SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Mark One [X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2000; or [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition period from to . ---------------- ---------------- Commission File Number 0-11986 SUMMIT BANCSHARES, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Texas 75-1694807 ---------------------- ----------------------------------- (State of Incorporation) (I.R.S. Employer Identification No.) 1300 Summit Avenue, Fort Worth, Texas 76102 ------------------------------------------- (Address of principal executive offices) (817) 336-6817 -------------------------------------------------- (Registrant's telephone number, including area code) No Change ------------------------------------------------------------------------ (Former name, former address and former fiscal year if changed since last report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ --- The number of shares of common stock, $1.25 par value, outstanding at September 30, 2000 was 6,354,678 shares. SUMMIT BANCSHARES, INC. INDEX PART I - FINANCIAL INFORMATION Page No. Item 1. Financial Statements Consolidated Balance Sheets at September 30, 2000 and 1999 and at December 31, 1999 4 Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 2000 and 1999 and for the Year Ended December 31, 1999 5-6 Consolidated Statements of Changes in Shareholders' Equity for the Nine Months Ended September 30, 2000 and 1999 and for the Year Ended December 31, 1999 7 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2000 and 1999 and for the Year Ended December 31, 1999 8 Notes to Consolidated Financial Statements for the Nine Months Ended September 30, 2000 and 1999 and for the Year Ended December 31, 1999 9-20 The September 30, 2000 and 1999 and the December 31, 1999 financial statements included herein are unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management of the registrant, necessary to a fair statement of the results for the interim periods. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for the Nine Months Ended September 30, 2000 and 1999 21-28 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 Item 1 - Financial Statements - ----------------------------- SUMMIT BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (Unaudited) September 30, December 31, ---------------------------- 2000 1999 1999 -------- -------- -------- ASSETS (In Thousands) CASH AND DUE FROM BANKS - NOTE 1 $ 26,614 $ 21,982 $ 19,092 FEDERAL FUNDS SOLD & DUE FROM TIME 29,165 14,135 18,012 INVESTMENT SECURITIES - NOTE 2 Securities Available-for-Sale, at fair value 123,882 126,461 129,116 Securities Held-to-Maturity, at cost (fair value of $22,673,000 23,025 29,329 27,324 $28,956,000, and $26,739,000 September 30, 2000 and 1999 and December 31, 1999, respectively) LOANS - NOTE 3 AND 11 Loans, Net of Unearned Discount 379,259 344,952 355,414 Allowance for Loan Losses (6,918) (5,044) (5,169) -------- -------- -------- LOANS, NET 372,341 339,908 350,245 PREMISES AND EQUIPMENT - NOTE 4 8,218 8,926 8,562 ACCRUED INCOME RECEIVABLE 5,136 4,410 4,503 OTHER REAL ESTATE - NOTE 5 1,329 1,494 1,947 OTHER ASSETS 6,592 5,671 5,985 -------- -------- -------- TOTAL ASSETS $596,302 $552,316 $564,786 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY DEPOSITS - NOTE 6 Noninterest-Bearing Demand $137,721 $135,973 $128,685 Interest-Bearing 383,876 336,633 351,861 -------- -------- -------- TOTAL DEPOSITS 521,597 472,606 480,546 SHORT TERM BORROWINGS - NOTE 7 18,671 28,310 32,091 ACCRUED INTEREST PAYABLE 1,010 560 576 OTHER LIABILITIES 2,416 2,877 2,864 -------- -------- -------- TOTAL LIABILITIES 543,694 504,353 516,077 -------- -------- -------- COMMITMENTS AND CONTINGENCIES - NOTE 12, 14, 16 AND 18 SHAREHOLDERS' EQUITY - NOTES 13, 15 AND 19 Common Stock - $1.25 Par Value; 20,000,000 shares authorized; 6,354,678, 6,422,497 and 6,361,247 shares issued and outstanding at September 30, 2000 and 1999 and at December 31, 1999, respectively 7,943 8,028 7,952 Capital Surplus 6,649 6,452 6,469 Retained Earnings 38,652 34,633 35,474 Accumulated Other Comprehensive Income - Unrealized Loss on Available-for-Sale Investment Securities, Net of Tax (636) (571) (1,186) Treasury Stock at Cost (30,700 shares at September 30, 1999) -0- (579) -0- -------- -------- -------- TOTAL SHAREHOLDERS' EQUITY 52,608 47,963 48,709 -------- -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $596,302 $552,316 $564,786 ======== ======== ======== The accompanying Notes should be read with these financial statements. 4 SUMMIT BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Unaudited) For the Nine Months Ended Year Ended September 30, December 31, ------------------------------ 2000 1999 1999 -------- -------- -------- (In Thousands, Except Per Share Data) INTEREST INCOME Interest and Fees on Loans $ 27,178 $ 22,387 $ 30,620 Interest and Dividends on Investment Securities: Taxable 6,892 6,313 8,495 Exempt from Federal Income Taxes 14 27 35 Interest on Federal Funds Sold and Due From Time 847 610 1,082 -------- -------- -------- TOTAL INTEREST INCOME 34,931 29,337 40,232 -------- -------- -------- INTEREST EXPENSE Interest on Deposits 12,381 9,307 12,837 Interest on Short Term Borrowings 1,138 551 926 Interest on Note Payable -0- 5 9 -------- -------- -------- TOTAL INTEREST EXPENSE 13,519 9,863 13,772 -------- -------- -------- NET INTEREST INCOME 21,412 19,474 26,460 LESS: PROVISION FOR LOAN LOSSES - NOTE 3 2,305 778 1,001 -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 19,107 18,696 25,459 -------- -------- -------- NON-INTEREST INCOME Service Charges and Fees on Deposits 1,475 1,489 2,002 Loss on Sale of Investment Securities -0- -0- (3) Other Income 1,269 1,338 1,881 -------- -------- -------- TOTAL NON-INTEREST INCOME 2,744 2,827 3,880 -------- -------- -------- NON-INTEREST EXPENSE Salaries and Employee Benefits - NOTE 14 7,044 6,801 9,226 Occupancy Expense - Net 750 825 1,031 Furniture and Equipment Expense 1,048 904 1,202 Other Real Estate Owned Expense - Net 384 15 107 Other Expense - NOTE 9 2,924 2,753 3,658 -------- -------- -------- TOTAL NON-INTEREST EXPENSE 12,150 11,298 15,224 -------- -------- -------- INCOME BEFORE INCOME TAXES 9,701 10,225 14,115 APPLICABLE INCOME TAXES - NOTE 10 3,364 3,535 4,893 -------- -------- -------- NET INCOME $ 6,337 $ 6,690 $ 9,222 ======== ======== ======== NET INCOME PER SHARE - NOTE 15 Basic $ 1.00 $ 1.04 $ 1.44 Diluted 0.97 1.00 1.39 The accompanying Notes should be read with these financial statements. 5 SUMMIT BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) For the Three Months Ended September 30, ------------------------------------- 2000 1999 ----------- ----------- (In Thousands, Except Per Share Data) INTEREST INCOME Interest and Fees on Loans $ 9,460 $ 7,841 Interest and Dividends on Investment Securities: Taxable 2,322 2,222 Exempt from Federal Income Taxes 4 8 Interest on Federal Funds Sold and Due From Time 444 151 ----------- ----------- TOTAL INTEREST INCOME 12,230 10,222 ----------- ----------- INTEREST EXPENSE Interest on Deposits 4,568 3,213 Interest on Short Term Borrowings 417 237 Interest on Note Payable -0- 2 ----------- ----------- TOTAL INTEREST EXPENSE 4,985 3,452 ----------- ----------- NET INTEREST INCOME 7,245 6,770 LESS: PROVISION FOR LOAN LOSSES - NOTE 3 577 140 ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 6,668 6,630 ----------- ----------- NON-INTEREST INCOME Service Charges and Fees on Deposits 505 522 Other Income 413 372 ----------- ----------- TOTAL NON-INTEREST INCOME 918 894 ----------- ----------- NON-INTEREST EXPENSE Salaries and Employee Benefits - NOTE 14 2,355 2,310 Occupancy Expense - Net 245 275 Furniture and Equipment Expense 356 314 Other Real Estate Owned Expense - Net 28 (10) Other Expense 724 993 ----------- ----------- TOTAL NON-INTEREST EXPENSE 3,708 3,882 ----------- ----------- INCOME BEFORE INCOME TAXES 3,878 3,642 APPLICABLE INCOME TAXES - NOTE 10 1,338 1,259 ----------- ----------- NET INCOME $ 2,540 $ 2,383 =========== =========== NET INCOME PER SHARE - NOTE 15 Basic $ 0.40 $ 0.37 Diluted 0.39 0.36 The accompanying Notes should be read with these financial statements. 6 SUMMIT BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 AND FOR THE YEAR ENDED DECEMBER 31, 1999 (Unaudited) Accumulated Other Comprehensive Income - Net Unrealized Gain Total Common Stock (Loss) on Share- ---------------------- Capital Retained Investment Treasury Holder's Shares Amount Surplus Earnings Securities Stock Equity - --------------------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands, Except Per Share Data) BALANCE AT January 1, 1999 6,471,827 $ 8,090 $6,329 $ 31,271 $ 560 $ (15) $46,235 Stock Options Exercised 56,670 71 123 194 Purchases of Stock Held in Treasury (2,481) (2,481) Retirement of Stock Held in Treasury (106,000) (133) (1,784) 1,917 -0- Cash Dividend $.24 Per Share (1,544) (1,544) Net Income for the Nine Months Ended September 30, 1999 6,690 6,690 Securities Available- for-Sale Adjustment (1,131) (1,131) ------- Total Comprehensive Income NOTE 22 5,559 --------- ------- -------- ------- ------ -------- ------- BALANCE AT September 30, 1999 6,422,497 8,028 6,452 34,633 (571) (579) 47,963 Stock Options Exercised 6,650 8 17 25 Purchases of Stock Held in Treasury (688) (688) Retirement of Stock Held in Treasury (67,900) (84) (1,183) 1,267 -0- Cash Dividend - $.08 Per Share (508) (508) Net Income for the Three Months Three Months Ended December 31, 1999 2,532 2,532 Securities Available- for-Sale Adjustment (615) (615) Total Comprehensive ------- Income NOTE 22 1,917 --------- ------- -------- ------- ------ -------- ------- BALANCE AT December 31, 1999 6,361,247 7,952 6,469 35,474 (1,186) -0- 48,709 Stock Options Exercised 73,638 91 180 271 Purchases of Stock Held in Treasury (1,348) (1,348) Retirement of Stock in Treasury (80,207) (100) (1,248) 1,348 -0- Cash Dividend - $.30 Per Share (1,911) (1,911) Net Income for the Nine Months Ended September 30, 2000 6,337 6,337 Securities Available- for-Sale Adjustment 550 550 Total Comprehensive ------- Income NOTE 22 6,887 --------- ------- -------- ------- ------ -------- ------- BALANCE AT September 30, 2000 6,354,678 $ 7,943 $ 6,649 $38,652 $ (636) -0- $52,608 ========= ======= ======== ======= ====== ======== ======= The accompanying Notes should be read with these financial statements. 7 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 AND FOR THE YEAR ENDED DECEMBER 31, 1999 (Unaudited) (Unaudited) For Nine Months Ended Year Ended September 30, December 31, ----------------------- 2000 1999 1999 --------- ------------- ----------- (In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 6,337 $ 6,690 $ 9,222 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 788 808 1,081 Net Premium Amortization (Accretion) of Investment Securities (56) 57 (39) Provision for Loan Losses 2,305 778 1,001 Deferred Income Taxes (Benefit) (167) (230) (385) Net (Gain) Loss on Sale of Investment Securities 2 (1) 3 Writedown of Other Real Estate 423 -0- -0- Net Gain From Sale of Other Real Estate (77) (20) (36) Net Gain From Sale of Premises and Equipment (2) -0- (105) Net Increase in Accrued Income and Other Assets (1,458) (151) (33) Net Increase (Decrease) in Accrued Expenses and Other Liabilities (14) 246 250 -------- -------- -------- Total Adjustments 1,744 1,487 1,737 -------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 8,081 8,177 10,959 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: (Increase) Decrease in Federal Funds Sold (11,153) 24,571 20,694 Proceeds from Matured and Prepaid Investment Securities . Held-to-Maturity 285 3,280 4,280 . Available-for-Sale 17,144 61,571 63,531 Proceeds from Sales of Investment Securities 59,922 12,084 71,214 Purchase of Investment Securities . Held-to-Maturity -0- (6,037) (6,037) . Available-for-Sale (66,933) (80,445) (144,026) Loans Originated and Principal Repayments, Net (24,730) (41,207) (52,828) Recoveries of Loans Previously Charged-Off 202 136 171 Proceeds from Sale of Premises and Equipment 25 -0- 567 Proceeds from Sale of Other Real Estate 503 23 559 Purchases of Premises and Equipment (467) (652) (1,023) -------- -------- -------- NET CASH USED BY INVESTING ACTIVITIES (25,202) (26,676) $(42,898) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net Increase (Decrease) in Demand Deposits, Savings Accounts and Interest Bearing Transaction Accounts (846) 1,093 7,488 Net Increase in Certificates of Deposit 41,897 6,013 7,558 Net Increase (Decrease) in Repurchase Agreements (13,420) 10,471 14,252 Payments of Cash Dividends (1,911) (1,544) (2,052) Proceeds from Stock Options Exercised 271 194 219 Purchase of Treasury Stock (1,348) (2,481) (3,169) -------- -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 24,643 13,746 24,296 -------- -------- -------- NET (DECREASE) INCREASE IN CASH AND DUE FROM BANKS 7,522 (4,753) (7,643) CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 19,092 26,735 26,735 -------- -------- -------- CASH AND DUE FROM BANKS AT END OF PERIOD $ 26,614 $ 21,982 $ 19,092 ======== ======== ======== SUPPLEMENTAL SCHEDULE OF OPERATING AND INVESTING ACTIVITIES Interest Paid $ 13,085 $ 10,340 $ 14,232 Income Taxes Paid 3,651 3,773 5,198 Other Real Estate Acquired in Settlement of Loans 230 1,216 2,188 The accompanying Notes should be read with these financial statements. 8 SUMMIT BANCSHARES, INC. AND SUBSIDIARIES FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED) AND FOR THE YEAR ENDED DECEMBER 31, 1999 (UNAUDITED) NOTE 1 - Summary of Significant Accounting Policies - ------ The accounting and reporting policies of Summit Bancshares, Inc. (the "Corporation") and Subsidiaries are in accordance with the generally accepted accounting principles and the prevailing practices within the banking industry. A summary of the more significant policies follows: Basis of Presentation and Principles of Consolidation ----------------------------------------------------- The consolidated financial statements of the Corporation include its accounts and those of its wholly-owned subsidiaries, Summit National Bank and Summit Community Bank, National Association (the "Subsidiary Banks") and Summit Bancservices, Inc., a wholly-owned operations subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation. Use of Estimates ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Cash and Due From Banks ----------------------- The Subsidiary Banks are required to maintain certain balances at the Federal Reserve Bank based on their levels of deposits. During the first nine months of 2000 the average cash balance maintained at the Federal Reserve Bank was $930,000. Compensating balances held at correspondent banks, to minimize service charges, averaged approximately $18,619,000 during the same period. Investment Securities --------------------- The Corporation has adopted Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities ("SFAS 115"). At the date of purchase, the Corporation is required to classify debt and equity securities into one of three categories: held-to-maturity, trading or available-for-sale. At each reporting date, the appropriateness of the classification is reassessed. Investments in debt securities are classified as held-to-maturity and measured at amortized cost in the financial statements only if management has the positive intent and ability to hold those securities to maturity. Securities that are bought and held principally for the purpose of selling them in the near term are classified as trading and measured at fair value in the financial statements with unrealized gains and losses included in earnings. Investments not classified as either held-to-maturity or trading are classified as available-for-sale and measured at fair value in the financial statements with unrealized gains and losses reported, net of tax, in a separate component of shareholders' equity until realized. The Corporation has the ability and intent to hold to maturity its investment securities classified as held-to-maturity; accordingly, no adjustment has been made for the excess, if any, of amortized cost over market. In determining the investment category classifications at the time of purchase of securities, management considers its asset/liability strategy, changes in interest rates and prepayment risk, the need to increase capital and other factors. Under certain circumstances (including the deterioration of the issuer's creditworthiness, a change in tax law, or statutory or regulatory requirements), the Corporation may change the investment security classification. In the periods reported for 2000 and 1999 the Corporation held no securities that would have been classified as trading securities. All investment securities are adjusted for amortization of premiums and accretion of discounts. Amortization of premiums and accretion of discounts are recorded to income over the contractual maturity or estimated life of the individual investment on the level yield method. Gain or loss on sale of investments is based upon the specific identification method and the gain or loss is recorded in non-interest income. Income earned on the Corporation's investments in state and political subdivisions is not taxable. 9 NOTE 1 - Summary of Significant Accounting Policies (cont'd.) ------ Loans and Allowance for Loan Losses ----------------------------------- Loans are stated at the principal amount outstanding less unearned discount and the allowance for loan losses. Unearned discount on installment loans is recognized as income over the terms of the loans by a method approximating the interest method. Interest income on all other loans is recognized based upon the principal amounts outstanding, the simple interest method. Generally, loan origination and commitment fees are recognized at the time of funding and are considered adjustments to interest income. Related direct costs are not separately allocated to loans but are charged to non-interest expense in the period incurred. The net effect of not recognizing such fees and related costs over the life of the related loan is not considered to be material to the financial statements. The accrual of interest on a loan is discontinued when, in the opinion of management, there is doubt about the ability of the borrower to pay interest or principal. Interest previously earned, but uncollected on such loans, is written off. After loans are placed on non-accrual all payments received are applied to principal and no interest income is recorded until the loan is returned to accrual status or the principal has been reduced to zero. The Corporation has adopted Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosure." Under this standard, the allowance for loan losses related to loans that are identified for evaluation in accordance with Statement No. 114 (impaired loans) is based on discounted cash flows using the loan's initial effective rate or the fair value of the collateral for certain collateral dependent loans. The allowance for loan losses is comprised of amounts charged against income in the form of a provision for loan losses as determined by management. Management's evaluation is based on a number of factors, including the Subsidiary Banks' loss experience in relation to outstanding loans and the existing level of the allowance, prevailing and prospective economic conditions, and management's continuing review of the discounted cash flow values of impaired loans and its evaluation of the quality of the loan portfolio. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. The evaluation of the adequacy of loan collateral is often based upon estimates and appraisals. Because of changing economic conditions, the valuations determined from such estimates and appraisals may also change. Accordingly, the Corporation may ultimately incur losses which vary from management's current estimates. Adjustments to the allowance for loan losses will be reported in the period such adjustments become known or are reasonably estimable. Premises and Equipment ---------------------- Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation expense is computed on the straight-line method based upon the estimated useful lives of the assets ranging from three to forty years. Maintenance and repairs are charged to non-interest expense. Renewals and betterments are added to the asset accounts and depreciated over the periods benefited. Depreciable assets sold or retired are removed from the asset and related accumulated depreciation accounts and any gain or loss is reflected in the income and expense accounts. Other Real Estate ----------------- Other real estate is foreclosed property held pending disposition and is valued at the lower of its fair value or the recorded investment in the related loan. At foreclosure, if the fair value, less estimated costs to sell, of the real estate acquired is less than the Corporation's recorded investment in the related loan, a writedown is recognized through a charge to the allowance for loan losses. Any subsequent reduction in value is recognized by a charge to income. Operating expenses of such properties, net of related income, and gains and losses on their disposition are included in non-interest expense. Federal Income Taxes -------------------- The Corporation joins with its Subsidiaries in filing a consolidated federal income tax return. The Subsidiaries pay to the parent a charge equivalent to their current federal income tax based on the separate taxable income of the Subsidiaries. The Corporation and the Subsidiaries maintain their records for financial reporting and income tax reporting purposes on the accrual basis of accounting. Deferred income taxes are provided in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Deferred income taxes are provided for accumulated temporary differences due to basic differences for assets and liabilities for financial reporting and income tax purposes. Realization of net deferred tax assets is dependent on generating sufficient future taxable income. Although realization is not assured, management believes it is more likely than not that all of the net deferred tax assets will be realized. The amount of the net deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced. Cash and Cash Equivalents ------------------------- For the purpose of presentation in the Statements of Cash Flows, cash and cash equivalents are defined as those amounts included in the balance sheet caption "Cash and Due from Banks." 10 NOTE 1 - Summary of Significant Accounting Policies (cont'd.) - ------ Reclassification ---------------- Certain reclassifications have been made to the 1999 financial statements to conform to the 2000 presentation. Earnings Per Common and Common Equivalent Share ----------------------------------------------- Earnings per common and common equivalent share is calculated by dividing net income by the weighted average number of common shares and common share equivalents. Stock options are regarded as common share equivalents and are therefore considered in earnings per share calculations, if dilutive. The number of common share equivalents is determined using the treasury stock method. Audited Financial Statements ---------------------------- The consolidated balance sheet as of December 31, 1999, and the consolidated statements of income, changes in shareholders' equity and cash flows for the year ended December 31, 1999 are headed "unaudited" in these financial statements. These statements were reported in the Securities Exchange Commission Form 10-K as of December 31, 1999 as "audited" but are required to be reflected in these statements as unaudited because of the absence of an independent auditor's report. NOTE 2 - Investment Securities - ------ A summary of amortized cost and estimated fair values of investment securities is as follows (in thousands): September 30, 2000 ------------------------------------------------------------ Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ------------- -------------- ----------- -------------- Investment Securities - Held-to-Maturity U.S. Treasury Securities $ 5,000 $ 7 $ -0- $ 5,007 U.S. Government Agencies and Corporations 18,025 -0- (359) 17,666 ------------- ------------- ----------- -------------- Total Held-to-Maturity Securities 23,025 7 (359) 22,673 ------------- ------------- ----------- -------------- Investment Securities - Available-for-Sale U.S. Treasury Securities 17,081 51 (31) 17,101 U.S. Government Agencies and Corporations 95,106 117 (967) 94,256 U.S. Government Agency Mortgage Backed Securities 11,160 5 (139) 11,026 Obligations of States and Political Subdivisions 240 -0- (1) 239 Federal Reserve and Federal Home Loan Bank Stock 1,260 -0- -0- 1,260 ------------- -------------- ----------- -------------- Total Available-for-Sale Securities 124,847 173 (1,138) 123,882 ------------- -------------- ----------- -------------- Total Investment Securities $ 147,872 $ 180 $ (1,497) $ 146,555 ============= ============== =========== ============== In the above schedule the amortized cost of Total Held-to-Maturity Securities of $23,025,000 and the fair value of Total Available-for-Sale Securities of $123,882,000 are reflected in Investment Securities on the consolidated balance sheet as of September 30, 2000 for a total of $146,907,000. A net unrealized loss of $965,000 is included in the Available-for-Sale Investment Securities balance. The unrealized loss, net of tax benefit, is included in Shareholders' Equity. 11 NOTE 2 - Investment Securities (cont'd) - ------ A summary of amortized cost and estimated fair values of investment securities is as follows (in thousands): September 30, 1999 ----------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ------------ ------------ ----------- ---------- Investment Securities - Held-to-Maturity U.S. Treasury Securities $ 8,993 $ 76 $ -0- $ 9,069 U.S. Government Agencies Obligations of States and Political Subdivisions 288 -0- -0- 288 and Corporations 20,048 -0- (449) 19,599 ------------ ----------- ----------- ---------- Total Held-to-Maturity Securities 29,329 76 (449) 28,956 ------------ ----------- ----------- ---------- Investment Securities - Available-for-Sale U.S. Treasury Securities 24,206 126 (24) 24,308 U.S. Government Agencies and Corporations 87,361 30 (857) 86,534 U.S. Government Agency Mortgage Backed Securities 14,207 35 (177) 14,065 Obligations of States and Political Subdivisions 350 2 -0- 352 Federal Reserve and Federal Home Loan Bank Stock 1,202 -0- -0- 1,202 ------------ ----------- ----------- ---------- Total Available-for-Sale Securities 127,326 193 (1,058) 126,461 ------------ ----------- ----------- ---------- Total Investment Securities $ 156,655 $ 269 $ (1,507) $ 155,417 ============ =========== =========== ========== In the above schedule the amortized cost of Total Held-to-Maturity Securities of $29,329,000 and the fair value of Total Available-for-Sale Securities of $126,461,000 are reflected in Investment Securities on the consolidated balance sheet as of September 30, 1999 for a total of $155,790,000. A net unrealized loss of $865,000 is included in the Available-for-Sale Investment Securities balance. The unrealized loss, net of tax benefit, is included in Shareholders' Equity. NOTE 3 - Loans and Allowance for Loan Losses - ------ The book values of loans by major type follow (in thousands): September 30, December 31, ----------------------- 2000 1999 1999 ---------- ---------- ------------ Commercial $ 167,404 $ 152,975 $ 156,847 Real Estate Mortgage 129,675 117,033 120,596 Real Estate Construction 47,934 42,303 43,875 Loans to Individuals 34,308 32,861 34,261 Less: Unearned Discount (62) (220) (165) ---------- ---------- ------------ 379,259 344,952 355,414 Allowance for Loan Losses (6,918) (5,044) (5,169) ---------- ---------- ------------ Loans - Net $ 372,341 $ 339,908 $ 350,245 ========== ========== ============ 12 NOTE 3 - Loans and Allowance for Loan Losses (cont'd.) - ------ Transactions in the allowance for loan losses are summarized as follows (in thousands): Nine Months Ended Year Ended September 30, December 31, ----------------------------------- 2000 1999 1999 ------------ -------------- --------------- Balance, Beginning of Period $ 5,169 $ 4,724 $ 4,724 Provisions, Charged to Income 2,305 778 1,001 Loans Charged-Off (758) (594) (727) Recoveries of Loans Previously Charged-Off 202 136 171 ------------- -------------- --------------- Net Loans (Charged-Off) Recovered (556) (458) (556) ------------- -------------- --------------- Balance, End of Period $ 6,918 $ 5,044 $ 5,169 ============= ============== =============== The provisions for loan losses charged to operating expenses during the nine months ended September 30, 2000 and September 30, 1999 of $2,305,000 and $778,000, respectively, were considered adequate to maintain the allowance in accordance with the policy discussed in Note 1. For the year ended December 31, 1999, a provision of $1,001,000 was recorded. At September 30, 2000, the recorded investment in loans that are considered to be impaired under Statement of Financial Accounting Standards No. 114 was $5,183,000 (of which $5,183,000 were on non-accrual status). The related allowance for loan losses for these loans was $2,203,000. The average recorded investment in impaired loans during the nine months ended September 30, 2000 was approximately $4,408,000. For this period the Corporation recognized no interest income on these impaired loans. NOTE 4 - Premises and Equipment - ------ The investment in premises and equipment stated at cost and net of accumulated amortization and depreciation is as follows (in thousands): September 30, December 31, --------------------- 2000 1999 1999 --------- --------- --------------- Land $ 2,320 $ 2,783 $ 2,320 Buildings and Improvements 7,816 7,610 7,715 Furniture & Equipment 8,068 7,755 8,003 --------- --------- --------------- Total Cost 18,204 18,148 18,038 Less: Accumulated Amortization and Depreciation (9,986) (9,222) (9,476) --------- --------- --------------- Net Book Value $ 8,218 $ 8,926 $ 8,562 ========= ========= =============== NOTE 5 - Other Real Estate - ------ The carrying value of other real estate is as follows (in thousands): September 30, ---------------------- December 31, 2000 1999 1999 -------- -------- ------------- Other Real Estate $ 1,329 $ 1,494 $ 1,947 ======== ======== ============= There were direct writedowns of other real estate charged to income for the nine months ended September 30, 2000 of $423,000. There were no direct writedowns of other real estate for the nine months ended September 30, 1999 or for the year ended December 31, 1999. 13 NOTE 6 - Deposits - ------ The book values of deposits by major type follow (in thousands): September 30, December 31, --------------------------- 2000 1999 1999 ----------- ----------- --------------- Noninterest-Bearing Demand Deposits $ 137,721 $ 135,973 $ 128,685 Interest-Bearing Deposits: Interest-Bearing Transaction Accounts and Money Market Funds 145,999 155,398 154,304 Savings 97,152 83,951 98,728 Savings Certificates - Time 79,889 58,614 58,973 Certificates of Deposits $100,000 or more 60,058 37,892 39,078 Other 778 778 778 ----------- ----------- --------------- Total 383,876 336,633 351,861 ----------- ----------- --------------- Total Deposits $ 521,597 $ 472,606 $ 480,546 =========== =========== =============== NOTE 7 - Short Term Borrowings - ------ Securities sold under repurchase agreements generally represent borrowings with maturities ranging from one to thirty days. Information relating to these borrowings is summarized as follows (in thousands): Nine Months Ended Year Ended September 30, December 31, --------------------------- 2000 1999 1999 --------- --------- --------------- Securities Sold Under Repurchase Agreements: Average $ 21,387 $ 17,444 $ 20,488 Period-End 18,671 24,310 28,091 Maximum Month-End Balance During Period 25,019 24,310 30,309 Interest Rate: Average 5.10% 3.89% 4.04% Period-End 5.63% 4.26% 3.38% The Corporation, through one of its subsidiaries, has available a line of credit with the Federal Home Loan Bank of Dallas which allows the subsidiary to borrow on a collateralized basis at a fixed term. At September 30, 2000, the subsidiary had no borrowings outstanding. For the nine months ended September 30, 2000, the subsidiary had borrowed an average balance of $6,584,000 bearing an average interest rate of 6.49%. At December 31, 1999, the subsidiary had borrowed $4,000,000 under the line of credit, bearing an interest rate of 5.43% and having a maturity of April 2000. NOTE 8 - Notes Payable - ------ On July 15, 2000, the Corporation obtained lines of credit from a bank under which the Corporation may borrow $9,000,000 at prime rate. The lines of credit are secured by stock of one of the Subsidiary Banks and mature in July 2000, whereupon, if balances are outstanding, the lines convert to term notes having five year terms. The Corporation will not pay a fee for any unused portion of the lines. As of September 30, 2000, no funds had been borrowed under these lines nor were any borrowings outstanding. 14 NOTE 9 - Other Non-Interest Expense - ------ The significant components of other non-interest expense are as follows (in thousands): Nine Months Ended Year Ended September 30, December 31, -------------------------- 2000 1999 1999 ---------- ---------- -------------- Business Development $ 387 $ 417 $ 602 Legal and Professional Fees 604 468 619 Printing and Supplies 281 286 379 Regulatory Fees and Assessments 175 137 183 Other 1,477 1,445 1,875 ---------- ---------- -------------- Total $ 2,924 $ 2,753 $ 3,658 ========== ========== ============== NOTE 10 - Income Taxes - ------- Federal income taxes included in the consolidated balance sheets were as follows (in thousands): September 30, December 31, -------------------------- 2000 1999 1999 --------- --------- -------------- Current Tax Asset (Liability) $ 49 $ 18 $ (70) Deferred Tax Asset 2,143 1,786 2,257 --------- --------- --------------- Total Included in Other Assets $ 2,192 $ 1,804 $ 2,187 ========= ========= =============== The deferred tax asset at September 30, 2000 of $2,143,000 included $329,000 related to unrealized losses on Available-for-Sale Securities. The components of income tax expense were as follows (in thousands): Nine Months Ended Year Ended September 30, December 31, --------------------------- 2000 1999 1999 ---------- ---------- ------------- Federal Income Tax Expense Current $ 3,531 $ 3,765 $ 5,278 Deferred (benefit) (167) (230) (385) ---------- ---------- ------------- Total Federal Income Tax Expense $ 3,364 $ 3,535 $ 4,893 Effective Tax Rates 34.67% 34.60% 34.70% ========== ========== ============= 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): Nine Months Ended Year Ended September 30, December 31, ----------------------------- 2000 1999 1999 ---------- ---------- ------------- Federal Income Taxes at Statutory Rate of 34.3% $ 3,333 $ 3,507 $ 4,847 Effect of Tax Exempt Interest Income (5) (9) (12) Non-deductible Expenses 40 39 64 Other (4) (2) (6) ---------- ---------- ------------- Income Taxes Per Income Statement $ 3,364 $ 3,535 $ 4,893 ========== ========== ============= 15 NOTE 10 - Income Taxes (con't) - ------- Nine Months Ended Year Ended September 30, December 31, ----------------------------- 2000 1999 1999 ---------- ---------- --------------- Federal Deferred Tax Assets: Allowance for Loan Losses $ 1,354 $ 1,290 $ 1,357 Valuation Reserves - Other Real Estate 145 1 - Interest on Non-accrual Loans 264 202 189 Deferred Compensation 473 426 458 Unrealized Losses on Available-for-Sale Securities 329 294 611 Other 17 24 19 ---------- ---------- --------------- Gross Federal Deferred Tax Assets 2,582 2,237 2,634 ---------- ---------- --------------- Federal Deferred Tax Liabilities: Depreciation and Amortization 319 287 321 Accretion 98 54 56 Other 22 110 -0- ---------- ---------- --------------- Gross Federal Deferred Tax Liabilities 439 451 377 ---------- ---------- --------------- Net Deferred Tax Asset $ 2,143 $ 1,786 $ 2,257 ========== ========== =============== NOTE 11 - Related Party Transactions - ------- The Subsidiary Banks have transactions made in the ordinary course of business with certain of its officers, directors and their affiliates. All loans included in such transactions are made on substantially the same terms, including interest rate and collateral, as those prevailing at the time for comparable transactions with other persons. Total loans outstanding to such parties amounted to approximately $3,488,000 at December 31, 1999. NOTE 12 - Commitments and Contingent Liabilities - ------- In the normal course of business, there are various outstanding commitments and contingent liabilities, such as guarantees and commitments to extend credit, which are not reflected in the financial statements. No losses are anticipated as a result of these transactions. Commitments are most frequently extended for real estate, commercial and industrial loans. At September 30, 2000, outstanding documentary and standby letters of credit totaled $2,866,000 and commitments to extend credit totaled $127,345,000. NOTE 13 - Stock Option Plans - ------- The Corporation has two Incentive Stock Option Plans, the 1993 Plan and the 1997 Plan, ("the Plans"). Each Plan has reserved 600,000 shares (adjusted for two-for-one stock splits in 1995 and 1997) of common stock for grants thereunder. The Plans provide for the granting to executive management and other key employees of Summit Bancshares, Inc. and subsidiaries incentive stock options, as defined under the current tax law. The options under the Plans will be exercisable for ten years from the date of grant and generally vest ratably over a five year period. Options will be and have been granted at prices which will not be less than 100-110% of the fair market value of the underlying common stock at the date of grant. The Corporation applies APB Opinion No. 25 and related Interpretations in accounting for its plans. Since the option prices are considered to approximate fair market value at date of grant, no compensation expense has been reported. Had compensation cost for these plans been determined consistent with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" the Corporation's net income and earnings per share would have been reduced by insignificant amounts on a proforma basis for the year ended December 31, 1999, and the nine months ended September 30, 2000. 16 NOTE 13 - Stock Option Plans (con't) - ------- The following is a summary of transactions during the periods presented: Shares Under Option --------------------------------------------------- Nine Months Ended Year Ended September 30, 2000 December 31, 1999 -------------------- -------------------- Outstanding, Beginning of Period 445,497 461,717 Additional Options Granted During the Period 10,000 49,500 Forfeited During the Period (17,500) (2,400) Exercised During the Period (73,638) (63,320) -------------------- -------------------- Outstanding, End of Period 364,359 445,497 ==================== ==================== Options outstanding at September 30, 2000 ranged in price from $3.00 to $19.25 per share with a weighted average exercise price of $9.81 and 282,527 shares exercisable. At September 30, 2000, there remained 490,300 shares reserved for future grants of options under the 1997 Plan. There are no shares available for grant under the 1993 Plan. NOTE 14 - Employee Benefit Plans - ------- Pension Plan - ------------ The Corporation had a defined benefit pension plan covering substantially all of its employees. The benefits were based on years of service and the employee's compensation history. The employee's compensation used in the benefit calculation were the highest average for any five consecutive years of employment within the employee's last ten years of employment. Effective August 31, 1998, the accrual of benefits under this plan were suspended. In February 1999, the Board of Directors chose to terminate the plan effective April 15, 1999. The assets held in trust were distributed to the plan participants in mid-1999 under terms of the plan. During 1999 the Corporation expensed $321,000 in support of the plan. 401(k) Plan - ----------- The Corporation implemented a 401(k) plan in December 1997 covering substantially all employees. The Corporation made no contribution to this plan in 1999 or 1998. In 2000, the Corporation will make matching contributions to the participant's deferrals of compensation up to 100% of the employee contributions not to exceed 6% of the employee's annual compensation. For the first nine months of 2000, the Corporation expensed $275,000 in support of the plan. Management Security Plan - ------------------------ In 1992, the Corporation established a Management Security Plan to provide key employees with retirement, death or disability benefits in addition to those provided by the Pension Plan. The expense charged to operations for such future obligations was $136,000 and $156,000 during the first nine months of 2000 and 1999, respectively, and $223,000 for the year 1999. Other Post Retirement Benefits - ------------------------------ The Corporation provides certain health care benefits for certain retired employees who bear all costs of these benefits. These benefits are covered under the "Consolidated Omnibus Budget Reconciliation Act" (COBRA). 17 NOTE 15 - Earnings per Share - ------- The following data shows the amounts used in computing earnings per share and the weighted average number of shares of dilutive potential common stock (dollars in thousands). September 30, December 31, ---------------------------- 2000 1999 1999 ----------- ------------ -------------- Net income $ 6,337 $ 6,690 $ 9,222 =========== ============ ============== Weighted average number of common shares used in Basic EPS 6,366,865 6,425,897 6,410,762 Effect of dilutive stock options 151,426 244,071 244,787 ----------- ------------ -------------- Weighted number of common shares and dilutive potential common stock used in Diluted EPS 6,518,291 6,669,968 6,655,549 =========== ============ ============== NOTE 16 - Financial Instruments with Off-Balance Sheet Risk - ------- The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include loan commitments, standby letters of credit and documentary letters of credit. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. The Corporation's exposure to credit loss in the event of non-performance by the other party of these loan commitments and standby letters of credit is represented by the contractual amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The total contractual amounts of financial instruments with off-balance sheet risk are as follows (in thousands): September 30, ------------------------------ 2000 1999 ----------- ------------ Financial Instruments Whose Contract Amounts Represent Credit Risk: Loan Commitments Including Unfunded Lines of Credit $ 127,345 $ 111,732 Standby Letters of Credit 2,866 4,189 Since many of the loan commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The Corporation evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, owner occupied real estate and income- producing commercial properties. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. NOTE 17 - Concentrations of Credit Risk - ------- The Subsidiary Banks grant commercial, consumer and real estate loans in their direct market which is defined as Fort Worth and its surrounding area. The Board of Directors of each Subsidiary Bank monitors concentrations of credit by purpose, collateral and industry at least quarterly. Certain limitations for concentration are set by the Boards. Additional loans in excess of these limits must have prior approval of the bank's directors' loan committee. Although its Subsidiary Banks have diversified loan portfolios, a substantial portion of its debtors' abilities to honor their contracts is dependent upon the strength of the local and state economy. 18 NOTE 18 - Litigation - ------- Certain of the Subsidiary Banks are involved in legal actions arising in the ordinary course of business. It is the opinion of management, after reviewing such actions with outside legal counsel, that the settlement of these matters will not materially affect the Corporation's financial position. NOTE 19 - Stock Repurchase Plan - ------- On April 18, 2000, the Board of Directors approved a stock repurchase plan. The plan authorized management to purchase up to 322,232 shares of the Corporation's common stock over the next twelve months through the open market or in privately negotiated transactions in accordance with all applicable state and federal laws and regulations. In the nine months of 2000, 80,207 shares were purchased by the Corporation through a similar repurchase plan through the open market. NOTE 20 - Subsequent Event - ------- On October 17, 2000, the Board of Directors of the Corporation approved a quarterly dividend of $.10 per share to be paid on November 15, 2000 to shareholders of record on November 1, 2000. 19 NOTE 21 - Fair Values of Financial Instruments - ------- The following methods and assumptions were used by the Corporation in estimating its fair value disclosures for financial instruments: Cash and cash equivalents: The carrying amounts reported in the balance sheet for cash and due from banks and federal funds sold approximate those assets' fair values. Investment securities (including mortgage-backed securities): Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Loans: For variable-rate loans, fair values are based on carrying values. The fair values for fixed rate loans such as mortgage loans (e.g., one-to- four family residential) and installment loans are estimated using discounted cash flow analysis. The carrying amount of accrued interest receivable approximates its fair value. Deposit liabilities: The fair value disclosed for interest bearing and noninterest-bearing demand deposits, passbook savings, and certain types of money market accounts are, by definition, equal to the amount payable on demand at the reporting date or their carrying amounts. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. Short-term borrowings: The carrying amounts of borrowings under repurchase agreements approximate their fair values. The estimated fair values of the Corporation's financial instruments are as follows (in thousands): September 30, ------------------------------------------------------------------- 2000 1999 ------------------------------- ------------------------------- Carrying Fair Carrying Fair Amount Value Amount Value -------------- ------------- ------------- ------------- Financial Assets Cash and due from banks $ 26,614 $ 26,614 $ 21,982 $ 21,982 Federal funds sold 29,165 29,165 14,135 14,135 Securities 146,907 146,555 155,790 155,417 Loans 379,259 376,909 344,952 344,185 Reserve for loan losses (6,918) (6,918) (5,044) (5,044) Financial Liabilities Deposits 521,597 521,426 472,606 472,691 Short Term Borrowings 18,671 18,672 28,310 28,309 Off-balance Sheet Financial Instruments Loan commitments 127,345 111,732 Letters of credit 2,866 4,189 NOTE 22 - Comprehensive Income - ------- The Corporation has adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income". This new standard requires an entity to report and display comprehensive income and its components. Comprehensive income is as follows (in thousands): Nine Months Ended Year Ended September 30, December 31, --------------------------- ------------ 2000 1999 1999 --------- --------- ------------ Net Income $ 6,337 $ 6,690 $ 9,222 Other Comprehensive Income: Unrealized gain (loss) on securities available-for-sale, net of tax 550 (1,131) (1,746) --------- --------- --------- Comprehensive Income $ 6,887 $ 5,559 $ 7,476 ========= ========= ========= 20 Item 2 - Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations - ------------- Summary - ------- Management's Discussion and Analysis of Financial Condition and Results of Operations of the Corporation analyzes the major elements of the Corporation's consolidated balance sheets and statements of income. This discussion should be read in conjunction with the consolidated financial statements and accompanying notes. Net income for the third quarter of 2000 was $2,540,000, or $.39 diluted earnings per share, compared with $2,838,000, or $.36 diluted earnings per share, for the third quarter of 1999. Net income for the first nine months of 2000 was $6,337,000, or $.97 diluted earnings per share, compared with $6,690,000, or $1.00 diluted earnings per share, for the first nine months of the prior year. On a per share basis, diluted earnings per shares increased 8.3% over the third quarter of the prior year. Per share amounts are based on average shares outstanding of 6,518,291 for the first nine months of 2000 and 6,669,968 for the comparable period of 1999 adjusted to reflect stock options granted. Outstanding loans at September 30, 2000 of $379.3 million represented an increase of $34.3 million, or 10.0%, over September 30,1999 and an increase of $23.9 million, or 6.7%, from December 31, 1999. Total deposits at September 30, 2000 of $521.6 million represented an increase of $49.0 million, or 10.4%, over September 30,1999 and an increase of $41.1 million, or 8.5%, from December 31, 1999. In the third quarter, net interest income increased 7.0% over the same quarter of the previous year. The provision for loan losses increased $437,000 in the quarter over the same period of the prior year. Non-interest expense increased $174,000 or 4.5% in the third quarter over that of the same period in the prior year. Explanation of the change follows. The following table summarizes the Corporation's performance for the three months and nine months ended September 30, 2000 and 1999 (tax equivalent basis and dollars in thousands). Three Months Ended Nine Months Ended September 30, September 30, --------------------- --------------------- 2000 1999 2000 1999 ------- ------- ------- ------- Interest Income $12,231 $10,226 $34,938 $29,349 Interest Expense 4,985 3,452 13,519 9,862 ------- ------- ------- ------- Net Interest Income 7,246 6,774 21,419 19,487 Provision for Loan Loss 577 140 2,305 778 ------- ------- ------- ------- Net Interest Income After Provision for Loan Loss 6,669 6,634 19,114 18,709 Non-Interest Income 918 894 2,744 2,827 Non-Interest Expense 3,708 3,882 12,150 11,298 ------- ------- ------- ------- Income Before Income Tax 3,879 3,646 9,708 10,238 Income Tax Expense 1,339 1,263 3,371 3,548 ------- ------- ------- ------- Net Income $ 2,540 $ 2,383 $ 6,337 $ 6,690 ======= ======= ======= ======= Net Income per Share- Basic $ 0.40 $ 0.37 $ 1.00 $ 1.04 Diluted 0.39 0.36 0.97 1.00 Return on Average Assets 1.72% 1.75% 1.47% 1.70% Return on Average Stockholders' Equity 19.71% 20.11% 16.89% 19.19% 21 Summary of Earning Assets and Interest-Bearing Liabilities - ---------------------------------------------------------- The following schedule presents average balance sheets that highlight earning assets and interest-bearing liabilities and their related rates earned and paid for the third quarter of 2000 and 1999 (rates on tax equivalent basis). Three Months Ended September 30, ---------------------------------------------------------------------------------------- 2000 1999 ----------------------------------------- ------------------------------------------ Average Average Average Average Balances Interest Yield/Rate Balances Interest Yield/Rate ----------- ---------- ---------------- ------------ ------------ -------------- (Dollars in Thousands) Earning Assets: Federal Funds Sold & Due From Time $ 27,065 $ 443 6.51% $ 17,326 $ 223 5.14% Investment Securities (Taxable) 148,032 2,322 6.24% 145,401 2,150 5.87% Investment Securities (Tax-exempt) 314 6 7.54% 709 12 7.01% Loans, Net of Unearned Discount(1) 378,302 9,460 9.95% 337,034 7,841 9.23% --------- --------- ---- ---------- --------- ---- Total Earning Assets 553,713 12,231 8.79% 500,470 10,226 8.11% --------- --------- Non-interest Earning Assets: Cash and Due From Banks 23,787 24,402 Other Assets 18,801 18,789 Allowance for Loan Losses (6,974) (4,947) --------- ---------- Total Assets $ 589,327 $ 538,714 ========= ========== Interest-Bearing Liabilities: Interest-Bearing Transaction Accounts and Money Market Funds $ 158,913 1,603 4.01% $ 159,643 1,290 3.21% Savings 89,356 1,110 4.94% 81,952 823 3.98% Savings Certificates 69,136 1,008 5.80% 56,051 643 4.55% Certificates of Deposit $100,000 or more 54,755 836 6.07% 36,925 447 4.80% Other Time 778 11 5.62 778 10 4.97 Other Borrowings 28,332 417 5.85% 21,947 239 4.32% --------- --------- ---- ---------- --------- ---- Total Interest-Bearing Liabilities 401,270 4,985 4.94% 357,296 3,452 3.83% --------- --------- Non-interest Bearing Liabilities: Demand Deposits 135,769 131,650 Other Liabilities 1,003 2,760 Shareholders' Equity 51,285 47,008 --------- ---------- Total Liabilities and Shareholders' Equity $ 589,327 $ 538,714 ========= ========== Net Interest Income and Margin (Tax-equivalent Basis)/(2)/ $ 7,246 5.21% $ 6,774 5.37% ========= ========= (1) Loan interest income includes fees and loan volumes include loans on non- accrual. (2) Presented on tax equivalent basis ("T/E") using a federal income tax rate of 34% both years. 22 The following schedule presents average balance sheets that highlight earning assets and interest-bearing liabilities and their related rates earned and paid for the nine months ended September 30, 2000 and 1999 (rates on tax equivalent basis). Nine Months Ended September 30, -------------------------------------- -------------------------------------- 2000 1999 -------------------------------------- -------------------------------------- Average Average Average Average Balances Interest Yield/Rate Balances Interest Yield/Rate ------------ ----------- ------------ ---------- ---------- ------------- (Dollars in Thousands) Earning Assets: Federal Funds Sold & Due From Time $ 18,074 $ 847 6.26% $ 18,524 $ 682 4.92% Investment Securities (Taxable) 147,881 6,892 6.23% 143,059 6,240 5.83% Investment Securities (Tax-exempt) 385 21 7.29% 781 41 7.06% Loans, Net of Unearned Discount(1) 372,124 27,178 9.76% 326,443 22,386 9.17% --------- --------- ---- --------- --------- ---- Total Earning Assets 538,464 34,938 8.67% 488,807 29,349 8.03% --------- --------- Non-interest Earning Assets: Cash and Due From Banks 24,046 23,596 Other Assets 19,211 19,820 Allowance for Loan Losses (5,939) (4,819) --------- --------- Total Assets $ 575,782 $ 527,404 ========= ========= Interest-Bearing Liabilities: Interest-Bearing Transaction Accounts and Money Market Funds $ 159,643 4,573 3.82% $ 155,884 3,690 3.16% Savings 91,520 3,198 4.68% 82,464 2,430 3.94% Savings Certificates 63,069 2,559 5.42% 53,994 1,854 4.59% Certificates of Deposit $100,000 or more 47,250 2,019 5.71% 35,918 1,303 4.85% Other Time 778 32 5.52% 778 30 5.08% Other Borrowings 28,000 1,138 5.43% 18,601 556 4.00% --------- --------- ---- --------- --------- ---- Total Interest-Bearing Liabilities 390,260 13,519 4.63% 347,639 9,863 3.79% --------- -------- Non-interest Bearing Liabilities: Demand Deposits 134,078 129,470 Other Liabilities 1,340 3,674 Shareholders' Equity 50,104 46,621 --------- --------- Total Liabilities and Shareholders' Equity $ 575,782 $ 527,404 ========= ========= Net Interest Income and Margin (Tax-equivalent Basis)(2) $ 21,419 5.31% $ 19,486 5.33% ========= ========= (1) Loan interest income includes fees and loan volumes include loans on non- accrual. (2) Presented on tax equivalent basis ("T/E") using a federal income tax rate of 34% both years. 23 Net Interest Income - ------------------- Net interest income (tax equivalent) for the third quarter of 2000 was $7,246,000 which represented an increase of $472,000 or 7.0%, over the third quarter of 1999. This increase was heavily contributed to by a 12.2% increase in average loans for the third quarter of 2000 versus the same quarter last year. The following table summarizes the effects of changes in interest rates, average volumes of earning assets and interest bearing liabilities on net interest income (tax equivalent) for the periods ended September 30, 2000 and 1999. ANALYSIS OF CHANGES IN NET INTEREST INCOME (Dollars in Thousands) 3rd Qtr. 2000 vs. 3rd Qtr. 1999 Nine Months 2000 vs. Nine Months 1999 Increase (Decrease) Increase (Decrease) Due to Changes in: Due to Changes in: -------------------------------------- -------------------------------------- Volume Rate Total Volume Rate Total -------- -------- --------- -------- -------- --------- Interest Earning Assets: Federal Funds Sold $ 149 $ 71 $ 220 $ (27) $ 192 $ 165 Investment Securities (Taxable) 38 134 172 217 435 652 Investment Securities (Tax-exempt) (12) 6 (6) (22) 2 (20) Loans, Net of Unearned Discount 990 629 1,619 3,287 1,505 4,792 -------- -------- --------- -------- -------- --------- Total Interest Income 1,165 840 2,005 3,455 2,134 5,589 -------- -------- --------- -------- -------- --------- Interest-Bearing Liabilities: Deposits 385 970 1,355 1,007 2,068 3,075 Other Borrowings 80 98 178 340 242 582 -------- -------- --------- -------- -------- --------- Total Interest Expense 465 1,068 1,533 1,347 2,310 3,657 -------- -------- --------- -------- -------- --------- Net Interest Income $ 700 $ (228) $ 472 $ 2,108 $ (176) $ 1,932 ======== ======== ========= ======== ======== ========= Allowance for Loan Losses and Non-Performing Assets - --------------------------------------------------- The Corporation's allowance for loan losses was $6,918,000 or 1.82% of total loans, as of September 30, 2000 compared to $5,044,000, or 1.46% of total loans, as of September 30, 1999. Transactions in the provision for loan losses are summarized as follows (in thousands): Three Months Ended Nine Months Ended September 30, September 30, -------------------- -------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Balance, Beginning of Period $ 6,899 $ 4,895 $ 5,169 $ 4,724 Provisions, Charged to Income 577 140 2,305 778 Loans Charged-Off (632) (35) (758) (594) Recoveries of Loans Previously Charged-Off 74 44 202 136 -------- -------- -------- -------- Net Loans (Charged-Off) Recovered (558) 9 (556) (458) -------- -------- -------- -------- Balance, End of Period $ 6,918 $ 5,044 $ 6,918 $ 5,044 ======== ======== ======== ======== For the nine months ended September 30, 2000 and 1999, net charge-offs were .15% and .14% of loans, respectively, not annualized. 24 The following table summarizes the non-performing assets as of the end of the last five quarters (in thousands). September 30, June 30, March 31, December 31, September 30, 2000 2000 2000 1999 1999 ------------- ------------- ------------- ------------ ------------- Non-Accrual Loans $ 5,273 $ 5,440 $ 2,518 $ 2,450 $ 2,899 Renegotiated Loans -0- 1 2 3 -0- Other Real Estate Owned 1,329 1,343 1,945 1,947 1,494 ------------- ------------- ------------- ------------ ------------- Total Non-Performing Assets $ 6,602 $ 6,784 $ 4,465 $ 4,400 $ 4,393 ============= ============= ============= ============ ============= September 30, June 30, March 31, December 31, September 30, 2000 2000 2000 1999 1999 ------------- ------------- ------------- ------------ ------------- As a Percent of: Total Assets 1.11% 1.16% 0.77% 0.78% 0.80% Total Loans and Other Real Estate 1.73% 1.79% 1.20% 1.23% 1.26% Loans Past Due 90 days or More and Still Accruing $ -0- $ -0- $ 105 $ -0- $ -0- Non-accrual loans to total loans were 1.39% at September 30, 2000 and non- performing assets were 1.73% of loans and other real estate owned at the same date. As of September 30, 2000, the Company had two large credits that were on non-accrual loan status and represented 85% of the Company's non-performing loans. The first with a balance of approximately $1.4 million has been on non- accrual status since the second quarter of 1998. The balance of this loan has been reduced from approximately $2.1 million as the borrower has continued to make monthly payments. These payments, principal and interest, have reduced the balance. The second large credit was placed on non-accrual status in the second quarter. A reserve of $1.7 million has been allocated for this credit. This loan has a balance of approximately $3.1 million and some amount of charge-off is expected on this credit before year-end. The balance of Other Real Estate Owned as of September 30, 2000, was $1,329,000. In the second quarter the Company wrote-down (expensed) $412,000 of one property, added a second property with a value of $230,000 and sold a property that had a value of $425,000. The write-down of the first property resulted in a carrying value of approximately $1.0 million for that property. This property, which was foreclosed in early 1999 after being constructed, had an original loan value of $1.6 million and is being aggressively marketed. The following table summarizes the relationship between non-performing loans, criticized loans and the allowance for loan losses (dollars in thousands). September 30, June 30, March 31, December 31, September 30, 2000 2000 2000 1999 1999 ------------- ------------- ------------- ------------ ------------- Non-Performing Loans $ 5,273 $ 5,441 $ 2,520 $ 2,453 $ 2,899 Criticized Loans 16,562 13,064 12,367 11,804 9,196 Allowance for Loan Losses 6,918 6,899 5,440 5,169 5,044 Allowance for Loan Losses as a Percent of: Non-Performing Loans 131% 127% 216% 211% 174% Criticized Loans 42 53 44 44 55 25 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 Nine Months Ended September 30, September 30, ---------------------------- -------------------------------- 2000 1999 % Change 2000 1999 % Change ------- -------- ------- --------- -------- -------- Service Charges on Deposit Accounts $ 505 $ 522 (3.3) % $ 1,475 $ 1,489 (0.9)% Non-recurring Income -- 26 (84.6) 65 270 -- Other Non-interest Income 413 346 19.4 1,204 1,068 12.7 ------- -------- ------- --------- -------- ------- Total Non-interest Income $ 918 $ 894 2.7 $ 2,744 $ 2,827 (2.9) ======= ========= ========= ======== ======= Non-recurring income is primarily interest recovered on loans charged-off in prior years and gains on sales of assets taken in satisfaction of debt in prior years. The increase in other non-interest income in the third quarter of 2000 is primarily due to increases in mortgage brokerage/origination fees and fees earned on investment services to customers. Non-interest Expense - -------------------- Non-interest expenses include all expenses other than interest expense, provision for loan losses and income tax expense. The following table summarizes the changes in non-interest expense during the periods presented (dollars in thousands). Three Months Ended Nine Months Ended September 30, September 30, --------------------------------- --------------------------------- 2000 1999 % Change 2000 1999 % Change --------- -------- --------- -------- -------- -------- Salaries & Employee Benefits $ 2,355 $ 2,310 2.0 % $ 7,044 $ 6,801 3.6 % Occupancy Expense - Net 245 275 (10.9) 750 825 (9.1) Furniture and Equipment Expense 356 314 13.4 1,048 904 15.9 Other Real Estate Expense - Net 28 (10) -- 384 15 -- Other Expenses: Business Development 27 148 (81.8) 387 417 7.2 Insurance - Other 31 25 24.0 83 96 (13.5) Legal & Professional Fees 214 180 18.9 604 468 29.1 Taxes - Other 30 29 3.4 130 141 (7.8) Postage & Courier 78 78 -- 243 236 3.0 Printing & Supplies 91 90 1.1 281 286 (1.8) Regulatory Fees & Assessments 59 46 28.3 175 137 27.7 Other Operating Expenses 194 397 (51.1) 1,021 972 5.0 --------- -------- -------- -------- Total Other Expenses 724 993 (27.1) 2,924 2,753 6.2 --------- -------- -------- -------- Total Non-interest Expense $ 3,708 $ 3 (4.5) $ 12,150 $ 11,298 7.5 ========= ======== ======== ======== Total non-interest expense decreased 4.5% in the third quarter of 2000 over 1999, reflecting deceases primarily in business development expense, and other operating expenses partially offset by increases in furniture and equipment expense, legal and professional expense and regulatory fees. As a percent of average assets, non-interest expenses were 2.0% in the third quarter of 2000 (annualized) and 3.01% in the same period of 1999. The "efficiency ratio" (non- interest expenses divided by total non-interest income plus net interest income) was 45.4% for the third quarter of 2000. A decrease in advertising expense and related business development expenses is reflected in the decrease in business development expenses. Other Operating Expenses in the third quarter of 2000 were lower due to decreases in various miscellaneous operating expenses including expenses related to fraud. The increase in furniture and fixtures expense is primarily a result of an increase in equipment maintenance expense. Legal and Professional Fees increased in the third quarter 2000 over the prior year because of increases in attorney fees related to credit issues. Regulatory expenses are somewhat higher due to higher FDIC insurance assessments charged. The increase for the nine months ended September 30, 2000 in Other Real Estate Expense reflects the write-down of the carrying value of foreclosed real property of $412,000 and is net of a gain on sale of another property of approximately $77,000 along with various maintenance expenses. 26 Interest Rate Sensitivity - ------------------------- Interest rate sensitivity is the relationship between changes in market interest rates and net interest income due to the repricing characteristics of assets and liabilities. The following table, commonly referred to as a "static gap report", indicates the interest rate sensitivity position at September 30, 2000 and may not be reflective of positions in subsequent periods (dollars in thousands): Rate After Matures or Reprices within: Sensitive 1 Year or ----------------------------------- 30 Days 31-180 181 to One Year Non-interest or Less Days One Year or Less Sensitive Total --------- --------- --------- ---------- ------------ --------- Earning Assets: Loans $ 210,291 $ 21,133 $ 18,846 $ 250,270 $ 128,989 $ 379,259 Investment Securities 2,989 13,199 9,324 25,512 121,395 146,907 Federal Funds Sold 29,165 -0- -0- 29,165 -0- 29,165 --------- --------- --------- ---------- ----------- --------- Total Earning Assets 242,445 34,332 28,170 304,947 250,384 555,331 --------- --------- --------- ---------- ----------- --------- Interest Bearing Liabilities: Interest-Bearing Transaction Accounts and Savings 243,151 -0- -0- 243,151 -0- 243,151 Certificate of Deposits (greater than)$100,000 7,469 20,696 26,662 54,827 5,232 60,059 Other Time Deposits 5,719 22,275 36,629 64,623 16,043 80,666 Short Term Borrowings 18,671 -0- -0- 18,671 -0- 18,671 --------- --------- --------- ---------- ----------- --------- Total Interest Bearing Liabilities 275,010 42,971 63,291 381,272 21,275 402,547 --------- --------- --------- ---------- ----------- --------- Interest Sensitivity Gap $ (32,565) $ (8,639) $ (35,121) $ (76,325) $ 229,109 $ 152,784 ========= ========= ========= ========== =========== ========= $ (32,565) ( (14,204) $ (76,325) ========= ========= ========= Cumulative Gap to Total Earning Assets (5.9) % (7.4) % (13.7)% Cumulative Gap to Total Assets (5.5) (6.9) (12.8) The preceding static gap report reflects a cumulative liability sensitive position during the one year horizon. An inherent weakness of this report is that it ignores the relative volatility any one category may have in relation to other categories or market rates in general. For instance, the rate paid on NOW accounts typically moves slower than the three month T-Bill. Management attempts to capture this relative volatility by utilizing a simulation model with a "beta factor" adjustment which estimates the volatility of rate sensitive assets and/or liabilities in relation to other market rates. Beta factors are an estimation of the long term, multiple interest rate environment relation between an individual account and market rates in general. For instance, NOW, savings and money market accounts, which are repriceable within 30 days will have considerably lower beta factors than variable rate loans and most investment categories. Taking this into consideration, it is quite possible for a bank with a negative cumulative gap to total asset ratio to have a positive "beta adjusted" gap risk position. As a result of applying the beta factors established by management to the earning assets and interest bearing liabilities in the static gap report via a simulation model, the negative cumulative gap to total assets ratio at one year of (12.8%) was reversed to a positive .4% "beta adjusted" gap position. Management feels that the "beta adjusted" gap risk technique more accurately reflects the Corporation's gap position. Capital - ------- The Federal Reserve Board has guidelines for capital to total assets (leverage) and capital standards for bank holding companies. The Comptroller of the Currency also has similar guidelines for national banks. These guidelines require a minimum level of Tier I capital to total assets of 3 percent. A banking organization operating at or near these levels is expected to have well- diversified risk, excellent asset quality, high liquidity, good earnings and in general be considered a strong banking organization. Organizations not meeting these characteristics are expected to operate well above these minimum capital standards. Thus, for all but the most highly rated organizations, the minimum Tier I leverage ratio is to be 3 percent plus minimum additional cushions of at least 100 to 200 basis points. At the discretion of the regulatory authorities, additional capital may be required. 27 Capital (con't) - ------- The Federal Reserve Board and Comptroller of the Currency also have risk- adjusted capital adequacy guidelines. Capital under these new guidelines is defined as Tier I and Tier II. At Summit Bancshares, Inc. the only components of Tier I and Tier II capital are shareholders' equity and a portion of the allowance for loan losses, respectively. The guidelines also stipulate that four categories of risk weights (0, 20, 50 and 100 percent), primarily based on the relative credit risk of the counterparty, be applied to the different types of balance sheet assets. Risk weights for all off-balance sheet exposures are determined by a two-step process whereby the face value of the off-balance sheet item is converted to a "credit equivalent amount" and that amount is assigned to the appropriate risk category. The regulatory minimum ratio for total qualifying capital is 8.00% of which 4.00% must be Tier I capital. At September 30, 2000, the Corporation's Tier I capital represented 13.39% of risk weighted assets and total qualifying capital (Tier I and Tier II) represented 14.65% of risk weighted assets. Both ratios are well above current regulatory guidelines. Also, as of September 30, 2000, the Corporation and its Subsidiary Banks met the criteria for classification as a "well-capitalized" institution under the rules of the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). The Corporation and Subsidiary Banks' regulatory capital positions as of September 30, 2000, were as follows: To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions ----------------------- ----------------------- ------------------------- Amount Ratio Amount Ratio Amount Ratio --------- -------- --------- -------- --------- --------- CONSOLIDATED: As of September 30, 2000 Total Capital (to Risk Weighted Assets) $ 58,238 14.65% $ 31,805 8.00% Tier I Capital (to Risk Weighted Assets) 53,244 13.39% 15,903 4.00% Tier I Capital (to Average Assets) 53,244 9.03% 17,680 3.00% SUMMIT NATIONAL BANK: As of September 30, 2000 Total Capital (to Risk Weighted Assets) $ 22,664 14.85% $ 12,207 8.00% $ 15,259 10.00% Tier I Capital (to Risk Weighted Assets) 20,742 13.59% 6,103 4.00% 9,155 6.00% Tier I Capital (to Average Assets) 20,742 8.93% 6,967 3.00% 11,612 5.00% SUMMIT COMMUNITY BANK, N.A.: As of September 30, 2000 Total Capital (to Risk Weighted Assets) $ 31,357 13.02% $ 19,264 8.00% $ 24,080 10.00% Tier I Capital (to Risk Weighted Assets) 28,338 11.77% 9,632 4.00% 14,448 6.00% Tier I Capital (to Average Assets) 28,338 8.01% 10,617 3.00% 17,694 5.00% Forward-Looking Statements - -------------------------- The Corporation may from time to time make forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) with respect to earnings per share, credit quality, expected Year 2000 compliance program, corporate objectives and other financial and business matters. The Corporation cautions the reader that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, including economic conditions; actions taken by the Federal Reserve Board; legislative and regulatory actions and reforms; competition; as well as other reasons, all of which change over time. Actual results may differ materially from forward-looking statements. 28 PART II - OTHER INFORMATION Item 1. Legal Proceedings Not applicable Item 2. Change in Securities Not applicable Item 3. Defaults Upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holders Not applicable Item 5. Other Information Not applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 3(i) Restated Articles of Incorporation of the Corporation as of July 21, 1998 (incorporated herein by reference to Exhibit 3(a) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 1998). 3(ii) Amended and Restated Bylaws of the Corporation dated April 21, 1998 (incorporated herein by reference to Exhibit 3(b) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 1998). 4(a) Summit Bancshares, Inc.'s Rights Agreement dated April 17, 1990 (incorporated herein by reference to Exhibit 1 to the Corporation's Current Report on Form 8-K dated April 18, 1990 filed on April 24, 1990). 4(b) Amendment No. 1 to Rights Agreement Effective as of April 16, 2000. 11 Computation of Earnings Per Common Share 27 Financial Data Schedule (b) No Reports on Form 8-K were filed during the period ending September 30, 2000 29 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SUMMIT BANCSHARES, INC. Registrant Date: 11-09-00 By: /s/ Philip E. Norwood ------------- ----------------------------------- Philip E. Norwood, Chairman Date: 11-09-00 By: /s/ Bob G. Scott ------------- ----------------------------------- Bob G. Scott, Executive Vice President and Chief Operating Officer (Chief Accounting Officer) 30 EXHIBIT INDEX Exhibit Page No. - ------- -------- 3(i) Restated Articles of Incorporation of the Corporation as of July 21, 1998 (incorporated herein by reference to Exhibit 3(a) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 1998). 3(ii) Amended and Restated Bylaws of the Corporation dated April 21, 1998 (incorporated herein by reference to Exhibit 3(b) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 1998). 4(a) Summit Bancshares, Inc.'s Rights Agreement dated April 17, 1990 incorporated herein by reference to Exhibit 1 to the Corporation's Current Report on Form 8-K dated April 18, 1990 filed on April 24, 1990). 4(b) Amendment No. 1 to Rights Agreement Effective as of April 16, 2000. 11 Computation of Earnings Per Common Share 27 Financial Data Schedule 31