-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AurzOy3tsTCWZKceQdgPy2PyG7dx0+1qQkQh+sQ3duOqkgzkWGaHnuTG5C86f8if xGqJjy7NczVNgjuDDWStpw== /in/edgar/work/0000930661-00-001673/0000930661-00-001673.txt : 20000712 0000930661-00-001673.hdr.sgml : 20000712 ACCESSION NUMBER: 0000930661-00-001673 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000428 ITEM INFORMATION: FILED AS OF DATE: 20000711 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHWEST SECURITIES GROUP INC CENTRAL INDEX KEY: 0000878520 STANDARD INDUSTRIAL CLASSIFICATION: [6211 ] IRS NUMBER: 752040825 STATE OF INCORPORATION: DE FISCAL YEAR END: 0625 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-19483 FILM NUMBER: 671008 BUSINESS ADDRESS: STREET 1: SUITE 3500 STREET 2: 1201 ELM STREET CITY: DALLAS STATE: TX ZIP: 75270 BUSINESS PHONE: 2146511800 MAIL ADDRESS: STREET 1: SUITE 3500 STREET 2: 1201 ELM STREET CITY: DALLAS STATE: TX ZIP: 75270 8-K/A 1 0001.txt FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): April 28, 2000 SOUTHWEST SECURITIES GROUP, INC. ---------------------------------------------------------------- (Exact name of Registrant as specified in its charter) DELAWARE No. 0-19483 No. 75-2040825 (State or other jurisdicition (Commission (IRS employer of incorporation) File Number) Identification No.) ------------------------------------------------------------------ 1201 ELM STREET, SUITE 3500 DALLAS, TEXAS 75270 (Address, including zip code, of principal executive office) ------------------------------------------------------------------ Registrants' telephone number, including area code: 214-859-1800 Not applicable ----------------------- (Registrant's former address of principal executive office) SOUTHWEST SECURITIES GROUP, INC. FORM 8-K/A PORTIONS AMENDED: The registrant hereby amends Item 7 of its Current Report on Form 8-K filed on May 12, 2000 to include financial statements of businesses acquired and pro forma financial information in accordance with Item 7(a)(4) within 60 days after the due date of the initial filing. Except as set forth in Item 7 below, no other changes are made to the Current Report on Form 8-K filed on May 12, 2000. Item 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial statements of business acquired. The unaudited consolidated balance sheet of ASBI Holdings, Inc. ("ASBI") as of March 31, 2000, the unaudited consolidated statements of income and cash flows for the six months ended March 31, 2000 and 1999, the audited consolidated balance sheets of ASBI as of September 30, 1999 and 1998, and the audited consolidated statements of income, cash flows and changes in stockholders' equity for each of the years in the three year period ended September 30, 1999 are included herein as Exhibit 99.3. (b) Pro forma financial information. The unaudited pro forma condensed combined financial statements of the registrant and ASBI as of and for the nine months ended March 31, 2000 are included herein as Exhibit 99.2. The unaudited pro forma condensed combined statements of income of the registrant and ASBI as of June 25, 1999, June 26, 1998 and June 27, 1997 were previously filed on September 24, 1999 in the registrant's definitive proxy statement pursuant to Section 14(a) of the Securities Exchange Act of 1934. (c) Exhibits. 99.1 Southwest Securities Group, Inc. Press Release issued April 28, 2000 (previously filed as Exhibit 99 to registrant's Current Report on Form 8-K filed on May 12, 2000). 99.2 The unaudited pro forma condensed combined financial statements of the registrant and ASBI as of and for the nine months ended March 31, 2000. 99.3 The unaudited consolidated balance sheet of ASBI as of March 31, 2000, the unaudited consolidated statements of income and cash flows for the six months ended March 31, 2000 and 1999, the audited consolidated balance sheets of ASBI as of September 30, 1999 and 1998, and the audited consolidated statements of income, cash flows and changes in stockholders' equity for each of the years in the three year period ended September 30, 1999. SIGNATURE 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 hereunto duly authorized. SOUTHWEST SECURITIES GROUP, INC. Date: July 11, 2000 By: /s/ David Glatstein --------------------------------- David Glatstein President and Chief Executive Officer EXHIBIT INDEX EXHIBIT NO. DESCRIPTION OF EXHIBIT 99.1 Southwest Securities Group, Inc. Press Release issued April 28, 2000 (previously filed as Exhibit 99 to registrant's Current Report on Form 8-K filed on May 12, 2000). 99.2 The unaudited pro forma condensed combined financial statements of the registrant and ASBI as of and for the nine months ended March 31, 2000. 99.3 The unaudited consolidated balance sheet of ASBI as of March 31, 2000, the unaudited consolidated statements of income and cash flows for the six months ended March 31, 2000 and 1999, the audited consolidated balance sheets of ASBI as of September 30, 1999 and 1998, and the audited consolidated statements of income, cash flows and changes in stockholders' equity for each of the years in the three year period ended September 30, 1999. EX-99.2 2 0002.txt UNAUDITED PRO FORMA STATEMENTS EXHIBIT 99.2 Index to Unaudited Pro Forma Condensed Combined Financial Statements
Page ---- Introduction to unaudited pro forma condensed combined financial statements.......... 2 Unaudited pro forma condensed combined statement of financial condition as of March 31, 2000.............................................................. 3 Unaudited pro forma condensed combined statement of income and comprehensive income for the nine months ended March 31, 2000.......................................... 4 Notes to unaudited pro forma condensed combined financial statements................. 5
Unaudited Pro Forma Condensed Combined Financial Information The following unaudited pro forma condensed combined financial statements combine the historical consolidated statements of financial condition and income of Southwest Securities Group, Inc. (the "Company") and ASBI Holdings, Inc. ("ASBI") giving effect to the merger using the pooling of interests method of accounting for a business combination. The following information was derived from the unaudited financial statements of the Company and ASBI as of and for the nine months ended March 31, 2000. The information is only a summary and should be read in conjunction with historical financial statements and related notes contained in the annual reports and other information filed with the SEC and incorporated herein by reference and ASBI historical financial statements identified in Exhibit 99.3. The unaudited pro forma condensed combined statements of income and comprehensive income for the nine months ended March 31, 2000 assume the merger was effected on June 26, 1999. The unaudited pro forma condensed combined statement of financial condition gives effect to the merger as if it had occurred on March 31, 2000. The accounting policies of the Company and ASBI are substantially comparable. Consequently, no adjustments were made to the unaudited pro forma condensed combined financial statements to conform the accounting policies of the combining companies. The unaudited pro forma combined financial information is for illustrative purposes only. The companies may have performed differently had they always been combined. The pro forma combined financial information may not be indicative of the historical results that would have been achieved had the companies always been combined or the future results that the combined company will experience operating as a combined company. (2) Southwest Securities Group, Inc. and Subsidiaries Unaudited Pro Forma Condensed Combined Statement of Financial Condition March 31, 2000 (in thousands, except share and per share amounts)
Pro Forma Condensed Combined Southwest Southwest Securities ASBI Securities Group, Inc. Holdings, Inc. Group, Inc. and and and Subsidiaries Subsidiaries Adjustments Subsidiaries ------------------------------------------------------------------------ ASSETS Cash $ 22,952 $ 8,660 $ -- $ 31,612 Assets segregated for regulatory purposes 209,691 -- -- 209,691 Marketable equity securities 82,309 -- -- 82,309 Receivable from brokers, dealers and clearing organizations 3,755,962 -- -- 3,755,962 Receivable from clients, net 1,283,376 -- -- 1,283,376 Loans -- 281,026 -- 281,026 Other assets 197,163 10,568 1,062 (5A) 208,793 ------------------------------------------------------------------------ $ 5,551,453 $ 300,254 $ 1,062 $ 5,852,769 ======================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Short-term borrowings $ 262,664 $ -- $ -- $ 262,664 Payable to brokers, dealers and clearing organizations 3,538,060 -- -- 3,538,060 Payable to clients 1,177,535 -- -- 1,177,535 Deposits -- 225,235 -- 225,235 Advances from Federal Home Loan Bank -- 35,632 -- 35,632 Other liabilities 241,551 9,681 1,395 (4) 252,627 Exchangeable subordinated notes 57,500 -- -- 57,500 ------------------------------------------------------------------------ 5,277,310 270,548 1,395 5,549,253 Minority interest in consolidated subsidiaries 100 886 -- 986 Stockholders' equity: Preferred stock $1.00 par value. Authorized 100,000 shares; none issued -- -- -- -- Common stock 1,184 27 233 (5B) 1,444 Redeemable preferred stock $1.00 par value. Authorized 5,000,000 shares; none issued and outstanding -- -- -- -- Additional paid-in capital 128,818 238 (233) (5B) 157,378 28,555 (5C) Accumulated other comprehensive income - net unrealized holding gain, net of tax of $28,736 53,625 -- -- 53,625 Retained earnings 90,517 28,555 (1,395) (4) 90,184 1,062 (5A) (28,555) (5C) Deferred compensation, net 538 538 Treasury stock (15,674 shares, at cost) (639) -- -- (639) ------------------------------------------------------------------------ 274,043 28,820 (333) 302,530 Commitments and contingencies ------------------------------------------------------------------------ $ 5,551,453 $ 300,254 $ 1,062 $ 5,852,769 ========================================================================
See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements. (3)
Southwest Securities Group, Inc. and Subsidiaries Unaudited Pro Forma Condensed Combined Statement of Income and Comprehensive Income For the nine months ended March 31, 2000 (in thousands, except share and per share amounts) Pro Forma Condensed Combined Southwest Southwest Securities ASBI Securities Group, Inc. Holdings, Inc. Group, Inc. and and and Subsidiaries Subsidiaries Adjustments Subsidiaries ------------------------------------------------------------------------ REVENUES Net revenues from clearing operations $ 45,086 $ -- $ -- $ 45,086 Commissions 55,778 -- -- 55,778 Interest 165,385 25,647 -- 191,032 Investment banking, advisory and administrative fees 21,976 -- -- 21,976 Net gains on principal transactions 115,506 -- -- 115,506 Other 12,126 2,997 -- 15,123 ------------------------------------------------------------------------ 415,857 28,644 -- 444,501 EXPENSES Commissions and other employee compensation 113,307 4,929 -- 118,236 Interest 117,555 9,479 -- 127,034 Occupancy, equipment and computer service costs 18,627 921 -- 19,548 Communications 12,137 -- -- 12,137 Floor brokerage and clearing organization charges 6,233 -- -- 6,233 Other 37,807 3,314 -- 41,121 ------------------------------------------------------------------------ 305,666 18,643 -- 324,309 Income before income taxes and minority interest in consolidated subsidiaries 110,191 10,001 -- 120,192 Income taxes 38,385 93 3,407 (5A) 41,885 ------------------------------------------------------------------------ Income before minority interest in consolidated subsidiaries 71,806 9,908 (3,407) 78,307 Minority interest in consolidated subsidiaries -- (586) -- (586) ------------------------------------------------------------------------ Net income 71,806 9,322 (3,407) 77,721 Other comprehensive loss - unrealized holding loss arising during period, net of tax (58,497) -- -- (58,497) ------------------------------------------------------------------------ Comprehensive income $ 13,309 $ 9,322 $ (3,407) $ 19,224 ======================================================================== Earnings per share - basic $ 5.52 $ 4.98 ============= =============== Earnings per share - diluted $ 5.46 $ 4.94 ============= =============== Weighted average shares outstanding - basic 12,997,012 $ 15,597,001 ============= =============== Weighted average shares outstanding - diluted 13,141,513 $ 15,741,502 ============= ===============
See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements. (4) Notes to Unaudited Pro Forma Condensed Combined Financial Statements 1. Basis of Presentation The unaudited pro forma condensed combined financial statements are based on the unaudited consolidated financial statements of the Company and ASBI as of and for the nine months ended March 31, 2000. The Company and ASBI consolidated financial statements are prepared in conformity with generally accepted accounting principles and require the Company and ASBI management to make estimates that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. In the opinion of the Company and ASBI, the unaudited pro forma condensed combined financial statements include all the adjustments necessary to present fairly the results of the periods presented. Actual results could differ materially from these estimates. 2. Accounting Policies The accounting policies of the Company and ASBI are substantially comparable. Consequently, no adjustments were made to the unaudited pro forma condensed combined financial statements to conform the accounting policies of the combining companies. 3. Pro Forma Earnings Per Share The pro forma combined net income per common share is based on net income less preferred stock dividends and the weighted average number of outstanding common shares. Net income per common share, assuming dilution, includes the dilutive effect of stock options. The weighted average number of outstanding common shares has been adjusted to reflect the exchange ratio of 0.0956 shares of the Company's common stock for each share of ASBI common stock. 4. Merger-Related Expenses Merger-related fees and expenses, consisting primarily of fees and expenses of investment bankers, attorneys and accountants and financial printing and other related charges, are estimated to be approximately $1.4 million. These fees and expenses have been reflected in the unaudited pro forma condensed combined statement of financial condition as of March 31, 2000. These charges are not reflected in the unaudited pro forma condensed combined statements of income or the pro forma combined per share data. (5) 5. Other Pro Forma Adjustments (A) A pro forma adjustment has been made to reflect the tax implications of the conversion of ASBI from an S corporation to a C corporation. (B) A pro forma adjustment has been made to reflect the cancellation of ASBI common stock and the assumed issuance of 2.6 million shares of the Company's common stock in exchange for all of the outstanding ASBI common stock (based on the exchange ratio of 0.0956). (C) A pro forma adjustment has been made to reflect the termination of ASBI as an S corporation and the effect of the contribution of undistributed earnings of ASBI to the combined enterprise. (6) EX-99.3 3 0003.txt UNAUDITED BALANCE SHEET EXHIBIT 99.3 Index to ASBI'S Consolidated Financial Statements
Page ---- Unaudited Consolidated Financial Statements of ASBI Holdings, Inc. and Subsidiaries as of March 31, 2000 and for the six month periods ended March 31, 2000 and 1999 Consolidated Balance Sheet.................................................................... 2 Consolidated Statements of Income............................................................. 3 Consolidated Statements of Cash Flows ........................................................ 4 Notes to Consolidated Financial Statements.................................................... 6 Audited Consolidated Financial Statements of ASBI Holdings, Inc. and Subsidiaries as of September 30, 1999 and 1998 and for each of the years in the three year period ended September 30, 1999 Independent Auditors' Report.................................................................. 7 Consolidated Balance Sheets................................................................... 8 Consolidated Statements of Income............................................................. 9 Consolidated Statements of Cash Flows......................................................... 10 Consolidated Statements of Changes in Stockholders' Equity.................................... 11 Notes to Consolidated Financial Statements.................................................... 13
ASBI HOLDINGS, INC. AND SUBSIDIARIES Consolidated Balance Sheet March 31, 2000 (unaudited) (in thousands, except share and per share amounts)
ASSETS - ------ Cash and due from banks $ 8,660 Loans held for sale (at market value) 46,629 Loans held for investment, net 234,397 Real estate purchased for development 2,437 Premises and equipment, net 2,986 Other real estate owned, net 948 Federal Home Loan Bank stock (at cost) 1,807 Accrued interest receivable 1,798 Other assets 592 --------------- $ 300,254 =============== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Deposits: Noninterest bearing $ 12,760 Interest bearing 212,475 --------------- Total deposits 225,235 Advances from the Federal Home Loan Bank 35,632 Other liabilities 9,681 Minority interest 886 Stockholders' equity: Voting common stock of $0.001 par value. 101,000,000 Class A and B shares authorized; 272,064 shares issued and outstanding 1 Nonvoting common stock of $0.001 par value. 101,000,000 Class A and B shares authorized; 26,934,336 shares issued and outstanding 26 Additional paid-in capital 238 Retained earnings 28,555 --------------- Total stockholders' equity 28,820 --------------- Commitments and contingencies --------------- $ 300,254 ===============
See accompanying notes to unaudited consolidated financial statements. (2) ASBI HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Income For the Six Months Ended March 31, 2000 and 1999 (unaudited) (in thousands, except share and per share amounts)
2000 1999 ---- ---- Interest income: Interest and fees on loans $ 16,793 $ 14,737 Interest and dividends on investments 255 462 --------------- --------------- Total interest income 17,048 15,199 --------------- --------------- Interest expense: Interest on deposits (including interest expense on certificates of deposit of $100,000 and over of $725 and $761 in 2000 and 1999, respectively) 5,787 6,437 Interest on notes payable 74 - Interest on FHLB advances 589 322 --------------- --------------- Total interest expense 6,450 6,759 --------------- --------------- Net interest income 10,598 8,440 Provision (credit) for possible loan losses 685 (271) --------------- --------------- Net interest income after provision for possible loan losses 9,913 8,711 --------------- --------------- Noninterest income: Gain on sale of assets 1,414 1,207 Other 555 485 --------------- --------------- Total noninterest income 1,969 1,692 --------------- --------------- Noninterest expense: Compensation and benefits 3,401 2,867 Occupancy and equipment 648 401 Other 1,804 1,257 --------------- --------------- Total noninterest expense 5,853 4,525 --------------- --------------- Income before minority interest 6,029 5,878 Minority interest (367) (124) --------------- --------------- Net income $ 5,662 $ 5,754 =============== =============== Earnings per common share $ .21 $ .21 =============== =============== Weighted average shares outstanding 27,206,400 27,206,400 =============== ===============
See accompanying notes to unaudited consolidated financial statements. (3) ASBI HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the Six Months Ended March 31, 2000 and 1999 (unaudited) (in thousands)
2000 1999 ---- ---- Cash flows from operating activities: Net income $ 5,662 $ 5,754 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of discount on loans (1,215) (1,191) Gain on sale of loans held for sale, net (1,241) (1,239) Provision (credit) for loan losses 685 (271) Depreciation and amortization of premises and equipment 157 90 Gain on sale of real estate owned (5) (12) Changes in operating assets and liabilities: Decrease (increase) in accrued interest receivable (297) 136 Decrease in other assets 447 237 Increase in other liabilities 3,309 1,323 Purchases of loans held for sale (12,835) (24,576) Proceeds from sale of loans held for sale 13,837 28,167 Decrease (increase) in warehouse loans (13,624) 10,091 --------------- --------------- Net cash provided by (used in) operating activities (5,120) 18,509 --------------- --------------- Cash flows from investing activities: Loan originations and purchases, net of repayments (24,795) (1,718) Decrease in factored receivables, net of repayments 672 2,057 Purchases of premises and equipment (877) (171) Proceeds from sale of real estate owned 2,148 402 Capitalized improvements of real estate owned (98) - Purchases of Federal Home Loan Bank stock, net (596) (90) Purchase of real estate for development - (159) --------------- --------------- Net cash provided by (used in) investing activities (23,546) 321 --------------- ---------------
See accompanying notes to unaudited consolidated financial statements. (4) ASBI HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (continued) For the Six Months Ended March 31, 2000 and 1999 (unaudited) (in thousands)
2000 1999 ---- ---- Cash flows from financing activities: Net increase (decrease) in demand deposits, NOW, savings and money market accounts (248) 1,296 Net decrease in certificates of deposit (3,803) (9,828) Net increase (decrease) in advances from the Federal Home Loan Bank 31,202 (589) Proceeds from note payable 2,500 - Dividends paid (4,258) (3,075) --------------- --------------- Net cash (used) provided by financing activities 25,393 (12,196) --------------- --------------- Net increase (decrease) in cash and cash equivalents (3,273) 6,634 Cash and cash equivalents at beginning of period 11,933 3,666 --------------- --------------- Cash and cash equivalents at end of period $ 8,660 $ 10,300 =============== ===============
See accompanying notes to unaudited consolidated financial statements. (5) ASBI HOLDINGS, INC. AND SUBSIDIARIES Select Notes to Consolidated Financial Statements March 31, 2000 and 1999 (unaudited) 1. Basis of Presentation The accompanying unaudited interim financial statements as of March 31, 2000 and for the six months ended March 31, 2000 and 1999, respectively, reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for such periods presented. Management has determined that all such adjustments are of a normal recurring nature. 2. Statements of Cash Flows ASBI has chosen to report its cash flows by the indirect method and has chosen to report on a net basis its cash receipts and cash payments for time deposits accepted and repayments of those deposits, and loans made to customers and principal collections on those loans. Supplemental information on cash flows and non-cash transactions for the six months ended March 31, 2000 and 1999, (unaudited) is as follows (in thousands):
2000 1999 ---- ---- Cash transactions: Interest expense paid $ 6,323 $ 6,778 =========== ============ Federal income tax paid $ -- $ 16 =========== ============ Noncash transactions: Net acquisition of other real estate owned $ 360 $ 1,525 =========== ============
3. Income Taxes ASBI changed its tax status from taxable to nontaxable effective as of January 1, 1997. The remaining deferred tax liability at March 31, 2000, of approximately $490,000 is related to ASBI's future taxable income due primarily to the recapture (for tax purposes) of the reserve for loan loss and certain built in gains primarily associated with purchased loan pools, which may be taxable at the corporate level in future years. (6) Independent Auditors' Report ---------------------------- The Board of Directors ASBI Holdings, Inc. and Subsidiaries We have audited the consolidated balance sheets of ASBI Holdings, Inc. and Subsidiaries (the Company) as of September 30, 1999 and 1998, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the three year period ended September 30, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ASBI Holdings, Inc. and Subsidiaries as of September 30, 1999 and 1998, and the results of its operations and its cash flows for each of the years in the three year period ended September 30, 1999, in conformity with generally accepted accounting principles. Fisk & Robinson P.C. November 19, 1999 Dallas, Texas (7) ASBI HOLDINGS, INC. AND SUBSIDIARIES Consolidated Balance Sheets September 30, 1999 and 1998 (in thousands, except share and per share amounts)
1999 1998 ---- ---- ASSETS - ------ Cash and due from banks $ 11,933 $ 3,666 Loans held for sale (at market value) 32,763 75,071 Loans held for investment, net 210,107 183,768 Real estate purchased for development 2,813 2,915 Premises and equipment, net 2,266 867 Other real estate owned, net 2,257 515 Federal Home Loan Bank stock (at cost) 1,211 1,089 Accrued interest receivable 1,501 1,883 Other assets 1,039 741 --------------- -------------- $ 265,890 $ 270,515 =============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Deposits: Noninterest bearing $ 10,493 $ 10,303 Interest bearing 218,793 229,385 --------------- -------------- Total deposits 229,286 239,688 Advances from the Federal Home Loan Bank 4,430 4,623 Other liabilities 4,758 3,991 Commitments and contingencies - - Stockholders' equity: Voting common stock of $0.001 par value. 101,000,000 Class A and B shares authorized; 272,064 shares issued and outstanding 1 1 Nonvoting common stock of $0.001 par value. 101,000,000 Class A and B shares authorized; 26,934,336 shares issued and outstanding 26 26 Additional paid-in capital 238 238 Retained earnings 27,151 21,948 --------------- -------------- Total stockholders' equity 27,416 22,213 --------------- -------------- $ 265,890 $ 270,515 =============== ==============
See accompanying notes to consolidated financial statements. (8) ASBI HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Income For the Years Ended September 30, 1999, 1998 and 1997 (in thousands, except share and per share amounts)
1999 1998 1997 ---- ---- ---- Interest income: Interest and fees on loans $ 30,333 $ 29,620 $ 21,713 Interest and dividends on investments 771 723 531 --------------- --------------- -------------- Total interest income 31,104 30,343 22,244 --------------- --------------- -------------- Interest expense: Interest on deposits (including interest expense on certificates of deposit of $100,000 and over of $1,445, $1,595 and $1,708 In 1999, 1998 and 1997, respectively) 12,359 12,117 7,619 Interest on notes payable - - 6 Interest on FHLB advances 484 974 1,551 --------------- --------------- -------------- Total interest expense 12,843 13,091 9,176 --------------- --------------- -------------- Net interest income 18,261 17,252 13,068 Provision (credit) for possible loan losses (3) 2,140 1,024 --------------- --------------- -------------- Net interest income after provision (credit) for possible loan losses 18,264 15,112 12,044 --------------- --------------- -------------- Noninterest income: Gain on sale of assets 2,868 2,086 1,282 Other 1,103 931 659 --------------- --------------- -------------- Total noninterest income 3,971 3,017 1,941 --------------- --------------- -------------- Noninterest expense: Compensation and benefits 5,577 4,892 3,365 Occupancy and equipment 813 608 483 Other 2,984 2,055 1,979 --------------- --------------- -------------- Total noninterest expense 9,374 7,555 5,827 --------------- --------------- -------------- Income before income taxes and minority interest 12,861 10,574 8,158 Income taxes 111 55 1,766 --------------- --------------- -------------- Income before minority interest 12,750 10,519 6,392 Minority interest (527) (126) (84) --------------- --------------- -------------- Net income $ 12,223 $ 10,393 $ 6,308 =============== =============== ============== Earnings per common share $ 0.45 $ 0.38 $ 0.23 =============== =============== ============== Weighted average shares outstanding 27,206,400 27,206,400 27,206,400 =============== =============== ==============
See accompanying notes to consolidated financial statements. (9) ASBI HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity For the Years Ended September 30, 1999, 1998 and 1997 (in thousands)
Redeemable Additional Preferred Common Paid-In Retained Stock Stock Capital Earnings Total ----- ----- ------- -------- ----- Balance at September 30, 1996 $ 1,499 $ 27 $ 186 $ 13,102 $ 14,814 Dividends on common stock - - - (2,919) (2,919) Purchase and retirement of preferred stock (1,499) - - (58) (1,557) Sale of common stock - - 52 - 52 Net income - - - 6,308 6,308 ---------- ------- -------- ---------- ------------ Balance at September 30, 1997 $ - $ 27 $ 238 $ 16,433 $ 16,698 Dividends on common stock - - - (4,878) (4,878) Net income - - - 10,393 10,393 ---------- ------- -------- ---------- ------------ Balance at September 30, 1998 $ - $ 27 $ 238 $ 21,948 $ 22,213 Dividends on common stock - - - (7,020) (7,020) Net income - - - 12,223 12,223 ---------- ------- -------- ---------- ------------ Balance at September 30, 1999 $ - $ 27 $ 238 $ 27,151 $ 27,416 ========== ======= ======== ========== ============
See accompanying notes to consolidated financial statements. (10) ASBI HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the Years Ended September 30, 1999, 1998 and 1997 (in thousands)
1999 1998 1997 ---- ---- ---- Cash flows from operating activities: Net income $ 12,223 $ 10,393 $ 6,308 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Amortization of discount on loans (3,463) (3,408) (175) Gain on sale of loans held for sale, net (2,636) (1,889) (1,268) Provision (credit) for loan losses (3) 2,140 1,024 Depreciation and amortization of premises and equipment 192 180 123 Gain on sale of real estate owned (108) (207) (14) Provision for real estate owned losses 51 56 136 Changes in operating assets and liabilities: Decrease (increase) in accrued interest receivable 382 (402) (227) Decrease (increase) in other assets (298) (496) 602 Increase (decrease) in other liabilities 767 (302) 646 Net decrease (increase) in loans held for sale 5,623 (76,789) (9,082) Proceeds from sale of loans held for sale 40,187 17,688 11,794 --------------- -------------- --------------- Net cash provided by (used in) operating activities 52,917 (53,036) 9,867 --------------- -------------- --------------- Cash flows from investing activities: Loan originations and purchases, net of repayments (26,587) (7,042) (42,013) Increase in factored receivables, net of repayments (1,338) (2,511) (2,773) Purchases of premises and equipment (1,591) (447) (388) Proceeds from sale of real estate owned 2,725 2,687 1,315 Capitalized improvements of real estate owned (122) (48) (62) Purchases of Federal Home Loan Bank stock, net (122) - (127) Proceeds from sale of FHLB stock - 957 - Purchase of real estate for development - (2,915) - --------------- -------------- --------------- Net cash used in investing activities (27,035) (9,319) (44,048) --------------- -------------- ---------------
See accompanying notes to consolidated financial statements. (11) ASBI HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (continued) For the Years Ended September 30, 1999, 1998 and 1997 (in thousands)
1999 1998 1997 ---- ---- ---- Cash flows from financing activities: Net increase in demand deposits, NOW, savings and money market accounts 4,994 9,534 987 Net (decrease) increase in certificates of deposit (15,396) 69,800 35,266 Net (decrease) increase in advances from the Federal Home Loan Bank (193) (19,013) 2,342 Payments on note payable - - (550) Sale of common stock - - 52 Repurchase of preferred stock - - (1,557) Dividends paid (7,020) (4,878) (2,919) -------------- -------------- ------------- Net cash provided by (used in) financing activities (17,615) 55,443 33,621 -------------- -------------- ------------- Net increase (decrease) in cash and cash equivalents 8,267 (6,912) (560) Cash and cash equivalents at beginning of year 3,666 10,578 11,138 -------------- -------------- ------------- Cash and cash equivalents at end of year $ 11,933 $ 3,666 $ 10,578 ============== ============== =============
See accompanying notes to consolidated financial statements. (12) ASBI HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements September 30, 1999, 1998 and 1997 1. Basis of Presentation ASBI Holdings, Inc. (Company) was formed January 31, 1995 when the owners of the common stock of Arlington Savings Bancshares, Inc. (ASBI) contributed their shares of stock in ASBI to the Company in return for an equivalent ownership interest in the Company. The Company then owned 100% of the outstanding common stock of ASBI. ASBI was subsequently merged with and into Arlington Savings Bancshares of Delaware, Inc. (ASB Delaware), a wholly owned subsidiary of the Company also formed on January 31, 1995. The Company, through ASB Delaware, owns 100% of First Savings Bank, FSB (Bank). The Bank began operations in 1986. 2. Summary of Significant Accounting Policies The following is a description of the more significant accounting policies which the Company follows in preparing and presenting its consolidated financial statements. Principles of Consolidation The consolidated financial statements include the accounts of the Company and those of its wholly-owned subsidiaries, ASB Delaware and the Bank. In addition, the consolidated financial statements include the accounts of First Consumer Credit, L.L.C. (First Consumer), FSB Financial, L.L.C. (FSB) and FSB Development, L.L.C. (FSBD), limited liability companies. The Bank owns an 83% voting interest in First Consumer, a 51% voting interest in FSB and a 100% interest in FSBD. An officer of the Bank owns 4% of First Consumer. All material intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. (13) ASBI HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Cash and Cash Equivalents For purposes of the consolidated statement of cash flows, the Company considers funds due from banks, interest bearing deposits in other banks, and all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents. Loans Held for Sale Loans held for sale are valued at the lower of cost or market as determined by outstanding commitments from investors or current investor yield requirements calculated on the aggregate note basis. Discounts are amortized using a method approximating the interest method over the remaining period to contractual maturity. Loans held for sale consisted of first mortgage loans and home improvement loans which had been purchased but had not yet been sold in the secondary market. Gains and losses on the sale of loans held for sale are determined using the specific identification method. At September 30, 1999 and 1998, the cost of loans held for sale approximated market. Loans and Allowance for Possible Loan Losses Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal balance adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Loan origination and commitment fees and certain related direct costs are deferred and amortized to interest income, generally over the contractual lives of the loans, using the interest method. Subject to management's assessment of loan performance and other factors, discounts on first mortgage, consumer and other loans are amortized to income using a method approximating the interest method over the remaining period to contractual maturity, adjusted for anticipated prepayments. Impaired loans (as defined by SFAS Statement No. 114 and as amended by SFAS No. 118) are accounted for at the net present value of expected future cash flows, discounted at the loan's effective interest rate, the observable market price of the loan or at the fair value of the collateral if the loan is collateral dependent. The accrual of interest on impaired loans is discontinued when, in management's opinion, the borrower may be unable to meet payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized generally to the extent cash payments are received. (14) ASBI HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The allowance for possible loan losses is increased by charges to income and decreased by charge-offs (net of recoveries). Management's periodic evaluation of the adequacy of the allowance is based on the Bank's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, and current economic conditions. Factored Receivables Interest income from factored receivables is recorded on an accrual basis in accordance with the terms of the agreements. Certain fees charged in connection with the factored receivables are earned and recorded in the month in which the receivables are purchased. The Company disburses approximately 80% of the invoice amount at the time a receivable is purchased from a customer. On collection of the purchased invoices, amounts collected in excess of finance income, net of initial payment, are remitted to the customers. At September 30, 1999 and 1998, approximately $1,748,000 and $1,491,000, respectively, of amounts due to customers under this program arrangement are classified in other liabilities in the consolidated balance sheet. Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation. Provisions for depreciation are computed using the straight-line method. Average useful lives used for depreciation with respect to major classifications of property are as follows: Type Term ---- ---- Building 7 years Furniture and equipment 5 to 10 years Automobile 3 years Leasehold improvements Lease term Maintenance and repairs are charged to expense; betterments and renewals are capitalized. Upon retirement or replacement, the cost of the asset and the related accumulated depreciation are eliminated with the resulting gain or loss included in the statement of income. (15) ASBI HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Other Real Estate Owned Real estate properties acquired through, or in lieu of, loan foreclosure are to be sold and are initially recorded at fair value at the date of foreclosure establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in other noninterest expense. Income Taxes The Company elected S corporation status effective January 1, 1997. Earnings and losses after that date are to be included in the personal income tax returns of the stockholders and taxed depending on their personal tax strategies. Except for the possible effects of taxes on built-in gains (as defined in federal income tax law), the Company will generally not incur additional income tax obligations, and future financial statements are not expected to include a provision for federal income taxes. Because the Company's stockholders are obligated to pay federal income taxes on the earnings of the Company, the Company expects to declare cash dividends sufficient to fund stockholders' tax payments as they come due. Fair Value of Financial Instruments SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires the Company to disclose the fair values of its financial instruments (see Note 16). The following methods and assumptions were used by the Company to estimate the fair value of each class of financial instruments. Cash and cash equivalents, accrued interest receivable and accrued interest payable These assets and liabilities are considered short-term instruments for which the carrying amount is a reasonable estimate of fair value. Loans held for sale Fair values are determined by outstanding commitments from investors or current investor yield requirements calculated on the aggregate note basis. (16) ASBI HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Loans receivable Fair values are estimated for portfolios of loans with similar characteristics. Loans are segregated by type such as real estate, commercial and consumer which are also segregated into fixed and adjustable rate interest terms. The fair value of loans receivable is calculated by discounting scheduled cash flows through the estimated maturity using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Loan fair values estimates include judgments regarding future expected loss experience and risk characteristics. Stock in Federal Home Loan Bank of Dallas No secondary market exists for Federal Home Loan Bank (FHLB) of Dallas stock. The stock is bought and sold at par by the FHLB. The fair value, therefore, is the carrying value of FHLB stock. Deposits, advances from Federal Home Loan Bank, note payable and subordinated debt The fair value of deposits with no stated maturity, such as interest-bearing checking accounts, passbook savings accounts and advance payments from borrowers for taxes and insurance are equal to the amount payable on demand (carrying value). The fair value of certificates of deposits and advances from FHLB is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits and borrowings of similar remaining maturities. Forward-Looking Statements Certain phrases contained in these financial statements including, without limitation, statements containing the words "believes", "anticipates", "estimates", "expects" and words of similar meaning, constitute forward-looking statements, as defined in securities law. Among others, notes to the financial statements concerning financial instruments and contingencies identify important risk factors that could cause actual results to differ significantly from those contained in the forward-looking statements. Earnings Per Share Earnings per common share were computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding during each year presented. The weighted average number of common shares has not been adjusted, as there exist no options, warrants or other potentially dilutive securities. Reclassification Certain amounts in 1997 and 1998 have been reclassified to conform to the 1999 presentation. (17) ASBI HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 3. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Management has not yet fully evaluated the effects on this change in its operations. The Company, should it acquire such derivative instruments or should it engage in such hedging activities, will adopt SFAS 133 as required for its year ended September 30, 2001. 4. Statement of Cash Flows The Company reports on a net basis its cash receipts and cash payments for time deposits accepted and repayments of those deposits and loans made to customers and principal collection on those loans. The Company uses the indirect method to present cash flows from operating activities. Other supplemental cash flow information is presented as follows (in thousands):
1999 1998 1997 ---- ---- ---- Cash transactions: Interest expense paid $ 12,939 $ 12,962 $ 9,081 =============== =============== ============== Federal income tax paid $ 16 $ 16 $ 763 =============== =============== ============== Noncash transactions: Net acquisition of other real estate owned $ 4,186 $ 2,648 $ 859 =============== =============== ==============
(18) ASBI HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 5. Loans Held for Investment and Allowance for Loan Losses Loans receivable at September 30, 1999 and 1998 are summarized as follows (in thousands):
1999 1998 ---- ---- First mortgage loans (principally conventional): Real estate $ 108,493 $ 105,145 Construction 63,723 57,658 ---------------- ---------------- 172,216 162,803 ---------------- ---------------- Consumer and other loans: Commercial 15,275 15,516 Other 26,111 12,007 ---------------- ---------------- 41,386 27,523 ---------------- ---------------- Factored receivables 9,247 7,909 ---------------- ---------------- 222,849 198,235 Unearned income (9,363) (10,808) Allowance for loan losses (3,379) (3,659) ---------------- ---------------- $ 210,107 $ 183,768 ================ ================
The Company grants loans to customers primarily within the Dallas/Fort Worth, Texas metropolitan area. Also, the Company purchases loans, in the ordinary course of business, which have been originated in various other areas of the United States. Although the Company has a diversified loan portfolio, a substantial portion of its debtors' ability to honor their contracts is dependent upon the general economic conditions of the area. At September 30, 1999 and 1998, substantially all of the Company's loans are collateralized with real estate or automobiles. (19) ASBI HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements An analysis of the allowance for possible loan losses for the years ended September 30, 1999 and 1998 is as follows (in thousands):
1999 1998 ---- ---- Balance at beginning of year $ 3,659 $ 2,707 Provision (credit) for loan losses (3) 2,140 Loans charged to the allowance, net (277) (1,188) --------------- --------------- Balance at end of year $ 3,379 $ 3,659 =============== ===============
Impairment of loans with a recorded investment of approximately $4,562,000 and $9,541,000 at September 30, 1999 and 1998, respectively, has been recognized in conformity with SFAS 114 as amended by SFAS 118. The average recorded investment in impaired loans during 1999 was approximately $7,052,000. The total allowance for loan losses related to these loans was approximately $1,493,000 and $1,362,000 at September 30, 1999 and 1998, respectively. No material amount of interest income on impaired loans was recognized for cash payments received in 1999 and 1998. 6. Other Real Estate Owned An analysis of the allowance for possible losses on other real estate owned for the years ended September 30, 1999 and 1998 is as follows (in thousands):
1999 1998 ---- ---- Balance at beginning of year $ 19 $ 253 Provision for losses 51 56 Charge-offs (37) (290) --------------- --------------- $ 33 $ 19 =============== ===============
(20) ASBI HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 7. Premises and Equipment Bank premises and equipment at September 30, 1999 and 1998 consists of the following (in thousands):
1999 1998 ---- ---- Land $ 381 $ 376 Building 1,302 174 Leasehold improvements 304 215 Furniture and equipment 1,230 861 Automobiles 55 55 ---------------- ---------------- 3,272 1,681 Less accumulated depreciation (1,006) (814) ---------------- ---------------- $ 2,266 $ 867 ================ ================
Depreciation expense of approximately $192,000 in 1999, $180,000 in 1998 and $124,000 in 1997 is included in occupancy and equipment expense in the accompanying consolidated statement of income. (21) ASBI HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 8. Deposits Deposits at September 30, 1999 and 1998 are summarized as follows (dollars in thousands):
1999 1998 ---- ---- Amount Percent Amount Percent ------ ------- ------ ------- Noninterest bearing demand accounts $ 10,493 4.6% $ 10,303 4.3% Interest bearing demand accounts 1,471 0.6 938 0.4 Savings accounts 417 0.1 351 0.1 Limited access money market accounts 14,166 6.2 9,962 4.2 Certificates of deposit, less than $100,000 176,683 77.1 188,422 78.6 Certificates of deposit, $100,000 and greater 26,056 11.4 29,712 12.4 ------------- ------- ------------- ------- $ 229,286 100.0% $ 239,688 100.0% ============= ======= ============= =======
The weighted average interest rates on deposits at September 30, 1999 and 1998 were approximately 5.2% and 5.2%, respectively. At September 30, 1999, scheduled maturities of certificates of deposit were as follows (in thousands):
2000 2001 2002 Thereafter Total ---- ---- ---- ---------- ----- 4.00% to 4.99% $ 14,025 $ 1,846 $ 35 $ 314 $ 16,220 5.00% to 5.99% 108,040 30,818 4,378 1,023 144,259 6.00% to 6.99% 12,352 8,902 9,167 5,080 35,501 7.00% to 7.99% 6,759 - - - 6,759 --------------- --------------- --------------- --------------- --------------- $ 141,176 $ 41,566 $ 13,580 $ 6,417 $ 202,739 =============== =============== =============== =============== ===============
(22) ASBI HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 9. Line of Credit The Company executed a $2,000,000 line of credit note with an unrelated commercial bank on September 1, 1998. The note is secured by 100% of the common stock of ASB Delaware and the Bank. There have been no amounts advanced on the note as of September 30, 1999. The note matured on September 30, 1999 and was not renewed. 10. Related Party Transactions In the ordinary course of business, the Company has transactions, including borrowings, with its employees, directors and their affiliates. In the opinion of management, such transactions are on the same terms, including interest rates and collateral requirements, as those prevailing at the time for comparable transactions with unaffiliated persons. The aggregate amount of such loans was approximately $3,864,000 and $1,628,000 at September 30, 1999 and 1998, respectively. During the period ended September 30, 1999, repayments of loans totaled approximately $395,000 and new loans funded totaled approximately $2,631,000. During the period ended September 30, 1998, repayments of loans totaled approximately $2,459,000 and new loans funded totaled approximately $6,000. 11. Commitments and Contingencies The Company is involved in certain claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters is not expected to have a material effect on the consolidated financial position or results of operations of the Company. At September 30, 1999, the Company was obligated under noncancelable operating leases for office space. Net rent expense under operating leases, included in occupancy and equipment expense, was approximately $366,000, $282,000 and $188,000 for the years ended September 30, 1999, 1998 and 1997, respectively. The projected minimum rental payments under leases having initial or remaining noncancelable lease terms in excess of one year at September 30, 1999 are as follows (in thousands):
Year Amount ---- ------ 2000 $ 382 2001 246 2002 204 2003 204 2004 204 ----------- $ 1,240 ===========
(23) ASBI HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 12. Advances from the Federal Home Loan Bank At September 30, 1999 and 1998, advances from the FHLB were due as follows (in thousands):
1999 1998 ---- ---- Due within one year $ - $ - Due within two years 24 - Due within five years 394 531 Due within seven years 169 1,500 Due within ten years 741 998 Due within twenty years 3,102 1,594 ---------------- ---------------- $ 4,430 $ 4,623 ================ ================
Pursuant to collateral agreements, the advances from the FHLB, with interest rates ranging from 5.3% to 6.8%, are secured by approximately $52,722,000 of collateral value (as defined) in qualifying first mortgage loans at September 30, 1999. 13. Income Taxes The provision for income taxes consists of the following components for the years ended September 30, 1999, 1998 and 1997 (in thousands):
1999 1998 1997 ---- ---- ---- Current - Federal $ - $ - $ 514 Deferred - Federal - - 910 Current - State 111 55 243 Deferred - State - - 99 ----------------- ---------------- ---------------- $ 111 $ 55 $ 1,766 ================= ================ ================
As discussed in Note 1, the Company changed its tax status from taxable to nontaxable effective January 1, 1997. The deferred tax liability recorded at September 30, 1999 and 1998 is related to the Company's future taxable income due primarily to the recapture (for tax return purposes) of the reserve for loan losses and certain built in gains primarily associated with purchased loan pools, which may be taxable at the corporate level in future years. (24) ASBI HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The effect of the change in tax status as of January 1, 1997 was to reduce the deferred tax asset by approximately $458,000 and record a deferred tax liability of approximately $551,000 resulting in $1,009,000 charge to the deferred tax provision during the year ended September 30, 1997. A deferred tax provision of $551,000, related to loans, is recorded in other liabilities at September 30, 1999 and 1998. 14. Employee Stock Ownership Plan In 1988, the Company established an employee stock ownership plan (Plan) which was a noncontributory plan established to acquire shares of the Company's common stock for the benefit of substantially all employees of the Company. No contributions were made to the Plan in 1998 and 1997. The Plan was terminated as of June 30, 1997 and liquidated December 1997. 15. Employee Benefit Plan The Company has a 401(k) defined contribution plan covering substantially all of its employees. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974. The Plan allows eligible employees' contributions to be limited so as to meet the nondiscriminatory test of Section 401(m) of the Internal Revenue Code. The Company's matching contribution percentage is approximately 50% of up to 6% of a participant's compensation. Contributions by the Company in 1999, 1998 and 1997 totaled approximately $45,000, $37,000 and $27,000, respectively. 16. Financial Instruments The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. (25) ASBI HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements At September 30, 1999 and 1998, the approximate amounts of these financial instruments were as follows (in thousands):
1999 1998 ---- ---- Financial instruments whose contract amounts represent credit risk: Commitments to fund loans $ 57,721 $ 68,891 Standby letters of credit 435 183 ---------------- ---------------- $ 58,156 $ 69,074 ================ ================
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's credit worthiness on a case-by-case basis. The amount and type of collateral obtained, if deemed necessary by the Company upon extension of credit, varies and is based on management's credit evaluation of the counterparty. The Company has not incurred any significant losses on its commitments in either the year ending September 30, 1999, 1998 or 1997. Further, management believes the Company will not incur material losses as a result of the commitments existing at September 30, 1999. (26) ASBI HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 17. Fair Values of Financial Instruments The estimated fair values of the Company's financial instruments as of September 30, 1999 and 1998 are as follows (in thousands):
1999 1998 Carrying Fair Carrying Fair Amount Value Amount Value ------ ----- ------ ----- Financial assets: Cash and cash equivalents $ 11,933 $ 11,933 $ 3,666 $ 3,666 Loans held for sale, net 32,763 32,763 75,071 75,071 Loans receivable, net 210,107 212,407 183,768 184,891 Accrued interest receivable 1,501 1,501 1,883 1,883 FHLB stock 1,211 1,211 1,089 1,089 Financial liabilities: Deposits $ 229,286 $ 228,947 $ 239,688 $ 240,632 Advances from FHLB 4,430 4,430 4,623 4,623 Accrued interest payable 490 490 586 586
18. Regulatory Matters The Bank is subject to various regulatory capital requirements administered by federal agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, specific capital guidelines that involve quantitative measures of the Company's assets, liabilities, and certain off- balance sheet items as calculated under regulatory accounting practices must be met. The Company's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures, established by regulation to ensure capital adequacy, require the maintaining of minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk- weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of September 30, 1999, that the Company and Bank meet all capital adequacy requirements to which they are subject. As of September 30, 1999 and 1998, the Bank is considered "well capitalized" under the regulatory framework for prompt corrective action. To be categorized as "well capitalized," the Bank must maintain minimum total risk-based, Tier I risk-based, Tier I leverage ratios as set forth in the table. (27) ASBI HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The Bank's actual capital amounts and ratios are presented in the following table (dollars in thousands):
To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions ------ ----------------- ----------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- September 30, 1999: Total capital (to risk weighted assets) $ 27,960 12.1% $ 18,420 8.0% $ 23,024 10.0% Tier I capital (to risk weighted assets) 27,388 11.9 9,210 4.0 13,815 6.0 Tier I capital (to adjusted total assets) 27,388 10.4 10,564 4.0 13,206 5.0 September 30, 1998: Total capital (to risk weighted assets) $ 23,460 10.6% $ 17,752 8.0% $ 22,190 10.0% Tier I capital (to risk weighted assets) 22,626 10.2 8,876 4.0 13,314 6.0 Tier I capital (to adjusted total assets) 22,626 8.4 10,774 4.0 13,467 5.0
19. Supplementary Income and Expense Information The following amounts are included in other noninterest income and noninterest expense in the accompanying consolidated statement of income for the years ended September 30, 1999, 1998 and 1997 (in thousands):
1999 1998 1997 ---- ---- ---- Noninterest income ------------------ Factoring fee income $ 844 $ 766 $ 521 All other 259 165 137 ---------------- ---------------- ---------------- $ 1,103 $ 931 $ 658 ================ ================ ================ Noninterest expense ------------------- Loan and collection expense $ 219 $ 257 $ - FDIC assessment 136 114 113 All other 2,629 1,684 1,866 ---------------- ---------------- ---------------- $ 2,984 $ 2,055 $ 1,979 ================ ================ ================
(28) ASBI HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 20. Acquisition Effective August 10, 1999, the Company entered into an Agreement and Plan of Reorganization with Southwest Securities Group, Inc. (SWS) whereby SWS expects to acquire 100% of the outstanding shares of common stock of the Company in a transaction accounted for as a pooling of interests. The transaction is expected to occur in early 2000, subject to regulatory and stockholder approval. 21. Condensed Financial Statements of ASBI Holdings, Inc. (Parent) Presented below are the condensed statements of income, balance sheet and statement of cash flows for ASBI Holdings, Inc., the Parent Company. ASBI HOLDINGS, INC. Balance Sheets September 30, 1999 and 1998 (in thousands)
1999 1998 ---- ---- ASSETS - ------ Noninterest bearing deposits in subsidiary banks $ 984 $ 192 Investment in subsidiaries 26,432 22,021 --------------- -------------- Total assets $ 27,416 $ 22,213 =============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Common stock 27 27 Additional paid-in capital 238 238 Retained earnings 27,151 21,948 --------------- -------------- Total stockholders' equity 27,416 22,213 --------------- -------------- Total liabilities and stockholders' equity $ 27,416 $ 22,213 =============== ==============
(29) ASBI HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements ASBI HOLDINGS, INC. Statements of Income For the Years Ended September 30, 1999, 1998 and 1997 (in thousands)
1999 1998 1997 ---- ---- ---- Revenue - Equity earnings in subsidiary $ 12,233 $ 10,399 $ 6,311 Expenses - Other 10 5 3 --------------- --------------- -------------- Income before income taxes 12,223 10,394 6,308 Income tax - - - --------------- --------------- -------------- Net income $ 12,223 $ 10,394 $ 6,308 =============== =============== ==============
ASBI HOLDINGS, INC. Statements of Cash Flows For the Years Ended September 30, 1999, 1998 and 1997 (in thousands)
1999 1998 1997 ---- ---- ---- Cash flows from operating activities: Net income $ 12,223 $ 10,394 $ 6,308 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of subsidiary (12,233) (10,399) (7,951) --------------- -------------- --------------- Net cash used in operating activities (10) (5) (1,643) --------------- -------------- --------------- Cash flows from investing activities - Dividends received from subsidiaries 7,822 4,878 4,559 --------------- -------------- --------------- Cash flows from financing activities - Dividends paid (7,020) (4,878) (2,919) --------------- -------------- --------------- Net increase (decrease) in cash and cash equivalents 792 (5) (3) Cash and cash equivalents at beginning of year 192 197 200 --------------- -------------- --------------- Cash and cash equivalents at end of year $ 984 $ 192 $ 197 =============== ============== ===============
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