10-Q 1 d25764_10-q.txt 10-Q U.S. Securities and Exchange Commission Washington, D.C. 20549 ---------- FORM 10Q [x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ---------- Commission File No. 0-24023 -------- TEJAS BANCSHARES, INC. State of Organization IRS Employer Identification Texas No. 75-1950688 905 S. Fillmore, Suite 701 Amarillo, Texas 79101 Registrant's telephone number: 806-373-7900 ---------- Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (1) Yes _X_ No ___ (2) Yes _X_ No ___ As of March 31, 2001, 13,408,634 shares of the Registrant's common stock were outstanding. TEJAS BANCSHARES, INC. INDEX Page ---- Part I. Financial Information Item 1: Financial Statements: Condensed Consolidated Balance Sheets at March 31, 2001 and December 31, 2000 1 Condensed Consolidated Statements of Operations for the three-month periods ended March 31, 2001 and 2000 2 Condensed Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2001 and 2000 3 Notes to Condensed Consolidated Financial Statements 4 Item 2: Management's Discussion and Analysis of Financial Condition And Results of Operations 5 Part II. Other Information 12 Signatures 13 TEJAS BANCSHARES, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION Item 1. Financial Statements TEJAS BANCSHARES, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) March 31, 2001 and December 31, 2000 ASSETS March 31, December 31, 2001 2000* ------------- ------------- Cash and due from banks $ 15,763,505 $ 25,527,124 Federal funds sold 2,170,000 1,730,000 Securities available-for-sale 5,745,760 5,070,789 Loans 325,467,813 329,795,016 Less allowance for loan losses (5,636,344) (4,989,585) ------------- ------------- Loans, net 319,831,469 324,805,431 ------------- ------------- Bank premises and equipment, net 4,971,041 5,053,034 Accrued interest receivable 4,550,308 4,287,606 Federal income taxes receivable -- 1,083,476 Net deferred tax asset 1,665,852 1,447,121 Other assets 457,648 329,184 ------------- ------------- TOTAL ASSETS $ 355,155,583 $ 369,333,765 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits Demand - noninterest bearing $ 73,365,001 $ 86,348,482 Demand - interest bearing 97,830,518 87,500,414 Time and savings 104,513,559 109,999,031 ------------- ------------- Total deposits 275,709,078 283,847,927 ------------- ------------- Federal funds purchased -- 17,000,000 Other borrowings 25,000,000 16,000,000 Accrued interest payable 1,604,088 1,510,927 Federal income taxes payable 342,700 -- Other liabilities 830,071 715,437 ------------- ------------- Total liabilities 303,485,937 319,074,291 ------------- ------------- STOCKHOLDERS' EQUITY Common stock 13,408,634 13,415,267 Paid-in capital 26,479,127 26,515,193 Retained earnings 11,890,658 10,519,458 Accumulated other comprehensive income 16,927 6,356 Deferred directors' compensation (125,700) (196,800) ------------- ------------- Total stockholders' equity 51,669,646 50,259,474 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 355,155,583 $ 369,333,765 ============= ============= * Condensed from audited financial statements. These condensed financial statements should be read only in connection with the accompanying notes to the condensed financial statements. 1 TEJAS BANCSHARES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) Three-month periods ended March 31, 2001 and 2000 Three-month periods ended March 31, ------------------------- 2001 2000 ---------- ---------- INTEREST INCOME AND FEES Interest and fees on loans $7,021,070 $5,644,604 Interest and dividends on investment securities 86,408 93,980 Interest on due from banks 509 -- Interest on federal funds sold 28,496 78,092 ---------- ---------- Total interest income and fees 7,136,483 5,816,676 ---------- ---------- INTEREST EXPENSE Interest on deposits 2,178,528 1,893,874 Interest on federal funds purchased 167,816 33,355 Interest on other borrowings 332,862 -- ---------- ---------- Total interest expense 2,679,206 1,927,229 ---------- ---------- Net interest income 4,457,277 3,889,447 PROVISION FOR LOAN LOSSES 750,000 450,000 ---------- ---------- Net interest income after provision for loan losses 3,707,277 3,439,447 OTHER OPERATING INCOME Service charges 490,502 398,631 Other 287,508 170,930 ---------- ---------- Total other operating income 778,010 569,561 OTHER OPERATING EXPENSES Salaries and employee benefits 1,188,715 1,195,972 Depreciation 147,220 125,879 Advertising 75,210 100,826 Occupancy expense 135,171 94,421 Federal Deposit Insurance Corporation premiums 12,993 11,975 Professional fees 63,059 52,410 Supplies, stationary and office expenses 96,383 138,685 Taxes other than on income and salaries 104,914 75,468 Data processing 232,089 256,032 Postage 59,609 55,125 Other 290,076 240,590 ---------- ---------- Total other operating expenses 2,405,439 2,347,383 ---------- ---------- Earnings before income taxes 2,079,848 1,661,625 INCOME TAXES 708,648 564,951 ---------- ---------- NET EARNINGS $1,371,200 $1,096,674 ========== ========== NET EARNINGS PER SHARE-Basic $ 0.10 $ 0.08 ========== ========== NET EARNINGS PER SHARE-Diluted $ 0.10 $ 0.08 ========== ========== These condensed financial statements should be read only in connection with the accompanying notes to the condensed financial statements. 2 TEJAS BANCSHARES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) Three-month periods ended March 31, 2001 and 2000

SUPPLEMENTAL DISCLOSURE OF CASH-FLOW INFORMATION During the three-months ended March 31, 2001 and 2000, pursuant to the Company's Directors' Stock Compensation Plan, 7,600 (total value of $45,600) and 4,100 (total value of $24,600) shares of common stock, respectively, were forfeited by directors for missed meetings. These condensed financial statements should be read only in connection with the accompanying notes to the condensed financial statements. 3 TEJAS BANCSHARES, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (1) General See the Summary of Significant Accounting Policies included in the consolidated financial statements in the Company's report on Form 10K. On January 1, 2001, the Company adopted Financial Accounting Standards Board Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. The adoption of the new standard did not have a material impact on the Company's financial statements. The unaudited condensed consolidated financial statements included herein were prepared from the books of the Company in accordance with generally accepted accounting principles and reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results of operations and financial position for the interim periods. Such financial statements generally conform to the presentation reflected in the Company's Annual Report to Stockholders. The current interim period reported herein is included in the fiscal year subject to independent audit at the end of that year and is not necessarily an indication of the expected results for the fiscal year. (2) Net Earnings Per Share The following is a reconciliation of the numerators and the denominators of the basic and diluted earnings per share computations for net income for the three-month periods ended March 31.

(3) Incentive Stock Plan On May 19, 1998, the Company's stockholders approved the Tejas Bancshares, Inc. 1998 Incentive Stock Plan (the Plan). The Plan's objectives are to attract, retain and provide incentive to employees, officers and directors and to increase overall shareholder value. The number of shares reserved for issuance under the plan is 1,333,333. The Plan provides for the grant of both incentive stock options and non-qualified stock options as well as the grant of restricted stock, stock appreciation rights, dividend equivalent rights, stock awards and other stock-based awards. During the three months ended March 31, 2001 the Company granted 800 in shares under incentive stock options to certain employees and officers at the option price of $6.00, which is the fair market value of the common stock of the Company as determined by a majority of the disinterested directors of the Company. This information is an integral part of the accompanying condensed consolidated financial statements. 4 TEJAS BANCSHARES, INC. AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations - Three-Month Periods Ended March 31, 2001 as Compared to the Three-Month Periods Ended March 31, 2000: Earnings Tejas Bancshares, Inc. and subsidiaries (the Company) achieved net earnings for the three-month period ended March 31, 2001 of $1,371,200 as compared to earnings of $1,096,674 for the three-month period ended March 31, 2000. The increase in earnings for 2001 was primarily the result of improved net interest income as a result of growth in earning assets. The return on average assets for the three-month period ended March 31, 2001 and 2000 was 1.54% and 1.45%, respectively, and return on average equity was 10.84% and 9.56%, respectively. Net Interest Income The largest component of operating income is net interest income, which is the difference between the income earned on assets and interest paid on deposits. Net interest income is determined by the rates earned on the Company's interest-earning assets and the rates paid on its interest-bearing liabilities, the relative amounts of interest-earning assets and interest-bearing liabilities, and the degree of mismatch and the maturity and repricing characteristics of its interest-earning assets and interest-bearing liabilities. During the three-month periods ended March 31, 2001 and 2000 net interest income was $4,457,277, and $3,889,447, respectively. The increase in net interest income from 2000 to 2001 of $567,830 (14.60%) is primarily due to an increase in average interest-earning assets of approximately $56,287,000, net of an increase in average interest-bearing liabilities of approximately $48,092,000. The following table sets forth the average consolidated balance sheets of the Company and subsidiaries for the three-month periods ended March 31, 2001 and 2000 along with an analysis of net interest earnings for each major category of interest-earning assets and interest-bearing liabilities, the average yield or rate paid on each category and net yield on interest-earning assets: 5

(1) For purposes of these computations, nonaccruing loans are included in the daily average loan amounts outstanding. 6 Other Operating Income and Expenses Other operating income for the three-month periods for 2001 increased by $208,449 (36.60%), due to increased activity on deposit accounts, increased trust fees and increased mortgage loan fees. Other operating expenses increased during the three-month periods for 2001 by only $58,056 (2.47%). The increase was attributable primarily to increases in occupancy, franchise tax and professional fees. Securities Portfolio The objective of the Company in its management of the investment portfolio is to maintain a portfolio of high quality, relatively liquid investments with competitive returns. During the first three-month period of 2001, the weighted average yield on taxable securities was 6.36% as compared to 5.65% during 2000. The Company primarily invests in U.S. Treasury securities and other U.S. government agency obligations and mortgage-backed securities. The amortized cost and estimated fair values of the major classifications of available-for-sale securities at March 31, 2001 and December 31, 2000 were as follows: March 31, 2001 December 31, 2000 ----------------------- ----------------------- Amortized Amortized Cost Market Cost Market ---------- ---------- ---------- ---------- Government agencies $1,834,868 $1,848,516 $1,833,508 $1,837,861 Mortgage-backed securities 1,152,369 1,164,369 1,207,876 1,213,153 Other securities 2,732,875 2,732,875 2,019,775 2,019,775 ---------- ---------- ---------- ---------- Total securities $5,720,112 $5,745,760 $5,061,159 $5,070,789 ========== ========== ========== ========== Loan Portfolio At March 31, 2001 and December 31, 2000 net loans accounted for 90.1% and 87.9%, respectively, of total assets. The amount of loans outstanding at March 31, 2001 and December 31, 2000 are shown in the following table according to type of loans: 7 March 31, December 31, 2001 2000 ------------ ------------ Commercial $101,222,952 $106,098,467 Agricultural 54,010,314 57,310,086 Real estate Commercial 99,153,162 96,924,435 1-4 single family 43,197,903 42,279,431 Installment loans to individuals 23,600,642 23,680,046 Student Loans 4,282,840 3,502,551 ------------ ------------ Total $325,467,813 $329,795,016 ============ ============ Provision and Allowance for Loan Losses The following table summarizes the loan loss experience for the three-month periods ended March 31, 2001 and 2000: 2001 2000 ----------- ------------ Balance of allowance for loan losses at the beginning of period $ 4,989,585 $ 4,524,678 Provision charged to operations 750,000 450,000 Charge-offs (107,841) (507) Recoveries 4,600 4,291 ----------- ----------- Balance at end of period $ 5,636,344 $ 4,978,462 =========== =========== The Bank had no significant nonaccrual or restructured loans at March 31, 2001. Loans past due 90 days or more totaled approximately $815,000 at March 31, 2001. Management is not aware of any other loans in which it has serious doubts as to the ability of the borrower to comply with present loan repayment terms. Additions to the allowance for loan losses, which are recorded as the provision for loan losses on the Company's statements of operations, are made periodically to maintain the allowance at an appropriate level based on management's analysis of the potential risk in the loan portfolio. The amount of the provision is a function of the level of loans outstanding, the level of nonperforming loans, historical loan-loss experience, the amount of loan losses actually charged-off or recovered during a given period, and current and anticipated economic conditions. The Company believes that it is conservative in the identification and charge-off of problems and, in certain instances, the Company has received recoveries on loans that were previously charged-off. At March 31, 2001 and December 31, 2000, the allowance for loan losses was $5,636,344 and $4,989,585 respectively, which represented 1.73% and 1.51% of outstanding loans at those respective dates. 8 During the three-month periods ended March 31, 2001 and 2000, the Company recorded provisions for loan losses of $750,000 and $450,000, respectively. The allowance is subjective in nature and may be adjusted in the near term because of changes in economic conditions or review by regulatory examiners. Management expects that appropriate, additional future provisions will be made in accordance with the size and quality of the loan portfolio. Capital The Company and The First National Bank of Amarillo (the Bank) are subject to various regulatory capital requirements administered by banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of the assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company's and Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios (set forth in the table below) of Total and Tier I Capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I Capital (as defined) to average assets (as defined). Management believes, as of March 31, 2001, that the Company and Bank meet all capital adequacy requirements to which they are subject. The Company and the Bank exceeded their regulatory capital ratio at March 31, 2001, as set forth in the following table.

9 Liquidity Management Liquidity management involves monitoring the Company's sources and uses of funds in order to meet its day-to-day cash flow requirements while maximizing profits. Liquidity represents the ability of a Company to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities. Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of the investment portfolio is very predictable and subject to a high degree of control at the time investment decisions are made. However, net deposit inflows and outflows are far less predictable and are not subject to nearly the same degree of control. The Company has maintained a level of liquidity that is adequate to provide the necessary cash requirements. The Company's uses federal funds and borrowings from the Federal Home Loan Bank as its primary source of liquidity. Average federal funds sold were $2,036,889 and $5,630,220 during the three-month periods ended March 31, 2001 and 2000, respectively. Average federal funds purchased were $11,243,333 and $2,263,736 during the three-month periods ended March 31, 2001 and 2000 respectively. The Company has $45,000,000 in funds purchased lines available from correspondent banks of which none was used as of March 31, 2001. Borrowings from the Federal Home Loan Bank were $25,000,000 as of March 31, 2001 and averaged $23,688,889 for the three-month periods ended March 31, 2001. Management also has lined out potential purchasers of loans as a tool to maintain liquidity. The Company has numerous loan participations with other parties, primarily financial institutions. Loan participations are a common commercial banking arrangements whereby the Company sells, on a nonrecourse basis, a portion of a loan to another party or parties. These arrangements spread the risk between or among the parties and provide liquidity to the Company while reducing risk. Although no formal agreements or commitments exist, management believes that additional loan participations could readily be sold for liquidity purposes, if necessary. Management regularly reviews the liquidity position of the Company and has implemented internal policies which establish guidelines for sources of asset-based liquidity. Management believes that the continued growth in the deposit base will enable the Company to meet its long-term liquidity needs. 10 Deposits and Other Interest-Bearing Liabilities Average total deposits and other interest-bearing liabilities were $306,576,686 and $255,418,850 during the three-month periods for 2001 and 2000, respectively. Average interest-bearing deposits were $198,538,235 in 2001 as compared to $183,115,135 in 2000. The average daily amount of deposits and other interest bearing liabilities with their effective rates are summarized for the three-months ended March 31, 2001 and 2000 in the following table:

New Accounting Standard On January 1, 2001, the Company adopted Financial Accounting Standards Board Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. The adoption of the new standard did not have a material impact on the Company's financial statements. 11 TEJAS BANCSHARES, INC. AND SUBSIDIARIES PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 1. Election of directors The annual meeting of stockholders of the Company was held on March 31, 2001. At this meeting, the individuals named below were elected to the Board of Directors of the Company to serve until the next annual meeting of the stockholders of the Company: Number of Shares For Withhold Don Powell 8,964,140 7,168 William H. Attebury 8,964,140 7,168 Danny H. Conklin 8,964,140 7,168 Wales H. Madden, Jr. 8,964,140 7,168 Jay O'Brien 8,964,140 7,168 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K A Form 8-K was filed on April 19, 2001 announcing the appointment of John Stradley to serve as the President and Chief Executive Officer of the Company replacing Donald E. Powell who will continue to serve as Chairman of the Board. 12 TEJAS BANCSHARES, INC. AND SUBSIDIARIES SIGNATURES In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TEJAS BANCSHARES, INC. DATE: May 8, 2001 BY: /s/ John F. Stradley ------------------------- ----------------------------------------- John F. Stradley, Chief Executive Officer DATE: May 8, 2001 BY: /s/ Jack Hall ------------------------- ----------------------------------------- Jack Hall, Chief Financial Officer 13

TEJAS BANCSHARES INC 10-Q