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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-8937
BancTEXAS Group Inc.
(Exact name of registrant as specified in its charter)
Delaware 75-1604965
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
P. O. Box 802527
Dallas, Texas 75380-2527
(Address of principal executive offices) (Zip Code)
(214) 701-4704
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange on
Title of class which registered
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COMMON STOCK, $.01 PAR VALUE PER SHARE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. /X/
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, based on the closing price of the Common Stock on the New York
Stock Exchange on March 21, 1994, was $29,288,605. For purposes of this
computation, officers, directors and 5% beneficial owners of the registrant are
deemed to be affiliates. Such determination should not be deemed an admission
that such directors, officers or 5% beneficial owners are, in fact, affiliates
of the registrant.
As of March 21, 1994, 19,647,025 shares of the registrant's Common Stock, $.01
par value, were outstanding. Documents incorporated by reference: Portions of
the Annual Report to Stockholders for the year ended December 31, 1993 are
incorporated by reference into Part I and II of this report.
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PART I
ITEM 1. BUSINESS
GENERAL
BancTEXAS Group Inc., a bank holding company headquartered in Dallas,
Texas (herein BTX or the Company), was organized as a Delaware corporation in
1978. The Company's executive office is located at 13747 Montfort Drive,
Dallas, Texas. The principal function of the Company is to assist the
management of its banking subsidiary which is now named BankTEXAS N.A. (herein
the Bank) in asset and liability management, planning, operating policies and
procedures, loan participation, personnel management, internal audit and
control procedures, loan review and regulatory compliance. The Bank operates
under the day-to-day management of its own officers with guidance from BTX.
At December 31, 1993, BTX had, on a consolidated basis, total assets of
$369 million, total deposits of $243 million, total loans of $168 million (net
of unearned income) and total stockholders' equity of $15 million.
For a description of the general business of BTX during the past year, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Introduction" on page 4 of BTX's 1993 Annual Report to
Stockholders, which is incorporated herein by reference.
SIGNIFICANT DEVELOPMENTS IN 1993
The most significant factor affecting the Bank's performance in 1993 was a
significant reduction in the net interest margin earned. For most of the year
the rates paid on deposits were level but the rates earned on loans, especially
in the second half of the year, declined markedly. The principal reason for
this decline is the heightened competition among lenders, principally for
consumer loans, in addition to the decline in rates for mortgage and commercial
loans.
In its continuing efforts to diversify the loan portfolio, the Bank began
to purchase residential mortgage loans which are held for a short period of
time before their sale to permanent investors. In cooperation with a new Texas
firm, the Bank is now making F.H.A. Title One home improvement loans. Both of
these earn a higher rate of interest than the typical loan to purchase a motor
vehicle or watercraft at this time.
In the Fall, the Bank was approved as a member of the Federal Home Loan
Bank of Dallas (the FHLB). In consideration of an investment in stock of the
FHLB, the Bank is entitled to borrow significant sums on both a short-term
basis and long-term basis at favorable rates. With this additional borrowing
capacity, the Bank can leverage its balance sheet, thereby increasing its
earning assets and profits. This strategy should also modestly increase the
net interest margin of the Bank.
In September, the Bank opened its sixth branch location. It is located in
a residential area in North Dallas near the intersection of Abrams and Forest
Roads in a building formerly occupied by another bank. This provides an
opportunity for the Bank to again market its services and products in Dallas
where its predecessor organization started doing business more than a century
ago.
The Company terminated its exposure in two major lawsuits during 1993. In
June, the U.S. Fifth Circuit Court of Appeals upheld the trial court's opinion
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dismissing the class action lawsuit filed after the 1987 restructuring of BTX.
In November, the Company and the remaining plaintiffs in a lawsuit filed in
1986 agreed to a settlement thus ending the claims which had stemmed from a
1984 private placement in which the Company had raised more than $8 million of
new capital. For a full description of this settlement, see "Noninterest
Expense - Litigation Settlement" in Management's Discussion and Analysis of
Financial Condition and Results of Operations, which is incorporated by
reference.
THE BANK SUBSIDIARY
The Company conducts substantially all of its business through its Bank.
The Bank has six branches to serve the public - three are in Houston, one is in
McKinney (the County Seat of Collin County), one in North Dallas, and one is in
Irving (a suburb of Dallas). Prior to May 31, 1992, BTX had two bank
subsidiaries, BancTEXAS Houston N.A. and BancTEXAS McKinney N.A.; on that date
they were merged and renamed BankTEXAS N.A. The purpose of this merger was to
increase operating efficiencies and reduce the cost of operation since several
functions could be combined without decreasing the level of service offered to
customers.
At December 31, 1993 the Bank's capital ratios were: leverage ratio of
4.55%; ratio of Tier I capital to risk-based assets of 7.30%; and ratio of
total capital to risk-based assets of 8.55%. At December 31, 1993, the Bank
had total assets of $355 million, total deposits of $243 million, total loans
of $167 million (net of unearned income) and stockholders' equity of $15
million.
BANKING SERVICES. The Bank is engaged in a variety of commercial and
personal banking activities for customers in its market areas, including the
acceptance of deposits for checking, savings and time deposit accounts, the
making of secured and unsecured loans to corporations, individuals and others,
the issuance of charge cards, the rental of safe deposit boxes, the sale of
annuities and mutual funds, and the rendering of investment and financial
counsel to customers. The Bank also offers special services through its Club
55 (for persons 55 years of age or older) and its Payday Club (for individuals
employed by several larger corporations in the Bank's market areas).
CONSUMER LENDING. The Bank began a program of purchasing automobile loans
from new car dealers in 1988 and subsequently enhanced this program by making
loans directly to consumers to purchase new and used motor vehicles. This has
been a major source of new business activity in the past six years. In 1990,
programs were begun whereby loans are made to consumers in order to enable them
to purchase marine products and to make improvements to their primary
residences. In 1991, credit card lines were again offered to bank customers.
Early in 1994, the Bank began to purchase home improvement loans made under the
FHA Title One Program. In 1994, it is anticipated that these consumer product
lines will again generate a substantial volume of new loans, since these
currently represent approximately 80% of the loans on the Bank's books.
REAL ESTATE LOANS. The Bank makes construction and real estate
development loans, as well as other loans secured by nonresidential real
estate. In 1991, the Bank commenced a program emphasizing the making of
interim construction loans secured by first liens on residential real estate.
In 1993, the Bank began to purchase single family mortgage loans with the
intent to hold these for resale. It is anticipated that this program will be
expanded in 1994. Home equity loans are prohibited under Texas law.
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SUPERVISION AND REGULATION
The following discussion of statutes and regulations affecting bank
holding companies and banks is only a summary and does not purport to be
complete. This discussion is qualified in its entirety by reference to such
statutes and regulations.
BTX and the Bank
BTX is a registered bank holding company pursuant to the Bank Holding
Company Act of 1956, as amended (the "Bank Holding Company Act") and, as such,
is subject to regulation and examination by the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"). It is required to file
with the Federal Reserve Board annual reports and other information regarding
its business operations and those of its subsidiaries. The Federal Reserve
Board has asserted the authority under the Bank Holding Company Act to require
a bank holding company such as BTX to provide capital to an undercapitalized
subsidiary bank, and legislation enacted in 1991 contains provisions having a
similar effect. Furthermore, the Bank Holding Company Act and the regulations
thereunder limit acquisitions by a bank holding company of 5% or more of the
voting shares of additional banks and companies in other businesses, and often
require prior regulatory approval for those acquisitions which are permitted.
A bank holding company is generally prohibited from acquiring any company
unless its business is determined by the Federal Reserve Board to be so closely
related to banking as to be a proper incident thereto.
BTX is also subject to periodic examinations conducted to determine its
compliance with applicable statutes and regulations, its financial condition,
and other aspects of its operations. These examinations are conducted by the
Federal Reserve Bank of Dallas on behalf of the Federal Reserve Board.
The Federal Reserve Act imposes restrictions on loans and other
transactions between the Bank and BTX or any of BTX's other subsidiaries.
These restrictions require, among other things, that all transactions between
the Bank and the Company or its nonbank subsidiaries be on substantially
similar terms as comparable transactions between the Bank and nonaffiliated
enterprises. BTX is also subject to certain restrictions with respect to
engaging in the securities business and in businesses not deemed "closely
related" to banking.
The Bank is chartered under the National Bank Act of 1864, and it is
subject to regulation, supervision and examination by the Comptroller of the
Currency and to regulations promulgated by both the Federal Reserve Board and
the FDIC. The FDIC insures all deposits held by the Bank up to, in general, a
maximum of $100,000 for each insured depositor.
The operations of the Bank are also subject to numerous laws and
regulations relating to the extension of credit and making of loans to
individuals. Such laws include the Federal Consumer Credit Protection Act,
which regulates, among other things, disclosure of credit terms, credit
advertising, credit billing and collection, and expansion of credit, and the
Texas Consumer Credit Code and Texas Consumer Protection Code, which regulate,
among other things, interest rates, disclosure of credit terms and practices
relating to the extension and collection of loans. In addition, remedies to
the borrower and penalties to the lender are provided for failure of the lender
to comply with such laws and regulations. The scope and requirements of such
laws and regulations have been expanded significantly in recent years.
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The enactment of two recent federal statutes, the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 ("FIRREA") and the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"), has significantly
affected the banking industry generally and will have an ongoing effect on both
BTX and the Bank in the foreseeable future.
FIRREA restructured both the deposit insurance system and the regulation
of savings institutions, and it contains numerous provisions affecting banks.
This legislation also includes several provisions that relate to bank holding
companies including those described herein and numerous other provisions.
Among the more significant of the changes, the Bank Insurance Fund of the FDIC
was established to insure bank deposits, and the FDIC has increased the
premiums which must be paid by banks over the next several years. FIRREA also
provides for cross-guarantees for commonly controlled banks and thrifts. If
the FDIC incurs a loss in connection with the default of an insured bank or
thrift, any other commonly controlled depository institution may be required to
reimburse the FDIC for the loss. Other important changes in banking law and
regulation made by FIRREA include enhanced supervisory and enforcement powers
for the federal banking regulatory agencies, creation of the Resolution Trust
Corporation to dispose of failed savings institutions and their assets, and
broadened authority for bank holding companies to acquire savings institutions.
FDICIA increased the resources available to the FDIC for the resolution of
bank failures and imposed substantial new supervisory and regulatory measures
on the banking industry, particularly troubled banks. It also added
substantial new enforcement mechanisms for financial institutions which do not
meet capital levels specified in regulations adopted pursuant to FDICIA.
FDICIA required the three federal bank regulatory agencies to establish
five classifications for insured depository institutions, ranging from "well
capitalized" to "critically undercapitalized", based primarily on leverage and
risk-based capital requirements for institutions within the agencies'
respective jurisdictions. The regulatory agencies are authorized, in their
discretion, to establish additional capital requirements as to particular
institutions.
Any institution not meeting applicable capital requirements is deemed
"undercapitalized" and the institution's primary regulator could determine that
at a particular lower level of capital, an institution is "significantly
undercapitalized." An institution would be "critically undercapitalized" if
its capital falls below the "critical capital level," defined in regulations
adopted in 1992 within certain parameters set in the 1991 Act. The "critical"
capital level must require institutions to maintain a ratio of at least 2% Tier
I capital to assets, but the ratio established as a critical capital level may
not exceed 65% of the leverage capital requirement applicable to the
institution, except that an institution could be treated as critically
undercapitalized at a higher capital level if it is determined to be in an
unsafe or unsound condition.
If the Bank were to fail to maintain the level of capital required under
the leverage or risk-based standards or under any new standards which might be
adopted, it would be considered to be "undercapitalized" and subject to certain
sanctions described below.
FDICIA provides that an undercapitalized institution will be required to
submit to the appropriate regulatory agency a capital restoration plan and
will be subject to restrictions on operations, including prohibitions on
branching, engaging in new activities, paying management fees, making capital
distributions such as dividends, and increasing its assets and liabilities,
without regulatory approval. Moreover, a company controlling an
undercapitalized depository
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institution will be required to guarantee its subsidiaries' compliance with the
capital restoration plan up to an amount equal to the lesser of 5% of such an
institution's assets or the amount of the capital deficiency when such an
institution first fails to meet the plan. Restrictions on loans to
undercapitalized institutions from the Federal Reserve Banks also apply.
Significantly or critically undercapitalized institutions and
undercapitalized institutions that do not submit and comply with capital
restoration plans acceptable to the applicable regulatory agency will be
subject to numerous potential restrictions on their operations and intervention
in their management decisions by applicable regulatory agencies, as well as
limitations on compensation of senior officers. In addition to the foregoing,
a critically undercapitalized institution would be subjected to more severe
restrictions and supervision. FDICIA further requires the appointment of a
conservator or receiver within 90 days after an institution becomes critically
undercapitalized.
The regulatory agencies are also required to adopt uniform capital and
accounting rules requiring, where practicable, supplemental disclosure of
"mark-to-market" valuation of assets and liabilities and of contingent assets
and liabilities. The FDIC is required to develop deposit insurance premiums
which are based on the level of risk determined by the regulatory agencies to
be present in particular institutions, as discussed further below under "FDIC
Insurance Premiums."
FDICIA also provides for numerous other regulatory changes, including
expanded roles for audit committees and independent auditors, particularly in
larger financial institutions; additional regulatory reporting; consumer low-
and moderate-income lending and deposit programs; and periodic review and
updating of applicable standards. In addition, the FDIC was granted new
authority to adopt minimum standards for various aspects of the operations of
depository institutions, including asset quality, earnings, compensation
arrangements and other matters. Pursuant to this authority, the FDIC may
consider adopting proposals which could significantly influence the banking
industry, although the impact of these proposals is expected to be most severe
on institutions which fail to meet applicable capital requirements or are
otherwise regarded by regulatory agencies as in an unsatisfactory condition.
Regulations Governing Capital
Both BTX and the Bank are subject to risk-based and leverage capital
requirements, which are administered, respectively, by the Federal Reserve
Board and the OCC.
See Management's Discussion and Analysis of Financial Condition and
Results of Operations - Capital Resources" on page 22 of BTX's 1993 Annual
Report to Stockholders, which is incorporated herein by reference.
FDIC Insurance Premiums
The Bank and the industry as a whole are subject to increased FDIC deposit
insurance premiums. Effective July 1, 1991, the FDIC increased deposit
insurance premiums to 23 cents per $100 of deposits from 19.5 cents in the
first half of 1991, 12.0 cents in 1990 and 8.3 cents prior thereto. Under
FIRREA, the FDIC is authorized to charge varying premiums to different
categories of banks depending on risk assessment factors (particularly capital
ratios) and to set the annual premiums for depository institutions as high as
determined necessary to assure stability of the insurance fund, thus
eliminating the maximum annual increase of 7.5 cents and the prior overall cap
of 32.5 cents per $100 of deposits. The
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deposit insurance premium rate currently paid by the Bank is 29 cents per $100
of deposits. Until this rate is lowered, the Bank's earnings will be adversely
affected as compared with banks having lower premium rates.
Acquisitions and Branch Banking; Community Reinvestment Act Requirements
Since 1988 both commercial banks and savings institutions have had
unlimited branch banking privileges in Texas, subject to the prior approval of
an institution's primary federal and/or state regulatory authority. As a
result, acquisitions of banks by other banks or bank holding companies are
frequently structured so as to eliminate the separate bank charters of acquired
banks, converting some or all of them into branch banks; furthermore, banking
organizations operating in Texas now have the option of opening additional
branch offices as an alternative to acquiring additional banks, thrift
institutions or holding companies.
Proposals to revise the Community Reinvestment Act ("CRA"), which imposes
requirements on insured financial institutions with respect to lending to
members of low- and moderate-income groups within their respective service
areas, are likely to be a focal point of both legislative and regulatory
attention in the next few years. The Clinton Administration has requested that
the four bank and thrift regulatory agencies adopt new requirements, and
proposed new rules have recently been published for comment by the four
agencies.
Traditionally, issues under CRA have been emphasized during regulatory
consideration of bank acquisition transactions and attempts to establish new
branch offices, and the regulatory agencies have within the past year more
frequently required acquiring institutions to make commitments with regard to
low-income and minority lending and/or investment as part of the process of
obtaining necessary regulatory approvals. In certain cases, regulatory
approval of a proposed transaction has been denied based upon an unsatisfactory
rating of the acquirer under CRA.
The Comptroller of the Currency announced in 1993 a major revision of the
CRA regulations applicable to all national banks. Although it is not possible
to predict the exact form of the changes which will be made, it is widely
expected that all banks and thrift institutions will be required to comply with
more stringent and possibly more expensive requirements in this area. These
changes may impede or change the process by which an institution such as the
Bank is able to grow through acquisition and/or opening new branch offices, and
they could also affect any possible acquisition by BTX and the Bank.
Interstate Banking
As a result of a 1989 amendment to the Texas Banking Code and in
conjunction with the Bank Holding Company Act, BTX is now legally able to
acquire or establish banks in any state of the United States if that state's
laws permit the acquisition or establishment of such banks. However, the Board
of Directors has not at this time made any plans to acquire or establish banks
in any state other than Texas.
Proposals to greatly expand the powers of financial institutions to
operate on a nationwide basis, removing most of the existing restrictions, have
been debated but not yet enacted by Congress. Congress is currently
considering such a proposal, which has been approved by committees in both the
U.S. Senate and the
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House of Representatives and is reported to have substantial support. It is
not possible to predict the terms of such legislation, if enacted, or its
effect on BTX or the Bank.
Usury Laws
The maximum legal rate of interest that a bank may charge on a loan
depends on a variety of factors such as the type of borrower, purpose of the
loan, amount of the loan, and date that the loan is made. There are several
different state and federal statutes that set maximum legal rates of interest
for various lending situations. If a loan qualifies under more than one
statute, a bank may often charge the highest rate for which the loan is
eligible.
Certain federal statutes partially preempt state usury laws. They remove,
among other things, the state usury limitations on certain first lien
residential real property loans made by certain federally related lenders
including the Bank. Usury law interest ceilings can have substantial adverse
effects on a bank's ability to lend money at profitable rates in periods when
interest rates and costs of funds to the bank are high, both in absolute terms
and relative to competitors. Moreover, because some competitors of the Bank
are located outside of Texas and are subject to more favorable interest rate
regulation or no interest rate regulation at all, they may be able to lend
funds to potential customers of the Bank at higher rates of interest.
Environmental Laws
Many federal, state and local governmental authorities have enacted or
adopted provisions regulating the discharge of materials into the environment
and otherwise relating to the protection of the environment. In this regard,
under the Comprehensive Environmental Response Compensation and Liability Act
and under other laws enacted by various states and other governmental
authorities, the costs of the clean-up of hazardous substances can be
recovered. These laws have greatly expanded the potential liability of banks
for hazardous waste clean-up costs. Management evaluates the potential
liability of the Bank when considering a loan and before any action is taken to
foreclose on a property. The Bank believes that it has not violated any
provisions regulating the discharge of materials into the environment, and no
capital expenditures are planned for environmental control facilities. Neither
BTX nor the Bank has been notified that it is liable for any hazardous
substance clean-up costs.
Proposed Legislation
Numerous other legislative proposals affecting the banking industry have
been proposed from time to time. Such proposals include: nationwide branching
by all categories of depository institutions; limitations on investments that
an institution may make with insured funds and on permissible activities of
such institutions; regulation of all insured depository institutions by a
single regulatory agency or a reduction in the number of separate bank
regulatory agencies; permitting ownership of banks by commercial enterprises;
limitations on the number of accounts protected by the federal deposit
insurance funds; reduction of the $100,000 coverage limit on deposits; and
changes in the duties of depository institutions under community reinvestment
laws. Any such proposals, if enacted, could materially affect the Company and
the Bank by changing the regulatory environment in which they operate and/or by
increasing competition for banking and financial services. It is uncertain
which, if any, of the proposals may ultimately become law.
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Other Regulations
In addition to the foregoing requirements, the OCC and the other federal
bank regulatory agencies have very broad authority in supervising numerous
aspects of the business of both BTX and the Bank. If BTX or the Bank were to
become unable to meet applicable capital requirements or the requirements of
other regulations, one or more of the federal bank regulatory agencies would
have the authority to take additional supervisory actions or impose sanctions
or operational and reporting requirements, some of which could adversely affect
the ability of BTX and the Bank to operate profitably.
GOVERNMENT FISCAL AND MONETARY POLICIES
The commercial banking business is affected not only by general economic
conditions but also by the monetary policies of the Federal Reserve Board.
Some of the instruments of monetary policy available to the Federal Reserve
Board are changes in the discount rate on member bank borrowings, the
availability of borrowings at the "discount window", open market operations,
the imposition of and changes in reserve requirements against certain
borrowings by banks and their affiliates, and the placing of limits on
interest rates that member banks may pay on time and savings deposits. These
policies influence, to a significant extent, the overall growth of bank loans,
investments and deposits and the interest rates charged on loans or paid on
time and savings deposits.
In the past, the monetary policies of the Federal Reserve Board have had a
significant effect on the operating results of commercial banks and, therefore,
bank holding companies. Such policies are expected to continue to have a
significant effect in the future. The effect, if any, of such policies on the
future business and earnings of the Company and the Bank cannot be predicted.
THE TEXAS ECONOMY AND BANKING INDUSTRY
The banking industry and BTX are affected by general economic conditions,
at both the national and state levels, such as inflation, recession,
unemployment and numerous other factors beyond the Company's control. For a
number of years, beginning in 1985, the Texas economy passed through a severe
decline, especially in the energy and real estate sectors. All banks in Texas
faced the results of the general economic downturn that affected the state and
its businesses. Many of these banks were so severely affected by the
significant increase in the nonperforming loans caused by this downturn that
they failed. As a result, the federal regulators caused or assisted other
larger banking institutions, many of them headquartered outside of Texas, to
acquire the failed banks. This has markedly changed the nature of the banking
industry in Texas after 1987 from a system made up of more than 1,000 unit
banks, many of which were small and geared to serving a limited geographic
market, to today's structure which has five or six "giants", each of which
operates 50 to 300 branches, plus a small tier of banks having less than $1
billion of assets and approximately 600 small community banks each with total
assets of less than $100 million.
In 1993, several signs of economic improvement were noted in Texas as the
unemployment rate and the number of bankruptcies and foreclosures began to
decline. In addition, consumer loan demand remained strong. Prices for many
types of real estate appear to have finally stabilized; others continue to lose
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value as a result of pressures generated as the federal regulators continue to
sell the numerous parcels of real estate which they had acquired from failed
financial institutions. Vacancy rates for office space in Texas are some of
the highest in the nation. Although improving, the oil and gas industry
continues to suffer because of the lack of a comprehensive "National Energy
Policy." The defense industry in Texas which has suffered cutbacks recently
appears likely to see additional budget trimming in the future. For several
years Texas has experienced a diversification in its economy as technology
firms have expanded or established new plants. Cutbacks in government spending
such as the cancellation of the Super Collider project have dampened the
recovery. In general, the Texas economy appears to be slowly improving,
somewhat paralleling the national economy.
The management of the Company is cautiously optimistic that economic
conditions in Texas in 1994 are more likely to improve than to worsen.
COMPETITION
The Company and the Bank operate in an environment that has become
increasingly competitive in recent years. In the past few years other
financial institutions not subject to the same regulatory restrictions as banks
have begun to compete more vigorously for a share of the market. In Texas,
thrift institutions have been allowed to establish statewide branch offices to
take deposits, while banks were not granted the ability to establish branch
offices until 1988. In the past five years, large bank holding companies
headquartered outside of Texas have acquired the assets of numerous sizeable
Texas banks and thrifts, sometimes with financial assistance from the FDIC.
These institutions have numerous advantages, including but not limited to
larger capital resources, that the Company does not have.
The Bank competes actively in the Houston, Dallas, and McKinney markets
with other commercial banks located in Texas, and Texas-based offices of major
money market center banks for various types of deposits, loans, and other
financial services. In addition, in the conduct of certain aspects of its
banking business, the Bank competes with insurance companies, savings and loan
associations, credit unions, captive finance companies owned by motor vehicle
manufacturers, leasing companies, mortgage companies, certain governmental
agencies and other financial services companies. Many of the banks and other
financial institutions with which the Bank competes have capital resources and
legal loan limits substantially in excess of the capital resources and legal
loan limits of the Bank.
EMPLOYMENT
On March 15, 1994, the Company and the Bank employed 170 persons, none of
whom are covered by a collective bargaining agreement. The Company and the
Bank consider their respective employee relations to be good.
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ITEM 2. PROPERTIES
The Company currently conducts its business from leased offices located at
13747 Montfort Drive, Dallas, Texas which contain approximately 16,000 square
feet. The Bank occupies six branch locations. The Bank owns four banking
facilities. The first located at 321 North Central Expressway in the City of
McKinney contains 51,216 square feet, 10,751 square feet of which is occupied
by the Bank and the remainder is leased to unrelated parties. The second
located at 2010 North Main Street in the City of Houston contains 17,061 square
feet all of which is occupied by the Bank. The third located at 2101 Gateway
Drive in the City of Irving contains 7,784 square feet all of which is occupied
by the Bank. The fourth located at 8820 Westheimer Road in the City of Houston
contains 30,444 square feet all of which is occupied by the Bank. The Bank
leases its two remaining locations: the Allen Parkway Branch in the City of
Houston in a multistory office building at 2929 Allen Parkway where it occupies
4,922 square feet and a free-standing building containing 5,568 square feet
located at 9605 Abrams Road in the City of Dallas. The Bank leases additional
tracts of land used for parking and drive-in facilities. The Company believes
that these premises are adequate for its present operations.
Aggregate annual rental payments (net of rental income received by BTX and
the Bank) for all premises during the fiscal year ended December 31, 1993 was
$142,271.
ITEM 3. LEGAL PROCEEDINGS
In addition to the pending litigation described in Note 16 to the
consolidated financial statements contained in BancTEXAS Group Inc.'s 1993
Annual Report to Stockholders, which is incorporated herein by reference, there
are various other claims and pending actions against BTX and the Bank, which
are routine and incidental to their businesses, with regard to matters arising
out of the conduct of their businesses, including a number of lender liability
claims filed against the Bank in defense of suits brought by the Bank to
collect loans and otherwise enforce their rights under loan documents.
Nevertheless, it is the opinion of management of BTX that the ultimate
liability, if any, resulting from such claims and pending actions will not have
a material adverse effect on the financial position, results of operations or
liquidity of BTX.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
BTX has one class of stock, its common stock par value $.01 per share (the
"Common Stock"). The Common Stock is listed on the New York Stock Exchange
(NYSE) under the symbol "BTX". Continued listing on the NYSE of the Common
Stock is subject, among other things, to the financial eligibility and
distribution requirements of the NYSE. Set forth below are the closing high
and low sale prices for the Common Stock on the NYSE as reported by the NYSE
Composite Transactions Tape during the calendar periods indicated. These
prices are in dollars and are recorded to the nearest 1/16.
<TABLE>
<CAPTION>
High Low
------- --------
<S> <C> <C>
1992:
1st Quarter............................. $ 2 7/8 $ 7/16
2nd Quarter............................. 2 3/4 1 3/4
3rd Quarter............................. 2 1/8 1 3/8
4th Quarter............................. 1 7/8 1 1/4
1993:
1st Quarter............................. 2 7/8 1 3/4
2nd Quarter............................. 2 1/2 1 7/8
3rd Quarter............................. 2 1 1/2
4th Quarter............................. 1 3/4 1 1/4
1994:
January 1, 1994 to March 18, 1994....... 1 3/4 1 3/8
</TABLE>
STOCKHOLDERS
There were approximately 6,200 holders of record of Common Stock as of
March 1, 1994. This number does not include individual participants in
security position listings such as those held by clearing agencies.
DIVIDENDS
In January 1985, the Board of Directors of BTX suspended payment of the
quarterly dividends on the Common Stock. As a bank holding company, BTX's
ability to pay dividends is a function of regulatory requirements and the
dividend payments received by it from the Bank. The Company is currently
restricted from paying any dividends due to a deficiency in retained earnings
and pursuant to the FDIC Agreement. See "Item 1. BUSINESS -- Significant
Developments in 1993."
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated herein by reference
from Table 1 on page 5 of BTX's 1993 Annual Report to Stockholders
"Management's Discussion and Analysis of Financial and Results of Operations"
under the caption "Results of Operations."
11
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is incorporated herein by reference
from pages 4 through 27 of BTX's 1993 Annual Report to Stockholders under the
caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated herein by reference
from pages 29 through 60 of BTX's 1993 Annual Report to Stockholders under the
captions "Consolidated Balance Sheets," "Consolidated Statements of
Operations," "Consolidated Statements of Changes in Stockholders' Equity,"
"Consolidated Statements of Cash Flows," "Notes to Consolidated Financial
Statements," "Independent Auditors' Report" and "Quarterly Consolidated
Statements of Operations."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
BOARD OF DIRECTORS
Each member of the Board of Directors serves until the next Annual Meeting
of Stockholders or until his successor has been duly elected and qualified.
The Board of Directors of BTX as of March 15, 1994 was as follows:
Richard L. Brown, 55, has been the President and Chief Executive Officer
of Houston General Insurance Group Inc. in Fort Worth, Texas since 1986.
Mr. Brown has served as a director of BTX since July 1987.
Nathan C. Collins, 59, was elected Chairman of the Board, President and
Chief Executive Officer of BTX effective November 1, 1987. Prior to that time,
Mr. Collins served in various executive capacities with Valley National Bank of
Arizona, including Executive Vice President, Manager of Asset/Liability
Management Group and Senior Credit Officer. Mr. Collins has served as a
director of BTX since November 1987.
Charles A. Crocco, Jr., 55, has been a partner in the law firm of Lunney,
Crocco, DeMaio & Camardella, P.C., in New York City since 1968. He is a
director of The Hallwood Group Incorporated (merchant banking) since January
1981 and a director of Showbiz Pizza Time, Inc. (restaurant chain) since
January 1988. Mr. Crocco has served as a director of BTX since April 1988.
Joseph J. Leszczynski, 62, has been Chairman of the Board of T.E.L.
Associates, Inc. (management consulting) since December 1990; from April 1986
until December 1990 he was the Chairman of the Board and Chief Executive
Officer of Optic-Electronics Corporation (night vision devices).
Mr. Leszczynski has served as a director of BTX since July 1987.
12
<PAGE> 14
Thomas A. Stanzel, 64, who lives in Dallas, Texas is a private investor.
Mr. Stanzel has served as a director of BTX since July 1987.
Edward T. Story, Jr., 50, is President and Chief Executive Officer of SOCO
International, Inc., a majority-owned subsidiary of Snyder Oil Corporation,
engaged in international oil and gas operations since August 1991; from August
1990 until August 1991, he was Chairman of Thaitex Petroleum Company (oil and
gas exploration and production); from August 1981 to August 1990, he was Vice
Chairman and Chief Financial Officer of Conquest Exploration Company (oil and
gas exploration and production). He has served as a director of Hi-Lo
Automotive, Inc. (auto parts) since 1987. Mr. Story has served as a director
of BTX since July 1987.
EXECUTIVE OFFICERS
The executive officers of the Company as of March 15, 1994, were as
follows:
Nathan C. Collins, 59, was elected Chairman of the Board, President and
Chief Executive Officer of the Company effective November 1, 1987. Since
November 1987, Mr. Collins has served as Chairman of the Board of the Bank and
its predecessors. In April 1992 he was elected President and Chief Executive
Officer of the Bank. Prior to 1987, Mr. Collins served as an executive officer
of Valley National Bank of Arizona for more than ten years.
Richard H. Braucher, 57, was elected Senior Vice President of the Company
in July 1981. Prior to that time, Mr. Braucher served as a Vice President of
the Company in addition to his present role as both General Counsel to and
Secretary of the Company and the Bank. Mr. Braucher has been with the Company
since 1979.
D. Kert Moore, 46, joined the Company in January 1983. Mr. Moore served
as Senior Vice President, Controller and Cashier of BancTEXAS Dallas from
October 1985 until January 1990. Mr. Moore was elected Controller, Treasurer
and Chief Accounting Officer of BancTEXAS Group in February 1990. He was
elected Chief Financial Officer of BTX in April 1992. He has also served as
Senior Vice President and Controller of the Bank since 1990 and was elected
Chief Financial Officer and Cashier of the Bank in April 1992.
SENIOR MANAGEMENT
The senior management of the Bank as of March 15, 1994, included:
Nathan C. Collins, 59, was elected Chairman of the Board of the Bank (and
its predecessors) in November 1987. In April 1992 he was elected President and
Chief Executive Officer of the Bank.
David F. Weaver, 46, served as President and Chief Executive Officer of
BancTEXAS Houston N.A. from January 1988 until April 1992. In April 1992 he
was elected a Regional President of the Bank. Prior to 1988, Mr. Weaver served
as an executive officer of Valley National Bank of Arizona for more than ten
years.
Allen R. Sanderson, 41, served as President and Chief Executive Officer of
BancTEXAS McKinney from September 1990 until April 1992. In April 1992 he was
elected a Regional President of the Bank. Mr. Sanderson was a Vice President of
Hibernia National Bank in Texas from January 1990 to September 1990 and a Vice
President of BancTEXAS Dallas from September 1988 to January 1990.
13
<PAGE> 15
Kathryn Aderman, 48, joined BTX in February 1991 as Vice President for
Administration of the Bank. She was elected to the additional position of
Director of Human Resources of the Bank in October 1991. Prior to joining the
Bank, she was employed in various capacities by Team Bank, Houston and its
predecessors for 17 years.
Richard H. Braucher, 57, was elected a Senior Vice President of the Bank
in 1981. He has also served as General Counsel to and Secretary of the Bank
since 1979.
Jerry V. Garrett, 53, joined BTX in April 1988 as Senior Vice President
for Consumer Lending and held that title until March 1992. He has served since
April 1988 as President of BancTEXAS Services Inc. (which is now a subsidiary
of the Bank) and since February 1990 as a Senior Vice President of the Bank in
charge of consumer lending.
Patrick H. Hazelip, 35, joined BTX in June 1986. He served as Director of
Audit from June 1986 until August 1990. From August 1990 until March 1992 he
served as Vice President and General Auditor of the Company. In March 1992 he
was elected Vice President and General Auditor of the Bank.
Dennis J. Lewis, 42, joined BTX in March 1989. From March 1989 until
February 1992 he was a Senior Vice President of BTX. He was elected a Senior
Vice President of the Bank in charge of operations in March 1992. Since March
1989 he has been Executive Vice President of BancTEXAS Services Inc. Prior to
that time, Mr. Lewis was a Vice President of First City Savings Association
from March 1988 to March 1989.
D. Kert Moore, 46, has served as a Senior Vice President and Controller of
the Bank and its predecessors since 1985. He has also served as Chief
Financial Officer and Cashier of the Bank since April 1992.
James W. Parmley, 51, joined the Bank in May 1988 as Vice President and
Manager of Dealer Finance. In July 1990 he was also named Manager of Consumer
Lending.
John G. Sprengle, 36, joined BancTEXAS Dallas as a Vice President in
January 1988 and served in that position until January 1990. Mr. Sprengle
served as a Senior Vice President and Chief Credit Officer of the Company from
February 1990 until December 1991. He has served as a Senior Vice President
and Chief Credit Officer of the Bank since February 1990.
Roger M. Storkamp, 46, joined BTX in October 1987. From October 1987
until February 1989, he was a Vice President of BancTEXAS Dallas. From
February 1989 until February 1990, he served as Vice President and Manager of
Commercial Loan Operations for BancTEXAS Services. Mr. Storkamp served as
Senior Vice President - Loan Review of the Company from February 1990 until
December 1991. He has served as a Senior Vice President of the Bank since
January 1992.
FAMILY RELATIONSHIPS
There is no family relationship between any of the directors and any
executive officer of BTX or its subsidiaries.
14
<PAGE> 16
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
earned during the year ended December 31, 1993, and specified information with
respect to the two preceding years, to the chief executive officer and each of
the four other most highly compensated executive officers of BTX, as determined
based upon salary and bonus earned during 1993.
SUMMARY COMPENSATION TABLE FOR YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Long-Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
----------------------------------------- -----------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Securities
Other Underlying
Name and Annual Restricted Options/ LTIP All Other
Principal Salary Bonus Compensation Stock Award(s) SARs Payouts Compensation
Position Year ($) ($) ($)(1) ($) (#) ($) ($)(2)
- --------- ---- ------- ------ ------------ ------------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nathan C. 1993 250,000 -0- N/A none none none 899
Collins,
Chairman 1992 250,000 23,200 N/A none none none 1,000
of the Board,
President & 1991 250,000 25,000 N/A none none none N/A
Chief Executive
Officer of BTX
David F. 1993 107,500 -0- N/A none none none 840
Weaver,
Regional 1992 107,500 10,750 N/A none none none 2,942
President -
South of 1991 107,500 10,750 N/A none none none N/A
BankTEXAS N.A.
Richard H. 1993 91,800 -0- N/A none none none 459
Braucher,
Senior Vice 1992 91,800 9,180 N/A none none none -0-
President,
Secretary & 1991 91,800 9,180 N/A none none none N/A
General
Counsel of BTX
Jerry V. 1993 90,000 5,000 N/A none none none 473
Garrett,
Senior Vice 1992 90,000 9,000 N/A none none none 900
President -
Consumer 1991 90,000 9,000 N/A none none none N/A
Lending of
BankTEXAS N.A.
John G. 1993 84,500 -0- N/A none none none 899
Sprengle,
Senior Vice 1992 84,500 8,450 N/A none none none 1,743
President &
Chief Credit 1991 84,500 8,450 N/A none none none N/A
Officer of
BankTEXAS N.A.
</TABLE>
____________________
(1) No response is required for years prior to 1992. For 1993 the total
of all other annual compensation for each of the named officers is less than
the amount required to be reported, which is the lesser of (a) $50,000 or (b)
ten percent (10%) of the total of the annual salary and bonus paid to that
person in 1993.
(2) No response is required for years prior to 1992. All items reported
are BTX's matching contribution to the 401(k) Plan for the year indicated
except that in 1992 the total for Mr. Weaver is comprised of $1,592 as
relocation assistance to cover mortgage rate differential and $1,350 as BTX's
contribution to the 401(k) Plan.
15
<PAGE> 17
OPTION GRANTS DURING 1993
The following table is for the purpose of providing information pertaining
to options granted, if any, to each of the named executive officers during the
year ended December 31, 1993.
OPTION/SAR GRANTS TABLE
<TABLE>
<CAPTION>
Options/SAR Grants in Fiscal Year Ended 12-31-93
------------------------------------------------
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price Alternative to (f)
Appreciation for and (g): Grant
Individual Grants Option Term Date Value
------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h)
Number of % of Total
Securities Options/
Underlying SARs
Name Options/ Granted to Exercise
and SARs Employees or Base
Principal Granted in Fiscal Price Expiration Grant Date Present
Position (#) Year ($/Sh) Date 5% ($) 10% ($) Value ($)
- --------- --------- --------- -------- ---------- ------ ------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Nathan C. none
Collins,
Chairman
of the Board,
President &
Chief Executive
Officer of BTX
David F. none BECAUSE THERE WERE NO STOCK
Weaver,
Regional OPTIONS GRANTED DURING 1993
President -
South THERE IS NO DATA TO BE
BankTEXAS N.A.
DISCLOSED IN THIS TABLE.
Richard H. none
Braucher,
Senior Vice
President,
Secretary &
General
Counsel of BTX
Jerry V. none
Garrett,
Senior Vice
President -
Consumer
Lending of
BankTEXAS N.A.
John G. none
Sprengle,
Senior Vice
President &
Chief Credit
Officer of
BankTEXAS N.A.
</TABLE>
16
<PAGE> 18
OPTION EXERCISES DURING 1993 AND YEAR-END OPTION VALUES
The following table indicates the number of options, if any, exercised by
the named executive officers during the year ended December 31, 1993 and the
number and value of options held as of December 31, 1993. BTX does not have
any outstanding stock appreciation rights.
OPTION EXERCISES AND YEAR-END VALUE TABLE
<TABLE>
<CAPTION>
Aggregated Option Exercises in Fiscal Year Ended 12-31-93, and FY-End Option Value
----------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of Value of Unexercised
Unexercised In-the-Money
Options at Options at
Name and FY-End (#) FY-End ($)
Principal Shares Acquired Value Realized Exercisable/ Exercisable/
Position on Exercise (#) ($)(1) Unexercisable Unexercisable
- --------- --------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Nathan C. 100,000 $125,000 900,000 shares $1,237,500
Collins, exercisable/
Chairman none -
of the Board, unexercisable
President &
Chief Executive
Officer of BTX
David F. none none 75,000 shares $103,125
Weaver, exercisable/
Regional none -
President - unexercisable
South
BankTEXAS N.A.
Richard H. 25,000 $50,000 50,000 shares $68,750
Braucher, exercisable
Senior Vice none -
President, unexercisable
Secretary &
General
Counsel of BTX
Jerry V. 30,000 $33,750 45,000 shares $61,875
Garrett, exercisable
Senior Vice none -
President - unexercisable
Consumer
Lending of
BankTEXAS N.A.
John G. 14,000 $35,000 61,000 shares $83,875
Sprengle, exercisable
Senior Vice none -
President & unexercisable
Chief Credit
Officer of
BankTEXAS N.A.
</TABLE>
____________________
(1) Value realized is before applicable taxes, based on the difference
between the exercise price and the closing prices on the dates of exercise.
There is no Long-Term Incentive Plan Awards Table in this Report because
BTX does not currently have a plan of that nature.
17
<PAGE> 19
DIRECTOR COMPENSATION
During 1993 each director of BTX (except Mr. Collins who was not paid for
his service as a director) was paid $5,000 as an annual retainer and was paid
$750 for each meeting of the Board of Directors which he attended. In
addition, the chairman of each committee was paid an annual retainer of $2,000
and each member of a committee was paid $500 for each committee meeting which
he attended. Also, directors traveling more than 75 miles to attend a meeting
were reimbursed for their actual travel expenses. On September 5, 1990, the
Company entered into a consulting agreement with Director Edward T. Story, Jr.,
whereby he is, when requested by the Chairman of the Board, obligated to assist
with certain capital formation projects. Pursuant to this agreement Mr. Story
was paid $1,000 in 1992 and zero in 1993.
BTX EMPLOYEE BENEFIT PLANS
BTX maintains various employee benefit plans. Directors are not eligible
to participate in such plans (except the 1990 Stock Option Plan) unless they
are also employees of BTX or one of its subsidiaries.
PENSION PLAN. The BancTEXAS Group Inc. and Subsidiaries' Employees
Retirement Plan (the "Pension Plan") is a noncontributory, defined benefit plan
for all eligible officers and employees of BTX and its subsidiaries. Benefits
under the Pension Plan are based upon annual base salaries and years of service
and are payable only upon retirement or disability and, in some instances, at
death. An employee is eligible to participate in the Pension Plan after
completing one year of employment if he or she was hired before attaining age
60, is at least 21 years of age and worked 1,000 hours or more in the first
year of employment. A participant who has fulfilled the eligibility and tenure
requirements will receive, upon reaching the normal retirement age of 65,
monthly benefits based upon average monthly compensation during the five
consecutive calendar years out of his or her last ten calendar years that
provided the highest average compensation.
BTX utilizes the unit-credit cost method to compute its annual
contribution requirements under the Pension Plan. Under this method,
past-service costs are aggregated to determine the total past-service cost of
the Pension Plan. The excess of the total past-service cost over the assets of
the Pension Plan equals BTX's unfunded past-service cost, which is funded over
a period of years in accordance with regulations of the Internal Revenue
Service. Because this method determines Pension Plan costs in the aggregate,
costs have not been allocated to the individuals in the Cash Compensation
Table.
Effective December 1, 1986, the Board of Directors of BTX amended the
Pension Plan to provide: (1) that all persons in the Pension Plan would be
vested with the number of service years actually credited by December 31, 1986,
regardless of the number of years they had participated in the plan; and (2)
that all persons qualifying to participate in the Pension Plan after December
1, 1986, would become 100% vested after five years of service.
18
<PAGE> 20
The following table sets forth, based upon certain assumptions, the
approximate annual benefits payable under the Pension Plan at normal retirement
age to persons retiring with the indicated average base salaries and years of
credited service:
<TABLE>
<CAPTION>
Highest Consecutive Five Approximate Annual Benefit at
Year Average Base Salary Retirement with Indicated
During Final Ten Years Years of Credited Service (1)
------------------------ -----------------------------
10 20
------- ----------
<S> <C> <C>
$100,000 ..................... $14,700 $29,400
150,000 ..................... 22,200 44,400
200,000 ..................... 29,700 59,400
235,840 (2)..................... 35,076 70,152
</TABLE>
____________________
(1) These benefits are not subject to deduction for social security, but
are subject to withholding for federal income tax purposes.
(2) Maximum annual retirement income of $115,641 is permitted under
section 415 of the Internal Revenue Code, as amended. Under section 401A17,
the maximum compensation allowed for retirement benefit computations is
$235,840.
The amount of current annual covered compensation and the credited years
of service under the Pension Plan at December 31, 1993, for each of the five
most highly compensated executive officers of BTX set forth above in the
Compensation Table are as follows:
<TABLE>
<CAPTION>
Current Annual
Compensation Credited Years
Covered by the of Service at
Name of Individual Pension Plan December 31, 1993
------------------ -------------- -----------------
<S> <C> <C>
Nathan C. Collins......... $235,840 6
David F. Weaver........... 107,500 6
John G. Sprengle.......... 84,500 6
Richard H. Braucher....... 91,800 15
Jerry V. Garrett.......... 90,000 6
</TABLE>
EMPLOYMENT AGREEMENT
In 1987 Nathan C. Collins ("Collins") entered into an employment agreement
with BTX to serve as the Chairman of the Board, President and Chief Executive
Officer of BTX for the period from November 1, 1987 to January 2, 1991. For
services rendered under the agreement, Collins received an annual salary of
$250,000, a bonus of $100,000 for 1988 payable on January 2, 1989, use of an
automobile, and reimbursement of reasonable business expenses. He also
participated in all benefits provided generally to employees of BTX.
As additional compensation, in 1987 BTX granted to Collins 109,500 shares
of Common Stock as a stock grant and options to purchase 109,500 shares of
Common Stock. These options were canceled in 1990. The agreement also
provides that BTX will indemnify and advance expenses to Collins to the maximum
extent permitted by applicable law with respect to any legal proceedings
arising from his employment, provided his conduct meets specified standards.
Prior to the expiration of its stated term, the agreement will terminate upon
death or disability and may be terminated by Collins, by BTX with or without
cause or upon request by any regulatory authority with specified severance
arrangements.
19
<PAGE> 21
In 1990 the Board of Directors of BTX entered into a restatement and
extension of the 1987 employment agreement with Collins. Under this contract,
Collins' employment was extended through January 2, 1993, at an annual salary
of $250,000. As additional compensation, Collins was granted options to
purchase 1,000,000 shares of Common Stock at an exercise price of 25 cents per
share, the fair market value at the date of grant.
In May of 1991 the Board of Directors, in order to insure that BTX would
continue to have Mr. Collins' service and leadership for several reasons,
including the need to complete the Company's financial turnaround and to
facilitate its search for additional capital, amended his employment agreement
to provide that the term shall be automatically extended each month so that at
all times the remaining term is 24 months. The contract was also amended to
provide that Collins will be paid a bonus for any year in which the Company has
positive operating earnings or meets other predetermined objectives established
by the Board of Directors. Usually the bonus will be equal to 5% of the
Company's net operating earnings as determined by the Board but other factors
may be used in making the final determination. Nevertheless, under no
circumstances can the bonus in any one year exceed $100,000. Pursuant to this
contract, Collins was paid a bonus of $25,000 in 1992 with respect to BTX's
1991 results, $23,200 in 1993 with respect to BTX's 1992 results, and zero in
1994 with respect to BTX's 1993 results.
The Board of Directors has also established a depository agreement with an
independent trust company whereby the Company has deposited approximately
$150,000 of U.S. Government securities with that trust company to insure that
the Company will honor its obligation to pay severance to Mr. Collins in the
event that the Company were to terminate his contract prematurely.
20
<PAGE> 22
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 1993, certain
information with respect to the beneficial ownership of the Common Stock of BTX
by each person known to the Company to be the beneficial owner of more than
five percent of the outstanding Common Stock and by each director and by all
officers and directors of BTX as a group:
<TABLE>
<CAPTION>
Amount and Nature
Name of Relationship of Beneficial
Beneficial to the Ownership of Percent of
Owner Company Common Stock (1) Class (13)
- ---------- ------------ ----------------- ----------
<S> <C> <C> <C>
Richard L. Brown Director 108,525 (2) *
Nathan C. Collins Chairman of Board, 971,600 (3) 4.74%
President and Chief
Executive Officer;
Director
Charles A. Crocco, Jr. Director 109,100 (4) *
Joseph J. Leszczynski Director 83,000 (5) *
Thomas A. Stanzel Director 115,500 (6) *
Edward T. Story, Jr. Director 107,750 (7) *
Richard H. Braucher Senior Vice President, 50,413 (8) *
Secretary & General
Counsel of BTX
D. Kert Moore Senior Vice President, 27,250 (9) *
Treasurer and
Chief Financial Officer
of BTX
David F. Weaver Regional President - 75,400 (10) *
South for the Bank
Jerry V. Garrett Senior Vice President, 45,000 (11) *
Consumer Lending of the
Bank
John G. Sprengle Senior Vice President, 61,000 (12) *
Chief Credit Officer of
the Bank
All officers and
directors as a
group (11 persons) 1,754,538 8.14%
</TABLE>
____________________
* Less than one-half of one percent.
21
<PAGE> 23
(1) Includes shares subject to vested stock options granted under the 1990
Stock Option Plan. 100% of the options granted in 1990 are vested and
could be exercised at any time by the optionee.
(2) Brown has a vested option covering 100,000 shares; he owns directly
8,525 shares.
(3) Collins has a vested option covering 900,000 shares; he owns directly
71,600 shares.
(4) Crocco has a vested option covering 100,000 shares; he owns directly
9,100 shares.
(5) Leszczynski has a vested option covering 75,000 shares; he owns
directly 8,000 shares.
(6) Stanzel has a vested option covering 100,000 shares; he owns directly
15,500 shares.
(7) Story has a vested option covering 100,000 shares; he owns directly
7,750 shares.
(8) Braucher has a vested option covering 50,000 shares; he owns directly
413 shares.
(9) Moore has a vested option covering 27,250 shares.
(10) Weaver has a vested option covering 75,000 shares; he owns directly 400
shares.
(11) Garrett has a vested option covering 45,000 shares.
(12) Sprengle has a vested option covering 61,000 shares.
(13) Calculated including all shares issued and shares subject to vested stock
options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Bank had, during the period from January 1, 1993 to December 31, 1993,
and expects to have in the future, loan transactions in the ordinary course of
business with directors of BTX and its affiliates. Management believes that
these loan transactions have been and will be on the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with unaffiliated persons and did not involve more than the normal
risk of collection or present unfavorable features. At December 31, 1993 such
loans totalled $46,000 and represented 0.30% of stockholders' equity. None of
the indebtedness has been classified in any manner by regulatory authorities or
charged-off by the Bank. The Bank does not extend credit to officers of BTX or
the Bank except extensions of credit secured by mortgages on personal
residences, loans to purchase automobiles and personal credit card accounts.
Certain of the directors and officers of BTX and its affiliates have deposit
accounts with the Bank. It is the policy of the Bank not to permit any
officers or directors of BTX or its affiliates to overdraw their respective
deposit accounts unless that person has been previously approved for overdraft
protection under a plan whereby a credit limit has been established in
accordance with the Bank's standard credit criteria.
22
<PAGE> 24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements and Supplementary Data: The financial
statements filed as part of this report are listed under Item 8.
2. Financial Statement Schedules: These schedules are omitted for the
reason that they are not required or are not applicable.
3. Exhibits: The exhibits are listed in the index of exhibits
required by Item 601 of Regulation S-K at Item (c) below and
included on pages 25 to 26, which is incorporated herein by
reference.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended December 31,
1993.
(c) The index of required exhibits is included beginning on page 25 of this
report.
23
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
BancTEXAS Group Inc.
By /s/ Nathan C. Collins
------------------------------
Nathan C. Collins
Chairman of the Board,
President and Chief
Executive Officer
March 24, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Richard L. Brown Director March 24, 1994
- ----------------------------
Richard L. Brown
/s/ Nathan C. Collins Chairman of the Board, March 24, 1994
- ---------------------------- President and Chief
Nathan C. Collins Executive Officer
/s/ Charles A. Crocco, Jr. Director March 24, 1994
- ----------------------------
Charles A. Crocco, Jr.
/s/ Joseph J. Leszczynski Director March 24, 1994
- ----------------------------
Joseph J. Leszczynski
/s/ D. Kert Moore SVP, Treasurer and March 24, 1994
- ---------------------------- Chief Financial Officer
D. Kert Moore (Chief Accounting Officer)
/s/ Thomas A. Stanzel Director March 24, 1994
- ----------------------------
Thomas A. Stanzel
/s/ Edward T. Story, Jr. Director March 24, 1994
- ----------------------------
Edward T. Story, Jr.
</TABLE>
24
<PAGE> 26
INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------
3(a) - Restated Certificate of Incorporation of the Company dated
August 19, 1993 and filed August 30, 1993 (filed as Exhibit
3(a) to the Company's Form 10-Q for the quarter ended
September 30, 1993 and incorporated herein by reference).
3(b) - Amended Bylaws of the Company (filed as Exhibit 3.9 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1985, and incorporated herein by reference).
4(a) - Indenture, dated as of May 15, 1981, among CSWI International
Finance N.V., the Company and Bankers Trust Company (will be
filed upon request pursuant to Item 601(b)(4)(iii) of
Regulation S-K).
4(b) - Specimen Stock Certificate for Common Stock (filed as Exhibit
1.01 to the Company's Amendment No. 1 to Form 8-A on Form 8,
dated September 4, 1987, and incorporated herein by
reference).
10(a) - Form of Stock Purchase Agreement, dated as of December 3,
1984, by and between the Company and each of the Purchasers
(filed as Exhibit 10.22 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1984, and
incorporated herein by reference).
10(b)* - BancTEXAS Group Inc. 1990 Stock Option Plan (as amended July
22, 1993) filed as Exhibit 10(c) to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1993, and
incorporated herein by reference).
10(c) - Agreement Concerning Subsidiary Banks dated as of November
30, 1990, executed by and between the Federal Deposit
Insurance Corporation and the Company (filed as Exhibit 10(g)
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1990, and incorporated herein by
reference).
10(d) - Agreement Concerning Warrants dated as of November 30, 1990,
executed by and between the Federal Deposit Insurance
Corporation and the Company (filed as Exhibit 10(h) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1990, and incorporated herein by reference).
10(e)* - Restatement and Extension of Employment Agreement, dated
August 16, 1990 between the Company and Nathan C. Collins
(filed as Exhibit 10(j) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1990, and
incorporated herein by reference).
25
<PAGE> 27
INDEX TO EXHIBITS - (CONTINUED)
Exhibit No. Description
----------- -----------
10(f)* - Amendment to Executive Employment Agreement with Nathan C.
Collins dated May 1, 1991 (filed as Exhibit 10(k) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1991, and incorporated herein by reference).
10(g)* - Depository Agreement between Brown Brothers Harriman & Co.
and the Company dated November 30, 1992 (filed as Exhibit
10(h) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992 and incorporated herein by
reference).
10(h)* - BancTEXAS Group Inc. Directors' Retirement Plan dated March
18, 1993 (filed as Exhibit 10(i) to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1993 and
incorporated herein by reference).
10(i)* - Deferred Compensation Agreement with Nathan C. Collins dated
April 22, 1993 (filed as Exhibit 10(j) to the Company's
Quarterly Report of Form 10-Q for the quarter ended March 31,
1993 and incorporated herein by reference).
10(j)* - 1993 Directors' Stock Bonus Plan (filed as Exhibit 10(k) to
the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993 and incorporated herein by reference).
10(k) - Settlement Agreement by and among the Company, Edward Nash,
American Equitable Life Insurance Co., Dalcon, Inc., James
Hammond, Curtis Leggett, Delwin W. Morton, Charles C. Rush,
Charles W. Seeds, Jr., Charles J. Wilson and Robert A.
Yarber, and related Releases (filed as Exhibit 10(k) to the
Company's Registration Statement No. 33- 51801 on Form S-2,
dated January 5, 1993 and incorporated herein by reference).
11 - Computation of Earnings (Loss) per share - filed herewith.
13 - 1993 Annual Report to Stockholders is combined with this
Annual Report on Form 10-K and is not filed as an exhibit but
is filed herewith.
21 - Subsidiaries of the Company - filed herewith.
_______________
* Exhibits designated by an asterisk in this Index to Exhibits relate to
management contracts and/or compensatory plans or arrangements.
26
<PAGE> 1
EXHIBIT 11
<PAGE> 2
EXHIBIT 11
BancTEXAS Group Inc.
COMPUTATION OF EARNING (LOSS) PER SHARE*
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------
1993 1992 1991
----------------- ------------------- -------------------
Per Per Per
Amount Share Amount Share Amount Share
--------- ------- --------- -------- --------- ---------
(Dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C>
PRIMARY:
Gain (loss) from operations.. $ 219 $ .01 $ 702 $ .03 $ (3,504) $ (.18)
Extraordinary items......... - - 362 .02 465 .02
-------- ------ -------- ------- --------- --------
Net income (loss) applicable
to common shareholders.... $ 219 $ .01 $ 1,064 $ .05 $ (3,039) $ (.16)
======== ====== ======== ======= ========= ========
Weighted average common and
common equivalent shares.. 23,300,682 23,117,311 19,083,525
========== ========== ==========
FULLY DILUTED:**
Gain (loss) from operations. $ 219 $ .01 $ 702 $ .03 $ (3,504) $ (.16)
Extraordinary items......... - - 362 .02 465 .02
-------- ------ -------- ------- --------- --------
Net income (loss)........... 219 .01 1,064 .05 (3,039) (.16)
Interest expense on 9%
subordinated debentures... 63 - 63 - 90 -
-------- ------ -------- ------- --------- --------
Net income (loss) applicable
to common shareholders.... $ 156 $ .01 $ 1,127 $ .05 $ (2,949) $ (.14)
======== ====== ======== ======= ========= ========
Weighted average shares:
Weighted average
common shares........... 19,355,767 19,141,086 19,083,525
Assuming conversion of:
Stock warrants.......... 1,919,751 1,912,792 1,713,785
Stock options........... 2,025,164 2,063,433 859,521
9% subordinated
debentures........... 2,594 2,594 2,594
---------- ---------- ----------
Weighted average shares..... 23,303,276 23,119,905 21,659,425
========== ========== ==========
</TABLE>
____________________
* Restated to reflect BTX's merger with Las Colinas.
** This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15 for
1991 because it produces an antidilutive result.
<PAGE> 1
EXHIBIT 13
<PAGE> 2
1 9 9 3
A N N U A L
R E P O R T
B a n c T E X A S
Group Inc.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Letter to Stockholders .................................................. 1
Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................. 4
Management's Report ..................................................... 28
Independent Auditors' Report ............................................ 29
Financial Statements:
Consolidated Balance Sheets ........................................... 30
Consolidated Statements of Operations ................................. 31
Consolidated Statements of Changes in Stockholders' Equity ............ 32
Consolidated Statements of Cash Flows ................................. 33
Notes to Consolidated Financial Statements ............................ 34
Quarterly Consolidated Statements of Operations ......................... 60
Form 10-K ............................................................... 61
Management .............................................................. 88
Corporate Information ................................................... 90
</TABLE>
MISSION STATEMENT
of BancTEXAS Group Inc.
The mission of BancTEXAS Group Inc. is to maximize the long-term return
to stockholders. In order to accomplish this mission, we will deliver quality
banking services to the North Texas and Houston consumer and commercial
markets. Our responsibility also includes community involvement as good
corporate citizens. By so doing, we will be recognized as a superior banking
organization and will provide our employees challenging opportunities to serve
their customers and to grow and prosper in their careers.
<PAGE> 4
BancTEXAS Group Inc.
CONSOLIDATED FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1993 1992
--------- ---------
(Dollars in thousands,
except per share)
<S> <C> <C>
FOR THE YEAR
Gain from operations........................ $ 219 $ 702
Extraordinary items:
Tax benefit from net operating loss
carryforward............................ - 362
Net income.................................. 219 1,064
Per share:
Gain from operations...................... .01 .03
Extraordinary items....................... - .02
Net income per share...................... .01 .05
AT DECEMBER 31
Assets...................................... $368,608 $322,769
Deposits.................................... 242,897 270,730
Loans....................................... 167,732 174,695
Investment securities....................... 160,158 113,681
Stockholders' equity........................ 14,952 14,107
</TABLE>
<PAGE> 5
BancTEXAS Group Inc.
To the BancTEXAS Group Inc. Shareholders:
The year 1993 saw earnings for the first three quarters stabilize after
improvements through 1992. Then in the fourth quarter, we experienced a loss,
both from operations as well as the $592,000 charge attendant to the settlement
of a serious, long-standing lawsuit involving a 1984 private placement. This
lawsuit originally was filed by 22 private investors who bought $8.2 million of
BTX's stock. Through the years, management settled with all but nine of the
plaintiffs. These nine were claiming more than $2.3 million in damages. With
the trial date nearing, the company and the plaintiffs entered into a mediation
process that resulted in an agreement to issue 400,000 shares of BTX stock.
This resulted in approximately a 2% dilution for our existing shareholders but
avoided the risks of an adverse jury decision, unpredictable court awards and
additional costly legal fees. We feel this settlement was far and away the
most favorable conclusion for our company and its shareholders.
In addition, in 1993 we received a favorable decision from an appellate
court which finally ended our defense of a class action lawsuit which began in
1988, thus eliminating these two serious lawsuits cited in footnotes to our
financial statements in recent annual reports.
The continuing concern we face, however, is that operating results turned
slightly negative in the fourth quarter. This has been caused by narrowing
interest margins. At a time when the marketplace is experiencing very stable
rates on deposits, our much larger competitors have focused on auto loans as a
desirable product for them. They appear willing to expand their position at
extremely competitive, possibly predatory, loan rates. To preserve our
position in this niche, which has been and will be very important to us, we
have met that competition.
However, such cyclical changes can hurt interest margin and reduce
profitability. Therefore, we have embarked on a program to diversify our loan
portfolio in an attempt to preserve and increase margins in the future. By the
end of December, we had begun purchasing residential mortgages originated by
others. These are priced to float with short-term rates and are resold to
mortgage loan investors, usually within 30 days after purchase. We expect to
expand this program to additional mortgage companies this year. We also are
joining with a new Texas firm in providing F.H.A. Title One home improvement
financing at rates higher than those we currently can expect in the auto
finance area. We are looking at other possibilities to further diversify the
portfolio provided that it is done with acceptable credit risk but at better
yields than we were able to obtain in 1993.
1
<PAGE> 6
At year-end 1993, we had a modest reduction in staff and, once again,
combed every income and expense category to seek improvements to our earnings
performance. All of these efforts will help, but with our current structure,
restoration of satisfactory margin levels is the essential ingredient to a
resumption of quarterly earnings.
In a larger sense, we still are seeking merger and acquisition partners
because, like the industry, we must expand in size and location, spread our
costs, further serve our customers and improve earnings. The real avenue to
success for BancTEXAS is this expansion philosophy. In 1993 we held numerous
serious discussions and had a couple of transactions well down the road before
they ended without success. We will continue this process and, hopefully, will
be successful with this effort in 1994.
In 1993 we received approval to open a Dallas branch near the corner of
Abrams and Forest roads in September. This was a site previously occupied by
another bank before it transferred its customers to a different location. We
are working to capture some of that customer base. Through the first six
months, we are on target to meet our first year goals for that location.
In 1993 our net loans were down $6.5 million (3.8%) but this was after
selling $37 million of auto loans to third party investors. These sales were
completed at a premium and the servicing rights were retained, thus creating
two streams of income. We feel this activity is an attractive business niche
for us and one we will continue. Incidentally, this strategy also contains our
asset size, thus keeping the bank comfortably within the federal regulatory
capital ratios.
Total deposits declined $27.8 million (10.3%); however $21.9 million of
the reduction was in public funds. These deposits were replaced by short-term
borrowings which are collateralized by government securities. While we work
very hard to solicit new deposits, our consumer deposit shrinkage of 2.2% still
compares well to the experience of banks across the country during a period
when depositors have become disenchanted with bank instruments and are seeking
higher-yielding alternatives and we have seen a significant flight to mutual
funds and annuities.
The loan portfolio continues to improve in quality. Again in 1993 the
loan portfolio continued its quality improvement to the point where we compare
very favorably to the highest industry norms. Non-performing assets decreased
43% from $6,638,000 to $3,793,000. These non-performing assets were 2.22% of
total loans at year-end. As we began this new year, we had only 12 properties
in the foreclosed real estate account for a total book value of $2,937,000.
Early in January of 1994, our largest OREO property was sold, reducing this
category by $710,000.
Net losses in our consumer loan portfolio were $940,000 or 0.68%, with net
recoveries of $43,000 in the rest of the loan portfolio. We have been able to
keep our total loan loss provision less than net consumer losses because of
recoveries in the real estate and commercial loan portfolio and the balance of
the troubled portfolio continued to shrink as reported above.
2
<PAGE> 7
We believe our plan is sound but the Bank has experienced an interest
margin problem that hopefully will be gradually corrected both by developments
in the marketplace and our portfolio diversification process. Acquisitions are
foremost in our efforts. We believe that holding the course we set a year ago
is still appropriate for our constituency of customers, communities and
employees, but most importantly for our shareholders. We thank you for your
interest and support. You have our pledge to do all that is prudently possible
to fulfill the BancTEXAS vision.
March 24, 1994 Nathan C. Collins
Chairman of the Board,
President and
Chief Executive Officer
BancTEXAS Group Inc.
3
<PAGE> 8
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
BancTEXAS Group Inc. (herein BTX) is a bank holding company which owns one
subsidiary bank (herein the Bank), known as BankTEXAS N.A., which had
consolidated total assets of $369 million at December 31, 1993.
On January 26, 1990, the Office of the Comptroller of the Currency
declared BancTEXAS Dallas N.A., then a subsidiary of BTX (herein BancTEXAS
Dallas), insolvent and appointed the Federal Deposit Insurance Corporation as
receiver. On the same day, the FDIC transferred the assets of BancTEXAS Dallas
to Hibernia National Bank in Texas. For this discussion and analysis, data
relating to BancTEXAS Dallas was included in the average balance sheets for the
year 1989. In addition, year-to-date results of operations include BancTEXAS
Dallas for the year 1989.
The merger of the Bank and First Bank/Las Colinas (Las Colinas) which was
completed on December 31, 1992 qualified as a "pooling of interests" for
accounting and financial reporting purposes. Under the pooling of interests
method of accounting, the historical basis of the assets and liabilities of BTX
and Las Colinas are combined and carried forward at their previously recorded
amounts.
The following discussion and analysis presents the significant changes in
the results of operations and financial condition for the periods indicated.
The main focus of this discussion and analysis will be on the current
organization, although the disposition of BancTEXAS Dallas was the primary
factor in changes in results of operations and financial condition from 1989 to
1990. This discussion should be read in conjunction with the audited financial
statements and notes and supplemental financial data included elsewhere in this
report. TABLE 1 presents BTX's selected financial highlights for the past five
years.
RESULTS OF OPERATIONS
The net income for 1993 was $219,000, compared to net income of $1.1
million for 1992. The most significant factors affecting the 1993 results of
operations were: (1) a decrease in net interest income of approximately $1.3
million resulting in large part from the significant drop in the interest rates
charged on consumer loans (see "Net Interest Income," page 6) and (2) a
$592,000 charge related to the settlement of one significant lawsuit described
under "Noninterest Expense" (see page 12). Partially offsetting these adverse
factors were: (1) increased profits of $457,000 resulting from the sale of
pools of consumer loans aggregating $37 million and servicing fees generated
from $39 million of consumer loans, measured at year-end 1993, and (2) profits
from the sale of securities of $243,000.
1992 results of operations included costs amounting to $520,000 related to
the acquisition of Las Colinas. These costs were expensed as current period
expenses as required by pooling of interests accounting. Also included in the
results for 1992 was a reversal of an expense accrual of $600,000 booked in a
4
<PAGE> 9
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
previous year and associated with costs anticipated under severance contracts
for certain officers of BTX. These contracts were not extended at December 31,
1992.
Included in BTX's 1991 results of operations was an extraordinary gain of
$465,000 which was due to early extinguishment of $939,000 of subordinated
debentures.
TABLE 1 - SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- --------- ----------
(Dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C>
Income statement highlights:
Interest income............$ 21,966 $ 24,735 $ 23,742 $ 29,389 $ 68,343
Interest expense........... 9,750 11,229 13,226 18,064 50,800
Net interest income........ 12,216 13,506 10,516 11,325 17,543
Provision for loan losses.. 490 507 934 1,544 2,531
Income (loss) from
operations before
extraordinary items...... 219 702 (3,504) (8,489) (49,355)
Net income (loss).......... 219 1,064 (3,039) 27,641 (49,355)
Per share:
Income (loss) from
operations............... .01 .03 (.18) (.44) (2.55)
Net income (loss).......... .01 .05 (.16) 1.44 (2.55)
Balance sheet highlights:
Assets..................... 368,608 322,769 290,817 265,899 440,192
Loans...................... 167,732 174,695 183,371 192,246 257,212
Allowance for loan losses.. 2,637 3,044 4,479 5,666 6,498
Deposits................... 242,897 270,730 251,586 242,092 358,182
Long-term debt............. 1,054 1,066 1,066 2,032 2,032
Stockholders' equity
(deficit)................ 14,952 14,107 13,013 16,055 (11,587)
Book value per common
share.................... .75 .73 .68 .84 (.61)
Financial ratios:
Return on average assets... .07% .34% N/A 8.64% N/A
Return on average equity... 1.49% 7.90% N/A N/A N/A
Average equity as a percent
of average assets........ 4.40% 4.28% 5.38% (3.66)% 2.86%
Other statistics:
Number of employees
(at year-end)............ 164 170 172 200 342
</TABLE>
NOTE: No dividends have been paid since 1984.
5
<PAGE> 10
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
NET INTEREST INCOME
Average earning assets were $310 million for 1993, an increase of $19
million, or 6%, from 1992. The major component of the 1993 increase was
investments. This increase in investments resulted from purchases made with
increased borrowings principally from the Federal Home Loan Bank. Average
earning assets for 1992 increased $47 million, or 19%, from 1991. This
increase in 1992 resulted partially from increased public funds deposits which
legally require that additional securities be pledged as security. The major
component of the 1992 increase was investments. Also in 1992, the Bank
obtained $14 million of deposits from the Texas State Treasurer, which was
reduced to $3.5 million at December 31, 1993.
Net interest income for 1993 was $12.2 million, a decrease of $1.3 million
from 1992. The decrease from 4.63% to 3.94% in net interest margin is a result
of a leveling of the rates paid on deposits and a continuing decline in the
rates earned on loans which has been caused principally by heightened
competition among lenders, particularly for consumer loans, and a significant
decrease in the rates charged on these loans. These trends are likely to
continue. Net interest income for 1992 increased $3 million, or 28% from 1991.
The increase resulted from the Company's increased level of earning assets ($47
million) combined with an increased net interest spread of 62 basis points.
This improvement resulted from an increased interest spread caused by a
dramatic decrease in the rates paid on deposits contrasted with less rapid
reductions in the rates charged on loans. As the Texas economy expands, the
Bank expects moderate future growth in both its deposits and earning assets.
The Company has positioned its balance sheet to manage through changing
interest rate environments. The spreads on loans and deposits narrowed in the
third and fourth quarters of 1993. The current spreads, based on the
assumption that the interest rates paid on deposits and the interest rates
charged on loans are not likely to increase significantly in 1994, are expected
to be maintained in 1994. However, net interest margin is expected to decrease
moderately compared to 1993 as a whole, due to the wider net interest spreads
realized in the first half of 1993.
In the third quarter of 1993 the Federal Home Loan Bank of Dallas (the
FHLB) approved BankTEXAS N.A. as a member. The Bank has invested approximately
$1.3 million in stock of FHLB, upon which the yield at year-end 1993 paid is
the Federal Funds rate plus 59 points. The Bank is entitled to borrow up to
$14 million in long-term advances (six months and longer) and is entitled to
short-term advances through FHLB's Master Repurchase Agreement. The FHLB
permits total borrowing from the Bank to equal as much as 50% of the member
bank's assets. Should BTX decide to increase long-term advances beyond $14
million, then an additional investment in the FHLB stock would be required.
With the additional borrowing capacity provided by the Federal Home Loan Bank,
it is expected that earning assets can be increased. The Bank's capital is
sufficient to support an additional $30 million of investments and
corresponding borrowings from the FHLB. Assuming an incremental return on
assets of 1.5% for 1994 and no other changes affecting the net interest margin,
it is expected that BTX can achieve some improvement in its net interest
margin.
6
<PAGE> 11
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Average investment securities for 1993 increased $32 million, or 32%, from
1992. The increase in investments arose from a higher volume of available
funds as discussed in the above paragraphs. The average level of investment
securities increased $56 million, or 125%, from 1991 to 1992. This increase
arose from a higher volume of available funds because of the significant
increase in public funds deposits. Average federal funds sold for 1993
decreased $2.7 million, or 37% from 1992. During 1993, federal funds sold
represented only 1% of total earning assets compared to 2% during 1992. This
decrease was due to BTX's increase in investments and the extremely low rates
available on federal funds sold. Average loans for 1993 decreased $11 million,
or 6% from 1992. This decrease in loans from 1993 to 1992 principally resulted
from sales of loan pools in 1993 totalling $37 million.
For 1993, interest income on earning assets decreased $2.8 million or 11%
from 1992. This decrease is due to declining rates. For 1992, interest income
on earning assets increased $1 million, or 4%, from 1991. This increase in
interest income occurred even though yields on earning assets declined 126
basis points. The decline in yield was more than offset by the increase in
average earning assets of $47 million from 1991 to 1992.
Average interest bearing liabilities for 1993 increased $12.9 million or
5% from 1992. This increase was due primarily from the increase in short-term
borrowings. Average interest bearing liabilities for 1992 increased $45
million, or 21%, from 1991. This increase was due primarily from the increased
volume of public funds contracts. For 1993, expense on interest bearing
liabilities decreased $1.5 million or 13% from 1992. For 1992, interest
expense decreased $2 million or 15% from 1991. These decreases occurred since
BTX's cost on the interest bearing liabilities declined by 74 basis points in
1993 and 188 basis points in 1992.
Unless otherwise stated, changes from 1989 to 1990 are due primarily to
the disposition of BancTEXAS Dallas and will not be repeated for each category.
7
<PAGE> 12
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
TABLE 2 presents the three-year average balance sheet data and related
yields and rates. TABLE 3 presents an analysis of the changes in net interest
income.
TABLE 2 - THREE-YEAR AVERAGE BALANCE SHEETS/ANALYSIS OF INTEREST YIELDS AND
RATES
<TABLE>
<CAPTION>
1993 1992 1991
-------------------------- -------------------------- --------------------------
Interest Interest Interest
Average Income/ Average Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate Balance Expense Rate
-------- ------- ------- -------- ------- ------- -------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Time deposits with banks....... $ 825 $ 31 3.76% $ 409 $ 15 3.67% $ 760 $ 53 6.97%
Investment securities:
Taxable...................... 132,563 6,650 5.02 100,184 6,367 6.36 44,533 3,482 7.82
Tax-exempt................... - - - - - - - -
-------- ------- -------- ------- -------- -------
Total investment
securities................ 132,563 6,650 5.02 100,184 6,367 6.36 44,533 3,482 7.82
Federal funds sold and
securities purchased under
agreements to resell......... 4,517 133 2.94 7,199 249 3.46 10,851 615 5.67
Loans*......................... 171,889 15,152 8.82 183,315 18,104 9.85 187,962 19,592 10.42
-------- ------- -------- ------- -------- -------
Total earning assets........ 309,794 21,966 7.09 291,107 24,735 8.47 244,106 23,742 9.73
------- ------- -------
Nonearning assets:
Cash and due from banks........ 8,253 7,486 8,127
Premises and equipment......... 11,452 11,714 12,334
Other assets................... 6,977 8,587 10,564
Allowance for loan losses...... (2,894) (4,094) (5,376)
-------- -------- --------
$333,582 $314,800 $269,755
======== ======== ========
Interest bearing liabilities:
Savings deposits............... $ 88,986 2,268 2.55 $ 92,783 3,020 3.25 $ 91,761 4,893 5.33
Certificates of deposit
$100,000 and over and
public funds................. 33,035 1,226 3.71 35,141 1,581 4.49 24,715 1,627 6.58
Other time deposits............ 92,648 4,183 4.51 94,807 5,145 5.41 89,737 6,265 6.98
Short-term borrowings.......... 55,576 1,978 3.56 34,612 1,388 4.01 5,403 303 5.61
Long-term debt................. 1,055 95 9.00 1,063 95 8.91 1,532 138 9.01
-------- ------- -------- ------- -------- -------
Total interest bearing
liabilities............... 271,300 9,750 3.59 258,406 11,229 4.33 213,148 13,226 6.21
------- ------- -------
Noninterest bearing liabilities:
Demand deposits................ 45,106 38,925 37,608
Other liabilities.............. 2,498 4,000 4,489
-------- -------- --------
Total liabilities........... 318,904 301,331 255,245
Stockholders' equity............. 14,678 13,469 14,510
-------- -------- --------
$333,582 $314,800 $269,755
======== ======== ========
Net interest income.............. $12,216 $13,506 $10,516
======= ======= =======
Interest rate spread............. 3.50% 4.14% 3.52%
Net interest margin.............. 3.94% 4.63% 4.31%
==== ==== ====
</TABLE>
____________________
BTX has no tax-exempt income.
* Loan fees are included for rate calculation purposes; however, the
amount of such fees is immaterial. Nonaccrual loans have been included in the
average balances, therefore, reducing yields.
8
<PAGE> 13
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
TABLE 3 - VOLUME/RATE ANALYSIS
<TABLE>
<CAPTION>
1993 Change from 1992 1992 Change from 1991
------------------------------------ ---------------------------------
Change Due to: Change Due to:
-------------------------- ------------------------
Total Rate/ Total Rate/
Change Volume Rate Volume* Change Volume Rate Volume*
------- ------- ------- ------ ------- ------- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Time deposits with
banks............. $ 16 $ 16 $ - $ - $ (38) $ (25) $ (25) $ 12
Taxable investment
securities........ 283 2,057 (1,341) (433) 2,885 4,352 (652) (815)
Federal funds sold
and securities
purchased under
agreements to
resell............ (116) (93) (37) 14 (366) (207) (240) 81
Loans............... (2,952) (1,128) (1,945) 121 (1,488) (484) (1,029) 25
------- ------- ------- ------ ------- ------- ------ -----
Total interest
income.......... (2,769) 852 (3,323) (298) 993 3,636 (1,946) (697)
------- ------- ------- ------ ------- -------- ------ -----
Interest bearing
funds:
Savings deposits.... (752) (124) (655) 27 (1,873) 54 (1,906) (21)
Certificates of
deposit $100,000
and over and
public funds...... (355) (95) (277) 17 (46) 686 (515) (217)
Other time deposits. (962) (117) (865) 20 (1,120) 354 (1,395) (79)
Short-term
borrowings........ 590 841 (156) (95) 1,085 1,638 (86) (467)
Long-term debt...... - (1) 1 - (43) (42) (1) -
------- ------- ------- ------ ------- ------- ------ -----
Total interest
expense........ (1,479) 504 (1,952) (31) (1,997) 2,690 (3,903) (784)
------- ------- ------- ------ ------- ------- ------ -----
Net interest income... $(1,290) $ 348 $(1,371) $ (267) $ 2,990 $ 946 $1,957 $ 87
======= ======= ======= ====== ======= ======= ====== =====
</TABLE>
____________________
BTX has no tax-exempt income.
* Represents the change not solely attributable to change in rate or
change in volume but a combination of these two factors.
9
<PAGE> 14
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
NONINTEREST INCOME
Noninterest income for 1993 increased $439,000, or 17%, from 1992.
Noninterest income was $2.6 million in 1992, a decrease of $318,000, or 11%,
from 1991. TABLE 4 shows the major components of noninterest income. The Bank
is pursuing additional services that may enhance the income stream including
the sale of mutual funds, annuities and other permissible product offerings
such as FHA Title One home improvement loans and the purchase of residential
mortgages which are held for resale to permanent investors. Servicing fees
generated from sales of pools of consumer loans in 1993 was $200,000 and this
source of revenue is expected to increase in 1994.
Noninterest income for 1993 included securities gains of $243,000,
compared to $103,000 for 1992. Service charges and fees decreased $69,000, or
4%, from 1992 to 1993 and increased $93,000, or 5%, from 1991 to 1992. The
increase from 1991 to 1992 was from price increases and transaction charges
that were implemented in 1992. The 1993 decrease includes reduced revenue
resulting from closing the safe deposit function at one of BTX's locations of
$34,000 and decreased revenue from return check charges of $31,000. Income
from loan sales and loan servicing increased $457,000 or 103% from 1992. As of
December 31, 1993 BTX is servicing $39 million of consumer loans for third
parties compared to $19 million as of December 31, 1992 and $0 as of December
31, 1991.
Other noninterest income decreased $89,000 from 1992 to 1993, or 30%, and
$836,000, or 74%, from 1991 to 1992. The 1993 decrease resulted from a
reduction of annuity income of $46,000 and $43,000 from miscellaneous sources.
The 1992 decrease was due to the fact that in 1991 $400,000 of income was
realized from revenue associated with insurance coverage through a third party
provider to the Company's customers on a portion of the Company's automobile
loan portfolio which was not repeated in 1992, and $600,000 from discounts
realized from early payoffs of loans that had occurred in 1991.
TABLE 4 - NONINTEREST INCOME
<TABLE>
<CAPTION>
Change from Prior Year
-----------------------------
1993 vs. 1992 1992 vs. 1991
-------------- --------------
1993 1992 1991 Amount Percent Amount Percent
------ ------ ------ ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Service charges and fees.. $1,716 $1,785 $1,692 $ (69) (4)% $ 93 5 %
Investment securities
gains................... 243 103 44 140 136 59 134
Loans sales and loan
servicing fees.......... 899 442 76 457 103 366 482 %
Other..................... 210 299 1,135 (89) (30) (836) (74)
------ ------ ------ ------- -------
Total................ $3,068 $2,629 $2,947 $ 439 17 % $ (318) (11)%
====== ====== ====== ======= =======
</TABLE>
10
<PAGE> 15
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
NONINTEREST EXPENSE
Noninterest expense for 1993 increased $13,000 or .09% from 1992. This
nominal increase is indicative of BTX's continued effort to curtail all
expenses. Noninterest expense for 1992 decreased $1.5 million, or 9%, from
1991. The decrease in 1992 resulted from a number of cost containment measures
and the savings which resulted from the merger of BTX's two subsidiary banks.
For 1994, noninterest expense should decline, principally from reduced expenses
related to nonperforming assets, i.e. write-downs and operating expenses
associated with foreclosed properties, and legal fees associated with
foreclosures and litigation. It is possible that additional economies of scale
in noninterest expenses may result from future acquisitions. TABLE 5 shows the
components of noninterest expense for the past three years.
Personnel expense increased $323,000 or 5% from 1992 to 1993. This
increase resulted from nominal merit raises and severance payments made for a
minor staff reduction at year-end 1993. Personnel expense decreased $762,000,
or 11%, from 1991 to 1992 which resulted from the merger of BTX's two
subsidiary banks which permitted a reduction in the number of staff.
Occupancy expense decreased $116,000 or 8% from 1992 to 1993. This
decrease was due to more favorable terms in renegotiated leases and receiving
more tenant income from the Bank's building in McKinney. Occupancy expense
decreased $14,000, or 1%, from 1991 to 1992.
Equipment expense increased $228,000 or 33% from 1992 to 1993. This
increase is primarily due to the purchase of new equipment to maintain pace
with current technology. Equipment expense decreased $211,000, or 23% from
1991 to 1992.
FDIC Insurance expense increased $179,000 or 31% from 1992. For the year
1993, the FDIC initiated a new rate schedule. The average premium charged for
the Bank for FDIC Insurance on its deposits in 1993 was 30 cents per $1,000
compared to 23 cents per $1,000 in 1992.
Net operating expense of foreclosed property decreased $962,000 or 85%
from 1992 to 1993. This is primarily the result of lower real estate taxes and
a lower provision for future losses. Net operating expenses on foreclosed
properties increased $565,000, or 100%, from 1991 to 1992. This increase
resulted from the fact that a property that was sold in 1991 generated a gain
on sale of $950,000. Included in the net operating expense of foreclosed
properties was a provision for losses of $382,000 in 1993, $1.1 million in 1992
and $1.6 million in 1991.
11
<PAGE> 16
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Other noninterest expenses decreased $315,000 or 17% from 1992 to 1993 and
$833,000, or 32%, from 1991 to 1992. These decreases resulted primarily from
the reversal of estimated costs of BTX's former subsidiary (BancTEXAS Dallas)
that were no longer necessary. See Note 18 on page 58 (Parent Company Only)
"Statement of Operations."
TABLE 5 - NONINTEREST EXPENSE
<TABLE>
<CAPTION>
Change from Prior Year
-------------------------------
1993 1992
--------------- ---------------
1993 1992 1991 Amount Percent Amount Percent
------- ------- ------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Personnel expense......$ 6,483 $ 6,160 $ 6,922 $ 323 5 % $ (762) (11)%
Occupancy expense...... 1,348 1,464 1,478 (116) (8) (14) (1)
Equipment expense...... 919 691 902 228 33 (211) (23)
Communications and
supplies............. 1,060 1,042 1,266 18 2 (224) (18)
Fees................... 1,768 1,702 1,763 66 4 (61) (3)
Net operating expense
of foreclosed
properties........... 166 1,128 563 (962) (85) 565 100
FDIC insurance......... 754 575 502 179 31 73 15
Litigation settlement.. 592 - - 592 100 - -
Other expenses......... 1,485 1,800 2,633 (315) (17) (833) (32)
------- ------- ------- ------- --------
Total.............$14,575 $14,562 $16,029 $ 13 .09 % $ (1,467) (9)%
======= ======= ======= ======= ========
</TABLE>
LITIGATION SETTLEMENT
TABLE 5 reflects an expense of $592,000 related to litigation. In 1984
the Company completed a private placement of two million shares of common
stock, raising $8.2 million of new capital. In 1986, 22 of the purchasers sued
BTX for rescission and damages, alleging various violations of the federal
securities laws. When BTX's new management and Board of Directors arrived they
inherited this problem. Over the years, they systematically settled with 13 of
the plaintiffs upon terms which they felt were favorable to the Company.
A jury trial with the remaining nine plaintiffs was scheduled to begin in
November of 1993. After court ordered mediation, the parties agreed to a
settlement whereby the plaintiffs' claims for $2.3 million of damages plus
interest and attorneys fees were compromised by BTX's agreement to issue
400,000 shares of its common stock to the plaintiffs and their attorneys and
deliver to each of two of the plaintiffs an unsecured promissory note which he
had executed in 1984 when he borrowed funds from another bank. Due to the
current financial condition of these two plaintiffs, the value of these notes
was problematic and BTX was able to acquire the notes at a deep discount
(paying $51,562 for promissory notes having a face value of $515,625). These
shares of common stock will be registered with the S.E.C.; half will be
immediately saleable and half will be restricted as to resale for six months.
12
<PAGE> 17
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
The total cost to BTX of this settlement was $592,000 which has been
recorded as a charge against 1993's earnings. The issuance of this stock will
result in a dilution of approximately two percent for BTX's stockholders but
will not have an adverse affect upon capital levels.
ANALYSIS OF FINANCIAL CONDITION
MORTGAGE-BACKED AND OTHER INVESTMENT SECURITIES
Mortgage-Backed and Other Investment Securities (net of maturities and
sales of securities) at December 31, 1993 increased $47 million, or 41% from
December 31, 1992. This increase in investment securities resulted from the
purchase of securities which are backed by U.S. Agency guaranteed mortgages,
for long-term investment purposes. Approximately $74 million of the securities
purchased (net of maturities and sales of securities) which reprice on a
monthly basis are backed by adjustable rate mortgages. The repricing of these
mortgages is based principally on the 11th District Cost of Funds Index and
provides a mechanism for BTX's investment portfolio to maintain yields
corresponding to its funding cost. The cost of funds indices for these
securities are historical, predominately with a 90 day repricing lag.
Therefore, as interest rates decline, investment income will generally decline
and as interest rates increase, investment income will generally increase. At
December 31, 1993, agency backed adjustable rate mortgages represented 72% of
the total investment portfolio. In addition to the adjustable rate securities,
$15 million of fixed rate Planned Amortization Class (PAC) Collateralized
Mortgage Obligations (CMO's) were acquired in 1993. These securities were
purchased to fix a specific yield with specific fixed maturities of an average
of 1.6 years. This strategy protects a portion of this portfolio from
declining interest rates, yet does not inappropriately extend interest rate
risk.
BTX's public funds contracts are priced on a variable rate basis. In
addition, the Company's public funds contracts are cyclical with predictable
patterns. The investment securities also have predictable cash flows from
planned amortizations and are subject to prepayments. These features, along
with the Company's strategy of utilizing the securities as collateral for
financing, enables the Company to manage its liquidity in a proactive manner.
As a result, the Company's fed funds sold position averages $4.5 million, or
1.4% of average assets, which is less than that of many banks of similar size.
These activities are actively managed by the Company and it will continue to
pursue opportunities available to it to maximize net interest income generated
by the securities portfolio.
13
<PAGE> 18
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
TABLE 6 shows the yields and maturities of the investment portfolio for
the last three years. Because of the amortization schedules of mortgage-backed
securities and the fact that they are subject to prepayments, the weighted
average life for the Bank's portfolio of mortgage-backed securities is less
than its stated maturity. Based on the Company's prepayment experience with
these securities, the weighted average life of its portfolio is assumed to be
3.4 years. At December 31, 1993, approximately $134 million of BTX's
investment securities were pledged as collateral for public fund deposits,
securities sold under agreements to repurchase, or other purposes required or
permitted by law. As noted on page 6, the Bank joined the FHLB on September
28, 1993. Borrowings at December 31, 1993 from the Federal Home Loan Bank were
$64 million. Such borrowings are collateralized by the Bank's securities. See
Note 4 to BTX's consolidated financial statements for additional information
regarding the securities portfolio.
TABLE 6 YIELDS AND MATURITIES OF THE INVESTMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------
1993 1992 1991
--------------- ---------------- ----------------
Book Average Book Average Book Average
Value Yield Value Yield Value Yield
------- ------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other
U.S. government agencies:
Within one year.........$ 1,625 3.26% $ 2,008 3.48% $ 3,427 7.60%
One to five years....... 300 3.61 300 4.93 1,257 8.02
Five to ten years....... 26,914 5.16 7,012 6.22 2,650 9.00
After ten years......... 126,360 4.64 100,635 6.99 61,628 8.45
-------- -------- --------
Total................ 155,199 109,955 68,962
-------- -------- --------
Other securities:
After ten years......... - - - - - -
FRB stock............... 3,726 6.00 3,726 6.00 3,726 6.00
FHLB stock.............. 1,300 3.00% - - - -
Mark-to-market.......... (67) - - - - -
-------- -------- --------
Total................ 4,959 3,726 3,726
-------- -------- --------
Total investment
securities.........$160,158 $113,681 $ 72,688
======== ======== ========
</TABLE>
LOANS
Loans, net of unearned income, were $168 million at December 31, 1993, a
decrease of $7 million from December 31, 1992. The Bank sold $37 million of
loans in 1993. BTX serviced $39 million of consumer loans for other
institutions at December 31, 1993, $19 million at December 31, 1992 and $0 at
December 31, 1991.
During 1993, the Bank began to originate loans for sale. Prior to 1993,
loans that the Bank sold were originated to be held in its loan portfolio.
However, because of excess loan production, the Bank sold some of its
automobile consumer loans in 1991 and 1992 to reduce its loan portfolio to
targeted levels. In 1993, since the Bank's capacity for excess production was
well established, the Bank began to originate automobile loans for sale.
14
<PAGE> 19
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
The Bank's market areas are now experiencing moderate economic recovery
and the increase from $7 million at year-end 1992 to $9 million at year-end
1993 in residential interim construction lending has suggested a means to
expand its Real Estate Loan Portfolio. The Bank has carefully assessed the
risks related to such loans, as well as the benefits. These loans which
typically have a maturity of six months or less and average $100,000 per house
are made only when permanent financing is in place from the permanent lenders
and only when the contractor responsible for construction of each home has met
rigorous standards, including verification of reputation, character, level of
experience and history of performance, as well as a detailed review of his
present and anticipated financial condition. The Bank actively monitors the
construction process and limits draws based on the percentage of construction
actually completed. In 1992 the Bank made 209 of these loans for an aggregate
of $26,932,000 and in 1993 the Bank made 295 of these loans for an aggregate of
$29,705,000. Interim construction lending has provided the Company with loan
fee revenues amounting to $274,000 and $365,000 in 1992 and 1993, respectively.
The Company will be dependent on its market economy to achieve growth in the
real estate and commercial loan markets. In the fourth quarter, the Company
began purchasing residential mortgage loans which are held for resale to
permanent investors. These loans have 30 day guaranteed take out commitments
by long-term investors. Also, these loans are serviced by the Federal Home
Loan Bank and provide collateral for borrowing from the FHLB, if needed. BTX's
consumer loan portfolio is the principal source of its earning assets which
should continue in 1994.
BTX's loan portfolio at December 31, 1993, was composed of 5% commercial,
16% real estate and 79% consumer. This mix compares to a loan portfolio
composition of 7% commercial, 15% real estate and 78% consumer at December 31,
1992. TABLE 7 presents the composition of the loan portfolio for the past five
years.
TABLE 7 LOAN COMPOSITION
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Commercial............. $ 7,653 $ 11,576 $ 12,465 $ 14,394 $ 39,391
Financial.............. - - - 14,445 211
Energy................. - - 1,668 2,597 8,381
Real estate,
construction......... 9,072 7,117 4,116 2,242 8,382
Real estate, mortgage.. 12,862 18,646 27,133 36,335 52,882
Real estate, mortgage
available for sale... 5,600 - - - -
Installment............ 137,548 147,598 155,530 141,728 162,313
-------- -------- -------- -------- --------
172,735 184,937 200,912 211,741 271,560
Unearned income........ (5,003) (10,242) (17,541) (19,495) (14,348)
-------- -------- -------- -------- --------
Loans, net of
unearned income...... $167,732 $174,695 $183,371 $192,246 $257,212
======== ======== ======== ======== ========
Ratio of loans to
deposits............. 69.05% 64.53% 72.89% 79.41% 71.81%
======== ======== ======== ======== ========
</TABLE>
15
<PAGE> 20
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
TABLE 8 shows that at December 31, 1993, BTX had $14 million of commercial
and real estate construction loans that mature within one year. Thirty-two
percent of the loans with maturities over one year have variable interest
rates. At December 31, 1993, 86% of the consumer loans had maturities of one
to five years.
TABLE 8 MATURITY DISTRIBUTION OF LOANS (EXCLUDING CONSUMER LOANS)
<TABLE>
<CAPTION>
December 31, 1993
-------------------------------------------
One Year One to Over
or Less Five Years Five Years Total
-------- ---------- ---------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial...................... $ 4,898 $ 2,259 $496 $ 7,653
Real estate, construction....... 9,072 - - 9,072
------- ------- ---- -------
Total...................... $13,970 $ 2,259 $496 $16,725
======= ======= ==== =======
Variable-rate loans............. $ 819 $ 60
Fixed-rate loans................ 1,440 436
------- ----
Total...................... $ 2,259 $496
======= ====
</TABLE>
NONPERFORMING ASSETS
Nonperforming assets include nonaccrual loans, restructured loans,
foreclosed property and loans past due 90 days or more but not included in
nonaccrual loans. Loans are placed on nonaccrual when, in the opinion of
management, collection of principal or interest is doubtful. Loans past due 90
days or more with respect to principal or interest are placed on nonaccrual
unless they are both well secured and in the process of collection.
Nonperforming assets at December 31, 1993 were $4.6 million, a decrease of $2.2
million from December 31, 1992. The 1993 decrease resulted after additions of
$815,000 to nonperforming assets, offset by $3 million of reductions in
nonperforming assets due to charge-offs, pay-offs, and sales of assets. TABLE
9 presents the categories of nonperforming assets for the past five years.
16
<PAGE> 21
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
TABLE 9 NONPERFORMING ASSETS
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1993 1992 1991 1990 1989
------- ------- -------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans........... $ 622 $ 1,426 $ 4,203 $ 5,813 $ 4,517
Restructured loans......... - - - - -
Loans past due 90 days
or more but not included
in nonaccrual loans...... 803 148 160 272 243
------- ------- ------- -------- --------
Total nonperforming
loans............... 1,425 1,574 4,363 6,085 4,760
Foreclosed property, net... 3,171 5,211 6,882 10,076 12,440
------- ------- ------- -------- --------
Total................. $ 4,596 $ 6,785 $11,245 $ 16,161 $ 17,200
======= ======= ======= ======== ========
Ratio of nonperforming
assets to total assets... 1.25% 2.10% 3.87% 6.08% 3.91%
======= ======= ======= ======== ========
Ratio of nonperforming
assets to total loans
and foreclosed property.. 2.69% 3.77% 5.91% 7.99% 6.38%
======= ======= ======= ======== ========
</TABLE>
For the year ended December 31, 1993, the loss of income associated with
nonperforming loans on which interest is not being accrued was $54,000 compared
to $252,000 in 1992 and $483,000 in 1991. TABLE 10 presents nonperforming
assets by type of borrower for the past five years. Real estate nonperforming
assets at December 31, 1993 represented 73% of total nonperforming assets
compared to 73% at December 31, 1992. Nonperforming assets are expected to
continue to decline by approximately $2 million and to decline to less than 1%
of total loans in 1994. Success in achieving these lower levels is dependent
upon market conditions for real estate properties.
TABLE 10 NONPERFORMING ASSETS BY TYPE OF BORROWER
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1993 1992 1991 1990 1989
------- ------- -------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Commercial................. $ 171 $ 534 $ 844 $ 738 $ 834
Financial.................. - - 3 16 27
Energy..................... 710 750 1,608 2,378 -
Real estate land........... 2,478 2,964 4,446 6,431 8,174
Real estate residential.... 246 409 1,220 2,031 2,256
Real estate commercial..... 622 1,603 2,368 3,972 4,948
Installment................ 369 525 756 595 961
------- ------- -------- -------- --------
Total................. $ 4,596 $ 6,785 $ 11,245 $ 16,161 $ 17,200
======= ======= ======== ======== ========
</TABLE>
In addition to nonperforming assets, at December 31, 1993, BTX had $2.3
million of loans classified as "potential problem loans" of which 94% are
secured by undeveloped real estate. Sixty-three percent or $1.3 million of
these real
17
<PAGE> 22
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
estate loans were made to two borrowers. This compares favorably to 1992 when
BTX had $3 million "potential problem loans" of which 92% were real estate.
Eighty-six percent or $2.3 million were from three borrowers. A potential
problem loan is a loan that is currently performing in accordance with
contractual terms, where information about possible credit problems of the
borrower is known, which causes management to have serious doubts about the
ability of the borrower to comply with the present loan repayment terms and
which may result in classification of the loan in one of the nonperforming
asset categories. BTX has less than $1 million in loans to foreign borrowers.
For many years, the impact of nonperforming assets has been one of the
primary causes of BTX's below average level of profitability. The high level
of nonperforming assets has resulted in lower net interest margins and high
noninterest expenses from: (1) the provision for loan losses, (2) professional
fees and (3) operating costs associated with nonperforming assets.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
At December 31, 1993, the allowance for loan losses was $2.6 million, or
1.6% of total loans, compared to $3 million, or 1.7% of total loans, at
December 31, 1992. Allowance for loan losses to total nonperforming loans was
185.05% and 193.39% for 1993 and 1992, respectively. At December 31, 1991 the
allowance to total nonperforming loans was 102.66%. The improvement from 1991
to 1992 was due to nonperforming loans declining 64% (TABLE 9, page 17) and
allowance for loan losses declining a proportionately lesser amount of 32%
(TABLE 11, page 20). In the past five years the allowance for loan losses has
decreased from more than $6.5 million to $2.6 million. A reduction in
nonperforming loans (those which usually require a greater allocation of the
allowance) of 70% during this period permitted the Bank to reduce the allowance
by 59% and still maintain an adequate level of allowance.
Management considers the allowance for loan losses to be adequate at
December 31, 1993. The adequacy of the reserve is determinable only on an
approximate basis since estimation of the magnitude and timing of loan losses
involves subjective judgments. In evaluating the adequacy of the reserve at
December 31, 1993, consideration was given to such factors as management's
evaluation of specific loans; the level and composition of classified loans;
historical loss experience; results of examinations by regulatory agencies; an
internal asset review process that is independent of the Bank's management;
expectations of future economic conditions and their impact on particular
industries and individual borrowers; concentrations of credit; management depth
and experience; and other judgmental factors.
The provision for loan losses for 1993 was $490,000, compared to $507,000
for 1992 and $934,000 for 1991. Net charge-offs were $897,000 for 1993,
compared to $1.9 million for 1992 and $2.1 million for 1991. Net charge-offs
for 1993 and 1992 represented 0.5% and 1% of average loans, respectively. For
1993, consumer loan net charge-offs accounted for 105% of total net
charge-offs. In 1991 and 1992, the Bank packaged approximately $45 million of
its previously charged-off
18
<PAGE> 23
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
loans and sold them by sealed bids. These loans had been taken through the
Bank's vigorous loan collection process and the Bank had determined it was not
cost efficient to continue its collection efforts. The Bank sold these
charged-off loans for $504,000 (receiving $446,000 in the fourth quarter of
1991 and $58,000 in 1992). This transaction was recorded as a recovery to the
loan loss reserve and contributed to an 11% reduction of the Bank's net
charge-offs for the years 1991 and 1992.
The Bank's management believes that the favorable downward trend in total
and net charge-offs will stabilize in 1994 as indicated in TABLE 11. As a
result, the provision for loan losses in 1994 is anticipated to be
substantially unchanged from the amount recorded in 1993.
In prior years, BTX had been adversely affected by the economic conditions
in Texas. Last year economic conditions continued to improve, generally in
parallel with the national economy. Although improving, the overall Texas
economy still displays weakness in certain sectors such as commercial real
estate, energy and defense. Vacancy rates for commercial office space are some
of the highest in the nation. Although improving, the oil and gas industry
continues to suffer because of the lack of a comprehensive "National Energy
Policy." The Texas defense industry has been impeded as a result of the "Peace
Dividend." Cutbacks in other areas of government spending such as the Super
Collider and closure of some military bases have also hurt the Texas economy.
The management of BTX recognizes some adverse economic conditions still exist;
however, it does not expect that these will materially adversely impact the
provision for loan loss and its efforts to further upgrade the quality of the
Company's loan portfolio in 1994. Management periodically reviews and
considers the impact of the economy, as well as many other factors, in its
determination of the allowance for loan loss. TABLE 11 details activity in the
allowance for loan losses for the past five years.
19
<PAGE> 24
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
TABLE 11 SUMMARY OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning
of year..................$ 3,044 $ 4,479 $ 5,666 $ 6,498 $ 36,447
Provision for loan losses.. 490 507 934 1,544 2,531
Reduction of allowance due
to the disposition of
BancTEXAS Dallas......... - - - - (16,598)
Loans charged off:
Commercial and financial. 228 581 251 446 9,099
Energy................... 40 220 595 - 67
Real estate, construction - - - 101 5
Real estate, mortgage.... 8 409 1,103 1,864 12,403
Installment.............. 1,622 2,347 2,543 2,909 2,770
Lease financing.......... - - - - 30
-------- -------- -------- -------- --------
Total charge-offs..... 1,898 3,557 4,492 5,320 24,374
Recoveries of loans
previously charged off:
Commercial and financial. 164 324 478 1,299 4,142
Energy................... - - 21 41 1,120
Real estate, construction - - - 17 -
Real estate, mortgage.... 154 251 715 492 2,382
Installment.............. 683 1,040 1,157 1,095 819
Lease financing.......... - - - - 29
-------- -------- -------- -------- --------
Total recoveries...... 1,001 1,615 2,371 2,944 8,492
-------- -------- -------- -------- --------
Net charge-offs....... 897 1,942 2,121 2,376 15,882
-------- -------- -------- -------- --------
Balance at end of year.....$ 2,637 $ 3,044 $ 4,479 $ 5,666 $ 6,498
======== ======== ======== ======== ========
Average total loans........$171,889 $183,315 $187,962 $213,328 $498,341
======== ======== ======== ======== ========
Net charge-offs as a
percent of average loans. .52% 1.06% 1.13% 1.11% 3.19%
======== ======== ======== ======== ========
Allowance for loan losses
as a percent of
year-end loans........... 1.57% 1.74% 2.44% 2.95% 2.53%
======== ======== ======== ======== ========
Allowance for loan losses
as a percent of
nonperforming loans...... 185.05% 193.39% 102.66% 93.11% 136.51%
======== ======== ======== ======== ========
</TABLE>
The allocation of the allowance for loan losses at year-end represents
management's judgment as to the inherent risk in the various categories of the
current loan portfolio. The allocations represent the conditions at a point in
time and are subject to change as conditions dictate. This allocation is not
20
<PAGE> 25
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
intended to predict future potential loan losses. The breakdown of the
allowance by loan category is based in part on evaluations of individual loans,
past history and economic conditions within specific industries or geographic
areas. In addition, all large borrowers, at a minimum, are required to provide
annual statements of condition and profit and loss statements. When the loan
is secured by income producing real estate, detailed rent rolls and operational
expenses are provided by the borrower. The frequency of information provided
by all types of borrowers ranges from monthly to annually, depending on the
size of the transaction, the collateral and the financial condition of the
borrower. All criticized loans, at a minimum, are reviewed by management on a
quarterly basis. TABLE 12 indicates the allocation of the allowance for loan
losses and percent of each loan category to total loans for the past five
years.
TABLE 12 ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
1993 1992 1991 1990 1989
------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Allocation Amount:
Commercial................. $ 229 $ 456 $ 507 $ 573 $ 1,190
Financial.................. - - - 12 81
Energy..................... - - 655 709 291
Real estate, construction.. 237 71 132 11 46
Real estate, mortgage...... 720 1,003 1,023 2,269 2,689
Installment................ 1,451 1,514 2,162 2,092 2,201
------- ------- ------- ------- -------
Total................... $ 2,637 $ 3,044 $ 4,479 $ 5,666 $ 6,498
======= ======= ======= ======= =======
Percent of Each Loan
Category to Total Loans:
Commercial................. 4.6% 6.6% 6.8% 7.5% 15.3%
Financial.................. - - - 7.5 .1
Energy..................... - - 1.0 1.3 3.3
Real estate, construction.. 5.4 4.1 2.2 1.2 3.3
Real estate, mortgage...... 11.0 10.7 14.8 18.9 20.5
Installment................ 79.0 78.6 75.2 63.6 57.5
------- ------- ------ ------ ------
Total................... 100.0% 100.0% 100.0% 100.0% 100.0%
======= ======= ====== ====== ======
</TABLE>
DEPOSITS
During 1993, average deposits decreased $1.9 million, or .7%, from 1992.
Average deposits for 1992 increased $18 million, or 7%, from 1991. TABLE 13
indicates the types of deposits and the related rates paid during the last
three years.
Average demand deposits for 1993 were $45 million, compared to $39 million
for 1992 and $38 million for 1991. The average level of certificates of
deposit $100,000 and over decreased $1.3 million, or 9%, from 1992 to 1993.
However, average savings deposits increased $841,000 from 1992 to 1993.
Average public
21
<PAGE> 26
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
fund deposits for 1993 decreased $850,000 or 4% from 1992. In 1994, BTX
intends to maintain its position in public funds contracts. See page 13 for a
further discussion of public funds contracts.
TABLE 13 DEPOSITS
<TABLE>
<CAPTION>
1993 1992 1991
--------------- --------------- ---------------
Average Average Average
Balance Rate Balance Rate Balance Rate
-------- ----- -------- ----- -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand.................. $ 45,106 - $ 38,925 - $ 37,608 -
Money market accounts... 70,455 2.56% 75,093 3.28% 75,632 5.41%
Savings................. 18,531 2.50 17,690 3.11 16,129 4.95
Certificates of deposit
$100,000 and over..... 12,675 4.54 13,931 5.38 17,938 6.82
Public funds............ 20,360 3.20 21,210 3.90 6,777 5.95
Other time.............. 92,648 4.51% 94,807 5.41% 89,737 6.98%
-------- -------- --------
Total average
deposits......... $259,775 $261,656 $243,821
======== ======== ========
</TABLE>
TABLE 14 presents the maturity structure of domestic certificates of
deposit of $100,000 and over at December 31, 1993, 1992 and 1991.
TABLE 14 MATURITY OF DOMESTIC CERTIFICATES OF DEPOSITS OF $100,000 AND OVER
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1993 1992 1991
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
3 months or less..................... $ 2,882 $17,224 $ 8,654
Over 3 through 6 months.............. 9,615 17,484 9,441
Over 6 through 12 months............. 1,546 1,608 2,309
Over 12 months....................... 7,669 5,184 3,634
------- ------- -------
Total........................... $21,712 $41,500 $24,038
======= ======= =======
</TABLE>
CAPITAL RESOURCES
Stockholders' equity at December 31, 1993 was $14.9 million, compared to
$14.1 million at December 31, 1992. This increase in stockholders' equity from
December 31, 1992 was due to the operating profit of $219,000 for 1993 and
issuance of common stock pursuant to grants and options of $626,000. 400,000
shares of common stock will be issued early in 1994 as part of the settlement
of a significant lawsuit as described on page 12.
22
<PAGE> 27
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
TABLE 15 compares the capital ratios of BTX and the Bank at December 31,
1993 with regulatory requirements applicable to all FDIC-insured banks and bank
holding companies.
TABLE 15 CAPITAL RATIOS
<TABLE>
<CAPTION>
Tier I Capital as Total Capital as
a Percentage of a Percentage of
Risk-Based Leverage Risk-Based
Assets Ratio Assets
------ ----- ------
<S> <C> <C> <C>
BTX at December 31, 1993 7.02% 4.27% 8.47%
Bank at
December 31, 1993 7.30% 4.55% 8.55%
Regulatory requirement
for all banks and bank
holding companies 4.625% 3.00 and above* 8.00%
</TABLE>
*The general leverage ratio is 3% for banks and holding companies in the
highest rating category recognized by the bank regulatory agencies, and an
additional cushion of at least 100 to 200 basis points is required for other
banking organizations.
At year-end 1992 the Bank and BTX's assets were $308 million and $323
million, respectively. At year-end 1993, the assets of the Bank and BTX's
assets had increased to $355 million and $369 million, respectively. The
increase was principally from increased investment securities and had a
negative impact on the leverage ratio and a positive impact on the risk-based
capital ratios. The increased asset size was proportionately greater than the
Company's capital growth, thus the leverage ratio declined. However, within
the increase in asset size, loans declined. Since loans have a higher risk
weighting for risk-based capital ratio purposes (100%) than securities (20%),
the Bank's and BTX's respective risk-based capital ratios improved.
As defined by applicable regulations, "Tier I Capital" consists of the
stockholders' equity of BTX and the Bank respectively; "Total Capital" of the
Bank is the sum of the stockholders' equity plus a portion of the allowance for
23
<PAGE> 28
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
loan losses, and "Total Capital" of BTX is the sum of its stockholders' equity,
a portion of the allowance for loan losses and outstanding convertible
debentures in the principal amount of $421,600. The term "risk-based assets"
equals total assets, plus certain off-balance sheet items, with various
adjustments designed to reflect the risk characteristics of the assets,
liabilities and certain off-balance sheet items; and "adjusted total assets" is
a term used to reflect a regulatory measure of a bank's total assets.
BTX and the Bank are also subject to the terms of two agreements executed
November 30, 1990 with the FDIC. These agreements contain, among other things,
certain reporting requirements and restrictions on the payment of dividends and
management fees.
ASSET & LIABILITY MANAGEMENT
INTEREST RATE SENSITIVITY
Interest rate sensitivity is the relationship between market interest
rates and net interest income due to the repricing of certain assets and
liabilities. If more assets than liabilities reprice within a given period, an
asset sensitive position is created. When an institution is in an asset
sensitive position, a decline in market rates will have a negative impact on
net interest income. Alternatively, when liabilities reprice more quickly than
assets in a given period, a liability sensitive position exists and a decline
in interest rates will increase net interest income. One way to reduce the
adverse effect of market rate fluctuations on net interest income is to
minimize the difference between rate sensitive assets and liabilities, referred
to as gap, by maintaining a balanced interest rate sensitivity position.
Matching interest sensitivity will reduce some of the risks from adverse
changes in market rates, but it will not guarantee a stable net interest spread
because yields and rates may change simultaneously but by different amounts.
These changes in market spreads could materially affect the overall net
interest spread even if assets and liabilities were perfectly matched.
BTX, through its Asset/Liability Management Policy Committee, closely
monitors the interest sensitivity position of the Bank and manages the Bank's
interest sensitivity position. It is BTX's objective to maintain a reasonably
balanced position with respect to the interest rate sensitivity of assets and
liabilities in order to reduce risk of an unfavorable impact to the income
statement and maintain a more stable net interest spread. BTX's interest
sensitivity position at December 31, 1993 is presented in TABLE 16. Currently,
BTX is in a liability sensitive position for all time periods under one year.
During a declining interest rate environment, this position would produce
higher
24
<PAGE> 29
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
net interest income, and during a rising interest rate environment, this
position would produce lower net interest income. It should be noted that the
interest sensitivity position is presented at a point in time and can be
altered by management as changing conditions dictate.
TABLE 16 INTEREST RATE SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
December 31, 1993
-----------------------------------------------------------------------------
Rate-Sensitive
---------------------------------------------------------
Total
Over Rate Nonrate
1-30 31-90 91-180 181-365 1 Sen- Sen-
Days Days Days Days Year sitive sitive** Total
-------- ------- -------- -------- -------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans....................... $ 32,586 $17,204 $ 22,267 $ 30,485 $ 64,568 $167,110 $ 622 $167,732
Investment securities....... 104,815 143 1,481 - 49,993 156,432 3,726 160,158
Federal funds sold an
securities purchased under
agreements to resell...... 14,400 - - - - 14,400 - 14,400
Other earning assets.......... 2,225 - 300 - - 2,525 - 2,525
-------- ------- -------- -------- -------- -------- ------- --------
Total earning assets..... $154,026 $17,347 $ 24,048 $ 30,485 $114,561 $340,467 $ 4,348 $344,815
======== ======= ======== ======== ======== ======== ======= ========
Interest bearing liabilities:
Savings and time deposits... $ 99,162 $19,101 $ 24,595 $ 16,014 $ 39,616 $198,488 $ - $198,488
Short-term borrowings....... 80,066 6,137 - - 21,019 107,222 - 107,222
Long-term debt.............. - - - - 1,054 1,054 - 1,054
-------- ------- -------- -------- -------- -------- ------- --------
Total interest bearing
funds.................. $179,228 $25,238 $ 24,595 $ 16,014 $ 61,689 $306,764 $ - $306,764
======== ======= ======== ======== ======== ======== ======= ========
Nominal gap................... $(25,202)$ (7,891) $ (547) $ 14,471 $ 52,872
Cumulative interest sensitive
gap*........................ $(25,202)$(33,093) $(33,640) $(19,169) $ 33,703
Cumulative earning assets as a
percent of interest bearing
funds....................... 86% 84% 85% 92% 111%
</TABLE>
____________________
* Rate-sensitive earning assets less rate-sensitive interest bearing
liabilities.
** The nonrate-sensitive assets are composed of nonaccrual loans and Federal
Reserve Bank stock.
The above table is prepared with contractual maturity dates. Savings and
time deposits without stated maturities are included in the 1-30 day repricing
window.
LIQUIDITY
Liquidity for the Bank is the ability to raise funds to support asset
growth, meet deposit withdrawals, fund customers' legitimate borrowing needs,
satisfy maturities of short-term borrowings, and maintain reserve requirements.
Liquidity needs can be met by changes in either assets or liabilities or a
combination of both. On the asset side, the primary sources of liquidity are
cash and due from banks, time deposits with banks, federal funds sold and
securities purchased under agreements to resell, short-term marketable
investment securities and scheduled repayments and maturities of loans. The
Bank's investment securities are purchased primarily for the purpose of
collateralizing
25
<PAGE> 30
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
public funds deposits. In the past, when the corresponding public funds
deposits were withdrawn, the pledged securities were sold with no affect on
liquidity. Currently, BTX retains its securities through cyclical changes in
public funds deposit levels. BTX utilizes sales of its securities under
agreements to repurchase in combination with the securities amortization
payments to manage its overall funding and liquidity position. Average cash
and due from banks for 1993 was $8.3 million, an increase of $767,000, or 10%,
from 1992. BTX's average level of federal funds sold and securities purchased
under agreements to resell was $4.5 million for 1993, compared to $7 million
for 1992.
On the liability side, the principal sources of liquidity are deposit
growth, the maturity distribution of purchased funds, unused credit lines, the
collateral value of its investment securities and accessibility to money and
capital markets. Deposits for 1993 averaged $260 million, a decrease of $1.9
million, or .7%, from 1992. Securities sold under agreements to repurchase
averaged $56 million for 1993, an increase of $21 million from 1992.
Currently, BTX and the Bank have available credit lines from the FHLB and
others to the extent of the available collateral value of its investment
security portfolio. As discussed on page 6, the Bank joined the FHLB in the
third quarter of 1993. The Bank's membership in FHLB has enhanced its
liquidity and provided an additional funding source. At December 31, 1993 its
borrowings against securities from the FHLB totaled $64 million and borrowings
from securities dealers and other sources were $42 million.
BTX monitors its liquidity position continuously in relation to changes in
long-term and short-term interest rates. Maturity distribution and interest
sensitivity of assets and liabilities are adjusted in response to those
changes. In order to improve liquidity, the Bank will continue to pursue a
program to increase deposits, implement various cost-cutting and
revenue-generating measures, and explore other methods to increase liquidity,
including the acquisition of additional banks. Currently, the sources of
liquidity are deemed adequate but it is impossible to predict whether they will
remain so.
The possible sources of funds for BancTEXAS Group Inc. are the dividends
paid to it from its subsidiaries, proceeds from equity offerings or debt
offerings, and the proceeds from sales of assets. The FDIC Agreement places
certain restrictions on the payment of dividends by BTX and the payment of
dividends and management fees by the Bank. Currently and in the foreseeable
future, no dividends or fees can be paid to BTX by the Bank. For further
information on BTX (Parent only) financial condition, see Note 18 to BTX's
consolidated financial statements.
26
<PAGE> 31
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
INFLATION
The financial statements and related information presented in this report
have been prepared in accordance with generally accepted accounting principles,
which require the measurement of financial position and results of operations
in terms of historical dollars without regard to changes over time in the
relative purchasing power of money. BTX and other financial institutions hold
substantially all of their assets and liabilities in monetary form, and
generally have an excess of monetary assets over liabilities. During periods
of inflation, monetary assets lose value in terms of purchasing power, and
monetary liabilities have corresponding purchasing power gains. The financial
statements and other data appearing in this report, and in particular the
discussion of liquidity management, illustrate how BTX operates in an
environment of changing interest rates and inflationary trends.
PENDING ACCOUNTING CHANGES
In May 1993, the FASB issued SFAS No. 114, Accounting by Creditors for
Impairment of a Loan ("Statement 114"). Statement 114 requires that impaired
loans be measured based upon the present value of expected future cash flows
discounted at the loan's effective interest rate or the fair value of the
underlying collateral if collateral dependent. A loan is impaired when, based
on current information and events, it is probable that a creditor will be
unable to collect all amounts due according to the loan's contractual terms.
The Company will be required to adopt Statement 114 in fiscal year 1995.
Management believes that adoption of Statement 114 will not have a material
impact on the Company's consolidated financial position or operations.
27
<PAGE> 32
BancTEXAS Group Inc.
MANAGEMENT'S REPORT
Management of BTX has established and maintains a system of internal
controls that provides reasonable assurance as to the integrity and reliability
of the financial statements, the protection of assets from unauthorized use or
disposition, and the prevention and detection of fraudulent financial
reporting. The system of internal controls provides for appropriate division
of responsibility and is documented by written policies and procedures.
Management continually monitors the system of internal controls for compliance.
BTX maintains a strong internal auditing program that independently assesses
the effectiveness of the internal controls and recommends possible improvements
thereto. In addition, the financial statements have been audited by Deloitte &
Touche, independent auditors. As part of its audit of the financial
statements, Deloitte & Touche completed a study and evaluation of selected
internal accounting controls to establish a basis for reliance thereon in
determining the nature, timing, and extent of audit tests to be applied.
Management believes that, as of December 31, 1993, the system of internal
controls is adequate to accomplish the objectives discussed herein.
Management has made available to Deloitte & Touche all the financial
records and related data, as well as the minutes of stockholders' and
directors' meetings. Furthermore, management believes that all representations
made to Deloitte & Touche during its audit were valid and appropriate.
The Audit Committee of the Board of Directors is composed of directors who
are not employees of BTX or any of its subsidiaries. The Audit Committee meets
periodically with management, the internal auditors and the independent
accountants to review accounting, auditing, internal accounting controls and
financial reporting matters.
_____________________________ _____________________________
Nathan C. Collins D. Kert Moore
Chairman of the Board, Senior Vice President,
President and Chief Treasurer and Chief
Executive Officer Financial Officer
28
<PAGE> 33
BancTEXAS Group Inc.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
BancTEXAS Group Inc.
Dallas, Texas
We have audited the consolidated balance sheets of BancTEXAS Group Inc.
and subsidiaries (the"Company) as of December 31, 1993 and 1992, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audits. The consolidated financial statements give
retroactive effect to the merger of First Bank/Las Colinas into BancTEXAS Group
Inc.'s subsidiary, BankTEXAS N.A., which has been accounted for as a pooling of
interests as described in Note 3 to the consolidated financial statements. We
did not audit the statements of income and cash flows of First Bank/Las Colinas
for the year ended December 31, 1991, which statements reflect interest income
of $2,047,048 and a net loss of $109,492. Those statements were audited by
other auditors whose report has been furnished to us, and our opinion, insofar
as it relates to the amounts included for First Bank/Las Colinas for 1991, is
based solely on the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements present fairly, in all material respects,
the financial position of BancTEXAS Group Inc. and subsidiaries as of December
31, 1993 and 1992, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1993 in conformity
with generally accepted accounting principles.
During 1993 the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes" and SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
March 18, 1994
Dallas, Texas
29
<PAGE> 34
BancTEXAS Group Inc.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
-------------------------
1993 1992
--------- ---------
(Dollars in thousands)
<S> <C> <C>
Cash and due from banks............................... $ 8,565 $ 9,675
Time deposits with banks.............................. 2,525 743
Federal funds sold.................................... 14,400 7,400
--------- ---------
Total cash and cash equivalent...................... 25,490 17,818
Mortgage-backed and other investment securities held
to maturity at cost (approximate fair value of
$115,344 and $111,665).............................. 116,451 111,838
Mortgage-backed securities available for sale at
approximate fair value in 1993 (cost $43,774); held
for sale at cost in 1992 (approximate fair value of
$1,864)............................................. 43,707 1,843
Loans (net of unearned income of $4,571 and $10,242).. 147,135 169,695
Loans available for sale (net of unearned income of
$432 and $0)........................................ 20,597 5,000
Less: Allowance for loan losses....................... (2,637) (3,044)
--------- --------
Loans, net.......................................... 165,095 171,651
Foreclosed property, net.............................. 3,171 5,211
Premises and equipment, net........................... 11,338 11,544
Accrued interest receivable........................... 1,247 1,185
Other assets.......................................... 2,109 1,679
--------- ---------
Total assets..................................... $ 368,608 $ 322,769
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing................................. $ 44,409 $ 46,646
Interest bearing.................................... 198,488 224,084
--------- ---------
Total deposits................................... 242,897 270,730
Securities sold under agreements to repurchase........ 95,208 32,470
Other short-term borrowings........................... 1,096 1,365
FHLB long-term advances............................... 10,918 -
Other liabilities..................................... 2,483 3,031
Long-term debt........................................ 1,054 1,066
--------- ---------
Total liabilities................................ 353,656 308,662
--------- ---------
Commitments and contingencies
Stockholders' equity:
Common stock: $.01 par value; authorized
50,000,000 shares; issued and outstanding
19,583,025 shares and 19,201,025 shares........... 196 192
Capital in excess of par............................ 273,035 272,346
Accumulated deficit................................. (258,212) (258,431)
Net unrealized loss on securities available for sale (67) -
--------- ---------
Total stockholders' equity....................... 14,952 14,107
--------- ---------
Total liabilities and stockholders' equity....... $ 368,608 $ 322,769
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
30
<PAGE> 35
BancTEXAS Group Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
1993 1992 1991
-------- -------- ---------
(In thousands, except per share)
<S> <C> <C> <C>
INTEREST INCOME:
Loans............................................. $ 15,152 $ 18,104 $ 19,592
Investment securities............................. 6,650 6,367 3,482
Federal funds sold................................ 133 249 615
Other interest income............................. 31 15 53
-------- -------- --------
Total interest income.......................... 21,966 24,735 23,742
INTEREST EXPENSE:
Deposits.......................................... 7,677 9,746 12,785
Securities sold under agreements to repurchase.... 1,821 1,366 267
Other short-term borrowings....................... 24 22 36
FHLB long-term advances........................... 133 - -
Long-term debt.................................... 95 95 138
-------- -------- --------
Total interest expense......................... 9,750 11,229 13,226
-------- -------- --------
Net interest income............................ 12,216 13,506 10,516
PROVISION FOR LOAN LOSSES........................... 490 507 934
-------- -------- --------
Net interest income after
provision for loan losses.................... 11,726 12,999 9,582
NONINTEREST INCOME:
Service charges and fees.......................... 1,716 1,785 1,692
Investment securities gains....................... 243 103 44
Loan sales and loan servicing income.............. 899 442 76
Other............................................. 210 299 1,135
-------- -------- --------
Total noninterest income....................... 3,068 2,629 2,947
NONINTEREST EXPENSE:
Personnel expense................................. 6,483 6,160 6,922
Occupancy......................................... 1,348 1,464 1,478
Equipment......................................... 919 691 902
Litigation settlement expense..................... 592 - -
Net operating expense of foreclosed property...... 166 1,128 563
Communications and supplies....................... 1,060 1,042 1,266
Professional fees................................. 1,768 1,702 1,763
Data processing................................... 911 856 578
Other............................................. 1,328 1,519 2,557
-------- -------- --------
Total noninterest expense...................... 14,575 14,562 16,029
-------- -------- --------
Net income (loss) before taxes................. 219 1,066 (3,500)
Income tax expense.................................. - 364 4
-------- -------- --------
Income (loss) from operations before
extraordinary item........................... 219 702 (3,504)
EXTRAORDINARY ITEMS:
Gain on early extinguishment of debt.............. - - 465
Tax benefit from net operating loss carryforward.. - 362 -
-------- -------- --------
Net income (loss).............................. $ 219 $ 1,064 $ (3,039)
======== ======== ========
PER SHARE:
Income (loss) from operations..................... $ .01 $ .03 $ (.18)
Extraordinary items............................... - .02 .02
-------- -------- --------
Net income (loss)................................. $ .01 $ .05 $ (.16)
======== ======== ========
AVERAGE COMMON SHARES AND COMMON SHARE
EQUIVALENTS OUTSTANDING........................... 23,301 23,117 19,084
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
31
<PAGE> 36
BancTEXAS Group Inc.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------
1993 1992 1991
--------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
COMMON STOCK:
Balance at beginning of year............ $ 192 $ 191 $ 191
Exercised options....................... 4 1 -
--------- --------- ---------
Balance at end of year.................. 196 192 191
--------- --------- ---------
CAPITAL IN EXCESS OF PAR:
Balance at beginning of year............ 272,346 272,317 272,317
Exercised options....................... 82 29 -
Stock compensation...................... 67 - -
Shares issuable in settlement of
litigation............................ 540 - -
--------- --------- ---------
Balance at end of year.................. 273,035 272,346 272,317
--------- --------- ---------
ACCUMULATED DEFICIT:
Balance at beginning of year............ (258,431) (259,495) (256,456)
Net income (loss)................... ... 219 1,064 (3,039)
--------- --------- ---------
Balance at end of year.................. (258,212) (258,431) (259,495)
--------- --------- ---------
NET UNREALIZED LOSS ON SECURITIES
AVAILABLE FOR SALE:
Balance at beginning of year............ - - -
Net loss................................ (67) - -
--------- --------- ---------
Balance at end of year.................. (67) - -
--------- --------- ---------
TOTAL STOCKHOLDERS' EQUITY................ $ 14,952 $ 14,107 $ 13,013
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
32
<PAGE> 37
BancTEXAS Group Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1993 1992 1991
--------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Operating Activities:
Net income (loss)..................................... $ 219 $ 1,064 $ (3,039)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Provision for loan losses........................... 490 507 934
Depreciation, amortization and accretion............ 1,621 1,345 978
Stock compensation and litigation settlement........ 607 - -
Gain on sale of investment securities............... (243) (103) (44)
Gain on sale of assets.............................. (139) (175) (957)
Gain on early extinguishment of debt................ - - (465)
Gains on sale of loans.............................. (698) (372) (76)
Provision for losses on foreclosed property......... 382 1,148 1,616
Net increase in accrued interest receivable......... (67) (165) (143)
Net (increase) decrease in other assets............. (430) 581 (393)
Net decrease in accrued interest payable............ (89) (256) (203)
Net increase (decrease) in other liabilities........ (459) (1,837) 580
Proceeds from sale of loans originated for sale..... 37,917 - -
Loans originated for sale........................... (20,597) - -
--------- -------- --------
Net cash provided by operations................ 18,514 1,737 (1,212)
Investing Activities:
Proceeds from loan sales............................ - 25,514 2,542
Proceeds from maturities of investment securities... 62,929 21,988 15,945
Proceeds from sales of investment securities........ 15,142 9,337 5,858
Purchase of investment securities................... (125,170) (72,707) (69,367)
(Increase) decrease in loans (net of loans
originated for sale).............................. (11,194) (21,169) 514
Recoveries on loans previously charged off.......... 1,001 1,615 2,318
Proceeds from sales of foreclosed property.......... 1,437 1,901 4,026
Capital expenditures................................ (617) (359) (395)
Proceeds from sales of premises and equipment....... 2 8 3
Other............................................... - - 7,538
--------- -------- --------
Net cash used in investing activities.......... (56,470) (33,872) (31,018)
Financing Activities:
Net increase (decrease) in deposits................. (27,833) 19,144 9,887
Net increase in securities sold under agreements to
repurchase........................................ 73,656 13,070 19,400
Net increase (decrease) in other short-term
borrowings........................................ (269) 739 (286)
Cash repayment of long-term debt.................... (12) - (501)
Exercised stock options............................. 86 30 -
--------- -------- --------
Net cash provided by financing activities...... 45,628 32,983 28,500
Net increase (decrease) in cash and cash equivalents.... 7,672 848 (3,730)
Cash and cash equivalents at beginning of year.......... 17,818 16,970 20,700
--------- -------- --------
Cash and cash equivalents at end of year....... $ 25,490 $ 17,818 $ 16,970
========= ======== ========
Supplemental disclosure of cash paid for interest....... $ 9,839 $ 11,485 $ 13,515
========= ======== =========
Supplemental disclosure of noncash investing and
financing activities:
Additions to other real estate and collateral
acquired........................................... $ 0 $ 1,147 $ 1,490
========= ======== =========
Subsequent loans to facilitate the sale of other
real estate........................................ $ 358 $ 42 $ 96
========= ======== =========
Transfer of investment securities to available for
sale............................................... $ 43,707
=========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
33
<PAGE> 38
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of BancTEXAS Group Inc. and its
subsidiaries (BTX) conform to generally accepted accounting principles and the
general practices within the banking industry. Those policies that materially
affect the determination of financial position, results of operations, and cash
flows are summarized below. In preparing its financial statements, management
is required to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the dates shown of the consolidated balance
sheet and revenues and expenses for the periods. Actual results could differ
significantly from those estimates. Changes in economic conditions could
impact the determination of material estimates such as the allowance for loan
losses and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans.
CONSOLIDATION
The consolidated financial statements include the accounts of the parent
company and its subsidiaries, all of which are wholly-owned. Certain amounts
in prior periods have been reclassified to conform with presentation of the
current period. All significant intercompany balances and transactions have
been eliminated.
CASH AND DUE FROM BANKS
The Bank is required to maintain reserve balances with the Federal Reserve
Bank. These reserve balances averaged approximately $787,000 in 1993 and $1.4
million in 1992.
MORTGAGE-BACKED AND OTHER INVESTMENT SECURITIES
In May 1993, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("Statement 115").
Statement 115 requires BTX to classify its investments in debt and equity
securities into three categories - held to maturity, trading, and available for
sale. The classifications BTX utilizes determines the related accounting
treatment for each category of investments. Investments classified as
available for sale are accounted for at approximate fair value with unrealized
gains or losses, net of taxes, excluded from earnings and reported in a
separate component of shareholders' equity, and securities held to maturity are
accounted for at amortized cost. BTX adopted Statement 115 effective December
31, 1993. The prior years' financial statements have not been restated in
accordance with the provisions of the pronouncement. BTX has no securities
classified as trading.
For 1992 investment securities are stated at cost, adjusted for premium
amortization or discount accretion computed on the level yield method.
Investment securities held for sale are stated at the lower of amortized cost
or fair value. Gains or losses realized on the sale of investment securities
are determined based upon the adjusted cost of the securities sold using the
specific identification method. At December 31, 1992, BancTEXAS Group Inc. had
the ability and intent to hold securities held for investment until their
maturity.
34
<PAGE> 39
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
All investment securities are adjusted for amortization of premiums and
accretion of discounts. Amortization of premiums and accretion of discounts
are recorded to income over the contractual maturity or estimated life of the
individual investment using the level yield method. BTX has the ability and
intent to hold to maturity its investment securities classified as held to
maturity; accordingly, no adjustment has been made for the excess, if any, of
amortized cost over market. In determining the investment category
classifications, management considers its asset/liability strategy, changes in
interest rates and prepayment risk, the need to increase capital and other
factors. Under certain circumstances (including significant deterioration of
the issuer's creditworthiness, a change in tax law, or statutory or regulatory
requirements), BTX may change the investment security classification. Gain or
loss on sale of investments is determined using the specific identification
method.
LOANS
Interest on commercial, real estate, and simple interest installment loans
is accrued daily based upon the principal amounts outstanding. Interest on
other installment loans is recorded under the sum-of-the-digits (Rule of 78's)
method, which approximates the interest method. Loans held for sale are stated
at lower of cost or fair value which is estimated based on present values of
expected cash flows from amortization and historical prepayment experience
using applicable risk-adjusted spreads to the U.S. Treasury curve to
approximate current entry-value interest rates applicable to each category of
such financial instruments. Gains or losses recognized upon the sale of loans
are determined on a specific identification basis.
Loan origination and commitment fees and certain direct loan origination
costs are deferred and the net amount amortized as an interest yield
adjustment. BTX is generally amortizing these amounts over the expected life
of the loans. At December 31, 1993 and 1992, BTX had net deferred loan costs
of $233,000 and $110,000, respectively.
Nonaccrual loans are loans on which accrual of interest income has been
discontinued. A loan is placed on nonaccrual when, in the opinion of
management, collection of principal or interest is doubtful. Additionally,
loans past due 90 days or more with respect to principal or interest are placed
on nonaccrual unless they are both well secured and in process of collection.
When a loan is placed on nonaccrual status, interest accrued but not received
during the current quarterly period is reversed and charged against earnings,
and prior period accrued interest is reversed and charged against the allowance
for loan losses. Interest subsequently collected, generally is applied to the
principal balance outstanding. Restructured loans are loans on which interest
has been reduced or deferred because of the financial deterioration of the
borrower.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is an amount which in management's judgment
is sufficient to absorb losses inherent in the loan portfolio. The allowance
for
35
<PAGE> 40
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
loan losses is based upon management's review and evaluation of the loan
portfolios. Factors considered in the establishment of the allowance for loan
losses include management's evaluation of specific loans; the level and
composition of classified loans; historical loss experience; results of
examinations by regulatory agencies; an internal asset review process that is
independent of the lending area of the Bank; expectations of future economic
conditions and their impact on particular industries and individual borrowers;
concentrations of credit; bank's management experience in specific lending
areas; and other judgmental factors.
The allowance for loan losses is based on estimates of potential future
losses, and ultimate losses may vary from the current estimates. These
estimates are reviewed periodically and as adjustments become necessary, the
effect of the change in estimate is reported in operations in the period in
which it becomes known.
FORECLOSED PROPERTY
At the time collateral for a loan is foreclosed or repossessed, the
collateral is transferred to foreclosed property at the lesser of the loan's
remaining principal balance or the estimated fair market value of the asset
acquired less the estimated costs to sell the assets. Any adjustments at time
of foreclosure to record fair value are charged to the allowance for loan
losses. The net operating expense attributable to these assets is included in
other noninterest expense.
The carrying value of foreclosed property is evaluated on a continuing
basis. Any further declines in value, as determined by management, are
reflected in other noninterest expense in the current year's operations by a
provision for losses on foreclosed property. Subsequent appreciation of
foreclosed property, if any, is not recognized until sale of the related
assets.
Profit from sales of foreclosed property by BTX is recognized in
accordance with the provision of FASB's SFAS No. 66, "Accounting of Sales of
Real Estate" ("Statement 66"). Losses are recognized as incurred.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation or
amortization. Depreciation and amortization are calculated on the
straight-line method, based on the estimated useful lives of the assets.
Maintenance and repairs that do not extend the useful life of the premises and
equipment are charged to expense. The useful lives of premises and equipment
are as follows:
Asset Type Useful Life
---------- -----------
Buildings 40 years
Equipment 2-10 years
Leasehold Improvements Shorter of assets' life or lease term
36
<PAGE> 41
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
INCOME TAXES
BTX and its subsidiaries file consolidated income tax returns. BTX
adopted FASB's SFAS No. 109, "Accounting for Income Taxes" ("Statement 109")
effective January 1, 1993, see Note 12, which requires an asset and liability
approach for accounting for income taxes rather than the deferred method used
in prior years. Deferred income taxes arise from temporary differences between
financial and tax bases of certain assets and liabilities. A valuation
allowance is established if it is more likely than not that some portion of the
deferred tax accounts will not be realized.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is calculated by dividing net income (loss), by
the weighted average number of common shares and common stock equivalents
outstanding.
STATEMENTS OF CASH FLOWS
For purposes of the Statement of Cash Flows, cash and cash equivalents
include cash and due from banks, time deposits with banks and federal funds
sold.
NOTE 2. CURRENT CAPITAL ENVIRONMENT
At December 31, 1993, BTX and the Bank met the minimum capital
requirements prescribed by federal banking statutes and regulations. Failure
of either BTX or the Bank to meet these capital levels may result in the
imposition of various regulatory sanctions by the federal banking regulators,
including new restrictions contained in federal legislation enacted in December
of 1991. The Company continues to seek additional capital from outside
sources. It is not clear whether such capital will be available and it is not
possible to predict with any degree of certainty whether the terms of a
possible capital infusion might have a dilutive effect on the interests of
current stockholders.
Currently, banks and bank holding companies must maintain a minimum of
qualifying total capital and core capital to risk- weighted assets of 8% and
4%, respectively, at December 31, 1993. BTX and the Bank must also meet a
minimum leverage requirement of capital to total assets of 3% to 5%. The
following is a summary of the Bank and BTX's capital ratios at December 31,
1993:
<TABLE>
<CAPTION>
Bank BTX
---- ---
<S> <C> <C>
Total capital to risk-weighted assets............ 8.55% 8.47%
Core capital to risk-weighted assets............. 7.30% 7.02%
Capital to total assets (leverage)............... 4.55% 4.27%
</TABLE>
NOTE 3. MERGER WITH FIRST BANK/LAS COLINAS
The merger of BankTEXAS N.A. and First Bank/Las Colinas on December 31,
1992 qualified as a "pooling of interests" for accounting and financial
reporting purposes. Under the pooling of interests method of accounting, the
historical
37
<PAGE> 42
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 3. MERGER WITH FIRST BANK/LAS COLINAS - (CONTINUED)
basis of the assets and liabilities of BTX and First Bank/Las Colinas are
combined and carried forward at their previously recorded amounts. There were
no intercompany transactions between the companies at the time of the merger.
In the merger, BancTEXAS Group issued 2.2 million shares of stock to the
shareholders of First Bank/Las Colinas based upon an eleven to one exchange
ratio.
NOTE 4. MORTGAGE-BACKED AND OTHER INVESTMENT SECURITIES
The book values and approximate fair values of mortgage-backed and other
investment securities were as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Approximate
Cost Gain Loss Fair Value
--------- ---------- ---------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
DECEMBER 31, 1993:
HELD TO MATURITY
- ----------------
U.S. treasury securities.... $ 1,781 $ - $ 7 $ 1,774
Mortgage-backed securities.. 109,644 - 1,100 108,544
FRB and FHLB stock.......... 5,379 - - 5,379
-------- --------- ---------- ----------
Total.................. $116,804 $ - $ 1,107 $ 115,697
======== ========= ========== ==========
AVAILABLE FOR SALE
- ------------------
U.S. treasury securities.... $ 144 $ - $ - $ 144
Mortgage-backed securities.. 43,630 - 67 43,563
-------- --------- ---------- ----------
Total.................. $ 43,774 $ - $ 67 $ 43,707
======== ========= ========== ==========
DECEMBER 31, 1992:
HELD TO MATURITY
- ----------------
U.S. treasury securities.... $ 2,008 $ 2 $ - $ 2,010
Mortgage-backed securities.. 106,104 - 175 105,929
FRB stock................... 3,726 - - 3,726
-------- --------- ---------- ----------
Total.................. $111,838 $ 2 $ 175 $ 111,665
======== ========= ========== ==========
HELD FOR SALE
- -------------
Mortgage-backed securities.. $ 1,843 $ 21 $ - $ 1,864
======== ========= ========== ==========
</TABLE>
U.S. Treasury securities of $150,000 were restricted under an employment
agreement with BTX's chief executive officer. At December 31, 1993,
approximately $134 million book value of the investment securities were pledged
as collateral for public fund deposits, securities sold under agreements to
repurchase or for other purposes required or permitted by law.
38
<PAGE> 43
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 4. MORTGAGE-BACKED AND OTHER INVESTMENT SECURITIES - (CONTINUED)
BTX adopted SFAS No. 115 effective as of December 31, 1993 which resulted
in a decrease of stockholders' equity of $67,000.
The amortized cost and estimated fair value of debt securities at December
31, 1993, by contractual maturity, are shown below.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
-------------------- --------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury securities
due in five years or less..... $ 143 $ 144 $ 1,781 $ 1,774
Mortgage-backed securities...... 43,631 43,563 109,644 108,544
Other securities................ - - 5,026 5,026
--------- --------- --------- ---------
Total...................... $ 43,774 $ 43,707 $ 116,451 $ 115,344
========= ========= ========= =========
</TABLE>
Proceeds from sales of investment securities during 1993, 1992 and 1991
were $15,142,000, $9,337,000 and $5,858,000 respectively. Gross gains realized
on these sales were $243,000 in 1993, $103,000 in 1992 and $44,000 in 1991.
NOTE 5. LOANS AND ALLOWANCE FOR LOAN LOSSES
The loan portfolio consisted of the following categories:
<TABLE>
<CAPTION>
December 31,
----------------------
1993 1992
-------- --------
(Dollars in thousands)
<S> <C> <C>
Commercial....................................... $ 7,653 $ 11,576
Real estate, construction........................ 9,072 7,117
Real estate, mortgage............................ 18,462 18,646
Installment...................................... 137,548 147,598
-------- --------
172,735 184,937
Unearned income.................................. (5,003) (10,242)
-------- --------
Loans, net of unearned income.................. 167,732 174,695
Allowance for loan losses........................ (2,637) (3,044)
-------- --------
Total loans, net............................ $165,095 $171,651
======== ========
</TABLE>
39
<PAGE> 44
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 5. LOANS AND ALLOWANCE FOR LOAN LOSSES - (CONTINUED)
Included in the loan portfolio were $15 million of installment loans and
$5.6 million of mortgage loans at December 31, 1993 and $5 million of
installment loans at December 31, 1992 that are classified as available for
sale. Such loans are stated at the lower of cost or fair value which is
estimated based on present values of expected cash flows from amortization and
historical prepayment experience using applicable risk-adjusted spreads to the
U.S. Treasury curve to approximate current entry-value interest rates
applicable to such financial instruments. The determination of value, at the
lower of cost or fair value, is made on an individual loan basis.
In the ordinary course of its business, the Bank makes loans to officers,
directors, and their affiliates. These loans are made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
same time for comparable transactions with unrelated parties. Loans
outstanding to this group of related parties totaled $46,000 and $31,000 at
December 31, 1993 and December 31, 1992, respectively. During 1993, $35,000 in
new loans were made and repayments totaled $20,000. At December 31, 1993, BTX
had no related party loans that were classified as nonaccrual or loans past due
90 days or more.
In recent years, BTX's lending activities have been primarily concentrated
in installment loans to residents of Texas.
In May 1993, the FASB issued SFAS No. 114, Accounting by Creditors for
Impairment of a Loan ("Statement 114"). Statement 114 requires that impaired
loans be measured based upon the present value of expected future cash flows
discounted at the loan's effective interest rate or the fair value of the
underlying collateral if collateral dependent. A loan is impaired when, based
on current information and events, it is probable that a creditor will be
unable to collect all amounts due according to the loan's contractual terms.
The Company will be required to adopt Statement 114 in fiscal year 1995.
Management believes that adoption of Statement 114 will not have a material
impact on the Company's consolidated financial position or operations.
Loans on which interest is not being accrued amounted to $622,000 and $1.4
million at December 31, 1993 and 1992, respectively. Nonperforming loans
include loans on which interest is not being accrued and loans restructured
with respect to interest because of the financial deterioration of the
borrower. The loss of income associated with nonperforming loans was as
follows:
<TABLE>
<CAPTION>
Year ended December,
-------------------------------
1993 1992 1991
------ ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Income that would have been recorded in
accordance with original terms............ $ 54 $ 252 $ 565
Less income actually recorded............... (2) 0 (82)
------ ------- -------
Loss of income......................... $ 52 $ 252 $ 483
====== ======= =======
</TABLE>
40
<PAGE> 45
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 5. LOANS AND ALLOWANCE FOR LOAN LOSSES - (CONTINUED)
Changes in the allowance for loan losses for 1993, 1992 and 1991 were as
follows:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of year................ $ 3,044 $ 4,479 $ 5,666
Provision for loan losses................... 490 507 934
Charge-offs................................. (1,898) (3,557) (4,492)
Recoveries.................................. 1,001 1,615 2,371
-------- -------- --------
Net charge-offs........................... (897) (1,942) (2,121)
-------- -------- --------
Balance at end of year................. $ 2,637 $ 3,044 $ 4,479
======== ======== ========
</TABLE>
NOTE 6. FORECLOSED PROPERTY AND ALLOWANCE FOR LOSSES ON FORECLOSED PROPERTY
Foreclosed property at December 31, 1993, 1992 and 1991 was as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1993 1992 1991
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Foreclosed property....................... $ 3,271 $ 5,625 $ 7,272
Allowance for losses on foreclosed
property................................ (100) (414) (390)
------- ------- -------
Foreclosed property, net............. $ 3,171 $ 5,211 $ 6,882
======= ======= =======
</TABLE>
Changes in the allowance for losses on foreclosed property for 1993, 1992
and 1991 were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of year.............. $ 414 $ 390 $ 633
Provision for losses...................... 382 1,148 1,616
Charge-offs............................... (696) (1,124) (1,859)
------- ------- -------
Balance at end of year............... $ 100 $ 414 $ 390
======= ======= =======
</TABLE>
Net operating expense of foreclosed property was $166,000 for 1993,
compared to $1.1 million for 1992 and $563,000 for 1991. In 1991, one property
was sold that generated a profit on sale of $950,000. Net operating expense
includes the provision for losses on foreclosed property, gain on the sale of
foreclosed assets and other related costs.
41
<PAGE> 46
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 7. PREMISES AND EQUIPMENT
The following is a summary of premises and equipment at December 31, 1993,
1992 and 1991:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1993 1992 1991
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Land...................................... $ 2,424 $ 2,424 $ 2,424
Buildings................................. 10,670 10,615 10,496
Equipment................................. 4,202 4,335 4,257
Leasehold improvements.................... 2,217 2,117 2,104
Less accumulated depreciation
and amortization........................ (8,175) (7,947) (7,179)
------- -------- -------
Total................................ $11,338 $ 11,544 $12,102
======= ======== =======
</TABLE>
Depreciation expense was $822,709, $853,845 and $868,722 for the years
1993, 1992 and 1991, respectively.
NOTE 8. SHORT-TERM BORROWINGS
Federal funds purchased and securities sold under repurchase agreements
generally represent overnight borrowing transactions. Federal Home Loan Bank
Resale Agreements are borrowings with a maturity of less than a year.
Mortgage-backed securities of $101 million are pledged as collateral for these
repos. Other short-term borrowings consist of: short-term notes to the Federal
Reserve Bank for Treasury, Tax and Loan Deposits, and various other borrowings
that generally have maturities of less than one year.
The details for these short-term borrowing categories are presented in the
table below.
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Securities Sold under Repurchase Agreements:
Balance at year-end*...................... $ 95,208 $32,470 $ 19,400
Average daily balance..................... 51,991 33,866 4,662
Maximum month-end balance................. 95,208 50,221 19,400
Average annual interest rate.............. 3.50% 4.03% 5.73%
Weighted average interest rate
at year-end............................. 3.33% 3.99% 4.90%
Other Short-Term Borrowings:
Balance at year-end....................... $ 1,096 $ 1,365 $ 626
Average daily balance..................... 819 746 741
Maximum month-end balance................. 1,227 1,422 1,641
Average annual interest rate.............. 2.93% 2.95% 4.86%
Weighted average interest rate
at year-end............................. 2.73% 2.78% 3.96%
</TABLE>
____________________
* 1993 includes $169,000 to a director at a rate of 3.25%, 1992 includes
$261,000 to a director at a rate of 4.10% and 1991 includes $1,139,000 to a
director at a rate of 4.85%. The rates paid on these repurchase agreements
were at market rates.
42
<PAGE> 47
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 9. FHLB LONG-TERM ADVANCES
Federal Home Loan Bank Long-Term Advances are generally greater than one
year in maturity. The details for this long term borrowing are presented in
the table below.
<TABLE>
<CAPTION>
1993 1992
------- -------
(Dollars in thousands)
<S> <C> <C>
4.29% due 1995.................. $ 3,000 $ -
4.61% due 1996.................. 3,000 -
4.43% due 1998.................. 4,918 -
------- -------
$10,918 $ -
======= =======
</TABLE>
Mortgage-backed securities of $12 million are pledged as collateral for
these advances.
NOTE 10. LONG-TERM DEBT
Long-term debt at December 31, 1993 and 1992 consisted of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1993 1992
------ ------
(Dollars in thousands)
<S> <C> <C>
9% convertible subordinated
debentures due 1996................ $1,054 $1,054
Other due 1992....................... - 12
------ ------
Total long-term debt............ $1,054 $1,066
====== ======
</TABLE>
At December 31, 1993, CSWI International Finance N.V. (CSWI), a
Netherlands Antilles corporation that is a wholly owned subsidiary of BTX, had
outstanding approximately $1 million (principal balance) of 9% convertible
subordinated debentures due May 15, 1996. During 1991, BTX purchased and
retired $939,000 principal amount of the CSWI debentures then outstanding and
recognized an extraordinary gain of $465,000 from the early extinguishment of
such debt through this transaction. These debentures are guaranteed by BTX and
are convertible into common stock of BTX at $406.25 per share (restated for the
one-for-50 reverse stock split in 1987). At December 31, 1993, BTX had
reserved 2,594 shares of its common stock for conversion of these debentures.
NOTE 11. STOCKHOLDERS' EQUITY
COMMON STOCK
The ability of BTX to pay dividends on its common stock is significantly
limited. While the payment of dividends by BTX is generally governed by
Delaware corporate law, it is also limited by federal laws and regulations
setting minimum capital ratios and by a limitation currently imposed by the
Federal Reserve Bank of Dallas. In any event, BTX would be dependent on funds
paid to it by the Bank in order to make any dividend payments, and the ability
of the Bank to pay dividends to the holding company is restricted under the
National Bank Act.
43
<PAGE> 48
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 11. STOCKHOLDERS' EQUITY - (CONTINUED)
STOCK OPTIONS
On April 19, 1990, the Board of Directors of BTX adopted the 1990 Stock
Option Plan (1990 Plan). Pursuant to the 1990 Plan, six directors (none of
whom are officers or employees of BTX or its subsidiaries) were each granted a
stock option to acquire 100,000 shares and 17 officers of BTX and its
subsidiaries, who were selected by the Board of Directors, were granted stock
options to acquire, in the aggregate, 1,860,000 shares. All of these options,
except one covering 25,000 shares at 37.5 cents per share, were issued with a
purchase price of 25 cents per share which was 100% of the fair market value of
the common stock on the date the options were granted. The 1990 Plan currently
provides that no more than 3,000,000 shares of common stock will be available
for stock options. One-fourth of each stock option becomes exercisable at the
date of the grant and at each anniversary date of the grant. The options
expire ten years from the date of the grant. The 1990 Plan was ratified by
BTX's stockholders at the 1991 Annual Meeting of Stockholders.
At December 31, 1993, there were 552,500 shares available for future stock
options. Also at that date, BTX had reserved 1,985,500 shares of its common
stock for exercise of outstanding options.
Transactions relating to the 1990 Plan were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
-------------------- ------------------- ------------------
Number Average Number Average Number Average
of Option of Option of Option
Shares Price Shares Price Shares Price
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
STOCK OPTIONS:
Beginning balance.............. 2,350,000 $ .25 2,467,500 $ .25 2,460,000 $ .25
Granted........................ - $ - - $ - 25,000 $ .38
Canceled....................... (20,000) $ .25 - $ - (17,500) $ .25
Exercised...................... (344,500) $ .25 (117,500) $ .25 - $ -
--------- ---------
Ending balance................. 1,985,500 $ .25 2,350,000 $ .25 2,467,500 $ .25
========= ========= =========
Stock Options exercisable
at December 31............... 1,979,250 1,756,250 1,236,250
========= ========= =========
</TABLE>
WARRANTS
As part of BTX's 1987 restructuring, BTX issued warrants to purchase
common stock to certain commercial banks which were then its senior lenders and
to the FDIC. The senior lenders received warrants to purchase 984,943 shares
of common stock and the FDIC received warrants to purchase 1,969,885 shares of
common stock both at an exercise price of $5.41 per share. At the date of
issuance, the warrants were considered to have nominal fair market value, if
any. Thus, for financial reporting purposes, no value was assigned to these
warrants. These warrants have antidilution protection and substantial
registration rights and will expire twenty years after issuance. At December
31, 1993, no common stock has been issued from the exercise of these warrants
and management believes these warrants (other than those owned by the FDIC)
continue to have little, if any, fair market value.
44
<PAGE> 49
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 11. STOCKHOLDERS' EQUITY - (CONTINUED)
Pursuant to the FDIC's Order dated October 16, 1990, BTX amended and
restated the FDIC warrants. On November 30, 1990, the FDIC and BTX executed an
Agreement Concerning Warrants. Pursuant to this agreement, BTX issued warrants
to the FDIC, dated November 30, 1990, granting the right to purchase up to an
aggregate of 1,970,033 shares of BTX's common stock at a price of five cents
per share in exchange for those granted under the Company's 1987 restructuring.
The 1987 FDIC warrants were canceled. The 1990 warrants cannot be exercised
before October 16, 1995 and will expire, if not previously exercised, on July
17, 2007. The 1990 warrants are protected by antidilution provisions relating
both to number of shares and the exercise price. BTX has reserved 2,954,976
shares of its common stock, equal to the aggregate amount of all warrants
outstanding.
NOTE 12. FEDERAL INCOME TAXES
For federal income tax purposes, at December 31, 1993, BTX had net
operating loss carryforwards of approximately $65 million. The net operating
loss carryforwards expire as follows:
<TABLE>
<CAPTION>
Year ending December 31, Tax NOL
------------------------ -------
(Dollars in Millions)
<S> <C>
1994...................... $ 20
1995...................... 5
1996...................... 2
1997...................... -
1998-2008................. 38
----
$ 65
====
</TABLE>
At December 31, 1993, BTX had investment tax credit carryforwards of
approximately $412 thousand, which will be available in the future to offset
taxes otherwise payable. The investment tax credit carryforwards expire
between 1996 and 2001. Investment tax credit carryforwards have been reduced
in accordance with the provisions of the Tax Reform Act of 1986.
Income tax expense in 1993, 1992, and 1991 varies from that calculated
using the statutory rate due to the provision of the alternative minimum tax
for federal income tax purposes and for 1993 and 1992 the utilization of a net
operating loss carryforward from prior years.
BTX adopted Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes", effective January 1, 1993. BTX recorded no
change in income for the twelve months ended December 31, 1993 to adjust for
the cumulative effect of adopting SFAS No. 109 as of January 1, 1993.
45
<PAGE> 50
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 12. FEDERAL INCOME TAXES - (CONTINUED)
Deferred income taxes reflect the net tax effects of: (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax reporting
purposes, (b) net operating loss carryforwards, and (c) tax credit
carryforwards. The cumulative tax effect at the statutory rate of 34% of
significant items comprising BTX's net deferred tax accounts as of December 31,
1993 is as follows:
<TABLE>
<CAPTION>
December 31, 1993 January 1, 1993
----------------- ---------------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Differences between book and tax basis
of property............................. $ 1,401,000 $ 1,381,000
Other..................................... 393,000 258,000
------------ ------------
Total................................ $ 1,794,000 $ 1,639,000
DEFERRED TAX ASSETS:
Loan loss reserves........................ $ 562,000 $ 473,000
Other real estate reserves................ 7,644,000 7,780,000
Other..................................... 613,000 905,000
Tax credit carryforwards.................. 140,000 136,000
Net operating loss carryforwards.......... 31,125,000 34,539,000
------------ ------------
Subtotal............................. $ 40,084,000 $ 43,833,000
Valuation allowance....................... 38,290,000 42,194,000
------------ ------------
Total................................ $ 1,794,000 $ 1,639,000
------------ ------------
Net deferred tax accounts................. $ - $ -
============ ============
</TABLE>
There was a $3.9 million decrease in the valuation allowance and no provision
for income tax expense (benefit) for the year ended December 31, 1993 primarily
due to the utilization and expiration of net operating loss carryforwards.
46
<PAGE> 51
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 13. EMPLOYEE BENEFIT PLANS
PENSION PLAN
BTX has a noncontributory defined benefit pension plan covering
substantially all officers and employees. Under the plan, retirement benefits
are primarily a function of both the years of service and the highest five-year
average salary during the last ten years of service. BTX's policy is to fund
the net periodic pension cost, but not less than the minimum required nor
greater than the maximum deductible contribution determined in accordance with
applicable income tax regulations. BTX will make a contribution of $267,815
for the plan year 1993 and made contributions of $39,961 and $0 for the plan
years 1992 and 1991, respectively. Contributions to the plan are intended to
provide not only for benefits attributed to service to date, but also for those
expected to be earned in the future.
The following table shows the plan's funded status as follows:
<TABLE>
<CAPTION>
January 1,
-------------------
1993 1992
------- -------
(Dollars in thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits....................................... $ 7,665 $ 6,698
Nonvested benefits.................................... 174 221
------- -------
Accumulated benefit obligation........................ 7,839 6,919
Effect of projected future compensation levels.......... 752 663
------- -------
Projected benefit obligation............................ 8,591 7,582
Plan assets at fair value............................... 7,981 7,549
------- -------
Projected benefit obligation in excess of plan assets... 610 33
Unrecognized net loss from past experience different
from that assumed and effects of changes
in assumptions........................................ (1,783) (1,411)
Unrecognized transition asset being amortized
over 11 years......................................... 815 1,019
------- -------
Prepaid pension cost............................... $ (358) $ (359)
======= =======
</TABLE>
47
<PAGE> 52
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 13. EMPLOYEE BENEFIT PLANS - (CONTINUED)
Net periodic pension cost for the years ended December 31, 1993 and 1992,
included the following:
<TABLE>
<CAPTION>
Year ended
-----------------
1993 1992
----- -----
(Dollars in thousands)
<S> <C> <C>
Service cost - benefits earned during the period........ $ 262 $ 241
Interest cost on projected benefit obligation........... 563 562
Actual return on assets................................. (832) (388)
Net amortization and deferral........................... 47 (494)
----- -----
Net periodic pension (income) cost................. $ 40 $ (79)
===== =====
</TABLE>
The weighted average assumed discount rate used in determining the
actuarial present value of the projected benefit obligation was 7.75% on
January 1, 1993 and 8.0% on January 1, 1992. The projected rate of increase in
future salary levels was 4.5% in 1993 and 5.0% in 1992. The expected long-term
rate of return on assets used in determining the net pension cost was 8.5% for
1993 and 9.5% in 1992. The plan assets consist of money market funds, bank
managed common trust funds and corporate securities.
EMPLOYEES 401(K) PLAN
In March 1991, the Company established the BancTEXAS Employees 401(k) Plan
(401(k) Plan). The purpose of the 401(k) Plan is to aid eligible employees to
accumulate capital for their future economic security, to encourage eligible
employees to remain in the service of the Company, and to provide an additional
incentive for employee performance on behalf on the Company. The 401(k) Plan
is intended to constitute a qualified cash or deferred profit sharing plan
within the meaning of Section 401(k) of the Internal Revenue Code of 1986. The
401(k) Plan is administered by a committee appointed by the Board of Directors
of the Company. The assets of the 401(k) Plan are held by a trust and managed
by a trustee pursuant to a trust agreement. The current trustee is NationsBank
of Texas, N.A.
The Company matches 10% to 20% of employee contributions up to 5% of the
employee's salary. Contributions by participating employees pursuant to the
terms of the 401(k) Plan are automatically fully vested and nonforfeitable.
Funds contributed to the 401(k) Plan by the Company for the account of a
participating employee become vested and nonforfeitable after the employee has
completed five years of service with the Company.
As of December 31, 1993, there were 136 employees of the Company who were
eligible to participate in the 401(k) Plan, of which 96 were participating in
the 401(k) Plan. The company accrued $24,000 for its contribution to the
401(k) Plan for 1993 and $24,000 for 1992.
48
<PAGE> 53
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 13. EMPLOYEE BENEFIT PLANS - (CONTINUED)
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Effective January 1, 1993, BTX Adopted Statement of Financial Accounting
Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." SFAS No. 106 requires BTX to accrue the estimated cost
of retiree benefit payments during the years the employee provides services.
BTX previously expensed the cost of these benefits, which are principally
health care, as claims were incurred. SFAS No. 106 allows recognition of the
cumulative effect of the liability in the year of the adoption or the
amortization of the obligation over a period of up to twenty years. BTX has
elected to recognize this obligation of approximately $1.6 million over a
period of twenty years. BTX's cash flows are not affected by implementation of
this Statement, but implementation decreased income from continuing operations
for the year ended December 31, 1993 by $99,000.
BTX provides certain health care and life insurance benefits for
substantially all of its retired employees. In 1993 and 1992, BTX recognized
$120,000 and $168,000, respectively, as an expense for postretirement health
care and life insurance benefits. The following table sets forth the health
care plan's funded status at December 31, 1993.
Accumulated postretirement benefit obligation:
<TABLE>
<S> <C>
Retirees............................................. $ 921
Fully eligible plan participants..................... 211
Other active plan participants....................... 490
-------
1,622
Fair value of plan assets............................ 0
-------
Accumulated postretirement benefit obligations
in excess of plan assets........................... 1,622
Unrecognized prior service cost...................... (100)
Unrecognized net loss................................ (161)
Unrecognized transition obligation................... (1,262)
-------
Accrued postretirement benefit cost............. $ 99
=======
</TABLE>
Net postretirement benefit cost for the twelve months ended December 31, 1993
consisted of the following components:
<TABLE>
<S> <C>
Service cost - benefits earned during the period..... $ 46
Interest cost on accumulated postretirement benefit
obligation......................................... 106
Amortization of transition obligation................ 67
-------
Total net postretirement benefit cost........... $ 219
=======
</TABLE>
49
<PAGE> 54
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 13. EMPLOYEE BENEFIT PLANS - (CONTINUED)
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of January 1, 1993 was 12% decreasing
linearly each successive year until it reaches 5.5% in 2010, after which it
remains constant. A one-percentage-point increase in the assumed health care
cost trend rate for each year would increase the accumulated postretirement
benefit obligation as of January 1, 1993 and net postretirement health care
cost by approximately 9%. The assumed discount rate used in determining the
accumulated postretirement benefit obligation was 7%.
NOTE 14. DIRECTOR BENEFIT PLANS
STOCK BONUS PLAN
Effective June 17, 1993, BTX adopted the 1993 Directors' Stock Bonus Plan
which provides for annual grants of Common Stock to the non-employee
("outside") directors of BTX. The principal purpose of the Plan is to utilize
the company's Common Stock to further align the interests of outside directors
with the interests of BTX's stockholders, to provide such directors with
additional incentives to remain in the service of BTX and to contribute to a
reasonable and competitive compensation package without the need for additional
cash expenditures by BTX. As of June 30, 1993, the directors were vested one
year in the Plan and an expense of $67,000 was recorded reflecting the market
value of 37,500 shares at the time of shareholder approval of the Plan.
The Plan will be self-operative, and the timing, amounts, recipients and
terms of individual grants will be determined automatically. On July 1 of each
year, each outside director will automatically receive a grant of 7,500 shares
of BTX Common Stock. While the value of each grant will depend upon future
developments which may influence the market value of BTX's Common Stock, the
overall effect of the Plan over time is expected to provide a long-term reward
to the outside directors with a value directly tied to the return realizable by
BTX stockholders as a group. Future grants under the Plan would apply equally
to current directors and to any individual who becomes a director of BTX in the
future. The maximum number of Plan shares that may be issued shall not exceed
250,000 shares. The Plan will expire on July 1, 2001.
50
<PAGE> 55
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 14. DIRECTOR BENEFIT PLANS - (CONTINUED)
DIRECTORS' RETIREMENT PLAN
BTX adopted a Directors' Retirement Plan in 1993. Under the Plan,
retirement benefits are primarily a function of years of service.
The following table shows the plan's funded status at December 31, 1993:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
Actuarial present value of benefit obligations:
Vested benefits....................................... $ 198
Nonvested benefits.................................... 0
-----
Accumulated benefit obligation........................ 198
Effect of projected future compensation levels.......... 0
-----
Projected benefit obligation............................ 198
Plan assets at fair value............................... 0
-----
Plan assets in deficit of projected benefit obligation.. 198
Unrecognized net loss from past experience different
from that assumed and effects of changes in
assumptions........................................... (12)
Unrecognized prior service cost......................... (128)
-----
Accrued pension cost............................... $ 58
=====
</TABLE>
Net periodic pension cost for the twelve months ended December 31, 1993
included the following:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
Service cost - benefits earned during the period......... $ 29
Interest cost on projected benefit obligation............ 11
Actual return on assets.................................. 0
Net amortization and deferral............................ 18
----
Net periodic pension cost........................... $ 58
====
</TABLE>
The weighted average assumed discount rate used in determining the
actuarial present value of the projected benefit obligation was 7%.
51
<PAGE> 56
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 15. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
Total rental expense on operating leases was $397,000 for 1993, $440,000
for 1992 and $433,000 for 1991. Certain leases contain renewal options and
escalation clauses. The expected minimum future rental payments for
noncancelable operating leases with initial or remaining terms in excess of one
year are approximately as follows:
<TABLE>
<CAPTION>
Year ending December 31, Premises Equipment
------------------------ -------- ---------
(Dollars in thousands)
<S> <C> <C>
1994.............................. $ 392 $ 107
1995.............................. 297 14
1996.............................. 298 11
1997.............................. 247 8
1998.............................. 102 1
1999.............................. 42 -
2000.............................. 28 -
------ -----
$1,406 $ 141
====== =====
</TABLE>
BTX has a data processing services agreement with an unaffiliated third
party that expires on May 31, 1996. Under the terms of the agreement, the
basic monthly fee is $40,000 per month plus additional charges for ATM
processing and program support. The base fee is subject to semiannual cost of
living adjustments throughout the term of the contract.
The Company owns its banking facility located at 321 North Central
Expressway in the City of McKinney, Texas. The building is 51,216 square feet,
10,751 square feet of which is occupied by the Bank and the remainder is leased
to unrelated parties. The following is the expected future rental income for
noncancellable operating leases with initial or remaining terms in excess of
one year are approximately as follows:
<TABLE>
<CAPTION>
Year ending December 31, Tenant Income
------------------------ -------------
(Dollars in thousands)
<S> <C>
1994.............................. $ 277
1995.............................. 200
1996.............................. 50
1997.............................. 14
------
$ 541
======
</TABLE>
52
<PAGE> 57
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 15. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
LOAN COMMITMENTS
The Company is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit
and standby letters of credit. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the consolidated balance sheet. The contract amounts of those instruments
reflect the extent of involvement the Company has in particular classes of
financial instruments. The Company's exposure to credit loss, in the event of
nonperformance by the other party to the financial instrument for commitments
to extend credit and standby letters of credit, is represented by the
contractual amount of those instruments. The Company uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance sheet instruments. The Company has considered risk exposure arising
from letters of credit and unfunded commitments to extend credit and losses are
accrued if necessary.
Commitments to extend credit at December 31 are as follows:
<TABLE>
<CAPTION>
1993 1992
------- -------
(Dollars in thousands)
<S> <C> <C>
Credit card commitments........... $ 2,117 $ 2,361
Other loan commitments............ 10,751 9,528
Standby letters of credit......... 217 110
</TABLE>
Credit card and other loan commitments are agreements to lend to a
customer as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. Each
customer's creditworthiness is evaluated on a case-by-case basis. The amount
of collateral obtained, if deemed necessary upon extension of credit, is based
on credit evaluation of the customer. Collateral held varies but may include
accounts receivable, inventory, property, plant, equipment, income-producing
commercial properties and single family residential properties. Collateral is
generally required except for consumer credit card commitments.
Standby letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. The letters of
credit are primarily issued to support private borrowing arrangements and
commercial transactions. Most letters of credit extend for less than one year.
The credit risk involved in issuing letters of credit is essentially the same
as that involved in extending loan facilities to customers. The Bank holds
marketable securities, certificates of deposit, inventory or other assets as
collateral supporting those commitments for which collateral is deemed
necessary as the commitments are issued. Collateral values generally exceed
the amounts advanced under the commitments.
53
<PAGE> 58
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 16. LITIGATION
In 1986, 22 buyers of BTX common stock in a private placement completed in
1984, wherein 2 million shares were sold for $8,250,000, filed a lawsuit
against BTX and its former Chief Executive Officer in the U.S. District Court
in Dallas. The plaintiffs alleged that the defendants violated Section 10(b)
of the Securities Exchange Act of 1934 in connection with the private
placement. The plaintiffs also alleged that the acts of the defendants
constituted common law fraud, a breach of the representations and warranties of
the stock purchase agreement pursuant to which the private placement was
effected, and a breach of the registration rights provisions of the stock
purchase agreement. Rescission of the plaintiff's investment and unspecified
monetary damages, including punitive damages and attorneys' fees, was sought.
Prior to 1993, BTX settled with all of the plaintiffs, except nine, upon
terms favorable to BTX. A jury trial with the remaining nine plaintiffs was
scheduled to begin in November of 1993. After court ordered mediation, the
parties agreed to a settlement whereby all of the plaintiffs' claims including
$2.3 million of damages plus interest and attorneys fees were compromised by
BTX's agreement to issue 400,000 shares of its common stock to the plaintiffs
and their attorneys and deliver to each of two of the plaintiffs an unsecured
promissory note which they had executed in 1984 when they borrowed funds from
another bank. Due to the current financial condition of these two plaintiffs,
the value of these notes was problematic and BTX was able to acquire the notes
at a deep discount (paying $51,562 for promissory notes having a face value of
$515,625). The shares of common stock will be registered with the Securities
and Exchange Commission; half will be immediately saleable and half will be
restricted as to resale for six months.
The total cost to BTX of this settlement was $592,000 which has been
recorded as a charge against 1993's earnings. The issuance of this stock will
result in a dilution of approximately two percent for BTX's stockholders but
will not have an adverse affect upon capital levels.
There are several other claims and legal actions pending against BTX
and/or the Bank with regard to matters arising out of the conduct of their
businesses. It is the opinion of management, in consultation with legal
counsel, that the ultimate liability, if any, resulting from such claims and
legal actions will not materially affect the financial condition, results of
operations or liquidity of BTX or the Bank.
54
<PAGE> 59
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 17. FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments." The estimated fair value amounts have been determined
by BTX using available market information and appropriate valuation
methodologies. However, considerable judgment is necessarily required to
interpret market data to develop the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts BTX
could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
(in thousands) (in thousands)
--------------------- ---------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents......$ 11,090 $ 11,090 $ 10,418 $ 10,418
Marketable securities.......... 160,225 159,051 113,681 113,529
Loans.......................... 165,095 168,163 171,651 175,197
Federal funds sold............. 14,400 14,400 7,400 7,400
Accrued interest receivable.... 1,247 1,247 1,185 1,185
Liabilities:
Demand deposits................ 44,409 44,409 46,646 46,646
Time deposits.................. 198,488 200,891 224,084 225,861
Accrued interest payable....... 517 517 606 606
Securities sold under agreement
to repurchase and FHLB
repurchase agreements........ 95,208 95,208 32,470 32,470
FHLB long-term advances........ 10,918 10,962 - -
Long-term debt................. 1,054 1,180 1,066 1,196
Unfunded Loan Commitments........ - - - -
</TABLE>
55
<PAGE> 60
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 17. FINANCIAL INSTRUMENTS - (CONTINUED)
The fair value of marketable securities is based on prices obtained from
independent pricing services. The fair value of loans, time deposits, and
other financial instruments is estimated based on present values of expected
cash flows from amortization and historical prepayment experience using
applicable risk-adjusted spreads to the U.S. Treasury curve for current market
rates offered for instruments with similar terms to approximate current
entry-value interest rates applicable to each category of such financial
instruments.
Cash and cash equivalents, accrued interest receivable, demand deposits,
accrued interest payable, and securities sold under agreement to repurchase are
valued at book value which approximates fair value. This valuation is due to
the fact that the amounts due or payable consist of maturities less than 30
days or on demand. BTX's unfunded commitments consists primarily of variable
rate interim construction commitments and $2.3 million of unfunded credit card
commitments. Accordingly, the unfunded commitments estimated fair value is
immaterial.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1993 and 1992. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since the presentation date
and, therefore, current estimates of fair value may differ significantly from
the amounts presented herein.
56
<PAGE> 61
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 18. BANCTEXAS GROUP INC. (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------
1993 1992
-------- --------
(Dollars in thousands)
<S> <C>
ASSETS
Cash............................................. $ 200 $ 161
Time deposits with banks......................... - 443
Mortgage-backed and other securities held to
maturity at cost (1)........................... - 14,117
Mortgage-backed and other securities available
for sale (1)................................... 13,541 -
Loans (net)...................................... 198 2
Investment in subsidiaries....................... 16,060 15,814
Other assets..................................... 159 246
------- -------
Total assets................................ $30,158 $30,783
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Payable to subsidiaries.......................... $ 1,882 $ 1,756
Securities sold under agreement to repurchase.... 12,675 13,394
Other liabilities(2)............................. 649 1,526
------- -------
Total liabilities........................... 15,206 16,676
Stockholders' equity............................. 14,952 14,107
------- -------
Total liabilities and stockholders' equity.. $30,158 $30,783
======= =======
</TABLE>
_______________
(1) Includes $150,000 for 1993 and $500,000 for 1992 of restricted
securities relating to the employment contract of the chief executive officer
of BTX.
(2) In 1989, BTX Group accrued for contingent and estimated expenses
related to the failure of its former subsidiary (BancTEXAS Dallas) for
severance costs, litigation and related legal expenditures. At year-end 1989,
accrued liabilities for these estimated expenditures were $8.5 million.
BTX Group evaluates its contingent liabilities and estimated expenditures
for litigation on an interim and annual basis. At December 31, 1992, the
accrued liabilities for these estimated expenditures was $1,514,000. Accruals
that were no longer necessary amounting to $590,000 and $804,000 for 1992 and
1993, respectively were reversed. At year-end 1993, BTX's remaining accruals
for estimated contingent liabilities and estimated expenses were $649,000.
57
<PAGE> 62
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 18. BANCTEXAS GROUP INC. (PARENT COMPANY ONLY) - (CONTINUED)
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------
1993 1992 1991
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Income:
Interest................................. $ 684 $ 442 $ 218
Securities gains......................... 15 0 2
Other.................................... (40) 40 -
-------- ------- --------
659 482 220
-------- ------- --------
Expense:
Interest................................. 601 386 163
Provision for (reversal of) loan losses.. - (25) (100)
Reversal of officers severance........... - (600) -
Litigation settlement expense............ 592 - -
Reversal of estimated costs of former
subsidiary............................. (804) (590) -
Other.................................... 220 183 997
-------- ------- --------
609 (646) 1,060
-------- ------- --------
Income (loss) before taxes........... 50 1,128 (840)
Income tax expense......................... - 384 -
-------- ------- --------
Income (loss) before equity in
undistributed income (loss) of
subsidiaries and extraordinary item 50 744 (840)
Equity in undistributed income (loss) of
subsidiaries............................. 169 (64) (2,664)
-------- ------- --------
Income (loss) before extraordinary
item............................... 219 680 (3,504)
Extraordinary items:
Gain on early extinguishment of debt..... - - 465
Tax benefit from net operating loss
carryforward........................... - 384 -
-------- ------- --------
Net income (loss).................... $ 219 $ 1,064 $ (3,039)
======== ======= ========
</TABLE>
58
<PAGE> 63
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 18. BANCTEXAS GROUP INC. (PARENT COMPANY ONLY) - (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------
1993 1992 1991
--------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Operating Activities:
Net income (loss)....................................... $ 219 $ 1,064 $ (3,039)
Adjustments to reconcile net income (loss) to net cash
provided by used in operating activities:
Reversal of loan losses............................... - (25) (100)
Depreciation, amortization and (accretion), net....... 67 16 (18)
Stock compensation and litigation settlement.......... 607 - -
Gain on sale of assets................................ - - (90)
Gain on sale of securities............................ (15) - (2)
Gain on early extinguishment of debt.................. - - (465)
Provision for losses on other real estate and
collateral acquired................................. (252) 60 300
Net increase (decrease) in payables to subsidiaries... 89 2 (73)
Equity in undistributed loss (income) of
subsidiaries........................................ (169) 64 2,664
Net decrease in other assets.......................... 43 3 182
Net increase (decrease) in other liabilities.......... (828) (1,326) 611
Other, net............................................ (65) - -
--------- -------- --------
Net cash used in operations...................... (304) (142) (30)
Investing Activities:
Purchase of investment securities..................... (3,612) (16,511) (1,382)
Proceeds from maturity of investment securities....... 3,020 3,566 458
Proceeds from sales of investment securities.......... 1,037 - 866
Net decrease in total loans........................... 43 36
Recoveries of loans previously charged off............ 4 8 27
Proceeds from sales of other real estate and
collateral acquired................................. 27 1 98
Proceeds from sales of premises & equipment........... 26 - -
Capital contributions to subsidiaries................. - - (2,924)
--------- -------- --------
Net cash provided by (used in) investing
activities..................................... 545 (12,900) (278)
Financing Activities:
Exercised stock options............................... 86 30 -
Cash repayment of long-term debt...................... (12) - (27)
Net increase (decrease) in federal funds purchased and
securities sold under agreement to repurchase....... (719) 13,394 -
--------- --------- --------
Net cash provided by (used in) financial activities....... (645) 13,424 (27)
Net increase (decrease) in cash and cash equivalents...... (404) 382 (335)
Cash and cash equivalents at beginning of year............ 604 222 557
--------- -------- --------
Cash and cash equivalents at end of year......... $ 200 $ 604 $ 222
========= ======== ========
Supplemental disclosure of cash paid for interest......... $ 564 $ 301 $ 34
========= ======== ========
Supplemental disclosure of noncash investing and financing
activities:
Transfer of investment securities to available for
sale................................................ $ 13,541
=========
</TABLE>
The primary sources of funds for BTX Parent are the dividends paid to it
by its subsidiaries, management fees, proceeds of equity offerings, debt
offerings, and the proceeds from sales of assets. Various provisions of
Delaware law, federal law and regulation place certain restrictions on the
payment of dividends by BTX and the payment of dividends and management fees by
the Bank.
59
<PAGE> 64
BancTEXAS Group Inc.
QUARTERLY CONSOLIDATED STATEMENTS OF OPERATIONS - Unaudited
<TABLE>
<CAPTION>
1993 1992
-------------------------------------- -------------------------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- -------
(In thousands, except per share)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income........... $ 5,324 $ 5,325 $ 5,565 $ 5,752 $ 6,005 $ 6,158 $ 6,393 $ 6,179
Interest expense.......... 2,565 2,424 2,356 2,405 2,565 2,754 2,957 2,954
------- ------- ------- ------- ------- ------- ------- -------
Net interest income.... 2,759 2,901 3,209 3,347 3,440 3,404 3,436 3,225
Provision for loan losses. 160 100 90 140 265 (8) 60 190
------- ------- ------- ------- ------- ------- ------- -------
Net interest income
after provision for
loan losses............. 2,599 2,801 3,119 3,207 3,175 3,412 3,376 3,035
Noninterest income:
Securities gains (losses) 59 147 - 37 (22) 53 - 72
Other.................... 790 762 660 613 688 645 664 528
------- -------- ------- ------- ------- ------- ------- -------
Total noninterest
income................. 849 909 660 650 666 698 664 600
Noninterest expense....... 4,170 3,406 3,453 3,546 3,712 3,600 3,735 3,513
Income tax expense........ - - - - 44 173 104 43
------- -------- ------- ------- ------- ------- ------- -------
Gain (loss) from
operations.............. (722) 304 326 311 85 337 201 79
Extraordinary items....... - - - - 44 173 104 41
------- -------- ------- ------- ------- ------- ------- -------
Net income (loss)......... $ (722) $ 304 $ 326 $ 311 $ 129 $ 510 $ 305 $ 120
======= ======== ======= ======= ======= ======= ======= =======
PER SHARE
Gain (loss) from
operations.............. $ (.03) $ .01 $ .01 $ .01 $ .01 $ .01 $ .01 $ -
Extraordinary items....... - - - - .01 .01 - -
------- -------- ------- ------- ------- ------- ------- -------
Net gain (loss)........... $ (.03) $ .01 $ .01 $ .01 $ .02 $ .02 $ .01 $ -
======= ======== ======= ======= ======= ======= ======= =======
Weighted average common
shares and common share
equivalent outstanding.. 23,314 23,379 23,214 23,243 23,084 23,159 23,192 23,011
======= ======== ======= ======= ======= ======= ======= =======
</TABLE>
60
<PAGE> 65
Pages 61 through 87 of BTX's 1993 Annual Report to Stockholders have been
omitted from this exhibit as such pages consist of the Form 10-K.
61 - 87
<PAGE> 66
BancTEXAS Group Inc.
MANAGEMENT
DIRECTORS
RICHARD L. BROWN - President and Chief Executive Officer of Houston
General Insurance Group Inc., headquartered in Fort Worth, Texas.
NATHAN C. COLLINS - Chairman of the Board, President and Chief Executive
Officer of BancTEXAS Group Inc., Dallas, Texas.
CHARLES A. CROCCO, JR. - Partner in the law firm of Lunney, Crocco, DeMaio
& Camardella, P.C., New York, New York.
JOSEPH J. LESZCZYNSKI - Chairman of the Board of T.E.L. Associates, Inc.,
a management consulting firm; former Chairman of the Board and Chief
Executive Officer of Optic Electronic Corporation, a manufacturer of night
vision devices in Dallas, Texas.
THOMAS A. STANZEL - A private investor, Dallas, Texas.
EDWARD T. STORY, JR. - President and Chief Executive Officer of SOCO
International, Inc., an international oil and gas exploration and
production company headquartered in Houston, Texas.
OFFICERS
Nathan C. Collins - Chairman of the Board, President and Chief Executive
Officer
Richard H. Braucher - Senior Vice President, General Counsel and Secretary
D. Kert Moore - Senior Vice President, Treasurer and Chief Financial
Officer
88
<PAGE> 67
SENIOR OFFICERS OF BANKTEXAS N.A.
Nathan C. Collins - Chairman of the Board, President and Chief Executive
Officer
David F. Weaver - Regional President - South
Allen R. Sanderson - Regional President - North
Kathryn Aderman - Vice President - Administration and Director of Human
Resources
Richard H. Braucher - Senior Vice President, General Counsel and Secretary
Jerry V. Garrett - Senior Vice President - Consumer Lending
Patrick H. Hazelip - Vice President and General Auditor
Dennis J. Lewis - Senior Vice President - Loan Operations
D. Kert Moore - Senior Vice President, Cashier and Chief Financial Officer
James W. Parmley - Vice President and Manager of Dealer Finance
John G. Sprengle - Senior Vice President and Chief Credit Officer
Roger M. Storkamp - Senior Vice President, Loan Review
89
<PAGE> 68
BancTEXAS Group Inc.
CORPORATE INFORMATION
FORM 10-K
BTX'S ANNUAL REPORT ON FORM 10-K, INCLUDING FINANCIAL STATEMENTS BUT WITHOUT
EXHIBITS, IS INCLUDED IN THIS ANNUAL REPORT TO STOCKHOLDERS. ADDITIONAL COPIES
ARE AVAILABLE ON REQUEST FROM D. KERT MOORE, TREASURER AND CHIEF FINANCIAL
OFFICER, BANCTEXAS GROUP INC., P.O. BOX 802527, DALLAS, TEXAS 75380-2527.
COMMON STOCK
The common stock of BancTEXAS Group Inc. is traded on the New York Stock
Exchange with the ticker symbol "BTX" and is frequently reported in newspapers
of general circulation with the symbol "BanTex" and in the Wall Street Journal
with the symbol "BTX."
COMMON STOCK TRANSFER AGENT AND REGISTRAR
Chemical Bank
Securityholder Relations Department
450 West 33rd Street, 8th Floor
New York, New York 10001
Telephone: 1-800-635-9270
INFORMATION
For information concerning BancTEXAS Group Inc. contact:
D. Kert Moore Stockholder Relations Department
Treasurer and Telephone: 214/701-4704
Chief Financial Officer
P. O. Box 802527
Dallas, Texas 75380-2527
Telephone: 214/342-5212
90
<PAGE> 1
EXHIBIT 21
<PAGE> 2
EXHIBIT 21
BancTEXAS Group Inc.
SIGNIFICANT SUBSIDIARIES
The following is a list of all subsidiaries of the Company and the
jurisdiction of incorporation or organization. The two nonbank subsidiaries
are 100% owned by BTX.
Jurisdiction of
Incorporation
Name or Organization
---- ---------------
NONBANK SUBSIDIARIES
--------------------
CSWI International Finance N.V. Netherlands Antilles
Sundowner Corporation Nevada
Sundowner Corporation
owns 100% of:
BankTEXAS National Bank
National Association
BankTEXAS N.A. owns 100% of:
BancTEXAS Services Inc. Delaware
