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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 the Fiscal Year Ended December 31, 1995 Commission File Number 0-11986
SUMMIT BANCSHARES, INC.
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(Exact name of registrant as specified in its charter)
TEXAS 75-1694807
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(State of Incorporation) (I.R.S. Employer
Identification No.)
1300 Summit Avenue, Fort Worth, Texas 76102
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(Address of principal executive offices)
(817) 336-6817
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None Not Applicable
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(Title of Class) (Name of each exchange
on which registered)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.25 par value
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(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was authorized to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. 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 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. [ ]
The aggregate market value of the shares of voting stock held by non-
affiliates of the registrant at March 1, 1996 was approximately $40,243,840.
The number of shares of common stock, $1.25 par value, outstanding at March 1,
1996 was 3,156,386 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement dated March 15, 1996 filed pursuant
to Regulation 14A of the Securities Exchange Act of 1934 for the 1996 Annual
Meeting of Shareholders of Summit Bancshares, Inc., are incorporated by
reference into Part III.
PART I
ITEM 1. BUSINESS.
THE CORPORATION. Summit Bancshares, Inc. (the "Corporation"), a corporation
incorporated under the laws of the state of Texas in 1979, is a bank holding
company registered under the Bank Holding Company Act of 1956, as amended (the
"BHC Act"). The Corporation maintains its principal office at 1300 Summit
Avenue, Suite 604, Fort Worth, Texas 76102. The Corporation's principal
activity is the ownership and management of its subsidiaries. At December 31,
1995 the Corporation owned all of the issued and outstanding shares of capital
stock of three national banking associations, Summit National Bank, Alta Mesa
National Bank and Camp Bowie National Bank (the "Subsidiary Banks") and a
nonbank subsidiary, Summit Bancservices, Inc., all located in Fort Worth,
Texas.
At December 31, 1995 the Corporation had consolidated total assets of
$355,417,000, consolidated total loans of $178,493,000, consolidated total
deposits of $310,109,000 and consolidated total shareholders' equity of
$30,125,000.
The Corporation provides advice and services to the Subsidiary Banks and
coordinates their activities in the areas of financial accounting controls and
reports, internal audit programs, regulatory compliance, financial planning
and employee benefit programs. However, each Subsidiary Bank operates under
the day-to-day management of its own officers and directors.
The Corporation's major source of income is dividends received from the
Subsidiary Banks. Dividend payments by the Subsidiary Banks are determined on
an individual basis, generally in relation to each Subsidiary Bank's earnings,
deposits and capital.
The Corporation's business is neither seasonal in nature nor in any manner
related to or dependent upon patents, licenses, franchises or concessions and
the Corporation has not spent material amounts on research activities.
THE SUBSIDIARY BANKS. The services offered by the Subsidiary Banks are
generally those offered by commercial banks of comparable size in their
respective areas. Certain of the principle services offered by the Subsidiary
Banks are described below.
Commercial Banking. The Subsidiary Banks provide general
commercial banking services for corporate and other business
clients located in Tarrant County, Texas. Loans are made for a
wide variety of purposes, including interim construction and
mortgage financing on real estate and financing of equipment and
inventories.
Consumer Banking. The Subsidiary Banks provide a full range of
consumer banking services, including interest and non-interest-
bearing checking accounts, various savings programs, installment
and real estate loans, money transfers, on-site ATM facilities and
safe deposit facilities.
Securities Services. Summit Bancshares, Inc. through an agreement
with BFP Financial Partners, Inc. offers investment brokerage
services. BFP Financial Partners, Inc., a subsidiary of Legg
Mason, Inc. is a registered broker-dealer and member of the
National Association of Securities Dealers, Inc. Investment
Executives are available at each of the Subsidiary Banks and can
provide information about tax free municipals, government
securities, stocks, mutual funds, or annuities.
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Certain information with respect to each Subsidiary Bank as of December 31,
1995 is set forth in the following table. Interbank balances have not been
eliminated in the table as such balances are not material to total deposits or
total assets.
As of December 31, 1995
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(In Thousands)
Organiza- Acqui- Share-
Name and Address of tion sition Total Total Total holder's
Subsidiary Bank Date Date Assets Loans Deposits Equity
- ------------------- -------- ------- ------ -------- -------- --------
Summit National Bank 1975 1980 $170,575 $ 94,781 $143,365 $13,678
1300 Summit Avenue
Fort Worth, TX 76102
Alta Mesa National Bank 1981 1983 $ 89,300 $ 43,521 $ 81,810 $ 7,048
3000 Alta Mesa Drive
Fort Worth, TX 76133
Camp Bowie National Bank 1984 1984 $ 93,992 $ 41,227 $ 86,088 $ 7,394
3859 Camp Bowie Blvd.
Fort Worth, TX 76107
NON-BANK SUBSIDIARY. Effective January 1, 1993 the Corporation activated its
non-bank subsidiary, Summit Bancservices, Inc. ("SBS"), as an operations
center to provide data processing and bookkeeping services for the Subsidiary
Banks. These services were previously provided to the Subsidiary Banks by
Summit National Bank. Before commencing operations, SBS purchased data
processing equipment, furniture and fixtures from Summit National Bank for
their appraised fair market value as well as certain additional data
processing equipment from an unrelated third party vendor. To enable SBS to
finance the purchase of such data processing equipment, furniture and fixtures
and to provide for working capital, the Corporation contributed $265,000 in
cash to SBS, and Summit National Bank loaned SBS $290,000. The loan is
evidenced by a promissory note dated January 21, 1993 providing for monthly
payments of $9,000, including interest. The note matures on January 15, 1996,
is secured by a blanket security interest in all of the assets of SBS, and is
guaranteed by the Corporation.
COMPETITION. There is significant competition among bank holding companies in
Tarrant County, Texas and the Corporation believes that such competition among
such bank holding companies will continue in the future.
Additionally, the Subsidiary Banks encounter intense competition in their
commercial banking businesses, primarily from other banks represented in their
respective market areas, many of which have far greater assets and financial
resources. The Subsidiary Banks also encounter intense competition in their
commercial banking businesses from savings and loan associations, credit
unions, factors, insurance companies, commercial and captive finance companies
and certain other types of financial institutions located in other major
metropolitan areas in the United States, many of which are larger in terms of
capital, resources and personnel.
EMPLOYEES. As of December 31, 1995 the Corporation and the Subsidiary Banks
collectively had a total of 121 full-time employees and 10 part-time
employees.
SUPERVISION AND REGULATION.
GENERAL. The Corporation and the Subsidiary Banks are extensively regulated
under federal and state law. These laws and regulations are generally
intended to protect depositors, not shareholders.
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To the extent that the following information describes statutory or regulatory
provisions, it is qualified in its entirety by reference to the particular
statutory and regulatory provisions. Any change in applicable laws or
regulations may have a material effect on the business and prospects of the
Corporation and the Subsidiary Banks. The operations of the Corporation and
the Subsidiary Banks may be affected by legislative changes and by the
policies of various regulatory authorities. The Corporation is unable to
predict the nature or the extent of the effects on its business and earnings
that fiscal or monetary policies, economic control or new federal or state
legislation may have in the future.
FEDERAL BANK HOLDING COMPANY REGULATION. The Corporation is a bank holding
company within the meaning of the BHC Act and as such is subject to
regulation, supervision and examination by the Board of Governors of the
Federal Reserve System (the "FRB"). A bank holding company is required to
file with the FRB an annual report and to provide such additional information
regarding its business operations and those of its subsidiaries as the FRB may
require.
With certain limited exceptions, the BHC Act requires every bank holding
company to obtain the prior approval of the FRB before: (I) acquiring direct
or indirect ownership or control of any voting shares of another bank or bank
holding company if, after such acquisition, it would own or control more than
five percent (5%) of such shares (unless it already owns or controls the
majority of such shares); (ii) acquiring all or substantially all of the
assets of another bank or bank holding company; or (iii) merging or
consolidating with another bank holding company. The FRB will not approve any
acquisition, merger or consolidation that would have a substantially anti-
competitive result, unless the anti-competitive effects of the proposed
transaction are clearly outweighed by a greater public interest in meeting the
convenience and needs of the community to be served. The FRB also considers
capital adequacy and other financial and managerial factors in reviewing
acquisitions or mergers.
With certain exceptions, the BHC Act also prohibits a bank holding company
from acquiring or retaining direct or indirect ownership or control of more
than five percent (5%) of the voting shares of any company which is not a bank
or bank holding company, or from engaging directly or indirectly in activities
other than those of banking, managing or controlling banks, or providing
services for its subsidiaries. The principal exceptions to these prohibitions
involve certain non-bank activities which, by statute or by FRB regulation or
order, have been identified as activities closely related to the business of
banking or of managing or controlling banks. In making this determination,
the FRB considers whether the performance of such activities by a bank holding
company can be expected to produce benefits to the public such as greater
convenience, increased competition or gains in efficiency of resources, which
can be expected to outweigh the risks of possible adverse effects such as
decreased or unfair competition, conflicts of interest or unsound banking
practices.
As of September 30, 1995, the Riegle-Neal Interstate Banking and Branching Act
of 1994 (the "Interstate Banking Act") allows adequately capitalized and
managed bank holding companies to acquire banks in any state, regardless of
whether the acquisition would be prohibited by applicable state law. An out-
of-state bank holding company seeking to acquire ownership or control of a
Texas state bank, a national bank located in Texas or any bank holding company
owning or controlling a state bank or a national bank located in Texas must
obtain the prior approval of both the FRB and the Banking Commissioner of
Texas. In addition, under the Interstate Banking Act, a bank holding company
and its insured depository institution affiliates may not complete an
acquisition which would cause it to control more than 10% of total deposits in
insured depository institutions nationwide or to control 30% or more of total
deposits in insured depository institutions in the home state of the target
bank. However, state deposit concentration caps adopted by various states,
such as the State of Texas, which limit control of in-state insured deposits
to a greater extent than the Interstate Banking Act will be given effect. The
State of Texas has adopted a deposit concentration cap of 20% of in-state
insured deposits; therefore, the Texas state deposit concentration cap will
lower the otherwise applicable 30% federal deposit concentration cap.
Additionally, state provisions regarding the minimum years the target has been
in existence will be honored; provided, however, acquisitions may be approved
when the target bank has been in existence for at least five years,
notwithstanding state provisions requiring a longer period of existence. The
minimum age provision adopted by the State of Texas is five years and,
therefore, this state minimum will be given effect.
The Interstate Banking Act will also allow out-of-state branches through
interstate mergers commencing June 1, 1997, provided that each bank involved
in the merger is adequately capitalized and managed. States are permitted,
however, to pass legislation either providing for earlier approval of mergers
with out-of-state banks or "opting-out" of interstate mergers entirely,
provided such legislation applies equally to all out-of-state banks. Texas
has passed legislation to "opt-out" of interstate mergers entirely until 1999.
The Interstate Banking Act also provides for interstate mergers involving an
out-of-state bank's acquisition of a branch of an insured bank without the
acquisition of the entire bank, if permitted under the laws of the state where
the branch is located. The deposit concentration caps and the minimum age
provisions applicable to interstate bank acquisition also apply to interstate
bank mergers.
The Interstate Banking Act also provides for de novo branches in a state if
that state expressly elects to permit de novo branching on a non-
discriminatory basis. A "de novo branch" is defined as a branch office of a
national or state bank that is originally established as a branch and does not
become a branch as a result of an acquisition, conversion, merger or
consolidation. De novo interstate branching is subject to the same conditions
applicable to interstate mergers under the Interstate Banking Act, other than
deposit concentration limits. The Texas law "opting-out" of interstate
mergers also prohibits an out-of-state bank from establishing a de novo branch
in Texas or acquiring a branch in Texas by purchase or other means. The Texas
law prohibiting interstate mergers and branches by its own terms expires
September 2, 1999. The effect of the expiration for periods after September
2, 1999, is uncertain.
The Interstate Banking Act makes it substantially easier for interstate bank
holding companies and banks to acquire banks and establish banking facilities
throughout the United States thereby increasing competition among banks and
bank holding companies. Competition is likely to increase in Texas even with
the limitations on interstate mergers and branches existing under Texas state
law.
Subsidiary banks of a bank holding company are subject to certain restrictions
imposed by the Federal Reserve Act on extensions of credit to the bank holding
company or its subsidiaries, on investments in their securities and on the use
of their securities as collateral for loans to any borrower. These
regulations and restrictions may limit the Corporation's ability to obtain
funds from the Subsidiary Banks for its cash needs, including funds for
payment of dividends, interest and operating expenses.
Under the BHC Act and certain regulations of the FRB, a bank holding company
and its subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit or lease or sale of
property or furnishing of services. For example, a Subsidiary Bank may not
generally require a customer to obtain other services from the Subsidiary Bank
or the Corporation, and may not require that customer to promise not to obtain
other services from a competitor, as a condition to an extension of credit to
the customer.
Additionally, under the BHC Act the FRB is endowed with cease and desist
powers over bank holding companies and non-banking subsidiaries to forestall
activities which represent unsafe or unsound practices or constitute
violations of law. The FRB is also empowered to assess civil penalties
against companies or individuals who violate the BHC Act in amounts up to
$25,000 for each day's violation, to order termination of non-banking
activities of non-banking subsidiaries of bank holding companies and to order
termination of ownership and control of a non-banking subsidiary by a bank
holding company.
Beginning January 1, 1994, the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") expanded the FRB's authority to prohibit
activities of bank holding companies and their non-banking subsidiaries which
represent unsafe and unsound banking practices or which constitute violations
of laws or regulations. Notably, FIRREA increased the amount of civil money
penalties which the FRB can assess for certain activities conducted on a
knowing and reckless basis, if those activities caused a substantial loss to a
depository institution. The penalties can be high as $1,000,000 per day.
FIRREA also expanded the scope of individuals and entities against which such
penalties may be assessed.
The FRB has adopted risk-based capital standards and a minimum leverage ratio
applicable to bank holding companies. See "ITEM 7. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Capital
Resources."
NATIONAL BANK REGULATION. The Subsidiary Banks are national banking
associations organized under the laws of the United States pursuant to the
provisions of the National Bank Act.
The Subsidiary Banks are subject to regulation and supervision, of which
regular bank examinations are a part, by the Office of the Comptroller of the
Currency (the "OCC"), which may prohibit the Subsidiary Banks from engaging in
what the OCC believes constitutes unsafe or unsound banking practices.
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The interest and usury laws of the state of Texas, which laws are preempted to
a certain extent by federal law, generally limit the amount of interest which
lenders, including the Subsidiary Banks, may charge on loans. This limit may
vary depending upon, among other things, the identity, nature and location of
the lender and the particular state or federal law applicable thereto, and the
type of loan.
Under the McFadden Act of 1927, national banks may only establish branches to
the extent specifically authorized by statute for banks chartered by the state
in which the national bank is located and subject to the restrictions as to
location imposed by state law on state banks. Texas law permits state banks
to engage in unlimited branch banking. Accordingly, national banks domiciled
in Texas are permitted to engage in unlimited branch banking. A national bank
seeking to establish such a branch must obtain the prior approval of the OCC.
Substantially all of the Corporation's cash flow is derived from dividends
paid by the Subsidiary Banks. The Subsidiary Banks are subject to various
restrictions imposed by the National Bank Act relating to the declaration and
payment of dividends. See "ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS - Dividends."
The Community Reinvestment Act ("CRA") requires that, in connection with
examinations of financial institutions within their jurisdiction, the FRB or
the OCC evaluate the record of the financial institutions in meeting the
credit needs of their local communities, including low and moderate income
neighborhoods, consistent with the safe and sound operation of those banks.
The federal banking agencies are required to make public a rating of a bank's
performance under CRA. These factors are also considered by the FRB and the
OCC in evaluating mergers, acquisitions and applications to open a branch or
facility.
The Subsidiary Banks are also subject to certain restrictions imposed by the
Federal Reserve Act on extensions of credit to executive officers, directors,
principal shareholders or any related interest of such persons. Extensions of
credit (I) must be made on substantially the same terms, including interest
rates and collateral as, and following credit underwriting procedures that are
not less stringent than, those prevailing at the time for comparable
transactions with persons not covered above and who are not employees, and
(ii) must not involve more than the normal risk of repayment or present other
unfavorable features. The Subsidiary Banks are also subject to certain
lending limits and restrictions on overdrafts to such persons. A violation of
these restrictions may result in the assessment of substantial civil monetary
penalties on a Subsidiary Bank or any officer, director, employee, agent or
other person participating in the conduct of the affairs of the Subsidiary
Bank, the imposition of a cease and desist order, and other regulatory
sanctions.
The OCC has adopted risk-based capital standards and a minimum leverage ratio
for national banks which are substantially similar to the risk-based capital
standards and the minimum leverage ratio adopted by the FRB for bank holding
companies. The Subsidiary Banks are currently, and expect to continue to be,
in compliance with the risk-based capital standards and the minimum leverage
ratio. See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Capital Resources."
DEPOSIT INSURANCE. As Federal Deposit Insurance Corporation ("FDIC") member
institutions, the deposits of the Subsidiary Banks are currently insured to a
maximum of $100,000 per depositor through the Bank Insurance Fund ("BIF")
administered by the FDIC, and the Subsidiary Banks are required to pay semi-
annual deposit insurance premium assessments to the FDIC.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
included provisions to reform the federal deposit insurance system, including
the implementation of risk-based deposit insurance premiums, and permits the
FDIC to make special assessments on insured depository institutions, in
amounts determined by the FDIC to be necessary to give it adequate assessment
income to repay amounts borrowed from the U.S. Treasury and other sources or
for any other purpose the FDIC deems necessary. Pursuant to FDICIA, the FDIC
implemented a transitional risk-based insurance premium system on January 1,
1993 which became the permanent risk-based premium system on January 1, 1994.
Generally, under this system banks are assessed insurance premiums according
to how much risk they are deemed to present the BIF. Such premiums currently
range from zero percent of insured deposits to .27% of insured deposits.
Banks with higher levels of capital and involving a low degree of supervisory
concern are assessed lower premiums than banks with lower levels of capital or
involving a higher degree of supervisory concern. All of the Subsidiary Banks
are currently being assessed at the lowest rate of zero plus a quarterly fee
of $500.
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Also, under FIRREA a depository institution insured by the FDIC can be held
liable for any loss incurred by the FDIC in connection with (I) the failure of
a commonly controlled FDIC-insured depository institution or (ii) any
assistance provided by the FDIC to a commonly controlled FDIC-insured
depository institution in danger of failure (the "Cross Guarantee"). The
Cross Guarantee thus enables the FDIC to assess a bank holding company's
healthy BIF members for the losses of any of such bank holding company's
failed BIF members. Cross Guarantee liabilities are generally superior in
priority to obligations of the depository institution to its shareholders due
solely to their status as shareholders and obligations to other affiliates.
CORRECTIVE MEASURES FOR CAPITAL DEFICIENCIES. FDICIA requires federal banking
regulators to take "prompt corrective action" with respect to capital-
deficient institutions. In addition to requiring the submission of a capital
restoration plan, FDICIA contains broad restrictions on certain activities of
undercapitalized institutions involving asset growth, acquisitions, branch
establishment, and expansion into new lines of business. With certain
exceptions, an insured depository institution is prohibited from making
capital distributions, including dividends, and is prohibited from paying
management fees to control persons if the institution would be
undercapitalized after any such distribution or payment.
As an institution's capital decreases, the powers of the federal regulators
become greater. A significantly undercapitalized institution is subject to
mandated capital raising activities, restrictions on interest rates paid and
transactions with affiliates, removal of management, and other restrictions.
The regulators have very limited discretion in dealing with a critically
undercapitalized institution and are required to appoint a receiver or
conservator if the capital deficiency is not corrected promptly.
INTERNAL OPERATING REQUIREMENTS. FDICIA requires financial institutions with
over $500 million in assets to file an annual report with its primary federal
regulator and any appropriate state banking agency within 90 days after the
end of its fiscal year. The report must contain financial statements audited
by an independent public accountant; a statement of management's
responsibilities for (1) preparing the financial statements and for
maintaining internal controls; (2) for financial reporting and complying with
designated safety and soundness laws and regulations; (3) a separate
assessment by management of the effectiveness of the internal controls and the
institutions' internal controls for financial reporting. The independent
public accountant also must report separately on the institution's compliance
with designated safety and soundness laws and rules.
MONETARY POLICY. The earnings of a bank holding company are affected by the
policies of regulatory authorities, including the FRB, in connection with the
FRB's regulation of the money supply. Various methods employed by the FRB are
open market operations in United States government securities, changes in the
discount rate on member bank borrowings and changes in reserve requirements
against member bank deposits. These methods are used in varying combinations
to influence overall growth and distribution of bank loans, investments and
deposits, and their use may also affect interest rates charged on loans or
paid on deposits. 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.
ITEM 2. PROPERTIES.
THE CORPORATION. The Corporation is located on the sixth floor of an eight-
story office building located at 1300 Summit Avenue, Fort Worth, Texas. The
building is owned by an unrelated third-party. The Corporation occupies 4,978
square feet of floor space in the building pursuant to a lease agreement which
expires on December 31, 1999 and pays monthly rental of $4,771 for such space.
In 1985 the Corporation entered into a ground lease agreement with Alta Mesa
National Bank pursuant to which the Corporation leases a 2.25 acre tract of
land owned by Alta Mesa National Bank at a monthly rental of $5,600. See
"ITEM 2. PROPERTIES - Alta Mesa National Bank." During 1986 the Corporation
constructed a three-story building (containing approximately 43,000 square
feet) on such 2.25 acre tract of land at a cost of approximately $2,500,000.
On October 1, 1986 the Corporation entered into a 15-year lease agreement with
Alta Mesa National Bank pursuant to which the Corporation leases approximately
9,700 square feet of floor space in such building to Alta Mesa National Bank.
The lease agreement requires monthly rental payments to the Corporation of
approximately $14,288.
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SUMMIT NATIONAL BANK. Summit National Bank is located on the first floor of
the same office building in which the Corporation's offices are located.
Summit National Bank occupies 12,264 square feet of floor space in the
building which is owned by an unrelated third-party. The space is leased by
Summit National Bank under a lease agreement expiring in December 1999 that
requires monthly base rental payments of $8,176. Under the terms of the lease
agreement, Summit National Bank has the option of extending the lease
agreement for two (2) successive additional terms of five (5) years each at
90% of market rate.
Summit National Bank owns in fee a tract of land consisting of approximately
0.5 acres located near its principal place of business upon which it is
operating a detached motor bank facility.
Summit National Bank also owns in fee an improved tract of land consisting of
approximately 18,000 square feet located at 500 Eighth Avenue, Fort Worth,
Texas. Pursuant to a lease agreement dated January 1, 1993, Summit National
Bank leases this tract of land, together with the one-story building thereon,
to SBS. The lease agreement is for a term of six (6) years and provides for
monthly rental payments of $4,000.00 to Summit National Bank.
The Northeast Branch of Summit National Bank occupies 3,036 square feet in the
first floor of an office building at 9001 Airport Freeway, North Richland
Hills, in Northeast Tarrant County. The space is leased from an unrelated
third-party under a lease agreement expiring in May 1998. The lease rate was
$2,500 per month for the period of May 1995 to December 1995. The lease rate
increases to $3,795 per month from January 1996 to May 1998. Under the terms
of the lease agreement, there is an option to lease the space for three (3)
additional years at then market rates.
In addition to the office space a motor bank facility is leased from an
unrelated third-party at the lease rate of $1,100 per month. This lease
expires in April 2001.
ALTA MESA NATIONAL BANK. Alta Mesa National Bank is located on the first
floor of a three-story building located at 3000 Alta Mesa Boulevard,
Fort Worth, Texas. The building, which contains approximately 43,000 square
feet of floor space, was completed by the Corporation in 1986. On October 1,
1986 the Corporation entered into a lease agreement with Alta Mesa National
Bank pursuant to which the Corporation leases approximately 9,700 square feet
of floor space to Alta Mesa National Bank. The tract of land upon which the
building is located is owned by Alta Mesa National Bank and consists of
approximately 2.25 acres. In 1985 the Corporation entered into a ground lease
agreement with Alta Mesa National Bank pursuant to which the Corporation
leases the 2.25 acre tract of land from Alta Mesa National Bank. See "ITEM 2.
PROPERTIES - The Corporation."
Alta Mesa National Bank also owns a 1.5 acre tract of land located adjacent to
its principal place of business which it purchased in 1982 from an
unaffiliated third party for $214,500. Alta Mesa National Bank is operating a
detached motor bank facility on such 1.5 acre tract of land.
CAMP BOWIE NATIONAL BANK. Camp Bowie National Bank is located at 3859 Camp
Bowie Boulevard, Fort Worth, Texas. The tract of land upon which the offices
of Camp Bowie National Bank are situated consists of approximately 1.2 acres
of land. The tract of land and building presently located thereon were
acquired by Camp Bowie National Bank from an unaffiliated third-party for
approximately $747,941. In 1985 the Corporation completed renovating the
existing improvements presently located on the 1.2 acre tract of land at a
cost of $1,887,800. Camp Bowie National Bank subsequently purchased the
improvements from the Corporation at book value. The building contains
approximately 15,000 square feet of floor space. Camp Bowie National Bank
also owns a 13,000 square foot parking lot on Crestline Road.
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ITEM 3. LEGAL PROCEEDINGS.
In the opinion of management, there are no material pending legal proceedings,
other than ordinary routine litigation incidental to the Corporation's
business, to which it or any of its subsidiaries is a party or of which any of
their property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders through the
solicitation of proxies or otherwise, during the fourth quarter of 1995.
ITEM 4A. EXECUTIVE OFFICERS OF THE CORPORATION.
The executive officers of the Corporation, each elected to serve at the
pleasure of the Board of Directors until the next annual meeting of the Board
of Directors to be held on April 16, 1996, their respective ages, and their
present positions with the Corporation are as follows:
Position With Position Held
Name Age the Corporation Since
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Philip E. Norwood 46 President and Chief
Executive Officer 1993
James L. Murray 63 Chairman of the Board 1985
F. S. Gunn 62 Vice Chairman 1993
Jeffrey M. Harp 47 Executive Vice President,
Chief Operating Officer
and Secretary/Treasurer 1993
Bob G. Scott 58 Senior Vice President and
Chief Financial Officer 1994
The business experience of each of these executive officers during the past
five (5) years is set forth below:
Mr. Norwood became President of Camp Bowie National Bank in July 1994,
President and Chief Executive Officer of the Corporation in October 1993 and
Chairman of the Board of Alta Mesa National Bank in December 1992, and con-
tinues to serve in these capacities. He has served as a director of the
Corporation since March 1984. From January 1990 to October 1993 Mr. Norwood
served as Secretary of the Corporation, from December 1992 to October 1993 he
served as Executive Vice President of the Corporation, and from March 1984 to
January 1990 he served as Secretary and Treasurer of the Corporation. From
April 1981 to December 1992 Mr. Norwood served as President of Alta Mesa
National Bank. Mr. Norwood had served as a director of Alta Mesa National
Bank since April 1981 and as a director of Camp Bowie National Bank since
January 1990. Mr. Norwood served as a director of Summit National Bank from
March 1983 to January 1996.
Mr. Murray became Chairman of the Board of the Corporation in January 1985,
and Chairman of the Board of Camp Bowie National Bank in January 1990, and
continues to serve in these capacities. Mr. Murray served as Chief Executive
Officer of the Corporation From January 1990 to October 1993, as President of
the Corporation from 1979 to January 1985, as President of Camp Bowie National
Bank from January 1990 to January 1994, and as Chairman of the Board of
Directors of Summit National Bank from October 1981 to January 1990. He
served as a director of Summit National Bank from January 1975 to January
1996. Mr. Murray has served as director for Camp Bowie National Bank since
April 1985. Additionally, Mr. Murray was a director of Alta Mesa National
Bank from April 1981 to April 1985. He was reelected to the Board of
Directors of Alta Mesa National Bank in January 1990 and served until January
1996.
-9-
Mr. Gunn became Vice Chairman of the Board of the Corporation in October 1993.
From January 1990 to October 1993 Mr. Gunn served as President of the
Corporation, and from January 1985 to January 1990 he previously served as
Vice Chairman of the Board of the Corporation. Mr. Gunn has served as Chair-
man of the Board of Summit National Bank since January 1991, and served as
President of Summit National Bank from October 1981 to January 1991. He has
served as a director of Summit National Bank since January 1975. He served as
a director of Alta Mesa National Bank from March 1982 to January 1996 and as a
director of Camp Bowie National Bank from January 1990 to January 1996.
Mr. Harp became Chief Operating Officer and Secretary of the Corporation in
October 1993, Executive Vice President of the Corporation in December 1992,
and Treasurer and a director of the Corporation in January 1990, and continues
to serve in these capacities. He has served as President and Chief Executive
Officer of Summit National Bank since January 1991, and served as Executive
Vice President of Summit National Bank from February 1985 to December 1990.
He has served as a director of Summit National Bank since January 1990. He
served as a director of Alta Mesa National Bank and Camp Bowie National Bank
from January 1990 to January 1996.
Mr. Scott became Senior Vice President and Chief Financial Officer in June
1994, and continues to serve in that capacity. From February 1992 to June
1994 Mr. Scott was a Senior Vice President with Alexander and Alexander of
Texas, Inc. Prior to February 1992, Mr. Scott was a financial officer with
Team Bancshares, Inc., Fort Worth, Texas and with Texas American Bancshares,
Inc.
No family relationships exist among the executive officers and directors of
the Corporation.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
MARKET INFORMATION. Since May 3, 1993 the Corporation's Common Stock has been
traded on the Nasdaq Stock Market under the symbol "SBIT." The following
table sets forth the high and low closing bid quotations of the Corporation's
Common Stock for the periods indicated:
Bid
---------------------------
High Low
-------- ---------
1994 Fiscal Year:
- ----------------
First Quarter $ 9.75 $ 8.50
Second Quarter 9.50 8.44
Third Quarter 10.50 8.75
Fourth Quarter 11.38 10.00
1995 Fiscal Year:
- ----------------
First Quarter $ 10.63 $ 9.88
Second Quarter 12.00 10.38
Third Quarter 13.75 11.38
Fourth Quarter 16.38 15.75
This data has been restated to reflect a two-for-one stock split effected on
December 6, 1995.
On March 1, 1996 the closing bid and asked quotations reported for the Common
Stock were $15.75 and $16.75, respectively. The foregoing quotations reflect
prices quoted by market makers of the Corporation's Common Stock, without
retail markup, markdown or commissions, and may not necessarily represent
actual transactions.
-10-
Prior to May 3, 1993 there was no established public trading market for the
issued and outstanding shares of Common Stock of the Corporation. According-
ly, there exists no published information with respect to market prices before
that date. From time to time, however, moderate numbers of shares of Common
Stock were transferred on the books of the Corporation.
SHAREHOLDERS. At the close of business on February 1, 1996 there were 670
shareholders of record of Common Stock of the Corporation.
DIVIDENDS. The Corporation has paid regular cash dividends on its common
stock on a quarterly basis since the beginning of 1993. The following table
sets forth, for each quarter since the beginning of 1994, the quarterly
dividends paid by the Corporation on its Common Stock for the indicated
periods. Data has been restated to reflect a two-for-one stock split effected
on December 6, 1995.
1994 Dividends Per Share
-------------- -------------------
First Quarter $ 0.045
Second Quarter 0.045
Third Quarter 0.045
Fourth Quarter 0.045
1995
--------------
First Quarter $ 0.055
Second Quarter 0.055
Third Quarter 0.055
Fourth Quarter 0.055
- -----------------------------------
Although the Board of Directors intends to continue to pay quarterly cash
dividends in the future, there can be no assurance that cash dividends will
continue to be paid in the future or, if paid, that such cash dividends will
be comparable to cash dividends previously paid by the Corporation, since
future dividend policy is subject to the discretion of the Board of Directors
of the Corporation and will depend upon a number of factors, including future
earnings of the Corporation, the financial condition of the Corporation, the
Corporation's cash needs, general business conditions and the amount of
dividends paid to the Corporation by the Subsidiary Banks.
The principal source of the Corporation's cash revenues is dividends received
from the Subsidiary Banks. Pursuant to the National Bank Act, no national
bank may pay dividends from its paid-in capital. All dividends must be paid
out of current or retained net profits, after deducting reserves for losses
and bad debts. The National Bank Act further restricts the payment of
dividends out of net profits by prohibiting a national bank from declaring a
dividend on its shares of common stock until the surplus fund equals the
amount of capital stock or, if the surplus fund does not equal the amount of
capital stock, until one-tenth of a bank's net profits for the preceding half
year in the case of quarterly or semi-annual dividends, or the preceding two
half-year periods in the case of annual dividends, are transferred to the
surplus fund. The approval of the OCC is required prior to the payment of a
dividend if the total of all dividends declared by a national bank in any
calendar year would exceed the total of its net profits for that year combined
with its net profits for the two preceding years. Under FDICIA, a Subsidiary
Bank may not pay a dividend if, after paying the dividend, the Subsidiary Bank
would be undercapitalized.
In addition, the appropriate regulatory authorities are authorized to prohibit
banks and bank holding companies from paying dividends which would constitute
an unsafe and unsound banking practice. The Subsidiary Banks and the
Corporation are not currently subject to any regulatory restrictions on their
dividends.
-11-
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth summary historical data for the past five years
(in thousands except ratios and per share data):
Years Ended December 31,
--------------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
Summary of Earnings:
Interest Income $ 22,929 $ 18,143 $ 17,095 $ 18,092 $ 20,000
Interest Expense 8,277 5,625 5,235 6,860 10,915
------ ------ ------ ------ ------
Net Interest Income 14,652 12,518 11,860 11,232 9,085
Provision (Credit) for Loan Losses 236 (114) 23 421 1,357
Securities Gains (Losses) (10) (152) 3 69 9
Non-interest Income 2,764 2,729 2,855 2,314 2,054
Non-interest Expense 9,973 9,075 9,155 8,793 7,941
----- ----- ----- ----- -----
Earnings Before Income Taxes 7,197 6,134 5,540 4,401 1,850
Income Tax Expense 2,468 2,094 1,809 1,397 612
----- ----- ----- ----- -----
Income Before Extraordinary Item 4,729 4,040 3,731 3,004 1,238
Net Income 4,729 4,040 3,731 3,236 1,238
Balance Sheet Data (at period-end):
Total Assets $ 355,417 $ 291,011 $ 280,688 $ 266,549 $ 256,425
Investment Securities 119,368 114,722 112,315 96,036 84,758
Loans, Net of Unearned Discount 178,493 138,966 127,250 124,843 120,677
Allowance for Loan Losses 2,500 2,410 2,594 2,810 2,934
Demand Deposits 89,184 72,992 61,165 57,607 49,992
Total Deposits 310,109 259,539 254,151 242,929 232,528
Long-term Debt and Notes Payable -0- 250 500 750 1,700
Stockholders' Equity 30,125 25,334 22,978 19,501 16,304
Per Share Data:
Net Income Before Extraordinary Item $ 1.51 $ 1.29 $ 1.21 $ .97 $ .40
Book Value - Period-End* 9.46 8.30 7.37 6.32 5.25
Dividends Paid .22 .18 .1075 -0- -0-
Weighted Average Shares Outstanding 3,139 3,136 3,096 3,098 3,118
Selected Performance Ratios:
Return on Average Assets 1.52% 1.43% 1.40% 1.28% .50%
Return on Average Stockholders' Equity* 17.14 16.55 17.75 18.24 7.91
Net Interest Margin (tax equivalent) 5.15 4.85 4.90 4.91 4.08
Efficiency Ratio 57.31 59.96 61.98 64.20 70.50
Asset Quality Ratios:
Non-Performing Loans to Total Loans
- Period-End .55% .46% 1.17% 1.18% 4.53%
Allowance for Loan Losses to Total
Loans - Period-End 1.40 1.73 2.04 2.25 2.43
Allowance for Loan Losses to
Non-performing Loans - Period-End 252.0 375.0 174.0 190.0 54.0
Net Charge-Offs to Average Loans .09 .05 .19 .45 1.40
Capital Ratios:
Stockholders' Equity * to Total Assets
- Period-End 8.40% 9.04% 8.19% 7.32% 6.36%
Average Stockholders' Equity*
to Average Assets 8.85 8.64 7.89 6.99 6.30
Total Risk-based Capital to Risk
Weighted Assets - at Period-End** 15.91 18.09 17.53 15.62 13.38
Leverage Ratio - at Period-End** 8.58 8.69 8.18 7.32 6.36
* Before adjustment for unrealized gains and losses on Available-for-Sale securities.
** Calculated in accordance with Federal Reserve guidelines currently in effect.
-12-
Quarterly Results (Unaudited)
A summary of the unaudited results of operations for each quarter of
1995 and 1994 follows (in thousands except for per share data):
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1995:
Interest Income $ 5,103 $ 5,473 $ 5,936 $ 6,417
Interest Expense 1,746 1,996 2,182 2,353
Net Interest Income 3,357 3,477 3,754 4,064
Provision for Loan Losses 42 44 50 100
Non-interest Income 727 720 656 651
Non-interest Expense 2,412 2,439 2,438 2,684
Income Tax Expense 554 585 665 664
Net Income 1,076 1,129 1,257 1,267
Per Share Data:
Net Income $ .34 $ .36 $ .40 $ .41
Dividends Paid .055 .055 .055 .055
Stock Price Range:
High 10.63 12.00 13.75 16.38
Low 9.88 10.38 11.38 15.75
Close 10.44 11.38 13.75 16.00
1994:
Interest Income $ 4,178 $ 4,396 $ 4,652 $ 4,917
Interest Expense 1,224 1,315 1,462 1,624
Net Interest Income 2,954 3,081 3,190 3,293
Provision (Credit) for Loan Losses 20 10 (113) (31)
Non-interest Income 737 643 557 640
Non-interest Expense 2,193 2,200 2,303 2,379
Income Tax Expense 499 517 530 548
Net Income 979 997 1,027 1,037
Per Share Data:
Net Income $ .31 $ .32 $ .33 $ .33
Dividends Paid .045 .045 .045 .045
Stock Price Range:
High 9.75 9.50 10.50 11.38
Low 8.50 8.44 8.75 10.00
Close 8.50 8.88 10.50 10.00
-13-
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 of the Corporation analyzes the major elements
of the Corporation's consolidated balance sheets and statements of
income. This discussion should be read in conjunction with the
consolidated financial statements, accompanying notes, and selected
financial data appearing elsewhere in this report.
PERFORMANCE SUMMARY
Net income for 1995 was $4.7 million, an increase of $689,000, or
17.1%, over the $4.0 million recorded for 1994. On a weighted average
share basis, net income for 1995 was $1.51 per share as compared to
$1.29 per share for 1994, an increase of 17.1%. The major
contribution to the improved earnings during 1995 was a 17% increase
in net interest income. This increase was partially offset by an
increase over the prior year in the provision for loan losses. In
1994 a credit to the provision for loan losses of $114,000 was taken
compared to a debit of $236,000 (a comparative increase in expense of
$350,000) in 1995. In 1995 non-interest expense increased 9.9%,
significantly contributed to by cost related to a new branch office of
Summit National Bank opened in August. Without these branch related
costs the increase would have been approximately 6.0%.
During 1995, the Corporation's return on assets was 1.52% compared to
1.43% and 1.40% for 1994 and 1993, respectively. The Corporation's
return on stockholders' equity for 1995 was 17.14% compared to 16.55%
and 17.75% for the previous two years. The 1995 and 1994 measurements
consider stockholders' equity before adjustment for unrealized gains
and losses related to investment securities that are designated
available-for-sale. See a discussion later in this report for an
explanation of this adjustment. The Corporation's strong capital
position is reflected in the indicator of average stockholders' equity
to total average assets which was 8.85%, 8.64%, and 7.89% for the
years 1995, 1994 and 1993, respectively. At December 31, 1995, this
indicator was 8.40% and reflects the growth in assets in the later
part of the year.
Net income for 1994 was $4.0 million compared to net income of $3.7
million for 1993. The increase in earnings for 1994 was also
attributable to increased net interest income and a credit to the
provision for loan losses as noted above.
The following table shows selected key performance ratios over the
last three (3) years:
1995 1994 1993
---- ---- ----
Return on Average Assets 1.52% 1.43% 1.40%
Return on Average Stockholders' Equity* 17.14 16.55 17.75
Stockholders' Equity* to Assets - Average 8.85 8.64 7.89
Dividend Payout Ratio - Per Share 14.57 13.95 8.88
* Before adjustment for unrealized gains and losses on Available-for-Sale securities.
The ratio, return on assets, is calculated by dividing net income by
average total assets for the year. The return on equity ratio is
calculated by dividing net income by average shareholders' equity for
the year. The equity to assets ratio is calculated by dividing
average shareholders' equity by average total assets for the year.
NET INTEREST INCOME. Net interest income is the difference between
interest earned on earning assets and interest paid for the funds
supporting those assets. The largest category of earning assets
consists of loans to businesses and individuals. The second largest
is investment securities. Net interest income is the principal source
of the Corporation's earnings. Interest rate fluctuations, as well as
changes in the amount and type of earning assets and liabilities,
effect net interest income. For analytical purposes, income from tax-
exempt assets, primarily securities issued by state and local
governments, is adjusted by an increment which equates tax-exempt
income to interest from taxable assets.
Net interest income (tax equivalent) for 1995 was $14.7 million, an
increase of $2,123,000, or 16.9% compared to the prior year. The net
increase reflected a $4.8 million increase in interest income which
was offset by a $2.7 million increase
-14-
in interest expense. The Corporation's yield on earning assets
increased to 8.04% in 1995, from 7.03% for 1994. Rates paid on the
Corporation's interest-bearing liabilities in 1995, primarily time
deposits, increased 106 basis points reflecting the general increase
in market interest rates for bank liabilities during the year. Also
contributing to the improved net interest income for 1995 was the
increase in noninterest-bearing demand deposits. In 1995, the average
balance of demand deposits increased 14.9%, with average demand
deposits representing 26.9% of average total deposits as compared to
25.3% in 1994.
SUMMARY OF EARNING ASSETS AND INTEREST BEARING LIABILITIES
Although the year-end detail provides satisfactory indicators of
general trends, the daily average balance sheets are more meaningful
for analysis purposes than year-end data because averages reflect the
day-to-day fluctuations that are common to bank balance sheets. Also,
average balances for earning assets and interest-bearing liabilities
can be related directly to the components of interest income and
interest expense on the statements of income. This provides the basis
for analysis of rates earned and paid, and sources of increases and
decreases in net interest income as derived from changes in volumes
and rates. The following schedule presents average balance sheets for
the most recent three years in a format that highlights earning assets
and interest-bearing liabilities.
Years Ended December 31,
------------------------------------------------------------------------------------------------
1995 1994 1993
------------------------------ ------------------------------- ------------------------------
Average Average Average Average Average Average
(Dollars in Thousands) Balance Interest Yield/Rate Balance Interest Yield/Rate Balance Interest Yield/Rate
------- -------- ---------- ------- -------- ---------- ------- -------- ----------
Earning Assets:
Time Deposits in Banks $ -0- $ -0- -- $ -0- $ -0- -- $ 67 $ 2 2.99%
Federal Funds Sold 18,738 1,081 5.77% 14,373 614 4.28% 17,685 535 3.03
Investment Securities
(Taxable) 109,863 6,476 5.90 111,917 6,042 5.40 97,200 5,693 5.86
Investment Securities
(Tax-exempt) 309 35 11.44 419 48 11.46 801 90 11.24
Loans, Net of Unearned
Discount(1) 156,374 15,367 9.82 132,079 11,480 8.69 127,375 10,828 8.50
------- ------ ------- ------ ------- ------
Total Earning Assets 285,284 22,959 8.04 258,788 18,184 7.03 243,128 17,148 7.05
------ ------ ------
Other Assets:
Cash and Due From Banks 17,124 15,968 15,406
Other Assets 11,023 10,252 10,541
Allowance for Loan Losses (2,454) (2,604) (2,801)
------- ------- -------
Total Assets $310,977 $282,404 $266,274
======= ======= =======
Interest-Bearing Liabilities:
Interest-Bearing
Transaction Accounts $103,932 3,531 3.40 $ 102,199 2,694 2.64 $ 96,421 2,370 2.46
Savings 25,792 937 3.63 18,435 467 2.53 16,718 426 2.55
Savings Certificates 47,527 2,291 4.82 47,102 1,582 3.36 50,238 1,664 3.32
Certificates of Deposit
$100,000 or more 23,421 1,165 4.98 21,976 759 3.46 22,060 681 3.09
Other Time 254 12 4.88 232 8 3.29 205 8 2.93
Other Borrowings 6,730 340 5.05 2,477 91 3.67 2,022 49 2.42
Notes Payable 11 1 9.56 323 24 7.55 570 37 6.49
------- ------ ------- ----- ------- -----
Total Interest-Bearing
Liabilities 207,667 8,277 3.98 192,744 5,625 2.92 188,234 5,235 2.78
----- ----- -----
Other Liabilities:
Demand Deposits 74,024 64,431 56,101
Other Liabilities 1,765 1,000 920
Shareholders' Equity 27,521 24,229 21,019
------- ------- -------
Total Liabilities and
Shareholders' Equity $310,977 $282,404 $266,274
======= ======= =======
Net Interest Income and
Margin (T/E Basis)(2) $ 14,682 5.15 $ 12,559 4.85 $ 11,913 4.90
====== ====== ======
(1) Loan interest income includes fees and loan volumes include loans on non-accrual.
(2) Presented on a tax equivalent basis (T/E") using a federal income tax rate of 34% in all three years.
-15-
Net interest margin, the net return on earning assets which is
computed by dividing net interest income by average total earning
assets, was 5.15% for 1995, a thirty basis point increase from the
previous year. This increase in the margin reflected that loans which
earn a higher yield were a greater percentage of earning assets, also
demand deposits were a greater percentage of funding sources. In 1995
average loans were 55% of earning assets versus 51% in 1994.
The table below analyzes the increase in net interest income for each
of the years ended December 31, 1995 and 1994 on a fully tax
equivalent basis. Non-accruing loans have been included in assets for
these computations, thereby reducing yields on total loans. The
changes in interest due to both rate and volume in the rate/volume
analysis table below have been allocated to volume or rate change in
proportion to the absolute amounts of the change in each.
1995 vs. 1994 1994 vs. 1993
Increase (Decrease) Increase (Decrease)
Due to Changes in: Due to Changes in:
----------------------------- ----------------------------
(Dollars in Thousands) Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- ------
Interest Earning Assets:
Federal Funds Sold and Deposits with Banks $ 218 $ 249 $ 467 $ (117) $ 194 $ 77
Investment Securities (Taxable) (113) 547 434 839 (490) 349
Investment Securities (Tax-exempt) (13) -0- (13) (44) 2 (42)
Loans, Net of Unearned Discount 2,277 1,610 3,887 410 242 652
----- ----- ----- ----- ---- -----
Total Interest Income 2,369 2,406 4,775 1,088 (52) 1,036
----- ----- ----- ----- --- -----
Interest-Bearing Liabilities:
Deposits 334 2,092 2,426 (54) 415 361
Other Borrowings 204 45 249 21 21 42
Notes Payable (28) 5 (23) (16) 3 (13)
--- ----- ----- ---- ---- ----
Total Interest Expense 510 2,142 2,652 (49) 439 390
--- ----- ----- --- ---- ----
Changes in Net Interest Income $1,859 $ 264 $2,123 $1,137 $ (491) $ 646
===== ==== ===== ===== ==== ====
Net interest income for 1994 increased $646,000, or 5.4% over the prior
year. In this same period interest expense increased $390,000 as
interest rates increased. In 1994 the net interest margin averaged
4.85%, five basis points lower than the prior year.
NON-INTEREST INCOME. Non-interest income is an important contributor to
net earnings. The major component of the Corporation's non-interest
income is various charges and fees earned on deposit accounts and
related services. The following table summarizes the changes in non-
interest income during the past three years (dollars in thousands):
1995 1994 1993
------------------------ ------------------------ ------
Amount % Change Amount % Change Amount
------ -------- ------ -------- ------
Service Charges on
Deposit Accounts $ 1,525 (1.5%) $ 1,548 (5.8%) $ 1,643
Non-recurring Income 231 (7.6) 250 15.7 216
Gain (Loss) on Sale of Investment
Securities (10) -- (152) -- 3
Other Non-interest Income 1,008 8.3 931 (6.5) 996
----- ----- -----
Total Non-interest Income $ 2,754 6.9 $ 2,577 (9.8) $ 2,858
===== ===== =====
Service charges on deposits declined in 1995 as a result of a decrease
in service charge income on demand deposit accounts related to higher
credits given on commercial accounts for balances maintained in the bank
as interest rates rose.
Non-recurring income in 1995 and 1994 is primarily interest recovered on
loans charged-off in prior years. The 1993 non-recurring income
reflects a $106,000 gain on the sale of land previously held for
expansion and interest recovered on loans charged-off in previous years.
The increase in other non-interest income in 1995 is primarily due to
fees earned from investment brokerage services.
-16-
NON-INTEREST EXPENSE. Non-interest expense includes all expenses of the
Corporation other than interest expense, provision for loan losses and
income tax expense. The following table summarizes the changes in the
non-interest expenses for the past three years (dollars in thousands):
1995 1994 1993
----------------------- ----------------------- ------
Amount % Change Amount % Change Amount
------ -------- ------ -------- ------
Salaries and Employee Benefits $ 5,903 13.3% $ 5,212 8.0% $ 4,824
Occupancy Expense - Net 712 10.2 646 (8.9) 706
Furniture and Equipment Expense 691 26.3 547 11.9 489
Other Real Estate Owned Expense (99) -- (41) -- 303
Other Expenses:
Business Development 443 13.0 392 18.1 332
Insurance - Other 99 (26.7) 135 6.3 127
Legal and Professional Fees 479 34.2 357 (15.8) 424
Other Taxes 90 8.4 83 13.7 73
Postage and Courier 251 10.1 228 -- 228
Printing and Supplies 289 (4.6) 303 4.8 289
Regulatory Fees and Assessments 411 (38.3) 666 .8 661
Other Operating Expenses 704 28.7 547 (21.7) 699
----- ----- -----
Total Other Expenses 2,766 2.0 2,711 (4.3) 2,833
----- ----- -----
Total Non-interest Expense $ 9,973 9.9 $ 9,075 (.9) $ 9,155
===== ===== =====
Total non-interest expense increased 9.9% in 1995 over 1994 reflecting
increases in salaries and benefits, occupancy expenses, furniture and
equipment expenses, legal and professional expenses and other operating
expenses. As a percent of average assets, non-interest expenses were
3.21% in 1995 and 1994 and resulted in an "efficiency ratio" (non-
interest expenses divided by total non-interest income plus net interest
income) of 57.3% for 1995. These measures of operating efficiency
compare very favorably to other financial institutions in the
Corporation's peer group.
The increase in salaries and employee benefits for 1995 is due to salary
merit increases, incentive compensation increases and an increase in
pension plan expense. Also, the average number of full-time equivalent
employees increased by five in 1995 to an average full-time equivalent
of 127. The increases for salaries and number of employees include
additions for a branch office opened in mid year of 1995.
The increase in occupancy expense is primarily due to the additional
expense for the new branch office and additional rents at the Summit
National Bank location.
The increase in furniture and equipment expense is primarily a result
of increased depreciation for a new communication system installed in
1995, additional furniture acquired in 1994 and acceleration of
depreciation on certain item processing equipment.
Business development expense increased primarily because of expenses
related to the promotion and advertising of the new branch office.
Legal and professional fees were higher in 1995 due to an increase in
attorney fees related to loan collections and various consultant fees,
primarily marketing.
Regulatory fees and assessments declined in 1995 because of a decrease
in FDIC insurance premiums on deposits. In 1996 the FDIC insurance
premium expense will decline further providing an opportunity for the
Corporation to reflect lower expense in this category.
Other operating expenses increased in 1995 due to an increase in various
miscellaneous operating costs including telephone service fees related
to a new communications system.
-17-
FEDERAL AND STATE INCOME TAX EXPENSE. The Corporation adopted Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
in 1993. See Note 9 of the Corporation's Notes to Consolidated
Financial Statements for details of tax expense. The Corporation
provided $2.5 million for federal income taxes for 1995, resulting in an
effective tax rate of 34.3%.
INVESTMENT SECURITIES. The following table presents the consolidated
investment securities portfolio at amortized cost as of December 31,
1995, classified as to whether the security is to be Held-to-Maturity or
is Available-for-Sale (see Note 1 of the Notes to Consolidated Financial
Statements for a discussion of these designations), by stated maturity
and with the weighted average interest yield for each range of
maturities. The yields on tax-exempt obligations are computed on a
fully taxable equivalent basis using statutory rates for federal income
taxes.
December 31, 1995
-----------------------------------------------------------------------------------------
Due 1 to Due 5 to Due After
Due 1 Year or Less 5 Years 10 Years 10 Years
------------------ ---------------- ---------------- ----------------
(Dollars in Thousands) Amount Yield Amount Yield Amount Yield Amount Yield Total
------ ----- ------ ----- ------ ----- ------ ----- -----
U.S. Treasury Securities - HTM $ 12,048 5.21% $ 20,038 5.83% $ -0- -- $ -0- -- $ 32,086
U.S. Treasury Securities - AFS 22,525 6.01 23,976 6.16 -0- -- -0- -- 46,501
------ ------ ---- ---- ------
Total 34,573 5.73 44,014 6.01 -0- -0- 78,587
------ ------ ---- ---- ------
U.S. Government Agencies - HTM 6,620 5.97 13,673 5.89 3,062 6.38% -0- -- 23,355
U.S. Government Agencies - AFS 1,000 7.67 2,493 6.63 -0- -- -0- -- 3,493
----- ------ ----- ---- ------
Total 7,620 6.19 16,166 6.00 3,062 6.38 -0- 26,848
----- ------ ----- ---- ------
U.S. Government Agency Mortgage
Backed Securities - HTM -0- -- 2,910 5.49 -0- -- 6,144 6.49% 9,054
U.S. Government Agency Mortgage
Backed Securities - AFS -0- -- 744 7.36 -0- -- 3,305 6.65 4,049
----- ----- ---- ----- ------
Total -0- 3,654 5.87 -0- 9,449 6.55 13,103
----- ----- ---- ----- ------
Other Securities - HTM 70 7.05 -0- -- -0- -- -0- -- 70
Other Securities - AFS -0- -- -0- -- -0- -- 254 6.00 254
------ ------ ----- ----- -------
Total $ 42,263 5.82 $ 63,834 6.00 $ 3,062 6.38 $ 9,703 6.53 $118,862
====== ====== ===== ===== =======
Held-to-Maturity ("HTM") $ 18,738 5.49% $ 36,621 5.82% $ 3,062 6.38% $ 6,144 6.49% $ 64,565
Available-for-Sale ("AFS") 23,525 6.08 27,213 6.23 -0- -- 3,559 6.60 54,297
The yield on the investment securities portfolio of the Corporation at
December 31, 1995 was 6.01% and the weighted average life of the
portfolio on that date was approximately 2.3 years. At December 31,
1994, the yield of the portfolio was 5.82% and the weighted average life
was 2.4 years.
Note 2 to the Corporation's Notes to Consolidated Financial Statements
shown in this report reflects the estimated fair values for various
categories of investment securities as of December 31, 1995 and 1994. As
of December 31, 1995, there was a net unrealized gain of $713,000 in the
portfolio of which $506,000 related to Available-or-Sale securities, or
.9% of the amortized cost of those securities.
The following table summarizes the book value of investment securities
held by the Corporation as of December 31 for the past five years (in
thousands):
December 31,
----------------------------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
U.S. Treasury Securities $ 78,981 $ 85,601 $ 78,746 $ 62,526 $ 42,217
U.S. Government Agencies
and Corporations 26,922 18,277 21,769 23,057 35,696
U.S. Government Agency
Mortgage Backed Securities 13,141 10,196 10,830 9,057 4,889
Obligations of States and
Political Subdivisions 70 394 716 1,142 1,704
Federal Reserve Stock 254 254 254 254 252
------- ------- ------- ------ ------
Total $ 119,368 $ 114,722 $ 112,315 $ 96,036 $ 84,758
======= ======= ======= ====== ======
-18-
In 1995, approximately $3 million of investment securities were sold,
resulting in a net loss on sale of securities of $10,000. The
proceeds from the sale of these securities were reinvested in
securities that provided a higher yield on investment and will result
in a recovery of the net loss in a relatively short period of time.
Management of the Corporation views these trades as an opportunity to
increase the earnings capacity of the Corporation into the future.
LOANS. The following schedule classifies loans according to type as
of December 31 for the past five years (dollars in thousands):
December 31,
-----------------------------------------------------------------------------------------------
% of % of % of % of % of
1995 Total 1994 Total 1993 Total 1992 Total 1991 Total
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Commercial $ 81,542 45.7% $ 69,610 50.1% $ 61,638 48.4% $ 57,126 45.8% $ 53,141 44.0%
Real Estate Mortgage 64,200 36.0 51,684 37.2 46,558 36.6 50,983 40.8 50,820 42.2
Real Estate Construction 10,189 5.7 3,656 2.6 3,019 2.4 2,599 2.1 3,892 3.2
Loans to Individuals,
Net of Unearned
Discount 22,562 12.6 14,016 10.1 16,035 12.6 14,135 11.3 12,824 10.6
-------- ----- ------- ----- ------- ----- ------- ------ ------- -----
Total Loans Net of
Unearned Income $178,493 100.0% $138,966 100.0% $127,250 100.0% $124,843 100.0% $120,677 100.0%
======== ======== ======== ======== ========
The preceding loan distribution table reflects that total loans
increased $39.5 million (28.4%) between year-end 1994 and 1995.
Although this increase was significantly above the increase in recent
years, the Corporation is continuing to apply stringent credit
criteria on all loan applications. At December 31, 1995, loans were
57.6% of deposits compared to 53.5% at the previous year-end.
Primarily, the commercial loan customers of the Subsidiary Banks are
small to medium-sized businesses and professionals and executives.
The banks offer a variety of commercial loan products that include
revolving lines of credit, letters of credit, working capital loans
and loans to finance accounts receivable, inventory and equipment.
Generally, these commercial loans have floating rates of interest with
terms of maturity of three years or less.
A significant portion of the $64 million real estate mortgage
portfolio is loans to finance owner-occupied real estate. At December
31, 1995 approximately $38 million of loans, approximately 60% of the
real estate portfolio, had been made for this purpose. Also
approximately 41% of the loans in the real estate mortgage portfolio
have variable rates of interest with a significant portion of the
remaining portfolio having balloon terms and/or rate adjustment
clauses.
The following table presents commercial and real estate construction
loans at December 31, 1995, based on scheduled principal repayments
and the total amount of loans due after one year classified according
to sensitivity to changes in interest rates (in thousands):
Over
One Year
One Year Through Over Five
or Less Five Years Year Total
--------- ---------- --------- -------
Commercial $ 70,002 $ 10,968 $ 572 $ 81,542
Real Estate Construction 8,494 1,695 -0- 10,189
------ ------ --- ------
Totals $ 78,496 $ 12,663 $ 572 $ 91,731
====== ====== === ======
Of the loans maturing after one year $12,858,000 have fixed rates of
interest and $377,000 have variable rates of interest.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is
established through charges to earnings in the form of a provision for
loan losses. Loans, or portions thereof, which are considered to be
uncollectible are charged against this allowance and subsequent
recoveries, if any, are credited to the allowance. The allowance
represents the amount which, in management's judgement, will be
adequate to absorb future charge-offs of existing loans which may
become uncollectible. The adequacy of the allowance is determined by
management's continuous evaluation of the loan portfolio and by the
employment of third party loan review specialists. All known problem
loans, unknown inherent risks generally associated with bank lending,
past loan loss experience, delinquency ratios and current and
projected economic conditions are taken into account in evaluating the
adequacy of the allowance.
-19-
Loans are generally placed on non-accrual status when principal or
interest is past due 90 days or more and the loan is not both well-
secured and in the process of collection, or immediately, if in the
opinion of management, full collection of principal or interest is
doubtful. Loans are charged against the allowance for loan losses
when management believes that the collectibility of the principal is
unlikely.
The following table represents average loans net of unearned income
and an analysis of the consolidated allowance for loan losses (dollars
in thousands):
Years Ended December 31,
------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
Average Loans Outstanding $156,374 $132,079 $127,375 $122,398 $121,070
======== ======== ======== ======== ========
Analysis of Allowance for
Loan Losses:
Balance, Beginning of Year $ 2,410 $ 2,594 $ 2,810 $ 2,934 $ 3,276
Charge-Offs:
Commercial 321 101 142 507 1,228
Real Estate Mortgage -0- 180 173 419 390
Real Estate Construction -0- -0- -0- -0- 300
Loans to Individuals 26 32 134 33 51
------- -------- -------- -------- --------
Total Charge-Offs 347 313 449 959 1,969
------- -------- -------- -------- --------
Recoveries:
Commercial 74 129 136 348 206
Real Estate Mortgage 114 79 63 58 45
Real Estate Construction -0- -0- -0- -0- -0-
Loans to Individuals 13 35 11 8 19
------- -------- -------- -------- --------
Total Recoveries 201 243 210 414 270
------- -------- -------- -------- --------
Net Charge-Offs 146 70 239 545 1,699
------- -------- -------- -------- --------
Provision Charged (Credited)
to Operating Expense 236 (114) 23 421 1,357
------- ------- ------- ------- -------
Balance, End of Year $ 2,500 $ 2,410 $ 2,594 $ 2,810 $ 2,934
====== ====== ======= ======= =======
Ratio of Net Charge-Offs
to Average Loans Outstanding .09% .05% .19% .45% 1.40%
====== ====== ====== ====== ======
The following table reflects the allowance for loan losses compared to
total loans at the end of each year (dollars in thousands):
December 31,
---------------------------------------------------------------------
1995 1994 1993 1992 1991
-------- ------- ------- ------- -------
Total Loans $ 178,493 $ 138,966 $ 127,250 $ 124,843 $ 120,677
Allowance for Loan Losses 2,500 2,410 2,594 2,810 2,934
Allowance for Loan Losses
as a Percent of Total Loans 1.40% 1.73% 2.04% 2.25% 2.43%
Allowance for Loan Losses As
a Percent of Non-Performing Loans 252.0 375.0 174.0 190.0 54.0
Net charge-offs increased to $146,000 in 1995 from $70,000 in 1994.
Net charge-offs on commercial loans were $247,000 while real estate
mortgages experienced a net recovery of $114,000. The increase in
provision for loan losses in 1995 over 1994 recognizes the
Corporation's loan growth and a modest level of loan charge-offs for
the year.
-20-
The following table illustrates the allocation of the allowance for
loan losses to the various loan categories (dollars in thousands):
December 31,
-----------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------------- -------------- ---------------- -------------- ---------------
% % % % %
Amount Total Amount Total Amount Total Amount Total Amount Total
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Allowance For
Loan Losses:
Commercial $1,249 50.0% $ 953 39.5% $ 983 37.9% $ 803 28.6% $ 922 31.4%
Real Estate Mortgage 524 21.0 648 26.9 796 30.7 729 25.9 559 19.1
Real Estate
Construction 63 2.5 28 1.2 37 1.4 143 5.1 283 9.6
Loans to Individuals 132 5.3 198 8.2 169 6.5 155 5.5 49 1.7
Unallocated Portion 532 21.2 583 24.2 609 23.5 980 34.9 1,121 38.2
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total $2,500 100.0% $2,410 100.0% $2,594 100.0% $2,810 100.0% $2,934 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
The allocation is determined by providing specific reserves against
each criticized loan plus a general allocation against the remaining
balance of the portfolio based on experience factors. Management of
the Corporation believes that the allowance for loan losses at
December 31, 1995, is adequate to cover losses inherent in the
portfolio. There can be no assurance that the Corporation will not
sustain loan losses in future periods which could be substantial in
relation to the size of the current allowance.
NON-PERFORMING ASSETS. Non-performing assets consist of non-accrual
loans, renegotiated loans and other real estate. Non-accrual loans
are those on which the accrual of interest has been suspended and on
which the interest is recorded as earned when it is received. Loans
are generally placed on non-accrual status when principal or interest
is past due 90 days or more, and the loan is not both well-secured and
in the process of collection, or immediately, if in the opinion of
management, full collection of principal or interest is doubtful. At
the time a loan is placed on non-accrual status, interest previously
recorded but not collected is reversed and charged against current
interest income.
Renegotiated loans are loans on which the interest and/or the
principal has been reduced due to a deterioration in the borrower's
financial condition. Even though these loans are actually performing,
they are included in non-performing assets because of the loss of
revenue related to the reduction of interest and/or principal.
Other real estate is real estate acquired through foreclosure or
through partial settlement of debts which is awaiting sale and
disposition. At the time of acquisition other real estate is recorded
at the lower of estimated fair value or the loan balance or settlement
agreement with any write-down charged to the allowance for loan
losses. Any further write-downs, expenses related to the property and
any gain or loss resulting from the sale of the property are recorded
in current operating expenses.
The following table summarizes the non-performing assets and loans 90
days past due and still accruing as of December 31, (dollars in
thousands):
December 31,
-------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
Non-accrual Loans $ 990 $ 643 $ 1,471 $ 1,344 $ 5,017
Renegotiated Loans -0- -0- 18 134 452
Other Real Estate 113 649 615 1,541 3,900
----- ----- ----- ----- -----
Total Non-Performing
Assets $ 1,103 $ 1,292 $ 2,104 $ 3,019 $ 9,369
===== ===== ===== ===== =====
As a Percent of:
Total Assets .31% .45% .75% 1.13% 3.65%
Total Loans and Other
Real Estate .62 .93 1.65 2.39 7.52
Loans Past Due 90 Days or
More and Still Accruing $ -0- $ 32 $ 41 $ 1,379 $ 1
-21-
The Subsidiary Banks are required, by the regulatory authorities, to
have other real estate appraised periodically. In the event the new
appraised value is less than the carrying value of the property, the
excess is written off to expense. Some properties are written down
below their appraised values when management feels the economic value
of the property has declined below the appraised value.
In loans past due 90 days or more and still accruing at December 31,
1992, $1,295,000 of the balance was represented by one loan.
Non-accrual loans at December 31, 1995, were comprised of $831,000 in
commercial loans, $157,000 in real estate mortgages, $2,000 in loans
to individuals.
The impact on interest income from the above non-accrual loans and
renegotiated loans for the past five (5) years is provided below (in
thousands):
Years Ended December 31,
------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Gross Amount of Interest
That Would Have Been
Recorded at Original Rate $ 102 $ 35 $ 165 $ 147 $ 481
Interest Included in Income 42 25 41 44 38
--- -- --- --- ---
Interest Not Recorded
in Income $ 60 $ 10 $ 124 $ 103 $ 443
--- -- --- --- ---
Loans of each Subsidiary Bank are graded on a system similar to that
used by the regulators. The first level of criticized loans is "Other
Assets Especially Mentioned" (OAEM). These loans are normally
fundamentally sound but have potential weaknesses which may, if not
corrected, weaken the asset or inadequately protect the bank's credit
position at some future date. The second level is "Substandard",
which are loans inadequately protected by current sound net worth,
paying capacity or pledged collateral. The last level of criticized
loans, before they are charged off, is "Doubtful". Doubtful loans are
considered to have inherent weaknesses because collection or
liquidation in full is highly questionable.
Non-accrual loans normally include weaker Substandard loans and loans
that are considered to be Doubtful.
The level of the allowance for loan losses deemed adequate by
management and the board of directors of each bank is determined by
providing a specific allocation against each criticized loan plus a
general allocation against the remaining portfolio which is determined
by various experience factors of each Subsidiary Bank.
The following table summarizes the relationship between non-performing
loans, criticized loans and the allowance for loan losses (dollars in
thousands):
December 31,
-----------------------------------------------------------------------
1995 1994 1993 1992 1991
------ ------- ------ ------ ------
Non-Performing Loans $ 990 $ 643 $ 1,489 $ 1,478 $ 5,469
Criticized Loans 7,621 4,497 5,920 6,742 8,999
Allowance for Loan Losses 2,500 2,410 2,594 2,810 2,934
Allowance for Loan Losses
as a Percent of:
Non-Performing Loans 252.0% 375.0% 174.0% 190.0% 54.0%
Criticized Loans 33.0 54.0 44.0 42.0 33.0
The increase in criticized loans at December 31, 1995 primarily
relates to three credits that are currently paying, but may require an
extension of payment terms.
-22-
Independent third party loan reviews of the Subsidiary Banks were
completed in mid to late 1995. Based on the findings of these reviews
the Subsidiary Banks appear to be adequately reserved.
Management is not aware of any potential loan problems, that have not
been disclosed, to which serious doubts exist as to the ability of the
borrower to substantially comply with the present repayment terms.
DEPOSITS. The primary source of the Corporation's funds is the
deposits of the Subsidiary Banks. The majority of the Corporation's
deposits could be considered "core" deposits, that is, deposits that
are not subject to material changes due to customer withdrawal due to
market rate changes. The Corporation does not accept brokered
deposits. The deposit types' daily average balance and related
average rates paid during each of the last three (3) years are as
follows (dollars in thousands):
1995 1994 1993
--------------------- -------------------- -------------------
Amount Rate Paid Amount Rate Paid Amount Rate Paid
-------- --------- -------- --------- -------- ---------
Noninterest-Bearing Demand Deposits $ 74,024 $ 64,431 $ 56,101
Interest-Bearing Deposits:
Interest-Bearing Transaction
Accounts 103,932 3.40% 102,199 2.64% 96,421 2.46%
Savings 25,792 3.63 18,435 2.53 16,718 2.55
Savings Certificates - Time 47,527 4.82 47,102 3.36 50,238 3.32
Certificates of Deposit
Greater Than $100,000 23,421 4.98 21,976 3.46 22,060 3.09
Other Time Deposits 254 4.88 232 3.29 205 2.93
------- ------- -------
Total Interest-Bearing Deposits 200,926 189,944 2.90 185,642 2.77
-------- -------- --------
Total Deposits $274,950 $254,375 $241,743
======= ======= =======
The remaining maturity on certificates of deposit of $100,000 or more
as of December 31, 1995, 1994 and 1993 is presented below (in
thousands):
Maturity 1995 1994 1993
- -------- -------- -------- --------
3 months or less $ 12,023 $ 14,558 $ 12,107
3 to 6 months 6,810 4,988 6,829
6 to 12 months 5,167 2,884 3,110
Over 12 months 551 251 -0-
Interest Rate Sensitivity. The objectives of monitoring and managing
the interest rate risk of the balance sheet are to contribute to
earnings by minimizing adverse changes in net interest income as a
result of changes in the direction and level of interest rates and to
provide liquidity to satisfy cash flow requirements to meet customers'
fluctuating demands.
Interest rate sensitivity is the relationship between changes in the
market interest rates and changes in net interest income due to the
repricing characteristics of assets and liabilities.
An asset-sensitive position in a given period will result in more
assets than liabilities being subject to repricing; therefore, market
interest-rate changes will be reflected more quickly in asset rates.
If interest rates decline, such position will have an adverse effect
on net interest income. Conversely, in a liability-sensitive
position, where liabilities reprice more quickly than assets in a
given period, a decline in market rates will benefit net interest
income.
A mix of earning assets and interest-bearing liabilities in which
relatively equal volumes reprice each period represents a matched
interest sensitivity "gap" position; any excess of these assets or
liabilities results in an interest sensitive gap.
-23-
The following table, commonly referred to as a "static gap report",
indicates the interest rate-sensitivity position at December 31, 1995
and may not be reflective of positions in subsequent periods (dollars
in thousands):
Repriced
Due in After 1
30 Due in Due in Due in Total Year or
Days 31-90 91-180 181 Days Rate Non-Rate
Or Less Days Days to One Year Sensitive Sensitive Total
-------- -------- ------- ----------- --------- --------- --------
Earning Assets:
Loans $ 94,558 $ 8,723 $10,804 $ 19,116 $133,201 $ 45,292 $178,493
Investment Securities 12,007 7,672 10,854 29,353 59,886 59,482 119,368
Federal Funds Sold 25,680 -0- -0- -0- 25,680 -0- 25,680
-------- -------- -------- -------- -------- -------- --------
Total Earning Assets $132,245 $ 16,395 $ 21,658 $ 48,469 $218,767 $104,774 $323,541
======= ======= ======= ======= ======= ======= =======
Interest-Bearing Liabilities:
Interest-Bearing
Transaction Accounts
and Savings $147,030 $ -0- $ -0- $ -0- $147,030 $ -0- $147,030
Certificates of
Deposits > $100,000 6,058 5,964 6,810 5,167 23,999 552 24,551
Other Time Deposits 3,738 11,628 13,484 13,702 42,552 6,792 49,334
Repurchase Agreements 13,528 -0- -0- -0- 13,528 -0- 13,528
-------- -------- -------- -------- -------- -------- --------
Total Interest-
Bearing Liabilities $170,354 $ 17,592 $ 20,294 $ 18,869 $227,109 $ 7,344 $234,454
======= ======= ======= ======= ======= ======= =======
Interest Sensitivity Gap $(38,109) $ (1,197) $ 1,364 $ 29,600 $ (8,342) $ 97,430 $ 89,088
======= ======= ======= ======= ======= ======= =======
Cumulative Gap $(38,109) $(39,306) $(37,942) $ (8,342)
======= ======= ======= =======
Cumulative Gap To
Total Earning Assets (11.8%) (12.1%) (11.7%) (2.6%)
Cumulative Gap To
Total Assets (10.7%) (11.1%) (10.7%) (2.3%)
In the preceding table under the "After 1 Year" category, $53,425,000
in investment securities will reprice or mature within one to three
years and another $3,698,000 will reprice or mature within three to
five years. The average maturity of the investment portfolio is
approximately 2.3 years. Also, the above table reflects the call
dates versus maturity dates and periodic principal amortization of
investment securities.
The preceding static gap report reflects a cumulative liability
sensitive position during the one year horizon. An inherent weakness
of this report is that it ignores the relative volatility any one
category may have in relation to other categories or market rates in
general. For instance, the rate paid on certain interest-bearing
transaction accounts typically moves slower than the three month T-
Bill. Management attempts to capture this relative volatility by
utilizing a simulation model with a "beta factor" adjustment which
estimates the volatility of rate sensitive assets and/or liabilities
in relation to other market rates.
Beta factors are an estimation of the long term, multiple interest
rate environment relation between an individual account and market
rates in general. For instance, NOW, savings and money market
accounts, which are repriceable within 30 days will have considerably
lower beta factors than variable rate loans and most investment
categories. Taking this into consideration, it is quite possible for
a bank with a negative cumulative gap to total asset ratio to have a
positive "beta adjusted" gap risk position.
As a result of applying the beta factors established by management to
the earning assets and interest-bearing liabilities in the static gap
report via a simulation model, the cumulative gap to total assets
ratio at one year of (2.3%) was reversed to a positive 17.7% "beta
adjusted" gap position.
Management feels that the "beta adjusted" gap risk technique more
accurately reflects the Corporation's gap position.
It is anticipated that sudden fluctuations in interest rates will not
have a great impact on the spreads and margins of the Subsidiary Banks
and on the Corporation as a whole because the Corporation is matching
its rate sensitive assets with its rate sensitive liabilities in
situations where it is most feasible.
-24-
The following table reflects the spreads and margins for the past
three (3) years:
1995 1994 1993
---- ---- ----
Yield on Earning Assets (T/E) 8.04% 7.03% 7.05%
Cost of Funds 3.98 2.92 2.78
Net Interest Spread (T/E) 4.06 4.11 4.27
Net Interest Margin (T/E) 5.15 4.85 4.90
CAPITAL RESOURCES. In 1989, the Federal Reserve Board and the Office
of the Comptroller of the Currency issued new risk-based capital
guidelines for U.S. banking organizations. The objective of these
efforts was to provide a more consistent system for comparing capital
positions of banking organizations and to reflect the level of risk
associated with holding various categories of assets.
The guidelines define Tier 1 capital and Tier 2 capital. The only
components of Tier 1 and Tier 2 capital, for the Corporation, are
equity capital and equity capital plus a portion of the allowance for
loan losses, respectively.
The guidelines also stipulate that four categories of risk weights (0,
20, 50, and 100 percent), primarily based on the relative credit risk
of the counterparty, be applied to the different types of balance
sheet assets. Risk weights for all off-balance sheet exposures are
determined by a two step process whereas the face value of the off-
balance sheet item is converted to a "credit equivalent amount" and
that amount is assigned to the appropriate risk category. Off-balance
sheet items at December 1993, 1994 and 1995 included unfunded loan
commitments and letters of credit.
The minimum ratio for qualifying total capital is 8.00 percent, of
which 4.00 percent must be Tier 1 capital.
The Federal Reserve Board and the Comptroller of the Currency also has
a capital to total assets (leverage) guideline and transitional
capital standards for banking organizations. These guidelines
establish a minimum level of Tier 1 capital to total assets of 3
percent. A banking organization operating at or near these levels is
expected to have well-diversified risk, excellent asset quality, high
liquidity, good earnings and in general be considered a strong
banking organization. Organizations not meeting these characteristics
are expected to operate well above these minimum capital standards.
Thus, for all but the most highly rated organizations, the minimum
Tier 1 leverage ratio is to be 3 percent plus minimum additional
cushions of at least 100 to 200 basis points. At the discretion of
the regulatory authorities, additional capital may be required.
The table below illustrates the Corporation's and its Subsidiary
Banks' compliance with the new guidelines as of December 31, 1995
(dollars in thousands):
The Summit Alta Mesa Camp Bowie
Consolidated National National National
Corporation Bank Bank Bank
------------- --------- --------- --------
Total Assets $ 355,417 $ 170,494 $ 89,300 $ 93,992
Risk Weighted Assets 205,071 102,550 46,979 49,554
Equity Capital (Tier 1) $ 30,125 $ 13,678 $ 7,048 $ 7,394
Qualifying Allowance For
Loan Losses 2,500 1,165 522 578
------ ------- ------ -----
Total Tier 2 Capital $ 32,625 $ 14,843 $ 7,570 $ 7,972
====== ====== ===== =====
Leverage Ratio 8.58% 8.02% 7.89% 7.87%
Risk Capital Ratio:
Tier 1 14.69% 13.34% 15.00% 14.92%
Total Tier 2 15.91 14.47 16.11 16.09
As can be seen in the preceding table, the Corporation and its
Subsidiary Banks exceed the risk-based capital and leverage
requirements set by the regulators as of December 31, 1995.
-25-
Also, as of December 31, 1995, the Corporation and its Subsidiary
Banks met the criteria for classification as a "well-capitalized"
institution under the rules of the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA").
Liquidity. Liquidity is defined as the Corporation's ability to meet
deposit withdrawals, provide for the legitimate credit needs of
customers, and take advantage of certain investment opportunities as
they arise. While maintaining adequate liquid assets to fulfill these
functions, it must also maintain compatible levels of maturity and
rate concentrations between its sources of funds and earning assets.
The liability structure of the Corporation is short-term in nature and
the asset structure is likewise oriented towards short maturities.
The Corporation's primary "internal" source of liquidity is its
federal funds sold and its marketable investment securities,
particularly those with shorter maturities. At December 31, 1995,
federal funds sold and investment securities maturing within 90 days
represented $45.3 million or 12.8% of total assets. Additionally, the
Corporation's ability to sell loan participations and purchase federal
funds serve as secondary sources of liquidity. Each of the
Subsidiary Banks have approved federal funds lines at other banks.
The liquidity of the Corporation is enhanced by the fact that 91% of
total deposits at December 31, 1995, were "core" deposits. Core
deposits for this purpose are defined as total deposits less public
funds and certificates of deposit greater than $100,000.
-26-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA: PAGE
- ----------------------------------------------------- ----
Independent Auditor's Report 28
Consolidated Balance Sheets of Summit Bancshares, Inc.
and Subsidiaries as of December 31, 1995 and 1994 29
Consolidated Statements of Income of Summit Bancshares, Inc.
and Subsidiaries for the Years Ended December 31, 1995,
1994 and 1993 30
Statements of Changes in Shareholders' Equity of Summit
Bancshares, Inc. and Subsidiaries for the Years Ended
December 31, 1995, 1994 and 1993 (Consolidated and
Parent Company Only) 31
Consolidated Statement of Cash Flows of Summit Bancshares,
Inc. and Subsidiaries for the Years Ended December 31,
1995, 1994 and 1993 32
Notes to Financial Statements 33-49
-27-
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Summit Bancshares, Inc.
Fort Worth, Texas
We have audited the accompanying consolidated balance sheets of Summit
Bancshares, Inc. and Subsidiaries as of December 31, 1995 and 1994,
and the related statements of income, changes in shareholders' equity
and cash flows for each of the three years in the period ending
December 31, 1995. These financial statements are the responsibility
of the Corporation'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 Subsidiaries, as of December 31, 1995 and 1994,
and the results of their operations and their cash flows for each of
the three years in the period ending December 31, 1995, in conformity
with generally accepted accounting principles.
/s/ STOVALL, GRANDEY, & WHATLEY
Fort Worth, Texas
January 22, 1996
-28-
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
------------------------------
ASSETS 1995 1994
--------- --------
(In Thousands)
CASH AND DUE FROM BANKS $ 22,480 $ 18,420
FEDERAL FUNDS SOLD 25,680 9,740
INVESTMENT SECURITIES - NOTE 2
(Market value of $119,575,000 in 1995
and $112,498,000 in 1994) 119,368 114,722
LOANS - NOTE 3
Loans, Net of Unearned Discount 178,493 138,966
Allowance for Loan Losses (2,500) (2,410)
------- ------
LOANS, NET 175,993 136,556
PREMISES AND EQUIPMENT, NET - NOTE 4 7,157 6,602
ACCRUED INCOME RECEIVABLE 3,288 2,732
OTHER REAL ESTATE - NOTE 5 113 649
OTHER ASSETS - NOTE 9 1,338 1,590
------- -------
TOTAL ASSETS $ 355,417 $ 291,011
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS - NOTE 6
Noninterest-Bearing Demand $ 89,184 $ 72,992
Interest-Bearing 220,925 186,547
------- -------
TOTAL DEPOSITS 310,109 259,539
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE 13,528 4,528
NOTE PAYABLE - NOTE 7 -0- 250
ACCRUED INTEREST PAYABLE 635 487
OTHER LIABILITIES 1,020 873
----- -----
TOTAL LIABILITIES 325,292 265,677
------- -------
COMMITMENTS AND CONTINGENCIES - NOTES 4, 7, 12, 17 and 18
SHAREHOLDERS' EQUITY - NOTES 11, 13, 19 and 20
Common Stock - $1.25 par value; 20,000,000 shares authorized;
3,149,886 and 1,578,723 shares issued and outstanding
at December 31, 1995 and 1994, respectively 3,937 1,973
Capital Surplus 4,109 6,047
Retained Earnings 21,745 18,187
Unrealized Gain (Loss) on Investment Securities Available-for-Sale,
Net of Tax 334 (873)
------ ------
TOTAL SHAREHOLDERS' EQUITY 30,125 25,334
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 355,417 $ 291,011
======= =======
The accompanying Notes should be read with these financial statements.
-29-
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1994 1993
-------- -------- --------
(In Thousands, Except Per Share Data)
INTEREST INCOME
Interest and Fees on Loans $ 15,331 $ 11,455 $ 10,805
Interest and Dividends on Investment Securities:
Taxable 6,479 6,042 5,693
Exempt from Federal Income Taxes 23 32 60
Interest on Federal Funds Sold 1,096 614 535
Interest on Time Deposits with Banks -0- -0- 2
------ ------ ------
TOTAL INTEREST INCOME 22,929 18,143 17,095
------ ------ ------
INTEREST EXPENSE
Interest on Deposits - NOTE 6 7,936 5,510 5,149
Interest on Securities Sold Under
Agreements to Repurchase 340 91 49
Interest on Notes Payable - NOTE 7 1 24 37
------ ------ ------
TOTAL INTEREST EXPENSE 8,277 5,625 5,235
------ ------ ------
NET INTEREST INCOME 14,652 12,518 11,860
LESS: PROVISION (CREDIT) FOR LOAN LOSSES - NOTE 3 236 (114) 23
------ ------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 14,416 12,632 11,837
------ ------ ------
NON-INTEREST INCOME
Service Charges and Fees on Deposits 1,525 1,548 1,643
Gain (Loss) on Sale of Investment Securities (10) (152) 3
Other Income 1,239 1,181 1,212
------ ------ ------
TOTAL NON-INTEREST INCOME 2,754 2,577 2,858
------ ------ ------
NON-INTEREST EXPENSE
Salaries and Employee Benefits 5,903 5,212 4,824
Occupancy Expense - Net 712 646 706
Furniture and Equipment Expense 691 547 489
Other Real Estate Owned Expense - Net (99) (41) 303
Other Expense - NOTE 8 2,766 2,711 2,833
------ ------ ------
TOTAL NON-INTEREST EXPENSE 9,973 9,075 9,155
------ ------ ------
INCOME BEFORE INCOME TAXES 7,197 6,134 5,540
APPLICABLE INCOME TAXES - NOTE 9 2,468 2,094 1,809
------ ------ ------
NET INCOME $ 4,729 $ 4,040 $ 3,731
====== ====== ======
NET INCOME PER SHARE - NOTE 13 $ 1.51 $ 1.29 $ 1.21
====== ===== ======
The accompanying Notes should be read with these financial statements.
-30-
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
CONSOLIDATED AND COMPANY ONLY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Unrealized
Gain (Loss) on
Common Stock Capital Retained Investment Treasury
Shares Amount Surplus Earnings Securities - Net Stock Total
- --------------------------------------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Data)
BALANCE AT
JANUARY 1, 1993 1,543,584 $ 1,929 $ 5,929 $ 11,643 $ -0- $ -0- $ 19,501
Stock Options
Exercised 15,740 20 58 78
Cash Dividend -
$.1075 Per Share (332) (332)
Net Income for
Year Ended 1993 3,731 3,731
--------- ------- ------ ------ ----- ----- ------
BALANCE AT
DECEMBER 31, 1993 1,559,324 1,949 5,987 15,042 -0- -0- 22,978
Stock Options
Exercised 39,289 49 60 109
Purchases of Stock Held
in Treasury (353) (353)
Retirement of Stock
Held in Treasury (19,890) (25) (328) 353 -0-
Cash Dividend -
$.18 Per Share (567) (567)
Securities Available-
for-Sale Adjustment (873) (873)
Net Income for
Year Ended 1994 4,040 4,040
--------- ------- ------- ------ ------ ------ ------
BALANCE AT
DECEMBER 31, 1994 1,578,723 1,973 6,047 18,187 (873) -0- 25,334
Stock Options Exercised 19,000 24 31 55
Purchases of Stock Held
in Treasury (508) (508)
Retirement of Stock
Held in Treasury (22,780) (29) (479) 508 -0-
Two-for-One Stock Split 1,574,943 1,969 (1,969) -0-
Cash Dividend -
$.22 Per Share (692) (692)
Securities Available-
for-Sale Adjustment 1,207 1,207
Net Income for
Year Ended 1995 4,729 4,729
--------- ------ ------ ------- ------ ------ ------
BALANCE AT
DECEMBER 31, 1995 3,149,886 $ 3,937 $ 4,109 $ 21,745 $ 334 $ -0- $ 30,125
========= ====== ===== ====== ===== ====== ======
The accompanying Notes should be read with these financial statements.
-31-
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands) YEAR ENDED DECEMBER 31,
- ---------------------- -----------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 1995 1994 1993
----- ---- ----
Net Income $ 4,729 $ 4,040 $ 3,731
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 652 545 498
Net Premium Amortization of Investment Securities 445 831 896
Provision (Credit) for Loan Losses 236 (114) 23
Net Increase in Deferred Income Taxes 68 248 230
(Gain) Loss on Sale of Investment Securities 10 152 (3)
Writedown of or Provision for Other Real Estate 12 -0- 261
Net Gain From Sale of Other Real Estate (78) (55) (21)
Net (Gain) Loss on Sale of Premises and Equipment -0- 2 (106)
Increase in Accrued Income and Other Assets (1,044) (692) (343)
Increase (Decrease) in Accrued Expenses and Other Liabilities 297 (20) 140
------ ------ ------
TOTAL ADJUSTMENTS 598 895 1,575
------ ------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,327 4,935 5,306
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (Increase) Decrease in Federal Funds Sold (15,940) 10,010 (2,075)
Proceeds from Matured and Prepaid Investment Securities 31,431
- Held-to-Maturity 21,154 11,453
- Available-for-Sale 12,703 17,047
Proceeds from Sales of Investment Securities 2,969 26,885 1,110
Purchase of Investment Securities (49,713)
- Held-to-Maturity (27,616) (19,126)
- Available-for-Sale (12,482) (40,972)
Loans Originated and Principal Repayments, Net (39,724) (12,314) (2,935)
Recoveries of Loans Previously Charged-Off 201 243 210
Proceeds from Sale of Premises and Equipment -0- 29 170
Proceeds from Sale of Other Real Estate 502 548 662
Purchases of Premises and Equipment (1,207) (802) (660)
------- ------ -------
NET CASH USED BY INVESTING ACTIVITIES (59,440) (6,999) (21,800)
------- ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Demand Deposits, Savings
Accounts and Interest Bearing Transaction Accounts 45,230 7,564 15,702
Net Increase (Decrease) in Certificates of Deposit 5,338 (2,175) (4,481)
Net Increase (Decrease) in Repurchase Agreements 9,000 2,849 (450)
Principal Payments on Notes Payable (250) (250) (250)
Payments of Cash Dividends (692) (567) (332)
Proceeds from Stock Options Exercised 55 109 78
Purchase of Treasury Stock (508) (353) -0-
------ ------ ------
NET CASH PROVIDED BY FINANCING ACTIVITIES 58,173 7,177 10,267
------ ------ ------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 4,060 5,113 (6,227)
------ ------ ------
CASH AND DUE FROM BANKS - BEGINNING OF YEAR 18,420 13,307 19,534
------ ------ ------
CASH AND DUE FROM BANKS - END OF YEAR $ 22,480 $ 18,420 $ 13,307
====== ====== ======
SUPPLEMENTAL SCHEDULE OF OPERATING AND INVESTING ACTIVITIES
Interest Paid $ 8,129 $ 5,516 $ 5,297
Income Taxes Paid 2,410 1,825 1,597
Other Real Estate Acquired in Settlement of Loans -0- 528 184
Bank Financed Sales of Other Real Estate 100 234 60
The accompanying Notes should be read with these financial statements.
-32-
SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Summary of Significant Accounting and Reporting Policies
The accounting and reporting policies of Summit Bancshares, Inc. ("the
Corporation") and its Subsidiaries are in accordance with generally
accepted accounting principles and the prevailing practices within the
banking industry. A summary of the more significant policies follows:
Basis of Presentation and Principles of Consolidation
The consolidated financial statements of the Corporation include its
accounts and those of its wholly-owned subsidiaries, Summit National
Bank, Alta Mesa National Bank and Camp Bowie National Bank (the
"Subsidiary Banks") and Summit Bancservices, Inc. ("Bancservices").
All significant intercompany balances and transactions have been
eliminated.
Cash and Due From Banks
The Subsidiary Banks are required to maintain certain balances at the
Federal Reserve Bank based on their level of deposits. During 1995
the average cash balance maintained at the Federal Reserve Bank was
approximately $8,200,000. Compensating balances held at correspondent
banks, to minimize service charges, averaged approximately $5,098,000
in 1995.
Investment Securities
Effective January 1, 1994, the Corporation adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". This statement addresses
the accounting and reporting for investments in equity securities that
have readily determinable fair values and for all investments in debt
securities. Those investments are to be classified in three
categories and accounted for as follows:
- Debt securities that the Corporation has the positive intent and
ability to hold to maturity are classified as held-to-maturity
securities and reported at amortized cost.
- Debt and equity securities that are bought and held principally for
the purpose of selling them in the near term are classified as
trading securities and reported at fair value, with unrealized
gains and losses included in earnings.
- Debt and equity securities not classified as either held-to-
maturity securities or trading securities are classified as
available-for-sale securities and reported at fair value, with
unrealized gains and losses excluded from earnings and reported net
of tax in a separate component of shareholders' equity.
As a result of the adoption of this statement, the Corporation
transferred, as of January 1, 1994, securities with a fair value of
$60,413,965 to the available-for-sale classification and the net
after tax excess of fair value over amortized cost of $592,970 was
recorded in a separate component of shareholders' equity. The prior
years' financial statements have not been restated in accordance with
the provisions of the pronouncement. The Corporation has the ability
and intent to hold to maturity its investment securities classified as
held-to-maturity; accordingly, no adjustment has been made for the
excess, if any, of amortized cost over market. In determining the
investment category classifications, management considers its
asset/liability strategy, changes in interest rates and prepayment
risk, the need to increase capital and other factors. Under certain
circumstances (including the deterioration of the issuer's
creditworthiness, a change in tax law, or statutory or regulatory
requirements), the Corporation may change the investment security
classification.
-33-
All investment securities are adjusted for amortization of premiums
and accretion of discounts. Amortization of premiums and accretion of
discounts are recorded to income over the contractual maturity or
estimated life of the individual investment on the level yield method.
Gain or loss on sale of investments is based upon the specific
identification method and the gain or loss is recorded in non-interest
income. Income earned on the Corporation's investments in securities
of state and political subdivisions is not taxable.
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are stated at the principal amount outstanding less unearned
discount and the allowance for loan losses. Unearned discount on
installment loans is recognized as income over the terms of the loans
by a method approximating the interest method. Interest income on all
other loans is recognized based upon the principal amounts
outstanding. Generally, loan origination and commitment fees are
recognized at the time of funding and are considered adjustments to
interest income. Related direct costs are not separately allocated to
loans but are charged to non-interest expense in the period incurred.
The net effect of not recognizing such fees and related costs over the
life of the related loan is not considered to be material to the
financial statements. The accrual of interest on a loan is
discontinued when, in the opinion of management, there is doubt about
the ability of the borrower to pay interest or principal. Interest
previously earned, but uncollected on such loans, is written off.
When loans are placed on non-accrual all payments received are applied
to principal and no interest income is recorded until the loan is
returned to accrual status or the principal has been reduced to zero.
In January 1995, the Corporation adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan." Under the new standard, the allowance for loan losses
related to any loans that are identified for evaluation in accordance
with Statement No. 114 (impaired loans) is based on discounted cash
flows using the loan's initial effective rate or the fair value of the
collateral for certain collateral dependent loans. Prior to 1995, the
allowance for loan losses related to these loans was based on
undiscounted cash flows or the fair value of the collateral for
collateral dependent loans.
The allowance for loan losses is comprised of amounts charged against
income in the form of the provision for loan losses as determined by
management. Management's evaluation is based on a number of factors,
including the Subsidiary Banks' loss experience in relation to
outstanding loans and the existing level of the allowance, prevailing
and prospective economic conditions, and management's continuing
review of nonperformance loans and its evaluation of the quality of
the loan portfolio. Loan balances are charged against the allowance
for loan losses when management believes that the collectability of
the principal is unlikely.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation expense is computed on
the straight-line method based upon the estimated useful lives of the
assets ranging from 3 to 40 years. Maintenance and repairs are
charged to operating expenses. Renewals and betterments are added to
the asset accounts and depreciated over the periods benefited.
Depreciable assets sold or retired are removed from the asset and
related accumulated depreciation accounts and any gain or loss is
reflected in the income and expense accounts.
OTHER REAL ESTATE
Other real estate is foreclosed property held pending disposition and
is valued at the lower of its fair value or the recorded investment in
the related loan. At foreclosure, if the fair value of the real
estate acquired is less than the Corporation's recorded investment in
the related loan, a writedown is recognized through a charge to the
allowance for loan losses. Any subsequent reduction in value is
recognized by a charge to income. Operating expenses of such
properties, net of related income, and gains and losses on their
disposition are included in non-interest expense.
FEDERAL INCOME TAXES
The Corporation joins with its Subsidiaries in filing a consolidated
federal income tax return. The Subsidiaries pay a charge equivalent
to their current federal income tax to the Corporation based on the
separate taxable income of the Subsidiaries.
The Corporation and the Subsidiaries maintain their records for
financial reporting and income tax reporting purposes on the accrual
basis of accounting. Deferred income taxes are provided in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes". Deferred taxes are provided for accumulated
temporary differences due to basic differences for assets and
liabilities for financial reporting and income tax purposes.
STATE INCOME TAXES
The Corporation and each of the Subsidiaries file separate state
franchise tax returns. As a result of a state franchise tax law
passed by the Texas Legislature in 1991, the Corporation and the
Subsidiaries are subject to a "state income tax." Since the basis for
the state income tax is "federal income tax taxable income", less
interest on U.S. Government Obligations, the Corporation had no state
income tax liability in any of the reported years.
CASH AND CASH EQUIVALENTS
For the purpose of presentation in the Statements of Cash Flows, cash
and cash equivalents are defined as those amounts included in the
balance sheet caption "Cash and Due from Banks".
RECLASSIFICATION
Certain reclassifications have been made to the 1994 and 1993
financial statements to conform to the 1995 presentation.
NOTE 2 - Investment Securities
A summary of amortized cost and estimated fair values of investment
securities is as follows (in thousands):
December 31, 1995
-------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- --------- --------- ---------
Investment Securities - Held-to-Maturity
U.S. Treasury Securities $ 32,086 $ 285 $ (119) $ 32,252
U.S. Government Agencies
and Corporations 23,355 66 (9) 23,412
U.S. Government Agency
Mortgage Backed Securities 9,054 23 (40) 9,037
Obligations of States and
Political Subdivisions 70 1 -0- 71
------- ----- ----- -------
Total Held-to-Maturity Securities 64,565 375 (168) 64,772
------- ----- ----- -------
Investment Securities - Available-for-Sale
U.S. Treasury Securities 46,501 445 (51) 46,895
U.S. Government Agencies
and Corporations 3,493 78 (4) 3,567
U.S. Government Agency
Mortgage Backed Securities 4,049 47 (9) 4,087
Federal Reserve Bank Stock 254 -0- -0- 254
------- ---- ---- -------
Total Available-for-Sale Securities 54,297 570 (64) 54,803
------- ---- ---- -------
Total Investment Securities $ 118,862 $ 945 $ (232) $ 119,575
======= ==== ==== =======
In the above schedule, the AMORTIZED cost of Total Held-to-Maturity
Securities of $64,565,000 and the estimated FAIR VALUE of Total
Available-for-Sale Securities of $54,803,000 are reflected in
Investment Securities on the consolidated balance sheet as of December
31, 1995 for a total of $119,368,000. A net unrealized gain of
$506,000 is included in the Available-for-Sale Investment Securities
balance. The unrealized gain, net of tax, is included in
Shareholders' Equity.
-35-
December 31, 1995
-------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- --------- --------- ---------
Investment Securities - Held-to-Maturity
U.S. Treasury Securities $ 38,200 $ 15 $ (1,376) $ 36,839
U.S. Government Agencies
and Corporations 15,291 6 (436) 14,861
U.S. Government Agency
Mortgage Backed Securities 6,552 -0- (440) 6,112
Obligations of States and
Political Subdivisions 394 7 -0- 401
------- --- ------ -------
Total Held-to-Maturity Securities 60,437 28 (2,252) 58,213
------- --- ------ -------
Investment Securities - Available-for-Sale
U.S. Treasury Securities 48,573 8 (1,180) 47,401
U.S. Government Agencies
and Corporations 3,033 1 (48) 2,986
U.S. Government Agency
Mortgage Backed Securities 3,748 3 (107) 3,644
Federal Reserve Bank Stock 254 -0- -0- 254
------- --- ------ -------
Total Available-for-Sale Securities 55,608 12 (1,335) 54,285
------- --- ------ -------
Total Investment Securities $ 116,045 $ 40 $ (3,587) $ 112,498
======= === ====== =======
In the above schedule, the AMORTIZED COST of Total Held-to-Maturity
Securities of $60,437,000 and the estimated FAIR VALUE of Total
Available-for-Sale Securities of $54,285,000 are reflected in
Investment Securities on the consolidated balance sheet as of December
31, 1994 for a total of $114,722,000. A net unrealized loss of
$1,323,000 is included in the Available-for-Sale Investment Securities
balance. The unrealized loss, net of tax benefit, is included in
Shareholders' Equity.
A summary of the amortized cost and estimated fair value of debt
securities by contractual maturity as of December 31, 1995, is shown
below (in thousands). Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
repay obligations with or without call or prepayment penalties.
December 31, 1995
---------------------------------------------------------------------
Held-to-Maturity Available-for-Sale
-------------------------- -----------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- --------- ---------- ----------
Due in One Year or Less $ 18,738 $ 18,730 $ 23,525 $ 23,627
Due after One Year
through Five Years 36,621 36,810 27,213 27,585
Due after Five Years
through Ten Years 3,062 3,069 -0- -0-
Due after Ten Years 6,144 6,163 3,559 3,591
------ ------ ------ ------
Total $ 64,565 $ 64,772 $ 54,297 $ 54,803
====== ====== ====== ======
Included in the investment securities is $9,449,000 and $6,015,000 at
December 31, 1995 and December 31, 1994, respectively, of mortgage-
backed securities having stated maturities after the year 2000. The
estimated maturities on these securities are between two and twelve
years as of December 31, 1995, based on estimated prepayments of the
underlying mortgages.
Investment securities with carrying values of $25,214,000 and
$14,712,000 at December 31, 1995 and 1994, respectively, were pledged
to secure federal, state and municipal deposits and for other purposes
as required or permitted by law. Also, the fair values of those
pledged securities totaled $25,265,000 and $14,106,000 at December 31,
1995 and 1994, respectively.
-36-
Proceeds from sales of investment securities were $2,969,000 during
1995, $26,885,000 during 1994 and $1,110,000 during 1993. In 1995, a
loss from sale of securities of $10,000 was realized. Gross losses of
$184,000 were realized in 1994, but were partially offset by gross
gains of $32,000. Gross gains of $3,000 were realized on sales for
1993. Of the total amount of proceeds from securities sales in 1995
and 1994 all were from sales of securities included in the Available-
for-Sale category.
The Corporation or Subsidiaries do not own any investment securities
of any one issuer of which aggregate adjusted cost exceeds 10% of the
consolidated shareholders' equity at December 31, 1995 and 1994,
respectively.
NOTE 3 - Loans and Allowance For Loan Losses
The loan portfolio consists of various types of loans made principally
to borrowers located in Tarrant County, Texas. The book values of
loans by major type follow (in thousands):
December 31,
----------------------------------------
1995 1994
----------- -----------
Commercial $ 81,542 $ 69,610
Real Estate Mortgage 64,200 51,684
Real Estate Construction 10,189 3,656
Loans to Individuals, Less Unearned Discount 22,562 14,016
------- -------
178,493 138,966
Allowance for Loan Losses (2,500) (2,410)
------- -------
Loans, Net $ 175,993 $ 136,556
======= =======
At December 31, 1995, the recorded investment in loans that are
considered to be impaired under Statement of Financial Accounting
Standards No. 114 was $164,000 (of which $164,000 were on non-accrual
status). The related allowance for loan losses for these loans was
$96,000. The average recorded investment in impaired loans during the
year ended December 31, 1995 was approximately $409,000. For this
period the Corporation recognized no interest income on these impaired
loans.
Loans on which accrued interest has been discontinued or reduced
amounted to approximately $990,000 and $643,000 at December 31, 1995
and 1994, respectively. If interest on these loans had been recorded
in accordance with their original terms such income would have
approximated $102,000 for 1995, $35,000 for 1994 and $165,000 for
1993. Interest income on those loans included in net income was
$42,000 for 1995, $25,000 for 1994 and $41,000 for 1993.
Transactions in the allowance for loan losses are summarized as
follows (in thousands):
Year Ended December 31,
-------------------------------------------------
1995 1994 1993
-------- -------- --------
Balance, Beginning of Year $ 2,410 $ 2,594 $ 2,810
Provision, Charged (Credited) to Income 236 (114) 23
Loans Charged Off (347) (313) (449)
Recoveries of Loans Previously
Charged Off 201 243 210
---- ---- ----
Net Charge-Offs (146) (70) (239)
----- ----- -----
Balance, End of Year $ 2,500 $ 2,410 $ 2,594
===== ===== =====
-37-
NOTE 4 - Premises and Equipment
The investment in premises and equipment stated at cost and net of
accumulated amortization and depreciation is as follows (in
thousands):
December 31,
----------------------------------------------
1995 1994 1993
-------- -------- --------
Land $ 1,279 $ 1,264 $ 1,179
Buildings and Improvements 7,115 6,742 6,563
Furniture & Equipment 5,051 4,470 4,087
------ ------ ------
Total Cost 13,445 12,476 11,829
Less: Accumulated Amortization and Depreciation 6,288 5,874 5,453
------ ------ ------
Net Book Value $ 7,157 $ 6,602 $ 6,376
====== ====== ======
Depreciation and amortization charged to expense amounted to $652,000,
$545,000 and $498,000 for the years ended December 31, 1995, 1994 and
1993, respectively.
Alta Mesa National Bank owns the land upon which the Corporation built
the Alta Mesa National Bank building and a reciprocal lease
arrangement exists between the two companies. The Corporation has a
"ground lease" with Alta Mesa National Bank whereby the Corporation
pays Alta Mesa National Bank $5,600 per month and Alta Mesa National
Bank has a "premise lease" with the Corporation whereby Alta Mesa
National Bank pays the Corporation $14,288 per month. Rental receipts
and expenses from these leases are eliminated in consolidation. The
Alta Mesa National Bank building was leased to 100% capacity in 1993
and to 98% capacity in 1994 and 1995.
Camp Bowie National Bank owns its bank premises, and, therefore, it
has no operating leases.
Summit National Bank has a long-term operating lease of banking
premises which expires in December 1999. The lease contains two (2)
renewal options for additional periods of five (5) years each. The
Corporation also has an operating lease of its facilities that expires
in December 1999. Its lease does not have any extension options.
Both leases contain escalation clauses which provide for increased
rentals based on increases in real estate taxes and the lessor's
operating expenses.
The Northeast Branch of Summit National Bank has an operating lease
for its premises that expires in May 1998 and contains an option to
lease for one additional three (3) year term.
Rental income and expense of premises included in the consolidated
financial statements is computed as follows (in thousands):
December 31,
----------------------------------------------
1995 1994 1993
-------- -------- --------
Total Rental Income $ 318 $ 329 $ 330
Less: Rental Expense 240 178 150
--- --- ---
Net Rental Income $ 78 $ 151 $ 180
=== === ===
Assuming the renewal of the leases in the preceding schedule, the
approximate future minimum total rental expense per year for each of
the next five (5) years is $214,000 which aggregates $1,093,000.
-38-
NOTE 5 - Other Real Estate
The carrying value of other real estate was as follows ( in
thousands):
December 31,
----------------------------------------------
1995 1994 1993
-------- -------- --------
Other Real Estate $ 148 $ 684 $ 894
Valuation Reserve (35) (35) (279)
--- --- ---
Net Other Real Estate $ 113 $ 649 $ 615
=== === ===
Transactions in the valuation reserve are summarized as follows (in
thousands):
December 31,
----------------------------------------------
1995 1994 1993
-------- -------- --------
Balance, Beginning of Year $ 35 $ 279 $ 299
Provisions Charged to Income -0- -0- 203
Reductions from Sales -0- (244) (223)
-- --- ----
Balance, End of Year $ 35 $ 35 $ 279
== === ====
In addition to the above provisions, direct writedowns of other real
estate charged to income were: 1995 - $12,000 and 1993 - $58,000.
There were no direct writedowns of other real estate during 1994.
NOTE 6 - Deposits and Related Expense
At December 31, 1995, 1994 and 1993, deposits and related interest
expense for the related years ended December 31, consisted of the
following (in thousands):
Deposits Interest Expense
----------------------------------- ----------------------------------
1995 1994 1993 1995 1994 1993
-------- -------- -------- -------- -------- --------
Noninterest-Bearing
Demand Deposits $ 89,184 $ 72,992 $ 61,165
Interest-Bearing Deposits:
Interest-Bearing
Transaction Accounts 110,160 100,417 103,940 $ 3,532 $ 2,694 $ 2,370
Savings 36,870 17,677 18,425 937 467 426
Savings Certificates - Time 49,005 45,537 48,346 2,290 1,582 1,664
Certificates of Deposit
$100,000 or More 24,551 22,681 22,046 1,165 759 681
Other 339 235 229 12 8 8
------- ------- ------- ----- ----- -----
Total 220,925 186,547 192,986 $ 7,936 $ 5,510 $ 5,149
------- ------- ------- ===== ===== =====
Total Deposits $ 310,109 $ 259,539 $ 254,151
======= ======= =======
The Corporation has no brokered deposits and there are no major
concentrations of deposits.
-39-
NOTE 7 - Notes Payable
The following is a summary of Notes Payable (in thousands):
December 31,
-------- --------------- --------
1995 1994
-------- --------
Parent Company secured borrowing from a bank that
was paid in full on January 17, 1995 $ -0- $ 250
Parent Company secured note with Summit National
Bank and is to be repaid in monthly installments of $14,000.
The note matures December 15, 1999 and the interest rate
is adjusted annually on the anniversary date. This note is
secured by the Alta Mesa National Bank Office Building which
had a carrying value of $1,774,315 at December 31, 1995.
The interest rate at December 31, 1995 was 8.75%. 1,031 1,106
------ -------
Total Notes Payable 1,031 1,356
Less Current Maturities 81 326
------ -------
Long-Term Debt $ 950 $ 1,030
====== =======
The note payable to Summit National Bank is an intercompany note and,
therefore, is reflected in the Parent Company financial statements but
is eliminated in the consolidated financial statements.
The fair value of the notes payable is their carrying value since the
bank note was a variable rate loan and the Summit National Bank note
adjusts its rate annually in December of each year at Summit National
Bank's prime rate.
On July 12, 1995, the Corporation obtained lines of credit from a bank
under which the Corporation may borrow $9,000,000 at prime rate. The
lines of credit are secured by stock of one of the subsidiary banks
and mature on July 12, 1996, whereupon, if balances are outstanding
the lines convert to term notes having five year terms. The
Corporation will not pay a fee for any unused portion of the lines.
There have been no borrowings to date on these lines of credit.
NOTE 8 - Other Non-Interest Expense
The significant components of other non-interest expense are presented
below (in thousands):
Year Ended December 31,
---------------------------------------------------------------
1995 1994 1993
-------- -------- -------
Business Development $ 443 $ 392 $ 332
Legal and Professional Fees 479 357 424
Printing and Supplies 289 303 289
Regulatory Fees and Assessments 411 666 661
Other 1,144 993 1,127
-------- ------- -------
Total $ 2,766 $ 2,711 $ 2,833
======== ======= =======
-40-
NOTE 9 - Income Taxes
The consolidated provision for income taxes consisted of the following
(in thousands):
Year Ended December 31,
-----------------------------------------------------------
1995 1994 1993
------- ------- -------
Federal Income Tax Expense
Current $ 2,400 $ 1,846 $ 1,579
Deferred 68 248 230
------- ------- -------
Total Federal Income Tax Expense $ 2,468 $ 2,094 $ 1,809
======= ======= =======
Effective Tax Rates 34.3% 34.1% 32.7%
======= ======= =======
The reasons for the difference between income tax expense and the
amount computed by applying the statutory federal income tax rate to
operating earnings are as follows (in thousands):
Year Ended December 31,
------------------------------------------------------
1995 1994 1993
------- ------- -------
Federal Income Taxes at Statutory Rate of 34% $ 2,447 $ 2,085 $ 1,883
Effect of Tax Exempt Interest Income (19) (23) (35)
SFAS No. 109 Adjustment -0- -0- (33)
Other 40 32 (6)
------- ------- -------
Income Taxes Per Income Statement $ 2,468 $ 2,094 $ 1,809
======= ======= =======
Federal income taxes included in the consolidated balance sheets were
as follows (in thousands):
December 31,
------------------------------
1995 1994
------- ------
Current Tax Asset $ 10 $ 29
Deferred Tax Asset 235 901
------ -----
Total Included in Other Assets $ 245 $ 930
====== =====
-41-
Deferred income tax expense (benefit) results from differences between
amounts of assets and liabilities as measured for income tax return
and financial reporting purposes. The significant components of
federal deferred tax assets and liabilities are in the following table
(in thousands):
Year Ended December 31,
--------------------------------------
1995 1994 1993
----- ----- ------
Federal Deferred Tax Assets: $ -0- $ 450 $ -0-
Unrealized Losses on AFS Securities
Allowance for Loan Losses 365 344 383
Valuation Reserves - Other Real Estate 58 97 241
Interest on Non-accrual Loans 55 48 64
Other 226 171 144
--- ----- ---
Gross Federal Deferred Tax Assets 704 1,110 832
--- ----- ---
Federal Deferred Tax Liabilities:
Depreciation and Amortization 214 188 149
Unrealized Gains on AFS Securities 172 -0- -0-
Other 83 21 6
--- --- ---
Gross Federal Deferred Tax Liabilities 469 209 155
---- ----- ----
Net Deferred Tax Asset $ 235 $ 901 $ 677
===== ====== =====
The Corporation adopted FASB Statement No. 109, "Accounting for Income
Taxes" in 1993 which resulted in a credit to federal income tax
expense in 1993 of $33,000.
NOTE 10 - Related Party Transactions
During 1995 and 1994 the Subsidiary Banks had transactions which were
made in the ordinary course of business with certain of its and the
Corporation's officers, directors and their affiliates. All loans
included in such transactions were made on substantially the same
terms, including interest rate and collateral, as those prevailing at
the time for comparable transactions with other persons and all loans
are current as to principal and interest payments. A summary of these
transactions follows (in thousands):
Balance Net
Beginning Net Amounts Balance at
Debtor of Year Additions Collected End of Year
- ----------------------------------- -------- --------- --------- -----------
For the Year ended December 31, 1995:
23 Directors and Officers $ 4,156 $ 2,322 $ (2,709) $ 3,769
For the Year ended December 31, 1994:
23 Directors and Officers $ 3,814 $ 1,052 $ (710) $ 4,156
NOTE 11 - Stock Option Plan
In 1982, the Corporation established an Incentive Stock Option Plan
("1982 Plan") and reserved 30,000 shares of common stock for grant
thereunder. The 30,000 reserved shares were subsequently amended and
increased in April 1993 and December 1995 to 240,000 as a result of
two-for-one stock splits. The Plan, which expired in 1992, provided
for the granting to management employees of Summit Bancshares, Inc.
and subsidiaries incentive stock options, as defined under current tax
laws. The outstanding options continue to be exercisable and will be
exercisable for ten years from the date of grant of May 1991.
-42-
In 1993, the Corporation established a similar Incentive Stock Option
Plan ("1993 Plan") and reserved 300,000 shares (adjusted for the April
1993 and December 1995 two-for-one stock splits) of common stock for
grant thereunder. The 1993 Plan provides for the granting to
management employees of Summit Bancshares, Inc. and subsidiaries,
incentive stock options, as defined under the current tax law. The
options under the 1993 Plan will be exercisable for ten years from the
date of grant and generally vest ratably over a five year period.
Options under both plans will be and have been granted at prices which
will not be less than 100-110% of the fair market value of the
underlying common stock at the date of grant. The Corporation applies
APB Opinion No. 25 and related Interpretations in accounting for its
plans. Since the option prices are considered to approximate fair
market value at date of grant, no compensation expense has been
reported.
The following is a summary of transactions (adjusted for stock splits)
for the years presented:
Year Ended December 31,
---------------------------------
1995 1994
-------- --------
Outstanding, Beginning of Year 303,400 372,400
Additional Options Granted During the Year 38,000 45,000
Forfeited During the Year -0- (22,200)
Exercised During the Year (40,000) (91,800)
-------- --------
Outstanding, End of Year
(at prices ranging from $1.875 to
$13.94 a share at December 31, 1995) 301,400 303,400
======== ========
At December 31, 1995, 226,880 shares were exercisable. There remain
53,320 shares reserved for future grants of options under the 1993
Plan.
NOTE 12 - Financial Instruments With Off-Balance Sheet Risk
The Corporation is a party to various financial instruments with off-
balance sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include
loan commitments, standby letters of credit and documentary letters of
credit. The instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in
the financial statements.
The Corporation's exposure to credit loss in the event of non-
performance by the other party to the financial instrument for loan
commitments and standby letters of credit is represented by the
contractual amount of those instruments. The Corporation uses the
same credit policies in making commitments and conditional obligations
as it does for on-balance sheet instruments.
The total contract amounts of financial instruments with off-balance
sheet risk are as follows (in thousands):
December 31,
--------------------------------------
1995 1994
-------- -------
Financial Instruments Whose Contract
Amounts Represent Credit Risk:
Commitments to Extend Credit $ 70,172 $ 45,856
Documentary and Standby Letters of Credit 6,137 2,774
Since many of the loan commitments may expire without being drawn
upon, the total commitment amount does not necessarily represent
future cash requirements. The Corporation evaluates each customer's
credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Corporation upon extension of
credit, is based on management's credit evaluation of the
counterparty. Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment, owner occupied
real estate and income-producing commercial properties.
-43-
The credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loan facilities to customers.
NOTE 13 - Earnings Per Share
Earnings per share of common stock are based on the weighted average
number of shares outstanding during the years as follows:
Shares
---------
1995 3,139,230
1994 3,135,770
1993 3,095,518
NOTE 14 - Employee Benefit Plans
PENSION PLAN
The Corporation has a defined benefit pension plan covering
substantially all of its employees. The benefits are based on years
of service and the employee's compensation history. The employee's
compensation used in the benefit calculation is the highest average
for any five consecutive years of employment within the employee's
last ten years of employment.
Funding for the plan is provided by employer contribution to trust
funds in amounts determined by actuarial assumption and valuation of
the plan. Contributions are intended to provide not only for benefits
attributed to service to date but also for those expected to be earned
in the future.
The following table sets forth the plan's funded status and amounts
recognized in the Corporation's consolidated balance sheets at
December 31 (in thousands):
1995 1994
-------- --------
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $1,152 in 1995 and $1,034 in 1994 $ (1,183) $ (1,072)
======= =======
Projected benefit obligation for service rendered to date $ (1,676) $ (1,731)
Plan assets at fair value, primarily listed stocks and U.S. bonds 1,270 1,616
--------- ---------
Plan assets in excess of projected benefit obligation (406) (115)
Unrecognized net loss from past experience different from that
assumed and effects of changes in assumptions 336 48
Prior service cost not yet recognized in net periodic pension cost 20 20
--------- ---------
Accrued pension cost included in other liabilities $ (50) $ (47)
======= =======
Net pension expense included the following components (in thousands):
Year ended December 31,
-------------------------------------------------
1995 1994 1993
-------- ---------- ----------
Service Cost for benefits earned during the period $ 155 $ 111 $ 87
Interest cost on projected benefit obligation 136 130 121
Less: Actual return on plan assets, net of expenses (115) (133) (116)
Net amortization and deferral 15 5 5
------ ------- -------
Net periodic pension expense $ 191 $ 113 $ 97
==== ==== ====
-44-
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of the projected
benefit obligation in each year were 8.5 percent and 5 percent,
respectively. The expected long-term rate of return on plan assets
was 9 percent.
During 1995 and 1994 the Corporation contributed $317,000 and $156,000
to the plan, respectively.
MANAGEMENT SECURITY PLAN
In 1992, the Corporation established a Management Security Plan to
provide key employees with retirement, death or disability benefits in
addition to those provided by the Pension Plan. The expense charged
to operations in 1995, 1994 and 1993 for such future obligations was
$173,000, $141,000, and $142,000, respectively.
OTHER POST RETIREMENT BENEFITS
The Corporation provides certain health care benefits for certain
retired employees who bear all costs of these benefits. These
benefits are covered under the "Consolidated Omnibus Budget
Reconciliation Act" (COBRA).
NOTE 15 - Dividends From Subsidiaries
The primary source of funds for the Parent Company is cash dividends
received from the Subsidiary Banks. The amount of dividends that the
Subsidiary Banks may pay in any one year, without approval of the
Comptroller of the Currency, is the sum of the retained net profits
for the preceding two years plus its total of the net profits for the
current year. The Subsidiary Banks are also restricted from paying
dividends that would cause the Bank to be under-capitalized. Under
this formula, in 1996 the Subsidiary Banks can legally initiate
dividend payments of $5,456,000 plus an additional amount equal to
their net profits, as defined, for 1996 to the date of any such
dividend payment.
Internal dividend policies limit dividends from Subsidiary Banks if
their equity capital levels fall below certain minimums.
NOTE 16 - Concentrations of Credit Risk
The Subsidiary Banks of Summit Bancshares, Inc. grant commercial, real
estate and consumer loans in their direct market which is defined as
Fort Worth and its surrounding area. The board of directors of each
bank monitor concentrations of credit by purpose, collateral and
industry at least quarterly. Certain limitations for concentration
are set by the boards. Additional loans in excess of these limits
must have prior approval of the bank's directors' loan committee.
Although its Subsidiary Banks have diversified loan portfolios, a
substantial portion of its debtors' abilities to honor their contracts
is dependent upon the strength of the local and state economy.
NOTE 17 - Compensated Absences
Employees of the Corporation are entitled to paid vacation, paid sick
days and other personal days off, depending on job classification,
length of service, and other factors. It is impracticable to estimate
the amount of compensation for future absences, and, accordingly, no
liability has been recorded in the accompanying financial statements.
The Corporation's policy is to recognize the costs of compensated
absences when actually paid to employees.
NOTE 18 - Litigation
Certain of the Subsidiary Banks are involved in legal actions arising
in the ordinary course of business. It is the opinion of legal
counsel that the settlement of these matters will not materially
affect the Corporation's financial position.
-45-
NOTE 19 - Stock Split
On October 17, 1995, the Board of Directors of Summit Bancshares, Inc.
approved a two-for-one stock split of the Corporation's common stock
to be effected as a 100% stock dividend and to be paid on December 6,
1995. All references in the accompanying financial statements
regarding stock options and per share data for prior periods have been
restated to reflect the stock split.
NOTE 20 - Stock Repurchase Plan
On April 18, 1995 the Board of Directors approved a stock repurchase
plan. The plan authorized management to purchase up to 156,892 shares
of the Corporation's common stock over the following twelve months
through the open market or in privately negotiated transactions in
accordance with all applicable state and federal laws and regulations.
Subsequent to this approval 12,780 shares were purchased by the
Corporation through the open market and canceled.
Under a similar program approved by the Board in 1994, 29,890 shares
were purchased in late 1994 and early 1995.
NOTE 21 - Subsequent Events
On January 16, 1996, the Board of Directors of Summit Bancshares, Inc.
approved a quarterly dividend of $.07 per share to be paid on February
15, 1996 to shareholders of record on February 1, 1996.
NOTE 22 - Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 ("SFAS 107"),
"Disclosures about Fair Value of Financial Instruments" requires
disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is
practicable to estimate that value. In cases where quoted market
prices are not available, fair values are based on estimates using
present value tables or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. SFAS 107 excludes
certain financial instruments and all non-financial instruments from
its disclosure requirements.
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the
balance sheet for cash and due from banks approximate those assets'
fair values.
INVESTMENT SECURITIES (INCLUDING MORTGAGE-BACKED SECURITIES): Fair
values for investment securities are based on quoted market prices,
where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments.
LOANS: For variable-rate loans, fair values are based on carrying
values. The fair values for fixed rate loans such as mortgage loans
(e.g., one-to-four family residential) and installment loans are
estimated using discounted cash flow analysis. The carrying amount
of accrued interest receivable approximates its fair value.
DEPOSIT LIABILITIES: The fair value disclosed for interest bearing
and non-interest bearing demand deposits, passbook savings, and
certain types of money market accounts are, by definition, equal to
the amount payable on demand at the reporting date or their carrying
amounts. Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule
of aggregated expected monthly maturities on time deposits.
SHORT-TERM BORROWINGS: The carrying value of borrowings under
repurchase agreements approximate their fair values.
NOTES PAYABLE: The fair value of the Corporation's notes payable is
based on their carrying amounts at the reporting date.
-46-
The estimated fair values of the Corporation's financial instruments
are as follows (in thousands):
December 31,
-----------------------------------------------------------
1995 1994
------------------------ ----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
Financial Assets
Cash and due from banks $ 22,480 $ 22,480 $ 18,420 $ 18,420
Federal funds sold 25,680 25,680 9,740 9,740
Securities 119,368 119,575 114,722 112,498
Loans 178,493 178,603 138,966 138,570
Financial Liabilities
Deposits 310,109 310,390 259,539 259,370
Securities sold under repurchase
agreements 13,528 13,528 4,528 4,528
Notes payable -0- -0- 250 250
Off-balance Sheet Financial Instruments
Loan commitments 70,172 45,856
Letters of credit 6,137 2,774
-47-
NOTE 23 - Condensed Parent Company Financial Statements
BALANCE SHEETS
December 31,
---------------------------------------
1995 1994
------- ---------
(In Thousands)
ASSETS
CASH IN SUBSIDIARY BANKS
Demand $ 142 $ 99
Time 487 765
INVESTMENTS IN SUBSIDIARIES
Bank Subsidiaries 28,121 23,781
Non-Bank Subsidiary 341 236
PREMISES AND EQUIPMENT - NET 1,886 1,961
OTHER ASSETS 799 301
-------- --------
TOTAL ASSETS $ 31,776 $ 27,143
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Notes Payable $ 1,031 $ 1,356
Other Liabilities 620 453
SHAREHOLDERS' EQUITY 30,125 25,334
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 31,776 $ 27,143
======== ========
STATEMENTS OF INCOME Year Ended December 31,
----------------------------------------------
1995 1994 1993
------- -------- ------
(In Thousands)
INCOME
Dividends from Subsidiaries $ 2,100 $ 2,100 $ 900
Interest 12 5 1
Other 399 341 324
------- ------- -------
TOTAL INCOME 2,511 2,446 1,225
------- ------- -------
EXPENSES
Interest 93 101 119
Salaries and Employee Benefits 715 535 417
Occupancy and Furniture-Net 15 (3) 24
Other Expense 297 296 262
------- ------- -------
TOTAL EXPENSE 1,120 929 822
------- ------- -------
INCOME BEFORE INCOME TAX BENEFIT AND
EQUITY IN UNDISTRIBUTED EARNINGS
OF SUBSIDIARIES 1,391 1,517 403
INCOME TAX BENEFIT 230 196 166
------ ------- -------
INCOME BEFORE EQUITY IN UNDISTRIBUTED
EARNINGS OF SUBSIDIARIES 1,621 1,713 569
EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 3,108 2,327 3,162
------ ------- -------
NET INCOME $ 4,729 $ 4,040 $ 3,731
======= ======== =======
-48-
STATEMENTS OF CASH FLOW Year Ended December 31,
---------------------------------------
1995 1994 1993
-------- -------- -------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 4,729 $ 4,040 $ 3,731
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Depreciation and Amortization 124 151 165
Deferred Income Taxes 40 48 57
Undistributed Earnings of Subsidiaries (3,108) (2,327) (3,162)
(Increase) Decrease in Other Assets (538) (169) 120
Increase in Other Liabilities 167 128 124
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,414 1,871 1,035
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Contribution to Non-Bank Subsidiary (130) -0- (266)
Purchases of Premises and Equipment (49) (42) (63)
------- ------- -------
NET CASH USED BY INVESTING ACTIVITIES (179) (42) (329)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments on Notes Payable (325) (342) (336)
Payments of Cash Dividends (692) (567) (332)
Receipts from Stock Options Exercised 55 109 78
Purchase of Treasury Stock (508) (353) -0-
------- ------- -------
NET CASH USED BY FINANCING ACTIVITIES (1,470) (1,153) (590)
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (235) 676 116
CASH AND CASH EQUIVALENTS - BEGINNING
OF YEAR 864 188 72
------- ------- -------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 629 $ 864 $ 188
======= ======= =======
-49-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
There have been no changes in accountants and no disagreements with
accountants on any matter of accounting principles or practices or
financial statement disclosures during the twenty-four (24) month
period ended December 31, 1995.
-50-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information set forth under the caption "PROPOSAL NO. 1: ELECTION
OF DIRECTORS" on pages 3 through 6 of the Corporation's Proxy
Statement dated March 15, 1996, relating to the 1996 Annual Meeting of
Shareholders of the Corporation, the information set forth under the
caption "STOCK OWNERSHIP - Compliance with Section 16(a) of the
Securities Exchange Act of 1934" on page 12 of such Proxy Statement,
and the information set forth under the caption "EXECUTIVE OFFICERS OF
THE CORPORATION" on pages 9 through 10 of Part I of this report is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under the caption "EXECUTIVE COMPENSATION
AND OTHER INFORMATION" on pages 13 through 22 of the Corporation's
Proxy Statement dated March 15, 1996, relating to the 1996 Annual
Meeting of Shareholders of the Corporation, is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information with respect to shareholders of the Corporation who
are known to be beneficial owners of more than five percent (5%) of
the outstanding shares of Common Stock of the Corporation set forth
under the caption "STOCK OWNERSHIP - By Others" on page 12 of the
Corporation's Proxy Statement dated March 15, 1996, relating to the
1996 Annual Meeting of Shareholders of the Corporation, is
incorporated herein by reference. The information relating to the
beneficial ownership of the outstanding shares of Common Stock of the
Corporation by its directors and executive officers set forth under
the caption "STOCK OWNERSHIP - By Management" on pages 10 through 12
of the Corporation's Proxy Statement dated March 15, 1996, relating to
the 1996 Annual Meeting of Shareholders of the Corporation, is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth under the caption "CERTAIN TRANSACTIONS" on
page 24 of the Corporation's Proxy Statement dated March 15, 1996,
relating to the 1996 Annual Meeting of Shareholders of the
Corporation, is incorporated herein by reference.
-51-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) (1) Financial Statements. The following financial statements are
included in Part II, Item 8:
Independent Auditor's Report
Consolidated Balance Sheets of Summit Bancshares, Inc. and
Subsidiaries as of December 31, 1995 and 1994
Consolidated Statements of Income of Summit Bancshares, Inc.
and Subsidiaries for the Years Ended December 31, 1995, 1994
and 1993
Statements of Changes in Shareholders' Equity of Summit
Bancshares, Inc. and Subsidiaries for the Years Ended
December 31, 1995, 1994 and 1993 (Consolidated and Parent
Company Only)
Consolidated Statement of Cash Flows of Summit Bancshares,
Inc. and Subsidiaries for the Years Ended December 31, 1995,
1994 and 1993
Notes to Financial Statements
(2) Financial Statement Schedules. Financial statement schedules
are omitted because of the absence of conditions under which
they are required or because the required information is
given in the financial statements or notes thereto.
(3) Exhibits. The following exhibits are filed as a part of
this report:
3(a) Articles of Incorporation of the Corporation
(incorporated herein by reference to Exhibit 3.1 to
the Corporation's Registration Statement No.
2-92405 filed November 7, 1984).*
3(b) Articles of Amendment to the Articles of
Incorporation of the Corporation filed with the
Secretary of State of Texas on May 4, 1988
(incorporated herein by reference to Exhibit 3(b)
to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1988).*
3(c) Restated Bylaws of the Corporation (incorporated
herein by reference to Exhibit 3(b) to the
Corporation's Annual Report on Form 10-K for the
year ended December 31, 1986).*
3(d) Articles of Amendment to the Articles of
Incorporation of the Corporation filed with the
Secretary of State of Texas on April 25, 1990
(incorporated herein by reference to Exhibit 3(d)
to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1992).*
3(e) Articles of Amendment to the Articles of
Incorporation of the Corporation filed with the
Secretary of State of Texas on April 22, 1993
(incorporated herein by reference to Exhibit 3(e)
to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1993).*
3(f) Articles of Amendment to the Articles of
Incorporation of the Corporation filed with the
Secretary of State of Texas on April 20, 1995
(incorporated herein by reference to Exhibit 3.1 to
the Corporation's Quarterly Report on Form 10-Q for
the three months ended June 30, 1995).*
3(g) Amended and Restated Articles of Incorporation of
the Corporation as of April 20, 1995 (incorporated
herein by reference to Exhibit 3.2 to the
Corporation's Quarterly Report on Form 10-Q for the
three months ended June 30, 1995).*
-52-
3(h) Amended and Restated Bylaws of the Corporation
(incorporated herein by reference to Exhibit 3.3 to
the Corporation's Quarterly Report on Form 10-Q for
the three months ended June 30, 1995).*
4(a) Summit Bancshares, Inc.'s Rights Agreement dated
April 17, 1990 (incorporated herein by reference to
Exhibit 1 to the Corporation's Current Report on
Form 8-K dated April 18, 1990 filed on April 24,
1990).*
10(a) Lease Agreement dated August 28, 1985 by and
between Alta Mesa National Bank, as lessor, and the
Corporation, as lessee (incorporated herein by
reference to Exhibit 10(a) to the Corporation's
Annual Report on Form 10-K for the year ended
December 31, 1985).*
10(b) Lease Agreement dated October 1, 1986 by and
between the Corporation, as lessor, and Alta Mesa
National Bank, as lessee (incorporated herein by
reference to Exhibit 10(f) to the Corporation's
Annual Report on Form 10-K for the year ended
December 31, 1986).*
10(c) Summit Bancshares, Inc.'s 1982 Incentive Stock
Option Plan (incorporated herein by reference to
Exhibit 10.3 to the Corporation's Registration
Statement No. 2-92405 filed November 7, 1984).*
10(d) Summit Bancshares, Inc.'s Defined Benefit Pension
Plan (effective as of January 1, 1985) (incorporat-
ed herein by reference to Exhibit 10(d) to the
Corporation's Annual Report on Form 10-K for the
year ended December 31, 1985).*
10(e) Amendment No. 1 to Summit Bancshares, Inc.'s
Defined Benefit Pension Plan dated June 29, 1987
(incorporated herein by reference to Exhibit 10(f)
to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1988).*
10(f) Amendment No. 2 to Summit Bancshares, Inc.'s
Defined Benefit Pension Plan dated December 16,
1988 (incorporated herein by reference to Exhibit
10(g) to the Corporation's Annual Report on Form
10-K for the year ended December 31, 1988).*
10(g) Amendment No. 3 to Summit Bancshares, Inc.'s
Defined Benefit Pension Plan dated October 17, 1989
(incorporated herein by reference to Exhibit 10(h)
to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1989).*
10(h) Amendment No. 4 to Summit Bancshares, Inc.'s
Defined Benefit Pension Plan dated October 18, 1994
(incorporated herein by reference to Exhibit 10(h)
to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1994).*
10(i) Promissory Note dated December 21, 1989 in the
original principal amount of $1,400,000 executed by
Summit Bancshares, Inc. and payable to the order of
Summit National Bank (incorporated herein by
reference to Exhibit 10(s) to the Corporation's
Annual Report on Form 10-K for the year ended
December 31, 1989).*
10(j) Lease Agreement dated February 14, 1992 by and
between Zell/Merrill Lynch Real Estate Opportunity
Partners Limited Partnership, as landlord, and
Summit Bancshares, Inc., as tenant (incorporated
herein by reference to Exhibit 10(I) to the
Corporation's Annual Report on Form 10-K for the
year ended December 31, 1992).*
10(k) First Amendment dated May 3, 1994 to Lease
Agreement dated February 14, 1992 by and between
Zell/Merrill Lynch Real Estate Opportunity Partners
Limited Partnership, as landlord, and Summit
Bancshares, Inc., as tenant (incorporated herein by
reference to Exhibit 10(k) to the Corporation's
Annual Report on Form 10-K for the year ended
December 31, 1994).*
-53-
10(l) Loan Agreement dated June 4, 1992 between Summit
Bancshares, Inc., as borrower, and Bank of
Commerce, as lender; Promissory Note in the
original principal amount of $750,000; and related
Security Agreement (incorporated herein by
reference to Exhibit 10(j) to the Corporation's
Annual Report on Form 10-K for the year ended
December 31, 1992).*
10(m) Management Security Plan of Summit Bancshares, Inc.
effective September 1, 1992; Management Security
Plan Agreement between Summit Bancshares, Inc. and
F. S. Gunn; and Management Security Plan Agreement
between Summit Bancshares, Inc. and James L. Murray
(incorporated herein by reference to Exhibit 10(k)
to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1992).*
10(n) Promissory Note dated January 21, 1993 in the
original principal amount of $290,000 executed by
Summit Bancservices, Inc. and payable to the order
of Summit National Bank; related Security
Agreements; and related Unconditional Guaranty
executed by Summit Bancshares, Inc. (incorporated
herein by reference to Exhibit 10(l) to the
Corporation's Annual Report on Form 10-K for the
year ended December 31, 1992).*
10(o) Commercial-Industrial Lease Agreement dated January
1, 1993 by and between Summit National Bank, as
landlord, and Summit Bancservices, Inc., as tenant
(incorporated herein by reference to Exhibit 10(m)
to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1992).*
10(p) 1993 Incentive Stock Option Plan of Summit
Bancshares, Inc. (incorporated herein by reference
to Exhibit 10(n) to the Corporation's Annual Report
on Form 10-K for the year ended December 31,
1993).*
10(q) Loan Agreement dated July 12, 1995, between the
Corporation and The Frost National Bank
(incorporated herein by reference to Exhibit 10 to
the Corporation's Quarterly Report on Form 10-Q for
the three months ended June 30, 1995).*
10(r) Lease Agreement dated July 6, 1989 by and between
Zell/Merrill Lynch Real Estate Opportunity Partners
Limited Partnership, as landlord, and Summit
National Bank as tenant.
11 Computation of Earnings Per Common Share.
21 Subsidiaries of the Corporation.
23 Consent of Stovall, Grandey & Whatley, independent
certified public accountants.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
The Corporation did not file during the last quarter
covered by this report any reports on Form 8-K.
___________________________________
* A copy of this Exhibit is available to any shareholders, at
the actual cost of reproduction upon written request to the
Corporation.
-54-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
DATE: March 27, 1996 By:/s/ Philip E. Norwood
------------------------------
Philip E. Norwood, President
Pursuant to the requirements of the Securities and Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the registrant in the capacities indicated on
this 27 day of March, 1996.
SIGNATURE TITLE
--------- -----
/s/ Philip E. Norwood President, Chief Executive Officer
- ----------------------------- and Director (Principal Executive
Philip E. Norwood Officer)
/s/ Bob G. Scott Senior Vice President and Chief
- ----------------------------- Financial Officer (Chief Accounting
Bob G. Scott Officer)
/s/ James L. Murray Chairman of the Board
- -----------------------------
James L. Murray
/s/ F.S. Gunn Vice Chairman and Director
- -----------------------------
F.S. Gunn
/s/ Jeffrey M. Harp Chief Operating Officer, Executive
- ----------------------------- Vice President, Secretary and
Jeffrey M. Harp Treasurer and Director
/s/ Robert E. Bolen Director
- -----------------------------
Robert E. Bolen
Director
- -----------------------------
Joe L. Bussey, M.D.
/s/ Elliott S. Garsek Director
- -----------------------------
Elliott S. Garsek
-55-
Director
- -----------------------------
Ronald J. Goldman
/s/ William W. Meadows Director
- -----------------------------
William W. Meadows
/s/ Edward P. Munson Director
- -----------------------------
Edward P. Munson
/s/ Lynn C. Perkins, M.D. Director
- -----------------------------
Lynn C. Perkins, M.D.
/s/ Byron B. Searcy Director
- -----------------------------
Byron B. Searcy
/s/ Lloyd J. Weaver Director
- -----------------------------
Lloyd J. Weaver
-56-
EXHIBIT INDEX
Exhibit Page No.
- ------- --------
3(a) Articles of Incorporation of the Corporation
(incorporated herein by reference to Exhibit 3.1 to
the Corporation's Registration Statement No.
2-92405 filed November 7, 1984).*
3(b) Articles of Amendment to the Articles of
Incorporation of the Corporation filed with the
Secretary of State of Texas on May 4, 1988
(incorporated herein by reference to Exhibit 3(b)
to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1988).*
3(c) Restated Bylaws of the Corporation (incorporated
herein by reference to Exhibit 3(b) to the
Corporation's Annual Report on Form 10-K for the
year ended December 31, 1986).*
3(d) Articles of Amendment to the Articles of
Incorporation of the Corporation filed with the
Secretary of State of Texas on April 25, 1990
(incorporated herein by reference to Exhibit 3(d)
to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1992).*
3(e) Articles of Amendment to the Articles of
Incorporation of the Corporation filed with the
Secretary of State of Texas on April 22, 1993
(incorporated herein by reference to Exhibit 3(e)
to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1993).*
3(f) Articles of Amendment to the Articles of
Incorporation of the Corporation filed with the
Secretary of State of Texas on April 20, 1995
(incorporated herein by reference to Exhibit 3.1 to
the Corporation's Quarterly Report on Form 10-Q for
the three months ended June 30, 1995).*
3(g) Amended and Restated Articles of Incorporation of
the Corporation as of April 20, 1995 (incorporated
herein by reference to Exhibit 3.2 to the
Corporation's Quarterly Report on Form 10-Q for the
three months ended June 30, 1995).*
3(h) Amended and Restated Bylaws of the Corporation
(incorporated herein by reference to Exhibit 3.3 to
the Corporation's Quarterly Report on Form 10-Q for
the three months ended June 30, 1995).*
4(a) Summit Bancshares, Inc.'s Rights Agreement dated
April 17, 1990 (incorporated herein by reference to
Exhibit 1 to the Corporation's Current Report on
Form 8-K dated April 18, 1990 filed on April 24,
1990).*
10(a) Lease Agreement dated August 28, 1985 by and
between Alta Mesa National Bank, as lessor, and the
Corporation, as lessee (incorporated herein by
reference to Exhibit 10(a) to the Corporation's
Annual Report on Form 10-K for the year ended
December 31, 1985).*
10(b) Lease Agreement dated October 1, 1986 by and
between the Corporation, as lessor, and Alta Mesa
National Bank, as lessee (incorporated herein by
reference to Exhibit 10(f) to the Corporation's
Annual Report on Form 10-K for the year ended
December 31, 1986).*
10(c) Summit Bancshares, Inc.'s 1982 Incentive Stock
Option Plan (incorporated herein by reference to
Exhibit 10.3 to the Corporation's Registration
Statement No. 2-92405 filed November 7, 1984).*
10(d) Summit Bancshares, Inc.'s Defined Benefit Pension
Plan (effective as of January 1, 1985) (incorporat-
ed herein by reference to Exhibit 10(d) to the
Corporation's Annual Report on Form 10-K for the
year ended December 31, 1985).*
10(e) Amendment No. 1 to Summit Bancshares, Inc.'s
Defined Benefit Pension Plan dated June 29, 1987
(incorporated herein by reference to Exhibit 10(f)
to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1988).*
10(f) Amendment No. 2 to Summit Bancshares, Inc.'s
Defined Benefit Pension Plan dated December 16,
1988 (incorporated herein by reference to Exhibit
10(g) to the Corporation's Annual Report on Form
10-K for the year ended December 31, 1988).*
10(g) Amendment No. 3 to Summit Bancshares, Inc.'s
Defined Benefit Pension Plan dated October 17, 1989
(incorporated herein by reference to Exhibit 10(h)
to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1989).*
10(h) Amendment No. 4 to Summit Bancshares, Inc.'s
Defined Benefit Pension Plan dated October 18, 1994
(incorporated herein by reference to Exhibit 10(h)
to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1994).*
10(I) Promissory Note dated December 21, 1989 in the
original principal amount of $1,400,000 executed by
Summit Bancshares, Inc. and payable to the order of
Summit National Bank (incorporated herein by
reference to Exhibit 10(s) to the Corporation's
Annual Report on Form 10-K for the year ended
December 31, 1989).*
10(j) Lease Agreement dated February 14, 1992 by and
between Zell/Merrill Lynch Real Estate Opportunity
Partners Limited Partnership, as landlord, and
Summit Bancshares, Inc., as tenant (incorporated
herein by reference to Exhibit 10(I) to the
Corporation's Annual Report on Form 10-K for the
year ended December 31, 1992).*
10(k) First Amendment dated May 3, 1994 to Lease
Agreement dated February 14, 1992 by and between
Zell/Merrill Lynch Real Estate Opportunity Partners
Limited Partnership, as landlord, and Summit
Bancshares, Inc., as tenant (incorporated herein by
reference to Exhibit 10(k) to the Corporation's
Annual Report on Form 10-K for the year ended
December 31, 1994).*
10(l) Loan Agreement dated June 4, 1992 between Summit
Bancshares, Inc., as borrower, and Bank of
Commerce, as lender; Promissory Note in the
original principal amount of $750,000; and related
Security Agreement (incorporated herein by
reference to Exhibit 10(j) to the Corporation's
Annual Report on Form 10-K for the year ended
December 31, 1992).*
10(m) Management Security Plan of Summit Bancshares, Inc.
effective September 1, 1992; Management Security
Plan Agreement between Summit Bancshares, Inc. and
F. S. Gunn; and Management Security Plan Agreement
between Summit Bancshares, Inc. and James L. Murray
(incorporated herein by reference to Exhibit 10(k)
to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1992).*
10(n) Promissory Note dated January 21, 1993 in the
original principal amount of $290,000 executed by
Summit Bancservices, Inc. and payable to the order
of Summit National Bank; related Security
Agreements; and related Unconditional Guaranty
executed by Summit Bancshares, Inc. (incorporated
herein by reference to Exhibit 10(l) to the
Corporation's Annual Report on Form 10-K for the
year ended December 31, 1992).*
10(o) Commercial-Industrial Lease Agreement dated January
1, 1993 by and between Summit National Bank, as
landlord, and Summit Bancservices, Inc., as tenant
(incorporated herein by reference to Exhibit 10(m)
to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1992).*
10(p) 1993 Incentive Stock Option Plan of Summit
Bancshares, Inc. (incorporated herein by reference
to Exhibit 10(n) to the Corporation's Annual Report
on Form 10-K for the year ended December 31,
1993).*
10(q) Loan Agreement dated July 12, 1995, between the
Corporation and The Frost National Bank
(incorporated herein by reference to Exhibit 10 to
the Corporation's Quarterly Report on Form 10-Q for
the three months ended June 30, 1995).*
10(r) Lease Agreement dated July 6, 1989 by and between
Zell/Merrill Lynch Real Estate Opportunity
PartnersLimited Partnership, as landlord, and
Summit National Bank as tenant.
11 Computation of Earnings Per Common Share.
21 Subsidiaries of the Corporation.
23 Consent of Stovall, Grandey & Whatley, independent
certified public accountants.
27 Financial Data Schedule.
_________________________________________
* A copy of this Exhibit is available to any shareholders, at the
actual cost of reproduction upon written request to the
Corporation.