<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
__________________
FORM 10-Q
(Mark one)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
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) 701-4700
(Registrant's telephone number, including area code)
__________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities 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
-------- --------
As of November 14, 1994, 20,520,525 shares of the registrant's Common Stock,
$.01 par value, and 37,500,000 shares of the registrant's Class B Common Stock,
$.01 par value, were outstanding.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BancTEXAS Group Inc.
CONSOLIDATED BALANCE SHEETS - Unaudited
<TABLE>
<CAPTION>
September 30,
--------------------- December 31,
1994 1993 1993
-------- -------- ------------
(Dollars in thousands, except per share)
<S> <C> <C> <C>
ASSETS
Cash and due from banks ........................................ $ 9,427 $ 7,902 $ 8,565
Time deposits with banks ....................................... 562 300 2,525
Federal funds sold ............................................. - 6,400 14,400
--------- --------- ---------
Total cash and cash equivalent ............................ 9,989 14,602 25,490
Mortgage-backed and other investment securities
held to maturity at cost (approximate fair value of $0,
$120,910 and $115,344) ....................................... - 120,299 116,451
Mortgage-backed securities available for sale at approximate
fair value (cost $160,413, $3,973 and $43,774) ............... 158,259 3,831 43,707
Loans (net of unearned income of $4,422, $4,439 and $4,571) .... 182,980 153,990 147,135
Loans available for sale (net of unearned income of $48, $468
and $432) .................................................... 9,358 12,949 20,597
Less: Allowance for loan losses ............................... (2,628) (2,703) (2,637)
--------- --------- --------
Total loans, net .......................................... 189,710 164,236 165,095
Foreclosed property, net ....................................... 1,737 3,442 3,171
Premises and equipment, net .................................... 11,006 11,449 11,338
Accrued interest receivable .................................... 1,632 1,198 1,247
Deferred tax asset ............................................. 11,428 - -
Other assets ................................................... 1,422 2,310 2,109
--------- --------- ---------
Total assets .............................................. $ 385,183 $ 321,367 $ 368,608
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing .......................................... $ 45,719 $ 44,810 $ 44,409
Interest bearing ............................................. 197,569 209,500 198,488
--------- --------- ---------
Total deposits ............................................ 243,288 254,310 242,897
Securities sold under agreements to repurchase ................. 49,657 47,313 95,208
Other short-term borrowings .................................... 1,103 1,106 1,096
Federal funds purchased ........................................ 4,000 - -
FHLB advances .................................................. 37,708 - 10,918
Deferred tax liability ......................................... 1,466 - -
Other liabilities .............................................. 4,110 2,438 2,483
Long-term debt ................................................. 1,054 1,054 1,054
--------- --------- ---------
Total liabilities ......................................... 342,386 306,221 353,656
--------- --------- ---------
Stockholders' equity:
Common stock:
$.01 par value; authorized 50,000,000 shares; issued and
outstanding shares 20,520,525, 19,363,025 and
19,583,025 ............................................... 205 194 196
Class B $.01 par value; authorized 37,500,000 shares; issued
and outstanding shares 37,500,000, 0 and 0 ............... 375 - -
Capital in excess of par ..................................... 302,466 272,442 273,035
Accumulated deficit .......................................... (258,848) (257,490) (258,212)
Net unrealized loss on securities available
for sale ................................................... (1,401) - (67)
--------- --------- ---------
Total stockholders' equity ............................... 42,797 15,146 14,952
--------- --------- ---------
Total liabilities and stockholders' equity ............... $ 385,183 $ 321,367 $ 368,608
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
1
<PAGE> 3
BancTEXAS Group Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS - Unaudited
<TABLE>
<CAPTION>
Three Months Nine Months
ended September 30, ended September 30,
-------------------- --------------------
1994 1993 1994 1993
-------- -------- -------- --------
(Dollars in thousands, except per share)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans ................................ $ 3,838 $ 3,784 $ 11,016 $ 11,644
Investment securities ................ 2,048 1,505 5,910 4,893
Federal funds sold ................... 11 32 72 93
Other interest income ................ 6 4 48 12
-------- -------- -------- --------
Total interest income .......... 5,903 5,325 17,046 16,642
INTEREST EXPENSE
Deposits ............................. 1,766 1,877 5,186 5,878
Securities sold under agreements to
repurchase ......................... 778 517 2,359 1,217
Other short-term borrowings .......... 12 6 28 19
Federal funds purchased .............. 44 - 44 -
FHLB advances ........................ 425 - 911 -
Long-term debt ....................... 24 24 71 71
-------- -------- -------- --------
Total interest expense ......... 3,049 2,424 8,599 7,185
-------- -------- -------- --------
Net interest income ............ 2,854 2,901 8,447 9,457
Provision for loan losses .............. 455 100 605 330
-------- -------- -------- --------
Net interest income after
provision for loan losses .... 2,399 2,801 7,842 9,127
NONINTEREST INCOME
Service charges and fees ............. 397 435 1,191 1,283
Investment securities gains (losses) . (7,055) 147 (7,055) 184
Loan sales and loan servicing income . 101 284 371 600
Other ................................ 66 43 418 152
-------- -------- -------- --------
Total noninterest income ....... (6,491) 909 (5,075) 2,219
NONINTEREST EXPENSE
Personnel expense .................... 3,728 1,636 7,168 4,804
Occupancy ............................ 317 331 961 1,065
Equipment ............................ 194 225 634 673
Litigation settlement expense ........ - 52 - 52
Professional fees .................... 274 416 1,031 1,261
Net operating expense of
foreclosed property ................ 173 74 196 167
Communications and supplies .......... 260 286 779 774
Data processing ...................... 235 229 706 682
Other ................................ 425 209 1,085 927
Total noninterest expense ...... 5,606 3,406 12,612 10,405
-------- -------- -------- --------
Net income (loss) before
taxes ........................ (9,698) 304 (9,845) 941
Income tax expense (benefit) ........... (9,209) - (9,209) -
-------- -------- -------- --------
Net income (loss) .............. $ (489) $ 304 $ (636) $ 941
======== ======== ======== ========
PER SHARE
Net income (loss) .................... $ (.01) $ .01 $ (.02) $ .04
======== ======== ======== ========
Weighted average common shares and
common share equivalents outstanding 36,324 23,379 27,808 23,285
======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE> 4
BancTEXAS Group Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY - Unaudited
<TABLE>
<CAPTION>
Nine Months
ended September 30,
---------------------
1994 1993
--------- ---------
(Dollars in thousands)
<S> <C> <C>
COMMON STOCK:
Balance at beginning of year ................... $ 196 $ 192
Class B shares issued .......................... 375 -
Exercised option ............................... 5 2
Shares issued in settlement of litigation ...... 4 -
--------- ---------
Balance at September 30 ........................ 580 194
--------- ---------
CAPITAL IN EXCESS OF PAR:
Balance at beginning of year ................... 273,035 272,346
Class B shares issued .......................... 29,248 -
Exercised option ............................... 120 29
Stock compensation ............................. 67 67
Shares issued in settlement of litigation ...... (4) -
--------- ---------
Balance at September 30 ........................ 302,466 272,442
--------- ---------
ACCUMULATED DEFICIT:
Balance at beginning of year ................... (258,212) (258,431)
Net income (loss) .............................. (636) 941
--------- ---------
Balance at September 30 ........................ (258,848) (257,490)
--------- ---------
NET UNREALIZED LOSS ON SECURITIES
AVAILABLE FOR SALE:
Balance at beginning of year ................... (67) -
Net loss ....................................... (1,334) -
--------- ---------
Balance at September 30 ........................ (1,401) -
--------- ---------
TOTAL STOCKHOLDERS' EQUITY ....................... $ 42,797 $ 15,146
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 5
BancTEXAS Group Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Unaudited
<TABLE>
<CAPTION>
Nine Months
ended September 30,
----------------------
1994 1993
--------- ---------
(Dollars in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ....................................... $ (636) $ 941
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses ........................... 605 330
Depreciation, amortization and accretion ............ 1,050 1,266
(Gain) loss on sale of investment securities ........ 7,055 (184)
(Gain) loss on sale of assets ....................... 7 (133)
Gain on sale of loans ............................... (38) (467)
Provision for losses on foreclosed property ......... 305 372
Provision for income tax benefit .................... (9,209) -
Net increase in accrued interest receivable ......... (389) (13)
Net decrease in accrued interest payable ............ (7) (106)
Proceeds from sale of loans originated for sale ..... 44,336 -
Loans originated for sale ........................... (36,785) -
Issuance of stock compensation ...................... 67 67
Other, net .......................................... 1,568 (1,118)
-------- ---------
Net cash provided by operations ................... 7,929 955
INVESTING ACTIVITIES:
Proceeds from loan sales ................................ - 28,358
Proceeds from maturities of investment securities ....... 22,964 30,759
Proceeds from sales of investment securities ............ - 7,977
Purchase of investment securities ....................... (30,703) (49,636)
Increase in loans (net of loans originated for sale) .... (33,456) (21,148)
Recoveries on loans previously charged-off .............. 879 700
Proceeds from sales of foreclosed property .............. 1,349 1,176
Capital expenditures .................................... (232) (540)
Proceeds from sales of premises and equipment ........... 7 -
-------- ---------
Net cash used in investing activities ............. (39,192) (2,354)
FINANCING ACTIVITIES:
Net increase (decrease) in deposits ..................... 391 (16,420)
Net increase (decrease) in borrowed funds ............... (14,754) 14,584
Cash repayment of long-term debt ........................ - (12)
Exercised stock options ................................. 125 31
Proceeds from sale of Class B Common Stock to
First Banks, Inc. ..................................... 30,000 -
-------- ---------
Net cash provided by (used in) financing activities 15,762 (1,817)
Net decrease in cash and cash equivalents ................. (15,501) (3,216)
Cash and cash equivalents at beginning of period .......... 25,490 17,818
-------- ---------
Cash and cash equivalents at September 30 ......... $ 9,989 $ 14,602
======== =========
Supplemental disclosure of cash paid for interest ......... $ 8,606 $ 7,291
======== =========
Supplemental schedule of noncash investing and
financing activities:
Additions to other real estate and collateral acquired $ - $ -
======== =========
Subsequent loans to facilitate the sale
of other real estate ................................ $ 90 $ -
======== =========
Transfer of investment securities to available for sale $114,552 $ 3,831
======== =========
Transfer from loans available for sale to loans ....... $ 8,419 $ -
======== =========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 6
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Unaudited
NOTE 1 BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the parent
company and all subsidiaries. All significant intercompany balances and
transactions have been eliminated.
The financial statements in this report have not been audited, but in the
opinion of management, include all normal recurring adjustments necessary to
make the information presented not misleading. The accounting policies
followed by BancTEXAS Group Inc. (BTX) and its subsidiary bank, BankTEXAS N.A.
(the Bank) in the presentation of interim financial results are consistent with
those followed on an annual basis. These policies are presented on pages 34-37
in BTX's 1993 Annual Report to Stockholders.
NOTE 2 SALE OF CLASS B COMMON STOCK
On August 31, 1994, pursuant to the terms and conditions of a Stock
Purchase and Operating Agreement between BTX and First Banks, Inc., a bank
holding company headquartered in St. Louis, Missouri (First Banks), BTX issued
and sold 37,500,000 shares of Class B Common Stock, a new class of stock, for a
price of $30 million in cash. As a result of this transaction, based on the
shares of BTX outstanding at September 30, 1994, First Banks controls 64.6% of
the voting shares of BTX.
Each share of Class B Common Stock is convertible after five years into
one share of BTX Common Stock (Regular Common Stock). The Class B Common Stock
will not be registered with the Securities and Exchange Commission (SEC), or
listed for trading on the New York Stock Exchange for at least five years.
Thereafter, First Banks will have the right to require BTX to register with the
SEC all or a portion of the shares of Regular Common Stock received upon any
conversion of its Class B Common Stock. First Banks, as the owner of the Class
B Common Stock, has certain anti-dilution rights for 7 1/2 years after the
transaction which enable First Banks to maintain an ownership interest of at
least 55% in the event BTX issues additional shares of Regular Common Stock.
The Class B Common Stock may not be transferred by First Banks without the
prior approval of BTX, except in certain limited instances. In addition, the
Class B Common Stock has dividend rights which are inferior to those of the
Regular Common Stock, in the event BTX commences the payment of dividends in
the future.
The proceeds of the sale of the Class B Common Stock, net of the related
offering expenses of $377,000, were utilized to repay short-term borrowings and
to make additional loans until such time as those funds may be needed for
acquisitions.
5
<PAGE> 7
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Unaudited
NOTE 3 NON-RECURRING ITEMS
The consolidated balance sheet as of September 30, 1994, and the results
of operations for the three and nine month periods ended September 30, 1994
reflect the effects of certain non-recurring items resulting from actions or
events which occurred during the quarter. These items were (a) the
redesignation of the investment portfolio as available for sale; (b) the
commitment to sell $114,969,000 of investment securities; and (c) the changing
of certain employee benefit plans and various other employee-related costs
attributable to the consolidation of operations. In addition, BTX recognized
an income tax benefit of $9,209,000, which includes the recognition of the
realizable value of tax loss carryforwards and certain other tax attributes
pursuant to Statement of Financial Accounting Standards Number 109, as
described in Note 4.
Prior to the three months ended September 30, 1994, BTX had acquired a
portfolio of mortgage-backed and other investment securities the majority of
which it had the ability and intent to hold until their maturity, and which
consequently were accounted for as investments held to maturity. Most of these
securities were pledged to support advances from the Federal Home Loan Bank or
other borrowed funds which had generally been incurred to acquire the
securities. Although the majority of these securities contained provisions for
periodic interest-rate adjustments, the structure of the specific securities
which were held, combined with the rapid increases in interest rates during the
first nine months of 1994, caused these securities to under-perform the market,
resulting in a significant unrealized loss. The magnitude of this loss,
combined with the need to collateralize the related borrowed funds and the need
to maintain the liquidity position of BTX, created doubt about the ability of
BTX to continue to hold all of the securities in the portfolio which had been
designated as being held to maturity, particularly in the event further
interest rate increases might lead to additional erosion in market value, and
consequently collateral value.
In September 1994, BTX determined that its original ability and intent to
hold its portfolio of mortgage-backed and other investments to maturity had
become impaired, and that therefore this portfolio should be redesignated as
available for sale. Consequently, the unrealized loss on the portfolio of
$4,332,000, net of related income taxes, was recorded as a reduction of
consolidated stockholders' equity. Concurrent with this, BTX committed to sell
an aggregate of $114,969,000 of these securities, of which approximately
$45,650,000 was committed for sale at fair market value to First Bank, A
Savings Bank, an affiliate of BTX, resulting in the realization of a loss of
$7,055,000. This loss is reflected in the results of operations for the three
months ended September 30, 1994. The proceeds from this sale, which were
received in October 1994, were applied to reduce the advances from the Federal
Home Loan Bank and other borrowed funds.
6
<PAGE> 8
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Unaudited
NOTE 3 NON-RECURRING ITEMS - (CONTINUED)
BTX has maintained a noncontributory defined benefit pension plan covering
substantially all employees and a postretirement benefit plan primarily
providing health insurance coverage to retirees. Recognizing that the costs of
these plans had become excessive for its financial resources, BTX decided to
discontinue the accumulation of benefits by participants under these plans
during the three months ended September 30, 1994. While both plans will
continue in existence and will provide the benefits which have been accumulated
thereunder, no additional benefits will accrue to participants, and no new
participants will become eligible under the plans. As a result of these
decisions, both plans had postretirement benefit obligations which exceeded the
amount of their respective plan assets. Since it was not considered
appropriate to reflect these obligations as expenses in future periods, the
aggregate amount of $1,552,000, was recorded as an expense during the three
months ended September 30, 1994.
As a result of the sale of the Class B Common Stock referred to in Note 2
and the consolidation of various operations which is anticipated, BTX
recognized severance and related personnel costs of $430,000 attributable to
personnel reductions to occur between September 1994 and March 1995.
The effect of these items, combined with the recognition of the income tax
benefit of $9,209,000 discussed in Note 4, reduced the amount of the
consolidated net loss of BTX by $172,000 for the three and nine month periods
ended September 30, 1994.
NOTE 4 FEDERAL INCOME TAXES
Income tax expense (benefit) attributable to income from continuing
operations for the nine months ended September 30, 1994 consists of the
following amounts:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
Current ........................................... $ 0
Deferred .......................................... (9,209)
-------
Income tax expense (benefit) .................... $(9,209)
=======
</TABLE>
The significant components of deferred income tax expense (benefit)
attributable to income from continuing operations for the nine months ended
September 30, 1994, are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
Decrease in net operating loss carryforwards ...... $ 22,576
Decrease in tax credit carryforwards .............. 140
Decrease in valuation allowance for deferred
tax assets ...................................... (35,756)
Other ............................................. 3,831
---------
Income tax expense (benefit) .................... $ (9,209)
=========
</TABLE>
7
<PAGE> 9
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Unaudited
NOTE 4 FEDERAL INCOME TAXES - (CONTINUED)
With the completion of the sale of the Class B Common Stock referred to in
Note 2, the BTX net operating loss carryforwards, capital loss carryforwards
and investment tax credits generated prior to the transaction are subject to an
annual limitation under Internal Revenue Code Section 382 for all subsequent
tax years.
The annual limitation is $1,362,000. The amount of the annual limitation
is equal to the total value of BTX stock issued and outstanding immediately
before the transaction multiplied by the federal long-term tax-exempt rate. If
the taxable income for a subsequent year does not equal or exceed the annual
limitation, the unused limitation is carried forward to increase the limitation
amount for the succeeding years until the excess limitation is utilized. This
does not affect the original expiration dates of the net operating losses or
tax credit carryforwards. The order in which the attributes can be utilized is
specified in Internal Revenue Code Section 383.
Subsequent to the sale of the Class B Common Stock, a detailed analysis of
the tax attributes of BTX was performed. A large portion of the net operating
losses and all of the tax carryforwards will expire unused and were removed
from the analysis. These accounted for approximately 64% of the decrease in
the balance of the valuation reserve as of January 1, 1994.
The remaining net deferred tax assets were reevaluated to determine
whether it is more likely than not that the deferred tax assets will be
recognized in the future. With the completion of the sale of the Class B
Common Stock and the receipt of the resulting cash proceeds of $30 million, BTX
will be capable of pursuing acquisitions, expanding its services and reducing
its reliance on borrowed funds. BTX and First Banks have formulated a plan to
further reduce operating costs and expand into other revenue generating areas.
First Banks will be offering to provide certain services at substantially
reduced costs such as data processing, item processing, loan servicing,
commercial non-credit services, accounting and tax assistance and various
insurance programs. BTX and its subsidiaries will need to generate pre-tax
income of approximately $4.0 million in 1995 in order to utilize reversing
deductible temporary differences. By utilizing the services and personnel
available from First Banks, BTX expects that its income should be increased to
a level that permits utilization of all or a substantial portion of such
differences. Taking all positive and negative criteria into consideration, it
was determined that the reserve established should be reduced to $2,534,000.
8
<PAGE> 10
BancTEXAS Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Unaudited
NOTE 4 FEDERAL INCOME TAXES - (CONTINUED)
At September 30, 1994, BTX had net operating loss carryforwards of
approximately $24,425,000. The net operating loss carryforwards expire as
follows:
<TABLE>
<CAPTION>
Year ending December 31, (Dollars in thousands)
------------------------
<S> <C>
1994 ........................................ $ 0
1995 ........................................ 0
1996 ........................................ 858
1997 ........................................ 0
1998 ........................................ 4,140
1999 ........................................ 2,271
2000 ........................................ 103
2001 - 2009 ................................. 17,053
-------
Total net operating loss carryforwards . $24,425
=======
</TABLE>
The tax effects of temporary differences that give rise to the deferred
tax assets and deferred tax liabilities at September 30, 1994 and December 31,
1993 are presented below:
<TABLE>
<CAPTION>
1994 1993
---- ----
(Dollars in thousands)
<S> <C> <C>
Deferred Tax Liabilities:
Bank Premises ............................... $ 708 $ 701
Safe Harbor Leases .......................... 545 820
Other ....................................... 213 273
-------- --------
Total gross deferred tax liabilities ... 1,466 1,794
-------- --------
Deferred Tax Assets:
Reserve for possible loan losses ............ 920 562
Foreclosed property ......................... 2,164 7,382
Book losses on other investments currently
not allowable for tax purposes ............ 270 262
Other ....................................... 898 577
Book losses on securities currently not
allowable for tax purposes ................ 372 0
Tax effect of net unrealized loss on
securities available for sale ............. 789 36
Net operating loss carryforwards ............ 8,549 31,125
Tax credit carryforwards .................... 0 140
-------- --------
Total gross deferred tax assets ........ 13,962 40,084
Less valuation allowance ............... (2,534) (38,290)
-------- --------
Gross deferred tax assets net of
valuation allowance .................. 11,428 1,794
-------- --------
Net deferred tax assets ................ $ 9,962 $ 0
======== ========
</TABLE>
9
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
BancTEXAS Group Inc. (herein BTX) is a registered bank holding company
headquartered in Dallas, Texas. At September 30, 1994, BTX had approximately
$385 million in total assets, $192 million in total loans, $243 million in
total deposits and $43 million in total stockholders' equity. BTX operates
through its wholly owned bank subsidiary, BankTEXAS N.A. (herein the Bank)
which has six branch offices located in Dallas, Houston, Irving and McKinney,
Texas. BTX offers a broad range of commercial and personal banking services
which include demand, savings and time deposits, commercial, real estate, and
consumer and installment loans and other related banking services.
The Consolidated Financial Statements of BTX as of September 30, 1994
reflect the sale of 37,500,000 shares of Class B Common Stock on August 31,
1994 to First Banks, Inc., St. Louis, Missouri (herein First Banks) for $30
million in cash. The proceeds of this sale, net of related offering expenses
of $377,000 were used to repay short-term borrowings and to make additional
loans, until such time as those funds may be needed for other corporate
purposes, including acquisitions. As a result of this transaction, as of
September 30, 1994, First Banks had control of 64.6% of the voting shares of
BTX (see Note 2 to the Consolidated Financial Statements).
RESULTS OF OPERATIONS
The net loss for the nine months ended September 30, 1994 was $636
thousand, or $(.02) per share, compared to net income of $941 thousand, or $.04
per share in the same period in 1994. The net loss for the three months ended
September 30, 1994 was $489 thousand, or $(.01) per share, compared to net
income of $304 thousand, or $.01 per share, for the three months ended
September 30, 1993. The results from operations reflect generally decreasing
net interest income of BTX as well as an increased provision for loan losses
during 1994 and include the effects of certain non-recurring items recognized
in 1994 further described in Notes 3 and 4 to the Consolidated Financial
Statements.
In September 1994, BTX determined that the magnitude of the unrealized
loss on its portfolio of mortgage-backed and other investment securities,
combined with its requirement to collateralize the borrowed funds which had
been used to acquire most of that portfolio and the need to maintain an
adequate liquidity position had caused its original intention to hold these
securities to maturity to become impaired. Consequently, BTX redesignated its
portfolio of securities held to maturity as securities available for sale,
resulting in a reduction of consolidated stockholders' equity of $4,332,000,
net of the related tax effect. At the same time, BTX committed to sell an
aggregate of $114,969,000 of these securities resulting in a loss of
$7,055,000.
BTX maintained a noncontributory defined benefit pension plan covering
substantially all employees and a postretirement benefit plan providing health
insurance coverage to retirees. Recognizing that the costs of these plans had
10
<PAGE> 12
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
become excessive for its financial resources, BTX decided to discontinue the
accumulation of benefits by those eligible to participate in these plans. Both
plans had postretirement benefit obligations which exceeded the amount of their
respective plan assets. Consequently, the aggregate amount of this excess,
$1,552,000, was recorded as an expense during the three months ended September
30, 1994.
Because of the consolidation of various operational functions which is
anticipated as a result of the sale of Class B Common Stock, BTX determined
that the services of some members of its staff would not be required in the
future. BTX recognized severance and related personnel costs of $430,000 in the
three months ended September 30, 1994, attributable to personnel reductions
expected to occur between September 1994 and March 1995.
With the sale of the Class B Common Stock on August 31, 1994 and the
receipt of the $30 million cash proceeds, BTX will be capable of pursuing
acquisitions, expanding its services and reducing its reliance on borrowed
funds. When combined with the efficiencies which are available from the
consolidation of various operational functions, the evaluation of BTX's ability
to utilize its deferred tax assets was substantially different from that prior
to the transaction. As a result of the reevaluation of the reserve relative to
the net deferred tax asset, an income tax benefit of $9,209,000 was recorded
during the three months ended September 30, 1994.
The net effect of these non-recurring items decreased the amount of the
net loss for the three and nine month periods ended September 30, 1994 by
$172,000.
NET INTEREST INCOME
Net interest income for the nine months ended September 30, 1994 decreased
$1.1 million, or 10.7% from the comparable period in 1993. Net interest income
for the three months ended September 30, 1994 decreased $47,000, or 1.6%, from
the comparable period in 1993. The decline in net interest income for 1994
compared with 1993 reflects a general narrowing of the interest margin which
BTX realized between the income earned on its invested assets and the cost of
its interest-bearing liabilities. This narrowing of interest margins was
partially offset by increases in the average amount of earning assets and
interest bearing liabilities from those of the prior periods. For the three
months ended September 30, 1994, net interest income was also affected by the
receipt of the proceeds of the sale of Class B Common Stock. These proceeds
were used to reduce short-term borrowings, Federal Home Loan Bank advances and
fund loan growth. TABLE 1 presents the components of the net interest income
for the three and nine month periods ended September 30, 1994 and 1993.
11
<PAGE> 13
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
TABLE 1 - NET INTEREST INCOME
<TABLE>
<CAPTION>
Third Quarter Year-to-Date
----------------------------------------- ----------------------------------------
1994 1993 1994 1993
------------------- ----------------- ------------------ -----------------
Amount Rate Amount Rate Amount Rate Amount Rate
-------- ------ -------- ------ -------- ------ -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average earning assets................. $350,210 6.69% $308,434 6.85% $347,522 6.56% $304,434 7.31%
======== ======== ======== ========
Average interest bearing liabilities... 299,795 4.03 269,169 3.57 302,382 3.80 265,812 3.61
---- ---- ---- ----
Interest rate spread .................. 2.66 3.28 2.76 3.70
==== ==== ==== ====
Interest free sources used to fund
earning assets ...................... 50,415 39,265 45,140 38,622
-------- -------- -------- --------
Total sources of funds ................ $350,210 3.46 $308,434 3.12 $347,522 3.31 $304,434 3.16
======== ======== ======== ========
Net interest margin ................... 3.23% 3.73% 3.25% 4.15%
==== ==== ==== ====
Net interest income ................... $ 2,854 $ 2,901 $ 8,447 $ 9,457
======== ======== ======== ========
Interest income ....................... 5,903 5,325 17,046 16,642
======== ======== ======== ========
Interest expense ...................... 3,049 2,424 8,599 7,185
======== ======== ======== ========
</TABLE>
_____________________
BTX has no tax-exempt income.
Average earning assets for the nine months ended September 30, 1994
increased $43 million, or 14%, from the same period of 1993. The primary
component of this increase was investment securities which increased $34.1
million, or 29%, from the same period in 1993. This increase in investment
securities was primarily funded by advances from the Federal Home Loan Bank and
other short-term borrowings. Approximately 73% of BTX's investment portfolio
consisted of adjustable rate mortgage-backed securities indexed to the Eleventh
District Cost of Funds Index (herein COFI). Because the nature of this index
causes it to react more slowly to changes in interest rates than other indicies
used in mortgage-backed securities, the COFI index failed to fully reflect the
general interest rate increases which occurred during the nine months ended
September 30, 1994.
12
<PAGE> 14
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
The BTX loan portfolio, the other primary source of interest income,
relies principally on automobile loans acquired from dealers. Competition for
these loans is intense, not only from other larger financial institutions, but
also from insurance companies, credit unions, and others. The desire of these
competitors to increase loan volumes has caused a resistance to increased rates
in the markets which BTX serves, in spite of the pressure created by increasing
deposit and other interest rates. At the same time, the repayment of the
higher yielding loans in the portfolio and the replacement of these with loans
at the lower current rates have caused a decline in the yield on the loan
portfolio from 8.62% during the third quarter of 1993 to 8.41% during the same
period in 1994. This compares with the average cost of interest bearing
liabilities of BTX which increased from 3.57% during the third quarter of 1993
to 4.03% in the third quarter of 1994.
Average interest bearing liabilities for the nine months ended September
30, 1994 increased $36.6 million from the same period in 1993. This increase
was composed of a decrease in interest bearing deposits of $23.6 million, or
10.8%, which was offset by an increase in short-term borrowings from the
Federal Home Loan Bank and securities dealers of $60 million, or 130.9%. At
the same time, noninterest bearing demand deposits increased $3.8 million, or
8.6%. TABLE 2 presents the average balance sheets and interest spread analysis
for the last five quarters. TABLE 3 presents an analysis of the changes in net
interest income for the three and nine month periods ended September 30, 1994
compared with the same periods in 1993.
13
<PAGE> 15
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
TABLE 2 - QUARTERLY AVERAGE BALANCE SHEETS/ANALYSIS OF INTERST YIELDS AND
RATES
(Dollars in thousands)
<TABLE>
<CAPTION>
Third Quarter 1994 Second Quarter 1994
--------------------------- -----------------------------
Interest Interest
Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate
-------- -------- ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Time deposits with banks ..... $ 659 $ 6 3.64% $ 1,403 $ 21 5.99%
Investment securities-taxable. 167,587 2,048 4.89 171,860 2,012 4.68
Federal funds sold and
securities purchased under
agreements to resell ....... 987 11 4.46 2,943 28 3.81
Loans ........................ 180,977 3,838 8.41 178,118 3,654 8.23
-------- ------- -------- -------
Total earning assets ..... 350,210 5,903 6.69 354,324 5,715 6.47
------- -------
Nonearning assets:
Cash and due from banks ...... 9,217 8,930
Premises and equipment ....... 11,092 11,192
Other assets ................. 9,258 5,769
Allowance for loan losses .... (2,478) (2,562)
-------- --------
$377,299 $377,653
======== ========
Interest bearing liabilities:
Savings deposits ............. $ 83,442 561 2.67 $ 84,358 530 2.52
Certificates of deposit
$100,000 and over and
public funds ............... 17,154 192 4.44 19,926 203 4.09
Other time deposits .......... 91,930 1,013 4.37 91,069 984 4.33
Short-term borrowings and
FHLB advances .............. 106,215 1,259 4.74 114,873 1,224 4.26
Long-term debt ............... 1,054 24 9.03 1,054 24 9.13
-------- ------- -------- -------
Total interest bearing
liabilities ............ 299,795 3,049 4.03 311,280 2,965 3.82
------- -------
Noninterest bearing liabilities:
Demand deposits .............. 48,339 49,042
Other liabilities ............ 3,253 2,441
-------- --------
Total liabilities ........ 351,387 362,763
Stockholders' equity ........... 25,912 14,890
-------- --------
$377,299 $377,653
======== ========
Net interest income ............ $ 2,854 $ 2,750
======= =======
Interest rate spread ........... 2.66% 2.65%
Net interest margin ............ 3.23% 3.11%
==== ====
</TABLE>
____________________
BTX has no tax-exempt income.
Loan fees are included for rate calculation purposes. Nonaccrual loans
have been included in the average balances, thereby reducing yields.
14
<PAGE> 16
<TABLE>
<CAPTION>
First Quarter 1994 Fourth Quarter 1993 Third Quarter 1993
--------------------------- ----------------------------- -----------------------------
Interest Interest Interest
Average Income/ Average Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate Balance Expense Rate
-------- -------- ------- ---------- -------- ------- ---------- -------- -------
Earning assets: <S> <C> <C> <C> <C> <C> <C> <C> <C>
Time deposits with banks ..... $ 2,338 $ 21 3.59% $ 1,645 $ 19 4.62% $ 450 $ 4 3.56%
Investment securities-taxable. 158,809 1,850 4.66 152,731 1,756 4.60 129,647 1,505 4.64
Federal funds sold and
securities purchased under
agreements to resell ....... 4,207 33 3.14 5,546 40 2.89 4,120 32 3.11
Loans ........................ 172,546 3,524 8.28 165,774 3,509 8.40 174,217 3,784 8.62
-------- ------- -------- ------- -------- -------
Total earning assets ..... 337,900 5,428 6.51 325,696 5,324 6.49 308,434 5,325 6.85
------- ------- -------
Nonearning assets:
Cash and due from banks ...... 9,752 9,733 7,659
Premises and equipment ....... 11,291 11,415 11,410
Other assets ................. 5,537 6,868 6,682
Allowance for loan losses .... (2,786) (2,686) (2,813)
-------- -------- --------
$361,694 $351,026 $331,372
======== ======== ========
Interest bearing liabilities:
Savings deposits ............. $ 83,557 506 2.46 $ 87,254 546 2.48 $ 88,007 564 2.54
Certificates of deposit
$100,000 and over and
public funds ............... 22,550 221 3.97 22,554 222 3.91 30,239 276 3.62
Other time deposits .......... 91,665 976 4.32 92,653 1,031 4.41 92,629 1,037 4.44
Short-term borrowings and
FHLB advances .............. 97,205 859 3.53 84,075 742 3.53 57,240 523 3.65
Long-term debt ............... 1,054 23 9.00 1,054 24 9.00 1,054 24 9.03
-------- ------- -------- ------- -------- -------
Total interest bearing
liabilities ............ 296,031 2,585 3.54 287,590 2,565 3.54 269,169 2,424 3.57
------- ------- -------
Noninterest bearing liabilities:
Demand deposits .............. 48,519 46,052 45,136
Other liabilities ............ 2,223 2,273 2,220
-------- -------- --------
Total liabilities ........ 346,773 335,915 316,525
Stockholders' equity ........... 14,921 15,111 14,847
-------- -------- --------
$361,694 $351,026 $331,372
======== ======== ========
Net interest income ............ $ 2,843 $ 2,759 $ 2,901
======= ======= =======
Interest rate spread ........... 2.97% 2.95% 3.28%
Net interest margin ............ 3.41% 3.36% 3.73%
==== ==== ====
</TABLE>
15
<PAGE> 17
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
TABLE 3 - VOLUME/RATE ANALYSIS
<TABLE>
<CAPTION>
Third Quarter Year-to-Date
1994 Change from 1993 1994 Change from 1993
-------------------------------- ----------------------------------
Change due to: Change due to:
----------------------- ---------------------------
Total Rate/ Total Rate/
Change Volume Rate Volume(1) Change Volume Rate Volume(1)
------ ------ ---- --------- ------ ------ ------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Time deposits
with banks....... $ 2 $ 2 $ - $ - $ 36 $ 20 $ 6 $ 10
Investment
securities-
taxable .......... 543 440 79 24 1,017 1,570 (419) (134)
Federal funds
sold and
securities
purchased under
agreements
to resell ........ (21) (24) 14 (11) (21) (33) 18 (6)
Loans .............. 54 147 (89) (4) (628) 221 (832) (17)
------- ------- ----- ----- ------- ------- ------- -----
Total interest
income........ 578 565 4 9 404 1,778 (1,227) (147)
------- ------- ----- ----- ------- ------- ------- -----
Interest bearing
funds:
Savings
deposits ......... (3) (29) 28 (2) (125) (111) (15) 1
Certificates
of deposit
$100,000 and
over and pub-
lic funds ........ (84) (119) 62 (27) (388) (459) 131 (60)
Other time
deposits ......... (24) (8) (16) - (179) (36) (145) 2
Short-term
borrowings
and FHLB
advances ......... 736 447 155 134 2,106 1,615 213 278
Long-term debt - - - - - - - -
------- ------- ------ ----- ------ ------- ------- -----
Total interest
expense....... 625 291 229 105 1,414 1,009 184 221
------- ------- ------ ----- ------- ------- ------- -----
Net interest
income ........... $ (47) $ 274 $ (225) $ (96) $(1,010) $ 769 $(1,411) $(368)
======= ======= ====== ===== ======= ======= ======= =====
</TABLE>
____________________
BTX has no tax-exempt income.
(1) Represents the change not solely attributable to change in rate or
change in volume but a combination of these two factors.
16
<PAGE> 18
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
NONINTEREST INCOME
Included in noninterest income for the three and nine month periods ended
September 30, 1994 were losses on the sale of securities available for sale of
$7,055,000, as described on page 6. For the three and nine month periods ended
September 30, 1993, net gains on the sale of investment securities were
$147,000 and $184,000, respectively. Excluding securities transactions,
noninterest income decreased from $2,035,000 for the nine months ended
September 30, 1993 to $1,980,000 for the comparable period in 1994. Service
charges and fees related to deposit accounts decreased 7.2% from $1,283,000 to
$1,191,000 for the nine months ended September 30, 1993 and 1994, respectively.
Income from loan sales and loan servicing decreased $229,000 or 38.2% from
$600,000 for the nine months ended September 30, 1993 to $371,000 for the
comparable period in 1994. For the nine months ended September 30, 1993 loan
sales aggregated $32.6 million, which resulted in gains of $466,600. In
comparison, BTX sold $4 million of automobile loans during the nine months
ended September 30, 1994 which resulted in a gain of $38,000.
Other noninterest income increased from $152,000 to $418,000 for the nine
months ended September 30, 1993 and 1994, respectively. The primary component
accounting for this increase was $255,000 received in June 1994 in settlement
of a lawsuit filed by BTX against the Federal Deposit Insurance Corporation
relating to the closure of BancTEXAS Dallas, a former subsidiary of BTX.
NONINTEREST EXPENSE
For the nine months ended September 30, 1994, noninterest expenses
increased to $12,612,000 from $10,405,000 for the comparable period in 1993.
The primary component of this increase was the increase in personnel expense of
$2,364,000, or 49.2%, from $4,804,000 for the nine months ended September 30,
1993 to $7,168,000 for the comparable period in 1994. As described on page 7,
during the three months ended September 30, 1994, BTX reevaluated its defined
benefit pension plan and its postretirement medical benefit plan. Since both
plans had postretirement benefit obligations which exceeded the amount of their
respective plan assets, the aggregate liability, $1,552,000 was recorded as an
expense during the three months ended September 30, 1994. In addition, BTX
recorded the estimated severance and related personnel costs in recognization
of planned reductions in staff of $430,000 during the three months ended
September 30, 1994.
Occupancy expense decreased from $1,065,000 for the nine months ended
September 30, 1993 to $961,000 for the comparable period in 1994, or 9.8%.
This reflected generally lower costs of repairs and maintenance incurred in
1994, additional rental income received from tenants of the BTX McKinney
building, and reduced rental paid on the leased location in Houston and the BTX
administrative offices in Dallas.
Professional fees decreased 18.2% from $1,261,000 for the nine months
ended September 30, 1993 to $1,031,000 for the same period in 1994. The
decrease is primarily due to reduced legal fees resulting from the adjudication
or settlement in late 1993 and early 1994 of several of the lawsuits which had
been pending against BTX.
17
<PAGE> 19
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Net operating expenses of foreclosed property increased $29,000 to
$196,000 for the nine months ended September 30, 1994. This increase was
primarily the result of write-downs of $80,000 in September 1994, most of which
related to a single parcel of real estate for which a scheduled sale did not
occur.
MORTGAGE-BACKED AND OTHER SECURITIES
Mortgage-backed and other securities totalled $158,259,000 at September
30, 1994, compared with $160,158,000 at December 31, 1993. Included within the
balance at September 30, 1994 were $114,969,000 of securities which had
been committed for sale, but which settled in October 1994.
Through June 30, 1994, BTX had acquired an investment portfolio consisting
of $115,856,000 of securities held to maturity and $54,739,000 of securities
which had been designated as available for sale. Most of these securities were
pledged to support advances from the Federal Home Loan Bank or other borrowed
funds which had generally been incurred to acquire the securities. Although
approximately $106 million of the total securities portfolio at September 30,
1994 contained provisions for periodic interest rate adjustments, the structure
of the specific securities, combined with the rapid increases in interest rates
occurring during the first nine months of 1994, caused these securities to
under-perform the market, resulting in a significant unrealized loss. The
magnitude of this loss, combined with the requirement to collateralize the
related borrowed funds and the need to maintain the liquidity position of BTX
created doubt about the ability of BTX to continue to hold all of the
securities in the portfolio which had been designated as being held to
maturity. This would be exacerbated by any further increases in interest rates
which might lead to further erosion in market value, and consequently, in
collateral value.
As described in Note 3 to the Consolidated Financial Statements, in
September 1994, BTX determined that its original ability and intent to hold its
portfolio of mortgage-backed and other securities to maturity had become
impaired, and that therefore this portfolio should be redesignated as available
for sale. Consequently, the unrealized loss on the portfolio of $4,332,000,
net of related income taxes was recorded as a reduction of consolidated
stockholders' equity. Concurrent with this, BTX decided to sell $114,969,000
of these securities, resulting in the realized loss of $7,055,000 described in
Note 3. While there is no specific intent at present to sell any of the
remaining $43,290,000 of securities available for sale, periodic sale of these
securities may be conducted to restructure this portfolio and to allow BTX the
flexibility to hedge against future adverse market changes.
LENDING AND CREDIT MANAGEMENT
Loans, net of unearned income, were $192.3 million at September 30, 1994,
an increase of $24.6 million or 15%, from December 31, 1993. The Bank sold $44
million of loans in the first nine months of 1994 compared to $27.9 million in
the same period of 1993. TABLE 4 presents the composition of the loan
portfolio.
18
<PAGE> 20
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
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.
During 1994, the Bank began purchasing residential mortgages and home
improvement loans originated by others for the purpose of resale. These loans
have 30 day guaranteed take out commitments issued by long-term investors.
These loans are serviced by the Federal Home Loan Bank and provide collateral
for borrowing from the FHLB, if needed. Due to a dramatic decrease in the
mortgage loan and refinance market between 1993 and 1994, the volume of these
loans has slowed significantly. However, the home improvement loan program
remains active.
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 and to $10.5 million at September 30, 1994 in residential interim
construction lending has provided a means to expand its Real Estate
Construction Loan Portfolio. The Bank has carefully assessed the risks related
to such loans, as well as the benefits. These loans typically have a maturity
of nine months and average $100,000 per house and either cover presold homes
with long-term financing arranged or are in subdivisions with proven sales
activity from production builders. In the first nine months of 1994, the Bank
made 182 of these loans for an aggregate of $20.4 million, compared to 228 of
these loans for an aggregate of $23 million in the first nine months of 1993.
Interim construction lending has provided the Company with loan fee revenues
amounting to $424,000 and $254,000 for the first nine months of 1994 and 1993,
respectively. The Company will be dependent on increases in the Texas market
economy to achieve growth in its real estate and commercial loan portfolio.
TABLE 4 - LOAN COMPOSITION
<TABLE>
<CAPTION>
September 30,
-------------------- December 31,
1994 1993 1993
-------- -------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
Commercial .............................. $ 11,891 $ 8,265 $ 7,653
Real estate, construction ............... 10,471 10,349 9,072
Real estate, mortgage ................... 11,576 14,457 12,862
Real estate, mortgage (available for sale) 2,776 - 5,600
Installment ............................. 153,467 125,358 122,551
Installment (available for sale) ........ 6,627 13,417 14,997
-------- -------- --------
196,808 171,846 172,735
Unearned income ......................... (4,470) (4,907) (5,003)
-------- -------- --------
Loans, net of unearned income ........... $192,338 $166,939 $167,732
======== ======== ========
</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, collectibility of principal or interest is doubtful. Commercial
and
19
<PAGE> 21
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
real estate loans past due 90 days or more and installment loans past due 120
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. TABLE 5
presents the categories of nonperforming assets at the dates indicated.
Nonperforming assets at September 30, 1994 were $3.1 million, compared to
$4.6 million at December 31, 1993 and $4.1 million at September 30, 1993.
These declining levels of nonperforming assets represent the continuing efforts
and commitment of BTX's management to increase the overall credit quality of
its loan portfolio. Nonaccrual loans for the nine months ended September 30,
1994 increased by $560,000. This increase was the result of two real estate
loans totalling $853,000 being placed on nonaccrual status. Both of these
loans had been previously identified by management as "potential problem
loans." Loans past due 90 days or more at September 30, 1994 were $215,000,
compared to $145,000 at September 30, 1993. These totals may fluctuate
significantly without denoting adverse or favorable trends between periods due
to seasonality and strategies employed by management on certain maturing loans.
Net foreclosed property at September 30, 1994 totalled $1.7 million, compared
to $3.4 million at September 30, 1993, representing a 50% decrease. For the
nine months ended September 30, 1994, interest income that would have been
accrued at original contractual rates resulting from nonperforming assets, less
the amount recognized as interest income, was $46,000.
TABLE 5 - NONPERFORMING ASSETS
<TABLE>
<CAPTION>
September 30,
------------------- December 31,
1994 1993 1993
-------- -------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans ......................... $ 1,182 $ 526 $ 622
Restructured loans ....................... - - -
Loans past due 90 days or more
but not included in nonaccrual loans ... 215 145 803
------- ------- -------
Total nonperforming loans 1,397 671 1,425
Foreclosed property, net ................. 1,737 3,442 3,171
------- ------- -------
Total ............................... $ 3,134 $ 4,113 $ 4,596
======= ======= =======
Ratio of nonperforming assets to
total assets ........................... .81% 1.28% 1.25%
======= ======= =======
Ratio of nonperforming assets to
total loans and foreclosed property .... 1.61% 2.41% 2.69%
======= ======= =======
</TABLE>
TABLE 6 presents nonperforming assets by type of borrower. At September
30, 1994, real estate nonperforming assets totaled $2.3 million, or 74% of
total nonperforming assets, compared to 64% at September 30, 1993.
20
<PAGE> 22
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
TABLE 6 - NONPERFORMING ASSETS BY TYPE OF BORROWER
<TABLE>
<CAPTION>
September 30,
-------------------- December 31,
1994 1993 1993
-------- -------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
Commercial .............................. $ 137 $ 168 $ 171
Energy .................................. - 710 710
Real estate, land ....................... 1,282 1,860 2,478
Real estate, residential ................ 232 195 246
Real estate, commercial ................. 813 586 622
Installment ............................. 670 594 369
------- ------- -------
Total .............................. $ 3,134 $ 4,113 $ 4,596
======= ======= =======
</TABLE>
In addition to the nonperforming assets set forth above, at September 30,
1994, BTX had $1.6 million of loans classified as "potential problem loans,"
86% of which are secured by mortgages on real property owned by three
borrowers. This compares to $2.5 million of potential problem loans at
September 30, 1993. A potential problem loan is a loan which is currently
being repaid in accordance with its terms but with respect to which information
about possible credit problems of the borrower is known, which causes
management to have concern as to the ability of the borrower to comply with the
present loan repayment terms and which may result in disclosure in the future
in one of the nonperforming asset categories.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
At September 30, 1994, the allowance for loan losses was approximately
$2.6 million, or 1.4% of total loans, compared to $2.6 million, or 1.6% of
total loans, at December 31, 1993. TABLE 7 presents the activity in the
allowance for loan losses. The ratio of the allowance for loan losses to total
nonperforming loans was 188.1% and 402.8% as of September 30, 1994 and 1993,
respectively. This ratio declined during this period because nonperforming
loans increased by $726,000 (from $671,000 to $1,397,000), see TABLE 5, while
the allowance remained virtually unchanged. During this same period "potential
problem loans" decreased $900,000, offsetting the increase in nonperforming
loans and mitigating the decline in this coverage ratio.
Management considers the allowance for loan losses to be adequate at
September 30, 1994. 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
September 30, 1994, 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.
21
<PAGE> 23
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
The provision for loan losses for the nine months ended September 30, 1994
was $605,000, compared to $330,000 for the nine months ended September 30,
1993. Net charge-offs for the first nine months of 1994 were $614,000 compared
to $671,000 for the same period of 1993. The amount of provision for loan
losses required in any given quarter is dependent on changes in one or more
variables. Increases or decreases in loan levels, loans charged off, recoveries
on previously charged off loans and specific allocations on individual loans
all have an impact on the amount of provision for loan losses incurred. During
the third quarter of 1994, the primary reason for the $455,000 provision was to
replenish the allowance for net charge-offs of $296,000 and to maintain the
reserve because of the $20.8 million increase in the loan levels.
Management periodically reviews and considers the impact of the economy,
as well as many other factors, in its determination of the allowance for loan
losses. In prior years, BTX had been adversely affected by the economic
conditions in Texas. Economic conditions have continued to improve, generally
in parallel with the national economy. The management of BTX recognizes some
adverse economic conditions still exist; however, it does not expect these to
have a material, adverse impact on the provision in the future and the Bank's
efforts to further upgrade the quality of the loan portfolio in 1994.
TABLE 7 - SUMMARY OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Third Quarter
-------------------- Year-To-Date
1994 1993 1994 1993
-------- -------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period ... $ 2,469 $ 2,836 $ 2,637 $ 3,044
Provision for loan losses ........ 455 100 605 330
Loans charged off:
Commercial and financial ....... 4 12 4 229
Energy ......................... - - - 40
Real estate .................... - - 207 -
Installment .................... 491 504 1,282 1,103
------- ------- ------- -------
Total charge-offs ............ 495 516 1,493 1,372
Recoveries:
Commercial and financial ....... 16 35 171 105
Real estate .................... 31 54 259 137
Installment .................... 152 194 449 459
------- ------- ------- -------
Total recoveries ............. 199 283 879 701
------- ------- ------- -------
Net charge-offs .............. 296 233 614 671
------- ------- ------- -------
Balance at end of period ......... $ 2,628 $ 2,703 $ 2,628 $ 2,703
======= ======= ======= =======
Allowance for loan losses as a
percent of period-end loans .... 1.37% 1.62%
======= =======
Allowance for loan losses as a
percent of nonperforming loans.. 188.12% 402.83%
======= =======
</TABLE>
22
<PAGE> 24
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
DEPOSITS
During the third quarter of 1994 total deposits averaged $240.9 million, a
decrease of $7.6 million, or 3.1% from December 31, 1993. The decreased
deposits resulted primarily from decreased money market accounts compared to
the fourth quarter of 1993. Money market accounts are more sensitive to market
prices compared to the Bank's other deposit products. Also, because money
market accounts have check writing features, these funds are more liquid. Due
to these factors and the alternative investments available to depositors, the
Company's money market accounts have decreased $6.9 million as compared to the
fourth quarter 1993 and $7.9 million as compared to the third quarter of 1993.
Public funds have declined $14.1 million relative to the third quarter 1993 and
$5.4 million relative to the fourth quarter 1993. Public funds have declined
principally because these public entities chose alternative investments that
are now available rather than bank deposits. TABLE 8 shows the types of
deposits and the related rates paid for the periods indicated.
TABLE 8 - DEPOSITS
<TABLE>
<CAPTION>
Third Quarter
---------------------------------- Fourth Quarter
1994 1993 1993
---------------- ---------------- ----------------
Average Average Average
Balance Rate Balance Rate Balance Rate
-------- ----- -------- ----- -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand ................ $ 48,339 - $ 45,136 - $ 46,052 -
Money market accounts . 61,427 2.94% 69,338 2.56% 68,364 2.48%
Savings ............... 22,015 1.91 18,669 2.49 18,890 2.50
Certificates of deposit
$100,000 and over ... 13,795 4.69 12,804 4.37 13,821 4.42
Public funds .......... 3,359 3.43 17,435 3.07 8,733 3.09
Other time ............ 91,930 4.37 92,629 4.44 92,653 4.41
-------- -------- --------
Total average
deposits ........ $240,865 $256,011 $248,513
======== ======== ========
</TABLE>
CAPITAL RESOURCES
Stockholders' equity at September 30, 1994 was $42.8 million, compared to
$14.9 million at December 31, 1993. The increase in consolidated stockholders'
equity was primarily the result of the sale of Class B Common Stock on August
31, 1994. The proceeds of this sale, net of related offering expenses,
amounted to $29,623,000. As a result of adoption of Statement of Financial
Accounting Standards 115, the effect of unrealized gains and losses on
investment securities available for sale, net of related income tax effects, is
reflected as a component of consolidated stockholders' equity. Net unrealized
losses on securities available for sale were $1,401,000 at September 30, 1994
compared to $67,000 at December 31, 1993. TABLE 9 provides certain additional
information concerning BTX's stockholders' equity and its allowance for loan
losses for the periods indicated.
23
<PAGE> 25
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
TABLE 9 - CAPITAL AND ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
September 30,
------------------ December 31,
1994 1993 1993
-------- -------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
Stockholders' equity ...................... $ 42,797 $ 15,146 $ 14,952
======== ======== ========
Allowance for loan losses ................. 2,628 2,703 2,637
======== -------- --------
Ratio of stockholders' equity to assets ... 11.07% 4.71% 4.06%
======== ======== ========
</TABLE>
TABLE 10 compares the capital ratios of BTX and the Bank at September 30,
1994 with regulatory requirements applicable to all FDIC-insured banks and bank
holding companies. The federal bank regulatory agencies have the authority to
impose higher requirements on individual banks and bank holding companies.
TABLE 10 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 September 30, 1994 17.71% 11.39% 18.84%
Bank at
September 30, 1994 12.01% 7.70% 13.09%
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.
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
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 $210,800. 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.
24
<PAGE> 26
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
INTEREST RATE SENSITIVITY
BTX's Asset/Liability Management Policy Committee has as one of its
objectives to approximate a 1:1 ratio of interest-sensitive assets to
interest-sensitive liabilities at the one year horizon. TABLE 11 shows each
ratio at all time intervals for September 30, 1994. Currently, BTX is in a
liability sensitive position at all periods under 180 days. During a declining
interest rate environment, the Company's position would produce higher net
interest income and during a rising interest rate environment, this position
would produce a 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 11 - INTEREST RATE SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
September 30, 1994
-----------------------------------------------------------------------
Rate-Sensitive
-----------------------------------------------------
Total **Non-
Over Rate rate
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 $148,890 $ 24,258 $ 25,175 $ 32,134 $115,794 $346,251 $ 4,908 $351,159
Interest
bearing
liabilities....... 177,328 13,865 16,876 20,500 62,521 291,090 - 291,090
-------- -------- -------- -------- -------- -------- ------- --------
Nominal gap ........ (28,438) 10,393 8,299 11,634 53,273
Cumulative
interest
sensitivity
gap* ............. $(28,438)$(18,045)$ (9,746)$ 1,888 $ 55,161
======== ======== ======== ======== ========
Cumulative ratio
of earning
assets to in-
terest bearing
funds ............ 84% 91% 95% 101% 119%
</TABLE>
____________________
*Rate-sensitive earning assets less rate-sensitive interest bearing
liabilities.
**The non-rate sensitive assets are composed of nonaccrual loans and
Federal Reserve Bank Stock.
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 from either assets or liabilities or a
combination of both. On the asset side, the primary sources of liquidity are
25
<PAGE> 27
BancTEXAS Group Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
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. 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.
The principal sources of liquidity are deposit growth, the maturity
distribution of purchased funds, unused credit lines, the collateral value of
investment securities and accessibility to money and capital markets. Deposits
for the third quarter of 1994 averaged $240.9 million, a decrease of $15.1
million, or 6%, from the third quarter of 1993. This decrease was due
primarily to a reduction of public funds deposits. Securities sold under
agreements to repurchase averaged $106 million for the third quarter 1994, an
increase of $49 million from the third quarter of 1993. 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. The Bank
joined the FHLB in the third quarter of 1993. The Bank's membership in the
FHLB has enhanced its liquidity and provided an additional funding source. At
September 30, 1994, its borrowing against securities from the FHLB totaled
$80.7 million and borrowings from other sources were $6.7 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.
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. Federal banking law and
regulation 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 will be paid to BTX by the Bank.
26
<PAGE> 28
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY H0LDERS
On August 18, 1994 BTX held its annual meeting of stockholders (the
"Annual Meeting") at which time the stockholders elected six directors and also
acted on two other proposals.
The six directors were elected with the following vote totals:
<TABLE>
<CAPTION>
For Withheld Broker Non-Votes
--- -------- ----------------
<S> <C> <C> <C>
Richard L. Brown 16,559,442 729,614 1,532,016
Nathan C. Collins 16,549,485 739,571 1,532,016
Charles A. Crocco, Jr. 16,547,666 741,390 1,532,016
Joseph J. Leszczynski 16,534,916 754,140 1,532,016
Thomas A. Stanzel 16,562,276 726,780 1,532,016
Edward T. Story, Jr. 16,556,576 732,480 1,532,016
</TABLE>
The following matters were also voted on at the Annual Meeting, with the
voting results indicated:
<TABLE>
<CAPTION>
Proposal For Against Withheld
-------- --- ------- -----------------------------
Abstentions Broker Non-Votes
----------- ----------------
<S> <C> <C> <C> <C>
Approval of transaction
with First Banks, Inc.
(Proposal No. 1 in
Proxy Statement) 10,458,937 869,411 230,913 5,729,795
Approval of amendments
to and restatement of
Certificate of
Incorporation (Proposal
No. 2 in Proxy Statement) 10,308,680 1,057,559 193,022 5,729,795
</TABLE>
ITEM 5. OTHER INFORMATION
On August 31, 1994 the Registrant completed a pending transaction with
First Banks, Inc., as discussed in Note 2 to the Consolidated Financial
Statements which appear elsewhere in this Report.
In conjunction with the consummation of the transaction, and as disclosed
in the Proxy Statement for the Annual Meeting discussed under Item 4 above,
three of the directors who had been reelected at the Annual Meeting (Messrs.
Brown, Leszczynski and Stanzel) resigned, and three new directors were
appointed by the remaining directors to fill the three vacancies created such
registrations. The three new directors are James F. Dierberg, Allen H. Blake
and Mark T. Turkcan.
27
<PAGE> 29
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibit No. Description
----------- -----------
<S> <C>
11 Computation of Earnings (Loss) Per Share
27 Financial Data Schedule (Electronic
Filing Only)
</TABLE>
(b) Reports on Form 8-K were filed on September 15, 1994 and September 27,
1994.
Report filed September 15, 1994 - reported pursuant to
Item 1 of Form 8-K that the transaction with First Banks, Inc.
in which First Banks, Inc. invested $30 million in the Class B
Common Stock of the Registrant, was consummated.
Report filed September 27, 1994 - reported pursuant to
Item 4 of Form 8-K that the Registrant has engaged the
accounting firm of KPMG Peat Marwick LLP to audit its
financial statements for the fiscal year ended December 31,
1994, to replace the previous accounting firm, Deloitte &
Touche LLP.
28
<PAGE> 30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
BancTEXAS Group Inc.
(Registrant)
Date November 14, 1994 By /s/ NATHAN C. COLLINS
Nathan C. Collins
Chairman of the Board
and President
By /s/ ALLEN H. BLAKE
Allen H. Blake
Chief Accounting Officer
29
<PAGE> 31
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- - - ------- -----------
11 Computation of Earnings (Loss) Per Share
27 Financial Data Schedule (Electronic Filing Only)
<PAGE> 1
Exhibit 11
BancTEXAS Group Inc.
COMPUTATION OF EARNINGS PER SHARE - Unaudited
<TABLE>
<CAPTION>
Three Months Nine Months
ended September 30, ended September 30,
---------------------- ----------------------
1994 1993 1994 1993
-------- -------- -------- --------
(In thousands, except per share)
<S> <C> <C> <C> <C>
Net income (loss) applicable
to common shareholders ..... $ (489) $ 304 $ (636) $ 941
======== ======== ======== ========
Weighted average common and
common equivalent shares ... 36,324 23,379 $ 27,808 $ 23,285
======== ======== ======== ========
PER SHARE
Net income (loss) applicable
to common shareholders ... $ (.01) $ .01 $ (.02) $ .04
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> CT
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL STATEMENTS FOR PERIOD ENDED SEPTEMBER 30, 1994 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000310979
<NAME> BANCTEXAS GROUP INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<TOTAL-ASSETS> 385,183
<COMMON> 580
0
0
<OTHER-SE> 42,217
<TOTAL-LIABILITY-AND-EQUITY> 385,183
<TOTAL-REVENUES> 11,971
<INCOME-TAX> (9,209)
<INCOME-CONTINUING> (636)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (636)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
