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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED COMMISSION FILE NUMBER
DECEMBER 31, 1996 0-11108
SUMMIT BANCSHARES, INC.
-----------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2767067
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(State of Incorporation) (I.R.S. Employer Identification No.)
2969 Broadway, Oakland, California 94611
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(Address of principal executive offices and zip code)
(510) 839-8800
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(Registrant's area code and telephone number)
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, No Par Value
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 registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 day period.
Yes __X__ No _______
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. _______
/ /
/_____ /
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average of bid and asked prices
of such stock, as of a specified date within 60 days prior to the date of
filing:
$9,564,819.00 (1)
-----------------
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date:
429,224 shares no par common stock
issued as of February 28, 1997
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Documents Incorporated By Reference
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1
For purposes of this calculation only, shares are deemed to have market value
of $33.00, the average of bid and asked prices on February 28, 1997, and each
of the executive officers, directors and persons holding 5% or more of the
outstanding common stock is deemed to be an affiliate.
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The Registrant's Proxy Notice and Statement
of Annual Meeting of Shareholders to be Held on
April 24, 1997 -- Part III,
Items 10, 11, 12, and 13 of this Report
PART I
The matters addressed in this Report on Form 10K, with the exception of
the historical information presented, may incorporate certain forward-looking
statements involving risks and uncertainties, including the risks discussed
under the heading "Certain Factors That May Affect Future Results" and
elsewhere in this Report.
ITEM 1. BUSINESS
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Summit Bancshares, Inc. (the "Company") is a one-bank holding company
registered under the Bank Holding Company Act of 1956, as amended. It was
incorporated under the laws of the State of California on July 22, 1981. Its
principal office is located at 2969 Broadway, Oakland, California 94611, and
its telephone number is (510) 839-8800.
On March 1, 1985, the Bank opened a banking facility at 112 La Casa Via,
Walnut Creek, California 94596, which moved into new quarters located at 1700 N.
Main, Walnut Creek, California 94598 in September, 1990. The telephone number is
(510) 935-9220. In addition, a full service branch began operation in December,
1985, in the Watergate III Tower at 2000 Powell Street, Emeryville, California
94608. The telephone number is (510) 428-1868.
Summit Bancshares, Inc. owns all of the capital stock of Summit
Bank (the "Bank"), its subsidiary bank, and its activities during 1996
were limited to acting as the Bank's holding company.
The Bank has conducted the business of a commercial bank since July 1, 1982.
The Bank provides commercial credit and other banking services to small and
mid-sized businesses and professionals, including professional firms of
physicians, attorneys, accountants, retailers and service firms, wholesalers and
distributors. Because of the concentration of medical facilities and related
organizations, the growth of real estate opportunities and commercial/industrial
businesses in the Bank's service area, the Bank primarily focuses its marketing
efforts on health service businesses, real estate construction and commercial
industrial loans; however, the Bank also offers a broad spectrum of financial
services to the business community at large. The Bank offers various checking
and savings accounts for both personal and business purposes, time certificates
of deposit, cashier's checks, money orders, travelers checks, safe deposit
boxes, installment collection services, night depository, depository pickup and
courier services, telephone transfers, collection services for notes, Individual
Retirement and Business Planning (formerly Keogh) Accounts. The Bank has not
requested and does not have regulatory approval to offer trust services,
although it may provide such services in the future. The Bank
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assists customers requiring services not offered by the Bank in obtaining such
services from its correspondent banks and other financial services firms.
Although the Bank does not actively solicit consumer business from the general
public, it does offer banking services and facilities compatible with the need
of its consumer customers.
The banking office in Walnut Creek offers virtually the same services listed
above with the exception of safe deposit boxes. The Emeryville Office offers all
the same services as the Oakland Office.
On March 30, 1989, the State Banking Department approved the Bank's
application to establish a new subsidiary, Summit Equities, Inc, whose purpose
is to engage in real property investment activities as authorized by Section
751.3 of the California Financial Code. On November 13, 1992 the FDIC imposed
regulations limiting real estate investment to those authorized by national
banks, thus no real estate transactions are allowed to be transacted under this
subsidiary. The corporation is exploring other avenues or types of approved
investment activities. As of this date, the subsidiary has not conducted any
business.
SERVICE AREA
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The primary geographic market served by the Bank encompasses the "Pill Hill"
area of the City of Oakland and extends to the northern portion of Alameda
County to the Contra Costa County line along the boundary cities of Richmond and
Albany; running south along the bay front (including the city of Alameda) to
Highway 238/580 to the Castro Valley "Y"; east along Highway 580 to encompass
the communities of Livermore and Blackhawk; northerly along Highway 680 to the
Highway 24 corridor to encompass the cities of Walnut Creek and Concord and west
to the starting point in northern Alameda County. This area includes a
substantial number of commercial businesses, a large health services complex and
substantial residential population. In Alameda County, the health services
complex includes two major hospitals, approximately 463 physicians and a wide
variety of health related and other professionals, and small and medium-sized
businesses.
The Walnut Creek office is about 16 miles northeast of the head office in
Oakland and located in the central business district in Walnut Creek. The site
is approximately 1 mile west of John Muir Hospital, which is a 343-bed hospital
employing approximately 1165 people and accommodates a large staff of
approximately 290 visiting physicians. The surrounding service area includes 4
convalescent hospitals, an acute psychiatric care facility, and the 204-bed
Kaiser Foundation Hospital, which employs over 1100 people in downtown Walnut
Creek and is staffed by approximately 89 physicians.
The Emeryville branch is a further extension of the Bank's plan to expand
into areas which will further utilize specialized services directed at
medium-sized businesses and professionals. Located west of Interstate 880 at
2000 Powell Street, it is servicing a commercial sector and an up-scale employee
population.
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The Bank also obtains business clients from areas adjacent to the Pill Hill
area in Oakland, the John Muir and Kaiser areas of Walnut Creek and in
Emeryville, and from other sections of those metropolitan areas. The Bank's
customers are primarily business and professional persons working in the
vicinity of each branch, officers and employees of businesses and professional
firms serviced by the Bank, and residents of areas close to the Bank.
COMPETITION
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The banking business in the Oakland/East Bay metropolitan area is very
competitive with respect to both loans and deposits, and is dominated by
relatively few major banks which have offices operating throughout California.
Among the advantages such banks have are their ability to finance wide-ranging
advertising campaigns, to offer certain services (for example, trust services)
which are not offered directly by the Bank, and to have substantially higher
legal lending limits due to their greater capitalization. There are six other
independent banks in Oakland, in Walnut Creek and none in Emeryville.
In competing for deposits, the Bank is subject to certain limitations not
applicable to non-bank financial institution competitors. Over the past years,
legislative changes have enabled the Bank to compete more effectively for
deposits with savings and loan institutions but still remains at a competitive
disadvantage when competing with money market funds.
To compete with major financial institutions and other independent banks in
its primary service areas, the Bank relies upon the experience of its executive
officers in serving business clients, its specialized services, local
promotional activity, personal contacts by its officers, directors, and
employees of the Company. For customers whose loan demands exceed the Bank's
legal lending limit, the Bank arranges for such loans on a participation basis
with correspondent banks as well as other independent banks.
REGULATION AND SUPERVISION
- --------------------------
The Company. The Company is a bank holding company within the meaning of
-----------
the Bank Holding Company Act of 1956, as amended (the "BHC Act"), and is
registered as such with the Federal Reserve Board (FRB). A bank holding company
is required to file with the FRB annual reports and other information regarding
its business operations and those of its subsidiaries. It is also subject to
examination by the FRB and is required to obtain FRB approval before acquiring,
directly or indirectly, ownership or control of any voting shares of any bank,
if after such acquisition, it would directly or indirectly own or control more
than 5% of the voting stock of that bank. The BHC Act further provides that the
FRB shall not approve any such acquisition that would result in or further the
creation of a monopoly, or the effect of which may be to substantially lessen
competition, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the probable effect in meeting the convenience and needs
of the community to be served.
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Furthermore, under the BHC Act, a bank holding company is, with limited
exceptions, prohibited from (i) acquiring direct or indirect ownership or
control of more than 5% of the voting shares of any company which is not a bank,
or (ii) engaging in any activity other than managing or controlling banks. With
the prior approval of the FRB, however, a bank holding company may own shares of
a company engaged in activities which the FRB has determined to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto.
The FRB has by regulation determined that certain activities are so closely
related to banking as to be a proper incident thereto within the meaning of the
BHC Act. These activities include, but are not limited to: operating an
industrial loan company, industrial bank, Morris Plan Bank, savings association,
mortgage company, finance company, credit card company or factoring company;
performing certain data processing operations; providing investment and
financial advice; operating as a trust company in certain instances, selling
traveler's checks, United States savings bonds and certain money orders;
providing certain courier services; providing management consulting advice to
nonaffiliated depository institutions in some instances; acting as insurance
agent for certain types of credit-related insurance; leasing property or acting
as agent, broker or advisor for leasing property on a "full pay-out basis";
acting as a consumer financial counselor, including tax planning and return
preparation; performing futures and options advisory services, check guarantee
services and discount brokerage activities; operating a collection or credit
bureau; or performing personal property appraisals. The Company has no present
intention to engage in any of such permitted activities at this time.
The FRB also has determined that certain activities are not so closely
related to banking to be a proper incident thereto within the meaning of the BHC
Act. Such activities include: real estate brokerage and syndication; land
development; property management; underwriting of life insurance not related to
credit transactions; and with certain exceptions, securities underwriting and
equity funding. In the future, the FRB may add or delete from the list of
activities permissible for bank holding companies. Under the BHC Act, a bank
holding company and its subsidiaries are prohibited from acquiring any voting
shares of or interest in all or substantially all of the assets of any bank
located outside the state in which the operations of the bank holding company's
banking subsidiaries are principally conducted, unless the acquisition is
specifically authorized by the law of the state in which the bank to be acquired
is located or unless the transaction qualifies under federal law as an
"emergency interstate acquisition" of a closed or failing bank. The California
interstate banking bill is described under "Interstate Banking" (below).
A bank holding company and its subsidiaries are prohibited from certain
tie-in arrangements in connection with any extension of credit, sale or lease of
a property or furnishing of services. For example, with certain exceptions, a
bank may not condition an extension of credit on a promise by its customer to
obtain other services provided by it, its holding company or other subsidiaries,
or on a promise by
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its customer not to obtain other services from a competitor. In addition,
federal law imposes certain restrictions on transactions between the Company and
its subsidiaries, including the Bank. As an affiliate of the Bank, the Company
is subject, with certain exceptions, to provisions of federal law imposing
limitations on, and requiring collateral for, extensions of credit by the Bank
to its affiliates.
Directors of the Company, and the companies with which they are associated,
have had and will continue to have banking transactions with the Bank in the
ordinary course of the Bank's business. It is the firm intention of the Company
that any loans and commitments to loan included in such transactions be made in
accordance with applicable law, on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons of similar creditworthiness, and on terms not
involving more than the normal risk of collectability or presenting other
unfavorable features. At December 31, 1996, loans to directors totalled $.4
million or 3.1% of the Company's shareholders' equity.
THE BANK. The Bank is a member of the FDIC which currently insures the
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deposits of each member bank to a maximum of $100,000 per depositor. For this
protection, the Bank pays a semi-annual assessment and is subject to the rules
and regulations of the FDIC pertaining to deposit insurance and other matters.
The Bank is subject to regulation, supervision and regular examination by
the California State Banking Department (the "Department"). Although the Bank is
a non-member of the Federal Reserve System, it is subject to regulation,
supervision, but not examination by the FRB. The regulations of these agencies
govern most aspects of the Bank's business, including the making of periodic
reports by the Bank and the Bank's activities, branching, mergers and
acquisitions, reserves against deposits and numerous other areas.
Subject to the regulations of the California Superintendent of Banks (the
"Superintendent"), the Bank may invest in capital stock, obligations or other
securities of other corporations, provided such corporations are not insurance
companies, agents or brokers. In addition, the Bank may acquire any or all of
the securities of a company that engages in activities that the Bank may engage
in directly under California law without the prior approval of the FRB.
California state-chartered banks are also specifically authorized to provide
real estate appraisal services, management consulting and advisory services and
electronic data processing services.
The Company's primary source of income (other than interest earned on
Company capital) is the receipt of dividends and management fees from the Bank.
The ability of the Bank to pay management fees and dividends to the Company and
its affiliates is subject to restrictions set forth in the California Financial
Code and, under certain circumstances, is subject to approval of the Department.
The board of directors of a state-chartered bank may declare a dividend out of
so much of net profits as such board deems appropriate, subject to California
law which restricts the amount available for cash dividends to the lesser of
retained earnings or the bank's net income less cash dividends paid for its last
three fiscal years.
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In the event that a bank has no retained earnings or net income for the
prior three fiscal years, cash dividends may be paid out of net income for such
bank's last preceding fiscal year or current fiscal year upon the prior approval
of the Department. Although there are not specific regulations restricting
dividend payments by bank holding companies other than state corporation law,
supervisory concern focuses on the holding company's capital position, its
ability to meet its financial obligations as they come due and the capacity to
act as a source of financial strength to its subsidiary banks.
The FRB and the Superintendent have authority to prohibit a bank from
engaging in business practices which are considered to be unsafe or unsound.
Depending upon the financial condition of the Bank and upon other factors, the
FRB or Superintendent could assert that the payments of dividends or other
payments by the Bank to the Company might be such an unsafe or unsound practice.
Also, if the Bank were to experience either significant loan losses or rapid
growth in loans or deposits, or some other event resulting in a depletion or
deterioration of the Bank's capital account were to occur, the Company might be
compelled by federal banking authorities to invest additional capital in the
Bank necessary to return the capital account to a satisfactory level.
IMPACT OF ECONOMIC CONDITIONS AND MONETARY POLICIES. The earnings and
---------------------------------------------------
growth of the Company are and will be affected by general economic
conditions, both domestic and international, and by the monetary and fiscal
policies of the United States Government and its agencies, particularly the FRB.
One function of the FRB is to regulate the national supply of bank credit in
order to mitigate recessionary and inflationary pressures. Among the instruments
of monetary policy used to implement those objectives are open market
transactions in United States Government securities and changes in the discount
rate on member bank borrowings. The monetary policies of the FRB have had a
significant effect on the operating results of commercial banks in the past and
are expected to continue to do so in the future. However, the effect, if any, of
such policies on the future business and earnings of the Company cannot be
accurately predicted.
ACCOUNTING CHANGES. In May 1993, the FASB issued Statement of Financial
-------------------
Accounting Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a
Loan as amended by SFAS No. 118. This statement is applicable to all creditors
and to all loans, uncollateralized as well as collateralized, except large
groups of smaller-balance homogeneous loans that are collectively evaluated for
impairment and loans that are measured at fair value or at the lower of cost or
fair value. The statement also applies to all loans that are restructured in a
troubled debt restructuring involving a modification of terms. The statement
requires that impaired loans that are within the scope of this statement be
measured based on the present value of expected cash flows discounted at the
loan's effective interest rate, or as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. The Company adopted this statement effective January 1,
1995, and the impact of this statement on the Company's financial position or
results of operation has been immaterial.
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In May 1993, the FASB issued Statement of Financial Accounting Standards
No. 115, Accounting for Certain Investments in Debt and Equity Securities.
This statement requires that investments in debt and equity securities be
classified as "held-to-maturity," "trading securities" or "available
- -for-sale." It requires that investments classified as held-to-maturity be
reported at amortized cost, that investments classified as trading
securities be reported at fair value with unrealized gains and losses
included in earnings and that investments classified as available-for-sale
be reported at fair value with unrealized gains and losses, net of related
tax, if any, reported as a separate component of stockholders' equity. The
Company adopted this statement effective January 1, 1994. This statement
specifically precludes retroactive application to prior years' financial
statements. As the Company generally holds its investments until maturity,
the impact of this accounting statement has been immaterial.
Statement of Financial Accounting Standards No. 123 (SFAS No. 123),
"Accounting for Stock Based Compensation," is effective for transactions entered
into for fiscal years beginning after December 15, 1995, and applies to awards
made in fiscal years beginning after December 15, 1994. This statement defines
a fair-value method of accounting for stock-based compensation. As permitted by
SFAS No. 123, the Company accounts for stock options under APB Opinion No. 25,
under which no compensation cost has been recognized. The Company has made no
awards under its stock option plans subsequent to January 1, 1995. As such,
pro forma net income and earnings per share data as if compensation cost for
these plans had been determined consistent with SFAS No. 123 would not differ
from the reported amounts in the Company's income statement.
LEGISLATION AND PROPOSED CHANGES. From time to time, legislation is enacted
--------------------------------
which has the effect of increasing the cost of doing business, limiting or
expanding permissible activities or affecting the competitive balance between
banks and other financial institutions. Proposals to change the laws and
regulations governing the operations and taxation of banks, bank holding
companies and other financial institutions are frequently made in Congress, in
the California legislature and before various bank regulatory agencies. No
prediction can be made as to the likelihood of any major changes or the impact
such changes might have on the Company. Certain changes of potential
significance to the Company which have been enacted recently or others which are
currently under consideration by Congress or various regulatory or professional
agencies are discussed below.
FINANCIAL INSTITUTIONS REFORM, RECOVERY AND ENFORCEMENT ACT OF 1989. On
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August 9, 1989, President Bush signed into law the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 ("FIRREA"). FIRREA contains
provisions, which among other things: (1) establish two separate financial
industry insurance funds, both administered by the FDIC - the Bank Insurance
Fund and the Savings Association Fund; (2) abolish the Federal Home Loan Bank
Board and establish the Office of Thrift Supervision as an office of the
Treasury Department, with responsibility for examination and supervision of all
savings and loan associations; (3) increase the insurance premiums paid by
FDIC-insured institutions; (4) permit bank holding companies to acquire healthy
savings and loan associations; (5) enhance federal banking agencies' enforcement
authority over the operations of all insured depository institutions and
increase the civil and criminal penalties that may be imposed in connection with
violations of laws and regulations; (6) curtail investments and certain
activities of state-chartered savings and loan associations; and (7) increase
the capital requirements of savings and loan associations. Management of the
Company does not believe that the provisions of FIRREA have had or will have a
material adverse impact on the Company's consolidated financial position or
results of operations.
COMPETITIVE EQUALITY BANKING ACT. The Competitive Equality Banking Act of
---------------------------------
1987 contained provisions which, among other
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things: (1) permanently closed the loophole which formerly allowed for the
creation of "non-bank banks"; (2) limited the restrictions imposed on banks on
the availability of funds deposited by check; and (3) provided explicit leasing
authority for national banks. The enactment of this legislation has not had a
material adverse effect on the Company's consolidated financial condition or
results of operations.
INTERSTATE BANKING. In September, 1986, California adopted an interstate
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banking law. The law allows California banks and bank holding companies to be
acquired by banking organizations in other states on a reciprocal basis (i.e.,
provided the other state's laws permit California banking organizations to
acquire banking organizations in that state on substantially the same terms and
conditions applicable to banking organizations solely within that state). The
law took effect in two stages. The first stage, which became effective July 1,
1987, allowed acquisitions on a reciprocal basis within a region consisting of
all 11 states (Alaska, Arizona, Colorado, Hawaii, Idaho, Nevada, New Mexico,
Oregon, Texas, Utah and Washington) which currently permit acquisitions by
California banking organizations of banks and bank holding companies in such
states. The second stage, which became effective January 1, 1991, allows
interstate acquisitions on a national reciprocal basis. The Company believes
that this legislation will further increase competition as out-of-state
financial institutions enter the California market. Most recently U.S. Bancorp
purchased California Bancshares, Inc., a community-based holding company with
approximately 21 independent banks in the surrounding area in which the Bank
operates. It is anticipated that such a purchase may in fact be beneficial to
the Bank as it may open opportunities to prospects that enjoy dealing with a
community bank. If there is a negative effect on the Bank it might be that this
merger may increase the resources available to the 21 independent banks being
purchased.
CAPITAL ADEQUACY GUIDELINES. The FRB has issued capital adequacy guidelines
----------------------------
establishing a risk-based capital framework consisting of a definition of
capital comprised of a core component (essentially shareholders' equity less
goodwill) ("Tier 1 capital"), a supplementary component ("Tier 2 capital"), a
system for assigning assets & off-balance sheet items to four weighted risk
categories (with higher levels of capital being required for the categories
being perceived as representing greater credit risk ) and a schedule for
achieving a minimum risk-based capital ratio of 7.25% by the end of 1990 (which
at least 3.625% should be in the form of common shareholders' equity) and 8% by
the end of 1992 (which at least 4% should be in the form of common shareholders'
equity). An institution's risk-based capital would be determined by dividing its
qualifying capital by its risk weighted assets.
The guidelines make regulatory capital requirements more sensitive to the
differences in risk profiles among banking institutions, take off-balance sheet
items into account when assessing capital adequacy and minimize disincentives to
holding liquid low-risk assets. In addition, the guidelines may require some
banking institutions to increase the level of their common shareholders' equity.
It is not
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anticipated that the guidelines will have a material adverse effect on the
Company's financial condition or results of operations over the short term. At
the end of 1996, the guidelines provided for a minimum risk-based capital ratio
of 8%, and this provision may limit the Company's ability to increase its assets
or require the Company to raise additional equity to facilitate growth.
On August 2, 1990, the FRB adopted standards for compliance by banking
organizations with risk-based capital guidelines to include a minimum leverage
ratio of 3% of Tier 1 capital to total average assets (the "leverage ratio")
based upon the definition of Tier 1 capital for 1996.
The FRB emphasized that the leverage ratio constitutes a minimum
requirement for well-run banking organizations having diversified risk,
including no undue interest rate risk exposure, excellent asset quality, high
liquidity, good earnings and a favorable composite rating under the applicable
regulatory rating system. Banking organizations experiencing or anticipating
significant growth, as well as those organizations which do not exhibit the
characteristics of a strong well-run banking organization described above, will
be required to maintain minimum capital ranging from 100 to 200 basis points in
excess of the leverage ratio.
The FRB leverage ratio establishes a new limit on the ability of banking
organizations to increase assets and liabilities without increasing capital
proportionately. In management's opinion, the leverage ratio will have no
material effect on its capital needs in the foreseeable future. The Bank's
leverage ratio at December 31, 1996 was 9.6% (See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Capital Adequacy"
under Item #7).
EMPLOYEES
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On December 31, 1996 the Bank employed 40 full time employees and 2 part
time employees for a total equivalent of 41.2 full time employees. At the
present time there are no salaried employees of the Company.
STATISTICAL DATA
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The following statistical data relating to the Company should be read in
conjunction with the Consolidated Financial Statements which are included
elsewhere in this 10-K Annual Report.
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DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
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The following table summarizes the distribution, by amount (in thousands) and
percentage of the daily average assets, liabilities, and shareholders' equity of
Summit Bancshares, Inc. (consolidated) for the year ended December 31, 1996.
Comparative figures for the years ended December 31, 1995 and 1994, are also
provided:
ASSETS 1996 1995 1994
- ------ ---- ---- ----
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
------ ---------- ------ ---------- ------ ----------
Cash and Due
From Banks $ 5,874 6.71% $ 5,494 6.88% $ 6,118 7.92%
Time Deposits with Other
Financial Institutions 10,039 11.47 8,467 10.60 10,487 13.57
Investment
Securities:
Taxable 8,522 9.74 8,346 10.45 3,649 4.72
Non-taxable 0 0 836 1.05 497 .64
Federal Funds
Sold 11,428 13.05 6,573 8.23 3,560 4.61
Loans, Net 47,253 53.99 45,818 57.38 48,975 63.40
Other Assets 4,417 5.04 4,320 5.41 3,970 5.14
------- ------ ------- ------ ------- ------
TOTAL ASSETS $87,533 100.00% $79,854 100.00% $77,256 100.00%
======= ====== ======= ====== ======= ======
LIABILITIES & SHAREHOLDERS' EQUITY
- ----------------------------------
Deposits:
Demand $22,037 25.18% $20,005 25.05% $18,883 24.44%
Interest bearing
transaction accounts 29,751 33.99 28,714 35.96 29,719 38.47
Savings 2,287 2.61 2,701 3.38 3,189 4.13
Time 20,677 23.62 17,072 21.38 15,090 19.53
Other Liabilities 1,130 1.29 573 .72 338 .44
Shareholders' Equity 11,651 13.31 10,789 13.51 10,037 12.99
------- ------ ------- ----- ------- ------
TOTAL LIABILITIES &
SHAREHOLDERS' EQUITY $87,533 100.00% $79,854 100.00% $77,256 100.00%
======= ====== ======= ====== ======= ======
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The following is an analysis of Net Interest Income for 1996. Comparative
figures for 1995 and 1994 are also presented on the following pages. Non-accrual
loans are included in the average balances. Balances are expressed in thousands
of dollars.
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------
INTEREST RATES
AVERAGE INCOME/ EARNED/
BALANCE EXPENSE PAID
------- ------- ----
ASSETS
- ------
Time Deposits with Other
Financial Institutions $10,039 $ 564 5.62 %
Investment Securities (footnote #1) 8,522 511 6.00
Federal Funds Sold 11,428 602 5.27
Loans (Interest and Fees) 47,253 5,699 * 12.07
------ -----
Total Earning Assets $77,242 $7,376 9.55 %
===== =====
Cash and Due from Banks 5,874
Premises and Equipment 872
Other Assets 3,545
------
TOTAL ASSETS $87,533
======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Deposits:
Demand $22,037 $ --- --- %
Savings 2,287 43 1.88
Interest-bearing Transaction 29,751 628 2.11
Time 20,677 1,267 6.13
------ ------
Total Deposits $74,752 $1,938 2.59 %
====== =====
Other Liabilities 1,130
Shareholders' Equity 11,651
------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $87,533
======
AS A PERCENTAGE OF AVERAGE
TOTAL EARNING ASSETS:
Interest and Fee Income $ 7,376
Interest Expense 1,938
------
NET INTEREST INCOME AND MARGIN $ 5,438 6.96 %
====== =====
*Includes loan fees of $457,000
1.) Investment income rate is not calculated on a tax equivalent basis.
-13-
14
For the year ended December 31, 1995
------------------------------------
Interest Rates
Average Income/ Earned/
Balance Expense Paid
------- -------- -------
ASSETS
- ------
Time Deposits with Other
Financial Institutions $ 8,467 $ 493 5.82 %
Investment Securities (footnote #1) 9,182 559 6.09
Federal Funds Sold 6,573 374 5.69
Loans (Interest and Fees) 45,818 5,574 * 12.17
------ -----
Total Earning Assets $70,040 $7,000 9.99 %
===== =====
Cash and Due from Banks 5,494
Premises and Equipment 827
Other Assets 3,493
------
TOTAL ASSETS $79,854
======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Deposits:
Demand $20,005 $ --- --- %
Savings 2,701 53 1.96
Interest-bearing Transaction 28,714 620 2.16
Time 17,072 863 5.06
------ ------
Total Deposits $68,492 $ 1,536 2.24 %
====== =====
Other Liabilities 573
Shareholders' Equity 10,789
------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $79,854
======
AS A PERCENTAGE OF AVERAGE
TOTAL EARNING ASSETS:
Interest and Fee Income $ 7,000
Interest Expense 1,536
------
NET INTEREST INCOME AND MARGIN $ 5,464 7.75 %
====== =====
*Includes loan fees of $483,000
1.) Investment income rate is not calculated on a tax equivalent basis.
-14-
15
For the year ended December 31, 1994
------------------------------------
Interest Rates
Average Income/ Earned/
Balance Expense Paid
------- -------- -------
ASSETS
- ------
Time Deposits with Other
Financial Institutions $10,487 $ 410 3.91 %
Investment Securities (footnote #1) 4,146 212 5.11
Federal Funds Sold 3,560 159 4.47
Loans (Interest and Fees) 48,975 5,044 * 10.12
------ -----
Total Earning Assets $67,168 $5,825 8.67 %
===== =====
Cash and Due from Banks 6,118
Premises and Equipment 923
Other Assets 3,047
------
TOTAL ASSETS $77,256
======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Deposits:
Demand $18,883 $ --- --- %
Savings 3,189 64 2.01
Interest-bearing Transaction 29,719 607 2.04
Time 15,090 477 3.16
------ ------
Total Deposits $66,881 $ 1,148 1.72 %
====== =====
Other Liabilities 338
Shareholders' Equity 10,037
------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $77,256
======
AS A PERCENTAGE OF AVERAGE
TOTAL EARNING ASSETS:
Interest and Fee Income $ 5,825
Interest Expense 1,148
------
NET INTEREST INCOME AND MARGIN $ 4,677 6.95 %
====== =====
*Includes loan fees of $490,000
1.) Investment income rate is not calculated on a tax equivalent basis.
-15-
16
Following is an analysis of changes in Interest Income and Expense (in
thousands of dollars) for 1996 over 1995. A similar comparison for 1995 over
1994 is on the following page. Changes not solely attributed to volume or rates
have been allocated proportionately to volume and rate components.
INCREASE (DECREASE) IN 1996 over 1995
--------------
INTEREST AND FEE INCOME Volume Rate Total
- ----------------------- ------ ---- -----
Time Deposits with Other
Financial Institutions $88 ($17) $71
Investment Securities (40) ( 8) (48)
Federal Funds Sold 257 (29) 228
Loans, Net 172 (47) 125
---- ---- ----
Total Increase in
Interest and Fee Income 477 (101) 376
---- ---- ----
INCREASE IN
INTEREST EXPENSE
- ----------------
Savings Deposits (8) ( 2) (10)
Interest-bearing Transaction 22 (14) 8
Time Deposits 202 202 404
--- ---- -----
Total Increase in
Interest Expense 216 186 402
--- ----- -----
INCREASE IN
NET INTEREST INCOME $261 ($288) ($26)
=== ==== ====
-16-
17
INCREASE (DECREASE) IN 1995 over 1994
--------------
INTEREST AND FEE INCOME Volume Rate Total
- ----------------------- ------ ---- -----
Time Deposits with Other
Financial Institutions $(90) $ 173 $ 83
Investment Securities 300 47 347
Federal Funds Sold 163 52 215
Loans, Net (357) 887 530
--- ----- ----
Total Increase in
Interest and Fee Income 16 1,159 1,175
--- ------ -----
INCREASE IN
INTEREST EXPENSE
- ----------------
Savings Deposits (9) (2) (11)
Interest-bearing Transaction (21) 34 13
Time Deposits 69 317 386
--- ---- -----
Total Increase in
Interest Expense 39 349 388
--- ----- -----
INCREASE IN
NET INTEREST INCOME $ 23 $ 810 $ 787
=== ==== ====
-17-
18
INVESTMENT SECURITIES
- ---------------------
The following table sets forth the book value as of December 31 for the
securities indicated:
1996 1995 1994
---- ---- ----
U. S. Treasury
Securities $7,759,850 6,018,457 693,613
U. S. Agencies 1,000,000 0
TOTAL $8,759,850 $6,018,457 $698,513
========= ========== =======
The amortized cost and estimated fair values of investment in debt securities
for 1996 are as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Treasury
securities $7,759,850 $70,960 $ 0 $7,830,810
U.S. Agencies 1,000,000 0 0 1,000,000
TOTAL $8,759,850 $70,960 $ 0 $8,830,810
========== ======= ======== ==========
The amortized cost and estimated market value of debt securities at
December 31, 1996 by contractual maturity are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
Estimated
Amortized Fair
Cost Value
---- -----
Due in one year or less $3,762,149 $3,809,790
Due after one year through
five years 4,997,701 5,021,020
---------- ----------
TOTAL $8,759,850 $8,830,810
========== ==========
There were no sales of investments in debt securities during 1996.
-18-
19
The following table is a summary of the relative maturities and yields of
Summit Bancshares, Inc. investment securities as of December 31, 1996 and 1995.
Yields on securities have been computed by dividing interest income, adjusted
for amortization of premium and accretion of discount, by book values of the
related securities. Investment yield is not calculated on a tax equivalent
basis.
Maturing Maturing After One
Within One Year Through Five Years Total
--------------- ------- ---------- -----
Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ -----
December 31, 1996
-----------------
U. S. Treasury
Security $3,762,149 5.66% $3,997,701 6.01% $7,759,850 5.84%
U. S. Agencies 0 0 1,000,000 6.00 1,000,000 6.00
---------- ----- --------- ---- --------- -----
3,762,149 5.66% 4,997,701 6.01 $8,759,850 5.86%
TOTAL ========== ==== ======= ==== ========= =====
December 31, 1995
-----------------
U. S. Treasury
Security $5,030,670 6.14% $987,787 6.50% $6,018,457 6.20%
========== ==== ======== ==== ========== =====
-19-
20
LOAN PORTFOLIO
- --------------
COMPOSITION OF LOANS
- --------------------
The following table shows the composition of loans (in thousands of
dollars) of Summit Bancshares, Inc. as of December 31 for each respective year
designated.
1996 1995 1994
---- ---- ----
Commercial and
Financial $35,789 $30,471 $30,355
Real Estate, Including
Construction 10,571 14,625 10,695
Installment 6,119 5,524 6,450
Leases 0 51 132
------ ------ ------
52,478 50,671 47,632
Less Unearned Income 0 (1) (9)
Less Reserve for
Possible Loan Losses (1,070) (1,025) (932)
------ ------ ------
TOTAL $51,408 $49,645 $46,691
====== ====== ======
MATURITY, DISTRIBUTION AND INTEREST RATE
- ----------------------------------------
SENSITIVITY OF LOANS
- --------------------
The following table shows the maturity distribution of loans (in thousands
of dollars) as of December 31, 1996.
Loans with a Maturity of
----- ---- - -------- --
One Year One through Over Five
or Less Five Years Years Total
-- ---- ---- ----- ----- -----
Commercial and
Financial $21,988 $13,801 $ 0 $35,789
Real Estate
Construction 7,070 438 0 7,508
------ ----- --- ------
TOTAL $29,058 $14,239 $ 0 $43,297
====== ====== === ======
All but two loans for $1,384,064 reported above which have maturities of
over one year are at floating interest rates.
-20-
21
COMMITMENTS AND LINES OF CREDIT
- -------------------------------
The Company 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 commitments to extend credit,
and standby letters of credit. Those instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the statement
of financial position. The contract amount of those instruments reflects the
extent of involvement the Company has in particular classes of financial
instruments.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual notional
amount of those instruments. The Company uses the same credit policies in
making commitments and conditional obligations as it does for
on-balance-sheet instruments. At December 31, 1996, financial instruments
whose contract amounts represent credit risk:
Contract Amount
---------------
Financial instruments whose contract
amount represents credit risk:
Commitments to extend credit in the future $13,987,233
Standby letters of credit 1,407,830
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Company evaluates
each customer's credit worthiness on a case-by-case basis. The amount of
collateral obtained if deemed necessary by the Company upon extension of
credit is based on management's credit evaluation of the counter-party.
Collateral held varies but may include accounts receivable, inventory,
property, plant, and equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. Most all
guarantees expire within a 1 year. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers.
A part of the subsidiary Bank's marketing strategy is to offer quality
financial services to the professional and small business communities. The
Company has been especially successful in targeting health care
professionals. This segment has traditionally provided high levels of deposits
and low loan losses. While approximately 10% of the Company's loans are
concentrated with health care professionals, the Bank has had only two
charge-offs totalling $133,206 since it was founded in 1982.
-21-
22
NON-PERFORMING LOANS AND
- ------------------------
SUMMARY OF LOAN LOSS EXPERIENCE
- -------------------------------
(In thousands of dollars)
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
----------------- ----------------- -------------
Non-accrual loans $ 0 $ 39 $ 572
90 days past due but
still accruing 0 367 207
----- ----- -----
Total non-accrual
and 90 days past
due loans 0 406 779
Other real estate owned 1,291 1,303 2,866
----- ----- -----
Total Non-performing
assets $1,291 $1,709 $3,645
===== ====== ======
The subsidiary Bank's policy is to recognize interest income on an accrual
basis unless the full collectibility of principal and interest is uncertain.
Loans that are delinquent 90 days as to principal or interest are placed on a
non-accrual basis, unless they are well secured and in the process of
collection, and any interest earned but uncollected is reversed from income.
Collectibility is determined by considering the borrower's financial condition,
cash flow, quality of management, the existence of collateral or guarantees and
the state of the local economy.
The total OREO amount, $1,291,000, is related to two properties. One of the
properties is vacant land in the Oakland Hills. The second property is two
continguous parcels in the Danville/Diablo Mountain area of Alameda County.
These two parcels are currently on the market for sale.
The allowance for loan losses is maintained at a level considered adequate
to provide for losses that can be reasonably anticipated. The reserve is
increased by provisions and reduced by net charge-offs. The Bank makes credit
reviews of the loan portfolio, considers current economic conditions, loan loss
experience, and other factors in determining the adequacy of the reserve
balance. The allowance for loan losses is based on estimates and ultimate losses
may vary from current estimates. As adjustments become necessary, they are
reported in earnings in the periods in which they become known.
Any loans classified for regulatory purposes as loss, doubtful,
substandard, or special mention that have not been disclosed under Item III of
Industry Guide 3 do not (i) represent or result from trends or uncertainties
which management reasonably expects will materially impact future operating
results, liquidity or capital resources, or (ii) represent material credits
about which management is aware of any information which causes management to
have serious doubts as to the ability of such borrowers to comply with the loan
repayment program.
-22-
23
An analysis of activity in the allowance for loan losses for the years
ended December 31 is as follows:
1996 1995 1994
---- ---- ----
Balance at beginning
of period $1,024,922 $931,878 $728,353
--------- ------- -------
Provision for possible
loan losses 125,000 415,000 670,000
------- ------- -------
Loan charged off
Commercial 16,952 302,640 262,005
Real Estate Construction 2,384 0
Installment 66,152 28,684 255,850
------- ------- -------
Total chargeofffs 83,104 333,708 517,855
------- ------- -------
Recoveries
Commercial 0 8,677 47,500
Real Estate Construction 0 0 0
Installment 3,500 3,075 3,880
------- ------ -------
Total recoveries 3,500 11,752 51,380
------- ------ ------
Net chargeoffs 79,604 321,956 466,475
------- ------- -------
Balance at end of period
$1,070,318 $1,024,922 $931,878
========= ======= =======
Ratio of net charge-
offs to average
loans outstanding .18% .70% .95%
=== === ====
Although it cannot be accurately predicted, it is estimated that in 1996,
loan losses in the Commercial loan category may approximate $250,000 while
losses in the Instalment loan category may approximate $50,000. No losses are
anticipated in the Real Estate Loan category.
Allocations for Loan Loss Reserves for the next two years are as follows:
1997
Commercial Loans $ 732,000
Real Estate Loans 468,000
Installment Loans 75,000
----------
$1,275,000
=========
1998
Commercial Loans $ 832,000
Real Estate Loans 568,000
Installment Loans 75,000
----------
$1,475,000
=========
-23-
24
TIME DEPOSITS IN THE AMOUNT OF $100,000 AND OVER
- ---- -------- -- --- ------ -- -------- --- ----
The following table sets forth by time remaining to maturity, Summit
Bank's issuance of time deposits in the amount of $100,000 or more (in thousands
of dollars) as of December 31 of the respective year designated:
1996 1995 1994
---- ---- ----
Amount Percentage Amount Percentage Amount Percentage
3 months or less $10,621 69.3% $ 8,049 61.5% $ 7,362 71.7%
Over 3 through
6 months 3,499 22.8 3,546 27.1 1,015 9.9
Over 6 through
12 months 1,205 7.9 1,403 10.7 1,891 18.4
Over 12 months 0 0 100 .7 0 0
------ ------ ------ ----- ------ -----
TOTAL $15,325 100.0% $13,098 100.0% $10,268 100.0%
====== ====== ====== ===== ====== =====
RETURN ON EQUITY AND ASSETS
- ---------------------------
The following table shows key financial ratios for the years ending
December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Return on average assets 1.61% 1.65% 1.17%
Return on average shareholders'
equity 12.11% 12.19% 9.04%
Dividend payout ratio 48.70% 48.39% 22.39%
Average shareholders' equity
as a percent of:
Average Assets 13.31% 13.51% 12.99%
Average Deposits 15.59% 15.75% 15.01%
-24-
25
INTEREST RATE SENSITIVITY/INTEREST RATE RISK ANALYSIS
- -------- ---- -------------------- ---- ---- --------
The following table provides an interest rate sensitivity and interest rate
risk analysis for the year ended 1996. The table presents each major category of
interest-earning assets and interest-bearing liabilities.
INTEREST RATE RISK REPORTING SCHEDULE
REPORTING INSTITUTION: SUMMIT BANK REPORTING DATE: 12/31/96
REMAINING TIME BEFORE MATURITY OR INTEREST RATE ADJUSTMENT
($000.00)
OMITTED UP > 3 > 1 > 3 > 5 OVER
TOTAL 3 < 1 < 3 < 5 < 10 10 YRS
I. EARNING ASSETS
--------------
A. INVESTMENTS:
-----------
1. U. S. TREASURIES $ 7,760 $ 973 $ 2,789 $3,998 $0 $0 $0
2. U. S. AGENCIES 1,000 0 0 1,000 0 0 0
3. FED FUNDS 11,980 11,980 0 0 0 0 0
4. PURCHASED CDS 9,607 2,176 5,154 2,277 0 0 0
------- ------- ------ ------ -- -- --
TOTAL INVESTMENTS $30,347 $15,129 $ 7,943 $7,275 $0 $0 $0
B. LOANS:
-----
1. COMMERCIAL LOANS $49,834 $45,584 $ 1,557 $1,333 $757 $603 $0
2. REAL ESTATE LOANS 0 0 0 0 0 0 0
3. INSTALLMENT 16 16 0 0 0 0 0
------- ------- ------- ------ ---- ----- --
TOTAL LOANS $49,850 $45,600 $ 1,557 $1,333 $757 $603 $0
C. TOTAL EARNING ASSETS $80,197 $60,729 $ 9,500 $8,608 $757 $603 $0
----- ------- ------
II. COST OF FUNDS (DEPOSITS)
---- -- ----- ----------
A. CERTIFICATES OF DEPOSITS $21,447 $13,228 $ 7,958 $ 160 $ 75 $26 $0
B. MONEY MARKET ACCOUNTS 22,917 0 11,459 11,458 0 0 0
C. TRANSACTIONS ACCOUNTS 6,371 0 0 3,185 1,593 1,593 0
D. SAVINGS ACCOUNTS 2,279 0 0 1,140 570 2,188 0
------- ------- ------- ------- ----- ----- --
TOTAL COST OF FUNDS $53,014 $13,228 $19,417 $15,943 $2,238 $2,188 $0
III. INTEREST SENSITIVE ASSETS $80,197 $60,729 $ 9,500 $ 8,608 $ 757 $ 603 $0
IV. INTEREST SENSITIVE LIABILITIES $53,014 $13,228 $19,417 $15,943 $2,238 $2,188 $0
------- ------- ------- ------- ------ ------ --
V. GAP $27,183 $47,501 $(9,917) $( 7,335) $(1,481) $(1,585) $0
VI. CUMMULATIVE GAP $27,183 $47,501 $37,584 $30,249 $28,768 $27,183 $27,183
VII. GAP RATIO 1.51 4.59 0.49 0.54 0.34 0.28
VIII.CUMULATIVE RATIO 1.51 4.59 2.15 1.62 1.57 1.51 1.51
IX. GAP AS % OF TOTAL ASSETS 30.26 52.89 (11.04) (8.17) (1.65) (1.77)
X. CUMMULATIVE GAP AS A % OF
TOTAL ASSETS 30.26 52.89 41.85 33.68 32.03 30.26 30.26
-25-
26
ITEM 2. PROPERTIES
When the Bank first entered into its initial lease agreement it signed a
ten-year lease which commenced September 1, 1981 (with options to extend the
lease on the same terms and conditions for two additional five-year periods).
This space housed the permanent Head Offices for the Bank and the Company at
2969 Broadway, Oakland, California 94611 at the intersection of Broadway and
30th Street in the "Pill Hill" area. The premises consisted of approximately
3,800 square feet located in a portion of a single story building on the
southwest corner at the intersection. The Bank spent approximately $388,448 on
leasehold improvements at this location. Improvements consisted of a complete
remodeling of the facility, including a new roof, new facade, new floor,
partitions and structural improvements.
In September, 1987 the Bank entered into an additional ten year lease for
6,010 sq. ft. adjacent to its location in Oakland. The Bank utilizes
approximately 2,900 sq. ft. of this new area. The Bank's cost of leasehold
improvements in this new location was approximately $294,000. Improvements
consisted of a complete remodeling of the facility, including a new facade, new
floor, partitions and structural improvements. The initial lease in the above
paragraph has expired and has been rolled into this new lease. The current
monthly rent for the entire 9,810 sq. ft. is $5,226.00 subject to yearly CPI
adjustments.
Commencing on December 1, 1984, the Bank leased 720 square feet of office
space in a new building at 112 La Casa Via in Walnut Creek, California. This
location housed the Bank's initial branch office. The building was fully
serviced and the base rental was $1,274 per month subject to cost-of-living
adjustments on the anniversary of each rental year. Necessary leasehold
improvements were completed within the landlord's authorized allowance. The term
of this lease expired on November 30, 1989, however, the Bank negotiated a month
to month lease pending its move to new quarters in September, 1990. Monthly rent
was $1,502.83.
In September, 1989, the Bank entered into a new lease for 1,400 sq. ft. of
office space located at the corner of No. Main Street and Civic Drive in
downtown Walnut Creek. This new location is twice the physical size of the old
location and is closer to the financial district of Walnut Creek. The Bank moved
into this new location in September, 1990. The new lease is for a term of 12
years commencing November 1, 1989 and terminates January 14, 2001. The Bank's
cost for leasehold improvement in this new location was approximately $210,000.
Improvements consisted of a complete remodeling of the facility, including
enclosing an existing drive through facility, partitions and structural
improvements. The lease provides for a monthly rent of $4,769.80, fixed for 12
years and beginning January 1, 1991.
The Emeryville Branch began operations in December, 1985 on the ground
floor of the Watergate III Building at 2000 Powell Street. The Bank currently
occupies approximately 2,200 square feet of space at this location, at a base
rent of $2.00 per net rentable square foot ($4,390 per month). The term of this
lease expired August 31, 1992 with two successive options to extend the lease by
one three year option and one
-26-
27
five year option. The Bank renewed the lease at a base rent of $1.95 per net
rentable square foot ($4,329 per month) with two three year options effective
1-1-93 which expired December 31, 1995. The Bank subsequently renewed the lease
at a base rent of $2.05 per net rentabel square foot ($4,651 per month) with two
three year options effective 1-1-96.
In September, 1990 the Company purchased two contiguous parcels totaling
10,000 sq. ft. adjacent to the Bank's Walnut Creek Office for a price of
$544,644. Included on one of the parcels is a single story, 2,500 sq. ft.
concrete block building suitable for a restaurant. The Company entered into a
five year lease on April 1, 1991 with an individual who operates a Japanese
restaurant at this location for a monthly rent of $4,350, triple net commencing
April 1, 1992. The leasee in turn made improvements to the building to bring it
to today's standards. On April 1, 1996, the Bank entered into a three year lease
agreement with the son of the same Japanese restaurant for a monthly rent of
$4,350, triple net ending on March 31, 1999.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company is a party to claims and legal proceedings
arising in the ordinary course of business. Currently, the Company has no
outstanding suits brought against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------- -- ------- -- - ---- -- -------- -------
Neither the Company nor the Bank submitted any matter covered by this
report to a vote of security holders, through the solicitation of proxies or
otherwise, during the fourth quarter of 1996.
EXECUTIVE OFFICERS OF SUMMIT BANCSHARES, INC.
--------- -------- -- ------ ----------- ----
Pursuant to General Instruction G(3), the information required by Item
401(b) and (e) of Regulation S-K concerning executive officers of the Company
and the Bank is presented here rather than in the Company's Proxy Statement for
the Annual Meeting of Shareholders to be held on April 24, 1997.
The following individuals are the executive officers of the Company as of
February 28, 1997:
Name Age Position Since
Shirley W. Nelson 55 Chairman and Chief 1982
Executive Officer
George H. Hollidge 53 Secretary 1981
Kikuo Nakahara 64 Chief Financial 1985
Officer
-27-
28
The following individuals are the executive officers of the Bank as of
February 28, 1997:
Name Age Position Since
Shirley W. Nelson 55 Chairman, and 1982
Chief Executive
Officer
C. Michael Ziemann 52 President and 1996
Chief Operating
Officer
Denise Dodini 44 Senior Vice 1994
President and
Senior Loan
Officer
The business experience of the executive officers follows:
Shirley W. Nelson was President and Chief Executive Officer of the Bank and
-----------------
Holding Company since May, 1983 and was elected in July, 1989 to the position of
Chairman. Prior to this assignment she was the Senior Vice President, Senior
Loan Officer. She is currently a member of the Board of Directors' Audit
Commitee, Asset and Liability Committee, Loan Committee, and Personnel
Committee.
Kikuo Nakahara is Managing Director of American Express Tax and Business
--------------
Services Inc. in Walnut Creek, California. Prior to this position he was a
partner of Greene & Nakahara, an accounting firm in Walnut Creek since 1993, and
which merged with IDS Financial Services Inc. in 1994. From 1978 to 1993 he was
managing Director of Greene, Nakahara and Lew Accountancy Corporation in
Oakland. He was a corporate member of Blue Shield and a speaker at continuing
education courses sponsored by the California Society of Certified Public
Accountants.
George H. Hollidge has been President of Hollidge Transmissions, Inc.,
------------------
Oakland, transmission specialists, since 1980. Prior to 1980, Mr. Hollidge was a
partner in Hollidge Hydramatic, transmission specialists.
C. Michael Ziemann has been President and Chief Operating Officer since
------------------
January 1, 1996. Prior to this position he was Chief Administrative Officer
subsequent to his position as CFO and Cashier to which he was appointed in
April, 1987. Prior to that he was active in the administration of the Bank and
was the manager of the Bank's Walnut Creek Office since April 1985. Prior to
joining the Bank, he held various positions during his 16 years with Bank of
America in operations, branch management, and regional administration where he
was a district administrator.
-28-
29
Denise Dodini has been the Senior Vice President - Senior Loan Officer at
-------------
the Bank since July, 1994. Prior to joining the Bank, Denise had fifteen years
of Banking experience with Bank of America, where she was involved in consumer,
commercial, real estate, and corporate lending. Denise joined the Bank in
October, 1989 as a Vice President, Loan Officer where she assisted clients in
the Oakland Office.
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
------ --- --- ------------ ------ ----- --- -------
SECURITY HOLDER MATTERS
-------- ------ -------
(a) MARKET INFORMATION. The stock of the Company is not listed on any stock
-------------------
exchange but is publicly traded in limited and infrequent transactions in the
"over the counter" market. According to information made available to the
Company by the Market Maker, Marc F.Arnett, Hoefer & Arnett, Investment Bankers,
100 Pine Street, San Francisco, CA., the range of high and low bids for such
common stock for each calendar quarter since January 1994 is as follows:
DIVIDENDS
HIGH LOW DECLARED
---- --- ---------
1996
First Quarter...... $28 1/8 26 1/4 $ ---
Second Quarter..... 29 1/2 28 --- .75
Third Quarter...... 34 1/2 29 1/2 ---
Fourth Quarter..... 32 3/4 32 1/2 .75
-----
$1.50
=====
1995
First Quarter...... $22 3/4 21 1/4 $ ---
Second Quarter..... 21 3/4 21 3/4 .25
Third Quarter...... 25 1/4 22 3/4 ---
Fourth Quarter..... 26 --- 26 --- 1.25
-----
$1.50
=====
As of February 28, 1997, there were 429,224 shares of common stock of the
Company issued.
(b) SHAREHOLDERS. As of February 28, 1997, there were 316 shareholders
-------------
of the common stock. There were no other classes of securities outstanding.
-29-
30
(c) DIVIDENDS. On June 8, 1996 the Company paid a 75 cent per share cash
---------
dividend in addition to a similar 75 cent per share dividend on December 8,
1996. It is the present intention of the Company to issue semi-annual cash
dividends so long as said dividends do not inhibit future development.
Additionally, payment of cash dividends by the Company is dependent upon payment
of dividends by the Bank to the Company. Payment of cash dividends by the Bank
may under certain circumstances require approval of the California
Superintendent of Banks, and as a matter of law, the Bank may only declare cash
dividends from the lesser of its retained earnings or its undistributed net
income from the last three years. less any dividends paid during those three
years. In the event that the Bank does not have retained earnings or net income
for the last three fiscal years, the Bank may declare dividends only with the
prior written consent of the Superintendent.
-30-
31
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial information of Summit Bancshares, Inc. for
the years from the period January 1, 1992 through December 31, 1996 should be
read in conjunction with the consolidated financial statements and the
accompanying notes included elsewhere in this Annual Report.
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996 1995 1994 1993 1992
----------------------------------------------------------------------
Net Income $1,411,871 $1,315,507 $907,603 $846,771 $812,538
Per Common Share $3.08 $2.86 $2.09 $1.97 $1.76
Cash Dividends per Share, declared $1.50 $1.50 $0.49 $0.24 $0.24
AT YEAR END
(In Thousands)
Deposits $80,510 $75,251 $67,862 $70,462 $70,452
Loans (Net) 51,408 49,645 46,691 50,541 52,047
Assets 92,946 86,822 78,601 80,356 79,778
Shareholders' Equity 11,939 11,102 10,494 9,626 8,969
Non-performing Loans to Total Loans 0.00% .82% 1.66% 1.88% 1.29%
Allowance to Non-performing Loans N/A 252% 120% 75% 131%
Allowance to Non-performing Assets .82% 60% 26% 29% 131%
Tier 1 Capital 14.41% 12.19% 13.33% 11.55% 10.87%
Total Tier Capital 15.61% 13.29% 14.44% 12.66% 11.98%
Leverage Ratio 9.63% 9.24% 10.40% 8.95% 9.81%
-31-
32
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The matters addressed in this Annual Report, with the exception of the
historical information presented, may incorporate certain forward-looking
statements involving risks and uncertainties, including the risks discussed
under the heading "Certain Factors That May Affect Future Results" and elsewhere
in this Report.
This section is a review of Summit Bancshares, Inc.'s (the Company) results as
reflected in the Consolidated Financial Statements. It discusses the principal
items of income and expense and the factors affecting the Company's financial
position. This discussion should be read together with the Selected Financial
Data and Consolidated Financial Statements included elsewhere in the Annual
Report.
The Company's wholly owned subsidiary, Summit Bank (the "Bank"), has
conducted the business of a commercial bank since 1982. It provides commercial
credit and various checking and savings account products for small and midsized
businesses and for professionals as well as individual consumers.
SUMMARY OF EARNINGS
The Company's net income for 1996 was $1,412,000 compared to $1,316,000 in 1995
and $908,000 in 1994. The increase in 1996 net income from 1995 is mainly
attributed to decrease in the provision for loan losses due to improved loan
quality. The increase in 1995 net income from 1994 was mainly attrubuted to an
increase in net interest margin. The net income of $1,412,000 for 1996
represents $3.08 per share earnings, compared to $2.86 per share in 1995 and
$2.09 per share in 1994.
NET INTEREST INCOME
The primary source of income for the Company is Net Interest Income or "Gross
Margin" which is the difference between interest earned on loans and investments
and interest paid on deposits and other liabilities. In general, net interest
income is affected by a change in interest rates. As interest rates rise or
fall, so will the Company's net interest income, excluding changes in total
assets. The primary reasons for this is that the Company's investment portfolio
earns income on a fixed interest rate basis while a majority of the lending
portfolio earns income on a floating interest rate basis. In addition, all
investments are held to maturity and 43% of the investment portfolio matures in
one year. Regarding loans, approximately 63% of the loans outstanding mature
within one year, while the longest maturity is 18 years. In a declining interest
rate environment interest income on loans will generally decline faster than the
investment income and vice versa. To offset any decline in interest income due
to a declining interest rate environment, the Company monitors closely its
interest expense on deposits. Of the total time certificates of deposit
outstanding at year end, all but 1% mature within one year while 63% mature
within 90 days. Thus the Company is able to minimize the effects of a declining
interest rate environment by repricing these instruments on a more frequent
basis than if the average maturity were longer than 1 year. Should interest
rates fall slightly 1997 net interest income may further decrease in the short
term, however, that potential decrease would be minimized by an increase in
assets.
-32-
33
Net interest income for 1996 was $5,439,000, a decrease of .5% over the
$5,464,000 posted in 1995, and as compared to $4,677,000 in 1994. The decrease
in 1996 was primarily the result of a decrease in the average prime rate which
decreased from 8.85% in 1995 to 8.25% in 1996. While average earning assets
increased 9.6% from $71,245,000 in 1995 to $78,107,000 in 1996, average total
deposits also increased 9.1% from $68,492,000 in 1995 to $74,752,000 in 1996,
and as compared to $68,022,000 in 1994. $3,123,000 of the 1996 increase was
centered in interest bearing accounts.
The increase in 1995 was primarily the result of an increase in the average
prime rate which increased from 7.14% in 1994 to 8.85% in 1995. In addition,
net interest income improved due to an increase in average earning assets which
increased 5.1% from $67,769,000 in 1994 to $71,245,000 in 1995. Average total
deposits also increased .7% from $68,022,000 in 1994 to $68,492,000 in 1995.
$459,000 of the 1995 increase was centered in interest bearing accounts.
Average loans outstanding increased by 2.7% in 1996 to $48,355,000 as compared
to $47,083,000 in 1995 and $49,583,000 in 1994. Average outstanding investments
increased 19% to $29,989,000 in 1996 as compared to $24,222,000 in 1995 and
$18,186,000 in 1994. The average loan to deposit ratio declined in 1996 to 65.2%
as compared to 67.2% in 1995 and 72.9% in 1994. The yield on average earning
assets was 9.3% in 1996 as compared to 9.8% in 1995 and 8.6% in 1994.
Interest expense increased 26% to $1,938,000 in 1996 from $1,536,000 in 1995
and $1,148,000 in 1994. Average interest-bearing deposits increased 8.5% in
1996 to $52,715,000 as compared to $48,599,000 in 1995 and $48,140,000 in 1994
and were primarily centered in the more expensive time certificate deposit
accounts. Average non-interest bearing deposits increased 10.8% in 1996 to
$22,037,000 as compared to $19,893,000 in 1995 and $18,882,000 in 1994. Overall
cost of funds in 1996 was 2.5% as compared to 3.2% in 1995 and 2.4% in 1994.
NON-INTEREST INCOME AND EXPENSE
Non-interest income, consisting primarily of service charges on deposit
accounts, and other customer fees and charges including rents, was $539,000 in
1996, a decrease from $550,000 in 1995 and $682,000 in 1994. Total service
charge income from deposit accounts decreased by15.5% from $368,000 in 1995 to
$311,000 in 1996 while total income from other charges increased 25.3% from
$182,000 in 1995 to $228,000 in 1996. This compares to 1994 figures of $357,000
in deposit accounts income and $325,000 in income from other charges. The
deposit income decrease in 1996 was primarily related to a decrease in service
charges related to return check charges which was $31,000 less than 1995
receipts and decrease in income from service charges on demand deposit accounts.
The increase in other income charges in 1996 was related to a 102% increase in
wire transfer fees due to volume and charges on early withdrawal penalties.
-33-
34
The deposit income increase in 1995 was primarily related to an increase in
service charges related to return check charges which was $25,000 more than
1994 receipts. The decrease in other income charges in 1995 was related to the
sale of an other real estate owned property for a gain of $192,000 in 1994.
Non-interest expenses increased 1.6% to $3,408,000 in 1996, from $3,355,000 in
1995 and $3,142,000 in 1994. Salary expense increased 5.2% from $1,786,000 in
1995 to $1,878,000 in 1996 and was due to normal staffing needs. In addition,
director fees increased from $76,000 in 1995 to $103,000 in 1996 which is
comparative to fees paid to directors of other banks of a similiar size, and
consulting fees which increased from $78,000 in 1995 to $98,000 in 1996 and was
due to the implementation of a sales culture program for all bank calling
officers. These increases where partially offset by the decrease in FDIC
assessment which decrease from $84,000 in 1995 to $2,000 in 1996 and a decrease
in foreclosure expense related to the carrying value of foreclosed properties.
The increase in 1995 can be attributed to an increase in foreclosure and real
estate owned expense which increased from $84,000 in 1994 to $118,000 in 1995,
and was related to carrying costs on properties. Salary expense increased 6.2%
from $1,681,000 in 1994 to $1,786,000 in 1995 and was due to normal staffing
needs. In addition, data processing expense increased from $56,000 in 1994 to
$90,000 in 1995 primarily due to a enhancement to our in-house computer system.
Occupancy and equipment expense decreased to $453,000 in 1996 from $457,000 in
1995 and $484,000 in 1994. The decrease was primarily related to a reduction in
utilies expense and maintenance.
The Bank's allowance for loan losses as a percent of loans was 2.1% and 2.1% as
of December 31, 1996 and 1995, respectively. The average in the industry for
banks our size is approximately 1.9%. Total gross loans charged off in 1996
were $83,000 compared to $334,000 in 1995 and $518,000 in 1994.
PROVISION FOR INCOME TAXES
The provision for income taxes reflects a combined Federal and California
effective tax rate of 42.2% in 1996, compared to 41.4% in 1995 and 41.3% in
1994 as described in Note 6 to the Financial Statements.
LIQUIDITY AND CAPITAL
Liquidity is defined as the ability to meet present and future obligations
either through the sale or maturity of existing assets or by the acquisition of
funds through liability management. Additionally, the Bank's investment
portfolio is managed to provide liquidity as well as appropriate rates of
return. It is the Company's practice to hold securities until maturity rather
than actively trade its portfolio. As of December 31, 1996 the Company had
$19,169,000 in cash and cash equivalents compared to $16,428,000 as of December
31, 1995, and $9,246,000 as of December 31, 1994. The ratio of net loans to
deposits as of December 31, 1996, was 63.9% compared to 66.0% as of December 31,
1995, and 68.8% as of December 31, 1994.
-34-
35
The Bank maintains a portion of its assets in loans, time deposits with other
financial institutions and investments with short-term maturities. More
specifically, loans, time deposits with other financial institutions and
investments due within one year totaled $56,323,000 at December 31, 1996, as
compared to $52,455,000 at December 31, 1995, and $44,482,000 at December 31,
1994, which is equivalent to 60.6%, 60.4%, and 56.7% of total assets at the
corresponding year ends, respectively. During 1996, the Company repurchased
1,830 shares of its common stock for a total price of $55,288. The Company
plans to continue its repurchase program as an additional avenue for liquidity
for its shareholders as long as it is economically appropriate to do so. The
program has not affected the Company's liquidity or capital positions or its
ability to operate as the Company's capital growth has exceeded its asset
growth. In addition, the Company's subsidiary Bank remains more than well
capitalized under current regulatory requirements.
CREDIT CONCENTRATION
A part of the subsidiary Bank's marketing strategy is to offer quality financial
services to the professional and small business communities. The Company has
been especially successful in targeting health care professionals. This segment
has traditionally provided high levels of deposits and low loan losses. While
approximately 10.4% of the Company's loans are concentrated with health care
professionals, the Bank has had only two charge-offs related to this business
segment totaling $133,206 since it was founded in 1982. Health care reform has
received close scrutiny over the past few years as the Clinton administration
continues to attempt to restructure the method by which health care is provided
to the public. To date it appears that such reform is not likely to occur in the
immediate future. However, over the past few years, the doctors and health care
providers in the Company's communities have been adjusting to the emerging
trends in this industry. This includes higher percentages of patients on
Medicare; closer scrutiny from insurance carriers; and movement to managed care
and "capitation"contracts. Through this process, the Company has not experienced
any noticeable deterioration in credit quality. The Company cannot predict the
ultimate outcome of health care reform. However, the Company closely monitors
the status of reform and considers the potential impact of any reform on its
current customers and its underwriting of loans to healthcare professionals.
NON-PERFORMING ASSETS
The decrease in non-performing assets from December 31, 1995 to December 31,
1996 is due primarily to a decrease in loans 90 days or more past due and still
accruing. Other real estate owned consists of 3 vacant land parcels in the
California counties of Alameda and Contra Costa. All properties are being
actively marketed. Current comparables favor a complete recovery at the time of
sale. At December 31, 1996 no loans were on non-accrual status.
-35-
36
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The primary factor which may affect future results is the fluctuation of
interest rates in the market place more commonly referred to as interest rate
risk. Interest rate risk is the exposure of a bank's current and future earnings
and equity capital arising from adverse movements in interest rates. It results
from the possibility that changes in interest rates may have an adverse effect
on a bank's earnings and its underlying economic value. Changes in interest
rates affect a bank's earnings by changing its net interest income and the level
of other interest-sensitive income and operating expenses. As mentioned
previously, the potential decrease in an declining interest rate environment
would be minimized by an increase in assets. In addition, earnings and growth of
the company are and will be affected by general economic conditions, both
domestic and international, and by monetary and fiscal policies of the United
States Government, particularly the Federal Reserve Bank.
-36-
37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated statement of financial position as of December 31,
1996 and 1995 and the consolidated statements of income, changes in
shareholders' equity and cash flows for the years ended December 31, 1996,
1995, and 1994, together with the report of independent public accountant,
follow:
SUMMIT BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF
FINANCIAL POSITION DECEMBER 31, 1996 AND 1995
ASSETS 1996 1995
- ----------------------------------------------------------------------------------------------
Cash and due from banks $ 7,188,515 $ 6,827,803
Federal funds sold 11,980,000 9,600,000
- ----------------------------------------------------------------------------------------------
Cash and cash equivalents (Note 1) 19,168,515 16,427,803
Time deposits with other financial institutions 9,607,000 11,002,000
Investment securities (fair value of $8,830,810 at
December 31, 1996 and $6,089,762 at
December 31, 1995 - Note 2) held to maturity 8,759,850 6,018,457
Loans, net of allowance for loan losses of
$1,070,318 at December 31, 1996 and
$1,024,922 at December 31, 1995 (Notes 3 and 4) 51,408,038 49,644,756
Other real estate owned (Note 3) 1,291,459 1,302,554
Premises and equipment, net (Note 5) 896,856 871,553
Interest receivable and other assets 1,814,083 1,554,589
- ----------------------------------------------------------------------------------------------
Total Assets $92,945,801 $86,821,712
==============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------
Deposits:
Demand $27,833,067 $27,572,629
Interest-bearing transaction accounts 28,663,828 26,394,225
Savings 2,665,539 2,365,403
Time certificates $100,000 and over 15,324,980 13,098,049
Other time certificates 6,022,170 5,820,608
- ----------------------------------------------------------------------------------------------
Total Deposits 80,509,584 75,250,914
Interest payable and other liabilities 497,074 468,537
- ----------------------------------------------------------------------------------------------
Total Liabilities 81,006,658 75,719,451
==============================================================================================
Commitments and contingent liabilities (Note 11)
Shareholders' Equity (Notes 7, 8, 9 and 10):
Preferred Stock, no par value:
2,000,000 shares authorized, no shares outstanding 0 0
Common Stock, no par value:
3,000,000 shares authorized;
433,209 shares outstanding at December 31, 1996 and
424,259 shares outstanding at December 31, 1995 3,830,343 3,767,258
Retained Earnings 8,108,800 7,335,003
- ----------------------------------------------------------------------------------------------
Total Shareholders' Equity 11,939,143 11,102,261
- ----------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $92,945,801 $86,821,712
==============================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
-37-
38
SUMMIT BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF
INCOME FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
INTEREST INCOME:
Interest and fees on loans $5,698,998 $5,574,272 $5,044,315
Interest on time deposits with other
financial institutions 563,941 493,250 409,858
Interest on U.S. government
treasury securities 511,121 521,808 193,253
Interest on investment securities
exempt from federal income taxes 0 36,722 18,850
Interest on federal funds sold 602,366 374,010 159,175
- --------------------------------------------------------------------------------------------------------------
Total interest income 7,376,426 7,000,062 5,825,451
- --------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on savings deposits 43,182 53,248 63,575
Interest on interest-bearing
transaction accounts 628,004 619,574 607,289
Interest on time deposits 1,266,581 863,034 477,394
- --------------------------------------------------------------------------------------------------------------
Total interest expense 1,937,767 1,535,856 1,148,258
Net interest income 5,438,659 5,464,206 4,677,193
- --------------------------------------------------------------------------------------------------------------
Provision for loan losses (Note 3) 125,000 415,000 670,000
- --------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 5,313,659 5,049,206 4,007,193
- --------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Service charges on deposit accounts 311,227 368,293 356,853
Other customer fees and charges 227,503 181,530 325,417
- --------------------------------------------------------------------------------------------------------------
Total non-interest income 538,730 549,823 682,270
- --------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE:
Salaries and employee benefits 1,878,142 1,786,070 1,681,273
Occupancy expense (Notes 5 and 11) 362,169 360,020 350,450
Equipment expense (Notes 5 and 11) 90,702 97,189 133,569
FDIC assessment 2,000 83,797 151,135
Legal expense 126,788 116,872 123,849
Insurance expense 73,784 80,324 85,101
Foreclosure and REO expense 85,017 117,920 84,101
Other 789,587 712,510 532,978
- --------------------------------------------------------------------------------------------------------------
Total non-interest expense 3,408,189 3,354,702 3,142,456
Income before income taxes 2,444,200 2,244,327 1,547,007
- --------------------------------------------------------------------------------------------------------------
Provision for income taxes (Note 6) 1,032,329 928,820 639,404
- --------------------------------------------------------------------------------------------------------------
Net Income $1,411,871 $1,315,507 $ 907,603
==============================================================================================================
EARNINGS PER SHARE (NOTE 7)
Weighted average shares outstanding 458,268 460,097 434,616
- --------------------------------------------------------------------------------------------------------------
Net Income per share $3.08 $2.86 $2.09
- --------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
-38-
39
SUMMIT BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NUMBER OF SHARES COMMON RETAINED
OUTSTANDING STOCK EARNINGS TOTAL
- ---------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 $414,402 $3,674,959 $5,951,641 $ 9,626,600
- ---------------------------------------------------------------------------------------------------------
Issuance of Cash Dividends,
$.49 per share (Note 10) 0 0 (203,172) (203,172)
Stock Options Exercised (Note 9) 16 800 219,912 0 219,912
Repurchase of Common Stock (3,717) (57,187) 0 (57,187)
Net Income 0 0 907,603 907,603
- ---------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 427,485 3,837,684 6,656,072 10,493,756
- ---------------------------------------------------------------------------------------------------------
Issuance of Cash Dividends,
$1.50 per share (Note 10) 0 0 (636,576) (636,576)
Repurchase of Common Stock (3,226) (70,426) 0 (70,426)
Net Income 0 0 1,315,507 1,315,507
- ---------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 424,259 3,767,258 7,335,003 11,102,261
- ---------------------------------------------------------------------------------------------------------
Issuance of Cash Dividends,
$1.50 per share (Note 10) 0 0 (638,074) (638,074)
Stock Options Exercised (Note 9) 10,780 118,373 0 118,373
Repurchase of Common Stock (1,830) (55,288) 0 (55,288)
Net Income 0 0 1,411,871 1,411,871
- ---------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $433,209 $3,830,343 $8,108,800 $11,939,143
=========================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
-39-
40
SUMMIT BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF
CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 6,964,938 $ 6,502,009 $ 5,146,813
Fees received 1,015,572 1,058,317 1,149,840
Interest paid (1,970,531) (1,375,953) (1,130,943)
Cash paid to suppliers and employees (3,315,929) (3,245,453) (2,934,212)
Income taxes paid (1,351,000) (1,111,654) (625,947)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,343,050 1,827,266 1,605,551
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in time deposits with
other financial institutions 1,395,000 (3,963,000) 8,125,000
Maturity of investment securities 8,537,242 7,607,380 2,846,509
Purchase of investment securities (11,270,730) (3,300,845) (12,472,988)
Net (increase) decrease in loans to customers (2,311,654) (3,068,584) 2,160,530
Recoveries on loans previously charged-off 3,500 11,752 51,380
(Increase) decrease in premises and equipment (166,364) (112,869) 121,687
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (3,813,006) (2,826,166) 832,118
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in demand, interest
bearing transaction, and savings deposits 2,830,177 1,939,493 96,455
Net increase (decrease) in time deposits 2,428,493 5,449,345 (2,699,716)
(Increase) decrease in other assets 526,987 1,498,525 (935,074)
Exercise of stock options 118,373 0 219,912
Repurchase of common stock (55,288) (70,426) (57,187)
Dividends paid (638,074) (636,576) (203,172)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 5,210,668 8,180,361 (3,578,782)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 2,740,712 7,181,461 (1,141,113)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the
beginning of the year 16,427,803 9,246,342 10,387,455
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the year $ 19,168,515 $16,427,803 $ 9,246,342
====================================================================================================================================
RECONCILIATION OF NET INCOME TO NET CAH PROVIDED BY OPERATING ACTIVITIES:
Net Income 1,411,871 1,315,507 907,603
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 141,061 142,154 155,284
Provision for loan losses 125,000 415,000 670,000
(Increase) decrease in interest receivable 45,134 (14,808) (188,857)
Increase (decrease) in unearned loan fees 20,220 25,249 (22,211)
Increase (decrease) in accrued interest payable (32,764) 159,903 17,315
(Increase) decrease in prepaid expenses (20,114) (33,272) 10,233
Increase (decrease) in accounts payable (28,687) 367 42,727
Increase (decrease) in income taxes payable (318,671) (182,834) 13,457
- ------------------------------------------------------------------------------------------------------------------------------------
Total adjustments (68,821) 511,759 697,948
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 1,343,050 $ 1,827,266 $ 1,605,551
====================================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
-40-
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Summit Bancshares, Inc. (the Company)
and its wholly owned subsidiary, Summit Bank (the Bank), a California
state-chartered bank, conform with generally accepted accounting principles and
general practice within the banking industry. The following are descriptions of
the more significant of these policies.
NATURE OF OPERATIONS
The Bank has conducted the business of a commercial bank since July 1, 1982.
The Bank operates 3 branches and provides commercial credit and other banking
services to small and mid-sized businesses and professionals, including
professional firms of physicians, attorneys, accountants, real estate
developers, retailers and service firms, wholesalers and distributors.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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 period.
Actual results could differ from those estimates.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
the Bank. Significant intercompany transactions have been eliminated in
consolidation. Certain prior years' amounts have been reclassified to conform
with present year presentation.
INVESTMENT SECURITIES
All investment securities are classified as held to maturity and are carried at
cost, adjusted for amortization of premium and accretion of discount using a
method that approximates the effective interest method. Gains and losses on
sale or redemption of securities are determined using the specific
identification method.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost, net of accumulated depreciation and
amortization. Depreciation on furniture and equipment is calculated on a
straight-line basis over the estimated useful life of the property, generally
seven years for furniture and three to fifteen years for equipment. Leasehold
improvements are amortized over the life of the related lease or the estimated
life of the improvements, whichever is shorter.
-41-
42
LOANS
Loans are stated at the principal amount outstanding. Interest income is
accrued daily using the simple interest method. Loans are placed on nonaccrual
status when management believes that there is serious doubt as to the
collection of principal or interest, or when they become contractually past-due
90 days or more with respect to principal or interest, except for loans that
are well secured and in the process of collection. When loans are placed on
nonaccrual status, any accrued but uncollected interest is reversed from
current income, and additional income is recorded only as payments are received
and where future collection of principal is probable. Loan origination and
commitment fees, offset by certain direct loan origination costs, are deferred
and amortized as yield adjustments over the contractual lives of the related
loans.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is based upon estimates of potential loan losses
and is maintained at a level considered adequate to provide for losses that can
be reasonably anticipated. The allowance is increased by provisions charged to
expense and reduced by net charge-offs. The Bank considers its past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral, current economic conditions and other factors in
periodic evaluations of the adequacy of the allowance balance. The allowance
for loan losses is based on estimates, and ultimate losses may vary from
current estimates.
OTHER REAL ESTATE OWNED
Other real estate owned is comprised of properties acquired through
foreclosure. These properties are carried at the lower of the recorded loan
balance or their estimated fair market value based on appraisal. When the
recorded loan balance exceeds the fair value of the property, the difference is
charged to the allowance for loan losses at the time of acquisition. Subsequent
declines in value from the recorded amount, if any, and gains or losses upon
disposition are included in noninterest expense or income as appropriate.
Operating expenses related to other real estate owned are charged to
noninterest expense in the period incurred.
-42-
43
INCOME TAXES
Income taxes reported in the statements of income are computed at current tax
rates, including deferred taxes resulting from timing differences between the
recognition of items for tax and financial reporting purposes.
The Company records deferred taxes based on the liability method. The net
deferred tax liability or asset is determined based on the tax effects of the
differences between the book and tax bases of the various balance sheet assets
and liabilities. Under this method, the computation of the net deferred tax
liability or asset gives current recognition to changes in tax laws and rates.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, and federal funds sold. Generally, federal funds
sold are purchased and sold for one-day periods.
-43-
44
2. INVESTMENT SECURITIES
The amortized cost and estimated fair values of investments in debt securities
held-to-maturity as of December 31, 1996 are as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ----------
U.S. Treasury
securities $7,759,850 $ 70,960 $ 0 $7,830,810
U.S. Agencies 1,000,000 0 0 1,000,000
--------- ---------- ---------- ----------
Total Securities $8,759,850 $ 70,960 $ 0 $8,830,810
---------- ---------- ---------- ----------
The amortized cost and estimated fair values of investments in debt securities
held-to-maturity as of December 31, 1995 are as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ----------
U.S. Treasury
securities $6,018,457 $71,305 $ 0 $6,089,762
The amortized cost and estimated fair value of debt securities at December 31,
1996 by contractual maturity are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
Estimated
Amortized Fair
Cost Value
--------- ---------
Due in one year or less $3,762,149 $3,809,790
Due after one year through
five years 4,997,701 5,021,020
---------- ----------
Total $8,759,850 $8,830,810
---------- ----------
There were no sales of investments in debt securities during 1996 or 1995. At
December 31, 1996, securities carried at $994,449 were pledged to secure public
deposits, as required by law.
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45
3. LOANS AND ALLOWANCE FOR LOAN LOSSES
A summary of loans as of December 31, 1996 and 1995 (net of unearned loan fees
of $273,755 and $253,535, respectively), is as follows:
1996 1995
---------- --------------
Commercial loans $35,788,655 $30,471,500
Real estate loans 3,062,950 6,192,518
Real estate construction loans 7,507,790 8,432,480
Installment loans 6,118,961 5,523,598
Lease financing 0 49,582
---------- ----------
52,478,356 50,669,678
Less: Allowance for loan losses (1,070,318) (1,024,922)
---------- ----------
$51,408,038 $49,644,756
---------- ----------
The changes in the allowance for loan losses for the years ended December 31,
1996, 1995 and 1994 are as follows:
1996 1995 1994
---------- -------- --------
Balance, beginning of period $1,024,922 $ 931,878 $728,353
Provision for loan losses 125,000 415,000 670,000
Recoveries 3,500 11,752 51,380
Loans charged-off (83,104) (333,708) (517,855)
---------- ---------- --------
Balance, end of period $1,070,318 $1,024,922 $931,878
---------- ---------- --------
The following table provides information with respect to the subsidiary Bank's
past due loans and components for non-performing assets at the dates indicated.
Non-Performing Assets
---------------------
(000 Omitted)
December 31,
1996 1995 1994
---- ---- ----
Loans 90 days or more past due & still accruing:
Commercial $ 0 $ 367 $ 207
Non-accrual loans:
Commercial 0 39 232
Real Estate 0 0 340
Consumer 0 0 0
----- ----- -----
TOTAL 0 39 572
Other Real Estate Owned 1,291 1,303 2,866
----- ------ -----
TOTAL NON-PERFORMING ASSETS $1,291 $1,709 $3,645
------ ------- ------
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46
The subsidiary Bank's policy is to recognize interest income on an accrual
basis unless the full collectibility of principal and interest is uncertain. As
mentioned previously, loans that are delinquent 90 days as to principal or
interest are placed on a non-accrual basis, unless they are well secured and in
the process of collection, and any interest earned but uncollected is reversed
from income. Collectibility is determined by considering the borrower's
financial condition, cash flow, quality of management, the existence of
collateral or guarantees and the state of the local economy.
The Company adopted SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan,"and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan
Income Recognition and Disclosures," as of January 1, 1995. A loan is impaired
when it is probable that the Company will be unable to collect all amounts due
according to the contractual terms of the loan agreement. Impaired loans are
measured based on the present value of expected future cash flows discounted at
the loan's original effective interest rate. As a practical expedient,
impairment may be measured based on the loan's observable market price or the
fair value of the collateral if the loan is collateral dependent. When the
measure of the impaired loan is less then the recorded investment in the
loan,the impairment is recorded through a valuation allowance.
The Company had previously measured the allowance for credit losses using
methods similar to those prescribed in SFAS No. 114. As a result of adopting
these statements, no additional allowance for loan losses was required as of
January 1, 1995. The recorded investment in impaired loans was not material as
of December 31, 1996 and 1995. Interest payments received on impaired loans are
recoreded as interest income unless collection of the remaining recorded
investment is doubtful at which time payments received are recorded as
reductions of principal. The average recorded investment in impaired loans and
interest recognized on impaired loans were not material for the years ended
December 31, 1996 and 1995.
The Bank grants commercial, construction and installment loans to customers
mainly in the California counties of Alameda and Contra Costa. Although the
Bank has a diversified loan portfolio, a substantial portion of its commercial
loan portfolio is concentrated in loans to customers in or related to the
medical profession. The greater portion of these loans are secured by real
estate located within the two counties. The amount in other real estate owned
is comprised of three vacant land parcels.
-46-
47
4. RELATED PARTY TRANSACTIONS
The Bank has, and expects to have in the future, banking transactions in the
ordinary course of its business with directors, officers, principal
shareholders and their associates. In management's opinion and as required by
federal law, loans to related parties are granted on the same terms,
including interest rates and collateral, as those prevailing at the same time
for comparable transactions with others, and do not involve more than normal
risk of collectibility or present other unfavorable features. As of December
31, 1996 and 1995, loans outstanding to directors, officers, and principal
shareholders and their known associates were $372,087 and $243,355,
respectively. In 1996, advances on such loans were $656,898 and collections
were $406,978. In 1995 advances on such loans were $443,709 and collections
were $319,930.
During 1995, two directors resigned with loans outstanding of $168,686 at
December 31, 1996 and whose balance is not included in the 1996 loan total. In
addition, one newly elected director had loans totalling $47,498 at December
31, 1995 and is not included in the 1995 total but whose activity is included
in the 1996 activity.
5. PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:
Accumulated
Depreciation/ Net Book
Cost Amortization Value
---- ------------ -----
December 31, 1996:
Land and building $ 497,912 $ 102,393 $395,519
Leasehold improvements 1,119,851 809,681 310,170
Furniture and equipment 492,609 301,442 191,167
---------- --------- --------
Total $2,110,372 $1,213,516 $896,856
---------- ---------- --------
December 31, 1995:
Land and building $ 497,912 $ 84,585 $413,327
Leasehold improvements 1,033,200 737,108 296,092
Furniture and equipment 412,896 250,762 162,134
---------- ---------- --------
Total $1,944,008 $1,072,455 $871,553
---------- ---------- --------
Depreciation and amortization included in occupancy and equipment expenses were
$141,061, $142,154 and $155,284 for the years ended December 31, 1996, 1995 and
1994, respectively.
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48
6. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
1996 1995 1994
----------- --------- ----------
Current:
Federal $783,000 $714,000 $562,000
State 287,000 223,000 202,000
--------- -------- --------
Total current 1,070,000 937,000 764,000
Deferred:
Federal (36,000) (37,000) (95,000)
State (2,000) 29,000) (30,000)
--------- -------- --------
Total deferred (38,000) ( 8,000) (125,000)
Total taxes $1,032,000 $929,000 $639,000
The components of the net deferred tax asset of the Company as of December 31,
1996 and 1995 were as follows:
1996 1995
---------- --------
Deferred Tax Assets:
Allowance for loan losses $ 335,000 $351,000
State taxes 78,000 65,000
Depreciation 65,000 54,000
Other 24,000 3,000
Deferred Tax Liabilities:
Accretion and Other (4,000) (13,000)
Total $498,000 $460,000
The provisions for income taxes applicable to operating income differ from the
amount computed by applying the statutory federal tax rate to operating income
before taxes. The reasons for these differences are as follows:
1996 1995 1994
--------------- -------------- --------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
Federal income tax
expense, based on the
statutory federal
income tax rate $ 831,000 34.0% $763,000 34.0% $526,000 34.0%
Municipal income 0 0.0% (13,000) (0.6% (20,000) (1.3%)
State franchise taxes,
net of federal income
tax benefit 188,000 7.7% 166,000 7.4% 111,000 7.2%
Other, net 13,000 .5% 13,000 0.6% 22,000 1.4%
--------- ---- ------- --- -------- -----
Tax Provision $1,032,000 42.2% $929,000 41.4% $639,000 41.3%
-48-
49
7. SHAREHOLDERS' EQUITY AND EARNINGS PER SHARE
The Company has 2,000,000 authorized shares of no par value, serial preferred
stock of which no shares have been issued. Earnings per share amounts have been
computed on the basis of the weighted average number of shares of common stock
and common stock equivalents outstanding during the years, including the effect
of stock options.
8. REGULATORY CAPITAL
------------------
The Company and the Bank are subject to various regulatory capital requirements
administered by federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Company and the
Bank must meet specific capital guidelines that involve quantitative measures of
the Bank's assets, liabilities and certain off-balance-sheet items as calculated
under regulatory accounting practices. The capital amounts and classification
are also subject to qualitative judgments by the regulators about components,
risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1996, that the Company and the Bank meet all capital adequacy requirements to
which they are subject.
As of December 31, 1996, the most recent notification from Federal Deposit
Insurance Corporation categorized the Bank as well-capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well-capitalized, the Bank must maintain minimum total risk-based, Tier 1
risk-based, Tier 1 leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the institution's category.
The consolidated and Bank's actual capital amounts and ratios are also presented
in the table.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
- -------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------------------------------
As of December 31, 1996
Total Capital
(to Risk Weighted Assets)
Consolidated $12,679,000 20.47% >$4,955,000 >8.0% >$6,194,000 >10.0%
- - - -
Bank 9,197,000 15.61% > 4,714,000 >8.0% > 5,893,000 >10.0%
- - - -
Tier 1 Capital
(to Risk Weighted Assets)
Consolidated 11,939,000 19.28% >2,478,000 >4.0% >3,716,000 >6.0%
- - - -
Bank 8,494,000 14.41% >2,357,000 >4.0% >3,536,000 >6.0%
Tier 1 Capital - - - -
(to Average Assets)
Consolidated 11,939,000 13.14% >3,634,000 >4.0% >4,542,000 >5.0%
- - - -
Bank 8,494,000 9.63% >3,528,000 >4.0% >4,410,000 >5.0%
- - - -
As of December 31, 1995
Total Capital
(to Risk Weighted Assets)
Consolidated $11,817,000 18.12% >$5,218,000 >8.0% >$6,522,000 >10.0%
- - - -
Bank 8,323,000 13.29% >5,010,000 >8.0% >6,262,000 >10.0%
Tier 1 Capital - - - -
(to Risk Weighted Assets)
Consolidated 11,102,000 17.02% >2,609,000 >4.0% >3,914,000 >6.0%
- - - -
Bank 7,636,000 12.19% >2,506,000 >4.0% >3,758,000 >6.0%
Tier 1 Capital - - - -
(to Average Assets)
Consolidated 11,102,000 13.24% >3,355,000 >4.0% >4,192,000 >5.0%
- - - -
Bank 7,636,000 9.24% >3,306,000 >4.0% >4,132,000 >5.0%
- - - -
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50
9. STOCK OPTION PLAN
-----------------
The Company adopted an incentive stock option plan in 1982 and reserved 40,000
shares of the Company's common stock for issuance under this plan. In 1986, the
Directors and shareholders approved increasing the number of shares in this plan
to 90,000. The additional shares were registered in accordance with federal and
state securities laws in 1987. In 1987, the Company issued a 10% stock dividend
which increased the number of shares in this plan to 99,000. Options may be
granted at a price not less than the fair market value of the stock at the date
of grant, become exercisable in cumulative 10% annual installments commencing
one year after the date of grant and expire 10 years from the date of grant.
In 1992, the Shareholders approved the 1992 Employee and Consultant Stock Option
Plan (the "1992 Plan") which was designed to replace the 1982 Incentive Stock
Option Plan that expired on February 28, 1992, after which no new unallocated
stock options may be granted. The 1992 Plan was designed to carry forward the
remaining 82,995 options issued but not exercised under the 1982 Incentive Plan
at the then current market price. No new additional shares of the Company have
been reserved for issuance under the 1992 Plan.
In addition to the above plan, Shareholders approved, in 1989, the 1989 Non-
Qualified Stock Option Plan for Directors, including Advisory Board members,
and reserved 35,000 shares of the Company's common stock for issuance under this
plan. The plan was established to give appropriate recognition to this group of
individuals for their continuing responsibility for the Company's growth and
profitability.
Statement of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting
for Stock Based Compensation," is effective for transactions entered into for
fiscal years beginning after December 15, 1995, and applies to awards made in
fiscal years beginning after December 15, 1994. This statement defines a
fair-value method of accounting for stock-based compensation. As permitted by
SFAS No. 123, the Company accounts for stock options under APB Opinion No. 25,
under which no compensation cost has been recognized. The Company has made no
awards under its stock option plans subsequent to January 1, 1995. As such, pro
forma net income and earnings per share data as if compensation cost for these
plans had been determined consistent with SFAS No. 123 would not differ from the
reported amounts in the Company's income statement.
The following table summarizes the stock option activity under the 1982
Incentive Stock Option Plan for the years ended December 31, 1996, 1995, and
1994.
Number of Shares Weighted Average
Outstanding Exercise Price
----------- --------------
Balance, December 31, 1993 76,795 $ 11.55
Granted -0- -0-
Exercised (16,800) 13.13
Expired -0- -0-
Forfeited (2,900) 11.49
---------
Balance, December 31, 1994 57,095 $11.09
Granted -0- -0-
Exercised -0- -0-
Expired -0- -0-
Forfeited (500) 13.00
---------
Balance, December 31, 1995 56,595 $11.07
Granted -0- -0-
Exercised (10,680) 10.92
Expired -0- -0-
Forfeited (1,170) 13.00
---------
Balance, December 31, 1996 44,745 $11.06
-50-
51
As of December 31, 1996, 1995, and 1994, 29,429, 33,623, and 28,384 of the
options, respectively, were exercisable. The options outstanding at
December 31, 1996, have exercise prices between $10.00 and $13.50 with a
weighted average exercise price of $11.14 and a weighted average remaining
contractual life of 4.2 years.
The following table summarizes the stock option activity under the 1992 Employee
and Consultant Stock Option Plan during the years ended December 31, 1996, 1995,
and 1994.
Number of Shares Weighted Average
Outstanding Exercise Price
----------- --------------
Balance, December 31, 1993 -0- $ -0-
Granted 9,100 17.75
Exercised -0- -0-
Expired -0- -0-
Forfeited -0- -0-
--------
Balance, December 31, 1994 9,100 $17.75
Granted -0- -0-
Exercised -0- -0-
Expired -0- -0-
Forfeited (500) 17.75
--------
Balance, December 31, 1995 8,600 $17.75
Granted -0- -0-
Exercised (100) 17.75
Expired -0- -0-
Forfeited (400) 17.75
--------
Balance, December 31, 1996 8,100 $17.75
As of December 31, 1996, 1995, and 1994, 1,620, 860, and 0 of the options,
respectively, were exercisable. All of the options outstanding at December 31,
1996, have an exercise price of $17.75 and a weighted average remaining
contractual life of 7.6 years.
There have been no grants, exercises, expirations, or forfeitures during the
years ended December 31, 1996, 1995, and 1994 under the 1989 Non-Qualified
Stock Option Plan. As of December 31, 1996, 1995, and 1994, no options were
outstanding under this Plan.
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52
10. RESTRICTIONS
The Bank is regulated by the Federal Deposit Insurance Corporation, whose
regulations do not specifically limit payment of dividends, and the California
State Banking Department. California banking laws limit dividends to the lesser
of retained earnings or net income less dividends paid for the last three
years. Under these restrictions, at December 31, 1996, the Bank could pay
dividends to the Company of up to approximately $1,266,053 without prior
regulatory approval.
11. COMMITTMENTS AND CONTINGENT LIABILITIES
The Company is obligated for rental payments under certain operating lease and
contract agreements. Total rental expense for all leases included in occupancy
and equipment expenses was $208,665, $208,215, and $182,974 for the years ended
December 31, 1996, 1995 and 1994.
At December 31, 1996, the approximate future minimum payments for noncancelable
leases with initial or remaining terms in excess of one year were as follows:
1997 $158,151
1998 113,055
1999 57,238
2000 57,238
2001 4,770
The Company is subject to various pending and threatened legal actions which
arise out of the normal course of business. In the opinion of management, the
disposition of claims currently pending will not have a material adverse effect
on the Company's financial position.
12. PENSION PLAN
The Company provides pension benefits for all its eligible employees through a
401(k) Profit Sharing Program which was adopted in 1984. Under the terms of the
plan, eligible employees are allowed to contribute, under the 401(k) portion of
the plan, up to 15% of their salaries. The Company in turn will match 25% of
the employee's contribution up to a maximum of $500 annually. Under this part
of the plan, $7,018 was contributed in 1996, $4,425 in 1995 and $3,608 in 1994.
In addition, the Company may contribute up to 15% of eligible employees' annual
compensation to the profit sharing portion of this plan. Such contributions
were $78,398 in 1996, $92,156 in 1995, and $56,650 in 1994. Employees' interest
in the contributions made by the Company on their behalf become 100% vested in
accordance with the seven year program. Any forfeited amounts are redistributed
among the remaining participants in the plan.
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53
13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company 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 commitments to extend credit, and standby
letters of credit. These instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the statement of financial
position. The contract amount of those instruments reflects the extent of
involvement the Company has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount of
those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments. At December 31, 1996, financial instruments whose contract amounts
represent credit risk:
Contract Amount
-------- ------
Commitments to extend credit in the future $13,987,233
Standby letters of credit 1,407,830
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
credit worthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the Company upon extension of credit is based on
management's credit evaluation of the counter-party. Collateral held varies but
may include accounts receivable, inventory, property, plant, and equipment, and
income-producing commercial properties. Standby letters of credit are
conditional commitments issued by the Company to guarantee the performance of a
customer to a third party. Most all guarantees expire within one year. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers.
Approximately 10.4% of the Company's loans are concentrated with health care
professionals.
-53-
54
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 (SFAS No.107), "Disclosures
about Fair Value of Financial Instruments," requires the Bank to disclose the
fair value of financial instruments, both assets and liabilities recognized and
not recognized in the balance sheet, for which it is practical to estimate fair
value. Following is a summary of the estimated fair value for each class of
financial instrument as of December 31, 1996 and the methods and assumptions
used to evaluate them:
Carrying Fair
Value Value
-------- -----
Cash and due from banks $ 7,188,515 $ 7,188,515
Federal funds sold 11,980,000 11,980,000
Investment securities 8,759,850 8,830,810
Due from bank - time 9,607,000 9,617,711
Loans 52,478,356 52,795,735
Deposits
Demand 27,833,067 27,833,067
Interest - bearing transaction accts 28,663,828 28,663,828
Savings 2,665,539 2,665,539
Time certificates 21,347,150 21,460,722
Cash and due from banks have a relatively short period of time between their
origination and their expected realization and are valued at their carrying
amounts. The fair value of investment securities and due from banks - time were
estimated using quoted market prices or dealer quotes. The allowance for loan
losses and overdrafts are valued at the carrying amount. All other loans are
valued by loan type. Loans are spread monthly by maturity and repricing date.
To determine the fair value the interest rate used to discount the cash flows
is the current market rate for a like class of loans. Loan fees were not taken
into consideration. The fair value of noninterest-bearing, interest-bearing
transaction accounts and savings deposits is the amount payable on demand as of
December 31, 1996. The fair value of fixed-maturity certificates of deposits is
estimated using the rates currently offered for deposits of similar remaining
maturities.
The Bank has off balance sheet commitments comprising of letters of credit and
loan commitments with a contract amount of $1,407,830, and $13,987,233,
respectively. The fair value of these off balance sheet commitments is not
material.
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55
15. SUMMIT BANCSHARES, INC. (PARENT COMPANY ONLY)
- ----------------------------------------------------------------------------------------------------------------
The following are the statements of financial position as of December 31, 1996 and 1995 and the
related statements of income and cash flows for the years ended December 31, 1996, 1995, and 1994
for Summit Bancshares, Inc. (parent company only):
STATEMENTS OF FINANCIAL POSITION 1996 1995
- ----------------------------------------------------------------------------------------------------------------
ASSETS:
Cash $227,230 $21,339
Short term investments 100,000 1,100,000
Loan participation with subsidiary 2,575,408 1,844,771
Land and building 395,519 413,327
Investment in subsudiary 8,494,384 7,637,180
Other assets 169,425 128,659
- ----------------------------------------------------------------------------------------------------------------
Total Assets $11,961,966 $11,145,276
- ----------------------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------------------------------------
Accounts payable 8,605 4,350
Income taxes payable 14,218 38,665
- ----------------------------------------------------------------------------------------------------------------
Total Liabilities 22,823 43,015
- ----------------------------------------------------------------------------------------------------------------
Shareholders' Equity:
Common Stock 3,830,34 3,767,258
Retained Earnings 8,108,800 7,335,000
- ----------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 11,939,143 11,102,261
- ----------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $11,961,966 $11,145,276
- ----------------------------------------------------------------------------------------------------------------
STATEMENTS OF INCOME (YEAR ENDED DECEMBER 31) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
INCOME:
Interest on short-term investments and loan $249,103 $97,810 $92,777
Rental and other income 58,242 41,760 42,055
- ----------------------------------------------------------------------------------------------------------------
Total income 307,345 139,570 134,832
- ----------------------------------------------------------------------------------------------------------------
EXPENSE:
Miscellaneous expense 42,671 45,000 34,317
- ----------------------------------------------------------------------------------------------------------------
Total expense 42,671 45,000 34,317
- ----------------------------------------------------------------------------------------------------------------
Income before income tax and equity in
earnings of subsidiary 264,674 94,570 100,515
Provision for income taxes 109,829 39,020 41,804
Income before equity in
earnings of subsidiary 154,845 55,550 58,711
Equity in earnings of subsidiary 1,257,026 1,259,957 848,892
- ----------------------------------------------------------------------------------------------------------------
Net Income $1,411,871 $1,315,507 $907,603
================================================================================================================
-55-
56
SUMMIT BANCSHARES, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $249,103 $85,249 $92,777
Rental income 52,200 52,200 52,200
Other income 8,652 12,561 295
Cash paid to suppliers (20,784) (27,192) (16,509)
Property taxes paid 0 0 (4,060)
Property tax refund 0 4,060 0
Income taxes paid (134,276) (23,774) (37,789)
Income tax refund 0 0 53
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 154,895 103,104 86,967
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in short term investments 1,000,000 295,000 (221,000)
Net (increase) decrease in loans (730,461) (1,491,482) 430,295
(Increase) decrease in land and building 0 0 (18,800)
Dividend received from subsidiary 400,000 1,700,000 0
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 669,539 503,518 190,495
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock options exercised 118,373 0 219,912
(Increase) decrease in other assets (43,554) 65,000 (191,049)
Purchase of common stock (55,288) (70,426) (57,186)
Dividends paid (638,074) (636,576) (203,173)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (618,543) (642,002) (231,496)
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 205,891 (35,380) 45,966
Cash at the beginning of the year 21,339 56,719 10,753
- ----------------------------------------------------------------------------------------------------------------
Cash at the end of the year $ 227,230 $ 21,339 $ 56,719
- ----------------------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net Income $ 1,411,871 $ 1,315,507 $907,603
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 17,808 17,808 17,808
Non-cash earnings from subsidiary (1,257,026) (1,259,957) (848,892)
(Increase) decrease in accounts receivable 2,434 14,500 6,380
Increase (decrease) in accounts payable 4,255 0 0
Increase (decrease) in income tax payable (24,447) 15,246 4,068
- ----------------------------------------------------------------------------------------------------------------
Total adjustments (1,256,976) (1,212,403) (820,636)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 154,895 $ 103,104 $ 86,967
================================================================================================================
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57
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Summit Bancshares, Inc.:
We have audited the accompanying consolidated statements of financial
position of SUMMIT BANCSHARES, INC. (a California corporation) AND SUBSIDIARY
as of December 31, 1996 and 1995, and the related consolidated statements of
income, changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Summit Bancshares, Inc. and
subsidiary as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN & COMPANY
- -------------------------------
San Francisco, California
January 10, 1997
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58
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
------------- -- ---------- --- --------- ----------
Since the date of organization of the Company, there have been
no disagreements on accounting and financial disclosures or changes in
accountants.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------- --- --------- -------- -- --- ----------
The information required by paragraphs (a), (c) (d), (f) and (g) of this
item is presented in the Company's Proxy Statement issued in connection with the
Annual Meeting of Shareholders to be held on April 24, 1997 under "Election of
Directors," which is incorporated in this Report by reference thereto and will
be filed within 120 days after the end of the Company's fiscal year. The
information concerning executive officers requested by paragraphs (b) and (e) is
set forth under Part I in a separate Item captioned Executive Officers of Summit
Bancshares, Inc.
ITEM 11. EXECUTIVE COMPENSATION
--------- ------------
The information required by this item in presented in the Company's Proxy
Statement issued in connection with the Annual Meeting of Shareholders to be
held on April 24, 1997. under "Executive Compensation," which is incorporated in
this Report by reference thereto and will be filed within 120 days after the end
of the Company's fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
-------- --------- -- ------- ---------- ------ ---
MANAGEMENT
----------
The information required by this item is presented in the Company's Proxy
Statement issued in connection with the Annual Meeting of Shareholders to be
held on April 24, 1997, under "Principal Security Holders" and "Security
Ownership of Management," which is incorporated in this Report by reference
thereto and will be filed within 120 days after the end of the Company's fiscal
year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
------- ------------- --- ------- ------------
The information required by this item is presented in the Company's Proxy
Statement issued in connection with the Annual Meeting of Shareholders to be
held April 24, 1997, under "Certain Relationships and Related Transactions,"
which is incorporated in this Report by reference thereto and will be filed
within 120 days after the end of the Company's fiscal year.
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59
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. CONSOLIDATED FINANCIAL STATEMENTS.
------------ --------- -----------
The following Financial Statements are included in this Report in Item 8.
Consolidated Statement of Financial Position - December 31, 1996 and
1995
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994
Statements of Changes in Shareholders' Equity (Consolidated
and Parent Company Only) for the years ended December 31,
1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994.
Notes to Consolidated Financial Statements
Auditors' Report
(b) 2. FINANCIAL STATEMENT SCHEDULES.
--------- --------- ----------
Not Applicable
In accordance with the rules of Regulation S-X, the required schedules are
not submitted because they are not applicable to or required of the
Company.
(c) 3. INDEX TO EXHIBITS.
----- -- ---------
The following exhibits are incorporated by reference pursuant to Item
601 of Regulation S-K:
Sequentially
Numbered
Exhibit Number Exhibit Page
- -------------- ------- ----
3.1 Articles of Incorporation Footnote #1
of Summit Bancshares, Inc.
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60
3.2 Bylaws of Summit
Bancshares, Inc. Footnote #2
Sequentially
Numbered
Exhibit Number Exhibit Page
- -------------- ------- ----
4.1 Specimen Stock Certificate Footnote #3
10.1 Lease - Broadway Property Footnote #4
10.2 Summit Bancshares, Inc.
Incentive Stock Option Plan Footnote #5
10.3 Organizational Stock
Agreement Footnote #6
10.4 Employment Agreement/
Shirley W. Nelson Footnote #7
10.5 Agreement for Sale
of Stock Footnote #8
10.6 Lease-Walnut Creek
Property Footnote #9
10.7 Lease-Emeryville
Property Footnote #10
10.8 Lease-Oakland Office
Expansion Footnote #11
10.9 Lease-Walnut Creek
New Premises Footnote #12
10.10 Lease-Emeryville
Renegotiated Footnote #13
10.11 Summit Bancshares, Inc.
1989 Non-Qualified Stock Option
Plan for Directors Footnote #14
10.12 Stock Option Agreement Form
Summit Bancshares, Inc.
Incentive Stock Option Plan Footnote #15
10.13 Stock Option Agreement Form
1989 Non-Qualified Stock Option
Plan for Directors Footnote #16
10.14 Amendment to By-Laws of
Summit Bancshares, Inc. Footnote #17
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61
Sequentially
Numbered
Exhibit Number Exhibit Page
- -------------- ------- ----
10.15 Lease - Walnut Creek
Summit Banchsares, Inc. owned
Property . Footnote #18
10.16 Lease - Emeryville
Renegotiated Footnote #19
11 Statement Re: Computation
of Per Share Earnings
22 Wholly Owned Subsidiary of
Summit Bank - Summit Equities,
Inc.
25.1 Power of Attorney - see
Signature Page 63
27 Financial Data Schedule
- ----------------
1. Incorporated by reference to Exhibit 2.1 of Registrant's Exhibits to
Form S-18 Registration Statement, as filed with the Securities and
Exchange Commission on December 21, 1981.
2. Incorporated by reference to Exhibit 2.2 of Registrant's Exhibits to
Form S-18 Registration Statement, as filed with the Securities and
Exchange Commission on December 21, 1981.
3. Incorporated by reference to Exhibit 3.1 of Registrant's Exhibits to
Form S-18 Registration Statement, as filed with the Securities and
Exchange Commission on December 21, 1981.
4. Incorporated by Reference to Exhibit 9.1 of Registrant's Exhibits to
Form S-18 Registration Statement, as filed with the Securities and
Exchange Commission on December 21, 1981.
5. Incorporated by reference to Exhibit 9.2 of Registrant's Exhibits
to Post-Effective Amendment No. 1 to Form S-18 Registration
Statement, as filed with the Securities and Exchange Commission on
March 11, 1982.
6. Incorporated by reference to Exhibit 9.4 of Registrant's Exhibits
to Post-Effective Amendment No. 1 to Form S-18 Registration
Statement, as filed with the Securities and Exchange Commission on
March 11, 1982.
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62
7. Incorporated by reference to Exhibit 10.4 of Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1983.
8. Incorporated by reference to Exhibit 10.6 of Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1984.
9. Incorporated by reference to Exhibit 10.9 of Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1985.
10. Incorporated by reference to Exhibit 10.10 of Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1985.
11. Incorporated by reference to Exhibit 10.6 of Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1987.
12. Incorporated by reference to Exhibit 10.9 of Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1989.
13. Incorporated by reference to Exhibit 10.10 of Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1989.
14. Incorporated by reference to Exhibit 10.11 of Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1989.
15. Incorporated by reference to Exhibit 10.12 of Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1989.
16. Incorporated by reference to Exhibit 10.13 of Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1989.
17. Incorporated by reference to Exhibit 2.2 of Registrant's Exhibits to
Form S-18 Registration Statement, as filed with the Securities and
Exchange Commission on December 21, 1981.
18. Incorporated by reference to Exhibit 10.15 of Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993.
19. Incorporated by reference to Exhibit 10.16 of Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993.
(b) Reports on Form 8-K
-------------------
None submitted for the year.
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63
SIGNATURES
Pursuant to the requirements of Section 13 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.
/s/ Shirley W. Nelson
Date: March 28, 1997 By: -------------------------
Shirley W. Nelson, Chief
Chairman and CEO
(Principle Executive Officer)
/s/ Kikuo Nakahara
Date: March 28, 1997 By: --------------------------
Kikuo Nakahara
(Chief Financial Officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints SHIRLEY W. NELSON and KIKUO NAKAHARA, and each or
any one of them, as his or her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments
to this Report, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agents or any of them, or their substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Report has been executed in Oakland, California, by the following persons
on behalf of the Registrant on the capacities and on the dates indicated.
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64
Signature Title Date
/s/SHIRLEY W. NELSON Chairman of the Board, March 27, 1997
- -------------------------
SHIRLEY W. NELSON Chief Executive Officer
and President March 27, 1997
/s/KIKUO NAKAHARA Chief Financial March 27, 1997
- -------------------------
KIKUO NAKAHARA Officer and Director
/s/GEORGE H. HOLLDIGE Secretary and Director March 27, 1997
- -------------------------
GEORGE H. HOLLIDGE
/s/JERRALD R. GOLDMAN, M.D. Director March 27, 1997
- -------------------------
JERRALD R. GOLDMAN
/s/THOMAS H. STATE Director March 27, 1997
- -------------------------
THOMAS H. STATE
/s/BARBARA J. WILLIAMS Director March 27, 1997
- -------------------------
BARBARA J. WILLIAMS
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