<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 March 31, 2000; 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 March 31,
2000 was 6,431,285 shares.
<PAGE>
SUMMIT BANCSHARES, INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page No.
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 2000 and
1999 and at December 31, 1999 4
Consolidated Statements of Income for the Three Months
Ended March 31, 2000 and 1999 and for the Year Ended
December 31, 1999 5
Consolidated Statements of Changes in Shareholders' Equity
for the Three Months Ended March 31, 2000 and 1999 and
for the Year Ended December 31, 1999 6
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 1999 and for the Year Ended
December 31, 1999 7
Notes to Consolidated Financial Statements for the Three
Months Ended March 31, 2000 and 1999 and for the Year
Ended December 31, 1999 8-19
The March 31, 2000 and 1999 and the December 31, 1999 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 Three Months Ended
March 31, 2000 and 1999 21-26
</TABLE>
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) (Unaudited)
March 31, December 31,
------------------------------------
2000 1999 1999
---------------- ------------- -----------
ASSETS (In Thousands)
<S> <C> <C> <C>
CASH AND DUE FROM BANKS - NOTE 1 $ 26,506 $ 23,371 $ 19,092
FEDERAL FUNDS SOLD 25,820 16,800 18,012
INVESTMENT SECURITIES - NOTE 2
Securities Available-for-Sale, at fair value 119,272 117,953 129,116
Securities Held-to-Maturity, at cost (fair value of
$25,345,000, $30,424,000 and $26,739,000
March 31, 2000 and 1999 and December 31, 1999,
respectively) 26,032 30,344 27,324
LOANS - NOTE 3
Loans, Net of Unearned Discount 370,125 318,795 355,414
Allowance for Loan Losses (5,440) (4,749) (5,169)
---------- ----------- ----------
LOANS, NET 364,685 314,046 350,245
PREMISES AND EQUIPMENT - NOTE 4 8,442 9,136 8,562
ACCRUED INCOME RECEIVABLE 4,557 3,995 4,503
OTHER REAL ESTATE - NOTE 5 1,945 1,711 1,947
OTHER ASSETS - NOTE 9 5,287 3,902 5,985
---------- ----------- ----------
TOTAL ASSETS $ 582,546 $ 521,258 $ 564,786
========== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS - NOTE 6
Noninterest-Bearing Demand $ 133,389 $ 128,232 $ 128,685
Interest-Bearing 368,435 327,151 351,861
---------- ----------- ----------
TOTAL DEPOSITS 501,824 455,383 480,546
SHORT TERM BORROWINGS - NOTE 7 28,438 16,533 32,091
ACCRUED INTEREST PAYABLE 610 603 576
OTHER LIABILITIES 2,091 2,167 2,864
---------- ----------- ----------
TOTAL LIABILITIES 532,963 474,686 516,077
---------- ----------- ----------
COMMITMENTS AND CONTINGENCIES - NOTE 11, 13 and 17
SHAREHOLDERS' EQUITY - NOTES 12, 14 AND 18
Common Stock - $1.25 Par Value; 20,000,000 shares
authorized; 6,431,285 and 6,506,347 shares
issued and outstanding at March 31, 2000 and 1999 and
6,361,247 at December 31, 1999, respectively 8,039 8,133 7,952
Capital Surplus 6,641 6,412 6,469
Retained Earnings 37,281 32,835 35,474
Accumulated Other Comprehensive Income-Unrealized Gain (Loss)
On Available-for-Sale Investment Securities, Net of Tax (1,498) 273 (1,186)
Treasury Stock at Cost (51,644 and 61,700 shares at
March 31, 2000 and 1999, respectively) (880) (1,081) -0-
---------- ----------- ----------
TOTAL SHAREHOLDERS' EQUITY 49,583 46,572 48,709
---------- ----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 582,546 $ 521,258 $ 564,786
========== =========== ==========
</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 Three Months Ended March 31, Year Ended December 31,
------------------------------------
2000 1999 1999
---------------- ----------------- -----------------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 8,681 $ 7,009 $ 30,620
Interest and Dividends on Investment Securities:
Taxable 2,287 2,072 8,495
Exempt from Federal Income Taxes 6 10 35
Interest on Federal Funds Sold 176 303 1,082
-------- ------- --------
TOTAL INTEREST INCOME 11,150 9,394 40,232
-------- ------- --------
INTEREST EXPENSE
Interest on Deposits 3,740 3,094 12,837
Interest on Short Term Borrowings 351 160 926
Interest on Note Payable -0- -0- 9
-------- ------- --------
TOTAL INTEREST EXPENSE 4,091 3,254 13,772
-------- ------- --------
NET INTEREST INCOME 7,059 6,140 26,460
LESS: PROVISION FOR LOAN LOSSES - NOTE 3 232 220 1,001
-------- ------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 6,827 5,920 25,459
-------- ------- --------
NON-INTEREST INCOME
Service Charges and Fees on Deposits 482 478 2,002
Net Gain (Loss) on Sale of Investment Securities -0- -0- (3)
Other Income 426 553 1,881
-------- ------- --------
TOTAL NON-INTEREST INCOME 908 1,031 3,880
-------- ------- --------
NON-INTEREST EXPENSE
Salaries and Employee Benefits 2,357 2,141 9,226
Occupancy Expense - Net 258 245 1,031
Furniture and Equipment Expense 338 283 1,202
Other Real Estate Owned (Income) Expense - Net (12) 27 107
Other Expense - NOTE 8 1,052 1,042 3,658
-------- ------- --------
TOTAL NON-INTEREST EXPENSE 3,993 3,738 15,224
-------- ------- --------
INCOME BEFORE INCOME TAXES 3,742 3,213 14,115
APPLICABLE INCOME TAXES - NOTE 9 1,292 1,117 4,893
-------- ------- --------
NET INCOME $ 2,450 $ 2,096 $ 9,222
======== ======= ========
NET INCOME PER SHARE - NOTE 14
Basic $ .38 $ .33 $ 1.44
Diluted .37 .31 1.39
</TABLE>
The accompanying Notes should be read with these financial statements.
5
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
CONSOLIDATED AND COMPANY ONLY
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
AND FOR THE YEAR ENDED DECEMBER 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Income -
Net Unrealized
Gain (Loss) on Total
Common Stock Capital Retained Investment Treasury Shareholders'
-----------------------
Shares Amount Surplus Earnings Securities Stock Equity
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
JANUARY 1, 1999 6,471,827 $ 8,090 $ 6,329 $ 31,271 $ 560 $ (15) $ 46,235
Stock Options Exercised 35,320 44 83 127
Purchases of Stock Held
in Treasury (1,081) (1,081)
Retirement of Stock
Held in Treasury (800) (1) (14) 15 -0-
Cash Dividend -
$.08 Per Share (518) (518)
Net Income for the
Three Months Ended
March 31, 1999 2,096 2,096
Securities Available-
for-Sale Adjustment (287) (287)
----------
Total Comprehensive
Income 1,809
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT
MARCH 31, 1999 6,506,347 8,133 6,412 32,835 273 (1,081) 46,572
Stock Options Exercised 28,000 35 57 92
Purchases of Stock Held
in Treasury (2,088) (2,088)
Retirement of Stock
Held in Treasury (173,100) (216) (2,953) 3,169 -0-
Cash Dividend -
$.24 Per Share (1,534) (1,534)
Net Income for the
Nine Months Ended
December 31, 1999 7,126 7,126
Securities Available-
for-Sale Adjustment (1,459) (1,459)
----------
Total Comprehensive
Income 5,667
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT
DECEMBER 31, 1999 6,361,247 7,952 6,469 35,474 (1,186) -0- 48,709
Stock Options Exercised 70,038 87 172 259
Purchases of Stock Held
in Treasury (880) (880)
Cash Dividend -
$.10 Per Share (643) (643)
Net Income for the
Three Months Ended
March 31, 2000 2,450 2,450
Securities Available-
for-Sale Adjustment (312) (312)
----------
Total Comprehensive
Income 2,138
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT
MARCH 31, 2000 6,431,285 $ 8,039 $ 6,641 $ 37,281 $ (1,498) $ (880) $ 49,583
========== ========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying Notes should be read with these financial statements.
6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
AND FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
March 31, December 31,
------------------------------------
2000 1999 1999
------------- ------------ -------------
(In Thousands)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 2,450 $ 2,096 $ 9,222
---------- --------- ---------
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 264 260 1,081
Net Discount Accretion of Investment Securities (15) (121) (39)
Provision for Loan Losses 232 220 1,001
Deferred Income Tax Benefit (48) (10) (385)
Net Loss on Sale of Investment Securities -0- -0- 3
Writedown of Other Real Estate 5 -0- -0-
Net Gain From Sale of Other Real Estate -0- -0- (36)
Net Gain on Sale of Premises and Equipment -0- -0- (105)
Decrease (Increase) in Accrued Income and Other Assets 900 1,204 (33)
Increase (Decrease) in Accrued Expenses and Other Liabilities (738) (420) 250
---------- --------- ---------
Total Adjustments 600 1,133 1,737
---------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,050 3,229 10,959
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (Increase) Decrease in Federal Funds Sold (7,808) 21,906 20,694
Proceeds from Matured and Prepaid Investment Securities
. Held-to-Maturity 285 2,280 4,280
. Available-for-Sale 625 36,413 63,531
Proceeds from Sales of Investment Securities 18,991 -0- 71,214
Purchase of Investment Securities
. Held-to-Maturity -0- (6,037) (6,037)
. Available-for-Sale (9,227) (33,254) (144,026)
Loans Originated and Principal Repayments, Net (14,788) (14,731) (52,828)
Recoveries of Loans Previously Charged-Off 70 39 171
Proceeds from Sale of Premises and Equipment -0- -0- 567
Proceeds from Sale of Other Real Estate -0- -0- 559
Purchases of Premises and Equipment (145) (314) (1,023)
---------- --------- ---------
NET CASH USED BY INVESTING ACTIVITIES (11,997) (6,302) (42,898)
---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease) in Demand Deposits, Savings
Accounts and Interest Bearing Transaction Accounts 18,494 (7,814) 7,488
Net Increase (Decrease) in Certificates of Deposit 2,784 (2,303) 7,558
Net Increase (Decrease) in Short Term Borrowings (3,653) (1,306) 14,252
Payments of Cash Dividends (643) (518) (2,052)
Proceeds from Stock Options Exercised 259 127 219
Purchase of Treasury Stock (880) (1,081) (3,169)
---------- --------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 16,361 (12,895) 24,296
---------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
DUE FROM BANKS 7,414 (3,364) (7,643)
CASH AND DUE FROM BANKS AT BEGINNING
OF PERIOD 19,092 26,735 26,735
---------- --------- ---------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 26,506 $ 23,371 $ 19,092
========== ========= =========
SUPPLEMENTAL SCHEDULE OF OPERATING AND INVESTING ACTIVITIES
Interest Paid $ 3,961 $ 3,689 $ 14,232
Income Taxes Paid 75 -0- 5,198
Other Real Estate Acquired in Settlement of Loans 3 1,430 2,188
</TABLE>
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1999 (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 the 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 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 three months of 2000 the average cash balance maintained at the
Federal Reserve Bank was $1,088,000. Compensating balances held at
correspondent banks, to minimize service charges, averaged
approximately $17,981,000 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 at the
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
creditworthiness, a change in tax law, or statutory or regulatory
requirements), the Corporation may change the investment security
classification. In the periods reported for 2000 and 1999 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.
8
<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 simple interest method. 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," 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 charged against the
allowance for loan losses when management believes that the
collectibility 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 expenses. Renewals and
betterments 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 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 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."
9
<PAGE>
NOTE 1 - Summary of Significant Accounting Policies (cont'd.)
- ----
Reclassification
----------------
Certain reclassifications have been made to the 1999 financial
statements to conform to the 2000 presentation.
Earnings Per Common and Common Equivalent Share
-----------------------------------------------
Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
"Earnings Per Share," requires presentation of basic and diluted
earnings per share. Basic earnings per share has been computed by
dividing net income available to common shareholders by the weighted
average number of common shares outstanding for the reporting period.
Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were
exercised or converted into common stock. Net income per common share
for all periods presented has been calculated in accordance with SFAS
128. Outstanding stock options issued by the Corporation represent the
only dilutive effect reflected in diluted weighted average shares.
Audited Financial Statements
----------------------------
The consolidated balance sheet as of December 31, 1999, and the
consolidated statements of income, changes in shareholders' equity and
cash flows for the year ended December 31, 1999 are headed "unaudited"
in these financial statements. These statements were reported in the
Securities Exchange Commission Form 10-K as of December 31, 1999 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>
March 31, 2000
------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Investment Securities - Held-to-Maturity
U.S. Treasury Securities $ 7,997 $ 2 $ (9) $ 7,990
U.S. Government Agencies
and Corporations 18,035 -0- (680) 17,355
-------- ----- ------ --------
Total Held-to-Maturity Securities 26,032 2 (689) 25,345
-------- ----- ------ --------
Investment Securities - Available-for-Sale
U.S. Treasury Securities 16,997 5 (94) 16,908
U.S. Government Agencies
and Corporations 90,376 9 (2,022) 88,363
U.S. Government Agency Mortgage
Backed Securities 12,593 52 (222) 12,423
Obligations of States and Political Subdivisions 350 -0- (1) 349
Federal Reserve and Federal Home Loan Bank Stock 1,229 -0- -0- 1,229
-------- ----- ------ --------
Total Available-for-Sale Securities 121,545 66 (2,339) 119,272
-------- ----- ------ --------
Total Investment Securities $ 147,577 $ 68 $ (3,028) $ 144,617
======== ===== ====== ========
</TABLE>
In the above schedule the amortized cost of Total Held-to-Maturity
Securities of $26,032,000 and the estimated fair value of Total
Available-for-Sale Securities of $119,272,000 are reflected in Investment
Securities on the consolidated balance sheet as of March 31, 2000 for a total of
$145,304,000. A net unrealized loss of $2,273,000 is included in the
Available-for-Sale Investment Securities balance. The unrealized loss, net of
tax, is included in Shareholders' Equity.
<PAGE>
NOTE 2 - Investment Securities (cont'd)
- ------
A summary of amortized cost and estimated fair values of investment
securities is as follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1999
----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Investment Securities - Held-to-Maturity
U.S. Treasury Securities $ 9,991 $ 184 $ -0- $ 10,175
U.S. Government Agencies
and Corporations 20,062 25 (132) 19,955
Obligations of States and
Political Subdivisions 291 3 -0- 294
------- --- ---- -------
Total Held-to-Maturity Securities 30,344 212 (132) 30,424
------- --- ---- -------
Investment Securities - Available-for-Sale
U.S. Treasury Securities 28,035 374 (1) 28,408
U.S. Government Agencies
and Corporations 70,813 133 (144) 70,802
U.S. Government Agency Mortgage
Backed Securities 17,057 71 (26) 17,102
Obligations of States and Political Subdivisions 455 7 -0- 462
Federal Reserve and Federal Home Loan Bank Stock 1,179 -0- -0- 1,179
------- --- ----- -------
Total Available-for-Sale Securities 117,539 585 (171) 117,953
------- --- ---- -------
Total Investment Securities $ 147,883 $ 797 $ (303) $ 148,377
======= === ===== =======
</TABLE>
In the above schedule the amortized cost of Total Held-to-Maturity
Securities of $30,344,000 and the estimated fair value of Total
Available-for-Sale Securities of $117,953,000 are reflected in Investment
Securities on the consolidated balance sheet as of March 31, 1999 for a total of
$148,297,000. A net unrealized gain of $414,000 is included in the
Available-for-Sale Investment Securities balance. The unrealized gain, net of
tax, is included in Shareholders' Equity.
NOTE 3 - Loans and Allowance for Loan Losses
The book values of loans by major type follow (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
---------------------------------
2000 1999 1999
---- ---- ------------
<S> <C> <C> <C>
Commercial $ 164,383 $ 147,991 $ 156,847
Real Estate Mortgage 124,158 102,444 120,596
Real Estate Construction 48,368 36,917 43,875
Loans to Individuals 33,339 31,836 34,261
Less: Unearned Discount (123) (393) (165)
------- ------- -------
370,125 318,795 355,414
Allowance for Loan Losses (5,440) (4,749) (5,169)
------- ------- -------
Loans - Net $ 364,685 $ 314,046 $ 350,245
======= ======= =======
</TABLE>
11
<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>
Year Ended
Three Months Ended March 31, December 31,
--------------------------------------
2000 1999 1999
------------ ------------ -----------
<S> <C> <C> <C>
Balance, Beginning of Period $ 5,169 $ 4,724 $ 4,724
Provisions, Charged to Income 232 220 1,001
Loans Charged-Off (31) (234) (727)
Recoveries of Loans Previously
Charged-Off 70 39 171
------- ------- -------
Net Charge-Offs/(Recoveries) (39) 195 556
------- ------- -------
Balance, End of Period $ 5,440 $ 4,749 $ 5,169
======= ======= =======
</TABLE>
The provisions for loan losses charged to operating expenses during
the three months ended March 31, 2000 and March 31, 1999 of $232,000 and
$220,000, respectively, were considered adequate to maintain the allowance in
accordance with the policy discussed in Note 1. For the year ended December 31,
1999, a provision of $1,001,000 was recorded.
At March 31, 2000, the recorded investment in loans that are
considered to be impaired under Statement of Financial Accounting Standards No.
114 was $2,462,000 (of which $2,462,000 were on non-accrual status). The related
allowance for loan losses for these loans was $865,000. The average recorded
investment in impaired loans during the three months ended March 31, 2000 was
approximately $2,374,000. 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>
March 31, December 31,
-------------------------------------------
2000 1999 1999
---------------- ---------------- ----------
<S> <C> <C> <C>
Land $ 2,320 $ 2,783 $ 2,320
Buildings and Improvements 7,783 7,549 7,715
Furniture & Equipment 8,010 7,536 8,003
------- -------- -------
Total Cost 18,113 17,868 18,038
Less: Accumulated Amortization and Depreciation 9,671 8,732 9,476
------- -------- -------
Net Book Value $ 8,442 $ 9,136 $ 8,562
======= ======== =======
</TABLE>
NOTE 5 - Other Real Estate
- ------
The carrying value of other real estate is as follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
---------------------------------------
2000 1999 1999
------------ ------------ ---------
<S> <C> <C> <C>
Other Real Estate $ 1,945 $ 1,711 1,947
===== ===== =====
</TABLE>
12
<PAGE>
NOTE 5 - Other Real Estate (cont'd.)
- ------
There were direct writedowns of other real estate charged to income for
the three months ended March 31, 2000 of $5,000. For the three months ended
March 31, 1999, or for the year ended December 31, 1999, respectively, there
were no direct writedowns.
NOTE 6 - Deposits
- ------
The book values of deposits by major type follow (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
----------------------------------
2000 1999 1999
------------ ------------ ----------
<S> <C> <C> <C>
Noninterest-Bearing Demand Deposits $ 133,389 $ 128,232 $ 128,685
------- -------- --------
Interest-Bearing Deposits:
Interest-Bearing Transaction
Accounts and Money Market Funds 172,354 153,347 154,304
Savings 94,468 84,836 98,728
Savings Certificates - Time 59,164 52,665 58,973
Certificates of Deposits $100,000 or more 41,671 35,525 39,078
Other 778 778 778
------- ------- -------
Total 368,435 327,151 351,861
------- ------- -------
Total Deposits $ 501,824 $ 455,383 $ 480,546
======= ======= =======
</TABLE>
NOTE 7 - Short Term Borrowings
- ------
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>
Year Ended
Three Months Ended March 31, December 31,
----------------------------------
2000 1999 1999
-------------- -------------- -----------
<S> <C> <C> <C>
Securities Sold Under Repurchase Agreements:
Average $ 25,420 $ 17,235 $ 20,488
Period-End 24,438 16,533 28,091
Maximum Month-End Balance During Period 25,019 19,734 30,309
Interest Rate
Average 4.66% 3.77% 4.04%
Period-End 4.80 4.10 3.38
</TABLE>
The Corporation, through one of its subsidiaries, has available a line
of credit with the Federal Home Loan Bank of Dallas which allows the subsidiary
to borrow on a collateralized basis at a fixed term. At December 31, 1999, the
subsidiary had borrowed $4,000,000, bearing an interest rate of 5.43% and having
a maturity of April 2000 under the line of credit.
13
<PAGE>
NOTE 8 - Other Non-Interest Expense
The significant components of other non-interest expense are as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended
Three Months Ended March 31, December 31,
------------------------------------
2000 1999 1999
----------- ----------- ----------
<S> <C> <C> <C>
Business Development $ 176 $ 124 $ 602
Legal and Professional Fees 188 167 619
Printing and Supplies 100 105 379
Regulatory Fees and Assessments 60 46 183
Other 528 600 1,875
------- ------- -------
Total $ 1,052 $ 1,042 $ 3,658
======= ======= =======
</TABLE>
NOTE 9 - Income Taxes
Federal income taxes included in the consolidated balance sheets were as
follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
-------------------------------
2000 1999 1999
----------- ------------ ----------
<S> <C> <C> <C>
Current Tax Asset (Liability) $ (1,335) $ (1,117) $ (70)
Deferred Tax Asset 2,470 1,130 2,257
------ ------ -----
Total Included in Other Assets/
(Other Liabilities) $ 1,135 $ 13 $ 2,187
====== ====== =====
</TABLE>
The deferred tax asset at March 31, 2000 of $2,470,000 included $776,000
related to unrealized losses on Available-for-Sale Securities.
The components of income tax expense were as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
Three Months Ended March 31, December 31,
----------------------------
2000 1999 1999
--------- --------- ----------
<S> <C> <C> <C>
Federal Income Tax Expense
Current $ 1,340 $ 1,127 $ 5,278
Deferred (48) (10) (385)
------ ------- ------
Total Federal Income Tax Expense $ 1,292 $ 1,117 $ 4,893
====== ======= ======
Effective Tax Rates 34.5% 34.7% 34.7%
====== ======= ======
</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
Three Months Ended March 31, December 31,
------------------------------
2000 1999 1999
----------- ---------- ----------
<S> <C> <C> <C>
Federal Income Taxes at Statutory
Rate of 34.3% $ 1,285 $ 1,102 $ 4,847
Effect of Tax Exempt Interest Income (2) (4) (12)
Non-deductible Expenses 15 12 64
Other (6) 7 (6)
------- ------- --------
Income Taxes Per Income Statement $ 1,292 $ 1,117 $ 4,893
======= ======= ========
</TABLE>
14
<PAGE>
NOTE 9 - Income Taxes (con't)
- ------
<TABLE>
<CAPTION>
Year Ended
Three Months Ended March 31, December 31,
------------------------------
2000 1999 1999
--------- --------- ----------
<S> <C> <C> <C>
Federal Deferred Tax Assets:
Allowance for Loan Losses $ 1,437 $ 1,183 $ 1,357
Valuation Reserves - Other Real Estate 2 -0- -0-
Interest on Non-accrual Loans 180 166 189
Deferred Compensation 455 411 458
Unrealized Losses on Available-for-Sale Securities 775 -0- 611
Other 18 19 19
-------- -------- -----------
Gross Federal Deferred Tax Assets 2,867 1,779 2,634
-------- -------- -----------
Federal Deferred Tax Liabilities:
Depreciation and Amortization 325 298 321
Accretion 72 68 56
Unrealized Gains on Available-for-Sale Securities -0- 141 -0-
Other -0- 142 -0-
-------- -------- -----------
Gross Federal Deferred Tax Liabilities 397 649 377
-------- -------- -----------
Net Deferred Tax Asset $ 2,470 $ 1,130 $ 2,257
======== ======== ===========
</TABLE>
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 $3,488,000 at December 31, 1999.
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 March 31, 2000, outstanding documentary and standby letters of
credit totaled $3,353,000 and commitments to extend credit totaled $113,787,000.
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 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, 1999, or the three months ended March 31, 2000.
15
<PAGE>
NOTE 12 - Stock Option Plans (con't)
- -------
The following is a summary of transactions during the periods
presented:
Shares Under Option
----------------------------------------
Three Months
Ended Year Ended
March 31, 2000 December 31, 1999
--------------- -----------------
Outstanding, Beginning of Period 445,497 461,717
Additional Options Granted During
the Period -0- 49,500
Forfeited During the Period (2,000) (2,400)
Exercised During the Period (70,038) (63,320)
------- -------
Outstanding, End of Period 373,459 445,497
======= =======
Options outstanding at March 31, 2000 ranged in price from $3.00 to
$19.25 per share with a weighted average exercise price of $9.59 and 290,027
shares exercisable. At March 31, 2000, there remained 484,800 shares reserved
for future grants of options under the 1997 Plan. There are no shares available
for grant under the 1993 Plan.
NOTE 13 - Employee Benefit Plans
- -------
Pension Plan
- ------------
The Corporation had a defined benefit pension plan covering
substantially all of its employees. The benefits were based on years of service
and the employee's compensation history. The employee's compensation used in the
benefit calculation were the highest average for any five consecutive years of
employment within the employee's last ten years of employment.
Effective August 31, 1998, the accrual of benefits under this plan were
suspended. In February 1999, the Board of Directors chose to terminate the plan
effective April 15, 1999. The assets held in trust were distributed to the plan
participants in mid-1999 under terms of the plan.
During 1999 the Corporation expensed $321,000 in support of the plan.
401(k) Plan
- -----------
The Corporation implemented a 401(k) plan in December 1997 covering
substantially all employees. The Corporation made no contribution to this plan
in 1999 or 1998. In 2000, the Corporation will make matching contributions to
the participant's deferrals of compensation up to 100% of the employee
contributions not to exceed 6% of the employee's annual compensation. For the
first three months of 2000, the Corporation expensed $93,000 in support of the
plan.
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 $50,000 and $54,000 during the first three months of
2000 and 1999, respectively, and $223,000 for the year 1999.
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).
16
<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.
<TABLE>
<CAPTION>
March 31, December 31,
------------------------------------
2000 1999 1999
------------ ------------ ------------
<S> <C> <C> <C>
Net income $ 2,450 $ 2,096 $ 9,222
============ ============ ============
Weighted average number of common
shares used in Basic EPS 6,384,238 6,460,003 6,410,762
Effect of dilutive stock options 163,669 254,682 244,787
------------ ------------ ------------
Weighted number of common shares
and dilutive potential common
stock used in Diluted EPS 6,547,907 6,714,685 6,655,549
============ ============ ============
</TABLE>
NOTE 15 - Financial Instruments with Off-Balance Sheet Risk
- -------
The Corporation is a party to financial instruments with off-balance
sheet risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include loan commitments, standby letters
of credit and documentary letters of credit. The instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the financial statements.
The Corporation's exposure to credit loss in the event of
non-performance by the other party of these loan commitments and standby letters
of credit is represented by the contractual amount of those instruments. The
Corporation uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
The total contractual amounts of financial instruments with off-balance
sheet risk are as follows (in thousands):
March 31,
-------------------------
2000 1999
--------- ---------
Financial Instruments Whose
Contract Amounts Represent
Credit Risk:
Commitments to Extend Credit $113,787 $104,189
Documentary and Standby
Letters of Credit 3,353 3,790
Since many of the loan commitments may expire without being drawn upon,
the total commitment amount does not necessarily represent future cash
requirements. The Corporation evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Corporation upon extension of credit, is based on management's credit
evaluation of the counterparty. Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment, owner occupied real estate
and income-producing commercial properties.
The credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loan facilities to customers.
NOTE 16 - Concentrations of Credit Risk
- -------
The Subsidiary Banks grant commercial, consumer and real estate loans
in their direct market which is defined as Fort Worth and its surrounding area.
The Board of Directors of each Subsidiary Bank monitors concentrations of credit
by purpose, collateral and industry at least quarterly. Certain limitations for
concentration are set by the Boards. Additional loans in excess of these limits
must have prior approval of the bank's directors' loan committee. Although its
Subsidiary Banks have diversified loan portfolios, a substantial portion of its
debtors' abilities to honor their contracts is dependent upon the strength of
the local and state economy.
NOTE 17 - Litigation
- -------
Certain of the Subsidiary Banks are involved in legal actions arising
in the ordinary course of business. It is the opinion of management, after
reviewing such actions with outside legal counsel, that the settlement of these
matters will not materially affect the Corporation's financial position.
17
<PAGE>
NOTE 18 - Stock Repurchase Plan
- -------
On April 18, 2000, the Board of Directors approved a stock repurchase
plan. The plan authorized management to purchase up to 318,982 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 three months of 2000, 51,644 shares were purchased by the
Corporation through a similar repurchase plan through the open market.
NOTE 19 - Subsequent Event
- -------
On April 18, 2000, the Board of Directors of the Corporation approved a
quarterly dividend of $.10 per share to be paid on May 15, 2000 to shareholders
of record on May 1, 2000.
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.
18
<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>
March 31,
-----------------------------------------------------------
2000 1999
------------------------ ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial Assets
Cash and due from banks $ 26,506 $ 26,506 $ 23,371 $ 23,371
Federal funds sold 25,820 25,820 16,800 16,800
Securities 145,304 144,617 148,297 148,377
Loans 370,125 366,096 317,795 321,144
Reserve for loan losses (5,440) (5,440) (4,749) (4,749)
Financial Liabilities
Deposits 501,824 501,362 455,383 455,868
Short Term Borrowings 28,438 28,441 16,533 16,533
Off-balance Sheet Financial Instruments
Loan commitments 113,787 104,189
Letters of credit 3,353 3,790
</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 Three Months Ended March 31, Year Ended
------------------------------------
2000 1999 December 31, 1999
-------- -------- -----------------
<S> <C> <C> <C>
Net Income $ 2,450 $ 2,096 $ 9,222
Other Comprehensive Income:
Unrealized gain (loss) on
Available-for-Sale securities, net of tax (312) (287) (1,746)
------- ------- ---------
Comprehensive Income $ 2,138 $ 1,809 $ 7,476
======= ======= =========
</TABLE>
19
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
Summary
- -------
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 and accompanying notes.
Net income for the first quarter of 2000 was $2,450,000, or $.37
diluted earnings per share, compared with $2,096,000, or $.31 diluted earnings
per share, for the first quarter of 1999. Per share amounts are based on average
shares outstanding of 6,547,907 for the first quarter of 2000 and 6,714,685 for
the comparable period of 1999 adjusted to reflect stock options granted. On a
per share basis, diluted earnings per share increased 19.4% over the first
quarter of the prior year.
Outstanding loans at March 31, 2000 of $370.1 million represented an
increase of $51.3 million, or 16.1%, over March 31, 1999 and an increase of
$14.7 million, or 4.1%, from December 31, 1999.
Total deposits at March 31, 2000 of $501.8 million represented an
increase of $46.4 million, or 10.2%, over March 31, 1999 and an increase of
$21.3 million, or 4.4%, from December 31, 1999.
In the first quarter, net interest income increased 14.9% over the
previous year. An increase in non-interest expense of 6.8% partially offset the
increase in net interest income.
The following table summarizes the Corporation's performance for the
three months ended March 31, 2000 and 1999 (tax equivalent basis and dollars in
thousands).
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
2000 1999
---- ----
<S> <C> <C>
Interest Income $ 11,153 $ 9,399
Interest Expense 4,091 3,254
------ ------
Net Interest Income 7,062 6,145
Provision for Loan Loss 232 220
------ ------
Net Interest Income After
Provision for Loan Loss 6,830 5,925
Non-Interest Income 908 1,031
Non-Interest Expense 3,993 3,738
------ ------
Income Before Income Tax 3,745 3,218
Income Tax Expense 1,295 1,122
------ ------
Net Income $ 2,450 $ 2,096
====== ======
Net Income per Share -
Basic $ .38 $ .33
Diluted .37 .31
Return on Average Assets 1.74% 1.63%
Return on Average Shareholders' Equity 20.06% 18.27%
</TABLE>
20
<PAGE>
Summary of Earning Assets and Interest-Bearing Liabilities
The following schedule presents average balance sheets that highlight
earning assets and interest-bearing liabilities and their related rates earned
and paid for the first quarter of 2000 and 1999 (rates on tax equivalent basis).
<TABLE>
<CAPTION>
Three Months ended March 31,
---------------------------------------------------------------
2000 1999
--------------------------- ---------------------------
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 $ 13,068 $ 184 5.68% $ 25,408 $ 303 4.84%
Investment Securities (Taxable) 148,404 2,279 6.18 145,391 2,072 5.78
Investment Securities (Tax-exempt) 491 9 7.29 890 15 7.06
Loans, Net of Unearned Discount(1) 364,750 8,681 9.57 311,326 7,009 9.13
--------- -------- --------- -------
Total Earning Assets 526,713 11,153 8.52 483,015 9,399 7.89
-------- -------
Non-interest Earning Assets:
Cash and Due From Banks 24,115 23,278
Other Assets 19,293 18,890
Allowance for Loan Losses (5,309) (4,789)
--------- ---------
Total Assets $ 564,812 $ 520,394
========= =========
Interest-Bearing Liabilities:
Interest-Bearing Transaction
Accounts and Money Market Funds $ 159,846 1,432 3.60 $ 154,753 1,212 3.18
Savings 96,059 1,059 4.43 82,923 815 3.99
Savings Certificates 58,607 727 4.99 53,227 614 4.68
Certificates of Deposit
$100,000 or more 39,275 512 5.24 36,099 443 4.98
Other Time 778 10 5.38 778 10 5.22
Other Borrowings 29,483 351 4.79 17,235 160 3.77
--------- ------ --------- ------
Total Interest-Bearing Liabilities 384,048 4,091 4.28 345,015 3,254 3.83
------ ------
Non-interest Bearing Liabilities:
Demand Deposits 130,197 126,505
Other Liabilities 1,460 2,360
Shareholders' Equity 49,107 46,514
--------- ---------
Total Liabilities and
Shareholders' Equity $ 564,812 $ 520,394
========= =========
Net Interest Income and Margin
(Tax-equivalent Basis)(2) $7,062 5.39 $6,145 5.16
====== ======
</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.
21
<PAGE>
Net Interest Income
- -------------------
Net interest income (tax equivalent) for the first quarter of 2000 was
$7,062,000 which represented an increase of $917,000, or 14.9%, over the first
quarter of 1999. This increase was heavily contributed to by a 17.2% increase in
average loans for the first quarter of 2000 versus the same quarter last year.
This increase reflects a 23 basis point increase in net interest margin for the
period compared to the first quarter of 1999.
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 March 31, 2000 and 1999.
<TABLE>
<CAPTION>
ANALYSIS OF CHANGES IN NET INTEREST INCOME
(Dollars in Thousands)
1st Qtr. 2000 vs. 1st Qtr. 1999 1st Qtr. 1999 vs. 1st Qtr. 1998
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 $ (403) $ 284 $ (119) $ (194) $ (62) $ (256)
Investment Securities (Taxable) 48 159 207 1,115 (666) 449
Investment Securities (Tax-exempt) (9) 3 (6) (4) (1) (5)
Loans, Net of Unearned Discount 1,304 368 1,672 2,555 (2,225) 330
------- ------- -------- ----------- ------- --------
Total Interest Income 940 814 1,754 3,472 (2,954) 518
------- ------- -------- ----------- ------- --------
Interest-Bearing Liabilities:
Deposits 312 334 646 1,310 (1,302) 8
Other Borrowings 138 53 191 132 (135) (3)
------- ------- -------- ----------- ------- --------
Total Interest Expense 450 387 837 1,442 (1,437) 5
------- ------- -------- ----------- ------- --------
Net Interest Income $ 490 $ 427 $ 917 $ 2,030 $(1,517) $ 513
======= ======= ======== =========== ======= ========
</TABLE>
Allowance for Loan Losses and Non-Performing Assets
- ---------------------------------------------------
The Corporation's allowance for loan losses was $5,440,000, or 1.47% of
total loans, as of March 31, 2000 compared to $4,749,000, or 1.49% of total
loans, as of March 31, 1999.
Transactions in the allowance for loan losses are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
2000 1999
---------- ----------
<S> <C> <C>
Balance, Beginning of Period $ 5,169 $ 4,724
Provisions, Charged to Income 232 220
Loans Charged-Off (31) (234)
Recoveries of Loans Previously
Charged-Off 70 39
---------- ----------
Net Charge-Off's (Recoveries) (39) 195
---------- ----------
Balance, End of Period $ 5,440 $ 4,749
========== ==========
</TABLE>
For the three months ended March 31, 2000 and 1999, net charge-off's
(recoveries) were (.01)% and .06%, respectively, not annualized.
The following table summarizes the non-performing assets as of the end of
the last five quarters (in thousands).
<TABLE>
<CAPTION>
March 31, December 31, September 30, June 30, March 31,
2000 1999 1999 1999 1999
--------- ------------ ------------- -------- ---------
<S> <C> <C> <C> <C> <C>
Non-Accrual Loans $ 2,518 $ 2,450 $ 2,899 $ 2,952 $ 4,207
Renegotiated Loans 2 3
Other Real Estate Owned 1,945 1,947 1,494 1,467 1,711
------- ------- ------- -------- -------
Total Non-Performing Assets $ 4,465 $ 4,400 $ 4,393 $ 4,419 $ 5,918
======= ======= ======= ======== =======
</TABLE>
22
<PAGE>
Allowance for Loan Losses and Non-Performing Assets (con't)
- ---------------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31, September 30, June 30, March 31,
2000 1999 1999 1999 1999
--------- ------------ ------------- -------- ---------
<S> <C> <C> <C> <C> <C>
As a Percent of:
Total Assets .77% .78% .80% .84% 1.14%
Total Loans and Other Assets 1.20 1.23 1.26 1.30 1.85
Loans Past Due 90 days or
More and Still Accruing $ 105 $ -0- $ -0- $ 17 $ 7
</TABLE>
Non-accrual loans to total loans were .68% at March 31, 2000 and non-
performing assets were 1.20% of loans and other real estate owned at the same
date.
As of March 31, 2000, loans to three borrowers represent approximately
88% of the loans on non-accrual and the largest of these borrowers is current as
to payment of principal and interest on its loan. The other two credits have
significant SBA guarantees.
The following table summarizes the relationship between non-performing
loans, criticized loans and the allowance for loan losses (dollars in
thousands).
<TABLE>
<CAPTION>
March 31, December 31, September 30, June 30, March 31,
2000 1999 1999 1999 1999
--------- ------------ ------------- -------- ---------
<S> <C> <C> <C> <C> <C>
Non-Performing Loans $ 2,520 $ 2,453 $ 2,899 $ 2,952 $ 4,207
Criticized Loans 12,367 11,804 9,196 9,755 9,597
Allowance for Loan Losses 5,440 5,169 5,044 4,895 4,749
Allowance for Loan Losses
as a Percent of:
Non-Performing Loans 216% 211% 174% 166% 129%
Criticized Loans 44 44 55 50 50
</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 March 31,
--------------------------------------
2000 1999 % Change
------- -------- --------
<S> <C> <C> <C>
Service Charges on Deposit Accounts $ 482 $ 478 .8%
Non-recurring Income 61 198 --
Other Non-interest Income 365 355 2.8
--- ---
Total Non-interest Income $ 908 $ 1,031 (11.9%)
====== =====
</TABLE>
Non-recurring income in the current quarter is primarily interest
recovered on non-accrual loans of prior years of which interest was collected in
the current quarter.
23
<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 March 31,
----------------------------------------
2000 1999 % Change
-------- ------- --------
<S> <C> <C> <C>
Salaries & Employee Benefits $ 2,357 $ 2,141 10.1%
Occupancy Expense - Net 258 245 5.3
Furniture and Equipment Expense 338 283 19.4
Other Real Estate (Income) Expense - Net (12) 27 --
Other Expenses:
Business Development 176 124 41.9
Insurance - Other 27 35 (22.9)
Legal & Professional Fees 188 167 12.6
Taxes - Other 56 65 (13.8)
Postage & Courier 83 78 6.4
Printing & Supplies 100 105 (5.0)
Regulatory Fees & Assessments 60 46 30.4
Other Operating Expenses 362 422 (14.2)
-------- ------- -----
Total Other Expenses 1,052 1,042 1.0
-------- ------- -----
Total Non-interest Expense $ 3,993 $ 3,738 6.8%
======== ======= =====
</TABLE>
Total non-interest expense increased 6.8% in the first quarter of 2000
over 1999, reflecting increases in salaries and benefits, furniture and
equipment expense, business development expense and legal and professional
expense. As a percent of average assets, non-interest expenses annualized were
2.83% in the first quarter of 2000 and 2.87% in the same period of 1999. The
"efficiency ratio" (non-interest expenses divided by total non-interest income
plus net interest income) was 50.1% for the first quarter of 2000. 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 first quarter of
2000 is due to salary merit increases and additions to staff. The average number
of full-time equivalent employees increased by 9.5 to an average full-time
equivalent of 179 from the number in the first quarter of last year. This
increase in number of employees was required because of growth of the Company
over the past year.
The increase in furniture and equipment expense is primarily due to
increased repairs and increased expense for service contracts.
Legal and professional fees increased due to increases in audit fees and
various consultant fees.
The increase in business development expense is due to increased
advertising expense.
24
<PAGE>
Interest Rate Sensitivity
- -------------------------
Interest rate sensitivity is the relationship between changes in market
interest rates and net interest income due to the repricing characteristics of
assets and liabilities.
The following table, commonly referred to as a "static gap report",
indicates the interest rate sensitivity position at March 31, 2000 and may not
be reflective of positions in subsequent periods (dollars in thousands):
<TABLE>
<CAPTION>
Total Repriced
Rate After
Matures or Reprices within: 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 $ 211,763 $ 20,183 $ 17,661 $ 249,607 $ 120,518 $ 370,125
Investment Securities 3,602 6,764 16,832 27,198 118,106 145,304
Federal Funds Sold 25,820 -0- -0- 25,820 -0- 25,820
--------- --------- -------- --------- ----------- ---------
Total Earning Assets 241,185 26,947 34,493 302,625 238,624 541,249
--------- --------- -------- --------- ----------- ---------
Interest Bearing Liabilities:
Interest-Bearing Transaction
Accounts and Savings 266,822 -0- -0- 266,822 -0- 266,822
Certificate of Deposits
>$100,000 7,616 18,785 8,253 34,654 7,018 41,672
Other Time Deposits 6,440 23,521 15,144 45,105 14,836 59,941
Short Term Borrowings 28,438 -0- -0- 28,438 -0- 28,438
--------- --------- -------- --------- ----------- ---------
Total Interest Bearing
Liabilities 309,316 42,306 23,397 375,019 21,854 396,873
--------- --------- -------- --------- ----------- ---------
Interest Sensitivity
Gap $ (68,131) $ (15,359) $ 11,096 $ (72,394) $ 216,770 $ 144,376
========== ========= ======== ========= =========== =========
Cumulative Gap $ (68,131) $ (83,490) $(72,394)
========== ========= ========
Cumulative Gap to
Total Earning Assets (12.6%) (15.4%) (13.4%)
Cumulative Gap to
Total Assets (11.7%) (14.3%) (12.4%)
</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 (12.4%) was reversed to a positive 8.6% "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.
25
<PAGE>
Capital (con't)
- -------
At March 31, 2000, total capital to total assets was 8.51%.
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 March 31, 2000, the Corporation's Tier I
capital represented 13.3% of risk weighted assets and total qualifying capital
(Tier I and Tier II) represented 14.5% of risk weighted assets. Both ratios are
well above current regulatory guidelines.
Also, as of March 31, 2000, 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").
Forward-Looking Statements
- --------------------------
The Corporation may from time to time make forward-looking statements
(within the meaning of the Private Securities Litigation Reform Act of 1995)
with respect to earnings per share, credit quality, expected Year 2000
compliance program, corporate objectives and other financial and business
matters. The Corporation cautions the reader that these forward-looking
statements are subject to numerous assumptions, risks and uncertainties,
including economic conditions; actions taken by the Federal Reserve Board;
legislative and regulatory actions and reforms; competition; as well as other
reasons, all of which change over time. Actual results may differ materially
from forward-looking statements.
26
<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
March 31, 2000
27
<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: April 28, 2000 By: /s/ Philip E. Norwood
-------------- ---------------------------
Philip E. Norwood, Chairman
Date: April 28, 2000 By: /s/ Bob G. Scott
-------------- ---------------------------
Bob G. Scott, Executive Vice President
and Chief Operating Officer
(Chief Accounting Officer)
28
<PAGE>
EXHIBIT INDEX
Exhibit Page No.
- ------- --------
11 Computation of Earnings Per Common Share
27 Financial Data Schedule
<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
The details of computation of earnings per common share are disclosed in the
Consolidated Statements of Income and Note 14 of the Notes to Consolidated
Financial Statements for the Periods of Three Months Ended March 31, 2000 and
1999 (unaudited) and the Year Ended December 31, 1999 (audited), contained in
the Quarterly Report on Form 10-Q of registrant for the quarter Ended March 31,
2000.
<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 MARCH 31, 2000 ,
AND THE RELATED STATEMENTS OF INCOME, CHANGES IN SHAREHOLDERS' EQUITY AND CASH
FLOWS FOR THE PERIOD ENDING MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 26,506
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 25,820
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 119,272
<INVESTMENTS-CARRYING> 145,304
<INVESTMENTS-MARKET> 144,617
<LOANS> 370,125
<ALLOWANCE> 5,440
<TOTAL-ASSETS> 582,546
<DEPOSITS> 501,824
<SHORT-TERM> 28,438
<LIABILITIES-OTHER> 2,701
<LONG-TERM> 0
0
0
<COMMON> 8,039
<OTHER-SE> 41,544
<TOTAL-LIABILITIES-AND-EQUITY> 582,546
<INTEREST-LOAN> 8,681
<INTEREST-INVEST> 2,293
<INTEREST-OTHER> 176
<INTEREST-TOTAL> 11,150
<INTEREST-DEPOSIT> 3,740
<INTEREST-EXPENSE> 4,091
<INTEREST-INCOME-NET> 7,059
<LOAN-LOSSES> 232
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,993
<INCOME-PRETAX> 3,742
<INCOME-PRE-EXTRAORDINARY> 2,450
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,450
<EPS-BASIC> .38
<EPS-DILUTED> .37
<YIELD-ACTUAL> 5.39
<LOANS-NON> 2,518
<LOANS-PAST> 105
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 12,367
<ALLOWANCE-OPEN> 5,169
<CHARGE-OFFS> 31
<RECOVERIES> 70
<ALLOWANCE-CLOSE> 5,440
<ALLOWANCE-DOMESTIC> 5,440
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
