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<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
----------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 31, 1995
Corpus Christi Bancshares, Inc.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Texas 0-13668 74-2351663
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
2402 Leopard Street, Corpus Christi, Texas 78408
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (512) 887-3000
-1-
Exhibit Index at Page 5.
<PAGE> 2
Item 2. Acquisition or Disposition of Assets.
On October 31, 1995, Citizens State Bank of Corpus Christi
("Citizens"), a wholly-owned subsidiary of Registrant, acquired all of the
outstanding assets of The First National Bank of Taft ("Taft") pursuant to an
Agreement and Plan of Merger, dated as of July 5, 1995, between Citizens and
Taft (the "Merger Agreement").
At the effective time of such merger (the "Merger"), each then
outstanding share of common stock, par value $5.00 per share, of Taft ("Taft
Common Stock") was converted into the right to receive cash consideration in
the amount of $94.83 per share. The aggregate purchase price paid by Citizens
for the 90,000 shares of Taft Common Stock (representing 100 percent of the
capital stock of Taft) issued and outstanding immediately prior to the Merger
totalled $8,534,700. The consideration paid in connection with the Merger was
derived entirely from available internal funds of the Registrant.
Prior to the Merger, Taft was engaged in the business of banking. The
assets of Taft used to conduct such business prior to the Merger included,
among others, interests in real estate and improvements thereon, furniture, and
equipment (the "Facilities"). The Registrant anticipates that it will continue
such use of the Facilities acquired from Taft.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
As a small business issuer, the Registrant is providing herein the
information required by Item 310(c) of Regulation S-B in lieu of the financial
information required by Item 7 of Form 8-K.
Item 301(c). Financial Statements of Businesses Acquired or to be
Acquired.
The historical financial statements of Taft filed as Exhibit 99.1
hereto are incorporated herein by this reference.
-2-
<PAGE> 3
Exhibits.
The following exhibits are filed herewith:
Exhibit No. Description Page
----------- ----------- ----
2.1 Agreement and Plan of Merger, dated --
as of July 5, 1995, by and between
Citizens State Bank of Corpus Christi
and The First National Bank of Taft
(incorporated by reference to Exhibit
10.5 to Registrant's Quarterly Report
on Form 10-QSB for the quarter ended
June 30, 1995)
99.1 (i) Audited financial statements 6
of Taft as of December 31, 1994 and
December 31, 1993 and for each of the
two fiscal years ended December 31, 1994
and December 31, 1993 and (ii) Unaudited
financial statements of Taft as of
September 30, 1995 and for each of the
nine-month periods ended September 30, 1995
and September 30, 1994.
-3-
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
CORPUS CHRISTI BANCSHARES, INC.
-------------------------------
Registrant
Date: November 15, 1995 By /s/ R. Jay Phillips
----------------------------
R. Jay Phillips
President and Chief Executive
Officer
-4-
<PAGE> 5
EXHIBIT INDEX
Exhibit
Number Description Page
- ------- ----------- ----
2.1 Agreement and Plan of Merger, dated as --
of July 5, 1995, by and between Citizens
State Bank of Corpus Christi and The
First National Bank of Taft (incorporated
by reference to Exhibit 10.5 to Registrant's
Quarterly Report on Form 10-QSB for the
quarter ended June 30, 1995)
99.1 (i) Audited financial statements of 6
Taft as of December 31, 1994 and
December 31, 1993 and for each of the
two fiscal years ended December 31, 1994
and December 31, 1993 and (ii) Unaudited
financial statements of Taft as of
September 30, 1995 and for each of the
nine-month periods ended September 30, 1995
and September 30, 1994.
-5-
<PAGE> 1
Collier, Johnson
& Woods
A Professional
Corporation
Certified Public
Accountants
1000 First City Tower II
Corpus Christi, Texas
78478-0599
(512) 884-9347
Fax (512) 884-9422
INDEPENDENT AUDITORS' CONSENT
November 15, 1995
The Board of Directors
Corpus Christi Bancshares, Inc.
Corpus Christi, Texas
We consent to the inclusion of our reports dated January 5, 1994 and January 6,
1995, with respect to the annual statements of financial condition for the
years 1993 and 1994, respectively, and the related statements of income,
changes in stockholders' equity, and cash flows for the years then ended, which
reports appear in Form 8-KSB of Corpus Christi Bancshares, Inc. of Corpus
Christi, Texas dated November 15, 1995.
Our report dated January 6, 1995 refers to a change in the method of accounting
for investment securities to adopt 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."
/s/ Collier, Johnson & Woods
<PAGE> 2
FIRST NATIONAL BANK OF TAFT
AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1994
<PAGE> 3
Collier, Johnson
& Woods
A Professional
Corporation
Certified Public
Accountants
1000 First City Tower II
Corpus Christi, Texas
78478-0599
(512) 884-9347
Fax (512) 884-9422
INDEPENDENT AUDITOR'S REPORT
January 6, 1995
To the Stockholders and Directors
First National Bank of Taft
Taft, Texas
We have audited the accompanying statement of financial condition of
First National Bank of Taft as of December 31, 1994 and 1993 and the related
statements of income, changes in stockholders' equity and statement of cash
flows for the years then ended. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of First National Bank
of Taft as of December 31, 1994 and 1993, and the results of its operations and
its cash flows for the years then ended, in conformity with generally accepted
accounting principles.
In 1994, the Bank adopted Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." This
change is discussed in Note 1 of the Notes to Financial Statements.
/s/ Collier, Johnson & Woods
<PAGE> 4
FIRST NATIONAL BANK OF TAFT
STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1993
---------- ----------
<S> <C> <C>
ASSETS
Cash and Due From Banks 1,187,987 1,970,684
Securities (Note 2):
Available-for-Sale Securities, at Fair Value 27,436,868 ---
Held-to-Maturity Securities, at Cost (Fair Value of
$2,131,106 and $27,656,458, Respectively) 2,059,446 26,736,741
Federal Funds Sold 1,075,000 3,900,000
Loans (Note 3) 5,643,982 6,284,464
Less Allowance for Credit Losses 258,342 312,308
----------------------------
Net Loans 5,385,640 5,972,156
Property and Equipment (Note 4) 185,238 208,272
Other Real Estate 19,450 19,450
Accrued Interest Receivable 550,954 467,102
Deferred Federal Income Tax Benefit (Note 7) 142,494 ---
Other Assets 68,540 141,425
Federal Income Tax Receivable 1,045 115,301
----------------------------
TOTAL ASSETS 38,112,662 39,531,131
============================
LIABILITIES AND SHAREHOLDERS EQUITY
Deposits:
Demand 5,853,458 6,128,934
Savings and NOW 19,117,817 18,715,630
Time over $100,000 (Note 5) 1,200,000 1,302,178
Other Time 5,766,711 6,698,529
----------------------------
Total Deposits 31,937,986 32,845,271
Deferred Federal Income Tax (Note 7) --- 2,844
Dividend Payable 630,000 630,000
Accrued Expenses and Other Liabilities 124,750 228,172
----------------------------
Total Liabilities 32,692,736 33,706,287
Stockholders Equity:
Common Stock $5 Par Value, 90,000 Shares
Authorized, Issued and Outstanding 450,000 450,000
Surplus 450,000 450,000
Undivided Profit 4,885,734 4,924,844
Net Unrealized Loss on Available-for-Sale
Securities, Net of Tax of $156,775 in 1994 (365,808) ---
----------------------------
Total Stockholders Equity 5,419,926 5,824,844
Commitments and Contingencies (Note 9) --- ---
----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY 38,112,662 39,531,131
============================
</TABLE>
See Notes to Financial Statements
<PAGE> 5
FIRST NATIONAL BANK OF TAFT
STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1993
----------- ----------
<S> <C> <C>
Interest Income:
Interest and Fees on Loans 586,418 611,809
Interest and Dividends on Securities 1,687,978 1,738,302
Interest on Federal Funds Sold 143,520 220,408
----------------------------
Total Interest Income 2,417,916 2,570,519
Interest Expense 810,252 889,112
----------------------------
Net Interest Income 1,607,664 1,681,407
Reduction in Allowance for Credit Losses (50,000) ---
----------------------------
Net Interest Income After Reduction in
Allowance for Credit Losses 1,657,664 1,681,407
Other Income:
Service Charges 139,974 150,130
Other Operating 37,891 53,813
----------------------------
Total Other Income 177,865 203,943
Other Expenses:
Net Realized Loss on Sales of Securities 10,259 ---
Salaries and other Employee Benefits 413,903 420,255
Occupancy Expenses of Bank Premises 73,410 71,058
Furniture, Fixture and Equipment 61,116 63,283
Other Operating 454,786 477,925
----------------------------
Total Other Expenses 1,013,474 1,032,521
----------------------------
Income Before Federal Income Taxes 822,055 852,829
Federal Income Taxes (Note 7):
Current 219,728 217,856
Deferred 11,437 6,557
----------------------------
Total Federal Income Taxes 231,165 224,413
----------------------------
NET INCOME 590,890 628,416
============================
</TABLE>
See Notes to Financial Statements.
<PAGE> 6
FIRST NATIONAL BANK OF TAFT
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
NET UNREALIZED
LOSS ON
AVAILABLE-
COMMON UNDIVIDED FOR-SALE
STOCK SURPLUS PROFITS SECURITIES TOTAL
--------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 450,000 450,000 4,926,428 --- 5,826,428
Net Income Year Ended December 31,
1993 --- --- 628,416 --- 628,416
Cash Dividends Declared --- --- (630,000) --- (630,000)
-----------------------------------------------------------------------------
Balance, December 31, 1993 450,000 450,000 4,924,844 --- 5,824,844
Net Income Year Ended December 31,
1994 --- --- 590,890 --- 590,890
Cash Dividends Declared --- --- (630,000) --- (630,000)
Net Changes in Unrealized Loss on
Available-for-Sale Securities, Net of
Taxes of $156,775 --- --- --- (365,808) (365,808)
-----------------------------------------------------------------------------
BALANCE, DECEMBER 31,
1994 450,000 450,000 4,885,734 (365,808) 5,419,926
=============================================================================
</TABLE>
See Notes to Financial Statements
<PAGE> 7
FIRST NATIONAL BANK OF TAFT
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1993
-------------- ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income 590,890 628,416
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 27,862 29,371
Discount Accretion Net of Premium Amortization
on Securities 209,381 119,170
Reduction in Allowance for Credit Losses (50,000) ---
Deferred Federal Income Taxes 11,437 6,557
Net Realized Loss on Sale of Securities 10,259 ---
Net Gain on Sale of Other Real Estate --- (15,866)
Change in Accrued Interest Receivable (83,852) 52,481
Change in Other Assets 72,885 (32,382)
Change in Federal Income Tax Receivable 114,256 (115,301)
Change in Accrued Expenses and Other Liabilities (103,423) (31,449)
-----------------------------
Net Cash Provided by Operating Activities 799,695 640,997
Cash Flows from Investing Activities:
Proceeds from Sales of Available-for-Sale Securities 1,984,688 ---
Proceeds from Maturities of Available-for-Sale Securities 6,922,771 ---
Purchase of Available-for-Sale Securities (13,030,624) ---
Proceeds from Maturities of Held-to-Maturity Securities 515,000 10,518,400
Proceeds from Sales of Held-to-Maturity Securities 106,369 ---
Purchase of Held-to-Maturity Securities --- (9,278,773)
Proceeds from Sale of Other Real Estate --- 200,216
Net Decrease in Federal Funds Sold 2,825,000 3,725,000
Net Decrease (Increase) in Loans 636,514 (589,318)
Purchase of Equipment, Furniture and Fixtures (4,827) (20,208)
-----------------------------
Net Cash Provided by (Used in) Investing Activities (45,109) 4,555,317
Cash Flows from Financing Activities:
Net Decrease in Deposits (907,283) (5,290,426)
Payment of Dividends (630,000) (630,000)
-----------------------------
Net Cash Used by Financing Activities (1,537,283) (5,920,426)
-----------------------------
Decrease in Cash and Due from Banks (782,697) (724,112)
Cash and Due from Banks at Beginning of Year 1,970,684 2,694,796
-----------------------------
CASH AND DUE FROM BANKS AT END OF
YEAR 1,187,987 1,970,684
=============================
</TABLE>
See Notes to Financial Statements.
<PAGE> 8
FIRST NATIONAL BANK OF TAFT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting practices of First National Bank
of Taft conform to generally accepted accounting principles and to
general practice within the banking industry. The following is a
description of the more significant accounting policies.
Available-for-Sale Securities and Held-to-Maturity Securities
Effective January 1, 1994, the Bank adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Securities that may be
sold in response to or in anticipation of changes in interest rates
and resulting prepayment risk, or other factors, are classified as
available-for-sale and carried at fair value. The unrealized gains
and losses on these securities are reported net of applicable taxes in
a separate component of stockholders' equity. Securities that the
Bank has a positive intent and ability to hold to maturity are carried
at cost, adjusted for premiums and discounts. As of December 31,
1993, all securities are classified as held-to-maturity and carried at
cost, adjusted for premium and discounts.
Gains and losses on the sale of investment securities are
computed on the basis of specific identification of the adjusted cost
of each security.
Loans and Allowance for Credit Losses
Loans are carried at outstanding unpaid principal balances,
reduced by any charge-offs or specific valuation accounts and net of
any deferred fees or costs or originated loans, or unamortized
premiums or discounts on purchased loans.
Interest on loans is accrued and credited to income based on
the principal amount outstanding. The accrual of interest on loans is
discontinued when, in the opinion of management, there is an
indication that the borrower may be unable to meet payments as they
become due. Upon such discontinuance, all unpaid accrued interest is
reversed.
The allowance is maintained at a level adequate to absorb
probable losses. Management determines the adequacy of the allowance
based upon recent loss experience, known and inherent risk in the
portfolio, adverse situations that may affect the borrower's ability
to repay, the estimated value of any underlying collateral, current
economic conditions, and other pertinent factors. Credits deemed
uncollectible are charged to the allowance. Provisions for credit
losses and recoveries on loans previously charged-off are added to the
allowance.
Property and Equipment
Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is recorded on the straight line and
accelerated methods over the estimated useful lives of the respective
assets.
<PAGE> 9
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continuation)
Other Real Estate Owned
Real estate acquired through, or in lieu of, loan foreclosure
are initially recorded at fair value at the date of foreclosure
establishing a new cost basis. After foreclosure, valuations are
periodically performed by management, and the real estate is carried
at the lower cost or fair value minus estimated costs to sell.
Revenue and expenses from operations and additions to the valuation
allowance are charged to operating expenses.
Federal Income Taxes
Federal income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes related primarily to differences in
the basis of loans, property and equipment, other real estate, prepaid
expenses and accretion of discount on tax exempt securities for
financial and income tax reporting. The deferred tax assets and
liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the
assets and liabilities are recovered or settled. Deferred taxes also
are recognized for operating losses that are available to offset
future taxable income and tax credits that are available to offset
future Federal income taxes.
Other
The Bank uses the accrual basis of accounting for financial
reporting purposes, except for certain minor sources of income which
are recorded when received. The difference in methods of accounting
for these items is not significant.
Note 2 - SECURITIES
The carrying value and approximate fair value of securities as
of December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------- --------------- ----------------- -------------
<S> <C> <C> <C> <C>
Available-for-Sale Securities:
December 31, 1994:
U.S. Treasury Securities 20,205,285 -- (419,979) 19,785,306
U.S. Government and Agency
Obligations 7,694,417 145,964 (248,569) 7,591,812
Other Securities 59,750 -- -- 59,750
--------------------------------------------------------------------
TOTAL 27,959,452 145,964 (668,548) 27,436,868
====================================================================
</TABLE>
<PAGE> 10
Note 2 - SECURITIES - (Continuation)
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------- ----------------- ---------------- ------------
<S> <C> <C> <C> <C>
Held-to-Maturity Securities:
December 31, 1994 -
Obligations of States and Political
Subdivisions 2,059,446 71,660 -- 2,131,106
-----------------------------------------------------------------
TOTAL 2,059,446 71,660 -- 2,131,106
=================================================================
December 31, 1993:
U.S. Treasury Securities 14,383,576 151,894 -- 14,535,470
U.S. Government and Agency
Obligations 9,598,837 522,605 -- 10,121,442
Obligation of States and Political
Subdivisions 2,694,578 245,218 -- 2,939,796
Other Securities 59,750 -- -- 59,750
-----------------------------------------------------------------
TOTAL 26,736,741 919,717 -- 27,656,458
=================================================================
</TABLE>
Gross realized gains and gross realized losses on sales of
available-for-sale and held-to-maturity securities in 1994 were:
<TABLE>
<CAPTION>
1994
---------
<S> <C>
Held-to-Maturity:
Gross Realized Gains -
Obligations of States and Political Subdivisions 3,894
-----------
Total Held-to-Maturity 3,894
Available-for-Sale:
Gross Realized Losses -
U.S. Government and Agency Securities 14,153
-----------
Total Available for Sale 14,153
-----------
NET REALIZED LOSS ON SALES OF
SECURITIES 10,259
===========
</TABLE>
During 1993, no securities were sold. On October 13, 1994, a
held-to-maturity security was sold with a amortized cost of $102,475,
resulting in a realized gain of $3,894. This decision to sell was
caused by evidence of significant deterioration in the issuer's
credit-worthiness.
<PAGE> 11
Note 2 - SECURITIES - (Continuation)
The following table shows the maturity distribution of the
portfolio at December 31, 1994:
<TABLE>
<CAPTION>
HELD-TO-MATURITY AVAILABLE-FOR-SALE
SECURITIES SECURITIES
------------------------------ ------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
------------- --------------- ---------------- ------------
<S> <C> <C> <C> <C>
Due in One year of Less 433,617 441,969 6,050,774 6,009,529
Due from One Year to Five Years 1,625,829 1,689,138 14,154,511 13,775,777
Due from Five to Ten Years -- -- 2,924,249 2,678,473
Due After Ten Years -- -- 4,829,917 4,973,089
--------------------------------------------------------------
TOTAL 2,059,446 2,131,107 27,959,451 27,436,868
==============================================================
</TABLE>
Securities with a fair value of $2,309,070 at December 31,
1994 and $1,350,226 at December 31, 1993 were pledged to secure public
funds on deposit and for other purposes required or permitted by law.
Note 3 - LOANS
Loans as of December 31, 1994 and 1993 consisted of the
following:
<TABLE>
<CAPTION>
1994 1993
------------ -----------
<S> <C> <C>
Commercial 859,211 1,565,839
Personal 110,092 109,581
Installment 228,984 177,960
Consumer 176,328 129,748
Real Estate 914,231 873,422
Farm 3,150,534 3,203,062
Student Loans 220,729 236,032
Overdrafts 498 2,124
--------------------------------
Total Loans 5,660,607 6,297,768
Less Unearned Discount 16,625 13,304
--------------------------------
NET LOANS BEFORE ALLOWANCE FOR
CREDIT LOSSES 5,643,982 6,284,464
================================
</TABLE>
The rate sensitivity of the loan portfolio at December 31,
1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
--------------- ---------------
<S> <C> <C>
Loans at Fixed Interest Rates 2,235,959 1,730,349
Loans at Variable Interest Rates 3,424,648 4,567,419
--------------------------------
TOTAL 5,666,607 6,297,768
================================
</TABLE>
Non-accrual loans at December 31, 1994 and 1993 were $102,667
and $4,581, respectively.
<PAGE> 12
Note 3 - LOANS
The activity in the allowance for credit losses for the years
ended December 31, 1994 and 1993, is summarized below:
<TABLE>
<CAPTION>
1994 1993
--------------- ---------------
<S> <C> <C>
Balance at Beginning of Year 312,308 270,315
Additions - Recoveries of Loans Previously
Charged-off -- 42,960
Reductions:
Loans Fully or Partially Charged-off 3,966 967
Reduction in Allowance for Credit Losses 50,000 --
--------------------------------
Total Reductions 53,966 967
--------------------------------
BALANCE AT END OF YEAR 258,342 312,308
================================
</TABLE>
Note 4 - PROPERTY AND EQUIPMENT
A summary of property and equipment as of December 31, 1994
and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
--------------- ---------------
<S> <C> <C>
Building and Improvements 453,650 453,650
Equipment, Furniture and Fixtures 548,907 544,080
--------------------------------
Total Property and Equipment 1,002,557 997,730
Less Accumulated Depreciation 817,319 789,458
--------------------------------
NET PROPERTY AND EQUIPMENT 185,238 208,272
================================
</TABLE>
Depreciation expense on the above assets was $27,862 and
$29,371 for the year ended December 31, 1994 and 1993, respectively.
Note 5 - TIME DEPOSITS OVER $100,000
Time deposits over $100,000 and their remaining maturities at
December 31, 1994 are as follows:
<TABLE>
<S> <C>
Three Months or Less 200,000
Three Through Six Months 300,000
Six Through Twelve Months 600,000
Over Twelve Months 100,000
---------
TOTAL 1,200,000
=========
</TABLE>
<PAGE> 13
Note 6 - PENSION PLAN
The Bank has a noncontributory pension plan covering all
regular, full-time employees. The plan calls for benefits to be paid
to eligible employees at retirement, based primarily upon years of
service with the Bank and compensation rates near retirement. The
1993 actuarial computation assumed a discount rate of 7.5%, annual
salary increases of 4% and an expected long-term rate of return of
7.5%. The Bank's policy is to fund accrued pension costs and amortize
transition assets over fifteen years using the straight-line method.
Assets of the plan are invested in collective fixed and equity funds
managed by a commercial trust department.
The Bank's net periodic pension cost includes the following
components:
<TABLE>
<CAPTION>
1994 1993
------------------------------
<S> <C> <C>
Service Cost 37,945 26,057
Interest Cost 44,598 44,853
Actual Return on Plan Assets (20,998) (65,419)
Amortization of Transitional Obligation (16,308) (16,308)
Amortization of (Gain) Loss (45,237) 10,817
------------------------------
NET PERIODIC PENSION COST -- --
==============================
The funded status of the plan follows:
Actuarial Present Value of Benefit Obligations:
Vested Benefit Obligations 616,708 582,134
Nonvested Benefits 2,426 5,022
------------------------------
Accumulated Benefit Obligations 619,134 587,156
Effect of Future Salary Increases 156,995 110,656
------------------------------
Projected Benefit Obligation 776,129 697,812
Plan Assets at Fair Value 904,011 932,504
------------------------------
PLAN ASSETS IN EXCESS OF PROJECTED
BENEFIT OBLIGATIONS 127,882 234,692
==============================
</TABLE>
The excess consists of the following:
<TABLE>
<CAPTION>
1994 1993
------------------------------
<S> <C> <C>
Unrecognized Net Gain (64,847) 19,397
Unamortized Asset at Transition 146,775 163,083
Prepaid Paid Pension Cost 45,954 52,212
------------------------------
TOTAL 127,882 234,692
==============================
</TABLE>
<PAGE> 14
Note 7 - FEDERAL INCOME TAXES
A reconciliation of income tax at the Federal statutory rate
to income tax expense at the Bank's effective rate is as follows:
<TABLE>
<CAPTION>
1994 1993
-------------- -------------
<S> <C> <C>
Expected Tax Expense at the Statutory Rates 279,499 289,962
Differences Resulting from:
Tax Exempt Interest on Obligations of States and
Political Subdivisions (52,508) (64,188)
Other 4,174 (1,361)
------------------------------
TOTAL INCOME TAXES 231,165 224,413
==============================
</TABLE>
The significant components of deferred income tax assets and
liabilities at December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
-------------- -------------
<S> <C> <C>
Deferred Tax Asset -
Unrealized Appreciation on Available-for-Sale
Securities 156,775 --
Deferred Tax Liabilities:
Discount Accretion on Tax Exempt Securities (1,244) (2,471)
Bad Debts (10,945) 6,055
Prepaid Expenses (2,092) (6,428)
------------------------------
Total Deferred Tax Liabilities (14,281) (2,844)
------------------------------
NET DEFERRED INCOME TAX ASSET
(LIABILITY) 142,494 (2,844)
==============================
</TABLE>
Note 8 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest in 1994 and 1993 was $813,287 and
$912,721, respectively. Cash payments for Federal taxes was $105,472
and $310,642 in 1994 and 1993, respectively.
Note 9 - COMMITMENTS AND CONTINGENT LIABILITIES
The Bank's financial statements do not reflect various
commitments and contingent liabilities which arise in the normal
course of business and which involve elements of credit risk, interest
rate risk and liquidity risk. These commitments and contingent
liabilities are commitments to extend credit, commercial letters of
credit and standby letters of credit. A summary of the Bank's
commitments and contingent liabilities at December 31, 1994 is as
follows:
<TABLE>
<S> <C>
Commitments to Extend Credit $2,964,058
Standby Letters of Credit $45,000
</TABLE>
<PAGE> 15
Note 9 - COMMITMENTS AND CONTINGENT LIABILITIES - (Continuation)
Commitments to extend credit, commercial letters of credit and
standby letters of credit all include exposure to some credit loss in
the event of nonperformance of the customer. The Bank's credit
policies and procedures for credit commitments and financial
guarantees are the same as those for extension of credit that are
recorded on the statement of financial condition.
The Bank is involved in various claims and suits occurring in
the ordinary course of business. In the opinion of management and
legal counsel, potential liabilities arising from these matters, if
any, would not have a material effect on the Bank's financial
condition.
The Bank leases its Portland - ATM banking facility under
long-term operating lease agreements expiring in 1998.
A summary of future minimum rental payments required under
long-term operating leases follows:
<TABLE>
<CAPTION>
Year Ended December 31,:
<S> <C>
1995 3,900
1996 3,900
1997 3,900
1998 2,600
-------
TOTAL FUTURE MINIMUM RENTAL
PAYMENTS 14,300
=======
</TABLE>
Note 10 - RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bank makes loans to
officers, directors and principal stockholders. These loans are made
on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with other persons. Such loans amounted to at $787,794
at December 31, 1994 and $833,686 at December 31, 1993.
Note 11 - CONCENTRATION OF CREDIT
All of the Bank's loans, commitments and standby letters of
credit have been granted to customers in the Bank's market area.
Investments in obligations of state and political subdivision
securities are concentrated within the State of Texas. The
concentration of credit by type of loan are set forth in Note 3. The
distribution of commitments to extend credit approximates the
distribution of loans outstanding. The Bank does not extend credit to
any single borrower or group of related borrowers in excess of
regulatory limits.
Note 12 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements
administered by the Federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory - possibly
additional discretionary - actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial
statements. The regulations require the Bank to meet specific capital
adequacy guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital
classification is also subject to qualitative judgments by the
regulators about components, risk-weightings, and other factors.
<PAGE> 16
Note 12 - REGULATORY MATTERS - (Continuation)
Qualitative measures established by regulation to ensure
capital adequacy require the Bank to maintain minimum amounts and
ratios (set forth in the table below) of Tier 1 capital (as defined in
the regulations) to total average assets (as defined), and minimum
ratios of Tier 1 and total capital (as defined) to risk-weighted
assets (as defined).
<TABLE>
<CAPTION>
CAPITAL ADEQUACY
----------------------
REQUIRED ACTUAL
--------------------------- ----------------------------
AMOUNT (RATIO) AMOUNT (RATIO)
----------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
As of December 31, 1994:
Tier 1 Capital (to Average Assets) 1,524,520 (4%) 5,786,000 (15%)
Tier 1 Capital (to Risk-Weighted Assets) 543,760 (4%) 5,786,000 (43%)
Total Capital (to Risk-Weighted Assets) 1,087,520 (8%) 5,956,000 (44%)
As of December 31, 1993:
Tier 1 Capital (to Average Assets) 1,581,480 (4%) 5,824,844 (15%)
Tier 1 Capital (to Risk-Weighted Assets) 819,360 (4%) 5,824,844 (28%)
Total Capital (to Risk-Weighted Assets) 1,638,720 (8%) 6,081,000 (30%)
</TABLE>
Management believes, as of December 31, 1994, that the Bank
meets all capital requirements to which it is subject.
<PAGE> 17
FIRST NATIONAL BANK OF TAFT
AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1993
<PAGE> 18
Collier, Johnson
&Woods
A Professional
Corporation
Certified Public
Accountants
1000 First City Tower II
Corpus Christi, Texas
78478-0599
(512) 884-9347
Fax (512) 884-9422
INDEPENDENT AUDITOR'S REPORT
January 5, 1994
To the Stockholders and Directors
First National Bank of Taft
Taft, Texas
We have audited the accompanying statement of financial condition of First
National Bank of Taft as of December 31, 1993 and 1992 and the related
statements of income, changes in stockholders' equity and statement of cash
flows for the years then ended. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of First National Bank of Taft
as of December 31, 1993 and 1992, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
/s/ Collier, Johnson & Woods
<PAGE> 19
FIRST NATIONAL BANK OF TAFT
STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1993 1992
-----------------------------
<S> <C> <C>
ASSETS
Cash and Due From Banks 1,970,684 2,694,796
Investment Securities (Approximate Market Value of
$27,656,458 and $29,362,024) (Note 2) 26,736,741 28,095,538
Federal Funds Sold 3,900,000 7,625,000
Loans (Note 3) 6,284,464 5,653,153
Less Allowance for Credit Losses
312,308 270,315
-----------------------------
Net Loans 5,972,156 5,382,838
Property and Equipment (Note 4) 208,272 217,435
Other Real Estate 19,450 203,800
Accrued Interest Receivable 467,102 519,583
Deferred Federal Income Tax Benefit (Note 7) 6,055 3,713
Other Assets 141,425 109,043
Federal Income Tax Receivable 115,301 ---
-----------------------------
TOTAL ASSETS 39,537,186 44,851,746
=============================
LIABILITIES AND
STOCKHOLDERS EQUITY
Deposits
Demand 6,128,934 5,547,406
Savings and NOW 18,715,630 22,581,087
Time over $100,000 (Note 5) 1,302,178 2,410,390
Other Time 6,698,529 7,596,814
-----------------------------
Total Deposits 32,845,271 38,135,697
Deferred Federal Income Tax (Note 7) 8,899 ---
Dividend Payable 630,000 630,000
Accrued Expenses and Other Liabilities 228,172 259,621
-----------------------------
Total Liabilities 33,712,342 39,025,318
Stockholders Equity:
Common Stock $5 Par Value, 90,000 Shares
Authorized, Issued and Outstanding 450,000 450,000
Surplus 450,000 450,000
Undivided Profit 4,924,844 4,926,428
-----------------------------
Total Stockholder s Equity 5,824,844 5,826,428
Commitments and Contingencies (Note 9) --- ---
-----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY 39,537,186 44,851,746
=============================
</TABLE>
See Notes to Financial Statements.
<PAGE> 20
FIRST NATIONAL BANK OF TAFT
STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1994
----------------------------
<S> <C> <C>
Interest Income:
Interest and Fees on Loans 611,809 651,809
Interest and Dividends on Investment Securities:
Taxable 1,538,086 2,096,036
Exempt from Federal Income Taxes 200,216 259,715
Interest on Deposits with Banks --- 37
Interest on Federal Funds Sold 220,408 174,194
----------------------------
Total Interest Income 2,570,519 3,181,791
Interest Expense 889,112 1,245,802
----------------------------
Net Interest Income 1,681,407 1,935,989
Reduction in Allowances for Credit Losses --- (100,000)
Net Interest Income After Reduction in
Allowance for Credit Losses 1,681,407 2,035,989
Other Income:
Net Investment Securities Gain --- 110,405
Service Charges 150,130 140,016
Other Operating 53,813 63,329
----------------------------
Total Other Income 203,943 313,750
Other Expenses:
Salaries and other Employee Benefits 420,255 404,278
Occupancy Expenses of Bank Premises 71,058 68,604
Furniture, Fixture and Equipment 63,283 63,845
Other Operating 477,925 478,189
----------------------------
Total Other Expenses 1,032,521 1,014,916
----------------------------
Income Before Federal Income Taxes 852,829 1,334,823
Federal Income Taxes (Note 7):
Current 217,856 333,059
Deferred 6,557 37,748
----------------------------
Total Federal Income Taxes 224,413 370,807
----------------------------
NET INCOME 628,416 964,016
============================
</TABLE>
See Notes to Financial Statements
<PAGE> 21
FIRST NATIONAL BANK OF TAFT
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
COMMON UNDIVIDED
STOCK SURPLUS PROFITS TOTAL
----------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1991 450,000 450,000 4,592,412 5,492,412
Net Income Year Ended
December 31, 1992 --- --- 964,016 964,016
Cash Dividends Declared --- --- (630,000) (630,000)
----------------------------------------------------------
Balance, December 31, 1992 450,000 450,000 4,926,428 5,826,428
Net Income Year Ended
December 31, 1993 --- --- 628,416 628,416
Cash Dividends Declared --- --- (630,000) (630,000)
----------------------------------------------------------
BALANCE, DECEMBER 31, 1993 450,000 450,000 4,924,844 5,824,844
==========================================================
</TABLE>
See Notes to Financial Statements.
<PAGE> 22
FIRST NATIONAL BANK OF TAFT
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1993 1992
-----------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income 628,416 964,016
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 29,371 29,912
Discount Accretion Net of Premium Amortization
on Investment Securities 119,170 63,381
Reduction in Allowance for Credit Losses --- (100,000)
Deferred Federal Income Taxes 6,557 37,748
Net Investment Security Gains --- (110,405)
Net Gain on Sale of Other Real Estate (15,866) ---
Change in Accrued Interest Receivable 52,481 28,435
Change in Other Assets (32,382) (77,775)
Change in Federal Income Tax Receivable (115,301) ---
Change in Federal Income Taxes Payable --- (47,672)
Change in Accrued Expenses and Other Liabilities (31,449) (98,398)
-----------------------------
Net Cash Provided by Operating Activities 640,997 689,242
Cash Flows from Investing Activities:
Net Decrease in Interest Bearing Deposits with Banks --- 2,620
Proceeds from Sales of Investment Securities --- 3,400,183
Proceeds from Maturities of Investment Securities 10,518,400 6,171,540
Proceeds from Sale of Other Real Estate 200,216 ---
Purchase of Investment Securities (9,278,773) (7,299,843)
Net Decrease in Federal Funds Sold 3,725,000 2,025,000
Net Decrease (Increase) in Loans (589,318) 185,353
Purchase of Equipment, Furniture and Fixtures (20,208) (3,899)
-----------------------------
Net Cash Provided by Investing Activities 4,555,317 4,480,954
Cash Flows from Financing Activities:
Net Decrease in Deposits (5,290,426) (3,416,388)
Payment of Dividends (630,000) (630,000)
-----------------------------
Net Cash Used by Financing Activities (5,920,426) (4,046,388)
-----------------------------
Increase (Decrease) in Cash and Due from
Banks (724,112) 1,123,808
Cash and Due from Banks at Beginning of Year 2,694,796 1,570,988
-----------------------------
CASH AND DUE FROM BANKS AT END OF
YEAR 1,970,684 2,694,796
=============================
</TABLE>
See Notes to Financial Statements.
<PAGE> 23
FIRST NATIONAL BANK OF TAFT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1992
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting practices of First National Bank of
Taft conform to generally accepted accounting principles and to general
practice within the banking industry. The following is a description of
the more significant accounting policies.
Investment Securities
Investment securities are those securities which the Bank has the
ability and intent to hold to maturity. These securities are stated at
cost, adjusted for amortization of premium and accretion of discount.
Generally, such securities are sold only to meet liquidity needs. Gains
and losses on the sale of investment securities are computed on the
basis of specific identification of the adjusted cost of each security.
Allowance for Credit Losses
The allowance is maintained at a level adequate to absorb
probable losses. Management determines the adequacy of the allowance
based upon reviews of individual credits, recent loss experience,
current economic conditions, the risk characteristics of the various
categories of loans and other pertinent factors. Credits deemed
uncollectible are charged to the allowance. Provisions for credit
losses and recoveries on loans previously charged off are added to the
allowance.
Property and Equipment
Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is recorded on the straight line and
accelerated methods over the estimated useful lives of the respective
assets.
Interest Income on Loans
Interest on loans is accrued and credited to income based on the
principal amount outstanding. The accrual of interest on loans is
discontinued when, in the opinion of management, there is an indication
that the borrower may be unable to meet payments as they become due.
Upon such discontinuance, all unpaid accrued interest is reversed.
Other Real Estate Owned
Real estate acquired by foreclosure is carried in other assets at
the lower of the recorded investment in the property or its fair value.
Prior to foreclosure, the value of the underlying loan is written down
to the fair market value of the real estate to be acquired by a charge
to the allowance for credit losses, if necessary. Any subsequent
write-downs are charged against operating expenses. Operating expenses
of such properties, net of related income, and gains and losses on their
disposition are included in other expenses.
<PAGE> 24
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continuation)
Federal Income Taxes
Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently due,
plus deferred taxes related primarily to differences between the
allowance for credit losses, other real estate, prepaid expenses and
accretion of discount on tax exempt securities for financial and income
tax reporting. The deferred taxes represent the future tax return
consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
Other
The Bank uses the accrual basis of accounting for financial
reporting purposes, except for certain minor sources of income which are
recorded when received. The difference in methods of accounting for
these items is not significant.
Note 2 - INVESTMENT SECURITIES
The carrying value and approximate market value of investment
securities as of December 31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1993:
U.S. Treasury Securities 14,383,576 151,894 -- 14,535,470
U.S. Government Agency
Obligations 9,598,837 522,605 -- 10,121,442
Obligations of States and
Political Subdivisions 2,694,578 245,218 -- 2,939,796
Other Securities 59,750 -- -- 59,750
------------------------------------------------------------------
TOTAL 26,736,741 919,717 -- 27,656,458
==================================================================
December 31, 1992:
U.S. Treasury Securities 14,272,487 196,664 88 14,469,063
U.S. Government Agency
Obligations 10,449,134 853,738 -- 11,302,872
Obligations of States and
Political Subdivisions 3,314,167 216,341 169 3,530,339
Other Securities 59,750 -- -- 59,750
------------------------------------------------------------------
TOTAL 28,095,538 1,266,743 257 29,362,024
==================================================================
</TABLE>
<PAGE> 25
Note 2 - INVESTMENT SECURITIES - (Continuation)
The following table shows the maturity distribution (based on
carrying value) of the investment portfolio at December 31, 1993:
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION
---------------------------------------------------------
WITHIN ONE TO FIVE TO AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS TOTAL
-------- ---------- --------- --------- -----
<S> <C> <C> <C> <C> <C>
U.S. Treasury
Securities 4,020,413 10,363,163 -- -- 14,383,576
U.S. Government
Agency
Obligations -- -- 3,209,579 6,389,258 9,598,837
Obligations of
States and
Political
Subdivisions 509,764 1,637,327 547,487 -- 2,694,578
Other -- -- -- 59,750 59,750
-------------------------------------------------------------------------
TOTAL 4,530,177 12,000,490 3,757,066 6,449,008 26,736,741
=========================================================================
</TABLE>
As of December 31, 1993 and 1992, investment securities carried
at approximately $1,221,682 and $11,432,090, respectively, and having a
market value of $1,350,226 and $11,800,162, respectively, were pledged
to secure public funds on deposit and for other purposes required or
permitted by law.
Note 3 - LOANS
Loans as of December 31, 1993 and 1992, consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1993 1992
--------- ---------
<S> <C> <C>
Commercial 1,565,839 644,113
Personal 109,581 214,690
Installment 177,960 187,901
Consumer 129,748 --
Real Estate 873,422 967,360
Farm 3,203,062 3,414,507
Student Loans 236,032 237,533
Overdrafts 2,124 885
-----------------------------
Total Loans 6,297,768 5,666,989
Less Unearned Discount 13,304 13,836
-----------------------------
NET LOANS 6,284,464 5,653,153
=============================
</TABLE>
<PAGE> 26
Note 3 - LOANS - (Continuation)
Loan maturities and rate sensitivity of loan portfolio at
December 31, 1993 are as follows:
<TABLE>
<CAPTION>
WITHIN ONE TO AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans at Fixed Interest Rates 963,660 720,749 45,940 1,730,349
Loans at Variable Interest Rates 3,993,292 447,927 126,200 4,567,419
-----------------------------------------------------------------
TOTAL 4,956,952 1,168,676 172,140 6,297,768
=================================================================
</TABLE>
Non-accrual loans at December 31, 1993 and 1992 were $4,581 and
$59,739, respectively.
The activity in the allowance for credit losses for the years
ended December 31, 1993 and 1992, is summarized below:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Balance at Beginning of Year 270,315 399,594
Additions - Recoveries of Loans Previously
Charged-off 42,960 3,096
Reduction:
Loans Fully or Partially Charged-off 967 32,375
Reduction in Allowance for Credit Losses -- 100,000
---------------------------
Total Reductions 967 132,375
---------------------------
BALANCE AT END OF YEAR 312,308 270,315
===========================
</TABLE>
Note 4 - PROPERTY AND EQUIPMENT
A summary of property and equipment as of December 31, 1993 and
1992 are as follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Building and Improvements 453,650 453,650
Equipment, Furniture and Fixtures 544,080 557,345
---------------------------
Total Property and Equipment 997,730 1,010,995
Less Accumulated Depreciation 789,458 793,560
---------------------------
NET PROPERTY AND EQUIPMENT 208,272 217,435
===========================
</TABLE>
Depreciation expense on the above assets was $29,371 and $29,912
for the year ended December 31, 1993 and 1992, respectively.
<PAGE> 27
Note 5 - TIME DEPOSITS OVER $100,000
Time deposits over $100,000 and their remaining maturities at
December 31, 1993 are as follows:
<TABLE>
<S> <C>
Three Months or Less 280,000
Three Through Six Months 522,178
Six Through Twelve Months 200,000
Over Twelve Months 300,000
---------
TOTAL 1,302,178
=========
</TABLE>
Note 6 - PENSION PLAN
The Bank has a noncontributory pension plan covering all regular,
full-time employees. The plan calls for benefits to be paid to eligible
employees at retirement, based primarily upon years of service with the
Bank and compensation rates near retirement. The 1993 actuarial
computation assumed a discount rate of 7.5%, annual salary increases of
4% and an expected long-term rate of return of 7.5%. The Bank's policy
is to fund accrued pension costs and amortize transition assets over
fifteen years using the straight-line method. Assets of the plan are
invested in collective fixed and equity funds managed by a commercial
trust department.
The Bank's net periodic pension cost includes the following
components:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Service Cost 26,057 40,361
Interest Cost 44,853 47,181
Actual Return on Plan Assets (65,419) (41,515)
Amortization of Transitional Obligation (16,308) (16,308)
Amortization of (Gain) Loss 10,817 (29,719)
---------------------------
NET PERIODIC PENSION COST -- --
===========================
The funded status of the plan follows:
Actuarial Present Value of Benefit Obligations:
Vested Benefit Obligations 582,134 522,138
Nonvested Benefits 5,022 22,480
---------------------------
Accumulated Benefit Obligations 587,156 544,618
Effect of Future Salary Increases 110,656 122,725
---------------------------
Projected Benefit Obligation 697,812 667,343
Plan Assets at Fair Value 932,504 909,393
---------------------------
PLAN ASSETS IN EXCESS OF
PROJECTED BENEFIT OBLIGATIONS 234,692 242,050
===========================
</TABLE>
<PAGE> 28
Note 6 - PENSION PLAN - (Continuation)
The excess consists of the following:
<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
Unrecognized Net Gain 19,397 19,319
Unamortized Asset at Transition 163,083 179,391
Prepaid Paid Pension Cost 52,212 43,340
------------------------
TOTAL 234,692 242,050
========================
</TABLE>
Note 7 - FEDERAL INCOME TAXES
A reconciliation of income tax at the Federal statutory rate to
income tax expense at the Bank's effective rate is as follows:
<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
Expected Tax Expense at the Statutory Rates 289,962 453,840
Differences Resulting from:
Tax Exempt Interest on Obligations of States and
Political Subdivisions (64,188) (82,294)
Other (1,361) (739)
-----------------------
TOTAL INCOME TAXES 224,413 370,807
=======================
</TABLE>
During 1993, the Bank adopted FAS 109 accounting for income tax.
For the year ended December 31, 1992, the Bank was reporting income tax
liabilities under FAS 96. The adoption of FAS 109 had no effect on the
net assets and liability carrying values for deferred taxes at December
31, 1992.
The net deferred tax asset (liability) in the accompanying
balance sheet includes the following amounts of deferred tax assets and
liabilities:
<TABLE>
<CAPTION>
1993 1992
------ -----
<S> <C> <C>
Deferred Tax Asset 6,055 3,713
Deferred Tax Liability (8,899) --
----------------------
NET DEFERRED TAX (2,844) 3,713
======================
</TABLE>
The effects of principal temporary differences are shown in the
following table:
<TABLE>
<CAPTION>
1993 1992
------ ------
<S> <C> <C>
Discount Accretion on Tax Exempt Securities (2,471) (2,033)
Bad Debts 6,055 6,055
Writedowns on Other Real Estate -- 5,610
Prepaid Expense (6,428) (5,919)
---------------------------
NET DEFERRED TAX (2,844) 3,713
===========================
</TABLE>
<PAGE> 29
Note 8 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest in 1993 and 1992 was $912,721 and
$1,242,638, respectively. Cash payments for Federal taxes was $310,642
and $375,889 in 1993 and 1992, respectively.
Note 9 - COMMITMENTS AND CONTINGENT LIABILITIES
The Bank's financial statements do not reflect various
commitments and contingent liabilities which arise in the normal course
of business and which involve elements of credit risk, interest rate
risk and liquidity risk. These commitments and contingent liabilities
are commitments to extend credit, commercial letters of credit and
standby letters of credit. A summary of the Bank's commitments and
contingent liabilities at December 31, 1993 is as follows:
Commitments to Extend Credit 4,602,565
Standby Letters of Credit 45,000
Commitments to extend credit, commercial letters of credit and
standby letters of credit all include exposure to some credit loss in
the event of nonperformance of the customer. The Bank's credit policies
and procedures for credit commitments and financial guarantees are the
same as those for extension of credit that are recorded on the statement
of financial condition.
The Bank is involved in various claims and suits occurring in the
ordinary course of business. In the opinion of management and legal
counsel, potential liabilities arising from these matters, if any, would
not have a material effect on the Bank's financial condition.
Note 10 - RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bank makes loans to
officers, directors and principal stockholders. These loans are made on
substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with other
persons. Such loans amounted to at $833,686 at December 31, 1993 and
$651,909 at December 31, 1992.
Note 11 - CONCENTRATION OF CREDIT
All of the Bank's loans, commitments and standby letters of
credit have been granted to customers in the Bank's market area.
Investments in state and municipal securities are concentrated within
the State of Texas. The concentration of credit by type of loan are set
forth in Note 3. The distribution of commitments to extend credit
approximates the distribution of loans outstanding. The Bank does not
extend credit to any single borrower or group of related borrowers in
excess of its legal lending limit which approximates $874,000 at
December 31, 1993.
Note 12 - REGULATORY MATTERS
The Bank, as a National bank, is subject to the dividend
restriction set forth by the Comptroller of the Currency. Under such
restriction, the Bank may not, without prior approval of the Comptroller
of the Currency, declare dividends in excess of the sum of the current
year's earnings (as defined), plus the retained earnings (as defined)
from the prior two years. The dividends that the Bank could declare
without the approval of the Comptroller of the Currency, as of December
31, 1993, amounted to approximately $960,000. The Bank is also required
to maintain minimum amounts of capital to total "risk weighted" assets,
as defined by the banking regulators. At December 31, 1993, the Bank is
required to have minimum Tier 1 and Total Capital Ratios of 4% and 8%,
respectively. The Bank's actual ratios at that date were 29.16% and
30.73%, respectively.
<PAGE> 30
FIRST NATIONAL BANK OF TAFT
UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
<PAGE> 31
FIRST NATIONAL BANK OF TAFT
Balance Sheet
September 30, 1995
(Unaudited)
<TABLE>
<S> <C>
Assets
------
Cash and due from banks $ 1,935,702
Federal funds sold 9,750,000
Securities available for sale:
U.S. Treasury securities 15,214,219
Mortgage pass-through and related securities 8,348,693
Other securities 59,750
------------------
Total securities available for sale 23,622,662
Securities held to maturity:
Obligations of states and political subdivisions 2,045,708
------------------
Total securities held to maturity 2,045,708
Loans 4,051,916
Less: Unearned discount (16,776)
Less: Allowance for loan losses (258,114)
------------------
Loans, net 3,777,026
Bank premises and equipment, net 172,594
Accrued interest receivable 448,561
Other real estate 19,450
Other assets 66,711
------------------
Total assets $ 41,838,414
==================
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Demand $ 8,477,660
Interest bearing transaction accounts 15,640,887
Savings 1,015,131
Certificates of deposit 9,756,950
------------------
Total deposits 34,890,628
Accrued interest payable 81,857
Other liabilities 347,959
------------------
Total liabilities 35,320,444
------------------
Stockholders' equity:
Common stock 450,000
Additional capital 450,000
Retained earnings 5,362,037
Unrealized gains on securities available for sale 255,933
------------------
Total stockholders' equity 6,517,970
------------------
Total liabilities and stockholders' equity $ 41,838,414
==================
</TABLE>
<PAGE> 32
FIRST NATIONAL BANK OF TAFT
Statements of Income
Nine Months Ended September 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Interest income:
Interest on loans $ 530,543 462,367
Interest on federal funds sold 89,808 107,537
Interest on securities available for sale:
U.S. Treasury securities 784,252 571,719
Mortgage pass-through and related securities 442,775 528,893
Other securities 1,840 1,010
Interest on securities held to maturity:
States and political subdivisions 104,753 118,741
------------ ---------
Total interest income 1,953,971 1,790,267
------------ ---------
Interest expense:
Interest on deposits:
Interest bearing transaction accounts 344,225 394,186
Savings 21,275 21,862
Certificates of deposit 332,919 187,628
Other 3,752 1,469
------------ ---------
Total interest expense 702,171 605,145
------------ ---------
Net interest income 1,251,800 1,185,122
Provision for loan losses - -
------------ ---------
Net interest income after provision for
loan losses 1,251,800 1,185,122
------------ ---------
Other income:
Service charges 95,312 101,982
Other income 48,892 30,223
------------ ---------
Total other income 144,204 132,205
------------ ---------
Other expenses:
Salaries and employee benefits 309,211 287,714
Net occupancy and equipment expense 100,345 103,184
Other operating expenses 326,034 327,950
------------ ---------
Total other expense 735,590 718,848
------------ ---------
Income before income taxes 660,414 598,479
Applicable income taxes 184,111 158,228
------------ ---------
Net income $ 476,303 440,251
============ =========
</TABLE>
<PAGE> 33
FIRST NATIONAL BANK OF TAFT
Statements of Cash Flows
Nine Months Ended September 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net cash flows from operating activities:
Net income $ 476,303 440,251
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 8,312 11,609
Premium amortization net of discount
accretion on securities 147,325 160,740
Deferred Federal income taxes (152,180) 8,656
Decrease (increase) in accrued interest
receivable 102,393 (60,344)
Decrease in other assets 12,216 39,098
Decrease in Federal income tax receivable 1,045 107,576
Increase (decrease) in accrued expenses
and other liabilities 305,066 (84,744)
------------ ----------
Net cash provided by operating
activities 900,480 622,842
------------ ----------
Net cash flows from investing activities:
Proceeds from sales of securities available
for sale 999,769 -
Proceeds from maturities of securities
available for sale 4,715,371 4,727,704
Purchase of securities available for sale (1,124,161) (8,114,453)
Proceeds from maturities of securities held
to maturity - 510,000
Net increase in federal funds sold (8,675,000) (2,500,000)
Net decrease in loans 1,608,614 2,640,290
------------ ----------
Net cash used in investing
activities (2,475,407) (2,736,459)
------------ ----------
Net cash flows from financing activities:
Net increase in deposits 2,952,642 1,983,968
Payment of dividends (630,000) (630,000)
------------ ----------
Net cash provided by financing
activities 2,322,642 1,353,968
------------ ----------
Net increase (decrease) in cash
and due from banks 747,715 (759,649)
Cash and cash equivalents at beginning of year 1,187,987 1,970,684
------------ ----------
Cash and cash equivalents at end of year $ 1,935,702 1,211,035
============ ==========
</TABLE>
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