<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, 1997
--------------------------------------------
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 915,389 shares and 827,215 shares of Common Stock ($0.01 par value)
issued and outstanding, respectively as of July 24, 1997.
1 of 21
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FORT BEND HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(UNAUDITED)
ASSETS JUNE 30, 1997 MARCH 31, 1997
<S> <C> <C>
Cash and due from banks $ 8,462,218 $ 6,369,675
Short-term investments 18,959,712 14,220,516
Certificates of deposit 200,000 200,000
--------------- ----------------
TOTAL CASH AND CASH EQUIVALENTS 27,621,930 20,790,191
Investment securities available for sale, at market value 2,852,946 2,810,270
Investment securities held to maturity (estimated market value of $12,851,420
and $10,789,440 at June 30, 1997 and March 31, 1997, respectively) 13,230,674 11,234,763
Mortgage-backed securities available for sale, at market value 512,068 520,869
Mortgage-backed securities held to maturity (estimated market value of $93,611,639
and $96,684,430 at June 30, 1997 and March 31,1997, respectively) 93,839,235 97,084,501
Loans receivable, net 145,478,428 138,227,705
Loans held for sale 14,896,120 2,660,415
Accrued interest receivable 2,020,060 1,816,415
Real estate, net 33,721 470,996
Federal Home Loan Bank stock, at cost 1,443,100 1,933,000
Premises and equipment, net 4,878,196 4,970,011
Mortgage servicing rights, net 7,301,028 7,537,571
Prepaid expenses and other assets 2,931,684 3,369,505
Deferred income taxes 311,872 305,961
Goodwill, net 1,317,286 1,347,925
--------------- ----------------
TOTAL ASSETS $ 318,668,348 $ 295,080,098
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 268,578,249 $ 250,218,152
Convertible Subordinated Debentures 12,030,000 12,080,000
Other borrowings 6,122,194 4,226,676
Advances from borrowers for taxes and insurance 7,528,765 4,750,945
Accounts payable, accrued expenses and other liabilities 2,654,927 2,868,177
--------------- ----------------
TOTAL LIABILITIES 296,914,135 274,143,950
--------------- ----------------
Minority interest in consolidated subsidiary 2,538,585 2,508,214
--------------- ----------------
Stockholders' Equity:
Serial preferred stock, $.01 par value - 500,000 shares authorized,
none outstanding
Common Stock $.01 par value, 2,000,000 shares authorized
915,389 shares issued and 827,215 shares outstanding at
June 30, 1997, and 910,475 shares issued and 822,301
shares outstanding at March 31, 1997 9,154 9,105
Additional paid-in capital 8,980,347 8,704,986
Unearned employee stock ownership plan shares (215,442) (307,125)
Deferred compensation (129,305) (82,324)
Net unrealized depreciation on available for sale securities, net of tax (119) (6,107)
Retained earnings (substantially restricted) 12,027,494 11,565,900
Treasury stock, at cost - 88,174 shares (1,456,501) (1,456,501)
--------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 19,215,628 18,427,934
--------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 318,668,348 $ 295,080,098
=============== ================
The accompanying notes are an integral part of the condensed consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
FORT BEND HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30
(UNAUDITED)
1997 1996
<S> <C> <C>
INTEREST INCOME:
Loans $ 3,364,104 $ 2,130,689
Short-term investments 159,007 187,395
Investment securities 241,290 147,996
Mortgage-backed securities 1,575,463 1,829,259
----------- -----------
TOTAL INTEREST INCOME 5,339,864 4,295,339
----------- -----------
INTEREST EXPENSE:
Deposits 2,668,028 2,320,151
Borrowings 337,047 330,050
----------- -----------
TOTAL INTEREST EXPENSE 3,005,075 2,650,201
----------- -----------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 2,334,789 1,645,138
PROVISION FOR LOAN LOSSES 62,980 25,000
----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,271,809 1,620,138
----------- -----------
NONINTEREST INCOME:
Gain on sale of loans 97,340 49,949
Loan fees & charges 727,540 113,418
Loan servicing income - net 297,451 105,381
Service charges on deposit account 209,877 154,492
Other income 188,742 124,646
----------- -----------
TOTAL NONINTEREST INCOME 1,520,950 547,886
----------- -----------
NONINTEREST EXPENSES:
Compensation and benefits 1,749,328 831,871
Office occupancy and equipment 446,580 187,020
Federal insurance premiums 39,912 124,282
Data processing fees 125,775 46,067
Insurance and surety bond expense 36,867 33,616
Other 517,245 330,449
----------- -----------
TOTAL NONINTEREST EXPENSES 2,915,707 1,553,305
INCOME BEFORE INCOME TAX AND MINORITY INTEREST 877,052 614,719
INCOME TAX PROVISION 278,343 209,000
----------- -----------
NET INCOME BEFORE MINORITY INTEREST 598,709 405,719
MINORITY INTEREST 79,371 ---
----------- -----------
NET INCOME $ 519,338 $ 405,719
=========== ===========
PRIMARY EARNINGS PER SHARE $ 0.60 $ 0.48
=========== ===========
FULLY DILUTED EARNINGS PER COMMON SHARE $ 0.49 $ 0.40
=========== ===========
DIVIDENDS PER COMMON SHARE $ 0.07 $ 0.07
=========== ===========
The accompanying notes are an integral part of the condensed consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
FORT BEND HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 519,338 $ 405,719
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for losses on loans and real estate 62,980 25,000
Depreciation 145,207 51,877
Compensation charge related to release of ESOP shares 165,916 33,538
Amortization of loan premium, discount, and deferred fees, net (66,133) (61,115)
Amortization of goodwill 22,944 ---
Deferred income tax provision (benefit) (9,840) 32,474
Minority interest in income of consolidated subsidiary 79,371 ---
Amortization of mortgage servicing rights 406,717 64,250
Net gain on sale of loans (97,340) (49,949)
Origination of loans held for sale (25,431,217) (4,113,994)
Proceeds from sale of loans 13,292,852 4,223,200
Other, net 46,709 (42,954)
--------------- -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (10,862,496) 568,046
--------------- -------------
INVESTING ACTIVITIES:
Net change in loans receivable $ (7,016,540) $ (7,747,962)
Proceeds from sale of real estate 200,000 8,500
Improvements to real estate (14,102) ---
Purchase of premises and equipment (53,392) (267,216)
Proceeds from redemption of FHLB stock 511,700 ---
Purchase or origination of mortgage servicing rights (170,174) (743,901)
Purchase of investment securities available for sale (32,739) (27,979)
Principal collected on mortgage-backed securities 3,243,061 3,486,595
Purchase of investment securities held to maturity (1,991,953) (10,983,561)
--------------- -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (5,324,139) (16,275,524)
--------------- -------------
FINANCING ACTIVITIES:
Net increase in deposits 18,360,097 960,866
Net increase in short-term borrowings 2,000,000 6,000,000
Payment on long-term borrowings (12,799) (12,031)
Increase in advances from borrowers for taxes and insurance 2,777,820 3,219,986
Dividends paid to minority stockholder (49,000) ---
Dividends paid (57,744) (57,344)
------------ -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 23,018,374 10,111,477
------------ -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,831,739 (5,596,001)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 20,790,191 17,193,662
------------ -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 27,621,930 $ 11,597,661
============ =============
The accompanying notes are an integral part of the condensed consolidated financial statements.
</TABLE>
4
<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, 1997 and
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"). The Association's
financial statements includes its 51% owned subsidiary Mitchell Mortgage
Company, L.L.C. ("Mitchell"). 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, 1997 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, 1997, an additional 2,600 shares were granted
under the RRP. A total of 26,325 shares have been authorized of which
24,452 shares had been granted under the RRP as of June 30, 1997.
3. NON-PERFORMING ASSETS
Impaired loans decreased $1,000 during the three months ended June 30,
1997. The decline resulted from the loan amortization from scheduled
payments made on two of the loans, partially offset by an increase in
a third loan attributed to loan modification and partial
capitalization of interest due. Each of these loans was previously
recognized as impaired. Foreclosed assets decreased $310,000 for the
quarter ended June 30, 1997, which primarily reflects the sale of a
single family house and a commercial property.
5
<PAGE>
FINANCIAL STATEMENTS, CONTINUED
-------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
-----------------
The following table summarizes impaired loan information as of June 30,
1997.
<TABLE>
<S> <C>
Impaired loans $806,038
Impaired loans which have a specific reserve of $111,300
for loan losses calculated under SFAS 114 275,300
Impaired loans which do not have a specific
reserve for loan losses calculated under
SFAS 114 $530,738
</TABLE>
4. CONVERTIBLE SUBORDINATED DEBENTURES AND OTHER BORROWINGS
Borrowings at June 30, 1997 included 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 advance is
collateralized by mortgage-backed securities and has a balance of
$3,906,752 at June 30, 1997. In addition, the Association had a $2.0
million short-term advance which was repaid July 2, 1997. Borrowings
also included an ESOP loan with a balance of $215,442 at June 30, 1997
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>
1998 $ 39,607 $43,875
1999 55,752 87,750
2000 59,312 83,817
2001 3,752,081
</TABLE>
In December 1995, the Holding Corp. issued $12.1 million of 8%
Convertible Subordinated Debentures due December 1, 2005. Interest is
payable June 1 and December 1 of each year through maturity. The
debentures are convertible at any time prior to maturity at the rate of
46.296 shares of common stock for each $1,000 of principal or $21.60 per
share. The debentures may be redeemed at the option of the Holding Corp.,
in whole or in part, at any time on or after December 1, 1998 which would
result in the acquisition of 559,255 shares.
6
<PAGE>
FINANCIAL STATEMENTS, CONTINUED
-------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
-----------------
5. EARNINGS PER COMMON SHARE
Primary earnings per common share for the three months ended June 30, 1997
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, 1997 was
866,177 shares. For fully-diluted earnings per share the weighted average
number of common shares and common share equivalents outstanding was
1,423,118 for the three months ended June 30, 1997.
6. SUBSEQUENT EVENTS
On July 23, 1997, the Holding Corp. declared a cash dividend of $.10
per share payable on September 3, 1997 to shareholders of record on
August 13, 1997.
7
<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. In January, 1997 the Association
acquired, and has consolidated in its financial statements, a 51% interest
in Mitchell Mortgage Company, L.L.C. ("Mitchell"). 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, 1997, 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. Mitchell engages in similar
lending activities with emphasis on construction and multifamily lending.
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.
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
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, including the origination of speculative
loans to qualified builders. 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. Two additional branch
offices were added during fiscal 1997 which management believes will
assist in the expansion of the Association's core deposit base.
8
<PAGE>
ITEM 2.
-------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
--------------------------------------------------------------------------
OPERATIONS
----------
CONTINUED
---------
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). At June 30, 1997, the Association had loans serviced for
others of approximately $286 million and Mitchell Mortgage Company, L.L.C.
("Mitchell") had approximately $598 million for a total of $884 million for
the Holding Corp. Management believes purchases of loan servicing rights
may allow the Holding Corp. to take advantage of some economies of scale
related to servicing.
Interest rates have moderated slightly subsequent to the fiscal year ended
March 31, 1997. The impact of these changes, may be a higher volume of
permanent single family lending activity. It is difficult to determine the
impact of changing interest rates on the net interest margin. The
Association's one year interest sensitivity gap was positive 17.59% at
June 30, 1997. 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, 1997, 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.
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 or 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
9
<PAGE>
ITEM 2.
-------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
--------------------------------------------------------------------------
OPERATIONS
----------
CONTINUED
---------
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. As of June 30, 1997, the
Association had the ability to borrow up to an additional $150 million
from the Federal Home Loan Bank of Dallas 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.
10
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT AND MORTGAGE-BACKED SECURITIES
HELD TO MATURITY
JUNE 30, 1997
------------------------------------------------------
UNREALIZED
BOOK MARKET -----------------------
TYPE OF SECURITY VALUE VALUE GAINS LOSSES
------------ ------------ --------- -----------
<S> <C> <C> <C> <C>
INVESTMENT SECURITIES:
U.S. Treasury Notes $ 1,997,213 $ 2,004,216 $ 7,003 $
World Bank Bond &
FHLB Debentures 7,241,944 6,943,783 17,464 315,625
FNMA & FHLMC Debentures 3,991,517 3,903,421 6,372 94,468
------------ ------------ --------- -----------
TOTAL HELD TO MATURITY $ 13,230,674 $ 12,851,420 $ 30,839 $ 410,093
============ ============ ========= ===========
MORTGAGE-BACKED SECURITIES:
FNMA
Fixed $ 9,386,105 $ 9,729,555 $ 359,007 $ 15,557
Adjustable 13,485,002 13,347,301 69,076 206,777
FHLMC
Fixed 5,277,629 5,360,472 95,899 13,056
Adjustable 14,832,823 14,683,436 107,257 256,644
GNMA
Fixed 2,293,620 2,394,161 100,541
Adjustable 6,385,032 6,511,289 126,257
Private Issue
Fixed
Adjustable 3,626,423 3,611,534 9,316 24,205
CMO
Fixed
FNMA 11,800,696 11,689,802 12,672 123,566
FHLMC 10,842,845 10,780,771 19,716 81,790
Private 3,579,710 3,609,816 33,721 3,615
Adjustable
FNMA 2,934,820 2,816,653 26,718 144,885
FHLMC 6,759,323 6,511,103 19,286 267,506
Private 2,635,207 2,565,746 69,461
------------ ------------ --------- -----------
TOTAL HELD TO MATURITY $ 93,839,235 $ 93,611,639 $ 979,466 $ 1,207,062
============ ============ ========= ===========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------------------------------------------
UNREALIZED
BOOK MARKET -----------------------
TYPE OF SECURITY VALUE VALUE GAINS LOSSES
------------ ------------ --------- -----------
<S> <C> <C> <C> <C>
INVESTMENT SECURITIES:
U.S. Treasury Notes $ 999,218 $ 999,766 $ 548 $
World Bank Bond &
FHLB Debentures 7,240,703 6,917,342 4,920 328,281
FNMA & FHLMC Debentures 2,994,842 2,872,332 122,510
------------ ------------ --------- -----------
TOTAL HELD TO MATURITY $ 11,234,763 $ 10,789,440 $ 5,468 $ 450,791
============ ============ ========= ===========
MORTGAGE-BACKED SECURITIES:
FNMA
Fixed $ 9,646,216 $ 9,933,315 $ 322,154 $ 35,055
Adjustable 14,146,181 14,002,041 77,136 221,276
FHLMC
Fixed 5,564,950 5,624,926 81,704 21,728
Adjustable 15,339,418 15,171,045 107,024 275,397
GNMA
Fixed 2,378,421 2,462,218 83,797
Adjustable 6,709,957 6,795,714 90,650 4,893
Private Issue
Fixed
Adjustable 3,858,558 3,842,010 9,025 25,573
CMO
Fixed
FNMA 11,898,545 11,768,345 10,269 140,469
FHLMC 11,258,437 11,147,713 23,595 134,319
Private 3,796,851 3,819,229 26,276 3,898
Adjustable
FNMA 2,934,718 2,828,209 1,391 107,900
FHLMC 6,826,509 6,604,949 20,569 242,129
Private 2,725,740 2,684,716 41,024
------------ ------------ --------- -----------
TOTAL HELD TO MATURITY $ 97,084,501 $ 96,684,430 $ 853,590 $ 1,253,661
============ ============ ========= ===========
</TABLE>
11
<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, 1997 AND 1996
The Holding Corp. had net income of $519,000 or $.60 primary earnings per
share and $.49 fully diluted earnings per share for the three months ended
June 30, 1997 compared to net income of $406,000 or $.48 primary earnings
per share and $.40 fully diluted earnings per share for the same period in
fiscal 1997.
Net interest income, before provision for loan losses, increased $690,000
to $2.3 million during the three months ended June 30, 1997. Interest
income increased $1.0 million to $5.3 million and primarily reflected a
$41.8 million increase in the average balance of interest-earning assets,
and an increase of .40% in the average yield on interest-earning assets to
7.77% for the three months June 30, 1997 compared to 7.37% for the three
months ended June 30, 1996. The increase in average yield reflected the
reinvestment of principal repayments on mortgage-backed securities with an
average rate of 6.61% into portfolio loans with an average rate of 8.91%.
An increase of $51.5 million in the average balance of loans receivable and
$4.0 million in investments, partially offset by a decrease of $13.7
million in mortgage-backed securities contributed to the increase in
interest-earning assets. The increase in the average loan balance
reflected approximately $24 million from the Mitchell loan portfolio. The
remaining increase reflected the increase in the Association's portfolio
including loans acquired through the August, 1996 acquisition of Firstbanc
which initially added approximatelly $20 million.
12
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
--------------------------------------------------------------------------
OPERATIONS
----------
CONTINUED
---------
Interest expense increased $355,000 and primarily reflected an increase of
$31.8 million in the average interest-bearing liabilities. Average
deposits increased $33.4 million reflecting the acquisition of FirstBanc,
and average borrowings decreased $1.6 million primarily reflecting a
decrease in Federal Home Loan Bank advances and subordinated debt of $1.4
million and $70,000, respectively. The average rate paid on interest-
bearing liabilities decreased to 4.79% for the three months ended June 30,
1997 compared to 4.83% for the three months ended June 30, 1996.
Non-interest income increased $973,000 to $1.5 million for the three months
ended June 30, 1997 compared to $548,000 for the same period in fiscal
1997. The increase was primarily due to an increase in loan fees and
charges of $614,000 to $728,000 which reflected $567,000 of fees included
from Mitchell and an increase of $37,000 in construction loan fees of the
Association for the three months ended June 30, 1997. Loan servicing
income increased $192,000 to $297,000 for the three months ended June 30,
1997 compared to $105,000 for the same period in fiscal 1997. This
increase primarily reflects an increase of $642 million in loans serviced
for others of which $598 million was serviced by Mitchell. Other income
increased $64,000 and primarily reflected other income from Mitchell.
Non-interest expense increased $1.4 million to $2.9 million for the three
months ended June 30, 1997 compared to $1.6 million for the same period in
fiscal 1997. Compensation and benefits increased $917,000 and primarily
reflected additional personnel retained from the acquisition of FirstBanc,
Mitchell personnel, ESOP appreciation in shares released and normal salary
increases within the Association. Office occupancy increased $260,000 to
$447,000 for the three months ended June 30, 1997 compared to $187,000 for
the same period in fiscal year 1997 and primarily reflects the
Association's increase of $68,000 in depreciation, $30,000 in rent and
utilities and $13,000 in telephone expense. In addition, Mitchell had
occupancy expense of $142,000. Most of the Association's increase in
occupancy cost is associated with the addition of the new branch in Katy,
Texas and the acquisition of FirstBanc.
Income tax provision increased $69,000 to $278,000 for the three months
ended June 30, 1997 compared to $209,000 for the same period in fiscal
1997. The increase primarily reflected the increase in income before tax.
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, 1997, was a
13
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
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----------
CONTINUED
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positive 17.59%. 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 $63,000 provision
for loan losses during the three months ended June 30, 1997. Net charge-
offs for the three months ended June 30, 1997, totaled $88,000, attributed
primarily to one commercial real estate loan, of which $62,000 was charged
off and the remainder paid off. The Holding Corp.'s allowance for loan
losses decreased to $1,676,000 or 1.14% of total loans at June 30, 1997,
compared to $1,701,000 or 1.22% of total loans at March 31, 1997. 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, 1997 March 31, 1997
<S> <C> <C>
Non-accruing loans $ 574,843 $ 489,251
Troubled debt restructurings 565,320 405,097
Foreclosed assets 48,345 357,880
---------- ----------
Total non-performing assets $1,188,508 $1,252,228
========== ==========
Total non-performing assets as a
percentage of total assets 0.37% 0.42%
</TABLE>
Total non-performing assets decreased $64,000 for the three months ended
June 30, 1997. The increase in nonaccrual loans is primarily the result of
a $349,000 increase in residential loans over 90 days delinquent, of which
$252,000 are two loans held by Mitchell Mortgage. This increase was
partially offset by the transfer from nonaccrual of a $275,000 commercial
real estate loan which was modified and written down to $164,000, and
reclassified as a troubled debt restructuring. The decrease in foreclosed
assets was primarily the result of the sale of a single family residence
and a commercial real estate property, which totaled $323,000.
At June 30, 1997, foreclosed assets consisted of three repossesed
automobiles and a 5% participation in 18 residential lots. All of the lots
and the automobiles are being marketed.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
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OPERATIONS
----------
CONTINUED
---------
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, 1997, the Association's liquidity
ratio was 9.87%, which was in excess of the minimum regulatory
requirements.
During the three months ended June 30, 1997, total deposits increased
approximately $18.4 million. The increase primarily reflects $12 million
in transit for a large multifamily loan payoff serviced by Mitchell
Mortgage payable to FNMA and $4 million in proceeds from the sale of a loan
participation by the Holding Corp.
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, 1997, the Holding Corp. had commitments to originate loans totaling
$9.3 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, 1997, the borrowings from the
Federal Home Loan Bank of Dallas increased $1,987,000 and ESOP debt
decreased $92,000. The increase in borrowings from Federal Home Loan was
used to partially fund multifamily loans during the period. Such loans
are generally sold to investors within 30 days of origination. It is
anticipated that the amount of outstanding borrowings will fluctuate during
the 1998 fiscal year depending upon cash flows from the various sources of
funds and financing to be provided to Mitchell Mortgage Company, L.L.C.
On July 23, 1997, the Holding Corp. declared a cash dividend of $0.10 per
share payable on September 3, 1997 to the shareholders of record on August
13, 1997.
The Association is required to maintain specific amounts of regulatory
capital pursuant to regulations of the OTS. As of June 5, 1997, 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, 1997
15
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
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CONTINUED
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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 $20,501 6.6%
Tangible capital requirement 4,669 1.5
------- ----
Excess $15,832 5.1%
======= ====
Core capital $20,501 6.6%
Capital requirement 12,479 4.0
------- ----
Excess $ 8,022 2.6%
======= ====
Total capital (i.e., core & supplemental $21,857 13.9%
capital)
Risk-based capital requirement 12,598 8.0
------- ----
Excess $ 9,259 5.9%
======= ====
</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.
16
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
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OPERATIONS
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CONTINUED
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IMPACT OF NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share." Statement 128 is effective for the year
ending after December 15, 1997, for both interim and annual periods, and
replaces the presentation of primary and fully diluted earnings per share
with a presentatin of basic and diluted earnings per share. The adoption
of Statement 128 is not expected to have a material impact on earnings per
share reported by the Holding Corp.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 129, "Disclosure of Information about Capital Structure." Statement
129 is effective for financial statements for periods ending after December
15, 1997. Statement 129 consolidates the existing requirements to disclose
certain information about an entity's capital structure.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Accounting for Comprehensive Income." Statement 130 is effective for
financial statements for fiscal years beginning after December 15, 1997,
with earlier application permitted. Statement 130 defines comprehensive
income as the change in equity of a business enterprise during a period
from transactions and other events and circumstances from nonowner sources.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information."
Statement 131 is effective for fiscal years beginning after December 15,
1997, with earlier application encouraged. Statement 131 specifies revised
guidelines for determining an entity's operating segments and the type and
level of financial information to be disclosed.
17
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 1. - LEGAL PROCEEDINGS
--------------------------
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
-------------------------------------------------------------
On July 29, 1997 the Holding Corp. held its annual meeting at which
two directors, Robert W. Lindsey and Lane Ward were nominated
and re-elected to a three year term.
For Withheld
----- ----------
Robert W. Lindsey 720,412 4,300
Lane Ward 721,876 2,836
Directors who will continue serving until their term expires are:
J. Patrick Gubbels, Wayne O. Poldrack, Doyle G. Callender, Ron L.
Workman, George C. Brady and William A. Little.
Other matters voted upon at the meeting were as follows:
Amendment of the Holding Corp.'s Certificate of Incorporation to
increase the number of authorized shares of common stock from
2,000,000 to 4,000,000
For Against Abstain Non-votes
----------- -------------- -------------- ----------------
571,227 151,716 969 800
Amendment of the Holding Corp.'s Certification of Incorporation
to increase the number of authorized shares of preferred stock from
500,000 to 1,000,000
For Against Abstain Non-votes
------------- -------------- -------------- ---------------
452,858 167,716 1,969 102,169
Amendment of the Holding Corp.'s 1993 Stock Option and Incentive Plan
to increase the number of shares of common stock reserved thereunder
from 87,750 to 128,865
For Against Abstain Non-votes
-------------- ------------- -------------- ----------------
555,859 86,991 78,769 3,093
Ratification of the appointment of Coopers & Lybrand L.L.P. as
independent accountants for the Company for the fiscal year ending
March 31, 1998
For Against Abstain
------------- ------------------ -----------------
720,651 1,450 2,611
18
<PAGE>
PART II - OTHER INFORMATION
---------------------------
CONTINUED
---------
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
three months ended June 30, 1997.
May 1, 1997 - The registrant issued an earnings release
announcing the declaration of a cash dividend and earnings for
the quarter ended March 31, 1997.
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 12, 1997 /s/ Lane Ward
-------------------------------
Lane Ward
Vice Chairman, President and
Chief Executive Officer
/s/ David D. Rinehart
---------------------------------
Date: August 12, 1997 David D. Rinehart
Executive Vice President and
Chief Financial Officer
20
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
1997 1996
Primary Earnings per Share
- --------------------------
<S> <C> <C>
Net income applicable to common stock $ 519,338 $ 405,719
========== ==========
Weighted average number of common shares
outstanding 826,808 819,198
Common shares issuable under employee stock
option plan 74,639 51,139
Less shares assumed repurchased with proceeds 35,270 30,283
---------- ----------
Weighted average common shares and common
share equivalents outstanding 866,177 840,054
========== ==========
Primary earnings per common share $ 0.60 $ 0.48
========== ==========
Fully Diluted Earnings Per Share
- --------------------------------
Net income applicable to common stock $ 519,338 $ 405,719
Interest on convertible subordinated debentures,
net of tax 173,205 159,719
---------- ----------
Net income, adjusted $ 692,543 $ 565,438
========== ==========
Weighted average common share and common
share equivalents outstanding 866,177 840,054
Weighted average common shares issuable with
the conversion of debentures to common stock 556,941 560,182
---------- ----------
Weighted average common shares and common
share equivalents 1,423,118 1,400,236
========== ==========
Fully diluted earnings per common share $ 0.49 $ 0.40
========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 8,462,218
<INT-BEARING-DEPOSITS> 19,159,712
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,365,014
<INVESTMENTS-CARRYING> 107,069,909
<INVESTMENTS-MARKET> 106,463,059
<LOANS> 162,050,732
<ALLOWANCE> 1,676,184
<TOTAL-ASSETS> 318,668,348
<DEPOSITS> 268,578,249
<SHORT-TERM> 2,000,000
<LIABILITIES-OTHER> 10,183,692
<LONG-TERM> 16,152,194
0
0
<COMMON> 9,154
<OTHER-SE> 21,007,841
<TOTAL-LIABILITIES-AND-EQUITY> 318,668,348
<INTEREST-LOAN> 3,364,104
<INTEREST-INVEST> 1,975,760
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 5,339,864
<INTEREST-DEPOSIT> 2,668,028
<INTEREST-EXPENSE> 3,005,075
<INTEREST-INCOME-NET> 2,334,789
<LOAN-LOSSES> 62,980
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 517,245
<INCOME-PRETAX> 797,681
<INCOME-PRE-EXTRAORDINARY> 797,681
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 519,338
<EPS-PRIMARY> .60
<EPS-DILUTED> .49
<YIELD-ACTUAL> 3.40
<LOANS-NON> 574,843
<LOANS-PAST> 0
<LOANS-TROUBLED> 565,320
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,701,008
<CHARGE-OFFS> 87,804
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,676,184
<ALLOWANCE-DOMESTIC> 270,457
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,405,727
</TABLE>
