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TBNC > SEC Filings for TBNC > Form 10-Q on 15-Nov-2012All Recent SEC Filings

Show all filings for T BANCSHARES, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for T BANCSHARES, INC.


15-Nov-2012

Quarterly Report


ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis represents our consolidated financial condition as of September 30, 2012 and December 31, 2011, and our consolidated results of operations for the three and nine months ended September 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, the Consumer Financial Protection Bureau 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;

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 September 30, 2012, we had, on a consolidated basis, total assets of $129.0 million, net loans of $90.8 million, total deposits of $111.0 million, and shareholders' equity of $16.3 million. We currently operate through a main office located at 16000 Dallas Parkway, Dallas, Texas, a branch office at 8100 North Dallas Parkway, Plano, Texas and a loan production office at 850 E. State Highway 114, Southlake, Texas 76092. During the third quarter and beginning of the fourth quarter of 2012, we successfully hired six experienced bankers with significant experience in the origination, administration, and servicing of loans pursuant to programs promulgated by the Small Business Administration ("SBA"). The President of this newly formed division, Scott Umbaugh, worked with our CEO for over 11 years at their previous place of employment. We anticipate having loan production offices serving the Dallas/Fort Worth, Texas markets, Phoenix, Arizona, Denver, Colorado, and Portland, Oregon markets by the end of the year.

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 September 30, 2012 and December 31, 2011, and our results of operations for the three and nine months ended September 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 September 30, 2012 Compared to
                                                       Three Months Ended September 30, 2011
                                                   Increase (Decrease) Due to
                                                            Change in
                                      Yield/                Average               Number of
(000's)                                Rate                 Volume                  Days                Total
Federal funds sold                 $           -         $           -         $             -       $         -
Securities and other                           5                    18                       -                23
Loans, net of reserve (1)                   (128 )                 (21 )                     -              (149 )

Total earning assets                        (123 )                  (3 )                     -              (126 )

NOW                                           (1 )                   -                       -                (1 )
Money market                                 (13 )                  11                       -                (2 )
Certificates of deposit $100,000
or less                                      (30 )                 (25 )                     -               (55 )
Certificates of deposit $100,000
or more                                     (168 )                 (41 )                     -              (209 )
Borrowed funds                                 1                     1                       -                 2

Total interest-bearing
liabilities                                 (211 )                 (54 )                     -              (265 )

Changes in net interest income     $          88         $          51         $             -       $       139

                                               Nine Months Ended September 30, 2012 Compared to
                                                     Nine Months Ended September 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                           1                   28                   1                 29
Loans, net of reserve (1)                   (410 )               (347 )                17               (739 )

Total earning assets                        (409 )               (320 )                18               (711 )

NOW                                           (6 )                  1                   -                 (4 )
Money market                                 (45 )                 22                   -                (23 )
Certificates of deposit $100,000
or less                                      (90 )                (95 )                 1               (185 )
Certificates of deposit $100,000
or more                                     (549 )               (191 )                 3               (737 )
Borrowed funds                                (1 )                  2                   -                  1

Total interest-bearing
liabilities                                 (691 )               (261 )                 4               (948 )

Changes in net interest income     $         282        $         (59 )     $          14       $        237

(1) Average loans include non-accrual.

Net interest income for the three months ended September 30, 2012 increased $139,000, or 11.5%, compared to the same period in the prior year. The increase was due to lower cost of deposits and lower average volume of interest bearing deposits, offset by lower yields earned on loans due to the lower interest rate environment.

Total interest income for the three months ended September 30, 2012 decreased $126,000, or 7.6%, compared to the same period in the prior year. This was primarily due to lower average interest yields on loans. The average interest yield of earning assets decreased to 6.0%, or 9.1%, for the three months ended September 30, 2012, compared to 6.6% for the same period in the prior year. Average earning asset volume increased $2.7 million, or 2.7%, for the three months ended September 30, 2012, compared to the same period in the prior year, as a result of an increase in the securities portfolio.

Total interest expense for the three months ended September 30, 2012 decreased $265,000, or 59.4%, compared to same period in the prior year. The average interest yield for interest-bearing liabilities decreased to 1.0%, or 54.5%, for the three months ended September 30, 2012, compared to 2.2% for same period in the prior year. Average interest bearing deposit volume fell $6.7 million, or 9.4%, to $64.7 million for the three months ended September 30, 2012, compared to $71.4 million for the same period in 2011. Average borrowed funds increased $2.2 million, or 31.0%, to $9.3 million for the three months ended September 30, 2012, compared to $7.1 million for the same period in the prior year.

Net interest income for the first nine months of 2012 increased $237,000, or 6.6%, compared to the same period in the prior year. The increase was due to lower cost of 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 $711,000, or 13.7%, to $4.5 million for the nine months ended September 30, 2012, compared to $5.2 million for the same period in the prior year. The average interest yield decreased to 6.1%, or 10.3%, for the nine months ended September 30, 2012, compared to 6.8% for the same period in the prior year. Average earning asset volume fell $5.3 million, or 5.2%, to $96.9 million for the nine months ended September 30, 2012, compared to $102.2 million for the same period in the prior year. The decrease included a decline in average loan volume of $6.7 million, which was partially offset by an increase of $2.0 million in the securities portfolio.

Total interest expense decreased by $948,000, or 59.7%, to $647,000 for the nine months ended September 30, 2012, compared to $1.6 million for the same period in the prior year. The decrease in interest expense is primarily due to a decrease in rates paid on interest-bearing deposits. For the nine month period ended September 30, 2012, the average rate paid for interest earning deposits decreased to 1.3% as compared to 2.7% for the same period in the prior year. Average interest bearing deposit volume decreased $12.7 million, or 16.3%, to $65.4 million for the nine months ended September 30, 2012, compared to $78.1 million for the same period in the prior year. Average borrowed funds increased $2.0 million, or 39.2%, to $7.1 million for the nine months ended September 30, 2012, compared to $5.1 million for the same period in the prior year.

Key Performance Indicators at September 30, 2012

The following were key indicators of our performance and results of operations through the first three quarters of 2012:

total assets were $129.0 million at the end of the third quarter of 2012, representing an increase of $5.7 million, or 4.6%, from $123.3 million at the end of 2011;

total loans, net of allowance for loan losses and deferred loan fees, increased $8.5 million, or 10.3% to $90.8 million at the end of the third quarter of 2012, compared to $82.3 million at the end of 2011;

total deposits were $111.0 million at the end of the third quarter of 2012, compared to $111.2 million at the end of 2011;
net income was $439,000 for the three months ended September 30, 2012, compared to $352,000 for the same period in the prior year. Net income was $1.4 million for the nine months ended September 30, 2012, compared to a net loss of $1.2 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 $900,000 difference represents operating income during first nine months of 2011;

total revenue decreased $783,000 and was $11.1 million for the first nine months of 2012, compared to $11.9 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 at September 30, 2012 were 14.16% and 17.23%, respectively, compared to 10.24% and 13.23% at December 31, 2011. During the first quarter of 2012, 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 and nine months ended September 30, 2012 and 2011.

                               FINANCIAL SUMMARY

         Consolidated Daily Average Balances, Average Yields and Rates



                                                                   Three Months Ended September 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)           $    86,932     $      1,458              6.7 %   $    88,173     $      1,607              7.2 %
Federal funds sold                          574                -              0.2 %           193                -              0.2 %
Securities and other                     14,093               70              2.0 %        10,562               47              1.8 %
Total earning assets                    101,599            1,528              6.0 %        98,928            1,654              6.6 %
Cash and other assets                     3,882                                             3,895
Total assets                        $   105,481                                       $   102,823

Interest-bearing liabilities
NOW accounts                        $     3,273                2              0.3 %   $     2,605                3              0.4 %
Money market accounts                    27,409               38              0.6 %        19,582               40              0.8 %
Savings accounts                            399                1              0.5 %           344                -              0.5 %
Certificates of deposit less than
$100,000                                  4,859               24              2.0 %         9,739               79              3.2 %
Certificates of deposit $100,000
or greater                               28,740              113              1.6 %        39,158              323              3.3 %
Total interest bearing deposits          64,680              178              1.1 %        71,428              445              2.5 %
Borrowed funds                            9,348                3              0.1 %         7,054                1              0.1 %
Total interest bearing
liabilities                              74,028              181              1.0 %        78,482              446              2.2 %
Noninterest bearing deposits             15,385                                            13,274
Other liabilities                           980                                             1,258
Shareholders' equity                     15,088                                             9,809
Total liabilities and
shareholders' equity                $   105,481                                       $   102,823

Net interest income                                        1,347                                             1,208
Net interest spread                                                           5.0 %                                             4.4 %
Net interest margin                                                           5.3 %                                             4.8 %

Provision credit for loan loss                                60                                               (12 )
Non-interest income                                        2,202                                             2,252
Non-interest expense                                       3,050                                             3,120
Income before income taxes                                   439                                               352
Income taxes expense (benefit)                                 -                                                 -
Net income                                          $        439                                      $        352

Earnings per share                                  $       0.11                                      $       0.18
Return on average equity                                   11.64 %                                           14.35 %
Return on average assets                                    1.66 %                                            1.37 %
Equity to assets ratio                                     14.30 %                                            9.54 %

(1) Includes nonaccrual loans

                               FINANCIAL SUMMARY

         Consolidated Daily Average Balances, Average Yields and Rates



                                                                    Nine Months Ended September 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)            $    82,796     $      4,279              6.9 %   $    89,505     $      5,018               7.5 %
Federal funds sold                          366                1              0.2 %           969                2               0.2 %
Securities                               13,721              189              1.8 %        11,696              160               1.8 %
Total earning assets                     96,883            4,469              6.1 %       102,170            5,180               6.8 %
Cash and other assets                     4,132                                             5,538
Total assets                        $   101,015                                       $   107,708

Interest-bearing liabilities
NOW accounts                        $     3,407                7              0.3 %   $     2,800               12               0.6 %
Money market accounts                    27,059              113              0.5 %        21,929              135               0.8 %
Savings accounts                            373                2              0.5 %           266                1               0.6 %
Certificates of deposit less than
$100,000                                  5,539               96              2.3 %        10,991              281               3.4 %
Certificates of deposit $100,000
or greater                               28,986              422              1.9 %        42,093            1,159               3.7 %
Total interest bearing deposits          65,364              640              1.3 %        78,079            1,588               2.7 %
Borrowed funds                            7,099                7              0.1 %         5,064                7               0.2 %
Total interest bearing
liabilities                              72,463              647              1.2 %        83,143            1,595               2.6 %
Noninterest bearing deposits             14,103                                            12,554
Other liabilities                           975                                             1,729
Shareholders' equity                     13,474                                            10,282
Total liabilities and
shareholders' equity                $   101,015                                       $   107,708

Net interest income                                        3,822                                             3,585
Net interest spread                                                           4.9 %                                              4.2 %
Net interest margin                                                           5.2 %                                              4.6 %

Credit for loan loss                                        (180 )                                             (59 )
Non-interest income                                        6,638                                             6,710
Non-interest expense                                       9,214                                            11,511
Income (loss) before income taxes                          1,426                                            (1,157 )
Income taxes expense (benefit)                                 -                                                 -
Net income (loss)                                   $      1,426                                      $     (1,157 )

Earnings (loss) per share                                   0.41                                             (0.60 )
Return on average equity                                   14.11 %                                          (15.00 )%
Return on average assets                                    1.88 %                                           (1.43 )%
Equity to assets ratio                                     13.34                                              9.55 %

(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 $60,000 for the three months ended September 30, 2012, compared to a net credit of $12,000 for the three months ended September 30, 2011. The provision for loan losses totaled a net credit of $180,000 and $59,000 for the nine months ended September 30, 2012 and 2011, respectively. The provision amounts are directly related to loan volumes and losses. We had no charge-offs and recoveries of $2,000 during the three months ended September 30, 2012, compared to charge-offs of $15,000 and recoveries of $3,000 for the same period in the prior year. We had charge-offs of $24,000 and recoveries of $177,000 during the nine months ended September 30, 2012, compared to charge-offs of $262,000 and recoveries of $65,000 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 $50,000, or 2.2%, to $2.2 million for the three months ended September 30, 2012, compared to the same period in the prior year. . . .

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