<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, 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 September
30, 2000 was 6,354,678 shares.
<PAGE>
SUMMIT BANCSHARES, INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page No.
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 2000
and 1999 and at December 31, 1999 4
Consolidated Statements of Income for the Three Months
and Nine Months Ended September 30, 2000 and 1999
and for the Year Ended December 31, 1999 5-6
Consolidated Statements of Changes in Shareholders'
Equity for the Nine Months Ended September 30, 2000
and 1999 and for the Year Ended December 31, 1999 7
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2000 and 1999 and for
the Year Ended December 31, 1999 8
Notes to Consolidated Financial Statements for the Nine
Months Ended September 30, 2000 and 1999 and for the
Year Ended December 31, 1999 9-20
The September 30, 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 Nine Months
Ended September 30, 2000 and 1999 21-28
</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>
Item 1 - Financial Statements
-----------------------------
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
September 30, December 31,
----------------------------
2000 1999 1999
-------- -------- --------
ASSETS (In Thousands)
<S> <C> <C> <C>
CASH AND DUE FROM BANKS - NOTE 1 $ 26,614 $ 21,982 $ 19,092
FEDERAL FUNDS SOLD & DUE FROM TIME 29,165 14,135 18,012
INVESTMENT SECURITIES - NOTE 2
Securities Available-for-Sale, at fair value 123,882 126,461 129,116
Securities Held-to-Maturity, at cost (fair value of $22,673,000 23,025 29,329 27,324
$28,956,000, and $26,739,000 September 30, 2000 and 1999
and December 31, 1999, respectively)
LOANS - NOTE 3 AND 11
Loans, Net of Unearned Discount 379,259 344,952 355,414
Allowance for Loan Losses (6,918) (5,044) (5,169)
-------- -------- --------
LOANS, NET 372,341 339,908 350,245
PREMISES AND EQUIPMENT - NOTE 4 8,218 8,926 8,562
ACCRUED INCOME RECEIVABLE 5,136 4,410 4,503
OTHER REAL ESTATE - NOTE 5 1,329 1,494 1,947
OTHER ASSETS 6,592 5,671 5,985
-------- -------- --------
TOTAL ASSETS $596,302 $552,316 $564,786
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS - NOTE 6
Noninterest-Bearing Demand $137,721 $135,973 $128,685
Interest-Bearing 383,876 336,633 351,861
-------- -------- --------
TOTAL DEPOSITS 521,597 472,606 480,546
SHORT TERM BORROWINGS - NOTE 7 18,671 28,310 32,091
ACCRUED INTEREST PAYABLE 1,010 560 576
OTHER LIABILITIES 2,416 2,877 2,864
-------- -------- --------
TOTAL LIABILITIES 543,694 504,353 516,077
-------- -------- --------
COMMITMENTS AND CONTINGENCIES - NOTE 12, 14, 16 AND 18
SHAREHOLDERS' EQUITY - NOTES 13, 15 AND 19
Common Stock - $1.25 Par Value; 20,000,000 shares authorized;
6,354,678, 6,422,497 and 6,361,247 shares issued and outstanding
at September 30, 2000 and 1999 and at December 31, 1999, respectively 7,943 8,028 7,952
Capital Surplus 6,649 6,452 6,469
Retained Earnings 38,652 34,633 35,474
Accumulated Other Comprehensive Income - Unrealized Loss
on Available-for-Sale Investment Securities, Net of Tax (636) (571) (1,186)
Treasury Stock at Cost (30,700 shares at September 30, 1999) -0- (579) -0-
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY 52,608 47,963 48,709
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $596,302 $552,316 $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 Nine Months Ended Year Ended
September 30, December 31,
------------------------------
2000 1999 1999
-------- -------- --------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 27,178 $ 22,387 $ 30,620
Interest and Dividends on Investment Securities:
Taxable 6,892 6,313 8,495
Exempt from Federal Income Taxes 14 27 35
Interest on Federal Funds Sold and Due From Time 847 610 1,082
-------- -------- --------
TOTAL INTEREST INCOME 34,931 29,337 40,232
-------- -------- --------
INTEREST EXPENSE
Interest on Deposits 12,381 9,307 12,837
Interest on Short Term Borrowings 1,138 551 926
Interest on Note Payable -0- 5 9
-------- -------- --------
TOTAL INTEREST EXPENSE 13,519 9,863 13,772
-------- -------- --------
NET INTEREST INCOME 21,412 19,474 26,460
LESS: PROVISION FOR LOAN LOSSES - NOTE 3 2,305 778 1,001
-------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 19,107 18,696 25,459
-------- -------- --------
NON-INTEREST INCOME
Service Charges and Fees on Deposits 1,475 1,489 2,002
Loss on Sale of Investment Securities -0- -0- (3)
Other Income 1,269 1,338 1,881
-------- -------- --------
TOTAL NON-INTEREST INCOME 2,744 2,827 3,880
-------- -------- --------
NON-INTEREST EXPENSE
Salaries and Employee Benefits - NOTE 14 7,044 6,801 9,226
Occupancy Expense - Net 750 825 1,031
Furniture and Equipment Expense 1,048 904 1,202
Other Real Estate Owned Expense - Net 384 15 107
Other Expense - NOTE 9 2,924 2,753 3,658
-------- -------- --------
TOTAL NON-INTEREST EXPENSE 12,150 11,298 15,224
-------- -------- --------
INCOME BEFORE INCOME TAXES 9,701 10,225 14,115
APPLICABLE INCOME TAXES - NOTE 10 3,364 3,535 4,893
-------- -------- --------
NET INCOME $ 6,337 $ 6,690 $ 9,222
======== ======== ========
NET INCOME PER SHARE - NOTE 15
Basic $ 1.00 $ 1.04 $ 1.44
Diluted 0.97 1.00 1.39
</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,
-------------------------------------
2000 1999
----------- -----------
(In Thousands, Except Per Share Data)
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 9,460 $ 7,841
Interest and Dividends on Investment Securities:
Taxable 2,322 2,222
Exempt from Federal Income Taxes 4 8
Interest on Federal Funds Sold and Due From Time 444 151
----------- -----------
TOTAL INTEREST INCOME 12,230 10,222
----------- -----------
INTEREST EXPENSE
Interest on Deposits 4,568 3,213
Interest on Short Term Borrowings 417 237
Interest on Note Payable -0- 2
----------- -----------
TOTAL INTEREST EXPENSE 4,985 3,452
----------- -----------
NET INTEREST INCOME 7,245 6,770
LESS: PROVISION FOR LOAN LOSSES - NOTE 3 577 140
----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 6,668 6,630
----------- -----------
NON-INTEREST INCOME
Service Charges and Fees on Deposits 505 522
Other Income 413 372
----------- -----------
TOTAL NON-INTEREST INCOME 918 894
----------- -----------
NON-INTEREST EXPENSE
Salaries and Employee Benefits - NOTE 14 2,355 2,310
Occupancy Expense - Net 245 275
Furniture and Equipment Expense 356 314
Other Real Estate Owned Expense - Net 28 (10)
Other Expense 724 993
----------- -----------
TOTAL NON-INTEREST EXPENSE 3,708 3,882
----------- -----------
INCOME BEFORE INCOME TAXES 3,878 3,642
APPLICABLE INCOME TAXES - NOTE 10 1,338 1,259
----------- -----------
NET INCOME $ 2,540 $ 2,383
=========== ===========
NET INCOME PER SHARE - NOTE 15
Basic $ 0.40 $ 0.37
Diluted 0.39 0.36
</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, 2000 AND 1999
AND FOR THE YEAR ENDED DECEMBER 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Income - Net
Unrealized Gain Total
Common Stock (Loss) on Share-
---------------------- Capital Retained Investment Treasury Holder's
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 56,670 71 123 194
Purchases of Stock Held
in Treasury (2,481) (2,481)
Retirement of Stock Held
in Treasury (106,000) (133) (1,784) 1,917 -0-
Cash Dividend
$.24 Per Share (1,544) (1,544)
Net Income for the
Nine Months Ended
September 30, 1999 6,690 6,690
Securities Available-
for-Sale Adjustment (1,131) (1,131)
-------
Total Comprehensive
Income NOTE 22 5,559
--------- ------- -------- ------- ------ -------- -------
BALANCE AT
September 30, 1999 6,422,497 8,028 6,452 34,633 (571) (579) 47,963
Stock Options Exercised 6,650 8 17 25
Purchases of Stock Held
in Treasury (688) (688)
Retirement of Stock Held
in Treasury (67,900) (84) (1,183) 1,267 -0-
Cash Dividend -
$.08 Per Share (508) (508)
Net Income for the Three Months
Three Months Ended
December 31, 1999 2,532 2,532
Securities Available-
for-Sale Adjustment (615) (615)
Total Comprehensive -------
Income NOTE 22 1,917
--------- ------- -------- ------- ------ -------- -------
BALANCE AT
December 31, 1999 6,361,247 7,952 6,469 35,474 (1,186) -0- 48,709
Stock Options Exercised 73,638 91 180 271
Purchases of Stock Held
in Treasury (1,348) (1,348)
Retirement of Stock
in Treasury (80,207) (100) (1,248) 1,348 -0-
Cash Dividend -
$.30 Per Share (1,911) (1,911)
Net Income for the
Nine Months Ended
September 30, 2000 6,337 6,337
Securities Available-
for-Sale Adjustment 550 550
Total Comprehensive -------
Income NOTE 22 6,887
--------- ------- -------- ------- ------ -------- -------
BALANCE AT
September 30, 2000 6,354,678 $ 7,943 $ 6,649 $38,652 $ (636) -0- $52,608
========= ======= ======== ======= ====== ======== =======
</TABLE>
The accompanying Notes should be read with these financial statements.
7
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
AND FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
For Nine Months Ended Year Ended
September 30, December 31,
-----------------------
2000 1999 1999
--------- ------------- -----------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 6,337 $ 6,690 $ 9,222
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 788 808 1,081
Net Premium Amortization (Accretion)
of Investment Securities (56) 57 (39)
Provision for Loan Losses 2,305 778 1,001
Deferred Income Taxes (Benefit) (167) (230) (385)
Net (Gain) Loss on Sale of Investment Securities 2 (1) 3
Writedown of Other Real Estate 423 -0- -0-
Net Gain From Sale of Other Real Estate (77) (20) (36)
Net Gain From Sale of Premises and Equipment (2) -0- (105)
Net Increase in Accrued Income and Other Assets (1,458) (151) (33)
Net Increase (Decrease) in Accrued Expenses and Other Liabilities (14) 246 250
-------- -------- --------
Total Adjustments 1,744 1,487 1,737
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,081 8,177 10,959
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) Decrease in Federal Funds Sold (11,153) 24,571 20,694
Proceeds from Matured and Prepaid Investment Securities
. Held-to-Maturity 285 3,280 4,280
. Available-for-Sale 17,144 61,571 63,531
Proceeds from Sales of Investment Securities 59,922 12,084 71,214
Purchase of Investment Securities
. Held-to-Maturity -0- (6,037) (6,037)
. Available-for-Sale (66,933) (80,445) (144,026)
Loans Originated and Principal Repayments, Net (24,730) (41,207) (52,828)
Recoveries of Loans Previously Charged-Off 202 136 171
Proceeds from Sale of Premises and Equipment 25 -0- 567
Proceeds from Sale of Other Real Estate 503 23 559
Purchases of Premises and Equipment (467) (652) (1,023)
-------- -------- --------
NET CASH USED BY INVESTING ACTIVITIES (25,202) (26,676) $(42,898)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease) in Demand Deposits, Savings
Accounts and Interest Bearing Transaction Accounts (846) 1,093 7,488
Net Increase in Certificates of Deposit 41,897 6,013 7,558
Net Increase (Decrease) in Repurchase Agreements (13,420) 10,471 14,252
Payments of Cash Dividends (1,911) (1,544) (2,052)
Proceeds from Stock Options Exercised 271 194 219
Purchase of Treasury Stock (1,348) (2,481) (3,169)
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 24,643 13,746 24,296
-------- -------- --------
NET (DECREASE) INCREASE IN CASH AND DUE FROM BANKS 7,522 (4,753) (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 $ 26,614 $ 21,982 $ 19,092
======== ======== ========
SUPPLEMENTAL SCHEDULE OF OPERATING AND INVESTING ACTIVITIES
Interest Paid $ 13,085 $ 10,340 $ 14,232
Income Taxes Paid 3,651 3,773 5,198
Other Real Estate Acquired in Settlement of Loans 230 1,216 2,188
</TABLE>
The accompanying Notes should be read with these financial statements.
8
<PAGE>
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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 nine months of 2000 the average cash balance maintained at the
Federal Reserve Bank was $930,000. Compensating balances held at
correspondent banks, to minimize service charges, averaged
approximately $18,619,000 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.
9
<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. Generally, loan origination and commitment
fees are recognized at the time of funding and are considered
adjustments to interest income. Related direct costs are not separately
allocated to loans but are charged to non-interest expense in the
period incurred. The net effect of not recognizing such fees and
related costs over the life of the related loan is not considered to be
material to the financial statements. The accrual of interest on a loan
is discontinued when, in the opinion of management, there is doubt
about the ability of the borrower to pay interest or principal.
Interest previously earned, but uncollected on such loans, is written
off. After loans are placed on non-accrual all payments received are
applied to principal and no interest income is recorded until the loan
is returned to accrual status or the principal has been reduced to
zero.
The Corporation has adopted Statement of Financial Accounting Standards
No. 114, "Accounting by Creditors for Impairment of a Loan," 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 ranging from
three to forty years. Maintenance and repairs are charged to
non-interest expense. Renewals and betterments are added to the asset
accounts and depreciated over the periods benefited. Depreciable assets
sold or retired are removed from the asset and related accumulated
depreciation accounts and any gain or loss is reflected in the income
and expense accounts.
Other Real Estate
-----------------
Other real estate is foreclosed property held pending disposition and
is valued at the lower of its fair value or the recorded investment in
the related loan. At foreclosure, if the fair value, less estimated
costs to sell, of the real estate acquired is less than the
Corporation's recorded investment in the related loan, a writedown is
recognized through a charge to the allowance for loan losses. Any
subsequent reduction in value is recognized by a charge to income.
Operating expenses of such properties, net of related income, and gains
and losses on their disposition are included in non-interest expense.
Federal Income Taxes
--------------------
The Corporation joins with its Subsidiaries in filing a consolidated
federal income tax return. The Subsidiaries pay 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."
10
<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
-----------------------------------------------
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, 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>
September 30, 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 $ 5,000 $ 7 $ -0- $ 5,007
U.S. Government Agencies
and Corporations 18,025 -0- (359) 17,666
------------- ------------- ----------- --------------
Total Held-to-Maturity Securities 23,025 7 (359) 22,673
------------- ------------- ----------- --------------
Investment Securities - Available-for-Sale
U.S. Treasury Securities 17,081 51 (31) 17,101
U.S. Government Agencies
and Corporations 95,106 117 (967) 94,256
U.S. Government Agency Mortgage
Backed Securities 11,160 5 (139) 11,026
Obligations of States and Political Subdivisions 240 -0- (1) 239
Federal Reserve and Federal Home Loan Bank Stock 1,260 -0- -0- 1,260
------------- -------------- ----------- --------------
Total Available-for-Sale Securities 124,847 173 (1,138) 123,882
------------- -------------- ----------- --------------
Total Investment Securities $ 147,872 $ 180 $ (1,497) $ 146,555
============= ============== =========== ==============
</TABLE>
In the above schedule the amortized cost of Total Held-to-Maturity
Securities of $23,025,000 and the fair value of Total Available-for-Sale
Securities of $123,882,000 are reflected in Investment Securities on the
consolidated balance sheet as of September 30, 2000 for a total of $146,907,000.
A net unrealized loss of $965,000 is included in the Available-for-Sale
Investment Securities balance. The unrealized loss, net of tax benefit, is
included in Shareholders' Equity.
11
<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>
September 30, 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 $ 8,993 $ 76 $ -0- $ 9,069
U.S. Government Agencies
Obligations of States and Political Subdivisions 288 -0- -0- 288
and Corporations 20,048 -0- (449) 19,599
------------ ----------- ----------- ----------
Total Held-to-Maturity Securities 29,329 76 (449) 28,956
------------ ----------- ----------- ----------
Investment Securities - Available-for-Sale
U.S. Treasury Securities 24,206 126 (24) 24,308
U.S. Government Agencies
and Corporations 87,361 30 (857) 86,534
U.S. Government Agency Mortgage
Backed Securities 14,207 35 (177) 14,065
Obligations of States and Political Subdivisions 350 2 -0- 352
Federal Reserve and Federal Home Loan Bank Stock 1,202 -0- -0- 1,202
------------ ----------- ----------- ----------
Total Available-for-Sale Securities 127,326 193 (1,058) 126,461
------------ ----------- ----------- ----------
Total Investment Securities $ 156,655 $ 269 $ (1,507) $ 155,417
============ =========== =========== ==========
</TABLE>
In the above schedule the amortized cost of Total Held-to-Maturity
Securities of $29,329,000 and the fair value of Total Available-for-Sale
Securities of $126,461,000 are reflected in Investment Securities on the
consolidated balance sheet as of September 30, 1999 for a total of $155,790,000.
A net unrealized loss of $865,000 is included in the Available-for-Sale
Investment Securities balance. The unrealized loss, net of tax benefit, is
included in Shareholders' Equity.
NOTE 3 - Loans and Allowance for Loan Losses
------
The book values of loans by major type follow (in thousands):
September 30, December 31,
-----------------------
2000 1999 1999
---------- ---------- ------------
Commercial $ 167,404 $ 152,975 $ 156,847
Real Estate Mortgage 129,675 117,033 120,596
Real Estate Construction 47,934 42,303 43,875
Loans to Individuals 34,308 32,861 34,261
Less: Unearned Discount (62) (220) (165)
---------- ---------- ------------
379,259 344,952 355,414
Allowance for Loan Losses (6,918) (5,044) (5,169)
---------- ---------- ------------
Loans - Net $ 372,341 $ 339,908 $ 350,245
========== ========== ============
12
<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 Year Ended
September 30, December 31,
-----------------------------------
2000 1999 1999
------------ -------------- ---------------
<S> <C> <C> <C>
Balance, Beginning of Period $ 5,169 $ 4,724 $ 4,724
Provisions, Charged to Income 2,305 778 1,001
Loans Charged-Off (758) (594) (727)
Recoveries of Loans Previously
Charged-Off 202 136 171
------------- -------------- ---------------
Net Loans (Charged-Off) Recovered (556) (458) (556)
------------- -------------- ---------------
Balance, End of Period $ 6,918 $ 5,044 $ 5,169
============= ============== ===============
</TABLE>
The provisions for loan losses charged to operating expenses during the
nine months ended September 30, 2000 and September 30, 1999 of $2,305,000 and
$778,000, 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 September 30, 2000, the recorded investment in loans that are considered
to be impaired under Statement of Financial Accounting Standards No. 114 was
$5,183,000 (of which $5,183,000 were on non-accrual status). The related
allowance for loan losses for these loans was $2,203,000. The average recorded
investment in impaired loans during the nine months ended September 30, 2000 was
approximately $4,408,000. 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,
---------------------
2000 1999 1999
--------- --------- ---------------
<S> <C> <C> <C>
Land $ 2,320 $ 2,783 $ 2,320
Buildings and Improvements 7,816 7,610 7,715
Furniture & Equipment 8,068 7,755 8,003
--------- --------- ---------------
Total Cost 18,204 18,148 18,038
Less: Accumulated Amortization and Depreciation (9,986) (9,222) (9,476)
--------- --------- ---------------
Net Book Value $ 8,218 $ 8,926 $ 8,562
========= ========= ===============
</TABLE>
NOTE 5 - Other Real Estate
------
The carrying value of other real estate is as follows (in thousands):
September 30,
---------------------- December 31,
2000 1999 1999
-------- -------- -------------
Other Real Estate $ 1,329 $ 1,494 $ 1,947
======== ======== =============
There were direct writedowns of other real estate charged to income for the
nine months ended September 30, 2000 of $423,000. There were no direct
writedowns of other real estate for the nine months ended September 30, 1999 or
for the year ended December 31, 1999.
13
<PAGE>
NOTE 6 - Deposits
------
The book values of deposits by major type follow (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
---------------------------
2000 1999 1999
----------- ----------- ---------------
<S> <C> <C> <C>
Noninterest-Bearing Demand Deposits $ 137,721 $ 135,973 $ 128,685
Interest-Bearing Deposits:
Interest-Bearing Transaction
Accounts and Money Market Funds 145,999 155,398 154,304
Savings 97,152 83,951 98,728
Savings Certificates - Time 79,889 58,614 58,973
Certificates of Deposits $100,000 or more 60,058 37,892 39,078
Other 778 778 778
----------- ----------- ---------------
Total 383,876 336,633 351,861
----------- ----------- ---------------
Total Deposits $ 521,597 $ 472,606 $ 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>
Nine Months Ended Year Ended
September 30, December 31,
---------------------------
2000 1999 1999
--------- --------- ---------------
<S> <C> <C> <C>
Securities Sold Under Repurchase Agreements:
Average $ 21,387 $ 17,444 $ 20,488
Period-End 18,671 24,310 28,091
Maximum Month-End Balance During Period 25,019 24,310 30,309
Interest Rate:
Average 5.10% 3.89% 4.04%
Period-End 5.63% 4.26% 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 September 30, 2000, the
subsidiary had no borrowings outstanding. For the nine months ended September
30, 2000, the subsidiary had borrowed an average balance of $6,584,000 bearing
an average interest rate of 6.49%. At December 31, 1999, the subsidiary had
borrowed $4,000,000 under the line of credit, bearing an interest rate of 5.43%
and having a maturity of April 2000.
NOTE 8 - Notes Payable
------
On July 15, 2000, the Corporation obtained lines of credit from a bank under
which the Corporation may borrow $9,000,000 at prime rate. The lines of credit
are secured by stock of one of the Subsidiary Banks and mature in July 2000,
whereupon, if balances are outstanding, the lines convert to term notes having
five year terms. The Corporation will not pay a fee for any unused portion of
the lines. As of September 30, 2000, no funds had been borrowed under these
lines nor were any borrowings outstanding.
14
<PAGE>
NOTE 9 - Other Non-Interest Expense
------
The significant components of other non-interest expense are as follows (in
thousands):
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
--------------------------
2000 1999 1999
---------- ---------- --------------
<S> <C> <C> <C>
Business Development $ 387 $ 417 $ 602
Legal and Professional Fees 604 468 619
Printing and Supplies 281 286 379
Regulatory Fees and Assessments 175 137 183
Other 1,477 1,445 1,875
---------- ---------- --------------
Total $ 2,924 $ 2,753 $ 3,658
========== ========== ==============
</TABLE>
NOTE 10 - Income Taxes
-------
Federal income taxes included in the consolidated balance sheets were as
follows (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
--------------------------
2000 1999 1999
--------- --------- --------------
<S> <C> <C> <C>
Current Tax Asset (Liability) $ 49 $ 18 $ (70)
Deferred Tax Asset 2,143 1,786 2,257
--------- --------- ---------------
Total Included in Other Assets $ 2,192 $ 1,804 $ 2,187
========= ========= ===============
</TABLE>
The deferred tax asset at September 30, 2000 of $2,143,000 included
$329,000 related to unrealized losses on Available-for-Sale Securities.
The components of income tax expense were as follows (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
---------------------------
2000 1999 1999
---------- ---------- -------------
<S> <C> <C> <C>
Federal Income Tax Expense
Current $ 3,531 $ 3,765 $ 5,278
Deferred (benefit) (167) (230) (385)
---------- ---------- -------------
Total Federal Income Tax Expense $ 3,364 $ 3,535 $ 4,893
Effective Tax Rates 34.67% 34.60% 34.70%
========== ========== =============
</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 Year Ended
September 30, December 31,
-----------------------------
2000 1999 1999
---------- ---------- -------------
<S> <C> <C> <C>
Federal Income Taxes at Statutory
Rate of 34.3% $ 3,333 $ 3,507 $ 4,847
Effect of Tax Exempt Interest Income (5) (9) (12)
Non-deductible Expenses 40 39 64
Other (4) (2) (6)
---------- ---------- -------------
Income Taxes Per Income Statement $ 3,364 $ 3,535 $ 4,893
========== ========== =============
</TABLE>
15
<PAGE>
NOTE 10 - Income Taxes (con't)
-------
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
-----------------------------
2000 1999 1999
---------- ---------- ---------------
<S> <C> <C> <C>
Federal Deferred Tax Assets:
Allowance for Loan Losses $ 1,354 $ 1,290 $ 1,357
Valuation Reserves - Other Real Estate 145 1 -
Interest on Non-accrual Loans 264 202 189
Deferred Compensation 473 426 458
Unrealized Losses on Available-for-Sale Securities 329 294 611
Other 17 24 19
---------- ---------- ---------------
Gross Federal Deferred Tax Assets 2,582 2,237 2,634
---------- ---------- ---------------
Federal Deferred Tax Liabilities:
Depreciation and Amortization 319 287 321
Accretion 98 54 56
Other 22 110 -0-
---------- ---------- ---------------
Gross Federal Deferred Tax Liabilities 439 451 377
---------- ---------- ---------------
Net Deferred Tax Asset $ 2,143 $ 1,786 $ 2,257
========== ========== ===============
</TABLE>
NOTE 11 - 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 12 - 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, 2000, outstanding documentary and standby letters of
credit totaled $2,866,000 and commitments to extend credit totaled $127,345,000.
NOTE 13 - 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, and the nine months ended September 30, 2000.
16
<PAGE>
NOTE 13 - Stock Option Plans (con't)
-------
The following is a summary of transactions during the periods presented:
<TABLE>
<CAPTION>
Shares Under Option
---------------------------------------------------
Nine Months Ended Year Ended
September 30, 2000 December 31, 1999
-------------------- --------------------
<S> <C> <C>
Outstanding, Beginning of Period 445,497 461,717
Additional Options Granted During
the Period 10,000 49,500
Forfeited During the Period (17,500) (2,400)
Exercised During the Period (73,638) (63,320)
-------------------- --------------------
Outstanding, End of Period 364,359 445,497
==================== ====================
</TABLE>
Options outstanding at September 30, 2000 ranged in price from $3.00 to
$19.25 per share with a weighted average exercise price of $9.81 and 282,527
shares exercisable. At September 30, 2000, there remained 490,300 shares
reserved for future grants of options under the 1997 Plan. There are no shares
available for grant under the 1993 Plan.
NOTE 14 - 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 nine months of 2000, the Corporation expensed $275,000 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 $136,000 and $156,000 during the first nine 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).
17
<PAGE>
NOTE 15 - 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
(dollars in thousands).
<TABLE>
<CAPTION>
September 30, December 31,
----------------------------
2000 1999 1999
----------- ------------ --------------
<S> <C> <C> <C>
Net income $ 6,337 $ 6,690 $ 9,222
=========== ============ ==============
Weighted average number of common
shares used in Basic EPS 6,366,865 6,425,897 6,410,762
Effect of dilutive stock options 151,426 244,071 244,787
----------- ------------ --------------
Weighted number of common shares
and dilutive potential common
stock used in Diluted EPS 6,518,291 6,669,968 6,655,549
=========== ============ ==============
</TABLE>
NOTE 16 - Financial Instruments with Off-Balance Sheet Risk
-------
The Corporation is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include loan commitments, standby letters
of credit and documentary letters of credit. The instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the financial statements.
The Corporation's exposure to credit loss in the event of non-performance
by the other party of these loan commitments and standby letters of credit is
represented by the contractual amount of those instruments. The Corporation uses
the same credit policies in making commitments and conditional obligations as it
does for on-balance sheet instruments.
The total contractual amounts of financial instruments with off-balance
sheet risk are as follows (in thousands):
<TABLE>
<CAPTION>
September 30,
------------------------------
2000 1999
----------- ------------
<S> <C> <C>
Financial Instruments Whose Contract Amounts Represent Credit Risk:
Loan Commitments Including Unfunded Lines of Credit $ 127,345 $ 111,732
Standby Letters of Credit 2,866 4,189
</TABLE>
Since many of the loan commitments may expire without being drawn upon, the
total commitment amount does not necessarily represent future cash requirements.
The Corporation evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the Corporation
upon extension of credit, is based on management's credit evaluation of the
counterparty. Collateral held varies but may include accounts receivable,
inventory, property, plant and equipment, owner occupied real estate and income-
producing commercial properties.
The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers.
NOTE 17 - 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.
18
<PAGE>
NOTE 18 - 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 19 - Stock Repurchase Plan
-------
On April 18, 2000, the Board of Directors approved a stock repurchase plan.
The plan authorized management to purchase up to 322,232 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 nine months of 2000, 80,207 shares were purchased by the Corporation
through a similar repurchase plan through the open market.
NOTE 20 - Subsequent Event
-------
On October 17, 2000, the Board of Directors of the Corporation approved a
quarterly dividend of $.10 per share to be paid on November 15, 2000 to
shareholders of record on November 1, 2000.
19
<PAGE>
NOTE 21 - 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.
The estimated fair values of the Corporation's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
September 30,
-------------------------------------------------------------------
2000 1999
------------------------------- -------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Financial Assets
Cash and due from banks $ 26,614 $ 26,614 $ 21,982 $ 21,982
Federal funds sold 29,165 29,165 14,135 14,135
Securities 146,907 146,555 155,790 155,417
Loans 379,259 376,909 344,952 344,185
Reserve for loan losses (6,918) (6,918) (5,044) (5,044)
Financial Liabilities
Deposits 521,597 521,426 472,606 472,691
Short Term Borrowings 18,671 18,672 28,310 28,309
Off-balance Sheet Financial Instruments
Loan commitments 127,345 111,732
Letters of credit 2,866 4,189
</TABLE>
NOTE 22 - 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>
Nine Months Ended Year Ended
September 30, December 31,
--------------------------- ------------
2000 1999 1999
--------- --------- ------------
<S> <C> <C> <C>
Net Income $ 6,337 $ 6,690 $ 9,222
Other Comprehensive Income:
Unrealized gain (loss) on securities
available-for-sale, net of tax 550 (1,131) (1,746)
--------- --------- ---------
Comprehensive Income $ 6,887 $ 5,559 $ 7,476
========= ========= =========
</TABLE>
20
<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 third quarter of 2000 was $2,540,000, or $.39 diluted
earnings per share, compared with $2,838,000, or $.36 diluted earnings per
share, for the third quarter of 1999. Net income for the first nine months of
2000 was $6,337,000, or $.97 diluted earnings per share, compared with
$6,690,000, or $1.00 diluted earnings per share, for the first nine months of
the prior year. On a per share basis, diluted earnings per shares increased 8.3%
over the third quarter of the prior year. Per share amounts are based on average
shares outstanding of 6,518,291 for the first nine months of 2000 and 6,669,968
for the comparable period of 1999 adjusted to reflect stock options granted.
Outstanding loans at September 30, 2000 of $379.3 million represented an
increase of $34.3 million, or 10.0%, over September 30,1999 and an increase of
$23.9 million, or 6.7%, from December 31, 1999.
Total deposits at September 30, 2000 of $521.6 million represented an
increase of $49.0 million, or 10.4%, over September 30,1999 and an increase of
$41.1 million, or 8.5%, from December 31, 1999.
In the third quarter, net interest income increased 7.0% over the same
quarter of the previous year. The provision for loan losses increased $437,000
in the quarter over the same period of the prior year. Non-interest expense
increased $174,000 or 4.5% in the third quarter over that of the same period in
the prior year. Explanation of the change follows.
The following table summarizes the Corporation's performance for the three
months and nine months ended September 30, 2000 and 1999 (tax equivalent basis
and dollars in thousands).
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest Income $12,231 $10,226 $34,938 $29,349
Interest Expense 4,985 3,452 13,519 9,862
------- ------- ------- -------
Net Interest Income 7,246 6,774 21,419 19,487
Provision for Loan Loss 577 140 2,305 778
------- ------- ------- -------
Net Interest Income After
Provision for Loan Loss 6,669 6,634 19,114 18,709
Non-Interest Income 918 894 2,744 2,827
Non-Interest Expense 3,708 3,882 12,150 11,298
------- ------- ------- -------
Income Before Income Tax 3,879 3,646 9,708 10,238
Income Tax Expense 1,339 1,263 3,371 3,548
------- ------- ------- -------
Net Income $ 2,540 $ 2,383 $ 6,337 $ 6,690
======= ======= ======= =======
Net Income per Share-
Basic $ 0.40 $ 0.37 $ 1.00 $ 1.04
Diluted 0.39 0.36 0.97 1.00
Return on Average Assets 1.72% 1.75% 1.47% 1.70%
Return on Average Stockholders' Equity 19.71% 20.11% 16.89% 19.19%
</TABLE>
21
<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 2000 and 1999 (rates on tax equivalent basis).
<TABLE>
<CAPTION>
Three Months Ended September 30,
----------------------------------------------------------------------------------------
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 & Due From Time $ 27,065 $ 443 6.51% $ 17,326 $ 223 5.14%
Investment Securities (Taxable) 148,032 2,322 6.24% 145,401 2,150 5.87%
Investment Securities (Tax-exempt) 314 6 7.54% 709 12 7.01%
Loans, Net of Unearned Discount(1) 378,302 9,460 9.95% 337,034 7,841 9.23%
--------- --------- ---- ---------- --------- ----
Total Earning Assets 553,713 12,231 8.79% 500,470 10,226 8.11%
--------- ---------
Non-interest Earning Assets:
Cash and Due From Banks 23,787 24,402
Other Assets 18,801 18,789
Allowance for Loan Losses (6,974) (4,947)
--------- ----------
Total Assets $ 589,327 $ 538,714
========= ==========
Interest-Bearing Liabilities:
Interest-Bearing Transaction
Accounts and Money Market Funds $ 158,913 1,603 4.01% $ 159,643 1,290 3.21%
Savings 89,356 1,110 4.94% 81,952 823 3.98%
Savings Certificates 69,136 1,008 5.80% 56,051 643 4.55%
Certificates of Deposit
$100,000 or more 54,755 836 6.07% 36,925 447 4.80%
Other Time 778 11 5.62 778 10 4.97
Other Borrowings 28,332 417 5.85% 21,947 239 4.32%
--------- --------- ---- ---------- --------- ----
Total Interest-Bearing Liabilities 401,270 4,985 4.94% 357,296 3,452 3.83%
--------- ---------
Non-interest Bearing Liabilities:
Demand Deposits 135,769 131,650
Other Liabilities 1,003 2,760
Shareholders' Equity 51,285 47,008
--------- ----------
Total Liabilities and
Shareholders' Equity $ 589,327 $ 538,714
========= ==========
Net Interest Income and Margin
(Tax-equivalent Basis)/(2)/ $ 7,246 5.21% $ 6,774 5.37%
========= =========
</TABLE>
(1) Loan interest income includes fees and loan volumes include loans on non-
accrual.
(2) Presented on tax equivalent basis ("T/E") using a federal income tax rate
of 34% both years.
22
<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, 2000 and 1999 (rates on tax
equivalent basis).
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------------- --------------------------------------
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 & Due From Time $ 18,074 $ 847 6.26% $ 18,524 $ 682 4.92%
Investment Securities (Taxable) 147,881 6,892 6.23% 143,059 6,240 5.83%
Investment Securities (Tax-exempt) 385 21 7.29% 781 41 7.06%
Loans, Net of Unearned Discount(1) 372,124 27,178 9.76% 326,443 22,386 9.17%
--------- --------- ---- --------- --------- ----
Total Earning Assets 538,464 34,938 8.67% 488,807 29,349 8.03%
--------- ---------
Non-interest Earning Assets:
Cash and Due From Banks 24,046 23,596
Other Assets 19,211 19,820
Allowance for Loan Losses (5,939) (4,819)
--------- ---------
Total Assets $ 575,782 $ 527,404
========= =========
Interest-Bearing Liabilities:
Interest-Bearing Transaction
Accounts and Money Market Funds $ 159,643 4,573 3.82% $ 155,884 3,690 3.16%
Savings 91,520 3,198 4.68% 82,464 2,430 3.94%
Savings Certificates 63,069 2,559 5.42% 53,994 1,854 4.59%
Certificates of Deposit
$100,000 or more 47,250 2,019 5.71% 35,918 1,303 4.85%
Other Time 778 32 5.52% 778 30 5.08%
Other Borrowings 28,000 1,138 5.43% 18,601 556 4.00%
--------- --------- ---- --------- --------- ----
Total Interest-Bearing Liabilities 390,260 13,519 4.63% 347,639 9,863 3.79%
--------- --------
Non-interest Bearing Liabilities:
Demand Deposits 134,078 129,470
Other Liabilities 1,340 3,674
Shareholders' Equity 50,104 46,621
--------- ---------
Total Liabilities and
Shareholders' Equity $ 575,782 $ 527,404
========= =========
Net Interest Income and Margin
(Tax-equivalent Basis)(2) $ 21,419 5.31% $ 19,486 5.33%
========= =========
</TABLE>
(1) Loan interest income includes fees and loan volumes include loans on non-
accrual.
(2) Presented on tax equivalent basis ("T/E") using a federal income tax rate
of 34% both years.
23
<PAGE>
Net Interest Income
-------------------
Net interest income (tax equivalent) for the third quarter of 2000 was
$7,246,000 which represented an increase of $472,000 or 7.0%, over the third
quarter of 1999. This increase was heavily contributed to by a 12.2% increase in
average loans for the third quarter of 2000 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, 2000 and
1999.
<TABLE>
<CAPTION>
ANALYSIS OF CHANGES IN NET INTEREST INCOME
(Dollars in Thousands)
3rd Qtr. 2000 vs. 3rd Qtr. 1999 Nine Months 2000 vs. Nine Months 1999
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 $ 149 $ 71 $ 220 $ (27) $ 192 $ 165
Investment Securities (Taxable) 38 134 172 217 435 652
Investment Securities (Tax-exempt) (12) 6 (6) (22) 2 (20)
Loans, Net of Unearned Discount 990 629 1,619 3,287 1,505 4,792
-------- -------- --------- -------- -------- ---------
Total Interest Income 1,165 840 2,005 3,455 2,134 5,589
-------- -------- --------- -------- -------- ---------
Interest-Bearing Liabilities:
Deposits 385 970 1,355 1,007 2,068 3,075
Other Borrowings 80 98 178 340 242 582
-------- -------- --------- -------- -------- ---------
Total Interest Expense 465 1,068 1,533 1,347 2,310 3,657
-------- -------- --------- -------- -------- ---------
Net Interest Income $ 700 $ (228) $ 472 $ 2,108 $ (176) $ 1,932
======== ======== ========= ======== ======== =========
</TABLE>
Allowance for Loan Losses and Non-Performing Assets
---------------------------------------------------
The Corporation's allowance for loan losses was $6,918,000 or 1.82% of
total loans, as of September 30, 2000 compared to $5,044,000, or 1.46% of total
loans, as of September 30, 1999.
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,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance, Beginning of Period $ 6,899 $ 4,895 $ 5,169 $ 4,724
Provisions, Charged to Income 577 140 2,305 778
Loans Charged-Off (632) (35) (758) (594)
Recoveries of Loans Previously
Charged-Off 74 44 202 136
-------- -------- -------- --------
Net Loans (Charged-Off)
Recovered (558) 9 (556) (458)
-------- -------- -------- --------
Balance, End of Period $ 6,918 $ 5,044 $ 6,918 $ 5,044
======== ======== ======== ========
</TABLE>
For the nine months ended September 30, 2000 and 1999, net charge-offs were
.15% and .14% of loans, respectively, not annualized.
24
<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,
2000 2000 2000 1999 1999
------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Non-Accrual Loans $ 5,273 $ 5,440 $ 2,518 $ 2,450 $ 2,899
Renegotiated Loans -0- 1 2 3 -0-
Other Real Estate Owned 1,329 1,343 1,945 1,947 1,494
------------- ------------- ------------- ------------ -------------
Total Non-Performing Assets $ 6,602 $ 6,784 $ 4,465 $ 4,400 $ 4,393
============= ============= ============= ============ =============
<CAPTION>
September 30, June 30, March 31, December 31, September 30,
2000 2000 2000 1999 1999
------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
As a Percent of:
Total Assets 1.11% 1.16% 0.77% 0.78% 0.80%
Total Loans and Other Real Estate 1.73% 1.79% 1.20% 1.23% 1.26%
Loans Past Due 90 days or
More and Still Accruing $ -0- $ -0- $ 105 $ -0- $ -0-
</TABLE>
Non-accrual loans to total loans were 1.39% at September 30, 2000 and non-
performing assets were 1.73% of loans and other real estate owned at the same
date.
As of September 30, 2000, the Company had two large credits that were on
non-accrual loan status and represented 85% of the Company's non-performing
loans. The first with a balance of approximately $1.4 million has been on non-
accrual status since the second quarter of 1998. The balance of this loan has
been reduced from approximately $2.1 million as the borrower has continued to
make monthly payments. These payments, principal and interest, have reduced the
balance. The second large credit was placed on non-accrual status in the second
quarter. A reserve of $1.7 million has been allocated for this credit. This loan
has a balance of approximately $3.1 million and some amount of charge-off is
expected on this credit before year-end.
The balance of Other Real Estate Owned as of September 30, 2000, was
$1,329,000. In the second quarter the Company wrote-down (expensed) $412,000 of
one property, added a second property with a value of $230,000 and sold a
property that had a value of $425,000. The write-down of the first property
resulted in a carrying value of approximately $1.0 million for that property.
This property, which was foreclosed in early 1999 after being constructed, had
an original loan value of $1.6 million and is being aggressively marketed.
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,
2000 2000 2000 1999 1999
------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Non-Performing Loans $ 5,273 $ 5,441 $ 2,520 $ 2,453 $ 2,899
Criticized Loans 16,562 13,064 12,367 11,804 9,196
Allowance for Loan Losses 6,918 6,899 5,440 5,169 5,044
Allowance for Loan Losses
as a Percent of:
Non-Performing Loans 131% 127% 216% 211% 174%
Criticized Loans 42 53 44 44 55
</TABLE>
25
<PAGE>
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,
---------------------------- --------------------------------
2000 1999 % Change 2000 1999 % Change
------- -------- ------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Service Charges on Deposit Accounts $ 505 $ 522 (3.3) % $ 1,475 $ 1,489 (0.9)%
Non-recurring Income -- 26 (84.6) 65 270 --
Other Non-interest Income 413 346 19.4 1,204 1,068 12.7
------- -------- ------- --------- -------- -------
Total Non-interest Income $ 918 $ 894 2.7 $ 2,744 $ 2,827 (2.9)
======= ========= ========= ======== =======
</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. The increase in other non-interest income in the third quarter of 2000 is
primarily due to increases in mortgage brokerage/origination fees and fees
earned on investment services to customers.
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 Nine Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
2000 1999 % Change 2000 1999 % Change
--------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Salaries & Employee Benefits $ 2,355 $ 2,310 2.0 % $ 7,044 $ 6,801 3.6 %
Occupancy Expense - Net 245 275 (10.9) 750 825 (9.1)
Furniture and Equipment Expense 356 314 13.4 1,048 904 15.9
Other Real Estate Expense - Net 28 (10) -- 384 15 --
Other Expenses:
Business Development 27 148 (81.8) 387 417 7.2
Insurance - Other 31 25 24.0 83 96 (13.5)
Legal & Professional Fees 214 180 18.9 604 468 29.1
Taxes - Other 30 29 3.4 130 141 (7.8)
Postage & Courier 78 78 -- 243 236 3.0
Printing & Supplies 91 90 1.1 281 286 (1.8)
Regulatory Fees & Assessments 59 46 28.3 175 137 27.7
Other Operating Expenses 194 397 (51.1) 1,021 972 5.0
--------- -------- -------- --------
Total Other Expenses 724 993 (27.1) 2,924 2,753 6.2
--------- -------- -------- --------
Total Non-interest Expense $ 3,708 $ 3 (4.5) $ 12,150 $ 11,298 7.5
========= ======== ======== ========
</TABLE>
Total non-interest expense decreased 4.5% in the third quarter of 2000 over
1999, reflecting deceases primarily in business development expense, and other
operating expenses partially offset by increases in furniture and equipment
expense, legal and professional expense and regulatory fees. As a percent of
average assets, non-interest expenses were 2.0% in the third quarter of 2000
(annualized) and 3.01% in the same period of 1999. The "efficiency ratio" (non-
interest expenses divided by total non-interest income plus net interest income)
was 45.4% for the third quarter of 2000.
A decrease in advertising expense and related business development expenses
is reflected in the decrease in business development expenses.
Other Operating Expenses in the third quarter of 2000 were lower due to
decreases in various miscellaneous operating expenses including expenses related
to fraud.
The increase in furniture and fixtures expense is primarily a result of an
increase in equipment maintenance expense. Legal and Professional Fees increased
in the third quarter 2000 over the prior year because of increases in attorney
fees related to credit issues. Regulatory expenses are somewhat higher due to
higher FDIC insurance assessments charged.
The increase for the nine months ended September 30, 2000 in Other Real
Estate Expense reflects the write-down of the carrying value of foreclosed real
property of $412,000 and is net of a gain on sale of another property of
approximately $77,000 along with various maintenance expenses.
26
<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 September 30, 2000 and may
not be reflective of positions in subsequent periods (dollars in thousands):
<TABLE>
<CAPTION>
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 $ 210,291 $ 21,133 $ 18,846 $ 250,270 $ 128,989 $ 379,259
Investment Securities 2,989 13,199 9,324 25,512 121,395 146,907
Federal Funds Sold 29,165 -0- -0- 29,165 -0- 29,165
--------- --------- --------- ---------- ----------- ---------
Total Earning Assets 242,445 34,332 28,170 304,947 250,384 555,331
--------- --------- --------- ---------- ----------- ---------
Interest Bearing Liabilities:
Interest-Bearing Transaction
Accounts and Savings 243,151 -0- -0- 243,151 -0- 243,151
Certificate of Deposits
(greater than)$100,000 7,469 20,696 26,662 54,827 5,232 60,059
Other Time Deposits 5,719 22,275 36,629 64,623 16,043 80,666
Short Term Borrowings 18,671 -0- -0- 18,671 -0- 18,671
--------- --------- --------- ---------- ----------- ---------
Total Interest Bearing
Liabilities 275,010 42,971 63,291 381,272 21,275 402,547
--------- --------- --------- ---------- ----------- ---------
Interest Sensitivity
Gap $ (32,565) $ (8,639) $ (35,121) $ (76,325) $ 229,109 $ 152,784
========= ========= ========= ========== =========== =========
$ (32,565) ( (14,204) $ (76,325)
========= ========= =========
Cumulative Gap to
Total Earning Assets (5.9) % (7.4) % (13.7)%
Cumulative Gap to
Total Assets (5.5) (6.9) (12.8)
</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 (12.8%) was reversed to a positive .4% "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.
27
<PAGE>
Capital (con't)
-------
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, 2000, the Corporation's Tier I
capital represented 13.39% of risk weighted assets and total qualifying capital
(Tier I and Tier II) represented 14.65% of risk weighted assets. Both ratios are
well above current regulatory guidelines.
Also, as of September 30, 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").
The Corporation and Subsidiary Banks' regulatory capital positions as of
September 30, 2000, were as follows:
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------- ----------------------- -------------------------
Amount Ratio Amount Ratio Amount Ratio
--------- -------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED:
As of September 30, 2000
Total Capital (to Risk Weighted Assets) $ 58,238 14.65% $ 31,805 8.00%
Tier I Capital (to Risk Weighted Assets) 53,244 13.39% 15,903 4.00%
Tier I Capital (to Average Assets) 53,244 9.03% 17,680 3.00%
SUMMIT NATIONAL BANK:
As of September 30, 2000
Total Capital (to Risk Weighted Assets) $ 22,664 14.85% $ 12,207 8.00% $ 15,259 10.00%
Tier I Capital (to Risk Weighted Assets) 20,742 13.59% 6,103 4.00% 9,155 6.00%
Tier I Capital (to Average Assets) 20,742 8.93% 6,967 3.00% 11,612 5.00%
SUMMIT COMMUNITY BANK, N.A.:
As of September 30, 2000
Total Capital (to Risk Weighted Assets) $ 31,357 13.02% $ 19,264 8.00% $ 24,080 10.00%
Tier I Capital (to Risk Weighted Assets) 28,338 11.77% 9,632 4.00% 14,448 6.00%
Tier I Capital (to Average Assets) 28,338 8.01% 10,617 3.00% 17,694 5.00%
</TABLE>
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.
28
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Change in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(i) Restated Articles of Incorporation of the Corporation
as of July 21, 1998 (incorporated herein by reference
to Exhibit 3(a) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1998).
3(ii) Amended and Restated Bylaws of the Corporation dated
April 21, 1998 (incorporated herein by reference to
Exhibit 3(b) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1998).
4(a) Summit Bancshares, Inc.'s Rights Agreement dated April
17, 1990 (incorporated herein by reference to Exhibit
1 to the Corporation's Current Report on Form 8-K
dated April 18, 1990 filed on April 24, 1990).
4(b) Amendment No. 1 to Rights Agreement Effective as of
April 16, 2000.
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, 2000
29
<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: 11-09-00 By: /s/ Philip E. Norwood
------------- -----------------------------------
Philip E. Norwood, Chairman
Date: 11-09-00 By: /s/ Bob G. Scott
------------- -----------------------------------
Bob G. Scott, Executive Vice President
and Chief Operating Officer
(Chief Accounting Officer)
30
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page No.
------- --------
<S> <C>
3(i) Restated Articles of Incorporation of the Corporation as of July 21,
1998 (incorporated herein by reference to Exhibit 3(a) to the
Corporation's Annual Report on Form 10-K for the year ended December
31, 1998).
3(ii) Amended and Restated Bylaws of the Corporation dated April 21, 1998
(incorporated herein by reference to Exhibit 3(b) to the Corporation's
Annual Report on Form 10-K for the year ended December 31, 1998).
4(a) Summit Bancshares, Inc.'s Rights Agreement dated April 17, 1990
incorporated herein by reference to Exhibit 1 to the Corporation's
Current Report on Form 8-K dated April 18, 1990 filed on April 24,
1990).
4(b) Amendment No. 1 to Rights Agreement Effective as of April 16, 2000.
11 Computation of Earnings Per Common Share
27 Financial Data Schedule
</TABLE>
31
