1
FORM 10-Q
UNITED STATES
(Mark One) SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
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: 000-25051
PROSPERITY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-2331986
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
3040 Post Oak Blvd.
Houston, Texas 77056
(Address of principal executive offices, including zip code)
(713) 993-0002
(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
--- ---
As of October 31, 1999, there were 5,195,325 shares of the registrant's Common
Stock, par value $1.00 per share, outstanding.
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PROSPERITY BANCSHARES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements...................................................................... 3
Consolidated Balance Sheets as of September 30, 1999 (unaudited) and
December 31,1998................................................................ 3
Consolidated Statements of Income for the Three and Nine Months
Ended September 30, 1999 and 1998 (unaudited)................................... 4
Consolidated Statements of Shareholders' Equity for the Year Ended December 31,
1998 and for the Nine Months Ended September 30, 1999 (unaudited)................ 5
Consolidated Statements of Cash Flows for the Nine Months Ended September
30, 1999 and 1998 (unaudited).................................................... 6
Notes to Consolidated Financial Statements................................................ 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk................................20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.........................................................................21
Item 2. Changes in Securities and Use of Proceeds.................................................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.........................................................................................21
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PROSPERITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1999 1998
--------- ---------
(unaudited)
(Dollars in thousands, except share data)
ASSETS
Cash and due from banks ...................................... $ 14,475 $ 18,243
Federal funds sold and other earning assets .................. 700 --
Interest-bearing deposits in financial institutions .......... -- 99
--------- ---------
Total cash and cash equivalents ........................... 15,175 18,342
Available for sale securities, at fair value (amortized cost
of $144,445 (unaudited) and $113,000, respectively) ...... 141,518 113,828
Held to maturity securities, at cost (fair value of $69,333
(unaudited) and $115,021, respectively) ................... 69,728 113,916
Loans ........................................................ 197,500 170,478
Less allowance for credit losses ............................. (2,072) (1,850)
--------- ---------
Loans, net ..................................... 195,428 168,628
Accrued interest receivable .................................. 4,131 3,990
Goodwill (net of accumulated amortization of $3,562
(unaudited) and $3,077, respectively) ..................... 9,205 9,690
Bank premises and equipment, net ............................. 5,973 6,105
Other assets ................................................. 3,204 1,813
--------- ---------
TOTAL ASSETS ................................................. $ 444,362 $ 436,312
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing ................................... $ 88,287 $ 84,976
Interest-bearing ...................................... 311,458 305,683
--------- ---------
Total deposits ................................. 399,745 390,659
Other borrowings .......................................... -- 2,437
Accrued interest payable .................................. 969 1,081
Other liabilities ......................................... 763 700
--------- ---------
Total liabilities .............................. 401,477 394,877
SHAREHOLDERS' EQUITY:
Common stock, $1 par value; 50,000,000 shares
authorized; 5,198,901 (unaudited) and 5,176,401,
shares issued at September 30, 1999 and December
31, 1998, respectively; 5,195,325 (unaudited) and
5,172,825 shares outstanding at September 30, 1999
and December 31, 1998, respectively ................... 5,199 5,176
Capital surplus ........................................... 16,441 16,477
Retained earnings ......................................... 23,195 19,452
Accumulated other comprehensive income -- net
unrealized (losses) gains on available for sale
securities, net of tax benefit of $995 (unaudited)
and tax of $179, respectively ......................... (1,932) 348
Less treasury stock, at cost, 3,576 shares at September 30,
1999 (unaudited) and 3,576 shares at December 31,
1998, respectively .................................... (18) (18)
--------- ---------
Total shareholders' equity ..................... 42,885 41,435
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY ......................................... $ 444,362 $ 436,312
========= =========
See notes to consolidated financial statements.
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PROSPERITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ------------------------
1999 1998 1999 1998
--------- --------- --------- --------
(Dollars in thousands, except per share data)
INTEREST INCOME:
Loans, including fees.................. $ 4,063 $ 3,127 $ 11,519 $ 8,695
Securities:
Taxable............................... 2,989 2,279 9,198 7,155
Nontaxable............................ 221 155 685 450
Federal funds sold..................... 37 78 460 205
Deposits in financial institutions..... -- 2 -- 7
--------- --------- --------- --------
Total interest income................ 7,310 5,641 21,862 16,512
--------- --------- --------- --------
INTEREST EXPENSE:
Deposits............................. 2,909 2,393 9,032 7,040
Other................................ 50 2 57 69
--------- --------- --------- --------
Total interest expense............. 2,959 2,395 9,089 7,109
--------- --------- --------- --------
NET INTEREST INCOME................ 4,351 3,246 12,773 9,403
PROVISION FOR CREDIT LOSSES............ 75 70 205 215
--------- --------- --------- --------
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES.................... 4,276 3,176 12,568 9,188
--------- --------- --------- --------
NONINTEREST INCOME:
Customer service fees................ 677 530 1,919 1,636
Other................................ 112 56 318 189
--------- --------- --------- --------
Total noninterest income............ 789 586 2,237 1,825
-------- --------- --------- --------
NONINTEREST EXPENSE:
Salaries and employee benefits....... 1,394 1,100 4,213 3,214
Net occupancy expense................ 183 146 473 396
Data processing...................... 209 202 625 571
Goodwill amortization................ 162 120 485 354
Depreciation expense................. 153 126 459 375
Other................................ 633 501 1,913 1,539
--------- --------- --------- --------
Total noninterest expense........... 2,734 2,195 8,168 6,449
--------- --------- --------- --------
INCOME BEFORE INCOME TAXES............. 2,331 1,567 6,637 4,564
PROVISION FOR INCOME TAXES............. 746 487 2,115 1,426
--------- --------- --------- --------
NET INCOME............................. $ 1,585 $ 1,080 $ 4,522 $ 3,138
========= ========= ========= ========
EARNINGS PER SHARE
Basic.................................. $ 0.31 $ 0.27 $ 0.87 $ 0.79
========= ========= ========= ========
Diluted................................ $ 0.29 $ 0.26 $ 0.84 $ 0.77
========= ========= ========= ========
See notes to consolidated financial statements.
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PROSPERITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock
-------------------------- Capital Retained
Shares Amount Surplus Earnings
---------- ---------- ---------- ----------
(Amounts in thousands, except share data)
BALANCE AT JANUARY 1, 1998 .......................... 3,993,884 $ 3,993 $ 4,818 $ 16,049
Net income ..................................... 4,460
Net change in unrealized gain (loss)
on available for sale securities .............
Total comprehensive income .....................
Sale of common stock ........................... 1,182,517 1,183 11,659
Cash dividends declared, $0.20
per share .................................... (1,057) (1,057)
---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1998 ........................ 5,176,401 5,176 16,477 19,452
Net income (unaudited) ......................... 4,522
Net change in unrealized gain (loss) on
available for sale securities (unaudited) ....
Total comprehensive income (unaudited) .........
Sale of common stock (unaudited) ............... 22,500 23 76
Stock issuance cost (unaudited) ................ (112)
Cash dividends declared, $0.10
per share (unaudited) ........................ (779)
---------- ---------- ---------- ----------
BALANCE AT SEPTEMBER 30, 1999
(unaudited) .................................. 5,198,901 $ 5,199 $ 16,441 $ 23,195
========== ========== ========== ==========
Accumulated
Other
Comprehensive
Income -- Net
Unrealized Gain
(Loss) on Avail- Total
able for Sale Treasury Shareholders'
Securities Stock Equity
---------------- ---------- -------------
BALANCE AT JANUARY 1, 1998 .......................... $ (24) $ (18) $ 24,818
Net income ..................................... 4,460
Net change in unrealized gain (loss)
on available for sale securities ............. 372 372
-------------
Total comprehensive income ..................... 4,832
-------------
Sale of common stock ........................ 12,841
Cash dividends declared, $0.20
per share .................................... (1,057)
---------------- ---------- -------------
BALANCE AT DECEMBER 31, 1998 ........................ 348 (18) 41,435
Net income (unaudited) ......................... 4,522
Net change in unrealized gain (loss) on
available for sale securities (unaudited) .... (2,280) (2,280)
-------------
Total comprehensive income (unaudited) ......... 2,242
-------------
Sale of common stock (unaudited) ............... 99
Stock issuance cost (unaudited) ................ (112)
Cash dividends declared, $0.10
per share (unaudited) ........................ (779)
---------------- ---------- -------------
BALANCE AT SEPTEMBER 30, 1999
(unaudited) .................................. $ (1,932) $ (18) $ 42,885
================ ========== =============
See notes to consolidated financial statements
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PROSPERITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
1999 1998
-------- --------
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................... $ 4,522 $ 3,138
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization .............................. 944 729
Provision for credit losses ................................ 205 215
Net amortization of premium/discount
on investments ........................................... 195 128
Loss on sale of real estate acquired
By foreclosure ........................................... 2
Increase in accrued interest receivable .................... (141) (591)
Increase in other assets ................................... (396) (217)
(Decrease) increase in accrued interest payable
and other liabilities .................................... 128 121
-------- --------
Total adjustments ........................................ 935 387
-------- --------
Net cash provided by operating activities ................ 5,457 3,525
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and principal
paydowns of held to maturity securities .................... 46,286 42,068
Purchase of held to maturity securities ...................... (2,264) (15,205)
Proceeds from maturities and principal
paydowns of available for sale securities .................. 11,126 20,457
Purchase of available for sale securities .................... (42,292) (39,592)
Net increase in loans ........................................ (27,022) (27,112)
Purchase of bank premises and equipment ...................... (318) (232)
Proceeds from sale of bank premises and
equipment .................................................. 40
Net decrease in interest-bearing
deposits in financial institutions ......................... 99 99
Premium paid for West Columbia branch ........................ -- (250)
Net liabilities acquired in purchase of West
Columbia branch (net of acquired cash of
$5,548) .................................................... 5,798
-------- --------
Net cash (used in) investing activities .................... (14,385) (13,929)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in noninterest-bearing
deposits ................................................... 3,312 5,388
Net increase in interest-bearing deposits .................... 5,775 2,519
Repayments of other borrowings, net .......................... (2,435) (800)
Stock issuance costs ......................................... (112) --
Payments of cash dividends ................................... (779) (599)
Sale of Common Stock ......................................... 99 --
-------- --------
Net cash provided by
financing activities .................................. 5,860 6,508
-------- --------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS ............................................. $ (3,068) $ (3,896)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD .................................................... 18,243 17,372
-------- --------
CASH AND CASH EQUIVALENTS, END OF
PERIOD ....................................................... $ 15,175 $ 13,476
======== ========
See notes to consolidated financial statements.
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PROSPERITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
Prosperity Bancshares, Inc. (the "Company") and its wholly-owned subsidiaries,
First Prosperity Bank (the "Bank") and Prosperity Holdings, Inc. All significant
inter-company transactions and balances have been eliminated.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the statements reflect all
adjustments necessary for a fair presentation of the financial position, results
of operations and cash flows of the Company on a consolidated basis, and all
such adjustments are of a normal recurring nature. These financial statements
and the notes thereto should be read in conjunction with the Company's Form 10-K
filed on March 24, 1999. Operating results for the nine month period ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999.
2. INCOME PER COMMON SHARE
The following table illustrates the computation of basic and diluted
earnings per share (in thousands, except per share data):
Three Months Ended Nine Months Ended
September 30, September 30
------------------------ ------------------------
1999 1998 1999 1998
-------- --------- --------- ---------
Net income available to common shareholders $ 1,585 $ 1,080 $ 4,522 $ 3,138
Weighted average common shares outstanding 5,195 3,990 5,183 3,990
Potential dilutive common shares 206 101 202 101
-------- --------- --------- ---------
Weighted average common shares and equivalents
outstanding 5,401 4,091 5,385 4,091
-------- --------- --------- ---------
Basic earnings per common share $ 0.31 $ 0.27 $ 0.87 $ 0.79
======== ========= ========= =========
Diluted earnings per common share $ 0.29 $ 0.26 $ 0.84 $ 0.77
======== ========= ========= =========
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PROSPERITY BANCSHARES, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
3. RECENT ACCOUNTING STANDARDS
Effective January 1, 1998, the Company adopted Financial Accounting
Standards No. 130, "Reporting Comprehensive Income", which requires that all
components of comprehensive income and total comprehensive income be reported on
one of the following: (1) the statement of operations, (2) the statement of
shareholders' equity, or (3) a separate statement of comprehensive income.
Comprehensive income is comprised of net income and all changes to shareholders'
equity, except those due to investments by owners (changes in capital surplus)
and distributions to owners (dividends). The Company is reporting comprehensive
income on its statement of changes in shareholders' equity.
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," establishes new standards for public companies to report
information about their operating segments, products and services, geographic
areas and major customers. The statement is effective for financial statements
issued for periods beginning after December 15, 1997. The Company has adopted
SFAS No. 131 effective January 1, 1998. Adoption had no material effect on the
Consolidated Financial Statements.
SFAS No. 133, "Accounting for Derivative Instruments and for Hedging
Activities," establishes accounting and reporting standards for derivative
instruments and requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at fair
value. This statement is effective for periods beginning after June 15, 2000.
Management believes the implementation of this pronouncement will not have a
material effect on the Company's financial statements.
4. SUBSEQUENT EVENTS
On October 1, 1999, the Company completed its acquisition
("Acquisition") of South Texas Bancshares, Inc. ("South Texas"). In connection
with the Acquisition, the Commercial National Bank of Beeville "(CNB"), a wholly
owned subsidiary of South Texas, was merged with the Bank.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Prosperity Bancshares, Inc. (the "Company") is a registered bank
holding company that derives substantially all of its revenues and income from
the operation of First Prosperity Bank (the "Bank"). The Bank is a full-service
bank that provides a broad line of financial products and services to small and
medium-sized businesses and consumers through 12 full-service banking locations,
three of which are located in the greater Houston metropolitan area.
Statements and financial discussion and analysis contained in the Form
10-Q that are not historical facts are forward-looking statements made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements are based on assumptions and involve a number
of risks and uncertainties, many of which are beyond the Company's control. The
important factors that could cause actual results to differ materially from the
forward-looking statements include, without limitation:
o changes in interest rates and market prices, which could reduce the
Company's net interest margins, asset valuations and expense expectations;
o changes in the levels of loan prepayments and the resulting effects on the
value of the Company's loan portfolio;
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o changes in local economic and business conditions which adversely affect
the Company's customers and their ability to transact profitable business
with the Company, including the ability of the Company's borrowers to repay
their loans according to their terms or a change in the value of the
related collateral.
o increased competition for deposits and loans adversely affecting rates and
terms;
o the timing, impact and other uncertainties of future acquisitions,
including the Company's ability to identify suitable future acquisition
candidates, the success or failure in the integration of their operations,
and the ability to enter new markets successfully and capitalize on growth
opportunities;
o increased credit risk in the Company's assets and increased operating risk
caused by a material change in commercial, consumer and/or real estate
loans as a percentage of the total loan portfolio;
o the failure of assumptions underlying the establishment of and provisions
made to the allowance for credit losses;
o changes in the availability of funds resulting in increased costs or
reduced liquidity;
o increased asset levels and changes in the composition of assets and the
resulting impact on the Company's capital levels and regulatory capital
ratios;
o the Company's ability to acquire, operate and maintain cost effective and
efficient systems without incurring unexpectedly difficult or expensive but
necessary technological changes (including changes to address Year 2000
data systems issues);
o the Company's ability to complete its project to assess and resolve any
Year 2000 problems on time;
o the loss of senior management or operating personnel and the potential
inability to hire qualified personnel at reasonable compensation levels;
and
o changes in statutes and government regulations or their interpretations
applicable to bank holding companies and the Company's present and future
banking and other subsidiaries, including changes in tax requirements and
tax rates.
OVERVIEW
The Company showed positive earnings growth for the nine month period
ended September 30, 1999 due to the increase in loan volume and the acquisition
of Union State Bank in East Bernard, Texas (the "Union Acquisition") in the
fourth quarter of 1998, accounted for under the purchase method. Net income
available to common shareholders was $1.6 million ($0.29 per common share on a
diluted basis) for the quarter ended September 30, 1999 compared with $1.1
million ($0.26 per common share on a diluted basis) for the quarter ended
September 30, 1998, an increase of $505,000, or 46.8%. The Company posted
returns on average common equity of 14.79% and 15.77% and returns on average
assets of 1.42% and 1.28% for the quarters ended September 30, 1999 and 1998,
respectively. For the nine months ended September 30, 1999 net income available
to common shareholders was $4.5 million ($0.84 per common share on a diluted
basis) compared with $3.1 million ($0.77 per common share on a diluted basis)
for the same period in 1998, an increase of $1.4 million or 44.1%.
Total assets were $444.4 million at September 30, 1999 compared with
$436.3 million at December 31, 1998. Total loans increased to $197.5 million at
September 30, 1999 from $170.5 million at December 31, 1998, an increase of
$27.0 million, or 15.9%. Total deposits were $399.7 million at September 30,
1999 compared with $390.7 million at December 31, 1998, an increase of $9.1
million, or 2.3%. Shareholders' equity increased $1.5 million or 3.5%, to $42.9
million at September 30, 1999 compared with $41.4 million at December 31, 1998.
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RESULTS OF OPERATIONS
Net Interest Income
Net interest income was $4.4 million for the quarter ended September
30, 1999 compared with $3.2 million for the quarter ended September 30, 1998, an
increase of $1.1 million, or 34.0%. Net interest income increased as a result of
an increase in average interest-earning assets to $413.4 million for the quarter
ended September 30, 1999 from $310.0 million for the quarter ended September 30,
1998, an increase of $103.3 million, or 33.3%. The net interest margin on a
tax-equivalent basis increased to 4.26% from 4.23% for the same periods,
principally due to a slightly lower decrease in the yield on interest-earning
assets than the decrease in the rate on interest-bearing liabilities. Net
interest income increased $3.4 million, or 35.8%, to $12.8 million for the nine
months ended September 30, 1999 from $9.4 million for the same period in 1998.
This increase is mainly attributable to higher average interest-earning assets
and higher average loans.
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The Company's net interest income is affected by changes in the amount and mix
of interest-earning assets and interest-bearing liabilities, referred to as a
"volume change." It is also affected by changes in yields earned on
interest-earning assets and rates paid on interest-bearing deposits and other
borrowed funds, referred to as a "rate change." The following tables set forth,
for each category of interest-earning assets and interest-bearing liabilities,
the average amounts outstanding, the interest earned or paid on such amounts,
and the average rate earned or paid for the quarters ended September 30, 1999
and 1998 and the nine months ended September 30, 1999 and 1998. The tables also
set forth the average rate paid on total interest-bearing liabilities, and the
net interest margin on average total interest-earning assets for the same
periods.
Three Months Ended September 30,
--------------------------------------------------------------------
1999 1998
-------------------------------- --------------------------------
Average Interest Average Average Interest Average
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate (4) Balance Paid Rate (4)
----------- -------- --------- ----------- -------- --------
(Dollars in thousands)
ASSETS
Interest-earning assets:
Loans.................................... $ 191,815 $ 4,063 8.40% $ 145,604 $ 3,127 8.52%
Securities(1)............................ 218,663 3,210 5.87 157,674 2,434 6.17
Federal funds sold and other temporary
investments............................. 2,896 37 5.00 6,764 80 4.63
----------- -------- ----------- --------
Total interest-earning assets.......... 413,374 7,310 7.04% 310,042 5,641 7.24%
-------- --------
Less allowance for credit losses......... (2,031) (1,135)
----------- -----------
Total interest-earning assets, net
of allowance.......................... 411,343 308,907
Noninterest-earning assets............ 31,449 25,787
----------- -----------
Total assets........................... $ 442,792 $ 334,694
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits......... $ 44,266 $ 171 1.53% $ 36,362 $ 140 1.53%
Savings and money market accounts........ 114,228 938 3.26 81,442 718 3.50
Certificates of deposit.................. 154,635 1,800 4.62 119,959 1,535 5.08
Federal funds purchased and other
borrowings.............................. 3,775 50 5.18 125 2 6.26
----------- -------- ----------- --------
Total interest-bearing
liabilities........................... 316,904 2,959 3.70% 237,888 2,395 3.99%
----------- -------- ----------- --------
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits...... 82,425 67,993
Other liabilities........................ 1,073 1,651
----------- -----------
Total liabilities...................... 400,402 307,532
----------- -----------
Shareholders' equity....................... 42,390 27,162
----------- -----------
Total liabilities and shareholders'
equity............................... $ 442,792 $ 336,694
=========== ===========
Net interest rate spread................... 3.34% 3.25%
Net interest income and margin(2).......... $ 4,351 4.18% $ 3,246 4.15%
======== ========
Net interest income and margin
(tax-equivalent basis)(3)................. $ 4,435 4.26% $ 3,309 4.23%
======== ========
- ------------------------------------------
(1) Yield is based on amortized cost and does not include any component of
unrealized gains or losses.
(2) The net interest margin is equal to net interest income divided by average
interest-earning assets.
(3) In order to make pretax income and resultant yields on tax-exempt
investments and loans comparable to those on taxable investments and loans,
a tax-equivalent adjustment has been computed using a federal income tax
rate of 34%.
(4) Annualized.
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Nine Months Ended September 30,
--------------------------------------------------------------------
1999 1998
-------------------------------- --------------------------------
Average Interest Average Average Interest Average
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate (4) Balance Paid Rate (4)
----------- -------- --------- ----------- -------- --------
(Dollars in thousands)
ASSETS
Interest-earning assets:
Loans.................................... $ 183,213 $ 11,519 8.41% $ 134,741 $ 8,695 8.63%
Securities(1)............................ 224,673 9,883 5.87 165,837 7,605 6.11
Federal funds sold and other temporary
investments............................. 12,537 460 4.84 6,101 212 4.58
----------- -------- ----------- --------
Total interest-earning assets.......... 420,423 21,862 6.94% 306,679 16,512 7.19%
-------- --------
Less allowance for credit losses......... (1,954) (1,077)
----------- -----------
Total interest-earning assets, net
of allowance.......................... 418,469 305,602
Noninterest-earning assets............ 33,404 26,041
----------- -----------
Total assets........................... $ 451,873 $ 331,643
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits......... $ 47,706 $ 543 1.52% $ 39,477 $ 471 1.60%
Savings and money market accounts........ 119,563 2,951 3.30 79,625 2,094 3.52
Certificates of deposit.................. 157,248 5,538 4.71 117,281 4,475 5.10
Federal funds purchased and other
borrowings.............................. 1,472 57 5.11 1,596 69 5.70
----------- -------- ----------- --------
Total interest-bearing
liabilities........................... 325,989 9,089 3.73% 237,979 7,109 3.99%
----------- -------- ----------- --------
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits...... 81,959 66,111
Other liabilities........................ 1,662 1,124
----------- -----------
Total liabilities...................... 409,610 305,214
----------- -----------
Shareholders' equity....................... 42,263 26,429
----------- -----------
Total liabilities and shareholders'
equity................................ $ 451,873 $ 331,643
=========== ===========
Net interest rate spread 3.21% 3.20%
Net interest income and margin(2) $ 12,773 4.06% $ 9,403 4.10%
======== ========
Net interest income and margin
(tax-equivalent basis)(3) $ 13,032 4.14% $ 9,591 4.18%
======== ========
- -------------------------
(1) Yield is based on amortized cost and does not include any component of
unrealized gains or losses.
(2) The net interest margin is equal to net interest income divided by average
interest-earning assets.
(3) In order to make pretax income and resultant yields on tax-exempt
investments and loans comparable to those on taxable investments and loans,
a tax-equivalent adjustment has been computed using a federal income tax
rate of 34%.
(4) Annualized.
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13
The following tables present 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 and the volatility of interest rates
for the periods indicated. For purposes of these tables, changes attributable to
both rate and volume which cannot be segregated have been allocated to rate.
Three Months Ended September 30,
1999 vs. 1998
---------------------------------
Increase
(Decrease)
Due to
--------------------
Volume Rate Total
------- ------- -------
(Dollars in thousands)
Interest-earning assets:
Loans............................................... $ 992 $ (56) $ 936
Securities ......................................... 941 (165) 776
Federal funds sold and other temporary
investments ...................................... (46) 3 (43)
------- ------- -------
Total increase (decrease) in interest income ..... 1,887 (218) 1,669
------- ------- -------
Interest-bearing liabilities:
Interest-bearing demand deposits ................... 30 1 31
Savings and money market accounts .................. 289 (69) 220
Certificates of deposit ............................ 444 (179) 265
Federal funds purchased and other borrowings ....... 58 (10) 48
------- ------- -------
Total increase (decrease) in interest expense .... 821 (257) 564
------- ------- -------
Increase (decrease) in net interest income ........... $ 1,067 $ 38 $ 1,105
======= ======= =======
Nine Months Ended September 30,
1999 vs. 1998
---------------------------------
Increase
(Decrease)
Due to
--------------------
Volume Rate Total
------- ------- -------
(Dollars in thousands)
Interest-earning assets:
Loans............................................... $ 3,128 $ (304) $ 2,824
Securities ......................................... 2,698 (420) 2,278
Federal funds sold and other temporary
investments ...................................... 224 24 248
------- ------- -------
Total increase (decrease) in interest income ..... 6,050 (700) 5,350
------- ------- -------
Interest-bearing liabilities:
Interest-bearing demand deposits ................... 98 (26) 72
Savings and money market accounts .................. 1,050 (193) 857
Certificates of deposit ............................ 1,525 (462) 1,063
Federal funds purchased and other borrowings ....... (5) (7) (12)
------- ------- -------
Total increase (decrease) in interest expense .... 2,668 (688) 1,980
------- ------- -------
Increase (decrease) in net interest income ........... $ 3,382 $ (12) $ 3,370
======= ======= =======
Provision for Credit Losses
Provisions for credit losses are charged to income in order to bring
the total allowance for credit losses to a level deemed appropriate by
management of the Company based on such factors as historical loan loss
experience, industry diversification of the commercial loan portfolio, the
amount of nonperforming loans and related collateral,
13
14
the volume, growth and composition of the loan portfolio, current economic
conditions that may affect the borrower's ability to pay and the value of
collateral, the evaluation of the loan portfolio through the internal loan
review process and other relevant factors.
The provision for credit losses for the nine months ended September 30,
1999 decreased $10,000 to $205,000 from $215,000 in the corresponding period
last year. The provision for credit losses for the three months ended September
30, 1999 was $75,000, an increase of $5,000 from $70,000 for the same period in
1998.
Noninterest Income
The Company's primary sources of noninterest income are service charges
on deposit accounts and other banking service related fees. Noninterest income
totaled $789,000 for the three months ended September 30, 1999 compared with
$586,000 for the same period in 1998, an increase of $203,000, or 34.6%.
Noninterest income increased $412,000, or 22.6%, to $2.2 million for the nine
month period ending September 30, 1999 from $1.8 million for the same period in
1998. The increase in noninterest income was principally due to the Union
Acquisition.
The following table presents, for the periods indicated, the major
categories of noninterest income:
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1999 1998 1999 1998
------- ------ ------- -------
(Dollars in thousands)
Service charges on deposit accounts....... $ 677 $ 530 $ 1,919 $ 1,636
Other noninterest income.................. 112 56 318 189
------- ------ ------- --------
Total noninterest income.............. $ 789 $ 586 $ 2,237 $ 1,825
======= ======= ======= ========
Noninterest Expense
Noninterest expense totaled $2.7 million for the quarter ended
September 30, 1999 compared with $2.2 million for the quarter ended September
30, 1998, an increase of $539,000, or 24.6%. Noninterest expense totaled $8.2
million for the nine months ended September 30, 1999, an increase of $1.8
million, or 26.7%, from $6.4 million for the same period in 1998. The increase
in noninterest expense was primarily due to the Union Acquisition.
14
15
The following table presents, for the periods indicated, the major
categories of noninterest expense:
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
1999 1998 1999 1998
--------- --------- -------- -------
(Dollars in thousands)
Salaries and employee benefits....................... $ 1,394 $ 1,100 $ 4,213 $ 3,214
Non-staff expenses:
Net occupancy expense............................ 249 146 671 396
Equipment depreciation........................... 87 126 261 375
Data processing.................................. 209 202 625 571
Professional fees................................ 66 36 162 82
Regulatory assessments and FDIC insurance........ 21 18 64 53
Ad valorem and franchise taxes................... 51 54 149 145
Goodwill amortization............................ 162 120 485 354
Other............................................ 495 393 1,538 1,259
--------- --------- -------- -------
Total non-staff expenses..................... 1,340 1,095 3,955 3,235
Total noninterest expense.................... $ 2,734 $ 2,195 $ 8,168 $ 6,449
========= ========= ======== ========
Salaries and employee benefit expenses were $1.4 million for the
quarter ended September 30, 1999 compared with $1.1 million for the quarter
ended September 30, 1998, an increase of $294,000, or 26.7%. For the nine month
period ended September 30, 1999, salaries and employee benefits totaled $4.2
million, an increase of $999,000, or 31.1%, from $3.2 million for the nine month
period ending September 30, 1998. The change was due primarily to an increase in
the number of employees due to the Union Acquisition and regular annual employee
salary increases.
Non-staff expenses increased $245,000, or 22.4%, to $1.3 million for
the quarter ended September 30, 1999 compared with the same period in 1998. For
the nine month period ended September 30, 1999, non-staff expenses increased
$720,000, or 22.3%, to $4.0 million from $3.2 million for the same period in
1998. The increase was principally due to the Union Acquisition.
Income Taxes
For the three month period ended September 30, 1999, income tax expense
increased $259,000, or 53.2%, to $746,000 from $487,000 for the same period in
1998. Income tax expense increased $689,000, or 48.3%, to $2.1 million for the
nine months ended September 30, 1999 from $1.4 million for the same period in
1998. Both increases were primarily attributable to higher pretax net earnings.
FINANCIAL CONDITION
Loan Portfolio
Total loans were $197.5 million at September 30, 1999, an increase of
$27.0 million, or 15.9% from $170.5 million at December 31, 1998. Loan growth
occurred primarily in commercial mortgages and 1-4 family residential loans.
Period end loans comprised 47.0% of average earning assets at September 30, 1999
compared with 51.9% at December 31, 1998.
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16
The following table summarizes the loan portfolio of the Company by
type of loan as of September 30, 1999 and December 31, 1998:
September 30, December 31,
1999 1998
------------------ -------------------
Amount Percent Amount Percent
--------- ------- --------- -------
(Dollars in thousands)
Commercial and industrial........ $ 18,307 9.3% $ 16,972 10.0%
Real estate:
Construction and land
development............... 3,631 1.8 1,727 1.0
1-4 family residential......... 89,795 45.5 80,062 46.9
Home equity.................... 10,581 5.4 8,077 4.7
Commercial mortgages........... 30,843 15.6 22,240 13.1
Farmland....................... 6,579 3.3 6,148 3.6
Multifamily residential........ 1,610 0.8 1,090 0.6
Agriculture...................... 17,317 8.8 14,107 8.3
Consumer......................... 18,837 9.5 20,055 11.8
--------- ------- --------- -------
Total loans................. $ 197,500 100.0% $ 170,478 100.0%
========= ======= ========= =======
Allowance for Credit Losses
Management actively monitors the Company's asset quality and provides
specific loss allowances when necessary. Loans are charged-off against the
allowance for credit losses when appropriate. Although management believes it
uses the best information available to make determinations with respect to the
allowance for credit losses, future adjustments may be necessary if economic
conditions differ from the assumptions used in making the initial
determinations. As of September 30, 1999, the allowance for credit losses
amounted to $2.1 million, or 1.05% of total loans compared with $1.9 million, or
1.09% of total loans at December 31, 1998.
Set forth below is an analysis of the allowance for credit losses for
the periods indicated:
Nine Months Ended Year Ended
September 30, December 31,
1999 1998
----------------- ------------
(Dollars in thousands)
Average loans outstanding.......................... $ 183,213 $ 143,196
================= ============
Gross loans outstanding at end of period........... $ 197,500 $ 170,478
================= ============
Allowance for credit losses at
beginning of period.............................. $ 1,850 $ 1,016
Balance acquired with Union Acquisition............ -- 661
Provision for credit losses........................ 205 239
Charge-offs:
Commercial and industrial........................ (4) --
Real estate and agriculture...................... (14) (14)
Consumer......................................... (27) (67)
Recoveries:
Commercial and industrial........................ 7 5
Real estate and agriculture...................... 47 --
Consumer......................................... 8 10
----------------- ------------
Net recoveries (charge-offs)....................... 17 (66)
----------------- ------------
Allowance for credit losses at end of period....... $ 2,072 $ 1,850
================= ============
Ratio of allowance to end of period loans.......... 1.05% 1.09%
Ratio of net (recoveries) charge-offs to average
loans............................................ (0.01) 0.05
Ratio of allowance to end of period
nonperforming loans.............................. -- --
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17
Nonperforming Assets
The Company had $125,000 and $140,000 in nonperforming assets for the
periods ended September 30, 1999 and December 31, 1998, respectively. The
Company generally places a loan on nonaccrual status and ceases accruing
interest when the payment of principal or interest is delinquent for 90 days, or
earlier in some cases, unless the loan is in the process of collection and the
underlying collateral fully supports the carrying value of the loan. The Company
generally charges off all loans before attaining nonaccrual status.
The following table presents information regarding nonperforming
assets as of the dates indicated:
September 30, December 31,
1999 1998
------------- ------------
(Dollars in thousands)
Nonaccrual loans.................................. $ -- $ 5
Accruing loans 90 or more days past due........... -- --
------------- ------------
Total nonperforming loans...................... -- 5
Other real estate................................. 125 135
------------- ------------
Total nonperforming assets..................... $ 125 $ 140
============= ============
Securities
Securities totaled $211.2 million at September 30, 1999 compared with
$227.7 million at December 31, 1998, a decrease of $16.5 million, or 7.2%. The
decrease was primarily due to an increase in loans. At September 30, 1999,
securities represented 47.5% of total assets compared with 52.2% of total assets
at December 31, 1998.
Premises and Equipment
Premises and equipment, net of accumulated depreciation, totaled $6.0
million and $6.1 million at September 30, 1999 and December 31, 1998,
respectively.
Deposits
Total deposits were $399.7 million at September 30, 1999 compared with
$390.7 million at December 31, 1998, an increase of $9.1 million. At September
30, 1999, noninterest-bearing deposits accounted for approximately 22.1% of
total deposits compared with 21.8% of total deposits at December 31, 1998.
Interest-bearing deposits totaled $311.5 million, or 77.9%, of total deposits at
September 30, 1999 compared with $305.7 million, or 78.3%, of total deposits at
December 31, 1998.
Borrowings
The Company had no Federal Home Loan Bank ("FHLB") advances at
September 30, 1999, compared with $2.4 million in FHLB advances at December 31,
1998. The amount of FHLB advances the Company has at any given time is based on
the Company's daily liquidity position and will increase or decrease according
to the Company's funding needs.
Liquidity
Effective management of balance sheet liquidity is necessary to fund
growth in earning assets and to pay liability maturities, depository customers'
withdrawal requirements and shareholders' dividends. Thc Company has numerous
sources of liquidity including a significant portfolio of shorter-term assets,
marketable investment
17
18
securities (excluding those presently classified as "held-to-maturity"),
increases in customers' deposits, and access to borrowing arrangements.
Available borrowing arrangements maintained by the Company include federal funds
lines with other commercial banks and an advancement arrangement with the FHLB.
Asset liquidity is provided by cash and assets which are readily
marketable or which will mature in the near future. As of September 30, 1999,
the Company had cash and cash equivalents of $15.2 million, down from $18.3
million at December 31, 1998. The decline was due primarily to an increase in
loans.
Capital Resources
Total shareholders' equity was $42.9 million at September 30, 1999
compared with $41.4 million at December 31, 1998, an increase of $1.5 million,
or 3.5%. The increase was primarily due to net earnings of $4.5 million, cash
dividends paid of $779,000, and an unrealized loss on available for sale
securities of $2.3 million for the nine months ended September 30, 1999.
Both the Board of Governors of the Federal Reserve System, with respect
to the Company, and the Federal Deposit Insurance Corporation ("FDIC"), with
respect to the Bank, have established certain minimum risk-based capital
standards that apply to bank holding companies and federally insured banks. As
of September 30, 1999, the Company's Tier 1 risk-based capital, total risk-based
capital and leverage capital ratios were 18.32%, 19.38% and 8.21%, respectively.
As of September 30, 1999, the Bank's risk-based capital ratios were above the
levels required for the Bank to be designated as "well capitalized" by the FDIC,
with Tier-1 risk-based capital, total risk-based capital and leverage capital
ratios of 14.22%, 15.29% and 6.37%, respectively.
YEAR 2000 COMPLIANCE
General. The Year 2000 risk involves computer programs and computer
software that are not able to perform without interruption into the Year 2000.
If computer systems do not correctly recognize the date change from December 31,
1999 to January 1, 2000, computer applications that rely on the date field could
fail or create erroneous results. Such erroneous results could affect interest,
payment or due dates or cause the temporary inability to process transactions,
send invoices or engage in similar normal business activities. If these issues
are not addressed by the Company, its suppliers and its borrowers, there could
be a material adverse impact on the Company's financial condition or results of
operations.
State of Readiness. The Company formally initiated its Year 2000
project and plan in November 1997 to insure that its operational and financial
systems will not be adversely affected by year problems. The Company has formed
a Year 2000 project team and the Board of Directors and management are
supporting all compliance efforts and allocating the necessary resources to
ensure completion. An inventory of all systems and products (including both
information technology ("IT") and non-informational technology ("non-IT")
systems) that could be affected by the Year 2000 date change has been developed,
verified and categorized as to its importance to the Company and an assessment
of all major IT and critical non-IT systems has been completed. This assessment
involved inputting test data which simulates the Year 2000 date change into such
IT systems and reviewing the system output for accuracy. The Company's
assessment of critical non-IT systems involved reviewing such systems to
determine whether they were date dependent. Based on such assessment, the
Company believes that none of its critical non-IT systems are date dependent.
The software for the Company's systems is provided through service bureaus and
software vendors. The Company has contacted all of its third party vendors and
software providers and is requiring them to demonstrate and represent that the
products provided are or will be Year 2000 compliant and has planned a program
of testing compliance. The Company's service bureau, which performs
substantially all of the Company's data processing functions, has warranted in
writing that its software is Year 2000 compliant and pursuant to applicable
regulatory guidelines the Company has reviewed the results of user group tests
performed by the service provider to verify this assertion. The Company believes
it would have recourse against the service provider for actual damages incurred
by the Company in the event the service provider breaches this warranty. In
addition, the FDIC has reviewed the Company's compliance with Year 2000 issues.
18
19
The Company has completed the following phases of its Year 2000 plan:
(i) recognizing Year 2000 issues, (ii) assessing the impact of Year 2000 issues
on the Company's critical systems (iii) upgrading systems as necessary to
resolve those Year 2000 issues which have been identified and (iv) developing a
business resumption contingency plan. The Company has implemented and tested all
of its mission critical systems and continues to monitor customer awareness of
Year 2000 issues.
Costs of Compliance. Management does not expect the costs of bringing
the Company's systems into Year 2000 compliance will have a material adverse
effect on the Company's financial condition, results of operations or liquidity.
The Company has budgeted $10,000 to address Year 2000 issues. As of September
30, 1999, the Company has incurred $6,000 in relation to Year 2000. The largest
potential internal risk to the Company concerning Year 2000 is the malfunction
of its data processing system. In the event its data processing system does not
function properly, the Company is prepared to perform functions manually. The
Company believes it is in compliance with regulatory guidelines regarding Year
2000 compliance, including the timetable for achieving compliance.
Risks Related to Third Parties. The impact of Year 2000 noncompliance
by third parties with which the Company transacts business cannot be accurately
gauged. The Company identified its largest dollar deposit (aggregate deposits
over $500,000) and loan ($250,000 or more) customers and, based on information
available to the Company, conducted an evaluation to determine which of those
customers are likely to be affected by Year 2000 issues. The Company then
surveyed those customers deemed at risk to determine their readiness with
respect to Year 2000 issues, including their awareness of Year 2000 issues,
plans to address such issues and progress with respect to such plans. The
responses indicated that the customers are aware of Year 2000 issues, are in the
process of updating their systems and have informed the Company that they
believe they will be ready for the Year 2000 date change by the end of 1999. The
Company will continue to monitor its customers deemed at risk and will encourage
customers to resolve any identified problems. To the extent a problem is
identified, the Company intends to monitor the customer's progress in resolving
such problem. In the event that Year 2000 noncompliance adversely affects a
borrower, the Company may be required to charge-off the loan to that borrower.
For a discussion of possible effects of such charge-offs, see "--Contingency
Plans" below. In the event that Year 2000 noncompliance causes a depositor to
withdraw funds, the Company plans to maintain additional cash on hand. The
Company also has access to the FHLB and Federal Reserve Discount Windows to
address any additional liquidity needs. With respect to its borrowers, the
Company includes in its loan documents a Year 2000 disclosure form and an
addendum to the loan agreement in which the borrower represents and warrants its
Year 2000 compliance to the Company.
Customer Awareness. The Company has implemented a series of
notifications to its customers via statement inserts, statement messages and
community forums. Future plans for increasing customer awareness will include
advertising and signs regarding the Year 2000 issue located in the lobby of each
banking location.
Contingency Plans. The Company has finalized its contingency planning
with respect to the Year 2000 date change and believes that if its own systems
should fail, the Company could convert to a manual entry system for a period of
up to six months without significant losses. The Company believes that any
mission critical systems could be recovered and operating within seven days. In
the event that the Federal Reserve is unable to handle-electronic funds
transfers and check clearing, the Company does not expect the impact to be
material to its financial condition or results of operations as long as the
Company is able to utilize an alternative electronic funds transfer and clearing
source. As part of its contingency planning, the Company has reviewed its loan
customer base and the potential impact on capital of Year 2000 noncompliance.
Based upon such review, using what it considers to be a reasonable worst case
scenario, the Company has assumed that certain of its commercial borrowers whose
businesses are most likely to be affected by Year 2000 noncompliance would be
unable to repay their loans, resulting in charge-offs of loan amounts in excess
of collateral values. If such were the case, the Company believes that it is
unlikely that its exposure would exceed $100,000, although there are no
assurances that this amount will not be substantially higher. The Company does
not believe that this amount is material enough for the Company to adjust its
current methodology for making provisions to the allowance for credit losses. In
addition, the Company plans to maintain additional cash on hand to meet any
unusual deposit withdrawal activity.
19
20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company manages market risk, which for the Company is primarily
interest rate risk, through its Asset Liability Committee which is composed of
senior officers of the Company, in accordance with policies approved by the
Company's Board of Directors. The Company uses simulation analysis to examine
the potential effects of market changes on net interest income and market value.
It considers macroeconomic variables, Company strategy, liquidity and other
factors as it quantifies market risk. There have been no material changes of
this nature since the Company's Form 10-K filing on March 24, 1999. See Form
10-K, Item 7 "Management's Discussion and Analysis and Results of
Operations-Interest Rate Sensitivity and Liquidity".
20
21
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
a. Not applicable
b. Not applicable
c. Not applicable
d. Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
Exhibit 27 Financial Data Schedule
b. No reports on Form 8-K were filed by the Company during the three
months ended September 30, 1999.
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.
PROSPERITY BANCSHARES, INC.
(Registrant)
Date: November 15, 1999 /s/ DAVID ZALMAN
----------------- ---------------------------------
David Zalman
Vice President/Secretary
Date: November 15, 1999 /s/ DAVID HOLLAWAY
----------------- ---------------------------------
David Hollaway
Chief Financial Officer
21
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INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
27 Financial Data Schedule