FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED: JUNE 30, 2001
COMMISSION FILE NUMBER: 0-11108
SUMMIT BANCSHARES, INC.
STATE OF CALIFORNIA
2969 BROADWAY, OAKLAND CALIFORNIA 94611
(510) 839-8800
I.R.S. IDENTIFICATION NUMBER
94-2767067
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES x NO ¨
The number of shares outstanding of the registrant’s common stock was 1,850,492 shares of no par value common
stock as of JUNE 30, 2001
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
SUMMIT BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
JUNE 30, 2001 AND DECEMBER 31, 2000
(UNAUDITED)
| |
|
06/30/01
|
|
12/31/00
|
| ASSETS |
| Cash and due from banks |
|
$ 8,849,594 |
|
$ 10,754,372 |
| Federal funds sold |
|
29,670,000 |
|
8,055,000 |
| |
|
|
|
|
| Cash and cash equivalents |
|
38,519,594 |
|
18,809,372 |
| Time deposits with other financial institutions |
|
19,075,841 |
|
26,349,023 |
Investment securities (fair value of $2,044,637 at June 30, 2001 and
$12,450,018 at December 31, 2000 ) held to maturity |
|
2,036,889 |
|
12,465,000 |
Loans, net of allowance for loan losses of $1,607,238 at June 30, 2001 and
$1,468,393 at December 31, 2000 |
|
81,007,928 |
|
83,716,482 |
| Other real estate owned |
|
0 |
|
0 |
| Premises and equipment, net |
|
814,279 |
|
726,236 |
| Interest receivable and other assets |
|
5,508,266 |
|
3,636,418 |
| |
|
|
|
|
| Total Assets |
|
$146,962,797 |
|
$145,702,531 |
| |
|
|
|
|
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
| Deposits: |
| Demand |
|
$ 36,016,844 |
|
$ 43,685,937 |
| Interest-bearing transaction accounts |
|
51,943,056 |
|
41,551,449 |
| Savings |
|
3,148,196 |
|
2,993,922 |
| Time certificates $100,000 and over |
|
29,914,326 |
|
32,071,157 |
| Other time certificates |
|
6,931,357 |
|
7,784,304 |
| |
|
|
|
|
| Total Deposits |
|
127,953,779 |
|
128,086,769 |
| Interest payable and other liabilities |
|
1,271,813 |
|
780,638 |
| |
|
|
|
|
| Total
Liabilities |
|
129,225,592 |
|
128,867,407 |
| Shareholders’ Equity |
| Preferred Stock, no par value: |
|
|
|
|
| 2,000,000 shares authorized, no shares
outstanding |
|
0 |
|
0 |
| Common Stock, no par value: |
|
|
|
|
3,000,000 shares authorized; 1,850,492 shares
outstanding at June 30,
2001 and 1,837,548 shares outstanding at December 31, 2000 |
|
3,752,486 |
|
3,699,018 |
| Retained Earnings |
|
13,984,719 |
|
13,136,106 |
| |
|
|
|
|
| Total Shareholders’
Equity |
|
17,737,205 |
|
16,835,124 |
| Total Liabilities and
Shareholders’ Equity |
|
$146,962,797 |
|
$145,702,531 |
| |
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
SUMMIT BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)
| |
|
Three Months
Ended 6-30-01
|
|
Three Months
Ended 6-30-00
|
|
Six Months
Ended 6-30-01
|
|
Six Months
Ended 6-30-00
|
| Interest income: |
| Interest and fees on loans |
|
$2,017,823 |
|
$1,751,792 |
|
$4,311,542 |
|
$3,331,682 |
Interest on time deposits with other financial
institutions |
|
365,439 |
|
450,690 |
|
757,290 |
|
838,137 |
Interest on U.S. government treasury
securities |
|
38,742 |
|
268,278 |
|
150,606 |
|
535,325 |
| Interest on federal funds sold |
|
338,804 |
|
269,846 |
|
669,855 |
|
521,143 |
| |
|
|
|
|
|
|
|
|
| Total interest
income |
|
2,760,808 |
|
2,740,606 |
|
5,889,293 |
|
5,226,287 |
| Interest expense: |
| Interest on deposits |
|
740,851 |
|
704,045 |
|
1,604,570 |
|
1,318,788 |
| |
|
|
|
|
|
|
|
|
| Total interest expense |
|
740,851 |
|
704,045 |
|
1,604,570 |
|
1,318,788 |
| |
|
|
|
|
|
|
|
|
| Net interest income |
|
2,019,957 |
|
2,036,561 |
|
4,284,723 |
|
3,907,499 |
| Provision for loan losses |
|
35,000 |
|
30,000 |
|
132,000 |
|
30,000 |
| |
|
|
|
|
|
|
|
|
Net interest income after
provision for loan
losses |
|
1,984,957 |
|
2,006,561 |
|
4,152,723 |
|
3,877,499 |
| Non-interest income: |
| Service charges on deposit accounts |
|
63,133 |
|
63,711 |
|
118,254 |
|
124,861 |
| Other customer fees and charges |
|
22,511 |
|
26,263 |
|
56,599 |
|
56,739 |
| |
|
|
|
|
|
|
|
|
| Total non-interest
income |
|
85,644 |
|
89,974 |
|
174,853 |
|
181,600 |
| Non-interest expense: |
| Salaries and employee benefits |
|
667,695 |
|
619,954 |
|
1,379,668 |
|
1,278,774 |
| Occupancy expense |
|
85,733 |
|
107,173 |
|
193,910 |
|
208,595 |
| Equipment expense |
|
61,995 |
|
71,423 |
|
119,631 |
|
136,632 |
| Other |
|
294,976 |
|
295,671 |
|
580,868 |
|
571,568 |
| |
|
|
|
|
|
|
|
|
| Total non-interest
expense |
|
1,110,399 |
|
1,094,221 |
|
2,274,077 |
|
2,195,568 |
| Income before income taxes |
|
960,202 |
|
1,002,313 |
|
2,053,499 |
|
1,863,530 |
| Provision for income taxes |
|
400,034 |
|
425,121 |
|
857,838 |
|
784,440 |
| |
|
|
|
|
|
|
|
|
| Net Income |
|
$ 560,168 |
|
$ 577,192 |
|
$1,195,661 |
|
$1,079,090 |
| |
|
|
|
|
|
|
|
|
| Earnings per share: |
| Earnings per common share |
|
$ 0.30 |
|
$ 0.32 |
|
$ 0.65 |
|
$ 0.59 |
Earnings per common share assuming
dilution |
|
$ 0.30 |
|
$ 0.31 |
|
$ 0.64 |
|
$ 0.58 |
| Weighted average shares outstanding |
|
1,846,224 |
|
1,831,952 |
|
1,841,864 |
|
1,831,382 |
Weighted avg. shrs. outsdg. assuming
dilution |
|
1,860,344 |
|
1,853,044 |
|
1,861,288 |
|
1,848,232 |
| |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
SUMMIT BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)
| |
|
Six Months
Ended 6-30-01
|
|
Six Months
Ended 6-30-00
|
| Cash flows from operating activities: |
| Interest received |
|
$ 5,200,382 |
|
|
$ 4,730,265 |
|
| Fees received |
|
536,544 |
|
|
434,994 |
|
| Interest paid |
|
(1,609,465 |
) |
|
(1,312,121 |
) |
| Cash paid to suppliers and employees |
|
(2,599,393 |
) |
|
(1,948,262 |
) |
| Income taxes paid |
|
(1,423,764 |
) |
|
(728,000 |
) |
| |
|
|
|
|
|
|
| Net cash provided by
operating activities |
|
104,304 |
|
|
1,176,876 |
|
| Cash flows from investing activities: |
| (Increase) decrease in time deposits with other financial institutions |
|
7,273,182 |
|
|
(6,543,716 |
) |
| Maturity of investment securities |
|
10,428,111 |
|
|
0 |
|
| Purchase of investment securities |
|
0 |
|
|
0 |
|
| Net (increase) decrease in loans to customers |
|
2,514,252 |
|
|
(5,830,529 |
) |
| Recoveries on loans previously charged-off |
|
8,000 |
|
|
0 |
|
| (Increase) decrease in premises and equipment |
|
(191,057 |
) |
|
(43,053 |
) |
| |
|
|
|
|
|
|
| Net cash provided by (used
in) investing activities |
|
20,032,488 |
|
|
(12,417,299 |
) |
| Cash flows from financing activities: |
Increase (decrease) in demand, interest bearing transaction, and savings
deposits |
|
2,876,788 |
|
|
(10,415,508 |
) |
| Net increase (decrease) in time deposits |
|
(3,009,778 |
) |
|
13,612,539 |
|
| (Increase) decrease in other assets |
|
0 |
|
|
(406,455 |
) |
| Exercise of stock options |
|
53,468 |
|
|
46,895 |
|
| Repurchase of common stock (decrease) |
|
0 |
|
|
(95,014 |
) |
| Dividends paid (decrease) |
|
(347,048 |
) |
|
(344,249 |
) |
| |
|
|
|
|
|
|
| Net cash provided by (used
in) financing activities |
|
(426,570 |
) |
|
2,398,209 |
|
| |
|
|
|
|
|
|
| Net increase (decrease) in cash and cash equivalents |
|
19,710,222 |
|
|
(8,842,214 |
) |
| Cash and cash equivalents at the beginning of the year |
|
18,809,372 |
|
|
27,635,500 |
|
| |
|
|
|
|
|
|
| Cash and cash equivalents as of 6-30-01and 6-30-00 |
|
$38,519,594 |
|
|
$18,793,286 |
|
| |
|
|
|
|
|
|
| Reconciliation of net income to net cash provided by operating activities: |
| Net Income |
|
$ 1,195,661 |
|
|
$ 1,079,090 |
|
Adjustments to reconcile net income to net cash provided by operating
activities: |
| Depreciation and amortization |
|
103,014 |
|
|
140,202 |
|
| Provision for loan losses and OREO losses |
|
132,000 |
|
|
30,000 |
|
| (Increase) decrease in interest receivable |
|
(1,871,848 |
) |
|
(253,739 |
) |
| Increase (decrease) in unearned loan fees |
|
54,302 |
|
|
11,110 |
|
| Increase (decrease) in Int Pay and Other Liab. |
|
491,175 |
|
|
170,212 |
|
| Total adjustments |
|
(1,091,357 |
) |
|
97,786 |
|
| |
|
|
|
|
|
|
| Net cash provided by
operating activities |
|
$ 104,304 |
|
|
$ 1,176,876 |
|
| |
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
SUMMIT BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2001 and 2000
(UNAUDITED)
| |
|
Number of
Shares
Outstanding
|
|
Common
Stock
|
|
Retained
Earnings
|
|
Total
|
| Balance at December 31, 2000 |
|
1,837,548 |
|
|
$3,699,017 |
|
|
$13,136,106 |
|
|
$16,835,123 |
|
| Stock Options Exercised |
|
12,944 |
|
|
53,469 |
|
|
0 |
|
|
53,469 |
|
| Repurchase of Common Stock |
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
| Issuance of cash dividends of $.75 per share |
|
0 |
|
|
0 |
|
|
(347,047 |
) |
|
(347,047 |
) |
| Net Income |
|
0 |
|
|
0 |
|
|
1,195,660 |
|
|
1,195,660 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at June 30, 2001 |
|
1,850,492 |
|
|
$3,752,486 |
|
|
$13,984,719 |
|
|
$17,737,205 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at December 31, 1999 |
|
1,832,084 |
|
|
$3,741,923 |
|
|
$11,411,204 |
|
|
$15,153,127 |
|
| Stock Options Exercised |
|
13,960 |
|
|
46,895 |
|
|
0 |
|
|
46,895 |
|
| Repurchase of Common Stock |
|
(10,048 |
) |
|
(95,014 |
) |
|
0 |
|
|
(95,014 |
) |
| Issuance of cash dividends of $.75 per share |
|
0 |
|
|
0 |
|
|
(344,249 |
) |
|
(344,249 |
) |
| Net Income |
|
0 |
|
|
0 |
|
|
1,079,090 |
|
|
1,079,090 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at June 30, 2000 |
|
1,835,996 |
|
|
$3,693,804 |
|
|
$12,146,045 |
|
|
$15,839,849 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
SUMMIT BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Consolidated Financial Statements
In the opinion of management, the unaudited interim consolidated financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly the Company’s financial position at June 30, 2001 and the results of operations for the three months and six months ended June 30, 2001 and 2000 and cash flows for
the three months and six months ended June 30, 2001 and 2000.
Certain information and footnote disclosures presented in the Company’s annual consolidated financial statements
are not included in these interim financial statements. Accordingly, the accompanying unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the
Company’s 2000 Annual Report to Shareholders, which is incorporated by reference in the Company’s 2000 annual report on Form 10-K. The results of operations for the three months and six months ended June 30, 2001 are not necessarily
indicative of the operating results for the full year.
2. Comprehensive Income
The Company had no items of other comprehensive income for the three month and six-month periods ended June 30, 2001 and
2000. Accordingly, total comprehensive income was equal to net income for each of those periods.
3. Segment Reporting
The Company is principally engaged in community banking activities through the four banking offices of its subsidiary
bank. The community banking activities include accepting deposits, providing loans and lines of credit to local individuals and businesses, and investing in investment securities and money market instruments. The four banking offices have been
aggregated in to a single reportable segment. Because the Company’s financial information is internally evaluated as a single operating segment, no separate segment information is presented. The combined results are reflected in these financial
statements.
SUMMIT BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
4. Earnings Per Share
The following table reconciles the numerator and denominator of the basic and diluted earnings per share
computations:
| |
|
Net Income
(Loss)
|
|
Weighted
Avg. Shares
|
|
Per Share
Amount
|
| |
|
For the quarter ended June 30, 2001 |
| Basic Earnings (Loss) per share |
|
$ 560 |
|
1,846,224 |
|
$.30 |
| Stock Options |
|
|
|
14,120 |
|
|
| Diluted Earnings (Loss) per share |
|
$ 560 |
|
1,860,344 |
|
$.30 |
|
| |
| |
| |
|
Net Income
(Loss)
|
|
Weighted
Avg. Shares
|
|
Per Share
Amount
|
| |
|
For the quarter ended June 30, 2000 |
| Basic Earnings (Loss) per share |
|
$ 577 |
|
1,831,952 |
|
$.32 |
| Stock Options |
|
|
|
13,960 |
|
|
| Diluted Earnings (Loss) per share |
|
$ 577 |
|
1,853,044 |
|
$.31 |
|
| |
| |
| |
|
Net Income
(Loss)
|
|
Weighted
Avg. Shares
|
|
Per Share
Amount
|
| |
|
For the six months ended June 30, 2001 |
| Basic Earnings (Loss) per share |
|
$1,196 |
|
1,841,864 |
|
$.65 |
| Stock Options |
|
|
|
19,424 |
|
|
| Diluted Earnings (Loss) per share |
|
$1,196 |
|
1,861,288 |
|
$.64 |
|
| |
| |
| |
|
Net Income
(Loss)
|
|
Weighted
Avg. Shares
|
|
Per Share
Amount
|
| |
|
For the six months ended June 30, 2000 |
| Basic Earnings (Loss) per share |
|
$1,079 |
|
1,831,382 |
|
$.59 |
| Stock Options |
|
|
|
16,860 |
|
|
| Diluted Earnings (Loss) per share |
|
$1,079 |
|
1,848,232 |
|
$.58 |
For the periods reported, the Company had no reconciling items between net income (loss) and income (loss) available to
common shareholders.
5. New Accounting Prounouncements
The Financial Accounting Standards Board Statement of Financial Accounting Standards No. 133 (SFAS 133), Accounting for
Derivative Instruments and Hedging Activities, as amended by SFAS 138, establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in
the balance sheet as either an asset or liability measured at its fair value. The Company adopted SFAS 133 on January 1, 2001. The implementation of this statement did not have a material impact on the Company’s financial position or result of
operations.
INTEREST RATE SENSITIVITY/INTEREST RATE RISK ANALYSIS
The following table provides an interest rate sensitivity and interest rate risk analysis for the quarter ended June 30,
2001. 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: 6-30-01
| |
|
Remaining Time Before Maturity or Interest Rate Adjustment
|
| |
|
($000.00)
Omitted
Total
|
|
Up
3
|
|
>3
<1
|
|
>1
<3
|
|
>3
<5
|
|
>5
<10
|
|
Over
10 Years
|
| I. Earning assets |
| A. Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1. U. S. treasuries |
|
$ 0 |
|
$ 0 |
|
$ 0 |
|
|
$ 0 |
|
|
$ 0 |
|
$ 0 |
|
|
$ 0 |
| 2. U. S. agencies |
|
2,037 |
|
1,000 |
|
0 |
|
|
1,037 |
|
|
0 |
|
0 |
|
|
0 |
| 3. Fed funds sold |
|
29,670 |
|
29,670 |
|
0 |
|
|
0 |
|
|
0 |
|
0 |
|
|
0 |
| 4. Purchased cds |
|
19,076 |
|
1,874 |
|
3,062 |
|
|
14,140 |
|
|
0 |
|
0 |
|
|
0 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total
investments |
|
$ 50,783 |
|
$32,544 |
|
$ 3,062 |
|
|
$15,177 |
|
|
$ 0 |
|
$ 0 |
|
|
$ 0 |
|
| |
| |
| B. Loans |
|
$ 79,248 |
|
$62,437 |
|
$ 4,578 |
|
|
$ 2,358 |
|
|
$ 4,945 |
|
$ 2,465 |
|
|
$ 2,465 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total
loans |
|
$ 79,248 |
|
$62,437 |
|
$ 4,578 |
|
|
$ 2,358 |
|
|
$ 4,945 |
|
$ 2,465 |
|
|
$ 2,465 |
|
| |
| |
| C. Total earning assets |
|
$130,031 |
|
$94,981 |
|
$ 7,640 |
|
|
$17,535 |
|
|
$ 4,945 |
|
$ 2,465 |
|
|
$ 2,465 |
|
| |
| |
| II. Cost of funds (deposits) |
| A. Certificate of deposits |
|
$ 36,846 |
|
$28,486 |
|
$ 8,273 |
|
|
$ 87 |
|
|
$ 0 |
|
$ 0 |
|
|
$ 0 |
| B. Money market accounts |
|
45,749 |
|
9,150 |
|
19,062 |
|
|
17,537 |
|
|
0 |
|
0 |
|
|
0 |
| C. Transaction accounts |
|
8,649 |
|
371 |
|
1,112 |
|
|
2,932 |
|
|
2,108 |
|
2,126 |
|
|
0 |
| D. Savings accounts |
|
2,862 |
|
123 |
|
369 |
|
|
970 |
|
|
697 |
|
703 |
|
|
0 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total cost of
funds |
|
$ 94,106 |
|
$38,130 |
|
$ 28,816 |
|
|
$21,526 |
|
|
$ 2,805 |
|
$ 2,829 |
|
|
$ 0 |
|
| |
| |
| III. Interest sensitive assets |
|
$130,031 |
|
$94,981 |
|
$ 7,639 |
|
|
$17,535 |
|
|
$ 4,945 |
|
$ 2,465 |
|
|
$ 2,465 |
| IV. Interest sensitive liabilities |
|
$ 94,106 |
|
$38,126 |
|
$ 28,815 |
|
|
$21,526 |
|
|
$ 2,806 |
|
$ 2,830 |
|
|
$ 0 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| V. Gap |
|
$ 35,925 |
|
$56,855 |
|
$(21,176 |
) |
|
$(3,991 |
) |
|
$ 2,139 |
|
$ (365 |
) |
|
$ 2,465 |
|
| |
| |
| VI. Cumulative gap |
|
$ 35,925 |
|
$56,855 |
|
$ 35,679 |
|
|
$31,688 |
|
|
$33,827 |
|
$33,462 |
|
|
$35,927 |
|
| |
| |
| VII. Gap ratio |
|
1.38 |
|
2.49 |
|
0.27 |
|
|
0.81 |
|
|
1.76 |
|
0.87 |
|
|
0.00 |
| VIII. Cumulative ratio |
|
1.38 |
|
2.49 |
|
1.53 |
|
|
1.36 |
|
|
1.37 |
|
1.36 |
|
|
1.38 |
| IX. Gap as a % of total assets |
|
25.03 |
|
39.59 |
|
(14.75 |
) |
|
(2.78 |
) |
|
1.49 |
|
(0.03 |
) |
|
1.72 |
| X. Cumulative gap as a % of total assets |
|
25.02 |
|
39.59 |
|
24.84 |
|
|
22.06 |
|
|
23.55 |
|
23.30 |
|
|
25.02 |
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000
The registrant, Summit Bancshares, Inc. (the “Company”) is a bank holding company whose only operating
subsidiary is Summit Bank (the “Bank”). The following discussion primarily concerns the financial condition and results of operations of the Company on a consolidated basis including the subsidiary Bank. All adjustments made in the
compilation of this information are of a normal recurring nature.
FINANCIAL CONDITION
Liquidity Management
The consolidated loan-to-deposit ratio at June 30, 2001 was 63.3%, which was an increase from 50.5% for the same period
in 2000. Total outstanding loans as of June 30, 2001 increased $18,749,065 compared to the same period a year ago while total deposits increased $4,760,395 versus the same time last year. The increase in loans and deposits was mainly due to
Summit’s effort in marketing its products and the formation of the Real Estate Capital Markets Group. The average loan-to-deposit ratio at the end of the second quarter of 2001 was 60.7%, an increase from 46.8% for the same period last year.
This increase was caused by an increase in average total deposits of $5,538,000 or 4.4% while average total loans increased $20,828,000 or 35.4%.
One of the Company’s customers manages accounts for medical offices and physicians. This customer has brought
approximately 80 of the accounts they manage to the Company. As of June 30, 2001 the aggregate monthly average balance in these accounts was approximately $19,000,000.
This customer has notified the Bank that due to the expiration of a contract, one of the companies they manage funds for
will be taking control of their own accounts. This is expected to result in a decrease of interest bearing deposits of approximately $9,000,000 as well as a corresponding decrease in Federal Funds sold.
Net liquid assets, which consists primarily of cash, due from banks, interest-bearing deposits with other financial
institutions, investment securities and Federal Funds sold totaled $59,632,000 on June 30, 2001. This amount represented 46.7% of total deposits in comparison to the liquidity ratio of 59.0% as of June 30, 2000. This decrease is primarily a result
of a proportionately higher rise in loan growth than the corresponding increase in deposits. It is management’s belief that the current liquidity level is sufficient to meet current needs. The Company is not aware of any current recommendations
by the regulatory authorities, which, if they were implemented, would have a material effect on the Company.
The following table sets forth book value of investments by category and the percent of total investments at the dates
specified.
Investment Comparative
($000.00 Omitted)
| |
|
6-30-01
|
|
%
|
|
12-31-00
|
|
%
|
|
6-30-00
|
|
%
|
| Fed funds sold |
|
$29,670 |
|
58 |
% |
|
$8,055 |
|
17 |
% |
|
$10,370 |
|
16 |
% |
| Interest bearing Deposits |
|
19,076 |
|
38 |
% |
|
26,349 |
|
56 |
% |
|
34,432 |
|
54 |
% |
| Securities |
|
2,037 |
|
4 |
% |
|
12,465 |
|
27 |
% |
|
19,465 |
|
30 |
% |
Interest bearing deposits are comprised of Time Certificates of Deposit with other banks and savings and loan
institutions with no more than $100,000 in any institution.
Securities on June 30, 2001 were comprised of U.S. Gov’t agencies.
Changes in Financial Position
As of June 30, 2001, total deposits decreased $133,000 from December 31, 2000 and loans outstanding decreased
$2,708,000. The decrease in loans was primarily due to payoff of real estate construction loans by permanent lenders as well as the refinance of other real estate loans due to lower interest rates in the marketplace. Total deposits as of June 30,
2001 were $127,954,000, an increase of 3.9% from $123,193,000 as of June 30, 2000. Total loans as of June 30, 2001 were $81,008,000, an increase of 27.4% from $63,583,000 as of June 30, 2000.
The following table sets forth the amount of deposits by each category and the percent of total deposits at the dates
specified.
Deposit Comparative
($000.00 Omitted)
| |
|
6-30-01
|
|
%
|
|
12-31-00
|
|
%
|
|
6-30-00
|
|
%
|
| Demand |
|
$36,017 |
|
28 |
% |
|
$43,686 |
|
34 |
% |
|
$42,688 |
|
35 |
% |
| Savings |
|
3,148 |
|
2 |
% |
|
2,994 |
|
2 |
% |
|
2,598 |
|
2 |
% |
| Interest bearing Trans. Deposits |
|
51,943 |
|
41 |
% |
|
41,551 |
|
33 |
% |
|
34,418 |
|
28 |
% |
| Other time |
|
36,846 |
|
29 |
% |
|
39,855 |
|
31 |
% |
|
43,489 |
|
35 |
% |
The following table sets forth the amount of loans outstanding by each category and the percent of total loans
outstanding at the dates specified.
Loan Comparative
($000.00 Omitted)
| |
|
6-30-01
|
|
%
|
|
12-31-00
|
|
%
|
|
6-30-00
|
|
%
|
| Commercial |
|
$30,997 |
|
38 |
% |
|
$28,027 |
|
33 |
% |
|
$31,721 |
|
50 |
% |
| Real estate-const |
|
20,918 |
|
26 |
% |
|
18,032 |
|
21 |
% |
|
12,553 |
|
20 |
% |
| Real estate-other |
|
21,834 |
|
27 |
% |
|
31,635 |
|
37 |
% |
|
11,909 |
|
18 |
% |
| Installment/other |
|
7,259 |
|
9 |
% |
|
7,491 |
|
9 |
% |
|
7,400 |
|
12 |
% |
Non-Performing Assets
The following table provides information with respect to the subsidiary Bank’s past due loans and components for
non-performing assets at the dates indicated.
| |
|
Non-Performing Assets
|
| |
|
($000.00 Omitted) |
| |
|
6-30-01
|
|
12-31-00
|
|
6-30-00
|
| Loans 90 days or more past due & still accruing |
|
$131 |
|
|
$ 45 |
|
|
$ 85 |
|
| Non-accrual loans |
|
605 |
|
|
0 |
|
|
145 |
|
| Other real estate owned |
|
0 |
|
|
0 |
|
|
0 |
|
| |
|
|
|
|
|
|
|
|
|
| Total non-performing assets |
|
$736 |
|
|
$ 45 |
|
|
$230 |
|
| |
|
|
|
|
|
|
|
|
|
| Non-performing assets to period end loans plus other real estate owned |
|
.91 |
% |
|
.005 |
% |
|
.36 |
% |
| Allowance to non-performing loans |
|
218 |
% |
|
3,262 |
% |
|
576 |
% |
The subsidiary Bank’s policy is to recognize interest income on an accrual basis unless the full collectibility of
principal and interest is uncertain. Loans that are delinquent 90 days as to principal or interest are placed on a non-accrual basis, unless they are well secured and in the process of collection, and any interest earned but uncollected is reversed
from income. Collectibility is determined by considering the borrower’s financial condition, cash flow, quality of management, the existence of collateral or guarantees and the state of the local economy.
Other real estate owned (“OREO”) is comprised of properties acquired through foreclosure. These properties
are carried at the lower of the recorded loan balance or their estimated fair market value based on appraisal, less estimated disposal costs. When the loan balance plus accrued interest exceeds the fair value of the property, the difference is
charged to the allowance for loan losses at the time of foreclosure. Subsequent declines in value from the recorded amount, if any, and gains or losses upon disposition are included in noninterest expense. Operating expenses related to other real
estate owned are charged to non-interest expense in the period incurred.
The increase in non-performing assets from June 30, 2000 to June 30, 2001 is the result of an increase in non-accrual
loans. The non-accrual loan amount represents one loan which is secured by real estate.
Capital Position
As of June 30, 2001, Shareholders’ Equity was $17,737,000. This represents an increase of $1,897,000 or 12.0% over
the same period last year. Since the inception of the repurchase program in 1989, the Company has authorized the repurchase of $3,500,000 of its stock. As of June 30, 2001, the Company has repurchased a total of 167,170 shares of the Company stock
constituting 31.1% of the Company’s original stock prior to the repurchase program, at a total cost of $2,668,000, or an average price per share of $15.96. The Company plans to continue its repurchase program as an additional avenue for
liquidity for its shareholders. The program has not significantly affected the Company’s liquidity or capital position or its ability to operate. In addition, the Company’s subsidiary Bank remains more than well-capitalized under current
regulations.
The following table shows the risk-based capital and leverage ratios as well as the minimum regulatory requirements for
the same as of June 30, 2001:
| |
|
Capital Ratio
|
|
Minimum
Regulatory Requirement
|
| Tier 1 Capital |
|
17.83 |
% |
|
4.00 |
% |
| Total Capital |
|
19.05 |
% |
|
8.00 |
% |
| Leverage Ratio |
|
12.15 |
% |
|
4.00 |
% |
RESULTS OF OPERATIONS
Net Interest Income
Total interest income including loan fees increased to $5,889,000 for the first six months of 2001 from $5,226,000 for
the same period in 2000.
Total interest income on loans and fees increased to $4,332,000 for the first six months of 2001 from $3,332,000 for the
same period last year. This was primarily related to an increase of $20,828,000 in average outstanding loans for period ending June 30, 2001 compared to the same period last year. The yield on loans and fees increased 146 basis points over the same
period last year. This increase was brought about by an increase of $104,000 in loan fees even though the prime lending rate decreased from 9.50% in June 2000 to 6.75% as of June 2001. The yield on investments increased 90 basis points over the same
period last year. This increase was brought about by an increase in yields in the marketplace due to the lengthening of the maturity term of the investment portfolio. Average outstanding investments decreased $13,920,000 for the period brought about
by an increase in total loans.
Interest expense increased from $1,319,000 at the end of the first six months of 2000 to $1,605,000 for the same period
in 2001. This increase was due to an increase in average interest-bearing deposit accounts of $10,806,000 during the first six months of 2001 versus the same period last year. The average cost of funds, for the period ending June 30, 2001 increased
114 basis points over the same period last year.
As a result of these factors, net interest margin for the first six months of 2001 was 6.21% compared to 5.14% for the
same period last year.
For the second quarter, total interest income including loan fees increased from $2,741,000 in 2000 to $2,760,000 for
the same period in 2001. This increase is due to an increase in income on loans of $265,000, partially offsetting a decrease in income on investments of $246,000. Average loans outstanding increased $19,636,000 for the second quarter of 2001
compared to the same period last year. Average outstanding investments decreased $17,044,000 during the second quarter of 2001 versus the same period last year, primarily due to the increase in loans and the minor growth in deposits.
For the second quarter of 2001, interest expense increased $37,000 compared to the same period in 2000. Average
outstanding interest bearing deposits decreased from $91,393,000 in 2000 to $84,897,000 in 2001. Average cost of funds for the same period was 4.04% compared to 3.42% in 2000. As a result, net interest income for the second quarter of 2001 decreased
$17,000, or .82% compared to the same period in 2000.
Other Operating Income
Service charges on deposit accounts as of the end of the first six months of 2001 decreased to $118,000 versus $125,000
for the same period in 2000. This was primarily related to a decrease in service charges collected on returned checks.
Other customer fees and charges remained the same as the previous year.
Service charges on deposit accounts as of the end of the second quarter of 2001 decreased slightly to $63,000 versus
$64,000 for the same period in 2000. This was primarily related to a decrease in service charges collected on returned checks.
Other customer fees and charges decreased $4,000 for the second quarter. This was primarily related to a decrease in
merchant fee income.
Loan Loss Provision
The allowance for loan losses is maintained at a level that management of the Company considers to be adequate for
losses that inherent in the current loan portfolio. The allowance is increased by charges to operating expenses and reduced by net-charge-offs. The level of the allowance for loan losses is based on management’s evaluation of losses in the loan
portfolio, as well as prevailing economic conditions.
Management employs a systematic methodology on a monthly basis to determine the adequacy of the allowance for current
and future loan losses. The credit administrator grades each loan at the time of extension or renewal. Gradings are assigned a risk factor, which is calculated to assess the adequacy of the allowance for loan losses. Further, management considers
other factors such as overall portfolio quality, trends in the level of delinquent and classified loans, specific problem loans, and current and anticipated economic conditions.
The following table summarizes the activity in the Bank’s allowance for loan losses for the six months ended June
30, 2001 and 2000.
| |
|
Six months ended
|
| |
|
6-30-01
|
|
6-30-00
|
| |
|
($000.00 Omitted) |
| Balance, beginning of the period |
|
$1,468 |
|
$1,273 |
| Provision for loan losses |
|
132 |
|
30 |
| Recoveries |
|
8 |
|
21 |
| Loans charged-off |
|
1 |
|
0 |
| |
|
|
|
|
| Balance, end of the period |
|
$1,607 |
|
$1,324 |
| |
|
|
|
|
The balance in the allowance for loan losses at June 30, 2001 was 1.98% of total loans compared to 2.08% of total loans
at June 30, 2000. This level is considered appropriate and is slightly greater than the industry average.
Other Operating Expenses
Total other operating expenses increased $78,500 as of the end of the first six months of 2001 compared to the same
period last year. This increase was primarily due to an increase in salaries of $101,000 primarily centered in incentive accruals and an increase in staff over the same period last year. In addition, other expenses decreased $22,000 centered in
occupancy and equipment expenses.
Total other operating expenses increased $16,000 as of the end of the second quarter of 2001. This increase was
primarily due to an increase in salaries of $48,000 primarily centered in incentive accruals and an increase in staff over the same period last year. In addition, other expenses decreased $31,000 centered in occupancy and equipment
expenses.
Provision for Income Taxes
The Company’s provision for income taxes as of the end of the first six months of 2001 increased from $784,000 in
2000 to $858,000. For the same period, the Company’s total effective tax rate was 41.8% compared to 42.1% in 2000.
Net Income
Net income for the first six months of 2001 increased to $1,196,000 from $1,079,000 for the same period in 2000, or an
increase of 10.8%.
ITEM 3. 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.
Management has assessed these risks and believes that there has been no material change since December 31,
2000.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The primary factor, which may affect future results, is the fluctuation of interest rates in the market place more
commonly referred to as interest rate risk. Interest rate risk is the exposure of a bank’s current and future earnings and equity capital arising from adverse movements in interest rates. It results from the possibility that changes in interest
rates may have an adverse effect on a bank’s earnings and its underlying economic value. Changes in interest rates affect a bank’s earnings by changing its net interest income and the level of other interest-sensitive income and operating
expenses. As mentioned previously, the potential decrease in a declining interest rate environment would be minimized by an increase in assets. In addition, earnings and growth of the company are and will be affected by general economic conditions,
both domestic and international, and by monetary and fiscal policies of the United States Government, particularly the Federal Reserve Bank.
PART II—OTHER INFORMATION
ITEM 1—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 2—CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3—DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4—SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5—OTHER INFORMATION
None
ITEM 6—EXHIBITS AND REPORTS ON FORM 8-K
Form 8-K submitted on June 29, 2001 dismissing Arthur Andersen LLP as the Company’s accounting firm effective June
29, 2001 and announcing Vavrinek, Trine, Day & Co., LLP as the firms new accountants for the second and third quarters of 2001 and for year 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
|
SUMMIT
BANCSHARES
, INC
.
|
DATE: August 9, 2001
|
(Principal Executive Officer)
|
DATE: August 9, 2001
|
(Principal Financial Officer)
|
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