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| TBNC > SEC Filings for TBNC > Form 10-Q on 14-Aug-2012 | All Recent SEC Filings |
14-Aug-2012
Quarterly Report
The following discussion and analysis represents our consolidated financial condition as of June 30, 2012 and December 31, 2011, and our consolidated results of operations for the three and six months ended June 30, 2012 and 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 (the "Exchange Act"), 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 June 30, 2012, we had, on a consolidated basis, total assets of $118.1 million, net loans of $83.7 million, total deposits of $100.7 million, and shareholders' equity of $15.8 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 June 30, 2012 and December 31, 2011, and our results of operations for the three and six months ended June 30, 2012 and 2011.
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 June 30, 2012 Compared to
Three Months Ended June 30, 2011
Increase (Decrease) Due to
Change in
Yield/ Average Number of
(000's) Rate Volume Days Total
Federal funds sold $ - $ - $ - $ -
Securities and other (4 ) 7 - 3
Loans, net of reserve (1) (107 ) (152 ) - (259 )
Total earning assets (111 ) (145 ) - (256 )
NOW (2 ) - - (2 )
Money market (16 ) 10 - (6 )
Certificates of deposit $100,000 or less (34 ) (35 ) - (69 )
Certificates of deposit $100,000 or more (213 ) (69 ) - (282 )
Borrowed funds - - - -
Total interest-bearing liabilities (265 ) (94 ) - (359 )
Changes in net interest income $ 154 $ (51 ) $ - $ 103
Six Months Ended June 30, 2012 Compared to
Six Months Ended June 30, 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 (5 ) 11 1 7
Loans, net of reserve (1) (250 ) (360 ) 19 (591 )
Total earning assets (255 ) (350 ) 20 (585 )
NOW (4 ) 1 - (3 )
Money market (32 ) 11 - (21 )
Certificates of deposit $100,000 or less (61 ) (70 ) 1 (130 )
Certificates of deposit $100,000 or more (379 ) (154 ) 5 (528 )
Borrowed funds (3 ) 1 - (2 )
Total interest-bearing liabilities (479 ) (211 ) 6 (684 )
Changes in net interest income $ 224 $ (139 ) $ 14 $ 99
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(1) Average loans include non-accrual.
Net interest income for the second quarter of 2012 increased $103,000, or 9.1%, compared to the same period in the prior year. The increase was due to decreased rates paid on interest-bearing deposits, partially offset by a decrease in loan volume and lower yields earned on loans due to the lower interest rate environment.
Total interest income for the three months ended June 30, 2012 decreased $256,000, or 15.0%, compared to the same period in 2011. Average earning asset volume decreased $7.3 million, or 7.2%, to $95.1 million for the three months ended June 30, 2012, compared to $102.4 million for the same period in the prior year. The decrease was due to reduction in loan volume. The average interest yield decreased to 6.1%, or 9.0%, for the three months ended June 30, 2012, compared to 6.7% for the same period in the prior year.
Total interest expense for the three months ended June 30, 2012 decreased $359,000, or 63.1%, compared to the same period in 2011. For the three month-period ended June 30, 2012, the average interest yield for interest-bearing liabilities decreased to 1.2%, or 57.1%, compared to 2.8% for the same period in 2011. Average interest bearing deposit volume fell $13.1 million, or 16.7%, to $65.4 million for the three months ended June 30, 2012, compared to $78.5 million for the same period in 2011. Average borrowed funds decreased $540,000, or 12.9%, to $3.7 million for the three months ended June 30, 2012, compared to $4.2 million for the same period in the prior year.
Net interest income for the first six months of 2012 increased $99,000, or 4.2%, compared to the same period in the prior year. The increase was due primarily to decreased rates paid on interest-bearing deposits, partially offset by a decrease in loan volume and lower yields earned on loans due to the lower interest rate environment.
Total interest income decreased $585,000, or 16.6%, to $2.9 million for the six months ended June 30, 2012, compared to $3.5 million for the same period in the prior year. The average interest yield decreased to 6.2%, or 8.8%, for the six months ended June 30, 2012, compared to 6.8% for the same period in the prior year. Average earning asset volume fell $10.1 million, or 9.7%, to $94.5 million for the six months ended June 30, 2012, compared to $104.6 million for the same period in the prior year.
Total interest expense decreased by $684,000, or 59.5%, to $465,000 for the six months ended June 30, 2012, compared to $1.1 million for the six months ended June 30, 2011. The decrease in interest expense is due primarily to a decrease in rates paid on interest-bearing deposits. For the six month period ended June 30, 2012, the average rate paid for interest earning deposits decreased to 1.3% as compared to 2.8% for the same period in the prior year. Average interest bearing deposit volume decreased $15.8 million, or 19.3%, to $65.7 million for the six months ended June 30, 2012, compared to $81.5 million for the same period in the prior year. Average borrowed funds increased $1.9 million, or 46.3%, to $6.0 million for the six months ended June 30, 2012, compared to $4.1 million for the same period in the prior year
Key Performance Indicators at June 30, 2012
The following were key indicators of our performance and results of operations through the first two quarters of 2012:
· total assets were $118.1 million at the end of the second quarter of 2012, representing a decrease of $5.2 million, or 4.2%, from $123.3 million at the end of 2011;
· total loans, net of allowance for loan losses and deferred loan fees, increased $1.4 million, or 1.7% to $83.7 million at the end of the second quarter of 2012, compared to $82.3 million at the end of 2011;
· total deposits were $100.7 million at the end of the second quarter of 2012, representing a decrease of $10.5 million, or 9.4%, from $111.2 million at the end of 2011;
· net income was $460,000 for the three months ended June 30, 2012, compared to $324,000 for the same period in the prior year. Net income was $987,000 for the six months ended June 30, 2012, compared to a net loss of $1.5 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 $600,000 difference represents operating income during first six months of 2011;
· total revenue decreased $600,000 and was $7.4 million for the first six months of 2012, compared to $8.0 million for the same period in the prior year. The decrease was due to the decrease in interest income;
· Tier 1 capital to average assets and total capital ratios for the Bank were 14.63% and 17.89% 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 in the first quarter of 2011, 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 and six months ended June 30, 2012 and 2011.
FINANCIAL SUMMARY
Consolidated Daily Average Balances, Average Yields and Rates
Three Months Ended June 30,
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) $ 80,249 $ 1,385 6.9 % $ 89,078 $ 1,644 7.4 %
Federal funds sold 310 - 0.2 % 456 - 0.2 %
Securities and other 14,493 65 1.8 % 12,858 62 1.9 %
Total earning assets 95,052 1,450 6.1 % 102,392 1,706 6.7 %
Cash and other assets 3,894 5,414
Total assets $ 98,946 $ 107,806
Interest-bearing liabilities
NOW accounts $ 3,713 3 0.3 % $ 3,270 5 0.6 %
Money market accounts 26,540 37 0.6 % 19,493 43 0.9 %
Savings accounts 365 - 0.5 % 266 - 0.6 %
Certificates of deposit less than
$100,000 5,339 30 2.3 % 11,406 99 3.5 %
Certificates of deposit $100,000
or greater 29,449 139 1.9 % 44,100 421 3.8 %
Total interest bearing deposits 65,406 209 1.3 % 78,535 568 2.9 %
Borrowed funds 3,661 1 0.1 % 4,201 1 0.1 %
Total interest bearing
liabilities 69,067 210 1.2 % 82,736 569 2.8 %
Noninterest bearing deposits 14,550 12,654
Other liabilities 943 2,401
Shareholders' equity 14,386 10,015
Total liabilities and
shareholders' equity $ 98,946 $ 107,806
Net interest income 1,240 1,137
Net interest spread 4.9 % 3.9 %
Net interest margin 5.2 % 4.4 %
Credit for loan loss (137 ) (65 )
Non-interest income 2,206 2,243
Non-interest expense 3,123 3,121
Income before income taxes 460 324
Income taxes expense (benefit) - -
Net income $ 460 $ 324
Earnings per share $ 0.11 $ 0.17
Return on average equity 12.79 % 12.94 %
Return on average assets 1.86 % 1.20 %
Equity to assets ratio 14.54 % 9.29 %
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(1) Includes nonaccrual loans
FINANCIAL SUMMARY
Consolidated Daily Average Balances, Average Yields and Rates
Six Months Ended June 30,
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) $ 80,705 $ 2,821 7.0 % $ 91,005 $ 3,411 7.6 %
Federal funds sold 261 - 0.2 % 1,363 2 0.2 %
Securities 13,533 119 1.8 % 12,273 112 1.8 %
Total earning assets 94,499 2,940 6.2 % 104,641 3,525 6.8 %
Cash and other assets 4,257 5,549
Total assets $ 98,756 $ 110,190
Interest-bearing liabilities
NOW accounts $ 3,475 5 0.3 % $ 2,899 9 0.6 %
Money market accounts 26,881 74 0.6 % 23,122 95 0.8 %
Savings accounts 360 1 0.5 % 227 1 0.7 %
Certificates of deposit less than
$100,000 5,883 72 2.5 % 11,627 202 3.5 %
Certificates of deposit $100,000
or greater 29,111 309 2.1 % 43,585 837 3.9 %
Total interest bearing deposits 65,710 461 1.4 % 81,460 1,144 2.8 %
Borrowed funds 5,962 4 0.1 % 4,051 5 0.3 %
Total interest bearing
liabilities 71,672 465 1.3 % 85,511 1,149 2.7 %
Noninterest bearing deposits 13,454 12,188
Other liabilities 973 1,968
Shareholders' equity 12,657 10,523
Total liabilities and
shareholders' equity $ 98,756 $ 110,190
Net interest income 2,475 2,376
Net interest spread 4.9 % 4.1 %
Net interest margin 5.2 % 4.5 %
Credit for loan loss (240 ) (47 )
Non-interest income 4,436 4,459
Non-interest expense 6,164 8,391
Income (loss) before income taxes 987 (1,509 )
Income taxes expense (benefit) - -
Net income (loss) $ 987 $ (1,509 )
Earnings (loss) per share 0.31 (0.78 )
Return on average equity 15.60 % (28.68 )%
Return on average assets 2.00 % (2.74 )%
Equity to assets ratio 12.82 9.55 %
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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 $137,000 and $240,000 for the three and six months ended June 30, 2012, compared to a net credit of $65,000 and $47,000 for the three and six months ended June 30, 2011. The provision amounts are directly related to loan volumes and losses. We had no charge-offs and recoveries of $17,000 during the three months ended June 30, 2012, compared to charge-offs of $247,000 and recoveries of $5,000 for the same period in the prior year. We had charge-offs of $24,000 and recoveries of $175,000 during the six months ended June 30, 2012, compared to charge-offs of $247,000 and recoveries of $62,000 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 decreased $37,000, or 1.6%, to $2.2 million for the three months ended June 30, 2012, compared to the same period in the prior year.
Total non-interest income decreased $23,000, or 0.5%, to $4.4 million for the six months ended June 30, 2012, compared to the same period in the prior year.
Trust income is earned on the value of managed and non-managed assets held in custody. For the three and six months ended June 30, 2012, trust income totaled $2.2 million and $4.3 million, unchanged for the same period in the prior year.
Other income for the three and six months ended June 30, 2012 were $47,000 and $107,000, compared to $28,000 and $109,000 for the same periods in the prior year.
Non-interest Expense
Total non-interest expense for the three months ended June 30, 2012 was $3.1 million which was unchanged for the same period in the prior year. Changes in the components of non-interest expense for the three months ending June 30, 2012 and 2011 are discussed below.
Salaries and employee benefits increased $57,000, or 0.9%, to $661,000 for the three months ended June 30, 2012, compared to $604,000 for the same period in the prior year. The increase was due to increase in bonus expense accrual and normal annual merit increases.
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 June 30, 2012, occupancy and equipment expense increased $6,000, or 2.6%, to $234,000, compared to $228,000 for the same period in the prior year.
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 June 30, 2012, trust expenses increased $32,000, or 1.7%, to $1.9 million, compared to the same . . .
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