1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM 10-Q
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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 Number)
P.O. BOX 802527
DALLAS, TEXAS 75380-2527
(Address of principal executive offices) (Zip Code)
(214) 701-4700
(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 April 30, 1994, 20,047,025 shares of the registrant's Common Stock, $.01
par value, were outstanding.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BANCTEXAS GROUP INC.
CONSOLIDATED BALANCE SHEETS - UNAUDITED
March 31, December 31,
---------------------
1994 1993 1993
-------- -------- ------------
(Dollars in thousands)
ASSETS
Cash and due from banks ........................ $ 9,140 $ 7,154 $ 8,565
Time deposits with banks ....................... 1,310 713 2,525
Federal funds sold ............................. 1,300 7,600 14,400
--------- --------- ---------
Total cash and cash equivalent ............ 11,750 15,467 25,490
Mortgage-backed and other investment securities
held to maturity at cost (approximate fair
value of $124,823, $123,492 and $115,344) .... 126,856 122,908 116,451
Mortgage-backed securities available for sale at
approximate fair value (cost $38,606, $0 and
$43,774) ..................................... 38,303 - 43,707
Loans (net of unearned income of $4,928,
$9,220 and $4,571) ........................... 163,550 173,975 147,135
Loans available for sale (net of unearned income
income of $92, $0 and $432) .................. 10,004 - 20,597
Less: Allowance for loan losses ............... (2,609) (3,009) (2,637)
--------- --------- --------
Total loans, net .......................... 170,945 170,966 165,095
Foreclosed property, net ....................... 2,617 4,358 3,171
Premises and equipment, net .................... 11,213 11,485 11,338
Accrued interest receivable .................... 1,487 - 1,247
Other assets ................................... 2,247 3,358 2,109
--------- --------- ---------
Total assets .............................. $ 365,418 $ 328,542 $ 368,608
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing .......................... $ 49,206 $ 45,477 $ 44,409
Interest bearing ............................. 196,094 225,951 198,488
--------- --------- ---------
Total deposits ............................ 245,300 271,428 242,897
Securities sold under agreements to repurchase . 90,089 37,750 95,208
Other short-term borrowings .................... 1,137 1,109 1,096
FHLB long-term advances......................... 10,670 - 10,918
Other liabilities .............................. 2,625 2,758 2,483
Long-term debt ................................. 1,054 1,054 1,054
--------- --------- ---------
Total liabilities ......................... 350,875 314,099 353,656
--------- --------- ---------
Stockholders' equity:
Common stock: $.01 par value; authorized
50,000,000 shares; issued and outstanding
shares 19,647,025, 19,300,525 and 19,583,025 197 193 196
Capital in excess of par ..................... 273,051 272,370 273,035
Accumulated deficit .......................... (258,402) (258,120) (258,212)
Net unrealized loss on securities available
for sale ................................... (303) - (67)
--------- --------- ---------
Total stockholders'equity ................ 14,543 14,443 14,952
--------- --------- ---------
Total liabilities and stockholders' equity $ 365,418 $ 328,542 $ 368,608
========= ========= =========
See Notes to Consolidated Financial Statements.
1
3
BANCTEXAS GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
Three Months
ended March 31,
--------------------
1994 1993
-------- --------
(In thousands,
except per share)
INTEREST INCOME
Loans .......................................... $ 3,524 $ 4,013
Investment securities .......................... 1,850 1,702
Federal funds sold ............................. 33 32
Other interest income .......................... 21 5
-------- --------
Total interest income .................... 5,428 5,752
INTEREST EXPENSE
Deposits ....................................... 1,703 2,045
Securities sold under agreements to repurchase . 721 330
Other short-term borrowings .................... 6 7
FHLB long-term advances ........................ 132 -
Long-term debt ................................. 23 23
-------- --------
Total interest expense ................... 2,585 2,405
-------- --------
Net interest income ...................... 2,843 3,347
Provision for loan losses ........................ 75 140
-------- --------
Net interest income after
provision for loan losses .............. 2,768 3,207
NONINTEREST INCOME
Service charges and fees ....................... 410 432
Investment securities gains .................... - 37
Loan sales and loan servicing income ........... 175 114
Other .......................................... 46 67
-------- --------
Total noninterest income ................. 631 650
NONINTEREST EXPENSE
Personnel expense .............................. 1,770 1,602
Occupancy ...................................... 330 385
Equipment ...................................... 231 229
Litigation settlement expense .................. - 52
Professional fees .............................. 389 469
Net operating (income) expense of foreclosed
property ..................................... 19 (16)
Communications and supplies .................... 277 238
Data processing ................................ 232 238
Other .......................................... 341 349
-------- --------
Total noninterest expense ................ 3,589 3,546
-------- --------
Net income (loss) before taxes ........... (190) 311
Income tax expense ............................... - -
-------- --------
Net income (loss) ........................ $ (190) $ 311
======== ========
PER SHARE
Net income (loss) .............................. $ (.01) $ .01
======== ========
Weighted average common shares and common share
equivalents outstanding ...................... 23,329 23,243
======== ========
See Notes to Consolidated Financial Statements.
2
4
BANCTEXAS GROUP INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY - UNAUDITED
Three Months
ended March 31,
---------------------
1994 1993
--------- ---------
(Dollars in thousands)
COMMON STOCK:
Balance at beginning of year ................... $ 196 $ 192
Exercised Option ............................... 1 1
--------- ---------
Balance at March 31 ............................ 197 193
--------- ---------
CAPITAL IN EXCESS OF PAR:
Balance at beginning of year ................... 273,035 272,346
Exercised Option ............................... 16 24
--------- ---------
Balance at March 31 ............................ 273,051 272,370
--------- ---------
ACCUMULATED DEFICIT:
Balance at beginning of year ................... (258,212) (258,431)
Net income (loss) .............................. (190) 311
--------- ---------
Balance at March 31 ............................ (258,402) (258,120)
--------- ---------
NET UNREALIZED LOSS ON SECURITIES
AVAILABLE FOR SALE:
Balance at beginning of year ................... (67) -
Net loss ....................................... (236) -
--------- ---------
Balance at March 31 ............................ (303) -
--------- ---------
TOTAL STOCKHOLDERS' EQUITY ....................... $ 14,543 $ 14,443
========= =========
See Notes to Consolidated Financial Statements.
3
5
BANCTEXAS GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
Three Months
ended March 31,
----------------------
1994 1993
--------- ----------
(Dollars in thousands)
OPERATING ACTIVITIES:
Net income (loss) ....................................... $ (190) $ 311
Adjustments to reconcile net income to net cash
used in operating activities:
Provision for loan losses ........................... 75 140
Depreciation, amortization and accretion ............ 372 371
Gain on sale of investment securities ............... - (37)
Gain on sale of assets .............................. (1) (99)
Gain on sale of loans ............................... (39) (79)
Provision for losses on foreclosed property ......... 83 110
Net increase in accrued interest receivable ......... (241) (94)
Net increase in other assets ........................ (491) (400)
Net increase in accrued interest payable ............ 14 1
Net increase (decrease) in other liabilities ........ 128 (274)
Proceeds from sale of loans originated for sale ..... 24,480 -
Loans originated for sale ........................... (24,795) -
--------- ---------
Net cash used in operations ....................... (605) (50)
INVESTING ACTIVITIES:
Proceeds from loan sales ................................ - 4,013
Proceeds from maturities of investment securities ....... 9,379 6,211
Proceeds from sales of investment securities ............ - 1,727
Purchase of investment securities ....................... (14,796) (17,282)
Increase in loans (net of loans originated for sale) .... (6,004) (3,606)
Recoveries on loans previously charged-off .............. 439 217
Proceeds from sales of foreclosed property .............. 765 842
Capital expenditures .................................... (70) (158)
Proceeds from sales of premises and equipment ........... 58 -
--------- ---------
Net cash used in investing activities ............. (10,229) (8,036)
FINANCING ACTIVITIES:
Net increase in deposits ................................ 2,403 698
Net increase (decrease) in securities sold under
agreements to repurchase .............................. (5,367) 5,280
Net increase (decrease) in other short-term borrowings .. 41 (256)
Cash repayment of long-term debt ........................ - (12)
Exercised stock options ................................. 17 25
--------- ---------
Net cash provided by (used in) financing activities (2,906) 5,735
Net decrease in cash and cash equivalents ................. (13,740) (2,351)
Cash and cash equivalents at beginning of period .......... 25,490 17,818
--------- ---------
Cash and cash equivalents at March 31 ............. $ 11,750 $ 15,467
========= =========
Supplemental disclosure of cash paid for interest ......... $ 2,571 $ 2,404
========= =========
Supplemental schedule of noncash investing and
financing activities:
Additions to other real estate and collateral acquired $ - $ -
========= =========
Subsequent loans to facilitate the sale
of other real estate ................................ $ - $ -
========= =========
Transfer of investment securities to available for sale $ - $ -
========= =========
Transfer from loans available for sale to loans ....... $ 9,709 $ -
========= =========
See Notes to Consolidated Financial Statements.
4
6
BANCTEXAS GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE 1 BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the parent
company and all subsidiaries. All significant intercompany balances and
transactions have been eliminated.
The financial statements in this report have not been audited, but in the
opinion of management, include all normal recurring adjustments necessary to
make the information presented not misleading. The accounting policies
followed by BancTEXAS Group Inc. (BTX) and its subsidiary bank, BankTEXAS N.A.
(the Bank) in the presentation of interim financial results are consistent with
those followed on an annual basis. These policies are presented on pages 34-37
in BTX's 1993 Annual Report to Stockholders.
NOTE 2 FEDERAL INCOME TAXES
For federal income tax purposes, at March 31, 1994, BTX had net operating
loss carryforwards of approximately $65 million. The net operating loss (NOL)
carryforwards expire as follows:
Year ending December 31, Tax NOL
------------------------ -------
(Dollars in Millions)
1994 ..................... $ 20
1995 ..................... 5
1996 ..................... 2
1997 ..................... -
1998 - 2008 .............. 38
-----
$ 65
=====
At March 31, 1994, BTX had investment tax credit carryforwards of $412
thousand, which will be available in the future to offset taxes otherwise
payable. The investment tax credit carryforwards expire between 1996 and 2001.
Investment tax credit carryforwards have been reduced in accordance with the
provisions of the Tax Reform Act of 1986.
5
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
BancTEXAS Group Inc. (herein BTX) is a bank holding company with one
subsidiary bank known as BankTEXAS N.A. (herein the Bank). BTX had
consolidated total assets of $365 million at March 31, 1994.
The following discussion and analysis presents the significant changes in
the results of operations and financial condition for the periods indicated.
The discussion should be read in conjunction with the consolidated financial
statements and notes and supplemental financial data included elsewhere in this
report.
The net loss for the first quarter of 1994 was $190 thousand, or ($.01)
per share, compared to net income of $311 thousand, or $.01 per share, for the
first quarter of 1993.
NET INTEREST INCOME
Net interest income for the first quarter of 1994 decreased $504 thousand,
or 15%, from the first quarter of 1993. TABLE 1 presents the components of net
interest income for the first quarter ended March 31, 1994 and 1993.
TABLE 1 - NET INTEREST INCOME
First Quarter
----------------------------------
1994 1993
--------------- ----------------
Amount Rate Amount Rate
-------- ------ -------- ------
(Dollars in thousands)
Average earning assets ................. $337,900 6.51% $302,243 7.72%
======== ========
Average interest bearing liabilities ... 296,031 3.54 265,436 3.67
---- ----
Interest rate spread ................... 2.97 4.05
==== ====
Interest free sources used to fund
earning assets ....................... 41,869 36,807
-------- --------
Total sources of funds ................. $337,900 3.10 $302,243 3.23
======== ========
Net interest margin .................... 3.41% 4.49%
==== ====
Net interest income .................... $ 2,843 $ 3,347
======== ========
Interest income ........................ $ 5,428 $ 5,752
======== ========
Interest expense ....................... $ 2,585 $ 2,405
======== ========
_____________________
BTX has no tax-exempt income.
Average earning assets for the first quarter of 1994 increased $35.7
million, or 12%, from the first quarter of 1993. Average investment securities
for the first quarter of 1994 increased $36.9 million or 30% from the first
quarter of 1993. The increase in investments resulted from funding provided by
the Federal Home Loan Bank.
The decline in yield on average earning assets from 7.72% in the first
quarter of 1993 to 6.51% for the first quarter of 1994 was due to the yield on
investment securities declining 92 basis points and the yield on loans
declining 101 basis points. As noted on page 11, 69% of the Company's
investment portfolio
6
8
BANCTEXAS GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
is invested in adjustable rate mortgages. Because of the lower current rate
environment as compared to the first quarter 1993, BTX's investment securities
are repricing at lower rates. Also, current investment purchases are at market
rates and replacing higher yielding securities that mature. Correspondingly,
the same circumstances occur in the Bank's loan portfolio where higher yielding
loans are maturing and being replaced by loans at lower market rates. Also,
12% of the Company's loans are priced on a variable rate basis.
At a time when the marketplace is experiencing very stable rates on
deposits, BTX's much larger competitors have focused on auto loans as a
desirable product for them. This increased competition has kept automobile
loan rates down.
These cyclical changes in interest rates can hurt interest margin and
reduce profitability. Therefore, BTX has embarked on a program to diversify
its loan portfolio in an attempt to preserve and increase margins in the
future. By the end of December, BTX had begun purchasing residential mortgages
originated by others. These are priced to float with short-term rates and are
resold to mortgage loan investors, usually within 30 days after purchase. BTX
expects to expand this program to additional mortgage companies in 1994. Also,
BTX joined with a new Texas firm in providing F.H.A. Title One home improvement
financing at rates higher than those that can be expected in the auto finance
area. BTX is attempting to further diversify the loan portfolio provided that
it is done with acceptable credit risk but at higher yields than were obtained
in 1993.
Average interest bearing liabilities for the first quarter of 1994
increased $30.6 million from the same period last year. Average levels of
interest bearing deposits decreased $29.4 million, or 13%, from the first
quarter of 1993 to the first quarter of 1994. Average public fund deposits
decreased $22.7 million and other time deposits decreased $6.7 million.
Offsetting these decreases, short-term borrowings from the Federal Home Loan
Bank, securities dealers increased $50.5 million and short-term borrowings
through the Company's public funds contracts increased $9.5 million. These
short-term borrowings replaced public funds deposits. Also, demand deposits
increased $4.3 million and loans declined $2.7 million, providing additional
funding for the increased investment portfolio. TABLE 2 presents the detailed
schedules of the past five quarters of average balance sheet data and related
yields and rates. TABLE 3 presents an analysis of the changes in net interest
income for the first quarter ended March 31, 1994 and 1993.
As noted on page 19, the Company is in a liability sensitive interest
sensitivity position in all time periods under one year. Currently, the
economy is in a rising rate environment. The Company can manage its interest
sensitivity position by obtaining long-term advances from the Federal Home
Loan Bank and extend the liabilities of the Bank if management determines that
it is required.
7
9
BANCTEXAS GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
TABLE 2 - QUARTERLY AVERAGE BALANCE SHEETS/ANALYSIS OF INTEREST YIELDS AND RATES
(Dollars in thousands)
First Quarter 1994 Fourth Quarter 1993
-------------------------- -------------------------
Interest Interest
Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate
-------- ------- ------- -------- ------- -------
Earning assets:
Time deposits with banks ..... $ 2,338 $ 21 3.59% $ 1,645 $ 19 4.62%
Investment securities-taxable. 158,809 1,850 4.66 152,731 1,756 4.60
Federal funds sold and
securities purchased under
agreements to resell ....... 4,207 33 3.14 5,546 40 2.89
Loans* ..................... 172,546 3,524 8.28 165,774 3,509 8.40
-------- ------- -------- -------
Total earning assets ..... 337,900 5,428 6.51 325,696 5,324 6.49
------- -------
Nonearning assets:
Cash and due from banks ...... 9,752 9,733
Premises and equipment ....... 11,291 11,415
Other assets ................. 5,537 6,868
Allowance for loan losses .... (2,786) (2,686)
-------- --------
$361,694 $351,026
======== ========
Interest bearing liabilities:
Savings deposits ............. $ 83,557 506 2.46 $ 87,254 546 2.48
Certificates of deposit
$100,000 and over and
public funds ............... 22,550 221 3.97 22,554 222 3.91
Other time deposits .......... 91,665 976 4.32 92,653 1,031 4.41
Short-term borrowings ........ 97,205 859 3.53 84,075 742 3.53
Long-term debt ............... 1,054 23 9.00 1,054 24 9.00
-------- ------- -------- -------
Total interest bearing
liabilities ............ 296,031 2,585 3.54 287,590 2,565 3.54
------- -------
Noninterest bearing liabilities:
Demand deposits .............. 48,519 46,052
Other liabilities ............ 2,223 2,273
-------- --------
Total liabilities .......... 346,773 335,915
Stockholders' equity ........... 14,921 15,111
-------- --------
$361,694 $351,026
========
Net interest income ............ $ 2,843 $ 2,759
======= =======
Interest rate spread ........... 2.97% 2.95%
Net interest margin ............ 3.41% 3.36%
==== ====
- -------------------
BTX has no tax-exempt income.
* Loan fees are included for rate calculation purposes. Nonaccrual loans
have been included in the average balances, thereby reducing yields.
8
10
BANCTEXAS GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
TABLE 2 - QUARTERLY AVERAGE BALANCE SHEETS/ANALYSIS OF INTEREST YIELDS AND RATES
(Dollars in thousands)
Third Quarter 1993 Second Quarter 1993 First Quarter 1993
--------------------------- ----------------------------- -----------------------------
Interest Interest Interest
Average Income/ Average Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate Balance Expense Rate
-------- -------- ------- ---------- -------- ------- ---------- -------- -------
Earning assets:
Time deposits with banks ..... $ 450 $ 4 3.56% $ 580 $ 3 2.07% $ 616 $ 5 3.25%
Investment securities-taxable. 129,647 1,505 4.64 125,659 1,686 5.37 121,910 1,702 5.58
Federal funds sold and
securities purchased under
agreements to resell ....... 4,120 32 3.11 3,913 29 2.93 4,483 32 2.86
Loans* ..................... 174,217 3,784 8.62 172,408 3,847 8.95 175,234 4,013 9.29
-------- ------- -------- ------- -------- -------
Total earning assets ..... 308,434 5,325 6.85 302,560 5,565 7.38 302,243 5,752 7.72
------- ------- -------
Nonearning assets:
Cash and due from banks ...... 7,659 7,111 8,497
Premises and equipment ....... 11,410 11,457 11,528
Other assets ................. 6,682 7,077 7,292
Allowance for loan losses .... (2,813) (3,001) (3,078)
-------- -------- --------
$331,372 $325,204 $326,482
======== ======== ========
Interest bearing liabilities:
Savings deposits ............. $ 88,007 564 2.54 $ 89,020 568 2.56 $ 91,723 590 2.61
Certificates of deposit
$100,000 and over and
public funds ............... 30,239 276 3.62 36,694 335 3.66 42,907 393 3.71
Other time deposits .......... 92,629 1,037 4.44 92,761 1,053 4.55 92,548 1,062 4.65
Short-term borrowings ........ 57,240 523 3.65 43,258 376 3.44 37,199 337 3.62
Long-term debt ............... 1,054 24 9.03 1,054 24 9.13 1,059 23 8.81
-------- ------- -------- ------- -------- -------
Total interest bearing
liabilities ............ 269,169 2,424 3.57 262,787 2,356 3.60 265,436 2,405 3.67
------- ------- -------
Noninterest bearing liabilities:
Demand deposits .............. 45,136 45,042 44,173
Other liabilities ............ 2,220 2,863 2,643
-------- -------- --------
Total liabilities .......... 316,525 310,692 312,252
Stockholders' equity ........... 14,847 14,512 14,230
-------- -------- --------
$331,372 $325,204 $326,482
======== ======== ========
Net interest income ............ $ 2,901 $ 3,209 $ 3,347
======= ======= =======
Interest rate spread............ 3.28% 3.78% 4.05%
Net interest margin............. 3.73% 4.25% 4.49%
==== ==== ====
- -------------------
BTX has no tax-exempt income.
* Loan fees are included for rate calculation purposes. Nonaccrual loans
have been included in the average balances, thereby reducing yields.
9
11
BANCTEXAS GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
TABLE 3 - VOLUME/RATE ANALYSIS
First Quarter
1994 Change from 1993
-------------------------------
Change due to:
----------------------
Total Rate/
Change Volume Rate Volume*
------- ------- ------ ------
(Dollars in thousands)
Earning assets:
Time deposits with banks ................. $ 16 $ 14 $ 1 $ 1
Investment securities-taxable ............ 148 515 (282) (85)
Federal funds sold and
securities purchased
under agreements to resell ............. 1 (2) 3 -
Loans .................................... (489) (62) (434) 7
------ ------ ------ -----
Total interest income ............... (324) 465 (712) (77)
------ ------ ------ -----
Interest bearing funds:
Savings deposits ......................... (84) (53) (35) 4
Certificates of deposit of
$100,000 and over and
public funds ........................... (172) (187) 28 (13)
Other time deposits ...................... (86) (10) (77) 1
Short-term borrowings .................... 522 544 (8) (14)
Long-term debt ........................... - - - -
------- ------- ------ -----
Total interest expense .............. 180 294 (92) (22)
------- ------- ------ -----
Net interest income ...................... $ (504) $ 171 $ (620) $ (55)
======= ======= ====== =====
____________________
BTX has no tax-exempt income.
* Represents the change not solely attributable to change in rate or change
in volume but a combination of these two factors.
NONINTEREST INCOME
Noninterest income for the first quarter of 1994 decreased $19 thousand,
or 3%, from the first quarter of 1993. This decrease is primarily a result of
decreased revenue from check charges of $6 thousand and service charges of $7.4
thousand. Also in 1993, there was a gain from the sale of securities of $37
thousand while there was none in 1994. Income from loan sales and loan
servicing increased $61 thousand or 54% from the first quarter of 1993. As of
March 31, 1994 BTX is servicing $37 million in consumer loans compared to $19
million as of March 31, 1993. The Bank is also pursuing additional services
that may enhance the income stream including the sale of mutual funds,
annuities and other permissible product offerings - such as FHA Title One home
improvement loans and the purchase of residential mortgages which are held for
resale to permanent investors. Servicing fees generated from sales of pools of
consumer loans in the first quarter of 1994 were $137 thousand compared to $36
thousand in 1993.
10
12
BANCTEXAS GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
NONINTEREST EXPENSE
Noninterest expense for the first quarter of 1994 increased $43 thousand,
or 1%, from the first quarter of 1993. Personnel expense increased $168
thousand resulting from medical and pension costs increasing compared to the
first quarter of 1993. Occupancy expense decreased $55 thousand due to lower
costs of repairs and maintenance, receiving more tenant income from the Bank's
building in McKinney and paying lower rent from the Bank's leased location in
Houston. Professional fees decreased $80 thousand resulting from lower legal
fees and investment consulting fees incurred in the first quarter of 1994
compared to 1993. Communications and supplies increased $39 thousand due to
higher postage and telephone costs.
For 1994, noninterest expense should decline, principally from reduced
expenses related to nonperforming assets, i.e. write-downs and operating
expenses associated with foreclosed properties and legal fees associated with
foreclosure and litigation.
MORTGAGE-BACKED AND OTHER SECURITIES
Mortgage-backed and other securities (net of maturities and sales of
securities) at March 31, 1994 increased $5 million, or 3% from December 31,
1993. This increase in investment securities resulted from the purchase of
securities which are backed by U.S. Agency guaranteed mortgages for long-term
investment purposes. $9.9 million of securities, which reprice on a monthly
basis and are backed by adjusted rate mortgages, were purchased in the first
quarter of 1994. The repricing of these mortgages is based principally on the
11th District Cost of Funds Index and provides a mechanism for BTX's investment
portfolio to maintain yields corresponding to its funding costs. The cost of
funds indices for these securities are historical, predominately with a 90 day
repricing lag. Therefore, as interest rates decline, investment income will
generally decline and as interest rates increase, investment income will
generally increase. In addition to the adjustable rate securities, $4.9
million of fixed rate Federal National Mortgage Association (FNMA's) seven year
balloon securities were acquired in the first quarter of 1994. These
securities were purchased to fix a specific yield with specific fixed
maturities with an average life of 2.6 years. This strategy protects a portion
of this portfolio from declining interest rates, yet does not inappropriately
extend interest rate risk. BTX's public funds contracts are priced on a
variable rate basis. In addition, the Company's public funds contracts are
cyclical with predictable patterns. The investment securities also have cash
flows from planned amortizations and are subject to prepayments. These
features, along with the Company's strategy of utilizing the securities as
collateral for financing, enables the Company to manage its liquidity in a
proactive manner. As a result, the Company's federal funds sold position
averages $4.2 million, or 1.2% of average assets, which is less than that of
many comparable banks. These activities are actively managed by the Company,
which will continue to pursue opportunities available to it to
11
13
BANCTEXAS GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
maximize net interest income generated by the securities portfolio. Because of
the amortization schedules of mortgage-backed securities and the fact that they
are subject to prepayments, the weighted average life for the Bank's portfolio
of mortgage-backed securities is less than its stated maturity. Based on the
Company's prepayment experience, the weighted average life of its portfolio is
currently estimated to be 4.25 years. BTX's investment portfolio at March 31,
1994 was $165 million, with 69% of the portfolio invested in agency-backed
adjustable rate mortgages.
LOANS
Loans, net of unearned income, were $173.5 million at March 31, 1994, an
increase of $5.8 million or 3%, from December 31, 1993. The Bank sold $24.4
million of loans in the first quarter of 1994 compared to $3.9 million in 1993.
BTX's loan portfolio at March 31, 1994, was composed of 5% commercial, 15% real
estate and 80% consumer. This mix compares to a loan portfolio composition of
5% commercial, 16% real estate and 79% consumer at December 31, 1993. BTX has
less than $1 million in loans to foreign borrowers. TABLE 4 presents the
composition of the loan portfolio.
During 1993, the Bank began to originate loans for sale. Prior to 1993,
loans that the Bank sold were originated to be held in its loan portfolio.
However, because of excess loan production, the Bank sold some of its
automobile consumer loans in 1991 and 1992 to reduce its loan portfolio to
targeted levels. In 1993, since the Bank's capacity for excess production was
well established, the Bank began to originate automobile loans for sale. Also,
as noted on page 7, the Bank began purchasing residential mortgages and home
improvement loans originated by others for the purpose of resale. These loans
have 30 day guaranteed take out commitments by long-term investors. Also,
these loans are serviced by the Federal Home Loan Bank and provide collateral
for borrowing from the FHLB, if needed.
The Bank's market areas are now experiencing moderate economic recovery
and the increase from $7 million at year-end 1992 to $9 million at year-end
1993 in residential interim construction lending has suggested a means to
expand its Real Estate Loan Portfolio. The Bank has carefully assessed the
risks related to such loans, as well as the benefits. These loans which
typically have a maturity of nine months and average $100,000 per house are
made only when permanent financing is in place from the permanent lenders and
only when the contractor responsible for construction of each home has met
rigorous standards, including verification of reputation, character, level of
experience and history of performance, as well as a detailed review of his
present and anticipated financial condition. In the first quarter of 1994, the
Bank made 96 of these loans for an aggregate of $10,165,000 and in the first
quarter of 1993, the bank made 95 of these loans for an aggregate of
$8,977,000. Interim construction lending has provided the Company with loan
fee revenues amounting to $95,000 and 74,000 for the first quarter of 1994 and
1993, respectively. The Company will be dependent on its market economy to
achieve growth in the real estate and commercial loan markets.
12
14
BANCTEXAS GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
TABLE 4 - LOAN COMPOSITION
March 31, December 31,
--------------------
1994 1993 1993
-------- -------- -----------
(Dollars in thousands)
Commercial .............................. $ 8,668 $ 10,693 $ 7,653
Real estate, construction ............... 8,782 7,070 9,072
Real estate, mortgage ................... 12,309 16,473 12,862
Real estate, mortgage available for sale 4,716 - 5,600
Installment ............................. 138,811 148,959 122,551
Installment available for sale .......... 5,288 - 14,997
-------- -------- --------
178,574 183,195 172,735
Unearned income ......................... (5,020) (9,220) (5,003)
-------- -------- --------
Loans, net of unearned income ........... $173,554 $173,975 $167,732
======== ======== ========
NONPERFORMING ASSETS
Nonperforming assets include nonaccrual loans, restructured loans,
foreclosed property and loans past due 90 days or more but not included in
nonaccrual loans. Loans are placed on nonaccrual when, in the opinion of
management, collectibility of principal or interest is doubtful. Loans past
due 90 days or more with respect to principal or interest are placed on
nonaccrual, unless they are both well secured and in the process of collection.
TABLE 5 presents the categories of nonperforming assets at the dates indicated.
Nonperforming assets at March 31, 1994 were $3.8 million, compared to $4.6
million at December 31, 1993. This level of nonperforming assets represents a
continuing effort by BTX to reduce the problem loan portfolio. The activity in
nonperforming assets for the first quarter of 1994 reflects $1 million in
additions and $1.8 million of which $285 thousand is charge-offs and the
balance is sales and collection of assets. For the first quarter of 1994,
interest income that would have been accrued at original contractual rates
resulting from nonperforming assets less the amount recognized as interest
income was $12,000. Nonperforming assets are expected to continue to decline
in 1994. Success in achieving this lower level is dependent upon market
conditions for real estate properties.
13
15
BANCTEXAS GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
TABLE 5 - NONPERFORMING ASSETS
March 31, December 31,
-------------------
1994 1993 1993
-------- -------- -----------
(Dollars in thousands)
Nonaccrual loans ......................... $ 954 $ 949 $ 622
Restructured loans ....................... - - -
Loans past due 90 days or more
but not included in nonaccrual loans ... 244 127 803
------- ------- -------
Total nonperforming loans 1,198 1,076 1,425
Foreclosed property, net ................. 2,617 4,358 3,171
------- ------- -------
Total ............................... $ 3,815 $ 5,434 $ 4,596
======= ======= =======
Ratio of nonperforming assets to
total assets ........................... 1.04% 1.65% 1.25%
======= ======= =======
Ratio of nonperforming assets to
total loans and foreclosed property .... 2.17% 3.05% 2.69%
======= ======= =======
TABLE 6 presents nonperforming assets by type of borrower. At March 31,
1994, real estate nonperforming assets totaled $2.9 million, or 76%, of total
nonperforming assets compared to 92% at March 31, 1993.
TABLE 6 - NONPERFORMING ASSETS BY TYPE OF BORROWER
March 31, December 31,
--------------------
1994 1993 1993
-------- -------- -----------
(Dollars in thousands)
Commercial .............................. $ 156 $ 542 $ 171
Energy .................................. - 750 710
Real estate, land ....................... 1,686 2,182 2,478
Real estate, residential ................ 263 417 246
Real estate, commercial ................. 945 1,099 622
Installment ............................. 765 444 369
------- ------- -------
Total .............................. $ 3,815 $ 5,434 $ 4,596
======= ======= =======
In addition to the nonperforming assets set forth above, at March 31,
1994, BTX had $1.9 million of loans classified as "potential problem loans" of
which 88% are secured by mortgages from four borrowers. This compares to $2.7
million of potential problem loans at March 31, 1993. A potential problem loan
is a loan which is currently being repaid in accordance with its terms but with
respect to which information about possible credit problems of the borrower is
known, causing management to have concern as to the ability of the borrower to
comply with the present loan repayment terms and which may result in disclosure
in the future in one of the nonperforming asset categories.
For many years, the impact of nonperforming assets has been one of the
primary causes of BTX's below average level of profitability. The high level
of nonperforming assets has resulted in lower net interest margins and high
noninterest expenses from: (1) the provision for loan losses, (2) professional
fees and (3) operating costs associated with nonperforming assets.
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16
BANCTEXAS GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
ALLOWANCE AND PROVISION FOR LOAN LOSSES
At March 31, 1994, the allowance for loan losses was approximately $2.6
million, or 1.5% of total loans, compared to $2.6 million or 1.6% of total
loans, at December 31, 1993. TABLE 7 presents the activity in the allowance
for loan losses. The ratio of the allowance for loan losses to total
nonperforming loans was 221.1% and 267.7% for the first quarter of 1994 and
1993, respectively.
Management considers the allowance for loan losses to be adequate at March
31, 1994. The adequacy of the reserve is determinable only on an approximate
basis since estimation of the magnitude and timing of loan losses involves
subjective judgments. In evaluating the adequacy of the reserve at March 31,
1994, consideration was given to such factors as management's evaluation of
specific loans; the level and composition of classified loans; historical loss
experience; results of examinations by regulatory agencies; an internal asset
review process that is independent of the Bank's management; expectations of
future economic conditions and their impact on particular industries and
individual borrowers; concentrations of credit; management depth and
experience; and other judgmental factors.
The provision for loan losses for the first quarter of 1994 was $75
thousand, compared to $140 thousand for the first quarter of 1993. Net
charge-offs for the first quarter of 1994 were $103 thousand compared to $175
thousand for the same period of 1993. The Bank's management believes that the
provision for loan losses in 1994 is anticipated to be substantially unchanged
from the amount recorded in 1993.
In prior years, BTX had been adversely affected by the economic conditions
in Texas. Last year economic conditions continued to improve, generally in
parallel with the national economy. Although improving, the overall Texas
economy still displays weakness in certain sectors such as commercial real
estate, energy and defense. Vacancy rates for commercial office space are some
of the highest in the nation. Although improving, the oil and gas industry
continues to suffer because of the lack of a comprehensive "National Energy
Policy." The Texas defense industry has been impeded as a result of the "Peace
Dividend." Cutbacks in other areas of government spending such as the Super
Collider and closure of some military bases have also hurt the Texas economy.
The management of BTX recognizes some adverse economic conditions still exist;
however, it does not expect that these will materially adversely impact the
provision for loan loss and its efforts to further upgrade the quality of the
Company's loan portfolio in 1994. Management periodically reviews and
considers the impact of the economy, as well as many other factors, in its
determination of the allowance for loan loss.
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17
BANCTEXAS GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
TABLE 7 - SUMMARY OF THE ALLOWANCE FOR LOAN LOSSES
March 31, December 31,
--------------------
1994 1993 1993
-------- -------- ------------
(Dollars in thousands)
Balance at beginning of period ..... $ 2,637 $ 3,044 $ 3,044
Provision for loan losses .......... 75 140 490
Loans charged off:
Commercial and financial ......... - 32 228
Energy ........................... - 40 40
Real estate ...................... 203 - 8
Installment ...................... 339 320 1,622
------- ------- -------
Total charge-offs .............. 542 392 1,898
Recoveries:
Commercial and financial ......... 119 30 164
Real estate ...................... 166 33 154
Installment ...................... 154 154 683
------- ------- -------
Total recoveries ............... 439 217 1,001
------- ------- -------
Net charge-offs ................ 103 175 897
------- ------- -------
Balance at end of period ........... $ 2,609 $ 3,009 $ 2,637
======= ======= =======
Allowance for loan losses as a
percent of period-end loans ...... 1.50% 1.73% 1.57%
======= ======= =======
Allowance for loan losses as a
percent of nonperforming loans.... 217.78% 279.65% 185.05%
======= ======= =======
DEPOSITS
During the first quarter of 1994 total deposits averaged $246 million, a
decrease of $2.2 million, or .8% from December 31, 1993. The decreased deposits
resulted primarily from decreased money market accounts compared to the fourth
quarter of 1993. In 1994, BTX will continue its efforts to maintain its
position in public funds contracts. See page 20 for a further discussion of
public funds contracts. TABLE 8 shows the types of deposits and the related
rates paid for the periods indicated.
TABLE 8 - DEPOSITS
First Quarter Fourth Quarter
----------------------------------
1994 1993 1993
---------------- ---------------- ----------------
Average Average Average
Balance Rate Balance Rate Balance Rate
-------- ----- -------- ----- -------- -----
(Dollars in thousands)
Demand ................ $ 48,519 - $ 44,173 - $ 46,052 -
Money market accounts . 65,317 2.48% 73,671 2.63% 68,364 2.48%
Savings ............... 18,240 2.36 18,052 2.52 18,890 2.50
Certificates of deposit
$100,000 and over ... 14,089 4.43 11,769 4.82 13,821 4.42
Public funds .......... 8,461 3.21 31,138 3.30 8,733 3.09
Other time ............ 91,665 4.32 92,548 4.65 92,653 4.41
-------- -------- --------
Total average
deposits ........ $246,291 $271,351 $248,513
======== ======== ========
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18
BANCTEXAS GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
CAPITAL RESOURCES
Stockholders' equity at March 31, 1994 was $14.5 million, compared to
$14.9 million at December 31, 1993. TABLE 9 provides certain additional
information concerning BTX's stockholders' equity and its allowance for loan
losses for the periods indicated.
TABLE 9 - CAPITAL AND ALLOWANCE FOR LOAN LOSSES
March 31, December 31,
------------------
1994 1993 1993
-------- -------- -----------
(Dollars in thousands)
Stockholders' equity ...................... $ 14,543* $ 14,443 $ 14,952*
======== ======== ========
Allowance for loan losses ................. 2,609 3,009 2,637
======== ======== ========
Ratio of stockholders' equity to assets ... 3.98% 4.40% 4.06%
======== ======== ========
____________________
*Effective December 31, 1993, as a result of the adoption of SFAS No. 115,
the effect of net unrealized losses on investment securities held for sale must
be included in the determination of BTX's stockholders' equity.
TABLE 10 compares the capital ratios of BTX and the Bank at March 31, 1994
with regulatory requirements applicable to all FDIC-insured banks and bank
holding companies. The federal bank regulatory agencies have the authority to
impose higher requirements on individual banks and bank holding companies.
TABLE 10 CAPITAL RATIOS
Tier I Capital as Total Capital as
a Percentage of a Percentage of
Risk-Based Leverage Risk-Based
Assets Ratio Assets
------ ----- ------
BTX at March 31, 1994 6.83% 4.09% 8.28%
Bank at
March 31, 1994 7.11% 4.36% 8.36%
Regulatory requirement
for all banks and bank
holding companies 4.625% 3.00 and above* 8.00%
____________________
*The general leverage ratio is 3% for banks and holding companies in the
highest rating category recognized by the bank regulatory agencies, and an
additional cushion of at least 100 to 200 basis points is required for other
banking organizations.
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19
BANCTEXAS GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
As defined by applicable regulations, "Tier I Capital" consists of the
stockholders' equity of BTX and the Bank respectively; "Total Capital" of the
Bank is the sum of the stockholders' equity plus a portion of the allowance for
loan losses, and "Total Capital" of BTX is the sum of its stockholders' equity,
a portion of the allowance for loan losses and outstanding convertible
debentures in the principal amount of $421,600. The term "risk-based assets"
equals total assets, plus certain off-balance sheet items, with various
adjustments designed to reflect the risk characteristics of the assets,
liabilities and certain off-balance sheet items; and "adjusted total assets" is
a term used to reflect a regulatory measure of a bank's total assets.
INFLATION
The financial statements and related information presented in this report
have been prepared in accordance with generally accepted accounting principles,
which require the measurement of financial position and results of operations
in terms of historical dollars without regard to changes over time in the
relative purchasing power of money. While inflation causes a loss of
purchasing power in the value of stockholders' equity, the ability of a company
to earn a real return on equity is of greater importance. Management believes
that historical information regarding the maturities of various assets and
liabilities and interest rate sensitivity, coupled with an understanding of
current economic trends, offers insights for assessing the company's ability to
cope with continuing inflation.
INTEREST RATE SENSITIVITY
BTX's Asset/Liability Management Policy Committee has as one of its
objectives to approximate a 1:1 ratio of interest-sensitive assets to
interest-sensitive liabilities through all time intervals. TABLE 11 shows each
ratio at all time intervals for March 31, 1994. Currently, BTX is in a
liability sensitive position at all periods under one year. During a declining
interest rate environment, this position would produce higher net interest
income and during a rising interest rate environment, this position would
produce a lower net interest income. It should be noted that the interest
sensitivity position is presented at a point in time and can be altered by
management as changing conditions dictate.
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20
BANCTEXAS GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
TABLE 11 - INTEREST RATE SENSITIVITY ANALYSIS
March 31, 1994
-----------------------------------------------------------------------
Rate-Sensitive
------------------------------------------------------
Total **Non-
Over Rate rate
1-30 31-90 91-180 181-365 1 Sen- Sen-
Days Days Days Days Year sitive sitive Total
-------- -------- -------- -------- -------- -------- -------- -------
(Dollars in thousands)
Earning assets $152,751 $ 21,610 $ 22,734 $ 28,539 $111,010 $336,644 $ 4,693 $341,337
Interest
bearing
liabilities. 180,985 17,490 18,366 18,956 63,246 299,043 - 299,043
-------- -------- -------- -------- -------- -------- ------- -------
Nominal gap .. (28,234) 4,120 4,368 9,583 47,764
Cumulative
interest
sensitivity
gap* ....... $(28,234)$(24,114)$(19,746)$(10,163)$ 37,601
======== ======== ======== ======== ========
Cumulative ratio
of earning
assets to in-
terest bearing
funds ......... 84% 88% 91% 96% 113%
____________________
*Rate-sensitive earning assets less rate-sensitive interest bearing
liabilities.
**The non-rate sensitive assets are composed of nonaccrual loans and
Federal Reserve Bank Stock.
LIQUIDITY
Liquidity for the Bank is the ability to raise funds to support asset
growth, meet deposit withdrawals, fund customers' legitimate borrowing needs,
satisfy maturities of short-term borrowings, and maintain reserve requirements.
Liquidity needs can be met from either assets or liabilities or a
combination of both. On the asset side, the primary sources of liquidity are
cash and due from banks, time deposits with banks, federal funds sold and
securities purchased under agreements to resell, short-term marketable
investment securities and scheduled repayments and maturities of loans. The
Bank's investment securities are purchased primarily for the purpose of
collateralizing public funds deposits. In the past, when the corresponding
public funds deposits were withdrawn, the pledged securities were sold with no
affect on liquidity. Currently, BTX retains its securities through cyclical
changes in public funds deposit levels. BTX utilizes sales of its securities
under agreements to repurchase in combination with the securities amortization
payments to manage its
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21
BANCTEXAS GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
overall funding and liquidity position. Average cash and due from banks for
the first quarter of 1994 was $9.8 million, an increase of $1.3 million, or
15%, from the first quarter of 1993. BTX's average level of federal funds sold
and securities purchased under agreements to resell was $4.2 million for the
first quarter of 1994, a decrease of $276 thousand or 6%, from the same period
last year.
On the liability side, the principal sources of liquidity are deposit
growth, the maturity distribution of purchased funds, unused credit lines, the
collateral value of investment securities and accessibility to money and
capital markets. Deposits for the first quarter of 1994 averaged $246 million,
a decrease of $25 million, or 9%, from the first quarter of 1993. This
decrease was due primarily from public funds deposits replaced by short-term
borrowings from the Company's public funds contracts. Securities sold under
agreements to repurchase averaged $97 million for the first quarter 1994, an
increase of $60 million from the first quarter of 1993. Currently, BTX and the
Bank have available credit lines from the FHLB and others to the extent of the
available collateral value of its investment security portfolio. The Bank
joined the FHLB in the third quarter of 1993. The Bank's membership in the
FHLB has enhanced its liquidity and provided an additional funding source. At
March 31, 1994, its borrowing against securities from the FHLB totaled $80
million and borrowing from securities dealers and other sources were $21
million.
BTX monitors its liquidity position continuously in relation to changes in
long-term and short-term interest rates. Maturity distribution and interest
sensitivity of assets and liabilities are adjusted in response to those
changes. In order to improve liquidity, the Bank will continue to pursue a
program to increase deposits, implement various cost-cutting and
revenue-generating measures, and explore other methods to increase liquidity,
including the acquisition of additional banks. Currently, the sources of
liquidity are deemed adequate but it is impossible to predict whether they will
remain so.
The possible sources of funds for BancTEXAS Group Inc. are the dividends
paid to it from its subsidiaries, proceeds from equity offerings or debt
offerings, and the proceeds from sales of assets. The FDIC Agreement and
federal banking law and regulation places certain restrictions on the payment
of dividends by BTX and the payment of dividends and management fees by the
Bank. Currently and in the foreseeable future, no dividends or fees can be
paid to BTX by the Bank.
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22
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Description
----------- -----------
11 Computation of Earnings (Loss) Per Share
(b) There were no reports on Form 8-K filed during the quarter ended March
31, 1994.
21
23
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 13, 1994 By /s/ D. KERT MOORE
D. Kert Moore
Treasurer and
Chief Financial Officer
22