<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Mark One
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1997; or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition period from __________ to __________.
COMMISSION FILE NUMBER 0-11986
SUMMIT BANCSHARES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 75-1694807
- ------------------------ ----------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
1300 Summit Avenue, Fort Worth, Texas 76102
-------------------------------------------
(Address of principal executive offices)
(817) 336-6817
----------------------------------------------------
(Registrant's telephone number, including area code)
No Change
---------------------------------------------------
(Former name, former address and former fiscal year
if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares of common stock, $1.25 par value, outstanding at June 30,
1997 was 3,236,286 shares.
<PAGE>
SUMMIT BANCSHARES, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1997
and 1996 and at December 31, 1996 4
Consolidated Statements of Income for the Three Months
and Six Months Ended June 30, 1997 and 1996 and for
the Year Ended December 31, 1996 5-6
Consolidated Statements of Changes in Shareholders'
Equity for the Six Months Ended June 30, 1997 and
1996 and for the Year Ended December 31, 1996 7
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1997 and 1996 and for the
Year Ended December 31, 1996 8-9
Notes to Consolidated Financial Statements for the Six
Months Ended June 30, 1997 and 1996 and for the
Year Ended December 31, 1996 10-21
The June 30, 1997 and 1996 and the December 31, 1996 financial statements
included herein are unaudited; however, such information reflects all
adjustments (consisting solely of normal recurring adjustments), which are, in
the opinion of management of the registrant, necessary to a fair statement of
the results for the interim periods.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Six Months
Ended June 30, 1997 and 1996 22-28
2
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Change in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
3
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
- -----------------------------
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
June 30, (Unaudited)
---------------------- December 31,
1997 1996 1996
---------- ---------- ------------
ASSETS (In Thousands)
<S> <C> <C> <C>
CASH AND DUE FROM BANKS - NOTE 1 $ 28,170 $ 21,854 $ 28,339
FEDERAL FUNDS SOLD 10,900 14,815 20,350
INVESTMENT SECURITIES - NOTE 2
Securities Available-for-Sale, at fair value 61,276 59,700 58,576
Securities Held-to-Maturity, at cost (fair value of 52,379 66,420 58,437
$52,462,000, $65,797,000, and $58,629,000
June 30, 1997 and 1996 and December 31, 1996,
respectively)
LOANS - NOTE 3
Loans, Net of Unearned Discount 246,816 201,973 220,006
Allowance for Loan Losses (3,512) (2,829) (2,972)
-------- -------- --------
LOANS, NET 243,304 199,144 217,034
PREMISES AND EQUIPMENT - NOTE 4 7,665 7,320 7,105
ACCRUED INCOME RECEIVABLE 3,310 3,491 3,189
OTHER REAL ESTATE - NOTE 5 151 172 166
OTHER ASSETS 2,776 2,033 2,052
-------- -------- --------
TOTAL ASSETS $409,931 $374,949 $395,248
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS - NOTE 6
Noninterest-Bearing Demand $105,226 $ 94,051 $103,695
Interest-Bearing 255,723 235,419 241,328
-------- -------- --------
TOTAL DEPOSITS 360,949 329,470 345,023
SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE - NOTE 7 9,027 11,514 13,209
ACCRUED INTEREST PAYABLE 616 581 638
OTHER LIABILITIES 1,466 1,391 1,298
-------- -------- --------
TOTAL LIABILITIES 372,058 342,956 360,168
-------- -------- --------
COMMITMENTS AND CONTINGENCIES - NOTE 11
SHAREHOLDERS' EQUITY - NOTES 12, 14 AND 18
Common Stock - $1.25 Par Value; 20,000,000 shares
authorized; 3,236,286, 3,209,386 and 3,233,036 shares
issued and outstanding at June 30, 1997 and 1996 and
at December 31, 1996, respectively 4,045 4,012 4,041
Capital Surplus 4,183 4,121 4,167
Retained Earnings 29,505 23,979 26,644
Unrealized Gain (Loss) on Investment Securities
Available for Sale, Net of Tax 140 (119) 228
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY 37,873 31,993 35,080
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $409,931 $374,949 $395,248
======== ======== ========
</TABLE>
The accompanying Notes should be read with these financial statements.
4
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Unaudited)
For the Six Months (Unaudited)
Ended June 30, Year Ended
------------------ December 31,
1997 1996 1996
------- ------- -------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $11,330 $ 9,060 $19,274
Interest and Dividends on Investment Securities:
Taxable 3,538 3,666 7,405
Exempt from Federal Income Taxes 9 1 1
Interest on Federal Funds Sold 319 492 897
------- ------- -------
TOTAL INTEREST INCOME 15,196 13,219 27,577
------- ------- -------
INTEREST EXPENSE
Interest on Deposits 4,996 4,488 9,243
Interest on Securities Sold Under
Agreements to Repurchase 257 236 528
------- ------- -------
TOTAL INTEREST EXPENSE 5,253 4,724 9,771
------- ------- -------
NET INTEREST INCOME 9,943 8,495 17,806
LESS: PROVISION FOR LOAN LOSSES - NOTE 3 352 288 819
------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 9,591 8,207 16,987
------- ------- -------
NON-INTEREST INCOME
Service Charges and Fees on Deposits 900 787 1,645
Loss on Sale of Investment Securities -0- (7) (14)
Other Income 682 680 1,345
------- ------- -------
TOTAL NON-INTEREST INCOME 1,582 1,460 2,976
------- ------- -------
NON-INTEREST EXPENSE
Salaries and Employee Benefits 3,575 3,352 6,753
Occupancy Expense - Net 387 387 772
Furniture and Equipment Expense 431 400 800
Other Real Estate Owned Expense - Net (8) 16 10
Other Expense 1,537 1,425 2,582
------- ------- -------
TOTAL NON-INTEREST EXPENSE 5,922 5,580 10,917
------- ------- -------
INCOME BEFORE INCOME TAXES 5,251 4,087 9,046
APPLICABLE INCOME TAXES - NOTE 9 1,807 1,407 3,103
------- ------- -------
NET INCOME $ 3,444 $ 2,680 $ 5,943
======= ======= =======
NET INCOME PER SHARE - NOTE 14 $ 1.06 $ .84 $ $1.86
======= ======= =======
</TABLE>
The accompanying Notes should be read with these financial statements.
5
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Unaudited)
For the Three Months Ended
June 30,
--------------------------
1997 1996
------ ------
(In Thousands, Except Per Share Data)
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $5,946 $4,627
Interest and Dividends on Investment Securities:
Taxable 1,802 1,876
Exempt from Federal Income Taxes 6 -0-
Interest on Federal Funds Sold 116 218
------ ------
TOTAL INTEREST INCOME 7,870 6,721
------ ------
INTEREST EXPENSE
Interest on Deposits 2,586 2,242
Interest on Securities Sold Under Agreements
to Repurchase 127 119
------ ------
TOTAL INTEREST EXPENSE 2,713 2,361
------ ------
NET INTEREST INCOME 5,157 4,360
LESS: PROVISION FOR LOAN LOSSES - NOTE 3 197 164
------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,960 4,196
------ ------
NON-INTEREST INCOME
Service Charges and Fees on Deposits 463 402
Loss on Sale of Investment Securities -0- (10)
Other Income 357 339
------ ------
TOTAL NON-INTEREST INCOME 820 731
------ ------
NON-INTEREST EXPENSE
Salaries and Employee Benefits 1,828 1,697
Occupancy Expense - Net 190 207
Furniture and Equipment Expense 220 203
Other Real Estate Owned Expense - Net (5) 21
Other Expense 843 674
------ ------
TOTAL NON-INTEREST EXPENSE 3,076 2,802
------ ------
INCOME BEFORE INCOME TAXES 2,704 2,125
APPLICABLE INCOME TAXES - NOTE 9 932 730
------ ------
NET INCOME $1,772 $1,395
====== ======
NET INCOME PER SHARE - NOTE 14 $ .54 $ .43
====== ======
</TABLE>
The accompanying Notes should be read with these financial statements.
6
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
AND FOR THE YEAR ENDED DECEMBER 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Unrealized
Common Stock Gain (Loss)
-------------------- Capital Retained on Investment Treasury
Shares Amount Surplus Earnings Securities-Net Stock Total
---------- -------- -------- -------- --------------- -------- ---------
(Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
JANUARY 1, 1996 3,149,886 $3,937 $4,109 $21,745 $ 334 $ -0- $30,125
Net Income for the
Six Months Ended
June 30, 1996 2,680 2,680
Stock Options Exercised 59,500 75 12 87
Cash Dividend $.14
Per Share (446) (446)
Securities Available-for-
Sale Adjustment (453) (453)
--------- ------ ------ ------- ----- ----- -------
BALANCE AT
JUNE 30, 1996 3,209,386 4,012 4,121 23,979 (119) -0- 31,993
Net Income for the
Six Months Ended
December 31, 1996 3,263 3,263
Stock Options Exercised 32,650 40 46 86
Purchases of Stock Held in
Treasury (157) (157)
Retirement of Stock Held
In Treasury (9,000) (11) (146) 157 -0-
Cash Dividend $.14
Per Share (452) (452)
Securities Available-for-
Sale Adjustment 347 347
--------- ------ ------ ------- ----- ----- -------
BALANCE AT
DECEMBER 31, 1996 3,233,036 4,041 4,167 26,644 228 -0- 35,080
Net Income for the
Six Months Ended
June 30, 1997 3,444 3,444
Stock Options Exercised 3,250 4 16 20
Cash Dividend $.18
Per Share (583) (583)
Securities Available-for-
Sale Adjustment (88) (88)
--------- ------ ------ ------- ----- ----- -------
BALANCE AT
JUNE 30, 1997 3,236,286 $4,045 $4,183 $29,505 $ 140 $ -0- $37,873
========= ====== ====== ======= ====== ===== =======
</TABLE>
The accompanying Notes should be read with these financial statements.
7
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
AND FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
(Unaudited)
June 30, (Unaudited)
--------------------- December 31,
1997 1996 1996
--------- --------- ------------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,444 $ 2,680 $ 5,943
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 396 376 762
Net Premium Amortization of Investment Securities 44 180 310
Provision for Loan Losses 352 288 819
Deferred Income Taxes (Benefit) 48 (13) (159)
Loss on Sale of Investment Securities -0- 7 14
Writedown of Other Real Estate 4 6 12
Net Gain on Sale of Other Real Estate (21) -0- -0-
Net (Gain) Loss on Sale of Premises and Equipment (1) 1 (1)
Increase in Accrued Income and Other Assets (887) (548) (270)
Increase in Accrued Expenses and Other Liabilities 146 317 280
-------- -------- --------
Total Adjustments 81 614 1,767
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,525 3,294 7,710
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Decrease in Federal Funds Sold 9,450 10,865 5,330
Proceeds from Matured and Prepaid Investment Securities
. Held-to-Maturity 9,494 12,150 20,001
. Available-for-Sale 8,172 10,438 20,486
Proceeds from Sales of Investment Securities 3,505 9,016 14,527
Purchase of Investment Securities
. Held-to-Maturity (7,029) (15,164) (19,174)
. Available-for-Sale (10,961) (24,066) (33,969)
Loans Originated and Principal Repayments, Net (26,842) (23,677) (42,171)
Recoveries of Loans Previously Charged-Off 259 68 115
Proceeds from Sale of Other Real Estate 32 -0- -0-
Proceeds from Sale of Premises and Equipment 1 1 1
Purchases of Premises and Equipment (956) (539) (710)
-------- -------- --------
NET CASH USED BY INVESTING ACTIVITIES (14,875) (20,908) (35,564)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Demand Deposits, Savings
Accounts and Interest Bearing Transaction Accounts 10,341 20,467 36,011
Net Increase (Decrease) in Certificates of Deposit 5,585 (1,106) (1,097)
Net Decrease in Repurchase Agreements (4,182) (2,014) (319)
Payments of Cash Dividends (583) (446) (898)
Purchase of Treasury Stock -0- -0- (157)
Proceeds from Stock Options Exercised 20 87 173
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 11,181 16,988 33,713
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND DUE FROM
BANKS (169) (626) 5,859
CASH AND DUE FROM BANKS AT BEGINNING
OF PERIOD 28,339 22,480 22,480
-------- -------- --------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 28,170 $ 21,854 $ 28,339
======== ======== ========
</TABLE>
8
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONT'D
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
AND FOR THE YEAR ENDED DECEMBER 31, 1996
(Unaudited)
SUPPLEMENTAL SCHEDULE OF OPERATING AND INVESTING ACTIVITIES:
<TABLE>
<CAPTION>
(Unaudited)
June 30, (Unaudited)
-------------- December 31,
1997 1996 1996
------ ------ ------------
(In Thousands)
<S> <C> <C> <C>
(1) Interest Paid $5,275 $4,778 $9,769
(2) Income Taxes Paid 1,866 1,468 3,285
(3) Other Real Estate Acquired in Settlement of Loans -0- 65 65
</TABLE>
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED)
NOTE 1 - Summary of Significant Accounting Policies
- ------
The accounting and reporting policies of Summit Bancshares, Inc. (the
"Corporation") and Subsidiaries are in accordance with generally accepted
accounting principles. A summary of the more significant policies follows:
Basis of Presentation and Principles of Consolidation
-----------------------------------------------------
The consolidated financial statements of the Corporation include its
accounts and those of its wholly-owned subsidiaries, Summit National Bank
and Summit Community Bank, National Association (the "Subsidiary Banks")
and Summit Bancservices, Inc., a wholly-owned operations subsidiary. All
significant intercompany balances and transactions have been eliminated in
consolidation.
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 periods. Actual results could differ from those
estimates.
Cash and Due From Banks
-----------------------
The Subsidiary Banks are required to maintain certain balances at the
Federal Reserve Bank based on their levels of deposits. During the first
six months of 1997 the average cash balance maintained at the Federal
Reserve Bank was $3,876,000. Compensating balances held at correspondent
banks, to minimize service charges, averaged approximately $14,075,000
during the same period.
Investment Securities
---------------------
The Corporation follows Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" in
the accounting and reporting for investments in equity securities that have
readily determined fair values and for all investments in debt securities.
Those investments are to be classified in three categories and accounted
for as follows:
- Debt securities that the Corporation has the positive intent and
ability to hold to maturity are classified as held-to-maturity
----------------
securities and reported at amortized cost.
- Debt and equity securities that are bought and held principally for
the purpose of selling them in the near term are classified as trading
-------
securities and reported at fair value, with unrealized gains and
losses included in earnings.
- Debt and equity securities not classified as either held-to-maturity
securities or trading securities are classified as available-for-sale
------------------
securities and reported at fair value, with unrealized gains and
losses excluded from earnings and reported in a separate component of
shareholders' equity.
The Corporation has the ability and intent to hold to maturity its
investment securities classified as held-to-maturity; accordingly, no
adjustment has been made for the excess, if any, of amortized cost over
market. In determining the investment category classifications, management
considers its asset/liability strategy, changes in interest rates and
prepayment risk, the need to increase capital and other factors. Under
certain circumstances (including the deterioration of the issuer's
creditworthiness, a change in tax law, or statutory or regulatory
requirements), the Corporation may change the investment security
classification. In 1997 and 1996 the Corporation held no securities that
would have been classified as trading securities.
All investment securities are adjusted for amortization of premiums and
accretion of discounts. Amortization of premiums and accretion of
discounts are recorded to income over the contractual maturity or estimated
life of the individual investment on the level yield method. Gain or loss
on sale of investments is based upon the specific identification method and
the gain or loss is recorded in non-interest income. Income earned on the
Corporation's investments in state and political subdivisions is not
taxable.
10
<PAGE>
NOTE 1 - Summary of Significant Accounting Policies (cont'd.)
- ------
Loans and Allowance for Loan Losses
-----------------------------------
Loans are stated at the principal amount outstanding less unearned discount
and the allowance for loan losses. Unearned discount on installment loans
is recognized as income over the terms of the loans by a method
approximating the interest method. Interest income on all other loans is
recognized based upon the principal amounts outstanding. The accrual of
interest on a loan is discontinued when, in the opinion of management,
there is doubt about the ability of the borrower to pay interest or
principal. Interest previously earned, but uncollected on such loans, is
written off. When loans are put on non-accrual all payments received are
applied to the principal and no interest income is recorded until the loan
is returned to accrual status or the principal has been reduced to zero.
The Corporation follows Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairment of a Loan," as amended by
Statement of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosure."
Under this standard, the allowance for loan losses related to loans that
are identified for evaluation in accordance with Statement No. 114
(impaired loans) is based on discounted cash flows using the loan's initial
effective rate or the fair value of the collateral for certain collateral
dependent loans.
The allowance for loan losses is comprised of amounts charged against
income in the form of a provision for loan losses as determined by
management. Management's evaluation is based on a number of factors,
including the Subsidiary Banks' loss experience in relation to outstanding
loans and the existing level of the allowance, prevailing and prospective
economic conditions, and management's continuing review of the discounted
cash flow values of impaired loans and its evaluation of the quality of the
loan portfolio. Loans are placed on non-accrual status when management
believes that the borrower's financial condition, after giving
consideration to economic and business conditions and collection efforts,
is such that collection of interest is doubtful. Loans are charged against
the allowance for loan losses when management believes that the
collectibility of the principal is unlikely.
Premises and Equipment
----------------------
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation expense is computed on the straight-line method based upon the
estimated useful lives of the assets ranging from three to forty years.
Maintenance and repairs are charged to operating expenses. Renewals and
betterments are added to the asset accounts and depreciated over the
periods benefitted. Depreciable assets sold or retired are removed from
the asset and related accumulated depreciation accounts and any gain or
loss is reflected in the income and expense accounts.
Other Real Estate
-----------------
Other real estate is foreclosed property held pending disposition and is
valued at the lower of its fair value or the recorded investment in the
related loan. At foreclosure, if the fair value of the real estate
acquired is less than the bank's recorded investment in the related loan, a
writedown is recognized through a charge to the allowance for loan losses.
Any subsequent reduction in value is recognized by a charge to income.
Operating expenses of such properties, net of related income, and gains and
losses on their disposition are included in non-interest expense.
Federal Income Taxes
--------------------
The Corporation joins with its Subsidiaries in filing a consolidated
federal income tax return. The Subsidiaries pay to the parent a charge
equivalent to their current federal income tax based on the separate
taxable income of the Subsidiaries.
The Corporation and the Subsidiaries maintain their records for financial
reporting and income tax reporting purposes on the accrual basis of
accounting. Deferred income taxes are provided in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes". Deferred income taxes are provided for accumulated temporary
differences due to basic differences for assets and liabilities for
financial reporting and income tax purposes.
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 1996 financial statements
to conform to the 1997 presentation.
11
<PAGE>
NOTE 1 - Summary of Significant Accounting Policies (cont'd.)
- ------
Audited Financial Statements
----------------------------
The consolidated balance sheet as of December 31, 1996, and the
consolidated statements of income, changes in shareholders' equity and cash
flows for the year ended December 31, 1996 are headed "unaudited" in these
financial statements. These statements were reported in the Securities
Exchange Commission Form 10-K as of December 31, 1996 as "audited" but are
required to be reflected in these statements as unaudited because of the
absence of an independent auditor's report.
NOTE 2 - Investment Securities
- ------
A summary of amortized cost and estimated fair values of investment
securities is as follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1997
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Investment Securities - Held-to-Maturity
U.S. Treasury Securities $ 23,980 $108 $ (57) $ 24,031
U.S. Government Agencies
and Corporations 18,113 28 (40) 18,101
U.S. Government Agency Mortgage
Backed Securities 9,693 59 (18) 9,734
Obligations of States and
Political Subdivisions 593 3 -0- 596
-------- ---- ----- --------
Total Held-to-Maturity Securities 52,379 198 (115) 52,462
-------- ---- ----- --------
Investment Securities - Available-for-Sale
U.S. Treasury Securities 55,445 249 (113) 55,581
U.S. Government Agencies
and Corporations 2,988 20 -0- 3,008
U.S. Government Agency Mortgage
Backed Securities 2,377 56 -0- 2,433
Federal Reserve Bank Stock 254 -0- -0- 254
-------- ---- ----- --------
Total Available-for-Sale Securities 61,064 325 (113) 61,276
-------- ---- ----- --------
Total Investment Securities $113,443 $523 $(228) $113,738
======== ==== ===== ========
</TABLE>
In the above schedule the amortized cost of Total Held-to-Maturity
--------------
Securities of $52,379,000 and the fair value of Total Available-for-Sale
----------
Securities of $61,276,000 are reflected in Investment Securities on the
consolidated balance sheet as of June 30, 1997 for a total of $113,655,000. A
net unrealized gain of $212,000 is included in the Available-for-Sale Investment
Securities balance. The unrealized gain, net of tax, is included in
Shareholders' Equity.
12
<PAGE>
NOTE 2 - Investment Securities (cont'd.)
- ------
Investment securities with carrying value of $35,498,000 at June 30, 1997,
were pledged to secure federal, state and municipal deposits and for other
purposes as required or permitted by law. The fair value of these pledged
securities totaled $35,499,000 at June 30, 1997.
<TABLE>
<CAPTION>
June 30, 1996
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Investment Securities - Held-to-Maturity
U.S. Treasury Securities $ 31,044 $109 $ (243) $ 30,910
U.S. Government Agencies
and Corporations 24,802 4 (344) 24,462
U.S. Government Agency Mortgage
Backed Securities 10,574 5 (154) 10,425
-------- ---- ------- --------
Total Held-to-Maturity Securities 66,420 118 (741) 65,797
-------- ---- ------- --------
Investment Securities - Available-for-Sale
U.S. Treasury Securities 51,530 160 (396) 51,294
U.S. Government Agencies
and Corporations 4,490 35 (18) 4,507
U.S. Government Agency Mortgage
Backed Securities 3,606 49 (10) 3,645
Federal Reserve Bank Stock 254 -0- -0- 254
-------- ---- ------- --------
Total Available-for-Sale Securities 59,880 244 (424) 59,700
-------- ---- ------- --------
Total Investment Securities $126,300 $362 $(1,165) $125,497
======== ==== ======= ========
</TABLE>
In the above schedule the amortized cost of Total Held-to-Maturity
--------------
Securities of $66,420,000 and the fair value of Total Available-for-Sale
----------
Securities of $59,700,000 are reflected in Investment Securities on the
consolidated balance sheet as of June 30, 1996 for a total of $126,120,000. A
net unrealized loss of $180,000 is included in the Available-for-Sale Investment
Securities balance. The unrealized loss, net of tax, is included in
Shareholders' Equity.
Proceeds from sales of securities were $3,505,000 and $9,016,000 during the
first six months of 1997 and 1996, respectively and $14,527,000 during the year
1996. In the six months ended June 30, 1997, gains of $2,000 and losses of
$2,000 were realized. In the six months ended June 30, 1996, gains of $11,000
and losses of $18,000 were realized. For the year ended December 31, 1996,
losses from sales of securities of $27,000 were realized, but were partially
offset by gains of $13,000.
NOTE 3 - Loans and Allowance for Loan Losses
- ------
The book values of loans by major type follow (in thousands):
<TABLE>
<CAPTION>
June 30,
---------------------- December 31,
1997 1996 1996
---- ---- ----
<S> <C> <C> <C>
Commercial $118,311 $ 94,263 $103,414
Real Estate Mortgage 78,459 69,730 76,771
Real Estate Construction 21,430 13,258 12,862
Loans to Individuals 29,370 25,412 27,674
Less: Unearned Discount (754) (690) (715)
-------- -------- --------
246,816 201,973 220,006
Allowance for Loan Losses (3,512) (2,829) (2,972)
-------- -------- --------
Loans - Net $243,304 $199,144 $217,034
======== ======== ========
</TABLE>
13
<PAGE>
NOTE 3 - Loans and Allowance for Loan Losses (cont'd.)
- ------
Transactions in the allowance for loan losses are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended
-------------------------- December 31,
1997 1996 1996
------ ------ ------------
<S> <C> <C> <C>
Balance, Beginning of Period $2,972 $2,500 $2,500
Provisions, Charged to Income 352 288 819
Loans Charged-Off (71) (27) (462)
Recoveries of Loans Previously
Charged-Off 259 68 115
------ ------ ------
Net Loans (Charged-Off) Recovered 188 41 (347)
------ ------ ------
Balance, End of Period $3,512 $2,829 $2,972
====== ====== ======
</TABLE>
The provisions for loan losses charged to operating expenses during the six
months ended June 30, 1997 and June 30, 1996 of $352,000 and $288,000,
respectively, were considered adequate to maintain the allowance in accordance
with the policy discussed in Note 1. For the year ended December 31, 1996, a
provision of $819,000 was recorded.
At June 30, 1997, the recorded investment in loans that are considered to be
impaired under Statement of Financial Accounting Standards No. 114 was $433,000
(of which $433,000 were on non-accrual status). The related allowance for loan
losses for these loans was $183,000. The average recorded investment in
impaired loans during the six months ended June 30, 1997 was approximately
$426,000. For this period the Corporation recognized interest income of $2,000
on these impaired loans.
NOTE 4 - Premises and Equipment
- ------
The investment in premises and equipment stated at cost and net of
accumulated amortization and depreciation is as follows (in thousands):
<TABLE>
<CAPTION>
June 30,
------------------ December 31,
1997 1996 1996
-------- -------- ------------
<S> <C> <C> <C>
Land $ 2,170 $ 1,446 $ 1,446
Buildings and Improvements 7,375 7,359 7,375
Furniture & Equipment 5,415 5,146 5,182
------- ------- -------
Total Cost 14,960 13,951 14,003
Less: Accumulated Amortization and Depreciation (7,295) (6,631) (6,898)
------- ------- -------
Net Book Value $ 7,665 $ 7,320 $ 7,105
======= ======= =======
</TABLE>
NOTE 5 - Other Real Estate
- ------
The carrying value of other real estate is as follows (in thousands):
<TABLE>
<CAPTION>
June 30,
------------------- December 31,
1997 1996 1996
-------- -------- ------------
<S> <C> <C> <C>
Other Real Estate $ 186 $ 207 $ 201
Valuation Reserve (35) (35) (35)
----- ----- -----
Net Other Real Estate $ 151 $ 172 $ 166
===== ===== =====
</TABLE>
14
<PAGE>
NOTE 5 - Other Real Estate (cont'd.)
- ------
Transactions in the valuation reserve are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended
------------------------- December 31,
1997 1996 1996
------ ------ ------------
<S> <C> <C> <C>
Balance, Beginning of Period $ 35 $ 35 $ 35
Provisions Charged to Income -0- -0- -0-
Reductions from Sales -0- -0- -0-
---- ---- ----
Balance, End of Period $ 35 $ 35 $ 35
==== ==== ====
</TABLE>
Direct writedowns of other real estate charged to income were $4,000 for the
six months ended June 30, 1997 and $6,000 for the six months ended June 30, 1996
and $12,000 for the year ended December 31, 1996.
NOTE 6 - Deposits
- ------
The book values of deposits by major type follow (in thousands):
<TABLE>
<CAPTION>
June 30,
--------------------- December 31,
1997 1996 1996
---------- ---------- ------------
<S> <C> <C> <C>
Noninterest-Bearing Demand Deposits $105,226 $ 94,051 $103,695
-------- -------- --------
Interest-Bearing Deposits:
Interest-Bearing Transaction
Accounts and Money Market Funds 128,077 115,327 119,316
Savings 49,600 47,641 49,048
Savings Certificates - Time 47,503 47,581 47,025
Certificates of Deposits $100,000 or more 29,838 24,431 25,434
Other 705 439 505
-------- -------- --------
Total 255,723 235,419 241,328
-------- -------- --------
Total Deposits $360,949 $329,470 $345,023
======== ======== ========
</TABLE>
NOTE 7 - Securities Sold Under Repurchase Agreements
- ------
Securities sold under repurchase agreements generally represent borrowings
with maturities ranging from one to thirty days. Information relating to these
borrowings is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended
------------------------- December 31,
1997 1996 1996
-------- -------- -------------
<S> <C> <C> <C>
Securities Sold Under Repurchase Agreements:
Average $12,038 $11,059 $12,181
Period-End 9,027 11,514 13,209
Maximum Month-End Balance During Period 13,212 12,199 14,453
Interest Rate
Average 4.28% 4.31% 4.33%
Period-End 4.50 4.31 4.35
</TABLE>
15
<PAGE>
NOTE 8 - Other Non-Interest Expense
- ------
The significant components of other non-interest expense are as follows (in
thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended
------------------------- December 31,
1997 1996 1996
------ ------ ------------
<S> <C> <C> <C>
Business Development $ 273 $ 218 $ 426
Legal and Professional Fees 248 205 442
Printing and Supplies 174 154 303
Regulatory Fees and Assessments 85 102 134
Other 757 746 1,277
------ ------ ------
Total $1,537 $1,425 $2,582
====== ====== ======
</TABLE>
NOTE 9 - Income Taxes
- ------
Federal income taxes included in the consolidated balance sheets were as
follows (in thousands):
<TABLE>
<CAPTION>
June 30,
-------------- December 31,
1997 1996 1996
---- ---- ------------
<S> <C> <C> <C>
Current Tax Asset $ 37 $ 46 $ 26
Deferred Tax Asset 542 481 449
---- ---- ----
Total Included in Other Assets $579 $527 $475
==== ==== ====
</TABLE>
The deferred tax asset at June 30, 1997 of $542,000 included $72,000 related
to unrealized gains on Available-for-Sale Securities.
The components of income tax expense were as follows (in thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended
-------------------------- December 31,
1997 1996 1996
------ ------ ------------
<S> <C> <C> C>
Federal Income Tax Expense
Current $1,857 $1,420 $3,240
Deferred (50) (13) (137)
------ ------ ------
Total Federal Income Tax Expense $1,807 1,407 $3,103
====== ====== ======
Effective Tax Rates 34.4% 34.4% 34.3%
====== ====== ======
</TABLE>
The reasons for the difference between income tax expense and the amount
computed by applying the statutory federal income tax rate to operating earnings
are as follows (in thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended
------------------------- December 31,
1997 1996 1996
------ ------ ------------
<S> <C> <C> <C>
Federal Income Taxes at Statutory
Rate of 34% $1,785 $1,389 $3,076
Effect of Tax Exempt Interest Income (5) (5) (8)
Non-deductible Expenses 23 24 39
Other 4 (1) (4)
------ ------ ------
Income Taxes Per Income Statement $1,807 $1,407 $3,103
====== ====== ======
</TABLE>
16
<PAGE>
NOTE 10 - Related Party Transactions
- -------
The Subsidiary Banks have transactions made in the ordinary course of
business with certain of its officers, directors and their affiliates. All loans
included in such transactions are made on substantially the same terms,
including interest rate and collateral, as those prevailing at the time for
comparable transactions with other persons. Total loans outstanding to such
parties amounted to approximately $3,819,000 at December 31, 1996.
NOTE 11 - Commitments and Contingent Liabilities
- -------
In the normal course of business, there are various outstanding commitments
and contingent liabilities, such as guarantees and commitments to extend credit,
which are not reflected in the financial statements. No losses are anticipated
as a result of these transactions. Commitments are most frequently extended for
real estate, commercial and industrial loans.
At June 30, 1997, outstanding documentary and standby letters of credit
totaled $3,098,000 and commitments to extend credit totaled $82,853,000.
NOTE 12 - Stock Option Plans
- -------
The Corporation adopted an Incentive Stock Option Plan ("1993 Plan") with
300,000 shares (adjusted for the April 1993 and December 1995 two-for-one stock
splits) of common stock reserved for grants thereunder. The Board of Directors
and the Shareholders have approved a new plan, the 1997 Incentive Stock Option
Plan ("1997 Plan"). The 1997 Plan reserved 300,000 shares for grants
thereunder. These plans provide for the granting to management employees of
Summit Bancshares, Inc. and subsidiaries, incentive stock options, as defined
under the current tax law. The options will be exercisable for ten years from
the date of grant and generally vest ratably over a five year period.
Options under both plans will be granted at prices which will not be less
than 100-110% of the fair market value of the underlying common stock at the
date of grant. The Corporation applies APB Opinion No. 25 and related
Interpretations in accounting for its plans. Since the option prices are
considered to approximate fair market value at date of grant, no compensation
expense has been reported. Had compensation cost for these plans 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 proforma basis for
the year ended December 31, 1996, or the six months ended June 30, 1997.
The following is a summary of transactions during the periods presented:
<TABLE>
<CAPTION>
Shares Under Option
----------------------------------
Six Months
Ended Year Ended
June 30, 1997 December 31, 1996
-------------- ------------------
<S> <C> <C>
Outstanding, Beginning of Period 232,050 301,400
Additional Options Granted During
the Period 36,076 29,800
Forfeited During the Period (400) (1,000)
Exercised During the Period (3,250) (98,150)
------- -------
Outstanding, End of Period 264,476 232,050
======= =======
</TABLE>
Options outstanding at June 30, 1997 ranged in price from $6.00 to $26.38
per share with a weighted average exercise price of $8.12 and with 188,975
shares exercisable. At June 30, 1997, there remained 94 shares reserved for
future grants of options under the 1993 Plan and 288,750 shares reserved for
future grants of options under the 1997 Plan.
NOTE 13 - Employee Benefit Plans
- -------
The Corporation has a defined benefit pension plan covering substantially
all of its employees. The benefits are based on years of service and the
employee's compensation history. The employee's compensation used in the
benefit calculation is the highest average for any five consecutive years of
employment within the employee's last ten years of employment.
Funding for the plan is provided by employer contributions to trust funds
in amounts determined by actuarial assumptions and valuation of the plan.
Contributions are intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the future.
17
<PAGE>
NOTE 13 - Employee Benefit Plans (cont'd.)
- -------
The table below sets forth the plan's funded status and amounts recognized
in the Corporation's consolidated balance sheets at December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $1,647,000 in 1996 and $1,152,000 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 effect of
changes in assumptions 21 197
Prior service cost not yet recognized in net
periodic pension cost 15 17
------ ------
Net pension cost included in other assets/(other liabilities) $ 231 $ (88)
====== ======
Prepaid (accrued) pension cost included the following components (in thousands):
Year Ended December 31,
-----------------------
1996 1995
-------- --------
Service Cost - benefits earned during the period $ 195 $ 154
Interest cost on projected benefit obligation 131 140
Less: Actual return on plan assets (153) (260)
Net amortization and deferral (2) 145
------ ------
Net periodic pension cost $ 171 $ 179
====== ======
</TABLE>
The discount rate and rate of increase in future compensation levels used
in determining the actuarial present value of the projected benefit obligation
were 8 percent and 5 percent, respectively. The expected long-term rate of
return on plan assets was 8 percent.
The market value of plan assets at June 30, 1997 was $2,747,000. There was
a contribution to the plan during 1997 of $370,000 and prepaid pension cost at
June 30, 1997 was $479,000.
Management Security Plan
- ------------------------
In 1992, the Corporation established a Management Security Plan to provide
key employees with retirement, death or disability benefits in addition to those
provided by the Pension Plan. The expense charged to operations for such future
obligations was $168,000 and $112,000 during the first six months of 1997 and
1996, respectively, and $239,000 for the year 1996.
Other Post Retirement Benefits
- ------------------------------
The Corporation provides certain health care benefits for certain retired
employees who bear all costs of these benefits. These benefits are covered under
the "Consolidated Omnibus Budget Reconciliation Act" (COBRA).
18
<PAGE>
NOTE 14 - Earnings per Share
- -------
Earnings per share of common stock are based on the weighed average number
of shares outstanding during the periods as follows:
<TABLE>
<CAPTION>
Shares
---------
<S> <C>
Periods of Six Months Ended:
June 30, 1997 3,235,245
June 30, 1996 3,173,646
Year Ended December 31, 1996 3,199,480
</TABLE>
NOTE 15 - Financial Instruments with Off-Balance Sheet Risk
- -------
The Corporation is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include loan commitments, standby
letters of credit and documentary letters of credit. The instruments involve,
to varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the financial statements.
The Corporation's exposure to credit loss in the event of non-performance
by the other party of these loan commitments and standby letters of credit is
represented by the contractual amount of those instruments. The Corporation uses
the same credit policies in making commitments and conditional obligations as it
does for on-balance sheet instruments.
The total contractual amounts of financial instruments with off-balance
sheet risk are as follows (in thousands):
<TABLE>
<CAPTION>
June 30,
-----------------
1997 1996
------- -------
<S> <C> <C>
Financial Instruments Whose
Contract Amounts Represent
Credit Risk:
Commitments to Extend Credit $82,853 $72,199
Documentary and Standby
Letters of Credit 3,098 6,128
</TABLE>
Since many of the loan commitments may expire without being drawn upon, the
total commitment amount does not necessarily represent future cash requirements.
The Corporation evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the
Corporation upon extension of credit, is based on management's credit evaluation
of the counterparty. Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment, owner occupied real estate
and income-producing commercial properties.
The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers.
NOTE 16 - Concentrations of Credit Risk
- -------
The Subsidiary Banks grant commercial, consumer and real estate loans in
their direct market which is defined as Fort Worth and its surrounding area.
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 17 - 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.
19
<PAGE>
NOTE 18 - Stock Repurchase Plan
- -------
On April 15, 1997, the Board of Directors approved a stock repurchase plan.
The plan authorized management to purchase up to 161,782 shares of the
Corporation's common stock over the next twelve months through the open market
or in privately negotiated transactions in accordance with all applicable state
and federal laws and regulations.
In 1996, 9,000 shares were purchased by the Corporation through a similar
repurchase plan through the open market. Such shares were canceled and returned
to authorized and unissued status. In the first six months of 1997, no shares
were purchased.
NOTE 19 - Subsequent Event
- -------
On July 16, 1997, the Board of Directors of the Corporation approved a
quarterly dividend of $.09 per share to be paid on August 15, 1997 to
shareholders of record on August 1, 1997.
NOTE 20 - Fair Values of Financial Instruments
- -------
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance
sheet for cash and due from banks and federal funds sold approximate those
assets' fair values.
Investment securities (including mortgage-backed securities): Fair values
for investment securities are based on quoted market prices, where
available. If quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments.
Loans: For variable-rate loans, fair values are based on carrying values.
The fair values for fixed rate loans such as mortgage loans (e.g., one-to-
four family residential) and installment loans are estimated using
discounted cash flow analysis. The carrying amount of accrued interest
receivable approximates its fair value.
Deposit liabilities: The fair value disclosed for interest bearing and
noninterest-bearing demand deposits, passbook savings, and certain types of
money market accounts are, by definition, equal to the amount payable on
demand at the reporting date or their carrying amounts. Fair values for
fixed-rate certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on
time deposits.
Short-term borrowings: The carrying amounts of borrowings under repurchase
agreements approximate their fair values.
20
<PAGE>
NOTE 20 - Fair Values of Financial Instruments (cont'd.)
- -------
The estimated fair values of the Corporation's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
June 30,
--------------------------------------
1997 1996
------------------ ------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial Assets
Cash and due from banks $ 28,170 $ 28,170 $ 21,854 $ 21,854
Federal funds sold 10,900 10,900 14,815 14,815
Securities 113,655 113,738 126,120 125,497
Loans 246,816 245,620 201,973 202,477
Financial Liabilities
Deposits 360,949 361,026 329,470 329,648
Securities sold under repurchase
agreements 9,027 9,027 11,514 11,514
Off-balance Sheet Financial Instruments
Loan commitments 82,853 72,199
Letters of credit 3,098 6,128
</TABLE>
21
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
Summary
- -------
Net income for the second quarter of 1997 was $1,772,000, or $.54 per
share, compared with $1,395,000, or $.43 per share, for the second quarter of
1996. On a per share basis, net income increased 25.6% over the second quarter
of the prior year.
Net income for the first six months of 1997 was $3,444,000, or $1.06 per
share, compared with $2,680,000, or $.84 per share for the first six months of
1996. Per share amounts are based on average shares outstanding of 3,235,245
for the first six months of 1997 and 3,173,646 for the first six months of 1996.
Outstanding loans at June 30, 1997 of $246.8 million represented an
increase of $44.8 million, or 22.2%, over June 30, 1996 and an increase of $26.8
million, or 12.2%, from December 31, 1996.
Total deposits at June 30, 1997 of $361.0 million represented an increase
of $31.5 million, or 9.6%, over June 30, 1996 and an increase of $15.9 million,
or 4.6%, from December 31, 1996.
In the second quarter, net interest income increased 18.3% over the
previous year. An increase in non-interest expense of 9.8% partially offset the
increase in net interest income.
The following table summarizes the Corporation's performance for the six
months ended June 30, 1997 and 1996 (tax equivalent basis and dollars in
thousands).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest Income $7,874 $6,725 $15,204 $13,226
Interest Expense 2,713 2,361 5,253 4,724
------ ------ ------- -------
Net Interest Income 5,161 4,364 9,951 8,502
Provision for Loan Loss 197 164 352 288
------ ------ ------- -------
Net Interest Income After
Provision for Loan Loss 4,964 4,200 9,599 8,214
Non-Interest Income 820 731 1,582 1,460
Non-Interest Expense 3,076 2,802 5,922 5,580
------ ------ ------- -------
Income Before Income Tax 2,708 2,129 5,259 4,094
Income Tax Expense 936 734 1,815 1,414
------ ------ ------- -------
Net Income $1,772 $1,395 $ 3,444 $ 2,680
====== ====== ======= =======
Net Income per Share $ .54 $ .43 $ 1.06 $ .84
Return on Average Assets 1.76% 1.53% 1.75% 1.50%
Return on Average Stockholders' Equity* 19.15% 17.86% 19.07% 17.41%
</TABLE>
* Before adjustment for unrealized gains and losses on Available-for-Sale
securities.
22
<PAGE>
Summary of Earning Assets and Interest-Bearing Liabilities
- ----------------------------------------------------------
The following schedule presents average balance sheets that highlight earning
assets and interest-bearing liabilities and their related rates earned and paid
for the first quarter of 1997 and 1996 (rates on tax equivalent basis).
<TABLE>
<CAPTION>
Three Months ended June 30,
-------------------------------------------------------------------
1997 1996
-------------------------------- --------------------------------
Average Average Average Average
Balances Interest Yield/Rate Balances Interest Yield/Rate
---------- -------- ---------- ---------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Federal Funds Sold $ 8,442 $ 116 5.44% $ 16,523 $ 218 5.25%
Investment Securities (Taxable) 115,598 1,801 6.25 124,817 1,875 6.04
Investment Securities (Tax-exempt) 595 10 6.45 25 1 8.12
Loans, Net of Unearned Discount/(1)/ 245,235 5,947 9.73 194,352 4,631 9.58
-------- ------ -------- ------
Total Earning Assets 369,870 7,874 8.54 335,717 6,725 8.05
------ ------
Non-interest Earning Assets:
Cash and Due From Banks 24,083 21,074
Other Assets 13,056 12,189
Allowance for Loan Losses (3,413) (2,714)
-------- --------
Total Assets $403,596 $366,266
======== ========
Interest-Bearing Liabilities:
Interest-Bearing Transaction
Accounts and Money Market Funds $128,018 1,133 3.55 $115,116 925 3.23
Savings 49,882 516 4.15 45,729 455 4.00
Savings Certificates 47,008 571 4.87 48,069 563 4.71
Certificates of Deposit
$100,000 or more 28,184 358 5.09 24,339 295 4.87
Other Time 566 8 5.43 380 4 4.54
Other Borrowings 11,248 127 4.49 11,283 119 4.26
-------- ------ -------- ------
Total Interest-Bearing Liabilities 264,906 2,713 4.11 244,916 2,361 3.88
------ ------
Non-interest Bearing Liabilities:
Demand Deposits 99,359 87,939
Other Liabilities 2,210 2,093
Shareholders' Equity 37,121 31,318
-------- --------
Total Liabilities and
Shareholders' Equity $403,596 $366,266
======== ========
Net Interest Income and Margin
(Tax-equivalent Basis)/(2)/ $5,161 5.60 $4,364 5.23
====== ======
</TABLE>
(1) Loan interest income includes fees and loan volumes include loans on non-
accrual.
(2) Presented on a tax equivalent basis ("T/E") using a federal income tax rate
of 34% in both years.
23
<PAGE>
<TABLE>
<CAPTION>
Six Months ended June 30,
------------------------------------------------------------------
1997 1996
-------------------------------- --------------------------------
Average Average Average Average
Balances Interest Yield/Rate Balances Interest Yield/Rate
--------- -------- ----------- --------- -------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Federal Funds Sold $ 11,863 $ 320 5.35% $ 18,423 $ 492 5.34%
Investment Securities (Taxable) 115,436 3,537 6.18 121,778 3,666 6.03
Investment Securities (Tax-exempt) 413 13 6.50 47 1 8.12
Loans, Net of Unearned Discount/(1)/ 236,007 11,334 9.68 189,403 9,067 9.63
-------- ------- -------- -------
Total Earning Assets 363,719 15,204 8.43 329,651 13,226 8.06
------- -------
Non-interest Earning Assets:
Cash and Due From Banks 23,371 20,407
Other Assets 12,980 12,037
Allowance for Loan Losses (3,273) (2,630)
-------- --------
Total Assets $396,797 $359,465
======== ========
Interest-Bearing Liabilities:
Interest-Bearing Transaction
Accounts & Money Market Funds $125,331 2,169 3.49 $114,182 1,853 3.26
Savings 50,113 1,013 4.08 43,174 864 4.03
Savings Certificates 47,059 1,127 4.83 48,473 1,161 4.82
Certificates of Deposit
$100,000 or more 27,123 679 5.05 24,398 600 4.95
Other Time 538 14 5.09 359 10 4.94
Other Borrowings 12,038 251 4.28 11,059 236 4.31
-------- ------- -------- -------
Total Interest-Bearing Liabilities 262,202 5,253 4.04 241,645 4,724 3.93
------- -------
Non-interest Bearing Liabilities:
Demand Deposits 96,001 85,064
Other Liabilities 2,180 2,039
Shareholders' Equity 36,414 30,717
-------- --------
Total Liabilities and
Shareholders' Equity $396,797 $359,465
======== ========
Net Interest Income and Margin
(Tax-equivalent Basis)/(2)/ $ 9,951 5.52 $ 8,502 5.18
======= =======
</TABLE>
(1) Loan interest income includes fees and loan volumes include loans on non-
accrual.
(2) Presented on a tax equivalent basis ("T/E") using a federal income tax rate
of 34% in both years.
24
<PAGE>
Net Interest Income
- -------------------
Net interest income (tax equivalent) for the second quarter of 1997 was
$5,161,000 which represented an increase of $797,000, or 18.3%, over the second
quarter of 1996. This increase was heavily contributed to by a 26.2% increase
in average loans for the second quarter of 1997 versus the same quarter last
year.
The following table summarizes the effects of changes in interest rates,
average volumes of earning assets and interest bearing liabilities on net
interest income ( tax equivalent) for the periods ended June 30, 1997 and 1996.
<TABLE>
<CAPTION>
ANALYSIS OF CHANGES IN NET INTEREST INCOME
(Dollars in Thousands)
2nd Qtr. 1997 vs. 2nd Qtr. 1996 Six Mos. 1997 vs. Six Mos. 1996
Increase (Decrease) Increase (Decrease)
Due to Changes in: Due to Changes in:
------------------------------- -------------------------------
Volume Rate Total Volume Rate Total
-------- ---- ------ -------- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Federal Funds Sold $ (153) $ 51 $ (102) $ (175) $ 3 $ (172)
Investment Securities (Taxable) (407) 333 (74) (335) 206 (129)
Investment Securities (Tax-exempt) 10 (1) 9 13 (1) 12
Loans, Net of Unearned Discount 1,242 74 1,316 2,220 47 2,267
------ ---- ------ ------ ---- ------
Total Interest Income 692 457 1,149 1,723 255 1,978
------ ---- ------ ------ ---- ------
Interest-Bearing Liabilities:
Deposits 203 141 344 378 136 514
Other Borrowings (2) 10 8 20 (5) 15
------ ---- ------ ------ ---- ------
Total Interest Expense 201 151 352 398 131 529
------ ---- ------ ------ ---- ------
Net Interest Income $ 491 $306 $ 797 $1,325 $124 $1,449
====== ==== ====== ====== ==== ======
</TABLE>
Provision for Loan Losses and Non-Performing Assets
- ---------------------------------------------------
The Corporation's provision for loan losses was $3,512,000, or 1.42% of total
loans, as of June 30, 1997 compared to $2,829,000, or 1.40% of total loans, as
of June 30, 1996.
Transactions in the provision for loan losses are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -------------------
1997 1996 1997 1996
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Balance, Beginning of Period $3,327 $2,653 $2,972 $2,500
Provisions, Charged to Income 197 164 352 288
Loans Charged-Off (52) (27) (71) (27)
Recoveries of Loans Previously
Charged-Off 40 39 259 68
------ ------ ------ ------
Net Loans (Charged-Off)
Recovered (12) 12 188 41
------ ------ ------ ------
Balance, End of Period $3,512 $2,829 $3,512 $2,829
====== ====== ====== ======
</TABLE>
25
<PAGE>
The following table summarizes the non-performing assets as of the end of the
last five quarters (in thousands).
<TABLE>
<CAPTION>
June 30, March 31, December 31, September 30, June 30,
1997 1997 1996 1996 1996
-------- --------- ------------ ------------- --------
<S> <C> <C> <C> <C> <C>
Non-Accrual Loans $ 901 $1,005 $1,102 $1,282 $1,356
Other Real Estate Owned 151 163 166 169 172
------ ------ ------ ------ ------
Total Non-Performing Assets $1,052 $1,168 $1,268 $1,451 $1,528
====== ====== ====== ====== ======
</TABLE>
Non-accrual loans to total loans were .37% at June 30, 1997 and non-
performing assets were .43% of loans and other real estate owned at the same
date.
Non-interest Income
- -------------------
The major component of non-interest income is service charges on deposits.
Other service fees are the majority of other non-interest income.
The following table reflects the changes in non-interest income during the
periods presented (dollars in thousands).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ----------------------------
1997 1996 % Change 1997 1996 % Change
----- ------ --------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Service Charges on Deposit Accounts $ 463 $ 402 15.2% $ 900 $ 787 14.4%
Loss on Sale of Investment Securities -0- (10) -- -0- (7) --
Non-recurring Income 34 37 (8.1) 87 69 26.1
Other Non-interest Income 323 302 7.0 595 611 (2.6)
----- ----- ------ ------
Total Non-interest Income $ 820 $ 731 12.2 $1,582 $1,460 8.4
===== ===== ====== ======
</TABLE>
Non-recurring income is primarily interest recovered on loans charged-off in
prior years. The decrease in other non-interest income for the six months ended
June 30, 1997 was primarily due to decreases in fees earned from investment
brokerage services and issuances of letters of credit.
Non-interest Expense
- --------------------
Non-interest expenses include all expenses other than interest expense,
provision for loan losses and income tax expense.
The following table summarizes the changes in non-interest expense during
the periods presented (dollars in thousands).
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- ----------------------------
1997 1996 % Change 1997 1996 % Change
------ ------ -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Salaries & Employee Benefits $1,828 $1,697 7.7% $3,575 $3,352 6.7%
Occupancy Expense - Net 190 207 (8.2) 387 387 --
Furniture and Equipment Expense 220 203 8.4 431 400 7.8
Other Real Estate Expense - Net (5) 21 -- (8) 16 --
Other Expenses:
Business Development 172 113 52.2 273 218 25.2
Insurance - Other 20 24 (16.7) 47 51 (7.8)
Legal & Professional Fees 139 107 29.9 248 205 21.0
Taxes - Other 45 24 87.5 73 47 55.3
Postage & Courier 64 56 14.3 132 130 1.5
Printing & Supplies 97 74 31.1 174 154 13.0
Regulatory Fees & Assessments 43 51 (15.7) 85 102 (16.7)
Other Operating Expenses 263 225 16.9 505 518 (2.5)
------ ------ ------ ------
Total Other Expenses 843 674 25.1 1,537 1,425 7.9
------ ------ ------ ------
Total Non-interest Expense $3,076 $2,802 9.8 $5,922 $5,580 6.1
====== ====== ====== ======
</TABLE>
26
<PAGE>
Total non-interest expense increased 9.8% in the second quarter of 1997 over
1996, reflecting increases in salaries and benefits, furniture and equipment
expenses, business development, legal and professional expense, taxes-other and
printing and supplies. As a percent of average assets, non-interest expenses
were 3.07% in the second quarter of 1997, the same as in the second quarter of
1996. The "efficiency ratio" (non-interest expenses divided by total non-
interest income plus net interest income) was 51.5% for the second quarter of
1997. These measures of operating efficiency compare very favorably to other
financial institutions in the Corporation's peer group.
The increase in salaries and employee benefits for the second quarter of 1997
is due to salary merit increases, incentive compensation accrual increases, and
an increase in pension plan expense. Also, the average number of full-time
equivalent employees increased by three in the second quarter of 1997 to an
average full-time equivalent of 138 compared to the same quarter last year.
The increase in furniture and equipment expense is primarily a result of
increased depreciation for new furniture and equipment acquired in the past
year.
Business development expense increased as a result of increased advertising
expenses related to the new name for Summit Community Bank.
Legal and professional fees increased due to increased miscellaneous legal
fees and miscellaneous other professional fees.
Taxes-other increased due to additional state franchise taxes paid on
increased levels of capital and additional taxes due as a result of audits of
franchise tax returns of all SBI entities for the four years prior to 1996.
The increase in printing and supplies was also primarily related to the
expenses of the Summit Community Bank name change.
Other operating expenses increased in the second quarter of 1997 due to
increases in various miscellaneous operating costs.
Interest Rate Sensitivity
- -------------------------
Interest rate sensitivity is the relationship between changes in market
interest rates and net interest income due to the repricing characteristics of
assets and liabilities.
The following table, commonly referred to as a "static gap report",
indicates the interest rate sensitivity position at June 30, 1997 and may not be
reflective of positions in subsequent periods (dollars in thousands):
<TABLE>
<CAPTION>
Total Repriced
Matures or Reprices within: Rate After
---------------------------------------------- Sensitive 1 Year or
30 Days 31-90 91-180 181 to One Year Non-interest
or Less Days Days One Year or Less Sensitive Total
-------- -------- -------- --------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans $137,717 $ 6,538 $ 9,775 $ 15,744 $169,774 $ 77,042 $246,816
Investment Securities 367 4,118 6,617 19,172 30,274 83,381 113,655
Federal Funds Sold 10,900 -0- -0- -0- 10,900 -0- 10,900
-------- -------- -------- -------- -------- -------- --------
Total Earning Assets 148,984 10,656 16,392 34,916 210,948 160,423 371,371
-------- -------- -------- -------- -------- -------- --------
Interest Bearing Liabilities:
Interest-Bearing Transaction
Accounts and Savings 177,677 -0- -0- -0- 177,677 -0- 177,677
Certificate of Deposits
>$100,000 6,399 5,638 7,668 8,564 28,269 1,569 29,838
Other Time Deposits 6,038 9,661 11,136 16,034 42,869 5,339 48,208
Repurchase Agreements 9,027 -0- -0- -0- 9,027 -0- 9,027
-------- -------- -------- -------- -------- -------- --------
Total Interest Bearing
Liabilities 199,141 15,299 18,804 24,598 257,842 6,908 264,750
-------- -------- -------- -------- -------- -------- --------
Interest Sensitivity
Gap $(50,157) $ (4,643) $ (2,412) $ 10,318 $(46,894) $153,515 $106,621
======== ======== ======== ======== ======== ======== ========
Cumulative Gap $(50,157) $(54,800) $(57,212) $(46,894)
======== ======== ======== ========
Cumulative Gap to
Total Earning Assets (13.5%) (14.8%) (15.4%) (12.6%)
Cumulative Gap to
Total Assets (12.2%) (13.4%) (14.0%) (11.4%)
</TABLE>
27
<PAGE>
The preceding static gap report reflects a cumulative liability sensitive
position during the one year horizon. An inherent weakness of this report is
that it ignores the relative volatility any one category of assets liability may
have in relation to other categories or market rates in general. For instance,
the rate paid on NOW accounts typically moves slower than the six month T-Bill.
Management attempts to capture this relative volatility by utilizing a
simulation model with a "beta factor" adjustment which estimates the volatility
of rate sensitive assets and/or liabilities in relation to other market rates.
Beta factors are an estimation of the long term, multiple interest rate
environment relation between an individual account and market rates in general.
For instance, NOW, savings and money market accounts, which are repriceable
within 30 days will have considerably lower beta factors than variable rate
loans and most investment categories. Taking this into consideration, it is
quite possible for a bank with a negative cumulative gap to total asset ratio to
have a positive "beta adjusted" gap risk position.
As a result of applying the beta factors established by management to the
earning assets and interest bearing liabilities in the static gap report via a
simulation model, the negative cumulative gap to total assets ratio at one year
of (11.4%) was reversed to a positive 13.3% "beta adjusted" gap position.
Management feels that the "beta adjusted" gap risk technique more accurately
reflects the Corporation's gap position.
Capital
- -------
The Federal Reserve Board has guidelines for capital to total assets
(leverage) and capital standards for bank holding companies. The Comptroller of
the Currency also has similar guidelines for national banks. These guidelines
require a minimum level of Tier I capital to total assets of 3 percent. A
banking organization operating at or near these levels is expected to have well-
diversified risk, excellent asset quality, high liquidity, good earnings and in
general be considered a strong banking organization. Organizations not meeting
these characteristics are expected to operate well above these minimum capital
standards. Thus, for all but the most highly rated organizations, the minimum
Tier I leverage ratio is to be 3 percent plus minimum additional cushions of at
least 100 to 200 basis points. At the discretion of the regulatory authorities,
additional capital may be required.
At June 30, 1997, total capital to total assets was 9.24%.
The Federal Reserve Board and Comptroller of the Currency also have risk-
adjusted capital adequacy guidelines. Capital under these new guidelines is
defined as Tier I and Tier II. At Summit Bancshares, Inc. the only components
of Tier I and Tier II capital are shareholders' equity and a portion of the
allowance for loan losses, respectively.
The guidelines also stipulate that four categories of risk weights (0, 20,
50 and 100 percent), primarily based on the relative credit risk of the
counterparty, be applied to the different types of balance sheet assets. Risk
weights for all off-balance sheet exposures are determined by a two-step process
whereby the face value of the off-balance sheet item is converted to a "credit
equivalent amount" and that amount is assigned to the appropriate risk category.
The regulatory minimum ratio for total qualifying capital is 8.00% of which
4.00% must be Tier I capital. At June 30, 1997, the Corporation's Tier I
capital represented 14.41% of risk weighted assets and total qualifying capital
(Tier I and Tier II) represented 15.66% of risk weighted assets. Both ratios
are well above current regulatory guidelines.
28
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Change in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
At the Corporation's annual shareholders' meeting, held on April 15,
1997, the shareholders of the Corporation:
. ratified the appointment by the Board of Directors of Stovall,
Grandey & Whatley as independent auditors of the Corporation for
its fiscal year ending December 31, 1997. The shareholder vote in
this matter was 2,724,299 for, 99,366 against, and none
abstaining.
. ratified the adoption of the 1997 Incentive Stock Option Plan of
the Corporation. The shareholder vote in this matter was
2,390,398 for, 427,107 against, and 6,160 abstaining.
. elected the Board of Directors, consisting of thirteen (13)
persons. The following directors, constituting the entire Board
of Directors, were elected:
For Against Abstain
--------- ------- -------
Robert E. Bolen 2,749,565 -0- 74,100
Joe L. Bussey, M.D. 2,711,009 38,556 74,100
Elliott S. Garsek 2,749,565 -0- 74,100
Ronald J. Goldman 2,748,069 1,496 74,100
F.S. Gunn 2,746,565 3,000 74,100
Jeffrey M. Harp 2,746,565 3,000 74,100
William W. Meadows 2,705,565 44,000 74,100
Edward P. Munson, Jr. 2,748,669 896 74,100
James L. Murray 2,746,565 3,000 74,100
Philip E. Norwood 2,746,565 3,000 74,100
Byron B. Searcy 2,749,565 -0- 74,100
Edgar Snelson 2,749,565 -0- 74,100
Lloyd J. Weaver 2,749,565 -0- 74,100
29
<PAGE>
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10 1997 Incentive Stock Option Plan of Summit Bancshares, Inc.
11 Computation of Earnings Per Common Share
27 Financial Data Schedule
(b) No Reports on Form 8-K were filed during the period ending
June 30, 1997
30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUMMIT BANCSHARES, INC.
Registrant
Date: July 31, 1997 By: /s/ Philip E. Norwood
-------------------- --------------------------------------
Philip E. Norwood, President and
Chief Executive Officer
Date: July 31, 1997 By: /s/ Bob G. Scott
-------------------- --------------------------------------
Bob G. Scott, Senior Vice President
and Chief Financial Officer
31
<PAGE>
EXHIBIT INDEX
Exhibit Page No.
- ------- --------
10 1997 Incentive Stock Option Plan of
Summit Bancshares, Inc.
11 Computation of Earnings Per Common Share
27 Financial Data Schedule
<PAGE>
EXHIBIT 10
1997 INCENTIVE STOCK OPTION PLAN
OF SUMMIT BANCSHARES, INC.
This is the 1997 Incentive Stock Option Plan (the "Plan") of Summit
Bancshares, Inc., a Texas corporation (the "Corporation") under which incentive
stock options may be granted to the officers and other key employees of the
Corporation and its subsidiaries to purchase shares of common stock, $1.25 par
value, of the Corporation. Options granted pursuant to this Plan are intended
to be "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code (the "Code").
The purpose of the Plan is to advance the best interests of the Corporation
by providing executives and other key personnel of the Corporation and its
subsidiaries, who have substantial responsibility for the management and growth
of the Corporation and its subsidiaries, with additional incentive by
increasing their proprietary interest in the success of the Corporation--thereby
encouraging them to remain in the employ of the Corporation or its subsidiaries.
ARTICLE I
COMMITTEE
---------
SECTION 1.1. ADMINISTRATION. The Plan shall be administered by a
----------- --------------
committee appointed by the Board of Directors of the Corporation (the
"Committee") from among the member of the Board of Directors of the Corporation,
and consisting of such number as the Board of Directors of the Corporation may,
from time to time, determine. The Board of Directors of the Corporation may,
from time to time, remove members from, or add members to, the Committee.
Vacancies on the Committee, howsoever caused, shall be filed by the Board of
Directors of the Corporation. The Committee shall select one of its members as
Chairman, and shall hold meetings at such times and places as it may determine.
Decisions by a majority of the Committee, at which a quorum is present, or acts
reduced to or approved in writing by a majority of the members of the Committee,
shall be valid acts of the Committee. No person shall serve as a member of the
Committee if at any time within one year prior to his service as a member of the
Committee or during such service he shall have received a grant or award
pursuant to the Plan or any other plan of the Corporation or any of its
subsidiaries.
SECTION 1.2. POWERS. Subject to the provisions of the Plan and the
----------- ------
approval, within 12 months of the date of the adoption of the Plan by the Board
of Directors, of the Plan by holders of at least a majority of the outstanding
shares of common stock entitled to vote, the Committee shall have plenary
authority to determine, in its discretion, the employees of the Corporation, or
any subsidiary of the Corporation, to whom options shall be granted, the number
of shares to be covered by each of the options, and the time or times at which
options shall be granted. The Committee shall also have the authority to
interpret the Plan, and to prescribe, amend or rescind rules and regulations
relating to it. The interpretation and construction by the Committee of any
provision of the Plan or of any option granted under it shall be final unless
otherwise determined by the Board of Directors of the Corporation.
<PAGE>
ARTICLE II
PARTICIPANTS
------------
SECTION 2.1. ELIGIBILITY. The persons who shall be eligible to receive
----------- -----------
options shall be the executives and other key personnel of the Corporation, or
of any subsidiary of the Corporation, as the Committee shall select. In
selecting the individuals to whom options shall be granted, as well as in
determining the number of shares subject to each option, the Committee shall
weigh the positions and responsibilities of the individuals being considered,
the nature of their services, their present and potential contributions to the
success of the Corporation, or any subsidiary of the Corporation, and such other
factors as the Committee shall deem relevant to accomplish the purpose of the
Plan.
SECTION 2.2. NUMBER OF OPTIONS. A participant may hold more than one
----------- -----------------
option, but only on the terms and subject to the restrictions hereafter set
forth. No person shall be eligible to receive an option for a larger number of
shares than is granted to him by Committee.
SECTION 2.3. NO RIGHTS AS SHAREHOLDER. No participant shall have rights
----------- ------------------------
as a shareholder with respect to shares covered by his option until the date of
issuance of a stock certificate for such shares.
SECTION 2.4. ELIGIBILITY FOR OTHER PLANS. Participation in the Plan shall
----------- ---------------------------
not affect eligibility for any profit-sharing, bonus, insurance, pension or
other extra-compensation plan which the Corporation, or any subsidiary of the
Corporation, may at any time adopt for employees.
SECTION 2.5. EMPLOYMENT OBLIGATION. The granting of an option shall not
----------- ---------------------
impose any obligation upon the Corporation, or any subsidiary of the
Corporation, to continue to employ any participant, and the right of the
Corporation, or any subsidiary of the Corporation, to terminate the employment
of any officer or other employee shall not be diminished or affected by reason
of the fact that an option has been granted to him.
SECTION 2.6. CONTINUOUS EMPLOYMENT. (a) An option granted to a
----------- ---------------------
participant under the Plan shall not be exercisable by the participant unless at
all times beginning with the date of grant of an option hereunder and (except as
otherwise provided in Section 4.8 hereof) ending on the date of exercise of such
option, the participant shall have been in the continuous employment of the
Corporation or any subsidiary of the Corporation.
(b) Notwithstanding Section 2.6(a), the requisite employment
relationship with respect to an option granted hereunder will be treated as
continuing intact while the participant (with the prior approval of the Board of
Directors of the Corporation or any subsidiary of the Corporation) is on
military leave, sick leave, or other bona fine leave of absence (such as
temporary employment by the Government) if the period is of such leave does not
exceed ninety (90) days, or, if longer, so long as the participant's right to
reemployment is guaranteed by statute or by contract.
-2-
<PAGE>
SECTION 2.7. NO OBLIGATION TO EXERCISE OPTION. The granting of an option
----------- --------------------------------
shall not impose any obligation upon the participant to exercise the option.
The participant may, at any time, elect in writing to abandon, in whole or in
part, an option granted hereunder.
ARTICLE III
SHARES SUBJECT TO OPTION
------------------------
SECTION 3.1. SHARES AVAILABLE. The stock subject to options shall be the
----------- ----------------
Corporation's authorized but unissued one Dollar and 25/100 ($1.25) par value
common stock (the "Common Stock"). The aggregate number of shares for which
options may be granted under the Plan shall not exceed 300,000 shares of
Common Stock, subject to adjustment pursuant to Section 5.3.
SECTION 3.2. ALLOTMENT OF SHARES. The Committee shall determine the
----------- -------------------
number of shares of Common Stock to be offered (from time to time) to each
participant. Subject to the eligibility requirements of Section 2.1, in any
offering after the initial offering under the Plan, the Committee may offer
available shares to new participants or to then participants or to a greater or
lesser number of participants, and may include or exclude previous participants
in accordance with such determinations as the Committee shall make from time to
time.
SECTION 3.3. SHARES FROM UNEXERCISED OPTION. In the event that
----------- ------------------------------
outstanding option under the Plan for any reason expires or is terminated, the
shares of Common Stock allocable to the unexercised portion of the option may
again be subjected to any option under the Plan.
ARTICLE IV
TERMS AND CONDITIONS OF OPTIONS
-------------------------------
Stock options granted pursuant to the Plan shall be evidenced by agreements
in such form as the Committee shall, from time to time, recommend, which
(although they need not be identical in form) shall be subject to the following
terms and conditions:
SECTION 4.1. OPTION PRICE. Except as provided in Section 4.4 of the Plan,
----------- ------------
the price at which shares of Common Stock may be purchased pursuant to options
shall be no less than one hundred percent (100%) of the fair market value of the
shares of Common Stock on the date the option is granted. The Committee in
fixing the option price shall have full authority and discretion and be fully
protected in doing so.
SECTION 4.2. TIME OF GRANTING OPTION. Neither anything contained in the
----------- -----------------------
Plan or in any resolution adopted or to be adopted by the Board of Directors of
the Corporation or the
-3-
<PAGE>
shareholders of the Corporation nor any action taken by the Committee shall
constitute the granting of an option. The granting of an option shall take place
only when a written option agreement shall have been duly executed by or on
behalf of the Corporation and the participant to whom such option shall be
granted. Notwithstanding anything herein to the contrary, no options shall be
granted under the Plan after January 15, 2006.
SECTION 4.3. DURATION OF OPTIONS. Except as provided in Section 4.4 of
----------- -------------------
the Plan, no option shall be exercisable after the expiration of ten (10) years
from the date such option is granted, and the Committee in its discretion may
provide that an option shall be exercisable during such ten (10) year period or
any lesser period of time.
SECTION 4.4. TEN PERCENT SHAREHOLDERS. Notwithstanding anything to the
----------- ------------------------
contrary contained herein, options granted by the Committee to any eligible
participant who at the time of the grant of the option, owned, directly or
indirectly, more than ten percent (10%) of the total combined voting power of
all classes of capital stock of the Corporation, shall not qualify as incentive
stock options unless (i) the purchase price for the Common Stock subject to the
option is at least one hundred ten percent (110%) of the fair market value of
the Common Stock determined at the time such option is granted and (ii) the
option by its terms is not exercisable after five (5) years from the time the
option is granted. The attribution rules of Section 425(d) of the Code shall
apply in the determination of the indirect ownership of capital stock of the
Corporation.
SECTION 4.5. AMOUNT EXERCISABLE. (a) Each incentive stock option may be
----------- ------------------
exercised by a participant so long as it is valid and outstanding, in part or in
whole as the Committee in its discretion may provide in the written option
agreement between the Corporation and such participant. The Committee may also
prescribe a minimum number of shares of Common Stock subject to options which
must be purchased at any one time in connection with the exercise of any such
options.
(b) Options granted under the Plan may be exercised in any order,
regardless of when such options were granted.
SECTION 4.6. METHOD OF EXERCISE. (a) Notice of Exercise. An option
----------- ------------------ ------------------
shall be exercised by delivery of written notice to the Corporation setting
forth the number of shares of Common Stock with respect to which the option is
being exercised, and specifying the address to which the certificates for such
shares are to be delivered.
(b) Payment. Such notice shall be accompanied by payment of the full
-------
purchase price of such shares, and the Corporation shall deliver a certificate
or certificates representing such shares as soon as practicable after the notice
shall be received. Payment shall be made:
-4-
<PAGE>
(i) by the tender of cash, check, postal or express money order
in the amount of the purchase price payable to the order of the
Corporation, or
(ii) by the tender of shares of Common Stock of the Corporation
having the fair market value equal to the purchase price, if the
Corporation is not then prohibited from purchasing or acquiring shares
of Common Stock.
If and while payment with Common Stock is permitted for the exercise of an
option granted under the Plan in accordance with the foregoing provisions, the
person then entitled to exercise that option may, in lieu of using previously
outstanding shares of Common Stock therefor, use some of the shares of Common
Stock as to which the option is then being exercised.
(c) Designation. The certificate or certificates for shares as to
-----------
which the option is exercised shall be registered in the name of the person or
persons exercising the option. In the event the option shall be exercised
pursuant to Section 4.8(b) by any person or persons other than the participant,
the notice shall be accompanied by appropriate proof of the right of such person
or persons to exercise the option.
(d) Delivery. The Corporation shall deliver to the participant the
--------
certificate or certificates for the number of shares with respect to which the
option has been exercised to the address specified in accordance with Section
4.6(a) above, and delivery shall be deemed effected for all purposes when the
Corporation or its transfer agent shall have deposited such certificate or
certificates in the United States mail addressed to the participant at such
address. If the participant (or other person entitled to exercise the option)
fails to accept delivery of and pay for all or any part of the number of shares
specified in such notice upon tender of delivery thereof, his right to exercise
the option with respect to such undelivered shares may be terminated.
SECTION 4.7. NON-TRANSFERABILITY OF OPTIONS. Options shall not be
----------- ------------------------------
transferable by the participant other than by will or under the laws of descent
and distribution and shall be exercisable, during his lifetime, only by him.
SECTION 4.8. SEVERANCE OF EMPLOYMENT. (a) Termination of Employment
----------- ----------------------- -------------------------
other than by Death, Retirement or Disability. If the participant ceases to be
- ---------------------------------------------
employed by the Corporation, or any subsidiary of the Corporation, for any
reason, whether by his own volition or otherwise (except that this paragraph
will not apply if the termination of employment is caused by death, retirement
or disability), then the option granted to the participant shall terminate on
the date of the participant's cessation of employment.
(b) Death or Retirement of Participant. In the event of the death or
----------------------------------
retirement of the participant upon reaching the age of sixty-five (65) while in
the employ of the Corporation, or any subsidiary of the Corporation, and before
the date of expiration of an option granted to
-5-
<PAGE>
him, the option shall terminate on the earlier of the date of its expiration or
the day which is three (3) months after the date of death or retirement, as the
case may be. After the retirement or death of the participant, the participant,
in the event of his retirement, or his executors, administrators or any person
or persons to whom his option may be transferred by will or by the laws of
descent and distribution, in the event of his death, shall have the right at any
time during the time specified in this Section 4.8(b) to exercise the option, in
whole or in part.
(c) Disability of Participant. If before the date of expiration of
-------------------------
the option the participant shall terminate his employment with the Corporation,
or any subsidiary of the Corporation, for reason of disability, the option shall
terminate on the earlier of its date of expiration or a day which is one (1)
year after the date of such termination of employment.
SECTION 4.9. REQUIREMENTS OF REGULATORY AGENCIES. (a) The Corporation
----------- -----------------------------------
shall not be required to sell or issue any shares of Common Stock under any
option if the issuance of such shares of Common Stock shall constitute a
violation by the participant or the Corporation of any provisions of any law or
regulation of any governmental authority.
(b) If, at any time, the Board of Directors of the Corporation shall
determine, in its discretion, that the listing, registration or qualification of
any of the shares subject to options under the Plan upon any securities exchange
or under any state or federal law, or the consent or approval of any
governmental regulatory body is necessary or desirable as a condition of or in
connection with the granting of options or the purchase or issue of shares
thereunder, then if the Board of Directors deems it necessary, no further
options may be granted and outstanding options may not be exercised in whole or
in part unless such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable to
the Board of Directors. The Board of Directors shall have the authority to
cause the Corporation at its expense to take any action related to the Plan
which may be required in connection with such listing, registration,
qualification, consent or approval; provided, however, that the Corporation is
not obligated to register any securities covered by this Plan, nor is the
Corporation required to take any other affirmative action in order to cause the
exercise of an option or the issuance of shares pursuant thereto to comply with
any law or regulation of any governmental authority.
(c) If requested by the Corporation at the time of exercise of any
option, the participant shall execute an agreement (in a form acceptable to the
Corporation) stating that he is purchasing the shares subject to the option for
investment and without any present intention of selling the same.
ARTICLE V
MODIFICATIONS
-------------
SECTION 5.1. AMENDMENT OR TERMINATION OF PLAN. The Board of Directors of
----------- --------------------------------
the Corporation may modify, revise or terminate this Plan at any time and from
time to time;
-6-
<PAGE>
provided, however, that without the further approval of the shareholders of the
Corporation, the Board may not (i) increase the maximum number of shares of
Common Stock which may be issued under options pursuant to the provisions of the
Plan; (ii) reduce the option price at which options may be granted to an amount
less than the fair market value per share at the time the option is granted;
(iii) change the class of employees eligible to receive options; or (iv) change
any provisions of the Plan which would affect the income tax status of the
options granted hereunder. The Board shall have the power to make such changes
in the Plan and in the regulations and administrative provisions thereunder or
in any outstanding option as, in the opinion of counsel for the Corporation, may
be necessary or appropriate from time to time to enable the options granted
pursuant to the Plan to comply with the requirements of any governmental or
regulatory agency.
SECTION 5.2. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. Subject to
----------- ----------------------------------------------
the terms and conditions and within the limitations of the Plan, the Board of
Directors of the Corporation may modify, extend or renew outstanding options
granted under the Plan, or accept the surrender of outstanding options (to the
extent not substitution theretofore exercised) and authorize the granting of new
options in substitution therefor (to the extent not theretofore exercised).
Notwithstanding the foregoing, however, no modification of an option shall,
without the consent of the participant, alter or impair any rights or
obligations under any option theretofore granted under the Plan.
SECTION 5.3. ADJUSTMENTS. (a) In the event that the outstanding shares
----------- -----------
of Common Stock of the Corporation are hereafter increased or decreased or
changed into or exchanged for a different number or kind of shares or other
securities of the Corporation or reclassification, stock split-up, combination
of shares, dividend or other distribution payable in capital stock, appropriate
adjustment shall be made by the Committee in the number and kind of shares for
the purchase of which options may be granted under the Plan. In addition, the
Committee shall make appropriate adjustment in the number and kind of shares as
to which outstanding options, or portions thereof then unexercised, shall be
exercisable, to the end that the proportionate interest of the holder of the
option shall, to the extent practicable, be maintained as before the occurrence
of such event. Such adjustment in outstanding options shall be made without
change in the total price applicable to the unexercised portion of the option
but with a corresponding adjustment in the option price per share.
(b) Upon the dissolution or liquidation of the Corporation, or upon a
reorganization, merger or consolidation of the Corporation as a result of which
the outstanding securities of the class then subject to options hereunder are
changed into or exchanged for cash or property or securities not of the
Corporation's issue, or any combination thereof, or upon a sale of substantially
all the property of the Corporation to, or the acquisition of stock representing
more than eighty percent (80%) of the voting power of the stock of the
Corporation then outstanding by, another corporation or person, the Plan shall
terminate, and all options theretofore granted hereunder shall terminate, unless
provision shall be made in writing in connection with such transaction for the
continuance of the Plan and/or for the assumption of options theretofore
-7-
<PAGE>
granted, or the substitution for such options or options covering the stock of a
successor employer corporation, or a parent or a subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and prices, in which
event the Plan and options theretofore granted shall continue in the manner and
under the terms so provided. If the Plan and unexercised options shall
terminate pursuant to the foregoing sentence, all persons entitled to exercise
any unexercised options then outstanding shall have the right, at such time
prior to the consummation of the transaction causing such termination as the
Corporation shall designate, to exercise the unexercised portions of their
options, including the portions thereof which would, but for this Section
5.3(b), not yet be exercisable.
(c) Adjustments and determinations under this Section 5.3 shall be
made by the Committee, whose decisions as to what adjustments or determinations
shall be made, and the extent thereof, shall be final, binding and conclusive.
ARTICLE VI
MISCELLANEOUS PROVISIONS
------------------------
SECTION 6.1. WRITTEN AGREEMENT. Each option granted hereunder shall be
----------- -----------------
embodied in a written option agreement which shall be subject to the terms and
conditions prescribed above, and shall be signed by the participant and by the
President or any Vice President of the Corporation for and on behalf of the
Corporation. Such an option agreement shall be approved as to its terms by the
participant's spouse (if any) and shall contain such other provisions as the
Committee, in its discretion, shall deem advisable.
SECTION 6.2. APPLICATION OF FUNDS. The proceeds received by the
----------- --------------------
Corporation from the sale of shares of Common Stock pursuant to options shall be
used for general corporate purposes.
SECTION 6.3. DEFINITIONS. (a) The term "Plan" means the 1996 Incentive
----------- -----------
Stock Option Plan adopted by Summit Bancshares, Inc. as may be amended and
restated from time to time.
(b) The term "Corporation" means Summit Bancshares, Inc. and its
successors.
(c) The term "Common Stock" means the One Dollar and 25/100 ($1.25)
par value common stock of the Corporation.
(d) The term "option" shall mean the rights granted to an employee to
purchase shares of Common Stock of the Corporation in accordance with the Plan.
(e) The term "participant" shall mean an eligible employee of the
Corporation, or of any subsidiary of the Corporation, who has been granted an
option to purchase shares of Common Stock by the Committee.
-8-
<PAGE>
(f) The term "Code" means the Internal Revenue Code of 1986, as
amended and any successor revenue law hereto, and as same may be interpreted
from time to time by Treasury Income Tax Regulation, Treasury Department
Administrator ruling and court decisions.
SECTION 6.4. PLAN EXPENSES. The expenses of administering the Plan shall
----------- -------------
be borne by the Corporation. Member of the Committee shall receive compensation
for serving on the Committee, as from time to time determined by the Board of
Directors of the Corporation.
SECTION 6.5. EFFECTIVE DATE OF PLAN. The Plan shall become effective and
----------- ----------------------
shall be deemed to have been adopted on January 21, 1997.
-9-
<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
The details of computation of earnings per common share are disclosed in the
Consolidated Statements of Income and Note 14 of the Notes to Consolidated
Financial Statements for the Periods of Six Months Ended June 30, 1997 and 1996
(unaudited) and the Year Ended December 31, 1996 (audited), contained in the
Quarterly Report on Form 10-Q of registrant for the quarter Ended June 30, 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 JUNE 30, 1997, AND
THE RELATED STATEMENTS OF INCOME, CHANGES IN SHAREHOLDERS' EQUITY AND CASH FLOWS
FOR THE PERIOD ENDING JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 28,170
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 10,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 61,276
<INVESTMENTS-CARRYING> 113,655
<INVESTMENTS-MARKET> 113,738
<LOANS> 246,816
<ALLOWANCE> 3,512
<TOTAL-ASSETS> 409,931
<DEPOSITS> 360,949
<SHORT-TERM> 0
<LIABILITIES-OTHER> 11,109
<LONG-TERM> 0
0
0
<COMMON> 4,045
<OTHER-SE> 33,828
<TOTAL-LIABILITIES-AND-EQUITY> 409,931
<INTEREST-LOAN> 11,330
<INTEREST-INVEST> 3,547
<INTEREST-OTHER> 319
<INTEREST-TOTAL> 15,196
<INTEREST-DEPOSIT> 4,996
<INTEREST-EXPENSE> 5,253
<INTEREST-INCOME-NET> 9,943
<LOAN-LOSSES> 352
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,922
<INCOME-PRETAX> 5,251
<INCOME-PRE-EXTRAORDINARY> 3,444
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,444
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.06
<YIELD-ACTUAL> 5.60
<LOANS-NON> 901
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 8,318
<ALLOWANCE-OPEN> 2,972
<CHARGE-OFFS> 71
<RECOVERIES> 259
<ALLOWANCE-CLOSE> 3,512
<ALLOWANCE-DOMESTIC> 3,512
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
