<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0 - 21328
FORT BEND HOLDING CORP.
A DELAWARE CORPORATION I.R.S. EMPLOYER IDENTIFICATION
NO. 76-0391720
ADDRESS TELEPHONE NUMBER
3400 AVENUE H (713) 342-5571
ROSENBERG, TEXAS 77471
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
------- ------
There were 907,372 shares and 819,198 shares of Common Stock ($0.01 par value)
issued and outstanding, respectively as of August 1, 1996.
1 of 21
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
FORT BEND HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(UNAUDITED)
ASSETS JUNE 30, 1996 MARCH 31, 1996
<S> <C> <C>
Cash and due from banks $ 4,346,835 $ 3,451,880
Short-term investments 7,050,826 13,541,782
Certificates of deposit 200,000 200,000
--------------- ----------------
TOTAL CASH AND CASH EQUIVALENTS 11,597,661 17,193,662
Investment securities available for
sale, at market value 2,704,557 2,684,607
Investment securities held to maturity
(estimated market value of $20,014,093
and $9,064,153 at June 30, 1996
and March 31, 1996, respectively) 20,219,065 9,233,505
Mortgage-backed securities available
for sale, at market value 745,448 873,502
Mortgage-backed securities held to
maturity (estimated market value
of $106,062,855 and $110,676,779
at June 30, 1996 and March 31, 1996,
respectively) 107,130,125 110,489,617
Loans receivable, net 100,645,671 92,861,594
Loans held for sale 863,165 922,422
Accrued interest receivable 1,548,875 1,466,272
Real estate, net 148,092 155,372
Federal Home Loan Bank stock, at cost 1,481,400 1,460,200
Premises and equipment, net 3,850,387 3,635,046
Mortgage servicing rights, net 1,915,365 1,235,714
Prepaid expenses and other assets 1,501,523 1,538,171
Deferred income taxes 387,501 418,949
--------------- ----------------
TOTAL ASSETS $ 254,738,835 $ 244,168,633
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 204,874,581 $ 203,913,715
Convertible Subordinated Debentures 12,100,000 12,100,000
Other borrowings 10,307,782 4,363,688
Advances from borrowers for taxes and 7,444,782 4,224,796
insurance
Accounts payable, accrued expenses and 2,003,224 1,994,063
other liabilities
--------------- ----------------
TOTAL LIABILITIES 236,730,369 226,596,262
--------------- ----------------
Stockholders' Equity:
Serial preferred stock, $.01 par value
- 500,000 shares authorized, none
outstanding
Common Stock $.01 par value, 2,000,000
shares authorized 907,372 shares issued
and 819,198 shares outstanding at
June 30, 1996 and 905,572 shares
issued and 817,398 shares
outstanding at March 31, 1996 9,073 9,055
Additional paid-in capital 8,580,932 8,514,562
Unearned employee stock ownership plan
shares (351,000) (394,875)
Deferred compensation (119,219) (98,668)
Net unrealized depreciation on
available for sale securities, net of
tax (23,778) (21,786)
Retained earnings (substantially
restricted) 11,368,959 11,020,584
Treasury stock, at cost - 88,174 shares
at June 30, 1996 and March 31, 1996 (1,456,501) (1,456,501)
---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 18,008,466 17,572,371
---------------- ----------------
TOTAL LIABILITIES AND $ 254,738,835 $ 244,168,633
STOCKHOLDERS' EQUITY ================ ================
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
2
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<TABLE>
<CAPTION>
FORT BEND HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1995
INTEREST INCOME:
<S> <C> <C>
Loans $ 2,130,689 $ 1,733,892
Short-term investments 187,395 77,895
Investment securities 147,996 250,298
Mortgage-backed securities 1,829,259 1,942,729
-------------------- ---------------------
TOTAL INTEREST INCOME 4,295,339 4,004,814
-------------------- ---------------------
INTEREST EXPENSE:
Deposits 2,320,151 2,249,436
Borrowings 330,050 136,912
-------------------- ---------------------
TOTAL INTEREST EXPENSE 2,650,201 2,386,348
-------------------- ---------------------
NET INTEREST INCOME BEFORE PROVISION FOR
LOAN LOSSES 1,645,138 1,618,466
PROVISION FOR LOAN LOSSES 25,000 27,053
-------------------- ---------------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 1,620,138 1,591,413
-------------------- ---------------------
NONINTEREST INCOME:
Gain on sale of loans 49,949 59,205
Service charges 113,418 74,632
Loan servicing income 169,631 140,799
Other income 279,138 182,656
-------------------- ---------------------
TOTAL NONINTEREST INCOME 612,136 457,292
-------------------- ---------------------
NONINTEREST EXPENSES:
Compensation and benefits 831,871 764,772
Office occupancy and equipment 187,020 164,898
Federal insurance premiums 124,282 113,291
Amortization of mortgage servicing rights 64,250 60,000
Insurance and surety bond expense 33,616 26,069
Other 376,516 293,720
-------------------- ---------------------
TOTAL NONINTEREST EXPENSES 1,617,555 1,422,750
-------------------- ---------------------
INCOME BEFORE INCOME TAX 614,719 625,955
INCOME TAX PROVISION 209,000 222,900
-------------------- ---------------------
NET INCOME $ 405,719 $ 403,055
==================== =====================
PRIMARY EARNINGS PER COMMON SHARE $ 0.48 $ 0.46
==================== =====================
FULLY DILUTED EARNINGS PER COMMON SHARE $ 0.40 $ 0.46
==================== =====================
DIVIDENDS PER COMMON SHARE $ 0.07 $ 0.07
==================== =====================
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
FORT BEND HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 405,719 $ 403,055
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for losses on loans and real estate 25,000 27,053
Depreciation 51,877 49,520
Amortization of deferred compensation 12,298 10,656
Compensation charge related to release of ESOP shares 33,538 32,461
Amortization of premium and discounts on securities, net 3,962 36,962
Amortization of loan premium, discount, and deferred fees, net (61,115) (39,272)
Deferred income tax provision 32,474 150,296
Gain on sale of real estate (1,220) (13,877)
Amortization of unearned income (2,363) (1,632)
Amortization of mortgage servicing rights 64,250 60,000
Amortization of debt issue costs 20,109 ---
Gain on sale of loans (49,949) (59,205)
Dividends on Federal Home Loan Bank stock (21,200) (22,900)
Origination of loans held for sale (4,113,994) (2,127,412)
Proceeds from sale of loans 4,223,200 2,088,600
Increase in accrued interest receivable (82,603) (32,903)
(Increase) decrease in prepaid expenses and other assets 16,539 (36,560)
Increase in accounts payable, accrued expenses and other liabilities 11,524 31,790
----------------- -----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 568,046 556,632
----------------- -----------------
</TABLE>
Continued
4
<PAGE>
<TABLE>
<CAPTION>
FORT BEND HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
1996 1995
INVESTING ACTIVITIES:
<S> <C> <C>
Net change in loans receivable (7,747,962) (5,347,806)
Proceeds from sale of real estate 8,500 11,611
Improvements to real estate --- (1,119)
Purchase of premises and equipment (267,216) (54,373)
Proceeds from maturity of investment securities --- 1,000,000
Purchase or origination of mortgage servicing rights (743,901) (23,743)
Purchase of investment securities available for sale (27,979) ---
Principal collected on mortgage-backed securities held to maturity 3,353,509 2,485,764
Principal collected on mortgage-backed securities available for sale 133,086 ---
Purchase of investment securities held to maturity (10,983,561) ---
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (16,275,524) (1,929,666)
FINANCING ACTIVITIES:
Net increase in deposits 960,866 5,638,753
Net increase (decrease) in short-term borrowings 6,000,000 (4,400,000)
Payment on long-term borrowings (12,031) ---
Increase in advances from borrowers for taxes and insurance 3,219,986 2,143,064
Net proceeds from issuance of common stock --- 15,500
Dividends paid (57,344) (60,159)
------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 10,111,477 3,337,158
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,596,001) 1,964,124
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 17,193,662 6,832,312
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,597,661 $ 8,796,436
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 2,890,723 $ 2,376,628
Supplemental disclosure of noncash activities:
Loans originated related to sales of real estate --- $ 69,300
Stock issued to recognition and retention plan $ 32,850 22,500
Reduction of ESOP debt by the ESOP 43,875 43,875
Net unrealized depreciation on available for sale securities,
net of tax 3,018 ---
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
5
<PAGE>
FINANCIAL STATEMENTS, CONTINUED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited information for the three months ended June 30, 1996 includes
the results of operations of Fort Bend Holding Corp. (the "Holding Corp.")
and its wholly-owned subsidiary Fort Bend Federal Savings and Loan
Association of Rosenberg (the "Association"). In the opinion of management,
the information reflects all adjustments (consisting only of normal
recurring adjustments) which are necessary for a fair presentation of the
results of operations for such periods but should not be considered as
indicative of results for a full year.
The March 31, 1996 condensed consolidated statement of financial condition
data was derived from the audited financial statements, but does not
include all disclosures required by generally accepted accounting
principles. Accordingly, the condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial
statements.
2. RECOGNITION AND RETENTION PLAN
The Holding Corp. has a Recognition and Retention Plan ("RRP") as a method
of providing key officers with a proprietary interest in the Holding Corp.
in a manner designed to encourage such individuals to remain with the
Holding Corp. or the Association. All outstanding awards vest at a rate of
20% per year. On April 1, 1996, an additional 1,800 shares were granted
under the RRP. A total of 26,325 shares have been authorized of which
21,852 shares had been granted under the RRP as of June 30, 1996.
3. IMPAIRED LOANS
Impaired loans decreased $993,000 during the quarter ended June 30, 1996
reflecting the payoff of a multifamily loan previously recognized as
impaired. All principal, interest and late charges contractually due were
collected.
The following table summarizes impaired loan information as of June 30,
1996.
<TABLE>
<CAPTION>
<S> <C>
Impaired loans $ 2,870,000
Impaired loans which have a specific reserve for
loan losses calculated under SFAS 114 404,000
Impaired loans which do not have a specific
reserve for loan losses calculated under
SFAS 114 2,466,000
</TABLE>
6
<PAGE>
FINANCIAL STATEMENTS, CONTINUED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
4. OTHER BORROWINGS
Borrowings at June 30, 1996 consisted of a $6.0 million short term advance
from the Federal Home Loan Bank bearing a rate of 5.50% maturing July 2,
1996 and a $4.0 million advance from the Federal Home Loan Bank bearing a
rate of 6.205% amortizing based on a 30 year term and maturing on June 20,
2000. The advances are collateralized by mortgage-backed securities.
Borrowings also included an ESOP loan with a balance of $351,000 at June
30, 1996 with principal payments due each June 30 and December 31 and
maturing June 30, 2001.
The following is a schedule by fiscal year of future principal payments
required under the amortizing advance agreement and the ESOP loan:
<TABLE>
<CAPTION>
FHLB Advances ESOP Loan
------------- ------------
<S> <C> <C>
1997 $ 37,231 $ 43,875
1998 52,405 87,750
1999 55,752 87,750
2000 59,312 87,750
2001 3,752,082 43,875
</TABLE>
5. EARNINGS PER COMMON SHARE
Primary earnings per common share for the three months ended June 30,
1996 have been computed based on net income divided by the weighted average
number of common shares and common share equivalents outstanding during the
period. When dilutive, stock options are included as share equivalents
using the treasury stock method. Additionally, net income and shares
outstanding are adjusted to assume the conversion of the Convertible
Subordinated Debentures for fully diluted earnings per common share. For
purposes of determining primary earnings per share the weighted average
number of common shares and common share equivalents outstanding for the
three months ended June 30, 1996 was 840,054 and for fully-diluted earnings
per share, 1,400,236.
6. SUBSEQUENT EVENTS
On July 24, 1996, the Holding Corp. declared a cash dividend of $.07 per
share payable on September 4, 1996 to shareholders of record on August 14,
1996.
7. SPECIAL DEPOSIT INSURANCE ASSESSMENT
The deposits of savings institutions such as the Association are presently
insured by the Savings Association Insurance Fund (the "SAIF"), which,
along with the Bank Insurance Fund (the "BIF"), are the two insurance funds
administered by the Federal Deposit Insurance Corporation (the "FDIC").
Financial institutions which are members of the BIF are experiencing
substantially lower deposit insurance premiums because the BIF
7
<PAGE>
FINANCIAL STATEMENTS, CONTINUED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
has achieved its required level of reserves while the SAIF has not yet
achieved its required reserves. A recapitalization plan for the SAIF under
consideration by Congress reportedly provides for a special assessment of
0.85% to 0.90% of deposits to be imposed on all SAIF insured institutions
to enable the SAIF to achieve its required level of reserves. If the
proposed assessment of 0.85% to 0.90% was assessed based on deposits as of
March 31, 1995 (as proposed), the Association's special assessment would
amount to approximately $1.7 million to $1.8 million, before taxes,
respectively. Accordingly, this special assessment would significantly
increase non-interest expense, and adversely effect the Company's results
of operations. Conversely, depending upon the Association's capital level
and supervisory rating, and assuming, although there can be no assurance,
that the insurance premium levels for BIF and SAIF members are again
equalized, future deposit insurance premiums could decrease significantly
for future periods, to as low as .04% from the .23% of deposits currently
paid by the Association.
8
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Fort Bend Holding Corp. (the "Holding Corp.") was incorporated under the laws of
the State of Delaware to become a savings and loan holding company with Fort
Bend Federal Savings and Loan Association of Rosenberg (the "Association") as
its subsidiary. The Holding Corp. was incorporated at the direction of the
Board of Directors of the Association, and on June 30, 1993 acquired all of the
capital stock of the Association upon its conversion from mutual to stock form
(the "Conversion"). Prior to the Conversion, the Holding Corp. did not engage
in any material operations and at June 30, 1996, it had no significant assets
other than the investment in the capital stock of the Association, investment
securities, deferred charges from subordinated debenture issue and cash and cash
equivalents. Unless the context otherwise requires, all references herein to
the Holding Corp. include the Holding Corp. and the Association on a
consolidated basis.
The Association is principally engaged in the business of attracting retail
savings deposits from the general public and investing those funds in first
mortgage loans on owner occupied, single-family residences, mortgage-backed
securities and investment securities. The Association originates residential
construction and commercial real estate loans. The Association also originates
consumer loans, including loans for the purchase of automobiles and home
improvement loans.
The most significant outside factors influencing the operations of the
Association and other banks and savings institutions include general economic
conditions, competition in the local market place and the related monetary and
fiscal policies of agencies that regulate financial institutions. More
specifically, the cost of funds, primarily consisting of deposits, is influenced
by interest rates offered on competing investments and general market rates of
interest. Lending activities are influenced by the demand for real estate
financing and other types of loans, which in turn is affected by the interest
rates at which such loans may be offered and other factors affecting loan demand
and funds availability.
On May 10, 1996, the Holding Corp. entered into an agreement to acquire all the
outstanding stock of FirstBanc Savings Association of Texas ("FirstBanc").
FirstBanc is a state chartered savings and loan association with one full
service office located in Missouri City, Texas. The Missouri City/Sugarland
area is located in east Fort Bend County. This should be a strategic location
for the Association as east Fort Bend County has several master planned
communities including the rapidly growing First Colony and a new 7,000 acre
project known as Sienna Plantation. The transaction value is approximately $4.2
million and is subject to satisfaction of certain contractual conditions to
closing, regulatory and shareholder approval. As of June 30, 1996, FirstBanc
reported unaudited total assets of $30.6 million, deposits of $27.2 million and
shareholders' equity of $3.1 million.
In order to continue to meet the financial services needs of the communities it
serves, the Association intends to grow in a reasonable, prudent manner which
may include expansion of the branch network or the acquisition of other
financial institutions and related companies operating
9
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CONTINUED
generally within a 100 mile radius of Rosenberg, Texas. As a part of this
intended growth, the Association has increased the portfolio allocation of
single-family construction lending, commercial real estate lending and consumer
lending. The Association recently hired an experienced construction lending
officer and, as a result, the Association expects to increase its residential
construction lending program, including the origination of speculative loans to
qualified builders. The Association intends to generally limit the amount of
speculative loans to any one builder to approximately $800,000. Residential
construction loans to owner-occupants are generally underwritten using the same
criteria as for one- to four-family residential loans. Loan proceeds are
disbursed in increments as construction progresses and inspections warrant.
Certain improvements and expansion of facilities were completed in fiscal 1996
and an additional branch office was added in the quarter ended June 30, 1996,
which management believes will assist in the expansion of the Association's core
deposit base. Finally, the Association continues to look for opportunities to
expand the loan servicing portfolio.
Loan servicing has been one of the stable income providers for the Association
and will continue to be expanded, to the extent possible, through the retention
of servicing for loans originated and sold into the secondary market, as well as
through the purchase of mortgage servicing rights, to the extent deemed
appropriate (and subject to market conditions at the time). During the quarter
ended June 30, 1996, the Association purchased the right to service
approximately $62 million of mortgage loans. Management believes purchases of
loan servicing rights may allow the Association to take advantage of some
economies of scale related to servicing.
Interest rates have increased subsequent to the fiscal year ended March 31,
1996. The impact of this increase, may be a lower volume of permanent single
family lending activity which would result in lower gains on sale of loans.
While there are no assurances that the Association will be able to generate new
sources of originations to neutralize the lower volume of permanent single
family loans, attention is being given to increasing the level of single family
construction lending, commercial real estate lending and consumer lending. It is
difficult to determine the impact of rising interest rates on the net interest
margin. The Association's one year interest sensitivity gap was positive 7.97%
at June 30, 1996. A positive gap indicates there are more interest-earning
assets repricing during a stated period than interest-bearing liabilities
potentially, resulting in an increase in the spread on such assets and
liabilities, in a rising rate environment. A negative gap would have the
opposite effect.
At June 30, 1996, the Holding Corp. had unrealized gains and losses in its
investment securities and mortgage-backed securities portfolio which are being
held to maturity. The Holding Corp. has both the intent and ability to hold
these securities until maturity. Management believes the Holding Corp. will be
able to collect all amounts due according to the contractual terms of the debt
securities and is not aware of any information that would indicate the inability
of any issuer of such securities to make contractual payments in a timely
manner. Therefore, management does not believe these losses are other than
temporary and will not be realized, and should not be recognized in the
financial statements.
10
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CONTINUED
Most of the mortgage-backed securities are agency securities and are either
guaranteed by the full faith and credit of the United States Government (GNMA)
or are insured by a Government Sponsored Enterprise (FNMA & FHLMC). Private
issue mortgage-backed securities consist of the "A" piece of "A-B" structured
securities where the "B" piece is subordinate to the "A" piece and which were
initially rated one of the two highest categories by one or several of the
rating agencies. These securities have pool insurance and/or reserve funds
in addition to the subordination of the "B" piece. Collateral for these
securities is whole mortgage loans. None of these securities are considered
"high risk" as defined by the Office of Thrift Supervision and none have failed
to pass the Federal Financial Institution Examination Council (FFIEC) mandatory
test for "high risk" securities. The Association does not invest in "high risk"
securities.
The management of the investment portfolio is not designed to be the primary
source of funds for the Association's operations. Rather, it is viewed as a use
of funds generated by the Association to be invested in interest-earning assets
to be held to maturity. Cash flow mismatches between sources and uses of funds
should not require any of the securities to be liquidated. While cash flows
from the securities varies depending on the prepayment speeds associated with
each particular security, the variance in the prepayment speeds does not impact
the over-all cash flow requirements of the Association since the Association has
the ability to borrow funds from the Federal Home Loan Bank of Dallas.
Currently, the Association has the ability to borrow up to an additional $112
million if cash flow requirements cannot be met by attracting deposits from its
customer base (its primary source of funds), or from repayment of loans and
other sources.
The following schedule provides detail of the investment securities and the
mortgage-backed securities portfolio, which are held to maturity, along with the
related unrealized gains and losses.
11
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT AND MORTGAGE-BACKED SECURITIES
HELD TO MATURITY
JUNE 30, 1996
-------------------------------------------------------------------------
UNREALIZED
BOOK MARKET ----------------------------------
TYPE OF SECURITY VALUE VALUE GAINS LOSSES
------------ ------------- ----------- -------------
INVESTMENT SECURITIES:
<S> <C> <C> <C> <C>
U.S. Treasury Notes $ 997,432 $ 996,250 $ $ 1,182
World Bank Bond &
FHLB Debentures 16,230,785 16,158,874 42,653 114,564
FNMA & FHLMC Debentures 2,990,848 2,858,969 131,879
TOTAL HELD TO ------------- ------------ ------------ -------------
MATURITY $ 20,219,065 $ 20,014,093 $ 42,653 $ 247,625
============= ============ ============ =============
MORTGAGE-BACKED SECURITIES:
FNMA
Fixed $ 11,125,839 $ 11,282,391 $ 266,954 $ 110,402
Adjustable 15,438,588 15,264,612 62,938 236,914
FHLMC
Fixed 7,145,464 7,125,427 62,128 82,165
Adjustable 17,017,395 16,792,423 67,597 292,569
GNMA
Fixed 2,552,435 2,599,936 50,408 2,907
Adjustable 7,562,077 7,528,191 10,608 44,494
Private Issue
Fixed
Adjustable 5,023,187 5,004,123 10,024 29,088
CMO
Fixed
FNMA 12,275,745 11,982,681 22,585 315,649
FHLMC 12,129,948 11,927,848 26,634 228,734
Private 3,970,881 3,953,620 5,788 23,049
Adjustable
FNMA 2,934,411 2,882,976 24,560 75,995
FHLMC 7,011,847 6,849,500 18,680 181,027
Private 2,942,308 2,869,127 73,181
TOTAL HELD TO ------------- ------------ ------------ -------------
MATURITY $ 107,130,125 $106,062,855 $ 628,904 $ 1,696,174
============= ============ ============ =============
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------------------------------------------------
UNREALIZED
BOOK MARKET ----------------------------------
TYPE OF SECURITY VALUE VALUE GAINS LOSSES
------------ ------------- ----------- -------------
INVESTMENT SECURITIES:
<S> <C> <C> <C> <C>
U.S. Treasury Notes $ 996,839 $ 998,120 $ 1,281 $
World Bank Bond &
FHLB Debentures 5,247,145 5,186,785 40,039 100,399
FNMA & FHLMC Debentures 2,989,521 2,879,248 110,273
TOTAL HELD TO ------------- ------------ ------------ -------------
MATURITY $ 9,233,505 $ 9,064,153 $ 41,320 $ 210,672
============= ============ ============ =============
MORTGAGE-BACKED SECURITIES:
FNMA
Fixed $ 11,631,375 $ 11,969,697 $ 393,627 $ 55,305
Adjustable 15,816,532 15,817,278 154,630 153,884
FHLMC
Fixed 7,457,968 7,540,961 119,060 36,067
Adjustable 17,801,264 17,808,211 100,262 93,315
GNMA
Fixed 2,622,503 2,725,387 102,884
Adjustable 8,018,104 8,041,718 44,574 20,960
Private Issue
Fixed
Adjustable 5,306,546 5,288,821 12,647 30,372
CMO
Fixed
FNMA 12,453,781 12,310,233 38,170 181,718
FHLMC 12,371,623 12,282,834 50,686 139,475
Private 3,969,574 4,022,320 57,736 4,990
Adjustable
FNMA 2,934,307 2,890,294 0 44,013
FHLMC 7,023,394 6,888,173 35,654 170,875
Private 3,082,646 3,090,852 8,206 0
TOTAL HELD TO ------------- ------------ ------------ -------------
MATURITY $ 110,489,617 $110,676,779 $ 1,118,136 $ 930,974
============= ============ ============ =============
</TABLE>
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CONTINUED
FORWARD-LOOKING STATEMENTS
When used in this Form 10-QSB, the words or phrases "will likely result", "are
expected to", "will continue", "is anticipated", "estimate", "project" or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties - including, changes
in economic conditions in the Holding Corp.'s market area, changes in policies
by regulatory agencies, fluctuations in interest rates, demand for loans in the
Holding Corp.'s market area and competition, that could cause actual results to
differ materially from historical earnings and those presently anticipated or
projected. The Holding Corp. wishes to caution readers not to place undue
reliance on any such forward-looking statements, which speak only as of the date
made. The Holding Corp. wishes to advise readers that the factors listed above
could affect the Holding Corp.'s financial performance and could cause the
Holding Corp.'s actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.
The Holding Corp. does not undertake - and specifically disclaims any obligation
- - to publicly release the results of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1996 AND 1995
The Holding Corp. had net income of $406,000 or $0.48 per share for the three
months ended June 30, 1996 compared to $403,000 or $0.46 per share for the same
period in fiscal 1996. Fully diluted earnings per share were $0.40 for the
three months ended June 30, 1996.
Net interest income, before provision for loan losses, increased $27,000 to
$1,645,000 during the three months ended June 30, 1996, compared to $1,618,000
for the same period in fiscal 1996. Interest income increased $290,000 and
primarily reflected an increase of $11.7 million in the average balance of
interest-earning assets. An increase of $18.6 million in the average balance
of loans receivable and $4.8 million in investments, partially offset by a
decrease of $11.8 million in mortgage-backed securities contributed to the
increase in interest-earning assets. Interest expense increased approximately
$264,000 and primarily reflected an increase of $15.1 million in the average
balance of interest-bearing liabilities. An increase of approximately $5.2
million in average deposits and $9.9 million in average borrowings contributed
to the increase in interest-bearing liabilities. Convertible subordinated
debentures of $12.1 million, issued in December 1995, were primarily responsible
for the increase in average borrowings. Net yield on average interest-earning
assets for the three months ended June 30, 1996 and 1995 was 2.82% and 2.93%,
respectively. The decrease resulted primarily from a decrease of .03% in net
interest
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CONTINUED
spread to 2.54% for the three months ended June 30, 1996 from 2.57% for the
three months ended June 30, 1995. This decrease in net yield reflected the
additional cost of borrowings from the Federal Home Loan Bank of Dallas and the
issuance of convertible subordinated debentures.
Management determines the amount of the allowance for loan losses which covers
specific loans as well as estimated losses inherent in the loan portfolio. The
level of the allowance is based on such factors as the amount of non-performing
assets, historical loss experience, regulatory policies, general economic
conditions, the estimated fair value of the underlying collateral and other
factors related to the collectibility of the loans. The provision for loan
losses for the three months ended June 30, 1996 decreased $2,000 as compared to
the same period in the last fiscal year, and was provided for estimated losses
believed by management to be inherent in the loan portfolio.
Noninterest income for the three months ended June 30, 1996 was $612,000
compared to $457,000 for the same period in fiscal 1996. Gain on sale of loans
was $50,000 for the three months ended June 30, 1996 compared to a gain of
$59,000 for the same period in 1995. The volume of loans sold was $4.3 million
and $2.1 million for the three months ended June 30, 1996 and June 30, 1995,
respectively. Service charges increased approximately $39,000 which included an
increase of $20,000 in late charges due primarily to a $17,000 late charge
collected on a $928,000 loan paid off during the quarter. Loan servicing income
increased approximately $29,000 and reflected the purchase of approximately $62
million of servicing rights during the quarter. The average servicing fee at
June 30, 1996 was .32%. Other income increased approximately $96,000 and
primarily reflected a $67,000 increase in financial services income, which is
income derived from offering discount brokerage services and from certain
insurance related activities.
Noninterest expenses increased $195,000 to $1.6 million for the three months
ended June 30, 1996. Compensation and benefits increased $67,000 for the three
months ended June 30, 1996 and primarily reflected normal salary increases and
two additions to middle management, partially offset by a decrease in
contributions to the retirement plan. Office occupancy increased $22,000 and
primarily reflected increases of $5,000 in depreciation and $12,000 in utilities
and rent expense. Most of the increase relates to the construction and
remodeling work on the branches and the main office.
Income tax provision decreased $14,000 to $209,000 for the three months ended
June 30, 1996 compared to $223,000 for the same period in fiscal 1996. The
decrease primarily reflected the decrease in income before tax.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CONTINUED
ASSET/LIABILITY MANAGEMENT
The Holding Corp. attempts to maximize net interest income by achieving a
positive interest rate spread that can be sustained during fluctuations in
prevailing interest rates. The Holding Corp.'s policies are designed to reduce
the impact of changes in interest rates on its net interest income by
maintaining a favorable match between the maturities or repricing dates of its
interest-earning assets and interest-bearing liabilities (interest sensitivity
gap). The Holding Corp. has implemented these policies by generally selling
long term fixed rate mortgage loan originations, retaining its adjustable rate
mortgage loans, originating and retaining short-term consumer loans and
purchasing adjustable rate or short term maturity loans, mortgage-backed
securities, collateralized mortgage obligations and investment securities.
As a result of these policies, the Holding Corp.'s cumulative one year
interest sensitivity gap at June 30, 1996, was a positive 7.97%. As interest
rates, prepayments and early withdrawal levels change, however, the resulting
interest sensitivity gap is expected to be affected.
ASSET QUALITY
The allowance for loan losses is established through a provision for loan losses
based on management's quarterly asset classification review and evaluation of
the risk inherent in its loan portfolio and changes in the nature and volume of
its loan activity.
As a result of this review process, management recorded a $25,000 provision for
loan losses during the three months ended June 30, 1996. The Holding Corp.'s
allowance for loan losses increased to $1,375,000 or 1.34% of total loans at
June 30, 1996, as compared to $1,350,000 or 1.43% of total loans at March 31,
1996. While management believes it uses the best information available to make
determinations regarding the adequacy of the allowance, there is no assurance
that the subsequent evaluations of the loan portfolio may not require additional
provisions for loan losses.
The non-performing assets to total assets ratio is one indicator of the exposure
to credit risk. Non-performing assets of the Holding Corp. consist of non-
accruing loans, troubled debt restructurings, and real estate which was acquired
as a result of foreclosure. The following table summarizes the various
categories of the Holding Corp.'s non-performing assets.
<TABLE>
<CAPTION>
June 30, 1996 March 31, 1996
<S> <C> <C>
Non-accruing loans $ 662,796 $ 729,274
Troubled debt restructurings 2,307,015 2,307,947
Foreclosed assets 123,215 123,215
--------------- ----------------
Total non-performing assets $ 3,093,026 $ 3,160,436
=============== ================
Total non-performing assets
as a percentage of total assets 1.21% 1.29%
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CONTINUED
Total non-performing assets decreased by $67,410 for the three months ended June
30, 1996. The decrease was a result of a $40,000 mortgage loan previously
included in non-accruing loans being brought current during the quarter and
further paydown of other non-accruing mortgage and non-mortgage loans.
At June 30, 1996, foreclosed assets consisted of two single family houses. One
house has been marketed by the Federal Home Loan Mortgage Corporation, the 95%
participant in the original loan. It has been reported that the property has
been sold and a payoff of the Association's participation is anticipated in July
1996. The other was sold at a $21,000 profit subsequent to the end of the
quarter.
LIQUIDITY AND CAPITAL RESOURCES:
The Holding Corp.'s primary sources of funds are deposits, sales of mortgage
loans, principal and interest payments on loans and mortgage-backed securities,
borrowings and funds provided by operations. While scheduled loan and mortgage-
backed securities principal repayments are a relatively predictable source of
funds, deposit flows, prepayments of loan and mortgage-backed securities
principal, and sales of mortgage loans are greatly influenced by general
interest rates, economic conditions, and competition. Current Office of Thrift
Supervision ("OTS") regulations require the Association to maintain cash and
eligible investments in an amount equal to at least 5% of customer accounts and
short-term borrowings to assure its ability to meet demands for withdrawals and
repayment of short-term borrowings. As of June 30, 1996, the Association's
liquidity ratio was 9.49%, which was in excess of the minimum regulatory
requirements.
During the three months ended June 30, 1996, total deposits increased
approximately $1.0 million. The increase primarily reflects the Association's
marketing effort to attract funds into an 18 month certificate and the opening
of a new branch in Katy, Texas.
The Holding Corp. uses its capital resources principally to meet its ongoing
commitments to fund maturing certificates of deposit and loan commitments,
maintain its liquidity and meet operating expenses. At June 30, 1996, the
Holding Corp. had commitments to originate loans totaling $4.6 million. The
Holding Corp. considers its liquidity and capital resources to be adequate to
meet its foreseeable short and long-term needs. The Holding Corp. expects to be
able to fund or refinance, on a timely basis, its material commitments and long-
term liabilities.
During the three months ended June 30, 1996, the borrowings from the Federal
Home Loan Bank of Dallas increased $6.0 million. The increase in borrowings
partially covered the $10 million withdrawal and investment in short-term
securities by the Holding Corp. It is anticipated that the amount of
outstanding borrowings will fluctuate during the 1997 fiscal year depending upon
cash flows from the various sources of funds.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CONTINUED
On April 18, 1996, the Holding Corp. declared a cash dividend of $0.07 per share
payable on May 30, 1996 to the shareholders of record on May 9, 1996.
The Association is required to maintain specific amounts of regulatory capital
pursuant to regulations of the OTS. As of January 29, 1996, the Association
was notified by the OTS that based on its reported capital position, the
Association is considered to be "well capitalized" in accordance with the Prompt
Corrective Action provision of Section 38 of the Federal Deposit Insurance Act.
The table below presents the Association's capital position at June 30, 1996
relative to the existing regulatory capital requirements. Such requirements may
increase if proposed capital regulations are implemented. Management believes
the Association will meet the requirements of the proposed capital regulations.
<TABLE>
<CAPTION>
Amount Percent of
(000's) Assets (1)
<S> <C> <C>
Tangible capital $ 17,804 7.3 %
Tangible capital requirement 3,648 1.5
-------- ----------
Excess $ 14,156 5.8 %
======== ==========
Core capital $ 17,804 7.3 %
Capital requirement 7,296 3.0
-------- ----------
Excess $ 10,508 4.3 %
======== ==========
Total capital (i.e., core &
supplemental capital) $ 18,858 18.5
Risk-based capital
requirement 8,144 8.0
-------- ----------
Excess $ 10,714 10.5 %
======== ==========
</TABLE>
(1) Based upon adjusted assets for purposes of the tangible capital and core
capital requirements, and risk-weighted assets for purposes of the risk-based
capital requirement.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CONTINUED
IMPACT OF NEW ACCOUNTING STANDARDS
In March, 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" ("SFAS 121"). The Company adopted SFAS No. 121 on April 1,
1996. The adoption of SFAS No. 121 did not have any impact on the Company's
financial position or result of operations.
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation" which establishes accounting and reporting standards for stock-
based employee compensation plans. Companies are encouraged to utilize the
fair-value method to measure stock based compensation but may continue to
utilize the methods prescribed by APB Opinion No. 25 and disclose the pro-forma
affects of the SFAS No. 123 method. Based on a preliminary review, the Company
has elected to adopt only the reporting disclosures of SFAS No. 123.
In June 1996, the FASB issued SFAS No. 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" which uses a
"financial components" approach that focuses on content and provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. The pronouncement is effective for
transactions occurring after December 31, 1996.
18
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDING
There are no material legal proceedings to which the Holding Corp. or the
Association is a party or of which any of their property is subject. From
time-to-time, the Association is a party to various legal proceedings
incident to its business.
ITEM 2. - CHANGES IN SECURITIES
None
ITEM 3. - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. - OTHER INFORMATION
None
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11 - Computation of earnings per share (attached)
Exhibit 27 - Financial Data Schedule (attached)
(b) Reports on Form 8-K
Fort Bend Holding Corp. filed the following Forms 8-K during the
quarter ended June 30, 1996.
May 2, 1996 - The registrant issued a press release announcing the
results of operations for the quarter and fiscal year ended March 31,
1996 and the declaration of a cash dividend for the quarter ended
March 31, 1996.
19
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FORT BEND HOLDING CORP.
Registrant
Date: August 8, 1996 /s/ LANE WARD
-------------------------------------
Lane Ward
Vice Chairman, President and
Chief Executive Officer
Date: August 8, 1996 /s/ DAVID D. RINEHART
-------------------------------------
David D. Rinehart
Senior Vice President and Chief
Financial Officer
20
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
1996 1995
Primary Earnings per Share
- --------------------------
<S> <C> <C>
Net income applicable to common stock $ 405,719 $ 403,055
=========== =========
Weighted average number of common shares
outstanding 819,198 859,584
Common shares issuable under employee
stock option plan 51,139 51,139
Less shares assumed repurchased with
proceeds 30,283 31,188
----------- ---------
Weighted average common shares and
common share equivalents outstanding 840,054 879,535
=========== =========
Primary earnings per common share $ 0.48 $ 0.46
=========== =========
Fully Diluted Earnings Per Share
- --------------------------------
Net income applicable to common stock $ 405,719 $ 403,055
Interest on convertible subordinated
debentures, net of tax 159,719 ---
----------- ---------
Net income, adjusted $ 565,438 $ 403,055
=========== =========
Weighted average common share and common
share equivalents outstanding 840,054 879,535
Weighted average common shares issuable
with the conversion of debentures to
common stock 560,182 ---
----------- ---------
Weighted average common shares and
common share equivalents 1,400,236 879,535
=========== =========
Fully diluted earnings per common share $ 0.40 $ 0.46
=========== =========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,346,835
<INT-BEARING-DEPOSITS> 7,250,826
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,450,005
<INVESTMENTS-CARRYING> 127,349,190
<INVESTMENTS-MARKET> 126,076,948
<LOANS> 102,884,058
<ALLOWANCE> 1,375,222
<TOTAL-ASSETS> 254,738,835
<DEPOSITS> 204,874,581
<SHORT-TERM> 6,000,000
<LIABILITIES-OTHER> 9,448,006
<LONG-TERM> 16,407,782
9,073
0
<COMMON> 0
<OTHER-SE> 19,949,891
<TOTAL-LIABILITIES-AND-EQUITY> 254,738,835
<INTEREST-LOAN> 2,130,689
<INTEREST-INVEST> 2,164,650
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 4,295,339
<INTEREST-DEPOSIT> 2,320,151
<INTEREST-EXPENSE> 2,650,201
<INTEREST-INCOME-NET> 1,645,138
<LOAN-LOSSES> 25,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 376,516
<INCOME-PRETAX> 614,719
<INCOME-PRE-EXTRAORDINARY> 614,719
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 405,719
<EPS-PRIMARY> .48
<EPS-DILUTED> .40
<YIELD-ACTUAL> 2.82
<LOANS-NON> 662,796
<LOANS-PAST> 0
<LOANS-TROUBLED> 2,307,015
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,350,222
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,375,222
<ALLOWANCE-DOMESTIC> 322,306
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,052,916
</TABLE>
