SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED COMMISSION FILE NUMBER
DECEMBER 31, 2000 0-11108
SUMMIT BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2767067
(State of Incorporation) (I.R.S. Employer Identification No.)
2969 Broadway, Oakland, California 94611
(Address of principal executive offices and zip code)
(510) 839-8800
(Registrant's area code and telephone number)
Securities registered pursuant to Section 12 (b) of
the Act: NONE Securities registered pursuant to
Section 12 (g) of the Act:
Common Stock, No Par Value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 day period.
Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the common stock held by non-affiliates of the
registrant as of March 14, 2001 was $16,699,946.00.
For purposes of this calculation only, common stock is deemed to have market
value of $50.50 per share, the average of bid and asked prices on March 14,
2001, and each of the executive officers, directors and persons holding 5% or
more of the outstanding common stock is deemed to be an affiliate.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
459,387 shares no par common stock
issued as of March 14, 2001
Portions of Registrant's Annual Report to Shareholders
for the Fiscal Year Ended December 31, 2000
are incorporated by Reference into
Part II of This Form 10-K Report
Portions of Registrant's Proxy Notice and Statement
of Annual Meeting of Shareholders to be Held on
May 23, 2001 are Incorporated by
Reference into Part III, Items 10, 11,
12 and 13 of this Form 10-K Report
PART I
The matters addressed in this Report on Form 10K, with the exception of the
historical information presented, may incorporate certain forward-looking
statements involving risks and uncertainties, including the risks discussed
under the heading "Certain Factors That May Affect Future Results" and elsewhere
in this Report.
ITEM 1. BUSINESS
Summit Bancshares, Inc. (the "Company") is a one bank holding company under
the Bank Holding Company Act of 1956, as amended and is subject to the
regulations of and examination by, the Board of Governors of the Federal Reserve
System. It was incorporated under the laws of the State of California on July
22, 1981. Its principal office is located at 2969 Broadway, Oakland, California
94611, and its telephone number is (510) 839-8800. At present, the Company does
not engage in any material business activities other than the ownership of the
Bank from whom the Company also purchases loan participations. On March 17, 2000
the Company became a Financial Holding Company within the meaning of the
Gramm-Leach-Blyley Act of 1999.
The Bank's main branch is located at the Company's address in Oakland. In
addition, the Bank has full service branches located at 675 Ygnacio Valley Blvd.
Ste. B105 Walnut Creek, CA 94598, in the Watergate III Tower at 2000 Powell
Street, Emeryville, California 94608, and at 5673 W. Las Positas Blvd. Ste. 208,
Pleasanton, CA 94588.
Summit Bancshares, Inc. owns all of the capital stock of Summit Bank (the
"Bank"), its subsidiary bank, and its activities during 2000 were limited to
acting as the Bank's holding company.
The Bank has conducted the business of a commercial bank since July 1,
1982. The Bank provides commercial credit and other banking services to small
and mid-sized businesses and professionals, including professional firms of
physicians, attorneys, accountants, retailers and service firms, wholesalers and
distributors, as well as real estate developers. Because of the concentration of
medical facilities and related organizations, the growth of real estate
opportunities and commercial/industrial businesses in the Bank's service area,
the Bank primarily focuses its marketing efforts on health service businesses,
real estate construction and commercial industrial loans; however, the Bank also
offers a broad spectrum of financial services to the business community at
large. The Bank offers various checking and savings accounts for both personal
and business purposes, time certificates of deposit, cashier's checks, money
orders, travelers checks, safe deposit boxes, installment collection services,
night depository, depository pickup and courier services, telephone transfers,
collection services for notes, Individual Retirement and Business Planning
(formerly Keogh) Accounts.
The Bank has not requested and does not have regulatory approval to offer
trust services, although it may provide such services in the future. The Bank
assists customers requiring services not offered by the Bank in obtaining such
services from its correspondent banks and other financial services firms.
Although the Bank does not actively solicit consumer business from the general
public, it does offer banking services and facilities compatible with the need
of its consumer customers.
The Oakland and Emeryville branches offer the above services. The Walnut
Creek and Pleasanton branches offer all of the services listed above, with the
exception of safe deposit boxes.
On March 30, 1989, the State Banking Department, now known as the
Department of Financial Institutions, approved the Bank's application to
establish a new subsidiary, Summit Equities, Inc, whose purpose is to engage in
real property investment activities as authorized by Section 751.3 of the
California Financial Code. On November 13, 1992 the FDIC imposed regulations
limiting real estate investment to those authorized by national banks, thus no
real estate transactions are allowed to be transacted under this subsidiary. The
corporation is exploring other avenues or types of approved investment
activities. As of this date, the subsidiary has not conducted any business.
SERVICE AREA
The primary geographic market served by the Bank is considered to be all of
Alameda County and most of Contra Costa County, except for several cities in the
northern and easternmost sections of that county. The excluded areas are Pinole,
Hercules, Rodeo, Crockett, Port Costa, West Pittsburg and the sparsely populated
areas east of Mt. Diablo. The areas served by the Bank include a substantial
number of commercial businesses, a large health services complex and substantial
residential population. In Alameda County, the health services complex includes
four major hospitals, approximately 395 physicians and a wide variety of health
related and other professionals, and small and medium-sized businesses. Contra
Costa County includes three major hospitals, approximately 390 physicians, some
of which are also affiliated with the hospitals in Alameda County, and other
professionals and small and medium-sized businesses.
The Walnut Creek office is about 16 miles northeast of the head office in
Oakland and located in the central business district in Walnut Creek. The site
is approximately one mile west of John Muir Hospital, which is a 343-bed
hospital employing approximately 1300 people and accommodates a large staff of
approximately 310 visiting physicians. The surrounding service area includes 4
convalescent hospitals, an acute psychiatric care facility, and the 204-bed
Kaiser Foundation Hospital, which employs over 1000 people in downtown Walnut
Creek and is staffed by approximately 92 physicians.
The Emeryville office is a further extension of the Bank's plan to expand
into areas which will further utilize specialized services directed at
medium-sized businesses and professionals. Located west of Interstate 880 at
2000 Powell Street, it services a commercial sector and an up-scale employee
population.
The Pleasanton office is about 30 miles southeast of the head office in
Oakland and located in a commercial development known as Hacienda Industrial
Park in the city of Pleasanton. It is also two blocks from Valleycare Medical
Center.
The Bank also obtains business clients from the various areas within the
city of Oakland, adjacent to the John Muir and Kaiser areas of Walnut Creek, in
and in the
industrial and commercial areas of Emeryville and Pleasanton. The Bank's
customers are primarily business and professional persons working in the
vicinity of each branch, officers and employees of businesses and professional
firms serviced by the Bank, and residents of areas close to the Bank.
COMPETITION
The banking business in the Oakland/East Bay metropolitan area is very
competitive with respect to both loans and deposits, and is dominated by
relatively few major banks which have offices operating throughout California.
Among the advantages such banks have are their ability to finance wide-ranging
advertising campaigns, to offer certain services (for example, trust services)
which are not offered directly by the Bank, and to have substantially higher
legal lending limits due to their greater capitalization. There are eleven other
independent banks in Oakland, Walnut Creek, Pleasanton, and none in Emeryville.
In competing for deposits, the Bank is subject to certain limitations not
applicable to non-bank financial institution competitors. Over the past years,
legislative changes have enabled the Bank to compete more effectively for
deposits with savings and loan institutions, but the Bank still remains at a
competitive disadvantage when competing with money market funds.
To compete with major financial institutions and other independent banks in
its primary service areas, the Bank relies upon the experience of its executive
officers in serving business clients, its specialized services, local
promotional activity, and personal contacts by its officers, directors, and
employees of the Company. For customers whose loan demands exceed the Bank's
legal lending limit, the Bank arranges for such loans on a participation basis
with correspondent banks as well as other independent banks.
REGULATION AND SUPERVISION
THE COMPANY. The Company is a bank holding company within the meaning of
the Bank Holding Company Act of 1956, as amended (the "BHC Act"), and is
registered as such with the Federal Reserve Board (FRB). A bank holding company
is required to file with the FRB annual reports and other information regarding
its business operations and those of its subsidiaries. It is also subject to
examination by the FRB and is required to obtain FRB approval before acquiring,
directly or indirectly, ownership or control of any voting shares of any bank,
if after such acquisition, it would directly or indirectly own or control more
than 5% of the voting stock of that bank. The BHC Act further provides that the
FRB shall not approve any such acquisition that would result in or further the
creation of a monopoly, or the effect of which may be to substantially lessen
competition, unless the anti competitive effects of the proposed transaction are
clearly outweighed by the probable effect in meeting the convenience and needs
of the community to be served.
Furthermore, under the BHC Act, a bank holding company is, with limited
exceptions, prohibited from (i) acquiring direct or indirect ownership or
control of more than 5% of the voting shares of any company which is not a bank,
or (ii) engaging in any activity other than managing or controlling banks. With
the prior approval of the FRB, however, a bank holding company may own shares of
a company engaged in activities which the FRB has determined to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto.
The FRB has by regulation determined that certain activities are so closely
related to banking as to be a proper incident thereto within the meaning of the
BHC Act. These activities include, but are not limited to: operating an
industrial loan company,
industrial bank, Morris Plan Bank, savings association, mortgage company,
finance company, credit card company or factoring company; performing certain
data processing operations; providing investment and financial advice; operating
as a trust company in certain instances, selling traveler's checks, United
States savings bonds and certain money orders; providing certain courier
services; providing management consulting advice to nonaffiliated depository
institutions in some instances; acting as insurance agent for certain types of
credit-related insurance; leasing property or acting as agent, broker or advisor
for leasing property on a "full pay-out basis"; acting as a consumer financial
counselor, including tax planning and return preparation; performing futures and
options advisory services, check guarantee services and discount brokerage
activities; operating a collection or credit bureau; or performing personal
property appraisals. The Company has no present intention to engage in any of
such permitted activities at this time.
The FRB also has determined that certain activities are not so closely
related to banking to be a proper incident thereto within the meaning of the BHC
Act. Such activities include: real estate brokerage and syndication; land
development; property management; underwriting of life insurance not related to
credit transactions; and with certain exceptions, securities underwriting and
equity funding. In the future, the FRB may add or delete from the list of
activities permissible for bank holding companies. Under the BHC Act, a bank
holding company and its subsidiaries are prohibited from acquiring any voting
shares of or interest in all or substantially all of the assets of any bank
located outside the state in which the operations of the bank holding company's
banking subsidiaries are principally conducted, unless the acquisition is
specifically authorized by the law of the state in which the bank to be acquired
is located or unless the transaction qualifies under federal law as an
"emergency interstate acquisition" of a closed or failing bank. The California
interstate banking bill is described under "Interstate Banking" (below).
A bank holding company and its subsidiaries are prohibited from certain
tie-in arrangements in connection with any extension of credit, sale or lease of
a property or furnishing of services. For example, with certain exceptions, a
bank may not condition an extension of credit on a promise by its customer to
obtain other services provided by it, its holding company or other subsidiaries,
or on a promise by its customer not to obtain other services from a competitor.
In addition, federal law imposes certain restrictions on transactions between
the Company and its subsidiaries, including the Bank. As an affiliate of the
Bank, the Company is subject, with certain exceptions, to provisions of federal
law imposing limitations on, and requiring collateral for, extensions of credit
by the Bank to its affiliates.
Directors of the Company, and the companies with which they are associated,
have had and will continue to have banking transactions with the Bank in the
ordinary course of the Bank's business. It is the firm intention of the Company
that any loans and commitments to loan included in such transactions be made in
accordance with applicable law, on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons of similar creditworthiness, and on terms not
involving more than the normal risk of collectability or presenting other
unfavorable features. At December 31, 2000, loans to directors totaled
$1,245,000 or 8.4% of the Company's shareholders' equity.
THE BANK. The Bank is a member of the Federal Deposit Insurance Corporation
(FDIC), which currently insures the deposits of each member bank to a maximum of
$100,000 per depositor. For this protection, the Bank pays a semi-annual
assessment and is subject to the rules and regulations of the FDIC pertaining to
deposit insurance and other matters.
The Bank is subject to regulation, supervision and regular examination by
the Department of Financial Institutions (the "Department"). Although the Bank
is not a member of the Federal Reserve System, it is subject to regulation,
supervision, but not examination by the FRB. The regulations of these agencies
govern most aspects of the Bank's business, including the making of periodic
reports by the Bank and the Bank's activities, branching, mergers and
acquisitions, reserves against deposits and numerous other areas.
Subject to the regulations of the California Superintendent of Banks (the
"Superintendent"), the Bank may invest in capital stock, obligations or other
securities of other corporations, provided such corporations are not insurance
companies, agents or brokers. In addition, the Bank may acquire any or all of
the securities of a company that engages in activities that the Bank may engage
in directly under California law without the prior approval of the FRB.
California state-chartered banks are also specifically authorized to provide
real estate appraisal services, management consulting and advisory services and
electronic data processing services.
The Company's primary source of income (other than interest earned on
Company capital) is the receipt of dividends and management fees from the Bank.
The ability of the Bank to pay management fees and dividends to the Company and
its affiliates is subject to restrictions set forth in the California Financial
Code and, under certain circumstances, is subject to approval of the Department.
The board of directors of a state-chartered bank may declare a dividend out of
so much of net profits as such board deems appropriate, subject to California
law which restricts the amount available for cash dividends to the lesser of
retained earnings or the bank's net income less cash dividends paid for its last
three fiscal years.
In the event that a bank has no retained earnings or net income for the
prior three fiscal years, cash dividends may be paid out of net income for such
bank's last preceding fiscal year or current fiscal year upon the prior approval
of the Department. Although there are not specific regulations restricting
dividend payments by bank holding companies other than state corporation law,
supervisory concern focuses on the holding company's capital position, its
ability to meet its financial obligations as they come due and the capacity to
act as a source of financial strength to its subsidiary banks.
The FRB and the Superintendent have authority to prohibit a bank from
engaging in business practices, which are considered to be unsafe or unsound.
Depending upon the financial condition of the Bank and upon other factors, the
FRB or Superintendent could assert that the payments of dividends or other
payments by the Bank to the Company might be such an unsafe or unsound practice.
Also, if the Bank were to experience either significant loan losses or rapid
growth in loans or deposits, or some other event resulting in a depletion or
deterioration of the Bank's capital account were to occur, the Company might be
compelled by federal banking authorities to invest additional capital in the
Bank necessary to return the capital account to a satisfactory level.
IMPACT OF ECONOMIC CONDITIONS AND MONETARY POLICIES. The earnings and
growth of the Company are and will be affected by general economic conditions,
both domestic and international, and by the monetary and fiscal policies of the
United States Government and its agencies, particularly the FRB. One function of
the FRB is to regulate the national supply of bank credit in order to mitigate
recessionary and inflationary pressures. Among the instruments of monetary
policy used to implement those objectives are open market transactions in United
States Government securities and changes in the discount rate on member bank
borrowings. The monetary policies of the FRB have had a significant effect on
the operating results of commercial banks in the past and are expected to
continue to do so in the future. However, the effect, if any, of
such policies on the future business and earnings of the Company cannot be
accurately predicted.
ACCOUNTING CHANGES. Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133 as amended by SFAS 138). Among other things,
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The accounting for changes in the fair value of
a derivative (that is, gains and losses) depends on the intended use of the
derivative and the resulting designation. The provisions of SFAS 133, as
amended, are effective for all fiscal quarters or all fiscal years beginning
after June 15, 2000. SFAS 133 is not anticipated to have a significant impact on
the Company" consolidated financial condition or results of operations.
LEGISLATION AND PROPOSED CHANGES. From time to time, legislation is enacted
which has the effect of increasing the cost of doing business, limiting or
expanding permissible activities or affecting the competitive balance between
banks and other financial institutions. Proposals to change the laws and
regulations governing the operations and taxation of banks, bank holding
companies and other financial institutions are frequently made in Congress, in
the California legislature and before various bank regulatory agencies. No
prediction can be made as to the likelihood of any major changes or the impact
such changes might have on the Company. Certain changes of potential
significance to the Company which have been enacted recently or others which are
currently under consideration by Congress or various regulatory or professional
agencies are discussed below.
FINANCIAL INSTITUTIONS REFORM, RECOVERY AND ENFORCEMENT ACT OF 1989. On
August 9, 1989, President Bush signed into law the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 ("FIRREA"). FIRREA contains
provisions, which among other things: (1) establish two separate financial
industry insurance funds, both administered by the FDIC - the Bank Insurance
Fund and the Savings Association Fund; (2) abolish the Federal Home Loan Bank
Board and establish the Office of Thrift Supervision as an office of the
Treasury Department, with responsibility for examination and supervision of all
savings and loan associations; (3) increase the insurance premiums paid by
FDIC-insured institutions; (4) permit bank holding companies to acquire healthy
savings and loan associations; (5) enhance federal banking agencies' enforcement
authority over the operations of all insured depository institutions and
increase the civil and criminal penalties that may be imposed in connection with
violations of laws and regulations; (6) curtail investments and certain
activities of state-chartered savings and loan associations; and (7) increase
the capital requirements of savings and loan associations. Management of the
Company does not believe that the provisions of FIRREA have had or will have a
material adverse impact on the Company's consolidated financial position or
results of operations.
COMPETITIVE EQUALITY BANKING ACT. The Competitive Equality Banking Act of
1987 contained provisions which, among other things: (1) permanently closed the
loophole which formerly allowed for the creation of "non-bank banks"; (2)
limited the restrictions imposed on banks on the availability of funds deposited
by check; and (3) provided explicit leasing authority for national banks. The
enactment of this legislation has not had a material adverse effect on the
Company's consolidated financial condition or results of operations.
INTERSTATE BANKING. In September 1986, California adopted an interstate
banking law. The law allows California banks and bank holding companies to be
acquired by banking organizations in other states on a reciprocal basis (i.e.,
provided the other state's laws permit California banking organizations to
acquire banking
organizations in that state on substantially the same terms and conditions
applicable to banking organizations solely within that state). The law took
effect in two stages. The first stage, which became effective July 1, 1987,
allowed acquisitions on a reciprocal basis within a region consisting of all 11
states (Alaska, Arizona, Colorado, Hawaii, Idaho, Nevada, New Mexico, Oregon,
Texas, Utah and Washington) which currently permit acquisitions by California
banking organizations of banks and bank holding companies in such states. The
second stage, which became effective January 1, 1991, allows interstate
acquisitions on a national reciprocal basis. The Company believes that this
legislation will further increase competition as out-of-state financial
institutions enter the California market. Most recently U.S. Bancorp purchased
California Bancshares, Inc.; a community- based holding company with
approximately 21 independent banks in the surrounding area in which the Bank
operates. U. S. Bancorp was subsequently purchased by First Bank headquartered
in Minneapolis. It is anticipated that such a purchase may in fact be beneficial
to the Bank as it may open opportunities to prospects that enjoy dealing with a
community bank. If there is a negative effect on the Bank it might be that this
merger might increase the resources available to the 21 independent banks being
purchased.
CAPITAL ADEQUACY GUIDELINES. The FRB has issued capital adequacy guidelines
establishing a risk-based capital framework consisting of a definition of
capital comprised of a core component (essentially shareholders' equity less
goodwill) ("Tier 1 capital"), a supplementary component ("Tier 2 capital"), a
system for assigning assets & off-balance sheet items to four weighted risk
categories (with higher levels of capital being required for the categories
being perceived as representing greater credit risk) and a schedule for
achieving a minimum risk-based capital ratio of 7.25% by the end of 1990 (which
at least 3.625% should be in the form of common shareholders' equity) and 8% by
the end of 1992 (which at least 4% should be in the form of common shareholders'
equity). An institution's risk-based capital would be determined by dividing its
qualifying capital by its risk -weighted assets.
The guidelines make regulatory capital requirements more sensitive to the
differences in risk profiles among banking institutions, take off- balance sheet
items into account when assessing capital adequacy and minimize disincentives to
holding liquid low-risk assets. In addition, the guidelines may require some
banking institutions to increase the level of their common shareholders' equity.
It is not anticipated that the guidelines will have a material adverse effect on
the Company's financial condition or results of operations over the short term.
At the end of 2000, the guidelines provided for a minimum risk-based capital
ratio of 8%, and this provision may limit the Company's ability to increase its
assets or require the Company to raise additional equity to facilitate growth.
On August 2, 1990, the FRB adopted standards for compliance by banking
organizations with risk-based capital guidelines to include a minimum leverage
ratio of 4%. An institutions leverage ratio is determined by dividing Tier 1
captial by total average assets. The FRB emphasized that the leverage ratio
constitutes a minimum requirement for well-run banking organizations having
diversified risk, including no undue interest rate risk exposure, excellent
asset quality, high liquidity, good earnings and a favorable composite rating
under the applicable regulatory rating system. Banking organizations
experiencing or anticipating significant growth, as well as those organizations
which do not exhibit the characteristics of a strong well-run banking
organization described above, will be required to maintain minimum capital
ranging from 100 to 200 basis points in excess of the leverage ratio.
The FRB leverage ratio establishes a new limit on the ability of banking
organizations to increase assets and liabilities without increasing capital
proportionately. In management's opinion, the leverage ratio will have no
material effect on its capital
needs in the foreseeable future. The Bank's leverage ratio at December 31, 2000
was 8.01% (See "Summit Bancshares, Inc. 2000 Annual Report - Footnote #8).
EMPLOYEES
On December 31, 2000 the Bank employed 45 full time employees and 1 part
time employee for a total equivalent of 45.4 full time employees. At the present
time there are no salaried employees of the Company.
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
The following table summarizes the distribution, by amount (in thousands)
and percentage of the daily average assets, liabilities, and shareholders'
equity of Summit Bancshares, Inc. (consolidated) for the year ended December 31,
2000. Comparative figures for the years ended December 31, 1999 and 1998, are
also provided:
ASSETS 2000 1999 1998
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
Cash and Due
From Banks $ 7,441 5.25% $ 7,633 6.13% $ 7,231 6.49%
Time Deposits with Other
Financial Institutions 31,439 22.17 28,179 22.62 10,948 9.82
Investment
Securities:
Taxable 18,292 12.90 16,250 13.05 13,397 12.02
Non-taxable
Federal Funds
Sold 15,501 10.94 15,306 12.29 21,888 19.64
Loans, Net 64,033 45.16 52,086 41.82 53,992 48.45
Other Assets 5,071 3.58 5,100 4.09 3,994 3.58
--------------------------------------------------------------------------------
Total Assets $141,777 100% $124,554 100% $111,450 100.00%
================================================================================
LIABILITIES & SHAREHOLDERS' EQUITY
Deposits:
Demand $ 41,474 29.25% $ 38,478 30.89% 31,301 28.09
Interest Bearing-
Transaction accounts 40,803 28.78 39,252 31.52 35,004 31.41
Savings 2,862 2.02 2,344 1.89 2,878 2.58
Time 39,257 27.69 28,815 23.13 28,106 25.22
Other Liabilities 1,174 .83 802 .64 1,074 0.96
Shareholders Equity 16,207 11.43 14,863 11.93 13,087 11.74
--------------------------------------------------------------------------------
Total Liabilities &
Shareholder's Equity $141,777 100% $124,554 100% $111,450 100.00%
================================================================================
The following is an analysis of Net Interest Income for 2000,. Comparative
figures for 1999 and 1998 are also presented on the following pages. Non-accrual
loans are included in the average balances. Balances are expressed in thousands
of dollars.
FOR THE YEAR ENDED DECEMBER 31, 2000
INTEREST RATES
AVERAGE INCOME/ EARNED/
BALANCE EXPENSE PAID
--------- ---------- ---------
ASSETS
Time Deposits with Other
Financial Institutions $31,439 $1,861 5.92%
Investment Securities (footnote #1) 18,292 1,007 5.51
Federal Funds Sold 15,501 962 6.21
Loans (Interest and Fees) 64,033 7,543 * 11.78
-------------------------------------------------
Total Earning Assets $129,265 $11,373 8.80%
=============================
Cash and Due from Banks 7,441
Premises and Equipment 825
Other Assets 4,246
----------
TOTAL ASSETS $141,777
==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Deposits:
Demand $ 41,474 $ -- --%
Savings 2,862 53 1.85
Interest-bearing Transaction 40,803 800 1.96
Time 39,257 1,951 4.97
-------------------------------------------------
Total Deposits $124,395 $2,803 2.25%
=============================
Other Liabilities 1,174
Shareholder's Equity 16,208
----------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $141,777
==========
AS A PERCENTAGE OF AVERAGE
TOTAL EARNING ASSETS:
Interest and Fee Income $11,373
Interest Expense (2,803)
----------
NET INTEREST INCOME AND MARGIN $8,570 6.55%
=============================
* Includes loan fees of $565,617
1.) Investment income rate is not calculated on a tax equivalent basis.
FOR THE YEAR ENDED DECEMBER 31, 1999
INTEREST RATES
AVERAGE INCOME/ EARNED/
BALANCE EXPENSE PAID
--------- --------- --------
ASSETS
Time Deposits with Other
Financial Institutions $28,179 $1,498 5.32%
Investment Securities (footnote #1) 16,250 881 5.42
Federal Funds Sold 15,306 771 5.04
Loans (Interest and Fees) 53,409 5,614 10.51
-------------------------------------------------
Total Earning Assets $113,144 $8,764 7.75%
============================
Cash and Due from Banks 7,633
Premises and Equipment 919
Other Assets 4,181
----------
TOTAL ASSETS $124,554
==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Deposits:
Demand $ 38,478 $ -- --%
Savings 2,344 46 1.96
Interest-bearing Transaction 39,252 769 1.96
Time 28,815 1,338 4.64
-------------------------------------------------
Total Deposits $108,890 $2,153 1.98%
============================
Other Liabilities 801
Shareholder's Equity 14,863
----------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $124,554
==========
AS A PERCENTAGE OF AVERAGE
TOTAL EARNING ASSETS:
Interest and Fee Income $8,764
Interest Expense 2,153
---------
NET INTEREST INCOME AND MARGIN $6,611 5.77%
============================
* Includes loan fees of $412,691
1.) Investment income rate is not calculated on a tax equivalent basis.
FOR THE YEAR ENDED DECEMBER 31, 1998
INTEREST RATES
AVERAGE INCOME/ EARNED/
BALANCE EXPENSE PAID
--------- --------- --------
ASSETS
Time Deposits with Other
Financial Institutions $10,948 $629 5.75%
Investment Securities (footnote #1) 13,397 769 5.74
Federal Funds Sold 21,888 1,178 5.38
Loans (Interest and Fees) 53,992 6,150 * 11.39
-------------------------------------------------
Total Earning Assets $100,225 $8726 8.71%
============================
Cash and Due from Banks 7,231
Premises and Equipment 582
Other Assets 3412
----------
TOTAL ASSETS $111,450
==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Deposits:
Demand $ 31,301 $ -- --%
Savings 2,878 54 1.88
Interest-bearing Transaction 35,004 737 2.11
Time 28,106 1,476 5.25
-------------------------------------------------
Total Deposits $ 97,289 $2,267 2.33%
========== ============================
Other Liabilities 1,074
Shareholder's Equity 13,087
----------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $111,450
==========
AS A PERCENTAGE OF AVERAGE
TOTAL EARNING ASSETS:
Interest and Fee Income $8,726
Interest Expense 2,267
---------
NET INTEREST INCOME AND MARGIN $6,459 6.38%
============================
* Includes loan fees of $516,000
1.) Investment income rate is not calculated on a tax equivalent basis.
Following is an analysis of changes in Interest Income and Expense (in thousands
of dollars) for 1999 over 1998. A similar comparison for 1998 over 1997 is on
the following page. Changes not solely attributed to volume or rates have been
allocated proportionately to volume and rate components.
INCREASE (DECREASE) IN 2000 OVER 1999
INTEREST AND FEE INCOME --------------
VOLUME RATE TOTAL
------- -------- ---------
Time Deposits with Other
Financial Institutions $ 4 $ 360 $ 364
Investment Securities 15 111 126
Federal funds Sold 0 191 191
Loans, Net 31 1,899 1,930
------- -------- ---------
Total Increase in
Interest and Fee Income 50 2,561 2,611
INCREASE IN
INTEREST EXPENSE
Savings Deposits 0 7 7
Interest-bearing Transaction 5 27 32
Time Deposits 30 583 613
Total Increase in 35 617 652
Interest Expense ------- -------- ---------
INCREASE IN
NET INTEREST INCOME $ 15 $ 1,944 $ 1,959
======= ======== =========
INCREASE (DECREASE) IN 1999 OVER 1998
INTEREST AND FEE INCOME --------------
VOLUME RATE TOTAL
------ -------- ---------
Time Deposits with Other
Financial Institutions $ 168 $ 701 $ 869
Investment Securities 7 105 112
Federal funds Sold (18) (389) (407)
Loans, Net (1) (535) (536)
-------- ------ -----
Total Increase in
Interest and Fee Income 156 (118) 38
INCREASE IN
INTEREST EXPENSE
Savings Deposits (1) (7) (8)
Interest-bearing Transaction 2 30 32
Time Deposits 0 (139) (138)
Total Increase in 2 (116) (114)
Interest Expense -------- ------ -----
INCREASE IN
NET INTEREST INCOME $ 154 $ (2) $ 152
======== ====== =====
INVESTMENT SECURITIES
The following table sets forth the book value as of December 31 for the
securities indicated:
2000 1999
------------- -------------
U.S. Agencies $12,465,000 $19,465,133
TOTAL $12,465,000 $19,465,133
============= =============
The amortized cost and estimated fair values of investment in debt securities
for 1999 are as follows:
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- --------- ---------- -----------
U.S. Agencies $19,465,133 $0 $310,361 $19,154,772
TOTAL $19,465,133 $0 $310,361 $19,154,772
=========== ==== ======== ===========
The amortized cost and estimated market value of debt securities at December 31,
2000 by contractual maturity are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
ESTIMATED
AMORTIZED FAIR
COST VALUE
----------- -----------
Due in one year or less $12,465,000 $12,450,018
Due after one year through
Five years 0 0
TOTAL $12,465,000 $12,450,018
=========== ===========
There were no sales of investments in debt securities during 2000.
The following table is a summary of the relative maturities and yields of
Summit Bancshares, Inc. investment securities as of December 31, 2000 and 1999.
Yields on securities have been computed by dividing interest income, adjusted
for amortization of premium and accretion of discount, by book values of the
related securities.
MATURING MATURING AFTER ONE
WITHIN ONE YEAR THROUGH FIVE YEARS TOTAL
-------------------------- ------------------- ---------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT IELD
------------- ------- ------ ----- ----------- -----
DECEMBER 31, 2000
U.S. Agencies $12,465,000 5.65% $ 0 0% $12,465,000 5.65%
------------- ------- ------- ----- ---------- -----
TOTAL $12,465,000 5.65% $ 0 0% $12,465,000 5.65%
============= ======= ======= ===== =========== =====
LOAN PORTFOLIO
COMPOSITION OF LOANS
The following table shows the composition of loans (in thousands of
dollars) of Summit Bancshares, Inc. as of December 31 for each respective year
designated.
2000 1999 1998 1997 1996
------- -------- ------- ------- -------
Commercial and
Financial $28,026 $33,368 $38,403 $44,044 $35,789
Real Estate, Including
Construction 49,667 17,090 10,733 12,321 10,571
Installment 7,491 6,887 5,196 5,706 6,119
Leases 0 0 0 0 0
------- -------- ------- ------- -------
Less Unearned Lease Income 0 0 0 0 0
Less Allowance for
Loan Losses (1,468) (1,273) (1,319) (1,238) (1,070)
------- -------- ------- ------- -------
TOTAL $83,716 $56,072 53,013 60,833 51,408
======= ======== ======= ======= =======
MATURITY, DISTRIBUTION AND INTEREST RATE
SENSITIVITY OF LOANS
The following table shows the maturity distribution of loans (in thousands
of dollars) as of December 31, 2000.
LOANS WITH A MATURITY OF
------------------------------------
ONE YEAR ONE THROUGH OVER FIVE TOTAL
OR LESS FIVE YEARS YEARS ------
-------- ----------- ---------
Commercial and $21,176 $ 6,850 $ 0 $28,026
Financial
Real Estate
Construction 11,152 2,524 817 14,493
-------- ------- ------- -------
TOTAL $32,328 $ 9,374 $ 817 $42,519
======== ======= ======= =======
All but seven loans for $4,834,522 reported above which have maturities of over
one year are at floating interest rates.
COMMITMENTS AND LINES OF CREDIT
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. These instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the statement of financial
position. The contract amount of these instruments reflects the extent of
involvement the Company has in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit is represented by the contractual notional amount of those
instruments. The Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments. At December
31, 2000, financial instruments whose contract amounts represent credit risk:
CONTRACT AMOUNT
---------------------
Commitments to extend credit in the future $ 36,891,620
Standby letters of credit 1,857,670
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained if deemed
necessary by the Bank upon extension of credit is based on management's credit
evaluation of the counter-party. Collateral held varies but may include accounts
receivable, inventory, property, plant, and equipment, and income-producing
commercial properties. Standby letters of credit are conditional commitments
issued by the Bank to guarantee the performance of a customer to a third party.
Most all guarantees expire within one year. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers.
Approximately 4.1% of the Bank's loans are concentrated with health care
professionals.
NON-PERFORMING LOANS AND
SUMMARY OF LOAN LOSS EXPERIENCE (In thousands of dollars) as of December 31,
2000 1999 1998 1997 1996
---- ---- ------ ------ ------
Non-Accrual Loans $ 0 $158 $ 651 $176 $ 0
90 days past due &
Still accruing 0 0 662 408 0
---- ---- ------ ------ ------
Total non-accrual and
90 days past due loans 45 158 1,313 584 0
Other real estate owned 0 0 212 1,222 1,291
---- ---- ------ ------ ------
Total non-performing
Assets $45 $158 $1,525 $1,806 $1,291
==== ==== ====== ====== ======
The Bank's policy is to recognize interest income on an accrual basis
unless the full collectibility of principal and interest is uncertain. Loans
that are delinquent 90 days as to principal or interest are placed on a
non-accrual basis, unless they are well secured and in the process of
collection, and any interest earned but uncollected is reversed from income.
Collectibility is determined by considering the borrower's financial condition,
cash flow, quality of management, the existence of collateral or guarantees and
the state of the local economy.
The allowance for loan losses is maintained at a level considered adequate
to provide for losses that can be reasonably anticipated. The reserve is
increased by provisions and reduced by net charge-offs. The Bank makes credit
reviews of the loan portfolio, considers current economic conditions, loan loss
experience, and other factors in determining the adequacy of the reserve
balance. The allowance for loan losses is based on estimates and ultimate losses
may vary from current estimates. As adjustments become necessary, they are
reported in earnings in the periods in which they become known.
Any loans classified for regulatory purposes as loss, doubtful,
substandard, or special mention that have not been disclosed under Item III of
Industry Guide 3 do not (i) represent or result from trends or uncertainties
which management reasonably expects will materially impact future operating
results, liquidity or capital resources, or (ii) represent material credits
about which management is aware of any information which causes management to
have serious doubts as to the ability of such borrowers to comply with the loan
repayment program.
An analysis of activity in the allowance for loan losses for the prior five
years ended December 31 is as follows:
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
Balance at beginning
of period $1,273,364 $1,319,451 $1,238,012 $1,070,318 $1,024,922
---------- ---------- ---------- ---------- ----------
Provision for
loan losses 190,000 0 100,000 270,000 125,000
---------- ---------- ---------- ---------- ----------
Loans charged off
Commercial 16,140 74,230 25,000 96,394 16,952
Real Estate Construction 0 0 0 0 0
Installment 0 0 26,374 8,372 66,152
---------- ---------- ---------- ---------- ----------
Total chargeoffs 16,140 74,230 51,374 105,306 83,104
---------- ---------- ---------- ---------- ----------
Recoveries
Commercial 21,169 5105 0 0 0
Real Estate Construction 0 0 0 0 0
Installment 23,038 32,813 3,000 3,500
---------- ---------- ---------- ---------- ----------
Total recoveries 21,169 28,143 32,813 3,000 3,500
Net Chargeoffs 46,087 46,087 18,561 102,306 79,604
---------- ---------- ---------- ---------- ----------
Balance at end of period $1,468,393 $1,273,364 $1,319,451 $1,238,012 $1,070,318
---------- ---------- ---------- ---------- ----------
Ratio of net chargeoffs
to average loans outstanding 0.03% 0.09% 0.03% 0.18% 0.18%
========== ========== ========== ========== ==========
TIME DEPOSITS IN THE AMOUNT OF $100,000 AND OVER
The following table sets forth by time remaining to maturity, Summit Bank's
issuance of time deposits in the amount of $100,000 or more (in thousands of
dollars) as of December 31 of the respective year designated:
2000 1999 1998
------------------------- ------------------------- ------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
------- ---------- ------- ---------- ------- ----------
3 months or less $24,778 75.5% $17,644 75.3% $22,407 78.8%
Over 3 through
6 months 5,134 15.6% 2,366 10.10% 3,854 13.5
Over 6 through
12 months 2,909 8.9% 3,432 14.60% 2,201 7.7
Over 12 months 0 0.0% 0 0 0 0
------- ------ ------- ------ ------- ------
TOTAL $32,821 100.0% $23,442 100.0% $28,462 100.0%
======= ====== ======= ====== ======= ======
RETURN ON EQUITY AND ASSETS
The following table shows key financial ratios for the years ending
December 31, 2000, 1999 and 1998
2000 1999 1998
------ ------ --------
Return on average assets 1.70% 1.48% 1.59%
Return on average
Shareholders equity 14.89% 12.37% 13.50%
Dividend payout ratio 28.53% 37.36% 49.69%
Average shareholders
Equity as a percent of:
Average Assets 11.43% 11.93% 11.74%
Average Deposits 13.03% 13.65% 13.54%
INTEREST RATE SENSITIVITY/INTEREST RATE RISK ANALYSIS
The following table provides an interest rate sensitivity and interest rate
risk analysis for the year ended 2000. The table presents each major category of
interest-earning assets and interest-bearing liabilities.
INTEREST RATE RISK REPORTING SCHEDULE
REPORTING INSTITUTION: SUMMIT BANK REPORTING DATE: 12/31/00
TOTAL 3 MO +1 YR +3 YRS +5 YRS +10 YRS 10 YRS
-------- ------- -------- -------- ------ ------- -------
I. EARNING ASSETS
A. INVESTMENTS
1. U.S. TREASURIES $0 $0 $0 $0 $0 $0 $0
2. U.S. AGENCIES 12,465 8,465 4,000 0 0 0 0
3. FED FUNDS 8,055 8,055 0 0 0 0 0
4. PURCHASED CD's 26,349 9,593 9,597 7,158 0 0 0
-------- ------- -------- -------- ------ ------- -------
TOTAL INVESTMENTS $46,869 $26,113 $13,597 $7,158 $0 $0 $0
-------- ------- -------- -------- ------ ------- -------
B. LOANS $80,515 $67,046 $1,023 $1,738 $3,558 $7,150 $0
-------- ------- -------- -------- ------ ------- -------
$80,515 $67,046 $ 1,023 $1,738 $3,558 $7,150 $0
-------- ------- -------- -------- ------ ------- -------
C. TOTAL EARNING ASSETS $127,384 $93,159 $14,620 $8,896 $3,558 $7,150 $0
II. COST OF FUNDS (DEPOSITS)
A. CERTIFICATES OF DEPOSIT $39,837 $28,971 $10,760 $104 $0 $0 $0
B. MONEY MARKET ACCOUNTS 36,500 4,977 14,033 17,490 0 0 0
C. TRANSACTION ACCOUNTS 5,636 242 725 1,910 1,374 1,385 0
D. SAVINGS ACCOUNTS 2,991 128 385 1,014 729 735 0
-------- ------- -------- -------- ------ ------- -------
III. INTEREST SENSITIVE ASSETS $127,384 $93,159 $14,620 $8,896 $3,558 $7,150 $0
IV. INTEREST SENSITIVE LIABILITIES $84,964 $34,318 $25,903 $20,518 $2,103 $2,120 $0
-------- ------- -------- -------- ------ ------- -------
V. GAP $42,420 $58,841 $(11,283) ($11,622) $1,455 $5,030
VI. CUMMULATIVE GAP $42,420 $57,841 $47,558 $35,936 $37,391 $42,421 $42,421
VII. GAP RATIO 1.50 2.71 .56 .43 1.69 3.37
VIII. CUMMULATIVE RATIO 1.50 2.71 1.79 1.45 1.45 1.50 1.50
IX. GAP AS A % OF TOTAL ASSETS 29.96 41.56 -7.97 -8.21 1.03 3.55 0.00
X. CUMMULATIVE GAP AS A %
OF TOTAL ASSETS 29.96 41.56 33.59 25.38 26.41 29.96 29.96
ITEM 2. PROPERTIES
All of the Company's properties are located in California. The Bank leases
the premises housing the Head Offices for the Bank and the Company as well as a
full
service branch at 2969 Broadway, Oakland California 94611 at the intersection of
Broadway and 30th Street in the "Pill Hill" area. The premises consists of
approximately 9,800 square feet located in a portion of a single story building
on the southwest corner at the intersection. The monthly rent is $5,938 and the
lease terminates on July 31, 2002.
The Emeryville Branch began operations in December 1985 on the ground floor
of the Watergate III Tower at 2000 Powell Street. The Bank currently leases
approximately 2,200 square feet of space at this location, at a base rent of
$5,469 per month. The term of this lease expires on December 31, 2001 with one
option to extend the lease by one three-year option and one five-year option.
In September 1990, the Company purchased two contiguous parcels totaling
10,000-sq. ft. adjacent to the Bank's Walnut Creek Office for a price of
$544,644. Included on one of the parcels is a single story, 2,500-sq. ft.
concrete block building suitable for a restaurant. The Bank is proceeding with
plans to remodel this building with the intention of making the property the
future home of it's Walnut Creek office.
Since June of 1998, the Pleasanton Branch has operated in an 1800 sq. ft.
facility at 5673 W. Las Positas Blvd. pursuant to a lease that terminates on
February 1, 2003. The base rent is $3,150 per month.
On March 1, 2001, the Bank leased 1,000-sq. ft. of office space located at
675 Ygnacio Valley Rd., Ste. B105, Walnut Creek, CA 94598. The monthly rent is
$2,160 and expires in two years.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company is a party to claims and legal proceedings
arising in the ordinary course of business. Currently, the Company has no
outstanding suits brought against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Neither the Company nor the Bank submitted any matter covered by this
report to a vote of security holders, through the solicitation of proxies or
otherwise, during the fourth quarter of 2000.
The following individuals are the current executive officers of the Bank.
NAME AGE POSITION SINCE
------------------ ------ ----------------------- ------
Shirley W. Nelson 56 Chairman and Chief 1982
Executive Officer
C. Michael Ziemann 56 President and 1996
Chief Operating Officer
Denise Dodini 48 Senior Vice 1994
President and
Senior Loan Officer
Steven P. Nelson Jr. 36 Vice President and
Chief Financial Officer 1997
The business experience of the executive officers follows:
Shirley W. Nelson was President and Chief Executive Officer of the Bank and
Holding Company since May 1983 and was elected in July 1989 to the position of
Chairman. She remained President of the Bank until January, 1996. Prior to this
assignment she was the Senior Vice President, Senior Loan Officer. She is
currently a member of the Board of Directors' Audit Committee, Asset and
Liability Committee, Loan Committee, and Personnel Committee.
C. Michael Ziemann has been President and Chief Operating Officer of the
Bank since January 1, 1996. Prior to this position he was Chief Administrative
Officer subsequent to his position as CFO and Cashier to which he was appointed
in April 1987. Prior to that he was active in the administration of the Bank and
was the manager of the Bank's Walnut Creek Office since April 1985. Prior to
joining the Bank, he held various positions during his 16 years with Bank of
America in operations, branch management, and regional administration where he
was a district administrator.
Denise Dodini has been the Executive Vice President - Senior Loan Officer
at the Bank since 2000. Denise joined the Bank in October 1989 as a Vice
President, Loan Officer and became a Senior Vice President in July 1994. Prior
to joining the Bank, Denise had fifteen years of Banking experience with Bank of
America, where she was involved in consumer, commercial, real estate and
corporate lending.
Steve Nelson has been the Vice President-Chief Financial Officer at the
bank since 1999. From 1997 until 1999 he was the Bank's Controller subsequent
to serving as a loan officer in the Walnut Creek branch.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
(a) MARKET INFORMATION. The stock of the Company is not listed on any stock
exchange but is publicly traded in limited and infrequent transactions in
the "over the counter" market. According to information made available to
the Company by the Market Maker, Justin Mazzon, American Blue Chip
Investment Management, 700 Larkspur Landing Circle, Larkspur, CA., the
range of high and low bids for such common stock for each calendar quarter
since January 1999 is as follows:
DIVIDENDS
HIGH LOW DECLARED
--------- ---------- ----------
2000
First Quarter $39 1/4 $38 $ --
Second Quarter 39 1/4 34 1/2 .75
Third Quarter 40 1/2 36 --
Fourth Quarter 49 1/2 42 .75
==========
1999
First Quarter $50 $45 $ --
Second Quarter 48 44 1/2 .75
Third Quarter 49 39 1/4 --
Fourth Quarter 40 1/8 39 1/4 .75
$ 1.50
==========
As of March 14, 2001, there were 459,387 shares of common stock of the Company
issued.
(B) SHAREHOLDERS. As of March 14, 2001, there were 246 shareholders of the
common stock. There were no other classes of securities outstanding.
(C) DIVIDENDS. On June 9, 2000, the Company paid a 75-cent per share cash
dividend in addition to a similar 75 cent per share dividend on December 8,
2000. It is the present intention of the Company to issue semi-annual cash
dividends so long as said dividends do not inhibit future development.
Additionally, payment of cash dividends by the Company is dependent upon payment
of dividends by the Bank to the Company. Payment of cash dividends by the Bank
may under certain circumstances require approval of the California Department of
Financial Institutions, and as a matter of law, the Bank may only declare cash
dividends from the lesser of its retained earnings or its undistributed net
income from the last three years, less any dividends paid during those three
years. In the event that the Bank does not have retained earnings or net income
for the last three fiscal years, the Bank may declare dividends only with the
prior written consent of the Department of Financial Institutions.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial information of the Company. for the years
from the period January 1, 1996 through December 31, 2000 should be read in
conjunction with the consolidated financial statements and the accompanying
notes included elsewhere in this Annual Report.
FINANCIAL HIGHLIGHTS
------------------------------------------------------------------------------------------------------------
For the year ended December 31,
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- -----------
Net Income $2,413,617 $1,839,155 $1,767,392 $1,708,154 $1,411,871
Earnings Per Common Share $5.26 $4.03 $3.95 $3.97 $3.32
Earnings Per Common $5.20 $3.95 $3.81 $3.72 $3.11
Share assuming dilution
Cash Dividends per Share $1.50 $1.50 $1.50 $1.50 $1.50
declared
AT YEAR END
(In Thousands)
Deposits $128,087 $119,996 $109,889 $90,432 80,510
Loans (Net) 83,716 56,072 53,013 $60,833 51,408
Assets 145,703 135,904 124,656 $104,342 92,946
Shareholders' Equity 16,835 15,153 14,088 $12,879 11,939
Non-performing Loans to
Total Loans 0.05% 0.28% 2.48% 0.96% 0.00%
Allowance to
Non-performing Loans 3,263.10% 805.69% 100.46% 212% N/A
Allowance to
Non-Performing Assets 3,263.10% 805.69% 86% 68% .82%
Tier 1 Capital 13.90% 19.67% 19.49% 13.71% 14.41%
Total Tier Capital 14.94% 20.89% 20.71% 14.92% 15.61%
Leverage Ratio 11.89% 11.61% 11.07% 9.12% 9.63%
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The section labeled Management's Discussion and Analysis of Financial
Condition and Results of Operation appearing in the Registrant's Annual Report
to shareholders for the year ended December 31, 2000 are incorporated by
reference herein.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Interest rate and credit risks are the most significant market risks
impacting the Company's performance. Other types of market risk, such as foreign
currency exchanges rate risk and the commodity price risk, do not arise in the
normal course of the Company's business activities. The Company relies on loan
reviews, prudent loan underwriting standards and an adequate allowance for loan
losses to mitigate credit risk.
Interest rate risk is managed by subjecting the Company's balance sheet to
hypothetical interest rate shocks. The Company's primary objective in managing
interest rate risk is to minimize the adverse impact of changes in interest
rates on the Company's net interest income and capital, while structuring the
Company's asset/liability position to obtain the maximum yield-cost spread on
that structure.
Rate shock is an instantaneous and complete adjustment in market rates of
various magnitudes on a static or level balance sheet to determine the effect
such a change in rates would have on the Company's net interest income for the
succeeding twelve months, and the fair values of financial instruments.
The Company utilizes asset/liability-modeling software to determine the
effect of a shift in market interest rates, with scenarios of interest rates
increasing 100 and 200 basis points and decreasing 100 and 200 basis points. The
model utilized to create the table presented below is based on the concept that
all rates do not move by the same amount or at the same time. Although certain
assets and liabilities may have similar maturities or periods to repricing, they
may not react correspondingly to changes in market interest rates. In addition,
interest rates on certain types of assets and liabilities may fluctuate with
changes in market interest rates, while interest rates on certain types of
assets may lag behind changes in market rates. Further, in the event of a change
in interest rates, prepayment and early withdrawal levels would likely deviate
from those assumed in the table. The ability of certain borrowers to make
scheduled payments on the adjustable rate loans may decrease in the event of an
interest rate increase due to adjustments in the amount of the payments.
The model attempts to account for such limitations by imposing weights on
the gaps between assets and liabilities. These weights are based on the ratio
between the amount of rate change and each category of asset/liability, and the
amount of any change in the federal funds rate, local conditions and the
strategy of the Company determine the weights for loan and core deposits; the
others are set by national markets. In addition, a timing factor has been used
as (a) fixed rate instruments do not reprice immediately; (b) renewals may have
different term than original maturities; and (c) there is a timing factor
between rates on different instruments (i.e. core deposits usually reprice well
after there has been a change in the federal funds rate). Due to the various
assumptions used for this simulation analysis, no assurance can be given that
actual results will correspond with projected results.
The following table shows the estimated impact of various interest rate
shocks on net interest income and the fair values of financial instruments at
December 31, 2000:
FAIR VALUES OF FINANCIAL INSTRUMENTS
--------------------------------------------------
NET INTEREST INCOME ASSETS LIABILITIES
--------------------- ---------------------- ---------------------
AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT % CHANGE
------ -------- -------- -------- -------- --------
+ 200 basis points $9,556 12.8% $138,968 1.0% $117,317 2.6%
+ 100 basis points 9,010 6.4 139,671 0.5 118,829 1.3
Static 8,648 0.0 140,398 0.0 120,402 0.0
- 100 basis points 7,704 (9.0) 141,153 0.5 122,332 1.6
- 200 basis points 6,936 (18.1) 141,939 1.1 124,213 3.2
Loans and certificates of deposit represent the majority of interest rate
exposure. Investments only represent 9.5% of interest earning assets and
therefore, the impact of the investments on net interest income of moving rates
would not be significant, Historically, savings and interest-bearing checking
accounts have not repriced in proportion to changes in overall market interest
rates. net change in net interest income can be attributed to the balance of
loans and certificates of deposit maturing/repricing.
As a result, in an increasing/decreasing interest rate environment net
interest income would increase/decrease.
The change in fair values of financial assets is mainly a result of total
loans representing 84.3% of total interest-earning assets. Of these loans,
$103.4 million have fixed interest rates, which decline in value during a period
of rising interest rates.
While asset/liability models have become a main focus of risk management,
the Company believes that statistical models alone do not provide a reliable
method of monitoring and controlling risk. The quantitative risk information
provided is limited by the parameters established in creating the related
models. Therefore, the Company uses these models only as a supplement to other
risk management tools.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated statement of financial position as of December 31, 2000
and 1999 and the consolidated statements of income, changes in shareholders'
equity and cash flows for the years ended December 31, 2000, 1999, and 1998,
together with the report of independent public accountants appearing in the
Registrant's Annual Report to shareholders for the year ended December 31, 2000
are incorporated by reference herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING ANDFINANCIAL DISCLOSURES
On March 27, 2000, the Company dismissed the services of
PricewaterhouseCoopers LLP as they informed the registrant that the local office
will no longer be providing accounting services for community banks and that the
last year in which they provided services to the registrant was the year 1999.
PricewaterhouseCoopers LLP's last two years reports did not contain an
adverse opinion or disclaimer of opinion nor were they qualified or modified as
to uncertainty, audit scope, or accounting principles. The decision to
discontinue accounting services to the Company was made by
PricewaterhouseCoopers LLP as a policy matter and not as a result of services
performed for the Company. During the Company's two most recent fiscal years and
any subsequent interim period through February 28, 2000, there were no
disagreements with the former accountant on any matter of accounting principles
or practices, financial statements disclosure, or auditing scope or procedure
which disagreement(s), if not resolved to the satisfaction of
PricewaterhouseCoopers LLP, would have caused it to make reference to the
subject matter of the disagreement.
On the recommendation of the Company's Audit Committee, Arthur Andersen LLP
was recommended to the Company's shareholders at its May 16, 2000 annual meeting
to be its new principal accountant to audit its financial statements. At no time
during the Company's two most recent years did the Company consult with, Arthur
Andersen LLP regarding the application of accounting principles to a specific
transaction, either completed or proposed; or the type of audit opinion that
might be rendered on the Company's financial statements, and neither a written
report was provided to the registrant or oral advice was provided that the new
accountant concluded was an important factor considered by the registrant in
reaching a decision as to the accounting, auditing or financial reporting issue.
In addition there were no reportable
events as defined in Regulation S-K, Item 304(a) (1) (v) (A-D).
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by paragraphs (a), (c) (d), (f) and (g) of this
item is presented in the Company's Proxy Statement issued in connection with the
Annual Meeting of Shareholders to be held on May 23, 2001 under "Election of
Directors," which is incorporated in this Report by reference thereto and will
be filed within 120 days after the end of the Company's fiscal year. The
information concerning executive officers requested by paragraphs (b) and (e) is
set forth under Part I in a separate Item captioned "Executive Officers of
Summit Bancshares, Inc. "
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is presented in the Company's Proxy
Statement issued in connection with the Annual Meeting of Shareholders to be
held on May 23, 2001. Under "Executive Compensation," which is incorporated in
this Report by reference thereto and will be filed within 120 days after the end
of the Company's fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is presented in the Company's Proxy
Statement issued in connection with the Annual Meeting of Shareholders to be
held on May 23, 2001, under "Principal Security Holders" and "Security Ownership
of Management," which is incorporated in this Report by reference thereto and
will be filed within 120 days after the end of the Company's fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is presented in the Company's Proxy
Statement issued in connection with the Annual Meeting of Shareholders to be
held May 23, 2001, under "Certain Relationships and Related Transactions," which
is incorporated in this Report by reference thereto and will be filed within 120
days after the end of the Company's fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(A) 1. CONSOLIDATED FINANCIAL STATEMENTS.
The following Financial Statements are included in the Registrant's
Annual Report to Shareholders for the year ended December 31, 2000 and
are incorporated by reference herein pursuant to Item 8.
Consolidated Statement of Financial Position - December 31, 2000 and
1999
Consolidated Statements of Income for the years ended December 31,
2000, 1999 and 1998
Statements of Changes in Shareholders' Equity (Consolidated and Parent
Company Only) for the years ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended December 31,
2000, 1999 and 1998
Notes to Consolidated Financial Statements
Report of Independent Accountants
(B) 2. FINANCIAL STATEMENT SCHEDULES.
Not Applicable
In accordance with the rules of Regulation S-X, the required schedules
are not submitted because they are not applicable to or required of
the Company.
(C) 3. INDEX TO EXHIBITS.
The following exhibits are attached hereto or are incorporated by
reference pursuant to Item 601 of Regulation S-K:
EXHIBIT NUMBER EXHIBIT
-------------- -------
3.1 * Articles of Incorporation Of Summit Bancshares Inc.
3.2 * Bylaws of Summit Bancshares Inc.
3.3 * Amendment to By-Laws of Summit Bancshares, Inc.
4.1 * Specimen Stock Certificate
10.1 * Lease - Broadway Property
10.2 * Summit Bancshares, Inc. Incentive Stock Option Plan
10.4 * Employment Agreement/ Shirley W. Nelson
10.6 * Lease-Walnut Creek
10.7 * Lease-Emeryville Property
10.8 * Lease-Oakland Office Expansion
10.9 * Lease Walnut Creek New Premises
10.10 * Lease-Emeryville - Renegotiated
10.11 * Summit Bancshares, Inc. 1989 Non-Qualified Stock Option Plan for
Directors
10.12 * Stock Option Agreement Form Summit Bancshares, Inc. Incentive Stock
Option Plan
10.13 * Stock Option Agreement Form 1989 Non-Qualified Stock Option Plan
for Directors
10.15 * Lease-Walnut Creek Summit Bancshares, Inc. owned Property
EXHIBIT NUMBER EXHIBIT
-------------- -------
10.15 * Lease-Emeryville Renegotiated
10.16 * Lease-Pleasanton New Premises
11 Earnings Per Share Calculation
13 Portions of Annual Report to Shareholders for the Year Ended
December 31, 1999
22 Wholly Owned Subsidiary of Summit Bank-Summit Equities, Inc.
23.1 Consent of PriceWaterhouseCoopers
23.2 Consent of Arthur Andersen LLP
25.1 Power of Attorney-see Signature Page
* Previously Filed
(b) Reports on Form 8-K
The Company did not file any Reports on Form 8-K during the quarter ended
December 31, 2000.
WEIGHTED AVERAGE SHARES
TWELVE MONTHS ENDED DECEMBER 31, 2000
SUMMIT EQUITIES. INC.
(PARENT COMPANY ONLY)
DECEMBER 31, 2000
================================================================================
ASSETS
CASH $10,864.21
TOTAL ASSETS $10,864.21
----------
LIABILITIES AND SHAREHOLDERS EQUITY
LIABILITIES
RESERVE FOR FED TAXES $ 0.00
RESERVE FOR STATE TAXES $ 0.00
TOTAL RESERVE FOR TAXES $ 0.00
----------
TOTAL LIABILITIES $ 0.00
----------
SHAREHOLDERS EQUITY
COMMON STOCK $10,000.00
RETAINED EARNINGS $ 864.21
PROFIT/LOSS YEAR-TO-DATE $ 0.00
----------
$10,864.21
TOTAL SHAREHOLDERS EQUITY $10,864.21
TOTAL LIABILITIES &
SHAREHOLDERS EQUITY $10,864.21
----------
SUMMIT EQUITIES, INC.
(PARENT COMPANY ONLY)
YEAR ENDED DECEMBER 31, 2000
================================================================================
INCOME
INTEREST INCOME - MMA & TCD $0.00
INTEREST INCOME - LOANS $0.00
OTHER INCOME $0.00
-----
TOTAL INCOME $0.00
------------
EXPENSE
BUILDING DEPRECIATION $0.00
ANNUAL REPORT & MEETING EXPENSE $0.00
MISCELLANEOUS EXPENSE $0.00
LEGAL $0.00
PROPERTY/TAXES $0.00
-----
TOTAL EXPENSES $0.00
-------------- -----
INCOME BEFORE TAXES &
EARNINGS OF SUBSIDIARY $0.00
PROVISION FOR TAXES
FEDERAL INCOME TAX PROVISION $0.00
STATE INCOME TAX PROVISION $0.00
TOTAL TAX PROVISION $0.00
-----
NET INCOME $0.00
---------- -----
SIGNATURES
SUMMIT BANCSHARES, INC.
Date: _____________, 2001 By: ____________________________
Shirley W. Nelson, Chief
Chairman and CEO
(Principle Executive Officer)
Date: _____________, 2001 By: ____________________________
Kikuo Nakahara
(Chief Financial Officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints SHIRLEY W. NELSON and KIKUO NAKAHARA, and each or
any one of them, as his or her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments
to this Report, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agents or any of them, or their substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Report has been executed in Oakland, California, by the following persons
on behalf of the Registrant on the capacities and on the dates indicated.
Signature Title Date
/s/ Shirley W. Nelson Chairman of the Board, 3/28/01
------------------------ Chief Executive Officer
SHIRLEY W. NELSON and President
/s/ Kikuo Nakahara Chief Financial 3/28/01
------------------------ Officer and Director
KIKUO NAKAHARA
/s/ George H. Hollidge Secretary and Director 3/28/01
------------------------
GEORGE H. HOLLIDGE
/s/ Stuart J. Hahn Director 3/28/01
------------------------
STUART J. KAHN
/s/ John Protopappas Director 3/28/01
------------------------
JOHN PROTOPAPPAS
/s/ Mary C. Warren Director 3/28/01
------------------------
MARY C. WARREN