As filed with the Securities and Exchange Commission on May 9, 2000
Registration No. 333-33102
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
to the
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CBCT BANCSHARES, INC.
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(Exact name of registrant as specified in its charter)
Maryland 6035 Applied For
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(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
312 Main Street, Smithville, Texas 78957-2035
(512) 237-2482
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(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
Brad M. Hurta, President
CBCT Bancshares, Inc.
312 Main Street
Smithville, Texas 78957-2035
(512) 237-2482
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Please send copies of all communications to:
Martin L. Meyrowitz, P.C.
Beth A. Freedman, Esq.
SILVER, FREEDMAN & TAFF, L.L.P.
(a limited liability partnership including professional corporations)
1100 New York Avenue, NW
Seventh Floor, East Tower
Washington, DC 20005-3934
(202) 414-6100
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Aggregate Amount of
Securities to be Registered Registered(1) Per Share (1) Offering Price(1) Registration Fee
Common Stock, par value
$.01 per share 304,175 shares $10.00 $3,041,750 $803.00 (1)
<FN>
(1) Estimated solely for the purpose of calculating the registration fee.
</FN>
</TABLE>
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS
Up to 281,031 Shares of Common Stock
CBCT Bancshares, Inc.
(Proposed Holding Company for Community Bank of Central Texas, ssb)
Community Bank is converting from the mutual to the stock form of
organization. As part of the conversion, Community Bank will issue all of its
common stock to CBCT Bancshares, Inc. CBCT Bancshares, Inc. has been formed to
be the holding company for Community Bank.
================================================================================
TERMS OF THE OFFERING
Maximum, as
Minimum Maximum adjusted(1)
---------- ---------- -----------
Per Share Price.............................. $ 10.00 $ 10.00 $ 10.00
Number of Shares............................. 180,625 244,375 281,031
Underwriting Commission and Other Expenses... $ 380,000 $ 380,000 $ 380,000
Net Proceeds to CBCT Bancshares, Inc......... $1,426,250 $2,063,750 $2,430,313
Net Proceeds Per Share....................... $ 7.90 $ 8.45 $ 8.65
(1) With the approval of the FDIC and the Texas Savings and Loan
Department, CBCT Bancshares may sell up to an additional 36,656 shares
of common stock in the conversion at $10.00 per share without the
resolicitation of subscribers.
Please refer to "Risk Factors" beginning on page 13 of this document.
Keefe, Bruyette & Woods, Inc. will use its best efforts to assist CBCT
Bancshares, Inc. in selling at least the minimum number of shares but does not
guarantee that this number will be sold. The minimum number of shares an
individual investor may purchase is 25 shares or $250.
The offering to depositors and borrowers of Community Bank will end at
12:00 Noon, Smithville, Texas time, on [_____________], 2000. CBCT Bancshares,
Inc. will hold all funds of subscribers in an interest-bearing savings account
at Community Bank until the conversion is completed or terminated. Funds will be
returned promptly with interest if the conversion is terminated.
These securities are not deposits or accounts and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
Neither the Securities and Exchange Commission, the Federal Deposit
Insurance Corporation, the Texas Savings and Loan Department, nor any other
federal agency or state securities regulator has approved or disapproved these
securities or determined if this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
For information on how to subscribe, call the Stock Information Center
at (512) [___]-[____].
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KEEFE, BRUYETTE & WOODS, INC.
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[__________________], 2000
<PAGE>
[MAP of Registrant's market area to be produced here.]
<PAGE>
SUMMARY
This summary highlights selected information from this document and may
not contain all the information that is important to you. To understand the
stock offering fully, you should read this entire document carefully, including
the financial statements and the notes to the financial statements.
The Companies:
CBCT Bancshares, Inc.
312 Main Street
Smithville, Texas 78957
CBCT Bancshares, Inc. will be the holding company for Community Bank
when our conversion to stock form is complete. CBCT Bancshares, Inc. was formed
in March 2000. It has not engaged in any business.
After completing the conversion we will appear as shown below:
PUBLIC STOCKHOLDERS
-----------------------------
|
|
100% of the common stock
-----------------------------
CBCT BANCSHARES, INC.
-----------------------------
|
|
100% of the common stock
-----------------------------
COMMUNITY BANK
-----------------------------
The principal executive offices of CBCT Bancshares, Inc. will be
located at 312 Main Street, Smithville, Texas 78957, and its telephone number
will be (512) 237-2482.
Community Bank of Central Texas, ssb
312 Main Street
Smithville, Texas 78957
Community Bank is a Texas chartered mutual savings bank. At December
31, 1999, we had total assets of $42.8 million, deposits of $32.4 million and
total equity of $3.0 million. We are changing our structure by becoming a stock
savings bank.
We are a community-oriented savings bank serving primarily Bastrop
County in Texas through its main office located in Smithville, Texas. We
emphasize residential mortgage lending, primarily originating one-to four-family
mortgage loans. We also originate commercial real estate loans and a wide
variety of consumer loans.
The executive offices of Community Bank are located at 312 Main Street,
Smithville, Texas 78957, and its telephone number is (512) 237-2482.
3
<PAGE>
The Stock Offering
We are converting to stock form and offering common stock to the public
primarily to better allow us to grow through expanded operations, as well as
through increased branching and acquisitions. The stock form will also give us
more flexibility to increase our capital position. See "Community Bank's
Conversion - Our Reasons for the Corporate Change."
We are offering between 180,625 and 244,375 shares of CBCT Bancshares,
Inc. at $10.00 per share. Because of changes in financial market conditions
before we complete the conversion, the number of shares we offer may increase to
281,031 shares with the approval of the Texas Savings and Loan Department and
the Federal Deposit Insurance Corporation and without any notice to you. If so,
you will not have the chance to change or cancel your stock order.
Keefe, Bruyette & Woods, Inc. will assist us in selling the stock. For
further information about Keefe, Bruyette & Woods, Inc.'s role in the offering,
see "Community Bank's Conversion - Marketing Arrangements."
How We Determined the Offering Range and the $10.00 Price Per Share
The independent appraisal by Ferguson & Company, dated as of April 19,
2000, established the offering range. This appraisal was based on our financial
condition and operations and the effect of the additional capital raised in the
conversion. The $10.00 price per share was determined by our board of directors
and is the price most commonly used in stock offerings involving conversions of
mutual savings institutions. Ferguson & Company will update the appraisal before
the completion of the conversion.
Terms of the Offering
We are offering the shares of common stock to those with subscription
rights in the following order of priority:
(1) Depositors with us on September 30, 1998.
(2) The CBCT Bancshares, Inc. employee stock ownership plan.
(3) Depositors with us on March 31, 2000.
(4) Other members of Community Bank on [____________], 2000.
(5) Community Bank's directors, officers and employees.
Shares of common stock not subscribed for in the subscription offering
will be offered to the general public in a direct community offering and, if
necessary, a public offering. We reserve the right, in our sole discretion, to
accept or reject any orders to purchase shares of common stock received in the
direct community offering and the public offering. See pages [___] to [___].
4
<PAGE>
Limitations on the Purchase of Common Stock in the Conversion
(1) The minimum purchase is 25 shares.
(2) The maximum purchase by any person including related persons
or persons acting together in the offering is $100,000, which
equals 10,000 shares.
Termination of the Offering
The subscription offering will end at Noon, Smithville, Texas time on
[__________], 2000. If all of the shares are not subscribed for in the
subscription offering and we do not get orders for the remaining shares by
[____________], 2000, we will either:
(1) promptly return any payment you made to us, with interest, or
cancel any withdrawal authorization you gave us; or
(2) extend the offering, if allowed, and give you notice of the
extension and of your rights to cancel or change your order.
If we extend the offering and you do not respond to the
notice, then we will cancel your order and return your
payment, with interest, or cancel any withdrawal authorization
you gave us. The offering must be completed or terminated by
[_____________], 2001.
How We Will Use the Proceeds Raised From the Sale of Common Stock
We intend to use the net proceeds received from the stock offering,
assuming completion of the offering at the maximum of the estimated offering
range, as follows:
$ 934,125 Retained by CBCT Bancshares, Inc. and initially placed
in short-term investments for general corporate purposes
195,500 Employee stock ownership plan loan
934,125 Used to buy the stock of Community Bank
----------
$2,063,750 Net proceeds from stock offering
==========
We intend to use the proceeds at Community Bank for future lending and
investment, in addition to general corporate purposes.
We Currently Intend to Pay a Cash Dividend After Completion of the Stock
Offering
We currently plan to pay cash dividends after completion of the stock
offering. However, the amount and timing of any dividends has not yet been
determined. Based on our earnings history, other than the March 31, 2000
quarter, and the proceeds from the conversion, we believe we will have the
financial ability to pay dividends, but future dividends are not guaranteed. See
page [__].
5
<PAGE>
Benefits to Management from the Offering
We intend to establish the CBCT Bancshares, Inc. employee stock
ownership plan which will purchase 8% of the shares sold in the conversion. A
loan from CBCT Bancshares, Inc. to the plan, funded by a portion of the proceeds
from this offering, will be used to purchase these shares. If shares are not
available for purchase by the employee stock ownership plan in the subscription
offering, then the plan will purchase the shares in the open market. The
employee stock ownership plan will provide a retirement benefit to all employees
eligible to participate in the plan.
We also intend to adopt a stock option plan and a restricted stock plan
for the benefit of directors, officers and employees, subject to shareholder
approval. If we adopt the restricted stock plan, some of these individuals will
be awarded stock at no cost to them. As a result, both the employee stock
ownership plan and the restricted stock plan will increase the voting control of
management without a cash outlay.
The following table presents the total value of the shares of common
stock, at the maximum of the offering range, which would be acquired by the
employee stock ownership plan and the total value of all shares to be available
for award and issuance under the restricted stock plan. The table assumes that
the value of the shares is $10.00 per share. The table does not include a value
for the options because the price paid for the option shares will be equal to
the fair market value of the common stock on the day that the options are
granted. As a result, financial gains can be realized under an option only if
the market price of common stock increases.
Percentage of
Estimated Shares Issued
Value of Shares in the Offering
Employee Stock Ownership Plan......... $195,500 8.0%
Restricted Stock Awards............... 97,750 4.0
Stock Options......................... --- 10.0
-------- ----
Total............................ $293,250 22.0%
====
In addition, upon completion of the conversion, we intend to enter into
an employment agreement with Brad M. Hurta, president and chief executive
officer of Community Bank. The employment agreement is designed to assist us in
maintaining a stable and competent management team after the conversion. The
employment agreement will have a term of three years and provide for an annual
base salary in an amount not less than this individual's current salary. Mr.
Hurta currently has a base salary of $70,000.
For a further discussion of benefits to management, see "Management."
How to Purchase Common Stock
Note: Once we receive your order, you cannot cancel or change it
without our consent. If CBCT Bancshares, Inc. intends to sell fewer than 180,625
shares or more than 281,031
6
<PAGE>
shares, all subscribers will be notified and given the opportunity to change or
cancel their orders. If you do not respond to this notice, we will return your
funds promptly with interest.
If you want to subscribe for shares you must complete an original stock
order form and send it, together with full payment or withdrawal authorization,
to Community Bank in the postage-paid envelope provided. You must sign the
certification that is part of the stock order form. We must receive your stock
order form before the end of the offering period.
You may pay for shares in any of the following ways:
o By cash, if delivered in person to the home office of
Community Bank.
o By check or money order made payable to CBCT Bancshares, Inc.
o By authorizing a withdrawal from an account at Community Bank.
To use funds in an Individual Retirement Account at Community
Bank, you must transfer your account to a self-directed
account with an unaffiliated institution or broker. Please
contact the conversion center at least one week before the end
of the offering for assistance.
We will pay interest on your subscription funds at the rate Community
Bank pays on passbook accounts from the date it receives your funds until the
conversion is completed or terminated. All funds authorized for withdrawal from
deposit accounts with Community Bank will earn interest at the applicable
account rate until the conversion is completed, currently 2.5%. There will be no
early withdrawal penalty for withdrawals from certificates of deposit used to
pay for stock.
Stock Information Center
If you have any questions regarding the offering or our conversion to
stock form, please call the Stock Information Center at (512) [___]-[____].
Subscription Rights
Subscription rights are not allowed to be transferred and we will act
to ensure that you do not transfer your subscription rights. We will not accept
any stock orders that we believe involve the transfer of subscription rights.
Important Risks in Owning CBCT Bancshares, Inc.'s Common Stock
Before you decide to purchase stock, you should read the "Risk Factors"
section on pages 13 to 15 of this document.
7
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
The summary information presented below under "Selected Financial
Condition Data" and "Selected Operations Data" for, and as of the end of, each
of the years ended December 31 is derived from our audited consolidated
financial statements. The following information is only a summary and you should
read it in conjunction with our financial statements and notes beginning on page
F-2.
At December 31,
--------------------------
1999 1998 1997
-------- -------- --------
(Dollars in Thousands)
Selected Financial Condition Data:
Total assets $42,833 $39,829 $33,579
Loans receivable, net 21,693 20,890 21,370
Securities available for sale, at fair value:
Mortgage-backed securities 15,898 7,031 2,497
Other securities 379 445 290
Securities to be held to maturity, at cost:
Mortgage-backed securities --- 5,838 6,567
Other securities --- 175 205
Deposits 32,354 32,138 30,221
Federal Home Loan Bank borrowings 7,392 4,000 ---
Total equity 2,999 3,343 3,027
Years Ended December 31,
--------------------------
1999 1998 1997
-------- -------- --------
(Dollars in Thousands)
Selected Operations Data:
Interest and dividend income $ 3,050 $ 2,589 $ 2,525
Interest expense (1,902) (1,560) (1,484)
------- ------- -------
Net interest income 1,148 1,029 1,041
Provision for loan losses --- --- (3)
------- ------- -------
Net interest income after loan losses 1,148 1,029 1,038
------- ------- -------
Other operating income:
Service charges and fees 113 83 71
Net securities gains 76 30 ---
Net gains on sales of loans 51 51 ---
Gain on sale of other real estate owned --- --- ---
------- ------- -------
Total other operating income 240 164 71
------- ------- -------
Other operating expenses:
Compensation and benefits (454) (349) (366)
Occupancy and equipment expense (183) (138) (103)
Other operating expenses (512) (403) (378)
------- ------- -------
Total other operating expenses (1,149) (890) (847)
------- ------- -------
Income before income taxes 239 303 262
Income tax expense (71) (91) (86)
------- ------- -------
Net income $ 168 $ 212 $ 176
======= ======= =======
8
<PAGE>
Years Ended December 31,
--------------------------
1999 1998 1997
-------- -------- --------
Key Operating Ratios and Other Data:
Performance ratios:
Return on assets (1) 0.39% 0.60% 0.52%
Return on equity (2) 5.29% 6.69% 5.81%
Net interest margin (3) 2.79% 3.11% 3.21%
Operating expense divided by average assets 2.65% 2.52% 2.49%
Average interest-earning assets divided by
average interest-bearing liabilities 104% 106% 107%
Quality ratios:
Non-performing assets divided by total assets 0.16% 0.29% 0.13%
Allowance for loan losses to
non-performing loans 293% 174% 374%
Allowance for loan losses to gross loans 0.91% 0.86% 0.73%
Capital ratios:
Equity to total assets at end of period 7.00% 8.39% 9.01%
Average equity to average assets 7.33% 9.01% 8.95%
Tier 1 risk-based capital ratio 15.00% 16.70% 16.90%
Total risk-based capital ratio 15.90% 18.70% 17.80%
Other data:
Number of full service offices 1 1 1
- ----------------------------
(1) Ratio of net income to average total assets
(2) Ratio of net income to average equity
(3) Net interest income divided by average earning assets
9
<PAGE>
RECENT FINANCIAL DATA
The following table sets forth selected consolidated financial data of
Community Bank at and for the periods indicated. Consolidated financial data at
March 31, 2000 and for the three months ended March 31, 2000 and 1999 are
unaudited. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation have been included.
The results of operations and other data for the three months ended March 31,
2000 are not necessarily indicative of the results of operations for the fiscal
year ending December 31, 2000.
March 31, December 31,
2000 1999
----------- -------------
(in thousands)
Selected Financial Condition Data:
Total assets $40,656 $42,833
Cash and cash equivalents 15,068 2,253
Loans receivable, net 22,688 21,693
Securities available for sale, at fair value:
Mortgage-backed securities 33 15,898
Other securities 365 379
Securities to be held to maturity, at cost:
Mortgage-backed securities --- ---
Other securities --- ---
Deposits 30,432 32,354
Federal Home Loan Bank borrowings 7,157 7,392
Total equity 2,809 2,999
March 31,2000 March 31,1999
------------- -------------
(in thousands)
Selected Operations Data:
Interest and dividend income $ 757 $ 692
Interest expense (437) (437)
------
Net interest income 320 255
Provision for loan losses (7) ---
------ ------
Net interest income after loan losses 313 255
------ ------
Other operating income (losses):
Service charges and fees 30 27
Net securities gains (losses) (866) ---
Net gains on sales of loans 5 25
Gain on sale of other real estate owned --- ---
------ ------
Total other operating income (losses) (831) 52
------ ------
Operating expenses:
Compensation and benefits (138) (100)
Occupancy and equipment expense (65) (39)
Other operating expenses (119) (105)
------ ------
Total other operating expenses (322) (244)
------ ------
Income before income taxes (840) 63
Income tax benefit (expense) 293 (20)
------ ------
Net income (loss) $ (547) $ 43
====== ======
10
<PAGE>
March 31,2000 March 31,1999
------------- -------------
(in thousands)
Key Operating Ratios and Other Data:
Performance ratios (for the quarter, annualized):
Return on assets (1) (5.26)% 0.43%
Return on equity (2) (74.13)% 5.15%
Net interest margin (3) 3.14 % 2.69%
Operating expense divided by average assets 3.10 % 2.46%
Average interest-earning assets divided by
average interest-bearing liabilities 105 % 103%
Quality ratios (as of the end of each period):
Non-performing assets divided by total assets 0.01 % 0.26%
Allowance for loan losses to
non-performing loans 20,500 % 134%
Allowance for loan losses to gross loans 0.90 % 0.77%
Capital ratios (as of the end of each period):
Equity to total assets at end of period 6.91 % 7.45%
Average equity to average assets 6.58 % 6.96%
Tier 1 risk-based capital ratio 12.54 % 14.96%
Total risk-based capital ratio 13.96 % 16.57%
- ----------------------------
(1) Ratio of net income to average total assets
(2) Ratio of net income to average equity
(3) Net interest income divided by average earning assets
11
<PAGE>
MANAGEMENT'S DISCUSSION OF RECENT RESULTS
Financial Condition
Total assets decreased by approximately $2.2 million, to $40.656
million at March 31, 2000 from $42.833 million at December 31, 1999. The
decrease in assets consisted of a decrease in investment securities and
interest-bearing deposits in banks partially offset by an increase in loans.
The decrease in investment securities, to $398,000 from $16.277 million,
occurred in the first quarter of 2000 as most investment securities owned were
sold to take advantage of a restructuring opportunity in the investment
portfolio. The restructuring was an asset/liability management decision designed
to improve future interest rate risk exposure. Proceeds from the sales of
investment securities were being temporarily held in interest-bearing
correspondent bank accounts at the end of the quarter. The increase in loans, to
$22.7 million from $21.7 million, was attributed to the continued growth of
loan demand in the Bank's market areas.
The allowance for loan losses at March 31, 2000 increased to $205,000,
or 0.90% of total loans, from the December 31, 1999 amount of $198,000, or 0.91%
of total loans. The increase in dollar amount was due to loan loss provisions
exceeding loan charge-offs during the period. Nonperforming loans were $1,000 at
March 31, 2000, compared to $68,000 at December 31, 1999.
Total deposits decreased by approximately $1.9 million, to $30.4
million at March 31, 2000 from $32.4 million at December 31, 1999. The decrease
was attributed to a reduction in the interest rate paid on deposits during the
first quarter of 2000, resulting in an outflow of higher interest-bearing
deposits. Federal Home Loan Bank advances decreased by $235,000 as a result of
repayments on the advances.
Total equity of the Bank decreased by $190,000, to $2.8 million at
March 31, 2000 from $3.0 million at December 31, 1999. The decrease resulted
primarily from realized losses on sales of investment securities during the
first quarter of 2000 exceeding the unrealized losses on available for sale
securities deducted from equity at the end of the year, due to an increase in
market rates of interest.
Results of Operations
Net interest income for the quarter ended March 31, 2000 was $313,000,
compared to $255,000 for the quarter ended March 31, 1999. The increase was
attributed to higher yields and volumes of loans.
Other operating income for the quarter ended March 31, 2000 included an
$866,000 realized loss on the sale of available for sale investment securities
during the first quarter of 2000, with no corresponding loss in the March 31,
1999 quarter.
Operating expenses for the quarter ended March 31, 2000 were $322,000,
compared to $244,000 for the quarter ended March 31, 1999. Compensation expense
increased as a result of increased personnel. Occupancy and equipment expenses
also increased as a result of increased depreciation charges for computer and
other equipment.
12
<PAGE>
For the quarter ended March 31, 2000, Community Bank had a net loss of
$547,000, compared to net income of $43,000 for the quarter ended March 31,
1999. The loss for the March 31, 2000 quarter was primarily due to the realized
losses on the sale of investment securities during that quarter.
RISK FACTORS
You should consider these risk factors, in addition to the other
information in this prospectus, before deciding whether to make an investment in
this stock.
Rising interest rates may hurt our profits.
To be profitable, we have to earn more money in interest we receive on
loans and investments we make than we pay to our depositors and lenders in
interest. As of December 31, 1999, our one-year cumulative interest rate
sensitivity gap as a percentage of total assets was a negative 46.03%, which
generally means if interest rates rise, our net interest income could be reduced
because interest paid on interest-bearing liabilities, including deposits and
borrowings, could increase more quickly than interest received on
interest-earning assets, including loans and mortgage-backed and investment
securities. In addition, rising interest rates may hurt our income because they
may reduce the demand for loans and the value of our mortgage-related and
investment securities. In the alternative, if interest rates decrease, our net
interest income would increase. For a further discussion of how changes in
interest rates could impact us, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Asset and Liability Management
and Market Risk."
After this offering, our return on equity will be low compared to other
companies and our compensation expenses will increase. This could negatively
impact the price of our stock.
The proceeds we will receive from the sale of our common stock will
significantly increase our capital and it will take us time to fully use this
capital in our business operations. Our compensation expenses will also increase
because of the costs associated with the employee stock ownership and
stock-based incentive plans. Therefore, we expect our return on equity to be
below our historical level and less than our regional and national peers. This
low return on equity could hurt our stock price. We cannot guarantee when or if
we will achieve returns on equity that are comparable to industry peers. For
further information regarding pro forma income and expenses, see "Pro Forma
Data."
Our loan portfolio possesses increased risk due to our substantial number of
consumer, construction and commercial real estate and commercial business loans,
which could increase the level of our provision for loan losses.
Our consumer, construction and commercial real estate, and commercial
business loans accounted for more than one-third of our total loan portfolio as
of December 31, 1999. Generally, we consider these types of loans to involve a
higher degree of risk compared to first mortgage loans on one- to four-family,
owner occupied residential properties. In addition, we plan to increase our
emphasis on commercial real estate and commercial business lending. Because of
our planned increased emphasis on and increased investment in commercial real
13
<PAGE>
estate and commercial business loans, we may determine it necessary to increase
the level of our provision for loan losses. Increased provisions for loan losses
would hurt our profits. For further information concerning the risks associated
with consumer, multi-family and commercial real estate and commercial business
loans, see "Business of the Bank - Lending Activities" and "--Asset Quality."
We intend to grant stock options and restricted stock to the board and
management following the conversion which could reduce your ownership interest.
If approved by a vote of the shareholders, we intend to establish a
stock option plan with a number of shares equal to 10% of the shares issued in
the conversion and a restricted stock plan with a number of shares equal to 4%
of the shares issued in the conversion, worth approximately $97,750 at the
purchase price and assuming the maximum of the estimated offering range, for the
benefit of directors, officers and employees of CBCT Bancshares, Inc. and
Community Bank. Awards under these plans will reduce the ownership interest of
all stockholders. For further discussion regarding these plans, see "Pro Forma
Data" and "Management - Benefits - Other Stock Benefit Plans."
The amount of common stock we will control, our articles of incorporation and
bylaws and state and federal statutory provisions could discourage hostile
acquisitions of control, which can prevent shareholders from receiving a premium
on their shares.
Our board of directors and executive officers intend to purchase
approximately 18.8% of our common stock at the maximum of the estimated offering
range. These purchases, together with the purchase of 8% of the shares by the
employee stock ownership plan, as well as the potential acquisition of common
stock through the proposed stock option plan and restricted stock plan will
result in significant inside ownership of CBCT Bancshares, Inc. This inside
ownership and provisions in our articles of incorporation and bylaws may have
the effect of discouraging attempts to acquire CBCT Bancshares, Inc., a proxy
contest for control of CBCT Bancshares, Inc., the assumption of control of CBCT
Bancshares, Inc. by a holder of a large block of common stock and the removal of
CBCT Bancshares, Inc.'s management, all of which may prevent shareholders from
receiving a premium on their shares. See "Restrictions on Acquisition of CBCT
Bancshares, Inc. and Community Bank."
Holders of CBCT Bancshares, Inc. common stock may not be able to sell their
shares when desired as a result of the likely possibility that a liquid trading
market will not develop, and even if a liquid trading market does develop, they
may not be able to sell for $10.00 or more per share.
We have never issued common stock to the public. Consequently, there is
no established market for the common stock. We cannot predict whether a liquid
trading market in shares of CBCT Bancshares, Inc.'s common stock will develop or
how liquid that market might become. However, given the amount of shares being
offered, it is unlikely that a liquid trading market will develop. Persons
purchasing shares may not be able to sell their shares when they desire if a
liquid trading market does not develop or sell them at a price equal to or above
$10.00 per share even if a liquid trading market develops.
14
<PAGE>
Management will have substantial discretion over investment of the offering
proceeds and may make investments with which you disagree.
The net offering proceeds to CBCT Bancshares, Inc. are estimated to
range from $1.4 million to $2.1 million after it uses a portion of its proceeds
to capitalize a subsidiary it intends to create which will lend funds to
Community Bank of Central Texas's employee stock ownership plan to purchase
shares of common stock. CBCT Bancshares intends to use these funds for general
business purposes, giving management substantial discretion over their
investment. You may disagree with investments that management makes. See "Use Of
Proceeds."
CBCT BANCSHARES, INC.
CBCT Bancshares, Inc. was incorporated under Maryland law to hold all
of the stock of Community Bank. CBCT Bancshares, Inc. has received Federal
Reserve Board approval to become a bank holding company and is subject to
regulation by that agency. After we complete the conversion, CBCT Bancshares,
Inc. will be a bank holding company, which means that it will own a banking
institution. Bank holding companies are limited to banking and financial
services-related activities. CBCT Bancshares, Inc. will have no significant
assets other than all of the outstanding shares of common stock of Community
Bank, the net proceeds it keeps and its loan to the CBCT Bancshares, Inc.
employee stock ownership plan. CBCT Bancshares, Inc. will have no significant
liabilities.
Initially, the management of CBCT Bancshares, Inc. and Community Bank
will be substantially the same. CBCT Bancshares, Inc. intends to utilize the
support staff and offices of Community Bank from time to time and will pay
Community Bank for these services. If CBCT Bancshares, Inc. expands or changes
its business in the future, we may hire our own employees. See "How We are
Regulated - CBCT Bancshares, Inc." See "How We Intend to Use the Proceeds."
We believe the proposed holding company structure will give us more
flexibility to change our business activities by forming new companies which we
own, or by buying other companies, including other financial institutions and
financial services companies. We do not have any current plans to do these
things. CBCT Bancshares, Inc. intends to pay for its business activities with
the proceeds it keeps from the conversion and the money we earn from investing
the proceeds, as well as from dividends from Community Bank. See "Our Policy
Regarding Dividends."
COMMUNITY BANK OF CENTRAL TEXAS, ssb
Community Bank is a Texas chartered and federally insured mutual
savings bank with one full service office. At December 31, 1999, Community Bank
had total assets of $42.8 million, total deposits of $32.4 million and equity of
$3.0 million. For more information regarding the business and operations of
Community Bank, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business of Community Bank."
15
<PAGE>
Community Bank is examined and regulated by the Texas Savings and Loan
Department and the Federal Deposit Insurance Corporation. Community Bank is
required to have reserves set by the Federal Reserve Board and is a member of
the Federal Home Loan Bank of Dallas, which is one of the 12 regional banks in
the Federal Home Loan Bank System.
HOW WE INTEND TO USE THE PROCEEDS
We are converting to stock form and offering common stock to the public
primarily to better allow us to grow through expanded operations, as well as
through increased branching and acquisitions. The stock form will also give us
more flexibility to increase our capital position. See "Community Bank's
Conversion - Our Reasons for the Corporate Change."
As a stock corporation upon completion of the conversion, Community
Bank will be organized in the form used by commercial banks, most major
corporations and a majority of savings institutions. The ability to raise new
equity capital through the issuance and sale of Community Bank's or CBCT
Bancshares, Inc.'s capital stock will allow Community Bank the flexibility to
increase its capital position more rapidly than by accumulating earnings and at
times deemed advantageous by the board of directors of Community Bank. It will
also support future growth and expanded operations, including increased lending
and investment activities, as business and regulatory needs require. The ability
to attract new capital also will help Community Bank address the needs of the
communities it serves and enhance its ability to make acquisitions or expand
into new businesses.
The acquisition alternatives available to Community Bank are quite
limited as a mutual institution. After the conversion, Community Bank will have
increased ability to merge with other institutions and CBCT Bancshares, Inc. may
acquire control of other stock savings institutions and retain the acquired
institution as a separate subsidiary of CBCT Bancshares, Inc. Finally, the
ability to issue capital stock will enable Community Bank to establish stock
compensation plans for directors, officers and employees, giving them equity
interests in CBCT Bancshares, Inc. and greater incentive to improve its
performance.
The actual net proceeds from the sale of the shares of common stock
cannot be determined until the conversion is completed, however, we presently
anticipate that the net proceeds from the sale of the shares of common stock
will be between $1.4 million and $2.1 million and up to $2.4 million assuming an
increase in the estimated value of the common stock sold in the conversion by
15%. See "Pro Forma Data" and "Community Bank's Conversion - How We Determined
Our Price and the Number of Shares to be Issued in the Stock Offering" as to the
assumptions used to arrive at such amounts.
Although a substantial portion of the net proceeds are not allocated
for a specific purpose, we intend to use the net proceeds received from the
stock offering, assuming completion of the offering at the maximum of the
estimated offering range, as follows:
16
<PAGE>
$ 934,125 Retained by CBCT Bancshares, Inc. and initially placed in
short-term investments for general corporate purposes
195,500 Employee stock ownership plan loan
934,125 Used to buy the stock of Community Bank
----------
$2,063,750 Net proceeds from stock offering
==========
CBCT Bancshares, Inc. will retain 50% of the net conversion proceeds
and will purchase all of the capital stock of Community Bank to be issued in the
conversion in exchange for the remaining conversion proceeds, net of the loan to
be made to the employee stock ownership plan. CBCT Bancshares, Inc. intends to
use a portion of the net proceeds to make a loan directly to the employee stock
ownership plan to enable the employee stock ownership plan to purchase up to
8.0% of the shares of common stock issued in the offering. Based upon the
issuance of 180,625 shares of common stock and 244,375 shares of common stock at
the minimum and maximum of the estimated offering range, respectively, the loan
to the employee stock ownership plan would be $145,000 and $196,000,
respectively. The remaining net proceeds retained by CBCT Bancshares, Inc.
initially may be used to invest in U.S. Government and federal agency securities
of various maturities, mortgage-backed or other securities, deposits in either
Community Bank or other financial institutions, or a combination thereof. See
"Management - Benefits - Employee Stock Ownership Plan." The net proceeds may
ultimately be used to:
o support Community Bank's lending activities;
o repay borrowings from the Federal Home Loan Bank in the
ordinary course of business; or
o support the future expansion of operations through the
establishment of additional banking offices or other customer
facilities or through acquisitions of other financial
institutions or branch offices, although no acquisition
transactions are specifically being considered at this time.
The net proceeds from the conversion may also be used for other business and
investment purposes, including the payment of regular or special cash dividends,
possible repurchases of the common stock or returns of capital. Management of
CBCT Bancshares, Inc. may consider expanding or diversifying its activities, as
opportunities become available.
The proceeds may also be utilized by CBCT Bancshares, Inc. to
repurchase, at prices which may be above or below the initial offering price,
shares of common stock through an open market repurchase program subject to
applicable regulations, although CBCT Bancshares, Inc. currently has no specific
plan to repurchase any of its stock. In the future, the board of directors of
CBCT Bancshares, Inc. will make decisions on the repurchase of the common stock
based on its view of the appropriateness of the price of the common stock as
well as CBCT Bancshares, Inc.'s and Community Bank's investment opportunities
and capital needs. Any stock repurchases will be subject to the determination of
CBCT Bancshares, Inc.'s board of directors that Community Bank will be
capitalized in excess of all applicable regulatory requirements after any such
repurchases.
17
<PAGE>
The portion of the net proceeds used by CBCT Bancshares, Inc. to
purchase the capital stock of Community Bank will be added to Community Bank's
general funds to be used for general corporate purposes, including increased
lending activities. While the amount of net proceeds received by Community Bank
will further strengthen Community Bank's capital position, which already
substantially exceeds all regulatory requirements, Community Bank is not
converting to stock form primarily to raise capital. After the conversion, based
upon the maximum of the estimated offering range, Community Bank's tangible
capital ratio will be approximately 9.4%. As a result, Community Bank will
continue to be a well-capitalized institution.
The net proceeds may vary because total expenses of the conversion may
be more or less than those estimated. The net proceeds will also vary if the
number of shares to be issued in the conversion is adjusted to reflect a change
in the estimated pro forma market value of Community Bank. Payments for shares
made through withdrawals from existing deposit accounts at Community Bank will
not result in the receipt of new funds for investment by Community Bank but will
result in a reduction of Community Bank's interest expense and liabilities as
funds are transferred from interest-bearing certificates or other deposit
accounts.
MARKET FOR THE COMMON STOCK
CBCT Bancshares, Inc. and Community Bank have never issued capital
stock, and, consequently, there is no established market for the common stock at
this time. The development of a liquid public market depends on the existence of
willing buyers and sellers, the presence of which is not within the control of
CBCT Bancshares, Inc., Community Bank or any market maker. Accordingly, the
number of active buyers and sellers of the common stock at any particular time
may be limited. CBCT Bancshares, Inc. intends to take steps necessary to have
its common stock listed for quotation on the OTC Electronic Bulletin Board upon
completion of the stock offering.
18
<PAGE>
OUR POLICY REGARDING DIVIDENDS
The board of directors of CBCT Bancshares, Inc. currently intends to
pay cash dividends on the common stock after completion of the stock offering.
However, the amount and timing of any dividends has not yet been determined. The
payment of dividends will depend upon a number of factors, including capital
requirements, CBCT Bancshares, Inc.'s and Community Bank's financial condition
and results of operations, tax considerations, statutory and regulatory
limitations and general economic conditions. No assurances can be given that any
dividends will be paid or that, if paid, will not be reduced or eliminated in
future periods. Special cash dividends, stock dividends or returns of capital
may, to the extent permitted by regulations, be paid in addition to, or in lieu
of, regular cash dividends. CBCT Bancshares, Inc. intends to file consolidated
tax returns with Community Bank. Accordingly, it is anticipated that any cash
distributions made by CBCT Bancshares, Inc. to its stockholders would be treated
as cash dividends and not as a non-taxable return of capital for federal and
state tax purposes.
Dividends from CBCT Bancshares, Inc. will depend, in large part, upon
receipt of dividends from Community Bank, because CBCT Bancshares, Inc.
initially will have no source of income other than dividends from Community
Bank, earnings from the investment of proceeds from the sale of shares of common
stock retained by CBCT Bancshares, Inc., and interest payments with respect to
CBCT Bancshares, Inc.'s loan to the employee stock ownership plan. A regulation
of the FDIC imposes limitations on "capital distributions" by savings
institutions. See "How We are Regulated - Limitations on Dividends and Other
Capital Distributions."
Any payment of dividends by Community Bank to CBCT Bancshares, Inc.
which would be deemed to be drawn out of Community Bank's bad debt reserves
would require a payment of taxes at the then-current tax rate by Community Bank
on the amount of earnings deemed to be removed from the reserves for such
distribution. Community Bank does not intend to make any distribution to CBCT
Bancshares, Inc. that would create such a federal tax liability. See "Taxation."
19
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the common stock cannot be
determined until the conversion is completed. However, net proceeds are
currently estimated to be between $1.4 million and $2.1 million, or $2.4 million
in the event the estimated offering range is increased by 15%, based upon the
following assumptions:
o all shares of common stock will be sold through
non-transferable rights to subscribe for the common stock, in
order of priority, to Eligible Account Holders, the employee
stock ownership plan, Supplemental Eligible Account Holders,
Other Members and Directors, Officers and Employees;
o Keefe, Bruyette & Woods, Inc. will receive a fee of $75,000
upon completion of the conversion;
o total expenses, including the marketing fees paid to Keefe,
Bruyette & Woods, Inc. are estimated to be approximately
$380,000. Actual expenses may vary from those estimated.
Pro forma consolidated net income and stockholders' equity of CBCT
Bancshares, Inc. have been calculated for the year ended December 31, 1999, as
if the common stock to be issued in the conversion had been sold at the
beginning of the period and the net proceeds had been invested at 5.95%, which
represents the yield on one-year U.S. Government securities at December 31,
1999. In light of changes in interest rates in recent periods, this yield is
deemed by CBCT Bancshares, Inc. and Community Bank to more accurately reflect
available reinvestment rates than the arithmetic average method. The effect of
withdrawals from deposit accounts for the purchase of common stock has not been
reflected. A tax rate of 36.0% has been assumed for periods resulting in an
after-tax yield of 3.81% for the year ended December 31, 1999. Historical and
pro forma per share amounts have been calculated by dividing historical and pro
forma amounts by the indicated number of shares of common stock, as adjusted to
give effect to the shares purchased by the employee stock ownership plan and the
restricted stock plan. See Note 5 to the tables below. No effect has been given
in the pro forma stockholders' equity calculations for the assumed earnings on
the net proceeds. CBCT Bancshares, Inc. intends to make a loan to fund the
purchase of 8.0% of the common stock by the employee stock ownership plan and
intends to retain up to 50% of the net proceeds from the conversion. See "How We
Intend to Use the Proceeds."
No effect has been given in the tables to the issuance of additional
shares of common stock pursuant to the proposed stock option plan. The table
below gives effect to the restricted stock plan, which is expected to be adopted
by CBCT Bancshares, Inc. following the conversion and presented along with the
stock option plan to stockholders for approval at an annual or special meeting
of stockholders to be held at least six months following the completion of the
conversion. If the restricted stock plan is approved by stockholders, the
restricted stock plan intends to acquire an amount of common stock equal to 4.0%
of the shares of common stock issued in the conversion, either through open
market purchases or from authorized but unissued shares of common stock, if
permissible. The table below assumes that stockholder approval has
20
<PAGE>
been obtained, as to which there can be no assurance, and that the shares
acquired by the restricted stock plan are purchased in the open market at $10.00
per share. No effect has been given to CBCT Bancshares, Inc.'s results of
operations after the conversion, the market price of the common stock after the
conversion or a less than 4.0% purchase by the restricted stock plan. See
"Management - Benefits - Other Stock Benefit Plans."
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as indicative of future
results of operations. Pro forma stockholders' equity represents the difference
between the stated amount of assets and liabilities of CBCT Bancshares, Inc.
computed in accordance with generally accepted accounting principles ("GAAP").
The pro forma stockholders' equity is not intended to represent the
fair market value of the common stock and may be different than amounts that
would be available for distribution to stockholders in the event of liquidation.
21
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1999
--------------------------------------------------------------------------------
180,625 Shares 212,500 Shares 244,375 Shares 281,031 Shares
Sold at $10.00 Sold at 10.00 Sold at $10.00 Sold at $10.00 Per
Per Share Per Share Per Share Share (Maximum of
(Minimum of Range) (Midpoint of Range) (Maximum of Range) Range, as Adjusted)(1)
------------------ ------------------- ------------------ ----------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Gross proceeds..................................... $ 1,806 $ 2,125 $ 2,444 $ 2,810
Less offering expenses and commissions............. (380) (380) (380) (380)
----------- ---------- ---------- ----------
Estimated net conversion proceeds............... 1,426 1,745 2,064 2,430
Less: Common stock acquired by employee
stock ownership plan...................... (145) (170) (196) (225)
Less: Common stock acquired by
restricted stock plan..................... (72) (85) (98) (112)
----------- ---------- ---------- ----------
Estimated proceeds available for investment(2).. $ 1,210 $ 1,490 $ 1,771 $ 2,093
=========== ========== ========== ==========
Net income:
Historical...................................... $ 168 $ 168 $ 168 $ 168
Pro Forma adjustments:
Net income from proceeds..................... 46 57 67 80
Employee stock ownership plan(3)............. (9) (11) (13) (14)
Restricted stock plan(4)..................... (9) (11) (13) (14)
----------- ---------- ---------- ----------
Pro forma net income...................... $ 196 $ 203 $ 210 $ 219
=========== ========== ========== ==========
Net income per share(5)(6):
Historical...................................... $ 1.04 $ 0.88 $ 0.77 $ 0.67
Pro Forma adjustments:
Net income from proceeds..................... 0.28 0.30 0.31 0.32
Employee stock ownership plan(3)............. (0.06) (0.06) (0.06) (0.06)
Restricted stock plan(4)..................... (0.06) (0.06) (0.06) (0.06)
----------- ---------- ---------- ----------
Pro forma basic earnings per share........ $ 1.21 $ 1.07 $ 0.96 $ 0.87
=========== ========== ========== ==========
Number of shares used in calculating basic
earnings per share(5)(6).................. 161,840 190,400 218,960 251,804
=========== ========== ========== ==========
Stockholders' equity (book value):
Historical...................................... $ 2,999 $ 2,999 $ 2,999 $ 2,999
Estimated net conversion proceeds............... 1,426 1,745 2,064 2,430
Less common stock acquired by:
Employee stock ownership plan................ (145) (170) (196) (225)
Restricted stock plan........................ (72) (85) (98) (112)
----------- ---------- ---------- ----------
Pro forma stockholders' equity............ $ 4,209 $ 4,489 $ 4,770 $ 5,092
=========== ========== ========== ==========
Stockholder's equity per share:
Historical...................................... $ 16.60 $ 14.11 $ 12.27 $ 10.67
Estimated net conversion proceeds............... 7.90 8.21 8.45 8.65
Less common stock acquired by:
Employee stock ownership plan................ (0.80) (0.80) (0.80) (0.80)
Restricted stock plan........................ (0.40) (0.40) (0.40) (0.40)
----------- ---------- ---------- ----------
Pro forma stockholders' equity per share.. $ 23.30 $ 21.12 $ 19.52 $ 18.12
=========== ========== ========== ==========
Pro forma price to book value...................... 42.9% 47.3% 51.2% 55.2%
=========== ========== ========== ==========
Pro forma price to earnings ratio.................. 8.3 9.3 10.4 11.5
=========== ========== ========== ==========
Number of shares used in calculating equity per share 180,625 212,500 244,375 281,031
=========== ========== ========== ==========
</TABLE>
(Footnotes on next page)
22
<PAGE>
- -----------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the estimated offering range of up to
15% to reflect changes in market and financial conditions following the
commencement of the conversion.
(2) Estimated net proceeds, as adjusted, consist of the estimated net
proceeds from the conversion minus (i) the proceeds attributable to the
purchase by the employee stock ownership plan and (ii) the value of the
shares to be purchased by the restricted stock plan, subject to
stockholder approval, after the conversion at an assumed purchase price
of $10.00 per share.
(3) It is assumed that 8.0% of the shares of common stock issued in the
conversion will be purchased by the employee stock ownership plan with
funds loaned by CBCT Bancshares, Inc. CBCT Bancshares, Inc. and
Community Bank intend to make annual contributions to the employee
stock ownership plan in an amount at least equal to the principal and
interest requirement of the debt. The pro forma net earnings assumes
(i) that the loan to the employee stock ownership plan is payable over
10 years, with the employee stock ownership plan shares having an
average fair value of $10.00 per share in accordance with SOP 93-6,
entitled "Employers' Accounting for Employee Stock Ownership Plans," of
the AICPA, and (ii) the effective tax rate was 36.0% for the period.
See "Management - Benefits -- Employee Stock Ownership Plan."
(4) It is assumed that the restricted stock plan will purchase, following
stockholder approval of such plan, a number of shares of common stock
equal to 4.0% of the shares of common stock issued in the conversion
for issuance to directors, officers and employees. Funds used by the
restricted stock plan to purchase the shares initially will be
contributed to the restricted stock plan by CBCT Bancshares, Inc. It is
further assumed that the shares were acquired by the restricted stock
plan at the beginning of the period presented in open market purchases
at the purchase price and that 20% of the amount contributed, net of
taxes at 36%, was an amortized expense during the year ended December
31, 1999. Statement of Financial Accounting Standards ("SFAS") No. 128
requires that unvested shares under the restricted stock plan be
excluded from the basic net income per share calculation and included
in the diluted net income per share calculation only if they are
dilutive under the treasury stock method. The issuance of authorized
but unissued shares of common stock pursuant to the restricted stock
plan in the amount of 4.0% of the common stock sold in the offering
would dilute the voting interests of existing stockholders by
approximately 3.8% and under such circumstances pro forma net earnings
per share for the year ended December 31, 1999 would be $1.17, $1.04,
$.94 and $.85 at the minimum, midpoint, maximum and 15% above the
maximum of the estimated offering range, respectively, and pro forma
stockholders' equity per share at December 31, 1999 would be $22.79,
$20.70, $19.15 and $17.81 at the minimum, midpoint, maximum and 15%
above the maximum of such range, respectively. There can be no
assurance that the actual purchase price of shares purchased by or
issued to the restricted stock plan will be equal to the purchase
price. See "Management - Benefits -- Other Stock Benefit Plans."
(5) Basic net income per share calculations are determined by taking the
number of shares assumed to be sold in the conversion and, (a) in
accordance with SOP 93-6, subtracting the ESOP shares which have not
been committed for release and (b) in accordance with SFAS No. 128,
subtracting the restricted stock plan shares which have not vested.
Diluted net income per share calculations are determined by adding the
dilutive portion of the unvested restricted stock plan shares to the
number of shares used to determine basic net income per share. The
unvested restricted stock plan shares are deemed to be for future
services and not dilutive under the treasury stock method. Set forth
below is a reconciliation of the number of shares used in making the
net income per share calculations:
23
<PAGE>
Maximum,
Minimum Midpoint Maximum as Adjusted
------- ------- ------- -------
Total shares issued................. 180,625 212,500 244,375 281,031
Less shares sold to ESOP............ 14,450 17,000 19,550 22,483
Less restricted stock plan shares... 7,225 8,500 9,775 11,241
------- ------- ------- -------
Sub-total................. 158,950 187,000 215,050 247,307
Plus ESOP shares assumed
committed to be released...... 1,445 1,700 1,955 2,248
Plus restricted stock plan shares
assumed vested................. 1,445 1,700 1,955 2,248
------- ------- ------- -------
Number of shares used in
calculating basic net income
per share...................... 161,840 190,400 218,960 251,804
Plus dilutive effect of unvested
restricted stock plan shares... 0 0 0 0
------- ------- ------- -------
Number of shares used in
calculating diluted net income
per share...................... 161,840 190,400 218,960 251,804
(6) No effect has been given to the issuance of additional shares of common
stock pursuant to the stock option plan, which will be adopted by CBCT
Bancshares, Inc. following the conversion and presented for approval by
stockholders at an annual or special meeting of stockholders of CBCT
Bancshares, Inc. held at least six months following the completion of
the conversion. If the stock option plan is approved by stockholders,
an amount equal to 10% of the common stock issued in the conversion, or
18,063 shares at the minimum of the estimated offering range, 21,250
shares at the midpoint of the range, 24,438 shares at the maximum of
the range and 28,103 shares at 15% above the maximum of the range,
respectively, will be reserved for future issuance upon the exercise of
options to be granted under the stock option plan. The issuance of
common stock pursuant to the exercise of options under the stock option
plan will result in the dilution of existing stockholders' voting
interests by approximately 9.1%. Assuming stockholder approval of the
stock option plan, that all these options were exercised at the
beginning of the period at an exercise price of $10.00 per share and
that the shares to fund the restricted stock plan are acquired through
open market purchases at the purchase price, pro forma net earnings per
share for the year ended December 31, 1999 would be $1.21, $1.07, $.96,
and $.87 at the minimum, midpoint, maximum and 15% above the maximum of
the estimated offering range, respectively, and pro forma stockholders'
equity per share at December 31, 1999 would be $23.30, $21.12, $19.52
and $18.12 at the minimum, midpoint, maximum and 15% above the maximum
of the range, respectively. See "Management - Benefits -- Other Stock
Benefit Plan."
24
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of Community
Bank at December 31, 1999, and the pro forma consolidated capitalization of CBCT
Bancshares, Inc. after giving effect to the conversion, based upon the sale of
the number of shares shown below and the other assumptions set forth under "Pro
Forma Data."
<TABLE>
<CAPTION>
281,031
Capitalization 180,625 212,500 244,375 Shares
of Shares Shares Shares at $10
Community at $10 at $10 at $10 per Share
Bank at per Share per Share per Share (Maximum of
December 31, (Minimum of (Midpoint (Maximum Range, as
1999 Range of Range) of Range) Adjusted)(1)
---------- ------------ --------- ------------ -------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits(2).................................... $32,354 $32,354 $32,354 $32,354 $32,354
Borrowings..................................... 7,392 7,392 7,392 7,392 7,392
------- ------- ------- ------- -------
Total deposits and borrowings............... $39,746 $39,746 $39,746 $39,746 $39,746
======= ======= ======= ======= =======
Capital Stock:
Preferred stock, $0.01 par value per share:
authorized - 1,000,000 shares
assumed outstanding - none............... $ - $ - $ - $ - $ -
Common stock, $0.01 par value per share:
authorized - 4,000,000 shares;
shares to be outstanding - as shown(3)... - 2 2 2 3
Paid-in capital................................ - 1,424 1,743 2,062 2,427
Less:
Common stock to be acquired by
employee stock ownership plan(4)......... - (145) (170) (196) (225)
Common stock to be acquired by
restricted stock plan(5)................. - (72) (85) (98) (112)
Retained earnings - substantially restricted .. 3,214 3,214 3,214 3,214 3,214
Unrealized losses on available-for-sale
securities, net of tax......................... (215) (215) (215) (215) (215)
------- ------- ------- ------- -------
Total stockholders' equity..................... $ 2,999 $ 4,209 $ 4,489 $ 4,770 $ 5,092
======= ======= ======= ======= =======
</TABLE>
- ----------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the estimated offering range of up to
15% to reflect changes in market and financial conditions following the
commencement of the conversion.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
common stock in the conversion. Any withdrawals would reduce pro forma
deposits by the amount of the withdrawals.
(3) Reflects the issuance of the shares of common stock to be sold in the
conversion. No effect has been given to the issuance of additional
shares of common stock pursuant to the proposed stock option plan. See
"Pro Forma Data" and "Management - Benefits - Other Stock Benefit
Plans."
25
<PAGE>
(4) Assumes that 8.0% of the common stock issued in the conversion will be
purchased by the employee stock ownership plan, which is reflected as a
reduction from stockholders' equity. The employee stock ownership plan
shares will be purchased with funds loaned to the employee stock
ownership plan by CBCT Bancshares, Inc. See "Pro Forma Data" and
"Management - Benefits -Employee Stock Ownership Plan."
(5) CBCT Bancshares, Inc. intends to adopt the restricted stock plan and to
submit such plan to stockholders at an annual or special meeting of
stockholders held at least six months following the completion of the
conversion. If the plan is approved by stockholders, CBCT Bancshares,
Inc. intends to contribute sufficient funds to the restricted stock
plan to enable the plan to purchase a number of shares of common stock
equal to 4.0% of the common stock issued in the conversion. Assumes
that stockholder approval has been obtained and that the shares have
been purchased in the open market at the purchase price. However, in
the event CBCT Bancshares, Inc. issues authorized but unissued shares
of common stock to the restricted stock plan in the amount of 4.0% of
the common stock issued in the conversion, the voting interests of
existing stockholders would be diluted approximately 3.8%. The shares
are reflected as a reduction of stockholders' equity. See "Pro Forma
Data" and "Management - Benefits - Other Stock Benefit Plans."
26
<PAGE>
COMMUNITY BANK
EXCEEDS ALL REGULATORY CAPITAL REQUIREMENTS
At December 31, 1999, Community Bank exceeded all of the regulatory
capital requirements applicable to it. The table sets forth the historical
regulatory capital of Community Bank at December 31, 1999 and the pro forma
regulatory capital of Community Bank after giving effect to the conversion,
based upon the sale of the number of shares shown in the table. The pro forma
regulatory capital amounts reflect the receipt by Community Bank of 50% of the
net stock proceeds, minus expenses and the amounts to be loaned to the employee
stock ownership plan. The pro forma risk-based capital amounts assume the
investment of the net proceeds received by Community Bank in assets which have a
risk-weight of 20% under applicable regulations, as if such net proceeds had
been received and so applied at December 31, 1999.
<TABLE>
<CAPTION>
Maximum, as
Minimum of Midpoint of Maximum of adjusted, of
180,625 Shares 212,500 Shares 244,375 Shares 281,031 Shares
Historical at at $10.00 Sold at $10.00 Sold at $10.00 Sold at $10.00
December 31, 1999 per Share per Share per Share per Share
----------------- --------------- -------------- -------------- --------------
Amount Percent(1) Amount Percent Amount Percent Amount Percent Amount Percent
------ ---------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital under generally accepted
accounting principles.................. $2,999 7.0% $3,640 8.4% $3,787 8.7% $3,933 9.0% $4,102 9.3%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
Tier 1 leverage capital................... $3,214 7.5% $3,855 8.8% $4,002 9.1% $4,148 9.4% $4,317 9.8%
Tier 1 capital requirement................ 1,722 4.0 1,748 4.0 1,753 4.0 1,759 4.0 1,766 4.0
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Excess................................. $1,492 3.5% $2,107 4.8% $2,249 5.1% $2,389 5.4% $2,551 5.8%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
Tier 1 risk adjusted capital.............. $3,214 15.0% $3,855 17.9% $4,002 18.5% $4,148 19.2% $4,317 19.9%
Tier 1 risk adjusted capital requirement.. 858 4.0 863 4.0 865 4.0 866 4.0 867 4.0
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Excess................................. $2,356 11.0% $2,992 13.9% $3,137 14.5% $3,282 15.2% $3,450 15.9%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
Risk-based capital........................ $3,412 15.9% $4,053 18.8% $4,200 19.4% $4,346 20.1% $4,515 20.8%
Risk-based capital requirement............ 1,717 8.0 1,727 8.0 1,729 8.0 1,732 8.0 1,734 8.0
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Excess................................. $1,695 7.9% $2,326 10.8% $2,471 11.4% $2,614 12.1% $2,781 12.8%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
</TABLE>
- ----------------
(1) Adjusted total or adjusted risk-weighted assets, as appropriate.
27
<PAGE>
COMMUNITY BANK'S CONVERSION
The board of directors of Community Bank and the Texas Savings and Loan
Department have approved the plan of conversion. The Texas Savings and Loan
Department approval is subject to approval of the plan of conversion by our
members and to the satisfaction of other conditions imposed by the Texas Savings
and Loan Department. Texas Savings and Loan Department approval does not
constitute a recommendation or endorsement of the plan of conversion.
General
On December 14, 1999, we adopted a plan of conversion, pursuant to
which we will convert from a Texas-chartered mutual savings bank to a
Texas-chartered stock savings bank and at the same time become a wholly owned
subsidiary of CBCT Bancshares, Inc. The conversion will include adoption of the
proposed stock charter and bylaws, which will authorize us to issue capital
stock. Under the plan, Community Bank common stock is being sold to CBCT
Bancshares, Inc. and CBCT Bancshares, Inc. common stock is being offered to our
eligible depositors and borrowers, the employee stock ownership plan, directors,
officers and employees, other members, and then to the public. The conversion
will be accounted for at historical cost in a manner similar to a pooling of
interests. The Federal Reserve Board has approved CBCT Bancshares, Inc.'s
application to become a bank holding company and to acquire all of the Community
Bank's common stock to be issued in the conversion.
The shares of CBCT Bancshares, Inc. common stock are first being
offered in a subscription offering to holders of subscription rights. To the
extent shares of common stock remain available after the subscription offering,
shares may be offered in a direct community offering on a best efforts basis
through Keefe, Bruyette & Woods in such a manner as to promote a wide
distribution of the shares. The direct community offering, if any, may commence
with, at any time during, or as soon as practicable after the commencement of
the subscription offering. Shares not subscribed for in the subscription
offering and direct community offering may be offered for sale on a best efforts
basis in a public offering conducted by Keefe, Bruyette & Woods. We have the
right, in our sole discretion, to accept or reject, in whole or in part, any
orders to purchase shares of common stock received in the direct community
offering and the public offering. See "- Offering of CBCT Bancshares, Inc.
Common Stock."
Subscriptions for shares will be subject to the maximum and minimum
purchase limitations set forth in the plan of conversion. See "- Limitations on
Stock Purchases."
The completion of the offering is subject to market conditions and
other factors beyond our control. No assurance can be given as to the length of
time following approval of the plan at the meeting of our members that will be
required to complete the sale of shares being offered in the conversion. If
delays are experienced, significant changes may occur in the estimated offering
range with corresponding changes in the offering price and the net proceeds to
be realized by us from the sale of the shares. In the event the conversion is
terminated, we will charge all conversion expenses against current income and
any funds collected by us in the offering will be promptly returned, with
interest, to each subscriber.
28
<PAGE>
Our Reasons for the Corporate Change
As a mutual institution, Community Bank has no authority to issue
shares of capital stock and consequently has no access to market sources of
equity capital. Only by generating and retaining earnings from year to year is
Community Bank able to increase its capital position.
As a stock corporation upon completion of the conversion, Community
Bank will be organized in the form used by commercial banks, most major
corporations and a majority of savings institutions. The ability to raise new
equity capital through the issuance and sale of Community Bank's or CBCT
Bancshares, Inc.'s capital stock will allow Community Bank the flexibility to
increase its capital position more rapidly than by accumulating earnings and at
times deemed advantageous by the board of directors of Community Bank. It will
also support future growth and expanded operations, including increased lending
and investment activities, as business and regulatory needs require. The ability
to attract new capital also will help Community Bank address the needs of the
communities it serves and enhance its ability to make acquisitions or expand
into new businesses. The acquisition alternatives available to Community Bank
are quite limited as a mutual institution. After the conversion, Community Bank
will have increased ability to merge with other institutions and CBCT
Bancshares, Inc. may acquire control of other stock savings institutions and
retain the acquired institution as a separate subsidiary of CBCT Bancshares,
Inc. Finally, the ability to issue capital stock will enable Community Bank to
establish stock compensation plans for directors, officers and employees, giving
them equity interests in CBCT Bancshares, Inc. and greater incentive to improve
its performance. For a description of the stock compensation plans which will be
adopted by us in connection with the conversion, see "Management."
After considering the advantages and disadvantages of the conversion,
as well as applicable fiduciary duties and alternative transactions, the board
of directors of Community Bank approved the conversion as being in the best
interests of Community Bank and equitable to its account holders.
Effects of the Conversion
General. The conversion will have no effect on Community Bank's present
business of accepting deposits and investing its funds in loans and other
investments permitted by law. The conversion will not result in any change in
the existing services provided to depositors and borrowers, or in our existing
office, management and staff. Community Bank will continue to be subject to
regulation, supervision and examination by the Texas Savings and Loan Department
and the FDIC.
Deposits and Loans. Each holder of a deposit account in Community Bank
at the time of the conversion will continue as an account holder in Community
Bank after the conversion, and the conversion will not affect the deposit
balance, interest rate or other terms of such accounts. Each account will be
insured by the FDIC to the same extent as before the conversion. Depositors in
Community Bank will continue to hold their existing certificates, passbooks and
other evidence of their accounts. The conversion will not affect the loan terms
of any borrower from Community Bank. The amount, interest rate, maturity,
security for and obligations under
29
<PAGE>
each loan will remain as they existed prior to the conversion. See "-- Voting
Rights" and "--Depositors' Rights if We Liquidate" below for a discussion of the
effects of the conversion on the voting and liquidation rights of the depositors
of Community Bank.
Continuity. During the conversion process, the normal business of
Community Bank of accepting deposits and making loans will continue without
interruption. Following completion of the conversion, Community Bank will
continue to be subject to regulation by the Texas Savings and Loan Department,
and FDIC insurance of accounts will continue without interruption. After the
conversion, Community Bank will continue to provide services for depositors and
borrowers under current policies and by its present management and staff.
The board of directors presently serving Community Bank will serve as
the board of directors of Community Bank after the conversion. The initial
members of the board of directors of CBCT Bancshares, Inc. will consist of the
individuals currently serving on the board of directors of Community Bank. After
the conversion, the voting stockholders of CBCT Bancshares, Inc. will elect
approximately one-third of CBCT Bancshares, Inc.'s directors annually. All
current officers of Community Bank will retain their positions with Community
Bank after the conversion.
Voting Rights. After completion of the conversion, depositor and
borrower members will have no voting rights in Community Bank or CBCT
Bancshares, Inc. and, therefore, will not be able to elect directors of
Community Bank or CBCT Bancshares, Inc. or to control their affairs. Currently
these rights are held by depositors and borrowers of Community Bank. After the
conversion, voting rights in CBCT Bancshares, Inc. will be vested exclusively in
the stockholders of CBCT Bancshares, Inc., which will own all of the stock of
Community Bank. Each holder of common stock will be entitled to vote on any
matter to be considered by the stockholders of CBCT Bancshares, Inc., subject to
the provisions of CBCT Bancshares, Inc.'s articles of incorporation.
Depositor's Rights if We Liquidate. We have no plans to liquidate,
either before or after the completion of the conversion. However, if there
should ever be a complete liquidation of Community Bank, either before or after
conversion, deposit account holders would receive the protection of insurance by
the FDIC up to applicable limits. In addition, liquidation rights before and
after the conversion would be as follows:
Liquidation Rights in Present Mutual Institution. In addition to the
protection of FDIC insurance up to applicable limits, in the event of
the complete liquidation of Community Bank, each holder of a deposit
account would receive his or her pro rata share of any assets of
Community Bank remaining after payment of claims of all creditors
(including the claims of all depositors in the amount of the withdrawal
value of their accounts). Each holder's pro rata share of the remaining
assets, if any, would be in the same proportion of the assets as the
balance in his or her deposit account was to the aggregate balance in
all our deposit accounts at the time of liquidation.
30
<PAGE>
Liquidation Rights in Proposed Converted Institution. After conversion,
each deposit account holder, in the event of the complete liquidation
of Community Bank, would have a claim of the same general priority as
the claims of all our other general creditors in addition to the
protection of FDIC insurance up to applicable limits. Therefore, except
as described below, the deposit account holder's claim would be solely
in the amount of the balance in his or her deposit account plus accrued
interest. A deposit account holder would have no interest in the assets
of Community Bank above that amount, if any.
The plan of conversion provides for the establishment, upon the
completion of the conversion, of a special "liquidation account" for
the benefit of eligible account holders (i.e., eligible depositors at
September 30, 1998) and supplemental account holders (i.e., eligible
depositors at March 31, 2000). Each eligible account holder and
supplemental eligible account holder, if he or she continues to
maintain his or her deposit account with Community Bank, would be
entitled upon the complete liquidation of Community Bank after
conversion, to an interest in the liquidation account prior to any
payment to stockholders. Each eligible account holder would have an
initial interest in the liquidation account for each deposit account
held with Community Bank on the qualifying date, September 30, 1998.
Each supplemental eligible account holder would have a similar interest
as of that qualifying date, March 31, 2000.
The interest as to each deposit account would be in the same proportion
of the total liquidation account as the balance of the deposit account
on the qualifying dates was to the aggregate balance in all the deposit
accounts of eligible account holders and supplemental eligible account
holders on the qualifying dates. However, if the amount in the deposit
account on any annual closing date (December 31) is less than the
amount in the account on the respective qualifying dates, then the
interest in this special liquidation account would be reduced at that
time by an amount proportionate to any reduction, and the interest
would cease to exist if the deposit account was closed. The interest in
the special liquidation account will never be increased despite any
increase in the related deposit account after the respective qualifying
dates.
Any assets remaining after the above liquidation rights of eligible
account holders and supplemental eligible account holders were
satisfied would be distributed to CBCT Bancshares, Inc. as the sole
stockholder of Community Bank.
Tax Effects of the Conversion. Community Bank has received an opinion
from its special counsel, Silver, Freedman & Taff, L.L.P., Washington, D.C., as
to the material federal income tax consequences of the conversion to Community
Bank and CBCT Bancshares, Inc., and as to the generally applicable material
federal income tax consequences of the conversion on Community Bank's account
holders and to persons who purchase common stock in the offering.
31
<PAGE>
The opinion provides that, among other things:
o Community Bank's adoption of a charter in stock form will
qualify as a tax-free reorganization under Internal Revenue
Code of 1986, as amended, Section 368(a)(1)(F);
o no gain or loss will be recognized by Community Bank solely as
a result of the conversion to stock form;
o no gain or loss will be recognized by Community Bank's account
holders upon the issuance to them of accounts in Community
Bank, in stock form, immediately after the conversion, in the
same dollar amounts and on the same terms and conditions as
their accounts at Community Bank immediately prior to the
conversion;
o the tax basis of each account holder's interest in the
liquidation account received in the conversion will be equal
to the value, if any, of that interest on the date and at the
time of the conversion;
o the tax basis of the common stock purchased in the conversion
will be equal to the amount paid therefor; increased, in the
case of common stock acquired pursuant to the exercise of
subscription rights, by the fair market value, if any, of such
subscription rights;
o the holding period of the common stock purchased pursuant to
the exercise of subscription rights will commence upon the
exercise of such holder's subscription rights and, in all
other cases, the holding period of purchased common stock will
commence on the date following the date of such purchase; and
o gain or loss will be recognized by account holders upon the
receipt or exercise of subscription rights in the conversion,
but only to the extent the subscription rights are deemed to
have value, as discussed below.
The opinion of Silver, Freedman & Taff, L.L.P. is based in part upon,
and subject to the continuing validity in all material respects through the date
of the conversion of various representations of Community Bank and upon
assumptions and qualifications, including that the conversion is completed in
the manner and according to the terms provided in the plan of conversion. This
opinion is also based upon the Internal Revenue Code, regulations now in effect
or proposed, current administrative rulings and practice and judicial authority,
all of which are subject to change and any change may be made with retroactive
effect. Unlike private letter rulings received from the IRS, an opinion is not
binding upon the IRS and there can be no assurance that the IRS will not take a
position contrary to the positions reflected in this opinion, or that this
opinion will be upheld by the courts if challenged by the IRS.
32
<PAGE>
Community Bank has also obtained an opinion from outside tax advisors
that the income tax effects of the conversion under Texas tax laws will be
substantially the same as described above with respect to federal income tax
laws.
CBCT Bancshares, Inc. and Community Bank have received a letter from
Ferguson & Company, stating its belief that the subscription rights do not have
any value, based on the fact that these rights are acquired by the recipients
without cost, are nontransferable and of short duration, and give the recipients
the right only to purchase the common stock at a price equal to its estimated
fair market value, which will be the same price as the purchase price for the
unsubscribed shares of common stock. If the subscription rights granted to
eligible subscribers are deemed to have an ascertainable value, receipt of these
rights would be taxable probably only to those eligible subscribers who exercise
the subscription rights, either as a capital gain or ordinary income, in an
amount equal to such value, and CBCT Bancshares, Inc. and Community Bank could
recognize gain on any distribution. Eligible subscribers are encouraged to
consult with their own tax advisor as to the tax consequences in the event that
subscription rights are deemed to have an ascertainable value. Unlike private
rulings, the letter of Ferguson & Company is not binding on the IRS, and the IRS
could disagree with conclusions reached in the letter. In the event of any
disagreement, there can be no assurance that the IRS would not prevail in a
judicial or administrative proceeding.
How We Determined Our Price and the Number of Shares to be Issued in the Stock
Offering
The plan of conversion requires that the purchase price of the common
stock must be based on the appraised pro forma market value of CBCT Bancshares,
Inc. and Community Bank, as determined on the basis of an independent valuation.
Community Bank has retained Ferguson & Company to make this valuation. For its
services in making this appraisal, Ferguson & Company's fees and out-of-pocket
expenses are estimated to be $17,500. Community Bank has agreed to indemnify
Ferguson & Company and any employees of Ferguson & Company who act for or on
behalf of Ferguson & Company in connection with the appraisal against any and
all loss, cost, damage, claim, liability or expense of any kind, including
claims under federal and state securities laws, arising out of any misstatement
or untrue statement of a material fact or an omission to state a material fact
in the information supplied by Community Bank to Ferguson & Company, unless
Ferguson & Company is determined to be negligent or otherwise at fault.
An appraisal has been made by Ferguson & Company in reliance upon the
information contained in this prospectus, including the financial statements.
Ferguson & Company also considered the following factors, among others:
o the present and projected operating results and financial
condition of CBCT Bancshares, Inc. and Community Bank and the
economic and demographic conditions in Community Bank's
existing marketing areas;
o historical, financial and other information relating to
Community Bank;
33
<PAGE>
o a comparative evaluation of the operating and financial
statistics of Community Bank with those of other similarly
situated publicly traded thrift holding companies; the
aggregate size of the offering of the common stock;
o the impact of the conversion on Community Bank's net worth and
earnings potential;
o the proposed dividend policy of CBCT Bancshares, Inc. and
Community Bank; and
o the trading market for securities of comparable institutions
and general conditions in the market for such securities.
In its review of the appraisal provided by Ferguson & Company, the board of
directors reviewed the methodologies and the appropriateness of the assumptions
used by Ferguson & Company in addition to the factors listed above, and the
board of directors believes that these assumptions were reasonable.
On the basis of the foregoing, Ferguson & Company has advised CBCT
Bancshares, Inc. and Community Bank that in its opinion, dated April 19, 2000,
the estimated pro forma market value of the common stock on a fully converted
basis ranged from a minimum of $1.8 million to a maximum of $2.4 million with a
midpoint of $2.1 million. The board of directors of Community Bank determined
that the common stock should be sold at $10.00 per share. Based on the estimated
offering range and the purchase price, the number of shares of common stock that
CBCT Bancshares, Inc. will issue will range from between 180,625 shares and
244,375 shares, with a midpoint of 212,500 shares. The estimated offering range
may be amended with the approval of the Texas Savings and Loan Department and
the FDIC, if required, or if necessitated by subsequent developments in the
financial condition of CBCT Bancshares, Inc. and Community Bank or market
conditions generally, or to fill the order of the employee stock ownership plan.
In the event the estimated offering range is updated to amend the value of the
common stock below $1.8 million or above $2.8 million, which is the maximum of
the estimated offering range, as adjusted by 15%, a new appraisal will be filed
with the Texas Savings and Loan Department and the FDIC.
Based upon market and financial conditions, in the event CBCT
Bancshares, Inc. receives orders for common stock in excess of $2.4 million (the
maximum of the estimated offering range) and up to $2.8 million (the maximum of
the estimated offering range, as adjusted by 15%), CBCT Bancshares, Inc. may be
required by the Texas Savings and Loan Department and the FDIC to accept all
such orders. No assurances, however, can be made that CBCT Bancshares, Inc. will
receive orders for common stock in excess of the maximum of the estimated
offering range or that, if these orders are received, that all orders will be
accepted because CBCT Bancshares, Inc.'s final valuation and number of shares to
be issued are subject to the receipt of an updated appraisal from Ferguson &
Company which reflects an increase in the valuation and the approval of the
increase by the Texas Savings and Loan Department and the FDIC. There is no
obligation or understanding on the part of management to take and/or pay for any
shares in order to complete the conversion.
34
<PAGE>
Ferguson & Company's valuation is not intended, and must not be
construed, as a recommendation of any kind as to the advisability of purchasing
these shares. Ferguson & Company did not independently verify the consolidated
financial statements and other information provided by Community Bank, nor did
Ferguson & Company value independently the assets or liabilities of Community
Bank. The valuation considers Community Bank as a going concern and should not
be considered as an indication of the liquidation value of Community Bank.
Moreover, because this valuation is necessarily based upon estimates and
projections of a number of matters, all of which are subject to change from time
to time, no assurance can be given that persons purchasing common stock in the
offerings will thereafter be able to sell such shares at prices at or above the
purchase price or in the range of the valuation described above.
Prior to completion of the conversion, the maximum of the estimated
offering range may be increased up to 15% and the number of shares of common
stock may be increased to 281,031 shares to reflect changes in market and
financial conditions, without the resolicitation of subscribers. See "--
Limitations on Stock Purchases" as to the method of distribution and allocation
of additional shares that may be issued in the event of an increase in the
estimated offering range to fill unfilled orders in the subscription offering.
No sale of shares of common stock in the conversion may be completed
unless prior to such completion Ferguson & Company confirms that nothing of a
material nature has occurred which, taking into account all relevant factors,
would cause it to conclude that the aggregate value of the common stock to be
issued is materially incompatible with the estimate of the aggregate
consolidated pro forma market value of CBCT Bancshares, Inc. and Community Bank.
If this confirmation is not received, CBCT Bancshares, Inc. may cancel the
conversion, extend the offering period and establish a new estimated offering
range and/or estimated price range, extend, reopen or hold a new offering or
take any other action the Texas Savings and Loan Department or the FDIC may
permit.
Depending upon market or financial conditions following the start of
the subscription offering, the total number of shares of common stock may be
increased or decreased without a resolicitation of subscribers, provided that
the product of the total number of shares times the purchase price is not below
the minimum or more than 15% above the maximum of the estimated offering range.
In the event market or financial conditions change so as to cause the aggregate
purchase price of the shares to be below the minimum of the estimated offering
range or more than 15% above the maximum of such range, purchasers will be
resolicited and be permitted to continue their orders, in which case they will
need to reconfirm their subscriptions prior to the expiration of the
resolicitation offering or their subscription funds will be promptly refunded
with interest at Community Bank's passbook rate of interest, or be permitted to
modify or rescind their subscriptions. Any change in the estimated offering
range must be approved by the Texas Savings and Loan Department and the FDIC. If
the number of shares of common stock issued in the conversion is increased due
to an increase of up to 15% in the estimated offering range to reflect changes
in market or financial conditions, persons who subscribed for the maximum number
of shares will be given the opportunity to subscribe for the adjusted maximum
number of shares. See "-- Limitations on Stock Purchases."
35
<PAGE>
An increase in the number of shares of common stock as a result of an
increase in the estimated pro forma market value would decrease both a
subscriber's ownership interest and CBCT Bancshares, Inc.'s pro forma net income
and stockholders' equity on a per share basis while increasing pro forma net
income and stockholders' equity on an aggregate basis. A decrease in the number
of shares of common stock would increase both a subscriber's ownership interest
and CBCT Bancshares, Inc.'s pro forma net income and stockholders' equity on a
per share basis while decreasing pro forma net income and stockholders' equity
on an aggregate basis. See "Risk Factors - We intend to grant stock options and
restricted stock to the board and management following the change in structure
and stock offering which could further reduce your voting interest" and "Pro
Forma Data."
Copies of the appraisal report of Ferguson & Company, including any
amendments, and the detailed report of the appraiser setting forth the method
and assumptions for the appraisal are available for inspection at the main
office of Community Bank and the other locations specified under "Additional
Information."
Subscription Offering and Subscription Rights
Under the plan of conversion, rights to subscribe for the purchase of
common stock have been granted to the following persons in the following order
of descending priority:
o depositors of Community Bank as of the close of business on
September 30, 1998 ("Eligible Account Holders"),
o tax-qualified employee plans, ("Tax-Qualified Employee
Plans"),
o depositors of Community Bank as of the close of business on
March 31, 2000 ("Supplemental Eligible Account Holders"),
o borrowers and depositors of Community Bank, as of the close of
business on ___________, 2000, other than Eligible Account
Holders or Supplemental Eligible Account Holders ("Other
Members") and
o directors, officers and employees of Community Bank.
All subscriptions received will be subject to the availability of common stock
after satisfaction of all subscriptions of all persons having prior rights in
the subscription offering and to the maximum and minimum purchase limitations
set forth in the plan of conversion and as described below under "-- Limitations
on Stock Purchases."
Preference Category No. 1: Eligible Account Holders. Each Eligible
Account Holder shall receive, without payment, first priority, nontransferable
subscription rights to subscribe for shares of common stock in an amount equal
to the greater of:
(1) $100,000 or 10,000 shares of common stock;
36
<PAGE>
(2) one-tenth of one percent of the total offering of shares of
common stock; or
(3) 15 times the product, rounded down to the next whole number,
obtained by multiplying the total number of shares of common
stock to be issued by a fraction, of which the numerator is
the amount of the qualifying deposit of the Eligible Account
Holder and the denominator is the total amount of qualifying
deposits of all Eligible Account Holders in Community Bank in
each case as of the close of business on September 30, 1998,
the "Eligibility Record Date," subject to the overall purchase
limitations.
See "-- Limitations on Stock Purchases."
If there are not sufficient shares available to satisfy all
subscriptions, shares first will be allocated among subscribing Eligible Account
Holders so as to permit each such Eligible Account Holder, to the extent
possible, to purchase a number of shares sufficient to make his total allocation
equal to the lesser of the number of shares subscribed for or 100 shares.
Thereafter, any shares remaining will be allocated among the subscribing
Eligible Account Holders whose subscriptions remain unfilled pro rata in the
proportion that the amounts of their respective qualifying deposits bear to the
total amount of qualifying deposits of all subscribing Eligible Account Holders
whose subscriptions remain unfilled. For example, if an Eligible Account Holder
with an unfilled subscription has qualifying deposits totaling $100, and the
total amount of qualifying deposits for Eligible Account Holders with unfilled
subscriptions was $1,000, then the number of shares that may be allocated to
fill this Eligible Account Holder's subscription would be 10% of the shares
remaining available, up to the amount subscribed for.
To ensure proper allocation of stock, each Eligible Account Holder must
list on his subscription order form all accounts in which he has an ownership
interest. Failure to list an account could result in fewer shares being
allocated than if all accounts had been disclosed. The subscription rights of
Eligible Account Holders who are also directors or officers of Community Bank or
their associates will be subordinated to the subscription rights of other
Eligible Account Holders to the extent attributable to increased deposits in the
year preceding September 30, 1998.
Preference Category No. 2: Tax-Qualified Employee Plans. Each
Tax-Qualified Employee Plan, including the employee stock ownership plan shall
be entitled to receive, without payment therefor, second priority,
nontransferable subscription rights to purchase up to 10% of common stock,
provided that individually or in the aggregate these plans, other than that
portion of the plans which is self-directed, shall not purchase more than 10% of
the shares of common stock, including any increase in the number of shares of
common stock after the date hereof as a result of an increase of up to 15% in
the maximum of the estimated offering range. The employee stock ownership plan
intends to purchase 8.0% of the shares of common stock issued in the conversion,
or 14,450 shares and 19,550 shares based on the minimum and maximum of the
estimated offering range, respectively. Subscriptions by any of the
Tax-Qualified Employee Plans will not be aggregated with shares of common stock
purchased directly by or which are otherwise attributable to any other
participants in the subscription and direct community offerings, including
subscriptions of any of Community Bank's directors, officers, employees or
associates thereof. Subscription rights received pursuant to this category shall
be subordinated to all rights
37
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received by Eligible Account Holders to purchase shares pursuant to preference
category No.1. See "Management - Benefits -- Employee Stock Ownership Plan."
Preference Category No. 3: Supplemental Eligible Account Holders. To
the extent that there are sufficient shares remaining after satisfaction of
subscriptions by Eligible Account Holders and the Tax-Qualified Employee Plans,
each Supplemental Eligible Account Holder shall be entitled to receive, without
payment therefor, third priority, nontransferable subscription rights to
subscribe for shares of common stock in an amount equal to the greater of:
(1) $100,000 or 10,000 shares of common stock;
(2) one-tenth of one percent of the total offering of shares of
common stock; or
(3) 15 times the product, rounded down to the next whole number,
obtained by multiplying the total number of shares of common
stock to be issued by a fraction, of which the numerator is
the amount of the qualifying deposit of the Supplemental
Eligible Account Holder and the denominator of which is the
total amount of qualifying deposits of all Supplemental
Eligible Account Holders in Community Bank in each case on the
close of business on March 31, 2000, the "Supplemental
Eligibility Record Date," subject to the overall purchase
limitations.
See "-- Limitations on Stock Purchases."
If there are not sufficient shares available to satisfy all
subscriptions of all Supplemental Eligible Account Holders, available shares
first will be allocated among subscribing Supplemental Eligible Account Holders
so as to permit each Supplemental Eligible Account Holder, to the extent
possible, to purchase a number of shares sufficient to make his total
allocation, including the number of shares, if any, allocated in accordance with
preference category No.1, equal to the lesser of the number of shares subscribed
for or 100 shares. Thereafter, any shares remaining available will be allocated
among the Supplemental Eligible Account Holders whose subscriptions remain
unfilled pro rata in the proportion that the amounts of their respective
qualifying deposits bear to the total amount of qualifying deposits of all
subscribing Supplemental Eligible Account Holders whose subscriptions remain
unfilled.
Preference Category No. 4: Other Members. To the extent that there are
sufficient shares remaining after satisfaction of subscriptions by Eligible
Account Holders, the Tax-Qualified Employee Plans and Supplemental Eligible
Account Holders, each Other Member shall receive, without payment therefor,
fourth priority, nontransferable subscription rights to subscribe for shares of
CBCT Bancshares, Inc. common stock, up to the greater of $100,000 or 10,000
shares of common stock or one-tenth of one percent of the total offering of
shares of common stock in the offerings, subject to the overall purchase
limitations. See "-- Limitations on Stock Purchases."
In the event the Other Members subscribe for a number of shares which,
when added to the shares subscribed for by Eligible Account Holders, the
Tax-Qualified Employee Plans and
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<PAGE>
Supplemental Eligible Account Holders, is in excess of the total number of
shares of common stock offered in the conversion, available shares will be
allocated among the subscribing Other Members pro rata in the same proportion
that his number of votes on the close of business on __________, 2000, the date
for determining voting members entitled to vote at the special meeting, which we
call the voting record date, bears to the total number of votes on the voting
record date of all subscribing Other Members on that date. This number of votes
shall be determined based on Community Bank's mutual charter and bylaws in
effect on the date of approval by members of the plan of conversion.
Preference Category No. 5: Directors, officers and employees. To the
extent that there are sufficient shares remaining after satisfaction of all
subscriptions by Eligible Account Holders, the Tax-Qualified Employee Plans,
Supplemental Eligible Account Holders and Other Members, then directors,
officers and employees of Community Bank as of the date of the commencement of
the subscription offering shall be entitled to receive, without payment, fifth
priority, nontransferable subscription rights to purchase in this category an
aggregate of up to 25% of the common stock being offered. The maximum amount of
shares which may be purchased under this category by any person is $100,000 of
common stock. The ability of directors, officers and employees to purchase
common stock under this category is in addition to rights which are otherwise
available to them under the plan of conversion as they may fall within higher
priority categories, and the plan of conversion generally allows these persons
to purchase in the aggregate up to 35% of common stock sold in the offerings.
See "-- Limitations on Stock Purchases."
In the event of an oversubscription in this category, the shares
available shall be allocated pro rata among all of the subscribing directors,
officers and employees in this category.
Expiration Date for the Subscription Offering. The subscription
offering will expire at noon, Smithville, Texas time, on ________, 2000, the
"subscription expiration date," unless extended for up to 45 days or for such
additional periods by CBCT Bancshares, Inc. and Community Bank as may be
approved by the Texas Savings and Loan Department. The subscription offering may
not be extended beyond ________, 2002. Subscription rights which have not been
exercised prior to the subscription expiration date, unless extended, will
become void.
CBCT Bancshares, Inc. and Community Bank will not execute orders until
at least the minimum number of shares of common stock, 180,625 shares, have been
subscribed for or otherwise sold. If all shares have not been subscribed for or
sold within 45 days after the subscription expiration date, unless this period
is extended with the consent of the Texas Savings and Loan Department and the
FDIC, all funds delivered to Community Bank pursuant to the subscription
offering will be returned promptly to the subscribers with interest and all
withdrawal authorizations will be canceled. If an extension beyond the 45-day
period following the subscription expiration date is granted, CBCT Bancshares,
Inc. and Community Bank will notify subscribers of the extension of time and of
any rights of subscribers to modify or rescind their subscriptions.
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<PAGE>
Direct Community Offering
To the extent that shares remain available for purchase after
satisfaction of all subscriptions of Eligible Account Holders, the Tax-Qualified
Employee Plans, Supplemental Eligible Account Holders, Other Members and
directors, officers and employees of Community Bank, we anticipate we will offer
shares pursuant to the plan of conversion to members of the general public who
receive a prospectus, with a preference given to natural persons residing in the
county in which Community Bank has its office. These natural persons are
referred to as preferred subscribers. Persons, together with an associate or
group of persons acting in concert with these persons, may not subscribe for or
purchase more than $100,000 of common stock in the direct community offering, if
any. CBCT Bancshares, Inc. and Community Bank may limit total subscriptions in
the direct community offering so as to assure that the number of shares
available for the public offering may be up to a specified percentage of the
number of shares of common stock.
Finally, CBCT Bancshares, Inc. and Community Bank may reserve shares
offered in the direct community offering for sales to institutional investors.
The opportunity to subscribe for shares of common stock in any direct community
offering will be subject to the right of CBCT Bancshares, Inc. and Community
Bank, in their sole discretion, to accept or reject any orders in whole or in
part from any person either at the time of receipt of an order or as soon as
practicable following the subscription expiration date.
The direct community offering, if any, shall be for a period of not
less than 20 days nor more than 45 days unless extended by CBCT Bancshares, Inc.
and Community Bank, and shall commence concurrently with, during or promptly
after the subscription offering.
In the event of an oversubscription for shares in the direct community
offering, shares may be allocated, to the extent shares remain available, first
to each preferred subscriber whose order is accepted by CBCT Bancshares, Inc.
Thereafter, shares may be allocated to cover the orders of any other person
subscribing for shares in the direct community offering so that each person
subscribing for shares may receive 1,000 shares, if available, and thereafter on
a pro rata basis to persons based on the amount of their respective
subscriptions.
Public Offering
As a final step in the conversion, the plan of conversion provides
that, if feasible, all shares of common stock not purchased in the subscription
offering and direct community offering may be offered for sale to selected
members of the general public in a public offering through an underwriter. We
call this the public offering. It is expected that the public offering will
commence as soon as practicable after termination of the subscription offering
and the direct community offering, if any. CBCT Bancshares, Inc. and Community
Bank, in their sole discretion, have the right to reject orders in whole or in
part received in the public offering. Neither Keefe, Bruyette & Woods nor any
registered broker-dealer shall have any obligation to take or purchase any
shares of common stock in the public offering; however, Keefe, Bruyette & Woods
has agreed to use its best efforts in the sale of shares in the public offering.
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<PAGE>
The price at which common stock is sold in the public offering will be
the same price at which shares are offered and sold in the subscription offering
and direct community offering. No person, by himself or herself, or with an
associate or group of persons acting in concert, may purchase more than $100,000
of common stock in the public offering, subject to the maximum purchase
limitations. See "-- Limitations on Stock Purchases."
Keefe, Bruyette & Woods may enter into agreements with broker-dealers
to assist in the sale of the shares in the public offering, although no
agreements of this kind exist as of the date of this prospectus. No orders may
be placed or filled by or for a selected dealer during the subscription
offering. After the close of the subscription offering, Keefe, Bruyette & Woods
will instruct selected dealers as to the number of shares to be allocated to
each selected dealer. Only after the close of the subscription offering and upon
allocation of shares to selected dealers may selected dealers take orders from
their customers.
During the subscription offering and direct community offering,
selected dealers may only solicit indications of interest from their customers
to place orders with CBCT Bancshares, Inc. as of an order date for the purchase
of shares of CBCT Bancshares, Inc. common stock. If Keefe, Bruyette & Woods and
Community Bank believe that not enough indications of interest and orders have
been received in the subscription offering and direct community offering to
consummate the conversion, Keefe, Bruyette & Woods will request, as of the order
date, selected dealers to submit orders to purchase shares for which they have
previously received indications of interest from their customers. Selected
dealers will send confirmations of the orders to such customers on the next
business day after the order date. Selected dealers will debit the accounts of
their customers on the settlement date, which date will be three business days
from the order date.
Customers who authorize selected dealers to debit their brokerage
accounts are required to have the funds for payment in their account on but not
before the settlement date. On the settlement date, selected dealers will
deposit funds to the account established by Community Bank for each selected
dealer. Each customer's funds forwarded to Community Bank, along with all other
accounts held in the same title, will be insured by the FDIC up to $100,000 in
accordance with applicable FDIC regulations. After payment has been received by
Community Bank from selected dealers, funds will earn interest at Community
Bank's passbook rate until the completion or termination of the conversion.
Funds will be promptly returned, with interest, in the event the conversion is
not consummated as described above.
The public offering will be completed within 90 days after the
termination of the subscription offering, unless extended by Community Bank with
the approval of the Texas Savings and Loan Department. See "-- How We Determined
Our Price and the Number of Shares to be Issued in the Stock Offering" above for
a discussion of rights of subscribers, if any, in the event an extension is
granted.
Persons Who are Not Permitted to Participate in the Stock Offering
Community Bank will make reasonable efforts to comply with the
securities laws of all states in the United States in which persons entitled to
subscribe for stock pursuant to the plan of
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<PAGE>
conversion reside. However, Community Bank is not required to offer stock in the
subscription offering to any person who resides in a foreign country or resides
in a state of the United States with respect to which:
o the number of persons otherwise eligible to subscribe for
shares under the plan of conversion who reside in such
jurisdiction is small;
o the granting of subscription rights or the offer or sale of
shares of common stock to these persons would require any of
CBCT Bancshares, Inc. and Community Bank or their officers,
directors or employees, under the laws of that jurisdiction,
to register as a broker, dealer, salesman or selling agent or
to register or otherwise qualify its securities for sale in
that jurisdiction or to qualify as a foreign corporation or
file a consent to service of process in that jurisdiction; or
o the registration, qualification or filing in the judgment of
Community Bank would be impracticable or unduly burdensome for
reasons of cost or otherwise.
Where the number of persons eligible to subscribe for shares in one state is
small, Community Bank will base its decision as to whether or not to offer the
common stock in that state on a number of factors, including but not limited to
the size of accounts held by account holders in the state, the cost of
registering or qualifying the shares or the need to register Community Bank, its
officers, directors or employees as brokers, dealers or salesmen.
Limitations on Stock Purchases
In addition to the limitations previously described, the plan of
conversion includes the following limitations on the number of shares of CBCT
Bancshares, Inc. common stock which may be purchased in the conversion:
(1) No fewer than 25 shares of common stock may be purchased, to
the extent shares are available;
(2) Except for the Tax-Qualified Employee Plans, and the Eligible
Account Holders and Supplemental Eligible Account Holders
whose subscription rights are based upon the amount of their
deposits, the maximum number of shares of CBCT Bancshares,
Inc. common stock subscribed for or purchased in all
categories of the offerings by any person, together with
associates of and groups of persons acting in concert with
such persons, as defined below, shall not exceed $100,000 or
10,000 shares of common stock; and
(3) No more than 25% of the total number of shares offered for
sale in the subscription offering may be purchased by
directors, officers and employees of Community Bank in the
fifth priority category in the subscription offering. No more
than 35% of the total number of shares offered for sale in the
conversion may be purchased by directors and officers of
Community Bank and their
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<PAGE>
associates in the aggregate, excluding purchases by the
Tax-Qualified Employee Plans.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the members of
Community Bank, the boards of directors of CBCT Bancshares, Inc. and Community
Bank may, in their sole discretion, increase the individual amount permitted to
be subscribed for to a maximum of 9.99% of the number of shares sold in the
conversion, provided that orders for shares exceeding 5% of the shares being
offered in the conversion shall not exceed, in the aggregate, 10% of the shares
being offered in the conversion. Requests to purchase additional shares of
common stock will be allocated by the boards of directors on a pro rata basis
giving priority in accordance with the preference categories set forth in this
prospectus.
Tax-Qualified and Non-Tax Qualified Employee Plans will not be deemed
to be an associate of any director or officer of Community Bank or CBCT
Bancshares, Inc., to the extent provided in the plan of conversion. The
determination of whether a person is an associate of another person or a group
is acting in concert shall be made solely by the board of directors of Community
Bank or officers delegated by the board of directors and may be based on any
evidence upon which the board or delegatee chooses to rely.
Marketing Arrangements
CBCT Bancshares, Inc. and Community Bank have retained Keefe, Bruyette
& Woods to consult with and to advise Community Bank, and to assist CBCT
Bancshares, Inc., on a best efforts basis, in the distribution of the shares of
common stock in the subscription offering and direct community offering. The
services that Keefe, Bruyette & Woods will provide include, but are not limited
to:
o training the employees of Community Bank who will perform
ministerial functions in the subscription offering and direct
community offering regarding the mechanics and regulatory
requirements of the stock offering process;
o managing the stock information centers by assisting interested
stock subscribers and by keeping records of all stock orders;
o preparing marketing materials; and
o assisting in the solicitation of proxies from Community Bank's
members for use at the special meeting.
For its services, Keefe, Bruyette & Woods will receive a management fee
of $25,000 and a success fee of $50,000. The success fee paid to Keefe, Bruyette
& Woods will be in addition to the amount of the management fee. In the event
that selected dealers are used to assist in the sale of shares of CBCT
Bancshares, Inc. common stock in the direct community offering, these dealers
will be paid a fee of up to 5.5% of the total purchase price of the shares sold
by such dealers. CBCT Bancshares, Inc. and Community Bank have agreed to
indemnify Keefe, Bruyette
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& Woods against claims or liabilities, including liabilities under the
Securities Act of 1933, as amended, and will contribute to payments Keefe,
Bruyette & Woods may be required to make in connection with any such claims or
liabilities.
Sales of shares of CBCT Bancshares, Inc. common stock will be made by
registered representatives affiliated with Keefe, Bruyette & Woods or by the
broker-dealers managed by Keefe, Bruyette & Woods. Keefe, Bruyette & Woods has
undertaken that the shares of CBCT Bancshares, Inc. common stock will be sold in
a manner which will ensure that the distribution standards of the Nasdaq Stock
Market will be met. A stock information center will be established at Community
Bank's office in Smithville, Texas. CBCT Bancshares, Inc. will rely on Rule
3a4-1 of the Securities Exchange Act of 1934 and sales of CBCT Bancshares, Inc.
common stock will be conducted within the requirements of this rule, so as to
permit officers, directors and employees to participate in the sale of CBCT
Bancshares, Inc. common stock in those states where the law permits. No officer,
director or employee of CBCT Bancshares, Inc. or Community Bank will be
compensated directly or indirectly by the payment of commissions or other
remuneration in connection with his or her participation in the sale of common
stock.
Procedure for Purchasing Shares in the Subscription Offering
To ensure that each purchaser receives a prospectus at least 48 hours
before the subscription expiration date, unless extended, in accordance with
Rule 15c2-8 of the Securities Exchange Act of 1934, no prospectus will be mailed
any later than five days prior to that date or hand delivered any later than two
days prior to that date. Execution of the order form will confirm receipt or
delivery in accordance with Rule 15c2-8. Order forms will only be distributed
with a prospectus.
To purchase shares in the subscription offering, an executed order form
with the required payment for each share subscribed for, or with appropriate
authorization for withdrawal from a deposit account at Community Bank, which may
be given by completing the appropriate blanks in the order form, must be
received by Community Bank by noon, Smithville, Texas time, on the subscription
expiration date, unless extended. In addition, CBCT Bancshares, Inc. and
Community Bank will require a prospective purchaser to execute a certification
in the form required by applicable regulations in connection with any sale of
common stock. Order forms which are not received by this time or are executed
defectively or are received without full payment, or appropriate withdrawal
instructions, are not required to be accepted. In addition, Community Bank will
not accept orders submitted on photocopied or facsimiled order forms nor order
forms unaccompanied by an executed certification form. Community Bank has the
right to waive or permit the correction of incomplete or improperly executed
forms, but does not represent that it will do so. Once received, an executed
order form may not be modified, amended or rescinded without the consent of
Community Bank, unless the conversion has not been completed within 45 days
after the end of the subscription offering, or this period has been extended.
In order to ensure that Eligible Account Holders, Tax-Qualified
Employee Plans, Supplemental Eligible Account Holders, Other Members and
directors, officers and employees are properly identified as to their stock
purchase priority, depositors as of the close of business on
44
<PAGE>
the Eligibility Record Date, September 30, 1998, or the Supplemental Eligibility
Record Date, March 31, 2000, and depositors and borrowers as of the close of
business on the voting record date, __________, 2000, must list all accounts on
the stock order form giving all names in each account and the account numbers.
Payment for subscriptions may be made:
o by check or money order;
o by authorization of withdrawal from deposit accounts
maintained with Community Bank (including a certificate of
deposit); or
o in cash, if delivered in person at any full-service banking
office of Community Bank, although we request that you
exchange cash for a check with any of our tellers;
No wire transfers will be accepted. Interest will be paid on payments made by
cash, check or money order at our then-current passbook rate from the date
payment is received until completion of the conversion. If payment is made by
authorization of withdrawal from deposit accounts, the funds authorized to be
withdrawn from a deposit account will continue to accrue interest at the
contractual rate, but may not be used by the subscriber until all of CBCT
Bancshares, Inc. common stock has been sold or the plan of conversion is
terminated, whichever is earlier.
If a subscriber authorizes Community Bank to withdraw the amount of the
purchase price from his deposit account, Community Bank will do so as of the
effective date of the conversion. Community Bank will waive any applicable
penalties for early withdrawal from certificate accounts.
In the event of an unfilled amount of any subscription order, Community
Bank will make an appropriate refund or cancel an appropriate portion of the
related withdrawal authorization, after completion of the conversion. If for any
reason the conversion is not consummated, purchasers will have refunded to them
all payments made, with interest, and all withdrawal authorizations will be
canceled in the case of subscription payments authorized from accounts at
Community Bank.
If any Tax-Qualified Employee Plans or Non-Tax-Qualified Employee Plans
subscribe for shares during the subscription offering, these plans will not be
required to pay for the shares subscribed for at the time they subscribe, but
rather, may pay for shares of common stock subscribed for at the purchase price
upon completion of the subscription offering and direct community offering, if
all shares are sold, or upon completion of the public offering if shares remain
to be sold in the offering. In the event that, after the completion of the
subscription offering, the amount of shares to be issued is increased above the
maximum of the estimated valuation range included in this prospectus, the
Tax-Qualified and Non-Tax-Qualified Employee Plans will be entitled to increase
their subscriptions by a percentage equal to the percentage increase in the
amount of shares to be issued above the maximum of the estimated valuation
45
<PAGE>
range, provided that the subscription will continue to be subject to applicable
purchase limits and stock allocation procedures.
Owners of self-directed IRAs may use the assets of their IRAs to
purchase shares of CBCT Bancshares, Inc. common stock in the subscription
offering and direct community offering. ERISA provisions and IRS regulations
require that officers, directors and 10% stockholders who use self-directed IRA
funds to purchase shares of common stock in the offerings make the purchases for
the exclusive benefit of the IRAs. IRAs maintained at Community Bank are not
self-directed IRAs and any interested parties wishing to use IRA funds for stock
purchases may do so, but are advised to contact the stock information center at
(512) ________ for additional information.
The records of Community Bank will be deemed to control with respect to
all matters related to the existence of subscription rights and one's ability to
purchase shares of common stock in the subscription offering.
Restrictions on Transfer of Subscription Rights and Shares
Pursuant to applicable rules and regulations, no person with
subscription rights may transfer or enter into any agreement or understanding to
transfer the legal or beneficial ownership of the subscription rights issued
under the plan of conversion or the shares of common stock to be issued upon
their exercise. Such rights may be exercised only by the person to whom they are
granted and only for that person's account. Each person exercising subscription
rights will be required to certify that the person is purchasing shares solely
for the person's own account and that the person has no agreement or
understanding regarding the sale or transfer of the shares. Regulations also
prohibit any person from offering or making an announcement of an offer or
intent to make an offer to purchase such subscription rights or shares of common
stock prior to the completion of the conversion.
Community Bank will refer to the Texas Savings and Loan Department and
the FDIC any situations that it believes may involve a transfer of subscription
rights and will not honor orders believed by it to involve the transfer of such
rights.
Delivery of Certificates
Certificates representing common stock issued in the conversion will be
mailed by CBCT Bancshares, Inc.'s transfer agent to the persons entitled thereto
at the addresses of the persons appearing on the stock order form as soon as
practicable following completion of the conversion. Any certificates returned as
undeliverable will be held by CBCT Bancshares, Inc. until claimed by persons
legally entitled to them or otherwise disposed of in accordance with applicable
law. Until certificates for common stock are available and delivered to
subscribers, they may not be able to sell the shares of common stock for which
they have subscribed, even though trading of the common stock may have
commenced.
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Required Approvals
Various regulatory approvals are required in order to consummate the
conversion. The Texas Savings and Loan Department has approved the plan of
conversion and the FDIC has issued its non-objection to the conversion, subject
to approval by Community Bank's members and other standard conditions. CBCT
Bancshares, Inc.'s holding company application with the Federal Reserve Board
has been approved.
CBCT Bancshares, Inc. is required to make filings with state securities
regulatory authorities in connection with the issuance of CBCT Bancshares, Inc.
common stock in the offerings.
Restrictions on Purchase or Transfer of Shares After the Conversion
All shares of common stock purchased in connection with the conversion
by a director or an executive officer of CBCT Bancshares, Inc. and Community
Bank will be subject to a restriction that the shares not be sold for a period
of one year following the conversion except in the event of the death of the
director or officer or pursuant to a merger or similar transaction approved by
the Texas Savings and Loan Department. Each certificate for restricted shares
will bear a legend giving notice of this restriction on transfer, and
instructions will be issued to the effect that any transfer within this time
period of any certificate or record ownership of the shares other than as
provided above is a violation of the restriction. Any shares of common stock
issued at a later date within this one year period as a stock dividend, stock
split or otherwise with respect to the restricted stock will be subject to the
same restrictions.
Purchases of common stock of CBCT Bancshares, Inc. by directors,
executive officers and their associates during the three-year period following
completion of the conversion may be made only through a broker or dealer
registered with the SEC, except with the prior written approval of the Texas
Savings and Loan Department. This restriction does not apply, however, to
negotiated transactions involving more than 1% of CBCT Bancshares, Inc.'s
outstanding common stock or to purchases of stock pursuant to an employee stock
benefit plan.
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PROPOSED PURCHASES BY MANAGEMENT
The following table sets forth, for each of Community Bank's directors
and for all of the directors and executive officers as a group, the proposed
purchases of common stock, assuming sufficient shares are available to satisfy
their subscriptions. The amounts include shares that may be purchased through
individual retirement accounts and by associates.
At the Minimum of the At the Maximum of
Estimated Offering Range Estimated Offering Range
------------------------ ------------------------
As a Percent As a Percent
Number of of Shares Number of of Shares
Name Amount Shares Offered Shares Offered
- --------------------- --------- ---------- ------------ --------- -------------
Vernon L. Richards $ 20,000 2,000 1.10% 2,000 0.82%
Clinton M. Wright 1,000 100 0.06 100 0.04
Mike C. Maney 100,000 10,000 5.54 10,000 4.09
Gordon N. Fowler 75,000 7,500 4.15 7,500 3.07
James A. Cowan 100,000 10,000 5.54 10,000 4.09
Rodney E. Langer 25,000 2,500 1.38 2,500 1.02
Brad M. Hurta 30,000 3,000 1.66 3,000 1.22
Georgina Chronis 1,500 150 0.08 150 0.06
Barry W. Hannath 100,000 10,000 5.54 10,000 4.09
Lynn D. Frerich 5,000 500 0.28 500 0.20
Nancy M. Janecek 2,000 200 0.11 200 0.08
All directors and
executive officers as $459,500 45,950 25.44% 45,950 18.80%
a group (11 persons)
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Consolidated Statements of Income
Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997
----------- ---------- -----------
Interest and dividend income:
Interest and fees on loans $ 1,877,775 $1,888,503 $1,768,018
Debt securities:
Taxable 1,001,765 513,324 648,525
Tax-exempt 9,486 11,140 12,326
Interest on deposits in banks 131,211 146,170 68,163
Dividends 30,051 30,099 28,131
----------- ---------- -----------
Total interest and dividend income 3,050,288 2,589,236 2,525,163
----------- ---------- -----------
Interest expense:
Deposits 1,542,254 1,545,409 1,476,640
Federal Home Loan Bank advances 360,107 15,099 7,498
----------- ---------- -----------
Total interest expense 1,902,361 1,560,508 1,484,138
----------- ---------- -----------
Net interest income 1,147,927 1,028,728 1,041,025
Provision for loan losses - - 3,253
----------- ---------- -----------
Net interest income after
provision for loan losses 1,147,927 1,028,728 1,037,772
----------- ---------- -----------
Noninterest income:
Service charges and other income 112,915 82,949 70,885
Net gains on sales of loans 51,231 51,050 -
Net gains on sales of securities 76,091 30,396 -
----------- ---------- -----------
Total noninterest income 240,237 164,395 70,885
----------- ---------- -----------
Noninterest expenses:
Salaries and employee benefits 454,406 348,560 365,820
Occupancy and equipment expenses 183,201 138,390 102,603
Other operating expenses 511,767 403,251 378,201
----------- ---------- -----------
Total noninterest expenses 1,149,374 890,201 846,624
----------- ---------- -----------
Income before income taxes 238,790 302,922 262,033
Income tax expense 71,108 90,618 86,340
----------- ---------- -----------
Net income $ 167,682 $ 212,304 $ 175,693
=========== ========== ===========
Notes to consolidated financial statements form an integral part of these
statements.
49
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following discussion is intended to assist in understanding the
financial condition and results of operations of Community Bank. The discussion
and analysis does not include any comments relating to CBCT Bancshares, Inc.,
since CBCT Bancshares, Inc. has no significant operations. The information
contained in this section should be read in conjunction with the consolidated
financial statements and the accompanying notes to consolidated financial
statements and the other sections contained in the prospectus.
Community Bank's results of operations depend primarily on its net
interest income, which is the difference between interest income on
interest-earning assets, which principally consist of loans and mortgage-backed
and investment securities, and interest expense on interest-bearing liabilities,
which principally consist of deposits and borrowings. Community Bank's results
of operations also are affected by the level of its noninterest income and
expenses and income tax expense.
Forward-Looking Statements
This prospectus contains forward-looking statements which are based on
assumptions and describe future plans, strategies and expectations of CBCT
Bancshares, Inc. and Community Bank. These forward-looking statements are
generally identified by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project," or similar words. Our ability to predict
results or the actual effect of future plans or strategies is uncertain. Factors
which could have a material adverse effect on our operations include, but are
not limited to, changes in interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
our market areas and accounting principles and guidelines. These risks and
uncertainties should be considered in evaluating forward-looking statements and
you should not rely too much on these statements.
Management Strategy
Our strategy is to operate as an independent, retail oriented financial
institution dedicated to serving the needs of customers in our market area. Our
commitment is to provide a broad range of products and services to meet the
needs of our customers. As part of this commitment, we are looking to increase
our emphasis on commercial and consumer business products and services. In
addition, we are continually looking at cost-effective ways to expand our market
area.
50
<PAGE>
Financial highlights of our strategy include:
o Continuing as a Diversified Lender. We have been successful in
diversifying our loan portfolio to reduce our reliance on any
one type of loan. Since 1997, we have increased the percentage
of our loan portfolio consisting of consumer and commercial
real estate and commercial business loans from 26% to 46% as
of December 31, 1999. After the conversion, we intend to
continue to increase our emphasis on offering commercial and
consumer business products and services. This diversification,
however, increases the potential credit risk of our loan
portfolio. See "Risk Factors - Our loan portfolio possesses
increased risk due to our substantial percentage of consumer
and commercial real estate and commercial business loans."
o Continuing Our Strong Asset Quality. Since 1995, our ratio of
non-performing assets to total assets has not exceeded .42%
and at December 31, 1999 this ratio was .16%.
o Continuing Our Strong Capital Position. As a result of our
conservative risk management and consistent profitability, we
have historically maintained a strong capital position. At
December 31, 1999, our ratio of equity to total assets was
7.0%.
o Efforts to Increase Transaction Accounts. As part of our
emphasis on commercial and consumer business products and
services, we are attempting to increase our non-certificate
deposit accounts, including transaction accounts. During 1999,
our non-certificate deposit accounts increased from $6.0
million to $7.0 million.
All of these are designed to improve our profitability.
Asset and Liability Management and Market Risk
Our Risk When Interest Rates Change. The rates of interest we earn on
assets and pay on liabilities generally are established contractually for a
period of time. Market interest rates change over time. Our loans generally have
longer maturities than our deposits. Accordingly, our results of operations,
like those of other financial institutions, are impacted by changes in interest
rates and the interest rate sensitivity of our assets and liabilities. The risk
associated with changes in interest rates and our ability to adapt to these
changes is known as interest rate risk and is our most significant market risk.
As of December 31, 1999, our one-year cumulative interest rate sensitivity gap
as a percentage of total assets was a negative 46.03%, which generally means if
interest rates rise, our net interest income could be reduced because interest
paid on interest-bearing liabilities, including deposits and borrowings, could
increase more quickly than interest received on interest-earning assets,
including loans and mortgage-backed and investment securities. In addition,
rising interest rates may hurt our income because they may reduce the demand for
loans and the value of our mortgage-related and investment securities. In the
alternative, if interest rates decrease, our net interest income would increase.
51
<PAGE>
How We Measure Our Risk of Interest Rate Changes. As part of our
attempt to manage our exposure to changes in interest rates and comply with
applicable regulations, we monitor our interest rate risk. In monitoring
interest rate risk we continually analyze and manage assets and liabilities
based on their payment streams and interest rates, the timing of their
maturities, and their sensitivity to actual or potential changes in market
interest rates.
In order to minimize the potential for adverse effects of material and
prolonged increases in interest rates on our results of operations, we have
adopted investment/asset and liability management policies to better match the
maturities and repricing terms of our interest-earning assets and
interest-bearing liabilities. The board of directors sets and recommends the
asset and liability policies of Community Bank which are implemented by the
investment/asset and liability management committee. The investment/asset and
liability management committee is chaired by Mike Maney and is comprised of
members of our board of directors and senior management.
The purpose of the investment/asset and liability management committee
is to communicate, coordinate and control asset/liability management consistent
with our business plan and board approved policies. The investment/asset and
liability management committee establishes and monitors the volume and mix of
assets and funding sources taking into account relative costs and spreads,
interest rate sensitivity and liquidity needs. The objectives are to manage
assets and funding sources to produce results that are consistent with
liquidity, capital adequacy, growth, risk and profitability goals.
The investment/asset and liability management committee generally meets
on a monthly basis to review, among other things, economic conditions and
interest rate outlook, current and projected liquidity needs and capital
position, anticipated changes in the volume and mix of assets and liabilities
and interest rate risk exposure limits versus current projections pursuant to
net present value of portfolio equity analysis and income simulations. The
investment/asset and liability management committee recommends appropriate
strategy changes based on this review. The President or his designee is
responsible for reviewing and reporting on the effects of the policy
implementations and strategies to the board of directors, at least quarterly.
In order to manage our assets and liabilities and achieve the desired
liquidity, credit quality, interest rate risk, profitability and capital
targets, we have focused our strategies on:
o originating adjustable rate mortgage loans and commercial
business loans,
o originating shorter-term consumer loans,
o managing our deposits to establish stable deposit
relationships,
o acquiring longer-term borrowings at fixed interest rates, when
appropriate, to offset the negative impact of longer-term
fixed rate loans in our loan portfolio, and
o selling to the secondary market fixed-rate residential loans
originated by us.
52
<PAGE>
At times, depending on the level of general interest rates, the relationship
between long- and short-term interest rates, market conditions and competitive
factors, the investment/asset and liability management committee may determine
to increase our interest rate risk position somewhat in order to maintain our
net interest margin. In the future, we intend to increase our emphasis on the
origination of relatively short-term and/or adjustable rate loans.
The investment/asset and liability management committee regularly
reviews interest rate risk by forecasting the impact of alternative interest
rate environments on net interest income and market value of portfolio equity,
which is defined as the net present value of an institution's existing assets,
liabilities and off-balance sheet instruments, and evaluating such impacts
against the maximum potential changes in net interest income and market value of
portfolio equity that are authorized by the board of directors of Community
Bank.
The following table presents the contractual maturities and repricing
data of the Bank's interest-earning assets and interest-bearing liabilities,
commonly called a "gap" report. It gives an indication of the Bank's interest
rate sensitivity position; however, it is used by management in conjunction with
other reports to determine plans and strategies for managing the interest rate
risk of the Bank. The gap report has limitations; for example, all savings, NOW,
and money market deposit accounts are shown as maturing within the 90 day
timeframe; in reality, these deposits are relatively stable and do not turn over
or reprice as frequently as the static gap report suggests. In addition, no
prepayment assumptions have been made with regard to interest-earning assets.
53
<PAGE>
<TABLE>
<CAPTION>
Within 90 days 1 to 3 Over
90 days to 1 Year Years 3 Years Total
-------- ---------- -------- --------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Deposits in banks $ 1,691 $ --- $ --- $ --- $ 1,691
Investment securities --- 4,319 72 11,886 16,277
Loans 1,435 2,779 4,101 13,577 21,892
Other interest-earning assets --- --- --- 496 496
-------- -------- -------- ------- -------
Total interest-earning assets 3,126 7,098 4,173 25,959 40,356
-------- -------- -------- ======= =======
Interest-Bearing Liabilities:
Passbook savings accounts 1,770 --- --- --- 1,770
NOW and money market accounts 4,851 --- --- --- 4,851
Time deposit accounts 7,920 12,444 3,972 1,019 25,355
Federal Home Loan Bank advances 1,234 1,720 4,438 --- 7,392
-------- -------- -------- ------- -------
Total interest-bearing liabilities 15,775 14,164 8,410 1,019 39,368
-------- -------- -------- ======= =======
Interest sensitivity gap $(12,649) $ (7,066) $ (4,237)
======== ======== ========
Cumulative gap $(12,649) $(19,715) $(23,952)
======== ======== ========
Ratio of interest-earning assets to
interest-bearing liabilities 19.82% 50.11% 29.62%
====== ====== ======
Cumulative gap as a percentage of
total assets (29.53)% (46.03)% (55.92)%
====== ====== ======
</TABLE>
As with any method of measuring interest rate risk, shortcomings are
inherent in the method of analysis presented in the foregoing tables. For
example, although assets and liabilities may have similar maturities or periods
to repricing, they may react in different degrees to changes in market interest
rates. Also, the interest rates on certain types of assets and liabilities may
fluctuate in advance of changes in market interest rates, while interest rates
on other types may lag behind changes in market rates. Additionally, certain
assets, such as adjustable rate mortgage loans, have features which restrict
changes in interest rates on a short-term basis and over the life of the asset.
Further, if interest rates change, expected rates of prepayments on loans and
early withdrawals from certificates could deviate significantly from those
assumed in calculating the table.
Changes in Financial Condition from December 31, 1998 to December 31, 1999
General. Our total assets increased by $3.0 million or 7.5% to $42.8
million at December 31, 1999 compared to $39.8 million at December 31, 1998. The
increase was primarily due to a $2.8 million or 20.7% increase in securities,
which totaled $16.3 million at December 31, 1999 compared to $13.5 million at
December 31, 1998.
Loans. Our net loan portfolio increased from $20.9 million at December
31, 1998 to $21.7 million at December 31, 1999. The increase in the loan
portfolio over this time period was due to increased loan demand caused by our
efforts to expand Community Bank's commercial and consumer lending. The loan
portfolio increased in all categories, except the one-to four-family category,
with the largest increase occurring in the commercial real estate category, from
$2.9 million at December 31, 1998 to $3.7 million at December 31, 1999.
Securities. Available for sale securities amounted to $16.3 million at
December 31, 1999, and $7.5 million at December 31, 1998. The increase of $8.8
million or 117% was primarily due to the reclassification of securities held to
maturity into the available-for-sale category and the purchase of additional
securities partially match-funded by Federal Home Loan Bank advances, to
increase income.
Liabilities. Our total liabilities increased $3.3 million or 9.0% to
$39.8 million at December 31, 1999 compared to $36.5 million at December 31,
1998. This increase was due primarily to an increase in Federal Home Loan Bank
advances of $3.4 million, principally to fund the increase in securities and
loans.
Equity. Total equity amounted to $3.0 million at December 31, 1999 and
$3.3 million or 8.4% at December 31, 1998. The decrease in equity over the
period was due to a change in accumulated other comprehensive income from a gain
of $300,000 at December 31, 1998 to a loss of $215,000 at December 31, 1999,
partially offset by net income of $168,000 during 1999. The changes in
accumulated other comprehensive income resulted from net unrealized losses in
our available-for-sale securities due to an increase in interest rates.
54
<PAGE>
Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table presents for the periods indicated the total dollar
amount of interest income from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates. No tax equivalent adjustments were made.
All average balances are monthly average balances. Nonaccruing loans have been
included in the table as loans carrying a zero yield.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------
1999 1998
---------------------------- ---------------------------
Interest Interest
Average Earned/ Yield/ Average Earned/ Yield/
Balance Paid Rate Balance Paid Rate
----------- -------- ------- ---------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Deposits in banks $ 2,633 $ 131 4.98% $ 2,537 $ 146 5.75%
Investment securities 16,505 1,011 6.13 8,752 524 5.99
Loans 21,500 1,878 8.73 21,322 1,889 8.86
Other interest-earning assets 544 30 5.51 494 30 6.07
------- ------ ---- ------- ------ ----
Total interest-earning assets 41,182 3,050 7.41 33,105 2,589 7.82
------ ---- ------ ----
Noninterest-earning assets 2,130 2,228
------- -------
Total assets $43,312 $35,333
======= =======
Interest-Bearing Liabilities:
Passbook savings accounts $ 1,520 $ 41 2.70 $ 1,241 $ 34 2.74
NOW and money market accounts 5,015 133 2.65 4,091 113 2.76
Time deposit accounts 26,305 1,368 5.20 25,662 1,398 5.48
Federal Home Loan Bank advances 6,716 360 5.36 296 15 5.07
------- ------ ---- ------- ------ ----
Total interest-bearing liabilities 39,556 1,902 4.81 31,290 1,560 4.99
------ ---- ------ ----
Noninterest-bearing liabilities and
equity 3,756 4,043
------- -------
Total liabilities and equity $43,312 $35,333
======= =======
Net interest income $1,148 $1,029
====== ======
Net interest spread (1) 2.60% 2.83%
==== ====
Net interest margin(2) 2.79% 3.11%
==== ====
- ------------------
<FN>
(1) The net interest spread is the difference between the average rate on
interest-earning assets and interest-bearing liabilities.
(2) The net interest margin is net interest income divided by average
earning assets.
</FN>
</TABLE>
55
<PAGE>
Rate/Volume Analysis
The following table presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(1) changes in volume, which are changes in volume multiplied by the old rate,
and (2) changes in rate, which are changes in rate multiplied by the old volume.
Changes attributable to both rate and volume which cannot be segregated have
been allocated proportionately to the change due to volume and the change due to
rate.
Years Ended December 31,
1999 vs. 1998
-----------------------
Increase (decrease)
due to Total
-------------- Increase
Volume Rate Decrease)
------- ------ --------
(Dollars in Thousands)
Interest income:
Deposits in banks $ 6 $(21) $ (15)
Investment securities 464 23 487
Loans 16 (27) (11)
Other earning assets 3 (3) ---
---- ---- -----
Total interest income 489 (28) 461
---- ---- -----
Interest expense:
Savings accounts 7 --- 7
NOW and money market accounts 26 (6) 20
Time deposit accounts 35 (65) (30)
Federal Home Loan Bank advances 326 19 345
---- ---- -----
Total interest expense 394 (52) 342
---- ---- -----
Net interest income $ 95 $ 24 $ 119
==== ==== =====
56
<PAGE>
The following table presents the weighted average yields earned on
loans, investments and other interest-earning assets, and the weighted average
rates paid on savings and borrowings and the resultant interest rate spreads at
December 31, 1999.
At
December 31,
1999
------------
Weighted average yield on:
Deposits in banks............................. 4.77%
Investment securities......................... 6.06%
Loans receivable.............................. 8.63%
FHLB stock.................................... 5.72%
Combined weighted average yield on
interest-earning assets................... 7.39%
Weighted average rate paid on:
Savings accounts.............................. 2.50%
NOW money market accounts..................... 2.65%
Time deposit accounts......................... 4.93%
Federal Home Loan Bank advances............... 5.29%
Combined weighted average rate paid on
interest-bearing liabilities.............. 4.61%
Spread.......................................... 2.78%
====
Comparison of Results of Operations for the Years Ended December 31, 1998 and
1999
General. We reported net income of $168,000 for the year ended December
31, 1999 and $212,000 for the year ended December 31, 1998.
Net Interest Income. Net interest income increased $119,000 or 11.6% to
$1.1 million for 1999 compared to 1998, reflecting a $461,000 or 17.8% increase
in interest income, partially offset by a $342,000 or 21.9% increase in interest
expense. Our interest rate spread decreased to 2.60% for 1999 compared to 2.83%
for 1998. In addition, the ratio of average interest-earning assets to average
interest-bearing liabilities decreased to 104% for 1999 compared to 106% for
1998.
Interest Income. The increase in interest income during the year ended
December 31, 1999 was primarily due to an increase in the average balance of
interest-earning assets offset by a lower yield. The average balance of the
securities portfolio increased $7.8 million or 88.6% to $16.5 million for 1999
due to the shift of assets from short term money funds to investment securities
and the purchase of securities partially match-funded by Federal Home Loan Bank
advances to increase income. The average yield earned on our interest-earning
assets decreased from 7.82% in 1998 to 7.41% in 1999, primarily due to a general
decrease in market rates of interest.
Interest Expense. The increase in interest expense during the year
ended December 31, 1999 was primarily due to the increase of $6.4 million or
246.9% in the average balance of
57
<PAGE>
Federal Home Loan Bank advances, primarily to fund the increase in securities
and, to a lesser extent, loan growth. The average rate paid on interest-bearing
liabilities decreased from 4.99% in 1998 to 4.81% in 1999, due to a general
decrease in market rates of interest, partially offset by an increase in the
average rate paid on advances from 5.07% in 1998 to 5.36% in 1999.
Provision for Loan Losses. For the years ended December 31, 1999 and
1998, there was no provision for loan losses. At December 31, 1999, the ratio of
our allowance for loan losses to non-performing loans was 293%, and the ratio of
our allowance for loan losses to total loans was 0.91%. See "Business of
Community Bank - Asset Quality - Allowance for Loan Losses."
Other Operating Income. Other operating income amounted to $240,000 and
$164,000 for the years ended December 31, 1999 and 1998, respectively. The
increase consisted primarily of a $76,000 net gain from the sale of securities
in 1999 compared to a $30,000 net gain in 1998, as well as a $30,000 increase in
service charges and other income. The increase in service charges and other
income was primarily due to an increase in rental income from third party
brokerage activity.
Other Operating Expenses. Other operating expenses increased $259,000
or 29.1% to $1.1 million for the year ended December 31, 1999 compared to
$890,000 for the year ended December 31, 1998. This increase was primarily due
to a $105,000 or 30.1% increase in compensation and benefits, a $45,000 or 32.6%
increase in occupancy and equipment costs and a $109,000 or 27.0% increase in
other expenses. These increases resulted principally as a result of increased
staffing, occupancy and other expenses related to a proposed new branch, which
opened only as a loan production office and was subsequently closed.
Approximately $50,000 was also related to Year 2000 expenses.
Liquidity and Commitments
We are required to maintain minimum levels of investments that qualify
as liquid assets under government regulations. Liquidity may increase or
decrease depending upon the availability of funds and comparative yields on
investments in relation to the return on loans. Historically, we have maintained
liquid assets at levels above the minimum requirements and above levels believed
to be adequate to meet the requirements of normal operations, including
potential deposit outflows. Cash flow projections are regularly reviewed and
updated to assure that adequate liquidity is maintained. At December 31, 1999,
our regulatory liquidity ratio, which is our liquid assets as a percentage of
net withdrawable savings deposits with a maturity of one year or less and
current borrowings, was 51.18%.
Community Bank's liquidity, represented by cash and cash equivalents
and investment securities, is a product of its operating, investing and
financing activities. Our primary sources of funds are deposits, amortization,
prepayments and maturities of outstanding loans and mortgage-backed securities,
maturities and sales of investment securities and other short-term investments
and funds provided from operations. While scheduled payments from the
amortization of loans and mortgage-backed securities and maturing investment
securities and short-term investments are relatively predictable sources of
funds, deposit flows and loan prepayments are greatly influenced by general
interest rates, economic conditions and competition. In addition, we invest
58
<PAGE>
excess funds in short-term interest-earning assets, which provide liquidity to
meet lending requirements. We also generate cash through borrowings. We utilize
Federal Home Loan Bank advances to leverage our capital base and provide funds
for our lending and investment activities, and to enhance our interest rate risk
management.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as overnight deposits or U.S. Agency securities. On a longer term basis, we
maintain a strategy of investing in various lending products as described in
greater detail under "Business of Community Bank - Lending Activities." We use
our sources of funds primarily to meet ongoing commitments, to pay maturing time
deposits and savings withdrawals, to fund loan commitments and to maintain our
portfolio of mortgage-backed securities and investment securities. At December
31, 1999, the total approved loan origination commitments outstanding amounted
to $1.6 million. At the same date, the unadvanced portion of construction loans
was $795,000. There were no outstanding letters of credit at December 31, 1999.
Time deposits scheduled to mature in one year or less at December 31, 1999,
totaled $20.4 million. Investment and mortgage-backed securities scheduled to
mature in less than one year at December 31, 1999 totaled $35,000. Based on
historical experience, management believes that a significant portion of
maturing deposits will remain with Community Bank. Community Bank anticipates
that we will continue to have sufficient funds, through deposits and borrowings,
to meet its current commitments.
Capital
Consistent with our goal to operate a sound and profitable financial
organization, we actively seek to maintain a "well capitalized" institution in
accordance with regulatory standards. Total equity was $3.0 million at December
31, 1999, or 7.0% of total assets on that date. As of December 31, 1999, we
exceeded all capital requirements of the FDIC and the Texas Savings and Loan
Department. Our regulatory capital ratios at December 31, 1999 were as follows:
core capital 7.8%; Tier I risk-based capital, 15.0%; and total risk-based
capital, 15.9%. The regulatory capital requirements to be considered well
capitalized are 5.0%, 6.0% and 10.0%, respectively.
Impact of Inflation
The consolidated financial statements presented herein have been
prepared in accordance with generally accepted accounting principles. These
principles require the measurement of financial position and operating results
in terms of historical dollars, without considering changes in the relative
purchasing power of money over time due to inflation.
Our primary assets and liabilities are monetary in nature. As a result,
interest rates have a more significant impact on our performance than the
effects of general levels of inflation. Interest rates, however, do not
necessarily move in the same direction or with the same magnitude as the price
of goods and services, since such prices are affected by inflation. In a period
of rapidly rising interest rates, the liquidity and maturities structures of our
assets and liabilities are critical to the maintenance of acceptable performance
levels.
59
<PAGE>
The principal effect of inflation, as distinct from levels of interest
rates, on earnings is in the area of noninterest expense. Such expense items as
employee compensation, employee benefits and occupancy and equipment costs may
be subject to increases as a result of inflation. An additional effect of
inflation is the possible increase in the dollar value of the collateral
securing loans that we have made. We are unable to determine the extent, if any,
to which properties securing our loans have appreciated in dollar value due to
inflation.
Change in Accountants
On November 1, 1999 our prior auditors, Seidel Schroeder & Company,
were terminated as part of a competitive bid process solely because we had
decided to pursue an initial public offering, and Seidel Schroeder & Company had
no public offering experience. At or about the same time, we engaged Padgett,
Stratemann & Co., L.L.P. to audit our financial statements for the fiscal year
ended December 31, 1999. The decision to change accountants was made with the
approval of our board of directors.
We believe and we have been advised by Seidel Schroeder & Company that
it concurs in such belief that, during its tenure with us, we did not have any
disagreement on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreement, if not
resolved to the satisfaction of Seidel Schroeder & Company would have caused it
to make reference in connection with its report on our financial statements to
the subject matter of the disagreement.
No report of Seidel Schroeder & Company on our financial statements for
either of the past two fiscal years contained an adverse opinion, a disclaimer
of opinion or a qualification or was modified as to uncertainty, audit, scope or
accounting principles. During such fiscal periods, there were no 'reportable
events' within the meaning of Item 304(a)(1) of Regulation S-B promulgated under
the Securities Act of 1933.
BUSINESS OF CBCT BANCSHARES, INC.
Community Bank is converting to the stock form of organization and will
become a wholly owned subsidiary of CBCT Bancshares, Inc. CBCT Bancshares, Inc.
initially will not be an operating company and, after the conversion, is not
expected to engage in any significant business activity other than to hold the
common stock of Community Bank and the employee stock ownership plan loan, and
to invest the funds retained by it.
CBCT Bancshares, Inc. is not expected to own or lease real or personal
property initially, but will instead use the facilities of Community Bank. At
the present time, CBCT Bancshares, Inc. does not intend to employ any persons
other than officers of Community Bank, but will utilize the support staff of
Community Bank from time to time.
60
<PAGE>
BUSINESS OF COMMUNITY BANK
General
Our principal business consists of attracting retail deposits from the
general public and investing those funds primarily in permanent loans secured by
first mortgages on owner-occupied, one- to four-family residences and a variety
of consumer loans. We also originate commercial real estate and, to a much
lesser extent, construction and commercial business loans.
Our revenues are derived principally from interest on loans and
investment and mortgage-backed securities. We also generate revenue from service
charges and other income.
We offer a variety of deposit accounts having a wide range of interest
rates and terms, which generally include savings accounts, money market
accounts, NOW and non-interest bearing demand deposit accounts and time deposit
accounts with varied terms ranging from 30 days to 60 months. We solicit
deposits in our primary market area of Bastrop County and we have not accepted
brokered deposits.
Market Area
We intend to continue to be a community-oriented financial institution
offering a variety of financial services to meet the needs of the communities we
serve. We are headquartered in Smithville, Texas, and have one full service
banking office primarily serving Bastrop County, Texas. We also originate loans
in our primary market area and the greater metropolitan Austin, Texas area. See
"-Consumer and Other Lending."
Lending Activities
General. Our mortgage loans carry either a fixed or an adjustable rate
of interest. Mortgage loans are generally long-term and amortize on a monthly
basis with principal and interest due each month. Our fixed rate one- to
four-family residential loans are originated for sale to the secondary market.
At December 31, 1999, our net loan portfolio totaled $21.7 million, which
constituted 50.7% of our total assets.
Secured loans up to $10,000 may be approved by the consumer loan
officer, up to $25,000 by the vice president of lending and up to $75,000 by the
President. Any secured loan over the individual approval limits must be approved
by the executive committee. Unsecured loans may be approved by these individuals
up to $1,000, $5,000 and $10,000, respectively.
At December 31, 1999, the maximum amount which we could have loaned to
any one borrower and the borrower's related entities was approximately $500,000.
Our largest lending relationship to a single borrower or group of related
borrowers consisted of one loan for $327,000 secured by a homestead located in
Austin, Texas. At December 31, 1999, this loan was current and performing in
accordance with its terms.
61
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The following table presents information concerning the composition of
Community Bank's loan portfolio in dollar amounts and in percentages as of the
dates indicated.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------
1999 1998 1997
----------------- ------------------ -----------------
Amount Percent Amount Percent Amount Percent
-------- -------- --------- -------- --------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family residential $11,627 53% $13,218 63% $15,876 74%
Multi-family residential 137 1 --- --- --- ---
------- --- ------- --- ------- ---
Total residential loans 11,764 54 13,218 63 15,876 74
Commercial real estate 4,122 18 2,940 14 2,581 12
Construction loans 1,125 5 864 4 582 3
------- --- ------- --- ------- ---
Total real estate loans 17,011 77 17,022 81 19,039 89
------- --- ------- --- ------- ---
Consumer Loans:
Home equity 568 3 455 2 79 ---
Automobile loans 3,040 14 2,853 13 1,825 8
Other personal and installment loans 1,315 6 783 4 626 3
------- --- ------- --- ------- ---
Total consumer loans 4,923 23 4,091 19 2,530 11
------- --- ------- --- ------- ---
Unearned discount --- (3) (3)
Unamortized loan fees and costs (42) (39) (39)
------- ------- -------
Total loans 21,892 100% 21,071 100% 21,527 100%
=== === ===
Allowance for loan losses (199) (181) (157)
------- ------- -------
Net loans receivable $21,693 $20,890 $21,370
======= ======= =======
</TABLE>
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<PAGE>
The following schedule illustrates the contractual maturity of
Community Bank's loan portfolio at December 31, 1999. Mortgages which have
adjustable or renegotiable interest rates are shown as maturing in the period
during which the contract is due. The schedule does not reflect the effects of
possible prepayments or enforcement of due-on-sale clauses.
Over One
One Year Year to Over Five
or Less Five Years Years Total
------ ------- ------ -------
(In Thousands)
One- to four-family residential loans $1,684 $ 6,432 $3,511 $11,627
All other loans 2,530 7,000 777 10,307
------ ------- ------ -------
$4,214 $13,432 $4,288 21,934
====== ======= ======
Unamortized fees and costs (42)
Allowance for loan losses (199)
-------
Net loans $21,693
=======
Of our total loans of $21.9 million at December 31, 1999, approximately
$11.6 million have fixed rates of interest and approximately $10.3 million have
adjustable rates of interest.
One- to Four-Family Residential Real Estate Lending. At December 31,
1999, one- to four-family residential mortgage loans totaled $11.6 million, or
53% of our gross loan portfolio. We generally underwrite our one- to four-family
loans based on the applicant's employment and credit history and the appraised
value of the subject property. Presently, we lend up to 90% of the lesser of the
appraised value or purchase price for one- to four-family residential loans. For
loans with a loan-to-value ratio in excess of 80%, we generally require private
mortgage insurance in order to reduce our exposure below 80%. Properties
securing our one- to four-family loans are generally appraised by independent
fee appraisers approved by the board of directors. We require our borrowers to
obtain title and hazard insurance, and flood insurance, if necessary, in an
amount not less than the value of the property improvements.
We currently originate one- to four-family mortgage loans on either a
fixed- or adjustable-rate basis, as consumer demand dictates. Our pricing
strategy for mortgage loans includes setting interest rates that are competitive
with Freddie Mac and other local financial institutions, and consistent with our
internal needs. Adjustable-rate mortgage, or ARM loans, are offered with either
a one-year, three-year or, to a lesser extent, five-year term to the initial
repricing date. After the initial period, the interest rate for each ARM loan
adjusts on an annual basis. We use the weekly average of the appropriate term
Treasury Bill Constant Maturity to reprice our ARM loans. During the year ended
December 31, 1999, we originated $1.4 million of one- to four-family ARM loans
and $5.3 million of one- to four-family fixed rate mortgage loans.
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Fixed-rate loans originated for sale to the secondary market are
secured by one- to four-family residences and have contractual maturities of up
to 30 years, they are generally fully amortizing, with payments due monthly. A
significant change in the current level of interest rates could alter the
average life of a residential loan in our portfolio considerably. Our one- to
four-family loans do not contain prepayment penalties and do not permit negative
amortization of principal. Most are written using underwriting guidelines which
make them saleable in the secondary market. Our real estate loans generally
contain a "due on sale" clause allowing us to declare the unpaid principal
balance due and payable upon the sale of the security property.
Our one- to four-family residential ARM loans are fully amortizing
loans with contractual maturities of up to 30 years and payments due monthly.
Our ARM loans generally provide for specified minimum and maximum interest
rates, with a lifetime cap and floor, and a periodic adjustment on the interest
rate over the rate in effect on the date of origination. As a consequence of
using caps, the interest rates on these loans may not be as rate sensitive as is
our cost of funds.
ARM loans generally pose different credit risks than fixed-rate loans,
primarily because as interest rates rise, the borrower's payment rises,
increasing the potential for default. We have not experienced difficulty with
the payment history for these loans. See "- Asset Quality -- Non-Performing
Assets" and "-- Classified Assets." At December 31, 1999, our one- to
four-family ARM loan portfolio totaled $9.2 million, or 42% of our gross loan
portfolio. At that date the fixed-rate one- to four-family mortgage loan
portfolio totaled $2.4 million, or 11% of our gross loan portfolio.
Multi-Family Residential and Commercial Real Estate Lending. We offer a
variety of multi-family residential and commercial real estate loans. These
loans are secured primarily by small retail establishments, rental properties,
small office buildings and storage facilities located in our primary market
area. At December 31, 1999, multi-family residential and commercial real estate
loans totaled $4.3 million or 19% of our gross loan portfolio.
Our currently originated loans secured by multi-family residential and
commercial real estate are originated with an adjustable interest rate. The
interest rate on these loans is generally tied to the prime rate of interest.
Loan-to-value ratios on our multi-family residential and commercial real estate
loans typically do not exceed 70% of the appraised value of the property
securing the loan. These loans typically require monthly payments, are fully
amortizing and have maximum maturities of 20 years.
Loans secured by multi-family residential and commercial real estate
are underwritten based on the income producing potential of the property and the
financial strength of the borrower. The net operating income, which is the
income derived from the operation of the property less all operating expenses,
must be sufficient to cover the payments related to the outstanding debt. We may
require an assignment of rents or leases in order to be assured that the cash
flow from the project will be used to repay the debt. Appraisals on properties
securing multi-family residential and commercial real estate loans are performed
by independent state licensed fee appraisers approved by the board of directors.
See "-- Loan Originations, Purchases, Sales and Repayments."
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<PAGE>
Loans secured by multi-family residential and commercial real estate
properties are generally larger and involve a greater degree of credit risk than
one- to four-family residential mortgage loans. Because payments on loans
secured by multi-family residential and commercial real estate properties are
often dependent on the successful operation or management of the properties,
repayment of such loans may be subject to adverse conditions in the real estate
market or the economy. If the cash flow from the project is reduced, or if
leases are not obtained or renewed, the borrower's ability to repay the loan may
be impaired. See "- Asset Quality -- NonPerforming Loans."
Construction and Development Lending. We originate construction loans
to builders and to individuals for the construction of their residences.
Substantially all of these loans are secured by property located within our
market area or within the greater metropolitan Austin, Texas area. At December
31, 1999, we had $1.1 million in construction and development loans outstanding,
representing 5% of our gross loan portfolio.
Construction and development loans are obtained through continued
business with builders who have previously borrowed from us, from walk-in
customers and through referrals from existing customers and realtors. The
application process includes submission of accurate plans, specifications and
costs of the project to be constructed. These items are used as a basis to
determine the appraised value of the subject property. Loans are based on the
lesser of current appraised value and the cost of construction, including the
land and the building. We generally conduct regular inspections of the
construction project being financed.
Loans to individuals for the construction of their residences may be
either short term construction financing or a construction/permanent loan which
automatically converts to a long term mortgage consistent with our one- to
four-family residential loan products. Loan-to-value ratios on our construction
and development loans typically do not exceed 85% of the appraised value of the
project on an as completed basis. Single family construction loans with a
loan-to-value ratio over 80% require private mortgage insurance.
Because of the uncertainties inherent in estimating construction and
development costs and the market for the project upon completion, it is
relatively difficult to evaluate accurately the total loan funds required to
complete a project, the related loan-to-value ratios and the likelihood of
ultimate success of the project. These loans also involve many of the same risks
discussed above regarding commercial real estate loans and tend to be more
sensitive to general economic conditions than many other types of loans. In
addition, payment of interest from loan proceeds can make it difficult to
monitor the progress of a project.
Consumer and Other Lending. Consumer loans generally have shorter terms
to maturity, which reduces our exposure to changes in interest rates, and carry
higher rates of interest than do one- to four-family residential mortgage loans.
In addition, management believes that offering consumer loan products helps to
expand and create stronger ties to our existing customer base by increasing the
number of customer relationships and providing cross-marketing opportunities. At
December 31, 1999, our consumer loan portfolio totaled $4.9 million, or 23% of
our gross loan portfolio. We offer a variety of secured consumer loans,
including home equity loans, auto loans, boat and recreational vehicle loans and
loans secured by savings deposits. We
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<PAGE>
also offer a limited amount of unsecured loans. We originate our consumer loans
in our market area.
Our home equity loans totaled $568,000, and comprised 3% of our gross
loan portfolio at December 31, 1999. These loans may be originated in amounts,
together with the amount of the existing first mortgage, of up to 80% of the
value of the property securing the loan. The term to maturity on our home equity
loans may be up to 20 years.
We originate auto loans, boat loans and recreational vehicle loans on a
direct basis. These loans totaled $3.0 million at December 31, 1999, or 14% of
our gross loan portfolio. Auto, boat and recreational vehicle loans may be
written for up to five years and usually have fixed rates of interest. Loan to
value ratios for automobile loans are up to 100% of the sales price for new
autos and up to 100% of value on used cars, based on valuation from official
used car guides.
Consumer loans may entail greater risk than do one- to four-family
residential mortgage loans, particularly in the case of consumer loans which are
secured by rapidly depreciable assets, such as automobiles, boats and
recreational vehicles. In these cases, any repossessed collateral for a
defaulted loan may not provide an adequate source of repayment of the
outstanding loan balance. As a result, consumer loan collections are dependent
on the borrower's continuing financial stability and, thus, are more likely to
be adversely affected by job loss, divorce, illness or personal bankruptcy. See
"Risk Factors - Our Loan Portfolio Possesses Increased Risk Due to Our
Substantial Number of Consumer, Commercial and Construction Real Estate and
Commercial Business Loans."
We intend to expand our consumer and other lending in the future to
include commercial business lending. Commercial business loans are loans
extended to finance local businesses and include short term loans to finance
machinery and equipment purchases and inventory.
Unlike residential mortgage loans, commercial business loans are
typically made on the basis of the borrower's ability to make repayment from the
cash flow of the borrower's business. As a result, the availability of funds for
the repayment of commercial business loans may be substantially dependent on the
success of the business itself (which, in turn, is often dependent in part upon
general economic conditions). Commercial business loans are usually, but not
always, secured by business assets. However, the collateral securing the loans
may depreciate over time, may be difficult to appraise and may fluctuate in
value based on the success of the business.
Loan Originations, Purchases, Sales and Repayments
We originate loans through referrals from real estate brokers and
builders, our marketing efforts, and our existing and walk-in customers. While
we originate both adjustable-rate and fixed-rate loans, our ability to originate
loans is dependent upon customer demand for loans in our market areas. Demand is
affected by local competition and the interest rate environment. During the last
several years, due to low market interest rates, our dollar volume of
fixed-rate, one- to four-family loans has exceeded the dollar volume of the same
type of adjustable-rate loans. From time to time, we sell fixed rate, one- to
four-family residential loans. Furthermore,
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<PAGE>
during the past few years, we, like many other financial institutions, have
experienced significant prepayments on loans due to the low interest rate
environment prevailing in the United States.
In periods of economic uncertainty, the ability of financial
institutions, including us, to originate or purchase large dollar volumes of
real estate loans may be substantially reduced or restricted, with a resultant
decrease in interest income.
The following table shows the loan origination and repayment activities
of Community Bank for the periods indicated, and includes loans originated for
both our own portfolio and for sale in the secondary market.
Years Ended December 31,
----------------------
1999 1998
---------- -----------
(In Thousands)
Total loans, beginning of year $21,071 $21,527
------- -------
Loan originations:
Real estate mortgage loans 9,414 7,450
Consumer loans 2,405 2,564
Other loans 173 194
------- -------
Total loan originations 11,992 10,208
------- -------
Loan repayments and sales (11,171) (10,664)
------- -------
Total loans, end of year $21,892 $21,071
======= =======
Asset Quality
When a borrower fails to make a payment on a mortgage loan on or before
the default date, we mail a delinquency notice to the borrower when the loan is
10 days past due. When the loan is 15 days past due, we mail a subsequent
delinquent notice to the borrower. All delinquent accounts are reviewed by loan
personnel, who attempt to cure the delinquency by contacting the borrower once
the loan is 30 days past due. If the loan becomes 60 days delinquent, the
collector will generally contact by phone or send a personal letter to the
borrower in order to identify the reason for the delinquency. Once the loan
becomes 90 days delinquent, contact with the borrower is made requesting payment
of the delinquent amount in full, or the establishment of an acceptable
repayment plan to bring the loan current. If an acceptable repayment plan has
not been agreed upon, loan personnel will generally refer the account to legal
counsel, with instructions to prepare a notice of intent to foreclose. The
notice of intent to foreclose allows the borrower up to 30 days to bring the
account current. Once the loan becomes 120 days delinquent, and an acceptable
repayment plan has not been agreed upon, the collection officer will turn over
the account to our legal counsel with instructions to initiate foreclosure.
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<PAGE>
For consumer loans a similar process is followed, with the initial
written contact being made once the loan is 7 days past due. Follow-up contacts
are generally on an accelerated basis compared to the mortgage loan procedure.
Delinquent Loans. The following table sets forth our loans delinquent
60 - 89 days by type, number, amount and percentage of type at December 31,
1999.
<TABLE>
<CAPTION>
Loans Delinquent For:
----------------------------------------------- Total Loans Delinquent
60-89 Days 90 Days and Over 60 Days and Over
----------------------- ----------------------- -----------------------
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
------ ------ --------- ------ ------- -------- ------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
Residential......... --- $ --- ---% 1 $ 60 0.50% 1 $ 60 0.50%
Commercial.......... --- --- --- --- --- --- --- --- ---
Construction........ --- --- --- --- --- --- --- --- ---
Other:
Consumer............. --- --- --- 3 8 0.18 --- 8 0.18
Commercial........... --- --- --- --- --- --- 3 --- ---
---- ------ ----- ------ ---- -----
Total.................. --- $ --- 4 $ 68 4 $ 68
==== ====== ===== ====== ==== =====
</TABLE>
Non-Performing Assets. The table below sets forth the amounts and
categories of non-performing assets in our loan portfolio. Non-performing assets
consist of non-accrual loans, accruing loans past due 90 days and more, and
foreclosed assets. Loans to a customer whose financial condition has
deteriorated are considered for non-accrual status whether or not the loan is 90
days and over past due. All consumer installment loans past due 90 days and over
are classified as non-accrual. On non-accrual loans, interest income is not
recognized until actually collected. At the time the loan is placed on
non-accrual status, interest previously accrued but not collected is reversed
and charged against current income.
Foreclosed assets consist of real estate and other assets which have
been acquired through foreclosure on loans. At the time of foreclosure, assets
are recorded at the lower of their estimated fair value less selling costs or
the loan balance, with any write-down charged against the allowance for loan
losses. Any future write-downs, expenses related to the assets, and any gain or
loss. At all dates presented, we had no troubled debt restructurings which
involve forgiving a portion of interest or principal on any loans or making
loans at a rate materially less than that of market rates.
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December 31,
--------------------------
1999 1998 1997
------ ------- -------
(In Thousands)
Non-accruing loans:
One-to-four family residential $ 60 $ 84 $ 26
Consumer 1 17 14
------ ------- -------
Total 61 101 40
------ ------- -------
Accruing loans past due 90 days and over:
One-to-four family residential --- 3 ---
Consumer 7 --- 2
------ ------- -------
Total 7 3 2
------ ------- -------
Total non-performing loans 68 104 42
Foreclosed assets --- --- ---
------ ------- -------
Total non-performing assets $ 68 $ 104 $ 42
====== ======= =======
Allowance for loan losses $ 199 $ 181 $ 157
====== ======= =======
Coverage of non-performing loans 293% 174% 374%
=== === ===
Non-performing assets as a percentage
of total assets 0.16% 0.26% 0.13%
==== ==== ====
Other Loans of Concern. In addition to the non-performing assets set
forth in the table above, as of December 31, 1999, there was also an aggregate
of $144,000 in net book value of loans with respect to which known information
about the possible credit problems of the borrowers have caused management to
have doubts as to the ability of the borrowers to comply with present loan
repayment terms and which may result in the future inclusion of such items in
the non-performing asset categories. These loans have been considered in
management's determination of the adequacy of our allowance for loan losses.
Classified Assets. Regulations provide for the classification of loans
and other assets, such as debt and equity securities considered by regulators to
be of lesser quality, as "substandard," "doubtful" or "loss." An asset is
considered "substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard," with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted.
When an insured institution classifies problem assets as either
substandard or doubtful, it may establish general allowances for loan losses in
an amount deemed prudent by management and approved by the board of directors.
General allowances represent loss allowances which
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<PAGE>
have been established to recognize the inherent risk associated with lending
activities, but which, unlike specific allowances, have not been allocated to
particular problem assets. When an insured institution classifies problem assets
as "loss," it is required either to establish a specific allowance for losses
equal to 100% of that portion of the asset so classified or to charge off such
amount. An institution's determination as to the classification of its assets
and the amount of its valuation allowances is subject to review by the FDIC,
which may order the establishment of additional general or specific loss
allowances.
In connection with the filing of our periodic reports with the FDIC and
in accordance with our classification of assets policy, we regularly review the
problem assets in our portfolio to determine whether any assets require
classification in accordance with applicable regulations. On the basis of
management's review of our assets, at December 31, 1999, we had classified
$209,000 of our assets as substandard, $6,000 as doubtful and $3,000 as loss.
The total amount classified represented 7.26% of our equity capital and 0.5% of
our assets at December 31, 1999.
Provision for Loan Losses. The provision for loan losses is charged to
income to bring our allowance for loan losses to a level deemed appropriate by
management based on the factors discussed below under "-- Allowance for Loan
Losses." The provision for loan losses during the year ended December 31, 1999
was based on management's review of such factors which indicated that the
allowance for loan losses was adequate to cover losses inherent in the loan
portfolio as of December 31, 1999.
Allowance for Loan Losses. We maintain an allowance for loan losses to
absorb losses inherent in the loan portfolio. The allowance is based on ongoing,
quarterly assessments of the estimated losses inherent in the loan portfolio.
Our methodology for assessing the appropriateness of the allowance consists of
several key elements, which include the formula allowance, specific allowances
for identified problem loans and portfolio segments and the unallocated
allowance. In addition, the allowance incorporates the results of measuring
impaired loans as provided in SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures." These accounting standards
prescribe the measurement methods, income recognition and disclosures related to
impaired loans.
The formula allowance is calculated by applying loss factors to
outstanding loans based on the internal risk evaluation of the loans or pools of
loans. Changes in risk evaluations of both performing and nonperforming loans
affect the amount of the formula allowance. Loss factors are based both on our
historical loss experience as well as on significant factors that, in
management's judgment, affect the collectibility of the portfolio as of the
evaluation date.
The appropriateness of the allowance is reviewed by management based
upon its evaluation of then-existing economic and business conditions affecting
our key lending areas and other conditions, such as credit quality trends
(including trends in nonperforming loans expected to result from existing
conditions), collateral values, loan volumes and concentrations, specific
industry conditions within portfolio segments and recent loss experience in
particular segments of the portfolio that existed as of the balance sheet date
and the impact that such conditions were believed to have had on the
collectibility of the loan. Senior management reviews these
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<PAGE>
conditions quarterly in discussions with our senior credit officers. To the
extent that any of these conditions is evidenced by a specifically identifiable
problem credit or portfolio segment as of the evaluation date, management's
estimate of the effect of such condition may be reflected as a specific
allowance applicable to such credit or portfolio segment. Where any of these
conditions is not evidenced by a specifically identifiable problem credit or
portfolio segment as of the evaluation date, management's evaluation of the loss
related to this condition is reflected in the unallocated allowance. The
evaluation of the inherent loss with respect to these conditions is subject to a
higher degree of uncertainty because they are not identified with specific
problem credits or portfolio segments.
The allowance for loan losses is based on estimates of losses inherent
in the loan portfolio. Actual losses can vary significantly from the estimated
amounts. Our methodology as described permits adjustments to any loss factor
used in the computation of the formula allowance in the event that, in
management's judgment, significant factors which affect the collectibility of
the portfolio as of the evaluation date are not reflected in the loss factors.
By assessing the estimated losses inherent in the loan portfolio on a quarterly
basis, we are able to adjust specific and inherent loss estimates based upon any
more recent information that has become available.
At December 31, 1999, our allowance for loan losses was $199,000 or
.91% of the total loan portfolio and approximately 293% of total non-performing
loans. Assessing the adequacy of the allowance for loan losses is inherently
subjective as it requires making material estimates, including the amount and
timing of future cash flows expected to be received on impaired loans, that may
be susceptible to significant change. In the opinion of management, the
allowance, when taken as a whole, is adequate to absorb reasonable estimated
loan losses inherent in our loan portfolios.
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The following table sets forth an analysis of our allowance for loan
losses.
Years Ended December 31,
-------------------------
1999 1998 1997
------- ------- -------
(Dollars in Thousands)
Total loans outstanding (at end of period) $21,892 $21,071 $21,527
======= ======= =======
Average loans outstanding (period to date) $21,485 $21,299 $19,901
======= ======= =======
Allowance for loan losses, beginning of period $ 181 $ 157 $ 157
Loan charge-offs:
One-to-four family residential --- --- ---
Consumer loans (12) --- (3)
Total loan charge-offs (12) --- (3)
------- ------- -------
Loan recoveries:
One-to-four family residential 30 24 ---
Consumer loans --- --- ---
------- ------- -------
Total loan recoveries 30 24 ---
------- ------- -------
Net loan (charge-offs) recoveries 18 24 (3)
Provision charged to operations --- --- 3
------- ------- -------
Allowance for loan losses, end of period $ 199 $ 181 $ 157
======= ======= =======
Ratio of net loan charge-offs during the period
to average loans outstanding 0.08% (0.11)% 0.02%
======= ======= =======
Provision as a percentage of average loans 0.00% 0.00% 0.02%
======= ======= =======
Allowance as a percentage of total loans 0.91% 0.86% 0.73%
======= ======= =======
The distribution of the allowance for losses on loans at the dates
indicated is summarized as follows.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 December 31, 1997
----------------------- ------------------------ ------------------------
Percent of Loans Percent of Loans Percent of Loans
in Each in Each in Each
Category Category Category
Amount to Total Loans Amount to Total Loans Amount to Total Loans
-------- -------------- -------- --------------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
One- to four-family
residential............. $ 52,735 53% $ 57,015 63% $ 58,090 74%
Multi-family residential..... 995 1 --- --- --- ---
Commercial real estate....... 17,910 18 12,670 14 9,420 12
Construction loans........... 4,975 5 3,620 4 2,355 3
Home equity.................. 8,457 3 6,787 2 1,177 ---
Automobile loans............. 44,775 14 43,440 13 34,540 8
Other personal and
investment loans........ 19,403 6 12,218 4 12,168 3
Unallocated.................. 49,750 --- 45,250 --- 39,250 ---
-------- ---- -------- ---- -------- ----
$199,000 100% $181,000 100% $157,000 100%
======== ==== ======== ==== ======== ====
</TABLE>
Investment Activities
The Bank is authorized to invest in various types of liquid assets,
including United States Treasury obligations, securities of various federal
agencies, including callable agency securities, certificates of deposit of
insured banks and savings institutions, bankers' acceptances, repurchase
agreements and federal funds. Subject to various restrictions, savings
institutions may also invest their assets in investment grade commercial paper
and corporate debt securities and mutual funds whose assets conform to the
investments that a federally chartered savings institution is otherwise
authorized to make directly. See "How We Are Regulated - Community Bank" for a
discussion of additional restrictions on our investment activities.
The president has the basic responsibility for the management of our
investment portfolio, subject to the direction and guidance of the
investment/asset liability committee. The president considers various factors
when making decisions, including the marketability, maturity and tax
consequences of the proposed investment. The maturity structure of investments
will be affected by various market conditions, including the current and
anticipated slope of the yield curve, the level of interest rates, the trend of
new deposit inflows, and the anticipated demand for funds via deposit
withdrawals and loan originations and purchases.
The current objectives of our investment portfolio are to provide
liquidity when loan demand is high, to assist in maintaining earnings when loan
demand is low and to maximize earnings while satisfactorily managing risk,
including credit risk, reinvestment risk, liquidity risk and interest rate risk.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Asset and Liability Management and Market Risk."
Our investment securities currently consist of state and political
subdivision securities, mortgage-backed securities, and corporate obligations.
See Note 2 of the Notes to Consolidated Financial Statements. Our
mortgage-backed securities portfolio currently consists of securities issued
under government-sponsored agency programs.
While mortgage-backed securities, carry a reduced credit risk as
compared to whole loans, these securities remain subject to the risk that a
fluctuating interest rate environment, along with other factors like the
geographic distribution of the underlying mortgage loans, may alter the
prepayment rate of the mortgage loans and so affect both the prepayment speed,
and value, of the securities.
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," requires that investments be
categorized as "held to maturity," "trading securities" or "available for sale,"
based on management's intent as to the ultimate disposition of each security.
Statement of Financial Accounting Standards No. 115 allows debt securities to be
classified as "held to maturity" and reported in financial statements at
amortized cost only if the reporting entity has the positive intent and ability
to hold those securities to maturity. Securities that might be sold in response
to changes in market interest rates, changes in the security's prepayment risk,
increases in loan demand, or other similar factors cannot be classified as "held
to maturity." Debt and equity securities held for current resale are classified
as "trading securities." These securities are reported at fair value, and
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unrealized gains and losses on the securities would be included in earnings.
Community Bank does not currently use or maintain a trading account. Debt and
equity securities not classified as either "held to maturity" or "trading
securities" are classified as "available for sale." These securities are
reported at fair value, and unrealized gains and losses on the securities are
excluded from earnings and reported, net of deferred taxes, as a separate
component of equity.
The following table sets forth the composition of our investment and
mortgage-related securities portfolio and other investments at the dates
indicated. Our investment securities portfolio at December 31, 1999, did not
contain securities of any issuer with an aggregate book value in excess of 10%
of our equity capital, excluding those issued by the United States Government or
its agencies, other than one investment in G.E. Capital Mortgage Services, Inc.
with a total market value of $4.2 million as of December 31, 1999.
December 31,
--------------------------------------------
1999 1998 1997
--------------- ------------- --------------
Carrying % of Carrying % of Carrying % of
Value Total Value Total Value Total
------- ---- ------ ---- ------ ----
(Dollars in Thousands)
Securities available for sale
(at fair value):
State and political subdivisions $ 148 1% $ --- ---% $ --- ---%
Mortgage-backed securities 15,898 98 7,031 94 2,497 90
Other 231 1 445 6 290 10
------- ---- ------ ---- ------ ----
Total $16,277 100% $7,476 100% $2,787 100%
======= ==== ====== ==== ====== ====
Securities to be held to maturity
(at amortized cost):
State and political subdivisions $ --- ---% $ 175 3% $ 205 3%
Mortgage-backed securities --- --- 5,838 97 6,567 97
Other --- --- --- --- --- ---
------- ---- ------ ---- ------ ----
Total $ --- ---% $6,013 100% $6,772 100%
======= ==== ====== ==== ====== ====
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<PAGE>
The composition and maturities of the investment securities and
mortgage-backed securities portfolio, excluding Federal Home Loan Bank stock and
our trading portfolio as of December 31, 1999 are indicated in the following
table.
<TABLE>
<CAPTION>
Less than 5 to 10 Over Total
1 Year 1 to 5 Years Years 10 Years Securities
------------- ------------ ------------ -------------- ------------
Average Average Average Average Average
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ ----- ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available
for sale:
State and political
subdivisions $ 35 5.75% $ 110 5.75% $ --- ---% $ --- ---% $ 145 5.75%
Mortgage-backed
securities --- --- --- --- 971 5.47 14,926 6.20 15,898 6.16
Other --- --- --- --- --- --- 234 --- 234 ---
---- ------ ----- ------- -------
Total $ 35 5.75% $ 110 5.75% $ 971 5.47% $15,160 6.11% $16,277 6.06%
==== ====== ===== ======= =======
</TABLE>
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<PAGE>
Sources of Funds
General. Our sources of funds are deposits, borrowings, payment of
principal and interest on loans, interest earned on or maturation of other
investment securities and funds provided from operations.
Deposits. We offer a variety of deposit accounts to both consumer and
businesses having a wide range of interest rates and terms. Our deposits consist
of NOW accounts, time deposit accounts, savings and money market and demand
accounts and certificates of deposit. We solicit deposits in our market areas
and have not accepted brokered deposits. We primarily rely on competitive
pricing policies, marketing and customer service to attract and retain these
deposits.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates and
competition. The variety of deposit accounts we offer has allowed us to be
competitive in obtaining funds and to respond with flexibility to changes in
consumer demand. We have become more susceptible to short-term fluctuations in
deposit flows, as customers have become more interest rate conscious. We try to
manage the pricing of our deposits in keeping with our asset/liability
management, liquidity and profitability objectives, subject to competitive
factors. Based on our experience, we believe that our deposits are relatively
stable sources of funds. Despite this stability, our ability to attract and
maintain these deposits and the rates paid on them has been and will continue to
be significantly affected by market conditions.
The following table sets forth our deposit flows during the periods
indicated.
Years Ended December 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(Dollars in Thousands)
Deposits to deposit accounts................ $ 36,324 $ 27,635 $ 20,005
Withdrawals from deposit accounts........... (37,292) (26,924) (20,923)
Interest credited to deposit accounts....... 1,184 1,206 1,159
-------- -------- --------
Net increase........................... 216 1,917 241
Opening balance of deposit accounts......... 32,138 30,221 29,980
-------- -------- --------
Ending balance of deposit accounts.......... $ 32,354 $ 32,138 $ 30,221
======== ======== ========
Percent annual increase in deposit accounts. 0.67% 6.34% 0.80%
==== ==== ====
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<PAGE>
The following table sets forth the dollar amount of savings deposits in
the various types of deposit programs we offered at the dates indicated.
December 31
--------------------------------------
1999 1998
------------------ -------------------
Amount Percent Amount Percent
------- ------- ------- ----------
(Dollars in Thousands)
Noninterest-bearing accounts $ 377 1% $ 200 1%
Savings accounts 1,770 5 1,326 4
NOW and money market accounts 4,852 15 4,438 14
------- ----
Total non-certificates 6,999 21
------- ----
Certificates of deposit:
4.00% to 4.99% 15,230 47
5.00% to 5.99% 7,120 22
6.00% to 6.99% 3,005 10
------- ----
Total certificates 25,355 79 26,174 81
------- ---- ------- ----
Total deposits $32,354 100% $32,138 100%
======= ==== ======= ====
The following table shows rate and maturity information for Community
Bank's certificates of deposit as of December 31, 1999.
Weighted Average
Amount Rate
------------ ----------------
(Dollars in Thousands)
Certificate accounts maturing within:
One month $ 3,492 5.38%
One to three months 4,329 4.69
Three to six months 6,169 4.93
Six to nine months 3,533 4.91
Nine to twelve months 2,842 4.71
Twelve to eighteen months 2,814 4.81
Eighteen months to two years 784 4.92
Over two years 1,392 5.33
-------- ----
Total $ 25,355 4.93%
======== ====
The following table indicates the amount of Community Bank's
certificates of deposit and other deposits by time remaining until maturity as
of December 31, 1999.
Maturity
------------------------
Over
3 Months 3 to 12 Over 12
or Less Months months Total
------ ------- ------ -------
(In Thousands)
Certificates of deposit less than $100,000.... $7,186 $10,992 $4,278 $22,456
Certificates of deposit of $100,000 or more... 635 1,552 712 2,899
------ ------- ------ -------
Total certificates of deposit................. $7,821 $12,544 $4,990 $25,355
====== ======= ====== =======
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Borrowings. Although deposits are our primary source of funds, we may
utilize borrowings when they are a less costly source of funds, and can be
invested at a positive interest rate spread, when we desire additional capacity
to fund loan demand or when they meet our asset/liability management goals. Our
borrowings historically have consisted of advances from the Federal Home Loan
Bank of Dallas. See Note 8 of the Notes to Consolidated Financial Statements.
We may obtain advances from the Federal Home Loan Bank of Dallas upon
the security of our mortgage loans and mortgage-backed securities. These
advances may be made pursuant to several different credit programs, each of
which has its own interest rate, range of maturities and call features. At
December 31, 1999, we had $7.4 million in Federal Home Loan Bank advances
outstanding.
The following table sets forth information as to our Federal Home Loan
Bank advances for the periods indicated.
Years Ended
December 31,
-------------------------
1999 1998
---------- ---------
(Dollars in Thousands)
Federal Home Loan Bank advances:
Maximum balance $8,000 $4,000
Average monthly balance 6,716 296
Amount outstanding at end of year 7,392 4,000
Weighted average interest rate of advances 5.36% 5.07%
Subsidiary and Other Activities
At December 31, 1999, Community Bank had a $1,000 investment in an
inactive subsidiary. The subsidiary was engaged in securities brokerage
activities through a third party from 1993 through 1998. Effective January 1,
1999, its operations were combined into Community Bank and the subsidiary became
inactive.
Competition
We face strong competition in originating real estate and other loans
and in attracting deposits. Competition in originating real estate loans comes
primarily from other savings institutions, commercial banks, credit unions and
mortgage bankers. Other savings institutions, commercial banks, credit unions
and finance companies provide vigorous competition in consumer lending.
We attract all of our deposits through our branch office system.
Competition for those deposits is principally from other savings institutions,
commercial banks and credit unions located in the same community, as well as
mutual funds and other alternative investments. We compete for these deposits by
offering superior service and a variety of deposit accounts at
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<PAGE>
competitive rates. As of December 31, 1999, we believe that we hold less than
10% of the deposits in our primary market area.
Employees
At December 31, 1999, we had a total of 16 employees, including two
part-time employees. Our employees are not represented by any collective
bargaining group. Management considers its employee relations to be good.
Properties
At December 31, 1999, we had one full service office. We own the office
building in which our home office and executive offices are located, which was
built in 1994. We also hold a piece of real estate in Manor, Texas for possible
future expansion. The net book value of our investment in premises, equipment
and leaseholds, excluding computer equipment, was approximately $1.3 million at
December 31, 1999.
We believe that our current facilities are adequate to meet the present
and immediately foreseeable needs of Community Bank and CBCT Bancshares, Inc.
We utilize a third party service provider to maintain our data base of
depositor and borrower customer information. The net book value of the data
processing and computer equipment utilized by us at December 31, 1999 was
approximately $50,000.
Legal Proceedings
From time to time we are involved as plaintiff or defendant in various
legal actions arising in the normal course of business. We do not anticipate
incurring any material liability as a result of such litigation.
MANAGEMENT
Management of CBCT Bancshares, Inc.
The board of directors of CBCT Bancshares, Inc. consists of the same
individuals who currently serve as directors of Community Bank. The board of
directors of CBCT Bancshares, Inc. is divided into three classes, as equal as
possible. The directors shall be elected by the stockholders of CBCT Bancshares,
Inc. for three year terms, or until their successors are elected. One class of
directors, consisting of James A. Cowan and Mike C. Maney, has a term of office
expiring at the first annual meeting of stockholders. A second class, consisting
of Georgina Chronis and Rodney E. Langer, has a term of office expiring at the
second annual meeting of stockholders. The third class, consisting of Gordon N.
Fowler, Jr., Brad M. Hurta and Barry Hannath, has a term of office expiring at
the third annual meeting of stockholders.
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<PAGE>
The following individuals are executive officers of CBCT Bancshares,
Inc. and hold the offices set forth below opposite their names.
Executive Position Held with
Brad Hurta President and Chief Executive Officer
Lynn Frerich Vice President, Chief Operating Officer and Secretary
The executive officers of CBCT Bancshares, Inc. are elected annually
and hold office until their respective successors have been elected or until
death, resignation or removal by the board of directors.
Information concerning the principal occupations, employment and
compensation of the directors and executive officers of CBCT Bancshares, Inc. is
set forth under "- Management of Community Bank" and "- Executive Officers Who
Are Not Directors." Directors of CBCT Bancshares, Inc. initially will not be
compensated by CBCT Bancshares, Inc. but will serve and be compensated by
Community Bank. It is not anticipated that separate compensation will be paid to
directors of CBCT Bancshares, Inc. until such time as these persons devote
significant time to the separate management of CBCT Bancshares, Inc. affairs,
which is not expected to occur until CBCT Bancshares, Inc. becomes actively
engaged in additional businesses other than holding the stock of Community Bank.
CBCT Bancshares, Inc. may determine that such compensation is appropriate in the
future.
Management of Community Bank
Because Community Bank is a mutual savings bank, its members have
elected its board of directors. Upon completion of the conversion, the directors
of Community Bank immediately prior to the conversion will continue to serve as
directors of Community Bank in stock form. The board of directors of Community
Bank in stock form will consist of seven directors divided into three classes,
with approximately one-third of the directors elected at each annual meeting of
stockholders. Because CBCT Bancshares, Inc. will own all the issued and
outstanding capital stock of Community Bank following the conversion, the board
of directors of CBCT Bancshares, Inc. will elect the directors of Community
Bank.
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<PAGE>
The following table sets forth information regarding the board of
directors of Community Bank.
Term of
Director Office
Name Age(1) Positions Held With Since Expires
- --------------------------------------------------------------------------------
Vernon L. Richards 70 Director 1991 (2)
Clinton M. Wright 70 Director 1993 (2)
Mike C. Maney 49 Director 1991 2001
Gordon N. Fowler 50 Director 1992 2003
James A. Cowan 56 Director 1996 2001
Rodney E. Langer 58 Director 1999 2002
Brad M. Hurta 34 President and Director 1999 2003
Georgina Chronis 43 Director 1999 2002
Barry W. Hannath 55 Director 1983 2003
- -------------------------
(1) As of December 31, 1999.
(2) Retired as of March 2000, in compliance with Community Bank's age
limitation for directors.
The business experience of each director for at least the past five
years is set forth below.
Vernon L. Richards. Mr. Richards retired in 1986 as an executive with
Southwestern bell Telephone company. Mr. Richards currently has ranching
interests in Smithville, Texas.
Clinton M. Wright. Ms. Wright is the President and Financial Director
of Pendergrass- People's Mortuary, Inc. in Smithville, Texas. Ms. Wright has
held these positions since 1985.
Mike C. Maney. Mr. Maney has been the owner of Maney Tax Service, a tax
preparation service since 1999. Previously, he was the Foreman-Gas Measurement
for Western Gas Resources, a natural gas pipeline, a position he retired from in
October 1998, after 17 years.
Gordon N. Fowler, Jr. Mr. Fowler is the owner/operator of Diamond F
Ranch, a cattle operation located in Rosanky, Texas. Prior to 1997, Mr. Fowler
was the ranch manager of Double D Ranch, located in Rosanky, Texas.
James A. Cowan. Mr. Cowan is a self-employed consultant in the
telecommunications field.
Rodney E. Langer. Mr. Langer retired as a Captain with Delta Airlines
in July 1997.
Brad M. Hurta. Mr. Hurta is the President of Community Bank, a position
he has held since May 1999. Prior to this, he was the Senior Vice President of
First State Bank, Smithville, Texas.
Georgina Chronis. Ms. Chronis is the President of Clara Inc., which
operates La Cabana Restaurant Chevron Store in Smithville, Texas. Ms. Chronis
has held this position since 1985.
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<PAGE>
Barry W. Hannath. Mr. Hannath is a self-employed rancher. From 1975
until 1993, Mr. Hannath was the President and Chief Executive Officer of Hannath
Inc., a grocery store.
Executive Officers Who Are Not Directors
Each of the executive officers of CBCT Bancshares, Inc. will retain
office following the conversion. Officers are elected annually by the board of
directors of CBCT Bancshares, Inc. The business experience for at least the past
five years for each of the executive officers of CBCT Bancshares, Inc. who do
not serve as directors is set forth below.
Lynn D. Frerich. Age 29 years. Mr. Frerich serves as Vice President and
Chief Operating Officer. He has been employed by Community Bank since 1999.
Prior to joining, he was the Branch Manager of First State Bank of Bastrop,
Texas.
Nancy M. Janecek. Age 56 years. Ms. Janecek is a Vice President of CBCT
Bancshares, Inc., at Community Bank. She has held this position since 1993, and
originally started with Community Bank in 1986.
Meetings and Committees of the Board of Directors
Our board of directors meets monthly. During the year ended December
31, 1999, the board of directors held 15 meetings. No director attended fewer
than 75% of the total meetings of the board of directors and committees on which
such board member served during this period.
We currently have standing Audit, Asset, Asset/Liability Management and
Investment and Executive Committees. We do not have a standing Nominating
Committee; rather, the Executive Committee performs this function.
The Audit Committee is comprised of Vernon Richards, Clinton Wright,
and Gordon Fowler, Jr. The Audit Committee meets as needed. The Audit Committee
recommends the independent auditors and reviews the audit report prepared by the
independent auditors. This committee met five times in 1999. The Audit Committee
also reviews the policies of the Bank and recommends approval to the Board.
The Asset Committee is chaired by James Cowan, who is designated the
Asset Review Officer and Clinton Wright and Gordon Fowler, Jr. as members. The
Asset Committee meets quarterly or more frequently on an as needed basis. The
Asset Committee reviews, identifies and classifies Community Bank's assets based
on credit risk, in accordance with regulatory guidelines. This committee is also
responsible for reviewing asset valuation and classification policies, as well
as developing and monitoring asset disposition. This committee met four times in
1999.
The Asset/Liability Management and Investment and Committee is
comprised of Brad Hurta, James Cowan, and Barry Hannath with Mike Maney as
Chairman. The Asset/Liability Management and Investment Committee meets as
needed. The Asset/Liability Management and Investment Committee reviews and
monitors Community Bank' investment portfolio, liquidity
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<PAGE>
position and interest rate risk. The committee is also responsible for reviewing
and establishing loan and deposit interest rates. This committee met 15 times in
1999.
The Executive Committee is comprised of Brad Hurta, Mike Maney and
Vernon Richards with Barry Hannath as Chairman. The Executive Committee meets at
least monthly or on an as needed basis. The Executive Committee is authorized to
conduct any business which the full board of directors may conduct. The
committee specifically reviews loan applications and the underwriting policy,
monitors the performance of senior management and accounting personnel. In
addition, the committee acts as a search and nominating committee for board
members and senior management. This committee met 44 times in 1999.
Directors' Compensation
Members of Community Bank's board of directors receive a fee of $375
per meeting attended and $100 per committee meeting attended.
Executive Compensation
The following table sets forth a summary of information concerning the
compensation paid by Community Bank, including amounts deferred to future
periods by the officers, for services rendered in all capacities during the year
ended December 31, 1999 to the President and Chief Executive Officer of
Community Bank. No other executive officer of Community Bank received salary and
bonus exceeding $100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
------------------------------------------------
Long Term
Compensation
Annual Compensation Awards
----------------------------- ------------------
Other Restricted
Annual Stock All Other
Fiscal Compensation Award Options Compen-
Name and Principal Position Year Salary Bonus $)(1) ($)(2) (#)(2) sation
- ----------------------------- ------ ---------- ----- ------------ ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Brad M. Hurta, 1999 $44,692(3) $--- --- --- --- $---
President and Chief Executive
Officer
</TABLE>
- -------------
(1) This amount does not include personal benefits or perquisites which did
not exceed the lesser of $50,000 or 10% of the named individuals'
salary and bonus.
(2) As a mutual institution, Community Bank does not have any stock option
or restricted stock plans. CBCT Bancshares, Inc. does, however, intend
to adopt such plans following the conversion. See "- Benefits -- Other
Stock Benefit Plans."
(3) Employment began May 27, 1999.
Benefits
General. Community Bank currently provides health and welfare benefits
to its employees, including hospitalization, comprehensive medical insurance,
dental insurance and life
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<PAGE>
insurance, subject to deductibles and copayments by employees. Community Bank
also provides retirements benefits. See Note 16 of the Notes to Consolidated
Financial Statements.
401(k) and Profit Sharing Plan. Community Bank has a qualified,
tax-exempt savings and profit-sharing plan with a cash or deferred feature
qualifying under Section 401(k) of the Internal Revenue Code. Employees of CBCT
Bancshares, Inc. and Community Bank may participate in this plan, beginning on
the first of January or July after the employee has completed three months of
service. Employees of CBCT Bancshares, Inc. and Community Bank who are active
participants and have worked at least 1,000 hours during the plan year, are
eligible for matching contributions.
Participants are permitted to make salary reduction contributions to
the 401(k) Plan of up to 12% of the participant's annual salary. In addition,
Community Bank may match the participant's contribution on a dollar for dollar
basis up to 100% of the participant's before-tax contribution up to a maximum
contribution by Community Bank of 3% of the participant's annual salary for the
year. Community Bank may also make discretionary contributions. All participant
contributions and earnings are fully and immediately vested. The percentage of a
participant's ownership in Community Bank's contributions vest 100% after five
years of service, 20% per year, with Community Bank. However in the event of
retirement, permanent disability or death, a participant will automatically
become 100% vested in the value of all contributions by Community Bank and
earnings thereon, regardless of the number of years of employment with Community
Bank.
Participants may invest amounts contributed to their 401(k) Plan
accounts in one or more investment options available under the 401(k) Plan. Each
participant receives an annual statement which provides information regarding,
among other things, the market value of his investments and contributions made
to the 401(k) Plan on the participant's behalf. Participants are permitted to
borrow against their account balance in the 401(k) Plan. For the year ended
December 31, 1999, Community Bank's contribution to the 401(k) Plan on behalf of
Mr. Hurta was $0.
Employee Stock Ownership Plan. CBCT Bancshares, Inc. intends to adopt
an employee stock ownership plan for employees of CBCT Bancshares, Inc. and
Community Bank to become effective upon the conversion. Employees of CBCT
Bancshares, Inc. and Community Bank who have been credited with at least 1,000
hours of service during a twelve month period are eligible to participate in the
employee stock ownership plan.
As part of the conversion, it is anticipated that the employee stock
ownership plan will borrow funds from CBCT Bancshares, Inc. The employee stock
ownership plan will use these funds to purchase up to 8.0% of the common stock
issued in the conversion. It is anticipated that this loan will equal 100% of
the aggregate purchase price of the common stock acquired by the employee stock
ownership plan. The loan to the employee stock ownership plan will be repaid
principally from Community Bank's contributions to the employee stock ownership
plan over a period of 10 years, and the collateral for the loan will be the
common stock purchased by the employee stock ownership plan. The interest rate
for the loan is expected to be the minimum rate prescribed by the Internal
Revenue Code. CBCT Bancshares, Inc. may, in any plan year, make
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<PAGE>
additional discretionary contributions for the benefit of plan participants in
either cash or shares of common stock, which may be acquired through the
purchase of outstanding shares in the market or from individual stockholders,
upon the original issuance of additional shares by CBCT Bancshares, Inc. or upon
the sale of treasury shares by CBCT Bancshares, Inc. These purchases, if made,
would be funded through additional borrowings by the employee stock ownership
plan or additional contributions from CBCT Bancshares, Inc. The timing, amount
and manner of future contributions to the employee stock ownership plan will be
affected by various factors, including prevailing regulatory policies, the
requirements of applicable laws and regulations and market conditions.
Shares purchased by the employee stock ownership plan with the proceeds
of the loan will be held in a suspense account and released to participants'
accounts as debt service payments are made. Shares released from the employee
stock ownership plan will be allocated to each eligible participant's employee
stock ownership plan account based on the ratio of each such participant's
compensation to the total compensation of all eligible employee stock ownership
plan participants. Forfeitures will be reallocated among remaining participating
employees and may reduce any amount CBCT Bancshares, Inc. might otherwise have
contributed to the employee stock ownership plan. The account balances of
participants within the employee stock ownership plan will become 100% vested
after five years of service. Credit for eligibility and vesting is given for
years of service with Community Bank prior to adoption of the employee stock
ownership plan. In the case of a "change in control," as defined in the employee
stock ownership plan, which triggers a termination of the employee stock
ownership plan, participants will become immediately fully vested in their
account balances. Benefits are payable upon retirement or other separation from
service. CBCT Bancshares, Inc.'s contributions to the employee stock ownership
plan are not fixed, so benefits payable under the employee stock ownership plan
cannot be estimated.
First Bankers Trust, Quincy, Illinois will serve as trustee of the
employee stock ownership plan. Under the employee stock ownership plan, the
trustee must vote all allocated shares held in the employee stock ownership plan
in accordance with the instructions of the participating employees, and
unallocated shares will be voted in the same ratio on any matter as those
allocated shares for which instructions are given.
GAAP requires that any third party borrowing by the employee stock
ownership plan be reflected as a liability on CBCT Bancshares, Inc.' statement
of financial condition. Since the employee stock ownership plan is borrowing
from CBCT Bancshares, Inc., this obligation is not treated as a liability, but
will be excluded from stockholders' equity. If the employee stock ownership plan
purchases newly issued shares from CBCT Bancshares, Inc., total stockholders'
equity would neither increase nor decrease, but per share stockholders' equity
and per share net earnings would decrease as the newly issued shares are
allocated to the employee stock ownership plan participants.
The employee stock ownership plan will be subject to the requirements
of ERISA, and the regulations of the IRS and the Department of Labor thereunder.
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Other Stock Benefit Plans. In the future, we intend to adopt a stock
option plan and a restricted stock plan for the benefit of selected directors,
officers and employees. We anticipate that the stock option plan and restricted
stock plan will have reserved a number of shares equal to 10% and 4%,
respectively, of the CBCT Bancshares, Inc. common stock sold in the conversion.
Grants of common stock pursuant to the restricted stock plan will be issued
without cost to the recipient. If a determination is made to implement a stock
option plan or restricted stock plan, it is anticipated that any such plans will
be submitted to stockholders for their consideration at which time stockholders
would be provided with detailed information regarding such plan. If such plans
are approved, and effected, they will have a dilutive effect on CBCT Bancshares,
Inc. stockholders as well as affect CBCT Bancshares, Inc.' net income and
stockholders' equity, although the actual results cannot be determined until
such plans are implemented. Any such stock option plan or restricted stock plan
will not be implemented less than six months after the date of the completion of
the conversion, subject to continuing Texas Savings and Loan Department
jurisdiction.
Employment Agreement for Brad M. Hurta. In connection with the
conversion, Community Bank intends to enter into a three-year employment
agreement with Mr. Hurta. Under the employment agreement, the initial salary
level will be Mr. Hurta's current salary of $70,000, and the agreement also
provides for equitable participation by Mr. Hurta in Community Bank's employee
benefit plans. The salary may be increased at the discretion of the board of
directors. The agreement may be terminated by Community Bank at any time or by
the executive if he is assigned duties inconsistent with his initial position,
duties, responsibilities and status. In the event that Mr. Hurta's employment is
terminated without cause or upon his voluntary termination following the
occurrence of an event described in the preceding sentence, Community Bank would
be required to honor the terms of the agreement through the expiration of the
contract, including payment of then current cash compensation and continuation
of employee benefits.
The employment agreement also provides for a severance payment and
other benefits if Mr. Hurta is involuntarily terminated because of a change in
control of CBCT Bancshares, Inc. or Community Bank. The agreement authorizes
severance payments on a similar basis if Mr. Hurta involuntarily terminates his
employment following a change in control because he is assigned duties
inconsistent with his position, duties, responsibilities and status immediately
prior to the change in control.
The maximum value of the severance benefits under the employment
agreements is 2.99 times the executive's average annual W-2 compensation during
the five calendar year period prior to the effective date of the change in
control (base amount). Assuming that a change in control had occurred at
December 31, 1999 Mr. Hurta would be entitled to a payment of approximately
$133,630. Section 280G of the Internal Revenue Code provides that severance
payments that equal or exceed three times the individual's base amount are
deemed to be "excess parachute payments" if they are conditioned upon a change
in control. Individuals receiving parachute payments in excess of three times of
their base amount are subject to a 20% excise tax on the amount of the excess
payments. If excess parachute payments are made, CBCT Bancshares, Inc. and
Community Bank would not be entitled to deduct the amount of the excess
payments. The employment agreement provides that severance and other payments
that are
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subject to a change in control will be reduced as much as necessary to ensure
that no amounts payable to the executive will be considered excess parachute
payments.
Loans and Other Transactions with Officers and Directors
Community Bank has followed a policy of granting loans to officers and
directors, which fully complies with all applicable federal regulations. Loans
to directors and executive officers are made in the ordinary course of business
and on the same terms and conditions as those of comparable transactions with
unaffiliated third parties prevailing at the time, in accordance with our
underwriting guidelines, and do not involve more than the normal risk of
collectibility or present other unfavorable features. In addition, all loans and
forgiveness of loans to directors and executive officers are approved by at
least a majority of the independent, disinterested members of the board.
All loans we make to our directors and executive officers are subject
to regulations restricting loans and other transactions with affiliated persons
of Community Bank. Loans to all directors and executive officers and their
associates totaled approximately $321,000 at December 31, 1999, which was 11% of
our equity at that date. All loans to directors and executive officers were
performing in accordance with their terms at December 31, 1999.
HOW WE ARE REGULATED
Set forth below is a brief description of all material aspects of the
laws and regulations which are applicable to CBCT Bancshares, Inc. and Community
Bank.
Legislation is introduced from time to time in the United States
Congress that may affect the operations of CBCT Bancshares, Inc. and Community
Bank. In addition, the regulations governing CBCT Bancshares, Inc. and Community
Bank may be amended from time to time by the Texas Savings and Loan Department
and the FDIC. Any such legislation or regulatory changes in the future could
adversely affect CBCT Bancshares, Inc. or Community Bank. No assurance can be
given as to whether or in what form any such changes may occur.
General
Community Bank, as a Texas chartered savings bank, is subject to both
state and federal regulation and oversight by the Texas Savings and Loan
Department and the FDIC extending to all aspects of its operations. Community
Bank also is subject to requirements established by the Federal Reserve Board.
Community Bank is required to file periodic reports with the Texas Savings and
Loan Department and the FDIC and is subject to periodic examinations by the
Texas Savings and Loan Department and the FDIC. The investment and lending
authority of Community Bank is prescribed by state laws and regulations, and
Community Bank is prohibited from engaging in any activities not permitted by
such laws and regulations. Such regulation and supervision primarily is intended
for the protection of depositors and not for the purpose of protecting
shareholders. This regulatory oversight will continue to apply to Community Bank
following the reorganization.
The Texas Savings and Loan Department regularly examines Community Bank
and prepares reports for the consideration of Community Bank's board of
directors on any
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deficiencies that it may find in Community Bank's operations. The FDIC also has
the authority to examine Community Bank in its role as the administrator of the
Bank Insurance Fund. Community Bank's relationship with its depositors and
borrowers also is regulated to a great extent by both Federal and state laws,
especially in such matters as the ownership of savings accounts and the form and
content of Community Bank's mortgage requirements. Any change in such
regulations, whether by the FDIC, the Texas Savings and Loan Department or
Congress, could have a material adverse impact on CBCT Bancshares, Inc. and
Community Bank and their operations.
Recent Legislation
On November 12, 1999, the Gramm-Leach-Bliley Act (the "GLB Act") was
enacted into law. The GLB Act modernized the financial services industry by
permitting affiliations between banks, securities firms and insurance companies.
The GLB Act also created two classes of unitary savings and loan holding
companies: grandfathered and non-grandfathered holding companies. A
grandfathered unitary savings and loan holding company is a company that (1) was
already a unitary savings and loan holding company before May 4, 1999 or (2)
applied for regulatory approval from the OTS to become a unitary savings and
loan holding company before May 4, 1999. Grandfathered unitary savings and loan
holding companies have no restrictions on their activities at the holding
company level. However, non-grandfathered unitary savings and loan holding
companies may engage in only banking, securities, insurance and merchant banking
activities permitted for financial holding companies under the GLB Act. CBCT
Bancshares, Inc. will be a non-grandfathered unitary savings and loan holding
company following the conversion.
CBCT Bancshares, Inc.
Pursuant to regulations of the Federal Reserve Board and the terms of
CBCT Bancshares, Inc.'s Maryland articles of incorporation, the purpose and
powers of CBCT Bancshares, Inc. are to pursue any or all of the lawful
objectives of a bank holding company and to exercise any of the powers accorded
to a bank holding company.
Capital Requirements. The FRB has established capital requirements for
bank holding companies that generally parallel the capital requirements for
national banks. For bank holding companies with consolidated assets of less than
$150 million, such as CBCT Bancshares, compliance is measured on a bank-only
basis. The Office of the Comptroller of the Currency ("OCC") regulations
establish two capital standards for national banks: a leverage requirement and a
risk-based capital requirement.
The leverage ratio adopted by the OCC requires a minimum ratio of "Tier
1 capital" to adjusted total assets of 3% for national banks rated composite 1
under the CAMEL rating system for banks. National banks not rated composite 1
under the CAMEL rating system for banks are required to maintain a minimum ratio
of Tier 1 capital to adjusted total assets of 4% to 5%, depending upon the level
and nature of risks of their operations. For purposes of the OCC's leverage
requirement, Tier 1 capital generally consists of common stockholders' equity
and retained income and certain non-cumulative perpetual preferred stock and
related income, except that no intangibles and certain purchased mortgage
servicing rights and purchased credit card relationships may be included in
capital.
The risk-based capital requirements established by the OCC's
regulations require national banks to maintain "total capital" equal to at least
8% of total risk-weighted assets. For purposes of the risk-based capital
requirement, "total capital" means Tier 1 capital (as described above) plus
"Tier 2 capital," provided that the amount of Tier 2 capital may not exceed the
amount of Tier 1 capital, less certain assets. The components of Tier 2 capital
include certain permanent and maturing capital instruments that do not qualify
as core capital and general valuation loan and lease loss allowances up to a
maximum of 1.25% of risk-weighted assets.
Community Bank
General. As a state chartered savings bank, the Bank derives its
authority from, and is governed by, the provisions of the Texas Savings Bank Act
(the "Texas Act") and rules and regulations of the Texas Department. The Texas
Act and regulations of the Texas Department are administered by the Texas
Savings and Loan Commissioner (the "Commissioner").
Investments and Deposit Accounts. The Texas Act imposes restrictions on
the amounts and types of loans that may be made by a state savings bank,
generally bringing these restrictions into parity with the regulation of
federally chartered institutions. The manner of establishing deposit accounts
and evidencing the same is prescribed, as are the obligations of the Bank with
respect to withdrawals from deposit accounts and redemptions of deposit
accounts.
Branch Offices. Pursuant to the Texas Act and the regulations issued
thereunder, the Commissioner may permit the Bank to establish branch offices
after giving consideration to the promotion of public need, market conditions
and financial and managerial capability of the Bank to establish and maintain
each branch office sought. Interested parties, which include any savings and
loan association or branch thereof, together with any others deemed to be
interested parties by the Commissioner, are permitted to protest the
establishment of such branches and may request a hearing before the Commissioner
regarding this matter.
Consolidation or Merger. The Texas Act provides that savings banks may
consolidate or merge, subject to approval of the Commissioner, when the
Commissioner finds that such merger or consolidation is not in restraint of
trade, would not significantly curtail competition or impair other financial
institutions.
Examination. The Texas Department conducts and supervises the
examination of state chartered savings banks. An insured association such as the
Bank will also be examined periodically by the FDIC.
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Supervision. The Commissioner has general supervisory authority over
savings banks and their holding companies. Upon his finding that a savings bank
is in violation of any provision of the Act or regulations, or is engaging in
unsafe or unsound practices, or is failing to maintain adequate documentary or
accounting records, he may order the savings bank or its holding company to
discontinue the violation or practice, or to establish necessary records. Upon
failure of any savings bank, its holding company or any participating person to
comply with his order, the Commissioner may issue upon the violating party (i)
an order to cease and desist from continuing such a particular action, (ii) a
removal or prohibition order suspending or prohibiting the person participating
in such violation from the affairs of the savings bank, (iii) an order requiring
divestiture of control of the savings bank, (iv) an order requiring the payment
of a civil penalty in an amount of not more than $25,000, or (v) an order
placing the affairs of the savings bank under the control of a conservator who
will manage the savings bank under the direction of the Commissioner.
Furthermore, if it appears doubtful to the Commissioner that a savings bank
subject to such a conservatorship order can be successfully rehabilitated, the
Commissioner may close the savings bank and liquidate it.
Change of Control. A change of control of a savings bank (and therefore
the holding company) may not occur unless an application is made and approved by
the Commissioner. For the purposes of Texas law, control shall be deemed to
exist if any person owns or controls 25% or more of the voting securities of a
savings bank. Similar to federal law, there is a presumption of control if any
person owns or controls 10% or more of the voting securities of the savings bank
Holding Companies. The Commissioner also has the authority to regulate
and examine the holding companies of Texas chartered savings banks. Each holding
company is required by Texas law to register with the Commissioner within 90
days after becoming a holding company. Such holding companies, like that of the
Bank, must file with the Commissioner reports concerning its operations. The
Commissioner also has enforcement powers over such holding companies similar to
those applicable to savings banks.
Applicable Corporate Law. In addition to the laws of Texas specifically
governing savings banks and their holding companies, the Bank and Horizon are
also subject to Texas corporate law, to the extent such law does not conflict
with the laws specifically governing savings banks and their holding companies.
Insurance of Accounts and Regulation by the FDIC
Community Bank is a member of the Bank Insurance Fund, which is
administered by the FDIC. Deposits are insured up to the applicable limits by
the FDIC and such insurance is backed by the full faith and credit of the United
States Government. As insurer, the FDIC imposes deposit insurance premiums and
is authorized to conduct examinations of and to require reporting by
FDIC-insured institutions. It also may prohibit any FDIC-insured institution
from engaging in any activity the FDIC determines by regulation or order to pose
a serious risk to the Bank Insurance Fund or the Bank Insurance Fund. The FDIC
also has the authority to initiate enforcement actions against savings
institutions and may terminate the deposit insurance if it
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determines that the institution has engaged in unsafe or unsound practices or is
in an unsafe or unsound condition.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
pay the lowest premium while institutions that are less than adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based capital ratio of less than 8%) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions is made by the FDIC for each semi-annual assessment period.
The FDIC is authorized to increase assessment rates, on a semi-annual
basis, if it determines that the reserve ratio of the Bank Insurance Fund will
be less than the designated reserve ratio of 1.25% of Bank Insurance Fund
insured deposits. In setting these increased assessments, the FDIC must seek to
restore the reserve ratio to that designated reserve level, or such higher
reserve ratio as established by the FDIC.
Community Reinvestment Act
Under the Community Reinvestment Act, every FDIC-insured institution
has a continuing and affirmative obligation consistent with safe and sound
banking practices to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The Community Reinvestment Act
does not establish specific lending requirements or programs for financial
institutions nor does it limit an institution's discretion to develop the types
of products and services that it believes are best suited to its particular
community, consistent with the Community Reinvestment Act. Due to the heightened
attention being given to the Community Reinvestment Act in the past few years,
Community Bank may be required to devote additional funds for investment and
lending in its local community. Community Bank was examined for Community
Reinvestment Act compliance as of May 11, 1999, and received a rating of
satisfactory.
Transactions with Affiliates
Generally, transactions between a savings institution or its
subsidiaries and its affiliates are required to be on terms as favorable to the
institution as transactions with non-affiliates. In addition, certain of these
transactions, such as loans to an affiliate, are restricted to a percentage of
the institution's capital. Affiliates of Community Bank include CBCT Bancshares,
Inc. and any company which is under common control with Community Bank. In
addition, a savings institution may not lend to any affiliate engaged in
activities not permissible for a bank holding company or acquire the securities
of most affiliates.
Certain transactions with directors, officers or controlling persons
are also subject to conflict of interest regulations enforced by the regulators.
These conflict of interest regulations
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and other statutes also impose restrictions on loans to these persons and their
Frelated interests. Among other things, these loans must generally be made on
terms substantially the same as loans to unaffiliated individuals.
Federal Securities Law
The stock of CBCT Bancshares, Inc. is registered with the SEC under the
Securities Exchange Act of 1934, as amended. CBCT Bancshares, Inc. will be
subject to the information, proxy solicitation, insider trading restrictions and
other requirements of the SEC under the Securities Exchange Act of 1934.
CBCT Bancshares, Inc. stock held by persons who are affiliates of CBCT
Bancshares, Inc. may not be resold without registration unless sold in
accordance with resale restrictions. Affiliates are generally considered to be
officers, directors and principal stockholders. If CBCT Bancshares, Inc. meets
specified current public information requirements, each affiliate of CBCT
Bancshares, Inc. will be able to sell in the public market, without
registration, a limited number of shares in any three-month period.
Federal Reserve System
The Federal Reserve Board requires all depository institutions to
maintain non-interest bearing reserves at specified levels against their
transaction accounts, primarily checking, NOW and Super NOW checking accounts.
At December 31, 1999, Community Bank was in compliance with these reserve
requirements.
Savings institutions are authorized to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve Board regulations require
institutions to exhaust other reasonable alternative sources of funds, including
Federal Home Loan Bank borrowings, before borrowing from the Federal Reserve
Bank.
Federal Home Loan Bank System
Community Bank is a member of the Federal Home Loan Bank of Dallas,
which is one of 12 regional Federal Home Loan Banks, that administers the home
financing credit function of savings institutions. Each Federal Home Loan Bank
serves as a reserve or central bank for its members within its assigned region.
It is funded primarily from proceeds derived from the sale of consolidated
obligations of the Federal Home Loan Bank System. It makes loans or advances to
members in accordance with policies and procedures, established by the board of
directors of the Federal Home Loan Bank, which are subject to the oversight of
the Federal Housing Finance Board. All advances from the Federal Home Loan Bank
are required to be fully secured by sufficient collateral as determined by the
Federal Home Loan Bank. In addition, all long-term advances are required to
provide funds for residential home financing.
As a member, Community Bank is required to purchase and maintain stock
in the Federal Home Loan Bank of Dallas. At December 31, 1999, Community Bank
had $496,400 in Federal Home Loan Bank stock, which was in compliance with this
requirement. In past years,
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Community Bank has received substantial dividends on its Federal Home Loan Bank
stock. Over the past five fiscal years such dividends have averaged 5.84% and
were 5.44% for 1999.
Under federal law the Federal Home Loan Banks are required to provide
funds for the resolution of troubled savings institutions and to contribute to
low- and moderately priced housing programs through direct loans or interest
subsidies on advances targeted for community investment and low- and
moderate-income housing projects. These contributions have affected adversely
the level of Federal Home Loan Bank dividends paid and could continue to do so
in the future. These contributions could also have an adverse effect on the
value of Federal Home Loan Bank stock in the future. A reduction in value of
Community Bank's Federal Home Loan Bank stock may result in a corresponding
reduction in Community Bank's capital.
For the year ended December 31, 1999, dividends paid by the Federal
Home Loan Bank of Dallas to Community Bank totaled $26,100, as compared to
$26,800 for 1998.
TAXATION
Federal Taxation
General. CBCT Bancshares, Inc. and Community Bank will be subject to
federal income taxation in the same general manner as other corporations, with
some exceptions discussed below. The following discussion of federal taxation is
intended only to summarize pertinent federal income tax matters and is not a
comprehensive description of the tax rules applicable to CBCT Bancshares, Inc.
or Community Bank. Community Bank's federal income tax returns have been closed
without audit by the IRS through its year ended December 31, 1996.
Following the conversion, CBCT Bancshares, Inc. anticipates that it
will file a consolidated federal income tax return with Community Bank
commencing with the first taxable year after completion of the conversion.
Accordingly, it is anticipated that any cash distributions made by CBCT
Bancshares, Inc. to its stockholders would be considered to be taxable dividends
and not as a non-taxable return of capital to stockholders for federal and state
tax purposes.
Method of Accounting. For federal income tax purposes, Community Bank
currently reports its income and expenses on the cash method of accounting and
uses a fiscal year ending on December 31, for filing its federal income tax
return.
Bad Debt Reserves. Prior to the Small Business Job Protection Act,
Community Bank was permitted to establish a reserve for bad debts under the
percentage of taxable income method and to make annual additions to the reserve
utilizing that method. These additions could, within specified formula limits,
be deducted in arriving at taxable income. As a result of the Small Business Job
Protection Act, savings associations of Community Bank's size may now use the
experience method in computing bad debt deductions beginning with their 1996
Federal tax return. In addition, federal legislation requires Community Bank to
recapture, over a six year period, the excess of tax bad debt reserves at
December 31, 1997 over those established as of the base year reserve balance as
of December 31, 1987. The amount of such reserve subject to recapture as of
December 31, 1999 for Community Bank is approximately $13,000.
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Taxable Distributions and Recapture. Prior to the Small Business Job
Protection Act, bad debt reserves created prior to the year ended December 31,
1997, were subject to recapture into taxable income should Community Bank fail
to meet thrift asset and definitional tests. New federal legislation eliminated
these thrift related recapture rules. However, under current law, pre-1988
reserves remain subject to recapture should Community Bank make certain
non-dividend distributions or cease to maintain a thrift/bank charter.
Minimum Tax. The Internal Revenue Code imposes an alternative minimum
tax at a rate of 20% on a base of regular taxable income plus certain tax
preferences, called alternative minimum taxable income. The alternative minimum
tax is payable to the extent such alternative minimum taxable income is in
excess of an exemption amount. Net operating losses can offset no more than 90%
of alternative minimum taxable income. Certain payments of alternative minimum
tax may be used as credits against regular tax liabilities in future years.
Community Bank has not been subject to the alternative minimum tax, nor do we
have any such amounts available as credits for carryover.
Net Operating Loss Carryovers. A financial institution may carryback
net operating losses to the preceding two taxable years and forward to the
succeeding 20 taxable years. This provision applies to losses incurred in
taxable years beginning after August 6, 1997. For losses incurred in the taxable
years prior to August 6, 1997, the carryback period was three years and the
carryforward period was 15 years. At December 31, 1999, Community Bank had no
net operating loss carryforwards for federal income tax purposes.
Corporate Dividends-Received Deduction. CBCT Bancshares, Inc. may
eliminate from its income dividends received from Community Bank as a wholly
owned subsidiary of CBCT Bancshares, Inc. if it elects to file a consolidated
return with Community Bank. The corporate dividends-received deduction is 100%
or 80%, in the case of dividends received from corporations with which a
corporate recipient does not file a consolidated tax return, depending on the
level of stock ownership of the payor of the dividend. Corporations which own
less than 20% of the stock of a corporation distributing a dividend may deduct
70% of dividends received or accrued on their behalf.
State Taxation
The State of Texas does not have a corporate income tax, but it does
have a corporate franchise tax. Prior to January 1, 1992, savings banks had been
exempt from the corporate franchise tax. The tax for the year 1999 is the higher
of 0.25% of taxable capital, usually the amount of paid in capital plus retained
earnings, or 4.5% of "net taxable earned surplus." "Net taxable earned surplus"
is net income for federal income tax purposes increased by the compensation of
directors and executive officers and decreased by interest on obligations
guaranteed by the U.S. government. Net income cannot be reduced by net operating
loss carryforwards from years prior to 1991, and operating loss carryovers are
limited to five years.
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RESTRICTIONS ON ACQUISITION
OF CBCT BANCSHARES, INC. AND COMMUNITY BANK
The principal federal regulatory restrictions which affect the ability
of any person, firm or entity to acquire CBCT Bancshares, Inc., Community Bank
or their respective capital stock are described below. Also discussed are
provisions in CBCT Bancshares, Inc.'s articles of incorporation and bylaws which
may be deemed to affect the ability of a person, firm or entity to acquire CBCT
Bancshares, Inc.
Federal Law
CBCT Bancshares, Inc. has filed with the SEC a registration statement
under the Securities Act, for the registration of CBCT Bancshares, Inc. common
stock to be issued pursuant to the conversion. Upon completion of the
conversion, CBCT Bancshares, Inc. common stock will be registered with the SEC
under Section 12(g) of the Securities Exchange Act of 1934, as amended. CBCT
Bancshares, Inc. will then be subject to the proxy and tender offer rules,
insider trading reporting requirements and restrictions, and other requirements
under the Exchange Act, including periodic reports and quarterly and annual
financial data.
The registration under the Securities Act of shares of CBCT Bancshares,
Inc. common stock to be issued in the conversion does not cover the resale of
such shares. Shares of CBCT Bancshares, Inc. common stock purchased by persons
who are not affiliates of CBCT Bancshares, Inc. may be sold without
registration. Shares purchased by an affiliate of CBCT Bancshares, Inc. will be
subject to the resale restrictions of Rule 144 under the Securities Act. If CBCT
Bancshares, Inc. meets the current public information requirements of Rule 144
under the Securities Act, each affiliate of CBCT Bancshares, Inc. who complies
with the other conditions of Rule 144 (including those that require the
affiliate's sale to be aggregated with those of certain other persons) would be
able to sell in the public market, without registration, a number of shares not
to exceed, in any three-month period, the greater of (i) 1% of the outstanding
shares of CBCT Bancshares, Inc. or (ii) the average weekly volume of trading in
such shares during the preceding four calendar weeks.
Articles of Incorporation and Bylaws of CBCT Bancshares, Inc.
The following discussion is a summary of provisions of the articles of
incorporation and bylaws of CBCT Bancshares, Inc. that relate to corporate
governance. The description is necessarily general and qualified by reference to
the articles of incorporation and bylaws.
Directors. Provisions of CBCT Bancshares, Inc.'s articles of
incorporation and bylaws will impede changes in majority control of the board of
directors. CBCT Bancshares, Inc.'s articles of incorporation provide that the
board of directors will be divided into three classes, with directors in each
class elected for three-year staggered terms except for the initial directors.
Thus, assuming a board of three directors or more, it would take two annual
elections to replace a majority of CBCT Bancshares, Inc.'s board. CBCT
Bancshares, Inc.'s articles of incorporation also provide that the size of the
board of directors may be increased or decreased only by a majority vote of the
whole board or by a vote of 80% of the shares eligible to be voted at a duly
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constituted meeting of stockholders called for such purpose. The bylaws also
provide that any vacancy occurring in the board of directors, including a
vacancy created by an increase in the number of directors, shall be filled for
the remainder of the unexpired term by a majority vote of the directors then in
office. Finally, the bylaws impose notice and information requirements in
connection with the nomination by stockholders of candidates for election to the
board of directors or the proposal by stockholders of business to be acted upon
at an annual meeting of stockholders.
The articles of incorporation provide that a director may only be
removed for cause by the affirmative vote of 80% of the shares eligible to vote.
Restrictions on Call of Special Meetings. The articles of incorporation
of CBCT Bancshares, Inc. provides that a special meeting of stockholders may be
called only through a resolution of the board of directors and only for business
as directed by the board. Stockholders are not authorized to call a special
meeting.
Absence of Cumulative Voting. CBCT Bancshares, Inc.'s articles of
incorporation do not provide for cumulative voting rights in the election of
directors.
Authorization of Preferred Stock. The articles of incorporation of CBCT
Bancshares, Inc. authorizes 1,000,000 shares of serial preferred stock, $.01 par
value. CBCT Bancshares, Inc. is authorized to issue preferred stock from time to
time in one or more series subject to applicable provisions of law, and the
board of directors is authorized to fix the designations, powers, preferences
and relative participating, optional and other special rights of such shares,
including voting rights, which could be multiple or as a separate class, and
conversion rights. In the event of a proposed merger, tender offer or other
attempt to gain control of CBCT Bancshares, Inc. that the board of directors
does not approve, it might be possible for the board of directors to authorize
the issuance of a series of preferred stock with rights and preferences that
would impede the completion of such a transaction. If CBCT Bancshares, Inc.
issued any preferred stock which disparately reduced the voting rights of the
common stock, the common stock could be required to be delisted from the Nasdaq
System. An effect of the possible issuance of preferred stock, therefore, may be
to deter a future takeover attempt. The board of directors has no present plans
or understandings for the issuance of any preferred stock and does not intend to
issue any preferred stock except on terms which the board deems to be in the
best interests of CBCT Bancshares, Inc. and its stockholders.
Limitation on Voting Rights. The articles of incorporation of CBCT
Bancshares, Inc. provide that in no event shall any record owner of any
outstanding common stock which is beneficially owned, directly or indirectly, by
a person who beneficially owns more than 10% of the then outstanding shares of
common stock, be entitled or permitted to any vote in respect of the shares held
in excess of the 10% limit. This limitation would not stop any person from
soliciting or voting proxies from other beneficial owners for more than 10% of
the common stock. This includes shares beneficially owned by any affiliate of a
person, shares which a person or his affiliates have the right to acquire upon
the exercise of conversion rights or options and shares as to which a person and
his affiliates have or share investment or voting power, but shall not include
shares beneficially owned by directors, officers and employees of Community Bank
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or CBCT Bancshares, Inc. This provision will be enforced by the board of
directors to limit the voting rights of persons beneficially owning more than
10% of the stock and thus could be utilized in a proxy contest or other
solicitation to defeat a proposal that is desired by a majority of the
stockholders.
Procedures for Business Combinations. CBCT Bancshares, Inc.'s articles
of incorporation require that business combinations, including transactions
initiated by management, between CBCT Bancshares, Inc., or any majority-owned
subsidiary thereof, and a 10% or more stockholder either (i) be approved by at
least 80% of the total number of outstanding voting shares, voting as a single
class, of CBCT Bancshares, Inc., (ii) be approved by two-thirds of the board of
directors (i.e., persons serving prior to the 10% stockholder reaching that
ownership level) or (iii) involve consideration per share generally equal to
that paid by the 10% stockholder when it acquired its block of stock.
It should be noted that, since the board and management intend to
purchase approximately $477,000 of the shares offered in the conversion and may
control the voting of additional shares through the ESOP and proposed restricted
stock plan and stock option plan, the board and management may be able to block
the approval of combinations requiring an 80% vote even where a majority of the
stockholders vote to approve such combinations.
Amendments to the Articles of Incorporation and Bylaws. Amendments to
CBCT Bancshares, Inc.'s articles of incorporation must be approved by CBCT
Bancshares, Inc.'s board of Directors and also by a majority of the outstanding
shares of CBCT Bancshares, Inc.'s voting stock; provided, however, that approval
by at least 80% of the outstanding voting stock is generally required for
amendment of certain provisions, including provisions relating to number,
classification, election and removal of directors; amendment of bylaws; call of
special stockholder meetings; offers to acquire and acquisitions of control;
director liability; certain business combinations; power of indemnification; and
amendments to provisions relating to the foregoing in the articles of
incorporation.
The bylaws may be amended by a majority vote of the board of directors
or the affirmative vote of at least 80% of the total votes eligible to be voted
at a duly constituted meeting of stockholders.
Purpose and Takeover Defensive Effects of CBCT Bancshares, Inc.'s
Articles of Incorporation and Bylaws. We believe that the provisions described
above are prudent and will reduce CBCT Bancshares, Inc.'s vulnerability to
takeover attempts and other transactions which have not been negotiated with and
approved by its board of directors. These provisions will also assist us in the
orderly deployment of the conversion proceeds into productive assets during the
initial period after the conversion. We believe these provisions are in the best
interest of Community Bank and of CBCT Bancshares, Inc. CBCT Bancshares, Inc.'s
board will be in the best position to determine the true value of CBCT
Bancshares, Inc. and to negotiate more effectively for what may be in the best
interests of our stockholders. Accordingly, we believe that it is in the best
interests of CBCT Bancshares, Inc. and its stockholders to encourage potential
acquirors to negotiate directly with the board of directors of CBCT Bancshares,
Inc. and that these provisions will encourage such negotiations and discourage
hostile takeover attempts.
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It is also our view that these provisions should not discourage persons from
proposing a merger or other transaction at prices reflective of the true value
of CBCT Bancshares, Inc. and which is in the best interests of all stockholders.
Attempts to take over financial institutions and their holding
companies have recently become increasingly common. Takeover attempts which have
not been negotiated with and approved by the board of directors present to
stockholders the risk of a takeover on terms which may be less favorable than
might otherwise be available. A transaction which is negotiated and approved by
the board of directors, on the other hand, can be carefully planned and
undertaken at an opportune time in order to obtain maximum value for CBCT
Bancshares, Inc. and its stockholders, with due consideration given to matters
such as the management and business of the acquiring corporation and maximum
strategic development of CBCT Bancshares, Inc.'s assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Although a tender offer
or other takeover attempt may be made at a price substantially above then
current market prices, these offers are sometimes made for less than all of the
outstanding shares of a target company. As a result, stockholders may be
presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous, or retaining their investment in an enterprise
which is under different management and whose objectives may not be similar to
those of the remaining stockholders. The concentration of control, which could
result from a tender offer or other takeover attempt, could result in CBCT
Bancshares, Inc. no longer being a reporting company with the SEC and therefore
deprive CBCT Bancshares, Inc.'s remaining stockholders of the benefits of the
disclosure requirements of the Federal securities laws.
Despite our belief as to the benefits to stockholders of these
provisions of CBCT Bancshares, Inc.'s articles of incorporation and bylaws,
these provisions may also have the effect of discouraging a future takeover
attempt which would not be approved by CBCT Bancshares, Inc.'s board, but
pursuant to which stockholders may receive a substantial premium for their
shares over then current market prices. As a result, stockholders who might
desire to participate in such a transaction may not have any opportunity to do
so. These provisions will also render the removal of CBCT Bancshares, Inc.'s
board of directors and of management more difficult. CBCT Bancshares, Inc. will
enforce the voting limitation provisions of the articles of incorporation in
proxy solicitations and accordingly could utilize these provisions to defeat
proposals that are favored by a majority of the stockholders. We, however, have
concluded that the potential benefits outweigh the possible disadvantages.
Pursuant to applicable law, at any annual or special meeting of its
stockholders after the conversion, CBCT Bancshares, Inc. may adopt additional
charter provisions regarding the acquisition of its equity securities that would
be permitted to a Maryland corporation. CBCT Bancshares, Inc. does not presently
intend to propose the adoption of further restrictions on the acquisition of
CBCT Bancshares, Inc.'s equity securities.
96
<PAGE>
Benefit Plans
In addition to the provisions of CBCT Bancshares, Inc.'s articles of
incorporation and bylaws described above, benefit plans of CBCT Bancshares, Inc.
and Community Bank adopted in connection with the conversion contain provisions
which also may discourage hostile takeover attempts which the board of directors
of Community Bank might conclude are not in the best interests of CBCT
Bancshares, Inc., CBCT Bancshares, Inc. and Community Bank or CBCT Bancshares,
Inc.'s stockholders. For a description of the benefit plans and the provisions
of such plans relating to changes in control of CBCT Bancshares, Inc. or
Community Bank, see "Management - Benefits."
DESCRIPTION OF CAPITAL STOCK OF
CBCT BANCSHARES, INC.
General
CBCT Bancshares, Inc. is authorized to issue four million shares of
common stock having a par value of $0.01 per share and one million shares of
preferred stock having a par value of $0.01 per share. CBCT Bancshares, Inc.
currently expects to issue up to a maximum of 244,375 shares of common stock, or
281,031 shares in the event that the maximum of the estimated offering range is
increased by 15%, and no shares of preferred stock in the conversion. Each share
of CBCT Bancshares, Inc.'s common stock will have the same relative rights as,
and will be identical in all respects with, each other share of common stock.
Upon payment of the purchase price for the common stock in accordance with the
plan of conversion, all of the stock will be duly authorized, fully paid and
nonassessable. Presented below is a description of all aspects of CBCT
Bancshares, Inc.'s capital stock which are deemed material to an investment
decision with respect to the conversion.
The common stock of CBCT Bancshares, Inc. will represent
nonwithdrawable capital, will not be an account of an insurable type, and will
not be insured by the FDIC.
Common Stock
Distributions. CBCT Bancshares, Inc. can pay dividends if, as and when
declared by its board of directors, subject to compliance with limitations which
are imposed by law. The holders of common stock of CBCT Bancshares, Inc. will be
entitled to receive and share equally in these dividends as they may be declared
by the board of directors of CBCT Bancshares, Inc. out of funds legally
available for such purpose. If CBCT Bancshares, Inc. issues preferred stock, the
holders of such preferred stock may have a priority over the holders of the
common stock with respect to dividends. See "Our Policy Regarding Dividends."
Voting Rights. Upon the effective date of the conversion, the holders
of common stock of CBCT Bancshares, Inc. will possess exclusive voting rights in
CBCT Bancshares, Inc. Each holder of common stock will be entitled to one vote
per share and will not have any right to cumulate votes in the election of
directors. Under certain circumstances, shares in excess of 10% of the issued
and outstanding shares of common stock may be considered "excess shares" and,
97
<PAGE>
accordingly, not be entitled to vote. See "Restrictions on Acquisition of CBCT
Bancshares, Inc. and Community Bank." If CBCT Bancshares, Inc. issues preferred
stock, holders of the preferred stock may also possess voting rights.
Liquidation. In the event of any liquidation, dissolution or winding up
of Community Bank, CBCT Bancshares, Inc., as holder of Community Bank's capital
stock, would be entitled to receive, after payment or provision for payment of
all debts and liabilities of Community Bank, including all deposit accounts and
accrued interest thereon, all assets of Community Bank available for
distribution. In the event of liquidation, dissolution or winding up of CBCT
Bancshares, Inc., the holders of its common stock would be entitled to receive,
after payment or provision for payment of all its debts and liabilities, all of
the assets of CBCT Bancshares, Inc. available for distribution. If preferred
stock is issued, the holders thereof may have a priority over the holders of the
common stock in the event of liquidation or dissolution.
Rights to Buy Additional Shares. Holders of the common stock of CBCT
Bancshares, Inc. will not be entitled to preemptive rights with respect to any
shares which may be issued. Preemptive rights are the priority right to buy
additional shares if CBCT Bancshares, Inc. issues more shares in the future. The
common stock is not subject to redemption.
Preferred Stock
None of the shares of CBCT Bancshares, Inc.'s authorized preferred
stock will be issued in the conversion. This stock may be issued with
preferences and designations as the board of directors may from time to time
determine. The board of directors can, without stockholder approval, issue
preferred stock with voting, dividend, liquidation and conversion rights which
could dilute the voting strength of the holders of the common stock and may
assist management in impeding an unfriendly takeover or attempted change in
control. CBCT Bancshares, Inc. has no present plans to issue preferred stock. If
preferred stock is issued in the future, CBCT Bancshares, Inc. will not offer
preferred stock to promoters except on the same terms as it is offered to all
other existing stockholders or to new stockholders; or the issuance will be
approved by a majority of CBCT Bancshares, Inc.'s independent directors who do
not have an interest in the transaction and who have access, at CBCT Bancshares,
Inc.'s expense, to its or independent legal counsel.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for CBCT Bancshares, Inc. common stock
is ___________________________.
EXPERTS
Our consolidated financial statements for the year ended December 31,
1999 included in this prospectus have been audited by the independent accounting
firm of Padgett, Stratemann & Co., L.L.P. Our consolidated financial statements
for the years ended December 31, 1998 and 1997 have been audited by the
independent accounting firm Seidel Schroeder & Company. As set forth in their
reports appearing elsewhere herein and in the registration statement, and are
included in reliance upon the reports of these firms given upon their authority
as experts in accounting and auditing.
98
<PAGE>
Ferguson & Company has consented to the publication herein of the
summary of its report to Community Bank setting forth its opinion as to the
estimated pro forma market value of the common stock upon conversion and its
letter with respect to subscription rights.
LEGAL AND TAX OPINIONS
The legality of the common stock and the federal income tax
consequences of the conversion has been passed upon for Community Bank by
Silver, Freedman & Taff, L.L.P., Washington, D.C., special counsel to Community
Bank and CBCT Bancshares, Inc. The Texas income tax consequences of the
conversion will be passed upon for Community Bank by Olive LLP. Certain legal
matters will be passed upon for Keefe, Bruyette & Woods, Inc. by Selman, Munson
& Lerner, P.C., Austin, Texas.
ADDITIONAL INFORMATION
CBCT Bancshares, Inc. has filed with the SEC a registration statement
under the Securities Act of 1933 with respect to the common stock offered
hereby. As permitted by the rules and regulations of the SEC, this prospectus
does not contain all the information set forth in the registration statement.
This information, including the appraisal report which is an exhibit to the
registration statement, can be examined without charge at the public reference
facilities of the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies of this material can be obtained from the SEC at prescribed rates. In
addition, the SEC maintains a web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC, including CBCT Bancshares,
Inc. The statements contained in this prospectus as to the contents of any
contract or other document filed as an exhibit to the registration statement
are, of necessity, brief descriptions thereof and are not necessarily complete;
each statement is qualified by reference to the contract or document. Community
Bank also maintains a website (www.cbank1.com) which contains various
information about Community Bank.
In connection with the conversion, CBCT Bancshares, Inc. has registered
its common stock with the SEC under Section 12 of the Securities Exchange Act of
1934, and, upon such registration, CBCT Bancshares, Inc. and the holders of its
stock will become subject to the proxy solicitation rules, reporting
requirements and restrictions on stock purchases and sales by directors,
officers and greater than 10% stockholders, the annual and periodic reporting
and other requirements of the Securities Exchange Act of 1934. Under the plan of
conversion, CBCT Bancshares, Inc. has undertaken that it will not terminate this
registration for a period of at least three years following the conversion.
A copy of the plan of conversion, the articles of incorporation and the
charter and bylaws of CBCT Bancshares, Inc. and Community Bank are available
without charge from Community Bank. Requests for such information should be
directed to: Stockholder Relations, Community Bank, 312 Main Street, Smithville,
Texas 78957.
99
<PAGE>
COMMUNITY BANK OF CENTRAL TEXAS, ssb
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report................................................F-2
Consolidated Balance Sheet as of December 31, 1999 and 1998.................F-3
Consolidated Statement of Income for the Years Ended
December 31, 1999, 1998 and 1997...........................................46
Consolidated Statement of Equity Capital for the Years Ended
December 30, 1999, 1998 and 1997..........................................F-4
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997..........................................F-5
Notes to Consolidated Financial Statements..................................F-7
All schedules are omitted because the required information is not
applicable or is included in the Consolidated Financial Statements and related
Notes.
The financial statements of CBCT Bancshares, Inc. have been omitted
because CBCT Bancshares, Inc. has not yet issued any stock, has no assets or
liabilities, and has not conducted any business other than that of an
organizational nature.
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors
Community Bank of Central Texas and Subsidiary
Smithville, Texas
We have audited the accompanying consolidated balance sheet of
Community Bank of Central Texas and Subsidiary as of December 31, 1999, and the
related consolidated statements of income, changes in equity, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The consolidated
financial statements of Community Bank of Central Texas and Subsidiary for the
years ended December 31, 1998 and 1997 were audited by other auditors whose
report, dated February 19, 1999, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Community
Bank of Central Texas and Subsidiary as of December 31, 1999, and the results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
/s/ Padgett, Stratemann & Co.
Certified Public Accountants
San Antonio, Texas
January 13, 2000
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Community Bank of Central Texas and Subsidiary
Smithville, Texas
We have audited the accompanying consolidated statements of financial conditions
of Community Bank of Central Texas and Subsidiary as of December 31, 1998 and
1997, and the related consolidated statements of income, comprehensive income,
changes in equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Bank's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Community Bank of
Central Texas and Subsidiary as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s/ SEIDEL SCHROEDER & COMPANY
February 19, 1999
Brenham, Texas
F-2
<PAGE>
Community Bank of Central Texas and Subsidiary
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
Assets
1999 1998
Cash and cash equivalents: ---------------- --------------
<S> <C> <C>
Cash and noninterest bearing due from banks $ 561,388 $ 96,349
Interest bearing due from banks 1,691,432 2,853,510
------------- ------------
Total cash and cash equivalents 2,252,820 2,949,859
Securities available for sale 16,277,090 7,476,467
Securities to be held to maturity (fair value of $5,974,165 in 1998) - 6,013,250
Federal Home Loan Bank stock -- at cost 496,400 470,300
Loans held for sale 363,325 349,432
Loans -- net allowance for loan losses of $198,683
($180,697 in 1998) 21,693,104 20,890,237
Bank premises and equipment -- net 1,355,082 1,389,867
Accrued interest receivable 253,342 225,982
Prepaid expenses and other assets 141,959 63,954
------------- ------------
$ 42,833,122 $ 39,829,348
============= ============
Liabilities and Equity
Liabilities
Deposits:
Noninterest bearing $ 377,094 $ 199,805
Interest bearing 31,977,075 31,937,934
------------- ------------
Total deposits 32,354,169 32,137,739
Advances from borrowers for taxes and insurance 46,810 39,230
Advances from Federal Home Loan Bank 7,392,134 4,000,000
Accrued interest payable and other liabilities 40,710 309,209
------------- ------------
Total liabilities 39,833,823 36,486,178
Equity
Retained earnings 3,213,922 3,046,240
Accumulated other comprehensive income (loss) (214,623) 296,930
------------- ------------
Total equity 2,999,299 3,343,170
------------- ------------
$ 42,833,122 $ 39,829,348
============= ============
</TABLE>
Notes to consolidated financial statements form an integral part of these
statements.
F-3
<PAGE>
Community Bank of Central Texas and Subsidiary
Consolidated Statements of Changes in Equity
Years Ended December 31, 1999, 1998, and 1997
<TABLE>
<S> <C> <C> <C>
Accumulated
Other
Retained Comprehensive
Earnings Income (Loss) Total
--------------- ------------------ ----------
Balance at January 1, 1997 $2,658,243 $138,675 $2,796,918
Comprehensive income:
Net income -- year ended December 31, 1997 175,693 - 175,693
Change in net unrealized gain on securities available for
sale, net of reclassification adjustment and tax effect - 54,341 54,341
---------- -------- ----------
Total comprehensive income 175,693 54,341 230,034
---------- -------- ----------
Balance at December 31, 1997 2,833,936 193,016 3,026,952
Comprehensive income:
Net income -- year ended December 31, 1998 212,304 - 212,304
Change in net unrealized gain on securities available for
sale, net of reclassification adjustment and tax effect - 103,914 103,914
---------- -------- ----------
Total comprehensive income 212,304 103,914 316,218
---------- -------- ----------
Balance at December 31, 1998 3,046,240 296,930 3,343,170
Comprehensive income:
Net income -- year ended December 31, 1999 167,682 - 167,682
Change in net unrealized loss on securities available for
sale, net of reclassification adjustment and tax effect - (511,553) (511,553)
---------- -------- ----------
Total comprehensive income (loss) 167,682 (511,553) (343,871)
---------- -------- ----------
Balance at December 31, 1999 $3,213,922 $ (214,623) $2,999,299
========== ======== ==========
</TABLE>
Notes to consolidated financial statements form an integral part of these
statements.
F-4
<PAGE>
Community Bank of Central Texas and Subsidiary
Consolidated Statements of Cash Flows
Years Ended December 31, 1999, 1998, and 1997
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
Cash Flows From Operating Activities -------------- ------------- ------------
Net income $ 167,682 $ 212,304 $ 175,693
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 107,437 77,123 60,814
Net gains on sales of securities (76,091) (30,396) -
Provision for loan losses - - 3,253
Deferred income taxes 12,265 (1,136) 19,940
Federal Home Loan Bank stock dividends (26,100) (26,800) (25,300)
Net change in:
Loans held for sale (13,893) (341,516) -
Accrued interest receivable and other assets (80,580) (781) (4,171)
Accrued interest payable and other liabilities (35,016) (29,337) 90,315
Other -- net 1,975 (49,944) (18,494)
------------ ------------ ------------
Net cash provided by (used in) operating activities 57,679 (190,483) 302,050
------------ ------------ ------------
Cash Flows From Investing Activities
Net change in interest-bearing deposits in banks - 500,000 (500,000)
Activity in available-for-sale securities:
Sales 1,867,884 224,917 -
Maturities and prepayments 2,217,707 566,965 534,854
Purchases (4,227,401) (5,299,211) -
Activity in held-to-maturity securities:
Maturities and prepayments 1,465,074 1,724,214 1,179,565
Purchases (4,853,824) (993,750) -
Loan originations and collections -- net (784,907) 489,753 (3,247,863)
Capital expenditures (47,815) (353,585) (45,057)
Proceeds from sale of foreclosed assets - - 16,226
------------ ------------ ------------
Net cash used in investing activities (4,363,282) (3,140,697) (2,062,275)
------------ ------------ ------------
</TABLE>
Notes to consolidated financial statements form an integral part of these
statements.
F-5
<PAGE>
Community Bank of Central Texas and Subsidiary
Consolidated Statements of Cash Flows
Years Ended December 31, 1999, 1998, and 1997
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
----------- ------------ ------------
Cash Flows From Financing Activities
Net change in deposits $ 216,430 $1,916,786 $ 241,104
Proceeds of Federal Home Loan Bank advances 4,000,000 4,000,000 -
Repayment of Federal Home Loan Bank advances (607,866) - -
Other -- net - (6,864) (12,240)
----------- ---------- -----------
Net cash provided by financing activities $ 3,608,564 $5,909,922 $ 228,864
----------- ---------- -----------
Net increase (decrease) in cash
and cash equivalents (697,039) 2,578,742 (1,531,361)
Cash and cash equivalents at beginning of year 2,949,859 371,117 1,902,478
----------- ---------- -----------
Cash and cash equivalents at end of year $ 2,252,820 $2,949,859 $ 371,117
=========== ========== ===========
Schedules of Other Cash Flow Information
Interest paid on deposits and borrowed funds $ 1,882,031 $1,544,909 $ 1,484,138
=========== ========== ===========
Income taxes paid (refunded) $ 118,614 $ 128,804 $ (17,983)
=========== ========== ===========
</TABLE>
Notes to consolidated financial statements form an integral part of these
statements.
F-6
<PAGE>
Community Bank of Central Texas and Subsidiary
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
The accounting and reporting policies of Community Bank of Central Texas (Bank)
and its wholly-owned subsidiary, Central State Service Corporation, conform to
generally accepted accounting principles and to general practices within the
banking industry. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Material
estimates that are particularly susceptible to significant change in the near
term relate to the determination of the allowance for loan losses and the
valuation of other real estate owned and deferred tax assets. Following is a
summary of the Bank's more significant accounting and reporting policies:
Organization and Charter
The Bank is chartered in the state of Texas as a state savings bank. It is
currently organized as a mutual form of organization, so it does not have any
stock investors or ownership. However, the Bank plans to convert to a stock
company in 2000 (see note 14).
Comprehensive Income
The Bank adopted SFAS No. 130, Reporting Comprehensive Income, as of January 1,
1998. Accounting principles generally require that recognized revenue, expenses,
and gains and losses be included in net income. Although certain changes in
assets and liabilities, such as unrealized gains and losses on
available-for-sale securities, are reported as a separate component of the
equity section of the balance sheet, such items, along with net income, are
components of comprehensive income. The adoption of SFAS No. 130 had no effect
on the Bank's net income or equity.
Consolidation
The consolidated financial statements include the accounts of the Bank and its
wholly-owned subsidiary, Central State Service Corporation. Central State
Service Corporation was formed to engage in securities brokerage activities
through a third party. Effective in December 1998, these activities were
transferred to the Bank's accounts and the subsidiary became inactive. All
significant intercompany balances and transactions have been eliminated in
consolidation.
F-7
<PAGE>
Community Bank of Central Texas and Subsidiary
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies (continued)
Business
The Bank provides a variety of financial services to individuals and small
businesses through its office in Smithville, Texas. Its primary deposit products
are savings and term certificate accounts, and its primary lending products are
residential mortgage loans, commercial real estate loans, and consumer
installment loans.
Significant Group Concentrations of Credit Risk
Most of the Bank's activities are with customers located in Bastrop County,
Texas and surrounding counties. Note 2 discusses the types of securities in
which the Bank invests. Note 3 discusses the types of lending in which the Bank
engages. The Bank does not have any significant concentrations to any one
industry or customer.
Securities
The Bank's investments in securities are classified in three categories and
accounted for as follows:
Trading Securities. Government bonds held principally for resale in the
near term and mortgage-backed securities held for sale in conjunction with the
Bank's mortgage banking activities are classified as trading securities and
recorded at their fair values. Unrealized gains and losses on trading securities
are included in other income. The Bank did not have any securities classified as
trading during 1999 or 1998.
Securities to Be Held to Maturity. Bonds, notes, and debentures for
which the Bank has the positive intent and ability to hold to maturity are
reported at cost adjusted for amortization of premiums and accretion of
discounts, which are recognized in interest income using the interest method
over the period to maturity.
Securities Available for Sale. Securities available for sale are
recorded at fair value and consist of bonds, notes, and debentures not
classified as trading securities nor as securities to be held to maturity.
Unrealized holding gains and losses on securities available for sale are
excluded from earnings and reported in other comprehensive income, net of tax
effect. Gains and losses on the sale of securities available for sale are
determined using the specific-identification method and are included in
earnings. Premiums and discounts are recognized in interest income using the
interest method over the period to maturity.
F-8
<PAGE>
Community Bank of Central Texas and Subsidiary
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies (continued)
Securities (continued)
Declines in the fair value of individual held-to-maturity and available-for-sale
securities below their cost that are other than temporary result in write-downs
of the individual securities to their fair value. The related write-downs are
included in earnings as realized losses.
Loans Held for Sale
Loans originated and intended for sale in the secondary market are carried at
the lower of cost or estimated fair value in the aggregate. Net unrealized
losses, if any, are recognized through a valuation allowance by charges to
income.
Loans
Loans that management has the intent and ability to hold for the foreseeable
future, or until maturity or payoff, are reported at their outstanding principal
adjusted for any charge-offs, the allowance for loan losses, and any deferred
fees or costs on originated loans.
Loan origination fees, net of certain direct origination costs, are deferred and
recognized as an adjustment of the related loan yield using the interest method.
The accrual of interest on mortgage and commercial loans is discontinued at the
time the loan is 90 days delinquent unless the credit is well secured and in
process of collection. Consumer loans are typically charged off no later than
120 days past due. In all cases, loans are placed on nonaccrual or charged off
at an earlier date if collection of principal or interest is considered
doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual
or charged off is reversed against interest income. The interest on these loans
is accounted for on the cash basis or cost recovery method, until qualifying for
return to accrual. Loans are returned to accrual status when all the principal
and interest amounts contractually due are brought current and future payments
are reasonably assured.
F-9
<PAGE>
Community Bank of Central Texas and Subsidiary
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies (continued)
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to earnings. Loan losses
are charged against the allowance when management believes the uncollectibility
of a loan balance is confirmed. Subsequent recoveries, if any, are credited to
the allowance.
The allowance for loan losses is evaluated on a regular basis by management and
is based upon management's periodic review of the collectibility of the loans in
light of historical experience, the nature and volume of the loan portfolio,
adverse situations that may affect the borrower's ability to repay, estimated
value of any underlying collateral, and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.
A loan is considered impaired when, based on current information and events, it
is probable that the Bank will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. Factors considered by management in determining impairment include
payment status, collateral value, and the probability of collecting scheduled
principal and interest payments when due. Loans that experience insignificant
payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls
on a case-by-case basis, taking into consideration all of the circumstances
surrounding the loan and the borrower, including the length of the delay, the
reasons for the delay, the borrower's prior payment record, and the amount of
the shortfall in relation to the principal and interest owed. Impairment is
measured on a loan-by-loan basis for commercial and construction loans by either
the present value of expected future cash flows discounted at the loan's
effective interest rate, the loan's obtainable market price, or the fair value
of the collateral if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for
impairment. Accordingly, the Bank does not separately identify individual
consumer and residential loans for impairment disclosures.
F-10
<PAGE>
Community Bank of Central Texas and Subsidiary
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies (continued)
Servicing
Servicing assets are recognized as separate assets when rights are acquired
through purchase or through sale of financial assets. Capitalized servicing
rights are reported in other assets and are amortized into noninterest income in
proportion to, and over the period of, the estimated future net servicing income
of the underlying financial assets. Servicing assets are evaluated for
impairment based upon the fair value of the rights as compared to amortized
cost. Impairment is determined by stratifying rights by predominant
characteristics, such as interest rates and terms. Fair value is determined
using prices for similar assets with similar characteristics, when available, or
based upon discounted cash flows using market-based assumptions. Impairment is
recognized through a valuation allowance for an individual stratum, to the
extent that fair value is less than the capitalized amount for the stratum.
Bank Premises and Equipment
Land is carried at cost. Bank premises and equipment are stated at cost, net of
accumulated depreciation. Depreciation is recognized on straight-line and
accelerated methods over the estimated useful lives of the assets. The estimated
useful lives range from 3 to 30 years.
Pension Costs and Postretirement Benefits
Pension costs under the Bank's 401(k) plan are charged to salaries and employee
benefits expense and are funded as accrued.
The Bank does not have any postretirement benefit obligations.
Foreclosed Assets
Assets acquired through, or in lieu of, loan foreclosure are held for sale and
are initially recorded at fair value at the date of foreclosure, establishing a
new cost basis. Subsequent to foreclosure, valuations are periodically performed
by management and the assets are carried at the lower of carrying amount or fair
value less cost to sell. Revenue and expenses from operations and changes in the
valuation allowance are included in net expenses from foreclosed assets.
F-11
<PAGE>
Community Bank of Central Texas and Subsidiary
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies (continued)
Income Taxes
Deferred income tax assets and liabilities are determined using the liability
(or balance sheet) method. Under this method, the net deferred tax asset or
liability is determined based on the tax effects of the temporary differences
between the book and tax bases of the various balance sheet assets and
liabilities and gives current recognition to changes in tax rates and laws.
Cash and Cash Equivalents
For purposes of presentation in the consolidated statements of cash flows, cash
and cash equivalents include cash and noninterest and interest bearing due from
banks.
Off-Balance Sheet Financial Instruments
In the ordinary course of business, the Bank has entered into off-balance sheet
financial instruments consisting of commitments to extend credit under mortgage,
construction, and consumer line of credit loans. Such financial instruments are
recorded in the consolidated financial statements when they are funded or
related fees are incurred or received.
Derivative Financial Instruments
The Bank does not utilize derivative financial instruments as part of its
asset/liability management.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the
assets has been surrendered. Control over transferred assets is deemed to be
surrendered when (1) the assets have been isolated from the Bank, (2) the
transferee obtains the right (free of conditions that constrain it from taking
advantage of that right) to pledge or exchange the transferred assets, and (3)
the Bank does not maintain effective control over the transferred assets through
an agreement to repurchase them before their maturity.
Upon completion of a transfer of a financial asset, the Bank continues to carry
on its balance sheet any retained interests in the transferred asset, including
servicing assets. Allocation of carrying amount between the assets sold and
retained is based on their fair values at the date of transfer.
Transfers recorded as sales result in the asset being derecognized from the
balance sheet. Gain or loss on the sale is recognized in current earnings based
on the proceeds of the sale, which can include cash and other assets measured at
their fair values at the date of receipt.
Reclassifications
Certain amounts have been reclassified from prior presentations at December 31,
1998 and 1997 to conform to classifications at December 31, 1999. There is no
effect on previously reported net income or retained earnings.
F-12
<PAGE>
Community Bank of Central Texas and Subsidiary
Notes to Consolidated Financial Statements
2. Investment Securities
The amortized cost and fair value of securities, with gross unrealized gains and
losses, follows:
<TABLE>
<CAPTION>
December 31, 1999
----------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Securities Available for Sale
Debt securities:
State and municipal $ 145,000 $ 2,938 $ - $ 147,938
Mortgage-backed 16,452,470 2,097 556,602 15,897,965
----------- -------- -------- -----------
Total debt securities 16,597,470 5,035 556,602 16,045,903
Marketable equity securities 4,806 226,381 - 231,187
----------- -------- -------- -----------
$16,602,276 $231,416 $556,602 $16,277,090
=========== ======== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------------
Securities Available for Sale
<S> <C> <C> <C> <C>
Debt securities:
Mortgage- backed $ 7,020,379 $ 34,811 $ 24,118 $ 7,031,072
Marketable equity securities 6,768 438,627 - 445,395
----------- -------- -------- -----------
$ 7,027,147 $473,438 $ 24,118 $ 7,476,467
=========== ======== ======== ===========
Securities to Be Held to
Maturity
Debt securities:
State and municipal $ 175,000 $ - - $ 175,000
Mortgage-backed 5,838,250 7,806 46,891 5,799,165
----------- -------- -------- -----------
$ 6,013,250 $ 7,806 $ 46,891 $ 5,974,165
=========== ======== ======== ===========
</TABLE>
F-13
<PAGE>
Community Bank of Central Texas and Subsidiary
Notes to Consolidated Financial Statements
2. Investment Securities (continued)
The amortized cost and fair value of debt securities by contractual maturity at
December 31, 1999 follows:
Amortized Fair
Cost Value
-------------- -------------
Within one year $ 35,000 $ 35,365
Over one year through five years 110,000 112,573
----------- -----------
145,000 147,938
Mortgage-backed securities 16,452,470 15,897,965
----------- -----------
$16,597,470 $16,045,903
=========== ===========
None of the Bank's investment securities were pledged at December 31, 1999 or
1998.
For the years ended December 31, 1999, 1998, and 1997, proceeds from sales of
securities available for sale amounted to $1,867,884, $224,917, and $0,
respectively. Gross realized gains amounted to $126,091, $30,396, and $0,
respectively. Gross realized losses amounted to $50,000, $0, and $0,
respectively. The tax provision applicable to these net realized gains and
losses amounted to $25,871, $10,335, and $0, respectively.
During the year ended December 31, 1999, the Bank adopted the provisions of FASB
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities.
In connection with the adoption, the Bank transferred all of its investment
securities classified as held-to-maturity to the available-for-sale category. At
the date of transfer, the securities transferred had an amortized cost of
$9,412,000, a fair value of $9,254,000, and an unrealized loss of $158,000. The
transfer was made to increase the ability of the Bank to manage its investments
securities portfolio in order to achieve its asset/liability management goals.
The adoption of FASB Statement No. 133 did not affect any other accounting
policies of the Bank.
F-14
<PAGE>
Community Bank of Central Texas and Subsidiary
Notes to Consolidated Financial Statements
3. Loans and Allowance for Loan Losses
A summary of the balances of loans follows:
December 31,
-------------------------------
1999 1998
------------ -----------
Mortgage loans on real estate:
Residential 1-4 family $12,068,681 $14,009,636
Commercial 3,582,000 2,940,000
Construction 2,343,987 1,716,102
Second mortgages - 13,776
Equity lines of credit 127,000 68,000
----------- -----------
18,121,668 18,747,514
Commercial loans 412,825 -
Consumer installment loans 4,353,523 3,294,975
----------- -----------
22,888,016 22,042,489
Less:
Allowance for loan losses 198,683 180,697
Unadvanced loan funds 953,911 932,279
Net deferred loan fees 42,318 39,276
----------- -----------
$21,693,104 $20,890,237
=========== ===========
At December 31, 1999 and 1998, the Bank's loans secured by 1-4 family residences
were pledged as collateral for advances received from the Federal Home Loan Bank
(see note 8).
F-15
<PAGE>
Community Bank of Central Texas and Subsidiary
Notes to Consolidated Financial Statements
3. Loans and Allowance for Loan Losses (continued)
An analysis of the allowance for loan losses follows:
Years Ended December 31,
--------------------------------
1999 1998 1997
---------- ---------- ----------
Balance at beginning of year $180,697 $157,345 $157,149
Provision for loan losses - - 3,253
Loans charged off (12,305) - (3,057)
Recoveries of loans previously charged off 30,291 23,352 -
-------- -------- --------
Balance at end of year $198,683 $180,697 $157,345
======== ======== ========
At December 31, 1999 and 1998, the Bank had loans of $0 and $18,726,
respectively, that were classified as impaired without a valuation allowance.
During 1999, 1998, and 1997, the average balance of these loans was $0, $19,006,
and $19,547, respectively. During 1999, 1998, and 1997, interest income was
recognized on a cash basis on these loans amounting to $0, $1,380, and $1,302,
respectively.
Loans on which the accrual of interest has been discontinued amounted to $60,000
and $86,687 as of December 31, 1999 and 1998, respectively, for which impairment
has not been recognized. If interest on the loans had been recognized at the
original interest rates, interest income would have increased $1,475, $3,055,
and $862 for the years ended December 31, 1999, 1998, and 1997, respectively.
No additional funds are committed to be advanced in connection with impaired or
nonaccrual loans.
4. Servicing
Loans serviced for others are not included in the accompanying consolidated
balance sheets. The unpaid principal balance of mortgage and other loans
serviced for others was $5,278,102 and $2,971,334 at December 31, 1999 and 1998,
respectively.
F-16
<PAGE>
Community Bank of Central Texas and Subsidiary
Notes to Consolidated Financial Statements
4. Servicing (continued)
The balance of capitalized servicing rights included in prepaid expenses and
other assets at December 31, 1999 and 1998 was $72,753 and $39,910,
respectively. There is no valuation allowance related to these amounts. The fair
value of these rights approximates their book value, using fair value
calculations with a discount rate of 8% and an estimated life of seven years.
For the years ended December 31, 1999 and 1998, $43,053 and $41,874 of servicing
rights were capitalized, respectively, and amortization was $10,210 and $1,964,
respectively. There were no servicing rights capitalized or amortized during the
year ended December 31, 1997.
5. Bank Premises and Equipment
Components of bank premises and equipment included in the consolidated balance
sheets were as follows:
December 31,
-------------------------------------
1999 1998
-------------- ------------
Land $ 336,054 $ 336,054
Buildings 1,072,324 1,072,908
Equipment and furniture 282,678 260,991
----------- -----------
1,691,056 1,669,953
Less accumulated depreciation 335,974 280,086
----------- -----------
$ 1,355,082 $ 1,389,867
=========== ===========
Depreciation expense for the years ended December 31, 1999, 1998, and 1997
amounted to $65,363, $52,221, and $45,408, respectively.
The Bank did not have any significant long-term lease obligations at December
31, 1999.
F-17
<PAGE>
Community Bank of Central Texas and Subsidiary
Notes to Consolidated Financial Statements
6. Foreclosed Assets
The Bank had no other real estate owned or other foreclosed assets at December
31, 1999 or 1998.
7. Deposits
The aggregate amount of certificates of deposit (CDS), each with a minimum
denomination of $100,000, was $2,899,244 at December 31, 1999 ($3,004,735 in
1998).
At December 31, 1999 the scheduled maturities of CDS are as follows:
Year ending December 31,
2000 $20,364,855
2001 3,598,777
2002 1,391,401
-----------
$25,355,033
===========
8. Advances From Federal Home Loan Bank
Advances received from the Federal Home Loan Bank are at fixed interest rates
that range from 4.97% to 5.44%. Advances are received pursuant to a collateral
pledge and security agreements giving the Federal Home Loan Bank a security
interest in the Bank's loans secured by 1-4 family residences.
At December 31, 1999, the scheduled repayments of principal due on outstanding
advances are as follows:
Year ending December 31,
2000 $2,954,037
2001 2,007,229
2002 2,063,389
2003 367,479
----------
$7,392,134
==========
F-18
<PAGE>
Community Bank of Central Texas and Subsidiary
Notes to Consolidated Financial Statements
9. Federal Income Tax
The provision for federal income tax consisted of the following:
Years Ended December 31,
--------------------------------------------
1999 1998 1997
------------ ---------------- ------------
Currently paid or payable $58,843 $91,754 $66,400
Deferred 12,265 (1,136) 19,940
------- ------- -------
$71,108 $90,618 $86,340
======= ======= =======
The provision for federal income tax is less than that computed by applying the
federal statutory rate of 34% as indicated in the following analysis:
Years Ended December 31,
--------------------------------
1999 1998 1997
--------- ---------- ---------
Tax based on statutory rate $81,188 $102,993 $89,091
Effect of tax-exempt income (12,886) (9,657) (4,191)
Interest and other nondeductible expenses 2,042 1,083 664
Other -- net 764 (3,801) 776
------- -------- -------
$71,108 $ 90,618 $86,340
======= ======== =======
F-19
<PAGE>
Community Bank of Central Texas and Subsidiary
Notes to Consolidated Financial Statements
9. Federal Income Tax (continued)
The components of the deferred income tax asset (liability) included in other
assets and liabilities were as follows:
December 31,
------------------------------
1999 1998
Deferred tax assets related to: -------------- ---------------
Allowance for loan losses $ 90,673 $ 89,332
Loan origination fees and costs 12,433 12,482
Net unrealized depreciation on securities
available for sale 110,563 -
---------- ----------
213,669 101,814
Less valuation allowance 89,332 89,332
---------- ----------
Total deferred tax assets 124,337 12,482
---------- ----------
Deferred tax liabilities related to:
Depreciation (21,701) (19,491)
Cash method of accounting for tax purposes (79,096) (66,564)
Net unrealized appreciation on securities
available for sale - (152,389)
Other (11,020) (12,205)
---------- ----------
Total deferred tax liabilities (111,817) (250,649)
---------- ----------
Net deferred tax asset (liability) $ 12,520 $ (238,167)
========== ==========
The deferred tax asset related to the allowance for loan losses has been reduced
by a valuation allowance as it has been determined it is more likely than not
that a significant portion of this deferred tax asset will not be realized. This
determination was made based on an analysis of the temporary differences
relating to the allowance for loan losses and their expected reversal in future
years.
The deferred tax asset valuation allowance decreased by $1,039 during the year
ended December 31, 1998.
F-20
<PAGE>
Community Bank of Central Texas and Subsidiary
Notes to Consolidated Financial Statements
10. Off-Balance Sheet Activities
The Bank is a party to credit related financial instruments with off-balance
sheet risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit
under mortgage and construction loan agreements and consumer lines of credit.
Such commitments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the consolidated balance sheets.
The Bank's exposure to credit loss is represented by the contractual amount of
these commitments. The Bank follows the same credit policies in making
commitments as it does for on-balance sheet instruments.
The following commitments to extend credit were outstanding:
December 31,
-----------------------------------
1999 1998
-------------- --------------
Real estate:
Fixed rate $1,412,441 $2,140,397
Variable rate 1,036,860 1,159,667
Consumer 49,045 110,214
---------- ----------
$2,498,346 $3,410,278
========== ==========
Amounts expected to be sold in the
secondary mortgage market $1,070,902 $1,433,157
========== ==========
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. The Bank evaluates each customer's creditworthiness on
a case-by-case basis. The amount of collateral obtained, if it is deemed
necessary by the Bank upon extension of credit, is based on management's credit
evaluation of the counterparty. Collateral held is usually first-lien
residential mortgage property.
The Bank did not have any letters of credit outstanding at December 31, 1999 and
1998.
F-21
<PAGE>
Community Bank of Central Texas and Subsidiary
Notes to Consolidated Financial Statements
11. Related Party Transactions
In the ordinary course of business, the Bank has granted loans to principal
officers and directors and their affiliates (related parties) amounting to
$321,356 at December 31, 1999 and $346,243 at December 31, 1998. During the year
ended December 31, 1999, total principal additions were $91,138 and total
principal payments were $116,025.
Deposits from related parties held by the Bank at December 31, 1999 amounted to
$363,966.
Amounts paid to related parties for products and services were $18,831, $3,964,
and $354 for the years ended December 31, 1999, 1998, and 1997, respectively.
12. Employee Benefits
The Bank has a 401(k) plan for the benefit of substantially all employees. The
Bank's contribution is determined annually by the Board of Directors. The Bank
contributed $4,919, $6,033, and $6,323 to the plan for the years ended December
31, 1999, 1998, and 1997, respectively.
13. Minimum Regulatory Capital Requirements
The Bank is subject to various regulatory capital requirements administered by
federal and state 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
Bank's consolidated financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of their assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The 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 Bank to maintain minimum amounts and ratios (set forth in the
following table) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1999 and 1998, that
the Bank met all capital adequacy requirements to which it is subject.
F-22
<PAGE>
Community Bank of Central Texas and Subsidiary
Notes to Consolidated Financial Statements
13. Minimum Regulatory Capital Requirements (continued)
As of December 31, 1999, the most recent notification from the regulators
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, an institution
must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage
ratios as set forth in the following tables. There are no conditions or events
since the notification that management believes have changed the Bank's
category. The Bank's actual capital amounts and ratios as of December 31, 1999
and 1998 are also presented in the table.
<TABLE>
<CAPTION>
Minimum
to Be Well
Minimum Capitalized Under
Capital Prompt Corrective
Actual Requirement Action Provisions
-------------------- ---------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
---------- --------- ------------ --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1999:
Total Capital to Risk-
Weighted Assets $3,412,000 15.9% $1,715,000 8.0% $2,143,600 10.0%
Tier 1 Capital to Risk-
Weighted Assets $3,214,000 15.0% $857,000 4.0% $1,286,000 6.0%
Tier 1 Capital to Average
Assets $3,214,000 7.8% $1,653,000 4.0% $2,066,500 5.0%
December 31, 1998:
Total Capital to Risk-
Weighted Assets $3,402,000 18.7% $1,456,000 8.0% $1,820,000 10.0%
Tier 1 Capital to Risk-
Weighted Assets $3,042,000 16.7% $728,000 4.0% $1,092,000 6.0%
Tier 1 Capital to Average
Assets $3,042,000 8.6% $1,414,000 4.0% $1,768,000 5.0%
</TABLE>
F-23
<PAGE>
Community Bank of Central Texas and Subsidiary
Notes to Consolidated Financial Statements
14. Pending Conversion to a Stock Company
In December 1999, the Board of Directors of the Bank approved a plan of
conversion from a mutual savings bank to a capital stock bank. The transaction
is subject to approval by the various regulatory agencies. If approved, the Bank
expects to conduct a stock offering during the second quarter of 2000.
F-24
<PAGE>
<TABLE>
<S> <C>
No person has been authorized to give any information or to make
any representation other than as contained in this prospectus in
connection with the offering made hereby, and, if given or made,
such other information or representation must not be relied upon as
having been authorized by CBCT Bancshares, Inc., Community
Bank or Keefe, Bruyette & Woods, Inc. This prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of
the securities offered hereby to any person in any jurisdiction in
which such offer or solicitation is not authorized or in which the UP TO
person making such offer or solicitation is not qualified to do so, or
to any person to whom it is unlawful to make such offer or 281,031 SHARES
solicitation in such jurisdiction. Neither the delivery of this
prospectus nor any sale hereunder shall under any circumstances
create any implication that there has been no change in the affairs
of CBCT Bancshares, Inc. or Community Bank since any of the
dates as of which information is furnished herein or since the date
hereof.
-------------- CBCT BANCSHARES, INC.
(Proposed Holding Company for
TABLE OF CONTENTS Community Bank of Central Texas, ssb)
Page
Summary...............................................................[___]
Risk Factors..........................................................[___]
Selected Financial and Other Data.....................................[___]
Recent Developments...................................................[___]
Management's Discussion and Analysis of
Recent Financial Information.........................................[___]
CBCT Bancshares, Inc..................................................[___]
Community Bank Savings Bank...........................................[___] COMMON STOCK
How We Intend to Use the Proceeds.....................................[___]
Market for the Common Stock...........................................[___]
Our Policy Regarding Dividends........................................[___]
Pro Forma Data........................................................[___]
Comparison of Valuation and Pro Forma Information
With No Foundation.................................................[___] --------------
Capitalization........................................................[___]
Community Bank Exceeds All Regulatory Capital PROSPECTUS
Requirements.......................................................[___] --------------
Community Bank's Conversion...........................................[___]
Proposed Purchases by Management......................................[___]
Management's Discussion and Analysis of Financial
Condition and Results of Operations................................[___]
Business of CBCT Bancshares, Inc......................................[___] KEEFE, BRUYETTE & WOODS, INC.
Business of Community Bank............................................[___]
Management ...........................................................[___]
How We Are Regulated..................................................[___]
Taxation..............................................................[___] ____________, 2000
Restrictions on Acquisition of CBCT Bancshares, Inc.
and Community Bank.................................................[___]
Description of Capital Stock of CBCT Bancshares, Inc..................[___]
Transfer Agent and Registrar..........................................[___]
Experts...............................................................[___]
Legal and Tax Opinions................................................[___]
Additional Information................................................[___]
Index to Consolidated Financial Statements.............................F-1
Until the later of __________, 2000 or 25 days after the commencement of the
public offering, if any, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
-----------------------------------------
Article 12 of CBCT Bancshares, Inc.'s Articles of Incorporation
provides for indemnification of current and former directors and officers or
individuals serving any other entity at the request of CBCT Bancshares, Inc., to
the fullest extent required or permitted under Maryland law. In addition,
Article 12 provides for the indemnification of other employees and agents to the
extent authorized by the Board of Directors and permitted under Maryland law.
Article 12 also provides CBCT Bancshares, Inc. with the authority to purchase
insurance for indemnification purposes. The indemnification provisions set forth
within Article 12 are non-exclusive in nature, however, CBCT Bancshares, Inc.
shall not be liable for any payment under Article 12 to the extent that said
person entitled to be indemnified has actually received payment under any
insurance policy, agreement or otherwise of the amounts indemnifiable under
Article 12.
Section 2-418 of the General Corporation Law of the State of Maryland
permits a corporation to indemnify a person against judgments, penalties,
settlements and reasonable expenses unless it is proven that (1) the conduct of
the person was material to the matter giving rise to the proceeding and the
person acted in bad faith or with "active and deliberate dishonesty," (2) the
person actually received an improper benefit or (3) in the case of a criminal
proceeding, the person had reason to believe that his conduct was unlawful.
Maryland law provides that where a person is a defendant in a
derivative proceeding, the person may not be indemnified if the person is found
liable to the corporation. Maryland law also provides that a person may not be
indemnified in any proceeding alleging improper personal benefit to the person
in which the person was found liable on the grounds that personal benefit was
improperly received.
Maryland law further provides that unless otherwise provided in the
corporation's Articles of Incorporation, a director or officer (but not an
employee or agent) who is successful on the merits or otherwise in defense of
any proceeding must be indemnified against reasonable expenses. The Articles of
Incorporation do not otherwise provide a bar against mandatory indemnification.
Finally, Section 2-418 of the General Corporation Law also permits
expenses incurred by a person in defending a proceeding to be paid by the
corporation in advance of the final disposition of the proceeding upon the
receipt of an undertaking by the director or officer to repay this amount if it
is ultimately determined that he or she is not entitled to be indemnified by the
corporation against these expenses. The person seeking indemnification of
expenses must affirm in writing that he or she believes in good faith that he or
she has met the applicable standard for indemnification of expenses.
II-1
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of CBCT Bancshares, Inc. pursuant to the foregoing provisions, or
otherwise, CBCT Bancshares, Inc. has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
Item 25. Other Expenses of Issuance and Distribution
-------------------------------------------
Set forth below is an estimate of the amount of fees and expenses
(other than underwriting discounts and commissions) to be incurred in connection
with the issuance of the shares.
Counsel fees and expenses........................................... $ 95,000
Accounting fees and expenses........................................ 50,000
Appraisal and business plan preparation fees and expenses........... 23,000
Conversion Agent fees and expenses.................................. 10,000
Underwriting fees(1) (including financial advisory fee and expenses) 80,000
Underwriter's counsel fees and expenses............................. 25,000
Printing, postage and mailing....................................... 50,000
Registration and Filing Fees........................................ 15,000
Blue Sky fees and expenses.......................................... 5,000
Stock Transfer Agent and Certificates............................... 5,000
Other expenses(1)................................................... 22,000
TOTAL.......................................................... $380,000
- ------------------
(1) Based on maximum of Estimated Valuation Range.
Item 26. Recent Sales of Unregistered Securities
---------------------------------------
The Registrant is newly incorporated, solely for the purpose of acting
as the holding company of the Community Bank of Central Texas, ssb, pursuant to
the Plan of Conversion (filed as Exhibit 2 herein), and no sales of its
securities have occurred to date.
Item 27. Exhibits and Financial Statement Schedules
------------------------------------------
See the Exhibit Index filed as part of this Registration Statement.
Item 28. Undertakings
------------
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement to:
(i) Include any Prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) Reflect in the Prospectus any facts or events arising
after the effective date of the Registration
Statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
and
II-2
<PAGE>
(iii) Include any material information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and it will be governed by the final adjudication
of such issue.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of
Smithville, State of Texas, on May 9, 2000.
CBCT BANCSHARES, INC.
By: /s/ Brad M. Hurta
--------------------------------------
Brad M. Hurta, President and
Chief Executive Officer
(Duly Authorized Representative)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Brad M. Hurta his true and lawful
attorney-in-fact and agent, with full power of substitution and re-substitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all said attorney-in-fact and agent or his substitute
or substitutes may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
/s/ Brad M. Hurta /s/ Vernon L. Richards
- ------------------------------------- --------------------------------------
Brad M. Hurta Vernon L. Richards
President, Chief Executive Officer Director
and Director (Chief Financial and
Accounting Officer)
May 9, 2000 May 9, 2000
- ------------------------------ --------------------------------
/s/ Clinton M. Wright /s/ Mike C. Maney
- ------------------------------------- --------------------------------------
Clinton M. Wright Mike C. Maney
Director Director
May 9, 2000 May 9, 2000
- ------------------------------ --------------------------------
II-4
<PAGE>
/s/ Gordon N. Fowler /s/ James A. Cowan
- ------------------------------------- --------------------------------------
Gordon N. Fowler James A. Cowan
Director Director
May 9, 2000 May 9, 2000
- ------------------------------ --------------------------------
/s/ Rodney E. Langer /s/ Georgina Chronis
- ------------------------------------- --------------------------------------
Rodney E. Langer Georgina Chronis
Director Director
May 9, 2000 May 9, 2000
- ------------------------------ --------------------------------
/s/ Barry W. Hannath
- -------------------------------------
Barry W. Hannath
Director
May 9, 2000
- ------------------------------
II-5
<PAGE>
EXHIBIT INDEX
Exhibits:
1.1 Letter Agreement regarding management, marketing and consulting
services*
1.2 Form of Agency Agreement
2 Plan of Conversion*
3.1 Articles of Incorporation of the Holding Company*
3.2 Bylaws of the Holding Company*
3.3 Charter of Bank in stock form
3.4 Bylaws of Bank in stock form*
4 Form of Stock Certificate of the Holding Company*
5 Opinion of Silver, Freedman & Taff, L.L.P. with Respect to Legality
of Stock*
8.1 Opinion of Silver, Freedman & Taff, L.L.P. with respect to Federal
income tax consequences of the Stock Conversion
8.2 Opinion of Padgett, Stratemann & Co., L.L.P. with respect to Texas
income tax consequences of the Stock Conversion
10.1 Form of Employment Agreement*
10.2 Letter Agreement regarding Appraisal Services and Business Plan
Preparation
10.3 Employee Stock Ownership Plan*
21 Subsidiaries*
23.1 Consent of Silver, Freedman & Taff, L.L.P.*
23.2 Consent of Padgett, Stratemann & Co., L.L.P.
22.3 Consent of Seidel Schroeder & Company*
23.4 Consent of Ferguson & Company
23.5 Letter of Seidel Schroeder & Company
24 Power of Attorney (set forth on signature page)
27 Financial Data Schedule*
99.1 Appraisal**
99.2 Proxy Statement and form of proxy to be furnished to the Bank's account
holders*
99.3 Stock Order Form and Order Form Instructions*
99.4 Certification*
99.5 Advertising, Training and Community Informational Meeting
Materials*
99.6 Letter of Appraiser with respect to Subscription Rights*
* Previously filed
** To be filed separately or by amendment.
Exhibit 1.2
CBCT BANCSHARES, INC.
304,175 Shares
COMMON STOCK
(Par Value $.l0 Per Share)
Subscription Price $10.00 Per Share
AGENCY AGREEMENT
_________, 2000
Keefe, Bruyette & Woods, Inc.
211 Bradenton Avenue
Dublin, Ohio 43017
Ladies and Gentlemen:
CBCT Bancshares, Inc., a Maryland corporation (the "Company") and
Community Bank of Central Texas, ssb, a Texas chartered mutual savings bank (the
"Bank") with its' deposit accounts insured by the Savings Association Insurance
Fund ( "SAIF") administered by the Federal Deposit Insurance Corporation
("FDIC"), hereby confirm, jointly and severally, their agreement with Keefe,
Bruyette & Woods, Inc. (the "Agent"), as follows:
Section 1. The Offering. In accordance with the Stock Issuance Plan
adopted by its Board of Directors (the "Plan"), the Company will offer and sell
up to 304,175 shares of its common stock, par value, $.01 per share (the
"Shares" or "Common Stock"), in a subscription offering (the "Subscription
Offering") to (1) depositors with the Bank on September 30, 1998; (2) the CBCT
Bancshares, Inc. employee stock ownership plan; (3) depositors with the Bank on
March 31, 2000; (4) other members of the Bank on _______, 2000; and (5) the
Bank's director, officers and employees. To the extent Shares remain unsold in
the Subscription Offering, the Company is offering for sale to the general
public in a direct community offering (the "Community Offering" and when
referred to together with the Subscription Offering, the "Subscription and
Community Offering") the Shares not so subscribed for or ordered in the
Subscription Offering to members of the general public ("Other Subscribers"),
(all such offerees being referred to in the aggregate as "Eligible Offerees").
It is anticipated that shares not subscribed for in the Subscription and
Community Offering will be offered to certain members of the general public on a
best efforts basis through a selected dealers arrangement (the "Syndicated
Community Offering") (the Subscription Offering, Community Offering and
Syndicated Community Offering are collectively referred to as
1
<PAGE>
the "Offering"). It is acknowledged that the purchase of Shares in the Offering
is subject to the maximum and minimum purchase limitations as described in the
Plan and that the Company and the Bank may reject, in whole or in part, any
orders received in the Community Offering or Syndicated Community Offering. The
Company will issue the Shares at a purchase price of $10.00 per share (the
"Purchase Price").
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 (File No. 333-33102) (the
"Registration Statement") containing a prospectus relating to the Offering for
the registration of the Shares under the Securities Act of 1933 (the "1933
Act"), and has filed such amendments thereof and such amended prospectuses as
may have been required to the date hereof. The term "Registration Statement"
shall include all exhibits thereto, as amended, including post-effective
amendments. The prospectus, as amended, on file with the Commission at the time
the Registration Statement initially became effective is hereinafter called the
"Prospectus," except that if any Prospectus is filed by the Company pursuant to
Rule 424(b) or (c) of the rules and regulations of the Commission under the 1933
Act (the "1933 Act Regulations") differing from the prospectus on file at the
time the Registration Statement initially becomes effective, the term
"Prospectus" shall refer to the prospectus filed pursuant to Rule 424(b) or (c)
from and after the time said prospectus is filed with the Commission.
The Bank and the Company have filed with the Texas Savings and Loan
Department (the "TSLD") and the Federal Deposit Insurance Corporation (the
"FDIC") an Application for Conversion of the Bank with respect to the stock
issuance (the "Conversion Application"), including the Prospectus and the
Valuation Appraisal Report prepared by Ferguson & Company, Inc. (the
"Appraisal") and has filed such amendments thereto as may have been required by
the TSLD and the FDIC. The Company has filed an Application to become a bank
holding company (the "Holding Company Application") pursuant to the Bank Holding
Company Act of 1956, as amended (the "BHC Act") with the Board of Governors of
the Federal Reserve System ("FRB"). The Conversion Application and Holding
Company Application have each been approved by their respective agencies and the
related Prospectus has been authorized for use. The TSLD, FDIC and FRB are
sometimes referred to herein as the "Agencies."
Section 2. Retention of Agent; Compensation; Sale and Delivery of the
Shares. Subject to the terms and conditions herein set forth, the Company and
the Bank have retained the Agent to consult with and to advise the Bank and the
Company, and to assist the Company, on a best efforts basis, in the distribution
of the shares of Common Stock in the Offering. The services that the Agent will
provide include, but are not limited to (i) training the employees of the Bank
who will perform certain ministerial functions in the Subscription and Community
Offering regarding the mechanics and regulatory requirements of the stock
offering process, (ii) managing the Stock Information Center by assisting
interested stock subscribers and by keeping records of all stock orders and
(iii) preparing marketing materials.
On the basis of the representations, warranties, and agreements herein
contained, but subject to the terms and conditions herein set forth, the Agent
accepts such appointment and agrees to consult with and advise the Company and
the Bank as to the matters set forth in the letter agreement
2
<PAGE>
("Letter Agreement"), dated November 24, 1999 between the Bank and the Agent (a
copy of which is attached hereto as Exhibit A). It is acknowledged by the
Company and the Bank that the Agent shall not be required to take or purchase
any Shares or be obligated to take any action which is inconsistent with all
applicable laws, regulations, decisions or orders. In the event of a Syndicated
Community Offering, the Agents will assemble and manage a selling group of
broker-dealers which are members of the National Association of Securities
Dealers, Inc. (the "NASD") to participate in the solicitation of purchase orders
for shares under a selected dealers' agreement ("Selected Dealers' Agreement"),
the form of which is set forth as a Exhibit B to this Agreement.
The obligations of the Agent pursuant to this Agreement (other than
those set forth in Sections 2(d), 8 and 9 hereof) shall terminate upon the
completion or termination or abandonment of the Plan by the Company or upon
termination of the Offering, but in no event later than the date (the "End
Date") which is 45 days after the Closing Date (as hereinafter defined). All
fees or expenses due to the Agent but unpaid will be payable to the Agent in
next day funds at the earlier of the Closing Date (as hereinafter defined) or
the End Date. In the event the Offering is extended beyond the End Date, the
Company, the Bank and the Agent may agree to renew this Agreement under mutually
acceptable terms.
In the event the Company is unable to sell a minimum of 195,500 Shares
within the period herein provided, this Agreement shall terminate and the
Company shall refund to any persons who have subscribed for any of the Shares,
the full amount which it may have received from them plus accrued interest as
set forth in the Prospectus; and none of the parties to this Agreement shall
have any obligation to the other parties hereunder, except as set forth in this
Section 2 and in Sections 6, 8 and 9 hereof.
In the event the Offering is terminated, the Agent shall be reimbursed
for its actual accountable out-of-pocket expenses.
If all conditions precedent to the consummation of the Offering,
including, without limitation, the sale of all Shares required by the Plan to be
sold, are satisfied, the Company agrees to issue, or have issued, the Shares
sold in the Offering and to release for delivery certificates for such Shares on
the Closing Date (as hereinafter defined) against payment to the Company by any
means authorized by the Plan; provided, however, that no funds shall be released
to the Company until the conditions specified in Section 7 hereof shall have
been complied with to the reasonable satisfaction of the Agent and their
counsel. The release of Shares against payment therefor shall be made on a date
and at a place acceptable to the Company, the Bank and the Agent. Certificates
for shares shall be delivered directly to the purchasers in accordance with
their directions. The date upon which the Company shall release or deliver the
Shares sold in the Offering, in accordance with the terms herein, is called the
"Closing Date."
3
<PAGE>
The Agent shall receive the following compensation for its services
hereunder:
(a) A management fee of $25,000, which has been paid prior to the
date hereof. Should the Offering be terminated for any reason
not attributable to the action or inaction of the Agent, the
Agent shall have earned and be entitled to such paid fees.
(b) A Success Fee of $50,000.
Notwithstanding anything contained herein to the contrary, the
total amount that the Company shall pay Agent relating to the
Management Fee in 7(a) above, the Success Fee in 7(b) above
and the expense reimbursement set forth in Section 6 below
shall not exceed $105,000.
(c) If any of the shares remain available after the Subscription
and Community Offerings, at the request of the Company, the
Agent will seek to form a syndicate of registered
broker-dealers to assist in the sale of such Common Stock on a
best efforts basis, subject to the terms and conditions set
forth in the selected dealers agreement. the Agent will
endeavor to distribute the Common Stock among dealers in a
fashion which best meets the distribution objectives of the
Company and the Plan. The Agent will be paid a fee not to
exceed 5.5% of the aggregate Purchase Price of the Shares sold
by them. The Agent will pass onto selected broker-dealers, who
assist in the syndicated community, an amount competitive with
gross underwriting discounts charged at such time for
comparable amounts of stock sold at a comparable price per
share in a similar market environment. Fees with respect to
purchases affected with the assistance of a broker/dealer
other than the Agent shall be transmitted by the Agent to such
broker/dealer. The decision to utilize selected broker-dealers
will be made by the Company upon consultation with the Agent.
In the event, with respect to any purchases of Shares, fees
are paid pursuant to this subparagraph 2(c), such fees shall
be in lieu of, and not in addition to, payment pursuant to
subparagraph 2(a) and 2(b).
(d) The Company will bear those expenses of the proposed offering
customarily borne by issuers, including, without limitation,
regulatory filing fees, "Blue Sky," and NASD filing and
registration fees; the fees of the Company's accountants,
attorneys, appraiser, transfer agent and registrar, printing,
mailing and marketing and syndicate expenses associated with
the Offering; and fees for "Blue Sky" legal work. If the Agent
incurs expenses on behalf of the Company, the Company will
reimburse the Agent for such expenses.
The Agent shall be reimbursed for reasonable out-of-pocket
expenses, including costs of travel, meals and lodging,
photocopying, telephone, facsimile and couriers. The Agent
shall also be reimbursed for its fees of underwriter's counsel
(including counsel's out-of-pocket expenses) not to exceed
$25,000. The selection of such counsel will be done by the
Agent, after consultation with the Company.
4
<PAGE>
Section 3. Prospectus; Offering. The Shares are to be initially offered
in the Offering at the Purchase Price as defined and set forth on the cover page
of the Prospectus. The Purchase Price may be changed by the Company after
consultation with the Agent, subject to such approval of the TSLD and FDIC and
declaration of effectiveness of an amendment to the Prospectus by the Commission
as may be required. The parties hereto hereby acknowledge that, without the
prior written consent of the TSLD and FDIC, the Conversion will not be
consummated until the Company has received subscriptions for at least the
minimum range of the pro forma market value of the Company.
Section 4. Representations and Warranties of the Company and the Bank.
The Company and the Bank jointly and severally represent and warrant to and
agree with the Agent as follows:
(a) The Registration Statement which was prepared by the Company
and the Bank and filed with the Commission was declared
effective by the Commission on May ___, 2000. At the time the
Registration Statement, including the Prospectus contained
therein (including any amendment or supplement), became
effective, the Registration Statement contained all statements
that were required to be stated therein in accordance with the
1933 Act and the 1933 Act Regulations, complied in all
material respects with the requirements of the 1933 Act and
the 1933 Act Regulations and the Registration Statement,
including the Prospectus contained therein (including any
amendment or supplement thereto), and any information
regarding the Company or the Bank contained in Sales
Information (as such term is defined in Section 8 hereof)
authorized by the Company or the Bank for use in connection
with the Offering, did not contain an untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading, and at the time any Rule 424(b) or (c) Prospectus
was filed with the Commission and at the Closing Date referred
to in Section 2, the Registration Statement, including the
Prospectus contained therein (including any amendment or
supplement thereto), and any information regarding the Company
or the Bank contained in Sales Information (as such term is
defined in Section 8 hereof) authorized by the Company or the
Bank for use in connection with the Offering will contain all
statements that are required to be stated therein in
accordance with the 1933 Act and the 1933 Act Regulations and
will not contain an untrue statement of a material fact or
omit to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which
they were made, not misleading; provided, however, that the
representations and warranties in this Section 4(a) shall not
apply to statements or omissions made in reliance upon and in
conformity with written information furnished to the Company
or the Bank by the Agent or its counsel expressly regarding
5
<PAGE>
the Agent for use in the Prospectus or statements in or
omissions from any Sales Information or information filed
pursuant to state securities or blue sky laws or regulations
regarding the Agent.
(b) The Conversion Application which was prepared by the Company
and the Bank and filed with the TSLD and the FDIC was approved
by the TSLD on ______________, 2000 and the FDIC on
_________________, 2000, and the related Prospectus has been
authorized for use by the TSLD and the FDIC. At the time of
the approval of the Conversion Application, including the
Prospectus (including any amendment or supplement thereto), by
the TSLD and FDIC and at all times subsequent thereto until
the Closing Date, the Conversion Application, including the
Prospectus (including any amendment or supplement thereto),
will comply in all material respects with the rules and
regulations of the TSLD and the FDIC ("Conversion
Regulations"), except to the extent waived in writing by the
TSLD or FDIC, as appropriate. The Conversion Application,
including the Prospectus (including any amendment or
supplement thereto), does not include any untrue statement of
a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading; provided, however, that the representations and
warranties in this Section 4(b) shall not apply to statements
or omissions made in reliance upon and in conformity with
written information furnished to the Company or the Bank by
the Agent or its counsel expressly regarding the Agent for use
in the Prospectus contained in the Conversion Application or
statements in or omissions from any sales information.
(c) As of the Closing Date, the Bank and the Company will have
satisfied the conditions precedent to their consummation of
the Conversion in all material respects in accordance with the
Plan, and shall have complied in all material respects with
the BHC Act and all other applicable laws, regulations,
decisions and orders, including all terms, conditions,
requirements, and provisions precedent to the Conversion
imposed upon each of them by the Agencies. The Plan has been
duly and validly adopted by the Board of Directors of each of
the Bank and the Company. The filing of the Holding Company
Application has been approved by the Board of Directors of the
Company. The Agencies have approved the Plan and authorized
the use of the Prospectus and such approvals and authorization
remain in full force and effect.
(d) The Company is a bank holding company under the BHC Act. The
Holding Company Application which was prepared by the Company
and the Bank and filed with the FRB was approved by the FRB on
6
<PAGE>
______________, 2000. At the time of the approval of the
Holding Company Application, including the Prospectus
(including any amendment or supplement thereto), by the FRB
and at all times subsequent thereto until the Closing Date,
the Holding Company Application, including the Prospectus
(including any amendment or supplement thereto), will comply
in all material respects with the BHC Act and related
regulations, except to the extent waived in writing by the
FRB. The Holding Company Application, including the Prospectus
(including any amendment or supplement thereto), does not
include any untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
provided, however, that the representations and warranties in
this Section 4(d) shall not apply to statements or omissions
made in reliance upon and in conformity with written
information furnished to the Company or the Bank by the Agent
or its counsel expressly regarding the Agent for use in the
Prospectus contained in the Holding Company Application or
statements in or omissions from any sales information.
(e) No order has been issued by the Agencies (hereinafter any
reference to the Agencies or the FDIC shall include the SAIF)
preventing or suspending the use of the Prospectus, and no
action by or before any such government entity to revoke any
approval, authorization or order of effectiveness related to
the Offering is, to the best knowledge of the Company or the
Bank, pending or threatened.
(f) The Company does not own any equity securities or any equity
interest in any business enterprise except as described in the
Prospectus.
(g) At the Closing Date, the Plan will have been adopted by the
Boards of Directors of the Company and the Bank and approved
by the members of the Bank, and the offer and sale of the
Shares will have been conducted in all material respects in
accordance with the Plan, the Conversion Regulations, and all
other applicable laws, regulations, decisions and orders,
including all terms, conditions, requirements and provisions
precedent to the Offering imposed upon the Company or the Bank
by the Agencies, the Commission, or any other regulatory
authority and in the manner described in the Prospectus. To
the best knowledge of the Company, no person has sought to
obtain review of the final action of the Agencies in approving
the Plan, the Conversion Application or the Holding Company
Application, or any other statute or regulation.
(h) The Bank has been organized and is a validly existing Texas
chartered savings bank in capital stock form of organization,
duly authorized to conduct its business and own its property
as described in the Registration Statement and the Prospectus;
the Bank has obtained all material licenses, permits and other
governmental authorizations currently required for the conduct
7
<PAGE>
of its business; all such licenses, permits and governmental
authorizations are in full force and effect, and the Bank is
in all material respects complying with all laws, rules,
regulations and orders applicable to the operation of its
business; the Bank is existing under the laws of the Texas and
is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which
its ownership of property or leasing of property or the
conduct of its business requires such qualification, unless
the failure to be so qualified in one or more of such
jurisdictions would not have a material adverse effect on the
condition, financial or otherwise, or the business, operations
or income of the Bank. The Bank does not own equity securities
or any equity interest in any other business enterprise except
as described in the Prospectus or as would not be material to
the operations of the Bank. Upon completion of the sale by the
Company of the Shares contemplated by the Prospectus, (i) all
of the issued and outstanding capital stock of the Bank will
be owned by the Company and (ii) the Company will have no
direct subsidiaries other than the Bank. The Offering will
have been effected in all material respects in accordance with
all applicable statutes, regulations, decisions and orders;
and, except with respect to the filing of certain post-sale,
post-Offering reports, and documents in compliance with the
1933 Act Regulations, the Agencies' resolutions or letters of
approval, all terms, conditions, requirements and provisions
with respect to the Offering imposed by the Commission and the
Agencies, if any, will have been complied with by the Company
and the Bank in all material respects or appropriate waivers
will have been obtained and all material notice and waiting
periods will have been satisfied, waived or elapsed.
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State
of Maryland with corporate power and authority to own, lease
and operate its properties and to conduct its business as
described in the Registration Statement and the Prospectus,
and at the Closing Date the Company will be qualified to do
business as a foreign corporation in Texas and in each
jurisdiction in which the conduct of its business requires
such qualification, except where the failure to so qualify
would not have a material adverse effect on the condition,
financial or otherwise, or the business, operations or income
of the Company. The Company has obtained all material
licenses, permits and other governmental authorizations
currently required for the conduct of its business; all such
licenses, permits and governmental authorizations are in full
force and effect, and the Company is in all material respects
complying with all laws, rules, regulations and orders
applicable to the operation of its business.
8
<PAGE>
(j) The Bank is a member of the Federal Home Loan Bank of Dallas
("FHLB-Dallas"). The deposit accounts of the Bank are insured
by the FDIC up to the applicable limits; and no proceedings
for the termination or revocation of such insurance are
pending or, to the best knowledge of the Company or the Bank,
threatened.
(k) The Company and the Bank have good and marketable title to all
real property and good title to all other assets material to
the business of the Company and the Bank, taken as a whole,
and to those properties and assets described in the
Registration Statement and Prospectus as owned by them, free
and clear of all liens, charges, encumbrances or restrictions,
except such as are described in the Registration Statement and
Prospectus, or are not material to the business of the Company
and the Bank, taken as a whole; and all of the leases and
subleases material to the business of the Company and the
Bank, taken as a whole, under which the Company or the Bank
hold properties, including those described in the Registration
Statement and Prospectus, are in full force and effect. (l)
The Company and the Bank have received an opinion of their
special counsel, Silver, Freedman & Taff, L.L.P. with respect
to the federal income tax consequences of the Conversion, the
acquisition of the capital stock of the Bank by the Company
and the sale of the Shares as described in the Registration
Statement and the Prospectus, and an opinion from Padgett,
Padgett, Stratemann & Co., LLP ("Padgett") with respect to the
Texas state income tax consequences of the proposed
Conversion, acquisition of the capital stock of the Bank by
the Company and the sale of the Shares as described in the
Registration Statement and the Prospectus; all material
aspects of the opinions of Silver, Freedman & Taff, L.L.P. and
Padgett are accurately summarized in the Prospectus; and the
facts and representations upon which such opinions are based
are truthful, accurate and complete.
(m) The Company and the Bank have all such power, authority,
authorizations, approvals and orders as may be required to
enter into this Agreement, to carry out the provisions and
conditions hereof and to issue and sell the Shares to be sold
by the Company, as provided herein and as described in the
Prospectus except approval or confirmation by the TSLD and the
FDIC of the final appraisal of the Company. The consummation
of the Offering, the execution, delivery and performance of
this Agreement and the consummation of the transactions herein
contemplated have been duly and validly authorized by all
necessary corporate action on the part of the Company and the
Bank and this Agreement has been validly executed and
delivered by the Company and the Bank and is the valid, legal
and binding agreement of the Company and the Bank enforceable
in accordance with its terms (except as the enforceability
thereof may be limited by bankruptcy,
9
<PAGE>
insolvency, moratorium, reorganization or similar laws
relating to or affecting the enforcement of creditors' rights
generally or the rights of creditors of Texas savings banks
and bank holding companies, the accounts of whose subsidiaries
are insured by the FDIC or by general equity principles
regardless of whether such enforceability is considered in a
proceeding in equity or at law, and except to the extent if
any, that the provisions of Sections 8 and 9 hereof may be
unenforceable as against public policy).
(n) The Company and the Bank are not in violation of any directive
received from the Agencies, the State of Maryland or any other
agency to make any material change in the method of conducting
their businesses so as to comply in all material respects with
all applicable statutes and regulations (including, without
limitation, regulations, decisions, directives and orders of
the TSLD, FDIC and the FRB) and, except as may be set forth in
the Registration Statement and the Prospectus, there is no
suit or proceeding or charge or action before or by any court,
regulatory authority or governmental agency or body, pending
or, to the knowledge of the Company or the Bank, threatened,
which might materially and adversely affect the Offering, the
performance of this Agreement or the consummation of the
transactions contemplated in the Plan and as described in the
Registration Statement and the Prospectus or which might
result in any material adverse change in the condition
(financial or otherwise), earnings, capital or properties of
the Company and the Bank, or which would materially affect
their properties and assets.
(o) The financial statements, schedules and notes related thereto
which are included in the Prospectus fairly present the
consolidated balance sheet, income statement, statement of
changes in equity and cash flows of the Company at the
respective dates indicated and for the respective periods
covered thereby and comply as to form in all material respects
with the applicable accounting requirements of the Agencies
and generally accepted accounting principles (including those
requiring the recording of certain assets at their current
market value). Such financial statements, schedules and notes
related thereto have been prepared in accordance with
generally accepted accounting principles consistently applied
through the periods involved, present fairly in all material
respects the information required to be stated therein and are
consistent with the most recent financial statements and other
reports filed by the Company and the Bank with the Agencies.
The other financial, statistical and pro forma information and
related notes included in the Prospectus present fairly the
information shown therein on a basis consistent with the
audited and unaudited financial statements of the Company
included in the Prospectus, and as to the pro forma
adjustments, the adjustments described therein have been
properly applied on the basis described therein.
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<PAGE>
(p) Since the respective dates as of which information is given in
the Registration Statement including the Prospectus: (i) there
has not been any material adverse change, financial or
otherwise, in the condition of the Company or the Bank
considered as one enterprise, or in the earnings, capital or
properties of the Company or the Bank, whether or not arising
in the ordinary course of business; (ii) there has not been
any material increase in the long-term debt of the Bank or in
the principal amount of the Bank's assets which are classified
by the Bank as substandard, doubtful or loss or in loans past
due 90 days or more or real estate acquired by foreclosure, by
deed-in-lieu of foreclosure or deemed in-substance foreclosure
or any material decrease in retained earnings or total assets
of the Bank nor has the Company or the Bank issued any
securities (other than in connection with the incorporation of
the Company) or incurred any liability or obligation for
borrowing other than in the ordinary course of business; (iii)
there have not been any material transactions entered into by
the Company or the Bank; (iv) there has not been any material
adverse change in the aggregate dollar amount of the Bank's
deposits or its consolidated net worth; (v) there has been no
material adverse change in the Company's or the Bank's
relationship with its insurance carriers, including, without
limitation, cancellation or other termination of the Company's
or the Bank's fidelity bond or any other type of insurance
coverage; (vi) except as disclosed in the Prospectus there has
been no material change in management of the Company or the
Bank, neither of which has any material undisclosed liability
of any kind, contingent or otherwise; (vii) the Company or the
Bank has not sustained any material loss or interference with
its respective business or properties from fire, flood,
windstorm, earthquake, accident or other calamity, whether or
not covered by insurance; (viii) the Company or the Bank is
not in default in the payment of principal or interest on any
outstanding debt obligations; (ix) the capitalization,
liabilities, assets, properties and business of the Company
and the Bank conform in all material respects to the
descriptions thereof contained in the Prospectus; and (x)
neither the Company nor the Bank has any material contingent
liabilities, except as set forth in the Prospectus. All
documents made available to or delivered or to be made
available to or delivered by the Bank or the Company or their
representatives in connection with the issuance and sale of
the Shares, including records of account holders, depositors
and other members of the Bank, or in connection with the
Agent's exercise of due diligence, except for those documents
which were prepared by parties other than the Bank the Company
or their representatives, to the best knowledge of the Bank
and the Company, were on the dates on which they were
delivered, or will be on the dates on which they are to be
delivered, true, complete and correct in all material
respects.
11
<PAGE>
(q) As of the date hereof and as of the Closing Date, neither the
Company nor the Bank is (i) in violation of its charter or
bylaws, respectively, or (ii) in default in the performance or
observance of any material obligation, agreement, covenant, or
condition contained in any material contract, lease, loan
agreement, indenture or other instrument to which it is a
party or by which it or any of its property may be bound; the
consummation of the Offering, the execution, delivery and
performance of this Agreement and the consummation of the
transactions herein contemplated have been duly and validly
authorized by all necessary corporate action on the part of
the Company and the Bank and this Agreement has been validly
executed and delivered by the Company and the Bank and is a
valid, legal and binding Agreement of the Company and the Bank
enforceable in accordance with its terms, except as the
enforceability thereof may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium, conservatorship,
receivership or other similar laws now or hereafter in effect
relating to or affecting the enforcement of creditors' rights
generally or the rights of creditors of Texas savings
institutions, (ii) general equitable principles, (iii) laws
relating to the safety and soundness of insured depository
institutions, and (iv) applicable law or public policy with
respect to the indemnification and/or contribution provisions
contained herein, and except that no representation or
warranty need be made as to the effect or availability of
equitable remedies or injunctive relief (regardless of whether
such enforceability is considered in a proceeding in equity or
at law). The consummation of the transactions herein
contemplated will not: (i) conflict with or constitute a
breach of, or default under, or result in the creation of any
material lien, charge or encumbrance upon any of the assets of
the Company or the Bank pursuant to the charter and bylaws of
the Company, the Bank and or any material contract, lease or
other instrument to which the Company or the Bank has a
beneficial interest, or any applicable law, rule, regulation
or order; (ii) violate any authorization, approval, judgement,
decree, order, statute, rule or regulation applicable to the
Company or the Bank, except for such violations which would
not have a material adverse effect on the financial condition
and results of operations of the Company and the Bank on a
consolidated basis; or (iii) result in the creation of any
material lien, charge or encumbrance upon any property of the
Company or the Bank.
(r) No default exists, and no event has occurred which with notice
or lapse of time, or both, would constitute a default, on the
part of the Company or the Bank in the due performance and
observance of any term, covenant or condition of any
indenture, mortgage, deed of trust, note, bank loan or credit
agreement or any other instrument or agreement to which the
Company or the Bank is a party or by which any of them or any
of their property is bound or affected, except such defaults
which would not have a material adverse affect on the
financial condition or results of operations of the Company
12
<PAGE>
and the Bank on a consolidated basis; such agreements are in
full force and effect; and no other party to any such
agreements has instituted or, to the best knowledge of the
Company and the Bank, threatened any action or proceeding
wherein the Company or the Bank would or might be alleged to
be in default thereunder.
(s) Upon consummation of the Offering, the authorized, issued and
outstanding equity capital of the Company will be within the
range set forth in the Prospectus under the caption
"Capitalization," and no Shares have been or will be issued
and outstanding prior to the Closing Date (other than Shares
issued to the Company); the Shares will have been duly and
validly authorized for issuance and, when issued and delivered
by the Company pursuant to the Plan against payment of the
consideration calculated as set forth in the Plan and in the
Prospectus, will be duly and validly issued, fully paid and
non-assessable, except for shares purchased by the ESOP with
funds borrowed from the Company to the extent payment therefor
in cash has not been received by the Company; except to the
extent that subscription rights and priorities pursuant
thereto exist pursuant to the Plan, no preemptive rights exist
with respect to the Shares; and the terms and provisions of
the Shares will conform in all material respects to the
description thereof contained in the Registration Statement
and the Prospectus. To the best knowledge of the Company and
the Bank, upon the issuance of the Shares, good title to the
Shares will be transferred from the Company to the purchasers
thereof against payment therefor, subject to such claims as
may be asserted against the purchasers thereof by third-party
claimants.
(t) No consent, approval, authorization or any other order of any
court, regulatory, administrative or supervisory or other
public authority is required in connection with the execution
and delivery of this Agreement or the issuance of the Shares,
except for the approval of the Commission, the Agencies and
any necessary qualification, notification, registration or
exemption under the securities or blue sky laws of the various
states in which the Shares are to be offered, and except as
may be required under the rules and regulations of the NASD.
(u) Padgett, which has certified the consolidated audited
financial statements and schedules of the Bank included in the
Prospectus, has advised the Company and the Bank in writing
that they are, with respect to the Company and the Bank,
independent public accountants within the meaning of the Code
of Professional Ethics of the American Institute of Certified
Public Accountants.
(v) Ferguson & Company, Inc., which has prepared the Valuation
Appraisal Report as of March 1, 2000 (as amended or
supplemented, if so amended or
13
<PAGE>
supplemented) (the "Appraisal"), has advised the Company in
writing that it is independent of the Company and the Bank
within the meaning of applicable law.
(w) The Company and the Bank have timely filed all required
federal, state and local tax returns; the Company and the Bank
have paid all taxes that have become due and payable in
respect of such returns, except where permitted to be
extended, have made adequate reserves for similar future tax
liabilities and no deficiency has been asserted with respect
thereto by any taxing authority.
(x) The Company and the Bank are in compliance in all material
respects with the applicable financial record-keeping and
reporting requirements of the Currency and Foreign
Transactions Reporting Act of 1970, as amended, and the
regulations and rules thereunder.
(y) To the knowledge of the Company and the Bank, neither the
Company, the Bank nor employees of the Company or the Bank
have made any payment of funds of the Company or the Bank as a
loan for the purchase of the Shares or made any other payment
of funds prohibited by law, and no funds have been set aside
to be used for any payment prohibited by law.
(z) Prior to the Offering, neither the Company nor the Bank has:
(i) issued any securities within the last 18 months (except
for notes to evidence other bank loans and reverse repurchase
agreements or other liabilities in the ordinary course of
business or as described in the Prospectus, shares of the Bank
issued to the Company); (ii) had any material dealings within
the 12 months prior to the date hereof with any member of the
NASD, or any person related to or associated with such member,
other than discussions and meetings relating to the proposed
Offering and routine purchases and sales of United States
government and agency securities; (iii) entered into a
financial or management consulting agreement except as
contemplated hereunder; and (iv) engaged any intermediary
between the Agent and the Company and the Bank in connection
with the offering of the Shares, and no person is being
compensated in any manner for such service. Appropriate
arrangements have been made for placing the funds received
from subscriptions for Shares in a special interest-bearing
account with the Bank until all Shares are sold and paid for,
with provision for refund to the purchasers in the event that
the Offering is not completed for whatever reason or for
delivery to the Company if all Shares are sold.
(aa) The Company and the Bank have not relied upon the Agent or its
legal counsel or other advisors for any legal, tax or
accounting advice in connection with the Offering.
14
<PAGE>
(bb) The Company is not required to be registered under the
Investment Company Act of 1940, as amended.
(cc) The Prospectus provides a complete and accurate description,
in all material respects, of (i) each employee pension benefit
plan, within the meaning of Section 3(2) of the Employee
Retirement Income Security Act ("ERISA"), to which the Bank
contributes or is obligated to contribute on behalf of its
employees; and (ii) each material unfunded deferred
compensation plan, each material supplemental death,
disability and retirement plan, each material medical
reimbursement plan. Except as described in the Prospectus,
neither the Bank nor a member of the Controlled Group (as
defined in Internal Revenue Code Section 414(b), (c), (m) or
(o)) involving the Bank, has maintained, and does maintain or
contribute to, has contributed to, or has been required to
contribute to, any "defined benefit plans," as such term is
defined in Section 414(j) of the Internal Revenue Code or any
other employee benefit plan subject to the funding
requirements of Section 412 of the Internal Revenue Code. All
required contributions to all "employee benefit plans" (as
that term is defined in Section 3(3) of ERISA) maintained by
the Bank (or to which the Bank is obligated to contribute)
have been timely made. Neither the Bank, any "employee benefit
plans" which the Bank maintains or maintained, or to which the
Bank is or was obligated to contribute, nor any party in
interest (as defined in Section 3(14) of ERISA) with respect
thereto, nor any trusts created thereunder, has engaged in a
"prohibited transaction," as such term is defined in Section
4975 of the Internal Revenue Code or Sections 406 and 407 of
ERISA, or any breach of fiduciary duty, which could subject
the Bank, any officer, director or employee of the Bank, any
of such plans, or any trust, to any tax or penalty on
prohibited transactions imposed by such Section 4975, any
liability under ERISA, or would have a material adverse effect
on the business, prospects, general affairs operations or
financial condition of the Bank. Except as set forth in the
Prospectus , the Bank is not obligated to provide any benefits
under any employee welfare benefit plan as defined in Section
3(1) of ERISA ("Welfare Plan") to any retiree of the Bank.
Each Welfare Plan subject to the continuation coverage
requirements of Part 6 of Title I of ERISA has complied in all
respects with such continuation coverage requirements. The
Bank is not, and has not been a contributing employer to any
"multiemployer plan," without regard to whether it was a
retirement plan or a welfare plan, as such terms are defined
in Section 3(37) or Section 4001(a)(3) of ERISA. All employee
pension benefit plans and Welfare Plans have timely complied
in all material respects with the applicable requirements of
Part 1 of Subtitle B of Title I of ERISA and currently comply
and have complied in the past in all material respects, both
as to form and operation, with ERISA, the Internal Revenue
Code and all other applicable laws. All employee pension
benefit plans intended to be qualified plans within the
meaning of Sections 401(a) and 501(a)
15
<PAGE>
of the Internal Revenue Code are so qualified and have been so
qualified since their inception.
(dd) Any certificates signed by an officer of the Company or the
Bank pursuant to the conditions of this Agreement and
delivered to the Agent or their counsel that refers to this
Agreement shall be deemed to be a representation and warranty
by the Company or the Bank to the Agent as to the matters
covered thereby with the same effect as if such representation
and warranty were set forth herein.
(ee) All documents delivered or to be delivered by the Bank or the
Company or their representatives in connection with the
issuance and sale of the Conversion Stock including records of
account holders, depositors, borrowers and other members of
the Bank, or in connection with the Agents' exercise of due
diligence, except for those documents which were prepared by
parties other than the Bank, the Company or their
representatives were on the dates on which they were
delivered, or will be on the dates on which they are to be
delivered, true, complete and correct in all material
respects.
(ff) The Bank and the Company have complied or will comply in all
material respects with each and every undertaking or
commitment made by them under the blue sky laws, including,
without limitation, each and every undertaking or commitment
made in connection with the Subscription and Community
Offering.
(gg) Appropriate arrangements have been made for placing the funds
received from subscriptions for Shares in special
interest-bearing accounts with the Bank until all Shares are
sold and paid for, with provision for refund to the purchasers
in the event that the Conversion is not completed for whatever
reason or for delivery to the Company if all shares are sold.
Section 5. Representations and Warranties of the Agent.
The Agent represents and warrants to the Company and the Bank that:
(i) it is a corporation and is validly existing in good
standing under the laws of the State of New York and licensed to
conduct business in the State of New York and it has the full power and
authority to provide the services to be furnished to the Bank and the
Company hereunder.
(ii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary action on the part of the Agent,
and this Agreement has been duly and validly executed and delivered by
the Agent and is a legal, valid and binding agreement of the Agent,
enforceable in accordance with its terms.
16
<PAGE>
(iii) Each of the Agent and its employees, agents and
representatives who shall perform any of the services hereunder shall
be duly authorized and empowered, and shall have all licenses,
approvals and permits necessary to perform such services.
(iv) The execution and delivery of this Agreement by the
Agent, the consummation of the transactions contemplated hereby and
compliance with the terms and provisions hereof will not conflict with,
or result in a breach of, any of the terms, provisions or conditions
of, or constitute a default (or an event which with notice or lapse of
time or both would constitute a default) under, the articles of
incorporation of the Agent or any agreement, indenture or other
instrument to which the Agent is a party or by which it or its property
is bound.
(v) No approval of any regulatory or supervisory or other
public authority is required in connection with the Agent's execution
and delivery of this Agreement, except as may have been received.
(vi) There is no suit or proceeding or charge or action before
or by any court, regulatory authority or government agency or body or,
to the knowledge of the Agent, pending or threatened, which might
materially adversely affect the Agent's performance of this Agreement.
Section 5.l Covenants of the Company and the Bank. The Company and the
Bank hereby jointly and severally covenant with the Agent as follows:
(a) The Company will not, at any time after the date the
Registration Statement is declared effective, file any
amendment or supplement to the Registration Statement without
providing the Agent and its counsel an opportunity to review
such amendment or supplement or file any amendment or
supplement to which amendment or supplement the Agent or its
counsel shall reasonably object.
(b) The Bank will not, at any time after the Conversion
Application and Holding Company Application are approved by
the Agencies, file any amendment or supplement to such
Applications without providing the Agent and its counsel an
opportunity to review such amendment or supplement or file any
amendment or supplement to which amendment or supplement the
Agent or its counsel shall reasonably object.
(c) The Company and the Bank will use their best efforts to cause
any post-effective amendment to the Registration Statement to
be declared effective by the Commission and any post-effective
amendment to the Conversion Application and Holding Company
Application to be approved by the
17
<PAGE>
Agencies and will immediately upon receipt of any information
concerning the events listed below notify the Agent: (i) when
the Registration Statement, as amended, has become effective;
(ii) when the Conversion Application and Holding Company
Application, as amended have been approved by the Agencies;
(iii) any comments from the Commission, the Agencies or any
other governmental entity with respect to the Offering or the
transactions contemplated by this Agreement; (iv) of the
request by the Commission, the Agencies or any other
governmental entity for any amendment or supplement to the
Registration Statement, the Conversion Application and the
Holding Company Application or for additional information; (v)
of the issuance by the Commission, the Agencies or any other
governmental entity of any order or other action suspending
the Offering or the use of the Registration Statement or the
Prospectus or any other filing of the Company or the Bank
under the Conversion Regulations, BHC Act or other applicable
law, or the threat of any such action; (vi) the issuance by
the Commission, the Agencies or any authority of any stop
order suspending the effectiveness of the Registration
Statement or of the initiation or threat of initiation or
threat of any proceedings for that purpose; or (vii) of the
occurrence of any event mentioned in paragraph (g) below. The
Company and the Bank will make every reasonable effort (i) to
prevent the issuance by the Commission, the Agencies or any
state authority of any such order and, if any such order shall
at any time be issued and (ii) to obtain the lifting thereof
at the earliest possible time.
(d) The Company and the Bank will deliver to the Agent and to its
counsel two conformed copies of the Registration Statement,
the Conversion Application and the Holding Company
Application, as originally filed, and of each amendment or
supplement thereto, including all exhibits. Further, the
Company and the Bank will deliver such additional copies of
the foregoing documents to counsel to the Agent as may be
required for any NASD and "blue sky" filings.
(e) The Company and the Bank will furnish to the Agent, from time
to time during the period when the Prospectus (or any later
prospectus related to this offering) is required to be
delivered under the 1933 Act or the Securities Exchange Act of
1934 (the "1934 Act"), such number of copies of such
Prospectus (as amended or supplemented) as the Agent may
reasonably request for the purposes contemplated by the 1933
Act, the 1933 Act Regulations, the 1934 Act or the rules and
regulations promulgated under the 1934 Act (the "1934 Act
Regulations"). The Company authorizes the Agent to use the
Prospectus (as amended or supplemented, if amended or
supplemented) in any lawful manner contemplated by the Plan in
connection with the sale of the Shares by the Agent.
18
<PAGE>
(f) The Company and the Bank will comply with any and all material
terms, conditions, requirements and provisions with respect to
the Offering, and the transactions contemplated thereby,
imposed by the Commission, the Agencies or the Conversion
Regulations or the BHC Act, and by the 1933 Act, the 1933 Act
Regulations, the 1934 Act and the 1934 Act Regulations to be
complied with prior to or subsequent to the Closing Date and
when the Prospectus is required to be delivered, and during
such time period the Company and the Bank will comply, at
their own expense, with all material requirements imposed upon
them by the Commission, the Agencies or the Conversion
Regulations, the BHC Act and by the 1933 Act, the 1933 Act
Regulations, the 1934 Act and the 1934 Act Regulations,
including, without limitation, Rule 10b-5 under the 1934 Act,
in each case as from time to time in force, so far as
necessary to permit the continuance of sales or dealing in the
Common Stock during such period in accordance with the
provisions hereof and the Prospectus.
(g) If, at any time during the period when the Prospectus relating
to the Shares is required to be delivered, any event relating
to or affecting the Company or the Bank shall occur, as a
result of which it is necessary or appropriate, in the opinion
of counsel for the Company and the Bank or in the reasonable
opinion of the Agent's counsel, to amend or supplement the
Registration Statement or Prospectus in order to make the
Registration Statement or Prospectus not misleading in light
of the circumstances existing at the time the Prospectus is
delivered to a purchaser, the Company and the Bank will
immediately so inform the Agent and prepare and file, at their
own expense, with the Commission and the Agencies and furnish
to the Agent a reasonable number of copies of an amendment or
amendments of, or a supplement or supplements to, the
Registration Statement or Prospectus (in form and substance
reasonably satisfactory to the Agent and its counsel after a
reasonable time for review) which will amend or supplement the
Registration Statement or Prospectus so that as amended or
supplemented it will not contain an untrue statement of a
material fact or omit to state a material fact necessary in
order to make the statements therein, in light of the
circumstances existing at the time the Prospectus is delivered
to a purchaser, not misleading. For the purpose of this
Agreement, the Company and the Bank each will timely furnish
to the Agent such information with respect to itself as the
Agent may from time to time reasonably request.
(h) The Company and the Bank will take all necessary actions, in
cooperating with the Agent, and furnish to whomever the Agent
may direct, such information as may be required to qualify or
register the Shares for offering and sale by the Company or to
exempt such Shares from registration, or to exempt the Company
as a broker-dealer and its officers, directors and employees
as broker-dealers or agents under the applicable securities or
19
<PAGE>
blue sky laws of such jurisdictions in which the Shares are
required under the Conversion Regulations to be sold or as the
Agent and the Company and the Bank may reasonably agree upon;
provided, however, that the Company shall not be obligated to
file any general consent to service of process, to qualify to
do business in any jurisdiction in which it is not so
qualified, or to register its directors or officers as
brokers, dealers, salesmen or agents in any jurisdiction. In
each jurisdiction where any of the Shares shall have been
qualified or registered as above provided, the Company will
make and file such statements and reports in each fiscal
period as are or may be required by the laws of such
jurisdiction.
(i) The Company and the Bank will not sell or issue, contract to
sell or otherwise dispose of, for a period of 90 days after
the Closing Date, without the Agent's prior written consent,
any Common Stock other than the Shares or other than in
connection with any plan or arrangement described in the
Prospectus, including existing stock benefit plans.
(j) The Company shall register its Common Stock under Section
12(g) of the 1934 Act on or prior to the Closing Date pursuant
to the Plan and shall request that such registration be
effective prior to or upon completion of the Offering. The
Company shall maintain the effectiveness of such registration
for not less than three years or such shorter period as may be
required by the Agencies.
(k) During the period during which the Company's Common Stock is
registered under the 1934 Act or for three (3) years from the
date hereof, whichever period is greater, the Company will
furnish to its shareholders as soon as practicable after the
end of each fiscal year an annual report of the Company
(including a consolidated balance sheet and statements of
consolidated income, shareholders' equity and cash flows of
the Company and its subsidiaries as at the end of and for such
year, certified by independent public accountants in
accordance with Regulation S-X under the 1933 Act and the 1934
Act).
(l) During the period of three years from the date hereof, the
Company will furnish to the Agent: (i) as soon as practicable
after such information is publicly available, a copy of each
report of the Company furnished to or filed with the
Commission under the 1934 Act or any national securities
exchange or system on which any class of securities of the
Company is listed or quoted (including, but not limited to,
reports on Forms 10-K, 10-Q and 8-K and all proxy statements
and annual reports to stockholders), (ii) a copy of each other
non-confidential report of the Company mailed to its
stockholders or filed with the Commission, the Agencies or any
other supervisory or regulatory authority or any national
securities exchange or system on which any class
20
<PAGE>
of securities of the Company is listed or quoted, each press
release and material news items and additional documents and
information with respect to the Company or the Bank as the
Agent may reasonably request; and (iii) from time to time,
such other nonconfidential information concerning the Company
or the Bank as the Agent may reasonably request.
(m) The Company and the Bank will use the net proceeds from the
sale of the Shares in the manner set forth in the Prospectus
under the caption "Use of Proceeds."
(n) Other than as permitted by the Conversion Regulations, the BHC
Act, the 1933 Act, the 1933 Act Regulations, and the laws of
any state in which the Shares are registered or qualified for
sale or exempt from registration, neither the Company nor the
Bank will distribute any prospectus, offering circular or
other offering material in connection with the offer and sale
of the Shares.
(o) The Company will use its best efforts to (i) encourage and
assist a market maker to establish and maintain a market for
the Shares and (ii) list and maintain quotation of the Shares
on the OTC Bulletin Board effective on or prior to the Closing
Date.
(p) The Bank will maintain appropriate arrangements for depositing
all funds received from persons mailing subscriptions for or
orders to purchase Shares in the Offering on an
interest-bearing basis at the rate described in the Prospectus
until the Closing Date and satisfaction of all conditions
precedent to the release of the Bank's obligation to refund
payments received from persons subscribing for or ordering
Shares in the Offering in accordance with the Plan and as
described in the Prospectus or until refunds of such funds
have been made to the persons entitled thereto or withdrawal
authorizations canceled in accordance with the Plan and as
described in the Prospectus. The Bank will maintain such
records of all funds received to permit the funds of each
subscriber to be separately insured by the FDIC (to the
maximum extent allowable) and to enable the Bank to make the
appropriate refunds of such funds in the event that such
refunds are required to be made in accordance with the Plan
and as described in the Prospectus.
(q) The Company and the Bank will take such actions and furnish
such information as are reasonably requested by the Agent in
order for the Agent to ensure compliance with the NASD's
"Interpretation Relating to Free Riding and Withholding."
(r) Neither the Company nor the Bank will amend the Plan without
notifying the Agent prior thereto.
21
<PAGE>
(s) The Company shall assist the Agent, if necessary, in
connection with the allocation of the Shares in the event of
an oversubscription and shall provide the Agent with any
information necessary to assist the Company in allocating the
Shares in such event and such information shall be accurate
and reliable in all material respects.
(t) Prior to the Closing Date, the Company and the Bank will
inform the Agent of any event or circumstances of which it is
aware as a result of which the Registration Statement and/or
Prospectus, as then amended or supplemented, would contain an
untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements
therein not misleading.
(u) Subsequent to the date the Registration Statement is declared
effective by the Commission and prior to the Closing Date,
except as otherwise may be indicated or contemplated therein
or set forth in an amendment or supplement thereto, neither
the Company nor the Bank will have: (i) issued any securities
or incurred any liability or obligation, direct or contingent,
for borrowed money, except borrowings from the same or similar
sources indicated in the Prospectus in the ordinary course of
its business, or (ii) entered into any transaction which is
material in light of the business and properties of the
Company and the Bank, taken as a whole.
(v) The facts and representations provided to Silver, Freedman &
Taff, L.L.P. by the Bank and the Company and upon which
Silver, Freedman & Taff, L.L.P. will base its opinion under
Section 7(c)(1) are and will be truthful, accurate and
complete.
Section 6. Payment of Expenses. Whether or not the Offering is
completed or the sale of the Shares by the Company is consummated, the Company
and the Bank jointly and severally agree to pay or reimburse the Agent for the
Company and the Bank have agreed to reimburse the Agent for its out-of-pocket
expenses, and its legal fees (as specified in Section 2) and to indemnify the
Agent against certain claims or liabilities, including certain liabilities under
the Securities Act, and will contribute to payments the Agent may be required to
make in connection with any such claims or liabilities. In the event the Company
is unable to sell a minimum of 195,500 Shares, the Company and the Bank shall
promptly reimburse the Agent in accordance with Section 2 hereof.
Section 7. Conditions to the Agent's Obligations. The obligations of
the Agent hereunder, as to the Shares to be delivered at the Closing Date, are
subject, to the extent not waived in writing by the Agent, to the condition that
all representations and warranties of the Company and the Bank herein are, at
and as of the commencement of the Offering and at and as of the Closing Date,
true and correct in all material respects, the condition that the Company and
the Bank shall have performed all of their obligations hereunder to be performed
on or before such dates, and to the following further conditions:
22
<PAGE>
(a) At the Closing Date, the Company and the Bank shall have
conducted the Offering in all material respects in accordance
with the Plan, the Conversion Regulations, the BHC Act and all
other applicable laws, regulations, decisions and orders,
including all terms, conditions, requirements and provisions
precedent to the Offering imposed upon them by the Agencies.
(b) The Registration Statement shall have been declared effective
by the Commission and the Conversion Application and the
Holding Company Application shall be approved by the Agencies
not later than 5:30 p.m. on the date of this Agreement, or
with the Agent's consent at a later time and date; and at the
Closing Date, no stop order suspending the effectiveness of
the Registration Statement shall have been issued under the
1933 Act or proceedings therefore initiated or threatened by
the Commission or any state authority, and no order or other
action suspending the authorization of the Prospectus or the
consummation of the Conversion shall have been issued or
proceedings therefore initiated or, to the Company's or the
Bank's knowledge, threatened by the Commission, the Agencies
or any state authority.
(c) At the Closing Date, the Agent shall have received:
(1) The favorable opinion, dated as of the Closing Date and
addressed to the Agent and for its benefit, of Silver,
Freedman & Taff, L.L.P., special counsel for the Company and
the Bank, in form and substance to the effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation under the laws of
the United States.
(ii) The Company has corporate power and authority
to own, lease and operate its properties and to
conduct its business as described in the Registration
Statement and the Prospectus.
(iii) The Bank has been organized and is a validly
existing Texas savings bank in capital stock form of
organization, authorized to conduct its business and
own its property as described in the Registration
Statement and the Prospectus. All of the outstanding
capital stock has been duly authorized, and is
validly issued, fully paid and non-assessable and is
owned by the Company, free and clear of any liens,
encumbrances, claims or other restrictions.
23
<PAGE>
(iv) The Bank is a member of the FHLB-Dallas. The
deposit accounts of the Bank are insured by the FDIC
up to the maximum amount allowed under law and no
proceedings for the termination or revocation of such
insurance are pending or, to such counsel's Actual
Knowledge, threatened.
(v) The Company has been duly organized and is
validly existing as a Maryland corporation, duly
authorized to conduct its business and own its
properties as described in the Registration Statement
and Prospectus.
(vi) Upon consummation of the Offering, the
authorized, issued and outstanding capital stock of
the Company will be within the range set forth in the
Prospectus under the caption "Capitalization," no
shares of Common Stock have been issued prior to the
Closing Date; at the time of the Offering, the Shares
subscribed for pursuant to the Offering will have
been duly and validly authorized for issuance, and
when issued and delivered by the Company pursuant to
the Plan against payment of the consideration
calculated as set forth in the Plan and Prospectus,
will be duly and validly issued and fully paid and
non-assessable; the issuance of the Shares is not
subject to preemptive rights and the terms and
provisions of the Shares conform in all material
respects to the description thereof contained in the
Prospectus. To such counsel's Actual Knowledge, upon
the issuance of the Shares, good title to the Shares
will be transferred by the Company to the purchasers
thereof against payment therefor, subject to such
claims as may be asserted against the purchasers
thereof by third-party claimants.
(vii) The execution and delivery of this Agreement
and the consummation of the transactions contemplated
hereby, have been duly and validly authorized by all
necessary action on the part of the Company and the
Bank; and this Agreement is a valid and binding
obligation of the Company and the Bank, enforceable
in accordance with its terms, except as the
enforceability thereof may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium,
conservatorship, receivership or other similar laws
now or hereafter in effect relating to or affecting
the enforcement of creditors' rights generally or the
rights of creditors of savings institutions, the
deposits of which are insured by the FDIC and bank
holding companies, (ii) general equitable principles,
(iii) laws relating to the safety and soundness of
insured depository institutions and their holding
companies, and (iv) applicable law or public policy
with respect to the indemnification and/or
contribution provisions contained herein, including
without limitation the provisions of Sections 23A and
23B of the Federal Reserve Act and except that no
opinion need be expressed as to the effect or
availability of equitable remedies or injunctive
relief (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
24
<PAGE>
(viii) The Conversion Application has been approved
by the TSLD and the FDIC and the Prospectus has been
authorized for use by the Agencies, and no action has
been taken, and to such counsel's Actual Knowledge
none is pending or threatened, to revoke any such
authorization or approval. The Holding Company
Application has been approved by the FRB and no
action has been taken, and to such counsel's Actual
Knowledge none is pending or threatened, to revoke
any such authorization or approval.
(ix) The Plan has been duly adopted by the required
vote of the directors of the Company and the Bank.
(x) Subject to the satisfaction of the conditions
to the Agencies' approval of the Offering, no further
approval, registration, authorization, consent or
other order of any federal regulatory agency is
required in connection with the execution and
delivery of this Agreement, the issuance of the
Shares and the consummation of the Offering, except
as may be required under the securities or blue sky
laws of various jurisdictions (as to which no opinion
need be rendered) and except as may be required under
the rules and regulations of the NASD and/or the NYSE
(as to which no opinion need be rendered). To such
counsel's Actual Knowledge, the Offering has been
consummated in all material respects in accordance
with Conversion Regulations and the BHC Act, except
that no opinion is rendered with respect to (a) the
Conversion Application, the Holding Company
Application, the Registration Statement or
Prospectus, which are covered by other clauses of
this opinion, (b) the satisfaction of the
post-Offering conditions in the Conversion
Regulations or in the Agency approvals of the
Conversion Application and the Holding Company
Application, (c) the securities or "blue sky" laws of
various jurisdictions and (d) the rules and
regulations of the NASD.
(xi) The Registration Statement is effective under
the 1933 Act, and no stop order suspending the
effectiveness has been issued under the 1933 Act or
proceedings therefor initiated or, to such counsel's
Actual Knowledge, threatened by the Commission.
(xii) At the time the Conversion Application,
including the Prospectus contained therein, was
approved by the TSLD and the FDIC, the Conversion
Application, including the Prospectus contained
therein, complied as to form in all material respects
with the requirements of the Conversion Regulations,
Texas and federal law and all applicable rules and
regulations promulgated thereunder (other than the
financial statements, the notes thereto, and other
tabular, financial, statistical and appraisal data
included therein, as to which no opinion need be
rendered). At the time the Holding Company
Application, including the Prospectus contained
therein, was approved by the
25
<PAGE>
FRB, the Holding Company Application, including the
Prospectus contained therein, complied as to form in
all material respects with the requirements of the
Conversion Regulations, Texas and federal law and all
applicable rules and regulations promulgated
thereunder (other than the financial statements, the
notes thereto, and other tabular, financial,
statistical and appraisal data included therein, as
to which no opinion need be rendered).
(xiii) At the time that the Registration Statement
became effective, (i) the Registration Statement (as
amended or supplemented, if so amended or
supplemented) (other than the financial statements,
the notes thereto, and other tabular, financial,
statistical and appraisal data included therein, as
to which no opinion need be rendered), complied as to
form in all material respects with the requirements
of the 1933 Act and the 1933 Act Regulations, and
(ii) the Prospectus (other than the financial
statements, the notes thereto, and other tabular,
financial, statistical and appraisal data included
therein, as to which no opinion need be rendered)
complied as to form in all material respects with the
requirements of the 1933 Act, the 1933 Act
Regulations, the Conversion Regulations, the BHC Act
and federal law.
(xiv) The terms and provisions of the Shares of the
Company conform, in all material respects, to the
description thereof contained in the Registration
Statement and Prospectus, and the form of certificate
used to evidence the Shares is in due and proper
form.
(xv) To such counsel's Actual Knowledge, there are
no legal or governmental proceedings pending or
threatened which are required to be disclosed in the
Registration Statement and Prospectus, other than
those disclosed therein, and to such counsel's Actual
Knowledge, all pending legal and governmental
proceedings to which the Company or the Bank is a
party or of which any of their property is the
subject, which are not described in the Registration
Statement and the Prospectus, including ordinary
routine litigation incidental to the Company's or the
Bank's business, are, considered in the aggregate,
not material.
(xvi) To such counsel's Actual Knowledge, there are
no material contracts, indentures, mortgages, loan
agreements, notes, leases or other instruments
required to be described or referred to in the
Conversion Application, the Holding Company
Application, the Registration Statement or the
Prospectus or required to be filed as exhibits
thereto other than those described or referred to
therein or filed as exhibits thereto in the
Conversion Application, the Holding Company
Application, the Registration Statement or the
Prospectus. The description in the Conversion
Application, the Holding Company Application, the
Registration Statement and the Prospectus of such
26
<PAGE>
documents and exhibits is accurate in all material
respects and fairly presents the information required
to be shown.
(xvii) To such counsel's Actual Knowledge, the
Company and the Bank have conducted the Offering, in
all material respects, in accordance with all
applicable requirements of the Plan and applicable
Texas and federal law, except that no opinion is
rendered with respect to (a) the Conversion
Application, the Holding Company Application, the
Registration Statement or Prospectus, which are
covered by other clauses of this opinion, (b) the
satisfaction of the post-Offering conditions in the
Conversion Regulations or in the TSLD and FDIC
approval of the Conversion Application, (c) the
securities or "blue sky" laws of various
jurisdictions, and (d) the rules and regulations of
the NASD. The Plan complies in all material respects
with all applicable Texas and federal laws, rules,
regulations, decisions and orders including, but not
limited to, the Conversion Regulations; no order has
been issued by the TSLD, the Commission, the FDIC, or
any state authority to suspend the Offering or the
use of the Prospectus, and no action for such
purposes has been instituted or, to such counsel's
Actual Knowledge, threatened by the TSLD, the
Commission, the FDIC, or any state authority and no
person has sought to obtain regulatory or judicial
review of the final action of the Agencies, approving
the Plan, the Conversion Application or the
Prospectus.
(xviii) To such counsel's Actual Knowledge, the
Company and the Bank have obtained all material
federal licenses, permits and other federal
governmental authorizations currently required for
the conduct of their businesses and all such
licenses, permits and other governmental
authorizations are in full force and effect, and the
Company and the Bank are in all material respects
complying therewith, except where the failure to have
such licenses, permits and other governmental
authorizations or the failure to be in compliance
therewith would not have a material adverse effect on
the business or operations of the Bank and the
Company, taken as a whole.
(xix) To such counsel's Actual Knowledge, neither
the Company nor the Bank is in violation of its
Charter and bylaws, as appropriate or, to such
counsel's Actual Knowledge, in default or violation
of any obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which
it is a party or by which it or its property may be
bound, except for such defaults or violations which
would not have a material adverse impact on the
financial condition or results of operations of the
Company and the Bank on a consolidated basis; to such
counsel's Actual Knowledge, the execution and
delivery of this Agreement, the occurrence of the
obligations herein set forth and the consummation of
the transactions contemplated herein will not
27
<PAGE>
conflict with or constitute a breach of, or default
under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or
assets of the Company or the Bank pursuant to any
material contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which
the Company or the Bank is a party or by which any of
them may be bound, or to which any of the property or
assets of the Company or the Bank are subject; and,
such action will not result in any violation of the
provisions of the charter or bylaws of the Company or
the Bank or, to such counsel's Actual Knowledge,
result in any violation of any applicable federal
law, act, regulation (except that no opinion with
respect to the securities and blue sky laws of
various jurisdictions or the rules or regulations of
the NASD need be rendered) or order or court order,
writ, injunction or decree.
(xx) The Company's and the Bank's charter and
bylaws comply in all material respects with the rules
and regulations of the Agencies.
(xxi) To such counsel's Actual Knowledge, neither
the Company nor the Bank is in violation of any
directive from the TSLD, FRB or the FDIC to make any
material change in the method of conducting its
respective business.
(xxii) The information in the Prospectus under the
captions "Regulation," "The Stock Offering,"
"Restrictions on Acquisition of the Alamogordo
Financial and Alamogordo Federal" and "Description of
Capital Stock of Alamogordo Financial," to the extent
that such information constitutes matters of law,
summaries of legal matters, documents or proceedings,
or legal conclusions, has been reviewed by such
counsel and is correct in all material respects. The
discussion of statutes or regulations described or
referred to in the Prospectus are accurate summaries
and fairly present the information required to be
shown.
(xxiii) The Company is in good standing as a bank
holding company under the BHC Act.
(xxiv) In addition, such counsel shall state that
during the preparation of the Conversion Application,
the Holding Company Application, the Registration
Statement and the Prospectus, they participated in
conferences with certain officers of, the independent
public and internal accountants for, and other
representatives of the Company and the Bank, at which
conferences the contents of the Conversion
Application, the Holding Company Application, the
28
<PAGE>
Registration Statement and the Prospectus and related
matters were discussed and, while such counsel have
not confirmed the accuracy or completeness of or
otherwise verified the information contained in the
Conversion Application, the Holding Company
Application, the Registration Statement or the
Prospectus, and do not assume any responsibility for
such information, based upon such conferences and a
review of documents deemed relevant for the purpose
of rendering their view (relying as to materiality as
to factual matters on certificates of officers and
other factual representations by the Company and the
Bank), nothing has come to their attention that would
lead them to believe that the Conversion Application,
the Holding Company Application, the Registration
Statement, the Prospectus, or any amendment or
supplement thereto (other than the financial
statements, the notes thereto, and other tabular,
financial, statistical and appraisal data included
therein as to which no view need be rendered)
contained an untrue statement of a material fact or
omitted to state a material fact required to be
stated therein or necessary to make the statements
therein, in light of the circumstances under which
they were made, not misleading.
In giving such opinion, such counsel may rely as to all matters of fact
on certificates of officers or directors of the Company and the Bank and
certificates of public officials. The opinion of Silver Freedman & Taff, L.L.P.
shall be limited to matters governed by federal banking and securities laws, and
shall be governed by the Legal Opinion Accord "Accord") of the American Bar
Association Section of Business Law (1991). The term "Actual Knowledge" as used
herein shall have the meaning set forth in the Accord. For purposes of such
opinion, no proceedings shall be deemed to be pending, no order or stop order
shall be deemed to be issued, and no action shall be deemed to be instituted
unless, in each case, a director or executive officer of the Company or the Bank
shall have received a copy of such proceedings, order, stop order or action. In
addition, such opinion may be limited to present statutes, regulations and
judicial interpretations and to facts as they presently exist; in rendering such
opinion, such counsel need assume no obligation to revise or supplement it
should the present laws be changed by legislative or regulatory action, judicial
decision or otherwise; and such counsel need express no view, opinion or belief
with respect to whether any proposed or pending legislation, if enacted, or any
proposed or pending regulations or policy statements issued by any regulatory
agency, whether or not promulgated pursuant to any such legislation, would
affect the validity of the Offering or any aspect thereof. Such counsel may
assume that any agreement is the valid and binding obligation of any parties to
such agreement other than the Company or the Bank.
The favorable opinion, dated as of the Closing Date and addressed to
the Agent and for their benefit, of the Bank's local counsel, in form and
substance to the effect that, to the best of such counsel's knowledge, (i) the
Company and the Bank have good and marketable title to all properties and assets
which are material to the business of the Company and the Bank and to those
properties and assets described in the Registration Statement and Prospectus, as
owned by them, free and clear of all liens, charges, encumbrances or
restrictions, except such as are described in the Registration Statement and
Prospectus, or are not material in relation to the business of the Company and
the Bank considered as one enterprise; (ii) all of the leases and subleases
material to the business of the Company and the Bank under which the Company and
the Bank hold properties, as described in the Registration Statement and
Prospectus, are in full force and effect; and (iii) the Bank is duly qualified
as a foreign corporation to transact business and is in good standing in each
29
<PAGE>
jurisdiction in which its ownership of property or leasing of property or the
conduct of its business requires such qualification, unless the failure to be so
qualified in one or more of such jurisdictions would not have a material adverse
effect on the condition, financial or otherwise, or the business, operations or
income of the Bank.
(d) At the Closing Date, the Agent shall have received
the favorable opinion, dated as of the Closing Date,
of Selman Munson & Lerner, P.C., the Agent's counsel,
with respect to such matters as the Agent may
reasonably require. Such opinion may rely upon the
opinions of counsel to the Company and the Bank, and
as to matters of fact, upon certificates of officers
and directors of the Company and the Bank delivered
pursuant hereto or as such counsel shall reasonably
request.
(e) At the Closing Date, the Agent shall receive a
certificate of the Chief Executive Officer and the
Principal Financial and/or Accounting Officer of the
Company and the Bank in form and substance reasonably
satisfactory to the Agent's Counsel, dated as of such
Closing Date, to the effect that: (i) they have
carefully reviewed the Prospectus and, in their
opinion, at the time the Prospectus became authorized
for final use, the Prospectus did not contain any
untrue statement of a material fact or omit to state
a material fact necessary in order to make the
statements therein, in light of the circumstances
under which they were made, not misleading; (ii)
since the date the Prospectus became authorized for
final use, no event has occurred which should have
been set forth in an amendment or supplement to the
Prospectus which has not been so set forth, including
specifically, but without limitation, any material
adverse change in the condition, financial or
otherwise, or in the earnings, capital, properties or
business of the Company or the Bank, and the
conditions set forth in this Section 7 have been
satisfied; (iii) since the respective dates as of
which information is given in the Registration
Statement and the Prospectus, there has been no
material adverse change in the condition, financial
or otherwise, or in the earnings, capital or
properties of the Company or the Bank, independently,
or of the Company and the Bank, considered as one
enterprise, whether or not arising in the ordinary
course of business; (iv) the representations and
warranties in Section 4 are true and correct with the
same force and effect as though expressly made at and
as of the Closing Date; (v) the Company and the Bank
have complied in all material respects with all
agreements and satisfied all conditions on their part
to be performed or satisfied at or prior to the
Closing Date and will comply in all material respects
with all obligations to be satisfied by them after
the Offering; (vi) no stop order suspending the
effectiveness of the Registration Statement has been
initiated or, to the best knowledge of the Company or
the Bank, threatened by the Commission or any state
authority; (vii) no order suspending the Offering or
the effectiveness of the Prospectus has been issued
and no proceedings for that purpose are
30
<PAGE>
pending or, to the best knowledge of the Company or
the Bank, threatened by the TSLD, the Commission, the
FDIC, the FRB or any state authority; and (viii) to
the best knowledge of the Company or the Bank, no
person has sought to obtain review of the final
action of the Agencies approving the Plan.
(f) Prior to and at the Closing Date: (i) in the
reasonable opinion of the Agent, there shall have
been no material adverse change in the condition,
financial or otherwise, or in the earnings or
business of the Company or the Bank independently, or
of the Company and the Bank, considered as one
enterprise, from that as of the latest dates as of
which such condition is set forth in the Prospectus
other than transactions referred to or contemplated
therein; (ii) the Company or the Bank shall not have
received from the TSLD, FRB or the FDIC any direction
(oral or written) to make any material change in the
method of conducting their business with which it has
not complied (which direction, if any, shall have
been disclosed to the Agent) or which materially and
adversely would affect the business, operations or
financial condition or income of the Company and the
Bank taken as a whole; (iii) the Company and the Bank
shall not have been in default (nor shall an event
have occurred which, with notice or lapse of time or
both, would constitute a default) under any provision
of any agreement or instrument relating to any
outstanding indebtedness; (iv) no action, suit or
proceeding, at law or in equity or before or by any
federal or state commission, board or other
administrative agency, shall be pending or, to the
knowledge of the Company or the Bank, threatened
against the Company or the Bank or affecting any of
their properties wherein an unfavorable decision,
ruling or finding would materially and adversely
affect the business, operations, financial condition
or income of the Company and the Bank taken as a
whole; and (v) the Shares have been qualified or
registered for offering and sale or exempted
therefrom under the securities or blue sky laws of
the jurisdictions as the Agent shall have reasonably
requested and as agreed to by the Company and the
Bank.
(g) Concurrently with the execution of this Agreement,
the Agent shall receive a letter from Padgett,
Stratemann & Co., LLP dated as of the date of the
Prospectus and addressed to the Agent: (i) confirming
that Padgett, Stratemann & Co., LLP is a firm of
independent public accounts within the meaning of
Rule 101 of the Code of Professional Ethics of the
American Institute of Certified Public Accountants
and stating in effect that in its opinion the
consolidated financial statements, schedules and
related notes of the Company as of December 31, 1999
and 1998, and as are included in the Prospectus and
covered by their opinion included therein, comply as
to form in all material respects with the applicable
accounting requirements and related published rules
and regulations of the TSLD, FDIC and the 1933 Act;
(ii) stating in effect that, on the basis of certain
agreed upon procedures (but
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<PAGE>
not an audit in accordance with generally accepted
auditing standards) consisting of a reading of the
latest available unaudited interim consolidated
financial statements of the Company, a reading of the
minutes of the meetings of the Board of Directors and
stockholders of the Company and consultations with
officers of the Company responsible for financial and
accounting matters, nothing came to their attention
which caused them to believe that: (a) the unaudited
financial statements included in the Prospectus are
not in conformity with the 1933 Act, applicable
accounting requirements of the TSLD, FDIC and
generally accepted accounting principles applied on a
basis substantially consistent with that of the
audited financial statements included in the
Prospectus; or (b) during the period from the date of
the latest unaudited consolidated financial
statements included in the Prospectus to a specified
date not more than three business days prior to the
date of the Prospectus, except as has been described
in the Prospectus, there was any increase in
borrowings, other than normal deposit fluctuations,
by the Bank; or (c) there was any decrease in the
consolidated net assets of the Company at the date of
such letter as compared with amounts shown in the
latest unaudited consolidated statement of condition
included in the Prospectus; and (iii) stating that,
in addition to the audit referred to in their opinion
included in the Prospectus and the performance of the
procedures referred to in clause (ii) of this
subsection (f), they have compared with the general
accounting records of the Company, which are subject
to the internal controls of the Company, the
accounting system and other data prepared by the
Company, directly from such accounting records, to
the extent specified in such letter, such amounts
and/or percentages set forth in the Prospectus as the
Agent may reasonably request; and they have reported
on the results of such comparisons.
(h) At the Closing Date, the Agent shall receive a letter
dated the Closing Date, addressed to the Agent,
confirming the statements made by Padgett, Stratemann
& Co., LLP in the letter delivered by it pursuant to
subsection (f) of this Section 7, the "specified
date" referred to in clause (ii) of subsection (f)
thereof to be a date specified in such letter, which
shall not be more than three business days prior to
the Closing Date.
(i) At the Closing Date, the Agent shall receive a letter
from Ferguson & Company, Inc., dated the date thereof
and addressed to counsel for the Agent (i) confirming
that said firm is independent of the Company and the
Bank and is experienced and expert in the area of
corporate appraisals, (ii) stating in effect that the
Appraisal prepared by such firm complies in all
material respects with the applicable requirements of
the Conversion Regulations, and (iii) further stating
that their opinion of the aggregate pro forma market
value of the Company and the Bank expressed in their
Appraisal dated as of March 1, 2000, and most
recently updated, remains in effect.
32
<PAGE>
(j) The Company and the Bank shall not have sustained
since the date of the latest financial statements
included in the Prospectus any material loss or
interference with its business from fire, explosion,
flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than
as set forth or contemplated in the Registration
Statement and Prospectus and since the respective
dates as of which information is given in the
Registration Statement and Prospectus, there shall
not have been any change in the long-term debt of the
Company or the Bank other than debt incurred in
relation to the purchase of Shares by the Bank's
Eligible Plans, or any change, or any development
involving a prospective change, in or affecting the
general affairs, management, financial position,
stockholders' equity or results of operations of the
Company or the Bank, otherwise than as set forth or
contemplated in the Registration Statement and
Prospectus, the effect of which, in any such case
described above, is in the Agent's reasonable
judgment sufficiently material and adverse as to make
it impracticable or inadvisable to proceed with the
Subscription Offering or the delivery of the Shares
on the terms and in the manner contemplated in the
Prospectus.
(k) At or prior to the Closing Date, the Agent shall
receive: (i) a copy of the letters from the TSLD and
FDIC approving the Conversion Application and
authorizing the use of the Prospectus; (ii) a copy of
the order from the Commission declaring the
Registration Statement effective; (iii) certificate
of good standing from the State of Maryland
evidencing the good standing of the Company; (iv) a
certificate from the FDIC evidencing the Bank's
insurance of accounts; (v) a certificate of the
FHLB-Dallas evidencing the Bank's membership thereof;
(vi) a certificate from the FRB evidencing the
Company's standing as a bank holding company; (vii) a
copy of the Bank's Texas stock charter; and (viii) a
copy of the letters from the FRB approving the
Holding Company Application.
(l) Subsequent to the date hereof, there shall not have
occurred any of the following: (i) a suspension or
limitation in trading in securities generally on the
New York Stock Exchange or in the over-the-counter
market, or quotations halted generally on the Nasdaq,
or minimum or maximum prices for trading have been
fixed, or maximum ranges for prices for securities
have been required by either of such exchanges or the
NASD or by order of the Commission or any other
governmental authority; (ii) a general moratorium on
the operations of commercial banks, federal savings
institutions or a general moratorium on the
withdrawal of deposits from commercial banks or
federal savings institutions declared by federal
authorities; (iii) the engagement by the United
States in hostilities which have resulted in the
declaration, on or after the date hereof, of a
national emergency or war; or
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(iv) a material decline in the price of equity or
debt securities if the effect of such a declaration
or decline, in the Agent's reasonable judgment, makes
it impracticable or inadvisable to proceed with the
Offering or the delivery of the shares on the terms
and in the manner contemplated in the Registration
Statement and the Prospectus.
(m) At or prior to the Closing Date, counsel to the Agent
shall have been furnished with such documents and
opinions as they may reasonably require for the
purpose of enabling them to pass upon the sale of the
Shares as herein contemplated and related proceedings
or in order to evidence the occurrence or
completeness of any of the representations or
warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings
taken by the Company or the Bank in connection with
the Offering and the sale of the Shares as herein
contemplated shall be satisfactory in form and
substance to the Agent and its counsel.
Section 8. Indemnification.
(a) The Company and the Bank jointly and severally agree
to indemnify and hold harmless the Agent, its
respective officers and directors, employees and
agents, and each person, if any, who controls the
Agent within the meaning of Section 15 of the 1933
Act or Section 20(a) of the 1934 Act, against any and
all loss, liability, claim, damage or expense
whatsoever (including but not limited to settlement
expenses), joint or several, that the Agent or any of
them may suffer or to which the Agent and any such
persons may become subject under all applicable
federal or state laws or otherwise, and to promptly
reimburse the Agent and any such persons upon written
demand for any expense (including reasonable fees and
disbursements of counsel) incurred by the Agent or
any of them in connection with investigating,
preparing or defending any actions, proceedings or
claims (whether commenced or threatened) to the
extent such losses, claims, damages, liabilities or
actions: (i) arise out of or are based upon any
untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement
(or any amendment or supplement thereto), preliminary
or final Prospectus (or any amendment or supplement
thereto), the Conversion Application and Holding
Company Application (or any amendment or supplement
thereto), or any instrument or document executed by
the Company or the Bank or based upon written
information supplied by the Company or the Bank filed
in any state or jurisdiction to register or qualify
any or all of the Shares or to claim an exemption
therefrom, or provided to any state or jurisdiction
to exempt the Company as a broker-dealer or its
officers, directors and employees as broker-dealers
or agent, under the securities laws thereof
(collectively, the "Blue Sky Application"), or any
document, advertisement, oral statement or
communication ("Sales
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<PAGE>
Information") prepared, made or executed by or on
behalf of the Company or the Bank with their consent
or based upon written or oral information furnished
by or on behalf of the Company or the Bank, whether
or not filed in any jurisdiction, in order to qualify
or register the Shares or to claim an exemption
therefrom under the securities laws thereof; (ii)
arise out of or are based upon the omission or
alleged omission to state in any of the foregoing
documents or information, a material fact required to
be stated therein or necessary to make the statements
therein, in light of the circumstances under which
they were made, not misleading; or (iii) arise from
any theory of liability whatsoever relating to or
arising from or based upon the Registration Statement
(or any amendment or supplement thereto), preliminary
or final Prospectus (or any amendment or supplement
thereto), the Conversion Application and the Holding
Company Application (or any amendment or supplement
thereto), any Blue Sky Application or Sales
Information or other documentation distributed in
connection with the Offering; provided, however, that
no indemnification is required under this paragraph
(a) to the extent such losses, claims, damages,
liabilities or actions arise out of or are based upon
any untrue material statement or alleged untrue
material statement in, or material omission or
alleged material omission from, the Registration
Statement (or any amendment or supplement thereto),
preliminary or final Prospectus (or any amendment or
supplement thereto), the Conversion Application (or
any amendment or supplement thereto), any Blue Sky
Application or Sales Information made in reliance
upon and in conformity with information furnished in
writing to the Company or the Bank by the Agent or
its counsel regarding the Agent provided, that it is
agreed and understood that the only information
furnished in writing to the Company or the Bank by
the Agent regarding the Agent is set forth in the
Prospectus; and, provided further, that such
indemnification shall be to the extent permitted by
the Commissioner, the TSLD, the FDIC and the Board of
Governors of the Federal Reserve. The indemnification
provided for in this paragraph (a) shall not be
applicable with respect to any loss, liability,
claim, damage, or expense whatsoever if it is
determined by final judgment of a court having
jurisdiction over the matter that such loss,
liability, claim, damage or expense was primarily a
result of the Agent's willful misconduct or gross
negligence.
(b) The Agent agrees to indemnify and hold harmless the
Company and the Bank, their directors and officers
and each person, if any, who controls the Company or
the Bank within the meaning of Section 15 of the 1933
Act or Section 20(a) of the 1934 Act against any and
all loss, liability, claim, damage or expense
whatsoever (including but not limited to settlement
expenses), joint or several, which they, or any of
them, may suffer or to which they, or any of them may
become subject under all applicable federal and state
laws or otherwise, and to promptly reimburse the
Company, the
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Bank, and any such persons upon written demand for
any expenses (including reasonable fees and
disbursements of counsel) incurred by them, or any of
them, in connection with investigating, preparing or
defending any actions, proceedings or claims (whether
commenced or threatened) to the extent such losses,
claims, damages, liabilities or actions: (i) arise
out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained
in the Registration Statement (or any amendment or
supplement thereto), the Conversion Application, the
Holding Company Application (or any amendment or
supplement thereto), the preliminary or final
Prospectus (or any amendment or supplement thereto),
any Blue Sky Application or Sales Information, (ii)
are based upon the omission or alleged omission to
state in any of the foregoing documents a material
fact required to be stated therein or necessary to
make the statements therein, in the light of the
circumstances under which they were made, not
misleading, or (iii) arise from any theory of
liability whatsoever relating to or arising from or
based upon the Registration Statement (or any
amendment or supplement thereto), preliminary or
final Prospectus (or any amendment or supplement
thereto), the Conversion Application, the Holding
Company Application (or any amendment or supplement
thereto), or any Blue Sky Application or Sales
Information or other documentation distributed in
connection with the Offering; provided, however, that
the Agent's obligations under this Section 8(b) shall
exist only if and only to the extent (i) that such
untrue statement or alleged untrue statement was made
in, or such material fact or alleged material fact
was omitted from, the Registration Statement (or any
amendment or supplement thereto), the preliminary or
final Prospectus (or any amendment or supplement
thereto), the Conversion Application, the Holding
Company Application (or any amendment or supplement
thereto), or any Blue Sky Application or Sales
Information in reliance upon and in conformity with
information furnished in writing to the Company or
the Bank by the Agent or its counsel regarding the
Agent, provided, that it is agreed and understood
that the only information furnished in writing to the
Company or the Bank by the Agent regarding the Agent
is set forth in the Prospectus. The indemnification
provided for in this Section 8 (b) shall not be
applicable with respect to any loss, liability,
claim, damage, or expense whatsoever if it is
determined by final judgment of a court having
jurisdiction over the matter that such loss,
liability, claim, damage or expense was primarily a
result of the Company's or the Bank's willful
misconduct or gross negligence.
(c) Each indemnified party shall give prompt written
notice to each indemnifying party of any action,
proceeding, claim (whether commenced or threatened),
or suit instituted against it in respect of which
indemnity may be sought hereunder, but failure to so
notify an indemnifying party shall not relieve it
from any liability which it may have on account of
this Section 8 or
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<PAGE>
otherwise. An indemnifying party may participate at
its own expense in the defense of such action. In
addition, if it so elects within a reasonable time
after receipt of such notice, an indemnifying party,
jointly with any other indemnifying parties receiving
such notice, may assume defense of such action with
counsel chosen by it and approved by the indemnified
parties that are defendants in such action, unless
such indemnified parties reasonably object to such
assumption on the ground that there may be legal
defenses available to them that are different from or
in addition to those available to such indemnifying
party. If an indemnifying party assumes the defense
of such action, the indemnifying parties shall not be
liable for any fees and expenses of counsel for the
indemnified parties incurred thereafter in connection
with such action, proceeding or claim, other than
reasonable costs of investigation. In no event shall
the indemnifying parties be liable for the fees and
expenses of more than one separate firm of attorneys
(and any special counsel that said firm may retain)
for each indemnified party in connection with any one
action, proceeding or claim or separate but similar
or related actions, proceedings or claims in the same
jurisdiction arising out of the same general
allegations or circumstances.
(d) The agreements contained in this Section 8 and in
Section 9 hereof and the representations and
warranties of the Company and the Bank set forth in
this Agreement shall remain operative and in full
force and effect regardless of: (i) any investigation
made by or on behalf of agent or their officers,
directors or controlling persons, agent or employees
or by or on behalf of the Company or the Bank or any
officers, directors or controlling persons, agent or
employees of the Company or the Bank; (ii) delivery
of and payment hereunder for the Shares; or (iii) any
termination of this Agreement.
Section 9. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 8 is due in accordance with its terms but is for any reason held by a
court to be unavailable from the Company, the Bank or the Agent, the Company,
the Bank and the Agent (provided, in the case of the Bank, that such
contribution is in compliance with the requirements of Section 23A of the
Federal Reserve Act and is consistent with any written interpretations regarding
Section 23A of the Federal Reserve Act issued by regulatory agencies having
jurisdiction with respect to such section generally or the Bank in particular,
including without limitation, any opinion issued by the FRB in response to a
request for interpretive advice submitted by counsel to the Bank) shall
contribute to the aggregate losses, claims, damages and liabilities (including
any investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding of any claims
asserted, but after deducting any contribution received by the Company, the Bank
or the Agent from persons other than the other party thereto, who may also be
liable for contribution) in such proportion so that the Agent is responsible for
that portion represented by the percentage that the fees paid to the Agent
pursuant to Section 2 of this Agreement (not including expenses) bears to the
gross proceeds received by the Company from the sale of the Shares in the
Offering, and the Company and
37
<PAGE>
the Bank shall be responsible for the balance. If, however, the allocation
provided above is not permitted by applicable law or if the indemnified party
failed to give the notice required under Section 8 above, then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative fault of
the Company and the Bank on the one hand and the Agent on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions, proceedings or claims in respect
thereto), but also the relative benefits received by the Company and the Bank on
the one hand and the Agent on the other from the Offering (before deducting
expenses). The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company and/or the Bank on the one hand or the Agent on the
other and the parties' relative intent, good faith, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Bank and the Agent agree that it would not be just and
equitable if contribution pursuant to this Section 9 were determined by pro-rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to above in this Section 9. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions, proceedings or claims in respect thereof)
referred to above in this Section 9 shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action, proceeding or claim. It is expressly
agreed that the Agent shall not be liable for any loss, liability, claim, damage
or expense or be required to contribute any amount which in the aggregate
exceeds the amount paid (excluding reimbursable expenses) to the Agent under
this Agreement. It is understood that the above stated limitation on the Agent's
liability is essential to the Agent and that the Agent would not have entered
into this Agreement if such limitation had not been agreed to by the parties to
this Agreement. No person found guilty of any fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not found guilty of such fraudulent
misrepresentation. The obligations of the Company and the Bank under this
Section 9 and under Section 8 shall be in addition to any liability which the
Company and the Bank may otherwise have. For purposes of this Section 9, each of
the Agent's, the Company's or the Bank's officers and directors and each person,
if any, who controls the Agent or the Company or the Bank within the meaning of
the 1933 Act and the 1934 Act shall have the same rights to contribution as the
Agent, the Company or the Bank. Any party entitled to contribution, promptly
after receipt of notice of commencement of any action, suit, claim or proceeding
against such party in respect of which a claim for contribution may be made
against another party under this Section 9, will notify such party from whom
contribution may be sought, but the omission to so notify such party shall not
relieve the party from whom contribution may be sought from any other obligation
it may have hereunder or otherwise than under this Section 9.
Section 10. Survival of Agreements, Representations and Indemnities.
The respective indemnities of the Company, the Bank and the Agent and the
representations and warranties and other statements of the Company, the Bank and
the Agent set forth in or made pursuant to this Agreement shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement or any investigation made by or on behalf of the Agent, the Company,
the Bank or any
38
<PAGE>
controlling person referred to in Section 8 hereof, and shall survive the
issuance of the Shares, and any successor or assign of the Agent, the Company,
the Bank, and any such controlling person shall be entitled to the benefit of
the respective agreements, indemnities, warranties and representations.
Section 11. Termination. The Agent may terminate this Agreement by
giving the notice indicated below in this Section 11 at any time after this
Agreement becomes effective as follows:
(a) In the event the Company fails to sell the required
minimum number of the Shares by December 31, 2000,
and in accordance with the provisions of the Plan or
as required by the Conversion Regulations, and
applicable law, this Agreement shall terminate upon
refund by the Company to each person who has
subscribed for or ordered any of the Shares the full
amount which it may have received from such person,
together with interest as provided in the Prospectus,
and no party to this Agreement shall have any
obligation to the other hereunder, except for payment
by the Company and/or the Bank as set forth in
Sections 2(a), 6, 8 and 9 hereof.
(b) If any of the conditions specified in Section 7 shall
not have been fulfilled when and as required by this
Agreement unless waived in writing, or by the Closing
Date, this Agreement and all of the Agent's
obligations hereunder may be cancelled by the Agent
by notifying the Company and the Bank of such
cancellation in writing or by telegram at any time at
or prior to the Closing Date, and any such
cancellation shall be without liability of any party
to any other party except as otherwise provided in
Sections 2(a), 6, 8 and 9 hereof.
(c) If the Agent elects to terminate this Agreement as
provided in this Section, the Company and the Bank
shall be notified promptly by telephone or telegram,
confirmed by letter.
The Company and the Bank may terminate this Agreement in the event the
Agent is in material breach of the representations and warranties or covenants
contained in Section 5 and such breach has not been cured within a reasonable
period of time after the Company and the Bank have provided the Agent with
notice of such breach.
This Agreement may also be terminated by mutual written consent of the
parties hereto.
Section 12. Notices. All communications hereunder, except as herein
otherwise specifically provided, shall be mailed in writing and if sent to the
Agent shall be mailed, delivered or telegraphed and confirmed to Charles Webb &
Company, a Division of Keefe, Bruyette & Woods, Inc., 211 Bradenton, Dublin,
Ohio 43017-3514, Attention: Patricia A. McJoynt, Executive Vice President (with
a copy to Selman Munson & Lerner, P.C., Attention: Jack A. Selman) and, if sent
to the Company and the Bank, shall be mailed, delivered or telegraphed and
confirmed to the Company
39
<PAGE>
and the Bank at 312 Main Street, Smithville, Texas 78957, Attention: Miles
Ledgewood, President (with a copy to Silver, Freedman and Taff, L.L.P.,
Attention: Martin L. Meyrowitz).
Section 13. Parties. The Company and the Bank shall be entitled to act
and rely on any request, notice, consent, waiver or agreement purportedly given
on behalf of the Agent when the same shall have been given by the undersigned.
The Agent shall be entitled to act and rely on any request, notice, consent,
waiver or agreement purportedly given on behalf of the Company or the Bank, when
the same shall have been given by the undersigned or any other officer of the
Company or the Bank. This Agreement shall inure solely to the benefit of, and
shall be binding upon, the Agent, the Company, the Bank, and their respective
successors and assigns, and no other person shall have or be construed to have
any legal or equitable right, remedy or claim under or in respect of or by
virtue of this Agreement or any provision herein contained. It is understood and
agreed that this Agreement is the exclusive agreement among the parties hereto,
and supersedes any prior agreement among the parties and may not be varied
except in writing signed by all the parties.
Section 14. Closing. The closing for the sale of the Shares shall take
place on the Closing Date at such location as mutually agreed upon by the Agent
and the Company and the Bank. At the closing, the Company and the Bank shall
deliver to the Agent in next day funds the commissions, fees and expenses due
and owing to the Agent as set forth in Sections 2 and 6 hereof and the opinions
and certificates required hereby and other documents deemed reasonably necessary
by the Agent shall be executed and delivered to effect the sale of the Shares as
contemplated hereby and pursuant to the terms of the Prospectus.
Section 15. Partial Invalidity. In the event that any term, provision
or covenant herein or the application thereof to any circumstance or situation
shall be invalid or unenforceable, in whole or in part, the remainder hereof and
the application of said term, provision or covenant to any other circumstances
or situation shall not be affected thereby, and each term, provision or covenant
herein shall be valid and enforceable to the full extent permitted by law.
Section 16. Construction. This Agreement shall be construed in
accordance with the laws of the State of Texas.
Section 17. Counterparts. This Agreement may be executed in separate
counterparts, each of which so executed and delivered shall be an original, but
all of which together shall constitute but one and the same instrument.
If the foregoing correctly sets forth the arrangement among the
Company, the Bank and the Agent, please indicate acceptance thereof in the space
provided below for that purpose, whereupon this letter and the Agent's
acceptance shall constitute a binding agreement.
Section 18. Entire Agreement. This Agreement, including schedules and
exhibits hereto, which are integral parts hereof and incorporated as though set
forth in full, constitutes the entire agreement between the parties pertaining
to the subject matter hereof superseding any and all prior or contemporaneous
oral or prior written agreements, proposals, letters of intent and
40
<PAGE>
understandings, and cannot be modified, changed, waived or terminated except by
a writing which expressly states that it is an amendment, modification or
waiver, refers to this Agreement and is signed by the party to be charged. No
course of conduct or dealing shall be construed to modify, amend or otherwise
affect any of the provisions hereof.
Section 19. Headings. Headings on the Sections in this Agreement are
for reference purposes only and shall not be deemed to have any substantive
effect.
Section 20. Delivery by Telecopier. This Agreement shall become
effective upon execution and delivery hereof by all the parties hereto; delivery
of this Agreement may be made by telecopier to the parties with original copies
promptly to follow by overnight courier.
Section 21. Construction. This Agreement has been negotiated by the
parties and their respective counsel. This Agreement will be fairly interpreted
in accordance with its terms and without any strict construction in favor of or
against either party.
Section 22. Exhibits. Each and all of the Exhibits referred to herein
and attached hereto are hereby incorporated into this Agreement for all purposes
as fully as if set forth herein.
Section 23. Arbitration. Any disputes, controversies or claims arising
out of or relating to the negotiations, execution, delivery, performance or
breach of this Agreement shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. The place
of arbitration shall be Smithville, Texas. Judgment upon the award rendered by
the arbitrator(s) may be entered in any court having jurisdiction thereof. If
the amount claimed or disputed in such arbitration is $100,000 or more, the
arbitration shall be conducted before a panel of three arbitrators. In any
arbitration proceeding hereunder or any action to enforce its rights hereunder,
the prevailing party shall be awarded the costs (including reasonable attorneys'
fees) incurred by it related to such proceeding or action. The arbitrator(s)
shall have power to enter such orders by way of interim awards, and they shall
be enforceable in court.
<PAGE>
Very truly yours,
CBCT BANCSHARES, INC. COMMUNITY BANK OF CENTRAL TEXAS, SSB
By Its Authorized Representative: By Its Authorized Representative:
- ---------------------------------- ----------------------------------
Brad M. Hurta Brad M. Hurta
President President
Accepted as of the date first above written
Keefe, Bruyette & Woods, Inc.
By Its Authorized
Representative:
- ----------------------------------
[Name]
Managing Director
<PAGE>
EXHIBIT B
CBCT BANCHSHARES, INC.
Up to 304,175 Shares (Anticipated Maximum)
(Par Value $0.01 Per Share)
Selected Dealers' Agreement
, 2000
Gentlemen:
We have agreed to assist Community Bank of Central Texas (the "Bank"),
a Texas chartered mutual savings bank, in connection with the offer and sale of
up to 304,175 shares of the conversion common stock, par value $0.01 per share
(the "Common Stock") of CBCT Bancshares, Inc. (the "Company"), a Maryland
corporation, to be issued in connection with the conversion of the Bank. The
total number of shares of Common Stock to be offered may be decreased to a
minimum of shares. The price per share has been fixed at $10.00. The Common
Stock, the number of shares to be issued, and certain of the terms on which they
are being offered, are more fully described in the enclosed Prospectus dated
_________________, 1995 (the "Prospectus"). In connection with the Conversion,
the Company, on a best efforts basis is offering for sale between $1,950,000 of
shares and $3,041,750 of shares (the "Shares") of the Common Stock, in a
Subscription Offering. Any Shares not sold in the Subscription Offering will be
offered to the general public in a community offering (the "Community
Offering").
The Subscription and Community Offerings are being conducted under a
Plan of Conversion (the "Plan") adopted by the Bank pursuant to which the Bank
intends to convert from a Texas chartered mutual savings bank to a Texas
chartered stock savings bank and concurrent formation of a Maryland holding
company (the "Company") (the "Conversion"). As part of the Conversion, the Bank
will amend its Texas mutual savings bank charter to read in the form of a Texas
stock savings bank charter, sell all its to-be-issued common stock to the
Company which in turn will sell the Common Stock to the public as provided for
in the Plan. The Subscription and Community Offerings are further being
conducted in accordance with the regulations of the Texas Savings and Loan
Department and the Federal Deposit Insurance Corporation subject to the
restrictions contained in the Plan.
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The Common Stock is also being offered in accordance with the Plan by
broker/dealers licensed by the National Association of Securities Dealers, Inc.
("NASD") which have been approved by the Bank ("Approved Brokers").
We are offering the selected dealers (of which you are one) the
opportunity to participate in the solicitation of offers to buy the Common Stock
and we will pay you a fee in the amount of ___percent (__.0%) of the dollar
amount of the Common Stock sold on behalf of the Company by you, as evidenced by
the authorized designation of your firm on the order form or forms for payment
therefor to the special account established by the Bank for the purpose of
holding such funds. It is understood, of course, that payment of your fee will
be made only out of compensation received by us for the Common Stock sold on
behalf of the Company by you, as evidenced in accordance with the preceding
sentence. As soon as practicable after the closing date of the offering, we will
remit to you, only out of our compensation as provided above, the fees to which
you are entitled hereunder.
Each order form for the purchase of Common Stock must set forth the
identity and address of each person to whom the certificates for such Common
Stock should be issued and delivered. Such order form also must clearly identify
your firm in order for you to receive compensation. You shall instruct any
subscriber who elects to send his order form to you to make any accompanying
check payable to "CBCT Bancshares, Inc."
This offer is made subject to the terms and conditions herein set forth
and is made only to selected dealers who are members in good standing of the
NASD who are to comply with all applicable rules of the NASD, including, without
limitation, the NASD's Interpretation With Respect to Free-Riding and
Withholding and Section 24 of Article III of the NASD's Rules of Fair Practice.
Orders for Common Stock will be subject to confirmation and we, acting
on behalf of the Company and the Bank, reserve the right in our unfettered
discretion to reject any order in whole or in part, to accept or reject orders
in the order of their receipt or otherwise, and to allot. Neither you nor any
other person is authorized by the Company and the Bank, or by us to give any
information or make any representations other than those contained in the
Prospectus in connection with the sale of any of the Common Stock. No selected
dealer is authorized to act as agent for us when soliciting offers to buy the
Common Stock from the public or otherwise. No selected dealer shall engage in
any stabilizing (as defined in Rule 10b-7 promulgated under the Securities
Exchange Act of 1934) with respect to the Company's Common Stock during the
offering.
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<PAGE>
We and each selected dealer assisting in selling Common Stock pursuant
hereto agree to comply with the applicable requirements of the Securities
Exchange Act of 1934 and applicable state rules and regulations. Each
customer-carrying selected dealer that is not a $250,000 net capital reporting
broker/dealer agrees that it will not use a sweep arrangement and that it will
transmit all customer checks by noon of the next business day after receipt
thereof. In addition, we and each selected dealer confirm that the Securities
and Exchange Commission interprets Rule 15c2-8 promulgated under the Securities
Exchange Act of 1934 as requiring that a Prospectus be supplied to each person
who is expected to receive a confirmation of sale 48 hours prior to delivery of
such person's order form.
We and each selected dealer further agree that to the extent that your
customers desire to pay for shares with funds held by or to be deposited with
us, in accordance with the interpretations of the Securities and Exchange
Commission of Rule 15c2-4 promulgated under the Securities Exchange Act of 1934,
either (a) upon receipt of an executed order form or direction to execute an
order form on behalf of a customer to forward the offering price of the Common
Stock ordered on or before twelve noon Missouri time of the next business day
following receipt or execution of an order form by us to the Company for deposit
in a segregated account or (b) to solicit indications of interest in which event
(i) we will subsequently contact any customer indicating interest to confirm the
interest and give instructions to execute and return an order form or to receive
authorization to execute the order form on the customer's behalf, (ii) we will
mail acknowledgments of receipt of orders to each customer confirming interest
on the business day following such confirmation, (iii) we will debit accounts of
such customers on the fifth business day (the "Debit Date") following receipt of
the confirmation referred to in (i), and (iv) we will forward complete order
forms together with such funds to the Company on or before twelve noon on the
next business day and each selected dealer acknowledges that if the procedure in
(b) is adopted, our customers' funds are not required to be in their accounts
until the Debit Date.
Unless earlier terminated by us, this Agreement shall terminate upon
the closing date of the Conversion. We may terminate this Agreement or any
provisions hereof any time by written or telegraphic notice to you. Of course,
our obligations hereunder are subject to the successful completion of the
Conversion.
You agree that at any time or times prior to the termination of this
Agreement you will, upon our request, report to us the number of shares of
Common Stock sold on behalf of the Company by you under this Agreement.
We shall have full authority to take such actions as we may deem
advisable in respect of all matters pertaining to the offering. We shall be
under no liability to you except for lack of good faith and for obligations
expressly assumed by us in this Agreement.
Upon application to us, we will inform you as to the states in which we
believe the Common Stock has been qualified for sale under, or are exempt from
the requirements of, the respective blue sky laws of such states, but we assume
no responsibility or obligation as to your rights to sell Common Stock in any
state.
Additional copies of the Prospectus and any supplements thereto will be
supplied in reasonable quantities upon request.
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<PAGE>
Any notice from us to you shall be deemed to have been duly given if
mailed, telephoned, or telegraphed to you at the address to which this Agreement
is mailed.
This Agreement shall be construed in accordance with the laws of the
State of Ohio.
Please confirm your agreement hereto by signing and returning the
confirmations accompanying this letter at once to us at Keefe, Bruyette & Woods,
Inc., 211 Bradenton, Dublin, Ohio 43017. The enclosed duplicate copy will
evidence the agreement between us.
KEEFE, BRUYETTE & WOODS, INC.
By:
Name:________________
Its:___________________
CONFIRMED AS OF:
________________, 2000
(Name of Dealer)
By:
Its:
Exhibit 3.3
COMMUNITY BANK OF CENTRAL TEXAS, SSB
ARTICLES OF INCORPORATION
(by conversion and continuation of Community Bank of
Central Texas, ssb, a mutual savings bank, to a
capital stock savings bank)
THAT we, the undersigned citizens of the State of Texas, do hereby
adopt these Articles of Incorporation for Community Bank of Central Texas, ssb
(the "Savings Bank") in compliance with the provisions of the Texas Savings Bank
Code (Subtitle C, Texas Finance Code) and the Rules and Regulations Applicable
to Texas Savings Banks (7 TAC, ss.75.1, et.seq.). The Savings Bank is
incorporated by the conversion of Community Bank of Central Texas, ssb, a mutual
savings bank, to a capital stock savings bank.
ARTICLE I - CORPORATE TITLE
The full corporate title of the Savings Bank shall be Community Bank of
Central Texas, ssb.
ARTICLE II - OFFICE AND REGISTERED AGENT
The address of the home office of the Savings Bank shall be 312 Main
Street, Smithville, Bastrop County, Texas 78957-2035. The name of its registered
agent at such address is Brad M. Hurta.
ARTICLE III - DURATION
The duration of the Savings Bank shall be perpetual.
ARTICLE IV - PURPOSE AND POWERS
The purposes of the Savings Bank shall be the pursuit of any and all
lawful objectives of a state savings bank chartered under the Texas Savings Bank
Code and the exercise of all express, implied and incidental powers confirmed
thereby and by all amendments and supplements thereto, subject to all applicable
laws and lawful and applicable rules, regulations and orders of the Texas
Savings and Loan Department and the Federal Deposit Insurance Corporation.
ARTICLE V - CAPITAL STOCK
A. General. The total number of shares of all classes of capital stock
which the Savings Bank is authorized to issue is six hundred thousand (600,000)
of which five hundred thousand (500,000) shall be common stock, par value of
$.01 per share and one hundred thousand (100,000) shall be preferred stock of no
par value. The shares of capital stock may be issued from time to time as
authorized by the Board of Directors of the Savings Bank without the approval of
its shareholders, except as otherwise provided by governing law, rule or
regulation.
The consideration for the issuance of the shares shall be paid in full
before their issuance and shall not be less than the par value, and the Savings
Bank shall not loan funds against the shares of its outstanding capital stock.
Neither promissory notes nor future services shall constitute payment or partial
payment for the issuance of shares of the Savings Bank. The consideration for
the shares shall be cash, tangible or intangible property (to the extent direct
investment in such property would be permitted to the Savings Bank), labor,
services actually performed for the Savings Bank, or any combination of the
foregoing. In the absence of actual fraud in the transaction, the value of such
property, labor or services, as determined by the Board of Directors of the
Savings Bank, shall be conclusive. Upon payment of such consideration, such
shares shall be deemed to be fully paid and nonassessable. In the case of a
stock dividend, that part of the surplus of the Savings Bank which is
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<PAGE>
transferred to stated capital upon the issuance of shares as a share dividend
shall be deemed to be the consideration for their issuance.
Nothing contained in this Article shall entitle the holders of any
class or series of capital stock to vote as a separate class or series or to
more than one vote per share; provided, that this restriction on voting
separately by class or series shall not apply:
(i) to any provision which would authorize the holders of
preferred stock, voting as a class or series, to elect some
members of the Board of Directors, but less than a majority
thereof, in the event of default in the payment of dividends
on any class or series of preferred stock;
(ii) to any provision which would require the holders of preferred
stock, voting as a class or series, to approve the merger or
consolidation of the Savings Bank with another corporation or
the sale, lease or conveyance of properties or business in
exchange for securities of a corporation other than the
Savings Bank if the preferred stock is exchanged for
securities of such other corporation; provided, that no
provision may require such approval for transactions
undertaken with the assistance or pursuant to the direction of
the Federal Deposit Insurance Corporation, the Texas Savings
and Loan Department or any other federal or state agency with
jurisdiction; or
(iii) to any amendment which would adversely change the specific
terms of any class or series of capital stock as set forth in
this Article, including any amendment which would create or
enlarge any class or series ranking prior thereto in rights
and preferences. An amendment which increases the number of
authorized shares of any class or series of capital stock, or
substitutes the surviving association in a merger or
consolidation for the Savings Bank, shall not be considered to
be such an adverse change.
The holders of shares of common stock shall exclusively possess all
voting power. Each holder of shares of common stock shall be entitled to one
vote for each share held by such holder.
There shall be no cumulative voting.
B. Common Stock. In the event of any liquidation, dissolution or
winding up of the Savings Bank, the holders of shares of common stock (and the
holders of any class or series of stock entitled to participate with the common
stock in the distribution of assets) thereof shall be entitled, after payment or
provision for payment of all debts and liabilities of the Savings Bank, to
receive the remaining assets of the Savings Bank available for distribution in
cash or in kind after: (I) payment or provision for payment of the Savings
Bank's debts and liabilities; and (ii) distributions or provisions for
distributions to holders of any class or series of stock having preference over
the common stock in the liquidation, dissolution or winding up of the Savings
Bank. Each share of common stock shall have the same relative rights as, and be
identical in all respects with, all the other shares of common stock.
C. Preferred Stock. The Savings Bank may provide in supplementary
sections to these Articles for one or more classes of preferred stock, which
shall be separately identified. The shares of any class may be divided into and
issued in series, with each series separately designated so as to distinguish
the shares thereof from the shares of all other series and classes. The terms of
each series shall be set forth in a supplementary section to the Articles. All
shares of the same class shall be identical except as to the following relative
rights and preferences, as to which there may be variations between different
series:
(a) the distinctive serial designation and the number of shares
constituting such series;
(b) the dividends, if any, payable on such series, whether any
such dividends shall be cumulative, and if so, from what
dates, the conditions and dates upon which such dividends
shall be payable, the preference or relation which such
dividends shall bear to the dividends payable on any shares of
stock of any other class or any other series of this class;
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<PAGE>
(c) whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the
terms of such voting rights, which may be general or limited;
(d) whether the shares of such series shall be redeemable and, if
so, the times, the price(s) at which, and the terms and
conditions on which, such shares may be redeemed;
(e) the amount or amounts payable upon shares of such series upon,
and the rights of the holders of such series in, the voluntary
or involuntary liquidation, dissolution or winding up, or upon
any distribution of the assets, of the Savings Bank;
(f) whether the shares of such series shall be subject to the
operation of a retirement or sinking fund, and, if so, the
extent to and manner in which any such retirement or sinking
fund shall be applied to the purchase or redemption of the
shares of such series for retirement or other corporate
purposes and the terms and provisions relative to the
operation thereof;
(g) whether the shares of such series shall be convertible into,
or exchangeable for, shares of any other class or any series
of a class or any other securities of the Savings Bank and, if
so, the conversion price(s) or the rate(s) of exchange, and
the adjustments thereof, if any, at which such conversion or
exchange may be made, and any other terms and conditions of
such conversion or exchange;
(h) the price or other consideration for which the shares of such
series shall be issued;
(i) whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued
shares of preferred stock and whether such shares may be
reissued as shares of the same or any other series of
preferred stock;
(j) the limitations and restrictions, if any, to be effective
while any shares of such series are outstanding upon the
payment of dividends or the making of other distributions on,
and upon the purchase, redemption or other acquisition by the
Savings Bank of, the common stock or shares of stock of any
other class or any other series of this class;
(k) the conditions or restrictions, if any, upon the creation of
indebtedness of the Savings Bank or upon the issue of any
additional stock, including additional shares of such series
or of any other series of this class or of any other class;
and
(l) any other powers, preferences and relative, participating,
optional and other special rights, and any qualifications,
limitations and restrictions thereof.
Each share of each series of preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series, except that shares of any one series issued at different times
may differ as to the dates from which dividends thereon shall accrue and/or be
cumulative.
Prior to the issuance of any preferred stock established by a
supplementary section to these Articles adopted by the Board of Directors, the
Savings Bank shall file with the Savings and Loan Commissioner of the State of
Texas (the "Commissioner") a dated copy of that supplementary section to these
Articles establishing and designating the series and fixing and determining the
relative rights and preferences thereof. If the supplementary section to these
Articles conforms to Section 92.209 of the Texas Finance Code (the "Code") and
other applicable sections of the Code, the Commissioner shall file it in his
office, and after it is so filed the supplementary section shall be considered
an amendment to these Articles.
D. Preemptive Rights. No holder of capital stock of the Savings Bank
shall be entitled as such, as a matter of right or otherwise, to subscribe for
or purchase any part of any new or additional stock issue or debt of any class
or series whatsoever, of the Savings Bank, or of securities convertible into
equity or debt of any class whatsoever, whether now or hereafter authorized, or
whether issued for cash or other consideration or by way of a dividend.
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<PAGE>
ARTICLE VI - DIRECTORS
A. Qualification and Number. The Savings Bank shall be under the
direction of a Board of Directors. In order to be eligible to serve on such
Board, directors must meet the qualification requirements of Section 92.153 of
the Code or any successor provision thereto which may be applicable. Except as
provided in the Savings Bank's Bylaws, directors shall be elected annually by
such vote of the stockholders as may be required by applicable law, voting in
person or by proxy and shall serve until their successors have been elected and
qualified. Cumulative voting shall not be permitted. Except as otherwise fixed
pursuant to the provisions of Article V hereof relating to the rights of the
holders of any class or series of stock having a preference over the common
stock as to dividends or upon liquidation to elect additional directors, the
number of directors shall be determined as stated by resolution adopted at any
annual meeting of stockholders or any special meeting of stockholders called for
that purpose. The authorized number of Directors, as fixed by or in the manner
provided by the Savings Bank's Bylaws, shall be not fewer than five (5) nor more
than twenty-one (21).
B. Vacancies. Except as otherwise fixed pursuant to the provisions of
Article V hereof relating to the rights of the holders of any class or series of
stock having a preference over the common stock as to dividends or upon
liquidation to elect directors, any vacancy occurring in the Board of Directors
shall be filled by the affirmative vote of a majority of the Board of Directors,
whether or not a quorum is present, or by a sole remaining director, and any
director so chosen shall hold office for the remainder of the term to which the
director has been selected and until such director's successor shall have been
elected and qualified. No decrease in the number of directors shall shorten the
term of any incumbent director, except as provided in Subsection C to this
Article.
C. Removal. Subject to the rights of any class or series of stock
having preference over the common stock as to dividends or upon liquidation to
elect directors, any director (including persons elected by directors to fill
vacancies in the Board of Directors) may be removed from office with or without
cause by an affirmative vote of not less than a majority of the votes eligible
to be cast by stockholders at a duly constituted meeting of stockholders called
expressly for such purpose. At least 30 days prior to such meeting of
stockholders, written notice shall be sent to the director whose removal will be
considered at the meeting.
D. Discharge of Duties. In discharging the duties of their respective
positions, the Board of Directors, committees of the Board of Directors and
individual directors shall, in considering the best interests of the Savings
Bank, consider the effects of any action upon the employees of the Savings Bank
and its subsidiaries, the depositors and borrowers of the Savings Bank, the
communities in which offices or other establishments of the Savings Bank or any
subsidiary are located and all other pertinent factors.
ARTICLE VII - INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES AND AGENTS
A. Indemnification. Subject to the exceptions contained in Article
VIII, the Savings Bank shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative, arbitrative or
investigative, any appeal in such action, suit or proceeding and any inquiry or
investigation which could lead to such an action, suit or proceeding, by reason
of the fact that such person is or was a Director, officer, employee or agent of
the Savings Bank or any predecessor of the Savings Bank, or is or was serving at
the request of the Savings Bank or any predecessor of the Savings Bank as a
Director, officer, employee, partner, venturer, proprietor, trustee, agent or
similar functionary ("Management Official") of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise ("Other Entity"), against expenses (including
court costs and attorneys' fees), judgments, penalties, fines, excise taxes and
amounts paid in connection with such action, suit or proceeding to the full
extent authorized by law.
B. Advancement of Expenses. Reasonable expenses incurred by a Director,
officer, employee or agent of the Savings Bank in defending an action, suit or
proceeding described in Article VII.A shall be paid by the Savings Bank in
advance of the final disposition of such action, suit or proceeding, as
authorized by the Board of Directors, only upon receipt of (i) a written
affirmation by or on behalf of such person of his good faith
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<PAGE>
belief that he has met the standards of conduct necessary for indemnification
pursuant to applicable law, and (ii) a written undertaking to repay such amount
if it shall ultimately be determined that the person has not met such standards
or that indemnification against expenses incurred by him in connection with such
action, suit or proceeding is prohibited by law.
C. Other Rights and Remedies. The indemnification provided in this
Article VII shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under these
Articles, the Savings Bank's Bylaws, any insurance or other agreement, vote of
shareholders or disinterested Directors or otherwise, both as to actions in
their official capacities and as to actions in other capacities while holding
such offices, and shall continue as to a person who has ceased to be a Director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person, provided that no indemnification
shall be made to or on behalf of an individual if a judgment or other final
adjudication establishes that his acts or omissions (i) were in breach of his
duty of loyalty to the Savings Bank or its shareholders, (ii) were not in good
faith or involved a knowing violation of law, or (iii) resulted in the receipt
of an improper personal benefit.
D. Insurance. Upon resolution passed by the Board of Directors, the
Savings Bank may purchase and maintain insurance on behalf of any person who is
or was a Director, officer, employee or agent of the Savings Bank, or was
serving at the request of the Savings Bank as a Management official of an Other
entity, against any liability asserted against him or incurred by him in any
such capacity, or arising out of his status as such, whether or not the Savings
Bank would have the power to indemnify him against such liability under the
provisions of these Articles.
E. Modification. The duties of the Savings Bank to indemnify and to
advance expenses to a Director, officer, employee or agent provided in the
Article VII shall be in the nature of a contract between the Savings Bank and
each such individual, and no amendment or repeal of any provision of this
Article VII shall alter, to the detriment of such individual, the right of such
individual to the advancement of expenses of indemnification related to a claim
based on an act or failure to act which took place prior to such amendment or
repeal.
ARTICLE VIII - LIMITED LIABILITY OF DIRECTORS
No Director shall be liable to the Savings Bank or its shareholders for
monetary damages for an act or omission in the Director's capacity as a
Director, except that this Article VIII does not authorize the elimination or
limitation of the liability of a Director to the extent the Director is found
liable for (i) a breach of the Director's duty of loyalty to the Savings Bank or
its shareholders; (ii) an act or omission not in good faith which constitutes a
breach of duty of the Director to the Savings Bank or an act or omission which
involves intentional misconduct or a knowing violation of the law; (iii) a
transaction from which the Director received an improper benefit, whether or not
the benefit resulted from an action taken within the scope of the Director's
office; or (iv) an act or omission for which the liability of a Director is
expressly provided by an applicable statute.
ARTICLE IX - AMENDMENT
The Savings Bank, by resolution adopted by a majority vote of those
entitled to vote attending an annual meeting or a special meeting called for
such purpose, reserves the right to amend, alter, change or repeal any provision
contained in these Articles in the manner now or hereafter prescribed by law,
and all rights conferred upon shareholders herein are granted subject to this
reservation. No amendment, addition, alteration, change or repeal of these
Articles shall be made unless it is first approved by the Board of Directors
pursuant to a resolution adopted by the affirmative vote of a majority of the
Directors then in office and thereafter is approved by the holders of a majority
of the shares of the Savings Bank entitled to vote generally in an election of
Directors, voting together as a single class, as well as such additional vote of
the preferred stock as may be required by the provisions of any series thereof,
provided that, notwithstanding anything contained in these Articles to the
contrary, the affirmative vote of the holders of at least two/thirds of the
shares of the Savings Bank entitled to vote generally in an election of
Directors, voting together as a single class, as well as such additional vote of
the preferred stock as may be required by the provisions of any series thereof,
shall be required to amend, adopt, alter, change or repeal any provision
inconsistent with these Articles.
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<PAGE>
WE, THE UNDERSIGNED, for the purpose of forming a capital stock savings
bank by conversion from a mutual savings bank pursuant to the Code do make these
Articles of Incorporation, hereby declaring and certifying that this is our act
and deed and that the facts herein stated are true, and accordingly have
hereunto set our hands to be effective this _____ day of ________________, 2000.
DIRECTORS:
____________________________
Georgina Chronis
____________________________
James A. Cowan
____________________________
Gordon N. Fowler
____________________________
Barry Hannath
____________________________
Brad M. Hurta
____________________________
Rodney E. Langer
____________________________
Mike C. Maney
STATE OF TEXAS ss.
COUNTY OF BASTROP ss.
BEFORE ME, the undersigned authority, on this day personally appeared
Georgina Chronis, James A. Cowan, Gordon N. Fowler, Barry Hannath, Brad M.
Hurta, Rodney E. Langer, and Mike C. Maney, each known to me to be the person
whose name is subscribed to the foregoing instrument, and upon his/her oath
SWORE that the statements contained therein are true and that he/she executed
the same for the purposes and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the ________________day of
____________________, 2000.
Notary Public, State of Texas
(Notary Seal & Stamp)
____________________________
APPROVAL OF COMMISSIONER
Approved this day of _____________, 2000,
to be effective the day of ________, 2000.
____________________________
James L. Pledger, Commissioner
Texas Savings and Loan Department
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EXHIBIT 8.1
[LETTERHEAD OF SILVER, FREEDMAN & TAFF, L.L.P.]
May 8, 2000
Board of Directors
Community Bank of Central Texas, ssb
312 Main Street
Smithville, TX 78957-2035
RE: Federal Income Tax Opinion Relating To The Conversion Of Community Bank
of Central Texas ssb From A State-Chartered Mutual Savings and Loan
Association To A State-Chartered Stock Institution Under Section
368(a)(1)(F) of the Internal Revenue Code of 1986, As Amended
Gentlemen:
In accordance with your request set forth hereinbelow is the opinion of
this firm relating to the federal income tax consequences of the conversion of
Community Bank of Central Texas, ssb ("Mutual") from a state mutual to a state
stock institution pursuant to the provisions of Section 368(a)(1)(F) of the
Internal Revenue Code of 1986, as amended (the "Code").
Capitalized terms used herein which are not expressly defined herein
shall have the meaning ascribed to them in the Plan of Conversion dated December
4, 1999 (the "Plan").
The following assumptions have been made in connection with our
opinions hereinbelow:
1. The Conversion is implemented in accordance with the terms
of the Plan and all conditions precedent contained in the Plan shall be
performed or waived prior to the consummation of the Conversion.
<PAGE>
Board of Directors
May 8, 2000
Page 2
2. No amount of the savings accounts and deposits of Mutual,
as of the Eligibility Record Date or the Supplemental Eligibility
Record Date, will be excluded from participating in the liquidation
account of Converted Bank. To the best of the knowledge of the
management of Mutual there is not now, nor will there be at the time of
the Conversion, any plan or intention, on the part of the depositors in
Mutual to withdraw their deposits following the Conversion. Deposits
withdrawn immediately prior to or immediately subsequent to the
Conversion (other than maturing deposits) are considered in making
these assumptions.
3. Holding Company and Converted Bank each have no plan or
intention to redeem or otherwise acquire any of the Holding Company
Conversion Stock to be issued in the proposed transaction.
4. Immediately following the consummation of the proposed
transaction, Converted Bank will possess the same assets and
liabilities as Mutual held immediately prior to the proposed
transaction, plus substantially all of the net proceeds from the sale
of its stock to Holding Company except for assets used to pay expenses
of the Conversion. The liabilities transferred to Converted Bank were
incurred by Mutual in the ordinary course of business.
5. No cash or property will be given to holders of Deposit
Accounts in lieu of Subscription Rights or an interest in the
liquidation account of Converted Bank.
6. Following the Conversion, Converted Bank will continue to
engage in its business in substantially the same manner as Mutual
engaged in business prior to the Conversion, and it has no plan or
intention to sell or otherwise dispose of any of its assets, except in
the ordinary course of business.
7. There is no plan or intention for Converted Bank to be
liquidated or merged with another corporation following the
consummation of the Conversion.
8. The fair market value of each Deposit Account plus an
interest in the liquidation account of Converted Bank will, in each
instance, be approximately equal to the fair market value of each
Deposit Account of Mutual plus the interest in the residual equity of
Mutual surrendered in exchange therefor.
9. Holding Company has no plan or intention to sell or
otherwise dispose of the stock of Converted Bank received by it in the
proposed transaction.
10. Both Converted Bank and Holding Company have no plan or
intention, either currently or at the time of Conversion, to issue
additional shares of common stock following the
<PAGE>
Board of Directors
May 8, 2000
Page 3
proposed transaction, other than shares that may be issued to employees
and/or directors pursuant to certain stock option and stock incentive
plans or that may be issued to employee benefit plans.
11. If all of the net proceeds from the sale of Holding
Company Conversion Stock had been contributed by Holding Company to
Converted Bank in exchange for common stock of Converted Bank in the
transaction, as opposed to Holding Company retaining a portion of such
net proceeds (the "retained proceeds"), and Converted Bank immediately
thereafter made a distribution of the retained proceeds to Holding
Company, Converted Bank would have sufficient current and accumulated
earnings and profits for tax purposes such that the distribution would
not result in the recapture of any portion of its bad debt reserves of
Converted Bank for federal income tax reporting.
12. Assets used to pay expenses of the Conversion and all
distributions (except for regular, normal interest payments and other
payments in the normal course of business made by Mutual immediately
preceding the transaction) will in the aggregate constitute less than
1% of the net assets of Mutual and any such expenses and distributions
will be paid by Converted Bank from the proceeds of the sale of Holding
Company Conversion Stock.
13. All distributions to holders of Deposit Accounts in their
capacity as Deposit Account holders (except for regular, normal
interest payments made by Mutual), will, in the aggregate, constitute
less than 1% of the fair market value of the net assets of Mutual.
14. At the time of the proposed transaction, the fair market
value of the assets of Mutual on a going concern basis (including
intangibles) will equal or exceed the amount of its liabilities plus
the amount of liabilities to which such assets are subject. Mutual will
have a positive regulatory net worth at the time of the Conversion.
15. Mutual's Eligible Account Holders and Supplemental
Eligible Account Holders will pay expenses of the Conversion solely
attributable to them, if any.
16. The liabilities of Mutual assumed by Converted Bank plus
the liabilities, if any, to which the transferred assets are subject
were incurred by Mutual in the ordinary course of its business and are
associated with the assets being transferred.
17. There will be no purchase price advantage for Mutual's
Deposit Account holders who purchase Holding Company Conversion Stock.
<PAGE>
Board of Directors
May 8, 2000
Page 4
18. None of the compensation to be received by any Deposit
Account holder-employees of Mutual or Holding Company will be separate
consideration for, or allocable to, any of their deposits in Mutual. No
interest in the liquidation account of Converted Bank will be received
by any Deposit Account holder-employees as separate consideration for,
or will otherwise be allocable to, any employment agreement, and the
compensation paid to each Deposit Account holder-employee, during the
twelve-month period preceding or subsequent to the Conversion, will be
for services actually rendered and will be commensurate with amounts
paid to the third parties bargaining at arm's-length for similar
services. No shares of Holding Company Conversion Stock will be issued
to or purchased by any Deposit Account holder-employee of Mutual or
Holding Company at a discount or as compensation in the proposed
transaction.
19. No creditors of Mutual or the depositors in their role as
creditors, have taken any steps to enforce their claims against Mutual
by instituting bankruptcy or other legal proceedings, in either a court
or appropriate regulatory agency, that would eliminate the proprietary
interests of the Members prior to the Conversion of Mutual including
depositors as the equity holders of Mutual.
20. On a per share basis, the purchase price of Holding
Company Conversion Stock will be equal to the fair market value of such
stock at the time of the completion of the proposed transaction.
21. Prior to the commencement of the Subscription Offering,
Mutual will receive an opinion from Ferguson and Company ("Appraiser's
Opinion"), which concludes that the Subscription Rights to be received
by Eligible Account Holders, Supplemental Eligible Account Holders and
other eligible subscribers do not have any ascertainable fair market
value, since they are acquired by the recipients without cost, are
non-transferable and of short duration, and afford the recipients a
right only to purchase Holding Company Conversion Stock at a price
equal to its estimated fair market value, which will be the same price
paid for unsubscribed shares of Holding Company Conversion Stock in the
Direct Community Offering, if any, or Public Offering, if any.
<PAGE>
Board of Directors
May 8, 2000
Page 5
OPINION
Based solely on the assumptions set forth hereinabove and our analysis
and examination of applicable federal income tax laws, rulings, regulations,
judicial precedents and the Appraiser's Opinion, we are of the opinion that if
the transaction is undertaken in accordance with the above assumptions:
(1) The Conversion will constitute a reorganization within the meaning of
Section 368(a)(1)(F) of the Code. Neither Mutual nor Converted Bank
will recognize any gain or loss as a result of the transaction (Rev.
Rul. 80-105, 1980-1 C.B. 78). Mutual and Converted Bank will each be a
party to a reorganization within the meaning of Section 368(b) of the
Code.
(2) Converted Bank will recognize no gain or loss upon the receipt of money
and other property, if any, in the Conversion, in exchange for its
shares. (Section 1032(a) of the Code.)
(3) No gain or loss will be recognized by Holding Company upon the receipt
of money for Holding Company Conversion Stock. (Section 1032(a) of the
Code.)
(4) The basis of Mutual's assets in the hands of Converted Bank will be the
same as the basis of those assets in the hands of Mutual immediately
prior to the transaction. (Section 362(b) of the Code.)
(5) Converted Bank's holding period of the assets of Mutual will include
the period during which such assets were held by Mutual prior to the
Conversion. (Section 1223(2) of the Code.)
(6) Converted Bank, for purposes of Section 381 of the Code, will be
treated as if there had been no reorganization. The tax attributes of
Mutual enumerated in Section 381(a) of the Code will be taken into
account by Converted Bank as if there had been no reorganization.
Accordingly, the tax year of Mutual will not end on the effective date
of the Conversion. The part of the tax year of Mutual before the
Conversion will be includible in the tax year of Converted Bank after
the Conversion. Therefore, Mutual will not have to file a federal
income tax return for the portion of the tax year prior to the
Conversion. (Rev. Rul. 57-276, 1957-1 C.B. 126.)
(7) Depositors will realize gain, if any, upon the constructive issuance to
them of withdrawable deposit accounts of Converted Bank, Subscription
Rights and/or interests in the liquidation account of Converted Bank.
Any gain resulting therefrom will be recognized, but only in an amount
not in excess of the fair market value of the liquidation accounts
and/or Subscription Rights received. The liquidation accounts will have
nominal, if any, fair market value. Based solely on the accuracy of the
conclusion reached in the Appraiser's Opinion, and our reliance on such
opinion, that the Subscription Rights have no value at the time of
distribution or exercise, no gain or loss will be required to be
recognized by depositors upon receipt or distribution of Subscription
<PAGE>
Board of Directors
May 8, 2000
Page 6
Rights. (Section 1001 of the Code.) See Paulsen v. Commissioner, 469
U.S. 131,139 (1985). Likewise, based solely on the accuracy of the
aforesaid conclusion reached in the Appraiser's Opinion, and our
reliance thereon, we give the following opinions: (a) no taxable income
will be recognized by the borrowers, directors, officers and employees
of Mutual upon the distribution to them of Subscription Rights or upon
the exercise or lapse of the Subscription Rights to acquire Holding
Company Conversion Stock at fair market value; (b) no taxable income
will be realized by the depositors of Mutual as a result of the
exercise or lapse of the Subscription Rights to purchase Holding
Company Conversion Stock at fair market value. Rev. Rul. 56-572, 1956-2
C.B. 182; and (c) no taxable income will be realized by Mutual,
Converted Bank or Holding Company on the issuance or distribution of
Subscription Rights to depositors of Mutual to purchase shares of
Holding Company Conversion Stock at fair market value. (Section 311 of
the Code.)
Notwithstanding the Appraiser's Opinion, if the Subscription
Rights are subsequently found to have a fair market value, income may
be recognized by various recipients of the Subscription Rights (in
certain cases, whether or not the rights are exercised) and Holding
Company and/or Converted Bank may be taxable on the distribution of the
Subscription Rights. (Section 311 of the Code.) In this regard, the
Subscription Rights may be taxed partially or entirely at ordinary
income tax rates.
(8) The creation of the liquidation account on the records of Converted
Bank will have no effect on Mutual's or Converted Bank's taxable
income, deductions, or tax bad debt reserve.
(9) A depositor's basis in the Deposit Accounts of Converted Bank will be
the same as the basis of his Deposit Accounts in Mutual. (Section 1012
of the Code.) Based upon the Appraiser's Opinion, the basis of the
Subscription Rights will be zero. The basis of the interest in the
liquidation account of Converted Bank received by Eligible Account
Holders and Supplemental Eligible Account Holders will be equal to the
cost of such property, i.e., the fair market value of the proprietary
interest in Mutual, which in this transaction we assume to be zero.
(10) The basis of Holding Company Conversion Stock to its shareholders will
be the purchase price thereof. (Section 1012 of the Code.)
(11) A shareholder's holding period for Holding Company Conversion Stock
acquired through the exercise of the Subscription Rights shall begin on
the date on which the Subscription Rights are exercised. (Section
1223(6) of the Code.) The holding period for the Holding Company
Conversion Stock purchased pursuant to the Direct Community Offering,
Public Offering or under other purchase arrangements will commence on
the date following the date on which such stock is purchased. (Rev.
Rul. 70-598, 1970-2 C.B. 168).
(12) Regardless of any book entries that are made for the establishment of a
liquidation account, the reorganization will not diminish the
accumulated earnings and profits of Mutual available for the subsequent
distribution of dividends, within the meaning of Section 316 of
<PAGE>
Board of Directors
May 8, 2000
Page 7
the Code. Section 1.312-11(b) and (c) of the Regulations. Converted
Bank will succeed to and take into account the earnings and profits or
deficit in earnings and profits of Mutual as of the date of Conversion.
The above opinions are effective to the extent that Mutual is solvent.
No opinion is expressed about the tax treatment of the transaction if Mutual is
insolvent. Whether or not Mutual is solvent will be determined at the end of the
taxable year in which the transaction is consummated.
No opinion is expressed as to the tax treatment of the transaction
under the provisions of any of the other sections of the Code and Income Tax
Regulations which may also be applicable thereto, or to the tax treatment of any
conditions existing at the time of, or effects resulting from, the transaction
which are not specifically covered by the opinions set forth above. Moreover, we
do not render any opinion as to the effects of the Converion on the net
operating losses, capital loss carryovers or built in losses of Mutual.
Respectfully submitted,
SILVER, FREEDMAN & TAFF
Exhibit 8.2
[LETTERHEAD OF PADGETT, STRATEMANN & CO., L.L.P.]
May 4, 2000
Board of Directors
Community Bank of Central Texas, ssb
312 Main Street
Smithville, Texas 78957-2035
Gentlemen:
Re: Texas Franchise Tax Opinion Relating to the Conversion of Community
Bank of Central Texas, ssb from a State-Chartered Mutual Savings and
Loan Association to a State-Chartered Stock Institution Under ss.
368(a)(1)(F) of the Internal Revenue Code of 1986, As Amended
You have requested our opinion of the Texas franchise tax consequences of the
conversion of Community Bank of Central Texas, ssb (or "Mutual") from a state
mutual savings bank to a state stock savings bank (or "Converted Bank") pursuant
to the provisions of Texas Finance Code ss. 92 and ss. 368(a)(1)(F) of the
Internal Revenue Code of 1986, as amended. This opinion applies only to Mutual
and Converted Bank and no opinion is being made related to any transactions
effecting any related holding company.
Assumptions
1. The conversion is implemented in accordance with the terms of the Plan
of Conversion and all conditions precedent contained in the Plan of
Conversion shall be performed or waived prior to the consummation of
the conversion.
2. The conversion qualifies as a tax-free corporate reorganization under
ss. 368(a)(1)(F) of the Internal Revenue Code of 1986.
3. Mutual is chartered in the state of Texas under the Texas Finance
Codess.92.053 as a mutual savings bank.
4. Chartered Bank is chartered in the state of Texas under Texas Finance
Codess.92.052 as a stock savings bank.
5. The Texas Saving and Loan Commissioner has approved the conversion.
<PAGE>
6. The assets and liabilities of Mutual assumed by Converted Bank are
transferred by operation of law under Texas Finance Code ss. 92.
Opinion
Based solely on the assumptions set forth herein above and our analysis and
examination of applicable Texas franchise tax laws, rulings, regulations, and
judicial precedents, we are of the opinion that if the transaction is undertaken
in accordance with the above assumptions:
1. Neither Mutual nor Converted Bank will recognize any income that is
subject to Texas franchise tax as a result of the transaction, and
2. Mutual will be treated as a terminated entity for Texas franchise tax
purposes. Therefore, Mutual's Texas franchise tax earned surplus
business loss carryforward will be permanently lost upon the completion
of the conversion. Historically, Mutual's franchise tax liability has
been computed based on its capital, and not on its earned surplus. It
is anticipated the Converted Bank will compute its franchise tax in the
same manner for the near future. Therefore, the loss of the earned
surplus business loss carryforward upon conversion will not have a
significant negative impact on the expenses or financial condition of
the Converted Bank.
No opinion is expressed as to the tax treatment of the transaction under the
provisions of any of the other sections of the Texas Statute which may also be
applicable thereto, or to the tax treatment of any conditions existing at the
time of, or effects resulting from, the transaction which are not specifically
covered by the opinions set forth above.
Respectfully submitted,
/signed/
Padgett, Stratemann & Co, L.L.P.
Exhibit 10.2
[LETTERHEAD OF FERGUSON & COMPANY]
December 10, 1999
Board of Directors
Community Bank of Central Texas, SSB
312 Main Street
Smithville, Texas 78957
Dear Directors:
This letter sets forth the agreement between Community Bank of Central
Texas, SSB, ("Community Bank" or "Bank"), Smithville, Texas, and Ferguson &
Company ("F&C"), Hurst, Texas, under the terms of which Community Bank has
engaged F&C, in connection with its conversion from mutual to stock form, to (1)
determine the pro forma market value of the shares of common stock to be issued
and sold by Community Bank or its holding company; and (2) assist Community Bank
in preparing a business plan to be filed with the application for approval to
convert to stock.
F&C agrees to deliver the written valuation and business plan to Community
Bank at the above address on or before a mutually agreed upon date. Further, F&C
agrees to perform such other services as are necessary or required in connection
with comments from the applicable regulatory authorities relating to the
business plan and appraisal and the preparation of appraisal updates as
requested by Community Bank or its counsel. It is understood that the services
of F&C under this agreement shall be limited as herein described.
F&C's fee for the business plan and initial appraisal valuation report
shall be $17,500 and the fee for each required appraisal update shall be $2,500.
In addition, Community Bank shall reimburse F&C for all out-of-pocket expenses
(not to exceed $4,000). Payment under this agreement shall be made as follows:
1. Upon execution of this engagement letter--$5,000;
2. Upon delivery of the business plan--$5,000;
3. Upon delivery of the completed appraisal report--$7,500;
4. Upon delivery of each appraisal update--$2,500; and
5. Out-of-pocket expenses are to be paid monthly.
If, during the course of Community Bank's conversion, unforeseen events
occur so as to change materially the nature or the work content of the services
described in this contract, the terms of the contract shall be subject to
renegotiation. Such unforeseen events shall include, but not be limited to,
major changes in the conversion regulations, appraisal guidelines or processing
procedures as they relate to conversion appraisals, major changes in Community
Bank's management or operating policies, execution of a merger agreement with
another institution prior to completion of conversion, and excessive delays or
suspension of processing of conversions by the regulatory authorities such that
completion of Community Bank's conversion requires the preparation by F&C of a
new appraisal report or business plan.
<PAGE>
To induce F&C to provide the services described above, Community Bank
hereby agrees as follows:
1. Community Bank shall supply to F&C such information, in a timely manner,
with respect to its business and financial condition as F&C reasonably may
request in order to make the aforesaid valuation. Such information made
available to F&C shall include, but not be limited to, annual financial
statements, periodic regulatory filings, material agreements, debt
instruments and corporate books and records.
2. Community Bank hereby represents and warrants, to the best of its
knowledge, that any information provided to F&C does not and will not, at
any time relevant hereto, contain any misstatement or untrue statement of a
material fact or omit any and all material facts required to be stated
therein or necessary to make the statements therein not false or misleading
in light of the circumstances under which they were made.
3. Community Bank shall indemnify and hold harmless F&C and any employees of
F&C who act for or on behalf of F&C in connection with the services called
for under this agreement, from and against any and all loss, cost, damage,
claim, liability or expense of any kind, including reasonable attorneys
fees and other expenses incurred in investigating, preparing to defend and
defending any claim or claims (specifically including, but not limited to,
claims under federal and state securities laws) arising out of any
misstatement or untrue statement of a material fact contained in the
information supplied by Community Bank to F&C or by an omission to state a
material fact in the information so provided which is required to be stated
therein in order to make the statement therein not false or misleading.
4. F&C shall not be entitled to indemnification pursuant to Paragraph 3 above
with regard to any claim arising where, with regard to the basis for such
claim, F&C had knowledge that a statement of a fact material to the
evaluation and contained in the information supplied by Community Bank was
untrue or had knowledge that a material fact was omitted from the
information so provided and that such material fact was necessary in order
to make the statement made to F&C not false or misleading.
5. F&C additionally shall not be entitled to indemnification pursuant to
Paragraph 3 above notwithstanding its lack of actual knowledge of an
intentional misstatement or omission of a material fact in the information
provided if F&C is determined to have been negligent or to have failed to
exercise due diligence in the preparation of its valuation.
Community Bank and F&C are not affiliated, and neither Community Bank nor
F&C has an economic interest in, or held in common with, the other and has not
derived a significant portion of its gross revenue, receipts or net income for
any period from transactions with the other.
<PAGE>
In order for F&C to consider this proposal binding, please acknowledge your
consent to the foregoing by executing the enclosed copies of this letter and
returning one copy to us, together with a check payable to Ferguson & Company in
the amount of $5,000. The extra copy of this letter is for your conversion legal
counsel.
Yours very truly,
Charles M. Hebert
Principal
Agreed to ($5,000 check enclosed):
Community Bank of Central Texas, SSB
Smithville, Texas
By:
Date:_____________________________
Exhibit 23.2
[LETTERHEAD OF PADGETT, STRATEMANN & CO., L.L.P.]
INDEPENDENT AUDITORS' CONSENT
Community Bank of Central Texas, ssb
Smithville, Texas
We consent to the use in this Registration Statement on Form SB-2 for CBCT
Bancshares, Inc., of our report of Community Bank of Central Texas, ssb, dated
January 13, 2000, appearing in the Prospectus, which is part of this
Registration Statement, and to the reference to us under the heading of
"Experts" in such Prospectus.
/signed/
Padgett, Stratemann & Co., L.L.P.
San Antonio, Texas
May 4, 2000
<PAGE>
Exhibit 23.4
[LETTERHEAD OF FERGUSON & COMPANY]
May 5, 2000
Board of Directors
Community Bank of Central Texas, ssb
312 Main Street
Smithville, Texas 78957
Directors:
We hereby consent to the use of our firm's name in the Application for
Conversion of Community Bank of Central Texas, Smithville, Texas, and any
amendments thereto, in the Form SB-2 Registration Statement of CBCT Bancshares,
Inc. and any amendments thereto, and in the Application for a Financial Services
Holding Company that is filed with the Federal Reserve. We also hereby consent
to the inclusion of, summary of, and references to our Appraisal Report and our
opinion concerning subscription rights in such filings including the Prospectus
of CBCT Bancshares, Inc.
Sincerely,
/s/ Charles M. Hebert
Charles M. Hebert
Principal
<PAGE>
Exhibit 23.5
[SEIDEL SCHROEDER & COMPANY LETTERHEAD]
May 4, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: CBCT Bancshares, Inc. (the "Registrant")
File No. 333-33102
Dear Sir or Madam:
This will confirm that we have reviewed the statements made by the
Registrant in the above-referenced filing regarding the termination of our
relationship with the Registrant, and we agree with these statements.
Sincerely,
/s/ Seidel, Schroeder & Company
Seidel, Schroeder & Company
