-----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, Agt2ZWx81blpz4J73eg/rWVkrm/cC7FLXG491Ci8hs2VVbEqm2rTnwjOq4MlYVmo 39TNd2NuyCuIFPMuFRIq5Q== 0000899243-98-000181.txt : 19980212 0000899243-98-000181.hdr.sgml : 19980212 ACCESSION NUMBER: 0000899243-98-000181 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980211 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FORT BEND HOLDING CORP CENTRAL INDEX KEY: 0000896766 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 760391720 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-21328 FILM NUMBER: 98532617 BUSINESS ADDRESS: STREET 1: 3400 AVENUE H CITY: ROSENBERG STATE: TX ZIP: 77471 BUSINESS PHONE: 7133425571 10QSB 1 FORM 10-QSB UNITED STATES ------------- SECURITIES AND EXCHANGE COMMISSION ---------------------------------- Washington, D.C. 20549 ----------------------- Form 10-QSB ----------- [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) ----------------------------------------------- OF THE SECURITIES EXCHANGE ACT OF 1934 -------------------------------------- For the quarterly period ended December 31, 1997 ------------------------------------------------ OR -- [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) ------------------------------------------------------ OF THE SECURITIES EXCHANGE ACT OF 1934 -------------------------------------- Commission File No. 0 - 21328 ----------------------------- FORT BEND HOLDING CORP. ----------------------- A Delaware Corporation I.R.S. Employer Identification ---------------------- ------------------------------ No. 76-0391720 --------------- Address Telephone Number ------- ---------------- 3400 Avenue H (281) 342-5571 Rosenberg, Texas 77471 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 twelve 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 . ----- ----- There were 1,851,141 shares and 1,674,793 shares of Common Stock ($0.01 par value) issued and outstanding, respectively, as of January 26, 1997. 1 of 23 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS
FORT BEND HOLDING CORP. CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (UNAUDITED) ASSETS DECEMBER 31, 1997 MARCH 31, 1997 Cash and due from banks $ 6,359,405 $ 6,369,675 Short-term investments 19,469,753 14,220,516 Certificates of deposit 200,000 200,000 -------------------- ---------------- TOTAL CASH AND CASH EQUIVALENTS 26,029,158 20,790,191 Investment securities available for sale, at market 2,929,332 2,810,270 Investment securities held to maturity (estimated market value of $9,956,652 and $10,789,440 at December 31, 1997 and March 31, 1997, respectively) 10,241,277 11,234,763 Mortgage-backed securities available for sale, at market 380,092 520,869 Mortgage-backed securities held to maturity (estimated market value of $87,091,439 and $96,684,430 at December 31, 1997 and March 31, 1997, respectively) 86,882,448 97,084,501 Loans held for sale 10,345,178 2,660,415 Loans receivable, net 146,022,337 138,227,705 Accrued interest receivable 1,893,819 1,816,415 Real estate, net 90,021 470,996 Federal Home Loan Bank stock, at cost 1,487,000 1,933,000 Premises and equipment, net 4,818,173 4,970,011 Mortgage servicing rights, net 7,212,502 7,537,571 Prepaid expenses and other assets 2,808,938 3,398,198 Deferred income taxes 308,240 305,961 Goodwill, net 1,279,740 1,319,232 -------------------- ---------------- TOTAL ASSETS $ 302,728,255 $ 295,080,098 ==================== ================ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits $ 255,726,406 $ 250,218,152 Convertible Subordinated Debentures 11,970,000 12,080,000 Borrowings 3,998,630 4,226,676 Advances from borrowers for taxes and insurance 4,286,347 4,750,945 Accounts payable, accrued expenses and other liabilities 3,612,468 2,868,177 -------------------- ---------------- TOTAL LIABILITIES 279,593,851 274,143,950 -------------------- ---------------- Minority interest in consolidated subsidiary 2,642,878 2,508,214 -------------------- ---------------- Stockholders' equity: Serial preferred stock, $.01 par value - 1,000,000 shares authorized, none outstanding Common Stock $.01 par value, 4,000,000 shares authorized 1,844,406 shares issued and 1,668,058 shares outstanding at December 31,1997 and 1,820,950 shares issued and 1,644,602 shares outstanding at March 31, 1997 18,444 18,209 Additional paid-in capital 9,366,579 8,695,882 Unearned employee stock ownership plan shares (118,078) (307,125) Deferred compensation (98,469) (82,324) Net unrealized appreciation (depreciation) on available for sale securities 6,931 (6,107) Retained earnings (substantially restricted) 12,772,620 11,565,900 Treasury stock, at cost - 176,348 shares (1,456,501) (1,456,501) -------------------- ---------------- TOTAL STOCKHOLDERS' EQUITY 20,491,526 18,427,934 -------------------- ---------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 302,728,255 $ 295,080,098 ==================== ================
The accompanying notes are an integral part of the condensed consolidated financial statements. 2 FORT BEND HOLDING CORP. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
THREE MONTHS NINE MONTHS ENDED ENDED DECEMBER 31, DECEMBER 31, 1997 1996 1997 1996 INTEREST INCOME: Loans $ 3,256,070 $ 2,673,173 $ 9,987,360 $ 7,193,460 Short-term investments 495,410 256,338 1,090,793 675,319 Investment securities 194,582 214,074 651,308 564,602 Mortgage-backed securities 1,459,354 1,701,684 4,558,667 5,286,844 ---------------- ----------- ---------------- ------------ TOTAL INTEREST INCOME 5,405,416 4,845,269 16,288,128 13,720,225 ---------------- ----------- ---------------- ------------ INTEREST EXPENSE: Deposits 2,826,982 2,643,474 8,282,277 7,430,780 Borrowings 317,046 329,035 977,898 994,729 ---------------- ----------- ---------------- ------------ TOTAL INTEREST EXPENSE 3,144,028 2,972,509 9,260,175 8,425,509 ---------------- ----------- ---------------- ------------ NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 2,261,388 1,872,760 7,027,953 5,294,716 PROVISION FOR LOAN LOSSES --- 60,000 77,980 128,000 ---------------- ----------- ---------------- ------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,261,388 1,812,760 6,949,973 5,166,716 ---------------- ----------- ---------------- ------------ NONINTEREST INCOME: Loan fees and charges 950,591 160,387 2,431,645 404,897 Loan servicing income, net 353,414 112,787 925,949 328,905 Service charges on deposit accounts 231,955 216,805 662,290 545,437 Gain on sale of loans 308,312 91,237 561,763 197,536 Other income 147,641 138,959 464,149 406,497 ---------------- ----------- ---------------- ------------ TOTAL NONINTEREST INCOME 1,991,913 720,175 5,045,796 1,883,272 ---------------- ----------- ---------------- ------------ NONINTEREST EXPENSES: Compensation and benefits 1,970,696 1,030,093 5,523,127 2,800,513 Office occupancy and equipment 447,742 290,975 1,330,806 720,520 Federal insurance premiums 43,441 110,092 123,711 367,681 Data processing fees 151,413 68,888 408,071 179,623 Savings Association Insurance Fund Assessment --- --- --- 1,492,686 Insurance and surety bond expense 36,279 34,571 110,707 106,110 Other 691,054 405,439 1,837,099 1,075,290 ---------------- ----------- ---------------- ------------ TOTAL NONINTEREST EXPENSES 3,340,625 1,940,058 9,333,521 6,742,423 ---------------- ----------- ---------------- ------------ INCOME BEFORE INCOME TAX AND MINORITY INTEREST 912,676 592,877 2,662,248 307,565 INCOME TAX PROVISION 263,741 175,709 811,209 63,509 ---------------- ----------- ---------------- ------------ INCOME BEFORE MINORITY INTEREST 648,935 417,168 1,851,039 244,056 MINORITY INTEREST IN NET INCOME OF CONSOLIDATED SUBSIDIARY 157,414 --- 337,034 --- ---------------- ----------- ---------------- ------------ NET INCOME $ 491,521 $ 417,168 $ 1,514,005 $ 244,056 ================ =========== ================ ============ EARNINGS PER COMMON SHARE $ 0.30 $ 0.25 $ 0.91 $ 0.15 ================ =========== ================ ============ EARNINGS PER COMMON SHARE - ASSUMING DILUTION $ 0.23 $ 0.21 $ 0.71 $ 0.14 ================ =========== ================ ============ DIVIDENDS PER COMMON SHARE $ 0.100 $ 0.035 $ 0.185 $ 0.105 ================ =========== ================ ============
The accompanying notes are an integral part of the condensed consolidated financial statements. 3
FORT BEND HOLDING CORP. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED DECEMBER 31, 1997 1996 OPERATING ACTIVITIES: Net income $ 1,514,005 $ 244,056 Adjustments to reconcile net income to net cash used in operating activities: Provision for losses on loans and real estate 77,980 128,000 Depreciation 417,247 236,600 Compensation charge related to release of ESOP shares 438,202 101,785 Amortization of loan premium, discount, and deferred fees, net (409,284) (582,090) Amortization of goodwill 69,796 28,996 Amortization of mortgage servicing rights 1,173,738 247,865 Minority interest in income of consolidated subsidiary 337,034 --- Gain on sales of real estate (45,931) (31,087) Gain on sales of loans, net (561,763) (197,536) Dividends on Federal Home Loan Bank stock (65,700) (75,700) Origination of loans held for sale (52,892,457) (10,347,663) Proceeds from sales of loans 45,769,457 11,170,915 Change in prepaid expenses and other assets 527,628 (1,358,560) Change in accounts payable, accrued expenses and other liabilities 744,291 19,127 Other, net 75,451 (149,585) --------------- ------------- NET CASH USED IN OPERATING ACTIVITIES (2,830,306) (564,877) --------------- ------------- INVESTING ACTIVITIES: Purchase of investment securities available for sale (98,403) (89,035) Purchase of investment securities held to maturity (1,991,953) (22,981,432) Proceeds from maturities of investment securities held to maturity 3,000,000 21,000,000 Principal collected on mortgage-backed securities 10,306,756 9,556,865 Net increase in loans receivable (7,296,287) (11,094,936) Purchase of premises and equipment (265,409) (402,228) Purchase or origination of mortgage servicing rights (848,669) (1,586,166) Improvements to real estate (14,102) --- Proceeds from sale of real estate 203,372 37,233 Proceeds from redemption of Federal Home Loan Bank stock 511,700 --- Net cash acquired in acquisition --- 3,541,250 --------------- ------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 3,507,005 (2,018,449) --------------- ------------- FINANCING ACTIVITIES: Net increase in deposits 5,508,254 8,033,195 Payments on long-term borrowings (38,999) (36,659) Decrease in advances from borrowers for taxes and insurance (464,598) (800,779) Net proceeds from issuance of common stock 67,265 20,026 Dividends paid to minority stockholder (202,370) --- Dividends paid (307,284) (172,031) --------------- ------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 4,562,268 7,043,752 --------------- ------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 5,238,967 4,460,426 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 20,790,191 17,193,662 --------------- ------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 26,029,158 $ 21,654,088 =============== ============= SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Real estate acquired in settlement of loans $ 72,899 $ 2,171,099 Loans originated related to sales of real estate 240,000 182,000
The accompanying notes are an integral part of the condensed consolidated financial statements. 4 FINANCIAL STATEMENTS, CONTINUED ------------------------------- NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) ----------- 1. BASIS OF PRESENTATION The unaudited information as of December 31, 1997 and for the three and nine months ended December 31, 1997 and 1996 includes the results of operations of Fort Bend Holding Corp. (the "Holding Corp.") and its wholly- owned subsidiary Fort Bend Federal Savings and Loan Association of Rosenberg (the "Association"). The Association's financial statements include its 51% owned subsidiary Mitchell Mortgage Company, L.L.C. ("Mitchell") (see Note 3). In the opinion of management, the information reflects all adjustments (consisting only of normal recurring adjustments) which are necessary for a fair presentation of the results of operations for such periods but should not be considered as indicative of results for a full year. The March 31, 1997 condensed consolidated statement of financial condition data was derived from the audited financial statements, but does not include all disclosures required by generally accepted accounting principles. Accordingly, the condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements. 2. COMMON STOCK SPLIT On August 21, 1997, the Board of Directors declared a two-for-one stock split in the form of a 100% stock dividend payable October 1, 1997 to shareholders of record on September 11, 1997. The effect of the split is presented retroactively within stockholders' equity by transferring the par value for the additional shares issued from the additional paid-in capital account to the common stock account. All share and per share data, including conversion price, recognition and retention plan and convertible subordinated debenture information, has been retroactively restated to reflect the stock split. 3. BUSINESS COMBINATION On January 2, 1997 the Association executed an agreement with The Woodlands Corporation to acquire a controlling interest in Mitchell, a new limited liability company. Mitchell was formed for the purpose of engaging in the mortgage banking business, including the origination and servicing of single-family purchase loans, single-family construction loans and commercial and multifamily real estate loans. The Woodlands Corporation contributed certain mortgage loans and its mortgage servicing portfolio and liabilities of its wholly-owned mortgage banking subsidiary, Mitchell Mortgage Company ("Old Mitchell"), in exchange for a 49% ownership interest in Mitchell and the Association contributed cash of approximately $2.6 million in exchange for a 51% ownership interest in Mitchell. In connection with the transaction, Old Mitchell (and The Woodlands Corporation, as successor) was granted an option to convert, upon the occurrence of certain events, its ownership interest in Mitchell into shares of the common stock of the Company, at a rate of 82.304 shares for each $1,000 of ownership interest in Mitchell, or $12.15 per share, in an amount not to exceed 9.9% of the Company's outstanding common stock. Any amount that would otherwise be required to be issued exceeding 9.9% of the Company's outstanding common stock would be paid in cash. The option becomes exercisable on January 2, 1999 and expires on January 2, 2002. 5 FINANCIAL STATEMENTS, CONTINUED ------------------------------- NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (Unaudited) ----------- The Association has guaranteed Mitchell's performance with the Government National Mortgage Association and has insured that Mitchell will maintain a required minimum net worth or the Association will infuse additional capital to cure any deficiency. 4. RECOGNITION AND RETENTION PLAN The Holding Corp. has a Recognition and Retention Plan ("RRP") as a method of providing key officers with a proprietary interest in the Holding Corp. in a manner designed to encourage such individuals to remain with the Holding Corp. or the Association. All outstanding awards vest at a rate of 20% per year. On April 1, 1997, an additional 5,200 shares were granted under the RRP. A total of 52,650 shares have been authorized of which 48,904 shares had been granted under the RRP as of December 31, 1997. 5. NON-PERFORMING ASSETS Impaired loans decreased $6,000 during the three months ended December 31, 1997 and $143,000 during the nine months ended December 31, 1997. The decline resulted from the payoff of one commercial loan and loan amortization from scheduled payments made on two loans, partially offset by an increase in a third loan reflecting a loan modification and partial capitalization of interest due. Each of these loans was previously classified as impaired. Foreclosed assets decreased $282,000 during the nine months ended December 31, 1997, which primarily reflected the sale of a single-family house and a commercial property. The following table summarizes impaired loan information as of December 31, 1997. Impaired loans $664,532 Impaired loans net of a specific reserve of $111,300 for loan losses calculated under SFAS 114 $271,063 Impaired loans which do not have a specific reserve for loan losses calculated under SFAS 114 $393,469 6 FINANCIAL STATEMENTS, CONTINUED ------------------------------- NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued (Unaudited) ----------- 6. CONVERTIBLE SUBORDINATED DEBENTURES AND OTHER BORROWINGS Borrowings at December 31, 1997 included a $4.0 million advance from the Federal Home Loan Bank of Dallas bearing interest at a rate of 6.205% amortizing based on a 30 year term and maturing on June 20, 2000. The advance is collateralized by mortgage-backed securities and had a balance of $3,880,552 at December 31, 1997. Borrowings also included an ESOP loan with a balance of $118,078 at December 31, 1997 with principal payments due each June 30 and December 31 and maturing June 30, 2001. The following is a schedule by fiscal year of future principal payments required under the amortizing advance agreement and the ESOP loan: FHLB Advance ESOP Loan ---------- --------- 1998 $ 13,407 $ --- 1999 55,752 87,750 2000 59,312 30,328 2001 3,752,081 In December 1995, the Holding Corp. issued $12.1 million of 8% Convertible Subordinated Debentures due December 1, 2005. Interest is payable June 1 and December 1 of each year through maturity. The debentures are convertible at any time prior to maturity at the rate of 92.592 shares of common stock for each $1,000 of principal or $10.80 per share. Total shares issuable with the conversion of the debentures was 1,108,326 at December 31, 1997. The debentures may be redeemed at the option of the Holding Corp., in whole or in part, at any time on or after December 1, 1998. During the three and nine months ended December 31, 1997, debenture holders converted debentures with a principal balance of $50,000 and $110,000, respectively. There were no conversions in the corresponding periods in fiscal 1997. 7. EARNINGS PER COMMON SHARE In December 1997, FBHC adopted the provisions of Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("Statement 128"). Statement 128 specifies the computation, presentation, and disclosure requirements for earnings per share for entities with publicly held common stock. It replaces the presentation of primary earnings per share with a presentation of earnings per common share and fully diluted earnings per share with earnings per common share - assuming dilution. All earnings per share data is stated to reflect the adoption of Statement 128. 7 FINANCIAL STATEMENTS, CONTINUED ------------------------------- NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued (Unaudited) ----------- The following table reconciles earnings per common share to earnings per common share-assuming dilution.
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, 1997 1996 1997 1996 EARNINGS PER COMMON SHARE Net income applicable to common stock $ 491,521 $ 417,168 $ 1,514,005 $ 244,056 Weighted average number of common shares outstanding 1,665,253 1,639,958 1,658,080 1,638,919 ----------- ----------- ----------- ----------- Earnings per common share $ 0.30 $ 0.25 $ 0.91 $ 0.15 =========== =========== =========== =========== EARNINGS PER COMMON SHARE-ASSUMING DILUTION (b) Net income applicable to common stock $ 491,521 $ 417,168 $ 1,514,005 $ 244,056 Effect of dilutive securities: Interest on 8% convertible debentures, net of tax 170,394 172,991 515,452 (a) ----------- ----------- ----------- ----------- Net income, adjusted $ 661,915 $ 590,159 $ 2,029,457 $ 244,056 =========== =========== =========== =========== Weighted average common shares outstanding 1,665,253 1,639,958 1,658,080 1,638,919 Effect of dilutive securities: Weighted average common shares issuable under the employee stock option plan 115,880 59,563 93,224 48,879 Weighted average common shares issuable with the conversion of the 8% convertible debentures to common stock 1,110,677 1,120,364 1,112,847 (a) ----------- ----------- ----------- ----------- Weighted average common shares, adjusted 2,891,810 2,819,885 2,864,151 1,687,798 =========== =========== =========== =========== Earnings per common share-assuming dilution $ 0.23 $ 0.21 $ 0.71 $ 0.14 =========== =========== =========== ===========
(a) The assumed conversion of the 8% convertible debentures has an antidilutive effect on earnings per share for the nine months ended December 31, 1996. Thus, it is excluded from the calculation of earnings per common share- assuming dilution. (b) The assumed conversion of the minority ownership interest in Mitchell into shares of common stock (see Note 3) has an antidilutive effect on earnings per share. Thus, it is excluded from the calculation of earnings per share- assuming dilution. 8 FINANCIAL STATEMENTS, CONTINUED ------------------------------- NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued (Unaudited) ----------- 8. SUBSEQUENT EVENTS On January 21, 1998, the Holding Corp. declared a cash dividend of $.10 per share payable on March 4, 1998 to shareholders of record on February 11, 1998. 9 ITEM 2. ------- Management's Discussion and Analysis of Financial Condition And Results Of -------------------------------------------------------------------------- Operations ---------- GENERAL Fort Bend Holding Corp. (the "Holding Corp.") was incorporated under the laws of the State of Delaware to become a savings and loan holding company with Fort Bend Federal Savings and Loan Association of Rosenberg (the "Association") as its subsidiary. The Holding Corp. was incorporated at the direction of the Board of Directors of the Association, and on June 30, 1993 acquired all of the capital stock of the Association upon its conversion from mutual to stock form (the "Conversion"). Prior to the Conversion, the Holding Corp. did not engage in any material operations and at December 31, 1997, it had no significant assets or liabilities other than the investment in the capital stock of the Association, investment securities, deferred charges from the subordinated debenture issue, cash and cash equivalents and the subordinated debentures. In January, 1997 the Association acquired, and has consolidated in its financial statements, a 51% interest in Mitchell Mortgage Company, L.L.C. ("Mitchell"). Unless the context otherwise requires, all references herein to the Holding Corp. include the Holding Corp. and the Association on a consolidated basis. The Association is principally engaged in the business of attracting retail savings deposits from the general public and investing those funds in first mortgage loans on owner occupied, single-family residences, mortgage-backed securities and investment securities. The Association originates residential, construction and commercial real estate loans. The Association also originates consumer loans, including loans for the purchase of automobiles and home improvement loans. Mitchell engages in similar lending activities with an emphasis on construction and multifamily lending and loan servicing. The most significant outside factors influencing the operations of the Association and other banks and savings institutions include general economic conditions, competition in the local market place and the related monetary and fiscal policies of agencies that regulate financial institutions. More specifically, the cost of funds, primarily consisting of deposits, is influenced by interest rates offered on competing investments and general market rates of interest. Lending activities are influenced by the demand for real estate financing and other types of loans, which in turn is affected by the interest rates at which such loans may be offered and other factors affecting loan demand and funds availability. In November 1997, home equity lending was approved in Texas. Beginning in January 1998, the Association is able to lend on the equity in homesteads in Texas. There seems to be customer interest in home equity lending and the Association has implemented a home equity lending program. Management can not presently estimate what effect home equity lending will have on operations. In order to continue to meet the financial services needs of the communities it serves, the Association intends to grow in a reasonable, prudent manner which may include expansion of the branch network or the acquisition of other financial institutions and related companies operating generally within a 100 mile radius of Rosenberg, Texas. As a part of this intended growth, the Association has increased the portfolio allocation of single-family construction lending, commercial real estate lending and consumer lending, including the origination of speculative loans to qualified builders. Residential construction loans to owner-occupants are generally underwritten using the same criteria as for one- to four-family residential loans. Loan proceeds are disbursed in increments as construction progresses and inspections warrant. Two additional branch offices were added during fiscal 1997 which management believes has resulted in the expansion of the Association's core deposit base and lending activities. On December 17, 1997, the Association received approval, from the Office of Thrift Supervision, to open a new branch in The Woodlands, Texas. The branch facility initially will be located in the offices of Mitchell and is expected to open in the first quarter of fiscal 1999. 10 ITEM 2. ------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF -------------------------------------------------------------------------- OPERATIONS ---------- Continued --------- Loan servicing has been one of the stable income providers for the Association and will continue to be expanded, to the extent possible, through the retention of servicing for loans originated and sold into the secondary market, as well as through the purchase of mortgage servicing rights, to the extent deemed appropriate (and subject to market conditions at the time). At December 31, 1997, the Association serviced approximately $277 million of loans for others and Mitchell serviced approximately $582 million of loans for others for a total of $859 million of loans serviced for others. Management believes purchases of loan servicing rights may allow the Holding Corp. to take advantage of some economies of scale related to servicing. Interest rates have decreased slightly subsequent to March 31, 1997. The impact of these changes may be a higher volume of permanent single-family lending activity. It is difficult to determine the impact of changing interest rates on the net interest margin. The Association's one year interest sensitivity gap was a positive 13.60% at December 31, 1997. A positive gap indicates there are more interest-earning assets repricing during a stated period than interest-bearing liabilities, potentially resulting in an increase in the spread on such assets and liabilities in a rising rate environment and a decrease in the spread in a declining rate environment. A negative gap would have the opposite effect. At December 31, 1997, the Holding Corp. had unrealized gains and losses in its investment securities and mortgage-backed securities which are being held to maturity. The Holding Corp. has both the intent and ability to hold these securities until maturity. Management believes the Holding Corp. will be able to collect all amounts due according to the contractual terms of the debt securities and is not aware of any information that would indicate the inability of any issuer of such securities to make contractual payments in a timely manner. Therefore, management believes that none of the unrealized losses should be considered other than temporary. Most of the mortgage-backed securities are agency securities and are either guaranteed by the full faith and credit of the United States Government (GNMA) or are insured by a Government Sponsored Enterprise (FNMA or FHLMC). Private issue mortgage-backed securities consist of the "A" piece of "A-B" structured securities where the "B" piece is subordinate to the "A" piece and which were initially rated one of the two highest categories by one or more of the rating agencies. Most of these securities have pool insurance and/or reserve funds in addition to the subordination of the "B" piece. Collateral for these securities is whole mortgage loans. None of these securities are considered "high risk" as defined by the Office of Thrift Supervision and none have failed to pass the Federal Financial Institution Examination Council (FFIEC) mandatory test for "high risk" securities. The Association does not invest in "high risk" securities. The management of the investment portfolio is not designed to be the primary source of funds for the Association's operations. Rather, it is viewed as a use of funds generated by the Association to be invested in interest-earning assets to be held to maturity. Cash flow mismatches between sources and uses of funds should not require any of the securities to be liquidated. While cash flows from the securities vary depending on the prepayment speeds associated with each particular security, the variance in the prepayment speeds does not impact the over-all cash flow requirements of the Association since the Association has the ability to borrow funds from the Federal Home Loan Bank of Dallas. As of December 31, 1997, the Association had the ability to borrow up to an additional $147 million from the Federal Home Loan Bank of Dallas if cash flow requirements cannot be met by attracting deposits from its customer base (its primary source of funds) or from repayment of loans and other sources. 11 ITEM 2. ------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF -------------------------------------------------------------------------- OPERATIONS ---------- Continued --------- The following schedule provides detail of the investment securities and the mortgage-backed securities portfolio which are held to maturity, along with the related unrealized gains and losses, at December 31, 1997 and March 31, 1997. 12 SCHEDULE OF INVESTMENT AND MORTGAGE-BACKED SECURITIES HELD TO MATURITY
DECEMBER 31, 1997 --------------------------------------------------- MARCH 31, 1997 UNREALIZED ------------------------------ BOOK MARKET --------------------- BOOK MARKET TYPE OF SECURITY VALUE VALUE GAINS LOSSES VALUE VALUE ------------ ------------ --------- --------- ------------ ------------ INVESTMENT SECURITIES: U.S. Treasury Notes $ 998,150 $ 1,007,461 $ 9,311 $ --- $ 999,218 $ 999,766 World Bank Bond & FHLB Debentures 5,247,752 4,991,964 6,112 261,900 7,240,703 6,917,342 FNMA & FHLMC Debentures 3,995,375 3,957,227 8,788 46,936 2,994,842 2,872,332 ------------ ------------ --------- --------- ------------ ------------ TOTAL HELD TO MATURITY $ 10,241,277 $ 9,956,652 $ 24,211 $ 308,836 $ 11,234,763 $ 10,789,440 ------------ ------------ --------- --------- ------------ ------------ MORTGAGE-BACKED SECURITIES: FNMA Fixed $ 8,738,571 $ 9,090,946 $ 359,111 $ 6,736 $ 9,646,216 $ 9,933,315 Adjustable 12,617,783 12,588,654 77,508 106,637 14,146,181 14,002,041 FHLMC Fixed 4,252,845 4,339,613 92,996 6,228 5,564,950 5,624,926 Adjustable 13,674,222 13,636,256 96,624 134,590 15,339,418 15,171,045 GNMA Fixed 2,074,570 2,191,676 117,106 --- 2,378,421 2,462,218 Adjustable 5,736,916 5,841,680 104,764 --- 6,709,957 6,795,714 Private Issue Adjustable 3,228,587 3,215,811 9,117 21,893 3,858,558 3,842,010 CMO Fixed FNMA 11,423,439 11,399,524 15,108 39,023 11,898,545 11,768,345 FHLMC 9,965,533 9,963,981 23,439 24,991 11,258,437 11,147,713 Private 3,205,164 3,244,516 42,418 3,066 3,796,851 3,819,229 Adjustable FNMA 2,935,030 2,824,768 10,694 120,956 2,934,718 2,828,209 FHLMC 6,639,521 6,402,849 7,283 243,955 6,826,509 6,604,949 Private 2,390,267 2,351,165 --- 39,102 2,725,740 2,684,716 ------------ ------------ --------- --------- ------------ ------------ TOTAL HELD TO MATURITY $ 86,882,448 $ 87,091,439 $ 956,168 $ 747,177 $ 97,084,501 $ 96,684,430 ------------ ------------ --------- --------- ------------ ------------
MARCH 31, 1997 ----------------------- UNREALIZED ----------------------- TYPE OF SECURITY GAINS LOSSES --------- ----------- INVESTMENT SECURITIES: U.S. Treasury Notes $ 548 $ --- World Bank Bond & FHLB Debentures 4,920 328,281 FNMA & FHLMC Debentures -- 122,510 --------- ----------- TOTAL HELD TO MATURITY $ 5,468 $ 450,791 --------- ----------- MORTGAGE-BACKED SECURITIES: FNMA Fixed $ 322,154 $ 35,055 Adjustable 77,136 221,276 FHLMC Fixed 81,704 21,728 Adjustable 107,024 275,397 GNMA Fixed 83,797 --- Adjustable 90,650 4,893 Private Issue Adjustable 9,025 25,573 CMO Fixed FNMA 10,269 140,469 FHLMC 23,595 134,319 Private 26,276 3,898 Adjustable FNMA 1,391 107,900 FHLMC 20,569 242,129 Private --- 41,024 --------- ----------- TOTAL HELD TO MATURITY $ 853,590 $ 1,253,661 --------- -----------
13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF -------------------------------------------------------------------------- OPERATIONS ---------- Continued --------- IMPACT OF THE YEAR 2000 ISSUE The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Holding Corp.'s computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations including, among other things, a temporary inability to process transactions or engage in normal business activities. The Holding Corp. outsources is primary data processing functions. To date, the Holding Corp. has solicited confirmations from its primary vendors that plans have been developed by them to address and correct the issues associated with the Year 2000. The Holding Corp. has established a management committee to identify all of its functions potentially affected by the Year 2000 and to ensure that re-programming of the affected systems will be completed by December 31, 1998, thus allowing adequate time for testing. Management believes that, with modifications to existing software and conversions to new software, the Year 2000 issue will not pose a significant operational problem for the Holding Corp. However, because most computer systems are, by their very nature, interdependent, it is possible that non-compliant third party computers could "reinfect" the Holding Corp.'s computer systems. The Holding Corp. could be adversely affected by the Year 2000 issue if it or unrelated parties fail to successfully address this issue. FORWARD-LOOKING STATEMENTS When used in this Form 10-QSB, the words or phrases "will likely result", "are expected to", "will continue", "is anticipated", "estimate", "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties including changes in economic conditions in the Holding Corp.'s market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Holding Corp.'s market area and competition, that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Holding Corp. wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Holding Corp. wishes to advise readers that the factors listed above could affect the Holding Corp.'s financial performance and could cause the Holding Corp.'s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Holding Corp. does not undertake--and specifically disclaims any obligation - --to publicly release the results of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF -------------------------------------------------------------------------- OPERATIONS ---------- Continued --------- RESULTS OF OPERATIONS COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996 The Holding Corp. had net income of $492,000 or $0.30 earnings per common share and $0.23 earnings per common share - assuming dilution for the three months ended December 31, 1997 compared to net income of $417,000 or $0.25 earnings per common share and $0.21 earnings per common share - assuming dilution for the same period in fiscal 1997. Net interest income, before provision for loan losses, increased $389,000 to $2.3 million during the three months ended December 31, 1997. Interest income increased $560,000 to $5.4 million and primarily reflected a $31.7 million increase in the average balance of interest-earning assets, partially offset by a decrease of .08% in the average yield on interest-earning assets to 7.47% for the three months ended December 31, 1997 compared to 7.55% for the three months ended December 31, 1996. An increase of $30.5 million in the average balance of loans receivable and $15.7 million in investments, partially offset by a decrease of $14.1 million in mortgage-backed securities, contributed to the increase in interest-earning assets. The increase in the average loan balance reflected approximately $29 million from the Mitchell loan portfolio, of which $18.2 million were construction loans. The decrease in average yield reflected a decrease in yields on loans receivable of .19% to 8.41% for the three months ended December 31, 1997 compared to 8.60% for the three months ended December 31, 1996. This decrease was partially offset by the reinvestment of principal repayments on mortgage-backed securities with an average rate of 6.59% into portfolio loans with an average rate of 8.41%. Interest expense increased $172,000 and primarily reflected an increase of $9.8 million in the average balance of interest-bearing liabilities. Average deposits increased $10.1 million reflecting the escrow deposits of Mitchell and average borrowings decreased $311,000 primarily reflecting a decrease in the ESOP loan and subordinated debt of $153,000 and $107,000, respectively. The average rate paid on interest-bearing liabilities increased to 4.89% for the three months ended December 31, 1997 compared to 4.80% for the three months ended December 31, 1996. The increase primarily reflected an 0.11% increase in the average rate paid on deposits to 4.68%. No provision for loan losses was recorded for the three months ended December 31, 1997. Management determines the amount of the allowance for loan losses which covers specific loans as well as estimated losses inherent in the loan portfolio. The level of the allowance is based on such factors as the amount of non-performing assets, historical loss experience, regulatory policies, general economic conditions, the estimated fair value of the underlying collateral and other factors related to the collectibility of the loans. The allowance for loan losses at December 31, 1997 was $1,610,000 or 114% of total non-performing assets. Management reviews the asset quality of the loan portfolio on a quarterly basis. See "Asset Quality" for a further discussion of the allowance for loan losses and the Association's non-performing assets at December 31, 1997. Non-interest income increased $1.3 million to $2.0 million for the three months ended December 31, 1997 compared to $720,000 for the same period in fiscal 1997. The increase reflects an increase in loan fees and charges of $790,000 to $951,000 which primarily reflected $791,000 of fees included from Mitchell. Loan servicing income increased $240,000 to $353,000 for the three months ended December 31, 1997 compared to $113,000 for the same period in fiscal 1997. This increase primarily reflects an increase of $562 million in loans serviced for others to $859 million at December 31, 1997 compared to $297 million at December 31, 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF -------------------------------------------------------------------------- OPERATIONS ---------- Continued --------- 1996. Mitchell's loan servicing portfolio was $582 million at December 31, 1997. Gain on sale of loans increased $217,000 and primarily reflected $224,000 of gains from Mitchell. Non-interest expense increased $1.4 million to $3.3 million for the three months ended December 31, 1997 compared to $1.9 million for the same period in fiscal 1997. This increase reflects an increase in compensation and benefits of $941,000 primarily as a result of the additional personnel from the acquisition of Mitchell and normal salary increases within the Association. Also contributing to the increase in compensation and benefits is the appreciation in the market value of ESOP shares released from collateral on the ESOP debt. The non-cash pretax charge to earnings for the appreciation in shares released under the ESOP increased $100,000 to $149,000, which represents $0.09 earnings per common share outstanding and $0.05 earnings per common share - - assuming dilution, for the three months ended December 31, 1997 compared to $49,000 for the same period in fiscal 1997. The increase is primarily attributable to an increase in the number of shares released and an increase in FBHC's stock price to $21.75 per share at December 31, 1997 compared to $12.75 per share at December 31, 1996. The cost basis to the ESOP is $5.00 per share. Office occupancy increased $157,000 to $448,000 for the three months ended December 31, 1997 compared to $291,000 for the same period in fiscal year 1997 and primarily reflected Mitchell's occupancy expense of $155,000. Income tax provision was $264,000 for the three months ended December 31, 1997 compared to $176,000 for the same period in fiscal 1997. The increase primarily reflected the increase in income before tax. COMPARISON OF NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996 The Holding Corp. had net income of $1.5 million or $0.91 earnings per common share and $0.71 earnings per common share - assuming dilution for the nine months ended December 31, 1997 compared to net income of $244,000 or $0.15 earnings per common share and $0.14 per common share - assuming dilution for the same period in fiscal 1997. Net interest income, before provision for loan losses, increased $1.7 million to $7.0 million during the nine months ended December 31, 1997, compared to the same period in fiscal 1997. Interest income increased $2.6 million and primarily reflected an increase of $41.0 million in the average balance of interest-earning assets and an increase of .11% in the average yield on interest-earning assets to 7.61% for the nine months ended December 31, 1997 compared to 7.50% for the nine months ended December 31, 1996. An increase of $41.0 million in the average balance of loans receivable and $14.0 million in investments, partially offset by a decrease of $13.8 million in mortgage-backed securities, contributed to the increase in interest-earning assets. The increase in the average loan balance reflected approximately $26 million from the Mitchell loan portfolio, of which $16.4 million were construction loans. The remaining increase reflected the increase in the Association's portfolio including loans acquired through the August, 1996 acquisition of FirstBanc Savings Association of Texas ("FirstBanc") which initially added approximately $20 million. The increase in average yield reflected the reinvestment of principal repayments on mortgage-backed securities with an average rate of 6.61% into portfolio loans with an average rate of 8.76%. Interest expense increased approximately $835,000 and primarily reflected an increase of $23.0 million in the average balance of interest-bearing liabilities. Average deposits increased $23.7 million, primarily reflecting Mitchell's escrow deposits and the acquisition of FirstBanc, and average borrowings decreased $710,000, primarily reflecting a decrease in Federal Home Loan Bank advances, the ESOP loan and subordinated debt of 16 Management's Discussion and Analysis of Financial Condition And Results Of -------------------------------------------------------------------------- Operations ---------- Continued --------- $495,000, $131,000, and $84,000, respectively. The average rate paid on interest-bearing liabilities remained constant at 4.85% for the nine months ended December 31, 1997 and December 31, 1996. A provision for loan losses of $78,000 was recorded for the nine months ended December 31, 1997 compared to $128,000 for the nine months ended December 31, 1996. Management determines the amount of the allowance for loan losses which covers specific loans as well as estimated losses inherent in the loan portfolio. The level of the allowance is based on such factors as the amount of non-performing assets, historical loss experience, regulatory policies, general economic conditions, the estimated fair value of the underlying collateral and other factors related to the collectibility of the loans. The allowance for loan losses at December 31, 1997 was $1,610,000 or 114% of total non-performing assets. Management reviews the asset quality of the loan portfolio on a quarterly basis. Non-interest income increased $3.1 million to $5.0 million for the nine months ended December 31, 1997 compared to $1.9 million for the same period in fiscal 1997. The increase was primarily due to an increase in loan fees and charges of $2.0 million to $2.4 million which reflected $1.9 million of fees included from Mitchell for the nine months ended December 31, 1997. Loan servicing income increased $597,000 to $926,000 for the nine months ended December 31, 1997 compared to $329,000 for the same period in fiscal 1997. This increase primarily reflected an increase of $562 million in loans serviced for others to $859 million at December 31, 1997 compared to $297 million at December 31, 1996. Mitchell's loan servicing portfolio was $582 million at December 31, 1997. Gain on sale of loans increased $364,000 which reflected $321,000 of gains from Mitchell. Non-interest expense increased $2.6 million to $9.3 million for the nine months ended December 31, 1997 compared to $6.7 million for the same period in fiscal 1997. Compensation and benefits increased $2.7 million and primarily reflected additional personnel retained from the acquisitions of FirstBanc and Mitchell and normal salary increases within the Association. Also contributing to the increase in compensation and benefits is the appreciation in the market value of ESOP shares released from collateral on the ESOP debt. The non-cash pretax charge to earnings for the appreciation in shares released under the ESOP increased $300,000 to $383,000, which represents $0.23 per common share outstanding and $0.13 per common share outstanding - assuming dilution, for the nine months ended December 31, 1997 compared to $83,000 for the same period in fiscal 1997. The increase is primarily attributable to an increase in the number of shares released and an increase in Fort Bend Holding Corp.'s stock price to $21.75 per share at December 31, 1997 compared to $12.75 per share at December 31, 1996. The cost to the ESOP is $5.00 per share. Office occupancy increased $610,000 to $1.3 million for the nine months ended December 31, 1997 compared to $721,000 for the same period in fiscal year 1997 and primarily reflects Mitchell's occupancy expense of $451,000. In addition, the Association experienced an increase of $89,000 in depreciation, $48,000 in rent and utilities and $25,000 in telephone expense associated with the addition of the new branch in Katy, Texas and the acquisition of FirstBanc. Other expenses increased $762,000 to $1.8 million for the nine months ended December 31, 1997 compared to $1.1 million for the same period in fiscal 1997. The increase was primarily due to expenses of Mitchell of $588,000, the largest of which was credit report and appraisal fees of $139,000. Partially offsetting these increased expenses is the one time Savings Association Insurance Fund assessment of $1.5 million recorded on September 30, 1996 with no similar charge recorded in fiscal 1998. Income tax provision was $811,000 for the nine months ended December 31, 1997 compared to $64,000 for the same period in fiscal 1996. The increase primarily reflected the increase in income before tax. 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF -------------------------------------------------------------------------- OPERATIONS ---------- Continued --------- ASSET/LIABILITY MANAGEMENT The Holding Corp. attempts to maximize net interest income by achieving a positive interest rate spread that can be sustained during fluctuations in prevailing interest rates. The Holding Corp.'s policies are designed to reduce the impact of changes in interest rates on its net interest income by maintaining a favorable match between the maturities or repricing dates of its interest-earning assets and interest-bearing liabilities (interest sensitivity gap). The Holding Corp. has implemented these policies by generally selling long-term fixed rate mortgage loan originations, retaining its adjustable rate mortgage and construction loans, originating and retaining short-term consumer loans and purchasing adjustable rate or short-term maturity loans. Through Mitchell, fixed rate commercial real estate loans are originated and sold in the secondary market. Servicing is retained on most of these loans. As a result of these policies, the Holding Corp.'s cumulative one year interest sensitivity gap at December 31, 1997 was a positive 13.60%. Changes in interest rates, prepayments rates and early withdrawal levels will affect the interest sensitivity gap of the Holding Corp. ASSET QUALITY The allowance for loan losses is established through a provision for loan losses based on management's quarterly asset classification review and evaluation of the risk inherent in its loan portfolio and changes in the nature and volume of its loan activity. As a result of this review process, management recorded no additional provision for loan losses during the three months ended December 31, 1997 and a $78,000 provision for the nine months ended December 31, 1997. Net charge-offs for the nine months ended December 31, 1997 totaled $119,000, attributed primarily to one commercial real estate loan, of which $62,000 was charged off and the balance of $425,000 was paid off, and the charge off of one unsecured consumer loan acquired in the FirstBanc acquisition. The Association's allowance for loan losses decreased to $1,610,000 or 1.09% of total loans at December 31, 1997, compared to $1,701,000 or 1.22% of total loans at March 31, 1997. While management believes it uses the best information available to make determinations regarding the adequacy of the allowance, there is no assurance that the subsequent evaluations of the loan portfolio may not require additional provisions for loan losses. 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS ----------------------------------------------------------------------- OF OPERATIONS ------------- Continued --------- The non-performing assets to total assets ratio is one indicator of the exposure to credit risk. Non-performing assets of the Association consist of non- accruing loans, troubled debt restructurings, and real estate which was acquired as a result of foreclosure. The following table summarizes the various categories of the Association's non-performing assets. December 31, March 31, 1997 1997 Non-accruing loans $ 781,513 $ 489,251 Troubled debt restructurings 553,233 405,097 Foreclosed assets 75,586 357,880 ---------- ---------- Total non-performing assets $1,410,332 $1,252,228 ========== ========== Total non-performing assets as a percentage of total assets 0.47% 0.42% Total non-performing assets increased $158,000 for the nine months ended December 31, 1997. The increase in nonaccrual loans is primarily the result of a $292,000 increase in residential loans and a $161,000 increase in consumer loans over 90 days delinquent. The residential loan increase includes two loans held by Mitchell, one of which has a corporate guarantee against loss, with the remainder consisting of Fort Bend Federal loans. This increase was partially offset by the transfer of a $275,000 commercial real estate loan from non- accrual to troubled debt restructurings. A specific reserve of $111,000 was set up against this loan balance at the date of the transfer to troubled debt restructurings. The decrease in foreclosed assets was primarily the result of the sale of a single-family residence and a commercial real estate property, which totaled $323,000. At December 31, 1997, foreclosed assets consisted of one single-family house and a 5% participation held by Mitchell in 28 residential lots and one condominium in Galveston. All of the Mitchell foreclosed assets are being marketed for sale. The single-family house is currently under repair and will be marketed upon completion. LIQUIDITY AND CAPITAL RESOURCES The Association's primary sources of funds are deposits, sales of mortgage loans, principal and interest payments on loans and mortgage-backed securities, borrowings and funds provided by operations. While scheduled loan and mortgage- backed securities principal repayments are a relatively predictable source of funds, deposit flows, prepayments of loan and mortgage-backed securities principal, and sales of mortgage loans are greatly influenced by general interest rates, economic conditions, and competition. Current Office of Thrift Supervision ("OTS") regulations require the Association to maintain cash and eligible investments in an amount equal to at least 4% of customer accounts and short-term borrowings to assure its ability to meet demands for withdrawals and repayment of short-term borrowings. As of December 31, 1997, the Association's liquidity ratio was 14.28%, which was in excess of the minimum regulatory requirements of 4.00%. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF -------------------------------------------------------------------------- OPERATIONS ---------- Continued --------- During the nine months ended December 31, 1997, total deposits increased approximately $5.5 million. This increase primarily reflects the addition of two branches in fiscal 1997 that have contributed to the expansion of the Association's core deposit base. The Association uses its capital resources principally to meet its ongoing commitments to fund maturing certificates of deposit and loan commitments, maintain its liquidity and meet operating expenses. At December 31, 1997, the Association had commitments to originate loans totaling $14.2 million. The Association considers its liquidity and capital resources to be adequate to meet its foreseeable short- and long-term needs. The Association expects to be able to fund or refinance, on a timely basis, its material commitments and long-term liabilities. During the nine months ended December 31, 1997, borrowings from the Federal Home Loan Bank of Dallas decreased $39,000 and ESOP debt decreased $189,000. It is anticipated that the amount of outstanding borrowings will fluctuate during the 1998 fiscal year depending upon cash flows from the various sources of funds and financing to be provided to Mitchell . On January 21, 1998 the Holding Corp. declared a cash dividend of $0.10 per share payable on March 4, 1998 to the shareholders of record on February 11, 1998. The Association is required to maintain specific amounts of regulatory capital pursuant to regulations of the OTS. As of June 5, 1997, the Association was notified by the OTS that based on its reported capital position, the Association is considered to be "well capitalized" in accordance with the Prompt Corrective Action provision of Section 38 of the Federal Deposit Insurance Act. The table below presents the Association's capital position at December 31, 1997 relative to the existing regulatory capital requirements. Such requirements may increase if proposed capital regulations are implemented. Management believes the Association will meet the requirements of the proposed capital regulations. Amount Percent of (000's) Assets (1) Tangible capital $ 22,293 7.4 % Tangible capital requirement 4,490 1.5 ------------ ---- Excess $ 17,803 5.9 % ============ ==== Core capital $ 22,293 7.4 % Capital requirement 12,003 4.0 ------------ ---- Excess $ 10,290 3.4 % ============ ==== Total capital (i.e., core & supplemental capital) $ 23,670 15.2 % Risk-based capital requirement 12,488 8.0 ------------ ---- Excess $ 11,182 7.2 % ============ ==== (1) Based upon adjusted assets for purposes of the tangible capital and core capital requirements, and risk-weighted assets for purposes of the risk- based capital requirement. 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF -------------------------------------------------------------------------- OPERATIONS ---------- Continued --------- IMPACT OF NEW ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued Statement No. 130, "Accounting for Comprehensive Income." Statement 130 is effective for financial statements for fiscal years beginning after December 15, 1997, with earlier application permitted. Statement 130 defines comprehensive income as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. In June 1997, the Financial Accounting Standards Board issued Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information." Statement 131 is effective for fiscal years beginning after December 15, 1997, with earlier application encouraged. Statement 131 specifies revised guidelines for determining an entity's operating segments and the type and level of financial information to be disclosed. The adoption of these statements is not expected to have a material impact on financial conditions, results of operations or cash flows reported by the Holding Corp. The Holding Corp. does not anticipate early adoption of any of these new accounting standards. 21 PART II - OTHER INFORMATION --------------------------- Item 1. - LEGAL PROCEEDINGS - -------------------------- There are no material legal proceedings to which the Holding Corp. or the Association is a party or of which any of their property is subject. From time-to-time, the Association is a party to various legal proceedings incident to its business. ITEM 2. - CHANGES IN SECURITIES - ------------------------------- None ITEM 3. - DEFAULTS UPON SENIOR SECURITIES - ----------------------------------------- None ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------- None ITEM 5. - OTHER INFORMATION - --------------------------- None ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K - ------------------------------------------ (a) Exhibits Exhibit 27 - Financial Data Schedule (attached) (b) Reports on Form 8-K Fort Bend Holding Corp. filed the following Forms 8-K during the three months ended December 31, 1997. October 28, 1997 - The registrant issued an earnings release announcing the declaration of a cash dividend and earnings for the quarter ended September 30, 1997. 22 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 hereunto duly authorized. FORT BEND HOLDING CORP. Registrant Date: February 11, 1998 /s/ LANE WARD -------------------------------- Lane Ward Vice Chairman, President and Chief Executive Officer /s/ DAVID D. RINEHART -------------------------------- Date: February 11, 1998 David D. Rinehart Executive Vice President and Chief Financial Officer 23 EX-27 2 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORT BEND HOLDING CORP.'S 12/31/97 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS MAR-31-1998 APR-01-1997 DEC-31-1997 6,359,405 19,669,753 0 0 3,309,424 97,123,725 97,048,091 157,977,918 1,610,403 302,728,255 255,726,406 0 7,898,815 15,968,630 0 0 18,444 22,139,199 302,728,255 9,987,360 6,300,768 0 16,288,128 8,282,277 9,260,175 7,027,953 77,980 0 1,837,099 2,325,214 2,325,214 0 0 1,514,005 0.91 0.71 3.28 781,513 0 553,233 0 1,701,008 118,665 50,080 1,610,403 233,007 0 1,377,396
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