<PAGE>
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
April 30, 1995
Date of Report
(Date of earliest event reported)
GULF SOUTHWEST BANCORP, INC.
(Exact name of registrant as specified in charter)
Texas 0-11033 76-0045946
(State or other jurisdiction (Commission (IRS Employer
of incorporation or organization) File Number) Identification No.)
4200 Westheimer, Suite 210
Houston, Texas 77027
(Address of principal executive offices) (Zip Code)
(713) 622-0042
(Registrant's telephone number, including area code)
not applicable
(Former name or former address, if changed since last report.)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On April 30, 1995, Texas Gulf Coast Bancorp, Inc. ("Texas Gulf Coast") was
merged (the "Merger") into Gulf Southwest Nevada Bancorp, Inc. ("Merger Sub"), a
wholly-owned subsidiary of Gulf Southwest Bancorp, Inc. (the "Registrant" or
"Gulf Southwest"). Pursuant to the terms of the operative agreements, each
share of the common stock, $1.00 par value per share, of Texas Gulf Coast (the
"TGC Common Stock") other than shares held by dissenting shareholders was
converted into 2.1176 shares of the common stock, $1.00 par value per share, of
the Registrant (the "GSW Common Stock"). The holders of 888 shares of TGC
Common Stock have notified the Merger Sub of their intent to dissent from the
Merger and demand payment of the fair value of their shares of TGC Common Stock.
No fractional shares of GSW Common Stock were issued. In lieu of fractional
shares, each holder of TGC Common Stock who would otherwise have been entitled
to receive a fractional share of GSW Common Stock received, in lieu thereof,
cash based upon each share of GSW Common Stock having a value of $25.50. The
exchange ratio was determined by negotiation between the parties based on the
recommendation of Alex Sheshunoff & Co. Investment Banking, an investment
banking firm which was jointly retained by Gulf Southwest and Texas Gulf Coast
to opine as to the fairness of the exchange ratio. Shares of GSW Common Stock
issued in exchange for the TGC Common Stock were authorized but unissued shares
of the Registrant. The funds for payment in lieu of fractional shares were
obtained from the working capital of the Registrant; the funds necessary to
satisfy the demands of dissenting shareholders also will be obtained from such
working capital.
Prior to the Merger, Texas Gulf Coast was a bank holding company owning
97.1% of the issued and outstanding capital stock of Texas City Bank, Texas
City, Texas, 100% of the issued and outstanding capital stock of First Bank
Mainland, LaMarque, Texas, 99.5% of the issued and outstanding capital stock of
First Bank Pearland, Pearland, Texas, and 100% of the issued and outstanding
capital stock of Central Data Processing, Inc., which performed certain proof
and bookkeeping services for Texas Gulf Coast.
Gulf Southwest is a bank holding company which, prior to the Merger,
indirectly owned 100% of the issued and outstanding capital stock of Merchants
Bank, Houston, Texas. As a result of the Merger, Gulf Southwest also owns 97.1%
of the issued and outstanding capital stock of Texas City Bank, 100% of the
issued and outstanding capital stock of First Bank Mainland, 99.5% of the issued
and outstanding capital stock of First Bank Pearland, and 100% of the issued and
outstanding capital stock of Central Data Processing, Inc. G.S.W. Data
Processing, Inc., a wholly-owned subsidiary of Merger Sub, provides data
processing services for Merchants Bank, Texas City Bank, First Bank Mainland and
First Bank Pearland, and also provided such services to these banks prior to the
Merger.
Material Relationships
J. W. Lander, Jr., is Chairman of the Board of Directors and a director of
Gulf Southwest and until the consummation of the Merger was President and a
director of Texas Gulf Coast. He is also Chairman of the Board and a director
of Merchants Bank and is and prior to the Merger was Chairman of the Board of
Directors and a director of Texas City Bank, First Bank Mainland and First Bank
Pearland. In addition, he is the voting trustee under a voting trust agreement
(the
-2-
<PAGE>
"GSW Voting Trust Agreement") with certain shareholders of Gulf Southwest and
until the consummation of the Merger was the voting trustee under a voting trust
agreement (the "TGC Voting Trust Agreement") with certain shareholders of Texas
Gulf Coast, pursuant to which agreements he had voting power with respect to
over 50% of the shares of each corporation. However, Mr. Lander could not,
without the consent of the holders of at least two-thirds of the shares of TGC
Common Stock subject to the applicable voting trust agreement, vote such shares
of TGC Common Stock in favor of the Merger. Such consent was received with
respect to the Merger.
J. W. Lander, III, is a director and an executive officer of Gulf Southwest
and until consummation of the Merger was a director and an executive officer of
Texas Gulf Coast. He is also Senior Vice President and a director of Merchants
Bank and is and prior to the Merger was a director of Texas City Bank, First
Bank Mainland and First Bank Pearland. The shares of GSW Common Stock held by
J.W. Lander, III, prior to the Merger as well as the shares of GSW Common Stock
acquired pursuant to the Merger are subject to the voting trust described
previously.
Pursuant to the terms of the operative agreements, subsequent to the Merger
Gulf Southwest will appoint A. Harrel Blackshear to its Board of Directors.
Prior to the Merger, Mr. Blackshear served as Vice President, Secretary and a
director of Texas Gulf Coast. Mr. Blackshear is also a director of First Bank
Mainland and First Bank Pearland, and President and a director of Texas City
Bank.
Stock Ownership
Certain affiliates of Gulf Southwest both are shareholders of Gulf
Southwest and prior to consummation of the Merger were shareholders of Texas
Gulf Coast. Information with respect to such holdings is set forth below:
<TABLE>
<CAPTION>
Beneficial Ownership of
Beneficial Ownership GSW Common Stock
of TGC Common Stock ----------------------------------------------
Prior to Merger Prior to Merger After Merger
---------------------------------- ---------------------- ----------------------
Amount % Amount % Amount %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
J. W. Lander, Jr. 177,236/(1)/ 53.8% 696,658/(3)/ 55.2% 924,122/(5)/ 47.3%
J. W. Lander, III 128 * 6,772/(4)/ * 7,043/(4)/ *
Vanco Trusts 53,002/(2)/ 16.1% 341,758/(4)/ 27.1% 453,995/(4)/ 23.2%
</TABLE>
__________
*Less than 1%
/(1)/ Shares subject to TGC Voting Trust Agreement, of which 54,286 shares were
owned of record and beneficially by J. W. Lander, Jr. Includes 69,948
shares which will not be subject to GSW Voting Trust Agreement upon
consummation of the Merger.
/(2)/ Shares subject to TGC Voting Trust Agreement.
/(3)/ Shares subject to GSW Voting Trust Agreement, of which 275,828 shares were
owned of record and beneficially by J. W. Lander, Jr.
-3-
<PAGE>
/(4)/ Shares subject to GSW Voting Trust Agreement.
/(5)/ Shares subject to GSW Voting Trust Agreement, of which 390,784 shares are
owned of record and beneficially by J. W. Lander, Jr. Includes 271 shares
converted from 128 shares of TGC Common Stock which were not subject to
the TGC Voting Trust Agreement.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
Report of Hidalgo, Banfill, Zlotnik & Kermali, P.C., independent
auditors.
Report of Griffin, Iles, Masel & Duvall, P.C., independent auditors.
Consolidated Balance Sheets as of December 31, 1994 and December 31,
1993 and (unaudited) as of March 31, 1995 and March 31, 1994.
Consolidated Statement of Income for the years ended December 31,
1994, 1993 and 1992 and (unaudited) for the three months ended March
31, 1995 and March 31, 1994.
Statement of Stockholders' Equity for the period from January 1, 1992
through December 31, 1994 and (unaudited) for the three months ended
March 31, 1995.
Consolidated Statement of Cash Flows for the years ended December 31,
1994, 1993 and 1992 and (unaudited) for the three months ended March
31, 1995 and March 31, 1994.
Balance Sheets (Parent Company Only) as of December 31, 1994 and
December 31, 1993 and (unaudited) as of March 31, 1995 and March 31,
1994.
Statement of Income (Parent Company Only) for the years ended December
31, 1994, 1993 and 1992 and (unaudited) for the three months ended
March 31, 1995 and March 31, 1994.
Statement of Cash Flows (Parent Company Only) for the years ended
December 31, 1994, 1993 and 1992 and (unaudited) for the three months
ended March 31, 1995 and March 31, 1994.
Notes to Financial Statements.
(b) Pro Forma Financial Information.
Report of Hidalgo, Banfill, Zlotnick & Kermali, P.C., independent
accountants.
Pro Forma Consolidating Financial Statements Objectives.
-4-
<PAGE>
Pro Forma Consolidating Balance Sheet as of March 31, 1995
(unaudited).
Pro Forma Consolidating Statement of Income for the year ended
December 31, 1994 (unaudited).
Pro Forma Consolidating Statement of Income for the three months ended
March 31, 1995 (unaudited).
Notes to Pro Forma Consolidating Financial Statements.
(c) Exhibits.
<TABLE>
<CAPTION>
Incorporated by Reference From
Exhibit Number and Description (if Applicable)
- -------------------------------- ---------------------------------
Form Date File No. Exhibit
---- -------- -------- -------
<S> <C> <C> <C> <C>
(2) Plan of acquisition,
reorganization, arrangement,
liquidation or succession
2.1 Agreement and Plan of
Reorganization S-4 11/25/94 33-86750 2.1
2.2 Agreement and Plan of
Merger N/A N/A N/A N/A
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
GULF SOUTHWEST BANCORP, INC.
Date: May 10, 1995 By: /s/ J. W. Lander, III
--------------------------------------
J. W. Lander, III
President
-5-
<PAGE>
TEXAS GULF COAST BANCORP, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS
DECEMBER 31, 1994
<PAGE>
HIDALGO, BANFILL, ZLOTNIK & KERMALI, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
(Originally Founded in 1949)
Board of Directors and Shareholders
Texas Gulf Coast Bancorp, Inc.
Houston, Texas
INDEPENDENT AUDITORS' REPORT
----------------------------
We have audited the accompanying consolidated balance sheet of Texas Gulf Coast
Bancorp, Inc. and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years then ended, and the balance sheet of Texas Gulf Coast Bancorp, Inc.
(parent company only) as of December 31, 1994 and 1993, and the related
statements of income, stockholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. The financial statements of Texas Gulf Coast
Bancorp, Inc. and subsidiaries and Texas Gulf Coast Bancorp, Inc. (parent
company only) as of December 31, 1992, were audited by other auditors, whose
report dated March 19, 1993, expressed an unqualified opinion on those
statements.
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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Texas Gulf Coast
Bancorp, Inc. and subsidiaries and the financial position of Texas Gulf Coast
Bancorp, Inc. (parent company only) as of December 31, 1994 and 1993, and the
respective results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
As discussed in Note 4 to the financial statements, the Company adopted
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities in 1994.
/s/HIDALGO, BANFILL,ZLOTNIK & KERMALI,P.C
Hidalgo, Banfill, Zlotnik & Kermali, P.C.
Houston, Texas
March 3, 1995
3555 TIMMONS LANE, SUITE 460 - HOUSTON, TEXAS 77027 - (713) 963-8008
<PAGE>
Board of Directors and Shareholders
Texas Gulf Coast Bancorp, Inc.
Houston, Texas
INDEPENDENT AUDITORS' REPORT
----------------------------
We have audited the accompanying consolidated statements of income,
stockholders' equity and cash flows of Texas Gulf Coast Bancorp, Inc. and
subsidiaries for the year in the period ended December 31, 1992, and the
statements of income, stockholders' equity and cash flows of Texas Gulf Coast
Bancorp, Inc. (parent company only) for the year in the period ended December
31, 1992. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Texas Gulf
Coast Bancorp, Inc. and subsidiaries and Texas Gulf Coast Bancorp, Inc. (parent
company only) for the year in the period ended December 31, 1992, in conformity
with generally accepted accounting principles.
/s/ Griffin, Iles, Masel & Duvall, P.C.
Griffin, Iles, Masel & Duvall, P.C.
Texas City, Texas
March 19, 1993
<PAGE>
TEXAS GULF COAST BANCORP, INC. AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
ASSETS
------
<TABLE>
<CAPTION>
December 31, March 31,
-------------------------- --------------------------
1994 1993 1995 1994
------------ ------------ ------------ ------------
[unaudited]
<S> <C> <C> <C> <C>
Cash and due from banks $ 13,996,478 $ 14,887,077 $ 12,252,259 $ 10,951,932
Time deposits in financial institutions - 100,000 - -
Federal funds sold and deposits with
Federal Home Loan Bank 22,154,499 38,301,622 18,219,418 30,469,515
Investment securities:
Held-to-maturity (market value
1994 - $ 63,809,334
1993 - $ 81,905,426) 66,626,246 80,156,038 67,910,452 66,949,170
Available-for-sale (market value
1994 - $ 19,670,817) 19,670,817 - 19,725,659 16,138,973
Loans:
Loans, net of unearned income
of $ 3,527,938 in 1994 and
$ 3,573,790 in 1993 78,452,041 78,136,746 78,238,492 78,135,491
Less allowance for possible
loan losses 796,524 1,022,095 734,972 1,046,884
------------ ------------ ------------ ------------
Total loans, net 77,655,517 77,114,651 77,503,520 77,088,607
Bank premises and equipment 3,587,187 3,174,162 3,742,416 3,407,937
Accrued interest receivable 1,580,819 1,589,912 1,632,429 1,495,062
Excess of cost of subsidiaries over
equity in net assets acquired,
net of amortization of $ 2,244,023
in 1994 and $ 2,123,418 in 1993 756,353 876,958 746,337 820,952
Real estate and other loan related assets 831,844 1,477,096 753,651 1,179,403
Other assets 926,686 766,534 995,778 971,195
------------ ------------ ------------ ------------
Total Assets $ 207,786,446 $ 218,444,050 $ 203,481,919 $ 209,472,746
============ ============ ============ ============
</TABLE>
See notes to financial statements.
<PAGE>
TEXAS GULF COAST BANCORP, INC. AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
December 31, March 31,
---------------------------- ---------------------------
1994 1993 1995 1994
------------- ------------- ------------- ------------
[unaudited]
<S> <C> <C> <C> <C>
Deposits:
Non-interest bearing $ 42,673,987 $ 44,698,688 $ 42,236,128 $ 40,709,616
Interest bearing 143,459,628 150,793,334 138,897,485 147,077,592
------------ ------------ ------------ ------------
186,133,615 195,492,022 181,133,613 187,787,208
Accrued interest, taxes and other
liabilities 1,188,058 2,367,390 976,263 894,538
Borrowings 2,969,067 1,104,643 3,440,844 1,039,150
Minority interest in subsidiaries 253,660 248,281 259,056 250,699
------------ ------------ ------------ ------------
Total Liabilities 190,544,400 199,212,336 185,809,776 189,971,595
------------ ------------ ------------ ------------
Stockholders' Equity:
Preferred stock, 8% cumulative,
$ 16 par value, authorized
1,000,000 shares, issued
155,050 shares in 1993 - 2,480,800 - 2,480,800
Common stock, $ 1 par value,
authorized 1,000,000 shares,
issued 381,939 shares 381,939 381,939 381,939 381,939
Paid-in capital 5,207,041 5,207,041 5,207,041 5,207,041
Retained earnings 15,214,300 14,384,965 15,437,576 14,668,514
Net unrealized gain (loss) on securities
available-for-sale (net of income taxes) (338,203) - (131,382) (14,112)
------------ ------------ ------------ ------------
20,465,077 22,454,745 20,895,174 22,724,182
Less cost of stock held in treasury:
Common 52,201 shares in 1994
and 1993 (3,223,031) (3,223,031) (3,223,031) (3,223,031)
------------ ------------ ------------ ------------
Total Stockholders' Equity 17,242,046 19,231,714 17,672,143 19,501,151
------------ ------------ ------------ ------------
Total Liabilities and
Stockholders' Equity $ 207,786,446 $ 218,444,050 $ 203,481,919 $ 209,472,746
============ ============ ============ ============
</TABLE>
See notes to financial statements.
<PAGE>
TEXAS GULF COAST BANCORP, INC. AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED STATEMENT OF INCOME
--------------------------------
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
---------------------------------------- ------------------------
1994 1993 1992 1995 1994
------------ ------------ ------------ ----------- -----------
[unaudited]
<S> <C> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $ 6,776,407 $ 7,048,741 $ 7,790,971 $1,776,930 $1,710,556
Investment securities:
Taxable interest 3,941,439 4,552,132 5,465,942 1,012,929 940,219
Non-taxable interest 776,207 765,176 729,120 212,747 203,809
Time deposits with financial
institutions 97 19,849 22,540 - -
Federal funds sold and deposits
with Federal Home Loan Bank 1,133,107 939,815 900,016 382,646 265,852
----------- ----------- ----------- ---------- ----------
Total Interest Income 12,627,257 13,325,713 14,908,589 3,385,252 3,120,436
----------- ----------- ----------- ---------- ----------
Interest Expense:
Deposits 4,166,895 4,309,987 5,815,158 1,175,776 1,003,654
Borrowings 78,686 79,263 112,749 71,128 17,670
----------- ----------- ----------- ---------- ----------
Total Interest Expense 4,245,581 4,389,250 5,927,907 1,246,904 1,021,324
----------- ----------- ----------- ---------- ----------
Net interest income 8,381,676 8,936,463 8,980,682 2,138,348 2,099,112
Provision for possible loan losses (178,000) (474,663) (262,833) (67,500) (48,500)
----------- ----------- ----------- ---------- ----------
Net interest income after provision
for possible loan losses 8,203,676 8,461,800 8,717,849 2,070,848 2,050,612
----------- ----------- ----------- ---------- ----------
Non-interest income:
Service charges on deposit accounts 1,883,049 2,031,129 1,941,650 447,408 552,587
Other service charges and fees 67,552 136,713 109,936 44,794 9,583
Other operating income 1,206,417 1,129,795 858,495 152,942 260,367
Securities transactions (1,224) 11,422 32,250 - 2,256
----------- ----------- ----------- ---------- ----------
Total Non-interest Income 3,155,794 3,309,059 2,942,331 645,144 824,793
----------- ----------- ----------- ---------- ----------
Non-interest Expense:
Salaries and employee benefits 4,415,710 4,702,481 4,354,551 1,126,087 1,040,430
Occupancy expense 631,197 603,718 579,033 176,683 147,665
Furniture and equipment expense 703,275 516,477 457,552 129,895 127,677
Other real estate expense 117,916 243,181 288,248 15,097 17,965
Other operating expense 3,804,130 4,368,788 3,419,366 907,029 1,072,949
----------- ----------- ----------- ---------- ----------
Total Non-interest Expense 9,672,228 10,434,645 9,098,750 2,354,791 2,406,686
----------- ----------- ----------- ---------- ----------
</TABLE>
See notes to financial statements.
<PAGE>
TEXAS GULF COAST BANCORP, INC. AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED STATEMENT OF INCOME (CONTINUED)
--------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
------------------------------------- -----------------------
1994 1993 1992 1995 1994
------------ ---------- ------------ ----------- ----------
[unaudited]
<S> <C> <C> <C> <C> <C>
Income before income taxes
and cumulative effect of an
accounting change 1,687,242 1,336,214 2,561,430 361,201 468,719
Provision for income taxes 461,600 211,000 474,769 88,464 86,094
---------- ---------- ---------- -------- --------
Income before cumulative effect
of an accounting change 1,225,642 1,125,214 2,086,661 272,737 382,625
Cumulative effect of an
accounting change - 158,157 - - -
---------- ---------- ---------- -------- --------
Net Income $ 1,225,642 $ 1,283,371 $ 2,086,661 $ 272,737 $ 382,625
========== ========= ========= ======== =======
Weighted Average Number of Common
Shares Outstanding 329,738 372,759 379,156 329,738 329,738
========== ========= ======== ======== =======
Net Income per Common Share:
Income before cumulative effect
of an accounting change $ 3.12 $ 2.49 $ 4.98 $ .83 $ 1.00
Accounting Change $ - $ .42 $ - $ - $ -
---------- --------- --------- -------- -------
Net Income $ 3.12 $ 2.91 $ 4.98 $ .83 $ 1.00
========== ========= ========= ======== =======
</TABLE>
See notes to financial statements.
<PAGE>
TEXAS GULF COAST BANCORP, INC. AND SUBSIDIARIES (CONSOLIDATED)
--------------------------------------------------------------
AND
---
TEXAS GULF COAST BANCORP, INC. (PARENT COMPANY ONLY)
----------------------------------------------------
STATEMENT OF STOCKHOLDERS' EQUITY
---------------------------------
<TABLE>
<CAPTION>
Net
Unrealized
Gain [loss]
on
Securities
Preferred Common Paid-In Retained Available- Treasury
Stock Stock Capital Earnings for-Sale Stock
------------ -------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1992 $ 2,480,800 $381,939 $5,207,041 $11,867,326 $ - $ (71,944)
Net income - - - 2,086,661 - -
Treasury stock acquired:
Preferred, 1,967 shares - - - - - (31,472)
Common, 6,273 shares - - - - - (104,104)
Cash dividends:
Preferred, $ 1.28
per share - - - (198,464) - -
Common, $ .60
per share - - - (227,663) - -
----------- -------- ---------- ----------- ----------- -----------
Balance at December 31, 1992 2,480,800 381,939 5,207,041 13,527,860 - (207,520)
Net income - - - 1,283,371 - -
Treasury stock acquired:
Common, 50,162 shares - - - - - (3,154,187)
Treasury stock sold:
Preferred, 1.967 shares - - - - - 31,472
Common, 6,734 shares - - - - - 107,204
Cash dividends:
Preferred, $ 1.28
per share - - - (198,464) - -
Common, $.60
per share - - - (227,802) - -
----------- -------- ---------- ----------- ----------- -----------
Balance at December 31, 1993 2,480,800 381,939 5,207,041 14,384,965 - (3,223,031)
Net income - - - 1,225,642 - -
Cash dividends:
Preferred, $ 1.28
per share - - - (198 464) - -
Common, $.60
per share - - - (197,843) - -
Change in accounting
method (Note 4) - - - - 106,898 -
Net change in unrealized
losses on investment
securities available-
for-sale - - - - (445,101) -
Redemption of preferred
stock (2,480,800) - - - - -
----------- -------- ---------- ----------- ----------- -----------
Balance at December 31, 1994 - 381,939 5,207,041 15,214,300 (338,203) (3,223,031)
Net income - - - 272,737 - -
Cash dividends:
Common, $.15 per share - - - (49,461) - -
Net change in unrealized losses
on investment securities
available-for-sale - - - - 206,821 -
----------- -------- ---------- ----------- ----------- -----------
Balance at March 31, 1995 $ - $381,939 $5,207,041 $15,437,576 $(131,382) $ 3,223,031
=========== ======== ========== =========== =========== ===========
(unaudited)
</TABLE>
See notes to financial statements.
<PAGE>
TEXAS GULF COAST BANCORP, INC. AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
------------------------------------------- --------------------------
1994 1993 1992 1995 1994
------------- ------------- ------------- ------------ ------------
[unaudited]
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating
Activities:
Net income $ 1,225,642 $ 1,283,371 $ 2,086,661 $ 272,737 $ 382,625
----------- ----------- ----------- ---------- ----------
Adjustments to Reconcile Net
Income to Cash Flows
from Operating Activities:
Provision for possible
loan loss 178,000 474,663 262,833 67,500 48,500
Discount (accretion) amortized to
income 244,638 240,955 20,677 56,652 24,466
(Gain) loss on sale of investment
securities 1,224 (11,422) (32,250) - (2,256)
Origination of mortgage loans
for sale (11,882,086) (17,176,320) (13,165,200) (2,253,778) (4,027,319)
Proceeds from mortgage loans sold 13,402,720 17,113,859 12,047,020 1,757,100 5,051,164
Depreciation and amortization 526,792 842,336 749,732 104,377 150,782
Loss (gain) on sale and abandonment
of premises and equipment 20,443 86,256 (8,861) (2,667) (1,997)
Provision for losses on real estate
and other loan-related assets 41,410 108,322 - - 41,410
(Gain) loss on sale of real estate
and other loan-related assets (43,366) 105,534 100,151 - (35,075)
Charitable contribution of real estate 155,970 - - 52,000 -
Decrease (increase) in accrued
interest receivable 9,093 183,539 337,311 (51,610) 94,850
(Increase) decrease in other assets 20,885 (423,551) 100,883 (180,868) (204,854)
(Decrease) increase in accrued
interest, taxes and other liabilities (164,061) 36,310 (20,159) 274,401 20,258
----------- ----------- ----------- ---------- ----------
Total Adjustments 2,511,662 1,580,481 392,137 (176,893) 1,159,929
----------- ----------- ----------- ---------- ----------
Net Cash Flows From
Operating Activities 3,737,304 2,863,852 2,478,798 95,844 1,542,554
------------ ------------ ------------ ----------- -----------
</TABLE>
See notes to financial statements.
<PAGE>
TEXAS GULF COAST BANCORP, INC. AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
------------------------------------------ ---------------------------
1994 1993 1992 1995 1994
------------ ------------ ------------ ------------ ------------
[unaudited]
<S> <C> <C> <C> <C> <C>
Cash Flows From Investing Activities:
Net decrease (increase) in time
deposits in financial institutions 100,000 20,000 - - 100,000
Proceeds from sales of held-to-maturity
investment securities - 18,198,009 - - -
Proceeds from the maturities of held-to-
maturity investment securities 20,334,035 30,606,524 36,055,090 2,351,898 8,043,025
Proceeds from the sales of available-
for-sale investment securities - - - - -
Proceeds from the maturities of
available-for-sale investment
securities 6,075,000 - - 250,000
Purchase of held-to-maturity
investment securities (20,932,824) (52,525,981) (24,475,076) (3,679,001) (11,012,874)
Purchase of available-for-sale
investment securities (12,382,338) - - -
Net decrease (increase) in loans (1,784,587) 6,268,800 (339,217) 589,210 (806,128)
Rebates paid to customers (626,952) (862,723) - (111,275) (259,065)
Recoveries of loans charged-off 68,029 56,559 65,706 38,299 4,407
Proceeds from sale of premises
and equipment 75,714 - 111,300 9,550 8,500
Capital expenditures (915,369) (358,640) (649,537) (256,473) (323,453)
Proceeds from sale of real estate
and other loan-related assets 595,248 383,727 357,756 91,134 295,857
------------ ------------ ------------ ----------- ------------
Net Cash Flows From Investing Activities (9,394,044) 1,786,275 11,126,022 (716,658) (3,949,731)
------------ ------------ ------------ ----------- ------------
Cash Flows From Financing Activities:
Net increase (decrease) in deposits (9,358,407) 1,580,333 7,887,379 (5,000,002) (7,704,814)
Proceeds from borrowings 2,000,000 110,000 - 480,800 -
Repayment of borrowings (135,576) (355,357) (250,000) (9,023) (65,493)
Cash dividends paid (396,307) (426,262) (426,197) (49,461) (99,076)
Purchase of treasury stock (1,490,692) (1,663,495) (135,576) - (1,490,692)
Proceeds from sale of treasury stock - 138,676 - - -
Redemption of preferred stock (2,000,000) - - (480,800) -
------------ ------------ ------------ - ---------- ------------
Net Cash Flows From Financing activities (11,380,982) (616,105) 7,075,606 (5,058,486) (9,360,075)
----------- ----------- ----------- ---------- -----------
Net increase (decrease) in
Cash and Cash Equivalents (17,037,722) 4,034,022 20,680,426 (5,679,300) (11,767,252)
Cash and Cash Equivalents at
Beginning of Period 53,188,699 49,154,677 28,474,251 36,150,977 53,188,699
----------- ----------- ----------- ---------- -----------
Cash and Cash Equivalents at
End of Period $ 36,150,977 $ 53,188,699 $ 49,154,677 $ 30,471,677 $ 41,421,447
=========== =========== =========== ========== ===========
Interest Paid $ 4,246,094 $ 4,475,981 $ 5,930,920 $ 1,194,904 $ 1,037,771
=========== =========== =========== ========== ===========
Federal Income Taxes Paid $ 294,823 $ 620,394 $ 359,202 $ - $ -
=========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
TEXAS GULF COAST BANCORP, INC. AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
--------------------------------------------- -----------------------------
1994 1993 1992 1995 1994
------------ -------------- ------------- -------------- -------------
[unaudited]
<S> <C> <C> <C> <C> <C>
Non-Cash Transactions:
Bank loans for real estate
and other loan-related
assets sold $ 243,982 $ 345,617 $ - $ 51,500 $ 31,900
Foreclosed properties
transferred to real
estate and other loan
related assets $ 347,992 $ 663,298 $ 247,421 $ 130,307 $ 48,515
Bank-owned land transferred
to real estate and other
loan-related assets $ - $ 550,000 $ - $ - $ -
Treasury stock acquired and
purchase price currently
payable $ - $ 1,490,692 $ - $ - $ -
Redemption of preferred stock
currently payable $ 480,800 $ - $ - $ - $ -
</TABLE>
See notes to financial statements.
<PAGE>
TEXAS GULF COAST BANCORP, INC.
------------------------------
(PARENT COMPANY ONLY)
---------------------
BALANCE SHEET
-------------
ASSETS
------
<TABLE>
<CAPTION>
December 31, March 31,
---------------------------- ---------------------------
1994 1993 1995 1994
----------- ------------ ----------- -----------
[unaudited]
<S> <C> <C> <C> <C>
Cash $ 326,789 $ 1,496,581 $ 340,842 $ 344,680
Due from bank subsidiaries 260,404 325,509 353,634 133,313
Investment in subsidiaries:
Bank 18,936,177 18,410,520 19,351,680 18,667,981
Non-bank 105,214 224,292 94,964 186,402
Equipment 18,382 25,274 16,659 23,551
Excess of cost of subsidiaries over
equity in net assets acquired,
net of amortization of $ 2,244,023
in 1994 and $ 2,123,418 in 1993 756,353 876,958 746,337 820,952
Other assets 322,927 416,273 252,927 346,272
----------- ------------ ----------- ----------
Total Assets $ 20,726,246 $ 21,775,407 $ 21,157,043 $ 20,523,151
=========== ============ =========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C> <C>
Accrued expenses and other liabilities $ 480,800 $ 1,500,693 $ - $ 10,000
Due to non-bank subsidiary 103,400 43,000 104,100 62,000
Borrowings 2,900,000 1,000,000 3,380,800 950,000
----------- ----------- ----------- -----------
Total Liabilities 3,484,200 2,543,693 3,484,900 1,022,000
Commitments and Contingencies - - - -
Stockholders' Equity:
Preferred stock, 8% cumulative,
$ 16 par value,
authorized 1,000,000 shares,
issued 155,050 shares in 1993 - 2,480,800 - 2,480,800
Common stock, $ 1 par value,
authorized 1,000,000 shares,
issued 381,939 shares 381,939 381,939 381,939 381,939
Paid-in capital 5,207,041 5,207,041 5,207,041 5,207,041
Retained earnings 15,214,300 14,384,965 15,437,576 14,668,514
Net unrealized gain (loss) on
securities available-for-sale
(net of income taxes) (338,203) - (131,382) (14,112)
----------- ----------- ----------- -----------
20,465,077 22,454,745 20,895,174 22,724,182
Less cost of stock held in treasury:
Common, 52,201 shares in 1994
and 1993 (3,223,031) (3,223,031) (3,223,031) (3,223,031)
----------- ----------- ----------- -----------
Total Stockholders' Equity 17,242,046 19,231,714 17,672,143 19,501,151
----------- ----------- ----------- -----------
Total Liabilities and
Stockholders' Equity $ 20,726,246 $ 21,775,407 $ 21,157,043 $ 20,523,151
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
TEXAS GULF COAST BANCORP, INC.
------------------------------
PARENT COMPANY ONLY)
--------------------
STATEMENT OF INCOME
-------------------
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
--------------------------------------------- -----------------------
1994 1993 1992 1995 1994
----------- ------------ ----------- --------- ---------
[unaudited]
<S> <C> <C> <C> <C> <C>
Income:
Dividends from bank subsidiaries $ 866,765 $ 3,221,726 $ 1,044,881 $ 172,132 $ 220,698
Interest income - 16,336 17,005 - -
---------- ----------- ---------- -------- --------
866,765 3,238,062 1,061,886 172,132 220,698
---------- ----------- ---------- -------- --------
Expenses:
Interest 70,878 71,979 110,922 70,611 15,371
Amortization 120,605 273,408 212,850 10,016 56,066
Other operating expenses 196,422 236,436 109,377 39,730 44,532
---------- ----------- ---------- -------- --------
387,905 581,823 433,149 120,357 115,969
---------- ----------- ---------- -------- --------
Income before income tax benefit and
equity in undistributed income of
subsidiaries and cumulative effect
of an accounting change 478,860 2,656,239 628,737 51,775 104,729
Income tax benefit 2,000 199,000 192,613 22,530 44,213
---------- ----------- ---------- -------- --------
Income before equity in undistributed
income of subsidiaries and cumulative
effect of an accounting change 480,860 2,855,239 821,350 74,305 148,942
Equity in undistributed income of
subsidiaries 744,782 (1,800,599) 1,265,311 198,432 233,683
---------- ----------- ---------- -------- --------
Income before cumulative effect of an
accounting change 1,225,642 1,054,640 2,086,661 272,737 382,625
Cumulative effect of an
accounting change - 228,731 - - -
---------- ----------- ---------- -------- --------
Net Income $ 1,225,642 $ 1,283,371 $ 2,086,661 $ 272,737 $ 382,625
========== =========== ========== ======== ========
</TABLE>
See notes to financial statements.
<PAGE>
TEXAS GULF COAST BANCORP, INC.
------------------------------
(PARENT COMPANY ONLY)
---------------------
STATEMENT OF CASH FLOWS
-----------------------
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
------------------------------------------ ---------------------------
1994 1993 1992 1995 1994
------------ ------------ ------------ ------------ ------------
[unaudited]
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 1,225,642 $ 1,283,371 $ 2,086,661 $ 272,737 $ 382,625
Adjustments to Reconcile Net Income to
Cash Flows From Operating Activities:
Equity in undistributed income of
subsidiaries (744,782) 1,800,599 (1,265,311) (198,432) (233,683)
Amortization and depreciation 127,497 281,523 216,372 11,739 57,730
(Increase) decrease in due from
subsidiaries 125,505 251,258 (391,476) (92,530) 192,196
(Increase) decrease in other assets 93,345 (402,012) 338,733 70,000 70,000
Increase (decrease) in accrued
expenses and other liabilities (10,001) (178,892) (38,636) - 19,000
----------- ----------- ----------- ---------- -----------
Net Cash Flows From Operating Activities 817,206 3,035,847 946,343 63,514 487,868
----------- ----------- ----------- ---------- -----------
Cash Flows From Investing Activities:
Addition to Equipment - - (34,458) - -
----------- ----------- ----------- ---------- -----------
Net Cash Flow From Investing Activities - - (34,458) - -
----------- ----------- ----------- ---------- -----------
Cash Flows From Financing Activities:
Proceeds from borrowings 2,000,000 - - 480,800 -
Repayments of borrowings (100,000) (350,000) (250,000) - (50,000)
Dividends paid (396,306) (426,266) (426,127) (49,461) (99,077)
Purchase of treasury stock (1,490,692) (1,663,495) - - (1,490,692)
Proceeds from sale of treasury stock - 138,676 - - -
Redemption of preferred stock (2,000,000) - - (480,800) -
----------- ----------- ----------- ---------- -----------
Net Cash Flows From Financing Activities (1,986,998) (2,301,085) (676,127) (49,461) (1,639,769)
----------- ----------- ----------- ---------- -----------
Net Increase (Decrease) in
Cash and Cash Equivalents (1,169,792) 734,762 235,758 14,053 (1,151,901)
Cash and Cash Equivalents at
Beginning of Year 1,496,581 761,819 526,061 326,789 1,496,581
----------- ----------- ----------- ---------- -----------
Cash and Cash Equivalents at
End of Year $ 326,789 $ 1,496,581 $ 761,819 $ 340,842 $ 344,680
=========== =========== =========== ========== ===========
Interest Paid $ 80,878 $ 75,479 $ 115,922 $ 70,611 $ 15,371
=========== =========== =========== ========== ===========
Taxes Paid $ 294,823 $ 620,394 $ 359,002 $ - $ -
=========== =========== =========== ========== ===========
Non-Cash Transactions:
Treasury stock acquired and
purchase price still payable $ - $ 1,490,692 $ - $ - $ -
=========== =========== =========== ========== ===========
Redemption of preferred stock
currently payable $ 480,000 $ - $ - $ - $ -
=========== =========== =========== ========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
TEXAS GULF COAST BANCORP, INC. AND SUBSIDIARIES
-----------------------------------------------
AND
---
TEXAS GULF COAST BANCORP, INC. (PARENT COMPANY ONLY)
----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
The accounting and reporting policies of Texas Gulf Coast Bancorp, Inc.
(Company) and its subsidiaries conform to generally accepted accounting
principles and practices within the banking industry. The Company and its
subsidiaries provide banking services to its customers in the greater Galveston
and Harris Counties, Texas metropolitan area. A summary of the more significant
accounting policies follows:
FINANCIAL STATEMENT PRESENTATION
- --------------------------------
The consolidated financial statements include the accounts of the parent company
and its wholly-owned subsidiaries, First Bank Mainland and Central Data
Processing, Inc. and its majority-owned subsidiaries First Bank Pearland and
Texas City Bank. All significant intercompany accounts and transactions have
been eliminated in consolidation. Investments in subsidiaries are accounted for
on the equity method of accounting in the Parent Company Only financial
statements.
INVESTMENT SECURITIES
- ---------------------
Effective January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities: (SFAS 115). Investment securities that may be sold in response to
or in anticipation of changes in interest rates or other factors are classified
as available-for-sale and carried at fair value. The unrealized gains and
losses on these securities are reported net of applicable income taxes as a
separate component of stockholders' equity. At December 31, 1993, securities
available-for-sale were carried at amortized cost. Securities that the Company
has the intent and ability to hold to maturity continue to be carried at
amortized cost.
Interest income on investment securities, including amortization of premiums and
accretion of discounts, is recognized using the interest method. The specific
identification method is used to determine realized gains and losses on sales of
securities, which are reported in securities transactions.
LOANS
- -----
Loans are stated at the principal amount outstanding, net of unearned income.
Interest on commercial and real estate loans is accrued over the term of the
loan based on the amount of principal outstanding except where serious doubt
exists as to the collectibility of a loan, in which case the accrual of interest
is discontinued. Interest income on installment loans is computed primarily on
sum-of-the-months-digit method which, in the aggregate, does not differ
materially from the interest method. Net loan origination and commitment fees
are included in unearned income and are being deferred over the contractual life
of the loans as an adjustment of the yield.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
- ----------------------------------
The allowance for possible loan losses is established by a charge to income as a
provision for loan losses. Actual losses or recoveries are charged or credited
directly to this allowance. The amount of the allowance is determined based
upon evaluation of the loan portfolio, a review of past loan loss experience and
management's judgment with respect to current and expected economic conditions
and their potential impact on the loan portfolio.
<PAGE>
TEXAS GULF COAST BANCORP, INC. AND SUBSIDIARIES
-----------------------------------------------
AND
---
TEXAS GULF COAST BANCORP, INC. (PARENT COMPANY ONLY)
----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ---------------------------------------------------------------
BANK PREMISES AND EQUIPMENT
- ---------------------------
Bank premises and equipment are stated at cost less accumulated depreciation.
Depreciation expense is computed on the straight-line method based upon the
estimated useful lives of the assets. Amortization of leasehold improvements is
based on the estimated useful lives of the improvements or the term of the
respective lease, whichever is shorter. At the time of a retirement or sale,
the related cost and accumulated depreciation are removed from the accounts, and
any resulting gain or loss is recorded in income. Maintenance and repairs are
charged to expense as incurred. Renewals and betterments, expenditures which
generally increase the value of the property or extend its useful life, are
capitalized.
REAL ESTATE AND OTHER LOAN-RELATED ASSETS
- -----------------------------------------
Real estate and other loan-related assets are stated at the lower of cost or
estimated fair value, less the estimated costs to sell. Any reduction from cost
(loan value) to estimated fair value at the time of foreclosure is charged to
the allowance for possible loan losses. Subsequent valuation adjustments are
charged to current earnings through the provision for revaluation of real estate
and other loan-related assets or are charged directly to expense in the period
in which they are identified. Losses on dispositions are recognized in the
period of occurrence while gains are not recognized until all criteria for
income recognition have been met. Also, any income received or expense incurred
during the period the assets are owned is recognized as income or expense during
the period in which it is received or incurred and is included in other real
estate expense.
EXCESS OF COST OVER EQUITY IN NET ASSETS ACQUIRED
- -------------------------------------------------
The fair value of the net assets acquired in transactions accounted for as
purchases is recorded as an investment by the parent company. The excess of the
cash or market value of the consideration given in the transaction over the fair
value of the net assets acquired is recorded as the excess of cost over fair
value of assets acquired, which is amortized into other operating expenses on a
straight-line basis over a period of 10 to 25 years.
INCOME TAXES
- ------------
The Company and its subsidiaries file a consolidated Federal income tax return.
The subsidiaries record income tax expense by applying the statutory tax rate to
their income as adjusted for tax exempt interest and other temporary differences
and remit the portion of Federal income taxes currently due to the parent
company. The parent company records, as a tax benefit, the difference between
total taxes reflected by the subsidiaries and the consolidated provision for
income taxes. Deferred tax assets and liabilities are recognized for balance
sheet basis differences for tax and financial reporting purposes. The deferred
taxes represent future tax return consequences of those differences.
EARNINGS PER SHARE
- ------------------
Earnings per share of common stock are computed by dividing earnings, net of
dividends on preferred stock for the year, by the weighted average number of
shares outstanding during the year.
<PAGE>
TEXAS GULF COAST BANCORP, INC. AND SUBSIDIARIES
-----------------------------------------------
AND
---
TEXAS GULF COAST BANCORP, INC. (PARENT COMPANY ONLY)
----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ---------------------------------------------------------------
CASH AND CASH EQUIVALENTS
- -------------------------
For purposes of reporting cash flows, cash and cash equivalents include cash and
due from banks, federal funds sold and deposits with the Federal Home Loan Bank.
Generally, federal funds are purchased and sold for one-day periods.
RECLASSIFICATIONS
- -----------------
Certain amounts in the 1993 and 1992 financial statements have been reclassified
to conform with the 1994 presentation.
NOTE 2 - AGREEMENT AND PLAN MERGER
- ----------------------------------
In November 1994, the Company entered into an agreement and plan of merger with
Gulf Southwest Nevada Bancorp, Inc., a wholly owned subsidiary of Gulf Southwest
Bancorp, Inc. When the merger becomes effective the Company will merge into
Gulf Southwest Nevada Bancorp, Inc. and its separate existence will cease.
The effect date of the merger will be after approval is received from the
Federal Reserve Bank and the approval of the shareholders of both Companies.
NOTE 3 - RESERVE REQUIREMENTS
- -----------------------------
Cash and due from banks of approximately $1,621,000 at December 31, 1994 was
maintained to satisfy regulatory reserve and other requirements.
NOTE 4 - INVESTMENT SECURITIES
- ------------------------------
On January 1, 1994, the Company adopted SFAS 115, which addresses the accounting
for investments in debt and equity securities. Such securities are classified
in three categories and accounted for as follows: debt securities that the
Company has the intent and ability to hold to maturity are classified as held-
to-maturity and are carried at amortized cost; debt and equity securities bought
and held principally for the purpose of reselling, of which the Company has
none, are classified as trading securities and are carried at fair value, with
unrealized gains and losses included in income; debt or equity securities not
classified as either held-to-maturity or trading securities are deemed
available-for-sale and are carried at fair value, with unrealized gains and
losses, net of applicable income taxes, reported as a separate component of
stockholders' equity.
Prior to the adoption of SFAS 115, all investment securities were carried at
amortized cost.
<PAGE>
TEXAS GULF COAST BANCORP, INC. AND SUBSIDIARIES
-----------------------------------------------
AND
---
TEXAS GULF COAST BANCORP, INC. (PARENT COMPANY ONLY)
----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 4 - INVESTMENT SECURITIES (CONTINUED)
- ------------------------------------------
As a result of the adoption of SFAS 115, debt securities in the amount of $
11,650,854 that were previously carried at amortized cost are measured at fair
value.
HELD-TO-MATURITY INVESTMENT SECURITIES:
- ---------------------------------------
<TABLE>
<CAPTION>
Amortized Gross Unrealized Fair
------------------------------
Cost Gains Losses Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
December 31, 1994:
U.S. Treasury and
other U.S. Government
agencies $ 49,658,445 $ 18,525 $ 2,192,390 $ 47,484,580
State, county and municipal
obligations 16,967,801 52,782 695,829 16,324,754
------------ ------------ ------------ ------------
$ 66,626,246 $ 71,307 $ 2,888,219 $ 63,809,334
============ ============ ============ ============
<CAPTION>
Amortized Gross Unrealized Fair
------------------------------
Cost Gains Losses Value
------------- ------------- ------------- -------------
December 31, 1993:
U.S. Treasury and
other U.S. Government
agencies $ 63,383,768 $ 1,414,734 $ 133,741 $ 64,664,761
State, county and municipal
obligations 16,551,603 483,326 14,391 17,019,998
Other 220,667 - - 220,667
------------ ------------ ------------ ------------
$ 80,156,038 $ 1,898,060 $ 148,132 $ 81,905,426
============ ============ ============ ============
</TABLE>
<PAGE>
TEXAS GULF COAST BANCORP, INC. AND SUBSIDIARIES
-----------------------------------------------
AND
---
TEXAS GULF COAST BANCORP, INC. (PARENT COMPANY ONLY)
----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 4 - INVESTMENT SECURITIES (CONTINUED)
- ------------------------------------------
AVAILABLE-FOR-SALE INVESTMENT SECURITIES:
- -----------------------------------------
<TABLE>
<CAPTION>
Amortized Gross Unrealized Fair
----------------------
Cost Gains Losses Value
------------ --------- ----------- ------------
<S> <C> <C> <C> <C>
December 31, 1994:
U.S. Treasury and other
U.S. Government
agencies $ 19,969,407 $ 3,823 $ 523,063 $ 19,450,167
Other 220,650 - - 220,650
------------ -------- ---------- -----------
$ 20,190,057 $ 3,823 $ 523,063 $ 19,670,817
=========== ======== ========== ===========
</TABLE>
Cash proceeds from the maturity and sales of held-to-maturity investment
securities during 1994 and 1993 were $ 20,334,035 and $ 48,804,533,
respectively. Cash proceeds from the maturity and sales of available-for-sale
investment securities during 1994 was $ 6,075,000. Net losses from available-
for-sale investment securities sold in 1994 amounted to $ 1,224 (gross gains of
$ 2,482 and gross losses of $ 3,706). Net gains for investment securities
matured or sold in 1993 amounted to $ 11,422 (gross gains of $ 84,224 and gross
losses of $ 72,802).
The amortized cost and estimated fair value of investment securities at December
31, 1994, by contractual maturity were as follows:
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
--------------------------- ---------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Due in one year or less $ 7,154,841 $ 7,125,310 $ 8,014,373 $ 7,859,575
Due after one year through
five years 46,311,795 44,149,803 11,955,034 11,590,592
Due after five years
through ten years 12,779,987 12,183,028 - -
Due after ten years 379,623 351,193 220,650 220,650
----------- ----------- ----------- -----------
Total Investment Securities $ 66,626,246 $ 63,809,334 $ 20,190,057 $ 19,670,817
=========== =========== =========== ===========
</TABLE>
Investment securities with amortized cost of $ 37,626,054 and $ 37,178,066 at
December 31, 1994 and 1993, were pledged to secure public deposits and for other
purposes as required by law.
<PAGE>
TEXAS GULF COAST BANCORP, INC. AND SUBSIDIARIES
-----------------------------------------------
AND
---
TEXAS GULF COAST BANCORP, INC. (PARENT COMPANY ONLY)
----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 5 - LOANS
- --------------
The loan portfolio was comprised of the following categories at December 31:
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
Commercial and industrial $ 16,069,566 $ 14,362,158
Real estate - construction 2,012,355 1,733,467
Real estate - other 25,771,144 26,204,988
Installment 37,488,769 37,315,945
Mortgage loans held for resale - 1,520,634
Other loans 638,145 573,344
------------ ------------
Total loans 81,979,979 81,710,536
Less:
Unearned income (3,527,938) (3,573,790)
Allowance for possible loan losses (796,524) (1,022,095)
------------ ------------
Net Loans $ 77,655,517 $ 77,114,651
============ ============
</TABLE>
Loans on which interest was not being accrued amounted to $686,192 and
$1,150,673 at December 31, 1994 and 1993, respectively. Interest income lost on
non-performing loans was $60,294, $174,397 and $309,017 for the years ended
December 31, 1994, 1993 and 1992, respectively.
Some of the directors and executive officers of the Company and its subsidiaries
and their related parties are loan customers at the Company's subsidiary banks.
In management's judgment, such borrowings were only substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with others and do not involve other than normal
risk of collectibility.
An analysis of loans to these parties is as follows:
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
Balance at beginning of year $ 3,444,888 $ 4,588,562
New loans 4,392,126 1,586,657
Amounts collected (2,646,372) (2,428,146)
Loans to customers no
longer related parties and other (327,429) (302,185)
------------ ------------
Balance at end of year $ 4,863,213 $ 3,444,888
============ ============
</TABLE>
<PAGE>
TEXAS GULF COAST BANCORP, INC. AND SUBSIDIARIES
-----------------------------------------------
AND
---
TEXAS GULF COAST BANCORP, INC. (PARENT COMPANY ONLY)
----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 5 - LOANS (CONTINUED)
- --------------------------
Transactions in the allowance for possible loan losses were are follows:
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of year $ 1,022,095 $ 1,059,783 $ 1,152,088
Provision charged to expense 178,000 474,663 262,833
Loan losses:
Charge-offs (471,599) (568,911) (420,839)
Recoveries 68,028 56,560 65,701
----------- ----------- -----------
Net loan losses (403,571) (512,351) (355,138)
----------- ----------- -----------
Balance at end of year $ 796,524 $ 1,022,095 $ 1,059,783
=========== =========== ===========
</TABLE>
In 1994, the Financial Accounting Standards Board issued Financial Accounting
Standard No. 114, Accounting by Creditors for Impairment of a Loan and No. 118,
Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures. The Company will adopt those new standards on January 1, 1995.
The adoption of these new standards will have no material effect on the
Company's financial position or results of operations.
NOTE 6 - BANK PREMISES AND EQUIPMENT
- ------------------------------------
Bank premises and equipment were comprised of the following at December 31:
<TABLE>
<CAPTION>
Estimated
Useful Lives 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Land $ 902,203 $ 905,323
Bank premises and leasehold
improvements 5 to 40 yrs. 3,723,823 3,231,659
Furniture and equipment 3 to 10 yrs. 2,344,864 2,231,659
Automobiles 3 to 5 yrs. 153,130 192,772
Construction in progress 12,627 45,354
Less-accumulated depreciation
and amortization (3,549,460) (3,432,605)
----------- -----------
Net balance at end of year $ 3,587,187 $ 3,174,162
=========== ===========
</TABLE>
Depreciation and amortization charged to operating expense was $406,187,
$568,928 and $352,973 for the years ended December 31, 1994, 1993 and 1992,
respectively.
<PAGE>
TEXAS GULF COAST BANCORP, INC. AND SUBSIDIARIES
-----------------------------------------------
AND
---
TEXAS GULF COAST BANCORP, INC. (PARENT COMPANY ONLY)
----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 7 - INTEREST BEARING DEPOSITS
- ----------------------------------
Interest-bearing deposits were comprised of the following categories at December
31:
<TABLE>
<CAPTION>
1994 1993
-------------- --------------
<S> <C> <C>
Interest-bearing demand $ 55,680,221 $ 49,576,010
Savings 26,269,866 36,012,730
Time 51,160,397 53,302,380
Time over $ 100,000 10,349,144 11,902,214
------------- -------------
$ 143,459,628 $ 150,793,334
============= ==============
NOTE 8 - BORROWINGS
- -------------------
The Company had the following indebtedness at December 31:
1994 1993
-------------- --------------
Texas Gulf Coast Bancorp, Inc.
- ------------------------------
Note payable in the amount of $ 3,400,000
or the aggregate unpaid amount of advances
unpaid, whichever is lesser. Principal
quarterly beginning June 30, 1995, and
quarterly thereafter until maturity at
March 31, 1997. Interest is payable
quarterly beginning March 31, 1995 at
the prime rate (8.5% at December 31,
1994). The rate is collateralized
by all the shares of common stock of
the subsidiary banks owned by the Company. $ 2,900,000 $ -
Note payable in quarterly installments
of $ 50,000 plus interest at the prime
rate (6% at December 31, 1993), through
July of 1994. The note is collateralized
by 194,264 shares of common stock of
Texas City Bank owned by the Company. - 1,000,000
------------- --------------
2,900,000 1,000,000
Subsidiaries
- -----------------------------------------------
Note payable in monthly installments of
$ 2,441 including interest at 8%. The
note is collateralized by computer equipment. 69,067 94,643
Term note payable March 28, 1994 plus
interest at 9.5%. The loan is collateralized
by computer equipment. - 10,000
------------- -------------
$ 2,969,067 $ 1,104,643
============= =============
</TABLE>
<PAGE>
TEXAS GULF COAST BANCORP, INC. AND SUBSIDIARIES
-----------------------------------------------
AND
---
TEXAS GULF COAST BANCORP, INC. (PARENT COMPANY ONLY)
----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 8 - BORROWINGS (CONTINUED)
- -------------------------------
Maturities of borrowings at December 31, 1994, on a consolidated basis are as
follows:
<TABLE>
<S> <C>
1995 $ 549,000
1996 725,000
1997 1,695,067
</TABLE>
NOTE 9 - DIVIDENDS FROM SUBSIDIARIES
- ------------------------------------
Substantially all of the retained earnings of the Company represent
undistributed net income of subsidiaries. Dividends paid by the Company's
subsidiary banks are subject to restrictions by certain regulatory agencies.
NOTE 10 - FEDERAL INCOME TAXES
- ------------------------------
The Company adopted Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, effective January 1, 1993. The cumulative
adjustment resulted in a tax benefit of $ 158,157.
Deferred income tax provision (benefit) results from differences between amounts
of assets and liabilities as measured for income tax and financial reporting
purposes. The significant components of Federal deferred tax assets and
liabilities as of December 31, are as follows:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Deferred Tax Assets: $ 176,500 $ -
Unrealized investment securities losses 72,000 135,500
Allowance for possible loan losses 217,000 242,100
Alternative minimum tax credit 55,800 -
Contribution carryforward 12,400 36,400
Write down of premise and equipment 2,900 52,000
Carrying value of other real estate owned ---------- ----------
536,600 466,000
Deferred Tax Liability: 290,400 298,000
Depreciation ---------- ----------
Net Deferred Tax $ 246,200 $ 168,000
========== ==========
</TABLE>
No valuation allowance was recognized in that the deferred tax assets should be
realized in future years.
The consolidated provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ------------ ------------
<S> <C> <C> <C>
Current $ 363,300 $ 253,000 $ 537,421
Deferred 98,300 (42,000) (62,652)
---------- ---------- ----------
$ 461,600 $ 211,000 $ 474,769
========== ========== ==========
</TABLE>
<PAGE>
NOTE 10 - FEDERAL INCOME TAXES (CONTINUED)
- ------------------------------------------
The tax expense applicable to securities gains and losses for 1994, 1993 and
1992 was $ (419), $ 3,900 and $ 11,000, respectively.
The difference between the effective tax rate on consolidated income before
income taxes and the statutory rate is attributed to the following:
<TABLE>
<CAPTION>
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Federal income tax provision at statutory rate $ 573,700 $ 454,000 $ 880,762
Tax exempt income (263,900) (260,000) (244,369)
Alternative minimum tax credit 25,100 14,000 (159,708)
Additional tax assessed for 1992 89,600 - -
Other 37,100 3,000 (1,916)
------------ ------------ ------------
$ 461,600 $ 211,000 $ 474,769
============ ============ ============
</TABLE>
Deferred income taxes result from temporary differences between the carrying
value of assets and liabilities for financial reporting and tax reporting
purposes. The sources and related tax effects of these differences are as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Tax effect of temporary differences:
Alternative minimum tax credit $ 25,100 $ (14,000) $ -
Tax over book depreciation (7,600) (13,000) 2,063
Other real estate owned charged down
for book and not tax 49,100 37,000 (84,123)
Allowance for loan loss in excess of tax 63,500 9,000 110,095
Write-down of bank premise and equipment 24,000 (37,000) -
Deferred loan fees - (39,000) (62,505)
Contribution carryforward (55,800) - -
Other - 15,000 (28,182)
----------- ----------- -----------
$ 98,300 $ (42,000) $ (62,652)
=========== =========== ===========
</TABLE>
At December 31, 1994, the Company has, for tax reporting purposes, alternative
minimum tax credit carryforwards of $ 217,000.
NOTE 11 - EMPLOYEE PENSION PLAN
- -------------------------------
The Company has a defined benefit pension plan covering substantially all
employees. The plan was contributory until August 31, 1994 and then became non-
contribution. Benefits are based on an employee's years of service and
earnings. The Company makes contributions to the plan annually based upon
actuarial valuations. The plan assets are managed and invested by the Trust
division of a commercial bank. The plan assets are invested in several equity,
bond and cash common trust investment funds managed by the trustee bank.
<PAGE>
TEXAS GULF COAST BANCORP, INC. AND SUBSIDIARIES
-----------------------------------------------
AND
---
TEXAS GULF COAST BANCORP, INC. (PARENT COMPANY ONLY)
----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 11 - EMPLOYEE PENSION PLAN (CONTINUED)
- -------------------------------------------
Total pension expense for 1994, 1993 and 1992 was $124,581, $83,019 and $57,492,
respectively. Net periodic pension cost for the Company-sponsored plan was as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Service cost-benefit earned during the year $ 268,142 $ 260,327 $ 255,779
Interest cost on projected benefit obligation 179,993 167,675 150,095
Actual gain on plan assets 348,636 (254,235) (115,816)
Net amortization and deferrals (604,454) 33,327 (109,127)
------------ ------------ ------------
Net pension expense $ 192,317 $ 207,094 $ 180,931
============ ============ ============
</TABLE>
Significant assumptions used in determining pension cost for the Company are as
follows:
Discount rate 6.0%
Expected rate of increase in compensation 4.0%
Expected long-term rate of return on plan assets 8.0%
Funded status of the pension plan is as follows:
<TABLE>
<CAPTION>
1994 1993
------------- ------------
<S> <C> <C>
Projected benefit obligation:
Vested benefits $ (1,481,883) $ (2,505,514)
Non-vested benefits (39,107) (48,085)
------------ ------------
Accumulated benefit obligation (1,520,990) (2,553,599)
Effect of projected future
compensation level (273,431) (448,617)
------------ ------------
(1,794,421) (3,002,216)
Plan assets at fair value 1,625,205 2,727,262
------------ ------------
Plan assets (less) than projected
benefit obligation (169,216) (274,954)
Unrecognized net (gains) loss 186,718 319,201
Unrecognized net (assets) obligation
being amortized over 15 years (287,446) (316,191)
------------ ------------
Accrued (prepaid) pension cost $ (269,944) $ (271,944)
============ ============
</TABLE>
<PAGE>
TEXAS GULF COAST BANCORP, INC. AND SUBSIDIARIES
-----------------------------------------------
AND
---
TEXAS GULF COAST BANCORP, INC. (PARENT COMPANY ONLY)
----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 12 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
In the normal course of business, the Company's subsidiary banks are a party to
financial instruments with off balance sheet risk to meet the financing needs of
its customers. These financial instruments include commitments to extend credit
and standby letters of credit. These instruments involve, to varying degrees,
elements of credit risk in excess of the amounts recognized in the Consolidated
Balance Sheet.
The Company's subsidiary banks use the same credit policies in making
commitments as it does for on-balance sheet instruments. Collateral is required
to support the off-balance sheet instruments when it is deemed necessary.
Collateral held varies, but may include: deposits held in financial
institutions, accounts receivable, inventory and property, plant and equipment.
Financial instruments whose contract amounts represent potential credit risk are
as follows at December 31:
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
Commitments to extend credit $ 4,084,142 $ 8,387,411
Standby and commercial letters of credit 288,514 448,317
</TABLE>
The Company and subsidiaries have non-cancelable operating leases covering
certain equipment. The following is a schedule of future minimum lease payments
as of December 31, 1994:
<TABLE>
<CAPTION>
Year Ending December 31, Equipment
------------------------ -----------
<S> <C>
1995 $ 125,206
1996 92,230
1997 49,033
1998 25,609
1999 3,249
2000 and after 3,249
</TABLE>
Rent expense incurred under operating leases amounted to $ 159,148, $ 89,535 and
$ 70,989, for the years ended December 31, 1994, 1993 and 1992, respectively.
Various lawsuits are pending against the Company's subsidiaries. Management,
after reviewing these suits with legal counsel, considers that the aggregate
liability, if any, would not have a material adverse effect on the Company's
financial position.
NOTE 13 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
- ---------------------------------------------------------------
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS No. 107, Disclosure about Fair
Value of Financial Instruments. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. However, considerable judgment is necessarily required
to interpret market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts the
Company 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.
<PAGE>
TEXAS GULF COAST BANCORP, INC. AND SUBSIDIARIES
-----------------------------------------------
AND
---
TEXAS GULF COAST BANCORP, INC. (PARENT COMPANY ONLY)
----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 13 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
- ---------------------------------------------------------------------------
Cash and cash equivalents -- For cash and due from banks, time deposits in
financial institutions and federal funds sold, the carrying amount is a
reasonable estimate of fair value.
Investment securities -- Investment securities fair value equals quoted market
price, if available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
Loans -- The fair value of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities.
Deposits -- The fair value of demand deposits, savings accounts and certain
money market deposits is the amount payable on demand at the reporting date.
The fair value of fixed-maturity certificates of deposit is estimated using the
rates currently offered for deposits of similar remaining maturities.
Borrowings -- Rates currently available to the Company for debt with similar
terms and remaining maturities are used to estimate fair value of existing debt.
Commitments to extend credit and standby letters of credit -- The fair value of
commitments is estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
present creditworthiness of the counter parties. For fixed-rate commitments,
fair value also considers the difference between current levels of interest
rates and committed rates. The fair value of letters of credit is based on fees
currently charged for similar letters of credit.
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
---------------------------------- ----------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 36,150,977 $ 36,150,977 $ 53,288,699 $ 53,288,699
Investment securities 86,297,063 83,480,151 80,156,038 81,905,426
Loans, net 77,655,517 75,407,890 77,114,651 77,060,829
Liabilities:
Deposits 186,189,467 186,039,943 195,492,022 195,812,078
Borrowings 2,969,067 2,969,067 1,104,643 1,104,643
Off-balance sheet instruments
(unrealized gains [losses]): 211 941
</TABLE>
<PAGE>
TEXAS GULF COAST BANCORP, INC. AND SUBSIDIARIES
-----------------------------------------------
AND
---
TEXAS GULF COAST BANCORP, INC. (PARENT COMPANY ONLY)
----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 14 - OTHER OPERATING EXPENSE
- ---------------------------------
Other operating expense for the years ended December 31, are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------------- -------------- --------------
<S> <C> <C> <C>
Stationery, supplies and printing $ 279,604 $ 326,750 $ 403,427
Legal, accounting and professional 380,618 513,730 168,725
Data processing 598,454 929,460 899,164
Advertising 101,197 101,017 123,155
Insurance 522,300 518,934 520,859
Postage and freight 182,128 198,080 145,572
Amortization 120,605 273,408 233,517
Directors' fees 165,225 178,025 192,969
Telephone 179,674 142,803 144,473
Other 1,274,325 1,186,581 587,505
------------- ------------- -------------
$ 3,804,130 $ 4,368,788 $ 3,419,366
============= ============= =============
</TABLE>
<PAGE>
GULF SOUTHWEST BANCORP, INC.
PRO FORMA FINANCIAL INFORMATION
MARCH 31, 1995
<PAGE>
Board of Directors and Shareholders
Gulf Southwest Bancorp, Inc.
Houston, Texas
INDEPENDENT AUDITORS' REPORT
----------------------------
We have reviewed the pro forma adjustments reflecting the transaction described
in notes to pro forma consolidating financial statements and the application of
those adjustments to the historical amounts in the accompanying pro forma
consolidating balance sheet of Gulf Southwest Bancorp, Inc. as of March 31,
1995, and the related pro forma consolidating statements of income for the year
ended December 31, 1994 and the three months ended March 31, 1995. The
historical financial statements of Gulf Southwest Bancorp, Inc. as of December
31, 1994 and for the year then ended were audited by us, on which we have issued
our report dated January 30, 1995. The historical financial statements of Texas
Gulf Coast Bancorp, Inc. as of December 31, 1994 and for the year then ended
were audited by us, on which we have issued our report dated March 3, 1995. The
historical financial statements of Gulf Southwest Bancorp, Inc. and Texas Gulf
Coast Bancorp, Inc. as of March 31, 1995, and for the three months then ended
were unaudited. Such pro forma adjustments are based on management's assumptions
as described in notes to pro forma consolidating financial statements. Our
review was conducted in accordance with standards established by the American
Institute of Certified Public Accountants.
A review is substantially less in scope than an examination, the objective of
which is the expression of an opinion on management's assumptions, the pro forma
adjustments and the application of those adjustments to historical financial
information. Accordingly, we do not express such an opinion.
The objective of this pro forma financial information is to show what the
significant effects on the historical information might have been had the
transaction occurred at an earlier date. However, the pro forma consolidating
financial statements are not necessarily indicative of the results of operations
or related effects on financial position that would have been attained had the
above-mentioned transaction actually occurred earlier.
Based on our review, nothing came to our attention that caused us to believe
that management's assumptions do not provide a reasonable basis for presenting
the significant effects directly attributable to the above-mentioned transaction
described in notes to pro forma consolidating financial statements, that the
related pro forma adjustments do not give appropriate effect to those
assumptions, or that the pro forma column does not reflect the proper
application of those adjustments to the historical financial statement amounts
in the pro forma consolidating balance sheet of Gulf Southwest Bancorp, Inc. as
of March 31, 1995, and the related pro forma consolidating statements of income
for the year ended December 31, 1994 and the three months ended March 31, 1995.
/s/Hidalgo, Banfill, Zlotnik & Kermali, P.C.
Hidalgo, Banfill, Zlotnik & Kermali, P.C.
Houston, Texas
April 25, 1995
<PAGE>
GULF SOUTHWEST BANCORP, INC.
PRO FORMA CONSOLIDATING FINANCIAL STATEMENTS OBJECTIVES
(UNAUDITED)
The following pro forma balance sheet as of March 31, 1995 and the related
statements of income for the year ended December 31, 1994 and the three months
ended March 31, 1995 have been derived from the historical financial statements
of Gulf Southwest Bancorp, Inc. and Texas Gulf Coast Bancorp, Inc. and have been
adjusted to give effect of the merger of the Companies as if the merger had
occurred on March 31, 1995 as to the pro forma consolidating balance sheet and
as of January 1, 1994 as to the pro forma consolidating statements of income.
The pro forma financial statements are presented for informational purposes only
and do not purport to be indicative of the financial condition and results of
operations that actually would have resulted if the merger had been consummated
at January 1, 1994. The pro forma financial statements should be read in
conjunction with the notes thereto and the financial statements and notes
thereto of Gulf Southwest Bancorp, Inc. and Texas Gulf Coast Bancorp, Inc.
<PAGE>
GULF SOUTHWEST BANCORP, INC.
----------------------------
PRO FORMA CONSOLIDATING BALANCE SHEET
-------------------------------------
MARCH 31, 1995
--------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Texas Gulf
Gulf Southwest Coast
Bancorp, Inc. Bancorp, Inc. Pro forma
and and Adjustments
-------------------------------
Subsidiaries Subsidiaries Total Debits Credits Pro forma
--------------- -------------- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cash and due from banks $ 12,896,811 $ 12,252,259 $ 25,149,070 $ $ 52,231 /(1)/ $ 25,096,839
Time deposits in banks 1,744,000 - 1,744,000 1,744,000
Federal funds sold 17,875,000 18,219,418 36,094,418 36,094,418
Investment securities:
Held-to-maturity 52,008,182 67,910,452 119,918,634 1,357,612 /(1)/ 118,561,022
Available-for-sale 6,003,141 19,725,659 25,728,800 25,728,800
Loans, net of allowance 146,113,561 77,503,520 223,617,081 85,496 /(1)/ 223,531,585
Bank premise and equipment 4,523,934 3,742,416 8,266,350 8,266,350
Accrued interest receivable 1,980,752 1,632,429 3,613,181 3,613,181
ORE 1,514,804 753,651 2,268,455 2,268,455
Other assets 1,466,786 995,778 2,462,564 2,462,564
Excess of cost over equity
in subsidiaries 307,993 746,337 1,054,330 1,636,001 /(1)/ 2,690,331
------------- ------------ ------------ ------------
Total Assets $ 246,434,964 $ 203,481,919 $ 449,916,883 $ 450,057,545
============= ============ ============ ============
Deposits:
Non-interest bearing $ 68,299,239 $ 42,236,128 $ 110,535,367 $ 110,535,367
Interest bearing 150,018,673 138,897,485 288,916,158 59,584 /(1)/ 288,975,742
Accrued interest, taxes and
other 1,542,993 976,263 2,519,256 2,519,256
Borrowings - 3,440,844 3,440,844 3,440,844
Minority interest - 259,056 259,056 259,056
------------- ------------ ------------ ------------
Total Liabilities 219,860,905 185,809,776 405,670,681 405,730,265
------------- ------------ ------------ ------------
Stockholders' Equity:
Common stock 1,281,650 381,939 1,663,589 381,939 /(1)/ 696,205 /(1)/ 1,977,855
Paid in capital 8,630,863 5,207,041 13,837,904 11,981,357 /(1)/ 25,819,261
Retained earnings 16,996,095 15,437,576 32,433,671 15,437,576 /(1)/ 16,996,095
Unrealized securities
gains (losses) (21,105) (131,382) (152,487) (152,487)
------------- ------------ ------------ ------------
26,887,503 20,895,174 47,782,677 44,640,724
Less - cost of treasury
stock (313,444) (3,223,031) (3,536,475) 3,223,031 /(1)/ (313,444)
------------- ------------ ------------ ------------
Total Stockholders' Equity 26,574,059 17,672,143 44,246,202 44,327,280
------------- ------------ ------------ ------------
Total Liabilities and
Stockholders' Equity $ 246,434,964 $ 203,481,919 $ 449,916,883 $ 450,057,545
============= ============ ============ ============
</TABLE>
See accountants' review report and notes to pro forma consolidating financial
statements.
<PAGE>
GULF SOUTHWEST BANCORP, INC.
----------------------------
PRO FORMA CONSOLIDATING STATEMENT OF INCOME
-------------------------------------------
YEAR ENDED DECEMBER 31, 1994
----------------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Texas Gulf
Gulf Southwest Coast
Bancorp, Inc. Bancorp, Inc. Pro forma
and and Adjustments
----------------------
Subsidiaries Subsidiaries Total Debits Credits Pro forma
-------------- -------------- ------------ ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $ 12,274,698 $ 6,776,407 $ 19,051,105 $ 19,051,105
Investment securities:
Taxable 3,041,308 3,941,439 6,982,747 6,982,747
Non-taxable 370,726 776,207 1,146,933 1,146,933
Time deposits with banks 62,363 97 62,460 62,460
Federal funds sold 1,216,142 1,133,107 2,349,249 2,349,249
----------- ----------- ----------- -----------
Total Interest Income 16,965,237 12,627,257 29,592,494 29,592,494
----------- ----------- ----------- -----------
Interest Expense:
Deposits 4,796,133 4,166,895 8,963,028 8,963,028
Borrowings - 78,686 78,686 78,686
----------- ----------- ----------- -----------
Total Interest expense 4,796,133 4,245,581 9,041,714 9,041,714
----------- ----------- ----------- -----------
Net interest income 12,169,104 8,381,676 20,550,780 20,550,780
Provision for loan losses 50,000 178,000 228,000 228,000
----------- ----------- ----------- -----------
Net interest income after provision
for loan losses 12,119,104 8,203,676 20,322,780 20,322,780
----------- ----------- ----------- -----------
Non-interest Income:
Service charges on deposits 2,353,282 1,883,049 4,236,331 4,236,331
Other service charges and fees 222,001 67,552 289,553 289,553
Other operating income 662,771 1,206,417 1,869,188 1,869,188
Securities transactions - (1,224) (1,224) (1,224)
----------- ----------- ----------- -----------
Total Non-interest Income 3,238,054 3,155,794 6,393,848 6,393,848
----------- ----------- ----------- -----------
Non-interest Expense
Salaries and employee benefits 4,825,183 4,415,710 9,240,893 9,240,893
Occupancy expense 1,153,620 631,197 1,784,817 1,784,817
Furniture and equipment expense 529,730 703,275 1,233,005 1,233,005
Other operating expense 3,884,307 3,922,046 7,806,353 396,650 /(2)/ 8,203,003
----------- ----------- ----------- -----------
Total Non-interest Expense 10,392,840 9,672,228 20,065,068 20,461,718
----------- ----------- ----------- -----------
Income before income taxes 4,964,318 1,687,242 6,651,560 6,254,910
Income taxes 999,300 461,600 1,460,900 134,861 /(2)/ 1,326,039
----------- ----------- ----------- -----------
Net Income $ 3,965,018 $ 1,225,642 $ 5,190,660 $ 4,928,871
=========== =========== =========== ===========
</TABLE>
See accountants' review report and notes to pro forma consolidating financial
statements.
<PAGE>
GULF SOUTHWEST BANCORP, INC.
----------------------------
PRO FORMA CONSOLIDATING STATEMENT OF INCOME
-------------------------------------------
FOR THE THREE MONTHS ENDED MARCH 31, 1995
-----------------------------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Texas Gulf
Gulf Southwest Coast
Bancorp, Inc. Bancorp, Inc. Pro forma
and and Adjustments
-----------------------
Subsidiaries Subsidiaries Total Debits Credits Pro forma
-------------- ------------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $ 3,426,825 $ 1,776,930 $ 5,203,755 $ 5,203,755
Investment securities:
Taxable 789,840 1,012,929 1,802,769 1,802,769
Non-taxable 75,359 212,747 288,106 288,106
Time deposits with banks 24,116 - 24,116 24,116
Federal funds sold 317,133 382,646 699,779 699,779
----------- ---------- ---------- -----------
Total Interest Income 4,633,273 3,385,252 8,018,525 8,018,525
----------- ---------- ---------- -----------
Interest Expense:
Deposits 1,275,864 1,175,776 2,451,640 2,451,640
Borrowings - 71,128 71,128 71,128
----------- ---------- ---------- -----------
Total Interest expense 1,275,864 1,246,904 2,522,768 2,522,768
----------- ---------- ---------- -----------
Net interest income 3,357,409 2,138,348 5,495,757 5,495,757
Provision for loan losses - 67,500 67,500 67,500
----------- ---------- ---------- -----------
Net interest income after
provision for loan losses 3,357,409 2,070,848 5,428,257 5,428,257
----------- ---------- ---------- -----------
Non-interest Income:
Service charges on deposits 583,717 447,408 1,031,125 1,031,125
Other service charges and fees 32,087 44,794 76,881 76,881
Other operating income 202,442 152,942 355,384 355,384
----------- ---------- ---------- -----------
Total Non-interest Income 818,246 645,144 1,463,390 1,463,390
----------- ---------- ---------- -----------
Non-interest Expense:
Salaries and employee benefits 1,232,909 1,126,087 2,358,996 2,358,996
Occupancy expense 254,614 176,683 431,297 431,297
Furniture and equipment expense 128,326 129,895 258,221 258,221
Other operating expense 980,776 922,126 1,902,902 99,162 /(2)/ 2,002,064
----------- ---------- ---------- -----------
Total Non-interest Expense 2,596,625 2,354,791 4,951,416 5,050,578
----------- ---------- ---------- -----------
Income before income taxes 1,579,030 361,201 1,940,231 1,841,069
Income taxes 485,000 88,464 573,464 33,715 /(2)/ 539,749
----------- ---------- ---------- -----------
Net Income $ 1,094,030 $ 272,737 $ 1,366,767 $ 1,301,320
=========== ========== ========== ===========
</TABLE>
See accountants' review report and notes to pro forma consolidating financial
statements.
<PAGE>
GULF SOUTHWEST BANCORP, INC.
----------------------------
NOTES TO PROFORMA CONSOLIDATING FINANCIAL STATEMENTS
----------------------------------------------------
(UNAUDITED)
-----------
Gulf Southwest Bancorp, Inc., through a wholly owned subsidiary, will merge
Texas Gulf Coast Bancorp, Inc. into a wholly owned subsidiary of Gulf Southwest
Bancorp, Inc. Gulf Southwest Bancorp, Inc. will acquire all of the outstanding
common shares of Texas Gulf Coast Bancorp, Inc. The pro forma consolidating
balance sheet at March 31, 1995 and the statements of income for the year ended
December 31, 1994 and the three months ended March 31, 1995, reflect the
financial position and results of operations of the entities as if they were
consolidated at March 31, 1995 as to the balance sheet and as of January 1, 1994
as to the statements of income. The acquisition discussed herein will be
accounted for as a purchase transaction. Gulf Southwest Bancorp, Inc. will
record the assets and liabilities at their fair value. The excess of cost of the
acquired enterprise over the sum of the amounts assigned to identifiable assets
acquired less liabilities assumed shall be recorded as excess of cost over the
net equity in net assets acquired.
Following are explanations of the pro forma adjustments reflected in the
financial statements:
(1) To effect the acquisition, Gulf Southwest Bancorp, Inc. will issue 696,205
shares of its common stock (with a fair value of $25.50 per share) for
328,770 outstanding shares of Texas Gulf Coast Bancorp, Inc. common stock
(with a fair value of $54.00 per share). Several shareholders of Texas
Gulf Coast Bancorp, Inc., owning 888 shares of common stock dissented from
the merger and are entitled to demand payment of the fair value of their
shares. In lieu of fractional shares, shareholders of Texas Gulf Coast
Bancorp, Inc. who otherwise would be entitled to receive fractional shares
will be paid in cash based upon $25.50 per share of the common stock of
Gulf Southwest Bancorp, Inc. All common stock of Texas Gulf Coast Bancorp,
Inc. held as treasury shares will be cancelled.
(2) The excess of cost over the net equity in net assets acquired will be
amortized over periods ranging from 3 to 15 years.
<PAGE>
EXHIBIT 2.2
AGREEMENT AND PLAN OF MERGER
----------------------------
This Agreement and Plan of Merger ("Agreement") dated as of November 9,
1994, between GULF SOUTHWEST NEVADA BANCORP, INC., a Nevada corporation
("GSNB"), and TEXAS GULF COAST BANCORP, INC., a Texas corporation ("Texas Gulf
Coast"), such corporations being hereinafter sometimes called "Constituent
Corporations," evidences as follows:
ARTICLE I
Section 1.1 In accordance with the provisions of the Texas Business
Corporation Act and the Nevada General Corporation Law, Texas Gulf Coast will at
the Effective Time (as hereinafter defined) be merged into GSNB, which will be
the surviving corporation ("Surviving Corporation"). GSNB will continue to
exist under and to be governed by the laws of Nevada. Such transaction is
hereinafter referred to as the "Merger." Except as herein specifically set
forth, the identity, existence, purposes, powers, objectives, franchises,
privileges, rights and immunities of GSNB will continue unaffected and
unimpaired by the Merger, and the corporate franchises, existence and rights of
Texas Gulf Coast will be merged with and into GSNB and GSNB, as the Surviving
Corporation, will be fully vested therewith. The separate existence and
corporate organization of Texas Gulf Coast, except insofar as they may be
continued by statute, will cease when the Merger becomes effective.
Section 1.2 At the Effective Time, the name of the Surviving Corporation
will be Gulf Southwest Nevada Bancorp, Inc.
Section 1.3 The Articles of Incorporation of GSNB as in effect immediately
prior to the Effective Time will, until further amended as provided by law, be
the Articles of Incorporation of the Surviving Corporation.
Section 1.4 The bylaws of GSNB in effect immediately prior to the
Effective Time will be the bylaws of the Surviving Corporation until altered,
amended or rescinded.
<PAGE>
Section 1.5 At the Effective Time the following persons will be the
directors of the Surviving Corporation and will hold office from the Effective
Time until their respective successors are elected and qualify:
J.W. Lander, Jr. Donald R. Harding
J. W. Lander, III A. Harrel Blackshear
Norman H. Bird
Section 1.6 At the Effective Time the following persons will be the
officers of the Surviving Corporation and will hold the indicated offices from
the Effective Time until their respective successors are elected and qualify:
Name Office
---- ------
J. W. Lander, Jr. Chairman
J. W. Lander, III President and Treasurer
Norman H. Bird Vice President and Secretary
Alice Gay Assistant Secretary and
Assistant Treasurer
ARTICLE II
Section 2.1 The shares of common stock of GSNB, $1.00 par value per share
("GSNB Common Stock"), outstanding at the Effective Time will continue to be
outstanding shares of common stock of the Surviving Corporation.
Section 2.2 Except as set forth in Section 24, at the Effective Time,
without any action on the part of the shareholders of Texas Gulf Coast, each
outstanding share of Texas Gulf Coast's $1.00 par value per share common stock
("Texas Gulf Coast Common Stock") will be canceled and exchanged for 2.1176
shares of the common stock, $1.00 par value per share (the "Gulf Southwest
Common Stock") of Gulf Southwest Bancorp, Inc ("Gulf Southwest"), a Texas
corporation and the owner of all of the outstanding shares of GSNB Common Stock.
Section 2.3 At and after the Effective Time, each holder of a certificate
representing shares of Texas Gulf Coast Common Stock, upon presentation and
surrender of such certificate to Gulf Southwest, will be entitled to receive in
exchange therefor a certificate or certificates representing the number of fully
paid and nonassessable whole shares of Gulf Southwest Common Stock to which he
is entitled as provided in Section 2.2 and any cash to which such holder may be
entitled on account
-2-
<PAGE>
of any fractional share interest (without interest thereon) as provided in
Section 2.4. Upon consummation of the Merger, each such certificate which
represented issued and outstanding shares of Texas Gulf Coast Common Stock at
the Effective Time will be deemed for all purposes other than the payment of
dividends or other distributions to evidence ownership of the number of whole
shares of Gulf Southwest Common Stock into which such shares of Texas Gulf Coast
Common Stock will have been converted pursuant to the Merger. Pending surrender
of such certificates in exchange for a certificate or certificates representing
Gulf Southwest Common Stock, the holder thereof will not be entitled to receive
any dividend or other distribution payable to holders of shares of Gulf
Southwest Common Stock, provided that upon surrender of such certificates
representing Texas Gulf Coast Common Stock, there will be paid to the record
holder thereof the amount of dividends or other distributions (without interest)
which theretofore became payable and were not paid to such holder with respect
to the number of whole shares of Gulf Southwest Common Stock issued upon such
surrender.
Section 2.4 No fractional shares of Gulf Southwest Common Stock will be
issued. Instead, each holder of shares of Texas Gulf Coast Common Stock
otherwise entitled to receive a fractional interest arising upon the conversion
or exchange of such shares will, at the time of surrender of his certificate or
certificates theretofore representing his Texas Gulf Coast Common Stock be paid
by Gulf Southwest an amount in cash equal to the value of such fractional
interest based upon each share of Gulf Southwest Common Stock having a value of
$25.50.
Section 2.5 To the extent holders of the outstanding shares of Texas Gulf
Coast Common Stock exercise appraisal rights with respect to their shares
pursuant to Article 5.12 of the Texas Business Corporation Act, such shares will
continue to be held subject to the rights of such holders under the foregoing
Article 5.12 and will not be deemed to be outstanding or converted into cash.
The obligation of GSNB and Gulf Southwest to effect the Merger is subject to the
condition that the holders of not more than 10% of the outstanding shares of
Texas Gulf Coast Common Stock will perfect any statutory right of dissent and
appraisal. Shares of Texas Gulf Coast Common Stock held in Texas Gulf Coast's
treasury, if any, will be canceled, and certificates representing any such
treasury shares will be canceled.
Section 2.6 All shares of Texas Gulf Coast's Common Stock presented and
surrendered will be canceled.
-3-
<PAGE>
ARTICLE III
Section 3.1 This Agreement will be submitted to the shareholders of
the Constituent Corporations for their approval and adoption. The Constituent
Corporations will proceed expeditiously and cooperate fully in the procurement
of any consents and approvals, the taking of any other action and the
satisfaction of all other requirements prescribed by law of otherwise necessary
for the consummation of the Merger.
Section 3.2 The appropriate officers of the Constituent Corporations
will execute and verify, and cause to be filed with the Secretary of State of
the State of Texas and the Secretary of State of the State of Nevada, Articles
of Merger in accordance with Article 5.04 of the Texas Business Corporation Act
and Section 78.458 of the Nevada General Corporation Law.
Section 3.3 The Merger will become effective in accordance with
Article 5.05 of the Texas Business Corporation Act at the time Articles of
Merger have been executed, verified and filed by the Constituent Corporations
and a Certificate of Merger has been issued in accordance with Article 5.04 of
the Texas Business Corporation Act, and will become effective in accordance with
Section 78.458 of the Nevada General Corporation Law at the time Articles of
Merger have been executed and filed by the Surviving Corporation in accordance
with such Section 78.458. Such Articles of Merger will not be filed until all
necessary orders, consents and approvals have been entered by each regulatory
authority having jurisdiction, which will include, but not be limited to, an
order by the Board of Governors of the Federal Reserve System granting
authorization to consummate the transactions contemplated hereby under
applicable provisions of the Bank Holding Company Act of 1956, as amended, and
all applicable statutory waiting periods will have expired.
The time when the Merger becomes effective, as defined in this Article
III, is hereinafter referred to as the "Effective Time."
ARTICLE IV
Section 4.1 When the Merger becomes effective, the separate existence
of Texas Gulf Coast will cease and GSNB as the Surviving Corporation, will
possess all the rights, privileges, powers and franchises, of a public as well
as of a private nature, and be subject to all the restrictions, disabilities,
duties, and obligations of each of the Constituent Corporations. The rights,
privileges, powers and franchises of each of the Constituent Corporations, and
all property, real, personal and mixed, and all debts due to either of the
Constituent Corporations on whatever accounts, as well as for stock
subscriptions as all
-4-
<PAGE>
other things in action, or belonging to either of such corporations will be
vested in the Surviving Corporation. All property, rights, privileges, powers
and franchises, and all and every other interest will be thereafter as
effectively the property of the Surviving Corporation as they were of the
Constituent Corporations, and the title to any real estate vested by deed or
otherwise, under the laws of any jurisdiction, in either of the Constituent
Corporations, will not revert or be in any way impaired. All rights of
creditors and all liens upon any property of either of the Constituent
Corporations will be preserved unimpaired, and all debts, liabilities, duties
and obligations of the Constituent Corporations will attach to the Surviving
Corporation and may be enforced against it to the same extent as if said debts,
liabilities and duties had been incurred or contracted by it. No liability or
obligation due or to become due at the Effective Time, or any claim or demand
for any cause then existing against either of the Constituent Corporations or
any shareholder, officer of director thereof, will be released or impaired by
the Merger.
Section 4.2 At any time, or from time to time, after the Effective
Time, the last acting officers and directors of Texas Gulf Coast will, as and
when requested by the Surviving Corporation or its successors or assigns,
execute and deliver all such deeds, assignments and other instruments and take
or cause to be taken all such further or other reasonable action as the
Surviving Corporation deems reasonably necessary or desirable in order to vest,
perfect or confirm in the Surviving Corporation title to and possession of all
of Texas Gulf Coast's properties, rights, privileges, powers, franchises,
immunities and interests and otherwise to carry out the purpose of this
Agreement.
ARTICLE V
Section 5.1 This Agreement will be closed at the time and date as may
be mutually agreed upon by the Constituent Corporations.
Section 5.2 This Agreement may be terminated upon termination of the
Reorganization Agreement.
Section 5.3 This Agreement may be executed in multiple counterparts,
each of which will be deemed on original and all of which together will
constitute one agreement.
-5-
<PAGE>
In order to evidence the foregoing, GSNB and Texas Gulf Coast have
caused this Agreement to be signed by their duly authorized officers as of the
date first above written.
GULF SOUTHWEST NEVADA BANCORP, INC.
By:
-----------------------------------
Name:
--------------------------
Title:
--------------------------
TEXAS GULF COAST BANCORP, INC.
By:
-----------------------------------
Name:
--------------------------
Title:
--------------------------
-6-
