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TBNC > SEC Filings for TBNC > Form 10-Q on 14-Nov-2013All Recent SEC Filings

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Form 10-Q for T BANCSHARES, INC.


14-Nov-2013

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, 2013 and December 31, 2012, and our consolidated results of operations for the three and nine months ended September 30, 2013 and 2012. 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, 2012, 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;

our ability to successfully launch and manage our SBA lending program;

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;


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changes in consumer spending, borrowing and savings habits;

changes in the Company's liquidity position;

acts of God or of war or terrorism;

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, 2012 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 banking markets include Dallas, Tarrant, Denton, Collin and Rockwall counties which encompass an area commonly referred to as the Dallas/Fort/Worth Metroplex. We currently operate through a main office located at 16000 Dallas Parkway, Dallas, Texas as well as loan production offices located in the Phoenix, Arizona, Denver, Colorado and Portland, Oregon markets. These offices originate loans throughout the United States with a focus on the western U.S. The offices are staffed by experienced bankers with significant experience in the origination, administration, and servicing of loans pursuant to programs promulgated by the Small Business Administration ("SBA") and the United States Department of Agriculture ("USDA"). During the second quarter 2013, the SBA approved the Bank as a Preferred Lender Participant ("PLP") in their program.

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, 2013 and December 31, 2012, and our results of operations for the three and nine months ended September 30, 2013 and 2012.

Recent Developments

The Bank gave advanced notice to the Comptroller of its intent to close the branch located in a leased office space at 8100 North Dallas Parkway, Plano, Texas in August 2013. The Comptroller acknowledged the Bank's action to close the branch on September 4, 2013. The office lease will expire and terminate by its own terms in November 2013.


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Results of Operations

Key Performance Indicators at September 30, 2013

The following were key indicators of our performance and results of operations through the first three quarters of 2013:

total assets were $131.8 million at the end of the third quarter of 2013, representing an increase of $17.4 million, or 15.2%, from $114.4 million at the end of 2012;

total loans held for investment, net of allowance for loan losses and deferred loan fees, increased $12.1 million, or 13.1%, to $104.7 million at the end of the third quarter of 2013, compared to $92.6 million at the end of 2012;

total loans held for sale, which consist primarily of the guaranteed portion of SBA 7(a) loans and USDA loans, increased $4.5 million, or 346.2%, to $5.8 million at the end of the third quarter of 2013, compared to $1.3 million at the end of 2012;

total deposits increased $13.2 million, or 16.4%, to $93.9 million at the end of the third quarter of 2013, compared to $80.7 million at the end of 2012;

net income was $681,000 for the three months ended September 30, 2013, compared to $439,000 for the same period in the prior year. Net income was $2.7 million for the nine months ended September 30, 2013, compared to $1.4 million for the same period in the prior year. The Bank recorded a gain on sale of loans of $1.5 million for the nine months ended September 30, 2013.

return on average assets was 2.13% and 2.96% for the three and nine months ended September 30, 2013, respectively, compared to 1.66% and 1.88% for the same periods in 2012. Return on average equity was 15.07% and 21.06% for the three and nine months ended September 30, 2013, respectively, compared to 11.64% and 14.11% for the same periods in 2012;

total revenue increased $3.5 million, or 31.5%, to $14.6 million for the nine months ended September 30, 2013, compared to $11.1 million for the same period in the prior year, and increased $1.3 million, or 35.1% to $5.0 million for the three months ended September 30, 2013, compared to $3.7 million for the same period in the prior year; and

Tier 1 capital to average assets and total capital ratios for the Bank at September 30, 2013 were 14.40% and 17.40%, respectively, compared to 13.39% and 17.57% at December 31, 2012.


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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, 2013 and September 30, 2012.

                               FINANCIAL SUMMARY
         Consolidated Daily Average Balances, Average Yields and Rates

                                                                       Three Months Ended September 30,
                                                          2013                                                  2012
                                      Average                             Average           Average                             Average
(000's) except earnings per share     Balance          Interest            Yield            Balance          Interest            Yield
Interest-earning assets

Loans, net of reserve (1)           $    107,119     $       1,630               6.0 %    $     86,932     $       1,458               6.7 %
Federal funds sold                           381                 -               0.2 %             574                 -               0.2 %
Securities and other                      15,381                67               1.7 %          14,093                70               2.0 %
Total earning assets                     122,881             1,697               5.5 %         101,599             1,528               6.0 %
Cash and other assets                      5,043                                                 3,882
Total assets                        $    127,924                                          $    105,481

Interest-bearing liabilities
NOW accounts                        $      3,259                 2               0.2 %    $      3,273                 2               0.3 %
Money market accounts                     30,322                36               0.5 %          27,409                38               0.6 %
Savings accounts                             811                 1               0.5 %             399                 1               0.5 %
Certificates of deposit less than
$100,000                                   3,634                11               1.2 %           4,859                24               2.0 %
Certificates of deposit $100,000
or greater                                42,761                80               0.7 %          28,740               113               1.6 %
Total interest bearing deposits           80,787               130               0.6 %          64,680               178               1.1 %
Borrowed funds                            11,692                 4               0.1 %           9,348                 3               0.1 %
Total interest bearing
liabilities                               92,479               134               0.6 %          74,028               181               1.0 %
Noninterest bearing deposits              15,943                                                15,385
Other liabilities                          1,428                                                   980
Shareholders' equity                      18,074                                                15,088
Total liabilities and
shareholders' equity                $    127,924                                          $    105,481

Net interest income                                          1,563                                                 1,347
Net interest spread                                                              4.9 %                                                 5.0 %
Net interest margin                                                              5.1 %                                                 5.3 %

Provision for loan loss                                        284                                                    60
Non-interest income                                          3,258                                                 2,202
Non-interest expense                                         3,856                                                 3,050
Income before income taxes                                     681                                                   439
Income taxes expense (benefit)                                   -                                                     -
Net income                                           $         681                                         $         439

Earnings per share                                   $        0.17                                         $        0.11
Return on average equity                                     15.07 %                                               11.64 %
Return on average assets                                      2.13 %                                                1.66 %
Equity to assets ratio                                       14.13 %                                               14.30 %

(1) Includes nonaccrual loans


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                               FINANCIAL SUMMARY
         Consolidated Daily Average Balances, Average Yields and Rates

                                                                        Nine Months Ended September 30,
                                                          2013                                                  2012
                                      Average                             Average           Average                              Average
(000's) except earnings per share     Balance          Interest            Yield            Balance          Interest             Yield
Interest-earning assets

Loans, net of reserve (1)           $    102,367     $       4,747               6.2 %    $     82,796     $       4,279                6.9 %
Federal funds sold                           415                 1               0.2 %             366                 1                0.2 %
Securities and other                      16,119               204               1.7 %          13,721               189                1.8 %
Total earning assets                     118,901             4,952               5.6 %          96,883             4,469                6.1 %
Cash and other assets                      4,259                                                 4,132
Total assets                        $    123,160                                          $    101,015

Interest-bearing liabilities
NOW accounts                        $      3,096                 5               0.2 %    $      3,407                 7                0.3 %
Money market accounts                     28,020                99               0.5 %          27,059               113                0.5 %
Savings accounts                             705                 3               0.5 %             373                 2                0.5 %
Certificates of deposit less than
$100,000                                   3,712                34               1.2 %           5,539                96                2.3 %
Certificates of deposit $100,000
or greater                                40,741               228               0.8 %          28,986               422                1.9 %
Total interest bearing deposits           76,274               369               0.7 %          65,364               640                1.3 %
Borrowed funds                            13,252                12               0.1 %           7,099                 7                0.1 %
Total interest bearing
liabilities                               89,526               381               0.6 %          72,463               647                1.2 %
Noninterest bearing deposits              15,072                                                14,103
Other liabilities                          1,273                                                   975
Shareholders' equity                      17,289                                                13,474
Total liabilities and
shareholders' equity                $    123,160                                          $    101,015

Net interest income                                          4,571                                                 3,822
Net interest spread                                                              5.0 %                                                  4.9 %
Net interest margin                                                              5.1 %                                                  5.2 %

Provision (credit) for loan loss
                                                               284                                                  (180 )
Non-interest income                                          9,648                                                 6,638
Non-interest expense                                        11,204                                                 9,214
Income before income taxes                                   2,731                                                 1,426
Income taxes expense (benefit)                                   -                                                     -
Net income                                           $       2,731                                         $       1,426

Earnings per share                                   $        0.68                                         $        0.41
Return on average equity                                     21.06 %                                               14.11 %
Return on average assets                                      2.96 %                                                1.88 %
Equity to assets ratio                                       14.04 %                                               13.34 %

(1) Includes nonaccrual loans


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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 tables present 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, 2013 Compared to
                                                            Three Months Ended September 30, 2012
                                                       Increase (Decrease) Due to
                                                               Change in
                                                    Yield/                Average               Total
(000's)                                              Rate                  Volume               Change
Securities and other                                       (9 )                      6                 (3 )
Loans, net of reserve (1)                                (135 )                    307                172

Total earning assets                                     (144 )                    313                169

NOW                                                         -                        -                  -
Money market                                               (5 )                      3                 (2 )
Savings                                                    (1 )                      1                  -
Certificates of deposit $100,000 or less                   (9 )                     (4 )              (13 )
Certificates of deposit $100,000 or more                  (59 )                     26                (33 )
Borrowed funds                                              -                        1                  1

Total interest-bearing liabilities                        (74 )                     27                (47 )

Changes in net interest income                    $       (70 )       $            286       $        216

(1) Average loans include non-accrual loans.


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                                                         Nine Months Ended September 30, 2013 Compared to
                                                               Nine Months Ended September 30, 2012
                                                        Increase (Decrease) Due to
                                                                 Change in
                                                      Yield/                   Average                 Total
(000's)                                                Rate                     Volume                Change
Securities and other                                          (15 )                    30                      15
Loans, net of reserve (1)                                    (440 )                   908                     468

Total earning assets                                         (455 )                   938                     483

NOW                                                            (1 )                    (1 )                    (2 )
Money market                                                  (17 )                     3                     (14 )
Savings                                                         -                       1                       1
Certificates of deposit $100,000 or less                      (45 )                   (17 )                   (62 )
Certificates of deposit $100,000 or more                     (260 )                    66                    (194 )
Borrowed funds                                                 (1 )                     6                       5

Total interest-bearing liabilities                           (324 )                    58                    (266 )

Changes in net interest income $ (131 ) $ 880 $ 749

(1) Average loans include non-accrual loans.

Net interest income for the three months ended September 30, 2013 increased $216,000, or 16.0%, compared to the same period in the prior year. The increase was primarily due to increase in loan volume and lower cost of deposits, partially offset by lower yields earned on loans.

Total interest income for the three months ended September 30, 2013 increased $169,000, or 11.0%, compared to the same period in the prior year. Average interest-earning asset volume increased $21.3 million, or 21.0%, to $122.9 for the three months ended September 30, 2013, compared to $101.6 million for the same period in the prior year, primarily due to the increase in the loan portfolio. The average interest yield of earning assets decreased to 5.5%, or 8.3%, for the three months ended September 30, 2013, compared to 6.0% for the same period in the prior year.

Total interest expense for the three months ended September 30, 2013 decreased $47,000, or 26.0%, compared to the same period in the prior year. The average cost of funds for interest-bearing liabilities decreased to 0.6%, or 40.0%, for the three months ended September 30, 2013, compared to 1.0% for same period in the prior year. Average volume of interest-bearing liabilities increased $18.5 million, or 25.0%, to $92.5 million for the three months ended September 30, 2013, compared to $74.0 million for the same period in 2012. Average interest-bearing deposits increased $16.1 million, or 24.9%, to $80.8 million for the three months ended September 30, 2013, compared to $64.7 million for the same period in the prior year. Average borrowed funds increased $2.4 million, or 25.8%, to $11.7 million for the three months ended September 30, 2013, compared to $9.3 million for the same period in the prior year. The increase is a result of the attractive borrowing rates offered by the Federal Home Loan Bank of Dallas versus other sources of liquidity available to the Bank.

Net interest income for the nine months ended September 30, 2013 increased $749,000, or 19.6%, compared to the same period in the prior year. The increase was primarily due to increase in loan volume and lower cost of deposits, partially offset by lower yields earned on loans.

Total interest income for the nine months ended September 30, 2013 increased $483,000, or 10.8%, compared to the same period in the prior year. Average interest-earning asset volume increased $22.0 million, or 22.7%, to $118.9 for the nine months ended September 30, 2013, compared to $96.9 million for the same period in the prior year, primarily due to the increase in the loan portfolio. The average interest yield of earning assets decreased to 5.6%, or 8.2%, for the . . .

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