UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MarkOne)
(X) Quarterly Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the quarterly period ended March 31, 2000
( ) Transition Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the transition period from
----------------------------- to -------------------------------
Commission File Number: 0-23323
THE BRYAN COLLEGE STATION FINANCIAL HOLDING COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 36-4153491
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation of organization)
2900 TEXAS AVENUE, BRYAN, TEXAS 77802
(Address of principal executive offices) (Zip Code)
(409) 779-2900
(Registrants telephone number, including area code)
Former name, former address and former fiscal year, if changed since last report
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 proceeding 12 months (or for such shorter period that the issuer
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
No ___ Yes X___
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Shares Outstanding
Class As of June 9, 2000
------------ ---------------
Common Stock 471,406
1
<PAGE>
THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY
BRYAN, TEXAS
FORM 10-QSB
THREE MONTHS ENDED MARCH 31, 2000
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Page
Consolidated Statements of Financial Condition..............................3
Consolidated Statements of Income...........................................4
Consolidated Statements of Cash Flows.......................................5
Notes to Consolidated Financial Statements..................................6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...................................8
PART II - OTHER INFORMATION
Other Information.............................................................15
Signatures....................................................................16
2
<PAGE>
THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY
BRYAN/COLLEGE STATION, TEXAS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, 2000 and September 30, 1999
(Unaudited)
In thousands, except share and per share data
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
--------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,159 $ 3,086
Interest-bearing deposits in other financial institutions 1,021 1,619
-------- --------
Total cash and cash equivalents 4,180 4,705
Securities available-for-sale 5 5
Securities held-to-maturity 578 692
Loans held for sale 4,954 2,464
Loans receivable, net 68,693 67,974
Federal Home Loan Bank stock 416 404
Non-mortgage servicing rights 411 545
Real estate owned 299 548
Repossessed assets, net 581 937
Premises and equipment 2,258 2,099
Accrued interest receivable 590 613
Other assets 853 883
-------- --------
$ 83,818 $ 81,869
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $ 76,283 $ 73,240
Advance payments by borrowers for insurance and taxes 375 818
Debentures (11.5%) 3,629 3,629
Accrued interest payable and other liabilities 1,085 1,194
-------- --------
81,372 78,881
Minority interest 873 873
Stockholders' equity
Common stock - par value $.01 per share;
authorized 1,500,000 shares; 428,409 shares
issued at September 30, 1999 and 471,406
issued at March 31, 2000 5 4
Additional paid-in capital 2,117 2,060
Retained earnings (deficit) (549) 51
-------- --------
1,573 2,115
-------- --------
$ 83,818 $ 81,869
======== ========
</TABLE>
See accompanying notes to unaudited financial statements
3
<PAGE>
THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY
BRYAN/COLLEGE STATION, TEXAS
CONSOLIDATED STATEMENTS OF INCOME/(LOSS)
For the six months and three months ended March 31,
2000 and 1999
(Unaudited)
In thousands, except per share data
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
March 31, March 31,
---------------- ------------------
2000 1999 2000 1999
------ ------- -------- -------
<S> <C> <C> <C> <C>
Interest income
Loans $3,606 $ 3,673 $ 1,821 $1,795
Mortgage-backed securities 17 25 8 12
Other 54 107 22 41
------ ------- ------- ------
Total interest income 3,677 3,805 1,851 1,848
Interest expense
Deposits 1,535 1,624 769 763
Other borrowings 244 217 123 108
------ ------- ------- ------
Total interest expense 1,779 1,841 892 871
------ ------- ------- ------
NET INTEREST INCOME 1,898 1,964 959 977
Provision for loan losses 237 50 207 30
------ ------- ------- ------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 1,661 1,914 752 947
Noninterest income
Service charges 326 361 153 163
Gain on sale of loans and mortgage
servicing rights 100 351 49 212
Servicing fee income net of amortization 115 --- 55 ---
Other 26 215 19 152
------ ------- ------- ------
Total noninterest income 567 927 276 527
Noninterest expense
Compensation and benefits 1,313 1,143 647 595
Occupancy and equipment expense 276 275 152 142
Federal insurance premiums 25 32 9 17
Net (gain) loss on real estate owned,
including provision 2 17 (1) 17
Net loss on repossessed assets, including
provision 298 129 297 129
Professional fees 115 136 74 81
Data processing 141 125 74 63
Office supplies 77 71 42 37
Telephone 61 57 31 28
Postage 66 54 37 22
Other 475 451 197 213
------ ------- ------- ------
Total noninterest expense 2,849 2,490 1,559 1,344
------ ------- ------- ------
INCOME (LOSS) BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE (621) 351 (531) 130
Income tax (benefit) expense (179) 104 (156) 18
------ ------- ------- ------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE (442) 247 (375) 112
Cumulative effect of a change in accounting
principle (100) --- --- ---
------ ------- ------- ------
NET INCOME (LOSS) $ (542) $ 247 $ (375) $ 112
====== ======= ======= ======
EARNINGS (LOSS) PER SHARE:
Earnings/(loss per share before
cumulative effect of a change in
accounting principle $ (.94) $ .63 $ (.80) $ .29
Cumulative effect of a change in
accounting principle (.21) --- --- ---
Earnings/(loss) per share $(1.05) $ .63 $ (.80) $ .29
</TABLE>
See accompanying notes to unaudited financial statements
4
<PAGE>
THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY
BRYAN/COLLEGE STATION, TEXAS
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended March 31, 2000 and 1999
(Unaudited)
In thousands
--------------------------------------------------------------------------------
Six Months Ended
March 31,
------------------
2000 1999
-------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (542) $ 247
Adjustments to reconcile net income (loss)
to net cash from operating activities
Depreciation 149 167
Amortization of premiums and discounts on
investment and mortgage-backed securities, net 2 3
Net change in loans held for sale (2,425) 378
Net change in mortgage servicing rights 134 (298)
Change in deferred loan origination fees 8 32
Net (gains) losses on sales of
Mortgage loans (65) (280)
Mortgage servicing rights (35) (71)
Real estate owned 3 9
Repossessed assets 298 129
Provision for losses on loans 237 50
Federal Home Loan Bank stock dividend (12) (11)
Cumulative effect of a change in accounting
principle 100 ---
Change in
Repossessed assets 58 277
Accrued interest receivable 23 (18)
Other assets (70) (1,059)
Accrued interest payable and other liabilities (109) (164)
------- ------
Net cash used in operating activities (2,246) (609)
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans receivable (773) (1,109)
Principal payments on mortgage-backed securities
and collateralized mortgage obligations 112 99
Proceeds from sale of mortgage servicing rights 35 71
Investment in office properties and equipment, net (308) (182)
Proceeds from sale of foreclosed real estate 98 199
Capital expenditures on foreclosed real estate (43) (15)
------- ------
Net cash used in investing activities (879) (937)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 3,043 2,157
Net decrease in advance payments by
borrowers for insurance and taxes (443) (450)
Net change in Federal Home Loan Bank advances --- (800)
------- ------
Net cash provided by financing activities 2,600 907
------- ------
Change in cash and cash equivalents (525) (639)
Cash and cash equivalents at beginning of period 4,705 5,327
------- ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,180 $4,688
======= ======
See accompanying notes to unaudited financial statements
5
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, the unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial condition of The
Bryan-College Station Financial Holding Company (the "Company") and its
wholly-owned subsidiary, First Federal Savings Bank, Bryan/College Station,
Texas ("First Federal" or the "Bank") as of March 31, 2000 and September 30,
1999, and the results of its operations for the three-month and six-month
periods ended March 31, 2000 and 1999.
NOTE 2 - ALLOWANCE FOR LOAN LOSSES
The summary of changes in the allowance for loan losses is as follows: Six
Months Ended March 31, (In thousands) 2000 1999
Balances, beginning of period $ 326 $ 307
Provision charged to operations 237 50
Charge-offs (84) (17
Recoveries 6 -
------ -----
Balances, end of period $ 485 $ 340
====== =====
NOTE 3 - REPOSSESSED ASSETS
The Company has a "Second Chance" loan program that originates loans to
individuals with less than prime credit. These loans are insured by
credit-default insurance for losses due to charge-offs and sales of repossessed
assets. Repossessed assets are carried at the lower of cost or fair value
adjusted for expected credit-default insurance proceeds. Subsequent to March 31,
2000, the Company has discontinued the Second Chance Auto Lending Program as
further discussed under Item 2. - LIQUIDITY AND CAPITAL RESOURCES. The activity
in the reserve for repossessed assets was as follows:
Six Months Ended
March 31,
(In thousands)
2000 1999
------ ------
Beginning balance $ 21 $ 60
Provision 203 129
Charge-offs (224) (7)
------ ------
Ending balance $ - $ 182
===== ======
6
<PAGE>
NOTE 4 - CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. In May 2000 the Office of Thrift Supervision
(the OTS) formally designated the Bank to be in "troubled condition" and a
"problem association" due to its total capital to risk-weighted assets ratio
being only marginally above the minimum required amount. Because of this
designation the OTS has applied various restrictions as further explained under
Item 2 - LIQUIDITY AND CAPITAL RESOURCES.
At March 31, actual capital levels of the Bank and minimum required levels
were:
<TABLE>
<CAPTION>
Minimum Required Minimum Required
for Capital to Be Well
Actual Adequacy Purposes Capitalized
Amount Ratio Amount Ratio Amount Ratio
------- ----- ------- ----- ------- -----
2000
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted assets) $5,822 8.47% $5,497 8.00% $6,871 10.00%
Tier 1 (core) capital (to risk-weighted assets) 5,337 7.77 2,748 4.00 4,122 6.00
Tier 1 (core) capital (to adjusted total assets) 5,337 6.39 3,355 4.00 4,176 5.00
1999
Total capital (to risk-weighted assets) $6,042 8.99% $5,377 8.00% $6,721 10.00%
Tier 1 (core) capital (to risk-weighted assets) 5,702 8.48 2,689 4.00 4,033 6.00
Tier 1 (core) capital (to adjusted total assets) 5,702 6.89 3,310 4.00 4,138 5.00
</TABLE>
NOTE 5 - EARNINGS/(LOSS) PER COMMON SHARE
A reconciliation of the numerator and denominator of the earnings (loss)
per common share computation for the periods ended March 31, 2000 and 1999 is
presented below.
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
March 31, March 31,
2000 1999 2000 1999
--------- --------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
EPS COMPUTATION
Net income (loss) $ (542) $ 247 $ (375) $ 112
---------- --------- ---------- ---------
Weighted average shares outstanding 471,209 389,436 471,209 389,436
--------- --------- --------- ---------
Earnings (loss) per common share $ (1.15) $ .63 $ (.80) $ .29
========== ======== ========== =========
</TABLE>
The effect of stock options could potentially dilute basic earnings (loss)
per share in the future but were not included in the computation of diluted
earnings (loss) per share for the six months and three months ended March 31,
2000 and 1999 because to do so would have been anti-dilutive.
NOTE 6 - ORGANIZATION COSTS
During 1999, a new accounting standard was effective which required the
Company to charge the September 30, 1999 unamortized balance of $100,000 to
expense in the first quarter of the 2000 fiscal year. The additional
amortization was disclosed in the consolidated statements of income as a
cumulative effect of a change in accounting principle.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion is intended to assist in understanding the
financial condition and results of operations of The Bryan/College Station
Financial Holding Company. The discussion includes comments relating to First
Federal Savings Bank, Bryan, Texas since the Bank is wholly owned by the Company
and comprises a majority of the assets and sources of income for the Company.
FINANCIAL CONDITION
The Company's total assets increased by $1.9 million to $83.8 million
at March 31, 2000 from $81.9 million at September 30, 1999. Net loans receivable
(excluding loans held for sale) increased $0.7 million to $68.7 million at March
31, 2000, compared to $68.0 million at September 30, 1999. During the six months
ended March 31, 2000, the Company originated $14.9 million of mortgage loans,
including $10.8 million secured by one- to four-family residential loans. In
addition, the Company originated $15.4 million in consumer loans, of which $5.6
million were Second Chance Auto Loan Program loans and $4.8 million in
commercial business loans.
Repossessed assets decreased from $937,000 at September 30, 1999 to
$581,000 at March 31, 2000. This decrease was due primarily to the following: o
In the quarter ended March 31, 2000, the Bank aggressively reviewed the
repossessed vehicle valuation estimates and determined that the estimates of
value were not supported and wrote down the balances based on the claim
experience obtained with the credit default insurance coverage. Prior to this
time, the Bank had little history with submitting claims with the credit default
insurance, and carried the repossessed assets at their expected recovery value.
o The Bank also was more aggressive in pricing and selling repossessed vehicles
beginning in the quarter ended March 31, 2000.
Real estate owned decreased from $548,000 at September 30, 1999 to $299,000
at March 31, 2000 due to sales that resulted in a net loss of $3,000.
Deposits increased $3.1 million to $76.3 million at March 31, 2000,
compared to $73.2 million at September 30, 1999, offset by a decrease in
escrowed funds for property taxes related to real estate loans held by the Bank.
Stockholders' equity in the Company decreased $542,000 to $1.6 million at
March 31, 2000 from $2.1 million at September 30, 1999 due to the net loss in
the first half of the fiscal year. In addition, during the six months ended
March 31, 2000, the Company issued a stock dividend of 42,997 shares.
ASSET/LIABILITY MANAGEMENT
The Company's subsidiary, First Federal, like all financial institutions,
is subject to interest rate risk to the degree that its interest-bearing
liabilities (deposits) mature or reprice more rapidly, or on a different basis,
than its interest-earning assets (loans), some of which may be longer term or
fixed interest rate. As a continuing part of its financial strategy, First
Federal continually considers methods of managing any such asset/liability
mismatch, consistent with maintaining acceptable levels of net interest income
and interest rate risk.
In order to monitor and manage interest rate sensitivity and interest rate
spread, First Federal created an Asset/Liability Committee ("ALCO"), composed of
its President/Chief Executive Officer, Executive Vice President/CFO, Senior Vice
President/Financial and three outside Directors. The responsibilities of the
ALCO are to assess First Federal's asset/liability mix and recommend strategies
that will enhance income while managing First Federal's vulnerability to changes
in interest rates.
First Federal's asset/liability management strategy has two goals. First,
the Bank seeks to build its net interest income and noninterest income, while
adhering to its underwriting and lending guidelines. Second, First Federal seeks
to increase the matching of its interest-earning assets with its interest-paying
liabilities so as to reduce First Federal's overall sensitivity to changes in
interest rates. There can be no assurance that this strategy will achieve the
desired results and will not result in substantial losses in the event of an
increase in interest rate risk.
8
<PAGE>
As part of this strategy, management continues to emphasize growth in
noninterest-bearing deposits such as checking accounts or lower interest-bearing
savings deposits by offering full service retail banking to its targeted
customer base. In order to minimize the possible adverse impact that a rise in
interest rates may have on net interest income, First Federal has developed
several strategies to manage its interest rate risk. Primarily, First Federal is
currently selling all newly originated one-to four-family residential mortgage
loans which are saleable in the secondary market--most of which are long-term
fixed-rate loans. In addition, First Federal currently offers three-year fixed
rate balloon loans and other adjustable rate loans, and has implemented an
active, diversified short-term consumer lending program, giving First Federal an
opportunity to reprice its loans on a more frequent basis.
NET PORTFOLIO VALUE
The OTS, First Federal's primary regulator has issued a proposed rule for
the calculation of an interest rate risk component for institutions with a
greater than "normal" (i.e., greater than 2%) level of interest rate risk
exposure ("NPV"). The OTS has not yet implemented the capital deduction for
interest rate risk. NPV is the difference between incoming and outgoing
discounted cash flows from assets, liabilities and off-balance sheet contracts.
This approach calculates the difference between the present value of expected
cash flows from assets and the present value of expected cash flows from
liabilities, as well as cash flows from off-balance sheet contracts. Under OTS
regulations, an institution's "normal" level of interest rate risk in the event
of an assumed change in interest rates is a decrease in the institution's NPV in
an amount not exceeding 2% of the present value of its assets. The amount of
that deduction is one-half of the difference between (a) the institution's
actual calculated exposure to a 200 basis point interest rate increase or
decrease (whichever results in the greater pro forma decrease in NPV) and (b)
its "normal" level of exposure which is 2% of the present value of its assets.
It has been, and continues to be, an objective of First Federal's Board of
Directors and management to manage interest rate risk. First Federal's
asset/liability policy, established by the Board of Directors, dictates
acceptable limits on the amount of change in NPV given certain changes in
interest rates.
Presented below, as of March 31, 2000, the latest date for which
information is available, is an analysis of First Federal's interest rate risk
as measured by changes in NPV for instantaneous and sustained parallel shifts in
the yield curve, in 100 basis point increments, up and down 300 basis points in
accordance with OTS regulations. As illustrated in the table, the NPV of First
Federal is very rate insensitive. This occurs principally because, First Federal
has a large portfolio of short-term (less than five years) or variable rate
assets and as rates rise, these assets are less sensitive to increases in
interest rate and prepayment speed. When rates decline significantly, First
Federal does not experience a significant rise in market value for these loans
for the same reasons. OTS assumptions are used in calculating the amounts in
this table.
Acceptable Limits
Change in Established by
Interest Rate Estimated At March 31, 2000 Board of Directors
(Basis Points) NPV $ Change % Change % Change
(Dollars in Thousands)
+300 8,929 -762 -8% -10
+200 9.252 -439 -5% -8
+100 9,518 -172 -2% -6
0 9,691 0 0% 0
-100 9,722 +32 0% -6
-200 9,699 +8 0% -8
-300 9,852 +162 +2% -10
Management reviews the OTS measurements on a quarterly basis. In addition
to monitoring selected measures on NPV, management also monitors effects on net
interest income resulting from increases or decreases in rates. This measure is
used in conjunction with NPV measures to identify excessive interest rate risk.
In the event of a 200 basis point change in interest rates, First Federal would
experience a 5% decrease NPV in a rising rate environment. As of March 31, 2000,
a decrease in interest rates of 200 basis points would have resulted in no
change in NPV of First Federal.
9
<PAGE>
In evaluating First Federal's exposure to interest rate risk, certain
shortcomings inherent in the method of analysis presented in the foregoing
tables must be considered. For example, although certain assets and liabilities
may have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Further, in the event of a change in interest rates, prepayment
and early withdrawal levels would likely deviate significantly from those
assumed in calculating the table. For example, projected passbook, money market
and checking account maturities may also materially change if interest rates
change. Finally, the ability of many borrowers to service their debt may
decrease in the event of an interest rate increase. First Federal considers all
of these factors in monitoring its exposure to interest rate risk.
NON-PERFORMING ASSETS AND LOAN LOSS PROVISION
The provision for loan losses is based on management's periodic review of
the Company's loan portfolio which considers, among other factors, past actual
loan loss experience, the general prevailing economic conditions, changes in the
size, composition and risks inherent in the loan portfolio, independent
third-party loan reviews and specific borrower considerations such as the
ability to repay the loan and the estimated value of the underlying collateral.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for estimated
loan losses. Such agencies may require the Company to provide additions to the
allowance based upon judgments that differ from those of management.
The Company recorded a provision for loan losses in the amount of $237,000
for the six months ending March 31, 2000, as compared to a $50,000 provision for
the same period in 1999. Management increased the loan loss provision because of
the losses associated with the Second Chance Auto loan program during the
quarter ended March 31, 2000. As a result of these losses, the Company has
terminated its Second Chance Auto Lending program. Prior to fiscal year 2000,
the Bank did not provide an allowance for anticipated loan losses on Second
Chance Auto Loans. Management fully expected to collect any potential losses
from the credit default insurance coverage, based on their interpretation of the
policy coverage and based upon the expected recovery value of the vehicles.
During the quarter ended March 31, 2000, both the insurance reimbursement
realized on the repossessed vehicles and the actual recovery value of the
vehicles were lower than expected, resulting in actual losses that were greater
than anticipated. The allowance for loan losses is now calculated, taking into
account the recent loss experience associated on the Second Chance Auto Loans.
Total non-performing assets decreased for the period ended March 31, 2000
to $1.2 million or 1.46% of total assets as compared to $2.7 million or 3.31% of
total assets at September 30, 1999. Much of the decrease in non-performing
assets was primarily attributable to a $900,000 reduction in loan delinquencies.
RESULTS OF OPERATIONS
The Company's results of operations are primarily dependent on its net
interest income, which is the difference between interest income on
interest-earning assets and interest expense on interest-bearing liabilities.
Interest income is a function of the average balances of interest-earning assets
outstanding during the period and the average yields earned on such assets.
Interest expense is a function of the average amount of interest-bearing
liabilities outstanding during the period and the average rates paid on such
liabilities. The Company also generates noninterest income, such as income from
service charges and fees on checking accounts, loan servicing and other fees and
charges and gains on sales of loans and servicing rights. The Company's net
income is also affected by the level of its noninterest expenses, such as
employee salaries and benefits, occupancy and equipment expenses, and federal
deposit insurance premiums.
COMPARISON OF SIX MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
The Company reported a net loss after taxes of $542,000 for the six months
ended March 31, 2000, compared to net income of $247,000 reported for the six
months ended March 31, 1999. The decrease in earnings, as discussed in more
detail below, resulted primarily from a $360,000 decrease in the Company's
noninterest income, a $359,000 increase in noninterest expense and a $187,000
increase in the provision for loan losses.
10
<PAGE>
Net interest income decreased $66,000 to $1,898,000 for the six months
ended March 31, 2000 from $1,964,000 for the same period in 1999. This decrease
was attributable primarily to a decrease in interest income of $128,000 due, in
part, to the sale of $2.6 million in Second Chance Auto Loan participations in
September 1999 partially offset by a decrease in interest expense of $62,000 in
interest expense due to the maturation of higher yielding deposits and the
reinvestment of these deposits into accounts paying lower rates. The spread
between the average yield on interest earning assets and the average cost of
funds increased to 6.12% at March 31, 2000 from 5.94% at March 31, 1999. The
Company anticipates that this spread will decrease as lower yielding assets that
exhibit less credit risk replace higher yielding Second Chance Auto Loans
currently held in portfolio.
Noninterest income decreased $360,000 to $567,000 for the six months ended
March 31, 2000 from $927,000 for the six months ended March 31, 1999. This
decrease can be attributed to a decline in gains on sale of loans. For the six
months ended March 31, 1999, the Company recorded a $211,000 gain on sale of
loans originated through its Second Chance Auto Loan Program, compared to $0 in
the current fiscal year to date, and a $140,000 gain on sale of loans and
servicing rights originated through its Mortgage Loan Production Office in the
six months ended March 31, 1999, compared to $100,000 in the current fiscal year
to date. In addition, for the six months ended March 31, 2000, the Company
recorded a $189,000 decrease in other noninterest income primarily resulting
from the recording of a refund of credit default insurance from its insurer and
the recording of an after-tax casualty loss for hail damage to the premises of
the Bank and to Bank-owned vehicles in the six months ended March 31, 1999.
These decreases in noninterest income were partially offset by net servicing
income of $115,000 related to servicing Second Chance Auto Loan Program loan
participations. The Company is substantially dependent on its noninterest income
in order to achieve net income. Gains on the sales of loans are dependent on
various factors that are not necessarily within the control of the Company,
including market and economic conditions. As a result, there can be no assurance
that the gains on sales of loans reported by the Company in prior periods will
be reported in future periods or that there will not be substantial periodic
variation in the results from such activities that would affect the level of net
income or loss reported by the Company.
Noninterest expense increased $359,000 to $2,849,000 for the six months
ended March 31, 2000 from $2,490,000 for the six months ended March 31, 1999.
Compensation and benefits increased $170,000 as a result of an increase in the
number of employees due primarily to the expansion of the Second Chance Auto
Loan Program and mortgage lending departments. The Company anticipates a
commensurate decline in compensation and benefits due to the discontinuation of
the Second Chance Auto Lending Program. Net loss on repossessed assets increased
$169,000 primarily as a result of the write-down of asset valuation reflecting
the change in the estimate of recovery value.
Income tax expense (benefit) decreased $ 283,000 to $(179,000) for the six
months ended March 31, 2000 from $104,000 for the six months ended March 31,
1999 due to the loss recorded before the provision for income tax. The period
reflected tax rates of 29% and 30% for March 31, 2000 and March 31, 1999,
respectively.
The Company recognized the cumulative effect of a change in accounting
principle relating to the treatment of organization costs as a long-lived asset.
Due to a change in generally accepted accounting principles, the remaining value
of this asset, of $100,000, was fully amortized at October 1, 1999.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
The Company reported net loss after taxes of $375,000 for the three months
ended March 31, 2000, compared to net income of $112,000 reported for the three
months ended March 31, 1999. The decrease in earnings, as discussed in more
detail below, resulted primarily from a $251,000 decrease in the Company's
noninterest income, a $215,000 increase in noninterest expense and a $177,000
increase in provision for loan loss.
Net interest income decreased $18,000 to $959,000 for the three months
ended March 31, 2000 from $977,000 for the same period in 1999. This decrease
was attributable primarily to an increase of $15,000 in interest expense due to
the increase in FHLB advances held by the Bank for Y2K liquidity purposes. The
spread between the average yield on interest earning assets and the average cost
of funds increased to 6.40% at March 31, 2000 from 5.87% at March 31, 1999. The
Company anticipates that this spread will decrease as lower yielding assets that
exhibit less credit risk replace higher yielding Second Chance Auto Loans
currently held in portfolio.
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Noninterest income decreased $251,000 to $276,000 for the three months
ended March 31, 2000 from $527,000 for the three months ended March 31, 1999.
This decrease can be partially attributed to a decline in gains on sale of
loans. For the three months ended March 31, 1999, the Company recorded a
$131,000 gain on sale of loans originated through its Second Chance Auto Loan
Program, compared to $0 in the current fiscal year to date, and an $81,000 gain
on sale of loans and servicing rights originated through its Mortgage Loan
Production Office in the three months ended March 31, 1999, compared to $49,000
in the three months ended March 31, 2000. In addition, for the three months
ended March 31, 2000, the Company recorded a $133,000 decrease in other
noninterest income primarily resulting from the recording of an after-tax
casualty loss for hail damage to the premises of the Bank and to Bank-owned
vehicles in the six months ended March 31, 1999. These decreases in noninterest
income were partially offset by net servicing income of $55,000 related to
servicing Second Chance Auto Loan Program loan participations. The Company is
substantially dependent on its noninterest income in order to achieve net
income. Gains on the sales of loans are dependent on various factors that are
not necessarily within the control of the Company, including market and economic
conditions. As a result, there can be no assurance that the gains on sales of
loans reported by the Company in prior periods will be reported in future
periods or that there will not be substantial periodic variation in the results
from such activities that would affect the level of net income or loss reported
by the Company.
Noninterest expense increased $215,000 to $1,559,000 for the three months
ended March 31, 2000 from $1,344,000 for the three months ended March 31, 1999.
Compensation and benefits increased $52,000 primarily as a result of an increase
in the number of employees due primarily to the expansion of the Second Chance
Auto Loan Program and mortgage lending departments. The Company anticipates a
commensurate decline in compensation and benefits due to the discontinuation of
the Second Chance Auto Lending Program. Net loss on repossessed assets increased
$168,000 primarily as a result of the write-down of asset valuation reflecting
the change in the estimate of recovery value.
Income tax expense (benefit) decreased $174,000 to $(156,000) for the three
months ended March 31, 2000 from $18,000 for the three months ended March 31,
1999 due to the loss recorded before the provision for income tax. The period
reflected tax rates of 29% and 14% for March 31, 2000 and March 31, 1999,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits, principal and interest
payments on loans and other funds provided from operations. Additionally, the
Company in the past has borrowed funds from the Federal Home Loan Bank of Dallas
or utilized particular sources of funds based on need, comparative costs and
availability at the time.
While scheduled loan repayments, short-term investments, and FHLB of Dallas
borrowings are relatively stable sources of funds, deposit flows are
unpredictable and are a function of external factors including competition, the
general level of interest rates, general economic conditions and most recently,
the restructuring occurring in the banking industry.
The Company maintains investments in liquid assets based on management's
assessment of cash needs, expected deposit flows, availability of advances from
the FHLB of Dallas, available yield on liquid assets (both short-term and
long-term) and the objectives of its asset/liability management program. Several
options are available to increase liquidity, including reducing loan
originations, increasing deposit marketing activities, and increasing borrowings
from the FHLB of Dallas.
At March 31, 2000, the Company had commitments to originate loans,
including loans in process, totaling $4.0 million. The Company also had $399,000
of outstanding unused lines of credit and $302,000 of letters of credit. The
Company considers its liquidity and capital resources to be adequate to meet its
foreseeable short and long-term needs. The Company expects to be able to fund or
refinance, on a timely basis, its material commitments and long-term
liabilities. The Company also has the ability, if needed, to borrow up to $29.4
million from the FHLB of Dallas for liquidity purposes. At March 31, 2000, the
Company had no advances outstanding from the FHLB of Dallas.
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Federal regulations require insured institutions to maintain minimum levels
of liquid assets. As of March 31, 2000, the minimum regulatory liquidity
requirement was 4% of the sum of First Federal's average daily balance of net
withdrawable deposit accounts and borrowings payable in one year or less. At
March 31, 2000, First Federal's regulatory liquidity ratio was 4.96%. First
Federal uses its capital resources principally to meet its ongoing commitments
to fund maturing certificates of deposits and deposit withdrawals, repay
borrowings, fund existing and continuing loan commitments, maintain its
liquidity and meet operating expenses.
At March 31, 2000, the Bank had Core Capital of $5.3 million, or 6.39% of
total assets, which was $2.0 million above the minimum capital requirement of
$3.3 million or 4% of total assets.
At March 31, 2000, the Bank had total Risk-based Capital of $5.8 million
and risk-weighted assets of $68.7 million or total Risk-based Capital of 8.47%
of risk-weighted assets. This amount was $325,000 above the minimum regulatory
requirement of $5.5 million, or 8.0% of risk-weighted assets.
In May 2000 the Office of Thrift Supervision formally designated the Bank
to be in "troubled condition" and a "problem association" due to its total
capital to risk-weighted assets ratio being only marginally above the minimum
required amount after taking into account the losses associated with repossessed
automobiles and the increase in the allowance for loan losses related to the
Second Chance Auto Loan Program. As a result, the Bank is subject to growth
restrictions limiting any increase in total assets during any quarter in excess
of an amount equal to interest credited on deposits during the quarter without
the prior written approval of the OTS, prior OTS review of all executive
compensation, prior notice to OTS of all transaction between the Bank and its
affiliates, such as the Company, and receipt of OTS approval prior to paying a
dividend from the Bank to the Company. The Company does not expect these
operating restrictions to have a material adverse effect on its operations;
however, the Company's 11 1/2% debentures due March 31, 2003 require quarterly
interest payments of approximately $105,000. The Company is dependent on
dividends from the Bank in order to pay the interest on the debentures, next due
July 15, 2000. Although the Company has applied to the OTS for a $120,000
dividend from the Bank in order to pay the interest on the debentures and
operating expenses of the Company, there can be no assurance that the OTS will
approve the dividend. Failure to timely pay the interest may result in a default
under the indenture governing the debentures resulting in acceleration of the
maturity of the outstanding $3,629,000 principal balance and a demand for
payment from debenture holders that the Company could not currently meet.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133"), issued in June
1998, must be adopted as of October 1, 2001. This Statement establishes
accounting and reporting standards for derivative financial instruments and for
hedging activities. Upon adoption of the Statement, all derivatives must be
recognized at fair value as either assets or liabilities in the statement of
financial position. Changes in the fair value of derivatives not designated as
hedging instruments are to be recognized currently in earnings. Gains or losses
on derivatives designated as hedging instruments are either to be recognized
currently in earnings or are to be recognized as a component of other
comprehensive income, depending on the intended use of the derivatives and the
resulting designations. Upon adoption, retroactive application of this Statement
to financial statements of prior periods is not permitted. Management
anticipates the adoption of SFAS No. 133 will not have a material impact on the
financial condition or operations of the Bank.
SAFE HARBOR STATEMENT
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provision for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Company, are
generally identifiable by use of the words believe, expect, intend, anticipate,
estimate, project or similar expressions. The Company's ability to predict
results or the actual effect of future plans or strategies is inherently
uncertain. Factors which could have a material adverse affect on the operations
and future prospects of the Company and the subsidiaries include, but are not
limited to, changes in: interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
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Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
the Company's market area and accounting principles, policies and guidelines.
These risks and uncertainties should be considered in evaluating forward-looking
statements and could affect the Company's financial performance and cause the
Company's actual results for future periods to differ materially from those
anticipated or projected. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made.
The Company does not undertake, and specifically disclaims any obligation,
to revise any forward-looking statements to reflect the occurrence of
anticipated or unanticipated events or circumstances after the date of such
statements. Further information concerning the Company and its business,
including additional factors that could materially affect the Company's
financial results, is included in the Company's filings with the Securities and
Exchange Commission.
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PART II- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On February 24, 2000 the Company held its Annual Meeting of Stockholders.
(b) Stockholders voted on the following matters:
(i) The election of the following directors of the Company:
VOTE VOTES
FOR WITHHELD
Robert H. Conaway 281,501 2,510
Ken L. Hayes 283,669 343
George Koenig 283,702 310
Joseph W. Krolczyk 281,469 2,543
Charles Neelley 282,300 1,662
Richard L. Peacock 280,965 2,937
Roland Ruffino 281,359 2,543
Gary A. Snoe 281,359 2,543
J. Stanley Stephen 283,515 387
Ernest A. Wentrcek 280,965 2,937
Helen Chavarria 281,282 2,730
(ii) The ratification of the appointment of Crowe, Chizek and Company LLP
as Auditors of the Company for the fiscal year ending September 30,
1999:
VOTES FOR AGAINST ABSTAIN
282,150 0 1,752
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ITEM 5. OTHER INFORMATION
The Company reported on May 5, 2000, that J. Stanley Stephen, a Director
and the Chief Executive Officer of the Company and the Bank had announced his
retirement. Subsequently, David R. Rinehart has been named President and Chief
Executive Officer of the Company and the Bank. Mr. Rinehart has over 25 years of
experience with different financial entities, including most recently as Senior
Vice President/Strategic Planning of AEGIS Mortgage Corporation. Immediately
before joining AEGIS Mortgage Corporation, Mr. Rinehart was the Executive Vice
President and Chief Financial Officer of Fort Bend Holding Corp., and its
subsidiary, Fort Bend Federal Savings and Loan Association from 1988 until Fort
Bend's acquisition in 1999. In addition, William L. Wantuck, the Chief Financial
Officer of the Company and the Bank has been named Chief Operating Officer of
the Company and the Bank. Lastly, Directors Gary A. Snoe and Robert H. Conaway
have been elected Chairman and Vice Chairman of the Board, replacing Richard L.
Peacock and Ernest Wentrcek, who remain as Directors. Director Joseph W.
Krolczyk was appointed Secretary and Treasurer of the Board.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE BRYAN COLLEGE STATION FINANCIAL HOLDING COMPANY
Date: July 8, 2000 /s/ Gary Snoe
------------ ---------------------------------------------------
Gary Snoe
Chairman of the Board of Directors
Date: July 8, 2000 /s/ William L. Wantuck
------------ ---------------------------------------------------
William L. Wantuck
Executive Vice President, Chief Operating Officer
and Chief Financial Officer
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