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| TBNC > SEC Filings for TBNC > Form 10-Q on 15-May-2012 | All Recent SEC Filings |
15-May-2012
Quarterly Report
The following discussion and analysis represents our consolidated financial condition as of March 31, 2012 and December 31, 2011, and our consolidated results of operations for the three months ended March 31, 2012 and March 31, 2011. 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, 2011, 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 including the potential impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Basel III;
· if we fail to retain our key employees, growth and profitability could be adversely affected;
· if we fail to retain our trust customers, our non-interest income 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 formal administrative actions with the Comptroller, including, without limitation, the Agreement, 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;
· 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 or we may be required to raise capital under terms which are dilutive to existing shareholders; 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, 2011 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 information known to us 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.
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, 2012, we had, on a consolidated basis, total assets of $115.8 million, net loans of $82.1 million, total deposits of $99.1 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 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. The Bank opened for business on November 2, 2004.
The following discussion focuses on our financial condition at March 31, 2012 and December 31, 2011, and our results of operations for the three months ended March 31, 2012 and 2011.
Recent Developments
On March 27, 2012, the Company completed the rights offering and limited public offering. As a result of the offering, 2,080,627 shares were issued and $4,161,254 was collected, which was offset by $161,743 costs, for net proceeds of $3,999,511. The Company contributed $3.0 million to the Bank to support future growth, with the remaining $1.0 million to be held at the Company level and used for general corporate purposes.
Results of Operations
Net Interest Income and Net Interest Margin
Net interest income is the difference between interest income, principally from loan 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.
Three Months Ended March 31, 2012 Compared to
Three Months Ended March 31, 2011
Increase (Decrease) Due to
Change in
Yield/ Average Number of
(000's) Rate Volume Days Total
Federal funds sold $ - $ (1 ) $ - $ (1 )
Securities and other - 4 1 5
Loans, net of reserve (1) (144 ) (206 ) 17 (333 )
Total earning assets (144 ) (203 ) 18 (329 )
NOW (2 ) 1 - (1 )
Money market (16 ) 1 1 (14 )
Certificates of deposit $100,000 (27 ) (35 ) - (62 )
or less
Certificates of deposit $100,000 (166 ) (83 ) 3 (246 )
or more
Borrowed funds (3 ) 2 - (1 )
Total interest-bearing (214 ) (114 ) 4 (324 )
liabilities
Changes in net interest income $ 70 $ (89 ) $ 14 $ (5 )
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(1)Average loans include non-accrual loans.
Net interest income for the three months ended March 31, 2012 decreased $5,000, or 0.4%, compared to the same period in the prior year. The modest decrease was due primarily to a decline in average earning asset volume, which was partially offset by a decrease in average cost of interest-bearing liabilities.
Total interest income for the three months ended March 31, 2012 decreased $329,000, or 18.1%, compared to the same period in 2011. Average earning asset volume decreased $13.0 million, or 12.1%, to $93.9 million for the three months ended March 31, 2012, compared to $106.9 million for the same period in the prior year. The decrease was due to reduction in loan volume. The average interest yield decreased to 6.4%, or 5.9%, for the three months ended March 31, 2012, compared to 6.8% for the same period in the prior year.
Total interest expense for the three months ended March 31, 2012 decreased $324,000, or 56.0%, compared to the same period in 2011. For the three month-period ended March 31, 2012, the average interest yield for interest-bearing liabilities decreased to 1.4%, or 92.9%, compared to 2.7% for the same period in 2011. Average interest bearing deposit volume fell $18.4 million, or 21.8%, to $66.0 million for the three months ended March 31, 2012, compared to $84.4 million for the same period in 2011. The decrease was primarily attributable to an intentional reduction of certificates of deposits. Average borrowed funds increased $4.4 million, or 111.9%, to $8.3 million for the three months ended March 31, 2012, compared to $3.9 million for the same period in the prior year. The average interest yield for borrowings decreased to 0.1%, or 70.5%, for the three months ended March 31, 2012, compared to 0.4% for the same period in 2011.
Key Performance Indicators at March 31, 2012
The following were key indicators of our performance and results of operations through the first quarter of 2012:
· total assets were $115.8 million at the end of the first quarter of 2012, representing a decrease of $7.5 million, or 0.6%, from $123.3 million at the end of 2011;
· total loans, net of allowance for loan losses and deferred loan fees, decreased slightly to $82.1 million at the end of the first quarter of 2012, compared to $82.3 million at the end of 2011;
· total deposits were $99.1 million at the end of the first quarter of 2012, representing a decrease of $12.1 million, or 10.9%, from $111.2 million at the end of 2011;
· net income was $528,000 for the three months ended March 31, 2012, compared to net loss of $1.8 million for the same period in the prior year. The Bank recorded a reserve of $2.1 million in the first quarter of 2011 to correct the value of participants' investments in certain collective investment funds administered by the Bank's trust department. The $300,000 difference represents operating income during the first quarter of 2011;
· total revenue was $3.7 million for the three months ended March 31, 2012, compared to $4.0 million for the same period in the prior year;
· Tier 1 capital to average assets and total capital ratios for the Bank were 14.15% and 17.43% compared to 10.24% and 13.23% at December 31, 2011. The increase was primarily due to a $3.0 million capital injection. The Company received net proceeds of $4.0 million from the rights offering and the limited public offering, and contributed $3.0 million of the total net proceeds to the Bank.
The following tables set 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, 2012 and 2011.
FINANCIAL SUMMARY
Consolidated Daily Average Balances, Average Yields and Rates
Three Months Ended March 31,
2012 2011
Average Average Average Average
(000's) except earnings per share Balance Interest Yield Balance Interest Yield
Interest-earning assets
Loans, net of reserve (1) $ 81,162 $ 1,435 7.1 % $ 92,952 $ 1,768 7.6 %
Federal funds sold 212 - 0.2 % 2,281 1 0.2 %
Securities and other 12,572 55 1.7 % 11,682 50 1.7 %
Total earning assets 93,946 1,490 6.4 % 106,915 1,819 6.8 %
Cash and other assets 4,620 5,686
Total assets $ 98,566 $ 112,601
Interest-bearing liabilities
NOW accounts $ 3,237 2 0.3 % $ 2,523 4 0.6 %
Money market accounts 27,223 38 0.6 % 26,791 52 0.8 %
Savings accounts 354 - 0.5 % 188 - 0.8 %
Certificates of deposit less than
$100,000 6,427 42 2.6 % 11,851 103 3.5 %
Certificates of deposit $100,000
or greater 28,772 170 2.4 % 43,065 416 3.9 %
Total interest bearing deposits 66,013 252 1.5 % 84,418 575 2.8 %
Borrowed funds 8,264 3 0.1 % 3,900 4 0.5 %
Total interest bearing
liabilities 74,277 255 1.4 % 88,318 579 2.7 %
Noninterest bearing deposits 12,359 11,717
Other liabilities 1,002 1,529
Stockholders' equity 10,928 11,037
Total liabilities and
stockholders' equity $ 98,566 $ 112,601
Net interest income 1,235 1,240
Net interest spread 5.0 % 4.1 %
Net interest margin 5.3 % 4.7 %
Provision (credit) for loan loss (103 ) 19
Non-interest income 2,231 2,215
Non-interest expense 3,041 5,269
Income (loss) before income taxes 528 (1,833 )
Income taxes expense (benefit) - -
Net income (loss) $ 528 $ (1,833 )
Earnings (loss) per share $ 0.23 $ (0.94 )
Return on average equity 19.33 % (66.43 )%
Return on average assets 2.14 % (6.51 )%
Equity to assets ratio 11.09 % 9.80 %
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(1) Includes nonaccrual loans
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."
The provision for loan losses totaled a net credit of $103,000 for the three months ended March 31, 2012, compared to a net expense of $19,000 for the three months ended March 31, 2011. The provision amounts are directly related to loan volumes and losses. We had charge-offs of $24,000 and recoveries of $158,000 during the three months ended March 31, 2012. We had no charge-offs and recoveries of $56,000 for the same period in the prior year.
Non-interest Income
Non-interest income was primarily attributable to fee income generated by the Company for trust services and service charges on depository accounts.
Total non-interest income increased $16,000, or 0.7%, to $2.2 million for the three months ended March 31, 2012, compared to the same period in the prior year. The increase is primarily attributable to an increase in trust income.
Trust income is earned on the value of managed and non-managed assets held in custody. For the three months ended March 31, 2012, trust income totaled $2.2 million, compared to $2.1 million for the same period in the prior year. The change in trust income is directly attributable to the volatility in the market values of assets in trust accounts on which the fees are based.
Other income for the three months ended March 31, 2012 decreased $20,000 to $61,000, compared to $81,000 for the same period in the prior year. The decrease was primarily due to a $56,000 recovery from the Federal Trade Commission for the consumer restitution paid by the Bank during the first quarter of the prior year, offset by $39,000 gain on sale of other real estate owned during the first quarter of the current year.
Non-interest Expense
Total non-interest expense decreased $2.2 million, or 42.3%, to $3.0 million for the three months ended March 31, 2012, compared to $5.3 million for the same period in the prior year. Changes in the components of non-interest expense for the three months ending March 31, 2012 and 2011 are discussed below.
Salaries and employee benefits decreased $5,000, or 0.8%, to $647,000 for the three months ended March 31, 2012, compared to $652,000 for the same period in the prior year.
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, 2012, occupancy and equipment expense decreased $34,000, or 13.2%, to $224,000, compared to $258,000 for the same period in the prior year. The decrease was primarily due to reduction of depreciation expense as furniture and equipment becomes fully depreciated.
Trust expenses are advisory fees paid to a fund advisor to advise the Bank on the common investment funds held in the trust department and are based on the value of the assets held in custody. For the three months ended March 31, 2012, trust expenses decreased $35,000, or 1.9%, to $1.8 million, compared to the same period in the prior year. Similar to trust income, the change in trust expense is directly attributable to the volatility in the market values of assets in trust accounts.
Professional fees decreased $5,000, or 4.1%, to $117,000 for the three months ended March 31, 2012, compared to $122,000 for the same period in the prior year.
Data processing fees decreased $4,000, or 6.2%, to $65,000 for the three months ended March 31, 2012, compared to $69,000 for the same period in the prior year.
Other expenses decreased $2.1 million, or 91.3%, to $204,000 for the three months ended March 31, 2012, compared to $2.3 million for the same period in the prior year. The decrease was due to the reserve of $2.1 million recorded in the prior period to correct the value of participants' investments in certain collective investment funds administered by the Bank's trust department.
Income Taxes
No federal income tax expense was recorded for the three months ended March 31, 2012 and 2011, 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 a valuation allowance equal to the benefit. Cumulative net operating loss available to carry forward for tax purposes is approximately $5.6 million as of December 31, 2011.
Financial Condition
Our total assets as of March 31, 2012 were $115.8 million, compared to $123.3 million as of December 31, 2011.
Net loans as of March 31, 2012 were $82.1 million, compared to $82.3million as of December 31, 2011.
Deposits decreased $12.1 million, or 10.9% to $99.1 million as of March 31, 2012, compared to $111.2 million as of December 31, 2011. The decrease was primarily due to reduction in money market deposits related to the Bank's custodial deposits held by its trust department.
As of March 31, 2012, shareholders' equity increased $4.5 million to $15.2 million, compared to $10.7 million as of December 31, 2011. The increase was due to $4.0 million in net proceeds from the rights offering and the limited public offering, and $528,000 of net income during the quarter of 2012.
Cash and Due From Banks
Cash and due from banks decreased $384,000 to $1.0 million, compared to $1.4 million as of December 31, 2011. The reduction is a result of ordinary variances in operating cash.
Short-Term Investments and Interest-bearing Deposits in Other Financial Institutions
Interest-bearing deposits decreased $8.2 million to $19.7 million as of March 31, 2012, compared to $27.9 million as of December 31, 2011. The decrease was related to the decrease in custodial deposits held by the Bank's trust department. Federal funds sold at March 31, 2012 were $141,000, compared to $183,000 as of December 31, 2011. Interest-bearing deposits and 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.
As of March 31, 2012, our securities included Federal Reserve Bank of Dallas stock and Federal Home Loan Bank of Dallas stock at cost of $420,000 and $591,200, respectively, with an estimated fair value that approximated cost. We also had government agency securities with amortized cost of $5.6 million and fair value of $5.7 million and mortgage-backed securities with amortized cost and fair value of $2.6 million. Weighted average yield of the securities portfolio as of March 31, 2012 was 2.7%. Securities with market value of $5.0 million were pledged against the Bank's borrowing line of credit at the Federal Home Loan Bank of Dallas, one security with market value of $1.1 million was pledged against the Bank's line of credit at the Federal Reserve Bank of Dallas, and one security with market value of $243,000 was pledged against trust deposit balances held at the Bank.
As of December 31, 2011, our 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 $590,900, respectively, with an estimated fair value that approximated cost. We also had government agency securities with amortized cost and fair value of $3.6 million and mortgage-backed securities with amortized cost of $2.8 million and fair value of $2.9 million. Weighted average yield of the securities portfolio at December 31, 2011 was 2.8%. Securities with market value of $5.1 million were pledged against the Bank's borrowing line of credit at the Federal Home Loan Bank of Dallas, one security with a market value of $1.1 million was pledged against the Bank's line of credit at the Federal Reserve Bank of Dallas, and one security with a market value of $318,000 was pledged against trust deposit balances held at the Bank.
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: (000's) March 31, 2012 December 31, 2011 Commercial and industrial $ 58,915 $ 57,813 Consumer installment 376 221 Real estate - mortgage 18,906 20,148 Real estate - construction and land 5,358 5,495 Other - 35 Total loans 83,555 83,712 Less allowance for loan losses 1,383 1,352 Less deferred loan fees 81 82 Total net loans $ 82,091 $ 82,278 |
As of March 31, 2012 and December 31, 2011, our total net loans were $82.1 million and $82.3 million, respectively. Total loans, net of reserves and deferred fees, as a percentage of total assets were 70.9% as of March 31, 2012, and 66.7% as of December 31, 2011.
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. As of March 31, 2012 and December 31, 2011, commercial loans totaled $58.9 million and $57.8 million, representing approximately 70.5% and 69.1% of our total funded loans, respectively.
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