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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 COMMISSION FILE NUMBER 0-11986
SUMMIT BANCSHARES, INC.
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(Exact name of registrant as specified in its charter)
TEXAS 75-1694807
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(State of Incorporation) (I.R.S. Employer
Identification No.)
1300 SUMMIT AVENUE, FORT WORTH, TEXAS 76102
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(Address of principal executive offices)
(817) 336-6817
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None Not Applicable
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(Title of Class) (Name of each exchange
on which registered)
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $1.25 PAR VALUE
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(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was authorized to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the shares of voting stock held by non-affiliates
of the registrant at March 11, 1998 was approximately $113,852,000.
The number of shares of common stock, $1.25 par value, outstanding at March 11,
1998 was 6,518,094 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement dated March 17, 1998 filed pursuant to
Regulation 14A of the Securities Exchange Act of 1934 for the 1998 Annual
Meeting of Shareholders of Summit Bancshares, Inc., are incorporated by
reference into Part III.
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PART I
ITEM 1. BUSINESS.
THE CORPORATION. Summit Bancshares, Inc. (the "Corporation"), a corporation
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incorporated under the laws of the state of Texas in 1979, is a bank holding
company registered under the Bank Holding Company Act of 1956, as amended (the
"BHC Act"). The Corporation maintains its principal office at 1300 Summit
Avenue, Suite 604, Fort Worth, Texas 76102. The Corporation's principal
activity is the ownership and management of its subsidiaries. The Corporation
owns all of the issued and outstanding shares of capital stock of two national
banking associations, Summit National Bank and Summit Community Bank, N.A. (the
"Subsidiary Banks") and a nonbank subsidiary, Summit Bancservices, Inc., all
located in Fort Worth, Texas. In January 1997 Camp Bowie National Bank at the
time, a wholly-owned subsidiary, changed its name to Summit Community Bank, N.A.
and in March 1997 Alta Mesa National Bank merged with Summit Community Bank,
N.A. Alta Mesa National Bank was a former wholly-owned subsidiary of the
Corporation.
At December 31, 1997 the Corporation had consolidated total assets of
$459,794,000, consolidated total loans of $276,069,000, consolidated total
deposits of $401,724,000 and consolidated total shareholders' equity of
$41,112,000.
The Corporation provides advice and services to the Subsidiary Banks and
coordinates their activities in the areas of financial accounting controls and
reports, internal audit programs, regulatory compliance, financial planning and
employee benefit programs. However, each Subsidiary Bank operates under the
day-to-day management of its own officers and directors.
The Corporation's major source of income is dividends received from the
Subsidiary Banks which are restricted as discussed below. Dividend payments by
the Subsidiary Banks are determined on an individual basis, generally in
relation to each Subsidiary Bank's earnings, deposits and capital.
The Corporation's business is neither seasonal in nature nor in any manner
related to or dependent upon patents, licenses, franchises or concessions and
the Corporation has not spent material amounts on research activities.
THE SUBSIDIARY BANKS. The services offered by the Subsidiary Banks are
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generally those offered by commercial banks of comparable size in their
respective areas. Certain of the principle services offered by the Subsidiary
Banks are described below.
COMMERCIAL BANKING. The Subsidiary Banks provide general commercial
banking services for corporate and other business clients principally
located in Tarrant County, Texas. Loans are made for a wide variety of
purposes, including interim construction and mortgage financing on real
estate and financing of equipment and inventories.
CONSUMER BANKING. The Subsidiary Banks provide a full range of consumer
banking services, including interest and non-interest-bearing checking
accounts, various savings programs, installment and real estate loans,
money transfers, on-site ATM facilities and safe deposit facilities.
SECURITIES SERVICES. Summit Bancshares, Inc. through an agreement with LM
Financial Partners, Inc. offers investment brokerage services. LM
Financial Partners, Inc., a subsidiary of Legg Mason, Inc. is a registered
broker-dealer and member of the National Association of Securities Dealers,
Inc. Investment executives are available at each of the Subsidiary Banks
and can provide information about tax-free municipals, government
securities, stocks, mutual funds, or annuities.
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Certain information with respect to each Subsidiary Bank as of February 28, 1998
is set forth in the following table. Interbank balances have not been eliminated
in the table as such balances are not material to total deposits or total
assets.
<TABLE>
<CAPTION>
As of February 28, 1998
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(In Thousands)
Organiza- Acqui- Share-
Name and Address of tion sition Total Total Total holders'
Subsidiary Bank Date Date Assets Loans Deposits Equity
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<S> <C> <C> <C> <C> <C> <C>
SUMMIT NATIONAL BANK 1975 1980 $191,820 $102,024 $160,589 $18,365
1300 Summit Avenue
Fort Worth, TX 76102
SUMMIT COMMUNITY BANK, N.A. 1984 1984 $275,242 $177,864 $252,320 $20,065
3859 Camp Bowie Blvd.
Fort Worth, TX 76107
</TABLE>
COMPETITION. There is significant competition among bank holding companies in
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Tarrant County, Texas and the Corporation believes that such competition among
such bank holding companies will continue in the future.
Additionally, the Subsidiary Banks encounter intense competition in their
commercial banking businesses, primarily from other banks represented in their
respective market areas, many of which have far greater assets and financial
resources. The Subsidiary Banks also encounter intense competition in their
commercial banking businesses from savings and loan associations, credit unions,
factors, insurance companies, commercial and captive finance companies and
certain other types of financial institutions located in its own and in other
major metropolitan areas in the United States, many of which are larger in terms
of capital, resources and personnel.
EMPLOYEES. As of December 31, 1997 the Corporation and the Subsidiary Banks
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collectively had a total of 152 full-time employees and 16 part-time employees.
REGULATION AND SUPERVISION.
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The Corporation and the Subsidiary Banks are subject to federal and state law
applicable to businesses generally and also to federal and state laws
specifically applicable to financial institutions and financial institution
holding companies. The laws and regulations governing financial institutions
and their parent holding companies are intended primarily for the protection of
depositors, the deposit insurance funds of the Federal Deposit Insurance
Corporation, and the banking system as a whole and not for the protection of
shareholders. Those laws give regulatory authorities broad enforcement powers
over banks and bank holding companies including the power to require remedial
actions and to impose substantial fines and other penalties for violation of
laws or regulations.
The following description of statutory and regulatory provisions is qualified in
its entirety by reference to the applicable statutes and regulations. Any
change in applicable statutes or regulations or the policies of regulatory
authorities may have a material effect on the business, operations, and
prospects of the Corporation and the Subsidiary Banks. The Corporation is
unable to predict the nature or extent of the affect on its business and
earnings that fiscal or monetary policies, economic controls, or changes in
federal or state statutes or regulations or regulatory policies may have in the
future.
THE CORPORATION
GENERAL. The Corporation is a bank holding company within the meaning of the
BHC Act and as such is subject to regulation, supervision, and examination by
the Board of Governors of the Federal Reserve System (the "FRB"). Under
federal law bank holding companies are subject to restrictions on the types of
activities in which they may engage and to wide range of supervisory
requirements and actions, including periodic examinations and reporting
requirements and regulatory enforcement actions for any violations of laws
regulations or policies. The FRB has authority to order a bank holding company
to cease and desist from unsafe or unsound practices, to assess civil money
penalties against companies and affiliated individuals who violate the BHC Act
or FRB regulations or orders, and to order termination by a bank holding company
of any activities in which it is engaged which are not permitted activities for
a bank holding company.
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The Corporation is a legal entity, separate and distinct from its subsidiaries.
As a result, the Corporation's right to participate in the distribution of
assets of any subsidiary upon liquidation or reorganization of the subsidiary
will be subject to the prior claims of depositors and creditors of the
subsidiary. In the event of a liquidation or reorganization of a Subsidiary
Bank, the claims of depositors and creditors of the Bank will have priority over
the rights of the Corporation and its shareholders and creditors.
SCOPE OF PERMISSIBLE ACTIVITIES. The BHC Act prohibits a bank holding company,
with certain limited exceptions, from directly or indirectly engaging in, or
from directly or indirectly acquiring ownership or control of more than 5% of
any class of voting shares of any company engaged in, any activities other than
banking or managing or controlling banks or certain other subsidiaries or other
activities determined by the FRB to be so closely related to banking as to be a
proper incident thereto. Some of the activities which have been determined by
FRB regulation to be closely related to banking are making or servicing loans,
performing certain data processing services, acting as an investment or
financial advisor to certain investment trusts or investment companies, and
providing certain securities brokerage services. In approving or disapproving a
bank holding company's acquiring a company engaged in bank-related activities or
engaging itself in bank-related activities, the FRB considers a number of
factors and weighs the expected benefits to the public (such as greater
convenience and increased competition or gains in efficiency) against possible
adverse effects (such as undue concentration of resources, deceased or unfair
competition, conflicts of interest, or unsound banking practices.) In
considering these factors, the FRB may differentiate between a bank holding
company's commencing activities itself and its acquiring a going concern already
engaged in those activities.
SAFETY AND SOUNDNESS. Bank holding companies may not engage in unsafe or
unsound banking practices. For example, with some exceptions for well-
capitalized and well-managed companies, FRB regulations require a bank holding
company to give the FRB prior notice of any redemption or repurchase of its own
equity securities if the consideration to be paid, together with the
consideration paid for any repurchases or redemptions in the preceding twelve-
month period, is equal to 10% or more of the company's consolidated net worth.
The FRB may disapprove a redemption or repurchase if it finds the transaction
would constitute an unsafe or unsound practice or would violate any law or
regulation. A holding company may not impair the financial soundness of a
subsidiary bank by causing it to make funds available to nonbanking subsidiaries
or their customers when such a transaction would not be prudent. In some
circumstances, the FRB could take the position that paying a dividend would
constitute an unsafe or unsound banking practice. The FRB may exercise various
administrative remedies, including issuing orders requiring parent bank holding
companies and their nonbanking subsidiaries to refrain from actions believed by
the FRB to constitute a serious risk to the financial safety, soundness, or
stability of a subsidiary bank.
SOURCE OF STRENGTH TO SUBSIDIARY BANKS. FRB regulations require a bank holding
company to serve as a source of financial and managerial strength to its
subsidiary banks. This concept has become known as the "source of strength"
doctrine. The FRB takes the position that a bank holding company should stand
ready to use available resources to provide adequate capital funds to its
subsidiary banks during periods of financial adversity and should maintain the
financial flexibility and capital-raising capacity necessary to obtain resources
for assisting its subsidiary banks if required. A bank holding company which
fails to meet its obligations to serve as a source of strength to its subsidiary
banks may be considered by the FRB to be engaged in an unsafe and unsound
banking practice and in violation of FRB regulations. Further, the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") requires a bank
holding company to guarantee, up to certain limits, an undercapitalized
subsidiary bank's compliance with any capital restoration plan approved by the
bank's primary federal regulatory authority. See Imposition of Liability for
Undercapitalized Subsidiaries below.
ENFORCEMENT. The Financial Institution Reform, Recovery and Enforcement Act of
1989 ("FIRREA") expanded the FRB's authority to prohibit activities of bank
holding companies and their nonbanking subsidiary which are unsafe or unsound
banking practices or constitute violations of laws or regulations. Bank
regulatory authorities may issue cease and desist orders which may, among other
things, require affirmative action to correct conditions resulting from such a
violation or practice, including restitution, reimbursement, or indemnification
or guaranty against loss. Under FIRREA, a bank holding company or financial
institution may also be ordered to restrict its growth, dispose of certain
assets, or take other appropriate action as determined by the ordering agency.
FIRREA increased the amount of civil money penalties that the FRB and other
regulatory agencies may assess for certain activities conducted on a knowing and
reckless basis, if those activities cause a substantial loss to a depository
institution.
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The penalties may reach as much as $1,000,000 per day. FIRREA also expanded the
scope of individuals and entities against whom such penalties may be assessed.
FIRREA also contains a "cross-guarantee" provision that makes commonly
controlled insured depository institutions liable to the Federal Deposit
Insurance Corporation (the "FDIC") for any losses incurred, or reasonably
anticipated to be incurred, in connection with the failure of an affiliated
insured depository institution.
ANTI-TYING RESTRICTIONS. Bank holding companies and their affiliates are
prohibited from tying the provision of certain services, such as extensions of
credit, to certain other services offered by a holding company or its
affiliates.
REPORTING AND EXAMINATION. The Corporation is required to file quarterly and
annual reports with the Federal Reserve Bank of Dallas (the "Federal Reserve
Bank") and provide such additional information as the Federal Reserve Bank may
require pursuant to the BHC Act. The Federal Reserve Bank may examine the
Corporation and any nonbank subsidiary and charge the Corporation for the cost
of such an examination. The Corporation is also subject to reporting and
disclosure requirements under state and federal securities laws.
CAPITAL ADEQUACY REQUIREMENTS. The FRB monitors the capital adequacy of bank
holding companies using a combination of risk-based guidelines and leverage
ratios to evaluate their capital adequacy. Under the risk-based capital
guidelines, assets categories are assigned different risk weights based
generally on perceived credit risk. These risk weights are multiplied by
corresponding asset balances to determine a "risk-weighted" asset base. Certain
off-balance sheet items are added to the risk-weighted asset base by converting
them to balance sheet components. For the purposes of the guidelines, a bank
holding company's qualifying total capital is defined as the sum of its "Tier 1"
and "Tier 2" capital elements, with the "Tier 2" element being limited to an
amount not exceeding 100% of "Tier 1" element. "Tier 1" capital includes, with
certain limitations, common stockholders' equity, qualifying perpetual
noncumulative preferred stock, and minority interests in consolidated
subsidiaries. "Tier 2" capital includes, with some limitations, certain other
preferred stock as well as qualifying debt instruments and all or part of the
allowance for possible loan losses.
The FRB guidelines require a minimum ratio of qualifying total capital to total
risk-weighted assets of 8.0% (of which at least 4.0% must be in the form of
"Tier 1" capital). At December 31, 1997, the Corporation's ratios of "Tier 1"
and qualifying total capital to risk-weighted assets were 13.81% and 15.06%,
respectively. At such date, both ratios exceeded regulatory minimums.
The FRB also uses a leverage ratio as an additional tool to evaluate the capital
adequacy of bank holding companies. The leverage ratio is defined as a
company's "Tier 1" capital divided by its adjusted average total assets. The
FRB guidelines require a minimum ratio of 3.0% "Tier 1" capital to adjusted
average total assets for bank holding companies having the highest regulatory
rating. Bank holding companies having lower regulatory ratings are expected to
maintain a leverage ratio of 4.0% to 5.0%. The Corporation's leverage ratio at
December 31, 1997, was 8.83% which exceeded the regulatory minimum.
A bank holding company which fails to meet the applicable capital standards will
be at a disadvantage in several respects. For example, FRB policy discourages
the payment of dividends by a bank holding company if payment would adversely
affect capital adequacy or borrowing by a company with inadequate capital for
the purpose of paying dividends. In some circumstances, a failure to meet the
capital guidelines may also result in enforcement action by the FRB.
IMPOSITION OF LIABILITY FOR UNDERCAPITALIZED SUBSIDIARIES. FDICIA requires bank
regulators to take "prompt corrective action" to resolve insured depository
institutions problems. In the event an institution becomes "undercapitalized,"
it must submit a capital restoration plan. The capital restoration plan will
not be accepted by the institution's federal regulator unless each company
"having control of" the undercapitalized institution guarantees, up to certain
limits, the subsidiary's compliance with the capital restoration plan. The
Corporation has control of the Subsidiary Banks for purpose of this statute.
See below The Subsidiary Banks - Capital Adequacy Requirements.
Under FDICIA, the aggregate liability of all companies controlling a particular
institution is generally limited to the lesser of 5% of the institution's assets
at the time it became undercapitalized or the amount necessary to bring the
institution into compliance with application capital standards. FDICIA grants
greater powers to regulatory authorities in situations
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where an institution becomes "significantly" or "critically" undercapitalized or
fails to submit a timely and acceptable capital restoration plan or to implement
an accepted capital restoration plan. A bank holding company controlling such an
institution may be required to obtain prior FRB approval of proposed dividends
or consent to a merger or to divest the troubled institution or other
affiliates.
ACQUISITION BY BANK HOLDING COMPANIES. The BHC Act prohibits a bank holding
company, with some limited exceptions, from acquiring direct or indirect control
of more than 5% of the outstanding shares of any class of voting stock or
substantially all of the assets of any bank or bank holding company, or merging
or consolidating with another bank holding company, without the prior approval
of the FRB. In approving bank acquisitions by bank holding companies, the FRB
is required to consider the financial and managerial resources and future
prospects of the bank holding company and the banks concerned, the convenience
and needs of the communities to be served, and various competitive factors. The
Attorney General of the United States may, within 30 days after approval of an
acquisition by the FRB, bring an action challenging such acquisition under the
federal antitrust laws, in which case the effectiveness of such approval is
stayed pending a final ruling by the courts. In some circumstances, any such
action must be brought in less than 30 days after FRB approval.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act") permits adequately capitalized and managed bank
holding companies to acquire banks located in other states, regardless of
whether the acquisition would be prohibited by applicable state law. An out-of-
state bank holding company seeking to acquire ownership or control of a state or
national bank located in Texas or any bank holding company owning or controlling
a state bank or a national bank located in Texas must obtain the prior approval
of both the FRB and the Banking Commissioner of Texas. Under the Interstate
Banking Act, a bank holding company and its insured depository institution
affiliates may not complete an acquisition which would cause it to control more
than 10% of total deposits in insured depository institutions nationwide or to
control 30% or more of total deposits in insured depository institutions in the
home state of the bank sought to be acquired. However, state deposit
concentration caps adopted by various states, such as Texas, which limit control
of in-state insured deposits to a greater extent than the Interstate Banking Act
will be given effect. Texas has adopted a deposit concentration cap of 20% of
in-state insured deposits; therefore, the Texas state deposit concentration cap
will lower the otherwise applicable 30% federal deposit concentration cap.
State law may establish a minimum age (not to exceed five years) of local banks
subject to interstate acquisition. The minimum age established by Texas is five
years.
ACQUISITION OF BANK HOLDING COMPANIES. The Change in Bank Control Act of 1978
prohibits a person or group of persons from acquiring "control" of a bank
holding company unless the FRB has been given prior notice and has not
disapproved the acquisition. Acquisition of 25% or more of any class of voting
shares of a bank holding company constitutes acquisition of "control." The FRB
presumes that the acquisition of 10% or more, but less than 25%, of any class of
voting stock of a bank holding company with securities registered under Section
12 of the Exchange Act, such as the Corporation, constitutes acquisition of
control. That presumption can be rebutted by showing the acquisition will not
in fact result in control.
In addition, any company would be required to obtain the approval of the FRB
under the BHC Act before acquiring 25% (5% in the case of an acquiror that is a
bank holding company) or more of the outstanding common stock of the Corporation
or otherwise obtaining control or a "controlling influence" over the
Corporation.
THE SUBSIDIARY BANKS
GENERAL. The Subsidiary Banks are national banking associations organized under
the National Bank Act, as amended, (the "National Bank Act") and are subject to
regulatory supervision and examination by the Office of the Comptroller of the
Currency (the "OCC"). Pursuant to such regulation, the Banks are subject to
various restrictions and supervisory requirements, and potentially to
enforcement actions. The OCC regularly examines national banks with respect to,
among other matters, capital adequacy, reserves, loan portfolio, investments and
management practices. The Subsidiary Banks must also furnish quarterly and
annual reports to the OCC, and the OCC may exercise cease and desist and other
enforcement powers over the Subsidiary Banks if its actions represent unsafe or
unsound practices or violations of law. Since the deposits of the Subsidiary
Banks are insured by the Bank Insurance Fund ("BIF") of the Federal Deposit
Insurance
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Company (the "FDIC"), the Bank is also subject to regulation and supervision by
the FDIC. Because the FRB regulates the Corporation, the FRB has supervisory
authority which affects the Subsidiary Banks.
SCOPE OF PERMISSIBLE ACTIVITIES. The National Bank Act provides the rights,
privileges, and powers of national banks and defines the activities in which
national banks may engage. Permitted activities for a national bank include
making, arranging, purchasing, or selling loans, purchasing, holding, and
conveying real estate under certain conditions, deal in investment securities in
certain circumstances, and, generally, engaging in the "business of banking" and
activities that are "incidental" to banking. Activities deemed "incidental" to
the business of banking include the borrowing and lending of money, receiving
deposits (including deposits of public funds), holding or selling stock or other
property acquired in connection with security on a loan, discounting and
negotiating evidences of debt, acting as guarantor (if the bank has a
"substantial interest in the performance of the transaction"), issuing letters
of credit to or on behalf of its customers, operating a safe deposit business,
providing check guarantee plans, issuing credit cards, operating a loan
production office, selling loans under repurchase agreements, selling money
orders at offices other than bank branches, providing consulting services to
banks, and verifying and collecting checks.
BRANCHING. National banks domiciled in Texas may establish a branch anywhere in
Texas with prior OCC approval. In acting on a branch application, the OCC
considers a number of factors, including financial history, capital adequacy,
earnings prospects, character of management, needs of the community and
consistency with corporate powers. The Interstate Banking Act, which expends
the authority of bank holding companies and banks to engage in interstate bank
acquisitions and interstate banking, allows each state the option of "opting
out" of the interstate branching provisions. The Texas Legislature opted out of
the interstate branching provisions during its 1995 Session. Interstate
branching would have become effective in Texas in June of 1997 if Texas had not
elected to "opt out." The Texas "opt-out" legislation prohibiting interstate
branching is effective until September of 1999.
RESTRICTIONS ON TRANSACTIONS WITH AFFILIATES. The Subsidiary Banks are subject
to federal statutes which limit transactions with the Corporation and other
affiliates. One set of restrictions is found in Section 23A of the Federal
Reserve Act, which limits loans to, purchases of assets from, and investments in
"affiliates" of the Subsidiary Banks. The term "affiliates" would include the
Corporation and any of its subsidiaries. Section 23A imposes limits on the
amount of such transactions and also requires certain levels of collateral for
such loans. In addition, Section 23A limits the amount of loans or extensions
of credit to third parties which are collateralized by the securities or
obligations of the Corporation or its subsidiaries.
Another set of restrictions is found in Section 23B of the Federal Reserve Act.
Among the other things, Section 23B requires that certain transactions between a
Subsidiary Bank and its affiliates must be on terms substantially the same, or
at least as favorable to the Subsidiary Bank, as those prevailing at the time
for comparable transactions with or involving other nonaffiliated companies. In
the absence of such comparable transactions, any transaction between a
Subsidiary Bank and an affiliate must be on terms and under circumstances,
including credit underwriting standards and procedures, that in good faith would
be offered to or would apply to nonaffiliated companies. Each Subsidiary Bank
is also subject to certain prohibitions against advertising that suggests that
the Subsidiary Bank is responsible for the obligations of its affiliates.
The regulations and restriction on transactions with affiliates may limit the
Corporation's ability to obtain funds from its Subsidiary Banks for its cash
needs, including funds for payment of dividends and operating expenses.
Under the Federal Reserve Act and FRB Regulation O, there are restrictions on
loans to directors, executive officers, principal shareholders and their related
interests (collectively referred to herein as "insiders") which apply to all
banks with deposits insured by the FDIC and their subsidiaries and holding
companies. These restrictions include limits on loans to one borrower and
conditions that must be met before such loans can be made. There is also an
aggregate limitation on all loans to insiders and their related interests.
These loans cannot exceed the bank's total unimpaired capital and surplus, and
the OCC may determine that a lesser amount is appropriate. Insiders are subject
to enforcement actions for knowingly accepting loans in violation of applicable
restrictions.
INTEREST RATE LIMITS AND LENDING REGULATIONS. The Subsidiary Banks are subject
to various state and federal statutes relating to the extension of credit and
the making of loans. The maximum legal rate of interest that the Subsidiary
Banks may charge on a loan depends on a variety of factors such as the type of
borrower, purpose of the loan, amount of the loan
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and date the loan is made. Texas statutes establish maximum legal rates of
interest for various lending situations. Penalties are provided by law for
charging interest in excess of the maximum lawful rate.
Loans made by banks located in Texas are subject to numerous other federal and
state laws and regulations, including truth-in-lending statutes, the Texas
Credit Title, the Equal Credit Opportunity Act, the Real Estate Settlement
Procedures Act, and the Home Mortgage Disclosure Act. These laws provide
remedies to the borrower and penalties to the lender for failure of the lender
to comply with such laws. The scope and requirements of these laws and
regulations have expended in recent years, and claims by borrowers under these
laws and regulations may increase.
RESTRICTIONS ON SUBSIDIARY BANK DIVIDENDS. Substantially all of the
Corporation's cash revenues is derived from dividends paid by the Subsidiary
Banks. Dividends payable by the Subsidiary Banks are restricted under the
National Bank Act. See "Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters - Dividends." The Subsidiary Banks' ability to pay
dividends is further restricted by the requirement that they maintain adequate
levels of capital in accordance with capital adequacy guidelines promulgated
from time to time by the OCC. Moreover, the prompt corrective action provisions
of FDICIA and implementing regulations prohibit a bank from paying dividends or
management fees if, following the payment, the bank would be in any of the three
capital categories for undercapitalized institutions. See "Capital Adequacy
Requirements" below.
EXAMINATIONS. The OCC periodically examines and evaluates national banks.
Based upon such evaluations, the OCC may require revaluation of certain assets
of a bank and require the bank to establish specific reserves to allow for the
difference between the regulatory-determined value and the book value of such
assets. The OCC is authorized to assess the institution an annual fee based
for, among other things, the costs of conducting the examinations.
CAPITAL ADEQUACY REQUIREMENTS. OCC regulations require national banks to
maintain minimum risk-based capital ratios such as to those for bank holding
companies discussed above. The applicable regulations establish five capital
levels, ranging from "well capitalized" to "critically undercapitalized." A
national bank is considered "well capitalized" if it has a total risk-based
capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or
greater, and a leverage ratio of 5.0% or greater, and if it is not subject to an
order, written agreement, capital directive, or prompt corrective action
directive to meet and maintain a specific capital level for any capital measure.
A national bank is considered "adequately capitalized" if it has a total risk-
based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of at
least 4% and leverage capital ratio of 4.0% or greater (or a leverage ratio of
3.0% or greater if the institution was given the highest rating in its most
recent report of examination, subject to appropriate federal banking agency
guidelines) and the bank does not meet the definition of a well capitalized
bank. A national bank is considered "undercapitalized" if it has a total risk-
based capital ratio that is less than 8.0%, a Tier 1 risk-based capital ratio
that is less than 4.0%, or a leverage ratio that is less than 4.0% (or a
leverage ratio that is less than 3.0% if the institution received the highest
rating in its most recent report of examination, subject to appropriate federal
banking agency guidelines). A "significantly undercapitalized" institution is
one which has a total risk-based capital ratio that is less than 6.0%, a Tier 1
risk-based capital ratio that is less than 3.0%, or a leverage ratio that is
less than 3.0%. A "critically undercapitalized" institution is one which has a
ratio of tangible equity to total assets that is equal to or less than 2.0%.
At December 31, 1997, each of the Subsidiary Banks was well capitalized. See
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Capital Resources."
CORRECTIVE MEASURES FOR CAPITAL DEFICIENCIES. FDICIA requires the federal
banking regulators to take "prompt corrective action" with respect to capital-
deficient institutions with the overall goal of reducing losses to the
depository insurance fund. FDICIA contains broad restrictions on certain
activities of undercapitalized institutions involving asset growth,
acquisitions, branch establishment and expansion into new lines of business.
With certain exceptions, national banks will be prohibited from making capital
distributions or paying management fees to a holding company if the payment of
such distributions or fees will cause them to become undercapitalized.
Furthermore, undercapitalized national banks will be required to file capital
restoration plans with the OCC. Such a plan will not be accepted unless, among
other things, the banking institution's holding company guarantees the plan up
to a certain specified amount. Any such guarantee from a depository
institution's holding company is entitled to a priority of payment in
bankruptcy. Undercapitalized national banks also will be subject to
restrictions on growth, acquisitions, branching and
-8-
<PAGE>
engaging in new lines of business unless they have an approved capital plan that
permits otherwise. The OCC also may, among other things, require an
undercapitalized national bank to issue shares or obligations, which could be
voting stock, to recapitalize the institution or, under certain circumstances,
to divest itself of any subsidiary.
The OCC is authorized by FDICIA to take various enforcement actions against any
significantly undercapitalized national bank and any national bank that fails to
submit an acceptable capital restoration plan or fails to implement a plan
accepted by the OCC. These powers include, among other things, requiring the
institution to be recapitalized, prohibiting asset growth, restricting interest
rates paid, requiring FRB prior approval of any capital distributions by any
bank holding company which controls the institution, requiring divestiture by
the institution of its subsidiaries or by the holding company of the institution
itself, requiring new election of directors, and requiring the dismissal of
directors and officers.
Significantly and critically undercapitalized national banks may be subject to
more extensive control and supervision. Such an institution may be prohibited
from, among other things, entering into any material transaction not in the
ordinary course of business, amending its charter or bylaws, or engaging in
certain transactions with affiliates. In addition, critically undercapitalized
institutions generally will be prohibited from making payments of principal or
interest on outstanding subordinated debt. Within 90 days of a national bank's
becoming critically undercapitalized, the OCC must appoint a receiver or
conservator unless certain findings are made with respect to the prospect for
the institution's continued viability.
DEPOSIT INSURANCE ASSESSMENTS. The FDIC is required by the Federal Deposit
Insurance Act to assess all banks in order to adequately fund the Bank Insurance
Fund (the "BIF") so as to resolve any insured bank that is declared insolvent by
its primary regulator. FDICIA required the FDIC to establish a risk-based
deposit insurance premium schedule. The risk-based assessment system is used to
calculate deposit insurance assessments made on BIF member banks to maintain the
designated reserves for the fund. In addition, the FDIC can impose special
assessments to repay borrowings from the U.S. Treasury, the Federal Financing
Bank, and BIF member banks. Under the risk-based system, banks are assessed
insurance premiums according to how much risk they are deemed to present to the
BIF. Such premiums currently range from zero percent of insured deposits to
0.27% of insured deposits. Banks with higher levels of capital and involving a
low degree of supervisory concern are assessed lower premiums than banks with
lower levels of capital or involving a higher degree of supervisory concern.
Each of the Subsidiary Banks are currently being assessed at the lowest rate of
zero percent.
Under the Deposit Insurance Funds Act of 1996 (the "Funds Act"), beginning in
1997 banks insured under the BIF were required to pay a part of the interest on
bonds issued by the Financing Corporation ("FICO") in the late 1980s to
recapitalize the defunct Federal Savings and Loan Insurance Corporation. Before
the Funds Act, FICO payments were made only by depository institutions which
were members of the Savings Association Insurance Fund (the "SAIF"). FICO
assessment rates for the second semi-annual assessment period of 1997 were set
by FDIC at 1.26 basis points annually for BIF members and 6.30 basis points
annual for SAIF members. These rates may be adjusted quarterly to reflect
changes in the assessment bases for the BIF and the SAIF. By law, the FICO
assessment rate on BIF members must be one-fifth the rate on SAIF members until
the two insurance funds are merged or until January 1, 2000, whichever occurs
first.
INTERNAL OPERATING REQUIREMENTS. FDICIA requires financial institutions with
over $500 million in assets to file an annual report with the FDIC and its
primary federal regulator and any appropriate state banking agency within 90
days after the end of its fiscal year. The report must contain financial
statements audited by an independent public accountant; a statement of
management's responsibilities for (1) preparing the financial statements and for
maintaining internal controls; (2) for financial reporting and complying with
designated safety and soundness laws and regulations; and (3) a separate
assessment by management of the effectiveness of the internal controls and the
institutions' internal controls for financial reporting. The independent public
accountant also must report separately on the institution's compliance with
designated safety and soundness laws and rules. The requirement of an annual
audit of the Subsidiary Banks can be satisfied by an annual audit of the
Corporation.
COMMUNITY REINVESTMENT ACT. The Community Reinvestment Act of 1977 ("CRA") and
the regulations issued by the OCC to implement that law are intended to
encourage banks to help meet the credit needs of their service area, including
low and moderate income neighborhoods, consistent with the safe and sound
operations of the banks. These regulations also provide for regulatory
assessment of a bank's record in meeting the needs of its service area when
considering applications to establish branches, merger applications and
applications to acquire the assets and assume the liabilities of another bank.
FIRREA requires federal banking agencies to make public a rating of a bank's
performance under the CRA. In the case of
-9-
<PAGE>
a bank holding company, the CRA performance record of its subsidiary banks is
reviewed in connection with the filing of an application to acquire ownership or
control of shares or assets of a bank or to merge with any other bank holding
company. An unsatisfactory record can substantially delay or block the
transaction. The bank regulatory agencies in 1995 adopted final regulations
implementing the CRA. These regulations affect extensive changes to existing
procedures for determining compliance with the CRA and the full effect of these
new regulations cannot be determined at this time.
EXPANDING ENFORCEMENT AUTHORITY. One of the major effects of FDICIA was the
increased ability of banking regulators to monitor the activities of banks and
their holding companies. The FRB and FDIC have extensive authority to police
unsafe or unsound practices and violations of applicable laws and regulations by
depository institutions and their holding companies. For example, the FDIC may
terminate the deposit insurance of any institution which it determines has
engaged in an unsafe or unsound practice. The agencies can also assess civil
money penalties, issue cease and desist or removal orders, seek injunctions, and
publicly disclose such actions.
CHANGING REGULATORY STRUCTURE. Legislative and regulatory proposals regarding
changes in banking, regulations of banks, thrifts and other financial
institutions, are being considered by the executive branch of the federal
government, Congress and various state governments, including Texas. Certain of
these proposals, if adopted, could significantly change the regulation of banks
and the financial service industry. The Corporation cannot predict accurately
whether any of these proposals will be adopted or, if adopted, how these
proposals will affect the Corporation or the Subsidiary Banks.
EFFECT ON ECONOMIC ENVIRONMENT. The policies of regulatory authorities,
including the monetary policy of the FRB, have a significant effect on the
operating results of bank holding companies and their subsidiaries. Among the
means available to the FRB to affect the money supply are open market operations
in U.S. Government securities, control of borrowings at the "discount window,"
changes in the discount rate on member bank borrowing, changes in reserve
requirements against member bank deposits and against certain borrowings by
banks and their affiliates and the placing of limits on interest rates that
member banks may pay on time and savings deposits. These means are used in
varying combinations to influence overall growth and distribution of bank loans,
investments and deposits, and their use may affect interest rates charged on
loans or paid for deposits. FRB monetary policies have materially affected the
operating results of commercial banks in the past and are expected to continue
to do so in the future. The Corporation cannot predict the nature of future
monetary policies and the effect of such policies on the business and earnings
of the Corporation and the Subsidiary Banks.
ITEM 2. PROPERTIES.
The principal offices of the Corporation are located at 1300 Summit Avenue, Fort
Worth, Texas 76102. The Corporation and Summit National Bank, a subsidiary,
lease space at this address from an unrelated third-party through leases that
expire December 31, 1999 and December 31, 2009, respectively. Summit National
Bank owns a detached motor bank facility.
Summit Community Bank, N.A. owns the building at its principal office at 3859
Camp Bowie Boulevard, Fort Worth, Texas. There are no encumbrances on this
property.
The Alta Mesa office of Summit Community Bank, N.A. is located at 3000 Alta Mesa
Boulevard, Fort Worth, Texas. The building is owned by the Corporation with the
bank office using approximately 25% of the facility. The remainder of the
building is fully leased. There are no third-party encumbrances on the
property.
The Northeast office of Summit Community Bank, N.A., at 9001 Airport Freeway,
North Richland Hills, Texas, is leased from a third-party under a lease
agreement expiring in May 1998, however the motor bank facility is owned by
Summit Community Bank, N.A. There are no encumbrances on the property.
The Fossil Creek office of Summit Community Bank, N.A., at 3851 NE Loop 820,
Fort Worth, Texas is currently housed in a temporary facility. A new building
is to be built to house this office. The new building to be completed in late
1998, is to be a joint venture between the Summit Community Bank, N.a. and an
unrelated third party.
A subsidiary of the Corporation owns an improved tract of land that serves as
the site of the operations center which is the principal office of Summit
Bancservices. This site is located at 500 Eighth Avenue, Fort Worth, Texas.
-10-
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
In the opinion of management, there are no material pending legal proceedings,
other than ordinary routine litigation incidental to the Corporation's business,
to which it or any of its subsidiaries is a party or of which any of their
property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders through the solicitation
of proxies or otherwise, during the fourth quarter of 1997.
ITEM 4A. EXECUTIVE OFFICERS OF THE CORPORATION.
The executive officers of the Corporation, each elected to serve at the pleasure
of the Board of Directors until the next annual meeting of the Board of
Directors to be held on April 21, 1998, their respective ages, and their present
positions with the Corporation are as follows:
<TABLE>
<CAPTION>
Position Held
Position With Since
Name Age the Corporation -------------
- - ------------------- --- ----------------------------
<S> <C> <C> <C>
Philip E. Norwood 48 Chairman 1998
Jeffrey M. Harp 49 President 1998
Bob G. Scott 60 Executive Vice President and 1998
Chief Operating Officer
</TABLE>
The business experience of each of these executive officers during the past five
(5) years is set forth below:
Mr. Norwood became Chairman of the Board of Summit Bancshares, Inc. and Chairman
of Summit Community Bank, N.A. in January 1998 and President of Summit Community
Bank, N.A. in July 1994 and continues to serve in these capacities. From October
1993 to January 1998 Mr. Norwood served as President and Chief Executive Officer
of the Corporation. He has served as a director of the Corporation since March
1984. From January 1990 to October 1993 Mr. Norwood served as Secretary of the
Corporation, from December 1992 to October 1993 he served as Executive Vice
President of the Corporation, and from March 1984 to January 1990 he served as
Secretary and Treasurer of the Corporation. From April 1981 to December 1992
Mr. Norwood served as President of Alta Mesa National Bank (currently a banking
office of Summit Community Bank, N.A.). From December 1992 to December 1995 Mr.
Norwood served as Chief Executive Officer of Alta Mesa National Bank. Mr.
Norwood served as a director of Alta Mesa National Bank from April 1981 to March
1997 and as a director of Summit Community Bank, N.A. since January 1990. Mr.
Norwood served as a director of Summit National Bank from March 1983 to January
1996.
Mr. Harp became President of the Corporation in January 1998 and continues to
serve in that capacity. From October 1993 to January 1998 Mr. Harp served as
Chief Operating Officer and Secretary of the Corporation. He served as
Executive Vice President of the Corporation from December 1992 to January 1998,
and Treasurer from January 1990 to January 1998. He has served as director of
the Corporation since January 1990. He has served as President of Summit
National Bank since January 1991, and served as Executive Vice President of
Summit National Bank from February 1985 to December 1990. He has served as a
director of Summit National Bank since January 1990. He served as a director of
Alta Mesa National Bank and Summit Community Bank, N.A. from January 1990 to
January 1996.
Mr. Scott became Executive Vice President, Chief Operating Officer, Secretary
and Treasurer in January 1998 and continues to serve in these capacities. He
served as Senior Vice President and Chief Financial Officer from June 1994 to
-11-
<PAGE>
January 1998. From February 1992 to June 1994 Mr. Scott was a Senior Vice
President with Alexander and Alexander of Texas, Inc. Prior to February 1992,
Mr. Scott was a financial officer with Team Bancshares, Inc., Fort Worth, Texas
and with Texas American Bancshares, Inc., Fort Worth.
No family relationships exist among the executive officers and directors of the
Corporation.
-12-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION. Since May 3, 1993 the Corporation's Common Stock has been
- - ------------------
traded on the Nasdaq Stock Market under the symbol "SBIT." The following table
sets forth the high and low closing bid quotations of the Corporation's Common
Stock for the periods indicated:
<TABLE>
<CAPTION>
Bid
----------------
High Low
------- -------
<S> <C> <C>
1997 Fiscal Year:
- - -------------------
First Quarter $13.75 $11.25
Second Quarter 13.75 12.63
Third Quarter 17.25 13.50
Fourth Quarter 21.50 17.13
1996 Fiscal Year:
- - -------------------
First Quarter $ 8.63 $ 7.63
Second Quarter 9.25 8.00
Third Quarter 10.75 8.50
Fourth Quarter 12.38 9.82
</TABLE>
This data has been restated to reflect a two-for-one stock split effected on
December 9, 1997.
On March 13, 1998 the closing bid and asked quotations reported for the Common
Stock were $21.50 and $22.125, respectively. The foregoing quotations reflect
prices quoted by market makers of the Corporation's Common Stock, without retail
markup, markdown or commissions, and may not necessarily represent actual
transactions.
Prior to May 3, 1993 there was no established public trading market for the
issued and outstanding shares of Common Stock of the Corporation. Accordingly,
there exists no published information with respect to market prices before that
date. From time to time, however, moderate numbers of shares of Common Stock
were transferred on the books of the Corporation.
SHAREHOLDERS. At the close of business on March 13, 1998 there were 665
- - ------------
shareholders of record of Common Stock of the Corporation.
-13-
<PAGE>
DIVIDENDS. The Corporation has paid regular cash dividends on its common stock
- - ---------
on a quarterly basis since the beginning of 1993. The following table sets
forth, for each quarter since the beginning of 1996, the quarterly dividends
paid by the Corporation on its Common Stock for the indicated periods. Data has
been restated to reflect a two-for-one stock split effected on December 9, 1997.
<TABLE>
<CAPTION>
1997 Dividends Per Share
- - --------------------- -------------------
<S> <C>
First Quarter $0.045
Second Quarter 0.045
Third Quarter 0.045
Fourth Quarter 0.045
1996
- - ---------------------
First Quarter $0.035
Second Quarter 0.035
Third Quarter 0.035
Fourth Quarter 0.035
- - ------------------------------------------
</TABLE>
Although the Board of Directors intends to continue to pay quarterly cash
dividends in the future, there can be no assurance that cash dividends will
continue to be paid in the future or, if paid, that such cash dividends will be
comparable to cash dividends previously paid by the Corporation, since future
dividend policy is subject to the discretion of the Board of Directors of the
Corporation and will depend upon a number of factors, including future earnings
of the Corporation, the financial condition of the Corporation, the
Corporation's cash needs, general business conditions and the amount of
dividends paid to the Corporation by the Subsidiary Banks.
The principal source of the Corporation's cash revenues is dividends received
from the Subsidiary Banks. Pursuant to the National Bank Act, no national bank
may pay dividends from its paid-in capital. All dividends must be paid out of
current or retained net profits, after deducting reserves for losses and bad
debts. The National Bank Act further restricts the payment of dividends out of
net profits by prohibiting a national bank from declaring a dividend on its
shares of common stock until the surplus fund equals the amount of capital stock
or, if the surplus fund does not equal the amount of capital stock, until one-
tenth of a bank's net profits for the preceding half year in the case of
quarterly or semi-annual dividends, or the preceding two half-year periods in
the case of annual dividends, are transferred to the surplus fund. The approval
of the OCC is required prior to the payment of a dividend if the total of all
dividends declared by a national bank in any calendar year would exceed the
total of its net profits for that year combined with its net profits for the two
preceding years. Under FDICIA, a Subsidiary Bank may not pay a dividend if,
after paying the dividend, the Subsidiary Bank would be undercapitalized.
In addition, the appropriate regulatory authorities are authorized to prohibit
banks and bank holding companies from paying dividends which would constitute an
unsafe and unsound banking practice. The Subsidiary Banks and the Corporation
are not currently subject to any regulatory restrictions on their dividends.
-14-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth summary historical data for the past five years
(in thousands except ratios and per share data). All share and per share
information has been restated to reflect the two-for-one splits in 1997, 1995
and 1993:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Summary of Earnings:
Interest Income $ 31,972 $ 27,577 $ 22,929 $ 18,143 $ 17,095
Interest Expense 11,301 9,771 8,277 5,625 5,235
-------- -------- -------- -------- --------
Net Interest Income 20,671 17,806 14,652 12,518 11,860
Provision (Credit) for Loan Losses 900 819 236 (114) 23
Securities Gains (Losses) (1) (14) (10) (152) 3
Non-interest Income 3,266 2,990 2,764 2,729 2,855
Non-interest Expense 12,318 10,917 9,973 9,075 9,155
-------- -------- -------- -------- --------
Earnings Before Income Taxes 10,718 9,046 7,197 6,134 5,540
Income Tax Expense 3,678 3,103 2,468 2,094 1,809
-------- -------- -------- -------- --------
Net Income 7,040 5,943 4,729 4,040 3,731
Balance Sheet Data (at period-end):
Total Assets $459,794 $395,248 $355,417 $291,011 $280,688
Investment Securities 105,627 117,013 119,368 114,722 112,315
Loans, Net of Unearned Discount 276,069 220,006 178,493 138,966 127,250
Allowance for Loan Losses 4,065 2,972 2,500 2,410 2,594
Demand Deposits 126,398 103,695 89,184 72,992 61,165
Total Deposits 401,724 345,023 310,109 259,539 254,151
Long-term Debt and Notes Payable -0- -0- -0- 250 500
Shareholders' Equity 41,112 35,080 30,125 25,334 22,978
Per Share Data:
Net Income - Diluted $ 1.04 $ .90 $ .72 $ .61 $ .57
Book Value - Period-End 6.32 5.43 4.78 4.01 3.68
Dividends Paid .18 .14 .11 .09 .054
Weighted Average Shares Outstanding (000) 6,479 6,399 6,278 6,172 6,192
Selected Performance Ratios:
Return on Average Assets 1.70% 1.60% 1.52% 1.43% 1.40%
Return on Average Shareholders' Equity 18.49 18.50 17.14 16.55 17.75
Net Interest Margin (tax equivalent) 5.47 5.24 5.15 4.85 4.90
Efficiency Ratio 51.50 52.60 57.31 59.96 61.98
Asset Quality Ratios:
Non-Performing Loans to Total Loans - Period-End .77% .50% .55% .46% 1.17%
Allowance for Loan Losses to Total Loans - Period-End 1.47 1.35 1.40 1.73 2.04
Allowance for Loan Losses to Non-Performing Loans
- Period-End 193.0 270.0 252.0 375.0 174.0
Net Charge-Offs (Recoveries) to Average Loans (.08) .17 .09 .05 .19
Capital Ratios:
Shareholders' Equity to Total Assets - Period-End 8.89% 8.83% 8.40% 9.04% 8.19%
Average Shareholders' Equity to Average Assets 9.21 8.66 8.85 8.64 7.89
Total Risk-based Capital to Risk Weighted Assets
- at Period-End* 15.06 15.85 15.91 18.09 17.53
Leverage Ratio - at Period-End* 8.83 8.82 8.42 8.69 8.18
</TABLE>
* Calculated in accordance with Federal Reserve guidelines currently in effect.
-15-
<PAGE>
QUARTERLY RESULTS (UNAUDITED)
A summary of the unaudited results of operations for each quarter of 1997 and
1996 follows (in thousands except for per share data):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1997:
- - ----
Interest Income $7,326 $7,870 $8,249 $8,527
Interest Expense 2,540 2,713 2,952 3,096
Net Interest Income 4,786 5,157 5,297 5,431
Provision for Loan Losses 155 197 281 267
Non-interest Income 762 820 825 858
Non-interest Expense 2,846 3,076 3,128 3,268
Income Tax Expense 875 932 931 940
Net Income 1,672 1,772 1,782 1,814
Per Share Data:
Net Income
Basic $ .26 $ .27 $ .28 $ .28
Diluted .25 .26 .26 .27
Dividends Paid .045 .045 .045 .045
Stock Price Range:
High 13.75 13.75 17.25 21.50
Low 11.25 12.63 13.50 17.13
Close 12.38 13.75 17.13 21.00
1996:
- - ----
Interest Income $6,498 $6,721 $7,064 $7,294
Interest Expense 2,363 2,361 2,490 2,557
Net Interest Income 4,135 4,360 4,574 4,737
Provision for Loan Losses 124 164 192 339
Non-interest Income 729 731 785 731
Non-interest Expense 2,778 2,802 2,687 2,650
Income Tax Expense 677 730 846 850
Net Income 1,285 1,395 1,634 1,629
Per Share Data:
Net Income
Basic $ .20 $ .22 $ .25 $ .26
Diluted .19 .21 .25 .24
Dividends Paid .035 .035 .035 .035
Stock Price Range:
High 8.63 9.25 10.75 12.38
Low 7.63 8.00 8.50 9.82
Close 8.63 8.63 10.50 11.25
</TABLE>
-16-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Corporation analyzes the major elements of the Corporation's
consolidated balance sheets and statements of income. This discussion should be
read in conjunction with the consolidated financial statements, accompanying
notes, and selected financial data appearing in the preceding item of this
report.
PERFORMANCE SUMMARY. Net income for 1997 was $7.0 million, an increase of $1.1
million, or 18.5%, over the $5.9 million recorded for 1996. On a weighted
average share basis (adjusted for a two-for-one stock split in December 1997),
net income for 1997 was $1.04 per diluted share as compared to $.90 per share
for 1996, an increase of 15.6%. The major contribution to the improved earnings
during 1997 was a 16.1% increase in net interest income. This increase was
partially offset by an increase over the prior year in the provision for loan
losses. In 1997 a provision for loan losses of $900,000 was taken, compared to
a provision of $819,000 in 1996.
Continuing to reflect the strong and growing economy in the Corporation's market
area, loans increased 25.5% over the previous year-end to $276 million at
December 31, 1997. Deposits experienced somewhat less dramatic growth,
increasing 16.4% over the same period to $402 million. Shareholders' equity was
$41 million at year-end, an increase of 17.2%.
Net income for 1996 was $5.9 million compared to net income of $4.7 million for
1995, an increase of 25.7%. The increase in earnings for 1996 was also
attributable to increased net interest income.
The following table shows selected key performance ratios over the last three
(3) years:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Return on Average Assets 1.70% 1.60% 1.52%
Return on Average Shareholders' Equity 18.49 18.50 17.14
Shareholders' Equity to Assets - Average 9.21 8.66 8.85
Dividend Payout Ratio - Per Share 17.31 15.55 15.28
</TABLE>
The ratio, return on assets, is calculated by dividing net income by average
total assets for the year. The return on equity ratio is calculated by dividing
net income by average shareholders' equity for the year. The equity to assets
ratio is calculated by dividing average shareholders' equity by average total
assets for the year. The dividend payout is determined by dividing the dividend
paid per share by the diluted earnings per share.
NET INTEREST INCOME. Net interest income is the difference between interest
earned on earning assets and interest paid for the funds supporting those
assets. The largest category of earning assets consists of loans to businesses
and individuals. The second largest is investment securities. Net interest
income is the principal source of the Corporation's earnings. Interest rate
fluctuations, as well as changes in the amount and type of earning assets and
liabilities supporting those assets, affect net interest income. Interest rates
primarily are determined by national and international market trends, as well as
competitive pressures in the Corporation's operating markets. For analytical
purposes, income from tax-exempt assets, primarily securities issued by or loans
made to state and local governments, is adjusted by an increment which equates
tax-exempt income to interest from taxable assets.
Net interest income (tax equivalent) for 1997 was $20.7 million, an increase of
$2.9 million, or 16.1% compared to the prior year. The net increase reflected a
$4.4 million increase in interest income which was offset by a $1.5 million
increase in interest expense. The Corporation's yield on earning assets
increased to 8.45% in 1997, from 8.11% for 1996. Rates paid on the
Corporation's interest-bearing liabilities in 1997, primarily time deposits,
increased from 3.93% in 1996 to 4.16% in 1997. Also contributing to the
improved net interest income for 1997 was the increase in noninterest-bearing
demand deposits. In 1997, the average balance of demand deposits increased
15.7%, with average demand deposits representing 28.2% of average total deposits
as compared to 27.2% in 1996.
-17-
<PAGE>
SUMMARY OF EARNING ASSETS AND INTEREST BEARING LIABILITIES
Although the year-end detail provides satisfactory indicators of general trends,
the daily average balance sheets are more meaningful for analysis purposes than
year-end data because averages reflect the day-to-day fluctuations that are
common to bank balance sheets. Also, average balances for earning assets and
interest-bearing liabilities can be related directly to the components of
interest income and interest expense on the statements of income. This provides
the basis for analysis of rates earned and paid, and sources of increases and
decreases in net interest income as derived from changes in volumes and rates.
The following schedule presents average balance sheets for the most recent three
years in a format that highlights earning assets and interest-bearing
liabilities.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------ ------------------------------- --------------------------------
Average Average Average Average Average Average
(Dollars in Thousands) Balance Interest Yield/Rate Balance Interest Yield/Rate Balance Interest Yield/Rate
-------- -------- ---------- -------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning Assets:
Federal Funds Sold $ 18,059 $ 1,008 5.58% $ 16,696 $ 906 5.32% $ 18,738 $ 1,081 5.77%
Investment Securities
(Taxable) 111,578 6,874 6.16 122,212 7,398 6.05 109,863 6,476 5.90
Investment Securities
(Tax-exempt) 539 36 6.59 24 2 8.17 309 35 11.44
Loans, Net of Unearned
Discount/(1)/ 248,303 24,069 9.69 201,506 19,285 9.57 156,374 15,367 9.82
-------- -------- -------- -------- -------- --------
Total Earning Assets 378,479 31,987 8.45 340,438 27,591 8.11 285,284 22,959 8.04
-------- -------- --------
Other Assets:
Cash and Due From Banks 24,909 21,027 17,124
Other Assets 13,568 12,243 11,023
Allowance for Loan Losses (3,470) (2,811) (2,454)
-------- -------- --------
Total Assets $413,486 $370,897 $310,977
======== ======== ========
Interest-Bearing Liabilities:
Interest-Bearing Transaction
Accounts $128,880 4,604 3.57 $116,811 3,853 3.30 $103,932 3,531 3.40
Savings 50,756 2,134 4.21 46,324 1,871 4.04 25,792 937 3.63
Savings Certificates 49,203 2,434 4.95 48,058 2,292 4.77 47,527 2,291 4.82
Certificates of Deposit
$100,000 or more 30,242 1,572 5.20 24,405 1,208 4.95 23,421 1,165 4.98
Other Time 622 34 5.38 428 19 4.42 254 12 4.88
Other Borrowings 11,668 519 4.45 12,318 528 4.33 6,730 340 5.05
Notes Payable -0- -0- -- -0- -0- -- 11 1 9.56
-------- -------- -------- ------- -------- -------
Total Interest-Bearing
Liabilities 271,371 11,297 4.16 248,344 9,771 3.93 207,667 8,277 3.98
-------- ------- -------
Other Liabilities:
Demand Deposits 101,813 88,022 74,024
Other Liabilities 2,212 2,399 1,765
Shareholders' Equity 38,090 32,132 27,521
-------- ------- -------
Total Liabilities and
Shareholders' Equity $413,486 $370,897 $310,977
======== ======== ========
Net Interest Income and
Margin (T/E Basis)/(2)/ $ 20,690 5.47 $ 17,820 5.24 $14,682 5.15
======== ======== =======
</TABLE>
(1) Loan interest income includes fees and loan volumes include loans on non-
accrual.
(2) Presented on a tax equivalent basis ("T/E") using a federal income tax rate
of 34% in all three years.
Net interest margin, the net return on earning assets which is computed by
dividing net interest income by average total earning assets, was 5.47% for
1997, a twenty-three basis point increase from the previous year. This increase
in the margin reflected that loans which earn a higher yield were a greater
percentage of earning assets. In 1997, average loans were 66% of earning assets
versus 59% in 1996.
-18-
<PAGE>
The table below analyzes the increase in net interest income for each of the
years ended December 31, 1997 and 1996 on a fully tax equivalent basis. Non-
accruing loans have been included in assets for these computations, thereby
reducing yields on total loans. The changes in interest due to both rate and
volume in the rate/volume analysis table below have been allocated to volume or
rate change in proportion to the absolute amounts of the change in each.
<TABLE>
<CAPTION>
1997 vs. 1996 1996 vs. 1995
Increase (Decrease) Increase (Decrease)
Due to Changes in: Due to Changes in:
---------------------------------- ----------------------------------
(Dollars in Thousands) Volume Rate Total Volume Rate Total
-------- -------------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Federal Funds Sold $ 64 $ 38 $ 102 $ (102) $ (73) $ (175)
Investment Securities (Taxable) (656) 132 (524) 752 170 922
Investment Securities (Tax-exempt) 34 -0- 34 (25) (8) (33)
Loans, Net of Unearned Discount 4,539 245 4,784 4,319 (401) 3,918
------ ----- ------ ------ ----- ------
Total Interest Income 3,981 415 4,396 4,944 (312) 4,632
------ ----- ------ ------ ----- ------
Interest-Bearing Liabilities:
Deposits 962 573 1,535 1,367 (61) 1,306
Other Borrowings (25) 16 (9) 243 (55) 188
------ ----- ------ ------ -----
Total Interest Expense 937 589 1,526 1,610 (116) 1,494
------ ----- ------ ------ ----- ------
Changes in Net Interest Income $3,044 $(174) $2,870 $3,334 $(196) $3,138
====== ===== ====== ====== ===== ======
</TABLE>
Net interest income for 1997 increased $2,870,000, or 16.1% over the prior year.
In this same period interest expense increased $1,526,000 as interest rates
increased.
NON-INTEREST INCOME. Non-interest income is an important contributor to net
earnings. The major component of the Corporation's non-interest income is
various charges and fees earned on deposit accounts and related services. The
following table summarizes the changes in non-interest income during the past
three years (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------ ------
Amount % Change Amount % Change Amount
-------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Service Charges on
Deposit Accounts $1,890 14.9% $1,645 7.9% $1,525
Non-recurring Income 151 (25.2) 202 (12.6) 231
Loss on Sale of Investment
Securities (1) -- (14) -- (10)
Other Non-interest Income 1,225 7.2 1,143 13.4 1,008
------ ------ ------
Total Non-interest Income $3,265 9.7 $2,976 8.1 $2,754
====== ====== ======
</TABLE>
Service charges on deposits increased in 1997 as a result of an increase in
service charges on deposit accounts and a higher level of collections of charges
made.
Non-recurring income in each year is primarily interest recovered on loans
charged-off in prior years or gains on sales of miscellaneous assets.
The increase in other non-interest income in 1997 is primarily due to increased
fees earned from merchant fees on credit cards and fees earned on investment
services to customers.
-19-
<PAGE>
NON-INTEREST EXPENSE. Non-interest expense includes all expenses of the
Corporation other than interest expense, provision for loan losses and income
tax expense. The following table summarizes the changes in the non-interest
expenses for the past three years (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------------- --------------- -------
Amount % Change Amount % Change Amount
------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C>
Salaries and Employee Benefits $ 7,524 11.4% $ 6,753 14.4% $5,903
Occupancy Expense - Net 774 2.6 772 8.4 712
Furniture and Equipment Expense 919 14.9 800 15.8 691
Other Real Estate Owned Expense (63) -- 10 -- (99)
Other Expenses:
Business Development 588 38.0 426 (3.8) 443
Insurance - Other 97 (3.0) 100 1.0 99
Legal and Professional Fees 496 12.2 442 (7.7) 479
Other Taxes 182 80.2 101 12.2 90
Postage and Courier 284 8.4 262 4.4 251
Printing and Supplies 373 23.1 303 4.8 289
Regulatory Fees and Assessments 160 19.4 134 (67.4) 411
Other Operating Expenses 984 20.9 814 15.6 704
------- ------- ------
Total Other Expenses 3,164 22.5 2,582 (6.7) 2,766
------- ------- ------
Total Non-interest Expense $12,318 12.8 $10,917 9.5 $9,973
======= ======= ======
</TABLE>
Total non-interest expense increased 12.8% in 1997 over 1996 reflecting
increases in salaries and benefits, furniture and equipment expenses and other
operating expenses. As a percent of average assets, non-interest expenses were
2.98% in 1997 and the "efficiency ratio" (non-interest expenses divided by total
non-interest income plus net interest income) was 51.5% for 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 1997 is due to salary merit
increases and additions to staff. The average number of full-time equivalent
employees increased by ten in 1997 to an average full-time equivalent of 145.
The increases for salaries and number of employees include additions for a
branch office opened in 1997. Also, several lending officers and customer
service officers and staff were added in the last half of 1997.
The increase in furniture and equipment expense is primarily a result of
increased depreciation and service contract expense for a new PC network system
installed in 1997. Also, additional expenses of a branch office opened in 1997
are reflected.
Increases in business development and printing and supplies expenses are
primarily related to the name change of Summit Community Bank, N.A. and the
merger of Alta Mesa National Bank into Summit Community Bank, N.A.
Other taxes, primarily franchise taxes paid to the State of Texas were higher
due to higher levels of taxable capital at all entities.
Regulatory fees and assessments increased because of higher level of deposits
and/or assets on which these fees and assessments are levied.
Other operating expenses increased in 1997 due to an increase in various
miscellaneous operating costs including telephone service fees, loan support
fees and fees paid to directors.
-20-
<PAGE>
FEDERAL AND STATE INCOME TAX EXPENSE. The Corporation adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" in 1993.
See Note 10 of the Corporation's Notes to Consolidated Financial Statements for
details of tax expense. The Corporation provided $3.7 million for federal
income taxes for 1997, resulting in an effective tax rate of 34.3%.
INVESTMENT SECURITIES. The following table presents the consolidated investment
securities portfolio at amortized cost as of December 31, 1997, classified as to
--------------
whether the security is to be Held-to-Maturity or is Available-for-Sale (see
Note 1 of the Notes to Consolidated Financial Statements for a discussion of
these designations), by stated maturity and with the weighted average interest
yield for each range of maturities. The yields on tax-exempt obligations are
computed on a fully taxable equivalent basis using statutory rates for federal
income taxes.
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------------------------------------
Due 1 to Due 5 to Due After
Due 1 Year or Less 5 Years 10 Years 10 Years
------------------- ---------------- --------------- ----------------
(Dollars in Thousands) Amount Yield Amount Yield Amount Yield Amount Yield Total
---------- ------- -------- ------ ------- ------ -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities - HTM $ 7,994 5.91% $11,989 5.73% $ -0- -- $ -0- -- $ 19,983
U.S. Treasury Securities - AFS 19,450 5.69 31,031 5.84 -0- -- -0- -- 50,481
------- ------- ------ ------- --------
Total 27,444 5.75 43,020 5.81 -0- -0- 70,464
------- ------- ------ ------- --------
U.S. Government Agencies - HTM 1,995 7.53 13,225 6.69 1,018 7.16% -0- -- 16,238
U.S. Government Agencies - AFS 994 6.28 3,020 6.51 -0- -- -0- -- 4,014
------- ------- ------ ------- --------
Total 2,989 7.12 16,245 6.65 1,018 7.16 -0- 20,252
------- ------- ------ ------- --------
U.S. Government Agency Mortgage
Backed Securities - HTM 191 6.50 1,042 5.71 -0- -- 6,555 6.76% 7,788
U.S. Government Agency Mortgage
Backed Securities - AFS -0- -- 148 7.25 -0- -- 4,549 6.87 4,697
------- ------- ------ ------- --------
Total 191 6.50 1,190 5.90 -0- 11,104 6.80 12,485
------- ------- ------ ------- --------
Obligations of States and
Political Subdivisions - HTM 100 6.51 1,042 6.32 -0- -- -0- -- 1,142
Other Securities - AFS -0- -- -0- -- -0- -- 915 6.00 915
------- ------- ------ ------- --------
Total $30,724 5.89 $61,497 5.99 $1,018 7.16 $12,019 6.74 $105,258
======= ======= ====== ======= ========
Held-to-Maturity ("HTM") $10,280 6.24% $27,298 6.17% $1,018 7.16% $ 6,555 6.76% $ 45,151
Available-for-Sale ("AFS") 20,444 5.72 34,199 5.90 -0- -- 5,464 6.72 60,107
</TABLE>
The yield on the investment securities portfolio of the Corporation at December
31, 1997 was 6.08% and the weighted average life of the portfolio on that date
was approximately 2.2 years. At December 31, 1996 the yield of the portfolio
was 6.24% and the weighted average life was 2.6 years.
Note 2 to the Corporation's Notes to Consolidated Financial Statements shown in
this report reflects the estimated fair values for various categories of
investment securities as of December 31, 1997 and 1996. As of December 31,
1997, there was a net unrealized gain of $578,000 in the portfolio of which
$369,000 related to Available-for-Sale securities, or .6% of the amortized cost
of those securities.
The following table summarizes the book value of investment securities held by
the Corporation as of December 31 for the past five years (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
U.S. Treasury Securities $ 70,794 $ 77,678 $ 78,981 $ 85,601 $ 78,746
U.S. Government Agencies
and Corporations 20,249 25,276 26,922 18,277 21,769
U.S. Government Agency
Mortgage Backed Securities 12,527 13,805 13,141 10,196 10,830
Obligations of States and
Political Subdivisions 1,142 -0- 70 394 716
Federal Reserve Bank and Federal
Home Loan Bank Stock 915 254 254 254 254
-------- -------- -------- -------- --------
Total $105,627 $117,013 $119,368 $114,722 $112,315
======== ======== ======== ======== ========
</TABLE>
-21-
<PAGE>
In 1997, approximately $4.5 million of investment securities were sold,
resulting in a net loss on sale of securities of $1,000.The proceeds from the
sale of these securities were reinvested in securities that provided a higher
yield on investment and will result in a recovery of the net loss in a
relatively short period of time. Management of the Corporation views these
trades as an opportunity to increase the earnings capacity of the Corporation
into the future.
LOANS. The following schedule classifies loans according to type as of December
31 for the past five years (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------------------
% of % of % of % of % of
1997 Total 1996 Total 1995 Total 1994 Total 1993 Total
------------ ------ --------- ------ --------- ------ --------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $127,800 46.3% $103,414 47.0% $ 81,542 45.7% $ 69,610 50.1% $ 61,638 48.4%
Real Estate Mortgage 90,638 32.8 76,771 34.9 64,200 36.0 51,684 37.2 46,558 36.6
Real Estate Construction 26,290 9.5 12,862 5.8 10,189 5.7 3,656 2.6 3,019 2.4
Loans to Individuals,
Net of Unearned
Discount 31,341 11.4 26,959 12.3 22,562 12.6 14,016 10.1 16,035 12.6
-------- -------- -------- -------- ----- -------- ------
Total Loans, Net of
Unearned Income $276,069 100.0% $220,006 100.0% $178,493 100.0% $138,966 100.0% $127,250 100.0%%
======== ======== ======== ======== ========
</TABLE>
The preceding loan distribution table reflects that total loans increased $56.1
million (25.5%) between year-end 1996 and 1997. Although this increase was
significant, the Corporation is continuing to apply stringent credit criteria on
all loan applications. At December 31, 1997, loans were 68.7% of deposits
compared to 63.8% at the previous year-end.
Primarily, the commercial loan customers of the Subsidiary Banks are small to
medium-sized businesses and professionals and executives. The banks offer a
variety of commercial loan products that include revolving lines of credit,
letters of credit, working capital loans and loans to finance accounts
receivable, inventory and equipment. Generally, these commercial loans have
floating rates of interest with terms of maturity of three years or less.
A significant portion of the $91 million real estate mortgage portfolio is loans
to finance owner-occupied real estate. At December 31, 1997, $53 million of
loans, approximately 58% of the real estate mortgage portfolio, had been made
for this purpose. Also, approximately 39% of the loans in the real estate
mortgage portfolio have variable rates of interest with a significant portion of
the remaining portfolio having balloon terms at five to seven years and/or rate
adjustment clauses.
Real estate construction loans are made primarily to finance construction of
single family residences in the Corporation's market area of Tarrant County.
Construction loans generally are secured by first liens on real estate and have
floating interest rates. The Corporation's lending activities in this area are
primarily with borrowers that have been in the building trade for many years and
with which the banks have long standing relationships. The Corporation's
lending officers meet quarterly with consultants that carefully track the
residential building activities within the market. The Corporation will adjust
its construction lending activities based on the trends of housing starts and
absorption rates in the market.
The Corporation also lends to consumers for purchases of various consumer goods,
such as automobiles, boats and home improvements. The terms of these loans are
five years or less and are well secured with liens on products purchased or
other assets. These loans are primarily made to customers who have other
relationships with the banks. The Corporation does not issue credit cards and
does not have any credit card loans outstanding.
The following table presents commercial loans and real estate construction loans
at December 31, 1997, based on scheduled principal repayments and the total
amount of loans due after one year classified according to sensitivity to
changes in interest rates (in thousands):
<TABLE>
<CAPTION>
Over
One Year
One Year Through Over Five
or Less Five Years Years Total
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Commercial $107,058 $18,784 $1,958 $127,800
Real Estate Construction 25,131 246 913 26,290
-------- ------- ------ --------
Totals $132,189 $19,030 $2,871 $154,090
======== ======= ====== ========
</TABLE>
Of the loans maturing after one year, all have fixed rates of interest, with
many having rate adjustment clauses during the remaining term of the loan.
-22-
<PAGE>
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established through
charges to earnings in the form of a provision for loan losses. Loans, or
portions thereof, which are considered to be uncollectible are charged against
this allowance and subsequent recoveries, if any, are credited to the allowance.
The allowance represents the amount which, in management's judgement, will be
adequate to absorb future charge-offs of existing loans which may become
uncollectible. The adequacy of the allowance is determined by management's
continuous evaluation of the loan portfolio and by the employment of third party
loan review specialists. All known problem loans, unknown inherent risks
generally associated with bank lending, past loan loss experience, delinquency
ratios and current and projected economic conditions are taken into account in
evaluating the adequacy of the allowance.
In 1995 the Corporation adopted Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairment of a Loan" ("SFAS No. 114"), as
amended by Statement of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan -- Income Recognition and Disclosure" ("SFAS
No. 118"). These standards specify how allowances for certain impaired loans
should be determined and the accounting for in-substance foreclosures. Adoption
of these standards did not have a material impact on the Corporation's results
of operations.
Loans are generally placed on non-accrual status when principal or interest is
past due 90 days or more and the loan is not both well-secured and in the
process of collection, or immediately, if in the opinion of management, full
collection of principal or interest is doubtful. Loans are charged against the
allowance for loan losses when management believes that the collectibility of
the principal is unlikely.
The following table presents average loans net of unearned income and an
analysis of the consolidated allowance for loan losses (dollars in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Average Loans Outstanding $248,303 $201,506 $156,374 $132,079 $127,375
======== ======== ======== ======== ========
Analysis of Allowance for
Loan Losses:
Balance, Beginning of Year $ 2,972 $ 2,500 $ 2,410 $ 2,594 $ 2,810
Charge-Offs:
Commercial 148 424 321 101 142
Real Estate Mortgage -0- 2 -0- 180 173
Real Estate Construction -0- -0- -0- -0- -0-
Loans to Individuals 98 36 26 32 134
-------- -------- -------- -------- --------
Total Charge-Offs 246 462 347 313 449
-------- -------- -------- -------- --------
Recoveries:
Commercial 379 58 74 129 136
Real Estate Mortgage 56 54 114 79 63
Real Estate Construction -0- -0- -0- -0- -0-
Loans to Individuals 4 3 13 35 11
-------- -------- -------- -------- --------
Total Recoveries 439 115 201 243 210
-------- -------- -------- -------- --------
Net Charge-Offs (Recoveries) (193) 347 146 70 239
-------- -------- -------- -------- --------
Provision Charged (Credited)
to Operating Expense 900 819 236 (114) 23
-------- -------- -------- -------- --------
Balance, End of Year $ 4,065 $ 2,972 $ 2,500 $ 2,410 $ 2,594
======== ======== ======== ======== ========
Ratio of Net Charge-Offs (Recoveries)
to Average Loans Outstanding (.08)% .17% .09% .05% .19%
======== ======== ======== ======== ========
</TABLE>
-23-
<PAGE>
The following table reflects the allowance for loan losses compared to total
loans at the end of each year (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total Loans $276,069 $220,006 $178,493 $138,966 $127,250
Allowance for Loan Losses 4,065 2,972 2,500 2,410 2,594
Allowance for Loan Losses
as a Percent of Total Loans 1.47% 1.35% 1.40% 1.73% 2.04%
Allowance for Loan Losses As
a Percent of Non-Performing Loans 193.0 270.0 252.0 375.0 174.0
</TABLE>
The increase in provision for loan losses in 1997 over 1996 primarily recognizes
the Corporation's loan growth and a modest level of loan charge-offs for the
year.
The following table illustrates the allocation of the allowance for loan losses
to the various loan categories (dollars in thousands); see the tables on page 37
for the percent of specific types of loans to total loans:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------- --------------- --------------- --------------- ---------------
% % % % %
Amount Total Amount Total Amount Total Amount Total Amount Total
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Allowance For
Loan Losses:
Commercial $1,729 42.5% $1,072 36.1% $1,249 50.0% $ 953 39.5% $ 983 37.9%
Real Estate
Mortgage 699 17.2 556 18.7 524 21.0 648 26.9 796 30.7
Real Estate
Construction 184 4.5 81 2.7 63 2.5 28 1.2 37 1.4
Loans to Individuals 272 6.7 165 5.6 132 5.3 198 8.2 169 6.5
Unallocated Portion 1,181 29.1 1,098 36.9 532 21.2 583 24.2 609 23.5
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total $4,065 100.0% $2,972 100.0% $2,500 100.0% $2,410 100.0% $2,594 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
The allocation is determined by providing specific reserves against each
criticized loan plus a general allocation against the remaining balance of the
portfolio based on experience factors. Management of the Corporation believes
that the allowance for loan losses at December 31, 1997, is adequate to cover
losses inherent in the portfolio. There can be no assurance that the
Corporation will not sustain loan losses in future periods which could be
substantial in relation to the size of the current allowance. The total
allowance is available to absorb losses from any segment of loans.
NON-PERFORMING ASSETS. Non-performing assets consist of non-accrual loans,
renegotiated loans and other real estate. Non-accrual loans are those on which
the accrual of interest has been suspended and on which the interest is recorded
as earned when it is received. Loans are generally placed on non-accrual status
when principal or interest is past due 90 days or more, and the loan is not both
well-secured and in the process of collection, or immediately, if in the opinion
of management, full collection of principal or interest is doubtful. At the
time a loan is placed on non-accrual status, interest previously recorded but
not collected is reversed and charged against current interest income.
Renegotiated loans are loans on which the interest and/or the principal has been
reduced due to a deterioration in the borrower's financial condition. Even
though these loans are actually performing, they are included in non-performing
assets because of the loss of revenue related to the reduction of interest
and/or principal.
Other real estate is real estate acquired through foreclosure or through partial
settlement of debts which is awaiting sale and disposition. At the time of
acquisition, other real estate is recorded at the lower of estimated fair value
or the loan balance or settlement agreement with any write-down charged to the
allowance for loan losses. Any further write-downs, expenses related to the
property, and any gain or loss resulting from the sale of the property are
recorded in current operating expenses.
-24-
<PAGE>
The following table summarizes the non-performing assets and loans 90 days past
due and still accruing as of December 31, (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Non-accrual Loans $2,112 $1,102 $ 990 $ 643 $1,471
Renegotiated Loans -0- -0- -0- -0- 18
Other Real Estate 151 166 113 649 615
------ ------ ------ ------ ------
Total Non-Performing
Assets $2,263 $1,268 $1,103 $1,292 $2,104
====== ====== ====== ====== ======
As a Percent of:
Total Assets .49% .32% .31% .44% .75%
Total Loans and Other
Real Estate .82 .58 .62 .93 1.65
Loans Past Due 90 Days or
More and Still Accruing $ 78 $ 36 $ -0- $ 32 $ 41
</TABLE>
The Subsidiary Banks are required, by the regulatory authorities, to have other
real estate appraised periodically. In the event the new appraised value is
less than the carrying value of the property, the excess is written off to
expense. Some properties are written down below their appraised values when
management feels the economic value of the property has declined below the
appraised value.
Non-accrual loans at December 31, 1997, were comprised of $2,043,000 in
commercial loans, $29,000 in real estate mortgages, and $40,000 in loans to
individuals. One commercial loan of $1,403,000 is included in these amounts and
is well secured.
The impact on interest income from the above non-accrual loans and renegotiated
loans for the past five (5) years is provided below (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1997 1996 1995 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Gross Amount of Interest
That Would Have Been
Recorded at Original Rate $ 272 $ 111 $ 102 $ 35 $ 165
Interest Included in Income 154 30 42 25 41
----- ----- ----- ----- -----
Interest Not Recorded
in Income $ 118 $ 81 $ 60 $ 10 $ 124
===== ===== ===== ===== =====
</TABLE>
Loans of each Subsidiary Bank are graded on a system similar to that used by the
regulators. The first level of criticized loans is "Other Assets Especially
Mentioned" (OAEM). These loans are normally fundamentally sound but have
potential weaknesses which may, if not corrected, weaken the asset or
inadequately protect the bank's credit position at some future date. The second
level is "Substandard", which are loans inadequately protected by current sound
net worth, paying capacity or pledged collateral. The last level of criticized
loans, before they are charged off, is "Doubtful". Doubtful loans are
considered to have inherent weaknesses because collection or liquidation in full
is highly questionable.
Non-accrual loans normally include weaker Substandard loans and loans that are
considered to be Doubtful.
-25-
<PAGE>
The following table summarizes the relationship between non-performing loans,
criticized loans and the allowance for loan losses (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
1997 1996 1995 1994 1993
-------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Non-Performing Loans $2,112 $1,102 $ 990 $ 643 $1,489
Criticized Loans 9,295 4,589 7,621 4,497 5,920
Allowance for Loan Losses 4,065 2,972 2,500 2,410 2,594
Allowance for Loan Losses
as a Percent of:
Non-Performing Loans 193.0% 270.0% 252.0% 375.0% 174.0%
Criticized Loans 44.0 65.0 33.0 54.0 44.0
</TABLE>
Independent third party loan reviews of the Subsidiary Banks were completed at
various times in 1997. In addition, regulatory examinations were completed in
late 1997. Based on the findings of these reviews and exams the Subsidiary
Banks appear to be adequately reserved.
Management is not aware of any potential loan problems, that have not been
disclosed, to which serious doubts exist as to the ability of the borrower to
substantially comply with the present repayment terms.
DEPOSITS. The primary source of the Corporation's funds is the deposits of the
Subsidiary Banks. The majority of the Corporation's deposits are considered
"core" deposits, that is, deposits that are not subject to material changes due
to customer withdrawal because of market rate changes. The Corporation does not
accept brokered deposits. Average demand deposits increased $13.8 million, or
15.7% in 1997. These deposits represented 28.2% of total deposits. Average
interest-bearing deposits increased $23.7 million, or 10.0%. The deposit types'
daily average balance and related average rates paid during each of the last
three (3) years are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- -------------------------------- ----------
Amount Rate Paid Amount Rate Paid Amount Rate Paid
--------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-Bearing Demand Deposits $101,813 $ 88,022 $ 74,024
Interest-Bearing Deposits:
Interest-Bearing Transaction
Accounts 128,880 3.57% 116,811 3.30% 103,932 3.40%
Savings 50,756 4.21 46,324 4.04 25,792 3.63
Savings Certificates 49,203 4.95 48,058 4.77 47,527 4.82
Certificates of Deposit of $100,000 or More 30,242 5.20 24,405 4.95 23,421 4.98
Other Time Deposits 622 5.38 428 4.42 254 4.88
-------- -------- --------
Total Interest-Bearing Deposits 259,703 4.15 236,026 3.92 200,926 3.95
-------- -------- --------
Total Deposits $361,516 $324,048 $274,950
======== ======== ========
</TABLE>
The remaining maturity on certificates of deposit of $100,000 or more as of
December 31, 1997, 1996 and 1995 is presented below (in thousands):
<TABLE>
<CAPTION>
% of % of % of
Maturity 1997 Total 1996 Total 1995 Total
- - ------------------ -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
3 months or less $15,480 43.4% $10,215 40.1% $12,023 49.0%
3 to 6 months 6,894 19.3 7,342 28.9 6,810 27.7
6 to 12 months 11,383 31.9 6,350 25.0 5,167 21.0
Over 12 months 1,933 5.4 1,527 6.0 551 2.3
</TABLE>
-26-
<PAGE>
BORROWINGS. Securities sold under repurchase agreements generally represent
borrowings with maturities ranging from one to thirty days. These borrowings
are with significant commercial customers of the banks that require short-term
liquidity for their funds. Information relating to these borrowings is
summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Securities sold under repurchase agreements:
Average $11,668 $12,181 $ 6,580
Year-end 14,689 13,209 13,528
Maximum month-end balance during year 15,263 14,453 13,528
Interest Rate:
Average 4.45% 4.33% 5.11%
Year-end 4.55 4.35 4.67
</TABLE>
INTEREST RATE SENSITIVITY. The objectives of monitoring and managing the
interest rate risk of the balance sheet are to contribute to earnings by
minimizing adverse changes in net interest income as a result of changes in the
direction and level of interest rates and to provide liquidity to satisfy cash
flow requirements to meet customers' fluctuating demands.
Interest rate sensitivity is the relationship between changes in the market
interest rates and changes in net interest income due to the repricing
characteristics of assets and liabilities.
An asset-sensitive position in a given period will result in more assets than
liabilities being subject to repricing; therefore, market interest-rate changes
will be reflected more quickly in asset rates. If interest rates decline, such
a position will have an adverse effect on net interest income. Conversely, in a
liability-sensitive position, where liabilities reprice more quickly than assets
in a given period, a decline in market rates will benefit net interest income.
A mix of earning assets and interest-bearing liabilities in which relatively
equal volumes reprice each period represents a matched interest sensitivity
"gap" position; any excess of these assets or liabilities results in an interest
sensitive gap.
The following table, commonly referred to as a "static gap report", indicates
the interest rate-sensitivity position at December 31, 1997 and may not be
reflective of positions in subsequent periods (dollars in thousands):
<TABLE>
<CAPTION>
Repriced
Due in After 1
30 Due in Due in Total Year or
Days 31-180 181 Days Rate Non-Rate
Or Less Days to One Year Sensitive Sensitive Total
---------- ---------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans $159,345 $ 17,504 $11,576 $188,425 $ 87,644 $276,069
Investment Securities 3,933 22,710 23,330 49,973 55,654 105,627
Federal Funds Sold 35,760 -0- -0- 35,760 -0- 35,760
-------- -------- ------- -------- -------- --------
Total Earning Assets $199,038 $ 40,214 $34,906 $274,158 $143,298 $417,456
-------- -------- ------- -------- -------- --------
Interest-Bearing Liabilities:
Interest-Bearing
Transaction Accounts
and Savings $187,246 $ -0- $ -0- $187,246 $ -0- $187,246
Certificates of
Deposits greater than
$100,000 8,401 13,974 11,383 33,758 1,932 35,690
Other Time Deposits 5,126 20,952 20,680 46,758 5,632 52,390
Repurchase Agreements 14,689 -0- -0- 14,689 -0- 14,689
-------- -------- ------- -------- -------- --------
Total Interest-
Bearing Liabilities $215,462 $ 34,926 $32,063 $282,451 $ 7,564 $290,015
-------- -------- ------- -------- -------- --------
Interest Sensitivity Gap $(16,424) $ 5,288 $ 2,843 $ (8,293) $135,734 $127,441
======== ======== ======= ======== ======== ========
Cumulative Gap $(16,424) $(11,136) $(8,293)
======== ======== =======
Cumulative Gap To
Total Earning Assets (3.93%) (2.67%) (1.99%)
Cumulative Gap To
Total Assets (3.57%) (2.42%) (1.80%)
</TABLE>
-27-
<PAGE>
In the preceding table under the "After 1 Year" category, $44,338,000 in
investment securities will reprice or mature within one to three years and
another $8,228,000 will reprice or mature within three to five years. The
average maturity of the investment portfolio is approximately 2.2 years. Also,
the above table reflects the call dates versus maturity dates and periodic
principal amortization of investment securities.
The preceding static gap report reflects a cumulative liability sensitive
position during the one year horizon. An inherent weakness of this report is
that it ignores the relative volatility any one category may have in relation to
other categories or market rates in general. For instance, the rate paid on
certain interest-bearing transaction accounts typically moves slower than the
three month T-Bill. Management attempts to capture this relative volatility by
utilizing a simulation model with a "beta factor" adjustment which estimates the
volatility of rate sensitive assets and/or liabilities in relation to other
market rates.
Beta factors are an estimation of the long term, multiple interest rate
environment relation between an individual account and market rates in general.
For instance, NOW, savings and money market accounts, which are repriceable
within 30 days will have considerably lower beta factors than variable rate
loans and most investment categories. Taking this into consideration, it is
quite possible for a bank with a negative cumulative gap to total asset ratio to
have a positive "beta adjusted" gap risk position.
As a result of applying the beta factors established by management to the
earning assets and interest-bearing liabilities in the static gap report via a
simulation model, the cumulative gap to total assets ratio at one year of (1.8%)
was reversed to a positive 18.9% "beta adjusted" gap position.
Management feels that the "beta adjusted" gap risk technique more accurately
reflects the Corporation's gap position. Also, based on the Corporation's
analysis of its interest rate sensitivity position at year end 1997, a 100-basis
point change in interest rates would not have a significant impact on its net
interest income over a twelve month period.
The following table reflects the spreads and margins for the past three (3)
years:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Yield on Earning Assets (T/E) 8.45% 8.11% 8.04%
Cost of Funds 4.16 3.93 3.98
Net Interest Spread (T/E) 4.29 4.18 4.06
Net Interest Margin (T/E) 5.47 5.24 5.15
</TABLE>
CAPITAL RESOURCES. At December 31, 1997 shareholders' equity totaled $41.1
million, an increase of $6.0 million or 17.2% for the year. This increase was
primarily from retained earnings, i.e., earnings net of dividends to
shareholders.
Bank regulatory authorities have established risk-based capital guidelines for
U.S. banking organizations. The objective of these efforts is to provide a more
consistent system for comparing capital positions of banking organizations and
to reflect the level of risk associated with holding various categories of
assets. The guidelines define Tier 1 capital and Tier 2 capital. The only
components of Tier 1 and Tier 2 capital, for the Corporation, are equity capital
and equity capital plus a portion of the allowance for loan losses,
respectively. The guidelines also stipulate that four categories of risk
weights (0, 20, 50, and 100 percent), primarily based on the relative credit
risk of the counterparty, be applied to the different types of balance sheet
assets. Risk weights for all off-balance sheet exposures are determined by a
two step process whereas the face value of the off-balance sheet item is
converted to a "credit equivalent amount" and that amount is assigned to the
appropriate risk category. Off-balance sheet items at December 1995, 1996 and
1997 included unfunded loan commitments and letters of credit. The minimum
ratio for qualifying total capital is 8.00 percent, of which 4.00 percent must
be Tier 1 capital.
The Federal Reserve Board and the Comptroller of the Currency also have a
capital to total assets (leverage) guideline. These guidelines establish a
minimum level of Tier 1 capital to total assets of 3 percent. A banking
organization operating at or near these levels is expected to have well-
diversified risk, excellent asset quality, high liquidity, good earnings and in
general be considered a strong banking organization. Organizations not meeting
these characteristics are expected to operate well above these minimum capital
standards. Thus, for all but the most highly rated organizations, the minimum
Tier 1 leverage ratio is to be 3 percent plus minimum additional cushions of at
least 100 to 200 basis points. At the discretion of the regulatory authorities,
additional capital may be required.
-28-
<PAGE>
The table below illustrates the Corporation's and its Subsidiary Banks'
compliance with the regulatory guidelines as of December 31, 1997 (dollars in
thousands):
<TABLE>
<CAPTION>
The Summit Summit
Consolidated National Community
Corporation Bank Bank, N.A.
------------- ---------- -----------
<S> <C> <C> <C>
Total Assets $459,794 $195,446 $261,157
Risk Weighted Assets 297,613 115,049 178,464
Equity Capital (Tier 1) $ 41,112 $ 17,394 $ 19,291
Qualifying Allowance For
Loan Losses 3,720 1,438 2,231
-------- -------- --------
Total Tier 2 Capital $ 44,832 $ 18,832 $ 21,522
======== ======== ========
Leverage Ratio 8.83% 8.83% 7.32%
Risk Capital Ratio:
Tier 1 13.81% 15.12% 10.81%
Total Tier 2 15.06 16.37 12.06
</TABLE>
As can be seen in the preceding table, the Corporation and its Subsidiary Banks
exceed the risk-based capital and leverage requirements set by the regulators as
of December 31, 1997.
Also, as of December 31, 1997, the Corporation and its Subsidiary Banks met the
criteria for classification as a "well-capitalized" institution under the rules
of the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA").
IMPACT OF INFLATION. The effects of inflation on the local economy and on the
Corporation's operating results have been relatively modest for the past several
years. Since substantially all of the Corporation's assets and liabilities are
monetary in nature, such as cash, investments, loans and deposits, their values
are less sensitive to the effects of inflation than to changing interest rates,
which do not necessarily change in accordance with inflation rates. The
Corporation tries to control the impact of interest rate fluctuations by
managing the relationship between its interest rate sensitive assets and
liabilities.
LIQUIDITY. Liquidity is defined as the Corporation's ability to meet deposit
withdrawals, provide for the legitimate credit needs of customers, and take
advantage of certain investment opportunities as they arise. While maintaining
adequate liquid assets to fulfill these functions, it must also maintain
compatible levels of maturity and rate concentrations between its sources of
funds and earning assets. The liability structure of the Corporation is short-
term in nature and the asset structure is likewise oriented towards short
maturities.
The Corporation's primary "internal" source of liquidity is its federal funds
sold and its marketable investment securities, particularly those with shorter
maturities. At December 31, 1997, federal funds sold and investment securities
maturing within 30 days represented $39.7 million or 8.6% of total assets.
Additionally, the Corporation's ability to sell loan participations and purchase
federal funds serves as secondary sources of liquidity. Each of the Subsidiary
Banks have approved federal funds lines at other banks.
The liquidity of the Corporation is enhanced by the fact that 91% of total
deposits at December 31, 1997, were "core" deposits. Core deposits for this
purpose are defined as total deposits less public funds and certificates of
deposit greater than $100,000.
The parent Corporation's income, which provides funds for the payment of
dividends to shareholders and for other corporate purposes, is derived from the
investment in its subsidiaries and from management fees paid by the
subsidiaries. See Note 16 - Dividends from Subsidiaries for limitations on
dividends payable by subsidiaries.
-29-
<PAGE>
IMPACT OF THE YEAR 2000 ISSUE. The Year 2000 Issue is the result of computer
programs being written using two digits rather than four to define the
applicable year. Any of the Corporation's computer programs that have date-
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions or engage in normal business activities.
Based on a recent assessment, the Corporation determined that it will be
required to modify or replace portions of its software so that its computer
systems will properly utilize dates beyond December 31, 1999. The Corporation
presently believes that with modifications to existing software, the Year 2000
Issue can be mitigated. However, if such modifications are not made, or are not
completed timely, the Year 2000 Issue could have material impact on the
operations of the Corporation.
The Corporation will utilize both internal and external resources to correct and
test the software for Year 2000 modifications. The Corporation plans to
complete the Year 2000 project not later than December 31, 1998. The projected
total remaining cost of the Year 2000 project is not material to the financial
condition of the Corporation.
The costs of the project and the date on which the Corporation plans to complete
the Year 2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
-30-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA: PAGE
---------------------------------------------------- ----
<S> <C>
Independent Auditor's Report 32
Management's Responsibility for Financial Reporting 33
Consolidated Balance Sheets of Summit Bancshares, Inc. and Subsidiaries as of
December 31, 1997 and 1996 34
Consolidated Statements of Income of Summit Bancshares, Inc. and Subsidiaries
for the Years Ended December 31, 1997, 1996 and 1995 35
Statements of Changes in Shareholders' Equity of Summit Bancshares, Inc. and
Subsidiaries for the Years Ended December 31, 1997, 1996 and 1995
(Consolidated and Parent Company Only) 36
Consolidated Statement of Cash Flows of Summit Bancshares, Inc. and Subsidiaries
for the Years Ended December 31, 1997, 1996 and 1995 37
Notes to Consolidated Financial Statements 38-54
</TABLE>
-31-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Summit Bancshares, Inc.
Fort Worth, Texas
We have audited the accompanying consolidated balance sheets of Summit
Bancshares, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
related statements of income, changes in shareholders' equity and cash flows for
each of the three years in the period ending December 31, 1997. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Summit Bancshares, Inc. and
Subsidiaries, as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ending
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ Stovall, Grandey, & Whatley
STOVALL, GRANDEY, & WHATLEY
Fort Worth, Texas
January 23, 1998
-32-
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The management of the Corporation is responsible for the preparation of the
financial statements, related financial data and other information in this
annual report. The consolidated financial statements have been prepared in
accordance with general accepted accounting principles and include amounts based
on management's estimates and judgment where appropriate. Financial information
appearing throughout this annual report is consistent with the financial
statements.
In meeting its responsibility both for the integrity and fairness of these
financial statements and information, management depends on the accounting
systems and related internal accounting controls that are designed to provide
reasonable assurances that transactions are authorized and recorded in
accordance with established procedures and that assets are safeguarded and that
proper and reliable records are maintained.
The concept of reasonable assurance is based on the recognition that the cost of
a system of internal controls should not exceed the related benefits. As an
integral part of the system of internal controls, the Corporation retains
auditors who monitor compliance with and evaluate the effectiveness of the
system of internal controls and coordinate audit coverage with the independent
auditors.
The Audit Committee of the Corporation and the Banking Subsidiaries' Board of
Directors, which are composed entirely of directors independent of management,
meet regularly with management, regulatory examiners, internal auditors, the
loan review consultants and independent auditors to discuss financial reporting
matters, internal controls, regulatory reports, internal auditing and the
nature, scope and results of audit efforts. Internal audit and loan review
personnel report directly to the Audit Committee. The banking regulators,
internal auditors and independent auditors have direct access to the Audit
Committee.
The consolidated financial statements have been audited by Stovall, Grandey &
Whatley, independent auditors, who render an independent opinion on management's
financial statements. Their appointment was recommended by the Audit Committee
and approved by the Board of Directors and by the shareholders. The audit by
the independent auditors provides an additional assessment of the degree to
which the Corporation's management meets its responsibility for financial
reporting. Their opinion on the financial statements is based on auditing
procedures, which include their consideration of the internal control structure
and performance of selected tests of transactions and records, as they deem
appropriate. These auditing procedures are designed to provide an additional
reasonable level of assurance that the financial statements are fairly presented
in accordance with general accepted accounting principles in all material
respects.
/s/ Philip E. Norwood /s/ Jeffrey M. Harp
PHILIP E. NORWOOD JEFFREY M. HARP
CHAIRMAN OF THE BOARD PRESIDENT
/s/ Bob G. Scott
BOB G. SCOTT
EXECUTIVE VICE PRESIDENT
AND CHIEF OPERATING OFFICER
-33-
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
ASSETS (In Thousands)
<S> <C> <C>
CASH AND DUE FROM BANKS - NOTE 1 $ 30,487 $ 28,339
FEDERAL FUNDS SOLD 35,760 20,350
INVESTMENT SECURITIES - NOTE 2
Securities Available-for-Sale, at fair value 60,476 58,576
Securities Held-to-Maturity, at cost (fair value
of $45,360,000 and $58,629,000 at
December 31, 1997 and 1996, respectively) 45,151 58,437
LOANS - NOTE 3
Loans, Net of Unearned Discount 276,069 220,006
Allowance for Loan Losses (4,065) (2,972)
-------- --------
LOANS, NET 272,004 217,034
PREMISES AND EQUIPMENT, NET - NOTE 4 7,916 7,105
ACCRUED INCOME RECEIVABLE 3,442 3,189
OTHER REAL ESTATE - NOTE 5 151 166
OTHER ASSETS - NOTE 10 4,407 2,052
-------- --------
TOTAL ASSETS $459,794 $395,248
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS - NOTE 6
Noninterest-Bearing Demand $126,398 $103,695
Interest-Bearing 275,326 241,328
-------- --------
TOTAL DEPOSITS 401,724 345,023
SECURITIES SOLD UNDER AGREEMENTS TO
REPURCHASE - NOTE 7 14,689 13,209
ACCRUED INTEREST PAYABLE 678 638
OTHER LIABILITIES 1,591 1,298
-------- --------
TOTAL LIABILITIES 418,682 360,168
--------
COMMITMENTS AND CONTINGENCIES - NOTES 4, 8, 13,
15 and 17
SHAREHOLDERS' EQUITY - NOTES 12, 14, 18 and 19
Common Stock - $1.25 par value; 20,000,000 shares
authorized; 6,501,332 and 3,233,036 shares
issued and outstanding at December 31, 1997
and 1996, respectively 8,127 4,041
Capital Surplus 6,251 6,136
Retained Earnings 26,491 24,675
Unrealized Gain on Investment Securities
Available-for-Sale, Net of Tax 243 228
-------- --------
TOTAL SHAREHOLDERS' EQUITY 41,112 35,080
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $459,794 $395,248
======== ========
</TABLE>
The accompanying Notes should be read with these financial statements.
-34-
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $24,063 $19,274 $15,331
Interest and Dividends on Investment Securities:
Taxable 6,878 7,405 6,479
Exempt from Federal Income Taxes 23 1 23
Interest on Federal Funds Sold 1,008 897 1,096
------- ------- -------
TOTAL INTEREST INCOME 31,972 27,577 22,929
------- ------- -------
INTEREST EXPENSE
Interest on Deposits - NOTE 6 10,773 9,243 7,936
Interest on Securities Sold Under
Agreements to Repurchase 528 528 340
Interest on Notes Payable - NOTE 8 -0- -0- 1
------- ------- -------
TOTAL INTEREST EXPENSE 11,301 9,771 8,277
------- ------- -------
NET INTEREST INCOME 20,671 17,806 14,652
LESS: PROVISION FOR LOAN LOSSES - NOTE 3 900 819 236
------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 19,771 16,987 14,416
------- ------- -------
NON-INTEREST INCOME
Service Charges and Fees on Deposits 1,890 1,645 1,525
Net Loss on Sale of Investment Securities (1) (14) (10)
Other Income 1,376 1,345 1,239
------- ------- -------
TOTAL NON-INTEREST INCOME 3,265 2,976 2,754
------- ------- -------
NON-INTEREST EXPENSE
Salaries and Employee Benefits 7,524 6,753 5,903
Occupancy Expense - Net 774 772 712
Furniture and Equipment Expense 919 800 691
Other Real Estate Owned (Income) Expense - Net (63) 10 (99)
Other Expense - NOTE 9 3,164 2,582 2,766
------- ------- -------
TOTAL NON-INTEREST EXPENSE 12,318 10,917 9,973
------- ------- -------
INCOME BEFORE INCOME TAXES 10,718 9,046 7,197
APPLICABLE INCOME TAXES - NOTE 10 3,678 3,103 2,468
------- ------- -------
NET INCOME $ 7,040 $ 5,943 $ 4,729
======= ======= =======
NET INCOME PER SHARE - NOTE 14
Basic $ 1.09 $ .93 $ .76
Diluted 1.04 .90 .72
</TABLE>
The accompanying Notes should be read with these financial statements.
-35-
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
CONSOLIDATED AND COMPANY ONLY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Unrealized
Common Stock Gain (Loss) on Total
------------------------ Capital Retained Investment Treasury Shareholders'
Shares Amount Surplus Earnings Securities - Net Stock Equity
- - -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995 1,578,723 $1,973 $6,047 $18,187 $ (873) $ -0- $25,334
Stock Options Exercised 19,000 24 31 55
Purchases of Stock Held
in Treasury (508) (508)
Retirement of Stock
Held in Treasury (22,780) (29) (479) 508 -0-
Two-for-One Stock Split 1,574,943 1,969 (1,969) -0-
Cash Dividend - $.11 Per Share (692) (692)
Securities Available-
for-Sale Adjustment 1,207 1,207
Net Income for Year Ended 1995 4,729 4,729
--------- ------ ------ ------- ------ ----- -------
BALANCE AT DECEMBER 31, 1995 3,149,886 3,937 6,078 19,776 334 -0- 30,125
Stock Options Exercised 92,150 115 58 173
Purchases of Stock Held
in Treasury (157) (157)
Retirement of Stock
Held in Treasury (9,000) (11) (146) 157 -0-
Cash Dividend - $.14 Per Share (898) (898)
Securities Available-
for-Sale Adjustment (106) (106)
Net Income for Year Ended 1996 5,943 5,943
--------- ------ ------ ------- ------ ----- -------
BALANCE AT DECEMBER 31, 1996 3,233,036 4,041 6,136 24,675 228 -0- 35,080
Stock Options Exercised 21,790 28 115 143
Two-for-One Stock Split 3,246,506 4,058 (4,058)
Cash Dividend - $.18 Per Share (1,166) (1,166)
Securities Available-
for-Sale Adjustment 15 15
Net Income for Year Ended 1997 7,040 7,040
--------- ------ ------ ------- ------ ----- -------
BALANCE AT DECEMBER 31, 1997 6,501,332 $8,127 $6,251 $26,491 $ 243 $ -0- $41,112
========= ====== ====== ======= ====== ====== =======
</TABLE>
The accompanying Notes should be read with these financial statements.
-36-
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollars In Thousands) YEAR ENDED DECEMBER 31,
--------------------- ----------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 7,040 $ 5,943 $ 4,729
-------- -------- --------
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 840 762 652
Net Premium Amortization of Investment Securities 97 310 445
Provision for Loan Losses 900 819 236
Deferred Federal Income Taxes (Benefit) 233 (159) 68
Loss on Sale of Investment Securities 1 14 10
Writedown of Other Real Estate 4 12 12
Net Gain From Sale of Other Real Estate (21) -0- (78)
Net (Gain) Loss on Sale of Premises and Equipment 12 (1) -0-
Increase in Accrued Income and Other Assets (2,796) (270) (1,044)
Increase in Accrued Expenses and Other Liabilities 333 280 297
-------- -------- --------
TOTAL ADJUSTMENTS (397) 1,767 598
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,643 7,710 5,327
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (Increase) Decrease in Federal Funds Sold (15,410) 5,330 (15,940)
Proceeds from Matured and Prepaid Investment Securities
. Held-to-Maturity 21,486 20,001 21,154
. Available-for-Sale 14,906 20,486 12,703
Proceeds from Sales of Investment Securities 4,506 14,527 2,969
Purchase of Investment Securities
. Held-to-Maturity (12,884) (19,174) (27,616)
. Available-for-Sale (16,702) (33,969) (12,482)
Loans Originated and Principal Repayments, Net (56,363) (42,171) (39,724)
Recoveries of Loans Previously Charged-Off 439 115 201
Proceeds from Sale of Premises and Equipment 1 1 -0-
Proceeds from Sale of Other Real Estate 32 -0- 502
Purchases of Premises and Equipment (1,664) (710) (1,207)
-------- -------- --------
NET CASH USED BY INVESTING ACTIVITIES (61,653) (35,564) (59,440)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Demand Deposits, Savings
Accounts and Interest Bearing Transaction Accounts 41,081 36,011 45,230
Net Increase (Decrease) in Certificates of Deposit 15,620 (1,097) 5,338
Net Increase (Decrease) in Repurchase Agreements 1,480 (319) 9,000
Principal Payments on Notes Payable -0- -0- (250)
Payments of Cash Dividends (1,166) (898) (692)
Proceeds from Stock Options Exercised 143 173 55
Purchase of Treasury Stock -0- (157) (508)
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 57,158 33,713 58,173
-------- -------- --------
NET INCREASE IN CASH AND DUE FROM BANKS 2,148 5,859 4,060
CASH AND DUE FROM BANKS - BEGINNING OF YEAR 28,339 22,480 18,420
-------- -------- --------
CASH AND DUE FROM BANKS - END OF YEAR $ 30,487 $ 28,339 $ 22,480
======== ======== ========
SUPPLEMENTAL SCHEDULE OF OPERATING AND
INVESTING ACTIVITIES
Interest Paid $ 11,260 $ 9,769 $ 8,129
Income Taxes Paid 3,876 3,285 2,410
Other Real Estate Acquired in Settlement of Loans -0- 65 -0-
Bank Financed Sales of Other Real Estate -0- -0- 100
</TABLE>
The accompanying Notes should be read with these financial statements.
-37-
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
The accounting and reporting policies of Summit Bancshares, Inc. ("the
Corporation") and its Subsidiaries are in accordance with generally accepted
accounting principles and the prevailing practices within the banking industry.
A summary of the more significant policies follows:
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
- - -----------------------------------------------------
The consolidated financial statements of the Corporation include its accounts
and those of its wholly-owned subsidiaries, Summit National Bank, Summit
Community Bank, N.A. (the "Subsidiary Banks") and Summit Bancservices, Inc.
("Bancservices"). All significant intercompany balances and transactions have
been eliminated.
USE OF ESTIMATES
- - ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND DUE FROM BANKS
- - -----------------------
The Subsidiary Banks are required to maintain certain restricted balances at the
Federal Reserve Bank based on their level of deposits. During 1997 the average
cash balance maintained at the Federal Reserve Bank was approximately
$4,543,000. Compensating balances held at correspondent banks to minimize
service charges averaged approximately $14,791,000 in 1997.
INVESTMENT SECURITIES
- - ---------------------
The Corporation has adopted Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities ("SFAS 115").
At the date of purchase, the Corporation is required to classify debt and equity
securities into one of three categories: held-to-maturity, trading or available-
for-sale. At each reporting date, the appropriateness of the classification is
reassessed. Investments in debt securities are classified as held-to-maturity
and measured at amortized cost in the financial statements only if management
has the positive intent and ability to hold those securities to maturity.
Securities that are bought and held principally for the purpose of selling them
in the near term are classified as trading and measured at fair value in the
financial statements with unrealized gains and losses included in earnings.
Investments not classified as either held-to-maturity or trading are classified
as available-for-sale and measured at fair value in the financial statements
with unrealized gains and losses reported, net of tax, in a separate component
of shareholders' equity until realized.
The Corporation has the ability and intent to hold to maturity its investment
securities classified as held-to-maturity; accordingly, no adjustment has been
made for the excess, if any, of amortized cost over market. In determining the
investment category classifications at time of purchase of securities,
management considers its asset/liability strategy, changes in interest rates and
prepayment risk, the need to increase capital and other factors. Under certain
circumstances (including the deterioration of the issuer's credit worthiness, a
change in tax law, or statutory or regulatory requirements), the Corporation may
change the investment security classification. In 1997 and 1996 the Corporation
held no securities that would have been classified as trading securities.
-38-
<PAGE>
All investment securities are adjusted for amortization of premiums and
accretion of discounts. Amortization of premiums and accretion of discounts are
recorded to interest income over the contractual maturity or estimated life of
the individual investment on the level yield method. Gain or loss on sale of
investments is based upon the specific identification method and the gain or
loss is recorded in non-interest income. Income earned on the Corporation's
investments in securities of state and political subdivisions is not taxable.
LOANS AND ALLOWANCE FOR LOAN LOSSES
- - -----------------------------------
Loans are stated at the principal amount outstanding less unearned discount and
the allowance for loan losses. Unearned discount on installment loans is
recognized as income over the terms of the loans by a method approximating the
interest method. Interest income on all other loans is recognized based upon
the principal amounts outstanding, the simple interest method. Generally, loan
origination and commitment fees are recognized at the time of funding and are
considered adjustments to interest income. Related direct costs are not
separately allocated to loans but are charged to non-interest expense in the
period incurred. The net effect of not recognizing such fees and related costs
over the life of the related loan is not considered to be material to the
financial statements. The accrual of interest on a loan is discontinued when,
in the opinion of management, there is doubt about the ability of the borrower
to pay interest or principal. Interest previously earned, but uncollected on
such loans, is written off. After loans are placed on non-accrual all payments
received are applied to principal and no interest income is recorded until the
loan is returned to accrual status or the principal has been reduced to zero.
The Corporation has adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" ("SFAS 114"), as amended by
Statement of Financial Accounting Standards No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosure." Under SFAS 114,
the allowance for loan losses related to any loans that are identified for
evaluation in accordance with SFAS 114 (impaired loans) is based on discounted
cash flows using the loan's initial effective rate or the fair value of the
collateral for certain collateral dependent loans.
The allowance for loan losses is comprised of amounts charged against income in
the form of the provision for loan losses as determined by management.
Management's evaluation is based on a number of subjective factors, including
the Subsidiary Banks' loss experience in relation to outstanding loans and the
existing level of the allowance, prevailing and prospective economic conditions,
and management's continuing review of nonperformance loans and its evaluation of
the quality of the loan portfolio. Loan balances are charged against the
allowance for loan losses when management believes that the collectability of
the principal is unlikely.
The evaluation of the adequacy of loan collateral is often based upon estimates
and appraisals. Because of changing economic conditions, the valuations
determined from such estimates and appraisals may also change. Accordingly, the
Corporation may ultimately incur losses which vary from management's current
estimates. Adjustments to the allowance for loan losses will be reported in the
period such adjustments become known or are reasonably estimable.
PREMISES AND EQUIPMENT
- - ----------------------
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation expense is computed on the straight-line method
based upon the estimated useful lives of the assets. Maintenance and repairs
are charged to non-interest expense. Renewals and improvements are added to the
asset accounts and depreciated over the periods benefited.
OTHER REAL ESTATE
- - -----------------
Other real estate is foreclosed property held pending disposition and is valued
at the lower of its fair value or the recorded investment in the related loan.
At foreclosure, if the fair value, less estimated costs to sell, of the real
estate acquired is less than the Corporation's recorded investment in the
related loan, a writedown is recognized through a charge to the allowance for
loan losses. Any subsequent reduction in value is recognized by a charge to
income. Operating expenses of such properties, net of related income, and gains
and losses on disposition are included in non-interest expense.
FEDERAL INCOME TAXES
- - --------------------
The Corporation joins with its subsidiaries in filing a consolidated federal
income tax return. The subsidiaries pay a charge equivalent to their current
federal income tax to the Corporation based on the separate taxable income of
the subsidiaries.
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
-39-
<PAGE>
Standards No. 109, "Accounting for Income Taxes". Deferred taxes are
provided for the accumulated temporary differences due to basic differences for
assets and liabilities for financial reporting and income tax reporting.
Realization of net deferred tax assets is dependent on generating sufficient
future taxable income. Although realization is not assured, management believes
it is more likely than not that all of the net deferred tax assets will be
realized. The amount of the net deferred tax asset considered realizable,
however, could be reduced in the near term if estimates of future taxable income
are reduced.
CASH AND CASH EQUIVALENTS
- - -------------------------
For the purpose of presentation in the Statements of Cash Flows, cash and cash
equivalents are defined as those amounts included in the balance sheet caption
"Cash and Due from Banks".
RECLASSIFICATION
- - ----------------
Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform to the 1997 presentation.
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
- - -----------------------------------------------
Earnings per common and common equivalent share is calculated by dividing net
income by the weighted average number of common shares and common share
equivalents. Stock options are regarded as common share equivalents and are
therefore considered in earnings per share calculations, if dilutive. The
number of common share equivalents is determined using the treasury stock
method.
NOTE 2 - INVESTMENT SECURITIES
A summary of amortized cost and estimated fair values of investment securities
is as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 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 $ 19,983 $178 $ (15) $ 20,146
U.S. Government Agencies
and Corporations 16,238 24 (27) 16,235
U.S. Government Agency
Mortgage Backed Securities 7,788 46 (6) 7,828
Obligations of States and Political Subsidiaries 1,142 9 -0- 1,151
-------- ---- ----- --------
Total Held-to-Maturity Securities 45,151 257 (48) 45,360
-------- ---- ----- --------
Investment Securities - Available-for-Sale
U.S. Treasury Securities 50,481 397 (67) 50,811
U.S. Government Agencies
and Corporations 4,014 3 (6) 4,011
U.S. Government Agency
Mortgage Backed Securities 4,697 42 -0- 4,739
Federal Reserve Bank and Federal
Home Loan Bank Stock 915 -0- -0- 915
-------- ---- ----- --------
Total Available-for-Sale Securities 60,107 442 (73) 60,476
-------- ---- ----- --------
Total Investment Securities $105,258 $699 $(121) $105,836
======== ==== ===== ========
</TABLE>
In the above schedule, the amortized cost of Total Held-to-Maturity Securities
--------------
of $45,151,000 and the estimated fair value of Total Available-for-Sale
----------
Securities of $60,476,000 are reflected in Investment Securities on the
consolidated balance sheet as of December 31, 1997 for a total of $105,627,000.
A net unrealized gain of $369,000 is included in the Available-for-Sale
Investment Securities balance. The unrealized gain, net of tax, is included in
Shareholders' Equity.
-40-
<PAGE>
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Investment Securities - Held-to-Maturity
U.S. Treasury Securities $ 24,993 $184 $ (62) $ 25,115
U.S. Government Agencies
and Corporations 22,737 134 (41) 22,830
U.S. Government Agency
Mortgage Backed Securities 10,707 27 (50) 10,684
-------- ---- ----- --------
Total Held-to-Maturity Securities 58,437 345 (153) 58,629
-------- ---- ----- --------
Investment Securities - Available-for-Sale
U.S. Treasury Securities 52,440 352 (107) 52,685
U.S. Government Agencies
and Corporations 2,488 51 -0- 2,539
U.S. Government Agency
Mortgage Backed Securities 3,049 54 (5) 3,098
Federal Reserve Bank Stock 254 -0- -0- 254
-------- ---- ----- --------
Total Available-for-Sale Securities 58,231 457 (112) 58,576
-------- ---- ----- --------
Total Investment Securities $116,668 $802 $(265) $117,205
======== ==== ===== ========
</TABLE>
In the above schedule, the amortized cost of Total Held-to-Maturity Securities
--------------
of $58,437,000 and the estimated fair value of Total Available-for-Sale
----------
Securities of $58,576,000 are reflected in Investment Securities on the
consolidated balance sheet as of December 31, 1996 for a total of $117,013,000.
A net unrealized gain of $345,000 is included in the Available-for-Sale
Investment Securities balance. The unrealized gain, net of tax, is included in
Shareholders' Equity.
A summary of the amortized cost and estimated fair value of debt securities by
contractual maturity as of December 31, 1997, is shown below (in thousands).
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or repay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
December 31, 1997
----------------------------------------
Held-to-Maturity Available-for-Sale
------------------- -------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Due in One Year or Less $10,280 $10,294 $20,444 $20,477
Due after One Year
through Five Years 27,298 27,455 34,199 34,495
Due after Five Years
through Ten Years 1,018 1,010 -0- -0-
Due after Ten Years 6,555 6,601 5,464 5,504
------- ------- ------- -------
Total $45,151 $45,360 $60,107 $60,476
======= ======= ======= =======
</TABLE>
Included in the investment securities is $11,104,000 and $10,690,000 at December
31, 1997 and December 31, 1996, respectively, of mortgage-backed securities
having stated maturities after five years. The estimated maturities on these
securities are between two and twelve years as of December 31, 1997, based on
estimated prepayments of the underlying mortgages.
Investment securities with carrying values of $34,663,000 and $31,504,000 at
December 31, 1997 and 1996, respectively, were pledged to secure federal, state
and municipal deposits and for other purposes as required or permitted by law.
Also, the fair values of those pledged securities totaled $34,823,000 and
$31,560,000 at December 31, 1997 and 1996, respectively.
Proceeds from sales of investment securities were $4,506,000 during 1997,
$14,527,000 during 1996 and $2,969,000 during 1995. In 1997, gross losses from
sale of securities of $3,000 were realized, but were partially offset by gross
gains
-41-
<PAGE>
of $2,000. In 1996, gross losses from sale of securities of $27,000 was
realized, but were partially offset by gross gains of $13,000. In 1995, a loss
from sale of securities of $10,000 was realized. The total amount of proceeds
from securities sales have been from sales of securities included in the
Available-for-Sale category.
The Corporation or subsidiaries do not own any investment securities of any one
issuer (excluding U.S. Government or U.S. Government Agency Securities) of which
aggregate adjusted cost exceeds 10% of the consolidated shareholders' equity at
December 31, 1997 and 1996, respectively.
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES
The loan portfolio consists of various types of loans made principally to
borrowers located in Tarrant County, Texas. The book values of loans by major
type follow (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Commercial $127,800 $103,414
Real Estate Mortgage 90,638 76,771
Real Estate Construction 26,290 12,862
Loans to Individuals 32,003 27,674
Less: Unearned Discount (662) (715)
-------- --------
276,069 220,006
Allowance for Loan Losses (4,065) (2,972)
-------- --------
Loans, Net $272,004 $217,034
======== ========
</TABLE>
At December 31, 1997 and 1996, the recorded investment in loans that are
considered to be impaired under Statement of Financial Accounting Standards No.
114 was $1,652,000 and $447,000, respectively. These loans were on non-accrual
status. The related allowance for loan losses for these loans was $349,000 and
$195,000, respectively. The average recorded investment in impaired loans
during the year ended December 31, 1997 was approximately $504,000. For this
period the Corporation recognized no interest income on these impaired loans.
Loans on which accrued interest has been discontinued or reduced amounted to
approximately $2,112,000, $1,102,000 and $990,000 at December 31, 1997, 1996 and
1995, respectively. If interest on these loans had been recorded in accordance
with their original terms such income would have approximated $272,000 for 1997,
$111,000 for 1996 and $102,000 for 1995. Interest income on those loans
included in net income was $154,000 for 1997, $30,000 for 1996 and $42,000 for
1995.
Transactions in the allowance for loan losses are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance, Beginning of Year $2,972 $2,500 $2,410
Provision, Charged to Income 900 819 236
Loans Charged Off (246) (462) (347)
Recoveries of Loans Previously
Charged Off 439 115 201
------ ------ ------
Net Recoveries/(Charge-Offs) 193 (347) (146)
------ ------ ------
Balance, End of Year $4,065 $2,972 $2,500
====== ====== ======
</TABLE>
-42-
<PAGE>
NOTE 4 - PREMISES AND EQUIPMENT
The investment in premises and equipment stated at cost and net of accumulated
amortization and depreciation is as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Land $ 1,446 $ 1,446 $ 1,279
Buildings and Improvements 7,532 7,375 7,115
Furniture and Equipment 6,661 5,182 5,051
------- ------- -------
Total Cost 15,639 14,003 13,445
Less: Accumulated Depreciation and Amortization 7,723 6,898 6,288
------- ------- -------
Net Book Value $ 7,916 $ 7,105 $ 7,157
======= ======= =======
</TABLE>
Depreciation and amortization charged to expense amounted to $840,000, $762,000
and $652,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
At December 31, 1997, the Corporation and subsidiaries had certain noncancelable
operating leases which cover premises with future minimum annual rental payments
as follows (in thousands):
1998 $ 344
1999 392
2000 468
2001 483
2002 499
Thereafter 4,886
It is expected that in the normal course of business, leases that expire will be
renewed or replaced by leases on other property.
Rental income and rental expense of premises included in the consolidated
financial statements is computed as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Total Rental Income $ 365 $ 344 $ 318
Less: Rental Expense 272 245 240
----- ----- -----
Net Rental Income $ 93 $ 99 $ 78
===== ===== =====
</TABLE>
NOTE 5 - OTHER REAL ESTATE
The carrying value of other real estate was as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Other Real Estate $ 185 $ 201 $ 148
Valuation Reserve (34) (35) (35)
----- ----- -----
Net Other Real Estate $ 151 $ 166 $ 113
===== ===== =====
</TABLE>
-43-
<PAGE>
Transactions in the valuation reserve are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Balance, Beginning of Year $ 35 $ 35 $ 35
Provisions Charged to Income -0- -0- -0-
Reductions from Sales 1 -0- -0-
----- ----- -----
Balance, End of Year $ 34 $ 35 $ 35
===== ===== =====
</TABLE>
Direct writedowns of other real estate charged to income were: 1997 - $4,000,
1996 - $12,000 and 1995 - $12,000.
NOTE 6 - DEPOSITS AND RELATED EXPENSE
At December 31, 1997, 1996 and 1995, deposits and related interest expense for
the related years ended December 31, consisted of the following (in thousands):
<TABLE>
<CAPTION>
Deposits Interest Expense
------------------------------- --------------------------
1997 1996 1995 1997 1996 1995
--------- --------- --------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-Bearing
Demand Deposits $126,398 $103,695 $ 89,184
Interest-Bearing Deposits:
Interest-Bearing
Transaction Accounts 133,139 119,316 110,160 $ 4,599 $3,853 $3,532
Savings 54,107 49,048 36,870 2,135 1,871 937
Savings Certificates - Time 51,685 47,025 49,005 2,434 2,292 2,290
Certificates of Deposit
$100,000 or More 35,690 25,434 24,551 1,572 1,208 1,165
Other 705 505 339 33 19 12
-------- -------- -------- ------- ------ ------
Total 275,326 241,328 220,925 $10,773 $9,243 $7,936
-------- -------- -------- ======= ====== ======
Total Deposits $401,724 $345,023 $310,109
======== ======== ========
</TABLE>
The Corporation has no brokered deposits and there are no major concentrations
of deposits.
NOTE 7 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
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 (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Securities Sold Under Repurchase Agreements:
Average $11,668 $12,181 $ 6,580
Year-end 14,689 13,209 13, 528
Maximum Month-End Balance During Period 15,263 14,453 13,528
Interest Rate
Average 4.45% 4.33% 5.11%
Period-End 4.55 4.35 4.67
</TABLE>
-44-
<PAGE>
NOTE 8 - NOTES PAYABLE
The note payable at the Parent Company is an intercompany note and, therefore,
is reflected in the Parent Company financial statements but is eliminated in the
consolidated financial statements. The note balance at December 31, 1997 and
1996, was $859,000 and $951,000, respectively. This note matures December 15,
1999 and is secured by banking premises. The interest rate at December 31, 1997
was 8.50% and is fixed annually on the note's anniversary date.
The fair value of the note payable is it's carrying value since the note is a
variable rate loan and the note is adjusted annually in December of each year at
prime rate.
On July 15, 1997, the Corporation obtained lines of credit from a bank under
which the Corporation may borrow $9,000,000 at prime rate. The lines of credit
are secured by stock of one of the Subsidiary Banks and mature in July 1998,
whereupon, if balances are outstanding the lines convert to term notes having
five year terms. The Corporation will not pay a fee for any unused portion of
the lines. There have been no borrowings to date on these lines of credit.
NOTE 9 - OTHER NON-INTEREST EXPENSE
The significant components of other non-interest expense are presented below (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Business Development $ 588 $ 426 $ 443
Legal and Professional Fees 496 442 479
Printing and Supplies 373 303 289
Regulatory Fees and Assessments 160 134 411
Other 1,547 1,277 1,144
------ ------ ------
Total $3,164 $2,582 $2,766
====== ====== ======
</TABLE>
NOTE 10 - INCOME TAXES
The consolidated provision for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Federal Income Tax Expense
Current $3,911 $3,240 $2,400
Deferred (233) (137) 68
------ ------ ------
Total Federal Income Tax Expense $3,678 $3,103 $2,468
====== ====== ======
Effective Tax Rates 34.3% 34.3% 34.3%
====== ====== ======
</TABLE>
The reasons for the difference between income tax expense and the amount
computed by applying the statutory federal income tax rate to operating earnings
are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Federal Income Taxes at Statutory Rate of 34% $3,644 $3,076 $2,447
Effect of Tax Exempt Interest Income (12) (8) (19)
Nondeductible Expenses 47 39 32
Other (1) (4) 8
------ ------ ------
Income Taxes Per Income Statement $3,678 $3,103 $2,468
====== ====== ======
</TABLE>
-45-
<PAGE>
Federal income taxes included in the consolidated balance sheets were as follows
(in thousands):
December 31,
----------------
1997 1996
------ ------
Current Tax Asset (Liability) $ (7) $ 26
Deferred Tax Asset 672 449
------ ------
Total Included in Other Assets $ 665 $ 475
====== ======
Deferred income tax expense (benefit) results from differences between amounts
of assets and liabilities as measured for income tax return and financial
reporting purposes. The significant components of federal deferred tax assets
and liabilities are in the following table (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1996
------ ------ -------
<S> <C> <C> <C>
Federal Deferred Tax Assets:
Allowance for Loan Losses $ 831 $ 525 $ 365
Valuation Reserves - Other Real Estate 36 60 58
Interest on Non-accrual Loans 66 46 55
Deferred Compensation 359 260 170
Other 43 63 56
------ ----- -----
Gross Federal Deferred Tax Assets 1,335 954 704
------ ----- -----
Federal Deferred Tax Liabilities:
Depreciation and Amortization 228 217 214
Accretion 165 97 42
Unrealized Gains on Available-for-Sale
Securities 125 117 172
Other 145 74 41
------ ----- -----
Gross Federal Deferred Tax Liabilities 663 505 469
------ ----- -----
Net Deferred Tax Asset $ 672 $ 449 $ 235
====== ===== =====
</TABLE>
NOTE 11 - RELATED PARTY TRANSACTIONS
During 1997 and 1996 the Subsidiary Banks had transactions which were made in
the ordinary course of business with certain of their and the Corporation's
officers, directors and their affiliates. All loans included in such
transactions were made on substantially the same terms, including interest rate
and collateral, as those prevailing at the time for comparable transactions with
other persons and all loans are current as to principal and interest payments.
A summary of these transactions follows (in thousands):
<TABLE>
<CAPTION>
Balance Net
Beginning Net Amounts Balance at
of Year Additions Collected End of Year
--------- --------- ---------- -----------
<S> <C> <C> <C> <C>
For the Year ended December 31, 1997:
22 Directors and Officers $3,819 $1,011 $(1,387) $3,443
For the Year ended December 31, 1996:
23 Directors and Officers $3,769 $1,198 $(1,148) $3,819
</TABLE>
-46-
<PAGE>
NOTE 12 - STOCK OPTION PLAN
The Corporation has two Incentive Stock Option Plans, the 1993 Plan and the 1997
Plan, ("the Plans"). Each Plan has reserved 600,000 shares (adjusted for two-
for-one stock splits in 1993, 1995 and 1997) of common stock for grants
thereunder. The Plans provide for the granting to executive management and
other key employees of Summit Bancshares, Inc. and subsidiaries incentive stock
options, as defined under the current tax law. The options under the Plans will
be exercisable for ten years from the date of grant and generally vest ratably
over a five year period. Options will be and have been granted at prices which
will not be less than 100-110% of the fair market value of the underlying common
stock at the date of grant.
The following is a summary of transactions (adjusted for stock splits) for the
years presented:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1997 1996
------------------- ---------------------
Wtd. Avg. Wtd. Avg.
Shares Ex. Price Shares Ex. Price
-------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Outstanding, Beginning of Year 464,100 $ 4.57 602,800 $ 2.96
Granted 118,752 14.58 59,600 10.38
Exercised (35,260) 4.04 (196,300) 1.43
Canceled (4,480) 6.62 (2,000) 3.00
------- ---------
Outstanding, End of Year 543,112 $ 6.77 464,100 $ 4.57
======= =========
Exercisable at End of Year 375,510 4.60 323,700 $ 3.67
Weighted Average Fair Value of
Options Granted at Date of Issue $ 4.75 $3.35
</TABLE>
The options outstanding at December 31, 1997, have exercise prices between $3.00
and $18.69 with a weighted average exercise price of $6.77 and a weighted
average remaining contractual life of 7.2 years. Stock options have been
adjusted retroactively for the effects of stock dividends.
The Corporation accounts for this plan under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," under which no compensation
cost has been recognized for options granted. Had compensation cost for the
plan been determined consistent with Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation," the Corporation's net income
and earnings per share would have been reduced by insignificant amounts on a pro
forma basis for the years ended December 31, 1997 and 1996. The fair value of
the options granted in 1996 and 1997 were estimated as of the date of grant
using an accepted options pricing model with the following weighted-average
assumptions: risk-free interest rate of 6.1% and 6.6% respectively, expected
dividend yield of 3.0% and 2.4%, respectively, and expected life of 6.5 years
and expected volatility 29.2% and 30.3%, respectively.
NOTE 13 - 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 and standby letters of
credit. The instruments involve, to varying degrees, elements of credit risk in
excess of the amounts recognized in the financial statements.
The Corporation's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for loan commitments and standby letters
of credit is represented by the contractual amount of those instruments. The
Corporation uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
-47-
<PAGE>
The amounts of financial instruments with off-balance sheet risk are as follows
(in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
Contract Contract
Amount Amount
------------ ------------
<S> <C> <C>
Financial Instruments Whose Contract Amounts Represent Credit Risk:
Loan commitments including unfunded lines of credit $94,942 $79,231
Standby letters of credit 4,568 2,984
</TABLE>
Loan commitments are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee.
Since many of the loan commitments and letters of credit may expire without
being drawn upon, the total commitment amount does not necessarily represent
future cash requirements. Standby letters of credit are conditional commitments
by the Corporation to guarantee the performance of a customer to a third party.
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 counter party. Collateral held varies but may include certificates of
deposits, accounts receivable, inventory, property, plant and equipment, and
real property.
The Corporation originates real estate, commercial and consumer loans primarily
to customers in the Tarrant County area. Although the Corporation has a
diversified loan portfolio, a substantial portion of its customers' ability to
honor their contracts is dependent upon the local economy and the real estate
market.
The Corporation maintains funds on deposit at correspondent banks which at times
exceed the federally insured limits. Management of the Corporation monitors the
balance in the account and periodically assesses the financial condition of
correspondent banks.
NOTE 14 - EARNINGS PER SHARE
The following data shows the amounts used in computing earnings per share and
the weighted average number of shares of dilutive potential common stock. The
number of shares used in the calculations reflect a two-for-one stock split in
December 1997 (dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net income $ 7,040 $ 5,943 $ 4,729
========== ========== ==========
Weighted average number of common
shares used in Basic EPS 6,478,795 6,398,960 6,278,460
Effect of dilutive stock options 321,081 314,079 321,745
---------- ---------- ----------
Weighted number of common shares
and dilutive potential common
stock used in Diluted EPS 6,799,876 6,713,039 6,600,205
========== ========== ==========
</TABLE>
NOTE 15 - EMPLOYEE BENEFIT PLANS
PENSION PLAN
- - ------------
The Corporation has a defined benefit pension plan covering substantially all of
its employees. The benefits are based on years of service and the employee's
compensation history. The employee's compensation used in the benefit
calculation is the highest average for any five consecutive years of employment
within the employee's last ten years of employment.
-48-
<PAGE>
Funding for the plan is provided by employer contributions to trust funds in
amounts determined by actuarial assumption and valuation of the plan.
Contributions are intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the future.
The following table sets forth the plan's funded status and amounts recognized
in the Corporation's consolidated balance sheets at December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $22.40 in 1997 and $1,647 in 1996 $2,420 $1,762
====== ======
Projected benefit obligation for service rendered to date $3,035 $1,997
Plan assets at fair value, primarily listed stocks and U.S. bonds 2,883 2,192
------ ------
Plan assets in excess of projected benefit obligation (152) 195
Unrecognized net loss from past experience different from that
assumed and effects of changes in assumptions 396 21
Prior service cost not yet recognized in net periodic pension cost (12) 15
------ ------
Prepaid pension cost included in other assets $ 232 $ 231
====== ======
</TABLE>
Net pension expense included the following components (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Service cost for benefits earned during the period $ 227 $ 195 $ 154
Interest cost on projected benefit obligation 157 131 140
Less: Actual return on plan assets, net of expenses 196 (153) (260)
Net amortization and deferral 5 (2) 145
------ ------ ------
Net periodic pension expense $ 193 $ 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 in
1997 were 7 percent and 6 percent, respectively. The expected long-term rate of
return on plan assets was 7 percent.
During 1997 and 1996 the Corporation contributed $370,000 and $313,000 to the
plan, respectively.
401(k) PLAN
- - -----------
The Corporation implemented a 401(k) plan in December 1997 covering
substantially all employees. The Corporation did not match the employee's
contributions in 1997.
MANAGEMENT SECURITY PLAN
- - ------------------------
In 1992, the Corporation established a Management Security Plan to provide key
employees with retirement, death or disability benefits in addition to those
provided by the Pension Plan. The expense charged to operations in 1997, 1996
and 1995 for such future obligations was $276,000, $239,000, and $173,000,
respectively.
OTHER POST RETIREMENT BENEFITS
- - ------------------------------
The Corporation provides certain health care benefits for certain retired
employees who bear all costs of these benefits. These benefits are covered under
the "Consolidated Omnibus Budget Reconciliation Act" (COBRA).
COMPENSATED ABSENCES
- - --------------------
Employees of the Corporation are entitled to paid vacation, paid sick days and
other personal days off, depending on job classification, length of service, and
other factors. It is impracticable to estimate the amount of compensation for
future absences, and, accordingly, no liability has been recorded in the
accompanying financial statements. The Corporation's policy is to recognize the
costs of compensated absences when actually paid to employees.
-49-
<PAGE>
NOTE 16- DIVIDENDS FROM SUBSIDIARIES
The primary source of funds for the Parent Company is cash dividends received
from the Subsidiary Banks. The amount of dividends that the Subsidiary Banks
may pay in any one year, without approval of the Comptroller of the Currency, is
the sum of the retained net profits for the preceding two years plus its total
of the net profits for the current year. Under this formula, in 1998 the
Subsidiary Banks can legally initiate dividend payments of $8,959,000 plus an
additional amount equal to their net profits, as defined, for 1998 to the date
of any such dividend payment. The Subsidiary Banks are also restricted from
paying dividends that would cause the Bank to be under-capitalized.
Internal dividend policies limit dividends from Subsidiary Banks if their equity
capital levels fall below certain minimums determined by the respective Boards
of Directors.
NOTE 17 - LITIGATION
Certain of the Subsidiary Banks are involved in legal actions arising in the
ordinary course of business. It is the opinion of management, after reviewing
such actions with outside legal counsel, that the settlement of these matters
will not materially affect the Corporation's financial position.
NOTE 18 - STOCK SPLIT
In October 1997, the Board of Directors of the Corporation approved a two-for-
one stock split of the Corporation's common stock to be effected as a 100% stock
dividend and to be paid on December 9, 1997. All references in the accompanying
financial statements regarding stock options and per share data for prior
periods have been restated to reflect the stock split.
NOTE 19 - STOCK REPURCHASE PLAN
On April 15, 1997 the Board of Directors approved a stock repurchase plan. The
plan authorized management to purchase up to 323,564 shares of the Corporation's
common stock over the following twelve months through the open market or in
privately negotiated transactions in accordance with all applicable state and
federal laws and regulations. Subsequent to this approval no shares were
purchased.
Under similar programs approved by the Board in 1996, 1995 and 1994, 188,680
shares in the aggregate were purchased in those years.
NOTE 20 - REGULATORY CAPITAL COMPLIANCE
The Corporation and Subsidiary Banks are subject to regulatory risk-based
capital requirements that assign risk factors to all assets, including off-
balance sheet items such as loan commitments and standby letters of credit.
Capital is separated into two categories, Tier 1 and Tier 2, which combine for
total capital. At December 1997 and 1996, the Corporation's and Subsidiary
Bank's Tier 1 capital consists of their respective shareholders' equity and Tier
2 consists of the allowance for loans losses subject to certain limitations.
In conjunction with risk-based capital guidelines, the regulators have issued
capital leverage guidelines. The leverage ratio consists of Tier 1 capital as a
percent of total assets. The minimum leverage ratio for all banks is 3%, with a
higher minimum ratio dependent upon the condition of the individual bank. The
3% minimum was established to make certain that all banks have a minimum capital
level to support their assets, regardless of risk profile.
-50-
<PAGE>
The Corporation's regulatory capital position was as follows:
<TABLE>
<CAPTION>
Actual, Minimum Required,
December 31, December 31,
--------------------------- -----------------
1997 1996 1997
------------- ------------ -----------------
<S> <C> <C> <C>
Total Qualifying Capital to Risk-Based Assets 15.06% 15.85% 8.00%
Tier I Capital to Risk-Based Assets 13.81 14.61 4.00
Tier I Capital to Average Assets (Leverage) 8.83 8.82 3.00
</TABLE>
NOTE 21 - SUBSEQUENT EVENTS
On January 20, 1998, the Board of Directors of Summit Bancshares, Inc. approved
a quarterly dividend of $.06 per share to be paid on February 16, 1998 to
shareholders of record on February 2, 1998.
NOTE 22 - RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Statement Board ("FASB") has issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities." This statement provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities occurring after December 31, 1996. The
Corporation has adopted this pronouncement with no material impact on its
financial condition, results of operations or liquidity.
The FASB has issued Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," which is effective for financial statements issued after
December 15, 1997. The new standard eliminates primary and fully diluted
earnings per share and requires the presentation of basic and diluted earnings
per share together with disclosure of how the per share amounts were computed.
The effect of adopting the new standard resulted in the reporting of basic and
diluted earnings per share for the Corporation for 1997 and prior years.
The FASB has issued Statement of Financial Accounting Standards No. 129,
"Disclosure of Information about Capital Structure." This Statement establishes
standards for disclosing information about an entity's capital structure. This
Statement requires an entity to disclose in its financial statements the
pertinent rights and privileges of the various securities outstanding and the
number of shares upon conversion, exercise, or satisfaction of required
conditions during at least the most recent annual fiscal period and any
subsequent interim period presented. The provisions of this standard are
effective for periods ending after December 15, 1997. The Corporation has
adopted this pronouncement with no material impact on its financial condition,
results of operations or liquidity.
The FASB has issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," which is effective for fiscal years beginning
after December 15, 1997. The new standard requires an entity to report and
display comprehensive income and its components. Comprehensive income will
include net income plus new unrealized gain or loss on securities.
NOTE 23 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 ("SFAS 107"), "Disclosures
about Fair Value of Financial Instruments" requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on estimates
using present value tables or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. SFAS 107 excludes certain financial instruments
and all non-financial instruments from its disclosure requirements.
-51-
<PAGE>
The following methods and assumptions were used by the Corporation in estimating
its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the balance sheet
--------------------------
for cash and due from banks approximate those assets' fair values.
INVESTMENT SECURITIES (INCLUDING MORTGAGE-BACKED SECURITIES): Fair values for
-------------------------------------------------------------
investment securities are based on quoted market prices, where available. If
quoted market prices are not available, fair values are based on quoted market
prices of comparable instruments.
LOANS: For variable-rate loans, fair values are based on carrying values. The
------
fair values for fixed rate loans such as mortgage loans (e.g., one-to-four
family residential) and installment loans are estimated using discounted cash
flow analysis. The carrying amount of accrued interest receivable approximates
its fair value.
DEPOSIT LIABILITIES: The fair value disclosed for interest bearing and non-
--------------------
interest bearing demand deposits, passbook savings, and certain types of money
market accounts are, by definition, equal to the amount payable on demand at
the reporting date or their carrying amounts. Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time deposits.
SHORT-TERM BORROWINGS: The carrying value of borrowings under repurchase
----------------------
agreements approximate their fair values.
The estimated fair values of the Corporation's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1997 1996
------------------ ------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial Assets
Cash and due from banks $ 30,487 $ 30,487 $ 28,339 $ 28,339
Federal funds sold 35,760 35,760 20,350 20,350
Securities 105,627 105,836 117,013 117,205
Loans 276,069 276,663 220,006 220,632
Financial Liabilities
Deposits 401,724 401,957 345,023 345,231
Securities sold under repurchase
agreements 14,689 14,689 13,209 13,209
Off-balance Sheet Financial Instruments
Loan commitments 94,942 79,231
Letters of credit 4,568 2,984
</TABLE>
-52-
<PAGE>
NOTE 24 - CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
BALANCE SHEETS
December 31,
------------------
1997 1996
------- --------
ASSETS (In Thousands)
<S> <C> <C>
CASH IN SUBSIDIARY BANKS
Demand $ 1,110 $ 207
Time 811 949
INVESTMENTS IN SUBSIDIARIES
Bank Subsidiaries 36,989 32,463
Non-Bank Subsidiary 388 337
NOTE RECEIVABLE FROM SUBSIDIARY 500 -0-
PREMISES AND EQUIPMENT - NET 1,776 1,864
OTHER ASSETS 1,231 1,124
------- -------
TOTAL ASSETS $42,805 $36,944
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Notes Payable $ 859 $ 951
Other Liabilities 834 913
SHAREHOLDERS' EQUITY 41,112 35,080
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $42,805 $36,944
======= =======
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME Year Ended December 31,
---------------------------------
1997 1996 1995
------ ------ ------
(In Thousands)
<S> <C> <C> <C>
INCOME
Dividends from Subsidiaries $3,000 $ 2,000 $ 2,100
Interest 33 18 12
Other Income 322 417 399
------ ------- -------
TOTAL INCOME 3,355 2,435 2,511
------ ------- -------
EXPENSES
Interest 76 88 93
Salaries and Employee Benefits 845 795 715
Occupancy and Furniture-Net (44) 4 15
Other Expense 262 293 297
------ ------- -------
TOTAL EXPENSE 1,139 1,180 1,120
------ ------- -------
INCOME BEFORE INCOME TAX
BENEFIT AND EQUITY IN
UNDISTRIBUTED EARNINGS
OF SUBSIDIARIES 2,216 1,255 1,391
INCOME TAX BENEFIT 262 244 230
------ ------- -------
INCOME BEFORE EQUITY IN
UNDISTRIBUTED EARNINGS
OF SUBSIDIARIES 2,478 1,499 1,621
EQUITY IN UNDISTRIBUTED EARNINGS
OF SUBSIDIARIES 4,562 4,444 3,108
------ ------- -------
NET INCOME $7,040 $ 5,943 $ 4,729
====== ======= =======
</TABLE>
-53-
<PAGE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1997 1996 1995
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 7,040 $ 5,943 $ 4,729
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Depreciation and Amortization 134 140 124
Deferred Federal Income Taxes 71 77 40
Undistributed Earnings of Subsidiaries (4,562) (4,444) (3,108)
Increase in Other Assets (167) (403) (538)
Increase (Decrease) in Other Liabilities (150) 293 167
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,366 1,606 1,414
CASH FLOWS FROM INVESTING ACTIVITIES
Net Funding to Non-Bank Subsidiary (440) -0- (130)
Purchases of Premises and Equipment (46) (117) (49)
------- ------- -------
NET CASH USED BY INVESTING ACTIVITIES (486) (117) (179)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments on Notes Payable (92) (80) (325)
Payments of Cash Dividends (1,166) (898) (692)
Receipts from Stock Options Exercised 143 173 55
Purchase of Treasury Stock -0- (157) (508)
------- ------- -------
NET CASH USED BY FINANCING ACTIVITIES (1,115) (962) (1,470)
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 765 527 (235)
CASH AND CASH EQUIVALENTS - BEGINNING
OF YEAR 1,156 629 864
------- ------- -------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 1,921 $ 1,156 $ 629
======= ======= =======
</TABLE>
-54-
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no changes in accountants and no disagreements with accountants
on any matter of accounting principles or practices or financial statement
disclosures during the twenty-four (24) month period ended December 31, 1997.
-55-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information set forth under the caption "PROPOSAL NO. 1: ELECTION OF
DIRECTORS" on pages 3 through 8 of the Corporation's Proxy Statement dated
March 17, 1998, relating to the 1998 Annual Meeting of Shareholders of the
Corporation, the information set forth under the caption "STOCK OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" on page 11 of such Proxy Statement,
and the information set forth under the caption "EXECUTIVE OFFICERS OF THE
CORPORATION" on pages 11 through 13 of Part I of this report is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under the caption "EXECUTIVE COMPENSATION AND OTHER
INFORMATION" on pages 14 through 23 of the Corporation's Proxy Statement dated
March 17, 1998, relating to the 1998 Annual Meeting of Shareholders of the
Corporation, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information with respect to shareholders of the Corporation who are known to
be beneficial owners of more than five percent (5%) of the outstanding shares of
Common Stock of the Corporation set forth under the caption "STOCK OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" on page 13 of the Corporation's Proxy
Statement dated March 17, 1998, relating to the 1998 Annual Meeting of
Shareholders of the Corporation, is incorporated herein by reference. The
information relating to the beneficial ownership of the outstanding shares of
Common Stock of the Corporation by its directors and executive officers set
forth under the caption "STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT" on pages 11 through 13 of the Corporation's Proxy Statement dated
March 17, 1998, relating to the 1998 Annual Meeting of Shareholders of the
Corporation, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth under the caption "CERTAIN TRANSACTIONS" on page 26 of
the Corporation's Proxy Statement dated March 17, 1998, relating to the 1998
Annual Meeting of Shareholders of the Corporation, is incorporated herein by
reference.
-56-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) FINANCIAL STATEMENTS. The following financial statements are included
--------------------
in Part II, Item 8:
Independent Auditor's Report
Consolidated Balance Sheets of Summit Bancshares, Inc. and
Subsidiaries as of December 31, 1997 and 1996
Consolidated Statements of Income of Summit Bancshares, Inc. and
Subsidiaries for the Years Ended December 31, 1997, 1996 and 1995
Statements of Changes in Shareholders' Equity of Summit Bancshares,
Inc. and Subsidiaries for the Years Ended December 31, 1997, 1996 and
1995 (Consolidated and Parent Company Only)
Consolidated Statement of Cash Flows of Summit Bancshares, Inc. and
Subsidiaries for the Years Ended December 31, 1997, 1996 and 1995
Notes to Financial Statements
(2) FINANCIAL STATEMENT SCHEDULES. Financial statement schedules are
-----------------------------
omitted because of the absence of conditions under which they are
required or because the required information is given in the financial
statements or notes thereto.
(3) EXHIBITS. The following exhibits are filed as a part of this report:
--------
3(a) Articles of Incorporation of the Corporation (incorporated
herein by reference to Exhibit 3.1 to the Corporation's
Registration Statement No. 2-92405 filed November 7, 1984).*
3(b) Articles of Amendment to the Articles of Incorporation of the
Corporation filed with the Secretary of State of Texas on May 4,
1988 (incorporated herein by reference to Exhibit 3(b) to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1988).*
3(c) Articles of Amendment to the Articles of Incorporation of the
Corporation filed with the Secretary of State of Texas on April
25, 1990 (incorporated herein by reference to Exhibit 3(d) to
the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1992).*
3(d) Articles of Amendment to the Articles of Incorporation of the
Corporation filed with the Secretary of State of Texas on April
22, 1993 (incorporated herein by reference to Exhibit 3(e) to
the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1993).*
3(e) Articles of Amendment to the Articles of Incorporation of the
Corporation filed with the Secretary of State of Texas on April
20, 1995 (incorporated herein by reference to Exhibit 3.1 to the
Corporation's Quarterly Report on Form 10-Q for the three months
ended June 30, 1995).*
3(f) Amended and Restated Articles of Incorporation of the
Corporation as of April 20, 1995 (incorporated herein by
reference to Exhibit 3.2 to the Corporation's Quarterly Report
on Form 10-Q for the three months ended June 30, 1995).*
3(g) Amended and Restated Bylaws of the Corporation dated January 22,
1998.
-57-
<PAGE>
4(a) Summit Bancshares, Inc.'s Rights Agreement dated April 17, 1990
(incorporated herein by reference to Exhibit 1 to the
Corporation's Current Report on Form 8-K dated April 18, 1990
filed on April 24, 1990).*
10(a) Lease Agreement dated August 28, 1985 by and between Alta Mesa
National Bank, as lessor, and the Corporation, as lessee
(incorporated herein by reference to Exhibit 10(a) to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1985).*
10(b) Lease Agreement dated October 1, 1986 by and between the
Corporation, as lessor, and Alta Mesa National Bank, as lessee
(incorporated herein by reference to Exhibit 10(f) to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1986).*
10(c) Promissory Note dated December 21, 1989 in the original
principal amount of $1,400,000 exe cuted by Summit Bancshares,
Inc. and payable to the order of Summit National Bank
(incorporated herein by reference to Exhibit 10(s) to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1989).*
10(d) Lease Agreement dated February 14, 1992 by and between
Zell/Merrill Lynch Real Estate Oppor tunity Partners Limited
Partnership, as landlord, and Summit Bancshares, Inc., as tenant
(incorporated herein by reference to Exhibit 10(I) to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1992).*
10(e) First Amendment dated May 3, 1994 to Lease Agreement dated
February 14, 1992 by and between Zell/Merrill Lynch Real Estate
Opportunity Partners Limited Partnership, as landlord, and
Summit Bancshares, Inc., as tenant (incorporated herein by
reference to Exhibit 10(k) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1994).*
10(f) Management Security Plan of Summit Bancshares, Inc. effective
September 1, 1992; Management Security Plan Agreement between
Summit Bancshares, Inc. and F. S. Gunn; and Management Security
Plan Agreement between Summit Bancshares, Inc. and James L.
Murray (incorporated herein by reference to Exhibit 10(k) to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1992).*
10(g) Commercial-Industrial Lease Agreement dated January 1, 1993 by
and between Summit National Bank, as landlord, and Summit
Bancservices, Inc., as tenant (incorporated herein by reference
to Exhibit 10(m) to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1992).*
10(h) 1993 Incentive Stock Option Plan of Summit Bancshares, Inc.
(incorporated herein by reference to Exhibit 10(n) to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1993).*
10(i) Loan Agreement dated July 12, 1995, between the Corporation and
The Frost National Bank (incorporated herein by reference to
Exhibit 10 to the Corporation's Quarterly Report on Form 10-Q
for the three months ended June 30, 1995).*
10(j) Lease Agreement dated July 6, 1989 by and between Zell/Merrill
Lynch Real Estate Opportunity Partners Limited Partnership, as
landlord, and Summit National Bank as tenant (incorporated
herein by reference to Exhibit 10(r) to the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1995).*.
10(k) First Amendment dated July 15, 1996 to Loan Agreement dated July
12, 1995, between the Corporation and The Frost National Bank
(incorporated herein by reference to Exhibit 10(s) to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1997).*
-58-
<PAGE>
10(l) 1997 Incentive Stock Option Plan of Summit Bancshares, Inc.
(incorporated herein by reference to Annex I to the
Corporation's Proxy Statement for Annual Meeting of
Shareholders, dated March 17, 1997.**
10(m) Second Amendment dated July 15, 1997 to Loan Agreement dated
July 12, 1995, between the Corporation and The Frost National
Bank.**
10(n) Second Lease Amendment and Extension Agreement to the Lease
Agreement dated July 6, 1989, as amended by the Amendment of
Lease dated August 12, 1993, by and between EOP-Summit Limited
Partnership (as successor in interest to Zell/Merrill Lynch Real
Estate Opportunity Partners Limited Partnership), as landlord,
and Summit National Bank, as tenant.**
10(o) Agreement of Limited Partnership of IDI Summit, Ltd. dated
November 6, 1997, between Summit Community Bank, N.A. and
Innovative Developers, Inc.**
10(p) Lease Agreement dated November 6, 1997 between Summit Community
Bank, N.A., as tenant, and IDI - Summit, Ltd., as landlord.**
21 Subsidiaries of the Corporation.
23 Consent of Stovall, Grandey & Whatley, independent certified
public accountants.
27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K.
-------------------
The Corporation did not file during the last quarter covered by this
report any reports on Form 8-K.
- - -------------------------------------------
* A copy of this Exhibit is available to any shareholders, at the actual cost
of reproduction upon written request to the Corporation.
** File herewith.
-59-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SUMMIT BANCSHARES, INC.
DATE: March 25, 1998 By: /s/ Phillip E. Norwood
---------------------------------------
Philip E. Norwood, Chairman
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on this 25th day of March, 1998.
SIGNATURE TITLE
--------- -----
/s/ Philip E. Norwood Chairman of the Board
- - -------------------------------- (Principal Executive Officer)
Philip E. Norwood
/s/ Bob G. Scott Chief Operating Officer, Executive Vice
- - -------------------------------- President, Secretary and Treasurer
Bob G. Scott (principal financial officer and principal
acounting officer)
/s/ Jeffrey M. Harp President and Director
- - --------------------------------
Jeffrey M. Harp
/s/ Robert E. Bolen Director
- - --------------------------------
Robert E. Bolen
/s/ Elliott S. Garsek Director
- - --------------------------------
Elliott S. Garsek
/s/ Ronald J. Goldman Director
- - --------------------------------
Ronald J. Goldman
/s/ F.S. Gunn Director
- - --------------------------------
F.S. Gunn
/s/ Robert L. Herchert Director
- - --------------------------------
Robert L. Herchert
/s/ William W. Meadows Director
- - --------------------------------
William W. Meadows
-60-
<PAGE>
/s/ Edward P. Munson Director
- - --------------------------------
Edward P. Munson
/s/ James L. Murray Director
- - --------------------------------
James L. Murray
/s/ Byron B. Searcy Director
- - --------------------------------
Byron B. Searcy
Director
- - --------------------------------
Edgar Snelson
-61-
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE NO.
- - ------- --------
3(g) Amended and Restated Bylaws of the Corporation dated January 22,
1998.
10(l) 1997 Incentive Stock Option Plan of Summit Bancshares, Inc.
(incorporated herein by reference to Annex I to the Corporation's
Proxy Statement for Annual Meeting of Shareholders, dated March
17, 1997).
10(m) Second Amendment dated July 15, 1997 to Loan Agreement dated July
12, 1995, between the Corporation and The Frost National Bank.
10(n) Second Lease Amendment and Extension Agreement to the Lease
Agreement dated July 6, 1989, as amended by the Amendment of
Lease dated August 12, 1993, by and between EOP-Summit Limited
Partnership (as successor in interest to Zell/Merrill Lynch Real
Estate Opportunity Partners Limited Partnership), as landlord,
and Summit National Bank, as tenant.
10(o) Agreement of Limited Partnership of IDI Summit, Ltd. dated
November 6, 1997, between Summit Community Bank, N.A. and
Innovative Developers, Inc.
10(p) Lease Agreement dated November 6, 1997 between Summit Community
Bank, N.A., as tenant, and IDI - Summit, Ltd., as landlord.
21 Subsidiaries of the Corporation.
23 Consent of Stovall, Grandey & Whatley, independent certified
public accountants.
27 Financial Data Schedule.
<PAGE>
EXHIBIT 3(g)
BYLAWS OF SUMMIT BANCSHARES, INC.
CONTENTS
ARTICLE 1: Offices
-------
1.01 Registered Office and Agent
1.02 Other Offices
ARTICLE 2: Shareholders
------------
2.01 Place of Meetings
2.02 Annual Meeting
2.03 Voting List
2.04 Special Meetings
2.05 Notice
2.06 Quorum
2.07 Majority Vote; Withdrawal of Quorum
2.08 Method of Voting
2.09 Record Date; Closing Transfer Books
2.10 Order of Business at Meetings
ARTICLE 3: Directors
---------
3.01 Management
3.02 Number; Qualification; Election; Term
3.03 Election of Directors
3.04 Removal
3.05 Vacancies
3.06 Place of Meetings
3.07 First Meeting
3.08 Regular Meetings
3.09 Special Meetings
3.10 Quorum; Majority Vote
3.11 Compensation
3.12 Procedure
3.13 Interested Directors and Officers
3.14 Action Without Meeting
3.15 Committees of Directors
ARTICLE 4: Notice and Attendance Through Use of Electronic Equipment
---------------------------------------------------------
4.01 Method
4.02 Waiver
4.03 Telephone and Similar Meetings
i
<PAGE>
ARTICLE 5: Officers and Agents
-------------------
5.01 Number; Qualification; Election; Term
5.02 Removal
5.03 Vacancies
5.04 Authority
5.05 Compensation
5.06 Chairman of the Board
5.07 President
5.08 Vice President
5.09 Secretary
5.10 Assistant Secretary
5.11 Treasurer
5.12 Assistant Treasurer
ARTICLE 6: Certificates and Shareholders
-----------------------------
6.01 Certificates
6.02 Issuance
6.03 Payment for Shares
6.04 Subscriptions
6.05 Lien
6.06 Lost, Stolen or Destroyed Certificates
6.07 Registration of Transfer
6.08 Registered Shareholders
6.09 Preemptive Rights
ARTICLE 7: General Provisions
------------------
7.01 Dividends and Reserves
7.02 Books and Records
7.03 Report to Shareholders
7.04 Checks and Notes
7.05 Fiscal Year
7.06 Seal
7.07 Indemnification; Insurance
7.08 Resignation
7.09 Amendment to Bylaws
7.10 Construction
7.11 Relation to Articles of Incorporation
ii
<PAGE>
ARTICLE 1: Offices
-------
1.01 Registered Office and Agent. The registered office of the
---------------------------
corporation shall be at 1300 Summit Avenue, Fort Worth, Texas 76102. The name of
the registered agent at such address is Bob G. Scott. Anything in these Bylaws
to the contrary notwithstanding, revision of the registered office or the
registered agent of the corporation in accordance with the provisions of the
Texas Business Corporation Act shall automatically and without further action
amend this section to name such newly adopted registered office or registered
agent.
1.02 Other Offices. The corporation may have offices at other places
-------------
both within and without the state of Texas as the Board of Directors may
determine or as the business of the corporation may require.
ARTICLE 2: Shareholders
------------
2.01 Place of Meetings. All meetings of the shareholders shall be held at
-----------------
at such time and place, in or out of the state of Texas, as shall be stated in
the notice of the meeting or in a waiver of notice.
2.02 Annual Meeting. An annual meeting of the shareholders shall be held
--------------
each year at 4:00 o'clock p.m. on the third Tuesday of April of each year. If
such a day is a legal holiday, then the meeting shall be on the next business
day following. At the meeting, the shareholders shall elect directors and
transact such other business as may properly be brought before the meeting. In
the event the annual meetings is omitted by oversight or otherwise and not held
as provided herein, an annual meeting may be called in the manner provided for
special meetings herein at a subsequent date, and the business transacted at
such meeting shall be valid as if transacted at the annual meeting held during
the month of April.
2.03 Voting List. At least ten days before each meeting of shareholders,
-----------
a complete list of the shareholders entitled to vote at the meeting, arranged in
alphabetical order, with the address of each and the number of voting shares
held by each, shall be prepared by the officer or agent having charge of the
stock transfer books. The list, for a period of ten days prior to the meeting,
shall be kept on file at the registered office of the corporation and shall be
subject to inspection by any shareholder at any time during usual business
hours. The list shall also be produced and kept open at the time and place of
the meeting during the whole time thereof, and shall be subject to the
inspection of any shareholder during the whole time of the meeting.
2.04 Special Meetings. Special meetings of the shareholders, for any
----------------
purpose or purposes, unless otherwise prescribed by statue, the Articles of
Incorporation or these Bylaws, may be called by the President, the Board of
Directors or the holders of not less than one-tenth of all the shares entitled
to vote at the meetings. Business transacted at a special meeting shall be
confined to the purpose or purposes stated in the notice of the meeting.
1
<PAGE>
2.05 Notice. Written or printed notice stating the place, day and hour
------
of the meeting and, in the case of a special meeting, the purpose or purposes
for which the meeting is called, shall be delivered not less than ten nor more
than sixty days before the date of the meeting, either personally or by mail, by
or at the direction of the Chairman of the Board, the Secretary or the officer
or person calling the meeting, to each shareholder of record entitled to vote at
the meeting, except to the extent that notice is not required to be given to any
shareholder by law. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail addressed to the shareholder at his address
as it appears on the stock transfer books of the corporation, with postage
thereon prepaid.
2.06 Quorum. The holders of a majority of the shares issued and
------
outstanding and entitled to vote, present in person or represented by proxy,
shall be required and shall constitute a quorum at meetings of the shareholders
for the transaction of business, except as otherwise provided by statue, the
Articles of Incorporation or these Bylaws. If a quorum is not present or
represented at a meeting of the shareholders, the shareholders entitled to vote,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice (other than announcement at the
meeting of the time and place at which the meeting is to be reconvened) until a
quorum is present and represented. At such adjourned meeting at which a quorum
is present or represented, any business may be transacted which might have been
transacted at the meeting as originally noticed.
2.07 Majority Vote; Withdrawal of Quorum. When a quorum is present at any
-----------------------------------
meeting, the vote of the holders of a majority of the shares having voting
power, present in person or represented by proxy, shall decide any question
brought before such meeting. The shareholders present at a duly constituted
meeting may continue to transact business until adjournment, despite the
withdrawal of enough shareholders to leave less than a quorum.
2.08 Method of Voting. Each outstanding share shall be entitled to one
----------------
vote on each matter submitted to a vote at a meetings shareholders. At any
meeting of the shareholders, every shareholder having the right to vote may vote
either in person or by proxy executed in writing by the shareholder or by his
duly authorized attorney-in-fact. No proxy shall be valid after eleven months
from the date of its execution, unless otherwise provided in the proxy. Each
proxy shall be revocable unless expressly provided therein to be irrevocable and
unless otherwise made irrevocable by law. Each proxy shall be filed with the
Secretary of the corporation prior to or at the time of the meeting. Voting for
directors shall be in accordance with Bylaw 3.03 of these Bylaws. Any vote may
be taken by voice or by show of hands unless someone entitled to vote objects,
in which case written ballots shall be used.
2.09 Record Date; Closing Transfer Books. The Board of Directors may
-----------------------------------
fix in advance a record date for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders, the record date
to be not less than ten nor more than sixty days prior to the meeting, or the
Board of Directors may close the stock transfer books for such purpose for a
period of not less than ten nor more than sixty days prior to such meeting. In
the absence of any action by the Board of Directors, the date upon which the
notice of the meeting is mailed shall be the record date.
2
<PAGE>
Whenever action by shareholders is proposed to be taken by consent in writing
without a meeting of shareholders, the Board of Directors may fix a record date
for the purpose of determining shareholders entitled to consent to that action,
which record date shall not precede, and shall not be more than ten days after,
the date upon which the resolution fixing the record date is adopted by the
Board of Directors. If no record date has been fixed by the Board of Directors
and prior action of the Board of Directors is not required by law, the record
date for determining shareholders entitled to consent to action in writing
without a meeting shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation by delivery to its registered office, its principal place of
business, or an officer or agent of the corporation having custody of the books
in which proceedings of meetings of shareholders are recorded. If no record date
shall have been fixed by the Board of Directors and prior action of the Board of
Directors is required by law, the record date for determining shareholders
entitled to consent to action in writing without a meeting shall be at the close
of business on the date on which the Board of Directors adopts a resolution
taking such prior action.
2.10 Order of Business at Meetings. The order of business insofar as
-----------------------------
practicable or applicable at annual and other meetings of shareholders shall be
as follows:
(a) call to order;
(b) proof of due notice of meeting or waiver;
(c) determination of quorum and examination of proxies;
(d) announcement of availability of voting list (see Bylaw 2.03);
(e) reading and disposing of minutes of last meeting of shareholders;
(f) reports of officers and committees;
(g) appointment of voting inspectors;
(h) unfinished business;
(i) new business;
(j) nomination of directors;
(k) opening of polls for voting;
(l) recess;
(m) reconvening; closing of polls;
(n) report of voting inspectors;
(o) other business;
(p) adjournment.
The failure to follow this order of business at any meeting of shareholders
shall have no effect on the validity of such meeting.
3
<PAGE>
ARTICLE 3: Directors
---------
3.01 Management. The business and affairs of the corporation shall be
----------
managed by the Board of Directors who may exercise all such powers of the
corporation and do all such lawful acts and things as are not (by statue or the
Articles of Incorporation or these Bylaws) directed or required to be exercised
or done by shareholders.
3.02 Number; Qualification; Election; Term. The Board of Directors shall
-------------------------------------
consist of not more than twenty five (25) directors, the exact number of which
shall be determined from time to time as specified by resolution of the Board of
Directors; provided, that no director's term shall be shortened by reason of a
resolution reducing the number of directors; and further provided, that the
number of directors constituting the Board of Directors at the time of the
adoption of these Bylaws shall be thirteen (13) and shall remain at such number
unless and until changed by resolution of the Board of Directors. The directors
shall be elected at the annual meeting of shareholders, except as provided in
Bylaw 3.05. Directors need not be shareholders or residents of the state of
Texas.
3.03 Election of Directors. Directors shall be elected by plurality
---------------------
voting shall not be permitted.
3.04 Removal. Any director may be removed either with or without cause
-------
at any special or annual meeting of shareholders by the affirmative vote of a
majority in number of shares of the shareholders present in person or by proxy
at such meeting and entitled to vote for the election of such director if notice
of intention to act upon such matter shall have been given in the notice calling
such meeting.
3.05 Vacancies. Except as provided below, any vacancy occurring in the
---------
Board of Directors (by death, resignation, removal, increase in number of
directors or otherwise) may be filled by an affirmative vote of a majority of
the remaining directors though less than a quorum of the Board of Directors, or
may be filled (at the election of the Board of Directors) by an election at an
annual or special meeting of shareholders called for that purpose. If the
vacancy is caused by reason of an increase in the number of directors, the Board
of Directors may vote to fill not more than two such directorships during the
period between any two successive annual meetings of shareholders. A director
elected to fill a vacancy shall be elected for the unexpired term of his
predecessor in office, or until the next election of directors by shareholders
if the vacancy is caused by an increase in the number of directors.
3.06 Place of Meetings. Meetings of the Board of Directors, regular or
-----------------
special, may be held either within or without the state of Texas.
3.07 First Meeting. The first meeting of each newly elected Board of
-------------
Directors shall be held without further notice immediately following the annual
meeting of shareholders and at the same place, unless (by unanimous consent of
the directors then elected and serving) such time or place shall be changed.
4
<PAGE>
3.08 Regular Meetings. Regular meetings of the Board of Directors shall
----------------
be held quarterly without notice on the third Tuesday of each January, April,
July and October at 1300 Summit Avenue, Fort Worth, Texas 76113 or at such other
address as the Board of Directors may determine.
3.09 Special Meetings. Special meetings of the Board of Directors may be
----------------
called by the Chairman of the Board on one days' notice to each director, either
personally or by mail or by telegram. Special meetings shall be called by the
Chairman of the Board or Secretary in like manner and on like notice on the
written request of the President or on the written request of a majority of the
directors. Except as otherwise expressly provided by statue or the Articles of
Incorporation or these Bylaws, neither the business to be transacted at nor the
purpose of any special meeting need be specified in a notice or waiver of
notice.
3.10 Quorum; Majority Vote. At all meetings of the Board of Directors, a
---------------------
majority of the directors fixed in the manner provided in these Bylaws shall
constitute a quorum for the transaction of business. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors. If a quorum is not present at a meeting, a majority of
the directors present may adjourn the meeting from time to time, without notice
other than an announcement at the meeting, until a quorum is present. The vote
of a majority of the directors present at a meeting at which a quorum is in
attendance shall be the act of the Board of Directors, unless the vote of a
different number is required or permitted by the Articles of Incorporation or
these Bylaws. If a quorum is not present at any meeting of the Board of
Directors, the directors present may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum is
present.
3.11 Compensation. By resolution of the Board of Directors, the
------------
directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. Members of any committee of the
Board of Directors may, by resolution of the Board of Directors, be allowed like
compensation for attending committee meetings.
3.12 Procedure. The Board of Directors shall keep regular minutes of its
---------
proceedings. The minutes shall be placed in the minute book of the corporation.
3.13 Interested Directors and Officers.
---------------------------------
(a) No contract or transaction between the corporation and one or more
of its directors or officers, or between the corporation and any other
corporation, partnership, association or other organization in which one or more
of the directors or officers are directors or officers or have a financial
interest, shall be voidable solely for this reason, solely because the director
or officer is present at or participates in the meeting of the Board of
Directors or a committee thereof which authorizes the contract or transaction,
or solely because his or their votes are counted for such purposes, if:
5
<PAGE>
(1) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though the disinterested
directors are less than a quorum;
(2) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the shareholders; or
(3) The contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified by the Board of
Directors, a committee thereof or the shareholders.
(b) Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or a committee
thereof.
3.14 Action Without Meeting. Any action required or permitted to be
----------------------
taken at a meeting of the Board of Directors may be taken without a meeting if a
consent in writing setting forth the action so taken is signed by all members of
the Board of Directors. Such consent shall have the same force and effect as a
unanimous vote at a meeting and may be stated as such in any document or
instrument filed with the Secretary of State.
3.15 Committees of Directors. The Board of Directors by resolution
-----------------------
adoptrd by a majority of the whole Board, may designate from among its members
an executive committee and one or more other committees, each of which, to the
extent provided in such resolution, shall have and may exercise all of the
authority of the Board of Directors in the business and affairs of the
corporation, except where the action of the Board of Directors is required by
statute, and to the extent provided in such resolution shall also perform all
such duties and have such authority and powers as the Board of Directors may
from time to time designate. Vacancies in the membership of a committee shall be
filled by the Board of Directors at a regular or special meeting of the Board of
Directors. The executive committee shall keep regular minutes of its proceedings
and report the same to the Board when required. The designation of any such
committee and the delegation thereto of authority shall not operate to relieve
the Board of Directors, or any member thereof, of any responsibility imposed
upon it or him by law.
ARTICLE 4: Notice and Attendance Through Use of Electronic Equipment
---------------------------------------------------------
4.01 Method. Whenever by statue or the Articles of Incorporation or
------
these Bylaws notice is required to be given to any director, committee member or
shareholder, and no provision is made as to how the notice shall be given, it
shall not be construed to mean personal notice, but any such notice may be given
(i) in writing, by mail, postage prepaid, addressed to the director, committee
6
<PAGE>
member or shareholder at the address appearing on the books of the corporation,
or (ii) in any other method permitted by law. Any notice required or permitted
to be given by mail shall be deemed given at the time when the same is thus
deposited in the United States mail.
4.02 Waiver. Whenever by statute or the Articles of Incorporation or
------
these Bylaws notice is required to be given to any director, committee member or
shareholder, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether before or after the time stated in such notice,
shall be equivalent to the giving of such notice. Attendance of a director,
committee member or shareholder at a meeting shall constitute a waiver of notice
of such meeting, except where a director, committee member or shareholder
attends for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened.
4.03 Telephone and Similar Meetings. Directors, committee members and
------------------------------
shareholders may participate in and hold a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other. Participation in such a
meeting shall constitute presence in person at the meeting, except where a
person participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE 5: Officers and Agents
-------------------
5.01 Number; Qualification; Election; Term.
-------------------------------------
(a) The corporation shall have:
(1) a President and a Secretary and
(2) such other officers (including a Chairman of the Board, Vice
Presidents and a Treasurer) and assistant officers and agents as the Board
of Directors may deem necessary.
(b) No officer or agent need to be a shareholder, director or resident
of the state of Texas.
(c) Officers named in Bylaw 5.01(a)(1) shall be elected by the Board of
Directors on the expiration of an officer's term or whenever a vacancy exists.
Officers and agents named in Bylaw 5.01(a)(2) may be elected by the Board at any
meeting.
(d) Unless otherwise specified by the Board at the time of election or
appointment, or in any employment contract approved by the Board, each officer's
and agent's term shall end at the first meeting of directors after the next
annual meeting of shareholders. He shall serve until the end of his term or, if
earlier, his death, resignation or removal.
(e) Any two or more offices may be held by the same person.
7
<PAGE>
5.02 Removal. Any officer or agent elected or appointed by the Board of
-------
Directors may be removed by the Board of Directors whenever, in its judgment,
the best interests of the corporation will be served thereby. Such removal
shall be without prejudice to the contract rights, if any, of the person so
removed. Election or appointment of an officer or agent shall not of itself
create contract rights.
5.03 Vacancies. Any vacancy occurring in any office of the corporation
---------
(by death, resignation, removal or otherwise) may be filled by the Board of
Directors.
5.04 Authority. Officers and agents shall have such authority and
---------
perform such duties in the management of the corporation as are provided in
these Bylaws or as may be determined by resolution of the Board of Directors not
inconsistent with these Bylaws.
5.05 Compensation. The compensation of officers and agents shall be
------------
fixed from time to time by the Board of Directors.
5.06 Chairman of the Board. The Chairman of the Board, if any, shall
---------------------
preside over all Board of Directors' and shareholders' meetings. The Chairman
shall also perform such other authority and powers as the Board of Directors may
from time to time prescribe.
5.07 President. The President shall assist the Chairman of the Board in
---------
presiding over all Board of Directors' and shareholders' meetings. In the
absence of a Chairman of the Board, the President shall preside over all such
meetings. The President shall also perform such other duties and have such
other authority and powers as the Board of Directors may from time to time
prescribe.
5.08 Vice President. The Executive Vice President, if any, shall be the
--------------
chief operating officer of the Corporation and shall be treated as the Vice
President with most seniority. The Vice Presidents, if any, inclusive of the
Executive Vice President, in the order of their seniority unless otherwise
determined by the Board of Directors, shall, in the absence or disability of the
Chairman of the Board and President, preside over all Board of Directors' and
shareholders' meetings. The Vice President, inclusive of the Executive Vice
President, shall also perform all duties and have such other authority and
powers as the Board of Directors may from time to time prescribe.
5.09 Secretary.
---------
(a) The Secretary shall attend all meetings of the Board of Directors
and all meetings of the shareholders and record the minutes of all proceedings
in a book to be kept for that purpose.
8
<PAGE>
(b) The Secretary shall give, or cause to be given, notice of all
meetings of the shareholders and special meetings of the Board of Directors.
(c) The Secretary shall keep in safe custody the seal of the corporation
and, when authorized by the Board of Directors or the executive committee, affix
the same to any instrument requiring it.
(d) If no Treasurer or Assistant Treasurer is appointed, or in the event
of the absence or disability of the Treasurer and Assistant Treasurer, the
Secretary shall perform the duties, have the authority and exercise the powers
of the Treasurer.
(e) The Secretary shall be under the supervision of the Chairman of the
Board and shall also perform such other duties and have such other authority and
powers as the Board of Directors may from time to time prescribe.
5.10 Assistant Secretary. The Assistant Secretary, if any, shall, in
-------------------
the absence or the disability of the Secretary, perform the duties and have the
authority and exercise the powers of the Secretary. He shall also perform such
other duties and have such other powers as the Board of Directors may from time
to time prescribe.
5.11 Treasurer.
---------
(a) The Treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements of the corporation and shall deposit all monies and other valuable
effects in the name and to the credit of the corporation in such depositories as
may be designated by the Board of Directors.
(b) He shall disburse the funds of the corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and shall
render to the Chairman of the Board, President and directors, at the regular
meetings of the Board of Directors or whenever any of them may require it, an
account of all transactions as Treasurer and of the financial condition of the
corporation.
(c) If required by the Board of Directors, he shall give the corporation
a bond in such form, in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the corporation.
(d) He shall perform such other duties and have such other authority and
powers as the Board of Directors may from time to time prescribe or as the
President may from time to time delegate.
9
<PAGE>
5.12 Assistant Treasurer. The Assistant Treasurer, if any, shall, in the
-------------------
absence or disability of the Treasurer, perform the duties and have the
authority and exercise the powers of the Treasurer. He shall also perform such
other duties and have such other powers as the Board of Directors may from time
to time prescribe.
ARTICLE 6: Certificates and Shareholders
-----------------------------
6.01 Certificates. Certificates in the form determined by the Board of
------------
Directors shall be delivered representing all shares to which shareholders are
entitled. Certificates shall be consecutively numbered and shall be entered in
the books of the corporation or its agents as they are issued. Each certificate
shall state on its face the holder's name, the number and class of shares, the
par value of shares or a statement that such shares are without par value, and
such other matters as may be required by law. They shall be signed by the
Chairman of the Board, President, a Vice President, the Secretary, the Assistant
Secretary, or such other officer or officers as the Board of Directors shall
designate and may be sealed with the seal of the corporation or a facsimile
thereof. The signature of any such officer may be a facsimile. In case any
officer who has signed or whose facsimile signature has been placed upon such
certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer at the date of its issuance.
6.02 Issuance. Shares (both treasury and authorized but unissued) may be
--------
issued for such consideration (not less than par value) and to such persons as
the Board of Directors may determine from time to time. Shares may not be
issued until the full amount of the consideration, fixed as provided by law, has
been paid.
6.03 Payment for Shares.
------------------
(a) Kind. The consideration for the issuance of shares shall consist of
----
money paid, labor done (including services actually performed for the
corporation) or property (tangible or intangible) actually received. Neither
promissory notes nor the promise of future services shall constitute payment for
shares.
(b) Valuation. In the absence of fraud in the transaction, the judgment
---------
of the Board of Directors as to the value of consideration received shall be
conclusive.
(c) Effect. When consideration, fixed as provided by law, has been paid,
------
the shares shall be deemed to have been issued and shall be considered fully
paid and nonassessable.
(d) Allocation of Consideration. The consideration received for shares
---------------------------
shall be allocated by the Board of Directors in accordance with law, between
stated capital and capital surplus accounts.
10
<PAGE>
6.04 Subscriptions. Unless otherwise provided in the subscription
-------------
agreement, subscriptions for shares, whether made before or after organization
of the corporation, shall be paid in full at such time or in such installments
and at such times as shall be determined by the Board of Directors. Any call
made by the Board of Directors for payment on subscriptions shall be uniform as
to all shares of the same series. In case of default in the payment on any
installment or call when payment is due, the corporation may proceed to collect
the amount due in the same manner as any debt due to the corporation.
6.05 Lien. For any indebtedness of a shareholder to the corporation, the
----
corporation shall have a first and prior lien on all shares of its stock owned
by him and on all dividends or other distributions declared thereon.
6.06 Lost, Stolen or Destroyed Certificates.
--------------------------------------
(a) Issuance of New Certificates. The corporation shall issue a new
----------------------------
certificate in place of any certificate for shares previously issued if the
registered owner of the certificate:
(1) Claim. Makes proof in affidavit form that it has been lost,
-----
destroyed or wrongfully taken;
(2) Timely Request. Requests the issuance of a new certificate
--------------
before the corporation has notice that the certificate has been acquired
by a purchaser for value in good faith and without notice of an adverse
claim;
(3) Bond. Gives a bond in such form, and with such surety or
----
sureties, with fixed or open penalty, as the corporation may direct, to
indemnify the corporation (and its transfer agent and registrar, if any)
against any claim that may be made on account of the alleged loss,
destruction or theft of the certificate; and
(4) Other Requirements. Satisfies any other reasonable
------------------
requirements imposed by the corporation.
(b) Effect of Failure to Notify Corporation. When a certificate has
---------------------------------------
been lost, apparently destroyed or wrongfully taken, and the holder of record
fails to notify the corporation within a reasonable time after he has notice of
it, and the corporation registers a transfer of the shares represented by the
certificate before receiving such notification, the holder of record is
precluded from making any claim against the corporation for the transfer or for
a new certificate.
6.07 Registration of Transfer. The corporation shall register the
------------------------
transfer of a certificate for shares presented to it for transfer if:
(a) Endorsement. The certificate is properly endorsed by the
-----------
registered owner or by his duly authorized attorney;
11
<PAGE>
(b) Guarantee and Effectiveness of Signature. The signature of such
----------------------------------------
person has been guaranteed by a national banking association or member of the
New York Stock Exchange or Midwest Stock Exchange, and reasonable assurance is
given that such endorsements are effective.
(c) Adverse Claims. The corporation has no notice of an adverse
--------------
claim or has discharged any duty to inquire into such a claim; and
(d) Collection of Taxes. Any applicable law relating to the collection
-------------------
of taxes has been complied with.
6.08 Registered Shareholders. The corporation shall be entitled to treat
-----------------------
the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it has express or other notice thereof, except as otherwise
provided by law.
6.09 Preemptive Rights. No shareholder or other person shall have any
-----------------
preemptive rights whatsoever.
ARTICLE 7: General Provisions
------------------
7.01 Dividends and Reserves.
----------------------
(a) Declaration and Payment. Subject to statute and the Articles of
-----------------------
Incorporation, dividends may be declared by the Board of Directors at any
regular or special meeting and may be paid in cash, in property or in shares of
the corporation. The declaration and payment shall be at the discretion of the
Board of Directors.
(b) Record Date. The Board of Directors may fix in advance a record date
-----------
for the purpose of determining shareholders entitled to receive payment of any
dividend, the record date to be not more than sixty days prior to the payment
date of such dividend, or the Board of Directors may close the stock transfer
books for such purpose for a period of not more than sixty days prior to the
payment date of such dividend. In the absence of any action of the Board of
Directors, the date upon which the Board of Directors adopts the resolution
declaring the dividend shall be the record date.
(c) Reserves. By resolution the Board of Directors may create such
--------
reserve or reserves out of the earned surplus of the corporation as the
directors from time to time, in their discretion, think proper to provide for
contingencies, or to equalize dividends, or to repair or maintain any property
of the corporation, or for any other purpose they think beneficial to the
corporation. The directors may modify or abolish any such reserve in the manner
in which it was created.
12
<PAGE>
7.02 Books and Records. The corporation shall keep correct and complete
-----------------
books and records of account and shall keep minutes of the proceedings of its
shareholders and Board of Directors, and shall keep at its registered office or
principal place of business or at the office of its transfer agent or registrar,
a record of its shareholders, giving the names and addresses of all shareholders
and the number and class of the shares held by each.
7.03 Report to Shareholders. Upon the written request of any shareholder,
----------------------
the corporation shall mail within ninety days of such request to such
shareholder its annual statements for its last fiscal year showing in reasonable
detail its assets and liabilities and results of its operations and the most
recent interim statements, if any, which have been filed in a public record or
otherwise published.
7.04 Checks and Notes. All checks or demands for money and notes of the
----------------
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
7.05 Fiscal Year. The fiscal year of the corporation shall be fixed by
-----------
resolution of the Board of Directors.
7.06 Seal. The Board of Directors may provide a suitable corporate seal
----
(of which there may be one or more) which shall contain the name of the
corporation and the name of the state of Texas. The seal may be used by
impressing it or reproducing a facsimile of it or otherwise.
7.07 Indemnification; Insurance. The corporation shall indemnify to the
--------------------------
full extent permitted by law any person who is made a named defendant or
respondent in any action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative, or in any appeal in such an
action, suit or proceeding, by reason of the fact that he or she is or was a
director, advisory director or officer of the corporation, against all expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such director, advisory director or officer
in connection with any such action, suit or proceeding. The corporation shall
pay or reimburse expenses to directors, advisory directors and officers, and may
pay or reimburse expenses to other persons, as permitted by law. The
corporation may purchase and maintain insurance, create a trust fund, establish
any form of self-insurance, secure its indemnity obligation by grant of a
security interest or other lien on the assets of the corporation, establish a
letter of credit, guaranty or surety arrangement, or other arrangement on behalf
of directors, advisory directors, officers or other persons, against any
lability asserted against such persons in their capacities as directors,
advisory directors, officers or otherwise, of the corporation, whether or not
the corporation would have the power to indemnify such directors, advisory
directors, officers or other persons against such liability, as permitted by
law.
7.08 Resignation. Any director, officer or agent may resign by giving
-----------
written notice to the President or the Secretary. The resignation shall take
effect at the time specified therein or immediately if no time is specified
therein. Unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
13
<PAGE>
7.09 Amendment of Bylaws. These Bylaws may be altered, amended or
-------------------
repealed, or new bylaws may be adopted (subject to the shareholders repealing or
changing the action of the Board of Directors, or making new bylaws, at an
annual or special meeting called and held as provided in these Bylaws) at any
meeting of the Board of Directors at which a quorum is present, by the
affirmative vote of a majority of the directors present at such meeting,
provided notice of the proposed alteration, amendment or repeal is contained in
the notice of such meeting.
7.10 Construction. Whenever the context so requires, the masculine shall
------------
include the feminine and neuter, and the similar shall include the plural, and
conversely. If any portion of these Bylaws shall be invalid or inoperative,
then, so far as it is reasonable and possible, the remainder of these Bylaws
shall be considered valid and operative, and effect shall be given to the intent
manifested by the portion held invalid or inoperative. The table of contents
and headings used in these Bylaws have been inserted for convenience only and do
not constitute matter to be construed in interpretation.
7.11 Relation to Articles of Incorporation. These Bylaws are subject to,
-------------------------------------
and governed by, the Articles of Incorporation.
* * * * * * * * * * * * * * * * * * * * *
Subject to the amendments to the Bylaws of the Corporation as set forth
above, the Bylaws of the Corporation, as now amended, shall be and remain in
full force and effect.
I hereby certify that the foregoing Bylaws are the true and correct Bylaws
of the corporation as adopted on the 22nd day of January, 1998.
---- ------- --
[Signature Illegible]
---------------------------------
----------------------, Secretary
14
<PAGE>
EXHIBIT 10(m)
SECOND AMENDMENT TO LOAN AGREEMENT
----------------------------------
THIS SECOND AMENDMENT ("Second Amendment") dated as of the 15th day of
July, 1997, to the Loan Agreement (the "Loan Agreement"), made and entered into
as of July 12, 1995, by and among SUMMIT BANCSHARES, INC., a Texas corporation,
(hereinafter called "Borrower') and THE FROST NATIONAL BANK, a national banking
association (hereinafter called "Lender"). All capitalized terms not otherwise
defined herein shall have the meaning ascribed to each of them in the Loan
Agreement.
W I T N E S S E T H:
WHEREAS, Borrower executed the Loan Agreement to govern those two certain
promissory notes from Lender, specifically, a $8,000,000.00 Acquisition Note and
a $1,000,000.00 Liquidity Note (collectively, the "Notes").
WHEREAS, Borrower executed the First Amendment to Loan Agreement on July 15,
1996 which renewed and extended the maturity date of the Notes; and
WHEREAS, the Borrower desires to again renew and extend the unpaid principal
balance of the Notes; and
WHEREAS, the Lender agrees to renew and extend the Notes all as hereinafter
provided.
NOW, THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Borrower and Lender do hereby agree as follows:
ARTICLE I
---------
AMENDMENT TO LOAN AGREEMENT
---------------------------
1.1 Amendment to Notes. As of the effective date hereof, the Borrower has
------------------
zero outstanding under the Acquisition Note and the Liquidity Note. The
Borrower desires to renew these credit facilities by the execution of another
Acquisition Note and Liquidity Note extending the original payment terms and the
maturity date by one year. Accordingly, Sections 2.02(a) and (b) of the Loan
Agreement shall be, and are hereby, amended to read in their entirety as
follows:
(a) Acquisition Note. From Closing Date and continuing at all times
----------------
through July 15, 1998 (the "Revolving Credit Period") the Loan evidenced
by the Acquisition Note shall be a revolving credit facility which will
allow the Borrower to request such amounts as Borrower may elect from time
to time (each such amount being herein called an "Advance") so long as the
aggregate amount of Advances outstanding at any time under the Acquisition
Note does not exceed Eight Million and No/100 Dollars ($8,000,000.00)
provided however, the minimum Advance must be at least $500,000.00. The
Borrower shall have the right to borrow, repay, and borrow again under the
credit facility. The outstanding principal balance of the Acquisition Note
on July 15, 1998 shall convert to a term facility (the "Term Period")
SECOND AMENDMENT TO LOAN AGREEMENT -- PAGE 1
- - ----------------------------------
<PAGE>
and shall be payable in 20 equal quarterly installments of principal plus
all accrued and unpaid interest, with all unpaid principal plus all accrued
and unpaid interest being due and payable on July 15, 2003. Principal and
interest of the Acquisition Note shall be due and payable as provided in
the Acquisition Note.
(b) Liquidity Note. The Liquidity Note shall be due and payable as
--------------
follows: during the Revolving Credit Period the Loan evidenced by the
Liquidity Note shall be a revolving credit facility which will allow the
Borrower to request such amounts as Borrower may elect from time to time
(each such amount being herein called an "Advance") so long as the
aggregate amount of Advances outstanding at any time under the Liquidity
Note does not exceed One Million and No/100 Dollars ($1,000,000.00)
provided however, the minimum Advance must be at least $50,000.00. The
Borrower shall have the right to borrow, repay, and borrow again under the
credit facility. The outstanding principal balance of the Liquidity Note
on July 15, 1998 shall convert to a term facility (the "Term Period") and
shall be payable in 20 equal quarterly installments of principal plus all
accrued and unpaid interest, with all unpaid principal plus all accrued and
unpaid interest being due and payable on July 15, 2003. Principal and
interest of the Liquidity Note shall be due and payable as provided in the
Liquidity Note.
1.2 Amendment to Negative Covenants. The Borrower and Lender agree to
-------------------------------
amend, and do hereby amend, Sections 5.04, 5.06 and 5.10 of the Negative
Covenants in the Loan Agreement such that after the amendment such Sections
shall read in their entirety as follows:
"5.04 Tangible Net Worth. The Borrower shall not permit its
------------------
consolidated Tangible Net Worth to at any time be less than Thirty
Million and No/100 Dollars ($30,000,000.00) plus the Tangible Net Worth of
any subsidiaries acquired after Closing Date. The Borrower shall not
permit the Bank's Tangible Net Worth at any time to be less than Twelve
Million Five Hundred Thousand and No/100 Dollars ($12,500,000.00)."
"5.06 Dividends. Borrower shall not declare or pay any dividends,
---------
make any payment on account of any class of the capital stock of Borrower
now or hereafter outstanding, or make any distribution of cash or property
to holders of any shares of such stock which exceed $2,000,000.00 in the
aggregate during any fiscal year, provided however, without Lender's prior
written consent, Borrower will not declare any dividend so long as Borrower
is in default in payment of the Obligations. Payment by Borrower for
shares purchased under a stock repurchase plan by which Borrower purchases
its own shares on the open market will not be considered a distribution to
shareholders."
"5.10 Limitation on Debt. Borrower shall not, nor allow any
------------------
Subsidiary to, create, incur, assume, become liable in any manner in
respect of, or suffer to exist, any debt for borrowed money except:
(a) debt, excluding debt created under this Agreement, not in excess of
$1,000,000.00 at any one time outstanding;
SECOND AMENDMENT TO LOAN AGREEMENT -- PAGE 2
- - ----------------------------------
<PAGE>
(b) debt created under this Agreement;
(c) debt secured by a purchase money security interest; and
(d) $6,000,000.00 of federal funds purchased excluding intercompany
transactions (meaning transaction between or among Borrower and its
Subsidiaries, or any of them)."
ARTICLE 11
----------
CONDITIONS OF EFFECTIVENESS
---------------------------
2.1 Effective Date. This Second Amendment shall become effective as of
--------------
July 15, 1997, when, and only when, Lender shall have received counterparts of
this Second Amendment executed and delivered by Borrower and when each of the
following conditions shall have been met, all in form, substance, and date
satisfactory to Lender:
(a) Renewal Notes. Borrower shall have executed and delivered to
-------------
Lender a new Acquisition Note and Liquidity Note, payable to the order of
Lender as set forth therein, duly executed on behalf of the Borrower, dated
effective July 15, 1997 in the principal amounts of $8,000,000.00 and
$1,000,000.00, respectively.
(b) Additional Loan Documents. Borrower shall have executed and
-------------------------
delivered to Lender such other documents as shall have been requested by
Lender to renew, and extend, the Loan Documents to secure payment of the
Obligations of Borrower, all in form satisfactory to Lender and its
counsel.
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES
------------------------------
3.1 Representations and Warranties. ln order to induce Lender to enter
------------------------------
into this Second Amendment, Borrower represents and warrants the following:
(a) Borrower has the corporate power to execute and deliver this
Second Amendment, the Notes, and other Loan Documents and to perform all of
its obligations in connection herewith and therewith.
(b) The execution and delivery by Borrower of this Second Amendment,
the Notes, and other Loan Documents and the performance of its obligations
in connection herewith and therewith: (i) have been duly authorized or will
be duly ratified and affirmed by all requisite corporate action; (ii) will
not violate any provision of law, any order of any court or agency of
government or the Articles of Incorporation or Bylaws of such entity; (iii)
will not be in conflict with, result in a breach of or constitute (alone or
with due notice or lapse of time or both) a default under any indenture,
agreement or other instrument; and (iv) will not require any registration
with, consent or approval of or other action by any federal, state,
provincial or other governmental authority or regulatory body.
SECOND AMENDMENT TO LOAN AGREEMENT -- PAGE 3
- - ----------------------------------
<PAGE>
(c) There is no action, suit or proceeding at law or in equity or by
or before any governmental instrumentality or other agency or regulatory
authority now pending or, to the knowledge of Borrower, threatened against
or affecting Borrower or any properties or rights of Borrower or involving
this Second Amendment or the transactions contemplated hereby which, if
adversely determined, would materially impair the right of Borrower, to
carry on business substantially as now conducted or materially and
adversely affect the financial condition of Borrower or materially and
adversely affect the ability of Borrower to consummate the transactions
contemplated by this Second Amendment.
(d) The representations and warranties of Borrower contained in the
Loan Agreement, this Second Amendment, the Notes, and any other Loan
Document securing Borrowers Obligations and indebtedness to Lender are
correct and accurate on and as of the date hereof as though made on and as
of the date hereof, except to the extent that the facts upon which such
representations are based have been changed by the transactions herein
contemplated.
ARTICLE IV
----------
RATIFICATION OF OBLIGATIONS AND LIENS
-------------------------------------
4.1 Ratification of Obligation. The Borrower does here acknowledge,
--------------------------
ratify and confirm that it is obligated and indebted to Lender as evidenced by
the Loan Agreement (as amended by this Second Amendment), the Notes and all
other Loan Documents.
4.2 Valid Liens. Borrower hereby acknowledges and agrees that the liens
-----------
and security interests of the Loan Documents are valid and subsisting liens and
security interests and are superior to all liens and security interests other
than those exceptions approved by Lender in writing. Nothing herein contained
shall affect or impair the validity or priority of the liens and security
interests under the Loan Documents.
4.3 Ratification of Agreements. The Loan Agreement, this Second
--------------------------
Amendment, the Notes, and each other Loan Document, as hereby amended, is
acknowledged, ratified and confirmed in all respects as being valid, existing,
and of full force and effect. Any reference to the Loan Agreement in any Loan
Document shall be deemed to be a reference to the Loan Agreement as amended by
this Second Amendment. The execution, delivery and effectiveness of this Second
Amendment shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of Lender under the Loan Agreement, nor constitute a
waiver of any provision of the Loan Agreement. The Borrower acknowledges,
ratifies and confirms that the collateral securing the Loan secures all of the
indebtedness of the Borrower, including without limitation, the Notes.
ARTICLE V
---------
MISCELLANEOUS
-------------
5.1 Survival of Agreements. All representations, warranties, covenants
----------------------
and agreements of Borrower, herein or in any other Loan Document shall survive
the execution and delivery of this Second Amendment, and the other Loan
Documents and the performance hereof and thereof,
SECOND AMENDMENT TO LOAN AGREEMENT -- PAGE 4
- - ----------------------------------
<PAGE>
including without limitation the making or granting of the Loan and the delivery
of the Notes and all other Loan Documents, and shall further survive until all
of Borrower's Obligations to Lender are paid in full. All statements and
agreements contained in any certificate or instrument delivered by Borrower
hereunder or under the Loan Documents to Lender shall be deemed to constitute
the respective representations and warranties by Borrower and/or respective
agreements and covenants of Borrower under this Second Amendment and under the
Loan Agreement.
5.2 Loan Document. This Second Amendment, the Notes, and each other Loan
-------------
Documents executed in connection herewith are each a Loan Document and all
provisions in the Loan Agreement, as amended, pertaining to Loan Documents apply
hereto and thereto.
5.3 Governing Law. This Second Amendment shall be governed by and
-------------
construed in all respects in accordance with the laws of the State of Texas and
any applicable laws of the United States of America, including construction,
validity and performance.
5.4 Counterparts. This Second Amendment may be separately executed in any
------------
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to constitute one and the same
Second Amendment.
5.5 Release of Claims. Borrower by its execution of this Second
-----------------
Amendment, hereby declares that it has no set-offs, counterclaims, defenses or
other causes of action against Lender arising out of the Loan, the renewal,
modification and extension of the Loan, any documents mentioned herein or
otherwise; and, to the extent any such setoffs, counterclaims, defenses or other
causes of action which may exist, whether known or unknown, such items are
hereby expressly waived and released by Borrower.
5.6 Attorneys' Fees. Borrower hereby agrees to pay to Lender, upon
---------------
demand, the reasonable attorneys' fees and expenses of Lender's counsel, filing
and recording fees and other reasonable expenses incurred by Lender in
connection with this Second Amendment. Borrower also agrees to provide to
Lender such other documents and instruments as Lender may reasonably request in
connection with the renewal, extension and modification of the Loans mentioned
herein.
5.7 ENTIRE AGREEMENT. THIS SECOND AMENDMENT, TOGETHER WITH ANY LOAN
----------------
DOCUMENTS EXECUTED IN CONNECTION HEREWITH, CONTAINS THE ENTIRE AGREEMENT BETWEEN
THE PARTIES HERETO RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND ALL
PRIOR AGREEMENTS RELATIVE THERETO WHICH ARE NOT CONTAINED HEREIN OR THEREIN ARE
TERMINATED. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. THIS
SECOND AMENDMENT, AND THE LOAN DOCUMENTS MAY BE AMENDED, REVISED, WAIVED,
DISCHARGED, RELEASED OR TERMINATED ONLY BY A WRITTEN INSTRUMENT OR INSTRUMENTS,
EXECUTED BY THE PARTY AGAINST WHICH ENFORCEMENT OF THE AMENDMENT, REVISION,
WAIVER, DISCHARGE, RELEASE OR TERMINATION IS ASSERTED. ANY ALLEGED AMENDMENT,
REVISION, WAIVER, DISCHARGE, RELEASE OR TERMINATION WHICH IS NOT SO DOCUMENTED
SHALL NOT BE EFFECTIVE AS TO ANY PARTY.
SECOND AMENDMENT TO LOAN AGREEMENT -- PAGE 5
- - ----------------------------------
<PAGE>
IN WITNESS WHEREOF, this Second Amendment is executed effective as of the
date first written above.
BORROWER: SUMMIT BANCSHARES, INC.
By: /s/ Philip E. Norwood
-----------------------------------------------
Its: President
----------------------------------------------
By: /s/ Bob G. Scott
-----------------------------------------------
Its: Senior Vice President
----------------------------------------------
LENDER: THE FROST NATIONAL BANK
By: /s/ Jerry L. Crutsinger
-----------------------------------------------
Its: Vice President
----------------------------------------------
SECOND AMENDMENT TO LOAN AGREEMENT -- PAGE 6
- - ----------------------------------
<PAGE>
EXHIBIT 10(N)
SECOND LEASE AMENDMENT AND EXTENSION AGREEMENT
(Summit Office Park)
Landlord: EOP - Summit Limited Partnership, a Delaware limited partnership
(as successor in interest to Zell/Merrill Lynch Real Estate
Opportunity Partners Limited Partnership)
Tenant: Summit National Bank
Date of Lease: July 6, 1989, as amended by the Amendment of Lease dated August
12,1993 (collectively, the "Lease")
Premises: Approximately 13,626 square feet of space on the first floor of
the building located at 1300 Summit Avenue, Fort Worth, Texas
(the "Building")
WHEREAS, the Lease by its terms shall expire, unless an option is exercised, on
December 31, 1999 ("Prior Termination Date"), and the parties desire to extend
the term of the Lease, all, on the terms and conditions hereinafter set forth.
For valuable consideration, Landlord and Tenant agree to, and do hereby, amend
and extend the Lease on and subject to the following terms:
1 . Term. Paragraph II is amended to extend the term of the Lease to December
----
31, 2009 (the "Extended Termination Date"). There are no options to extend
the term beyond December 31, 2009.
2. Rent Paragraph III.1. is amended to provide that the rental during the
----
extended term of the Lease will be as follows:
Jan. 1, 2000 $13.50 $183,951.00 $15,329.25
through per sq. ft. each year each month
Dec. 31, 2004 per annum
Jan. 1, 2005 $14.50 $197,577.00 $16,464.75
through per sq. foot each year each month
Dec. 31, 2009 per annum
Rental until January 1, 2000 remains as stated in the Lease.
3. Rent Adjustment. As of January I, 2000, Paragraph llI.2. shall be of no
---------------
further effect and the following shall be in effect for the remainder of the
term:
SECOND LEASE AMENDMENT AND EXTENSION AGREEMENT
(SUMMIT OFFICE PARK) PAGE 1 OF 10
<PAGE>
A. With the lease year commencing January 1, 2000, Tenant shall pay to
Landlord as additional rental the amount (the "Excess") by which the sum of
Tenant's Pro Rata Share of (1) the Taxes (hereinafter defined) for the
applicable calendar year and (2) the Expenses (hereinafter defined) for the
applicable calendar year exceeds $6.50 per rentable square foot (the
"Expense Stop"); provided Tenant shall not be entitled to a credit if
Tenant's Pro Rata Share is less than $6.50 per rentable square foot. For
purposes hereof,
(i) "Expenses" shall mean all Basic Costs (as hereinafter defined but
excluding Taxes and all janitorial costs except those associated with
the common areas of the Building, and
(ii) "Tenant's Pro Rata Share" means 5.70%.
As soon as is practical following the end of each calendar year, commencing
December 31, 2000, Landlord shall furnish to Tenant a statement (the
"Annual Statement") of Landlord's actual Basic Costs and the actual Excess
for the previous calendar year. Not later than thirty (30) days after
Tenant's receipt of the Annual Statement Tenant will pay to Landlord, as
additional rental, the Excess stated in the Annual Statement.
B. Basic Costs shall mean all costs and expenses paid or incurred in each
calendar year in connection with operating, maintaining, repairing,
managing and owning the Building and the Property, including, but not
limited to, the following:
1 . All labor costs for all persons performing services required or
utilized in connection with the operation, repair, replacement
and maintenance of and control of access to the Building and the
Property, including, but not limited to, amounts incurred for
wages, salaries and other compensation for services, payroll,
social security, unemployment and other similar taxes, workers'
compensation insurance, uniforms, training, disability benefits,
pensions, hospitalization, retirement plans, group insurance or
any other similar or like expenses or benefits.
2. All management fees, the cost of equipping and maintaining a
management office at the Building, accounting services, legal fee
not attributable to leasing and collection activity, and all
other administrative costs relating to the Building and the
Property. If management services are not provided by a third
party, Landlord shall be entitled to a management fee comparable
to that due and payable to third parties provided Landlord or
management companies owned
SECOND LEASE AMENDMENT AND EXTENSION AGREEMENT
(SUMMIT OFFICE PARK) PAGE 2 OF 10
<PAGE>
by, or management divisions of, Landlord perform actual
management services of a comparable nature and type as normally
would be performed by third parties.
3. All rental and/or purchase costs of materials, supplies, tools and
equipment used in the operation, repair, replacement and
maintenance and the control of access to the Building and the
Property.
4. All amounts charged to Landlord by contractors and/or suppliers for
services, replacement parts, components, materials, equipment and
supplies furnished in connection with the operation, repair,
maintenance, replacement of and control of access to any part of
the Building, or the Property generally, including the heating, air
conditioning, ventilating, plumbing, electrical, elevator and other
systems and equipment. At Landlord's option, major repair items may
be amortized over a period of up to five (5) years.
5. All premiums and deductibles paid by Landlord for fire and extended
coverage insurance, earthquake and extended coverage insurance,
liability and extended coverage insurance, rental loss insurance,
elevator insurance, boiler insurance and other insurance
customarily carried from time to time by lessors of comparable
office buildings or required to be carried by Landlord's Mortgagee.
6. Charges for all utilities, including, but not limited to, water,
electricity, gas and sewer, but excluding those charges for which
Landlord is otherwise reimbursed by tenants.
7. "Taxes," which for purposes hereof, shall mean: (a) all real estate
taxes and assessments on the Property, the Building or the
Premises, and taxes and assessments levied in substitution of
supplementation in whole or in part of such taxes, (b) all personal
property taxes for the Building's personal property, including
license expenses, (c) all taxes imposed on services of Landlord's
agents and employees, (d) all costs and fees incurred in connection
with seeking reductions in or refunds in Taxes including, without
limitation, any costs incurred by Landlord to challenge the tax
valuation of the Building, but excluding income taxes. For the
purpose of determining real estate taxes and assessments for any
given calendar year, the amount to be included in Taxes for such
year shall be as follows: (1) with respect to any special
assessment that is payable in installments, Taxes for such year
shall include the amount of the installment (and any interest) due
and payable during such year; and (2) with respect to all other
real
SECOND LEASE AMENDMENT AND EXTENSION AGREEMENT
(SUMMIT OFFICE PARK) PAGE 3 OF 10
<PAGE>
estate taxes, Taxes for such year shall, at Landlord's election,
include either the amount accrued, assessed or otherwise imposed
for such year or the amount due and payable for such year,
provided that Landlord's election shall be applied consistently
throughout the Lease Term. If a reduction in Taxes is obtained
for any year of the Lease Term during which Tenant paid its Pro
Rata Share of Basic Costs, then Basic Costs for such year will be
retroactively adjusted and Landlord shall provide Tenant with a
credit, if any, based upon such adjustment. Likewise, if a
reduction is subsequently obtained for the tax component of Basic
Costs, Basic Costs shall be restated and the Excess for all
subsequent years recomputed. Tenant shall pay Landlord Tenant's
Pro Rata Share of any such increase in the Excess within thirty
(30) days after Tenant's receipt of a statement therefor from
Landlord.
8. All landscape expenses and costs of maintaining, repairing,
resurfacing and striping of the parking areas and garages of the
Property, if any.
9. Cost of all maintenance service agreements, including those for
equipment, alarm service, window cleaning, drapery or Venetian
blind cleaning, janitorial services, pest control, uniform
supply, plant maintenance, landscaping, any parking equipment and
rubbish removal and/or disposal fees.
10. Cost of all other repairs, replacements and general maintenance
of the Property and Building neither specified above nor directly
billed to tenants.
11. The amortized cost of capital improvements made to the Building
or the Property which are: (a) primarily for the purpose of
reducing operating expense costs or otherwise improving the
operating efficiency of the Property or Building; or (b) required
to comply with any laws, rules or regulations of any governmental
authority or a requirement of Landlord's insurance carrier. The
cost of such capital improvement shall be amortized over a period
of five (5) years and shall, at Landlord's option, include
interest at a rate that is reasonably equivalent to the interest
rate that Landlord would be required to pay to finance the cost
of the capital improvement in question as of the date such
capital improvement is performed, provided if the payback period
for any capital improvement is less than five (5) years, Landlord
may amortize the cost of such capital improvement over the
payback period.
SECOND LEASE AMENDMENT AND EXTENSION AGREEMENT
(SUMMIT OFFICE PARK) PAGE 4 OF 10
<PAGE>
12. Any other expense or charge of any nature whatsoever which, in
accordance with general industry practice with respect to the
operation of a first-class office building, would be construed as
an operating expense.
If the Building is not at least ninety-five percent (95%) occupied
during any calendar year of the Lease Term or if Landlord is not
supplying services to at least ninety-five percent (95%) of the total
Rental area of the Building at any time during any calendar year of
the Lease Term, actual Basic Costs for purposes hereof shall be
determined as if the Building had been ninety-five percent (95%)
occupied and Landlord had been supplying services to ninety-five
percent (95%) of the Rentable Area of the Building during such year.
C. If Basic Costs for any calendar year increase by more than five percent
(5%) over Basic Costs for the immediately preceding calendar year,
Tenant, within ninety (90) days after receiving the Annual Statement for
a particular calendar year, shall have the right to provide Landlord
with written notice (the "Review Notice") of its intent to review
Landlord's books and records relating to the Basic Costs for such
calendar year. Within a reasonable time after receipt of a timely Review
Notice, Landlord shall make such books and records available to Tenant
or Tenant's agent for its review at either Landlord's home office or the
office of the Building, provided that if Tenant retains an agent to
review Landlord's' books and records for any calendar year, such agent
must be CPA firm licensed to do business in the state in which the
Building is located. If Tenant fails to give Landlord written notice of
objection within thirty (30) days after its review or fails to provide
Landlord with a Review Notice within the ninety (90) day period provided
above, Tenant shall be deemed to have approved Landlord's Annual
Statement in all respects and shall thereafter be barred from raising
any claims with respect thereto. Any information obtained by Tenant
pursuant to the provisions of this Section shall be treated as
confidential.
4. Parking. Paraaraph 1.2. is amended by adding a new subparagraph (d) as
-------
follows:
(d) Landlord agrees to provide throughout the remainder of the term twenty
(20) reserved parking spaces in the on-site garage. Tenant will pay
Landlord rent on each of the reserved spaces which, on the date of this
Amendment is $25.00 per space per month. The rent for the parking
spaces may be increased by Landlord annually by the same amount the
rent charged to other tenants in the Building is increased.
SECOND LEASE AMENDMENT AND EXTENSION AGREEMENT
(SUMMIT OFFICE PARK) PAGE 5 OF 10
<PAGE>
5. Right of First Refusal. Paragraph I is amended by adding new subparagraphs
----------------------
4, 5, 6 and 7 as follows:
4. Right of First Refusal.
Tenant shall have the one time right of first refusal ("Right of First
Refusal") with respect to the 4,20 rentable square feet of space on
the 2nd floor of the Building shown on the demising plan attached
hereto as Exhibit A (the "Refusal Space"), which right of first
refusal shall be exercised as follows: when Landlord has a prospective
tenant ("Prospect") interested in leasing all or any part the Refusal
Space, Landlord shall advise Tenant (the "Advice") of the terms under
which Landlord is prepared to lease the Refusal Space (or portion
thereof if the Prospect is interested in leasing less than all of the
Refusal Space) to such Prospect and Tenant may lease the Refusal Space
(or portion thereof if the Prospect is interested in leasing less than
all of the Refusal Space), under such terms, by providing Landlord
with written notice of exercise ("Notice of Exercise") within five (5)
days after the date of the Advice, except that Tenant shall have no
such Right of First Refusal and Landlord need not provide Tenant with
an Advice if:
a. Tenant is in default under the Lease at the time Landlord would
otherwise deliver the Advice; or
b. The Premises, or any portion thereof, is sublet at the time
Landlord would otherwise deliver the Advice; or
c. The Lease has been assigned prior to the date Landlord would
otherwise deliver the Advice; or
d. The Refusal Space is not intended for the exclusive use of Tenant
during the Lease Term; or
e. The Tenant is not occupying the Premises on the date Landlord would
otherwise deliver the Advice; or
f. Northwestern Mutual Life Insurance has the right to lease the
Refusal Space, it being understood that this Right of First Refusal
is subject and subordinate to the rights of Northwestern Mutual
Life Insurance with respect to the Refusal Space.
5. The term for the Refusal Space shall commence upon the commencement
date stated in the Advice and thereupon such Refusal Space shall be
considered a part of the Premises, provided that all of the terms
stated in the Advice (including, without limitation, the expiration
date set forth in the
SECOND LEASE AMENDMENT AND EXTENSION AGREEMENT
(SUMMIT OFFICE PARK) PAGE 6 OF 10
<PAGE>
Advice) shall govern Tenant's leasing of the Refusal Space and only
to the extent that they do not conflict with the Advice, the terms
and conditions of this Lease shall apply to the Refusal Space. The
Refusal Space (including improvements and personalty, if any) shall
be accepted by Tenant in its condition and as-built configuration
existing on the earlier of the date Tenant takes possession of the
Refusal Space or the date the term for such Refusal Space commences,
unless the Advice specifies work to be performed by Landlord in the
Refusal Space, in which case Landlord shall perform such work in the
Refusal Space.
6. The rights of Tenant hereunder with respect to the Refusal Space shall
terminate on the earlier to occur of (i) Tenant's failure to exercise
its Right of First Refusal within the five (5) day period provided in
paragraph A above, and (ii) the date Landlord would have provided Tenant
an Advice if Tenant had not been in violation of one or more of the
conditions as set forth in Paragraph A above.
7. If Tenant exercises its Right of First Refusal, Landlord shall prepare
an amendment (the "Refusal Space Amendment") adding the Refusal Space to
the Premises on the terms set forth in the Advice and reflecting the
changes in the Base Rental, Rentable Area of the Premises, Tenant's Pro
Rata Share and other appropriate terms. A copy of the Refusal Space
Amendment shall be (i) sent to Tenant within a reasonable time after
Landlord's receipt of the Notice of Exercise, and (ii) executed by
Tenant and returned to Landlord within ten (10) days thereafter.
6. Paragraph II is amended to add new paragraphs 3, 4 and 5 as follows:
3. In the event that Tenant is merged into, consolidated with or sold to
another entity at any time prior to December 31, 2003, Tenant shall have
the right to accelerate the Extended Termination Date ("Acceleration
Option") of the Lease from December 31, 2009 to December 31, 2004 (the
"Accelerated Expiration Date"), if:
a. Tenant is not in default under the Lease at the date Tenant provides
Landlord with an Acceleration Notice (hereinafter defined), and
b. no part of the Premises is sublet for a term extending past the
Accelerated Expiration Date; and
c. the Lease has not been assigned; and
d. Landlord receives notice of acceleration ("Acceleration Notice") not
less than twelve (12) full calendar months prior to the Accelerated
SECOND LEASE AMENDMENT AND EXTENSION AGREEMENT
(SUMMIT OFFICE PARK) PAGE 7 OF 10
<PAGE>
Expiration Date.
4. If Tenant exercises its Acceleration Option, Tenant, on or before
December 1, 2004, shall pay to Landlord a sum equal to six (6) full
calendar months of Base Rental at the rate that would have been due and
payable during the period beginning on January 1, 2005 and ending June
30, 2005 (the "Acceleration Fee") as a fee in connection with the
acceleration of the Termination Date and not as a penalty, provided that
the Acceleration Fee shall be increased by an amount equal to Thirty-
Five Thousand Two Hundred Forty-Six and 72/100 Dollars ($35,246.72)
which sum represents the unamortized portion of the real estate
commissions, including interest at 13%, incurred by landlord in
connection with space leased by Tenant that is subject to Acceleration
hereunder. Tenant shall remain liable for all Base Rental, additional
rental and other sums due under the Lease up to and including the
Accelerated Expiration Date even though billings for such may occur
subsequent to the Accelerated Expiration Date.
5. If Tenant, subsequent to providing Landlord with an Acceleration Notice,
defaults in any of the provisions of this Lease (including, without
limitation, a failure to pay any installment of the Acceleration Fee due
hereunder), Landlord, at its option, may (i) declare Tenant's exercise
of the Acceleration Option to be null and void, and any Acceleration Fee
paid to Landlord shall be returned to Tenant, after first applying such
Acceleration Fee against any past due Rent under the Lease, or (ii)
continue to honor Tenant's exercise of its Acceleration Option, in which
case, Tenant shall remain liable for the payment of the Acceleration Fee
and for all Base Rental, additional rental and other sums due under the
Lease up to and including the Accelerated Expiration Date even though
billings for such may occur subsequent to the Accelerated Expiration
Date.
7. This Amendment sets forth the entire agreement between the parties with
respect to the matters set forth herein. There have been no additional
oral or written representations or agreements. Under no circumstances
shall Tenant be entitled to any rent abatement, improvement allowance,
leasehold improvements, or other work to the Premises, or any similar
economic incentives that may have been provided Tenant in connection with
entering into the. Lease, unless specifically set forth in this Amendment.
8. In the case of any inconsistency between the provisions of the Lease and
this Amendment, the provisions of this Amendment shall govern and control.
9. The capitalized terms used in this Amendment shall have the same
definitions as set forth in the Lease to the extent that such capitalized
terms are defined therein and not redefined in this Amendment.
SECOND LEASE AMENDMENT AND EXTENSION AGREEMENT
(SUMMIT OFFICE PARK) PAGE 8 OF 10
<PAGE>
10. Tenant hereby represents to Landlord that Tenant has dealt with no broker
in connection with this Amendment other than Ferree & Searcy, Inc. And
Richard D. Minker Company (collectively, "Broker"). Tenant agrees to
indemnify and hold Landlord, its members, principals, beneficiaries,
partners, officers, directors, employees, mortgagee(s) and agents, and the
respective principals and members of any such agents (collectively, the
:landlord Related Parties") harmless from all claims of any brokers, other
than Broker, claiming to have represented Tenant in connection with this
Amendment. Landlord hereby represents to Tenant that Landlord has dealt
with no broker, other than Broker, in connection with this Amendment.
Landlord agrees to indemnify and hold Tenant, its members, principals,
beneficiaries, partners, officers, directors, employees, and agents, and
the respective principals and members of any such agents (collectively, the
"Tenant Related Parties") harmless from all claims of any brokers claiming
to have represented Landlord in connection with this Amendment.
11. Ratification of Lease. Except as expressly amended by the terms of this
---------------------
Lease Amendment and Extension Agreement, Landlord and Tenant ratify and
confirm the Lease.
LANDLORD:
EOP- SUMMIT, LIMITED PARTNERSHIP, A DELAWARE LIMITED PARTNERSHIP
By: EOP-SUMMIT, L.L.C., a Delaware limited liability company, its
general partner
By: EOP Operating Limited Partnership, a Delaware limited
partnership, its sole member
By: Equity Office Properties Trust, a Maryland real estate
investment trust, its managing general partner.
By: /s/ Kim J. Koehn
----------------------
Name: Kim J. Koehn
--------------------
Title: RVP
-------------------
SECOND LEASE AMENDMENT AND EXTENSION AGREEMENT
(SUMMIT OFFICE PARK) PAGE 9 OF 10
<PAGE>
TENANT:
SUMMIT NATIONAL BANK
By:/s/ Jeff Harp
--------------------------------
Name: Jeffrey M. Harp
Title: President
SECOND LEASE AMENDMENT AND EXTENSION AGREEMENT
(SUMMIT OFFICE PARK) PAGE 10 OF 10
<PAGE>
EXHIBIT 10(O)
AGREEMENT OF LIMITED PARTNERSHIP
OF
IDI SUMMIT, LTD.
Dated as of November 6 , 1997
---
THE LIMITED PARTNERSHIP INTEREST REPRESENTED BY THIS AGREEMENT OF LIMITED
PARTNERSHIP HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR WITH ANY AGENCY UNDER THE
SECURITIES ACT OF ANY STATE INCLUDING, WITHOUT LIMITATION, THE TEXAS SECURITIES
ACT IN RELIANCE UPON EXEMPTIONS FROM REGISTRATION PROVIDED IN THOSE STATUTES.
THE SALE OR OTHER DISPOSITION OF SUCH LIMITED PARTNERSHIP INTEREST IS
RESTRICTED, AS SET FORTH IN THIS AGREEMENT OF LIMITED PARTNERSHIP, AND THE
EFFECTIVENESS OF ANY SUCH SALE OR OTHER DISPOSITION MAY BE CONDITIONED UPON
RECEIPT BY THE LIMITED PARTNERSHIP OF AN OPINION OF COUNSEL SATISFACTORY TO THE
LIMITED PARTNERSHIP AND ITS COUNSEL TO THE EFFECT THAT SUCH SALE OR OTHER
DISPOSITION CAN BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND ANY APPLICABLE STATE SECURITIES LAWS. BY ACQUIRING THE LIMITED
PARTNERSHIP INTEREST REPRESENTED BY THIS AGREEMENT OF LIMITED PARTNERSHIP, EACH
LIMITED PARTNER AGREES THAT HE WILL NOT SELL OR OTHERWISE DISPOSE OF THE LIMITED
PARTNERSHIP INTEREST WITHOUT REGISTRATION OR OTHER COMPLIANCE WITH THE AFORESAID
STATUTES AND THE RULES AND REGULATIONS THEREUNDER. THE SALE OR OTHER
DISPOSITION OF THE LIMITED PARTNERSHIP INTEREST REPRESENTED BY THIS AGREEMENT OF
LIMITED PARTNERSHIP ALSO IS LIMITED BY PROVISIONS HEREOF OTHER THAN THOSE
MENTIONED ABOVE, REFERENCE TO EACH OF WHICH HEREBY IS MADE.
<PAGE>
TABLE OF CONTENTS
-----------------
AGREEMENT OF LIMITED PARTNERSHIP
OF
IDI SUMMIT, LTD.
Dated as of November ___, 1997
Page
----
SECTION I Definitions; General 1
SECTION II Term 2
SECTION III Purpose 2
SECTION IV Principal Place of Business 2
SECTION V Acquisition of the Property 3
SECTION VI Capital Contributions; Capital Accounts 3
SECTION VII Control and Management 5
SECTION VIII Tax Allocations 7
SECTION IX Distributions 10
SECTION X Costs and Obligations 12
SECTION XI Partner Advances 13
SECTION XII Sale of the Project 14
SECTION XIII Transfers of Interests of Partners 15
SECTION XIV Dissolution and Termination 18
SECTION XV Death or Insanity of a Limited Partner 20
SECTION XVI Accounting 20
SECTION XVII Reports and Statements 21
SECTION XVIII Bank Accounts 22
SECTION XIX Power of Attorney 22
SECTION XX Consents 23
SECTION XXI Notices 23
SECTION XXII Certain Defined Terms 24
SECTION XXIII Binding Effect 25
SECTION XXIV Amendments 25
SECTION XXV Applicable Laws 26
SECTION XXVI Counterparts 26
SECTION XXVII No Implied Waiver 26
SECTION XXVIII Legal Construction 26
SECTION XXIX Gender 27
SCHEDULE A List of Class A Limited Partners
EXHIBIT A Property Description
EXHIBIT B Construction management Agreement
EXHIBIT C Management and Leasing Agreement
EXHIBIT D Office Lease
<PAGE>
AGREEMENT OF LIMITED PARTNERSHIP
OF
IDI SUMMIT, LTD.
Dated as of November 6 , 1997
---
THIS AGREEMENT OF LIMITED PARTNERSHIP (this "Agreement") , is made and
entered into by and among Innovative Developers, Inc., a Texas corporation,
having its principal office at 777 Main Street, Suite G200, Ft. Worth, Texas
76102 and Summit Community Bank, N.A., a national banking association, having a
mailing address at P. 0. Box 330399, Fort Worth, Texas 76163-0399 (collectively,
the "General Partners") , the persons signing this Agreement as Class A Limited
Partners and listed as Class A Limited Partners on Schedule A, which is attached
----------
hereto and by this reference incorporated herein for all purposes (such persons
being referred to herein individually as a "Class A Limited Partner" and
collectively as the "Class A Limited Partners"). (The Class A Limited Partners
are sometimes also referred to herein individually as a "Limited Partner" and
collectively, as the "Limited Partners"; and the General Partners and the
Limited Partners are sometimes referred to herein individually as a "Partner"
and collectively as the "Partners").
SECTION I
Definitions; General
--------------------
1.1. Reference is made to Section XXI of this Agreement for the meaning
----
assigned to certain defined terms used throughout this Agreement.
1.2. The parties to this Agreement hereby form a limited partnership
----
pursuant to the provisions of the Texas Revised Limited Partnership Act (the
"Act"). The name of the Partnership shall be IDI Summit, Ltd. (the
"Partnership"). The General Partners may change the name of the Partnership
from time to time and from time to time may adopt such trade or fictitious names
as they may determine appropriate.
1.3. The General Partners (and any successors to their interest pursuant to
----
the terms of this Agreement) shall be the general partners of the Partnership.
The persons whose names and residence addresses are listed on Schedule A under
----------
the
1
<PAGE>
heading "Class A Limited Partners" (and any permitted additional or substitute
Class A Limited Partners) shall be the Class A Limited Partners of the
Partnership.
SECTION II
Term
----
2.1. The Partnership shall continue until December 31, 2045 or until
----
earlier terminated as provided in Section XIV of this Agreement. The General
Partners shall cause the due filing of any necessary or appropriate Certificate
of Limited Partnership to evidence any matters reflected in this Agreement.
SECTION III
Purpose
-------
3.1. The sole purpose and business of the Partnership shall be: (i) to
----
acquire, own and hold the Property, (ii) to develop and construct upon the
Property an office building and various ancillary facilities (the Property and
such improvements being referred to herein collectively as the "Project"), (iii)
to manage, operate, lease, mortgage, sell and otherwise deal with the Project,
or any part thereof, and (iv) to conduct such other activities (including,
without limitation, the financing of the Project and the Partnership's business)
as the General Partners may deem to be necessary or appropriate to promote the
business of the Partnership, it being agreed that each of the foregoing is an
ordinary part of the Partnership's business.
SECTION IV
Principal Place of Business
---------------------------
4.1. The principal place of business and registered office of the
----
Partnership shall be at 777 Main Street, Suite G200, Ft. Worth, Texas 76102, or
at such other location as the General Partners may determine. The registered
agent for the Partnership shall be Everett A. Roberts. The General Partners
from time to time may change or establish such additional places of business or
designate other registered agents of the Partnership as they may deem necessary
or appropriate for the operation of the Partnership's business.
4.2. The General Partners shall deliver written notice to each of the
----
Limited Partners of any change in the address of the principal place of business
of the Partnership. The General Partners shall make any and all necessary
filings with governmental authorities and agencies in connection with the
2
<PAGE>
establishment, relocation or discontinuance of any place of business of the
Partnership, including, without limitation, the Partnership's principal place of
business.
SECTION V
Acquisition of the Property
---------------------------
5.1. The Partnership shall acquire good and indefeasible fee simple title
----
to the Property, free and clear of all easements, rights-of-way, liens,
mortgages, adverse claims, restrictions, encroachments, leases, encumbrances,
covenants and other claims and agreements (collectively, "Exceptions") , except
for those Exceptions which the General Partners have determined will not have a
material adverse effect upon the value of the Property and those exceptions
listed in the Special Warranty Deed conveying the Property described in attached
Exhibit A to the Partnership.
5.2. The Partnership shall reimburse the General Partners (or their
----
affiliates, as appropriate) for all costs and expenses incurred by them in
connection with the acquisition of the Property by the Partnership and/or the
formation of the Partnership.
SECTION VI
Capital Contributions; Capital Accounts
---------------------------------------
6.1. General Partner. Upon the execution and delivery of this
----
Agreement, the General Partners shall contribute the aggregate amount of $53,000
(in cash) to the capital of the Partnership, which amount shall be contributed
$26,500 by Summit and $26,500 by IDI. The contribution by IDI under this
Section 6.1 and Section 6.2 below shall be in addition to any fee paid to IDI
under Section 10.3 hereof.
6.2. Class A Limited Partners. Upon the execution and delivery of this
----
Agreement, the Limited Partners shall contribute the aggregate amount of
$2,597,000 (in cash) to the capital of the Partnership. Each Class A Limited
Partner and his respective contribution is reflected on Schedule A.
----------
6.3. Capital Accounts. Each Partner shall have a capital account which
----
shall be increased by
(a) the amount of his cash capital contributions to the Partnership
pursuant to Sections 6.1 and 6.2, plus the amount of any Partner Advances
made by such Partner pursuant to Section 11.1;
3
<PAGE>
(b) the amount of income and gains allocated to him pursuant to
Sections 8.1, 8.2 8.3 and 8.4; and shall be decreased by
(c) the amount of losses allocated to him pursuant to Sections
8.1,, 8.2, 8.3 and 8.4; and
(d) all amounts paid or distributed to him pursuant to Section IX,
including amounts distributed on account of Partner Advances.
6.4. Except as otherwise provided in this Agreement, whenever it is
----
necessary to determine the capital account of any Partner for purposes of this
Agreement, the capital account of the Partner shall be determined after giving
effect to all allocations of net income (and gross income) , net gains and net
losses of the Partnership for the current year and all distributions for such
year (including amounts attributable to any Partner Advances) in respect of
transactions effected prior to the date as of which such determination is to be
made. A Partner shall not be entitled to withdraw any part of his capital
account or to receive any distribution from the Partnership, except as
specifically provided in this Agreement, and no Partner shall be entitled to
make any additional capital contribution to the Partnership other than as
provided herein. Any Partner, including any additional or substitute Partner,
who shall receive an interest in the Partnership or whose interest in the
Partnership shall be increased by means of a Transfer to him of all or part of
the interest of another Partner, shall have a capital account which reflects
such Transfer.
6.5. No Limited Partner shall be liable for any of the debts of the
----
Partnership and the General Partner shall be liable for the debts of the
Partnership only to the extent otherwise provided at law or by contract. No
Partner shall be required or permitted to contribute any capital in addition to
the contributions required or permitted by the provisions of Sections 6.1, 6.2
and 11.1, and no Partner with a negative balance in his capital account shall
have any obligation to the Partnership or the other Partners to restore said
negative balance. Notwithstanding the foregoing, to the extent required by law,
a Partner receiving a distribution in part or full return of his capital
contribution shall be liable to the Partnership for any sum, not in excess of
such amount returned plus interest, necessary to discharge, to the extent
required by law, the liabilities of the Partnership to creditors who extended
credit or whose claims arose before such distribution.
6.6. Any Partner who shall acquire the interest of any other Partner
----
shall, with respect to the interest so acquired, be deemed to be a Partner of
the same class as his transferor.
4
<PAGE>
6.7. The Partnership shall not pay any interest on any capital
----
contributed to the Partnership.
SECTION VII
Control and Management
----------------------
7.1. Except as specifically limited herein, the General Partners shall
----
have complete discretion in the management, operation and control of the
Partnership for the purposes set forth in Section III. Subject to any
limitations expressly set forth in this Agreement, the General Partners shall
have full authority to perform or cause to be performed, at the Partnership's
expense, the acquisition of the Property, the development and construction of
the Project, the arrangement of interim and/or long-term loans, and the
coordination of all ownership, management and operational functions relating to
the Project. Without limiting the generality of the foregoing, the General
Partners (subject to the provisions of Section 7.2 of this Agreement) are
expressly authorized on behalf of the Partnership to:
(a) perform, any and all acts necessary or appropriate to the
ownership, maintenance and operation of the Project, including, but not
limited to, making applications for rezoning or objections to rezoning of
other property, and commencing, defending and/or settling litigation
regarding the Partnership, the Project or any aspect thereof;
(b) procure and maintain with responsible companies such insurance
as may be available in such amounts and covering such risks as are deemed
appropriate by the General Partners;
(c) take and hold all property of the Partnership, real, personal
and mixed, in the Partnership name;
(d) execute and deliver on behalf of and in the name of the
Partnership, deeds, deeds of trust, notes, leases, subleases, mortgages,
bills of sale, financing statements, security agreements, easements and
any and all other instruments necessary or incidental to the conduct of
the Partnership's business and the financing thereof;
(e) coordinate all accounting and clerical functions of the
Partnership and employ such accountants, lawyers, managers, agents and
other management or service personnel as may from time to
5
<PAGE>
time be required to carry on the business of the Partnership; and
(f) borrow money, whether on a secured or unsecured basis, or
refinance, recast, modify or extend any loan to the Partnership or any
loan which affects or is secured by the assets of the Partnership or
pledge or encumber the Project or any other Partnership assets as
security for any loan to the Partnership.
7.2. Notwithstanding the generality of the foregoing and Section 7.4, the
----
General Partners shall not be empowered, without the mutual agreement of the
General Partners, to:
(a) do any act in contravention of this Agreement;
(b) except as otherwise expressly provided herein, do any act which
would make it impossible to carry on the ordinary business of the
Partnership;
(c) confess of judgment against the Partnership;
(d) possess Partnership property or assign any rights in specific
Partnership property for other than a Partnership purpose;
(e) change or reorganize the Partnership into any other legal form;
(f) require any Partner to make any contribution to the capital of
the Partnership not provided for herein;
(g) admit additional Limited Partners, except as provided herein;
(h) except as otherwise expressly provided herein, admit a person
into the Partnership as a general partner;
(i) except as otherwise expressly provided herein, continue the
business with Partnership property on the insolvency, bankruptcy or
dissolution (without reconstitution) of the last remaining General
Partner; or
(j) modify or amend the office lease with Summit in the form
attached hereto as Exhibit D, or set rates or other terms for renewals
thereunder or expansion by summit.
6
<PAGE>
7.3. The Limited Partners shall take no active part in the conduct or
----
control of Partnership business and shall have no right or authority to act for
or to bind the Partnership. The exercise of any rights and powers of the
Limited Partners pursuant to the terms of this Agreement shall not be deemed
taking part in the management of the Partnership or the exercise of control over
the affairs of the Partnership.
7.4. Whenever any action, approval or decision is required or permitted
----
to be made by the General Partners, such action, approval or decision shall be
made only upon mutual agreement of the General Partners. If the General
Partners are unable to reach a mutual agreement the decision of Summit Community
- - -Bank, N.A. shall be controlling (except in those matters listed in Sections 7.2
and 24.1). Once any such action, decision or approval has been reached, IDI
shall be fully empowered to take or implement such action, decision or approval
on behalf of the Partnership. Further, IDI shall be empowered on behalf of the
Partnership to conduct the day-to-day affairs and business of the Partnership,
including without limitation, overseeing the management and leasing of the
Project.
7.5. Any Partner may engage in or possess an interest in other business
----
ventures of any nature or description independently or with others, including,
but not limited to, the real estate business in all its phases, which shall
include, without limitation, the ownership, operation, management, syndication
and development of real property, and neither the Partnership nor any Partner
shall have any rights in or to such independent ventures or the income or
profits derived therefrom.
7.6. Other than as set forth in those Agreements listed in Section 10.3
----
hereof, neither the General Partners nor any partners or principals of the
General Partners shall be liable, responsible or accountable in damages or
otherwise to any other Partner for any act performed or failure to act by it or
him in good faith, unless such act or failure to act is attributable to willful
misconduct or fraud. The Partnership (but not any Partner) shall indemnify and
hold harmless each General Partner (and each partner or principal of each
General Partner) for any loss, damage, liability, cost or expense (including
reasonable attorneys' fees) arising out of any act or failure to act by such
General Partner (or any partner or principal of such General Partner), if such
act or failure to act is in good faith and is not attributable to willful
misconduct or fraud.
SECTION VIII
Tax Allocations
---------------
8.1. General. Except as otherwise provided in Section 8.2 below, all
---- -------
net income, gains and losses of the Partnership for
7
<PAGE>
each fiscal year (or part thereof) , as determined for federal income tax
purposes, shall be allocated in the following order of priority:
(a) For each fiscal year of the Partnership, net income and gains in
an amount up to the cash distributable to the Partners for such fiscal
year pursuant to Section 9.1(a) shall first be allocated to the Partners in
the ratio such cash is distributable to the Partners, and any remaining net
income and gains shall be allocated to the Partners in proportion to their
respective Percentage Interests; or
(b) For each fiscal year of the Partnership, net losses in an amount
up to the aggregate positive balances of the Partners' capital accounts
as of the end of such year shall be allocated among the Partners in the
ratio of such positive capital account balances, and any remaining net
losses shall be allocated to the Partners in proportion to their respective
Percentage Interests.
8.2. Dissolution and Termination. All net gains and net losses of the
---- ---------------------------
Partnership, as determined for federal income tax purposes, in connection with
the dissolution and winding up of the Partnership, shall be allocated in the
following manner and order of priority:
(a) Net gains shall be allocated as follows:
(i) first, an amount of gain up to the negative balances, if any,
in the capital accounts of the Partners shall be allocated to the
Partners having negative capital account balances in proportion to
their respective negative capital account balances, until the balances
of the capital accounts of such Partners equal zero, provided that
such net gains shall first be allocated in such a manner as to cause
the negative capital account balances of the Partners to stand in the
ratio of their respective Percentage Interests;
(ii) then, gain shall be allocated to the General Partners and the
Class A Limited Partners to the extent necessary to make the balance
of their respective capital accounts equal to the amount of the
outstanding Partner Advances respectively made by or on behalf of such
Partners (the "Unreturned Partner Advances,");
8
<PAGE>
(iii) then, gains shall be allocated to the General Partners and
the Class A Limited Partners to the extent necessary to make the
balances of their respective capital accounts (as reduced in regard to
each General Partner's capital account and each Class A Limited
Partner's capital account by an amount equal to his Unreturned Partner
Advances) to equal their respective Unrecovered Contribution Account;
(iv) then, gains shall be allocated to the Partners in a manner,
as nearly as can be, to cause the capital accounts of the Partners (as
reduced in regard to each General Partner's capital account and each
Class A Limited Partner's capital account by an amount equal to his
Unreturned Partner Advances, and as further reduced in regard to each
General Partner's capital account and each Class A Limited Partner's
capital account by an amount equal to his Unrecovered Contribution
Account) to stand in the ratio of their respective Percentage
Interests; and
(v) all remaining gains shall be allocated to the Partners in
proportion to their respective Percentage Interests; or
(b) Net losses shall be allocated as follows:
(i) first, losses shall be allocated to the Partners having
positive capital account balances in an amount up to and in proportion
to their positive capital account balances; provided that if the
amount of such losses is less than the sum of such positive capital
account balances of all of the Partners having positive capital
accounts, such losses shall be allocated as follows: first such losses
shall be allocated in such a manner as to cause, as nearly as can be,
the capital account balances of the Partners (as reduced in regard to
each General Partner's capital account and each Class A Limited
Partner's capital account by an amount equal to his Unreturned Partner
Advances, and as further reduced in regard to each General Partner's
capital account and each Class A Limited Partner's capital account by
an amount equal to his Unrecovered Contribution Account) to
9
<PAGE>
stand in the ratio of their respective Percentage Interests and then
in proportion to their Percentage Interests until the capital account
balances (reduced as aforesaid) are equal to zero, and then in such a
manner as to cause, as nearly as can be, the capital account balances
of the Partners (as reduced in regard to each General Partner's
capital account and each Class A Limited Partner's capital account by
an amount equal to his Unreturned Partner Advances) to equal their
respective Unrecovered Contribution Account and then to the Partners
in proportion to their Unrecovered Contribution Account until the
capital account balances (as reduced in regard to each General
Partner's capital account and each Class A Limited Partner's capital
account by an amount equal to his Unreturned Partner Advances) are
equal to zero and then such losses shall be allocated to the General
Partners and the Class A Limited Partners in proportion to their
respective Unreturned Partner Advances;
(ii) then, losses shall be allocated to the Partners in a manner,
as nearly as can be, to cause the negative capital account balances
of the Partners to stand in the ratio of their respective Percentage
Interests; and
(iii) all remaining losses shall be allocated to the Partners in
proportion to their respective Percentage Interests.
8.3. Qualified Income Offset and Minimum Gain Chargeback. This
---- ---------------------------------------------------
Agreement shall be deemed to include provisions effecting a 704(c) allocation, a
"qualified income offset" and a "minimum gain chargeback" as such terms and
concepts are provided for and contained in Treasury Regulation 1.704-1, and the
allocation provisions otherwise herein contained shall be applied in a manner
consistent therewith.
SECTION IX
Distributions
-------------
9.1. (a) General. Except as otherwise provided in Section 9.1(b) below,
---- -------
after providing for the satisfaction of the current debts and obligations of the
Partnership and after establishing such reserves as the General Partners deem
10
<PAGE>
appropriate, the General Partners shall, within thirty (30) days after the end
of each calendar quarter of the Partnership, make distributions to the Partners
of available Partnership cash, if any, in the following manner:
(i) first, available cash shall be distributed to the General
Partners and the Class A Limited Partners in an amount up to and in
proportion to their respective Unreturned Partner Advances;
(ii) second, available cash shall be distributed to the General
Partners and the Class A Limited Partners in an amount up to and in
proportion to their respective Unrecovered Contribution Account; and
(iii) all remaining available cash shall be distributed to the
Partners in proportion to their respective Percentage Interests.
(b) Proceeds Available Upon Dissolution and Winding Up. Upon the
--------------------------------------------------
dissolution and winding up of the Partnership, the proceeds from the sale
of the Property and all other assets of the Partnership, and from any other
transaction undertaken in connection therewith, after making payment of or
provision for payment of all liabilities and obligations of the
Partnership, shall be distributed, to the extent available and as
expeditiously as possible, in the following order of priority:
(i) first, proceeds shall be distributed to the General Partners
and the Class A Limited Partners in an amount up to and in proportion
to their respective Unreturned Partner Advances (provided that no
distribution shall be made to any Partner in an amount in excess of
the positive balance, if any, of his capital account, as such capital
account has been adjusted to reflect the allocation of gains or losses
under Section 8.2);
(ii) second, proceeds shall be distributed to the General Partners
and the Class A Limited Partners in an amount up to and in proportion
to their respective Unrecovered Contribution Account (provided that no
distribution shall be made to any Partner in an amount in excess of
the positive balance, if any, of his capital
11
<PAGE>
account, as such capital account has been adjusted to reflect the
allocation of gains or losses under Section 8.2 and any distributions
theretofore made pursuant to Section 9. 1 (b) (i) ] ;
(iii) third, proceeds shall be distributed to the Partners in an
amount up to and in proportion to their respective positive capital
account balances (as such capital accounts have been adjusted to
reflect the allocation of gains or losses under Section 8.2 and any
distributions theretofore made pursuant to Sections 9.1(b)(i) and
9.1(b)(ii)); and
(iv) fourth, any remaining balance of proceeds shall be
distributed to the Partners in proportion to their respective
Percentage Interests.
9.2. If any assets of the Partnership shall be distributed in kind, such
----
assets shall be distributed to the Partners receiving such assets as tenants-in-
common, with each such Partner receiving a proportionate interest of the
Partners in such asset which bears the same relationship to all interest in such
asset as the amount of cash that would have been distributed to such Partner if
cash had been distributed bears to the aggregate amount of all cash
distributions that would have been made to the Partners receiving such asset.
9.3. No Partner shall be entitled to demand and receive property other
----
than cash in return for his capital contributions to the Partnership, and, to
the maximum extent permissible under applicable law, each Partner hereby waives
all right to partition the Property.
9.4. No Limited Partner shall have any priority over any other Limited
----
Partner as to the return of his contributions to the capital of the Partnership
or as to compensation by way of income, provided that the foregoing is not
intended to modify the provisions of this Agreement which provide that Partner
Advances, and returns thereon, are intended to be paid to the Partners prior to
any other distributions under Section 9.1.
SECTION X
Costs and Obligations
---------------------
10.1. Partnership Management and Expenses. Except as herein otherwise
----- -----------------------------------
provided, the Partnership shall be responsible
12
<PAGE>
for paying all direct costs and expenses of acquiring, holding, owning,
maintaining and operating the Project, including, without limitation, costs of
maintenance, improvements, advertising expenses, costs for bookkeeping and
accounting directly related to the Project, legal expenses, office supplies, and
all other fees, costs and expenses attributable to the Project, the Partnership
and the organization of the Partnership (including legal and consultant fees).
In the event any such costs and expenses are or have been paid by either of the
General Partners on behalf of the Partnership, then, except as expressly
provided herein to the contrary, such General Partner shall be entitled to be
reimbursed for such payment so long as such payment is reasonably necessary for
Partnership business and is reasonable in amount.
10.2. Reserves. The General Partners may establish a separate working
----- --------
capital reserve and may deposit therein from time to time such amounts of
Partnership revenues as they shall determine to be appropriate to meet the
anticipated cash needs of the Partnership.
10.3. Other Agreements. Upon the execution and delivery of this
----- ----------------
Agreement the Partnership shall enter into the following agreements: (i) a
construction management agreement with IDI in the form attached hereto as
Exhibit B; (ii) a management and leasing agreement with IDI in the form attached
- - ---------
hereto as Exhibit C; and (iii) an office lease agreement with Summit in the form
---------
attached hereto as Exhibit D.
---------
13
<PAGE>
SECTION XI
Partner Advances
----------------
11.1. In the event the Partnership shall require any funds to satisfy
-----
Partnership obligations, the General Partners shall determine the amount of
funds so needed by the Partnership (and in this regard, the General Partners may
anticipate the cash needs of the Partnership for up to six months in advance) .
Upon making their determination of the Partnership's cash needs, the General
Partners shall make a written Cash Call (herein so called) upon the General
Partners and Class A Limited Partners, specifying therein the amount of funds
needed by the Partnership. Within thirty (30) days after receipt of the Cash
Call, each of the General Partners and Class A Limited Partners shall contribute
to the Partnership his pro rata share (based upon his Percentage Interest in
relation to the Percentage Interests of the General Partners and all Class A
Limited Partners) of the amount specified in the Cash Call. Such amounts
required to be funded by the General Partners and Class A Limited Partners are
referred to herein as "Partner Advances". Partner Advances shall be mandatory,
and the failure to make any Partner Advance shall give rise to the remedy
specified below.
11.2. If any General Partner or Class A Limited Partner (a "Non-
-----
Contributing Partner") fails to fund his Partner Advance within thirty (30) days
-------
after receipt of a Cash Call, one or more of the other General Partners and
Class A Limited Partners (the "Contributing Partners") shall have the right (but
not the obligation) to advance directly to the Partnership, the Partner Advance
which was to be made by the Non-Contributing Partner. Such amount so advanced
by the Contributing Partners shall be deemed a Default Loan (herein so called)
to the Non-Contributing Partner, and a Partner Advance from the Non-Contributing
Partner to the Partnership. If Contributing Partners tender Default Loans in an
amount in excess of the required Partner Advance, the General Partners shall
accept Default Loans on a pro rata (or other reasonable) basis, and shall return
all excess funds.
11.3. Default Loans (i) shall be an obligation from the Non-Contributing
-----
Partner to the Contributing Partners, (ii) shall have a term of one (1) year f
rom the date made and (iii) shall bear interest at the annual rate of four
percentage points over the short-term prime lending rate at Summit Community
Bank, N.A., prevailing at the time of the loan, but in no event higher than the
maximum rate permitted by Texas law to be charged at the time such loan is made.
Default Loans shall be automatically secured by the Non-Contributing Partner's
interest in the Partnership, and each General Partner shall be fully authorized
and empowered (pursuant to the power of attorney granted in Section 19.1 hereof)
to execute and deliver in the name of the Non-Contributing Partner, notes,
security agreements
14
<PAGE>
and, financing statements and/or other documents as may be necessary or
convenient to evidence or secure any Default Loans. While any Default Loan is
outstanding, all distributions to which the Non-Contributing Partner would have
been entitled shall instead be paid to the Contributing Partner(s) and credited
against accrued interest first and then to the principal balance of the Default
Loan until such Default Loan has been paid in full.
SECTION XII
Sale of the Project
-------------------
12.1. The General Partners may sell the Project at any time, and upon
-----
such terms and conditions as they, in their sole discretion, shall determine.
15
<PAGE>
SECTION XIII
Transfers of Interests of Partners
----------------------------------
13.1. No Transfer, mortgage, pledge or hypothecation of all or part of a
-----
Partner's interest in the Partnership may be effected except as expressly
permitted in this Section XIII, and then in the event so permitted, only if (i)
a counterpart of the instrument of Transfer, executed and acknowledged by the
parties thereto, is delivered to the Partnership, (ii) the Transfer would not
result in the "termination" of the Partnership pursuant to Section 708 of the
Code, and (iii) the transferee is not a Tax Exempt Entity.
13.2. The following Transfers by Limited Partners are permitted:
-----
(i) the Transfer by a Limited Partner of all or part of its
Partnership interest in accordance with the right of first refusal
procedures set forth in Section 13.4 below;
(ii) the Transfer by a Limited Partner of all or a part of its
Partnership interest, to IDI or an employee of IDI (or any
immediate member of the family of such employee) or to Summit
Bancshares, Inc. or to any subsidiary or affiliated entity of
either Summit Bancshares, Inc. or Summit Community Bank, N.A.; and
(iii) any Transfer of the Partnership interest of a deceased or
incapacitated Limited Partner to his executors, administrators or
legal representatives or by any of such persons to accomplish any
Transfer described under clause (ii) above (and as used in this
Section XIII, "transferee" shall include such persons).
However, (A) the effectiveness of any of the aforesaid permitted transfers may
be conditioned, in the discretion of the General Partners, upon receipt by the
Partnership of an opinion (the cost of which shall be borne by the transferor),
satisfactory in form and substance to the General Partners, to the effect that
such transaction will not violate the Securities Act of 1933 (the "Securities
Act") or any other applicable securities laws, and (B) no Transfer shall be
permitted if, in the reasonable opinion of counsel to the Partnership (which may
be secured by the General Partners, in their discretion, at the expense of the
Partnership), the Partnership's continued tax status as a
16
<PAGE>
partnership for federal income tax purposes would be jeopardized by such
Transfer.
13.3. The following Transfers by General Partners are permitted:
-----
(i) Each General Partner may Transfer all or any part of its
Partnership interest to an affiliate (as defined below) of such
General Partner, and any such transferee of such General Partner's
interest shall have the right to be admitted to the Partnership as
a substituted General Partner; provided, however, that: (a) a
General Partner may not make any such Transfer of its entire
interest in the Partnership, unless the new general partner has at
the time of such assignment or transfer a net worth of at least
Three Hundred Thousand Dollars ($300,000.00), as evidenced by a
financial statement of the kind that would be used by him (it) in
dealing with federally chartered banks and similar financial
institutions and (b) no Transfer of all or any portion of a General
Partner's interest shall be made to any person (or entity), if such
person (or entity) is a Tax Exempt Entity.
(ii) The term "affiliate" used in (i) above means IDI or an
employee of IDI (or such employee's immediate family) or Summit
Bancshares, Inc. or any subsidiary or affiliated entity of either
Summit Bancshares, Inc. or Summit Community Bank, N.A.
(iii) A General Partner may Transfer all or any part of its
interest in accordance with the right of first refusal procedures
set forth in Section 13.4 below.
Notwithstanding the foregoing provisions of this Section 13.3, no General
Partner may Transfer its interest in the Partnership in a manner which would
constitute an event of default under any loan secured by a lien on the Project.
13.4. In the event a Limited Partner desires to make a Transfer in
-----
accordance with Section 13.2(i) or a General Partner desires to make a Transfer
in accordance with Section 13.3(iii), such Partner shall first notify all other
Partners in writing of the terms of the proposed Transfer. The other Partners
shall have a right of first refusal exercisable within sixty (60) days after
such notice to acquire such interest in such proportions
17
<PAGE>
as the other Partners shall mutually agree (or if they cannot agree, then in the
ratio that their respective Percentage Interests bear to one another) . In the
event that the other Partners have not exercised the right of first refusal
granted hereunder and tendered payment of the purchase price within the period
such right may be exercised, such interest may be transferred by the Partner in
accordance with the terms presented to the other Partners.
13.5. Notwithstanding anything herein to the contrary, no Partner shall
-----
have the right to Transfer all or part of his or its Partnership interest to any
person if after such Transfer either the Partner (but only if such Partner
continues to hold an interest in the Partnership) or the transferee would hold a
Partnership interest of less than one percent (1%) in the Partnership.
13.6. Notwithstanding anything seemingly to the contrary contained in
-----
Section 13.2, no transferee of all or part of the Partnership interest of any
Limited Partner shall have the right to become a substitute Limited Partner,
unless:
(a) his transferee has stated such intention in the instrument of
assignment;
(b) the transferee has executed an instrument reasonably
satisfactory to the General Partners accepting and adopting the terms and
provisions of this Agreement;
(c) the transferor or transferee has paid any reasonable expenses
in connection with the admission of the transferee as a Limited Partner;
and
(d) in the case of an assignee or transferee who is not otherwise a
Partner, the General Partners consent to such person's becoming a
substitute Limited Partner (in the sole, absolute and unfettered discretion
of the General Partners).
13.7. If a General Partner should acquire an interest as a Limited
-----
Partner, such party shall, with respect to such interest, enjoy all of the
benefits and be subject to all of the obligations and duties of a Limited
Partner to the extent of such interest.
13.8. In the event of a Transfer of all or part of the interest of a
-----
Partner in the Partnership, at the request of the transferee, the General
Partners shall cause the Partnership to elect, pursuant to Section 754 of the
Code, or the corresponding provision of subsequent law, to adjust the basis of
the Partnership property as provided by Sections 734 and 743 of the Code.
18
<PAGE>
13.9. Unless otherwise agreed between the transferor and the transferee and
-----
to the extent consistent with the Code and any applicable rules and regulations
thereunder, upon the Transfer of all or any part of the interest of a Partner
as hereinabove provided, the net income, net losses, net gains and credits
attributable to the interest so transferred shall be allocated between the
transferor and the transferee as of the date set forth in the instrument of
Transfer, and such allocation shall be based upon the number of days during the
applicable fiscal year of the Partnership that the interest so transferred was
held by each of them, without regard to the results of the Partnership
activities during the period in which each was the holder; provided, however,
that net gains or net losses on the sale of the Project shall be allocated to
the holder of record of the interest on the date of sale. To the extent the
foregoing allocations are inconsistent with the Code and any applicable rules
and regulations thereunder, the allocations will be modified to the extent
required to insure compliance with such rules and regulations thereunder.
Distributions shall be made to the holder of record of the interest on the date
of distribution.
SECTION XIV
Dissolution and Termination
---------------------------
14.1. Except as provided in Section 14.2, the Partnership shall be
-----
dissolved and its business wound up upon the earliest to occur of:
(a) December 31, 2045;
(b) the General Partners determining that the Partnership should be
dissolved;
(c) the Partnership becoming insolvent or bankrupt;
(d) the insolvency, bankruptcy or dissolution (without
reconstitution) of the last remaining General Partner, and the failure to
replace such General Partner within ninety (90) days; or
(e) the sale or other disposition of all or substantially all of the
Partnership's assets and the failure of the Partnership to continue to own
an indirect interest therein.
For purposes of this Agreement, a bankruptcy of a person means the filing of a
petition for relief as to any person as debtor or bankrupt under the Bankruptcy
Code of 1978 (except if such
19
<PAGE>
petition is contested by such person, or the filing by such person or by another
of a petition or application to declare the insolvency of such person or for the
appointment of a receiver or a trustee for such person or a substantial part of
his assets, provided that if such proceeding is commenced by another, such
person indicates his approval of such proceeding, consents thereto or acquiesces
therein, or such proceeding is not contested by such person, and the insolvency
of a person shall be deemed to occur when the assets of such person are
insufficient to pay his or its liabilities and he or it shall so admit in
writing.
14.2. Subject to its right to Transfer its interest in the Partnership,
-----
each General Partner (or any reconstituted successor entity to the General
Partner) agrees to serve as a General Partner of the Partnership until the
Partnership is terminated without reconstitution as provided below. Upon the
occurrence of an event set forth in Section 14.1(d), the business of the
Partnership shall be continued on the terms and conditions of this Agreement if,
within ninety (90) days after such event, a majority in interest of the Class A
Limited Partners shall elect by written consent that the business of the
Partnership should be continued and shall designate in such consent one or more
persons to be substituted as general partner(s) of the Partnership. In the
event that a majority in interest of the Class A Limited Partners elect so to
continue the Partnership with a new general partner (s) , such new general
partner(s) shall succeed to all of the powers, privileges and obligations of the
then existing general partner(s) hereunder, and the interest in the Partnership
of the General Partner shall become a limited partner's interest hereunder.
14.3. The dissolution of the Partnership shall not release or relieve any
-----
of the parties hereto of their contractual obligations under this Agreement.
14.4. Upon any dissolution requiring the winding up of the business of
-----
the Partnership, all or part of the assets, as determined by the General
Partners, or such other person as is winding up the business of the Partnership,
shall be sold and the proceeds thereof distributed and/or the remaining assets
distributed in kind to the Partners in their respective shares as provided
herein.
SECTION XV
Death or Insanity of a Limited Partner
--------------------------------------
15.1. In the event of the death of a Limited Partner, the executor,
-----
administrator or other legal representative of the deceased Limited Partner
shall succeed to the rights of such deceased Limited Partner to receive
allocations and
20
<PAGE>
distributions hereunder, and may be admitted into the Partnership as a Limited
Partner in the place and stead of the deceased Limited Partner in accordance
with Section XIII. Any Transfer by such executor, administrator or legal
representative of all or any part of the interest of the deceased Limited
Partner shall be governed by the provisions of Section XIII.
15.2. In the event of the insanity of a Limited Partner, the committee or
-----
other legal representative of the insane Limited Partner shall succeed to the
rights of such Limited Partner to receive allocations and distributions
hereunder, and may be admitted into the Partnership as a Limited Partner in the
place and stead of the insane Limited Partner in accordance with Section XIII.
Any Transfer by such committee or other legal representative of all or any part
of the interest of the insane Limited Partner shall be governed by the
provisions of Section xiii.
SECTION XVI
Accounting
----------
16.1. The fiscal. year of the Partnership shall be the calendar year.
-----
16.2. The General Partners shall keep, or cause to be kept, full and
-----
accurate records of all transactions of the Partnership in accordance with the
principles and practices generally accepted for the cash method of accounting;
provided, however, that the Partnership may change to the accrual method of
accounting upon the written determination to do so executed by the General
Partners.
16.3. All of such books of account shall, at all times, be maintained in
-----
the principal office of the Partnership, and shall be open during reasonable
business hours for the reasonable inspection and examination by the Limited
Partners and their authorized representatives, who shall have the right to make
copies thereof.
16.4. The General Partners shall prepare, or cause to be prepared, a
-----
federal partnership information return in compliance with Section 6031 of the
Code and any required state and local income tax returns for the Partnership for
each tax year of the Partnership, and, in connection therewith, shall make any
available or necessary elections, including elections with respect to the useful
lives of the properties of the Partnership and the rates of cost recovery on
such properties.
16.5. IDI shall be the "Tax Matters Partner" of the Partnership as
-----
defined in Section 6231(a)(7) of the Code, and in connection therewith shall
have full discretion and authority to
21
<PAGE>
act as such, subject to any limitations set forth under the Code or any
applicable Treasury Regulations.
SECTION XVII
Reports and Statements
----------------------
17.1. By the first day of April of each fiscal year of the Partnership,
-----
the General Partners, at the expense of the Partnership, shall cause to be
delivered to the Limited Partners the following:
(a) such information as shall be necessary (including a statement
for that year of each Limited Partner's share of net income, net gains, net
losses and other items of the Partnership) for the preparation by the
Limited Partners of their federal, state and local income and other tax
returns; and
(b) a copy of all income tax and information returns to be filed by
the Partnership for the preceding fiscal year of the Partnership.
17.2. Within 180 days after the end of each fiscal year of the
-----
Partnership, the General Partners shall cause to be delivered to each of the
Limited Partners a financial statement of the Partnership for such fiscal year,
prepared at the expense of the Partnership, which financial statement shall set
forth, as of the end of and such fiscal year, the following:
(a) a profit and loss statement and a balance sheet of the
Partnership;
(b) the balances in the capital accounts of each Partner; and
(c) such other information as, in the judgment of the General
Partners, shall be reasonably necessary for the Partners to be advised of
the financial status and results of operations of the Partnership.
SECTION XVIII
Bank Accounts
-------------
18.1. The General Partners shall open and maintain (in the name of the
-----
Partnership) a special bank account or accounts in Summit, in which shall be
deposited all funds of the Partnership. Withdrawals from such account or
accounts shall be made upon the signature or signatures of such person or
persons as the General Partners shall designate. There shall be no
22
<PAGE>
commingling of the assets of the Partnership with the assets of any other entity
or person.
SECTION XIX
Power of Attorney
-----------------
19.1. Each Limited Partner hereby irrevocably makes, constitutes and
-----
appoints each General Partner as his true and lawful attorney, to make, sign,
acknowledge, swear to and file with respect to the Partnership:
(a) documents of Transfer of a Limited Partner's interest and all
other documents to effect such Transfer, but only if there has been
compliance with the applicable provisions of this Agreement;
(b) (i) all amendments to this Agreement regarding a change in the
name of the Partnership, its address or that of the General Partners or any
Limited Partner, or the admission or withdrawal of a Limited Partner, and
(ii) amendments adopted in accordance with Section XXIV;
(c) notes, security agreements, financing statements and/or any and
all other documents necessary or convenient to evidence any Default Loan
made or deemed made to a Non-Contributing Partner and/or to pledge the
Partnership interest of a Non-Contributing Partner as security for such
loan.
The foregoing appointment is coupled with an interest.
SECTION XX
Consents
--------
20.1. In each instance in which any consent or approval required by law
-----
or this Agreement is to be obtained from all Limited Partners or a majority in
interest of the Class A Limited Partners, if any General Partner and/or any of
their partners shall have acquired an interest as a Class A Limited Partner,
then the holder of such interest shall have the same right to consent or approve
the matter in issue as the other Class A Limited Partners, as applicable, and
such consent or approval shall be included in the determination of whether the
requisite number of consents or approvals have been received.
23
<PAGE>
SECTION XXI
Notices
-------
21.1. Whenever any notice is required or permitted to be given under any
-----
provisions of this Agreement, such notice shall be in writing, signed by or on
behalf of the person giving the notice, and shall be deemed to have been give on
the earlier to occur of (a) actual delivery or (b) when mailed by certified
mail, postage prepaid, return receipt requested, addressed to the person or
persons to whom such notice is to be given as follows (or at such other address
as shall be stated in a notice similarly given):
(i) if to the General Partners, such notice shall be given:
777 Main Street
Suite G200
Fort Worth, Texas 76102
Attn: Everett Roberts
and
Summit Community Bank, N.A.
P. 0. Box 330399
Fort Worth, Texas 76163-0399
Attn: Phil Norwood
(ii) if to the Limited Partners, such notice shall be given to each
of the Limited Partners at their respective addresses indicated on
Schedule A attached hereto.
----------
SECTION XXII
Certain Defined Terms
---------------------
22.1. As used in this Agreement, the following terms have the meanings
-----
assigned to them in this Section 22.1, unless the context clearly requires
otherwise:
"Agreement": This Agreement of Limited Partnership.
---------
"Class A Limited Partners": Those persons whose names and residence
------------------------
addresses are set forth under the heading "Class A Limited Partners" on Schedule
--------
A attached hereto, and any person admitted as a Class A Limited Partner of the
- - -
Partnership subsequent to the date hereof.
24
<PAGE>
"Code" : The Internal Revenue Code of 1986, as amended, or any successor
----
statute thereto.
"Exceptions": Shall have the meaning set forth in Section 5.1 hereof.
----------
"General Partners": Summit and IDI, and their respective successors and/or
----------------
permitted assigns.
"IDI": Shall mean Innovative Developers, Inc., a Texas corporation.
---
"Partner Advances": The advances required to be made pursuant to Section
----------------
11.1.
"Partners": The General Partners and the Limited Partners.
--------
"Percentage Interests": As to the General Partners, two percent (2%) which
--------------------
is allocated between IDI and Summit such that IDI has a 1.0%. Percentage
Interest and Summit has a 1.0%. Percentage Interest; as to the Class A Limited
Partners as a group, ninety-eight percent (98%); as among the Class A Limited
Partners, in proportion to the amount they have respectively contributed to the
capital of the Partnership pursuant to Section 6.2.
"Property": The parcel of land described in Exhibit A attached hereto.
--------
"Summit": Shall mean Summit Community Bank, N.A., a national banking
------
association.
"Tax Exempt Entity": Shall have the meaning set forth in Section 168(h)(2)
-----------------
of the Code.
"Transfer": The transfer, sale, assignment or other disposition of any
--------
part or all of any interest in the Partnership, whether voluntary, by operation
of law or otherwise.
"Unrecovered Contribution Account": As of any given time, an amount
--------------------------------
determined with respect to each General Partner and each Class A Limited Partner
equal to the excess, if any, of (a) the cash capital contributions theretofore
made by such General Partner or Class A Limited Partner to the Partnership
pursuant to Sections 6.1 or 6.2, over (b) all amounts theretofore distributed or
available for distribution to such General Partner or Class A Limited Partner
pursuant to Sections 9.1 (a) (ii) and 9. 1 (b) (ii).
25
<PAGE>
SECTION XXIII
Binding Effect
--------------
23.1. Except as herein otherwise provided to the contrary, this Agreement
-----
shall be binding upon and inure to the benefit of the parties hereto, their
personal representatives, successors and permitted assigns.
SECTION XXIV
Amendments
----------
24.1. The General Partners, upon their mutual agreement, shall have full
-----
power and authority to amend, modify or waive all or any portion of this
Agreement. This Agreement may also be amended as provided in Section 19. 1 (b)
(I). No waiver of any breach or condition of this Agreement shall be deemed to
be a waiver of any other condition or subsequent breach, whether of like or
different nature. Notwithstanding the foregoing, so long as any amendment has
been approved by the mutual agreement of the General Partners, each Limited
Partner, either in person or by the power of attorney granted to the General
Partners herein, shall sign such approved amendment.
SECTION XXV
Applicable Laws
---------------
25.1. This Agreement shall be governed by and construed in accordance
-----
with the laws of the State of Texas.
SECTION XXVI
Counterparts
------------
26.1. This Agreement may be executed in counterparts, each of which shall
-----
be deemed an original, and all of which, taken together, shall constitute but
one and the same instrument which may be sufficiently evidenced by one
counterpart.
SECTION XXVII
No Implied Waiver
-----------------
27.1. The failure of the Partners to insist at any time upon the strict
-----
performance of any covenant or agreement or to
26
<PAGE>
exercise any option, right, power or remedy contained in this Agreement shall
not be construed as a waiver or a relinquishment thereof for the future.
SECTION XXVIII
Legal Construction
------------------
28.1 In case any one or more of the provisions contained in this Agreement
----
shall for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision hereof and this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein.
Furthermore, in lieu of each such illegal, invalid or unenforceable provision
there shall be substituted a provision as similar in terms to such illegal,
invalid, or unenforceable provision as may be possible and be legal, valid and
enforceable. This Agreement constitutes the entire agreement of the parties as
to all matters relating to the Project.
SECTION XXIX
Gender
------
29.1 all pronouns and any variation thereof shall be deemed to refer to the
----
masculine, feminine or neuter, singular or plural, as the identity of the person
or entity may require.
27
<PAGE>
IN WITNESS WHEREOF, the parties hereto have subscribed and sworn to this
Agreement as of, but not necessarily on, the day and year first above written.
Business Address: GENERAL PARTNERS:
---------------- ----------------
777 Main Street INNOVATIVE DEVELOPERS, INC.,
Suite G200 A Texas corporation
Fort Worth, Texas 76102
By:/s/ Everett A. Roberts
----------------------------------
Name: Everett A. Roberts
Title: Chairman and CEO
P. O. Box 330399 SUMMIT COMMUNITY BANK, N.A.
Fort Worth, Texas 76163-0399
By: /s/ Philip E. Norwood
----------------------------------
Name: Philip E. Norwood
Title: President
28
<PAGE>
EXHIBIT 10(P)
THIS LEASE AGREEMENT (the "Lease'), made and entered into on this 6
-----------
day of November, 1997 by and between IDI-SUMMIT, LTD. as Lessor, and SUMMIT
-------- --
COMMUNITY BANK, N.A., Lessee.
WITNESSETH
1. DEFINITIONS.
a. The "Real Property" shall mean the real property located in Tarrant
County, Texas, described as Exhibit "A" attached hereto and incorporated herein
for all purposes.
b. "Premises" shall mean the suite of offices outlined on the floor plan
attached to this Lease as Exhibit "B", Incorporated herein. The Premises are
stipulated for all purposes to contain approximately 5,000 square feet of "Net
Rentable Area" (as below defined). The Premises are located in the office
building (the "Building") located upon the Real Property.
c. "Base Rental" shall mean the sum of $14,81 0.00 per month and has been
adjusted initially under Paragraph 6 hereof to include $1,980.00 for the
estimated monthly basic costs. The Base Rental due for the first month during
the Lease Term (hereafter defined) has been deposited with Lessor by Lessee
contemporaneously with the execution hereof.
d. "Commencement Date" shall mean the earlier of (i) the date Lessee
actually occupies the Premises or receipt by Lessor of a Certificate of
Occupancy from the City of Fort Worth.
e. "Lease Term" shall mean a term commencing on the Commencement Date and
continuing until 240 months after the first day of the first full month
following Commencement Date.
f. This paragraph removed.
g. "Common Areas" shall mean those areas in the Building devoted to
corridors, elevator foyers, restrooms, mechanical rooms, janitorial closets,
electrical and telephone closets, vending areas and other similar facilities
provided for the common use or benefit of Lessees generally and/or the public.
h. "Service Areas" shall mean those areas within the outside walls used
for elevator mechanical rooms, building stairs. fire towers, elevator shafts,
flues, vents, stacks, pipe shafts and vertical ducts (but shall not Include any
such areas for the exclusive use of the particular Lessee).
i. "Net Rentable Area" of the Premises shall mean the gross area within
the inside surface of the outer glass of the exterior walls, to the mid-point of
any walls separating portions of the Premises from those of adjacent Lessees and
to the Corridor/Service Area surface of walls separating the Premises from
Common Areas or Service Areas plus Lessee's pro-rata share of Service Areas or
Common Areas. Net Rentable Area shall include any columns and/or projection(s)
which protrude Into the Premises. Net Rentable Area In the Building shall be
subject to change from time to time and be In accordance with the certification
of Landlord's architect.
j. "Basic Costs" shall mean all direct and indirect costs and expenses in
each calendar year of operating, maintaining, repairing, managing and owning the
Building and the Real Property including, without limitation, costs of
utilities, taxes (other than income and gift taxes) insurance, maintenance and
management services as defined in the Property Management Agreement. Basic
Costs shall not include the cost of capital improvements, depreciation,
interest, and principal payments on mortgage and other non-operating debts of
Lessor. Basic Costs shall, however, include the amortization of capital
improvements which are primarily for the purpose of reducing Basic Costs, or
which are required by Governmental authorities and which have been approved in
writing by Lessee.
k. "Exterior Common Areas" shall mean those areas which are not located
within the Building and which are provided and maintained for the common use and
benefit of Lessor and Lessees of the Building generally and the employees,
invitees, and licensees of Lessor and such Lessees; including without
limitation, all parking areas, whether such areas are located upon the Real
Property or not.
l. "Building Standard Improvements", when used herein, shall mean those
improvements to the Lessee occupied spaces within the Building which Lessor
shall agree to provide according to the Work
<PAGE>
Letter attached hereto as Exhibit "C" and incorporated herein for all purposes.
"Building Grade" shall mean the type, brand and/or quality of materials Lessor
designates from time to time to be the minimum quality to be used In the
Building or the exclusive type, grade or quality of material to be used In the
Building.
Approved by: /s/ GWH /s/ PEN
------- -------
Lessor Lessee
Initials Initials
2. LEASE GRANT. Subject to and upon the terms herein set forth, Lessor
leases to Lessee and Lessee leases from Lessor the Premises.
3. LEASE TERM.
a. This Lease shall continue in force from the date hereof during the
period ending upon the expiration of the Lease Term, unless this Lease Is sooner
terminated or extended to a later date under any other term of provision hereof.
In the event Lessee shall be permitted by Lessor to occupy the Premises prior to
Commencement Date, such occupancy shall be subject to all of the terms and
conditions hereof excepting only the requirement of the payment of rent. Lessor
shall have no liability for failure to provide any services during a period of
occupancy prior to Commencement Date.
b. If, however, the Commencement Date is not obtained by July 31, 1998,
and the failure to achieve the Commencement Date is due to default on the part
of Lessor, then, as Lessee's sole remedy for the delay in Lessee's occupancy of
the Premises, Commencement Date shall be delayed until the earlier of actual
occupancy by Lessee or receipt by Lessor of a Certificate of Occupancy from the
City of Fort Worth and Lessee shall be given a pro rate credit toward Base
Rental for the number of days from July 31, 1998 until the Commencement Date.
4. USE. The Premises shall be used for office and banking purposes and for no
other purpose. Lessee agrees not to use or permit the use of the Premises for
any purpose which is illegal, or which, in Lessor's reasonable opinion, creates
a nuisance or which would substantially increase the cost of maintenance,
utilities or Insurance coverage with respect to the Building and parking areas.
5. BASE RENTAL.
a. Lessee agrees to pay during the Lease Term, to Lessor the Base Rental,
and all such other sums of money as shall become due hereunder as additional
rent, all of which are sometimes herein collectively called "rent' for the
nonpayment of which Lessor shall be entitled to exercise all such rights and
remedies as are herein provided in the case of the nonpayment of Base Rental.
The annual Base Rental for each calendar year or portion thereof during the
Lease Term, together with any estimated adjustment thereof pursuant to Paragraph
6 hereof then in effect, shall be due and payable in advance in twelve (12)
equal installments on the first day of each calendar month during the initial
term of this Lease and any extensions or renewals thereof, and Lessee hereby
agrees to pay such Base Rental and any adjustments thereto to Lessor at Lessor's
address provided herein (or such other address in Tarrant County as may be
designated by Lessor in writing from time to time) monthly, in advance, and
without demand. If the term of this Lease commences on a day other than the
first day of a month or terminates on a day other than the last day of a month,
then the installments of Base Rental and any adjustments thereto for such month
or months shall be prorated, based on the number of days In such month.
b. In the event any Installment of rent is not paid within five days
after the date due and payable, Lessee shall not be deemed to have cured default
thereby created hereunder until Lessee has paid to Lessor an administrative fee
of $25.00 plus late charge equal to 1% of the monthly rent, to compensate Lessor
for administrative expense incurred in connection with such default. Additional
late charges of like amount will continue to accrue each month until all rent
and late charges are current and timely paid. The provisions of this paragraph
shall not be deemed a waiver by Lessor of any of its remedies in paragraph 27
hereof, nor shall such provisions be deemed to provide Lessee with any right to
cure not given by paragraph 27, but merely set forth an additional requirement
to any right to cure which Lessor shall agree to grant to Lessee.
c. In the event any check of Lessees is not honored and is returned by bank
to Lessor, then Lessee
-2-
<PAGE>
agrees, in addition to basic rent and late charge, to pay to Lessor as
additional rent the sum of $15.00.
6. BASE RENTAL ADJUSTMENT. The Base Rental set forth In paragraph 1(c) shall
be adjusted upward from time to time in accordance with the following
provisions:
a. The Base Rental is intended to be net of all Basic Costs. Therefore,
Lessee shall, during the term of this Lease pay as an adjustment to Base Rental
hereunder an amount (per each square foot of Net Rentable Area within the
Premises) equal to the actual Basic Costs (but not to exceed $5.00 per square
foot of Net Rentable Area within the Premises for first year only , incurred by
Lessor per square foot of Net Rentable Area in the Building. Lessor shall have
the sole discretion of allocating costs to the particular Lessees within the
building based on anticipated usage of the services by the Lessee in relation to
the other Lessees which utilize the same services. Lessee shall pay as an
adjustment to Base Rental all costs incurred regardless of the ratio in
relationship to the building or to other Lessees. Lessor may collect such
additional Base Rental in arrears on a yearly basis. Lessor shall also have the
option to make a good faith estimate of the Basic Costs to be incurred for each
upcoming calendar year and upon thirty (30) days written notice to Lessee,
Lessor may require the monthly payment of Base Rental adjusted In accordance
with any increase in Basic Costs incurred during the calendar year.
b. By April 1 of each calendar year during Lessee's occupancy, or as soon
thereafter practical, Lessor shall make available to Lessee a statement of
Lessor's actual Basic Costs for the previous calendar year. If for any calendar
year additional Base Rental collected for the prior year as a result of Lessor's
estimate of Basic Costs, is an excess of the additional Base Rental actually due
during such prior year, then Lessor shall refund to Lessee any overpayment (or
as Lessors option, apply such amount against rentals due hereunder). Likewise,
Lessee shall pay to Lessor, on demand, any underpayment with respect to the
prior year.
7. COMMON AREA MAINTENANCE. Lessor agrees to furnish routine repair and
maintenance for the Building roof, exterior walls, and structural members as
well as routine cleaning, repairs and maintenance for all Common Areas and
Service Areas of the Building in the manner and to the extent deemed by Lessor
to be standard. Lessor shall supply hot and cold water at those points of
supply provided for general use of other Lessees In the Building, central heat
and air conditioning in season, at such temperatures and in such amounts as are
considered by Lessor to be standard or as required by governmental authority;
provided, however, heating and air conditioning service at time other than for
'Normal Business Hours" for the Building (which are 6:30 a.m. to 7:30 p.m. on
Mondays through Fridays and 8:00 a.m. to 2:00 p.m. on Saturdays, exclusive of
normal business holidays),shall be furnished only upon written request of Lessee
delivered to Lessor prior to 3:00 p.m. at least three days in advance of the
date such usage is requested. Lessee shall bear the entire cost of such
additional service as such costs are determined by Lessor from time to time.
Subject to the provisions of Paragraph 13, Lessor shall also provide facilities
to provide all electrical current required by Lessee in its use and occupancy of
the Premises. The failure by Lessor to any extent to furnish or the
interruption or termination of these defined services in whole or in part,
resulting from causes beyond the reasonable control of Lessor shall not render
Lessor liable in any respect nor be construed as an eviction of Lessee, nor work
an abatement of rent, nor relieve Lessee from the obligation to fulfill any
covenant or agreement hereof. Should any of the equipment or machinery used In
the provision of such services for any cause cease to function properly, Lessee
shall have no claim for offset or abatement of rent or damages on account of an
interruption In service occasioned thereby or resulting therefrom unless Lessor
fails to use its best effort to restore such interruption in service.
8. IMPROVEMENTS TO BE MADE BY LESSOR. Except as otherwise provided In the
Work Letter attached hereto as Exhibit "C', all installations and improvements
now or hereafter placed on the Premises other than Building Standard
Improvements shall be for Lessee's account and at Lessee's cost (and Lessee
shall pay ad valorem taxes and increased insurance thereon or attributable
thereto), which cost shall be payable by Lessee to Lessor in advance as
additional rent.
9. MAINTENANCE AND REPAIR OF PREMISES BY LESSOR. Except as otherwise
expressly provided herein, Lessor shall not be required to make any repairs to
the Premises.
10. GRAPHICS. Lessor shall provide and install, at Lessee's cost, all letters
or numerals on doors in the Premises; all such letters and numerals shall be in
the standard graphics for the Building and no others shall be used or permitted
on the Premises without Lessor's prior written consent.
-3-
<PAGE>
11. CARE OF THE PREMISES BY LESSEE. Lessee agrees to maintain the lnterior of
the Premises in a clean and hazard free state, and not to commit or allow any
waste to be committed on any portion of the Premises. and at the termination of
this Lease to deliver up the Premises to Lessor in as good condition as at the
date of the commencement of the term of this Lease, ordinary wear and tear
excepted.
12. REPAIRS AND ALTERATIONS BY LESSEE. Lessee covenants and agrees with
Lessor, at Lessee's own cost and expense, to repair or replace any damage done
to the Building, or any part thereof, caused by Lessee or Lessee's agents or
employees and such repairs shall restore the Building to as good a condition as
it was in prior to such damage, and shall be effected in compliance with all
applicable laws; provided, however, if Lessee falls to make such repairs or
replacements promptly, Lessor may, at its option, make repairs or replacements,
and Lessee shall pay the cost thereof to the Lessor on demand as additional
rent. Lessee agrees with Lessor not to make or allow to be made any alterations
to the Premises, install any vending machines on the Premises, or place signs on
the Premises which are visible from outside the Premises, without first
obtaining the written consent of Lessor in each such instance, which consent may
be given on such conditions as Lessor may elect. Any and all alterations to the
Premises shall become the property of Lessor upon termination of this Lease
(except for movable equipment or furniture owned by Lessee). Lessor may,
nonetheless, require Lessee to remove any and all fixtures, equipment and other
Improvements installed on the Premises. In the event that Lessor so elects, and
Lessee falls to remove such Improvements, Lessor may remove such improvements at
Lessee's cost, and Lessee shall pay Lessor on demand the cost of restoring the
Premises to Building Standard.
Lessor covenants and agrees with Lessee, at Lessor's own cost and expense,
to repair or replace any damage done to the Building or the Premises, or any
part thereof other than that caused by Lessee or Lessee's agents or employees
and such repairs shall restore the Building and Premises to as good condition as
It was prior to such damage.
13. USE OF ELECTRICAL SERVICES BY LESSEE. Lessee's use of electrical services
furnished by Lessor shall be subject to the following:
a. The Lessor will either install a sub-meter to meter all electric
utilized by Lessee and invoice the Lessee monthly for the electricity utilized
by Lessee.
The payment for electric service is subject to all of the rules, penalties
and agreements of the rental and will be considered as additional rental for the
purposes of this lease.
If Lessee's electricity is not sub-metered it will be billed to Lessee on a
pro-rata basis in accordance with Lessee's square footage occupancy in relation
to the total occupancy of the floor or of the total building. Lessor does also
have the right to charge extra for any special or extraordinary use beyond that
of the average Lessee usage..
14. PARKING. During the term of this Lease, Lessee may have the use of a
number of identified
allotted automobile parking spaces, as Lessor and Lessee deem reasonably
necessary.
15. LAWS AND REGULATIONS. Lessee agrees to comply with all applicable laws,
ordinances, rules, and regulations of any governmental entity or agency having
jurisdiction of the Premises.
16. BUILDING RULES. Lessee will comply with the rules of the Building attached
hereto as Exhibit "D' and incorporated herein for all purposes, and as altered
by Lessor from time to time and will cause all of its agents, employees,
lnvitees, and visitors to do so; all changes to such rules will be sent by
Lessor to Lessee In writing.
17. ENTRY BY LESSOR. Lessee agrees to permit Lessor or its agents or
representatives to enter into and upon any part of the Premises at all
reasonable hours (and in emergencies at all times) to inspect the same, or to
show the Premises to prospective purchasers, mortgagees, Lessees, or insurers,
to clean to make repairs, alterations or additions thereto. Lessee shall not be
entitled to any abatement or reduction of rent by reason of any such entry and
Lessee hereby holds Lessor harmless as to any claims or damages relating to any
such entry.
18. ASSIGNMENT AND SUBLETTING.
-4-
<PAGE>
a. Lessee shall not assign, sublease, transfer, encumber this Lease or
any interest therein without Lessor's prior written approval. Any attempted
assignment or sublease by Lessee in violation of the terms and covenants of this
paragraph shall be void.
b. If Lessee requests Lessor's consent to an assignment of the Lease or
subletting of all or a part of the Premises and if Lessor should fail to notify
Lessee in writing of its decision within a thirty (30) day period after Lessor
is notified in writing of the proposed assignment or sublease, Lessor shall be
deemed to have refused to consent to any assignment or subleasing, and to have
elected to keep this Lease in full force and effect.
c. Any assignee, sublessee or purchaser of Lessee's interest in this
Lease (all such assignees, sublessees and purchasers being hereinafter referred
to as "Successors", by assuming Lessee's obligations hereunder shall assume
liability to Lessor for all amounts paid to persons other than Lessor by such
Successor In consideration of any such safe, assignment or subletting, in
violation of the provisions hereof.
19. MECHANIC'S LIEN. Lessee will not permit any mechanic's lien or liens to be
placed upon the Premises or the Building and nothing in this lease shall be
deemed or construed in any way as constituting the consent or request of Lessor,
express or implied, by inference or otherwise, to any person for the performance
of any labor or the furnishing of any materials to the Premises, or any part
thereof, nor as giving Lessee any right, power, or authority to contract for or
permit the rendering of any services or the furnishing of any materials that
would give rise to any mechanics'or other liens against the Premises. In the
event any such lien is attached to the Premises, then, in addition to any other
right or remedy of Lessor, Lessor may, but shall not be obligated to, discharge
the same. Any amount paid by Lessor for any of the aforesaid purposes shall be
paid by Lessee to Lessor on demand as additional rent.
20. PROPERTY INSURANCE. Lessor shall maintain fire and extended coverage
insurance on the Building, and the Premises in such amounts as Lessor's
mortgagees shall require. Such insurance shall be a part of the Basic Costs,
and payments for losses thereunder shall be made solely to Lessor or the
mortgagees of Lessor as their interests shall appear. Lessee shall maintain at
its expense, in an amount equal to full replacement cost, fire and extended
coverage insurance on all of its personal property, including removable trade
fixtures, located in the Premises and in such additional amounts as are required
to meet Lessee's obligations pursuant to Paragraph 24 hereof. Lessee shall, at
Lessor's request from time to time, provide Lessor with current certificates of
insurance evidencing Lessee's compliance with this Paragraph 20 and Paragraph
21. Lessee shall attempt to obtain the agreement of Lessee's insurers to notify
Lessor that a policy is due to expire or be interrupted or terminated at least
30 days prior to such expiration.
21. LIABILITY INSURANCE. Lessee and Lessor shall each maintain a policy or
policies of comprehensive general liability insurance with regard to the
respective activities of each in the Building and Exterior Common Areas with the
premiums thereon fully paid on or before due date, issued by and binding upon
some insurance company approved by Lessor, such insurance to afford minimum
protection of not less than $1,000,000 combined single limit coverage of bodily
Injury, property damage or combination thereof. Lessor shall not be required to
maintain insurance against thefts within the Premises or the Building generally.
Lessor's expense in maintaining the liability insurance hereby required shall be
included in Basic Costs.
22. INDEMNITY. Neither Lessor nor Lessee shall be liable to the other, or to
the others agents, servants, employees, customers or invitees for any injury to
person or damage to property caused by any act, omission, or neglect of their
respective agents, servants, or employees, invitees, licensees or any other
person entering the Building under the invitation of Lessee or Lessor as the
case may be, or arising out of the use of the Premises by Lessee or Lessor and
the conduct of their business or out of a default by either in the performance
of its obligations hereunder. Lessee and Lessor hereby indemnify and hold the
other harmless from all liability and claims for any such damage or injury.
23. WAIVER OF SUBROGATION RIGHTS. Anything in this Lease to the contrary
notwithstanding, Lessor and Lessee each hereby waives any and all rights of
recovery, claim, action, or cause of action, against the other, its agents,
officers, or employees, for any loss or damage that may occur to the Premises,
or any improvements thereto, or the Building of which the Premises are a part,
or any improvements thereto, or any personal property of such party therein, by
reason of fire, the elements, or
-5-
<PAGE>
any other cause(s) which are insured against under the terms of the standard
fire and extended coverage Insurance policies referred to in Paragraph 20
hereof, regardless of cause or origin, including negligence of the other party
hereto, its agents, officers, or employees.
24. CASUALTY DAMAGE. If the Premises or any part thereof shall be damaged by
fire or other casualty, Lessee shall give prompt written notice thereof to
Lessor. In case the Building (including the Premises) shall be so damaged that
substantial alteration or reconstruction of the Building shall, in Lessor's sole
opinion, be required (whether or not the Premises shall have been damaged by
such casualty) or in the event any mortgagee of Lessor's should require that the
insurance proceeds payable as a result of a casualty be applied to the payment
of the mortgage debt or in the event of any material uninsured loss to the
Building, Lessor may, at its option, terminate this Lease by notifying Lessee in
writing of such termination within ninety (90) days after the date of such
damage. If Lessor does not thus elect to terminate this Lease, Lessor shall
upon receipt of the insurance proceeds relating to such casualty, commence and
proceed with reasonable diligence to restore the Building to substantially the
same condition in which it was immediately prior to the happening of the
casualty, except that Lessor's obligation to restore shall not exceed the scope
of the work required to be done by Lessor in originally constructing the
Building and installing Building Standard Improvements (as described in the Work
Letter) in the Premises, nor shall Lessor be required to spend for such work an
amount in excess of the Insurance proceeds actually received by Lessor as a
result of the casualty. When the Premises have been restored to Building
Standard by Lessor, Lessee shall complete the restoration of the Premises,
including the reconstruction of all improvements in excess of Building Standard
and the restoration of Lessee's furniture and equipment. Lessor shall provide
Lessee with an "allowance" (the 'Reconstruction Allowance") to pay for
reconstruction in excess of Building Standard, such Reconstruction Allowance to
be in dollar amount equal to the dollar amount of the "allowance" described in
the Work Letter, but not to exceed insurance proceeds. Except for the
Reconstruction Allowance, all cost and expense of reconstructing the Premises to
a level in excess of Building Standard shall be borne by Lessee. Lessor shall
not be liable for any inconvenience or annoyance to Lessee or injury to the
business of Lessee resulting in any way from such damage or the repair thereof,
except that, subject to the provisions of the next sentence, Lessor shall allow
Lessee a fair diminution of Base Rental (but not of the adjustment thereto
relating to Basic Costs payable pursuant to paragraph 6 hereon) during the time
and to the extent the Premises are unfit for occupancy. If the Premises or any
other portion of the Building be damaged by fire or other casualty resulting
from the fault or negligence of Lessee or any of Lessee's agents, employees, or
invitees, the rent hereunder shall not be diminished during the repair of such
damage and Lessee shall be liable to Lessor for the cost of the repair and
restoration of the Building caused thereby to the extent such cost and expense
Is not covered by Insurance proceeds. If the damage results from the fault or
negligence of Lessor, or its agents, employees or invitees and the damage
materially impacts the operation of Lessee's business or service to Lessee's
customers, then rent but not CAM shall be abated until the damage is repaired.
25. CONDEMNATION. If the whole or substantially the whole of the Building or
the Premises should be taken for any public or quasi-public use, by right of
eminent domain or otherwise or should be sold in lieu of condemnation, then this
Lease shall terminate as of the date when physical possession of the Building or
the Premises is taken by the condemning authority. If less than the whole or
substantially the whole of the Building or the Premises is thus taken or sold,
Lessor (whether or not the Premises are affected thereby) may terminate this
Lease by giving written notice thereof to Lessee; in which event this Lease
shall terminate as of the date when physical possession of such portion of the
Building or Premises is taken by the condemning authority. If this Lease is not
so terminated upon any such taking or sale, the Base Rental payable hereunder
shall be diminished by an equitable amount agreed upon by Lessor and Lessee, and
Lessor shall, to the extent Lessor and Lessee agree is reasonably feasible,
restore the Building and the Premises to substantially their former condition
but such work shall not exceed the scope of the work done by Lessor in
originally constructing the Building and installing Building Standard
Improvements in the Premises, nor shall Lessor in any event be required to spend
for such work an amount in excess of the amount received by Lessor as
compensation for such damage. All amounts awarded upon a taking of any part or
all of the Building shall belong to Lessor and Lessee shall not be entitled to
and expressly waives all claim to any such compensation. All amounts awarded
upon a taking of any part or all of the Bank Premises shall belong to Lessee.
26. DAMAGES FROM CERTAIN CAUSES. Lessor shall not be liable to Lessee for any
loss or damage
-6-
<PAGE>
or any property or person occasioned by theft, fire, act of God, public enemy,
injunction, riot, strike, insurrection, war, court order, requisition, or order
of governmental body or authority or by any other cause beyond the control of
Lessor and not caused by Lessor's fault or negligence. Except as provided In
Section 24, Lessor shall not be liable for any damage or Inconvenience which may
arise through repair or alteration of any part of the Building or Premises.
27. EVENTS OF DEFAULT/REMEDIES.
a. The following events shall be deemed to be events of default by Lessee
under this Lease: (i) Lessee shall fail to comply with any provision of this
Lease or any other agreement between Lessor and Lessee Including the Work Letter
all of which terms, provisions and covenants shall be deemed material; (ii) the
leasehold hereunder demised shall be taken on execution or other process of law
in any action against Lessee; (iii) Lessee shall fail to promptly move into and
take possession of the Premises when the Premises are ready for occupancy or
shall cease to do business in or abandon any substantial portion of the
Premises; (iv) Lessee shall become insolvent or unable to pay its debts as they
become due, or Lessee notifies Lessor that it anticipates either condition, (v)
Lessee takes any action to, or notifies Lessor that Lessee intends to file a
petition under any section or chapter of the National Bankruptcy Act, as
amended, or under any similar law or statute of the United States or any State
thereof; or a petition shall be filed against Lessee under any such statute or
Lessee or any creditor of Lessee's notifies Lessor that it knows such a petition
will be filed or Lessee notifies Lessor that it expects such a petition to be
filed; or (vi) a receiver or trustee shall be appointed for Lessee's leasehold
interest in the Premises or for all or a substantial part of the assets of
Lessee.
b. Upon the occurrence of any event or events of default by Lessee,
whether enumerated in this Paragraph or not, Lessor shall have the option to
pursue any one or more of the following remedies (Lessee hereby specifically
waives notice and demand for payment of rent due): (i) terminate this Lease in
which event Lessee shall immediately surrender the Premises to Lessor; (ii)
terminate Lessee's right to occupy the Premises and re-enter and take possession
of the Premises (without terminating this Lease); (iii) enter upon the Premises
and do whatever Lessee is obligated to do under the terms of this Lease; and
Lessee agrees to reimburse Lessor on demand for any expenses which Lessor may
incur in effecting compliance with Lessee's obligations under this Lease, and
Lessee further agrees that Lessor shall not be liable for any damages resulting
to the Lessee from such action; (iv) require the payment of all Base Rental
during the remainder of the Lease Term in advance (and if Lessor so requires all
of such remaining Base Rentals shall immediately become due and payable); and
(v) exercise all other remedies available to Lessor at law or in equ ity,
including, without limitation, injunctive relief of all varieties.
Other than default in payment of rent, Lessor must give Lessee written
notice of default and a reasonable opportunity to cure said default.
In the event Lessor elects to re-enter or take possession of the Premises
after Lessee's default, Lessee hereby waives notice of such re-entry or
repossession and of Lessor's intent to re-enter or retake possession. Lessor
may, without prejudice to any other remedy which he may have for possession or
arrearages in rent, expel or remove Lessee and any other person who may be
occupying said Premises or any part thereof. In addition. the provisions of
Paragraph 29 hereof shall apply with respect to the period from and after the
giving of notice of such termination to Lessee. All Lessor's remedies shall be
cumulative and not exclusive. Forbearance by Lessor to enforce one or more of
the remedies herein provided upon an event of default shall not be deemed or
construed to constitute a waiver of such default.
c. This Paragraph 27 shall be enforceable to the maximum extent not
prohibited by applicable law, and the unenforceability of any portion thereof
shall not thereby render unenforceable any other portion. To the extent any
provision of applicable law requires some action by Lessor to evidence or effect
the termination of this Lease or to evidence the termination of Lessee's right
of occupancy, Lessee and Lessor hereby agree that written notice as provided in
Section 36 hereof must be given.
d. Lessor shall be in default hereunder in the event Lessor has not begun
and pursued with reas onable diligence the cure of any failure of Lessor to meet
its obligations hereunder within thirty (30) days of the receipt by Lessor of
written notice from Lessee of the alleged failure to perform. In no event shall
Lessee have the right to terminate or rescind this Lease as a result of Lessor's
default as to any covenant or agreement contained in this Lease or as a result
of the breach of any promise or inducement hereof, whether in this Lease or
elsewhere. Lessee hereby waives such remedies of termination and recession and
hereby agrees that Lessee's remedies for default hereunder and for breach of any
promise
-7-
<PAGE>
or inducement shall be limited to a suit for damages and/or injunction except as
set forth In Section 24. In addition, Lessee hereby covenants that, prior to the
exercise or any such remedies, it will give the mortgagees holding mortgages on
the Building notice and a reasonable time to cure any default by Lessor.
28. PEACEFUL ENJOYMENT. Lessee shall, and may peacefully have, hold and enjoy
the Premises, subject to the other terms hereof, provided that Lessee pays the
rent and other sums herein recited to be paid by Lessee and substantially
performs all of Lessee's covenants and agreements herein contained. This
covenant and any and all other covenants of Lessor shall be binding upon Lessor
and its successors only with respect to breaches occurring during Its or their
respective periods of ownership of the Lessee's interest hereunder.
29. HOLDING OVER. In the event of holding over by Lessee after expiration or
other termination of this Lease or in the event Lessee continues to occupy the
Premises after the termination of Lessee's right of possession pursuant to
Paragraph 27 (b) (ii) hereof, Lessee shall, throughout the entire holdover
period, pay rent equal to 150% of the Base Rental and additional Base Rental
pursuant to paragraph 6, which would have been applicable had the term of this
Lease continued through the period of such holding over by Lessee. No holding
over by Lessee after the expiration of the term of this Lease shall be construed
to extend the term of this Lease.
30. SUBORDINATION TO MORTGAGE. Lessee accepts this Lease subject and
subordinate to any mortgage, deed of trust or other lien presently existing or
hereafter arising upon the Premises or upon the Building, and to any renewals,
refinancing and extensions thereof, but Lessee agrees that any such mortgage
shall have the right at any time to subordinate such mortgage, deed of trust or
other lien to this Lease on such term and subject to such conditions as such
mortgagee may deem appropriate in its discretion. Lessor is hereby irrevocably
vested with full power and authority to subordinate this Lease to any mortgage,
deed of trust or other lien now existing or hereafter placed upon the Premises
or the Building, and Lessee agrees upon demand to execute such further
instruments subordinating this Lease or attorning to the holder of any such
liens as Lessor may request. The terms of this Lease are subject to approval by
the Lessor's permanent tender(s), and such approval is a condition precedent to
Lessor's obligations hereunder. In addition, all leases of portions of the
Building will be absolutely and unconditionally subordinate to such permanent
lender(s)' mortgage; such Lender(s) shall have discretion as to whether or not
it shall enter an attornment and nondisturbance agreement with Lessee and as to
(he form of any such agreement. In the event that Lessee should fail to execute
any such instrument promptly as requested, Lessee herdby irrevocably constitutes
Lessor as Its attorney-in-fact to execute such instrument in Lessee's name,
place and stead, it being agreed that such power Is one coupled with an
interest. Lessee agrees that it will from time to time upon request by Lessor
execute and deliver to such persons as Lessor shall request a statement in
recordable form certifying that this Lease is unmodified and in full force and
effect (or if there have been modifications, that the same is in full force and
effect as so modified), stating the dates to which rent and other charges
payable under this Lease have been paid, stating that Lessor is not in default
hereunder (or if Lessee alleges a default stating the nature of such alleged
default) and further stating such other matters as Lessor shall reasonably
require.
31. This paragraph removed.
32. ATTORNEY'S FEES. In the event either party defaults in the performance of
any of the terms of this Lease and the other party employs an attorney In
connection therewith, the defaulting party agrees to pay the prevailing party's
reasonable attorney's fees.
33. NO IMPLIED WAIVER. The failure of Lessor or Lessee to insist at anytime
upon the strict performance of any covenant or agreement or to exercise any
option, right, power or remedy contained in this Lease shall not be construed as
a waiver or a relinquishment thereof for the future. No payment by Lessee or
receipt by Lessor of a lesser amount than the monthly installment of rent due
under this Lease shall be deemed to be other than on account of the earliest
rent due hereunder, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Lessor may accept such check or payment without prejudice to
Lessor's right to recover the balance of such rent or pursue any other remedy in
this Lease provided. Lessor reserves the right to charge Lessee a fee of $15 in
the event any check of Lessee's is returned without payment.
-8-
<PAGE>
34. PERSONAL LIABILITY. The liability of Lessor to Lessee for any default by
Lessor under the terms of this Lease shall be limited to the interest of Lessor
in the Building and the land on which the Building Is situated and Lessee agrees
to look solely to Lessor's interest in the Building and the land on which the
Building is situated for the recovery of any judgment from the Lessor, it being
intended that Lessor shall not be personally liable for any judgment or
deficiency.
35. This paragraph removed.
36. NOTICE. Any notice in this Lease provided for must, unless otherwise
expressly provided herein, be in writing, and may, unless otherwise in this
Lease expressly provided, be given or be served by depositing the same in the
United States mail, postpaid and certified and addressed to the party to be
notified, with return receipt requested or by delivering the same In person to
an officer of such party, or by prepaid telegram, when appropriate, addressed to
the party to be notified at the address stated in this Lease or such other
address notice of which has been given to the other party. Notice deposited in
the mail in the manner hereinabove described shall be effective from and after
the expiration of three (3) days after it is so deposited.
37. SEVERABILITY. If any term or provision of this Lease, or the application
thereof to any person or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such term or
provision to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Lease shall be valid and enforced to the fullest extent
permitted by law.
38. RECORDATION. Lessee agrees not to record this Lease.
39. GOVERNING LAW. This Lease and the rights and obligations of the parties
hereto shall be interpreted, construed, and enforced in accordance with the laws
of the State of Texas.
40. FORCE MAJEURE. Whenever a period of time is herein prescribed for the
taking of any action by Lessor, Lessor shall not be liable or responsible for,
and there shall be excluded from the computation of such period of time, any
delays due to strikes, riots, acts of God, shortages of labor or materials, war,
governmental laws, regulations or restrictions. or any other cause whatsoever
beyond the control of Lessor.
41. TIME OF PERFORMANCE. Except as expressly otherwise herein provided, with
respect to all required acts of Lessee and Lessor, time is of the essence of
this Lease.
42. TRANSFERS BY LESSOR. Lessor shall have the right to transfer and assign,
in whole or in part, all its rights and obligations hereunder and In the
Building and property referred to herein, and in such event and upon such
transfer Lessor shall be released from any further obligations hereunder, and
Lessee agrees to look solely to such successor in interest of Lessor for the
performance of such obligations.
43. COMMISSIONS. Lessor and Lessee hereby indemnify and hold each other
harmless against any loss, claim, expense or liability with respect to any
commissions or brokerage fees claimed on account of the execution and/or renewal
of this Lease due to any action of the indemnifying party.
44. EFFECT OF DELIVERY OF THIS LEASE. Lessor has delivered a copy of this
Lease to Lessee for Lessee's review only, and the delivery hereof does not
constitute an offer to Lessee or option. This Lease shall not be effective
until a copy executed by both Lessor and Lessee is delivered to and accepted by
Lessor.
45. EXHIBITS. In addition to Exhibits "A", "B", "C", and "D", the following
numbered exhibits are attached hereto and incorporated herein and made a part of
this Lease for all purposes:
46. CONTINGENCY. None.
47. BANK RENT DETERMINATION. For expansion space beyond the initial 5,000
-------------------
rentable square feet, the Bank Rent for the expansion space for the remainder of
the calendar year following the Commencement
-9-
<PAGE>
Date will be $10.00 per rentable square foot net plus electrical plus the
current Common Area Expense charge. For expansion space in any subsequent
calendar years, the Bank lease rate will be $10.00 per rentable square foot net
plus two percent (2%) per year for each calendar year beyond the initial or base
year, plus electric and plus Common Area Charges then applicable. For renewal at
the end of the lease term, the Bank Rent will be at the then greater of current
Market Rate or the base rate of $10.00 per rentable square foot net plus thirty-
five percent (35%) plus electric plus Common Area Charges then in effect.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease in multiple
original counterparts as of the day and year first above written.
LESSOR: IDI-SUMMIT, LTD. LESSEE: SUMMIT COMMUNITY BANK, N.A.
BY: IDI General Partner/
Property Manager
BY: /s/ Glen W. Hahn BY: /s/ Philip E. Norwood
--------------------------- ----------------------
TITLE: President TITLE: President
--------------------------- -----------------------
-10-
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
EXHIBIT 21
SUBSIDIARIES OF THE CORPORATION
Subsidiaries State of Incorporation
- - ------------ ----------------------
Summit National Bank, Fort Worth, Texas National Association
Summit Community Bank, N.A., Fort Worth, Texas National Association
Summit Bancservices, Inc., Fort Worth, Texas Texas
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
TO INCORPORATION BY REFERENCE
The Board of Directors
SUMMIT BANCSHARES, INC.
We consent to incorporation by reference in the registration statement on Form
S-8 of SUMMIT BANCSHARES, INC. (File #33-68974) of our report dated January 23,
1998, relating to the consolidated balance sheets of SUMMIT BANCSHARES, INC. and
subsidiaries as of December 31, 1997 and 1996 and the related consolidated
statements of operations, shareholders' equity, and cash flows and related
schedules for each of the years in the three-year period ended December 31,
1997, which report appears in the December 31, 1997 annual report on Form 10-K
of SUMMIT BANCSHARES, INC.
/s/ Stovall, Grandey & Whatley
STOVALL, GRANDEY & WHATLEY
Fort Worth, Texas
March 17, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets of Summit Bancshares, Inc., as of December 31, 1997,
and the related statements of income, changes in shareholders' equity and cash
flows for the period ending December 31, 1997 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 30,487
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 35,760
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 60,476
<INVESTMENTS-CARRYING> 45,151
<INVESTMENTS-MARKET> 45,360
<LOANS> 276,069
<ALLOWANCE> 4,065
<TOTAL-ASSETS> 459,794
<DEPOSITS> 401,724
<SHORT-TERM> 14,689
<LIABILITIES-OTHER> 2,269
<LONG-TERM> 0
0
0
<COMMON> 8,127
<OTHER-SE> 32,985
<TOTAL-LIABILITIES-AND-EQUITY> 459,794
<INTEREST-LOAN> 24,063
<INTEREST-INVEST> 6,901
<INTEREST-OTHER> 1,008
<INTEREST-TOTAL> 31,972
<INTEREST-DEPOSIT> 10,773
<INTEREST-EXPENSE> 11,301
<INTEREST-INCOME-NET> 20,671
<LOAN-LOSSES> 900
<SECURITIES-GAINS> (1)
<EXPENSE-OTHER> 12,318
<INCOME-PRETAX> 10,718
<INCOME-PRE-EXTRAORDINARY> 7,040
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,040
<EPS-PRIMARY> 1.09
<EPS-DILUTED> 1.04
<YIELD-ACTUAL> 5.47
<LOANS-NON> 2,112
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 9,184
<ALLOWANCE-OPEN> 2,972
<CHARGE-OFFS> 246
<RECOVERIES> 439
<ALLOWANCE-CLOSE> 4,065
<ALLOWANCE-DOMESTIC> 2,884
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,181
</TABLE>
