1
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 quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-8937
------
BancTEXAS GROUP INC.
--------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-1604965
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
P.O. Box 630369, Houston, TEXAS 77263-0369
-------------------------------------------
(address of principal executive offices) (Zip Code)
(713) 954-2400
--------------
(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
---- ----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding at
Class April 30, 1995
----- --------------
Common Stock, $.01 par value 20,654,025
Class B Common Stock, $.01 par value 37,500,000
2
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1995
and December 31, 1994 . . . . . . . . . . -2-
Consolidated Statements of Income for the three months
ended March 31, 1995 and 1994 . . . . . . . . -4-
Consolidated Statements of Cash Flows for the three months
ended March 31, 1995 and 1994 . . . . . . . . -5-
Notes to Consolidated Financial Statements . . . . . -6-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . -7-
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . -10-
Signatures . . . . . . . . . . . . . . . . . . -11-
-1-
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BancTEXAS GROUP INC. AND SUBSIDIARIES
Consolidated Balance Sheets (unaudited)
(dollars expressed in thousands, except per share data)
March 31, December 31,
ASSETS 1995 1994
------ --------- ------------
Cash and cash equivalents:
Cash and due from banks...................................... $ 13,381 14,029
Interest-bearing deposits with other financial institutions-
with maturities of three months or less................... 2,700 25,042
Federal funds sold........................................... - 8,000
-------- -------
Total cash and cash equivalents........................ 16,081 47,071
-------- -------
Investment securities - available-for-sale, at market value...... 87,987 61,400
-------- -------
Loans:
Commercial, financial and agricultural........................ 13,276 14,556
Real estate construction and development...................... 13,558 13,793
Real estate mortgage.......................................... 12,025 14,796
Consumer and installment...................................... 168,554 157,570
Loans held for sale........................................... - 7,253
-------- -------
Total loans............................................ 207,413 207,968
Unearned discount.............................................. (2,931) (4,654)
Allowance for possible loan losses............................. (2,789) (2,756)
-------- -------
Net loans.............................................. 201,693 200,558
-------- -------
Bank premises and equipment, net of accumulated depreciation..... 6,372 6,511
Accrued interest receivable...................................... 713 1,146
Foreclosed property, net......................................... 1,208 1,553
Deferred income taxes............................................ 13,125 12,517
Other assets..................................................... 1,530 1,034
-------- -------
Total assets........................................... $328,709 331,790
======== =======
-2-
4
BancTEXAS GROUP INC. AND SUBSIDIARIES
Consolidated Balance Sheets (unaudited)
(dollars expressed in thousands, except per share data)
(continued)
March 31, December 31,
LIABILITIES 1995 1994
----------- --------- ------------
Deposits:
Demand:
Non-interest bearing...................................... $ 40,793 45,418
Interest bearing.......................................... 20,968 24,678
Savings..................................................... 56,405 54,377
Time:
Time deposits of $100 or more............................. 22,612 23,063
Other time deposits....................................... 93,303 94,034
-------- -------
Total deposits......................................... 234,081 241,570
Federal Home Loan Bank advances.................................. 16,760 19,412
Federal funds purchased.......................................... 2,050 4,800
Securities sold under agreements to repurchase................... 30,046 19,433
Other borrowings................................................. 1,331 1,863
Accrued interest payable......................................... 778 716
Deferred income taxes............................................ 1,547 1,299
Accrued and other liabilities.................................... 3,041 2,983
-------- -------
Total liabilities...................................... 289,634 292,076
-------- -------
STOCKHOLDERS' EQUITY
--------------------
Common Stock:
Common stock, $.01 par value; 163,000,000 shares
authorized; 20,654,025 and 20,554,025 shares
issued and outstanding as of March 31, 1995 and
December 31, 1994, respectively........................... 207 206
Class B common stock, $.01 par value; 60,000,000 shares
authorized; 37,500,000 shares issued and outstanding...... 375 375
Capital surplus.................................................. 39,157 39,133
Retained earnings since elimination of accumulated deficit
of $259,117 effective December 31, 1994..................... 392 -
Net fair value adjustment for securities available-for-sale...... (1,056) -
-------- -------
Total stockholders' equity............................. 39,075 39,714
-------- -------
Total liabilities and stockholders' equity............. $328,709 331,790
======== =======
See accompanying notes to consolidated financial statements
-3-
5
BancTEXAS GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Income (unaudited)
(dollars expressed in thousands, except per share data)
Three months ended
March 31,
-------------------
1995 1994
-------- --------
Interest income:
Interest and fees on loans................................... $ 4,258 3,524
Investment securities........................................ 1,225 1,850
Federal funds sold and other................................. 266 54
-------- -------
Total interest income.................................. 5,749 5,428
-------- -------
Interest expense:
Deposits:
Interest-bearing demand................................... 63 116
Savings................................................... 622 390
Time deposits of $100 or more............................. 273 221
Other time deposits....................................... 1,070 976
Federal Home Loan Bank advances............................... 472 600
Securities sold under agreements to repurchase................ 203 254
Other borrowings.............................................. 74 28
-------- -------
Total interest expense................................. 2,777 2,585
-------- -------
Net interest income.................................... 2,972 2,843
Provision for possible loan losses............................... 450 75
-------- -------
Net interest income after provision for possible loan
losses................................................ 2,522 2,768
-------- -------
Noninterest income:
Service charges on deposit accounts and customer service
fees..................................................... 342 410
Loan servicing fees, net.................................. 65 175
Other income.............................................. 876 46
-------- -------
Total noninterest income............................... 1,283 631
-------- -------
Noninterest expenses:
Salaries and employee benefits............................ 1,203 1,770
Occupancy, net of rental income........................... 276 330
Furniture and equipment................................... 163 231
Federal Deposit Insurance Corporation premiums............ 153 174
Postage, printing and supplies............................ 96 160
Data processing fees...................................... 413 232
Legal, examination, and professional fees................. 172 389
Losses and expenses on foreclosed real estate, net
of gains................................................. 122 19
Other expenses............................................ 607 284
-------- -------
Total noninterest expenses............................. 3,205 3,589
-------- -------
Income before provision for income taxes............... 600 (190)
Provision for income taxes....................................... 208 -
-------- -------
Net income............................................. $ 392 (190)
======== =======
Earnings (loss) per common share................................. $ .01 (.01)
======== =======
Weighted average shares of common stock and common stock
equivalents outstanding (in thousands)........................ 61,186 23,329
======== =======
See accompanying notes to consolidated financial statements
-4-
6
BancTEXAS GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
(dollars expressed in thousands)
Three months ended
March 31,
-------------------
1995 1994
-------- --------
Cash flows from operating activities:
Net income (loss)............................................. $ 392 (190)
Adjustments to reconcile net income to net cash:
Depreciation and amortization of bank premises and
equipment................................................. 154 372
Amortization, net of accretion............................. (152) 189
Provision for possible loan losses......................... 450 75
(Increase) decrease in accrued interest receivable......... 433 (241)
Increase (decrease) in loans originated for sale........... 7,253 (315)
Interest accrued on liabilities............................ 2,778 2,585
Payments of interest on liabilities........................ (2,595) (2,571)
Provision for income taxes................................. 208 -
Other...................................................... (851) (509)
-------- -------
Net cash provided by (used in) operating activities.... 8,070 (605)
-------- -------
Cash flow from investing activities:
Sales of investment securities............................... 12,827 -
Maturities of investment securities.......................... 11,363 9,379
Purchases of investment securities........................... (51,957) (14,796)
Net (increase) decrease in loans............................. (8,946) (6,004)
Recoveries of loans previously charged off................... 108 439
Purchases of bank premises and equipment..................... (15) (70)
Other investing activities................................... 345 823
-------- -------
Net cash provided by (used in) investing activities.... (36,275) (10,229)
-------- -------
Cash flow from financing activities:
Increase (decrease) in deposits.............................. (7,489) 2,403
Increase (decrease) in borrowed funds....................... 4,679 (5,367)
Other financing activities.................................... 25 58
-------- -------
Net cash provided by (used in) financing activities.... (2,785) (2,906)
-------- -------
Net increase (decrease) in cash and cash equivalents... (30,990) (13,740)
Cash and cash equivalents, beginning of period................... 47,071 25,490
-------- -------
Cash and cash equivalents, end of period......................... $16,081 11,750
======== =======
Noncash investing and financing activities:
Transfer of loans held for sale to loans..................... $ - 9,709
======== =======
See accompanying notes to consolidated financial statements
-5-
7
BancTEXAS GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements of
BancTEXAS Group Inc. (BancTEXAS or Company) have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. Except as disclosed
herein, there has been no material change in the information disclosed
in the notes to consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31,
1994. In the opinion of management, all adjustments, consisting of
normal recurring accruals considered necessary for a fair presentation
have been included. Operating results for the three months ended March
31, 1995 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1995.
The consolidated financial statements include the accounts of the
parent company and its subsidiaries, all of which are wholly owned. All
significant intercompany accounts and transactions have been eliminated.
Certain reclassifications of 1994 amounts have been made to conform
with the 1995 presentation.
(2) Transactions with Related Party
Following the private placement of Class B common stock with First
Banks, Inc. (First Banks), BancTEXAS began purchasing certain services
and supplies from or through its majority shareholder, First Banks.
This included the purchase of insurance policies, office supplies and
other commonly-used banking products which could be acquired more
economically than BancTEXAS had previously been able to realize
separately. The amount of these purchases was not material to the
consolidated financial position or results of operations of BancTEXAS
for the three months ended March 31, 1995.
In December 1994, the Board of Directors of BankTEXAS N.A., a
wholly owned subsidiary of BancTEXAS, approved a data processing
agreement and a management fee agreement with First Banks. Under the
data processing agreement, a subsidiary of First Banks will provide data
processing and various related services to BancTEXAS beginning February
1995. The fees for such services are significantly lower than BancTEXAS
was paying its non-affiliated vendors. The management fee agreement
provides that BancTEXAS will compensate First Banks on an hourly basis
for its use of personnel for various functions including internal
auditing, loan review, income tax preparation and assistance,
accounting, asset/liability and investment services, loan servicing and
other management and administrative services. Hourly rates for such
services compare favorably with those for similar services from
unrelated sources, as well as the internal costs of BancTEXAS personnel
which were used previously, and it is estimated that the aggregate cost
for the services will be significantly more economical than those
previously incurred by BancTEXAS separately. Fees paid under these
agreements were $216,000 for the three months ended March 31, 1995.
-6-
8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
BancTEXAS is a registered bank holding company, incorporated in
Delaware and headquartered in Houston, Texas. At March 31, 1995, the
Company had approximately $329 million in total assets; $204 million in
total loans, net of unearned discount; $234 million in total deposits;
and $39.1 million in total stockholders' equity. The Company operates
through its subsidiary bank, BankTEXAS N.A. (the Bank).
Through the Bank, the Company offers a broad range of commercial
and personal banking services including certificate of deposit accounts,
individual retirement and other time deposit accounts, checking and
other demand deposit accounts, interest checking accounts, savings
accounts and money market accounts. Loans include commercial,
financial, agricultural, real estate construction and development,
residential real estate and consumer and installment loans. Other
financial services include credit-related insurance, automatic teller
machines and safe deposit boxes.
Financial Condition
The Company's total assets were $329 million and $332 million at
March 31, 1995 and December 31, 1994, respectively. The primary
fluctuations from December 31, 1994 were an increase in investment
securities of $26.6 million and a decrease in interest-bearing deposits
and Federal funds sold of $30.3 million.
Results of Operations
Net income for the three months ended March 31, 1995 was $392,000,
compared to a net loss of $190,000 for the same period in 1994. The
improved results for 1995 were primarily driven by increased net
interest income and noninterest income partially offset by increased
provisions for loan losses.
Net interest income was $2,971,000, or 4.20% of average interest
earning assets, for the three months ended March 31, 1995, compared to
$2,843,000, or 3.41%, for the same period in 1994. The increase in net
interest income for the quarter is primarily attributable to the
additional capital of $30 million from the sale of Class B common stock
to First Banks on August 31, 1994. The interest income earned from the
use of the additional capital was substantially offset by a reduction of
net interest income resulting from a decrease in the average earning
assets of approximately $55.1 million to $282.8 million from $337.9
million for the three month periods ended March 31, 1995 and 1994,
respectively. The decrease in average earning assets was primarily
associated with the sales of investment securities during the fourth
quarter of 1994 in connection with the restructuring of the investment
securities portfolio.
The provisions for possible loan losses were $450,000 and $75,000
for the three months ended March 31, 1995 and 1994, respectively. This
compares to net loan charge-offs of $417,000 and $103,000 for the same
periods. The increase in the provision for loan losses is attributable
to the increased level of net loan charge-offs and management's
evaluation of the quality of the loans in the portfolio.
Noninterest income increased by $652,000 to $1,283,000 from
$631,000 for the three months ended March 31, 1995 and 1994,
respectively. The increase is associated with the return of $802,000 to
BancTEXAS which was maintained in a trust. During 1990, a trust was
established and subsequently funded by BancTEXAS to provide limited
protection against personal claims being taken or threatened against
BancTEXAS' officers and directors and potential costs of litigation.
Prior to BancTEXAS' affiliation with First Banks, director and officer
liability insurance was not economically feasible. Considering the
cost of such insurance, certain legal claims pending against
-7-
9
BancTEXAS at that time and the potential for additional claims,
BancTEXAS elected to establish and fund this trust. Since director and
officer coverage is now available at a reasonable price, the trust fund
is no longer necessary and, accordingly, was terminated at which time
the funds being returned to BancTEXAS.
Noninterest expenses decreased by $384,000 to $3,205,000 from
$3,589,000 for the three months ended March 31, 1995 and 1994,
respectively. The decrease is primarily attributable to salaries and
employee benefits which decreased by $567,000 to $1,203,000 from
$1,770,000 for the three months ended March 31, 1995 and 1994,
respectively. The decrease in salaries and employee benefits is
consistent with the reevaluation of the operating cost structure of the
Company, including such personnel expenses, which commenced during the
third quarter of 1994. Offsetting this decrease were increased expenses
associated with the conversion and centralization of data processing and
certain operating functions to First Banks' systems completed during the
first quarter of 1995.
Lending and Credit Management
Interest earned on the loan portfolio is the primary source of
income of the Company. Total loans, net of unearned discount,
represented 62.2% and 61.3% of total assets as of March 31, 1995 and
December 31, 1994, respectively. The Company has experienced modest
improvements in commercial and consumer loan demand during the three
month period ended March 31, 1995. Total loans, net of unearned
discount, increased by $1.2 million to $204.5 million at March 31, 1995
from $203.3 million at December 31, 1994. The Company's nonperforming
loans consist of loans on a nonaccrual status and loans on which the
original terms have been restructured. Nonperforming loans were
$504,000 and $293,000 at March 31, 1995 and December 31, 1994,
respectively.
The allowance for possible loan losses is based on past loan loss
experience, on Company management's evaluation of the quality of the
loans in the portfolio and on the anticipated effect of national and
local economic conditions relative to the ability of loan customers to
repay. Each quarter, the allowance for possible loan losses is revised
relative to the Company's internal watch list and other data to
determine its adequacy. The provision for possible loan losses is
management's estimate of the amount necessary to maintain the allowance
at a level consistent with this evaluation. As adjustments to the
allowance for possible loan losses are considered necessary, they are
reflected in the results of operations.
Liquidity
The liquidity of the Company and the Bank is the ability to
maintain a cash flow which is adequate to fund operations, service its
debt obligations and meet other commitments on a timely basis. The
primary sources of funds for liquidity are derived from customer
deposits, loan payments, maturities, sales of investments and earnings.
In addition, the Company and the Bank may avail themselves of more
volatile sources of funds through issuance of certificates of deposit in
denominations of $100,000 or more, federal funds borrowed, securities
sold under agreements to repurchase, and borrowings from the Federal
Home Loan Bank (FHLB). The aggregate funds acquired from those sources
were $71.5 million at March 31, 1995 and $66.7 million at December 31,
1994.
At March 31, 1995, the Company's more volatile sources of funds
mature as follows:
(dollars expressed in thousands)
--------------------------------
Three months or less....................................... $48,117
Over three months through six months....................... 5,486
Over six months through twelve months...................... 3,977
Over twelve months......................................... 13,888
-------
Total.................................................... $71,468
=======
-8-
10
Management believes the available liquidity and earnings of the
Bank will be sufficient to provide funds for growth and to meet the
Company's operating and debt service requirements both on a short-term
and long-term basis.
Capital
Risk-based capital guidelines for financial institutions are
designed to relate regulatory capital requirements to the risk profiles
of the specific institutions and to provide more uniform requirements
among the various regulators. The Company and the Subsidiary Banks are
required to maintain a minimum risk-based capital to risk-weighted
assets ratio of 8.00%, with at least 4.00% being "Tier 1" capital. Tier
1 capital is composed of total stockholders' equity. In addition, a
minimum leverage ratio (Tier 1 capital to total assets) of 3.00% plus an
additional cushion of 100 to 200 basis points is expected.
At March 31, 1995 and December 31, 1994, the Company's and the
Bank's capital ratios were as follows:
Risk based capital ratios
-------------------------
Total Tier 1 Leverage Ratio
----- ------ --------------
1995 1994 1995 1994 1995 1994
---- ---- ---- ---- ---- ----
Company.......................... 16.99% 17.50% 15.81% 16.28% 12.17% 11.97%
Bank............................. 8.86 9.25 7.70 8.04 6.06 5.82
Effect of New Accounting Standards
In May 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 114, "Accounting by
Creditors for Impairment of a Loan" (SFAS 114). During October 1994,
the FASB issued SFAS 118. "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures" (SFAS 118), which amends SFAS
114.
SFAS 114 (as amended by SFAS 118) defines the recognition criterion
for loan impairment and the measurement methods for certain impaired
loans and loans whose terms have been modified in troubled debt
restructurings (a restructured loan). Specifically, a loan is
considered impaired when it is probable a creditor will be unable to
collect all principal and interest according to the contractual terms of
the loan agreement. When measuring impairment, the expected future cash
flows of an impaired loan are required to be discounted at the loan's
effective interest rate. Alternatively, impairment can be measured by
reference to an observable market price, if one exists, or the fair
value of the collateral for a collateral-dependent loan. Regardless of
the measurement method used historically, SFAS 114 requires a creditor
to measure impairment based on the fair value of the collateral when the
creditor determines foreclosure is probable. Additionally, impairment
of a restructured loan is measured by discounting the total expected
future cash flows at the loan's effective rate of interest as stated in
the original loan agreement.
SFAS 118 amends SFAS 114 to allow a creditor to use existing
methods for recognizing interest income on an impaired loan. Prior to
the issuance of SFAS 118, SFAS 114 provided for two alternative income
recognition methods to be used to account for changes in the net
carrying amount of an impaired loan subsequent to the initial
measurement of impairment. Under the first income recognition method,
a creditor would accrue interest on the net carrying amount of the
impaired loan and report other changes in the net carrying amount of the
loan as an adjustment to the provision for possible loan losses. Under
the second income recognition method, a creditor would recognize all
changes in the net carrying amount of the loan as an adjustment to the
provision for possible loan losses. While those income recognition
methods are no longer required, SFAS 118 does not preclude a creditor
from using either of those methods.
-9-
11
SFAS 114 and SFAS 118 were effective for fiscal years beginning
after December 15, 1994. The impact of applying SFAS 114 and SFAS 118
was reported as a component of the provision for possible loan losses
charged to operations rather than as an accounting change. The
implementation of these statements did not have a material effect on the
Company's consolidated financial position or results of operations.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
These exhibits are numbered in accordance with the Exhibit Table of
Item 601 of Regulation S-K.
Exhibit
Number Description
- ------ -----------
3 (b) Amended and Restated By-Laws of the Company
(as amended April 21, 1995)
27 Article 9 - Financial Data Schedule
(EDGAR only)
-10-
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
BancTEXAS GROUP INC.
Registrant
Date: May 11, 1995 By: /s/ James F. Dierberg
--------------------
James F. Dierberg
Chairman, President
and Chief Executive
Executive Officer
Date: May 11, 1995 By: /s/ Allen H. Blake
------------------
Allen H. Blake
Chief Financial Officer
and Secretary
(Principal Financial Officer)
-11-