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 June 30, 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 August 12, 1994, 20,084,525 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
June 30,
--------------------- December 31,
1994 1993 1993
--------- --------- ---------
(Dollars in thousands)
ASSETS
Cash and due from banks ........................ $ 9,066 $ 7,793 $ 8,565
Time deposits with banks ....................... 783 529 2,525
Federal funds sold ............................. 1,000 5,100 14,400
--------- --------- ---------
Total cash and cash equivalent ............ 10,849 13,422 25,490
Mortgage-backed and other investment securities
held to maturity at cost (approximate fair
value of $111,246, $124,226 and $115,344) .... 115,856 123,524 116,451
Mortgage-backed securities available for sale at
approximate fair value (cost $55,841, $0 and
$43,774) ..................................... 54,739 - 43,707
Loans (net of unearned income of $4,948,
$7,190 and $4,571) ........................... 165,549 172,966 147,135
Loans available for sale (net of unearned income
income of $67, $0 and $432) .................. 5,998 - 20,597
Less: Allowance for loan losses ............... (2,469) (2,836) (2,637)
--------- --------- --------
Total loans, net .......................... 169,078 170,130 165,095
Foreclosed property, net ....................... 2,331 3,921 3,171
Premises and equipment, net .................... 11,118 11,423 11,338
Accrued interest receivable .................... 1,523 1,264 1,247
Other assets ................................... 2,390 1,969 2,109
--------- --------- ---------
Total assets .............................. $ 367,884 $ 325,653 $ 368,608
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing .......................... $ 47,304 $ 40,964 $ 44,409
Interest bearing ............................. 189,877 211,842 198,488
--------- --------- ---------
Total deposits ............................ 237,181 252,806 242,897
Securities sold under agreements to repurchase . 77,554 53,394 95,208
Other short-term borrowings .................... 1,129 1,147 1,096
FHLB advances .................................. 33,418 - 10,918
Other liabilities .............................. 3,761 2,476 2,483
Long-term debt ................................. 1,054 1,054 1,054
--------- --------- ---------
Total liabilities ......................... 354,097 310,877 353,656
--------- --------- ---------
Stockholders' equity:
Common stock: $.01 par value; authorized
50,000,000 shares; issued and outstanding
shares 20,047,025, 19,325,525 and 19,583,025 201 193 196
Capital in excess of par ..................... 273,047 272,377 273,035
Accumulated deficit .......................... (258,359) (257,794) (258,212)
Net unrealized loss on securities available
for sale ................................... (1,102) - (67)
--------- --------- ---------
Total stockholders' equity ............... 13,787 14,776 14,952
--------- --------- ---------
Total liabilities and stockholders' equity $ 367,884 $ 325,653 $ 368,608
========= ========= =========
See Notes to Consolidated Financial Statements.
1
3
BancTEXAS Group Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS - Unaudited
Three Months Six Months
ended June 30, ended June 30,
-------------------- --------------------
1994 1993 1994 1993
-------- -------- -------- --------
(In thousands, except per share)
INTEREST INCOME
Loans ................................ $ 3,654 $ 3,847 $ 7,178 $ 7,860
Investment securities ................ 2,012 1,686 3,862 3,388
Federal funds sold ................... 28 29 61 61
Other interest income ................ 21 3 42 8
-------- -------- -------- --------
Total interest income .......... 5,715 5,565 11,143 11,317
INTEREST EXPENSE
Deposits ............................. 1,717 1,956 3,420 4,001
Securities sold under agreements to
repurchase ......................... 860 370 1,581 700
Other short-term borrowings .......... 10 6 16 13
FHLB advances ........................ 354 - 486 -
Long-term debt ....................... 24 24 47 47
-------- -------- -------- --------
Total interest expense ......... 2,965 2,356 5,550 4,761
-------- -------- -------- --------
Net interest income ............ 2,750 3,209 5,593 6,556
Provision for loan losses .............. 75 90 150 230
-------- -------- -------- --------
Net interest income after
provision for loan losses .... 2,675 3,119 5,443 6,326
NONINTEREST INCOME
Service charges and fees ............. 384 416 794 848
Investment securities gains .......... - - - 37
Loan sales and loan servicing income . 95 202 270 316
Other ................................ 306 42 352 109
-------- -------- -------- --------
Total noninterest income ....... 785 660 1,416 1,310
NONINTEREST EXPENSE
Personnel expense .................... 1,670 1,566 3,440 3,168
Occupancy ............................ 314 349 644 734
Equipment ............................ 209 219 440 448
Litigation settlement expense ........ - - - 52
Professional fees .................... 368 376 757 845
Net operating expense of
foreclosed property ................ 4 109 23 93
Communications and supplies .......... 242 250 519 488
Data processing ...................... 239 215 471 453
Other ................................ 371 369 712 718
-------- -------- -------- ---------
Total noninterest expense ...... 3,417 3,453 7,006 6,999
-------- -------- -------- --------
Net income (loss) before
taxes ........................ 43 326 (147) 637
Income tax expense ..................... - - - -
-------- -------- -------- --------
Net income (loss) .............. $ 43 $ 326 (147) 637
======== ======== ======== ========
PER SHARE
Net income (loss) .................... $ - $ .01 (.01) .03
======== ======== ======== ========
Weighted average common shares and
common share equivalents outstanding 23,596 23,214 23,464 23,228
======== ======== ======== ========
See Notes to Consolidated Financial Statements.
2
4
BancTEXAS Group Inc.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY - Unaudited
Six Months
ended June 30,
---------------------
1994 1993
--------- ---------
(Dollars in thousands)
COMMON STOCK:
Balance at beginning of year ................... $ 196 $ 192
Exercised Option ............................... 1 1
Shares issued in settlement of litigation ...... 4 -
--------- ---------
Balance at June 30 ............................. 201 193
--------- ---------
CAPITAL IN EXCESS OF PAR:
Balance at beginning of year ................... 273,035 272,346
Exercised Option ............................... 16 31
Shares issued in settlement of litigation ...... (4) -
--------- ---------
Balance at June 30 ............................. 273,047 272,377
--------- ---------
ACCUMULATED DEFICIT:
Balance at beginning of year ................... (258,212) (258,431)
Net income (loss) .............................. (147) 637
--------- ---------
Balance at June 30 ............................. (258,359) (257,794)
--------- ---------
NET UNREALIZED LOSS ON SECURITIES
AVAILABLE FOR SALE:
Balance at beginning of year ................... (67) -
Net loss ....................................... (1,035) -
--------- ---------
Balance at June 30 ............................. (1,102) -
--------- ---------
TOTAL STOCKHOLDERS' EQUITY ....................... $ 13,787 $ 14,776
========= =========
See Notes to Consolidated Financial Statements.
3
5
BancTEXAS Group Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Unaudited
Six Months
ended June 30,
----------------------
1994 1993
--------- ---------
(Dollars in thousands)
OPERATING ACTIVITIES:
Net income (loss) ....................................... $ (147) $ 637
Adjustments to reconcile net income to net cash
used in operating activities:
Provision for loan losses ........................... 150 230
Depreciation, amortization and accretion ............ 723 783
Gain on sale of investment securities ............... - (37)
Gain on sale of assets .............................. (1) (120)
Gain on sale of loans ............................... (38) (233)
Provision for losses on foreclosed property ......... 142 277
Net increase in accrued interest receivable ......... (280) (79)
Net increase in other assets ........................ (634) (290)
Net decrease in accrued interest payable ............ (59) (103)
Net increase (decrease) in other liabilities ........ 1,337 (452)
Proceeds from sale of loans originated for sale ..... 44,331 -
Loans originated for sale ........................... (30,641) -
-------- ---------
Net cash used in operations ....................... 14,883 613
INVESTING ACTIVITIES:
Proceeds from loan sales ................................ - 14,577
Proceeds from maturities of investment securities ....... 17,781 15,395
Proceeds from sales of investment securities ............ - 1,727
Purchase of investment securities ....................... (29,604) (27,270)
Increase in loans (net of loans originated for sale) .... (18,378) (13,471)
Recoveries on loans previously charged-off .............. 679 418
Proceeds from sales of foreclosed property .............. 914 1,135
Capital expenditures .................................... (154) (322)
Proceeds from sales of premises and equipment ........... 58 -
-------- ---------
Net cash used in investing activities ............. (28,704) (7,811)
FINANCING ACTIVITIES:
Net decrease in deposits ................................ (5,716) (17,924)
Net increase in securities sold under
agreements to repurchase .............................. 4,846 20,924
Net increase (decrease) in other short-term borrowings .. 33 (218)
Cash repayment of long-term debt ........................ - (12)
Exercised stock options ................................. 17 32
-------- ---------
Net cash provided by (used in) financing activities (820) 2,802
Net decrease in cash and cash equivalents ................. (14,641) (4,396)
Cash and cash equivalents at beginning of period .......... 25,490 17,818
-------- ---------
Cash and cash equivalents at June 30 .............. $ 10,849 $ 13,422
======== =========
Supplemental disclosure of cash paid for interest ......... $ 5,610 $ 4,864
======== =========
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 ................................ $ 90 $ -
======== =========
Transfer of investment securities to available for sale $ - $ -
======== =========
Transfer from loans available for sale to loans ....... $ 8,999 $ -
======== =========
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 PROPOSED INVESTMENT BY FIRST BANKS, INC.
In May 1994, the Company signed an agreement with First Banks, Inc. (a
bank holding company headquartered in St. Louis, Missouri) whereby First Banks
will invest $30 million in BancTEXAS Group Inc. Subject to regulatory approval
and approval by BancTEXAS' stockholders, First Banks will purchase 37,500,000
shares of BancTEXAS' to be issued Class B Common Stock for $.80 per share.
All necessary regulatory approvals have been received. The annual meeting
of stockholders of BancTEXAS is scheduled for August 18, 1994, at which time
the proposed transaction will be voted upon. Assuming the stockholders
approve, the transaction should be consummated before the end of September
1994.
5
7
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Unaudited
NOTE 3 FEDERAL INCOME TAXES
For federal income tax purposes, at June 30, 1994, BTX had net operating
loss carryforwards of approximately $66 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 - 2009 .............. 39
-----
$ 66
=====
At June 30, 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.
Upon completion of the proposed First Banks, Inc. transaction (see Note
2), the pre-acquisition BTX net operating loss carryforwards will be subject to
an annual utilization limitation under Internal Revenue Code Section 382 for
all post-acquisition taxable years. The amount of the annual limitation will
be equal to the total value of BTX stock issued and outstanding immediately
before the acquisition multiplied by the long-term tax-exempt rate that is in
effect on the date of the acquisition. If the taxable income for a
post-acquisition year does not equal or exceed the annual limitation, the
unused annual limitation is carried forward to increase the limitation amount
for the succeeding years until the excess limitation is utilized or expires.
6
8
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 $368 million at June 30, 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 six months ended June 30, 1994 was $147 thousand or
$(.01) per share, compared to net income of $637 thousand, or $.03 per share,
for the six months ended June 30, 1993. The net income for the second quarter
of 1994 was $43 thousand, or $nil per share, compared to net income of $326
thousand, or $.01 per share, for the second quarter of 1993.
NET INTEREST INCOME
Net interest income for the six months ended June 30, 1994 decreased $963
thousand or 15% from the six months ended June 30, 1993. Net interest income
for the second quarter of 1994 decreased $459 thousand, or 14%, from the second
quarter of 1993. TABLE 1 presents the components of net interest income for
the second quarter ended June 30, 1994 and 1993.
7
9
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
TABLE 1 - NET INTEREST INCOME
Second Quarter Year-to-Date
------------------------------- -------------------------------
1994 1993 1994 1993
--------------- --------------- --------------- ---------------
Amount Rate Amount Rate Amount Rate Amount Rate
-------- ------ -------- ------ -------- ------ -------- ------
(Dollars in thousands)
Average earning
assets ...... $354,324 6.47% $302,560 7.38% $346,157 6.49% $302,402 7.55%
======== ======== ======== ========
Average inter-
est bearing
liabilities.. 311,280 3.82 262,787 3.60 303,697 3.69 264,105 3.64
---- ---- ---- ----
Interest rate
spread ...... 2.65 3.78 2.80 3.91
==== ==== ==== ====
Interest free
sources used
to fund
earning
assets ...... 43,044 39,773 42,460 38,297
-------- -------- -------- --------
Total sources
of funds .... $354,324 3.36 $302,560 3.13 $346,157 3.23 $302,402 3.18
======== ======== ======== ========
Net interest
margin ...... 3.11% 4.25% 3.26% 4.37%
==== ==== ==== ====
Net interest
income ...... $ 2,750 $ 3,209 $ 5,593 $ 6,556
======== ======== ======== ========
Interest
income ...... 5,715 5,565 11,143 11,317
======== ======== ======== ========
Interest
expense ..... 2,965 2,356 5,550 4,761
======== ======== ======== ========
_____________________
BTX has no tax-exempt income.
Average earning assets for the six months ended June 30, 1994 increased
$43.8 million, or 14%, from the same period of 1993. Average investment
securities for the six months ended June 30, 1994 increased $41.6 million or
34% from the same period 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 7.55% for the six
months ended June 30, 1993 to 6.49% for the six months ended June 30, 1994 was
due to the yield on investment securities declining 80 basis points and the
yield on loans declining 86 basis points. As noted on page 14, 70% of the
Company's investment portfolio is invested in adjustable rate mortgages. BTX's
variable rate investment securities repriced during the second quarter at rates
lower than those prevailing in the second quarter of 1993 primarily due to the
lag effect of changes in the index on which the prices of the securities are
based, the 11th District Index. The Index for the first six months of 1993
averaged 4.21% as compared to its average of 3.70% in 1994. The 11th District
Index began to trend
8
10
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
up in April. Also, current investment purchases are at market rates and
replacing higher yielding securities that have matured. The same factors
affected the Bank's loan portfolio in the first half of 1994 where higher
yielding loans are maturing and being replaced currently by loans at lower
market rates. At a time when the marketplace is experiencing increased 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 even though financial institutions are experiencing an
increasing cost of funds. BTX's own cost of funds has increased from 3.60% in
the second quarter of 1993 to 3.82% in the second quarter of 1994 as presented
on pages 10 and 11. Also, 13% of the Company's loans are priced on a variable
rate basis.
BTX has embarked on a program to diversify its loan portfolio in an
attempt to preserve and increase margins in the future. In December 1993, BTX
began 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. However, the rapid rise in interest
rates has drastically reduced the volume of mortgage loan production and
refinancing activity. This occurred at the very time BTX was entering the
market and before BTX had established itself as a primary source of funding for
mortgage companies in its markets. Therefore, since there is now a greatly
reduced level of mortgage loan and refinancing activity, it is not expected
that BTX can obtain a substantial level of these loans until market conditions
change. 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. Through the first six months, BTX has originated and
sold $3.8 million of these loans. BTX is attempting to further diversify the
loan portfolio with new adjustable rate commercial loans provided that it is
done with acceptable credit risk.
Average interest bearing liabilities for the six months ended June 30,
1994 increased $39.6 million from the same period last year. Average levels of
interest bearing deposits increased $4.2 million, or 9%, comparing the six
months ended June 30, 1993 to the six months ended June 30, 1994. Average
public fund deposits decreased $20.3 million and short-term borrowings through
the Company's public funds contracts decreased $6.7 million. Other time
deposits increased $907 thousand. Offsetting the decrease in public funds,
short-term borrowings from the Federal Home Loan Bank and securities dealers
increased $64 million. Also, demand deposits increased $4 million and loans
increased $1.5 million. The increased borrowings from the FHLB also provided
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 second quarter ended June 30, 1994 and 1993.
As noted on page 21, the Company is in a liability sensitive interest
sensitivity position in all time periods under 180 days. 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 extending the maturities of the liabilities of the Bank if
management determines that it is prudent.
9
11
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)
Second Quarter 1994 First Quarter 1994
-------------------------- -------------------------
Interest Interest
Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate
-------- ------- ------- -------- ------- -------
Earning assets:
Time deposits with banks ..... $ 1,403 $ 21 5.99% $ 2,338 $ 21 3.59%
Investment securities-taxable. 171,860 2,012 4.68 158,809 1,850 4.66
Federal funds sold and
securities purchased under
agreements to resell ....... 2,943 28 3.81 4,207 33 3.14
Loans* ..................... 178,118 3,654 8.23 172,546 3,524 8.28
-------- ------- -------- -------
Total earning assets ..... 354,324 5,715 6.47 337,900 5,428 6.51
------- -------
Nonearning assets:
Cash and due from banks ...... 8,930 9,752
Premises and equipment ....... 11,192 11,291
Other assets ................. 5,769 5,537
Allowance for loan losses .... (2,562) (2,786)
-------- --------
$377,653 $361,694
======== ========
Interest bearing liabilities:
Savings deposits ............. $ 84,358 530 2.52 $ 83,557 506 2.46
Certificates of deposit
$100,000 and over and
public funds ............... 19,926 203 4.09 22,550 221 3.97
Other time deposits .......... 91,069 984 4.33 91,665 976 4.32
Short-term borrowings and
FHLB advances .............. 114,873 1,224 4.26 97,205 859 3.53
Long-term debt ............... 1,054 24 9.13 1,054 23 9.00
-------- ------- -------- -------
Total interest bearing
liabilities ............ 311,280 2,965 3.82 296,031 2,585 3.54
------- -------
Noninterest bearing liabilities:
Demand deposits .............. 49,042 48,519
Other liabilities ............ 2,441 2,223
-------- --------
Total liabilities ........ 362,763 346,773
Stockholders' equity ........... 14,890 14,921
-------- --------
$377,653 $361,694
======== ========
Net interest income ............ $ 2,750 $ 2,843
======= =======
Interest rate spread ........... 2.65% 2.97%
Net interest margin ............ 3.11% 3.41%
==== ====
____________________
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.
10
12
Fourth Quarter 1993 Third Quarter 1993 Second 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 ..... $ 1,645 $ 19 4.62% $ 450 $ 4 3.56% $ 580 $ 3 2.07%
Investment securities-taxable. 152,731 1,756 4.60 129,647 1,505 4.64 125,659 1,686 5.37
Federal funds sold and
securities purchased under
agreements to resell ....... 5,546 40 2.89 4,120 32 3.11 3,913 29 2.96
Loans* ..................... 165,774 3,509 8.40 174,217 3,784 8.62 172,408 3,847 8.95
-------- ------- -------- ------- -------- -------
Total earning assets ..... 325,696 5,324 6.49 308,434 5,325 6.85 302,560 5,565 7.38
------- ------- -------
Nonearning assets:
Cash and due from banks ...... 9,733 7,659 7,111
Premises and equipment ....... 11,415 11,410 11,457
Other assets ................. 6,868 6,682 7,077
Allowance for loan losses .... (2,686) (2,813) (3,001)
-------- -------- --------
$351,026 $331,372 $325,204
======== ======== ========
Interest bearing liabilities:
Savings deposits ............. $ 87,254 546 2.48 $ 88,007 564 2.54 $ 89,020 568 2.56
Certificates of deposit
$100,000 and over and
public funds ............... 22,554 222 3.91 30,239 276 3.62 36,694 335 3.66
Other time deposits .......... 92,653 1,031 4.41 92,629 1,037 4.44 92,761 1,053 4.55
Short-term borrowings and
FHLB advances .............. 84,075 742 3.53 57,240 523 3.65 43,258 376 3.48
Long-term debt ............... 1,054 24 9.00 1,054 24 9.03 1,054 24 9.13
-------- ------- -------- ------- -------- -------
Total interest bearing
liabilities ............ 287,590 2,565 3.54 269,169 2,424 3.57 262,787 2,356 3.60
------- ------- -------
Noninterest bearing liabilities:
Demand deposits .............. 46,052 45,136 45,042
Other liabilities ............ 2,273 2,220 2,863
-------- -------- --------
Total liabilities ........ 335,915 316,525 310,692
Stockholders' equity ........... 15,111 14,847 14,512
-------- -------- --------
$351,026 $331,372 $325,204
======== ======== ========
Net interest income ............ $ 2,759 $ 2,901 $ 3,209
======= ======= =======
Interest rate spread ........... 2.95% 3.28% 3.78%
Net interest margin ............ 3.36% 3.73% 4.25%
==== ==== ====
11
13
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
TABLE 3 - VOLUME/RATE ANALYSIS
Second Quarter Year-to-Date
1994 Change from 1993 1994 Change from 1993
------------------------------------ ----------------------------------
Change due to: Change due to:
-------------------------- ------------------------
Total Rate/ Total Rate/
Change Volume Rate Volume* Change Volume Rate Volume*
-------- ------ ------ ------- ------ ------ ----- -------
(Dollars in thousands)
Earning assets:
Time deposits
with banks... $ 18 $ 4 $ 6 $ 8 $ 34 $ 17 $ 5 $ 12
Investment
securities-
taxable ...... 326 620 (215) (79) 474 1,138 (497) (167)
Federal funds
sold and
securities
purchased under
agreements
to resell .... (1) (7) 8 (2) - (9) 11 (2)
Loans .......... (193) 127 (310) (10) (682) 69 (745) (6)
------- ------- ----- ----- ------- ------- ------- -----
Total inter-
est income 150 744 (511) (83) (174) 1,215 (1,226) (163)
------- ------- ----- ----- ------- ------- ------- -----
Interest bearing
funds:
Savings
deposits ..... (38) (30) (9) 1 (122) (82) (43) 3
Certificates
of deposit
$100,000 and
over and pub-
lic funds .... (132) (153) 39 (18) (304) (340) 67 (31)
Other time
deposits ..... (69) (19) (51) 1 (155) (30) (127) 2
Short-term
borrowings
and FHLB
advances ..... 848 622 85 141 1,370 1,167 77 126
Long-term debt - - - - - - - -
------- ------- ------ ----- ------- ------- ------- -----
Total inter-
est expense 609 420 64 125 789 715 (26) 100
------- ------- ------ ----- ------- ------- ------- -----
Net interest
income ....... $ (459) $ 324 $ (575) $(208) $ (963) $ 500 $(1,200) $(263)
======= ======= ====== ===== ======= ======= ======= =====
____________________
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.
12
14
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
NONINTEREST INCOME
Noninterest income for the six months ended June 30, 1994 increased $106
thousand, or 8%, from the six months ended June 30, 1993. This increase is
primarily the result of the $255 thousand settlement of a lawsuit which was
filed against the FDIC related to the closure of the company's former
subsidiary, BancTEXAS Dallas. There was however a decrease of revenue from
check charges of $17 thousand and service charges of $40 thousand. Also in
1993, there was a gain from the sale of securities of $37 thousand while there
was none in 1994. The Bank is also providing additional services including the
sale of mutual funds, annuities, and FHA Title One home improvement loans.
Noninterest income for the second quarter of 1994 was $785 thousand, an
increase of $125 thousand or 19% from the same period last year.
Income from loan sales and loan servicing decreased $46 thousand, or 15%,
in the six months ending June 30, 1994 as compared with the same period in
1993, although the volume of consumer loans serviced for others increased from
$26 million at June 30, 1993 to $34 million at June 30, 1994. The increase in
servicing income of $149 thousand (from $83 thousand to $232 thousand),
resulting from servicing additional loans, was more than offset by a decrease
in gains recognized from the sale of loans. Through the first six months of
1994, BTX had sold $4 million in auto loans at a gain of $38 thousand. Also,
BTX in June sold a $10 million participation in a pool of consumer loans to
First Bank, Illinois, an affiliate of First Banks, Inc. (see discussion of
proposed transaction in Note 2) at par with loan servicing fees of .9% on the
outstanding balances. For the first six months of 1993, loan sales were $14
million for a gain of $233 thousand.
NONINTEREST EXPENSE
Noninterest expense for the six months ended June 30, 1994 increased $7
thousand, or .1%, from the six months ended June 30, 1993. Personnel expense
increased $182 thousand resulting from increased medical and pension costs
compared to the same period of 1993. Occupancy expense decreased $90 thousand
due to lower costs of repairs and maintenance, receiving additional tenant
income from the Bank's building in McKinney and paying lower rent from the
Bank's leased location in Houston. Professional fees decreased $140 thousand
resulting from lower legal fees and investment consulting fees incurred in 1994
compared to 1993. Communications and supplies increased $31 thousand due to
higher postage and telephone costs.
For the remainder of 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 foreclosures and litigation.
MORTGAGE-BACKED AND OTHER SECURITIES
Mortgage-backed and other securities (net of maturities and sales of
securities) at June 30, 1994 increased $10.4 million, or 6.5% 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
13
15
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
investment purposes. $20 million of securities, which reprice on a monthly
basis and are backed by adjusted rate mortgages, were purchased in the six
months ended June 30, 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 six months of 1994. These securities were purchased to fix a
specific yield with specific fixed maturities with an average life of 3.38
years. Also purchased were $2.5 million of fixed rate Collateralized Mortgage
Obligations (CMO's) with an average life of 3.28 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. 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 $3.6 million, or 1% 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
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 4.3 years. BTX's investment portfolio at June 30,
1994 was $170 million, with 70% of the portfolio invested in agency-backed
adjustable rate mortgages.
LOANS
Loans, net of unearned income, were $171.5 million at June 30, 1994, an
increase of $3.8 million or 2%, from December 31, 1993. The Bank sold $44
million of loans in the first six months of 1994 compared to $14 million in the
same period of 1993. BTX's loan portfolio at June 30, 1994, was composed of 7%
commercial, 12% real estate and 81% 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
14
16
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
8, 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 issued by long-term investors. These loans are
serviced by the Federal Home Loan Bank and provide collateral for borrowing
from the FHLB, if needed. As discussed earlier, because of the dramatic
decrease in the mortgage loan and refinance market, BTX currently has no
residential mortgages for resale. However, the home improvement loan program
remains active.
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 and $8.5 million currently in residential interim construction lending has
provided 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 typically have a maturity of nine months and average $100,000 per
house and either cover presold homes with long-term financing arranged or are
in subdivisions with proven sales activity from production builders. In the
first six months of 1994, the Bank made 135 of these loans for an aggregate of
$15 million, compared to 159 of these loans for an aggregate of $14.8 million
in the first six months of 1993. Interim construction lending has provided the
Company with loan fee revenues amounting to $220,000 and $166,000 for the first
six months of 1994 and 1993, respectively. The Company will be dependent on
increases in the Texas market economy to achieve growth in its real estate and
commercial loan portfolio.
TABLE 4 - LOAN COMPOSITION
June 30,
-------------------- December 31,
1994 1993 1993
-------- -------- -----------
(Dollars in thousands)
Commercial .............................. $ 11,617 $ 9,102 $ 7,653
Real estate, construction ............... 8,460 9,044 9,072
Real estate, mortgage ................... 11,748 15,932 12,862
Real estate, mortgage available for sale - - 5,600
Installment ............................. 138,672 146,078 122,551
Installment available for sale .......... 6,065 - 14,997
-------- -------- --------
176,562 180,156 172,735
Unearned income ......................... (5,015) (7,190) (5,003)
-------- -------- --------
Loans, net of unearned income ........... $171,547 $172,966 $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. Commercial
and real estate loans past due 90 days or more and installment loans past due
120 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.
15
17
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Nonperforming assets at June 30, 1994 were $3.7 million, compared to $4.6
million at December 31, 1993 and $5.7 million at June 30, 1993. These
declining levels of nonperforming assets represent the continuing efforts and
commitment of BTX's management to increase the overall credit quality of its
loan portfolio. Nonaccrual loans for the first six months ended June 30, 1994
increased by $649 thousand. This increase was the result of two real estate
loans totalling $853 thousand being placed on nonaccrual status. Both of these
loans had been previously identified by management as "potential problem loans"
as discussed on page 17. Loans past due 90 days or more at June 30, 1994 were
$135 thousand, compared to $1.2 million at June 30, 1993. These totals may
fluctuate significantly without denoting adverse or favorable trends between
periods due to seasonality and strategies employed by management on certain
maturing loans. Net foreclosed property at June 30, 1994 totalled $2.3 million,
compared to $3.9 million at June 30, 1993, representing a 41% decrease. For
the six months ended June 30, 1994, interest income that would have been
accrued at original contractual rates resulting from nonperforming assets, less
the amount recognized as interest income, was $23,000. Management anticipates
total nonperforming assets to continue to decline in 1994 with the possibility
of various components increasing from period to period. Success in achieving
this lower level is dependent upon market conditions for the sale of real
estate properties and stable economic conditions in BTX's markets.
TABLE 5 - NONPERFORMING ASSETS
June 30,
------------------- December 31,
1994 1993 1993
-------- -------- -----------
(Dollars in thousands)
Nonaccrual loans ......................... $ 1,271 $ 584 $ 622
Restructured loans ....................... - - -
Loans past due 90 days or more
but not included in nonaccrual loans ... 135 1,166 803
------- ------- -------
Total nonperforming loans 1,406 1,750 1,425
Foreclosed property, net ................. 2,331 3,921 3,171
------- ------- -------
Total ............................... $ 3,737 $ 5,671 $ 4,596
======= ======= =======
Ratio of nonperforming assets to
total assets ........................... 1.02% 1.74% 1.25%
======= ======= =======
Ratio of nonperforming assets to
total loans and foreclosed property .... 2.15% 3.21% 2.69%
======= ======= =======
TABLE 6 presents nonperforming assets by type of borrower. At June 30,
1994, real estate nonperforming assets totaled $3 million, or 80%, of total
nonperforming assets compared to 73% at June 30, 1993.
16
18
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
TABLE 6 - NONPERFORMING ASSETS BY TYPE OF BORROWER
June 30,
-------------------- December 31,
1994 1993 1993
-------- -------- -----------
(Dollars in thousands)
Commercial .............................. $ 161 $ 222 $ 171
Energy .................................. - 710 710
Real estate, land ....................... 1,471 1,971 2,478
Real estate, residential ................ 247 195 246
Real estate, commercial ................. 1,285 1,957 622
Installment ............................. 573 616 369
------- ------- -------
Total .............................. $ 3,737 $ 5,671 $ 4,596
======= ======= =======
In addition to the nonperforming assets set forth above, at June 30, 1994,
BTX had $1.4 million of loans classified as "potential problem loans" 92% of
which are secured by mortgages on real property owned by three borrowers. This
compares to $2.9 million of potential problem loans at June 30, 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, which causes 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.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
At June 30, 1994, the allowance for loan losses was approximately $2.5
million, or 1.4% 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 175.6% and 162.1% for the second quarter of 1994 and
1993, respectively.
Management considers the allowance for loan losses to be adequate at June
30, 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 June 30,
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 six months ended June 30, 1994 was
$150 thousand, compared to $230 thousand for the six months ended June 30,
1993. Net charge-offs for the first six months of 1994 were $318 thousand
compared to $438 thousand for the same period of 1993.
17
19
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Management periodically reviews and considers the impact of the economy,
as well as many other factors, in its determination of the allowance for loan
losses. In prior years, BTX had been adversely affected by the economic
conditions in Texas. Economic conditions have continued to improve, generally
in parallel with the national economy. The management of BTX recognizes some
adverse economic conditions still exist; however, it does not expect these to
have a material, adverse impact on the provision in the future and the Bank's
efforts to further upgrade the quality of the loan portfolio in 1994.
TABLE 7 - SUMMARY OF THE ALLOWANCE FOR LOAN LOSSES
Second Quarter
-------------------- Year-To-Date
1994 1993 1994 1993
-------- -------- ------- -------
(Dollars in thousands)
Balance at beginning of period ... $ 2,609 $ 3,009 $ 2,637 $ 3,044
Provision for loan losses ........ 75 90 150 230
Loans charged off:
Commercial and financial ....... - 185 - 217
Energy ......................... - - - 40
Real estate .................... 4 - 207 -
Installment .................... 452 279 791 599
------- ------- ------- -------
Total charge-offs ............ 456 464 998 856
Recoveries:
Commercial and financial ....... 36 40 155 70
Real estate .................... 62 50 228 83
Installment .................... 143 111 297 265
------- ------- ------- -------
Total recoveries ............. 241 201 680 418
------- ------- ------- -------
Net charge-offs .............. 215 263 318 438
------- ------- ------- -------
Balance at end of period ......... $ 2,469 $ 2,836 $ 2,469 $ 2,836
======= ======= ======= =======
Allowance for loan losses as a
percent of period-end loans .... 1.44% 1.64%
======= =======
Allowance for loan losses as a
percent of nonperforming loans.. 175.60% 162.06%
======= =======
DEPOSITS
During the second quarter of 1994 total deposits averaged $244 million, a
decrease of $4 million, or 1.7% from December 31, 1993. The decreased deposits
resulted primarily from decreased money market accounts compared to the fourth
quarter of 1993. Money market accounts are more sensitive to market prices
relative to the Bank's other deposit products. Also, because the money market
accounts have check writing features, these funds are more liquid. Due to
these factors and the alternative investments available to the Company's
depositors, the Company's money market accounts have decreased $3.2 million as
compared to the fourth quarter 1993 and $5.3 million as compared to the second
quarter of 1993. Public funds have declined $18 million versus the second
quarter 1993 and $2.3 million versus the fourth quarter 1993. Public funds
have declined principally from these public entities choosing alternative
investments that are available as opposed to bank deposits. TABLE 8 shows the
types of deposits and the related rates paid for the periods indicated.
18
20
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
TABLE 8 - DEPOSITS
Second Quarter
---------------------------------- Fourth Quarter
1994 1993 1993
---------------- ---------------- ----------------
Average Average Average
Balance Rate Balance Rate Balance Rate
-------- ----- -------- ----- -------- -----
(Dollars in thousands)
Demand ................ $ 49,042 - $ 45,042 - $ 46,052 -
Money market accounts . 65,183 2.59% 70,518 2.58% 68,364 2.48%
Savings ............... 19,175 2.28 18,502 2.49 18,890 2.50
Certificates of deposit
$100,000 and over ... 13,501 4.43 12,283 4.57 13,821 4.42
Public funds .......... 6,425 3.37 24,411 3.20 8,733 3.09
Other time ............ 91,069 4.33 92,761 4.55 92,653 4.41
-------- -------- --------
Total average
deposits ........ $244,395 $263,517 $248,513
======== ======== ========
CAPITAL RESOURCES
Stockholders' equity at June 30, 1994 was $13.8 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
June 30,
------------------ December 31,
1994 1993 1993
-------- -------- -----------
(Dollars in thousands)
Stockholders' equity ...................... $ 13,787* $ 14,776 $ 14,952*
======== ======== ========
Allowance for loan losses ................. 2,469 2,836 2,637
======== ======== ========
Ratio of stockholders' equity to assets ... 3.75% 4.54% 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. Net unrealized
losses at June 30, 1994 were $1.1 million and $67 thousand at December 31,
1993. SFAS No. 115 was not in effect in June 1993.
TABLE 10 compares the capital ratios of BTX and the Bank at June 30, 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.
19
21
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
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 June 30, 1994 6.76% 3.95% 7.98%
Bank at
June 30, 1994 6.96% 4.14% 8.08%
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.
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 $210,800. 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.
20
22
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
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 at the twelve months or one year period. TABLE
11 shows each ratio at all time intervals for June 30, 1994. Currently, BTX is
in a liability sensitive position at all periods under 180 days. During a
declining interest rate environment, the Company's 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.
TABLE 11 - INTEREST RATE SENSITIVITY ANALYSIS
June 30, 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 $155,528 $ 20,165 $ 24,592 $ 30,892 $107,749 $338,926 $ 4,997 $343,923
Interest
bearing
liabilities.... 170,339 22,004 18,461 17,232 74,995 303,031 - 303,031
-------- -------- -------- -------- -------- -------- ------- --------
Nominal gap ..... (14,811) (1,839) 6,131 13,660 32,754
Cumulative
interest
sensitivity
gap* .......... $(14,811) $(16,650) $(10,519) $ 3,141 $ 35,895
======== ======== ======== ======== ========
Cumulative ratio
of earning
assets to in-
terest bearing
funds ......... 91% 91% 95% 101% 112%
____________________
*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
21
23
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
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 have been purchased for the purpose of
collateralizing public funds deposits and to leverage the balance sheet in an
attempt to increase earnings. 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 overall funding and liquidity position. Average cash
and due from banks for the second quarter of 1994 was $8.9 million, an increase
of $1.8 million, or 26%, from the second quarter of 1993. BTX's average level
of federal funds sold and securities purchased under agreements to resell was
$2.9 million for the second quarter of 1994, a decrease of $970 thousand or
25%, 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 second quarter of 1994 averaged $244
million, a decrease of $19 million, or 8%, from the second quarter of 1993.
This decrease was due primarily from public funds deposits. Securities sold
under agreements to repurchase averaged $114 million for the second quarter
1994, an increase of $72 million from the second quarter of 1993. Public funds
have declined principally from these public entities choosing alternative
investments that are available as opposed to bank deposits. 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
June 30, 1994, its borrowing against securities from the FHLB totaled $89
million and borrowing from securities dealers and other sources were $22
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. 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 will be paid to BTX by the Bank.
22
24
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Description
----------- -----------
10(l) Stock Purchase and Operating
Agreement by and between BancTEXAS
Group Inc. and First Banks, Inc., a
Missouri corporation, dated May 19,
1994.
11 Computation of Earnings (Loss) Per Share
(b) A report on Form 8-K was filed on May 26, 1994.
23
25
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 August 12, 1994 By /s/ D. KERT MOORE
D. Kert Moore
Treasurer and
Chief Financial Officer
24
26
EXHIBIT INDEX
Exhibit
Number Description Page
- - ------- ----------- ----
10(l) Stock Purchase and Operating
Agreement by and between BancTEXAS
Group Inc. and First Banks, Inc., a
Missouri corporation, dated May 19,
1994.
11 Computation of Earnings (Loss) Per Share