-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, RxKITu9qkH2/R4D65zNzBId5c8RISZBR2/l5BWukVsI4HxZAxCvNqZ7D2bjuEA9t Ndsk/9NaDd5R22XcFvRC2g== 0000950134-94-001401.txt : 19941122 0000950134-94-001401.hdr.sgml : 19941122 ACCESSION NUMBER: 0000950134-94-001401 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 DATE AS OF CHANGE: 19941114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANCTEXAS GROUP INC CENTRAL INDEX KEY: 0000310979 STANDARD INDUSTRIAL CLASSIFICATION: 6021 IRS NUMBER: 751604965 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08230 FILM NUMBER: 94560202 BUSINESS ADDRESS: STREET 1: 13747 MONTFORT CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2147014700 MAIL ADDRESS: STREET 1: BANCTEXAS GROUP INC STREET 2: 9605 ABRAMS ROAD CITY: DALLAS STATE: TX ZIP: 75243 FORMER COMPANY: FORMER CONFORMED NAME: COMMERCE SOUTHWEST INC DATE OF NAME CHANGE: 19820831 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED 09/30/94 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 September 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 November 14, 1994, 20,520,525 shares of the registrant's Common Stock, $.01 par value, and 37,500,000 shares of the registrant's Class B Common Stock, $.01 par value, were outstanding. 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS BancTEXAS Group Inc. CONSOLIDATED BALANCE SHEETS - Unaudited
September 30, --------------------- December 31, 1994 1993 1993 -------- -------- ------------ (Dollars in thousands, except per share) ASSETS Cash and due from banks ........................................ $ 9,427 $ 7,902 $ 8,565 Time deposits with banks ....................................... 562 300 2,525 Federal funds sold ............................................. - 6,400 14,400 --------- --------- --------- Total cash and cash equivalent ............................ 9,989 14,602 25,490 Mortgage-backed and other investment securities held to maturity at cost (approximate fair value of $0, $120,910 and $115,344) ....................................... - 120,299 116,451 Mortgage-backed securities available for sale at approximate fair value (cost $160,413, $3,973 and $43,774) ............... 158,259 3,831 43,707 Loans (net of unearned income of $4,422, $4,439 and $4,571) .... 182,980 153,990 147,135 Loans available for sale (net of unearned income of $48, $468 and $432) .................................................... 9,358 12,949 20,597 Less: Allowance for loan losses ............................... (2,628) (2,703) (2,637) --------- --------- -------- Total loans, net .......................................... 189,710 164,236 165,095 Foreclosed property, net ....................................... 1,737 3,442 3,171 Premises and equipment, net .................................... 11,006 11,449 11,338 Accrued interest receivable .................................... 1,632 1,198 1,247 Deferred tax asset ............................................. 11,428 - - Other assets ................................................... 1,422 2,310 2,109 --------- --------- --------- Total assets .............................................. $ 385,183 $ 321,367 $ 368,608 ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Noninterest bearing .......................................... $ 45,719 $ 44,810 $ 44,409 Interest bearing ............................................. 197,569 209,500 198,488 --------- --------- --------- Total deposits ............................................ 243,288 254,310 242,897 Securities sold under agreements to repurchase ................. 49,657 47,313 95,208 Other short-term borrowings .................................... 1,103 1,106 1,096 Federal funds purchased ........................................ 4,000 - - FHLB advances .................................................. 37,708 - 10,918 Deferred tax liability ......................................... 1,466 - - Other liabilities .............................................. 4,110 2,438 2,483 Long-term debt ................................................. 1,054 1,054 1,054 --------- --------- --------- Total liabilities ......................................... 342,386 306,221 353,656 --------- --------- --------- Stockholders' equity: Common stock: $.01 par value; authorized 50,000,000 shares; issued and outstanding shares 20,520,525, 19,363,025 and 19,583,025 ............................................... 205 194 196 Class B $.01 par value; authorized 37,500,000 shares; issued and outstanding shares 37,500,000, 0 and 0 ............... 375 - - Capital in excess of par ..................................... 302,466 272,442 273,035 Accumulated deficit .......................................... (258,848) (257,490) (258,212) Net unrealized loss on securities available for sale ................................................... (1,401) - (67) --------- --------- --------- Total stockholders' equity ............................... 42,797 15,146 14,952 --------- --------- --------- Total liabilities and stockholders' equity ............... $ 385,183 $ 321,367 $ 368,608 ========= ========= =========
See Notes to Consolidated Financial Statements. 1 3 BancTEXAS Group Inc. CONSOLIDATED STATEMENTS OF OPERATIONS - Unaudited
Three Months Nine Months ended September 30, ended September 30, -------------------- -------------------- 1994 1993 1994 1993 -------- -------- -------- -------- (Dollars in thousands, except per share) INTEREST INCOME Loans ................................ $ 3,838 $ 3,784 $ 11,016 $ 11,644 Investment securities ................ 2,048 1,505 5,910 4,893 Federal funds sold ................... 11 32 72 93 Other interest income ................ 6 4 48 12 -------- -------- -------- -------- Total interest income .......... 5,903 5,325 17,046 16,642 INTEREST EXPENSE Deposits ............................. 1,766 1,877 5,186 5,878 Securities sold under agreements to repurchase ......................... 778 517 2,359 1,217 Other short-term borrowings .......... 12 6 28 19 Federal funds purchased .............. 44 - 44 - FHLB advances ........................ 425 - 911 - Long-term debt ....................... 24 24 71 71 -------- -------- -------- -------- Total interest expense ......... 3,049 2,424 8,599 7,185 -------- -------- -------- -------- Net interest income ............ 2,854 2,901 8,447 9,457 Provision for loan losses .............. 455 100 605 330 -------- -------- -------- -------- Net interest income after provision for loan losses .... 2,399 2,801 7,842 9,127 NONINTEREST INCOME Service charges and fees ............. 397 435 1,191 1,283 Investment securities gains (losses) . (7,055) 147 (7,055) 184 Loan sales and loan servicing income . 101 284 371 600 Other ................................ 66 43 418 152 -------- -------- -------- -------- Total noninterest income ....... (6,491) 909 (5,075) 2,219 NONINTEREST EXPENSE Personnel expense .................... 3,728 1,636 7,168 4,804 Occupancy ............................ 317 331 961 1,065 Equipment ............................ 194 225 634 673 Litigation settlement expense ........ - 52 - 52 Professional fees .................... 274 416 1,031 1,261 Net operating expense of foreclosed property ................ 173 74 196 167 Communications and supplies .......... 260 286 779 774 Data processing ...................... 235 229 706 682 Other ................................ 425 209 1,085 927 Total noninterest expense ...... 5,606 3,406 12,612 10,405 -------- -------- -------- -------- Net income (loss) before taxes ........................ (9,698) 304 (9,845) 941 Income tax expense (benefit) ........... (9,209) - (9,209) - -------- -------- -------- -------- Net income (loss) .............. $ (489) $ 304 $ (636) $ 941 ======== ======== ======== ======== PER SHARE Net income (loss) .................... $ (.01) $ .01 $ (.02) $ .04 ======== ======== ======== ======== Weighted average common shares and common share equivalents outstanding 36,324 23,379 27,808 23,285 ======== ======== ======== ========
See Notes to Consolidated Financial Statements. 2 4 BancTEXAS Group Inc. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - Unaudited
Nine Months ended September 30, --------------------- 1994 1993 --------- --------- (Dollars in thousands) COMMON STOCK: Balance at beginning of year ................... $ 196 $ 192 Class B shares issued .......................... 375 - Exercised option ............................... 5 2 Shares issued in settlement of litigation ...... 4 - --------- --------- Balance at September 30 ........................ 580 194 --------- --------- CAPITAL IN EXCESS OF PAR: Balance at beginning of year ................... 273,035 272,346 Class B shares issued .......................... 29,248 - Exercised option ............................... 120 29 Stock compensation ............................. 67 67 Shares issued in settlement of litigation ...... (4) - --------- --------- Balance at September 30 ........................ 302,466 272,442 --------- --------- ACCUMULATED DEFICIT: Balance at beginning of year ................... (258,212) (258,431) Net income (loss) .............................. (636) 941 --------- --------- Balance at September 30 ........................ (258,848) (257,490) --------- --------- NET UNREALIZED LOSS ON SECURITIES AVAILABLE FOR SALE: Balance at beginning of year ................... (67) - Net loss ....................................... (1,334) - --------- --------- Balance at September 30 ........................ (1,401) - --------- --------- TOTAL STOCKHOLDERS' EQUITY ....................... $ 42,797 $ 15,146 ========= =========
See Notes to Consolidated Financial Statements. 3 5 BancTEXAS Group Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS - Unaudited
Nine Months ended September 30, ---------------------- 1994 1993 --------- --------- (Dollars in thousands) OPERATING ACTIVITIES: Net income (loss) ....................................... $ (636) $ 941 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses ........................... 605 330 Depreciation, amortization and accretion ............ 1,050 1,266 (Gain) loss on sale of investment securities ........ 7,055 (184) (Gain) loss on sale of assets ....................... 7 (133) Gain on sale of loans ............................... (38) (467) Provision for losses on foreclosed property ......... 305 372 Provision for income tax benefit .................... (9,209) - Net increase in accrued interest receivable ......... (389) (13) Net decrease in accrued interest payable ............ (7) (106) Proceeds from sale of loans originated for sale ..... 44,336 - Loans originated for sale ........................... (36,785) - Issuance of stock compensation ...................... 67 67 Other, net .......................................... 1,568 (1,118) -------- --------- Net cash provided by operations ................... 7,929 955 INVESTING ACTIVITIES: Proceeds from loan sales ................................ - 28,358 Proceeds from maturities of investment securities ....... 22,964 30,759 Proceeds from sales of investment securities ............ - 7,977 Purchase of investment securities ....................... (30,703) (49,636) Increase in loans (net of loans originated for sale) .... (33,456) (21,148) Recoveries on loans previously charged-off .............. 879 700 Proceeds from sales of foreclosed property .............. 1,349 1,176 Capital expenditures .................................... (232) (540) Proceeds from sales of premises and equipment ........... 7 - -------- --------- Net cash used in investing activities ............. (39,192) (2,354) FINANCING ACTIVITIES: Net increase (decrease) in deposits ..................... 391 (16,420) Net increase (decrease) in borrowed funds ............... (14,754) 14,584 Cash repayment of long-term debt ........................ - (12) Exercised stock options ................................. 125 31 Proceeds from sale of Class B Common Stock to First Banks, Inc. ..................................... 30,000 - -------- --------- Net cash provided by (used in) financing activities 15,762 (1,817) Net decrease in cash and cash equivalents ................. (15,501) (3,216) Cash and cash equivalents at beginning of period .......... 25,490 17,818 -------- --------- Cash and cash equivalents at September 30 ......... $ 9,989 $ 14,602 ======== ========= Supplemental disclosure of cash paid for interest ......... $ 8,606 $ 7,291 ======== ========= 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 $114,552 $ 3,831 ======== ========= Transfer from loans available for sale to loans ....... $ 8,419 $ - ======== =========
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 SALE OF CLASS B COMMON STOCK On August 31, 1994, pursuant to the terms and conditions of a Stock Purchase and Operating Agreement between BTX and First Banks, Inc., a bank holding company headquartered in St. Louis, Missouri (First Banks), BTX issued and sold 37,500,000 shares of Class B Common Stock, a new class of stock, for a price of $30 million in cash. As a result of this transaction, based on the shares of BTX outstanding at September 30, 1994, First Banks controls 64.6% of the voting shares of BTX. Each share of Class B Common Stock is convertible after five years into one share of BTX Common Stock (Regular Common Stock). The Class B Common Stock will not be registered with the Securities and Exchange Commission (SEC), or listed for trading on the New York Stock Exchange for at least five years. Thereafter, First Banks will have the right to require BTX to register with the SEC all or a portion of the shares of Regular Common Stock received upon any conversion of its Class B Common Stock. First Banks, as the owner of the Class B Common Stock, has certain anti-dilution rights for 7 1/2 years after the transaction which enable First Banks to maintain an ownership interest of at least 55% in the event BTX issues additional shares of Regular Common Stock. The Class B Common Stock may not be transferred by First Banks without the prior approval of BTX, except in certain limited instances. In addition, the Class B Common Stock has dividend rights which are inferior to those of the Regular Common Stock, in the event BTX commences the payment of dividends in the future. The proceeds of the sale of the Class B Common Stock, net of the related offering expenses of $377,000, were utilized to repay short-term borrowings and to make additional loans until such time as those funds may be needed for acquisitions. 5 7 BancTEXAS Group Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Unaudited NOTE 3 NON-RECURRING ITEMS The consolidated balance sheet as of September 30, 1994, and the results of operations for the three and nine month periods ended September 30, 1994 reflect the effects of certain non-recurring items resulting from actions or events which occurred during the quarter. These items were (a) the redesignation of the investment portfolio as available for sale; (b) the commitment to sell $114,969,000 of investment securities; and (c) the changing of certain employee benefit plans and various other employee-related costs attributable to the consolidation of operations. In addition, BTX recognized an income tax benefit of $9,209,000, which includes the recognition of the realizable value of tax loss carryforwards and certain other tax attributes pursuant to Statement of Financial Accounting Standards Number 109, as described in Note 4. Prior to the three months ended September 30, 1994, BTX had acquired a portfolio of mortgage-backed and other investment securities the majority of which it had the ability and intent to hold until their maturity, and which consequently were accounted for as investments held to maturity. Most of these securities were pledged to support advances from the Federal Home Loan Bank or other borrowed funds which had generally been incurred to acquire the securities. Although the majority of these securities contained provisions for periodic interest-rate adjustments, the structure of the specific securities which were held, combined with the rapid increases in interest rates during the first nine months of 1994, caused these securities to under-perform the market, resulting in a significant unrealized loss. The magnitude of this loss, combined with the need to collateralize the related borrowed funds and the need to maintain the liquidity position of BTX, created doubt about the ability of BTX to continue to hold all of the securities in the portfolio which had been designated as being held to maturity, particularly in the event further interest rate increases might lead to additional erosion in market value, and consequently collateral value. In September 1994, BTX determined that its original ability and intent to hold its portfolio of mortgage-backed and other investments to maturity had become impaired, and that therefore this portfolio should be redesignated as available for sale. Consequently, the unrealized loss on the portfolio of $4,332,000, net of related income taxes, was recorded as a reduction of consolidated stockholders' equity. Concurrent with this, BTX committed to sell an aggregate of $114,969,000 of these securities, of which approximately $45,650,000 was committed for sale at fair market value to First Bank, A Savings Bank, an affiliate of BTX, resulting in the realization of a loss of $7,055,000. This loss is reflected in the results of operations for the three months ended September 30, 1994. The proceeds from this sale, which were received in October 1994, were applied to reduce the advances from the Federal Home Loan Bank and other borrowed funds. 6 8 BancTEXAS Group Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Unaudited NOTE 3 NON-RECURRING ITEMS - (CONTINUED) BTX has maintained a noncontributory defined benefit pension plan covering substantially all employees and a postretirement benefit plan primarily providing health insurance coverage to retirees. Recognizing that the costs of these plans had become excessive for its financial resources, BTX decided to discontinue the accumulation of benefits by participants under these plans during the three months ended September 30, 1994. While both plans will continue in existence and will provide the benefits which have been accumulated thereunder, no additional benefits will accrue to participants, and no new participants will become eligible under the plans. As a result of these decisions, both plans had postretirement benefit obligations which exceeded the amount of their respective plan assets. Since it was not considered appropriate to reflect these obligations as expenses in future periods, the aggregate amount of $1,552,000, was recorded as an expense during the three months ended September 30, 1994. As a result of the sale of the Class B Common Stock referred to in Note 2 and the consolidation of various operations which is anticipated, BTX recognized severance and related personnel costs of $430,000 attributable to personnel reductions to occur between September 1994 and March 1995. The effect of these items, combined with the recognition of the income tax benefit of $9,209,000 discussed in Note 4, reduced the amount of the consolidated net loss of BTX by $172,000 for the three and nine month periods ended September 30, 1994. NOTE 4 FEDERAL INCOME TAXES Income tax expense (benefit) attributable to income from continuing operations for the nine months ended September 30, 1994 consists of the following amounts:
(Dollars in thousands) Current ........................................... $ 0 Deferred .......................................... (9,209) ------- Income tax expense (benefit) .................... $(9,209) =======
The significant components of deferred income tax expense (benefit) attributable to income from continuing operations for the nine months ended September 30, 1994, are as follows:
(Dollars in thousands) Decrease in net operating loss carryforwards ...... $ 22,576 Decrease in tax credit carryforwards .............. 140 Decrease in valuation allowance for deferred tax assets ...................................... (35,756) Other ............................................. 3,831 --------- Income tax expense (benefit) .................... $ (9,209) =========
7 9 BancTEXAS Group Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Unaudited NOTE 4 FEDERAL INCOME TAXES - (CONTINUED) With the completion of the sale of the Class B Common Stock referred to in Note 2, the BTX net operating loss carryforwards, capital loss carryforwards and investment tax credits generated prior to the transaction are subject to an annual limitation under Internal Revenue Code Section 382 for all subsequent tax years. The annual limitation is $1,362,000. The amount of the annual limitation is equal to the total value of BTX stock issued and outstanding immediately before the transaction multiplied by the federal long-term tax-exempt rate. If the taxable income for a subsequent year does not equal or exceed the annual limitation, the unused limitation is carried forward to increase the limitation amount for the succeeding years until the excess limitation is utilized. This does not affect the original expiration dates of the net operating losses or tax credit carryforwards. The order in which the attributes can be utilized is specified in Internal Revenue Code Section 383. Subsequent to the sale of the Class B Common Stock, a detailed analysis of the tax attributes of BTX was performed. A large portion of the net operating losses and all of the tax carryforwards will expire unused and were removed from the analysis. These accounted for approximately 64% of the decrease in the balance of the valuation reserve as of January 1, 1994. The remaining net deferred tax assets were reevaluated to determine whether it is more likely than not that the deferred tax assets will be recognized in the future. With the completion of the sale of the Class B Common Stock and the receipt of the resulting cash proceeds of $30 million, BTX will be capable of pursuing acquisitions, expanding its services and reducing its reliance on borrowed funds. BTX and First Banks have formulated a plan to further reduce operating costs and expand into other revenue generating areas. First Banks will be offering to provide certain services at substantially reduced costs such as data processing, item processing, loan servicing, commercial non-credit services, accounting and tax assistance and various insurance programs. BTX and its subsidiaries will need to generate pre-tax income of approximately $4.0 million in 1995 in order to utilize reversing deductible temporary differences. By utilizing the services and personnel available from First Banks, BTX expects that its income should be increased to a level that permits utilization of all or a substantial portion of such differences. Taking all positive and negative criteria into consideration, it was determined that the reserve established should be reduced to $2,534,000. 8 10 BancTEXAS Group Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Unaudited NOTE 4 FEDERAL INCOME TAXES - (CONTINUED) At September 30, 1994, BTX had net operating loss carryforwards of approximately $24,425,000. The net operating loss carryforwards expire as follows:
Year ending December 31, (Dollars in thousands) ------------------------ 1994 ........................................ $ 0 1995 ........................................ 0 1996 ........................................ 858 1997 ........................................ 0 1998 ........................................ 4,140 1999 ........................................ 2,271 2000 ........................................ 103 2001 - 2009 ................................. 17,053 ------- Total net operating loss carryforwards . $24,425 =======
The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities at September 30, 1994 and December 31, 1993 are presented below:
1994 1993 ---- ---- (Dollars in thousands) Deferred Tax Liabilities: Bank Premises ............................... $ 708 $ 701 Safe Harbor Leases .......................... 545 820 Other ....................................... 213 273 -------- -------- Total gross deferred tax liabilities ... 1,466 1,794 -------- -------- Deferred Tax Assets: Reserve for possible loan losses ............ 920 562 Foreclosed property ......................... 2,164 7,382 Book losses on other investments currently not allowable for tax purposes ............ 270 262 Other ....................................... 898 577 Book losses on securities currently not allowable for tax purposes ................ 372 0 Tax effect of net unrealized loss on securities available for sale ............. 789 36 Net operating loss carryforwards ............ 8,549 31,125 Tax credit carryforwards .................... 0 140 -------- -------- Total gross deferred tax assets ........ 13,962 40,084 Less valuation allowance ............... (2,534) (38,290) -------- -------- Gross deferred tax assets net of valuation allowance .................. 11,428 1,794 -------- -------- Net deferred tax assets ................ $ 9,962 $ 0 ======== ========
9 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION BancTEXAS Group Inc. (herein BTX) is a registered bank holding company headquartered in Dallas, Texas. At September 30, 1994, BTX had approximately $385 million in total assets, $192 million in total loans, $243 million in total deposits and $43 million in total stockholders' equity. BTX operates through its wholly owned bank subsidiary, BankTEXAS N.A. (herein the Bank) which has six branch offices located in Dallas, Houston, Irving and McKinney, Texas. BTX offers a broad range of commercial and personal banking services which include demand, savings and time deposits, commercial, real estate, and consumer and installment loans and other related banking services. The Consolidated Financial Statements of BTX as of September 30, 1994 reflect the sale of 37,500,000 shares of Class B Common Stock on August 31, 1994 to First Banks, Inc., St. Louis, Missouri (herein First Banks) for $30 million in cash. The proceeds of this sale, net of related offering expenses of $377,000 were used to repay short-term borrowings and to make additional loans, until such time as those funds may be needed for other corporate purposes, including acquisitions. As a result of this transaction, as of September 30, 1994, First Banks had control of 64.6% of the voting shares of BTX (see Note 2 to the Consolidated Financial Statements). RESULTS OF OPERATIONS The net loss for the nine months ended September 30, 1994 was $636 thousand, or $(.02) per share, compared to net income of $941 thousand, or $.04 per share in the same period in 1994. The net loss for the three months ended September 30, 1994 was $489 thousand, or $(.01) per share, compared to net income of $304 thousand, or $.01 per share, for the three months ended September 30, 1993. The results from operations reflect generally decreasing net interest income of BTX as well as an increased provision for loan losses during 1994 and include the effects of certain non-recurring items recognized in 1994 further described in Notes 3 and 4 to the Consolidated Financial Statements. In September 1994, BTX determined that the magnitude of the unrealized loss on its portfolio of mortgage-backed and other investment securities, combined with its requirement to collateralize the borrowed funds which had been used to acquire most of that portfolio and the need to maintain an adequate liquidity position had caused its original intention to hold these securities to maturity to become impaired. Consequently, BTX redesignated its portfolio of securities held to maturity as securities available for sale, resulting in a reduction of consolidated stockholders' equity of $4,332,000, net of the related tax effect. At the same time, BTX committed to sell an aggregate of $114,969,000 of these securities resulting in a loss of $7,055,000. BTX maintained a noncontributory defined benefit pension plan covering substantially all employees and a postretirement benefit plan providing health insurance coverage to retirees. Recognizing that the costs of these plans had 10 12 BancTEXAS Group Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) become excessive for its financial resources, BTX decided to discontinue the accumulation of benefits by those eligible to participate in these plans. Both plans had postretirement benefit obligations which exceeded the amount of their respective plan assets. Consequently, the aggregate amount of this excess, $1,552,000, was recorded as an expense during the three months ended September 30, 1994. Because of the consolidation of various operational functions which is anticipated as a result of the sale of Class B Common Stock, BTX determined that the services of some members of its staff would not be required in the future. BTX recognized severance and related personnel costs of $430,000 in the three months ended September 30, 1994, attributable to personnel reductions expected to occur between September 1994 and March 1995. With the sale of the Class B Common Stock on August 31, 1994 and the receipt of the $30 million cash proceeds, BTX will be capable of pursuing acquisitions, expanding its services and reducing its reliance on borrowed funds. When combined with the efficiencies which are available from the consolidation of various operational functions, the evaluation of BTX's ability to utilize its deferred tax assets was substantially different from that prior to the transaction. As a result of the reevaluation of the reserve relative to the net deferred tax asset, an income tax benefit of $9,209,000 was recorded during the three months ended September 30, 1994. The net effect of these non-recurring items decreased the amount of the net loss for the three and nine month periods ended September 30, 1994 by $172,000. NET INTEREST INCOME Net interest income for the nine months ended September 30, 1994 decreased $1.1 million, or 10.7% from the comparable period in 1993. Net interest income for the three months ended September 30, 1994 decreased $47,000, or 1.6%, from the comparable period in 1993. The decline in net interest income for 1994 compared with 1993 reflects a general narrowing of the interest margin which BTX realized between the income earned on its invested assets and the cost of its interest-bearing liabilities. This narrowing of interest margins was partially offset by increases in the average amount of earning assets and interest bearing liabilities from those of the prior periods. For the three months ended September 30, 1994, net interest income was also affected by the receipt of the proceeds of the sale of Class B Common Stock. These proceeds were used to reduce short-term borrowings, Federal Home Loan Bank advances and fund loan growth. TABLE 1 presents the components of the net interest income for the three and nine month periods ended September 30, 1994 and 1993. 11 13 BancTEXAS Group Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) TABLE 1 - NET INTEREST INCOME
Third Quarter Year-to-Date ----------------------------------------- ---------------------------------------- 1994 1993 1994 1993 ------------------- ----------------- ------------------ ----------------- Amount Rate Amount Rate Amount Rate Amount Rate -------- ------ -------- ------ -------- ------ -------- ------ (Dollars in thousands) Average earning assets................. $350,210 6.69% $308,434 6.85% $347,522 6.56% $304,434 7.31% ======== ======== ======== ======== Average interest bearing liabilities... 299,795 4.03 269,169 3.57 302,382 3.80 265,812 3.61 ---- ---- ---- ---- Interest rate spread .................. 2.66 3.28 2.76 3.70 ==== ==== ==== ==== Interest free sources used to fund earning assets ...................... 50,415 39,265 45,140 38,622 -------- -------- -------- -------- Total sources of funds ................ $350,210 3.46 $308,434 3.12 $347,522 3.31 $304,434 3.16 ======== ======== ======== ======== Net interest margin ................... 3.23% 3.73% 3.25% 4.15% ==== ==== ==== ==== Net interest income ................... $ 2,854 $ 2,901 $ 8,447 $ 9,457 ======== ======== ======== ======== Interest income ....................... 5,903 5,325 17,046 16,642 ======== ======== ======== ======== Interest expense ...................... 3,049 2,424 8,599 7,185 ======== ======== ======== ========
_____________________ BTX has no tax-exempt income. Average earning assets for the nine months ended September 30, 1994 increased $43 million, or 14%, from the same period of 1993. The primary component of this increase was investment securities which increased $34.1 million, or 29%, from the same period in 1993. This increase in investment securities was primarily funded by advances from the Federal Home Loan Bank and other short-term borrowings. Approximately 73% of BTX's investment portfolio consisted of adjustable rate mortgage-backed securities indexed to the Eleventh District Cost of Funds Index (herein COFI). Because the nature of this index causes it to react more slowly to changes in interest rates than other indicies used in mortgage-backed securities, the COFI index failed to fully reflect the general interest rate increases which occurred during the nine months ended September 30, 1994. 12 14 BancTEXAS Group Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) The BTX loan portfolio, the other primary source of interest income, relies principally on automobile loans acquired from dealers. Competition for these loans is intense, not only from other larger financial institutions, but also from insurance companies, credit unions, and others. The desire of these competitors to increase loan volumes has caused a resistance to increased rates in the markets which BTX serves, in spite of the pressure created by increasing deposit and other interest rates. At the same time, the repayment of the higher yielding loans in the portfolio and the replacement of these with loans at the lower current rates have caused a decline in the yield on the loan portfolio from 8.62% during the third quarter of 1993 to 8.41% during the same period in 1994. This compares with the average cost of interest bearing liabilities of BTX which increased from 3.57% during the third quarter of 1993 to 4.03% in the third quarter of 1994. Average interest bearing liabilities for the nine months ended September 30, 1994 increased $36.6 million from the same period in 1993. This increase was composed of a decrease in interest bearing deposits of $23.6 million, or 10.8%, which was offset by an increase in short-term borrowings from the Federal Home Loan Bank and securities dealers of $60 million, or 130.9%. At the same time, noninterest bearing demand deposits increased $3.8 million, or 8.6%. TABLE 2 presents the average balance sheets and interest spread analysis for the last five quarters. TABLE 3 presents an analysis of the changes in net interest income for the three and nine month periods ended September 30, 1994 compared with the same periods in 1993. 13 15 BancTEXAS Group Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) TABLE 2 - QUARTERLY AVERAGE BALANCE SHEETS/ANALYSIS OF INTERST YIELDS AND RATES (Dollars in thousands)
Third Quarter 1994 Second Quarter 1994 --------------------------- ----------------------------- Interest Interest Average Income/ Average Average Income/ Average Balance Expense Rate Balance Expense Rate -------- -------- ------- ---------- -------- ------- Earning assets: Time deposits with banks ..... $ 659 $ 6 3.64% $ 1,403 $ 21 5.99% Investment securities-taxable. 167,587 2,048 4.89 171,860 2,012 4.68 Federal funds sold and securities purchased under agreements to resell ....... 987 11 4.46 2,943 28 3.81 Loans ........................ 180,977 3,838 8.41 178,118 3,654 8.23 -------- ------- -------- ------- Total earning assets ..... 350,210 5,903 6.69 354,324 5,715 6.47 ------- ------- Nonearning assets: Cash and due from banks ...... 9,217 8,930 Premises and equipment ....... 11,092 11,192 Other assets ................. 9,258 5,769 Allowance for loan losses .... (2,478) (2,562) -------- -------- $377,299 $377,653 ======== ======== Interest bearing liabilities: Savings deposits ............. $ 83,442 561 2.67 $ 84,358 530 2.52 Certificates of deposit $100,000 and over and public funds ............... 17,154 192 4.44 19,926 203 4.09 Other time deposits .......... 91,930 1,013 4.37 91,069 984 4.33 Short-term borrowings and FHLB advances .............. 106,215 1,259 4.74 114,873 1,224 4.26 Long-term debt ............... 1,054 24 9.03 1,054 24 9.13 -------- ------- -------- ------- Total interest bearing liabilities ............ 299,795 3,049 4.03 311,280 2,965 3.82 ------- ------- Noninterest bearing liabilities: Demand deposits .............. 48,339 49,042 Other liabilities ............ 3,253 2,441 -------- -------- Total liabilities ........ 351,387 362,763 Stockholders' equity ........... 25,912 14,890 -------- -------- $377,299 $377,653 ======== ======== Net interest income ............ $ 2,854 $ 2,750 ======= ======= Interest rate spread ........... 2.66% 2.65% Net interest margin ............ 3.23% 3.11% ==== ====
____________________ 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. 14 16
First Quarter 1994 Fourth Quarter 1993 Third 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 ..... $ 2,338 $ 21 3.59% $ 1,645 $ 19 4.62% $ 450 $ 4 3.56% Investment securities-taxable. 158,809 1,850 4.66 152,731 1,756 4.60 129,647 1,505 4.64 Federal funds sold and securities purchased under agreements to resell ....... 4,207 33 3.14 5,546 40 2.89 4,120 32 3.11 Loans ........................ 172,546 3,524 8.28 165,774 3,509 8.40 174,217 3,784 8.62 -------- ------- -------- ------- -------- ------- Total earning assets ..... 337,900 5,428 6.51 325,696 5,324 6.49 308,434 5,325 6.85 ------- ------- ------- Nonearning assets: Cash and due from banks ...... 9,752 9,733 7,659 Premises and equipment ....... 11,291 11,415 11,410 Other assets ................. 5,537 6,868 6,682 Allowance for loan losses .... (2,786) (2,686) (2,813) -------- -------- -------- $361,694 $351,026 $331,372 ======== ======== ======== Interest bearing liabilities: Savings deposits ............. $ 83,557 506 2.46 $ 87,254 546 2.48 $ 88,007 564 2.54 Certificates of deposit $100,000 and over and public funds ............... 22,550 221 3.97 22,554 222 3.91 30,239 276 3.62 Other time deposits .......... 91,665 976 4.32 92,653 1,031 4.41 92,629 1,037 4.44 Short-term borrowings and FHLB advances .............. 97,205 859 3.53 84,075 742 3.53 57,240 523 3.65 Long-term debt ............... 1,054 23 9.00 1,054 24 9.00 1,054 24 9.03 -------- ------- -------- ------- -------- ------- Total interest bearing liabilities ............ 296,031 2,585 3.54 287,590 2,565 3.54 269,169 2,424 3.57 ------- ------- ------- Noninterest bearing liabilities: Demand deposits .............. 48,519 46,052 45,136 Other liabilities ............ 2,223 2,273 2,220 -------- -------- -------- Total liabilities ........ 346,773 335,915 316,525 Stockholders' equity ........... 14,921 15,111 14,847 -------- -------- -------- $361,694 $351,026 $331,372 ======== ======== ======== Net interest income ............ $ 2,843 $ 2,759 $ 2,901 ======= ======= ======= Interest rate spread ........... 2.97% 2.95% 3.28% Net interest margin ............ 3.41% 3.36% 3.73% ==== ==== ====
15 17 BancTEXAS Group Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) TABLE 3 - VOLUME/RATE ANALYSIS
Third 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(1) Change Volume Rate Volume(1) ------ ------ ---- --------- ------ ------ ------- --------- (Dollars in thousands) Earning assets: Time deposits with banks....... $ 2 $ 2 $ - $ - $ 36 $ 20 $ 6 $ 10 Investment securities- taxable .......... 543 440 79 24 1,017 1,570 (419) (134) Federal funds sold and securities purchased under agreements to resell ........ (21) (24) 14 (11) (21) (33) 18 (6) Loans .............. 54 147 (89) (4) (628) 221 (832) (17) ------- ------- ----- ----- ------- ------- ------- ----- Total interest income........ 578 565 4 9 404 1,778 (1,227) (147) ------- ------- ----- ----- ------- ------- ------- ----- Interest bearing funds: Savings deposits ......... (3) (29) 28 (2) (125) (111) (15) 1 Certificates of deposit $100,000 and over and pub- lic funds ........ (84) (119) 62 (27) (388) (459) 131 (60) Other time deposits ......... (24) (8) (16) - (179) (36) (145) 2 Short-term borrowings and FHLB advances ......... 736 447 155 134 2,106 1,615 213 278 Long-term debt - - - - - - - - ------- ------- ------ ----- ------ ------- ------- ----- Total interest expense....... 625 291 229 105 1,414 1,009 184 221 ------- ------- ------ ----- ------- ------- ------- ----- Net interest income ........... $ (47) $ 274 $ (225) $ (96) $(1,010) $ 769 $(1,411) $(368) ======= ======= ====== ===== ======= ======= ======= =====
____________________ BTX has no tax-exempt income. (1) Represents the change not solely attributable to change in rate or change in volume but a combination of these two factors. 16 18 BancTEXAS Group Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) NONINTEREST INCOME Included in noninterest income for the three and nine month periods ended September 30, 1994 were losses on the sale of securities available for sale of $7,055,000, as described on page 6. For the three and nine month periods ended September 30, 1993, net gains on the sale of investment securities were $147,000 and $184,000, respectively. Excluding securities transactions, noninterest income decreased from $2,035,000 for the nine months ended September 30, 1993 to $1,980,000 for the comparable period in 1994. Service charges and fees related to deposit accounts decreased 7.2% from $1,283,000 to $1,191,000 for the nine months ended September 30, 1993 and 1994, respectively. Income from loan sales and loan servicing decreased $229,000 or 38.2% from $600,000 for the nine months ended September 30, 1993 to $371,000 for the comparable period in 1994. For the nine months ended September 30, 1993 loan sales aggregated $32.6 million, which resulted in gains of $466,600. In comparison, BTX sold $4 million of automobile loans during the nine months ended September 30, 1994 which resulted in a gain of $38,000. Other noninterest income increased from $152,000 to $418,000 for the nine months ended September 30, 1993 and 1994, respectively. The primary component accounting for this increase was $255,000 received in June 1994 in settlement of a lawsuit filed by BTX against the Federal Deposit Insurance Corporation relating to the closure of BancTEXAS Dallas, a former subsidiary of BTX. NONINTEREST EXPENSE For the nine months ended September 30, 1994, noninterest expenses increased to $12,612,000 from $10,405,000 for the comparable period in 1993. The primary component of this increase was the increase in personnel expense of $2,364,000, or 49.2%, from $4,804,000 for the nine months ended September 30, 1993 to $7,168,000 for the comparable period in 1994. As described on page 7, during the three months ended September 30, 1994, BTX reevaluated its defined benefit pension plan and its postretirement medical benefit plan. Since both plans had postretirement benefit obligations which exceeded the amount of their respective plan assets, the aggregate liability, $1,552,000 was recorded as an expense during the three months ended September 30, 1994. In addition, BTX recorded the estimated severance and related personnel costs in recognization of planned reductions in staff of $430,000 during the three months ended September 30, 1994. Occupancy expense decreased from $1,065,000 for the nine months ended September 30, 1993 to $961,000 for the comparable period in 1994, or 9.8%. This reflected generally lower costs of repairs and maintenance incurred in 1994, additional rental income received from tenants of the BTX McKinney building, and reduced rental paid on the leased location in Houston and the BTX administrative offices in Dallas. Professional fees decreased 18.2% from $1,261,000 for the nine months ended September 30, 1993 to $1,031,000 for the same period in 1994. The decrease is primarily due to reduced legal fees resulting from the adjudication or settlement in late 1993 and early 1994 of several of the lawsuits which had been pending against BTX. 17 19 BancTEXAS Group Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) Net operating expenses of foreclosed property increased $29,000 to $196,000 for the nine months ended September 30, 1994. This increase was primarily the result of write-downs of $80,000 in September 1994, most of which related to a single parcel of real estate for which a scheduled sale did not occur. MORTGAGE-BACKED AND OTHER SECURITIES Mortgage-backed and other securities totalled $158,259,000 at September 30, 1994, compared with $160,158,000 at December 31, 1993. Included within the balance at September 30, 1994 were $114,969,000 of securities which had been committed for sale, but which settled in October 1994. Through June 30, 1994, BTX had acquired an investment portfolio consisting of $115,856,000 of securities held to maturity and $54,739,000 of securities which had been designated as available for sale. Most of these securities were pledged to support advances from the Federal Home Loan Bank or other borrowed funds which had generally been incurred to acquire the securities. Although approximately $106 million of the total securities portfolio at September 30, 1994 contained provisions for periodic interest rate adjustments, the structure of the specific securities, combined with the rapid increases in interest rates occurring during the first nine months of 1994, caused these securities to under-perform the market, resulting in a significant unrealized loss. The magnitude of this loss, combined with the requirement to collateralize the related borrowed funds and the need to maintain the liquidity position of BTX created doubt about the ability of BTX to continue to hold all of the securities in the portfolio which had been designated as being held to maturity. This would be exacerbated by any further increases in interest rates which might lead to further erosion in market value, and consequently, in collateral value. As described in Note 3 to the Consolidated Financial Statements, in September 1994, BTX determined that its original ability and intent to hold its portfolio of mortgage-backed and other securities to maturity had become impaired, and that therefore this portfolio should be redesignated as available for sale. Consequently, the unrealized loss on the portfolio of $4,332,000, net of related income taxes was recorded as a reduction of consolidated stockholders' equity. Concurrent with this, BTX decided to sell $114,969,000 of these securities, resulting in the realized loss of $7,055,000 described in Note 3. While there is no specific intent at present to sell any of the remaining $43,290,000 of securities available for sale, periodic sale of these securities may be conducted to restructure this portfolio and to allow BTX the flexibility to hedge against future adverse market changes. LENDING AND CREDIT MANAGEMENT Loans, net of unearned income, were $192.3 million at September 30, 1994, an increase of $24.6 million or 15%, from December 31, 1993. The Bank sold $44 million of loans in the first nine months of 1994 compared to $27.9 million in the same period of 1993. TABLE 4 presents the composition of the loan portfolio. 18 20 BancTEXAS Group Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) 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. During 1994, 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. Due to a dramatic decrease in the mortgage loan and refinance market between 1993 and 1994, the volume of these loans has slowed significantly. 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 to $10.5 million at September 30, 1994 in residential interim construction lending has provided a means to expand its Real Estate Construction 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 nine months of 1994, the Bank made 182 of these loans for an aggregate of $20.4 million, compared to 228 of these loans for an aggregate of $23 million in the first nine months of 1993. Interim construction lending has provided the Company with loan fee revenues amounting to $424,000 and $254,000 for the first nine 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
September 30, -------------------- December 31, 1994 1993 1993 -------- -------- ----------- (Dollars in thousands) Commercial .............................. $ 11,891 $ 8,265 $ 7,653 Real estate, construction ............... 10,471 10,349 9,072 Real estate, mortgage ................... 11,576 14,457 12,862 Real estate, mortgage (available for sale) 2,776 - 5,600 Installment ............................. 153,467 125,358 122,551 Installment (available for sale) ........ 6,627 13,417 14,997 -------- -------- -------- 196,808 171,846 172,735 Unearned income ......................... (4,470) (4,907) (5,003) -------- -------- -------- Loans, net of unearned income ........... $192,338 $166,939 $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 19 21 BancTEXAS Group Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) 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. Nonperforming assets at September 30, 1994 were $3.1 million, compared to $4.6 million at December 31, 1993 and $4.1 million at September 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 nine months ended September 30, 1994 increased by $560,000. This increase was the result of two real estate loans totalling $853,000 being placed on nonaccrual status. Both of these loans had been previously identified by management as "potential problem loans." Loans past due 90 days or more at September 30, 1994 were $215,000, compared to $145,000 at September 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 September 30, 1994 totalled $1.7 million, compared to $3.4 million at September 30, 1993, representing a 50% decrease. For the nine months ended September 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 $46,000. TABLE 5 - NONPERFORMING ASSETS
September 30, ------------------- December 31, 1994 1993 1993 -------- -------- ----------- (Dollars in thousands) Nonaccrual loans ......................... $ 1,182 $ 526 $ 622 Restructured loans ....................... - - - Loans past due 90 days or more but not included in nonaccrual loans ... 215 145 803 ------- ------- ------- Total nonperforming loans 1,397 671 1,425 Foreclosed property, net ................. 1,737 3,442 3,171 ------- ------- ------- Total ............................... $ 3,134 $ 4,113 $ 4,596 ======= ======= ======= Ratio of nonperforming assets to total assets ........................... .81% 1.28% 1.25% ======= ======= ======= Ratio of nonperforming assets to total loans and foreclosed property .... 1.61% 2.41% 2.69% ======= ======= =======
TABLE 6 presents nonperforming assets by type of borrower. At September 30, 1994, real estate nonperforming assets totaled $2.3 million, or 74% of total nonperforming assets, compared to 64% at September 30, 1993. 20 22 BancTEXAS Group Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) TABLE 6 - NONPERFORMING ASSETS BY TYPE OF BORROWER
September 30, -------------------- December 31, 1994 1993 1993 -------- -------- ----------- (Dollars in thousands) Commercial .............................. $ 137 $ 168 $ 171 Energy .................................. - 710 710 Real estate, land ....................... 1,282 1,860 2,478 Real estate, residential ................ 232 195 246 Real estate, commercial ................. 813 586 622 Installment ............................. 670 594 369 ------- ------- ------- Total .............................. $ 3,134 $ 4,113 $ 4,596 ======= ======= =======
In addition to the nonperforming assets set forth above, at September 30, 1994, BTX had $1.6 million of loans classified as "potential problem loans," 86% of which are secured by mortgages on real property owned by three borrowers. This compares to $2.5 million of potential problem loans at September 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 September 30, 1994, the allowance for loan losses was approximately $2.6 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 188.1% and 402.8% as of September 30, 1994 and 1993, respectively. This ratio declined during this period because nonperforming loans increased by $726,000 (from $671,000 to $1,397,000), see TABLE 5, while the allowance remained virtually unchanged. During this same period "potential problem loans" decreased $900,000, offsetting the increase in nonperforming loans and mitigating the decline in this coverage ratio. Management considers the allowance for loan losses to be adequate at September 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 September 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. 21 23 BancTEXAS Group Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) The provision for loan losses for the nine months ended September 30, 1994 was $605,000, compared to $330,000 for the nine months ended September 30, 1993. Net charge-offs for the first nine months of 1994 were $614,000 compared to $671,000 for the same period of 1993. The amount of provision for loan losses required in any given quarter is dependent on changes in one or more variables. Increases or decreases in loan levels, loans charged off, recoveries on previously charged off loans and specific allocations on individual loans all have an impact on the amount of provision for loan losses incurred. During the third quarter of 1994, the primary reason for the $455,000 provision was to replenish the allowance for net charge-offs of $296,000 and to maintain the reserve because of the $20.8 million increase in the loan levels. 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
Third Quarter -------------------- Year-To-Date 1994 1993 1994 1993 -------- -------- ------- ------- (Dollars in thousands) Balance at beginning of period ... $ 2,469 $ 2,836 $ 2,637 $ 3,044 Provision for loan losses ........ 455 100 605 330 Loans charged off: Commercial and financial ....... 4 12 4 229 Energy ......................... - - - 40 Real estate .................... - - 207 - Installment .................... 491 504 1,282 1,103 ------- ------- ------- ------- Total charge-offs ............ 495 516 1,493 1,372 Recoveries: Commercial and financial ....... 16 35 171 105 Real estate .................... 31 54 259 137 Installment .................... 152 194 449 459 ------- ------- ------- ------- Total recoveries ............. 199 283 879 701 ------- ------- ------- ------- Net charge-offs .............. 296 233 614 671 ------- ------- ------- ------- Balance at end of period ......... $ 2,628 $ 2,703 $ 2,628 $ 2,703 ======= ======= ======= ======= Allowance for loan losses as a percent of period-end loans .... 1.37% 1.62% ======= ======= Allowance for loan losses as a percent of nonperforming loans.. 188.12% 402.83% ======= =======
22 24 BancTEXAS Group Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) DEPOSITS During the third quarter of 1994 total deposits averaged $240.9 million, a decrease of $7.6 million, or 3.1% 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 compared to the Bank's other deposit products. Also, because money market accounts have check writing features, these funds are more liquid. Due to these factors and the alternative investments available to depositors, the Company's money market accounts have decreased $6.9 million as compared to the fourth quarter 1993 and $7.9 million as compared to the third quarter of 1993. Public funds have declined $14.1 million relative to the third quarter 1993 and $5.4 million relative to the fourth quarter 1993. Public funds have declined principally because these public entities chose alternative investments that are now available rather than bank deposits. TABLE 8 shows the types of deposits and the related rates paid for the periods indicated. TABLE 8 - DEPOSITS
Third Quarter ---------------------------------- Fourth Quarter 1994 1993 1993 ---------------- ---------------- ---------------- Average Average Average Balance Rate Balance Rate Balance Rate -------- ----- -------- ----- -------- ----- (Dollars in thousands) Demand ................ $ 48,339 - $ 45,136 - $ 46,052 - Money market accounts . 61,427 2.94% 69,338 2.56% 68,364 2.48% Savings ............... 22,015 1.91 18,669 2.49 18,890 2.50 Certificates of deposit $100,000 and over ... 13,795 4.69 12,804 4.37 13,821 4.42 Public funds .......... 3,359 3.43 17,435 3.07 8,733 3.09 Other time ............ 91,930 4.37 92,629 4.44 92,653 4.41 -------- -------- -------- Total average deposits ........ $240,865 $256,011 $248,513 ======== ======== ========
CAPITAL RESOURCES Stockholders' equity at September 30, 1994 was $42.8 million, compared to $14.9 million at December 31, 1993. The increase in consolidated stockholders' equity was primarily the result of the sale of Class B Common Stock on August 31, 1994. The proceeds of this sale, net of related offering expenses, amounted to $29,623,000. As a result of adoption of Statement of Financial Accounting Standards 115, the effect of unrealized gains and losses on investment securities available for sale, net of related income tax effects, is reflected as a component of consolidated stockholders' equity. Net unrealized losses on securities available for sale were $1,401,000 at September 30, 1994 compared to $67,000 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. 23 25 BancTEXAS Group Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) TABLE 9 - CAPITAL AND ALLOWANCE FOR LOAN LOSSES
September 30, ------------------ December 31, 1994 1993 1993 -------- -------- ----------- (Dollars in thousands) Stockholders' equity ...................... $ 42,797 $ 15,146 $ 14,952 ======== ======== ======== Allowance for loan losses ................. 2,628 2,703 2,637 ======== -------- -------- Ratio of stockholders' equity to assets ... 11.07% 4.71% 4.06% ======== ======== ========
TABLE 10 compares the capital ratios of BTX and the Bank at September 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. 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 September 30, 1994 17.71% 11.39% 18.84% Bank at September 30, 1994 12.01% 7.70% 13.09% 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. 24 26 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 one year horizon. TABLE 11 shows each ratio at all time intervals for September 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
September 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 $148,890 $ 24,258 $ 25,175 $ 32,134 $115,794 $346,251 $ 4,908 $351,159 Interest bearing liabilities....... 177,328 13,865 16,876 20,500 62,521 291,090 - 291,090 -------- -------- -------- -------- -------- -------- ------- -------- Nominal gap ........ (28,438) 10,393 8,299 11,634 53,273 Cumulative interest sensitivity gap* ............. $(28,438)$(18,045)$ (9,746)$ 1,888 $ 55,161 ======== ======== ======== ======== ======== Cumulative ratio of earning assets to in- terest bearing funds ............ 84% 91% 95% 101% 119%
____________________ *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 25 27 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. 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. 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 third quarter of 1994 averaged $240.9 million, a decrease of $15.1 million, or 6%, from the third quarter of 1993. This decrease was due primarily to a reduction of public funds deposits. Securities sold under agreements to repurchase averaged $106 million for the third quarter 1994, an increase of $49 million from the third 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 September 30, 1994, its borrowing against securities from the FHLB totaled $80.7 million and borrowings from other sources were $6.7 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. 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. 26 28 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY H0LDERS On August 18, 1994 BTX held its annual meeting of stockholders (the "Annual Meeting") at which time the stockholders elected six directors and also acted on two other proposals. The six directors were elected with the following vote totals:
For Withheld Broker Non-Votes --- -------- ---------------- Richard L. Brown 16,559,442 729,614 1,532,016 Nathan C. Collins 16,549,485 739,571 1,532,016 Charles A. Crocco, Jr. 16,547,666 741,390 1,532,016 Joseph J. Leszczynski 16,534,916 754,140 1,532,016 Thomas A. Stanzel 16,562,276 726,780 1,532,016 Edward T. Story, Jr. 16,556,576 732,480 1,532,016
The following matters were also voted on at the Annual Meeting, with the voting results indicated:
Proposal For Against Withheld -------- --- ------- ----------------------------- Abstentions Broker Non-Votes ----------- ---------------- Approval of transaction with First Banks, Inc. (Proposal No. 1 in Proxy Statement) 10,458,937 869,411 230,913 5,729,795 Approval of amendments to and restatement of Certificate of Incorporation (Proposal No. 2 in Proxy Statement) 10,308,680 1,057,559 193,022 5,729,795
ITEM 5. OTHER INFORMATION On August 31, 1994 the Registrant completed a pending transaction with First Banks, Inc., as discussed in Note 2 to the Consolidated Financial Statements which appear elsewhere in this Report. In conjunction with the consummation of the transaction, and as disclosed in the Proxy Statement for the Annual Meeting discussed under Item 4 above, three of the directors who had been reelected at the Annual Meeting (Messrs. Brown, Leszczynski and Stanzel) resigned, and three new directors were appointed by the remaining directors to fill the three vacancies created such registrations. The three new directors are James F. Dierberg, Allen H. Blake and Mark T. Turkcan. 27 29 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Description ----------- ----------- 11 Computation of Earnings (Loss) Per Share 27 Financial Data Schedule (Electronic Filing Only)
(b) Reports on Form 8-K were filed on September 15, 1994 and September 27, 1994. Report filed September 15, 1994 - reported pursuant to Item 1 of Form 8-K that the transaction with First Banks, Inc. in which First Banks, Inc. invested $30 million in the Class B Common Stock of the Registrant, was consummated. Report filed September 27, 1994 - reported pursuant to Item 4 of Form 8-K that the Registrant has engaged the accounting firm of KPMG Peat Marwick LLP to audit its financial statements for the fiscal year ended December 31, 1994, to replace the previous accounting firm, Deloitte & Touche LLP. 28 30 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 November 14, 1994 By /s/ NATHAN C. COLLINS Nathan C. Collins Chairman of the Board and President By /s/ ALLEN H. BLAKE Allen H. Blake Chief Accounting Officer 29 31 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION - - - ------- ----------- 11 Computation of Earnings (Loss) Per Share 27 Financial Data Schedule (Electronic Filing Only) EX-11 2 COMPUTATION OF EARNINGS PER SHARE 1 Exhibit 11 BancTEXAS Group Inc. COMPUTATION OF EARNINGS PER SHARE - Unaudited
Three Months Nine Months ended September 30, ended September 30, ---------------------- ---------------------- 1994 1993 1994 1993 -------- -------- -------- -------- (In thousands, except per share) Net income (loss) applicable to common shareholders ..... $ (489) $ 304 $ (636) $ 941 ======== ======== ======== ======== Weighted average common and common equivalent shares ... 36,324 23,379 $ 27,808 $ 23,285 ======== ======== ======== ======== PER SHARE Net income (loss) applicable to common shareholders ... $ (.01) $ .01 $ (.02) $ .04 ======== ======== ======== ========
EX-27 3 EXHIBIT 27 FINANCIAL DATA SCHEDULE
CT THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS FOR PERIOD ENDED SEPTEMBER 30, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000310979 BANCTEXAS GROUP INC. 1,000 9-MOS DEC-31-1994 JAN-01-1994 SEP-30-1994 385,183 580 0 0 42,217 385,183 11,971 (9,209) (636) 0 0 0 (636) (.02) (.02)
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