<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-------------------------
FORM 10-K
(Mark one)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-8937
BancTEXAS Group Inc.
(Exact name of registrant as specified in its charter)
Delaware 75-1604965
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8820 Westheimer Road
P.O. Box 630369
Houston, Texas 77263-0369
(Address of principal executive offices) (Zip Code)
(713) 781-7171
(Registrant's telephone number, including area code)
<TABLE>
Securities registered pursuant to Section 12 (b) of the Act:
<CAPTION>
Name of each exchange on
Title of class which registered
-------------- ----------------
<S> <C>
Common Stock, $.01 Par Value Per Share New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12 (g) of the Act: None
-------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, based on the closing price of the Common Stock on the New York
Stock Exchange on March 13, 1995, was $23,200,903. For purposes of this
computation, officers, directors and 5% beneficial owners of the registrant
are deemed to be affiliates. Such determination should not be deemed an
admission that such directors, officers or 5% beneficial owners are, in
fact, affiliates of the registrant.
As of March 13, 1995, 20,654,025 shares of the registrant's Common Stock,
$.01 par value and 37,500,000 shares of the registrant's Class B Common
Stock, $.01 par value, were outstanding. Documents incorporated by
reference: Portions of the Annual Report to Stockholders for the year
ended December 31, 1994 are incorporated by reference into Part I and II of
this report. Portions of the Definitive Proxy Statement for the Annual
Meeting of Stockholders of the registrant, to be held May 18, 1995 are
incorporated by reference into Part III of this Report.
===============================================================================
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PART I
Item 1. Business
General
BancTEXAS Group Inc., a bank holding company headquartered in Houston,
Texas (herein BancTEXAS or the Company), was organized as a Delaware
corporation in 1978. The Company's executive office is located at 8820
Westheimer Road, Houston, Texas. The principal function of the Company is
to assist the management of its banking subsidiary, BankTEXAS N.A. (herein
the Bank) in asset and liability management, planning, operating policies
and procedures, loan participation, personnel management, internal audit
and control procedures, loan review and regulatory compliance. The Bank
operates under the day-to-day management of its own officers with guidance
from BancTEXAS.
At December 31, 1994, BancTEXAS had, on a consolidated basis,
approximately $331.8 million in total assets, $203.3 million in total
loans, net of unearned discount, $241.6 million in total deposits, and
$39.7 million in total stockholders' equity.
The Bank is headquartered at 8820 Westheimer Road, Houston, Texas.
Through its six offices located in Houston, Dallas, McKinney and Irving,
Texas, the Bank offers a broad range of commercial and personal banking
services including certificates of deposit accounts, individual retirement
and other time deposit accounts, checking and other demand deposit
accounts, interest checking accounts, savings accounts and money market
accounts. The Bank also offers various types of loans to its customers,
which include commercial and industrial, commercial and residential real
estate, real estate construction and development, and consumer and
installment loans. In addition, the Bank makes available to its customers
other financial services, which include automatic teller machines, credit-
related insurance and safe deposit boxes.
On August 31, 1994, BancTEXAS issued and sold 37,500,000 shares of
Class B common stock (the "Class B Stock") in exchange for $30 million cash
in a private placement. The purchaser of the Class B Stock was First
Banks, Inc. ("First Banks") a multi-bank holding company headquartered in
St. Louis, Missouri. As a result of this transaction, First Banks became
the owner of approximately 65.4% of the outstanding voting stock of
BancTEXAS as of August 31, 1994. The Class B Stock is generally equivalent
to the Company's publicly-held common stock (herein after referred to as
"Common Stock") except that it is not registered with the Securities and
Exchange Commission, not listed on any exchange and, with limited
exceptions, it is not transferable, other than to an affiliate of First
Banks. In the event BancTEXAS were to commence the payment of dividends to
its shareholders, the Class B Stock would receive dividends only to the
extent that the dividends on the Common Stock exceed $.03 per share
annually. The terms of the Class B Stock allow First Banks to purchase
additional shares of Class B Stock if a sufficient number of additional
shares of Common Stock are issued to cause its ownership to fall below 55%,
at prices to be determined based on a formula related to the book value per
share of Common Stock. The Class B Stock is convertible into Common Stock
at any time after August 31, 1999 at the option of First Banks.
For a description of the general business of BancTEXAS during the past
year, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - General" on page 4 of the BancTEXAS 1994 Annual
Report to Stockholders, which is incorporated herein by reference.
Supervision and Regulation
The following discussion of statutes and regulations affecting bank
holding companies and banks is only a summary and does not purport to be
complete. This discussion is qualified in its entirety by reference to
such statutes and regulations.
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BancTEXAS and the Bank
BancTEXAS is a registered bank holding company pursuant to the Bank
Holding Company Act of 1956, as amended (the "Bank Holding Company Act")
and, as such, is subject to regulation and examination by the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"). It
is required to file with the Federal Reserve Board annual reports and other
information regarding its business operations and those of its subsidiaries
and affiliates, including First Banks. The Federal Reserve Board has
asserted the authority under the Bank Holding Company Act to require a bank
holding company, such as BancTEXAS, to provide capital to an
undercapitalized subsidiary bank, and legislation enacted in 1991 contains
provisions having a similar effect. Furthermore, the Bank Holding Company
Act and the regulations thereunder limit acquisitions by a bank holding
company of 5% or more of the voting shares of additional banks and
companies in other businesses, and often require prior regulatory approval
for those acquisitions which are permitted. A bank holding company is
generally prohibited from acquiring any company unless its business is
determined by the Federal Reserve Board to be so closely related to banking
as to be a proper incident thereto.
BancTEXAS is also subject to periodic examinations conducted to
determine its compliance with applicable statutes and regulations, its
financial condition, and other aspects of its operations.
The Federal Reserve Act imposes restrictions on loans and other
transactions between the Bank and BancTEXAS or any of BancTEXAS' other
subsidiaries and affiliates, including First Banks. These restrictions
require, among other things, that all transactions between the Bank and the
Company or its nonbank subsidiaries be on substantially similar terms as
comparable transactions between the Bank and nonaffiliated enterprises.
BancTEXAS is also subject to certain restrictions with respect to engaging
in the securities business and in businesses not deemed "closely related"
to banking.
The Bank is chartered under the National Bank Act of 1864, and it is
subject to regulation, supervision and examination by the Comptroller of
the Currency and to regulations promulgated by both the Federal Reserve
Board and the FDIC. The FDIC insures all deposits held by the Bank up to,
in general, a maximum of $100,000 for each insured depositor.
The operations of the Bank are also subject to numerous laws and
regulations relating to the extension of credit and making of loans to
individuals. Such laws include the Federal Consumer Credit Protection Act,
which regulates, among other things, disclosure of credit terms, credit
advertising, credit billing and collection, and expansion of credit, and
the Texas Consumer Credit Code and Texas Consumer Protection Code, which
regulate, among other things, interest rates, disclosure of credit terms
and practices relating to the extension and collection of loans. In
addition, remedies to the borrower and penalties to the lender are provided
for failure of the lender to comply with such laws and regulations. The
scope and requirements of such laws and regulations have been expanded
significantly in recent years.
The enactment of two recent federal statutes, the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") and
the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), has significantly affected the banking industry generally and
will have an ongoing effect on both BancTEXAS and the Bank in the
foreseeable future.
FIRREA restructured both the deposit insurance system and the
regulation of savings institutions, and it contains numerous provisions
affecting banks. This legislation also includes several provisions that
relate to bank holding companies including those described herein and
numerous other provisions. Among the more significant changes, the Bank
Insurance Fund of the FDIC was established to insure bank deposits, and the
FDIC has increased the premiums which were paid by banks. FIRREA also
provides for cross-guarantees for commonly controlled banks and thrifts.
If the FDIC incurs a loss in connection with the default of an insured bank
or thrift, any other commonly controlled depository institution may be
required to reimburse the FDIC for the loss. Other important changes in
banking law and regulation made by FIRREA include enhanced supervisory and
enforcement powers for the federal banking regulatory agencies, creation of
the Resolution Trust Corporation to dispose of failed savings institutions
and their assets, and broadened authority for bank holding companies to
acquire savings institutions.
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FDICIA increased the resources available to the FDIC for the resolution
of bank failures and imposed substantial new supervisory and regulatory
measures on the banking industry, particularly troubled banks. It also
added substantial new enforcement mechanisms for financial institutions
which do not meet capital levels specified in regulations adopted pursuant
to FDICIA.
The regulatory agencies are also required to adopt uniform capital and
accounting rules requiring, where practicable, supplemental disclosure of
"mark-to-market" valuation of assets and liabilities and of contingent
assets and liabilities. The FDIC is required to develop deposit insurance
premiums which are based on the level of risk determined by the regulatory
agencies to be present in particular institutions, as discussed further
below under "FDIC Insurance Premiums."
FDICIA also provided for numerous other regulatory changes, including
expanded roles for audit committees and independent auditors, particularly
in larger financial institutions; additional regulatory reporting; consumer
low- and moderate-income lending and deposit programs; and periodic review
and updating of applicable standards. In addition, the FDIC was granted
new authority to adopt minimum standards for various aspects of the
operations of depository institutions.
Regulations Governing Capital
Both BancTEXAS and the Bank are subject to risk-based and leverage
capital requirements, which are administered by the Federal Reserve Board
and the OCC.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Capital Resources" on page 18 of BancTEXAS' 1994
Annual Report to Stockholders, which is incorporated herein by reference.
FDIC Insurance Premiums
The Bank and the industry as a whole are subject to FDIC deposit
insurance premiums which have increased in recent years. Effective July 1,
1991, the FDIC increased deposit insurance premiums to 23 cents per $100 of
deposits from 19.5 cents in the first half of 1991, 12.0 cents in 1990 and
8.3 cents prior thereto. Under FIRREA, the FDIC is authorized to charge
varying premiums to different categories of banks depending on risk
assessment factors (particularly capital ratios) and to set the annual
premiums for depository institutions as high as determined necessary to
assure stability of the insurance fund, thus eliminating the maximum annual
increase of 7.5 cents and the prior overall cap of 32.5 cents per $100 of
deposits. The premium paid by the Bank, which was 29 cents per $100 in
deposits in 1994, is subject to periodic adjustments arising from the
overall condition of the Bank Insurance Fund and the capital and regulatory
positions of the Bank.
Acquisitions and Branch Banking; Community Reinvestment Act Requirements
Since 1988 both commercial banks and savings institutions have had
unlimited branch banking privileges in Texas, subject to the prior approval
of an institution's primary federal and/or state regulatory authority. As
a result, acquisitions of banks by other banks or bank holding companies
are frequently structured so as to eliminate the separate bank charters of
acquired banks, converting some or all of them into branch banks;
furthermore, banking organizations operating in Texas now have the option
of opening additional branch offices as an alternative to acquiring
additional banks, thrift institutions or holding companies.
Proposals to revise the Community Reinvestment Act ("CRA"), which
imposes requirements on insured financial institutions with respect to
lending to members of low- and moderate-income groups within their
respective service areas, are likely to be a focal point of both
legislative and regulatory attention in the next few years. The Clinton
Administration has requested that the four bank and thrift regulatory
agencies adopt new requirements, and proposed new rules have been published
for comment by the four agencies. Although it is not possible to predict
the exact form
3
<PAGE> 5
of the changes which may be made, these changes may impede or change the
process by which an institution such as the Bank is able to grow through
acquisition and/or opening new branch offices, and they could also affect
any possible acquisition by BancTEXAS and the Bank.
Interstate Banking
BancTEXAS has had the legal authority for several years to acquire or
establish banks in states other than Texas. However, the Company's
financial condition prior to the 1994 private placement has precluded such
acquisitions, and the laws of many other states would not have permitted
the transactions. Federal legislation enacted in 1994 has significantly
expanded the potential scope of regional and nationwide banking by bank
holding companies and banks. Beginning in September 1995, bank holding
companies will have the right to expand, by acquiring existing banks, into
states which have heretofore restricted entry. In addition, the
legislation provides that, subject to future action by individual states, a
holding company will have the right, commencing in 1997, to convert the
banks which it owns in different states to branches of a single bank. A
state is permitted to "opt out" of the law which will permit conversion of
separate banks to branches, but not that allowing holding companies from
other states to enter the state. The federal legislation also establishes
limits on acquisitions by large banking organizations, providing that no
acquisition may be undertaken if it would result in the entity's having
deposits exceeding either 10% of all bank deposits in the United States or
30% of the bank deposits in the state in which the acquisition would occur.
BancTEXAS' acquisition efforts have historically been limited to Texas
banking organizations, but the purchase prices for such organizations have
increased significantly in the past several years. Management and the
Board of Directors have recently decided to consider acquisition prospects
in other geographic areas, where potential purchase prices may be lower
than in Texas.
Usury Laws
The maximum legal rate of interest that a bank may charge on a loan
depends on a variety of factors such as the type of borrower, purpose of
the loan, amount of the loan, and date that the loan is made. There are
several different state and federal statutes that set maximum legal rates
of interest for various lending situations. If a loan qualifies under more
than one statute, a bank may often charge the highest rate for which the
loan is eligible.
Certain federal statutes partially preempt state usury laws. They
remove, among other things, the state usury limitations on certain first
lien residential real property loans made by certain federally related
lenders including the Bank. Usury law interest ceilings can have
substantial adverse effects on a bank's ability to lend money at profitable
rates in periods when interest rates and costs of funds to the bank are
high, both in absolute terms and relative to competitors. Moreover,
because some competitors of the Bank are located outside of Texas and are
subject to more favorable interest rate regulation or no interest rate
regulation at all, they may be able to lend funds to potential customers of
the Bank at higher rates of interest.
Environmental Laws
Many federal, state and local governmental authorities have enacted or
adopted provisions regulating the discharge of materials into the
environment and otherwise relating to the protection of the environment.
In this regard, under the Comprehensive Environmental Response Compensation
and Liability Act and under other laws enacted by various states and other
governmental authorities, the costs of the clean-up of hazardous substances
can be recovered. These laws have greatly expanded the potential liability
of banks for hazardous waste clean-up costs. Management evaluates the
potential liability of the Bank when considering a loan and before any
action is taken to foreclose on a property. The Bank believes that it has
not violated any provisions regulating the discharge of materials into the
environment, and no capital expenditures are planned for environmental
control facilities. Neither BancTEXAS nor the Bank has been notified that
it is liable for any hazardous substance clean-up costs.
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Proposed Legislation
Numerous other legislative proposals affecting the banking industry have
been proposed from time to time. Such proposals include: limitations on
investments that an institution may make with insured funds and on
permissible activities of such institutions; regulation of all insured
depository institutions by a single regulatory agency or a reduction in the
number of separate bank regulatory agencies; permitting ownership of banks
by commercial enterprises; limitations on the number of accounts protected
by the federal deposit insurance funds; reduction of the $100,000 coverage
limit on deposits; and changes in the duties of depository institutions
under community reinvestment laws. Any such proposals, if enacted, could
materially affect the Company and the Bank by changing the regulatory
environment in which they operate and/or by increasing competition for
banking and financial services. It is uncertain which, if any, of the
proposals may ultimately become law.
Other Regulations
In addition to the foregoing requirements, the OCC and the other
federal bank regulatory agencies have very broad authority in supervising
numerous aspects of the business of both BancTEXAS and the Bank. If
BancTEXAS or the Bank were to become unable to meet applicable capital
requirements or the requirements of other regulations, one or more of the
federal bank regulatory agencies would have the authority to take
additional supervisory actions or impose sanctions or operational and
reporting requirements, some of which could adversely affect the ability of
BancTEXAS and the Bank to operate profitably.
Government Fiscal and Monetary Policies
The commercial banking business is affected not only by general
economic conditions but also by the monetary policies of the Federal
Reserve Board. Some of the instruments of monetary policy available to the
Federal Reserve Board are changes in the discount rate on member bank
borrowings, the availability of borrowings at the "discount window", open
market operations, the imposition of and changes in reserve requirements
against certain borrowings by banks and their affiliates, and the placing
of limits on interest rates that member banks may pay on time and savings
deposits. These policies influence, to a significant extent, the overall
growth of bank loans, investments and deposits and the interest rates
charged on loans or paid on time and savings deposits.
In the past, the monetary policies of the Federal Reserve Board have
had a significant effect on the operating results of commercial banks and,
therefore, bank holding companies. Such policies are expected to continue
to have a significant effect in the future. The effect, if any, of such
policies on the future business and earnings of the Company and the Bank
cannot be predicted.
The Texas Economy and Banking Industry
The banking industry in Texas and the Company are affected by general
economic conditions at the federal and state levels and in the localities
in which operations are conducted; these general conditions include changes
in prevailing rates of interest, inflation and unemployment as well as
business trends and numerous other factors beyond the Company's control.
The Texas banking industry has undergone a series of significant changes in
the past several years, during which the Texas economy declined and the
conditions of some industries--particularly the energy and real estate
industries-- severely deteriorated, ultimately affecting large numbers of
banks and savings institutions in the state, including BancTEXAS and its
subsidiary banks. These changes were responsible in part for the entry
into Texas of large banking and thrift organizations headquartered in other
regions of the United States and contraction in the number of banking
organizations based in the state, following both federally-assisted
takeovers and private acquisitions. As the Texas economy improved
beginning in the early 1990's, the trend toward consolidations and mergers
within the financial services industry has continued and accelerated.
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BancTEXAS' business and operating results will continue to be affected
by changes in national economic conditions and by factors having a
particular impact on the Texas economy or that of the localities in which
its banking operations are conducted.
Competition
The Company and the Bank operate in an environment that has become
increasingly competitive in recent years. In the past few years other
financial institutions not subject to the same regulatory restrictions as
banks have begun to compete more vigorously for a share of the market. In
Texas, thrift institutions have been allowed to establish statewide branch
offices to take deposits, while banks were not granted the ability to
establish branch offices until 1988. In the past five years, large bank
holding companies headquartered outside of Texas have acquired the assets
of numerous sizable Texas banks and thrifts, sometimes with financial
assistance from the FDIC. The Company believes that the additional capital
provided through the private placement of Class B Stock, and the resources
available to it through First Banks will improve its ability to compete
effectively in its markets. However, the competing institutions still have
numerous advantages, including but not limited to substantially larger
capital resources.
The Bank competes actively in the Houston, Dallas, Irving and McKinney
markets with other commercial banks located in Texas, and Texas-based
offices of major money market center banks for various types of deposits,
loans, and other financial services. In addition, in the conduct of
certain aspects of its banking business, the Bank competes with insurance
companies, savings and loan associations, credit unions, captive finance
companies owned by motor vehicle manufacturers, leasing companies, mortgage
companies, certain governmental agencies and other financial services
companies. Many of the banks and other financial institutions with which
the Bank competes have capital resources and legal loan limits
substantially in excess of the capital resources and legal loan limits of
the Bank.
Employment
On March 15, 1995, the Company and the Bank employed 119 persons, none
of whom are covered by a collective bargaining agreement. The Company and
the Bank consider their respective employee relations to be good.
Item 2. Properties
The Company has conducted its business from leased offices located at
13747 Montfort Drive, Dallas, Texas which contain approximately 16,000
square feet. Effective January 2, 1995, BancTEXAS relocated its
administrative offices to the headquarters of the Bank, 8820 Westheimer
Road, Houston, Texas. The space previously occupied by the Company has
been vacated and, as of the date of this Report, the Company is seeking to
either terminate its lease or arrange a suitable sublease of the space.
The Bank occupies six branch locations. The Bank owns four banking
facilities.
<TABLE>
<CAPTION>
Approximate Space Occupied
Location Square Feet by the Bank
-------- ----------- -----------
<S> <C> <C>
321 N. Central Expressway 51,200 10,800
McKinney, Texas
2010 N. Main Street 17,100 17,100
Houston, Texas
2101 Gateway Drive 7,800 7,800
Irving, Texas
8820 Westheimer Road 30,400 30,400
Houston, Texas
</TABLE>
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The Bank leases its two remaining locations, the Allen Parkway Branch
in the City of Houston in a multistory office building at 2929 Allen
Parkway where it occupies 4,900 square feet and a free-standing building
containing approximately 5,600 square feet located at 9605 Abrams Road in
the City of Dallas. The Bank leases additional tracts of land used for
parking and drive-in facilities. The Company believes that these premises
are adequate for its present operations.
Aggregate annual rental payments, net of rental income received by
BancTEXAS and the Bank, for all premises during the fiscal year ended
December 31, 1994 was $146,000.
Item 3. Legal Proceedings
As described in note 18 to the consolidated financial statements
contained in BancTEXAS Group Inc.'s 1994 Annual Report to Stockholders,
which is incorporated herein by reference, there are various claims and
pending actions against BancTEXAS and the Bank. Many of such actions, are
routine and incidental to their businesses, including a number of lender
liability claims filed against the Bank in defense of suits brought by the
Bank to collect loans and otherwise enforce their rights under loan
documents. Nevertheless, it is the opinion of management of BancTEXAS that
the ultimate liability, if any, resulting from such claims and pending
actions will not have a material adverse effect on the financial position,
results of operations or liquidity of BancTEXAS.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters
Market Information
BancTEXAS has two classes of common stock. The Company's Common Stock,
par value $.01 per share, is listed on the New York Stock Exchange ("NYSE")
under the symbol "BTX". The Class B Stock, par value $.01 per share, was
issued and sold on August 31, 1994 in a private placement. The Class B
Stock is not registered with the Securities and Exchange Commission nor
listed on any exchange. See "Item 1, BUSINESS--General". Continued
listing of the Company's Common Stock on the NYSE is subject, among other
things, to the financial eligibility and distribution requirements of the
NYSE. Set forth below are the closing high and low sale prices for the
Company's Common Stock on the NYSE as reported by the NYSE Composite
Transactions Tape during the calendar periods indicated. These prices are
in dollars and are recorded to the nearest 1/8.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1993:
1st Quarter $ 2 7/8 $ 1 3/4
2nd Quarter 2 1/2 1 7/8
3rd Quarter 2 1 1/2
4th Quarter 1 3/4 1 1/4
1994:
1st Quarter 1 3/4 1 3/8
2nd Quarter 1 1/2 1 1/4
3rd Quarter 1 3/8 1
4th Quarter 1 1/8 7/8
1995:
January 1, 1995 to March 13, 1995 1 1/8 1
</TABLE>
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Stockholders
There were approximately 6,090 holders of record of the Company's
Common Stock as of March 1, 1995. This number does not include individual
participants in security position listings such as those held by clearing
agencies.
Dividends
The Board of Directors of BancTEXAS has suspended the payment of
dividends on its Common Stock indefinitely. As a bank holding company, the
ability of BancTEXAS to pay dividends is limited by regulatory requirements
and by the receipt of dividend payments from the Bank. The Bank has been
prevented from paying dividends due to the inadequacy of earnings in recent
years and a deficiency in retained earnings. As a result of the quasi-
reorganization effected in 1994, the Company and the Bank have eliminated
this deficiency in retained earnings. In the event BancTEXAS were to
commence the payment of dividends to its shareholders, the Class B Stock
would receive dividends only to the extent that dividends on the Common
Stock exceed $.03 per share annually.
Item 6. Selected Financial Data
The information required by this item is incorporated herein by
reference from page 3 of the BancTEXAS 1994 Annual Report to Stockholders
under the caption "Selected Consolidated and Other Financial Data."
Item 7. Management's Discussion and Analysis of Financial Condition and
Results Of Operations
The information required by this item is incorporated herein by
reference from pages 4 through 22 of the BancTEXAS 1994 Annual Report to
Stockholders under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Item 8. Financial Statements and Supplementary Data
The information required by this item with regard to the consolidated
financial statements of BancTEXAS is incorporated herein by reference from
pages 24 through 58 of BancTEXAS' 1994 Annual Report to Stockholders under
the captions "Independent Auditors' Report," "Consolidated Balance Sheets,"
"Consolidated Statements of Operations," "Consolidated Statements of
Changes in Stockholders' Equity," "Consolidated Statements of Cash Flows,"
"Notes to Consolidated Financial Statements" and "Quarterly Consolidated
Statements of Operations." The Independent Auditors' Report of Deloitte &
Touche LLP on the consolidated financial statements of BancTEXAS Group Inc.
and subsidiaries for 1993 and 1992 is included herein.
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Independent Auditors' Report
----------------------------
To the Board of Directors and Stockholders of
BancTEXAS Group Inc.
Dallas, Texas
We have audited the consolidated balance sheet of BancTEXAS Group Inc.
and subsidiaries (the "Company") as of December 31, 1993, and the related
consolidated statements of operations, changes in stockholders' equity and
cash flows for each of the two years in the period ended December 31, 1993.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the 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
BancTEXAS Group Inc. and subsidiaries as of December 31, 1993, and the
results of their operations and their cash flows for each of the two years
in the period ended December 31, 1993 in conformity with generally accepted
accounting principles.
During 1993 the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes" and SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
March 18, 1994
Dallas, Texas
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Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Effective September 23, 1994, the Board of Directors appointed KPMG
Peat Marwick LLP as the Independent Certified Public Accountants for
BancTEXAS, replacing Deloitte & Touche LLP. There were no disagreements
with the predecessor auditors to be reported. This change was reported in
Form 8-K filed on September 27, 1994.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning directors and executive officers of BancTEXAS is
set forth under the caption Election of Directors in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 18, 1995
(the "1995 Proxy Statement"), and such information is incorporated by
reference into this Report. Disclosure regarding delinquent filings
pursuant to Item 405 of Regulation S-K is set forth in the 1995 Proxy
Statement under the caption "Compliance with Section 16(a) of the Exchange
Act." Except as indicated in the response to this Item and in the
responses to Items 11-13 below, the 1995 Proxy Statement is not being filed
as a part of this Report.
Item 11. Executive Compensation
Information regarding executive compensation is set forth under the
caption "EXECUTIVE COMPENSATION" in the 1995 Proxy Statement, and such
information is incorporated by reference into this Report.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of certain beneficial owners
and management is contained in the 1995 Proxy Statement under the caption
"VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS--Security Ownership of
Management and of Controlling Stockholders"; such information is
incorporated by reference into this Report.
Item 13. Certain Relationships and Related Transactions
Information concerning certain relationships and transactions of
management is set forth under the caption "Certain Relationships and
Related Transactions" in the 1995 Proxy Statement, and such information is
incorporated by reference in this Report.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements and Supplementary Data: The financial
statements filed as part of this report are listed under Item 8.
2. Financial Statement Schedules: These schedules are omitted
for the reason that they are not required or are not applicable.
3. Exhibits: The exhibits are listed in the index of exhibits
required by Item 601 of Regulation S-K at Item (c) below and are
incorporated herein by reference.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended December 31,
1994.
(c) The index of required exhibits is included beginning on page
12 of this report.
10
<PAGE> 12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
BancTEXAS Group Inc.
By /s/ James F. Dierberg
---------------------------------
Chairman of the Board,
President and Chief Executive Officer
March 17, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ James F. Dierberg Director March 17, 1995
------------------------------------
James F. Dierberg
/s/ Allen H. Blake Director March 17, 1995
------------------------------------
Allen H. Blake
/s/ /Charles A. Crocco, Jr. Director March 17, 1995
------------------------------------
Charles A. Crocco, Jr.
/s/ Edward T. Story, Jr. Director March 17, 1995
------------------------------------
Edward T. Story, Jr.
/s/ Mark T. Turkcan Director March 17, 1995
------------------------------------
Mark T. Turkcan
</TABLE>
11
<PAGE> 13
<TABLE>
INDEX TO EXHIBITS
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3 (a) Restated Certificate of Incorporation of the Company dated as of
and filed August 30, 1994 -- filed herewith.
3 (b) Amended and Restated Bylaws of the Company (as amended August 31,
1994) -- filed herewith.
4 (a) Indenture, dated as of May 15, 1981, among CSWI International
Finance N.V., the Company and Bankers Trust Company (will be filed upon
request pursuant to Item 601(b)(4)(iii) of Regulation S-K).
4 (b) Specimen Stock Certificate for Common Stock (filed as Exhibit 1.01
to the Company's Amendment No. 1 to Form 8-A on Form 8, dated September 4,
1987, and incorporated herein by reference).
10 (a)<F*> BancTEXAS Group Inc. 1990 Stock Option Plan (as amended July 22, 1993)
(filed as Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993, and incorporated herein by reference).
10 (b) Agreement Concerning Subsidiary Banks dated as of November 30, 1990,
executed by and between the Federal Deposit Insurance Corporation and the
Company (filed as Exhibit 10(g) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1990, and incorporated herein by reference).
10 (c) Agreement Concerning Warrants dated as of November 30, 1990, executed by
and between the Federal Deposit Insurance Corporation and the Company
(filed as Exhibit 10(h) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1990, and incorporated herein by reference).
10 (d)<F*> BancTEXAS Group Inc. Directors' Retirement Plan dated March 18, 1993 (filed
as Exhibit 10(i) to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993 and incorporated herein by reference).
10 (e)<F*> Deferred Compensation Agreement with Nathan C. Collins dated April 22, 1993
(filed as Exhibit 10(j) to the Company's Quarterly Report of Form 10-Q for
the quarter ended March 31, 1993 and incorporated herein by reference).
10 (f)<F*> 1993 Directors' Stock Bonus Plan (filed as Exhibit 10(k) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 and
incorporated herein by reference).
10 (g) Stock Purchase and Operating Agreement by and between First Banks, Inc., a
Missouri Corporation and the Company, dated May 19, 1994 (filed as Exhibit
10(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994 and incorporated herein by reference).
10 (h)<F*> Management Agreement by and between First Banks, Inc. and the Company's
subsidiary BankTEXAS N.A., dated November 17, 1994 -- filed herewith.
10 (i)<F*> Data Processing Agreement by and between First Banks, Inc. and the
Company's subsidiary BankTEXAS N.A., dated December 1, 1994 -- filed
herewith.
12
<PAGE> 14
INDEX TO EXHIBITS (Continued)
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10 (j)<F*> Financial Management Policy by and between First Banks, Inc. and the
Company, dated September 15, 1994 -- filed herewith.
10 (k)<F*> Federal Funds Agency Agreement by and between First Banks, Inc. and the
Company, dated September 15, 1994 -- filed herewith.
10 (l)<F*> Funds Management Policy by and between First Banks, Inc. and BancTEXAS,
N.A., dated September 15, 1994 -- filed herewith.
10 (m)<F*> Senior Manager Employment Agreement between the Company and David F. Weaver
dated December 22, 1993 filed herewith.
11 Computation of Earnings (Loss) per share -- filed herewith.
13 1994 Annual Report to Stockholders -- filed herewith.
21 Subsidiaries of the Company -- filed herewith.
23 (a) Consent of KPMG Peat Marwick LLP
23 (b) Consent of Deloitte & Touche LLP
27 Financial Data Schedule
<FN>
--------------------
<F*> Exhibits designated by an asterisk in this Index to Exhibits relate to
management contracts and/or compensatory plans or arrangements.
</TABLE>
13
<PAGE> 1
EXHIBIT 3(a)
RESTATEMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
BANCTEXAS GROUP INC.
AS OF AUGUST 30, 1994
Pursuant to the provisions of Section 245 of the General
Corporation Law of the State of Delaware, the undersigned,
BANCTEXAS GROUP INC., a Delaware corporation (the "Corporation"),
incorporated on January 25, 1978, hereby amends and restates its
Restated Certificate of Incorporation as follows:
1. The present name of the corporation is BancTexas Group
Inc. The name under which the corporation was originally organized
was Commerce Southwest Inc.
2. An Amendment to the Restated Certificate of Incorporation
of the Corporation and this Restatement of the Certificate of
Incorporation of the Corporation was adopted by the Corporation's
stockholders on August 18, 1994, to become immediately effective
upon the filing of this Restatement of the Certificate of
Incorporation of the Corporation with the office of the Delaware
Secretary of State.
3. The Certificate of Incorporation of the Corporation is
hereby restated in its entirety to read as follows:
FIRST: The name of the Corporation is BancTEXAS Group
-----
Inc.
SECOND: The address of its registered office in the
------
State of Delaware is 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of its
registered agent at such address is The Corporation Trust
Company.
THIRD: The purpose of the Corporation is to engage
-----
in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the
State of Delaware.
FOURTH: (A) The total number of shares of all
------
classes of capital stock which the Corporation shall have
authority to issue is one hundred sixty-three million
(163,000,000) shares consisting of (a) three million
(3,000,000) shares of a class designated as Preferred
Stock, par value $1.00 per share ("Preferred Stock"), (b)
one hundred million (100,000,000) shares of a class
designated Common Stock, par value $.01 per share
("Common Stock"), and (c) sixty
<PAGE> 2
million (60,000,000) shares of a class designated Class B Common Stock,
par value $0.01 per share ("Class B Common Stock").
(B) The designations and the powers, preferences, rights,
qualifications, limitations, and restrictions of the Preferred
Stock, the Common Stock, and the Class B Common Stock are as
follows:
1. Provisions Relating to the Preferred Stock. Shares of
Preferred Stock may be issued in one or more series as determined
from time to time by the Board of Directors. All shares of any one
series of Preferred Stock will be identical, except as to the dates
of issue and the dates from which dividends on shares of the series
issued on different dates will cumulate, if dividends on the shares
of such series are cumulative. Authority is hereby expressly
granted to the Board of Directors to authorize the issuance of one
or more series of Preferred Stock, and to fix by one or more
resolutions providing for the issuance of each such series the
voting powers, designations, preferences and relative,
participating, optional, redemption, conversion, exchange or other
special rights, qualifications, limitations or restrictions of such
series, and the number of shares in such series, to the full extent
now or hereafter permitted by law.
2. Provisions Relating to the Common Stock and the Class B
Common Stock.
(a) General. Except as otherwise provided herein, or as
otherwise provided by applicable law, all shares of Common Stock
and Class B Common Stock shall have identical rights and privileges
in every respect.
(b) Voting. The Common Stock and the Class B Common Stock
shall each be fully voting stock entitled to one vote per share
with respect to the election of directors and for all other
purposes. The holders of Common Stock and Class B Common Stock
shall, unless otherwise required by law or by another provision of
this Certificate of Incorporation, vote as a single class on all
matters. In all elections for directors of the Corporation, each
stockholder shall have the right to cast as many votes in the
aggregate as shall equal the number of voting shares held by such
stockholder in the Corporation, multiplied by the number of
directors to be elected by the class to which such stockholder
belongs at such election, and each stockholder may cast the whole
number of votes, either in person or by proxy, for one candidate or
distribute them among two or more candidates.
(c) Dividends. Subject to the limitations prescribed herein,
holders of Common Stock and Class B Common Stock shall participate
equally in any dividends (whether payable in cash, stock or
property) when and as declared by the Board of Directors of the
Corporation out of the assets of the Corporation legally available
therefor and the Corporation shall treat the Common Stock and Class
B Common Stock identically in respect of any subdivisions or
combinations (for example, if the Corporation effects a two-for-one
stock split with respect to the Common Stock, it shall at the same
time effect a two-for-one stock split with respect to the Class B
Common Stock); provided, however, that (i) with respect to
dividends payable in cash by the Corporation,
-2-
<PAGE> 3
the holders of Class B Common Stock shall participate equally per share only
if and to the extent such cash dividends exceed $0.03 per share on the Common
Stock per calendar year (for example, if the Board of Directors
declares and the Corporation pays a dividend of $0.05 per share of
Common Stock for a given calendar year, holders of Class B Common
Stock shall be entitled to a dividend of $0.02 per share); and (ii)
dividends payable in shares of Common Stock (or rights to subscribe
for or purchase shares of Common Stock or securities or
indebtedness convertible into shares of Common Stock) shall be paid
only on shares of Common Stock and dividends payable in shares of
Class B Common Stock (or rights to subscribe for or purchase shares
of Class B Common Stock or securities or indebtedness convertible
into shares of Class B Common Stock) shall be paid only on shares
of Class B Common Stock (for example, if the Board of Directors
declares and the Corporation pays a five percent (5%) stock
dividend on the Common Stock, payable in shares of Common Stock, at
the same time the Board of Directors shall declare and the
Corporation shall pay a five percent (5%) stock dividend on the
Class B Common Stock payable in shares of Class B Common Stock).
(d) Liquidation. In the event the Corporation is liquidated,
dissolved or wound up, whether voluntarily or involuntarily, the
holders of the Common Stock and the Class B Common Stock shall
participate equally in any distribution.
(e) Voluntary Conversion of Class B Common Stock.
(i) Conversion Rights. Each share of
Class B Common Stock may be converted into one
(1) share of Common Stock at the option of any
holder thereof at any time after the fifth
(5th) anniversary of the date of its issuance
by the Corporation. For the foregoing purpose,
a share of Class B Common Stock issued as a
stock dividend or pursuant to a stock split,
reclassification or other combination, shall
be deemed to have been issued on the date of
the share of Class B Common Stock with respect
to which it is so issued.
(ii) Conversion Procedures. Any holder
of Class B Common Stock desiring to exercise
such holder's option to convert such Class B
Common Stock in accordance with the foregoing
shall surrender the certificate or
certificates representing the Class B Common
Stock to be converted, duly endorsed to the
Corporation or in blank, at the principal
executive office of the Corporation, and shall
give written notice to the Corporation at such
office that such holder elects to convert the
number of shares represented by such
certificate or certificates, or a specified
number thereof. As promptly as practicable
after the surrender for conversion of any
Class B Common Stock, the Corporation shall
execute and deliver or cause to be executed
and delivered to the holder of such Class B
Common Stock certificates representing the
shares of Common Stock issuable upon such
conversion. In case any certificate or
certificates representing shares of Class B
Common Stock shall be surrendered for
conversion for only a part
-3-
<PAGE> 4
of the shares represented thereby, the Corporation shall
execute and deliver to the holders of the certificate or
certificates for shares of Class B Common Stock so surrendered a new
certificate or certificates representing the shares of Class B
Common Stock not converted, dated the same date as the certificate
or certificates representing the Common Stock. Shares of the Class B
Common Stock converted as aforesaid shall be deemed to have been
converted immediately prior to the close of business on the date
such shares are duly surrendered for conversion, and the person or
persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the
recordholder or holders of such shares of Common Stock as of such
date.
(iii) Recapitalization, Consolidation, or
Merger of the Corporation. In the event that
the Corporation shall be recapitalized,
consolidated with, or merged with or into any
other corporation (a "Reorganization") and the
terms thereof shall provide (i) that the Class
B Common Stock shall remain outstanding after
such Reorganization and (ii) for any change in
or conversion of the Common Stock, then the
terms of such Reorganization shall include a
provision to the effect that each share of
Class B Common Stock after such Reorganization
shall thereafter be entitled to receive upon
conversion the same kind and amount of
securities or assets as shall be distributable
upon such Reorganization with respect to one
share of Common Stock.
(iv) Reservation of Shares. The
Corporation shall at all times reserve and
keep available out of its authorized but
unissued shares of Common Stock, solely for
the purpose of effecting the conversion of
Class B Common Stock as herein provided, such
number of shares of Common Stock as shall from
time to time be sufficient to effect the
conversion of all outstanding shares of Class
B Common Stock and shall take all such
corporate action as may be necessary to assure
that such shares of Common Stock may be
validly and legally issued upon conversion of
all of the outstanding shares of Class B
Common Stock; and if, at any time the number
of authorized but unissued shares of Common
Stock shall not be sufficient to effect the
conversion of the Class B Common Stock, the
Corporation shall take such corporate action
as may be necessary to increase its authorized
but unissued shares of Common Stock to such
number of shares as shall be sufficient for
such purpose.
(v) Retirement of Shares. Shares of
Class B Common Stock which have been issued
and have been converted into
-4-
<PAGE> 5
Common Stock, repurchased, or reacquired in any other manner
by the Corporation shall not be reissued.
(f) Mandatory Conversion of Class B Common Stock. If, at any
time while there are shares of Class B Common Stock issued and
outstanding, it shall be determined by the Board of Directors, in
its sole discretion, that legislation or regulations are enacted or
any judicial or administrative determination is made which would
prohibit the listing, quotation or trading of the Common Stock on
the New York Stock Exchange or the National Association of
Securities Dealers Automated Quotation System, or would otherwise
have a material adverse effect on the Corporation, in any such case
due to the Corporation having more than one class of common shares
outstanding, then the Board of Directors may by resolution convert
all outstanding shares of Class B Common Stock into shares of
Common Stock on a share-for-share basis. To the extent practicable,
notice of such conversion of Class B Common Stock specifying the
date fixed for said conversion shall be mailed, postage pre-paid,
at least ten (10) days but not more than thirty (30) days prior to
said conversion date to the holders of record of Common Stock and
Class B Common Stock at their respective addresses as the same
shall appear on the books of the Corporation; provided, however,
that no failure or inability to provide such notice shall limit the
authority or ability of the Board of Directors to convert all
outstanding shares of Class B Common Stock into shares of Common
Stock. Immediately prior to the close of business on said
conversion date (or, if said conversion date is not a business day,
on the next succeeding business day) each outstanding share of
Class B Common Stock shall thereupon automatically be converted
into a share of Common Stock and each certificate theretofore
representing shares of Class B Common Stock shall thereupon and
thereafter represent a like number of shares of Common Stock.
(g) Class Voting Under Certain Circumstances. None of the
provisions hereof affecting the powers, preferences, rights,
qualifications, limitations or restrictions of the Class B Common
Stock may be amended or repealed unless, in addition to any other
vote required by law or this Certificate of Incorporation, such
amendment shall be approved by the affirmative vote of the holders
of a majority of the shares of the Common Stock then outstanding,
voting as a separate class.
3. General. Subject to the foregoing provisions of this
Certificate of Incorporation, the Corporation may issue shares of
its Preferred Stock, Common Stock, and Class B Common Stock from
time to time for such consideration (not less than the par value
thereof) as may be fixed by the Board of Directors of the
Corporation, which is expressly authorized to fix the same in its
absolute and uncontrolled discretion, subject to the foregoing
conditions. Shares so issued for which the consideration shall have
been paid or delivered to the Corporation shall be deemed fully
paid stock and shall not be liable to any further call or
assessment thereon, and the holders of such shares shall not be
liable for any further payments in respect of such shares.
FIFTH: The Corporation shall have perpetual
-----
existence.
SIXTH: The number of directors of the Corporation
-----
shall be fixed in the By-Laws.
-5-
<PAGE> 6
SEVENTH: The Board of Directors of the Corporation
-------
shall have power to make, alter or repeal the By-Laws of
the Corporation only with the prior approval of the
holders of a majority of the shares of Class B Common
Stock, subject to such restrictions upon the exercise of
such power as may be imposed by the stockholders in any
By-Laws adopted by them from time to time.
EIGHTH: The Corporation reserves the right to amend,
------
alter, change or repeal any provision contained in the
Certificate of Incorporation or any amendment thereof in
the manner now or hereafter prescribed by statute, and
all rights conferred upon stockholders herein are granted
subject to this reservation.
NINTH:
-----
(A) Whereby under the laws of the State of Delaware
a vote of stockholders is required to approve or
authorize any of the transactions set forth below, then
the affirmative vote or consent of 75% of the capital
stock of this Corporation entitled to vote in elections
of directors, voting as a single class, shall be required
to authorize or approve such transactions:
(1) a merger or consolidation with or
into any other corporation, or
(2) any sale, lease or exchange of all or
substantially all of the property and assets
of this Corporation to any other corporation,
person or other entity, or
(3) any purchase or lease of all or
substantially all of the assets of any
corporation, person or other entity by this
Corporation, or
(4) any combination of the outstanding
shares of Common Stock of this Corporation
into a smaller number of shares, or
if as of the record date for the determination of
stockholders entitled to notice thereof and to vote
thereon or consent thereto (i) such other corporation,
person or entity which is a party to a transaction
described in clauses (1), (2) or (3) above is the
beneficial owner, directly or indirectly, of at least 5%
of the total outstanding shares of stock of this
Corporation entitled to vote in elections of directors,
considered for this purpose as one class, or (ii) any
combination of the outstanding shares of Common Stock
into a smaller number of shares as described in clause
(4) above is proposed, directly or indirectly, by a
person, corporation or entity which is the beneficial
owner, directly or indirectly, of at least 5% of the
total outstanding shares of stock of this Corporation
entitled to vote in elections of directors, considered
for this purpose as one class. Such affirmative vote or
consent shall be in addition to the vote or consent of
the holders of the stock of this Corporation otherwise
required by law or any agreement between this Corporation
and any national securities exchange.
-6-
<PAGE> 7
(B) For purposes of this Article Ninth any corporation,
person or other entity shall be deemed to be the beneficial owner
of any shares of stock of this Corporation,
(1) which it owns directly, whether or
not of record, or
(2) which it has the right to acquire
pursuant to any agreement or understanding or
upon exercise of conversion rights, warrants,
options or otherwise, or
(3) which are beneficially owned,
directly or indirectly (including shares
deemed to be owned through application of
clause (2) above), by any affiliate (a person
that directly, or indirectly through one or
more intermediaries, controls, or is
controlled by or is under common control with
any such corporation, person or other entity)
or associate (any corporation or organization
of which such person is an officer or partner
or is, directly or indirectly, the beneficial
owner of 10% or more of any class of equity
security; any trust or other estate in which
such person has a substantial beneficial
interest or as to which such person serves as
trustee or in a similar fiduciary capacity;
and any relative or spouse of such person or
any relative of such spouse, who has the same
home as such person or who is a director or
officer of the corporation or any of its
parents or subsidiaries), or
(4) which are beneficially owned,
directly or indirectly (including shares
deemed owned through application of clause (2)
above), by any other corporation, person or
entity with which it or its affiliate or
associates (as such terms are defined in
clause (3) above) has any agreement or
arrangement or understanding for the purpose
of acquiring, holding, voting or disposing of
stock of this Corporation.
For the purposes of this Article Ninth, the total outstanding
shares of any class of stock of this Corporation shall be deemed to
include shares owned through the application of clauses (B)(2), (3)
and (4) above for the purposes of calculating the percentage of
ownership of such corporation, person, or other entity, but shall
not be deemed to include any other shares which may be issuable
pursuant to any agreement or upon exercise of conversion rights,
warrants, options or otherwise.
(C) The Board of Directors shall have the power and duty to
determine for the purpose of this Article Ninth on the basis of
information known to this Corporation, whether
(1) such other corporation, person or
other entity beneficially owns more than 5% of
the total outstanding shares of stock of this
Corporation entitled to vote in elections of
directors,
-7-
<PAGE> 8
(2) a corporation, person, or entity is
an "affiliate" or "associate" (as defined in
paragraph (B) above) of another, and
(3) the memorandum of understanding
referred to in paragraph (D)(1) below is
substantially consistent with the transaction
covered thereby.
Any such determination shall be conclusive and binding for all
purposes of this Article Ninth.
(D) The provisions of this Article Ninth shall not apply to
(1) any merger or similar transaction
with any corporation, if the Board of
Directors of this Corporation has approved a
memorandum of understanding with such other
corporation with respect to such transaction
prior to the time that such other corporation
shall have become a beneficial owner of 5% or
more of the total outstanding shares of stock
of this Corporation entitled to vote in
elections of directors; or
(2) any merger or consolidation of this
Corporation with, or any sale or lease to this
Corporation or any subsidiary thereof of any
assets of, or any sale or lease by this
Corporation or any subsidiary thereof of any
assets to, any corporation of which a majority
of the outstanding shares of all classes of
stock entitled to vote in elections of
directors of such corporation is owned of
record or beneficially by this Corporation and
its subsidiaries.
(E) Except as may be otherwise provided by this Article
Ninth, or required by statute, an agreement of merger or
consolidation may be approved by a majority vote of the shares
issued and outstanding, taken at a meeting called for the purpose
of such approval.
(F) Notwithstanding any other provision of this Certificate
of Incorporation or by the By-Laws of this Corporation (and in
addition to any other vote that may be required by law, this
Certificate of Incorporation or the By-Laws of this Corporation)
the affirmative vote of 75% of the capital stock of this
Corporation entitled to vote in elections of directors, voting as
a single class, shall be required to amend, alter, change, or
repeal this Article Ninth.
TENTH: No director shall be personally liable to
-----
the Corporation or any stockholder for monetary damages
for breach of fiduciary duty as a director, except for
any matter in respect of which such director shall be
liable under Section 174 of the Delaware General
Corporation Law or any amendment thereto or successor
provision thereto or shall be liable by reason that, in
addition to any and all other requirements for such
liability, he (i) shall have breached his duty of loyalty
to the Corporation or its stockholders, (ii) shall not
have acted in good faith, (iii) shall have acted in a
manner involving intentional misconduct or a knowing
violation of law or, in failing to act, shall have acted
in a manner
-8-
<PAGE> 9
involving intentional misconduct or a knowing
violation of law or (iv) shall have derived an improper
personal benefit. Neither the amendment nor repeal of
Article Tenth, nor the adoption of any provision of the
Certificate of Incorporation inconsistent with this
Article Tenth, shall eliminate or reduce the effect of
this Article Tenth in respect of any matter occurring, or
any cause of action, suit or claim that, but for this
Article Tenth, would accrue or arise prior to such
amendment, repeal or adoption of an inconsistent
provision.
IN WITNESS WHEREOF, said BancTEXAS Group Inc. has caused this
Certificate to be duly executed this 26th day of August, 1994.
BancTEXAS Group Inc.
By: /s/ Nathan C. Collins
-------------------------------------
Nathan C. Collins
Chairman of the Board of Directors,
President and Chief Executive Officer
ATTEST:
By: /s/ Richard H. Braucher
-----------------------------------
Richard H. Braucher
Senior Vice President and Secretary
-9-
<PAGE> 1
EXHIBIT 3(b)
AMENDED AND RESTATED
BY-LAWS OF
BANCTEXAS GROUP INC.
(as amended August 31, 1994)
ARTICLE I
SECTION 1. Registered Office. The registered office of the
Corporation shall be in the City of Wilmington, County of New
Castle, State of Delaware.
SECTION 2. Other Offices. The Corporation may also have
offices at such other places, both within and without the State of
Delaware, as the Board of Directors may from time to time determine
or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Place of Meetings. All meetings of the
stockholders for the election of directors shall be held in the
City of Dallas, State of Texas, at such place within such city as
may be fixed by the Board of Directors. Meetings of stockholders
for any other purpose may be held at such time and place, within or
without the State of Delaware, as shall be stated in the notice of
the meeting or in a duly executed waiver of notice thereof.
SECTION 2. Annual Meetings. An annual meeting of stockholders
shall be held on such day in each fiscal year of the Corporation at
such time as may be fixed by the Board of Directors, at which
meeting the stockholders shall elect a Board of Directors and
transact such other business as may properly be brought before the
meeting.
SECTION 3. Notice of Annual Meeting. Written or printed
notice of the annual meeting, stating the place, day and hour
thereof, shall be given to each stockholder entitled to vote
thereat at such address as appears on the books of the Corporation,
not less than ten days nor more than sixty days before the date of
the meeting.
SECTION 4. Special Meetings. Special meetings of the
stockholders, for any purpose or purposes, unless otherwise
prescribed by statute or the Restated Certificate of Incorporation,
may be called by the Chairman of the Board or by the President, and
shall be called by the President or the Secretary at the request in
writing of a majority of the Board of Directors, or at the request
in writing of stockholders of record owning at least twenty percent
in amount of the entire capital stock of the Corporation issued and
outstanding and entitled to vote at such meeting. Such request
shall state the purpose or purposes of the proposed meeting.
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SECTION 5. Notice of Special Meetings. Written or printed
notice of a special meeting of stockholders, stating the place, day
and hour and purpose or purposes thereof, shall be given to each
stockholder entitled to vote thereat at such address as appears on
the books of the Corporation, not less than ten days nor more than
sixty days before the date of the meeting.
SECTION 6. Business at Meetings.
(a) Business transacted at all special meetings of
stockholders shall be confined to the purpose or purposes stated in
the notice thereof.
(b) No business may be presented at any annual meeting by a
stockholder unless presented in writing, delivered or mailed by
first class United States mail, postage prepaid, to the Secretary
of the Corporation not less than 14 days nor more than 50 days
prior to any annual meeting; provided, however, that if less than
21 days' notice of the meeting is given to stockholders, such
written notice shall be delivered or mailed, as prescribed, to the
Secretary of the Corporation not later than the close of the
seventh day following the day on which notice of the meeting was
mailed to stockholders.
(c) Each notice under subsection (b) shall set forth the issue
with specificity. Discussion at the annual meeting shall be limited
to the description of the proposed issue.
(d) If notice of the proposed issue is not made in accordance
with the foregoing procedure or the proposed issue is not a proper
subject for action by stockholders, the proposed issue shall not be
voted on or discussed at the meeting.
SECTION 7. Stockholder List. At least ten days before each
meeting of stockholders, a complete list of the stockholders
entitled to vote at such meeting or any adjournment thereof,
arranged in alphabetical order, with the address of and the number
of voting shares held by each, shall be prepared by the Secretary
or other officer of the Corporation who shall have charge of its
stock ledger, either directly or through another officer of the
Corporation designated by him or through a transfer agent appointed
by the Board of Directors. Such list shall be open to the
examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for such ten day period,
either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if
not so specified, at the place where the meeting is to be held.
Such list shall also be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any
stockholder during the whole time of the meeting.
SECTION 8. Quorum. The holders of a majority of the votes
attributed to the shares of capital stock issued and outstanding
and entitled to vote thereat, represented in person or by proxy,
shall constitute a quorum at all meetings of the stockholders for
the transaction of
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business except as otherwise provided by statute, the Restated Certificate of
Incorporation or these By-laws. The stockholders present may adjourn the
meeting despite the absence of a quorum. When a meeting is adjourned for less
than thirty days in any one adjournment and a new record date is not
fixed for the adjourned meeting, it shall not be necessary to give
any notice of the adjourned meeting if the time and place to which
the meeting is adjourned are announced at the meeting at which the
adjournment is taken, and at the adjourned meeting any business may
be transacted that might have been transacted on the original date
of the meeting. When a meeting is adjourned for thirty days or
more, or when after the adjournment a new record date is fixed for
the adjourned meeting, notice of the adjourned meeting shall be
given as in the case of an original meeting.
SECTION 9. Majority Vote. When a quorum is present at any
meeting, the vote of the holders of a majority of the shares having
voting power represented in person or by proxy shall decide any
question brought before such meeting, unless the question is one
upon which, by express provision of statute, the Restated
Certificate of Incorporation or these By-laws, a different vote is
required, in which case such express provision shall govern and
control the decision of such question.
SECTION 10. Proxies. At any meeting of the stockholders,
every stockholder having the right to vote shall be entitled to
vote in person or by proxy appointed by an instrument in writing
subscribed by such stockholder or his duly authorized attorney in
fact and bearing a date not more than three years prior to said
meeting, unless said instrument provides for a longer period.
SECTION 11. Voting. Unless otherwise provided by statute or
the Restated Certificate of Incorporation, each stockholder shall
have one vote for each share of stock having voting power,
registered in his name on the books of the Corporation; provided,
however, that in all elections for directors of the Corporation,
each shareholder shall have the right to cast as many votes in the
aggregate as shall equal the number of voting shares held by him or
her in the Corporation, multiplied by the number of directors to be
elected by the class to which he or she belongs at such election,
and each shareholder may cast the whole number of votes, either in
person or by proxy, for one candidate or distribute them among two
or more candidates.
SECTION 12. Conduct of Meetings.
(a) The Chairman of the meeting may, either before or during
any meeting of stockholders, prescribe rules which will govern the
orderly conduct, presentation, discussion, tabling, and voting,
including the procedures for the presentation, revocation and
counting of proxies, at the meeting with respect to issues to be
presented at the meeting and all other aspects of any annual or
special meeting of stockholders.
(b) The Chairman's determination shall be in his reasonable
discretion and shall be final, unless the Restated Certificate of
Incorporation, By-laws, resolution of the Board, or applicable law
establish rules governing a particular matter, in which case such
provision shall be dispositive, or unless the Chairman's ruling is
overruled by the affirmative vote of the holders of
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two-thirds of the issued and outstanding capital stock of the
Corporation entitled to vote on such matters at the meeting and present
at the meeting in person or by proxy.
SECTION 13. Consent of Stockholders in Lieu of Meeting. Any
action required to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or
special meeting of stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders
of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at
a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be
given to those stockholders who have not consented in writing.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. Powers. The business and affairs of the
Corporation shall be managed by a Board of Directors. The Board of
Directors may exercise all such powers of the Corporation and do
all such lawful acts and things as are not by statute, by the
Restated Certificate of Incorporation or these By-laws directed or
required to be exercised or done by the stockholders.
SECTION 2. Number of Directors. The number of directors to
constitute the Board of Directors shall be six; provided, however,
that the number of directors which shall constitute the whole Board
shall be fixed from time to time by resolution of the Board of
Directors, provided that such number shall not be less than three
and, provided further, that there shall be added to such number of
directors as so fixed any number of directors who are elected
solely by the holders of any class of stock of the Corporation
pursuant to the terms of the constituent instrument establishing
such class.
SECTION 3. Election and Term. Except as provided in Section
4 of this Article III, each director shall be elected to serve
until the next annual meeting and until his successor (if any)
shall have been elected and shall qualify, or until his death,
resignation or removal from office.
SECTION 4. Vacancies and Newly Created Directorships. If the
office of any director or directors becomes vacant by reason of
death, resignation, retirement, disqualification, removal from
office, or otherwise, or the number of directors constituting the
whole Board shall be increased, a majority of the remaining or
existing directors, though less than a quorum, may choose a
successor or successors or the director or directors to fill the
new directorships, who shall hold office for the unexpired term in
respect to which such vacancy occurred or, in the case of a new
directorship or directorships, until the next annual meeting of the
stockholders.
SECTION 5. Removal. The stockholders may remove a director
either for or without cause at any meeting of stockholders,
provided notice of the intention to act upon such matter shall have
been given in the notice calling such meeting.
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ARTICLE IV
MEETINGS OF BOARD OF DIRECTORS
SECTION 1. First Meeting. The first meeting of each newly
elected Board of Directors shall be held at the location of and
immediately following the annual meeting of stockholders, and no
notice of such meeting shall be necessary to the newly elected
directors in order legally to constitute the meeting, provided a
quorum shall be present; or the Board of Directors may meet at such
place and time as shall be fixed by the consent in writing of all
the directors.
SECTION 2. Other Meetings. The directors of the Corporation
may hold their meetings, both regular and special, either within or
without the State of Delaware.
SECTION 3. Regular Meetings. Regular meetings of the Board
of Directors may be held at such time and place and on such notice,
if any, as shall be determined from time to time by the Board of
Directors.
SECTION 4. Special Meetings. Special meetings of the Board
of Directors may be called by the Chairman of the Board or the
President on twenty-four hours' notice to each director, delivered
either personally or by mail or telegram. Special meetings of the
Board of Directors shall be called by the President or the
Secretary in like manner and on like notice on the written request
of a majority of the directors constituting the whole Board of
Directors.
SECTION 5. Quorum and Voting. At all meetings of the Board
of Directors, a majority of the directors at the time in office
shall be necessary and sufficient to constitute a quorum for the
transaction of business; and the act of four (4) or more of the
directors present at any meeting at which there is a quorum shall
be necessary to constitute the act of the Board of Directors,
except as may be otherwise specifically provided by statute, the
Restated Certificate of Incorporation or these By-laws. If a quorum
shall not be present at any meeting of directors, the directors
present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall
be present.
SECTION 6. Telephone Meetings. At any meeting of the Board
of Directors or any committee thereof, members may attend by
conference telephone, radio, television or similar means of
communication by means of which all persons participating in the
meeting can hear each other, and all members so attending shall be
deemed present at the meeting for all purposes including the
determination of whether a quorum is present.
SECTION 7. Action by Written Consent. Any action required or
permitted to be taken by the Board of Directors or any committee
thereof, under the applicable provisions of the statutes, the
Restated Certificate of Incorporation, or these By-laws, may be
taken without a meeting if a consent in writing, setting forth the
action so taken, is signed by all the members of the Board of
Directors or committee, as the case may be.
SECTION 8. Advisory Directors. Any number of persons may be
appointed "Advisory Directors" by a vote of a majority of the
directors present at any meeting. An Advisory Director
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shall have the right to attend and to participate in any and all meetings of
the Board of Directors to the same extent as any director, except
that an Advisory Director shall not have the right to vote on any
question or issue considered by the Board of Directors.
ARTICLE V
COMMITTEES
SECTION 1. Executive Committee. The Board of Directors, by
resolution adopted by a majority of the whole Board, may designate
three or more directors to constitute an Executive Committee, which
Committee, to the extent provided in such resolution, shall have
and may exercise all of the authority of the Board of Directors in
the business and affairs of the Corporation, and may have power to
authorize the seal of the Corporation to be affixed to all papers
which may require it, except where action by the Board of Directors
is expressly required by statute. The Executive Committee shall
keep regular minutes of its proceedings and report the same to the
Board of Directors when required.
SECTION 2. Other Committees. The Board of Directors may
similarly create other committees for such terms and with such
powers and duties as the Board of Directors deems appropriate.
SECTION 3. Committee Rules; Quorum. Each committee may adopt
rules governing the method of calling and time and place of holding
its meetings. Unless otherwise provided by the Board of Directors,
a majority of any committee shall constitute a quorum for the
transaction of business, and the act of a majority of the members
of such committee present at a meeting at which a quorum is present
shall be the act of such committee.
ARTICLE VI
COMPENSATION OF DIRECTORS
SECTION 1. Attendance Fees. Directors, as such, shall not
receive any stated salary for their services, but by resolution of
the Board of Directors a fixed sum and expenses of attendance may
be allowed for attendance at each regular or special meeting of the
Board; however, this provision shall not preclude any director from
serving the Corporation in any other capacity and receiving
compensation therefor. Members of committees may receive such
compensation, if any, as may be determined by the Board of
Directors.
ARTICLE VII
NOTICES
SECTION 1. Methods of Notice. Whenever any notice is required
to be given to any stockholder, director or committee member under
the provisions of any statute, the Restated Certificate of
Incorporation or these By-laws, such notice shall be delivered
personally or shall be given in writing by mail addressed to such
stockholder, director or committee member at such
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address as appears on the books of the Corporation, and such notice shall be
deemed to be given at the time when the same shall be deposited in
the United States mail with postage thereon prepaid. Notice to
directors and committee members may also be given by telegram, and
notice given by such means shall be deemed to be given at the time
it is delivered to the telegraph office.
SECTION 2. Waiver of Notice. Whenever any notice is required
to be given to any stockholder, director or committee member under
the provisions of any statute, the Restated Certificate of
Incorporation or these By-laws, a waiver thereof in writing signed
by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent to the
giving of such notice. Attendance at any meeting shall constitute
a waiver of notice thereof except as otherwise provided by statute.
ARTICLE VIII
OFFICERS
SECTION 1. Executive Officers. The executive officers of the
Corporation shall consist of a Chairman of the Board, a President,
one or more Vice Presidents, one or more of whom may be designated
Executive or Senior Vice Presidents and may also have such
descriptive titles as the Board of Directors shall deem
appropriate, a Secretary and a Treasurer, each of whom shall be
elected by the Board of Directors. Any two or more offices may be
held by the same person except the offices of President and
Secretary.
SECTION 2. Election and Qualification. The Board of Directors
at its first meeting after each annual meeting of stockholders may
elect a Chairman of the Board from its members, shall elect a
President from its members, and shall elect one or more Vice
Presidents, a Secretary and a Treasurer, none of whom need be a
member of the Board of Directors.
SECTION 3. Other Officers and Agents. The Board of Directors
may elect or appoint Assistant Vice Presidents, Assistant
Secretaries and Assistant Treasurers, and such other officers and
agents as it shall deem necessary, or may vest the appointment of
any such Assistant Vice Presidents, Assistant Secretaries and
Assistant Treasurers or other officers (except executive officers)
and agents in such of the executive officers as it deems
appropriate, subject in all cases to the control of the Board of
Directors.
SECTION 4. Salaries. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors except as
otherwise directed by the Board.
SECTION 5. Term, Removal and Vacancies. The officers of the
Corporation shall hold office until their successors are chosen and
qualify. Any officer or agent of the Corporation may be removed at
any time by the affirmative vote of a majority of the Board of
Directors, or by the executive officer having power to appoint his
successor. Any vacancy occurring in any office of the Corporation
may be filled by the Board of Directors or otherwise as provided in
this Article VIII.
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SECTION 6. Execution of Instruments. Either the Chairman of
the Board or the President or the Executive Vice President and
Chief Financial Officer may execute in the name of the Corporation
bonds, notes debentures and other evidences of indebtedness, stock
certificates, deeds, mortgages, deeds of trust, indentures, loan
and credit agreements, checks, drafts, leases, purchase contracts,
and all other terms of agreements, contracts and instruments and
may bind this Corporation thereto without the seal of this
Corporation being affixed thereon and without the signature of the
Chairman of the Board or the President or Executive Vice President
and Chief Financial officer being attested. Any Senior Vice
President may execute in the name of the Corporation any of the
documents and instruments described in the preceding sentence,
except where such documents or instruments are required by these
By-laws, by law or by specific delegation or designation to be
otherwise executed. Nothing in this Section shall override the
duties and authorities conferred on any officer of this corporation
elsewhere in these By-laws or by any resolution adopted by the
Board of Directors.
SECTION 7. Duties of Officers. The duties and powers of the
officers of the Corporation shall be as provided in these By-laws,
or as provided for pursuant to these By-laws, or (except to the
extent inconsistent with these By-laws or with any provision made
pursuant thereto) shall be those customarily exercised by corporate
officers holding such offices.
SECTION 8. Chairman of the Board. The Chairman of the Board
shall preside when present at all meetings of the Board of
Directors. He shall advise and counsel the President and other
officers of the Corporation and shall exercise such powers and
perform such duties as shall be assigned to or required of him from
time to time by the Board of Directors. The Chairman of the Board
shall, if so designated by the Board of Directors, be the Chief
Executive Officer of the Corporation; in such event he shall have
all of the powers granted by the By-laws to the President,
including the power to make and sign contracts and agreements in
the name and on behalf of the Corporation, and from time to time
may delegate all, or any, of his powers and duties to the
President.
SECTION 9. President. Unless such powers have been conferred
upon the Chairman of the Board by the Board of Directors, the
President shall have the powers of Chief Executive Officer of the
Corporation, and as Chief Executive Officer, the President shall
have general supervision of the affairs of the Corporation and
shall have general and active control of all of its business.
In the absence of any other person designated thereto by these
By-laws, the President shall preside at all meetings of the
stockholders. He shall have authority to cause the employment or
appointment of such employees and agents of the Corporation as the
proper conduct of operations may require, and to fix their
compensation, subject to the provisions of these By-laws; to remove
or suspend any employee or agent who shall have been employed or
appointed under his authority or under authority of any officer
subordinate to him; to suspend for cause, pending final action by
the authority which shall have supervisory power over him, any
officer subordinate to the President, and in general, to exercise
all the powers usually appertaining to the office of President of
a corporation, except as otherwise provided in these By-laws. In
the event the Chairman of the Board has been designated Chief
Executive Officer of the Corporation, the President shall, subject
to the powers of supervision and control thereby conferred upon the
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Chairman of the Board, be the chief operating officer of the
Corporation and shall have all necessary powers to discharge such
responsibility including all powers heretofore in this paragraph
enumerated.
The President shall perform all the duties and have all the
powers of the Chairman of the Board in the absence of the Chairman
of the Board.
SECTION 10. Vice Presidents. The Vice Presidents in the
order determined by the Board of Directors shall, in the absence or
disability of the President, perform the duties and exercise the
powers of the President, and shall perform such other duties as the
Board of Directors and the Chief Executive Officer may prescribe.
SECTION 11. Secretary. The Secretary shall attend all
meetings of the Board of Directors and all meetings of the
stockholders and record all votes and the minutes of all
proceedings in a book to be kept for the purpose and shall perform
like duties for the committees of the Board of Directors when
required. He shall give or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed
by the Board of Directors and the Chief Executive Officer. He shall
keep in safe custody the seal of the Corporation and shall have
authority to affix the same to any instrument requiring it, and
when so affixed it may be attested by his signature. The Board of
Directors may give general authority to any other officer to affix
the seal of the Corporation and to attest the affixing by his
signature.
SECTION 12. Assistant Secretaries. The Assistant Secretaries
in the order determined by the Board of Directors shall, in the
absence or disability of the Secretary, perform the duties and
exercise the powers of the Secretary and shall perform such other
duties as the Board of Directors and the Chief Executive Officer
may prescribe.
SECTION 13. Treasurer. The Treasurer shall have the custody
of the corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging
to the Corporation and shall deposit all monies and other valuable
effects in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors. He
shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Board of Directors and the
Chief Executive Officer, whenever they may require it, an account
of all of his transactions as Treasurer and of the financial
condition of the Corporation.
SECTION 14. Assistant Treasurers. The Assistant Treasurers in
the order determined by the Board of Directors shall, in the
absence or disability of the Treasurer, perform the duties and
exercise the powers of the Treasurer and shall perform such other
duties as the Board of Directors and the Chief Executive Officer
may prescribe.
ARTICLE IX
SHARES AND STOCKHOLDERS
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SECTION 1. Certificates Representing Shares. Every holder of
stock in the Corporation shall be entitled to have a certificate,
signed by, or in the name of the Corporation by, the Chairman of
the Board or the President or a Vice President and the Treasurer or
an Assistant Treasurer or the Secretary or an Assistant Secretary
of the Corporation, certifying the number of shares owned by him in
the Corporation. The signature of any such officer may be facsimile
if the certificate is countersigned by a transfer agent or
registered by a registrar, other than the Corporation itself or an
employee of the Corporation. In case any officer who has signed or
whose facsimile signature has been placed upon such certificate
shall have ceased to be such officer before such certificate is
issued, it may be issued by the Corporation with the same effect as
if he were such officer at the date of its issuance. If the
Corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers,
designations, preferences and relative, participating, optional or
other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the Corporation shall issue to
represent such class or series of stock, provided, that, except as
otherwise provided in Section 202 of the General Corporation Law of
the State of Delaware, in lieu of the foregoing requirements, there
may be set forth on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock
a statement that the Corporation will furnish without charge to
each stockholder who so requests the designations, preferences and
relative, participating, option or other special rights of each
class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
SECTION 2. Transfer of Shares. Subject to valid transfer
restrictions and to stop-transfer restrictions and to stop-transfer
orders directed in good faith by the Corporation to any transfer
agent to prevent possible violations of federal or state securities
laws, rules or regulations, or for any other lawful purpose, upon
surrender to the Corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon
its books.
SECTION 3. Fixing Record Date. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any
change, conversions or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a
record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, or more than sixty days prior
to any other action. If no record date is fixed, the record date
for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice
is waived, at the close of business on the day next preceding the
day on which the meeting is held; the record date for determining
stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board of
Directors is necessary, shall be the day on which first written
consent is expressed; and the record date for determining
stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of
record entitled to notice of or to vote at a
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meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 4. Registered Stockholders. The Corporation shall be
entitled to recognize the exclusive right of a person registered on
its books as the owner of any share or shares to receive dividends,
and to vote as such owner, and for all other purposes as such
owner; and the Corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws
of the State of Delaware.
ARTICLE X
INDEMNIFICATION
SECTION 1. Indemnification.
(a) The Corporation 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 or investigative (other than an action by
or in the right of the Corporation) by reason of the fact that he
is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good
faith and in a manner reasonably believed to be in or not opposed
to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and
in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that
his conduct was unlawful.
(b) The Corporation 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 or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, or agent of the
Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests
of the Corporation and except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable for negligence or misconduct
in the performance of his duty to the Corporation unless and only
to the extent that the Court of Chancery or the court in which such
action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the
circumstances of the
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case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a person who is or was a director,
officer, employee or agent of the Corporation, or a person who is
or was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or another enterprise, has been successful on
the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections (a) and (b), or in defense of
any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) (unless
ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that
indemnification of the director, officer, employee, agent or other
person is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and
(b). Such determination shall be made (1) by the Board of Directors
by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) if such a quorum
is not obtainable, or, even if obtainable a quorum of disinterested
directors so directs, by independent legal counsel in a written
opinion, or (3) by stockholders.
(e) Expenses incurred in defending a civil or criminal action,
suit or proceeding, or a threatened action, suit or proceeding, may
be paid by the Corporation in advance of the final disposition of
such action, suit or proceeding as authorized by the Board of
Directors in the specific case upon receipt of an undertaking by or
on behalf of the director, officer, employee, agent or other person
to repay the such amount unless it shall ultimately be determined
that he is entitled to be indemnified by the Corporation as
authorized in this Article X.
(f) The indemnification provided by this Article X shall not
be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any agreement or vote of
stockholders or disinterested directors or otherwise, both as to
action in his official capacity and as to action in another
capacity while holding such office, 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 a person.
(g) The Corporation shall have the power to purchase and
maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation or is or
was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any liability
asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under
the provisions of this Article X.
(h) For purposes of this Article X, references to "the
Corporation" shall include, in addition to the resulting
corporation, any constituent absorbed in a consolidation or merger
which, if its separate existence had continued, would have had
power and authority to indemnify its directors, officers, and
employees or agents, so that any person who is or was a director,
-12-
<PAGE> 13
officer, employee or agent of such constituent corporation, or is
or was serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Article X with
respect to the resulting or surviving corporation as he would have
with respect to such constituent corporation if its separate
existence had continued.
ARTICLE XI
GENERAL
SECTION 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Restated Certificate
of Incorporation, if any, or of the resolutions, if any, providing
for any series of stock, may be declared by the Board of Directors
at any meeting thereof, or by the Executive Committee at any
meeting thereof. Dividends may be paid in cash, in property, or in
shares of the capital stock of the Corporation, subject to the
provisions of the Restated Certificate of Incorporation or the
resolutions, if any, providing for any series of stock.
SECTION 2. Reserves. Before payment of any dividend, there
may be set aside out of any funds of the Corporation available for
dividends such sum or sums as the directors from time to time, in
their absolute discretion, deem proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation, or for such other
purpose or purposes as the directors shall think conducive to the
interests of the Corporation, and the directors may modify or
abolish any such reserve in the manner in which it was created.
SECTION 3. Shares of Other Corporations. The President, or in
his absence, any Vice President, is authorized to vote, represent
and exercise on behalf of the Corporation all rights incident to
any and all shares of any other corporation, bank, banking
association or other entity standing in the name of the
Corporation. The authority herein granted to said officer may be
exercised either by said officer in person or by any person
authorized so to do by proxy or power of attorney duly executed by
said officer. Notwithstanding the above, however, the Board of
Directors, in its discretion, may designate by resolution any
additional person to vote or represent said shares of other
corporations, banks, banking associations and other entities.
SECTION 4. Checks. All checks, drafts, bills of exchange or
demands for money of the Corporation shall be signed by such
officer or officers or such other person or persons as the Board of
Directors may from time to time designate.
SECTION 5. Corporate Records. The Corporation shall keep at
its registered office or principal place of business or at the
office of its transfer agent or registrar, a record of its
stockholders giving the names and addresses of all stockholders and
the number and class and series, if any, of shares held by each.
All other books and records of the Corporation may be kept at such
place or places within or without the State of Delaware as the
Board of Directors may determine.
-13-
<PAGE> 14
SECTION 6. Seal. The corporate seal shall have inscribed
thereon the name of the Corporation. The seal may be used by
causing it or a facsimile thereof to be impressed, affixed or
reproduced.
SECTION 7. Fiscal Year. The fiscal year of the Corporation
shall be fixed by the Board of Directors; if not so fixed it shall
be the calendar year.
ARTICLE XII
AMENDMENTS
SECTION 1. Amendment. These By-laws may be altered, amended
or repealed or new By-laws may be adopted at any annual meeting of
the stockholders or at any special meeting of the stockholders at
which a quorum is present or represented, by the affirmative vote
of the holders of a majority of the shares entitled to vote at such
meeting and present or represented thereat, or, with the
affirmative vote of the holders of a majority of the shares of the
Class B Common Stock, by the affirmative vote of a majority of the
whole Board of Directors at any regular meeting of the Board, or at
any special meeting of the Board, provided notice of the proposed
alteration, amendment or repeal or the adoption of the new By-laws
is set forth in the notice of such meeting.
-14-
<PAGE> 1
EXIBIT 10(h)
FIRST BANKS, INC.
-----------------
MANAGEMENT AGREEMENT
--------------------
NOVEMBER 17, 1994
-----------------
WHEREAS First Banks, Inc. (hereinafter referred to as the
"Company") provides certain services to its subsidiary financial
institutions on a centralized basis, and
WHEREAS BankTEXAS N.A. (hereinafter referred to as the
"Bank") desires to use such services in connection with its
operations,
THEREFORE, the Company and the Bank hereby enter into the
following Management Agreement (hereinafter referred to as the
"Agreement"):
Services to be performed:
The Company shall undertake to perform certain services for
the benefit of the Bank and its affiliates, including, but not
limited to, those enumerated below. These services may be provided
by employees of the Company, employees of affiliates of the Bank,
or external sources retained by the Company on behalf of the Bank
and/or its affiliates. The Company will prepare a monthly bill to
the Bank indicating the nature of the services performed and the
fees charged for such services.
Services performed by employees of the Company will be billed
to the Bank on the basis of actual hours required to perform the
services using standard hourly rates. The hourly rates in effect
as of the date of this Agreement are listed in Exhibit A. These
rates will be reviewed periodically and adjusted as necessary to
reflect the Company's current costs in delivering the services but
may only be adjusted once during any calendar year. The Bank will
be provided at least ninety (90) days' notice prior to any change
in the hourly rates used and the Bank may terminate this contract
if any rate increase is deemed excessive by the Bank's Board of
Directors. Services performed by employees of affiliates of the
Company will be charge based on actual hours required to perform
the services using the same standard hourly rates as used for
employees of the Company. All fees received by the Company for
such services will be credited to the monthly management fees for
the Bank charged by the Company.
Services provided by external sources will be charged to the
Bank at the Company's cost and will not be credited to the monthly
management fees for the Bank charged by the Company.
<PAGE> 2
MANAGEMENT AGREEMENT, continued
Page 2
Included in the services to be provided will be the following:
--------
1. Lending:
a. Loan review
b. Loan administration and support
c. Loan and business development
d. Other loan activities
2. Human resources:
a. Human resources administration
b. Human resources records and compliance
c. Employee recruiting and training
d. Payroll administration and taxes
e. Other human resources activities
3. Corporate audit:
a. Assisting external auditors
b. Internal auditing
c. Compliance
d. Examinations and reports
e. Other audit activities
4. Accounting:
a. Regulatory examinations and compliance
b. Income tax returns and tax audits
c. Estimated tax payments and tax accruals
d. State taxes
e. Fixed asset accounting
f. General accounting assistance
g. Regulatory reporting
h. Systems and procedures
5. Asset/liability and risk management
6. Investments
7. Planning and budgets
8. Purchasing and accounts payable
9. Meetings
10. Other
In addition, the Company will contract for certain services to
be provided to the Bank and its affiliates, which may be charged
through management fees, or through separate direct charges to the
Bank. These will include advertising and promotional expenses,
property and liability insurance, certain external legal, audit and
2
<PAGE> 3
MANAGEMENT AGREEMENT, continued
Page 3
tax assistance, and employee benefit programs. Generally, charges
for insurance and employee benefits will be made outside the
management fee structure. Charges for other items will usually be
included in management fees.
Activities not includable in Management fees:
---
Certain activities conducted by the Company are not includable
---
in management fees. These include:
1. Accounting:
a. Parent company accounting, including:
(1) General ledger
(2) Accounts payable and bill paying
(3) Consolidations and financial reporting
(4) Regulatory reports and examinations
b. Accounting, taxes and other services performed for
entities not paying management fees, such as First
Properties and First Data
2. Mergers and acquisitions:
a. Negotiations and contracts
b. Regulations and applications
c. Due diligence and analyses
d. Systems and operations
3. Financing:
a. Working with current or prospective lenders
b. Loan agreements and contracts
c. Due diligence reviews and ratings
Expenses not includable in fees:
---
Included in the Company's expenses are various items which are
not to be included in the base for calculating management fees.
---
Among these are the following:
1. Interest expense
2. Amortization of deferred inter-company gains and losses
3. Land leases for possible future bank sites
4. Legal, accounting and advertising expenses in excess of
amounts charged to the Bank and its affiliates on a
specific basis
3
<PAGE> 4
MANAGEMENT AGREEMENT, continued
Page 4
5. Contributions
6. Amortization of purchase adjustments and excess cost
7. Amortization of covenants not to compete
8. Provisions for income taxes
The Company may identify other accounts or specific expense
items which are deemed inappropriate to include in the base for
management fees. These may be excluded at the discretion of the
Company as appropriate.
Billing of fees:
The Company shall prepare and submit to the Bank a monthly
bill for services rendered in sufficient detail to provide the Bank
a basis for evaluating the cost/benefit of items charged. It shall
be the responsibility of the Company to maintain time reports,
worksheets and summaries supporting the amounts billed. These will
be furnished to the Bank upon request.
Amounts billed will be payable to the Company by either a
direct charge to the Bank's account at First Bank (Missouri), or a
credit to the Company's account at the Bank. Bills will be
provided to the Bank at least five working days prior to payment
date.
General:
The Bank shall make available to the Company all records,
facilities and personnel necessary to enable the Company to perform
the services required. The Company shall furnish the necessary
forms and instructions to Bank's personnel. The Bank shall furnish
all data, documents or input material as required, which material
shall be returned to the Bank when the services are completed.
The Company shall give the same care to Bank's work as the
Company gives to its own work. However, the Company does not
warrant the work free of error, and shall be liable only for the
Company's own gross negligence or willful misconduct.
The services performed under this Agreement by the Company
will be subject to the regulations and examination of the federal
or state agencies having supervisory jurisdiction over the Bank and
its affiliates and the Company to the same extent as if such
services were being performed solely by the Bank on its own
4
<PAGE> 5
MANAGEMENT AGREEMENT, continued
Page 5
premises. The provisions of this Agreement are subject to
modification, regulation or ruling of any governmental agency
having jurisdiction over the Bank or its affiliates or the Company.
Otherwise this Agreement shall be modifiable only upon written
agreement of the parties thereto.
The Company will hold in confidence all information relating
to the Bank's assets, liabilities, business or affairs, or those of
any of its customers, which is received by the Company in the
course of rendering the service hereunder. It will make the same
effort to safeguard such information as it does to protect its own
proprietary data.
The term of the Agreement is for one year but it shall be
automatically renewable for additional periods of one year each
unless the Bank shall give ninety (90) days' written notice of
termination prior to the end of any term.
This agreement shall be binding upon the parties and their
successors or assigns, and may only be amended by a writing
executed by both parties.
IN WITNESS WHEREOF, the parties hereto have, by their duly
authorized officers executed this agreement this 17th day of
November, 1994.
BankTEXAS N.A. First Banks, Inc.
By /s/ David F. Weaver /s/ William H. Blake
------------------------------- ----------------------------------
David F. Weaver
President
5
<PAGE> 6
<TABLE>
FIRST BANKS, INC.
MANAGEMENT FEE BILLING RATES
<CAPTION>
<S> <C> <C>
Services Available Billing Method Rate
------------------ -------------- ----
Hourly Charges
Lending:
Loan Review Hours $36.00
Administration/support Hours 35.00
Business development Hours 42.00
Loan service Hours 30.00
Loan collection/workout Hours 40.00
Other Hours 32.00
Human Resources:
Administration Hours 32.00
Records/Compliance Hours 26.00
Recruiting/training Hours 26.00
Payroll/benefits Hours 24.00
Other Hours 26.00
Internal audit:
Assisting external auditors Hours 34.00
Internal audit Hours 30.00
Compliance Hours 26.00
Examinations/reports Hours 32.00
Other Hours 28.00
Accounting:
Examinations/compliance Hours 32.00
Tax returns Hours 40.00
Estimated tax/accruals Hours 36.00
State taxes Hours 36.00
Fixed assets Hours 25.00
General accounting assist. Hours 26.00
Regulatory reports Hours 24.00
SEC reporting Hours 35.00
Systems/procedures Hours 32.00
Mergers and acquisitions:
Negotiations/contracts Hours 42.00
Regulations/applications Hours 32.00
Due diligence Hours 36.00
Operations Hours 32.00
Asset/liability management Hours 30.00
Investments Hours 32.00
Planning/budgets Hours 32.00
Branch administration:
Marketing/business devel. Hours 32.00
Branch operations Hours 28.00
Customer service/training Hours 25.00
Other Hours 25.00
Purchasing/accounts payable Hours 26.00
Meetings Hours 30.00
</TABLE>
"Exhibit A"
<PAGE> 1
EXHIBIT 10(i)
SERVICE AGREEMENT
BETWEEN
BANKTEXAS N.A. AND FIRSTSERV, INC.
<PAGE> 2
ATTACHMENT 1
TERMS AND CONDITIONS
I. SERVICES
--------
(A) FirstServ, Inc. agrees to furnish to BankTEXAS N.A. (a
national banking association herein called "BankTEXAS")
and BankTEXAS agrees to obtain all of BankTEXAS'
requirements for data processing services selected by
BankTEXAS from the Product and Price Schedule.
Additional services may be selected from the Product
and Price Schedule upon prior written notice to
FirstServ, Inc. at FirstServ, Inc.'s then current list
price by executing an amended Summary Page.
(B) FirstServ, Inc. will provide conversion and training
services for the fees specified on the Summary Page.
Classroom training in the use and operation of the
system for the number of BankTEXAS personnel mutually
agreed upon in the conversion planning process will be
provided at a training facility mutually agreed upon.
Fees for training do not include travel, lodging and
like expenses of BankTEXAS personnel at the training
facility. Conversion services are those activities
designed to transfer the processing of BankTEXAS' data
from it's present processing company to FirstServ,
Inc..
(C) FirstServ, Inc. will also provide Network Support
Service consisting of communication line monitoring and
diagnostic equipment and support personnel to discover,
diagnose, repair or report line problems to the
appropriate telephone company. The fee for this
service is also listed on the Summary Page.
(D) FirstServ, Inc. shall upon request act as BankTEXAS'
designated representative to arrange for the purchase,
and installation of data lines necessary to access the
FirstServ, Inc. system. Where requested, additional
dial-up lines and equipment to be utilized as a backup
to the regular data lines may also be ordered.
FirstServ, Inc. shall bill BankTEXAS for the actual
charges incurred for the data lines and for the
maintenance of the modems and other interface devices.
II. TERM
----
The term of this Agreement shall commence on the effective
date listed on the Summary Page. Upon expiration, the
Agreement will automatically renew for successive terms of
twelve (12) months unless either party shall have provided
written notice to the other at least one-hundred eighty
(180) days prior to expiration, of the then current term, of
its intent not to renew.
III. SOFTWARE/FIRMWARE
-----------------
Unmodified third party software or firmware
("Software") may be supplied as part of the Agreement.
All such Software shall be provided subject to Software
License Agreements.
1
<PAGE> 3
IV. PRICE AND PAYMENT
-----------------
(A) Fees for FirstServ, Inc.'s services and for any
Equipment or Software are set forth on the Product and
Price Schedule, including where applicable minimum
monthly charges and payment schedules for onetime fees.
(B) Standard Fees shall be invoiced no later than the
fifteenth (15th) of each month for the then current
month.
(C) The Base Service Charge listed on the Product and Price
Schedule shall not change more than once a year and
then only upon six (6) months' prior written notice
annually.
(D) This above limitation shall not apply to Pass-through
expenses. A Pass-through Expense is a charge for goods
or services by FirstServ, Inc. on BankTEXAS' behalf
which are to be billed to BankTEXAS without mark-up.
(E) The fees listed on the Summary Page and on the Product
and Price Schedule do not include and BankTEXAS is
responsible for furnishing transportation or
transmission of information between FirstServ, Inc.'s
data center, BankTEXAS' site and any applicable
clearing house, regulatory agency or Federal Reserve
Bank. Where BankTEXAS has elected to have FirstServ,
Inc. provide Telecommunication Services, the price for
the Services will be provided on the Summary Page.
(F) Network Support Service Fees and Local Network Fees are
based upon services rendered from FirstServ, Inc.'s
premises. Off-premise support will be provided upon
BankTEXAS' request on an as available basis at
FirstServ, Inc. then current charges for time and
materials, plus reasonable travel and living expenses.
V. CLIENT OBLIGATIONS
------------------
(A) BankTEXAS shall be solely responsible for the input,
transmission or delivery of all information and data
required by FirstServ, Inc. to perform the services
except where BankTEXAS has retained FirstServ, Inc. to
handle such responsibilities on its behalf. The data
shall be provided in a format and manner approved by
FirstServ, Inc.. BankTEXAS will provide at its own
expense or procure from FirstServ, Inc. all equipment,
computer software, communication lines and interface
devices required to access the FirstServ, Inc. System.
If BankTEXAS has elected to provide such items itself,
FirstServ, Inc. shall provide BankTEXAS with a list of
compatible equipment and software.
(B) BankTEXAS shall designate appropriate BankTEXAS
personnel for training in the use of the FirstServ,
Inc. System, shall supply FirstServ, Inc. access to
BankTEXAS' site during normal business hours for
conversion and shall cooperate with FirstServ, Inc.
personnel in the conversion and implementation of the
services.
2
<PAGE> 4
V. CLIENT OBLIGATIONS - CONTINUED
------------------------------
(C) BankTEXAS shall comply with any operating instructions
on the use of the FirstServ, Inc. system provided by
FirstServ, Inc., shall review all reports furnished by
FirstServ, Inc. for accuracy and shall work with
FirstServ, Inc. to reconcile any out of balance
conditions. BankTEXAS shall determine and be
responsible for the authenticity and accuracy of all
information and data submitted to FirstServ, Inc.
(D) BankTEXAS shall furnish, or if FirstServ, Inc. agrees
to so furnish, reimburse FirstServ, Inc. for courier
services applicable to the services requested.
VI. GENERAL ADMINISTRATION
----------------------
FirstServ, Inc. is continually reviewing and modifying the
FirstServ, Inc. system to improve service and to comply with
federal government regulations applicable to the data
utilized in providing services to BankTEXAS. FirstServ,
Inc. reserves the right to make changes in the service,
including, but not limited to operating procedures, security
procedures, the type of equipment resident at and the
location of FirstServ, Inc.'s data center. FirstServ, Inc.
will provide BankTEXAS under this contract as follows: at
least sixty (60) days prior written notice of changes in
procedures or reporting and at least six (6) months prior
written notice of changes in service costs.
VII. CLIENT CONFIDENTIAL INFORMATION
-------------------------------
(A) FirstServ, Inc. shall treat all information and
data relating to BankTEXAS business provided to
FirstServ, Inc. by BankTEXAS, or information
relating to BankTEXAS' Customers, as confidential
and shall safeguard BankTEXAS' information with
the same degree of care used to protect FirstServ,
Inc.'s confidential information. FirstServ, Inc.
and BankTEXAS agree that master and transaction
data files are owned by and constitute property of
BankTEXAS. BankTEXAS data and records shall, be
subject to regulation and examination by State and
Federal supervisory agencies to the same extent as
if such information were on BankTEXAS' premises.
FirstServ, Inc. obligations under this Section VII
shall survive the termination or expiration of
this Agreement.
(B) FirstServ, Inc. shall maintain adequate backup
procedures including storage of duplicate record
files as necessary to reproduce BankTEXAS' records
and data. In the event of a service disruption
due to reasons beyond FirstServ, Inc.'s control,
FirstServ, Inc. shall use diligent efforts to
mitigate the effects of such an occurrence.
3
<PAGE> 5
VIII. FIRSTSERV, INC. CONFIDENTIAL INFORMATION
----------------------------------------
(A) BankTEXAS shall not use or disclose to any third
persons any confidential information concerning
FirstServ, Inc.. FirstServ, Inc. confidential
information is that which relates to FirstServ,
Inc.'s software, research, development, trade
secrets or business affairs including, but not
limited to, the terms and conditions of this
Agreement but does not include information in the
public domain through no fault of BankTEXAS.
BankTEXAS obligations under this Section VIII
shall survive the termination or expiration of
this Agreement.
(B) FirstServ, Inc.'s system contains information and
computer software which is proprietary and
confidential information of FirstServ, Inc., its
suppliers and licensers. BankTEXAS agrees not to
attempt to circumvent the devices employed by
FirstServ, Inc. to prevent unauthorized access to
the FirstServ, Inc.'s System.
IX. WARRANTIES
----------
FirstServ, Inc. will accurately process BankTEXAS' work
provided that BankTEXAS supplies accurate data and follows
the procedures described in FirstServ, Inc.'s User Manuals,
notices and advises. FirstServ, Inc. personnel will
exercise due care in the processing of BankTEXAS' work. In
the event of an error caused by FirstServ, Inc.'s personnel,
programs or equipment, FirstServ, Inc. shall correct the
data and/or reprocess the affected report at no additional
cost to BankTEXAS.
X. LIMITATION OF LIABILITY
-----------------------
IN NO EVENT SHALL FIRSTSERV, INC. BE LIABLE FOR LOSS OF
GOODWILL, OR FOR SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES ARISING FROM BANKTEXAS' USE OF
FIRSTSERV, INC.'S SERVICES, OR FIRSTSERV, INC.'S SUPPLY OF
EQUIPMENT OR SOFTWARE, REGARDLESS OF WHETHER SUCH CLAIM
ARISES IN TORT OR IN CONTRACT. FIRSTSERV, INC.'S AGGREGATE
LIABILITY FOR ANY AND ALL CAUSES OF ACTION RELATING TO
SERVICES SHALL BE LIMITED TO THE TOTAL FEES PAID BY
BANKTEXAS TO FIRSTSERV, INC. IN THE THREE (3) MONTH PERIOD
PRECEDING THE DATE THE CLAIM ACCRUED. FIRSTSERV, INC.'S
AGGREGATE LIABILITY FOR A DEFAULT RELATING TO EQUIPMENT OR
SOFTWARE SHALL BE LIMITED TO THE AMOUNT PAID FOR THE
EQUIPMENT OR SOFTWARE.
XI. PERFORMANCE STANDARDS
---------------------
(A) ON-LINE AVAILABILITY - FirstServ, Inc.'s standard of
performance shall be on-line availability of the system
98% of the time that it is scheduled to be so available
over a three month period (the "Measurement Period").
Actual on-line performance will be calculated monthly
by comparing the number of hours which the system was
scheduled to be operational on an on-line basis
4
<PAGE> 6
XI. PERFORMANCE STANDARDS - CONTINUED
---------------------------------
with the number of hours, or a portion thereof, it was
actually operational on an on-line basis. Downtime may
be caused by operator error, hardware malfunction or
failure, or environmental failures such as loss of
power or air conditioning. Downtime caused by reasons
beyond FirstServ, Inc.'s control should not be
considered in the statistics.
(B) REPORT AVAILABILITY - FirstServ, Inc.'s standard of
performance for report availability shall be that, over
a three (3) month period, ninety-five percent (95%) of
all Critical Daily Reports shall be available for
remote printing on time without significant errors. A
Critical Daily Report shall mean priority group reports
which FirstServ, Inc. and BankTEXAS have mutually
agreed in writing are necessary to properly account for
the previous day's activity and properly notify
BankTEXAS of overdraft, NSF or return items. The
agreed upon Critical Reports shall be listed on an
exhibit attached to the final conversion plan. A
Significant error is one which impairs BankTEXAS'
ability to properly account for the previous days
activity and/or properly account for overdraft, NSF or
return items. Actual performance will be calculated
monthly by comparing the total number of BankTEXAS
reports scheduled to be available from FirstServ, Inc.
to the number of reports which were available on time
and without error.
(C) EXCLUSIVE REMEDY - In the event that FirstServ, Inc.'s
performance fails to meet the standards listed above
and such failure is not the result of a BankTEXAS error
or omission, BankTEXAS' sole and exclusive remedy for
such default shall be the right to terminate this
Agreement in accordance with the provisions of this
paragraph. In the event that FirstServ, Inc. fails to
achieve any Performance Standards, alone or in
combination, for the prescribed measurement period,
BankTEXAS shall notify FirstServ, Inc. of its intent to
terminate this agreement if FirstServ, Inc. fails to
restore performance to the committed levels.
FirstServ, Inc. shall advise BankTEXAS promptly upon
correction of the system deficiencies (in no event
shall corrective action exceed sixty (60) days from the
notice date) and shall begin an additional measurement
period. Should FirstServ, Inc. fail to achieve the
required Performance Standards during the remeasurement
period, BankTEXAS may terminate this Agreement and
FirstServ, Inc. shall cooperate with BankTEXAS to
achieve an orderly transition to BankTEXAS' replacement
processing system. BankTEXAS may also terminate this
Agreement if FirstServ, Inc.'s performance for the same
standard is below the relevant performance standard for
more than two (2) measurement periods in any
consecutive twelve (12) months
or for more than five (5) measurement periods during
the term of this agreement. During the period of
transition, BankTEXAS shall pay only such charges as
are incurred for monthly fees until the date of
deconversion. FirstServ, Inc. shall not charge
BankTEXAS for services relating to BankTEXAS'
deconversion.
5
<PAGE> 7
XII. DISASTER RECOVERY
-----------------
(A) A Disaster shall mean any unplanned interruption
of the operations of or inaccessibility to the
FirstServ, Inc. data center which appears in
FirstServ, Inc.'s reasonable judgement to require
relocation of processing to an alternative site.
FirstServ, Inc. shall notify BankTEXAS as soon as
possible after it deems a service outage to be a
Disaster. FirstServ, Inc. shall move the
processing of BankTEXAS' standard on-line services
to an alternative processing center as
expeditiously as possible. BankTEXAS shall
maintain adequate records of all transactions
during the period of service interruption and
shall have personnel available to assist First
Serv, Inc in implementing the switchover to the
alternative processing site. During a Disaster,
optional or on-request services shall be provided
by FirstServ, Inc. only to the extent that there
is adequate capacity at the alternate center and
only after stabilizing the provision of base on-
line services.
(B) FirstServ, Inc. shall work with BankTEXAS to
establish a plan for alternative date
communications in the event of a Disaster.
BankTEXAS shall be responsible for furnishing any
additional communications equipment and data lines
required under the adopted plan.
(C) First Serv, Inc shall test its Disaster Recovery
Services Plan by conducting one annual test.
BankTEXAS agrees to participate in and assist
FirstServ, Inc. with such testing. Test results
will be made available to BankTEXAS' regulators,
internal and external auditors, and (upon request)
to BankTEXAS' insurance underwriters.
(D) BankTEXAS understands and agrees that the
FirstServ, Inc. Disaster Recovery Plan is designed
to minimize but not eliminate risks associated
with a Disaster affecting FirstServ, Inc.'s data
center. FirstServ, Inc. does not warrant that
service will be uninterrupted or error free in the
event of a Disaster. BankTEXAS maintains
responsibility for adopting a disaster recovery
plan relating to disasters affecting BankTEXAS'
facilities and for securing business interruption
insurance or other insurance as necessary to
properly protect BankTEXAS' revenues in the event
of a disaster.
6
<PAGE> 8
XIII. TERMINATION OR EXPIRATION
-------------------------
(A) In the event that BankTEXAS is thirty (30) days in
arrears in making any payment required, or in the
event of any other material default by either
FirstServ, Inc. or BankTEXAS in the performance of
their obligations, the affected party shall have
the right to give written notice to the other of
the default and its intent to terminate this
Agreement stating with reasonable particularity
the nature of the claimed default. This Agreement
shall terminate if the default has not been cured
within a reasonable time with a minimum being
thirty (30) days from the effective date of the
notice.
(B) Upon the expiration of this Agreement, or its
termination due to FirstServ, Inc.'s business
termination, FirstServ, Inc. shall furnish to
BankTEXAS such copies of BankTEXAS' data files as
BankTEXAS may request in machine readable format
form along with such other information and
assistance as or is reasonable and customary to
enable BankTEXAS to deconvert from the FirstServ,
Inc. system. BankTEXAS shall reimburse FirstServ,
Inc. for the production of data records and other
services at FirstServ, Inc.'s current fees for
such services.
XIV. INSURANCE
---------
FirstServ, Inc. carries Comprehensive General Liability
insurance with primary limits of two million dollars,
Commercial Crime insurance covering Employee Dishonesty
in the amount of fifteen million dollars, all-risk
replacement cost coverage on all equipment used at
FirstServ, Inc.'s data center and Workers Compensation
coverage on FirstServ, Inc. employees wherever located
in the United States.
XV. GENERAL
-------
(A) This Agreement is binding upon the parties and their
respective successors and permitted assigns. Neither
party may assign this Agreement in whole or in part
without the consent of BankTEXAS, and provided further
that FirstServ, Inc. may subcontract any or all of the
services to be performed under this Agreement. Any
such subcontractors shall be required to comply with
all of the applicable terms and conditions of this
Agreement.
(B) The parties agree that, in connection with the
performance of their obligations hereunder, they will
comply with all applicable Federal, State, and local
laws including the laws and regulations regarding Equal
Employment Opportunities.
7
<PAGE> 9
XV. GENERAL - CONTINUED
-------------------
(C) FirstServ, Inc. agrees that the office of
Thrift Supervision, FDIC, or other authority
and responsibility provided to the regulatory
agencies pursuant to the Bank Service
Corporation Act, 12 U.S.C. 1867 (C) relating
to service performed by contract or
otherwise. First Serv, Inc also agrees that
its services shall be subject to oversight by
the O.C.C., FDIC or state banking departments
as may be applicable under laws and
regulations pertaining to BankTEXAS' charter.
(D) Neither party shall be liable for any errors, delays or
non-performance due to events beyond its reasonable
control including, but not limited to, acts of God,
failure or delay of power or communications, changes in
law or regulation or other acts of governmental
authority, strike, weather conditions or
transportation.
(E) All written notices required to be given under this
-------------------
Agreement shall be sent by Registered or Certified
Mail, Return Receipt Requested, postage prepaid, or by
confirmed facsimile to the persons and at the
--------------------------
addresses listed on the Summary Page or to such other
------------------------------------
address or person as a party shall have designated in
writing.
(F) The failure of either party to exercise in any respect
any right provided for herein shall not be deemed a
waiver of any rights.
(G) Each party acknowledges that it has read this
Agreement, understands it, and agrees that it is the
complete and exclusive statement of the Agreement
between the parties and supersedes and merges any prior
or simultaneous proposals, understandings and all other
agreements with respect to the subject matter. This
Agreement may not be modified or altered except by a
written instrument duly executed by both parties.
BANKTEXAS N.A. FIRST SERV, INC.
s/ David F. Weaver s/ Thomas A. Bangert
By----------------------------- By--------------------------
David F. Weaver Thomas A. Bangert
President President
12-1-94
8
<PAGE> 10
<TABLE>
ATTACHMENT 2
PRODUCT AND PRICE SCHEDULE
<CAPTION>
ONE-TIME MONTHLY
VOLUME PRICE FEES FEES
------ ----- -------- -------
<S> <C> <C> <C> <C>
BASE SERVICES: $25,000.00
Contractual Accounts 75,000 Base
Contractual Transactions 475,000 Base
DEPOSIT ACCOUNTS
----------------
Demand/Now
Savings/CD's
TOTAL DEPOSIT ACCOUNTS 0.25 $ 0.00
(Above Base)
LOAN ACCOUNTS
-------------
Commercial Loans
Consumer Loans
TOTAL LOAN ACCOUNTS 0.25 $ 0.00
(Above Base)
TRANSACTIONS
------------
TOTAL TRANSACTIONS 0.01 $ 0.00
(Above Base)
FINANCIAL MANAGEMENT
--------------------
General Ledger Included In
Base
Per G/L Account/Cost Center Record Included In
Base
TOTAL FINANCIAL MANAGEMENT FEES $0.00
TOTAL BASE SERVICES FEES: $25,000.00
</TABLE>
9
<PAGE> 11
<TABLE>
<CAPTION>
ONE-TIME MONTHLY
VOLUME PRICE FEES FEES
------ ----- -------- -------
<S> <C> <C> <C> <C>
OTHER SERVICES:
NETWORK SUPPORT FEES
--------------------
Per Branch Pass-through Pass-through
TELECOMMUNICATIONS FEES
-----------------------
One-Time Telecommunication Fees: Pass-through Pass-through
Line and Modem
Installation
Monthly Telecommunications Fees: Pass-through
Telephone Line Charges
Modem Equipment Lease Fees
Disaster Recovery
AUTOMATED TELLER MACHINES:
ONE-TIME ATM FEES
-----------------
Set-up Pass-through
MONTHLY ATM FEES
----------------
Per Existing ATM Network Link Pass-through
ATM TRANSACTIONS FEES
---------------------
Per On-Us Transactions Pass-through
TELLER Base
MARKETING CIF (MCIF) Base
OPTICAL INFORMATION SYSTEM Base
QUERY REPORT WRITER Base
SAFE DEPOSIT BOX SYSTEM Base
LOAN PLATFORM Base
</TABLE>
10
<PAGE> 12
<TABLE>
SUMMARY
<CAPTION>
ONE-TIME MONTHLY
DATA PROCESSING SERVICE FEES: FEES FEES
---- ----
<S> <C> <C>
Base Services: $25,000.00
Network Support: Pass-through Pass-through
Telecommunications: Pass-through Pass-through
ATM Services: Pass-through Pass-through
Conversion Fee (Does not included
T&E or Special Interfaces) $50,000.00 Pass-through
---------- ------------
$50,000.00 $25,000.00
</TABLE>
ONLINE SERVICING HOURS: TO BE DETERMINED
-----------------------------------------------------------------------------
Addresses for Notice to BankTexas N.A.
David F. Weaver, President
8820 Westheimer
Houston, TX 77063
(713) 954-2472
Dennis J. Lewis, Senior Vice President
13747 Montfort, Suite 350
Dallas, TX 75240
(214) 701-4674
11
<PAGE> 13
BASE SERVICES
* ACCOUNT ANALYSIS * SAVINGS
* ACH PROCESSING * SERVICE CHARGE MODELING
* ACCOUNT RECONCILIATION * SWEEP ACCOUNTING
* AUDIT CONFIRMATIONS * TAPE GENERATION FOR COUPON BOOKS
* CERTIFICATES OF DEPOSITS * TAPE GENERATION FOR CREDIT BUREAU
* COMMERCIAL LOANS * TELECOMMUNICATIONS (Fee Applicable)
* COMBINED STATEMENTS * ATM SERVICES (Fee Applicable)
* CONSUMER LOANS * AUDIT SYSTEM
* CUSTOM STATEMENT FORMATS * TELLER
* CUSTOMER INFORMATION FILE (CIF) * CORPORATE CASH MANAGEMENT
* DEMAND DEPOSIT ACCOUNTING * LOAN COLLECTION SYSTEM
* FINANCIAL MANAGEMENT SYSTEM (G/L) * LOAN DOCUMENT PREPARATION SYSTEM
* HOST DISASTER RECOVERY BACK-UP * MARKETING CIF (MCIF)
* LINES OF CREDIT * OPTICAL STORAGE & RETRIEVAL SYSTEM
* MORTGAGE LOANS * QUERY REPORT WRITER
* NETWORK SUPPORT (Fee Applicable) * REGULATORY COMPLIANCE MONITORING
SYSTEM
* ON-LINE NSF/OD RETURN PROCESSING
* REPORT DISTRIBUTION SYSTEM * SAFE DEPOSIT BOX SYSTEM
* RETIREMENT PROCESSING * SENDERO ASSET/LIABILITY MANAGEMENT
SYSTEM
12
<PAGE> 1
EXHIBIT 10(j)
BANCTEXAS, N.A.
FINANCIAL MANAGEMENT POLICIES
APPROVED: SEPTEMBER 15, 1994
<PAGE> 2
<TABLE>
FINANCIAL MANAGEMENT POLICIES
TABLE OF CONTENTS
<S> <C>
I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
II. OBJECTIVES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
III. FINANCIAL MANAGEMENT PRICING OBJECTIVE . . . . . . . . . . . . . . . . . . . . . . .1
IV. INTEREST RATE RISK MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
V. ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
A. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
B. Objective of Holding Securitized Assets . . . . . . . . . . . . . . . . . . . . . .3
1. Investment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. Regulatory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4. Local Community Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5. Pledging. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
C. Portfolios of Securitized Assets. . . . . . . . . . . . . . . . . . . . . . . . . .4
1. Securities Held To Maturity. . . . . . . . . . . . . . . . . . . . . . . . . . 4
2. Securities Carried at Market Value (Trading Securities) . . . . . . . . . . . . 4
3. Securities Available For Sale . . . . . . . . . . . . . . . . . . . . . . . . . 5
D. Mortgage Derivative Products. . . . . . . . . . . . . . . . . . . . . . . . . . . .5
1. Mortgage Derivative Products Held To Maturity . . . . . . . . . . . . . . . . . 5
2. Mortgage Derivative Products Carried at Market Value. . . . . . . . . . . . . . 5
3. Mortgage Derivative Products Held as Available For Sale . . . . . . . . . . . . 5
4. Internal Control of Derivative Products . . . . . . . . . . . . . . . . . . . . 6
a. Investment Limitations on High Risk Mortgage Derivative Products . . . . . . 6
b. Testing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
c. Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
d. Recordkeeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
e. Counterparty Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
E. Portfolio of Non-Securitized Assets. . . . . . . . . . . . . . . . . . . . . . . .7
VI. LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
ii
<PAGE> 3
<CAPTION>
FINANCIAL MANAGEMENT POLICIES
TABLE OF CONTENTS
(continued)
<S> <C>
VII. HEDGE INSTRUMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
A. Futures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
1. Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2. Accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
a. Hedging Securities Carried at Market Value (Trading Securities . . . . . . 8
b. Hedging Securities Held as Available for Sale . . . . . . . . . . . . . . .8
3. Types of Permissible Contracts. . . . . . . . . . . . . . . . . . . . . . . . 9
4. Limits on Number of Permissible Contracts . . . . . . . . . . . . . . . . . . 9
5. Internal Controls of Futures Activity . . . . . . . . . . . . . . . . . . . . 9
B. Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
1. Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2. Types of Permissible Contracts. . . . . . . . . . . . . . . . . . . . . . . . 9
3. Limits on Number of Permissible Contracts . . . . . . . . . . . . . . . . . .10
a. Exchange Traded Options . . . . . . . . . . . . . . . . . . . . . . . . . 10
b. Over-the-Counter Options. . . . . . . . . . . . . . . . . . . . . . . . . 10
4. Internal Controls of Options Activity . . . . . . . . . . . . . . . . . . . .10
C. Interest Rate Exchange Agreements . . . . . . . . . . . . . . . . . . . . . . . 10
1. Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
2. Approved Counterparties . . . . . . . . . . . . . . . . . . . . . . . . . . .10
3. Counterparty Credit Exposure. . . . . . . . . . . . . . . . . . . . . . . . .11
D. Accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
VIII. RESPONSIBILITY FOR ASSET/LIABILITY MANAGEMENT. . . . . . . . . . . . . . . . . . 11
A. Asset/Liability Management Committee. . . . . . . . . . . . . . . . . . . . . . 11
B. Authorities, Duties and Responsibilities for Financial Transactions . . . . . . 11
C. Credit Criteria and Quality Ratings . . . . . . . . . . . . . . . . . . . . . . 13
D. Limitation of Transaction Amounts . . . . . . . . . . . . . . . . . . . . . . . 14
E. Diversification/Concentration . . . . . . . . . . . . . . . . . . . . . . . . . 14
F. Approved Brokers and Dealers. . . . . . . . . . . . . . . . . . . . . . . . . . 14
G. Safekeeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
IX. EXCEPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
iii
<PAGE> 4
I. INTRODUCTION
The Board of Directors (the Board) of BancTEXAS, N.A. (the Bank)
acknowledges the Bank is a financial intermediary serving the
needs of consumers and companies throughout the State of Texas.
The Board also acknowledges the Bank is a regulated entity
operating under the rules and regulations of the State of Texas,
the Federal Deposit Insurance Corporation and the Office of the
Comptroller of the Currency. With these acknowledgments in mind,
the Board establishes certain financial management policies, as
detailed in the following sections.
II. OBJECTIVES
BancTEXAS, as a full-service commercial bank operating in Texas,
is organized to meet the following objectives:
A. To serve the financial service needs of its customers,
which includes accepting deposits and making loans.
B. As a financial intermediary, the primary source of income
will be net interest income.
C. Because the Bank is a subsidiary of a stockholder-owned
corporation, the Board anticipates the Bank will only
engage in activities that are profitable and consistent
with the stockholders' objective of providing superior
returns on equity.
D. As the Bank is a regulated entity with benefit of Federal
Insurance on certain of its liabilities, the Board
directs management to engage only in activities
consistent with such regulations.
III. FINANCIAL MANAGEMENT PRICING OBJECTIVE
As a financial intermediary, the Bank acts simultaneously as a
borrower and a lender. In order to produce and maintain a positive
net interest income, the Bank must exercise certain disciplines in
the pricing of its assets and liabilities. It is the Bank's
objective to acquire financial assets, financed by financial
liabilities, such that a stable net interest margin (or expected
total rate of return over and above funding costs, in the case of
securities carried at market value) of at least 50 basis points
will be received under a broad range of economic scenarios. This
objective is achievable if the following facts are true:
A. Liabilities are acquired at a "gross cost" not in excess of
the cost of "wholesale funding" sources of like maturity.
B. Acquired assets provide a "minimum net yield" of 50 basis
points above the cost of comparable duration wholesale
funding sources.
1
<PAGE> 5
Definitions:
A. Gross Cost - The total cost associated with servicing a
liability, to include both interest expense and operational
overhead.
B. Wholesale Funding - The London Interbank Offering Rate
(LIBOR) for maturities of up to one year (adjusted to bond
equivalent yields), and the offered interest rate swap rate
for maturities beyond one year (or alternatively, the bond
equivalent yields implied by the Eurodollar futures
contract traded on the Chicago Mercantile Exchange).
C. Minimum Net Yield - The excess yield expected to be
received after adjusting for costs associated with credit
risk, optionality and administration.
The minimum net interest margin of 50 basis points is a target, but
is not a requirement. Some assets, such as U. S. Government or
Agency securities, may not be available at sufficiently high
minimum net yields to meet this net interest margin target.
IV. INTEREST RATE RISK MANAGEMENT
The Board recognizes that the following conditions exist with
regard to interest rate risk:
A. Interest rates are subject to change and do change in a
manner that is not predictable.
B. If the weighted average duration of financial assets varies
materially from that of financial liabilities, the success
of the objective to earn a positive net interest margin
will be at risk when interest rates change.
Therefore, the Board directs Management to monitor, at least
monthly, the potential variability in the Bank's Net Market Value
(defined as GAAP equity adjusted for market value gains or losses
on all assets and liabilities, and recognition of deferrals). In
addition, variability in net interest margin over a one year
horizon is to be monitored at least quarterly. In each case, the
measures of variability will be based upon interest rates rising
and declining 100 to 400 basis points, in 100 basis point
increments. Management is further directed to pursue all cost
justified means to control the projected changes in both Net Market
Value and Net Interest Margin to an amount not to exceed the
following limits:
<TABLE>
<S> <C> <C> <C> <C>
Prospective Interest
Rate Change +/- 100 bp +/- 200 bp +/- 300 bp +/- 400 bp
Maximum Change in
Value Expressed As A
Percentage Of Base -15% -30% -60% -100%
</TABLE>
The Board directs Management to report to the Board, at each
meeting, its compliance with the preceding directive. The Board
recognizes the potential exists to exceed such limitations due to
shifts in interest rates between the measurement periods.
Consequently,
2
<PAGE> 6
Management will be deemed in compliance with this policy if, on the
date of each Board meeting, interest rate risk exposure is within the
aforementioned limits.
V. ASSETS
A. Introduction
The Bank's primary source of interest income will be
derived from various types of loans. While loans are
subject to the Financial Management Pricing Objective
previously stated, other lending policies and procedures
are covered under separate policy statements. The
remainder of this section deals with assets in securitized
form.
B. Objective of Holding Securitized Assets
The investment in securitized assets is appropriate for
the following purposes:
1. Investment
The Bank may invest in securitized assets whose net
interest margin (or total rate of return for trading
assets) is consistent with the Financial Management
Pricing Objective.
2. Liquidity
The Bank may invest in short-term, high-quality assets
that meet liquidity needs. The net interest margin
from these assets will typically be less than that
consistent with the Financial Management Pricing
Objective. The Board directs Management to maintain
such assets to ensure compliance with all applicable
regulations at all times. The Board anticipates
Management will seek to optimize the return on such
investments in a manner consistent with their short-
term, high-quality nature.
3. Regulatory
The Bank may invest in those assets that are acquired
pursuant to regulation. An example of such assets is
stock in a Federal Home Loan Bank.
4. Local Community Support
Because of its position in various communities within
which it operates, the Bank is called upon to support
financing requirements of municipal, county and state
governments. Rated securities may be evaluated
similar to other types of investments. However,
unrated securities may also be purchased if the
underlying credit of the issuer is deemed to be
acceptable. The credit risk of such securities should
be carefully evaluated, with the assistance of lending
personnel when appropriate.
3
<PAGE> 7
5. Pledging
Associated with its liquidity objective, the portfolio
should include a sufficient amount of securities that
can be pledged to obtain public deposits and
repurchase agreements. Although public deposits and
repurchase agreements are not viewed as the primary
sources of the Bank's funding, they can be
supplemental sources of liquidity when needed.
C. Portfolios of Securitized Assets
1. Securities Held To Maturity
a. Securities the Bank purchases with the positive
intent and ability to hold to maturity shall be
designated as such at the time of purchase, and
accounted for at amortized cost in the statement of
financial position.
b. Securities classified as held to maturity will not
be disposed of except, for example, upon transfer to
the portfolio of securities available for sale
pursuant to the strict guidelines set forth in this
policy, upon the exercise of an imbedded call or put
option, or due to a material downgrade in credit
rating of two rating levels or more. Sales of
securities that have experienced such a credit
downgrade are not deemed mandatory by this policy.
2. Securities Carried at Market Value (Trading Securities)
a. Securities the Bank purchases for the purpose of
active management shall be designated as such at the
time of purchase, and accounted for at market value
in the statement of financial position. All
realized and unrealized gains and losses will,
therefore, be recognized in the current period's
earnings.
b. It is the policy of this Bank that all assets and
purchase commitments within the trading portfolio
will be hedged against interest rate risk to the
extent deemed prudent by Management. Management is
directed to pursue a trading strategy whereby
securities are purchased at a relatively wide net
hedged spread to funding cost, and sell securities
when this net hedged spread is relatively narrow.
It is Management's responsibility to determine the
conduct of this portfolio. It is the Board's
expectation that the total rate of return of this
portfolio will, over time, be superior to that of a
short-term money market portfolio, a proxy for which
shall be the London Interbank Offering Rate (LIBOR)
of one month maturity.
c. The portfolio of securities carried at market value
is limited in the sum of total assets and purchase
commitments to an aggregate market value equal in
amount to 25% of assets. Additionally, the
estimated loss exposure of the portfolio shall be
limited to an amount equal to the Bank's loans-to-
one borrower limit.
4
<PAGE> 8
d. In order to demonstrate the Bank's active management
of securities carried at market value, those
securities which remain in the portfolio for one
year, as of their purchase anniversary date, will be
transferred, at market value, to the portfolio of
securities available for sale. All such decisions
will be subject to review and concurrence at the
appropriate Asset/Liability meeting and will be
documented in the meeting minutes.
3. Securities Available For Sale
a. Securities the Bank purchases without the intent of
active management, or without the positive intent
and ability to hold to maturity, or such securities
transferred pursuant to this policy, shall be
designated as available for sale and accounted for
at market value with tax-effected unrecognized
market value gains or losses reflected in the equity
section of the statement of financial position.
b. It is the policy of this Bank that all assets within
the available for sale portfolio will be hedged
against interest rate risk to the extent deemed
prudent by Management.
D. Mortgage Derivative Products
1. Mortgage Derivative Products Held To Maturity
Mortgage derivative products the Bank purchases with the
positive intent and ability to hold to maturity shall,
prior to purchase, be tested in accordance with the
FFIEC Policy Statement on Securities Activities
(February 10, 1992). Securities passing the three-phase
test are acceptable investments in the portfolio of
securities held for investment. Such a security shall
be accounted for at amortized cost in the statement of
financial position.
2. Mortgage Derivative Products Carried at Market Value
Mortgage derivative products the Bank purchases with the
intent of active management will be assigned to the
portfolio of securities carried at market value. There
is no restriction on the types of mortgage derivative
products that can be purchased for this purpose, except
that imposed by regulation.
3. Mortgage Derivative Products Held as Available For Sale
Some mortgage derivative products provide mortgage
assets with protection from interest rate risk. For
example, principal-only stripped mortgage-backed
securities (POs) stripped from moderately discount-
priced MBS provide net call protection for mortgage
asset portfolios hedged with Treasury-based instruments
such as interest rate swaps or futures. The purchase
and sale of mortgage derivative products is authorized
to the extent the hedging characteristics of such
products are documented at the time of purchase and such
products provide protection from
5
<PAGE> 9
interest rate risk. Mortgage derivative products qualifying
under this section are limited to the following:
a. Principal-only securities derived from collateral
priced below par in the market at purchase, or
principal-only tranches derived from principal-only
securities;
d. Any other derivative product with unambiguous
hedging properties that can be demonstrated at
purchase, as permitted by applicable regulations.
The purchase of such an asset will lead to a
revision of this policy wherein the specified
derivative security type will be listed above.
4. Internal Control of Derivative Products
a. Investment Limitations on High Risk Mortgage
Derivative Products
1) Total investment in high risk derivative products
shall not exceed 25% of Unimpaired capital;
2) Specific investment in any one high risk mortgage
derivative product shall not exceed the
limitation above or the limitation on loans-to-
one borrower, whichever is less.
b. Testing
Prior to purchase, all mortgage derivative products
will be tested in accordance with the FFIEC Policy
Statement on Securities Activities (February 10,
1992). Securities passing the applicable tests may
be held-to-maturity. Securities failing any one of
the applicable tests will be deemed "high risk," and
must be held as available for sale or trading, based
on management's intent. All mortgage derivative
products will be re-tested in July of each year.
Additionally, high risk securities will be re-tested
in January, April and October of each year to ensure
quarterly testing in accordance with the FFIEC
Policy Statement. Any securities held for
investment that fail a subsequent test must be
reclassified as available for sale or trading, as
appropriate.
Assumptions used for conducting the tests must be
retained with the test results. The following
methods of testing are acceptable:
1) Tests using Bloomberg analytics based on
---------
median prepayments of Wall Street dealers;
2) Tests using models developed by, or approved
by, BancTEXAS personnel based on reasonable
and documented prepayment assumptions.
6
<PAGE> 10
c. Reporting
All purchases and sales of high risk mortgage
derivative products will be reported to the
President and the Board of Directors with a
description of the product. Such reports will
include the economic rational for the transaction
and its impact on the Bank's Net Market Value over
an 8% range of interest rate shifts. Additionally,
their combined impact on the Bank's Net Market
Value, covering the same span of interest rates,
will be reported to the Board of Directors on a
monthly basis.
d. Recordkeeping
Records shall be maintained detailing the rationale
for transactions, as well as an evaluation regarding
the expected and actual performance of such
securities. Such records are to be sufficiently
detailed so as to enable internal auditors and
examiners to verify:
1) the intent of the initial purchase was consistent
with the objectives embodied within this policy,
and;
2) the Board has reviewed, at least quarterly, all
high-risk mortgage securities to determine
whether these instruments are adequately
satisfying the interest rate risk reduction
objectives of this policy.
e. Counterparty Limits
The approved counterparties and aggregate limits
listed in this policy for counterparties to interest
rate exchange agreements shall apply to the
aggregate agreements, OTC options and applicable
off-balance sheet mortgage derivative products per
counterparty.
E. Portfolio of Non-Securitized Assets
Due to pricing decisions in its own loan markets, net
shrinkage on interest-earning assets, or relatively
attractive pricing from time to time in other markets,
Management may choose to invest in purchased whole loans.
Such a purchase will be conducted consistent with the
Financial Management Pricing Objective with full
consideration of the credit risk present in such an asset.
All purchases of whole loans, unless specifically indicated
and documented otherwise, are done so with the positive
intent and ability to hold such whole loans to maturity.
Therefore, all such whole loans will be accounted for at
amortized cost in the statement of financial position.
7
<PAGE> 11
VI. LIABILITIES
A. In the selection of various funding sources to support the
asset base of the Bank, the Board acknowledges a bias in
favor of retail deposits. This bias is caused by the
inherent stability, collateral efficiency and the typical
cost benefit of using such funds. This bias
notwithstanding, the Board supports a practice of utilizing
the funding source with the lowest all-in cost.
B. Due to marginal pricing decisions, the potentially negative
economic impact of rapid growth in the retail deposit base,
or attractive pricing from time to time in other markets,
the Board anticipates that Management will augment its
deposit-oriented source of funds with other liability
types. These types will include, but not be limited to:
1. Federal Home Loan Bank Advances;
2. Federal Funds Purchased under Agreement to be Resold
3. Secured or Unsecured Debt;
4. Reverse Repurchase Agreements;
5. Dollar Reverse Repurchase Agreements.
VII. HEDGE INSTRUMENTS
A. Futures
1. Purpose
The purpose for the use of financial futures contracts
is to hedge assets in portfolios of securities carried
at market value or held as available for sale. The
Board expressly forbids the use of futures contracts for
speculative purposes.
2. Accounting
a. Hedging Securities Carried at Market Value (Trading
Securities)
All market value gains or losses will be reflected
in the statement of income.
b. Hedging Securities Held as Available for Sale
All unrecognized gains will be reflected as a tax-
effected adjustment to equity section of the
statement of position. Recognized gains will be
reflected in the statement of income to the extent
that the asset(s) being hedged has been liquidated.
If the hedged asset(s) has not been liquidated,
recognized gains will be reflected as a tax-effected
adjustment to the equity section of the statement of
position. Such recognized gains will be amortized
over the original term of the hedge and reflected in
the statements of income over the amortization
period.
8
<PAGE> 12
3. Types of Permissible Contracts
It is the Bank's policy to limit financial futures
transactions to interest rate contracts listed on
either the Chicago Board of Trade or the Chicago
Mercantile Exchange.
4. Limits on Number of Permissible Contracts
a. Treasury Bond Futures - 2,000 contracts, or
$200,000,000 face amount
b. Treasury Note Futures - 3,000 contracts, or
$300,000,000 face amount
c. Treasury Bill Futures - 5,000 contracts, or
$5,000,000,000 face amount
d. Eurodollar Futures - 5,000 contracts, or
$5,000,000,000 face amount
5. Internal Controls of Futures Activity
The following principles will be applied by Management
to ensure futures positions and activities are conducted
in a safe and sound manner:
a. The individuals that execute futures transactions
will be different from those individuals recording
the futures transactions;
b. The Bank will independently track daily settlement
amounts for comparison with broker calculated
amounts to ensure accuracy;
c. A summary of the Bank's futures positions will be
presented to the Board of Directors at each
regularly scheduled meeting.
B. Options
1. Purpose
The Bank acknowledges that the price sensitivity of most
mortgage-related assets, as well as callable and
structured securities, will change disproportionately
for interest rate swings of greater than 100 basis
points. Such asymmetrical sensitivities give rise to
the need for options. It will be the policy of the Bank
to make the purchase of options deemed prudent by
Management, subject to the review by the Board of
Directors. Sales of options are permitted only to the
extent that sales are offset by existing long positions
having either the same strike price or one that is
closer "to-the-money." Additionally, the Board
expressly forbids the use of options contracts for
speculative purposes.
2. Types of Permissible Contracts
It is the Bank's policy to purchase options from one of
two sources: Exchange traded options contracts listed
on either the Chicago Board of Trade or the Chicago
Mercantile Exchange; or over-the-counter (OTC) options
written by corporate entities that have long-term debt
ratings of no lower than "A", as determined by either
Moody's or Standard and Poor's Ratings Services. The
permissible
9
<PAGE> 13
exchange-traded contracts are limited to options on Treasury
Bond Futures, Treasury Note Futures, Treasury Bill Futures, and
Eurodollar Futures.
3. Limits on Number of Permissible Contracts
a. Exchange Traded Options
1) Treasury Bond Futures - 10,000 contracts, or
$1,000,000,000 face amount;
2) Treasury Note Futures - 10,000 contracts, or
$1,000,000,000 face amount;
3) Treasury Bill Futures - 10,000 contracts, or
$10,000,000,000 face amount;
4) Eurodollar Futures - 5,000 contracts, or
$5,000,000,000 face amount.
b. Over-the-Counter Options
Because of the wide diversity of OTC options, the
limitations on such options will relate to the
degree of counterparty credit risk assumed. The
approved counterparties and aggregate limits
established pursuant to this policy for
counterparties of interest rate exchange agreements
shall additionally be applied to the aggregate
notional amount of interest rate exchange agreements
and OTC options for each counterparty. For each
such counterparty, aggregate exposure shall be
limited to the applicable loans-to-one borrower
limit.
4. Internal Controls of Options Activity
The same controls that have been mandated by the Board
in the previous section relating to futures activity
shall apply to options activity.
C. Interest Rate Exchange Agreements
1. Purpose
Interest rate exchange agreements serve to protect the
Bank from interest rate risk by extending the maturity
of short-term liabilities. The Board expressly forbids
the use of such agreements for speculative purposes.
2. Approved Counterparties
Management is permitted to enter into interest rate
exchange agreements with any counterparty that is an
Approved Broker or Dealer, as named in this policy, or
is identified as a "Primary Dealer" as determined by the
Federal Reserve Bank of New York, provided such
counterparties have long-term debt ratings, as
determined by Moody's or Standard and Poor's, of no
lower than A/A. If a primary dealer who is unnamed in
this policy is selected as a counterparty, the policy
will be amended to add said dealers name, and said
dealer will be subject to the same level of credit
scrutiny as required in this policy for named
counterparties.
10
<PAGE> 14
3. Counterparty Credit Exposure
Any interest rate exchange agreement, or OTC option,
carries the potential of loss due to the counterparty's
failure to fulfill its obligation under such agreement.
For this reason, minimizing counterparty credit risk is
of great importance. Since the degree of credit risk
does not relate directly to the aggregate notional
amount of positions with a given counterparty, it is
impractical to assign counterparty limits relating to
notional amount. Consequently, Management is charged
with the responsibility of minimizing counterparty
credit risk by assessing the incremental credit impact
of any anticipated transaction, as it relates to
existing or potential counterparties. Further,
Management should actively seek, whenever economically
practical, to conduct prospective transactions with
counterparties such that the resulting aggregate
exposure is less than that which would exist prior to
the transaction, or such that the resulting aggregate
exposure of the Bank, if greater, is minimized.
Explicit in this mandate is the prudent diversification
of swap and OTC option positions among approved
counterparties that comprise efficient market-makers.
If the aggregate exposure of a given counterparty
exceeds the applicable loans-to-one borrower limit,
Management is directed to modify an existing position(s)
such that the counterparty exposure is reduced below the
loans-to-one borrower limitation. However, this
requirement is waived when counterparty credit exposure
is adequately covered by collateral held by BancTEXAS or
with an acceptable third party. Management will report
quarterly on existing aggregate positions with each
counterparty and their respective applicable limits.
D. Accounting
Accounting for Financial futures, options, and interest
rate exchange agreements will be consistent with Generally
Accepted Accounting Principles.
VIII. RESPONSIBILITY FOR ASSET/LIABILITY MANAGEMENT
A. Asset/Liability Management Committee
The overall Asset/Liability and Investment affairs of the
Bank are the responsibility of the Board and President of
the Bank. The Board and President will base its decisions
regarding asset/liability management upon information and
recommendations formulated by the Asset/Liability
Management Committee of First Banks, Inc, acting as
consultant. Minutes of any meetings held to decide
asset/liability policy and strategy will be maintained.
B. Authorities, Duties and Responsibilities for Financial
Transactions
1. The Bank has retained Messrs. Allen H. Blake, Stan
C. Faries and Edward D. Furman, officers of First
Banks, Inc., to give investment advice to the Bank.
Subject to prior approval by the President and Chief
Investment Officer of the Bank, Nathan C. Collins,
or in his absence by the Regional President and
Investment Officer of the Bank, David F. Weaver,
Messrs. Allen H. Blake, Stan C. Faries and Edward D.
11
<PAGE> 15
Furman, officers of First Banks, Inc., are hereby
jointly and severally authorized on the behalf of
the Bank:
a. To purchase and sell for any Bank Portfolios, on a
current or forward settlement basis, securities and
other investments as listed below. Such securities
shall include mortgage derivative products as
defined in the FFIEC Policy Statement on Securities
Activities (February 10, 1992), to the extent
permitted by regulation.
1) Direct obligations of the U. S. Treasury
2) Obligations of U. S. Government agencies and
corporations:
a) General obligation and debt issues
b) Mortgage-backed and mortgage derivative
securities
3) Obligations of states and political
subdivisions, subject to the credit limitations
detailed below:
a) General obligations
b) Industrial revenue bonds
c) Other revenue bonds
4) Certificates of deposit and time deposits,
including:
a) Regular domestic certificates of deposit
which are direct placements and are
insured for principal and interest by BIF
or SAIF
b) Eurodollar certificates of deposit and
time deposits
c) Domestic certificates of deposit and time
deposits of foreign banks
5) Bankers' acceptances and commercial paper
6) Corporate bonds and notes
7) Mortgage-backed securities and mortgage
derivative securities issued by private issuers
8) Asset-backed securities
9) Mutual funds, whose underlying assets are
solely comprised of assets that can be invested
directly in under this policy
b. To purchase or sell securities and money-market
instruments under repurchase, reverse repurchase or
dollar reverse repurchase agreements. Collateral
for repurchase agreements shall be held by the Bank,
the Bank's custodian, or a third party custodian.
In no circumstances is such collateral to be held by
a dealer who is counterparty to the repurchase
agreement transaction.
c. To purchase or sell financial futures and options on
financial futures as governed by this policy
statement.
d. To enter into interest rate exchange agreements and
interest rate protection agreements as governed by
this policy statement.
12
<PAGE> 16
e. To enter into advances from banks within the Federal
Home Loan Bank System and to negotiate other
borrowings.
2. All purchases and sales made shall be agreed upon by
any two individuals named above prior to the
transaction. Exceptions to this are short-term
investments and short-term borrowing transactions that
may be made by any one person in order to assure
maintenance of proper levels of liquidity.
Additionally, any transaction listed below requires the
prior approval of Mr. Blake:
a. Any transaction with a principal or notional amount
in excess of $25 million;
b. Any transaction involving a high risk mortgage
derivative security as defined in the FFIEC Policy
Statement on Securities Activities (February 10,
1992);
c. Any interest rate swap or futures transaction
creating over $2 million of average sensitivity for
rate movements of +/- 100 basis points.
3. All transactions and commitments, except for short-
term investments and short-term borrowing
transactions, will be submitted to the Board for
ratification at the next meeting.
4. The individuals named above are prohibited from
conducting personal transactions of a similar nature
as those conducted on the Bank's behalf with the
same securities dealer. The Corporate Secretary is
directed to provide certified copies of this
prohibition to the Approved Securities Dealers, as
named in this policy.
C. Credit Criteria and Quality Ratings
1. Rated municipal securities must be rated Baa/BBB or
higher if the security is a general obligations
security. Revenue bonds and corporate bonds must be
rated at least A/A. Insured bonds must be analyzed to
determine the underlying creditworthiness of the
insurer. The minimum acceptable underlying rating is
Baa/BBB.
2. Instate general obligation bonds that are non-rated
will be purchased only after the creditworthiness of the
issuer has been established. Out-of-state non-rated
general obligation bonds will not be purchased, unless
prior approval of the Board has been received. These
should be evaluated by lending personnel to determine
creditworthiness.
3. Industrial development revenue bonds may also be
purchased by the Bank. These should be evaluated by
lending personnel to determine creditworthiness, since
the bonds are the obligation of the underlying
corporation rather than that of the municipality.
4. Certificates of deposit, time deposits, Eurodollar
deposits, Federal funds sales and bankers' acceptances
will be limited to obligations of selected institutions
(foreign and domestic). These institutions will be
selected based on their creditworthiness
13
<PAGE> 17
and their ability to serve our money market asset needs. The
credit exposure to Correspondent Banks, including Federal funds
sales, time deposits and demand deposits are reviewed no less
frequently than quarterly by the Board, as outlined in the
bank's Regulation "F" policy - Interbank Liability Risk
Management
5. Collateralized mortgage obligations, REMICs, or
passthrough securities that are privately issued will
only be purchased if rated no lower than Aa/AA.
Collateralized mortgage obligations, REMICs, or
passthrough securities issued by GNMA, FNMA or FHLMC, or
securities backed by GNMA, FNMA or FHLMC mortgage
securities require no credit analysis.
D. Limitation of Transaction Amounts
1. The purchase of loans or securities on a current or
future basis shall not be in excess of reasonably
anticipated sources of funds.
2. The purchase of forward commitment contracts shall not
exceed limitations imposed by applicable regulations.
3. The amount of borrowing under reverse repurchase
agreements shall not exceed the amount of collateral
owned by the Bank which is considered eligible by those
firms designated as Approved Brokers and Dealers in
this policy and/or banks within the Federal Home Loan
Bank System.
E. Diversification/Concentration
The investment portfolio should be structured to provide
diversification of securities and risks. This includes not
only avoiding undue concentration in securities of a single
issuer or type of security, but also spreading maturities
to avoid excessive maturities in a single period and
varying the geographic area of the underlying collateral,
structure, weighted average maturity and weighted average
coupon of mortgage-backed and mortgage derivative
securities to alter the effect of prepayments.
Generally, not more than 100% of Unimpaired Capital should
be invested in any single obligation of the U. S. Treasury
or U. S. Government agencies or corporations. Investments
in the debt obligations of any non-Government or non-
Governmental agency issuer will be limited to 20% of the
bank's Unimpaired Capital. Investments in obligations of
states and political subdivisions will be limited to an
aggregate of not more than 5% of assets for instate issuers
and 2% of assets for issuers from other states.
F. Approved Brokers and Dealers
1. The firms listed below are approved for all securities
transactions. They are chosen from the list of
"Primary Dealers" as determined by the Federal Reserve
Bank of New York. In order to qualify as a "Primary
Dealer," a firm is expected to make markets in the full
range of Treasury Issues. In addition, each firm must
exceed the minimum capital standards for their industry
and demonstrate the internal systems
14
<PAGE> 18
to manage their positions and credit risks. In looking at a
firm's capital strength, capital is related to the risk
exposure of positions taken. Additionally, the
experience and capability of a firm and its key
personnel are also considered. A Primary Dealer is
expected to have strong management, experienced trading
personnel, an efficient sales staff and operational
capabilities to process and account for its
transactions efficiently and accurately. Proper
controls of all operations by management and auditing
staffs are also essential. These aspects of a firm,
among others, are reviewed in on-site inspections by
the Federal Reserve Bank of New York's Dealer
Surveillance Staff. Each of these dealers has
demonstrated a consistent willingness to provide
complete and timely disclosure of financial
information.
Management is charged with the responsibility of
formalizing and documenting the broker and counterparty
review process and establishing exposure limits based
on each firm's financial strength. Compliance with
these exposure limits will be documented and reported
quarterly to the Board. First Banks, Inc. personnel
have had long-standing relationships with each firm,
and have found each to have a reputation for fair and
honest dealings. However, First Banks, Inc. and Bank
personnel shall not rely upon advice of any
representatives of said firms due to potential
conflicts of interest that may be detrimental to the
Bank.
a. Merrill Lynch Government Securities, Inc.;
b. Salomon Brothers, Inc. and its affiliate, Salomon
Swapco;
c. Prudential Securities, Inc.;
d. CS First Boston and its parent, Credit Suisse;
e. Lehman Brothers Government Securities, Inc.
f. Bankers Trust;
g. J. P. Morgan and its affiliate, Morgan Guaranty
Trust;
h. Kidder Peabody & Co., Inc.
2. Management is authorized to deal with any other Primary
Dealer without the credit review required above,
provided that no transaction with such a dealer creates
a commitment or obligation that extends for a period
exceeding four months.
3. Management is authorized to deal with other firms that
are not Primary Dealers if such transactions are
conducted on a "delivery versus payment" basis through
a Primary Dealer or a Federal Reserve Bank.
4. In addition to those firms listed above, Management is
authorized to deal with:
a. Any bank in the Federal Home Loan Bank System;
b. Any bank in the Federal Reserve Bank System;
c. Federal Home Loan Mortgage Corporation;
d. Federal National Mortgage Association;
e. Government National Mortgage Association.
15
<PAGE> 19
G. Safekeeping
The approved safekeeping agents for BancTEXAS are:
1. Any Federal Reserve Bank;
2. Any bank in the Federal Home Loan Bank System;
3. Any banking organization considered "adequately
capitalized" by regulatory authorities;
4. Approved Broker / Dealers listed in section F.1. above
5. Eurodollar CD's may be held in safekeeping by the
issuing bank.
IX. EXCEPTIONS
It is recognized that circumstances will arise in which
exceptions to this policy are in the best interest of the Bank.
When this occurs, the exceptions will be reviewed by the
President and the reasons therefore documented. These
exceptions will then be reported to the Board of Directors at
the next scheduled meeting.
16
<PAGE> 1
FEDERAL FUNDS
AGENCY AGREEMENT
This agreement between First Bank (the Agent), and BankTEXAS N.A. ("the
Bank") is to be in effect until cancelled or amended, and establishes the
procedures and conditions by which the Agent will arrange for the purchase
or sale of Federal Funds for the Bank.
1. On a non-exclusive basis, the excess Federal Funds of the Bank will
bought or sold to one or more of the banks on the attached list with a
minimum of $25,000. and in increments of $25,000. A list of specific
banks to which the Bank's funds have been sold will be available upon
request to the Agent. The Agent is functioning only in an agency
capacity, and shall not be liable to the Bank if the funds or interest
are not repaid at maturity; that is to say, the Agent assumes no credit
risk regarding the repayment of funds upon maturity.
2. The trade will be for one business day, observing the same holidays
that are observed by the Federal Reserve Bank of St. Louis.
3. The principal on the settlement date and the principal and interest
on the maturity date will be debited or credited as appropriate to the
Bank's demand deposit account at First Bank. The Agent will confirm the
Bank's order daily with a trade confirmation mailed to the Bank. Each
business day, the Agent will buy or sell the same amount of the Bank's
Federal Funds as was bought or sold the previous day unless the Agent
gives notice from the Bank by 1:00 pm to change the total Federal
Funds order.
4. Under normal circumstances, our resale of your funds in the funds
market, as your agent, will not exceed the Bank's concentration of funds
limit as set forth on the attached schedule.
5. The Agent will charge the Bank a fee for each transaction
calculated at .05% per annum, (sales), or .20% per annum, (purchases),
which may be revised at a future date at the Agent's discretion after
giving written notice to the Bank.
Agreed this 15th day of September, 1994.
FIRST BANK BankTEXAS N.A.
By /s/ Ed Furman /s/ Nathan C. Collins
------------ ---------------------
(Agent) (Bank)
EDWARD FURMAN NATHAN C. COLLINS
Vice President President and CEO
<PAGE> 2
APPROVED BANKS
AND CONCENTRATION LIMITS
FOR SALES OF FED FUNDS
DATE APPROVED: SEPTEMBER 15, 1994
The Board of Directors of BankTEXAS N.A. has acknowledged its approval
and authorization of the following list of "Approved Banks" as recipients
of Federal Funds sold (loaned) on an unsecured basis. We also acknowledge that
FIRST BANK (Creve Coeur) is acting as an agent regarding the sale of its funds
to the following institutions, and as such assumes no liability for the return
of principal and or interest resulting from such transactions. We further
state that it has approved the following concentration of funds limits, with
full consideration of the credit quality of the recipient institutions, and
will notify First Bank (our agent) in writing should it find that alterations
to this list are needed. Authority is herewith granted by the Board of
Directors to the President of BankTEXAS N.A. to execute the "Federal Funds
Agency Agreement" in the form attched hereto.
1. BANK IV WICHITA, KS $5 million
2. BOATMENS NATIONAL BANK ST. LOUIS, MO $5 million
3. HARRIS TRUST CHICAGO, IL $5 million
4. LA SALLE, NB CHICAGO, IL $5 million
5. MERCANTILE, NA ST. LOUIS, MO $5 million
6. MORGAN GTY NEW YORK, NY $5 million
7. NBD BANK DETROIT, MI $5 million
8. NORTHERN TRUST CHICAGO, IL $5 million
9. WACHOVIA WINSTON, NC $5 million
10. FIRST BANK A SAVINGS BANK ST. LOUIS, MO $5 million
11. SOUTHWEST BANK ST. LOUIS, MO $5 million
12. FIRST BANK O'FALLON, IL $5 million
13. FIRST FEDERAL, PROVISO HILLSIDE, IL $5 million
14. NATIONSBANK CHARLOTTE, NC $5 million
<PAGE> 1
FUNDS MANAGEMENT POLICY
FOR BankTEXAS N.A.
In connection with its normal requirements to manage liquidity,
BankTEXAS N.A., ("the BANK"), will enter into a variety of transactions
with FIRST BANK (CREVE COEUR, MO) (the "CENTRAL BANK") in which both
parties will act as principal. All of the transactions referenced herein
represent unsecured extensions of credit between the parties, and may
include loans of portfolio securities, sales of Federal Funds, placements
of deposits and purchases of certificates of deposit.
1. Loans of securities will be subject to the terms and conditions in a
"Securities Borrowing Agreement", executed by the BANK and the CENTRAL
BANK. The parties will lend their own portfolio securities only and will
not lend any securities pledged to or held for the accounts of any of
its customers. The parties will maintain separate records to indicate
which of their portfolio securities are loaned at any time and may request
a report from the contraparty verifying the individual securities held
in the collateral pool.
2. The Board of Directors of each party shall establish limits which
cannot exceed 50% of the respective party's capital accounts for the
transactions referenced by this policy. The limit shall be reviewed and
approved by the Board of Directors on an annual basis, in conjunction
with a review of the regularly available financial information on the
contraparty. Each Board shall also consider the other party's liquidity,
asset-liability mix and profitability prior to establishing or renewing
the limit. Board approval of this limit shall be noted in the official
minutes of the Board. Each party will notify the contraparty annually
of any changes in the limit.
3. The Chief Executive Officer of each party may authorize
transactions which exceed the overnight limit established by the
Board, by up to 50% of the limit for a period not to exceed three (3)
consecutive business days. This exception must be reported to the
Board at its next regular meeting. The Board may change this policy
at any of its regularly scheduled meetings, provided that written
notification is forwarded to the Chief Executive Officer of the
contraparty.
Approved by Board of
Directors on
September 15, 1994:
$ 10,000,000 9/15/94 /s/Richard N. Barriche
---------- ------- ----------------------
LIMIT DATE SECRETARY OF THE BOARD
FOR BankTEXAS N.A.
$ 15,000,000 10/25/94 /s/Josephine Gahn
---------- -------- -----------------
LIMIT DATE ASST. SECRETARY OF THE BOARD
CENTRAL BANK
<PAGE> 1
EXHIBIT 10(m)
SENIOR MANAGER EMPLOYMENT AGREEMENT
-----------------------------------
This Agreement (the "Agreement") is made and entered into as of
December 22, 1993, between BancTEXAS Group Inc., a Delaware corporation
(the "Company"), and David F. Weaver (the "Manager").
----------------
WHEREAS, the Manager is a key employee of the Company and has made
and is expected to continue to make major contributions to the
profitability, growth and financial strength of the Company; and
WHEREAS, the Company wishes to induce its key employees to remain
in the employment of the Company and to assure itself of both present
and future continuity of management in the event of any actual or
threatened change in control of the Company;
NOW, THEREFORE, the parties hereby accept that the Company shall employ
the Manager, and the Manager shall accept employment from the Company,
upon the terms and conditions hereinafter set forth.
ARTICLE I
OPERATION AND TERM
1.1 Operation of Agreement. This Agreement shall be effective as of
----------------------
the date first written above but, anything in this Agreement to the
contrary notwithstanding, neither this Agreement nor any of its
provisions shall be operative unless and until there has been a Change
of Control (as hereinafter defined) of the Company (the "Operative Date").
If the aforementioned Change of Control has not occurred by 12:01 A.M.
Dallas, Texas, time on December 31, 1994, this Agreement shall
automatically, without necessity of any further or additional act or deed
on the part of the parties hereto, or either of them, cease to be of any
continuing force or effect.
1.2 Term. Unless sooner terminated as permitted by Article IV of
----
this Agreement, the Term (herein so called) of this Agreement shall commence
as of the Operative Date and shall expire at 12:01 A.M. Dallas, Texas,
time on January 1, 1995.
ARTICLE II
EMPLOYMENT
2.1 Position. The Company shall continue the Manager in the employ
--------
of the Company as the President South Texas Region for the Term. During
----------------------------
such period, the Manager shall have the powers and duties hereinafter
set forth in this Article II below and such other powers and duties as
may be consistent with this Agreement.
<PAGE> 2
2.2 Duties. The Manager shall have such authority with respect to
------
the business and affairs of the Company as may be specified by the Chief
Executive Officer of the Company, and shall perform such other duties
as are specified in the Bylaws of the Company or the Bank or as the
Board of Directors of the Company or the Bank (the "Board") may from
time to time direct consistent with this Agreement. The Manager shall
faithfully exercise all the powers and authority, and shall perform all
the duties, pertaining to the office set forth in Section 2.1 hereof
in a manner consistent with the direction of the Board and the Chief
Executive Officer.
2.3 Full Time. During the Term, the Manager shall devote his full working
---------
time, best efforts and undivided attention to the business and affairs
of the Company except for reasonable vacations and except for illness or
incapacity, but nothing in this Agreement shall preclude the Manager from
devoting reasonable periods required for engaging in charitable and community
activities, and managing his personal investments, in each case so long as
such activities do not interfere with the proper performance of his
duties hereunder.
ARTICLE III
COMPENSATION
3.1 Salary. For all services rendered by the Manager in any capacity
------
during the Term, the Manager shall be paid as compensation a base salary
payable monthly at the rate of no less than $107,500 per year, with such
--------
merit increases in such rate as shall be awarded from time to time by
the Board.
3.2 Bonus. In addition to the salary to be paid as provided in
-----
Section 3.1 above, the Board shall annually agree upon the basis on
which the Manager may receive an annual performance incentive award.
3.3 Other Benefits. During the Term, the Manager shall be entitled to
--------------
perquisites customarily enjoyed by a similarly situated officer of a
corporation such as the Company, including without limitation an office
and secretarial and clerical staff, and to like fringe benefits,
including without limitation all employee benefits offered by the
Company to its employees generally, as well as to reimbursement, upon
proper accounting, of reasonable expenses and disbursements incurred
by him in the course of his duties.
3.4 Indemnification. During the Term, the Company shall indemnify
---------------
the Manager against all judgments, penalties, fines, amounts paid in
settlement and reasonable expenses actually incurred by the Manager in
connection with any threatened, pending or completed action, suit or
proceeding ("Proceeding") to which he was or is named defendant or
respondent by reason of his serving or having served as an officer or
director of the Company or, at the
2
<PAGE> 3
Company's request, as a director, officer, partner, venturer, proprietor,
trustee, employee, agent or similar functionary of another corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise, including but not limited to the Bank, if it is determined in
accordance with the Bylaws of the Company that the Manager (a) conducted
himself in good faith, (b) reasonably believed that his conduct was in
the Company's best interest and (c) had no reasonable cause to believe
that his conduct was unlawful. No indemnification shall be made under this
Section 3.4 in respect of any Proceeding in which the Manager shall have
been found liable on the basis that a personal benefit was improperly
received by him. The indemnification provided by this Section 3.4 shall
not be deemed exclusive of, or to preclude, any other rights to which
the Manager may at any time be entitled under the Company's or the Bank's
Bylaws, any law, agreement or vote of shareholders or directors, or
otherwise, or under any policy of insurance purchased and maintained by
the Company on behalf of the Manager.
3.5 Withholding. All payments made by the Company hereunder to the
-----------
Manager or his estate or beneficiaries shall be subject to the
withholding of such amounts, if any, relating to tax and other payroll
deductions as the Company may reasonably determine are required to be
withheld pursuant to any applicable law or regulation. In lieu of
withholding such amounts, the Company may accept other provisions to the
end that it has sufficient funds to pay all taxes required by law to be
withheld in respect of any or all of such payments.
ARTICLE IV
TERMINATION
4.1 Termination.
-----------
(a) As used in this Agreement, "Termination" shall mean:
(i) The death of the Manager;
(ii) The total mental or physical disability (the "Disability") of
the Manager which prevents the Manager from substantially performing
his duties under this Agreement (as determined by a majority of three
doctors of medicine, one each of whom shall be appointed by the
Manager or his representative and the Company, respectively, within
ten days after written notice by either party to the other, and the
third of whom shall be appointed jointly by the two previously
appointed physicians within ten days after the later of their two
appointments; provided that if any such appointment is not made within
--------
the applicable ten-day period, either party shall be entitled to have
such appointment made by the American Arbitration Association), and
the continuance of the Disability for a period of 180 consecutive
days. The Company
3
<PAGE> 4
shall pay the fees and expenses of each physician appointed pursuant
to the preceding sentence;
(iii) The voluntary resignation by the Manager from his
employment with the Company for a reason other than that described
in Section 4.1(a)(vi) below, which shall be made by written notice
to the Board specifying an effective date of such resignation;
(iv) The termination of the Manager by the Company for Cause (as
hereinafter defined) by written notice to the Manager specifying an
effective date of termination on or after the date of such notice;
(v) Termination of the Manager without Cause by the Company or
the Bank, which shall have occurred at any time prior to the first
anniversary of the date that the Change of Control (as herein defined)
was effective; or
(vi) A voluntary resignation by the Manager after a determination
by the Manager made in good faith that upon or after the occurrence
of a Change of Control a significant reduction or other adverse
change has occurred in the nature or scope of the responsibilities
and authorities or compensation of the Manager attached to the
Manager's position or, except for a move to or from Houston, Dallas,
Irving, or McKinney, Texas, a change of more than thirty-five (35) miles
has occurred in the location of the Manager's principal office, which
shall have occurred at any time prior to the first anniversary of the
date that the Change of Control (as herein defined) was effective.
(b) In the event of Termination, the Company shall pay the Manager
an amount computed as follows:
(i) if the Termination is pursuant to Section 4.1(a)(i), the
Company shall pay to the estate of the Manager, not later than thirty
(30) days following the date of such Termination, a cash sum equal
to the base salary then in effect for the Manager prorated up to and
including the date of Termination;
(ii) if the Termination is pursuant to Section 4.1(a)(ii), the
Company shall pay to the Manager or his representative not later than
thirty (30) days following the date of such Termination, a cash sum
equal to one year's salary;
(iii) if the Termination is pursuant to Section 4.1(a)(iii) or (iv),
the Company shall pay to the Manager or his representative the base
salary then in effect for the Manager prorated up to and including
the date of Termination; or
4
<PAGE> 5
(iv) if the Termination is pursuant to Section 4.1(a)(v) or (vi),
the Company shall pay to the Manager or his representative, not later
than the fifth day following the date of such Termination, a lump sum
payment (the "Payment") equivalent to one year's salary, paid by the
Company (or any corporation affiliated with the Company within the
meaning of Section 1504 of the Internal Revenue Code of 1986, as amended,
[the "Code"]). It is the intention of the parties hereto that no
portion of the Payment shall constitute a "parachute payment" within
the meaning of Section 280G(b)(2)(A) and (B) of the Code (without
regard to Section 280G(b)(2)(A)(ii) thereof).
In addition to all other amounts payable to the Manager under this Agreement,
the Manager shall be entitled to receive all benefits payable under the
Company's pension plan, and any other plan or agreement relating to
retirement benefits or to compensation previously earned and not yet paid,
in accordance with the respective terms of such plans or agreements.
(c) The parties acknowledge and agree that the compensation to be
paid by the Company to the Manager as a result of any Termination shall
be limited to the amount specified in Subsection (b) of Section 4.1 and the
Manager shall not be entitled to any further salary or benefits (other
than those accrued at the time of such Termination under Company
retirement or profit sharing plans) from the Company after such
Termination, and no payment hereunder shall be due and payable by the
Company to the Manager at such time to the extent that such payment, if
made, would be duplicative of any other payment receivable by the
Manager from the Company under another employment agreement or other
similar arrangement. In consideration for the payment provided in
Subsection 4.1(b) (or by any such other aforementioned employment
agreement or similar arrangement), the Manager hereby releases the
Company from any claims or liability for additional salary or benefits
(other than those accrued at the time of such Termination under Company
retirement or profit sharing plans) during the Term under this Agreement.
4.2 Definitions.
-----------
(a) As used in this Agreement, "Cause" shall mean and include only:
(i) an Act of fraud, embezzlement or theft constituting a felony
and resulting or intended to result directly or indirectly in
substantial personal gain to the Manager at the expense of the
Company or the Bank;
(ii) if the Manager has failed to devote substantially all of his
business time (that is time after giving effect to illness, permitted
vacations and other customary absences) during normal business hours
to the business and affairs of
5
<PAGE> 6
the Company or the Bank and does not cure such failure within ten (10)
days after written notice thereof; or
(iii) a gross violation of Company policy.
(b) As used in this Agreement, a "Change of Control" of the Company
shall have occurred if (A) the Company is merged or consolidated with
another corporation and as a result of such merger or consolidation
less than seventy-five percent (75%) of the outstanding voting securities
of the surviving or resulting corporation are owned in the aggregate by
the former stockholders of the Company, or (B) the Company sells all or
substantially all of its assets to another corporation, which is not a
wholly-owned subsidiary of the Company, or (C) there is an acquisition of
twenty-five percent (25%) or more of the outstanding voting securities of
the Company (whether directly, indirectly, beneficially or of record)
pursuant to any transaction or combination of transactions by any person
or group within the meaning of the Securities Exchange Act of 1934, or (D)
there is a change of control of the Company of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended, whether or not the Company is then subject to such reporting
requirements, or (E) within any period of twelve consecutive months
individuals who at the beginning of such period constitute the Board of
Directors of the Company and new director(s) whose election by the Board
of Directors or nomination for election by the stockholders of the
Company was approved by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors at the beginning of such
period or whose election or nomination for election was previously so
approved, cease, for any reason, to constitute a majority of the Board
of Directors.
ARTICLE V
CONFIDENTIAL INFORMATION
5.1 Confidential Information. The Manager recognizes that the Manager's
------------------------
retention by the Company is one of the highest trust and confidence by
reason of the Manager's access to and contact with certain trade secrets
and confidential and proprietary information of the Company. The Manager
agrees and covenants to use his best efforts and exercise utmost diligence
to protect and safeguard the trade secrets, confidential business practices
and proprietary information of the Company. The Manager further agrees and
covenants that, except as may be required by the Company in connection with
this Agreement, or with the prior written consent of the Company, the
Manager shall not, either during the Term or thereafter, directly or
indirectly, use for the Manager's own benefit or for the benefit of another,
or disclose, disseminate or distribute to another, any trade secret,
confidential business practice or proprietary information (whether or not
acquired,
6
<PAGE> 7
learned, obtained or developed by the Manager alone or in conjunction with
another) of the Company or of any other person with whom the Company has a
business relationship. The Manager further agrees and covenants that the
Manager shall not, either during the Term or for a period of two years
thereafter, directly or indirectly, induce or attempt to induce any
employee of the Company to leave the employ of the Company. All memoranda,
notes, records, drawings, documents or other writings whatsoever made,
compiled, acquired or received by the Manager during the Term arising out of,
in connection with, or related to any activity or business of the Company
are and shall continue to be the sole and exclusive property of the Company,
and shall, together with all copies thereof, be returned and delivered to the
Company by the Manager immediately, upon demand, when the Manager ceases
to be employed by the Company, or at any other time upon Company's demand.
ARTICLE VI
ARBITRATION AND LEGAL EXPENSES
6.1 Arbitration.
-----------
(a) All disputes, differences or questions arising out of or relating
to this Agreement (including, without limitation, those as to the validity,
interpretation, breach, violation or termination hereof) shall, at the
sole option of the Manager, be finally determined and settled pursuant to
arbitration at Dallas, Texas, by three arbitrators, one to be appointed
by the Company, one by the Manager, and a neutral arbitrator to be
appointed by such two party-appointed arbitrators. The neutral arbitrator
shall act as chairman. Any such arbitration may be initiated by the
Manager by written notice to the Company specifying the subject of the
requested arbitration and appointing such party's arbitrator for such
arbitration.
(b) Should (i) the Company fail to appoint an arbitrator by written
notice to the Manager within ten days after the receipt of the
Arbitration Notice, or (ii) the two arbitrators appointed by or on behalf
of the parties herein fail to appoint a neutral arbitrator within ten
days after the date of the appointment of the last arbitrator appointed
by or on behalf of the parties, then the American Arbitration Association,
upon application of the Manager, shall appoint an arbitrator to fill any
such position with the same force and effect as though such arbitrator
had been appointed.
(c) The arbitration proceeding shall be conducted in the English
language in Dallas, Texas, in accordance with the rules of the American
Arbitration Association. A determination, award or other action shall be
considered the valid action of the arbitrators if supported by the
affirmative vote of two or three of the three arbitrators. The costs of
arbitration (exclusive of the expense of a party in obtaining and presenting
evidence and
7
<PAGE> 8
attending the arbitration, and of the fees and expense of legal counsel to
such party, all of which shall be borne by such party) shall be shared
equally by the Company and the Manager. The arbitration award shall be
final and conclusive and shall receive recognition, and judgment upon
such award may be entered and enforced in any court of competent
jurisdiction.
6.2 Reimbursement of Legal Expenses. Notwithstanding any other provision
-------------------------------
hereof, if the Manager institutes any legal proceeding or arbitration
involving the Company because he believes that the Company has failed to
comply with any of its obligations under this Agreement, or in the
event that the Company institutes any legal proceeding to declare this
Agreement void or unenforceable, or institutes any legal proceeding designed
to deny or to recover from the Manager the benefits intended to be provided
to the Manager hereunder, and the Manager is successful on the merits of
such legal proceeding, the Company shall reimburse the Manager for
reasonable expenses incurred by the Manager in retaining counsel in
connection with the initiation or defense of any such legal proceeding or
arbitration.
ARTICLE VII
OTHER PROVISIONS
7.1 Notices. All notices, consents, requests, demands, approvals or other
-------
communications which are required or permitted to be given to the parties
hereto shall be in writing and shall be effective upon receipt by the party
entitled to such notice at the following addresses:
To the Company: BancTEXAS Group Inc.
Suite 300
13747 Montfort Drive
Dallas, Texas 75240
Attention: Richard H. Braucher
Senior Vice President and
General Counsel
To the Manager: Mr. David F. Weaver
14454 Twisted Oak
Houston, Texas 77079
The above addresses may be changed only by giving written notice of
such change of address to the parties hereto.
7.2 No Assignment. No right or interest to or in any payment shall be
-------------
assignable by the Manager; provided, however, that this provision shall not
preclude him from designating one or more beneficiaries to receive any amount
that may be payable after his death and shall not preclude the legal
representative of his estate
8
<PAGE> 9
from assigning any right hereunder to the person or persons entitled thereto
under his will or, in the case of intestacy, to the person or persons
entitled thereto under the laws of intestacy applicable to his estate.
7.3 Beneficiaries. The term "beneficiaries" as used in this Agreement,
-------------
shall, in the event of the death of the Manager, include his estate and
shall mean a beneficiary or beneficiaries designated on a form filed with
the Company by the Manager to receive any amount that may be payable after
his death, or, if no beneficiary has been so designated, the legal
representative of the Manager's estate. In the event of the Manager's
death or a judicial determination of his incompetence, reference in this
Agreement to the Manager shall be deemed, where appropriate, to refer to his
legal representative or, where appropriate, to his beneficiary or
beneficiaries.
7.4 Holidays. If any event provided for in this Agreement is scheduled
--------
to take place on a legal holiday, such event shall take place on the next
succeeding day that is not such a legal holiday.
7.5 Captions. The captions, headings and arrangements used in this
--------
Agreement are intended solely for convenience and do not in any way affect,
limit or amplify the provisions hereof.
7.6 Successors. This Agreement shall be binding upon and shall inure to
----------
the benefit of the Manager and his heirs and legal representatives, and
the Company and its successors, including without limitation any
corporation or corporations acquiring directly or indirectly all or
substantially all of the assets of the Company whether by merger,
consolidation, sale or otherwise (and such successor shall thereafter be
deemed "the Company" for the purposes of the Agreement), but shall not
otherwise be assignable by the Company.
7.7 Amendment and Waiver. No provision of this Agreement may be
--------------------
amended, modified or waived unless such amendment, modification or
waiver shall be authorized by the Board or any authorized committee of the
Board and shall be agreed to in writing, signed by the Manager and by an
officer of the Company thereunto duly authorized. Except as otherwise
specifically provided in this Agreement, no waiver by either party hereto
of any breach by the other party hereto of any condition or provision of
this Agreement to be performed by such other party shall be deemed a
waiver of a subsequent breach of such condition or provision or a waiver of
a similar or dissimilar provision or condition at the time or at any prior
or subsequent time.
7.8 Invalid Provisions. If any provision of this Agreement is held to
------------------
be illegal, invalid or unenforceable under present or future laws, such
provision shall be fully severable, and this Agreement shall be construed
and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part of
9
<PAGE> 10
this Agreement; the remaining provisions of the Agreement shall remain in
full force and effect and shall not be affected by the illegal, invalid
or unenforceable provision or by its severance from this Agreement. In lieu
of each such illegal, invalid or unenforceable provision, there shall be
added automatically as part of this Agreement a provision as similar in
terms to such illegal, invalid or unenforceable provision as may be
possible and be legal, valid and enforceable.
7.9 Governing Law. The validity, interpretation, construction,
-------------
performance and enforcement of this Agreement shall be governed by the laws
of the State of Texas without giving effect to the principles of conflict
of laws thereof.
7.10 Counterparts. This Agreement may be executed in multiple counterparts,
------------
each of which shall constitute an original, and all of which together shall
constitute one and the same agreement.
7.11 Interest. If the Company fails to pay to the Manager or any of his
--------
beneficiaries any amount payable hereunder at the time such payment is due,
then in addition to such payment, the Manager or his beneficiaries shall
be entitled to be paid interest on the past due amount at the highest
rate allowed by applicable law from the date upon which such payment was due
to the date of actual payment thereof.
7.12 Venue. The parties hereto agree that venue for any action brought
-----
by either party hereto concerning the validity, interpretation, construction,
performance or enforcement of this Agreement or any provision hereof shall
lie in Dallas, Texas.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
C O M P A N Y: BANCTEXAS GROUP INC.
- - - - - - -
By: /s/ Nathan C. Collins
-------------------------------------
Nathan C. Collins, Chairman
of the Board, President and
Chief Executive Officer
M A N A G E R: /s/ David F. Weaver
- - - - - - - ----------------------------------------
David F. Weaver
10
<PAGE> 1
EXHIBIT 11
<TABLE>
BancTEXAS Group Inc.
Computation of Earning (Loss) Per Share
<CAPTION>
Year ended December 31,
-----------------------------------------------------------------------
1994 1993 1992<F*>
----------------------- --------------------- ------------------
Per Per Per
Amount Share Amount Share Amount Share
------ ----- ------ ----- ------ -----
(Dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C>
Primary:
Income (loss) before
extraordinary item $ (905) $ (.02) $ 219 $ .01 $ 702 $ .03
Extraordinary item - - - - 362 .02
------ ------- ------- ------ ------- ------
Net income (loss) applicable
to common shareholders $ (905) $ (.02) $ 219 $ .01 $ 1,064 $ .05
====== ======= ======= ====== ======= ======
Weighted average common and
common equivalent shares 36,412,526 23,300,682 23,117,311
========== ========== ==========
Fully diluted:
Income (loss) before
extraordinary item $ (905) $ (.02) $ 219 $ .01 $ 702 $ .03
Extraordinary item - - - - 362 .02
------ ------- ------- ------ ------- ------
Net income (loss) (905) (.02) 219 .01 1,064 .05
Interest expense on 9%
subordinated debentures 63 - 63 - 63 -
------- ------- ------- ------ ------- ------
Net income (loss) applicable
to common shareholders $ (842) $ (.02) $ 282 $ .01 $ 1,127 $ .05
====== ======= ======= ====== ======= ======
Weighted average shares:
Weighted average common
shares 32,713,872 19,355,767 19,141,086
Assuming conversion of:
Stock warrants 1,893,658 1,919,751 1,912,792
Stock options 1,804,996 2,025,164 2,063,433
9% subordinated debentures 2,594 2,594 2,594
---------- ---------- ----------
Weighted average shares 36,415,120 23,303,276 23,119,905
========== ========== ==========
<FN>
------------------
<F*> Restated to reflect BankTEXAS' merger with First Bank/Las Colinas on December 31, 1992
</TABLE>
<PAGE> 1
1994
ANNUAL REPORT
BANCTEXAS GROUP INC.
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
----
<S> <C>
Letter to Stockholders 1
Selected Consolidated and Other Financial Data 3
Management's Discussion and Analysis of Financial Condition
and Results of Operations 4
Management's Report 23
Independent Auditors' Report 24
Financial Statements:
Consolidated Balance Sheets 25
Consolidated Statements of Operations 27
Consolidated Statements of Changes in Stockholders' Equity 28
Consolidated Statements of Cash Flows 29
Notes to Consolidated Financial Statements 30
Quarterly Consolidated Statements of Operations 58
Management 59
Corporate Information 60
</TABLE>
<PAGE> 3
BANCTEXAS GROUP INC.
To our shareholders, customers and friends:
Initially, 1994 appeared to be a disappointment to BancTEXAS and its
shareholders. Clearly, the net loss of $905,000, or $.02 per share,
when compared with net income of $219,000, or $.01 per share for 1993,
was not desirable. Asset quality continued to improve throughout 1994,
with nonperforming assets representing only .61% of total assets at
December 31, 1994, compared to 1.25% at December 31, 1993. This stellar
asset quality did not translate into improved income, as the Company's
net interest margin declined from 3.94% in 1993 to 3.46% in 1994.
Furthermore, substantial nonrecurring charges caused noninterest
expenses to be abnormally high. However, underlying the financial
statements are significant changes in BancTEXAS which suggest a much
brighter future is ahead.
Recognizing the need to establish a solid base upon which to build the
future of BancTEXAS, management and the Board of Directors focused its
efforts in 1994 on three objectives: (a) to increase the capital
position to allow meaningful growth, either internally or through
acquisitions; (b) to redirect the organizational structure, internal
systems and corporate psychology to enable BancTEXAS to significantly
reduce its overhead; and (c) to realign the asset/liability structure of
the Company to provide a level of control over interest rate risk
commensurate with that achieved over credit risk. Looking back at these
objectives at year end, each has either been completed, or is well under
way.
The most prominent event of 1994 was the private placement of $30
million of Class B common stock, which was completed in August. This
was significant not only because it required the approval of the
shareholders at the Annual Meeting and it established a capital position
substantially in excess of all regulatory requirements, but also because
it created the opportunity to aggressively address the other objectives.
Concurrent with the private placement, the Company initiated another
review of its cost structure recognizing that new economies might now be
available through the services offered by a larger organization. Of
particular concern were its various benefits plans, which had become
extremely expensive to the Company. After thorough consideration,
management and the Board determined that it was no longer economically
feasible to continue the accumulation of benefits under its defined
benefits pension plan or to continue to offer Company contributions to
its post retirement medical benefits plan. At the same time, it was
recognized that given this decision, it was also not reasonable to
continue to amortize the unfunded cost of the accumulated benefits under
these plans into the future. Therefore, the Company recorded a one-time
accrual of $1.7 million to reflect these obligations.
Since today's banking environment requires that staffing levels be
adjusted to accomplish its overhead objectives, the Company reevaluated
its personnel requirements considering the availability of various
services and personnel on an "as needed" basis from its new shareholder,
First Banks. While this is always a difficult task, the presence of
these services provides added flexibility in staffing which was not
previously possible. In order to provide for the costs of this process,
the Company recorded an accrual of $430,000.
Once the capital base was in place, management and the Board focused
their attention on the asset/liability structure of the Company,
particularly its investment portfolio. Unlike the two preceding years,
1994 was a year of rapidly increasing interest rates. In this
environment, the strategy of acquiring a substantial portfolio of
mortgage-backed securities, a significant portion of which was purchased
with borrowed funds, was reevaluated. It was determined that the rate of
1
<PAGE> 4
increase in the cost of the borrowed funds significantly exceeded the
related increases in the yield of the investment portfolio, contributing
to a declining net interest margin. Faced with the prospect that this
margin might become negative on a major portion of the Company's assets,
management and the Board decided to dispose of over $113 million of
securities, or approximately one-third of the total assets of BancTEXAS.
The funds generated by this were used to reduce the related liabilities,
as well as to fund the Company's loan growth. Although this resulted in
realizing a loss of over $7 million, it was a significant factor in the
increase in net interest margin from 3.11% in the second quarter of 1994
to 3.84% in the fourth quarter.
As a final step in this process, the Company entered into a series of
interest rate hedging transactions to mitigate the effects which further
interest rate changes might have on its net interest margin. Although
in the short-run hedging has the effect of reducing net interest margin,
it improves the ability of management to maintain its margin during
periods of changing rates.
In December 1994, BancTEXAS' Board elected to implement another change
which is referred to as a "quasi-reorganization". This is an accounting
procedure which results in restating the carrying values of the
Company's assets and liabilities to their current fair values, and
eliminating the deficit which had accumulated over many years in
retained earnings. This had no effect on earnings or cash flow, but was
the last measure required to "put the past behind us" and begin working
together to build the future BancTEXAS organization on a sound base.
In keeping with its announced intention of acquiring other financial
institutions, with the increased capacity afforded by the capital
position, management actively continued its pursuit of acquisition
candidates, particularly in its primary market areas of Dallas and
Houston. After discussing possible combinations with several prospects,
it became apparent that the pricing expectations of the selling
shareholders exceeded the fair value of their institutions. In light of
this development, management and the Board are considering expanding the
geographic area of its acquisition criteria to direct its focus toward
more productive acquisition efforts.
Having set in motion all of these activities, the Company's Chairman,
Chief Executive Officer and President, Mr. Nathan C. ("Nate") Collins
announced his decision in November to retire. Nate joined BancTEXAS
after the recapitalization in 1987 and steered the Company through the
turbulent times which preceded the failure of BankTEXAS Dallas N. A. in
1990. He then led the rebuilding process to bring BancTEXAS to its
present position. Having accomplished this, Nate felt that his task at
BancTEXAS was completed. We are sure that you will join the management
and Board of Directors of BancTEXAS in expressing our thanks and our
best wishes to Nate and his family in his well deserved retirement.
March 17, 1995
James F. Dierberg
Chairman of the Board,
Chief Executive Officer and President
David F. Weaver
Executive Vice President
2
<PAGE> 5
BANCTEXAS GROUP INC.
Selected Consolidated And Other Financial Data
The following table presents selected consolidated financial
information for BancTEXAS Group Inc. for each of the years in the
five-year period ended December 31, 1994.
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C>
Income statement data:
Interest income $ 22,649 21,966 24,735 23,742 29,389
Interest expense 11,072 9,750 11,229 13,226 18,064
Net interest income 11,577 12,216 13,506 10,516 11,325
Provision for possible loan losses 1,258 490 507 934 1,544
Income (loss) from operations
before extraordinary items (905) 219 702 (3,504) (8,489)
Net income (loss) (905) 219 1,064 (3,039) 27,641
Per share data:
Income (loss) from operations (.02) .01 .03 (.18) (.44)
Net income (loss) (.02) .01 .05 (.16) 1.44
Dividends paid nil nil nil nil nil
Balance sheet data:
Assets 331,790 368,608 322,769 290,817 265,899
Loans, net of unearned discount 203,314 167,732 174,695 183,371 192,246
Allowance for possible loan losses. 2,756 2,637 3,044 4,479 5,666
Deposits 241,570 242,897 270,730 251,586 242,092
Long-term debt 1,054 1,054 1,066 1,066 2,032
Stockholders' equity 39,714 14,952 14,107 13,013 16,055
Book value per common share .68 .75 .73 .68 .84
Financial ratios:
Return on average assets N/A .07% .34% N/A 8.64%
Return on average equity N/A 1.49% 7.90% N/A N/A
Average equity as a percent of
average assets 6.80% 4.40% 4.28% 5.38% (3.66)%
Asset quality ratios:
Allowance for possible loan losses
to total loans 1.36% 1.57% 1.74% 2.44% 2.95%
Allowance for possible loan losses
to nonperforming loans 578.99% 185.05% 193.39% 102.66% 93.11%
Nonperforming assets to total
assets .61% 1.25% 2.10% 3.87% 6.08%
Nonperforming assets to loans
and foreclosed assets .99% 2.69% 3.77% 5.91% 7.99%
Other statistics:
Number of employees (at year end) 154 164 170 172 200
</TABLE>
3
<PAGE> 6
BANCTEXAS GROUP INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
GENERAL
BancTEXAS Group Inc. is a registered bank holding company incorporated
in Delaware. At December 31, 1994 BancTEXAS Group Inc. and
subsidiaries (BancTEXAS or the Company) had approximately $331.8
million in total assets, $203.3 million in total loans, net of unearned
discount, $241.6 million in total deposits and $39.7 million in total
stockholders' equity. The Company operates through its subsidiary
bank, BankTEXAS N. A. (the Bank).
Through the Bank's six banking locations in Houston, Dallas, McKinney
and Irving, Texas, the Company offers a broad range of commercial and
personal banking services, including certificates of deposit,
individual retirement and other time deposit accounts, checking and
other demand deposit accounts, interest checking accounts, savings
accounts and money market accounts. The Bank offers various loan
products to its customers, including commercial and industrial,
commercial and residential real estate, real estate construction and
development, and consumer loans. In addition, the Bank makes available
to its customers other financial services, which include automatic
teller machines, credit related insurance and safe deposit boxes.
The Company's management philosophy is to centralize overall corporate
policies, procedural and administrative functions and to provide
operational support functions for the Bank. Primary responsibility for
managing the Bank remains with its officers and directors.
On August 31, 1994, BancTEXAS issued and sold 37,500,000 shares of
Class B common stock (the Class B Stock) in a private placement in
exchange for $30 million in cash. This increased the capital of
BancTEXAS to levels substantially in excess of regulatory requirements.
As a result of this transaction, the purchaser of the Class B Stock,
First Banks, Inc. (First Banks) became the owner of approximately 65.05%
of the outstanding voting stock of BancTEXAS at August 31, 1994 (see
note 2 to the consolidated financial statements).
FINANCIAL CONDITION AND AVERAGE BALANCES
The Company's average total assets were $363.7 million, $333.6 million
and $314.8 million for the years ended December 31, 1994, 1993 and
1992, respectively. The increase in total assets primarily reflected
an expansion of the investment portfolio to an average of $141.7
million for the year ended December 31, 1994, compared with $132.6
million and $100.2 million for the years ended December 31, 1993 and
1992, respectively. This was the result of an investment strategy
which the Company was following during this period whereby funds were
borrowed, principally repurchase agreements and advances from the
Federal Home Loan Bank, which were in turn used to purchase securities.
Consequently, there was a corresponding increase in average short-term
borrowings to $89.7 million for the year ended December 31, 1994
compared with $55.6 million and $34.6 million for the years ended
December 31, 1993 and 1992, respectively.
The loan portfolio, the Company's largest category of earning assets
decreased from an average of $183.3 million for the year ended December
31, 1992 to $171.9 million in 1993, and increased to $182.9 million in
1994. BancTEXAS has had a strong presence in automobile financing,
primarily on an indirect basis through dealers in Houston and Dallas,
Texas. Because of this presence and its expertise in this type of
lending, BancTEXAS originated loans in excess of its portfolio
capacity. Consequently, the excess loan production was periodically
sold to unrelated entities, primarily other financial institutions. In
addition, in 1993, the Company began originating for resale FHA Title I
home improvement loans. As a result, BancTEXAS sold an aggregate of
$55.6 million and $37.9 million of loans during the years ended
December 31, 1994 and 1993, respectively. The ability to sell loans in
this manner allows BancTEXAS the flexibility of controlling the
aggregate level and mix of its loan portfolio, as well as providing a
source of noninterest income.
4
<PAGE> 7
BANCTEXAS GROUP INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
During this period, BancTEXAS was endeavoring to change its deposit
structure. Noninterest-bearing demand accounts increased from an
average of $38.9 million for the year ended December 31, 1992 to $45.1
million and $49.1 million for the years ended December 31, 1993 and
1994, respectively. This growth provided the Company with an
opportunity to reduce its reliance on time deposits of $100,000 and
over. These deposits were reduced from an average of $35.1 million, or
13.4% of total deposits in 1992, to $33.0 million, or 12.7% of total
deposits in 1993, and $19.9 million, or 8.1% of total deposits in 1994.
<TABLE>
However, in spite of these changes, BancTEXAS experienced a declining
net interest income and net interest margin during this period. The
following table sets forth certain information relating to the
Company's average balance sheet and the related interest income or
expense and average interest yield earned and rate paid for the years
ended December 31:
<CAPTION>
1994 1993 1992
-------------------------- -------------------------- ---------------------------
Interest Interest Interest
Average Income/ Average Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ---- ------- ------- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Time deposits with banks $ 5,379 269 5.00% $ 825 31 3.76% $ 409 15 3.67%
Investment securities <F2> 141,720 6,965 4.91 132,563 6,650 5.02 100,184 6,367 6.36
Federal funds sold and securities
purchased under agreements to
resell 4,817 219 4.55 4,517 133 2.94 7,199 249 3.46
Loans <F1> <F2> 182,922 15,196 8.31 171,889 15,152 8.82 183,315 18,104 9.85
------- ------ ------- ------ ------- ------
Total earning assets 334,838 22,649 6.76 309,794 21,966 7.09 291,107 24,735 8.47
------- ------ ------- ------ ------- ------
Nonearning assets:
Cash and due from banks 9,782 8,253 7,486
Premises and equipment 11,110 11,452 11,714
Other assets 10,584 6,977 8,587
Allowance for loan losses (2,607) (2,894) (4,094)
------- ------- -------
Total assets $363,707 $333,582 $314,800
======= ======= =======
Interest bearing liabilities:
Interest-bearing demand and
savings deposits $ 83,381 2,195 2.63% $ 88,986 2,268 2.55% $ 92,783 3,020 3.25%
Time deposits of $100,000
or more 19,918 852 4.28 33,035 1,226 3.71 35,141 1,581 4.49
Other time deposits 92,126 4,073 4.42 92,648 4,183 4.51 94,807 5,145 5.41
------- ------ ------- ------ ------- ------
Total interest bearing deposits 195,425 7,120 3.64 214,669 7,677 3.58 222,731 9,746 4.38
Federal funds purchased, short-term
borrowings and Federal Home
Loan Bank advances 89,699 3,857 4.30 55,576 1,978 3.56 34,612 1,388 4.01
Long-term debt 1,054 95 9.01 1,055 95 9.00 1,063 95 8.91
------- ------ ------- ------ ------- ------
Total interest-bearing liabilities 286,178 11,072 3.87 271,300 9,750 3.59 258,406 11,229 4.33
------- ------ ------- ------ ------- ------
Noninterest bearing liabilities:
Demand deposits 49,125 45,106 38,925
Other liabilities 3,683 2,498 4,000
------- ------- -------
Total liabilities 338,986 318,904 301,331
Stockholders' equity 24,721 14,678 13,469
------- ------- -------
Total liabilities and
stockholders' equity $363,707 $333,582 $314,800
======= ======= =======
Net interest income $ 11,577 12,216 13,506
======= ====== ======
Interest rate spread 2.89 3.50 4.14
Net interest margin 3.46% 3.94% 4.63%
==== ==== ====
<FN>
---------------
<F1> Nonaccrual loans are included in the average loan amounts. Interest on nonaccrual loans is recorded when received.
<F2> BancTEXAS has no tax-exempt income.
</TABLE>
5
<PAGE> 8
BANCTEXAS GROUP INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
INTEREST VOLUME AND RATE VARIANCE
The following table indicates the changes in interest income and
expense which are attributable to changes in average volume and changes
in average rates when compared with the preceding year. The combined
rate/volume variance represents that portion of the change which is not
solely attributable to either the change in volume or the change in rate.
<TABLE>
<CAPTION>
1994 Change from 1993 1993 Change from 1992
------------------------------------------ ------------------------------------------
Change Due to: Change Due to:
------------------------------ ------------------------------
Total Rate/ Total Rate/
Change Volume Rate Volume Change Volume Rate Volume
------ ------ ---- ------ ------ ------ ---- ------
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Time deposits with banks $ 238 171 10 57 16 16 - -
Investment securities <F2> 315 459 (135) (9) 283 2,057 (1,341) (433)
Federal funds sold and
securities purchased under
agreements to resell 86 9 72 5 (116) (93) (37) 14
Loans <F1> <F2> 44 973 (873) (56) (2,952) (1,128) (1,945) 121
----- ----- ------- ---- ------- ------- ------ ----
Total interest income 683 1,612 (926) (3) (2,769) 852 (3,323) (298)
----- ----- ------- ---- ------- ------- ------ ----
Interest bearing funds:
Interest-bearing demand
and savings deposits (73) (148) 79 (4) (752) (124) (655) 27
Time deposits of $100,000
or more (374) (487) 187 (74) (355) (95) (277) 17
Other time deposits (110) (23) (87) - (962) (117) (865) 20
Short-term borrowings 1,879 1,214 412 253 590 841 (156) (95)
Long-term debt - - - - - (1) 1 -
----- ----- ------- ---- ------- ------- ------ ----
Total interest expense 1,322 556 591 175 (1,479) 504 (1,952) (31)
----- ----- ------- ---- ------- ------- ------ ----
Net interest income $ (639) 1,056 (1,517) (178) (1,290) 348 (1,371) (267)
===== ===== ======= ==== ======= ======= ====== ====
<FN>
---------------
<F1> Nonaccrual loans are included in the average loan amount. Interest on nonaccrual loans is recorded when received.
<F2> BancTEXAS has no tax-exempt income.
</TABLE>
NET INTEREST INCOME
The primary source of the Company's earnings is its net interest
income, which is the difference between the interest earned on assets
and the interest paid on liabilities. Net interest income was
$11,557,000, or 3.46% of average earning assets for the year ended
December 31, 1994, compared with $12,216,000, or 3.94% of average
earning assets, and $13,506,000, or 4.63% of average earning assets for
the years ended December 31, 1993 and 1992, respectively.
6
<PAGE> 9
BANCTEXAS GROUP INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
With the general decline in interest rates during 1992 and 1993, the
yield on the Company's loan portfolio decreased from 9.85% in 1992 to
8.82% in 1993. Because the Company's loan portfolio consists
predominately of automobile loans, which are generally fixed rate loans
with relatively short average lives, as new loans were originated they
were generally at rates below those of the existing portfolio. In
addition, during this time the Company was selling its excess loan
originations, primarily from loans which were seasoned six to nine
months. Since in a declining rate environment the rates on these loans
tended to be somewhat higher than those on newly originated loans, this
had the effect of reducing the average portfolio yield at a more rapid
rate than would have occurred if loans were not sold.
In 1994, as interest rates increased, BancTEXAS found that its ability
to sell loans had decreased substantially. Furthermore, intense
competition for automobile loans, particularly with non-bank entities,
caused market rates to increase more slowly than interest rates in
general. Consequently, the amounts and rates at which new loans were
originated were each less than anticipated. The combination of this
trend and the continued repayments of the older loans, which were
generally at higher rates, caused the yield on the loan portfolio to
continue its decline to 8.31% for the year ended December 31, 1994,
compared with 8.82% for the year ended December 31, 1993.
While the yield on the loan portfolio declined during this period, the
Company's cost of interest-bearing deposits, the principal source of
funding for the loan portfolio, failed to decrease in tandem. From the
average of 4.38% for the year ended December 31, 1992, the cost of
interest-bearing deposits declined to 3.58% for the year ended December
31, 1993, or 80 basis points. However, during the same period the
decrease in yield of the loan portfolio was 103 basis points. For the
year ended December 31, 1994, the cost of interest-bearing liabilities
was 3.64%, an increase of six basis points over that of 1993. At the
same time, however, the average yield on the loan portfolio decreased
51 basis points, further compressing the net interest margin.
<TABLE>
Realizing the need to provide other sources of generating net interest
income, the Company began following an investment strategy in 1992
whereby funds were borrowed, principally as advances and short-term
repurchase agreements from the Federal Home Loan Bank, which were
invested in mortgage-backed securities. This generated an incremental
spread, thereby enhancing income. In order to limit the amount of
interest rate exposure in this strategy, the majority of the securities
acquired had adjustable rates. All of the adjustable rate securities
acquired were based on the Eleventh District Cost of Funds Index
(COFI), which by its nature is an index which generally reacts more
slowly to interest rate changes than more frequently used indices.
Consequently, as rates declined in 1992 and 1993, this index decreased
more slowly than interest rates generally, causing the spread between
these investments and the corresponding cost of funds to widen. This
contributed significantly to the net interest margin for the year.
However, as the interest rate declines slowed in 1993 and rates
increased in 1994, this contribution to net interest margin was
substantially reduced. The following is a comparison of the yield
earned on the investment portfolio and the cost of short-term
borrowings for the years ended December 31:
<CAPTION>
Year Ended December 31,
---------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Average yield on investments 4.91% 5.02% 6.36%
Average cost of short-term borrowings 4.30 3.56 4.01
---- ---- ----
Interest spread .61% 1.46% 2.35%
==== ==== ====
</TABLE>
7
<PAGE> 10
BANCTEXAS GROUP INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Although a substantial portion of the investment portfolio was funded
from other sources, this decreasing interest spread on that portion
funded from short-term borrowings was a significant factor in the
decline in net interest margin during this period. Furthermore, as the
securities portfolio increased in amount, the portion of this portfolio
which was funded with borrowed funds increased.
Concerned that further increases in interest rates might cause the
interest spread on these securities to become negative, in September
1994, the Company sold $113,852,000 of securities, realizing a loss of
$7,055,000, and reducing the amount of borrowed funds. While this had
a substantial negative impact on earnings for the year ended December
31, 1994, it contributed to an increase in the net interest income for
the fourth quarter, which was $3,130,000, compared with $2,854,000 for
the third quarter of 1994. Similarly, net interest margin increased to
3.84% for the fourth quarter of 1994, compared with 3.23% for the third
quarter of 1994.
COMPARISON OF RESULTS OF OPERATIONS FOR 1994 AND 1993
Net loss for the year ended December 31, 1994 was $905,000, compared
with net income of $219,000 for the year ended December 31, 1993. The
results of operations for 1994 were significantly affected by the
decline in net interest income to $11,557,000 compared with $12,216,000
for 1993, as well as the net loss on sales of investment securities of
$7,007,000 in 1994, both of which are discussed above. In addition,
there were several other factors affecting the 1994 results, some of
which were nonrecurring.
The provision for possible loan losses was $1,258,000 for the year
ended December 31, 1994, compared to $490,000 for 1993. Although asset
quality continued to improve, net charge-offs increased to $1,139,000
for 1994, compared to $897,000 for 1993. When combined with an
increase in total loans, management assessed the adequacy of the
allowance for possible loan losses and determined that it would be
prudent to strengthen it through the additional provision.
Following the completion of the private placement of Class B common
stock in August 1994, the Company analyzed its deferred income tax
assets and liabilities, and particularly the probability of their
utilization. Because of the history of BancTEXAS, the ability of the
Company to consistently generate sufficient taxable income to realize
the benefits of the various tax attributes which were available to it
was uncertain. For this reason, the Company had fully reserved its net
deferred tax assets in 1993. With the receipt of the additional capital
from the private placement, and the cash proceeds therefrom, it was
determined that the ability of BancTEXAS to generate future taxable
income was substantially enhanced. Although the nature of the
transaction caused the imposition of certain limitations under the
Internal Revenue Code, which will result in the expiration of a portion
of the tax attributes before they can be utilized, the analysis
indicates that a substantial portion remains which can be utilized. As
a result of this analysis, the Company reduced the valuation allowance
established in connection with the deferred tax assets. This
contributed to the recognition of a credit for deferred income taxes
for the year ended December 31, 1994 of $9,461,000.
8
<PAGE> 11
BANCTEXAS GROUP INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
<TABLE>
Noninterest income and expense for the years ended December 31, 1994
and 1993 were comprised of the following:
<CAPTION>
Increase (Decrease)
-------------------
1994 1993 Amount Percent
---- ---- ------ -------
(dollars expressed in thousands)
<S> <C> <C> <C> <C>
Noninterest income:
Service charges on deposit accounts $ 1,427 1,542 (115) (7.5)%
Other service charges and fees 169 174 (5) (2.9)
Gains on sale of loans 38 698 (660) (94.6)
Loan servicing fees 290 201 89 44.3
Other income 572 210 362 172.4
------ ------ ------
2,496 2,825 (329) (11.6)%
======
Gain (loss) on sale of
investment securities (7,007) 243 (7,250) N/A
------ ------ ------
Total noninterest income (loss) $ (4,511) 3,068 (7,579) N/A
====== ====== ======
Noninterest expense:
Salaries and employee benefits $ 8,911 6,483 2,428 37.5%
Occupancy, net of rental income 1,321 1,348 (27) (2.0)
Furniture and equipment 843 919 (76) (8.3)
Federal Deposit Insurance
Corporation premiums 684 754 (70) (9.3)
Communications and supplies 1,058 1,060 (2) (.2)
Legal, examination and
professional fees 1,203 1,580 (377) (23.9)
Data processing 890 911 (21) (2.3)
Losses and expenses on foreclosed
real estate 192 166 26 15.7
Litigation settlement expense - 592 (592) -
Other 1,072 762 310 40.7
------ ------ ------
Total noninterest expense $ 16,174 14,575 1,599 11.0%
====== ====== ====== ======
</TABLE>
Noninterest Income
Service charges on deposit accounts decreased approximately $115,000,
or 7.5% in 1994 compared with 1993. In 1992 the Company had tightened
its policy of verifying the credit history of new deposit customers to
reduce its exposure to losses from checks drawn on accounts with
insufficient funds. At the same time, service charge increases were
instituted in several areas, principally affecting demand deposit
accounts. While this resulted in an immediate increase in service
charge income, gradually those customers who customarily maintained
relatively small accounts, and therefore incurred larger service
charges relative to the amount of funds on deposit, began changing
their account relationships. Many of those with funds in other
accounts transferred sufficient funds to their demand accounts to
reduce the amount of the service charges. Others who did not have
those funds available closed their accounts. This resulted in a net
reduction of the number of customer accounts serviced by BancTEXAS
during this period, but an increase in the average balance of the
remaining accounts.
9
<PAGE> 12
BANCTEXAS GROUP INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
In 1993, BancTEXAS realized gains of $698,000 from the sale of loans,
primarily the sale of automobile loans originated which exceeded the
capacity of the loan portfolio. As interest rates increased in 1994,
the Company's ability to sell these loans was substantially reduced, and
the gains on such sales decreased to $38,000. In connection with these
loan sales, BancTEXAS retained the related servicing rights. The
Company received only a portion of the annual servicing fees in 1993 on
those loans sold during the year, but a full year's fees in 1994.
Consequently, income from servicing loans for others increased from
$201,000 in 1993 to $290,000 in 1994.
The increase in other noninterest income for the year ended December
31, 1994 related principally to the receipt of $255,000 in settlement of
litigation relating to the failure of BancTEXAS Dallas N.A. in 1990.
Noninterest Expense
Total noninterest expense was $16,174,000 for the year ended December
31, 1994, compared with $14,575,000 for the year ended December 31,
1993. Included in 1994 expenses were several non-recurring charges
reflecting changes initiated during the year by BancTEXAS. These
included: (a) accruals of $430,000 for severance benefits relating to
the realignment of staffing levels; (b) an increase in the expense for the
deferred benefit pension plan of $839,000 for which the accumulation of
benefits was discontinued in 1994; and (c) an accrual of $898,000 for the
unfunded liability relating to the post-retirement medical benefits plan,
Company funding of which was discontinued in 1994 with respect to future
retirees.
<TABLE>
Because most of the effects of these non-recurring charges were
reflected as personnel expenses, these expenses increased to $8,911,000
for the year ended December 31, 1994, compared with $6,483,000 for the
year ended December 31, 1993, an increase of $2,428,000, or 37.5%. The
components of this increase were as follows:
<CAPTION>
Increase
------------------
1994 1993 Amount Percent
---- ---- ------ -------
(dollars expressed in thousands)
<S> <C> <C> <C> <C>
Salaries and wages $ 5,346 5,224 122 2.3%
Payroll taxes 418 408 10 2.5
Employee benefits 980 816 164 20.1
Severance benefits 430 35 395 -
Nonrecurring benefits accruals 1,737 - 1,737 -
------ ------ ------
Total personnel expense $ 8,911 6,483 2,428 37.5%
====== ====== ====== ========
</TABLE>
Occupancy expense, net of rental income, decreased from $1,348,000 for
the year ended December 31, 1993 to $1,321,000 for the year ended
December 31, 1994. This decrease primarily resulted from rental income
of the McKinney building by unrelated tenants, which increased from
$245,000 for the year ended December 31, 1993 to $286,000 for the year
ended December 31, 1994, an increase of 16.7%. This increase in rental
income was partially offset by rent expense on the Company's Abrams
facility, which was opened in September 1993.
10
<PAGE> 13
BANCTEXAS GROUP INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Expenses related to furniture and equipment decreased in 1994 to
$843,000 from $919,000 for 1993, a decrease of $76,000, or 8.3%. In
the past, the Company has leased substantial portions of the equipment
required for bank operations. Most of these leases expired during 1993
and 1994 and were not renewed. As the leases expired, the Company
purchased that equipment which was still required for operations, if
the equipment was serviceable and the cost was reasonable. Other
equipment was acquired as necessary. Consequently, rent expense on
equipment leases decreased from $255,000 for the year ended December
31, 1993 to $157,000 for the year ended December 31, 1994.
Premiums paid to the Federal Deposit Insurance Corporation decreased
from $754,000 for the year ended December 31, 1993 to $684,000 for the
year ended December 31, 1994, a decrease of $70,000, or 9.3%, primarily
as a result of reductions in the rate assessed BancTEXAS between the
two years.
Legal, examination and professional fees decreased from $1,580,000 in
the year ended December 31, 1993 to $1,203,000 for the year ended
December 31, 1994, a decrease of $377,000, or 23.9%. In 1993, the
Company settled a class action lawsuit relating to a 1984 private
placement of common stock. The cost of this settlement was reflected
as a separate expense during the year ended December 31, 1993. In
addition, in February 1994, the court ruled in favor of the Company in
a significant lawsuit in which claims of lender liability had been
asserted. While this litigation is being appealed by the plaintiffs,
the legal fees required to defend the Company's position in connection
with this action, as well as the class action, was substantially
reduced in 1994.
Other noninterest expenses increased to $1,072,000 for the year ended
December 31, 1994, compared with $762,000 for the year ended December
31, 1993, an increase of $310,000, or 40.7%. Included in other
expenses for 1994 was a non-recurring charge of $295,000 incurred in
connection with a change in the Company's vendors single interest
insurance policies relating to its indirect automobile lending program.
In addition, during the year ended December 31, 1993, BancTEXAS
reversed approximately $354,000 of estimated accrued costs relating to
the failure of BancTEXAS Dallas N. A., BancTEXAS' former subsidiary,
that were no longer considered necessary.
COMPARISON OF RESULTS OF OPERATIONS FOR 1993 AND 1992
Net income for the year ended December 31, 1993 was $219,000, compared
with net income of 1,064,000 for the year ended December 31, 1992.
However, before an extraordinary credit of $362,000, net income for
1992 was $702,000. Net income for 1993 was significantly affected by
the reduction of net interest income from $13,506,000, or 4.63% of
average earning assets in 1992 to $12,216,000, or 3.94% of average
earning assets in 1993, which was discussed previously. However, this
was partially offset by an increase in noninterest income from
$2,629,000 in 1992 to $3,068,000 in 1993.
11
<PAGE> 14
BANCTEXAS GROUP INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
<TABLE>
Noninterest income and expense for the years ended December 31, 1993
and 1992 were comprised of the following:
<CAPTION>
Increase (Decrease)
-------------------
1993 1992 Amount Percent
---- ---- ------ -------
(dollars expressed in thousands)
<S> <C> <C> <C> <C>
Noninterest income:
Service charges on deposit accounts $ 1,542 1,772 (230) (13.0)%
Other service charges and fees 174 13 161 -
Gain on sale of loans 698 372 326 87.6
Loan servicing fees 201 70 131 187.1
Other income 210 299 (89) (29.8)
------- ------- ------
2,825 2,526 299 11.8%
=======
Gain on sale of investment
securities 243 103 140 N/A
------- ------- ------
Total noninterest income $ 3,068 2,629 439 N/A
======= ======= ======
Noninterest expense:
Salaries and employee benefits $ 6,483 6,160 323 5.2%
Occupancy, net of rental income 1,348 1,464 (116) (7.9)
Furniture and equipment 919 691 228 33.0
Federal Deposit Insurance
Corporation premiums 754 530 224 42.3
Communications and supplies 1,060 1,042 18 1.7
Legal, examination and professional
fees 1,580 1,517 63 4.2
Data processing 911 856 55 6.4
Losses and expenses on foreclosed
real estate 166 1,128 (962) (85.3)
Litigation settlement expense 592 - 592 -
Other 762 1,174 (412) (35.1)
------- ------- ------
Total noninterest expense $ 14,575 14,562 13 .1%
======= ======= ====== =======
</TABLE>
Noninterest Income
Noninterest income for 1993 included securities gains of $243,000,
compared to $103,000 for 1992. Service charges on deposit accounts and
other service charges and fees decreased $69,000, or 4%, from 1992 to
1993. This decrease includes reduced revenue resulting from closing the
safe deposit function at one of BancTEXAS's locations of $34,000 and
decreased revenue from return check charges of $31,000. Income from
loan sales increased to $698,000 for 1993, compared with $372,000 in
1992, an increase of $326,000. The increased volume of loan sales also
resulted in an increase in loan servicing income, which was $201,000 in
1993 compared to $70,000 in 1992. As of December 31, 1993, BancTEXAS is
servicing $39 million of consumer loans for third parties compared to
$19 million as of December 31, 1992.
Other noninterest income decreased $89,000 from 1992 to 1993, or 29.8%,
primarily the result of a reduction of annuity income of $46,000.
12
<PAGE> 15
BANCTEXAS GROUP INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Noninterest Expense
Total noninterest expense for 1993 increased $13,000 or .1% from 1992.
The magnitude of increase is indicative of the continued effort to
control expenses. Personnel expense increased $323,000 or 5.2% from
1992 to 1993. This increase reflected normal merit raises for the year
and severance payments made for a minor staff reduction at year-end
1993.
Occupancy expense decreased $116,000 or 7.9% from 1992 to 1993. This
decrease was due to more favorable terms in renegotiated leases and
receiving more tenant income from the Bank's building in McKinney.
Equipment expense increased $228,000 or 33.0% from 1992 to 1993. This
increase is primarily due to the purchase of new equipment to maintain
pace with current technology.
Insurance premiums paid to the Federal Deposit Insurance Corporation
increased $224,000 or 42.3% from 1992. During 1993, the FDIC initiated
a new rate schedule. The average premium charged for the Bank for FDIC
Insurance on its deposits in 1993 was 30 cents per $1,000 compared to 23
cents per $1,000 in 1992.
Losses and expenses on foreclosed real estate decreased $962,000 or
85.3% from 1992 to 1993. This is primarily the result of lower real
estate taxes and a lower provision for future losses. Included in
losses and expenses on foreclosed real estate were provisions for losses
of $382,000 in 1993 and $1.1 million in 1992.
Included in noninterest expense in 1993 is a litigation settlement of
$592,000. As more fully discussed in note 18 of the accompanying
consolidated financial statements, this litigation related to a class
action lawsuit involving a private placement of common stock completed
in 1984. This action was settled in 1993.
Other noninterest expenses decreased $412,000 or 35.1% from 1992 to
1993. These decreases resulted primarily from the reversal of $354,000
in estimated costs relating to the failure of BancTEXAS's former
subsidiary that were no longer necessary.
INVESTMENT SECURITIES
BancTEXAS classifies the securities within its investment portfolio as
held-to-maturity or available-for sale. BancTEXAS does not engage in
the trading of investment securities. As more fully described in the
Net Interest Income section hereof and note 4 of the accompanying
consolidated financial statements, during 1994 management conducted a
review of its investment portfolio and practices. As a result of the
review, it was decided to reclassify the remaining securities within the
held-to-maturity portfolio to available-for-sale and sell certain of
these available-for-sale securities. In addition, as more fully
described in the Interest Rate Risk management section hereof and notes
1 and 19 of the accompanying consolidated financial statements,
BancTEXAS implemented a hedging program to reduce the interest rate risk
of the available-for-sale portfolio. BancTEXAS specifically hedges the
interest rate risk of the available-for-sale portfolio with interest
rate futures contracts.
13
<PAGE> 16
BANCTEXAS GROUP INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
LOANS
Interest earned on the loan portfolio is the primary source of income
for the Bank. Loans, net of unearned discount, represented 61.3% of
total assets as of December 31, 1994, as compared to 45.5% as of
December 31, 1993. For 1994, loan growth, net of unearned discount, was
$35.6 million. The growth is primarily attributable to consumer
automobile loans.
The Bank sold loans of $55.6 million and $37.9 million during 1994 and
1993, respectively. Loans serviced for investors totaled $21 million
and $39 million at December 31, 1994 and 1993, respectively.
During 1993 the Company began originating FHA Title I home improvement
residential mortgage loans which are held for resale to investors.
<TABLE>
Loan Portfolio
<CAPTION>
December 31,
-------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
----------------- ----------------- ----------------- ----------------- -----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and financial $ 14,556 7.4% $ 7,653 5.2% $ 11,576 6.8% $ 14,133 7.7% $ 31,436 16.4%
Real estate construction
and development 13,793 7.0 9,072 6.2 7,117 4.2 4,116 2.2 2,242 1.1
Real estate mortgage 14,796 7.6 12,862 8.8 18,646 11.0 27,133 14.8 36,335 18.9
Consumer and installment,
net of unearned discount 152,916 78.0 117,116 79.8 132,356 78.0 137,989 75.3 122,233 63.6
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total loans, excluding loans
held for sale 196,061 100.0% $146,703 100.0% 169,695 100.0% 183,371 100.0% 192,246 100.0%
===== ===== ===== ===== =====
Loans held for sale:
Consumer 6,578 15,429 5,000 - -
FHA Title I Home
Improvement 675 5,600 - - -
------- ------- ------- ------- -------
Total loans $203,314 $167,732 $174,695 $183,371 $192,246
======= ======= ======= ======= =======
</TABLE>
<TABLE>
Loans at December 31, 1994 mature as follows:
<CAPTION>
Over One Year
Through Five Years Over Five Years
------------------ ---------------
One Year Fixed Floating Fixed Floating
or Less Rate Rate Rate Rate Total
------- ---- ---- ---- ---- -----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial and financial $ 9,652 1,095 3,321 471 17 14,556
Real estate construction
and development 13,260 - 533 - - 13,793
Real estate mortgage 5,417 1,631 6,135 636 977 14,796
Consumer and installment 284 143,258 - 9,374 - 152,916
Loans held for sale - 6,578 - 675 - 7,253
------- -------- ------ ------- ---- --------
$ 28,613 152,562 9,989 11,156 994 203,314
======= ======== ====== ======= ==== ========
</TABLE>
14
<PAGE> 17
BANCTEXAS GROUP INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
<TABLE>
NONPERFORMING ASSETS
Nonperforming assets include nonaccrual loans, restructured loans,
foreclosed property and loans past due 90 days or more but not included
in nonaccrual loans. Loans are placed on nonaccrual when, in the
opinion of management, collection of principal or interest is doubtful.
Loans past due 90 days or more with respect to principal or interest
are placed on nonaccrual unless they are both well secured and in the
process of collection. The following table presents the categories of
nonperforming assets for the past five years.
<CAPTION>
December 31,
--------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 293 622 1,426 4,203 5,813
Loans past due 90 days or more but
not included in nonaccrual loans 183 803 148 160 272
------ ------ ------ ------- -------
Total nonperforming loans 476 1,425 1,574 4,363 6,085
Foreclosed property, net 1,553 3,171 5,211 6,882 10,076
------ ------ ------ ------- -------
Total $ 2,029 4,596 6,785 11,245 16,161
====== ====== ====== ======= =======
Ratio of nonperforming assets to
total assets .61% 1.25 2.10 3.87 6.08
====== ====== ====== ======= =======
Ratio of nonperforming assets to
total loans and foreclosed property .99% 2.69 3.77 5.91 7.99
====== ====== ====== ======= =======
</TABLE>
As of December 31, 1994 and 1993, approximately $2.5 million and
$2.3 million, respectively, of loans not included in the table above
were identified by management as having potential credit problems which
raised doubts as to the ability of the borrowers to comply with the
present loan repayment terms.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
At December 31, 1994, the allowance for loan losses was $2.8 million,
or 1.36% of total loans, compared to $2.6 million, or 1.57% of total
loans, at December 31, 1993. Allowance for loan losses to total
nonperforming loans was 578.99% and 185.05% for 1994 and 1993,
respectively. The improvement from 1993 to 1994 was primarily due to
nonperforming loans declining from $1.4 million to $476,000 at December
31, 1993 and 1994, respectively.
Management considers the allowance for loan losses to be adequate at
December 31, 1994. The adequacy of the reserve is determinable only on
an approximate basis since estimation of the magnitude and timing of
loan losses involves subjective judgments. In evaluating the adequacy
of the reserve at December 31, 1994, consideration was given to such
factors as management's evaluation of specific loans; the level and
composition of classified loans; historical loss experience; results of
examinations by regulatory agencies; an internal asset review process
that is independent of the Bank's management; expectations of future
economic conditions and their impact on particular industries and
individual borrowers; concentrations of credit; management depth and
experience; and other judgmental factors.
15
<PAGE> 18
BANCTEXAS GROUP INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
The provision for loan losses for 1994 was $1.3 million, compared to
$490,000 for 1993 and $507,000 for 1992. Net charge-offs were $1.1
million for 1994, compared to $897,000 for 1993 and $1.9 million for
1992. Net charge-offs for 1994 and 1993 represented .62% and .52% of
average loans, respectively.
The following table summarizes the activity in the allowance for loan
losses for the past five years.
<TABLE>
Summary of the Allowance for Loan Losses
<CAPTION>
December 31,
---------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 2,637 3,044 4,479 5,666 6,498
-------- -------- -------- -------- --------
Loans charged off:
Commercial and financial (7) (268) (801) (846) (446)
Real estate construction and
development - - - - (101)
Real estate mortgage (375) (8) (409) (1,103) (1,864)
Consumer and installment (1,876) (1,622) (2,347) (2,543) (2,909)
-------- -------- -------- -------- --------
Total charge-offs (2,258) (1,898) (3,557) (4,492) (5,320)
-------- -------- -------- -------- --------
Recoveries of loans previously
charged off:
Commercial and financial 184 164 324 499 1,340
Real estate construction and
development - - - - 17
Real estate mortgage 258 154 251 715 492
Consumer and installment 677 683 1,040 1,157 1,095
-------- -------- -------- -------- --------
Total recoveries 1,119 1,001 1,615 2,371 2,944
-------- -------- -------- -------- --------
Net charge-offs (1,139) (897) (1,942) (2,121) (2,376)
-------- -------- -------- -------- --------
Provision for loan losses 1,258 490 507 934 1,544
-------- -------- -------- -------- --------
Balance at end of year $ 2,756 2,637 3,044 4,479 5,666
======== ======== ======== ======== ========
Average total loans $ 182,922 171,889 183,315 187,962 213,328
======== ======== ======== ======== ========
Net charge-offs as a percentage
of average loans .62% .52 1.06 1.13 1.11
======== ======== ======== ======== ========
Allowance for loan losses as a
percentage of year-end loans 1.36 1.57 1.74 2.44 2.95
======== ======== ======== ======== ========
Allowance for loan losses as a
percent of nonperforming loans 578.99% 185.05 193.39 102.66 93.11
======== ======== ======== ======== ========
</TABLE>
The allocation of the allowance for loan losses at year-end represents
management's judgment as to the inherent risk in the various categories
of the current loan portfolio. The allocations represent the
conditions at a point in time and are subject to change as conditions
dictate. This allocation is not intended to predict future potential
loan losses. The breakdown of the allowance by loan category is based
in part on evaluations of individual loans, past history and economic
16
<PAGE> 19
BANCTEXAS GROUP INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
conditions within specific industries or geographic areas. In
addition, all large borrowers, at a minimum, are required to provide
annual statements of condition and profit and loss statements. When
the loan is secured by income producing real estate, detailed rent
rolls and operational expenses are provided by the borrower. The
frequency of information provided by all types of borrowers ranges from
monthly to annually, depending on the size of the transaction, the
collateral and the financial condition of the borrower. All criticized
loans, at a minimum, are reviewed by management on a quarterly basis.
The following table summarizes the allocation of the allowance for loan
losses and percent of each loan category to total loans for the past
five years.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C>
Allocation amount:
Commercial and financial $ 197 229 456 1,162 1,294
Real estate construction and
development 187 237 71 132 11
Real estate mortgage 201 720 1,003 1,023 2,269
Consumer and installment 2,171 1,451 1,514 2,162 2,092
------- ------- ------- ------- -------
Total $ 2,756 2,637 3,044 4,479 5,666
======= ======= ======= ======= =======
Percent of each loan
category to total loans:
Commercial and financial 7.1% 4.6 6.6 7.7 16.3
Real estate construction and
development 6.8 5.4 4.1 2.2 1.2
Real estate mortgage 7.3 7.7 10.7 14.8 18.9
Consumer and installment 75.2 69.8 75.7 75.3 63.6
Loans held for sale 3.6 12.5 2.9 - -
------ ------ ------ ------ ------
Total 100.0% 100.0 100.0 100.0 100.0
====== ====== ====== ====== ======
</TABLE>
<TABLE>
DEPOSITS
Deposits are the primary source of funds for the Bank. The Bank's
deposits consist principally of core deposits from its local market
areas. The Bank does not accept brokered deposits. The following table
sets forth the distribution of the Bank's average deposit account
balances for the years ended December 31 and the related weighted
average interest rates by category of deposit:
<CAPTION>
1994 1993 1992
--------------------- --------------------- ---------------------
Average Average Average
Balance Rate Balance Rate Balance Rate
------- ---- ------- ---- ------- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand $ 49,125 - $ 45,106 - $ 38,925 -
Interest bearing demand and
money market accounts 65,016 2.73% 70,455 2.56% 75,093 3.28%
Savings 18,365 2.30 18,531 2.50 17,690 3.11
Time deposits of $100,000
or more 14,679 4.85 12,675 4.54 13,931 5.38
Public funds 5,239 3.42 20,360 3.20 21,210 3.90
Other time 92,126 4.42% 92,648 4.51% 94,807 5.41%
------- ------- -------
Total average deposits $244,550 $259,775 $261,656
======= ======= =======
</TABLE>
17
<PAGE> 20
BANCTEXAS GROUP INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
<TABLE>
The following table presents the maturity structure of domestic
certificates of deposit of $100,000 and over at December 31, 1994, 1993
and 1992.
<CAPTION>
December 31,
-------------------------------
1994 1993 1992
---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C>
3 months or less $ 10,016 2,882 17,224
Over 3 through 6 months 3,857 9,615 17,484
Over 6 through 12 months 1,919 1,546 1,608
Over 12 months 7,271 7,669 5,184
------ ------- -------
Total $ 23,063 21,712 41,500
======= ======= =======
</TABLE>
CAPITAL
On August 31, 1994, BancTEXAS issued and sold for $30 million in a
private placement 37,500,000 shares of Class B Stock to First Banks,
Inc., a multi-bank holding company headquartered in St. Louis, Missouri.
The Class B Stock is generally equivalent to the Company's Common Stock,
except that it is not registered or transferable by First Banks, other
than to an affiliated entity, and has dividend rights which are junior
to those of the Company's Common Stock. From the net proceeds of this
private placement, after issuance expenses of $377,000, $17 million was
contributed to the capital of the Bank. The remainder is held by
BancTEXAS for future use in connection with acquisitions or other
corporate purposes. As a result of this transaction, First Banks owned
64.6% of the total outstanding voting stock as of December 31, 1994.
Risk-based capital guidelines for financial institutions were adopted
by regulatory authorities effective after December 31, 1990. These
guidelines are designed to relate regulatory capital requirements to the
risk profiles of the specific institutions and to provide more uniform
requirements among the various regulators. Under these guidelines,
BancTEXAS and the Bank are required to maintain a minimum risk-based
capital to risk-weighted assets ratio of 8.0%, with at least 4.0% being
"Tier 1" capital. Tier 1 capital is composed of total stockholders'
equity. The minimum leverage ratio (Tier 1 capital to total assets) of
3.0% must be maintained. However, for all but the most highly rated
financial institutions and for bank-holding companies seeking to expand,
regulatory authorities expect a leverage ratio of 3.0% plus 100 to 200
basis points will be maintained.
<TABLE>
At December 31, 1994 and 1993, BancTEXAS' and the Bank's capital ratios
were as follows:
<CAPTION>
Risk-Based Capital Ratios
------------------------------------------
Total Tier 1 Leverage Ratio
------------------ ------------------ ------------------
1994 1993 1994 1993 1994 1993
---- ---- ---- ---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C>
BancTEXAS 17.50% 8.47 16.28 7.02 11.97 4.27
Bank 9.25 8.55 8.04 7.30 5.82 4.55
====== ===== ====== ===== ====== =====
</TABLE>
18
<PAGE> 21
BANCTEXAS GROUP INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
INTEREST RATE RISK MANAGEMENT
Managing interest rate risk is fundamental to banking. Banking
institutions manage the inherently different maturity and repricing
characteristics of the lending and deposit-taking activities to achieve
a desired interest rate sensitivity position and to limit their
exposure to interest rate risk. The Bank's inherent maturity and
repricing characteristics of the lending and deposit activities creates
a naturally liability-sensitive structure. By using a combination of
on- and off-balance sheet financial instruments, the Bank manages its
interest rate sensitivity to within the policy guidelines.
The Asset Liability Committee (ALCO) of the Bank's Board of Directors
reviews the overall interest rate risk management activity. The ALCO,
which includes the Chief Executive Officer and Senior Officers
representing the investment, credit and finance areas, oversees the
interest rate risk management process and approves policy guidelines.
The Asset Liability Management Group monitors the day-to-day exposure
to interest rate risk and implements necessary adjustments as directed
by the ALCO and provided by the policy guidelines. Such adjustments
may be necessary in response to changes in interest rates and loan and
deposit volumes.
BancTEXAS' objective regarding interest rate risk management is to
position BancTEXAS such that changes in interest rates do not have a
material adverse impact upon the net market value and net income of
BancTEXAS. To measure the impact from interest rate changes, BancTEXAS
recalculates its net income over a one-year horizon and net market
value on a proforma basis assuming instantaneous, permanent parallel
shifts in the yield curve, in varying amounts both upward and downward.
Larger increases or decreases in BancTEXAS' net market value and net
income as a result of these assumed interest rate changes indicates
greater levels of interest rate sensitivity than do smaller increases
and decreases in BancTEXAS' net market value and net income. BancTEXAS
endeavors to maintain a position whereby the proforma impact to the net
market value and net income would not exceed 4.0% and 10.0% for an
assumed 50 and 100 basis points increases and decreases in general
interest rates, respectively.
Within the overall interest rate risk management strategy, during
1994, BancTEXAS expanded its use of off-balance sheet derivative
financial instruments as a cost and capital efficient way to manage
interest rate sensitivity. These off-balance sheet derivative
financial instruments are utilized to modify the repricing or maturity
characteristics of on-balance sheet assets and liabilities. As more
fully described in notes 1 and 19 to the accompanying consolidated
financial statements, BancTEXAS holds a combination of off-balance
sheet derivative financial instruments, generally limited to interest
rate cap agreements and interest rate futures contracts. The use of
such derivative financial instruments is strictly limited to reducing
the interest rate risk exposure of BancTEXAS to within the
aforementioned prescribed policy guidelines.
19
<PAGE> 22
BANCTEXAS GROUP INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
In addition to the simulation model employed by BancTEXAS, a more
traditional interest rate sensitivity position is prepared and reviewed
in conjunction with the results of the simulation model. The following
table presents the projected maturities and periods to repricing of the
Company's rate sensitive assets and liabilities as of December 31,
1994, adjusted to account for anticipated prepayments:
<TABLE>
Interest Rate Sensitivity Analysis
<CAPTION>
Over three
Three through through Over one Over
months six twelve through five
Immediate or less months months five years years Total
--------- ------- ------ ------ ---------- ----- -----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans<F1> $ 23,288 13,082 14,707 28,379 121,113 2,745 203,314
Investment securities - 19,235 6,428 12,726 16,096 6,915 61,400
Federal funds sold 8,000 - - - - - 8,000
Interest-bearing deposits with
other financial institutions 25,042 - - - - - 25,042
------- -------- -------- -------- -------- ------- --------
Total interest-earning assets 56,330 32,317 21,135 41,105 137,209 9,660 297,756
------- -------- -------- -------- -------- ------- --------
Interest-bearing liabilities:
Interest-bearing demand accounts - 9,131 5,753 3,624 2,688 3,482 24,678
Money market demand accounts 37,354 - - - - - 37,354
Savings accounts - 2,894 2,402 1,994 2,947 6,786 17,023
Time deposits - 25,453 19,767 28,329 42,692 856 117,097
Other borrowed funds 24,233 4,097 7,218 3,469 6,491 - 45,508
------- -------- -------- -------- -------- ------- --------
Total interest-bearing liabilities 61,587 41,575 35,140 37,416 54,818 11,124 241,660
------- -------- -------- -------- -------- ------- --------
Interest-sensitivity gap:
Periodic $ 5,257 (9,258) (14,005) 3,689 82,391 1,464 56,096
========
Cumulative (5,257) (14,515) (28,520) (24,831) 57,560 56,096
======= ======== ======== ======== ======== =======
Ratio of interest-sensitive assets
to interest-sensitive liabilities:
Periodic .91% .78 .60 1.10 2.50 .87 1.23
========
Cumulative .91 .86 .79 .86 1.25 1.23
======= ======== ======== ======== ======== =======
</TABLE>
Management makes certain assumptions in preparing the table above.
These assumptions include: loans will repay at historic repayment
speeds; mortgage-backed securities, included in investment securities,
will repay at projected repayment speeds; interest-bearing demand
accounts and savings accounts are interest-sensitive at a rate of 37%
and 17%, respectively, of the remaining balance for each period
presented; and fixed maturity deposits will not be withdrawn prior to
maturity.
The interest-sensitivity position is one of several measurements of
the impact of interest rate changes on net interest income. Its
usefulness in assessing the effect of potential changes in net interest
income varies with the constant change in the composition of the
Company's assets and liabilities. For this reason, the Company uses
the simulation model.
20
<PAGE> 23
BANCTEXAS GROUP INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
LIQUIDITY
The liquidity of BancTEXAS and the Bank is the ability to maintain a
cash flow which is adequate to fund operations and meet obligations and
other commitments on a timely basis. The Bank receives funds for
liquidity from customer deposits, loan payments, maturities, and sales
of investments and earnings. In addition, the Bank may avail itself of
more volatile sources of funds through issuance of certificates of
deposit in denominations of $100,000 or more, federal funds borrowed,
securities sold under agreements to repurchase and borrowings from the
Federal Home Loan Bank (FHLB). The aggregate funds acquired from these
sources were $44.5 million and $107.2 million at December 31, 1994 and
1993, respectively. The decrease is attributable to the repayment of
certain borrowings from the proceeds received upon sales of investment
securities and sale of Class B Stock to First Banks.
Management believes that the available liquidity and operating results
of the Bank will be sufficient to provide funds for growth and to meet
BancTEXAS' operating and debt service requirements both on a short-term
and long-term basis.
REGULATION AND SUPERVISION
The Company and the Bank are extensively regulated under Federal and
state law. These laws and regulations are intended to protect
depositors, not stockholders.
In December of 1991, the Federal Deposit Insurance Corporation
Improvement Act (FDICIA) was enacted; it included many significant
provisions that affect the Company's and the Bank's operations. The
Act established new and expanded reporting and auditing standards,
expanded regulatory supervision and established new consumer
provisions.
EFFECT OF NEW ACCOUNTING STANDARDS
In May 1993, the Financial Accounting Standards Board (FASB) issued
SFAS 114, "Accounting by Creditors for Impairment of a Loan" (SFAS
114). During October 1994, the FASB issued SFAS 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and
Disclosures" (SFAS 118), which amends SFAS 114.
SFAS 114 (as amended by SFAS 118) defines the recognition criterion
for loan impairment and the measurement methods for certain impaired
loans and loans whose terms have been modified in troubled debt
restructurings (a restructured loan). Specifically, a loan is
considered impaired when it is probable a creditor will be unable to
collect principal and interest according to the contractual terms of
the loan agreement. When measuring impairment, the expected future
cash flows of an impaired loan are required to be discounted at the
loan's effective interest rate. Alternatively, impairment can be
measured by reference to an observable market price, if one exists, or
the fair value of the collateral when the creditor determines
foreclosure is probable. Additionally, impairment of a restructured
loan is measured by discounting the total expected future cash flows at
the loan's effective rate of interest as stated in the original loan
agreement.
21
<PAGE> 24
BANCTEXAS GROUP INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
SFAS 118 amended SFAS 114 to allow a creditor to use existing methods
for recognizing interest income on an impaired loan. Prior to the
issuance of SFAS 118, SFAS 114 provided for two alternative income
recognition methods to be used to account for changes in the net
carrying amount of an impaired loan subsequent to the initial
measurement of impairment. Under the first income recognition method,
a creditor would accrue interest on the net carrying amount of the
impaired loan and report other changes in the net carrying amount of
the loan as an adjustment to the provision for loan losses. Under the
second income recognition method, a creditor would recognize all
changes in the net carrying amount of the loan as an adjustment to the
provision for loan losses. While those income recognition methods are
no longer required, SFAS 118 does not preclude a creditor from using
either of those methods.
The impact of initially applying SFAS 114 and SFAS 118 will be
reported as a component of the provision for possible loan losses
charged to operations, rather than as an accounting change.
Consequently, the Company does not believe implementation of these
Statements would have a material effect on its consolidated financial
position or results of operations. SFAS 114 and SFAS 118 are effective
for fiscal years beginning after December 14, 1994.
During October 1994, the FASB issued SFAS 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial
Instruments" (SFAS 119). SFAS 119 requires disclosures about the
amounts, nature, and terms of derivative financial instruments that are
not subject to SFAS 105, "Disclosure of Information about Financial
Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk" (SFAS 105) because they do not result in
off-balance-sheet risk of accounting loss. SFAS 119 requires that a
distinction be made between financial instruments held or issued for
trading purposes and financial instruments held or issued for purposes
other than trading.
SFAS 119 amended SFAS 105 to require disaggregation of information
about financial instruments with off-balance-sheet risk of accounting
loss by class, business activity, risk, or other category that is
consistent with the entity's management of those instruments. SFAS 119
also amended SFAS 107, "Disclosure about Fair Value of Financial
Instruments" (SFAS 107) to require that fair value information be
presented without combining, aggregating, or netting the fair value of
derivative financial instruments with the fair value of nonderivative
financial instruments and be presented together with the related
carrying amounts in the body of the financial statements, a single
footnote, or a summary table in a form that makes it clear whether the
amounts represent assets or liabilities.
SFAS 119 is effective for financial statements issued for fiscal years
ending after December 14, 1994. The Company implemented SFAS 119 on
December 31, 1994, which resulted in no effect on the consolidated
financial statements other than additional disclosure requirements
included in the footnotes to the consolidated financial statements.
EFFECTS OF INFLATION
Financial institutions are less affected by inflation than other types
of companies. Financial institutions make relatively few significant
asset acquisitions which are directly affected by changing prices.
Instead, the assets and liabilities are primarily monetary in nature.
Consequently, interest rates are more significant to the performance of
financial institutions than the effect of general inflation levels.
While a relationship exists between the inflation rate and interest
rates, the Company believes this is generally manageable through its
asset/liability management program.
22
<PAGE> 25
BANCTEXAS GROUP INC.
Management's Report
Management of BancTEXAS Group Inc. has established and maintains a
system of internal controls that provides reasonable assurance as to
the integrity and reliability of the financial statements, the
protection of assets from unauthorized use or disposition, and the
prevention and detection of fraudulent financial reporting. The system
of internal controls provides for appropriate division of
responsibility and is documented by written policies and procedures.
Management continually monitors the system of internal controls for
compliance. BancTEXAS Group Inc. maintains a strong internal auditing
program that independently assesses the effectiveness of the internal
controls and recommends possible improvements thereto. In addition,
the financial statements have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. As part of its audit of the
financial statements, KPMG Peat Marwick LLP completed a study and
evaluation of selected internal accounting controls to establish a
basis for reliance thereon in determining the nature, timing, and
extent of audit tests to be applied. Management believes that, as of
December 31, 1994, the system of internal controls is adequate to
accomplish the objectives discussed herein.
Management has made available to KPMG Peat Marwick LLP all the
financial records and related data, as well as the minutes of
stockholders' and directors' meetings. Furthermore, management
believes that all representations made to KPMG Peat Marwick LLP during
its audit were valid and appropriate.
The Audit Committee of the Board of Directors is composed of directors
who are not employees of BancTEXAS Group Inc. or any of its
subsidiaries. The Audit Committee meets periodically with management,
the internal auditors and the independent accountants to review
accounting, auditing, internal accounting controls and financial
reporting matters.
------------------------------ ------------------------------
James F. Dierberg Allen H. Blake
Chairman of the Board, Chief Financial Officer and Secretary
President and Chief Executive Officer
23
<PAGE> 26
BANCTEXAS GROUP INC.
Independent Auditors' Report
To the Board of Directors and Stockholders
BancTEXAS Group Inc:
We have audited the accompanying consolidated balance sheet of
BancTEXAS Group Inc. and subsidiaries (the Company) as of December 31,
1994, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit. The
accompanying 1993 and 1992 consolidated financial statements of
BancTEXAS Group Inc. and subsidiaries were audited by other auditors,
whose report dated March 18, 1994 on those statements, included an
explanatory paragraph describing the Company's adoption of Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes" and SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" in 1993.
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 1994 consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of BancTEXAS Group Inc. and subsidiaries as of December 31, 1994, and
the results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
February 10, 1995
24
<PAGE> 27
<TABLE>
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(dollars expressed in thousands, except per share data)
<CAPTION>
December 31,
---------------------
Assets 1994 1993
------- ---- ----
<S> <C> <C>
Cash and cash equivalents:
Cash and due from banks $ 14,029 8,565
Interest-bearing deposits with other financial
institutions with maturities of three months or less 25,042 2,525
Federal funds sold 8,000 14,400
-------- --------
Total cash and cash equivalent 47,071 25,490
-------- --------
Investment securities:
Available-for-sale 61,400 43,707
Held-to-maturity - 116,451
Loans:
Commercial and financial 14,556 7,653
Real estate construction and development 13,793 9,072
Real estate mortgage 14,796 12,862
Consumer and installment 157,570 122,119
Loans held for sale 7,253 21,029
-------- --------
Total loans 207,968 172,735
Unearned discount (4,654) (5,003)
Allowance for possible loan losses (2,756) (2,637)
-------- --------
Net loans 200,558 165,095
-------- --------
Office properties, furniture and equipment, net of
accumulated depreciation 6,511 11,338
Accrued interest receivable 1,146 1,247
Foreclosed property, net 1,553 3,171
Deferred tax assets 12,517 -
Other assets 1,034 2,109
-------- --------
Total assets $ 331,790 368,608
======== ========
</TABLE>
25
<PAGE> 28
<TABLE>
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
(dollars expressed in thousands, except per share data)
<CAPTION>
December 31,
-----------------------
Liabilities 1994 1993
------------ ---- ----
<S> <C> <C>
Deposits:
Demand:
Noninterest bearing $ 45,418 44,409
Interest bearing 24,678 21,949
Savings 54,377 62,281
Time deposits:
Time deposits of $100 or more 23,063 21,712
Other time deposits 94,034 92,546
-------- --------
Total deposits 241,570 242,897
Federal funds purchased 4,800 -
Securities sold under agreements to repurchase 19,433 95,208
Other short-term borrowings 809 1,096
Federal Home Loan Bank long-term advances 19,412 10,918
Deferred tax liabilities 1,299 -
Accrued and other liabilities 3,699 2,483
Long-term debt 1,054 1,054
-------- --------
Total liabilities 292,076 353,656
-------- --------
Stockholders' Equity
---------------------
Common stock:
Common stock, $.01 par value; authorized 163,000,000
and 50,000,000 shares at 12/31/94 and 12/31/93,
respectively; issued and outstanding 20,554,025 shares
and 19,583,025 shares as of December 31, 1994
and 1993, respectively 206 196
Class B common stock, $.01 par value; authorized
60,000,000 shares, issued and outstanding
37,500,000 shares as of December 31, 1994 375 -
Capital surplus 39,133 273,035
Retained earnings since elimination of accumulated
deficit of $259,117 effective December 31, 1994 - -
Accumulated deficit - (258,212)
Net fair value adjustment for securities available-
for-sale - (67)
-------- --------
Total stockholders' equity 39,714 14,952
-------- --------
Total liabilities and stockholders' equity $ 331,790 368,608
======== ========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
26
<PAGE> 29
<TABLE>
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(dollars expressed in thousands, except per share data)
<CAPTION>
Year ended December 31,
-----------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 15,196 15,152 18,104
Investment securities 6,965 6,650 6,367
Federal funds sold 219 133 249
Other 269 31 15
------- ------ ------
Total interest income 22,649 21,966 24,735
------- ------ ------
Interest expense:
Deposits:
Interest bearing demand 911 854 940
Savings 1,284 1,414 2,079
Time deposits of $100 or more 852 1,226 1,580
Other time deposits 4,073 4,183 5,147
Securities sold under agreements to repurchase 2,599 1,821 1,366
Federal Home Loan Bank advances 1,175 133 -
Long-term debt and other borrowings 178 119 117
------- ------ ------
Total interest expense 11,072 9,750 11,229
------- ------ ------
Net interest income 11,577 12,216 13,506
Provision for loan losses 1,258 490 507
------- ------ ------
Net interest income after provision for loan losses 10,319 11,726 12,999
------- ------ ------
Noninterest income:
Service charges on deposit accounts 1,596 1,716 1,785
Loan sales and servicing income 328 899 442
Other income 572 210 299
Gain (loss) on sales of securities, net (7,007) 243 103
------- ------ ------
Total noninterest income (loss) (4,511) 3,068 2,629
------- ------ ------
Noninterest expense:
Salaries and employee benefits 8,911 6,483 6,160
Occupancy, net of rental income 1,321 1,348 1,464
Furniture and equipment 843 919 691
Federal Deposit Insurance Corporation premiums 684 754 530
Communications and supplies 1,058 1,060 1,042
Legal, examination and professional fees 1,203 1,580 1,517
Data processing 890 911 856
Losses and expenses on foreclosed property 192 166 1,128
Litigation settlement expense - 592 -
Other 1,072 762 1,174
------- ------ ------
Total noninterest expense 16,174 14,575 14,562
------- ------ ------
Income (loss) before provision for income taxes
and extraordinary item $ (10,366) 219 1,066
Provision (credit) for income taxes (9,461) - 364
------- ------ ------
Income (loss) before extraordinary item (905) 219 702
Extraordinary tax benefit from net operating loss
carryforward - - 362
------- ------ ------
Net income (loss) $ (905) 219 1,064
======= ====== ======
Earnings (loss) per common share:
Income (loss) before extraordinary item $ (.02) .01 .03
Extraordinary item - - .02
------- ------ ------
Net income (loss) $ (.02) .01 .05
======= ====== ======
Weighted average common stock and common stock
equivalents outstanding (in thousands) 36,412 23,301 23,117
======= ====== ======
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
27
<PAGE> 30
<TABLE>
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Changes
in Stockholders' Equity
Three years ended December 31, 1994
(dollars expressed in thousands, except per share data)
<CAPTION>
Net fair
value adjustment
Class B Retained for securities Total
Common common Capital earnings available- stockholders'
stock stock surplus (deficit) for-sale equity
----- ----- ------- --------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Consolidated balances,
January 1, 1992 $ 191 - 272,317 (259,495) - 13,013
Year ended December 31, 1992:
Consolidated net income - - - 1,064 - 1,064
Exercise of stock options 1 - 29 - - 30
----- ----- ------- -------- ------- ------
Consolidated balances,
December 31, 1992 192 - 272,346 (258,431) - 14,107
Year ended December 31, 1993:
Consolidated net income - - - 219 - 219
Exercise of stock options 4 - 82 - - 86
Compensation paid in stock - - 67 - - 67
Shares issuable in settlement
of litigation - - 540 - - 540
Net fair value adjustment for
securities available-for-sale - - - - (67) (67)
----- ----- ------- -------- ------- ------
Consolidated balances,
December 31, 1993 196 - 273,035 (258,212) (67) 14,952
Year ended December 31, 1994:
Consolidated net loss - - - (905) - (905)
Exercise of stock options 6 - 130 - - 136
Compensation paid in stock - - 67 - - 67
Proceeds received from sale of
37,500,000 shares of Class
B common stock - 375 29,248 - - 29,623
Issuance of shares in connection
with litigation 4 - (4) - - -
Net fair value adjustment for
securities available-for-sale - - - - (1,018) (1,018)
Effect of quasi-reorganization
effective December 31, 1994 - - (263,343) 259,117 1,085 (3,141)
----- ----- -------- -------- ------- ------
Consolidated balances,
December 31, 1994 $ 206 375 39,133 - - 39,714
===== ===== ========= ======== ======= =======
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
28
<PAGE> 31
<TABLE>
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<CAPTION>
Year ended December 31,
-------------------------------
1994 1993 1992
---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ (905) 219 1,064
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Provision for loan losses 1,258 490 507
Provision for losses on foreclosed property 305 382 1,148
Credit for deferred income taxes (9,461) - -
Depreciation, amortization and accretion 1,298 1,621 1,345
Stock compensation and litigation settlement 67 607 -
(Gain) loss on sale of investment securities 7,007 (243) (103)
Gain on sale of assets - (139) (175)
Gain on sale of loans (38) (698) (372)
Net (increase) decrease in other assets 1,424 (497) 416
Net increase (decrease) in other liabilities 968 (548) (2,093)
Proceeds from loans originated for sale 55,587 37,917 -
Loans originated for sale (42,205) (20,597) -
------- -------- -------
Net cash provided by operations 15,305 18,514 1,737
------- -------- -------
Investing activities:
Proceeds from loan sales - - 25,514
Proceeds from maturities of investment securities 24,345 62,929 21,988
Proceeds from sales of investment securities 106,845 15,142 9,337
Purchase of investment securities (41,562) (125,170) (72,707)
Increase in loans (excluding loans originated for sale) (51,184) (11,194) (21,169)
Recoveries on loans previously charged off 1,119 1,001 1,615
Proceeds from sales of foreclosed property 1,313 1,437 1,901
Purchases of office properties, furniture and equipment,
net of retirements (264) (615) (351)
------- -------- -------
Net cash provided (used) by investing activities 40,612 (56,470) (33,872)
------- -------- -------
Financing activities:
Net increase (decrease) in deposits (1,327) (27,833) 19,144
Net increase (decrease) in securities sold under agreements
to repurchase (75,775) 62,738 13,070
Net increase (decrease) in other short-term borrowings 4,513 (269) 739
Net proceeds from issuance and sale of Class B
common stock 29,623 - -
Federal Home Loan Bank long-term advances and other
long-term debt 8,494 10,906 -
Proceeds from exercise of stock options 136 86 30
------- -------- -------
Net cash provided (used) by financing activities (34,336) 45,628 32,983
------- -------- -------
Net increase in cash and cash equivalents 21,581 7,672 848
Cash and cash equivalents, January 1 25,490 17,818 16,970
------- -------- -------
Cash and cash equivalents, December 31 $ 47,071 25,490 17,818
======= ======== =======
Supplemental disclosure of cash paid for interest $ 10,994 9,839 11,485
======= ======== =======
Supplemental disclosure of noncash investing and
financing activities:
Additions to foreclosed property $ - - 1,147
======= ======== =======
Subsequent loans to facilitate the sale of foreclosed
property $ 123 358 42
======= ======== =======
Transfer of investment securities to available-for-sale $ 114,552 43,707 -
======= ======== =======
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
29
<PAGE> 32
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements of BancTEXAS Group
Inc. and subsidiaries (BancTEXAS or the Company) have been prepared in
accordance with generally accepted accounting principles and conform to
practices prevalent among financial institutions. The following is a
summary of the more significant policies followed by BancTEXAS:
Business
BancTEXAS provides a full range of banking services to individual and
corporate customers through its subsidiary bank, BankTEXAS N.A. (the
Bank), located in Houston, Dallas, McKinney and Irving, Texas.
BancTEXAS and the Bank are subject to regulations of various federal
agencies and undergo periodic examinations by these regulatory agencies.
Basis of Presentation
In preparing the consolidated financial statements, management is
required to make estimates and assumptions which significantly affect
the reported amounts of assets and liabilities as of the date of the
consolidated balance sheet. The most significant estimate, which is
particularly susceptible to significant change in the near-term, relates
to the determination of the allowance for possible loan losses.
As discussed in Note 2, the Board of Directors of BancTEXAS elected
to implement an accounting adjustment referred to as a "quasi-
reorganization", effective December 31, 1994. In accordance with
accounting provisions applicable to a quasi-reorganization, the assets
and liabilities of BancTEXAS have been adjusted to their fair values and
the accumulated deficit in retained earnings has been eliminated.
Principles of Consolidation
The consolidated financial statements include the accounts of the parent
company and its subsidiaries, all of which are wholly owned. All
significant intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents
The Bank maintains deposit balances with various banks which are
necessary for check collection and account activity charges. Cash in
excess of immediate requirements is invested on a daily basis in federal
funds or interest-bearing deposits with other financial institutions.
Cash, due from banks, federal funds sold, and interest-bearing deposits
with original maturities of three months or less are considered to be
cash and cash equivalents for purposes of the consolidated statements of
cash flows.
The Bank is required to maintain certain daily reserve balances in
accordance with regulatory requirements. These reserve balances were
$2,756,000 and $2,637,000 at December 31, 1994 and 1993, respectively.
30
<PAGE> 33
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Investment Securities
BancTEXAS adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" (SFAS 115) at December 31, 1993. Under SFAS 115,
BancTEXAS classifies the debt and equity securities within its
investment portfolio at the time of purchase as being held-to-maturity
or available-for-sale. This classification is made at the time of
purchase, except for the reclassification of investment securities in
September 1994 described in Note 4. At December 31, 1994, all
investment securities are classified as available-for-sale. BancTEXAS
does not engage in the trading of investment securities.
Investment securities designated as held-to-maturity are those debt
securities which BancTEXAS has the positive intent and ability to hold
until maturity. Held-to-maturity securities are stated at amortized
cost, in which the amortization of premiums and accretion of discounts
are recognized over the contractual maturities or estimated lives of
the individual securities using the level-yield method.
Investment securities classified as available-for-sale are those debt
and equity securities for which BancTEXAS has no immediate plan to sell,
but which may be sold in the future if circumstances warrant.
Available-for-sale securities are stated at current fair value.
Realized gains and losses are included in other noninterest income upon
commitment to sell, based on the amortized cost of the individual
security sold. Unrealized holding gains and losses are recorded, net of
related income tax effects, in a separate component of stockholders'
equity. All previous fair value adjustments included in stockholders'
equity are reversed upon sale.
Transfers of securities between categories are recorded at fair value at
the date of transfer.
Loans
Interest and fees on commercial, real estate and simple interest
installment loans are recognized in income using the interest method.
Interest on other installment loans is recorded under the
sum-of-the-digits method, which approximates the interest method. Loans
held for portfolio are stated at cost as BancTEXAS has the ability and
it is management's intention to hold them to maturity. Loans held for
sale are stated at lower of cost or fair value. Fair value is estimated
based on the present values of the expected cash flows from principal
amortization assuming historical prepayment experience and appropriate
risk-adjusted spreads to the U.S. Treasury curve. Gains or losses
recognized upon the sale of loans are determined on a specific
identification basis.
The accrual of interest on loans is discontinued when it appears that
interest or principal may not be paid in a timely manner in the normal
course of business. Generally, payments received on nonaccrual loans
are recorded as principal reductions. Interest income is recognized
after all principal has been repaid or an improvement in the condition
of the loan has occurred which would warrant resumption of interest
accruals.
Loan Origination Fees
Loan origination and commitment fees and certain direct loan origination
costs relating to loans retained in the portfolio are deferred and
amortized over the expected lives of the loans using a method which
approximates the level yield method. Deferred fees and costs relating
to loans which are sold are included in the basis of the loans for
purposes of determining gain or loss.
31
<PAGE> 34
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Allowance for Possible Loan Losses
The allowance for possible loan losses is maintained at a level
considered adequate to provide for potential losses. The provision for
possible loan losses is based on periodic analysis of the loans held for
portfolio and sale, considering, among other factors, current economic
conditions, loan portfolio composition, past loan loss experience,
independent appraisals, loan collateral, and payment experience. In
addition to the allowance for estimated losses on identified problem
loans, an overall unallocated allowance is established to provide for
unidentified credit losses which are inherent in the portfolio. As
adjustments become necessary, they are reflected in the results of
operations in the periods in which they become known.
Office Properties, Furniture and Equipment
As discussed in Note 2, effective December 31, 1994, the Board of
Directors of BancTEXAS elected to implement a quasi-reorganization
pursuant to which the assets and liabilities of BancTEXAS have been
adjusted to their fair values. As a result of this, the carrying values
of the office properties were reduced by $4,363,000. Prior to December
31, 1994, office properties, furniture and equipment were stated at
cost, in accordance with applicable requirements.
Depreciation is calculated using the straight-line method over the
estimated useful lives of the related assets. Amortization of leasehold
improvements is calculated using the straight-line method over the
shorter of the useful life of the improvement or the term of the lease.
Office properties and improvements are depreciated over 40 years.
Furniture, fixtures and equipment are depreciated over two to ten years.
Maintenance and repairs that do not extend the useful life of the office
properties and equipment are charged to expense as incurred.
Foreclosed Property
Foreclosed property, consisting of real estate acquired through
foreclosure or deed in lieu of foreclosure and other repossessed assets,
is stated at the lower of fair value less applicable selling costs or
cost at the time the property is acquired. The excess of cost over fair
value of the property at the date of acquisition is charged to the
allowance for possible loan losses. Declines in the fair value below
cost are recognized as a valuation allowance. If the fair value
subsequently increases above its carrying value, the valuation allowance
is reduced, but not below zero. Increases or decreases in the valuation
allowance are charged or credited to operations.
The valuation of foreclosed property is subjective in nature and may be
adjusted in the future because of changes in economic conditions or by
review by regulatory examiners.
Gains on sales of foreclosed properties are recognized when the title
has passed to the purchaser, minimum down payment requirements have been
met, the terms of any notes received by BancTEXAS satisfy continuing
payment requirements, and BancTEXAS is relieved of any requirement for
continued involvement in the properties. Losses on sales are recognized
as incurred.
32
<PAGE> 35
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Income Taxes
BancTEXAS and all of its subsidiaries, except CSWI International Finance
N.V. (CSWI), join in filing consolidated Federal income tax returns.
Each subsidiary pays its allocation of federal income taxes to
BancTEXAS, or receives payment from BancTEXAS to the extent that tax
benefits are realized. Separate state franchise tax returns are filed
in Texas, Delaware and Nevada for the appropriate entities.
In February 1992, the Financial Accounting Standards Board (FASB) issued
SFAS No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109
requires a change from the deferred method of accounting for income
taxes, pursuant to Accounting Principles Board Opinion No. 11 (APB 11),
to the asset and liability method of accounting for income taxes. Under
the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss carry-
forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled.
Effective January 1, 1993, BancTEXAS adopted SFAS 109. There was no
one-time cumulative effect of this change in accounting for income taxes
at that date, because a valuation reserve was established in an amount
equal to the net deferred tax asset. However, as a result of the
private placement of Class B common stock during the year ended December
31, 1994 described in Note 2, the probability of the realization of the
net deferred tax assets was substantially increased. Therefore, a
credit for income taxes of $9,461,000 was recorded for the year ended
December 31, 1994. See Note 11.
Pursuant to the deferred method under APB 11, which was applied in 1992
and prior years, deferred income taxes are recognized for income and
expense items that are reported in different years for financial
reporting purposes and income tax purposes using the tax rate applicable
for the year of the calculation. Under the deferred method, deferred
taxes are not adjusted for subsequent changes in tax rates.
Securities Sold Under Agreements to Repurchase
BancTEXAS enters into sales of securities under agreements to repurchase
at a specified future date. Such repurchase agreements are considered
financing agreements and, accordingly, the obligation to repurchase
assets sold is reflected as a liability in the consolidated balance
sheets. Repurchase agreements are collateralized by debt and
mortgage-backed securities.
Financial Instruments
A financial instrument is defined as cash, evidence of an ownership
interest in an entity, or a contract that conveys or imposes on an
entity the contractual right or obligation to either receive or deliver
cash or another financial instrument.
During 1994, the FASB issued SFAS No. 119, "Disclosure About Derivative
Financial Instruments and Fair Value of Financial Instruments" (SFAS
119). SFAS 119 requires disclosures about the amounts, nature, and
terms of derivative financial instruments that are
33
<PAGE> 36
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
not subject to SFAS No. 105, "Disclosure of Information About Financial
Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk" because they do not result in
off-balance-sheet risk of accounting loss. SFAS 119 is effective for
financial statements issued for fiscal years ending after December 15,
1994. The Company implemented SFAS 119 on December 31, 1994, which
resulted in no effect on the consolidated financial statements other
than the additional disclosure requirements presented in Note 19.
Financial Instruments with Off-Balance Sheet Risk
BancTEXAS uses financial instruments to reduce the interest rate risk
arising from its financial assets and liabilities. These instruments
involve, in varying degrees, elements of interest rate risk and credit
risk in excess of the amount recognized in the consolidated balance
sheets. "Interest rate risk" is defined as the possibility that
interest rates may move unfavorably from the perspective of the Company.
The risk that a counterparty to an agreement entered into by the Company
may default is defined as "credit risk". These financial instruments
include interest rate cap agreements and interest rate futures
contracts.
BancTEXAS is party to commitments to extend credit and commercial and
standby letters of credit in the normal course of business to meet the
financing needs of its customers. These commitments involve elements of
interest rate and credit risk in excess of the amount recognized in the
consolidated balance sheets.
Interest Rate Cap Agreements
The Company enters into interest rate cap agreements to manage interest
rate risk. The purpose of this is to reduce the future impact of
unfavorable interest rate fluctuations on certain of the Company's
interest-bearing liabilities. Interest rate cap agreements are accounted
for on an accrual basis with the net interest differential being
recognized as an adjustment to interest expense of the related
liability. Premiums and fees paid upon the purchase of interest rate
cap agreements are amortized to interest expense over the life of the
agreements using the interest method. In the event of early termination
of an interest rate cap agreement, the net proceeds received or paid are
deferred and amortized over the shorter of the remaining contract life
or the maturity of the related liability. If however, the amount of the
underlying hedged liability is repaid, then the gain or loss on the
agreement is recognized immediately in the consolidated statements of
operations. The unamortized premiums and fees paid are included in
other assets in the accompanying consolidated balance sheets.
Interest Rate Futures Contracts
Interest rate futures contracts are utilized to manage the interest rate
risk of the available-for-sale securities portfolio. Gains and losses
on interest rate futures, which qualify as hedges, are deferred.
Amortization of the net deferred gains or losses is applied to the
interest income of the available-for-sale securities portfolio using the
straight-line method. The net deferred gains and losses are applied to the
carrying value of the available-for-sale securities portfolio as part of
the mark to market valuation. In the event the hedged assets are sold,
the related gain or loss of the interest rate futures contract is
immediately recognized in the statement of operations.
34
<PAGE> 37
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Regulatory Environment
Regulatory requirements for bank capital changed on December 31, 1990
to a risk-based measurement system that also includes leverage
requirements. Overall, the risk-based capital guidelines primarily
define the components of capital, categorize assets into different risk
classes and include certain off-balance sheet items in the calculation
of capital requirements. At December 31, 1994, the Bank was in
compliance with all regulatory capital requirements.
On December 9, 1991, the Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA) became law. FDICIA substantially
revises bank regulatory, deposit insurance and funding provisions of the
Financial Deposit Insurance Act and makes revisions to several other
banking statutes. Based generally on capital ratios, FDICIA classifies
financial institutions into five categories. At December 31, 1994, the
Bank's capital ratios exceeded those levels necessary to be considered
in the "adequately capitalized" category.
Earnings (Loss) Per Share
Earnings (loss) per share is calculated by dividing net income (loss),
by the weighted average number of common shares and common stock
equivalents outstanding.
Reclassifications
Certain 1993 and 1992 amounts have been reclassified to conform with the
1994 presentation.
(2) FINANCIAL RESTRUCTURING
On August 31, 1994, BancTEXAS issued and sold for $30 million in a
private placement 37,500,000 shares of Class B common stock (the "Class
B Stock") to First Banks, Inc. (First Banks), a multi-bank holding
company headquartered in St. Louis, Missouri. The Class B Stock is
generally equivalent to the Company's other class of common stock
(the "Common Stock"), except that it is not registered or transferable by
First Banks, other than to an affiliated entity, and has dividend rights
which are junior to those of the Company's Common Stock. From the net
proceeds of this private placement, after issuance expenses of $377,000,
$17 million was contributed to the capital of the Bank. The remainder
is held by BancTEXAS for future use in connection with acquisitions or
other corporate purposes. As a result of this transaction, First Banks
owned 64.6% of the total outstanding voting stock as of December 31,
1994.
Recognizing the substantial transition which the Company had experienced
in recent years, culminating in the sale of the Class B Stock, the Board
of Directors elected to implement a quasi-reorganization, effective
December 31, 1994. This resulted in restating the carrying values of
assets and liabilities to their current fair values, and eliminating the
deficit in retained earnings which had accumulated over many years. The
principal adjustments necessary to revalue the balance sheet were the
reduction in the value of office properties by $4,363,000 and an
increase in deferred tax assets of $1,222,000. These adjustments
resulted in a net reduction of consolidated stockholders' equity, but
did not affect the results of operations or cash flow for the year ended
December 31, 1994. At the same time, the accumulated deficit in
retained earnings of $259,117,000 and the net fair value adjustment for
securities available-for-sale of $1,085,000 were eliminated by a
reduction in capital surplus. Management determined that in view of the
many changes which had occurred within the Company, the factors which
had given rise to the losses which had been accumulated had
35
<PAGE> 38
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
been eliminated. Consequently, the quasi-reorganization established a
more appropriate basis upon which to evaluate the financial position and
results of operations of BancTEXAS in the future.
(3) MERGER WITH FIRST BANK/LAS COLINAS
On December 31, 1992, the Bank acquired First Bank/Las Colinas in a
transaction which was accounted for as a pooling of interests. Under
the pooling of interests method of accounting, the historical basis of
the assets and liabilities of BancTEXAS and First Bank/Las Colinas are
combined and carried forward at their previously recorded amounts.
Accordingly, the consolidated statement of operations for the year ended
December 31, 1992 includes the results of operations of First Bank/Las
Colinas. There were no intercompany transactions between the companies
at the time of the merger. In the merger, BancTEXAS issued 2.2 million
shares of stock to the shareholders of First Bank/Las Colinas.
(4) INVESTMENT SECURITIES
During 1994, management reviewed its portfolio of mortgage-backed
securities, and the methods which it was employing to fund those
securities, in the context of the rapidly increasing interest rate
environment which existed most of the year. As a result of this review,
it determined that its original intent to hold the majority of these
securities to maturity was no longer appropriate. Consequently, in
September 1994, the Company reclassified all the remaining securities
within its held-to-maturity portfolio as available-for-sale, and sold an
aggregate of $113,852,000 of these securities, resulting in a realized
loss of $7,055,000. The proceeds from this sale were primarily used to
reduce securities sold under agreements to repurchase and other
short-term borrowings. As part of the financial restructuring discussed
in Note 2, the carrying values of the investment portfolio were restated
to current fair values at December 31, 1994. This adjustment eliminated
the Company's net fair value adjustment for securities
available-for-sale of $1,085,000. As of December 31, 1994, all of the
securities in the investment portfolio were classified as
available-for-sale.
<TABLE>
The amortized cost, gross unrealized holding gains, gross unrealized
holding losses and estimated fair values of investments securities at
December 31, 1994 and 1993 were as follows:
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost holding gains holding losses fair value
---- ------------- -------------- ----------
(dollars expressed in thousands)
<S> <C> <C> <C> <C>
December 31, 1994:
-------------------
Available-for-sale:
U.S. Government agencies
and corporations:
Mortgage-backed securities $ 52,938 - - 52,938
Other 300 - - 300
Federal Home Loan and
Federal Reserve Bank stock 8,162 - - 8,162
------- ------- ------- -------
Total $ 61,400 - - 61,400
======= ======= ======= =======
</TABLE>
36
<PAGE> 39
<TABLE>
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost holding gains holding losses fair value
---- ------------- -------------- ----------
(dollars expressed in thousands)
<S> <C> <C> <C> <C>
December 31, 1993:
-------------------
Available-for-sale:
U.S. Treasury securities $ 144 - - 144
U.S. Government agencies
and corporations - mortgage-
backed securities 43,630 - 67 43,563
------- ------- ------ -------
Total 43,774 - 67 43,707
======= ======= ====== =======
Held-to-maturity:
U.S. Treasury securities $ 1,781 - 7 1,774
U.S. Government agencies
and corporations - mortgage-
backed securities 109,644 - 1,100 108,544
Federal Home Loan and
Federal Reserve Bank stock 5,026 - - 5,026
------- ------- ------ -------
Total $ 116,451 - 1,107 115,344
======= ======= ====== =======
</TABLE>
<TABLE>
The carrying values, by contractual maturity, at December 31, 1994 and
1993 are presented below. The expected maturities of mortgage-backed
securities differ from contractual maturities since the borrowers have
the right to call or prepay the obligations with or without prepayment
penalties.
<CAPTION>
Over one Over five Weighted
One year through through Over average
or less five years ten years ten years yield
------- ---------- --------- --------- -----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C>
December 31, 1994:
------------------
U.S. Government agencies
and corporations:
Mortgage-backed securities $ 12,803 - 24,432 15,703 7.15%
Other - 300 - - 6.17
Federal Home Loan and Federal
Reserve Bank stock (no stated
maturity) 8,162 - - - 5.89
------- ------ ------- ------- ------
Total $ 20,965 300 24,432 15,703 6.89%
======= ====== ======= ======= ======
Weighted average yield 6.07% 5.70 7.73 6.24%
======= ====== ======= =======
December 31, 1993
-----------------
U.S. Treasury securities $ 1,625 300 - - 3.31%
U.S. Government agencies
and corporations - mortgage-
backed securities - - 26,914 126,293 4.73
Federal Home Loan and Federal
Reserve Bank stock (no stated
maturity) 5,026 - - - 5.22
------- ------ ------- ------- ------
Total $ 6,651 300 26,914 126,293 4.73%
======= ====== ======= ======= ======
Weighted average yield 4.74% 3.61 5.16 4.64%
======= ====== ======= =======
</TABLE>
37
<PAGE> 40
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Proceeds from sale of investment securities were $106,845,000,
$15,142,000 and $9,337,000 for the years ended December 31, 1994, 1993
and 1992, respectively. Gross gains of $48,000, $243,000 and $103,000
were realized for the years ended December 31, 1994, 1993 and 1992,
respectively. Gross losses of $7,055,000 were realized in the year
ended December 31, 1994. No losses were realized in the years
ended December 31, 1993 or 1992.
The Bank maintains investments in the Federal Home Loan Bank (FHLB) and
the Federal Reserve Bank (FRB). These investments are recorded at cost,
which represents redemption value. The investment in FLHB stock is
maintained at a minimum amount equal to the greater of 1% of the
aggregate outstanding balance of loans secured by residential real
estate, or 5% of advances from the FHLB. The investment in the FRB
stock is maintained at a minimum of 6% of the Bank's capital stock and
capital surplus.
Investment securities with a carrying value of approximately $40,045,000
at December 31, 1994 were pledged in connection with deposits of public
and trust funds, securities sold under agreements to repurchase and for
other purposes required by law.
(5) LOANS
Included in the loan portfolio were $6.6 million of installment loans
and $675,000 of mortgage loans at December 31, 1994, and $15.4 million
of installment loans and $5.6 million of mortgage loans at December 31,
1993 that are classified as available-for-sale.
<TABLE>
Changes in the allowance for possible loan losses for years ended
December 31, were as follows:
<CAPTION>
1994 1993 1992
---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C>
Balance, January 1 $ 2,637 3,044 4,479
------ ------ ------
Loans charged-off (2,258) (1,898) (3,557)
Recoveries of loans previously charged-off 1,119 1,001 1,615
------ ------ ------
Net loans charged-off (1,139) (897) (1,942)
Provision for possible loan losses charged
to operations 1,258 490 507
------ ------ ------
Balance, December 31 $ 2,756 2,637 3,044
====== ====== ======
</TABLE>
<TABLE>
Loans on which interest is not being accrued amounted to $293,000 and
$622,000 at December 31, 1994 and 1993, respectively. Nonperforming
loans include loans on which interest is not being accrued, loans past
due 90 days or more on which interest is still being accrued and loans
restructured with respect to principal or interest because of the
financial deterioration of the borrower. Interest on nonaccrual loans,
which would have been recorded under the original terms of the loans was
as follows:
38
<PAGE> 41
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<CAPTION>
Year ended December 31,
-------------------------------
1994 1993 1992
---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C>
Income that would have been recorded in
accordance with original terms $ 15 54 252
Income actually recorded (14) (2) -
---- --- ---
Income not recorded $ 1 52 252
==== === ===
</TABLE>
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan "(SFAS 114). SFAS 114 was amended by SFAS 118.
SFAS 114 requires that impaired loans be measured based upon the present
value of expected future cash flows discounted at the loan's effective
interest rate or the fair value of the underlying collateral, if the
loan is collateral dependent. A loan is impaired when, based on current
information and events, it is probable that a creditor will be unable to
collect all amounts due according to the loan's contractual terms.
BancTEXAS was required to adopt SFAS 114, as amended by SFAS 118,
effective January 1, 1995. The adoption did not have a material impact
on the Company's consolidated financial position or results of
operations.
(6) OFFICE PROPERTIES, FURNITURE AND EQUIPMENT
As part of the financial restructuring discussed in Note 2, effective
December 31, 1994, carrying values of the Company's office properties,
furniture and equipment were adjusted to their current fair values and
the balance of accumulated depreciation was eliminated. As a result of
this procedure, total office properties, net of accumulated
depreciation, were reduced by an aggregate of $4,363,000.
<TABLE>
Office properties, furniture and equipment were comprised of the
following at December 31:
<CAPTION>
1994 1993
---- ----
(dollars expressed in thousands)
<S> <C> <C>
Land $ 1,806 2,424
Buildings and improvements 3,732 10,670
Furniture, fixtures and equipment 928 4,202
Leasehold improvements - 2,217
Construction in progress 45 -
------ -------
Total 6,511 19,513
Less accumulated depreciation and
amortization - (8,175)
------ -------
Office properties, furniture and
equipment, net $ 6,511 11,338
====== =======
</TABLE>
Depreciation expense for the years ended December 31, 1994, 1993 and
1992 totaled $728,181, $822,709 and $853,845, respectively.
39
<PAGE> 42
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) FORECLOSED PROPERTY
<TABLE>
BancTEXAS' foreclosed property at December 31, was as follows:
<CAPTION>
1994 1993 1992
---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C>
Foreclosed property $ 1,769 3,271 5,625
Allowance for losses on foreclosed property (216) (100) (414)
------ ------ ------
Foreclosed property, net $ 1,553 3,171 5,211
====== ====== ======
</TABLE>
<TABLE>
Changes in the allowance for losses on foreclosed property for the years
ended December 31 were as follows:
<CAPTION>
1994 1993 1992
---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 100 414 390
Provision for losses 305 382 1,148
Charge-offs (189) (696) (1,124)
----- ----- -------
Balance at end of year $ 216 100 414
===== ===== =======
</TABLE>
Net operating expenses relating to foreclosed property were $192,000,
$166,000 and $1,128,000 for the years ended December 31, 1994, 1993 and
1992, respectively. Net operating expenses include the provision for
losses on foreclosed property, gains and losses from sales of foreclosed
assets, real estate taxes, insurance and other costs, net of any related
rental income.
(8) SHORT-TERM BORROWINGS
BancTEXAS satisfies its short-term borrowing requirements through the
use of Federal funds purchased and securities sold under repurchase
agreements generally on a daily basis. Repurchase agreements are
borrowings which have a maturity of less than a year. Investment
securities and interest-bearing deposits with FHLB of $17.4 million and
$24.5 million, respectively, are pledged as collateral for these short-
term borrowings. Other short-term borrowings include notes payable
to the Federal Reserve Bank for Treasury, Tax and Loan Deposits, and
various other borrowings that have maturities of less than one year.
<TABLE>
Information relating to these short-term borrowings for the years ended
December 31 is provided below:
<CAPTION>
1994 1993 1992
---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C>
Securities sold under repurchase agreements:
Balance at year-end $ 19,433 95,208 32,470
Average daily balance 65,226 51,991 33,866
Maximum month-end balance 111,588 95,208 50,221
Average annual interest rate 3.96% 3.50 4.03
Weighted average interest rate at year-end 6.35 3.33 3.99
</TABLE>
40
<PAGE> 43
<TABLE>
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<CAPTION>
1994 1993 1992
---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C>
Federal funds purchased and
other short-term borrowings:
Balance at year-end $ 5,609 1,096 1,365
Average daily balance 2,011 819 746
Maximum month-end balance 5,609 1,227 1,422
Average annual interest rate 4.14% 2.93 2.95
Weighted average interest rate at year-end 6.36 2.73 2.78
</TABLE>
(9) FEDERAL HOME LOAN BANK ADVANCES
<TABLE>
Advances from the FHLB at December 31 are as follows:
<CAPTION>
1994 1993
---- ----
(dollars expressed in thousands)
<S> <C> <C>
Amortizing advances maturing in:
1995 $ 5,032 -
1998 3,673 4,918
Single payment advances maturing in:
1995 7,868 3,000
1996 2,839 3,000
------- -------
Total advances $ 19,412 10,918
------- -------
Weighted average interest rate 7.47% 4.44%
======= =======
</TABLE>
Mortgage-backed securities of $22.6 million are pledged as collateral
for these advances.
(10) LONG-TERM DEBT
At December 31, 1994 and 1993, CSWI, a wholly owned subsidiary of
BancTEXAS, had $1,054,000 of 9% convertible subordinated debentures due
May 15, 1996. These debentures are guaranteed by BancTEXAS and are
convertible into common stock of BancTEXAS at $406.25 per share. At
December 31, 1994, BancTEXAS had reserved 2,594 shares of its common
stock for conversion of these debentures.
(11) INCOME TAXES
As discussed in Note 1, BancTEXAS adopted SFAS 109 effective January 1,
1993. There was no one-time cumulative effect of this change in
accounting for income taxes because a valuation reserve was established
in an amount equal to the net deferred tax asset.
Total income tax credits for the year ended December 31, 1994 were
allocated $9,461,000 to operations, $535,000 to stockholders' equity for
the tax effect of unrealized holding losses on available-for-sale
securities and $1,222,000 to the tax effect of the quasi-reorganization.
41
<PAGE> 44
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
Income tax expense (benefit) attributable to income from continuing
operations for the years ended December 31 consists of:
<CAPTION>
1994 1993 1992
---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C>
Current income tax expense:
Federal $ - - -
State - - -
------ ------- -------
Total current income tax expense $ - - -
------ ------- -------
Deferred income tax expense (credit):
Federal $ (9,461) - 364
State - - -
------ ------- -------
Total income tax expense (credit) $ (9,461) - 364
====== ======= =======
</TABLE>
<TABLE>
The effective rates of federal income taxes for the years ended December
31 differ from statutory rates of taxation as follows:
<CAPTION>
1994 1993 1992
--------------------- -------------------- --------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before income
taxes and extraordinary item $ (10,366) $ 219 $1,066
======= ====== =====
Tax at federal income tax rate $ (3,628) (35.0)% $ 77 35.0% $ 362 34.0%
Reasons for difference in federal
income tax and effective rate:
Change in the deferred tax
valuation allowance (35,346) (340.9) (3,904) (1,782.6) - -
Change in tax attributes avail-
able to be carried forward 29,373 283.3 3,827 1,747.6 - -
Change in tax credit
carryforwards 140 1.4 - - 2 -
------- ------ ------ -------- ----- ------
Tax at effective rate $ (9,461) (91.2)% - - % $ 364 34.0%
======= ====== $ ====== ======== ===== ======
</TABLE>
<TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities for
periods after the adoption of SFAS 109 are as follows:
<CAPTION>
December 31,
------------------
1994 1993
---- ----
(dollars expressed in thousands)
<S> <C> <C>
Deferred tax assets:
Allowance for possible loan losses $ 965 562
Foreclosed property 2,191 7,382
Book losses on investment securities not
currently allowable for tax purposes 1,431 262
Postretirement medical plan 372 -
Quasi-reorganization adjustment of office
properties 1,527 -
Other 393 613
</TABLE>
42
<PAGE> 45
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
December 31,
----------------
1994 1993
---- ----
(dollars expressed in thousands)
<S> <C> <C>
Deferred tax assets (continued):
Net operating loss carryforwards 8,582 31,125
Tax credit carryforwards - 140
------- -------
Gross deferred tax assets 15,461 40,084
Valuation allowance (2,944) (38,290)
------- -------
Net deferred tax assets $ 12,517 1,794
======= =======
Deferred tax liabilities:
Office properties, furniture and equipment $ 706 735
Safe harbor leases 499 666
Other 94 393
------- -------
Gross deferred tax liabilities 1,299 1,794
------- -------
Net deferred tax assets $ 11,218 -
======= =======
</TABLE>
Changes to the deferred tax assets valuation allowance for the years
ended December 31 were as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
(dollars expressed in thousands)
<S> <C> <C>
Balance, January 1 $ 38,290 42,194
Current year deferred provision, change in
deferred tax valuation allowance (35,346) (3,904)
------- ------
Deferred tax assets valuation allowance,
December 31 $ 2,944 38,290
======= ======
</TABLE>
Subsequently recognized tax benefits relating to the valuation allowance
for deferred tax assets as of December 31, 1994, will be credited
directly to capital surplus under the terms of the quasi-reorganization
described in Note 2 and the provisions of SFAS 109.
With the completion of the sale of the Class B common stock described in
Note 2, the Internal Revenue Code provides that the net operating loss
carryforwards generated prior to the transaction are subject to an
annual limitation for all subsequent tax years. This annual limitation
is $1,362,000. The amount of the limitation is equal to the total value
of BancTEXAS stock issued and outstanding immediately prior to the
acquisition multiplied by the federal long-term tax-exempt rate at the
time. If taxable income for a post-transaction year does not equal or
exceed the annual limitation, the unused limitation is carried forward
to increase the limitation amount for the succeeding years until the
excess limitation is utilized. This does not affect the original
expiration dates of the net operating loss. The order in which the
attributes can be utilized is specified in the Internal Revenue Code.
Subsequent to the completion of the private placement of Class B common
stock, a detailed analysis of the net operating loss and tax credit
carryforwards was performed. A large portion of the net operating
losses and all of the tax credit carryforwards will expire prior to
their utilization, and were therefore removed from the analysis. This
is reflected in the reduction in the valuation allowance. After giving
effect to the applicable limitations in the Internal Revenue Code, for
federal income tax purposes, BancTEXAS had net operating loss
43
<PAGE> 46
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
carryforwards of approximately $24,519,000 available to offset future
taxable income. These net operating loss carryforwards expire as
follows (dollars expressed in thousands):
<TABLE>
<S> <C>
Year ending December 31:
1996 $ 858
1998 4,140
1999 2,271
2000 103
2001 through 2009 17,147
-------
Total net operating loss carryforwards $ 24,519
=======
</TABLE>
The remaining net deferred tax assets were reevaluated to determine
whether it is more likely than not that the deferred tax assets will be
recognized in the future. With the completion of the private placement
of Class B common stock and the receipt of the resulting cash proceeds
of $30 million, BancTEXAS will be capable of pursuing acquisitions,
expanding its services and reducing its reliance on borrowed funds.
BancTEXAS and First Banks have formulated a plan to further reduce
operating costs and expand into other revenue generating areas. First
Banks will be offering to provide certain services at substantially
reduced costs such as data processing, item processing, loan servicing,
commercial non-credit services, accounting and tax assistance and
various insurance programs. By utilizing the services and personnel
available from First Banks, implementing various other cost reduction
plans, and pursuing its acquisition objectives, BancTEXAS' management
believes it is more likely than not that its income will be increased
to a level that permits utilization of all or a substantial portion of
net deferred tax assets including NOL carryforwards. Taking all
positive and negative criteria into consideration, it was determined
that the allowance established should be reduced to $2,944,000.
(12) EMPLOYEE BENEFIT PLANS
Pension Plan
BancTEXAS has a noncontributory defined benefit pension plan covering
substantially all officers and employees. Under the plan, retirement
benefits are computed primarily based on the years of service and the
highest five-year average salary during the last ten years of service.
It is the policy of BancTEXAS to fund the net periodic pension cost,
but not less than the minimum required nor greater than the maximum
deductible contribution determined in accordance with applicable income
tax regulations. During 1994, BancTEXAS discontinued the accumulation
of benefits under the plan. As a result of this change, total expense
with respect to the defined benefit pension plan was $1,064,000 for the
year ended December 31, 1994. Contributions to the plan were $512,000,
$268,000 and $40,000 for the plan years 1994, 1993 and 1992,
respectively.
44
<PAGE> 47
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
The following table shows the plan's funded status as follows:
<CAPTION>
January 1,
------------------
1994 1993
---- ----
(dollars expressed in thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $ 7,435 7,665
Nonvested benefits 73 174
------ ------
Accumulated benefit obligations 7,508 7,839
Effect of projected future compensation levels - 752
------ ------
Projected benefit obligation 7,508 8,591
Plan assets at fair value 7,882 7,981
------ ------
Plan assets (in excess of) deficient from projected
benefit obligation (374) 610
Unrecognized net loss from past experience different
from that assumed and effects of changes in assumptions - (1,783)
Unrecognized transition asset being amortized over 11 years - 815
------ ------
Prepaid pension cost $ (374) (358)
====== ======
</TABLE>
<TABLE>
Net periodic pension expense (income) cost for the years ended December
31, 1994, 1993 and 1992 included the following:
<CAPTION>
1994 1993 1992
---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 289 262 241
Interest cost on projected benefit obligation 572 563 562
Actual return on assets 161 (832) (388)
Net amortization and deferral 42 47 (494)
----- ---- -----
Net periodic pension expense (income) $ 1,064 40 (79)
===== ==== =====
</TABLE>
The weighted average assumed discount rate used in determining the
actuarial present value of the projected benefit obligation was 7.00%,
7.75% and 8.00% on January 1, 1994, 1993 and 1992, respectively. The
projected rate of increase in future salary levels was 4.5% in 1994,
4.5% in 1993, and 5.0% in 1992. The expected long-term rate of return
on assets used in determining the net pension cost was 8.0% for 1994,
8.5% for 1993 and 9.5% in 1992. The plan assets consist of money market
funds, bank managed common trust funds and corporate securities.
Employees 401(k) Plan
BancTEXAS has a 401(k) Plan which constitutes a qualified cash or
deferred profit sharing plan under Section 401(k) of the Internal
Revenue Code of 1986. The 401(k) Plan is administered by a committee
appointed by the Board of Directors of the Company. The assets of the
401(k) Plan are held and managed under a trust agreement with the trust
department of an unaffiliated bank.
Prior to the year ended December 31, 1994, BancTEXAS contributed between
ten and twenty percent of the amount of employee contributions with a
maximum contribution of five
45
<PAGE> 48
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
percent of each employee's salary. In connection with the
discontinuation of benefits accumulation in the defined benefit pension
plan in 1994 discussed above, the Company increased its matching
contribution for the 401(k) Plan to fifty percent of employee
contributions, retaining the maximum contribution of five percent of
each employee's salary. Contributions by participating employees
pursuant to the terms of the 401(k) Plan are automatically fully vested
and nonforfeitable. Funds contributed to the 401(k) Plan by the Company
for the account of a participating employee become vested and
nonforfeitable after the employee has completed five years of service
with BancTEXAS. The Company accrued $25,000, $24,000 and $24,000 for
contribution to the 401(k) Plan for the years ended December 31, 1994,
1993 and 1992, respectively.
Postretirement Benefits Other Than Pensions
<TABLE>
BancTEXAS makes certain health care and life insurance benefits
available for substantially all of its retired employees, a portion of
the cost of which is paid by the Company. Effective January 1, 1993,
BancTEXAS adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (SFAS 106). SFAS 106
required that the estimated cost of such postretirement benefits be
accrued as an expense during the period of the employees active service
to the Company. BancTEXAS previously expensed the cost of these
benefits as payments were made. For the year ended December 31, 1993,
BancTEXAS elected to recognize the cumulative effect of this change in
accounting over a period of twenty years, as permitted by SFAS 106. In
1993, BancTEXAS recognized $120,000 as an expense for postretirement
health care and life insurance benefits. During 1994, BancTEXAS
reevaluated the cost of this plan and changed it to provide Company
contributions for coverage only to those individuals receiving benefits
on that date. Employees retiring after that date would be allowed to
purchase coverage, but must pay the entire cost associated with such
coverage. As a result of this change, the unfunded accumulated
postretirement benefit obligations were reduced from approximately
$1,622,000 at December 31, 1993 to $898,000 at the date of the change.
This amount was then accrued as an expense. The following table sets
forth the postretirement benefit plan's accumulated obligation at
December 31, 1994 and 1993:
<CAPTION>
1994 1993
---- ----
(dollars expressed in thousands)
<S> <C> <C>
Retirees $ 863 921
Fully eligible plan participants - 211
Other active plan participants - 490
---- ------
Accumulated postretirement benefit obligation 863 1,622
Fair value of plan assets - -
---- ------
Accumulated postretirement benefit obligations
in excess of plan assets 863 1,622
Unrecognized prior service cost 77 (100)
Unrecognized net gain (loss) 34 (161)
Unrecognized transition obligation - (1,262)
---- ------
Accrued postretirement benefit cost $ 974 99
==== ======
</TABLE>
46
<PAGE> 49
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
Net postretirement benefit cost for the years ended December 31, 1994
and 1993 consisted of the following components:
<CAPTION>
1994 1993
---- ----
(dollars expressed in thousands)
<S> <C> <C>
Service cost - benefits earned during the period $ 46 46
Interest cost on accumulated postretirement benefit
obligation 89 106
Amortization of transition obligation 59 67
---- ----
Total net postretirement benefit cost 194 219
Curtailment gain under SFAS 106 (97) -
Recognition of transition obligation 898 -
---- ----
Total expense $ 995 219
==== ====
</TABLE>
The health care cost trend rate assumed in measuring the accumulated
postretirement benefit obligation as of January 1, 1994 was 12%
decreasing linearly each successive year until it reaches 5.5% in 2010,
after which it was assumed to remain constant. A one percent increase
in the assumption of health care cost trend rate for each year would
increase the accumulated postretirement benefit obligation as of January
1, 1994 and net postretirement health care cost by approximately 9%.
The assumed discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% for 1994 and 7% for 1993.
(13) DIRECTOR BENEFIT PLANS
Stock Bonus Plan
The 1993 Directors' Stock Bonus Plan provides for annual grants of
Company common stock to the non-employee directors of BancTEXAS.
Directors compensation of $67,000 annually was recorded relating to this
plan for the years ended December 31, 1994 and 1993. These amounts
represented the market values of the 37,500 shares granted annually
under the Stock Bonus Plan as of the date of each grant.
The plan will be self-operative, and the timing, amounts, recipients and
terms of individual grants will be determined automatically. On July 1
of each year, each non-employee director will automatically receive a
grant of 7,500 shares of common stock. Future grants under the plan
would apply equally to current directors and to any individual who
becomes a director of BancTEXAS in the future. The maximum number of
plan shares that may be issued shall not exceed 250,000 shares. The
plan will expire on July 1, 2001.
Directors' Retirement Plan
BancTEXAS adopted a noncontributory defined benefit pension plan
covering non-employee directors of the holding company in 1993. Under
the plan, retirement benefits are primarily a function of years of
service as a director. During 1994, coverage under the plan was
extended to include non-employee directors of the Bank.
47
<PAGE> 50
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
The following table shows the plan's funded status at December 31,
1994 and 1993:
<CAPTION>
1994 1993
---- ----
(dollars expressed in thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $ 218 198
Nonvested benefits - -
---- -----
Accumulated benefit obligation 218 198
Effect of projected future compensation levels - -
---- -----
Projected benefit obligation 218 198
Plan assets at fair value - -
---- -----
Plan assets in deficit of projected benefit obligation 218 198
Unrecognized net loss from past experience different
from that assumed and effects of changes in assumptions 15 (12)
Unrecognized prior service cost (110) (128)
---- -----
Accrued pension cost $ 123 58
==== =====
</TABLE>
<TABLE>
Net periodic pension cost for the years ended December 31, 1994 and 1993
included the following:
<CAPTION>
1994 1993
---- ----
(dollars expressed in thousands)
<S> <C> <C>
Service cost - benefits earned during the period $ 33 29
Interest cost on projected benefit obligation 14 11
Actual return on assets - -
Net amortization and deferral 18 18
---- -----
Net periodic pension cost $ 65 58
==== =====
</TABLE>
The weighted average assumed discount rate used in determining the
actuarial present value of the projected benefit obligation was 8% and
7% for the years ended December 31, 1994 and 1993, respectively.
(14) COMMITMENTS AND CONTINGENCIES
Lease Commitments
BancTEXAS leases land, office properties and some items of equipment
under operating leases which expire between 1995 and 2019. Certain of
the leases contain renewal options and escalation clauses. Total rental
expense was $589,000, $642,000 and $529,000 for the years ended December
31, 1994, 1993 and 1992, respectively. Under the terms of those
48
<PAGE> 51
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
noncancellable leases with initial terms in excess of one year, minimum
future rental payments are approximately as follows:
<CAPTION>
(dollars expressed in thousands)
<S> <C>
Year ending December 31:
1995 $ 414
1996 415
1997 363
1998 214
1999 152
2001 through 2019 2,787
------
Aggregate $ 4,345
======
</TABLE>
BancTEXAS has a data processing service agreement with an unaffiliated
third party that expires on May 31, 1996. Under the terms of the
agreement, the basic monthly fee is $40,000 per month plus additional
charges for ATM processing and program support. The base fee is subject
to semiannual cost of living adjustments throughout the term of the
contract.
<TABLE>
The Company owns its banking facility located in McKinney, Texas. The
building has approximately 51,200 square feet, 10,800 square feet of
which is occupied by the Bank. The remaining space is leased to
unrelated parties. Total rental income was $286,000, $245,000 and
$208,000 for the years ended December 31, 1994, 1993 and 1992,
respectively. The future rental income for noncancellable operating
leases with initial or remaining terms in excess of one year is
approximately as follows (dollars expressed in thousands):
<CAPTION>
<S> <C>
Year ending December 31:
1995 $ 288
1996 144
1997 85
1998 18
1999 5
------
Aggregate $ 540
======
</TABLE>
Loan Commitments
The Company is a party to commitments to extend credit and commercial and
standby letters of credit in the normal course of business to meet the
financing needs of its customers. These instruments involve, to varying
degrees, elements of credit risk and interest rate risk in excess of the
amount recognized in the consolidated balance sheets. The interest rate
risk associated with these credit commitments relate primarily to the
commitments to originate fixed-rate loans. The credit risk amounts are
equal to the contractual amounts, assuming that the amounts are fully
advanced and that, in accordance with the requirements of SFAS No. 105,
"Disclosure of Information about Financial Instruments with Off-Balance
Sheet Risk and Financial Instruments with Concentrations of Credit Risk",
collateral or other security is of no value. BancTEXAS uses the same
credit policies in granting commitments and conditional obligations as it
does for on-balance sheet items.
49
<PAGE> 52
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
Commitments to extend credit at December 31 are as follows:
<CAPTION>
1994 1993
---- ----
(Dollars expressed in thousands)
<S> <C> <C>
Credit card commitments $ 2,251 2,117
Other loan commitments 22,193 10,751
Standby letters of credit 70 217
======= =======
</TABLE>
Credit card and other loan commitments 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. Since many
of the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. Each customer's creditworthiness is evaluated on a
case-by-case basis. The amount of collateral obtained, if deemed
necessary upon extension of credit, is based on credit evaluation of the
customer. Collateral held varies but may include accounts receivable,
inventory, property, plant, equipment, income-producing commercial
properties and single family residential properties. Collateral is
generally required except for consumer credit card commitments.
Standby letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. The
letters of credit are primarily issued to support private borrowing
arrangements and commercial transactions. Most letters of credit extend
for less than one year. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan
facilities to customers. The Bank holds marketable securities,
certificates of deposit, inventory or other assets as collateral
supporting those commitments for which collateral is deemed necessary as
the commitments are issued. Collateral values generally exceed the
amounts advanced under the commitments.
(15) CONCENTRATIONS OF CREDIT
BancTEXAS' primary market areas are the regions around Houston, Dallas
and Ft. Worth, Texas. At December 31, 1994, approximately 93% of the
total loan portfolio, and 94% of the commercial, financial and
agricultural loan portfolio, were to borrowers within this region. In
the past, these areas have been heavily influenced by the energy sector
of the economy, particularly the oil and gas industry. Problems which
surfaced in this area in recent years have tended to cause the economic
base to broaden, contributing to a more stable lending environment. The
Company does not have any loans directly related to the energy segment
of the economy.
Indirect automobile lending constituted the only significant
concentration of credit risk. Financial instruments related to indirect
automobile financing, including loans and commitments, comprised
approximately 82% of such instruments, all of which was
consumer-related.
In general, BancTEXAS is a secured lender. At December 31, 1994,
approximately 98% of the loan portfolio was secured. Collateral is
required in accordance with the normal credit evaluation process based
upon the creditworthiness of the customer and the credit risk associated
with the particular transaction.
50
<PAGE> 53
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(16) STOCKHOLDERS' EQUITY
Stock Options
On April 19, 1990, the Board of Directors of BancTEXAS adopted the 1990
Stock Option Plan (1990 Plan). Pursuant to the 1990 Plan, six directors
(none of whom are officers or employees of BancTEXAS or its
subsidiaries) were each granted a stock option to acquire 100,000 shares
and 17 officers of BancTEXAS and its subsidiaries, who were selected by
the Board of Directors, were granted stock options to acquire, in the
aggregate, 1,860,000 shares. All of these options, except one covering
25,000 shares at 37.5 cents per share, were issued with a purchase price
of 25 cents per share which was 100% of the fair market value of the
common stock on the date the options were granted. The 1990 Plan
currently provides that no more than 3,000,000 shares of common stock
will be available for stock options. One-fourth of each stock option
becomes exercisable at the date of the grant and at each anniversary
date of the grant. The options expire ten years from the date of the
grant. The 1990 Plan was ratified by BancTEXAS' stockholders at the
1991 Annual Meeting of Stockholders.
<TABLE>
At December 31, 1994, there were 552,500 shares available for future
stock options and 1,472,000 shares of common stock reserved for the
exercise of outstanding options. Transactions relating to the 1990 Plan
for the years ended December 31 were as follows:
<CAPTION>
1994 1993 1992
----------------------- ----------------------- -----------------------
Average Average Average
option option option
Amount price Amount price Amount price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding options, January 1 2,005,500 $ .25 2,350,000 $ .25 2,467,500 $ .25
Options exercised (533,500) .25 (344,500) .25 (117,500) .25
---------- ---------- ----------
Outstanding options, December 31 1,472,000 $ .25 2,005,500 $ .25 2,350,000 $ .25
========== ========== ==========
Options exercisable, December 31 1,472,000 1,999,250 1,756,250
========== ========== ==========
</TABLE>
Warrants
As part of the 1987 restructuring of BancTEXAS, warrants to purchase
common stock were issued to certain commercial banks which were then its
senior lenders and to the Federal Deposit Insurance Corporation (FDIC).
The senior lenders received warrants to purchase 984,943 shares of
common stock and the FDIC received warrants to purchase 1,969,885 shares
of common stock both at an exercise price of $5.41 per share. At the
date of issuance, the warrants were considered to have nominal fair
market value, if any. Thus, for financial reporting purposes, no value
was assigned to these warrants. These warrants have antidilution
protection and substantial registration rights and will expire twenty
years after issuance. At December 31, 1994, no common stock has been
issued from the exercise of these warrants.
Pursuant to the FDIC's Order dated October 16, 1990, BancTEXAS amended
and restated the FDIC warrants. On November 30, 1990, the FDIC and
BancTEXAS executed an Agreement Concerning Warrants. Pursuant to this
agreement, BancTEXAS issued warrants to the FDIC, dated November 30,
1990, granting the right to purchase up to an aggregate of 1,970,033
shares of BancTEXAS' common stock at a price of five cents per share in
exchange for those granted under the Company's 1987 restructuring. The
1987 FDIC
51
<PAGE> 54
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
warrants were canceled. The 1990 warrants cannot be exercised before
October 16, 1995 and will expire, if not previously exercised, on July
17, 2007. The 1990 warrants are protected by antidilution provisions
relating both to number of shares and the exercise price. BancTEXAS has
reserved 2,954,976 shares of its common stock, equal to the aggregate
amount of all warrants outstanding.
Distribution of Earnings of Subsidiaries
The distribution of earnings of the Bank has been restricted by various
state and federal regulations, as well as the accumulated deficit which
was eliminated by the quasi-reorganization described in Note 2. Because
of these limitations, the Bank has been precluded from the payment of
any dividends in the past. As a result of the capital contributed to
the Bank following the private placement of Class B common stock and the
quasi-reorganization described in Note 2, the Bank may be allowed to
pay dividends in the future from any earnings accumulated after January
1, 1995, subject to applicable regulatory limitations.
(17) TRANSACTIONS WITH RELATED PARTIES
Following the private placement of Class B common stock described in
Note 2, BancTEXAS began purchasing certain services and supplies from or
through its majority shareholder, First Banks. During the remaining
four months of 1994 this was primarily limited to the purchase of
insurance policies, office supplies and other commonly-used banking
products which could be acquired more economically than BancTEXAS had
previously been able to realize separately. The amount of these
purchases were not material to the consolidated financial position or
results of operations of BancTEXAS for the year ended December 31, 1994.
As more fully described in Note 4, BancTEXAS sold an aggregate of
$113,852,000 in investment securities in September 1994, of which
$60,091,000 were sold to a subsidiary of First Banks at fair value.
In December 1994, the Board of Directors of the Bank approved a data
processing agreement and a management fee agreement with First Banks.
Under the data processing agreement, a subsidiary of First Banks will
provide data processing and various related services to BancTEXAS
beginning in February 1995. The proposed fees for such services are
significantly lower than BancTEXAS is currently paying its
non-affiliated vendors. The management fee agreement provides that
BancTEXAS will compensate First Banks on an hourly basis for its use of
personnel for various functions including internal auditing, loan
review, income tax preparation and assistance, accounting,
asset/liability and investment services, loan servicing and other
management and administrative services. Hourly rates for such services
compare favorably with those for similar services from unrelated
sources, as well as the internal costs of BancTEXAS personnel which were
used previously, and it is estimated that the aggregate cost for the
services will be significantly more economical than those previously
incurred by BancTEXAS separately. Fees paid under these agreements
during 1994 were $14,000.
52
<PAGE> 55
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Outside of normal customer relationships, no directors, executive
officers or shareholders holding over 5% of BancTEXAS' voting stock, and
no corporations or firms with which such persons or entities are
associated, currently maintain or have maintained, since January 1,
1994, any significant business or personal relationships with BancTEXAS
or its subsidiaries, other than that which arises by virtue of such
position or ownership interest in BancTEXAS, except as described above.
(18) LITIGATION
In 1993, BancTEXAS settled a class action lawsuit relating to a private
placement of common stock which it had completed in 1984. As a result
of this settlement, the Company issued to the plaintiffs 400,000 shares
of its common stock and conveyed other consideration having a cost to
the Company of approximately $52,000. The total cost of this
settlement, $592,000, was reflected as an expense for the year ended
December 31, 1993.
There are several other claims and legal actions pending against
BancTEXAS and/or the Bank with regard to matters arising out of the
conduct of their businesses. It is the opinion of management, in
consultation with legal counsel, that the ultimate liability, if any,
resulting from such claims and legal actions will not materially affect
the financial condition, results of operations or liquidity of BancTEXAS
or the Bank.
(19) INTEREST RATE RISK MANAGEMENT AND DERIVATIVE FINANCIAL INSTRUMENTS
WITH OFF-BALANCE SHEET RISK
BancTEXAS' objective regarding interest rate risk management is to
position the Company such that changes in interest rates do not have a
material adverse impact upon the net market value and net interest
income of BancTEXAS. To assist in achieving that objective, BancTEXAS
uses a combination of derivative financial instruments, including
interest rate cap agreements and interest rate futures contracts.
To measure the impact from interest rate changes, BancTEXAS recalculates
its net market value and net interest income on a proforma basis over a
one year horizon assuming instantaneous, permanent parallel shifts in
the yield curve, with varying amounts of increases and decreases in
rates. Larger increases or decreases in the Company's net market value
and net interest income as a result of these assumed interest rate
changes indicate greater levels of interest rate sensitivity than do
smaller increases or decreases. BancTEXAS endeavors to maintain a
position whereby the proforma effect on the net market value and net
interest income would not exceed 4.0% and 10.0% for an assumed 50 and
100 basis point increase or decrease in general interest rates,
respectively.
<TABLE>
Derivative financial instruments held by BancTEXAS for purposes of
managing interest rate risk are summarized as follows:
<CAPTION>
December 31,
--------------------------------------------
1994 1993
--------------------- --------------------
Notional Credit Notional Credit
amount amount amount amount
------ ------ ------ ------
(dollars expressed in thousands)
<S> <C> <C> <C> <C>
Interest rate futures contracts $ 768,000 - - -
Interest rate cap agreements 10,000 577 10,000 352
</TABLE>
The notional amounts of derivative financial instruments do not represent
amounts exchanged by the parties and, therefore are not a measure of the
Company's credit exposure through its use of derivative financial
instruments. The amounts exchanged are determined by reference to the
notional amounts and the other terms of the derivatives.
53
<PAGE> 56
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
BancTEXAS is exposed to credit risk in the event of nonperformance by
counterparties to derivative financial instruments but does not expect
the failure of any counterparties in meeting their obligations. Where
appropriate, master netting agreements are arranged or collateral is
obtained in the form of cash or rights to securities. In addition,
BancTEXAS deals only with highly rated counterparties. The credit
exposure of derivative financial instruments is the positive fair value
of the instruments, net of the fair value of collateral received.
Interest rate futures contracts are commitments to either purchase or
sell designated financial instruments at a future date for a specified
price and may be settled in cash or through delivery of such financial
instruments. Changes in the contract values are settled daily. Futures
contracts have little credit risk because futures exchanges are the
counterparties. BancTEXAS sells interest rate futures contracts to hedge
the interest rate risk of its available-for-sale securities portfolio.
The Company has sold futures on Eurodollar deposits because their
liquidity is more consistent with the objectives of the
available-for-sale securities portfolio. The contracts sold, which have
expiration dates from March 1995 to December 1996, were selected to
approximate the effective maturity of the available-for-sale securities
portfolio. At December 31, 1994, the unamortized balance of net deferred
gains on interest rate futures contracts of $886,000 was applied to the
carrying value of the securities as part of the adjustment to current
fair values. There were no interest rate futures contracts outstanding
during 1993 and 1992.
BancTEXAS purchased an interest rate cap agreement to limit the interest
expense associated with certain of its interest-bearing liabilities. In
exchange for an initial fee, the interest rate cap agreement entitles
BancTEXAS to receive interest payments when a specified index rate
exceeds a predetermined rate. The agreement outstanding at December 31,
1994 effectively limits the interest rate to 5.0% on $10 million of
interest-bearing liabilities from October 15, 1997 to May 15, 2000. At
December 31, 1994 and 1993, the unamortized costs were $577,000 and
$352,000, respectively, and were included in other assets. There are no
amounts receivable under the agreement.
During late 1994, BancTEXAS increased its use of derivative financial
instruments. This increased use of derivative financial instruments was
necessary to reduce the overall interest rate risk to within the newly
prescribed net market value and net interest income exposure limits as
established by BancTEXAS' Board of Directors. The prescribed limits were
determined after a comprehensive review and evaluation of BancTEXAS'
exposure to interest rate risk. The use of derivative financial
instruments is strictly limited to reducing the interest rate risk that
is inherent in the different maturity and repricing characteristics of
the lending and deposit-taking activities. BancTEXAS will continue to
utilize a combination of on- and off-balance sheet financial instruments
to manage interest rate sensitivity to within the prescribed limits.
(20) FAIR VALUE OF FINANCIAL INSTRUMENTS
<TABLE>
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." The estimated
fair value amounts have been determined by BancTEXAS using available
market information and appropriate valuation methodologies. However,
considerable judgment is necessarily required to interpret market data to
develop
54
<PAGE> 57
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts BancTEXAS could realize in
a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
<CAPTION>
December 31, 1994 December 31, 1993
----------------- -----------------
Estimated Estimated
Carrying fair Carrying fair
amount value amount value
------ ----- ------ -----
(dollars expressed in thousands)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 47,071 47,071 25,490 25,490
Investment securities 60,514 60,514 160,158 159,051
Loans, net 200,558 200,558 165,095 168,163
Accrued interest receivable 1,146 1,146 1,247 1,247
Liabilities:
Demand and savings deposits 124,473 124,473 128,639 128,639
Time deposits 117,097 117,097 114,258 116,661
Accrued interest payable 716 716 517 517
Federal funds purchased and
securities sold under agree-
ments to repurchase 24,233 24,233 95,208 95,208
FHLB advances 19,412 19,412 10,918 10,962
Long-term debt 1,054 1,054 1,054 1,180
Off balance sheet:
Interest rate cap agreement 577 577 352 352
Interest rate futures contracts 886 886 - -
Unfunded loan commitments - - - -
</TABLE>
The fair value of investment securities is based on prices obtained from
independent pricing services. The fair value of loans, time deposits,
and other financial instruments is estimated based on present values of
expected cash flows from amortization and historical prepayment
experience using applicable risk-adjusted spreads to the U.S. Treasury
curve for current market rates offered for instruments with similar
terms to approximate current entry-value interest rates applicable to
each category of such financial instruments.
Cash and cash equivalents, accrued interest receivable, demand and
savings deposits, accrued interest payable, and Federal funds purchased
and securities sold under agreement to repurchase are valued at book
value which approximates fair value. This valuation is due to the fact
that the amounts due or payable consist of maturities less than 30 days
or on demand. The fair value for interest rate futures contracts are
based upon quoted market prices. The fair value of these contracts has
been reflected in the consolidated balance sheet in the carrying value
of the securities available-for-sale portfolio as part of the mark to
market valuation. The fair value of the interest rate cap agreement is
estimated by comparing the contractual rates to market rates quoted on
new agreements with similar creditworthiness. BancTEXAS' unfunded
commitments consists primarily of variable rate interim construction
commitments and $2.3 million of unfunded credit card commitments.
Accordingly, the unfunded commitments estimated fair value is
immaterial.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1994 and 1993.
Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements
since the presentation date and, therefore, current estimates of fair
value may differ significantly from the amounts presented herein.
55
<PAGE> 58
<TABLE>
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(21) BANCTEXAS GROUP INC. (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
<CAPTION>
December 31,
----------------------
1994 1993
---- ----
Assets (dollars expressed in thousands)
------
<S> <C> <C>
Cash $ 575 200
Mortgage-backed and other securities available for sale 12,803 13,541
Investment in subsidiaries 25,481 16,060
Deferred tax assets 3,499 -
Other assets 46 357
------- -------
Total assets $ 42,404 30,158
======= =======
Liabilities and Stockholders' Equity
------------------------------------
Payable to subsidiaries $ 1,789 1,882
Securities sold under agreement to repurchase - 12,675
Accrued and other liabilities 901 649
------- -------
Total liabilities 2,690 15,206
Stockholders' equity 39,714 14,952
------- -------
Total liabilities and stockholders' equity $ 42,404 30,158
======= =======
CONDENSED STATEMENTS OF OPERATIONS
Year ended December 31,
------------------------------------
1994 1993 1992
---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C>
Income:
Interest $ 498 684 442
Gain (loss) on sale of securities, net (661) 15 -
Other 35 (40) 40
------ ----- -----
(128) 659 482
------ ----- -----
Expense:
Interest 451 601 386
Provision for (reversal of) loan losses 24 - (25)
Reversal of officers severance accrual - - (600)
Litigation settlement expense - 592 -
Reversal of estimated costs of former subsidiary - (804) (590)
Other 453 220 183
------ ----- -----
928 609 (646)
------ ----- -----
Income (loss) before taxes (1,056) 50 1,128
Provision (credit) for income taxes (3,527) - 384
------ ----- -----
Income (loss) before equity in
undistributed income (loss) of subsidiaries
and extraordinary item 2,471 50 744
Equity in undistributed income (loss) of
subsidiaries (3,376) 169 (64)
------ ----- -----
Income (loss) before extraordinary item (905) 219 680
Extraordinary tax benefit from net operating loss
carryforward - - 384
------ ----- -----
Net income (loss) $ (905) 219 1,064
====== ===== =====
</TABLE>
56
<PAGE> 59
<TABLE>
BANCTEXAS GROUP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(21) BANCTEXAS GROUP INC. (PARENT COMPANY ONLY) (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
Year ended December 31,
------------------------------------
1994 1993 1992
---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ (905) 219 1,064
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
(Credit) for deferred income taxes (3,527) - -
Equity in undistributed loss (income) of
subsidiaries 3,376 (169) 64
Other, net 1,277 (354) (1,270)
------- ------ -------
Net cash provided (used) by operations 221 (304) (142)
------- ------ -------
Investing activities:
Purchase of investment securities (12,803) (3,612) (16,511)
Proceeds from maturity of investment securities - 3,020 3,566
Proceeds from sales of investment securities 12,873 1,037 -
Capital contributions to subsidiaries (17,000) - -
Other, net - 100 45
------- ------ -------
Net cash provided (used) by
investing activities (16,930) 545 (12,900)
------- ------ -------
Financing activities:
Net proceeds from issuance and sale of
Class B common stock 29,623 - -
Exercise of stock options 136 86 30
Net increase (decrease) in federal funds
purchased and securities sold under
agreements to repurchase (12,675) (731) 13,394
------- ------ -------
Net cash provided (used) by
financing activities 17,084 (645) 13,424
------- ------ -------
Net increase (decrease) in cash and cash equivalents 375 (404) 382
Cash and cash equivalents at beginning of year 200 604 222
------- ------ -------
Cash and cash equivalents at end of year $ 575 200 604
------- ------ -------
Supplemental disclosure of cash paid for interest $ 428 564 301
======= ====== =======
Supplemental disclosure of noncash investing
and financing activities:
Transfer of investment securities to
available-for-sale $ - 13,541 -
======= ====== =======
</TABLE>
57
<PAGE> 60
<TABLE>
BANCTEXAS GROUP INC. AND SUBSIDIARIES
QUARTERLY CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
<CAPTION>
1994 1993
------------------------------------------- -------------------------------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- -------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 5,603 5,903 5,715 5,428 5,324 5,325 5,565 5,752
Interest expense 2,473 3,049 2,965 2,585 2,565 2,424 2,356 2,405
------- ------ ------ ------ ------ ------ ------ ------
Net interest income 3,130 2,854 2,750 2,843 2,759 2,901 3,209 3,347
Provision for loan losses 653 455 75 75 160 100 90 140
------- ------ ------ ------ ------ ------ ------ ------
Net interest income
after provision for
loan losses 2,477 2,399 2,675 2,768 2,599 2,801 3,119 3,207
Noninterest income:
Securities gains (losses) 48 (7,055) - - 59 147 - 37
Other 516 564 785 631 790 762 660 613
------- ------ ------ ------ ------ ------ ------ ------
Total noninterest
income (loss) 564 (6,491) 785 631 849 909 660 650
Noninterest expense 3,562 5,606 3,417 3,589 4,170 3,406 3,453 3,546
Income tax benefit (252) (9,209) - - - - - -
------- ------ ------ ------ ------ ------ ------ ------
Net income (loss) $ (269) (489) 43 (190) (722) 304 326 311
======= ====== ====== ====== ====== ====== ====== ======
Net income (loss) per share $ - (.01) - (.01) (.03) .01 .01 .01
======= ====== ====== ====== ====== ====== ====== ======
Weighted average common
shares and common share
equivalent outstanding (in
thousands) 61,400 36,324 23,596 23,329 23,314 23,379 23,214 23,243
======= ====== ====== ====== ====== ====== ====== ======
</TABLE>
58
<PAGE> 61
BANCTEXAS GROUP INC.
MANAGEMENT
DIRECTORS OF BANCTEXAS GROUP INC.
Allen H. Blake - Chief Financial Officer and Secretary, BancTEXAS Group
Inc., Houston, Texas, Senior Vice President, Chief Financial Officer and
Secretary, First Banks, Inc., St. Louis, Missouri.
Charles A. Crocco, Jr. - Partner in the law firm of Crocco & De Maio,
P.C., New York, New York.
James F. Dierberg - Chairman of the Board, Chief Executive Officer and
President of BancTEXAS Group Inc., Houston, Texas, Chairman of the
Board, Chief Executive Officer and President of First Banks, Inc., St.
Louis, Missouri.
Edward T. Story, Jr. - President and Chief Executive Officer of SOCO
International, Inc., an international oil and gas exploration and
production company headquartered in Houston, Texas.
Mark T. Turkcan - Senior Vice President, Retail Banking, First Banks,
Inc., St. Louis, Missouri.
OFFICERS OF BANCTEXAS GROUP INC.
James F. Dierberg - Chairman of the Board, President and Chief Executive
Officer
David F. Weaver - Executive Vice President
Allen H. Blake - Chief Financial Officer and Secretary
SENIOR OFFICERS OF BANKTEXAS N.A.
David F. Weaver - Chairman of the Board, Chief Executive Officer and
President
Kathryn Aderman - Vice President - Administration and Director of Human
Resources
Jerry V. Garrett - Senior Vice President - Consumer Lending
James W. Parmley - Vice President and Manager of Dealer Finance
59
<PAGE> 62
BANCTEXAS GROUP INC.
CORPORATE INFORMATION
FORM 10-K
BancTEXAS's Annual Report on Form 10-K, as filed with the Securities
and Exchange Commission, is available without charge to any stockholder
upon request. Requests should be directed to Kathryn Aderman,
Assistant Secretary, BancTEXAS Group Inc., P.O. Box 630369, Houston,
Texas 77263-0369.
COMMON STOCK
The common stock of BancTEXAS Group Inc. is traded on the New York
Stock Exchange with the ticker symbol "BTX" and is frequently reported
in newspapers of general circulation with the symbol "BanTex" and in
the Wall Street Journal with the symbol "BancTEXAS."
COMMON STOCK TRANSFER AGENT AND REGISTRAR
Chemical Bank
Securityholder Relations Department
450 West 33rd Street, 8th Floor
New York, New York 10001
Telephone: 1-800-635-9270
INFORMATION
For information concerning BancTEXAS Group Inc. contact:
David F. Weaver Allen H. Blake
Executive Vice President Chief Financial Officer and Secretary
P. O. Box 630369 135 North Meramec
Houston, Texas 77263-0369 St. Louis, Missouri 63105
Telephone : 713/954-2400 Telephone: 314/854-4600
60
<PAGE> 1
EXHIBIT 21
BancTEXAS Group Inc.
SIGNIFICANT SUBSIDIARIES
The following is a list of all subsidiaries of the Company and the
jurisdiction of incorporation or organization. The two nonbank
subsidiaries are 100% owned by BancTEXAS.
<TABLE>
<CAPTION>
Jurisdiction of
Incorporation
Name or Organization
---- ---------------
<S> <C>
NONBANK SUBSIDIARIES
--------------------
CSWI International Finance N.V. Netherlands Antilles
Sundowner Corporation Nevada
Sundowner Corporation
owns 100% of:
BankTEXAS National Bank
National Association
</TABLE>
<PAGE> 1
EXHIBIT 23(a)
Independent Auditors' Consent
-----------------------------
The Board of Directors
BancTEXAS Group Inc.:
We consent to incorporation by reference in the registration statement
(no. 33-42607) on Form S-8 of BancTEXAS Group Inc. of our report dated
February 10, 1995, relating to the consolidated balance sheet of
BancTEXAS Group Inc. and subsidiaries as of December 31, 1994, and the
related consolidated statements of operations, changes in stockholders'
equity, and cash flows for the year then ended, which report appears in
the December 31, 1994, annual report on Form 10-K of BancTEXAS Group Inc.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Dallas, Texas
March 29, 1995
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
BancTEXAS Group Inc.
We consent to incorporation by reference in Registration Statement
No. 33-42607 of BancTEXAS Group Inc. on Form S-8 of our report
dated March 18, 1994, appearing in this Annual Report on Form 10-K
of BancTEXAS Group Inc. for the year ended December 31, 1994.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Dallas, Texas
March 29, 1995
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 14,029
<INT-BEARING-DEPOSITS> 25,042
<FED-FUNDS-SOLD> 8,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 61,400
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 203,314
<ALLOWANCE> (2,756)
<TOTAL-ASSETS> 331,790
<DEPOSITS> 241,570
<SHORT-TERM> 44,454
<LIABILITIES-OTHER> 4,998
<LONG-TERM> 1,054
0
0
<COMMON> 581
<OTHER-SE> 39,133
<TOTAL-LIABILITIES-AND-EQUITY> 331,790
<INTEREST-LOAN> 15,196
<INTEREST-INVEST> 6,965
<INTEREST-OTHER> 488
<INTEREST-TOTAL> 22,649
<INTEREST-DEPOSIT> 7,120
<INTEREST-EXPENSE> 11,072
<INTEREST-INCOME-NET> 11,577
<LOAN-LOSSES> 1,258
<SECURITIES-GAINS> (7,007)
<EXPENSE-OTHER> 16,174
<INCOME-PRETAX> (10,366)
<INCOME-PRE-EXTRAORDINARY> (905)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (905)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
<YIELD-ACTUAL> 6.76
<LOANS-NON> 293
<LOANS-PAST> 183
<LOANS-TROUBLED> 476
<LOANS-PROBLEM> 2,500
<ALLOWANCE-OPEN> 2,637
<CHARGE-OFFS> (2,258)
<RECOVERIES> 1,119
<ALLOWANCE-CLOSE> 2,756
<ALLOWANCE-DOMESTIC> 2,756
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
