<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Mark One
[ X ] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1998; or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition period from _______________ to _____________.
COMMISSION FILE NUMBER 0-11986
SUMMIT BANCSHARES, INC.
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
TEXAS 75-1694807
- ------------------------ -------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
1300 SUMMIT AVENUE, FORT WORTH, TEXAS 76102
-------------------------------------------
(Address of principal executive offices)
(817) 336-6817
----------------------------------------------------
(Registrant's telephone number, including area code)
NO CHANGE
--------------------------------------------------------------
(Former name, former address and former fiscal year if changed
since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
The number of shares of common stock, $1.25 par value, outstanding at September
30, 1998 was 6,514,694 shares.
<PAGE>
SUMMIT BANCSHARES, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1998
and 1997 and at December 31, 1997 4
Consolidated Statements of Income for the Three Months
and Nine Months Ended September 30, 1998 and 1997
and for the Year Ended December 31, 1997 5-6
Consolidated Statements of Changes in Shareholders'
Equity for the Nine Months Ended September 30, 1998
and 1997 and for the Year Ended December 31, 1997 7
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1998 and 1997 and for
the Year Ended December 31, 1997 8-9
Notes to Consolidated Financial Statements for the Nine
Months Ended September 30, 1998 and 1997 and for the
Year Ended December 31, 1997 10-21
The September 30, 1998 and 1997 and the December 31, 1997 financial statements
included herein are unaudited; however, such information reflects all
adjustments (consisting solely of normal recurring adjustments), which are, in
the opinion of management of the registrant, necessary to a fair statement of
the results for the interim periods.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Nine Months
Ended September 30, 1998 and 1997 22-29
2
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Change in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
3
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, (Unaudited)
----------------------- December 31,
1998 1997 1997
-------- -------- --------
ASSETS (In Thousands)
<S> <C> <C> <C>
CASH AND DUE FROM BANKS - NOTE 1 $ 20,127 $ 33,060 $ 30,487
FEDERAL FUNDS SOLD & DUE FROM TIME 37,135 23,485 35,760
INVESTMENT SECURITIES - NOTE 2
Securities Available-for-Sale, at fair value 74,787 58,595 60,476
Securities Held-to-Maturity, at cost (fair value of 46,036 47,712 45,151
$46,803,000, $47,908,000, and $45,360,000
September 30, 1998 and 1997 and December 31, 1997,
respectively)
LOANS - NOTE 3
Loans, Net of Unearned Discount 301,972 262,784 276,069
Allowance for Loan Losses (4,663) (3,682) (4,065)
-------- -------- --------
LOANS, NET 297,309 259,102 272,004
PREMISES AND EQUIPMENT - NOTE 4 7,960 7,797 7,916
ACCRUED INCOME RECEIVABLE 3,835 3,368 3,442
OTHER REAL ESTATE - NOTE 5 71 151 151
OTHER ASSETS 4,969 2,928 4,407
-------- -------- --------
TOTAL ASSETS $492,229 $436,198 $459,794
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS - NOTE 6
Noninterest-Bearing Demand $117,982 $114,198 $126,398
Interest-Bearing 306,452 270,025 275,326
-------- -------- --------
TOTAL DEPOSITS 424,434 384,223 401,724
SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE - NOTE 7 18,838 10,284 14,689
ACCRUED INTEREST PAYABLE 676 653 678
OTHER LIABILITIES 3,276 1,511 1,591
-------- -------- --------
TOTAL LIABILITIES 447,224 396,671 418,682
-------- -------- --------
COMMITMENTS AND CONTINGENCIES - NOTE 11
SHAREHOLDERS' EQUITY - NOTES 12, 14 AND 18
Common Stock - $1.25 Par Value; 20,000,000 shares
authorized; 6,514,694, 3,243,846, and 6,501,332 shares
issued and outstanding at September 30, 1998 and 1997
and at December 31, 1997, respectively 8,144 4,055 8,127
Capital Surplus 6,285 6,191 6,251
Retained Earnings 30,429 29,027 26,491
Unrealized Gain on Investment Securities
Available for Sale, Net of Tax 661 254 243
Treasury Stock at Cost (28,200 shares at (514) -0- -0-
-------- -------- --------
September 30, 1998)
TOTAL SHAREHOLDERS' EQUITY 45,005 39,527 41,112
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $492,229 $436,198 $459,794
======== ======== ========
</TABLE>
The accompanying Notes should be read with these financial statements.
4
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
For the Nine Months Ended September 30, Year Ended December 31,
---------------------------------------
1998 1997 1997
------- ------- -------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $20,789 $17,594 $24,063
Interest and Dividends on Investment Securities:
Taxable 5,026 5,243 6,878
Exempt from Federal Income Taxes 38 15 23
Interest on Due From Time 30 -0- -0-
Interest on Federal Funds Sold 1,505 593 1,008
------- ------- -------
TOTAL INTEREST INCOME 27,388 23,445 31,972
------- ------- -------
INTEREST EXPENSE
Interest on Deposits 9,500 7,836 10,773
Interest on Securities Sold Under
Agreements to Repurchase 496 369 528
------- ------- -------
TOTAL INTEREST EXPENSE 9,996 8,205 11,301
------- ------- -------
NET INTEREST INCOME 17,392 15,240 20,671
LESS: PROVISION FOR LOAN LOSSES - NOTE 3 539 633 900
------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 16,853 14,607 19,771
------- ------- -------
NON-INTEREST INCOME
Service Charges and Fees on Deposits 1,504 1,389 1,890
Loss on Sale of Investment Securities -0- (1) (1)
Other Income 1,235 1,019 1,376
------- ------- -------
TOTAL NON-INTEREST INCOME 2,739 2,407 3,265
------- ------- -------
NON-INTEREST EXPENSE
Salaries and Employee Benefits 6,302 5,470 7,524
Occupancy Expense - Net 692 573 774
Furniture and Equipment Expense 882 668 919
Other Real Estate Owned Expense - Net 11 (29) (63)
Other Expense - Note 8 2,594 2,368 3,164
------- ------- -------
TOTAL NON-INTEREST EXPENSE 10,481 9,050 12,318
------- ------- -------
INCOME BEFORE INCOME TAXES 9,111 7,964 10,718
APPLICABLE INCOME TAXES - NOTE 9 3,149 2,738 3,678
------- ------- -------
NET INCOME $ 5,962 $ 5,226 $ 7,040
======= ======= =======
NET INCOME PER SHARE - NOTE 14
Basic $ .92 $ .81 $ 1.09
Diluted .87 .77 1.04
</TABLE>
The accompanying Notes should be read with these financial statements.
5
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Unaudited)
For the Three Months Ended
September 30,
-----------------------------------
1998 1997
------ ------
(In Thousands, Except Per Share Data)
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $7,136 $6,264
Interest and Dividends on Investment Securities:
Taxable 1,754 1,705
Exempt from Federal Income Taxes 12 6
Interest on Due From Time 30 -0-
Interest on Federal Funds Sold 516 274
------ ------
TOTAL INTEREST INCOME 9,448 8,249
------ ------
INTEREST EXPENSE
Interest on Deposits 3,270 2,840
Interest on Securities Sold Under Agreements
to Repurchase 189 112
------ ------
TOTAL INTEREST EXPENSE 3,459 2,952
------ ------
NET INTEREST INCOME 5,989 5,297
LESS: PROVISION FOR LOAN LOSSES - NOTE 3 131 281
------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 5,858 5,016
------ ------
NON-INTEREST INCOME
Service Charges and Fees on Deposits 500 489
Other Income 413 336
------ ------
TOTAL NON-INTEREST INCOME 913 825
------ ------
NON-INTEREST EXPENSE
Salaries and Employee Benefits 2,200 1,895
Occupancy Expense - Net 221 186
Furniture and Equipment Expense 298 237
Other Real Estate Owned (Income) Expense - Net 11 (21)
Other Expense 810 831
------ ------
TOTAL NON-INTEREST EXPENSE 3,540 3,128
------ ------
INCOME BEFORE INCOME TAXES 3,231 2,713
APPLICABLE INCOME TAXES - NOTE 9 1,136 931
------ ------
NET INCOME $2,095 $1,782
====== ======
NET INCOME PER SHARE
Basic $ .33 $ .28
Diluted .31 .26
</TABLE>
The accompanying Notes should be read with these financial statements.
6
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
AND FOR THE YEAR ENDED DECEMBER 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Unrealized
Common Stock Gain (Loss)
--------------------- Capital Retained on Investment Treasury
Shares Amount Surplus Earnings Securities-Net Stock Total
--------- --------- --------- --------- -------------- --------- ---------
(Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
JANUARY 1, 1997 3,233,036 $ 4,041 $ 6,136 $ 24,675 $ 228 $ -0- $ 35,080
Net Income for the
Nine Months Ended
September 30, 1997 5,226 5,226
Stock Options Exercised 10,810 14 55 69
Cash Dividend $.135
Per Share (874) (874)
Securities Available-for-
Sale Adjustment 26 26
--------- --------- --------- --------- --------- --------- ---------
BALANCE AT
SEPTEMBER 30, 1997 3,243,846 4,055 6,191 29,027 254 -0- 39,527
Net Income for the
Three Months Ended
December 31, 1997 1,814 1,814
Stock Options Exercised 10,980 14 60 74
Two-for-One Stock Split 3,246,506 4,058 (4,058) -0-
Cash Dividend $.045
Per Share (292) (292)
Securities Available-for-
Sale Adjustment (11) (11)
--------- --------- --------- --------- --------- --------- ---------
BALANCE AT
DECEMBER 31, 1997 6,501,332 8,127 6,251 26,491 243 -0- 41,112
Purchase of Stock Held
In Treasury (1,422) (1,422)
Retirement of Stock Held
In Treasury (45,000) (56) (852) 908 -0-
Net Income for the
Nine Months Ended
September 30, 1998 5,962 5,962
Stock Options Exercised 58,362 73 34 107
Cash Dividend $.18
Per Share (1,172) (1,172)
Securities Available-for-
Sale Adjustment 418 418
--------- --------- --------- --------- --------- --------- ---------
BALANCE AT
SEPTEMBER 30, 1998 6,514,694 $ 8,144 $ 6,285 $ 30,429 $ 661 $ (514) $ 45,005
========= ========= ========= ========= ========= ========= =========
</TABLE>
The accompanying Notes should be read with these financial statements.
7
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
AND FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
(Unaudited)
September 30, (Unaudited)
---------------------- December 31,
1998 1997 1997
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 5,962 $ 5,226 $ 7,040
-------- -------- --------
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 775 604 840
Net Premium Amortization
of Investment Securities 85 76 97
Provision for Loan Losses 539 633 900
Deferred Income Taxes 364 114 233
Loss on Sale of Investment Securities -0- 1 1
Writedown of Other Real Estate -0- 4 4
Net Gain From Sale of Other Real Estate (2) (21) (21)
Net (Gain) Loss on Sale of Premises and Equipment (3) 12 12
Increase in Accrued Income and Other Assets (1,411) (1,230) (2,796)
Increase in Accrued Expenses and Other Liabilities 1,683 228 333
-------- -------- --------
Total Adjustments 2,030 421 ( 397)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,992 5,647 6,643
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in Federal Funds Sold (1,375) (3,135) (15,410)
Proceeds from Matured and Prepaid Investment Securities
. Held-to-Maturity 17,627 14,362 21,486
. Available-for-Sale 33,727 11,709 14,906
Proceeds from Sales of Investment Securities -0- 4,506 4,506
Purchase of Investment Securities
. Held-to-Maturity (17,617) (8,285) (12,884)
. Available-for-Sale (48,385) (11,622) (16,702)
Loans Originated and Principal Repayments, Net (26,165) (42,932) (56,363)
Recoveries of Loans Previously Charged-Off 198 277 439
Proceeds from Sale of Premises and Equipment 3 32 1
Proceeds from Sale of Other Real Estate 82 1 32
Purchases of Premises and Equipment (819) (1,309) (1,664)
-------- -------- --------
NET CASH USED BY INVESTING ACTIVITIES (42,724) (36,396) (61,653)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Demand Deposits, Savings
Accounts and Interest Bearing Transaction Accounts 21,095 25,734 41,081
Net Increase in Certificates of Deposit 1,615 13,466 15,620
Net Increase (Decrease) in Repurchase Agreements 4,149 (2,925) 1,480
Payments of Cash Dividends ( 1,172) (874) (1,166)
Proceeds from Stock Options Exercised 107 69 143
Purchase of Treasury Stock ( 1,422) -0- -0-
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 24,372 35,470 57,158
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND DUE FROM
BANKS (10,360) 4,721 2,148
CASH AND DUE FROM BANKS AT BEGINNING
OF PERIOD 30,487 28,339 28,339
-------- -------- --------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 20,127 $ 33,060 $ 30,487
======== ======== ========
</TABLE>
8
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONT'D
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
AND FOR THE YEAR ENDED DECEMBER 31, 1997
(Unaudited)
SUPPLEMENTAL SCHEDULE OF OPERATING AND INVESTING ACTIVITIES:
(Unaudited)
September 30, (Unaudited)
---------------------------- December 31,
1998 1997 1997
-------------- ------------ -----------
(In Thousands)
(1) Interest Paid $9,998 $8,190 $11,260
(2) Income Taxes Paid 3,649 2,885 3,876
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1997 (UNAUDITED)
NOTE 1 - Summary of Significant Accounting Policies
The accounting and reporting policies of Summit Bancshares, Inc. (the
"Corporation") and Subsidiaries are in accordance with generally accepted
accounting principles. A summary of the more significant policies follows:
Basis of Presentation and Principles of Consolidation
The consolidated financial statements of the Corporation include its
accounts and those of its wholly-owned subsidiaries, Summit National Bank
and Summit Community Bank, National Association (the "Subsidiary Banks")
and Summit Bancservices, Inc., a wholly-owned operations subsidiary. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
Cash and Due From Banks
The Subsidiary Banks are required to maintain certain balances at the
Federal Reserve Bank based on their levels of deposits. During the first
nine months of 1998 the average cash balance maintained at the Federal
Reserve Bank was $644,000. Compensating balances held at correspondent
banks, to minimize service charges, averaged approximately $16,461,000
during the same period.
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, management
considers its asset/liability strategy, changes in interest rates and
prepayment risk, the need to increase capital and other factors. Under
certain circumstances (including the deterioration of the issuer's
creditworthiness, a change in tax law, or statutory or regulatory
requirements), the Corporation may change the investment security
classification. In the periods reported for 1998 and 1997 the Corporation
held no securities that would have been classified as trading securities.
All investment securities are adjusted for amortization of premiums and
accretion of discounts. Amortization of premiums and accretion of
discounts are recorded to income over the contractual maturity or estimated
life of the individual investment on the level yield method. Gain or loss
on sale of investments is based upon the specific identification method and
the gain or loss is recorded in non-interest income. Income earned on the
Corporation's investments in state and political subdivisions is not
taxable.
10
<PAGE>
NOTE 1 - Summary of Significant Accounting Policies (cont'd.)
Loans and Allowance for Loan Losses
Loans are stated at the principal amount outstanding less unearned discount
and the allowance for loan losses. Unearned discount on installment loans
is recognized as income over the terms of the loans by a method
approximating the interest method. Interest income on all other loans is
recognized based upon the principal amounts outstanding. The accrual of
interest on a loan is discontinued when, in the opinion of management,
there is doubt about the ability of the borrower to pay interest or
principal. Interest previously earned, but uncollected on such loans, is
written off. When loans are put on non-accrual all payments received are
applied to the principal and no interest income is recorded until the loan
is returned to accrual status or the principal has been reduced to zero.
The Corporation follows Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairment of a Loan," as amended by
Statement of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosure."
Under this standard, the allowance for loan losses related to loans that
are identified for evaluation in accordance with Statement No. 114
(impaired loans) is based on discounted cash flows using the loan's initial
effective rate or the fair value of the collateral for certain collateral
dependent loans.
The allowance for loan losses is comprised of amounts charged against
income in the form of a provision for loan losses as determined by
management. Management's evaluation is based on a number of factors,
including the Subsidiary Banks' loss experience in relation to outstanding
loans and the existing level of the allowance, prevailing and prospective
economic conditions, and management's continuing review of the discounted
cash flow values of impaired loans and its evaluation of the quality of the
loan portfolio. Loans are placed on non-accrual status when management
believes that the borrower's financial condition, after giving
consideration to economic and business conditions and collection efforts,
is such that collection of interest is doubtful. Loans are charged against
the allowance for loan losses when management believes that the
collectibility of the principal is unlikely.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation expense is computed on the straight-line method based upon the
estimated useful lives of the assets ranging from three to forty years.
Maintenance and repairs are charged to operating expenses. Renewals and
betterments are added to the asset accounts and depreciated over the
periods benefitted. Depreciable assets sold or retired are removed from
the asset and related accumulated depreciation accounts and any gain or
loss is reflected in the income and expense accounts.
Other Real Estate
Other real estate is foreclosed property held pending disposition and is
valued at the lower of its fair value or the recorded investment in the
related loan. At foreclosure, if the fair value of the real estate
acquired is less than the bank's recorded investment in the related loan, a
writedown is recognized through a charge to the allowance for loan losses.
Any subsequent reduction in value is recognized by a charge to income.
Operating expenses of such properties, net of related income, and gains and
losses on their disposition are included in non-interest expense.
Federal Income Taxes
The Corporation joins with its Subsidiaries in filing a consolidated
federal income tax return. The Subsidiaries pay to the parent a charge
equivalent to their current federal income tax based on the separate
taxable income of the Subsidiaries.
The Corporation and the Subsidiaries maintain their records for financial
reporting and income tax reporting purposes on the accrual basis of
accounting. Deferred income taxes are provided in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes". Deferred income taxes are provided for accumulated temporary
differences due to basic differences for assets and liabilities for
financial reporting and income tax purposes.
Realization of net deferred tax assets is dependent on generating
sufficient future taxable income. Although realization is not assured,
management believes it is more likely than not that all of the net deferred
tax assets will be realized. The amount of the net deferred tax asset
considered realizable, however, could be reduced in the near term if
estimates of future taxable income are reduced.
Cash and Cash Equivalents
For the purpose of presentation in the Statements of Cash Flows, cash and
cash equivalents are defined as those amounts included in the balance sheet
caption "Cash and Due from Banks."
Reclassification
Certain reclassifications have been made to the 1997 financial statements
to conform to the 1998 presentation.
11
<PAGE>
NOTE 1 - Summary of Significant Accounting Policies (cont'd.)
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.
Audited Financial Statements
The consolidated balance sheet as of December 31, 1997, and the
consolidated statements of income, changes in shareholders' equity and cash
flows for the year ended December 31, 1997 are headed "unaudited" in these
financial statements. These statements were reported in the Securities
Exchange Commission Form 10-K as of December 31, 1997 as "audited" but are
required to be reflected in these statements as unaudited because of the
absence of an independent auditor's report.
NOTE 2 - Investment Securities
A summary of amortized cost and estimated fair values of investment
securities is as follows (in thousands):
<TABLE>
<CAPTION>
September 30, 1998
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Investment Securities - Held-to-Maturity
U.S. Treasury Securities $ 13,991 $ 319 $ -0- $ 14,310
U.S. Government Agencies
and Corporations 25,377 401 (2) 25,776
U.S. Government Agency Mortgage
Backed Securities 5,636 40 (3) 5,673
Obligations of States and
Political Subdivisions 1,032 12 -0- 1,044
-------- ------ ---- --------
Total Held-to-Maturity Securities 46,036 772 (5) 46,803
-------- ------ ---- --------
Investment Securities - Available-for-Sale
U.S. Treasury Securities 38,045 701 -0- 38,746
U.S. Government Agencies
and Corporations 25,149 278 (6) 25,421
U.S. Government Agency Mortgage
Backed Securities 9,531 31 (2) 9,560
Federal Reserve and Federal Home Loan Bank Stock 1,060 -0- -0- 1,060
-------- ------ ---- --------
Total Available-for-Sale Securities 73,785 1,010 (8) 74,787
-------- ------ ---- --------
Total Investment Securities $119,821 $1,782 $(13) $121,590
======== ====== ==== ========
</TABLE>
In the above schedule the amortized cost of Total Held-to-Maturity
Securities of $46,036,000 and the fair value of Total Available-for-Sale
Securities of $74,787,000 are reflected in Investment Securities on the
consolidated balance sheet as of September 30, 1998 for a total of $120,823,000.
A net unrealized gain of $1,002,000 is included in the Available-for-Sale
Investment Securities balance. The unrealized gain, net of tax, is included in
Shareholders' Equity.
12
<PAGE>
NOTE 2 - Investment Securities (cont'd.)
Investment securities with carrying value of $42,081,000 at September
30, 1998, were pledged to secure federal, state and municipal deposits and for
other purposes as required or permitted by law. The fair value of these pledged
securities totaled $43,659,000 at September 30, 1998.
<TABLE>
<CAPTION>
September 30, 1997
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Investment Securities - Held-to-Maturity
U.S. Treasury Securities $ 22,980 $ 160 $ (23) $ 23,117
U.S. Government Agencies
and Corporations 15,217 31 (16) 15,232
U.S. Government Agency Mortgage
Backed Securities 8,925 48 (8) 8,965
Obligations of States and
Political Subdivisions 590 4 -0- 594
--------- ---------- ----------- ---------
Total Held-to-Maturity Securities 47,712 243 (47) 47,908
--------- ---------- ----------- ---------
Investment Securities - Available-for-Sale
U.S. Treasury Securities 52,466 377 (53) 52,790
U.S. Government Agencies
and Corporations 2,991 12 -0- 3,003
U.S. Government Agency Mortgage
Backed Securities 1,838 49 -0- 1,887
Federal Reserve and Federal Home Loan Bank Stock 915 -0- -0- 915
--------- ---------- ----------- ---------
Total Available-for-Sale Securities 58,210 438 (53) 58,595
--------- ---------- ----------- ---------
Total Investment Securities $ 105,922 $ 681 $ (100) $ 106,503
========= ========== =========== =========
</TABLE>
In the above schedule the amortized cost of Total Held-to-Maturity
Securities of $47,712,000 and the fair value of Total Available-for-Sale
Securities of $58,595,000 are reflected in Investment Securities on the
consolidated balance sheet as of September 30, 1997 for a total of $106,307,000.
A net unrealized gain of $385,000 is included in the Available-for-Sale
Investment Securities balance. The unrealized gain, net of tax, is included in
Shareholders' Equity.
There were no sales of investment securities during the first nine months
of 1998. Proceeds from sales of securities were $4,506,000 during the first
nine months of 1997 with gains of $2,000 and losses of $3,000 were realized. For
the year ended December 31, 1997, losses from sales of securities of $3,000 were
realized, but were partially offset by gains of $2,000.
NOTE 3 - Loans and Allowance for Loan Losses
The book values of loans by major type follow (in thousands):
September 30, December 31,
-----------------------
1998 1997 1997
-------- -------- --------
Commercial $130,780 $122,643 $127,800
Real Estate Mortgage 99,191 85,084 90,638
Real Estate Construction 40,067 24,725 26,290
Loans to Individuals 32,473 31,094 32,003
Less: Unearned Discount (539) (762) (662)
-------- -------- --------
301,972 262,784 276,069
Allowance for Loan Losses (4,663) (3,682) (4,065)
-------- -------- --------
Loans - Net $297,309 $259,102 $272,004
======== ======== ========
13
<PAGE>
NOTE 3 - Loans and Allowance for Loan Losses (cont'd.)
Transactions in the allowance for loan losses are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended
------------------------------ December 31,
1998 1997 1997
------ ------ ------
<S> <C> <C> <C>
Balance, Beginning of Period $4,065 $2,972 $2,972
Provisions, Charged to Income 539 633 900
Loans Charged-Off (139) (200) (246)
Recoveries of Loans Previously
Charged-Off 198 277 439
------ ------ ------
Net Loans (Charged-Off) Recovered 59 77 193
------ ------ ------
Balance, End of Period $4,663 $3,682 $4,065
====== ====== ======
</TABLE>
The provisions for loan losses charged to operating expenses during the nine
months ended September 30, 1998 and September 30,1997 of $539,000 and $633,000,
respectively, were considered adequate to maintain the allowance in accordance
with the policy discussed in Note 1. For the year ended December 31, 1997, a
provision of $900,000 was recorded.
At September 30, 1998, the recorded investment in loans that are considered
to be impaired under Statement of Financial Accounting Standards No. 114 was
$6,159,000 (of which $6,159,000 were on non-accrual status). The related
allowance for loan losses for these loans was $1,137,000. The average recorded
investment in impaired loans during the nine months ended September 30, 1998 was
approximately $4,812,000. For this period the Corporation recognized no
interest income on these impaired loans.
NOTE 4 - Premises and Equipment
The investment in premises and equipment stated at cost and net of
accumulated amortization and depreciation is as follows (in thousands):
<TABLE>
<CAPTION>
September 30,
---------------------- December 31,
1998 1997 1997
------- ------- -------
<S> <C> <C> <C>
Land $ 1,446 $ 2,170 $ 1,446
Buildings and Improvements 7,811 7,448 7,532
Furniture & Equipment 7,000 5,664 6,661
------- ------- -------
Total Cost 16,257 15,282 15,639
Less: Accumulated Amortization and Depreciation (8,297) (7,485) (7,723)
------- ------- -------
Net Book Value $ 7,960 $ 7,797 $ 7,916
======= ======= =======
</TABLE>
NOTE 5 - Other Real Estate
The carrying value of other real estate is as follows (in thousands):
<TABLE>
<CAPTION>
September 30,
---------------------- December 31,
1998 1997 1997
------- ------- -------
<S> <C> <C> <C>
Other Real Estate $ 71 $ 186 $ 185
Valuation Reserve -0- (35) (34)
----- ----- -----
Net Other Real Estate $ 71 $ 151 $ 151
===== ===== =====
</TABLE>
14
<PAGE>
NOTE 5 - Other Real Estate (cont'd.)
Transactions in the valuation reserve are summarized as follows (in
thousands):
Nine Months Ended September 30, Year Ended
-------------------------------- December 31,
1998 1997 1997
---------------- -------------- -------------
Balance, Beginning of Period $ 34 $ 35 $ 35
Provisions Charged to Income -0- -0- -0-
Reductions from Sales ( 34) -0- (1)
----- ----- -----
Balance, End of Period $ -0- $ 35 $ 34
===== ===== =====
There were no direct writedowns of other real estate charged to income for
the nine months ended September 30, 1998; however there was $4,000 for the nine
months ended September 30,1997 and $4,000 for the year ended December 31, 1997.
NOTE 6 - Deposits
The book values of deposits by major type follow (in thousands):
<TABLE>
<CAPTION>
September 30,
---------------------- December 31,
1998 1997 1997
-------- -------- --------
<S> <C> <C> <C>
Noninterest-Bearing Demand Deposits $117,982 $114,198 $126,398
-------- -------- --------
Interest-Bearing Deposits:
Interest-Bearing Transaction
Accounts and Money Market Funds 148,277 132,619 133,139
Savings 68,480 51,480 54,107
Savings Certificates - Time 52,489 51,926 51,685
Certificates of Deposits $100,000 or more 36,328 33,295 35,690
Other 878 705 705
-------- -------- --------
Total 306,452 270,025 275,326
-------- -------- --------
Total Deposits $424,434 $384,223 $401,724
======== ======== ========
</TABLE>
NOTE 7 - Securities Sold Under Repurchase Agreements
Securities sold under repurchase agreements generally represent borrowings
with maturities ranging from one to thirty days. Information relating to these
borrowings is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended
-------------------------------- December 31,
1998 1997 1997
------- ------- -------
<S> <C> <C> <C>
Securities Sold Under Repurchase Agreements:
Average $14,450 $11,050 $11,668
Period-End 18,838 10,284 14,689
Maximum Month-End Balance During Period 18,838 13,212 15,263
Interest Rate
Average 4.59% 4.35% 4.45%
Period-End 4.59 4.51 4.55
</TABLE>
15
<PAGE>
NOTE 8 - Other Non-Interest Expense
The significant components of other non-interest expense are as follows (in
thousands):
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended
------------------------------- December 31,
1998 1997 1997
------ ------ ------
<S> <C> <C> <C>
Business Development $ 459 $ 459 $ 588
Legal and Professional Fees 362 400 496
Printing and Supplies 305 267 373
Regulatory Fees and Assessments 123 123 160
Other 1,345 1,119 1,547
------ ------ ------
Total $2,594 $2,368 $3,164
====== ====== ======
</TABLE>
NOTE 9 - Income Taxes
Federal income taxes included in the consolidated balance sheets were as
follows (in thousands):
<TABLE>
<CAPTION>
September 30,
------------------- December 31,
1998 1997 1997
----- ----- -----
<S> <C> <C> <C>
Current Tax Asset (Liability) $ 129 $ 61 $ (7)
Deferred Tax Asset 820 547 672
----- ----- -----
Total Included in Other Assets $ 949 $ 608 $ 665
===== ===== =====
</TABLE>
The deferred tax asset at September 30, 1998 of $820,000 included $341,000
related to unrealized gains on Available-for-Sale Securities.
The components of income tax expense were as follows (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended
--------------------------------- December 31,
1998 1997 1997
------ ------ ------
<S> <C> <C> <C>
Federal Income Tax Expense
Current $3,513 $2,852 $3,911
Deferred (364) (114) (233)
------ ------ ------
Total Federal Income Tax Expense $3,149 $2,738 $3,678
====== ====== ======
Effective Tax Rates 34.6% 34.4% 34.3%
====== ====== ======
</TABLE>
The reasons for the difference between income tax expense and the amount
computed by applying the statutory federal income tax rate to operating earnings
are as follows (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended
------------------------------- December 31,
1998 1997 1997
------ ------ ------
<S> <C> <C> <C>
Federal Income Taxes at Statutory
Rate of 34% $3,114 $2,708 $3,644
Effect of Tax Exempt Interest Income (15) (9) (12)
Non-deductible Expenses 39 36 47
Other 11 3 (1)
------ ------ ------
Income Taxes Per Income Statement $3,149 $2,738 $3,678
====== ====== ======
</TABLE>
16
<PAGE>
NOTE 10 - Related Party Transactions
The Subsidiary Banks have transactions made in the ordinary course of business
with certain of its officers, directors and their affiliates. All loans
included in such transactions are made on substantially the same terms,
including interest rate and collateral, as those prevailing at the time for
comparable transactions with other persons. Total loans outstanding to such
parties amounted to approximately $3,443,000 at December 31, 1997.
NOTE 11 - Commitments and Contingent Liabilities
In the normal course of business, there are various outstanding commitments
and contingent liabilities, such as guarantees and commitments to extend credit,
which are not reflected in the financial statements. No losses are anticipated
as a result of these transactions. Commitments are most frequently extended for
real estate, commercial and industrial loans.
At September 30, 1998, outstanding documentary and standby letters of credit
totaled $2,868,000 and commitments to extend credit totaled $105,247,000.
NOTE 12 - Stock Option Plans
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 Corporation applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. Since the option prices are considered to approximate
fair market value at date of grant, no compensation expense has been reported.
Had compensation cost for these plans been determined consistent with Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" the Corporation's net income and earnings per share would have
been reduced by insignificant amounts on a proforma basis for the year ended
December 31, 1997, and the nine months ended September 30, 1998.
The following is a summary of transactions during the periods presented:
Shares Under Option
----------------------------------------
Nine Months
Ended Year Ended
September 30, 1998 December 31, 1997
-------------------- ------------------
Outstanding, Beginning of Period 543,112 464,100
Additional Options Granted During
the Period 3,000 118,752
Forfeited During the Period (5,400) (4,480)
Exercised During the Period (64,662) (35,260)
------- -------
Outstanding, End of Period 476,050 543,112
======= =======
Options outstanding at September 30, 1998 ranged in price from $3.00 to
$19.25 per share with a weighted average exercise price of $5.26 and 351,758
shares exercisable. At September 30, 1998, there remained 527,900 shares
reserved for future grants of options under the 1997 Plan.
NOTE 13 - Employee Benefit Plans
Pension Plan
The Corporation has a defined benefit pension plan covering substantially
all of its employees. The benefits are based on years of service and the
employee's compensation history. The employee's compensation used in the
benefit calculation is the highest average for any five consecutive years of
employment within the employee's last ten years of employment.
Funding for the plan is provided by employer contributions to trust funds
in amounts determined by actuarial assumptions and valuation of the plan.
Contributions are intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the future.
17
<PAGE>
NOTE 13 - Employee Benefit Plans (cont'd.)
The table below sets forth the plan's funded status and amounts recognized
in the Corporation's consolidated balance sheets at December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $2,240,000 in 1997 and $1,647,000 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 (less than) projected benefit obligation (152) 195
Unrecognized net loss from past experience
different from that assumed and effect of
changes in assumptions 396 21
Prior service cost not yet recognized in net
periodic pension cost (12) 15
------ ------
Net pension cost included in other assets $ 232 $ 231
====== ======
</TABLE>
Prepaid pension cost included the following components (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996
------ ------
<S> <C> <C>
Service Cost - benefits earned during the period $ 227 $ 195
Interest cost on projected benefit obligation 157 131
Less: Actual return on plan assets (196) (153)
Net amortization and deferral 5 (2)
------ ------
Net periodic pension cost $ 193 $ 171
====== ======
</TABLE>
The discount rate and rate of increase in future compensation levels used
in determining the actuarial present value of the projected benefit obligation
were 7 percent and 6 percent, respectively. The expected long-term rate of
return on plan assets was 7 percent.
The market value of plan assets at September 30, 1998 was $2,074,000. A
contribution to the plan of $407,000 has been made in 1998. Prepaid pension
cost at September 30, 1998 was $529,000.
The accrual of benefits for participants was curtailed effective August 31,
1998. This curtailment of benefits is in preparation of terminating the plan in
1999.
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 nor to date in 1998.
Management Security Plan
In 1992, the Corporation established a Management Security Plan to provide
key employees with retirement, death or disability benefits in addition to those
provided by the Pension Plan. The expense charged to operations for such future
obligations was $183,000 and $243,000 during the first nine months of 1998 and
1997, respectively, and $276,000 for the year 1997.
Other Post Retirement Benefits
The Corporation provides certain health care benefits for certain retired
employees who bear all costs of these benefits. These benefits are covered under
the "Consolidated Omnibus Budget Reconciliation Act" (COBRA).
18
<PAGE>
NOTE 14 - Earnings per Share
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)
September 30,
------------------------ December 31,
1998 1997 1997
---------- ---------- ----------
Net income $ 5,962 $ 5,226 $ 7,040
========== ========== ==========
Weighted average number of common
shares used in Basic EPS 6,503,876 6,474,342 6,478,795
Effect of dilutive stock options 329,947 304,973 321,081
---------- ---------- ----------
Weighted number of common shares
and dilutive potential common
stock used in Diluted EPS 6,833,823 6,779,315 6,799,876
========== ========== ==========
NOTE 15 - Financial Instruments with Off-Balance Sheet Risk
The Corporation is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include loan commitments, standby
letters of credit and documentary letters of credit. The instruments involve,
to varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the financial statements.
The Corporation's exposure to credit loss in the event of non-performance by
the other party of these loan commitments and standby letters of credit is
represented by the contractual amount of those instruments. The Corporation
uses the same credit policies in making commitments and conditional obligations
as it does for on-balance sheet instruments.
The total contractual amounts of financial instruments with off-balance sheet
risk are as follows (in thousands):
September 30,
------------------
1998 1997
-------- --------
Financial Instruments Whose
Contract Amounts Represent
Credit Risk:
Commitments to Extend Credit $105,247 $90,164
Documentary and Standby
Letters of Credit 2,868 3,970
Since many of the loan commitments may expire without being drawn upon, the
total commitment amount does not necessarily represent future cash requirements.
The Corporation evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the
Corporation upon extension of credit, is based on management's credit evaluation
of the counterparty. Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment, owner occupied real estate
and income-producing commercial properties.
The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers.
NOTE 16 - Concentrations of Credit Risk
The Subsidiary Banks grant commercial, consumer and real estate loans in
their direct market which is defined as Fort Worth and its surrounding area.
The Board of Directors of each Subsidiary Bank monitors concentrations of credit
by purpose, collateral and industry at least quarterly. Certain limitations for
concentration are set by the Boards. Additional loans in excess of these limits
must have prior approval of the bank's directors' loan committee. Although its
Subsidiary Banks have diversified loan portfolios, a substantial portion of its
debtors' abilities to honor their contracts is dependent upon the strength of
the local and state economy.
19
<PAGE>
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 Repurchase Plan
On April 21, 1998, the Board of Directors approved a stock repurchase plan.
The plan authorized management to purchase up to 325,654 shares of the
Corporation's common stock over the next twelve months through the open market
or in privately negotiated transactions in accordance with all applicable state
and federal laws and regulations.
In the first nine months of 1998, 73,200 shares were purchased by the
Corporation through a similar repurchase plan in the open market and
subsequently 45,000 shares have been canceled.
NOTE 19 - Subsequent Event
On October 20, 1998, the Board of Directors of the Corporation approved a
quarterly dividend of $.06 per share to be paid on November 16, 1998 to
shareholders of record on November 2, 1998.
NOTE 20 - Fair Values of Financial Instruments
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance
sheet for cash and due from banks and federal funds sold approximate those
assets' fair values.
Investment securities (including mortgage-backed securities): Fair values
for investment securities are based on quoted market prices, where
available. If quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments.
Loans: For variable-rate loans, fair values are based on carrying values.
The fair values for fixed rate loans such as mortgage loans (e.g., one-to-
four family residential) and installment loans are estimated using
discounted cash flow analysis. The carrying amount of accrued interest
receivable approximates its fair value.
Deposit liabilities: The fair value disclosed for interest bearing and
noninterest-bearing demand deposits, passbook savings, and certain types of
money market accounts are, by definition, equal to the amount payable on
demand at the reporting date or their carrying amounts. Fair values for
fixed-rate certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on
time deposits.
Short-term borrowings: The carrying amounts of borrowings under repurchase
agreements approximate their fair values.
20
<PAGE>
NOTE 20 - Fair Values of Financial Instruments (cont'd.)
The estimated fair values of the Corporation's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
September 30,
------------------------------------------
1998 1997
-------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Financial Assets
Cash and due from banks $ 20,127 $ 20,127 $ 33,060 $ 33,060
Federal funds sold & due from time 37,135 37,135 23,485 23,485
Securities 120,560 121,590 106,307 106,503
Loans 301,972 301,548 262,784 261,734
Reserve for loan losses (4,663) (4,663) (3,682) (3,682)
Financial Liabilities
Deposits 424,434 424,776 384,223 384,451
Securities sold under repurchase
agreements 18,838 18,838 10,284 10,284
Off-balance Sheet Financial Instruments
Loan commitments 105,247 90,164
Letters of credit 2,868 3,970
</TABLE>
NOTE 21 - Comprehensive Income
The Corporation has adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income". This new standard requires an entity to report and display
comprehensive income and its components. Comprehensive income is as follows (in
thousands):
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
--------------------------------------- Year Ended
1998 1997 December 31, 1997
------------------ ------------------- -----------------
<S> <C> <C> <C>
Net Income $5,962 $5,226 $7,040
Other Comprehensive Income:
Unrealized gain (loss) on securities
available-for-sale, net of tax 418 26 15
------ ------ ------
Comprehensive Income $6,380 $5,252 $7,055
====== ====== ======
</TABLE>
21
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Summary
Net income for the third quarter of 1998 was $2,095,000, or $.31 diluted
earnings per share, compared with $1,782,000, or $.26 diluted earnings per
share, for the third quarter of 1997. On a per share basis, diluted net income
increased 19.2% over the third quarter of the prior year. Net income for the
first nine months of 1998 was $5,962,000, or .87 per diluted earnings per share,
compared with $5,226,000, or .77 per diluted earnings per share for the first
nine months of 1997. Per share amounts are based on average shares outstanding
of 6,503,876 for the first nine months of 1998 and 6,474,342 for the comparable
period of 1997 adjusted to 6,833,823 and 6,779,315, respectively to reflect
stock options granted. Also, shares outstanding reflect a two-for-one stock
split in December 1997.
Outstanding loans at September 30, 1998 of $302.0 million represented an
increase of $39.2 million, or 14.9%, over September 30,1997 and an increase of
$25.9 million, or 9.4%, from December 31, 1997.
Total deposits at September 30, 1998 of $424.4 million represented an
increase of $40.2 million, or 10.5%, over September 30,1997 and an increase of
$22.7million, or 5.7%, from December 31, 1997.
In the third quarter, net interest income increased 13.1% over the previous
year. An increase in non-interest expense of 13.2% partially offset the
increase in net interest income.
The following table summarizes the Corporation's performance for the three
months and nine months ended September 30, 1998 and 1997 (tax equivalent basis
and dollars in thousands).
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- -------------------
1998 1997 1998 1997
------ ------ ------- -------
<S> <C> <C> <C> <C>
Interest Income $9,454 $8,254 $27,410 $23,458
Interest Expense 3,459 2,952 9,996 8,205
------ ------ ------- -------
Net Interest Income 5,995 5,302 17,414 15,253
Provision for Loan Loss 131 281 539 633
------ ------ ------- -------
Net Interest Income After
Provision for Loan Loss 5,864 5,021 16,875 14,620
Non-Interest Income 913 825 2,739 2,407
Non-Interest Expense 3,540 3,128 10,481 9,050
------ ------ ------- -------
Income Before Income Tax 3,237 2,718 9,133 7,977
Income Tax Expense 1,142 936 3,171 2,751
------ ------ ------- -------
Net Income $2,095 $1,782 $ 5,962 $ 5,226
====== ====== ======= =======
Net Income per Share-
Basic $ .33 $ .28 $ .92 $ .81
Diluted .31 .26 .87 .77
Return on Average Assets 1.71% 1.68% 1.70% 1.73%
Return on Average Stockholders' Equity 18.75% 18.17% 18.54% 18.74%
</TABLE>
22
<PAGE>
Summary of Earning Assets and Interest-Bearing Liabilities
The following schedule presents average balance sheets that highlight earning
assets and interest-bearing liabilities and their related rates earned and paid
for the third quarter of 1998 and 1997 (rates on tax equivalent basis).
<TABLE>
<CAPTION>
Three Months ended September 30,
--------------------------------------------------------------------
1998 1997
--------------------------------------------- ---------------------
Average Average Average Average
Balances Interest Yield/Rate Balances Interest Yield/Rate
---------- -------- ----------- ---------- -------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Federal Funds Sold & Due Fr Time $ 38,743 $ 546 5.57% $ 19,432 $ 273 5.58%
Investment Securities (Taxable) 115,539 1,754 6.03 110,201 1,705 6.14
Investment Securities (Tax-exempt) 1,101 18 6.81 592 10 6.55
Loans, Net of Unearned Discount/(1)/ 296,573 7,136 9.55 254,428 6,266 9.77
-------- ------ -------- ------
Total Earning Assets 451,956 9,454 8.30 384,653 8,254 8.51
------ ------
Non-interest Earning Assets:
Cash and Due From Banks 21,926 26,317
Other Assets 15,651 13,656
Allowance for Loan Losses (4,547) (3,545)
-------- --------
Total Assets $484,986 $421,081
======== ========
Interest-Bearing Liabilities:
Interest-Bearing Transaction
Accounts and Money Market Funds $146,627 1,369 3.70 $131,601 1,211 3.65
Savings & Premium Savings 65,542 731 4.43 50,514 548 4.30
Savings Certificates 52,098 664 5.06 51,080 646 5.02
Certificates of Deposit
$100,000 or more 36,645 494 5.35 31,719 424 5.30
Other Time 868 12 5.59 705 10 5.54
Other Borrowings 16,395 189 4.57 9,890 113 4.52
-------- ------ -------- ------
Total Interest-Bearing Liabilities 318,175 3,459 4.31 275,509 2,952 4.25
------ ------
Non-interest Bearing Liabilities:
Demand Deposits 119,965 104,482
Other Liabilities 2,542 2,171
Shareholders' Equity 44,304 38,919
-------- --------
Total Liabilities and
Shareholders' Equity $484,986 $421,081
======== ========
Net Interest Income and Margin
(Tax-equivalent Basis)/(2)/ $5,995 5.26 $5,302 5.47
====== ======
</TABLE>
(1) Loan interest income includes fees and loan volumes include loans on non-
accrual.
(2) Presented on a tax equivalent basis ("T/E") using a federal income tax rate
of 34% in both years.
23
<PAGE>
The following schedule presents average balance sheets that highlight
earning assets and interest-bearing liabilities and their related rates earned
and paid for the nine months ended September 30, 1998 and 1997 (rates on tax
equivalent basis).
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------------------------------------------
1998 1997
------------------------------- -------------------------------
Average Average Average Average
Balances Interest Yield/Rate Balances Interest Yield/Rate
-------- -------- ---------- -------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Federal Funds Sold & Due Fr Time $ 36,993 $ 1,535 5.55% $ 14,239 $ 589 5.53%
Investment Securities (Taxable) 109,895 5,026 6.12 113,676 5,243 6.17
Investment Securities (Tax-exempt) 1,126 60 6.93 473 23 6.51
Loans, Net of Unearned Discount/(1)/ 288,200 20,789 9.65 242,215 17,599 9.71
-------- ------- -------- -------
Total Earning Assets 436,214 27,410 8.40 370,603 23,454 8.46
------- -------
Non-interest Earning Assets:
Cash and Due From Banks 22,087 24,283
Other Assets 15,546 13,144
Allowance for Loan Losses (4,333) (3,365)
-------- --------
Total Assets $469,514 $404,665
======== ========
Interest-Bearing Liabilities:
Interest-Bearing Transaction
Accounts & Money Market Funds $141,124 3,867 3.66 $127,444 3,380 3.55
Savings & Premium Savings 65,273 2,169 4.44 50,248 1,562 4.16
Savings Certificates 51,878 1,972 5.08 48,414 1,773 4.90
Certificates of Deposit
$100,000 or more 36,447 1,454 5.33 28,672 1,103 5.14
Other Time 909 38 5.63 594 23 5.27
Other Borrowings 14,450 496 4.59 11,107 360 4.33
-------- ------- -------- -------
Total Interest-Bearing Liabilities 310,081 9,996 4.31 266,479 8,201 4.11
------- -------
Non-interest Bearing Liabilities:
Demand Deposits 114,024 98,766
Other Liabilities 2,409 2,147
Shareholders' Equity 43,000 37,273
-------- --------
Total Liabilities and
Shareholders' Equity $469,514 $404.665
======== ========
Net Interest Income and Margin
(Tax-equivalent Basis)/(2)/ $17,414 5.34 $15,253 5.50
======= =======
</TABLE>
(1) Loan interest income includes fees and loan volumes include loans on non-
accrual.
(2) Presented on a tax equivalent basis ("T/E") using a federal income tax rate
of 34% in both years.
24
<PAGE>
Net Interest Income
Net interest income (tax equivalent) for the third quarter of 1998 was
$5,995,000 which represented an increase of $693,000, or 13.1%, over the third
quarter of 1997. This increase was heavily contributed to by a 16.6% increase
in average loans for the third quarter of 1998 versus the same quarter last
year.
The following table summarizes the effects of changes in interest rates,
average volumes of earning assets and interest bearing liabilities on net
interest income ( tax equivalent) for the periods ended September 30, 1998 and
1997.
<TABLE>
<CAPTION>
ANALYSIS OF CHANGES IN NET INTEREST INCOME
(Dollars in Thousands)
3rd Qtr. 1998 vs. 3rd Qtr. 1997 Nine Months 1998 vs. Nine Months 1997
Increase (Decrease) Increase (Decrease)
Due to Changes in: Due to Changes in:
------------------------------- -------------------------------
Volume Rate Total Volume Rate Total
------ ------- ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Federal Funds Sold & Due From Time $ 268 $ 0 $ 268 $ 944 $ 2 $ 946
Investment Securities (Taxable) 219 (167) 52 (174) (43) (217)
Investment Securities (Tax-exempt) 9 0 9 35 2 37
Loans, Net of Unearned Discount 1,766 (895) 871 3,371 (181) 3,190
------ ------- ------ ------ ----- ------
Total Interest Income 2,262 (1,062) 1,200 4,176 (220) 3.956
------ ------- ------ ------ ----- ------
Interest-Bearing Liabilities:
Deposits 392 39 431 1,281 378 1,659
Other Borrowings 75 1 76 113 23 136
------ ------- ------ ------ ----- ------
Total Interest Expense 467 40 507 1,394 401 1,795
------ ------- ------ ------ ----- ------
Net Interest Income $ 1,795 $(1,102) $ 693 $ 2,782 $ (621) $ 2,161
====== ======= ====== ====== ===== ======
</TABLE>
Allowance for Loan Losses and Non-Performing Assets
The Corporation's allowance for loan losses was $4,663,000, or 1.54% of total
loans, as of September 30, 1998 compared to $3,682,000, or 1.40% of total loans,
as of September 30,1997.
Transactions in the provision for loan losses are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ----------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance, Beginning of Period $4,413 $3,512 $4,065 $2,972
Provisions, Charged to Income 131 281 539 633
Loans Charged-Off (24) (129) (139) (200)
Recoveries of Loans Previously
Charged-Off 143 18 198 277
------ ------ ------ ------
Net Loans (Charged-Off)
Recovered 119 (111) 59 77
------ ------ ------ ------
Balance, End of Period $4,663 $3,682 $4,663 $3,682
====== ====== ====== ======
</TABLE>
25
<PAGE>
The following table summarizes the non-performing assets as of the end of the
last five quarters (in thousands).
<TABLE>
<CAPTION>
September 30, June 30, March 31, December 31, September 30,
1998 1998 1998 1997 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Non-Accrual Loans $6,213 $6,830 $2,885 $2,112 $1,245
Other Real Estate Owned 71 71 151 151 151
------ ------ ------ ------ ------
Total Non-Performing Assets $6,284 $6,901 $3,036 $2,263 $1,396
====== ====== ====== ====== ======
</TABLE>
Non-accrual loans to total loans were 2.06% at September 30, 1998 and non-
performing assets were 2.17% of loans and other real estate owned at the same
date. As of September 30, 1998, loans to four borrowers represent approximately
88% of the loans on non-accrual and three of four of these borrowers are current
as to payment of principal and interest on their loans. The Corporation does
not see this increase in non-accrual loans as a signal of a weakened local
economy or a change in the Corporation's lending standards, rather this is the
implementation of the Corporation's strict policy of identifying problem loans
as soon as any difficulty a borrower may be experiencing is noted.
The following table summarizes the relationship between non-performing
loans, criticized loans and the allowance for loan losses (dollars in
thousands).
<TABLE>
<CAPTION>
September 30, June 30, March 31, December 31, September 30,
1998 1998 1998 1997 1997
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Non-Performing Loans $ 6,482 $ 6,830 $ 2,885 $2,112 $1,245
Criticized Loans 11,524 11,737 12,484 9,295 7,896
Allowance for Loan Losses 4,663 4,413 4,192 4,065 3,681
Allowance for Loan Losses
as a Percent of:
Non-Performing Loans 72% 65% 145% 193% 296%
Criticized Loans 40 38 34 44 47
</TABLE>
Non-interest Income
The major component of non-interest income is service charges on deposits.
Other service fees are the majority of other non-interest income.
The following table reflects the changes in non-interest income during the
periods presented (dollars in thousands).
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
1998 1997 % Change 1998 1997 % Change
------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Service Charges on Deposit Accounts $ 500 $ 489 2.3% $1,504 $1,389 8.3%
Non-recurring Income 32 33 -- 186 120 --
Other Non-interest Income 381 303 25.3 1,049 898 16.7
----- ----- ---- ------ ------
Total Non-interest Income $ 913 $ 825 10.5 $2,739 $2,407 13.7
===== ===== ====== ======
</TABLE>
Non-recurring income is primarily interest recovered on loans charged-
off in prior years and gains on sales of assets taken in satisfaction of debt in
prior years.
26
<PAGE>
Non-interest Expense
Non-interest expenses include all expenses other than interest expense,
provision for loan losses and income tax expense.
The following table summarizes the changes in non-interest expense during
the periods presented (dollars in thousands).
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1998 1997 % Change 1998 1997 % Change
------ ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Salaries & Employee Benefits $2,200 $1,895 16.1% $ 6,302 $5,470 15.2%
Occupancy Expense - Net 221 186 18.8 692 573 20.8
Furniture and Equipment Expense 298 237 25.7 882 668 32.0
Other Real Estate Expense - Net 11 (21) -- 11 (29) --
Other Expenses:
Business Development 156 186 (16.1) 459 459 --
Insurance - Other 27 25 8.0 73 72 1.4
Legal & Professional Fees 110 152 (27.6) 362 400 (9.5)
Taxes - Other 70 54 29.6 237 127 86.6
Postage & Courier 73 77 (5.2) 214 209 2.4
Printing & Supplies 103 93 10.8 305 267 14.2
Regulatory Fees & Assessments 39 38 2.6 123 123 --
Other Operating Expenses 232 206 12.6 821 711 15.5
------ ------ ------- ------
Total Other Expenses 810 831 (2.5) 2,594 2,368 9.5
------ ------ ------- ------
Total Non-interest Expense $3,540 $3,128 13.2 $10,481 $9,050 15.8
====== ====== ======= ======
</TABLE>
Total non-interest expense increased 13.2% in the third quarter of 1998 over
1997, reflecting increases in salaries and benefits, occupancy expense,
furniture and equipment expenses, taxes-other and printing and supplies. As a
percent of average assets, non-interest expenses were 2.90% in the third quarter
of 1998 and 2.95% in the same period of 1997. The "efficiency ratio" (non-
interest expenses divided by total non-interest income plus net interest income)
was 51.2% for the third quarter of 1998. These measures of operating efficiency
compare very favorably to other financial institutions in the Corporation's peer
group.
The increase in salaries and employee benefits for the third quarter of 1998
is due to salary merit increases, incentive compensation accrual increases, and
an increase in pension plan expense. Also, the average number of full-time
equivalent employees increased by 29 to an average full-time equivalent of 171
from the number twelve months prior. This increase in number of employees
reflects the opening of a new banking office in 1997 in addition to the adding
of several lending staff members in 1997.
The increase in occupancy expense is also due to the cost of the new branch
banking office noted above.
The increase in furniture and equipment expense is primarily a result of
increased depreciation for new technology related equipment acquired in the last
half of 1997.
Taxes-other increased due to state franchise taxes paid on higher levels of
taxable capital and the loss of certain tax credits that were available in prior
periods.
Printing and supplies expenses increased primarily due to expenses related to
new customer services such as debit cards and imaged customer account
statements.
The increase in Other Operating Expenses includes an increase in
communications expense related to implementation of improved telephone lines to
support new PC network services in the last half of 1997.
Interest Rate Sensitivity
Interest rate sensitivity is the relationship between changes in market
interest rates and net interest income due to the repricing characteristics of
assets and liabilities.
27
<PAGE>
The following table, commonly referred to as a "static gap report",
indicates the interest rate sensitivity position at September 30, 1998 and may
not be reflective of positions in subsequent periods (dollars in thousands):
<TABLE>
<CAPTION>
Total Repriced
Matures or Reprices within: Rate After
-------------------------------- Sensitive 1 Year or
30 Days 31-180 181 to One Year Non-interest
or Less Days One Year or Less Sensitive Total
-------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans $159,668 $20,794 $ 15,202 $195,664 $106,308 $301,972
Investment Securities 11,122 10,931 31,820 53,873 66,950 120,823
Federal Funds Sold &
Due From Time 37,135 -0- -0- 37,135 -0- 37,135
-------- ------- -------- -------- -------- --------
Total Earning Assets 207,925 31,725 47,022 286,672 173,258 459,930
-------- ------- -------- -------- -------- --------
Interest Bearing Liabilities:
Interest-Bearing Transaction
Accounts and Savings 216,756 -0- -0- 216,756 -0- 216,757
Certificate of Deposits
>$100,000 9,560 14,788 9,341 33,689 2,639 36,328
Other Time Deposits 8,699 24,717 13,315 46,731 6,636 53,367
Repurchase Agreements 18,837 -0- -0- 18,837 -0- 18,838
-------- ------- -------- -------- -------- --------
Total Interest Bearing
Liabilities 253,852 39,505 22,656 316,013 9,277 325,290
-------- ------- -------- -------- -------- --------
Interest Sensitivity
Gap $(45,927) $(7,780) $ 24,366 $(29,341) $163,981 $134,640
======== ======= ======== ======== ======== ========
Cumulative Gap $(45,927) $(53,707) $(29,341)
======== ======== ========
Cumulative Gap to
Total Earning Assets (9.99%) (11.68%) (6.38%)
Cumulative Gap to
Total Assets (9.33%) (10.91%) (5.96%)
</TABLE>
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 NOW
accounts typically moves slower than the three month T-Bill. Management
attempts to capture this relative volatility by utilizing a simulation model
with a "beta factor" adjustment which estimates the volatility of rate sensitive
assets and/or liabilities in relation to other market rates.
Beta factors are an estimation of the long term, multiple interest rate
environment relation between an individual account and market rates in general.
For instance, NOW, savings and money market accounts, which are repriceable
within 30 days will have considerably lower beta factors than variable rate
loans and most investment categories. Taking this into consideration, it is
quite possible for a bank with a negative cumulative gap to total asset ratio to
have a positive "beta adjusted" gap risk position.
As a result of applying the beta factors established by management to the
earning assets and interest bearing liabilities in the static gap report via a
simulation model, the negative cumulative gap to total assets ratio at one year
of (5.96%) was reversed to a positive 15.22% "beta adjusted" gap position.
Management feels that the "beta adjusted" gap risk technique more accurately
reflects the Corporation's gap position.
Capital
The Federal Reserve Board has guidelines for capital to total assets
(leverage) and capital standards for bank holding companies. The Comptroller of
the Currency also has similar guidelines for national banks. These guidelines
require a minimum level of Tier I capital to total assets of 3 percent. A
banking organization operating at or near these levels is expected to have well-
diversified risk, excellent asset quality, high liquidity, good earnings and in
general be considered a strong banking organization. Organizations not meeting
these characteristics are expected to operate well above these minimum capital
standards. Thus, for all but the most highly rated organizations, the minimum
Tier I leverage ratio is to be 3 percent plus minimum additional cushions of at
least 100 to 200 basis points. At the discretion of the regulatory authorities,
additional capital may be required.
At September 30, 1998, the Corporation had a leverage ratio of 9.1%.
28
<PAGE>
The Federal Reserve Board and Comptroller of the Currency also have risk-
adjusted capital adequacy guidelines. Capital under these new guidelines is
defined as Tier I and Tier II. At Summit Bancshares, Inc. the only components
of Tier I and Tier II capital are shareholders' equity and a portion of the
allowance for loan losses, respectively.
The guidelines also stipulate that four categories of risk weights (0, 20,
50 and 100 percent), primarily based on the relative credit risk of the
counterparty, be applied to the different types of balance sheet assets. Risk
weights for all off-balance sheet exposures are determined by a two-step process
whereby the face value of the off-balance sheet item is converted to a "credit
equivalent amount" and that amount is assigned to the appropriate risk category.
The regulatory minimum ratio for total qualifying capital is 8.00% of which
4.00% must be Tier I capital. At September 30, 1998, the Corporation's Tier I
capital represented 14.1% of risk weighted assets and total qualifying capital
(Tier I and Tier II) represented 15.3% of risk weighted assets. Both ratios are
well above current regulatory guidelines.
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 as "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 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 the Year 2000 modifications. The Corporation plans to
substantially 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.
29
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Change in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Computation of Earnings Per Common Share
27 Financial Data Schedule
(b) No Reports on Form 8-K were filed during the period ending
September 30, 1998
30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUMMIT BANCSHARES, INC.
Registrant
Date: November 10,1998 By: /s/ Philip E. Norwood
------------------ ------------------------------------------
Philip E. Norwood, Chairman
Date: November 10,1998 By: /s/ Bob G. Scott
------------------ ------------------------------------------
Bob G. Scott, Executive Vice President
and Chief Operating Officer
(Chief Accounting Officer)
31
<PAGE>
EXHIBIT INDEX
Exhibit Page No.
- ------- --------
11 Computation of Earnings Per Common Share
27 Financial Data Schedule
<PAGE>
EXHIBIT 11
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
The details of computation of earnings per common share are disclosed in the
Consolidated Statements of Income and Note 14 of the Notes to Consolidated
Financial Statements for the Periods of Nine Months Ended September 30, 1998 and
1997 (unaudited) and the Year Ended December 31, 1997 (audited), contained in
the Quarterly Report on Form 10-Q of registrant for the quarter Ended September
30, 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 SEPTEMBER 30,
1998, AND THE RELATED STATEMENTS OF INCOME, CHANGES IN SHAREHOLDERS' EQUITY AND
CASH FLOWS FOR THE PERIOD ENDING SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 20,127
<INT-BEARING-DEPOSITS> 5,005
<FED-FUNDS-SOLD> 32,130
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 74,787
<INVESTMENTS-CARRYING> 120,823
<INVESTMENTS-MARKET> 121,590
<LOANS> 301,972
<ALLOWANCE> 4,663
<TOTAL-ASSETS> 492,229
<DEPOSITS> 424,434
<SHORT-TERM> 0
<LIABILITIES-OTHER> 22,790
<LONG-TERM> 0
0
0
<COMMON> 8,144
<OTHER-SE> 36,861
<TOTAL-LIABILITIES-AND-EQUITY> 492,229
<INTEREST-LOAN> 20,789
<INTEREST-INVEST> 5,064
<INTEREST-OTHER> 1,535
<INTEREST-TOTAL> 27,388
<INTEREST-DEPOSIT> 9,500
<INTEREST-EXPENSE> 9,996
<INTEREST-INCOME-NET> 17,392
<LOAN-LOSSES> 539
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10,481
<INCOME-PRETAX> 9,111
<INCOME-PRE-EXTRAORDINARY> 5,962
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,962
<EPS-PRIMARY> .92
<EPS-DILUTED> .87
<YIELD-ACTUAL> 5.34
<LOANS-NON> 6,213
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 11,524
<ALLOWANCE-OPEN> 4,065
<CHARGE-OFFS> 139
<RECOVERIES> 198
<ALLOWANCE-CLOSE> 4,663
<ALLOWANCE-DOMESTIC> 4,663
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
