UNITED STATES
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SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549
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Form 10-QSB
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[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended December 31, 1997
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OR
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission File No. 0 - 21328
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FORT BEND HOLDING CORP.
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A Delaware Corporation I.R.S. Employer Identification
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No. 76-0391720
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Address Telephone Number
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3400 Avenue H (281) 342-5571
Rosenberg, Texas 77471
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 twelve 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 1,851,141 shares and 1,674,793 shares of Common Stock ($0.01 par
value) issued and outstanding, respectively, as of January 26, 1997.
1 of 23
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
FORT BEND HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(UNAUDITED)
ASSETS DECEMBER 31, 1997 MARCH 31, 1997
Cash and due from banks $ 6,359,405 $ 6,369,675
Short-term investments 19,469,753 14,220,516
Certificates of deposit 200,000 200,000
-------------------- ----------------
TOTAL CASH AND CASH EQUIVALENTS 26,029,158 20,790,191
Investment securities available for sale, at market 2,929,332 2,810,270
Investment securities held to maturity (estimated market value of
$9,956,652 and $10,789,440 at December 31, 1997 and
March 31, 1997, respectively) 10,241,277 11,234,763
Mortgage-backed securities available for sale, at market 380,092 520,869
Mortgage-backed securities held to maturity (estimated market
value of $87,091,439 and $96,684,430 at December 31, 1997
and March 31, 1997, respectively) 86,882,448 97,084,501
Loans held for sale 10,345,178 2,660,415
Loans receivable, net 146,022,337 138,227,705
Accrued interest receivable 1,893,819 1,816,415
Real estate, net 90,021 470,996
Federal Home Loan Bank stock, at cost 1,487,000 1,933,000
Premises and equipment, net 4,818,173 4,970,011
Mortgage servicing rights, net 7,212,502 7,537,571
Prepaid expenses and other assets 2,808,938 3,398,198
Deferred income taxes 308,240 305,961
Goodwill, net 1,279,740 1,319,232
-------------------- ----------------
TOTAL ASSETS $ 302,728,255 $ 295,080,098
==================== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 255,726,406 $ 250,218,152
Convertible Subordinated Debentures 11,970,000 12,080,000
Borrowings 3,998,630 4,226,676
Advances from borrowers for taxes and insurance 4,286,347 4,750,945
Accounts payable, accrued expenses and other liabilities 3,612,468 2,868,177
-------------------- ----------------
TOTAL LIABILITIES 279,593,851 274,143,950
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Minority interest in consolidated subsidiary 2,642,878 2,508,214
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Stockholders' equity:
Serial preferred stock, $.01 par value - 1,000,000 shares authorized, none outstanding
Common Stock $.01 par value, 4,000,000 shares authorized
1,844,406 shares issued and 1,668,058 shares outstanding at
December 31,1997 and 1,820,950 shares issued and 1,644,602
shares outstanding at March 31, 1997 18,444 18,209
Additional paid-in capital 9,366,579 8,695,882
Unearned employee stock ownership plan shares (118,078) (307,125)
Deferred compensation (98,469) (82,324)
Net unrealized appreciation (depreciation) on available for
sale securities 6,931 (6,107)
Retained earnings (substantially restricted) 12,772,620 11,565,900
Treasury stock, at cost - 176,348 shares (1,456,501) (1,456,501)
-------------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 20,491,526 18,427,934
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 302,728,255 $ 295,080,098
==================== ================
The accompanying notes are an integral part of the condensed consolidated
financial statements.
2
FORT BEND HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
INTEREST INCOME:
Loans $ 3,256,070 $ 2,673,173 $ 9,987,360 $ 7,193,460
Short-term investments 495,410 256,338 1,090,793 675,319
Investment securities 194,582 214,074 651,308 564,602
Mortgage-backed securities 1,459,354 1,701,684 4,558,667 5,286,844
---------------- ----------- ---------------- ------------
TOTAL INTEREST INCOME 5,405,416 4,845,269 16,288,128 13,720,225
---------------- ----------- ---------------- ------------
INTEREST EXPENSE:
Deposits 2,826,982 2,643,474 8,282,277 7,430,780
Borrowings 317,046 329,035 977,898 994,729
---------------- ----------- ---------------- ------------
TOTAL INTEREST EXPENSE 3,144,028 2,972,509 9,260,175 8,425,509
---------------- ----------- ---------------- ------------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 2,261,388 1,872,760 7,027,953 5,294,716
PROVISION FOR LOAN LOSSES --- 60,000 77,980 128,000
---------------- ----------- ---------------- ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,261,388 1,812,760 6,949,973 5,166,716
---------------- ----------- ---------------- ------------
NONINTEREST INCOME:
Loan fees and charges 950,591 160,387 2,431,645 404,897
Loan servicing income, net 353,414 112,787 925,949 328,905
Service charges on deposit accounts 231,955 216,805 662,290 545,437
Gain on sale of loans 308,312 91,237 561,763 197,536
Other income 147,641 138,959 464,149 406,497
---------------- ----------- ---------------- ------------
TOTAL NONINTEREST INCOME 1,991,913 720,175 5,045,796 1,883,272
---------------- ----------- ---------------- ------------
NONINTEREST EXPENSES:
Compensation and benefits 1,970,696 1,030,093 5,523,127 2,800,513
Office occupancy and equipment 447,742 290,975 1,330,806 720,520
Federal insurance premiums 43,441 110,092 123,711 367,681
Data processing fees 151,413 68,888 408,071 179,623
Savings Association Insurance Fund Assessment --- --- --- 1,492,686
Insurance and surety bond expense 36,279 34,571 110,707 106,110
Other 691,054 405,439 1,837,099 1,075,290
---------------- ----------- ---------------- ------------
TOTAL NONINTEREST EXPENSES 3,340,625 1,940,058 9,333,521 6,742,423
---------------- ----------- ---------------- ------------
INCOME BEFORE INCOME TAX AND MINORITY INTEREST 912,676 592,877 2,662,248 307,565
INCOME TAX PROVISION 263,741 175,709 811,209 63,509
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INCOME BEFORE MINORITY INTEREST 648,935 417,168 1,851,039 244,056
MINORITY INTEREST IN NET INCOME OF CONSOLIDATED SUBSIDIARY 157,414 --- 337,034 ---
---------------- ----------- ---------------- ------------
NET INCOME $ 491,521 $ 417,168 $ 1,514,005 $ 244,056
================ =========== ================ ============
EARNINGS PER COMMON SHARE $ 0.30 $ 0.25 $ 0.91 $ 0.15
================ =========== ================ ============
EARNINGS PER COMMON SHARE - ASSUMING DILUTION $ 0.23 $ 0.21 $ 0.71 $ 0.14
================ =========== ================ ============
DIVIDENDS PER COMMON SHARE $ 0.100 $ 0.035 $ 0.185 $ 0.105
================ =========== ================ ============
The accompanying notes are an integral part of the
condensed consolidated financial statements.
3
FORT BEND HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
NINE MONTHS
ENDED
DECEMBER 31,
1997 1996
OPERATING ACTIVITIES:
Net income $ 1,514,005 $ 244,056
Adjustments to reconcile net income to net cash used in operating activities:
Provision for losses on loans and real estate 77,980 128,000
Depreciation 417,247 236,600
Compensation charge related to release of ESOP shares 438,202 101,785
Amortization of loan premium, discount, and deferred fees, net (409,284) (582,090)
Amortization of goodwill 69,796 28,996
Amortization of mortgage servicing rights 1,173,738 247,865
Minority interest in income of consolidated subsidiary 337,034 ---
Gain on sales of real estate (45,931) (31,087)
Gain on sales of loans, net (561,763) (197,536)
Dividends on Federal Home Loan Bank stock (65,700) (75,700)
Origination of loans held for sale (52,892,457) (10,347,663)
Proceeds from sales of loans 45,769,457 11,170,915
Change in prepaid expenses and other assets 527,628 (1,358,560)
Change in accounts payable, accrued expenses and other liabilities 744,291 19,127
Other, net 75,451 (149,585)
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NET CASH USED IN OPERATING ACTIVITIES (2,830,306) (564,877)
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INVESTING ACTIVITIES:
Purchase of investment securities available for sale (98,403) (89,035)
Purchase of investment securities held to maturity (1,991,953) (22,981,432)
Proceeds from maturities of investment securities held to maturity 3,000,000 21,000,000
Principal collected on mortgage-backed securities 10,306,756 9,556,865
Net increase in loans receivable (7,296,287) (11,094,936)
Purchase of premises and equipment (265,409) (402,228)
Purchase or origination of mortgage servicing rights (848,669) (1,586,166)
Improvements to real estate (14,102) ---
Proceeds from sale of real estate 203,372 37,233
Proceeds from redemption of Federal Home Loan Bank stock 511,700 ---
Net cash acquired in acquisition --- 3,541,250
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 3,507,005 (2,018,449)
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FINANCING ACTIVITIES:
Net increase in deposits 5,508,254 8,033,195
Payments on long-term borrowings (38,999) (36,659)
Decrease in advances from borrowers for taxes and insurance (464,598) (800,779)
Net proceeds from issuance of common stock 67,265 20,026
Dividends paid to minority stockholder (202,370) ---
Dividends paid (307,284) (172,031)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 4,562,268 7,043,752
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NET INCREASE IN CASH AND CASH EQUIVALENTS 5,238,967 4,460,426
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 20,790,191 17,193,662
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 26,029,158 $ 21,654,088
=============== =============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Real estate acquired in settlement of loans $ 72,899 $ 2,171,099
Loans originated related to sales of real estate 240,000 182,000
The accompanying notes are an integral part of the
condensed consolidated financial statements.
4
FINANCIAL STATEMENTS, CONTINUED
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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1. BASIS OF PRESENTATION
The unaudited information as of December 31, 1997 and for the three and
nine months ended December 31, 1997 and 1996 includes the results of
operations of Fort Bend Holding Corp. (the "Holding Corp.") and its wholly-
owned subsidiary Fort Bend Federal Savings and Loan Association of
Rosenberg (the "Association"). The Association's financial statements
include its 51% owned subsidiary Mitchell Mortgage Company, L.L.C.
("Mitchell") (see Note 3). In the opinion of management, the information
reflects all adjustments (consisting only of normal recurring adjustments)
which are necessary for a fair presentation of the results of operations
for such periods but should not be considered as indicative of results for
a full year.
The March 31, 1997 condensed consolidated statement of financial condition
data was derived from the audited financial statements, but does not
include all disclosures required by generally accepted accounting
principles. Accordingly, the condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial
statements.
2. COMMON STOCK SPLIT
On August 21, 1997, the Board of Directors declared a two-for-one stock
split in the form of a 100% stock dividend payable October 1, 1997 to
shareholders of record on September 11, 1997. The effect of the split is
presented retroactively within stockholders' equity by transferring the par
value for the additional shares issued from the additional paid-in capital
account to the common stock account.
All share and per share data, including conversion price, recognition and
retention plan and convertible subordinated debenture information, has been
retroactively restated to reflect the stock split.
3. BUSINESS COMBINATION
On January 2, 1997 the Association executed an agreement with The Woodlands
Corporation to acquire a controlling interest in Mitchell, a new limited
liability company. Mitchell was formed for the purpose of engaging in the
mortgage banking business, including the origination and servicing of
single-family purchase loans, single-family construction loans and
commercial and multifamily real estate loans. The Woodlands Corporation
contributed certain mortgage loans and its mortgage servicing portfolio and
liabilities of its wholly-owned mortgage banking subsidiary, Mitchell
Mortgage Company ("Old Mitchell"), in exchange for a 49% ownership interest
in Mitchell and the Association contributed cash of approximately $2.6
million in exchange for a 51% ownership interest in Mitchell. In
connection with the transaction, Old Mitchell (and The Woodlands
Corporation, as successor) was granted an option to convert, upon the
occurrence of certain events, its ownership interest in Mitchell into
shares of the common stock of the Company, at a rate of 82.304 shares for
each $1,000 of ownership interest in Mitchell, or $12.15 per share, in an
amount not to exceed 9.9% of the Company's outstanding common stock. Any
amount that would otherwise be required to be issued exceeding 9.9% of the
Company's outstanding common stock would be paid in cash. The option
becomes exercisable on January 2, 1999 and expires on January 2, 2002.
5
FINANCIAL STATEMENTS, CONTINUED
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
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The Association has guaranteed Mitchell's performance with the Government
National Mortgage Association and has insured that Mitchell will maintain a
required minimum net worth or the Association will infuse additional
capital to cure any deficiency.
4. RECOGNITION AND RETENTION PLAN
The Holding Corp. has a Recognition and Retention Plan ("RRP") as a method
of providing key officers with a proprietary interest in the Holding Corp.
in a manner designed to encourage such individuals to remain with the
Holding Corp. or the Association. All outstanding awards vest at a rate of
20% per year. On April 1, 1997, an additional 5,200 shares were granted
under the RRP. A total of 52,650 shares have been authorized of which
48,904 shares had been granted under the RRP as of December 31, 1997.
5. NON-PERFORMING ASSETS
Impaired loans decreased $6,000 during the three months ended December 31,
1997 and $143,000 during the nine months ended December 31, 1997. The
decline resulted from the payoff of one commercial loan and loan
amortization from scheduled payments made on two loans, partially offset
by an increase in a third loan reflecting a loan modification and partial
capitalization of interest due. Each of these loans was previously
classified as impaired. Foreclosed assets decreased $282,000 during the
nine months ended December 31, 1997, which primarily reflected the sale of
a single-family house and a commercial property.
The following table summarizes impaired loan information as of December 31,
1997.
Impaired loans $664,532
Impaired loans net of a specific reserve of $111,300
for loan losses calculated under SFAS 114 $271,063
Impaired loans which do not have a specific
reserve for loan losses calculated under
SFAS 114 $393,469
6
FINANCIAL STATEMENTS, CONTINUED
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
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6. CONVERTIBLE SUBORDINATED DEBENTURES AND OTHER BORROWINGS
Borrowings at December 31, 1997 included a $4.0 million advance from the
Federal Home Loan Bank of Dallas bearing interest at a rate of 6.205%
amortizing based on a 30 year term and maturing on June 20, 2000. The
advance is collateralized by mortgage-backed securities and had a balance
of $3,880,552 at December 31, 1997. Borrowings also included an ESOP loan
with a balance of $118,078 at December 31, 1997 with principal payments due
each June 30 and December 31 and maturing June 30, 2001.
The following is a schedule by fiscal year of future principal payments
required under the amortizing advance agreement and the ESOP loan:
FHLB
Advance ESOP Loan
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1998 $ 13,407 $ ---
1999 55,752 87,750
2000 59,312 30,328
2001 3,752,081
In December 1995, the Holding Corp. issued $12.1 million of 8% Convertible
Subordinated Debentures due December 1, 2005. Interest is payable June 1
and December 1 of each year through maturity. The debentures are
convertible at any time prior to maturity at the rate of 92.592 shares of
common stock for each $1,000 of principal or $10.80 per share. Total shares
issuable with the conversion of the debentures was 1,108,326 at December
31, 1997. The debentures may be redeemed at the option of the Holding
Corp., in whole or in part, at any time on or after December 1, 1998.
During the three and nine months ended December 31, 1997, debenture holders
converted debentures with a principal balance of $50,000 and $110,000,
respectively. There were no conversions in the corresponding periods in
fiscal 1997.
7. EARNINGS PER COMMON SHARE
In December 1997, FBHC adopted the provisions of Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("Statement 128").
Statement 128 specifies the computation, presentation, and disclosure
requirements for earnings per share for entities with publicly held common
stock. It replaces the presentation of primary earnings per share with a
presentation of earnings per common share and fully diluted earnings per
share with earnings per common share - assuming dilution. All earnings per
share data is stated to reflect the adoption of Statement 128.
7
FINANCIAL STATEMENTS, CONTINUED
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
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The following table reconciles earnings per common share to earnings per common
share-assuming dilution.
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
EARNINGS PER COMMON SHARE
Net income applicable to common stock $ 491,521 $ 417,168 $ 1,514,005 $ 244,056
Weighted average number of common
shares outstanding 1,665,253 1,639,958 1,658,080 1,638,919
----------- ----------- ----------- -----------
Earnings per common share $ 0.30 $ 0.25 $ 0.91 $ 0.15
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE-ASSUMING DILUTION (b)
Net income applicable to common stock $ 491,521 $ 417,168 $ 1,514,005 $ 244,056
Effect of dilutive securities:
Interest on 8% convertible debentures, net of tax 170,394 172,991 515,452 (a)
----------- ----------- ----------- -----------
Net income, adjusted $ 661,915 $ 590,159 $ 2,029,457 $ 244,056
=========== =========== =========== ===========
Weighted average common shares outstanding 1,665,253 1,639,958 1,658,080 1,638,919
Effect of dilutive securities:
Weighted average common shares issuable
under the employee stock option plan 115,880 59,563 93,224 48,879
Weighted average common shares issuable with the
conversion of the 8% convertible debentures to
common stock 1,110,677 1,120,364 1,112,847 (a)
----------- ----------- ----------- -----------
Weighted average common shares, adjusted 2,891,810 2,819,885 2,864,151 1,687,798
=========== =========== =========== ===========
Earnings per common share-assuming dilution $ 0.23 $ 0.21 $ 0.71 $ 0.14
=========== =========== =========== ===========
(a) The assumed conversion of the 8% convertible debentures has an antidilutive
effect on earnings per share for the nine months ended December 31, 1996.
Thus, it is excluded from the calculation of earnings per common share-
assuming dilution.
(b) The assumed conversion of the minority ownership interest in Mitchell into
shares of common stock (see Note 3) has an antidilutive effect on earnings
per share. Thus, it is excluded from the calculation of earnings per share-
assuming dilution.
8
FINANCIAL STATEMENTS, CONTINUED
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
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8. SUBSEQUENT EVENTS
On January 21, 1998, the Holding Corp. declared a cash dividend of $.10 per
share payable on March 4, 1998 to shareholders of record on February 11,
1998.
9
ITEM 2.
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Management's Discussion and Analysis of Financial Condition And Results Of
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Operations
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GENERAL
Fort Bend Holding Corp. (the "Holding Corp.") was incorporated under the laws of
the State of Delaware to become a savings and loan holding company with Fort
Bend Federal Savings and Loan Association of Rosenberg (the "Association") as
its subsidiary. The Holding Corp. was incorporated at the direction of the
Board of Directors of the Association, and on June 30, 1993 acquired all of the
capital stock of the Association upon its conversion from mutual to stock form
(the "Conversion"). Prior to the Conversion, the Holding Corp. did not engage
in any material operations and at December 31, 1997, it had no significant
assets or liabilities other than the investment in the capital stock of the
Association, investment securities, deferred charges from the subordinated
debenture issue, cash and cash equivalents and the subordinated debentures. In
January, 1997 the Association acquired, and has consolidated in its financial
statements, a 51% interest in Mitchell Mortgage Company, L.L.C. ("Mitchell").
Unless the context otherwise requires, all references herein to the Holding
Corp. include the Holding Corp. and the Association on a consolidated basis.
The Association is principally engaged in the business of attracting retail
savings deposits from the general public and investing those funds in first
mortgage loans on owner occupied, single-family residences, mortgage-backed
securities and investment securities. The Association originates residential,
construction and commercial real estate loans. The Association also originates
consumer loans, including loans for the purchase of automobiles and home
improvement loans. Mitchell engages in similar lending activities with an
emphasis on construction and multifamily lending and loan servicing.
The most significant outside factors influencing the operations of the
Association and other banks and savings institutions include general economic
conditions, competition in the local market place and the related monetary and
fiscal policies of agencies that regulate financial institutions. More
specifically, the cost of funds, primarily consisting of deposits, is influenced
by interest rates offered on competing investments and general market rates of
interest. Lending activities are influenced by the demand for real estate
financing and other types of loans, which in turn is affected by the interest
rates at which such loans may be offered and other factors affecting loan demand
and funds availability.
In November 1997, home equity lending was approved in Texas. Beginning in
January 1998, the Association is able to lend on the equity in homesteads in
Texas. There seems to be customer interest in home equity lending and the
Association has implemented a home equity lending program. Management can not
presently estimate what effect home equity lending will have on operations.
In order to continue to meet the financial services needs of the communities it
serves, the Association intends to grow in a reasonable, prudent manner which
may include expansion of the branch network or the acquisition of other
financial institutions and related companies operating generally within a 100
mile radius of Rosenberg, Texas. As a part of this intended growth, the
Association has increased the portfolio allocation of single-family
construction lending, commercial real estate lending and consumer lending,
including the origination of speculative loans to qualified builders.
Residential construction loans to owner-occupants are generally underwritten
using the same criteria as for one- to four-family residential loans. Loan
proceeds are disbursed in increments as construction progresses and inspections
warrant. Two additional branch offices were added during fiscal 1997 which
management believes has resulted in the expansion of the Association's core
deposit base and lending activities. On December 17, 1997, the Association
received approval, from the Office of Thrift Supervision, to open a new branch
in The Woodlands, Texas. The branch facility initially will be located in the
offices of Mitchell and is expected to open in the first quarter of fiscal 1999.
10
ITEM 2.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
--------------------------------------------------------------------------
OPERATIONS
----------
Continued
---------
Loan servicing has been one of the stable income providers for the Association
and will continue to be expanded, to the extent possible, through the retention
of servicing for loans originated and sold into the secondary market, as well as
through the purchase of mortgage servicing rights, to the extent deemed
appropriate (and subject to market conditions at the time). At December 31,
1997, the Association serviced approximately $277 million of loans for others
and Mitchell serviced approximately $582 million of loans for others for a total
of $859 million of loans serviced for others. Management believes purchases of
loan servicing rights may allow the Holding Corp. to take advantage of some
economies of scale related to servicing.
Interest rates have decreased slightly subsequent to March 31, 1997. The
impact of these changes may be a higher volume of permanent single-family
lending activity. It is difficult to determine the impact of changing interest
rates on the net interest margin. The Association's one year interest
sensitivity gap was a positive 13.60% at December 31, 1997. A positive gap
indicates there are more interest-earning assets repricing during a stated
period than interest-bearing liabilities, potentially resulting in an increase
in the spread on such assets and liabilities in a rising rate environment and a
decrease in the spread in a declining rate environment. A negative gap would
have the opposite effect.
At December 31, 1997, the Holding Corp. had unrealized gains and losses in its
investment securities and mortgage-backed securities which are being held to
maturity. The Holding Corp. has both the intent and ability to hold these
securities until maturity. Management believes the Holding Corp. will be able
to collect all amounts due according to the contractual terms of the debt
securities and is not aware of any information that would indicate the inability
of any issuer of such securities to make contractual payments in a timely
manner. Therefore, management believes that none of the unrealized losses
should be considered other than temporary.
Most of the mortgage-backed securities are agency securities and are either
guaranteed by the full faith and credit of the United States Government (GNMA)
or are insured by a Government Sponsored Enterprise (FNMA or FHLMC). Private
issue mortgage-backed securities consist of the "A" piece of "A-B" structured
securities where the "B" piece is subordinate to the "A" piece and which were
initially rated one of the two highest categories by one or more of the rating
agencies. Most of these securities have pool insurance and/or reserve funds
in addition to the subordination of the "B" piece. Collateral for these
securities is whole mortgage loans. None of these securities are considered
"high risk" as defined by the Office of Thrift Supervision and none have failed
to pass the Federal Financial Institution Examination Council (FFIEC)
mandatory test for "high risk" securities. The Association does not invest in
"high risk" securities.
The management of the investment portfolio is not designed to be the primary
source of funds for the Association's operations. Rather, it is viewed as a use
of funds generated by the Association to be invested in interest-earning
assets to be held to maturity. Cash flow mismatches between sources and uses of
funds should not require any of the securities to be liquidated. While cash
flows from the securities vary depending on the prepayment speeds associated
with each particular security, the variance in the prepayment speeds does not
impact the over-all cash flow requirements of the Association since the
Association has the ability to borrow funds from the Federal Home Loan Bank of
Dallas. As of December 31, 1997, the Association had the ability to borrow up
to an additional $147 million from the Federal Home Loan Bank of Dallas if cash
flow requirements cannot be met by attracting deposits from its customer base
(its primary source of funds) or from repayment of loans and other sources.
11
ITEM 2.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
--------------------------------------------------------------------------
OPERATIONS
----------
Continued
---------
The following schedule provides detail of the investment securities and the
mortgage-backed securities portfolio which are held to maturity, along with the
related unrealized gains and losses, at December 31, 1997 and March 31, 1997.
12
SCHEDULE OF INVESTMENT AND MORTGAGE-BACKED SECURITIES
HELD TO MATURITY
DECEMBER 31, 1997
--------------------------------------------------- MARCH 31, 1997
UNREALIZED ------------------------------
BOOK MARKET --------------------- BOOK MARKET
TYPE OF SECURITY VALUE VALUE GAINS LOSSES VALUE VALUE
------------ ------------ --------- --------- ------------ ------------
INVESTMENT SECURITIES:
U.S. Treasury Notes $ 998,150 $ 1,007,461 $ 9,311 $ --- $ 999,218 $ 999,766
World Bank Bond &
FHLB Debentures 5,247,752 4,991,964 6,112 261,900 7,240,703 6,917,342
FNMA & FHLMC Debentures 3,995,375 3,957,227 8,788 46,936 2,994,842 2,872,332
------------ ------------ --------- --------- ------------ ------------
TOTAL HELD TO MATURITY $ 10,241,277 $ 9,956,652 $ 24,211 $ 308,836 $ 11,234,763 $ 10,789,440
------------ ------------ --------- --------- ------------ ------------
MORTGAGE-BACKED SECURITIES:
FNMA
Fixed $ 8,738,571 $ 9,090,946 $ 359,111 $ 6,736 $ 9,646,216 $ 9,933,315
Adjustable 12,617,783 12,588,654 77,508 106,637 14,146,181 14,002,041
FHLMC
Fixed 4,252,845 4,339,613 92,996 6,228 5,564,950 5,624,926
Adjustable 13,674,222 13,636,256 96,624 134,590 15,339,418 15,171,045
GNMA
Fixed 2,074,570 2,191,676 117,106 --- 2,378,421 2,462,218
Adjustable 5,736,916 5,841,680 104,764 --- 6,709,957 6,795,714
Private Issue
Adjustable 3,228,587 3,215,811 9,117 21,893 3,858,558 3,842,010
CMO
Fixed
FNMA 11,423,439 11,399,524 15,108 39,023 11,898,545 11,768,345
FHLMC 9,965,533 9,963,981 23,439 24,991 11,258,437 11,147,713
Private 3,205,164 3,244,516 42,418 3,066 3,796,851 3,819,229
Adjustable
FNMA 2,935,030 2,824,768 10,694 120,956 2,934,718 2,828,209
FHLMC 6,639,521 6,402,849 7,283 243,955 6,826,509 6,604,949
Private 2,390,267 2,351,165 --- 39,102 2,725,740 2,684,716
------------ ------------ --------- --------- ------------ ------------
TOTAL HELD TO MATURITY $ 86,882,448 $ 87,091,439 $ 956,168 $ 747,177 $ 97,084,501 $ 96,684,430
------------ ------------ --------- --------- ------------ ------------
MARCH 31, 1997
-----------------------
UNREALIZED
-----------------------
TYPE OF SECURITY GAINS LOSSES
--------- -----------
INVESTMENT SECURITIES:
U.S. Treasury Notes $ 548 $ ---
World Bank Bond &
FHLB Debentures 4,920 328,281
FNMA & FHLMC Debentures -- 122,510
--------- -----------
TOTAL HELD TO MATURITY $ 5,468 $ 450,791
--------- -----------
MORTGAGE-BACKED SECURITIES:
FNMA
Fixed $ 322,154 $ 35,055
Adjustable 77,136 221,276
FHLMC
Fixed 81,704 21,728
Adjustable 107,024 275,397
GNMA
Fixed 83,797 ---
Adjustable 90,650 4,893
Private Issue
Adjustable 9,025 25,573
CMO
Fixed
FNMA 10,269 140,469
FHLMC 23,595 134,319
Private 26,276 3,898
Adjustable
FNMA 1,391 107,900
FHLMC 20,569 242,129
Private --- 41,024
--------- -----------
TOTAL HELD TO MATURITY $ 853,590 $ 1,253,661
--------- -----------
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
--------------------------------------------------------------------------
OPERATIONS
----------
Continued
---------
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Holding
Corp.'s computer programs that have date-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations including,
among other things, a temporary inability to process transactions or engage in
normal business activities.
The Holding Corp. outsources is primary data processing functions. To date, the
Holding Corp. has solicited confirmations from its primary vendors that plans
have been developed by them to address and correct the issues associated with
the Year 2000. The Holding Corp. has established a management committee to
identify all of its functions potentially affected by the Year 2000 and to
ensure that re-programming of the affected systems will be completed by December
31, 1998, thus allowing adequate time for testing. Management believes
that, with modifications to existing software and conversions to new software,
the Year 2000 issue will not pose a significant operational problem for the
Holding Corp. However, because most computer systems are, by their very nature,
interdependent, it is possible that non-compliant third party computers could
"reinfect" the Holding Corp.'s computer systems. The Holding Corp. could be
adversely affected by the Year 2000 issue if it or unrelated parties fail to
successfully address this issue.
FORWARD-LOOKING STATEMENTS
When used in this Form 10-QSB, the words or phrases "will likely result", "are
expected to", "will continue", "is anticipated", "estimate", "project" or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties including changes in
economic conditions in the Holding Corp.'s market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the
Holding Corp.'s market area and competition, that could cause actual results to
differ materially from historical earnings and those presently anticipated or
projected. The Holding Corp. wishes to caution readers not to place undue
reliance on any such forward-looking statements, which speak only as of the date
made. The Holding Corp. wishes to advise readers that the factors listed above
could affect the Holding Corp.'s financial performance and could cause the
Holding Corp.'s actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.
The Holding Corp. does not undertake--and specifically disclaims any obligation
- --to publicly release the results of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
--------------------------------------------------------------------------
OPERATIONS
----------
Continued
---------
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
The Holding Corp. had net income of $492,000 or $0.30 earnings per common share
and $0.23 earnings per common share - assuming dilution for the three months
ended December 31, 1997 compared to net income of $417,000 or $0.25 earnings per
common share and $0.21 earnings per common share - assuming dilution for the
same period in fiscal 1997.
Net interest income, before provision for loan losses, increased $389,000 to
$2.3 million during the three months ended December 31, 1997. Interest income
increased $560,000 to $5.4 million and primarily reflected a $31.7 million
increase in the average balance of interest-earning assets, partially offset by
a decrease of .08% in the average yield on interest-earning assets to 7.47% for
the three months ended December 31, 1997 compared to 7.55% for the three months
ended December 31, 1996. An increase of $30.5 million in the average balance of
loans receivable and $15.7 million in investments, partially offset by a
decrease of $14.1 million in mortgage-backed securities, contributed to the
increase in interest-earning assets. The increase in the average loan
balance reflected approximately $29 million from the Mitchell loan portfolio, of
which $18.2 million were construction loans. The decrease in average yield
reflected a decrease in yields on loans receivable of .19% to 8.41% for the
three months ended December 31, 1997 compared to 8.60% for the three months
ended December 31, 1996. This decrease was partially offset by the reinvestment
of principal repayments on mortgage-backed securities with an average rate of
6.59% into portfolio loans with an average rate of 8.41%.
Interest expense increased $172,000 and primarily reflected an increase of $9.8
million in the average balance of interest-bearing liabilities. Average
deposits increased $10.1 million reflecting the escrow deposits of Mitchell and
average borrowings decreased $311,000 primarily reflecting a decrease in the
ESOP loan and subordinated debt of $153,000 and $107,000, respectively. The
average rate paid on interest-bearing liabilities increased to 4.89% for the
three months ended December 31, 1997 compared to 4.80% for the three months
ended December 31, 1996. The increase primarily reflected an 0.11% increase in
the average rate paid on deposits to 4.68%.
No provision for loan losses was recorded for the three months ended December
31, 1997. Management determines the amount of the allowance for loan losses
which covers specific loans as well as estimated losses inherent in the loan
portfolio. The level of the allowance is based on such factors as the amount of
non-performing assets, historical loss experience, regulatory policies, general
economic conditions, the estimated fair value of the underlying collateral and
other factors related to the collectibility of the loans. The allowance for
loan losses at December 31, 1997 was $1,610,000 or 114% of total non-performing
assets. Management reviews the asset quality of the loan portfolio on a
quarterly basis. See "Asset Quality" for a further discussion of the allowance
for loan losses and the Association's non-performing assets at December 31,
1997.
Non-interest income increased $1.3 million to $2.0 million for the three months
ended December 31, 1997 compared to $720,000 for the same period in fiscal 1997.
The increase reflects an increase in loan fees and charges of $790,000 to
$951,000 which primarily reflected $791,000 of fees included from Mitchell.
Loan servicing income increased $240,000 to $353,000 for the three months ended
December 31, 1997 compared to $113,000 for the same period in fiscal 1997. This
increase primarily reflects an increase of $562 million in loans serviced for
others to $859 million at December 31, 1997 compared to $297 million at
December 31,
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
--------------------------------------------------------------------------
OPERATIONS
----------
Continued
---------
1996. Mitchell's loan servicing portfolio was $582 million at December 31,
1997. Gain on sale of loans increased $217,000 and primarily reflected $224,000
of gains from Mitchell.
Non-interest expense increased $1.4 million to $3.3 million for the three months
ended December 31, 1997 compared to $1.9 million for the same period in fiscal
1997. This increase reflects an increase in compensation and benefits of
$941,000 primarily as a result of the additional personnel from the
acquisition of Mitchell and normal salary increases within the Association.
Also contributing to the increase in compensation and benefits is the
appreciation in the market value of ESOP shares released from collateral on the
ESOP debt. The non-cash pretax charge to earnings for the appreciation in
shares released under the ESOP increased $100,000 to $149,000, which represents
$0.09 earnings per common share outstanding and $0.05 earnings per common share
- - assuming dilution, for the three months ended December 31, 1997 compared to
$49,000 for the same period in fiscal 1997. The increase is primarily
attributable to an increase in the number of shares released and an increase in
FBHC's stock price to $21.75 per share at December 31, 1997 compared to $12.75
per share at December 31, 1996. The cost basis to the ESOP is $5.00 per share.
Office occupancy increased $157,000 to $448,000 for the three months ended
December 31, 1997 compared to $291,000 for the same period in fiscal
year 1997 and primarily reflected Mitchell's occupancy expense of
$155,000.
Income tax provision was $264,000 for the three months ended December 31, 1997
compared to $176,000 for the same period in fiscal 1997. The increase primarily
reflected the increase in income before tax.
COMPARISON OF NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996
The Holding Corp. had net income of $1.5 million or $0.91 earnings per common
share and $0.71 earnings per common share - assuming dilution for the nine
months ended December 31, 1997 compared to net income of $244,000 or $0.15
earnings per common share and $0.14 per common share - assuming dilution for the
same period in fiscal 1997.
Net interest income, before provision for loan losses, increased $1.7 million to
$7.0 million during the nine months ended December 31, 1997, compared to the
same period in fiscal 1997. Interest income increased $2.6 million and
primarily reflected an increase of $41.0 million in the average balance of
interest-earning assets and an increase of .11% in the average yield on
interest-earning assets to 7.61% for the nine months ended December 31, 1997
compared to 7.50% for the nine months ended December 31, 1996. An increase of
$41.0 million in the average balance of loans receivable and $14.0 million in
investments, partially offset by a decrease of $13.8 million in mortgage-backed
securities, contributed to the increase in interest-earning assets. The
increase in the average loan balance reflected approximately $26 million from
the Mitchell loan portfolio, of which $16.4 million were construction loans.
The remaining increase reflected the increase in the Association's portfolio
including loans acquired through the August, 1996 acquisition of FirstBanc
Savings Association of Texas ("FirstBanc") which initially added approximately
$20 million. The increase in average yield reflected the reinvestment of
principal repayments on mortgage-backed securities with an average rate of 6.61%
into portfolio loans with an average rate of 8.76%.
Interest expense increased approximately $835,000 and primarily reflected an
increase of $23.0 million in the average balance of interest-bearing
liabilities. Average deposits increased $23.7 million, primarily reflecting
Mitchell's escrow deposits and the acquisition of FirstBanc, and average
borrowings decreased $710,000, primarily reflecting a decrease in Federal Home
Loan Bank advances, the ESOP loan and subordinated debt of
16
Management's Discussion and Analysis of Financial Condition And Results Of
--------------------------------------------------------------------------
Operations
----------
Continued
---------
$495,000, $131,000, and $84,000, respectively. The average rate paid on
interest-bearing liabilities remained constant at 4.85% for the nine months
ended December 31, 1997 and December 31, 1996.
A provision for loan losses of $78,000 was recorded for the nine months ended
December 31, 1997 compared to $128,000 for the nine months ended December 31,
1996. Management determines the amount of the allowance for loan losses which
covers specific loans as well as estimated losses inherent in the loan
portfolio. The level of the allowance is based on such factors as the amount of
non-performing assets, historical loss experience, regulatory policies, general
economic conditions, the estimated fair value of the underlying collateral and
other factors related to the collectibility of the loans. The allowance for
loan losses at December 31, 1997 was $1,610,000 or 114% of total non-performing
assets. Management reviews the asset quality of the loan portfolio on a
quarterly basis.
Non-interest income increased $3.1 million to $5.0 million for the nine months
ended December 31, 1997 compared to $1.9 million for the same period in fiscal
1997. The increase was primarily due to an increase in loan fees and charges of
$2.0 million to $2.4 million which reflected $1.9 million of fees included from
Mitchell for the nine months ended December 31, 1997. Loan servicing income
increased $597,000 to $926,000 for the nine months ended December 31, 1997
compared to $329,000 for the same period in fiscal 1997. This increase
primarily reflected an increase of $562 million in loans serviced for others to
$859 million at December 31, 1997 compared to $297 million at December 31, 1996.
Mitchell's loan servicing portfolio was $582 million at December 31, 1997. Gain
on sale of loans increased $364,000 which reflected $321,000 of gains from
Mitchell.
Non-interest expense increased $2.6 million to $9.3 million for the nine months
ended December 31, 1997 compared to $6.7 million for the same period in fiscal
1997. Compensation and benefits increased $2.7 million and primarily reflected
additional personnel retained from the acquisitions of FirstBanc and Mitchell
and normal salary increases within the Association. Also contributing to the
increase in compensation and benefits is the appreciation in the market value of
ESOP shares released from collateral on the ESOP debt. The non-cash pretax
charge to earnings for the appreciation in shares released under the ESOP
increased $300,000 to $383,000, which represents $0.23 per common share
outstanding and $0.13 per common share outstanding - assuming dilution, for the
nine months ended December 31, 1997 compared to $83,000 for the same period in
fiscal 1997. The increase is primarily attributable to an increase in the
number of shares released and an increase in Fort Bend Holding Corp.'s stock
price to $21.75 per share at December 31, 1997 compared to $12.75 per share at
December 31, 1996. The cost to the ESOP is $5.00 per share. Office occupancy
increased $610,000 to $1.3 million for the nine months ended December 31, 1997
compared to $721,000 for the same period in fiscal year 1997 and primarily
reflects Mitchell's occupancy expense of $451,000. In addition, the Association
experienced an increase of $89,000 in depreciation, $48,000 in rent and
utilities and $25,000 in telephone expense associated with the addition of the
new branch in Katy, Texas and the acquisition of FirstBanc. Other expenses
increased $762,000 to $1.8 million for the nine months ended December 31, 1997
compared to $1.1 million for the same period in fiscal 1997. The increase was
primarily due to expenses of Mitchell of $588,000, the largest of which was
credit report and appraisal fees of $139,000. Partially offsetting these
increased expenses is the one time Savings Association Insurance Fund assessment
of $1.5 million recorded on September 30, 1996 with no similar charge recorded
in fiscal 1998.
Income tax provision was $811,000 for the nine months ended December 31, 1997
compared to $64,000 for the same period in fiscal 1996. The increase primarily
reflected the increase in income before tax.
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
--------------------------------------------------------------------------
OPERATIONS
----------
Continued
---------
ASSET/LIABILITY MANAGEMENT
The Holding Corp. attempts to maximize net interest income by achieving a
positive interest rate spread that can be sustained during fluctuations in
prevailing interest rates. The Holding Corp.'s policies are designed to reduce
the impact of changes in interest rates on its net interest income by
maintaining a favorable match between the maturities or repricing dates of its
interest-earning assets and interest-bearing liabilities (interest
sensitivity gap). The Holding Corp. has implemented these policies by
generally selling long-term fixed rate mortgage loan originations, retaining its
adjustable rate mortgage and construction loans, originating and retaining
short-term consumer loans and purchasing adjustable rate or short-term maturity
loans. Through Mitchell, fixed rate commercial real estate loans are originated
and sold in the secondary market. Servicing is retained on most of these loans.
As a result of these policies, the Holding Corp.'s cumulative one year
interest sensitivity gap at December 31, 1997 was a positive 13.60%. Changes
in interest rates, prepayments rates and early withdrawal levels will affect the
interest sensitivity gap of the Holding Corp.
ASSET QUALITY
The allowance for loan losses is established through a provision for loan losses
based on management's quarterly asset classification review and evaluation of
the risk inherent in its loan portfolio and changes in the nature and volume of
its loan activity.
As a result of this review process, management recorded no additional provision
for loan losses during the three months ended December 31, 1997 and a $78,000
provision for the nine months ended December 31, 1997. Net charge-offs for the
nine months ended December 31, 1997 totaled $119,000, attributed primarily to
one commercial real estate loan, of which $62,000 was charged off and the
balance of $425,000 was paid off, and the charge off of one unsecured consumer
loan acquired in the FirstBanc acquisition. The Association's allowance for
loan losses decreased to $1,610,000 or 1.09% of total loans at December 31,
1997, compared to $1,701,000 or 1.22% of total loans at March 31, 1997. While
management believes it uses the best information available to make
determinations regarding the adequacy of the allowance, there is no assurance
that the subsequent evaluations of the loan portfolio may not require additional
provisions for loan losses.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
Continued
---------
The non-performing assets to total assets ratio is one indicator of the exposure
to credit risk. Non-performing assets of the Association consist of non-
accruing loans, troubled debt restructurings, and real estate which was acquired
as a result of foreclosure. The following table summarizes the various
categories of the Association's non-performing assets.
December 31, March 31,
1997 1997
Non-accruing loans $ 781,513 $ 489,251
Troubled debt restructurings 553,233 405,097
Foreclosed assets 75,586 357,880
---------- ----------
Total non-performing assets $1,410,332 $1,252,228
========== ==========
Total non-performing assets as a
percentage of total assets 0.47% 0.42%
Total non-performing assets increased $158,000 for the nine months ended
December 31, 1997. The increase in nonaccrual loans is primarily the result of
a $292,000 increase in residential loans and a $161,000 increase in consumer
loans over 90 days delinquent. The residential loan increase includes two loans
held by Mitchell, one of which has a corporate guarantee against loss, with the
remainder consisting of Fort Bend Federal loans. This increase was partially
offset by the transfer of a $275,000 commercial real estate loan from non-
accrual to troubled debt restructurings. A specific reserve of $111,000 was set
up against this loan balance at the date of the transfer to troubled debt
restructurings. The decrease in foreclosed assets was primarily the result of
the sale of a single-family residence and a commercial real estate property,
which totaled $323,000.
At December 31, 1997, foreclosed assets consisted of one single-family house and
a 5% participation held by Mitchell in 28 residential lots and one condominium
in Galveston. All of the Mitchell foreclosed assets are being marketed for
sale. The single-family house is currently under repair and will be marketed
upon completion.
LIQUIDITY AND CAPITAL RESOURCES
The Association's primary sources of funds are deposits, sales of mortgage
loans, principal and interest payments on loans and mortgage-backed securities,
borrowings and funds provided by operations. While scheduled loan and mortgage-
backed securities principal repayments are a relatively predictable source of
funds, deposit flows, prepayments of loan and mortgage-backed securities
principal, and sales of mortgage loans are greatly influenced by general
interest rates, economic conditions, and competition. Current Office of Thrift
Supervision ("OTS") regulations require the Association to maintain cash and
eligible investments in an amount equal to at least 4% of customer accounts and
short-term borrowings to assure its ability to meet demands for withdrawals and
repayment of short-term borrowings. As of December 31, 1997, the Association's
liquidity ratio was 14.28%, which was in excess of the minimum regulatory
requirements of 4.00%.
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
--------------------------------------------------------------------------
OPERATIONS
----------
Continued
---------
During the nine months ended December 31, 1997, total deposits increased
approximately $5.5 million. This increase primarily reflects the addition of
two branches in fiscal 1997 that have contributed to the expansion of the
Association's core deposit base.
The Association uses its capital resources principally to meet its ongoing
commitments to fund maturing certificates of deposit and loan commitments,
maintain its liquidity and meet operating expenses. At December 31, 1997, the
Association had commitments to originate loans totaling $14.2 million. The
Association considers its liquidity and capital resources to be adequate to meet
its foreseeable short- and long-term needs. The Association expects to be able
to fund or refinance, on a timely basis, its material commitments and long-term
liabilities.
During the nine months ended December 31, 1997, borrowings from the Federal
Home Loan Bank of Dallas decreased $39,000 and ESOP debt decreased $189,000.
It is anticipated that the amount of outstanding borrowings will fluctuate
during the 1998 fiscal year depending upon cash flows from the various sources
of funds and financing to be provided to Mitchell .
On January 21, 1998 the Holding Corp. declared a cash dividend of $0.10 per
share payable on March 4, 1998 to the shareholders of record on February 11,
1998.
The Association is required to maintain specific amounts of regulatory capital
pursuant to regulations of the OTS. As of June 5, 1997, the Association was
notified by the OTS that based on its reported capital position, the Association
is considered to be "well capitalized" in accordance with the Prompt Corrective
Action provision of Section 38 of the Federal Deposit Insurance Act. The
table below presents the Association's capital position at December 31,
1997 relative to the existing regulatory capital requirements. Such
requirements may increase if proposed capital regulations are implemented.
Management believes the Association will meet the requirements of the proposed
capital regulations.
Amount Percent of
(000's) Assets (1)
Tangible capital $ 22,293 7.4 %
Tangible capital requirement 4,490 1.5
------------ ----
Excess $ 17,803 5.9 %
============ ====
Core capital $ 22,293 7.4 %
Capital requirement 12,003 4.0
------------ ----
Excess $ 10,290 3.4 %
============ ====
Total capital (i.e., core & supplemental
capital) $ 23,670 15.2 %
Risk-based capital requirement 12,488 8.0
------------ ----
Excess $ 11,182 7.2 %
============ ====
(1) Based upon adjusted assets for purposes of the tangible capital and core
capital requirements, and risk-weighted assets for purposes of the risk-
based capital requirement.
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
--------------------------------------------------------------------------
OPERATIONS
----------
Continued
---------
IMPACT OF NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Accounting for Comprehensive Income." Statement 130 is effective for financial
statements for fiscal years beginning after December 15, 1997, with earlier
application permitted. Statement 130 defines comprehensive income as the change
in equity of a business enterprise during a period from transactions and other
events and circumstances from nonowner sources.
In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information."
Statement 131 is effective for fiscal years beginning after December 15, 1997,
with earlier application encouraged. Statement 131 specifies revised guidelines
for determining an entity's operating segments and the type and level of
financial information to be disclosed.
The adoption of these statements is not expected to have a material impact on
financial conditions, results of operations or cash flows reported by the
Holding Corp. The Holding Corp. does not anticipate early adoption of any of
these new accounting standards.
21
PART II - OTHER INFORMATION
---------------------------
Item 1. - LEGAL PROCEEDINGS
- --------------------------
There are no material legal proceedings to which the Holding Corp. or the
Association is a party or of which any of their property is subject. From
time-to-time, the Association is a party to various legal proceedings
incident to its business.
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 27 - Financial Data Schedule (attached)
(b) Reports on Form 8-K
Fort Bend Holding Corp. filed the following Forms 8-K during the
three months ended December 31, 1997.
October 28, 1997 - The registrant issued an earnings release
announcing the declaration of a cash dividend and earnings for the
quarter ended September 30, 1997.
22
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FORT BEND HOLDING CORP.
Registrant
Date: February 11, 1998 /s/ LANE WARD
--------------------------------
Lane Ward
Vice Chairman, President and
Chief Executive Officer
/s/ DAVID D. RINEHART
--------------------------------
Date: February 11, 1998 David D. Rinehart
Executive Vice President and
Chief Financial Officer
23