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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
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COMMISSION FILE NUMBER: 000-22007
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SOUTHWEST BANCORPORATION OF TEXAS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 76-0519693
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4400 POST OAK PARKWAY
HOUSTON, TEXAS 77027
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(713) 235-8800
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
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 [ ]
------------------------
There were 28,302,569 shares of the Registrant's Common Stock outstanding
as of the close of business on May 5, 2000.
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SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Report of Independent Accountants................................ 2
Condensed Consolidated Balance Sheet as of March 31, 2000 and
December 31, 1999 (unaudited)................................... 3
Condensed Consolidated Statement of Income for the Three Months
Ended March 31, 2000 and 1999 (unaudited)....................... 4
Condensed Consolidated Statement of Changes in Shareholders'
Equity for the Three Months Ended March 31, 2000 (unaudited).... 5
Condensed Consolidated Statement of Cash Flows for the Three
Months Ended March 31, 2000 and 1999 (unaudited)................ 6
Notes to Condensed Consolidated Financial Statements (unaudited). 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................... 9
Item 3. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................ 21
Item 2. Changes in Securities........................................ 21
Item 3. Defaults upon Senior Securities.............................. 21
Item 4. Submission of Matters to a Vote of Security Holders.......... 21
Item 5. Other Information............................................ 21
Item 6. Exhibits and Reports on Form 8-K............................. 21
Signatures............................................................ 22
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Southwest Bancorporation of Texas, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of
Southwest Bancorporation of Texas, Inc. and Subsidiaries (the "Company") as of
March 31, 2000, the related condensed consolidated statements of income and of
cash flows for the three-month periods ended March 31, 2000 and 1999 and the
condensed consolidated statement of changes in shareholders' equity for the
three-month period ended March 31, 2000. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated interim financial
statements for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet as of December 31,
1999, and the related consolidated statements of income, of changes in
shareholders' equity, and of cash flows for the year then ended (not presented
herein); and, in our report dated February 11, 2000, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1999 is fairly stated, in all material respects, in relation
to the consolidated financial statements from which it has been derived.
PricewaterhouseCoopers LLP
Houston, Texas
April 12, 2000
2
SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
MARCH 31, DECEMBER 31,
2000 1999
---------- ------------
ASSETS
Cash and due from banks.............. $ 152,559 $ 148,710
Federal funds sold and other cash
equivalents.......................... 3,905 20,517
---------- ------------
Total cash and cash
equivalents............. 156,464 169,227
Securities -- available for sale..... 664,000 652,539
Loans held for sale.................. 89,551 77,047
Loans held for investment, net....... 1,923,637 1,817,094
Premises and equipment, net.......... 33,424 31,912
Accrued interest receivable.......... 18,534 17,546
Prepaid expenses and other assets.... 91,133 86,831
---------- ------------
Total assets............... $2,976,743 $2,852,196
========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand -- noninterest-bearing... $ 639,409 $ 605,997
Demand -- interest-bearing...... 24,213 30,483
Money market accounts........... 988,795 906,762
Savings......................... 37,987 35,904
Time, $100 and over............. 346,842 336,974
Other time...................... 257,429 256,634
---------- ------------
Total deposits............. 2,294,675 2,172,754
Securities sold under repurchase
agreements......................... 215,176 216,838
Other borrowings..................... 244,075 248,346
Accrued interest payable............. 1,873 3,034
Other liabilities.................... 21,551 16,227
---------- ------------
Total liabilities.......... 2,777,350 2,657,199
---------- ------------
Commitments and contingencies
Shareholders' equity:
Common stock -- $1 par value,
50,000,000 shares authorized;
28,141,273 shares issued and
outstanding at
March 31, 2000 and 28,018,783
issued and outstanding at
December 31, 1999............. 28,141 28,019
Additional paid-in capital...... 63,986 63,182
Retained earnings............... 124,181 115,417
Accumulated other comprehensive
loss.......................... (16,915) (11,621)
---------- ------------
Total shareholders'
equity.................. 199,393 194,997
---------- ------------
Total liabilities and
shareholders' equity.... $2,976,743 $2,852,196
========== ============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
--------- ---------
Interest income:
Loans........................... $ 42,940 $ 31,477
Securities...................... 10,702 10,835
Federal funds sold and other.... 405 754
--------- ---------
Total interest income...... 54,047 43,066
--------- ---------
Interest expense:
Deposits........................ 18,085 14,904
Federal funds purchased and
other borrowings............... 5,640 3,443
--------- ---------
Total interest expense..... 23,725 18,347
--------- ---------
Net interest income........ 30,322 24,719
Provision for loan losses............ 1,500 1,545
--------- ---------
Net interest income after
provision for loan
losses.................. 28,822 23,174
--------- ---------
Other income:
Service charges................. 3,270 2,638
Investment services............. 1,194 1,040
Other fee income................ 2,018 1,676
Other operating income.......... 1,158 1,268
Gain on sale of securities,
net............................ 1 93
--------- ---------
Total other income......... 7,641 6,715
--------- ---------
Other expenses:
Salaries and employee
benefits....................... 13,679 11,919
Occupancy expense............... 3,394 2,935
Other operating expenses........ 6,011 4,636
--------- ---------
Total other expenses....... 23,084 19,490
--------- ---------
Income before income
taxes................... 13,379 10,399
Provision for income taxes........... 4,615 3,737
--------- ---------
Income before minority
interest................ 8,764 6,662
Minority interest.................... -- (53)
--------- ---------
Net income available for
common shareholders..... $ 8,764 $ 6,715
========= =========
Earnings per common share:
Basic...................... $ 0.31 $ 0.25
========= =========
Diluted.................... $ 0.30 $ 0.24
========= =========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
------------------- PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS'
SHARES DOLLARS CAPITAL EARNINGS LOSS EQUITY
--------- ------- ---------- -------- -------------- -------------
BALANCE, DECEMBER 31, 1999........... 28,018,783 $28,019 $ 63,182 $115,417 $(11,621) $ 194,997
Exercise of stock options....... 122,490 122 834 956
Deferred compensation
amortization.................. (30) (30)
Comprehensive income:
Net income for the three
months ended March 31,
2000....................... 8,764 8,764
Net change in unrealized
depreciation on securities
available for sale, net of
deferred taxes of $2,104... (5,294) (5,294)
-------------
Total comprehensive income.... 3,470
--------- ------- ---------- -------- -------------- -------------
BALANCE, MARCH 31, 2000.............. 28,141,273 $28,141 $ 63,986 $124,181 $(16,915) $ 199,393
========= ======= ========== ======== ============== =============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
----------------------
2000 1999
---------- ----------
Cash flows from operating activities:
Net income....................... $ 8,764 $ 6,715
Adjustments to reconcile net
income to net cash provided by
operating activities:
Provision for loan losses... 1,500 1,545
Depreciation................ 1,716 1,526
Realized gain on securities
for sale, net............. (1) (93)
Amortization................ 380 864
Minority interest in net
loss of consolidated
subsidiary................ -- (53)
Gain on sale of loans,
net....................... -- (224)
Dividends on Federal Home
Loan Bank stock........... (232) (117)
Origination of loans held
for sale and mortgage
servicing rights.......... (24,001) (25,745)
Proceeds from sales of
loans..................... 11,374 29,809
Increase in accrued interest
receivable, prepaid
expenses and other
assets.................... (3,061) (11,103)
Increase in accrued interest
payable and other
liabilities............... 4,700 6,341
Other, net.................. 28 164
---------- ----------
Net cash provided by
operating
activities............ 1,167 9,629
---------- ----------
Cash flows from investing activities:
Proceeds from maturity of
securities available for sale... 1,000 36,000
Proceeds from maturity of
securities held to maturity..... -- 2,000
Principal paydowns of
mortgage-backed securities
available for sale.............. 16,533 25,662
Principal paydowns of
mortgage-backed securities held
to maturity..................... -- 7,310
Proceeds from sale of securities
available for sale.............. 135 140,318
Purchase of securities available
for sale........................ (36,334) (185,912)
Net increase in loans
receivable...................... (108,414) (25,293)
Purchase of premises and
equipment....................... (3,256) (2,427)
Other, net....................... -- 272
---------- ----------
Net cash used in
investing
activities............ (130,336) (2,070)
---------- ----------
Cash flows from financing activities:
Net increase (decrease) in
noninterest-bearing deposits.... 33,412 (46,499)
Net increase in time deposits.... 10,663 41,252
Net increase (decrease) in other
interest-bearing deposits....... 77,846 (9,101)
Net (decrease) increase in
securities sold under repurchase
agreements...................... (1,662) 22,808
Net decrease in other short-term
borrowings...................... (4,271) (32,479)
Net proceeds from exercise of
stock options................... 418 282
Other, net....................... -- 638
---------- ----------
Net cash provided by
(used in) financing
activities............ 116,406 (23,099)
---------- ----------
Net decrease in cash and cash
equivalents........................ (12,763) (15,540)
Cash and cash equivalents at
beginning of period................ 169,227 187,493
---------- ----------
Cash and cash equivalents at end of
period............................. $ 156,464 $ 171,953
========== ==========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
6
SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Southwest Bancorporation of Texas, Inc. (the "Company") and its direct and
indirect wholly-owned subsidiaries, Southwest Holding Delaware Inc. (the
"Delaware Company"), Southwest Bank of Texas, National Association (the
"Bank"), and Mitchell Mortgage Company, LLC ("Mitchell"). These financial
statements give retroactive effect to the merger of Fort Bend Holding Corp.,
("Fort Bend") on April 1, 1999 in a transaction accounted for as a pooling of
interests. All material intercompany accounts and transactions have been
eliminated. In the opinion of management, the unaudited condensed consolidated
financial statements reflect all adjustments, consisting only of normal and
recurring adjustments, necessary to present fairly the Company's consolidated
financial position at March 31, 2000 and December 31, 1999, consolidated income
for the three months ended March 31, 2000 and 1999, consolidated cash flows for
the three months ended March 31, 2000 and 1999 and the consolidated changes in
shareholders' equity for the three months ended March 31, 2000. Interim period
results are not necessarily indicative of results of operations or cash flows
for a full-year period.
These financial statements and the notes thereto should be read in
conjunction with the Company's annual report on Form 10-K for the year ended
December 31, 1999.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, Statement of Financial Accounting Standards (SFAS) No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, as amended, was
issued by the Financial Accounting Standards Board to establish accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133 requires that an entity recognize those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as (a) a
hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted transaction, or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security, or a foreign-currency-
denominated forecasted transaction. The accounting for the changes in the fair
value of a derivative depends on the intended use of the derivative and the
resulting designation. The standard is effective for all fiscal years beginning
after June 15, 2000. The Company is evaluating the effect of this pronouncement
on the Company's consolidated financial position, results of operations and cash
flows.
2. COMPREHENSIVE INCOME
Comprehensive income consists of the following:
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
--------- ---------
Net income........................... $ 8,764 $ 6,715
Net change in unrealized depreciation
on securities available for sale,
net of tax......................... (5,294) (2,025)
--------- ---------
Total comprehensive income........... $ 3,470 $ 4,690
========= =========
7
SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
3. EARNINGS PER COMMON SHARE:
Earnings per common share is computed as follows:
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
------------ ---------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Net income........................... $ 8,764 $ 6,715
Minority interest in net loss of
Mitchell, net of tax............... -- (35)
------------ ---------
Net income, adjusted................. $ 8,764 $ 6,680
============ =========
Divided by average common shares and
common share equivalents:
Average common shares........... 28,079 27,464
Average common shares issuable
under the stock option plan... 1,027 980
Average common shares issuable
with the conversion of the
minority interest of
Mitchell...................... -- 307
------------ ---------
Total average common shares and
common share equivalents........... 29,106 28,751
============ =========
Basic earnings per common share...... $ 0.31 $ 0.25
============ =========
Diluted earnings per common share.... $ 0.30 $ 0.24
============ =========
4. SUPPLEMENTAL NONCASH FINANCING ACTIVITIES:
During the three months ended March 31, 2000, the Company reduced its
federal income tax liability by approximately $539,000 and recorded a
corresponding increase to additional paid-in capital representing the tax
benefit related to the exercise of certain stock options.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
On April 1, 1999, Southwest Bancorporation of Texas, Inc. (the "Company")
and Fort Bend Holding Corp. ("Fort Bend") completed their previously announced
merger, which was accounted for as a pooling of interests. The merger agreement
provided for the exchange of 1.45 shares of the Company's Common Stock for each
share of Fort Bend Common Stock, resulting in the issuance of approximately 4.6
million shares of Company Common Stock on a fully diluted basis. In connection
with this merger, the Company incurred approximately $4.5 million in pretax
merger-related expenses and other charges in the second quarter of 1999. The
historical financial data has been restated to include the accounts and
operations of Fort Bend for the three months ended March 31, 1999.
Total assets at March 31, 2000 and December 31, 1999 were $2.98 billion and
$2.85 billion, respectively. Gross loans were $2.03 billion at March 31, 2000,
an increase of $120.4 million or 6% from $1.91 billion at December 31, 1999.
This growth was a result of a strong local economy, and the Company's style of
relationship banking. Shareholders' equity was $199.4 million and $195.0 million
at March 31, 2000 and December 31, 1999, respectively.
For the three months ended March 31, 2000, net income was $8.8 million,
($0.30 per diluted share) compared to $6.7 million ($0.24 per diluted share) for
the same period in 1999, an increase of 31%. Return on average assets and return
on average common shareholders' equity for the three months ended March 31, 2000
was 1.22% and 18.21%, respectively.
RESULTS OF OPERATIONS
INTEREST INCOME
Interest income for the three months ended March 31, 2000 was $54.0
million, an increase of $11.0 million, or 26%, from the three months ended March
31, 1999. This increase is due to a $364.7 million increase in average earning
assets to $2.65 billion for the three months ended March 31, 2000, a 16%
increase from the same period last year.
Interest income on loans increased $11.4 million to $42.9 million for the
three months ended March 31, 2000. This was due to a $426.8 million increase in
average loans outstanding during the same period. The average yield on loans was
8.86% for the three months ended March 31, 2000, an increase of 48 basis points
when compared to the same period in 1999. Interest income on securities
decreased to $10.7 million, a $133,000 decrease from the three month period
ended March 31, 1999. This decrease was attributable to a $27.4 million decrease
in average securities outstanding, down 4% when compared to the three months
ended March 31, 1999.
INTEREST EXPENSE
Interest expense on deposits and other borrowings was $23.7 million for the
three months ended March 31, 2000, compared to $18.3 million for the same period
in 1999. The increase in interest expense was attributable to a $276.7 million
increase in average interest-bearing liabilities for the three-month comparable
periods. The average yield on interest bearing liabilities was 4.65% for the
three months ended March 31, 2000, an increase of 46 basis points when compared
to the same period in 1999.
NET INTEREST INCOME
Net interest income was $30.3 million for the three months ended March 31,
2000, compared with $24.7 million for the same period in 1999, an increase of
23%. The increase in net interest income during the three-months ended March 31,
2000 was largely due to growth in average loan balances.
The net interest margin was 4.60% for the three months ended March 31,
2000, compared with 4.39% in the first quarter of 1999. This increase resulted
from an increase in the yield on earning assets of 56 basis points from 7.65%
for the three months ended March 31, 1999 to 8.21% for the three months ended
March 31, 2000. This increase in the yield on earning assets was partially
offset by an increase in the cost of
9
funds of 46 basis points, from 4.19% for the three months ended March 31, 1999,
to 4.65% for the three months ended March 31, 2000.
The following table presents for the periods indicated the total dollar
amount of interest income from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates. No tax equivalent adjustments were made and
all average balances are daily average balances. Nonaccruing loans have been
included in the table as loans carrying a zero yield.
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
--------------------------------- ---------------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE
----------- ------- ------- ----------- ------- -------
(DOLLARS IN THOUSANDS)
ASSETS
Interest-earning assets:
Loans.............................. $ 1,949,690 $42,940 8.86% $ 1,522,893 $31,477 8.38%
Securities......................... 668,819 10,702 6.44 696,202 10,835 6.31
Federal funds sold and other....... 29,862 405 5.45 64,561 754 4.74
----------- ------- ------- ----------- ------- -------
Total interest-earning
assets..................... 2,648,371 54,047 8.21% 2,283,656 43,066 7.65%
------- ------- ------- -------
Less allowance for loan losses.......... (20,378) (15,773)
----------- -----------
Total earning assets, net of
allowance............................. 2,627,993 2,267,883
Nonearning assets....................... 256,624 221,300
----------- -----------
Total assets.................. $ 2,884,617 $ 2,489,183
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Money market and savings
deposits......................... $ 1,020,521 10,117 3.99% $ 862,020 7,772 3.66%
Certificates of deposits........... 596,073 7,968 5.38 604,474 7,132 4.79
Repurchase agreements and borrowed
funds............................ 437,623 5,640 5.18 311,050 3,443 4.49
----------- ------- ------- ----------- ------- -------
Total interest-bearing
liabilities................ 2,054,217 23,725 4.65% 1,777,544 18,347 4.19%
------- ------- ------- -------
Noninterest-bearing liabilities:
Noninterest-bearing demand
deposits......................... 613,525 508,172
Other liabilities.................. 23,357 24,932
----------- -----------
Total liabilities............. 2,691,099 2,310,647
Shareholders' equity.................... 193,518 178,535
----------- -----------
Total liabilities and
shareholders' equity....... $ 2,884,617 $ 2,489,183
=========== ===========
Net interest income..................... $30,322 $24,719
======= =======
Net interest spread..................... 3.56% 3.48%
======= =======
Net interest margin..................... 4.60% 4.39%
======= =======
10
The following table presents the dollar amount of changes in interest
income and interest expense for the major components of interest-earning assets
and interest-bearing liabilities and distinguishes between the increase
(decrease) related to outstanding balances, the volatility of interest rates and
the change in number of days due to leap year. For purposes of this table,
changes attributable to both rate and volume which cannot be segregated have
been allocated.
THREE MONTHS ENDED
MARCH 31,
------------------------------------------
2000 VS. 1999
------------------------------------------
INCREASE (DECREASE)
DUE TO
------------------------------------------
VOLUME RATE DAYS TOTAL
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS:
Loans................................... $ 8,808 $ 2,305 $ 350 $ 11,463
Securities.............................. (459) 206 120 (133)
Federal funds sold and other............ (410) 53 8 (349)
--------- --------- --------- ---------
Total increase in interest
income........................... 7,939 2,564 478 10,981
--------- --------- --------- ---------
INTEREST-BEARING LIABILITIES:
Money market and savings deposits....... 1,419 840 86 2,345
Certificates of deposits................ (119) 876 79 836
Repurchase agreements and borrowed
funds................................. 1,405 754 38 2,197
--------- --------- --------- ---------
Total increase in interest
expense.......................... 2,705 2,470 203 5,378
--------- --------- --------- ---------
Increase in net interest income......... $ 5,234 $ 94 $ 275 $ 5,603
========= ========= ========= =========
PROVISION FOR LOAN LOSSES
The provision for loan losses was $1.5 million for the three months ended
March 31, 2000, unchanged from the three months ended March 31, 1999. Although
no assurance can be given, management believes that the present allowance for
loan losses is adequate considering loss experience, delinquency trends and
current economic conditions. Management regularly reviews the Company's loan
loss allowance as its loan portfolio grows and diversifies. (See -- Financial
Condition -- Loan Review and Allowance for Loan Losses.)
NONINTEREST INCOME
Noninterest income for the three months ended March 31, 2000 was $7.6
million, an increase of $926,000 or 14% for the same period in 1999. The
following table presents for the periods indicated the composition of
noninterest income.
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
--------- ---------
(DOLLARS IN
THOUSANDS)
Service charges on deposit
accounts........................... $ 3,270 $ 2,638
Investment services.................. 1,194 1,040
Factoring fee income................. 872 576
Loan fee income...................... 1,055 863
Bank-owned life insurance income..... 456 283
Letters of credit fee income......... 221 192
Gain on sale of securities, net...... 1 93
Other noninterest income............. 572 1,030
--------- ---------
Total noninterest income........ $ 7,641 $ 6,715
========= =========
The largest component of noninterest income, service charges on deposit
accounts, was up $632,000, or 24% from the prior period. This resulted from an
increase in the number of deposit accounts, which grew from 66,334 at March 31,
1999 to 83,146 at March 31, 2000. Factoring fee income was up $296,000 or 51%;
investment services fee income up $154,000 or 15%, and loan fee income up
$192,000 or 22%. Other
11
non-interest income was decreased by a reduction in fee income from arbitrage
activities, which contributed $255,000 in fees in the first quarter of 1999
versus zero for the first quarter of 2000. Additionally, other non-interest
income declined primarily from a decrease in the gain on sale of loans decreased
$224,000.
NONINTEREST EXPENSES
For the three months ended March 31, 2000, noninterest expenses totaled
$23.1 million, an increase of $3.6 million, or 18%, from $19.5 million during
1999. The increase in noninterest expenses was primarily due to salaries and
employee benefits. The efficiency ratio improved to 60.81% for the three months
ended March 31, 2000 from 62.19% for the comparable period in 1999.
Salaries and employee benefits for the three months ended March 31, 2000
was $13.7 million, an increase of $1.8 million, or 15%, from the three months
ended March 31, 1999. This increase was due primarily to hiring of additional
personnel required to accommodate the Company's growth. Total full-time
employees were 962 and 849 at March 31, 2000 and March 31, 1999, respectively.
Occupancy expense increased $459,000, or 16%, to $3.4 million for the three
months ended March 31, 2000. Major categories within occupancy expense are
building lease expense and maintenance contract expense. Building lease expense
increased to $1.0 million for the three months ended March 31, 2000 from
$822,000 for the same period in 1999. This increase resulted from increasing the
rentable square feet at the corporate office to accommodate the Company's
growth. Maintenance contract expense for the three months ended March 31, 2000
was $432,000, a 56% or $155,000 increase from $277,000 for the same period last
year. This increase was primarily due to new maintenance contracts purchased
during 1999. The Company purchases maintenance contracts for major operating
systems throughout the organization.
INCOME TAXES
Income tax expense includes the regular federal income tax at the statutory
rate, plus the income tax component of the Texas franchise tax. The amount of
federal income tax expense is influenced by the amount of taxable income, the
amount of tax-exempt income, the amount of nondeductible interest expense, and
the amount of other nondeductible expenses. Taxable income for the income tax
component of the Texas franchise tax is the federal pre-tax income, plus certain
officers' salaries, less interest income from federal securities. For the three
months ended March 31, 2000, the provision for income taxes was $4.6 million, an
increase of $878,000, or 23%, from the $3.7 million provided for in the same
period in 1999.
FINANCIAL CONDITION
LOANS HELD FOR INVESTMENT
Loans were $1.94 billion at March 31, 2000, an increase of $108 million or
6% from $1.84 billion at December 31, 1999.
12
The following table summarizes the loan portfolio of the Company by type of
loan as of March 31, 2000 and December 31, 1999:
MARCH 31, 2000 DECEMBER 31, 1999
---------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT
------------ ------- ------------ -------
(DOLLARS IN THOUSANDS)
Commercial and industrial............... $ 750,472 38.59% $ 721,229 39.27%
Real estate:
Construction and land
development........................ 568,081 29.21 494,755 26.94
1-4 family residential............. 264,398 13.60 268,349 14.61
Commercial owner occupied.......... 184,216 9.47 185,679 10.11
Farmland........................... 12,361 0.64 13,056 0.71
Other.............................. 28,850 1.48 20,447 1.10
Consumer................................ 136,277 7.01 133,295 7.26
------------ ------- ------------ -------
Gross loans held for investment......... $ 1,944,655 100.00% $ 1,836,810 100.00%
============ ======= ============ =======
The primary lending focus of the Company is on small- and medium-sized
commercial, construction and land development, residential mortgage and consumer
loans. The Company offers a variety of commercial lending products including
term loans, lines of credit and equipment financing. A broad range of short- to
medium-term commercial loans, both collateralized and uncollateralized, are made
available to businesses for working capital (including inventory and
receivables), business expansion (including acquisitions of real estate and
improvements) and the purchase of equipment and machinery. The purpose of a
particular loan generally determines its structure.
Generally, the Company's commercial loans are underwritten in the Company's
primary market area on the basis of the borrower's ability to service such debt
from cash flow. As a general practice, the Company takes as collateral a lien on
any available real estate, equipment or other assets. Working capital loans are
primarily collateralized by short-term assets whereas term loans are primarily
collateralized by long-term assets.
A substantial portion of the Company's real estate loans consists of loans
collateralized by real estate and other assets of commercial customers.
Additionally, a portion of the Company's lending activity consists of the
origination of single-family residential mortgage loans collateralized by
owner-occupied properties located in the Company's primary market area. The
Company offers a variety of mortgage loan products which generally are amortized
over five to 30 years.
Loans collateralized by single-family residential real estate generally
have been originated in amounts of no more than 90% of appraised value. The
Company requires mortgage title insurance and hazard insurance in the amount of
the loan. Although the contractual loan payment periods for single-family
residential real estate loans are generally for a three to five year period,
such loans often remain outstanding for significantly shorter periods than their
contractual terms.
The Bank originates and purchases residential and commercial mortgage loans
to sell to investors with servicing rights retained. The Bank also provides
residential and commercial construction financing to builders and developers and
acts as a broker in the origination of multi-family and commercial real estate
loans.
Consumer loans made by the Company include automobile loans, recreational
vehicle loans, boat loans, home improvement loans, personal loans
(collateralized and uncollateralized) and deposit account collateralized loans.
The terms of these loans typically range from 12 to 84 months and vary based
upon the nature of collateral and size of loan.
13
The contractual maturity ranges of the commercial and industrial and real
estate construction loan portfolio and the amount of such loans with fixed
interest rates and floating rates in each maturity range as of March 31, 2000
are summarized in the following table:
MARCH 31, 2000
---------------------------------------------------
AFTER ONE AFTER
ONE YEAR THROUGH FIVE
OR LESS FIVE YEARS YEARS TOTAL
---------- ----------- --------- ------------
(DOLLARS IN THOUSANDS)
Commercial and industrial............... $ 491,019 $ 232,529 $ 26,924 $ 750,472
Real estate construction and land
development........................... 318,815 211,421 37,845 568,081
---------- ----------- --------- ------------
Total.............................. $ 809,834 $ 443,950 $ 64,769 $ 1,318,553
========== =========== ========= ============
Loans with a fixed interest rate........ $ 277,282 $ 118,983 $ 20,987 $ 417,252
Loans with a floating interest rate..... 532,552 324,967 43,782 901,301
---------- ----------- --------- ------------
Total.............................. $ 809,834 $ 443,950 $ 64,769 $ 1,318,553
========== =========== ========= ============
LOANS HELD FOR SALE
Loans held for sale of $89.6 million at March 31, 2000 increased from $77.0
million at December 31, 1999. These loans are typically sold to investors within
one month of origination. Approximately $42 million of these loans were
previously recorded as loans held for investment and reclassified after the
merger of Fort Bend. It is expected that these loans will ultimately be sold
after restrictions have expired relating to pooling of interests merger.
LOAN REVIEW AND ALLOWANCE FOR LOAN LOSSES
The Company's loan review procedures include a Credit Quality Assurance
Process that begins with approval of lending policies and underwriting
guidelines by the Board of Directors, an independent loan review department
staffed with OCC experienced personnel, low individual lending limits for
officers, Senior Loan Committee approval for large credit relationships and
quality loan documentation procedures. The Company also maintains a well
developed monitoring process for credit extensions in excess of $100,000. The
Company performs monthly and quarterly concentration analyses based on various
factors such as industries, collateral types, business lines, large credit
sizes, international investments and officer portfolio loads. The Company has
established underwriting guidelines to be followed by its officers. The Company
also monitors its delinquency levels for any negative or adverse trends. There
can be no assurance, however, that the Company's loan portfolio will not become
subject to increasing pressures from deteriorating borrower credit due to
general economic conditions.
Historically, the Houston metropolitan area has been affected by the state
of the energy business, but since the mid 1980's the economic impact has been
reduced by a combination of increased industry diversification and less reliance
on debt to finance expansion. When energy prices fluctuate, it is the Company's
practice to review and adjust underwriting standards with respect to companies
affected by oil and gas price volatility, and to continuously monitor existing
credit exposure to companies which are impacted by this price volatility.
The allowance for loan losses is established through charges to earnings in
the form of a provision for loan losses. Based on an evaluation of the loan
portfolio, management presents a quarterly review of the allowance for loan
losses to the Board of Directors, indicating any changes in the allowance since
the last review and any recommendations as to adjustments in the allowance. In
making its evaluation, management considers growth in the loan portfolio, the
diversification by industry of the Company's commercial loan portfolio, the
effect of changes in the local real estate market on collateral values, the
results of recent regulatory examinations, the effects on the loan portfolio of
current economic indicators and their probable impact on borrowers, the amount
of charge-offs for the period, the amount of nonperforming loans and related
collateral security and the evaluation of its loan portfolio by the loan review
function. Charge-offs occur when loans are deemed to be uncollectible.
14
In order to determine the adequacy of the allowance for loan losses,
management considers the risk classification or delinquency status of loans and
other factors, such as collateral value, portfolio composition, trends in
economic conditions and the financial strength of borrowers. Management
establishes specific allowances for loans which management believes require
reserves greater than those allocated according to their classification or
delinquent status. The allocated component of the allowance is supplemented by
an unallocated component. The unallocated portion of the allowance includes
management's judgmental determination of the amounts necessary for subjective
factors such as economic uncertainties and concentration risks. The Company then
charges to operations a provision for loan losses determined on an annualized
basis to maintain the allowance for loan losses at an adequate level determined
according to the foregoing methodology.
Management believes that the allowance for loan losses at March 31, 2000 is
adequate to cover losses inherent in the portfolio as of such date. There can be
no assurance, however, that the Company will not sustain losses in future
periods, which could be greater than the size of the allowance at March 31,
2000.
The following table presents, for the periods indicated, an analysis of the
allowance for loan losses and other related data:
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
2000 1999
--------------- -------------
(DOLLARS IN THOUSANDS)
Allowance for loan losses, beginning
balance.............................. $19,716 $14,980
Provision charged against
operations........................... 1,500 6,060
Charge-offs.......................... (256) (1,536)
Recoveries........................... 58 212
--------------- -------------
Allowance for loan losses, ending
balance.............................. $21,018 $19,716
=============== =============
Allowance to period-end loans........ 1.08% 1.07%
Net charge-offs to average loans..... 0.04% 0.08%
Allowance to period-end nonperforming
loans.............................. 688.89% 650.91%
The following table describes the allocation of the allowance for loan
losses among various categories of loans and certain other information for the
dates indicated. Portions of the allowance for loan losses are allocated to
cover the estimated losses inherent in particular risk categories of loans. The
allocation of the allowance for loan losses is based upon the Company's loss
experience over a period of years and is adjusted for subjective factors such as
economic trends, performance trends, portfolio age and concentrations of credit.
The allocation is made for analytical purposes and is not necessarily indicative
of the categories in which future loan losses may occur. The total allowance is
available to absorb losses from any segment of loans.
MARCH 31, 2000 DECEMBER 31, 1999
---------------------- ----------------------
PERCENT OF PERCENT OF
LOANS TO LOANS TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------- ----------- ------- -----------
(DOLLARS IN THOUSANDS)
Balance of allowance for loan losses
applicable to:
Commercial and industrial............ $ 8,525 38.59% $ 8,503 39.27%
Real estate:
Construction and land
development................... 2,687 29.21 2,942 26.94
1-4 family residential.......... 1,210 13.60 1,409 14.61
Commercial owner occupied....... 821 9.47 947 10.11
Farmland........................ 46 0.64 60 0.71
Other........................... 176 1.48 94 1.10
Consumer............................. 1,472 7.01 1,633 7.26
Unallocated.......................... 6,081 n/a 4,128 n/a
------- ----------- ------- -----------
Total allowance for loan losses...... $21,018 100.00% $19,716 100.00%
======= =========== ======= ===========
15
NONPERFORMING ASSETS AND IMPAIRED LOANS
The Company generally places a loan on nonaccrual status and ceases
accruing interest when loan payment performance is deemed unsatisfactory. All
loans past due 90 days, however, are placed on nonaccrual status, unless the
loan is both well collateralized and in the process of collection. Cash payments
received while a loan is classified as nonaccrual are recorded as a reduction of
principal as long as doubt exists as to collection. The Company is sometimes
required to revise a loan's interest rate or repayment terms in a troubled debt
restructuring.
Nonperforming assets were $3.9 million at March 31, 2000 compared with $4.4
million at December 31, 1999. This resulted in a ratio of nonperforming assets
to loans plus other real estate of 0.19% and 0.24% at March 31, 2000 and
December 31, 1999, respectively.
The following table presents information regarding nonperforming assets as
of the dates indicated:
MARCH 31, DECEMBER 31,
2000 1999
---------- ------------
(DOLLARS IN THOUSANDS)
Nonaccrual loans..................... $1,811 $2,388
Accruing loans 90 or more days past
due.................................. 1,240 641
Other real estate and foreclosed
property............................. 802 1,337
---------- ------------
Total non-performing assets..... $3,853 $4,366
========== ============
Nonperforming assets to total loans
and other real estate.............. 0.19% 0.24%
The Company regularly updates appraisals on loans collateralized by real
estate, particularly those categorized as nonperforming loans and potential
problem loans. In instances where updated appraisals reflect reduced collateral
values, an evaluation of the borrower's overall financial condition is made to
determine the need, if any, for possible writedowns or appropriate additions to
the allowance for loan losses.
A loan is considered impaired when, based upon current information and
events, it is probable that the Company will be unable to collect the scheduled
payments of principal and interest when due according to the contractual terms
of the loan agreement. The Company's impaired loans were approximately $15.0
million and $13.7 million at March 31, 2000 and December 31, 1999, respectively.
The largest component of impaired loans at March 31, 2000 and December 31, 1999
is a commercial energy related loan of approximately $10.6 million and $10.8
million, respectively. The average recorded investment in impaired loans during
the three months ended March 31, 2000 and the year ended December 31, 1999 was
$14.2 million and $13.9 million, respectively. The total required allowance for
loan losses related to these loans was $0 for each reported period. Interest
income on impaired loans of $385,000 and $1.5 million was recognized for cash
payments received during the three months ended March 31, 2000 and the year
ended December 31, 1999, respectively.
The Bank is not committed to lend additional funds to debtors whose loans
have been modified.
SECURITIES
At the date of purchase, the Company classifies debt and equity securities
into one of three categories: held to maturity, trading or available for sale.
At each reporting date, the appropriateness of the classification is reassessed.
Investments in debt securities are classified as held to maturity and measured
at amortized cost in the financial statements only if management has the
positive intent and ability to hold those securities to maturity. Securities
that are bought and held principally for the purpose of selling them in the near
term are classified as trading and measured at fair value in the financial
statements with unrealized gains and losses included in earnings. Securities not
classified as either held to maturity or trading are classified as available for
sale and measured at fair value in the financial statements with unrealized
gains and losses reported, net of tax, as a component of accumulated other
comprehensive income (loss) until realized. Gains and losses on sales of
securities are determined using the specific-identification method. The Company
has classified all securities as available for sale at March 31, 2000. This
allows the Company to manage its investment portfolio more effectively and to
enhance the average yield on the portfolio.
16
The amortized cost and approximate fair value of securities classified as
available for sale is as follows:
MARCH 31, 2000
-----------------------------------------------
GROSS UNREALIZED
AMORTIZED ------------------- FAIR
COST GAIN LOSS VALUE
--------- ----- -------- ----------
(DOLLARS IN THOUSANDS)
AVAILABLE FOR SALE:
U.S. Government securities........... $ 77,523 $ 1 $ (1,961) $ 75,563
Mortgage-backed securities........... 543,877 424 (23,940) 520,361
Federal Reserve Bank stock........... 2,807 -- -- 2,807
Federal Home Loan Bank stock......... 15,605 -- -- 15,605
Other securities..................... 49,592 79 (7) 49,664
--------- ----- -------- ----------
TOTAL SECURITIES AVAILABLE FOR
SALE.......................... $ 689,404 $ 504 $(25,908) $ 664,000
========= ===== ======== ==========
DECEMBER 31, 1999
-----------------------------------------------
GROSS UNREALIZED
AMORTIZED ------------------- FAIR
COST GAIN LOSS VALUE
--------- ----- -------- ----------
(DOLLARS IN THOUSANDS)
AVAILABLE FOR SALE:
U.S. Government securities........... $ 78,527 $ 35 $ (1,567) $ 76,995
Mortgage-backed securities........... 560,471 356 (16,852) 543,975
Federal Reserve Bank stock........... 2,408 -- -- 2,408
Federal Home Loan Bank stock......... 14,886 -- -- 14,886
Other securities..................... 14,253 22 -- 14,275
--------- ----- -------- ----------
TOTAL SECURITIES AVAILABLE FOR
SALE.......................... $ 670,545 $ 413 $(18,419) $ 652,539
========= ===== ======== ==========
Securities totaled $664.0 million at March 31, 2000, an increase of $11.5
million from $652.5 million at December 31, 1999. The yield on the securities
portfolio for the three months ended March 31, 2000 was 6.44% while the yield
was 6.31% for the three months ended March 31, 1999.
The Company has no mortgage-backed securities that have been issued by
non-agency entities. Included in the Company's mortgage-backed securities at
March 31, 2000 were $262.8 million in agency issued collateral mortgage
obligations.
At March 31, 2000, $487.6 million of the mortgage-backed securities held by
the Company had final maturities of more than 10 years. At March 31, 2000,
approximately $30.8 million of the Company's mortgage-backed securities earned
interest at floating rates and repriced within one year, and accordingly were
less susceptible to declines in value should interest rates increase.
17
The following table summarizes the contractual maturity of investments
(including securities and interest-bearing deposits) and their weighted average
yields at March 31, 2000. The yield on the securities portfolio is based on
average historical cost balances and does not give effect to changes in fair
value that are reflected as a separate component of other comprehensive income.
MARCH 31, 2000
---------------------------------------------------------------------------------------------------
AFTER ONE AFTER FIVE
YEAR BUT YEARS BUT
WITHIN WITHIN WITHIN
ONE YEAR FIVE YEARS TEN YEARS AFTER TEN YEARS
----------------- ----------------- ----------------- ------------------
AMORTIZED AMORTIZED AMORTIZED AMORTIZED
COST YIELD COST YIELD COST YIELD COST YIELD TOTAL YIELD
--------- ----- --------- ----- --------- ----- ---------- ----- --------- -----
(DOLLARS IN THOUSANDS)
U.S. Government
securities.................. $ 3,000 5.82% $ 59,523 5.79% $ 15,000 6.45% $ -- 0.00% $ 77,523 5.92 %
Mortgage-backed
securities.................. 3,749 6.12 17,359 6.66 35,195 6.37 487,574 6.44 543,877 6.44
Federal Reserve Bank
stock....................... 2,807 6.00 -- -- -- -- -- -- 2,807 6.00
Federal Home Loan Bank stock.. 15,605 5.75 -- -- -- -- -- -- 15,605 5.75
Other securities.............. 35,758 5.94 2,590 7.07 619 6.95 10,625 7.52 49,592 6.35
Interest-bearing deposits..... 3,905 4.69 -- -- -- -- -- -- 3,905 4.69
--------- ----- --------- ----- --------- ----- ---------- ----- --------- -----
Total investments......... $ 64,824 5.83% $ 79,472 6.02% $ 50,814 6.40% $ 498,199 6.47% $ 693,309 6.35 %
========= ===== ========= ===== ========= ===== ========== ===== ========= =====
PREPAID EXPENSES AND OTHER ASSETS
Total prepaid expenses and other assets were $91.1 million at March 31,
2000, an increase of $4.3 million from $86.8 million at December 31, 1999.
Significant components within prepaid expenses and other assets at March 31,
2000 include the cash value of bank owned life insurance of $26.9 million and
accounts receivable purchased of $18.7 million.
DEPOSITS
The Company offers a variety of deposit accounts having a wide range of
interest rates and terms. The Company's deposits consist of demand, savings, NOW
accounts, money market and time accounts. The Company relies primarily on
advertising, competitive pricing policies and customer service to attract and
retain these deposits. As of March 31, 2000, the Company had less than two
percent of its deposits classified as brokered funds and does not anticipate any
significant increase. Deposits provide the primary source of funding for the
Company's lending and investment activities, and the interest paid for deposits
must be managed carefully to control the level of interest expense.
The Company's ratio of average non-interest bearing demand deposits to
average total deposits for the periods ended March 31, 2000 and December 31,
1999, was 27.51% and 26.88%, respectively.
18
The average daily balances and weighted average rates paid on deposits for
the three months ended March 31, 2000 and the year ended December 31, 1999, are
presented below:
MARCH 31, 2000 DECEMBER 31, 1999
----------------------- -----------------------
AMOUNT RATE AMOUNT RATE
------------ --------- ------------ ---------
(DOLLARS IN THOUSANDS)
NOW accounts......................... $ 18,030 0.38% $ 28,807 2.31%
Regular savings...................... 37,374 2.49 36,201 2.44
Premium Yield........................ 603,715 4.83 472,501 4.24
Money market savings................. 361,402 2.91 332,525 2.92
CD's less than $100,000.............. 211,281 5.14 221,161 4.92
CD's $100,000 and over............... 330,518 5.50 345,060 4.97
IRA's, QRP's and other............... 54,274 5.51 43,201 5.43
------------ --------- ------------ ---------
Total interest-bearing
deposits...................... 1,616,594 4.50% 1,479,456 4.17%
========= =========
Non interest-bearing deposits........ 613,525 543,961
------------ ------------
Total deposits.................. $ 2,230,119 $ 2,023,417
============ ============
The following table sets forth the maturity of the Company's time deposits
that are $100,000 or greater as of the dates indicated:
MARCH 31, 2000 DECEMBER 31, 1999
------------------ -----------------
(DOLLARS IN THOUSANDS)
3 months or less..................... $166,078 $ 177,432
Between 3 months and 6 months........ 86,254 68,476
Between 6 months and 1 year.......... 67,650 67,388
Over 1 year.......................... 26,860 23,678
------------------ -----------------
Total time deposits $100,000 and
over.......................... $346,842 $ 336,974
================== =================
BORROWINGS
Securities sold under repurchase agreements and other borrowings,
consisting of federal funds purchased and other bank borrowings, generally
represent borrowings with maturities ranging from one to thirty days.
Information relating to these borrowings is summarized as follows:
MARCH 31, DECEMBER 31,
2000 1999
-------- ------------
(DOLLARS IN THOUSANDS)
Securities sold under repurchase
agreements:
Average......................... $193,413 $184,815
Period-end...................... 215,176 216,838
Maximum month-end balance during
period........................ 215,176 216,838
Interest rate:
Average......................... 4.36% 4.06%
Period-end...................... 4.59% 4.03%
Other borrowings:
Average......................... $217,992 $189,929
Period-end...................... 244,075 248,346
Maximum month-end balance during
period........................ 371,841 265,440
Interest rate:
Average......................... 5.84% 5.33%
Period-end...................... 5.40% 5.23%
Securities sold under repurchase agreements are maintained in safekeeping
by correspondent banks.
19
LIQUIDITY AND CAPITAL RESOURCES
Liquidity involves the Company's ability to raise funds to support asset
growth or reduce assets to meet deposit withdrawals and other payment
obligations, to maintain reserve requirements and otherwise to operate the
Company on an ongoing basis. For the three months ended March 31, 2000, the
Company's liquidity needs have primarily been met by growth in core deposits and
increases in short-term borrowings, primarily from the Federal Home Loan Bank.
The cash and federal funds sold position, supplemented by amortizing securities
and loan portfolios, have generally created an adequate liquidity position.
The Company's risk-based capital ratios including Leverage Capital, Tier 1
Risk-Based Capital and the Total Risk-Based Capital Ratio were 7.63, 9.36 and
10.26, respectively, at March 31, 2000.
OTHER MATTERS
In June 1998, Statement of Financial Accounting Standards (SFAS) No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, as amended, was
issued by the Financial Accounting Standards Board to establish accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133 requires that an entity recognize those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as (a) a
hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted transaction, or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security, or a foreign-currency-
denominated forecasted transaction. The accounting for the changes in the fair
value of a derivative depends on the intended use of the derivative and the
resulting designation. The standard is effective for all fiscal years beginning
after June 15, 2000. The Company is evaluating the effect of this pronouncement
on the Company's consolidated financial position, results of operations and cash
flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURERS ABOUT MARKET RISK
There have been no material changes since December 31, 1999. See the
Company's Annual Report on Form 10-K, "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Financial
Condition -- Interest Rate Sensitivity and Liquidity."
20
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
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
a) Exhibits:
Exhibit 3.1 Amendment dated May 1, 2000 to Articles of Incorporation of
the Company.
*Exhibit 4.1 Loan Agreement (and form of $10,000,000 Promissory Note)
dated March 30, 2000, between the Company and Bank of Oklahoma, N.A.
Exhibit 10.1 1989 Stock Option Plan (Amended and Restated as of May 29,
1998)
Exhibit 10.2 1993 Stock Option Plan (Amended and Restated as of May 29,
1998)
Exhibit 15.1 Awareness Letter of PricewaterhouseCoopers LLP
Exhibit 27. Financial Data Schedule
- ------------
*This Exhibit is not filed herewith because it meets the exclusion set forth in
601(b)(4)(iii) of Regulation S-K and the Company hereby agrees to furnish a
copy thereof to the Commission upon request.
b) Reports on Form 8-K
The following report on Form 8-K was filed by the Company during the
three months ended March 31, 2000: Current Report on Form 8-K (Item 7)
dated and filed on March 7, 2000.
21
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF
THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
PAUL B. MURPHY, JR. Director, President and Chief May 5, 2000
------------------------------------------- Executive Officer
PAUL B. MURPHY, JR. (Principal Executive Officer)
DAVID C. FARRIES Executive Vice President, May 5, 2000
-------------------------------------------- Treasurer and Secretary
DAVID C. FARRIES (Principal Financial Officer)
R. JOHN McWHORTER Senior Vice President and Controller May 5, 2000
-------------------------------------------- (Principal Accounting Officer)
R. JOHN MCWHORTER
22