiplied by corresponding
asset balances to determine a "risk-weighted" asset base. Certain off-balance
sheet items, which previously were not expressly considered in capital adequacy
computations, are added to the risk-weighted asset base by converting them to
balance sheet components. Total capital is defined as the sum of "Tier 1" and
"Tier 2" capital elements, with "Tier 2" being limited to 100% of "Tier 1." For
bank holding companies, "Tier 1" capital includes, with certain restrictions,
common stockholders' equity and qualifying perpetual noncumulative preferred
stock and minority interests in consolidated subsidiaries. "Tier 2" capital
includes, with certain limitations, certain other preferred stock, as well as
qualifying debt instruments and all or part of the allowance for possible loan
losses.
The guidelines require a minimum ratio of qualifying total capital to total
risk-weighted assets of 8.0% (of which at least 4.0% is required to be in the
form of "Tier 1" capital elements). At December 31, 1996, the Company's ratios
of "Tier 1"
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and total capital to risk-weighted assets were 14.61% and 15.85%, respectively.
At such date, both ratios exceeded regulatory minimums.
In addition to the risk-based capital guidelines, federal banking agencies have
adopted the use of a leverage ratio as an additional tool to evaluate the
capital adequacy of banks and bank holding companies. The leverage ratio is
defined to be a company's "Tier 1" capital divided by its adjusted quarterly
average total assets. The leverage ratio adopted by the federal banking
agencies requires a minimum 3.0% "Tier 1" capital to adjusted quarterly average
total assets ratio for top regulatory-rated banking organizations. All other
institutions are expected to maintain a leverage ratio of 4.0% to 5.0%. The
Company's leverage ratio at December 31, 1996, was 8.82% and exceeded the
regulatory minimum.
A bank holding company that fails to meet the applicable capital standards will
be at a disadvantage. For example, FRB policy discourages the payment of
dividends by a bank holding company from borrowed funds as well as payments that
would adversely affect capital adequacy. Failure to meet the capital guidelines
may result in institution by the FRB of appropriate supervisory or enforcement
actions.
IMPOSITION OF LIABILITY FOR UNDERCAPITALIZED SUBSIDIARIES. The Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA") requires bank
regulators to take "prompt corrective action" to resolve problems associated
with insured depository institutions. In the event an institution becomes
"undercapitalized," it must submit a capital restoration plan. The capital
restoration plan will not be accepted by applicable regulators unless each
company "having control of" the undercapitalized institution "guarantees" the
subsidiary's compliance with the capital restoration plan until it becomes
"adequately capitalized." The Corporation has control of the Subsidiary Banks
for purpose of this statute. See below The Subsidiary Banks - Capital Adequacy
Requirement.
Under FDICIA, the aggregate liability of all companies controlling a particular
institution is generally limited to the lesser of 5% of the institution's assets
at the time it became undercapitalized or the amount necessary to bring the
institution into compliance with applicable capital standards. FDICIA grants
greater powers to regulatory authorities in situations where an institution
becomes "significantly" or "critically" undercapitalized or fails to submit a
capital restoration plan. For example, a bank holding company controlling such
an institution may be required to obtain prior FRB approval of proposed
dividends or could be required to consent to a merger or to divest the troubled
institution or other affiliates.
ACQUISITIONS BY BANK HOLDING COMPANIES. The BHC Act prohibits a bank holding
company, with some limited exceptions, from acquiring direct or indirect control
of more than 5% of the outstanding shares of any class of voting stock or
substantially all of the assets of any bank or bank holding company or merging
or consolidating with another bank holding company without the prior approval of
the FRB. In approving bank acquisitions by bank holding companies, the FRB is
required to consider the financial and managerial resources and future prospects
of the bank holding company and the banks concerned, the convenience and needs
of the communities to be served, and various competitive factors. The Attorney
General of the United States may, within 30 days after approval of an
acquisition by the FRB, bring an action challenging such acquisition under the
federal antitrust laws, in which case the effectiveness of such approval is
stayed pending a final ruling by the courts.
Currently, the FRB will only allow the acquisition by the bank holding company
of an interest in any bank located in another state if the statutory laws of the
state in which the target bank is located expressly authorize such acquisition.
The Texas Banking Act permits, in certain circumstances, out-of-state bank
holding companies to acquire certain existing banks and bank holding companies
in Texas. However, the Riegle-Neal Interstate Bank and Branching Efficiency Act
of 1994 ("Interstate Banking Act") permits bank holding companies, with some
limitations, to acquire banks located in any state without regard to whether the
transaction is prohibited under any state law, except that states may establish
the minimum age (not to exceed five years) of their local banks subject to
interstate acquisition. Competition is likely to increase in Texas even with
the limitation on interstate mergers and branches existing under Texas state
law.
THE SUBSIDIARY BANKS
GENERAL. The Subsidiary Banks are national banking associations organized under
the National Bank Act, as amended, (the "National Bank Act") and are subject to
regulatory supervision and examination by the Office of the Comptroller of the
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Currency (the "OCC"). Pursuant to such regulation, the Banks are subject to
certain restrictions, supervisory requirements, and potentially enforcement
actions.
SCOPE OF PERMISSIBLE ACTIVITIES. The National Bank Act provides the rights,
privileges, and powers of national banks and defines the activities in which
national banks may engage. Permitted activities for a national bank include the
following: make, arrange, purchase or sell loans or extensions of credit secured
by liens on interests in real estate; purchase, hold and convey real estate
under certain conditions; deal in investment securities in certain
circumstances; and, more broadly, engage in the "business of banking" and
activities that are "incidental" to banking. The following are some of the
activities deemed "incidental" to the business of banking: the borrowing and
lending of money; receiving deposits, including deposits of public funds;
holding or selling stock or other property acquired in connection with security
on a loan; discounting and negotiating evidences of debt; acting as guarantor,
if the bank has a "substantial interest in the performance of the transaction";
issuing letters of credit to or on behalf of its customers; operating a safe
deposit business; providing check guarantee plans; issuing credit cards;
operating a loan production office; selling loans under repurchase agreements;
selling money orders at offices other than bank branches; providing consulting
services to banks; and verifying and collection of checks.
BRANCHING. National banks may establish a branch anywhere in Texas provided
that the branch is approved in advance by the OCC. In acting on a branch
application, the OCC considers a number of factors, including financial history,
capital adequacy, earnings prospects, character of management, needs of the
community and consistency with corporate powers. The Interstate Banking Act,
which extends the authority of bank holding companies and banks to engage in
interstate bank acquisitions and interstate banking, allows each state the
option of "opting out" of the interstate branching provisions. The Texas
Legislature opted out of the interstate branching provisions during its 1995
Session. Interstate branching would have become effective in Texas in June of
1997, if Texas had not elected to "opt out." The Texas "opt-out" legislation
prohibiting interstate branching is effective until September of 1999.
RESTRICTIONS ON TRANSACTIONS WITH AFFILIATES. Certain provisions of FDICIA,
applicable to the Subsidiary Banks, enhanced safeguards against insider abuse by
recodifying existing law restricting transactions among related parties. One
set of restrictions is found in Section 23A of the Federal Reserve Act, which
affects loans to and investments in "affiliates" of the Subsidiary Banks. The
term "affiliates" include the Corporation and any of its subsidiaries. Section
23A imposes limits on the amount of such transactions and also requires certain
levels of collateral for such loans. In addition, Section 23A limits the amount
of advances to third parties that are collateralized by the securities or
obligations of the Corporation or its subsidiaries.
Another set of restrictions is found in Section 23B of the Federal Reserve Act.
Among other things, Section 23B requires that certain transactions between each
Subsidiary Bank and its affiliates must be on terms substantially the same, or
at least as favorable to the subject Subsidiary Bank, as those prevailing at the
time for comparable transactions with or involving other nonaffiliated
companies. In the absence of such comparable transactions, any transaction
between a Subsidiary Bank and its affiliates must be on terms and under
circumstances, including credit underwriting standards and procedures, that in
good faith would be offered to or would apply to nonaffiliated companies. Each
Subsidiary Bank is also subject to certain prohibitions against advertising that
suggests that the Subsidiary Bank is responsible for the obligations of its
affiliates.
The restrictions on loans to insiders contained in the Federal Reserve Act and
FRB Regulation O apply to all insured institutions and their subsidiaries and
holding companies. The aggregate amount of an institution's loans to insiders
is limited to the amount of its unimpaired capital and surplus, unless
regulatory authorities determines that a lesser amount is appropriate. Each
Subsidiary Bank may pay, on behalf of any executive officer or director, an
amount exceeding funds on deposit in that individual's personal account only if
there is a written, preauthorized, interest-bearing extension of credit
specifying a method of repayment and a written preauthorized transfer of funds
from another account of the executive officer or director at that Bank.
Insiders are subject to enforcement actions for knowingly accepting loans in
violation of applicable restrictions.
The regulations and restriction on transactions with affiliates may limit the
Corporation's ability to obtain funds from its Subsidiary Banks for its cash
needs, including funds for payment of dividends and operating expenses.
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INTEREST RATE LIMITS AND LENDING REGULATIONS. The Subsidiary Banks are subject
to various state and federal statutes relating to the extension of credit and
the making of loans. The maximum legal rate of interest that the Subsidiary
Banks may charge on a loan depends on a variety of factors such as the type of
borrower, purpose of the loan, amount of the loan and date the loan is made.
Texas statutes establish maximum legal rates of interest for various lending
situations. Penalties are provided by law for charging interest in excess of the
maximum lawful rate.
Loans made by banks located in Texas are subject to numerous other federal and
state laws and regulations, including truth-in-lending statutes, the Texas
Consumer Credit Code, the Equal Credit Opportunity Act, the Real Estate
Settlement Procedures Act and the Home Mortgage Disclosure Act. These laws
provide remedies to the borrower and penalties to the lender for failure of the
lender to comply with such laws. The scope and requirements of these laws and
regulations have expended in recent years, and claims by borrowers under these
laws and regulations may increase.
RESTRICTIONS ON SUBSIDIARY BANK DIVIDENDS. Substantially all of the
Corporation's cash revenues is derived from dividends paid by the Subsidiary
Banks. Dividends payable by the Subsidiary Banks are restricted under the
National Bank Act. See "Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters - Dividends." The Subsidiary Banks' ability to pay
dividends is further restricted by the requirement that they maintain adequate
levels of capital in accordance with capital adequacy guidelines promulgated
from time to time by the OCC. Moreover, the prompt corrective action provisions
of FDICIA and implementing regulations prohibit a bank from paying a dividend
if, following the payment, the bank would be in any of the three capital
categories for undercapitalized institutions. See "Capital Adequacy
Requirements" below.
EXAMINATIONS. The OCC periodically examines and evaluates national banks.
Based upon such evaluations, the OCC may require revaluation of certain assets
of a bank and require the bank to establish specific reserves to allow for the
difference between the regulatory-determined value and the book value of such
assets. The OCC is authorized to assess the institution an annual fee based on,
among other things, the costs of conducting the examinations.
CAPITAL ADEQUACY REQUIREMENTS. FDICIA, among other things, substantially
revised existing statutory capital standards, gave regulators the authority to
limit officer and director compensation, and required holding companies to
guarantee the capital compliance of their banks in certain instances. Among
other things, FDICIA requires the federal banking agencies to take "prompt
corrective action" with respect to banks that do not meet minimum capital
requirements. FDICIA established five capital tiers: "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized"
and "critically undercapitalized," as defined by regulations adopted by the
federal regulatory agencies. A depository institution is "well capitalized" if
it significantly exceeds the minimum level required by regulation for each
relevant capital measure, "adequately capitalized" if it meets such measure,
"undercapitalized" if it fails to meet any such measure, "significantly
undercapitalized" if it is significantly below such measure and "critically
undercapitalized" if it fails to meet any critical capital level set forth in
the regulations. An institution may be deemed to be in a capitalization
category that is lower than is indicated by its actual capital position if it
receives an unsatisfactory examination rating. At December 31, 1996, each of
the Subsidiary Banks was well capitalized. Banks with capital ratios below the
required minimum are subject to certain administrative actions, including the
termination of deposit insurance upon notice and hearing, or a temporary
suspension of insurance without a hearing in the event the institution has no
tangible capital. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Capital Resources."
CORRECTIVE MEASURES FOR CAPITAL DEFICIENCIES. FDICIA requires the federal
banking regulators to take "prompt corrective action" with respect to capital-
deficient institutions with the overall goal to reduce losses to the depository
insurance fund. In addition to requiring the submission of a capital restoration
plan (as discussed above), FDICIA contains broad restrictions on certain
activities of undercapitalized institutions involving asset growth,
acquisitions, branch establishment and expansion into new lines of business.
With certain exceptions, an insured depository institution is prohibited from
making capital distributions, including dividends, and is prohibited from paying
management fees to control persons if the institution would be undercapitalized
after any such distribution or payment.
As an institution's capital decreases, regulatory powers and scrutiny become
greater. A significantly under-capitalized institution is subject to mandated
capital raising activities, restrictions on interest rates paid and transactions
with affiliates, removal of management, and other restrictions.
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DEPOSIT INSURANCE ASSESSMENTS. The FDIC is required by the Federal Deposit
Insurance Act to assess all banks in order to adequately fund the Bank Insurance
Fund (the "BIF") so as to resolve any insured bank that is declared insolvent by
its primary regulator. FDICIA required the FDIC to establish a risk-based
deposit insurance premium schedule. The risk-based assessment system is used to
calculate deposit insurance assessments made on BIF member banks to maintain the
designated reserves for the fund. In addition, the FDIC can impose special
assessments to repay borrowings from the U.S. Treasury, the Federal Financing
Bank and BIF member banks. Under the risk-based system, banks are assessed
insurance premiums according to how much risk they are deemed to present to the
BIF. Such premiums currently range from zero percent of insured deposits to
0.27% of insured deposits. Banks with higher levels of capital and involving a
low degree of supervisory concern are assessed lower premiums than banks with
lower levels of capital or involving a higher degree of supervisory concern.
All of the Subsidiary Banks are currently being assessed at the lowest rate of
zero percent plus a quarterly fee of $500.
Under the Deposit Insurance Funds Act of 1996 (the "Funds Act"), beginning in
1997 banks insured under the BIF are required to pay a part of the interest on
bonds issued by the Financing Corporation ("FICO") in the late 1980s to
recapitalize the defunct Federal Savings and Loan Insurance Corporation. Before
the Funds Act, FICO payments were made only by depository institutions which
were members of the Savings Association Insurance Fund (the "SAIF"). FICO
assessment rates for the first semi-annual period of 1997 have been set by FDIC
at 1.30 basis points annually for BIF members and 6.48 basis points annually for
SAIF members. These rates may be adjusted quarterly to reflect changes in the
assessment bases for the BIF and the SAIF. By law, the FICO assessment rate on
BIF members must be one-fifth the rate on SAIF members until the two insurance
funds are merged or until January 1, 2000, whichever occurs first.
INTERNAL OPERATING REQUIREMENTS. FDICIA requires financial institutions with
over $500 million in assets to file an annual report with its primary federal
regulator and any appropriate state banking agency within 90 days after the end
of its fiscal year. The report must contain financial statements audited by an
independent public accountant. Also the report must contain a statement of
management's responsibilities for (1) financial statement preparation and
maintaining internal controls; (2) financial reporting and complying with
designated safety and soundness laws and regulations; and (3) assessing the
effectiveness of the internal controls and the institutions' internal controls
for financial reporting. The independent public accountant also must report
separately on the institution's compliance with designated safety and soundness
laws and rules.
COMMUNITY REINVESTMENT ACT. The Community Reinvestment Act of 1977 ("CRA") and
the regulations issued by the OCC to implement that law are intended to
encourage banks to help meet the credit needs of their service area, including
low and moderate income neighborhoods, consistent with the safe and sound
operations of the banks. These regulations also provide for regulatory
assessment of a bank's record in meeting the needs of its service area when
considering applications to establish branches, merger applications and
applications to acquire the assets and assume the liabilities of another bank.
FIRREA requires federal banking agencies to make public a rating of a bank's
performance under the CRA. In the case of a bank holding company, the CRA
performance record of its subsidiary banks is reviewed in connection with the
filing of an application to acquire ownership or control of shares or assets of
a bank or to merge with any other bank holding company. An unsatisfactory
record can substantially delay or block the transaction. The bank regulatory
agencies in 1995 adopted final regulations implementing the CRA. These
regulations affect extensive changes to existing procedures for determining
compliance with the CRA and the full effect of these new regulations cannot be
determined at this time.
CHANGING REGULATORY STRUCTURE. Legislative and regulatory proposals regarding
changes in banking, regulations of banks, thrifts and other financial
institutions, are being considered by the executive branch of the federal
government, Congress and various state governments, including Texas. Certain of
these proposals, if adopted, could significantly change the regulation of banks
and the financial service industry. The Corporation cannot predict accurately
whether any of these proposals will be adopted or, if adopted, how these
proposals will affect the Corporation or the Subsidiary Banks.
EFFECT OF ECONOMIC ENVIRONMENT. The policies of regulatory authorities,
including the monetary policy of the FRB, have a significant effect on the
operating results of bank holding companies and their subsidiaries. Among the
means available to the FRB to affect the money supply are open market operations
in U.S. Government securities, control of borrowings at the "discount window,"
changes in the discount rate on member bank borrowing, changes in reserve
requirements against member bank deposits and against certain borrowings by
banks and their affiliates and the placing of limits on interest rates that
member banks may pay on time and savings deposits. These means are used in
varying combinations
-8-
<PAGE>
to influence overall growth and distribution of bank loans, investments and
deposits, and their use may affect interest rates charged on loans or paid for
deposits. FRB monetary policies have materially affected the operating results
of commercial banks in the past and are expected to continue to do so in the
future. The Corporation cannot predict the nature of future monetary policies
and the effect of such policies on the business and earnings of the Corporation
and the Subsidiary Banks.
ITEM 2. PROPERTIES.
The principal offices of the Corporation are located at 1300 Summit Avenue, Fort
Worth, Texas 76102. The Corporation and Summit National Bank, a subsidiary,
lease space at this address from an unrelated third-party through leases that
expire December 31, 1999. Summit National Bank owns a detached motor bank
facility.
Summit Community Bank, N.A. (formerly Camp Bowie National Bank) owns the
building at its principal office at 3859 Camp Bowie Boulevard, Fort Worth,
Texas. There are no encumbrances on this property.
The Alta Mesa office of Summit Community Bank, N.A. (formerly Alta Mesa National
Bank) is located at 3000 Alta Mesa Boulevard, Fort Worth, Texas. The building
is owned by the Corporation with the bank office using approximately 25% of the
facility. The remainder of the building is fully leased. There are no third-
party encumbrances on the property.
The Northeast office of Summit Community Bank, N.A., at 9001 Airport Freeway,
North Richland Hills, Texas, is leased from a third-party under a lease
agreement expiring in May 1998, however the motor bank facility is owned by
Summit Community Bank, N.A. There are no encumbrances on the property.
A subsidiary of the Corporation owns an improved tract of land that serves as
the site of the operations center which is the principal office of Summit
Bancservices. This site is located at 500 Eighth Avenue, Fort Worth, Texas.
ITEM 3. LEGAL PROCEEDINGS.
In the opinion of management, there are no material pending legal proceedings,
other than ordinary routine litigation incidental to the Corporation's business,
to which it or any of its subsidiaries is a party or of which any of their
property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders through the solicitation
of proxies or otherwise, during the fourth quarter of 1996.
-9-
<PAGE>
ITEM 4A. EXECUTIVE OFFICERS OF THE CORPORATION.
The executive officers of the Corporation, each elected to serve at the pleasure
of the Board of Directors until the next annual meeting of the Board of
Directors to be held on April 15, 1997, their respective ages, and their present
positions with the Corporation are as follows:
<TABLE>
<CAPTION>
Position Held
Position With Since
Name Age the Corporation -------------
- ------------------- --- -------------------------
<S> <C> <C> <C>
Philip E. Norwood 47 President and Chief 1993
Executive Officer
James L. Murray 64 Chairman of the Board 1985
F. S. Gunn 63 Vice Chairman 1993
Jeffrey M. Harp 48 Executive Vice President, 1993
Chief Operating Officer
and Secretary/Treasurer
Bob G. Scott 59 Senior Vice President and 1994
Chief Financial Officer
</TABLE>
The business experience of each of these executive officers during the past five
(5) years is set forth below:
Mr. Norwood became President of Summit Community Bank, N.A. in July 1994 and
President and Chief Executive Officer of the Corporation in October 1993 and
continues to serve in these capacities. He has served as a director of the
Corpora tion since March 1984. From January 1990 to October 1993 Mr. Norwood
served as Secretary of the Corporation, from December 1992 to October 1993 he
served as Executive Vice President of the Corporation, and from March 1984 to
January 1990 he served as Secretary and Treasurer of the Corporation. Mr.
Norwood has served as a director of Summit Community Bank, N.A. since January
1990. Mr. Norwood served as a director of Summit National Bank from March 1983
to January 1996.
Mr. Murray became Chairman of the Board of the Corporation in January 1985, and
Chairman of the Board of Summit Community Bank, N.A. in January 1990, and
continues to serve in these capacities. Mr. Murray served as Chief Executive
Officer of the Corporation from January 1990 to October 1993, as President of
Summit Community Bank, N.A. from January 1990 to January 1994, and as Chairman
of the Board of Directors of Summit National Bank from October 1981 to January
1990. He served as a director of Summit National Bank from January 1975 to
January 1996. Mr. Murray has served as director for Summit Community Bank, N.A.
since April 1985.
Mr. Gunn became Vice Chairman of the Board of the Corporation in October 1993.
From January 1990 to October 1993 Mr. Gunn served as President of the
Corporation. Mr. Gunn has served as Chairman of the Board of Summit National
Bank since January 1991, and served as President of Summit National Bank from
October 1981 to January 1991. He has served as a director of Summit National
Bank since January 1975. He served as a director of Summit Community Bank, N.A.
from January 1990 to January 1996.
Mr. Harp became Chief Operating Officer and Secretary of the Corporation in
October 1993, Executive Vice President of the Corporation in December 1992, and
Treasurer and a director of the Corporation in January 1990, and continues to
serve in these capacities. He has served as President and Chief Executive
Officer of Summit National Bank since January 1991, and served as Executive Vice
President of Summit National Bank from February 1985 to December 1990. He has
served as a director of Summit National Bank since January 1990. He served as a
director of Summit Community Bank, N.A. from January 1990 to January 1996.
Mr. Scott became Senior Vice President and Chief Financial Officer in June 1994,
and continues to serve in that capacity. From February 1992 to June 1994 Mr.
Scott was a Senior Vice President with Alexander and Alexander of Texas, Inc.
-10-
<PAGE>
Prior to February 1992, Mr. Scott was a financial officer with Team Bancshares,
Inc., Fort Worth, Texas and with Texas American Bancshares, Inc.
No family relationships exist among the executive officers and directors of the
Corporation.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
MARKET INFORMATION. Since May 3, 1993 the Corporation's Common Stock has been
- ------------------
traded on the Nasdaq Stock Market under the symbol "SBIT." The following table
sets forth the high and low closing bid quotations of the Corporation's Common
Stock for the periods indicated:
<TABLE>
<CAPTION>
Bid
----------------
High Low
------- -------
<S> <C> <C>
1996 Fiscal Year:
- ----------------
First Quarter $17.25 $15.25
Second Quarter 18.50 16.00
Third Quarter 21.50 17.00
Fourth Quarter 24.75 19.63
1995 Fiscal Year:
- ----------------
First Quarter $10.63 $ 9.88
Second Quarter 12.00 10.38
Third Quarter 13.75 11.38
Fourth Quarter 16.38 15.75
</TABLE>
This data has been restated to reflect a two-for-one stock split effected on
December 6, 1995.
On March 14, 1997 the closing bid and asked quotations reported for the Common
Stock were $24.75 and $26.25, respectively. The foregoing quotations reflect
prices quoted by market makers of the Corporation's Common Stock, without retail
markup, markdown or commissions, and may not necessarily represent actual
transactions.
Prior to May 3, 1993 there was no established public trading market for the
issued and outstanding shares of Common Stock of the Corporation. Accordingly,
there exists no published information with respect to market prices before that
date. From time to time, however, moderate numbers of shares of Common Stock
were transferred on the books of the Corporation.
SHAREHOLDERS. At the close of business on March 14,1997 there were 688
- ------------
shareholders of record of Common Stock of the Corporation.
-11-
<PAGE>
DIVIDENDS. The Corporation has paid regular cash dividends on its common stock
- ---------
on a quarterly basis since the beginning of 1993. The following table sets
forth, for each quarter since the beginning of 1994, the quarterly dividends
paid by the Corporation on its Common Stock for the indicated periods. Data has
been restated to reflect a two-for-one stock split effected on December 6, 1995.
<TABLE>
<CAPTION>
1996 Dividends Per Share
------------ -------------------
<S> <C>
First Quarter $ 0.07
Second Quarter 0.07
Third Quarter 0.07
Fourth Quarter 0.07
1995
------------
First Quarter $0.055
Second Quarter 0.055
Third Quarter 0.055
Fourth Quarter 0.055
</TABLE>
_____________________________
Although the Board of Directors intends to continue to pay quarterly cash
dividends in the future, there can be no assurance that cash dividends will
continue to be paid in the future or, if paid, that such cash dividends will be
comparable to cash dividends previously paid by the Corporation, since future
dividend policy is subject to the discretion of the Board of Directors of the
Corporation and will depend upon a number of factors, including future earnings
of the Corporation, the financial condition of the Corporation, the
Corporation's cash needs, general business conditions and the amount of
dividends paid to the Corporation by the Subsidiary Banks.
The principal source of the Corporation's cash revenues is dividends received
from the Subsidiary Banks. Pursuant to the National Bank Act, no national bank
may pay dividends from its paid-in capital. All dividends must be paid out of
current or retained net profits, after deducting reserves for losses and bad
debts. The National Bank Act further restricts the payment of dividends out of
net profits by prohibiting a national bank from declaring a dividend on its
shares of common stock until the surplus fund equals the amount of capital stock
or, if the surplus fund does not equal the amount of capital stock, until one-
tenth of a bank's net profits for the preceding half year in the case of
quarterly or semi-annual dividends, or the preceding two half-year periods in
the case of annual dividends, are transferred to the surplus fund. The approval
of the OCC is required prior to the payment of a dividend if the total of all
dividends declared by a national bank in any calendar year would exceed the
total of its net profits for that year combined with its net profits for the two
preceding years. Under FDICIA, a Subsidiary Bank may not pay a dividend if,
after paying the dividend, the Subsidiary Bank would be undercapitalized.
In addition, the appropriate regulatory authorities are authorized to prohibit
banks and bank holding companies from paying dividends which would constitute an
unsafe and unsound banking practice. The Subsidiary Banks and the Corporation
are not currently subject to any regulatory restrictions on their dividends.
-12-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth summary historical data for the past five years
(in thousands except ratios and per share data). All share and per share
information has been restated to reflect the two-for-one splits in 1995 and
1993:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Summary of Earnings:
Interest Income $ 27,577 $ 22,929 $ 18,143 $ 17,095 $ 18,092
Interest Expense 9,771 8,277 5,625 5,235 6,860
-------- -------- -------- -------- --------
Net Interest Income 17,806 14,652 12,518 11,860 11,232
Provision (Credit) for Loan Losses 819 236 (114) 23 421
Securities Gains (Losses) (14) (10) (152) 3 69
Non-interest Income 2,990 2,764 2,729 2,855 2,314
Non-interest Expense 10,917 9,973 9,075 9,155 8,793
-------- -------- -------- -------- --------
Earnings Before Income Taxes 9,046 7,197 6,134 5,540 4,401
Income Tax Expense 3,103 2,468 2,094 1,809 1,397
-------- -------- -------- -------- --------
Income Before Extraordinary Item 5,943 4,729 4,040 3,731 3,004
Net Income 5,943 4,729 4,040 3,731 3,236
Balance Sheet Data (at period-end):
Total Assets $395,248 $355,417 $291,011 $280,688 $266,549
Investment Securities 117,013 119,368 114,722 112,315 96,036
Loans, Net of Unearned Discount 220,006 178,493 138,966 127,250 124,843
Allowance for Loan Losses 2,972 2,500 2,410 2,594 2,810
Demand Deposits 103,695 89,184 72,992 61,165 57,607
Total Deposits 345,023 310,109 259,539 254,151 242,929
Long-term Debt and Notes Payable -0- -0- 250 500 750
Shareholders' Equity 35,080 30,125 25,334 22,978 19,501
Per Share Data:
Net Income Before Extraordinary Item $ 1.86 $ 1.51 $ 1.29 $ 1.21 $ .97
Book Value - Period-End 10.85 9.56 8.02 7.37 6.32
Dividends Paid .28 .22 .18 .1075 -0-
Weighted Average Shares Outstanding 3,199 3,139 3,136 3,096 3,098
Selected Performance Ratios:
Return on Average Assets 1.60% 1.52% 1.43% 1.40% 1.28%
Return on Average Shareholders' Equity 18.50 17.14 16.55 17.75 18.24
Net Interest Margin (tax equivalent) 5.24 5.15 4.85 4.90 4.91
Efficiency Ratio 52.60 57.31 59.96 61.98 64.20
Asset Quality Ratios:
Non-Performing Loans to Total Loans - Period-End .50% .55% .46% 1.17% 1.18%
Allowance for Loan Losses to Total Loans - Period-End 1.35 1.40 1.73 2.04 2.25
Allowance for Loan Losses to Non-Performing Loans
- Period-End 270.0 252.0 375.0 174.0 190.0
Net Charge-Offs to Average Loans .17 .09 .05 .19 .45
Capital Ratios:
Shareholders' Equity to Total Assets - Period-End 8.83% 8.40% 9.04% 8.19% 7.32%
Average Shareholders' Equity to Average Assets 8.66 8.85 8.64 7.89 6.99
Total Risk-based Capital to Risk Weighted Assets
- at Period-End* 15.85 15.91 18.09 17.53 15.62
Leverage Ratio - at Period-End* 8.82 8.42 8.69 8.18 7.32
</TABLE>
* Calculated in accordance with Federal Reserve guidelines currently in effect.
-13-
<PAGE>
QUARTERLY RESULTS (UNAUDITED)
A summary of the unaudited results of operations for each quarter of 1996 and
1995 follows (in thousands except for per share data):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1996:
- ----
Interest Income $6,498 $6,721 $7,064 $7,294
Interest Expense 2,363 2,361 2,490 2,557
Net Interest Income 4,135 4,360 4,574 4,737
Provision for Loan Losses 124 164 192 339
Non-interest Income 729 731 785 731
Non-interest Expense 2,778 2,802 2,687 2,650
Income Tax Expense 677 730 846 850
Net Income 1,285 1,395 1,634 1,629
Per Share Data:
Net Income $ .41 $ .43 $ .51 $ .51
Dividends Paid .07 .07 .07 .07
Stock Price Range:
High 17.25 18.50 21.50 24.75
Low 15.25 16.00 17.00 19.63
Close 17.25 17.25 21.00 22.50
1995:
- ----
Interest Income $5,103 $5,473 $5,936 $6,417
Interest Expense 1,746 1,996 2,182 2,353
Net Interest Income 3,357 3,477 3,754 4,064
Provision for Loan Losses 42 44 50 100
Non-interest Income 727 720 656 651
Non-interest Expense 2,412 2,439 2,438 2,684
Income Tax Expense 554 585 665 664
Net Income 1,076 1,129 1,257 1,267
Per Share Data:
Net Income $ .34 $ .36 $ .40 $ .41
Dividends Paid .055 .055 .055 .055
Stock Price Range:
High 10.63 12.00 13.75 16.38
Low 9.88 10.38 11.38 15.75
Close 10.44 11.38 13.75 16.00
</TABLE>
-14-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Corporation analyzes the major elements of the Corporation's
consolidated balance sheets and statements of income. This discussion should be
read in conjunction with the consolidated financial statements, accompanying
notes, and selected financial data appearing in the preceding item of this
report.
PERFORMANCE SUMMARY. Net income for 1996 was $5.9 million, an increase of $1.2
million, or 25.7%, over the $4.7 million recorded for 1995. On a weighted
average share basis, net income for 1996 was $1.86 per share as compared to
$1.51 per share for 1995, an increase of 23.2%. The major contribution to the
improved earnings during 1996 was a 21.5% increase in net interest income. This
increase was partially offset by an increase over the prior year in the
provision for loan losses. In 1995 a provision for loan losses of $236,000 was
taken, compared to a provision of $819,000 in 1996.
Also in 1996 non-interest expense increased 9.5%, contributed to by costs
related to a branch office opened in August, 1995. Without these branch related
costs in either year the increase would have been approximately 4.7%.
Reflecting the strong and growing economy in the Corporation's market area,
loans increased 23.3% over the previous year-end to $220 million at December 31,
1996. Deposits experienced somewhat less dramatic growth, increasing 11.3% over
the same period to $345 million. Shareholders' equity was $35 million at year-
end, an increase of 16.5%.
Net income for 1995 was $4.7 million compared to net income of $4.0 million for
1994, an increase of 17.1%. The increase in earnings for 1995 was also
attributable to increased net interest income.
The following table shows selected key performance ratios over the last three
(3) years:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Return on Average Assets 1.60% 1.52% 1.43%
Return on Average Shareholders' Equity 18.50 17.14 16.55
Shareholders' Equity to Assets - Average 8.66 8.85 8.64
Dividend Payout Ratio - Per Share 15.05 14.57 13.95
</TABLE>
The ratio, return on assets, is calculated by dividing net income by average
total assets for the year. The return on equity ratio is calculated by dividing
net income by average shareholders' equity for the year. The equity to assets
ratio is calculated by dividing average shareholders' equity by average total
assets for the year. The dividend payout is determined by dividing the dividend
paid per share by the earnings per share.
NET INTEREST INCOME. Net interest income is the difference between interest
earned on earning assets and interest paid for the funds supporting those
assets. The largest category of earning assets consists of loans to businesses
and individuals. The second largest is investment securities. Net interest
income is the principal source of the Corporation's earnings. Interest rate
fluctuations, as well as changes in the amount and type of earning assets and
liabilities supporting those assets, affect net interest income. Interest rates
primarily are determined by national and international market trends, as well as
competitive pressures in the Corporation's operating markets. For analytical
purposes, income from tax-exempt assets, primarily securities issued by or loans
made to state and local governments, is adjusted by an increment which equates
tax-exempt income to interest from taxable assets.
Net interest income (tax equivalent) for 1996 was $17.8 million, an increase of
$3.1 million, or 21.4% compared to the prior year. The net increase reflected a
$4.6 million increase in interest income which was offset by a $1.5 million
increase in interest expense. The Corporation's yield on earning assets
increased to 8.11% in 1996, from 8.04% for 1995. Rates paid on the
Corporation's interest-bearing liabilities in 1996, primarily time deposits,
decreased five basis points reflecting the stability of interest rates during
the year. Also contributing to the improved net interest income for 1996 was
the increase in noninterest-bearing demand deposits. In 1996, the average
balance of demand deposits increased 18.9%, with average demand deposits
representing 27.2% of average total deposits as compared to 26.9% in 1995.
-15-
<PAGE>
SUMMARY OF EARNING ASSETS AND INTEREST BEARING LIABILITIES
Although the year-end detail provides satisfactory indicators of general trends,
the daily average balance sheets are more meaningful for analysis purposes than
year-end data because averages reflect the day-to-day fluctuations that are
common to bank balance sheets. Also, average balances for earning assets and
interest-bearing liabilities can be related directly to the components of
interest income and interest expense on the statements of income. This provides
the basis for analysis of rates earned and paid, and sources of increases and
decreases in net interest income as derived from changes in volumes and rates.
The following schedule presents average balance sheets for the most recent three
years in a format that highlights earning assets and interest-bearing
liabilities.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------ ------------------------------ -----------------------------
Average Average Average Average Average Average
(Dollars in Thousands) Balance Interest Yield/Rate Balance Interest Yield/Rate Balance Interest Yield/Rate
-------- -------- ---------- -------- -------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning Assets:
Federal Funds Sold $ 16,696 $ 906 5.32% $ 18,738 $ 1,081 5.77% $ 14,373 $ 614 4.28%
Investment Securities
(Taxable) 122,212 7,398 6.05 109,863 6,476 5.90 111,917 6,042 5.40
Investment Securities
(Tax-exempt) 24 2 8.17 309 35 11.44 419 48 11.46
Loans, Net of Unearned
Discount/(1)/ 201,506 19,285 9.57 156,374 15,367 9.82 132,079 11,480 8.69
-------- -------- -------- ------ -------- -------
Total Earning Assets 340,438 27,591 8.11 285,284 22,959 8.04 258,788 18,184 7.03
-------- ------ -------
Other Assets:
Cash and Due From Banks 21,027 17,124 15,968
Other Assets 12,243 11,023 10,252
Allowance for Loan Losses (2,811) (2,454) (2,604)
------- -------- --------
Total Assets $370,897 $310,977 $282,404
======== ======== ========
Interest-Bearing
Liabilities:
Interest-Bearing
Transaction
Accounts $116,811 3,853 3.30 $103,932 3,531 3.40 $102,199 2,694 2.64
Savings 46,324 1,871 4.04 25,792 937 3.63 18,435 467 2.53
Savings Certificates 48,058 2,292 4.77 47,527 2,291 4.82 47,102 1,582 3.36
Certificates of Deposit
$100,000 or more 24,405 1,208 4.95 23,421 1,165 4.98 21,976 759 3.46
Other Time 428 19 4.42 254 12 4.88 232 8 3.29
Other Borrowings 12,318 528 4.33 6,730 340 5.05 2,477 91 3.67
Notes Payable -0- -0- -- 11 1 9.56 323 24 7.55
-------- ------- -------- ------- -------- -------
Total Interest-Bearing
Liabilities 248,344 9,771 3.93 207,667 8,277 3.98 192,744 5,625 2.92
------- -------
Other Liabilities:
Demand Deposits 88,022 74,024 64,431
Other Liabilities 2,399 1,765 1,000
Shareholders' Equity 32,132 27,521 24,229
------- -------- --------
Total Liabilities
and Shareholders'
Equity $370,897 $310,977 $282,404
======== ======== ========
Net Interest Income and
Margin (T/E Basis)/(2)/ $17,820 5.24 $14,682 5.15 $12,559 4.85
======= ======= =======
</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 all three years.
Net interest margin, the net return on earning assets which is computed by
dividing net interest income by average total earning assets, was 5.24% for
1996, a nine basis point increase from the previous year. This increase in the
margin reflected that loans which earn a higher yield were a greater percentage
of earning assets. In 1996 average loans were 59% of earning assets versus 55%
in 1995.
-16-
<PAGE>
The table below analyzes the increase in net interest income for each of the
years ended December 31, 1996 and 1995 on a fully tax equivalent basis. Non-
accruing loans have been included in assets for these computations, thereby
reducing yields on total loans. The changes in interest due to both rate and
volume in the rate/volume analysis table below have been allocated to volume or
rate change in proportion to the absolute amounts of the change in each.
<TABLE>
<CAPTION>
1996 vs. 1995 1995 vs. 1994
Increase (Decrease) Increase (Decrease)
Due to Changes in: Due to Changes in:
----------------------------- ------------------------------
(Dollars in Thousands) Volume Rate Total Volume Rate Total
-------- ------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Federal Funds Sold $ (102) $ (73) $ (175) $ 218 $ 249 $ 467
Investment Securities (Taxable) 752 170 922 (113) 547 434
Investment Securities (Tax-exempt) (25) (8) (33) (13) -0- (13)
Loans, Net of Unearned Discount 4,319 (401) 3,918 2,277 1,610 3,887
------ ----- ------ ------ ------ ------
Total Interest Income 4,944 (312) 4,632 2,369 2,406 4,775
------ ----- ------ ------ ------ ------
Interest-Bearing Liabilities:
Deposits 1,367 (61) 1,306 334 2,092 2,426
Other Borrowings 243 (55) 188 204 45 249
Notes Payable -0- -0- -0- (28) 5 (23)
------ ----- ------ ------ ------ ------
Total Interest Expense 1,610 (116) 1,494 510 2,142 2,652
------ ----- ------ ------ ------ ------
Changes in Net Interest Income $3,334 $(196) $3,138 $1,859 $ 264 $2,123
====== ===== ====== ====== ====== ======
</TABLE>
Net interest income for 1995 increased $2,123,000, or 16.9% over the prior year.
In this same period interest expense increased $2,652,000 as interest rates
increased. In 1995 the net interest margin averaged 5.15%, thirty basis points
higher than the prior year.
NON-INTEREST INCOME. Non-interest income is an important contributor to net
earnings. The major component of the Corporation's non-interest income is
various charges and fees earned on deposit accounts and related services. The
following table summarizes the changes in non-interest income during the past
three years (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------------------- -------------------- --------
Amount % Change Amount % Change Amount
-------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Service Charges on
Deposit Accounts $1,645 7.9% $1,525 (1.5%) $1,548
Non-recurring Income 202 (12.6) 231 (7.6) 250
Loss on Sale of Investment
Securities (14) -- (10) -- (152)
Other Non-interest Income 1,143 13.4 1,008 8.3 931
------ ------ ------
Total Non-interest Income $2,976 8.1 $2,754 6.9 $2,577
====== ====== ======
</TABLE>
Service charges on deposits increased in 1996 as a result of an increase in
service charge income on demand deposit accounts and an increase in fees on
saving accounts.
Non-recurring income in each year is primarily interest recovered on loans
charged-off in prior years.
The increase in other non-interest income in 1996 is primarily due to increased
fees earned from the issue of letters of credit and from merchant fees on credit
cards.
-17-
<PAGE>
NON-INTEREST EXPENSE. Non-interest expense includes all expenses of the
Corporation other than interest expense, provision for loan losses and income
tax expense. The following table summarizes the changes in the non-interest
expenses for the past three years (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -------
Amount % Change Amount % Change Amount
------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Salaries and Employee Benefits $ 6,753 14.4% $5,903 13.3% $5,212
Occupancy Expense - Net 772 8.4 712 10.2 646
Furniture and Equipment Expense 800 15.8 691 26.3 547
Other Real Estate Owned Expense 10 -- (99) -- (41)
Other Expenses:
Business Development 426 (3.8) 443 13.0 392
Insurance - Other 100 1.0 99 (26.7) 135
Legal and Professional Fees 442 (7.7) 479 34.2 357
Other Taxes 101 12.2 90 8.4 83
Postage and Courier 262 4.4 251 10.1 228
Printing and Supplies 303 4.8 289 (4.6) 303
Regulatory Fees and Assessments 134 (67.4) 411 (38.3) 666
Other Operating Expenses 814 15.6 704 28.7 547
------- ------ ------
Total Other Expenses 2,582 (6.7) 2,766 2.0 2,711
------- ------ ------
Total Non-interest Expense $10,917 9.5 $9,973 9.9 $9,075
======= ====== ======
</TABLE>
Total non-interest expense increased 9.5% in 1996 over 1995 reflecting increases
in salaries and benefits, occupancy expenses, furniture and equipment expenses
and other operating expenses. As a percent of average assets, non-interest
expenses were 2.95% in 1996 and resulted in an "efficiency ratio" (non-interest
expenses divided by total non-interest income plus net interest income) of 52.6%
for 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 1996 is due to salary merit
increases and incentive compensation increases. Also, the average number of
full-time equivalent employees increased by eight in 1996 to an average full-
time equivalent of 135. The increases for salaries and number of employees
include additions for a branch office opened August of 1995 with an increase in
full-time equivalent employees from 3.5 to nine from that date to December 31,
1996.
The increase in occupancy expense is primarily due to the additional expense for
the new branch office and additional ad valorem taxes due to property value
increases.
The increase in furniture and equipment expense is primarily a result of
increased depreciation and service contract expense for a new communication
system installed in 1995, depreciation on additional equipment acquired in 1995
and acceleration of depreciation on certain item processing equipment. Also,
additional expenses of a branch office opened in August 1995 are reflected.
Other taxes, primarily franchise taxes paid to the State of Texas were higher
due to higher levels of taxable capital at all entities.
Regulatory fees and assessments declined again in 1996 because of a decrease in
FDIC insurance premiums on deposits. In 1997, because of a restructuring within
the Corporation, regulatory fees should decline.
Other operating expenses increased in 1996 due to an increase in various
miscellaneous operating costs including telephone service fees, correspondent
bank processing fees and fees paid to directors.
-18-
<PAGE>
FEDERAL AND STATE INCOME TAX EXPENSE. The Corporation adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" in 1993.
See Note 10 of the Corporation's Notes to Consolidated Financial Statements for
details of tax expense. The Corporation provided $3.1 million for federal
income taxes for 1996, resulting in an effective tax rate of 34.3%.
INVESTMENT SECURITIES. The following table presents the consolidated investment
securities portfolio at amortized cost as of December 31, 1996, classified as to
--------------
whether the security is to be Held-to-Maturity or is Available-for-Sale (see
Note 1 of the Notes to Consolidated Financial Statements for a discussion of
these designations), by stated maturity and with the weighted average interest
yield for each range of maturities. The yields on tax-exempt obligations are
computed on a fully taxable equivalent basis using statutory rates for federal
income taxes.
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------------------------------------------
Due 1 Year Due 1 to Due 5 to Due After
or Less 5 Years 10 Years 10 Years
---------------- ---------------- ---------------- -----------------
(Dollars in Thousands) Amount Yield Amount Yield Amount Yield Amount Yield Total
-------- ------ -------- ------ -------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities - HTM $ 9,027 5.68% $15,966 6.16% $ -0- -- $ -0- -- $ 24,993
U.S. Treasury Securities - AFS 12,004 6.55 40,436 6.04 -0- -- -0- -- 52,440
------- ------- ------ ------- --------
Total 21,031 6.18 56,402 6.07 -0- -0- 77,433
------- ------- ------ ------- --------
U.S. Government Agencies - HTM 6,006 5.89 9,661 6.59 7,070 7.17% -0- -- 22,737
U.S. Government Agencies - AFS 999 7.85 985 6.29 504 7.71 -0- -- 2,488
------- ------- ------ ------- --------
Total 7,005 6.17 10,646 6.56 7,574 7.20 -0- 25,225
------- ------- ------ ------- --------
U.S. Government Agency Mortgage
Backed Securities - HTM 880 5.11 1,536 5.65 -0- -- 8,291 6.59% 10,707
U.S. Government Agency Mortgage
Backed Securities - AFS 442 7.18 208 7.13 -0- -- 2,399 7.24 3,049
------- ------- ------ ------- --------
Total 1,322 5.80 1,744 5.82 -0- 10,690 6.74 13,756
------- ------- ------ ------- --------
Other Securities - AFS -0- -- -0- -- -0- -- 254 6.00 254
------- ------- ------ ------- --------
Total $29,358 6.16 $68,792 6.14 $7,574 7.20 $10,944 6.72 $116,668
======= ======= ====== ======= ========
Held-to-Maturity ("HTM") $15,913 5.73% $27,163 6.28% $7,070 7.17% $ 8,291 6.59% $ 58,437
Available-for-Sale ("AFS") 13,445 6.67 41,629 6.05 504 7.71 2,653 7.13 58,231
</TABLE>
The yield on the investment securities portfolio of the Corporation at December
31, 1996 was 6.24% and the weighted average life of the portfolio on that date
was approximately 2.6 years. At December 31, 1995 the yield of the portfolio
was 6.01% and the weighted average life was 2.3 years.
Note 2 to the Corporation's Notes to Consolidated Financial Statements shown in
this report reflects the estimated fair values for various categories of
investment securities as of December 31, 1996 and 1995. As of December 31,
1996, there was a net unrealized gain of $537,000 in the portfolio of which
$345,000 related to Available-for-Sale securities, or .6% of the amortized cost
of those securities.
The following table summarizes the book value of investment securities held by
the Corporation as of December 31 for the past five years (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
U.S. Treasury Securities $ 77,678 $ 78,981 $ 85,601 $ 78,746 $62,526
U.S. Government Agencies
and Corporations 25,276 26,922 18,277 21,769 23,057
U.S. Government Agency
Mortgage Backed Securities 13,805 13,141 10,196 10,830 9,057
Obligations of States and
Political Subdivisions -0- 70 394 716 1,142
Federal Reserve Stock 254 254 254 254 254
-------- -------- -------- -------- -------
Total $117,013 $119,368 $114,722 $112,315 $96,036
======== ======== ======== ======== =======
</TABLE>
-19-
<PAGE>
In 1996, approximately $14.5 million of investment securities were sold,
resulting in a net loss on sale of securities of $14,000.The proceeds from the
sale of these securities were reinvested in securities that provided a higher
yield on investment and will result in a recovery of the net loss in a
relatively short period of time. Management of the Corporation views these
trades as an opportunity to increase the earnings capacity of the Corporation
into the future.
LOANS. The following schedule classifies loans according to type as of December
31 for the past five years (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------------------------------
% of % of % of % of % of
1996 Total 1995 Total 1994 Total 1993 Total 1992 Total
------------ ------ --------- ------ --------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $103,414 47.0% $ 81,542 45.7% $ 69,610 50.1% $ 61,638 48.4% $ 57,126 45.8%
Real Estate Mortgage 76,771 34.9 64,200 36.0 51,684 37.2 46,558 36.6 50,983 40.8
Real Estate Construction 12,862 5.8 10,189 5.7 3,656 2.6 3,019 2.4 2,599 2.1
Loans to Individuals,
Net of Unearned
Discount 26,959 12.3 22,562 12.6 14,016 10.1 16,035 12.6 14,135 11.3
-------- -------- -------- ----- -------- ----- -------- -----
Total Loans, Net of
Unearned Income $220,006 100.0 $178,493 100.0% $138,966 100.0% $127,250 100.0% $124,843 100.0%
======== ======== ======== ======== ========
</TABLE>
The preceding loan distribution table reflects that total loans increased $41.5
million (23.3%) between year-end 1995 and 1996. Although this increase was
significant, the Corporation is continuing to apply stringent credit criteria on
all loan applications. At December 31, 1996, loans were 63.8% of deposits
compared to 57.6% at the previous year-end.
Primarily, the commercial loan customers of the Subsidiary Banks are small to
medium-sized businesses and professionals and executives. The banks offer a
variety of commercial loan products that include revolving lines of credit,
letters of credit, working capital loans and loans to finance accounts
receivable, inventory and equipment. Generally, these commercial loans have
floating rates of interest with terms of maturity of three years or less.
A significant portion of the $77 million real estate mortgage portfolio is loans
to finance owner-occupied real estate. At December 31, 1996, $48 million of
loans, approximately 62% of the real estate mortgage portfolio, had been made
for this purpose. Also, approximately 42% of the loans in the real estate
mortgage portfolio have variable rates of interest with a significant portion of
the remaining portfolio having balloon terms and/or rate adjustment clauses.
Real estate construction loans are made primarily to finance construction of
single family residences in the Corporation's market area of Tarrant County.
Construction loans generally are secured by first liens on real estate and have
floating interest rates. The Corporation's lending activities in this area are
primarily with borrowers that have been in the building trade for many years and
with which the banks have long standing relationships. The Corporation's
lending officers meet quarterly with consultants that carefully track the
residential building activities within the market. The Corporation will adjust
its construction lending activities based on the trends of housing starts and
absorption rates in the market.
The Corporation also lends to consumers for purchases of various consumer goods,
such as automobiles, boats and home improvements. The terms of these loans are
five years or less and are well secured with liens on products purchased or
other assets. These loans are primarily made to customers who have other
relationships with the banks. The Corporation does not issue credit cards and
does not have any credit card loans outstanding.
The following table presents commercial and real estate construction loans at
December 31, 1996, based on scheduled principal repayments and the total amount
of loans due after one year classified according to sensitivity to changes in
interest rates (in thousands):
<TABLE>
<CAPTION>
Over
One Year
One Year Through Over Five
or Less Five Years Years Total
-------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Commercial $84,969 $17,924 $521 $103,414
Real Estate Construction 11,890 972 -0- 12,862
------- ------- ---- --------
Totals $96,859 $18,896 $521 $116,276
======= ======= ==== ========
</TABLE>
Of the loans maturing after one year, all have fixed rates of interest, with
many having rate adjustment clauses during the remaining term of the loan.
-20-
<PAGE>
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established through
charges to earnings in the form of a provision for loan losses. Loans, or
portions thereof, which are considered to be uncollectible are charged against
this allowance and subsequent recoveries, if any, are credited to the allowance.
The allowance represents the amount which, in management's judgement, will be
adequate to absorb future charge-offs of existing loans which may become
uncollectible. The adequacy of the allowance is determined by management's
continuous evaluation of the loan portfolio and by the employment of third party
loan review specialists. All known problem loans, unknown inherent risks
generally associated with bank lending, past loan loss experience, delinquency
ratios and current and projected economic conditions are taken into account in
evaluating the adequacy of the allowance.
On January 1, 1995, the Corporation adopted Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan" ("SFAS No.
114"), as amended by Statement of Financial Accounting Standards No. 118,
"Accounting by Creditors for Impairment of a Loan -- Income Recognition and
Disclosure" ("SFAS No. 118"). These standards specify how allowances for
certain impaired loans should be determined and the accounting for in-substance
foreclosures. Adoption of these standards did not have a material impact on the
Corporation's results of operations.
Loans are generally placed on non-accrual status when principal or interest is
past due 90 days or more and the loan is not both well-secured and in the
process of collection, or immediately, if in the opinion of management, full
collection of principal or interest is doubtful. Loans are charged against the
allowance for loan losses when management believes that the collectibility of
the principal is unlikely.
The following table presents average loans net of unearned income and an
analysis of the consolidated allowance for loan losses (dollars in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Average Loans Outstanding $201,506 $156,374 $132,079 $127,375 $122,398
======== ======== ======== ======== ========
Analysis of Allowance for
Loan Losses:
Balance, Beginning of Year $ 2,500 $ 2,410 $ 2,594 $ 2,810 $ 2,934
Charge-Offs:
Commercial 424 321 101 142 507
Real Estate Mortgage 2 -0- 180 173 419
Real Estate Construction -0- -0- -0- -0- -0-
Loans to Individuals 36 26 32 134 33
-------- -------- -------- -------- --------
Total Charge-Offs 462 347 313 449 959
-------- -------- -------- -------- --------
Recoveries:
Commercial 58 74 129 136 348
Real Estate Mortgage 54 114 79 63 58
Real Estate Construction -0- -0- -0- -0- -0-
Loans to Individuals 3 13 35 11 8
-------- -------- -------- -------- --------
Total Recoveries 115 201 243 210 414
-------- -------- -------- -------- --------
Net Charge-Offs 347 146 70 239 545
-------- -------- -------- -------- --------
Provision Charged (Credited)
to Operating Expense 819 236 (114) 23 421
-------- -------- -------- -------- --------
Balance, End of Year $ 2,972 $ 2,500 $ 2,410 $ 2,594 $ 2,810
======== ======== ======== ======== ========
Ratio of Net Charge-Offs
to Average Loans Outstanding .17% .09% .05% .19% .45%
======== ======== ======== ======== ========
</TABLE>
-21-
<PAGE>
The following table reflects the allowance for loan losses compared to total
loans at the end of each year (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total Loans $220,006 $178,493 $138,966 $127,250 $124,843
Allowance for Loan Losses 2,972 2,500 2,410 2,594 2,810
Allowance for Loan Losses
as a Percent of Total Loans 1.35% 1.40% 1.73% 2.04% 2.25%
Allowance for Loan Losses As
a Percent of Non-Performing Loans 270.0 252.0 375.0 174.0 190.0
</TABLE>
Net charge-offs increased to $347,000 in 1996 from $146,000 in 1995. Net
charge-offs on commercial loans were $366,000 and include a charge-off of
$300,000 on one loan. Real estate mortgages experienced a net recovery of
$52,000. The increase in provision for loan losses in 1996 over 1995 primarily
recognizes the Corporation's loan growth and a modest level of loan charge-offs
for the year.
The following table illustrates the allocation of the allowance for loan losses
to the various loan categories (dollars in thousands), see the tables on page 20
for the percent of specific types of loans to total loans:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
% % % % %
Amount Total Amount Total Amount Total Amount Total Amount Total
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Allowance For
Loan Losses:
Commercial $1,072 36.1% $1,249 50.0% $ 953 39.5% $ 983 37.9% $ 803 28.6%
Real Estate
Mortgage 556 18.7 524 21.0 648 26.9 796 30.7 729 25.9
Real Estate
Construction 81 2.7 63 2.5 28 1.2 37 1.4 143 5.1
Loans to Individuals 165 5.6 132 5.3 198 8.2 169 6.5 155 5.5
Unallocated Portion 1,098 36.9 532 21.2 583 24.2 609 23.5 980 34.9
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total $2,972 100.0% $2,500 100.0% $2,410 100.0% $2,594 100.0% $2,810 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
The allocation is determined by providing specific reserves against each
criticized loan plus a general allocation against the remaining balance of the
portfolio based on experience factors. Management of the Corporation believes
that the allowance for loan losses at December 31, 1996, is adequate to cover
losses inherent in the portfolio. There can be no assurance that the
Corporation will not sustain loan losses in future periods which could be
substantial in relation to the size of the current allowance. The total
allowance is available to absorb losses from any segment of loans.
NON-PERFORMING ASSETS. Non-performing assets consist of non-accrual loans,
renegotiated loans and other real estate. Non-accrual loans are those on which
the accrual of interest has been suspended and on which the interest is recorded
as earned when it is received. Loans are generally placed on non-accrual status
when principal or interest is past due 90 days or more, and the loan is not both
well-secured and in the process of collection, or immediately, if in the opinion
of management, full collection of principal or interest is doubtful. At the
time a loan is placed on non-accrual status, interest previously recorded but
not collected is reversed and charged against current interest income.
Renegotiated loans are loans on which the interest and/or the principal has been
reduced due to a deterioration in the borrower's financial condition. Even
though these loans are actually performing, they are included in non-performing
assets because of the loss of revenue related to the reduction of interest
and/or principal.
Other real estate is real estate acquired through foreclosure or through partial
settlement of debts which is awaiting sale and disposition. At the time of
acquisition, other real estate is recorded at the lower of estimated fair value
or the loan balance or settlement agreement with any write-down charged to the
allowance for loan losses. Any further write-downs, expenses related to the
property, and any gain or loss resulting from the sale of the property are
recorded in current operating expenses.
-22-
<PAGE>
The following table summarizes the non-performing assets and loans 90 days past
due and still accruing as of December 31, (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Non-accrual Loans $1,102 $ 990 $ 643 $1,471 $1,344
Renegotiated Loans -0- -0- -0- 18 134
Other Real Estate 166 113 649 615 1,541
------ ------ ------ ------ ------
Total Non-Performing
Assets $1,268 $1,103 $1,292 $2,104 $3,019
====== ====== ====== ====== ======
As a Percent of:
Total Assets .32% .31% .44% .75% 1.13%
Total Loans and Other
Real Estate .58 .62 .93 1.65 2.39
Loans Past Due 90 Days or
More and Still Accruing $ 36 $ -0- $ 32 $ 41 $1,379
</TABLE>
The Subsidiary Banks are required, by the regulatory authorities, to have other
real estate appraised periodically. In the event the new appraised value is
less than the carrying value of the property, the excess is written off to
expense. Some properties are written down below their appraised values when
management feels the economic value of the property has declined below the
appraised value.
Non-accrual loans at December 31, 1996, were comprised of $538,000 in commercial
loans, $550,000 in real estate mortgages, and $14,000 in loans to individuals.
One commercial loan of $247,000 and one real estate loan of $495,000 are
included in these amounts and each loan is well secured.
The impact on interest income from the above non-accrual loans and renegotiated
loans for the past five (5) years is provided below (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1996 1995 1994 1993 1992
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Gross Amount of Interest
That Would Have Been
Recorded at Original Rate $ 111 $ 102 $ 35 $ 165 $ 147
Interest Included in Income 30 42 25 41 44
----- ----- ----- ----- -----
Interest Not Recorded
in Income $ 81 $ 60 $ 10 $ 124 $ 103
===== ===== ===== ===== =====
</TABLE>
Loans of each Subsidiary Bank are graded on a system similar to that used by the
regulators. The first level of criticized loans is "Other Assets Especially
Mentioned" (OAEM). These loans are normally fundamentally sound but have
potential weaknesses which may, if not corrected, weaken the asset or
inadequately protect the bank's credit position at some future date. The second
level is "Substandard", which are loans inadequately protected by current sound
net worth, paying capacity or pledged collateral. The last level of criticized
loans, before they are charged off, is "Doubtful". Doubtful loans are
considered to have inherent weaknesses because collection or liquidation in full
is highly questionable.
Non-accrual loans normally include weaker Substandard loans and loans that are
considered to be Doubtful.
-23-
<PAGE>
The following table summarizes the relationship between non-performing loans,
criticized loans and the allowance for loan losses (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
1996 1995 1994 1993 1992
-------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Non-Performing Loans $1,102 $ 990 $ 643 $1,489 $1,478
Criticized Loans 4,589 7,621 4,497 5,920 6,742
Allowance for Loan Losses 2,972 2,500 2,410 2,594 2,810
Allowance for Loan Losses
as a Percent of:
Non-Performing Loans 270.0% 252.0% 375.0% 174.0% 190.0%
Criticized Loans 65.0 33.0 54.0 44.0 42.0
</TABLE>
Independent third party loan reviews of the Subsidiary Banks were completed in
mid to late 1996. Based on the findings of these reviews the Subsidiary Banks
appear to be adequately reserved.
Management is not aware of any potential loan problems, that have not been
disclosed, to which serious doubts exist as to the ability of the borrower to
substantially comply with the present repayment terms.
DEPOSITS. The primary source of the Corporation's funds is the deposits of the
Subsidiary Banks. The majority of the Corporation's deposits are considered
"core" deposits, that is, deposits that are not subject to material changes due
to customer withdrawal due to market rate changes. The Corporation does not
accept brokered deposits. Average demand deposits increased $14.0 million, or
18.9% in 1996. These deposits represented 27.2% of total deposits. Average
interest-bearing deposits increased $35.1 million, or 17.5%. The deposit types'
daily average balance and related average rates paid during each of the last
three (3) years are as follows (dollars in thousands):
<TABLE>
<CAPTION>
*1996 1995 1994
--------------------- ------------------- -------------------
Amount Rate Paid Amount Rate Paid Amount Rate Paid
--------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-Bearing Demand Deposits $ 88,022 $ 74,024 $ 64,431
Interest-Bearing Deposits:
Interest-Bearing Transaction
Accounts 116,811 3.30% 103,932 3.40% 102,199 2.64%%
Savings 46,324 4.04 25,792 3.63 18,435 2.53
Savings Certificates - Time 48,058 4.77 47,527 4.82 47,102 3.36
Certificates of Deposit
Greater Than $100,000 24,405 4.95 23,421 4.98 21,976 3.46
Other Time Deposits 428 4.42 254 4.88 232 3.29
-------- ------- -------
Total Interest-Bearing Deposits 236,026 3.92 200,926 3.95 189,944 2.90
-------- ------- -------
Total Deposits $324,048 $274,950 $254,375
======== ======== ========
</TABLE>
The remaining maturity on certificates of deposit of $100,000 or more as of
December 31, 1996, 1995 and 1994 is presented below (in thousands):
<TABLE>
<CAPTION>
% of % of % of
Maturity 1996 Total 1995 Total 1994 Total
- ------------------ -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
3 months or less $10,215 40.1% $12,023 49.0% $14,558 64.2%
3 to 6 months 7,342 28.9 6,810 27.7 4,988 22.0
6 to 12 months 6,350 25.0 5,167 21.0 2,884 12.7
Over 12 months 1,527 6.0 551 2.3 251 1.1
</TABLE>
-24-
<PAGE>
BORROWINGS. Securities sold under repurchase agreements generally represent
borrowings with maturities ranging from one to thirty days. These borrowings
are with significant commercial customers of the banks that require short-term
liquidity for their funds. Information relating to these borrowings is
summarized as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Securities sold under repurchase agreements:
Average $12,181 $ 6,580 $2,349
Year-end 13,209 13,528 4,528
Maximum month-end balance during year 14,453 13,528 4,528
Interest Rate:
Average 4.33% 5.11% 3.89%
Year-end 4.35 4.67 4.92
</TABLE>
INTEREST RATE SENSITIVITY. The objectives of monitoring and managing the
interest rate risk of the balance sheet are to contribute to earnings by
minimizing adverse changes in net interest income as a result of changes in the
direction and level of interest rates and to provide liquidity to satisfy cash
flow requirements to meet customers' fluctuating demands.
Interest rate sensitivity is the relationship between changes in the market
interest rates and changes in net interest income due to the repricing
characteristics of assets and liabilities.
An asset-sensitive position in a given period will result in more assets than
liabilities being subject to repricing; therefore, market interest-rate changes
will be reflected more quickly in asset rates. If interest rates decline, such
a position will have an adverse effect on net interest income. Conversely, in a
liability-sensitive position, where liabilities reprice more quickly than assets
in a given period, a decline in market rates will benefit net interest income.
A mix of earning assets and interest-bearing liabilities in which relatively
equal volumes reprice each period represents a matched interest sensitivity
"gap" position; any excess of these assets or liabilities results in an interest
sensitive gap.
The following table, commonly referred to as a "static gap report", indicates
the interest rate-sensitivity position at December 31, 1996 and may not be
reflective of positions in subsequent periods (dollars in thousands):
<TABLE>
<CAPTION>
Repriced
Due in After 1
30 Due in Due in Due in Total Year or
Days 31-90 91-180 181 Days Rate Non-Rate
Or Less Days Days to One Year Sensitive Sensitive Total
--------- ---------- --------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans $118,873 $ 8,170 $ 13,934 $ 18,508 $159,485 $ 60,521 $220,006
Investment Securities 2,136 3,757 6,844 14,956 27,693 89,320 117,013
Federal Funds Sold 20,350 -0- -0- -0- 20,350 -0- 20,350
-------- -------- -------- -------- -------- -------- --------
Total Earning Assets $141,359 $ 11,927 $ 20,778 $ 33,464 $207,528 $149,841 $357,369
======== ======== ======== ======== ======== ======== ========
Interest-Bearing Liabilities:
Interest-Bearing
Transaction Accounts
and Savings $168,364 $ -0- $ -0- $ -0- $168,364 $ -0- $168,364
Certificates of
Deposits > $100,000 5,843 4,372 7,342 6,350 23,907 1,527 25,434
Other Time Deposits 3,327 10,105 14,484 13,863 41,779 5,751 47,530
Repurchase Agreements 13,209 -0- -0- -0- 13,209 -0- 13,209
-------- -------- -------- -------- -------- -------- --------
Total Interest-
Bearing Liabilities $190,743 $ 14,477 $ 21,826 $ 20,213 $247,259 $ 7,278 $254,537
======== ======== ======== ======== ======== ======== ========
Interest Sensitivity Gap $(49,384) $ (2,550) $ (1,048) $ 13,251 $(39,731) $142,563 $102,832
======== ======== ======== ======== ======== ======== ========
Cumulative Gap $(49,384) $(51,934) $(52,982) $(39,731)
======== ======== ======== ========
Cumulative Gap To
Total Earning Assets (13.8%) (14.5%) (14.8%) (11.1%)
Cumulative Gap To
Total Assets (12.5%) (13.1%) (13.4%) (10.1%)
</TABLE>
-25-
<PAGE>
In the preceding table under the "After 1 Year" category, $57,484,000 in
investment securities will reprice or mature within one to three years and
another $19,454,000 will reprice or mature within three to five years. The
average maturity of the investment portfolio is approximately 2.6 years. Also,
the above table reflects the call dates versus maturity dates and periodic
principal amortization of investment securities.
The preceding static gap report reflects a cumulative liability sensitive
position during the one year horizon. An inherent weakness of this report is
that it ignores the relative volatility any one category may have in relation to
other categories or market rates in general. For instance, the rate paid on
certain interest-bearing transaction accounts typically moves slower than the
three month T-Bill. Management attempts to capture this relative volatility by
utilizing a simulation model with a "beta factor" adjustment which estimates the
volatility of rate sensitive assets and/or liabilities in relation to other
market rates.
Beta factors are an estimation of the long term, multiple interest rate
environment relation between an individual account and market rates in general.
For instance, NOW, savings and money market accounts, which are repriceable
within 30 days will have considerably lower beta factors than variable rate
loans and most investment categories. Taking this into consideration, it is
quite possible for a bank with a negative cumulative gap to total asset ratio to
have a positive "beta adjusted" gap risk position.
As a result of applying the beta factors established by management to the
earning assets and interest-bearing liabilities in the static gap report via a
simulation model, the cumulative gap to total assets ratio at one year of
(10.1%) 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. Also, based on the Corporation's
analysis of its interest rate sensitivity position at year end 1996, a 100-basis
point change in interest rates would not have a significant impact on its net
interest income over a twelve month period.
The following table reflects the spreads and margins for the past three (3)
years:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Yield on Earning Assets (T/E) 8.11% 8.04% 7.03%
Cost of Funds 3.93 3.98 2.92
Net Interest Spread (T/E) 4.18 4.06 4.11
Net Interest Margin (T/E) 5.24 5.15 4.85
</TABLE>
CAPITAL RESOURCES. At December 31, 1996 shareholders' equity totaled $35.1
million, an increase of $5.0 million or 16.5% for the year. This increase was
primarily from retained earnings, i.e., earnings net of dividends to
shareholders.
Bank regulatory authorities have established risk-based capital guidelines for
U.S. banking organizations. The objective of these efforts are to provide a
more consistent system for comparing capital positions of banking organizations
and to reflect the level of risk associated with holding various categories of
assets. The guidelines define Tier 1 capital and Tier 2 capital. The only
components of Tier 1 and Tier 2 capital, for the Corporation, are equity capital
and equity capital plus a portion of the allowance for loan losses,
respectively. The guidelines also stipulate that four categories of risk
weights (0, 20, 50, and 100 percent), primarily based on the relative credit
risk of the counterparty, be applied to the different types of balance sheet
assets. Risk weights for all off-balance sheet exposures are determined by a
two step process whereas the face value of the off-balance sheet item is
converted to a "credit equivalent amount" and that amount is assigned to the
appropriate risk category. Off-balance sheet items at December 1994, 1995 and
1996 included unfunded loan commitments and letters of credit. The minimum
ratio for qualifying total capital is 8.00 percent, of which 4.00 percent must
be Tier 1 capital.
The Federal Reserve Board and the Comptroller of the Currency also have a
capital to total assets (leverage) guideline. These guidelines establish a
minimum level of Tier 1 capital to total assets of 3 percent. A banking
organization operating at or near these levels is expected to have well-
diversified risk, excellent asset quality, high liquidity, good earnings and in
general be considered a strong banking organization. Organizations not meeting
these characteristics are expected to operate well above these minimum capital
standards. Thus, for all but the most highly rated organizations, the minimum
Tier 1 leverage ratio is to be 3 percent plus minimum additional cushions of at
least 100 to 200 basis points. At the discretion of the regulatory authorities,
additional capital may be required.
-26-
<PAGE>
The table below illustrates the Corporation's and its Subsidiary Banks'
compliance with the regulatory guidelines as of December 31, 1996 (dollars in
thousands):
<TABLE>
<CAPTION>
The Summit Summit Alta Mesa
Consolidated National Community National
Corporation Bank Bank, N.A. Bank
------------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Total Assets $395,248 $198,728 $99,356 $95,735
Risk Weighted Assets 240,075 124,042 59,290 54,355
Equity Capital (Tier 1) $ 35,080 $ 15,682 $ 8,695 $ 8,087
Qualifying Allowance For
Loan Losses 2,972 1,551 741 440
-------- -------- ------- -------
Total Tier 2 Capital $ 38,052 $ 17,233 $ 9,436 $ 8,527
======== ======== ======= =======
Leverage Ratio 8.82% 7.83% 8.69% 8.41%
Risk Capital Ratio:
Tier 1 14.61% 12.64% 14.67% 14.88%
Total Tier 2 15.85 13.89 15.91 15.69
</TABLE>
As can be seen in the preceding table, the Corporation and its Subsidiary Banks
exceed the risk-based capital and leverage requirements set by the regulators as
of December 31, 1996.
Also, as of December 31, 1996, the Corporation and its Subsidiary Banks met the
criteria for classification as a "well-capitalized" institution under the rules
of the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA").
IMPACT OF INFLATION. The effects of inflation on the local economy and on the
Corporation's operating results have been relatively modest for the past several
years. Since substantially all of the Corporation's assets and liabilities are
monetary in nature, such as cash, investments, loans and deposits, their values
are less sensitive to the effects of inflation than to changing interest rates,
which do not necessarily change in accordance with inflation rates. The
Corporation tries to control the impact of interest rate fluctuations by
managing the relationship between its interest rate sensitive assets and
liabilities.
LIQUIDITY. Liquidity is defined as the Corporation's ability to meet deposit
withdrawals, provide for the legitimate credit needs of customers, and take
advantage of certain investment opportunities as they arise. While maintaining
adequate liquid assets to fulfill these functions, it must also maintain
compatible levels of maturity and rate concentrations between its sources of
funds and earning assets. The liability structure of the Corporation is short-
term in nature and the asset structure is likewise oriented towards short
maturities.
The Corporation's primary "internal" source of liquidity is its federal funds
sold and its marketable investment securities, particularly those with shorter
maturities. At December 31, 1996, federal funds sold and investment securities
maturing within 90 days represented $25.3 million or 6.4% of total assets.
Additionally, the Corporation's ability to sell loan participations and purchase
federal funds serves as secondary sources of liquidity. Each of the Subsidiary
Banks have approved federal funds lines at other banks.
The liquidity of the Corporation is enhanced by the fact that 93% of total
deposits at December 31, 1996, were "core" deposits. Core deposits for this
purpose are defined as total deposits less public funds and certificates of
deposit greater than $100,000.
The parent Corporation's income, which provides funds for the payment of
dividends to shareholders and for other corporate purposes, is derived from the
investment in its subsidiaries and from management fees paid by the
subsidiaries. See Note 16 - Dividends from Subsidiaries for limitations on
dividends payable by subsidiaries.
-27-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA: PAGE
---------------------------------------------------- ----
<S> <C>
Independent Auditor's Report 29
Management's Responsibility for Financial Reporting 30
Consolidated Balance Sheets of Summit Bancshares, Inc. and Subsidiaries as of
December 31, 1996 and 1995 31
Consolidated Statements of Income of Summit Bancshares, Inc. and Subsidiaries
for the Years Ended December 31, 1996, 1995 and 1994 32
Statements of Changes in Shareholders' Equity of Summit Bancshares, Inc. and
Subsidiaries for the Years Ended December 31, 1996, 1995 and 1994
(Consolidated and Parent Company Only) 33
Consolidated Statement of Cash Flows of Summit Bancshares, Inc. and Subsidiaries
for the Years Ended December 31, 1996, 1995 and 1994 34
Notes to Consolidated Financial Statements 35-51
</TABLE>
-28-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Summit Bancshares, Inc.
Fort Worth, Texas
We have audited the accompanying consolidated balance sheets of Summit
Bancshares, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
related statements of income, changes in shareholders' equity and cash flows for
each of the three years in the period ending December 31, 1996. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Summit Bancshares, Inc. and
Subsidiaries, as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ending
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ STOVALL, GRANDEY, & WHATLEY
Fort Worth, Texas
January 20, 1997
-29-
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The management of the Corporation is responsible for the preparation of the
financial statements, related financial data and other information in this
annual report. The consolidated financial statements have been prepared in
accordance with generally accepted accounting principles and include amounts
based on management's estimates and judgment where appropriate. Financial
information appearing throughout this annual report is consistent with the
financial statements.
In meeting its responsibility both for the integrity and fairness of these
financial statements and information, management depends on the accounting
systems and related internal accounting controls that are designed to provide
reasonable assurances that transactions are authorized and recorded in
accordance with established procedures and that assets are safeguarded and that
proper and reliable records are maintained.
The concept of reasonable assurance is based on the recognition that the cost of
a system of internal controls should not exceed the related benefits. As an
integral part of the system of internal controls, the Corporation retains
auditors who monitor compliance with and evaluate the effectiveness of the
system of internal controls and coordinate audit coverage with the independent
auditors.
The Audit Committees of the Corporation and the Banking Subsidiaries' Board of
Directors, which are composed entirely of directors independent of management,
meet regularly with management, regulatory examiners, internal auditors, the
loan review consultants and independent auditors to discuss financial reporting
matters, internal controls, regulatory reports, internal auditing and the
nature, scope and results of the audit efforts. Internal audit and loan review
personnel report directly to the Audit Committees. The banking regulators,
internal auditors and independent auditors have direct access to the Audit
Committees.
The consolidated financial statements have been audited by Stovall, Grandey &
Whatley, independent auditors, who render an independent opinion on management's
financial statements. Their appointment was recommended by the Audit Committee
and approved by the Board of Directors and by the shareholders. The audit by
the independent auditors provides an additional assessment of the degree to
which the Corporation's management meets it responsibility for financial
reporting. Their opinion on the financial statements is based on auditing
procedures, which include their consideration of the internal control structure
and performance of selected tests of transactions and records, as they deem
appropriate. These auditing procedures are designed to provide an additional
reasonable level of assurance that the financial statements are fairly presented
in accordance with generally accepted accounting principles in all material
respects.
/s/ PHILIP E. NORWOOD /s/ JEFF HARP
PHILIP E. NORWOOD JEFF HARP
PRESIDENT AND EXECUTIVE VICE PRESIDENT
CHIEF EXECUTIVE OFFICER AND CHIEF OPERATING OFFICER
/s/ BOB G. SCOTT
BOB G. SCOTT
SENIOR VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
-30-
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
-------- --------
ASSETS (In Thousands)
<S> <C> <C>
CASH AND DUE FROM BANKS - NOTE 1 $ 28,339 $ 22,480
FEDERAL FUNDS SOLD 20,350 25,680
INVESTMENT SECURITIES - NOTE 2
Securities Available-for-Sale, at fair value 58,576 54,803
Securities Held-to-Maturity, at cost (fair value
of $58,629,000 and $64,772,000 at
December 31, 1996 and 1995, respectively) 58,437 64,565
LOANS - NOTE 3
Loans, Net of Unearned Discount 220,006 178,493
Allowance for Loan Losses (2,972) (2,500)
-------- --------
LOANS, NET 217,034 175,993
PREMISES AND EQUIPMENT, NET - NOTE 4 7,105 7,157
ACCRUED INCOME RECEIVABLE 3,189 3,288
OTHER REAL ESTATE - NOTE 5 166 113
OTHER ASSETS - NOTE 10 2,052 1,338
-------- --------
TOTAL ASSETS $395,248 $355,417
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS - NOTE 6
Noninterest-Bearing Demand $103,695 $ 89,184
Interest-Bearing 241,328 220,925
-------- --------
TOTAL DEPOSITS 345,023 310,109
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE - NOTE 7 13,209 13,528
ACCRUED INTEREST PAYABLE 638 635
OTHER LIABILITIES 1,298 1,020
-------- --------
TOTAL LIABILITIES 360,168 325,292
-------- --------
COMMITMENTS AND CONTINGENCIES - NOTES 4, 8, 13, 18 and 19
SHAREHOLDERS' EQUITY - NOTES 12, 14, 20 and 21
Common Stock - $1.25 par value; 20,000,000 shares authorized;
3,233,036 and 3,149,886 shares issued and outstanding
at December 31, 1996 and 1995, respectively 4,041 3,937
Capital Surplus 4,167 4,109
Retained Earnings 26,644 21,745
Unrealized Gain on Investment Securities Available-for-Sale,
Net of Tax 228 334
-------- --------
TOTAL SHAREHOLDERS' EQUITY 35,080 30,125
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $395,248 $355,417
======== ========
</TABLE>
The accompanying Notes should be read with these financial statements.
-31-
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 19,274 $ 15,331 $ 11,455
Interest and Dividends on Investment Securities:
Taxable 7,405 6,479 6,042
Exempt from Federal Income Taxes 1 23 32
Interest on Federal Funds Sold 897 1,096 614
------- ------- -------
TOTAL INTEREST INCOME 27,577 22,929 18,143
------- ------- -------
INTEREST EXPENSE
Interest on Deposits - NOTE 6 9,243 7,936 5,510
Interest on Securities Sold Under
Agreements to Repurchase 528 340 91
Interest on Notes Payable - NOTE 8 -0- 1 24
------- ------- -------
TOTAL INTEREST EXPENSE 9,771 8,277 5,625
------- ------- -------
NET INTEREST INCOME 17,806 14,652 12,518
LESS: PROVISION (CREDIT) FOR LOAN LOSSES - NOTE 3 819 236 (114)
------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 16,987 14,416 12,632
------- ------- -------
NON-INTEREST INCOME
Service Charges and Fees on Deposits 1,645 1,525 1,548
Net Loss on Sale of Investment Securities (14) (10) (152)
Other Income 1,345 1,239 1,181
------- ------- -------
TOTAL NON-INTEREST INCOME 2,976 2,754 2,577
------- ------- -------
NON-INTEREST EXPENSE
Salaries and Employee Benefits 6,753 5,903 5,212
Occupancy Expense - Net 772 712 646
Furniture and Equipment Expense 800 691 547
Other Real Estate Owned (Income) Expense - Net 10 (99) (41)
Other Expense - NOTE 9 2,582 2,766 2,711
------- ------- -------
TOTAL NON-INTEREST EXPENSE 10,917 9,973 9,075
------- ------- -------
INCOME BEFORE INCOME TAXES 9,046 7,197 6,134
APPLICABLE INCOME TAXES - NOTE 10 3,103 2,468 2,094
------- ------- -------
NET INCOME $ 5,943 $ 4,729 $ 4,040
======= ======= =======
NET INCOME PER SHARE - NOTE 14 $ 1.86 $ 1.51 $ 1.29
======= ======= =======
</TABLE>
The accompanying Notes should be read with these financial statements.
-32-
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
CONSOLIDATED AND COMPANY ONLY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK GAIN (LOSS) ON TOTAL
----------------------- CAPITAL RETAINED INVESTMENT TREASURY SHAREHOLDERS'
SHARES AMOUNT SURPLUS EARNINGS SECURITIES - NET STOCK EQUITY
- -------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
JANUARY 1, 1994 1,559,324 $ 1,949 $ 5,987 $ 15,042 $ -0- $ -0- $ 22,978
Stock Options Exercised 39,289 49 60 109
Purchases of Stock Held
in Treasury (353) (353)
Retirement of Stock
Held in Treasury (19,890) (25) (328) 353 -0-
Cash Dividend -
$.18 Per Share (567) (567)
Securities Available-
for-Sale Adjustment (873) (873)
Net Income for
Year Ended 1994 4,040 4,040
--------- -------- ------- -------- ------ ------- --------
BALANCE AT
DECEMBER 31, 1994 1,578,723 1,973 6,047 18,187 (873) -0- 25,334
Stock Options Exercised 19,000 24 31 55
Purchases of Stock Held
in Treasury (508) (508)
Retirement of Stock
Held in Treasury (22,780) (29) (479) 508 -0-
Two-for-One Stock Split 1,574,943 1,969 (1,969) -0-
Cash Dividend -
$.22 Per Share (692) (692)
Securities Available-
for-Sale Adjustment 1,207 1,207
Net Income for
Year Ended 1995 4,729 4,729
--------- -------- ------- -------- ------ ------- --------
BALANCE AT
DECEMBER 31, 1995 3,149,886 3,937 4,109 21,745 334 -0- 30,125
Stock Options Exercised 92,150 115 58 173
Purchases of Stock Held
in Treasury (157) (157)
Retirement of Stock
Held in Treasury (9,000) (11) (146) 157 -0-
Cash Dividend -
$.28 Per Share (898) (898)
Securities Available-
for-Sale Adjustment (106) (106)
Net Income for
Year Ended 1996 5,943 5,943
--------- -------- ------- -------- ------ ------- --------
BALANCE AT
DECEMBER 31, 1996 3,233,036 $ 4,041 $ 4,167 $ 26,644 $ 228 $ -0- $ 35,080
========= ======== ======= ======== ====== ======= ========
</TABLE>
The accompanying Notes should be read with these financial statements.
-33-
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollars In Thousands) YEAR ENDED DECEMBER 31,
- ---------------------- --------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 5,943 $ 4,729 $ 4,040
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 762 652 545
Net Premium Amortization of Investment Securities 310 445 831
Provision (Credit) for Loan Losses 819 236 (114)
Deferred Federal Income Taxes (Benefit) (159) 68 248
Loss on Sale of Investment Securities 14 10 152
Writedown of or Provision for Other Real Estate 12 12 -0-
Net Gain From Sale of Other Real Estate -0- (78) (55)
Net (Gain) Loss on Sale of Premises and Equipment (1) -0- 2
Increase in Accrued Income and Other Assets (270) (1,044) (718)
Increase in Accrued Expenses and Other Liabilities 280 297 (4)
-------- -------- --------
TOTAL ADJUSTMENTS 1,767 598 895
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,710 5,327 4,935
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (Increase) Decrease in Federal Funds Sold 5,330 (15,940) 10,010
Proceeds from Matured and Prepaid Investment Securities
. Held-to-Maturity 20,001 21,154 11,453
. Available-for-Sale 20,486 12,703 17,047
Proceeds from Sales of Investment Securities 14,527 2,969 26,885
Purchase of Investment Securities
. Held-to-Maturity (19,174) (27,616) (19,126)
. Available-for-Sale (33,969) (12,482) (40,972)
Loans Originated and Principal Repayments, Net (42,171) (39,724) (12,314)
Recoveries of Loans Previously Charged-Off 115 201 243
Proceeds from Sale of Premises and Equipment 1 -0- 29
Proceeds from Sale of Other Real Estate -0- 502 548
Purchases of Premises and Equipment (710) (1,207) (802)
-------- -------- --------
NET CASH USED BY INVESTING ACTIVITIES (35,564) (59,440) (6,999)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Demand Deposits, Savings
Accounts and Interest Bearing Transaction Accounts 36,011 45,230 7,564
Net Increase (Decrease) in Certificates of Deposit (1,097) 5,338 (2,175)
Net Increase (Decrease) in Repurchase Agreements (319) 9,000 2,849
Principal Payments on Notes Payable -0- (250) (250)
Payments of Cash Dividends (898) (692) (567)
Proceeds from Stock Options Exercised 173 55 109
Purchase of Treasury Stock (157) (508) (353)
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 33,713 58,173 7,177
-------- -------- --------
NET INCREASE IN CASH AND DUE FROM BANKS 5,859 4,060 5,113
CASH AND DUE FROM BANKS - BEGINNING OF YEAR 22,480 18,420 13,307
-------- -------- --------
CASH AND DUE FROM BANKS - END OF YEAR $ 28,339 $ 22,480 $ 18,420
======== ======== ========
SUPPLEMENTAL SCHEDULE OF OPERATING AND INVESTING ACTIVITIES
Interest Paid $ 9,769 $ 8,129 $ 5,516
Income Taxes Paid 3,285 2,410 1,825
Other Real Estate Acquired in Settlement of Loans 65 -0- 528
Bank Financed Sales of Other Real Estate -0- 100 234
</TABLE>
The accompanying Notes should be read with these financial statements.
-34-
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
The accounting and reporting policies of Summit Bancshares, Inc. ("the
Corporation") and its Subsidiaries are in accordance with generally accepted
accounting principles and the prevailing practices within the banking industry.
A summary of the more significant policies follows:
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
- -----------------------------------------------------
The consolidated financial statements of the Corporation include its accounts
and those of its wholly-owned subsidiaries, Summit National Bank, Alta Mesa
National Bank and Camp Bowie National Bank (the "Subsidiary Banks") (see Note 23
for changes in corporate structure subsequent to December 31, 1996) and Summit
Bancservices, Inc. ("Bancservices"). All significant intercompany balances and
transactions have been eliminated.
USE OF ESTIMATES
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND DUE FROM BANKS
- -----------------------
The Subsidiary Banks are required to maintain certain restricted balances at the
Federal Reserve Bank based on their level of deposits. During 1996 the average
cash balance maintained at the Federal Reserve Bank was approximately
$2,966,000. Compensating balances held at correspondent banks to minimize
service charges averaged approximately $12,998,000 in 1996.
INVESTMENT SECURITIES
- ---------------------
Effective January 1, 1994, the Corporation adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". This statement addresses the accounting and reporting for
investments in equity securities that have readily determinable fair values and
for all investments in debt securities. Those investments are to be classified
in three categories and accounted for as follows:
- Debt securities that the Corporation has the positive intent and ability
to hold to maturity are classified as held-to-maturity securities and
----------------
reported at amortized cost.
- Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading
-------
securities and reported at fair value, with unrealized gains and losses
----------
included in earnings.
- Debt and equity securities not classified as either held-to-maturity
securities or trading securities are classified as available-for-sale
------------------
securities and reported at fair value, with unrealized gains and losses
excluded from earnings and reported net of tax in a separate component
of shareholders' equity.
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 at time of purchase of securities,
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 credit worthiness, a
change in tax law, or statutory or regulatory requirements), the Corporation may
change the investment security classification. In 1996 and 1995 the Corporation
held no securities that would have been classified as trading securities.
-35-
<PAGE>
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 securities of 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 simple interest method. Generally, loan
origination and commitment fees are recognized at the time of funding and are
considered adjustments to interest income. Related direct costs are not
separately allocated to loans but are charged to non-interest expense in the
period incurred. The net effect of not recognizing such fees and related costs
over the life of the related loan is not considered to be material to the
financial statements. 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 placed on non-accrual all payments
received are applied to principal and no interest income is recorded until the
loan is returned to accrual status or the principal has been reduced to zero.
In January 1995, the Corporation adopted Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan" ("SFAS
114"), as amended by Statement of Financial Accounting Standards No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosure." Under the new standard, the allowance for loan losses related to
any loans that are identified for evaluation in accordance with SFAS 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 adoption of SFAS 114 did not result in any
additional provisions for loan losses.
The allowance for loan losses is comprised of amounts charged against income in
the form of the provision for loan losses as determined by management.
Management's evaluation is based on a number of subjective factors, including
the Subsidiary Banks' loss experience in relation to outstanding loans and the
existing level of the allowance, prevailing and prospective economic conditions,
and management's continuing review of nonperformance loans and its evaluation of
the quality of the loan portfolio. Loan balances are charged against the
allowance for loan losses when management believes that the collectability of
the principal is unlikely.
The evaluation of the adequacy of loan collateral is often based upon estimates
and appraisals. Because of changing economic conditions, the valuations
determined from such estimates and appraisals may also change. Accordingly, the
Corporation may ultimately incur losses which vary from management's current
estimates. Adjustments to the allowance for loan losses will be reported in the
period such adjustments become known or are reasonably estimable.
PREMISES AND EQUIPMENT
- ----------------------
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation expense is computed on the straight-line method
based upon the estimated useful lives of the assets ranging from 3 to 40 years.
Maintenance and repairs are charged to operating expenses. Renewals and
improvements are added to the asset accounts and depreciated over the periods
benefited. Depreciable assets sold or retired are removed from the asset and
related accumulated depreciation accounts and any gain or loss is reflected in
the income and expense accounts.
OTHER REAL ESTATE
- -----------------
Other real estate is foreclosed property held pending disposition and is valued
at the lower of its fair value or the recorded investment in the related loan.
At foreclosure, if the fair value, less estimated costs to sell, of the real
estate acquired is less than the Corporation's recorded investment in the
related loan, a writedown is recognized through a charge to the allowance for
loan losses. Any subsequent reduction in value is recognized by a charge to
income. Operating expenses of such properties, net of related income, and gains
and losses on their disposition are included in non-interest expense.
FEDERAL INCOME TAXES
- --------------------
The Corporation joins with its Subsidiaries in filing a consolidated federal
income tax return. The Subsidiaries pay a charge equivalent to their current
federal income tax to the Corporation based on the separate taxable income of
the Subsidiaries.
-36-
<PAGE>
The Corporation and the Subsidiaries maintain their records for financial
reporting and income tax reporting purposes on the accrual basis of accounting.
Deferred income taxes are provided in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". Deferred taxes are
provided for the accumulated temporary differences due to basic differences for
assets and liabilities for financial reporting and income tax reporting.
Realization of net deferred tax assets is dependent on generating sufficient
future taxable income. Although realization is not assured, management believes
it is more likely than not that all of the net deferred tax assets will be
realized. The amount of the net deferred tax asset considered realizable,
however, could be reduced in the near term if estimates of future taxable income
are reduced.
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 and 1994 financial
statements to conform to the 1996 presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities" ("SFAS 125"). This
statement establishes a "financial component" approach that focuses on content
and provides consistent standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings. SFAS 125 is
effective for transactions occurring after December 31, 1996. Implementation of
this pronouncement should have no material effect on the Corporation's
consolidated financial results.
NOTE 2 - INVESTMENT SECURITIES
A summary of amortized cost and estimated fair values of investment securities
is as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 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 $ 24,993 $184 $ (62) $ 25,115
U.S. Government Agencies
and Corporations 22,737 134 (41) 22,830
U.S. Government Agency
Mortgage Backed Securities 10,707 27 (50) 10,684
-------- ---- ----- --------
Total Held-to-Maturity Securities 58,437 345 (153) 58,629
-------- ---- ----- --------
Investment Securities - Available-for-Sale
U.S. Treasury Securities 52,440 352 (107) 52,685
U.S. Government Agencies
and Corporations 2,488 51 -0- 2,539
U.S. Government Agency
Mortgage Backed Securities 3,049 54 (5) 3,098
Federal Reserve Bank Stock 254 -0- -0- 254
-------- ---- ----- --------
Total Available-for-Sale Securities 58,231 457 (112) 58,576
-------- ---- ----- --------
Total Investment Securities $116,668 $802 $(265) $117,205
======== ==== ===== ========
</TABLE>
In the above schedule, the amortized cost of Total Held-to-Maturity Securities
--------------
of $58,437,000 and the estimated fair value of Total Available-for-Sale
----------
Securities of $58,576,000 are reflected in Investment Securities on the
consolidated balance sheet as of December 31, 1996 for a total of $117,013,000.
A net unrealized gain of $345,000 is included in the Available-for-Sale
Investment Securities balance. The unrealized gain, net of tax, is included in
Shareholders' Equity.
-37-
<PAGE>
<TABLE>
<CAPTION>
December 31, 1995
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Investment Securities - Held-to-Maturity
U.S. Treasury Securities $ 32,086 $285 $(119) $ 32,252
U.S. Government Agencies
and Corporations 23,355 66 (9) 23,412
U.S. Government Agency
Mortgage Backed Securities 9,054 23 (40) 9,037
Obligations of States and
Political Subdivisions 70 1 -0- 71
-------- ---- ----- --------
Total Held-to-Maturity Securities 64,565 375 (168) 64,772
-------- ---- ----- --------
Investment Securities - Available-for-Sale
U.S. Treasury Securities 46,501 445 (51) 46,895
U.S. Government Agencies
and Corporations 3,493 78 (4) 3,567
U.S. Government Agency
Mortgage Backed Securities 4,049 47 (9) 4,087
Federal Reserve Bank Stock 254 -0- -0- 254
-------- ---- ----- --------
Total Available-for-Sale Securities 54,297 570 (64) 54,803
-------- ---- ----- --------
Total Investment Securities $118,862 $945 $(232) $119,575
======== ==== ===== ========
</TABLE>
In the above schedule, the amortized cost of Total Held-to-Maturity Securities
--------------
of $64,565,000 and the estimated fair value of Total Available-for-Sale
----------
Securities of $54,803,000 are reflected in Investment Securities on the
consolidated balance sheet as of December 31, 1995 for a total of $119,368,000.
A net unrealized gain of $506,000 is included in the Available-for-Sale
Investment Securities balance. The unrealized gain, net of tax, is included in
Shareholders' Equity.
A summary of the amortized cost and estimated fair value of debt securities by
contractual maturity as of December 31, 1996, is shown below (in thousands).
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or repay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------
Held-to-Maturity Available-for-Sale
------------------- -------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Due in One Year or Less $15,913 $15,907 $13,445 $13,530
Due after One Year
through Five Years 27,163 27,285 41,629 41,823
Due after Five Years
through Ten Years 7,070 7,127 504 527
Due after Ten Years 8,291 8,310 2,653 2,696
------- ------- ------- -------
Total $58,437 $58,629 $58,231 $58,576
======= ======= ======= =======
</TABLE>
Included in the investment securities is $10,690,000 and $9,449,000 at December
31, 1996 and December 31, 1995, respectively, of mortgage-backed securities
having stated maturities after five years. The estimated maturities on these
securities are between two and twelve years as of December 31, 1996, based on
estimated prepayments of the underlying mortgages.
Investment securities with carrying values of $31,504,000 and $25,214,000 at
December 31, 1996 and 1995, respectively, were pledged to secure federal, state
and municipal deposits and for other purposes as required or permitted by law.
Also, the fair values of those pledged securities totaled $31,560,000 and
$25,265,000 at December 31, 1996 and 1995, respectively.
-38-
<PAGE>
Proceeds from sales of investment securities were $14,527,000 during 1996,
$2,969,000 during 1995 and $26,885,000 during 1994. In 1996, gross losses from
sale of securities of $27,000 were realized, but were partially offset by gross
gains of $13,000. In 1995, a loss from sale of securities of $10,000 was
realized. Gross losses of $184,000 were realized in 1994, but were partially
offset by gross gains of $32,000. The total amount of proceeds from securities
sales have been from sales of securities included in the Available-for-Sale
category.
The Corporation or Subsidiaries do not own any investment securities of any one
issuer (excluding U.S. Government or U.S. Government Agency Securities) of which
aggregate adjusted cost exceeds 10% of the consolidated shareholders' equity at
December 31, 1996 and 1995, respectively.
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES
The loan portfolio consists of various types of loans made principally to
borrowers located in Tarrant County, Texas. The book values of loans by major
type follow (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995
---------- ---------
<S> <C> <C>
Commercial $103,414 $ 81,542
Real Estate Mortgage 76,771 64,200
Real Estate Construction 12,862 10,189
Loans to Individuals 27,674 23,147
Less: Unearned Discount (715) (585)
-------- --------
220,006 178,493
Allowance for Loan Losses (2,972) (2,500)
-------- --------
Loans, Net $217,034 $175,993
======== ========
</TABLE>
At December 31, 1996, the recorded investment in loans that are considered to be
impaired under Statement of Financial Accounting Standards No. 114 was $447,000
(of which $447,000 were on non-accrual status). The related allowance for loan
losses for these loans was $195,000. The average recorded investment in
impaired loans during the year ended December 31, 1996 was approximately
$812,000. For this period the Corporation recognized no interest income on
these impaired loans.
Loans on which accrued interest has been discontinued or reduced amounted to
approximately $1,102,000 and $990,000 at December 31, 1996 and 1995,
respectively. If interest on these loans had been recorded in accordance with
their original terms such income would have approximated $111,000 for 1996,
$102,000 for 1995 and $35,000 for 1994. Interest income on those loans included
in net income was $30,000 for 1996, $42,000 for 1995 and $25,000 for 1994.
-39-
<PAGE>
Transactions in the allowance for loan losses are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Balance, Beginning of Year $2,500 $2,410 $2,594
Provision, Charged (Credited) to Income 819 236 (114)
Loans Charged Off (462) (347) (313)
Recoveries of Loans Previously
Charged Off 115 201 243
------ ------ ------
Net Charge-Offs (347) (146) (70)
------ ------ ------
Balance, End of Year $2,972 $2,500 $2,410
====== ====== ======
</TABLE>
NOTE 4 - PREMISES AND EQUIPMENT
The investment in premises and equipment stated at cost and net of accumulated
amortization and depreciation is as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1996 1995 1994
------------- -------------- --------------
<S> <C> <C> <C>
Land $ 1,446 $ 1,279 $ 1,264
Buildings and Improvements 7,375 7,115 6,742
Furniture and Equipment 5,182 5,051 4,470
------- ------- -------
Total Cost 14,003 13,445 12,476
Less: Accumulated Depreciation
and Amortization 6,898 6,288 5,874
------- ------- -------
Net Book Value $ 7,105 $ 7,157 $ 6,602
======= ======= =======
</TABLE>
Depreciation and amortization charged to expense amounted to $762,000, $652,000
and $545,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
At December 31, 1996, the Corporation and Subsidiaries had certain noncancelable
operating leases which cover premises with future minimum annual rental payments
as follows (in thousands):
1997 $226
1998 230
1999 232
2000 283
2001 249
Thereafter 698
It is expected that in the normal course of business, leases that expire will be
renewed or replaced by leases on other property.
-40-
<PAGE>
Rental income and rental expense of premises included in the consolidated
financial statements is computed as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Total Rental Income $ 344 $ 318 $ 329
Less: Rental Expense 245 240 178
----- ----- -----
Net Rental Income $ 99 $ 78 $ 151
===== ===== =====
</TABLE>
NOTE 5 - OTHER REAL ESTATE
The carrying value of other real estate was as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Other Real Estate $ 201 $ 148 $ 684
Valuation Reserve (35) (35) (35))
----- ----- -----
Net Other Real Estate $ 166 $ 113 $ 649
===== ===== =====
</TABLE>
Transactions in the valuation reserve are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Balance, Beginning of Year $ 35 $ 35 $ 279
Provisions Charged to Income -0- -0- -0-
Reductions from Sales -0- -0- (244)
----- ----- -----
Balance, End of Year $ 35 $ 35 $ 35
===== ===== =====
</TABLE>
Direct writedowns of other real estate charged to income were: 1996 - $12,000
and 1995 - $12,000. There were no direct writedowns of other real estate during
1994.
-41-
<PAGE>
NOTE 6 - DEPOSITS AND RELATED EXPENSE
At December 31, 1996, 1995 and 1994, deposits and related interest expense for
the related years ended December 31, consisted of the following (in thousands):
<TABLE>
<CAPTION>
Deposits Interest Expense
------------------------------- -------------------------
1996 1995 1994 1996 1995 1994
--------- --------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-Bearing
Demand Deposits $103,695 $ 89,184 $ 72,992
Interest-Bearing Deposits:
Interest-Bearing
Transaction Accounts 119,316 110,160 100,417 $3,853 $3,532 $2,694
Savings 49,048 36,870 17,677 1,871 937 467
Savings Certificates - Time 47,025 49,005 45,537 2,292 2,290 1,582
Certificates of Deposit
$100,000 or More 25,434 24,551 22,681 1,208 1,165 759
Other 505 339 235 19 12 8
-------- -------- -------- ------ ------ ------
Total 241,328 220,925 186,547 $9,243 $7,936 $5,510
-------- -------- -------- ====== ====== ======
Total Deposits $345,023 $310,109 $259,539
======== ======== ========
</TABLE>
The Corporation has no brokered deposits and there are no major concentrations
of deposits.
NOTE 7 - SECURITIES SOLD UNDE R REPURCHASE AGREEMENTS
Securities sold under repurch ase agreements generally represent borrowings with
maturities ranging from one t o thirty days. Information relating to these
borrowings is summarized as f ollows (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
Securities Sold Under Repurch ase Agreements:
Average $12,181 $ 6,580 $2,349
Period-end 13,209 13, 528 4,528
Maximum Month-End Balance During Period 14,453 13,528 4,528
Interest Rate
Average 4.33% 5.11% 3.89%
Period-End 4.35 4.67 4.92
</TABLE>
NOTE 8 - NOTES PAYABLE
The note payable at the Parent Company is an intercompany note and, therefore,
is reflected in the Parent Company financial statements but is eliminated in the
consolidated financial statements. The note balance at December 31, 1996 and
1995, was $951,000 and $1,031,000, respectively. This note matures December 15,
1999 and is secured by banking premises. The interest rate at December 31, 1996
was 8.25% and is fixed annually on the note's anniversary date.
The fair value of the note payable is it's carrying value since the note is a
variable rate loan and the note is adjusted annually in December of each year at
prime rate.
On July 12, 1996, the Corporation obtained lines of credit from a bank under
which the Corporation may borrow $9,000,000 at prime rate. The lines of credit
are secured by stock of one of the Subsidiary Banks and mature on July 12, 1997,
whereupon, if balances are outstanding the lines convert to term notes having
five year terms. The Corporation will not pay a fee for any unused portion of
the lines. There have been no borrowings to date on these lines of credit.
-42-
<PAGE>
NOTE 9 - OTHER NON-INTEREST EXPENSE
The significant components of other non-interest expense are presented below (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1996 1995 1994
------------- -------------- --------------
<S> <C> <C> <C>
Business Development $ 426 $ 443 $ 392
Legal and Professional Fees 442 479 357
Printing and Supplies 303 289 303
Regulatory Fees and Assessments 134 411 666
Other 1,277 1,144 993
------ ------ ------
Total $2,582 $2,766 $2,711
====== ====== ======
</TABLE>
NOTE 10 - INCOME TAXES
The consolidated provision for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1996 1995 1994
------------- -------------- --------------
<S> <C> <C> <C>
Federal Income Tax Expense
Current $3,240 $2,400 $1,846
Deferred (137) 68 248
------ ------ ------
Total Federal Income Tax Expense $3,103 $2,468 $2,094
====== ====== ======
Effective Tax Rates 34.3% 34.3% 34.1%
====== ====== ======
</TABLE>
The reasons for the difference between income tax expense and the amount
computed by applying the statutory federal income tax rate to operating earnings
are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1996 1995 1994
------------- -------------- --------------
<S> <C> <C> <C>
Federal Income Taxes at Statutory Rate of 34% $3,076 $2,447 $2,085
Effect of Tax Exempt Interest Income (8) (19) (23)
Nondeductible Expenses 39 32 30
Other (4) 8 2
------ ------ ------
Income Taxes Per Income Statement $3,103 $2,468 $2,094
====== ====== ======
</TABLE>
Federal income taxes included in the consolidated balance sheets were as follows
(in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1995
-------- --------
<S> <C> <C>
Current Tax Asset $ 26 $ 10
Deferred Tax Asset 449 235
------ ------
Total Included in Other Assets $ 475 $ 245
====== ======
</TABLE>
-43-
<PAGE>
Deferred income tax expense (benefit) results from differences between amounts
of assets and liabilities as measured for income tax return and financial
reporting purposes. The significant components of federal deferred tax assets
and liabilities are in the following table (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1996 1995 1994
------------- ------------ -------------
<S> <C> <C> <C>
Federal Deferred Tax Assets:
Unrealized Losses on Available-for-Sale Securities $ -0- $ -0- $ 450
Allowance for Loan Losses 525 365 344
Valuation Reserves - Other Real Estate 60 58 97
Interest on Non-accrual Loans 46 55 48
Deferred Compensation 260 170 104
Other 63 56 67
----- ----- ------
Gross Federal Deferred Tax Assets 954 704 1,110
----- ----- ------
Federal Deferred Tax Liabilities:
Depreciation and Amortization 217 214 188
Unrealized Gains on Available-for-Sale Securities 117 172 -0-
Other 171 83 21
----- ----- ------
Gross Federal Deferred Tax Liabilities 505 469 209
----- ----- ------
Net Deferred Tax Asset $ 449 $ 235 $ 901
===== ===== ======
</TABLE>
NOTE 11 - RELATED PARTY TRANSACTIONS
During 1996 and 1995 the Subsidiary Banks had transactions which were made in
the ordinary course of business with certain of their and the Corporation's
officers, directors and their affiliates. All loans included in such
transactions were made on substantially the same terms, including interest rate
and collateral, as those prevailing at the time for comparable transactions with
other persons and all loans are current as to principal and interest payments.
A summary of these transactions follows (in thousands):
<TABLE>
<CAPTION>
Balance Net
Beginning Net Amounts Balance at
of Year Additions Collected End of Year
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
For the Year ended December 31, 1996:
23 Directors and Officers $3,769 $1,198 $(1,148) $3,819
For the Year ended December 31, 1995:
23 Directors and Officers $4,156 $2,322 $(2,709) $3,769
</TABLE>
NOTE 12 - STOCK OPTION PLAN
The Corporation has an Incentive Stock Option Plan ("1993 Plan") with 300,000
shares (adjusted for the 1993 and 1995 two-for-one stock splits) of common stock
reserved for grant thereunder. The 1993 Plan provides for the granting to
executive management and other key 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 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.
-44-
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
1996 1995
--------------------------- ------------------------
Wtd. Avg. Wtd. Avg.
Shares Ex. Price Shares Ex. Price
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Outstanding, Beginning of Year 301,400 $ 5.93 303,400 $ 4.70
Granted 29,800 20.75 38,000 11.57
Exercised (98,150) 2.86 (40,000) 1.96
Canceled (1,000) 6.00 -0- --
------- --------
Outstanding, End of Year 232,050 $ 9.13 301,400 $ 5.93
======= ========
Exercisable at End of Year 161,850 $ 7.35 226,880 $ 4.96
Weighted Average Fair Value of
Options Granted at Date of Issue $ 6.70 $3.45
</TABLE>
The options outstanding at December 31, 1996, have exercise prices between $6.00
and $20.75 with a weighted average exercise price of $9.13 and a weighted
average remaining contractual life of 7.2 years. Stock options have been
adjusted retroactively for the effects of stock dividends.
The Corporation accounts for this plan under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," under which no compensation
cost has been recognized for options granted. Had compensation cost for the
plan been determined consistent with Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation," the Corporation's net income
and earnings per share would have been reduced by insignificant amounts on a pro
forma basis for the years ended December 31, 1996 and 1995. The fair value of
the options granted in 1995 and 1996 were estimated as of the date of grant
using an accepted options pricing model with the following weighted-average
assumptions: risk-free interest rate of 6.6% and 6.1% respectively, expected
dividend yield of 3.6% and 3.0%, respectively, and expected life of 6.5 years
and expected volatility of 30.3% for each year.
NOTE 13 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Corporation is a party to various financial instruments with off-balance
sheet risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include loan commitments, standby
letters of credit and documentary letters of credit. The instruments involve,
to varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the financial statements.
The Corporation's exposure to credit loss in the event of non-performance by the
other party to the financial instrument for loan commitments and standby letters
of credit is represented by the contractual amount of those instruments. The
Corporation uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
The total contract amounts of financial instruments with off-balance sheet risk
are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------
1996 1995
-------- --------
<S> <C> <C>
Financial Instruments Whose Contract
Amounts Represent Credit Risk:
Commitments to Extend Credit $79,231 $70,172
Documentary and Standby Letters of Credit 2,984 6,137
</TABLE>
-45-
<PAGE>
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 14 - EARNINGS PER SHARE
Earnings per share of common stock are based on the weighted average number of
shares outstanding during the years as follows:
<TABLE>
<CAPTION>
Shares
---------
<S> <C>
1996 3,199,480
1995 3,139,230
1994 3,135,770
</TABLE>
NOTE 15 - EMPLOYEE BENEFIT PLANS
PENSION PLAN
- ------------
The Corporation has a defined benefit pension plan covering substantially all of
its employees. The benefits are based on years of service and the employee's
compensation history. The employee's compensation used in the benefit
calculation is the highest average for any five consecutive years of employment
within the employee's last ten years of employment.
Funding for the plan is provided by employer contribution to trust funds in
amounts determined by actuarial assumption and valuation of the plan.
Contributions are intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the future.
The following table sets forth the plan's funded status and amounts recognized
in the Corporation's consolidated balance sheets at December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $1,647 in 1996 and $1,152 in 1995 $1,762 $1,183
====== ======
Projected benefit obligation for service rendered to date $1,997 $1,912
Plan assets at fair value, primarily listed stocks and U.S. bonds 2,192 1,786
------ ------
Plan assets in excess of (less than) projected benefit obligation 195 (126)
Unrecognized net loss from past experience different from that
assumed and effects of changes in assumptions 21 197
Prior service cost not yet recognized in net periodic pension cost 15 17
------ ------
Prepaid (accrued) pension cost included in other assets (liabilities) $ 231 $ (88)
====== ======
</TABLE>
-46-
<PAGE>
Net pension expense included the following components (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Service cost for benefits earned during the period $ 195 $ 154 $ 111
Interest cost on projected benefit obligation 131 140 130
Less: Actual return on plan assets, net of expenses (153) (260) (133)
Net amortization and deferral (2) 145 5
----- ----- -----
Net periodic pension expense $ 171 $ 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 in
each year were 8 percent and 5 percent, respectively. The expected long-term
rate of return on plan assets was 8 percent.
During 1996 and 1995 the Corporation contributed $313,000 and $317,000 to the
plan, respectively.
MANAGEMENT SECURITY PLAN
- ------------------------
In 1992, the Corporation established a Management Security Plan to provide key
employees with retirement, death or disability benefits in addition to those
provided by the Pension Plan. The expense charged to operations in 1996, 1995
and 1994 for such future obligations was $239,000, $173,000, and $141,000,
respectively.
OTHER POST RETIREMENT BENEFITS
- ------------------------------
The Corporation provides certain health care benefits for certain retired
employees who bear all costs of these benefits. These benefits are covered under
the "Consolidated Omnibus Budget Reconciliation Act" (COBRA).
NOTE 16- DIVIDENDS FROM SUBSIDIARIES
The primary source of funds for the Parent Company is cash dividends received
from the Subsidiary Banks. The amount of dividends that the Subsidiary Banks
may pay in any one year, without approval of the Comptroller of the Currency, is
the sum of the retained net profits for the preceding two years plus its total
of the net profits for the current year. Under this formula, in 1997 the
Subsidiary Banks can legally initiate dividend payments of $7,581,000 plus an
additional amount equal to their net profits, as defined, for 1997 to the date
of any such dividend payment. The Subsidiary Banks are also restricted from
paying dividends that would cause the Bank to be under-capitalized.
Internal dividend policies limit dividends from Subsidiary Banks if their equity
capital levels fall below certain minimums determined by the respective Boards
of Directors.
NOTE 17 - CONCENTRATIONS OF CREDIT RISK
The Subsidiary Banks grant commercial, real estate and consumer loans in their
direct market which is defined as Fort Worth and its surrounding area. The
Board of Directors of each Subsidiary Bank monitors concentrations of credit by
purpose, collateral and industry at least quarterly. Certain limitations for
concentration are set by the Boards. Additional loans in excess of these limits
must have prior approval of the bank's directors' loan committee. 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 18 - COMPENSATED ABSENCES
Employees of the Corporation are entitled to paid vacation, paid sick days and
other personal days off, depending on job classification, length of service, and
other factors. It is impracticable to estimate the amount of compensation for
future absences, and, accordingly, no liability has been recorded in the
accompanying financial statements. The Corporation's policy is to recognize the
costs of compensated absences when actually paid to employees.
-47-
<PAGE>
NOTE 19 - LITIGATION
Certain of the Subsidiary Banks are involved in legal actions arising in the
ordinary course of business. It is the opinion of management, after reviewing
such actions with outside legal counsel, that the settlement of these matters
will not materially affect the Corporation's financial position.
NOTE 20 - STOCK SPLIT
In October 1995, the Board of Directors of Summit Bancshares, Inc. approved a
two-for-one stock split of the Corporation's common stock to be effected as a
100% stock dividend and to be paid on December 6, 1995. All references in the
accompanying financial statements regarding stock options and per share data for
prior periods have been restated to reflect the stock split.
NOTE 21 - 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 following twelve months through the open market or in
privately negotiated transactions in accordance with all applicable state and
federal laws and regulations. Subsequent to this approval 9,000 shares were
purchased by the Corporation through the open market and canceled.
Under similar programs approved by the Board in 1995 and 1994, 42,670 shares in
the aggregate were purchased in those years.
NOTE 22 - REGULATORY MATTERS
Bank regulatory authorities have specified guidelines for purposes of evaluating
a bank's capital adequacy. The following is a summary of the Corporation's
capital ratios:
<TABLE>
<CAPTION>
Actual, Minimum Required,
December 31, December 31,
-------------------------- -----------------
1996 1995 1996
------ ------ ------
<S> <C> <C> <C>
Total Qualifying Capital to Risk-Based Assets 15.85% 15.91% 8.00%
Tier I Capital to Risk-Based Assets 14.61 14.69 4.00
Tier I Capital to Capital Assets (Leverage) 8.82 8.42 3.00*
</TABLE>
* The regulatory authorities may require the Corporation to maintain a leverage
ratio of up to 200 basis points above the required minimum.
NOTE 23 - SUBSEQUENT EVENTS
On January 13, 1997, Camp Bowie National Bank changed its name to Summit
Community Bank, National Association. Also at that time, Summit Community Bank,
N.A. acquired the assets and assumed the liabilities of the Northeast Branch of
Summit National Bank in a cash transaction, effective as of January 1, 1997.
On March 7, 1997, Alta Mesa National Bank merged with Summit Community Bank,
N.A. in a pooling of interests.
On January 22, 1997, the Board of Directors of Summit Bancshares, Inc. approved
a quarterly dividend of $.09 per share to be paid on February 14, 1997 to
shareholders of record on January 31, 1997.
-48-
<PAGE>
NOTE 24 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 ("SFAS 107"), "Disclosures
about Fair Value of Financial Instruments" requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on estimates
using present value tables or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. SFAS 107 excludes certain financial instruments
and all non-financial instruments from its disclosure requirements.
The following methods and assumptions were used by the Corporation in estimating
its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the balance sheet
-------------------------
for cash and due from banks approximate those assets' fair values.
INVESTMENT SECURITIES (INCLUDING MORTGAGE-BACKED SECURITIES): Fair values for
------------------------------------------------------------
investment securities are based on quoted market prices, where available. If
quoted market prices are not available, fair values are based on quoted market
prices of comparable instruments.
LOANS: For variable-rate loans, fair values are based on carrying values. The
-----
fair values for fixed rate loans such as mortgage loans (e.g., one-to-four
family residential) and installment loans are estimated using discounted cash
flow analysis. The carrying amount of accrued interest receivable approximates
its fair value.
DEPOSIT LIABILITIES: The fair value disclosed for interest bearing and non-
-------------------
interest bearing demand deposits, passbook savings, and certain types of money
market accounts are, by definition, equal to the amount payable on demand at
the reporting date or their carrying amounts. Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time deposits.
SHORT-TERM BORROWINGS: The carrying value of borrowings under repurchase
---------------------
agreements approximate their fair values.
The estimated fair values of the Corporation's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------
1996 1995
--------------------------- ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial Assets
Cash and due from banks $ 28,339 $ 28,339 $ 22,480 $ 22,480
Federal funds sold 20,350 20,350 25,680 25,680
Securities 117,013 117,205 119,368 119,575
Loans 220,006 220,632 178,493 178,603
Financial Liabilities
Deposits 345,023 345,231 310,109 310,390
Securities sold under repurchase
agreements 13,209 13,209 13,528 13,528
Off-balance Sheet Financial Instruments
Loan commitments 79,231 70,172
Letters of credit 2,984 6,137
</TABLE>
-49-
<PAGE>
NOTE 25 - CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------------
1996 1995
------------ ------------
ASSETS (In Thousands)
<S> <C> <C>
CASH IN SUBSIDIARY BANKS
Demand $ 207 $ 142
Time 949 487
INVESTMENTS IN SUBSIDIARIES
Bank Subsidiaries 32,463 28,121
Non-Bank Subsidiary 337 341
PREMISES AND EQUIPMENT - NET 1,864 1,886
OTHER ASSETS 1,124 799
------- -------
TOTAL ASSETS $36,944 $31,776
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Notes Payable $ 951 $ 1,031
Other Liabilities 913 620
SHAREHOLDERS' EQUITY 35,080 30,125
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $36,944 $31,776
======= =======
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME Year Ended December 31,
-------------------------------------------------
1996 1995 1994
----------- ----------- ----------
(In Thousands)
<S> <C> <C> <C>
INCOME
Dividends from Subsidiaries $ 2,000 $ 2,100 $ 2,100
Interest 18 12 5
Other Income 417 399 341
------- ------- -------
TOTAL INCOME 2,435 2,511 2,446
------- ------- -------
EXPENSES
Interest 88 93 101
Salaries and Employee Benefits 795 715 535
Occupancy and Furniture-Net 4 15 (3)
Other Expense 293 297 296
------- ------- -------
TOTAL EXPENSE 1,180 1,120 929
------- ------- -------
INCOME BEFORE INCOME TAX BENEFIT AND
EQUITY IN UNDISTRIBUTED EARNINGS
OF SUBSIDIARIES 1,255 1,391 1,517
INCOME TAX BENEFIT 244 230 196
------- ------- -------
INCOME BEFORE EQUITY IN UNDISTRIBUTED
EARNINGS OF SUBSIDIARIES 1,499 1,621 1,713
EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 4,444 3,108 2,327
------- ------- -------
NET INCOME $ 5,943 $ 4,729 $ 4,040
======= ======= =======
</TABLE>
-50-
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS Year Ended December 31,
--------------------------------------------------
1996 1995 1994
----------- ----------- ----------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 5,943 $ 4,729 $ 4,040
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Depreciation and Amortization 140 124 151
Deferred Federal Income Taxes 77 40 48
Undistributed Earnings of Subsidiaries (4,444) (3,108) (2,327)
Increase in Other Assets (403) (538) (169)
Increase in Other Liabilities 293 167 128
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,606 1,414 1,871
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Contribution to Non-Bank Subsidiary -0- (130) -0-
Purchases of Premises and Equipment (117) (49) (42)
------- ------- -------
NET CASH USED BY INVESTING ACTIVITIES (117) (179) (42)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments on Notes Payable (80) (325) (342)
Payments of Cash Dividends (898) (692) (567)
Receipts from Stock Options Exercised 173 55 109
Purchase of Treasury Stock (157) (508) (353)
------- ------- -------
NET CASH USED BY FINANCING ACTIVITIES (962) (1,470) (1,153)
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 527 (235) 676
CASH AND CASH EQUIVALENTS - BEGINNING
OF YEAR 629 864 188
------- ------- -------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 1,156 $ 629 $ 864
======= ======= =======
</TABLE>
-51-
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no changes in accountants and no disagreements with accountants
on any matter of accounting principles or practices or financial statement
disclosures during the twenty-four (24) month period ended December 31, 1996.
-52-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information set forth under the caption "PROPOSAL NO. 1: ELECTION OF
DIRECTORS" on pages 3 through 6 of the Corporation's Proxy Statement dated
March 17, 1997, relating to the 1997 Annual Meeting of Shareholders of the
Corporation, the information set forth under the caption "STOCK OWNERSHIP -
Section 16(a) Beneficial Ownership Reporting Compliance" on page 15 of such
Proxy Statement, and the information set forth under the caption "EXECUTIVE
OFFICERS OF THE CORPORATION" on pages 9 through 10 of Part I of this report is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under the caption "EXECUTIVE COMPENSATION AND OTHER
INFORMATION" on pages 16 through 25 of the Corporation's Proxy Statement dated
March 17, 1997, relating to the 1997 Annual Meeting of Shareholders of the
Corporation, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information with respect to shareholders of the Corporation who are known to
be beneficial owners of more than five percent (5%) of the outstanding shares of
Common Stock of the Corporation set forth under the caption "STOCK OWNERSHIP -
By Others" on page 15 of the Corporation's Proxy Statement dated March 17,
1997, relating to the 1997 Annual Meeting of Shareholders of the Corporation, is
incorporated herein by reference. The information relating to the beneficial
ownership of the outstanding shares of Common Stock of the Corporation by its
directors and executive officers set forth under the caption "STOCK OWNERSHIP -
By Management" on pages 13 through 15 of the Corporation's Proxy Statement dated
March 17, 1997, relating to the 1997 Annual Meeting of Shareholders of the
Corporation, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth under the caption "CERTAIN TRANSACTIONS" on page 27 of
the Corporation's Proxy Statement dated March 17, 1997, relating to the 1997
Annual Meeting of Shareholders of the Corporation, is incorporated herein by
reference.
-53-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) FINANCIAL STATEMENTS. The following financial statements are
--------------------
included in Part II, Item 8:
Independent Auditor's Report
Consolidated Balance Sheets of Summit Bancshares, Inc. and
Subsidiaries as of December 31, 1996 and 1995
Consolidated Statements of Income of Summit Bancshares, Inc. and
Subsidiaries for the Years Ended December 31, 1996, 1995 and 1994
Statements of Changes in Shareholders' Equity of Summit Bancshares,
Inc. and Subsidiaries for the Years Ended December 31, 1996, 1995 and
1994 (Consolidated and Parent Company Only)
Consolidated Statement of Cash Flows of Summit Bancshares, Inc. and
Subsidiaries for the Years Ended December 31, 1996, 1995 and 1994
Notes to Financial Statements
(2) FINANCIAL STATEMENT SCHEDULES. Financial statement schedules are
-----------------------------
omitted because of the absence of conditions under which they are
required or because the required information is given in the financial
statements or notes thereto.
(3) EXHIBITS. The following exhibits are filed as a part of this report:
--------
3(a) Articles of Incorporation of the Corporation (incorporated
herein by reference to Exhibit 3.1 to the Corporation's
Registration Statement No. 2-92405 filed November 7, 1984).*
3(b) Articles of Amendment to the Articles of Incorporation of the
Corporation filed with the Secretary of State of Texas on May
4, 1988 (incorporated herein by reference to Exhibit 3(b) to
the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1988).*
3(c) Restated Bylaws of the Corporation (incorporated herein by
reference to Exhibit 3(b) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1986).*
3(d) Articles of Amendment to the Articles of Incorporation of the
Corporation filed with the Secretary of State of Texas on April
25, 1990 (incorporated herein by reference to Exhibit 3(d) to
the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1992).*
3(e) Articles of Amendment to the Articles of Incorporation of the
Corporation filed with the Secretary of State of Texas on April
22, 1993 (incorporated herein by reference to Exhibit 3(e) to
the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1993).*
3(f) Articles of Amendment to the Articles of Incorporation of the
Corporation filed with the Secretary of State of Texas on April
20, 1995 (incorporated herein by reference to Exhibit 3.1 to
the Corporation's Quarterly Report on Form 10-Q for the three
months ended June 30, 1995).*
3(g) Amended and Restated Articles of Incorporation of the
Corporation as of April 20, 1995 (incorporated herein by
reference to Exhibit 3.2 to the Corporation's Quarterly Report
on Form 10-Q for the three months ended June 30, 1995).*
-54-
<PAGE>
3(h) Amended and Restated Bylaws of the Corporation (incorporated
herein by reference to Exhibit 3.3 to the Corporation's
Quarterly Report on Form 10-Q for the three months ended June
30, 1995).*
4(a) Summit Bancshares, Inc.'s Rights Agreement dated April 17, 1990
(incorporated herein by reference to Exhibit 1 to the
Corporation's Current Report on Form 8-K dated April 18, 1990
filed on April 24, 1990).*
10(a) Lease Agreement dated August 28, 1985 by and between Alta Mesa
National Bank, as lessor, and the Corporation, as lessee
(incorporated herein by reference to Exhibit 10(a) to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1985).*
10(b) Lease Agreement dated October 1, 1986 by and between the
Corporation, as lessor, and Alta Mesa National Bank, as lessee
(incorporated herein by reference to Exhibit 10(f) to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1986).*
10(c) Summit Bancshares, Inc.'s 1982 Incentive Stock Option Plan
(incorporated herein by reference to Exhibit 10.3 to the
Corporation's Registration Statement No. 2-92405 filed November
7, 1984).*
10(d) Summit Bancshares, Inc.'s Defined Benefit Pension Plan
(effective as of January 1, 1985) (incorporated herein by
reference to Exhibit 10(d) to the Corporation's Annual Report
on Form 10-K for the year ended December 31, 1985).*
10(e) Amendment No. 1 to Summit Bancshares, Inc.'s Defined Benefit
Pension Plan dated June 29, 1987 (incorporated herein by
reference to Exhibit 10(f) to the Corporation's Annual Report
on Form 10-K for the year ended December 31, 1988).*
10(f) Amendment No. 2 to Summit Bancshares, Inc.'s Defined Benefit
Pension Plan dated December 16, 1988 (incorporated herein by
reference to Exhibit 10(g) to the Corporation's Annual Report
on Form 10-K for the year ended December 31, 1988).*
10(g) Amendment No. 3 to Summit Bancshares, Inc.'s Defined Benefit
Pension Plan dated October 17, 1989 (incorporated herein by
reference to Exhibit 10(h) to the Corporation's Annual Report
on Form 10-K for the year ended December 31, 1989).*
10(h) Amendment No. 4 to Summit Bancshares, Inc.'s Defined Benefit
Pension Plan dated October 18, 1994 (incorporated herein by
reference to Exhibit 10(h) to the Corporation's Annual Report
on Form 10-K for the year ended December 31, 1994).*
10(i) Promissory Note dated December 21, 1989 in the original
principal amount of $1,400,000 executed by Summit Bancshares,
Inc. and payable to the order of Summit National Bank
(incorporated herein by reference to Exhibit 10(s) to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1989).*
10(j) Lease Agreement dated February 14, 1992 by and between
Zell/Merrill Lynch Real Estate Opportunity Partners Limited
Partnership, as landlord, and Summit Bancshares, Inc., as
tenant (incorporated herein by reference to Exhibit 10(i) to
the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1992).*
10(k) First Amendment dated May 3, 1994 to Lease Agreement dated
February 14, 1992 by and between Zell/Merrill Lynch Real Estate
Opportunity Partners Limited Partnership, as landlord, and
Summit Bancshares, Inc., as tenant (incorporated herein by
reference to Exhibit 10(k) to the Corporation's Annual Report
on Form 10-K for the year ended December 31, 1994).*
-55-
<PAGE>
10(l) Loan Agreement dated June 4, 1992 between Summit Bancshares,
Inc., as borrower, and Bank of Commerce, as lender; Promissory
Note in the original principal amount of $750,000; and related
Security Agreement (incorporated herein by reference to Exhibit
10(j) to the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1992).*
10(m) Management Security Plan of Summit Bancshares, Inc. effective
September 1, 1992; Management Security Plan Agreement between
Summit Bancshares, Inc. and F. S. Gunn; and Management Security
Plan Agreement between Summit Bancshares, Inc. and James L.
Murray (incorporated herein by reference to Exhibit 10(k) to
the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1992).*
10(n) Promissory Note dated January 21, 1993 in the original
principal amount of $290,000 executed by Summit Bancservices,
Inc. and payable to the order of Summit National Bank; related
Security Agreements; and related Unconditional Guaranty
executed by Summit Bancshares, Inc. (incorporated herein by
reference to Exhibit 10(l) to the Corporation's Annual Report
on Form 10-K for the year ended December 31, 1992).*
10(o) Commercial-Industrial Lease Agreement dated January 1, 1993 by
and between Summit National Bank, as landlord, and Summit
Bancservices, Inc., as tenant (incorporated herein by reference
to Exhibit 10(m) to the Corporation's Annual Report on Form 10-
K for the year ended December 31, 1992).*
10(p) 1993 Incentive Stock Option Plan of Summit Bancshares, Inc.
(incorporated herein by reference to Exhibit 10(n) to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1993).*
10(q) Loan Agreement dated July 12, 1995, between the Corporation and
The Frost National Bank (incorporated herein by reference to
Exhibit 10 to the Corporation's Quarterly Report on Form 10-Q
for the three months ended June 30, 1995).*
10(r) Lease Agreement dated July 6, 1989 by and between Zell/Merrill
Lynch Real Estate Opportunity Partners Limited Partnership, as
landlord, and Summit National Bank as tenant (incorporated
herein by reference to Exhibit 10(r) to the Corporation's
Annual Report on Form 10-K for the year ended December 31,
1995).*
10(s) First Amendment dated July 15, 1996 to Loan Agreement dated
July 12, 1995, between the Corporation and The Frost National
Bank.
11 Computation of Earnings Per Common Share.
21 Subsidiaries of the Corporation.
23 Consent of Stovall, Grandey & Whatley, independent certified
public accountants.
27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K.
-------------------
The Corporation did not file during the last quarter covered by this
report any reports on Form 8-K.
- -------------------------------------------
* A copy of this Exhibit is available to any shareholders, at the actual cost
of reproduction upon written request to the Corporation.
-56-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SUMMIT BANCSHARES, INC.
DATE: March 27, 1997 By: /s/ Phillip E. Norwood
---------------------------------
Philip E. Norwood, President
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant in the capacities indicated on this 27th day of March, 1997.
SIGNATURE TITLE
--------- -----
/s/ Philip E. Norwood President, Chief Executive Officer
- --------------------- and Director (Principal Executive Officer)
Philip E. Norwood
/s/ Bob G. Scott Senior Vice President and Chief Financial
- ---------------------- Officer (Chief Accounting Officer)
Bob G. Scott
/s/ James L. Murray Chairman of the Board
- ----------------------
James L. Murray
/s/ F.S. Gunn Vice Chairman and Director
- ----------------------
F.S. Gunn
/s/ Jeffrey M. Harp Chief Operating Officer, Executive Vice
- ---------------------- President, Secretary and Treasurer and
Jeffrey M. Harp Director
/s/ Robert E. Bolen Director
- ----------------------
Robert E. Bolen
/s/ Joe L. Bussey, M.D. Director
- -----------------------
Joe L. Bussey, M.D.
/s/ Elliott S. Garsek Director
- -----------------------
Elliott S. Garsek
-57-
<PAGE>
/s/ Ronald J. Goldman Director
- ------------------------
Ronald J. Goldman
/s/ William W. Meadows Director
- ------------------------
William W. Meadows
/s/ Edward P. Munson Director
- ------------------------
Edward P. Munson
Director
- ------------------------
Edgar Snelson
/s/ Byron B. Searcy Director
- ------------------------
Byron B. Searcy
/s/ Lloyd J. Weaver Director
- ------------------------
Lloyd J. Weaver
-58-
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE NO.
- ------- --------
3(a) Articles of Incorporation of the Corporation (incorporated herein
by reference to Exhibit 3.1 to the Corporation's Registration
Statement No. 2-92405 filed November 7, 1984).*
3(b) Articles of Amendment to the Articles of Incorporation of the
Corporation filed with the Secretary of State of Texas on May 4, 1988
(incorporated herein by reference to Exhibit 3(b) to the Corporation's
Annual Report on Form 10-K for the year ended December 31, 1988).*
3(c) Restated Bylaws of the Corporation (incorporated herein by
reference to Exhibit 3(b) to the Corporation's Annual Report on Form
10-K for the year ended December 31, 1986).*
3(d) Articles of Amendment to the Articles of Incorporation of the
Corporation filed with the Secretary of State of Texas on April 25,
1990 (incorporated herein by reference to Exhibit 3(d) to the
Corporation's Annual Report on Form 10-K for the year ended December
31, 1992).*
3(e) Articles of Amendment to the Articles of Incorporation of the
Corporation filed with the Secretary of State of Texas on April 22,
1993 (incorporated herein by reference to Exhibit 3(e) to the
Corporation's Annual Report on Form 10-K for the year ended December
31, 1993).*
3(f) Articles of Amendment to the Articles of Incorporation of the
Corporation filed with the Secretary of State of Texas on April 20,
1995 (incorporated herein by reference to Exhibit 3.1 to the
Corporation's Quarterly Report on Form 10-Q for the three months ended
June 30, 1995).*
3(g) Amended and Restated Articles of Incorporation of the Corporation as
of April 20, 1995 (incorporated herein by reference to Exhibit 3.2 to
the Corporation's Quarterly Report on Form 10-Q for the three months
ended June 30, 1995).*
3(h) Amended and Restated Bylaws of the Corporation (incorporated herein by
reference to Exhibit 3.3 to the Corporation's Quarterly Report on Form
10-Q for the three months ended June 30, 1995).*
4(a) Summit Bancshares, Inc.'s Rights Agreement dated April 17, 1990
(incorporated herein by reference to Exhibit 1 to the Corporation's
Current Report on Form 8-K dated April 18, 1990 filed on April 24,
1990).*
10(a) Lease Agreement dated August 28, 1985 by and between Alta Mesa
National Bank, as lessor, and the Corporation, as lessee (incorporated
herein by reference to Exhibit 10(a) to the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1985).*
10(b) Lease Agreement dated October 1, 1986 by and between the
Corporation, as lessor, and Alta Mesa National Bank, as lessee
(incorporated herein by reference to Exhibit 10(f) to the
Corporation's Annual Report on Form 10-K for the year ended December
31, 1986).*
10(c) Summit Bancshares, Inc.'s 1982 Incentive Stock Option Plan
(incorporated herein by reference to Exhibit 10.3 to the Corporation's
Registration Statement No. 2-92405 filed November 7, 1984).*
10(d) Summit Bancshares, Inc.'s Defined Benefit Pension Plan (effective
as of January 1, 1985) (incorporated herein by reference to Exhibit
10(d) to the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1985).*
<PAGE>
10(e) Amendment No. 1 to Summit Bancshares, Inc.'s Defined Benefit
Pension Plan dated June 29, 1987 (incorporated herein by reference to
Exhibit 10(f) to the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1988).*
10(f) Amendment No. 2 to Summit Bancshares, Inc.'s Defined Benefit
Pension Plan dated December 16, 1988 (incorporated herein by reference
to Exhibit 10(g) to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1988).*
10(g) Amendment No. 3 to Summit Bancshares, Inc.'s Defined Benefit
Pension Plan dated October 17, 1989 (incorporated herein by reference
to Exhibit 10(h) to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1989).*
10(h) Amendment No. 4 to Summit Bancshares, Inc.'s Defined Benefit
Pension Plan dated October 18, 1994.**
10(i) Promissory Note dated December 21, 1989 in the original principal
amount of $1,400,000 executed by Summit Bancshares, Inc. and payable
to the order of Summit National Bank (incorporated herein by reference
to Exhibit 10(s) to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1989).*
10(j) Lease Agreement dated February 14, 1992 by and between
Zell/Merrill Lynch Real Estate Opportunity Partners Limited
Partnership, as landlord, and Summit Bancshares, Inc., as tenant
(incorporated herein by reference to Exhibit 10(i) to the
Corporation's Annual Report on Form 10-K for the year ended December
31, 1992).*
10(k) First Amendment dated May 3, 1994 to Lease Agreement dated
February 14, 1992 by and between Zell/Merrill Lynch Real Estate
Opportunity Partners Limited Partnership, as landlord, and Summit
Bancshares, Inc., as tenant.**
10(l) Loan Agreement dated June 4, 1992 between Summit Bancshares,
Inc., as borrower, and Bank of Commerce, as lender; Promissory Note in
the original principal amount of $750,000; and related Security
Agreement (incorporated herein by reference to Exhibit 10(j) to the
Corporation's Annual Report on Form 10-K for the year ended December
31, 1992).*
10(m) Management Security Plan of Summit Bancshares, Inc. effective
September 1, 1992; Management Security Plan Agreement between Summit
Bancshares, Inc. and F. S. Gunn; and Management Security Plan
Agreement between Summit Bancshares, Inc. and James L. Murray
(incorporated herein by reference to Exhibit 10(k) to the
Corporation's Annual Report on Form 10-K for the year ended December
31, 1992).*
10(n) Promissory Note dated January 21, 1993 in the original principal
amount of $290,000 executed by Summit Bancservices, Inc. and payable
to the order of Summit National Bank; related Security Agreements; and
related Unconditional Guaranty executed by Summit Bancshares, Inc.
(incorporated herein by reference to Exhibit 10(l) to the
Corporation's Annual Report on Form 10-K for the year ended December
31, 1992).*
10(o) Commercial-Industrial Lease Agreement dated January 1, 1993 by
and between Summit National Bank, as landlord, and Summit
Bancservices, Inc., as tenant (incorporated herein by reference to
Exhibit 10(m) to the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1992).*
10(p) 1993 Incentive Stock Option Plan of Summit Bancshares, Inc.
(incorporated herein by reference to Exhibit 10(n) to the
Corporation's Annual Report on Form 10-K for the year ended December
31, 1993).*
<PAGE>
10(q) Loan Agreement dated July 12, 1995, between the Corporation and The
Frost National Bank (incorporated herein by reference to Exhibit 10 to
the Corporation's Quarterly Report on Form 10-Q for the three months
ended June 30, 1995).*
10(r) Lease Agreement dated July 6, 1989 by and between Zell/Merrill Lynch
Real Estate Opportunity Partners Limited Partnership, as landlord, and
Summit National Bank as tenant (incorporated herein by reference to
Exhibit 10(r) to the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1995).*
10(s) First Amendment dated July 15, 1996 to Loan Agreement dated July 12,
1995, between the Corporation and The Frost National Bank.**
11 Computation of Earnings Per Common Share.**
21 Subsidiaries of the Corporation.**
23 Consent of Stovall, Grandey & Whatley, independent certified public
accountants.
27 Financial Data Schedule.**
______________________________
* A copy of this Exhibit is available to any shareholders, at the actual cost
of reproduction upon written request to the Corporation.
** Filed herewith.
<PAGE>
EXHIBIT 10(s)
FIRST AMENDMENT TO LOAN AGREEMENT
---------------------------------
THIS FIRST AMENDMENT ("First Amendment") dated as of the 15th day of July,
1996, to the Loan Agreement (the "Loan Agreement"), made and entered into as of
July 12, 1995, by and among SUMMIT BANCSHARES, INC., a Texas corporation,
(hereinafter called "Borrower") and THE FROST NATIONAL BANK, a national banking
association (hereinafter called "Lender"). All capitalized terms not otherwise
defined herein shall have the meaning ascribed to each of them in the Loan
Agreement.
W I T N E S S E T H:
WHEREAS, Borrower executed the Loan Agreement to govern those two certain
promissory notes from Lender, specifically, a $8,000,000.00 Acquisition Note and
a $1,000,000.00 Liquidity Note (collectively, the "Notes").
WHEREAS, the Borrower desires to renew and extend the unpaid principal
balance of the Notes; and
WHEREAS, the Lender agrees to renew and extend the Notes all as hereinafter
provided.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and Lender do hereby agree as follows:
ARTICLE I
---------
AMENDMENT TO LOAN AGREEMENT
---------------------------
As of the effective date hereof, the Borrower has zero outstanding under
the Acquisition Note and the Liquidity Note. The Borrower desires to renew
these credit facilities by the execution of another Acquisition Note and
Liquidity Note extending the original payment terms and the maturity date of one
year. Accordingly, Sections 2.02(a) and (b) of the Loan Agreement shall be, and
are hereby, amended to read in their entirety as follows:
(a) Acquisition Note. From Closing Date and continuing at all times
----------------
through July 15, 1997 (the "Revolving Credit Period") the Loan evidenced by
the Acquisition Note shall be a revolving credit facility which will allow
the Borrower to request such amounts as Borrower may elect from time to
time (each such amount being herein called an "Advance") so long as the
aggregate amount of Advances outstanding at any time under the Acquisition
Note does not exceed Eight Million and NO/100 Dollars ($8,000,000.00)
provided however,
FIRST AMENDMENT TO LOAN AGREEMENT - Page 1
- ---------------------------------
<PAGE>
the minimum Advance must be at least $500,000.00. The Borrower shall have
the right to borrow, repay, and borrow again under the credit facility
during the Revolving Credit Period. The outstanding principal balance of
the Acquisition Note on July 15, 1997 shall convert to a term facility (the
"Term Period") and shall be payable in 20 equal quarterly installments of
principal plus all accrued and unpaid interest, with all unpaid principal
plus all accrued and unpaid interest being due and payable on July 15,
2002. Principal and interest of the Acquisition Note shall be due and
payable as provided in the Acquisition Note. The Borrower's right to
request advances and the Lender's obligation to make advances under the
Acquisition Note shall terminate at 2:00 p.m. on July 15, 1997.
(b) Liquidity Note. The Liquidity Note shall be due and payable as
--------------
follows: during the Revolving Credit Period the Loan evidenced by the
Liquidity Note shall be a revolving credit facility which will allow the
Borrower to request such amounts as Borrower may elect from time to time
(each such amount being herein called an "Advance") so long as the
aggregate amount of Advances outstanding at any time under the Liquidity
Note does not exceed One Million and NO/100 Dollars ($1,000,000.00)
provided however, the minimum Advance must be at least $50,000.00. The
Borrower shall have the right to borrow, repay, and borrow again under the
credit facility during the Revolving Credit Period. The outstanding
principal balance of the Liquidity Note on July 15, 1997 shall convert to a
term facility (the "Term Period") and shall be payable in 20 equal
quarterly installments of principal plus all accrued and unpaid interest
being due and payable on July 15, 2002. Principal and interest of the
Liquidity Note shall be due and payable as provided in the Liquidity Note.
The Borrower's right to request advances and the Lender's obligation to
make advances under the Liquidity Note shall terminate at 2:00 p.m. on July
15, 1997.
ARTICLE II
----------
CONDITIONS OF EFFECTIVENESS
---------------------------
2.1 Effective Date. This First Amendment shall become effective as of
--------------
July 15, 1996, when, and only when, Lender shall have received counterparts of
this First Amendment executed and delivered by Borrower and when each of the
following conditions shall have been met, all in form, substance, and date
satisfactory to Lender:
(a) Renewal Notes. Borrower shall have executed and delivered to
-------------
Lender a new Acquisition Note and Liquidity Note, payable to the order of
Lender as set forth therein, duly executed on behalf of the Borrower, dated
effective July 15, 1996 in the principal amounts of $8,000,000.00 and
$1,000,000.00, respectively.
FIRST AMENDMENT TO LOAN AGREEMENT - Page 2
- ---------------------------------
<PAGE>
(b) Additional Loan Documents. Borrower shall have executed and
-------------------------
delivered to Lender such other documents as shall have been requested by
Lender to renew, and extend, the Loan Documents to secure payment of the
Obligations of Borrower, all in form satisfactory to Lender and its
counsel.
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES
------------------------------
3.1 Representations and Warranties. In order to induce Lender to enter
------------------------------
into this First Amendment, Borrower represents and warrants the following:
(a) Borrower has the corporate power to execute and deliver this
First Amendment, the Notes, and other Loan Documents and to perform all of
its obligations in connection herewith and therewith.
(b) The execution and delivery by Borrower of this First Amendment,
the Notes, and other Loan Documents and the performance of its obligations
in connection herewith and therewith: (i) have been duly authorized or will
be duly ratified and affirmed by all requisite corporate action; (ii) will
not violate any provision of law, any order of any court or agency of
government or the Articles of Incorporation or Bylaws of such entity; (iii)
will not be in conflict with, result in a breach of or constitute (alone or
with due notice or lapse of time or both) a default under any indenture,
agreement or other instrument; and (iv) will not require any registration
with, consent or approval of or other action by any federal, state,
provincial or other governmental authority or regulatory body.
(c) There is no action, suit or proceeding at law or in equity or by
or before any governmental instrumentality or other agency or regulatory
authority now pending or, to the knowledge of Borrower, threatened against
or affecting Borrower or any properties or rights of Borrower or involving
this First Amendment or the transactions contemplated hereby which, if
adversely determined, would materially impair the right of Borrower, to
carry on business substantially as now conducted and adversely affect the
ability of Borrower to consummate the transactions contemplated by this
First Amendment.
(d) The representations and warranties of Borrower contained in the
Loan Agreement, this First Amendment, the Notes, and any other Loan
Document securing Borrower's Obligations and indebtedness to Lender are
correct and accurate on and as of the date hereof as though made on and as
of the date hereof, except to the extent that the facts upon which such
representations are based have been changed by the transactions herein
contemplated.
FIRST AMENDMENT TO LOAN AGREEMENT - Page 3
- ---------------------------------
<PAGE>
ARTICLE IV
----------
RATIFICATION OF OBLIGATIONS AND LIENS
-------------------------------------
4.1 Ratification and Obligation. The Borrower does here acknowledge,
---------------------------
ratify and confirm that it is obligated and indebted to Lender as evidenced by
the Loan Agreement (as amended by this First Amendment), the Notes and all other
Loan Documents.
4.2 Valid Liens. Borrower hereby acknowledges and agrees that the liens
-----------
and security interests of the Loan Documents are valid and subsisting liens and
security interests and are superior to all liens and security interests other
than those exceptions approved by Lender in writing. Nothing herein contained
shall affect or impair the validity or priority of the liens and security
interests under the Loan Documents.
4.3 Ratification of Agreements. The Loan Agreement, this First Amendment,
--------------------------
the Notes, and each other Documents, as hereby amended, is acknowledged,
ratified and confirmed in all respects as being valid, existing, and of full
force and effect. Any reference to the Loan Agreement in any Loan Document
shall be deemed to be a reference to the Loan Agreement as amended by this First
Amendment. The execution, delivery and effectiveness of this First Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of lender under the Loan Agreement, nor constitute a
waiver of any provision of the Loan Agreement. The Borrower acknowledges,
ratifies and confirms that the collateral securing the loan secures all of the
indebtedness of the Borrower, including without limitation, the Notes.
ARTICLE V
---------
MISCELLANEOUS
-------------
5.1 Survival of Agreements. All representations, warranties, covenants
----------------------
and agreements of Borrower, herein or in any other Loan Document shall survive
the execution and delivery of this First Amendment, and the other Loan Documents
and the performance hereof and thereof, including without limitation the making
or granting of the Loan and the delivery of the Notes and all other Loan
Documents, and shall further survive until all of Borrower's Obligations to
Lender are paid in full. All statements and agreements contained in any
certificate or instrument delivered by Borrower hereunder or under the Loan
Documents to Lender shall be deemed to constitute the respective representations
and warranties by Borrower and/or respective agreements and covenants of
Borrower under this First Amendment and under the Loan Agreement.
5.2 Loan Documents. This First Amendment, the Notes, and each other Loan
--------------
Documents executed in connection herewith are each a Loan Documents and all
provisions in the Loan Agreement, as amended, pertaining to Loan Documents apply
hereto and thereto.
FIRST AMENDMENT TO LOAN AGREEMENT - Page 4
- ---------------------------------
<PAGE>
5.3 Governing Law. This First Amendment shall be governed by and
-------------
construed in all respects in accordance with the laws of the State of Texas and
any applicable laws of the United States of America, including construction,
validity and performance.
5.4 Counterparts. This First Amendment may be separately executed in any
------------
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to constitute one and the same
First Amendment.
5.5 Release of Claims. Borrower by its execution of this First Amendment,
-----------------
hereby declares that it has no set-offs, counterclaims, defenses or other causes
of action against Lender arising out of the Loan, the renewal, modification and
extension of the Loan, any documents mentioned herein or otherwise; and, to the
extent any such setoffs, counterclaims, defenses or other causes of action which
may exist, whether known or unknown, such items are hereby expressly waived and
released by Borrower.
5.6 Attorney's Fees. Borrower hereby agrees to pay to Lender, upon
---------------
demand, the reasonable attorney's fees and expenses of Lender's counsel, filing
and recording fees and other reasonable expenses incurred by Lender in
connection with this First Amendment. Borrower also agrees to provide to Lender
such other documents and instruments as Lender may reasonably request in
connection with the renewal, extension and modification of the Loans mentioned
herein.
5.7 ENTIRE AGREEMENT. THE FIRST AMENDMENT, TOGETHER WITH ANY LOAN
----------------
DOCUMENTS EXECUTED IN CONNECTION HEREWITH, CONTAINS THE ENTIRE AGREEMENT BETWEEN
THE PARTIES HERETO RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND ALL
PRIOR AGREEMENTS RELATIVE THERETO WHICH ARE NOT CONTAINED HEREIN OR THEREIN ARE
TERMINATED. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. THIS
FIRST AMENDMENT, AND THE LOAN DOCUMENTS MAY BE AMENDED, REVISED, WAIVED,
DISCHARGED, RELEASED OR TERMINATED ONLY BY A WRITTEN INSTRUMENT OR INSTRUMENTS,
EXECUTED BY THE PARTY AGAINST WHICH ENFORCEMENT OF THE AMENDMENT, REVISION,
WAIVER, DISCHARGE, RELEASE OR TERMINATION IS ASSERTED. ANY ALLEGED AMENDMENT,
REVISION, WAIVER, DISCHARGE, RELEASE OF TERMINATION WHICH IS NOT SO DOCUMENTED
SHALL NOT BE EFFECTIVE AS TO ANY PARTY.
FIRST AMENDMENT TO LOAN AGREEMENT - Page 5
- ---------------------------------
<PAGE>
IN WITNESS WHEREOF, this First Amendment is executed effective as of the
date first written above.
BORROWER: SUMMIT BANCSHARES, INC.
By: /s/ Philip E. Norwood
------------------------------
Its: President
------------------------------
By: /s/ Bob G. Scott
------------------------------
Its: Senior Vice President
------------------------------
LENDER: THE FROST NATIONAL BANK
By: /s/ Jerry L. Crutsinger
-------------------------------
Its: Vice President
-------------------------------
FIRST AMENDMENT TO LOAN AGREEMENT - Page 6
- ---------------------------------
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
EXHIBIT 21
SUBSIDIARIES OF THE CORPORATION
Subsidiaries State of Incorporation
- ------------ ----------------------
Summit National Bank, Fort Worth, Texas National Association
Summit Community Bank, N.A., Fort Worth, Texas National Association
Summit Bancservices, Inc., Fort Worth, Texas Texas
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
TO INCORPORATION BY REFERENCE
The Board of Directors
SUMMIT BANCSHARES, INC.
We consent to incorporation by reference in the registration statement on Form
S-8 of SUMMIT BANCSHARES, INC. (File #33-68974) of our report dated January 20,
1997, relating to the consolidated balance sheets of SUMMIT BANCSHARES, INC. and
subsidiaries as of December 31, 1996 and 1995 and the related consolidated
statements of operations, shareholders' equity, and cash flows and related
schedules for each of the years in the three-year period ended December 31,
1996, which report appears in the December 31, 1996 annual report on Form 10-K
of SUMMIT BANCSHARES, INC.
/s/ STOVALL, GRANDEY & WHATLEY
Fort Worth, Texas
March 26, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets of Summit Bancshares, Inc., as of December 31, 1996,
and the related statements of income, changes in shareholders' equity and cash
flows for the period ending December 31, 1996 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 28,339
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 20,350
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 58,576
<INVESTMENTS-CARRYING> 58,437
<INVESTMENTS-MARKET> 58,629
<LOANS> 220,006
<ALLOWANCE> 2,972
<TOTAL-ASSETS> 395,248
<DEPOSITS> 345,023
<SHORT-TERM> 13,209
<LIABILITIES-OTHER> 1,939
<LONG-TERM> 0
4,041
0
<COMMON> 0
<OTHER-SE> 31,039
<TOTAL-LIABILITIES-AND-EQUITY> 395,248
<INTEREST-LOAN> 19,274
<INTEREST-INVEST> 7,406
<INTEREST-OTHER> 897
<INTEREST-TOTAL> 27,577
<INTEREST-DEPOSIT> 9,243
<INTEREST-EXPENSE> 9,771
<INTEREST-INCOME-NET> 17,806
<LOAN-LOSSES> 819
<SECURITIES-GAINS> (14)
<EXPENSE-OTHER> 10,917
<INCOME-PRETAX> 9,046
<INCOME-PRE-EXTRAORDINARY> 5,943
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,943
<EPS-PRIMARY> 1.86
<EPS-DILUTED> 1.86
<YIELD-ACTUAL> 5.24
<LOANS-NON> 1,102
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,589
<ALLOWANCE-OPEN> 2,500
<CHARGE-OFFS> 462
<RECOVERIES> 115
<ALLOWANCE-CLOSE> 2,972
<ALLOWANCE-DOMESTIC> 1,874
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,098
</TABLE>
