FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended June 30, 1998
Commission File Number 000-19235
SUMMIT FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
SOUTH CAROLINA 57-0892056
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
Post Office Box 1087
937 North Pleasantburg Drive
Greenville, South Carolina 29602
(Address, including zip code, of principal executive offices)
(864) 242-2265
(Registrant's telephone number, including area code)
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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of August 5, 1998, 1,443,410 shares of $1.00 par value common stock were
outstanding.
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SUMMIT FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
June 30, December 31,
1998 1997
---------- --------------
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ASSETS
Cash and short-term interest-bearing deposits . . . $ 8,226 $ 6,441
Federal funds sold. . . . . . . . . . . . . . . . . 10,950 2,920
Investments available for sale (amortized cost of
$27,118 and $28,007) . . . . . . . . . . . . . . . 27,329 28,213
Investments in stock of Federal Reserve Bank,
Federal Home Loan Bank and other stock, at cost . . 792 708
Loans, net of unearned income and net of allowance
for loan losses of $1,789 and $1,728 . . . . . . . 117,744 117,027
Property and equipment, net . . . . . . . . . . . . 2,482 2,360
Accrued interest receivable . . . . . . . . . . . . 1,193 1,168
Other assets. . . . . . . . . . . . . . . . . . . . 1,296 1,442
---------- --------------
$ 170,012 $ 160,279
========== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand . . . . . . . . . . . . . . . . . . . . . . $ 18,285 $ 17,679
Interest-bearing demand. . . . . . . . . . . . . . 6,867 6,249
Savings and money market . . . . . . . . . . . . . 43,574 37,355
Time deposits, $100,000 and over . . . . . . . . . 28,408 29,495
Other time deposits. . . . . . . . . . . . . . . . 48,345 50,150
---------- --------------
145,479 140,928
Securities sold under repurchase agreements . . . . 824 803
Other borrowings. . . . . . . . . . . . . . . . . . 7,000 3,000
Accrued interest payable. . . . . . . . . . . . . . 1,139 1,370
Other liabilities . . . . . . . . . . . . . . . . . 1,192 809
---------- --------------
155,634 146,910
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Shareholders' equity:
Common stock, $1.00 par value; 20,000,000 shares
authorized; issued and outstanding 1,443,410
and 1,438,424 . . . . . . . . . . . . . . . . . . 1,443 1,438
Additional paid-in capital . . . . . . . . . . . . 12,384 12,346
Retained earnings. . . . . . . . . . . . . . . . . 870 -
Nonvested restricted stock . . . . . . . . . . . . (454) (505)
Accumulated other comprehensive income . . . . . . 135 90
---------- --------------
Total shareholders' equity . . . . . . . . . . 14,378 13,369
---------- --------------
$ 170,012 $ 160,279
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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SUMMIT FINANCIAL CORPORATION
CONSOLIDATED INCOME AND COMPREHENSIVE INCOME STATEMENTS
(Dollars, except per share data, in Thousands)
(Unaudited)
For the Quarters Ended
June 30,
---------------------
1998 1997
------------------ -----------
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Interest Income:
Loans . . . . . . . . . . . . . . . . . . . . . . $ 3,023 $ 2,871
Taxable investment securities . . . . . . . . . . 289 287
Nontaxable investment securities. . . . . . . . . 98 19
Federal funds sold. . . . . . . . . . . . . . . . 122 54
Other . . . . . . . . . . . . . . . . . . . . . . 55 38
------------------ -----------
3,587 3,269
------------------ -----------
Interest Expense:
Deposits. . . . . . . . . . . . . . . . . . . . . 1,642 1,446
Other . . . . . . . . . . . . . . . . . . . . . . 89 67
------------------ -----------
1,731 1,513
------------------ -----------
Net interest income . . . . . . . . . . . . . 1,856 1,756
Provision for loan losses. . . . . . . . . . . . . (51) (124)
------------------ -----------
Net interest income after
provision for loan losses. . . . . . . . . . 1,805 1,632
------------------ -----------
Other Income:
Service charges and fees on deposit accounts. . . 58 52
Credit card service fees and income . . . . . . . 76 62
Insurance commission fee income . . . . . . . . . 80 46
Other income. . . . . . . . . . . . . . . . . . . 170 94
------------------ -----------
384 254
------------------ -----------
Other Operating Expenses:
Salaries, wages and benefits. . . . . . . . . . . 807 649
Occupancy . . . . . . . . . . . . . . . . . . . . 109 119
Furniture, fixtures and equipment . . . . . . . . 130 107
Other operating expenses. . . . . . . . . . . . . 419 380
------------------ -----------
1,465 1,255
------------------ -----------
Income before income taxes . . . . . . . . . . . . 724 631
Provision for income taxes . . . . . . . . . . . . (269) (231)
------------------ -----------
Net income . . . . . . . . . . . . . . . . . . . . 455 400
------------------ -----------
Other comprehensive income, net of tax:
Unrealized net gain on investments available for
sale, net of income taxes of $5 and $36 . . . . 7 76
------------------ -----------
Comprehensive income . . . . . . . . . . . . . . . $ 462 $ 476
================== ===========
Net income per share
Basic . . . . . . . . . . . . . . . . . . . . . $ .16 $ .14
Diluted . . . . . . . . . . . . . . . . . . . . $ .14 $ .13
Average shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . 2,884,594 2,822,000
Diluted . . . . . . . . . . . . . . . . . . . . 3,432,474 3,038,000
<FN>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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SUMMIT FINANCIAL CORPORATION
CONSOLIDATED INCOME AND COMPREHENSIVE INCOME STATEMENTS
(Dollars, except per share data, in Thousands)
(Unaudited)
For the Six Months Ended
June 30,
-------------------------
1998 1997
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Interest Income:
Loans. . . . . . . . . . . . . . . . . . . . . . . $ 6,032 $ 5,544
Taxable investment securities. . . . . . . . . . . 635 554
Nontaxable investment securities . . . . . . . . . 182 28
Federal funds sold . . . . . . . . . . . . . . . . 190 125
Other. . . . . . . . . . . . . . . . . . . . . . . 98 78
------------- --------------
7,137 6,329
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Interest Expense:
Deposits . . . . . . . . . . . . . . . . . . . . . 3,273 2,785
Other. . . . . . . . . . . . . . . . . . . . . . . 144 128
------------- --------------
3,417 2,913
------------- --------------
Net interest income. . . . . . . . . . . . . . 3,720 3,416
Provision for loan losses . . . . . . . . . . . . . (101) (211)
------------- --------------
Net interest income after
provision for loan losses . . . . . . . . . . 3,619 3,205
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Other Income:
Service charges and fees on deposit accounts . . . 98 102
Credit card service fees and income. . . . . . . . 152 122
Insurance commission fee income. . . . . . . . . . 181 96
Other income . . . . . . . . . . . . . . . . . . . 334 174
------------- --------------
765 494
------------- --------------
Other Operating Expenses:
Salaries, wages and benefits . . . . . . . . . . . 1,644 1,341
Occupancy. . . . . . . . . . . . . . . . . . . . . 220 231
Furniture, fixtures and equipment. . . . . . . . . 274 214
Other operating expenses . . . . . . . . . . . . . 872 744
------------- --------------
3,010 2,530
------------- --------------
Income before income taxes. . . . . . . . . . . . . 1,374 1,169
Provision for income taxes. . . . . . . . . . . . . (504) (430)
------------- --------------
Net income. . . . . . . . . . . . . . . . . . . . . 870 739
------------- --------------
Other comprehensive income, net of tax:
Unrealized net gain on investments available for
sale, net of income taxes of $30 and ($3). . . . 45 (7)
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Comprehensive income. . . . . . . . . . . . . . . . $ 915 $ 732
============= ==============
Per share data:
Basic. . . . . . . . . . . . . . . . . . . . . . $ .30 $ .26
Diluted. . . . . . . . . . . . . . . . . . . . . $ .26 $ .24
Average shares outstanding:
Basic. . . . . . . . . . . . . . . . . . . . . . 2,882,446 2,820,000
Diluted. . . . . . . . . . . . . . . . . . . . . 3,406,918 3,036,000
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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SUMMIT FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
(Dollars in Thousands)
Accum-
ulated
Addi- other Non- Total
tional compre- vested share-
Common paid-in Retained hensive restricted holders'
stock capital earnings income stock equity
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Balance at December 31, 1996 . . . . $ 1,335 $ 10,254 $ 48 - - $ 11,637
Net income for the six months
ended June 30, 1997 . . . . . . . . - - 739 - - 739
Change in unrealized net gain
on investment securities available
for sale. . . . . . . . . . . . . . - - - (7) - (7)
Employee stock options exercised . . 7 39 - - - 46
------- -------- --------- --------- ------------ ----------
Balance at June 30, 1997 . . . . . . $ 1,342 $ 10,293 $ 787 ($7) $ 0 $ 12,415
======= ======== ========= ========= ============ ==========
Balance at December 31, 1997 . . . . $ 1,438 $ 12,346 - $ 90 ($505) $ 13,369
Net income for the six months
ended June 30, 1998 . . . . . . . . - - 870 - - 870
Amortization of nonvested restricted
stock . . . . . . . . . . . . . . . - - - - 51 51
Change in unrealized net gain
on investment securities available
for sale. . . . . . . . . . . . . . - - - 45 - 45
Employee stock options exercised . . 5 38 - - 43
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Balance at June 30, 1998 . . . . . . $ 1,443 $ 12,384 $ 870 $ 135 ($454) $ 14,378
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<FN>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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SUMMIT FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
For the Six Months Ended
June 30,
-------------------------
1998 1997
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Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 870 $ 739
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses . . . . . . . . . . . . . . . 101 211
Depreciation and amortization . . . . . . . . . . . . . 220 167
Gain on sale of fixed assets. . . . . . . . . . . . . . - (20)
Gain on sale investments available for sale . . . . . . (1) (1)
Net amortization (accretion) of net premium
(discounts) on investments. . . . . . . . . . . . . . 5 (12)
Amortization of deferred compensation on
restricted stock . . . . . . . . . . . . . . . . . . . 51 -
Decrease (increase) in other assets . . . . . . . . . . 123 (153)
Increase in other liabilities . . . . . . . . . . . . . 122 371
------------- --------------
Net cash provided by operating activities . . . . . . . . . 1,491 1,302
------------- --------------
Cash flows from investing activities:
Purchases of securities available for sale. . . . . . . . (4,105) (7,145)
Proceeds from maturities of securities available for sale 4,108 2,002
Proceeds from sales of securities available for sale. . . 951 2,991
Purchases of Federal Home Bank Stock. . . . . . . . . . . (84) (58)
Net increase in loans . . . . . . . . . . . . . . . . . . (818) (11,418)
Purchases of net finance loans receivable . . . . . . . . - (499)
Purchases of fixed assets . . . . . . . . . . . . . . . . (343) (101)
Proceeds from sale of fixed assets. . . . . . . . . . . . - 22
------------- --------------
Net cash used in investing activities . . . . . . . . . . . (291) (14,206)
------------- --------------
Cash flows from financing activities:
Net increase in deposit accounts. . . . . . . . . . . . . 4,551 13,414
Net increase in securities sold under . . . . . . . . . . 21 20
repurchase agreements
Advances from other borrowings. . . . . . . . . . . . . . 6,500 1,000
Repayment of other borrowings . . . . . . . . . . . . . . (2,500) (50)
Proceeds from stock issuance pursuant
to employee stock option plan . . . . . . . . . . . . . 43 46
------------- --------------
Net cash provided by financing activities . . . . . . . . . 8,615 14,430
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Net increase (decrease) in cash and cash equivalents. . . . 9,815 1,526
Cash and cash equivalents, beginning of period. . . . . . . 9,361 9,026
------------- --------------
Cash and cash equivalents, end of period. . . . . . . . . . $ 19,176 $ 10,552
============= ==============
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest. . . . . . . . . . $ 3,649 $ 2,772
Cash paid during the period for income taxes. . . . . . . . $ 283 $ 485
Change in market value of investment securities
available for sale, net of income taxes. . . . . . . . . . $ 45 ($7)
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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SUMMIT FINANCIAL CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 1 - BASIS OF PRESENTATION:
Summit Financial Corporation (the Company), a South Carolina corporation,
is the parent holding company for Summit National Bank (the Bank), a
nationally chartered bank, and Freedom Finance, Inc. (the Finance Company), a
consumer finance company.
Through its bank subsidiary, which commenced operations in July 1990, the
Company provides a full range of banking services, including the taking of
demand and time deposits and the making of commercial and consumer loans. The
Bank currently has two full service branch locations in Greenville, South
Carolina. The Bank is currently in process of renovating a leased facility
for a third branch location also in Greenville, South Carolina. The third
branch is expected to commence operations in the fourth quarter of 1998. The
Finance Company commenced operations in November 1994 and makes and services
small installment loans to individuals from its 11 offices throughout South
Carolina.
The unaudited consolidated financial statements of the Company at June
30, 1998 and for the periods ended June 30, 1998 and 1997 were prepared in
accordance with the instructions for Form 10-Q and, in the opinion of
management, all adjustments (consisting only of items of a normal recurring
nature) necessary for a fair presentation of the financial position at June
30, 1998, and the results of operations and cash flows for the periods ended
June 30, 1998 and 1997 have been included. The results for the quarter or six
month period ended June 30, 1998 are not necessarily indicative of the results
that may be expected for the full year or any other interim period.
These consolidated financial statements do not include all disclosures
required by generally accepted accounting principles and should be read in
conjunction with the Company's audited consolidated financial statements and
related notes for the year ended December 31, 1997 included in the Company's
1997 Annual Report on Form 10K.
NOTE 2 - CASH FLOW INFORMATION:
The Company considers those amounts included in the balance sheet
captions "Cash and interest-bearing deposits" and "Federal funds sold" to be
cash and cash equivalents, which totaled $19,176,000 and $10,552,000 at June
30, 1998 and 1997, respectively. Cash includes currency and coin, cash items
in process of collection and due from banks. Included in cash and cash
equivalents are overnight investments and short-term investments with original
maturities of less than six months.
NOTE 3 - COMPREHENSIVE INCOME:
Effective January 1, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income". In accordance with the provisions of SFAS No. 130,
comparative financial statements presented for earlier periods have been
reclassified to reflect the provisions of this Statement. Comprehensive
income is the change in the Company's equity during the period from
transactions and other events and circumstances. Comprehensive income is
divided into net income and other comprehensive income. The Company's "other
comprehensive income" for the quarters and six months ended June 30, 1998 and
1997 and "accumulated other comprehensive income" as of June 30, 1998 and 1997
are comprised solely of unrealized gains and losses on certain investments in
debt and equity securities.
NOTE 4 - PER SHARE INFORMATION:
Effective August 24, 1998, the Company issued a two-for-one stock split.
The split was issued to all shareholders of record as of August 10, 1998 and
will result in the issuance of 1,443,410 shares of common stock of the
Company. All average and per share data have been restated to reflect this
stock split as of the earliest period presented.
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SUMMIT FINANCIAL CORPORATION
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Summit Financial Corporation (the Company) is a financial institution
holding company headquartered in Greenville, South Carolina. The Company has
a wholly-owned bank subsidiary, Summit National Bank (the Bank) and a
wholly-owned consumer finance company subsidiary, Freedom Finance, Inc. (the
Finance Company).
During the quarter ended June 30, 1998, the Company's net income totaled
$455,000 or $.27 per diluted share. This is compared to net income of
$400,000 or $.26 per diluted share for the same quarterly period of 1997 or an
increase of 14%. For the first six months of 1997 the Company reported net
income of $870,000 or $.51 per diluted share, an improvement of approximately
$131,000 compared to the net income for the first six months of 1997 of
$739,000 or $.48 per diluted share.
Total assets increased approximately $9.7 million or 6% from December 31,
1997 to June 30, 1998. Deposits increased approximately $4.6 million or 3%
during the period. The increase in deposits, combined with the $4 million
(133%) increase in other borrowings, funded gross loan growth of $778,000
(.7%), and the $8 million (275%) increase in federal funds sold during the
same period.
RESULTS OF OPERATIONS - COMPARISON OF THE QUARTERS ENDED JUNE 30, 1998 AND
1997
GENERAL
The Company reported consolidated net income for the quarter ended June
30, 1998 of $455,000, compared to net income of $400,000 for the quarter ended
June 30, 1997, or an improvement of approximately $55,000 or 14%. The
increase in consolidated earnings for the 1998 period is primarily
attributable to (1) a $100,000 or 6% increase in the Company's net interest
income related to the higher level of earning assets in 1998 as compared to
the prior year; (2) a reduction in the provision for loan losses for the
second quarter of 1998 as compared to the prior year due to the lower loan
originations for the 1998 quarter; and (3) an increase of $130,000 in other
income related to higher insurance and nondeposit product commission fees.
The increases are somewhat offset by higher other operating expenses of
approximately 17%.
Summit National Bank recorded net earnings of $472,000 for the quarter
ended June 30, 1998 which was a 22% increase from the second quarter of 1997
earnings of $387,000. The increase in net income for this subsidiary resulted
primarily from a $128,000 (92%) increase in the Bank's net interest income
which was related to the higher level of earning assets, combined with a 71%
reduction in the allowance for loan losses and a 68% increase in other income
for the 1998 quarter as compared to the prior year.
The Company's consumer finance subsidiary, Freedom Finance, Inc.,
recorded net losses for both the second quarter of 1998 and 1997 of
approximately $(30,000) and $(9,000), respectively. The lower net interest
income due to the reduction in earning assets between the second quarter of
1997 and 1998 is the primary contributor to the higher loss in the current
year's quarter.
NET INTEREST INCOME
Net interest income is the difference between the interest earned on
assets and the interest paid for the liabilities used to support those assets.
It is the largest component of the Company's earnings and changes in it have
the greatest impact on net income. Variations in the volume and mix of assets
and liabilities and their relative sensitivity to interest rate movements
determine changes in net interest income. During the quarter ended June 30,
1998, the Company recorded consolidated net interest income of $1.9 million, a
6% increase from the net interest income of $1.8 million for the quarter ended
June 30, 1997. The increase in this amount is directly related to the
increase in the average earning asset and interest-bearing liability volume of
the Company of 15% each, offset by the 28 basis point decline in net interest
margin for the Company.
For the quarters ended June 30, 1998 and 1997, the Company's consolidated
net interest margin was 4.84% and 5.12%, respectively. The net interest
margin is calculated as annualized net interest income divided by year-to-date
average earning assets. The decrease in consolidated net interest margin is
related primarily to the decrease in the average yield on loans, combined with
the shift of earning assets to lower yielding federal funds sold and
short-term interest-bearing deposits as the loan growth continued to be
somewhat slow in the second quarter of 1998.
INTEREST INCOME
For the quarter ended June 30, 1998, the Company's earning assets
averaged $158 million and had an average yield of 9.24%. This compares to
average earning assets of $138 million for the second quarter of 1997,
yielding 9.56%. Thus, the contributor to the increase in interest income of
$318,000 or 10% between the quarters ended June 30, 1997 and 1998 is the
increase in volume of earning assets of 15% offset by the 32 basis point
reduction in average yield.
Consolidated loans averaged approximately 75% of the Company's average
earning assets for the second quarter of 1998 compared to 80% for the prior
year. The majority of the Company's loans are tied to the prime rate
(approximately 62% of the Bank's portfolio is at floating rates), which
averaged 8.5% for both the quarters ended June 30, 1998 and 1997. During the
second quarter of 1998, the Bank's loans averaged $117 million, yielding an
average rate of 9.19%, compared to $108.5 million, yielding an average of rate
9.25% for the second quarter of 1997. The reduction in the average yield on
the Bank's loans is primarily related to competitive pricing on loan
originations during 1997 and into 1998. A decrease in yield on the loans of
the Finance Company contributed to the lower consolidated average yield. The
7% higher level of average loans, offset by the reduction in yield, resulted
in an increase in consolidated interest income on loans of $152,000 or 5%.
Investment securities averaged $27.5 million or 17% of average earning
assets and yielded 6.37% (tax equivalent basis) during the second quarter of
1998, compared to average securities of $19.9 million also yielding 6.37% (tax
equivalent basis) for the quarter ended June 30, 1997. The 38% increase in
average securities resulted in the $80,000 increase in interest income on
investment securities.
INTEREST EXPENSE
The Company's interest expense for the quarter ended June 30, 1998 was
$1.7 million. The increase of 14% from the comparable quarter in 1997 of $1.5
million was directly related to the 15% increase in average volume of
interest-bearing liabilities. Interest-bearing liabilities averaged $133
million for the second quarter of 1998 with an average rate of 5.22%. This
compares to average interest-bearing liabilities of $116 million with an
average rate of 5.25% for the quarter ended June 30, 1997. There was no
significant change in the average rate on liabilities between the second
quarter of 1997 and 1998 due to the relative stability of the general interest
rate environment for those two periods.
PROVISION FOR LOAN LOSSES
The amount charged to the provision for loan losses by the Bank and the
Finance Company is based on management's judgment as to the amounts required
to maintain an allowance adequate to provide for potential losses in the loan
portfolio. The level of this allowance is dependent upon growth in the loan
portfolios; the total amount of past due loans; nonperforming loans; known
loan deteriorations and/or concentrations of credit; trends in portfolio
volume, maturity and composition; projected collateral values; general
economic conditions; and management's assessment of potential losses based
upon internal credit grading of the loans and periodic reviews and assessments
of credit risk associated with particular loans.
While it is the Company's policy to charge-off in the current period
loans in which a loss is considered probable, there are additional risks of
future losses which cannot be quantified precisely or attributed to particular
loans or classes of loans. Management uses the best information available to
make evaluations, however, future adjustments to the allowance may be
necessary if economic conditions differ substantially from the assumptions
used in making evaluations. The Company is also subject to regulatory
examinations and determinations as to the adequacy of the allowance, which may
take into account such factors as the methodology used to calculate the
allowance for loan losses and the size of the allowance in comparison to a
group of peer companies identified by the regulatory agencies.
Included in the net income for the quarter ended June 30, 1998 is a
provision for loan losses of $51,000 compared to a provision of $124,000 for
the second quarter of 1997. The Company had net loan growth for the first six
months of 1998 of .7% compared to 12% for the same period of 1997. Based on
the lower loan growth for 1998, the required provision decreased from the
comparable period of 1997.
At June 30, 1998, the consolidated allowance for loan losses was $1.8
million or 1.50% of total loans net of unearned income. This compares to an
allowance of $1.7 million or 1.48% of total loans net of unearned income at
June 30, 1997. For the quarter ended June 30, 1998, the Company reported net
charge-offs of $3,000, which is a result of the Finance Company net
charge-offs of $29,000 (3.89% annualized of average loans of the Finance
Company) combined with the Bank's net recovery position for the second quarter
of 1998 of $(26,000). This is compared to consolidated net charge-offs of
$29,000 for the comparable quarter of 1997. There were no loans on nonaccrual
status at either June 30, 1998 or 1997. Loans past due 90 days and greater
totaled $81,000 or 0.07% of gross loans at June 30, 1998 and $80,000 or .07%
of gross loans at June 30, 1997. Generally loans of the Bank are placed on
nonaccrual status at the earlier of when they are 90 days past due or when the
collection of interest becomes doubtful. Loans of the Finance Company are not
classified as nonaccrual, but are charged-off when they become 150 days
contractually past due or earlier if the loan is deemed uncollectible. The
allowance for loan losses at June 30, 1998 represents management's estimate of
potential losses in the loan portfolio at that date.
OTHER INCOME AND EXPENSES
Other income, which is primarily related to service charges on customers'
deposit accounts; credit card interchange fees; merchant discount fees;
commissions on nondeposit investment product sales and insurance product
sales; and mortgage origination fees, was $384,000 for the quarter ended June
30, 1998 compared to $254,000 for the second quarter of 1997, or an increase
of 51%. Increases in Bank branch related income due to higher volume of
transactions and number of accounts ; higher mortgage loan referral fees in
1998; and increases in nondeposit sale transactions generating commission
income were responsible for the increase in other income the second quarter of
1998 as compared to 1997.
For the quarter ended June 30, 1998, total overhead expenses were $1.5
million which is an increase of 17% over the amount incurred for the quarter
ended June 30, 1997 of $1.3 million. The most significant item included in
other expenses is salaries, wages and benefits which amounted to $807,000 for
the quarter ended June 30, 1998 as compared to $649,000 for the quarter ended
June 30, 1997. The increase of $158,000 or 24% is a result of (1) normal
annual raises; (2) additional staff added at the Bank between the 1997 and
1998 comparable periods; (3) higher commission expense paid and associated
payroll taxes related to the higher nondeposit product sales in the second
quarter of 1998; (4) amortization of the compensation expense related to
restricted stock grants in late 1997; and (5) additional bonus and benefit
accruals pursuant to the Bank's compensation program.
The 21% ($23,000) increase in furniture, fixtures, and equipment ("FFE")
between the second quarters of 1998 and 1997 is primarily related to higher
depreciation and associated expenses at the Bank, primarily software and
hardware related to technology upgrades and furnishings and equipment in
anticipation of the new branch facility opening later in 1998.
Included in the line item "other operating expenses", which increased
$38,000 or 10% from the comparable quarter of 1997, are charges for OCC
assessments; property and bond insurance; Relay/Cirrus switch fees; credit
card expenses; professional services; education and seminars; advertising and
public relations; and other branch and customer related expenses. These items
are related directly to the normal operations of the Bank and increase in
relation to the increase in assets, the higher level of transaction volume,
and the larger number of customer accounts. The Bank's activity accounted for
a majority of the increase and accounted for $27,000, and, in addition to
normal volume-related activity had increases in advertising in anticipation of
the new branch and in education related to the technology upgrades.
Also included in the line item "other operating expenses" is activity of
the Finance Company which includes charges for credit reports, license fees,
acquisition premium amortization, and office support. These items increased
5% between the second quarter of 1998 and 1997 related to normal activity of
the branches.
INCOME TAXES
For the quarter ended June 30, 1998, the Company reported $269,000 in
income tax expense, or an effective tax rate of 37%. This is compared to
income tax expense of $231,000 for the same quarter of the prior year, or an
effective tax rate of 36.5%.
RESULTS OF OPERATIONS - COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1998 AND
1997
GENERAL
The Company reported consolidated net income for the six months ended
June 30, 1998 of $870,000, compared to net income of $739,000 for the six
months ended June 30, 1997, or an improvement of approximately $131,000 or
18%. The increase in consolidated earnings for the 1998 period is primarily
attributable to (1) a $304,000 or 9% increase in the Company's net interest
income related to the higher level of earning assets in 1998 as compared to
the prior year; (2) a reduction in the provision for loan losses for the first
six months of 1998 as compared to 1997 due to the lower net loan originations
in 1998; and (3) the 55% increase in other income related to higher insurance
and nondeposit commission fees and mortgage referral fees. The increases are
somewhat offset by a 19% increase in other operating expenses.
Summit National Bank recorded net earnings of $858,000 for the six months
ended June 30, 1998 which was an 21% increase from the first six months of
1997 earnings of $709,000. The increase in net income for this subsidiary
resulted primarily from a $342,000 (13%) increase in the Bank's net interest
income which was primarily related to the higher level of average earning
assets, combined with increase in other income and a reduction in the
provision for loan losses. This increase was offset somewhat by increases in
other operating expenses between the two periods. The Company's consumer
finance subsidiary, Freedom Finance, Inc., recorded net losses for both the
first six months of 1998 and 1997 of approximately $(10,000) and $(11,000),
respectively.
NET INTEREST INCOME
Net interest income, the difference between the interest earned and
interest paid, is the largest component of the Company's earnings and changes
in it have the greatest impact on net income. Variations in the volume and
mix of assets and liabilities and their relative sensitivity to interest rate
movements determine changes in net interest income. During the six months
ended June 30, 1998, the Company recorded consolidated net interest income of
$3.7 million, a 9% increase from the net interest income of $3.4 million for
the six months ended June 30, 1997. The increase in this amount is directly
related to the increase in the average earning asset and interest-bearing
liability volume of the Company of 16% each, offset somewhat by the 20 basis
point decrease in the consolidated net interest margin for the period.
For the six months ended June 30, 1998 and 1997, the Company's
consolidated net interest margin was 4.94% and 5.14%, respectively. The net
interest margin is calculated as annualized net interest income divided by
year-to-date average earning assets. The decrease in consolidated net interest
margin is related primarily to the decrease in the average yield on loans,
combined with the shift of earning assets to lower yielding federal funds sold
and short-term interest-bearing deposits as the loan growth continued to be
somewhat slow in the second quarter of 1998.
INTEREST INCOME
For the six months ended June 30, 1998, the Company's earning assets
averaged $156 million and had an average tax-equivalent yield of 9.36%. This
compares to average earning assets of $134 million for the first six months of
1997, yielding approximately 9.54%. Thus, the significant contributor to the
increase in interest income of $808,000 or 13% between the six months ended
June 30, 1998 and 1997 is the increase in volume of earning assets of 16%,
offset somewhat by the 20 basis point decrease in yield.
Consolidated loans averaged approximately 76% of the Company's average
earning assets for the first six months of 1998 compared to 80% for the prior
year. The majority of the Company's loans are tied to the prime rate
(approximately 62% of the Bank's portfolio is at floating rates), which
averaged 8.50% and 8.38% for the six months ended June 30, 1998 and 1997,
respectively. During the first six months of 1997, the Bank's loans averaged
$116 million, yielding an average of 9.14%, compared to $105 million, yielding
an average of 9.13% for the first six months of 1997. The decrease in average
yield of the Finance Company loans contributed to the lower consolidated
average yield on loans which dropped to 10.31% for the first six months of
1998 from 10.47% for the first six months of 1997. The higher level of
average loans, offset by the decrease in average rate, resulted in an increase
in consolidated interest income on loans of $488,000 million or 9%.
Investment securities averaged $27.8 million or 18% of average earning
assets and yielded 6.60% (tax equivalent basis) during the first six months of
1998, compared to average securities of $18.9 million yielding 6.35% (tax
equivalent basis) for the six months ended June 30, 1997. The increase in the
average yield of the investment portfolio is related to the timing, maturity
distribution and types of securities (primarily longer term municipals)
purchased during the latter half of 1997 and into 1998. The increase in
average securities combined with the increase in average rate resulted in the
increase of interest income on securities of $235,000 or 40%.
INTEREST EXPENSE
The Company's interest expense for the six months ended June 30, 1998 was
$3.4 million. The increase of 17% from the comparable six months in 1997 of
$2.9 million was related to the 16% increase in average volume of
interest-bearing liabilities, combined with the increase in average rate of 5
basis points. Interest-bearing liabilities averaged $131 million for the
first six months of 1998 with an average rate of 5.25%. This is compared to
average interest-bearing liabilities of $113 million with an average rate of
5.20% for the six months ended June 30, 1997.
PROVISION FOR LOAN LOSSES
As previously discussed under the quarterly analysis, the amount charged
to the provision for loan losses by the Bank and the Finance Company is based
on management's judgment as to the amounts required to maintain an allowance
adequate to provide for potential losses in the loan portfolio.
Included in the net income for the six months ended June 30, 1998 is a
provision for loan losses of $101,000 compared to a provision of $211,000 for
the first six months of 1997. The decrease in the provision required is
related to the lower net originations experienced by the Company during the
first six months of 1998 as compared to the same period of 1997.
At June 30, 1998, the consolidated allowance for loan losses was $1.8
million or 1.50% of total loans net of unearned income. This compares to an
allowance of $1.7 million or 1.48% of total loans net of unearned income at
June 30, 1997. For the six months ended June 30, 1998, the Company reported
net charge-offs of $40,000, which is a result of the Finance Company net
charge-offs of $66,000 (4.23% annualized of average loans of the Finance
Company) combined with the Bank's net recovery position for 1998 of $(26,000).
This is compared to consolidated net charge-offs of $26,000 for the comparable
period of 1997.
OTHER INCOME AND EXPENSES
Other income, which is primarily related to service charges on customers'
deposit accounts; credit card interchange fees; merchant discount fees;
commissions on nondeposit investment product sales and insurance product
sales; and mortgage origination fees, was $765,000 for the six months ended
June 30, 1998 compared to $494,000 for the first six months of 1997, or an
increase of 55%. Increases in Bank branch related income due to higher volume
of transactions and number of accounts; higher mortgage loan referral fees in
1998; and increases in nondeposit sale transactions generating commission
income were responsible for the increase in other income the first half of
1998 as compared to 1997.
For the six months ended June 30, 1998, total overhead expenses were $3
million which is an increase of 19% over the amount incurred for the six
months ended June 30, 1997 of $2.5 million. The most significant item
included in other expenses is salaries, wages and benefits which amounted to
$1.6 million for the six months ended June 30, 1998 as compared to $1.3
million for the six months ended June 30, 1997. The increase of $303,000 or
23% is a result of (1) normal annual raises; (2) additional staff added at the
Bank between the 1997 and 1998 comparable periods; (3) higher commission
expense paid and associated payroll taxes related to the higher nondeposit
product sales in 1998; (4) amortization of the compensation expense related to
restricted stock grants in late 1997; and (5) additional bonus and benefit
accruals pursuant to the Bank's compensation program.
The 28% ($61,000) increase in furniture, fixtures, and equipment ("FFE")
between the first six months of 1998 and 1997 is primarily related to higher
depreciation and associated expenses at the Bank, primarily software and
hardware related to technology upgrades and furnishings and equipment in
anticipation of the new branch facility opening later in 1998.
Included in the line item "other operating expenses", which increased
$127,000 or 17% from the comparable six months of 1997, are charges for OCC
assessments; property and bond insurance; Relay/Cirrus switch fees; credit
card expenses; professional services; education and seminars; advertising and
public relations; and other branch and customer related expenses. These items
are related directly to the normal operations of the Bank and increase in
relation to the increase in assets, the higher level of transaction volume,
and the larger number of customer accounts. The Bank's activity accounted for
$100,000 or 78% of the increase and, in addition to normal volume-related
activity, had increases in advertising in anticipation of the new branch
opening, higher professional and outside service fees related to additional
technology consulting engagements during 1998, and increases in education
expenses related to the software upgrades and new technology.
Also included in the line item "other operating expenses" is activity of
the Finance Company which includes charges for credit reports, license fees,
acquisition premium amortization, and office support. These items increased
6% between the comparable periods of 1997 and 1998 related to normal activity
of the branches.
INCOME TAXES
For the six months ended June 30, 1998, the Company reported $504,000 in
income tax expense, or an effective tax rate of 37%. This is compared to
income tax expense of $430,000 for the same six months of the prior year, also
for an effective tax rate of 37%.
LIQUIDITY
Liquidity management involves meeting the cash flow requirements of the
Company. The Company must maintain an adequate liquidity position in order to
respond to the short-term demand for funds caused by the withdrawals from
deposit accounts, maturities of repurchase agreements, extensions of credit
and for the payment of operating expenses. Maintaining an adequate level of
liquidity is accomplished through a combination of liquid assets, those which
can easily be converted into cash, and access to additional sources of funds.
The Company's primary liquid assets are cash and due from banks, federal funds
sold, unpledged investment securities available for sale, other short-term
investments and maturing loans. The Company's primary liquid assets at June
30, 1998 and 1997, accounted for approximately 20% and 15%, respectively, of
average assets. In management's opinion, the Company maintains adequate
levels of liquidity by retaining liquid assets and assets which can easily be
converted into cash and by maintaining access to various sources of funds.
The primary sources of funds available through the Bank include borrowing on a
short-term basis from the Federal Home Loan Bank and Federal Reserve System,
purchasing federal funds from other financial institutions, and increasing
deposits by raising rates paid.
The Company's core deposits consist of consumer non-jumbo (i.e. less than
$100,000) time deposits, and consumer and commercial savings accounts, NOW
accounts, money market accounts, and checking accounts. Although such core
deposits are becoming increasingly more costly and interest sensitive for both
the Company and the industry as a whole, such core deposits continue to
provide the Company with a large and stable source of funds. The Company
closely monitors its reliance on certificates of deposits greater than
$100,000, which are generally considered less stable and more interest rate
sensitive than core deposits. Certificates of deposit in excess of $100,000,
which represented 19% and 21% of total deposits at June 30, 1998 and 1997,
respectively, are held primarily by customers in the Company's service area
who have dealt with the Company for an extended period of time. The Company
has no brokered deposits.
Summit Financial Corporation ("Summit Financial"), the parent holding
company, has limited liquidity needs. Summit Financial requires liquidity to
pay limited operating expenses, to service its debt, and to provide funding to
its consumer finance subsidiary, Freedom Finance. Summit Financial has
approximately $1.3 million in available liquidity remaining from its initial
public offering and the retention of earnings. All of this liquidity was
advanced to the Finance Company to fund its operations as of June 30, 1998.
In addition, Summit Financial has an available line of credit totaling $2.2
million with an unaffiliated financial institution, all of which was available
at June 30, 1998. Finally, several individuals have provided term loans to
Summit Financial to provide liquidity for funding operating needs of Freedom
Finance. At June 30, 1998, these term loans totaled $500,000 and have various
maturities throughout 1998. Additional sources of liquidity for Summit
Financial include management fees and debt service which are paid by its
subsidiary on a monthly basis.
Liquidity needs of Freedom Finance, primarily for the funding of loan
originations, acquisitions, and operating expenses, have been meet to date
through the initial capital investment of $500,000 made by Summit Financial,
borrowings from an unrelated private investor, and line of credit facilities
provided by Summit Financial and Summit National Bank, its sister company.
The Company's management believes its liquidity sources are adequate to
meet its operating needs and does not know of any trends, events or
uncertainties that may result in a significant adverse affect on the Company's
liquidity position.
CAPITAL RESOURCES
To date, the capital needs of the Company have been met through the
retention of net income and from the proceeds of its initial offering of
common stock. The Company believes that the rate of asset growth will not
negatively impact the capital base. Total equity at June 30, 1998 was $14.4
million.
On April 22, 1998, the Company entered into an agreement to lease a
facility for a branch location in Greenville, South Carolina. The facility is
approximately 8,000 square feet and has an initial term of 7 years. The lease
requires initial monthly rent payments of $5,900 for a period of 4 years, at
which time the rent increases to $6,492 per month. The agreement includes a
renewal option for an additional 7 year period at substantially the same terms
of the initial lease and for a monthly rent of $6,492 throughout the renewal
period. The Company anticipates opening the branch facility by the fourth
quarter of 1998. Management believes the current capital resources are
adequate to meet the needs for the anticipated branch facility and related
furnishings and equipment.
The Company has no other commitments or immediate plans for any
significant capital expenditures outside the normal course of business. The
Company's management does not know of any trends, events or uncertainties that
may result in the Company's capital resources materially increasing or
decreasing.
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have
a material effect on the financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and the Bank must meet specific capital guidelines that involve
quantitative measures of the Company's and the Bank's assets, liabilities and
certain off-balance sheet items as calculated under regulatory accounting
practices. The Company's and the Bank's capital amounts and classification
are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier 1 capital (as defined
in the regulation) to risk-weighted assets (as defined) and to total assets.
Management believes, as of June 30, 1998, that the Company and the Bank meet
all capital adequacy requirements to which they are subject. At June 30, 1998
and 1997, the Company and the Bank are both categorized as "well capitalized"
under the regulatory framework for prompt corrective action. To be
categorized as "well capitalized", the Company and the Bank must maintain
minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set
forth in the table below. There are no current conditions or events that
management believes would change the Company's or the Bank's category.
The following table presents the Company's and the Bank's actual capital
amounts (dollars in thousands) and ratios at June 30, 1998 as well as the
minimum calculated amounts for each regulatory defined category.
<TABLE>
<CAPTION>
RISK-BASED CAPITAL CALCULATIONS
FOR TO BE
CAPITAL CATEGORIZED
ADEQUACY WELL-
ACTUAL PURPOSES CAPITALIZED
Actual Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Total Capital to Risk-
Weighted Assets
Company. . . . . . $15,578 12.07% $ 10,323 8.00% $ 12,904 10.00%
Bank . . . . . . . $14,230 11.26% $ 10,112 8.00% $ 12,640 10.00%
Tier I Capital to Risk-
Weighted Assets
Company. . . . . . $13,965 10.82% $ 5,161 4.00% $ 7,742 6.00%
Bank . . . . . . . $12,650 10.01% $ 5,056 4.00% $ 7,584 6.00%
Tier I Capital to
Average Assets
Company. . . . . . $13,965 8.53% $ 6,549 4.00% $ 8,186 5.00%
Bank . . . . . . . $12,650 7.72% $ 6,556 4.00% $ 8,195 5.00%
</TABLE>
EFFECT OF INFLATION AND CHANGING PRICES
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles which require the measurement of
financial position and results of operations in terms of historical dollars,
without consideration of changes in the relative purchasing power over time
due to inflation.
The yield on a majority of the Company's earning assets adjusts
simultaneously with changes in the general level of interest rates. Over 50%
of the Company's liabilities are issued with fixed terms and can be repriced
only at maturity. During periods of rising interest rates, as experienced in
1997, the Company's assets reprice faster than the supporting liabilities.
This causes an increase in the net interest margin until the fixed rate
deposits mature and are repriced at higher current market rates, thus
narrowing the difference between what the Company earns on its assets and what
it pays on its liabilities. Given the Company's current balance sheet
structure, the opposite effect (that is, a decrease in net interest income) is
realized in a falling rate environment. The degree of interest rate
sensitivity of the Company's assets and liabilities and the differences in
timing of repricing assets and liabilities provides an indication of the
extent to which the Company's net interest income may be affected by interest
rate movements.
Unlike most other industries, virtually all of the assets and liabilities
of a financial institution are monetary in nature. As a result, interest
rates generally have a more significant effect in a financial institution's
performance than does the effect of inflation.
ACCOUNTING, REPORTING AND REGULATORY MATTERS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures
about Segments of an Enterprise and Related Information". This statement
establishes standards for the way public enterprises are to report information
about operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in interim
financial reports issued to shareholders. Statement 131 is effective for
financial statements for periods beginning after December 15, 1997. In the
initial year of application, comparative information for earlier years is to
be restated, unless it is impractical to do so. It is not anticipated that
the adoption of this statement will materially effect the Company's current
method of financial reporting.
YEAR 2000
The Company recognizes that there is a business risk in computerized
systems as the calendar rolls into the next century. The Federal Financial
Institutions Examination Council ("FFIEC") issued an interagency statement on
May 5, 1997, providing an outline for institutions to effectively manage the
Year 2000 challenges. The Company has developed an ongoing plan designed to
ensure that its operational and financial systems will not be adversely
affected by year 2000 software failures due to processing errors arising from
calculations using the year 2000 date. The Company has an internal task force
assigned to this project and the Board of Directors and management of the
Company have established year 2000 compliance as a strategic initiative. The
Company is well into the assessment phase of the project in which all critical
applications are identified and programing issues determined. While the
Company believes that it has available resources to assure year 2000
compliance, it is to some extent dependent on vendor cooperation.
At the present time, the Company expects its most critical application
software vendors to have all systems compliant by year end 1998 and testing
will be completed by early 1999. The Company has established time-lines for
testing all noncritical software and ancillary systems, such as telephone
systems and security devices by mid-year 1999. At this time, the Company has
not determined the cost of making modifications to correct any year 2000
problems; however, equipment and software expenses are not expected to
materially differ from historical levels. The Company routinely upgrades and
purchases technologically advanced software and hardware on a continual basis
and expects to specifically evaluate and test such purchases for year 2000
compliance. The Company is also in the process of addressing any loan
relationships it believes could be materially effected by the year 2000 issue.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and
rates. The Company's market risk arises principally from interest rate risk
inherent in its lending, deposit and borrowing activities. Management
actively monitors and manages its interest rate risk exposure. Although the
Company manages other risks, as in credit quality and liquidity risk, in the
normal course of business, management considers interest rate risk to be its
most significant market risk and change in interest rates could potentially
have the largest material effect on the Company's financial condition and
results of operations. Other types of market risks, such as foreign currency
exchange rate risk and commodity price risk, do not arise in the normal course
of the Company's business activities.
The Company's profitability is affected by fluctuations in interest
rates. Management's goal is to maintain a reasonable balance between exposure
to interest rate fluctuations and earnings. A sudden and substantial increase
in interest rates may adversely impact the Company's earnings to the extent
that the interest rates on interest-earning assets and interest-bearing
liabilities do not change at the same speed, to the same extent or on the same
basis.
The Bank's Asset Liability Management Committee ("ALCO") monitors and
considers methods of managing the rate and sensitivity repricing
characteristics of the balance sheet components consistent with maintaining
acceptable levels of changes in net portfolio value ("NPV") and net interest
income. Net portfolio value represents the market value of portfolio equity
and is equal to the market value of assets minus the market value of
liabilities, with adjustments made for off-balance sheet items over a range of
assumed changes in market interest rates. A primary purpose of the Company's
asset and liability management is to manage interest rate risk to effectively
invest the Company's capital and to preserve the value created by its core
business operations. As such, certain management monitoring processes are
designed to minimize the impact of sudden and sustained changes in interest
rates on NPV and net interest income.
The Company's exposure to interest rate risk is reviewed on a periodic
basis by the Board of Directors and the ALCO. Interest rate risk exposure is
measured using interest rate sensitivity analysis to determine the Company's
change in NPV in the event of hypothetical changes in interest rates.
Further, interest rate sensitivity gap analysis is used to determine the
repricing characteristics of the Bank's assets and liabilities. The ALCO is
charged with the responsibility to maintain the level of sensitivity of the
Bank's net portfolio value within Board approved limits.
Interest rate sensitivity analysis is used to measure the Company's
interest rate risk by computing estimated changes in NPV of its cash flows
from assets, liabilities, and off-balance sheet items in the event of a range
of assumed changes in market interest rates. This analysis assesses the risk
of loss in market risk sensitive instruments in the event of a sudden and
sustained 100 - 400 basis points increase or decrease in the market interest
rates. The Company's Board of Directors has adopted an interest rate risk
policy which establishes maximum allowable decreases in NPV in the event of a
sudden and sustained increase or decrease in market interest rates.
As of June 30, 1998, there was no substantial change from the interest
rate sensitivity analysis or the market value of portfolio equity for various
changes in interest rates calculated as of December 31, 1997. The foregoing
disclosures related to the market risk of the Company should be read in
conjunction with the Company's audited consolidated financial statements,
related notes and management's discussion and analysis of financial condition
and results of operations for the year ended December 31, 1997 included in the
Company's 1997 Annual Report on Form 10K.
SUMMIT FINANCIAL CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Corporation and its subsidiaries from time to time and currently are
involved as plaintiff or defendant in various legal actions incident to its
business. There are no material actions currently pending.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to the shareholders for a vote at any time during
the quarter.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
None.
<PAGE>
SUMMIT FINANCIAL CORPORATION
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 FINANCIAL CORPORATION
Dated: August 5, 1998
/s/ J. Randolph Potter
- -------------------------
J. Randolph Potter, President
and Chief Executive Officer
Dated: August 5, 1998
/s/ Blaise B. Bettendorf
- ---------------------------
Blaise B. Bettendorf, Senior Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information from the Consolidated
Balance Sheet at June 30, 1998 (unaudited) and the Consolidated Statement
of Income for the Six Months Ended June 30, 1998 (unaudited) and is
qualified in its entirity by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 6137
<INT-BEARING-DEPOSITS> 2089
<FED-FUNDS-SOLD> 10950
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 27329
<INVESTMENTS-CARRYING> 792
<INVESTMENTS-MARKET> 792
<LOANS> 119533
<ALLOWANCE> 1789
<TOTAL-ASSETS> 170012
<DEPOSITS> 145479
<SHORT-TERM> 7824
<LIABILITIES-OTHER> 2331
<LONG-TERM> 0
0
0
<COMMON> 1443
<OTHER-SE> 12935
<TOTAL-LIABILITIES-AND-EQUITY> 170012
<INTEREST-LOAN> 6032
<INTEREST-INVEST> 817
<INTEREST-OTHER> 288
<INTEREST-TOTAL> 7137
<INTEREST-DEPOSIT> 3273
<INTEREST-EXPENSE> 3417
<INTEREST-INCOME-NET> 3720
<LOAN-LOSSES> 101
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3010
<INCOME-PRETAX> 1374
<INCOME-PRE-EXTRAORDINARY> 1374
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 870
<EPS-PRIMARY> .30
<EPS-DILUTED> .26
<YIELD-ACTUAL> 4.84
<LOANS-NON> 0
<LOANS-PAST> 81
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1728
<CHARGE-OFFS> 156
<RECOVERIES> 116
<ALLOWANCE-CLOSE> 1789
<ALLOWANCE-DOMESTIC> 1789
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
