UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 10, 1995
CHARTER BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Texas 0-13496 74-1967164
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
2600 Citadel Plaza Drive, Suite 600, Houston, Texas 77008
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 692-6121
(Former name or former address, if changed since last report) Not Applicable
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On January 10, 1995, following receipt of all requisite regulatory
approvals, Charter Bancshares, Inc. ("Charter") consummated the acquisition of
West Loop Savings and Loan Association, Houston, Texas ("West Loop S&L").
Pursuant to the plan of consolidation which was approved by the shareholders of
West Loop S&L and CBH, Inc., Charter's wholly owned Delaware intermediary bank
holding company subsidiary ("CBH"), West Loop S&L consolidated with Charter
Interim State Savings Bank, an interim state savings bank and wholly owned
subsidiary of CBH. The resulting savings bank, Charter Bank, SSB, will operate
as a separately chartered Texas-state savings bank and wholly owned subsidiary
of CBH. Charter also owns and manages three other national banking subsidiaries,
Charter National Bank-Houston ("Charter- Houston"), Charter National
Bank-Colonial and University National Bank-Galveston. At September 30, 1994 and
December 31, 1993, respectively, West Loop S&L had total assets of $140 million
and $125 million, total deposits of $102 million and $97 million, and total
loans of $90 million and $74 million.
Charter Bank, SSB has two full-service banking facilities and one office
facility for back-room operations. Charter Bank, SSB leases one branch location
at 4672 Beechnut, Houston, Texas in the Meyerland area. Charter Bank, SSB owns
the building comprising its branch facility at 401 West Texas Avenue, Baytown,
Texas. On September 30, 1994, Charter Bank, SSB employed approximately
twenty-six full-time and two part-time persons, including three senior officers.
Charter- Houston will act as an upstream correspondent bank in providing
accounting, auditing, bookkeeping, data processing and support services to
Charter Bank, SSB.
While Charter Bank, SSB will continue to offer the full range of
financial services which it has historically provided to its commercial, retail
and individual customers, the products and services available to such customers
will be expanded through Charter's company-wide enhanced community banking
program and the availability of trust and investment management services of
Charter-Houston. Charter intends to maintain the community focus which Charter
Bank, SSB has effectively fostered while realizing the centralized operating
efficiencies and broader array of products available through Charter's
consolidated operating and accounting systems.
The acquisition of West Loop S&L was made for an aggregate purchase
price of approximately $11.2 million or $37 per share of outstanding capital
stock of West Loop S&L. Approximately $9.3 million, or $31 per share, is based
on 110% of the March 31, 1994 shareholders' equity. Approximately $2 million, or
$6 per share, is based on earnings as adjusted under the terms of the plan of
consolidation for the nine months ended December 31, 1994 ("Adjusted Earnings").
$33.17 per share in cash will be paid to the shareholders of West Loop S&L as of
the transaction date of January 10, 1995, with the remaining estimated cash
payments having been placed in an escrow account pending final determination of
the Adjusted Earnings.
-2-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
PART A. FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
INDEX TO FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Independent Auditors' Report ............................................... 4
Financial Statements:
Balance Sheets as of December 31, 1993 and 1992 .................... 5
Statements of Operations and Accumulated Earnings -
Years Ended December 31, 1993 and 1992 ........................... 6
Statements of Cash Flows - Years Ended
December 31, 1993 and 1992 ....................................... 7
Notes to Financial Statements ...................................... 8
-3-
WEST LOOP SAVINGS & LOAN ASSOCIATION
Financial Statements for the Years Ended December 31, 1993 and 1992 and
Independent Auditors' Report
(3697)
INDEPENDENT AUDITORS' REPORT
Board of Directors of
West Loop Savings & Loan Association:
We have audited the accompanying statements of financial condition of West Loop
Savings & Loan Association (the "Association") as of December 31, 1993 and 1992,
and the related statements of operations and accumulated earnings and cash flows
for the years then ended. These financial statements are the responsibility of
the Association'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, such financial statements present fairly, in all material
respects, the financial position of the Association at December 31, 1993 and
1992, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, in 1993 the Association
changed its method of accounting for certain investments in debt and equity
securities to conform with Statement of Financial Accounting Standards No. 115.
February 15, 1994
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Current Report of Charter Bancshares, Inc. on Form
8-K of our report dated February 15, 1994 relating to the financial statement
schedules of West Loop Savings & Loan Association appearing in Item 7 of this
Current Report.
DELOITTE & TOUCHE LLP
Houston, Texas
January 23, 1995
-4-
<PAGE>
WEST LOOP SAVINGS & LOAN ASSOCIATION
STATEMENTS OF FINANCIAL CONDITION,
DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
ASSETS 1993 1992
------------ ------------
<S> <C> <C>
Cash and cash equivalents ................................................................ $ 12,929,106 $ 11,887,542
Certificates of deposit .................................................................. 100,000
Investment securities held to maturity (estimated market value
of $16,519,561 in 1992) (Note 2) ...................................................... 15,794,098
Investment securities available for sale (at market value) (Note 2) ...................... 34,815,762
Loans receivable, net (Notes 3 and 7) .................................................... 73,342,301 64,672,457
Accrued interest receivable, net of reserve for uncollectible
interest of $74,606 in 1993 and $114,785 in 1992 ...................................... 783,946 755,763
Foreclosed real estate, net of allowance for losses of
$399,224 in 1993 and $488,573 in 1992 ................................................. 897,755 855,185
Property and leasehold improvements, net (Note 4) ........................................ 679,263 572,944
Premium on deposits, net of accumulated amortization
of $152,500 in 1993 and $107,500 in 1992 .............................................. 147,500 192,500
Federal Home Loan Bank stock, at cost .................................................... 807,400 407,500
Other assets ............................................................................. 214,506 190,623
------------ ------------
TOTAL .................................................................................... $124,617,539 $ 95,428,612
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits (Note 6) ..................................................................... $ 96,940,484 $ 83,671,135
Borrowed funds (Note 7) ............................................................... 15,949,674 3,500,000
Advances from borrowers for taxes and insurance ....................................... 606,881 208,629
Accrued expenses and other liabilities ................................................ 2,766,674 2,225,223
------------ ------------
Total liabilities ........................................................ 116,263,713 89,604,987
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 8 and 9)
STOCKHOLDERS' EQUITY (Note 10):
Common stock, $5 par value, 3,000,000 shares authorized,
300,000 shares issued and outstanding .............................................. 1,500,000 1,500,000
Additional paid-in capital ............................................................ 1,560,000 1,560,000
Retained earnings ..................................................................... 5,044,398 2,763,625
Unrealized gain on securities available for sale, net of tax (Note 2) ................. 249,428
------------ ------------
Total stockholders' equity ............................................... 8,353,826 5,823,625
------------ ------------
TOTAL .................................................................................... $124,617,539 $ 95,428,612
============ ============
</TABLE>
See notes to financial statements.
-5-
<PAGE>
WEST LOOP SAVINGS & LOAN ASSOCIATION
STATEMENTS OF OPERATIONS AND ACCUMULATED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
1993 1992
------------ ------------
<S> <C> <C>
INTEREST INCOME:
Loans receivable ............................................................ $ 9,243,562 $ 7,192,838
Investment securities ....................................................... 2,051,411 1,784,853
------------ ------------
Total interest income .......................................... 11,294,973 8,977,691
------------ ------------
INTEREST EXPENSE:
Deposits (Note 6) ........................................................... 3,984,967 3,889,780
Borrowed funds (Note 7) ..................................................... 620,134 46,834
------------ ------------
Total interest expense ......................................... 4,605,101 3,936,614
------------ ------------
NET INTEREST INCOME ............................................................ 6,689,872 5,041,077
PROVISION FOR LOAN LOSSES (Note 3) ............................................. 413,385 209,003
------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES ............................ 6,276,487 4,832,074
------------ ------------
NONINTEREST INCOME:
Loan fees ................................................................... 301,648 373,037
Gain on sales of loans ...................................................... 415,890 0
Other (Note 12) ............................................................. 381,001 375,327
------------ ------------
Total noninterest income ....................................... 1,098,539 748,364
------------ ------------
NONINTEREST EXPENSES:
Salaries and benefits ....................................................... 1,534,274 1,163,888
Occupancy (Note 8) .......................................................... 167,829 149,815
Expenses relating to foreclosed real estate, net ............................ 2,552 295,959
Other (Note 12) ............................................................. 1,302,993 1,618,635
------------ ------------
Total noninterest expenses ..................................... 3,007,648 3,228,297
------------ ------------
INCOME BEFORE INCOME TAXES ..................................................... 4,367,378 2,352,141
PROVISION FOR INCOME TAXES (Note 11):
Current ..................................................................... 1,504,147 842,736
Deferred .................................................................... 57,458 (60,093)
------------ ------------
Total provision for income taxes ............................... 1,561,605 782,643
------------ ------------
NET INCOME ..................................................................... 2,805,773 1,569,498
DIVIDENDS PAID ................................................................. (525,000) (300,000)
ACCUMULATED EARNINGS AT BEGINNING OF YEAR ...................................... 2,763,625 1,494,127
------------ ------------
ACCUMULATED EARNINGS AT END OF YEAR ............................................ $ 5,044,398 $ 2,763,625
============ ============
</TABLE>
See notes to financial statements.
-6-
<PAGE>
WEST LOOP SAVINGS & LOAN ASSOCIATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
1993 1992
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .............................................................................. $ 2,805,773 $ 1,569,498
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization ........................................................ 178,172 17,444
Provision for loan losses ............................................................ 413,385 209,003
Provision (credit) for loss on foreclosed real estate ................................ (65,633) 120,715
Gain on sales of loans ............................................................... (415,890) 0
Gain on sales of foreclosed real estate .............................................. (99,356) (188,606)
Gain on sales of investment securities ............................................... (163,354) 0
Federal Home Loan Bank stock dividends ............................................... (6,200) (15,200)
(Increase) decrease in:
Certificates of deposit ........................................................... 100,000 18,122,070
Accrued interest receivable ....................................................... (28,183) 305,799
Other assets ...................................................................... (23,883) (59,801)
Increase (decrease) in accrued expenses and other liabilities ........................ 385,304 732,889
------------ ------------
Net cash provided by operating activities .................................. 3,080,135 20,813,811
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of investment securities ......................................... 6,139,122 0
Proceeds from principal paydowns of investment securities ............................... 6,879,638 1,768,894
Purchases of investment securities ...................................................... (31,499,120) (6,859,845)
Increase in loan balances ............................................................... (9,210,208) (14,677,527)
Capital expenditures .................................................................... (211,866) (356,447)
Proceeds from sale of foreclosed real estate ............................................ 665,288 1,310,664
Purchase of Federal Home Loan Bank stock ................................................ (393,700) 0
------------ ------------
Net cash used in investing activities ...................................... (27,630,846) (18,814,261)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in borrowed funds .............................................................. 12,449,674 3,500,000
Increase in deposits .................................................................... 13,269,349 1,519,720
Advances from borrowers for taxes and insurance ......................................... 398,252 (26,943)
Dividends paid .......................................................................... (525,000) (300,000)
------------ ------------
Net cash provided by financing activities .................................. 25,592,275 4,692,777
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS ...................................................... 1,041,564 6,692,327
CASH AND CASH EQUIVALENTS, Beginning of year ............................................... 11,887,542 5,195,215
------------ ------------
CASH AND CASH EQUIVALENTS, End of year ..................................................... $ 12,929,106 $ 11,887,542
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest .................................................. $ 4,576,918 $ 3,959,983
============ ============
Real estate acquired in settlement of loans ............................................. $ 542,869 $ 710,092
============ ============
Cash paid for income taxes .............................................................. $ 1,795,468 $ 841,827
============ ============
</TABLE>
See notes to financial statements.
-7-
WEST LOOP SAVINGS & LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
West Loop Savings & Loan Association (the "Association") is a
state-chartered savings and loan association formed effective July 16, 1984.
Operations commenced on January 2, 1986.
The accounting and reporting policies of the Association conform to
generally accepted accounting principles and to general practices within the
savings and loan industry. The following summarizes the more significant
policies:
INVESTMENT SECURITIES - In May 1993, the Financial Accounting Standards
Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS")
No. 115, "Accounting for Certain Investments in Debt and Equity Securities".
This statement requires that only debt securities that the Association has the
positive intent and ability to hold to maturity be classified as held to
maturity and reported at amortized cost; all other debt securities are reported
at market value. SFAS No. 115 further requires that realized and unrealized
gains and losses on securities classified as trading account assets, as defined,
shall be recognized in current operations. Securities not classified as held to
maturity or trading are classified as available for sale, with the related
unrealized gains and losses excluded from earnings and reported net of tax as a
separate component of stockholders' equity until realized. This pronouncement is
effective for fiscal years beginning after December 15, 1993. The Association
early adopted SFAS No. 115 effective December 31, 1993.
Investment securities held until maturity at December 31, 1992,
including mortgage-backed securities, were carried at cost, adjusted for
premiums and discounts that were recognized in interest income using the
interest method over the period to maturity.
At December 31, 1993, securities and mortgage-backed securities
available for sale are carried at market value. Unrealized gains and losses are
excluded from earnings and reported net of tax, as a separate component of
stockholders' equity until realized. Securities, including mortgage-backed
securities, within the available for sale portfolios may be used as part of the
Association's asset/liability strategy and may be sold in response to changes in
interest rate risk, prepayment risk or other economic factors. Gains or losses
on disposition are recorded in the statement of operations on the trade date
using the specific identification method and replace the unrealized gain or loss
on such securities maintained as a separate component of stockholders' equity.
Yields on the securities portfolio, including the amortization or
accretion of premiums and discounts may be affected by adjustments of coupon
rates in the case of adjustable rate securities and by principal prepayments of
mortgage-backed securities and collateralized mortgage obligations. Management
evaluates such changes in yield and the ultimate recoverability.
PROPERTY AND LEASEHOLD IMPROVEMENTS are stated at cost, less
accumulated depreciation and amortization. Depreciation and amortization are
computed on a straight-line basis over estimated useful lives of three to ten
years.
-8-
FORECLOSED REAL ESTATE represents property acquired through foreclosure
or in-substance foreclosure and is initially recorded at the lower of the loan
balance or the fair value on the date of foreclosure or in-substance foreclosure
less estimated costs to sell. Subsequent to foreclosure or in-substance
foreclosure, foreclosed real estate is carried at the lower of its new cost
basis or fair value, less estimated costs to sell, with any further declines
being charged to current operations.
PREMIUM ON DEPOSITS is stated at cost and amortized on a straight-line
basis over 6.7 years.
LOANS RECEIVABLE are stated at the principal amount outstanding, less
any unearned income and the allowance for loan losses. Interest income is
recognized using the level-yield method.
ALLOWANCE FOR LOAN LOSSES is based on management's evaluation of the
loan portfolio giving consideration to various factors including, in part,
collateral values, lending policies, current economic conditions and the
composition of the loan portfolio. Provisions for loan losses are charged to
current operations when losses are determined to be both probable and estimable.
LOAN FEES - Fees and certain direct costs associated with the
origination of loans and commitments are deferred in accordance with SFAS No.
91. Such fees and costs are recognized in income over the lives of the related
loans as yield adjustments.
INCOME TAXES - In February 1992, the FASB issued SFAS No. 109,
"Accounting for Income Taxes." The statement adopts a balance sheet approach
(the "liability approach") for recording deferred taxes in place of the income
statement approach previously required by Accounting Principles Board Opinion
No. 11. The liability approach accounts for deferred income taxes by applying
statutory tax rates in effect at the balance sheet date to differences between
the book basis and the tax basis of assets and liabilities. The resulting
deferred tax assets and liabilities are adjusted to reflect changes in tax laws
or rates. The Association adopted SFAS No. 109 effective January 1, 1992 and it
did not significantly affect the Association's financial statements.
CASH FLOWS - Cash and cash equivalents include cash on hand and demand
deposits with banks.
INTEREST RATE RISK - Savings and loan associations, including the
Association, are subject to interest rate risk. This risk is due to differences
in the maturity and repricing characteristics of interest-earning assets and
interest-bearing liabilities in different interest rate environments. The
Association's management and Board of Directors monitor and measure this risk.
2. INVESTMENT SECURITIES
As discussed in Note 1, the Association implemented SFAS No. 115 as of
December 31, 1993. As a result, the Association's stockholders' equity was
increased $249,428 representing the amount of net unrealized gains at December
31, 1993 in the securities and mortgage-backed securities available for sale
portfolios less an estimated tax liability. This increase to stockholders'
equity was not reflected in current operations. At December 31, 1993, the
Association transferred all of its investment securities held to maturity
portfolio to the securities available for sale portfolio. This transfer was a
result of reassessing the holding periods of securities and mortgage-backed
securities in connection with implementing SFAS No. 115.
-9-
<PAGE>
Investment securities are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1993:
Available for sale:
Obligations of U.S. government corporations and agencies ................ $ 5,505,732 $ 7,500 $ 26,832 $ 5,486,400
Mortgage-backed securities
and collaterized mortgage obligations ................................ 28,904,455 589,704 164,797 29,329,362
----------- ----------- ----------- -----------
Total ...................................................................... $34,410,187 $ 597,204 $ 191,629 $34,815,762
=========== =========== =========== ===========
DECEMBER 31, 1992:
Held to maturity:
Obligations of U.S. government corporations and agencies ................ $ 4,360,681 $ 0 $ 0 $ 4,360,681
Mortgage-backed securities and collaterized mortgage obligations ........ 11,433,417 725,463 0 12,158,880
----------- ----------- ----------- -----------
Total ...................................................................... $15,794,098 $ 725,463 $ 0 $16,519,561
=========== =========== =========== ===========
</TABLE>
The following table presents contractual maturity information for
investment securities at December 31, 1993. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Amortized Market
Cost Value
----------- -----------
Due in 1 year or less ...................... $ 1,005,732 $ 1,005,000
Due after 1 year through 5 years ........... 6,995,906 6,959,975
Due after 5 years through 10 years ......... 1,680,391 1,697,958
Due after 10 years ......................... 24,728,158 25,152,829
----------- -----------
Total debt securities ...................... $34,410,187 $34,815,762
=========== ===========
-10-
Mortgage-backed securities are included in the above table based on
their final maturity dates. Although mortgage-backed securities are initially
issued with a stated maturity date, the underlying mortgage collateral may be
prepaid by the mortgage and, therefore, such securities may not reach their
maturity date.
Investment securities with an amortized cost of $5,975,768 were sold
during 1993. There were no sales of investments in debt securities during 1992.
No investment securities at December 31, 1993 were pledged to secure
public deposits.
3. LOANS RECEIVABLE
Loans receivable as of December 31, 1993 and 1992 are summarized as
follows:
1993 1992
------------ ------------
Mortgage loans:
Single family residential construction ...... $ 19,194,253 $ 16,649,443
Single family residential ................... 34,018,121 41,689,991
Multi-family ................................ 5,235,259 2,678,884
Commercial .................................. 29,503,974 14,842,489
------------ ------------
Total mortgage loans ..................... 87,951,607 75,860,807
Installment and other loans .................... 1,304,018 1,629,195
------------ ------------
Total loans .............................. 89,255,625 77,490,002
Less - Undisbursed portion of loans in process . (5,269,822) (4,827,120)
Unearned discount .............................. (9,694,130) (7,454,783)
Net deferred loan fees ......................... (190,490) (160,642)
Less allowance for loan losses ................. (758,882) (375,000)
------------ ------------
Loans, net ..................................... $ 73,342,301 $ 64,672,457
============ ============
Changes in the allowance for loan losses were as follows:
1993 1992
--------- ---------
Balance, beginning of year ................... $ 375,000 $ 573,980
Provision charged to operations .............. 413,385 209,003
Loans charged off, net of recoveries ......... (29,503) (407,983)
--------- ---------
Balance, end of year ......................... $ 758,882 $ 375,000
========= =========
-11-
4. ALLOWANCE FOR LOSSES ON FORECLOSED REAL ESTATE
An analysis of activity in the allowance for losses on foreclosed real
estate for the years ended December 31, 1993 and 1992 is as follows:
1993 1992
--------- ---------
Balance, beginning of year ....................... $ 488,573 $ 447,876
Provision charged (credited) to operations ....... (65,633) 120,715
Reductions ....................................... (23,716) (80,018)
--------- ---------
Balance, end of year ............................. $ 399,224 $ 488,573
========= =========
5. PROPERTY AND LEASEHOLD IMPROVEMENTS
Property and leasehold improvements as of December 31, 1993 and 1992
are summarized as follows:
1993 1992
----------- -----------
Furniture and equipment .......................... $ 935,370 $ 770,382
Leasehold improvements ........................... 227,943 181,065
----------- -----------
Total property and leasehold improvements ........ 1,163,313 951,447
Less accumulated depreciation and amortization ... (484,050) (378,503)
----------- -----------
Property and leasehold improvements, net ......... $ 679,263 $ 572,944
=========== ===========
Depreciation expense of $105,547 and $73,843 was charged to operations
for the years ended December 31, 1993 and 1992, respectively.
-12-
<PAGE>
6. DEPOSITS
Deposit account balances by rate as of December 31, 1993 and 1992 are
summarized as follows:
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Demand deposits:
Noninterest-bearing.................................................. $ 997,447 $ 656,212
Interest-bearing with rates ranging from 1.99% to 2.5%............... 2,686,534 2,909,177
Variable rate money market accounts, bearing interest at
2.75% and 3.1% in 1993 and 1992, respectively..................... 10,771,635 12,144,854
----------- -----------
Total demand deposits................................................... 14,455,616 15,710,243
----------- -----------
Certificates of deposit:
Below 4.00%.......................................................... 28,045,570 25,833,344
4.00% to 4.99%..................................................... 14,122,252 13,189,782
5.00% to 5.99%..................................................... 13,314,954 9,060,198
6.00% to 6.99%..................................................... 3,143,453 4,913,861
7.00% to 7.99%..................................................... 13,780,625 6,096,542
8.00% to 8.99%..................................................... 213,033 533,694
9.00% to 9.99%..................................................... 15,702 74,260
----------- -----------
Total certificates of deposit........................................... 72,635,589 59,701,681
----------- -----------
IRA accounts, average rate at December 31, 1993 and
1992 was 5.48% and 5.23%, respectively............................... 9,849,279 8,259,211
----------- -----------
Total deposits.......................................................... $96,940,484 $83,671,135
=========== ===========
</TABLE>
Scheduled maturities of the certificates of deposits and IRA accounts
at December 31, 1993 are approximately as follows:
1994 ........................................................... $38,198,134
1995 ........................................................... 10,308,151
1996 ........................................................... 4,751,556
1997 ........................................................... 5,328,951
1998 ........................................................... 9,966,274
After 1998 ..................................................... 13,931,802
-----------
Total .......................................................... $82,484,868
===========
The aggregate amount of certificates of deposit in amounts of $100,000
or more at December 31, 1993 was $8,926,400. These certificates of deposit are
included in the schedule of maturities of certificates of deposits and IRA
accounts above.
-13-
7. BORROWED FUNDS
At December 31, 1993 and 1992, Federal Home Loan Advances totaled
$15,949,674 and $3,500,000, respectively. These advances were collateralized by
a blanket pledge of the Association's loans. The borrowed funds as of December
31, 1993 consist of Federal Home Loan Bank advances with fixed interest rates of
between 5.27% and 6.85% and final maturity of January 1, 2008. Expected payments
are as follows:
1994............................................................ $ 1,204,072
1995............................................................ 991,688
1996............................................................ 1,211,868
1997............................................................ 910,534
1998............................................................ 877,142
After 1998...................................................... 10,754,370
-----------
Total........................................................... $15,949,674
===========
8. COMMITMENTS AND CONTINGENCIES
Leases - The Association is the lessee under certain leases for
premises as well as certain office equipment. Total rental expense under all
leases in 1993 and 1992 was $65,982 and $45,634, respectively. At December 31,
1993, future minimum rental payments on such leases are $97,464 in 1994, $96,714
in 1995, and $75,804 in 1996.
Litigation - Various lawsuits are pending against the Association.
Management of the Association, after reviewing these suits with outside counsel,
considers that the aggregate liabilities, if any, will not be material to the
financial statements.
9. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Association is a party to financial instruments with off-balance
sheet risk in the normal course of business to meet the financing needs of its
customers. The Association uses the same credit policies in making these
commitments as it does for on-balance sheet instruments.
The following financial instruments had been entered into by the
Association as of December 31, 1993:
Commitments to extend credit ....... $3,610,360
Commitments to extend credit are agreements to lend to a customer as
long as there are no violations of any conditions established by the contracts.
These commitments generally have fixed expiration dates and may require payment
of a fee. Since some of the commitments are expected to expire without being
fully drawn upon, the total commitment amount above does not necessarily
represent future cash requirements.
-14-
10. CAPITAL REQUIREMENTS
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") which was effective December 7, 1989, imposed new capital
requirements on financial institutions. The new capital regulations contain
provisions for new capital standards that require institutions to have tangible
capital, as defined, in an amount not less than 1.5% of adjusted total assets;
core capital, as defined, in an amount not less than 3% of adjusted total
assets; and total capital, as defined, in an amount not less than 8% of
risk-weighted assets as of December 31, 1993. The following table shows the
Association's compliance with the current capital requirements as of December
31, 1993 and 1992:
CAPITAL STANDARDS
<TABLE>
<CAPTION>
December 31,1993 December 31, 1992 Minimum
----------------------------- ----------------------------- Requirement
Amount % Amount % %
----------- -------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
GAAP capital .............................. $ 8,353,826 $ 5,823,625
Less: Intangible assets .................. (147,500) (192,500)
----------- -----------
Tangible capital .......................... 8,206,326 6.6%<F1> 5,631,125 5.9%<F1> 1.5%
Add: Premium on
deposits, net .......................... 147,500 192,500
----------- -----------
Core capital .............................. 8,353,826 6.7%<F1> 5,823,625 6.1%<F1> 3.0%
Add: General valuation
loan loss allowances ................... 758,882 375,000
----------- -----------
Total risk-based capital .................. $ 9,112,708 13.2%<F2> $ 6,198,625 11.4%<F2> 8.0%
=========== ===========
<FN>
<F1> Stated as a percentage of adjusted total assets as defined.
<F2> Stated as a percentage of risk-weighted assets as defined.
</FN>
</TABLE>
Net income in the accompanying statement of operations for the year
ended December 31, 1993 agrees with the amount shown in the Association's 1993
Thrift Financial Reports.
-15-
11. INCOME TAXES
Income tax expense for the years ended December 31, 1993 and 1992 is
comprised of:
Current Deferred Total
----------- -------- -----------
1993
Federal income tax ....... $ 1,408,173 $ 45,458 $ 1,453,631
State income tax ......... 95,974 12,000 107,974
----------- -------- -----------
Total .................... $ 1,504,147 $ 57,458 $ 1,561,605
=========== ======== ===========
1992
Federal income tax ....... $ 867,202 $(60,093) $ 807,109
State income tax ......... (24,466) 0 (24,466)
----------- -------- -----------
Total .................... $ 842,736 $(60,093) $ 782,643
=========== ======== ===========
The provision for income tax differs from tax computed using the
federal statutory corporate tax rate of 34%. A reconciliation of the difference
is as follows:
1993 1992
----------- ---------
Income tax using the federal statutory
corporate tax rate of 34% .................. $ 1,484,909 $ 799,728
State income tax, net of federal benefit ..... 71,263 (16,148)
Other ........................................ (5,433) (937)
----------- ---------
Provision for income tax ..................... $ 1,561,605 $ 782,643
=========== =========
-16-
Deferred income taxes and benefits are provided for differences between
the financial statement carrying amount of existing assets and liabilities and
their respective tax basis. Significant deferred tax assets and liabilities at
December 31, 1993 and 1992 are as follows:
1993 1992
-------- --------
Deferred tax assets:
Net loan fees ................................... $ 66,612 $ 54,618
Reserve for accrued expenses .................... 36,703 118,033
Net deferred franchise tax asset ................ 2,172
-------- --------
Total deferred tax assets .......... 105,487 172,651
======== ========
Deferred tax liabilities:
Cash to accrual change .......................... 164,136 246,205
Unrealized gain on securities ................... 137,896
Bad debt reserve ................................ 58,426 19,905
FHLB stock dividend ............................. 12,920 10,812
Depreciable assets .............................. 6,572 7,377
Deferred gain on loans .......................... 5,930
Other ........................................... 16,711 2,102
-------- --------
Total deferred tax liabilities ..... 402,591 286,401
======== ========
Net deferred tax liability ......................... $297,104 $113,750
======== ========
The Association has no valuation allowance against the deferred tax
assets.
12. OTHER NONINTEREST INCOME AND EXPENSES
Other noninterest income and expenses for the years ended December 31,
1993 and 1992 are summarized as follows:
1993 1992
---------- ----------
Other noninterest income:
Gain on sales of investment securities ...... $ 163,354
Gain on sales of foreclosed real estate ..... 99,356 $ 215,577
Late charges and other charges and fees ..... 77,719 74,297
Other ....................................... 40,572 85,453
---------- ----------
$ 381,001 $ 375,327
========== ==========
Other noninterest expense:
Professional fees ........................... $ 194,545 $ 715,128
Data processing ............................. 129,319 118,721
Printing, postage and supplies .............. 103,465 97,864
Deposit insurance premiums .................. 196,778 184,283
Other ....................................... 678,886 502,639
---------- ----------
$1,302,993 $1,618,635
========== ==========
-17-
PART B. PRO FORMA INFORMATION
This acquisition will be accounted for under the purchase method of accounting.
The following pro forma financial information consists of a pro forma condensed
balance sheet as of September 30, 1994, and pro forma condensed statements of
earnings for the nine months ended September 30, 1994 and the year ended
December 31, 1993. Pro forma adjustments related to the pro forma condensed
balance sheet have been computed assuming the acquisition was consummated
September 30, 1994. Pro forma adjustments related to the pro forma condensed
statements of earnings have been computed assuming the acquisition was
consummated as of January 1, 1994. Approximately $514,000 and $636,000,
respectively, of non-recurring net earnings are included in the historical
financial information of West Loop S&L for the nine-months ended September 30,
1994 and the year ended December 31, 1993, respectively. Management anticipates
that significant cost savings should be effected in the categories of salaries
and benefits and data processing expense by the third quarter of 1995. These
expense reductions were not considered in the pro forma condensed income
statements. Pro forma adjustments are discussed in the accompanying footnotes to
the pro forma financial statements.
<TABLE>
PRO FORMA CONDENSED BALANCE SHEET (UNAUDITED)
<CAPTION>
September 30, 1994
==================
Charter West Loop S&L Adjustments Pro Forma
--------- ------------- ----------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Assets:
Cash and short-term investments (Note A) $ 78,819 $ 12,212 $(10,419) $ 80,612
Securities (Note B) .................... 284,832 35,552 (2,200) 318,184
Loans (Note E) ......................... 318,242 89,827 480 408,549
Less: Allowance for credit losses . 4,445 733 -- 5,178
-------- -------- -------- --------
Loans, net ......................... 313,797 89,094 480 403,371
Other assets (Note C) .................. 29,163 3,588 300 33,051
-------- -------- -------- --------
TOTAL ASSETS ............................... $706,611 $140,446 $(11,839) $835,218
======== ======== ======== ========
Liabilities and Shareholders' Equity:
Liabilities:
Deposits:
Non-interest-bearing deposits ...... $178,253 $ 1,316 $ $179,569
Interest-bearing deposits (Note E) . 410,997 100,813 (200) 511,610
-------- -------- -------- --------
Total Deposits .................. 589,250 102,129 (200) 691,179
Securities sold under agreement to
repurchase ............................ 13,474 -- 13,474
Federal Home Loan Bank Advances (Note D) 33,000 24,954 (1,500) 56,454
Long-term debt and debentures .......... 15,050 -- 15,050
Other liabilities ...................... 7,645 3,224 10,869
-------- -------- -------- --------
Total Liabilities .................. 658,419 130,307 (1,700) 787,026
Total Shareholders' Equity ................. 48,192 10,139 (10,139) 48,192
-------- -------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . $706,611 $140,446 $(11,839) $835,218
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part
of the pro forma financial statements.
-18-
<PAGE>
<TABLE>
PRO FORMA CONDENSED STATEMENT OF EARNINGS
(UNAUDITED)
<CAPTION>
Nine Months Ended September 30, 1994
====================================
Charter West Loop S&L Adjustments Pro Forma
---------- ------------- ----------- ----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest Income:
Loans, including fees (Note F) .................. $ 18,149 $ 8,340 $ (670) $ 25,819
Securities ...................................... 12,521 1,596 14,117
Trading account assets .......................... 175 -- 175
Other interest income ........................... 890 222 1,112
---------- ---------- ---------- ----------
Total Interest Income ....................... 31,735 10,158 (670) 41,223
Interest Expense:
Deposits ........................................ 8,907 3,394 12,301
Securities sold under agreements to
repurchase and Federal funds purchased ...... 660 -- 660
Federal Home Loan Bank Advances ................. 92 873 965
Long-term debt .................................. 863 -- 863
-- -- --
Total Interest Expense ...................... 10,522 4,267 -- 14,789
---------- ---------- ---------- ----------
Net interest income ................................. 21,213 5,891 (670) 26,434
Provision for credit losses (Note F) ................ 191 (35) 120 276
---------- ---------- ---------- ----------
Net Interest Income After Provision
for Credit Losses ........................... 21,022 5,926 (790) 26,158
---------- ---------- ---------- ----------
Non-Interest Income:
Service charges, fees and other ................. 10,341 454 10,795
Securities gains (losses) ....................... 17 -- 17
-- -- --
Total Non-Interest Income ................... 10,358 454 -- 10,812
---------- ---------- ---------- ----------
Non-Interest Expense:
Salaries and employee benefits .................. 12,326 1,031 13,357
Net premises and equipment expense .............. 3,419 365 3,784
Advertising ..................................... 575 8 583
Data processing ................................. 1,024 89 1,113
Legal fees ...................................... 729 127 856
Losses and carrying costs of
other real estate ........................... 144 333 477
Deposit insurance premiums ...................... 958 169 1,127
Amortization of core deposit intangibles (Note C) 270 34 304
Other ........................................... 3,572 596 4,168
---------- ---------- ---------- ----------
Total Non-Interest Expense .................. 23,017 2,752 -- 25,769
---------- ---------- ---------- ----------
Earnings before income taxes ........................ 8,363 3,628 (790) 11,201
Income tax expense .............................. 2,912 1,292 (276) 3,928
---------- ---------- ---------- ----------
NET EARNINGS ................................ $ 5,451 $ 2,336 $ (514) $ 7,273
========== ========== ========== ==========
Earnings per Common Share:
Primary ......................................... $ 0.90 $ 0.39 $ (0.09) $ 1.20
Fully diluted ................................... 0.90 0.39 (0.09) 1.20
---------- ---------- ---------- ----------
Weighted Average Shares Outstanding:
Primary ......................................... 6,023,958 6,023,958 6,023,958 6,023,958
Fully diluted ................................... 6,029,637 6,029,637 6,029,637 6,029,637
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part
of the pro forma financial statements.
-19-
<PAGE>
<TABLE>
PRO FORMA CONDENSED STATEMENT OF EARNINGS
(UNAUDITED)
<CAPTION>
Year Ended December 31, 1993
============================
Charter West Loop S&L Adjustments Pro Forma
---------- ------------- ----------- ----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest Income:
Loans, including fees (Note F) ............... $ 22,303 $ 9,244 $ (300) $ 31,247
Securities ................................... 16,154 2,051 18,205
Trading account assets ....................... 131 -- 131
Other interest income ........................ 639 -- 639
-- -- --
Total Interest Income .................... 39,227 11,295 (300) 50,222
---------- ---------- ---------- ----------
Interest Expense:
Deposits ..................................... 12,436 3,985 16,421
Securities sold under agreements to repurchase 368 -- 368
Federal Home Loan Bank Advances .............. -- 620 620
Long-term debt (Note D) ...................... 982 -- 982
-- -- --
Total Interest Expense ................... 13,786 4,605 -- 18,391
---------- ---------- ---------- ----------
Net interest income .............................. 25,441 6,690 (300) 31,831
Provision for credit losses ...................... 911 413 1,324
---------- ---------- ---------- ----------
Net Interest Income After Provision
for Credit Losses ........................ 24,530 6,277 (300) 30,507
---------- ---------- ---------- ----------
Non-Interest Income:
Service charges, fees and other (Note F) ..... 8,364 935 (515) 8,784
Securities gains (Note F) .................... 335 163 (163) 335
---------- ---------- ---------- ----------
Total Non-Interest Income ................ 8,699 1,098 (678) 9,119
---------- ---------- ---------- ----------
Non-Interest Expense:
Salaries and employee benefits ............... 11,630 1,534 13,164
Net premises and equipment expense ........... 3,667 168 3,835
Advertising .................................. 562 98 660
Data processing .............................. 1,086 129 1,215
Legal fees ................................... 566 111 677
Losses and carrying costs of
other real estate ........................ 1,653 3 1,656
Deposit insurance premiums ................... 1,306 197 1,503
Amortization of core deposit intangibles ..... 2,108 45 2,153
Other ........................................ 4,090 723 4,813
---------- ---------- ---------- ----------
Total Non-Interest Expense ............... 26,668 3,008 -- 29,676
---------- ---------- ---------- ----------
Earnings before income taxes ..................... 6,561 4,367 (978) 9,950
Income tax expense ........................... 1,305 1,561 (342) 2,524
---------- ---------- ---------- ----------
Earnings before effect of change in
accounting principle ........................... 5,256 2,806 (636) 7,426
Cumulative effect of a change in
accounting for income taxes .............. 2,950 -- -- 2,950
---------- ---------- ---------- ----------
NET EARNINGS ..................................... $ 8,206 $ 2,806 $ (636) $ 10,376
========== ========== ========== ==========
Earnings per Common Share:
Primary earnings before change in
accounting principle ..................... $ 0.86 $ 0.47 $ (0.10) $ 1.23
Fully diluted earnings before change in
acctng. principle ........................ 0.86 0.46 (0.10) 1.22
Cumulative effect of change in acctng. for
income taxes ............................. 0.49 -- -- 0.49
Primary ...................................... 1.35 0.47 (0.10) 1.72
Fully diluted ................................ 1.35 0.46 (0.10) 1.71
---------- ---------- ---------- ----------
Weighted Average Shares Outstanding:
Primary ...................................... 6,011,283 6,011,283 6,011,283 6,011,283
Fully diluted ................................ 6,029,514 6,029,514 6,029,514 6,029,514
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part
of the pro forma financial statements.
-20-
<PAGE>
NOTES TO THE PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
Note A - Cash and short-term investments
Cash and short-term investments include cash, due from banks, federal funds
sold, securities purchased under agreements to resell and short-term
interest-bearing deposits in financial institutions. Pro forma cash and due
from banks were $39,110,000 at September 30, 1994. Pro forma federal funds
sold, securities purchased under agreement to resell and short-term
interest-bearing deposits in financial institutions were $41,502,000 at
September 30, 1994. The adjustments to this category include the estimated
cash purchase price at September 30, 1994.
Note B - Securities
Securities include investments held to maturity of $209,185,000 and
securities held for sale of $108,999,000 at September 30, 1994. The
adjustment of $2,200,000 represents the purchase accounting adjustment
allocated to securities to reflect their estimated fair value as of
September 30, 1994.
Note C - Other Assets
Included within the category of other assets are intangible assets. The
purchase accounting adjustments result in an intangible asset, goodwill and
core deposit intangibles, of approximately $300,000. It is anticipated that
this intangible asset will be amortized on a straight line basis over ten to
fifteen years.
Note D - Federal Home Loan Bank Advances
The Federal Home Loan Bank of Dallas ("FHLB") provides advances as a source
of funds to each of its members. These advances are collateralized by a
pledge of certain assets, such as residential mortgage loans. $15.4 million
of the FHLB advances assumed by Charter Bank, SSB from West Loop S&L were
fixed at rates below current borrowing rates of similar instruments
available in the marketplace. The $1.5 million adjustment represents the
purchase accounting adjustment allocated to these FHLB advances to reflect
their estimated fair value as of September 30, 1994.
Note E - Loans and Deposits
The pro forma adjustments in the pro forma financial information include
current information available to management. Purchase accounting adjustments
have been estimated for loans and deposits. Currently, adequate information
is not available to management to fully evaluate the relative fair value of
these financial instruments. The adjustments indicated on the pro forma
balance sheet reflect the impact of rising interest rates on fixed rate
loans and deposits.
Note F - Other Adjustments to Pro Forma Statements of Earnings
Pro forma adjustments related to the pro forma condensed statements of
earnings have been computed assuming the acquisition was consummated as of
January 1, 1993. Included in the historical financial information of West
Loop S&L, in the opinion of Charter's management, are estimates for
non-recurring revenues and reduced provisions for credit losses. The
non-recurring revenues include securities gains, gains on sales of loans and
the accretion of unearned discount recognized on prepaid loans.
-21-
<PAGE>
PART C. EXHIBITS
(2)(a) Plan of Consolidation between Charter, Charter Interim State Savings
Bank and West Loop S&L dated November 21, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHARTER BANCSHARES, INC.
(Registrant)
By: WILLIAM S. SHROPSHIRE, JR.
Chief Financial Officer
and Treasurer
(Principal financial and
accounting officer)
Date: January 24, 1995
-22-
EXHIBIT (2)(a)
PLAN OF CONSOLIDATION
THIS PLAN OF CONSOLIDATION dated as of November 21, 1994, is made by and
between WEST LOOP SAVINGS & LOAN ASSOCIATION, Houston, Texas, a Texas savings
and loan association ("West Loop") and CHARTER INTERIM STATE SAVINGS BANK, an
interim state savings bank (the "Interim Bank"). The Interim Bank and West Loop
are hereafter sometimes referred to collectively as the "Constituent Entities"
and individually as a "Constituent Entity."
Charter and the Interim Bank each have their principal office in Houston,
Texas. The Interim Bank is in the process of being organized and chartered
through the Texas Savings and Loan Department, and upon issuance of its charter
the Interim Bank will have authorized capital stock of 1,000 shares of common
stock, par value $1.00 per share (the "Interim Bank Stock").
Charter and West Loop have entered into an Agreement and Plan of
Consolidation dated as of June 24, 1994 (the "Agreement and Plan of
Consolidation"), providing for the consolidation of the Interim Bank with West
Loop under the Articles of Association of West Loop and upon the terms set forth
in the Agreement and Plan of Consolidation and this Plan of Consolidation. In
order to consummate such consolidation, the respective Board of Directors of
each Constituent Entity deems it advisable and in the best interests of each
such Constituent Entity and its respective shareholders that the Interim Bank be
consolidated with West Loop in the manner and upon the terms set forth herein,
and each such Board of Directors has adopted resolutions approving this Plan of
Consolidation and has recommended that the consolidation of the Interim Bank
with West Loop (the "Consolidation") be approved and adopted by the shareholders
of the Constituent Entities, respectively. Capitalized terms used in this Plan
of Consolidation but not defined herein shall have the meanings ascribed to such
terms in the Agreement and Plan of Consolidation.
In consideration of the premises and the mutual covenants and agreements
herein contained, and for the purpose of stating the terms and conditions of the
Consolidation, the mode of carrying the same into effect, the manner of
converting the shares of common stock, par value $5.00 per share (the "West Loop
Stock"), of West Loop issued and outstanding immediately prior to the Effective
Time (as defined in Section 13 hereof) into the Consideration specified in
Section 4
(2)(a)-1
hereof, the manner of converting the shares of the Interim Bank Stock
issued and outstanding immediately prior to the Effective Time into shares of
common stock, par value $5.00 per share, of the Consolidated Bank (as defined in
Section 2), and such other details and provisions as are deemed desirable, the
parties hereto have agreed and do hereby agree, subject to the terms and
conditions hereinafter set forth, as follows:
1. CONSOLIDATION. The Interim Bank shall consolidate with West Loop
under the Articles of Association of West Loop pursuant to the applicable
provisions of, and with the effect provided in, the Texas Savings and Loan Act
and applicable state and federal banking laws (collectively with the Texas
Savings and Loan Act, the "Banking Laws") and other applicable law.
2. ARTICLES AND BYLAWS. At the Effective Time, the name of the
consolidated association (the "Consolidated Bank") shall be "West Loop Savings
Association, Houston, Texas," its Articles of Association shall be the Articles
of Association of West Loop in effect immediately prior to the Effective Time, a
copy of which is attached hereto as Exhibit A, and its Bylaws shall be those of
West Loop in effect immediately prior to the Effective Time, a copy of which is
attached hereto as Exhibit B.
3. EFFECTS OF CONSOLIDATION. At the Effective Time, (a) the separate
corporate existence of West Loop and the Interim Bank shall, as provided in the
Banking Laws and other applicable law heretofore mentioned, be consolidated into
and continued in the Consolidated Bank, (b) the Consolidated Bank shall be
deemed to be the same association as West Loop and the Interim Bank and (c) the
separate existences of West Loop and the Interim Bank shall terminate. The
Consolidated Bank shall succeed to and possess all the properties, rights,
interests, privileges, powers and franchises and be subject to all debts,
liabilities, restrictions, duties and obligations of the Constituent Entities,
all without further act or deed to the extent provided by the provisions of the
Banking Laws and other applicable law.
4. CONVERSION OF SHARES. At the Effective Time, and subject to the
provisions of this Plan of Consolidation:
(a) all of the shares of Interim Bank Stock issued and outstanding at
the Effective Time shall, by virtue of the Consolidation, automatically and
without any action on the part of the holder thereof, be converted into and
exchanged for all of the shares of common stock, par value $5.00 per share, of
the Consolidated Bank, which shares shall be owned and held by Charter; and
(2)(a)-2
(b) the shares of West Loop Stock issued and outstanding immediately
prior to the Effective Time shall, by virtue of the Consolidation, automatically
and without any action on the part of the holder thereof, become and be
converted into the right to receive a cash payment equal to (i) the greater of
(A) $9,300,000 or (B) the product of (x) 110% multiplied by (y) the sum of
common stock, retained earnings and undivided profits of West Loop as of March
31, 1994, as set forth or indicated in the March 31 Financial Statements,
reduced by $150,000, and (ii) the amount of Adjusted Post- March 31 Earnings
(the greater of the amounts set forth in (i) (A) and (B) above plus the amount
set forth in (ii) above shall hereinafter be referred to as the
"Consideration"). Each holder of West Loop Stock shall be entitled to receive
for each share held by such holder an amount equal to (i) the Consideration
divided by (ii) the number of issued and outstanding shares of West Loop Stock.
No conversion under subparagraph (b) above shall be made in respect of
any shares of West Loop Stock the holder of which, pursuant to applicable law,
is entitled to receive payment pursuant to appraisal rights granted to
shareholders of West Loop who dissent from the Consolidation, and such holder
shall have only the rights provided under such law (such shares of West Loop
Stock with respect to which a dissenting shareholder has perfected appraisal
rights being hereafter referred to as "Dissenting Shares").
5. SURRENDER OF CERTIFICATES; PAYMENT OF THE CONSIDERATION. (a) Each
holder of certificates representing shares of West Loop Stock outstanding
immediately prior to the Effective Time shall, upon surrender to Charter or its
duly authorized agent of such certificates, be entitled to receive in exchange
therefor (i) a check representing the Initial Consideration (as defined below)
at the Effective Time and (ii) a check representing the Subsequent Consideration
(as defined below) upon the terms and subject to the conditions set forth in
Section 7(e). Until so surrendered each outstanding certificate which, prior to
the Effective Time, represented shares of West Loop Stock shall be deemed to
represent only the right to receive such payment upon such surrender.
(b) At the Effective Time, Charter shall pay or cause to be paid (i)
the amount to be paid pursuant to Section 4(b)(i) and (ii), plus the amount of
Estimated Adjusted Second Quarter Earnings (the amounts set forth in (i) and
(ii) above shall hereinafter be referred to as the "Initial Consideration") to
each holder of shares of West Loop Stock (other than Charter or any subsidiary
of Charter and holders of Dissenting Shares) who surrenders the certificate or
certificates representing such shares to Charter or its duly authorized agent,
together with the duly executed letter of transmittal. Charter shall not be
obligated to pay or cause to be paid the Initial Consideration (and no interest
shall be payable in respect thereof) to which any holder of West Loop Stock
would otherwise be entitled as a result of the
(2)(a)-3
Consolidation until such holder
surrenders the certificate or certificates representing the shares of West Loop
Stock as provided herein, or, in default thereof, an appropriate Affidavit of
Loss and Indemnity Agreement and/or a bond as may be required in each case by
Charter. If any payment for shares of West Loop Stock is to be made in a name
other than that in which the certificate for such shares surrendered for
exchange is registered, it shall be a condition of such payment that the
certificate so surrendered shall be properly endorsed or otherwise in proper
form for transfer and that the person requesting such payment shall either (i)
pay to Charter any transfer or other taxes required by reason of the payment to
a person other than the registered holder of the certificate surrendered or (ii)
establish to the satisfaction of Charter that such tax has been paid or is not
payable.
(c) Upon determination of the amount of Adjusted Post-March 31
Earnings pursuant to Section 7, the shareholders of West Loop who have
surrendered in accordance with subparagraph (b) above the certificate or
certificates representing the shares of West Loop Stock held by such shareholder
shall have the right to receive the amount calculated in accordance with Section
7(e) (the "Subsequent Consideration").
(d) At and after the Effective Time, there shall be no transfers on
the stock transfer books of West Loop of shares of West Loop Stock that were
issued and outstanding immediately prior to the Effective Time. If, after the
Effective Time, certificates representing West Loop Stock are properly presented
to Charter, they shall be cancelled and exchanged for the portion of the
Consideration as herein provided.
6. DELIVERY OF PRELIMINARY CLOSING DATE FINANCIAL STATEMENTS; ESCROW
ARRANGEMENTS
(a) Within 10 days prior to the Effective Time, West Loop shall
deliver to Charter the Preliminary Closing Date Financial Statements.
(b) At the Effective Time, Charter shall deposit in escrow pursuant to
the terms and provisions of the Escrow Agreement an amount equal to the
Estimated Adjusted Post-March 31 Earnings less the amount of Estimated Adjusted
Second Quarter Earnings paid to the shareholders of West Loop pursuant to
Section 5(b).
(c) Within 3 days after determination of the amount of Adjusted
Post-March 31 Earnings pursuant to the provisions of Section 7, (i) Charter and
the Representative shall instruct the escrow agent under the Escrow Agreement to
pay to Charter the amount in cash equal to the amount by which Estimated
Post-March 31 Earnings exceeds Adjusted Post-March 31 Earnings or (ii) Charter
shall deposit with the escrow agent under the Escrow Agreement an amount in cash
equal to the amount by which Adjusted Post-March 31 Earnings exceeds Estimated
Post-March 31 Earnings.
(2)(a)-4
7. PREPARATION OF CLOSING DATE FINANCIAL STATEMENTS; ADJUSTED
POST-MARCH 31 EARNINGS.
(a) Within thirty (30) days after the Closing Date, Charter will
prepare and deliver to West Loop a draft of the Closing Date Financial
Statements setting forth the net income of West Loop for the Interim Period and
a calculation of Adjusted Post-March 31 Earnings, which financial statements and
calculation shall be prepared in accordance with generally accepted accounting
principles applied on a consistent basis and in accordance with the accounting
and reporting policies and practices relating to the business, properties or
assets of West Loop as maintained by West Loop during the fiscal year ended
December 31, 1993 and during the period from January 1 1994 through the Interim
Period.
(b) If the Representative, on behalf of the shareholders of West Loop,
has any objection to the calculations of net income and Adjusted Post-March 31
Earnings as provided by Charter pursuant to paragraph (a) above, the
Representative will deliver a detailed written statement describing its
objections to such calculations and provide its own calculations of such amounts
to Charter within fifteen (15) days after receiving such draft Closing Date
Financial Statements. Charter and the Representative will use reasonable efforts
to resolve any such objections themselves. If Charter and the Representative do
not obtain a final resolution within thirty (30) days after Charter has received
the written statement of objections from the Representative, Charter and the
Representative will select an accounting firm mutually acceptable to them to
resolve any remaining objections, which accounting firm shall conduct its review
in accordance with generally accepted accounting principles applied on a
consistent basis and in accordance with the accounting and reporting policies
and practices relating to the business, properties or assets of West Loop as
maintained by West Loop during the fiscal year ended December 31, 1993 and
during the period from January 1 1994 through the Interim Period. If Charter and
the Representative are unable to agree on the choice of an accounting firm, they
will select a nationally recognized accounting firm by lot (after excluding
their respective regular outside accounting firms). The determination of any
accounting firm so selected will be set forth in writing and will be conclusive
and binding on the parties. Charter will revise the calculation of net income of
West Loop for the Interim Period and Adjusted Post-March 31 Earnings as set
forth in the income statement included in the draft Closing Date Financial
Statements as appropriate to reflect the resolution of any objections relating
to such calculation as provided in this Section 7. The "Closing Date Income
Statement" shall mean the income statement included in the draft Closing Date
Financial Statements as revised to reflect any revisions pursuant to this
Section 7.
(c) If Charter and the Representative submit any unresolved objections
to an accounting firm for resolution as provided in this Section 7 above,
Charter and the shareholders of West Loop will share responsibility for the fees
and expenses of the accounting firm as follows:
(2)(a)-5
(i) if the accounting firm resolves all of the remaining
objections in favor of Charter, the shareholders of West Loop will be
responsible for all of the fees and expenses of the accounting firm;
(ii) if the accounting firm resolves all of the remaining
objections in favor of the shareholders of West Loop, Charter will be
responsible for all of the fees and expenses of the accounting firm; and
(iii) if the accounting firm resolves some of the remaining
objections in favor of Charter and the rest of the remaining objections in favor
of the shareholders of West Loop, the party whose calculation of Adjusted Post-
March 31 Earnings is further from the calculation of Adjusted Post-March 31
Earnings made by such accounting firm will be responsible for all of the fees
and expenses of such accounting firm; PROVIDED that if the calculations of
Adjusted Post-March 31 Earnings made by Charter and the Representative are
within $60,000 of one another, then Charter and the shareholders of West Loop
shall divide the fees and expenses of such accounting firm equally.
(d) West Loop will make the work papers and backup materials used in
preparing the December 31 Financial Statements and the March 31 Financial
Statements available to Charter and its accountants and other representatives at
reasonable times and upon reasonable notice promptly following their
availability. Charter will make the work papers and backup materials used in
preparing the draft Closing Date Financial Statements available to the
Representative and its accountants and other representatives at reasonable times
and upon reasonable notice at any time during (A) the preparation by Charter of
the draft Closing Date Financial Statements pursuant to this Section 7, (B) the
review of the draft income statement included in the draft Closing Date
Financial Statements and (C) the resolution by the parties of any objection
thereto.
(e) Upon determination of the amount of Adjusted Post-March 31
Earnings pursuant to the preceding provisions of this Section 7, the
shareholders of West Loop shall be entitled to receive in accordance with
Section 5 the aggregate amount equal to the Adjusted Post-March 31 Earnings
calculated pursuant to this Section 7 less the amount of Estimated Adjusted
Second Quarter Earnings paid to the shareholders of West Loop pursuant to
Section 5(b).
8. DIRECTORS; OFFICERS. At the Effective Time, the Board of Directors
and the officers of the Consolidated Bank shall consist of those persons holding
such offices for the Interim Bank immediately prior to the Effective Time.
9. NECESSARY APPROVALS. This Plan of Consolidation has bee submitted
to, approved and adopted by the shareholders of West Loop and the Interim Bank,
respectively, at a special meeting called and held, or by action without
meeting, in accordance with the applicable provisions of law and the respective
articles of association and bylaws of each
(2)(a)-6
of West Loop and the Interim Bank. The Constituent Entities shall proceed
expeditiously and cooperate fully in the procurement of any other consents and
approvals and in the taking of any other action, and the satisfaction of all
other requirements prescribed by law or otherwise necessary for consummation of
the Consolidation on the terms provided herein, including, without limitation,
the preparation and submission of any applications or notifications to the
appropriate federal agency or agencies for approval of the Consolidation under
the provisions of the applicable Banking Laws and other applicable laws.
10. CONDITIONS PRECEDENT. Consummation of the Consolidation is
conditioned upon the satisfaction or waiver of all conditions set forth in
Sections 7.01, 7.02 and 7.03 of the Agreement and Plan of Consolidation and the
terms and conditions of the Plan of Consolidation.
11. TERMINATION OF CONSOLIDATION. This Plan of Consolidation may be
terminated and abandoned by mutual consent of the Boards of Directors of West
Loop, the Interim Bank and Charter at any time prior to the Effective Time,
whether before or after any shareholder action by either Constituent Entity, and
may also be terminated and abandoned as provided in the Agreement and Plan of
Consolidation. Upon termination as provided in this Section 11, this Plan of
Consolidation shall be void and of no further effect, and there shall be no
liability by reason of this Plan of Consolidation or the termination thereof on
the part of West Loop, the Interim Bank or Charter, or the directors, officers,
employees, agents or shareholders of any of them, except as provided in the
Agreement and Plan of Consolidation.
12. SERVICE OF PROCESS. The Consolidated Bank may be served with
process in the State of Texas in any proceeding for enforcement of any
obligation of West Loop or the Interim Bank, including a suit or other
proceeding to enforce the right of any shareholders of West Loop as determined
in appraisal proceedings pursuant to applicable banking laws, and the Secretary
of State of the State of Texas is hereby appointed as its agent to accept
service of process in any such suit or other proceedings. Any such service of
process shall be mailed by the Secretary of State of the State of Texas to
Charter National Bank-Houston, c/o Charter Bancshares, Inc., 2600 Citadel Plaza
Dr., Suite 100, Houston, Texas 77008, Attention: Mark T. Giles.
13. EFFECTIVE TIME. Subject to the terms of and upon satisfaction of
all requirements of law and the conditions specified in this Plan of
Consolidation and the Agreement and Plan of Consolidation, the Consolidation
shall become effective as soon as practicable after receipt of the
certificate(s) evidencing approval of the transactions contemplated hereby by
all applicable regulatory agencies (the "Effective Time").
(2)(a)-7
14. DEFINITIONS. For purposes of this Agreement, the following words
and terms shall have the respective meanings set forth below:
"ADJUSTED POST-MARCH 31 EARNINGS" shall mean net after-tax income,
if any, of West Loop during the Interim Period, less the sum of:
(A) any cash dividends paid with respect to the capital stock of
West Loop during the Interim Period (which dividends shall not exceed
the net income of West Loop for such period);
(B) the amount of unearned discount (excluding any unearned
discount that is recognized upon the full or partial prepayment of any
loan as addressed in subparagraph (C) below) on purchased Loans
accreted or recognized by West Loop during the Interim Period,
multiplied by sixty-five percent (65%), reduced by the amount of
income taxes otherwise payable absent this adjustment;
(C) the excess, if any, of (1) the aggregate amount of previously
unearned discount on purchased Loans that is recognized as income by
West Loop during the Interim Period as a result of prepayments of
purchased Loans in the normal course of business without solicitation
or encouragement by West Loop or any representative, Affiliate,
officer or employee of West Loop or any other Person acting on behalf
of West Loop, over (2) $1,000,000, which excess shall then be reduced
by the amount of income taxes otherwise payable absent this
adjustment; and
(D) with respect to any purchased Loan that is sold during the
Interim Period (but excluding any prepayments or payoffs) as permitted
by Section 6.01(d) of the Agreement and Plan of Consolidation, the
excess of (x) the gain recognized by West Loop as a result of such
sale, over (y) the amount that West Loop would have recognized as
income as a result of accretion of discount with respect to such Loan
during such period in the ordinary course had such sale not occurred
and assuming no prepayment or payoff would have occurred. The amount
of the foregoing adjustment shall be reduced by the amount of income
taxes otherwise payable absent this adjustment.
For purposes of this definition, "net income" of West Loop shall
not include or reflect any gains or losses from securities
transactions effected by or on behalf of West Loop.
"ESTIMATED ADJUSTED SECOND QUARTER EARNINGS" shall mean, based
upon the Preliminary Closing Date Financial Statements, net after-tax
income, if any, of West Loop during the Second Quarter, less the sum
of:
(2)(a)-8
(A) any cash dividends paid with respect to the capital stock of
West Loop during the Second Quarter (which dividends shall not exceed
the net income of West Loop for such period);
(B) the amount of unearned discount (excluding any unearned
discount that is recognized upon the full or partial prepayment of any
loan as addressed in subparagraph (C) below) on purchased Loans
accreted or recognized by West Loop during the Second Quarter,
multiplied by sixty-five percent (65%), reduced by the amount of
income taxes otherwise payable absent this adjustment;
(C) the excess, if any, of (1) the aggregate amount of previously
unearned discount on purchased Loans that is recognized as income by
West Loop during the Second Quarter as a result of prepayments of
purchased Loans in the normal course of business without solicitation
or encouragement by West Loop or any representative, Affiliate,
officer or employee of West Loop or any other Person acting on behalf
of West Loop, over (2) $1,000,000, which excess shall then be reduced
by the amount of income taxes otherwise payable absent this
adjustment; and
(D) with respect to any purchased Loan that is sold during the
Second Quarter (but excluding any prepayments or payoffs) as permitted
by Section 6.01(d) of the Agreement and Plan of Consolidation, the
excess of (x) the gain recognized by West Loop as a result of such
sale, over (y) the amount that West Loop would have recognized as
income as a result of accretion of discount with respect to such Loan
during such period in the ordinary course had such sale not occurred
and assuming no prepayment or payoff would have occurred. The amount
of the foregoing adjustment shall be reduced by the amount of income
taxes otherwise payable absent this adjustment.
For purposes of this definition, "net income" of West Loop shall
not include or reflect any gains or losses from securities
transactions effected by or on behalf of West Loop.
"CLOSING DATE FINANCIAL STATEMENTS" shall mean financial
statements of West Loop as of the Cut Off Date and for the Interim
Period then ending (and without giving effect to the Consolidation)
delivered pursuant to Section 7 and consisting of (a) a balance sheet,
(b) an income statement and (c) a statement of changes in retained
earnings and shareholders' equity.
"CUT OFF DATE" shall mean the last day of the calendar month
immediately preceding the month in which the Effective Time occurs.
(2)(a)-9
"ESTIMATED ADJUSTED POST-MARCH 31 EARNINGS" shall mean the amount
of Adjusted Post-March 31 Earnings calculated at the Effective Time
based upon the Preliminary Closing Date Financial Statements.
"INTERIM PERIOD" shall mean the period from and including April 1,
1994 and ending on the Cut Off Date.
"PRELIMINARY CLOSING DATE FINANCIAL STATEMENTS" shall mean
financial statements of West Loop (i) as of the Cut Off Date and for
the Interim Period then ending (without giving effect to the
Consolidation) and (ii) as of the Second Quarter (without giving
effect to the Consolidation), delivered pursuant to Section 6 and
consisting of (a) a balance sheet, (b) an income statement and (c) a
statement of changes in retained earnings and shareholders' equity.
"SECOND QUARTER" shall mean the period from and including April 1,
1994 and ending on June 30, 1994.
IN WITNESS WHEREOF, West Loop and the Interim Bank have caused this
Plan of Consolidation to be executed under the respective seals of each as of
the date first above written.
WEST LOOP SAVINGS ASSOCIATION, HOUSTON, TEXAS
By: /s/ SAM J. CALIVA
Sam J. Caliva, Chairman of the Board
CHARTER INTERIM STATE SAVINGS BANK
By: /s/ MARK T. GILES
Mark T. Giles, President
(2)(a)-10
