<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the Quarter ended June 30,
2000
[_] Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period ___ to ___
Commission File Number 000-24553
CNBT BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Texas 76-0575815
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
5320 Bellaire Boulevard
Bellaire, Texas 77401
(Address of principal executive offices, including zip code)
(713) 661-4444
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities and
Exchange Act of 1934 ("Act") during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [_]
At July 31, 2000, 4,941,361 shares of CNBT Bancshares, Inc., common stock, $1.00
par value, were outstanding.
<PAGE>
CNBT BANCSHARES, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 2000 and 1999
and at December 31, 1999.............................................................. 3
Consolidated Statements of Income for the Three Months
Ended June 30, 2000 and 1999 and the Six Months Ended
June 30, 2000 and 1999................................................................ 4
Consolidated Statements of Comprehensive Income for the
Three Months Ended June 30, 2000 and 1999 and the Six
Months Ended June 30, 2000 and 1999................................................... 5
Consolidated Statements of Stockholders' Equity for the
Year Ended December 31, 1999 and for the Six Months
Ended June 30, 2000................................................................... 6
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2000 and 1999.......................................................... 7
Notes to Interim Consolidated Financial Statements.................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview.............................................................................. 10
Results of Operations................................................................. 10
Financial Condition................................................................... 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................ 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................................... 24
Item 4. Submission of Matters to a Vote of Security Holders................................... 24
Item 6. Exhibits and Reports on Form 8-K...................................................... 24
SIGNATURES.............................................................................................. 25
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CNBT BANCSHARES, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
-------------------------------
2000 1999 1999
-------------- ------------- --------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and due from banks....................................... $ 14,867 $ 11,108 $ 12,533
Due from banks - interest bearing overnight funds............. 163 684 68
Investment securities available-for-sale...................... 122,264 130,206 125,208
Investment securities held-to-maturity (approximate
market value of $106,593 and $115,710 at June 30,
2000 and 1999, respectively (unaudited), and
$114,084 at December 31, 1999............................... 111,629 118,980 119,123
Loans, net.................................................... 158,928 119,145 137,884
Bank premises and equipment, net.............................. 9,833 6,543 9,859
Deferred income taxes receivable.............................. 1,556 681 2,071
Other assets.................................................. 4,580 3,861 5,022
-------------- ------------- --------------
TOTAL ASSETS..................................................... $ 423,820 $ 391,208 $ 411,768
============== ============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES
Deposits
Demand...................................................... $ 76,445 $ 73,927 $ 74,266
NOW Accounts................................................ 23,971 22,736 24,604
Savings..................................................... 8,087 8,533 7,742
Money market................................................ 89,573 93,057 97,361
Time, $100,000 and over..................................... 52,758 42,872 46,609
Other time.................................................. 96,026 99,023 95,451
-------------- ------------- --------------
TOTAL DEPOSITS............................................ 346,860 340,148 346,033
Other borrowed funds.......................................... 42,100 18,000 34,079
Accrued interest and other liabilities........................ 2,273 1,922 1,786
Federal income taxes payable.................................. 90 41 -
-------------- ------------- --------------
TOTAL LIABILITIES......................................... 391,323 360,111 381,898
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value, 30,000,000 shares authorized,
5,100,461 shares issued and 4,941,361 shares outstanding
at June 30, 2000 (unaudited), 5,069,217 shares issued and
4,911,117 shares outstanding at June 30, 1999 (unaudited),
5,081,114 shares issued and 4,923,014 shares outstanding
at December 31, 1999........................................ 5,100 5,069 5,081
Surplus....................................................... 21,963 21,905 21,926
Retained earnings............................................. 9,742 6,740 8,272
Accumulated other comprehensive income; net unrealized
gains (losses) on available-for-sale securities, net of
deferred income benefit of $(1,396), $(530) and $(1,969)
at June 30, 2000 and 1999 (unaudited), and December 31,
1999, respectively.......................................... (2,710) (1,029) (3,821)
-------------- ------------- --------------
34,095 32,685 31,458
Less: treasury stock at cost; 159,100 shares at June 30, 2000,
158,100 shares at June 30, 1999 (unaudited) and December
31, 1999.................................................... (1,598) (1,588) (1,588)
-------------- ------------- --------------
TOTAL STOCKHOLDERS' EQUITY................................ 32,497 31,097 29,870
-------------- ------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....................... $ 423,820 $ 391,208 $ 411,768
============== ============= ==============
</TABLE>
See accompanying notes to interim consolidated financial statements.
3
<PAGE>
CITIZENS NATIONAL BANK OF TEXAS AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans............................. $ 3,912 $ 2,799 $ 7,317 $ 5,523
Interest on investment securities:
Taxable.............................................. 2,948 2,967 5,969 5,835
Nontaxable........................................... 762 766 1,547 1,492
----------- ----------- ----------- -----------
Total interest on investment securities................... 3,710 3,733 7,516 7,327
----------- ----------- ----------- -----------
TOTAL INTEREST INCOME................................ 7,622 6,532 14,833 12,850
INTEREST EXPENSE
Interest on deposits and FHLB borrowings............... 3,850 3,083 7,373 6,094
----------- ----------- ----------- -----------
Net interest income.................................. 3,772 3,449 7,460 6,756
PROVISION FOR LOAN LOSSES................................. 150 150 345 300
----------- ----------- ----------- -----------
Net interest income after provision
for loan losses...................................... 3,622 3,299 7,115 6,456
OTHER INCOME
Service fees........................................... 652 588 1,260 1,153
Net realized gains (losses) on sale of
available-for-sale securities........................ (18) 7 (18) 26
Other operating income................................. 128 94 226 175
----------- ----------- ----------- -----------
TOTAL OTHER INCOME................................... 762 689 1,468 1,354
OTHER EXPENSES
Salaries and employee benefits......................... 1,494 1,334 2,996 2,655
General and administrative............................. 412 317 766 658
Data processing........................................ 245 238 470 458
FDIC assessments....................................... 0 9 35 18
Occupancy expenses, net................................ 202 158 403 306
Equipment maintenance.................................. 164 140 323 292
Postage and printing fees.............................. 93 128 179 220
Professional fees...................................... 163 142 265 270
----------- ----------- ----------- -----------
TOTAL OTHER EXPENSES................................. 2,773 2,466 5,437 4,877
----------- ----------- ----------- -----------
INCOME BEFORE FEDERAL INCOME
TAXES................................................ 1,611 1,522 3,146 2,933
Applicable federal income taxes........................ 327 300 591 493
----------- ----------- ----------- -----------
NET INCOME................................................ $ 1,284 $ 1,222 $ 2,555 $ 2,440
=========== =========== =========== ===========
Earnings per common share:
Basic Earnings Per Share............................. $ .26 $ .25 $ .52 $ .50
=========== =========== =========== ===========
Diluted Earnings Per Share........................... $ .26 $ .24 $ .52 $ .49
=========== =========== =========== ===========
</TABLE>
See accompanying notes to interim consolidated financial statements.
4
<PAGE>
CITIZENS NATIONAL BANK OF TEXAS AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
2000 1999 2000 1999
-------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C>
Net income............................................ $ 1,284 $ 1,222 $ 2,555 $ 2,440
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during period.................................... 381 (2,119) 1,099 (2,731)
Less: reclassification adjustment for (gains)
losses included in net income.................... 12 (5) 12 (17)
-------- ------- ------- -------
393 (2,124) 1,111 (2,748)
-------- ------- ------- -------
Comprehensive income (loss)........................... $ 1,677 $ (902) $ 3,666 $ (308)
======== ======= ======= =======
</TABLE>
See accompanying notes to interim consolidated financial statements.
5
<PAGE>
CNBT Bancshares, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Common Stock Compre-
------------------------
Par Treasury Retained hensive
Shares Values Stock Surplus Earnings Income Total
----------- ----------- ----------- ----------- ---------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998.............. 4,910,201 $ 5,065 $ (1,561) $ 21,899 $ 6,264 $ 1,719 $ 33,386
Proceeds from exercise of stock
options............................ 15,513 16 0 27 0 0 43
Cash dividends per share............. 0 0 0 0 (2,948) 0 (2,948)
Re-purchase stock.................... (2,700) 0 (27) 0 0 0 (27)
Comprehensive income:
Unrealized gain on investment
securities available-for-sale, net
of deferred income taxes of
$2,854 ............................ 0 0 0 0 0 (5,540) (5,540)
Net income ........................ 0 0 0 0 4,956 0 4,956
----------- ----------- ----------- ---------- ------------- ----------- --------
Total comprehensive income........... (584)
--------
BALANCE, DECEMBER 31, 1999 ............. 4,923,014 $ 5,081 $ (1,588) $ 21,926 $ 8,272 $ (3,821) $ 29,870
Proceeds from exercise of stock
options (unaudited)................ 19,347 19 0 37 0 0 56
Cash dividends (unaudited)........... 0 0 0 0 (1,085) 0 (1,085)
Re-purchase stock (unaudited)........ (1,000) 0 (10) 0 0 0 (10)
Comprehensive income:
Unrealized loss on investment
securities available-for-sale, net
of deferred income tax benefit of
$573 (unaudited)................... 0 0 0 0 0 1,111 1,111
Net income (unaudited)............. 0 0 0 0 2,555 0 2,555
----------- ----------- ----------- ---------- ---------- ----------- --------
Total comprehensive income (unaudited) 3,666
--------
BALANCE, JUNE 30, 2000
(UNAUDITED) ......................... 4,941,361 $ 5,100 $ (1,598) $ 21,963 $ 9,742 $ (2,710) $ 32,497
=========== =========== =========== ========== ========== =========== ========
</TABLE>
See accompanying notes to interim consolidated financial statements.
6
<PAGE>
CNBT Bancshares, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
2000 1999
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................................... $ 2,555 $ 2,440
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation............................................... 285 224
Premium amortization net of discount accretion............. 23 229
Provision for loan losses.................................. 345 300
Net realized gain on available-for-sale
securities.............................................. 18 (16)
Loss on disposal of bank premises and equipment
and other assets........................................ 3 16
Provision (benefit) for deferred taxes..................... (58) (103)
Changes in assets and liabilities:
Accrued interest receivable................................ 76 246
Other assets............................................... (330) (121)
Accrued expenses........................................... 296 289
Accrued interest payable................................... 90 (56)
Federal income taxes payable/receivable.................... 140 55
-------- ---------
NET CASH PROVIDED BY OPERATING
ACTIVITIES................................................. 3,443 3,503
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available-for-sale securities..................... (3,859) (13,939)
Proceeds from sales of available-for-sale securities........... 2,877 37,673
Proceeds from maturities of available-for-sale securities...... 5,583 6,586
Purchases of held-to-maturity securities....................... 0 (50,463)
Proceeds from maturities of held-to-maturity securities........ 7,480 11,104
Loans originated, net of principal collected................... (20,856) (9,615)
Proceeds from sales of other real estate and repossessed
assets....................................................... 110 353
Cash paid for bank premises and equipment...................... (259) (854)
-------- ---------
NET CASH USED IN INVESTING ACTIVITIES........................ (8,924) (19,155)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, NOW,
savings, and money market accounts........................... (5,897) 8,857
Proceeds from sales of time deposits, net of payments
for maturing time deposits................................... 6,724 374
Net increase in other borrowed funds........................... 8,021 6,900
Proceeds from exercise of stock options........................ 56 10
Purchase of common stock....................................... (10) (27)
Dividends paid................................................. (984) (1,964)
-------- ---------
NET CASH PROVIDED BY FINANCING
ACTIVITIES................................................. 7,910 14,150
-------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................................. 2,429 (1,502)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD.................................................... 12,601 13,294
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD....................................................... $ 15,030 $ 11,792
======== =========
</TABLE>
See accompanying notes to interim consolidated financial statements.
7
<PAGE>
CNBT BANCSHARES, INC AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
(Dollars in thousands, except per share amounts)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring items) considered necessary for a fair presentation have
been included. Operating results for the periods ending June 30, 2000 and 1999
are not necessarily indicative of the annual results.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Annual Report on Form 10-K for the year-ended
December 31, 1999, of CNBT Bancshares, Inc. (the "Company") as filed with the
Securities and Exchange Commission.
(2) Earnings Per Common Share
Earnings per common share was computed based on the following (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ -------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Net income.............................. $ 1,284 $ 1,222 $ 2,555 $ 2,440
Divided by weighted average common
shares and common share equivalents:
Weighted average common shares....... 4,935,049 4,911,117 4,929,897 4,910,570
Weighted average common share
equivalents......................... 36,392 69,989 40,753 62,978
---------- ---------- ---------- ----------
Total average common shares and
common share equivalents.............. 4,971,441 4,981,106 4,970,650 4,973,548
========== ========== ========== ==========
Earnings per common share - Basic...... $ 0.26 $ 0.25 $ 0.52 $ 0.50
========== ========== ========== ==========
Earnings per common share - Diluted.... $ 0.26 $ 0.24 $ 0.52 $ 0.49
========== ========== ========== ==========
</TABLE>
(3) Common Stock
The Board of Directors declared cash dividends to be payable to
stockholders of record for the quarters ending March 30, 1999, June 30, 1999,
September 30, 1999, and December 31, 1999 of $0.10 per share. A special cash
dividend of $0.20 was declared, in addition to the regular cash dividend of
$0.10 per share, to stockholders of record at March 31, 1999. A cash dividend
for $0.10 per share was declared at March 31, 2000. A cash dividend, in the
amount of $0.12, was declared for the quarter ending June 30, 2000.
On July 2, 1998, the Board of Directors authorized the formation of a
holding company. The transaction was consummated with an exchange of the Bank's
common stock ($2.03 par value) for common stock in the newly created bank
holding company ($1.00 par value) which resulted in a decrease in Common Stock
of $5,220,000 and a corresponding increase in Surplus of $5,220,000. This
transaction has been accounted for at historical cost in a manner similar to a
pooling of interest.
8
<PAGE>
As of June 30, 2000, an additional 32,830 shares of common stock were
issuable (without regard to vesting restrictions) upon exercise of outstanding
employee stock options.
(4) Comprehensive Income
Comprehensive income is comprised of net income and all changes to
stockholders' equity, except those due to investments by owners (changes in paid
in capital) and distributions to owners (dividends). For the three and six month
periods ending June 30, 2000 and 1999, unrealized holding gain (losses) on debt
and equity securities available-for-sale is the only other comprehensive income
component. The following table sets forth the amounts of other comprehensive
income included in equity along with the related tax effect for the three and
six months ending June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------
June 30, 2000 June 30, 1999
-------------------------------- -----------------------------
Tax Net Tax Net
Expense of Tax Expense of Tax
Pretax (Benefit) Amount Pretax (Benefit) Amount
------- --------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Net unrealized gain (loss) on
securities available-for-sale...... $ 578 $ (197) $ 381 $(3,211) $ 1,092 $(2,119)
Less: reclassification adjustment
for net (gain) loss realized in
net income......................... 18 (6) 12 (7) 2 (5)
------- ----------- ------- ------- -------- -------
Other comprehensive income (loss)... $ 596 $ (203) $ 393 $(3,218) $ 1,094 $(2,124)
======= =========== ======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
------------------------------------------------------------
June 30, 2000 June 30, 1999
------------------------------ -----------------------------
Tax Net Tax Net
Expense of Tax Expense of Tax
Pretax (Benefit) Amount Pretax (Benefit) Amount
-------- --------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Net unrealized gain (loss) on
securities available-for-sale........ $ 1,666 $ (567) $ 1,099 $ (4,138) $ 1,407 $ (2,731)
Less: reclassification adjustment
for net (gain) loss realized in
net income........................... 18 (6) 12 (26) 9 (17)
------- --------- ------- -------- --------- --------
Other comprehensive income (loss)..... $ 1,684 $ (573) $ 1,111 $ (4,164) $ 1,416 $ (2,748)
======= ========= ======= ======== ========= ========
</TABLE>
(5) General
CNBT Bancshares, Inc., a Texas corporation, was incorporated under the laws
of the State of Texas on April 8, 1998, primarily to serve as a holding company
for the Bank. All requisite regulatory approvals and the satisfaction of all
other conditions to the organization of the Bank into a holding company
structure have been completed. The reorganization was effective on July 2, 1998.
For further discussion of the holding company formation, the reader is directed
to the Company's Form S-4 Registration Statement (File No. 333-50039) filed with
the Securities and Exchange Commission on April 14, 1998, as amended.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
CNBT Bancshares, Inc. (the "Company") is a bank holding company
headquartered in Bellaire, Texas, which derives substantially all of its income
from the operation of its wholly-owned bank subsidiary, Citizens National Bank
of Texas (the "Bank"). The Company was formed in July 1998 as a bank holding
company for the Bank, which was chartered in 1983.
For the six months ended June 30, 2000, the Company had net income of $2.6
million, an increase of $200,000 or 8.3% from the same period in 1999. This
earnings growth was due primarily to an increase in net interest income which
resulted from a substantial increase in the loan portfolio. Net income per
share, basic and diluted, increased to $0.52 and $0.52, respectively, for the
six months ended June 30, 2000, from $0.50 and $0.49 for the same time period in
1999. The Company's annualized return on average assets was 1.22% and the
annualized return on average common equity was 16.60% for the six months ended
June 30, 2000, compared to 1.26% and 14.82% for the same time period in 1999.
Total assets increased to $423.8 million at June 30, 2000, from $391.2
million at June 30, 1999, an increase of $32.6 million or 8.3%, and from $411.8
million at December 31, 1999, an increase of $12.0 million or 2.9%. The increase
was due primarily to an increase in loans. Deposits increased to $346.9 million
at June 30, 2000, from $340.1 million at June 30, 1999, an increase of $6.8
million or 2.0%, and from $346.0 million at December 31, 1999, an increase of
$900,000 or 0.3%. Total stockholders' equity was $32.5 million at June 30, 2000,
representing an increase of $1.4 million or 4.5% over total stockholders' equity
of $31.1 million at June 30, 1999, and an increase of $2.6 million or 8.7% over
stockholders' equity of $29.9 million at December 31, 1999. The increase in
stockholders' equity is partially attributable to a decrease in unrealized
losses on investment securities from December 31, 1999.
Results of Operations
For The Six Months Periods Ended June 30, 2000 and 1999
Net Interest Income
Net interest income for the six months ended June 30, 2000, was $7.5
million, an increase of $700,000 or 10.3% from $6.8 million for the six months
ended June 30, 1999. The Company's net interest margin was 3.79% and 3.70% and
the net interest spread was 2.76% and 2.73% for the six months ended June 30,
2000 and 1999, respectively. The increase in net interest margin resulted from a
greater increase in net interest income relative to the increase in total
average interest-earning assets. There was an increase in the yield on total
interest-earning assets of 0.51% as compared to an increase of 0.48% in the rate
paid on interest-bearing liabilities which resulted in the increase in net
interest spread.
The increase in net interest income resulted from increases in both the
loan and securities portfolios. Interest income from loans increased to $7.3
million from $5.5 million for the six months ended June 30, 2000 and 1999,
respectively, an increase of $1.8 million or 32.7%. The yield in the loan
portfolio increased to 9.83% for the six months ended June 30, 2000, from 9.55%
for the six months ended June 30, 1999. Interest income from the securities
portfolio increased to $7.5 million for the six months ended June 30, 2000, from
$7.3 million for the six months ended June 30, 1999, a $200,000 or 2.7%
increase. This was due primarily to a 1.6% decrease in average securities held
that was offset by an increase in yield from 5.87% to 6.14% for the six months
ended June 30, 2000, compared to the same period in 1999. Partially offsetting
the interest income growth was an increase in interest expense, which grew to
$7.4 million for the six months ended June 30, 2000, compared to $6.1 million
for the six months ended June 30, 1999. This increase was the result of an
increase in borrowings used primarily to fund the increase in loans.
10
<PAGE>
The following table presents, for the periods indicated, the total dollar
amount of average balances, interest income from average interest-earning assets
and the resulting yields, as well as the interest expense on average interest-
bearing liabilities, expressed both in dollars and rates. No tax equivalent
adjustments were made and all average balances are average daily balances.
Nonaccruing loans have been included in the tables as loans carrying a zero
yield.
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
------------------------------- ---------------------------------
Average Interest Average Average Interest Average
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
----------- -------- -------- ------------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans.................................... $148,926 $ 7,317 9.83% $115,628 $ 5,523 9.55%
Securities............................... 244,438 7,507 6.14 248,490 7,288 5.87
Federal funds sold and other
earning assets....................... 231 9 7.79 1,210 39 6.45
-------- ------- -------- -------
Total interest-earning assets....... 393,595 14,833 7.54 365,328 12,850 7.03
Less: allowance for loan losses............ 1,388 1,203
-------- --------
Total earning assets, net of allowance...... 392,207 364,125
Nonearning assets........................... 25,209 24,150
-------- --------
Total Assets........................ $417,416 $388,275
======== ========
Liabilities and Stockholders' equity
Interest-bearing liabilities:
Interest-bearing demand deposits......... $ 24,666 $ 258 2.09% $ 23,553 $ 182 1.55%
Savings and money market
accounts............................ 100,629 1,924 3.82 98,263 1,710 3.48
Certificates of deposit.................. 145,061 4,065 5.60 142,398 3,695 5.19
Borrowed funds........................... 37,938 1,126 5.94 19,337 507 5.24
-------- ------- -------- -------
Total interest-bearing liabilities.. 308,294 7,373 4.78 283,551 6,094 4.30
------- -------
Noninterest-bearing liabilities:
Noninterest-bearing demand
deposit............................. 76,162 69,409
Other liabilities........................ 2,185 2,387
-------- --------
Total liabilities................... 386,641 355,347
Stockholders' equity........................ 30,775 32,928
-------- --------
Total liabilities and
stockholders' equity.............. $417,416 $388,275
======== ========
Net interest income......................... $ 7,460 $ 6,756
======= =======
Net interest spread (1)..................... 2.76% 2.73%
Net interest margin (2)..................... 3.79% 3.70%
</TABLE>
(1) The interest rate spread is the difference between the average yield in
interest-earning assets and the average rate paid on interest-bearing
liabilities.
(2) The net interest margin is equal to the net interest income divided by the
average interest-earning assets.
11
<PAGE>
The following table presents for the periods indicated the dollar amount of
changes in interest income and interest expense for the major components of
interest-earning assets and interest-bearing liabilities and distinguishes
between the increase related to higher outstanding balances and the volatility
of interest rates:
<TABLE>
<CAPTION>
Six Months Ended
June 30, 2000 vs. 1999
---------------------------------------
Increase (Decrease)
Due to
------------------------
Volume Rate Total
-------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Interest-earning assets:
Loans........................................... $ 1,386 $ 408 $ 1,794
Securities...................................... (456) 675 219
Other earning assets............................ (33) 3 (30)
-------- ------- -------
Total increase (decrease) in interest income... 897 1,086 1,983
Interest-bearing liabilities:
Interest-bearing demand deposits................ (59) 135 76
Savings and money market accounts............... (129) 343 214
Certificates of deposit......................... (232) 602 370
Borrowed funds.................................. 356 263 619
-------- ------- -------
Total increase (decrease) in interest expense.. (64) 1,343 1,279
-------- ------- -------
Increase (decrease) in net interest income....... $ 961 $ (257) $ 704
======== ======= =======
</TABLE>
Provisions for Loan Losses
The provision for loan losses was $345,000 for the six months ended June
30, 2000, and $300,000 for the same period in 1999, an increase of $45,000 or
15.0%.
Noninterest Income
Noninterest income for the six months ended June 30, 2000, increased
$114,000 or 8.4%. The following table presents, for the periods indicated, the
major categories of noninterest income:
Six Months Ended
June 30,
------------------
2000 1999
------- ------
(Dollars in thousands)
Service fees.................... $ 1,260 $1,153
Net realized gains (losses) on
sale of available-for-sale
securities..................... (18) 26
Other operating income.......... 226 175
------- ------
Total noninterest income........ $ 1,468 $1,354
======= ======
For the six months ended June 30, 2000, service fees on deposit accounts
were $1.3 million as compared to $1.2 million for the same period in 1999, an
increase of $100,000 or 8.3%. Other operating income increased $51,000 or 29.1%
to $226,000 for the six months ending June 30, 2000 as compared to $175,000 at
June 30, 1999. Deposit accounts grew from 26,636 at June 30, 1999 to 28,791 at
June 30, 2000.
Noninterest Expenses
In the six month period ended June 30, 2000, noninterest expenses increased
$500,000 or 10.2% to $5.4 million from the 1999 comparable period. For the six
months ended June 30, 2000, the efficiency ratio, calculated by dividing total
noninterest expenses (excluding securities gains and losses) by net interest
income plus noninterest income increased to 61.0% for the six months ended June
30, 2000, from 60.3% for the six months ended June 30, 1999. This
12
<PAGE>
increase was primarily due to an increase in salaries and employee benefits
along with other general and administrative expenses.
Salaries and employee benefit expense and general administrative expenses,
for the six months ended June 30, 2000, was $3.8 million, an increase of
$500,000 or 15.2% from $3.3 million in the same period of 1999. The increase
was due to additional personnel required to accommodate the growth of the bank.
Total full-time equivalent employees at June 30, 2000, increased to 128 from 115
at June 30, 1999.
Occupancy expense and equipment maintenance increased to $726,000 for the
six-month period ended June 30, 2000, from $598,000 for the six-month period
ended June 30, 1999. Major categories included within occupancy expense are
building lease expense, depreciation expense, and maintenance expense.
Depreciation expense increased to $286,000 for the six-month period June 30,
2000, an increase of $61,000 or 27.1% from $225,000 for the same period in 1999.
This increase was primarily due to the completion of the Northwest office and
depreciation on new equipment purchases. Maintenance expense for the six-month
period ended June 30, 2000, was $147,000, an increase of $3,000 or 2.1% over the
same period in 1999.
Data processing expense for the six-month period ended June 30, 2000, was
$470,000, as compared to $458,000 for the same period in 1999, an increase of
$12,000 or 2.6%.
Income Taxes
The income tax provision includes both current and deferred income tax
amounts using the statutory rates currently in effect. The amount of income tax
expense is influenced by the amount of taxable income, the amount of tax-exempt
income, the amount of nondeductible interest expense, and the amount of other
nondeductible expenses. In the first six months of 2000, income tax expense was
$591,000, an increase of $98,000 or 19.9% from $493,000 of income tax expense
for the same period in 1999. The higher income tax expense in the first six
months of 2000 compared to the first six months of 1999 is principally due to
the increase in nontaxable income and other changes in temporary differences.
The effective tax rates were 18.8% for the six months ended June 30, 2000, and
16.81% for the six months ended June 30, 1999.
For The Three Month Periods Ended June 30, 2000 and 1999
Net Interest Income
Net interest income for the three months ended June 30, 2000, was $3.8
million, an increase of $400,000 or 11.8% from $3.4 million for the three months
ended June 30, 1999. The Company's net interest margin was 3.80% and 3.72% and
the net interest spread was 2.73% and 2.76% for the three months ended June 30,
2000 and 1999, respectively. The increase in net interest margin resulted from
a greater increase in net interest income relative to the increase in total
average interest-earning assets. There was an increase in the yield on total
interest-earning assets of 0.64% compared to an increase of 0.67% in the rate
paid on interest-bearing liabilities which resulted in a decrease in net
interest spread.
The increase in net interest income resulted from the increase in the loan
portfolio. Interest income from loans increased to $3.9 million from $2.8
million for the three months ended June 30, 2000 and 1999, respectively, an
increase of $1.1 million or 39.3%. The yield in the loan portfolio increased to
10.05% for the three months ended June 30, 2000, from 9.55% for the three months
ended June 30, 1999. Interest income from the securities portfolio remained
constant at $3.7 million for the three months ended June 30, 2000 and June 30,
1999. This was due primarily to a 4.3% decrease in average securities held that
was offset by an increase in yield from 5.88% to 6.16% for the three months
ended June 30, 2000, compared to the same period in 1999. Partially offsetting
the interest income growth was an increase in interest expense, which grew to
$3.9 million for the three months ended June 30, 2000, compared to $3.1 million
for the three months ended June 30, 1999. This increase was the result of
strong growth in average borrowed funds from the Federal Home Loan Bank (FHLB).
13
<PAGE>
The following table presents, for the periods indicated, the total dollar
amount of average balances, interest income from average interest-earning assets
and the resulting yields, as well as the interest expense on average interest-
bearing liabilities, expressed both in dollars and rates. No tax equivalent
adjustments were made and all average balances are average daily balances.
Nonaccruing loans have been included in the tables as loans carrying a zero
yield.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 2000 June 30, 1999
------------------------------- ---------------------------------
Average Interest Average Average Interest Average
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
----------- -------- -------- ------------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans.................................... $ 155,630 $ 3,912 10.05% $ 117,177 $ 2,799 9.55%
Securities............................... 240,639 3,705 6.16 251,579 3,701 5.88
Federal funds sold and other
earning assets....................... 351 5 5.70 2,032 32 6.29
--------- ------- --------- -------
Total interest-earning assets....... 396,620 7,622 7.69 370,788 6,532 7.05
Less: allowance for loan losses............ 1,435 1,212
--------- ---------
Total earning assets, net of allowance...... 395,185 369,576
Nonearning assets........................... 25,573 23,876
--------- ---------
Total Assets........................ $ 420,758 $ 393,452
========= =========
Liabilities and Stockholders' equity
Interest-bearing liabilities:
Interest-bearing demand deposits......... $ 24,490 $ 136 2.22% $ 23,397 $ 91 1.56%
Savings and money market
accounts............................ 99,813 996 3.99 100,620 880 3.50
Certificates of deposit.................. 146,280 2,091 5.72 142,987 1,842 5.15
Borrowed funds........................... 40,042 627 6.26 20,223 270 5.34
--------- ------- --------- -------
Total interest-bearing liabilities.. 310,625 3,850 4.96 287,227 3,083 4.29
------- -------
Noninterest-bearing liabilities:
Noninterest-bearing demand
deposit............................. 76,476 71,435
Other liabilities........................ 2,124 2,205
--------- ---------
Total liabilities................... 389,225 360,867
Stockholders' equity........................ 31,533 32,585
--------- ---------
Total liabilities and
stockholders' equity.............. $ 420,758 $ 393,452
========= =========
Net interest income......................... $ 3,772 $ 3,449
======= =======
Net interest spread (1)..................... 2.73% 2.76%
Net interest margin (2)..................... 3.80% 3.72%
</TABLE>
(1) The interest rate spread is the difference between the average yield in
interest-earning assets and the average rate paid on interest-bearing
liabilities.
(2) The net interest margin is equal to the net interest income divided by the
average interest-earning assets.
14
<PAGE>
The following table presents for the periods indicated the dollar amount of
changes in interest income and interest expense for the major components of
interest-earning assets and interest-bearing liabilities and distinguishes
between the increase related to higher outstanding balances and the volatility
of interest rates:
Three Months Ended
June 30, 2000 vs. 1999
----------------------------
Increase (Decrease)
Due to
-------------------
Volume Rate Total
-------- -------- -------
(Dollars in thousands)
Interest-earning assets:
Loans........................................... $ 335 $ 778 1,113
Securities...................................... (656) 660 4
Other earning assets............................ (25) (2) (27)
-------- -------- ------
Total increase (decrease) in interest income... (346) 1,436 1,090
Interest-bearing liabilities:
Interest-bearing demand deposits................ (118) 163 45
Savings and money market accounts............... (376) 492 116
Certificates of deposit......................... (581) 830 249
Borrowed funds.................................. (21) 378 357
-------- -------- ------
Total increase (decrease) in interest expense.. (1,096) 1,863 767
-------- -------- ------
Increase (decrease) in net interest income....... $ 750 $ (427) 323
======== ======== ======
Provisions for Loan Losses
The provision for loan losses was $150,000 for the three months ended June
30, 2000, and for the same period in 1999.
Noninterest Income
Noninterest income for the three months ended June 30, 2000, increased
$73,000 or 10.6% from $689,000 at June 30, 1999 to $762,000 at June 30, 2000.
The following table presents, for the periods indicated, the major categories of
noninterest income:
Three Months Ended
June 30,
------------------
2000 1999
-------- --------
(Dollars in thousands)
Service fees.................... $ 652 $ 588
Net realized gains (losses) on
sale of available-for-sale
securities..................... (18) 7
Other operating income.......... 128 94
------- --------
Total noninterest income........ $ 762 $ 689
======= ========
For the three months ended June 30, 2000, service fees on deposit accounts
were $652,000 as compared to $588,000 for the same period in 1999, an increase
of $64,000 or 10.9%. Other operating income increased to $128,000 for the three
months ending June 30, 2000 as compared to $94,000 at June 30, 1999.
Noninterest Expenses
In the three-month period ended June 30, 2000, noninterest expenses
increased $300,000 or 12.0% to $2.8 million from the 1999 comparable period. For
the three months ended June 30, 2000, the efficiency ratio, calculated by
dividing total noninterest expenses (excluding securities gains and losses) by
net interest income plus noninterest income increased to 61.4% for the three
months ended June 30, 2000, from 59.7% for the three months ended June 30,
15
<PAGE>
1999. This increase was primarily due to an increase in salaries and employee
benefits along with other general and administrative expenses.
Salaries and employee benefit expense and general administrative expenses,
for the three months ended June 30, 2000, was $1.9 million, an increase of
$200,000 or 11.8% from $1.7 million in the same period of 1999. The increase was
due to additional personnel required to accommodate the growth of the bank.
Occupancy expense and equipment maintenance increased to $366,000 for the
three-month period ended June 30, 2000, from $298,000 for the three-month period
ended June 30, 1999. Major categories included within occupancy expense are
building lease expense, depreciation expense, and maintenance expense.
Depreciation expense increased to $142,000 for the three-month period June 30,
2000, an increase of $27,000 or 23.5% from $115,000 for the same period in 1999.
This increase was primarily due to additional depreciation on new equipment
purchases. Maintenance expense for the three-month period ended June 30, 2000,
was $72,000, an increase of $3,000 or 4.3% over the same period in 1999.
Data processing expense for the three-month period ended June 30, 2000, was
$245,000, as compared to $238,000 for the same period in 1999, an increase of
$7,000 or 2.9%.
Income Taxes
The income tax provision includes both current and deferred income tax
amounts using the statutory rates currently in effect. The amount of income tax
expense is influenced by the amount of taxable income, the amount of tax-exempt
income, the amount of nondeductible interest expense, and the amount of other
nondeductible expenses. In the three month period ended June 30, 2000, income
tax expense was $327,000, an increase of $27,000 or 9.0% from $300,000 of income
tax expense for the same period in 1999. The higher income tax expense during
this three month period ending 2000 as compared to the same three month period
in 1999 is principally due to the increase in taxable income. The effective tax
rates were 20.3% for the three months ended June 30, 2000, and 19.71% for the
three months ended June 30, 1999.
Financial Condition
Loan Portfolio
Loans, net of unearned interest, were $160.4 million at June 30, 2000, an
increase of $21.2 million or 15.2% from $139.2 million at December 31, 1999. At
June 30, 2000, loans as a percentage of assets and deposits were 37.8% and 46.2,
respectively. The increased loan activity is attributable to overall strong loan
demand since the third quarter of 1999, particularly in connection with the
opening of the permanent full service branch in Northwest Houston. The increased
loans have been funded by short and long-term borrowings. Average borrowings
increased $19.8 million (98.0%) from quarter to quarter. The company has opted
to borrow funds from the Federal Home Loan Bank to fund the increased loan
activity rather than seeking additional deposit accounts paying higher interest.
The following table summarizes the loan portfolio of the Bank by type of
loan as of June 30, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
----------------------- --------------------
Amount Percent Amount Percent
------------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial and industrial........... $ 32,822 20.5% $ 30,278 21.8%
Real estate:
Construction and land development.. 19,993 12.5 17,602 12.6
1-4 family residential............. 21,240 13.2 16,570 11.9
Commercial owner occupied.......... 42,911 26.7 33,858 24.3
Other.............................. 2,855 1.8 705 0.5
Consumer............................ 40,555 25.3 40,198 28.9
------------- -------- --------- ---------
Total loans....................... $ 160,376 100.0% $ 139,211 100.0%
============= ======== ========= =========
</TABLE>
16
<PAGE>
Nonperforming Assets
The Bank's conservative lending policies have resulted in strong asset
quality. Nonperforming assets were $575,000 at June 30, 2000, compared to $1.3
million at December 31, 1999. This resulted in a ratio of nonperforming assets
to loans plus other real estate of 0.04% and 0.92% at June 30, 2000, and
December 31, 1999, respectively, and a ratio of nonperforming assets to total
assets of 0.14% at June 30, 2000 and 0.31% at December 31, 1999. The ratios of
non-performing assets to loans and other real estate and to total assets were
higher at December 31, 1999 compared to June 30, 2000, due to certain foreclosed
real estate carried on the books at December 31, 1999. This real estate was
disposed of subsequent to year end.
The Bank has well developed procedures in place to maintain a high quality
loan portfolio. These procedures include credit quality policies that begin with
approval of lending policies and underwriting guidelines by the Board of
Directors, an independent loan review conducted by outside auditors, low
individual lending limits for officers, Loan Committee approval for large credit
relationships, and quality loan documentation procedures. The Bank's lending
officers and loan personnel identify and analyze weaknesses in the portfolio and
report credit risk changes on a monthly basis to the Bank's Board of Directors.
The Bank performs monthly and quarterly concentration analyses based on
collateral types, business lines, large credit sizes, and officer portfolio
loads. The Bank also monitors its delinquency levels for any negative or adverse
trends. There can be no assurance, however, that the Bank's loan portfolio will
not become subject to increasing pressures from deteriorating borrower credit
due to general economic conditions.
The Bank generally places a loan on nonaccrual status and ceases accruing
interest when loan payment performance is deemed unsatisfactory. All loans past
due 90 days, however, are placed on nonaccrual status, unless the loan is both
well collateralized and in the process of collection. Cash payments received
while a loan is classified as nonaccrual are recorded as a reduction of
principal as long as doubt exists as to collection. The Bank is sometimes
required to revise a loan's interest rate or repayment terms in a troubled debt
restructuring.
The following table presents information regarding nonperforming assets at
June 30, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- ------------
(Dollars in thousands)
<S> <C> <C>
Nonaccrual loans........................................... $ 2 $ 54
Accruing loans 90 or more days past due.................... 240 358
Restructured loans......................................... 131 31
Other real estate and foreclosed property.................. 202 850
---------- ------------
Total nonperforming assets................................ $ 575 $ 1,293
========== ============
Nonperforming assets to total loans and other real estate.. 0.04% 0.92%
Nonperforming assets to total assets....................... 0.14% 0.31%
</TABLE>
Allowance for Loan Losses
The allowance for loan losses is a reserve established through charges to
earnings in the form of a provision for loan losses. Based on an evaluation of
the loan portfolio, management presents a monthly review of the allowance for
loan losses to the Board of Directors, indicating any changes in the allowance
since the last review and any recommendations as to adjustments in the
allowance. In making its evaluation, management considers the diversification by
industry of the Bank's commercial loan portfolio, the effect of changes in the
local real estate market on collateral values, the results of recent regulatory
examinations, the effects on the loan portfolio of current economic indicators
and their probable impact on borrowers, the amount of charge-offs for the
period, the amount of nonperforming loans and related collateral security, the
evaluation of its loan portfolio by the loan review function, and the annual
examination of the Bank's financial statements by its independent auditors.
Charge-offs occur when loans are deemed to be uncollectible.
In order to determine the adequacy of the allowance for loan losses,
management considers the risk classification or delinquency status of loans and
other factors, such as collateral value, portfolio composition, trends in
economic
17
<PAGE>
conditions, and the financial strength of borrowers. Management establishes
specific allowances for loans which management believes require reserves greater
than those allocated according to their classification or delinquent status. An
unallocated allowance is also established based on the Bank's historical charge-
off experience. The Bank then charges to operations a provision for loan losses
determined on an annualized basis to maintain the allowance for loan losses at
an adequate level determined according to the foregoing methodology.
Management believes that the allowance for loan losses at June 30, 2000, is
adequate to cover losses inherent in the portfolio as of such date. There can be
no assurance, however, that the Bank will not sustain losses in future periods,
which could be greater than the size of the allowance at June 30, 2000.
The following table presents, for the periods indicated, an analysis of the
allowance for loan losses and other related data:
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
June 30, December 31,
2000 1999
---------- ------------
(Dollars in thousands)
<S> <C> <C>
Allowance for loan losses at beginning
of period.................................... $ 1,327 $ 1,183
Provision for loan losses..................... 345 600
Charge-offs................................... (294) (714)
Recoveries.................................... 70 258
----------- ------------
Allowance for loan losses at end of period.... $ 1,448 $ 1,327
=========== ============
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- ------------
<S> <C> <C>
Allowance to period-end loans.................. 0.90% 0.95%
Net charge-offs (recoveries) to average loans.. 0.15% 0.37%
Allowance to period-end nonperforming loans.... 388.20% 299.55%
</TABLE>
Securities
The Company's securities portfolio as of June 30, 2000, totaled $233.9
million as compared to $244.3 million at December 31, 1999, and $249.2 million
at June 30, 1999. The year-to-date decrease of $10.4 million or 4.3% is
primarily the result of principal and interest payments received on mortgage
backed securities. The Company is required to classify its debt and equity
securities into one of three categories: held-to-maturity, trading, or
available-for-sale. Investments in debt securities are classified as
held-to-maturity and measured at amortized cost in the financial statements only
if management has the intent and ability to hold these securities to maturity.
Securities that are bought and held principally for the purposes of selling them
in the near-term are classified as trading and measured at fair value in the
financial statements with unrealized gains and losses included in earnings.
Securities not classified as either held-to-maturity or trading are classified
as available-for-sale and measured at fair value in the financial statements
with unrealized gains and losses reported, net of tax in a separate components
of stockholders' equity until realized. Gains and losses on sales of securities
are determined using the specific-identified method.
As of June 30, 2000, the held-to-maturity portfolio totaled $111.6 million
and the available-for-sale portfolio totaled $122.3 million. The net unrealized
loss in the available-for-sale portfolio was $4.1 million as of June 30, 2000.
The Company tracks but does not record market changes on its held-to-maturity
portfolio. At June 30, 2000, the market value of the held-to-maturity portfolio
was $106.6 million.
18
<PAGE>
The following table presents the amortized cost of securities classified as
available-for-sale and their approximate fair values at June 30, 2000, and
December 31, 1999:
<TABLE>
<CAPTION>
June 30, 2000
---------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
--------------- ---------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Government and agency securities.. $ 35,919 $ 0 $ (1,438) $ 34,481
Mortgage-backed securities............. 29,451 6 (672) 28,785
Obligations of state and political
subdivisions.......................... 57,609 135 (2,111) 55,633
Other securities....................... 3,365 0 0 3,365
--------------- ---------- ---------- ---------
Total securities....................... $ 126,344 $ 141 $ (4,221) $ 122,264
=============== ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
--------------- ---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Government and agency securities.. $ 35,877 $ 0 $ (1,289) $ 34,588
Mortgage-backed securities............. 32,066 28 (583) 31,511
Obligations of state and political
subdivisions.......................... 60,489 50 (3,966) 56,573
Other securities....................... 2,536 0 0 2,536
--------------- ---------- ---------- ---------
Total securities...................... $ 130,968 $ 78 $ (5,838) $ 125,208
=============== ========== ========== =========
</TABLE>
The following table presents the amortized cost of securities classified as
held-to-maturity and their approximate fair values at June 30, 2000, and
December 31, 1999:
<TABLE>
<CAPTION>
June 30, 2000
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
----------- ---------- ---------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Government and agency securities.. $ 17,673 $ 0 $ (894) $ 16,779
Mortgage-backed securities............. 93,956 37 (4,179) 89,814
----------- ---------- ---------- --------
Total securities...................... $ 111,629 $ 37 $ (5,073) $106,593
=========== ========== ========== ========
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
December 31, 1999
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
----------- ---------- ---------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Government and agency securities.. $ 17,633 $ 0 $ (812) $ 16,821
Mortgage-backed securities............. 101,490 58 (4,285) 97,263
----------- ---------- ---------- --------
Total securities...................... $ 119,123 $ 58 $ (5,097) $114,084
=========== ========== ========== ========
</TABLE>
U.S. Government and agency securities are primarily securities issued by
the Federal National Mortgage Association (Fannie Mae) ("FNMA"), Federal Home
Loan Bank ("FHLB"), and Federal Home Loan Mortgage Corporation (Freddie Mac)
("FHLMC"). Mortgage-backed securities are securities that have been developed by
pooling a number of real estate mortgages and are principally issued by federal
agencies such as the FNMA, FHLMC and the Governmental National Mortgage
Association (Ginnie Mae) ("GNMA"). These securities have high credit ratings,
and minimum regular monthly cash flows of principal and interest are guaranteed
by the agencies. The Company has no mortgage-backed securities that have been
issued by non-agency entities.
Deposits
Total deposits as of June 30, 2000, were $346.9 million, as compared to
$340.1 million at June 30, 1999, an increase of $6.8 million or 2.0%, resulting
from growth in same location deposits, combined with the additional deposits of
the branch offices. When compared to total deposits of $346.0 million on
December 31, 1999, the amount at June 30, 2000, represents a year-to-date
increase of $900,000.
Non-interest bearing demand deposits at June 30, 2000, were $76.4 million,
as compared to $73.9 million at June 30, 1999, an increase of $2.5 million or
3.4%. When compared to non-interest bearing demand deposits of $74.3 million on
December 31, 1999, the June 30, 2000, amount represents a year-to-date increase
of $2.1 million. The percentage of non-interest bearing deposits to total
deposits as of June 30, 2000, continued strong at 22.0%.
The Bank offers a variety of deposit accounts having a wide range of
interest rates and terms. The Bank's deposits consist of demand, savings, NOW
accounts, money market, and time accounts. The Bank relies primarily on
advertising, competitive pricing policies, and customer service to attract and
retain these deposits. As of June 30, 2000, the Bank had no deposits classified
as brokered funds. Deposits provide generally all the funding for the Bank's
lending and investment activities and the interest paid for deposits must be
managed carefully to control the level of interest expense.
20
<PAGE>
The Bank's ratios of average non-interest bearing deposits to average total
deposits at June 30, 2000, and December 31, 1999, were 22.0%, and 21.1%,
respectively. The daily average balances and weighted average rates paid on
deposits for the six month period ended June 30, 2000 and the year ended
December 31, 1999, are presented below:
Six Months Ended Year Ended
June 30, 2000 December 31, 1999
------------------- -------------------
Amount Rate Amount Rate
-------- ------ --------- ------
(Dollars in thousands)
NOW accounts...................... $ 24,666 2.09% $ 23,540 1.57%
Regular savings................... 7,963 2.11 8,086 1.98
Money Market...................... 92,666 3.97 94,397 3.67
CDs less than $100,000............ 75,235 5.51 79,551 5.16
CDs $100,000 and over............. 48,493 5.76 41,027 5.26
IRAs & QRPs....................... 21,333 5.58 21,643 5.36
-------- ------ --------- ----
Total interest-bearing deposits.. 270,356 4.62 268,244 4.25
Noninterest-bearing deposits...... 76,162 0 71,658 0
-------- ------ --------- ----
Total deposits.................... $346,518 3.61% $ 339,902 3.36%
======== ====== ========= ====
The following table sets forth the maturity and repricing of the Bank's
certificates of deposit that are $100,000 or greater at June 30, 2000, and
December 31, 1999:
June 30, December 31,
2000 1999
------------ ------------
(Dollars in thousands)
3 months or less............. $ 17,832 $ 15,004
Between 3 months and 1 year.. 22,907 21,061
Over 1 year.................. 12,019 10,544
------------ ------------
Total CDs $100,000 and over.. $ 52,758 $ 46,609
============ ============
Borrowings
Other borrowings generally represent borrowings from the FHLB with
maturities ranging from one to thirty days. Information relating to these
borrowings as of June 30, 2000, is summarized as follows:
June 30, December 31,
2000 1999
------------ ------------
(Dollars in thousands)
Other borrowings:
Average................................ $ 37,938 $ 22,637
Period-end............................. 42,100 34,079
Maximum month-end balance during period..
(all FHLB borrowings)................... 42,100 34,079
Interest rate:
Average................................ 5.94% 5.32%
Period-end (weighted average).......... 6.69% 5.30%
At period ending June 30, 2000, the Bank had two separate borrowing
programs in effect. The Bank borrowed $8.0 million with a 10 year stated
maturity and a 5 year lockout. Those borrowings consist of $6.1 million at 5.19%
and $1.9 million at 5.24%. The remaining balance is comprised of short-term
borrowings. See "Capital Resources and Liquidity."
21
<PAGE>
Interest Rate Sensitivity
The Company analyzes its interest rate risk position by use of a simulation
model and shock analysis. As of June 30, 2000, the simulation model indicates
that, in the event of a 200 basis point increase in underlying market interest
rates, the Company's net interest income would decrease 13.4%. Correspondingly,
in the event of a 200 basis point decrease in market interest rates, the
Company's net interest income would increase by 12.4%. The results of this "rate
shock test", which assumes a parallel shift in the yield curve, indicate that
the present mix of interest earning assets and interest-bearing liabilities
should provide reasonable protection from changes in interest rates. However,
because the Company maintains a significant percentage of its assets in
investment securities and a significant portion of its investment securities
consist of fixed rate securities rather than adjustable rate securities, a rapid
increase or decrease in interest rates could have a greater adverse effect on
the Company's net interest margin and results of operation. The simulation model
also provides a detailed interest rate sensitivity gap ("GAP") analysis, which
the Company uses as a secondary source in analyzing its asset/liability mix. At
June 30, 2000, the GAP measurement of interest rate sensitive assets minus
interest rate sensitive liabilities divided by total assets indicates a
cumulative negative GAP of 31.8% through one year and a cumulative positive GAP
of 5.4% for all periods. The Company seeks to maintain the cumulative GAP to
total assets within 35% for one year.
The Company's Investment-Asset/Liability Committee has adopted specific
investment policies directed at reducing the length of maturity of securities
that it purchases and shifting a portion of the securities portfolio to
adjustable rate securities.
Capital Resources and Liquidity
Stockholders' equity increased to $32.5 million at June 30, 2000, from
$29.9 million at December 31, 1999, an increase of $2.6 million or 8.7%. This
increase was attributable to $2.6 million in earnings offset by a net unrealized
loss on securities of $1.1 million and payment of dividends of $1.1 million,
which included quarterly dividends of $0.10 per share for March 31, 2000 and
$0.12 per share for June 30, 2000.
Liquidity involves the Company's ability to raise funds through asset
growth and reduce assets to meet deposit withdrawals and other payment
obligations, to maintain reserve requirements, and to operate the Company on an
ongoing basis. During the six months ended June 30, 2000, the Company's
liquidity needs have primarily been met by growth in deposits and FHLB
borrowings, as previously discussed. The cash position was further supplemented
by the amortization of the securities and loan portfolios. Additionally, access
to borrowed funds from the FHLB were utilized to take advantage of investment
opportunities.
FHLB advances may be utilized from time to time as either a short-term
funding source or a long-term funding source. FHLB advances can be particularly
attractive as a long-term funding source to balance interest rate sensitivity
and reduce interest rate risk. These borrowing programs are available as either
a short-term financing arrangement (usually with maturities ranging from 1-35
days) or as a long-term financing arrangement. Under either of these two
arrangements, the Company is required to hold a certain amount of FHLB stock.
Generally, FHLB borrowings are limited to a maximum of 75% of the Company's 1-4
family mortgage loans before specific collateral is required. A secondary source
of collateral is the delivery of eligible securities. At June 30, 2000, the
Company had approximately $111.0 million in eligible securities maintained in
safekeeping at the FHLB. In addition, the Company may deliver other collateral
which includes credit card and installment loans and is usually assigned a loan-
to-value ratio of approximately 90%. With regards to the above, total advances
are limited to 50% of assets or total eligible collateral, whichever is less.
The Company had total potential borrowings (without purchasing addition stock)
of $8.3 million in addition to the outstanding borrowings at June 30, 2000.
The Bank's risk-based capital ratios remain above the levels designated as
"well capitalized". At June 30, 2000, the Bank's tier I capital to assets, tier
I risk-based capital, and tier I leverage ratios were 8.31%, 16.98% and 8.43%,
respectively.
22
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company's primary market risk exposure is interest rate risk. For
information regarding the interest rate risk exposure of the Company's financial
instruments, see "Management's Discussion and Analysis of Financial Condition
and Results of Operation - Interest Rate Sensitivity" on page 22. The Company's
financial instruments generally are not subject to market risks associated with
foreign currency exchange rate risk, commodity price risk, or other market risks
or price risks (such as equity price risk). The Company did not use derivative
financial instruments (such as futures, forwards, swaps, options, and other
financial instruments with similar characteristics) to manage its interest rate
risk during the quarter ended June 30, 2000.
23
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Bank is a party to miscellaneous legal proceedings, which arose in the
ordinary course of business. While the outcome of these claims cannot be
predicated with certainty, management believes that the ultimate resolution of
these matters will not have a material adverse impact on the Company's financial
condition or results of operation.
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of the Bank was held on May 23, 2000. Two matters
were considered at the meeting.
(a) The following directors were elected to the Board of Directors for
a period of one year.
Votes
-------------------
Directors For Withheld
--------- --- --------
John B. Barnes 3,923,653 22,395
William H. Bruecher, Jr. 3,928,909 26,139
James K. Chancelor 3,933,653 21,395
C. Joe Chapman 3,928,619 26,429
Frank G. Cook 3,930,619 24,429
Robert C. Dawson 3,928,619 26,429
Randall W. Dobbs 3,933,553 21,495
James B. Earthman, III 3,932,653 22,395
Lura M. Griffin 3,929,619 25,429
Alton L. Hollis 3,931,653 23,395
Joseph E. Ives 3,933,653 21,395
Larry L. January 3,932,119 22,929
Albert V. Kochran 3,930,153 24,895
I. W. Marks 3,924,611 30,437
David E. Preng 3,931,119 23,929
Mary A. Walker 3,933,653 21,395
B. Ralph Williams 3,933,119 21,929
(b) Ratification of the appointment of Mann Frankfort Stein & Lipp as
the Bank's independent auditors for the fiscal year ending December 31, 2000 was
also considered and approved with 3,946,337 votes for, 2,031 votes against, and
6,680 abstentions.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. Item
----------- ----
11 Computation of Earnings Per Share (Included as Note (2)
to Interim Consolidated Financial Statements on page 8
of this Form 10-Q)
27 Financial Data Schedule
24
<PAGE>
(b) Reports on Form 8-K.
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
CNBT BANCSHARES, INC.
(Registrant)
By /s/ B. Ralph Williams August 4, 2000
-------------------------------------------- --------------
B. Ralph Williams, President and Chief Date
Executive Officer
By /s/ Randall W. Dobbs August 4, 2000
-------------------------------------------- --------------
Randall W. Dobbs, Executive Vice Date
President/Cashier and Chief Operations
Officer
25
