SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Mark One
[ X ] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1996; or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition period from _____________________________ to
_____________________.
Commission File Number 0-11986
SUMMIT BANCSHARES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 75-1694807
- ------------------------ --------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
1300 Summit Avenue, Fort Worth, Texas 76102
----------------------------------------------
(Address of principal executive offices)
(817) 336-6817
----------------------------------------------------
(Registrant's telephone number, including area code)
No Change
- --------------------------------------------------------------------------
(Former name, former address and former
fiscal year if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----
The number of shares of common stock, $1.25 par value, outstanding at March
31, 1996 was 3,156,386 shares.
1
SUMMIT BANCSHARES, INC.
INDEX
PART I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1996
and 1995 and at December 31, 1995 4
Consolidated Statements of Income for the Three
Months Ended March 31, 1996 and 1995 and for
the Year Ended December 31, 1995 5
Consolidated Statements of Changes in Shareholders'
Equity for the Three Months Ended March 31, 1996
and 1995 and for the Year Ended December 31, 1995 6
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1996 and 1995 and for the
Year Ended December 31, 1995 7-8
Notes to Consolidated Financial Statements for the
Three Months Ended March 31, 1996 and 1995 and for
the Year Ended December 31, 1995 9-19
The March 31, 1996 and 1995 and the December 31, 1995 financial statements
included herein are unaudited; however, such information reflects all
adjustments (consisting solely of normal recurring adjustments), which are,
in the opinion of management of the registrant, necessary to a fair statement of
the results for the interim periods.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Three
Months Ended March 31, 1996 and 1995 20-25
2
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
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited) (Unaudited)
March 31 December 31,
-------------------------- 1995
1996 1995
-------- --------- -----------
ASSETS (In Thousands)
CASH AND DUE FROM BANKS $ 23,224 $ 17,647 $ 22,480
FEDERAL FUNDS SOLD 24,355 4,945 25,680
INVESTMENT SECURITIES - NOTE 2
(Market Value of $122,848,000
and $109,738,000 at March 31,
1996 and 1995 and $119,575,000
at December 31, 1995) 122,943 110,809 119,368
LOANS - NOTE 3
Loans, Net of Unearned Discount 188,953 148,274 178,493
Allowance for Loan Losses (2,653) (2,355) (2,500)
--------- --------- --------
LOANS, NET 186,300 145,919 175,993
PREMISES AND EQUIPMENT - NOTE 4 7,387 6,734 7,157
ACCRUED INCOME RECEIVABLE 3,285 2,728 3,288
OTHER REAL ESTATE - NOTE 5 110 391 113
OTHER ASSETS 1,372 1,094 1,338
--------- -------- --------
TOTAL ASSETS $ 368,976 $ 290,267 $ 355,417
========= ========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS - NOTE 6
Noninterest-Bearing Demand $ 89,119 $ 69,537 $ 89,184
Interest-Bearing 234,697 186,891 220,925
---------- --------- ----------
TOTAL DEPOSITS 323,816 256,428 310,109
SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE 12,199 5,736 13,528
NOTE PAYABLE -0- -0- -0-
ACCRUED INTEREST PAYABLE 605 497 635
OTHER LIABILITIES 1,350 937 1,020
--------- --------- ---------
TOTAL LIABILITIES 337,970 263,598 325,292
--------- --------- ---------
COMMITMENTS AND CONTINGENCIES - NOTE 10
SHAREHOLDERS' EQUITY -
NOTES 11, 13 and 17
Common Stock - $1.25 Par Value;
20,000,000 shares authorized;
3,156,386, 1,578,923 and
3,149,886 shares issued and
outstanding at March 31, 1996
and 1995 and at December 31, 1995,
respectively 3,945 1,974 3,937
Capital Surplus 4,119 6,049 4,109
Retained Earnings 22,809 19,089 21,745
Unrealized Gain (Loss) on
Investment Securities
Available for Sale, Net of Tax 133 (233) 334
Treasury Stock at Cost
(March 31, 1995 - 10,000 Shares) -0- (210) -0-
TOTAL SHAREHOLDERS' EQUITY 31,006 26,669 30,125
------- ------- ------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 368,976 $ 290,267 $ 355,417
========= ========= =========
The accompanying Notes should be read with these financial statements.
4
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Unaudited) Year Ended
For the Three Months Ended March 31, December 31,
------------------------------------ -------------
1996 1995 1995
--------- --------- --------
(In Thousands, Except Per Share Data)
INTEREST INCOME
Interest and Fees on Loans $ 4,433 $ 3,395 $ 15,331
Interest and Dividends on Investment Securities:
Taxable 1,790 1,639 6,479
Exempt from Federal Income Taxes 1 8 23
Interest on Federal Funds Sold 274 61 1,096
------- ------ -------
TOTAL INTEREST INCOME 6,498 5,103 22,929
------- ------ -------
INTEREST EXPENSE
Interest on Deposits 2,246 1,683 7,936
Interest on Securities Sold Under
Agreements to Repurchase 117 62 340
Interest on Notes Payable -0- 1 1
------- ------ -------
TOTAL INTEREST EXPENSE 2,363 1,746 8,277
------- ------ -------
NET INTEREST INCOME 4,135 3,357 14,652
LESS: PROVISION FOR LOAN LOSSES - NOTE 3 124 42 236
------- ------ -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,011 3,315 14,416
------- ------ -------
NON-INTEREST INCOME
Service Charges and Fees on Deposits 385 384 1,525
Gain (Loss) on Sale of Investment Securities 3 (10) (10)
Other Income 341 353 1,239
------- ------- -------
TOTAL NON-INTEREST INCOME 729 727 2,754
------- ------- -------
NON-INTEREST EXPENSE
Salaries and Employee Benefits 1,655 1,380 5,903
Occupancy Expense - Net 180 167 712
Furniture and Equipment Expense 197 152 691
Other Real Estate Owned Expense - Net (5) (77) (99)
Other Expense 751 790 2,766
------- ------- -------
TOTAL NON-INTEREST EXPENSE 2,778 2,412 9,973
------- ------- -------
INCOME BEFORE INCOME TAXES 1,962 1,630 7,197
APPLICABLE INCOME TAXES - NOTE 8 677 554 2,468
------ ------ -------
NET INCOME $ 1,285 $ 1,076 $ 4,729
======= ======= =======
NET INCOME PER SHARE - NOTE 13 $ .41 $ .34 $ 1.51
======= ======= =======
The accompanying Notes should be read with these financial statements.
5
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
AND FOR THE YEAR ENDED DECEMBER 31, 1995
Unrealized
Common Stock Gain (Loss)
---------------------- Capital Retained on Investment Treasury
Shares Amount Surplus Earnings Securities-Net Stock Total
---------- ------- -------- -------- -------------- -------- --------
BALANCE AT
JANUARY 1, 1995 $1,578,723 $1,973 $ 6,047 $18,187 $ (873) $ -0- $ 25,334
Purchases of Stock Held in (210) (210)
Treasury
Net Income for the
Three Months Ended
March 31, 1995 1,076 1,076
Stock Options Exercised 200 1 2 3
Cash Dividend $.055
Per Share (174) (174)
Securities Available-for-
Sale Adjustment 640 640
--------- ------ ------- ----- ------ ------ ------
BALANCE AT
MARCH 31, 1995 1,578,923 1,974 6,049 19,089 (233) (210) 26,669
Net Income for the
Three Months Ended
December 31, 1995 3,653 3,653
Stock Options Exercised 18,800 23 29 52
Purchases of Stock Held in
Treasury (298) (298)
Retirement of Stock Held
In Treasury (22,780) (29) (479) 508 -0-
Two-for-One Stock Split 1,574,943 1,969 (1,969)
Cash Dividend $.165
Per Share (518) (518)
Securities Available-for-
Sale Adjustment 567 567
--------- ------ ------ ------ -------- ------ -------
BALANCE AT
DECEMBER 31, 1995 3,149,886 3,937 4,109 21,745 334 -0- 30,125
Net Income for the
Three Months Ended
March 31, 1996 1,285 1,285
Stock Options Exercised 6,500 8 10 18
Cash Dividend $.07
Per Share (221) (221)
Securities Available-for-
Sale Adjustment (210) (201)
--------- ------ ------ ------- ------ ------ --------
BALANCE AT
MARCH 31, 1996 $3,156,386 $3,945 $4,119 $22,809 $ 133 $ -0- $31,006
========== ====== ====== ======= ======= ====== ========
The accompanying Notes should be read with these financial statements.
6
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
AND FOR THE YEAR ENDED DECEMBER 31, 1995
(Unaudited) (Unaudited)
March 31, December 31,
--------------------------
1996 1995 1995
---------- ---------- ----------
(In Thousands)
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 1,285 $ 1,076 $ 4,729
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 185 140 652
Net Premium Amortization of Investment Securities 93 130 445
Provision for Loan Losses 124 42 236
Net Decrease in Deferred Income Taxes 1 -0- 68
(Gain) Loss on Sale of Investment Securities (3) 10 10
Writedown of Other Real Estate 3 2 12
Net Gain From Sale of Other Real Estate -0- (60) (78)
Net Gain on Sale of Premises and Equipment (1) -0- -0-
Increase in Accrued Income and Other Assets (227) (395) (1,044)
Increase in Accrued Expenses and Other Liabilities 648 629 297
------ ------- --------
Total Adjustments 823 498 598
------ ------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,108 1,574 5,327
------ ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (Increase) Decrease in Federal Funds Sold 1,325 4,795 (15,940)
Proceeds from Matured and Prepaid Investment Securities
* Held-to-Maturity 6,497 2,179 21,154
* Available-for-Sale 6,702 655 12,703
Proceeds from Sales of Investment Securities 5,020 2,951 2,969
Purchase of Investment Securities
* Held-to-Maturity (10,121) (1,041) (27,616)
* Available-for-Sale (12,068) -0- (12,482)
Loans Originated and Principal Repayments, Net (10,509) (9,463) (39,724)
Recoveries of Loans Previously Charged-Off 29 66 201
Proceeds from Sale of Premises and Equipment 1 -0- -0-
Proceeds from Sale of Other Real Estate -0- 318 502
Purchases of Premises and Equipment (415) (272) (1,207)
-------- ------- --------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (13,539) 188 (59,440)
-------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease) in Demand Deposits, Savings
Accounts and Interest Bearing Transaction Accounts 13,632 (4,682) 45,230
Net Increase in Certificates of Deposit 75 1,570 5,338
Net Increase (Decrease) in Repurchase Agreements (1,329) 1,208 9,000
Principal Payments of Notes Payable -0- (250) (250)
Payments of Cash Dividends (221) (174) (692)
Purchase of Treasury Stock -0- (210) (508)
Proceeds from Stock Options Exercised 18 3 55
-------- ------ -------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 12,175 (2,535) 58,173
-------- -------- -------
NET INCREASE (DECREASE) IN CASH AND DUE FROM
BANKS 744 (773) 4,060
CASH AND DUE FROM BANKS AT BEGINNING
OF PERIOD 22,480 18,420 18,420
------- -------- --------
CASH AND DUE FROM BANKS AT END OF PERIOD $23,224 $17,647 $ 22,480
======= ======== =========
7
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONT'D
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
AND FOR THE YEAR ENDED DECEMBER 31, 1995
(Unaudited)
SUPPLEMENTAL SCHEDULE OF OPERATING AND INVESTING ACTIVITIES:
(Unaudited) (Unaudited)
March 31, December 31,
------------------------- 1995
1996 1995
------------------------- -----------
(In Thousands)
(1) Interest Paid $ 2,393 $ 1,735 $8,129
(2) Income Taxes Paid (Refund Received) -0- -0- 2,410
(3) Other Real Estate Acquired in Settlement of Loans -0- -0- -0-
(4) Bank Financed Sales of Other Real Estate -0- -0- 100
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1995 (UNAUDITED)
NOTE 1 - Summary of Significant Accounting Policies
The accounting and reporting policies of Summit Bancshares, Inc.
(the "Corporation") and Subsidiaries are in accordance with generally
accepted accounting principles. A summary of the more significant policies
follows:
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Corporation include its
accounts and those of its wholly-owned subsidiaries, Summit National Bank,
Alta Mesa National Bank and Camp Bowie National Bank (the "Subsidiary
Banks") and Summit Bancservices, Inc., a wholly-owned operations
subsidiary. All significant intercompany balances and transactions have
been eliminated.
CASH AND DUE FROM BANKS
The Subsidiary Banks are required to maintain certain balances at the
Federal Reserve Bank based on their levels of deposits. During the
first three months of 1996 the average cash balance maintained at the
Federal Reserve Bank was $2,488,000. Compensating balances held at
correspondent banks, to minimize service charges, averaged approximately
$12,431,000 during the same three month period of 1996.
INVESTMENT SECURITIES
The Corporation follows Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities"
in the accounting and reporting for investments in equity securities
that have readily determined fair values and for all investments in
debt securities. Those investments are to be classified in three
categories and accounted for as follows:
- Debt securities that the Corporation has the positive intent and
ability to hold to maturity are classified as held-to-maturity
securities and reported at amortized cost.
- Debt and equity securities that are bought and held principally for
the purpose of selling them in the near term are classified as
trading securities and reported at fair value, with unrealized gains
and losses included in earnings.
- Debt and equity securities not classified as either held-to-maturity
securities or trading securities are classified as available-for-sale
securities and reported at fair value, with unrealized gains and
losses excluded from earnings and reported in a separate component
of shareholders' equity.
The Corporation has the ability and intent to hold to maturity its
investment securities classified as held-to-maturity; accordingly, no
adjustment has been made for the excess, if any, of amortized cost over
market. In determining the investment category classifications,
management considers its asset/liability strategy, changes in interest
rates and prepayment risk, the need to increase capital and other
factors. Under certain circumstances (including the deterioration of the
issuer's creditworthiness, a change in tax law, or statutory or
regulatory requirements), the Corporation may change the investment
security classification.
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.
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are stated at the principal amount outstanding less unearned
discount and the allowance for loan osses. Unearned discount on
installment loans is recognized as income over the terms of the loans
by a method approximating the interest method. Interest income on all
other loans is recognized based upon the principal amounts outstanding.
The accrual of interest on a loan is discontinued when, in the opinion
of management, there is doubt about the ability of the borrower to pay
interest or principal. Interest previously earned, but uncollected on
such loans, is written off. When loans are put on non-accrual all
payments received are applied to the principal and no interest income
is recorded until the loan is returned to accrual status or the
principal has been reduced to zero.
9
NOTE 1 - Summary of Significant Accounting Policies (cont'd.)
In January 1995, the Corporation adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of
a Loan." Under the new standard, the 1995 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. Prior to 1995, the
allowance for loan losses related to these loans was based on
undiscounted cash flows or the fair value of the collateral for
collateral dependent loans.
The allowance for loan losses is comprised of amounts charged against
income in the form of a provision for loan losses as determined by
management. Management's evaluation is based on a number of factors,
including the Subsidiary Banks' loss experience in relation to
outstanding loans and the existing level of the allowance, prevailing
and prospective economic conditions, and management's continuing review
of the discounted cash flow values of impaired loans and its evaluation
of the quality of the loan portfolio. Loans are placed on non-accrual
status when management believes that the borrower's financial condition,
after giving consideration to economic and business conditions and
collection efforts, is such that collection of interest is doubtful.
Loans are charged against the allowance for loan losses when management
believes that the collectibility of the principal is unlikely.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation expense is computed on the straight-line method based upon
the estimated useful lives of the assets ranging from three to forty
years. Maintenance and repairs are charged to operating expenses.
Renewals and betterments are added to the asset accounts and depreciated
over the periods benefitted. Depreciable assets sold or retired are
removed from the asset and related accumulated depreciation accounts and
any gain or loss is reflected in the income and expense accounts.
OTHER REAL ESTATE
Other real estate is foreclosed property held pending disposition and is
valued at the lower of its fair value or the recorded investment in the
related loan. At foreclosure, if the fair value of the real estate
acquired is less than the bank's recorded investment in the related loan,
a writedown is recognized through a charge to the allowance for loan
losses. Any subsequent reduction in value is recognized by a charge to
income. Operating expenses of such properties, net of related income,
and gains and losses on their disposition are included in non-interest
expense.
FEDERAL INCOME TAXES
The Corporation joins with its Subsidiaries in filing a consolidated
federal income tax return. The Subsidiaries pay to the parent a charge
equivalent to their current federal income tax based on the separate
taxable income of the Subsidiaries.
The Corporation and the Subsidiaries maintain their records for financial
reporting and income tax reporting purposes on the accrual basis of
accounting. Deferred income taxes are provided in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes". Deferred income taxes are provided for accumulated
temporary differences due to basic differences for assets and liabilities
for financial reporting and income tax purposes.
STATE INCOME TAXES
The Corporation and each of the Subsidiaries file separate state
franchise tax returns. As a result of a state franchise tax law, the
Corporation and the Subsidiaries are subject to a "state income tax."
Since the basis for the state income tax is "federal income tax
taxable income", less interest on U.S. Government Obligations, the
Corporation had no state income tax liability in 1995 or during the
first three months of 1996.
CASH AND CASH EQUIVALENTS
For the purpose of presentation in the Statements of Cash Flows, cash
and cash equivalents are defined as those amounts included in the
balance sheet caption "Cash and Due from Banks."
RECLASSIFICATION
Certain reclassifications have been made to the 1995 financial
statements to conform to the 1996 presentation.
10
NOTE 1 - Summary of Significant Accounting Policies (cont'd.)
AUDITED FINANCIAL STATEMENTS
The consolidated balance sheet as of December 31, 1995, and the
consolidated statements of income, changes in shareholders' equity and
cash flows for the year ended December 31, 1995 are headed "unaudited"
in these financial statements. These statements were reported in the
Securities Exchange Commission Form 10-K as of December 31, 1995 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):
March 31, 1996
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
Investment Securities - Held-to-Maturity
U.S. Treasury Securities $ 31,060 $ 182 $ (168) $ 31,074
U.S. Government Agencies
and Corporations 25,808 39 (77) 25,770
U.S. Government Agency Mortgage
Backed Securities 11,175 13 (84) 11,104
Obligations of States and
Political Subdivisions 70 -0- -0- 70
--------- ------ ------- -------
Total Held-to-Maturity Securities 68,113 234 (329) 68,018
--------- ------ ------- -------
Investment Securities - Available-for-Sale
U.S. Treasury Securities 46,038 286 (198) 46,126
U.S. Government Agencies
and Corporations 4,492 58 (5) 4,545
U.S. Government Agency Mortgage
Backed Securities 3,845 62 (2) 3,905
Federal Reserve Bank Stock 254 -0- -0- 254
--------- ------ ------- --------
Total Available-for-Sale Securities 54,629 406 (205) 54,830
--------- ------ ------- --------
Total Investment Securities $ 122,742 $ 640 $ (534) $122,848
In the above schedule the AMORTIZED COST of Total Held-to-Maturity
Securities of $68,113,000 and the FAIR VALUE of Total Available-for-Sale
Securities of $54,830,000 are reflected in Investment Securities on the
consolidated balance sheet as of March 31, 1996 for a total of
$122,943,000. A net unrealized gain of $201,000 is included in the
Available-for-Sale Investment Securities balance. The unrealized gain,
net of tax, is included in Shareholders' Equity.
11
NOTE 2 - Investment Securities (cont'd.)
The carrying value of investment securities totaling $26,797,000 at
March 31, 1996, were pledged to secure federal, state and municipal
deposits and for other purposes as required or permitted by law.
The fair value of these pledged securities totaled $26,820,000 at March
31, 1996.
March 31, 1995
-----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-----------------------------------------------
Investment Securities - Held-to-Maturity
U.S. Treasury Securities $ 37,204 $ 133 $ (787) $36,550
U.S. Government Agencies
and Corporations 15,218 -0- (185) 15,033
U.S. Government Agency Mortgage
Backed Securities 6,403 1 (239) 6,165
Obligations of States and
Political Subdivisions 391 6 -0- 397
-------- ------ ------ ------
Total Held-to-Maturity Securities 59,216 140 (1,211) 58,145
-------- ------ ------- -------
Investment Securities - Available-for-Sale
U.S. Treasury Securities 45,073 101 (469) 44,705
U.S. Government Agencies
and Corporations 3,028 38 (27) 3,039
U.S. Government Agency Mortgage
Backed Securities 3,591 23 (19) 3,595
Federal Reserve Bank Stock 254 -0- -0- 254
-------- ------ -------
Total Available-for-Sale Securities 51,946 162 (515) 51,593
-------- ------ ------- -------
Total Investment Securities $ 111,162 $ 302 $ (1,726) $109,738
========= ===== ========= ========
In the above schedule the amortized cost of Total Held-to-Maturity
Securities of $59,216,000 and the fair value of Total Available-for-Sale
Securities of $51,593,000 are reflected in Investment Securities on the
consolidated balance sheet as of March 31, 1995 for a total of
$110,809,000. A net unrealized loss of $353,000 is included in the
Available-for-Sale Investment Securities balance. The unrealized loss,
net of tax benefit, is included in Shareholders; Equity.
Proceeds from sales of investment securities were $5,020,000 and
$2,951,000 during the first three months of 1996 and 1995, respectively
and $2,969,000 during the year 1995. In the three months ended March
31, 1996, gains of $9,000 and losses of $6,000 were realized; a loss of
$10,000 was realized for the three months ended March 31, 1995 and for
the year ended December 31, 1995.
NOTE 3 - Loans and Allowance for Loan Losses
The book values of loans by major type follow (in thousands):
March 31, December 31,
-------------------------- ------------
1996 1995 1995
-------- --------- ----------
Commercial $ 87,420 $ 69,443 $ 81,542
Real Estate Mortgage 66,546 54,781 64,200
Real Estate Construction 11,745 3,972 10,189
Loans to Individuals, Less
Unearned Discount 23,242 20,078 22,562
------- --------- --------
188,953 148,274 178,493
Allowance for Loan Losses (2,653) (2,355) (2,500
------- --------- -------
Loans - Net $186,300 $ 145,919 $ 175,993
======== ========= =========
12
NOTE 3 - Loans and Allowance for Loan Losses (cont'd.)
Transactions in the allowance for loan losses are summarized as
follows (in thousands):
Year Ended
Three Months Ended March 31, December 31,
---------------------------- ------------
1996 1995 1995
------- ------- -------
Balance, Beginning of Period $ 2,500 $ 2,410 $ 2,410
Provisions, Charged (Credited)
to Income 124 42 236
Loans Charged-Off -0- (163) (347)
Recoveries of Loans Previously
Charged-Off 29 66 201
------- -------- --------
Net Loans Charged-Off 29 (97) 146
------- -------- --------
Balance, End of Period $ 2,653 $ 2,355 $ 2,500
======= ======== ========
The provisions for loan losses charged to operating expenses during
the three months ended March 31, 1996 and March 31, 1995 of $124,000 and
$42,000, respectively, were considered adequate to maintain the allowance in
accordance with the policy discussed in Note 1. For the year ended December
31, 1995 a provision of $236,000 was recorded.
At March 31, 1996, the recorded investment in loans that are considered
to be impaired under Statement of Financial Accounting Standards No. 114 was
$230,000 (of which $230,000 were on non-accrual status). The related
allowance for loan losses for these loans was $71,000. The average recorded
investment in impaired loans during the three months ended March 31, 1996 was
approximately $205,000. 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):
March 31, December 31,
--------------------------- ------------
1996 1995 1995
------------ ------------ ------------
Land $ 1,442 $ 1,264 $ 1,279
Buildings and Improvements 7,296 6,816 7,115
Furniture & Equipment 5,107 4,661 5,051
--------- --------- --------
Total Cost 13,845 12,741 13,445
Less: Accumulated Amortization
and Depreciation (6,458) (6,007) (6,288)
--------- --------- --------
Net Book Value $ 7,387 $ 6,734 $ 7,157
========= ========= ========
NOTE 5 - Other Real Estate
The carrying value of other real estate is as follows (in thousands):
March 31, December 31,
------------------------- -----------
1996 1995 1995
-------- --------- ---------
Other Real Estate $ 145 $ 426 $ 148
Valuation Reserve (35) (35) (35)
-------- -------- --------
Net Other Real Estate $ 110 $ 391 $ 113
======= ======= ========
13
NOTE 5 - Other Real Estate (cont'd.)
Transactions in the valuation reserve are summarized as follows (in
thousands):
Year Ended
Three Months Ended March 31, December 31,
---------------------------- -----------
1996 1995 1995
----- ----- ----------
Balance, Beginning of Period $ 35 $ 35 $ 35
Provisions Charged to Income -0- -0- -0-
Reductions from Sales -0- -0- -0-
----- ----- -----
Balance, End of Period $ 35 $ 35 $ 35
===== ===== =====
In addition to the above provisions, direct writedowns of other real
estate charged to income were $3,000 for the three months ended March 31,
1996 and $2,000 for the three months ended March 31, 1995.
NOTE 6 - Deposits
The book values of deposits by major type follow (in thousands):
March 31,
-------------------------- December 31,
1996 1995 1995
--------- --------- -----------
Noninterest-Bearing Demand Deposits $ 89,119 $ 69,537 $ 89,184
Interest-Bearing Deposits: --------- --------- ---------
Interest-Bearing Transaction
Accounts 115,886 99,603 110,160
Savings 45,179 17,501 36,870
Savings Certificates - Time 48,514 46,389 49,005
Certificates of Deposits $100,000
or more 24,779 23,161 24,551
Other 339 237 339
--------- --------- ---------
Total 234,697 186,891 220,925
--------- --------- ---------
Total Deposits $ 323,816 $ 256,428 $ 310,109
========= ========= =========
NOTE 7 - Other Non-Interest Expense
The significant components of other non-interest expense are as
follows (in thousands):
Year Ended
Three Months Ended March 31, December 31,
---------------------------- ------------
1996 1995 1995
----------- ----------- ------------
Business Development $ 105 $ 103 $ 443
Legal and Professional Fees 98 112 479
Printing and Supplies 80 48 289
Regulatory Fees and Assessments 51 170 411
Other 417 357 1,144
----- ----- -------
Total $ 751 $ 790 $ 2,766
===== ===== =======
14
NOTE 8 - Income Taxes
Federal income taxes included in the consolidated balance sheets were as
follows (in thousands):
March 31, December 31,
----------------------- -----------
1996 1995 1995
------- -------- -----------
Current Tax Asset (Liability) $ (675) $ (525) $ 10
Deferred Tax Asset 338 569 235
------- ------- -----
Total Included in Other Assets/
(Other Liabilities) $ (337) $ 44 $ 245
======= ======= =====
The deferred tax asset at March 31, 1996 of $338,000 included $68,000
related to unrealized gains on Available-for-Sale Securities.
The components of income tax expense were as follows (in thousands):
Year Ended
Three Months Ended March 31, December 31,
---------------------------- ------------
1996 1995 1995
------------ ----------- ------------
Federal Income Tax Expense
Current $ 685 $ 525 $ 2,400
Deferred (8) 29 68
------- ------ -------
Total Federal Income Tax Expense $ 677 $ 554 $ 2,468
======= ====== =======
Effective Tax Rates 34.2% 34.0% 34.3%
======= ====== =======
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):
Year Ended
Three Months Ended March 31, December 31,
---------------------------- -----------
1996 1995 1995
------ ------ -------
Federal Income Taxes at Statutory
Rate of 34% $ 667 $ 554 $ 2,447
Effect of Tax Exempt Interest Income (3) (17) (19)
Other 13 17 40
------ ------ --------
Income Taxes Per Income Statement $ 677 $ 554 $ 2,468
====== ====== ========
NOTE 9 - 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 $3,769,000 at December 31, 1995.
NOTE 10 - Commitments and Contingent Liabilities
In the normal course of business, there are various outstanding
commitments and contingent liabilities, such as guarantees and commitments to
extend credit, which are not reflected in the financial statements. No
losses are anticipated as a result of these transactions. Commitments are
most frequently extended for real estate, commercial and industrial loans.
At March 31, 1996, outstanding documentary and standby letters of credit
totaled $4,566,000 and commitments to extend credit totaled $ 69,281,000.
15
NOTE 11 - Stock Option Plans
In 1982, the Corporation established an Incentive Stock Option Plan
("1982 Plan") and reserved 30,000 shares of common stock for grant
thereunder. The 30,000 reserved shares were subsequently amended and
increased in April 1993 and December 1995 to 240,000 as a result of
two-for-one stock splits. The Plan, which expired in 1992, provided for
the granting to management employees of Summit Bancshares, Inc. and
subsidiaries incentive stock options, as defined under current tax laws.
The outstanding options continue to be exercisable and will be exercisable
for ten years from the date of grant of May 1991.
In 1993, the Corporation established a similar Incentive Stock Option
Plan ("1993 Plan") and reserved 300,000 shares (adjusted for the April 1993
and December 1995 two-for-one stock splits) of common stock for grant
thereunder. The 1993 Plan provides for the granting to management employees
of Summit Bancshares, Inc. and subsidiaries, incentive stock options, as
defined under the current tax law. The options under the 1993 Plan will
be exercisable for ten years from the date of grant and generally vest
ratably over a five year period.
Options under both plans 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.
The following is a summary of transactions during the periods presented:
Shares Under Option
---------------------------------------
Three Months
Ended Year Ended
March 31, 1996 December 31, 1995
--------------- -----------------
Outstanding, Beginning of Period 301,400 303,400
Additional Options Granted During the Period -0- 38,000
Forfeited During the Period -0- -0-
Exercised During the Period 6,500 (40,000)
-------- --------
Outstanding, End of Period 294,900 301,400
======== ========
Options outstanding at March 31, 1996 ranged in price from $1.875 to
$13.94 per share with 221,380 shares exercisable. There remain 53,320
shares reserved for future grants of options under the 1993 Plan.
NOTE 12 - Employee Benefit Plans
The Corporation has a defined benefit pension plan covering
substantially all of its employees. The benefits are based on years of
service and the employee's compensation history. The employee's compensation
used in the benefit calculation is the highest average for any five
consecutive years of employment within the employee's last ten years of
employment.
Funding for the plan is provided by employer contributions to trust
funds in amounts determined by actuarial assumptions and valuation of the
plan. Contributions are intended to provide not only for benefits attributed
to service to date but also for those expected to be earned in the future.
16
NOTE 12 - Employee Benefit Plans (cont'd.)
The table below sets forth the plan's funded status and amounts
recognized in the Corporation's consolidated balance sheets at December 31
(in thousands):
1995 1994
--------- ---------
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $1,152,000 in 1995 and $1,034,000 in 1994 $ (1,183) $ (1,072)
Projected benefit obligation for service rendered
to date $ (1,912) $ (1,731)
Plan assets at fair value, primarily listed stocks
and U.S. bonds 1,786 1,616
Plan assets in excess of projected benefit obligation (126) (115)
Unrecognized net loss from past experience
different from that assumed and effect of
changes in assumptions 197 48
Prior service cost not yet recognized in net
periodic pension cost 17 20
Net pension cost included in other assets/(other liabilities) $ 88 $ (47)
Net pension cost included the following components (in thousands): Year Ended December 31,
-------------------------
1995 1994
--------- ---------
Service Cost - benefits earned during the period $ 151 $ 111
Interest cost on projected benefit obligation 140 130
Less: Actual return on plan assets (260) (133)
Net amortization and deferral 148 5
Net periodic pension cost $ 179 $ 113
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of the projected benefit
obligation were 8.5 percent and 5 percent at December 31, 1995 and 1994.
The expected long-term rate of return on plan assets in 1995 was 9 percent.
The market value of plan assets at March 31, 1996 was $2,089,000. There
was a contribution to the plan during 1996 of $313,000 and prepaid pension
cost at March 31, 1996 was $248,000.
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 $56,000 and $42,000 during the
first three months of 1996 and 1995, respectively, and $173,000 for the year
1995.
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
NOTE 13 - Earnings per Share
Earnings per share of common stock are based on the weighed average
number of shares outstanding during the periods as follows:
Shares
Periods of Three Months Ended: ------
March 31, 1996 3,154,326
March 31, 1995 3,150,260
Year Ended December 31, 1995 3,139,230
NOTE 14 - Financial Instruments with Off-Balance Sheet Risk
The Corporation is a party to financial instruments with off-balance
sheet risk in the normal course of business to meet the financing needs of
its customers. These financial instruments include loan commitments,
standby letters of credit and documentary letters of credit. The instruments
involve, to varying degrees, elements of credit and interest rate risk in
excess of the amount recognized in the financial statements.
The Corporation's exposure to credit loss in the event of non-performance
by the other party of these loan commitments and standby letters of credit
is represented by the contractual amount of those instruments. The
Corporation uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments.
The total contractual amounts of financial instruments with off-balance
sheet risk are as follows (in thousands):
March 31,
--------------------
1996 1995
--------- --------
Financial Instruments Whose
Contract Amounts Represent
Credit Risk:
Commitments to Extend Credit $ 69,281 $ 47,945
Documentary and Standby
Letters of Credit 4,566 3,876
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 15 - 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. Although its Subsidiary Banks have diversified loan
portfolios, a substantial portion of its debtors' abilities to honor
their contracts is dependent upon the strength of the local and state
economy.
NOTE 16 - Litigation
Certain of the Subsidiary Banks are involved in legal actions arising
in the ordinary course of business. It is the opinion of legal counsel
that the settlement of these matters will not materially affect the
Corporation's financial position.
18
NOTE 17 - Stock Repurchase Plan
On April 19, 1995, the Board of Directors approved a stock repurchase
plan. The plan authorized mananagement to purchase up to 78,446 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 1995, 22,780 shares were purchased by the Corporation through the
open market and canceled. In the first three months of 1996, no shares
were purchased.
NOTE 18 - Subsequent Event
On April 16, 1996, the Board of Directors of the Corporation approved
a quarterly dividend of $.07 per share to be paid on May 15, 1996 to
shareholders of record on May 1, 1996.
Also on April 16, 1996, the Board of Directors approved a renewal of
the stock repurchase plan, thereby authorizing the purchase of up to
157,819 shares of the Corporation's common stock over the next twelve
months.
NOTE 19 - 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.
NOTES PAYABLE: The fair value of the Corporation's note payable
is based on its carrying amount at the reporting date.
The estimated fair values of the Corporation's financial instruments
are as follows (in thousands):
March 31,
--------------------------------------------------
1996 1995
--------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- ------- --------- --------
Financial Assets
Cash and due from banks $ 23,224 $ 23,224 $ 17,647 $ 17,647
Federal funds sold 24,355 24,355 4,945 4,945
Securities 122,943 120,591 110,809 109,738
Loans 188,953 189,465 148,274 148,185
Financial Liabilities
Deposits 323,816 324,090 256,428 256,488
Securities sold under repurchase
agreements 12,199 12,199 5,736 5,736
Off-balance Sheet Financial Instruments
Loan commitments 69,281 47,945
Letters of credit 4,566 3,876
19
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SUMMARY
Net income for the first quarter of 1996 was $1,285,000, or $.41 per
share, compared with $1,076,000, or $.34 per share, for the first quarter
of 1995. Per share amounts are based on average shares outstanding of
3,154,326 for the first quarter of 1996 and 3,150,260 for the comparable
period of 1995 (restated for a two-for-one stock split that occurred in
December 1995). On a per share basis, net income increased 20.6% over
the first quarter of the prior year.
Outstanding loans at March 31, 1996 of $189.0 million represented
an increase of $40.7 million, or 27.4%, over March 31, 1995 and an
increase of $10.5 million, or 5.9%, from December 31, 1995.
Total deposits at March 31, 1996 of $323.8 million represented an
increase of $67.4 million, or 26.3%, over March 31, 1995 and a increase
of $13.7 million, or 4.4%, from December 31, 1995.
In the first quarter, net interest income increased 23.2% over the
previous year. An increase in non-interest expense of 15.2% partially
offset the increase in net interest income.
The following table summarizes the Corporation's performance for
the three months ended March 31, 1996 and 1995 (tax equivalent basis
and dollars in thousands).
Three Months Ended
March 31,
----------------------
1996 1995
------ ------
Interest Income $6,504 $5,111
Interest Expense 2,363 1,746
------ ------
Net Interest Income 4,141 3,365
Provision for Loan Loss 124 42
------ ------
Net Interest Income After
Provision for Loan Loss 4,017 3,323
Non-Interest Income 729 727
Non-Interest Expense 2,778 2,412
------ ------
Income Before Income Tax 1,968 1,638
Income Tax Expense 683 562
------ ------
Net Income $1,285 $1,076
====== ======
Net Income per Share $ .41 $ .34
Return on Average Assets 1.46% 1.54%
Return on Average Stockholders'
Equity*<FN1> 17.16% 16.55%
<FOOTNOTE>
*Before adjustment for unrealized gains and losses on Available-for-Sale
securities.
</FOOTNOTE>
20
SUMMARY OF EARNING ASSETS AND INTEREST-BEARING LIABILITIES
The following schedule presents average balance sheets that highlight
earning assets and interest-bearing liabilities and their related rates
earned and paid for the first quarter of 1996 and 1995 (rates on tax
equivalent basis).
Three Months Ended March 31,
--------------------------------------------------------------
1996 1995
------------------------------ -----------------------------
Average Average Average Average
Balances Interest Yield/Rate Balances Interest Yield/Rate
--------- -------- ---------- -------- -------- ----------
(Dollars in Thousands)
Earning Assets:
Federal Funds Sold $ 20,324 $ 277 5.42% $ 3,811 $ 61 5.65%
Investment Securities (Taxable) 119,321 1,789 6.02 112,424 1,638 5.85
Investment Securities (Tax-exempt) 70 2 10.99 393 12 11.78
Loans, Net of Unearned Discount<FN1> 184,454 4,436 9.67 142,731 3,400 9.66
-------- ------ -------- -------
Total Earning Assets 324,169 6,504 8.07 259,359 5,111 7.98
------ -------
Non-interest Earning Assets:
Cash and Due From Banks 19,740 15,683
Other Assets 11,884 10,872
Allowance for Loan Losses (2,546) (2,383)
-------- -------
Total Assets $353,247 $283,531
======== ========
Interest-Bearing Liabilities:
Interest-Bearing Transaction
Accounts $ 113,248 928 3.29 $100,760 825 3.32
Savings 40,618 409 4.05 17,008 112 2.67
Savings Certificates 48,878 598 4.92 45,568 488 4.34
Certificates of Deposit
$100,000 or more 24,457 306 5.03 22,757 255 4.55
Other Time 339 5 5.39 237 3 4.46
Other Borrowings 10,836 117 4.36 4,235 62 5.74
Notes Payable -0- -0- -0- 44 1 9.56
-------- ------ ------- -----
Total Interest-Bearing Liabilities 238,376 2,363 3.99 190,609 1,746 3.70
------ -----
Non-interest Bearing Liabilities:
Demand Deposits 82,189 66,009
Other Liabilities 2,180 1,227
Shareholders' Equity 30,502 25,686
-------- --------
Total Liabilities and
Shareholders' Equity $ 353,247 $283,531
========= ========
Net Interest Income and Margin
(Tax-equivalent Basis)<FN2> $ 4,141 5.14 $ 3,365 5.26
======= =======
<FOOTNOTE>
(1) Loan interest income includes fees and loan volumes include loans
on non-accrual.
(2) Presented on a tax equivalent basis ("T/E") using a federal income
tax rate of 34% in both years.
</FOOTNOTE>
21
NET INTEREST INCOME
Net interest income (tax equivalent) for the first quarter of
1996 was $4,141,000 which represented an increase of $776,000, or 23.1%,
over the first quarter of 1995. This increase was heavily contributed
to by a 29.2% increase in average loans for the first quarter of 1996
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 March
31, 1996 and 1995.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
(Dollars in Thousands)
1st Qtr. 1996 vs. 1st Qtr. 1995 1st Qtr. 1995 vs. 1st Qtr. 1994
Increase (Decrease) Increase (Decrease)
Due to Changes in: Due to Changes in:
------------------------------- ------------------------------
Volume Rate Total Volume Rate Total
------ ------- ------- -------- ------ -------
Interest Earning Assets:
Federal Funds Sold $ 231 $ (15) $ 216 $ (301) $ 260 $ (41)
Investment Securities (Taxable) 102 49 151 (47) 210 163
Investment Securities (Tax-exempt) (9) (1) (10) (4) 2 (2)
Loans, Net of Unearned Discount 1,032 4 1,036 340 457 797
------- ----- ------- ------ ---- -----
Total Interest Income 1,356 37 1,393 (12) 929 917
------- ----- ------- ------ ---- -----
Interest-Bearing Liabilities:
Deposits 407 156 563 (147) 626 479
Other Borrowings 149 (94) 55 19 23 42
Notes Payable (1) -0- (1) (20) 15 (5)
------ ----- ------- ------ ---- -----
Total Interest Expense 555 62 617 (148) 664 516
------ ----- ------- ------ ---- -----
Net Interest Income $ 801 $ (25) $ 776 $ 136 $ 265 $ 401
====== ====== ======= ====== ===== =====
ALLOWANCE FOR LOAN LOSSES AND NON-PERFORMING ASSETS
The Corporation's allowance for loan losses was $2,653,000, or
1.40% of total loans, as of March 31, 1996 compared to $2,355,000, or
1.59% of total loans, as of March 31, 1995.
Transactions in the allowance for loan losses are summarized as
follows (in thousands):
Three Months Ended
March 31,
------- -------
1996 1995
------- -------
Balance, Beginning of Period $ 2,500 $ 2,410
Provisions, Charged to Income 124 42
Loans Charged-Off -0- (163)
Recoveries of Loans Previously
Charged-Off 29 66
-------- --------
Net Loans Charged-Off 29 (97)
-------- --------
Balance, End of Period $ 2,653 $ 2,355
======== ========
22
The following table summarizes the non-performing assets as of the
end of the last five quarters (in thousands).
March 31, December 31, September 30, June 30, March 31,
1996 1995 1995 1995 1995
-------- ------------ ------------- -------- ---------
Non-Accrual Loans $ 1,066 $ 990 $ 1,247 $ 372 $ 368
Other Real Estate Owned 110 113 345 348 391
Renegotiated Loans -0- -0- -0- -0- -0-
-------- ------- ------- ------ ------
Total Non-Performing
Assets $ 1,176 $ 1,103 $ 1,592 $ 720 $ 759
======== ======= ======= ====== ======
Non-accrual loans to total loans were .56% at March 31, 1996 and
non-performing assets were .62% of loans and other real estate owned
at the same date.
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).
Three Months Ended March 31,
------------------------------
1996 1995 % Change
------- ------- --------
Service Charges on Deposit Accounts $ 385 $ 384 .3%
Gains (Loss) on Sale of Investment Securities 3 (10) --
Non-recurring Income 32 126 --
Other Non-interest Income 309 227 36.1
----- -----
Total Non-interest Income $ 729 $ 727 .3%
===== =====
Non-recurring income is primarily interest recovered on loans
charged-off in prior years. The increase in other non-interest income
was primarily due to increases in fees earned from investment brokerage
services.
NON-INTEREST EXPENSE
Non-interest expenses include all expenses other than interest
expense, loan loss provision and income tax expense.
The following table summarizes the changes in non-interest expense
during the periods presented (dollars in thousands).
Three Months Ended March 31,
------------------------------------
1996 1995 % Change
-------- -------- ----------
Salaries & Employee Benefits 1,655 1,380 19.9%
Occupancy Expense - Net 180 167 7.8
Furniture and Equipment Expense 197 152 29.6
Other Real Estate Expense - Net (5) (77) --
Other Expenses:
Business Development 105 103 1.9
Insurance - Other 27 25 8.0
Legal & Professional Fees 98 112 (12.5)
Taxes - Other 23 22 4.5
Postage & Courier 74 60 23.3
Printing & Supplies 80 48 66.7
Regulatory Fees & Assessments 51 170 (70.0)
Other Operating Expenses 293 250 17.2
----- -----
Total Other Expenses 751 790 (4.9)
----- -----
Total Non-interest Expense $ 2,778 $ 2,412 15.2
======= =======
Total non-interest expense increased 15.2% in the first quarter of
1996 over 1995, reflecting increases in salaries and benefits, furniture
and equipment expenses, postage and courier expenses and other operating
expenses. As a percent of average assets, non-interest expenses were
3.16% in the first quarter of 1996 and 3.45% in in the same period of
1995. The "efficiency ratio" (non-interest expenses divided by total
non-interest income plus net interest income) was 57.2% for the first
quarter of 1996. These
23
measures of operating efficiency compare very favorably to other financial
institutions in the Corporation's peer group.
The increase in salaries and employee benefits for the first
quarter of 1996 is due to salary merit increases, incentive compensation
accrual increases, and an increase in pension plan expense. Also, the
average number of full-time equivalent employees increased by eleven
in the first quarter of 1996 to an average full-time equivalent of 134.
The increases for salaries and number of employees include additions for
a branch office opened in mid year of 1995.
The increase in furniture and equipment expense is primarily a
result of increased depreciation for a new communication system installed
in 1995, furniture acquired in late 1995 for the new branch office, and
acceleration of depreciation on certain item processing equipment.
Postage and courier expenses increased because of additional
customer mailings in the first quater of 1996.
Regulatory fees and assessments declined in the first quarter of
1996 because of a decrease in mid 1995 in FDIC insurance premiums on
deposits.
Other operating expenses increased in the first quarter of 1996 due
to an increase in various miscellaneous operating costs.
INTEREST RATE SENSITIVITY
Interest rate sensitivity is the relationship between changes in
market interest rates and net interest income due to the repricing
characteristics of assets and liabilities.
The following table, commonly referred to as a "static gap report",
indicates the interest rate sensitivity position at March 31, 1996 and
may not be reflective of positions in subsequent periods (dollars in
thousands):
Total Repriced
Matures or Reprices within: Rate After
------------------------------------- Sensitive 1 Year or
30 Days 31-90 91-180 181 to One Year Non-interest
or Less Days Days One Year or Less Sensitive Total
-------- ------- -------- -------- --------- ------------ ---------
Earning Assets:
Loans $ 103,130 $ 8,026 $ 11,413 $ 18,128 $ 140,697 $ 48,256 $ 188,953
Investment Securities 7,751 7,763 10,858 22,850 49,222 73,721 122,943
Federal Funds Sold 24,355 -0- -0- -0- 24,355 -0- 24,355
--------- ------- ------- ------- -------- -------- ---------
Total Earning Assets 135,236 15,789 22,271 40,978 214,274 121,977 336,251
--------- ------- ------- ------- -------- -------- ---------
Interest Bearing Liabilities:
Interest-Bearing Transaction
Accounts and Savings 161,065 -0- -0- -0- 161,065 -0- 161,065
Certification of Deposits
>$100,000 11,214 3,748 4,475 4,789 24,226 553 24,779
Other Time Deposits 3,166 9,426 13,283 16,776 42,651 6,202 48,853
Repurchase Agreements 12,199 -0- -0- -0- 12,199 -0- 12,199
-------- ------ ------ ------ ------ --------
Total Interest Bearing
Liabilities 187,644 13,174 17,758 21,565 240,141 6,755 246,896
-------- ------ ------ ------ ------- -------- --------
Interest Sensitivity
Gap $ (52,408) $ 2,615 $ 4,513 $ 19,413 $ (25,867) $ 115,222 $ 89,355
========= ======== ======== ======== ========= ========= =========
Cumulative Gap $ (52,408) $(49,793) $(45,280) $(25,867)
========= ======== ======== ========
Cumulative Gap to
Total Earning Assets (15.6%) (14.8%) (13.5%) (7.7%)
Cumulative Gap to
Total Assets (14.2%) (13.5%) (12.3%) (7.0%)
24
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
of assets liability 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 7.0% was reversed to a positive 15.1% "beta
adjusted" gap position.
Management feels that the "beta adjusted" gap risk technique more
accurately reflects the Corporation's gap position.
CAPITAL
The Federal Reserve Board has guidelines for capital to total assets
(leverage) and capital standards for bank holding companies. The Comptroller
of the Currency also has similar guidelines for national banks. These
guidelines require a minimum level of Tier I capital to total assets of
3 percent. A banking organization operating at or near these levels is
expected to have well-diversified risk, excellent asset quality, high
liquidity, good earnings and in general be considered a strong banking
organization. Organizations not meeting these characteristics are
expected to operate well above these minimum capital standards. Thus, for
all but the most highly rated organizations, the minimum Tier I leverage
ratio is to be 3 percent plus minimum additional cushions of at least 100
to 200 basis points. At the discretion of the regulatory authorities,
additional capital may be required.
At March 31, 1996, total capital to total assets was 8.34%.
Also, the Federal Reserve Board and Comptroller of the Currency
officially announced risk-adjusted capital adequacy guidelines that became
effective in stages at the end of 1990. Capital under these new
guidelines is defined as Tier I and Tier II. At Summit Bancshares, Inc.
the only components of Tier I and Tier II capital are shareholders'
equity and a portion of the allowance for loan losses, respectively.
The guidelines also stipulate that four categories of risk weights
(0, 20, 50 and 100 percent), primarily based on the relative credit risk
of the counterparty, be applied to the different types of balance sheet
assets. Risk weights for all off-balance sheet exposures are determined
by a two-step process whereby the face value of the off-balance sheet
item is converted to a "credit equivalent amount" and that amount is
assigned to the appropriate risk category.
The regulatory minimum ratio for total qualifying capital is 8.00%
of which 4.00% must be Tier I capital. At March 31, 1996, the
Corporation's Tier I capital represented 14.42% of risk weighted assets
and total qualifying capital (Tier I and Tier II) represented 15.65%
of risk weighted assets. Both ratios are well above current regulatory
guidelines.
25
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Change in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Computation of Earnings Per Common Share
27 Financial Data Schedule
(b) No Reports on Form 8-K were filed during the period
ending March 31, 1996
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUMMIT BANCSHARES, INC.
Registrant
Date: April 30, 1996 By: /s/ Philip E. Norwood
-------------- -------------------------------
Philip E. Norwood, President and
Chief Executive Officer
Date: April 30, 1996 By: /s/ Bob G. Scott
-------------------------------
Bob G. Scott, Senior Vice President
and Chief Financial Officer
27
EXHIBIT INDEX
Exhibit Page No.
- ------- --------
11 Computation of Earnings Per Common Share
27 Financial Data Schedule