ITEM 1. BUSINESS
Summit Bancshares, Inc. (the "Company") is a one-bank holding company registered under the Bank Holding Company Act of 1956, as amended. It was incorporated under the laws of the State of California on July 22, 1981. Its principal office is located at 2969 Broadway, Oakland, California 94611, and its telephone number is (510) 839-8800.
The Bank's main branch is located at 2969 Broadway, Oakland, California 94611 the telephone number is (510) 839-8800. In addition, the Bank has full service branches located at 1700 N. Main, Walnut Creek, California 94598. The telephone number is (925) 935-9220. An additional full service branch is located at Watergate III Tower at 2000 Powell Street, Emeryville, California 94608. The telephone number is (510) 428-1868. Also, on January 28, 1998, the Bank opened a new full service branch at 5820 Stoneridge Mall Road, Suite 100, Pleasanton, California 94588 which moved to new quarters located at 5673 W. Las Positas Blvd. Ste. 208, Pleasanton, California, 94588 in July of 1998. The telephone number is (925) 224-7788.
Summit Bancshares, Inc. owns all of the capital stock of Summit Bank (the "Bank"), its subsidiary bank, and its activities during 1998 were limited to acting as the Bank's holding company.
The Bank has conducted the business of a commercial bank since July 1, 1982. The Bank provides commercial credit and other banking services to small and mid-sized businesses and professionals, including professional firms of physicians, attorneys, accountants, retailers and service firms, wholesalers and distributors. Because of the concentration of medical facilities and related organizations, the growth of real estate opportunities and commercial/industrial businesses in the Bank's service area, the Bank primarily focuses its marketing efforts on health service businesses, real estate construction and commercial industrial loans; however, the Bank also offers a broad spectrum of financial services to the business community at large. The Bank offers various checking and savings accounts for both personal and business purposes, time
certificates of deposit, cashier's checks, money orders, travelers checks, safe deposit boxes, installment collection services, night depository, depository pickup and courier services, telephone transfers, collection services for notes, Individual Retirement and Business Planning (formerly Keogh) Accounts. The Bank has not requested and does not have regulatory approval to offer trust services, although it may provide such services in the future. The Bank 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 of the Bank offer all of the services. The banking offices in Walnut Creek and Pleasanton offer the same services listed above, with the exception of safe deposit boxes.
On March 30, 1989, the State Banking Department approved the Bank's application to establish a new subsidiary, Summit Equities, Inc, whose purpose is to engage in real property investment activities as authorized by Section 751.3 of the California Financial Code. On November 13, 1992 the FDIC imposed regulations limiting real estate investment to those authorized by national banks, thus no real estate transactions are allowed to be transacted under this subsidiary. The corporation is exploring other avenues or types of approved investment activities. As of this date, the subsidiary has not conducted any business.
SERVICE AREA
The primary geographic market served by the Bank is considered to be all of Alameda County and most of Contra Costa County, except several cities and sparsely populated areas in the northern and easternmost sections. The excluded areas are Pinole, Hercules, Rodeo, Crockett, Port Costa, West Pittsburg and cities east of it 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 three major hospitals, approximately 432 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 410 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 1200 people and accommodates a large staff of approximately 290 visiting physicians. The surrounding service area includes 4 convalescent hospitals, an acute psychiatric care facility, and the 204-bed Kaiser Foundation Hospital, which employs over 1000 people in downtown Walnut Creek and is staffed by approximately 89 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 80 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, 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, 1998, loans to directors totaled $366,000 or 2.6% 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 California State Banking Department (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.
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 1998, 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% of Tier 1 capital to total average assets (the "leverage ratio") based upon the definition of Tier 1 capital for 1998. 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, 1998 was 8.0% (See "Summit Bancshares, Inc. 1998 Annual Report - Footnote #8).
EMPLOYEES
As of December 31, 1998, the Bank employed 43 full time employees and 3 part time employees for a total equivalent of 44.7 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, 1998. Comparative figures for the years ended December 31, 1997 and 1996, are also provided:
The following is an analysis of Net Interest Income for 1998. Comparative figures for 1997 and 1996 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, 1998
*Includes loan fees of $516,000
1.) Investment income rate is not calculated on a tax equivalent basis.
FOR THE YEAR ENDED DECEMBER 31, 1997
*Includes loan fees of $ 594,000
1.) Investment income rate is not calculated on a tax equivalent basis.
FOR THE YEAR ENDED DECEMBER 31, 1996
*Includes loan fees of $ 457,000
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 1998 over 1997. A similar comparison for 1997 over 1996 is on the following page. Changes not solely attributed to volume or rates have been allocated proportionately to volume and rate components.
INVESTMENT SECURITIES
The following table sets forth the book value as of December 31 for the securities indicated:
The amortized cost and estimated fair values of investment in debt securities for 1998 are as follows:
The amortized cost and estimated market value of debt securities at December 31, 1998 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.
There were no sales of investments in debt securities during 1998.
The following table is a summary of the relative maturities and yields of Summit Bancshares, Inc. investment securities as of December 31, 1998 and 1997. 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.
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.
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, 1998.
All but eight loans for $1,582,463 reported above which have maturities of over one year are at floating interest rates.
COMMITMENTS AND LINES OF CREDIT
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the statement of financial position. The contract amount of those instruments reflects the extent of involvement the Company has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. At December 31, 1998, financial instruments whose contract amounts represent credit risk:
Financial instruments whose contract Amount represents credit risk:
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on management's credit evaluation of the counter-party. Collateral held varies but may include accounts receivable, inventory, property, plant, and equipment, and income-producing commercial properties. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Most all guarantees expire within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
Approximately 8.4% of the Company's loans are concentrated with health care professionals.
The subsidiary Bank's policy is to recognize interest income on an accrual basis unless the full collectibility of principal and interest is uncertain. Loans that are delinquent 90 days as to principal or interest are placed on a non-accrual basis, unless they are well secured and in the process of collection, and any interest earned but uncollected is reversed from income. Collectibility is determined by considering the borrower's financial condition, cash flow, quality of management, the existence of collateral or guarantees and the state of the local economy.
The total OREO amount, $212 ,000, is related to two properties. One of the properties is vacant land in the Oakland Hills. The second property is three lots located in Pacheco.
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 years ended December 31 is as follows:
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:
RETURN ON EQUITY AND ASSETS
The following table shows key financial ratios for the years ending December 31, 1998, 1997 and 1996
INTEREST RATE SENSITIVITY/INTEREST RATE RISK ANALYSIS
The following table provides an interest rate sensitivity and interest rate risk analysis for the year ended 1998. 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: 12/31/98
ITEM 2.
ITEM 2. PROPERTIES
The Bank leases the premises housing the permanent Head Offices for the Bank and the Company and a full service branch of the Bank, at 2969 Broadway, Oakland, California 94611, at the intersection of Broadway and 30th Street in the "Pill Hill" area. The premises consist of approximately 9,810 square feet located in a portion of a single story building on the southwest corner at the intersection. The lease terminates on July 31, 2002. The current monthly rent for the premises is $5,597.50 subject to yearly CPI adjustments.
Since 1989, the Bank leased 1,400-sq. ft. of office space located at the corner of No. Main Street and Civic Drive in downtown Walnut Creek, for a full service branch. The new lease terminates on January 14, 2001. The lease provides for a monthly rent of $4,769.80, fixed for 12 years.
The Emeryville Branch began operations in December 1985 on the ground floor of the Watergate III Building at 2000 Powell Street. The Bank currently leases approximately 2,200 square feet of space at this location, at a base rent of $2.05 per net rentable square foot ($5,105 per month). The term of this lease expires on 12/31/2001 with one three-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. On April 1, 1996, the Bank entered into a three-year lease agreement with an individual who operates a Japanese restaurant in the building for a monthly rent of $4,350, triple net. This lease terminates on March 31, 1999.
Since June of 1998, the Pleasanton Branch has operated a 1,889 square foot facility at 5673 W. Las Positas Blvd. Ste. 208, 94588. The telephone number is (925) 224-7788 pursuant to a lease that terminates on 3/31/03. The base rent is $2,964.16 per month.
ITEM 3.
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.
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 1998
EXECUTIVE OFFICERS OF SUMMIT BANCSHARES, INC.
Pursuant to General Instruction G(3), the information required by Item 401(b) and (e) of Regulation S-K concerning executive officers of the Company and the Bank is presented here rather than in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 19, 1999.
The following individuals are the executive officers of the Company:
The following individuals are the executive officers of the Bank as of December 31, 1998:
The business experience of the executive officers follows:
Shirley W. Nelson was President and Chief Executive Officer of the Bank and Holding Company since May 1983 and was elected in July 1989 to the position of Chairman. Prior to this assignment she was the Senior Vice President, Senior Loan Officer. She is currently a member of the Board of Directors' Audit Committee, Asset and Liability Committee, Loan Committee, and Personnel Committee.
Kikuo Nakahara joined the Bank as Director in 1981. He has also served as Managing Director of American Express Tax and Business Services Inc. in Walnut Creek, California since 1995. Prior to this position he was a partner of Greene & Nakahara, an accounting firm in Walnut Creek since 1993, and which merged with IDS Financial Services Inc. in 1994. From 1978 to 1993 he was managing Director of Greene, Nakahara and Lew Accountancy Corporation in Oakland. He was a corporate member of Blue Shield and a speaker at continuing education courses sponsored by the California Society of Certified Public Accountants.
George H. Hollidge has been secretary of the Bank since 1981. He has also been President of Hollidge Transmissions, Inc., Oakland, transmission specialists, since 1980. Prior to 1980, Mr. Hollidge was a partner in Hollidge Hydramatic, transmission specialists.
C. Michael Ziemann has been President and Chief Operating Officer since January 1, 1996. Prior to this position he was Chief Administrative Officer subsequent to his position as CFO and Cashier to which he was appointed in April 1987. Prior to that he was active in the administration of the Bank and was the manager of the Bank's Walnut Creek Office since April 1985. Prior to joining the Bank, he held various positions during his 16 years with Bank of America in operations, branch management, and regional administration where he was a district administrator.
Denise Dodini has been the Senior Vice President - Senior Loan Officer at the Bank since July 1994. Denise joined the Bank in October 1989 as a Vice President, Loan Officer where she assisted clients in the Oakland Office. 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.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
(a) MARKET INFORMATION. The stock of the Company is not listed on any stock exchange but is publicly traded in limited and infrequent transactions in the "over the counter" market. According to information made available to the Company by the Market Maker, Marc F. Arnett, Hoefer & Arnett, Investment Bankers, 100 Pine Street, San Francisco, CA., the range of high and low bids for such common stock for each calendar quarter since January 1997 is as follows:
As of March 7, 1999 there were 452,667 shares of common stock of the Company issued and outstanding.
(b) SHAREHOLDERS. As of March 7, 1999 there were 309 shareholders of record of the common stock. There were no other classes of securities outstanding.
(c) DIVIDENDS. On June 10, 1998 the Company paid a 75-cent per share cash dividend in addition to a similar 75 cent per share dividend on December 3, 1998. It is the present intention of the Company to issue semi-annual cash dividends so long as said dividends do not inhibit future development. Additionally, payment of cash dividends by the Company is dependent upon payment of dividends by the Bank to the Company. Payment of cash dividends by the Bank may under certain circumstances require approval of the California Superintendent of Banks, and as a matter of law, the Bank may only declare cash dividends from the lesser of its retained earnings or its undistributed net income from the last three years. Less any dividends paid during those three years. In the event that the Bank does not have retained earnings or net income for the last three fiscal years, the Bank may declare dividends only with the prior written consent of the Superintendent.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial information of Summit Bancshares, Inc. for the years from the period January 1, 1994 through December 31, 1998 should be read in conjunction with the consolidated financial statements and the accompanying notes included elsewhere in this Annual Report.
FINANCIAL HIGHLIGHTS
ITEM 7.
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, 1998 are incorporated by reference herein.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated statement of financial position as of December 31, 1998 and 1997 and the consolidated statements of income, changes in shareholders' equity and cash flows for the years ended December 31, 1998, 1997, and 1996, together with the report of independent public accountants appearing in the Registrant's Annual Report to Shareholders for the year ended December 31, 1998 are incorporated by reference herein.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10.
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 19, 1999 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.
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 19, 1999, 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.
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 19, 1999, 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.
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 19, 1999, 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.
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, 1998 and are incorporated by reference herein pursuant to Item 8.
Consolidated Statement of Financial Position - December 31, 1998 and
Consolidated Statements of Income for the years ended December 31, 1998, 1997 and 1996
Statements of Changes in Shareholders' Equity (Consolidated and Parent Company Only) for the years ended December 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements Report of Independent Accountants
(a) 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.
(a) 3. INDEX TO EXHIBITS.
The following exhibits are attached hereto or are incorporated by reference pursuant to Item 601 of Regulation S-K:
- ----------------
1. Incorporated by reference to Exhibit 2.1 of Registrant's Exhibits to Form S-18 Registration Statement, as filed with the Securities and Exchange Commission on December 21, 1981.
2. Incorporated by reference to Exhibit 2.2 of Registrant's Exhibits to Form S-18 Registration Statement, as filed with the Securities and Exchange Commission on December 21, 1981.
3. Incorporated by reference to Exhibit 3.1 of Registrant's Exhibits to Form S-18 Registration Statement, as filed with the Securities and Exchange Commission on December 21, 1981.
4. Incorporated by Reference to Exhibit 9.1 of Registrant's Exhibits to Form S-18 Registration Statement, as filed with the Securities and Exchange Commission on December 21, 1981.
5. Incorporated by reference to Exhibit 9.2 of Registrant's Exhibits to Post-Effective Amendment No. 1 to Form S-18 Registration Statement, as filed with the Securities and Exchange Commission on March 11, 1982.
6. Incorporated by reference to Exhibit 9.4 of Registrant's Exhibits to Post-Effective Amendment No. 1 to Form S-18 Registration Statement, as filed with the Securities and Exchange Commission on March 11, 1982.
7. Incorporated by reference to Exhibit 10.4 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1983.
8. Incorporated by reference to Exhibit 10.6 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1984.
9. Incorporated by reference to Exhibit 10.9 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1985.
10. Incorporated by reference to Exhibit 10.10 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1985.
11. Incorporated by reference to Exhibit 10.6 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1987.
12. Incorporated by reference to Exhibit 10.9 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.
13. Incorporated by reference to Exhibit 10.10 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.
14. Incorporated by reference to Exhibit 10.11 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.
15. Incorporated by reference to Exhibit 10.12 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.
16. Incorporated by reference to Exhibit 10.13 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.
17. Incorporated by reference to Exhibit 2.2 of Registrant's Exhibits to Form S-18 Registration Statement, as filed with the Securities and Exchange Commission on December 21, 1981.
18. Incorporated by reference to Exhibit 10.15 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993.
19. Incorporated by reference to Exhibit 10.16 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993.
(b) Reports on Form 8-K
None. WEIGHTED AVERAGE SHARES TWELVE MONTHS ENDED DECEMBER 31, 1998
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SUMMIT BANCSHARES, INC.
Date: , 1999 By: ------------- ---------------------------- Shirley W. Nelson, Chief Chairman and CEO (Principal Executive Officer)
Date: , 1999 By: ------------- ---------------------------- Kikuo Nakahara (Principal Financial and Accounting 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 singed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
- -------------------- Chairman of the Board, --------- SHIRLEY W. NELSON Chief Executive Officer and President
- -------------------- Chief Financial --------- KIKUO NAKAHARA Officer and Director
- -------------------- Secretary and Director --------- GEORGE H. HOLLIDGE
- -------------------- Director --------- JERRALD R. GOLDMAN, M.D.
- -------------------- Director --------- THOMAS H. STATE
- -------------------- Director --------- MARY C. WARREN
- -------------------- Director --------- BARBARA J. WILLIAMS