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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
JANUARY 28, 1997
Date of Report (Date of earliest event reported)
INDEPENDENT BANKSHARES, INC.
(Exact name of Registrant as specified in its charter)
TEXAS 0-10196 75-1717279
(State of Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
547 CHESTNUT STREET
P.O. BOX 3296
ABILENE, TEXAS 79604
(Address of principal executive offices) (Zip Code)
(915) 677-5550
Registrant's telephone number, including area code)
NOT APPLICABLE
Former name or former address, if changed since last report)
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<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On January 28, 1997, Independent Bankshares, Inc. (the "Company")
consummated the acquisition (the "Acquisition") of Crown Park Bancshares, Inc.,
a Texas corporation ("Crown Park"), and its wholly owned subsidiary bank,
Western National Bank, Lubbock, Texas ("Western National"), for an aggregate
cash consideration of $7,510,000, which was paid to the shareholders of Crown
Park.
The merger consideration was initially $7,425,000, but was adjusted to
increase by the amount of interest earned on the merger consideration from
December 1, 1996 through January 27, 1997 at a rate equal to the 26-week United
States Treasury Bill rate plus 2% (i.e., $85,000). The aggregate merger
consideration included $143,000 that was paid to Crown Park's financial advisor.
On the closing date, Crown Park was merged with and into a wholly owned
subsidiary of the Company and Western National was merged with and into First
State Bank, N.A., Abilene, the Company's subsidiary bank ("First State, N.A.,
Abilene").
To obtain funding for the Acquisition, simultaneous with the closing, the
Company consummated an underwritten public offering of 275,000 shares of its
common stock at a price of $14.25 per share (the "Offering"). The Company
borrowed $800,000 from Boatmen's First National Bank of Amarillo ("BFNBA") to
finance the remaining cost of acquiring Crown Park. The terms provide that this
loan will accrue interest at a floating per annum rate equal to BFNBA's base
rate plus one-half percent, principal and interest will be payable on demand,
but if no demand is made, at maturity and the loan will mature on April 23,
1997. The loan is secured by a pledge of all of the stock of Independent
Financial Corp., an intermediate holding company, and First State, N.A.,
Abilene. Other loan provisions, include limitations on additional debt,
purchases and sales of assets, and acquisitions and mergers, dividend
restrictions if total debt to BFNBA exceeds $1,200,000 and certain financial
covenants (minimum capital of $12,500,000 for the Company and $11,500,000 for
First State, N.A., Abilene; minimum capital to assets ratios for the Company and
First State, N.A., Abilene of 6.5% for the first two years and 7.0% thereafter;
nonperforming loans to total loans and nonperforming assets to total loan ratios
for First State, N.A., Abilene of 1.5% and 2.0%, respectively; and minimum net
income after tax for First State, N.A., Abilene of $70,000 quarterly). The loan
agreement provides that at maturity, BFNBA will renew the note into a term note
in an amount not to exceed the then current outstanding balance. As currently
contemplated, the term note would be payable over seven years in annual
principal installments with interest payable quarterly.
Western National is a community bank that offers interest and
noninteresting-bearing depository accounts, and makes consumer and commercial
loans. At the date of Acquisition, on a consolidated basis, Crown Park had
total assets of $60,420,000, total loans, net of unearned income, of
$41,688,000, total deposits of $53,618,000 and stockholders' equity of
$4,251,000.
The Company intends to increase the profitability of Western National by
expanding its loan portfolio and deposit base. The Company believes enhanced
marketing efforts, expanded loan and deposit products and increased employee
training and personal attention to customers will fuel this growth. The Company
also believes that savings can be realized in the area of noninterest expenses
through consolidation of operations. In addition to the immediate increase in
asset size and the potential for improved future profitability, the Acquisition
will allow the Company to expand its market area into what it believes are
desirable banking locations. This
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expansion will increase the geographic diversity of the Company's loan
portfolio which is expected to decrease the Company's overall lending risks.
No material relationship exists between Crown Park and the Company or any
of its affiliates, any directors or officers of the Company, or any associate of
any such director or officer.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial statements of business acquired
CROWN PARK BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks........................... $ 2,832,000 $ 2,693,000
Federal funds sold................................ 1,375,000 7,275,000
Investment securities............................. 0
Securities held to maturity, fair value of
$6,413,000 at September 30, 1996, and
$9,974,000 at December 31, 1995............... 6,424,000 9,968,000
Securities available for sale, at fair value.... 5,243,000 4,325,000
Loans, net........................................ 38,289,000 32,515,000
Accrued interest receivable....................... 491,000 508,000
Bank premises and equipment, net.................. 2,373,000 2,358,000
Other real estate owned........................... 290,000 335,000
Other assets...................................... 208,000 208,000
------------ ------------
TOTAL ASSETS...................................... $ 57,525,000 $ 60,185,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Noninterest bearing demand deposits............. $ 9,194,000 $ 11,045,000
Interest bearing deposits....................... 41,508,000 42,721,000
------------ ------------
Total deposits................................ 50,702,000 53,766,000
Accounts payable and accrued liabilities........ 244,000 210,000
Notes payable................................... 2,094,000 2,111,000
Deferred federal income tax..................... 167,000 83,000
------------ ------------
Total liabilities............................. 53,207,000 56,170,000
------------ ------------
STOCKHOLDERS' EQUITY
Common stock.................................... 952,000 952,000
Capital surplus................................. 965,000 965,000
Retained earnings............................... 2,407,000 2,073,000
Unrealized gain (loss) on investment securities
available for sale, net of applicable deferred
federal income taxes.......................... (6,000) 25,000
------------ ------------
Total stockholders' equity.................... 4,318,000 4,015,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $ 57,525,000 $ 60,185,000
------------ ------------
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</TABLE>
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CROWN PARK BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
NINE-MONTH PERIOD ENDED
SEPTEMBER 30,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans...................... $ 2,528,000 $ 2,396,000
Interest on investment securities............... 613,000 639,000
Interest on federal funds sold.................. 139,000 211,000
------------ ------------
Total interest income......................... 3,280,000 3,246,000
------------ ------------
INTEREST EXPENSE
Interest on deposits............................ 1,343,000 1,287,000
Interest on long-term debt...................... 136,000 149,000
------------ ------------
Total interest expense........................ 1,479,000 1,436,000
------------ ------------
NET INTEREST INCOME............................. 1,801,000 1,810,000
Provision for loan losses......................... 135,000 202,000
------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES........................................ 1,666,000 1,608,000
------------ ------------
OTHER INCOME
Service charges................................. 220,000 248,000
Other operating income.......................... 139,000 175,000
------------ ------------
Total other income............................ 359,000 423,000
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OTHER EXPENSE
Salaries and benefits........................... 719,000 741,000
Net occupancy expense of bank premises.......... 110,000 100,000
Equipment expense............................... 101,000 99,000
FDIC assessments................................ 2,000 65,000
Other operating expenses........................ 592,000 455,000
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Total other expense........................... 1,524,000 1,460,000
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EARNINGS BEFORE INCOME TAXES................ 501,000 571,000
Provision for income taxes........................ 159,000 187,000
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NET EARNINGS................................ $ 342,000 $ 384,000
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</TABLE>
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CROWN PARK BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings.................................... $ 342,000 $ 384,000
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation.................................. 107,000 114,000
Provision for losses on loans................. 135,000 202,000
Writedown of other real estate owned.......... 8,000 0
Amortization of investment securities, net of
accretion................................... 41,000 95,000
Loss on sale of investment securities......... 2,000 0
Increase in accounts payable and accrued
liabilities................................. 34,000 22,000
(Increase) decrease in accrued interest
receivable.................................. 17,000 (103,000)
Increase in other assets...................... 0 (6,000)
------------ ------------
Net cash provided by operating activities......... 686,000 708,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of bank premises and equipment...... (142,000) (12,000)
Proceeds from sale of bank premises and
equipment..................................... 20,000 0
Purchases of securities held to maturity........ (500,000) (680,000)
Proceeds from maturities of securities held to
maturity...................................... 3,108,000 500,000
Proceeds from sales of securities held to
maturity...................................... 998,000 0
Purchases of securities available for sale...... (3,523,000) (2,081,000)
Proceeds from maturities of securities available
for sale...................................... 2,453,000 3,300,000
Net change in loans to customers................ (5,788,000) (2,324,000)
Net change in federal funds sold................ 5,900,000 1,325,000
Proceeds from sale of other real estate owned... 8,000 0
------------ ------------
Net cash provided by investing activities....... 2,534,000 28,000
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits........................ (3,064,000) (686,000)
Payment of notes payable........................ (17,000) (18,000)
------------ ------------
Net cash used by financing activities........... (3,081,000) (704,000)
------------ ------------
NET INCREASE IN CASH AND DUE FROM BANKS........... 139,000 32,000
Cash and due from banks at beginning of
period........................................ 2,693,000 2,702,000
------------ ------------
CASH AND DUE FROM BANKS AT END OF PERIOD.......... $ 2,832,000 $ 2,734,000
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid................................... $ 1,495,000 $ 1,378,000
Income taxes paid............................... 128,000 220,000
Increase (decrease) in unrealized gain (loss) on
securities available for sale................. (31,000) 89,000
</TABLE>
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CROWN PARK BANCSHARES, INC. AND SUBSIDIARY
NOTES TO INTERMIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
For information with regard to significant accounting policies, reference is
made to Notes to Consolidated Financial Statements included in the Company's
Consolidated Financial Statements together with Independent Auditor's Report for
the year ended December 31, 1995.
NOTE 2: LOANS
The Company's total loans, net of unearned income, increased from
$33,032,000 at December 31, 1995, to $38,619,000 at September 30, 1996. The
increase is primarily due to the increased activity in the area of indirect
installment loans, collateralized principally by automobiles.
NOTE 3: PENDING SALE
On July 11, 1996, the stockholders of the Company entered into a definitive
agreement to sell a super majority of the shares of the Company to Independent
Bankshares, Inc. An application was filed with the appropriate regulatory
authorities for approval of the transaction and such approval, conditioned on
Independent Bankshares, Inc. injecting additional capital into the combined bank
after the effect of the transaction, has been received. If such condition is
satisfied, it is anticipated that the transaction will be consummated during the
first quarter of 1997.
NOTE 4: EXPENSES RELATED TO ACQUISITION
The Company incurred approximately $80,000 ($53,000 net of tax) of expenses
in the nine-month period ended September 30, 1996 related to the proposed
acquisition of the Company.
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CROWN PARK BANCSHARES, INC. AND SUBSIDIARY
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
Crown Park Bancshares, Inc. and Subsidiary
Lubbock, Texas
We have audited the accompanying consolidated balance sheets of Crown Park
Bancshares, Inc. and Subsidiary as of December 31, 1995 and 1994, and the
related consolidated statements of earnings, changes in stockholders' equity and
cash flows for the years ended December 31, 1995, 1994 and 1993. 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 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 consolidated financial statements are
free of significant misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 Crown Park
Bancshares, Inc. and Subsidiary at December 31, 1995 and 1994, and the results
of their operations and their cash flows for the years ended December 31, 1995,
1994 and 1993, in conformity with generally accepted accounting principles.
/s/ Elaine McNair, Inc.
September 20, 1996
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CROWN PARK BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks............................................................ $ 2,692,737 $ 2,701,755
Interest bearing deposits in financial institutions................................ -- 100,000
Federal funds sold................................................................. 7,275,000 5,550,000
Investment securities
Securities held to maturity, fair value of $9,974,106 in 1995 and $8,707,903 in
1994........................................................................... 9,967,964 9,041,386
Securities available for sale, at fair value..................................... 4,325,046 7,375,266
Loans, net......................................................................... 32,514,676 29,658,348
Accrued interest receivable........................................................ 508,476 445,885
Bank premises and equipment, net................................................... 2,358,113 2,497,864
Other real estate owned............................................................ 334,722 334,722
Other assets....................................................................... 207,938 122,629
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TOTAL ASSETS....................................................................... $ 60,184,672 $ 57,827,855
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LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Noninterest bearing demand deposits.............................................. $ 11,044,966 $ 11,717,355
Interest bearing deposits........................................................ 42,721,261 40,249,921
------------- -------------
Total deposits............................................................... 53,766,227 51,967,276
Accounts payable and accrued liabilities......................................... 209,637 173,449
Notes payable.................................................................... 2,110,763 2,235,231
Deferred federal income tax...................................................... 82,902 63,733
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Total liabilities............................................................ 56,169,529 54,439,689
STOCKHOLDERS' EQUITY
Common stock, $5 par value, 1,000,000 shares authorized, 190,372 shares issued
and outstanding................................................................ 951,860 951,860
Capital surplus.................................................................. 965,196 965,196
Retained earnings................................................................ 2,073,451 1,540,505
Unrealized gain (loss) on investment securities available for sale, net of
applicable deferred federal income taxes....................................... 24,636 (69,395)
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Total stockholders' equity................................................... 4,015,143 3,388,166
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......................................... $ 60,184,672 $ 57,827,855
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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CROWN PARK BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans............................................ $ 3,210,829 $ 3,090,371 $ 2,881,882
Interest on investment securities..................................... 971,106 1,045,190 1,088,255
Interest on federal funds sold and deposits in banks.................. 321,141 226,989 140,078
------------ ------------ ------------
Total interest income............................................... 4,503,076 4,362,550 4,110,215
INTEREST EXPENSE
Interest on deposits.................................................. 1,769,856 1,407,836 1,322,525
Interest on short-term borrowings..................................... -- 312 968
Interest on long-term debt............................................ 198,128 194,199 200,092
------------ ------------ ------------
Total interest expense.............................................. 1,967,984 1,602,347 1,523,585
NET INTEREST INCOME..................................................... 2,535,092 2,760,203 2,586,630
Provision for loan losses............................................. 261,383 394,056 515,176
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES..................... 2,273,709 2,366,147 2,071,454
OTHER INCOME
Service charges....................................................... 304,314 429,795 475,405
Other operating income................................................ 245,270 196,349 251,780
------------ ------------ ------------
Total other income.................................................. 549,584 626,144 727,185
OTHER EXPENSE
Salaries and benefits................................................. 989,506 914,827 850,854
Net occupancy expense of bank premise................................. 132,988 141,599 143,451
Equipment expense..................................................... 132,812 144,006 139,599
FDIC assessments...................................................... 69,757 118,377 113,932
Other operating expenses.............................................. 733,255 863,287 795,079
------------ ------------ ------------
Total other expense................................................. 2,058,318 2,182,096 2,042,915
------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES............................................ 764,975 810,195 755,724
Provision for income taxes............................................ 232,029 252,016 256,946
------------ ------------ ------------
NET EARNINGS............................................................ $ 532,946 $ 558,179 $ 498,778
------------ ------------ ------------
------------ ------------ ------------
NET EARNINGS PER SHARE.................................................. $ 2.80 $ 2.93 $ 2.62
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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CROWN PARK BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ON
COMMON STOCK SECURITIES TOTAL
-------------------- CAPITAL RETAINED TREASURY AVAILABLE STOCKHOLDERS'
SHARES AMOUNT SURPLUS EARNINGS STOCK FOR SALE EQUITY
--------- --------- --------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992............. 190,372 $ 951,860 $ 965,196 $ 483,548 $ (24,046) $ -- $2,376,558
Sale of treasury stock................. -- -- -- -- 16,500 -- 16,500
Net earnings........................... -- -- -- 498,778 -- -- 498,778
--------- --------- --------- --------- ----------- ------------ ------------
BALANCE AT DECEMBER 31, 1993............. 190,372 951,860 965,196 982,326 (7,546) -- 2,891,836
Initial unrealized gain on securities
available for sale................... -- -- -- -- -- 82,326 82,326
Sale of treasury stock................. -- -- -- -- 7,546 -- 7,546
Net earnings........................... -- -- -- 558,179 -- -- 558,179
Change in unrealized gain on securities
available for sale................... -- -- -- -- -- (151,721) (151,721)
--------- --------- --------- --------- ----------- ------------ ------------
BALANCE AT DECEMBER 31, 1994............. 190,372 951,860 965,196 1,540,505 -- (69,395) 3,388,166
Net earnings........................... -- -- -- 532,946 -- -- 532,946
Change in unrealized loss on securities
available for sale................... -- -- -- -- -- 94,031 94,031
--------- --------- --------- --------- ----------- ------------ ------------
BALANCE AT DECEMBER 31, 1995............. 190,372 $ 951,860 $ 965,196 $2,073,451 $ -- $ 24,636 $4,015,143
--------- --------- --------- --------- ----------- ------------ ------------
--------- --------- --------- --------- ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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CROWN PARK BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings.................................... $ 532,946 $ 558,179 $ 498,778
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation.................................. 154,734 161,437 321,847
Provision for losses on loans................. 261,383 394,056 515,176
Amortization of investment securities, net of
accretion................................... 104,647 84,166 158,805
Deferred (benefit) provision for income
taxes....................................... (29,271) 5,954 12,752
Increase (decrease) in accounts payable and
accrued liabilities......................... 3,208 (21,232) (76,750)
Increase in accrued interest receivable....... (55,322) (9,424) 39,040
Changes in operating assets and liabilities
(Increase) decrease in other assets......... (96,746) 109,545 (941,687)
Increase in other liabilities............... 69,528 82,341 (111,322)
------------ ------------ ------------
Net cash provided by operating activities..... 945,107 1,365,022 416,639
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of bank premises and equipment...... (11,719) (152,367) (29,704)
Purchases of securities held to maturity........ (1,399,987) (3,143,979) (3,675,719)
Proceeds from maturities of securities held to
maturity...................................... 500,000 528,343 3,500,000
Purchases of securities available for sale...... (2,255,539) (2,003,611) --
Proceeds from maturities of securities available
for sale...................................... 5,520,600 3,872,497 --
Net change in loans to customers................ (3,117,720) 375,671 12,182
Net change in federal funds sold................ (1,725,000) 2,050,000 (2,125,000)
Purchase of Federal Reserve Bank stock.......... -- -- (3,450)
Purchase of Federal Home Loan Bank stock........ (176,400) -- --
------------ ------------ ------------
Net cash provided (used) by investing
activities.................................. (2,665,765) 1,526,554 (2,321,691)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits............. 1,836,108 (2,535,221) 1,945,691
Sale of treasury stock.......................... -- 7,546 16,500
Payment of notes payable........................ (124,468) (142,123) (108,605)
------------ ------------ ------------
Net cash provided (used) by financing
activities.................................. 1,711,640 (2,669,798) 1,853,586
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND DUE FROM
BANKS........................................... (9,018) 221,778 (51,466)
Cash and due from banks at beginning of year.... 2,701,755 2,479,977 2,531,443
------------ ------------ ------------
CASH AND DUE FROM BANKS AT END OF YEAR............ $ 2,692,737 $ 2,701,755 $ 2,479,977
------------ ------------ ------------
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid................................... $ 1,925,669 $ 1,561,650 1,533,893
Income taxes paid............................... 283,000 332,000 266,500
Increase (decrease) in unrealized gain (loss) on
securities available for sale................. 142,472 (105,219) --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE>
CROWN PARK BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Crown Park Bancshares, Inc. (a Texas Corporation) is a single-bank holding
company, which owns all of the capital stock of Western National Bank (the
"Bank"). The Bank's primary source of revenue is providing loans and banking
services to consumers and commercial customers in Lubbock, Texas and the
surrounding area.
The accounting and reporting policies of the Crown Park Bancshares, Inc.,
and subsidiary (the "Company") conform with generally accepted accounting
principles and to general practices of the banking industry. Policies and
practices which significantly affect the determination of financial position,
results of operations and cash flows are summarized as follows:
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, which owns all of the Company's premises. All
significant intercompany transactions and balances have been eliminated in
consolidation.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVESTMENT SECURITIES
Securities classified as held to maturity are recorded at cost, adjusted for
amortization of premiums and accretion of discounts. Securities classified as
available for sale are recorded at fair value, with unrealized gains and losses,
net of applicable deferred income taxes, reported as a separate component of
stockholders' equity. Securities classified as trading are recorded at fair
value, with unrealized gains and losses included in earnings. The Company had no
trading securities as of December 31, 1995 and 1994. Gains and losses resulting
from the sale of securities are determined by the specific identification
method.
LOANS AND ALLOWANCES FOR LOAN LOSSES
Loans are stated at the amount of unpaid principal, reduced by unearned
income and an allowance for loan losses. Unearned interest on installment loans
is recognized in income over the term of the loans in decreasing amounts using a
method that approximates the interest method. Interest on other loans is
calculated by using the simple interest method on daily balances of the
principal amounts outstanding.
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance when
management believes the collectibility of the principal is unlikely. The
allowance is an amount that management believes will be adequate to absorb
possible losses on existing loans that may become uncollectible based upon
management's review and evaluation of the loan portfolio. The factors considered
in the evaluation of the loans include general economic conditions, the
financial condition of the borrower, the value and liquidity of collateral,
delinquency, prior loan loss
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<PAGE>
CROWN PARK BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
experience, and the results of periodic review of the portfolio. Accrual of
interest is discontinued on a loan when management believes, after considering
economic and business conditions and collection efforts, that the borrower's
financial condition is such that collection of interest is doubtful.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed principally on a straight-line basis over
the estimated useful lives of the related assets.
OTHER REAL ESTATE OWNED
Real estate properties acquired through or in lieu of loan foreclosure are
initially recorded at fair value at the date of foreclosure. Costs relating to
development and improvement of property are capitalized, whereas costs relating
to holding property or incurred in foreclosure proceedings are expensed.
Valuations are periodically performed by management and an allowance for
losses is established by means of a charge to operations if the carrying value
of a property exceeds its fair value less estimated costs to sell.
FEDERAL INCOME TAXES
The Company and its subsidiary bank file a consolidated federal income tax
return. The subsidiary provides for taxes on a separate basis and remits to the
Company amounts determined to be currently payable. Federal income tax expense
differs from the amount expected by applying federal statutory rates primarily
due to tax exempt income on securities. Deferred federal income tax assets and
liabilities are recognized to reflect the tax effect of the differences in the
tax and financial reporting basis of assets and liabilities. General business
credits are recognized as a reduction of current income taxes in the year the
credits are utilized.
CASH EQUIVALENTS
The Company defines cash equivalents for the purposes of reporting cash
flows as cash and due from banks.
ACCOUNTING STANDARD NOT YET ADOPTED
In March 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," was issued. This statement requires that "long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable." This statement applies to
fiscal years beginning after December 15, 1995, and is not expected to have a
material effect on the accompanying financial statements.
NOTE 2: INVESTMENT SECURITIES
The Bank is required to maintain a reserve balance with the Federal Reserve
Bank. The reserve requirement as of December 31, 1995 and 1994 totaled
approximately $240,000 and $301,000, respectively.
-14-
<PAGE>
CROWN PARK BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: INVESTMENT SECURITIES (CONTINUED)
The amortized cost, estimated market values, and gross unrealized gains and
losses of the Company's investment securities as of December 31, 1995 and 1994,
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------------
AMORTIZED GROSS GROSS AGGREGATE
COST UNREALIZED UNREALIZED FAIR
BASIS GAINS LOSSES VALUE
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Securities held to maturity
U.S. Treasury securities............... $ 8,408,477 $ 26,186 $ 25,006 $ 8,409,657
U.S. Government agencies............... 1,500,000 4,922 -- 1,504,922
Mortgage-backed securities............. 59,487 40 -- 59,527
------------ ----------- ----------- ------------
Total................................ $ 9,967,964 $ 31,148 $ 25,006 $ 9,974,106
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
Securities available for sale
U.S. Treasury securities............... $ 1,496,864 $ 3,526 $ -- $ 1,500,390
U.S. Government agencies............... 1,488,052 20,151 -- 1,508,203
Mortgage-backed securities............. 896,069 13,576 -- 909,645
------------ ----------- ----------- ------------
Total debt securities................ 3,880,985 37,253 -- 3,918,238
Equity securities.................... 406,808 -- -- 406,808
------------ ----------- ----------- ------------
Total................................ $ 4,287,793 $ 37,253 $ -- $ 4,325,046
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------------------------------------
AMORTIZED GROSS GROSS AGGREGATE
COST UNREALIZED UNREALIZED FAIR
BASIS GAINS LOSSES VALUE
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Securities held to maturity
U.S. Treasury securities............... $ 8,480,175 $ -- $ 326,197 $ 8,153,978
U.S. Government agencies............... 501,013 -- 7,731 493,282
Mortgage-backed securities............. 60,198 445 -- 60,643
------------ ----------- ----------- ------------
Total................................ $ 9,041,386 $ 445 $ 333,928 $ 8,707,903
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
Securities available for sale
U.S. Treasury securities............... $ 6,787,007 $ 290 $ 81,008 $ 6,706,289
Mortgage-backed securities............. 474,241 -- 24,501 449,740
------------ ----------- ----------- ------------
Total debt securities................ 7,261,248 290 105,509 7,156,029
Equity securities.................... 219,237 -- -- 219,237
------------ ----------- ----------- ------------
Total................................ $ 7,480,485 $ 290 $ 105,509 $ 7,375,266
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
-15-
<PAGE>
CROWN PARK BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: INVESTMENT SECURITIES (CONTINUED)
The amortized cost and estimated market value of debt securities at December
31, 1995, by contractual and expected maturity, are shown below:
<TABLE>
<CAPTION>
AMORTIZED AGGREGATE
COST FAIR
BASIS VALUE
------------ ------------
<S> <C> <C>
Securities held to maturity
Due within one year............................................. $ 5,382,641 $ 5,379,032
Due after one year through five years........................... 4,525,836 4,535,547
------------ ------------
9,908,477 9,914,579
Mortgage-backed securities...................................... 59,487 59,527
------------ ------------
Total......................................................... $ 9,967,964 $ 9,974,106
------------ ------------
------------ ------------
Securities available for sale
Due within one year............................................. $ 1,497,442 $ 1,500,967
Due after one year through five years........................... 1,488,052 1,508,204
------------ ------------
2,985,494 3,009,171
Mortgage-backed securities...................................... 895,491 909,067
------------ ------------
Total......................................................... $ 3,880,985 $ 3,918,238
------------ ------------
------------ ------------
</TABLE>
Investment securities carried at approximately $1,366,000, and $1,025,000 at
December 31, 1995 and 1994, respectively, were pledged as collateral for public
or trust fund deposits and for other purposes required or permitted by law.
During 1995 and 1994, there were no sales of investment securities.
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES
The loan portfolio consisted of the following classes at December 31:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Commercial.................................................... $ 20,688,427 $ 19,966,043
Commercial real estate........................................ 3,538,709 2,558,814
Mortgage...................................................... 5,733,030 4,760,209
Installment................................................... 3,516,909 3,414,866
-------------- --------------
33,477,075 30,699,932
Unearned interest............................................. (444,726) (401,584)
Allowance for loan losses..................................... (517,673) (640,000)
-------------- --------------
Total loans, net............................................ $ 32,514,676 $ 29,658,348
-------------- --------------
-------------- --------------
</TABLE>
The Company adopted SFAS 114, "Accounting by Creditors for Impairment of a
Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosures," as of January 1, 1995. SFAS No. 114
requires that certain impaired loans be measured based on the present value of
expected future cash flows discounted at the loan's original effective interest
rate. As a practical expedient, impairment may be measured based on the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. When the measure of the impaired loan is less than the
recorded investment in the loan, the impairment is recorded through a valuation
allowance. On collateral
-16-
<PAGE>
CROWN PARK BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
dependent loans, the Company has adopted a policy which requires measurement of
an impaired loan based on the fair value of the collateral. Other loan
impairments will be measured based on the present value of expected future cash
flows or the loan's observable market price.
The Company had previously measured the allowance for credit losses using
methods similar to those prescribed in SFAS No. 114. As a result of adopting
these statements, no additional allowance for loan losses was required as of
January 1, 1995. At December 31, 1995, all significant impaired loans have been
determined to be collateral dependent and have been measured utilizing the fair
value of the collateral.
As of December 31, 1995, the Company's recorded investment in impaired loans
and the related valuation allowance calculated under SFAS No. 114 are as
follows:
<TABLE>
<CAPTION>
RECORDED VALUATION
INVESTMENT ALLOWANCE
----------- -----------
<S> <C> <C>
Impaired loans--
Valuation allowance required..................................... $ 103,977 $ 87,977
No valuation allowance required.................................. -- --
----------- -----------
Total impaired loans......................................... $ 103,977 $ 87,977
----------- -----------
----------- -----------
</TABLE>
This valuation allowance is included in the allowance for loan losses on the
balance sheet.
The average recorded investment in impaired loans for the year ended
December 31, 1995, was $51,989. The Company had $574,700 in nonperforming assets
at December 31, 1995, of which $103,977 represented recorded investments in
impaired loans.
Interest payments received on impaired loans are recorded as interest income
unless collections of the remaining recorded investment is doubtful at which
time payments received are recorded as reductions of principal. The Company
recognized interest income on impaired loans of $3,119 during the year ended
December 31, 1995, of which $1,200 represented cash interest payments received
and recorded as interest income. Interest on impaired loans has been recognized
on a full accrual basis in the period ended December 31, 1995.
Loans on which the accrual of interest has been discontinued totaled
$296,000 and 115,000 on December 31, 1994 and 1993, respectively. If interest on
loans in nonaccrual status during the year ended December 31, 1994 and 1993 had
been accrued, such income would have approximated $20,500 and $8,000,
respectively. Interest income on nonaccrual loans is recorded only when amounts
received reduce the principal amount of the nonaccrual loan to a realizable
level. No interest income on nonaccrual loans was received and recorded in the
year ended December 31, 1994.
The allowance for loan losses as of December 31, 1995, is presented below.
Management has evaluated the adequacy of the allowance for loan losses by
estimating the probable losses in various categories of the loan portfolio which
are identified below:
<TABLE>
<S> <C>
Allowance for loan losses provided for:
Loans specifically evaluated as impaired...................... $ 103,977
Unidentified impaired loans................................... 413,696
---------
Total allowance for loan losses............................... $ 517,673
---------
---------
</TABLE>
-17-
<PAGE>
CROWN PARK BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
The allowance for loan losses is maintained at a level considered adequate
to provide for estimated probable incurred losses resulting from loans. The
allowance is reviewed periodically, and as losses are incurred and the amounts
become estimable, they are charged to operations in the periods that they become
known.
The activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year........................... $ 640,000 $ 505,000 $ 602,000
Provision for loan losses.......................... 261,383 390,000 510,000
Writedowns......................................... (432,254) (356,406) (692,424)
Recoveries......................................... 48,544 101,406 85,424
----------- ----------- -----------
Balance at end of period............................... $ 517,673 $ 640,000 $ 505,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Loan maturities and rate sensitivity of the loan portfolio at December 31,
1995, excluding loans on nonaccrual, are as follows:
<TABLE>
<CAPTION>
(THOUSANDS)
-----------
<S> <C>
Fixed rate loans with a remaining maturity of:
Three months or less......................................................... $ 8,875
Over three months through twelve months...................................... 3,111
Over one year through five years............................................. 6,427
-----------
Total fixed rate loans................................................... $ 18,413
-----------
-----------
Variable rate loans with a repricing frequency of:
Quarterly or more frequently............................................... $ 14,966
-----------
-----------
</TABLE>
NOTE 4: BANK PREMISES AND EQUIPMENT
Bank premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Land.............................................................. $ 805,500 $ 805,500
Office building................................................... 1,804,028 1,804,028
Furniture and fixtures............................................ 179,376 179,216
Bank equipment and machines....................................... 541,434 530,594
Computer software................................................. 115,334 114,614
Automobiles....................................................... 48,292 48,292
------------ ------------
3,493,964 3,482,244
Accumulated depreciation.......................................... (1,135,851) (984,380)
Total......................................................... $ 2,358,113 $ 2,497,864
------------ ------------
------------ ------------
</TABLE>
Depreciation expense totaled $154,734, $161,437 and $157,546 in 1995, 1994
and 1993, respectively, and is included as a component of occupancy and
equipment expense in the consolidated statements.
-18-
<PAGE>
CROWN PARK BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5: DEPOSITS
Deposit account balances at December 31, 1995 and 1994, are summarized as
follows:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Noninterest bearing deposits................................... $ 11,044,966 $ 11,717,355
Super Now accounts............................................. 4,709,608 4,630,348
Savings and money market accounts.............................. 15,928,952 18,870,517
Time, $100,000 and over........................................ 6,026,706 4,826,544
Other time..................................................... 16,055,995 11,922,512
------------- -------------
Total...................................................... $ 53,766,227 $ 51,967,276
------------- -------------
------------- -------------
</TABLE>
Included in interest bearing deposits are certificates of deposit of
$100,000 or greater. The remaining maturities of these certificates at December
31, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Three months or less.............................................. $ 1,354,706 $ 1,782,544
Over three months through twelve months........................... 3,459,000 2,844,000
Over one year through five years.................................. 1,213,000 200,000
------------ ------------
Total......................................................... $ 6,026,706 $ 4,826,544
------------ ------------
------------ ------------
</TABLE>
Interest expense on deposits of $100,000 or greater totaled $277,807,
$186,391 and $154,861 for the years ended December 31, 1995, 1994 and 1993,
respectively.
NOTE 6: NOTE PAYABLE
Crown Park Bancshares, Inc. had notes payable to eight individuals which
total $1,000,000 and $1,100,000 as of December 31, 1995 and 1994, respectively.
Interest accrues at the rate of one-half percent over the New York prime rate.
The interest rate at December 31, 1995 was 9%. Annual principal payments
aggregating $100,000 will be paid on the notes beginning December, 1993 and
continuing through 1997, at which time a final payment of the unpaid principal
will be due. Security for the notes is 200,000 shares of Western National Bank
stock. Four of the individuals holding the above notes are officers, directors,
or employees of the Bank.
Crown Park Bancshares, Inc. had a note payable dated May 1, 1994 to Plains
National Bank of Lubbock in the original principal amount of $1,151,000, with
interest accruing at the rate of 8.5%. Monthly principal and interest payments
of $9,350 began June 1, 1994. The principal balances at December 31, 1995 and
1994, respectively, were $1,110,763 and $1,135,231. The note calls for payment
in full of the outstanding principal and interest on May 1, 1997. This note is
secured by a condominium office building.
NOTE 7: FEDERAL INCOME TAXES
Deferred federal income taxes are provided for temporary differences in the
financial statement basis and tax basis of certain assets and liabilities.
Primarily, differences exist in investment securities, property and equipment
and accrued income and expense. The realization of deferred tax assets is
dependent on the Company having future taxable income. Management has determined
that it is more likely than not
-19-
<PAGE>
CROWN PARK BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7: FEDERAL INCOME TAXES (CONTINUED)
that the Company will have future taxable income; thus, the deferred tax assets
have not been reduced by a valuation allowance. The provision for income taxes
consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Current provision........................................ $ 261,300 $ 246,062 $ 244,194
Deferred provision (benefit)............................. (29,271) 5,954 12,752
---------- ---------- ----------
Total................................................ $ 232,029 $ 252,016 $ 256,946
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
NOTE 8: INCENTIVE STOCK OPTION PLAN
Crown Park Bancshares, Inc. established a stock option plan March, 1987
which allows for the granting of options to officers and key employees of the
Bank to purchase shares of the holding company at the fair market value on the
date of grant. A total of 25,000 shares have been reserved for issuance under
this plan. No options had been granted as of December 31, 1995.
NOTE 9: RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bank has loans, deposits and other
transactions with its officers, directors and businesses with which such persons
are associated. It is the Bank's policy that all such transactions are entered
into on substantially the same terms as those prevailing at the time for
comparable transactions with others. The Bank had loans to officers and
directors of $2,577,000 and $3,438,000 at December 31, 1995 and 1994,
respectively.
NOTE 10: REGULATORY MATTERS
The Bank, as a National Bank, is subject to the dividend restrictions set
forth by the Comptroller of the Currency (the OCC). Under such restrictions, the
Bank may not, without the prior approval of the OCC, declare dividends in excess
of the sum of the current year's earnings (as defined) plus the retained
earnings (as defined) from the prior two years.
NOTE 11: SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amount does not necessarily represent future cash requirements. The
Bank evaluates each customer's creditworthiness on a case-by-case basis.
The amount of collateral obtained by the Bank upon extension of credit is
based on management's credit evaluation of the counterparty. Collateral held
varies but may include real estate, accounts receivable, inventory, equipment
and income producing properties.
Most of the Bank's business activity is with customers located in Lubbock
and surrounding Counties. Although the Bank has a diversified loan portfolio, a
substantial portion of its debtors' ability to honor their contracts is
dependent upon the local economic sector.
-20-
<PAGE>
CROWN PARK BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11: SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK (CONTINUED)
In the normal course of business, the Bank carries certain assets with other
financial institutions which are subject to credit risk by the amount such
assets exceed federal deposit insurance limits. The Bank periodically evaluates
its financial institution relationships to limit exposure to this credit risk.
NOTE 12: FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount of
those instruments less the liquidation of collateral securing such investments.
The Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
At December 31, 1995, financial instruments whose contract amount represent
credit risk are as follows:
<TABLE>
<S> <C>
Commitments to extend credit.................................... $2,852,000
Standby letters of credit....................................... 35,000
</TABLE>
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. 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 various types of
collateral on standby letters of credit, including equipment and certificates of
deposit. The extent of the collateral held for those commitments at December 31,
1995, varies from none to 100 percent of the outstanding letter of credit.
NOTE 13: FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS
In 1995, the Company adopted Statement of Financial Accounting Standards No.
107, "Disclosures about Fair Value of Financial Instruments", which requires all
entities to disclose the estimated fair value of its financial instrument assets
and liabilities. For the Company, as for most financial institutions,
approximately 91% of its assets and 96% of its liabilities are considered
financial instruments as defined in Statement No. 107. Many of the Company's
financial instruments, however, lack an available trading market as
characterized by a willing buyer and willing seller engaging in an exchange
transaction. It is also the Company's general practice and intent to hold its
financial instruments to maturity and not to engage in trading or sales
activities. Therefore, significant estimations and present value calculations
were used by the Company for the purpose of this disclosure.
Estimated fair values have been determined by the Company using the best
available data, as generally provided in the Company's regulatory reports, and
an estimation methodology suitable for each category of financial instruments.
For those loans and deposits with floating interest rates, it is presumed that
estimated fair values generally approximate the recorded book balances.
-21-
<PAGE>
CROWN PARK BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13: FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Financial instruments actively traded in a secondary market have been valued
using quoted available market prices. The estimation methodologies used, the
estimated fair values and recorded book balances at December 31, 1995, were as
follows:
<TABLE>
<CAPTION>
RECORDED ESTIMATED
BALANCE FAIR VALUE
------------- -------------
<S> <C> <C>
Cash and due from banks........................................ $ 2,692,737 $ 2,692,737
Federal funds sold............................................. 7,275,000 7,275,000
Investment securities.......................................... 14,293,010 14,299,152
</TABLE>
Financial instruments with stated maturities have been valued using a
present value discounted cash flow with a discount rate approximating current
market for similar assets and liabilities. Financial instrument assets with
variable rates and financial instrument liabilities with no stated maturities
have an estimated fair value equal to both the amount payable on demand and the
recorded book balance.
<TABLE>
<CAPTION>
RECORDED ESTIMATED
BALANCE FAIR VALUE
------------- -------------
<S> <C> <C>
Deposits with stated maturities................................ $ 22,082,701 $ 22,154,635
Deposits with no stated maturities............................. 31,683,526 31,683,526
Net loans...................................................... 32,514,676 32,558,775
</TABLE>
Changes in assumptions or estimation methodologies may have a significant
effect on these estimated fair values.
The Company's remaining assets and liabilities which are not considered
financial instruments have not been valued differently than has been customary
with historical cost accounting. No disclosure of the relationship value of the
Company's deposits is required by Statement No. 107 nor has the Company
estimated its value. There is no significant difference between the notional
amount and the estimated fair value of off-balance sheet unfunded loan
commitments which total $2,852,000 and $3,684,000 at December 31, 1995 and 1994,
respectively, and are generally priced at market at the time of funding. Letters
of credit discussed in Note 12 have an estimated fair value based on fees
currently charged for similar agreements. At December 31, 1995 and 1994, fees
related to the unexpired term of the letters of credit are not significant.
Management is concerned that reasonable comparability between financial
institutions may not be likely due to the wide range of permitted valuation
techniques and numerous estimates which must be made given the absence of active
secondary markets for many of the financial instruments. This lack of uniform
valuation methodologies also introduces a greater degree of subjectivity to
these estimated fair values.
NOTE 14: SUBSEQUENT EVENT
In July, 1996 the stockholders of the Company entered into a definitive
agreement to sell a super majority of the shares of the Company to Independent
Bankshares, Inc. The agreement is subject to certain restrictive provisions and
approval of appropriate regulatory authorities. The sale is expected to occur in
early 1997. It is anticipated that the Company will merge with a wholly-owned
subsidiary of Independent Bankshares, Inc. upon consummation of the transaction.
-22-
<PAGE>
(b) Pro forma financial information
PRO FORMA COMBINED FINANCIAL STATEMENTS
The following pro forma combined financial statements set forth the pro
forma combined balance sheet at September 30, 1996, and pro forma combined
income statements for the nine-month period ended September 30, 1996, and for
the year ended December 31, 1995, for the Company as if the consummation of
the Acquisition and the Offering had occurred, in the case of the statements
of operations data, as of January 1, 1995, and in the case of the balance
sheet data, as of September 30, 1996. The pro forma financial data do not
purport to be indicative of the Company's financial condition and results of
operations at any future date or for any future period. In the opinion of
management of the Company, the data presented reflect all adjustments
considered necessary for a fair presentation of the results for such periods.
PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------
THE COMPANY CROWN PARK DEBITS CREDITS
------------ ----------- -------------- --------------
<S> <C> <C> <C> <C>
ASSETS
Cash and Due from Banks................................... $ 9,987,000 $ 2,832,000 $ 3,504,000(A) $ 4,304,000(B)
800,000(A)
Federal Funds Sold........................................ 12,100,000 1,375,000 2,706,000(B)
2,094,000(C)
------------ ----------- -------------- --------------
Total Cash and Cash Equivalents......................... 22,087,000 4,207,000 4,304,000 9,104,000
------------ ----------- -------------- --------------
Securities:
Available-for-sale...................................... 33,590,000 6,424,000 10,000(D)
Held-to-maturity........................................ 49,087,000 5,243,000 11,000(E)
------------ ----------- -------------- --------------
Total Securities...................................... 82,677,000 11,667,000 21,000
------------ ----------- -------------- --------------
Loans:
Total Loans............................................. 92,626,000 39,062,000
Unearned Income on Installment Loans.................... 2,511,000 443,000
Allowance for Possible Loan Losses...................... 806,000 330,000
------------ ----------- -------------- --------------
Net Loans............................................. 89,309,000 38,289,000
------------ ----------- -------------- --------------
Premises and Equipment.................................... 4,501,000 2,373,000 431,000(E)
Real Estate and Other Repossessed Assets.................. 218,000 290,000 350,000(E)
Investment in Crown Park Bancshares....................... 0 0 7,510,000(B) 4,308,000(D)
3,202,000(E)
Goodwill.................................................. 974,000 0 2,432,000(E)
Accrued Interest Receivable............................... 1,701,000 491,000
Other Assets.............................................. 2,334,000 208,000
------------ ----------- -------------- --------------
Total Assets........................................ $203,801,000 $57,525,000 $ 15,027,000 $ 16,635,000
------------ ----------- -------------- --------------
------------ ----------- -------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits.................................................. $187,474,000 $50,702,000 $ $
Notes Payable............................................. 578,000 2,094,000 2,094,000(C) 800,000(A)
500,000(B)
Accrued Interest Payable.................................. 844,000 146,000
Other Liabilities......................................... 323,000 265,000
------------ ----------- -------------- --------------
Total Liabilities................................... 189,219,000 53,207,000 2,094,000 1,300,000
------------ ----------- -------------- --------------
Stockholders' Equity:
Series C Preferred Stock.................................. 135,000 0
Common Stock.............................................. 276,000 952,000 952,000(D) 69,000(A)
Additional Paid-in Capital................................ 9,890,000 965,000 965,000(D) 3,435,000(A)
Retained Earnings......................................... 4,304,000 2,407,000 2,407,000(D)
Unrealized Loss on Available-for-sale Securities.......... (23,000) (6,000) 6,000(D)
------------ ----------- -------------- --------------
Total Stockholders' Equity.......................... 14,582,000 4,318,000 4,324,000 3,510,000
------------ ----------- -------------- --------------
Total Liabilities and Stockholders' Equity........ $203,801,000 $57,525,000 $ 6,418,000 $ 4,810,000
------------ ----------- -------------- --------------
------------ ----------- -------------- --------------
<CAPTION>
PRO FORMA
COMBINED
------------
<S> <C>
ASSETS
Cash and Due from Banks................................... $ 12,819,000
Federal Funds Sold........................................ 8,675,000
------------
Total Cash and Cash Equivalents......................... 21,494,000
------------
Securities:
Available-for-sale...................................... 40,004,000
Held-to-maturity........................................ 54,319,000
------------
Total Securities...................................... 94,323,000
------------
Loans:
Total Loans............................................. 131,688,000
Unearned Income on Installment Loans.................... 2,954,000
Allowance for Possible Loan Losses...................... 1,136,000
------------
Net Loans............................................. 127,598,000
------------
Premises and Equipment.................................... 7,305,000
Real Estate and Other Repossessed Assets.................. 858,000
Investment in Crown Park Bancshares....................... 0
Goodwill.................................................. 3,406,000
Accrued Interest Receivable............................... 2,192,000
Other Assets.............................................. 2,542,000
------------
Total Assets........................................ $259,718,000
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits.................................................. $238,176,000
Notes Payable............................................. 1,878,000
Accrued Interest Payable.................................. 990,000
Other Liabilities......................................... 588,000
------------
Total Liabilities................................... 241,632,000
------------
Stockholders' Equity:
Series C Preferred Stock.................................. 135,000
Common Stock.............................................. 345,000
Additional Paid-in Capital................................ 13,325,000
Retained Earnings......................................... 4,304,000
Unrealized Loss on Available-for-sale Securities.......... (23,000)
------------
Total Stockholders' Equity.......................... 18,086,000
------------
Total Liabilities and Stockholders' Equity........ $259,718,000
------------
------------
</TABLE>
-23-
<PAGE>
- --------------------------
(A) This adjustment represents the sale of $3,504,000 in Common Stock (net) in
the Offering and the borrowing of $800,000 and the injection of $4,200,000
into First State, N.A., Abilene as additional capital.
(B) This adjustment represents the purchase of 100% of the outstanding shares
of stock of Crown Park for $7,010,000 in cash and $500,000 in promissory
notes.
(C) This adjustment represents the retirement of $1,094,000 in debt owed to
Crown Park's lender, which is collateralized by an interest in the Western
National building, and the retirement of $1,000,000 in debt owed to existing
shareholders of Crown Park, which is collateralized by the stock of Western
National.
(D) This adjustment represents the elimination of the capital of Crown Park
against the investment in that bank holding company by First State, N.A.,
Abilene.
(E) This adjustment represents the purchase price adjustments to mark Crown
Park's assets and liabilities to fair value upon the acquisition and results
in recording of $2,432,000 in goodwill.
-24-
<PAGE>
PRO FORMA COMBINED INCOME STATEMENT
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------- PRO FORMA
THE COMPANY CROWN PARK DEBITS CREDITS COMBINED
------------ ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Interest Income:
Interest and Fees on Loans................................ $5,894,000 $2,528,000 $ $ $ 8,422,000
Interest on Securities.................................... 3,341,000 663,000 4,004,000
Interest on Federal Funds Sold............................ 774,000 139,000 84,000(A) 720,000
109,000(B)
------------ ----------- ----------- ----------- -------------
Total Interest Income................................... 10,009,000 3,330,000 193,000 13,146,000
------------ ----------- ----------- ----------- -------------
Interest Expense:
Interest on Deposits...................................... 4,671,000 1,343,000 6,014,000
Interest on Notes Payable................................. 51,000 136,000 56,000(C) 136,000(E) 134,000
27,000(D)
------------ ----------- ----------- ----------- -------------
Total Interest Expense.................................. 4,722,000 1,479,000 83,000 136,000 6,148,000
------------ ----------- ----------- ----------- -------------
Net Interest Income......................................... 5,287,000 1,851,000 276,000 136,000 6,998,000
Provision for Loan Losses................................. 161,000 135,000 296,000
------------ ----------- ----------- ----------- -------------
Net Interest Income After Provision for Loan Losses......... 5,126,000 1,716,000 276,000 136,000 6,702,000
------------ ----------- ----------- ----------- -------------
Noninterest Income:
Service Charges........................................... 929,000 220,000 1,149,000
Other Income.............................................. 215,000 139,000 354,000
------------ ----------- ----------- ----------- -------------
Total Noninterest Income................................ 1,144,000 359,000 1,503,000
------------ ----------- ----------- ----------- -------------
Noninterest Expense:
Salaries and Employee Benefits............................ 2,294,000 719,000 105,000(F) 2,908,000
Net Occupancy Expense..................................... 540,000 110,000 11,000(G) 661,000
Other Expenses............................................ 1,852,000 745,000 122,000(H) 75,000(I) 2,644,000
------------ ----------- ----------- ----------- -------------
Total Noninterest Expenses.............................. 4,686,000 1,574,000 133,000 180,000 6,213,000
------------ ----------- ----------- ----------- -------------
Income Before Federal Income Taxes.......................... 1,584,000 501,000 409,000 316,000 1,992,000
Federal Income Taxes...................................... 538,000 159,000 107,000(J) 98,000(J) 706,000
------------ ----------- ----------- ----------- -------------
Net Income............................................ $1,046,000 $ 342,000 $ 516,000 $ 414,000 $1,286,000
------------ ----------- ----------- ----------- -------------
------------ ----------- ----------- ----------- -------------
Earnings Per Share:
Primary Earnings Per Share:
Net Income Per Share.................................... $ 0.92 $ 0.91(K)
------------ -------------
------------ -------------
Adjusted Shares Outstanding............................. 1,083,000 1,358,000
------------ -------------
------------ -------------
Fully Diluted Earnings Per Share:
Net Income Per Share.................................... $ 0.77 $ 0.79(K)
------------ -------------
------------ -------------
Adjusted Shares Outstanding............................. 1,358,000 1,633,000
------------ -------------
------------ -------------
</TABLE>
- ------------------------------
(A) This adjustment represents interest income on federal funds sold that would
have been lost as a result of the use of funds for the repayment of the
existing $2,094,000 of Crown Park debt at an average federal funds rate of
5.38% for the nine-month period ended September 30, 1996.
(B) This adjustment represents interest income that would have been lost on the
estimated cash payments to be made to the Crown Park shareholders
($7,010,000) in excess of the total net funds raised ($4,304,000) at 5.38%.
(C) This adjustment represents interest that would have been incurred on the
additional $800,000 borrowed by the Company at prime plus 1% (9.28% for
the nine-month period ended September 30, 1996) and injected into First
State, N.A., Abilene.
(D) This adjustment represents interest that would have been incurred on the
$500,000 in promissory notes that were issued to Crown Park shareholders
in lieu of cash at the 26-week Treasury bill rate plus 2% (7.23% at
December 1, 1996).
(E) This adjustment represents interest expense that would have been eliminated
when the $1,094,000 owed to Crown Park's lender and the $1,000,000 owed to
existing shareholders of Crown Park (average cost of 8.63% for the
nine-month period ended September 30, 1996) are repaid.
(F) This adjustment represents savings that would have been achieved by
elimination of duplication of job responsibilities.
(G) This adjustment represents the additional depreciation that would have been
recorded as a result of the write-up of premises and equipment by $431,000
with an estimated remaining useful life of thirty (30) years.
(H) This adjustment represents the amortization of $2,432,000 in goodwill
generated in the transaction over a period of 15 years.
(I) This adjustment represents savings that would have been achieved in the
areas of accounting fees, directors fees, office of the Comptroller of
the Currency ("Comptroller") assessments, insurance expense, etc.
(J) This adjustment represents the tax effect of the above adjustments with
the exception of the goodwill amortization which is not tax deductible.
(K) Had Crown Park not incurred approximately $80,000 ($53,000 net of tax) of
expenses in the nine-month period ended September 30, 1996, related to the
proposed acquisition of Crown Park, primary and fully diluted earnings per
share would have been $0.97 and $0.83, respectively.
-25-
<PAGE>
PRO FORMA COMBINED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------
THE COMPANY CROWN PARK DEBITS CREDITS
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest Income:
Interest and Fees on Loans.......................................... $ 7,726,000 $3,211,000 $ $
Interest on Securities.............................................. 2,389,000 971,000
Interest on Federal Funds Sold...................................... 1,847,000 321,000 124,000(A)
161,000(B)
------------ ----------- ----------- -----------
Total Interest Income............................................. 11,962,000 4,503,000 285,000
------------ ----------- ----------- -----------
Interest Expense:
Interest on Deposits................................................ 5,201,000 1,770,000
Interest on Notes Payable........................................... 108,000 198,000 78,000(C) 198,000(E)
36,000(D)
------------ ----------- ----------- -----------
Total Interest Expense............................................ 5,309,000 1,968,000 114,000 198,000
------------ ----------- ----------- -----------
Net Interest Income................................................... 6,653,000 2,535,000 399,000 198,000
Provision for Loan Losses........................................... 206,000 261,000
------------ ----------- ----------- -----------
Net Interest Income After Provision for Loan Losses................... 6,447,000 2,274,000 399,000 198,000
------------ ----------- ----------- -----------
Noninterest Income:
Service Charges..................................................... 1,167,000 304,000
Other Income........................................................ 342,000 245,000
------------ ----------- ----------- -----------
Total Noninterest Income.......................................... 1,509,000 549,000
------------ ----------- ----------- -----------
Noninterest Expense:
Salaries and Employee Benefits...................................... 2,849,000 989,000 140,000(F)
Net Occupancy Expense............................................... 723,000 133,000 13,000(F)
Other Expenses...................................................... 2,670,000 936,000 162,000(G) 100,000(I)
------------ ----------- ----------- -----------
Total Noninterest Expenses........................................ 6,242,000 2,058,000 175,000 240,000
------------ ----------- ----------- -----------
Income Before Federal Income Taxes.................................... 1,714,000 765,000 574,000 438,000
Federal Income Taxes................................................ 582,000 232,000 149,000(I) 140,000(J)
------------ ----------- ----------- -----------
Net Income...................................................... $ 1,132,000 $ 533,000 $ 723,000 $ 578,000
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Earnings Per Share:
Primary Earnings Per Share:
Net Income Per Share.............................................. $ 1.02
------------
------------
Adjusted Shares Outstanding....................................... 1,047,000
------------
------------
Fully Diluted Earnings Per Share:
Net Income Per Share.............................................. $ 0.84
------------
------------
Adjusted Shares Outstanding....................................... 1,352,000
------------
------------
<CAPTION>
PRO FORMA
COMBINED
-----------
<S> <C>
Interest Income:
Interest and Fees on Loans.......................................... $10,937,000
Interest on Securities.............................................. 3,360,000
Interest on Federal Funds Sold...................................... 1,883,000
-----------
Total Interest Income............................................. 16,180,000
-----------
Interest Expense:
Interest on Deposits................................................ 6,971,000
Interest on Notes Payable........................................... 222,000
-----------
Total Interest Expense............................................ 7,193,000
-----------
Net Interest Income................................................... 8,987,000
Provision for Loan Losses........................................... 467,000
-----------
Net Interest Income After Provision for Loan Losses................... 8,520,000
-----------
Noninterest Income:
Service Charges..................................................... 1,471,000
Other Income........................................................ 587,000
-----------
Total Noninterest Income.......................................... 2,058,000
-----------
Noninterest Expense:
Salaries and Employee Benefits...................................... 3,698,000
Net Occupancy Expense............................................... 869,000
Other Expenses...................................................... 3,668,000
-----------
Total Noninterest Expenses........................................ 8,235,000
-----------
Income Before Federal Income Taxes.................................... 2,343,000
Federal Income Taxes................................................ 823,000
-----------
Net Income...................................................... $ 1,520,000
-----------
-----------
Earnings Per Share:
Primary Earnings Per Share:
Net Income Per Share.............................................. $ 1.10
-----------
-----------
Adjusted Shares Outstanding....................................... 1,322,000
-----------
-----------
Fully Diluted Earnings Per Share:
Net Income Per Share.............................................. $ 0.93
-----------
-----------
Adjusted Shares Outstanding....................................... 1,627,000
-----------
-----------
</TABLE>
- ------------------------------
(A) This adjustment represents interest income on federal funds sold that would
have been lost as a result of the use of funds for the repayment of the
existing $2,094,000 of Crown Park debt at an average federal funds rate of
5.94% for the year ended December 31, 1995.
(B) This adjustment represents interest income that would have been lost on the
estimated cash payments to be made to the Crown Park shareholders
($7,010,000) in excess of the total net funds raised ($4,304,000) at 5.94%.
(C) This adjustment represents interest that would have been incurred on the
additional $800,000 borrowed by the Company at prime plus 1% (9.80% for
the year ended December 31, 1995).and injected into First State, N.A.,
Abilene.
(D) This adjustment represents interest that would have been incurred on the
$500,000 in promissory notes that would have been issued to Crown Park
shareholders in lieu of cash at the 26-week Treasury bill rate plus 2%
(7.23% at December 1, 1996).
(E) This adjustment represents interest expense that would have been eliminated
when the $1,094,000 owed to Crown Park's lender and the $1,000,000 owed to
existing shareholders of Crown Park (average cost of 8.90% for the year
ended December 31, 1995) are repaid.
(F) This adjustment represents savings that would have been achieved by
elimination of duplication of job responsibilities.
(G) This adjustment represents the additional depreciation which would have been
recorded as a result of the write-up of premises and equipment by $431,000
with an estimated remaining useful life of thirty (30) years.
(H) This adjustment represents the amortization of $2,432,000 in goodwill
generated in the transaction over a period of 15 years.
(I) This adjustment represents savings that would have been achieved in the
areas of accounting fees, directors fees, Comptroller assessments, insurance
expense, etc.
(J) This adjustment represents the tax effect of the above adjustments with
the exception of the goodwill amortization which is not tax deductible.
-26-
<PAGE>
(c) Exhibits
Exhibit No. Document Description
----------- --------------------
2.1 Agreement and Plan of Reorganization dated July 11,
1996, between the Company and Crown Park, and Agreement
and Plan of Merger dated July 11, 1996, between Western
National and First State, N.A., Abilene (previously
filed as Exhibit 1.1 to the Company's Current Report
on Form 8-K dated July 22, 1996).
23.1 Consent of Elaine McNair, Inc. (filed herewith)
-27-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INDEPENDENT BANKSHARES, INC.
Date: February 10, 1997 By: /s/ Randal N. Crosswhite
-----------------------------------
Randal N. Crosswhite
Senior Vice President and
Chief Financial Officer
-28-
<PAGE>
EXHIBIT INDEX
Exhibit No. Document Description
- ----------- --------------------
2.1 Agreement and Plan of Reorganization dated July 11, 1996, between
the Company and Crown Park, and Agreement and Plan of Merger
dated July 11, 1996, between Western National and First State,
N.A., Abilene (previously filed as Exhibit 1.1 to the Company's
Current Report on Form 8-K dated July 22, 1996).
23.1 Consent of Elaine McNair, Inc. (filed herewith)
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the Current Report on Form 8-K of
Independent Bankshares, Inc., dated January 28, 1997, of our report dated
September 20, 1996, on our audits of the consolidated financial statements of
Crown Park Bancshares, Inc., as of December 31, 1995 and 1994, and for the
years ended December 31, 1995, 1994 and 1993.
ELAINE MCNAIR, INC.
Lubbock, Texas
February 7, 1997
