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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
(Mark One)
[ X ] Annual report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934 (Fee required)
For the fiscal year ended December 31, 1994
[ ] Transition report under Section 13 or 15 (d) of the Securities Exchange
Act of 1934 (No fee required)
For the transition period from __________ to __________.
COMMISSION FILE NUMBER 0-13668
CORPUS CHRISTI BANCSHARES, INC.
(Name of Small Business Issuer in Its Charter)
TEXAS 74-2351663
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2402 LEOPARD STREET
CORPUS CHRISTI, TEXAS 78408
(Address of principal (Zip Code)
Executive Offices)
Issuer's telephone number, including area code: (512) 887-3000
Securities registered under Section 12(b) of the Act: X
---
Name of each Exchange
Title of Each Class on Which Registered
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COMMON STOCK, $5 PAR VALUE AMERICAN
Securities registered under Section 12(g) of the Act: None
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months ( or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. [ ]
The Company had total revenue for fiscal year ended 1994 of
$13,062,279.
The aggregate market value of the Common Stock held by non-affiliates
of the registrant as of March 2, 1995, was approximately $13,222,000.
The number of shares of Common Stock of the registrant outstanding as
of March 15, 1995, was 1,600,000.
Transitional Small Business Disclosure Format (check one):
Yes No X
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Portions of the following documents are incorporated by reference into
the designated parts of this Form 10-KSB: (a) annual report to shareholders
for the fiscal year ended December 31, 1994 (Part I, II and Part III) and (b)
Proxy Statement for the annual meeting of shareholders to be held May 31, 1995
(Part III).
TOTAL OF SEQUENTIALLY NUMBERED PAGES _____
EXHIBIT INDEX ON SEQUENTIALLY NUMBERED PAGE _____
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TABLE OF CONTENTS
<TABLE>
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PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security-Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . 14
Item 6. Management's Discussion and Analysis or Plan of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . 14
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act . 15
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 11. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 12. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 13. Exhibits, List and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
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PART I
Item 1. Business
Corpus Christi Bancshares, Inc. (the "Company"), a Texas business
corporation, was incorporated under the laws of the State of Texas on September
20, 1984, at the direction of the Board of Directors of Citizens State Bank of
Corpus Christi (the "Bank") for the purpose of acquiring 100% of the
outstanding shares of the Bank and thereby having the Company become a one-bank
holding company.
The Bank commenced regular state banking business in Nueces County,
Texas, on August 1, 1949. Prior to that time, the Bank exercised limited
banking functions under the name "Citizens Industrial Bank of Corpus Christi"
pursuant to a charter which originally established a "Morris Plan Bank" on
January 28, 1928.
On March 1, 1985, pursuant to a plan of reorganization approved by
more than two-thirds of the shareholders of the Bank (the "Reorganization"), a
wholly owned subsidiary of the Company was merged with and into the Bank, with
the Bank continuing business as a wholly owned subsidiary of the Company.
Pursuant to the Reorganization, each outstanding share of the Bank's common
stock, $5.00 par value, was converted into one share of the Company's Common
Stock, $5.00 par value.
Effective December 28, 1992, the Company transferred the ownership of
the Bank to C.S.B.C.C., Inc., a Delaware Corporation formed as a wholly-owned
subsidiary of the Company. C.S.B.C.C., Inc. is a bank holding company
registered under the Bank Holding Company Act of 1956, as amended (the "BHCA").
The reorganization involved the sale of the common stock of the Bank to
C.S.B.C.C., Inc. by the Company in exchange for all the outstanding shares of
the common stock of C.S.B.C.C., Inc. The transfer resulted in the creation of a
tier-holding company structure whereby the Company owns one hundred percent of
C.S.B.C.C., Inc. which in turn owns one hundred percent of the Bank. The
Company did not incur any indebtedness in connection with the transfer and the
cost involved in connection with the transfer was immaterial. The
transfer of the ownership of the Bank to C.S.B.C.C., Inc. did not effect the
respective equity positions of the shareholders of the Company.
The Company is a two-tiered one-bank holding company registered under
the BHCA, and functions primarily as the owner of C.S.B.C.C., Inc. which is the
holder of all the Bank's Common Stock. On December 31, 1994, the Company's
consolidated total stockholders' equity was $13,438,461.
As a two-tiered one-bank holding company, the Company's principal role
is to assist in the management and coordination of the financial resources of
the Bank by providing capital and management assistance.
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The Bank
The Bank provides a broad range of retail services, including the
maintenance of checking, money market, NOW, savings, and time deposit accounts,
certificate of deposits, safe deposit facilities, automatic teller services and
the making of real estate mortgage and FHA home-improvement loans.
The Bank makes secured installment loans for the purchase of
automobiles and boats. In addition, the Bank makes secured and unsecured
personal loans for a variety of other purposes. The Bank provides qualifying
customers with a personal revolving line of credit, participates in the
American Express Gold Card Program and offers credit cards to its customers.
The Bank's indirect lending operation provides loan funding for
automobile dealerships offering sales on credit. While the level of
competition in this product area has grown, the Company expects this operation
to continue to be a viable avenue of future loan production. Loans funded
through this operation have grown from a year end total in 1993 of $3.2 million
to $26.1 million at December 31, 1994.
The Bank furnishes traditional depository and lending services to a
diversified group of commercial customers principally in South Texas. Most of
the Bank's commercial business is done with small to medium-sized companies.
Services provided to commercial customers include short and medium-term loans,
revolving credit arrangements, inventory and accounts receivable financing,
including floor plan financing of automobiles and boats, equipment lease
financing and commercial depository and cash management services.
The Bank's Trust Department offers personal and employee benefit trust
services normally associated with trust departments of metropolitan area banks,
including estate planning and administration, personal trust fund management,
employee benefit plans, individual retirement accounts, and Keogh plans. In
addition, the Bank's Trust Department manages a Collective Investment Trust
Fund.
The Bank's Investment Services Department offers its customers access
to a full line of brokerage and life insurance products. These products
include stocks, corporate bonds, tax-free municipal securities, treasury
securities, mutual funds, annuities, individual retirement accounts, life
insurance and financial planning services. The expansion to offer non
traditional bank products is focused on meeting all of the Bank's customers'
financial needs and improving the Bank's position to compete with non-banks.
Competition
The banking business in Texas is highly competitive. As the sixth
largest commercial bank in Corpus Christi, Nueces County, Texas (based on total
deposits), the Bank competes primarily with fourteen other state and national
banks in Nueces County. Consumer finance companies, credit unions, factors,
savings and loan associations, insurance companies and other non-bank entities
also compete for various types of loans and deposit services. There is active
competition for various types of fiduciary and investment advisory services
from other banks and trust companies, insurance companies and others.
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The Bank competes with other financial institutions for new depositors
and loan customers through radio, newspaper and television advertising and
through individual contacts by bank officers. The participation of the Bank in
community activities also aids in its promotion.
Employees
As of December 31, 1994, the Company, C.S.B.C.C., Inc. and the Bank
collectively, had 131 full-time equivalent employees compared to 113 and 99 at
December 31, 1993 and 1992, respectively. The Company and its subsidiaries are
equal opportunity employers and provide equal employment opportunities to
individuals without regard to race, sex, age, national origin, religion,
veteran status or physical handicap. No employees are represented by any union
or similar collective bargaining group, and management believes that its
employee relations are good.
Regulation and Supervision
The Company
The Company is registered as a bank holding company under the BHCA.
As a bank holding company, the Company is subject to regulation, supervision
and examination by the Board of Governors of the Federal Reserve System (the
"FRB"). In addition, the Company must file reports with the FRB. The BHCA
also imposes certain restrictions on the Company's activities. Under the BHCA,
bank holding companies may not directly or indirectly acquire the ownership or
control of more than 5% of the voting shares or substantially all of the
assets of any Company (including a bank) without the prior written approval of
the FRB. In addition, bank holding companies are, in general, prohibited by
the BHCA from engaging in activities that have not been determined by the FRB
"to be so closely related to banking or managing or controlling banks as to be
a proper incident thereto." The FRB publishes its determinations with respect
to permissible nonbanking activities in the form of regulations and orders
relating to specific applications.
Under the BHCA, bank holding companies and their subsidiaries are
prohibited from engaging in certain tie-in arrangements in connection with the
extension of credit, sale or leasing of property or provision of services. The
so-called anti-tie-in provisions state generally that a bank may not extend
credit, lease or sell property, or furnish any property or services to a
customer on the condition that the customer obtain additional credit, property
or services from the bank, its bank holding company, or other corporate
affiliates or on the condition that the customer not obtain credit, goods or
services from a competitor of the bank, its holding company or any affiliate of
the bank. Banks that are owned by bank holding companies are subject to
limitations on their ability to engage in transactions with or for the benefit
of their holding company or other corporate affiliates.
Under FRB policy, a holding company is expected to act as a "source of
financial strength" to its subsidiary bank and to commit such resources as may
be necessary to support the financial condition of its subsidiary banks. The
Federal Deposit Insurance Corporation Act of 1991 ("FDICIA") requires bank
regulatory authorities to take "prompt corrective action" in the event a
federally insured financial institution does not meet minimum regulatory
capital requirements. FDICIA established five categories of capital: "well
capitalized", "adequately capitalized", "undercapitalized", "significantly
undercapitalized", and "critically undercapitalized." If a bank becomes
undercapitalized or worse, its activities will be substantially restricted and,
in order to avoid being closed by the FDIC, it must submit and have accepted by
its principal federal regulator, a capital plan. In order for a capital plan
to be acceptable, performance of the capital plan must be guaranteed by the
bank's holding company. In this way, FDICIA implements the FRB's policy with
respect to holding companies serving as a "source of strength" for their bank's
subsidiaries. The Bank meets the requirements for the well capitalized
category.
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Federal bank regulatory officials are authorized to impose substantial
penalties on financial institutions, their officers, directors, and other
"institution affiliated parties" that violate the law, regulations or orders of
the federal regulators, or engage in unsafe and unsound practices or, operate
the bank in an unsafe and unsound condition, among other reasons. These
penalties were substantially strengthened in 1989 when Congress enacted the
Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA").
Regulatory officials are authorized to issue cease and desist orders, orders
removing officers and directors from financial institutions, orders imposing
civil money penalties, and orders requiring restitution for damages caused by
misconduct or negligence. In addition, federal regulatory bank officials can
refer conduct to the Department of Justice for prosecution in cases of criminal
misconduct.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Interstate Act") authorizes interstate acquisitions of banks and
bank holding companies without geographic limitation beginning one year after
enactment. In addition, beginning in June 1997, the Interstate Act authorizes
banks to merge with banks in another state as long as neither of the states has
adopted legislation "opting out" of interstate branching between the date of
enactment of the Interstate Act and May 31, 1997. The Interstate Act also
provides that states may permit interstate mergers prior to June 1, 1997 if
they so desire. While the Company is unable to predict the precise effects of
the Interstate Act, it is likely that the banking industry will become still
further concentrated and that competition may intensify.
The Company is subject to the jurisdiction of the Securities and
Exchange Commission (the "SEC") and various state securities commissions for
matters relating to the Company's offering and sale of its securities. In
addition, the Company is subject to the SEC's rules and regulations concerning
periodic reporting to shareholders and the SEC, proxy solicitation, and insider
trading.
Several bills have been introduced in Congress that would, if adopted,
significantly alter the federal regulation of banks and their holding
companies. The Company is unable to predict whether any will be enacted, or if
enacted, what effect they will have on the Company or the Bank.
The Bank
As a state-chartered bank that is not a member of the Federal Reserve
System, the Bank, incorporated under the Texas Banking Code, is an insured bank
under the Federal Deposit Insurance Act and is subject to primary regulation
and examination by the Department of Banking of the State of Texas and the
Federal Deposit Insurance Corporation ("FDIC"). Such regulation relates to
reserves against deposits, issuance of capital notes, restrictions on loans to
and in investments in subsidiaries, mergers, acquisitions, restrictions on
investments, restrictions on businesses in which such banks and their
subsidiaries may engage, branching, consumer protection and various other
aspects of banking.
Bank Dividend Regulation
Prior to the declaration of any dividend by a state-chartered bank,
such bank must transfer to "certified surplus" an amount not less than 10% of
its net profits earned since the last dividend was declared, as long as
certified surplus is less than the capital of such bank. Additionally, banking
regulations restrict the amount of dividends that may be paid by the Bank to
the Company without prior approval of the Bank's regulatory agency and subject
to minimum capital restrictions.
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Currently, the Bank is precluded from paying dividends to the Company which
would result in an equity to assets ratio of less than 6% without prior
approval of the banking regulators.
Economic Environment
The policies of regulatory authorities, including the monetary policy
of the FRB, have a significant effect on the operating results of bank holding
companies and their subsidiaries. Among the means available to the FRB to
affect the money supply are the open market operations in U.S. Government
securities, changes in the discount rate on member bank borrowings, and changes
in reserve requirements against member bank deposits. These means are used in
varying combinations to influence overall growth and distribution of bank
loans, investments and deposits and their use may affect interest rates charged
on loans or paid for deposits.
FRB monetary policies have materially affected the operating results
of commercial banks in the past and are expected to continue to do so in the
future. The nature of future monetary policies and the effect of such policies
on the business and earnings of the Company and Bank cannot be predicted.
Regional Economy
Throughout 1994, the Corpus Christi Metropolitan Area ("Metropolitan
Area") has enjoyed continued growth in vital segments of the local economy.
The primary industries of the Metropolitan Area which consist of real estate,
tourism, petrochemical and the military exhibited positive trends throughout
1994, while other industries such as medical and education emerged as
important parts of a more diversified base.
The local job market continues a slow growth, with the number of
employed area residents totaling 142,400 as of November 1994, which reflects a
1.4% increase over the November 1993 figure of 140,400. The most notable
increase was seen in the trade and service industries, as these segments
provided 1,600 new jobs during the past twelve months. Another positive trend
associated with the local labor force was the unemployment rate, which had
decreased to 8.1% as of November 1994 from the 9.1% rate exhibited one year
earlier.
Overall, the real estate industry enjoyed a healthy 1994, marking the
third consecutive year of growth for this economic segment. Through the first
part of the year, mortgage rates remained favorable in the 6.50%-7.50% range,
which not only afforded prospective home-owners the opportunity to purchase,
but also gave existing home-owners the chance to refinance. However, during
the latter portion of 1994, mortgage rates began to increase, and as a result,
activity in the market declined.
Construction permits (both commercial and residential) through
November 1994 totaled $180.1 million, which is a 15.1% increase over 1993
levels of $156.5 million. Furthermore, the 1994 level compares favorably to the
1992, 1991 and 1990 year-end marks of $146 million, $82.5 million, and $67
million, respectively. In 1994, the construction industry benefited from four
new hotel projects and two new restaurants on the City's southside, along with
the new telecommunication center for First Data Corporation, located off of
North Padre Island Drive. Additionally, ground-
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breaking has recently taken place associated with the construction of two new
automobile dealerships on the City's southside.
Another vital segment of the local economy is the tourism industry,
which continues to show positive trends in terms of convention delegates
hosted, average hotel/motel occupancy rates, and tax receipts. Through
November 1994, the City hosted 45,223 convention delegates, which represents an
increase of 80% over the 25,158 convention delegates hosted for the same period
last year. Room-night bookings for Corpus Christi area hotels in fiscal year
1994 doubled that of 1993 and represented the largest increase in Texas,
according to the Corpus Christi Area Convention & Visitors Bureau. Hotel tax
receipts totaled $3.8 million through November 1994, a 5.48% increase over 1993
levels, while the average room and occupancy rates were up .24% and 2.24%,
respectively. The Convention & Visitors Bureau continues efforts to recruit
conventions and other groups to the Metropolitan Area, attempting to further
increase City sales tax receipts, which were up 6.8% in 1994. As previously
mentioned, three contiguous hotel projects are currently in construction near
the Moore Plaza Shopping Center, while a fourth project is being constructed on
South Padre Island Drive towards the Padre Island National Seashore. These
projects are estimated to provide an additional 200 hotel rooms for the City.
The third cornerstone industry of the local economy is the
petrochemical industry. The local petrochemical refineries remain a vital part
of the local economy through both capital investment and creation of jobs in
the service sector of the labor force. During the past two years, the
community has benefited from over $7 million of Industrial District
Investments from the six largest local refineries, which include Oxy
Petrochemicals, Koch Refining, CITGO Refining, Valero Refining, Southwestern
Refining and Coastal Refining & Marketing. Perhaps the most important element
of the petrochemical industry is the continued vitality of the Port of Corpus
Christi. The Port industries have invested over $4.23 billion in capital
expansions since 1984, and has handled over 70 million tons of cargo every year
since 1990. Through November 1994, the Port had moved 70.6 million tons of
cargo, a 1.76% increase over 1993 levels. While petrochemical goods comprise
the overwhelming portion of Port cargo, efforts continue to be made to
transform the Port into a variable activity facility, and in 1995 the major
thrust of the Port's effort is to strengthen its ability to handle general
cargoes on both sides of the ship channel. The Port has budgeted $9.6 million
in capital improvements for 1995 as part of its $29.5 million budget.
Another key part of the local economy is the military industry. In
1993, local military installations not only survived the Congressional base
closures, but actually received additional manpower and operations from other
national defense installations which were closed. As a result, 1994 was a year
of growth for this industry, especially at the Naval Station Ingleside, which
received additional minesweeping fleets. Other local military facilities
(Corpus Christi NAS and Kingsville NAS) remain in full operation, as does the
area's largest civilian employer, the Corpus Christi Army Depot. While all of
these installations will again face the possibility of closures in 1995, the
local military continues to play a vital economic role for the area.
As previously mentioned, the medical and education industries are
emerging as increasingly important parts of the local economic base. Two new
hospitals (Bay Area Medical and Spohn South) have recently been completed and
are serving the City's growing southside. These new hospitals compliment the
existing hospitals and health care facilities in the local area, and through
the attraction of additional physicians and health services, should make the
Corpus Christi area the
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medical "hub" for south Texas and northern Mexico. With regard to education,
Texas A&M University at Corpus Christi recently became an accredited four-year
university. As part of the Texas A&M University System, the local community
should benefit from a larger student base and expanded faculty and resources.
Local school districts are also an important part of the local economy. The
five City school districts (Corpus Christi ISD, Calallen ISD, Flour Bluff ISD,
Tuloso Midway ISD and West Oso ISD) employ close to 4,000 area residents, with
the Corpus Christi ISD employing over 3,000 residents, making it the third
largest local employer in the area.
While the local economy has enjoyed sustained and somewhat diversified
growth during the past three years, local and area leaders face new challenges
in 1995. The continuing emergence of NAFTA, the upcoming Congressional base
closure hearings and the effects of the new Republican Congress are anticipated
to be key issues facing local officials. The public-policy decisions related
to these issues are key to any continued economic growth in the Metropolitan
Area for 1995 and beyond.
The full sweeping effects of NAFTA continue to be explored. Local and
area officials remain optimistic that south Texas, and more specifically the
Metropolitan Area, will derive substantial benefits from this legislation
through an increased manufacturing base, improved trade and greater
transportation network. The Port of Corpus Christi will perhaps be the City's
biggest asset with regard to NAFTA. With its deep water facilities and close
proximity to the Mexican border, coupled with the Foreign Trade Zone status,
the Port would be a logical recipient of increased trade and therefore could
increase its local reinvestment through a more product-varied facility.
Perhaps the most crucial issue during 1995 will be the outcome of the
local military facilities after the final round of the Congressional military
base closure hearings. Local officials are confident that the additional
manpower and increased operations as a result of the 1993 hearings will provide
a positive result during this upcoming round. Yet, this optimism is somewhat
tempered with the uncertainty of the hearings and the possible detrimental
effects of any base closures. The four local military installations have a
combined workforce of 11,600, and all are top ten area employers. Any
reductions in these workforces will have a profound economic effect on the
area.
The first Republican-majority Congress in 44 years was elected in
1994, and the ability of this law-making body to set domestic agenda with the
Clinton administration will have a significant impact on all local communities
across the nation, including south Texas. While "change" appears to be the key
phrase in Washington, one of the most controversial pieces of legislation in
1995 is a holdover from 1994, "healthcare reform." With the increased emphasis
on the healthcare community in Corpus Christi, as evidenced by the construction
of two new hospitals during the last 15 months, any legislative reform will
impact the growing and emerging local medical industry. On the state level,
Texas has a new Governor, and the ability of local law-makers and other state
officials to effectively promote legislation to benefit south Texas will also
have a significant impact on local decision-making.
Vital segments of the area's economic base continued to exhibit
positive trends throughout 1994, yet external factors such as NAFTA, base
closure hearings and domestic policy will provide new challenges for local
officials. Continued diversification of the local economy through innovative
measures is needed to position the area for the late 1990's and beyond. Corpus
Christi, and its surrounding area, must capitalize on any benefits from NAFTA,
continue to market itself
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as a tourist designation and emphasize service-related industries (medical,
petrochemical, etc.) to ensure continued local reinvestment from the
cornerstone industries for the betterment of the local community.
The continued economic recovery in the regional economy has resulted
in continued loan and deposit growth for the Company during 1994 and has also
been a factor in reducing the Company's nonperforming assets during 1994. At
year-end 1994, net loans totaled $92.1 million, up $15.0 million or 19.5%,
compared to $77.1 million the previous year. The Company's deposits increased
to $157.7 million at year-end 1994, up $10.9 million or 7.4%, compared to
$146.8 million the prior year. The Company's level of nonperforming assets
decreased from $2.2 million at year-end 1993 to $1.1 million at year-end 1994.
In spite of a modest recovery in the local economy since 1989, the energy and
real estate sector remain as items of great concern and will continue to impact
the Company's progress in reducing its nonperforming assets. Consequently, the
ultimate impact that the economy could have on the Company and its subsidiaries
cannot be predicted. See also "Management's Discussion and Analysis or Plan of
Operations," Item 6 of this Report.
Certain Statistical Information
The statistical disclosure for bank holding companies required by
Guide 3 of the Industry Guides promulgated by the Securities and Exchange
Commission is located on page 1 and on pages 9 through 27 of the Company's 1994
Annual Report to Shareholders. Such information is incorporated herein by
reference.
Item 2. Properties
Principal Offices
The principal offices of the Company and the Bank are located at 2402
Leopard Street, Corpus Christi, Texas. Such principal offices comprise a
four-story building which is owned unencumbered by the Bank. The Bank's
facilities at 2402 Leopard Street also include a sixteen lane drive-in banking
facility and approximately 94,000 square feet of parking lots adjacent to the
Bank's main building and drive-in facilities. The drive-in facilities and
parking lots are owned unencumbered by the Bank.
Medical Tower Banking Offices
The Medical Tower Banking Center is located on the first floor of the
eight-story Corpus Christi Medical Tower located at 1521 South Staples Street,
Corpus Christi, Texas. The facility has approximately 2,033 square feet of
office space and is leased by the Bank with an annual rental of $45,924. Such
lease expires on October 1, 1996. The Medical Tower Banking center offers the
same services as the main bank except for safety deposit box services.
Village Banking Offices
The Village Banking Center is located in the Village Shopping Center
at 3801 South Alameda Street, Corpus Christi, Texas. The facility has
approximately 1,665 square feet and is leased by the Bank at an annual rental
of $30,000. Such lease expires on November 30, 1997 with
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a one-time five year renewal option. The leased property is owned by Vestland
Partnership. The principals of such partnership are Mr. Gary Roberts, Mr. L.
L. Woodman, Jr., Mr. Giles Giddings and Mr. James King, each of whom owns a
twenty-five percent interest in the partnership. Mr. Woodman, Jr. is a
Director of the Company and the Bank and beneficially owns 32,602 shares (2.02%
of shares outstanding) of the Company's Stock. The terms and conditions of
such lease agreement are comparable to other area lease arrangements. The
leased property has a fair market rent of $1.38 per square foot with comparable
sites renting from $1.40 to $1.55 per square foot. The Village Banking Center
offers the same services as the main bank except for safety deposit box
services.
The South Banking Offices
The South Banking Center is located at 6230 South Staples Street,
Corpus Christi, Texas. The Bank owns approximately 2 acres of land at this
site which was purchased in 1993 for $480,000. The Bank operates a 5,000 square
feet facility which opened in November 1994 and offers the same services as the
main bank. Such offices comprise a one story building which is owned
unencumbered by the Bank.
West Banking Offices
The West Banking Center is located in the Five Points Shopping Center
at 4101 Highway 77, L-1, Corpus Christi, Texas 78410. The facility has
approximately 1,560 square feet and is leased by the Bank at an annual rental
of $29,076. Such lease is a three year lease which expires on September 30,
1997. The leased property is owned by Jerry J. Moore Investments, P.O. Box
6564, Houston, Texas 77265. The sole principals of such partnership are Jerry
J. Moore and his wife, Jean H. Moore. The Five Points Banking Center offers
the same services as the main bank except for safety deposit box services.
Item 3. Legal Proceedings
The Company and the Bank are parties to routine litigation and claims
arising out of the conduct of their respective businesses, none of which the
Company considers material to its financial condition. No similar proceedings
are known to be contemplated by any governmental authority.
Item 4. Submission of Matters to a Vote of Security-Holders
No matters were submitted to a vote of security-holders of the Company
during the fourth quarter of the fiscal year covered by this Report.
12
<PAGE> 13
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters
Summary Common Stock Information
<TABLE>
<CAPTION>
1994 Quarter 1993 Quarter
-------------------------------------- --------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High $11.750 $10.250 $10.500 $10.500 $5.000 $5.000 $5.000 $15.250
Low 9.500 8.750 9.750 9.625 4.750 4.750 4.750 6.000
</TABLE>
The above quotations for the first 3 quarters of 1993 reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may
not represent actual transactions. The above quotations for 1993 have been
adjusted to reflect a 300% stock dividend that occurred in October of 1993.
Certain additional information concerning the Common Stock of the Company is
included on page 9 of the Company's 1994 Annual Report to Shareholders under
the heading "Shareholder Information". Such information is incorporated
herein by reference.
Item 6. Management's Discussion and Analysis or Plan of Operations
Certain information concerning Management's Discussion and Analysis of
Financial Condition and Results of Operations is located on pages 1 and 2 and
on pages 9 through 27 of the Company's 1994 Annual Report to Shareholders.
Such information is incorporated herein by reference.
Item 7. Financial Statements
The Consolidated Financial Statements located on pages 28 through 48
of the Company's 1994 Annual Report to Shareholders are incorporated herein by
reference.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
In the two most recent fiscal years preceding the date of the
Company's most recent financial statements, the Company has not filed a Form
8-K report under the Securities Exchange Act of 1934, as amended, reporting a
change or disagreement with accountants.
13
<PAGE> 14
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Certain information concerning the Directors and Executive Officers of
the Company is located on pages 2 through 6 of the Company's Proxy Statement
filed with the Commission, under the heading "Information Concerning Nominees
and Directors," and is incorporated herein by reference. Certain information
concerning Compliance with Section 16(a) of the Exchange Act is located on page
9 of the Company's Proxy Statement filed with the Commission, under the heading
"Compliance with Section 16(a) of the Securities Exchange Act of 1934," and is
incorporated herein by reference.
Item 10. Executive Compensation
Certain information concerning Executive Compensation is located on
pages 8 and 9 of the Company's Proxy Statement filed with the Commission, under
the heading "Executive Compensation," and is incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Certain information concerning Security Ownership of Certain
Beneficial Owners and Management is located on pages 3 through 6, under the
heading "Information Concerning Nominees and Directors," and on page 9, under
the heading "Principal Shareholders," of the Company's Proxy Statement filed
with the Commission and is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions
Certain information concerning Certain Relationships and Related
Transactions is located on page 9 of the Company's Proxy Statement filed with
the Commission, under the heading "Certain Transactions," and is incorporated
herein by reference.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits: See Index to Exhibits, Page 18.
(b) Reports on Form 8-K.
The Company was not required to file any report on Form 8-K
during the three-month period ended December 31, 1994.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Corpus Christi Bancshares, Inc. has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CORPUS CHRISTI BANCSHARES, INC.
(Registrant)
By:
/s/ John T. Wright, III
-------------------------------------
John T. Wright, III,
Chairman of the Board
Date: March 15, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ John T. Wright, III Chairman of the Board 03-15-95
----------------------------- and Director
John T. Wright, III
/s/ R. Jay Phillips President and Chief 03-15-95
------------------------------- Executive Officer and
R. Jay Phillips Director
/s/ Eduardo A. Lopez Secretary 03-15-95
---------------------------
Eduardo A. Lopez
/s/ Jimmy M. Knioum Treasurer 03-15-95
---------------------------
Jimmy M. Knioum
/s/ John C. Brooke Director 03-15-95
----------------------------
John C. Brooke
/s/ Marvin L. Berry Director 03-15-95
----------------------------
Marvin L. Berry
</TABLE>
15
<PAGE> 16
<TABLE>
<S> <C> <C>
/s/ J.B. Clark Director 03-15-95
------------------------------
J.B. Clark
/s/ Joe R. DeLeon, Jr. Director 03-15-95
---------------------------
Joe R. DeLeon, Jr.
/s/ Roy M. Grassedonio Director 03-15-95
-------------------------
Roy M. Grassedonio
/s/ Stephen R. Karp Director 03-15-95
---------------------------
Stephen R. Karp
/s/ Jack Powers Director 03-15-95
-----------------------------
Jack Powers
/s/ Roscoe M. Smith Director 03-15-95
---------------------------
Roscoe M. Smith
/s/ L.L. Woodman, Jr. Director 03-15-95
---------------------------
L.L. Woodman, Jr.
/s/ John T. Wright, Jr. Director 03-15-95
-----------------------------
John T. Wright, Jr.
</TABLE>
16
<PAGE> 17
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
____________________
EXHIBITS
TO
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
____________________
For the Fiscal Year Ended December 31, 1994
Commission File Number 0-13668
____________________
CORPUS CHRISTI BANCSHARES, INC.
17
<PAGE> 18
CORPUS CHRISTI BANCSHARES, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Numbered
Page
------------
<S> <C> <C>
3.1 *Articles of Incorporation of the Company, as amended (incorporated herein by
reference to Exhibit 3.a of the Company's Form 10-K for the fiscal year ended
December 31, 1990. Filed with the Securities and Exchange Commission on March 29,
1991.) ------------
3.2 Bylaws of the Company, as amended. ------------
4.1 *Form of Certificate for Company's Common Stock, $5.00 par value (incorporated
herein by reference to Exhibit 4.a of the Company's Form 10-K for the fiscal year
ended December 31, 1993. Filed with the Securities and Exchange Commission on March
24, 1994.) ------------
10.1 *Lease Agreement dated July 24, 1985, between Medical Plaza Associates and Citizens
State Bank of Corpus Christi (incorporated herein by reference to Exhibit 10 of the
Company's Form 10-K for the fiscal year ended December 31, 1993. Filed with the
Securities and Exchange Commission on March 24, 1994.) ------------
10.2 *Lease Agreement dated December 1, 1992 between Vestland Partnership and Citizens
State Bank of Corpus Christi (incorporated herein by reference to Exhibit 10 to the
Company's Form 10-K for the fiscal year ended December 31, 1992. Filed with the
Securities and Exchange Commission on March 29, 1993.) ------------
10.3 Lease Agreement dated June 24, 1994, between Jerry J. Moore Investments and Citizens
State Bank of Corpus Christi. ------------
10.4 *Corpus Christi Bancshares, Inc. Nonqualified Stock Option Plan and Stock Option
Agreement under the Corpus Christi Bancshares, Inc. Nonqualified Stock Option Plan
(incorporated herein by reference to Exhibit 10 to the Company's Form 10-K for the
fiscal year ended December 31, 1994. Filed with the Securities and Exchange
Commission on March 24, 1994.) ------------
13. Company's 1994 Annual Report to Shareholders ------------
21. Subsidiaries of the Company ------------
27. Financial Data Schedule ------------
</TABLE>
* Previously filed. Deemed filed only with respect to those portions
thereof expressly incorporated herein by reference.
18
<PAGE> 1
EXHIBIT 3.2
<PAGE> 2
AMENDED BYLAWS
OF
CORPUS CHRISTI BANCSHARES, INC.
MARCH 1995
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I - OFFICES AND AGENT 1
-----------------------------
ARTICLE II - SHAREHOLDERS
-------------------------
Section 2.01 - Annual Meeting 1
Section 2.02 - Special Meetings 1
Section 2.03 - Place of Meeting 1
Section 2.04 - Notice of Meeting 2
Section 2.05 - Fixing of Record Date 2
Section 2.06 - Voting Lists 2
Section 2.07 - Quorum 2
Section 2.08 - Proxies 3
Section 2.09 - Voting of Shares 3
Section 2.10 - Voting of Shares by Certain Holders 3
Section 2.11 - Preemptive Rights and Cumulative
Voting Prohibited 4
Section 2.12 - Actions Without a meeting 4
Section 2.13 - Telephone Meetings 4
Section 2.14 - Nominating Committee 4
Section 2.15 - New Business 5
ARTICLE III - BOARD OF DIRECTORS
--------------------------------
Section 3.01 - General Power 6
Section 3.02 - Number, Classes and Tenure 6
Section 3.03 - Regular Meetings 6
Section 3.04 - Special Meetings 6
Section 3.05 - Notice 6
Section 3.06 - Quorum and Voting 6
Section 3.07 - Manner of Acting 7
Section 3.08 - Vacancies 7
Section 3.09 - Removal 7
Section 3.10 - Compensation 7
Section 3.11 - Presumption of Assent 7
Section 3.12 - Interest of Directors in
Contracts 7
Section 3.13 - Executive and Other Committees 7
Section 3.14 - Advisory Directors 8
</TABLE>
(i)
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE IV - OFFICERS
---------------------
Section 4.01 - Number 8
Section 4.02 - Election and Term of Office 8
Section 4.03 - Removal 8
Section 4.04 - Vacancies 9
Section 4.05 - Chairman of the Board of
Directors 9
Section 4.06 - Vice Chairman of the Board of
Directors 9
Section 4.07 - President 9
Section 4.08 - The Vice President 9
Section 4.09 - The Secretary 10
Section 4.10 - The Treasurer 10
Section 4.11 - Assistant Secretaries and Assistant
Treasurers 10
Section 4.12 - Salaries 10
Section 4.13 - Stock Options 10
Section 4.14 - Voting Shares of Other Corporations 11
ARTICLE V - CERTIFICATES FOR SHARES AND THEIR TRANSFER
------------------------------------------------------
Section 5.01 - Certificates for Shares 11
Section 5.02 - Transfer of Shares 11
Section 5.03 - Lost Certificates 11
ARTICLE VI - FISCAL YEAR 12
------------------------
ARTICLE VII - DIVIDENDS 12
-----------------------
ARTICLE VIII - SEAL 12
-------------------
ARTICLE IX - WAIVER OF NOTICE 12
-----------------------------
ARTICLE X - PROCEDURE 12
---------------------
ARTICLE XI - PARTICIPATION OF DIRECTORS AND
OFFICERS IN RELATED BUSINESS 12
----------------------------
ARTICLE XII - AMENDMENTS 13
------------------------
</TABLE>
(ii)
<PAGE> 5
AMENDED BYLAWS
OF
CORPUS CHRISTI BANCSHARES, INC.
ARTICLE 1 - OFFICES AND AGENT
The Corporation may have such offices, either within or without the
State of Texas, as the Board of Directors may designate or as the business of
the Corporation may require from time to time.
The registered office of the Corporation required by the Texas
Business Corporation Act to be maintained in the State of Texas may be, but
need not be, identical with the principal office in the State of Texas, as
designated by the Board of Directors. The address of the registered office may
be changed from time to time by the Board of Directors.
The address of the initial registered office of the Corporation shall
be 2402 Leopard Street, Corpus Christi, Texas, 78408, and the name of the
initial registered agent of the Corporation at such address shall be John T.
Wright, Jr.
ARTICLE II - SHAREHOLDERS
Section 2.01 - Annual Meeting. The annual meeting of the shareholders
shall be held on such date in each year and at such time and place as may be
determined by the Board of Directors, for the purpose of electing directors and
for the transaction of such other business as may come before the meeting. If
the day fixed for the annual meeting shall be a legal holiday in the State of
Texas, such meeting shall be held on the next succeeding business day. If the
election of directors shall not be held on the day designated herein for any
annual meeting of the shareholders or at any adjournment thereof, the Board of
Directors shall cause the election to be held at a special meeting of the
shareholders as soon thereafter as may be convenient.
Section 2.02 - Special Meetings. Special meetings of the
shareholders, for any purpose or purposes, unless otherwise prescribed by
statute, may be called by the Chairman of the Board of Directors, the President
or by the Board of Directors, and shall be called by the President at the
request of the holders of not less than one-tenth (1/10) of all the outstanding
shares of the Corporation entitled to vote at the meeting.
Section 2.03 - Place of Meeting. The Board of Directors may designate
any place, either within or without the State of Texas, as the place of meeting
for any annual meeting or for any special meeting called by the Board of
Directors. A waiver of notice signed by all shareholders entitled to vote at a
meeting may designate any place, either within or without the State of Texas,
as the place for holding of such meeting. If no designation is made, or if a
special meeting be otherwise called, the place of meeting shall be the
registered office of the Corporation in the State of Texas.
<PAGE> 6
Section 2.04 - Notice of Meeting. Written or printed notice stating
the place, day and hour of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not
less than ten (10) nor more than fifty (50) days before the date of the
meeting, either personally or by mail, by or at the direction of the Chairman
of the Board of Directors, the President, or the Secretary, or the officer or
persons calling the meeting, to each shareholder of record entitled to vote at
such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, addressed to the shareholder at his
address as it appears on the stock transfer books of the Corporation, with
postage thereon prepaid. Waiver by a shareholder in writing of notice of a
shareholder's meeting, signed by him, whether before or after the time of such
meeting, signed by him, whether before or after the time of such meeting, shall
be equivalent to the giving of such notice. Attendance by shareholder, whether
in person or by proxy, at a shareholder's meeting shall constitute a waiver of
notice of such meeting of which he has had no notice.
Section 2.05 - Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the Board of Directors may, by resolution, fix in advance a
date as the record date for any such determination of shareholders, such date
in any case to be not more than sixty (60) days and, in case of a meeting of
shareholders, not less than ten (10) days prior to the date on which the
particular action, requiring such determination of shareholders, is to be
taken. If no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be the record
date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this Section, such determination shall apply to any adjournment
thereof. The stock transfer books shall not be closed for purposes of
determining shareholders of record.
Section 2.06 - Voting Lists. The officer or agent having charge of
the stock transfer books for shares of the Corporation shall make, at least ten
(10) days before each meeting of shareholders, a complete list of the
shareholders entitled to vote at such meeting, or any adjournment thereof,
arranged in alphabetical order, with the address and the number of shares held
by each, which list, for a period of ten (10) days prior to such meeting, shall
be kept on file at the registered office of the Corporation, and shall be
subject to inspection by any shareholder at any time during usual business
hours. Such list shall also be produced and opened at the time and place of
the meeting and shall be subject to the inspection by any shareholder during
the whole time of the meeting. The original stock transfer book shall be prima
facie evidence as to who are the shareholders entitled to examine such list or
transfer books or to vote at any meeting of shareholders.
Section 2.07 - Quorum. The holders of at least fifty percent (50%) of
the outstanding shares of the Corporation entitled to vote, and represented in
person or by proxy, shall constitute a quorum at a meeting of shareholders. If
less than a majority of the outstanding shares are represented at a meeting, a
majority of the shares so represented may adjourn the meeting from
-2-
<PAGE> 7
time to time without further notice. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted as originally notified. The shareholders present at
a duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
Section 2.08 - Proxies. At all meetings of shareholders, a shareholder
may vote by proxy executed in writing by the shareholder or by his duly
authorized attorney in fact. Such proxy shall be filed with the Secretary of
the Corporation before or at the time of the meeting. No proxy shall be valid
after eleven (11) months from the date of its execution, unless otherwise
provided in the proxy. Each proxy shall be revocable unless expressly provided
therein to be irrevocable, and in no event shall it remain irrevocable for a
period of more than eleven (11) months.
Section 2.09 - Voting of Shares. Subject to the provisions of Section
2.10 of this Article II, each outstanding share entitled to vote shall be
entitled to one (1) vote upon each matter submitted to a vote at a meeting of
shareholders.
Section 2.10 - Voting of Shares by Certain Holders. Shares standing
in the name of another corporation (except shares owned by another corporation
the majority of the voting stock of which is owned or controlled by the
Corporation) may be voted by such officer, agent or proxy as the bylaws of such
other corporation may prescribe, or, in the absence of such provision, as the
Board of Directors of such other corporation may determine. Shares owned by
another corporation the majority of the voting stock of which is owned or
controlled by the Corporation shall not be voted, directly or indirectly, at
any meeting, and shall not be counted in determining the total number of
outstanding shares at any given time.
Treasury shares and shares of its own stock held by the Corporation in
a fiduciary capacity shall not be voted, directly or indirectly, at any
meeting, and shall not be counted in determining the total number of
outstanding shares at any given time. The foregoing sentence shall not apply
to shares of the Corporation's stock held by a subsidiary of the Corporation in
a fiduciary capacity.
In the election of directors of the Corporation, shares of the
Corporation's stock held by its banking subsidiary as the sole personal
representative of an estate or the sole trustee of a trust, whether registered
in such subsidiary's own name in such capacity or in the name of such
subsidiary's nominee, shall not be voted by such subsidiary unless under the
terms of the will or trust the manner in which such shares shall be voted may
be determined by a donor or beneficiary of the will or trust and unless such
donor or beneficiary actually directs how such shares shall be voted, and
shares of the Corporation's stock held by its banking subsidiary and one or
more other person or persons in any such capacities may be voted by such other
person or persons in the same manner as if such person or persons were the sole
personal representative or sole trustee. Whenever shares of the Corporation's
stock cannot be voted by reason of being held by the Corporation's banking
subsidiary as sole personal representative or sole trustee, such shares shall
be excluded in determining whether matters voted upon by the shareholders were
adopted by the requisite percentage of shares.
-3-
<PAGE> 8
Except as provided above, shares held by an administrator, executor,
guardian, or conservator may be voted by him either in person or by proxy, so
long as such shares are in the possession and form part of the estate being
served by him, without a transfer of such shares into his name. Except as
provided above, shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name as trustee.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority to do so
be contained in an appropriate order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of a pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Section 2.11 - Preemptive Rights and Cumulative Voting Prohibited.
The denial of preemptive rights and cumulative voting shall be as set forth in
the Articles of Incorporation of the Corporation.
Section 2.12 - Actions Without a Meeting. Any action required to be
taken at a meeting of shareholders, or any action which may be taken at a
meeting of the shareholders, may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof, and
such consent shall have the same force and effect as a unanimous vote of the
shareholders.
Section 2.13 - Telephone Meetings. At any meeting of the Board of
Directors or any committee thereof, members may attend by conference telephone,
radio, television or similar means of communication by means of which all
persons participating in the meeting can hear each other, and all members so
attending shall be deemed present at the meeting for all purposes including the
determination of whether a quorum is present.
Section 2.14 - Nominating Committee. Only persons who are nominated
in accordance with the procedures set forth in this Section 2.14 shall be
eligible for election as directors.
The board shall compose the nominating committee for selecting the
management nominees for election of directors. Except in the case of a nominee
substituted as a result of the death or incapacity of a management nominee, the
nominating committee shall deliver written nominations to the Secretary of the
Corporation at least 45 calendar days prior to the month and day in the current
year that corresponds to the month and day in the previous year on which the
annual meeting of the shareholders of the Corporation was held, if not a legal
holiday, and if a legal holiday, then prior to the day next following which is
not a legal holiday (for purposes of this Section 2.14, the "Previous Year's
Annual Meeting Date"). Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Corporation. No nominations for
directors, except those made by the nominating committee, shall be voted upon
at the annual meeting of the shareholders unless other nominations by
shareholders are made in accordance with the provisions
-4-
<PAGE> 9
of this Section 2.14. Any shareholder entitled to vote in the election of
directors generally may nominate one or more persons for election as directors
at an annual meeting of the shareholders only if written notice of such
shareholder's intent to make such nomination or nominations has been given
pursuant to timely notice in writing delivered to the Secretary of the
Corporation. To be timely, a shareholder's notice shall be received at the
principal executive offices of the Corporation not less than 45 calendar days
prior to the Previous Year's Annual Meeting Date. Such shareholder's notice
shall set forth (a) as to each person whom the shareholder proposes to nominate
for election or re-election as a director, (i) the name and address of the
person or persons, (ii) a description of all arrangements or understandings
between the shareholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination or nominations
are to be made by the shareholder or that otherwise relate to such nomination
or nominations, (iii) such other information regarding each nominee proposed by
such shareholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission had the
nominee been nominated, or intended to be nominated, by the Board, and (iv) the
consent of each nominee to serve as a director of the Corporation if so elected
and (b) as to the shareholder giving the notice and the shareholder who intends
to make the nomination, (i) the name and address of the shareholder, (ii) a
representation that the shareholder is the holder of record of stock of the
Corporation entitled to vote at such annual meeting and intends to appear in
person or by proxy at the meeting to nominate the person or persons specified
in the notice, and (iii) the class and number of shares of capital stock of the
Corporation which are beneficially owned by the shareholder. At the request of
the Board, any person nominated by the Board for election as a director shall
furnish to the Secretary of the Corporation that information required to be set
forth in a shareholder's notice of nomination which pertains to the nominee.
The chairman of the annual meeting may refuse to acknowledge the nomination of
any person not made in compliance with the foregoing procedure.
Section 2.15 - New Business. At an annual meeting of the shareholders
only such new business shall be conducted, and only such proposals shall be
acted upon, as shall have been properly brought before the meeting. To be
properly brought before the annual meeting of the shareholders, new business
must be either (a) specified in the notice of meeting (of any supplement
thereto) given by or at the direction of the Board, (b) otherwise properly
brought before the meeting by or at the direction of the Board or (c) otherwise
properly brought before the meeting by a shareholder. For a proposal to be
properly brought before an annual meeting by a shareholder, the shareholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a shareholder's notice must be received by the
Secretary of the Corporation not less than 45 calendar days prior to the month
and day in the current year that corresponds to the month and day in the
previous year on which the annual meeting of the shareholders of the
Corporation was held, if not a legal holiday, and if a legal holiday, then
prior to the day next following which is not a legal holiday. A shareholder's
notice to the Secretary of the Corporation shall set forth as to each matter
the shareholder proposes to bring before the annual meeting (a) a brief
description of the proposal desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name
and address of the shareholder proposing such business, (c) the class and
number of shares of the Corporation which are beneficially owned by the
shareholder and (d) a description of all arrangements or understandings between
the shareholder and any other person or persons (naming such person or persons)
pursuant to which the proposal is to be made by the shareholder or that
-5-
<PAGE> 10
otherwise relate to the proposal. Notwithstanding anything in the Bylaws to
the contrary, no business shall be conducted at an annual meeting of the
shareholders except in accordance with the procedures set forth in this Section
2.15.
ARTICLE III - BOARD OF DIRECTORS
Section 3.01 - General Power. The business and affairs of the
Corporation shall be managed by its Board of Directors except as the Board of
Directors shall delegate the power to so manage to the Executive Committee or
other committee.
Section 3.02 - Number, Classes and Tenure. The number, classification
and tenure of the directors shall be as set forth in the Articles of
Incorporation of the Corporation.
Section 3.03 - Regular Meetings. A regular meeting of the Board of
Directors shall be held without notice other than this Bylaw immediately after,
and at the same place as, the annual meeting of shareholders. The Board of
Directors may provide, by resolution, the time and place, either within or
without the State of Texas, for the holding of additional regular meetings
without other notice than such resolution.
Section 3.04 - Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the President or any two (2)
directors. The person or persons authorized to call special meetings of the
Board of Directors may fix any place, either within or without the State of
Texas, as the place for holding any special meeting of the Board of Directors
called by them.
Section 3.05 - Notice. Notice of any special meeting shall be given
at least two (2) days previous thereto by written notice delivered personally
or mailed to each director at his business address, or by telegram. If mailed,
such notice shall be deemed to be delivered when deposited in the United States
Mail so addressed, with postage thereon prepaid. If notice be given by
telegram, such notice shall be deemed to be delivered when the telegram is
delivered to the telegraph company. Any director may waive notice of any
meeting. The attendance of a director at a meeting shall constitute a waiver
of notice of such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business because that
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of any regular or special meeting of the Board
of Directors need be specified in the notice, or waiver of notice of such
meeting.
Section 3.06 - Quorum and Voting. At all meetings of the Board of
Directors a majority of the directors at the time in office shall be necessary
and sufficient to constitute a quorum for the transaction of business; and the
act of a majority of the directors resent at any meeting at which there is a
quorum shall be the act of the Board of Directors, except as it may be
otherwise specifically provided by the Articles of Incorporation of the
Corporation, section 3.07 or Section 3.13 of these Bylaws. If a quorum shall
not be present at any meeting of the directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
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Section 3.07 - Manner of Acting. Any action required or permitted to
be taken at a meeting of the Board of Directors or the Executive Committee or
any other committee may be taken without a meeting, if a consent in writing,
setting forth that action so taken, is signed by all of the members of the
Board of Directors, Executive Committee or other committee, as the case may be.
Such consent shall have the same force and effect as a unanimous vote of a
meeting.
Section 3.08 - Vacancies. Any vacancy occurring in the Board of
Directors shall be filled as set forth in the Articles of Incorporation of the
Corporation.
Section 3.09 - Removal. Directors shall be removed as set forth in
the Articles of Incorporation of the Corporation.
Section 3.10 - Compensation. By resolution of the Board of Directors,
the directors may be paid their expenses, if any, of attendance at each meeting
of the Board of Directors, and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
Section 3.11 - Presumption of Assent. A director of the Corporation
who is present at a meeting of the Board of Directors in which action on any
corporate matter is taken shall be presumed to have assented to the action
taken unless his dissent shall be entered in the minutes of the meeting, or
unless he shall file his written dissent to such action with the person acting
as Secretary of the meeting before the adjournment thereof, or shall forward
such dissent by registered mail to the Secretary of the Corporation immediately
after the adjournment of the meeting. Such right to dissent shall not apply to
a director who voted in favor of such action.
Section 3.12 - Interest of Directors in Contracts. Any contract or
other transaction between the Corporation and one or more of its directors, or
between the Corporation and any firm of which one or more of its directors are
members or employees, or in which they are interested, or between the
Corporation and any corporation or association of which one or more of its
directors are shareholder, members, directors, officers, or employees, or in
which they are interested, shall be valid for all purposes, notwithstanding the
presence of such director or directors at the meeting of the Board of
Directors, Executive Committee or other committee of the Corporation, which
acts upon, or in reference to, such contract or transaction, and
notwithstanding, his or their participation in such action, if the fact of such
interest shall be disclosed or known to the Board of Directors, Executive
Committee or other committee, as the case may be, and such body shall,
nevertheless, authorize, approve and ratify such contract or transaction by a
vote of a majority of the directors present at the meeting of the Board of
Directors or a majority of the members of the Executive Committee or other
committee, as the case may be. This section shall be not be construed to
invalidate any contract or other transaction which would otherwise be valid
under the common and statutory law applicable thereto.
Section 3.13 - Executive and Other Committees. There may be
established an Executive Committee, and one or more other committees, composed
of one or more directors designated by resolution adopted by a majority of the
full number of directors of the Board of Directors. Each committee may adopt
rules governing the method of holding its meetings. Unless otherwise
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<PAGE> 12
provided by the Board of Directors, a majority of any committee shall
constitute a quorum for the transaction of business and the act of a majority
of the members of such committee present at a meeting at which a quorum is
present shall be the act of such committee. Vacancies in the membership of the
Executive Committee or such other committees shall be filled by a majority vote
of the full number of directors on the Board of Directors at a regular meeting
or at a special meeting called for that purpose. During the intervals between
meetings of the Board, the Executive Committee, if it shall have been
established, shall advise and aid the officers of the Corporation in all
matters concerning its interest and the management of its business, and
generally perform such duties and exercise such powers as may be directed or
delegated by the Board of Directors from time to time. The Board of Directors
may delegate to the Executive Committee or such other committees the authority
to exercise all the powers of the Board of Directors, including the power to
declare dividends or to authorize the issuance of shares of the corporation,
except where action of the full Board of Directors is required by the Texas
Business Corporation Act. The designation of and delegation of power to the
Executive Committee shall not operate to relieve the Board of Directors, or any
members thereof, of any responsibility imposed upon it or him by law.
Section 3.14 - Advisory Directors. Any number of persons may be
appointed "Advisory Directors" by a vote of a majority of the directors present
at any meeting. An Advisory Director shall have the right to attend and to
participate in any and all meetings of the Board of Directors to the same
extent as any director, except that an Advisory Director shall not have the
right to vote on any question or issue considered by the Board.
ARTICLE IV - OFFICERS
Section 4.01 - Number. The officers of the Corporation shall be a
Chairman of the Board of Directors, a President, one or more Vice Presidents
(the number thereof to be determined by the Board of Directors), a Secretary,
and a Treasurer, each of whom shall be elected by the Board of Directors. Such
other officers and assistant officers as may be deemed necessary, may be
elected or appointed by the Board of Directors. Any two or more offices may be
held by the same person.
Section 4.02 - Election and Term of Office. The officers of the
Corporation to be elected by the Board of Directors shall be elected annually
by the Board of Directors at the first meeting of the Board of Directors held
after each annual meeting of the shareholders. If the election of officers
shall not be held at such meeting, such election shall be held as soon
thereafter as may be convenient. Each officer shall hold office until his
successor shall have been duly elected and shall have been qualified, or until
his death, or until he shall resign or shall have been removed in the manner
hereinafter provided.
Section 4.03 - Removal. Any officer or agent elected or appointed by
the Board of Directors may be removed by the Board of Directors whenever in its
judgment the best interests of the Corporation would be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of the
person so removed.
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Section 4.04 - Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term.
Section 4.05 - Chairman of the Board of Directors. The Chairman of
the Board of Directors shall be the principal executive officer of the
Corporation and, subject to the control of the Board of Directors, shall in
general supervise and control all of the business and affairs of the
Corporation. He shall, when present, preside at all meetings of the
shareholders and of the Board of Directors. He may sign with the Secretary or
any other proper officer of the Corporation thereunto authorized by the Board
of Directors, certificates for shares of the Corporation, any deed, bonds,
mortgages, contracts or other instruments which the Board of Directors has
authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these
Bylaws to some other officer or agent of the Corporation, or shall be required
by law to be otherwise signed or executed; and in general shall perform all
duties incident to the office of Chairman of the Board of Directors and
principal executive officer and such other duties as may be prescribed by the
Board of Directors from time to time.
Section 4.06 - Vice Chairman of the Board of Directors. In the
absence of the Chairman of the Board of Directors, or in the event of his
death, inability or refusal to act, the Vice Chairman shall perform the duties
of the Chairman of the Board of Directors, and when so acting, shall have all
the powers and be subject to all of the restrictions upon the Chairman of the
Board of Directors. The Vice Chairman may sign, with the Secretary or an
Assistant Secretary, certificates for shares of the Corporation; and shall
perform such other duties as from time to time may be assigned to him by the
Chairman of the Board of Directors or by the Board of Directors.
Section 4.07 - President. In the absence of the Chairman and Vice
Chairman of the Board of Directors, or in the event of their death, inability
or refusal to act, the President shall perform the duties of the Chairman of
the Board of Directors, and when so acting, shall have all the powers of and be
subject to all of the restrictions upon the Chairman of the Board of Directors.
The President may sign, with the Secretary or an Assistant Secretary,
certificates for shares of the Corporation; and shall perform such other duties
as from time to time may be assigned to him by the Chairman or Vice Chairman of
the Board of Directors or by the Board of Directors.
Section 4.08 - The Vice President. In the absence of the Chairman of
the Board of Directors, Vice Chairman of the Board of Directors and the
President, or in the event of their death, inability or refusal to act, the
Vice President or should there be more than one Vice President, the Vice
Presidents in the order designated at the time of their election, or in the
absence of any designation then in the order of their election shall perform
the duties of Chairman of the Board of Directors, Vice Chairman of the Board of
Directors and President, and when so acting, shall have all the powers of and
be subject to all the restrictions upon the Chairman of the Board of Directors,
Vice Chairman of the Board of Directors and President. Any Vice President may
sign, with the Secretary or an Assistant Secretary, certificates for shares of
the Corporation; and shall perform such other duties as from time to time may
be assigned to him by the Chairman of the Board of Directors, Vice Chairman of
the Board of Directors, President, or by the Board of Directors.
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Section 4.09 - The Secretary. The Secretary shall: (a) keep the
minutes of the shareholders' and the Board of Directors' meeting in one or more
books provided for the purpose; (b) see that all notices are duly given in
accordance with the provisions of these Bylaws, or as required by law; (c) be
custodian of the corporate records and of the seal of the Corporation, and see
that the seal of the Corporation is fixed to all documents, the execution of
which, on behalf of the Corporation under its seal, is duly authorized; (d)
keep a register of the post office address of each shareholder which shall be
furnished to the Secretary by such shareholder; (e) sign with the Chairman of
the Board, Vice Chairman of the Board, President or a Vice President
certificates for shares of the Corporation, the issuance of which shall have
been authorized by resolution of the Board of Directors; (f) have general
charge of the stock transfer books of the Corporation; and (g) in general,
perform all duties incident to the office of Secretary, and such other duties
as from time to time may be designated to him by the Chairman of the Board of
Directors, Vice Chairman of the Board of Directors, President, or by the Board
of Directors.
Section 4.10 - The Treasurer. If required by the Board of Directors,
the Treasurer shall give a bond for the faithful discharge of his duties in
such sum, and with such surety or sureties, as the Board of Directors shall
determine. He shall: (a) have charge and custody of, and be responsible for,
all funds and securities of the Corporation from any source whatsoever, and
deposit all such moneys in the name of the Corporation in such banks, trust
companies, or other depositories as shall be selected by the Board of
Directors; and (b) in general perform all of the duties incident to the office
of Treasurer and such other duties as from time to time may be assigned to him
by the Chairman of the Board of Directors, Vice Chairman of the Board of
Directors, President, or by the Board of Directors.
Section 4.11 - Assistant Secretaries and Assistant Treasurers. The
Assistant Secretaries when authorized by the Board of Directors may sign with
the Chairman of the Board of Directors, President or Vice President,
certificate for shares of the Corporation the issuance of which shall have been
authorized by a resolution of the Board of Directors. The Assistant Treasurers
shall, respectively, if required by the Board of Directors, give bonds for the
faithful discharge of their duties in such sums and with such sureties as the
Board of Directors shall determine. The Assistant Secretaries and Assistant
Treasurers, in general, shall perform such duties as shall be assigned to them
by the Secretary or the Treasurer, respectively, or by the Chairman of the
Board of Directors, Vice Chairman of the Board of Directors, President, or by
the Board of Directors.
Section 4.12 - Salaries. The salaries of the officers shall be fixed
from time to time by the Board of Directors and no officer shall be prevented
from receiving such salary by reason of the fact that he is also a director of
the Corporation.
Section 4.13 - Stock Options. In order to attract, retain and
motivate officers, directors and key employees of the Corporation and its
subsidiaries, the Board of Directors may provide additional benefits to such
officers, directors and employees by granting stock options to such officers,
directors and employees to enable them to purchase common stock of the
Corporation. The type, terms and conditions of such stock options shall be
determined solely by the Board of Directors; provided, however, that any grant
of stock options to directors of the Corporation who are not also officers or
employees of the Corporation must be approved by the shareholders of the
Corporation.
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Section 4.14 - Voting Shares of Other Corporations. The Chairman, or
in his absence, the President or any Vice President, is authorized to vote,
represent and exercise on behalf of the Corporation all rights incident to any
and all other shares of any corporation, bank, banking association or other
entity standing in the name of the Corporation. The authority herein may be
granted to said officer in person or by any person authorized to do so by proxy
or power of attorney duly executed by said officer. Notwithstanding the above,
however, the Board of Directors, in its discretion, may designate by resolution
any additional person to vote or represent said share of other corporations,
banks, banking associations and other entities.
ARTICLE V - CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 5.01 - Certificates for Shares. Certificates representing
shares of the Corporation shall be in such from as shall be determined by the
Board of Directors. Such certificates shall be signed by the Chairman of the
Board of Directors, President or a Vice President, and by the Secretary or an
Assistant Secretary. If such certificates are signed or countersigned by a
transfer agent or registrar, other than the Corporation, such signature of the
Chairman of the Board of Directors, President or a Vice President and Secretary
or Assistant Secretary, and the seal of the Corporation, or any of them, may be
executed in facsimile, engraved or printed. If any officer who has signed or
whose facsimile signature has been placed on any certificate shall have ceased
to be such officer before the certificate is issued, it may be issued by the
Corporation with the same effect as if the officer has not ceased to be such at
the date of issue. All certificates for shares shall be consecutively numbered
or otherwise identified. The name and address of the person to whom the shares
represented thereby are issued with the number of shares and date of issue,
shall be entered on the stock transfer books of the Corporation. All
certificates surrendered to the Corporation for transfer shall be canceled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and canceled except that in case
of lost, destroyed or mutilated certificate a new one may be issued therefor
upon such terms and indemnity to the Corporation as the Board of Directors may
prescribe.
Section 5.02 - Transfer of Shares. Subject to valid transfer
restrictions and to stop transfer orders directed in good faith by the
Corporation to any transfer agent to prevent possible violations of federal or
state securities laws, rules or regulations, or for any other lawful purpose,
transfer of shares of the Corporation shall be made only on the stock transfer
books of the Corporation by the holder of record thereof, or by his legal
representative, who shall furnish proper evidence of authority to transfer, or
by his attorney thereunto authorized by power of attorney, duly executed and
filed with the Secretary of the Corporation, and on surrender for cancellation
of the certificate for such shares. The person on whose name shares stand on
the books of the Corporation shall be deemed by the Corporation to be the owner
thereof for all purposes.
Section 5.03 - Lost Certificate. The Board of Directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates therefore issued by the Corporation alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion as a condition precedent to the issuance
thereof, require the owner of such lost, stolen
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<PAGE> 16
or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and (or give the
Corporation a bond in such sum as it may direct) as indemnity against any claim
that may be made against the Corporation with respect to the certificate
alleged to have been lost, stolen or destroyed.
ARTICLE VI - FISCAL YEAR
The Board of Directors shall, by resolution, fix the fiscal year of the
Corporation.
ARTICLE VII - DIVIDENDS
The Board of Directors or the Executive Committee, if so authorized by
a resolution of the Board of Directors, may from time to time declare that the
Corporation may pay dividends on its outstanding shares in the manner and upon
the terms and conditions provided by law and its Articles of Incorporation.
ARTICLE VIII - SEAL
The Board of Directors shall provide a corporate seal, which shall be
circular in form and shall have inscribed thereon the name of the Corporation,
the state of incorporation, and the five-pointed Texas star.
ARTICLE IX - WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder or
director of the Corporation under the provisions of these Bylaws, under the
provisions of the Articles of Incorporation, or under the provisions of the
Texas Business Corporation Act, a waiver thereof in writing signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice.
ARTICLE X - PROCEDURE
Meetings of the shareholders and of the Board of Directors shall be
conducted in accordance with the procedure as contained in Robert's Rules of
Order, to the extent applicable.
ARTICLE XI - PARTICIPATION OF
DIRECTORS AND OFFICERS IN RELATED BUSINESS
Officers and directors of this Corporation may hold positions as
officers and directors of other corporations, in related businesses, and their
efforts to advance the interest of those
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corporations will not create a breach of fiduciary capacity to this Corporation
in the absence of showing of bad faith.
ARTICLE XII - AMENDMENTS
The initial Bylaws shall be adopted by the Board of Directors of the
Corporation. The power to alter, amend, or repeal the Bylaws or adopt new
Bylaws shall be vested in the Board of Directors.
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EXHIBIT 10.3
<PAGE> 2
SHOPPING CENTER LEASE
This lease ("Lease") is entered into as of the 24th day of June, 1994, by and
between the Landlord and the Tenant hereinafter named:
ARTICLE 1. DEFINITIONS AND CERTAIN BASIC PROVISIONS.
1.1 (a) "Landlord": Jerry J. Moore Investments
(b) Landlord's address: P.O. Box 6564, Houston, Texas 77265
(c) "Tenant": Citizens Bank
(d) Tenant's address: P.O. Box 4007, Corpus Christi, Texas 78469
(e) Tenant's "Trade Name": Citizens Bank
(f) "Demised Premises": a store unit approximately 1,560 square
feet in area (measured to the exterior of outside walls and to
the center of interior walls), in the Five Points Shopping
Center located on the real property in Nueces County
described in Exhibit "A" attached hereto and made a part
hereof (the "Shopping Center"), said Demised Premises being
known as 4101 Highway 77, #L-1, Corpus Christi, Texas 78410
and as being generally shown crosshatched in red on Exhibit
"B" attached hereto and made a part hereof.
(g) "Lease Term": Commencing on the later of the 1st day of
September, 1994 or the date Tenant obtains regulatory
approval pursuant to Article 33 herein, but in no event later
than October 1, 1994 (the "Commencement Date") and continuing
for Three (3) full Lease Years thereafter.
"Pre-term Occupancy": Prior to the commencement of the Lease
Term, Tenant may occupy the Demised Premises beginning July 1,
1994. All rules, regulations and obligations of Tenant
hereinafter defined shall apply during the Pre-term Occupancy
period.
(h) "Minimum Guaranteed Rental":
Lease Years (1-3): $2,184.00/month.
(i) "Percentage Rental", for Lease Years: N/A
(j) "Security Deposit": $2,423.00.
"Prepaid Rental": $2,423.00, being an amount equal to (h)
Minimum Guaranteed Rental, plus (l) Common Area Maintenance
Charge, plus (m) Taxes, plus (n) Insurance, plus (o) Other
Periodic Charges for the first month of the Lease Term.
<PAGE> 3
(k) "Permitted Use": Bank
(l) "Common Area Maintenance Charge": $94.00 per month, payable in
advance, subject to periodic adjustments, commencing on the
first day of the Lease Term.
(m) "Taxes": $109.00 per month, payable in advance, subject to
periodic adjustments, commencing on the first day of the Lease
Term.
(n) "Insurance": $16.00 per month, payable in advance, subject to
periodic adjustments, commencing on the first day of the Lease
Term.
(o) "Other Periodic Charges": $20.00 per month, payable in
advance, subject to periodic adjustments, for water,
commencing on the first day of the Lease Term.
(p) "Tenant's Pro Rata Share" means a fraction having as its
numerator the number of square feet of floor area in the
Demised Premises and as its denominator the total number of
square feet of leasable area in the Shopping Center.
(q) Taxes, Insurance, Common Area Maintenance Charge, Other
Periodic Charges, and any other Tenant charge, cost, payment
or assessment contained in this Lease are, and individually
and collectively are defined herein to be, "Additional
Rental".
(r) "Agent": JJM Management Inc.
(s) Agent's address: P.O. Box 6564, Houston, Texas 77265
1.2 Each of the foregoing definitions and basic provisions shall
be construed in conjunction with and limited by the references thereto in the
other provisions of this Lease.
1.3 All monies to be paid by Tenant to Landlord shall be paid to
Landlord's Agent at the address stipulated in Article 1.1(s).
ARTICLE 2. GRANTING CLAUSE AND QUIET POSSESSION.
2.1 In consideration of and subject to the terms, covenants and
conditions hereof, Landlord hereby demises and leases to Tenant, and Tenant
hereby takes from Landlord, the Demised Premises as described in Section 1.1(f)
(herein called the "Demised Premises").
2.2 Landlord agrees that if Tenant shall perform all of the
covenants and agreements herein required to be performed by Tenant, Tenant
shall, subject to the terms of this Lease and any mortgages, leases and other
matters to which this Lease is subordinate, at all times during the continuance
of this Lease have peaceful and quiet possession of the Demised Premises.
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<PAGE> 4
ARTICLE 3. DELIVERY AND ACCEPTANCE OF PREMISES; TERM OF LEASE;
HOLDOVER.
3.1 Tenant agrees to accept possession of the Demised Premises at
such time as Landlord delivers same to Tenant and Landlord agrees to deliver
possession by August 1, 1994. By occupying the Demised Premises, Tenant shall
be deemed to have accepted the same in an "AS IS" condition and to have
acknowledged that the same complies fully with Landlord's covenants and
obligations hereunder, including any Landlord's Work contained in Exhibit "C",
Construction Agreement, attached hereto and made a part hereof.
3.2 In the event Landlord delivers possession of the Demised
Premises to Tenant prior to the Commencement Date, Tenant agrees it shall be
bound by and subject to all terms, covenants, conditions and obligations of
this Lease during the period between the date possession is delivered and the
Commencement Date, other than the payment of Minimum Guaranteed Rental, in the
same manner as if delivery had occurred on the Commencement Date. If this
Lease is executed before the Demised Premises becomes vacant and any present
tenant or occupant of the Demised Premises holds over beyond the Commencement
Date of this Lease, or if Landlord cannot otherwise deliver possession of the
Demised Premises on or prior to the Commencement Date of this Lease, Landlord
shall not be deemed to be in default hereunder and in such event, the
Commencement Date in Section 1.1(g) shall be deemed to be such later date as
Landlord actually delivers possession of the Demised Premises to Tenant.
3.3 Tenant recognizes that this Lease provides for Tenant's
maintaining and repairing the Demised Premises at its sole cost and expense, as
more specifically provided in Article 7. Accordingly, excepting any warranties
that may be expressly set forth herein, Tenant hereby accepts the Demised
Premises without warranties of any kind, express or implied, from Landlord,
including any warranties regarding merchantability, fitness for a particular
purpose, habitability, suitability or tenantability.
3.4 This Lease shall be for a Lease Term as set forth in Section
1.1(g).
3.5 In the event this Lease is hereafter extended by written
agreement of the parties, the phrase "Lease Term", as used herein, shall refer
to such extended term in addition to the period specified in Section 1.1(g)
above.
3.6 In the event Tenant remains in possession of the Demised
Premises after the expiration of this Lease and without the execution of a new
Lease, it shall be deemed to be occupying the Demised Premises as a tenant from
month to month at a monthly rental equal to 200% of Minimum Guaranteed Rental
and Additional Rental payable for the last month of the expired term (including
one-twelfth (1/12th) of any Percentage Rental payable for the last Lease Year
of the expired term), and otherwise subject to all the conditions, provisions,
and obligations of this Lease insofar as the same are applicable to a month to
month tenancy.
ARTICLE 4. MINIMUM GUARANTEED RENTAL AND PERCENTAGE RENTAL.
4.1 Minimum Guaranteed Rental shall accrue hereunder from the
Commencement Date, and shall be payable to Landlord without demand and without
deduction or offset of any
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<PAGE> 5
nature, as specified in Section 1.3 above or at such other address as may be
designated by Landlord from time to time.
4.2 Tenant shall pay to Landlord Minimum Guaranteed Rental in
monthly installments in the amounts specified in Section 1.1(h) above. The
first such monthly installment shall be due and payable on or before the first
day of each succeeding calendar month during the Lease Term. Minimum
Guaranteed Rental and Additional Rental for any partial calendar month shall be
prorated.
4.3 Deleted prior to execution.
4.4 Deleted prior to execution.
4.5 In the event any Minimum Guaranteed Rental, or Additional
Rental of any nature payable hereunder is not received within five (5) days
after its due date for any reason whatsoever, a late charge penalty of $3.00
per day shall become due. The total amount thus due including any penalty
shall bear interest at the maximum non-usurious interest rate which could
legally be charged in the event of a loan of such Rental to Tenant in the state
where the Demised Premises are located. Any such late charge penalty or
interest shall be payable on demand as Additional Rental hereunder.
4.6 Deleted prior to execution.
4.7 Deleted prior to execution.
4.8 Deleted prior to execution.
4.9 Deleted prior to execution.
4.10 Deleted prior to execution.
ARTICLE 5. COMMON AREA MAINTENANCE.
5.1 The term "Common Area" is defined for all purposes of this
Lease as that part of the Shopping Center intended for the common use or
benefit of all tenants including, among other facilities (as such may be
applicable to the Shopping Center), the parking area, private streets and
alleys, landscaping, curbs, loading areas, sidewalks, malls and promenades
(enclosed or otherwise), lighting facilities, drinking fountains, meeting
rooms, public toilets, and the like, but excluding interior space in buildings
(now or hereafter existing) designed for rental for commercial purposes, as the
same may exist from time to time, and further excluding streets and alleys
maintained by a public authority. Landlord reserves the right to change from
time to time the dimensions, size and location of the Common Area, parking lot,
striping, as well as the dimensions identity and type of any buildings in the
Shopping Center. Tenant, its employees and customers, and when duly authorized
pursuant to the provisions of this Lease, its subtenants, licensees and
concessionaires, shall have the non-exclusive right to use the Common Area as
constituted from time to time, such use to be in common with Landlord, other
tenants of the Shopping Center and other persons permitted by Landlord to use
the same, subject to
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<PAGE> 6
such reasonable rules and regulations governing use as Landlord may from time
to time prescribe, including the designation of specific areas within the
Shopping Center or in reasonable proximity thereto in which automobiles owned
or used by Tenant, its employees, subtenants, licensees and concessionaires
shall be parked. In this regard, Tenant shall furnish to Landlord upon request
a complete list of license numbers of all automobiles operated by Tenant, its
employees, subtenants, licensees or concessionaires. Tenant shall not solicit
business within the Common Area or take any action which would interfere with
the rights of other persons to use the Common Area. Landlord may temporarily
close any part of the Common Area for such periods of time as may be necessary
to make repairs or alterations or to prevent the public from obtaining
prescriptive rights.
5.2 All costs paid or incurred by Landlord for the operation,
management, and maintenance of the Common Area and the necessity therefore,
shall be in the sole discretion of Landlord.
5.3 In addition to the Rentals and other charges prescribed in
this Lease, Tenant shall pay to Landlord as Additional Rental an amount equal
to Tenant's Pro Rata Share of Common Area Costs paid or incurred by Landlord
during the Lease Term; provided that, in no event shall such amount be less
than the amount of the Common Area Maintenance Charge specified in Section
1.1(l) above.
Tenant shall make such payments to Landlord monthly on the same day
that Minimum Guaranteed Rental is due. The first such monthly installment
shall be due and payable on or before the date and in the amount specified in
Section 1.1(l). Landlord may, at its option, increase the amount of Tenant's
Common Area Maintenance Charge, from time to time, based upon the estimated
annual cost of operation and maintenance of the Common Area, subject to
adjustment after the end of the year on the basis of the actual cost for such
year. The term "Common Area Costs", as used herein, means all costs and
expenses of every kind and nature paid or incurred in operating, managing,
cleaning, equipping, lighting, repairing, replacing and maintaining the Common
Area, including, without limitation, costs of resurfacing, recoating and
restriping the parking area; repainting, cleaning, sweeping and other
janitorial services; landscaping; car stops; utilities serving the Common Area;
maintenance, repair and replacement of roofs, gutters, utility systems and
drainage systems within and serving the Shopping Center; rental charges for
machinery and equipment; Shopping Center identification signs; directional
signs and other markers; on and off-site traffic regulation and control signs
and devices; security (if and to the extent Landlord elects to provide same);
lighting fixtures and bulbs, sound equipment, supplies, costs of personnel to
implement all of the foregoing, including wages, unemployment taxes and social
security taxes; personal property taxes; fees for required licenses and
permits; supplies; heating, ventilating and air-conditioning systems serving
the Common Area, including, without limitation, enclosed mall(s), if any; and
an allowance to Landlord for supervision of the Common Area in an amount equal
to fifteen percent (15%) of the total of all Common Area Costs (but there shall
be excluded from Common Area Costs the cost of equipment properly chargeable to
a capital account, and depreciation of the original costs of constructing the
Common Area).
5.4 Within one hundred twenty (120) days after the end of each
calendar year Landlord will provide Tenant with a statement showing the
balance, if any, that Tenant owes
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Landlord for the Common Area Maintenance Charge for such calendar year, and
Tenant shall pay Landlord the difference within thirty (30) days after receipt
of said statement.
ARTICLE 6. USE AND OCCUPANCY OF PREMISES.
6.1 The Demised Premises shall be used only for the permitted use
or uses specified in Section 1.1(k) above, and for no other purposes without
the prior written consent of Landlord. Tenant shall use in the transaction of
business in the Demised Premises the Trade Name specified in Section 1.1(e)
above and no other Trade Name without the prior written consent of Landlord.
6.2 Tenant shall not at any time leave the Demised Premises
vacant, but shall in good faith continuously throughout the Lease Term conduct
and carry on in the entire Demised Premises the type of business for which the
Demised Premises are leased. Tenant may vacate at any time during the lease
Term upon the payment of a sum equal to 85% of the then unpaid lease rental;
provided further, prior to the 23rd month of this lease term, Tenant may give
written notice of intention to terminate at end of 24th month, accompanied with
payment of rent for the 25th through the 30th month, upon which this lease
shall terminate..
6.3 Tenant shall not, without Landlord's prior written consent,
keep anything within the Demised Premises or use the Demised Premises for any
purpose which increases the insurance premium cost or invalidates any insurance
policy carried on the Demised Premises or other parts of the Shopping Center.
All property kept, stored or maintained within the Demised Premises by Tenant
shall be at Tenant's sole risk. Tenant agrees, at its own cost and expense, to
comply with all rules, regulations and requirements of the fire insurance
underwriting organization and any similar body or governmental authority having
jurisdiction.
6.4 Tenant shall not conduct within the Demised Premises any
fire, auction, bankruptcy, "going-out-of-business", "lost-our-lease", or
similar sales. Tenant shall not permit any objectionable or unpleasant odors
or sounds to emanate from the Demised Premises; nor place or permit any radio,
television, loudspeaker or amplifier on the roof or outside the Demised
Premises or where the same can be seen or heard from outside the building; nor
place any antenna, awning or other projection on the exterior of the Demised
Premises; nor place any "For Lease" or similar signs inside or outside its
Demised Premises; nor distribute or cause to be distributed any handbills or
other advertising devices in the Shopping Center; nor use any portion of the
Common Area for the keeping or displaying of any merchandise or other object;
nor take any other action which would constitute a nuisance or would disturb or
endanger other tenants or invitees of the Shopping Center or unreasonably
interfere with their use of the respective premises; nor do anything which
would tend to injure the reputation of the Shopping Center.
6.5 Tenant shall take good care of the Demised Premises and keep
the same free from waste at all times. Tenant shall keep the Demised Premises
and sidewalks, service-ways and loading areas adjacent to the Demised Premises
neat, safe, clean and free from dirt or rubbish at all times, and shall store
all trash and garbage within the Demised Premises, arranging for the regular
pick-up of such trash and garbage from Tenant's dumpster at Tenant's expense.
Receiving and delivery of goods and merchandise and removal of garbage and
trash
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shall be made only in the manner and areas prescribed by Landlord. Tenant
shall not operate an incinerator or burn trash or garbage within the Shopping
Center.
6.6 Tenant shall maintain all display windows in a neat,
attractive condition, and shall keep all display windows, exterior electric
signs and any Tenant exterior lights on the Demised Premises lighted from dusk
until 11:00 P.M. every day, including Sundays and holidays.
6.7 Tenant shall take prudent measures to provide for the security
of its employees, agents, customers, and the Demised Premises, and shall keep
some of its interior store lights lighted from dusk until dawn every day.
6.8 Tenant shall procure, at its sole expense, any permits
required for the transaction of business in the Demised Premises and otherwise
comply with all applicable laws, ordinances, and governmental regulations.
ARTICLE 7. MAINTENANCE AND REPAIR OF PREMISES.
7.1 Landlord shall keep the foundation, the exterior walls
(excluding plate glass; windows, doors, door closure devices and other exterior
openings; window and door frames, molding, locks and hardware; special store
fronts; lighting, heating, air conditioning, grease traps, utility meters,
plumbing and other electrical, mechanical and electromotive installations,
equipment and fixtures; signs, placards, decorations or advertising media of
any type, and interior treatments to the exterior walls), and roof of the
Demised Premises in good repair; provided, however, Landlord shall not be
required to make any repairs occasioned by the act or negligence of Tenant, its
agents, employees, invitees, subtenants, licensees and concessionaires. The
provisions of this Section 7.1 are expressly subject to the provisions of
Article 14 and Article 23 of this Lease. In the event the Demised Premises
should become in need of repairs required to made by Landlord hereunder, Tenant
shall give immediate written notice thereof to Landlord.
7.2 Tenant, at its sole cost and expense, shall keep and maintain
the Demised Premises in good order and in a neat, clean, safe and habitable
condition, free of insects, rodents, vermin and other pests, and shall make all
needed repairs and replacements, except for repairs and replacements required
to be made by Landlord under the provisions of Section 7.1, Article 14 and
Article 23 of this Lease. Without limiting the preceding sentence, it is
understood that Tenant's responsibilities include the repair and replacement of
all cracked or broken glass and all lighting, heating, air conditioning, grease
traps, utility meters, plumbing, water heaters, sprinklers, and other
electrical, mechanical and electromotive installations, equipment and fixtures
in the Demised Premises. Tenant shall arrange for periodic inspection,
cleaning, maintenance and repair of any grease traps, exhaust fans and/or hood
duct systems located in, on or about the Demised Premises, at Tenant's sole
cost and expense, by qualified service technicians and at regular intervals
approved by Landlord. If any repairs or replacements required to be made by
Tenant hereunder are not made within ten (10) days after written notice is
delivered to Tenant by Landlord, Landlord may at its option make such repairs
or replacements without liability to Tenant for any loss or damage which may
result by reason thereof; and Tenant shall pay to Landlord upon demand, as
Additional Rental hereunder, the cost of such repairs or replacements.
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ARTICLE 8. UTILITIES.
8.1 Tenant shall promptly pay all charges for electricity, water,
gas, telephone service, sewage service and other utilities furnished to the
Demised Premises, including any charges for utilities on Landlord's meters,
which may be adjustable from time to time. In the event Tenant fails to
reimburse Landlord for any charges within thirty (30) days of billing, Landlord
may, in addition to any other options or remedies herein, interrupt utility
service to Tenant. Landlord shall not be liable for any interruption
whatsoever in utility services.
ARTICLE 9. TAXES.
9.1 Tenant shall pay before delinquency all taxes levied against
Tenant's personal property and trade fixtures in the Demised Premises. If any
such taxes are levied against Landlord or Landlord's property and Landlord
elects to pay the same, Tenant shall pay to Landlord upon demand that part of
such taxes for which Tenant is primarily liable hereunder.
9.2 Tenant shall pay to Landlord as Additional Rental an amount
equal to Tenant's Pro Rata Share of all real estate and other ad valorem taxes,
assessments, parking surcharges, water and sewer rents, and other governmental
impositions, levies and charges of every kind and nature whatsoever, general
and special, ordinary and extraordinary (hereinafter collectively referred to
as the "Taxes") levied against the Shopping Center for each real estate tax
year during the Lease Term. Tenant shall make such payments to Landlord in
monthly installments in such amounts as are determined by Landlord, such
installments being due and payable on the same day that Minimum Guaranteed
Rental is due. The first such monthly installment shall be due and payable on
or before the date and in the amount specified in Section 1.1(m).
9.3 Within one hundred twenty (120) days after the end of each
calendar year Landlord shall provide Tenant with a statement showing the
amount, if any, Tenant owes Landlord for Taxes for such calendar year. If the
aforesaid installment payments made for a given year are greater than Tenant's
Pro Rata Share of Taxes, Landlord shall credit the amount of the excess to
Tenant's next Taxes installment(s). If said installment payments made are less
than Tenant's Pro Rata Share of Taxes costs, Tenant shall pay Landlord the
difference within thirty (30) days after receipt of said statement. In either
case, neither party shall be entitled to payment or credit for any amounts
owing for more than two (2) years, unless claims for such amounts are made
prior to the end of such two (2) year period.
9.4 If at any time during the Lease Term or any renewal or
extension thereof a tax or excise on rents, or other tax however described
(except any franchise, estate, inheritance, capital stock, income or excess
profits tax imposed upon Landlord) is levied or assessed against Landlord by
any lawful taxing authority on account of Landlord's interest in this Lease or
the Rentals or other charges reserved hereunder, as a substitute in whole or in
part for, or in addition to the Taxes described in Section 9.2 above, Tenant
agrees to pay to Landlord upon demand, as Additional Rental, the amount of such
tax or excise.
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<PAGE> 10
ARTICLE 10. ALTERATIONS.
10.1 Tenant shall not make any alterations, additions or
improvements to the Demised Premises without the prior written consent of
Landlord, except for the installation of unattached movable trade fixtures
which may be installed without drilling, cutting or otherwise defacing the
Demised Premises. All alterations, additions, improvements and fixtures (other
than Tenant's unattached movable trade fixtures) which may be made or installed
by either party upon the Demised Premises shall remain upon and be surrendered
with the Demised Premises and become the property of Landlord at the
termination of this Lease, unless Landlord requests their removal in which
event Tenant shall remove the same and restore the Demised Premises to their
original conditions at Tenant's expense.
10.2 All construction and removal work by Tenant within the Demised
Premises shall be performed in a good and workmanlike manner, in compliance
with all governmental requirements, laws, ordinances, orders or regulations
affecting the Demised Premises or the removal of any substances therefrom, in
such a manner as to cause a minimum of interference with other construction in
progress and with the transaction of business in the Shopping Center, and in
full compliance with Article 28 hereof. Tenant agrees to indemnify and hold
Landlord harmless from and against any and all claims, demands, losses,
liabilities, damages, costs, fines or penalties resulting from or arising in
connection with the performance of such work.
ARTICLE 11. TENANT'S FIXTURES.
11.1 Tenant may place or install in the Demised Premises Tenant's
business fixtures and related furnishings and equipment that are not in the
nature of a leasehold improvement, including but not limited to counters,
shelving, floor fixtures, display cases, office furniture and safes, and shall
remove same upon the expiration or termination of this Lease; provided,
however, that Tenant, at Tenant's own cost and expense, shall repair any and
all damage to the Demised Premises resulting from or caused by such
installation or removal.
ARTICLE 12. TENANT'S STORE FRONT AND SIGNS.
12.1 Except as hereinafter expressly provided, Tenant shall not,
without Landlord's prior written consent (a) make any changes to the store
front or (b) install any decorations or advertising media of any type
(including anything within the Demised Premises that can be viewed from the
exterior of the Demised Premises), excepting only dignified displays of
customary type for its display windows, which have been approved by Landlord.
12.2 Tenant shall, at its sole cost and expense, erect and install
an exterior store front sign (see "Sign Criteria" attached as Exhibit "D")
subject to Landlord's approval, within thirty (30) days after opening for
business in the Demised Premises.
12.3 All signs, lettering, placards, decorations and advertising
media shall conform in all respects to sign criteria established by Landlord
for the Shopping Center from time to time in the exercise of its sole
discretion, and shall be subject to the prior written approval of Landlord as
to construction, method of attachment, size, shape, height, lighting, color and
general appearance. No portable and/or trailer signs are allowed in the
Shopping Center.
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12.4 All signs shall be kept in good condition and in proper
operating order at all times, and shall be removed by Tenant upon the
expiration or termination of this Lease.
ARTICLE 13. LANDLORD'S RIGHT OF ACCESS; USE OF ROOF.
13.1 Landlord shall have the right to enter upon the Demised
Premises at any time for the purpose of inspecting the same, or of making
repairs to the Demised Premises, or of making repairs, alterations or additions
to the adjacent premises, or of showing the Demised Premises to prospective
purchasers, lessees or lenders.
13.2 Tenant will permit Landlord to place and maintain "For Rent"
or "For Lease" signs on the Demised Premises during the last ninety (90) days
of the Lease Term.
13.3 Use of the roof and air space above the roof of Demised
Premises is reserved exclusively to Landlord.
ARTICLE 14. DAMAGES BY CASUALTY.
14.1 Tenant shall give immediate written notice to Landlord of any
damage caused to the Demised Premises by fire or other casualty.
14.2 In the event the Demised Premises shall be damaged or
destroyed by fire or other casualty insurable under standard fire and extended
coverage insurance and Landlord does not elect to terminate this Lease as
hereinafter provided, Landlord shall proceed with reasonable diligence and at
its sole cost and expense to rebuild and repair the Demised Premises. In the
event (a) the building in which the Demised Premises are located shall be
destroyed or substantially damaged by a casualty not covered by Landlord's
insurance or (b) such building shall be destroyed or rendered untenantable to
an extent in excess of fifty percent (50%) of the first floor area by a
casualty covered by Landlord's insurance, or (c) the holder of a mortgage, deed
of trust or other lien on the Demised Premises at the time of the casualty
elects, pursuant to such mortgage, deed of trust or other lien, to require the
use of all or part of Landlord's insurance proceeds in satisfaction of all or
part of the indebtedness secured by the mortgage, deed of trust or other lien,
then Landlord may elect either to terminate this Lease or to proceed to rebuild
and repair the Demised Premises. Landlord shall give written notice to Tenant
of such election within sixty (60) days after the occurrence of such casualty
and, if it elects to rebuild and repair, shall proceed to do so with reasonable
diligence.
14.3 Landlord's obligation to rebuild and repair under this Article
14 shall in any event be limited to restoring the Demised Premises to
substantially the condition in which the same existed prior to such casualty,
exclusive of any alterations, additions, improvements, fixtures and equipment
installed by Tenant. Tenant agrees, promptly after completion of such work by
Landlord, to proceed with reasonable diligence and at Tenant's sole cost and
expense to restore, repair and replace all alterations, additions,
improvements, fixtures, signs and equipment installed by Tenant and to reopen
for business in the Demised Premises.
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14.4 Tenant agrees that during any period of reconstruction or
repair of the Demised Premises it will continue the operations of its business
within the Demised Premises to the extent practicable. During the period from
the occurrence of the casualty until Landlord's repairs are completed, the
Minimum Guaranteed Rental shall be reduced to such extent as may be fair and
reasonable under the circumstances; however, there shall be no abatement of the
Percentage Rental Rate and Additional Rental provided for herein.
ARTICLE 15. INSURANCE.
15.1 Tenant shall pay to Landlord as Additional Rental an amount
equal to Tenant's Pro Rata Share of all premiums for liability insurance, fire
and extended coverage insurance, rental loss and such other insurance as may be
carried by Landlord covering the Shopping Center (hereinafter collectively
referred to as "Insurance") during the Lease Term. Tenant shall make such
payments to Landlord in monthly installments in such amounts as are determined
by Landlord, such installments being due and payable on the same day that
Minimum Guaranteed Rental is due. The first such monthly installment shall be
due and payable on or before the date and in the amount specified in Section
1.1(n).
15.2 Within one hundred twenty (120) days after the end of each
calendar year Landlord will provide Tenant with a statement showing the amount,
if any, Tenant owes Landlord for Insurance for such calendar year. If the
aforesaid installment payments made for a given year are greater than Tenant's
Pro Rata Share of Insurance, Landlord shall credit the amount of the excess to
Tenant's next Insurance installment(s). If said installment payments made are
less than Tenant's Pro Rata Share of Insurance, Tenant shall pay Landlord the
difference within thirty (30) days after receipt of said statement. Neither
party shall be entitled to payment or credit for amounts owing for more than
two (2) years, unless claims for such amounts are made prior to the end of such
two (2) year period.
15.3 All other insurance coverage shall be the responsibility of
Tenant, including, without limitation, fire and extended coverage, theft,
liability, plate glass breakage, and all insurance covering Tenant's stock of
goods, trade fixtures, and all other contents of the Demised Premises. Any
insurance against casualty loss which may be carried by either Landlord or
Tenant shall be under the sole control of the party carrying such insurance.
Tenant and its assignees hereby expressly waive any cause of action or right of
recovery that it may hereafter have against Landlord for any loss or damage to
the Demised Premises or to the building of which the Demised Premises are a
part, or to the contents thereof belonging to Tenant contained in said Demised
Premises caused by fire, explosion or other risk covered or which could be
covered by a Texas Standard Form of Fire and Extended Coverage Policy.
ARTICLE 16. INDEMNITY AND PUBLIC LIABILITY INSURANCE.
16.1 Landlord and tenant shall not be liable to each other or to
each other's employees, agents, or visitors, or to any other person
whomsoever, for any injury to person or damage to property on or about the
Demised Premises or the Common Area caused by the negligence or misconduct of
the other or their employees, subtenants, licensees or concessionaires, or of
any other person entering the Shopping Center under express or implied
invitation of Tenant, or arising out of the use of the Demised Premises by
Tenant and the
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conduct of its business therein or arising out of any breach or default by
either in the performance of its obligations hereunder; and each hereby agrees
to indemnify and hold the other harmless from and against any and all
liability, loss, damage, expense or claim arising out of such damage or injury
or resulting from any breach, violation or nonperformance of any covenants or
conditions hereof by the other, its agents, employees or invitees.
16.2 Tenant shall procure and maintain throughout the Lease Term a
policy or policies of insurance, at its sole cost and expense, insuring both
Landlord (by naming Landlord as an additional insured) and Tenant against all
claims, demands or actions arising out of or in connection with the Demised
Premises, the condition of the Demised Premises, Tenant's operations in and
maintenance and use of the Demised Premises, and Tenant's liability assumed
under this Lease, the limits of such policy or policies to be in an amount not
less than $500,000 per occurrence and $500,000 aggregate in respect of injury
to persons (including death), and in respect of property damage or destruction,
including loss of use thereof. All such policies shall be procured by Tenant
from responsible insurance companies satisfactory to Landlord. Certified
copies of such policies or duly executed "Certificates of Insurance", together
with receipt evidencing payment of premiums therefor, shall be delivered to
Landlord prior to the Commencement Date of this Lease, or prior to the date
Landlord delivers possession of the Demised Premises to Tenant, whichever is
the earlier to occur. Not less than fifteen (15) days prior to the expiration
date of any such policies, certified copies of the renewals thereof or duly
executed "Certificates of Insurance", bearing notations evidencing the payment
of renewal premiums, shall be delivered to Landlord. Such policies shall
further provide that not less than thirty (30) days written notice shall be
given to Landlord before such policy may be canceled or changed to reduce
insurance provided thereby. If Tenant should fail to comply with the foregoing
requirements relating to insurance, Landlord may obtain such insurance and
Tenant shall pay to Landlord on demand, as Additional Rental hereunder, the
premium cost thereof.
ARTICLE 17. NON-LIABILITY FOR CERTAIN DAMAGES.
17.1 Landlord and Landlord's agents and employees shall not be
liable to Tenant for any injury to person or damage to property caused by the
Demised Premises or other portions of the Shopping Center becoming out of
repair or by defect or failure of any structural element of the Demised
Premises or of any equipment, pipes or wiring, or broken glass, or by the
backing up of drains, or by gas, water, steam, electricity or oil leaking,
escaping or flowing into the Demised Premises (except where due to Landlord's
willful failure to make repairs required to be made hereunder, after the
expiration of a reasonable time after written notice to Landlord of the need
for such repairs), nor shall Landlord be liable to Tenant for any loss or
damage that may be occasioned by or through the acts or omissions of other
tenants of the Shopping Center or of any other persons whomsoever, excepting
only duly authorized employees and agents of Landlord.
17.2 Landlord shall not be liable to Tenant for losses due to
theft, vandalism or burglary, or for damages or injuries done by unauthorized
persons to the Demised Premises or to any person or property located in, upon,
or adjacent to the Demised Premises.
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ARTICLE 18. ASSIGNMENT AND SUBLETTING.
18.1 Tenant shall not assign or in any manner transfer this Lease
or any estate or interest therein, or sublet the Demised Premises or any part
thereof, or grant any license, concession or other right of occupancy of any
portion of the Demised Premises without the prior written consent of Landlord
which consent shall not be unreasonably withheld. Consent by Landlord to one
or more assignments or sublettings shall not operate as a waiver of Landlord's
rights as to any subsequent assignments and sublettings.
18.2 If Tenant is a corporation, and if at any time during the
Lease Term or any renewal or extension thereof the owners of a majority of
either the outstanding voting shares or all outstanding shares of capital stock
of Tenant at the time of the execution of this Lease cease to own a majority of
such shares (except as the result of transfer by devise or descent), the loss
of a majority of such shares shall be deemed an assignment of this Lease by
Tenant and therefore subject in all respects to the provisions of Section 18.1
above. The previous sentence shall not apply, however, if at the time of the
execution of this Lease the outstanding voting shares of capital stock of
Tenant are listed on a recognized security exchange or over-the-counter market.
18.3 Notwithstanding any assignment or subletting, Tenant and any
guarantor of Tenant's obligations under this Lease shall at all times remain
fully responsible and liable for the payment of all Rentals herein specified
and for compliance with all of its other obligations under this Lease (even if
future assignments and sublettings occur subsequently to the assignment or
sublettings). Moreover, in the event that the rental due and payable by a
sublessee (or a combination of the rental payable under such sublease plus any
bonus or other consideration therefor or incident thereto) exceeds the Rentals
payable under this Lease, then Tenant shall be bound and obligated to pay
Landlord all such excess rental and other excess consideration within ten (10)
days following receipt thereof by Tenant.
18.4 Tenant shall not mortgage, pledge or otherwise encumber its
interest in this Lease or in the Demised Premises.
18.5 Should Tenant request of Landlord the right to assign or
sublet, Landlord may charge an amount equal to one (1) month's Minimum
Guaranteed Rental and Additional Rental as an administration fee, if such
request is granted.
ARTICLE 19. ASSIGNMENT OF LANDLORD'S INTEREST.
19.1 Landlord shall have the right to assign, or transfer in whole
or in part, every feature of Landlord's right and obligation hereunder and in
the Demised Premises, subject to this Lease. Such assignments or transfers may
be made to a corporation, state or national banking association, trust, trust
company, limited partnership, partnership, individual or group of individuals,
and however made, shall be in all things respected and recognized by Tenant.
Tenant shall not, however, be charged with notice, actual or constructive, of
or with inquiry and respect to, any such assignment or transfer until Tenant is
furnished with a written notice of such transfer or assignment by Landlord.
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19.2 In the event of the transfer and assignment by Landlord of its
interest in this Lease and in the building containing the Demised Premises,
Landlord shall thereby be released from any further obligations hereunder, and
Tenant agrees to look solely to such successor in interest of the Landlord for
performance of such obligations. Any remaining security given by Tenant to
secure performance of Tenant's obligations hereunder shall be assigned and
transferred by Landlord to such successor in interest, and Landlord shall
thereby be discharged of any further obligation relating thereto.
ARTICLE 20. SUBORDINATION; ATTORNMENT.
20.1 Tenant accepts this Lease subject and subordinate to any
mortgage, deed of trust or other lien presently existing or hereafter placed
upon the Demised Premises or the Shopping Center as a whole, and to any
renewals and extensions thereof (hereinafter collectively called "Mortgage").
Tenant agrees that any such mortgagee shall have the right at any time to
subordinate such Mortgage to this Lease; provided, however, notwithstanding
that this Lease may be (or made to be) superior to the Mortgage, the provisions
of the Mortgage relative to the rights of the mortgagee with respect to
proceeds arising from an eminent domain taking (including a voluntary
conveyance by Landlord) and/or arising from insurance payable by reason of
damage or destruction of the Demised Premises shall be prior and superior to
any contrary provisions contained in this instrument. Landlord is hereby
irrevocably vested with full power and authority to subordinate this Lease to
any Mortgage, and Tenant agrees upon demand to execute such further instruments
subordinating this Lease as Landlord may request; provided, however, that upon
Tenant's written request and notice to Landlord, Landlord shall use good faith
efforts to obtain from any such mortgagee a written agreement that the rights
of Tenant shall remain in full force and effect during the term of this Lease,
notwithstanding any foreclosure of such Mortgage, so long as Tenant shall
continue to recognize and perform all of the covenants and conditions of this
Lease.
20.2 At any time when the holder of an outstanding Mortgage has
given Tenant written notice of its interest in this Lease, Tenant may not
exercise any remedies for default by Landlord hereunder unless and until the
holder of the indebtedness secured by such Mortgage shall have received written
notice of such default and a reasonable time for curing such default thereafter
shall have elapsed.
ARTICLE 21. DEFAULT BY TENANT AND LANDLORD REMEDIES.
21.1 Events of Default. The following events shall be deemed to be
"Events of Default" by Tenant under this Lease.
(1) Tenant shall fail to pay any installment of Minimum Guaranteed
Rental, Percentage Rental, Additional Rental, or any other obligation hereunder
involving the payment of money and such failure shall continue for a period of
ten (10) days after the date due, and ten (10) days after written notice and
thirty (30) days thereafter to cure such default.
(2) Tenant shall fail to comply with any term, provision or
covenant of this Lease, other than as described in subsection (1) above, and
shall not cure such failure within thirty (30) days after written notice
thereof to Tenant.
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(3) Tenant or any guarantor of Tenant's obligations under this
Lease shall become insolvent, or shall make a transfer in fraud of creditors,
or shall make an assignment for the benefit of creditors.
(4) Tenant or any guarantor of Tenant's obligations under this
Lease shall file a petition under any section or chapter of the Federal
Bankruptcy Code, as amended, or under any similar law or statute of the United
States or any State thereof; or Tenant or any guarantor of Tenant's obligations
under this Lease shall be adjudged bankrupt or insolvent in proceedings filed
against Tenant or any guarantor of Tenant's obligations under this Lease
thereunder.
(5) A receiver or trustee shall be appointed for the Demised
Premises or for all or substantially all of the assets of Tenant or any
guarantor of Tenant's obligations under this Lease.
(6) Tenant shall abandon or vacate any substantial portion of the
Demised Premises or shall permit the Demised Premises to remain unoccupied and
unattended.
(7) Tenant shall do or permit to be done anything that creates a
lien upon the Demised Premises or any portion of the Shopping Center.
21.2 Landlord Remedies. Upon the occurrence of any such Events of
Default, in addition to all other legal or equitable remedies now or hereafter
available, Landlord shall have the option to pursue the following described
remedies without further demand or notice whatsoever:
(1) Terminate this Lease, in which event Tenant shall immediately
surrender the Demised Premises to Landlord, and if Tenant fails to do so,
Landlord may, without prejudice to any other remedy which he may have for
possession or arrearages in rent, enter upon and take possession of the Demised
Premises and expel or remove Tenant and any other person who may be occupying
said premises or any part thereof, by force if necessary, without being liable
for prosecution or any claim for damages therefor; and Tenant agrees to pay to
Landlord on demand the amount of all loss and damage which Landlord may suffer
by reason of such termination, whether through inability to relet the premises
on satisfactory terms or otherwise.
(2) Enter upon and take possession of the Demised Premises,
without terminating this Lease, and expel or remove Tenant and any other person
who may be occupying said premises or any part thereof, by force if necessary,
without being liable for prosecution or any claim for damages therefor, and, if
Landlord so elects, relet the premises on such terms and for such purposes as
Landlord may deem advisable and receive the rent therefor; and Tenant agrees to
pay to Landlord on demand any deficiency that may arise by reason of such
reletting, and in no event shall Tenant be entitled to any excess of any rent
obtained by reletting over the sums for which Tenant is obligated hereunder.
Action may be brought from time to time to collect Rentals prior to the
expiration of the Lease Term.
(3) Enter upon the Demised Premises, by force if necessary,
without being liable for prosecution or any claim for damages therefor, without
being obligated to do so and without thereby waiving such default, and do
whatever Tenant is obligated to do under the terms of this
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<PAGE> 17
Lease; and Tenant agrees to reimburse Landlord on demand for all costs and
expenses (including reasonable attorney's fees) which Landlord may incur in
thus effecting compliance with Tenant's obligations under this Lease, and
Tenant further agrees that Landlord shall not be liable for any damages
resulting to Tenant from such action.
In the event Landlord elects to re-enter or repossess the Demised
Premises after Tenant's default, Tenant hereby waives notice of such re-entry
or repossession and of Landlord's intent to re-enter or retake possession and
grants to Landlord full and free license to alter or change locks or security
devices on the Demised Premises. Pursuit of any of the foregoing remedies
shall not preclude pursuit of any other remedies herein provided or provided by
law, nor shall pursuit of any other such remedy constitute a forfeiture or
waiver of any Rentals due to Landlord hereunder or of any damages accruing to
Landlord by reason of the violation of any of the terms, provisions and
covenants herein contained. Forbearance by Landlord to enforce one or more of
the remedies herein provided upon an Event of Default shall not be deemed or
construed to constitute a waiver of such default. The loss or damage which
Landlord may suffer by reason of termination of this Lease or the deficiency
arising by reason of any reletting by Landlord as above provided, shall include
the expense of repossession, brokerage fees and the cost of any repairs,
alterations, additions, or remodeling undertaken by Landlord following
repossession.
The service of any notice of termination or demand for possession,
institution of any action for forcible detainer or the entry of a judgment for
possession in such action, or any other act or acts resulting in the
termination of Tenant's right of possession shall not relieve Tenant of
Tenant's obligations to pay all Rentals hereunder during the balance of the
Lease Term or any extension thereof. Landlord may collect and receive any
Rentals due from Tenant, and the acceptance thereof shall not constitute a
waiver of or affect any notice or demand given, suit instituted or judgment
obtained by Landlord, or be held to waive, affect, change, modify or alter the
rights or remedies which Landlord has in equity or at law by virtue of this
Lease.
21.3 Use of Fixtures. In the event Landlord shall have taken
possession of the Demised Premises pursuant to the authority herein granted,
then Landlord shall have the right to keep in place and use all of Tenant's
fixtures, furniture, equipment, signs, and other personal property at all times
prior to any foreclosure thereon by Landlord or repossession thereof by any
third party having a prior lien thereon or claim thereto, or Landlord may
remove and store such items in a public warehouse or elsewhere at Tenant's
expense.
21.4 Enjoin Breach. Landlord may restrain or enjoin any breach or
threatened breach of any covenant, duty or obligation of Tenant herein
contained without the necessity of proving the inadequacy of any legal remedy
or irreparable harm. The remedies of Landlord hereunder shall be deemed
cumulative and not exclusive of each other.
21.5 Attorneys Fees. If on account of any breach or default by
either party in its obligations hereunder, the other party shall employ an
attorney to present, enforce or defend any of it's rights or remedies
hereunder, and obtains a judgment for damages as a result, the other party
agrees to pay any reasonable attorney's fees incurred by the party obtaining
such judgment in such connection.
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<PAGE> 18
21.6 Deleted prior to execution.
21.7 Security Deposit. Landlord hereby acknowledges receipt from
Tenant of the sum stated in Section 1.1(j) above, to be held by Landlord
without interest as security for the performance by Tenant of Tenant's
covenants and obligations under this Lease, it being expressly understood that
such deposit may be commingled with Landlord's other funds and is not an
advance payment of Rentals or a measure of Landlord's damages in case of
default by Tenant. Upon the occurrence of any Event of Default by Tenant,
Landlord may, from time to time, without prejudice to any other remedy provided
herein or provided by law, use such fund to the extent necessary to make good
any arrears of Minimum Guaranteed Rental, Percentage Rental and any Additional
Rental and any other damage, injury, expense or liability caused to Landlord by
such Event of Default, and Tenant shall pay to Landlord on demand the amount so
applied in order to restore the Security Deposit to its original amount. If
Tenant is not then in default hereunder, and provided Tenant has otherwise
complied with the provisions of Articles 27 and 28 hereof, any remaining
balance of such Security Deposit shall be returned by Landlord to Tenant upon
termination of this Lease (subject to the provisions of Section 19.2 above).
FURTHER, IN THE EVENT TENANT DISCUSSES TENANT'S MINIMUM GUARANTEED RENTAL,
ADDITIONAL RENTAL OR OTHER CHARGES AS CONTAINED HEREIN WITH OTHER TENANTS IN
THE SHOPPING CENTER, TENANT SHALL BE DEEMED TO BE IN DEFAULT OF THIS LEASE, AND
IN THAT EVENT, TENANT SHALL FORFEIT TENANT'S SECURITY DEPOSIT AS STATED IN
SECTION 1.1(J) TO LANDLORD.
ARTICLE 22. LANDLORD'S CONTRACTUAL SECURITY INTEREST.
22.1 In addition to the statutory Landlord's lien, Landlord shall
have at all times a valid security interest to secure payment of all Rentals
and other sums of money becoming due hereunder from Tenant, and to secure
payment of any damages or loss that Landlord may suffer by reason of the breach
by Tenant of any covenant, agreement or condition contained herein, upon all
goods, wares, equipment, fixtures, furniture, improvements and other personal
property of Tenant presently, or which may hereafter be situated on the Demised
Premises (but not accounts, cash on hand, securities and intangibles or bank
records on the premises), and all proceeds therefrom, and such property of
Tenant may not be removed without the consent of Landlord until all arrearages
in Rentals as well as any and all other sums of money then due to Landlord or
to become due to Landlord hereunder shall first have been paid and discharged
and all the covenants, agreements and conditions hereof have been fully
complied with and performed by Tenant.
22.2 Upon the occurrence of an Event of Default by Tenant, Landlord
may, in addition to any other remedies provided herein, enter upon the Demised
Premises and take possession of any and all goods, wares, equipment, fixtures,
furniture, improvements and other personal property of Tenant (but not
accounts, cash on hand, securities and intangibles or bank records on the
premises) situated on the Demised Premises, without liability for trespass or
conversion, and sell the same at public or private sale, with or without having
such property at the sale, after giving Tenant reasonable notice of the time
and place of any public sale or of the time after which any private sale is to
be made. Unless otherwise provided by law, and without intending to exclude
any other manner of giving Tenant reasonable notice, the requirement of
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<PAGE> 19
reasonable notice shall be met if such notice is given in the manner prescribed
in this Lease at least seven (7) days before the time of sale. Any sale made
pursuant to the provision of this paragraph shall be deemed to have been a
public sale conducted in a commercially reasonable manner if held in the
Demised Premises or where the property is located after the time, place and
method of sale and a general description of the types of property to be sold
have been advertised in a daily newspaper published in the county in which the
property is located, for five (5) consecutive days before the date of the sale.
Landlord or its assigns may purchase any or all of same at said public or
private sale, unless otherwise prohibited by law. The proceeds from any such
private or public sale, less any and all expenses connected with the taking of
possession, holding and selling of the property (including reasonable
attorney's fees and legal expenses), shall be applied as a credit against the
indebtedness secured by the security interest granted Landlord in this Article
22. Any surplus shall be paid to Tenant or as otherwise required by law;
Tenant shall promptly pay any deficiencies.
22.3 Upon request by Landlord, from time to time Tenant agrees to
execute and deliver to Landlord a Uniform Commercial Code Financing Statement
in form sufficient to perfect the security interest of Landlord in the
aforementioned property and proceeds thereof (sample attached hereto as Exhibit
"E").
ARTICLE 23. EMINENT DOMAIN.
23.1 If more than thirty percent (30%) of the floor area of the
Demised Premises should be taken for any public or quasi-public use under any
governmental law, ordinance or regulation or by right of eminent domain or by
private purchase in lieu thereof, this Lease shall terminate and all Rentals
shall be abated during the unexpired portion of this Lease, effective on the
date physical possession is taken by the condemning authority.
23.2 If less than thirty percent (30%) of the floor area of the
Demised Premises should be taken as aforesaid, this Lease shall not terminate;
however, the Minimum Guaranteed Rental (but not Percentage Rental Rate) payable
hereunder during the unexpired portion of this Lease shall be reduced in
proportion to the area taken, effective on the date physical possession is
taken by the condemning authority. Following such partial taking, Landlord
shall make all necessary repairs or alterations to make the remaining portions
of the Demised Premises an architectural whole.
23.3 If any part of the Common Area should be taken as aforesaid,
this Lease shall not terminate, nor shall the Rentals payable hereunder be
reduced, except that either Landlord or Tenant may terminate this Lease if the
area of the Common Area remaining following such taking, plus any additional
parking area provided by Landlord in reasonable proximity to the Shopping
Center, shall be less than seventy percent (70%) of the area of the Common Area
immediately prior to the taking. Any election to terminate this Lease in
accordance with this provision shall be evidenced by written notice of
termination delivered to the other party within thirty (30) days after the date
physical possession is taken by the condemning authority.
23.4 All compensation awarded for any taking (or the proceeds of
private sales in lieu thereof) of the Demised Premises or Common Area shall be
the property of Landlord, and Tenant hereby assigns its interest in any such
award to Landlord; provided, however, Landlord
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shall have no interest in any award made to Tenant for Tenant's moving and
relocating expenses or for the loss of Tenant's trade fixtures and other
tangible personal property if a separate award for such items is made to
Tenant.
ARTICLE 24. MERCHANTS ASSOCIATION.
24.1 In the event that Landlord shall organize a merchants
association composed of tenants in the Shopping Center, Tenant agrees that it
will join and maintain membership in such association, will pay as Additional
Rental such dues and assessments as may be fixed and determined from time to
time by Landlord, and will comply with such bylaws, rules and regulations as
may be adopted from time to time by the association.
ARTICLE 25. NOTICES.
25.1 Whenever any notice is required or permitted hereunder such
notice shall be in writing. Any notice or document required or permitted to be
delivered hereunder shall be deemed to be delivered when actually received by
the designated addressee or, if earlier and regardless of whether actually
received or not, when deposited in the United States Mail, postage prepaid,
Certified Mail, Return Receipt Requested, addressed to the parties hereto at
the respective addresses set out in Section 1.1 and Section 1.3 above (or at
Landlord's option, to Tenant at the Demised Premises), or at such other
addresses as they have theretofore specified by written notice.
ARTICLE 26. RADIUS RESTRICTION.
26.1 Deleted prior to execution.
ARTICLE 27. SURRENDER.
27.1 At the expiration or termination of this Lease, Tenant shall
surrender the Demised Premises in good condition, including the removals and
repairs required to be made by Tenant in Sections 10.1, 11.1 and 12.4 of this
Lease, excepting only reasonable wear and tear and repairs required to be made
by Landlord in Section 7.1, Article 14 and Article 23 of this Lease.
27.2 Should Tenant fail to remove any of its fixtures, equipment,
signs or personalty at the expiration or termination of this Lease, Landlord
may consider it to be abandoned and remove or dispose of same without liability
to Tenant, at Tenant's expense.
ARTICLE 28. COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS.
28.1 Tenant shall comply with all applicable federal, state, and
local laws, ordinances, orders, rules and regulations concerning the protection
of the environment ("Environmental Laws") and affecting the Demised Premises or
the operation of Tenant's business therein. Notwithstanding anything in this
Lease to the contrary, Tenant shall not use, store, handle, manufacture,
process or dispose of in, on or about the Shopping Center any substance,
material,
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<PAGE> 21
chemical, gas, waste or other matter which is harmful to the environment
("Hazardous Substances").
28.2 Tenant will not do or permit anything to be done in, on or
about the Shopping Center that would violate any Environmental Laws. Any
Hazardous Substances (including any construction or remodeling wastes) shall be
removed from the Demised Premises by Tenant and shall be properly disposed of
in compliance with all Environmental Laws at Tenant's sole cost and expense.
28.3 Tenant hereby agrees to indemnify and hold Landlord harmless
of, from and against any and all claims, actions, liens, demands, costs,
expenses, penalties, fines and judgments (including court costs and attorney's
fees) resulting from or arising by reason of the violation of this Article 28
or any Environmental Laws by Tenant, its agents, employees, contractors,
subtenants, licensees or concessionaires.
28.4 Tenant's obligations under Article 28 shall survive the
expiration or termination of this Lease.
ARTICLE 29. MISCELLANEOUS.
29.1 Nothing herein contained shall be deemed or construed by the
parties hereto, nor by any third party, as creating the relationship of
principal and agent or of partnership or of joint venture between the parties
hereto, it being understood and agreed that neither the method of computation
of rent, nor any other provision contained herein, nor any acts of the parties
hereto, shall be deemed to create any relationship between the parties hereto
other than the relationship of Landlord and Tenant.
29.2 Deleted prior to execution.
29.3 The liability of Landlord to Tenant for any default by
Landlord under the terms of this Lease shall be limited solely to the proceeds
of the sale on execution of the interest of Landlord in the Shopping Center
existing at the time any such liability is adjudicated; and Landlord shall not
be personally liable for any deficiency or otherwise. Under no circumstances
whatsoever shall Landlord ever be liable for consequential or special damages.
This clause shall not be deemed to limit or deny any remedies which Tenant may
have in the event of default by Landlord hereunder, which do not involve the
personal liability of Landlord.
29.4 All remedies herein given to Landlord, including those not set
forth but provided by law, shall be cumulative, and the exercise of one or more
of such remedies by Landlord hereunder shall not exclude the exercise of any
other consistent remedy. Any waiver by Landlord, express or implied, of any
breach of any term, covenant or condition hereof, shall not be deemed a waiver
of such term, condition or covenant for any subsequent breach or of any other
term, covenant or condition hereof, and consent or approval shall not be deemed
to waive or render unnecessary consent to approval of any subsequential or
similar act. Acceptance of Rental by Landlord from Tenant or any assignee,
subtenant, or other successor in interest of Tenant, or the payment or tender
of any Rental to Landlord, with or without notice, shall never be construed as
a waiver of any breach of any term, condition or covenant of this Lease. The
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<PAGE> 22
failure of Landlord to declare any Event of Default upon the occurrence
thereof, or any delay by Landlord in taking action with respect thereto shall
not waive such default, but Landlord shall have the right to declare such
default at any time and to take such action as may be authorized hereunder to
the extent herein provided.
29.5 Whenever a period of time is herein prescribed for action to
be taken by Landlord, Landlord shall not be liable or responsible for, and
there shall be excluded from the computation of any such period of time, any
delays due to strikes, riots, acts of God, shortages of labor or materials,
war, government laws, regulations or restrictions or any other causes of any
kind whatsoever which are beyond the reasonable control of Landlord.
29.6 Tenant agrees that it will from time to time upon request by
Landlord execute and deliver to Landlord within ten (10) days an Estoppel
Letter or a statement in recordable form certifying that this Lease is
unmodified and in full force and effect (or if there have been modifications
that the same is in full force and effect as so modified) and including such
information as Landlord may designate.
29.7 The laws of the State of Texas shall govern the
interpretation, validity, performance and enforcement of this Lease. If any
provision of this Lease should be held to be invalid or unenforceable, the
validity and enforceability of the remaining provisions of this Lease shall not
be affected thereby. Venue for any action under this Lease shall be in the
County in which said Demised Premises are located.
29.8 The captions used herein are for convenience only and do not
limit or amplify the provisions hereof.
29.9 The terms, provisions and covenants contained in this Lease
shall apply to, inure to the benefit of and be binding upon the parties hereto
and their respective heirs, successors in interest and legal representatives,
subject to provisions contained in this Lease limiting assignment.
29.10 This Lease contains the entire agreement between the parties,
and no agreement shall be effective to change, modify or terminate this Lease,
in whole or in part, unless such is in writing and duly signed by the party
against whom enforcement is sought.
29.11 Tenant warrants that it has had no dealings with any broker or
agent in connection with the negotiation or execution of this Lease, and Tenant
agrees to indemnify Landlord and hold Landlord harmless from and against any
and all costs, expenses or liability for commissions or other compensations or
charges claimed by any broker or agent with respect to this Lease.
29.12 It is expressly understood that the signature of either Jerry
J. Moore, President or Jean H. Moore, Vice President for JJM Management Inc.,
Agent, will be sufficient to constitute the acceptance of the Landlord.
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<PAGE> 23
ARTICLE 30. RELOCATION FOR ANCHOR.
30.1 In the event Landlord requires possession of the Demised
Premises for either expansion area or assembly of new space for an anchor
store, Landlord shall have the option to relocate the Tenant to alternate space
in the Shopping Center, which alternate space shall be of similar size and
value. In such event:
(a) Landlord shall give Tenant not less than ninety (90) days
prior written notice, which notice shall include the date on which the Tenant
shall be required to relocate or move and the space to which Tenant will be
relocated. Tenant shall give written notice of its acceptance or rejection of
the relocation within thirty (30) days of receipt of Landlord's notice.
(b) If Tenant notifies Landlord of its desire to relocate to such
alternate space in the Shopping Center, the reasonable cost and expense of
relocating Tenant (including the cost of preparing such alternate space for
occupancy) shall be paid by Landlord, and such alternate space shall for all
purposes be deemed the Demised Premises hereunder. This Lease shall otherwise
continue unmodified and in full force and effect.
(c) If Tenant fails to give such notice of its acceptance or
rejection of said relocation, or gives notice that it does not desire to
relocate, this Lease shall automatically terminate six (6) months after the
date of the above given written notice by Landlord, and Landlord shall have
full possession of the Demised Premises. In such event Landlord shall not be
required to pay any costs incurred by Tenant in moving from the Demised
Premises, nor shall Landlord be liable for any cost or expense incurred by
Tenant in connection with the Demised Premises.
ARTICLE 31. TENANT'S CANCELLATION RIGHT.
31.1 Deleted prior to execution.
ARTICLE 32. DRIVE THROUGH LANE.
32.1 Tenant has the right, but not the obligation, to build a
double drive-through lane at the location shown highlighted in blue on Exhibit
"B" attached hereto. Tenant shall be entitled to install, operate, maintain
and repair underground pneumatic tubes, conduit and wiring from such
drive-through facilities to the Demised Premises, which shall be at Tenant's
sole cost and expense. Tenant shall perform all work in connection with the
necessary digging of trenches expeditiously and in a manner which will not
unreasonably interfere with the conduct of business by other tenants in the
Shopping Center, and Tenant shall restore the surface of the parking area to a
level, smooth and evenly graded condition immediately following the completion
of such work. All work in connection with the alterations, reconstruction and
remodeling of the drive-through facilities described herein shall be performed
by Tenant in accordance with all applicable laws, rules, regulations, codes and
ordinances and pursuant to plans and specifications prepared by Tenant, which
plans and specifications shall be submitted to Landlord prior to commencement
of such work. Tenant shall be required to secure all licenses and permits
necessary for the performance of such work.
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<PAGE> 24
ARTICLE 33. REGULATORY APPROVAL.
The obligations of Tenant under this Lease are subject to Tenant
obtaining regulatory approval for the opening of a branch bank in the Demised
Premises. Tenant agrees to immediately make application and thereafter to make
every reasonable effort to obtain such approval. In the event such approval is
not received within ninety (90) days following the date of application, Tenant
may extend this Lease for an additional ninety (90) days by paying $2,423.00 of
non-refundable rent per month. In the event that regulatory approval is not
received during the additional ninety (90) day extension, Landlord or Tenant
may cancel this lease and tenant's Security Deposit and Prepaid Rental as
stipulated in Article 1, Section 1.1(j) herein shall be forfeited to Landlord.
This Lease consists of Articles numbered "1" through "33" and its
attached Exhibits "A" through "E", and is EXECUTED as of the date first written
hereinabove.
LANDLORD:
JERRY J. MOORE INVESTMENTS
By: JJM Management Inc., Agent
By: /s/ Jean H. Moore
Jean H. Moore, Vice President
TENANT:
CITIZENS BANK
By: /s/ Phillip E. Brickley
Philip E. Brickley,
Executive Vice President
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<PAGE> 25
EXHIBIT "C"
CONSTRUCTION AGREEMENT
(Contact) Tenant: Citizens Bank
Telephone: (512) 887-3000
Re: Lease space commonly known as 4101 Highway 77, #L-1, Corpus Christi,
Texas, 78410, in the Five Points Shopping Center for Citizens Bank, as
Tenant.
LANDLORD'S WORK: Landlord will commence its work only after Tenant notifies
Landlord that all utilities are turned on in the Demised Premises.
Landlord, at his own expense, agrees to do the following:
1. Initial service of HVAC, electrical and plumbing units.
2. Paint interior one coat of paint.
3. Replace any damaged or stained ceiling tiles.
TENANT'S WORK:
Tenant agrees to do all other work necessary to open the Demised Premises for
business subject to Landlord's approval, as specified in Article 10,
"Alterations".
Tenant shall supply Landlord with drawings and a list of proposed changes
which, after initial approval by Landlord, must comply with City Codes.
It is further understood that Landlord will make the final inspection of the
Tenant's Work within five (5) days after receipt of written notification by the
Tenant that work has been completed.
INITIALED:
<PAGE> 26
EXHIBIT "D"
SIGN CRITERIA
Center: Five Points
Tenant: Citizens Bank
Address: 4101 Highway 77, #L1, Corpus Christi, Texas 78410
NOTE: ALL SIGN DRAWINGS MUST BE APPROVED BY THE LANDLORD
TYPE OF BUILDING SIGN REQUIRED: INDIVIDUAL CHANNEL LETTERS
A. Specifications of Materials: All letters shall have a plexiglass
face, minimum 3/16" thick, retained in a Channel with a 1" trim cap.
The letter sidewalls and raceway are to be baked enamel over aluminum.
The letters shall be of an all-metal construction, using a minimum of
a .040 gauge thick metal. All fastenings and hardware shall be
non-corrosive materials.
B. Mounting Locations and Procedures: Sign shall be centered both
vertically and horizontally on the facia of the building. All letters
are to be mounted on a 7" x 7" or 8" x 8" raceway with drainage holes,
size appropriate to allow for adequate drainage. These should be
toward the front of the raceway away from the building. All building
penetrations shall be sealed and watertight with mounting brackets or
fasteners not visible.
C. Size:
1. Letters: Each letter shall be from 4" to 6" in depth. The
height is as follows:
<TABLE>
<S> <C> <C>
a. Height for one line: Maximum - 24" Minimum-18"
b. Height for two lines:
First line: Maximum - 18" Minimum - 12"
Second line: Maximum - 12" Minimum - 10"
</TABLE>
NOTE: The first and second line sizes may be reversed.
2. Store Frontage: The length of the sign is not to exceed 80%
of the store frontage, nor less than 60% of store frontage.
3. Spacing: The letters are to be evenly distributed with
consistency and desirable optical viewing.
<TABLE>
<S> <C> <C>
a. Between lines: Maximum - 6" Minimum - 6"
b. Below roof line: Maximum - 15-1/2" Minimum - 6-1/2"
c. Above canopy overhang: Maximum - 15-1/2" Minimum - 6-1/2"
</TABLE>
INITIALED:
<PAGE> 27
D. Illumination: Electrical service to sign shall be provided by
Tenant's own electrical meter. Letters 18" or taller are to contain
two or more lines of neon tubing. The neon tubes shall be from 6000k
to 6500k, transformer M.A. not to exceed rated footage of neon tubing
on ballast. Exposed light sources are not permitted and all wires are
to be in a conduit.
E. Color: Unless otherwise required and/or approved by the Landlord, all
letter faces will be white. The raceway will be the same color as
the building facia unless otherwise specified. The sidewall will be
either the same color as the letter face or bronze, unless otherwise
approved by Landlord.
F. Style/Design: All letter styles will be considered on a form scale
with emphasis placed on to what degree they allow for ease in
legibility. The design shall be kept simple, condensed to the
business name, and coordinated with existing signs in the center.
G. Time Requirements: Tenant agrees to submit within thirty (30) days
for Landlord's approval two (2) copies of a sign drawing prepared by
Tenant's sign company, showing in reasonable detail Tenant's proposed
sign. Further, Tenant agrees to have installed Tenant's approved sign
within sixty (60) days of the Lease execution date.
H. Uniform Sign Criteria: Tenant agrees at all times to have above
Tenant's space a sign which conforms to the sign standard set by the
Landlord.
I. Maintenance: Tenant agrees that Tenant shall keep Tenant's sign in
good working order during the entire Lease Term and any extension
thereof, and that Landlord shall have the right to require the Tenant
to remove and replace Tenant's sign if for any reason said sign
becomes inoperative for a period of more than thirty (30) days.
J. Sign Removal: Tenant agrees at the expiration or termination of the
Lease Agreement to have Tenant's sign removed from the building and
make any necessary repair to the building resulting from said removal,
at Tenant's sole cost and expense. If Tenant fails to remove Tenant's
sign and make reasonable repairs to the sign facia resulting from said
removal, then in such event, Landlord reserves the right to have said
sign removed and make said repair, and to bill Tenant the cost of said
work.
K. Sign Company: Landlord reserves the right not to allow a particular
sign company to do sign work in a center.
INITIALED:
<PAGE> 28
EXHIBIT "E"
September 28, 1994
Jim Knioum
Citizens Bank
P. O. Box 4007
Corpus Christi, Texas 78469
Re: Lease Space
4101 Highway 77, #L-1
Dear Mr. Knioum:
This letter will serve as acknowledgment that as per Article 1, Section 1.1(g)
of the Shopping Center Lease dated the 24th day of June, 1994, by and between,
Jerry J. Moore Investments, as Landlord, and Citizens Bank, as Tenant,
commencement shall be October 1, 1994 and expiration shall be September 30,
1997.
In accordance with Section 1.1(j), your prepaid rental shall be applied to your
October, 1994 rental. Your next rental payment in the amount of $2,423.00
shall be due November 1, 1994.
Please secure the appropriate signature on all four (4) copies and return two
(2) copies for our files.
LANDLORD:
JERRY J. MOORE INVESTMENTS
By: JJM Management Inc.
By: /s/ Jean H. Moore
Jean H. Moore, Vice President
Dated: September 28, 1994
TENANT:
CITIZENS BANK
By: /s/ Philip E. Brickley
Philip E. Brickley,
INITIALED:
<PAGE> 29
LEASE INDEX
<TABLE>
<CAPTION>
ARTICLE CONTENTS PAGE
------- -------- ----
<S> <C> <C>
1 Definitions and Certain Basic Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 Granting Clause and Quiet Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3 Delivery and Acceptance of Premises; Term of Lease; Holdover . . . . . . . . . . . . . . . 3
4 Minimum Guaranteed Rental and Percentage Rental . . . . . . . . . . . . . . . . . . . . . 3
5 Common Area Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6 Use and Occupancy of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7 Maintenance and Repair of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8 Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
10 Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
11 Tenant's Fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
12 Tenant's Store Front and Signs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
13 Landlord's Right of Access; Use of Roof . . . . . . . . . . . . . . . . . . . . . . . . 10
14 Damages by Casualty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
15 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
16 Indemnity and Public Liability Insurance . . . . . . . . . . . . . . . . . . . . . . . . 11
17 Non-liability for Certain Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
18 Assignment and Subletting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
19 Assignment of Landlord's Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
20 Subordination; Attornment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
21 Default by Tenant and Landlord Remedies . . . . . . . . . . . . . . . . . . . . . . . . 14
22 Landlord's Contractual Security Interest . . . . . . . . . . . . . . . . . . . . . . . . 17
23 Eminent Domain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
24 Merchants Association . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
25 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
26 Radius Restriction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
27 Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
28 Compliance with Environmental Requirements . . . . . . . . . . . . . . . . . . . . . . . 19
29 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
30 Relocation for Anchor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
31 Tenant's Cancellation Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
32 Drive Through Lane . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
33 Regulatory Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
EXHIBITS
--------
A Shopping Center Legal Description
B Demised Premises
C Construction Agreement
D Sign Criteria
E U.C.C. Financing Statement
</TABLE>
INITIALED:
<PAGE> 1
EXHIBIT 13
<PAGE> 2
S E L E C T E D F I N A N C I A L
H I G H L I G H T S
The selected financial information (in thousands except per share data) set
forth below was derived in part from the consolidated financial statements
included elsewhere in this Annual Report and should be read in conjunction and
with the notes thereto.
<TABLE>
<CAPTION>
OPERATING DATA: 1994 1993 1992 1991 1990
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Income $ 10,174 $ 9,530 $ 9,868 $ 10,955 $ 11,600
Interest Expense 3,310 2,954 3,660 5,898 6,615
Net Interest Income 6,864 6,576 6,208 5,057 4,985
Provision for Loan Losses (300) -- -- (433) 655
NonInterest Income 2,889 2,586 2,656 2,169 2,216
NonInterest Expenses 7,857 6,671 6,546 7,000 5,578
Income before Income Taxes
and Extraordinary Item 2,196 2,491 2,318 659 968
Applicable Income Taxes 380 290 791 244 328
Income before Extraordinary Item 1,816 2,201 1,527 415 640
Extraordinary Item, Recognition of
Income Tax Loss Carry Forwards -- -- 753 207 316
Net Income $ 1,816 $ 2,201 $ 2,280 $ 622 $ 956
Weighted average of common stock and
common stock equivalents outstanding 1,681 1,600 1,600 1,600 1,600
NET INCOME PER COMMON SHARE:
------------------------------------------------------------------------------------------------------
Income before Extraordinary Item $ 1.08 $ 1.38 $ .95 $ .26 $ .40
Extraordinary Item -- -- 47 .13 .20
Net Income $ 1.08 $ 1.38 $ 1.42 $ .39 $ .60
Cash Dividends Declared $ .25 $ .25 $ .25 $ .025 $ --
BALANCE SHEET DATA:
------------------------------------------------------------------------------------------------------
Total Assets $171,530 $160,230 $146,551 $143,739 $144,409
Loans, Net $ 92,095 $ 77,144 $ 63,556 $ 58,270 $ 58,880
Total Deposits $157,659 $146,790 $134,814 $133,817 $135,052
Total Capital $ 13,438 $ 13,081 $ 11,280 $ 9,400 $ 8,818
SELECTED RATIOS:
------------------------------------------------------------------------------------------------------
Return on Assets (average) 1.11% 1.48% 1.61% .45% .69%
Return on Equity (average) 13.51% 17.66% 21.50% 6.76% 11.53%
Dividend Payout Ratio 22.02% 18.17% 17.60% 6.41% --
Equity to Assets (average) 8.38% 8.36% 7.47% 6.60% 6.01%
</TABLE>
See Notes to Financial Review.
1
<PAGE> 3
T O O U R S H A R E H O L D E R S :
The past twelve months proved to be a significant period for Corpus
Christi Bancshares, Inc., Corpus Christi, Texas. With the support of our
shareholders, we turned our attentions to the future and made several important
moves toward achieving our long range goal of maximizing shareholder value.
Now poised for continued success, we reflect upon the year and its
financial highlights. As you will see more clearly detailed in this report,
the Company and its wholly owned subsidiary, Citizens State Bank of Corpus
Christi, Texas, reported 1994 earnings before taxes of $2,196,000, compared to
$2,491,000 in 1993. Earnings after taxes totalled $1,816,000 as opposed to
$2,201,000 the previous year. Return on average assets was 1.1%, while return
on equity was 13.5%, compared to 1.5% and 17.7% respectively in 1993.
What must be considered when reviewing these figures are the
activities which comprised both our efforts and expenses. First, we completed
the formation of an indirect lending department that originated in November,
1993. Designed to generate consumer loans through local automobile, boat and
recreational vehicle dealerships, this new department greatly contributed to
net loans increasing to $92,095,000, an increase of 19.4% over the prior year.
The increased volume of consumer loans added a new degree of diversity to the
total loan portfolio further protecting the Company from economic change.
Addressing the ever-changing needs of our customers, we elected to
develop both investor services and branch expansion to more broadly serve the
market. Response to these areas has been particularly favorable, as evidenced
by deposit growth to $157,659,000, an increase of 7.4%, which further validates
our predetermined strategy.
These programs and other related moves represent a major investment in
the inherent value of our Company. Only by scrutinizing the economic climate
of our times, deliberating over the possibilities and choosing the right
direction can we hope to successfully meet our challenges.
We encourage you to read the following report and communicate to us
any thoughts or questions. As always, we greatly appreciate your involvement
and we look forward to moving ahead together in 1995.
Sincerely,
/s/ JOHN T. WRIGHT, III /s/ R. JAY PHILLIPS
------------------------ ------------------------------------
John T. Wright, III R. Jay Phillips
Chairman of the Board President and Chief Executive Officer
2
<PAGE> 4
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
SHAREHOLDER INFORMATION
COMMON STOCK AND DIVIDENDS:
Corpus Christi Bancshares had issued and outstanding 1,600,000 shares of $5.00
par value Common Stock held by approximately 500 shareholders at December 31,
1994. The book value of the stock at that date was $8.40 per share of common
stock issued and outstanding compared with $8.18 per share one year ago. On
December 31, 1994, the closing market price of the Stock was $10.00. The
Common Stock of the Company is traded on the American Stock Exchange under the
symbol "CTZ". Prior to October 22, 1993, the Company had no established trading
market for the Company's Common Stock which, when available, was traded in the
local over-the-counter market in Corpus Christi, Texas.
During 1994, the Company paid three quarterly cash dividends to shareholders
totaling $300 thousand and declared a fourth quarter cash dividend to
shareholders totaling $100 thousand compared to annual cash dividends totaling
$400 thousand during 1993 and 1992, respectively. Prior to the 1991 dividends,
the Company or its predecessor, Citizens State Bank of Corpus Christi, had paid
cash dividends on its Common Stock at least quarterly from March 1966 to March
1986.
Cash available for dividend distribution to shareholders of the Company's
Common Stock initially must come from dividends paid to the Company through
C.S.B.C.C., Inc. from Citizens State Bank of Corpus Christi. Therefore, the
restrictions on the Bank's dividend payments are directly applicable to the
Company. Payment of dividends by the Bank to the Company is subject to
regulatory restrictions described in Note 14 to the Consolidated Financial
Statements.
<TABLE>
<CAPTION>
TRANSFER AGENT: CORPORATE HEADQUARTERS:
<S> <C>
Chemical Bank 2402 Leopard Street
Securityholder Relations Department Corpus Christi, Texas 78408
450 West 33rd Street 512-887-3020
8th Floor
New York, NY 10001 CORPORATE MAILING ADDRESS:
800-635-9270
P. O. Box 9664
FORM 10-KSB: Corpus Christi, Texas 78469
Copies of the Corporation's Annual Report filed with the
Securities and Exchange Commission on Form 10-KSB are
available upon written request.
</TABLE>
SUMMARY COMMON STOCK INFORMATION
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
--------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE:(1)
Book Value $ 8.40 $ 8.18 $7.05 $5.88 $5.51
Market price:
At December 31, 1994 $10.00 $10.00 $5.00 $1.75 $1.94
High during year $11.75 $15.25 $5.25 $1.88 $2.19
Low during year $ 8.75 $ 5.00 $1.63 $1.56 $1.75
---------------------------------------------------------------------------------------
</TABLE>
(1) The book value and market prices stated in the above table from 1990
through 1992 have been restated to reflect the October, 1993 four-for-one stock
split. During these years, the Company's Common Stock had no established
trading market and was traded in the local over-the-counter market in Corpus
Christi, Texas.
See Notes to Financial Review.
9
<PAGE> 5
OVERVIEW OF PERFORMANCE
The Company had net income of $1.8 million ($1.08 earnings per share) for the
year 1994 compared with net income of $2.2 million ($1.38 earnings per share)
in 1993 and $2.3 million ($1.42 earnings per share) in 1992.
The Company's operating results were impacted by five major components during
1994: (1) provision for loan losses, (2) net interest income, (3) noninterest
income, (4) noninterest expenses and (5) income taxes. Each of these components
is discussed in greater detail below, including the impact each had on reported
income for the year 1994.
PROVISION FOR LOAN LOSSES
A significant factor in the Company's operating results was the provision for
loan losses. During 1994, the Company reduced its allowance for loan losses
through a $300 thousand "negative" provision to loan losses as a result of
several quarters of reduced loan charge-offs, increased loan recoveries, and
overall improvement in credit quality which resulted in an allowance for loan
losses that exceeded the minimum level determined necessary by the Company. The
Company made no provision for loan losses in 1993 or 1992. During 1994, the
Company had net recoveries on loans totaling $497 thousand compared to net
recoveries of $68 thousand in 1993 and net charge-offs totaling $36 thousand in
1992.
The allowance for loan losses is established through charges to operations in
the form of provisions for loan losses. Loan losses (or recoveries) are
charged (or credited) directly to the allowance. The provision for loan losses
is determined by management's judgment as to the amount required to maintain
the allowance at an acceptable level to absorb possible losses in the
portfolio. Several factors are considered in determining the allowance
required, including the following: (1) a continuing review by management of the
portfolio with particular emphasis on problem loans; (2) regular examinations
of the loan portfolio by independent consultants; (3) loss experience on
various types of loans in relation to outstanding loans; and (4) an ongoing
assessment of current and anticipated economic conditions in the market areas
served by the subsidiary bank.
The Company's Credit Review Committee ("CRC"), independent consultants, and
federal and State regulators conduct periodic examinations of the Company's
subsidiary bank to make evaluations of the subsidiary bank's loan portfolio. In
addition, appropriate regulatory authorities and independent consultants make
evaluations of the effectiveness of the Company's loan review and loan
administration functions and make periodic reports to the Company's Board of
Directors.
The Company's CRC is principally responsible for overseeing the management of
risk in the loan portfolio. The CRC monitors credit exposure through regular
reviews of the loan portfolio as well as recoveries and loss experience. The
CRC's review powers extend to every phase of the credit process. In addition,
the CRC assesses the adequacy of the allowance for loan losses.
As the Company's CRC examines the loan portfolio, loans are assigned a risk
grading, which, along with other factors, is used to determine the reserve
requirement for each loan. In addition to these specific allocations of
reserves, an appropriate amount is set aside to recognize the likelihood that
there are unidentified additional risks in the portfolio.
While there is no precise method of predicting loan losses, it is the judgment
of the Company's management that the allowance for loan losses at December 31,
1994 was adequate to absorb possible losses from loans in the portfolio at that
date. While management uses information available to it to determine the
adequacy of the allowance for loan losses, further changes to the allowance may
be necessary based on future changes in economic conditions. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Company's subsidiary bank's allowance for loan losses.
Such agencies may require the Company to recognize changes to the allowance
based on their judgments of information available to them at the time of their
examination.
See Notes to Financial Review.
10
<PAGE> 6
Net recoveries in 1994 were $497 thousand (or .59% of average loans), compared
to net recoveries of $68 thousand (or .10% of average loans) in 1993 and net
charge-offs of $36 thousand (or .06% of average loans) in 1992. The following
is a summary of transactions in the allowance for loan losses account for the
past five years:
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $1,794 $1,726 $1,762 $ 2,627 $ 3,588
-------------------------------------------------------------------
Chargeoffs:
Commercial, industrial and agricultural (290) (356) (647) (643) (1,652)
Installment (73) (32) (18) (53) (98)
Real estate-construction -- -- -- -- --
Real estate-mortgage (92) (187) (184) (546) (697)
-------------------------------------------------------------------
(455) (575) (849) (1,242) (2,447)
-------------------------------------------------------------------
Recoveries:
Commercial, industrial and agricultural 768 516 714 599 769
Installment 15 68 27 30 32
Real estate-construction -- -- -- -- --
Real estate-mortgage 169 59 72 181 30
-------------------------------------------------------------------
952 643 813 810 831
-------------------------------------------------------------------
Net recoveries (chargeoffs) 497 68 (36) (432) (1,616)
-------------------------------------------------------------------
Provisions charged (credited) to operations (300) -- -- (433) 655
-------------------------------------------------------------------
Balance at end of year $1,991 $1,794 $1,726 $ 1,762 $ 2,627
====================================================================
Ratio of net chargeoffs (recoveries) to average
loans (.59)% (.10)% .06% .71% 2.56%
Ratio of allowance for loan losses
to total loans (at year-end) 2.04% 2.25% 2.63% 2.92% 4.25%
</TABLE>
See Notes to Financial Review.
11
<PAGE> 7
ALLOWANCE FOR LOAN LOSSES
ALLOCATED BY LOAN TYPE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------
1994 1993 1992 1991 1990
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LOAN TYPE:
Commercial, industrial and agricultural $ 983 $1,476 $1,415 $1,348 $1,387
Installment 291 105 16 7 78
Real estate-construction -- -- -- -- 28
Real estate-mortgage 717 213 295 407 1,134
Other -- -- -- -- --
-------------------------------------------------------------------------
$1,991 $1,794 $1,726 $1,762 $2,627
=========================================================================
PERCENT OF LOANS IN EACH CATEGORY ABOVE TO
TOTAL LOANS:
Commercial, industrial and agricultural 30.14% 33.94% 42.41% 42.39% 45.22%
Installment 29.47% 8.56% 5.51% 4.58% 5.06%
Real estate-construction 1.26% 1.77% 1.47% 1.67% 1.90%
Real estate-mortgage 39.11% 55.71% 50.57% 51.31% 47.61%
Other .02% .02% .04% .05% .21%
-------------------------------------------------------------------------
100.00% 100.00% 100.00% 100.00% 100.00%
=========================================================================
</TABLE>
The Company's nonperforming assets continued to decline in 1994, a trend which
has continued since year-end 1988. The reduction in the level of nonperforming
assets during this period has been the result of management's efforts to reduce
the levels of nonperforming assets and classified assets by reducing the risk
associated with the lending process. As a result, the level of nonperforming
assets declined $1.1 million, or 50%, to $1.1 million at year-end 1994 compared
to $2.2 million and $3.3 million at year-end 1993 and 1992, respectively. Loans
charged off declined $120 thousand, or 21%, to $455 thousand at year-end 1994
compared to $575 thousand and $849 thousand at year-end 1993 and 1992,
respectively. The Company had net recoveries in 1994 totaling $497 thousand
compared with net recoveries of $68 thousand in 1993 and net charge-offs
totaling $36 thousand in 1992.
A breakdown of the Company's nonperforming assets and past-due loans for each
of the last five years follows:
NONPERFORMING ASSETS AND PAST-DUE ACCOUNTS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------
1994 1993 1992 1991 1990
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NONPERFORMING ASSETS:
Nonaccrual loans $ 313 $ 799 $1,137 $2,096 $2,362
Restructured loans -- -- -- 9 16
Other real estate 765 1,358 2,134 2,500 2,619
-----------------------------------------------------------------------
$1,078 $2,157 $3,271 $4,605 $4,997
=======================================================================
ACCRUING LOANS PAST DUE 90 DAYS OR MORE $ -- -- -- 183 $ 519
=======================================================================
</TABLE>
See Notes to Financial Review.
12
<PAGE> 8
The following is a summary of nonperforming assets by loan classification at
December 31, 1994 and 1993 (dollars in thousands):
<TABLE>
<CAPTION>
Other
Nonaccrual Restructured Real Estate Total
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994
Commercial and industrial $189 $ -- $ -- $ 189
Energy -- -- -- --
Real estate-construction -- -- -- --
Real estate-mortgage 124 -- 765 889
----------------------------------------------------------------------
$313 $ -- $765 $1,078
======================================================================
Other
Nonaccrual Restructured Real Estate Total
----------------------------------------------------------------------
1993
Commercial and industrial $612 $ -- $ -- $ 612
Energy -- -- -- --
Real estate-construction -- -- -- --
Real estate-mortgage 187 -- 1,358 1,545
----------------------------------------------------------------------
$799 $ -- $1,358 $2,157
======================================================================
</TABLE>
Nonaccrual loans at year-end 1994 were $313 thousand, down $486 thousand,
compared to $799 thousand at year-end 1993. Nonaccrual loans at year-end 1992
were $1.1 million. Accrual of interest is discontinued on a loan when
management believes, after considering economic and business conditions and
collection efforts, that the borrower's financial condition is such that the
collection of interest is doubtful. Interest income that would have been
recorded during 1994 on these loans had such loans performed in accordance with
their original term was $35 thousand, compared to $48 thousand and $119
thousand in 1993 and 1992, respectively.
Further information regarding the balance of nonaccrual loans at December 31,
1994, and related interest payment information, follows (dollars in thousands):
<TABLE>
<CAPTION>
Book Contractual
Balance Balance
-----------------------------
<S> <C> <C>
Nonaccrual loans at December 31, 1993 $ 799 $ 980
Additions 139 139
Reductions-principal payments (242) (219)
Reductions-interest payments (49) --
Charge-offs (334) (275)
-----------------------------
Nonaccrual loans at December 31, 1994 $ 313 $ 625
=============================
</TABLE>
The Company considers a nonaccrual loan to have substantial performance if
eighty percent of scheduled principal payment and interest is collected.
<TABLE>
<CAPTION>
Cash interest payments in 1994 applied as:
Book Contractual --------------------------------------------
Balance Balance Recovery
at at of prior Reduction
December 31, December 31, Interest partial of
1994 1994 income chargeoffs principal
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Contractually current; however,
payment in full of principal
or interest is in doubt $313 $625 $ -- $ -- $49
======================================================================================
</TABLE>
See Notes to Financial Review.
13
<PAGE> 9
As part of the Credit Review Committee process, loans are graded according to
risk. Loans having a greater degree of risk, but not necessarily a greater
potential for loss, are placed on a watchlist. Such loans are identified for
various reasons among which include renewals not originally anticipated, an
indication of a deterioration of the borrower's financial condition, and a
worsening of factors in the industry in which the borrower operates. The total
amount of such loans at December 31, 1994 and 1993 not classified as
nonaccrual, restructured or past due 90 days or more in the preceding table
amounted to $4.2 million and $3.9 million, respectively.
In addition, a substantial amount of the Company's nonperforming assets is
attributable to other real estate located in the Corpus Christi area. Other
real estate at year-end 1994 was $765 thousand, down $593 thousand, compared to
$1.4 million at year-end 1993. Other real estate at year-end 1992 was $2.1
million. During 1994, the Company acquired no new real estate through
foreclosure of other real estate. In addition, proceeds from sales of other
real estate in 1994 totaled $343 thousand. Other real estate has been adjusted
to estimated fair market values if lower than cost and includes some income
producing property.
With respect to other real estate, management of the Company believes it has
made appropriate valuations, using independent appraisers, of these properties
based on strict appraisal guidelines. The carrying value of other real estate
is reviewed at least annually and the valuation allowance is revised through
subsequent valuation provisions charged to other operating expenses. During
1994, the Company made valuation provisions for other real estate totaling $253
thousand, compared to $181 thousand and $288 thousand in 1993 and 1992,
respectively. In the opinion of management, this appraisal process results in
values which represent current market conditions at December 31, 1994. Future
values will depend on the developments of economic conditions in the market
where the properties are located. Several factors contributed to the valuation
provisions for other real estate during 1994. The most significant factor was
the overall availability in the local market of such properties for sale during
1994.
ASSET QUALITY
As previously discussed, the Company has reduced its nonperforming assets in
1994 as compared to 1993. In spite of a modest recovery in the local economy
since 1991, the energy and real estate sectors remain as potential problem
areas. With uncertainties in the economy, additional loans could be classified
as nonperforming, and additional charge-offs, write-downs and loan loss
provisions could be recorded in future periods.
The ability of the Company to improve its level of profitability will partially
depend on the ability of the Company to continue to improve its overall asset
quality. A primary step toward improving asset quality is continued reduction
in the level of nonperforming assets. Any significant decline in the level of
nonperforming assets in the normal course of operations depends almost entirely
upon the timing and extent of economic recovery in the market place. Management
believes that economic recovery in the area, although improving, will continue
to be a slow process, both in terms of market improvement and diversification.
NET INTEREST INCOME
Net interest income, the most significant component of earnings, is the amount
by which the interest generated from earning assets exceeds the expense
associated with funding those assets.
Net interest income was $6.9 million in 1994, up $300 thousand, compared to
$6.6 million and $6.2 million in 1993 and 1992, respectively. The increase in
net interest income during 1994 was attributable in large part to higher
volumes of earning assets. The increase in net interest income in 1993 was
primarily attributable to higher volumes of earnings assets and to a lower
interest rate environment on deposits during 1993.
The Company's yield on earning assets was 6.97% during 1994 compared to 7.08%
and 7.79% in 1993 and 1992, respectively. The cost of funds averaged 3.07% in
1994 compared to 2.96% and 3.73% in 1993 and 1992, respectively. The net
interest margin, which is the net interest income as a percentage of earning
assets, was 4.70% during 1994 compared to 4.89% and 4.90% in 1993 and 1992,
respectively.
The Company's average earning assets were $146.0 million in 1994 compared to
$134.6 million and $126.7 million in 1993 and 1992, respectively. Average
interest bearing liabilities were $107.8 million in 1994 compared to $99.8
million and $98.0 million in 1993 and 1992, respectively.
See Notes to Financial Review.
14
<PAGE> 10
The following is a three-year history of the Company's average interest-earning
assets and interest-bearing liabilities. The yields earned and rates paid on
each major classification of assets and liabilities are presented.
Additionally, the average yields on all earning assets and costs of all
interest-bearing liabilities are presented for all three years.
AVERAGE BALANCES, INTEREST AND AVERAGE RATES
(Dollars in Thousands)
<TABLE>
<CAPTION>
1994 1993
--------------------------------------------------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest bearing deposits
with Federal Home Loan
Bank $ 94 $ 4 4.25% $ -- $ -- --
Federal funds sold 8,501 356 4.19% 11,698 362 3.09%
Securities available for sale 45,004 2,351 5.22% 16,451 742 4.51%
Securities held to maturity 7,697 712 9.25% 35,959 2,794 7.77%
Loans, net of discounts 84,746 6,751 7.97% 70,513 5,632 7.99%
--------------------------------------------------------------------------------
Total earning assets 146,042 10,174 6.97% 134,621 9,530 7.08%
Allowance for loan losses (1,970) (1,815)
Cash and due from banks 12,572 9,900
Premises and equipment 4,313 3,083
Accrued interest receivable 1,363 1,290
Other real estate 1,069 1,648
Other assets 666 393
-------- --------
$164,055 $149,120
======== ========
Liabilities and Stockholders' equity:
Deposits:
Interest bearing trans-
action accounts $ 52,683 $1,360 2.58% $ 46,730 $1,082 2.32%
Savings 14,979 430 2.87% 14,565 370 2.54%
Certificates of deposit 40,067 1,520 3.79% 38,459 1,502 3.91%
--------------------------------------------------------------------------------
Total interest bearing
liabilities 107,729 3,310 3.07% 99,754 2,954 2.96%
Demand deposits 42,309 36,360
Accrued interest on
deposits 194 178
Other liabilities 392 364
Stockholders' equity 13,743 12,464
Unrealized losses on
securities available
for sale (312) --
-------- --------
$164,055 $149,120
======== ========
Net interest income and average
interest-rate spread $6,864 3.90% $6,576 4.12%
================== ===============
Ratio of interest bearing liabilities
to earning assets (average) 73.77% 74.10%
===== =====
Average interest cost of earning assets
(total interest expense as a percent of
average earning assets) 2.27% 2.19%
===== =====
Net interest margin (net interest
income as a return on average
earning assets) 4.70% 4.89%
===== =====
</TABLE>
<TABLE>
<CAPTION>
1992
---------------------------------
Average Average
Balance Interest Rate
----------------------------------
<S> <C> <C> <C>
Assets:
Interest bearing deposits
with Federal Home Loan
Bank $ -- $ -- --
Federal funds sold 6,941 225 3.24%
Securities available for sale 3,004 148 4.93%
Securities held to maturity 52,134 4,079 7.82%
Loans, net of discounts 64,668 5,416 8.38%
---------------------------------
Total earning assets 126,747 9,868 7.79%
Allowance for loan losses (1,690)
Cash and due from banks 9,962
Premises and equipment 2,804
Accrued interest receivable 1,341
Other real estate 2,375
Other assets 377
--------
$141,916
========
Liabilities and Stockholders' equity:
Deposits:
Interest bearing trans-
action accounts $ 45,558 $1,369 3.00%
Savings 14,518 461 3.18%
Certificates of deposit 37,930 1,830 4.82%
---------------------------------
Total interest bearing
liabilities 98,006 3,660 3.73%
Demand deposits 32,790
Accrued interest on
deposits 239
Other liabilities 276
Stockholders' equity 10,605
Unrealized losses on
securities available
for sale --
--------
$141,916
========
Net interest income and average
interest-rate spread $6,208 4.06%
================
Ratio of interest bearing liabilities
to earning assets (average) 77.32%
=====
Average interest cost of earning assets
(total interest expense as a percent of
average earning assets) 2.89%
=====
Net interest margin (net interest
income as a return on average
earning assets) 4.90%
=====
</TABLE>
See Notes to Financial Review.
15
<PAGE> 11
The following table analyzes the changes in net interest income during 1994 and
1993 and the relative effect of changes in interest rates and volumes for each
major classification of earning assets and interest-bearing liabilities.
Nonaccrual loans have been included in assets for the purpose of this analysis,
which reduces the resulting yields.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
(Dollars in Thousands)
<TABLE>
<CAPTION>
1994/1993 1993/1992
=================================================================================================
Net Due to Changes In Net Due to Changes In
Increase -------------------- Increase ----------------------
(Decrease) Rates Volume (Decrease) Rates Volume
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Interest-bearing deposits
with Federal Home Loan
Bank $ 4 $ -- $ 4 $ -- $ -- $ --
Federal funds sold (6) (25) 19 137 (10) 147
Securities available
for sale 1,609 7 1,602 594 (1) 595
Securities held to (2,082) 666 (2,748) (1,285) (28) (1,257)
maturity
Loans, net of unearned
discount 1,119 (15) 1,134 216 (227) 443
--------------------------------------------------------------------------------------------
Total interest income 644 633 11 (338) (266) (72)
--------------------------------------------------------------------------------------------
Interest expense:
Interest-bearing
transaction accounts 278 132 146 (287) (323) 36
Savings 60 49 11 (91) (93) 2
Certificates of deposit 18 (39) 57 (328) (354) 26
--------------------------------------------------------------------------------------------
Total interest expense 356 142 214 (706) (770) 64
--------------------------------------------------------------------------------------------
Net Interest income $ 288 $491 $ (203) $ 368 $ 504 $ (136)
============================================================================================
</TABLE>
The changes in net interest income were allocated on the basis of changes in
average yields earned or rates paid ("rates"), and changes in average balance
("volume") of earning assets and interest-bearing liabilities, respectively.
These changes were first computed in three parts: (1) the change due solely to
a change in rates, (2) the change due solely to a change in volume, and (3) the
change not solely due to either but which represents a combination of both
("rate-volume"). The rate-volume changes were then ratably allocated to the
changes due to rates and the changes due to volume.
See Notes to Financial Review.
16
<PAGE> 12
NONINTEREST INCOME
Noninterest income is ordinarily composed of account service charges, fees for
trust services, gains from sale of securities held for sale, gains from sale of
securities available for sale, gains from sale of investment securities and
various other fees. The Company's noninterest income was $2.9 million in 1994,
up $302 thousand, compared to $2.6 million and $2.7 million in 1993 and 1992,
respectively.
Trust income for 1994 was $1.1 million, up $162 thousand, compared to $934
thousand in 1993. Trust income was $1.0 million in 1992. The increase in trust
income in 1994 was primarily attributable to increases in fees charged on
trust services. The decrease in trust income in 1993 was attributable to
non-recurring trust fees collected during 1992 totaling approximately $97
thousand.
Service charges on deposit accounts were $1.0 million in 1994, down $33
thousand, compared to $1.0 million in 1993. Service charges on deposit
accounts were $1.1 million in 1992. The decrease in service charges on deposit
accounts in 1994 was largely attributable to a decrease in service charge fees
on demand deposit accounts totaling $29 thousand. The decrease in service
charges on deposit accounts in 1993 was primarily attributable to a decrease in
nonsufficient fund charges totaling approximately $53 thousand.
Credit card fees consist of fees collected on Visa/Mastercard merchant services
provided by the Company's subsidiary bank. Credit card fees were $142 thousand
in 1994, up $20 thousand, compared to $122 thousand in 1993 and $115 thousand
in 1992. The increase in credit card fees in 1994 and 1993 was largely the
result of increases in fees charged on Visa/Mastercard merchant services
accounts during 1994 and 1993.
The Company had net securities gains on sales of securities available for sale
in 1994 totaling $165 thousand, compared to no gains in 1993. During 1992, the
Company had net securities gains on sale of securities held for sale totaling
$26 thousand. The net gains on sale of securities available for sale in 1994
and the gains on sale of securities held for sale in 1992 were solely
attributable to a restructuring of the investment portfolio in line with the
Company's asset and liability management policies. The restructuring was done
to capitalize on reinvestment in other securities without a substantial
reduction in interest rates or increased investment risk exposure.
Other income in 1994 was $484 thousand, down $12 thousand, compared to $496
thousand in 1993. Other income was $400 thousand in 1992. The decrease in other
income in 1994 was largely due to nonrecurring income in 1993 related to a
recovery on a prior year checking account loss totaling $62 thousand. The
increase in other income during 1993 compared to 1992 was primarily
attributable to nonrecurring income related to a recovery on a prior year
checking account loss totaling $62 thousand.
NONINTEREST INCOME
(Dollars in Thousands)
<TABLE>
<CAPTION>
1994 1993
------------------------------------------------
Changes from 1993 Changes from 1992
------------------------------------------------
1994 1993 1992 Amount Percent Amount Percent
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Trust income $1,096 $ 934 $1,000 $162 17.3 % $(66) (6.6)%
Service charges 1,001 1,034 1,115 (33) (3.2)% (81) (7.3)%
Credit card fees 142 122 115 20 16.4 % 7 6.1 %
Net gain on sale of
securities held for -- -- 26 -- -- (26) (100.0)%
sale
Net gain on sale of
securities available
for sale 165 -- -- 165 100.0 % -- --
Other income 484 496 400 (12) (2.4)% 96 24.0 %
-------------------------------------------------------------------------------------------
$2,888 $2,586 $2,656 $302 11.7 % $(70) (2.6)%
===========================================================================================
</TABLE>
See Notes to Financial Review.
17
<PAGE> 13
NONINTEREST EXPENSES
The Company's noninterest expenses were $7.9 million in 1994, up $1.2 million
or 17.8%, compared to $6.7 million in 1993. Noninterest expenses were $6.5
million in 1992.
The significant increase in noninterest expenses in 1994 was largely
attributable to the expansion of the Company's subsidiary bank. Increased
noninterest expenses included opening the Bank's South and West Banking
Centers; remodeling of the Bank's Village Banking Center; the new investment
services and indirect lending departments; and increased staffing required for
Saturday banking.
Salaries and employee benefits were $3.6 million in 1994, up $480 thousand or
15.5%, compared to $3.1 million in 1993. Salaries and benefits were $2.9
million in 1992. The increase in salaries and employee benefits during 1994 was
largely attributable to increased staff associated with the subsidiary bank's
expansion. The increase in salaries and employee benefits in 1993 was
attributable to merit increases in 1993 totaling approximately $87 thousand and
to increases in employee medical insurance premiums which totaled $66 thousand.
Occupancy expenses were $789 thousand in 1994, up $104 thousand or 15.2%,
compared to $685 thousand in 1993. Occupancy expenses were $691 thousand in
1992. The increase in occupancy expense in 1994 was largely attributable to the
opening of the new South and West Banking Centers and the remodeling of the
Village Banking Center. Occupancy expenses were down $6 thousand in 1993
compared to 1992, or less than 1%.
Furniture and equipment expenses were $607 thousand in 1994, up $64 thousand,
compared to $543 thousand in 1993. Furniture and equipment expenses were $521
thousand in 1992. The increase in furniture and equipment expenses during 1994
was directly attributable to the new South and West Banking Centers and the
remodeling of the Village Banking Center. The increase in furniture and
equipment expenses in 1993 was primarily due to increases in repair contracts
and repairs to equipment totaling approximately $25 thousand.
Legal and professional fees consist of attorney, accounting, consulting and
other professional fees. Other professional fees primarily consist of security,
funds management consulting, transfer agent fees, stock exchange fees, and
temporary employment agency fees. Legal and professional fees were $715
thousand in 1994, up $74 thousand or 11.5%, compared to $641 thousand in 1993.
Legal and professional fees were $524 thousand in 1992. The increase in legal
and professional fees in 1994 was largely due to legal fees associated with the
subsidiary bank totaling $42 thousand and to legal and consulting fees
regarding strategic planning of the Company totaling $17 thousand and $13
thousand, respectively. The increase in legal and professional fees in 1993
were primarily related to legal and consulting fees regarding strategic
planning and the initial listing of the Company's stock on the American Stock
Exchange totaling approximately $133 thousand.
Net cost to operate other real estate consists of expenses associated with
other real estate which consists of property taxes, insurance, appraisals,
utilities, maintenance, valuation provisions and losses on sale of other real
estate, net of rental income from other real estate and gains on sale of other
real estate. Net cost to operate other real estate was $276 thousand in 1994,
up $128 thousand, compared to $148 thousand in 1993. Net cost to operate other
real estate in 1992 was $175 thousand. The increase in net cost to operate
other real estate in 1994 compared to 1993 was primarily due to increases in
valuation provisions for other real estate totaling $72 thousand and decreases
in rental income on other real estate and gains on sale of other real estate
totaling $39 thousand and $59 thousand, respectively. The decrease in net cost
to operate other real estate in 1993 was attributable to a decrease in the cost
to maintain other real estate such as property taxes, insurance, appraisals,
utilities and maintenance cost totaling $81 thousand and to the decreases in
valuation provisions for other real estate totaling $107 thousand.
Insurance expenses primarily consist of fidelity insurance, errors and omission
insurance and FDIC insurance assessment fees. Insurance expenses were $398
thousand in 1994, up $26 thousand or 7%, compared to $372 thousand in 1993.
Insurance expenses were $379 thousand in 1992. The increase in insurance
expenses in 1994 was largely due to increases in FDIC insurance assessment fees
of approximately $26 thousand. The decrease in insurance expenses in 1993 were
primarily due to lower fidelity insurance expenses totaling approximately $12
thousand.
See Notes to Financial Review.
18
<PAGE> 14
Advertising expenses primarily consist of newspaper, television and radio
advertisements and advertising consulting fees. Advertising expenses totaled
$236 thousand in 1994, up $78 thousand, compared to $158 thousand in 1993 and
$140 thousand in 1992. The increase in advertising expenses in 1994 was largely
attributable to increases in television advertising campaigns totaling $39
thousand. The increase in advertising expenses in 1993 was attributable to
advertising campaigns promoting consumer and real estate mortgage loans.
Other expenses totaled $1.3 million in 1994, up $232 thousand or 22.5%,
compared to $1.0 million in 1993. Other expenses in 1992 were $1.2 million. The
increase in other expenses in 1994 compared to 1993 was largely due to increase
in Automated Teller Machine interchange fees totaling $35 thousand and to
forms expense, bank examination expense and state franchise taxes totaling $86
thousand. The decrease in other expenses in 1993 was primarily due to a
nonrecurring loss in 1992 associated with deposit accounts totaling
approximately $111 thousand.
NONINTEREST EXPENSES
(Dollars in Thousands)
<TABLE>
<CAPTION>
1994 1993
--------------------------------------------
Changes from 1993 Changes from 1992
--------------------------------------------
1994 1993 1992 Amount Percent Amount Percent
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee
benefits $3,571 $3,091 $2,900 $ 480 15.5% $ 191 6.6%
Occupancy expenses 789 685 691 104 15.2% (6) (.9)%
Furniture and equipment
expenses 607 543 521 64 11.8% 22 4.2%
Legal and professional fees 715 641 524 74 11.5% 117 22.3%
Net cost to operate other
real estate 276 148 175 128 86.5% (27) (15.4)%
Insurance expenses 398 372 379 26 7.0% (7) (1.8)%
Advertising expenses 236 158 140 78 49.4% 18 12.9%
Other expenses 1,265 1,033 1,216 232 22.5% (183) (15.1)%
---------------------------------------------------------------------------------------
$7,857 $6,671 $6,546 $1,186 17.8% $ 125 1.9%
=======================================================================================
</TABLE>
INCOME TAXES
During 1993, the Company fully utilized its "net operating loss carryforwards"
for Federal income tax purposes and began accruing and paying current Federal
income taxes.
Effective January 1, 1993, the Company adopted the Financial Accounting
Standards Board Statement No. 109 "Accounting for Income Taxes" (Statement
109). This standard requires an asset and liability approach for financial
accounting and reporting for income tax purposes, which differs from the
previous standard which emphasized the income approach. The Company adopted
this standard and there was no cumulative effect of this change in method of
accounting for income taxes.
The net decrease of $50,000 in the valuation allowance for deferred tax assets
during 1994 consists of two offsetting amounts. The first amount is an increase
of $297,000 which is included as a component of stockholders' equity because
the change was attributable to the change in the unrealized gain (loss) related
to securities available for sale. The second amount is a decrease of $347,000
which is included in deferred tax expense because the change was attributable
to changes in circumstances that affect the evaluation of the realizability of
the deferred tax assets; i.e., the management of the Company concluded that,
more likely than not, the Company would be able to utilize the remaining
alternative minimum tax credits and realize the tax effects of the unrealized
losses related to securities available for sale.
See Notes to Financial Review.
19
<PAGE> 15
LIQUIDITY AND SOURCES OF FUNDS
Generally, the Company's largest source of funds is provided through deposits.
Total deposits at year-end 1994 were $157.7 million, up $10.9 million, compared
to $146.8 million at year-end 1993. Total deposits at year-end 1992 were $134.8
million. At December 31, 1994 and 1993, the Company had approximately $5.9
million and $18.9 million, respectively, in federal funds sold which could be
readily converted to cash. Another source of liquidity, if the need arises,
could come from the liquidation of securities available for sale. At December
31, 1994, the Company had $44.1 million of securities available for sale and at
December 31, 1993 had securities held for sale totaling $19.4 million. Other
liquid assets are composed of cash and near cash items including deposits with
other banks.
Funds are also generated through loan payoffs and maturities of investment
securities. Currently, management believes that the Company has an adequate
level of liquidity to meet its financial obligations that will arise during the
normal course of business in the coming year. The following items highlight the
Company's liquidity and sources of funds.
DEPOSITS
The Company's principal source of funds is deposits. Average deposits were
$150.0 million in 1994, up $13.9 million, compared to $136.1 million in 1993.
Average deposits and average rates paid on all deposits for each of the last
three years follows (dollars in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------------------------------------------------------
Amount Rate Amount Rate Amount Rate
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand
deposits $ 42,309 -- $ 36,360 -- $ 32,790 --
Interest bearing demand deposits 52,683 2.58% 46,730 2.32% 45,558 3.00%
Savings 14,979 2.87% 14,565 2.54% 14,518 3.18%
Certificates of deposit 40,067 3.79% 38,459 3.91% 37,930 4.82%
-------------------------------------------------------------------------------------
$150,038 $136,114 $130,796
=====================================================================================
</TABLE>
At December 31, 1994, time certificates of deposits in denominations of
$100,000 or more with maturities of six months or less were $6.0 million, which
represent 3.8% of total deposits. It is not the Company's policy to rely on
brokered deposits as a source of funding and at December 31, 1994, the Company
had no brokered deposits. The following table shows maturity distribution of
the Company's time certificates of deposits in denominations of $100,000 or
more at December 31, 1994 (dollars in thousands):
<TABLE>
<S> <C>
Three months or less $ 3,657
Over three through six months 2,363
Over six through twelve months 1,908
Over twelve months 2,574
-------
$10,502
=======
</TABLE>
Other sources of funding for the Company include federal funds purchased and
short term borrowing. The Company had average short-term borrowings in 1994
and 1993 of $10 thousand and $1 thousand with an average interest rate of 4.4%
and 3.2%. The Company had average short-term borrowings of $3 thousand during
1992 with an average interest rate of 4.0%. The Company had no short-term
borrowings outstanding at the end of any month during 1994, 1993 and 1992.
See Notes to Financial Review.
20
<PAGE> 16
SECURITIES HELD FOR SALE
On January 1, 1994, the Company adopted Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" and
designated all U.S. Treasury securities held for sale as securities available
for sale. Prior to adoption of Statement No. 115, securities to be held for
sale for indefinite periods of time and not intended to be held to maturity or
on a long-term basis were classified as held for sale.
The following schedule shows the amortized cost of the Company's securities
held for sale portfolio as of the end of 1993 and 1992:
SCHEDULE OF SECURITIES HELD FOR SALE
(Dollars in Thousands)
<TABLE>
<CAPTION>
Amortized Cost at December 31,
------------------------------
1993 1992
------------------------------
<S> <C> <C>
U.S. Treasury securities $19,409 $13,088
==============================
</TABLE>
The following schedule shows the Company's securities held for sale by maturity
and also presents the weighted average yield of each maturity classification as
of December 31, 1993:
SECURITIES HELD FOR SALE
MATURITIES AND YIELD DISTRIBUTION
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31, 1993
----------------------------
Weighted
Amortized Average
Cost Yield
----------------------------
<S> <C> <C>
U.S. Tresury securities:
Within one year $ 1,001 5.98%
After one but within five years 18,408 4.54%
----------------------------
$19,409 4.61%
============================
</TABLE>
See Notes to Financial Review.
21
<PAGE> 17
SECURITIES AVAILABLE FOR SALE
The securities available for sale portfolio provides the Company with an
additional measure of liquidity and added flexibility in managing the Company's
asset liability strategy. Such securities may be sold in response to changes in
interest rates, resultant prepayment risk and other factors related to interest
rate and resultant risk changes.
The following schedule shows the market value of the Company's securities
available for sale portfolio as of the end of 1994:
SCHEDULE OF SECURITIES AVAILABLE FOR SALE
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
1994
------------
<S> <C>
U.S. Treasury securities $39,712
Mortgage pass-through and related securities 3,886
Other securities 504
-------
$44,102
=======
</TABLE>
The following schedule shows the Company's securities available for sale by
maturity and also presents the weighted average yield of each maturity
classification as of December 31, 1994:
SECURITIES AVAILABLE FOR SALE
MATURITIES AND YIELD DISTRIBUTION
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31, 1994
----------------------
Weighted
Market Average
Value Yield
----------------------
<S> <C> <C>
U.S. Treasury securities:
Within one year $15,892 4.56%
After one but within five years 23,820 5.36%
----------------------
$39,712 5.04%
======================
</TABLE>
Mortgage pass-through and related securities amortize on a monthly basis with
final maturities ranging from 1994 through 2029. At December 31, 1994, mortgage
pass-through and related securities totaled $3.9 million with an average
weighted life of 3.8 years and a weighted average yield of 5.41%. Mortgage
pass-through securities at December 31, 1994 with variable interest rates
totaled $3.4 million.
Other securities include stock investments in the Federal Home Loan Bank of
$474 thousand and Texas Independent Bank of $30 thousand. These investments pay
dividends quarterly.
See Notes to Financial Review.
22
<PAGE> 18
SECURITIES HELD TO MATURITY
The following schedule shows the amortized cost of the Company's securities
held to maturity portfolio as of the end of the last three years:
SCHEDULE OF SECURITIES HELD TO MATURITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
Amortized Cost at December 31,
-------------------------------------------
1994 1993 1992
-------------------------------------------
<S> <C> <C> <C>
U.S. Treasury securities $ -- $ 9,645 $10,745
Obligations of other U.S. Government agencies
and corporations 3,005 6,009 13,534
Obligations of states and political subdivisions 3,763 3,925 3,706
Mortgage pass-through and related securities -- 9,474 13,377
-------------------------------------------
$6,768 $29,053 $41,362
===========================================
</TABLE>
The following schedule shows the Company's securities held to maturity by
maturity and also presents the weighted average yield of each maturity
classification as of December 31, 1994:
SECURITIES HELD TO MATURITY
MATURITIES AND YIELD DISTRIBUTION
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31, 1994
---------------------------
Weighted
Amortized Average
Cost Yield
---------------------------
<S> <C> <C>
Obligations of other U.S. Government agencies and corporations:
Within one year $2,000 10.30%
After one but within five years 1,005 9.26%
-----------------------
$3,005 9.95%
=======================
Obligations of states and political subdivisions:
Within one year $ 175 8.95%
After one but within five years 1,621 8.91%
After five but within ten years 1,967 8.91%
-----------------------
$3,763 8.57%
=======================
</TABLE>
See Notes to Financial Review.
23
<PAGE> 19
Maturing loans are also a source of asset liquidity. The following schedule
shows the Company's outstanding loan portfolio as of the end of the last five
years.
SCHEDULE OF LOANS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------
1994 1993 1992 1991 1990
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, industrial and agricultural $29,422 $27,082 $27,829 $25,571 $27,984
Installment 28,766 6,829 3,619 2,761 3,129
Real estate-construction 1,229 1,413 967 1,007 1,175
Real estate-mortgage 38,183 44,457 33,188 30,948 29,458
Other 25 19 26 27 132
-------------------------------------------------------------------------
Total loans 97,625 79,800 65,629 60,314 61,878
Unearned discount (3,539) (862) (346) (281) (371)
-------------------------------------------------------------------------
Loans, net of unearned discount $94,086 $78,938 $65,283 $60,033 $61,507
=========================================================================
</TABLE>
The following table summarizes the maturity distribution of selected loans
outstanding at December 31, 1994 and indicates the portfolio's sensitivity to
changes in interest rates.
LOAN MATURITIES AND INTEREST RATE SENSITIVITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
Maturing
-------------------------------------------------------
After One
In One But Within After
Year or Less Five Years Five Years Total
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, industrial and agricultural $13,954 $12,744 $ 2,724 $29,422
Real estate (1) 4,690 16,119 18,603 39,412
-------------------------------------------------------------------
$18,644 $28,863 $21,327 $68,834
===================================================================
Loans maturing after one year with:
Fixed interest rates $24,622 $17,281
Variable interest rates 4,241 4,046
-------------------------
$28,863 $21,327
=========================
</TABLE>
The Company's financial position continued to reflect strong liquidity during
1994, to better enable the Company to respond to economic conditions and to
position itself for the opportunity to provide funding of quality loans. At
December 31, 1994, liquid assets represented 38.0% of total assets compared to
29.4% one year earlier.
One principal ratio measurement used by regulatory authorities to measure
liquidity is the ratio of net loans to total deposits. At year-end 1994 the
Company's ratio of net loans to total deposits was 58.4%, compared to 52.6% and
47.1% at year-ends 1993 and 1992, respectively. At December 31, 1994, the
Company's net loans to total deposits ratio of 58.4% as compared to peer Texas
Banking institutions with similar asset sizes was higher than the median. Peer
Texas banking institutions at December 31, 1994 had net loans to total deposit
ratios ranging from a low of 37%, median of 49% and a high of 63%. The
Company's long term planning targets loan growth to 65% - 70% of total
deposits.
(1) Real estate loans include mortgage and construction loans.
See Notes to Financial Review.
24
<PAGE> 20
ASSET AND LIABILITY MANAGEMENT
Net interest income can be vulnerable to wide fluctuations arising from changes
in the general level of market interest rates because the average yield on
assets responds differently to such changes than does the average cost of
funds. In an effort to minimize the effects of changes in the general level of
market interest rates, the Company actively manages the repricing
characteristics of its assets and liabilities to control net interest rate
sensitivity.
INTEREST RATE SENSITIVITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------------------------------------------------------------------------
Non-Rate
Cumulative Volumes Subject to Repricing Within Sensitivity
-------------------------------------------------------- Over
30 Days 90 Days 180 Days 1 Year 1 Year Total
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans $ 16,581 $25,299 $32,961 $46,297 $51,328 $ 97,625
Securities available for sale 1,071 7,210 13,427 17,130 26,972 44,102
Securities held to maturity -- -- -- 2,175 4,593 6,768
Other earning assets 5,922 5,922 5,922 5,922 -- 5,922
------------------------------------------------------------------------------------------
Total earning assets 23,574 38,431 52,310 71,524 82,893 154,417
INTEREST BEARING LIABILITIES:
Interest bearing deposits 37,293 45,421 53,943 62,988 50,737(1) 113,725
------------------------------------------------------------------------------------------
Interest sensitivity gap $(13,719) $(6,990) $(1,633) $ 8,536 $32,156 $ 40,692
==========================================================================================
CUMULATIVE INTEREST-
SENSITIVITY RATIOS:
DECEMBER 31, 1994 .63%x .85%x .97%x 1.14%x
December 31, 1993 1.19%x 1.23%x 1.13%x 1.23%x
</TABLE>
At December 31, 1994, the Company had a negative gap position in the one month
period of $13.8 million. The amount of the negative gap decreases at 90 days
and 180 days, and becomes positive at one year. At December 31, 1994, the
cumulative rate sensitive gap position at one year was a positive $8.5 million,
which indicates the Company may benefit from raising interest rates.
The Company's Asset and Liability Committee reviews monthly the Company's rate
sensitivity positions, and makes adjustments as needed to control the amount of
interest rate risk the Company is willing to bear during changing economic
cycles and to improve its overall profit potential.
------------------
(1) Included in non-rate sensitive interest bearing deposits totaling $50,737
at December 31, 1994 are regular savings and NOW deposits that total
$40,262. Although the Company has the ability to reprice NOW deposits
and savings deposits daily, management considers these types of deposits
as non-rate sensitive for analysis of interest rate sensitivity.
See Notes to Financial Review.
25
<PAGE> 21
CAPITAL RESOURCES
The Company and the Bank are required by federal regulators to meet certain
minimum regulatory guidelines utilizing a risk-based capital framework that
became effective on December 31, 1992. The Company and the Bank must have a
minimum ratio of Tier 1 capital to total risk-adjusted assets of not less than
4%, a ratio of combined Tier 1 and Tier 2 capital to total risk-adjusted assets
of not less than 8% and a leverage ratio of not less than 4%. For the purposes
of these ratios, stockholders' equity does not include unrealized gains or
losses on securities available for sale in accordance with regulatory
guidelines. At December 31, 1994, the Company and the Bank each had a Tier 1
capital ratio of 14.6%, combined Tier 1 and Tier 2 capital ratio of 16.0% and
leverage ratio of 8.4% based on risk-based capital guidelines which are well
above the regulatory requirements.
The Company's equity to assets ratio is one indicator that management uses to
monitor capital adequacy. At December 31, 1994, the Company's equity to assets
ratio was 8.4% compared to 8.2% and 7.7% for year-end 1993 and 1992,
respectively.
In addition to the above federal requirements, the Company's subsidiary bank
had an equity ratio of 8.4% at December 31, 1994 which exceeds the minimum
requirement guideline of 6.0% specified by the Texas Department of Banking. The
Company's subsidiary bank had an equity capital ratio of 8.2% and 7.7% at
year-end 1993 and 1992, respectively.
OTHER MATTERS
In May 1993, the FASB issued Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities"
(Statement 115), which specifies the accounting and reporting for all
investments in debt securities and for investments in equity securities that
have readily determinable fair values effective with financial statements for
fiscal years beginning after December 15, 1993. Under Statement 115, securities
expected to be held to maturity are reported at amortized cost. Securities
bought and held principally for the purpose of selling them in the near-term
are classified as trading securities and reported at fair value, with
unrealized gains and losses included in earnings. All other securities held for
investment purposes are classified as available for sale and carried at fair
value, with unrealized gains and losses excluded from earnings and reported in
a separate component of shareholders' equity. The Company adopted Statement
No. 115 on January 1, 1994 and designated all of its obligations of other U.S.
government agencies and obligations of states and political subdivisions
currently classified as investment securities as held to maturity and all of
its U.S. Treasury securities and mortgage pass-through and related securities
currently classified as investment securities along with all of its securities
held for sale as securities available for sale. As a result, the net unrealized
gains of the securities classified as available for sale was recorded as a
separate component of stockholders' equity, net of deferred taxes, and
increased stockholders' equity approximately $476 thousand at January 1, 1994.
In October 1994, the FASB issued Statement of Financial Accounting Standards
No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments" (Statement 119), effective for fiscal years ending after
December 15, 1994. Statement 119 expands disclosure requirements to include all
derivative financial instruments, including those that do not result in
off-balance sheet risk of accounting loss. At December 31, 1994, no additional
disclosures were required as a result of the implementation of this new
standard.
In October 1994, the FASB issued Statement of Financial Accounting Standards
No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures" (Statement 118) which amends previously issued Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan" (Statement 114). These statements are effective for fiscal years
beginning after December 15, 1994. An impairment of a loan within the scope of
Statement 114 is to be recognized based on present value of expected future
cash flows discounted at the loan's effective interest rate, or at the loan's
observable market price, or the fair value of the collateral if the loan is
collateral dependent. Statement 118 allows interest income on an impaired loan
to be recognized using existing methods. The Company does not expect any
significant impact from the implementation of these new standards.
See Notes to Financial Review.
26
<PAGE> 22
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL REVIEW
1. Basis of Presentation
All data presented in the Financial Review have been consolidated to include
that of Corpus Christi Bancshares, Inc. and its subsidiary C.S.B.C.C., Inc.
and its subsidiary bank. All significant intercompany balances and
transactions have been eliminated, and certain prior year amounts have been
reclassified to conform with the current year's presentations.
Average Balances
The average balances are presented substantially on a monthly average basis.
Any nonaccrual earning assets are included in average earning assets and
income thereon is reflected on a cash basis.
Per-Share Data
Primary earnings per share has been computed on the basis of the weighted
average number of common shares outstanding including common stock assumed
outstanding to reflect the potential dilutive effect of common stock
options. Fully diluted earnings per share was computed on the basis of the
weighted average number of common shares outstanding including common stock
assumed outstanding to reflect the maximum dilutive effect of common stock
options.
2. Selected Ratios
Net Interest Margin
The net interest margin was computed by dividing net interest income by
rage interest-earning assets.
Return on Assets
The return-on-assets ratio was computed by dividing net earnings by average
total assets.
Return on Equity
The return-on-equity ratio was computed by dividing net earnings by average
stockholders' equity.
Dividend Payout
The dividend-payout ratio was computed by dividing the equivalent historical
per-share dividends by net earnings per share.
Equity to Assets
The equity-to-assets ratio was computed by dividing average stockholders'
equity by average total assets. Average stockholders' equity does not
include unrealized gains or losses on securities available for sale in
calculating the equity-to-assets ratio in accordance with regulatory
guidance.
Book Value
The book value was computed by dividing total stockholders' equity by total
shares of common stock issued and outstanding.
3. Net Interest Income
Net interest income represents total interest income accrued or collected
("earned") on earning assets (primarily interest-bearing deposits in banks,
loans, securities held for sale, investment securities and federal funds
sold) reduced by total interest-expense accrued or paid ("incurred") on
interest-bearing liabilities or funds (primarily interest-bearing deposits,
federal funds purchased and short-term debts.)
See Notes to Financial Review.
27
<PAGE> 23
INDEPENDENT AUDITORS' REPORT
The Shareholders
Corpus Christi Bancshares, Inc.
We have audited the consolidated balance sheets of Corpus Christi Bancshares,
Inc. and subsidiaries as of December 31, 1994 and 1993 and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Corpus Christi
Bancshares, Inc. and subsidiaries at December 31, 1994 and 1993 and the results
of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1994 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, Corpus Christi
Bancshares, Inc. and subsidiaries adopted the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" as of
January 1, 1994.
As discussed in Note 1 to the consolidated financial statements, Corpus Christi
Bancshares, Inc. and subsidiaries adopted the provisions of the Financial
Accounting Standards Board's Statement of Financial Standards No. 109,
"Accounting for Income Taxes" as of January 1, 1993.
KPMG PEAT MARWICK LLP
San Antonio, Texas
January 27, 1995
28
<PAGE> 24
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1994 1993
------------ ------------
<S> <C> <C>
Cash and due from banks (note 2) $ 15,138,696 $ 8,748,318
Interest-bearing deposits with Federal Home Loan Bank 22,321 --
Federal funds sold 5,900,000 18,923,000
Securities held for sale (market value of
$19,584,470 in 1993) (note 3) -- 19,409,314
Securities available for sale (note 4) 44,102,450 --
Securities held to maturity (market value of
$6,856,118 in 1994 and $30,345,215 in 1993) (note 5) 6,768,043 29,052,774
Net loans, less allowance for loan losses of
$1,990,638 in 1994 and $1,794,380 in 1993
(notes 6 and 12) 92,095,441 77,143,888
Bank premises and equipment, net (note 7) 4,852,202 3,794,548
Accrued interest receivable 1,483,449 1,503,036
Other real estate 764,756 1,357,980
Other assets 402,298 297,107
-----------------------------------
Total assets $171,529,656 $160,229,965
===================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 43,932,959 $ 40,708,463
Interest bearing transaction accounts (note 8) 58,169,426 52,569,456
Savings 15,294,615 14,785,626
Certificates of deposit (note 8) 40,261,543 38,726,699
-----------------------------------
Total deposits 157,658,543 146,790,244
Accrued interest on deposits 202,820 153,855
Dividends payable 100,000 --
Other liabilities 129,832 204,837
-----------------------------------
Total liabilities 158,091,195 147,148,936
Stockholders' equity (notes 11 and 14):
Common stock, par value $5 a share; 2,000,000 authorized
shares; 1,600,000 shares issued and outstanding. 8,000,000 8,000,000
Additional capital -- --
Retained earnings 6,497,204 5,081,029
Unrealized losses on securities available for sale (1,058,743) --
-----------------------------------
Total stockholders' equity 13,438,461 13,081,029
-----------------------------------
Commitments and contingent liabilities (note 13)
Total liabilities and stockholders' equity $171,529,656 $160,229,965
===================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
29
<PAGE> 25
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1994 1993 1992
-----------------------------------------
<S> <C> <C> <C>
Interest income:
Interest on loans (note 6) $ 6,751,281 $5,632,706 $5,416,353
Interest on securities held for sale -- 742,297 148,096
Interest on securities available for sale:
U.S. Treasury securities 2,015,951 -- --
Mortgage pass-through and related securities 315,506 -- --
Other securities 19,409 -- --
Interest on securities held to maturity:
U.S. Treasury securities -- 675,219 1,023,032
Obligations of other U.S. government agencies 381,402 968,406 1,523,358
Obligations of states and political subdivisions 330,454 342,029 337,896
Mortgage pass-through and related securities -- 808,290 1,194,726
Interest on deposits in Federal Home Loan Bank 3,788 -- --
Interest on federal funds sold 355,959 361,688 225,012
-----------------------------------------
Total interest income 10,173,750 9,530,635 9,868,473
-----------------------------------------
Interest expense:
Interest bearing transaction accounts 1,359,626 1,082,254 1,368,778
Savings 429,729 369,572 460,910
Certificates of deposit (note 8) 1,520,069 1,502,445 1,830,411
Federal funds purchased 426 -- --
-----------------------------------------
Total interest expense 3,309,850 2,954,271 3,660,099
-----------------------------------------
Net interest income 6,863,900 6,576,364 6,208,374
Provision for loan losses (note 6) (300,000) -- --
-----------------------------------------
Net interest income after provision for loan losses 7,163,900 6,576,364 6,208,374
-----------------------------------------
Other income:
Trust department income 1,096,156 933,967 999,757
Service charges 1,001,279 1,034,451 1,114,919
Credit card fees 141,911 122,022 115,155
Net gain on sales of securities held for sale (note 3) -- -- 25,985
Net gain on sales of securities available for sale
(note 4) 165,081 -- --
Other income 484,102 495,888 400,350
-----------------------------------------
Total other income 2,888,529 2,586,328 2,656,166
-----------------------------------------
Other expenses:
Salaries and employee benefits (note 10) 3,571,093 3,091,314 2,900,011
Occupancy expenses 788,904 685,068 691,247
Furniture and equipment expenses 607,012 542,774 520,452
Legal and professional fees 715,001 641,675 523,702
Net cost to operate other real estate 275,523 147,939 174,953
Insurance expenses 398,282 371,648 379,290
Advertising expenses 236,395 157,534 139,823
Other expenses 1,264,317 1,033,443 1,216,459
-----------------------------------------
Total other expenses 7,856,527 6,671,395 6,545,937
-----------------------------------------
Income before income taxes and extraordinary item 2,195,902 2,491,297 2,318,603
Income taxes (note 9) 379,727 290,000 791,162
-----------------------------------------
Income before extraordinary item 1,816,175 2,201,297 1,527,441
Extraordinary item, recognition of tax loss carryforwards
(note 9) -- -- 752,623
-----------------------------------------
Net income $ 1,816,175 $2,201,297 $2,280,064
=========================================
Weighted average of common stock and common stock
equivalents outstanding 1,680,960 1,600,000 1,600,000
Net income per share:
Income before extraordinary item $ 1.08 $ 1.38 $ .95
Extraordinary item -- -- .47
-----------------------------------------
Net income per common share $ 1.08 $ 1.38 $ 1.42
=========================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
30
<PAGE> 26
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Net Unrealized
Gains (Losses)
on Securities
Common Additional Retained Available for
Stock Capital Earnings Sale Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1991 $2,000,000 $ 5,000,000 $ 2,399,668 $ -- $ 9,399,668
Net income -- -- 2,280,064 -- 2,280,064
Cash dividends, declared,
$.25 per share -- -- (400,000) -- (400,000)
----------------------------------------------------------------------------------------
Balance, December 31, 1992 2,000,000 5,000,000 4,279,732 -- 11,279,732
Net income -- -- 2,201,297 -- 2,201,297
Cash dividends, declared,
$.25 per share -- -- (400,000) -- (400,000)
Four-for-one stock split
effected as a 300% stock
dividend, 1,200,000
shares distributed 6,000,000 (5,000,000) (1,000,000) -- --
----------------------------------------------------------------------------------------
Balance, December 31, 1993 8,000,000 -- 5,081,029 -- 13,081,029
Effect of adoption of
Statement No. 115 as
of January 1, 1994 -- -- -- 475,849 475,849
Net income -- -- 1,816,175 -- 1,816,175
Cash dividends, declared,
$.25 per share -- -- (400,000) -- (400,000)
Net change in unrealized
losses on securities
available for sale -- -- -- (1,534,592) (1,534,592)
----------------------------------------------------------------------------------------
Balance, December 31, 1994 $8,000,000 $ -- $ 6,497,204 $(1,058,743) $13,438,461
========================================================================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
31
<PAGE> 27
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1994 1993 1992
--------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,816,175 $ 2,201,297 $ 2,280,064
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 528,209 438,601 450,307
Provision for loan losses (300,000) -- --
Deferred Federal income tax expense 94,985 -- --
Loss on sale of bank premises and equipment 2,053 434 702
Gain on sale of securities held for sale -- -- (25,985)
Gain on sale of securities available for sale (165,081) -- --
Net amortization (accretion) of securities 501,901 258,164 61,094
Gain on sale of other real estate (2,859) (62,036) (210,753)
Valuation provision for other real estate 252,832 181,000 287,683
Decrease (increase) in accrued interest receivable 19,587 (191,504) 77,307
Decrease (increase) in other assets (105,191) 280,876 7,446
Increase (decrease) in accrued interest payable 48,965 (23,894) (145,439)
Increase (decrease) in other liabilities (75,005) (74,705) 80,825
--------------------------------------------
Net cash provided by operating activities 2,616,571 3,008,233 2,863,251
--------------------------------------------
Cash flows from investing activities:
Net decrease (increase) in federal funds sold 13,023,000 (10,773,000) 550,000
Proceeds from sales of securities held for sale -- -- 2,744,961
Proceeds from sales of securities available for sale 3,557,183 -- --
Proceeds from maturities of securities held for sale -- 12,000,000 35,742
Proceeds from maturities of securities available for sale 9,523,433 -- --
Proceeds from maturities of securities held to maturity 3,160,000 12,529,839 19,245,944
Purchase of securities held for sale -- 18,434,109) (5,956,500)
Purchase of securities available for sale (20,139,569) -- --
Purchase of securities held to maturity -- 366,091) (12,261,547)
Net increase in loans (15,602,990) (14,249,854) (6,381,373)
Recoveries of charged-off loans 951,437 643,205 813,306
Proceeds from sales of other real estate 343,251 676,126 570,940
Purchase of bank premises and equipment (1,587,916) (1,343,164) (391,818)
--------------------------------------------
Net cash used by investing activities (6,772,171) (19,317,048) (1,030,345)
--------------------------------------------
Cash flows from financing activities:
Net increase in demand, interest-bearing transaction
and savings accounts 9,332,495 9,195,656 4,731,267
Net increase (decrease) in certificates of deposit 1,535,804 2,780,309 (3,733,950)
Dividends paid (300,000) (400,000) (400,000)
--------------------------------------------
Net cash provided by financing activities 10,568,299 11,575,965 597,317
--------------------------------------------
Net increase (decrease) in cash and cash
equivalents 6,412,699 (4,732,850) 2,430,223
Cash and due from banks at beginning of year 8,748,318 13,481,168 11,050,945
--------------------------------------------
Cash and due from banks at end of year $ 15,161,017 $ 8,748,318 $ 13,481,168
============================================
Supplementary information:
Interest paid $ 3,260,885 $ 2,978,165 $ 3,805,538
============================================
Income taxes paid $ 332,600 $ 297,190 $ 43,000
============================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
32
<PAGE> 28
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Corpus Christi
Bancshares, Inc. and its wholly owned subsidiaries, C.S.B.C.C., Inc. and
Citizens State Bank ("Bank"). All significant intercompany transactions have
been eliminated in the consolidated financial statements. Effective December
28, 1992, Corpus Christi Bancshares, Inc. transferred the ownership of the
Bank to C.S.B.C.C., Inc., a Delaware corporation formed as a wholly-owned
subsidiary of the Company. C.S.B.C.C., Inc. is a bank holding company duly
registered with the Board of Governors of the Federal Reserve System. The
reorganization involved the sale of common stock of the Bank to C.S.B.C.C.,
Inc. by the Company in exchange for all the outstanding shares of common stock
of C.S.B.C.C., Inc. The transfer resulted in the creation of a two-tiered
holding company structure whereby the Company owns one hundred percent of
C.S.B.C.C., Inc. which in turn owns one hundred percent of the Bank. The
Company did not incur any indebtedness in connection with the transaction and
the cost involved in connection with the transaction was immaterial. The
reorganization did not affect the respective equity positions of the
shareholders of the Company.
The accounting and reporting policies of Corpus Christi Bancshares, Inc. and
subsidiaries ("Company") conform to generally accepted accounting principles
and to general practices within the banking industry. The following are
descriptions of the more significant of those policies.
SECURITIES
In May 1993, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" (Statement 115), which specifies the accounting
and reporting for all investments in debt securities and for investments in
equity securities that have readily determinable fair values effective with
financial statements for fiscal years beginning after December 15, 1993. Under
Statement 115, securities expected to be held to maturity are reported at
amortized cost. Securities bought and held principally for the purpose of
selling them in the near-term are classified as trading securities and reported
at fair value, with unrealized gains and losses included in earnings. All other
securities held for investment purposes are classified as securities available
for sale and carried at fair value, with unrealized gains and losses excluded
from earnings and reported in a separate component of stockholders' equity. The
Company adopted Statement No. 115 on January 1, 1994 and designated all
obligations of U.S. government agencies, states and political subdivisions
currently classified as investment securities as securities held to maturity
and all U.S. Treasury securities and mortgage pass-through and related
securities currently classified as investment securities, along with all
securities held for sale, as securities available for sale. As a result, the
net unrealized gains of the securities classified as available for sale was
recorded as a separate component of stockholders' equity, net of taxes, and
increased stockholders' equity approximately $476 thousand at January 1, 1994.
SECURITIES HELD FOR SALE:
Prior to the adoption of Statement No. 115, securities to be held for sale
for indefinite periods of time and not intended to be held to maturity or on
a long-term basis were classified as securities held for sale and carried at
the lower of cost or market value. Cost was adjusted for amortization of
premium and accretion of discounts, which were recognized as adjustments to
interest income. Net unrealized losses were recognized in a valuation
allowance by charges to income. Gains and losses on disposition of securities
held for sale were computed using the specific identification method.
SECURITIES AVAILABLE FOR SALE:
Securities to be held for sale for indefinite periods of time and not
intended to be held to maturity or on a long-term basis are classified as
securities available for sale and are carried at market value. The securities
available for sale provide the Company with an additional measure of
liquidity and added flexibility in managing the Company's asset and liability
strategy. Such securities may be sold in response to changes in interest
rates, resultant prepayment risk and other factors related to interest rate
and resultant risk changes.
Included in securities available for sale are mortgage pass-through and
related securities which represent participating interests in pools of
long-term first mortgage loans originated and serviced by the issuers of the
securities. Mortgage pass-through and related securities are carried at
unpaid principal balances, adjusted for unamortized premiums and unearned
discounts. Premiums and discounts are amortized using the straight-line
method over the remaining period to contractual maturity, adjusted for
anticipated prepayments.
33
<PAGE> 29
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SECURITIES HELD TO MATURITY:
Securities held to maturity are stated at cost adjusted for amortization of
premium and accretion of discounts which are recognized as adjustments to
interest income. Management determines the appropriate classification of
securities at the time of purchase. Securities held to maturity are acquired
for long term investment purposes. Management is of the opinion that the
Company has the intention and ability to hold such securities until maturity.
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are stated at the amount of unpaid principal, reduced by unearned
discount and the allowance for loan losses. Interest on installment loans is
recognized on the sum-of-the-digits method, which recognizes interest revenue
in proportion to the outstanding loan balances, and is comparable to
recognizing income using the interest method. Interest on other loans is
calculated by using the simple interest method on daily balances of the
principal amounts outstanding. Loan origination and commitment fees, as well
as certain direct loan origination and commitment costs, are deferred and
amortized as a yield adjustment over the life of the related loans using the
interest method.
The allowance for loan losses is established through provisions for loan losses
charged to expenses. Loans are charged against the allowance for loan losses
when management believes that the collectibility of the principal is unlikely.
Recoveries are credited to the allowance. The allowance is an amount that
management believes will be adequate to absorb possible loan losses on existing
loans that may become uncollectible, based on evaluations of the collectibility
of loans and prior loan-loss experience. The evaluations take into
consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans, and
current economic conditions that may affect the borrowers' ability to pay.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
changes to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies may require the Bank to
recognize changes to the allowance based on their judgments of information
available to them at the time of their examination.
Accrual of interest is discontinued on a loan when management believes, after
considering economic and business conditions and collection efforts, that the
borrowers' financial condition is such that the collection of interest is
doubtful. Interest income on nonaccrual loans is recognized on the cash basis.
In October 1994, the FASB issued Statement of Financial Accounting Standards
No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures" (Statement 118) which amends previously issued
Statement of Financial Accounting Standards No. 114 "Accounting by Creditors
for Impairment of a Loan" (Statement 114). These statements are effective for
fiscal years beginning after December 15, 1994. An impairment of a loan within
the scope of Statement 114 is to be recognized based on the present value of
expected future cash flows discounted at the loan's effective interest rate, or
at the loan's observable market price, or the fair value of the collateral if
the loan is collateral dependent. Statement 118 allows interest income on an
impaired loan to be recognized using existing methods. The Company does not
expect any significant impact from the implementation of these new standards.
OTHER REAL ESTATE
Other real estate, acquired through foreclosure, deed in lieu of foreclosure or
in-substance foreclosure, is carried at the lower of the recorded investment in
the property or its estimated fair value less estimated selling costs. When the
property is acquired, any excess of the loan balances over the estimated fair
value is charged against the allowance for loan losses. The carrying value of
other real estate is reviewed at least annually and any subsequent changes in
fair value result in an increase or decrease in the valuation allowance which
is charged or credited, together with costs to operate, to other expenses.
Gains or losses on subsequent sales of other real estate are included in other
expenses using the carrying value of the specific other real estate sold net of
any allowances.
34
<PAGE> 30
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES
The Company and its subsidiaries file a consolidated Federal tax return.
In February 1992, the FASB issued Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" (Statement 109). Statement 109 required
a change from the deferred method of accounting for income taxes of APB Opinion
11 to the asset and liability method of accounting for income taxes. Under the
asset and liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
Effective January 1, 1993, the Company adopted Statement 109 and there was no
cumulative effect of that change in the method of accounting for income taxes.
Pursuant to the deferred method under APB Opinion 11, which was applied in 1992
and prior years, deferred income taxes were recognized for income and expense
items that were reported in different years for financial reporting purposes
and income tax purposes using the tax rate applicable for the year of the
calculation. Under the deferred method, deferred taxes were adjusted for
subsequent changes in tax rates.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated depreciation.
Depreciation charged to current operations is computed on the straight-line
method over the estimated useful lives of assets, as determined for financial
statement purposes. Normal maintenance and repairs are charged to current
expenses and betterments are capitalized.
TRUST DEPARTMENT
Securities and other property held by the Trust Department in a fiduciary or
agency capacity for its customers are not assets of the Bank and are not
included in the accompanying consolidated balance sheets.
STATEMENT OF CASH FLOWS
For purposes of the consolidated statements of cash flows, the Company
considers cash, due from bank accounts and interest-bearing deposits with
Federal Home Loan Bank to be cash equivalents.
NET INCOME PER COMMON SHARE
Primary net income per share is computed on the weighted average number of
shares of common stock outstanding, including common stock assumed outstanding
to reflect the potential dilutive effect of common stock options. Fully diluted
net income per share is computed on the weighted average number of shares of
common stock outstanding, including the common stock assumed outstanding to
reflect the maximum dilutive effect of common stock options. Fully diluted net
income per share is not presented because the effect was not dilutive in 1994
and 1993, and prior to 1993 there were no common stock options.
On September 30, 1993, the Board of Directors of the Company declared a
four-for-one stock split effected in the form of a 300% stock dividend whereby
three additional common shares, par value $5, were issued for each share
outstanding to shareholders of record on October 20, 1993. The stock split
resulted in the distribution of 1,200,000 shares on October 20, 1993. All per
share data for 1992 appearing in the consolidated financial statements and
notes thereto have been restated to reflect the distribution.
35
<PAGE> 31
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to maintain average reserve balances with the Federal
Reserve Bank throughout the year. The amount of the reserve balance required at
December 31, 1994 was $4,639,000, which the Bank satisfied with vault cash and
deposits at the Federal Reserve Bank.
3. SECURITIES HELD FOR SALE
Amortized costs and approximate market values of securities held for sale are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $19,409,314 $175,938 $(782) $19,584,470
-------------------------------------------------------------------------------
Total $19,409,314 $175,938 $(782) $19,584,470
===============================================================================
</TABLE>
At December 31, 1993, the Company had no securities held for sale pledged to
secure public and trust fund deposits or for other purposes required or
permitted by law.
There were no sales of securities held for sale in 1993. Proceeds from sales of
securities held for sale in 1992 were $2,744,961. Gross gains of $25,985 and no
gross losses were realized on those sales.
36
<PAGE> 32
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. SECURITIES AVAILABLE FOR SALE
The amortized cost and approximate market value of securities available for
sale are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
---------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $40,708,000 $ 2,477 $ (998,267) $39,712,210
Mortgage pass-through and related
securities 4,044,077 7,612 (165,549) 3,886,140
Other securities 504,100 -- -- 504,100
---------------------------------------------------------------------------
Total $45,256,177 $ 10,089 $(1,163,816) $44,102,450
===========================================================================
</TABLE>
Securities available for sale with a market value of $2,519,374 at December 31,
1994 were pledged to secure public deposits and for other purposes required or
permitted by law.
The amortized cost and market value of securities available for sale at
December 31, 1994, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because issuers may have the
right to call or repay obligations with or without call or repayment penalties.
<TABLE>
<CAPTION>
Amortized Market
Cost Value
-----------------------------
<S> <C> <C>
Due in one year or less $16,035,697 $15,891,750
Due after one year through five years 24,672,303 23,820,460
Mortgage pass-through and related securities 4,044,077 3,886,140
Other securities 504,100 504,100
-----------------------------
Total $45,256,177 $44,102,450
=============================
</TABLE>
Proceeds from sales of securities available for sale during 1994 were
$3,557,183. Gross gains of $165,081 and no gross losses were realized on those
sales.
37
<PAGE> 33
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. SECURITIES HELD TO MATURITY
Amortized cost and approximate market value of securities held to maturity are
as follows:
<TABLE>
<CAPTION>
December 31, 1994
-------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of other U.S. government
agencies $3,005,108 $ 72,705 $ -- $ 3,077,813
Obligations of states and political
subdivisions 3,762,935 49,974 (34,604) 3,778,305
-------------------------------------------------------------
Total $6,768,043 $ 122,679 $(34,604) $ 6,856,118
=============================================================
December 31, 1993
-------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------------------------------------------------------
U.S. Treasury securities $ 9,644,639 $ 246,231 $ -- $ 9,890,870
Obligations of other U.S. government
agencies 6,009,327 388,113 -- 6,397,440
Obligations of states and political
subdivisions 3,925,336 358,500 -- 4,283,836
Mortgage pass-through and related
securities 9,473,472 322,841 (23,244) 9,773,069
-------------------------------------------------------------
Total $29,052,774 $1,315,685 $(23,244) $30,345,215
=============================================================
</TABLE>
Securities held to maturity with an amortized cost of $575,511 and $2,034,253
at December 31, 1994 and 1993, respectively, were pledged to secure public and
trust fund deposits and for other purposes required or permitted by law.
The amortized cost and market value of securities held to maturity at December
31, 1994, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because issuers may have the right to call
or repay obligations with or without call or repayment penalties.
<TABLE>
<CAPTION>
Amortized Market
Cost Value
--------------------------------
<S> <C> <C>
Due in one year or less $2,175,000 $2,215,992
Due after one year through five years 2,625,587 2,653,670
Due after five years through ten years 1,967,456 1,986,456
--------------------------------
Total $6,768,043 $6,856,118
================================
</TABLE>
There were no sales of securities held to maturity in 1994, 1993 or 1992.
38
<PAGE> 34
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. LOANS AND ALLOWANCE FOR LOAN LOSSES
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1994 1993
--------------------------------
<S> <C> <C>
Commercial and industrial $26,819,212 $24,240,666
Energy 2,017,322 2,355,137
Agricultural 585,414 486,564
Installment 28,766,338 6,829,057
Real estate construction 1,228,717 1,412,658
Real estate mortgage 38,183,212 44,456,981
Other 24,823 18,708
--------------------------------
97,625,038 79,799,771
Unearned discount (3,538,959) (861,503)
--------------------------------
94,086,079 78,938,268
Allowance for loan losses (1,990,638) (1,794,380)
--------------------------------
$92,095,441 $77,143,888
================================
</TABLE>
Loan concentrations are a measure of the diversification of the loan portfolio.
Diversification is an important means of reducing the investment risks
associated with fluctuations in economic conditions. The evaluation of loan
concentrations includes analyses of related industries that are affected by the
same economic conditions and other relationships. At December 31, 1994 and
1993, the Company had a concentration of loans related to the health services
industry totaling $11,079,933 and $13,291,506, respectively. Loans related to
the health services industry represented 11% and 17% of total loans,
respectively. These outstanding loans are with physicians, dentists,
psychologists and commercial health services concentrated in the Corpus
Christi, Texas and surrounding area, as are virtually all of the outstanding
loans. Negative developments in the local economy could severely impact the
operations of the Company by requiring additional provisions for loan losses in
future periods. Management believes the allowance for loan losses was adequate
to absorb possible loan losses from loans in the portfolio at December 31,
1994.
Loans on which the accrual of interest has been discontinued amounted to
$312,657 and $799,210 at December 31, 1994 and 1993, respectively. If interest
on these loans had been accrued, such income would have totaled $35,105,
$47,637 and $119,230 for 1994, 1993 and 1992, respectively.
During 1994, the Company reduced its allowance for loan losses through a
$300,000 "negative" provision as a result of several quarters of reduced loan
charge-offs, increased recoveries on loans and overall improvement in credit
quality which resulted in an allowance for loan losses that exceeded the
minimum level determined necessary by the Company. The Company made no
provisions for loan losses during 1993 or 1992.
Transactions in the allowance for loan losses for each of the years in the
three-year period ended December 31, 1994 are summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $1,794,380 $1,726,930 $1,762,607
Loans charged-off (455,179) (575,755) (848,983)
Recoveries on loans 951,437 643,205 813,306
--------------------------------------------
Net loans recovered (charged-off) 496,258 67,450 (35,677)
Provisions credited to operating expenses (300,000) -- --
--------------------------------------------
Balance at end of year $1,990,638 $1,794,380 $1,726,930
============================================
</TABLE>
39
<PAGE> 35
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31, 1994 and 1993 are comprised of the
following:
<TABLE>
<CAPTION>
1994 1993
----------------------------------
<S> <C> <C>
Land $ 1,416,629 $ 1,416,629
Banking building and improvements 4,606,860 3,891,473
Furniture, fixtures and equipment 4,451,675 3,765,393
Leasehold improvements 452,344 386,799
Other 62,135 62,135
----------------------------------
Total 10,989,643 9,522,429
Accumulated depreciation (6,137,441) (5,727,881)
----------------------------------
Bank premises and equipment, net $ 4,852,202 $ 3,794,548
==================================
</TABLE>
8. DEPOSITS
Interest-bearing transaction accounts included in the consolidated balance
sheets are comprised of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1994 1993
----------------------------------
<S> <C> <C>
NOW accounts $24,967,576 $23,650,315
Money Market accounts 33,201,850 28,919,141
----------------------------------
$58,169,426 $52,569,456
==================================
</TABLE>
Included in certificates of deposit in the accompanying consolidated balance
sheets are certificates in denominations of $100,000 or more aggregating
$10,502,219 and $9,429,930 at December 31, 1994 and 1993, respectively.
Interest expense on certificates of deposits in denominations of $100,000 or
more amounted to $405,788, $359,150 and $413,378 in 1994, 1993 and 1992,
respectively. These certificates and their remaining maturities at December 31,
1994 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Three months or less $ 3,656,844
Three through six months 2,363,108
Six through twelve months 1,908,324
Over twelve months 2,573,943
-----------
Total $10,502,219
===========
</TABLE>
9. INCOME TAXES
As discussed in Note 1, the Company adopted Statement 109 as of January 1,
1993. There was no cumulative effect of this change in method of accounting for
income taxes. Prior years' financial statements have not been restated to apply
the provisions of Statement 109. Under Statement 109, recognition of net
operating loss carryforwards are no longer reported as extraordinary items
beginning in 1993.
Components of income tax expenses are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------------------
<S> <C> <C> <C>
Federal current income taxes $284,743 $290,000 $ 791,162
Deferred taxes 94,984 -- --
----------------------------------------------------
379,727 290,000 791,162
Extraordinary item-recognition of net
operating loss carryforwards -- -- (752,623)
----------------------------------------------------
$379,727 $290,000 $ 38,539
====================================================
</TABLE>
40
<PAGE> 36
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The actual tax expense for the years 1994, 1993, and 1992 differs from the
"expected" tax expense for those years computed by applying the U.S. Federal
corporate tax rate to income before income taxes and extraordinary item, as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------------------------------------------------
<S> <C> <C> <C>
Computed expected tax expense $ 746,607 $ 847,041 $ 788,325
Increase (decrease) in expected tax effect
resulting from:
Change in deferred tax valuation allowance (347,000) -- --
Alternative minimum tax impact -- 114,397 --
Recognition of net operating loss
carryforwards -- (661,640) (752,623)
Other (19,880) (9,798) 2,837
---------------------------------------------------
$ 379,727 $ 290,000 $ 38,539
===================================================
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and deferred tax liabilities at December 31, 1994 and
1993 are presented below:
<TABLE>
<CAPTION>
1994 1993
---------------------------------
<S> <C> <C>
Deferred tax assets:
Bank premises and equipment, principally due to
differences in depreciation $ 66,000 $ 65,000
Allowance for other real estate 97,000 253,000
Alternative minimum tax credit carryforwards 43,000 164,000
Net unrealized losses on securities available for sale 392,000 --
Other 16,000 58,000
------------------------------
Total gross deferred tax assets 614,000 540,000
Less valuation allowance (136,000) (186,000)
------------------------------
Net deferred tax assets 478,000 354,000
------------------------------
Deferred tax liabilities:
Allowance for loan losses 407,000 305,000
Other 71,000 49,000
------------------------------
Total gross deferred tax liabilities 478,000 354,000
------------------------------
Net deferred tax asset $ -- $ --
==============================
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1993 was
$721,000. The net change in the total valuation allowance for the year ended
December 31, 1993 was a decrease of $535,000. The net decrease of $50,000 in
the valuation allowance for deferred tax assets during 1994 consists of two
offsetting amounts. The first amount is an increase of $297,000 which is
included as a component of stockholders' equity because the change was
attributable to the change in the unrealized gain (loss) related to securities
available for sale. The second amount is a decrease of $347,000 which is
included in deferred tax expense because the change was attributable to changes
in circumstances that affect the evaluation of the realizability of the
deferred tax assets; i.e., the management of the Company concluded that, more
likely than not, the Company would be able to utilize the remaining alternative
minimum tax credits and realize the tax effects of the unrealized losses
related to securities available for sale.
The significant components of deferred income tax expense attributable to
income before income taxes for the years ended December 31, 1994 and 1993 are
as follows:
<TABLE>
<CAPTION>
1994 1993
-----------------------
<S> <C> <C>
Deferred tax expense exclusive of the effects of
other components listed below $ 441,984 $ 535,000
Change in the valuation allowance
for deferred tax assets (347,000) (535,000)
-----------------------
$ 94,984 $ --
=======================
</TABLE>
The Company has alternative minimum tax credit carryforwards of $42,537 at
December 31, 1994 which are available to reduce Federal regular income taxes in
excess of Federal alternative minimum taxes, if any, over an indefinite future
period.
41
<PAGE> 37
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. BENEFIT PLAN
The Bank has a qualified profit sharing plan with 401(k) provisions ("the
Plan") which is a "salary reduction" plan under Section 401(k) of the Internal
Revenue Code and is administered by the Bank's Trust Department. Under the
Plan, certain elective contributions made from a participant's salary are not
taxed to the participant until such funds subsequently are distributed from the
Plan's trust to the participant. Participants are permitted to contribute up to
twelve percent (12%) of their salary to the Plan. With respect to the annual
amount a participant elects to contribute to the Plan, the Bank also makes
matching supplemental contributions to the Plan on behalf of the participant in
an amount equal to fifty percent (50%) of the participant's elective
contributions for the year that do not exceed seven percent (7%) of the
participant's salary. Additional discretionary contributions may be made to the
Plan by the Bank on an annual basis. Contributions made to the Plan by the Bank
totaled $60,542, $56,348 and $19,047 in 1994, 1993 and 1992, respectively.
Officers and other employees of the Bank who have completed one year of service
with the Bank and are twenty-one years or older participate in the Plan.
Directors of the Bank who are not employees of the Bank are not eligible to
participate. All participant contributions and Bank matching supplemental
contributions are one hundred percent (100%) vested at all times. The Bank's
discretionary contributions vest twenty percent (20%) with each year of service
beginning at the end of the second year of service. After six years of service,
such discretionary contributions are one hundred percent (100%) vested.
11. NONQUALIFIED STOCK OPTION PLAN
On October 20, 1993, the Board of Directors authorized 160,000 shares of
Company common stock for issuance under a nonqualified stock option plan for
directors and key executive officers who the Board of Directors believe have a
significant impact on the profitability of the Company. The options were
granted in 1993 at an option price of $5 per common share, the estimated market
value per common share on the date of the grant. At December 31, 1994, options
for all 160,000 shares were outstanding, all of which are exercisable, as no
options were exercised during 1994 or 1993. Expiration dates are ten (10)
years from the date of the grant.
12. RELATED PARTY TRANSACTIONS
The Bank has had, in the ordinary course of business, banking transactions with
officers, directors and companies in which they have 10% or more beneficial
ownership. Management believes all such transactions have been on the same
terms as those prevailing for comparable transactions with others and have not
involved more than normal risk of collectibility or other unfavorable features.
At December 31, 1994 and 1993, the aggregate loans to such officers, directors
and companies totaled $2,064,000 and $2,552,000, respectively. During 1994,
$1,486,000 of new loans were made and repayments totaled $1,974,000.
42
<PAGE> 38
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. COMMITMENTS, CONTINGENT LIABILITIES AND FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK
In the normal course of business, there are outstanding various commitments
such as commitments to extend credit, standby letters of credit and
noncancellable lease agreements, which are not reflected in the accompanying
consolidated financial statements. Those instruments related to commitments of
credit involve, to varying degrees, elements of credit risk in excess of the
amount recognized in the consolidated balance sheets.
<TABLE>
<CAPTION>
1994 1993
---------------------------
<S> <C> <C>
Financial instruments whose contract amounts represent
credit risk:
Commitments to extend credit $10,448,294 $9,137,768
Standby letters of credit and financial guarantees 468,900 482,800
---------------------------
Total $10,917,194 $9,620,568
===========================
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the Company upon extension of credit is based on
management's credit evaluation of the customer. Collateral held varies but may
include accounts receivable, inventory, property, plant, equipment and
certificates of deposit. The amount collateralized of those commitments at
December 31, 1994 was $10,195,263, or 98%.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing, and similar transactions. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers. The amount of collateral
obtained if deemed necessary by the Company upon extension of letters of credit
is based on management's credit evaluation of the customer. Collateral held
varies but may include accounts receivable, inventory, property, plant,
equipment and certificates of deposit. The amount collateralized of those
commitments at December 31, 1994 was $429,500, or 92%.
At December 31, 1994, the Company was obligated under noncancellable leases
which include three branch facilities and equipment for which future minimum
lease payment commitments were as follows:
<TABLE>
<CAPTION>
Year
----
<S> <C>
1995 $172,284
1996 160,803
1997 109,322
1998 67,284
1999 22,428
--------
$532,121
========
</TABLE>
Rent expense totaled $154,218, $125,903 and $130,054 in 1994, 1993 and 1992,
respectively.
43
<PAGE> 39
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. REGULATORY MATTERS
REGULATORY ENVIRONMENT
The Bank is a Texas state banking association and its deposits are insured by
the Federal Deposit Insurance Corporation (FDIC) to the extent permitted by
law. As a result, the Bank, along with others in the industry, is subject to
substantial regulation by various regulatory authorities, including the State
of Texas Department of Banking and the FDIC.
CAPITAL REQUIREMENTS
At December 31, 1994, the Bank had an equity capital ratio of 8.4% which
exceeds the minimum required guideline of 6.0% specified by the Texas
Department of Banking. For the purposes of this ratio, stockholders' equity
does not include unrealized gains or losses on securities available for sale in
accordance with regulatory guidance. The Bank had an equity capital ratio of
8.2% and 7.7% at year-end 1993 and 1992, respectively.
The Company and the Bank are required by federal regulators to meet certain
minimum regulatory guidelines utilizing a risk-based capital framework that
became effective on December 31, 1992. The Company and the Bank must have a
minimum ratio of Tier 1 capital to total risk-adjusted assets of not less than
4%, a ratio of combined Tier 1 and Tier 2 capital to total risk-adjusted assets
of not less than 8% and a leverage ratio of not less than 4%. For the purposes
of calculating these ratios, stockholders' equity does not include unrealized
gains or losses on securities available for sale in accordance with regulatory
guidance. At December 31, 1994, the Company and the Bank each had a Tier 1
capital ratio of 14.6%, combined Tier 1 and Tier 2 capital ratio of 16.0% and
leverage ratio of 8.4% based on risk-based capital guidelines which are well
above the regulatory requirements. At December 31, 1993, the Company and the
Bank each had a Tier 1 capital ratio of 14.9%, combined Tier 1 and Tier 2
capital ratio of 16.2% and leverage ratio of 8.2%.
Bank regulatory agencies limit the amount of dividends which the Bank can pay
the Company which would result in less than minimum capital ratios described
above without obtaining prior approval. At December 31, 1994, the Bank had the
capacity to declare approximately $4.4 million of dividends to the Company
without falling below the 6.0% minimum capital requirement specified by the
Texas Department of Banking.
In 1994, the Bank became a member of the Federal Home Loan Bank (FHLB) and is
required to maintain the required level of stock in the FHLB. The stock is
recorded at cost and totaled $474,100 at December 31, 1994. No stock was
required to be maintained in 1993.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments", requires that the Company disclose estimated
fair values for its financial instruments. Fair value estimates, methods, and
assumptions are set forth below for the Company's financial statements.
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do no reflect any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a particular financial
instrument. Because no existing ready market exists for a significant portion
of the Company's financial instruments, fair value estimates are based on
judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors. These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on-and-off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Other significant assets and liabilities that are not
considered financial assets or liabilities include property, plant and
equipment, trust department operations, and core deposit value. In addition,
the tax ramifications related to the effect of fair value estimates have not
been considered in the estimates.
44
<PAGE> 40
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CASH, DUE FROM BANKS AND SHORT-TERM INVESTMENTS
For those short-term instruments, the carrying amount is a reasonable estimate
of fair value.
SECURITIES HELD FOR SALE, SECURITIES AVAILABLE FOR SALE AND SECURITIES HELD TO
MATURITY
For securities held to maturity, securities held for sale and securities
available for sale which include U.S. Treasury securities, obligations of other
U.S. government agencies, obligations of states and political subdivisions,
mortgage pass-through and related securities and other securities, fair values
are based on quoted market prices or dealer quotes. Fair values are calculated
on the value of one unit without regard to any premium or discount that may
result from concentrations of ownership of a financial instrument, possible tax
ramifications, or estimated transaction costs.
LOANS
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, real estate,
and consumer loans as outlined by the regulatory reporting guidelines. Each
loan category is segmented into fixed and adjustable rate interest terms and by
performing and nonperforming categories.
The fair value of performing loans is calculated by discounting scheduled cash
flows through the estimated maturity using estimated market discount rates that
reflect the credit and interest rate risk inherent in the loan. The estimate of
maturity is based on the Company's historical experience and average days of
maturity. The discount rates reflect the term structure of interest based on
currently offered rates adjusted for any necessary risk premium for reported
credit quality characteristics.
ACCRUAL INTEREST RECEIVABLE AND PAYABLE
The carrying values of accrual interest receivable and payable approximate
their fair value because of the relatively short period of time between accrual
and expected realization.
DEPOSIT LIABILITIES
The fair value of deposits with no stated maturity, such as non-interest
bearing demand deposit accounts, savings accounts, NOW accounts, and money
market accounts, is equal to the amount payable on demand as of
December 31, 1994 and 1993. The fair value of certificates of deposit is
based on the discounted value of contractual cash flows. The discount rate
is based on currently offered rates.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
For commitments to extend credit and standby letters of credit are principally
at current interest rates and therefore have no material associated fair value.
45
<PAGE> 41
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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>
Financial Assets:
Cash, due from banks and short-
investments $ 21,061,017 $ 21,061,017 $ 27,671,318 $ 27,671,318
Securities held for sale -- -- 19,409,314 19,584,470
Securities available for sale 44,102,450 45,256,177 -- --
Securities held to maturity 6,768,043 6,856,118 29,052,774 30,345,215
Loans, net of allowance for loan
losses 92,095,441 86,586,329 77,143,888 77,156,000
Accrued interest receivable 1,483,449 1,483,449 1,503,036 1,503,036
---------------------------------------------------------------
Total Financial Assets $165,510,400 $161,243,090 $154,780,330 $156,260,039
===============================================================
Financial Liabilities:
Demand deposits $ 43,932,959 $ 43,932,959 $ 40,708,463 $ 40,708,463
Interest bearing transaction 58,169,426 58,169,426 52,569,456 52,569,456
accounts
Savings deposits 15,294,615 15,294,615 14,785,626 14,785,626
Certificates of deposit 40,261,543 40,107,200 38,726,699 39,122,000
Accrued interest payable 202,820 202,820 153,855 153,855
---------------------------------------------------------------
Total Financial Liabilities $157,861,363 $157,707,020 $146,944,099 $147,339,400
===============================================================
Contract Fair Contract Fair
Amount Value Amount Value
---------------------------------------------------------------
Unrecognized Financial Instruments:
Commitments to extend credit $ 10,448,294 $ -- $ 9,137,768 $ --
Standby letters of credit 468,900 -- 482,800 --
</TABLE>
In October 1994, the FASB issued Statement of Financial Accounting Standards
No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments" (Statement 119), effective for fiscal years ending after
December 15, 1994. Statement 119 expands disclosure requirements to include all
derivative financial instruments, including those that do not result in
off-balance sheet risk of accounting loss. At December 31, 1994, no additional
disclosures were required as a result of the implementation of this new
standard.
16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table is a summary of operations by quarter for the years ended
December 31, 1994 and 1993:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------------------------------------------------
<S> <C> <C> <C> <C>
1994:
Interest Income $2,353,935 $2,489,125 $2,606,783 $2,723,907
Net Interest Income 1,630,231 1,729,962 1,737,057 1,766,650
Net Income 356,739 362,214 507,977 589,245
Weighted average of common stock and
common stock equivalents outstanding 1,681,492 1,681,951 1,680,398 1,680,000
Net Income per share $ .21 $ .22 $ .30 $ .35
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------------------------------------------------
1993:
Interest Income $2,273,127 $2,383,592 $2,482,547 $2,391,369
Net Interest Income 1,529,753 1,667,161 1,746,970 1,632,480
Net Income 538,031 563,425 677,626 422,215
Weighted average of common stock and
common stock equivalents outstanding 1,600,000 1,600,000 1,600,000 1,600,000
Net Income per share $ .34 $ .36 $ .42 $ .26
</TABLE>
46
<PAGE> 42
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. PARENT COMPANY INFORMATION
Corpus Christi Bancshares, Inc. is a two-tiered one-bank holding company whose
significant asset is its investment in C.S.B.C.C., Inc. which owns Citizens
State Bank. The Company has no material contingencies, guarantees, long-term
obligations or short-term borrowings. The Company's subsidiaries paid dividends
totaling $670 thousand, $575 thousand, and $325 thousand to the Company in
1994, 1993 and 1992, respectively. Prior to 1992, no dividends had been paid to
the Company since 1987.
Condensed financial statements of Corpus Christi Bancshares, Inc. only,
follows:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1993
------------------------------
<S> <C> <C>
Assets:
Cash $ 203,920 $ 12,786
Investment in subsidiaries 13,334,541 13,068,243
------------------------------
Total assets $13,538,461 $13,081,029
==============================
Liabilities:
Dividends payable $ 100,000 $ --
------------------------------
Total liabilities 100,000 --
Shareholders' equity 13,438,461 13,081,029
------------------------------
Total liabilities and shareholders'
equity $13,538,461 $13,081,029
==============================
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1994 1993 1992
------------------------------------------
<S> <C> <C> <C>
Income:
Dividends received from subsidiaries $ 670,000 $ 575,000 $ 325,000
==========================================
Expenses:
Director fees $ 15,800 $ 9,000 $ --
Legal and professional services 153,884 135,098 2,014
Printing 7,535 14,320 5,633
State franchise tax -- -- 68
Other expenses 1,647 15,459 627
------------------------------------------
Total expenses 178,866 173,877 8,342
------------------------------------------
Income before equity in
undistributed income of subsidiaries 491,134 401,123 316,658
Equity in undistributed income
of subsidiaries 1,325,041 1,800,174 1,963,406
------------------------------------------
Net income $1,816,175 $2,201,297 $2,280,064
==========================================
</TABLE>
47
<PAGE> 43
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Net Unrealized
Gains(Losses)
on Securities
Common Additional Retained Available for
Stock Capital Earnings Sale Total
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1991 $2,000,000 $5,000,000 $2,399,668 $ -- $9,399,668
Net income -- -- 2,280,064 -- 2,280,064
Cash dividends, declared,
$.25 per share -- -- (400,000) -- (400,000)
--------------------------------------------------------------------------------
Balance, December 31, 1992 2,000,000 5,000,000 4,279,732 -- 11,279,732
Net income -- -- 2,201,297 -- 2,201,297
Cash dividends, declared,
$.25 per share -- -- (400,000) -- (400,000)
Four-for-one stock split
effected as a 300% stock
dividend, 1,200,000
shares distributed 6,000,000 (5,000,000) (1,000,000) -- --
--------------------------------------------------------------------------------
Balance, December 31, 1993 8,000,000 -- 5,081,029 -- 13,081,029
Effect of adoption of
Statement No. 115 as
of January 1, 1994 -- -- -- 475,849 475,849
Net income -- -- 1,816,175 -- 1,816,175
Cash dividends, declared,
$.25 per share -- -- (400,000) -- (400,000)
Net change in unrealized
losses on securities
available for sale -- -- -- (1,534,592) (1,534,592)
--------------------------------------------------------------------------------
Balance, December 31, 1994 $8,000,000 $ -- $ 6,497,204 $(1,058,743) $13,438,461
================================================================================
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1994 1993 1992
-----------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $1,816,175 $2,201,297 $2,280,064
Adjustments to reconcile net income
to net cash used by operating activities:
Equity in earnings of subsidiaries (1,995,041) (2,375,174) (2,288,406)
-----------------------------------------
Net cash used by operating activities (178,866) (173,877) (8,342)
-----------------------------------------
Cash flows from investing activities:
Investment in subsidiaries -- -- (12,203)
Dividends from subsidiaries 670,000 575,000 325,000
-----------------------------------------
Net cash provided by investing activities 670,000 575,000 312,797
-----------------------------------------
Cash flows from financing activities:
Dividends paid (300,000) (400,000) (400,000)
-----------------------------------------
Net cash used by financing activities (300,000) (400,000) (400,000)
-----------------------------------------
Net increase (decrease) in cash 191,134 1,123 (95,545)
Cash at beginning of year 12,786 11,663 107,208
-----------------------------------------
Cash at end of year $ 203,920 $ 12,786 $ 11,663
=========================================
</TABLE>
48
<PAGE> 1
EXHIBIT 21
<PAGE> 2
SUBSIDIARIES OF CORPUS CHRISTI BANCSHARES, INC.
The sole subsidiary of Corpus Christi Bancshares, Inc. of Corpus Christi, Texas
is:
Name of Subsidiary C.S.B.C.C., Inc.
State of Incorporation: Delaware
The sole subsidiary of C.S.B.C.C., Inc. is:
Name of Subsidiary Citizens State Bank
State of Incorporation: Texas
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 15,138,696
<INT-BEARING-DEPOSITS> 22,321
<FED-FUNDS-SOLD> 5,900,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 44,102,450
<INVESTMENTS-CARRYING> 6,768,043
<INVESTMENTS-MARKET> 6,856,118
<LOANS> 94,086,079
<ALLOWANCE> 1,990,638
<TOTAL-ASSETS> 171,529,656
<DEPOSITS> 157,658,543
<SHORT-TERM> 0
<LIABILITIES-OTHER> 432,652
<LONG-TERM> 0
<COMMON> 8,000,000
0
0
<OTHER-SE> 5,438,461
<TOTAL-LIABILITIES-AND-EQUITY> 171,529,656
<INTEREST-LOAN> 6,751,281
<INTEREST-INVEST> 3,062,722
<INTEREST-OTHER> 359,747
<INTEREST-TOTAL> 10,173,750
<INTEREST-DEPOSIT> 3,309,424
<INTEREST-EXPENSE> 3,309,850
<INTEREST-INCOME-NET> 6,863,900
<LOAN-LOSSES> (300,000)
<SECURITIES-GAINS> 165,081
<EXPENSE-OTHER> 7,857,527
<INCOME-PRETAX> 2,195,902
<INCOME-PRE-EXTRAORDINARY> 2,195,902
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,816,175
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.08
<YIELD-ACTUAL> 6.97
<LOANS-NON> 312,657
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,184,863
<ALLOWANCE-OPEN> 1,794,380
<CHARGE-OFFS> 455,179
<RECOVERIES> 951,437
<ALLOWANCE-CLOSE> 1,990,638
<ALLOWANCE-DOMESTIC> 1,990,638
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
