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| TBNC.OB > SEC Filings for TBNC.OB > Form 10-Q on 15-May-2009 | All Recent SEC Filings |
15-May-2009
Quarterly Report
The following discussion and analysis represents our consolidated financial condition as of March 31, 2009 and December 31, 2008, and our consolidated results of operations for the three months ended March 31, 2009 and 2008. The discussion should be read in conjunction with our financial statements and the notes related thereto, which appear elsewhere in this Quarterly Report on Form 10-Q.
Statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including our expectations, intentions, beliefs, or strategies regarding the future. Any statements in this document about expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and are forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as "may," "should," "could," "predict," "potential," "believe," "will likely result," "expect," "anticipate," "seek," "estimate," "intend," "plan," "projection," "would" and "outlook," and similar expressions. Accordingly, these statements involve estimates, assumptions and uncertainties, which could cause actual results to differ materially from those expressed in them. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this document. All forward-looking statements concerning economic conditions, rates of growth, rates of income or values as may be included in this document are based on information available to us on the dates noted, and we assume no obligation to update any such forward-looking statements. It is important to note that our actual results may differ materially from those in such forward-looking statements due to fluctuations in interest rates, inflation, government regulations, economic conditions, customer disintermediation and competitive product and pricing pressures in the geographic and business areas in which we conduct operations, including our plans, objectives, expectations and intentions and other factors discussed under the section entitled "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2008, including the following:
· we have limited operating history upon which to base an estimate of our future financial performance;
· if we are unable to implement our business plan and strategies, we will be hampered in our ability to develop business and serve our customers, which, in turn, could have an adverse effect on our financial performance;
· we are subject to significant government regulation and legislation that increases the cost of doing business and inhibits our ability to compete;
· if we fail to retain our key employees, growth and profitability could be adversely affected;
· we face substantial competition in our primary market area;
· if we fail to sustain attractive investment returns to our Trust customers, our growth and profitability in our Trust services could be adversely affected;
· we have a significant dental industry loan concentration in which economic or regulatory changes could adversely affect the ability of those customers to fulfill their loan obligations;
· if we fail to adequately address informal administrative actions with the Office of the Comptroller of the Currency, this may have an adverse impact on the Company's operating results or financial condition;
· we compete in an industry that continually experiences technological change, and we may not be able to compete effectively with other banking institutions with greater resources;
· the Bank's current legally mandated lending limits are lower than those of our competitors, which may impair our ability to attract borrowers;
· an economic downturn, especially one affecting our primary service area, may have an adverse effect on our financial performance;
· changes in governmental economic and monetary policies, the Internal Revenue Code and banking and credit regulations, as well as other factors, will affect the demand for loans and the ability of the Bank to attract deposits;
· changes in the general level of interest rates and other economic factors can affect the Bank's interest income by affecting the spread between interest-earning assets and interest-bearing liabilities;
· we have no current intentions of paying cash dividends;
· we may not be able to raise additional capital on terms favorable to us; and
· our directors and executive officers beneficially own a significant portion of our outstanding common stock.
These factors and the risk factors referred to in our Annual Report on Form 10-K for the year ended December 31, 2008 could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us, and you should not place undue reliance on any such forward-looking statements. Any forward-looking statement reflects only as of the date on which it is made and we do not undertake any obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Executive Overview
Introduction
The Company is a bank holding company headquartered in Dallas, Texas, offering a broad array of banking services through the Bank. Our principal markets include North Dallas, Addison, Plano, Frisco, Southlake and the neighboring Texas communities. As of March 31, 2009, we had, on a consolidated basis, total assets of $135.9 million, net loans of $122.2 million, total deposits of $96.8 million, and shareholders' equity of $15.2 million. We currently operate through a main office located at 16000 Dallas Parkway, Dallas, Texas, and a branch office at 8100 North Dallas Parkway, Plano, Texas. We also have a loan production office located at 850 E State Highway 114, Suite 200, Southlake, Texas.
We were incorporated under the laws of the State of Texas on December 23, 2002 to organize and serve as the holding company for the Bank. In 2004, we completed an initial public offering of our common stock, issuing 1,680,000 shares at a price of $10.00 per share. The net proceeds that we received from the offering, after deducting offering expenses, were approximately $16.4 million. The Bank opened for business on November 2, 2004.
The following discussion focuses on our financial condition at March 31, 2009 and December 31, 2008, and our results of operations for the three months ended March 31, 2009 and 2008.
Recent Developments
Capital Raised through Rights Offering
On December 31, 2008, the Company completed its rights offering for 237,504 shares of common stock at a price of $7.50 per share for gross proceeds of $1.8 million. The addition to capital, net of offering costs, was $1.5 million. The proceeds from the offering were held in receivership at year end and deposited with the Company on January 7, 2009.
Results of Operations
Net Interest Income and Net Interest Margin
Net interest income is the difference between interest income, principally from loan, lease and investment securities portfolios, and interest expense, principally on customer deposits and borrowed funds. Net interest income is our principal source of earnings. Changes in net interest income result from changes in volume and spread and are reflected in the net interest margin. Volume refers to the average dollar level of interest-earning assets and interest-bearing liabilities. Spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. Margin refers to net interest income divided by average interest-earning assets, and is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities.
The following table presents the changes in net interest income and identifies the changes due to differences in the average volume of earning assets and interest-bearing liabilities and the changes due to changes in the average interest rate on those assets and liabilities. The changes in net interest income due to changes in both average volume and average interest rate have been allocated to the average volume change or the average interest rate change in proportion to the absolute amounts of the change in each.
First Quarter 2009 vs. First Quarter 2008
Increase (Decrease) Due to
Change in
Rate Volume Days Total
Federal Funds Sold $ (93 ) $ (6 ) $ (1 ) $ (100 )
Securities (1 ) 5 - 4
Loans, net of reserve (342 ) (61 ) (25 ) (428 )
Total earning assets (436 ) (62 ) (26 ) (524 )
NOW (2 ) 1 - (1 )
Money Market (181 ) (16 ) (3 ) (200 )
Savings - - - -
Certificates of deposit $100,000 or less (40 ) (85 ) (3 ) (128 )
Certificates of deposit $100,000 or more (55 ) (101 ) (6 ) (162 )
Borrowed Funds - 14 - 14
Total Interest-bearing liabilities (278 ) (187 ) (12 ) (477 )
Changes in net interest income $ (158 ) $ 125 $ (14 ) $ (47 )
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Net interest income for the three months ended March 31, 2009 decreased $47,000, or 3.6%, compared to the same period in the prior year. The decrease was due to a decline in the average interest yield for earning assets, which was partially offset by both a decrease in volume and a decrease in average interest yield for interest bearing deposits. The components of net interest income are discussed below.
Total interest income decreased $524,000, or 19.9%, to $2.1 million for the three months ended March 31, 2009, compared to $2.6 million for the same period in the prior year. The decrease is due to a decrease in the average interest yield for average earning assets and a decrease in earning asset volume. The average interest yield fell to 6.2%, or 16.2%, for the three months ended March 31, 2009, compared to 7.4% for the same period in the prior year. Average earning asset volume fell $6.8 million, or 4.8%, to $135.9 million for the three months ended March 31, 2009, compared to $142.7 million for the same period in the prior year.
Total interest expense decreased by $477,000, or 36.0%, to $850,000 for the three months ended March 31, 2009, compared to $1.3 million for the three months ended March 31, 2008. The decrease in interest expense is due to a decrease in the average rate paid for interest bearing deposits and to a decrease in the volume of average interest earning deposits. For the three month period ended March 31, 2009, the average rate paid for interest earning deposits fell to 3.3% as compared to 4.4% for the same period in the prior year. Average interest bearing deposit volume fell $17.1 million, or 14.3%, to $102.8 million for the three months ended March 31, 2009, compared to $119.9 million for the same period in the prior year. However, the decrease in interest bearing deposits was offset by the use of borrowed funds. Borrowed funds averaged $12.1 million and had an average rate of 0.5% for the three months ended March 31, 2009. By comparison, the Company had no borrowed funds in the same period in the prior year.
Key Performance Indicators at March 31, 2009
The following were key indicators of our performance and results of operations through the first quarter of 2009:
· total assets decreased to $135.9 million at the end of the first quarter of 2009, representing a decrease of $339,000, or 0.2%, from $136.2 million at the end of 2008;
· total loans, net of allowance for loan losses, decreased to $122.2 million at the end of the first quarter of 2009, representing a decrease of $1.2 million, or 1.0%, from $123.4 million at the end of 2008;
· total deposits decreased to $96.8 million at the end of the first quarter of 2009, representing a decrease of $14.2 million, or 12.8%, from $111.1 million at the end of 2008;
· total revenue was $3.7 million for the three months ended March 31, 2009, compared to $5.1 million for the same period in the prior year, representing a decrease of 28.9%; and
· net loss was $172,000 for the three months ended March 31, 2009, compared to net loss of $26,000 for the same period in the prior year.
These items, as well as other factors, are discussed in further detail throughout this "Management's Discussion and Analysis or Plan of Operation" section of this Quarterly Report on Form 10-Q.
The following table sets forth our average balances of assets, liabilities and shareholders' equity, in addition to the major components of net interest income and our net interest margin for the three months ended March 31, 2009 and 2008.
FINANCIAL SUMMARY
Consolidated Daily Average Balances, Average Yields and Rates
Three Months Ended March 31,
2009 2008
(000's) except earnings per share Average Average Average Average
Balance Interest Yield Balance Interest Yield
Interest-earning assets
Loans, net of reserve $ 122,268 $ 2,073 6.8 % $ 126,145 $ 2,501 7.9 %
Federal funds sold 11,624 20 .7 % 15,081 120 3.2 %
Securities 2,026 19 3.8 % 1,495 15 4.0 %
Total earning assets 135,918 2,112 6.2 % 142,721 2,636 7.4 %
Cash and other assets 4,341 4,752
Total assets $ 140,259 $ 147,473
Interest-bearing liabilities
NOW accounts $ 1,965 $ 4 .8 % $ 1,721 $ 5 1.2 %
Money market accounts 43,264 184 1.7 % 45,925 384 3.3 %
Savings accounts 179 1 1.3 % 158 1 2.5 %
Certificates of deposit less than $100,000 20,260 221 4.5 % 27,130 349 5.1 %
Certificates of deposit $100,000 or greater 37,110 426 4.7 % 44,921 588 5.2 %
Total interest bearing deposits 102,778 836 3.3 % 119,855 1,327 4.4 %
Borrowed Funds 12,148 14 .5 % - -
Total interest bearing liabilities 114,926 850 3.0 % 119,855 1,327 4.4 %
Noninterest bearing deposits 9,903 13,533 -
Other liabilities 685 1,032
Stockholders equity 14,745 13,053
Total liabilities and stockholders' equity $ 140,259 $ 147,473
Net interest income 1,262 1,309
Net interest spread 3.2 % 3.0 %
Net interest margin 3.7 % 3.7 %
Provision for loan loss 118 150
Non-interest income 1,580 2,488
Non-interest expense 2,896 3,673
Income (loss) before income taxes (172 ) (26 )
Income taxes expense (benefit) - -
Net income (loss) $ (172 ) $ (26 )
Earnings (loss) per share (0.09 ) (0.02 )
Return on average equity (1.17 ) % (0.8 ) %
Return on average assets (0.12 ) % (0.07 ) %
Equity to assets ratio 10.51 % 8.85 %
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Provision for Loan Losses
We determined a provision for loan losses that we consider sufficient to maintain an allowance to absorb probable losses inherent in our portfolio as of the balance sheet date. For additional information concerning this determination, see the section of this discussion and analysis captioned "Allowance for Loan Losses."
For the three months ended March 31, 2009, our provision for loan losses was $118,000. The provision amounts are directly related to loan volumes. For the three months ended March 31, 2008, our provision for loan losses was $150,000. We had charge-offs of $146,000 and recoveries of $7,000 during the three months ended March 31, 2009. We had charge-offs of $175,000 and no recoveries for the three months ended March 31, 2008.
Non-interest Income
Non-interest income for the three months ended March 31, 2009 was $1.6 million and was primarily attributable to fee income generated by the Company for trust services and service charges on depository accounts. Fee income and service charges for the same period in the prior year totaled $2.5 million.
Trust income is earned on the value of managed and non-managed assets held in custody. For the three months ended March 31, 2009, trust income decreased $907,000, or 36.8%, to $1.6 million, as compared to $2.5 million for the same period in the prior year. The decrease in trust income is directly attributable to the 40% decline observed in the stock market since September 2008.
Service fees were $24,000 for the three months ended March 31, 2009, compared to $25,000 for the same period in the prior year.
Noninterest Expense
Total noninterest expense was $2.9 million for the three months ended March 31, 2009, which compares to $3.7 million for the three months ended March 31, 2008.
Salaries and employee benefits increased $56,000, or 7.4%, to $812,000 for the three months ended March 31, 2009, which compares to $756,000 for the same period in the prior year. The increase in salaries and employee benefit expenses is attributable to adding three individuals to the executive team in 2008. Overall, we had 31 full-time equivalent employees as of March 31, 2009, compared to 29 employees as of March 31, 2008.
Occupancy and equipment expenses are primarily lease expenses and depreciation and amortization of leasehold improvements and furniture, fixtures and equipment. For the three months ended March 31, 2009, occupancy and equipment expense decreased $38,000, or 11.3%, to $298,000, which compares to $336,000 for the same period in the prior year.
Trust expenses are advisory fees paid to a fund advisor to manage the assets in the trust and are based on the value of the assets held in custody. For the three months ended March 31, 2009, trust expenses decreased $782,000, or 36.6%, to $1.4 million as compared to $2.1 million for the same period in the prior year. Similar to trust income, the decrease in trust expense is directly attributable to the 40% decline observed in the stock market since September 2008.
Professional fees were $99,000 for the three months ended March 31, 2009, which compares to $136,000 for the same period in the prior year.
Data processing fees were $116,000 for the three months ended March 31, 2009, which compares to $124,000 for the same period in the prior year.
Income Taxes
No federal income tax expense was recorded for the three months ended March 31, 2009, due to available operating losses to offset taxable income. Based upon the Company's limited operating history, the federal tax benefit of these losses has been fully reserved. Cumulative net operating loss available to carry forward for tax purposes is approximately $760,000 as of December 31, 2008.
Financial Condition
Our total assets as of March 31, 2009 were $135.9 million, which was almost unchanged from December 31, 2008. Deposits were $96.8 million as of March 31, 2009, compared to $111.1 million as of December 31, 2008. Borrowed funds as of March 31, 2009 were $23.0 million, compared to $10.5 million as of December 31, 2008. The increase in borrowed funds and the corresponding decrease in deposits is a result of the Company replacing higher cost deposits on a short term basis with lower rate advances from the Federal Reserve Bank and the Federal Home Loan Bank.
As of March 31, 2009, our shareholders' equity was $15.2 million, compared to $13.8 million as of December 31, 2008. The $1.4 million increase in equity is due to net proceeds of $1.5 million raised in rights offering completed at the beginning of 2009 and the $172,000 loss recognized in the first quarter of 2009.
Short-Term Investments and Interest-bearing Deposits in Other Financial Institutions
At March 31, 2009, we had $5.8 million in federal funds sold. At December 31, 2008, we had $7.2 million in federal funds sold. Federal funds sold allow us to meet liquidity requirements and provide temporary interest-bearing holdings until the funds can be otherwise deployed or invested.
Investment Securities
Our investment portfolio primarily serves as a source of interest income and, secondarily, as a source of liquidity and a management tool for our interest rate sensitivity. We manage our investment portfolio according to a written investment policy established by our Board of Directors and implemented by our Investment/Asset-Liability Committee.
At March 31, 2009, the Bank's securities consisted of Federal Reserve Bank of Dallas stock and Federal Home Loan Bank of Dallas stock at cost of $420,000 and $704,000, respectively, with an estimated fair value that approximated cost. We also had government agency securities with amortized cost of $1.9 million and fair value of $2.0 million. Weighted average yield of the securities portfolio at March 31, 2009 was 3.8%.
At December 31, 2008, the Bank's securities consisted of Federal Reserve Bank of Dallas stock and Federal Home Loan Bank of Dallas stock at cost and fair value of $420,000 and $302,000, respectively. We also had a government agency security with amortized cost of $981,000 and fair value of $1,012,000. Weighted average yield of the securities portfolio at December 31, 2008 was 3.3%
Loan Portfolio
Our primary source of income is interest on loans. The following table presents
the composition of our loan portfolio by category as of the dates indicated:
As of As of
(000's) March 31, 2009 December 31, 2008
Commercial and industrial $ 83,972 $ 81,342
Consumer installment 2,807 3,799
Real estate - mortgage 25,920 20,543
Real estate - construction 11,248 19,481
Other 1 12
Total loans 123,948 125,177
Less allowance for loan losses 1,617 1,638
Less deferred loan fees 137 146
Total net loans $ 122,194 $ 123,393
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As of March 31, 2009 and December 31, 2008, our total net loans were $122.2 million and $123.4 million, respectively. Total loans, net of reserves and deferred fees, as a percentage of total assets were 89.9% as of March 31, 2009, and 90.6% as of December 31, 2008.
Our commercial loan portfolio is composed of lines of credit for working capital and term loans to finance equipment and other business assets. Our lines of credit typically are limited to a percentage of the value of the assets securing the line. Lines of credit and term loans typically are reviewed annually and are supported by accounts receivable, inventory, equipment and other assets of our clients businesses. At March 31, 2009 and December 31, 2008, commercial loans totaled $83.9 million and $81.3 million, representing approximately 67.7% and 65.0% of our total funded loans, respectively.
Our consumer loan portfolio consists of personal lines of credit and loans to acquire personal assets such as automobiles and boats. Our lines of credit generally have terms of one year and our term loans generally have terms of three to five years. Our lines of credit typically have floating rates. At March 31, 2009 and December 31, 2008, consumer loans totaled $2.8 million and $3.8 million, approximately 2.3% and 3.0% of our total funded loans, respectively.
Our real estate loan portfolio is composed of construction loans and short-term mortgage loans. Construction loans consist primarily of single-family residential properties, typically have terms of less than one year and have floating rates and commitment fees. Our construction loans are typically to builders who have an established record of successful project completion and . . .
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