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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 000-49928
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TEXAS UNITED BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-2768656
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
202 W. COLORADO
LA GRANGE, TEXAS 78945
(Address of principal executive offices, including zip code)
(979) 968-8451
(Registrant's telephone number, including area code)
----------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $1.00 per share
(Title of class)
----------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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. Yes [X] No [ ].
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12-b-2 of the Exchange Act). Yes [ ] No [X].
As of March 31, 2003, the number of outstanding shares of Common Stock,
par value $1.00 per share, was 2,645,044.
================================================================================
PART I
FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
TEXAS UNITED BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31,
2003 2002
------------ ------------
(UNAUDITED)
ASSETS
Cash and cash equivalents:
Cash and due from banks ....................................................... $ 22,264 $ 20,574
Federal funds sold and other temporary investments ............................ -- --
------------ ------------
Total cash and cash equivalents ............................................ 22,264 20,574
Investment securities available-for-sale, at fair value .......................... 163,569 132,140
Loans, net ....................................................................... 350,256 349,345
Loans held for sale .............................................................. 4,013 33,674
Premises and equipment, net ...................................................... 23,856 23,363
Accrued interest receivable ...................................................... 2,862 3,006
Goodwill ......................................................................... 9,432 9,432
Core deposit intangibles ......................................................... 482 512
Mortgage servicing rights ........................................................ 2,884 2,877
Other assets ..................................................................... 12,043 12,139
------------ ------------
Total assets ............................................................... $ 591,661 $ 587,062
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing ........................................................... $ 92,691 $ 82,294
Interest-bearing .............................................................. 381,908 370,625
------------ ------------
Total deposits ............................................................. 474,599 452,919
Federal funds purchased .......................................................... 7,017 19,732
Other liabilities ................................................................ 5,135 5,807
Borrowings ....................................................................... 61,089 62,945
Subordinated notes and debentures ................................................ -- 3,241
------------ ------------
Total liabilities .......................................................... 547,840 544,644
------------ ------------
Commitments and contingencies .................................................... -- --
Company obligated mandatorily redeemable capital securities of subsidiary trust .. 7,000 7,000
Shareholders' equity:
Preferred stock, $1.00 par value, 500,000 shares authorized, none of
which are issued and outstanding ........................................... -- --
Common stock, $1.00 par value, 20,000,000 shares authorized; 2,651,139
shares issued and 2,645,044 shares outstanding as of March 31, 2003
and 2,646,139 shares issued and 2,640,044 shares outstanding as of
December 31, 2002 .......................................................... 2,651 2,646
Additional paid-in capital .................................................... 16,721 16,683
Retained earnings ............................................................. 15,460 14,594
Accumulated other comprehensive income ........................................ 2,106 1,612
Less treasury stock, at cost .................................................. (117) (117)
------------ ------------
Total shareholders' equity .............................................. 36,821 35,418
------------ ------------
Total liabilities and shareholders' equity .............................. $ 591,661 $ 587,062
============ ============
See accompanying notes to condensed consolidated financial statements
1
TEXAS UNITED BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
2003 2002
-------- --------
Interest income:
Loans .............................................. $ 7,807 $ 5,834
Investment securities:
Taxable ......................................... 1,264 1,190
Tax-exempt ...................................... 151 279
Federal funds sold and other temporary
investments ..................................... 9 19
-------- --------
Total interest income ......................... 9,231 7,322
-------- --------
Interest expense:
Deposits ........................................... 1,933 2,237
Federal funds purchased ............................ 40 69
Borrowings ......................................... 490 170
Subordinated notes and debentures .................. 87 --
Company obligated mandatorily redeemable capital
securities of subsidiary trust ..................... 183 183
-------- --------
Total interest expense ........................ 2,733 2,659
-------- --------
Net interest income ................................... 6,498 4,663
Provision for loan losses ............................. 800 450
-------- --------
Net interest income after provision for loan losses ... 5,698 4,213
-------- --------
Non-interest income:
Service charges on deposit accounts ................ 1,609 1,178
Net servicing fees ................................. 18 939
Gain on sale of investment securities, net ......... 231 300
Other non-interest income .......................... 721 738
-------- --------
Total non-interest income ..................... 2,579 3,155
-------- --------
Non-interest expense:
Employee compensation and benefits ................. 3,456 2,972
Occupancy .......................................... 1,121 680
Other non-interest expense ......................... 2,139 1,696
-------- --------
Total non-interest expense .................... 6,716 5,348
-------- --------
Income before provision for income taxes .............. 1,561 2,020
Provision for income taxes ............................ 430 554
-------- --------
Net income ............................................ $ 1,131 $ 1,466
======== ========
Earnings per common share:
Basic .............................................. $ 0.43 $ 0.59
Diluted ............................................ $ 0.41 $ 0.56
Dividends declared per common share:
Basic .............................................. $ 0.10 $ 0.10
Diluted ............................................ $ 0.10 $ 0.10
Weighted average shares outstanding:
Basic .............................................. 2,643 2,482
Diluted ............................................ 2,747 2,600
See accompanying notes to condensed consolidated financial statements
2
TEXAS UNITED BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
2003 2002
-------- --------
Net income ........................................................... $ 1,131 $ 1,466
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) on investment securities
arising during the period ...................................... 646 (735)
Less: reclassification adjustment for gains included in
net income ................................................... 152 198
-------- --------
Other comprehensive income (loss) ................................. 494 (933)
-------- --------
Total comprehensive income ........................................ $ 1,625 $ 533
======== ========
See accompanying notes to condensed consolidated financial statements
3
TEXAS UNITED BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 2002 AND
THREE MONTHS ENDED MARCH 31, 2003
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ACCUMULATED
ADDITIONAL OTHER TREASURY
COMMON STOCK PAID-IN RETAINED COMPREHENSIVE STOCK
SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) AT COST TOTAL
---------- -------- ---------- ---------- ------------- ---------- ---------
Balance at January 1, 2002 ......... 2,502,145 $ 2,502 $ 14,136 $ 11,342 $ (275) $ (333) $ 27,372
Net income ......................... -- -- -- 4,278 -- -- 4,278
Other comprehensive income ......... -- -- -- -- 1,887 -- 1,887
Issuance of common stock upon
exercise of employee stock
options ......................... 6,291 6 47 -- -- -- 53
Issuance of common stock
related to the acquisition
of The Bryan-College Station
Financial Holding Company ....... 137,703 138 2,477 -- -- -- 2,615
Compensation related to grant of
treasury stock to employees ..... -- -- 5 -- -- 45 50
Sale of treasury stock ............. -- -- 18 -- -- 171 189
Dividends .......................... -- -- -- (1,026) -- -- (1,026)
---------- -------- ---------- ---------- ------------- ---------- ---------
Balance at December 31, 2002 ....... 2,646,139 $ 2,646 $ 16,683 $ 14,594 $ 1,612 $ (117) $ 35,418
========== ======== ========== ========== ============= ---------- =========
UNAUDITED ACCUMULATED
ADDITIONAL OTHER TREASURY
COMMON STOCK PAID-IN RETAINED COMPREHENSIVE STOCK
SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) AT COST TOTAL
---------- -------- ---------- ---------- ------------- ---------- ---------
Balance at January 1, 2003 ......... 2,646,139 $ 2,646 $ 16,683 $ 14,594 $ 1,612 $ (117) $ 35,418
Net income ......................... -- -- -- 1,131 -- -- 1,131
Other comprehensive income ......... -- -- -- -- 494 -- 494
Issuance of common stock
upon exercise of employee
stock options ................... 5,000 5 38 -- -- -- 43
Dividends .......................... -- -- -- (265) -- -- (265)
---------- -------- ---------- ---------- ------------- ---------- ---------
Balance at March 31, 2003 .......... 2,651,139 $ 2,651 $ 16,721 $ 15,460 $ 2,106 $ (117) $ 36,821
========== ======== ========== ========== ============= ========== =========
See accompanying notes to condensed consolidated financial statements
4
TEXAS UNITED BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------------
2003 2002
---------- ----------
Cash flows from operating activities:
Net income .............................................................. $ 1,131 $ 1,466
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Depreciation and amortization ........................................ 791 374
Impairment on mortgage servicing rights .............................. 817 --
Provision for loan losses ............................................ 800 450
Gain on sales of securities, net ..................................... (231) (300)
Gain on sale of other real estate, loans, premises and equipment ..... (114) --
Amortization of premium, net of discounts on securities .............. 329 54
Changes in:
Loans held for sale ................................................ 29,661 (3,033)
Other assets ....................................................... (815) (858)
Other liabilities .................................................. (927) (471)
---------- ----------
Net cash provided (used) by operating activities ................ 31,442 (2,318)
---------- ----------
Cash flows from investing activities:
Purchases of securities available-for-sale ........................... (76,460) (30,969)
Proceeds from sales, maturities, and principal paydowns of
securities available-for-sale ..................................... 45,682 25,261
Net change in loans .................................................. (1,711) 2,270
Proceeds from sale of other real estate and premises and equipment ... 135 --
Purchases of premises and equipment .................................. (1,045) (1,816)
---------- ----------
Net cash used by investing activities .............................. (33,399) (5,254)
---------- ----------
Cash flows from financing activities:
Net change in:
Deposits ............................................................. 21,680 (5,127)
Other borrowings ..................................................... (1,856) (18,261)
Federal funds purchased .............................................. (12,715) 12,120
Subordinated notes and debentures .................................... (3,241) --
Net proceeds from issuance of common stock upon exercise of
employee stock options ............................................... 43 37
Treasury stock sold ..................................................... -- 56
Dividends paid .......................................................... (264) (250)
---------- ----------
Net cash provided (used) by financing activities ................... 3,647 (11,425)
---------- ----------
Net increase (decrease) in cash and cash equivalents ....................... 1,690 (18,997)
Cash and cash equivalents at beginning of period ........................... 20,574 32,666
---------- ----------
Cash and cash equivalents at end of period ................................. $ 22,264 $ 13,669
========== ==========
See accompanying notes to condensed consolidated financial statements
5
TEXAS UNITED BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements include the
accounts of Texas United Bancshares, Inc. (the "Company") and its wholly-owned
subsidiaries Texas United Nevada, Inc. ("TUNI"), State Bank (the "Bank"), Third
Coast Wealth Advisors, Inc. ("Third Coast"), and TXUI Statutory Trust I (the
"Trust"). All material intercompany accounts and transactions have been
eliminated in the consolidated report of the Company.
The accompanying unaudited condensed consolidated financial statements
were prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form 10-Q. In the
opinion of management, the unaudited condensed consolidated financial statements
reflect all adjustments, consisting only of normal and recurring adjustments,
necessary to present fairly the Company's consolidated financial position at
March 31, 2003, the Company's consolidated results of operations for the three
months ended March 31, 2003 and 2002, consolidated cash flows for the three
months ended March 31, 2003 and 2002, and consolidated changes in shareholders'
equity for the three months ended March 31, 2003 and the year ended December 31,
2002. Interim period results are not necessarily indicative of results of
operations or cash flows for a full-year period. The 2002 year-end consolidated
balance sheet and statement of changes in shareholders' equity data were derived
from audited financial statements, but do not include all disclosures required
by generally accepted accounting principles.
Certain amounts applicable to the prior periods have been reclassified
to conform to the classifications currently followed. Such reclassifications do
not affect earnings.
These financial statements and the notes thereto should be read in
conjunction with the Company's audited consolidated financial statements for the
year ended December 31, 2002 appearing in the Company's Annual Report on Form
10-K.
2. EARNINGS PER COMMON SHARE
Basic earnings per share ("EPS") is computed by dividing net income
available to common shareholders by the weighted-average number of common shares
outstanding during the period. Diluted EPS is computed by dividing net income
available to common shareholders by the weighted-average number of common shares
and potentially dilutive common shares outstanding during the period.
Potentially dilutive common shares are computed using the treasury stock method.
3. INTANGIBLE ASSETS
The gross carrying amount of intangible assets and associated
amortization at March 31, 2003 is presented in the following table:
GROSS ACCUMULATED
CARRYING AMORTIZATION
AMOUNT AND IMPAIRMENT
-------- --------------
Amortized intangible assets:
Mortgage servicing rights ....... $ 5,061 $ 2,177
Core deposit intangibles ........ $ 564 $ 82
The projections of amortization expense shown below for mortgage
servicing rights are based on existing asset balances and the existing interest
rate environment as of March 31, 2003. Future amortization expense may be
significantly different depending upon changes in the mortgage servicing
portfolio, mortgage interest rates and market conditions.
6
The following table shows the current period and estimated future
amortization for intangible assets:
MORTGAGE
SERVICING CORE DEPOSIT
RIGHTS INTANGIBLES TOTAL
--------- ------------ ---------
Three months ended March 31, 2003 (actual) ....... $ 176 $ 30 $ 206
Nine months ended December 31, 2003 (estimate) ... 616 89 705
Estimate for the year ended December 31,
2004 ........................................ 792 103 895
2005 ........................................ 792 88 880
2006 ........................................ 761 72 833
2007 ........................................ 714 56 770
2008 ........................................ 678 40 718
4. STOCK BASED COMPENSATION
The Company accounts for its stock based employee compensation plans on
the "intrinsic value method" provided in Accounting Principles Board Opinion
(APB) No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations. Because the exercise price of the Company's employee stock
options equals or exceeds the market price of the underlying stock on the date
of grant, no compensation expense is recognized on option plans.
Statement of Financial Accounting Standards (SFAS) No. 123, (SFAS 123)
"Accounting for Stock-Based Compensation," as amended by SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure," requires
pro forma disclosures of net income and earnings per share for companies not
adopting its fair value accounting method for stock-based employee compensation.
The pro forma disclosures below use the fair value method of SFAS 123 to measure
compensation expense for stock-based compensation plans.
THREE MONTHS ENDED
MARCH 31,
-----------------------
2003 2002
---------- ----------
Net income, as reported .............................................. $ 1,131 $ 1,466
Less: Total stock-based compensation expense determined under the
fair value method for all awards, net of tax ............. 8 5
---------- ----------
Pro forma net income ................................................. $ 1,123 $ 1,461
========== ==========
Earnings per share:
Basic - as reported ......................................... $ 0.43 $ 0.59
Basic - pro forma ........................................... 0.42 0.59
Diluted - as reported ....................................... 0.41 0.56
Diluted - pro forma ......................................... 0.41 0.56
5. ACCOUNTING CHANGES
In November 2002, Financial Accounting Standards Interpretation No. 45
(FIN 45), "Guarantor's Accounting and Disclosure Requirement for Guarantees,
Including Indirect Guarantees of Indebtedness of Others" was released. FIN 45
elaborates on the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under certain guarantees that
it has issued. It also clarifies that a guarantor is required to recognize, at
the inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The initial recognition and measurement
provisions for FIN 45 are applicable on a prospective basis to guarantees issued
or modified after December 31, 2002. The disclosure requirements of FIN 45 are
effective for
7
financial statements of interim or annual periods ending after December 15,
2002, and were included in the Company's financial statements for the year ended
December 31, 2002. Implementation of the provisions of FIN 45 during the first
quarter of 2003 did not have an impact on the Company's financial statements.
6. OFF BALANCE SHEET CREDIT COMMITMENTS
In the normal course of business, the Company enters into various
transactions, which, in accordance with generally accepted accounting
principles, are not included in its consolidated balance sheet. These
transactions are referred to as "off balance-sheet commitments." The Company
enters into these transactions to meet the financing needs of its customers.
These transactions include commitments to extend credit and standby letters of
credit, which involve elements of credit risk in excess of the amounts
recognized in the consolidated balance sheet. The Company minimizes its exposure
to loss under these commitments by subjecting them to credit approval and
monitoring procedures.
The Company enters into contractual commitments to extend credit,
normally with fixed expiration dates or termination clauses, at specified rates
and for specific purposes. Customers use credit commitments to ensure that funds
will be available for working capital purposes, for capital expenditures and to
ensure access to funds at specified terms and conditions. Substantially all of
the Company's commitments to extend credit are contingent upon customers
maintaining specific credit standards at the time of loan funding. Management
assesses the credit risk associated with certain commitments to extend credit in
determining the level of the allowance for loan losses. Commitments to extend
credit totaled $41.8 million at March 31, 2003 and $38.9 million at December 31,
2002.
Standby letters of credit are written conditional commitments issued by
the Company to guarantee the performance of a customer to a third party. The
Company's policies generally require that standby letters of credit arrangements
contain collateral and debt covenants similar to those contained in loan
agreements. In the event the customer does not perform in accordance with the
terms of the agreement with the third party, the Company would be required to
fund the commitment. The maximum potential amount of future payments the Company
could be required to make is represented by the contractual amount of the
commitment. If the commitment is funded, the Company would be entitled to seek
recovery from the customer. Standby letters of credit totaled $679,000 at March
31, 2003 and $787,000 at December 31, 2002. As of March 31, 2003 and December
31, 2002, no liability for the fair value of the Company's potential obligations
under these guarantees has been recorded since the amount is deemed immaterial.
7. CRITICAL ACCOUNTING POLICIES
The Company's accounting policies are integral to understanding the
results reported. The Company believes that of its significant accounting
policies, the allowance for loan losses and mortgage servicing rights assets may
involve a higher degree of judgment and complexity.
Allowance for Loan Losses -- The allowance for loan losses is a
valuation allowance for probable losses incurred on loans. Loans are charged to
the allowance when the loss actually occurs or when a determination is made that
a probable loss has occurred. Recoveries are credited to the allowance at the
time of recovery. Throughout the year, management estimates the probable level
of losses to determine whether the allowance for credit losses is adequate to
absorb losses in the existing portfolio. Based on these estimates, an amount is
charged to the provision for loan losses and credited to the allowance for loan
losses in order to adjust the allowance to a level determined to be adequate to
absorb losses. Management's judgment as to the level of probable losses on
existing loans involves the consideration of current economic conditions and
their estimated effects on specific borrowers; an evaluation of the existing
relationships among loans, potential loan losses and the present level of the
allowance; results of examinations of the loan portfolio by regulatory agencies;
and management's internal review of the loan portfolio. In determining the
collectability of certain loans, management also considers the fair value of any
underlying collateral. The amount ultimately realized may differ from the
carrying value of these assets because of economic, operating or other
conditions beyond the Company's control. Please refer to the subsequent
discussion of "Allowance for Loan Losses" included in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for additional
insight into management's approach and methodology in estimating the allowance
for loan losses.
Mortgage servicing rights assets are established and accounted for
based on discounted cash flow modeling techniques which require management to
make estimates regarding the amount and timing of expected future cash flows,
including assumptions about loan repayment rates, loan loss experience, and
costs to service, as well as
8
discount rates that consider the risk involved. Because the values of these
assets are sensitive to changes in assumptions, the valuation of mortgage
servicing rights is considered a critical accounting estimate. Please refer to
Note 3 to the Condensed Consolidated Financial Statements above and discussion
of "Non-Interest Income" included in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for additional insight into
management's approach in estimating transfers and servicing of financial assets.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Statements and financial discussion and analysis contained in the Form
10-Q that are not historical facts are forward-looking statements made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements include information about possible or
assumed future results of the Company's operations or performance. The use of
any of the words "believe," "expect", "anticipate", "estimate", "continue",
"intend", "may", "will", "should", or similar expressions, identifies these
forward-looking statements. Many possible factors or events could affect the
future financial results and performance of the Company and could cause those
financial results or performance to differ materially from those expressed in
the forward-looking statement. These possible events or factors include, without
limitation:
o deposit attrition, operating costs, customer loss and business
disruption are greater than we expect;
o competitive factors including product and pricing pressures among
financial services organizations may increase;
o the Company may have difficulty integrating the business of any future
acquisitions;
o changes in the interest rate environment reduce our interest margins;
o changes in market rates and prices may adversely impact securities,
loans, deposits, mortgage servicing rights, and other financial
instruments;
o general business and economic conditions in the markets the Company
serves change or are less favorable than it expects;
o legislative or regulatory changes adversely affect the Company's
business;
o personal or commercial bankruptcies increase;
o changes in accounting principles, policies or guidelines;
o changes occur in the securities markets; and
o technology-related changes are harder to make or more expensive than
the Company anticipates.
A forward-looking statement may include a statement of the assumptions
or bases underlying the forward-looking statement. The Company believes it has
chosen the assumptions or bases in good faith and that they are reasonable.
However, the Company cautions you that assumptions or bases almost always vary
from actual results, and the differences between assumptions or bases and actual
results can be material. We will not update these statements unless the
securities laws require us to do so.
9
General. The Company is a bank holding company formed in June 1998 as a
result of the merger of South Central Texas Bancshares, Inc. with and into
Premier Bancshares, Inc. At the effective date of the merger, the resulting
company changed its name to Texas United Bancshares, Inc. The Company derives
substantially all of its net income from its wholly owned subsidiary State Bank.
At March 31, 2003, State Bank had eighteen full service banking centers serving
twelve counties in central and south central Texas.
Net income for the three months ended March 31, 2003 was $1.1 million,
a decrease of 26.7% compared with net income of $1.5 million for the same period
in 2002. The decrease in net income was primarily due to an increase in
non-interest expense, a decrease in non-interest income resulting from
impairment on the mortgage servicing rights portfolio, and additions to the
provision for loan losses. Basic and diluted EPS for the three months ended
March 31, 2003 were $0.43 and $0.41 compared with $0.59 and $0.56 for the same
period in 2002.
At March 31, 2003, total assets were $591.7 million compared with
$587.1 million at December 31, 2002. The $4.6 million or 0.8% increase in total
assets over December 31, 2002 was attributable to internal growth in investment
securities, cash and cash equivalents, loans and other assets. The increase was
partially offset by a decrease in loans held for sale. At March 31, 2003, net
loans, including loans held for sale, were $354.3 million compared with $383.0
million at December 31, 2002. Total deposits at March 31, 2003 were $474.6
million compared with $452.9 million at December 31, 2002. The $21.7 million or
4.8% increase in deposits over December 31, 2002 is attributed to internal
growth. Shareholders' equity at March 31, 2003 was $36.8 million compared with
$35.4 million at December 31, 2002. The $1.4 million or 4.0% increase is
attributable to earnings retention and improvement on the fair market value on
available-for-sale securities included in accumulated other comprehensive
income. The Company's annualized return on average assets was 0.79% for the
three months ended March 31, 2003, down from the 1.36% for the same period in
2002. The annualized return on average shareholders' equity was 12.70% for the
three months ended March 31, 2003, down from 20.78% for the same period in 2002.
Net Interest Income. For the three months ended March 31, 2003, net
interest income, before the provision for loan losses, increased by 38.3% to
$6.5 million from $4.7 million in the same period in 2002. The increase was
primarily due to the strategic lowering of the cost of funds in relation to the
decrease in rates on earning assets. This has resulted in lower rates paid for
interest-bearing liabilities that were partially offset by lower yields on
earning assets and the interest expense on borrowings and the subordinated
debentures assumed in conjunction with the acquisition of Bryan-College Station.
For the three months ended March 31, 2003 and 2002, the net interest margins and
spreads widened by 30 basis points to 5.18% from 4.88% and by 43 basis points to
4.88% from 4.45%, respectively.
Interest income for the three months ended March 31, 2003 was $9.2
million compared with $7.3 million for the same period in 2002. As compared with
the three months ended March 31, 2002, the average total loan volumes for the
three months ended March 31, 2003 increased by $103.6 million or 37.7% and the
average yield on average total loan volume decreased 24 basis points to 8.36%.
As compared with the three months ended March 31, 2002, average total investment
volumes for the three months ended March 31, 2003 increased by $31.9 million or
38.3% and the average yield on average investments decreased by 104 basis
points. For the three months ended March 31, 2003, as compared with the same
period in 2002, the yield on total average earning assets decreased by 32 basis
points to 7.35%.
Interest expense increased for the three months ended March 31, 2003 by
$74,000 or 2.8% compared with the same period in 2002. The increased interest
expense was the result of higher balances in borrowings and subordinated notes
and debentures and higher average interest bearing deposit volumes coupled with
lower interest rates paid on those deposits. Average interest bearing deposit
volumes increased by $67.3 million or 22.5% for the three months ended March 31,
2003 compared with the same period in 2002. For the same periods, the average
rates paid on interest bearing deposits decreased by 89 basis points to 2.14%.
10
The following tables set forth, for the periods indicated, an
analysis of net interest income by each major category of interest-earning
assets and interest-bearing liabilities, the average amounts outstanding and the
interest earned or paid on such amounts. The tables also set forth the average
rate earned on total interest-earning assets, the average rate paid on total
interest-bearing liabilities and the net interest margin on average total
interest-earning assets for the same periods. Nonaccruing loans have been
included in the table as loans carrying a zero yield.
FOR THE THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------------------
2003 2002
--------------------------------- ---------------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE (1) BALANCE PAID RATE (1)
----------- -------- -------- ----------- -------- --------
(DOLLARS IN THOUSANDS)
ASSETS
Interest-earning assets:
Total loans ........................... $ 378,671 $ 7,807 8.36% $ 275,039 $ 5,834 8.60%
Taxable securities .................... 115,105 1,264 4.45 83,216 1,190 5.80
Tax-exempt securities ................. 13,504 151 4.53 25,023 279 4.52
Federal funds sold and other
temporary investments .............. 1,917 9 1.90 4,028 19 1.91
----------- -------- ----------- --------
Total interest earning assets ......... 509,197 9,231 7.35 387,306 7,322 7.67
-------- --------
Less allowance for loan losses ........ 3,593 1,947
----------- -----------
Total interest-earning assets, net of
allowance for loan losses .......... 505,604 385,359
Noninterest-earning assets ............... 75,683 51,942
----------- -----------
Total assets ....................... $ 581,287 $ 437,301
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits .... $ 120,205 $ 325 1.10% $ 96,127 $ 487 2.05%
Savings and money market accounts ... 64,742 180 1.13 55,064 263 1.94
Time deposits ....................... 181,512 1,428 3.19 147,934 1,487 4.08
Federal funds purchased ............. 9,668 40 1.68 8,182 69 3.42
Company obligated mandatorily
redeemable capital securities
of subsidiary trust ................ 7,000 183 10.60 7,000 183 10.60
Other borrowings .................... 62,002 490 3.21 21,023 170 3.23
Subordinated notes and debenture .... 3,241 87 10.89 -- -- --
----------- -------- ----------- --------
Total interest-bearing liabilities ....... 448,370 2,733 2.47 335,330 2,659 3.22
-------- --------
Noninterest-bearing liabilities:
Noninterest-bearing demand
deposits ........................... 89,557 68,036
Other liabilities ..................... 7,232 5,330
----------- -----------
Total liabilities .................. 545,159 408,696
Shareholders' equity ..................... 36,128 28,605
----------- -----------
Total liabilities and
shareholders' equity ................... $ 581,287 $ 437,301
=========== ===========
Net interest income ...................... $ 6,498 $ 4,663
======== ========
Net interest spread ...................... 4.88% 4.45%
Net interest margin ...................... 5.18% 4.88%
(1) Annualized
11
The following tables present the dollar amount of changes in interest
income and interest expense for the major components of interest-earning assets
and interest-bearing liabilities and distinguish between the increase (decrease)
related to outstanding balances and changes in interest rates for the three
month period ended March 31, 2003 compared with the same period ended March 31,
2002. For purposes of these tables, changes attributable to both rate and volume
have been allocated proportionately to the change due to volume and rate.
THREE MONTHS ENDED MARCH 31,
-------------------------------
2003 VS. 2002
-------------------------------
INCREASE (DECREASE)
DUE TO
--------------------
VOLUME RATE TOTAL
-------- -------- -------
(DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS:
Total loans ............................................. $ 2,166 $ (193) $ 1,973
Securities .............................................. 355 (409) (54)
Federal funds sold and other temporary investments ...... (10) -- (10)
-------- -------- -------
Total increase (decrease) in interest income ......... 2,511 (602) 1,909
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits ........................ 66 (228) (162)
Savings and money market accounts ....................... 27 (110) (83)
Time deposits ........................................... 268 (327) (59)
Federal funds purchased ................................. 6 (35) (29)
Company obligated mandatorily redeemable capital
securities of subsidiary trust ....................... -- -- --
Other borrowings ........................................ 329 (9) 320
Subordinated notes and debentures ..................... 87 -- 87
-------- -------- -------
Total increase (decrease) in interest expense ........ 783 (709) 74
-------- -------- -------
Increase in net interest income ............................ $ 1,728 $ 107 $ 1,835
======== ======== =======
Provision for Loan Losses. Provisions for loan losses are charged to
income to bring the Company's allowance for loan losses to a level deemed
adequate by management to absorb probable losses inherent in the loan portfolio.
For the three months ended March 31, 2003 compared with the same period in 2002,
the provision increased by $350,000 or 77.8% to $800,000. The allowance for loan
losses at March 31, 2003 was $3.6 million, compared with $3.3 million at
December 31, 2002. During 2002 and in the first quarter of 2003, management
increased the provisions made primarily due to growth in the loan portfolio and
changes in the Central Texas economy. At March 31, 2003, the ratio of loan loss
allowance to total loans was 1.00% compared with 0.85% at December 31, 2002.
Non-interest Income. Non-interest income for the three months ended
March 31, 2003 and 2002 was $2.6 million and $3.2 million, respectively, a
decrease of $576,000 or 18.3%. The decrease is primarily attributed to mortgage
servicing rights amortization and impairment charges, partially offset by
service charges on deposit accounts.
Mortgage servicing fees, net of amortization and impairment, were
$18,000 for the three months ended March 31, 2003 as compared with $939,000 for
the same period last year. The Company recorded an $817,000 impairment charge in
the first quarter of 2003 to reflect a decrease in the fair value of the
mortgage servicing rights asset. The decrease in fair value of capitalized
mortgage servicing rights is a result of the decline in the 10-year Treasury
rate, which produced historically low mortgage rates which caused an increase in
prepayments of mortgages serviced by the Company.
Non-interest Expense. For the three months ended March 31, 2003,
non-interest expense increased by $1.4 million or 26.4% to $6.7 million compared
with the same period in 2002. The increase in non-interest expense was due to
additional employee compensation and benefits, increased occupancy, data
processing and technology costs and depreciation and amortization of premises
and equipment, as more fully discussed below.
12
The following table presents, for the periods indicated, the major
categories in noninterest expense:
FOR THE THREE
MONTHS
ENDED MARCH 31,
-------------------
2003 2002
-------- --------
(DOLLARS IN THOUSANDS)
Employee compensation and benefits .......... $ 3,456 $ 2,972
Non-staff expenses:
Occupancy ................................ 330 306
Depreciation and amortization ............ 791 374
Data processing .......................... 237 158
Professional fees, consultants, and
contract labor ........................ 237 193
Advertising .............................. 136 142
Printing and supplies .................... 134 174
Telecommunications ....................... 128 120
Other non-interest expense ............... 1,267 909
-------- --------
Total non-staff expenses .............. 3,260 2,376
-------- --------
Total non-interest expense ............ $ 6,716 $ 5,348
======== ========
Employee compensation and benefits expense represents 51.5% of total
non-interest expense for the three months ended March 31, 2003. Employee
compensation and benefits expense for the three months ended March 31, 2003 and
2002 were $3.5 million and $3.0 million, respectively, an increase of $484,000
or 16.3%. The increase for the three month period ended March 31, 2003 was
primarily from the costs associated with the additional staff to meet loan
growth, the addition of three banking centers as a result of the Bryan-College
Station acquisition, and the addition of two loan production offices. Total
full-time equivalent (FTE) employees at March 31, 2003 and 2002 were 316 and
240, respectively.
For the three months ended March 31, 2003, non-staff expenses increased
by $884,000 or 37.2% compared with the same period in 2002. The increased
non-staff expense is attributed to higher occupancy expense from the addition of
the three former Bryan-College Station banking centers and two loan production
offices, and the upgrade of technology systems, as well as other operating
systems improvements.
FINANCIAL CONDITION
Loan Portfolio. Total loans, including loans held for sale, decreased
by $28.4 million or 7.4%, from $386.3 million at December 31, 2002 to $357.9
million at March 31, 2003. The decrease is primarily attributed to a decrease in
loans held for sale. Loans held for sale were $4.0 million at March 31, 2003, a
decrease of $29.7 million compared with $33.7 million at December 31, 2002.
Loans held for sale represent mortgage loans originated by the Company to be
sold to Fannie Mae. The Company retains the servicing on all loans sold to
Fannie Mae and records a mortgage servicing right.
The following table summarizes the loan portfolio of the Company by
type of loan at the dates indicated:
MARCH 31, 2003 DECEMBER 31, 2002
------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- -------
(DOLLARS IN THOUSANDS)
Commercial and industrial .... $ 63,071 17.6% $ 62,391 16.2%
Real estate:
1-4 residential ........... 155,574 43.5 149,471 38.7
Commercial ................ 64,255 18.0 62,014 16.0
Held for sale ............. 4,013 1.1 33,674 8.7
Other ..................... 8,684 2.4 18,269 4.7
Consumer and other, net ...... 62,265 17.4 60,496 15.7
-------- ------- -------- -------
Total loans .................. $357,862 100.0% $386,315 100.0%
======= =======
Allowance for loan losses .... 3,593 3,296
-------- --------
Net loans .............. $354,269 $383,019
======== ========
13
Nonperforming Assets. Nonperforming assets were $2.0 million at both
March 31, 2003 and December 31, 2002.
The Company generally places a loan on nonaccrual status and ceases to
accrue interest when loan payment performance is deemed unsatisfactory, unless
the loan is both well-secured and in the process of collection. Cash payments
received while a loan is classified as nonaccrual are recorded as a reduction of
principal as long as doubt exists as to collection.
The following table presents information regarding nonperforming assets
at the dates indicated:
MARCH 31, 2003 DECEMBER 31, 2002
-------------- -----------------
(DOLLARS IN THOUSANDS)
Nonaccrual loans ................................................ $ 876 $ 709
Accruing loans 90 days or more past due ......................... 757 960
Other real estate ............................................... 375 356
-------------- -----------------
Total nonperforming assets ................................ $ 2,008 $ 2,025
============== =================
Nonperforming assets to total assets ............................ 0.34% 0.34%
Nonperforming assets to total loans and other real estate ....... 0.56% 0.52%
Allowance for Loan Losses. The Company has several systems in place to
assist in maintaining the overall quality of its loan portfolio. The Company has
established underwriting guidelines to be followed at each of its banking
centers. The Company also monitors its delinquency levels for any negative or
adverse trends and particularly monitors credits that have a total exposure of
$75,000 or more.
The allowance for loan losses is a reserve established through charges
to earnings in the form of a provision for loan losses. The Company utilizes a
model to determine the specific and general portions of the allowance for loan
losses. Through the loan review process, management assigns one of four loan
grades to each loan, according to payment history, collateral values and
financial condition of the borrower. Specific reserves are allocated for loans
assigned to a grade of "watch" or below, meaning that management has determined
that deterioration in a loan has occurred. The percentage of the specific
allocation for each loan is based on the risk elements attributable to that
particular loan. In addition, a general allocation is made for all loans in an
amount determined based on general economic conditions, historical loan loss
experience, loan growth within a category, amount of past due loans and peer
averages. Management maintains the allowance based on the amounts determined
using the procedures set forth above.
For the three months ended March 31, 2003, net loan charge-offs were
$503,000 or 0.13% of average loans outstanding compared with $1.1 million or
0.34% for the year ended December 31, 2002. At March 31, 2003 and December 31,
2002, the allowance for loan losses aggregated $3.6 million and $3.3 million, or
1.00% and 0.85% of total loans, respectively. At March 31, 2003, the allowance
for loan losses as a percentage of nonperforming loans was 220.0% compared with
197.5% at December 31, 2002.
14
The following table presents for the periods indicated an analysis of
the allowance for loan losses and other related data:
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 2003 DECEMBER 31, 2002
------------------ -----------------
(DOLLARS IN THOUSANDS)
Average total loans outstanding ................................. $ 378,671 $ 319,151
========== ==========
Total loans outstanding at end of period ........................ $ 357,862 $ 386,315
========== ==========
Allowance for loan losses at beginning of period ................ 3,296 1,754
Provision for loan losses ....................................... 800 1,900
Balance acquired in the Bryan-College Station acquisition ....... -- 740
Charge-offs:
Commercial and industrial .................................... (280) (401)
Real estate .................................................. (55) (117)
Consumer ..................................................... (509) (1,528)
Other ........................................................ -- (6)
---------- ----------
Total charge-offs ......................................... (844) (2,052)
---------- ----------
Recoveries:
Commercial and industrial .................................... 53 261
Real estate .................................................. 51 36
Consumer ..................................................... 236 603
Other ........................................................ 1 54
---------- ----------
Total recoveries .......................................... 341 954
---------- ----------
Net loan charge-offs ............................................ (503) (1,098)
---------- ----------
Allowance for loan losses at end of period ...................... $ 3,593 $ 3,296
========== ==========
Ratio of allowance to end of period total loans ................. 1.00% 0.85%
Ratio of net loan charge-offs to average total loans ............ 0.13% 0.34%
Ratio of allowance to end of period nonperforming loans ......... 220.02% 197.48%
Securities. At March 31, 2003, the securities portfolio totaled $163.6
million, reflecting an increase of $31.5 million or 23.8% from $132.1 million at
December 31, 2002. During the three months ended March 31, 2003, the Company
purchased $76.6 million in investment securities. Included in this amount, the
Company originated $54.7 million in mortgage loans that were sold to Fannie Mae
in various mortgage pools and reacquired by the Company as investment
securities. Additionally, the Company sold $38.6 million of securities in an
effort to reposition the portfolio for current economic conditions and to
provide funding for loan growth. The Company also received $7.1 million in
maturities and principal paydowns on investment securities.
Other Assets. At March 31, 2003, other assets totaled $12.0 million,
reflecting a decrease of $96,000 or 0.8% from $12.1 million at December 31,
2002.
Deposits. At March 31, 2003, total deposits were $474.6 million, an
increase of $21.7 million or 4.8% from $452.9 million at December 31, 2002. The
increase is primarily due to internal growth. Non-interest-bearing deposits at
March 31, 2003 increased by $10.4 million or 12.6% to $92.7 million from $82.3
million at December 31, 2002. Interest-bearing deposits at March 31, 2003
increased by $11.3 million or 3.0% to $381.9 million from $370.6 million at
December 31, 2002. The Company's ratios of non-interest-bearing demand deposits
to total deposits as of March 31, 2003 and December 31, 2002 were 19.5% and
18.2%, respectively.
Borrowings and Federal Funds Purchased. Borrowings consist of
short-term and long-term advances from FHLB and advances on the revolving credit
line with a bank. Federal funds purchased decreased $12.7 million to $7.0
million at March 31, 2003 from $19.7 million at December 31, 2002. Borrowings
decreased $1.8 million to $61.1 million at March 31, 2003 from $62.9 million at
December 31, 2002. The maturity dates for the FHLB borrowings range from the
years 2003 to 2013 and have interest rates from 2.65% to 5.91%. Additionally,
the Company had three unsecured lines of credit with correspondent banks
totaling $23.0 million at March 31, 2003 and $10.3 million at December 31, 2002.
In connection with the acquisition of Bryan-College Station, the
Company assumed $3.6 million in subordinated debentures. The debentures carried
an interest rate of 11.5% and were redeemed on March 31, 2003.
15
At March 31, 2003, the Company has $9.3 million borrowed on its $10.0
million revolving credit line with a bank. The funds were used to redeem the
outstanding shares of Series A preferred stock issued by Bryan-College Station,
costs associated with becoming a public reporting company, a capital injection
into State Bank, and the redemption of the subordinated debentures.
Liquidity. Liquidity involves the Company's ability to raise funds to
support asset growth or reduce assets to meet deposit withdrawals and other
payment obligations, to maintain reserve requirements and otherwise to operate
the Company on an ongoing basis. The Company's liquidity needs are primarily met
by growth in core deposits. Although access to purchased funds from
correspondent banks is available and has been utilized on occasion to take
advantage of investment opportunities, the Company does not rely on these
external funding sources. The Company maintains investments in liquid assets
based upon management's assessment of cash needs, expected deposit flows,
objectives of its asset/liability management program, availability of federal
funds or FHLB advances, and other available liquid assets. Several options are
available to increase liquidity, including sale of investment securities,
increasing deposit marketing activities, and borrowing from the FHLB or
correspondent banks. The cash and federal funds sold position, supplemented by
amortizing investments along with payments and maturities within the loan
portfolio, have historically created an adequate liquidity position.
Asset liquidity is provided by cash and assets which are readily
marketable or which will mature in the near future. At March 31, 2003, the
Company had cash and cash equivalents of $22.3 million, up from $20.6 million at
December 31, 2002. The increase is mainly attributed to the increase in deposits
partially offset by the reduction in federal funds purchased.
The Company views time deposits as a stable means of supporting loan
growth. The Company believes, based on its historical experience, that its large
time deposits have core-type characteristics. The Company anticipates that this
source of funding will continue to sustain a portion of the Company's asset
growth in the future.
Capital Resources. Shareholders' equity increased from $35.4 million at
December 31, 2002 to $36.8 million at March 31, 2003, an increase of $1.4
million or 4.0%. The increase was primarily due to a net addition to undivided
profits of $1.1 million and a $494,000 improvement in unrealized securities
gains, partially offset by dividends of $265,000.
The following table provides a comparison of the Company's and the
State Bank's leverage and risk-weighted capital ratios as of March 31, 2003 to
the minimum and well-capitalized regulatory standards:
TO BE WELL
MINIMUM CAPITALIZED
REQUIRED FOR UNDER PROMPT
CAPITAL CORRECTIVE
ADEQUACY ACTION ACTUAL RATIO AT
PURPOSES PROVISIONS MARCH 31, 2003
------------ ------------ ---------------
THE COMPANY
Leverage ratio ........................... 4.00% (1) N/A 5.52%
Tier 1 risk-based capital ratio .......... 4.00% N/A 8.32%
Risk-based capital ratio ................. 8.00% N/A 9.27%
THE BANK
Leverage ratio ........................... 4.00% (2) 5.00% 6.73%
Tier 1 risk-based capital ratio .......... 4.00% 6.00% 10.17%
Risk-based capital ratio ................. 8.00% 10.00% 11.12%
- ----------
(1) The Federal Reserve Board may require the Company to maintain a leverage
ratio above the required minimum.
(2) The FDIC may require the Bank to maintain a leverage ratio above the
required minimum.
16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There have been no material changes since December 31, 2002. For more
information regarding quantitative and qualitative disclosures about market
risk, please refer to the Company's Annual Report on Form 10-K as of and for the
year ended December 31, 2002, and in particular, Item 7 "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Interest Rate
Sensitivity and Market Risk."
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of disclosure controls and procedures. Within 90 days prior
to the date of this report, the Company carried out an evaluation, under the
supervision and with the participation of our management, including the Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures. Based
on this evaluation, the Company's Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures (as
defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of
1934 (the "Exchange Act")) are effective to ensure that information required to
be disclosed by the Company in reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported to the Company's
management within the time periods specified in the Securities and Exchange
Commission's rules and forms.
Changes in internal controls. Subsequent to the date of the Company's
most recent evaluation, there were no significant changes in the Company's
internal controls or in other factors that could significantly affect the
Company's disclosure controls and procedures, and there were no corrective
actions with regard to significant deficiencies and material weaknesses based on
such evaluation.
17
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6A. EXHIBITS
EXHIBIT IDENTIFICATION
NUMBER OF EXHIBIT
99.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
ITEM 6B. REPORTS ON FORM 8-K
None
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
By: /s/ L. Don Stricklin
-------------------------------------
Date: 5/13/2003 L. Don Stricklin
President and Chief Executive Officer
(principal executive officer)
Date: 5/13/2003 By: /s/ Thomas N. Adams
-------------------------------------
Thomas N. Adams
Executive Vice President and
Chief Financial Officer
(principal financial officer/
principal accounting officer)
19
CERTIFICATIONS
I, L. Don Stricklin, President and Chief Executive Officer of the registrant,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Texas United
Bancshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect the internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: 5/13/2003
/s/ L. Don Stricklin
- ---------------------------------------
L. Don Stricklin
President and Chief Executive Officer
20