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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, 1995
[ ] 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
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2402 Leopard Street
Corpus Christi, Texas 78408
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(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 Exchange Act: X
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Name of Each Exchange
Title of Each Class on Which Registered
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COMMON STOCK, $5 PAR VALUE AMERICAN
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Securities registered under Section 12(g) of the Exchange 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 1995 of
$16,244,555.
The aggregate market value of the Common Stock held by non-affiliates
of the registrant as of March 15, 1996, was approximately $21,263,000.
The number of shares of Common Stock of the registrant outstanding as
of March 15, 1996, 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, 1995 (Part I, II and Part III) and (b)
Proxy Statement for the annual meeting of shareholders to be held May 15, 1996
(Part III).
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TABLE OF CONTENTS
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PART I
Item 1. Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 2. Description of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 4. Submission of Matters to a Vote of Security-Holders . . . . . . . . . . . . . . . . . . . . . . . . 12
PART II
Item 5. Market for Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . 13
Item 6. Management's Discussion and Analysis or Plan of Operations . . . . . . . . . . . . . . . . . . . . . 13
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . 13
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of
the Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 11. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . 14
Item 12. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 13. Exhibits, Lists and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
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PART I
Item 1. Description of 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 two-tiered holding company structure whereby the Company owns 100% of
C.S.B.C.C., Inc. which in turn owns 100% 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 affect 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, 1995, the Company's
consolidated total shareholders' equity was $16,054,697.
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 also makes secured installment loans for the purchase of
automobiles and boats and 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 originated
through this operation have grown from a year-end total in 1994 of $26.1
million to $33.6 million at December 31, 1995.
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 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.
Competition
The banking business in Texas is highly competitive. As the sixth
largest commercial bank (based on total deposits as of December 31, 1995) in
Corpus Christi, Nueces County, Texas (the "City"), 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 also 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
individual contacts by Bank officers. The participation of the Bank in
community activities also aids in its promotion.
Employees
As of December 31, 1995, the Company, C.S.B.C.C., Inc. and the Bank
collectively had 145 full-time equivalent employees compared to 131 and 113 at
December 31, 1994 and 1993, 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 of 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 (the "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. The FDICIA established five categories of
capitalization: "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." If a bank
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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, the 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 of
the "well capitalized" category.
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 financial institution 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. 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. Texas is the only state to opt out of interstate banking to date.
Texas banks will not be able to branch interstate (and out of state banks will
not be able to branch into Texas) until September 2, 1999. While the Company is
unable to predict the precise effects of the Interstate Act, it is likely that
the banking industry will become 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 bank incorporated under the Texas Banking Code that is not a
member of the Federal Reserve System, the Bank is insured 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 (the "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.
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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 (through C.S.B.C.C., Inc.) without prior approval of the Texas
Department of Banking and subject the Bank to minimum capital restrictions.
Currently, the Bank is precluded from paying dividends to the Company (through
C.S.B.C.C., Inc.) if the payment 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 its 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 the Bank cannot be predicted.
Regional Economy
Throughout 1995, 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
1995, while other industries such as medical and education emerged as important
parts of a more diversified base.
The local job market continued a slow growth during 1995, with the
number of employed area residents totaling 161,381 at year-end 1995, which
reflects a 1.6% increase over the 1994 figure of 158,794. The most notable
increase was seen in the service industry, as this segment provided 1,567 new
jobs during the past twelve months.
Overall, the real estate industry enjoyed a healthy 1995, marking the
fourth consecutive year of growth for this economic segment. Through the first
part of the year, mortgage rates remained favorable, in the 7% - 9% range, which
not only afforded prospective home-owners the opportunity to purchase, but also
gave existing home-owners the chance to refinance.
Construction permits (both commercial and residential) through
year-end 1995 totaled $200 million, which compares favorably to the November
1994 and December 1993 marks of $180.1 million and $156.5 million,
respectively. In 1995, the construction industry benefited from the
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construction of two new Albertson's supermarkets, two new automobile
dealerships, three new restaurants, a Home Depot retail outlet, four new area
hotels and a sixteen screen movie theater. Construction of a factory outlet
mall is slated to begin in the second quarter of 1996 on the City's far west
side.
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. The number of
convention delegates hosted by the Metropolitan Area in 1995, as well as
Metropolitan Area hotel occupancy taxes, reflected an increase over 1994.
Average room and occupancy rates for Metropolitan Area hotels also increased
during 1995. During 1995, three contiguous hotel projects were completed 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 will provide an additional two hundred hotel rooms for the
Metropolitan Area. Three of the biggest attractions in the Metropolitan Area,
the USS Lexington aircraft carrier, the Columbus Ship Fleet, and the Texas
Aquarium will merge during 1996, offering a blanket discount for admission to
all three attractions.
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. The largest local refineries include
Oxy Petrochemicals, Koch Refining, CITGO Refining, Valero 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 handled over 70 million tons of cargo each year since 1990.
During 1995, the Port moved 78 million tons of cargo, a .5% increase over 1994
levels. While petrochemical goods comprise the overwhelming share of Port
cargo, efforts continue to be made to transform the Port into a variable
activity facility.
Another key part of the local economy is the military industry. In
1995, local military installations not only survived the Congressional base
closures, but actually received additional manpower and operations, as a result
of the closure of other national defense installations. As a result, 1995 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
Metropolitan Area's largest civilian employer, the Corpus Christi Army Depot.
As previously mentioned, the medical and education industries are
emerging as increasingly important parts of the local economic base. Two
recently completed hospitals (Bay Area Medical and Spohn South) serve 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
Metropolitan Area the 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.
The continued economic recovery in the regional economy has resulted
in continued loan and deposit growth for the Company during 1995. At year-end
1995, net loans totaled $102.0
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million, up $9.9 million, compared to $92.1 million the previous year. The
Company's deposits increased to $200.9 million at year-end 1995, up $43.2
million, compared to $157.7 million the prior year. A significant component of
the increased loans and deposits was a direct result of the acquisition by the
Bank of The First National Bank of Taft, Texas on October 31, 1995. This
acquisition resulted in additional loans and deposits totaling $3.8 million and
$35.6 million, respectively. The Company's level of nonperforming assets
increased from $1.1 million at year-end 1994 to $1.7 million at year-end 1995.
The increase was primarily the result of two credit relationships which are
collateralized primarily with real estate. In spite of a modest recovery in
the local economy since 1989, the energy sector remains an item of 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 26 of the Company's 1995
Annual Report to Shareholders. Such information is incorporated herein by
reference.
Item 2. Description of Property
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 adjacent parking lots. 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 a one-time five-year
renewal option. The property is owned by four individuals. The owners and
their respective percentages of ownership are Gary Roberts (29.17%), L. L.
Woodman, Jr. (29.16%), L. L. Woodman, III (12.50%) and Giles Giddings (29.17%).
Mr. Woodman, Jr. is a Director of the Company and the Bank and beneficially
owns 32,602 shares (2.02% of shares
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outstanding) of the Company's Common 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 with the exception of safety deposit box
services.
The South Banking Offices
The South Banking Center is located at 6230 South Staples Street,
Corpus Christi, Texas. The South Banking Center consists of a 5,000 square
foot banking facility located in a one story building on approximately two
acres of land. The South Banking Center was purchased by the Bank in 1993 for
$480,000 and opened in November 1994. The South Banking Center offers the same
services as the main bank and 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. The lease is a three-year lease which expires on September 30,
1997. The property is owned by Jerry J. Moore Investments. 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 with
the exception of safety deposit box services.
Taft Banking Offices
The Taft Banking Center is located at 421 Green Avenue, Taft, Texas. The
facility consists of a two-story building approximately 9,000 square feet in
size which is owned unencumbered by the Bank. The Taft Banking Center also
include a two lane drive-in banking facility and approximately 21,000 square
feet of adjacent parking lots. The drive-in facilities and parking lots are
also owned unencumbered by the Bank. The Taft Banking Center offers the same
services as the main bank.
Sinton Unmanned Teller Facility
The unmanned teller facility is located at 502 East Sinton Street, Sinton,
Texas. Such facility is comprised of an automated teller machine and
approximately 10,800 square feet of land which is owned unencumbered by the
Bank.
Portland Unmanned Teller Facility
The unmanned teller facility is located within a Maverick Market convenience
store located at 1640 Wildcat Drive, Portland, Texas. The Bank leases space
for this facility from Coastal Markets, LTD, at an annual rental of $3,900.
Such lease expires on August 31, 1998 with two five-year renewal options.
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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.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Information concerning the Common Stock of the Company is included on
page 9 of the Company's 1995 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 26 of the Company's 1995 Annual Report to Shareholders.
Such information is incorporated herein by reference.
Item 7. Financial Statements
The Consolidated Financial Statements located on pages 27 through 50
of the Company's 1995 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 ("Exchange
Act"), reporting a change or disagreement with accountants.
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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 2 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 10 of the Company's Proxy Statement filed
with the Commission, under the heading "Certain Transactions," and is
incorporated herein by reference.
Item 13. Exhibits, Lists and Reports on Form 8-K
(a) Exhibits: See Index to Exhibits, Page 17.
(b) Reports on Form 8-K.
On November 15, 1995, the Company filed a report on Form 8-K in
connection with the acquisition of The First National Bank of Taft, Texas on
October 31, 1995.
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 20, 1996
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 and 03-20-96
------------------------------------- Director
John T. Wright, III
/s/ R. Jay Phillips President and Chief 03-20-96
------------------------------------- Executive Officer and
R. Jay Phillips Director
/s/ Jace C. Hoffman Secretary 03-20-96
-------------------------------------
Jace C. Hoffman
/s/ Jimmy M. Knioum Treasurer 03-20-96
-------------------------------------
Jimmy M. Knioum
/s/ John C. Brooke Director 03-20-96
-------------------------------------
John C. Brooke
/s/ Marvin L. Berry Director 03-20-96
-------------------------------------
Marvin L. Berry
</TABLE>
15
<PAGE> 16
<TABLE>
<S> <C> <C>
/s/ J.B. Clark Director 03-20-96
-------------------------------------
J.B. Clark
/s/ Joe R. DeLeon, Jr. Director 03-20-96
-------------------------------------
Joe R. DeLeon, Jr.
/s/ Roy M. Grassedonio Director 03-20-96
-------------------------------------
Roy M. Grassedonio
/s/ Stephen R. Karp Director 03-20-96
-------------------------------------
Stephen R. Karp
/s/ Jack Powers Director 03-20-96
-------------------------------------
Jack Powers
/s/ Roscoe M. Smith Director 03-20-96
-------------------------------------
Roscoe M. Smith
/s/ L.L. Woodman, Jr. Director 03-20-96
-------------------------------------
L.L. Woodman, Jr.
/s/ John T. Wright, Jr. Director 03-20-96
-------------------------------------
John T. Wright, Jr.
</TABLE>
16
<PAGE> 17
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.
------------
3.2 *Bylaws of the Company, as amended (incorporated herein by reference to Exhibit 3.2
of the Company's Form 10-KSB for the fiscal year ended December 31, 1994. Filed
with the Securities and Exchange Commission on March 30, 1995.)
------------
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 (incorporated herein by reference to
Exhibit 10.3 to the Company's Form 10-KSB for the fiscal year ended December 31,
1994. Filed with the Securities and Exchange Commission on March 30, 1995.)
------------
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 Amended Form 10-K
for the fiscal year ended December 31, 1993. Filed with the Securities and Exchange
Commission on April 25, 1994.)
------------
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
Sequentially
Numbered
Page
------------
<S> <C> <C>
10.5 Form of Severance Agreement between Citizens State Bank of Corpus Christi and certain
executive officers.
------------
13. Company's 1995 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 3.1
AMENDED ARTICLES OF INCORPORATION
OF
CORPUS CHRISTI BANCSHARES, INC.
The undersigned, a natural person of the age of eighteen years or
more, acting as sole incorporator of a Corporation under the provisions of the
Texas Business Corporation Act, adopts the following Articles of incorporation:
ARTICLE 1
The name of the Corporation is Corpus Christi Bancshares, Inc.
ARTICLE 2
The period of duration of the Corporation is perpetual.
ARTICLE 3
The purpose for which the Corporation is organized is the transaction
of any or all lawful business.
ARTICLE 4
Section 4.01 - Authorized Shares. The aggregate number of common
shares which the Corporation shall have authority to issue is Four Million
(4,000,000) shares of Common Stock with a $5.00 par value per share. The
Corporation shall have no other class of shares.
Section 4.02 - No Preemptive Rights or Cumulative Voting. No holder
of Common Stock shall have any preemptive right whatsoever, and cumulative
voting shall not be permitted.
ARTICLE 5
Section 5.01 - Board of Directors. 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 committees.
Section 5.02 - Number. The number of directors comprising the initial
Board of Directors shall be seven. Thereafter, the number of directors
comprising the Board of Directors shall not be less than nine, the exact number
of directors to be determined from time to time by resolution adopted by
affirmative vote of a majority of the whole Board of Directors, and such exact
number shall be twenty-one until otherwise determined by resolution adopted by
affirmative vote of a majority of the whole Board of directors. As used in
this Article 5, the term "whole Board" means the total number of directors
which the Corporation would have if there were no vacancies.
19
<PAGE> 2
Section 5.03 - Classes and Tenure. The Board of Directors shall be
divided into three classes, as nearly equal in number as the then total number
of directors constituting the whole Board permits, with the term of office of
the first class expiring at the Corporation's first annual meeting of
shareholders after their election, that of the second class to expire at the
Corporation's second annual meeting of shareholders after their election, and
that of the third class to expire at the Corporation's third annual meeting of
shareholders after their election. At the Corporation's annual meeting of
shareholders in 1985, directors of the first class shall be elected to hold
office for a term expiring at the next succeeding annual meeting, directors of
the second class shall be elected to hold office for a term expiring at the
second succeeding annual meeting and directors of the third class shall be
elected to hold office for a term expiring at the third succeeding annual
meeting. At each annual meeting of shareholders, the successors to the class
of directors whose terms shall then expire shall be elected to hold office for
a term expiring at the third succeeding annual meeting.
Section 5.04 - Vacancies. Any vacancy occurring in the Board of
Directors may be filled by the affirmative vote of a majority of the remaining
directors through less than a quorum of the Board of Directors. A director
elected to fill a vacancy shall be elected for the unexpired term of his
predecessor in office. A directorship to be filled by reason of an increase in
the number of directors may be filled by the current Board of Directors for a
term of office continuing only until the next election of one or more directors
by the shareholders of the Corporation; provided that the Board of Directors
may not fill more than two such directorships during the period between any two
successive annual meetings of shareholders.
Section 5.05 - Removal. Notwithstanding any other provisions of these
Articles of Incorporation (and notwithstanding the fact that some lesser
percentage may be specified by law), any director or the entire Board of
Directors of the Corporation may be removed at any time, with or without cause,
but only by the affirmative vote of the holders of at least eighty percent
(80%) of the outstanding shares of the Corporation entitled to vote in the
election of directors (considered for this purpose as one class) cast at a
meeting of the shareholders called for that purpose.
Section 5.06 - Amendment. Notwithstanding any other provision of
these Articles of Incorporation (and not withstanding the fact that some lesser
percentage may be specified by law), the affirmative vote of the holders of at
least eighty percent (80%) of the outstanding shares of the Corporation
entitled to vote in the election of directors (considered for this purpose as
one class) shall be required to amend, alter, change or repeal this Article 5
to these Articles of Incorporation.
ARTICLE 6
Section 6.01 - Approval of certain Business Combinations. The approval
of any Business Combination (as defined hereinafter) shall, in addition to any
affirmative vote required by law, require the affirmative vote of the holders
of at least eighty percent (80%) of the outstanding shares of the Corporation
entitled to vote in the election of directors (considered for this purpose as
one class) of the Corporation; provided, however, that any such Business
Combination may be approved on the affirmative vote required by law if such
Business Combination is approved by not less than sixty-six and two thirds
percent (66 2/3%) of the entire Board of Directors of the Corporation. As used
herein the term "Business Combination" shall mean:
20
<PAGE> 3
(i) any merger or consolidation of the Corporation or any
subsidiary of the Corporation with (a) any Substantial Shareholder (as defined
hereinafter), or (b) any other corporation which, after such merger or
consolidation, would be a Substantial Shareholder regardless of which entity
survives;
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Substantial Shareholder of all or substantially all of the assets of the
Corporation or any subsidiary of the Corporation, or both;
(iii) the adoption of any plan or proposal for the liquidation of
the Corporation proposed by or on behalf of a Substantial Shareholder; or
(iv) any transaction involving the Corporation or any of its
subsidiaries, including the issuance or transfer of any securities of, any
reclassification of securities of, or any recapitalization of, the Corporation
or any of its subsidiaries, or any merger or consolidation of the Corporation
with any of its subsidiaries (whether or not involving a Substantial
Shareholder), if the transaction would have the effect, directly or indirectly,
of increasing the proportionate share of the outstanding shares of any class of
equity or convertible securities of the Corporation or any subsidiary, of which
a Substantial Shareholder is the Beneficial Owner (as defined hereinafter).
As used herein, the term "Substantial Shareholder" shall mean and
include any individual, corporation, partnership or other person or entity
which, together with its "Affiliates" and "Associates" (as such terms are
defined in Rule 12b-2 under the Securities Exchange Act of 1934), is the
"Beneficial Owner" (as determined in accordance with the criteria set forth
under Rule 13b-3 under the Securities Exchange Act of 1934) in the aggregate of
more than five percent (5%) of the outstanding shares of the Corporation
entitled to vote in the election of Directors; and any Affiliate or Associate
of any such individual, corporation, partnership or other person or entity.
Notwithstanding any other provision of these Articles of Incorporation (and not
withstanding the fact that some lesser percentage may be specified by law), the
affirmative vote of the holders of at least 80% of the outstanding shares of
the Corporation entitled to vote in an election of directors shall be required
to amend, alter, change or repeal this Article 6.
ARTICLE 7
The Corporation will not commence business until it has received for
the issuance of its shares consideration of the value of at least $1,000.
ARTICLE 8
Without necessity for action by its shareholders, the Corporation may
purchase, directly or indirectly, its own shares to the extent of the aggregate
of unrestricted capital surplus available therefor and unrestricted reduction
surplus available therefor.
ARTICLE 9
Section 9.01 - Voting Requirement. Other than as provided under
Article 5 and Article 6 of these Articles of Incorporation, notwithstanding any
provision of the Texas Business Corporation
21
<PAGE> 4
Act which requires the vote or concurrence of the holders of more than a
majority of the shares of the Corporation entitled to vote to take an action,
the vote or concurrence of the holders of a majority of the shares of the
Corporation entitled to vote shall be sufficient to take such action.
Section 9.02 - Quorum Requirement. The holders of at least fifty
percent (50%) of the outstanding shares of the Corporation entitled to vote,
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders of the Corporation.
Section 9.03 - Interested Transactions. No contract or other
transaction between the Corporation and one or more of its directors, officers,
or security holders or between the Corporation and another corporation,
partnership, joint venture, trust or other enterprise of which one or more of
the Corporation's directors, officers, or security holders are members,
officers, security holders, directors or employees or in which they are
otherwise interested, directly or indirectly, shall be invalid solely because
of such relationship, or solely because such a director, officer or security
holder is present at or participates in the meeting of the Board of Directors
or committee thereof which authorizes the contract or other transaction, or
solely because his or their votes are counted for such purpose, if (a) the
material facts as to his relationship or interest and as to the contract or
other transaction are known or disclosed to the Board of Directors or committee
thereof, and such Board or committee in good faith authorizes the contract or
other transaction by the affirmative vote of a majority of the disinterested
directors even though the disinterested directors be less than a quorum, or (b)
the material facts as to his relationship or interest and as to the contract or
other transaction are known or disclosed to the shareholders entitled to vote
thereon, and the contract or other transaction is approved in good faith by
vote of the shareholders, or (c) the contract or other transaction is fair as
to the Corporation as of the time it is entered into.
ARTICLE 10
The Corporation, by action of its Board of Directors, may indemnify
and purchase and maintain liability insurance for any director, officer,
employee or agent of the Corporation (including any director, officer, employee
or agent who may have served or acted at the request of the Board of Directors
as a director, officer, employee or agent of another corporation) as, and to
the extent, permitted by Article 2.02-1 of the Texas Business Corporation Act.
ARTICLE 11
In performing his duties, a director of the Corporation shall be
entitled to rely on information, opinions, reports or statements, including
financial statements and other financial data, in each case prepared or
presented by (a) one or more officers or employees of the Corporation whom the
director reasonably believes to be reliable and competent in the matters
presented, (b) counsel, public accountants or other persons as to matters which
the director reasonably believes to be within such person's professional or
expert competence, or (c) a committee of the Board of Directors upon which he
does not serve, duly designated in accordance with a provision of the bylaws,
as to matters within its designated authority, which committee the director
deems to merit confidence, but he shall not be considered to be acting in good
faith if he has knowledge concerning the matter in question that would cause
such reliance to be unwarranted. A person who
22
<PAGE> 5
so performs his duties shall have no liability to the Corporation (whether
asserted directly or derivatively) by reason of being or having been a director
of the Corporation.
ARTICLE 12
The address of the initial registered office of the Corporation is
2402 Leopard Street, Corpus Christi, Texas 78408, and the name of the initial
registered agent of the Corporation at such address is John T. Wright, Jr.
ARTICLE 13
The initial Board of Directors shall consist of seven members who
shall serve as directors until the first annual meeting of shareholders or
until their successors shall have been elected and qualified, and whose names
and addresses are as follows:
<TABLE>
<CAPTION>
Name Address
- --------------------------------------------------------------------------------
<S> <C>
John T. Wright, Jr. 2402 Leopard Street
Corpus Christi, Texas 78408
John T. Wright, III 2402 Leopard Street
Corpus Christi, Texas 78408
William A. Clark 2402 Leopard Street
Corpus Christi, Texas 78408
Roscoe M. Smith 2402 Leopard Street
Corpus Christi, Texas 78408
John C. Brooke 1200 CCNB Center North
500 North Water Street
Corpus Christi, Texas 78471
L. L. Woodman, Jr. Post Office Box 6806
Corpus Christi, Texas 78411
Marvin L. Berry 9646 Paula
Corpus Christi, Texas 78410
</TABLE>
ARTICLE 14
The name and address of the incorporator of the Corporation are as
follows:
<TABLE>
<S> <C>
John C. Brooke 1200 CCNB Center North
500 North Water Street
Corpus Christi, Texas 78471
</TABLE>
23
<PAGE> 6
ARTICLE 15
To the fullest extent now or hereafter permitted by Article 1302-7.06
of the Texas Miscellaneous Corporation Laws Act (or any successor provision or
provisions), a director of the Corporation shall not be liable to the
Corporation or its Shareholders for monetary damages for an act or omission in
the director's capacity as a director, except that this Article 15 shall not
eliminate the liability of a director in any case where such elimination is not
permitted by law.
The provisions of this Article 15 shall not be deemed to limit or
preclude indemnification of a director by the Corporation for any liability of
a director which has not been eliminated or limited by the provisions of this
Article 15.
IN WITNESS WHEREOF, I have hereunto set my hand this 19th day of
September, 1984.
John C. Brooke
----------------------------------------
John C. Brooke
SWORN TO on September 19, 1984, by the above-named incorporator.
Linda Tschoepe
----------------------------------------
Linda Tschoepe
Notary Public, State of Texas
My Commission Expires:
10-09-85
24
<PAGE> 1
EXHIBIT 10.5
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (this "Agreement"), dated as of
_____________ __, 1996, is made and entered by and between CITIZENS STATE BANK
OF CORPUS CHRISTI, a Texas chartered bank (the "Company"), and
_____________________________ (the "Executive").
WITNESSETH:
WHEREAS, the Executive is a senior executive of the Company
and has made and is expected to continue to make major contributions to the
short- and long-term profitability, growth and financial strength of the
Company;
WHEREAS, the Company is a wholly-owned subsidiary of
C.S.B.C.C., Inc., a Delaware corporation ("Holding"), and Holding is a
wholly-owned subsidiary of Corpus Christi Bancshares, Inc., a Texas corporation
("Parent");
WHEREAS, the Company recognizes that, as is the case for most
publicly held companies such as Parent, the possibility of a Change in Control
(as defined below) exists;
WHEREAS, the Company desires to assure itself of both present
and future continuity of management and desires to establish certain minimum
severance benefits for certain of its senior executives, including the
Executive, applicable in the event of a Change in Control;
WHEREAS, the Company wishes to ensure that its senior
executives are not practically disabled from discharging their duties in
respect of a proposed or actual transaction involving a Change in Control; and
WHEREAS, the Company desires to provide additional inducement
for the Executive to continue to remain in the ongoing employ of the Company.
NOW, THEREFORE, the Company and the Executive agree as
follows:
1. Certain Defined Terms. In addition to terms defined
elsewhere herein, the following terms have the following meanings when used in
this Agreement with initial capital letters:
(a) "Base Pay" means the Executive's annual base salary
at a rate not less than the Executive's annual fixed or base
compensation as in effect for Executive immediately prior to the
occurrence of a Change in Control or such higher rate as may be
determined from time to time by the Board or a committee thereof.
<PAGE> 2
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means that, prior to any termination pursuant
to Section 3(b), the Executive shall have committed or engaged in:
(i) criminal activity; (ii) willful misconduct; (iii) gross negligence
in the performance of duties; or (iv) substantial noncompliance with
the manual or policies of the Company or any Subsidiary; and any such
act shall have been injurious to the Company. Notwithstanding the
foregoing, the Executive shall not be deemed to have been terminated
for "Cause" hereunder unless and until there shall have been delivered
to the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the Board then in
office at a meeting of the Board called and held for such purpose,
after reasonable notice to the Executive and an opportunity for the
Executive, together with his counsel (if the Executive chooses to have
counsel present at such meeting), to be heard before the Board,
finding that, in the good faith opinion of the Board, the Executive
had committed an act constituting "Cause" as herein defined and
specifying the particulars thereof in detail. Nothing herein will
limit the right of the Executive or his beneficiaries to contest the
validity or propriety of any such determination.
(d) "Change in Control" means the occurrence during the
Term of any of the following events:
(i) The Company, Holding or Parent is merged,
consolidated or reorganized into or with another corporation or other
legal person, and as a result of such merger, consolidation or
reorganization less than a majority of the combined voting power of
the then-outstanding Voting Stock of such corporation or person
immediately after such transaction are held in the aggregate,
directly or indirectly, by the holders of Voting Stock of Parent
immediately prior to such transaction;
(ii) The Company, Holding or Parent sells or
otherwise transfers all or substantially all of its assets to another
corporation or other legal person, and as a result of such sale or
transfer less than a majority of the combined voting power of the
then-outstanding Voting Stock of such corporation or person
immediately after such sale or transfer is held in the aggregate,
directly or indirectly, by the holders of Voting Stock of Parent
immediately prior to such sale or transfer;
(iii) There is a report filed on Schedule 13D or
Schedule 14D-1 (or any successor schedule, form or report), each as
promulgated pursuant to the Exchange Act, disclosing that any person
(as the term "person" is used in Section 13(d)(3) or Section 14(d)(2)
of the Exchange Act)
2
<PAGE> 3
has become the beneficial owner (as the term "beneficial owner" is
defined under Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of securities representing 20% or
more of the combined voting power of the then-outstanding Voting Stock
of Parent; or
(iv) Parent files a report or proxy statement with
the Securities and Exchange Commission pursuant to the Exchange Act
disclosing in response to Form 8-K or Schedule 14A (or any successor
schedule, form or report or item therein) that a change in control of
Parent has occurred or will occur in the future pursuant to any
then-existing contract or transaction.
Notwithstanding the foregoing provisions of Section 1(d)(iii) or
1(d)(iv), unless otherwise determined in a specific case by majority
vote of the Board, a "Change in Control" shall not be deemed to have
occurred for purposes of Section 1(d)(iii) or 1(d)(iv) solely because
(A) Parent, (B) Holding, (C) the Company, (D) a Subsidiary, or (E) any
Parent-, Holding- or Company-sponsored employee stock ownership plan
or any other employee benefit plan of Parent, Holding, the Company or
any Subsidiary either files or becomes obligated to file a report or a
proxy statement under or in response to Schedule 13D, Schedule 14D-1,
Form 8-K or Schedule 14A (or any successor schedule, form or report or
item therein) under the Exchange Act disclosing beneficial ownership
by it of shares of Voting Stock, whether in excess of 20% or
otherwise, or because Parent reports that a change in control of
Parent has occurred or will occur in the future by reason of such
beneficial ownership.
(e) "Competitive Activity" means the Executive's
participation, without the written consent of an officer of the
Company, in the management of any business enterprise if such
enterprise engages in substantial and direct competition with the
Company. "Competitive Activity" will not include (i) the mere
ownership of securities in any such enterprise and the exercise of
rights appurtenant thereto or (ii) participation in the management of
any such enterprise other than in connection with the competitive
operations of such enterprise.
(f) "Employee Benefits" means the perquisites, benefits
and service credit for benefits as provided under any and all employee
retirement income and welfare benefit policies, plans, programs or
arrangements in which Executive is entitled to participate, including
without limitation any stock option, stock purchase, stock
appreciation, savings, pension, supplemental executive retirement, or
other retirement income or welfare benefit, deferred compensation,
incentive compensation, group or other life, health, medical/hospital
or other insurance (whether funded by
3
<PAGE> 4
actual insurance or self-insured by the Company), disability, salary
continuation, expense reimbursement and other employee benefit
policies, plans, programs or arrangements that may now exist or any
equivalent successor policies, plans, programs or arrangements that
may be adopted hereafter by the Company, providing perquisites,
benefits and service credit for benefits at least as great in the
aggregate as are payable thereunder prior to a Change in Control.
(g) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(h) "Incentive Pay" means an annual amount equal to not
less than the highest aggregate annual bonus, incentive or other
payments of cash compensation, in addition to Base Pay, made or to be
made in regard to services rendered in any calendar year during the
three calendar years immediately preceding the year in which the
Change in Control occurred pursuant to any bonus, incentive,
profit-sharing, performance, discretionary pay or similar agreement,
policy, plan, program or arrangement (whether or not funded) of the
Company, or any successor thereto, providing benefits at least as
great as the benefits payable thereunder prior to a Change in Control.
(i) "Severance Period" means the period of time
commencing on the date of the first occurrence of a Change in Control
and continuing until a date that is one year after the occurrence of
the Change in Control.
(j) "Subsidiary" means an entity in which the Company
directly or indirectly beneficially owns 50% or more of the
outstanding Voting Stock.
(k) "Term" means the period commencing as of the date
hereof and expiring as of the later of (i) the close of business on
December 31, 1999, or (ii) the expiration of the Severance Period;
provided, however, that if, prior to a Change in Control, the
Executive ceases for any reason to be an employee of the Company and
any Subsidiary, thereupon without further action the Term shall be
deemed to have expired and this Agreement will immediately terminate
and be of no further effect. For purposes of this Section 1(k), the
Executive shall not be deemed to have ceased to be an employee of the
Company and any Subsidiary by reason of the transfer of Executive's
employment between the Company and any Subsidiary or Holding or
Parent, or among any Subsidiaries of Parent or Holding.
(l) "Termination Date" means the date on which the
Executive's employment is terminated (the effective date of which
shall be the date of termination, or such other date
4
<PAGE> 5
that may be specified by the Executive if the termination is pursuant
to Section 3(b)).
(m) "Voting Stock" means securities entitled to vote
generally in the election of directors.
2. Operation of Agreement. This Agreement will be
effective and binding immediately upon its execution, but, anything in this
Agreement to the contrary notwithstanding, this Agreement will not be operative
unless and until a Change in Control occurs. Upon the occurrence of a Change
in Control at any time during the Term, without further action, this Agreement
shall become immediately operative.
3. Termination Following a Change in Control. (a) In
the event of the occurrence of a Change in Control, the Executive's employment
may be terminated by the Company during the Severance Period and the Executive
shall be entitled to the benefits provided by Section 4 unless such termination
is the result of the occurrence of one or more of the following events:
(i) The Executive's death;
(ii) If the Executive becomes permanently disabled
within the meaning of, and begins actually to receive disability
benefits pursuant to, the long-term disability plan in effect for, or
applicable to, Executive immediately prior to the Change in Control;
or
(iii) Cause.
If, during the Severance Period, the Executive's employment is terminated by
the Company or any Subsidiary other than pursuant to Section 3(a)(i), 3(a)(ii)
or 3(a)(iii), the Executive will be entitled to the benefits provided by
Section 4 hereof.
(b) In the event of the occurrence of a Change in
Control, the Executive may terminate employment with the Company and any
Subsidiary during the Severance Period with the right to severance compensation
as provided in Section 4 upon the occurrence of one or more of the following
events (regardless of whether any other reason, other than Cause as hereinabove
provided, for such termination exists or has occurred, including without
limitation other employment):
(i) (A) A determination by the Executive (which determination
will be conclusive and binding upon the parties hereto provided it has
been made in good faith and in all events will be presumed to have
been made in good faith unless otherwise shown by the Company by clear
and convincing evidence) that a change in circumstances has occurred
following a Change in Control, including, without limitation, a change
in the scope of the business or other activities for which the
Executive was responsible
5
<PAGE> 6
immediately prior to the Change in Control, which has rendered the
Executive substantially unable to carry out, has substantially
hindered Executive's performance of, or has caused Executive to suffer
a substantial reduction in, any of the authorities, powers, functions,
responsibilities or duties attached to the position held by the
Executive immediately prior to the Change in Control, and (B) either
or both of the following occurs and is not remedied within 10 calendar
days after written notice to the Company from the Executive: (i) a
reduction in the Executive's Base Pay received from the Company and
any Subsidiary, or (ii) the termination or denial of the Executive's
rights to Employee Benefits or a reduction in the scope or value
thereof;
(ii) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or transfer of all or substantially all
of its business and/or assets, unless the successor or successors (by
liquidation, merger, consolidation, reorganization, transfer or
otherwise) to which all or substantially all of its business and/or
assets have been transferred (directly or by operation of law) assumed
all duties and obligations of the Company under this Agreement
pursuant to Section 11(a);
(iii) The Company relocates its principal executive offices,
or requires the Executive to have his principal location of work
changed, to any location that is in excess of 25 miles from the
location thereof immediately prior to the Change in Control, or
requires the Executive to travel away from his office in the course of
discharging his responsibilities or duties hereunder at least 20% more
(in terms of aggregate days in any calendar year or in any calendar
quarter when annualized for purposes of comparison to any prior year)
than was required of Executive in any of the three full years
immediately prior to the Change in Control without, in either case,
his prior written consent; or
(iv) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the Company or any
successor thereto.
(c) A termination by the Company pursuant to Section 3(a)
or by the Executive pursuant to Section 3(b) will not affect any rights that
the Executive may have pursuant to any agreement, policy, plan, program or
arrangement of the Company providing Employee Benefits, which rights shall be
governed by the terms thereof.
4. Severance Compensation. (a) If, following the
occurrence of a Change in Control, the Company terminates the Executive's
employment during the Severance Period other than pursuant to Section 3(a), or
if the Executive terminates his employment pursuant to Section 3(b), the
Company will pay to the
6
<PAGE> 7
Executive within 10 business days after the Termination Date a lump sum payment
in an amount equal to _________(1) of Base Pay (at the highest rate in effect
for any period prior to the Termination Date).
(b) Without limiting the rights of the Executive at law
or in equity, if the Company fails to make any payment required to be made
hereunder on a timely basis, the Company will pay interest on the amount
thereof at an annualized rate of interest equal to the so-called composite
"prime rate" as quoted from time to time during the relevant period in the
Northeast Edition of The Wall Street Journal. Such interest will be payable as
it accrues on demand. Any change in such prime rate will be effective on and
as of the date of such change.
(c) Notwithstanding any provision of this Agreement to
the contrary, the parties' respective rights and obligations under this Section
4 and under Section 7 will survive any termination or expiration of this
Agreement or the termination of the Executive's employment following a Change
in Control for any reason whatsoever.
5. Limitation on Payments and Benefits. Notwithstanding
any provision of this Agreement to the contrary, if any amount or benefit to be
paid or provided under this Agreement would be an "Excess Parachute Payment,"
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), or any successor provision thereto, but for the
application of this sentence, then the payments and benefits to be paid or
provided under this Agreement shall be reduced to the minimum extent necessary
(but in no event to less than zero) so that no portion of any such payment or
benefit, as so reduced, constitutes an Excess Parachute Payment; provided,
however, that the foregoing reduction shall be made only if and to the extent
that such reduction would result in an increase in the aggregate payment and
benefits to be provided, determined on an after-tax basis (taking into account
the excise tax imposed pursuant to Section 4999 of the Code, or any successor
provision thereto, any tax imposed by any comparable provision of state law,
and any applicable federal, state and local income taxes). The determination
of whether any reduction in such payments or benefits to be provided under this
Agreement or otherwise is required pursuant to the preceding sentence shall be
made at the expense of the Company, if requested by the Executive or the
Company, by the Company's independent accountants. The fact that the
Executive's right to payments or benefits may be reduced by reason of the
limitations contained in this Section 5 shall not of itself limit or otherwise
affect any other rights of the
(1) For those Severance Agreements entered into with R. Jay Phillips and John
T. Wright, III, the amount will be 100%. For those Severance Agreements
entered into with other officers, the amount will be 50%.
7
<PAGE> 8
Executive other than pursuant to this Agreement. In the event that any payment
or benefit intended to be provided under this Agreement or otherwise is
required to be reduced pursuant to this Section 5, the Executive shall be
entitled to designate the payments and/or benefits to be so reduced in order to
give effect to this Section 5. The Company shall provide the Executive with
all information reasonably requested by the Executive to permit the Executive
to make such designation. In the event that the Executive fails to make such
designation within 10 business days of the Termination Date, the Company may
effect such reduction in any manner it deems appropriate.
6. No Mitigation Obligation. The Company hereby
acknowledges that it will be difficult and may be impossible for the Executive
to find reasonably comparable employment following the Termination Date and
that the non- competition covenant contained in Section 8 will further limit
the employment opportunities for the Executive. Accordingly, the payment of
the severance compensation by the Company to the Executive in accordance with
the terms of this Agreement is hereby acknowledged by the Company to be
reasonable, and the Executive will not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise, nor will any profits, income, earnings or other benefits from any
source whatsoever create any mitigation, offset, reduction or any other
obligation on the part of the Executive hereunder or otherwise.
7. Legal Fees and Expenses. In the event that the
Executive prevails in connection therewith, the Company will pay and be
financially responsible for any and all reasonable attorneys' and related fees
and expenses incurred by the Executive in connection with any dispute
associated with the interpretation, enforcement or defense of Executive's
rights under this Agreement by litigation or otherwise.
8. Competitive Activity. During a period ending one
year following the Termination Date, if the Executive shall have received or
shall be receiving benefits under Section 4, the Executive shall not, without
the prior written consent of the Company, which consent shall not be
unreasonably withheld, engage in any Competitive Activity.
9. Employment Rights. Nothing expressed or implied in
this Agreement will create any right or duty on the part of the Company or the
Executive to have the Executive remain in the employment of the Company or any
Subsidiary prior to or following any Change in Control.
10. Withholding of Taxes. The Company may withhold from
any amounts payable under this Agreement all federal, state, city or other
taxes as the Company is required to withhold pursuant to any law or government
regulation or ruling.
8
<PAGE> 9
11. Successors and Binding Agreement. (a) The Company
will require any successor (whether direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise) to all or substantially all of the
business or assets of the Company, by agreement in form and substance
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent the Company would be
required to perform if no such succession had taken place. This Agreement will
be binding upon and inure to the benefit of the Company and any successor to
the Company, including without limitation any persons acquiring directly or
indirectly all or substantially all of the business or assets of the Company
whether by purchase, merger, consolidation, reorganization or otherwise (and
such successor shall thereafter be deemed the "Company" for the purposes of
this Agreement), but will not otherwise be assignable, transferable or
delegable by the Company.
(b) This Agreement will inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of
the parties hereto shall, without the prior written consent of the other,
assign, transfer or delegate this Agreement or any rights or obligations
hereunder except as expressly provided in Sections 11(a) and 11(b). Without
limiting the generality or effect of the foregoing, the Executive's right to
receive payments hereunder will not be assignable, transferable or delegable,
whether by pledge, creation of a security interest, or otherwise, other than by
a transfer by Executive's will or by the laws of descent and distribution and,
in the event of any attempted assignment or transfer contrary to this Section
11(c), the Company shall have no liability to pay any amount so attempted to be
assigned, transferred or delegated.
12. Notices. For all purposes of this Agreement, all
communications, including without limitation notices, consents, requests or
approvals, required or permitted to be given hereunder will be in writing and
will be deemed to have been duly given when hand delivered or dispatched by
electronic facsimile transmission (with receipt thereof orally confirmed), or
five business days after having been mailed by United States registered or
certified mail, return receipt requested, postage prepaid, or three business
days after having been sent by a nationally recognized overnight courier
service such as Federal Express, UPS, or Purolator, addressed to the Company
(to the attention of the Secretary of the Company) at its principal executive
office and to the Executive at his principal residence, or to such other
address as any party may have furnished to the other in writing and in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
9
<PAGE> 10
13. GOVERNING LAW. THE VALIDITY, INTERPRETATION,
CONSTRUCTION AND PERFORMANCE OF THIS AGREEMENT WILL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS,
WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICT OF LAWS OF SUCH STATE.
14. Validity. If any provision of this Agreement or the
application of any provision hereof to any person or circumstances is held
invalid, unenforceable or otherwise illegal, the remainder of this Agreement
and the application of such provision to any other person or circumstances
will not be affected, and the provision so held to be invalid, unenforceable or
otherwise illegal will be reformed to the extent (and only to the extent)
necessary to make it enforceable, valid or legal.
15. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto or
compliance with any condition or provision of this Agreement to be performed by
such other party will be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, expressed or implied with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. References to Sections are to references to
Sections of this Agreement.
16. Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original but all
of which together will constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed and delivered as of the date first above written.
CITIZENS STATE BANK OF
CORPUS CHRISTI
By: ____________________________________
[Name and Title]
____________________________________
[Executive]
10
<PAGE> 1
EXHIBIT 13
SELECTED FINANCIAL HIGHLIGHTS
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
therewith and with the notes thereto.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest Income $ 12,589 $ 10,174 $ 9,530 $ 9,868 $ 10,955
Interest Expense 4,818 3,310 2,954 3,660 5,898
Net Interest Income 7,771 6,864 6,576 6,208 5,057
Provision for Loan Losses (600) (300) -- -- (433)
NonInterest Income 3,055 2.889 2,586 2,656 2,169
NonInterest Expenses 8,453 7,857 6,671 6,546 7,000
Income before Income Taxes
and Extraordinary Item 2,973 2,196 2,491 2,318 659
Applicable Income Taxes 1,038 380 290 791 244
Income before Extraordinary Item 1,935 1,816 2,201 1,527 415
Extraordinary Item, Recognition of
Income Tax Loss Carry Forwards -- -- -- 753 207
Net Income $ 1,935 $ 1,816 $ 2,201 $ 2,280 $ 622
Weighted Average of Common Stock and
Common Stock Equivalents Outstanding 1,687 1,681 1,600 1,600 1,600
- -----------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE:
Income before Extraordinary Item $ 1.15 $ 1.08 $ 1.38 $ .95 $ .26
Extraordinary Item -- -- -- .47 .13
Net Income $ 1.15 $ 1.08 $ 1.38 $ 1.42 $ .39
Cash Dividends Declared $ .25 $ .25 $ .25 $ .25 $ .025
- -----------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Total Assets $223,867 $171,530 $160,230 $146,551 $143,739
Loans, Net $101,991 $ 92,095 $ 77,144 $ 63,556 $ 58,270
Total Deposits $200,898 $157,659 $146,790 $134,814 $133,817
Total Capital $ 16,055 $ 13,438 $ 13,081 $ 11,280 $ 9,400
- -----------------------------------------------------------------------------------------------------------------
SELECTED RATIOS:
Return on Assets (average) 1.05% 1.11% 1.48% 1.61% .45%
Return on Equity (average) 12.94% 13.51% 17.66% 21.50% 6.76%
Dividend Payout Ratio 20.67% 22.02% 18.17% 17.60% 6.41%
Equity to Assets (average) 8.33% 8.38% 8.36% 7.47% 6.60%
</TABLE>
See Notes to Financial Review.
[GRAPHIC OF A PIANO] 1
<PAGE> 2
TO
OUR
SHAREHOLDERS:
A hush fills the performance hall as the conductor steps to the podium, taps a
baton, and waits with his arms poised . . . just a breathless moment before the
beauty of a finely orchestrated work begins. Like the conductor, Corpus Christi
Bancshares, Inc. believes it is ready to orchestrate a successful 1996. We have
experienced growth of our ensemble as well as a fine tuning of our instruments
and principal players. This Annual Report is an opportunity to review aspects of
that fine tuning.
The Company and its wholly owned subsidiary, Citizens State Bank of Corpus
Christi, Texas, reported 1995 earnings before taxes of $2,973,000, compared to
$2,196,000 in 1994. Earnings after taxes totaled $1,935,000 as opposed to
$1,816,000 the previous year. Return on average assets was 1.05%, while return
on equity was 12.9%, compared to 1.1% and 13.5% respectively in 1994. During
1995 the Company exhausted its "Income Tax Loss Carry Forward" and became a
fully-taxable entity.
What must be considered when reviewing these figures are the activities
which comprised both our efforts and expenses. The acquisition of The First
National Bank of Taft, with its prospects for extensive agricultural lending, as
well as an increase in Small Business Administration lending, have greatly
contributed to an increase in net loans to $101,991,000, up 10.7% over the prior
year. The increased volume of loans added further diversity to the total loan
portfolio, helping to protect the Company from economic change.
Investor services and branch expansion including the Taft Acquisition also
made a particularly favorable contribution to our income, as evidenced by
deposit growth to $200,898,000, an increase of 27.4%, which further validates
our strategic plan.
These programs and other related moves represent a major strategic
investment in the inherent value of our Company. Only by scrutinizing the
economic climate, deliberating over the possibilities and choosing the right
direction, could we have hoped to successfully meet the challenges of the
future. As with the conductor mentioned above, we are ready for 1996 and are
following our carefully orchestrated strategic plan.
We encourage you to read the following report and communicate to us any
thoughts or questions. As always, we earnestly appreciate your involvement, and
we look forward to moving ahead together in 1996.
Sincerely,
John T. Wright, III R. Jay Phillips
Chairman of the Board President and Chief Executive Officer
[GRAPHIC OF A HAND HOLDING A CONDUCTOR'S BATON]
2
<PAGE> 3
FINE TUNING . . .
A key to successful performance is fine tuning the individual instruments so
that the conductor can call forth their finest efforts. However, the heart of a
masterpiece is the musical score. For Corpus Christi Bancshares, Inc., that
"score" is our long-range strategic plan. Our goal is to increase the value of
our shareholders' investment by increasing market share and enhancing operating
results, thereby ensuring strong capital.
The Company plan involves several strategies. First, the Company will
stimulate and expand its business by opening additional banking centers. Second,
our growth strategy includes the completion of acquisitions. Third, it is our
intent to continue to grow Citizens State Bank's loan portfolio in addition to
those loans gained through acquisition. Fourth, in this day of consolidation of
many financial institutions, the Company will leverage its marketplace advantage
of Citizens State Bank's positioning as one of a few banks still locally
managed. Fifth, it is imperative that we continue our efforts to address the
level of nonperforming assets. Sixth, we will enhance high-tech banking options
for our customers, both commercial and consumer.
As we move forward with our strategic plan, we must be mindful that opening
new banking centers, expanding loan programs, pursuing new deposits and
enhancing other services of the Company all have an impact on operating
expenses. We are confident that these expenses will greatly enhance the
Company's income stream and are necessary for our long-term strategies to
promote growth in the Company and enhance the value of your investment.
<TABLE>
<CAPTION>
INCOME BEFORE
INCOME TAXES AND EXTRAORDINARY ITEM
<S> <C>
91 $ 659,000
92 $2,318,000
93 $2,491,000
94 $2,196,000
95 $2,973,000
NET INCOME
AFTER TAXES
91 $ 622,000
92 $2,280,000
93 $2,201,000
94 $1,816,000
95 $1,935,000
</TABLE>
[GRAPHIC] 3
<PAGE> 4
. . . THE
PERFORMANCE
[GRAPHIC OF MUSICAL INSTRUMENTS]
The Company is on track with its strategic plan including numerous on-going
projects in effect since the end of 1994. These have included the expansion of
our Indirect Lending Department, enhanced Investor Services and, most recently,
the acquisition of The First National Bank of Taft.
Let us take a moment to examine some of the specific accomplishments for the
past years in light of the strategic plan.
Acquisition of The First National Bank of Taft: With this acquisition we
gained access to a stable agricultural community and further diversification of
our own loan portfolio. We also gained ATM locations in Sinton and Portland,
opening both communities to us. Additionally, we now have improved direct access
to the burgeoning U.S. Navy presence in San Patricio County.
Investment Services Operations: Continuing our quest to expand services and
business, we are providing our customers with access to full-line brokerage
services and life insurance products, including stocks, corporate bonds,
tax-free municipal securities, treasury securities, mutual funds, annuities,
individual retirement accounts (IRAs), life insurance and financial planning.
High-tech Banking: In 1995 we upgraded the in-house systems to a Unix-based
Pentium processor and also integrated eight ATMs into our system. We expect to
offer several exciting home banking products such as payment of bills
electronically, account balance inquiries, fund transfers, account
reconciliation, e-mail, and electronic check register. When available, the
system will provide help with personal budget and financial reporting and net
worth reports. All of this will be accomplished with a home computer and
software from Citizens State Bank.
4
<PAGE> 5
[GRAPHIC]
Our PC-based Cash Management System, when available to business customers,
will link them electronically with Citizens State Bank to initiate a wide
variety of services, including: wire transfers, funds transfers, balance and
transaction history inquiries, and initiate Stop Payment requests. The Bank will
provide necessary software, and the business customer needs only a PC and a
modem.
Trust Services: The Trust Department continues to be one of the leaders in
the South Texas trust industry in offering new and innovative services that help
our customers grow their assets to meet their long term and short term
investment needs. The Trust Department, looks forward to having a significant
role in development and implementation of plans designed to help our customers
in these important financial areas.
Indirect Lending Operation: Our indirect lending operation, which began
service late in 1993, provides access to funds for area automobile dealers
offering sales on credit for new cars and trucks. It has exceeded our
expectations both in volume and profitability.
[GRAPHIC OF A TIRE]
<TABLE>
<CAPTION>
NET
INTEREST
INCOME
<S> <C>
$5,057,000 91
$6,208,000 92
$6,576,000 93
$6,864,000 94
$7,771,000 95
</TABLE>
5
<PAGE> 6
[GRAPHIC OF TRAVEL ITEMS SUCH AS A CAMERA AND A PASSPORT]
Horizons Services: Horizons, Citizens State Bank's V.I.P. depositor program
has attracted a significant amount of new deposits to the Bank by developing
programs that enhance the value of banking at Citizens State Bank. Extensive
travel plans, both near and far, as well as local seminars and luncheons have
been designed to develop relationships that bring deposits from specific target
groups of V.I.P. customers.
South Banking Center: Since the temporary facility opened in 1993 near Spohn
Hospital South, the branch has been a success. The permanent facility, opened in
late 1994, encompasses a 5,000 square foot full-service banking center, six
covered motor-bank lanes, and one covered drive-up ATM lane.
Westside Banking Center: Opened in late 1994, this westside branch is
located at the intersection of US 77 and FM 624, allowing us to actively service
and expand the customer base already established in the area.
Fully-Taxable Status: During 1995 the Company exhausted its "Income Tax Loss
Carry Forward" and became a fully-taxable entity. This was due to stronger
operational growth and accomplishment of the strategic plan in the areas
outlined in this report. On the down side, this adversely affects the bottom
line, but on the up side, it is a measure of the continuing profitability of the
Company and the inherent validity of our strategic plan.
6
<PAGE> 7
[GRAPHIC OF A HANDSHAKE]
Community Reinvestment Act (CRA): The Company's and Bank's commitment to
respond to community needs with leadership, strength and innovation have
resulted in the Bank being once again assigned an "outstanding" CRA rating by
the FDIC.
These accomplishments have given us a unique opportunity for expanding our
services, our customer base, and our financial portfolio. These were "fine
tuning" steps of our over-all strategic plan for expansion of our banking center
network, acquisitions and diversification.
<TABLE>
<CAPTION>
TOTAL
ASSETS
<S> <C>
$143,739,000 91
$146,551,000 92
$160,230,000 93
$171,530,000 94
$223,867,000 95
<CAPTION>
NET INCOME PER
COMMON SHARE
<S> <C>
91 $ .39
92 $1.42
93 $1.38
94 $1.08
95 $1.15
</TABLE>
7
<PAGE> 8
- --------------------------------------------------------------------------------
[GRAPHIC OF BUILDING]
The Main Banking Center is located at the intersection of Port Avenue and
Leopard Street. Conveniently located, it is midway between the industrial
section and the downtown business center of Corpus Christi.
- --------------------------------------------------------------------------------
[GRAPHIC OF BUILDING]
The Medical Tower Banking Center, at 1521 South Staples, is strategically
located in the midst of a high density of medical professionals. Near downtown,
this Center offers easy in-and-out banking on the way to and from the business
community.
- --------------------------------------------------------------------------------
[GRAPHIC OF BUILDING]
The Village Banking Center, at the highly traveled intersection of Alameda
and Doddridge, services upscale retail and residential customers.
- --------------------------------------------------------------------------------
[GRAPHIC OF BUILDING]
Service to the southside has been enhanced with the opening of the South
Banking Center on Staples St. near Spohn Hospital South. The facility includes
covered motor-bank lanes, covered drive-up ATM and 5,000 square feet of
full-service banking.
- --------------------------------------------------------------------------------
[GRAPHIC OF BUILDING]
The Five Points Banking Center, at Highways 77 and 624, opened in 1994 in
the middle of one of Corpus Christi's fastest growing retail and residential
areas. This facility offers a full array of banking services including drive-up
convenience and Saturday hours.
- --------------------------------------------------------------------------------
[GRAPHIC OF BUILDING]
In the heart of the well-established cotton, sorghum and oil industries, the
Citizens State Bank facility in Taft is also ideally located to provide a
complete array of banking services to the burgeoning U.S. Navy population of San
Patricio County.
8
<PAGE> 9
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,
1995. The book value of the stock at that date was $10.03 per share of Common
Stock issued and outstanding compared with $8.40 per share one year ago. On
December 31, 1995, the closing market price of the Stock was $11.88. 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 1995, the Company paid cash dividends to shareholders totaling $400
thousand compared to cash dividends totaling $400 thousand during each of 1994,
1993 and 1992. The Company paid cash dividends of $40 thousand in 1991. Prior to
1991, 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 distributions to shareholders of the Company's
Common Stock initially must come from dividends paid to the Company through its
subsidiary, 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.
TRANSFER AGENT: CORPORATE HEADQUARTERS:
Chemical Bank 2402 Leopard Street
Securityholder Relations Department Corpus Christi, Texas 78408
450 West 33rd Street, 8th Floor 512-887-3020
New York, NY 10001
800-635-9270 CORPORATE MAILING ADDRESS:
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.
SUMMARY COMMON STOCK INFORMATION
<TABLE>
<CAPTION>
PER SHARE:(1) 1995 1994 1993 1992 1991
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
Book Value $10.03 $ 8.40 $ 8.18 $7.05 $5.88
Market Price:
At December 31 $11.88 $10.00 $10.00 $5.00 $1.75
High during year $13.00 $11.75 $15.25 $5.25 $1.88
Low during year $ 8.63 $ 8.75 $ 5.00 $1.63 $1.56
</TABLE>
<TABLE>
<CAPTION>
QUARTERLY COMMON STOCK INFORMATION (2)
1995 1st 2nd 3rd 4th
------- ------- ------- -------
<S> <C> <C> <C> <C>
High: $10.750 $11.500 $13.000 $12.875
Low: $ 8.625 $ 9.000 $11.125 $10.750
1994
High: $11.750 $10.250 $10.500 $10.500
Low: $ 9.500 $ 8.750 $ 9.750 $ 9.625
1993
High: $ 5.000 $ 5.000 $ 5.000 $15.250
Low: $ 4.750 $ 4.750 $ 4.750 $ 6.000
</TABLE>
- --------------------------------------------------------------------------------
(1) The book value and market prices stated in the above table from 1991 and
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, when available, was traded in the local over-the-counter market in Corpus
Christi, Texas.
(2) The above quotations for the first three quarters of 1993 reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.
See Notes to Financial Review.
9
<PAGE> 10
OVERVIEW OF PERFORMANCE
The Company had net income of $1.9 million ($1.15 per share) for the year 1995
compared with net income of $1.8 million ($1.08 per share) in 1994 and $2.2
million ($1.38 per share) in 1993.
The Company's operating results were impacted by five major components during
1995: (1) provision for loan losses, (2) net interest income, (3) noninterest
income, (4) noninterest expenses and (5) income taxes. Each of these components
including the effect of the 1995 acquisition of The First National Bank of Taft,
Texas ("Taft Acquisition") is discussed in greater detail below, including the
impact each had on reported income for the year 1995.
PROVISION FOR LOAN LOSSES
A significant factor in the Company's operating results was the provision for
loan losses. During 1995, the Company reduced its allowance for loan losses
through a $600 thousand "negative" provision to loan losses as a result of
several quarters of increased loan recoveries. 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 provisions for loan
losses in 1993. During 1995, the Company had net recoveries on loans totaling
$894 thousand compared to net recoveries of $497 thousand and $68 thousand in
1994 and 1993, respectively.
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 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 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,
1995 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> 11
Net recoveries in 1995 were $894 thousand (or .82% of average loans), compared
to net recoveries of $497 thousand (or .59% of average loans) in 1994 and net
recoveries of $68 thousand (or .10% of average loans) in 1993. 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
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 1,991 $ 1,794 $ 1,726 $ 1,762 $ 2,627
-------------------------------------------------------
Chargeoffs:
Commercial, industrial and agricultural (68) (290) (356) (647) (643)
Installment (404) (73) (32) (18) (53)
Real estate-construction ---- ---- ---- ---- ----
Real estate-mortgage (3) (92) (187) (184) (546)
-------------------------------------------------------
(475) (455) (575) (849) (1,242)
-------------------------------------------------------
Recoveries:
Commercial, industrial and agricultural 624 768 516 714 599
Installment 101 15 68 27 30
Real estate-construction ---- ---- ---- ---- ----
Real estate-mortgage 644 169 59 72 181
-------------------------------------------------------
1,369 952 643 813 810
-------------------------------------------------------
Net recoveries (chargeoffs) 894 497 68 (36) (432)
-------------------------------------------------------
Provisions charged (credited) to operations (600) (300) ---- ---- (433)
Allowance acquired in purchase transaction 258 ---- ---- ---- ----
-------------------------------------------------------
Balance at end of year $ 2,543 $ 1,991 $ 1,794 $ 1,726 $ 1,762
=======================================================
Ratio of net chargeoffs(recoveries)to average loans (.89)% (.59)% (.10)% .06% .71%
Ratio of allowance for loan losses
to total loans (at year-end) 2.33% 2.04% 2.25% 2.63% 2.92%
</TABLE>
See Notes to Financial Review.
11
<PAGE> 12
ALLOWANCE FOR LOAN LOSSES
ALLOCATED BY LOAN TYPE
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------
1995 1994 1993 1992 1991
---------------------------------------------------------
LOAN TYPE:
<S> <C> <C> <C> <C> <C>
Commercial, industrial and agricultural $ 1,021 $ 983 $ 1,476 $ 1,415 $ 1,348
Installment 486 291 105 16 7
Real estate-construction ---- ---- ---- ---- ----
Real estate-mortgage 1,036 717 213 295 407
Other ---- ---- ---- ---- ----
---------------------------------------------------------
$ 2,543 $ 1,991 $ 1,794 $ 1,726 $ 1,762
=========================================================
PERCENT OF LOANS IN EACH CATEGORY ABOVE TO
TOTAL LOANS:
Commercial, industrial and agricultural 30.53% 30.14% 33.94% 42.41% 42.39%
Installment 33.65% 29.47% 8.56% 5.51% 4.58%
Real estate-construction 1.08% 1.26% 1.77% 1.47% 1.67%
Real estate-mortgage 34.72% 39.11% 55.71% 50.57% 51.31%
Other .02% .02% .02% .04% .05%
---------------------------------------------------------
100.00% 100.00% 100.00% 100.00% 100.00%
=========================================================
</TABLE>
At year-end 1995, nonperforming assets totaled $1.7 million, up $638 thousand,
compared to $1.1 million and $2.2 million at year-end 1994 and 1993,
respectively. Loans charged off totaled $475 thousand at year-end 1995 compared
to $455 thousand and $575 thousand at year-end 1994 and 1993, respectively. The
Company had net recoveries in 1995 totaling $894 thousand compared with net
recoveries of $497 thousand and $68 thousand in 1994 and 1993, respectively.
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
(In Thousands)
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------
1995 1994 1993 1992 1991
-------------------------------------------------------
NONPERFORMING ASSETS:
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $1,186 $ 313 $ 799 $ 1,137 $ 2,096
Restructured loans ---- ---- ---- ---- 9
Other real estate 530 765 1,358 2,134 2,500
-------------------------------------------------------
$1,716 $ 1,078 $ 2,157 $ 3,271 $ 4,605
=======================================================
ACCRUING LOANS PAST DUE 90 DAYS OR MORE $ 134 $ ---- $ ---- $ ---- $ 183
=======================================================
</TABLE>
See Notes to Financial Review.
12
<PAGE> 13
The following is a summary of nonperforming assets by loan classification at
December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
Other
1995 Nonaccrual Restructured Real Estate Total
------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and industrial $ 159 $ ---- $ ---- $ 159
Energy ---- ---- ---- ----
Real estate-construction ---- ---- ---- ----
Real estate-mortgage 1,027 ---- 530 1,557
------------------------------------------------
$1,186 $ ---- $ 530 $1,716
================================================
</TABLE>
<TABLE>
<CAPTION>
Other
1994 Nonaccrual Restructured Real Estate Total
------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and industrial $ 189 $ ---- $ ---- $ 189
Energy ---- ---- ---- ----
Real estate-construction ---- ---- ---- ----
Real estate-mortgage 124 ---- 765 889
----------------------------------------------
$ 313 $ ---- $ 765 $1,078
==============================================
</TABLE>
Nonaccrual loans at year-end 1995 were $1.2 million, up $873 thousand, compared
to $313 thousand at year-end 1994. Nonaccrual loans at year-end 1993 were $799
thousand. The increase in nonaccrual loans during 1995 was primarily the results
of two loan relationships collateralized with real estate. 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. At that time, any
uncollected interest receivable that was accrued during the current period is
reversed and any uncollected interest accrued in prior periods is charged off.
Interest income that would have been recorded during 1995 on these loans had
such loans performed in accordance with their original term was $80 thousand,
compared to $35 thousand and $48 thousand in 1994 and 1993, respectively.
Further information regarding the balance of nonaccrual loans at December 31,
1995, and related interest payment information, follows (in thousands):
<TABLE>
<CAPTION>
Book Contractual
Balance Balance
-----------------------
<S> <C> <C>
Nonaccrual loans at December 31, 1994 $ 313 $ 625
Additions 1,128 1,128
Reductions-principal payments (212) (450)
Reductions-interest payments (29) ----
Charge-offs (14) (14)
----------------------
Nonaccrual loans at December 31, 1995 $ 1,186 $ 1,289
======================
</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 1995 applied as:
------------------------------------------
Book Contractual
Balance Balance Recovery
at at of Prior Reduction
December 31, December 31, Interest Partial of
1995 1995 Income Chargeoffs Principal
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Contractually past due with:
Substantial performance $ 80 $ 112 $ ---- $ ---- $ 11
Limited performance 1,045 1,050 ---- ---- ----
Contractually current; however,
payment in full of principal
or interest is in doubt 61 127 ---- ---- 18
--------------------------------------------------------------------------
$1,186 $1,289 $ ---- $ ---- $ 29
==========================================================================
</TABLE>
See Notes to Financial Review.
13
<PAGE> 14
As part of the CRC 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, including
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 borrowers operate. The total amount of such loans at December 31, 1995
and 1994 not classified as nonaccrual, restructured or past due 90 days or more
in the preceding table amounted to $3.1 million and $4.2 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 1995 was $530 thousand, down $235 thousand, compared to $765
thousand at year-end 1994. Other real estate at year-end 1993 was $1.4 million.
During 1995, the Company acquired additional other real estate through
foreclosure totaling $108 thousand. In addition, proceeds from sales of other
real estate in 1995 totaled $241 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
1995, the Company made valuation provisions for other real estate totaling $120
thousand, compared to $253 thousand and $181 thousand in 1994 and 1993,
respectively. In the opinion of management, this appraisal process results in
values which represent current market conditions at December 31, 1995. Future
values will depend on the development of economic conditions in the markets
where the properties are located. Several factors contributed to the valuation
provisions for other real estate during 1995. The most significant factor was
the overall availability in the local market of such properties for sale during
1995.
ASSET QUALITY
The Company's nonperforming assets in 1995 increased to $1.7 million, up $638
thousand, as compared to $1.1 million in 1994. The increase in nonperforming
assets during 1995 was primarily the results of two loan relationships
collateralized primarily with real estate. In spite of a modest recovery in the
local economy since 1991, the local energy and real estate sectors remain as
potential problem areas. With uncertainties in the local and national 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 local and national market
place. Management believes that economic recovery in the local 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 $7.8 million in 1995, up $900 thousand, compared to $6.9
million and $6.6 million in 1994 and 1993, respectively. The increase in net
interest income during 1995 was attributable in large part to higher volumes of
earning assets. The increase in net interest income related to the Taft
Acquisition totaled approximately $248 thousand in 1995. The increase in net
interest income in 1994 was attributable in large part to higher volumes of
earning assets.
The Company's yield on earning assets was 7.57% during 1995 compared to 6.97%
and 7.08% in 1994 and 1993, respectively. The cost of funds averaged 3.98% in
1995 compared to 3.07% and 2.96% in 1994 and 1993 respectively. The net interest
margin, which is the net interest income as a percentage of earning assets, was
4.67% during 1995 compared to 4.70% and 4.89% in 1994 and 1993, respectively.
The Company's average earning assets were $166.2 million in 1995 compared to
$146.0 million and $134.6 million in 1994 and 1993, respectively. Average
interest bearing liabilities were $121.1 million in 1995 compared to $107.8
million and $99.8 million in 1994 and 1993, respectively.
See Notes to Financial Review.
14
<PAGE> 15
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
(In Thousands)
<TABLE>
<CAPTION>
1995 1994
---------------------------------------------------------------
Average Average Average Average
Assets: Balance Interest Rate Balance Interest Rate
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits
with Federal Home Loan
Bank $ 174 $ 5 2.88% $ 94 $ 4 4.25%
Federal funds sold 12,878 735 5.71% 8,501 356 4.19%
Securities available for sale 47,219 2,584 5.47% 45,004 2,351 5.22%
Securities held to maturity 5,679 507 8.93% 7,697 712 9.25%
Loans, net of discount 100,294 8,758 8.73% 84,746 6,751 7.97%
--------------------------------------------------------------
Total earning assets 166,244 12,589 7.57% 146,042 10,174 6.97%
Allowance for loan losses (2,095) (1,970)
Cash and due from banks 10,906 12,572
Bank premises and equipment 4,842 4,313
Accrued interest receivable 1,361 1,363
Other real estate 631 1,069
Other assets 995 666
-------- --------
$182,884 $164,055
======== ========
Liabilities and Shareholders' equity:
Deposits:
Interest bearing trans-
action accounts $ 57,618 $ 1,882 3.27% $ 52,683 $ 1,360 2.58%
Savings 14,752 500 3.39% 14,979 430 2.87%
Certificates of deposit 45,328 2,271 5.01% 40,067 1,520 3.79%
Securities sold with
agreements to repurchase 3,390 165 4.86% ---- ---- ----
--------------------------------------------------------------
Total interest bearing
liabilities 121,088 4,818 3.98% 107,729 3,310 3.07%
Demand deposits 45,880 42,309
Accrued interest on
deposits 296 194
Other liabilities 666 392
Shareholders' equity 15,235 13,743
Unrealized losses on
securities available
for sale (281) (312)
-------- --------
$182,884 $164,055
======== ========
Net interest income and average
interest-rate spread $ 7,771 3.59% $ 6,864 3.90%
=================== ==================
Ratio of interest bearing liabilities
to earning assets (average) 72.84% 73.77%
====== ======
Average interest cost of earning assets
(total interest expense as a percent of
average earning assets) 2.90% 2.27%
===== =====
Net interest margin (net interest
income as a return on average
earning assets) 4.67% 4.70%
===== =====
</TABLE>
See Notes to Financial Review.
15
<PAGE> 16
<TABLE>
<CAPTION>
1993
------------------------------
Average Average
Assets: Balance Interest Rate
------------------------------
<S> <C> <C> <C>
Interest bearing deposits
with Federal Home Loan
Bank $ ---- $ ---- ----
Federal funds sold 11,698 362 3.09%
Securities available for sale 16,451 742 4.51%
Securities held to maturity 35,959 2,794 7.77%
Loans, net of discount 70,513 5,632 7.99%
-----------------------------
Total earning assets 134,621 9,530 7.08%
Allowance for loan losses (1,815)
Cash and due from banks 9,900
Bank premises and equipment 3,083
Accrued interest receivable 1,290
Other real estate 1,648
Other assets 393
--------
$149,120
========
Liabilities and Shareholders' equity:
Deposits:
Interest bearing trans-
action accounts $ 46,730 $ 1,082 2.32%
Savings 14,565 370 2.54%
Certificates of deposit 38,459 1,502 3.91%
Securities sold with
agreements to repurchase ---- ---- ----
------------------------------
Total interest bearing
liabilities 99,754 2,954 2.96%
Demand deposits 36,360
Accrued interest on
deposits 178
Other liabilities 364
Shareholders' equity 12,464
Unrealized losses on
securities available
for sale ----
--------
$149,120
========
Net interest income and average
interest-rate spread $ 6,576 4.12%
===================
Ratio of interest bearing liabilities
to earning assets (average) 74.10%
=====
Average interest cost of earning assets
(total interest expense as a percent of
average earning assets) 2.19%
=====
Net interest margin (net interest
income as a return on average
earning assets) 4.89%
=====
</TABLE>
The following table analyzes the changes in net interest income during 1995 and
1994 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
(In Thousands)
<TABLE>
<CAPTION>
1995/1994 1994/1993
-------------------------------------------------------------------
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 $ 1 $ (1) $ 2 $ 4 $ ---- $ 4
Federal funds sold 379 157 222 (6) (25) 19
Securities available
for sale 233 11 222 1,609 7 1,602
Securities held to maturity (205) (24) (181) (2,082) 666 (2,748)
Loans, net of unearned
discount 2,007 690 1,317 1,119 (15) 1,134
--------------------------------------------------------------------
Total interest income 2,415 833 1,582 644 633 11
--------------------------------------------------------------------
Interest expense:
Interest-bearing
transaction accounts 523 387 136 278 132 146
Savings 70 76 (6) 60 49 11
Certificates of deposit 751 533 218 18 (39) 57
Securities sold with
agreements to repurchase 164 ---- 164 ---- ---- ----
--------------------------------------------------------------------
Total interest expense 1,508 996 512 356 142 214
--------------------------------------------------------------------
Net Interest income $ 907 $ (163) $ 1,070 $ 288 $ 491 $ (203)
====================================================================
</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> 17
NONINTEREST INCOME
Noninterest income is composed of account service charges, fees for trust
services, gains from sale of securities available for sale, credit card fees,
brokerage fees and various other fees. The Company's noninterest income was $3.1
million in 1995, up $167 thousand, compared to $2.9 million and $2.6 million in
1994 and 1993, respectively. The increase in noninterest income related to the
Taft Acquisition totaled approximately $14 thousand in 1995.
Trust income for 1995 was $1.2 million, up $63 thousand, compared to $1.1
million in 1994. Trust income was $934 thousand in 1993. The increase in trust
income in 1995 was largely due to nonrecurring estate and stock transfer fees
collected during 1995 totaling approximately $50 thousand. The increase in trust
income in 1994 was primarily attributable to increases in fees charged on trust
services.
Service charges on deposit accounts were $1.0 million in 1995, up $24 thousand,
compared to $1.0 million in 1994. Service charges on deposit accounts were $1.0
million in 1993. The increase in service charges on deposit accounts during 1995
was attributable to an increase in nonsufficient check charges totaling $37
thousand. 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.
Credit card fees consist of fees collected on Visa/Mastercard merchant services
provided by the Company's subsidiary bank. Credit card fees were $180 thousand
in 1995, up $38 thousand, compared to $142 thousand in 1994 and $122 thousand in
1993. The increase in credit card fees in 1995 and 1994 was largely the result
of increases in fees charged on Visa/Mastercard merchant services accounts.
Brokerage fees consist of fees collected from the sale of non-traditional
banking products such as mutual funds, stocks, bonds and insurance products.
Brokerage fees totaled $247 thousand in 1995, up $170 thousand, compared to $77
thousand in 1994. The increase in brokerage fees during 1995 was primarily due
to investment services beginning full operations during the fourth quarter of
1994.
The Company had no net securities gains on sale of securities available for sale
during 1995 compared to net securities gains on sales of securities available
for sale in 1994 totaling $165 thousand. The Company had no net gains on sale of
securities held for sale during 1993. The net gains on sale of securities
available for sale in 1994 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 1995 was $444 thousand, up $37 thousand, compared to $407
thousand in 1994. Other income was $496 thousand in 1993. The increase in other
income in 1995 was related to increased fees generated from the sale of single
interest automobile insurance totaling $20 thousand and increased fees generated
on deposit products totaling $17 thousand. 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.
NONINTEREST INCOME
(In Thousands)
<TABLE>
<CAPTION>
1995 1994
------------------ -------------------
Changes from 1994 Changes from 1993
------------------ -------------------
1995 1994 1993 Amount Percent Amount Percent
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Trust income $1,159 $1,096 $ 934 $ 63 5.7% $ 162 17.3%
Service charges 1,025 1,001 1,034 24 2.4% (33) (3.2)%
Credit card fees 180 142 122 38 26.8% 20 16.4%
Brokerage fees 247 77 ---- 170 220.8% 77 100.0%
Net gain on sale of
securities available
for sale ---- 165 ---- (165) (100.0)% 165 100.0%
Other income 444 407 496 37 9.1% (89) (17.9)%
------------------------------------------------------------------------
$3,055 $2,888 $ 2,586 $ 167 5.8% $ 302 11.7%
========================================================================
</TABLE>
See Notes to Financial Review.
17
<PAGE> 18
NONINTEREST EXPENSES
The Company's noninterest expenses were $8.5 million in 1995, up $596 thousand,
or 7.6%, compared to $7.9 million in 1994. The increase in noninterest expenses
related to the Taft Acquisition totaled approximately $94 thousand in 1995.
Noninterest expenses were $6.7 million in 1993.
Salaries and employee benefits were $4.0 million in 1995, up $462 thousand,
compared to $3.6 million in 1994. Salaries and benefits were $3.1 million in
1993. The increase in salaries and employee benefits during 1995 and 1994 was
largely attributable to increased staff associated with the subsidiary bank's
expansion. The increase in salary and employee benefits related to the Taft
Acquisition totaled approximately $42 thousand in 1995.
Occupancy expenses were $898 thousand in 1995, up $109 thousand, compared to
$789 thousand in 1994. Occupancy expenses were $685 thousand in 1993. The
increase in occupancy expenses in 1995 and 1994 was largely attributable to the
Company's expansion of its banking centers and to the Taft Acquisition during
1995. Occupancy expenses related to the Taft Acquisition totaled approximately
$11 thousand in 1995.
Furniture and equipment expenses were $711 thousand in 1995, up $104 thousand,
compared to $607 thousand in 1994. Furniture and equipment expenses were $543
thousand in 1993. The increase in furniture and equipment expenses during 1995
and 1994 was directly attributable to the new South and West Banking Centers,
the remodeling of the Village Banking Center and the Taft Acquisition during
1995. Furniture and equipment expenses related to the Taft Acquisition totaled
approximately $14 thousand in 1995.
Amortization of intangible assets consists of the amortization of goodwill,
which represents the excess of the purchase price over the fair market value of
net identifiable assets acquired in the Taft Acquisition. Amortization of
intangible assets totaled $20 thousand in 1995.
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 $753 thousand
in 1995, up $38 thousand, compared to $715 thousand in 1994. Legal and
professional fees were $641 thousand in 1993. The increase in legal and
professional fees during 1995 was primarily related to shareholder proxy
solicitations and strategic planning issues of the Company totaling $26
thousand. Legal and professional fees related to the Taft Acquisition totaled
approximately $9.5 thousand in 1995. 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.
Net cost to operate other real estate consists of expenses associated with other
real estate including 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 $139 thousand in 1995, down $137
thousand, compared to $276 thousand in 1994. Net cost to operate other real
estate in 1993 was $148 thousand. The decrease in net cost to operate other real
estate in 1995 was attributable to a decrease in valuation provisions for other
real estate totaling $133 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.
Insurance expenses primarily consist of fidelity insurance, errors and omission
insurance and Federal Deposit Insurance Corporation ("FDIC") insurance
assessment fees. Insurance expenses were $270 thousand in 1995, down $128
thousand, compared to $398 thousand in 1994. Insurance expenses were $372
thousand in 1993. The decrease in insurance expenses during 1995 was
attributable to a decrease in FDIC deposit insurance assessment fees totaling
approximately $131 thousand. The increase in insurance expenses in 1994 was
largely due to increases in FDIC insurance assessment fees of approximately $26
thousand.
Advertising expenses primarily consist of newspaper, television and radio
advertisements and advertising consulting fees. Advertising expenses totaled
$174 thousand in 1995, down $62 thousand, compared to $236 thousand in 1994 and
$158 thousand in 1993. The decrease in advertising expenses during 1995 was
attributable to a decrease in television and radio advertising expenses. The
increase in advertising expenses in 1994 was largely attributable to increases
in television advertising campaigns totaling $39 thousand.
See Notes to Financial Review.
18
<PAGE> 19
Other expenses totaled $1.5 million in 1995, up $190 thousand, compared to $1.3
million in 1994. Other expenses in 1993 were $1.0 million. The increase in other
expenses during 1995 was largely attributable to printing expenses related to
shareholder proxy and annual report material totaling $54 thousand, an increase
in forms and envelopes totaling $40 thousand, courier service totaling $32
thousand and expenses related to Visa/Mastercard merchant services totaling $29
thousand. Other expenses related to the Taft Acquisition totaled approximately
$17 thousand in 1995.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.
NONINTEREST EXPENSES
(In Thousands)
<TABLE>
<CAPTION>
1995 1994
------------------ -------------------
Changes from 1994 Changes from 1993
------------------ -------------------
1995 1994 1993 Amount Percent Amount Percent
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee
benefits $4,033 $ 3,571 $ 3,091 $ 462 12.9% $ 480 15.5%
Occupancy expenses 898 789 685 109 13.8% 104 15.2%
Furniture and equipment
expenses 711 607 543 104 17.1% 64 11.8%
Amortization of
intangible assets 20 ---- ---- 20 100.0% ---- ----
Legal and professional fees 753 715 641 38 5.3% 74 11.5%
Net cost to operate other
real estate 139 276 148 (137) (49.6)% 128 86.5%
Insurance expenses 270 398 372 (128) (32.2)% 26 7.0%
Advertising expenses 174 236 158 (62) (26.3)% 78 49.4%
Other expenses 1,455 1,265 1,033 190 15.0% 232 22.5%
----------------------------------------------------------------------
$8,453 $ 7,857 $ 6,671 $ 596 7.6% $1,186 17.8%
======================================================================
</TABLE>
INCOME TAXES
The valuation allowance for deferred tax assets as of December 31, 1993 was
$186,000. The net change in the total valuation allowance for the year ended
December 31, 1994 was a decrease of $50,000, consisting of two offsetting
amounts. The first amount is an increase of $297,000 which is included as a
component of shareholders' 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 net decrease of $136,000 in the valuation allowance for deferred
tax assets during 1995 is included as a component of shareholders' equity
because the change was attributable to the change in the unrealized gain (loss)
related to securities available for sale.
See Notes to Financial Review.
19
<PAGE> 20
LIQUIDITY AND SOURCES OF FUNDS
Generally, the Company's largest source of funds is provided through deposits.
Total deposits at year-end 1995 were $200.9 million, up $43.2 million, compared
to $157.7 million at year-end 1994. The increase in deposits during 1995 was
primarily the results of deposits acquired from the Taft Acquisition which
totaled $34.2 million at December 31, 1995. Total deposits at year-end 1993 were
$146.8 million. At December 31, 1995 and 1994, the Company had approximately
$6.0 million and $5.9 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, 1995 and 1994, the Company had $81.3 million and $44.1 million,
respectively, of securities available for sale. 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
Average deposits were $163.6 million in 1995, up $13.6 million, compared to
$150.0 million in 1994. Average deposits and average rates paid on all deposits
for each of the last three years follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
----------------------------------------------------------------------
Amount Rate Amount Rate Amount Rate
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand
deposits $ 45,880 ---- $ 42,309 ---- $ 36,360 ----
Interest bearing demand deposits 57,618 3.27% 52,683 2.58% 46,730 2.32%
Savings 14,752 3.39% 14,979 2.87% 14,565 2.54%
Certificates of deposit 45,328 5.01% 40,067 3.79% 38,459 3.91%
----------------------------------------------------------------------
$163,578 $150,038 $136,114
======================================================================
</TABLE>
At December 31, 1995, time certificates of deposits in denominations of $100,000
or more with maturities of six months or less were $8.2 million, which represent
4.1% of total deposits. It is not the Company's policy to rely on brokered
deposits as a source of funding and at December 31, 1995, 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, 1995 (In thousands):
<TABLE>
<S> <C>
Three months or less $ 5,007
Over three through six months 3,240
Over six through twelve months 3,646
Over twelve months 3,264
-------
$15,157
=======
</TABLE>
Other sources of funding for the Company include federal funds purchased and
short-term borrowings. The Company had average short-term borrowings in 1995 of
$3.4 million with an average interest rate of 4.9%. The maximum outstanding at
the end of any month during 1995 was $7.2 million. During 1994 and 1993, the
Company had average short-term borrowings of $10 thousand and $1 thousand with
an average interest rate of 4.4% and 3.2%. The Company had no short-term
borrowings outstanding at the end of any month during 1994 or 1993.
See Notes to Financial Review.
20
<PAGE> 21
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 1995 and 1994:
SCHEDULE OF SECURITIES AVAILABLE FOR SALE
(In Thousands)
<TABLE>
<CAPTION>
1995 1994
-------------------
<S> <C> <C>
U.S. Treasury securities $40,597 $39,712
Mortgage pass-through and related securities 40,062 3,886
Other securities 610 504
-------------------
$81,269 $44,102
===================
</TABLE>
The following schedule shows the Company's securities available for sale with
fixed maturities by maturity and also presents the weighted average yield of
each maturity classification as of December 31, 1995:
SECURITIES AVAILABLE FOR SALE
MATURITIES AND YIELD DISTRIBUTION
(In Thousands)
<TABLE>
<CAPTION>
December 31, 1995
--------------------------
Weighted
Market Average
U.S. Treasury securities: Value Yield
--------------------------
<S> <C> <C>
Within one year $20,165 5.12%
After one but within five years 20,432 5.90%
-------------------------
$40,597 5.51%
=========================
</TABLE>
Mortgage pass-through and related securities amortize on a monthly basis with
final contractual maturities ranging from 1995 through 2029. At December 31,
1995, mortgage pass-through and related securities totaled $40.1 million with an
average weighted contractual life of 4.5 years and a weighted average yield of
6.25%. Actual maturities will differ from contractual maturities due to
variations in the timing of prepayments of principal. Market interest rate
fluctuations can affect both the timing of prepayments and the yield on such
securities. Mortgage pass-through securities at December 31, 1995 with variable
interest rates totaled $3.1 million.
Other securities include stock investments in the Federal Home Loan Bank of
$547.4 thousand and Texas Independent Bank of $62.7 thousand. These investments
pay dividends quarterly.
See Notes to Financial Review.
21
<PAGE> 22
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
(In Thousands)
<TABLE>
<CAPTION>
Amortized Cost at December 31,
-------------------------------
1995 1994 1993
-------------------------------
<S> <C> <C> <C>
U.S. Treasury securities $ ---- $ ---- $ 9,645
Obligations of other U.S. Government agencies
and corporations 1,003 3,005 6,009
Obligations of states and political subdivisions 4,860 3,763 3,925
Mortgage pass-through and related securities ---- ---- 9,474
-------------------------------
$ 5,863 $ 6,768 $ 29,053
===============================
</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, 1995:
SECURITIES HELD TO MATURITY
MATURITIES AND YIELD DISTRIBUTION
(In Thousands)
<TABLE>
<CAPTION>
December 31, 1995
---------------------------
Weighted
Amortized Average
Obligations of other U.S. Government agencies and corporations: Cost Yield
---------------------------
<S> <C> <C>
Within one year $ ---- ----
After one but within five years 1,003 9.26%
--------------------------
$ 1,003 9.26%
==========================
Obligations of states and political subdivisions:
Within one year $ 803 5.56%
After one but within five years 2,732 6.86%
After five but within ten years 1,325 9.05%
--------------------------
$ 4,860 7.25%
==========================
</TABLE>
See Notes to Financial Review.
22
<PAGE> 23
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
(In Thousands)
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, industrial, energy & agricultural $ 33,276 $ 29,422 $ 27,082 $ 27,829 $ 25,571
Installment 36,671 28,766 6,829 3,619 2,761
Real estate-construction 1,173 1,229 1,413 967 1,007
Real estate-mortgage 37,836 38,183 44,457 33,188 30,948
Other 22 25 19 26 27
----------------------------------------------------------
Total loans 108,978 97,625 79,800 65,629 60,314
Unearned discount (4,444) (3,539) (862) (346) (281)
----------------------------------------------------------
Loans, net of unearned discount $104,534 $ 94,086 $ 78,938 $ 65,283 $ 60,033
==========================================================
</TABLE>
The following table summarizes the maturity distribution of selected loans
outstanding at December 31, 1995 and indicates the portfolio's sensitivity to
changes in interest rates.
LOAN MATURITIES AND INTEREST RATE SENSITIVITY
(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, energy & agricultural $17,266 $12,349 $ 3,661 $33,276
Real estate(1) 4,926 15,433 18,650 39,009
-----------------------------------------------------
$22,192 $27,782 $22,311 $72,285
=====================================================
Loans maturing after one year with:
Fixed interest rates $23,842 $20,014
Variable interest rates 3,940 2,297
----------------------
$27,782 $22,311
======================
</TABLE>
The Company's financial position continued to reflect strong liquidity during
1995 in order to enable the Company to respond better to economic conditions and
to position itself for the opportunity to provide funding of quality loans. At
December 31, 1995, liquid assets represented 47.3% of total assets compared to
38.0% 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 1995 the
Company's ratio of net loans to total deposits was 50.8%, compared to 58.4% and
52.6% at year-ends 1994 and 1993, respectively. At December 31, 1995, the
Company's net loans to total deposits ratio of 50.8% as compared to peer Texas
banking institutions with similar asset sizes was near the median percentile.
Peer Texas banking institutions at December 31, 1995 had net loans to total
deposit ratios ranging from a low of 40.6%, a median of 52.2% and a high of
64.5%. 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.
23
<PAGE> 24
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
(In Thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------------------------
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 $ 16,547 $ 25,682 $ 34,813 $ 47,776 $ 61,202 $108,978
Securities available for sale 1,487 6,457 12,861 26,168 55,101 81,269
Securities held to maturity 1,033 1,033 1,134 1,805 4,058 5,863
Other earning assets 6,115 6,115 6,115 6,115 ---- 6,115
--------------------------------------------------------------------
Total earning assets 25,182 39,287 54,923 81,864 120,361 202,225
INTEREST BEARING LIABILITIES:
Interest bearing deposits 48,384 57,285 69,151 82,397 59,711(1) 142,108
Other earning liabilities 5,459 5,459 5,459 5,459 ---- 5,459
--------------------------------------------------------------------
Total earning liabilities 53,843 62,744 74,610 87,856 59,711 147,567
--------------------------------------------------------------------
Interest sensitivity gap $(28,661) $(23,457) $(19,687) $ (5,992) $ 60,650 $ 54,658
====================================================================
CUMULATIVE INTEREST
SENSITIVITY RATIOS:
DECEMBER 31, 1995 .47%X .63%X .74%X .93%X
December 31, 1994 .63%x .85%x .97%x 1.14%x
</TABLE>
At December 31, 1995, the Company had a negative gap position in the one month
period of $28.7 million. The amount of the negative gap decreases at 90 days,
180 days and one year. At December 31, 1995, the cumulative rate sensitive gap
position at one year was a negative $6.0 million, which indicates the Company's
net interest income may decrease if interest rates rise.
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 $59,711 at
December 31, 1995 are regular savings and NOW deposits that total $44,869.
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.
24
<PAGE> 25
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, shareholders' equity does not include intangible assets or
unrealized gains or losses on securities available for sale in accordance with
regulatory guidelines. Tier 1 capital includes only common shareholders' equity.
Tier 2 capital includes common shareholders' equity and the allowance for loan
losses. The allowance for loan losses may be included only to the extent of
1.25% of risk-adjusted assets. Any excess of the allowance for loan losses over
the limit is treated as a reduction in the total risk-based asset amount in the
risk-based capital calculation. Leverage ratio is the ratio of Tier 1 capital to
total assets reduced for any intangible assets. At December 31, 1995, the
Company and the Bank each had a Tier 1 capital ratio of 12.0%, combined Tier 1
and Tier 2 capital ratio of 13.3% and leverage ratio of 6.4% based on risk-based
capital guidelines, each of which is 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, 1995, the Company's equity to assets
ratio was 6.4% compared to 8.4% and 8.2% for year-end 1994 and 1993,
respectively. The decrease in the equity to assets ratio in 1995 as compared to
1994 was a direct result of the Taft Acquisition.
In addition to the above federal requirements, the Company's subsidiary bank had
an equity ratio of 6.4% at December 31, 1995 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 8.4% and 8.2% at
year-end 1994 and 1993, respectively.
OTHER MATTERS
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan,"
as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosure," on January 1, 1995. Management, considering
current information and events regarding the borrowers' ability to repay their
obligations, considers a loan to be impaired when it is probable that the
Company will be unable to collect all amounts due according to the contractual
terms of the loan agreement. Large groups of smaller-balance homogeneous loans
that are evaluated collectively for impairment are excluded from this statement.
When a loan is considered to be impaired, the amount of the impairment is
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate. Impairment losses are charged against the
allowance for loan losses. Cash receipts on impaired loans are applied to reduce
the principal amount of such loans until the principal has been recovered and
are recognized as interest income thereafter. Prior periods have not been
restated.
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which establishes a fair value based
method of accounting for stock-based compensation plans. Under SFAS No. 123,
companies may adopt the new method of accounting or continue to account for such
transactions under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," but will be required to disclose in a note to the
financial statements pro forma net income and, if presented, earnings per share
as if the company had applied the fair value method of accounting, as defined in
SFAS No. 123. The disclosure requirements are effective for financial statements
for fiscal years beginning after December 15, 1995. The Company has not yet
determined the effect this standard will have on net income and earnings per
share should it elect to change accounting method. Adoption of SFAS No. 123 will
have no effect on the Company's cash flows.
On October 18, 1995, the Board of Directors adopted a shareholder rights plan
that provided for rights to be issued to shareholders of record on November 3,
1995. The rights will become exercisable and allow the holders to acquire
additional shares of the Company's common stock at a discounted price at such
time a person or group acting in concert acquires 20% or more, or acquired the
right to acquire 20% or more, of the Company's common stock. The Board of
Directors may, at its option, redeem all rights for $.01 per right, generally at
any time prior to the rights becoming exercisable. The rights will expire on
October 18, 2005, unless earlier redeemed by the Board of Directors.
See Notes to Financial Review.
25
<PAGE> 26
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL REVIEW
1. Basis of Presentation
All data presented in the Financial Review has been consolidated to include
that of Corpus Christi Bancshares, Inc. and its subsidiary, C.S.B.C.C., Inc.,
and its subsidiary bank, Citizens State Bank of Corpus Christi. 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
average 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
shareholders' 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 shareholders'
equity by average total assets. Average shareholders' equity does not include
intangible assets or 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 shareholders' 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).
26
<PAGE> 27
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, 1995 and 1994 and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1995. 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 consolidated 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, 1995 and 1994 and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 6 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 ("SFAS")
No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures," on January 1, 1995.
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 SFAS 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 SFAS No. 109, "Accounting for Income Taxes," as of
January 1, 1993.
KPMG PEAT MARWICK LLP
San Antonio, Texas
January 19, 1996
27
<PAGE> 28
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1994
-----------------------------
<S> <C> <C>
Cash and due from banks (note 2) $ 18,568,553 $ 15,138,696
Interest-bearing deposits with Federal Home Loan Bank 114,615 22,321
Federal funds sold 6,000,000 5,900,000
Securities available for sale (note 4) 81,269,216 44,102,450
Securities held to maturity (market value of
$6,095,695 in 1995 and $6,856,118 in 1994) (note 5) 5,862,524 6,768,043
Net loans, less allowance for loan losses of
$2,542,513 in 1995 and $1,990,638 in 1994
(notes 6 and 12) 101,991,337 92,095,441
Bank premises and equipment, net (note 7) 5,213,133 4,852,202
Accrued interest receivable 1,842,287 1,483,449
Intangible assets (note 3) 1,781,854 ----
Other real estate 529,560 764,756
Other assets 694,284 402,298
-----------------------------
Total assets $ 223,867,363 $ 171,529,656
=============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand $ 58,790,068 $ 43,932,959
Interest bearing transaction accounts (note 8) 72,494,574 58,169,426
Savings 15,600,520 15,294,615
Certificates of deposit (note 8) 54,012,748 40,261,543
-----------------------------
Total deposits 200,897,910 157,658,543
Accrued interest on deposits 370,369 202,820
Securities sold with agreements to repurchase 5,459,000 ----
Dividends payable 100,000 100,000
Other liabilities 985,387 129,832
-----------------------------
Total liabilities 207,812,666 158,091,195
-----------------------------
Shareholders' equity (notes 11 and 14):
Common stock, par value $5 a share; 4,000,000 authorized
shares; 1,600,000 shares issued and outstanding 8,000,000 8,000,000
Retained earnings 8,032,273 6,497,204
Unrealized gains (losses) on securities available for sale 22,424 (1,058,743)
-----------------------------
Total shareholders' equity 16,054,697 13,438,461
-----------------------------
Commitments and contingent liabilities (note 13)
Total liabilities and shareholders' equity $ 223,867,363 $ 171,529,656
=============================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
28
<PAGE> 29
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
Interest income: 1995 1994 1993
--------------------------------------------
<S> <C> <C> <C>
Interest on loans (note 6) $ 8,757,687 $ 6,751,281 $ 5,632,706
Interest on securities held for sale ---- ---- 742,297
Interest on securities available for sale:
U.S. Treasury securities 1,826,735 2,015,951 ----
Mortgage pass-through and related securities 722,071 315,506 ----
Other securities 34,823 19,409 ----
Interest on securities held to maturity:
U.S. Treasury securities ---- ---- 675,219
Obligations of other U.S. government agencies 210,336 381,402 968,406
Obligations of states and political subdivisions 296,898 330,454 342,029
Mortgage pass-through and related securities ---- ---- 808,290
Interest on deposits in Federal Home Loan Bank 5,198 3,788 ----
Interest on federal funds sold 735,316 355,959 361,688
--------------------------------------------
Total interest income 12,589,064 10,173,750 9,530,635
--------------------------------------------
Interest expense:
Interest bearing transaction accounts 1,882,503 1,359,626 1,082,254
Savings 499,929 429,729 369,572
Certificates of deposit (note 8) 2,270,899 1,520,069 1,502,445
Securities sold with agreements to repurchase 164,829 ---- ----
Federal funds purchased ---- 426 ----
--------------------------------------------
Total interest expense 4,818,160 3,309,850 2,954,271
--------------------------------------------
Net interest income 7,770,904 6,863,900 6,576,364
Provision for loan losses (note 6) (600,000) (300,000) ----
--------------------------------------------
Net interest income after provision for loan losses 8,370,904 7,163,900 6,576,364
--------------------------------------------
Other income:
Trust department income 1,158,883 1,096,156 933,967
Service charges 1,025,506 1,001,279 1,034,451
Credit card fees 179,797 141,911 122,022
Brokerage fees 247,274 77,187 ----
Net gain on sales of securities available for sale (note 4) ---- 165,081 ----
Other income 444,031 406,915 495,888
--------------------------------------------
Total other income 3,055,491 2,888,529 2,586,328
--------------------------------------------
Other expenses:
Salaries and employee benefits (note 10) 4,032,909 3,571,093 3,091,314
Occupancy expenses 898,429 788,904 685,068
Amortization of intangible assets 19,743 ---- ----
Furniture and equipment expenses 710,889 607,012 542,774
Legal and professional fees 753,190 715,001 641,675
Net cost to operate other real estate 138,931 275,523 147,939
Insurance expenses 269,861 398,282 371,648
Advertising expenses 174,572 236,395 157,534
Other expenses 1,454,857 1,264,317 1,033,443
--------------------------------------------
Total other expenses 8,453,381 7,856,527 6,671,395
--------------------------------------------
Income before income taxes 2,973,014 2,195,902 2,491,297
Income taxes (note 9) 1,037,945 379,727 290,000
--------------------------------------------
Net income $ 1,935,069 $ 1,816,175 $ 2,201,297
============================================
Weighted average of common stock and common stock
equivalents outstanding 1,687,047 1,680,960 1,600,000
============================================
Net income per common share $ 1.15 $ 1.08 $ 1.38
============================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
29
<PAGE> 30
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1995
<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, 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
SFAS 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
gains (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
Net income ---- ---- 1,935,069 ---- 1,935,069
Cash dividends, declared,
$.25 per share ---- ---- (400,000) ---- (400,000)
Net change in unrealized
gains (losses) on securities
available for sale ---- ---- ---- 1,081,167 1,081,167
----------------------------------------------------------------------------
Balance, December 31, 1995 $ 8,000,000 $ ---- $ 8,032,273 $ 22,424 $ 16,054,697
============================================================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
30
<PAGE> 31
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
Cash flows from operating activities: 1995 1994 1993
--------------------------------------------
<S> <C> <C> <C>
Net income $ 1,935,069 $ 1,816,175 $ 2,201,297
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 660,444 528,209 438,601
Provision for loan losses (600,000) (300,000) ----
Deferred federal income tax expense 310,945 94,985 ----
Loss on sale of bank premises and equipment ---- 2,053 434
Gain on sale of securities available for sale ---- (165,081) ----
Net amortization (accretion) of securities 462,131 501,901 258,164
Gain on sale of other real estate (18,344) (2,859) (62,036)
Valuation provision for other real estate 120,000 252,832 181,000
Decrease (increase) in accrued interest receivable 89,669 19,587 (191,504)
Decrease (increase) in other assets (215,663) (105,191) 280,876
Increase (decrease) in accrued interest payable 74,263 48,965 (23,894)
Decrease in other liabilities (343,097) (75,005) (74,705)
--------------------------------------------
Net cash provided by operating activities 2,475,417 2,616,571 3,008,233
--------------------------------------------
Cash flows from investing activities:
Net decrease (increase) in federal funds sold 9,900,000 13,023,000 (10,773,000)
Proceeds from sales of securities available for sale ---- 3,557,183 ----
Proceeds from maturities of securities held for sale ---- ---- 12,000,000
Proceeds from maturities of securities available for sale 18,657,664 9,523,433 ----
Proceeds from maturities of securities held to maturity 3,040,000 3,160,000 12,529,839
Purchase of securities held for sale ---- ---- (18,434,109)
Purchase of securities available for sale (30,281,527) (20,139,569) ----
Purchase of securities held to maturity ---- ---- (366,091)
Net increase in loans (6,987,442) (15,602,990) (14,249,854)
Recoveries of charged-off loans 1,369,464 951,437 643,205
Proceeds from sales of other real estate 241,078 343,251 676,126
Purchase of bank premises and equipment (349,716) (1,587,916) (1,343,164)
Acquisition, net of cash acquired (7,236,830) ---- ----
--------------------------------------------
Net cash used by investing activities (11,647,309) (6,772,171) (19,317,048)
--------------------------------------------
Cash flows from financing activities:
Net increase in demand, interest-bearing transaction
and savings accounts 3,721,626 9,332,495 9,195,656
Net increase in certificates of deposit 3,913,417 1,535,804 2,780,309
Net increase in securities sold
with agreements to repurchase 5,459,000 ---- ----
--------------------------------------------
Dividends paid (400,000) (300,000) (400,000)
--------------------------------------------
Net cash provided by financing activities 12,694,043 10,568,299 11,575,965
--------------------------------------------
Net increase (decrease) in cash and cash equivalents 3,522,151 6,412,699 (4,732,850)
Cash and cash equivalents at beginning of year 15,161,017 8,748,318 13,481,168
--------------------------------------------
Cash and cash equivalents at end of year $ 18,683,168 $ 15,161,017 $ 8,748,318
============================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
31
<PAGE> 32
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
Cash flows from operating activities: 1995 1994 1993
---------------------------------------
<S> <C> <C> <C>
Supplementary cash flow information:
Interest paid $ 4,650,611 $ 3,260,885 $ 2,978,165
=======================================
Income taxes paid $ 630,000 $ 332,600 $ 297,190
=======================================
Details of acquisition (note 3)
Fair value of assets acquired $43,166,458 $ ---- $ ----
Less: liabilities assumed 36,233,506 ---- ----
---------------------------------------
Net assets acquired 6,932,952 ---- ----
Goodwill 1,801,597 ---- ----
---------------------------------------
Cash paid 8,734,549 ---- ----
Less: cash acquired 1,497,719 ---- ----
---------------------------------------
Acquisition, net of cash acquired $ 7,236,830 $ ---- $ ----
=======================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
32
<PAGE> 33
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Corpus Christi
Bancshares, Inc. ("CCBI") and its wholly owned subsidiaries, C.S.B.C.C., Inc.
and Citizens State Bank of Corpus Christi, Texas ("Bank," collectively, the
"Company"). All significant intercompany transactions have been eliminated in
the consolidated financial statements. Effective December 28, 1992, CCBI
transferred the ownership of the Bank to C.S.B.C.C., Inc., a Delaware
corporation formed as a wholly-owned subsidiary of CCBI. CCBI and C.S.B.C.C.,
Inc. are bank holding companies 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 CCBI 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 CCBI owns one hundred percent
of C.S.B.C.C., Inc. which in turn owns one hundred percent of the Bank. CCBI 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 CCBI.
The Bank is engaged in the business of banking, including the acceptance of
checking and savings deposits, and the making of residential, commercial, real
estate, and consumer loans to customers principally located in San Patricio and
Nueces County in South Texas. Although the Bank's loan portfolio is diversified,
a substantial portion of its debtors' ability to honor their contracts is
dependent upon economic conditions in the area, especially in the agricultural,
health services (see Note 6), and other commercial business sectors. In
addition, the Bank's net interest income is directly impacted by fluctuations in
market interest rates.
The accounting and reporting policies of the 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 issued Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," 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 SFAS No.
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 shareholders' equity. The Company adopted
SFAS No. 115 on January 1, 1994 and designated all of its obligations of U.S.
government agencies and obligations of states and political subdivisions
currently classified as investment securities as securities 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
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 shareholders' equity, net of taxes, and increased
shareholders' equity approximately $476 thousand at January 1, 1994.
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. Gains and losses recognized on the sale of securities are based on the
specific identification method.
Included in securities available for sale are mortgage pass-through and related
securities which represent participating interest in pools of long-term first
mortgage loans originated and serviced by the issuers of the securities.
Mortgage-backed securities are carried at fair value. Market interest rate
fluctuations can affect both the timing of prepayments of principal and the
yield on the securities.
33
<PAGE> 34
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. Because such allowance is an estimate, the losses ultimately
realized may be more or less than recorded amounts. 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. At that time, any uncollected interest receivable that was accrued
during the current period is reversed and any uncollected interest accrued in
prior periods is charged off. Interest income on nonaccrual loans is recognized
on the cash basis.
The Company adopted the provisions of SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosure," on January 1, 1995.
Management, considering current information and events regarding the borrowers'
ability to repay their obligations, considers a loan to be impaired when it is
probable that the Company will be unable to collect all amounts due according to
the contractual terms of the loan agreement. Large groups of smaller-balance
homogeneous loans that are evaluated collectively for impairment are excluded
from this statement. When a loan is considered to be impaired, the amount of the
impairment is measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate. Impairment losses are charged
against the allowance for loan losses. Cash receipts on impaired loans are
applied to reduce the principal amount of such loans until the principal has
been recovered and are recognized as interest income thereafter. Prior periods
have not been restated.
OTHER REAL ESTATE
Other real estate, acquired through foreclosure or deed in lieu of 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> 35
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES
The Company files a consolidated federal tax return.
Income taxes are accounted for in accordance with the provisions of SFAS No.
109, "Accounting for Income Taxes." Under SFAS No. 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 SFAS No. 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.
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 betterment's are capitalized.
TRUST DEPARTMENT
Securities and other property held by the Bank's 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 1995,
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.
INTANGIBLE ASSETS
Intangible assets include goodwill. Goodwill represents the cost in excess of
the fair market value of the net identifiable assets acquired in the purchase of
The First National Bank of Taft, Texas ("Taft") in 1995. Amortization is on a
straight-line basis over 15 years.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to current year's
method of presentation.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
35
<PAGE> 36
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, 1995 was $5,220,000, which the Bank satisfied with vault cash and
deposits at the Federal Reserve Bank.
3. ACQUISITION
On October 31, 1995, the Bank acquired one hundred percent of the outstanding
common stock of Taft pursuant to an Agreement and Plan of Merger dated July 5,
1995, between the Bank and Taft. The acquisition has been accounted for as a
purchase and, accordingly, the results of operation of Taft have been included
in the Company's consolidated financial statements from October 31, 1995. Taft
is engaged in the business of banking and will continue to operate as a branch
of the Bank.
Each outstanding share of common stock, par value $5.00 per share, of Taft on
the date of acquisition was converted into the right to receive cash
consideration of $94.83 per share. The excess of the purchase price, $8,734,549,
over the fair market value of the net identifiable assets acquired totaled
$1,801,597 and has been recorded as goodwill. Such goodwill is being amortized
on a straight-line basis over 15 years.
The following unaudited pro forma financial information presents the
consolidated results of operations as if the acquisition of Taft had occurred on
January 1, 1995 and 1994, respectively, after giving effect to certain
adjustments, including amortization of goodwill, additional depreciation
expense, amortization/accretion of premiums/discounts on investment securities,
and related income tax effects. The pro forma financial information does not
necessarily reflect the results of operations that would have occurred had the
Company and Taft constituted a single entity during such periods.
<TABLE>
<CAPTION>
1995 1994
---------------------------
<S> <C> <C>
Interest and other income $18,102,551 $15,551,326
Net income 2,180,199 2,163,398
Net income per common share 1.29 1.29
</TABLE>
36
<PAGE> 37
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, 1995
--------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $40,429,105 $210,918 $ (42,833) $40,597,190
Mortgage pass-through and related
securities 39,950,710 187,002 (75,836) 40,061,876
Other securities 610,150 ---- ---- 610,150
====================================================
Total $80,989,965 $397,920 $ (118,669) $81,269,216
====================================================
<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 $6,599,170 at December 31,
1995 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, 1995, by contractual maturity, are shown below. Actual 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 $20,179,135 $20,165,158
Due after one year through five years 20,249,970 20,432,032
Mortgage pass-through and related securities 39,950,710 40,061,876
Other securities 610,150 610,150
----------------------------
Total $80,989,965 $81,269,216
============================
</TABLE>
There were no proceeds from sales of securities available for sale during 1995.
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> 38
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, 1995
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of other U.S. government
agencies $1,003,210 $ 61,790 $ ---- $1,065,000
Obligations of states and political
subdivisions 4,859,314 177,768 (6,387) 5,030,695
=================================================
Total $5,862,524 $239,558 $ (6,387) $6,095,695
=================================================
<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
=================================================
</TABLE>
Securities held to maturity with an amortized cost of $2,355,126 at December 31,
1995 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, 1995, by contractual maturity, are shown below. Actual 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 $ 802,592 $ 801,739
Due after one year through five years 3,734,557 3,865,249
Due after five years through ten years 1,325,376 1,428,707
------------------------
Total $5,862,525 $6,095,695
========================
</TABLE>
There were no sales of securities held to maturity in 1995, 1994 or 1993.
38
<PAGE> 39
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,
----------------------------
1995 1994
----------------------------
<S> <C> <C>
Commercial and industrial $ 28,481,910 $ 26,819,212
Energy 1,691,571 2,017,322
Agricultural 3,102,465 585,414
Installment 36,670,868 28,766,338
Real estate construction 1,172,986 1,228,717
Real estate mortgage 37,835,935 38,183,212
Other 22,461 24,823
----------------------------
108,978,196 97,625,038
Unearned discount (4,444,346) (3,538,959)
----------------------------
104,533,850 94,086,079
Allowance for loan losses (2,542,513) (1,990,638)
----------------------------
$101,991,337 $ 92,095,441
============================
</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, 1995 and 1994,
the Company had a concentration of loans related to the health services industry
totaling $9,625,857 and $11,079,933, respectively. Loans related to the health
services industry represented 9% and 11% 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, 1995.
Loans on which the accrual of interest has been discontinued amounted to
$1,185,565 and $312,657 at December 31, 1995 and 1994, respectively. If interest
on these loans had been accrued, such income would have totaled $80,111, $35,105
and $47,637 for 1995, 1994 and 1993, respectively.
The Company adopted the provisions of SFAS No. 114, "Accounting by Creditors for
Impairment of Loan," as amended by SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures," effective January 1,
1995. Prior periods have not been restated. All loans have been evaluated for
collectibility under the provisions of these statements.
The recorded investments in loans for which an impairment has been recognized
and the related allowance for loan losses at December 31, 1995 were $2,052,057
and $730,946, respectively. The average recorded investment in impaired loans
during 1995 was $2,175,379. Interest income recognized on impaired loans during
1995 was $87,585.
During 1995, the Company reduced its allowance for loan losses through a
$600,000 "negative" provision as a result of several quarters of increased
recoveries on loans which resulted in an allowance for loan losses that exceeded
the minimum level determined necessary by the Company. The Company made a
$300,000 "negative" provision in 1994 and made no provision in 1993.
39
<PAGE> 40
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Transactions in the allowance for loan losses for each of the years in the
three-year period ended December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $1,990,638 $1,794,380 $1,726,930
Loans charged-off (475,134) (455,179) (575,755)
Recoveries on loans 1,369,464 951,437 643,205
--------------------------------------
Net loans recovered 894,330 496,258 67,450
Provisions credited to operating expenses (600,000) (300,000) ----
Allowance acquired in purchase transaction 257,545 ---- ----
--------------------------------------
Balance at end of year $2,542,513 $1,990,638 $1,794,380
======================================
</TABLE>
7. BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31, 1995 and 1994 are comprised of the
following:
<TABLE>
<CAPTION>
1995 1994
----------------------------
<S> <C> <C>
Land $ 1,497,667 $ 1,416,629
Banking building and improvements 5,234,879 4,606,860
Furniture, fixtures and equipment 4,717,960 4,451,675
Leasehold improvements 463,309 452,344
Other 69,280 62,135
----------------------------
Total 11,983,095 10,989,643
Accumulated depreciation (6,769,962) (6,137,441)
============================
Bank premises and equipment, net $ 5,213,133 $ 4,852,202
============================
</TABLE>
8. DEPOSITS
Interest-bearing transaction accounts included in the consolidated balance
sheets are comprised of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1995 1994
---------------------------
<S> <C> <C>
NOW accounts $29,268,483 $24,967,576
Money Market accounts 43,226,091 33,201,850
===========================
$72,494,574 $58,169,426
===========================
</TABLE>
Included in certificates of deposit in the accompanying consolidated balance
sheets are certificates in denominations of $100,000 or more aggregating
$15,156,682 and $10,502,219 at December 31, 1995 and 1994, respectively.
Interest expense on certificates of deposits in denominations of $100,000 or
more amounted to $630,327, $405,788 and $359,150 in 1995, 1994 and 1993,
respectively. These certificates and their remaining maturities at December 31,
1995 are as follows:
<TABLE>
<S> <C>
Three months or less $ 5,006,804
Three through six months 3,239,307
Six through twelve months 3,646,267
Over twelve months 3,264,304
===========
Total $15,156,682
===========
</TABLE>
40
<PAGE> 41
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. INCOME TAXES
Components of income tax expense are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------------
<S> <C> <C> <C>
Federal current income taxes $ 727,000 $284,743 $290,000
Deferred federal income taxes 310,945 94,984 ----
-------------------------------
Total income tax expense $1,037,945 $379,727 $290,000
===============================
</TABLE>
The actual tax expense for the years 1995, 1994, and 1993 differs from the
"expected" tax expense for those years computed by applying the U.S. federal
corporate tax rate to income before income taxes, as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------------------
<S> <C> <C> <C>
Computed expected tax expense $1,010,825 $ 746,607 $ 847,041
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)
Other 27,120 (19,880) (9,798)
===================================
Total income tax expense $1,037,945 $ 379,727 $ 290,000
===================================
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and deferred tax liabilities at December 31, 1995 and
1994 are presented below:
<TABLE>
<CAPTION>
1995 1994
------------------------
<S> <C> <C>
Deferred tax assets:
Bank premises and equipment $ ---- $ 66,000
Other real estate 142,000 97,000
Alternative minimum tax credit carryforwards ---- 43,000
Net unrealized losses on securities available for sale ---- 392,000
Other
4,000 16,000
-----------------------
Total gross deferred tax assets 146,000 614,000
Less valuation allowance ---- (136,000)
------------------------
Net deferred tax assets 146,000 478,000
------------------------
Deferred tax liabilities:
Bank premises and equipment 164,000 ----
Net unrealized gains on securities available for sale 95,000 ----
Investment securities, primarily due to purchase
accounting adjustments 184,000 ----
Allowance for loan losses 667,000 407,000
Other 72,000 71,000
------------------------
Total gross deferred tax liabilities 1,182,000 478,000
------------------------
Net deferred tax asset (liability) $(1,036,000) $ ----
========================
</TABLE>
41
<PAGE> 42
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The valuation allowance for deferred tax assets as of December 31, 1993 was
$186,000. The net change in the total valuation allowance for the year ended
December 31, 1994 was a decrease of $50,000, consisting of two offsetting
amounts. The first amount is an increase of $297,000 which is included as a
component of shareholders' 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 net decrease of $136,000 in the valuation allowance for deferred
tax assets during 1995 is included as a component of shareholders' equity
because the change was attributable to the change in the unrealized gain (loss)
related to the securities available for sale.
The significant components of deferred income tax expense attributable to income
before income taxes for the years ended December 31, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
1995 1994
-------------------
<S> <C> <C>
Deferred tax expense exclusive of the effects of
other components listed below $310,945 $ 441,984
Change in the valuation allowance
for deferred tax assets ---- (347,000)
===================
$310,945 $ 94,984
===================
</TABLE>
The Company has utilized all remaining alternative minimum tax credit
carryforwards in 1995.
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 $72,722,
$60,542 and $56,348 in 1995, 1994 and 1993, 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.
42
<PAGE> 43
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. NONQUALIFIED STOCK OPTION PLAN AND SHAREHOLDER RIGHTS 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 believed had 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, 1995, options for all 160,000
shares were outstanding, all of which are exercisable, as no options were
exercised during 1995, 1994 or 1993. Expiration dates are ten years from the
date of the grant.
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which establishes a fair value based
method of accounting for stock-based compensation plans. Under SFAS No. 123,
companies may adopt the new method of accounting or continue to account for such
transactions under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," but will be required to disclose in a note to the
financial statements pro forma net income and, if presented, earnings per share
as if the company had applied the fair value method of accounting, as defined in
SFAS No. 123. The disclosure requirements will be effective for financial
statements for fiscal years beginning after December 15, 1995. The Company has
not yet determined the effect this standard will have on net income and earnings
per share should it elect to change accounting method. Adoption of SFAS No. 123
will have no effect on the Company's cash flows.
On October 18, 1995, the Board of Directors adopted a shareholder rights plan
that provided for rights to be issued to shareholders of record on November 3,
1995. The rights will become exercisable and allow the holders to acquire
additional shares of the Company's common stock at a discounted price at such
time a person or group acting in concert acquires 20% or more, or acquired the
right to acquire 20% or more, of the Company's common stock. The Board of
Directors may, at its option, redeem all rights for $.01 per right, generally at
any time prior to the rights becoming exercisable. The rights will expire on
October 18, 2005, unless earlier redeemed by the Board of Directors.
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, 1995 and 1994, the aggregate loans to such officers, directors
and companies totaled $1,801,000 and $2,064,000, respectively. During 1995,
$245,000 of new loans were made and repayments totaled $508,000.
43
<PAGE> 44
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>
1995 1994
---------------------------
<S> <C> <C>
Financial instruments whose contract amounts represent
credit risk:
Commitments to extend credit $17,205,595 $10,448,294
Standby letters of credit and financial guarantees 452,000 468,900
===========================
Total $17,657,595 $10,917,194
===========================
</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 of those commitments collateralized at
December 31, 1995 was $16,744,295, or 97%.
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 of those commitments collateralized at
December 31, 1995 was $427,000, or 94%.
At December 31, 1995, 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>
1996 $164,703
1997 113,222
1998 69,884
1999 22,428
--------
$370,237
========
</TABLE>
Rent expense totaled $171,443, $154,218 and $125,903 in 1995, 1994 and 1993,
respectively.
44
<PAGE> 45
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. Management believes that the Bank is
currently in substantial compliance with all applicable laws and regulations
with regulatory authorities; however, the Bank could be affected by existing or
future laws or regulations.
CAPITAL REQUIREMENTS
At December 31, 1995, the Bank had an equity capital ratio of 6.4% which exceeds
the minimum required guideline of 6.0% specified by the Texas Department of
Banking. For the purposes of this ratio, shareholders' equity does not include
intangible assets or unrealized gains or losses on securities available for sale
in accordance with regulatory guidance. The Bank had an equity capital ratio of
8.4% and 8.2% at year-end 1994 and 1993, respectively. The decrease in the
equity capital ratio in 1995 as compared to 1994 was a direct result of the Taft
acquisition.
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, shareholders' equity does not include unrealized
gains or losses on securities available for sale in accordance with regulatory
guidance. Tier 1 capital includes only common shareholders' equity. Tier 2
capital includes common shareholders' equity and the allowance for loan losses.
The allowance for loan losses may be included only to the extent of 1.25% of
risk-adjusted assets. Any excess of the allowance for loan losses over the limit
is treated as a reduction in the total risk-based asset amount in the risk-based
capital calculation. Leverage ratio is the ratio of Tier 1 capital to total
assets reduced for any intangible assets. At December 31, 1995, the Company and
the Bank each had a Tier 1 capital ratio of 12.0%, combined Tier 1 and Tier 2
capital ratio of 13.3% and leverage ratio of 6.4% based on risk-based capital
guidelines, which are well above the regulatory requirements. 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%.
Bank regulatory agencies limit the amount of dividends which the Bank can pay to
CCBI, without obtaining prior approval, if the payment would result in less than
minimum capital ratios described above. At December 31, 1995, the Bank had the
capacity to declare approximately $900,000 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 $547,400 and $474,100, respectively, at December
31, 1995 and 1994. No stock was required to be maintained in 1993.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 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.
45
<PAGE> 46
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 bank premises 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.
CASH, DUE FROM BANKS AND SHORT-TERM INVESTMENTS
For those short-term instruments, the carrying amount is a reasonable estimate
of fair value.
SECURITIES AVAILABLE FOR SALE AND SECURITIES HELD TO MATURITY
For securities held to maturity 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.
The carrying amount of nonperforming loans was not significant at December 31,
1995 or 1994.
ACCRUED INTEREST RECEIVABLE AND PAYABLE
The carrying values of accrued interest receivable and payable approximated
their fair values 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, 1995 and
1994. 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.
OTHER ASSETS, SECURITIES SOLD WITH AGREEMENTS TO REPURCHASE, DIVIDENDS PAYABLE
AND OTHER LIABILITIES
The carrying value of these financial assets and liabilities approximated their
fair value due to the short-term nature of these instruments.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
Commitments to extend credit and standby letters of credit are principally at
current interest rates and therefore have no material associated fair value.
46
<PAGE> 47
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, 1995 December 31, 1994
---------------------------------------------------------
Carrying Fair Carrying Fair
Financial assets: Amount Value Amount Value
---------------------------------------------------------
<S> <C> <C> <C> <C>
Cash, due from banks and short-
investments $ 24,683,168 $ 24,683,168 $ 21,061,017 $ 21,061,017
Securities available for sale 81,269,216 81,269,216 44,102,450 44,102,450
Securities held to maturity 5,862,524 6,095,695 6,768,043 6,856,118
Loans, net of allowance for loan
losses 101,991,337 96,517,394 92,095,441 86,586,329
Accrued interest receivable 1,842,287 1,842,287 1,483,449 1,483,449
Other assets 694,284 694,284 402,298 402,298
---------------------------------------------------------
Total financial assets $ 216,342,816 $211,102,044 $ 165,912,698 $160,491,661
=========================================================
Financial liabilities:
Demand deposits $ 58,790,068 $ 58,790,068 $ 43,932,959 $ 43,932,959
Interest bearing transaction accounts 72,494,574 72,494,574 58,169,426 58,169,426
Savings deposits 15,600,520 15,600,520 15,294,615 15,294,615
Certificates of deposit 54,012,748 54,784,577 40,261,543 40,107,200
Securities sold with agreements
to repurchase 5,459,000 5,459,000 --- ---
Accrued interest payable 370,369 370,369 202,820 202,820
Dividends payable 100,000 100,000 100,000 100,000
Other liabilities 985,387 985,387 129,832 129,832
---------------------------------------------------------
Total financial liabilities $ 207,812,666 $208,584,495 $ 158,091,195 $157,936,852
=========================================================
<CAPTION>
Contract Fair Contract Fair
Unrecognized financial instruments: Amount Value Amount Value
---------------------------------------------------------
<S> <C> <C> <C> <C>
Commitments to extend credit $ 17,205,595 $ --- $ 10,448,294 $ ---
Standby letters of credit 452,000 --- 468,900 ---
</TABLE>
16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table is a summary of operations by quarter for the years ended
December 31, 1995 and 1994:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1995: QUARTER QUARTER QUARTER QUARTER
-----------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $2,859,567 $3,041,654 $3,115,383 $3,572,460
Net interest income 1,816,313 1,855,578 1,929,353 2,169,660
Net income 420,104 445,263 430,399 639,303
Weighted average of common stock and
common stock equivalents outstanding 1,679,436 1,681,260 1,695,118 1,692,375
Net income per share $ .25 $ .26 $ .25 $ .38
<CAPTION>
First Second Third Fourth
1994: Quarter Quarter Quarter Quarter
-----------------------------------------------------
<S> <C> <C> <C> <C>
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
</TABLE>
47
<PAGE> 48
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. PARENT COMPANY INFORMATION
CCBI is a two-tiered one-bank holding company whose principal asset is its
investment in C.S.B.C.C., Inc., which owns the Bank. CCBI has no material
contingencies, guarantees, long-term obligations or short term borrowings.
CCBI's subsidiaries paid dividends totaling $645,000, $670,000, and $575,000 to
CCBI in 1995, 1994 and 1993, respectively. Prior to 1992, no dividends had been
paid to CCBI since 1987.
Condensed financial statements of CCBI only were as follows:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------
Assets: 1995 1994
------------------------
<S> <C> <C>
Cash $ 142,062 $ 203,920
Investment in subsidiaries 16,012,635 13,334,541
------------------------
Total assets $16,154,697 $13,538,461
========================
Liabilities:
Dividends payable $ 100,000 $ 100,000
------------------------
Total liabilities 100,000 100,000
Shareholders' equity 16,054,697 13,438,461
------------------------
Total liabilities and shareholders'
equity $16,154,697 $13,538,461
========================
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
Income: 1995 1994 1993
----------------------------------
<S> <C> <C> <C>
Dividends received from subsidiary $ 645,000 $ 670,000 $ 575,000
Expenses:
Director fees $ 13,500 $ 15,800 $ 9,000
Legal and professional services 229,723 153,884 135,098
Printing 59,567 7,535 14,320
Other expenses 4,068 1,647 15,459
----------------------------------
Total expenses 306,858 178,866 173,877
----------------------------------
Income before equity in
undistributed income of subsidiary 338,142 491,134 401,123
Equity in undistributed income
of subsidiary 1,596,927 1,325,041 1,800,174
==================================
Net income $1,935,069 $1,816,175 $2,201,297
==================================
</TABLE>
48
<PAGE> 49
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1995
<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, 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
SFAS 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
gains (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
Net income --- --- 1,935,069 --- 1,935,069
Cash dividends, declared,
$.25 per share --- --- (400,000) --- (400,000)
Net change in unrealized
gains (losses) on securities
available for sale --- --- --- 1,081,167 1,081,167
=======================================================================
Balance, December 31, 1995 $8,000,000 $ --- $ 8,032,273 $ 22,424 $16,054,697
=======================================================================
</TABLE>
49
<PAGE> 50
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1995 1994 1993
-----------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,935,069 $ 1,816,175 $ 2,201,297
Adjustments to reconcile net income
to net cash used by operating activities:
Equity in earnings of subsidiaries (2,241,927) (1,995,041) (2,375,174)
-----------------------------------------
Net cash used by operating activities (306,858) (178,866) (173,877)
-----------------------------------------
Cash flows from investing activities:
Dividends from subsidiaries 645,000 670,000 575,000
-----------------------------------------
Net cash provided by investing activities 645,000 670,000 575,000
-----------------------------------------
Cash flows from financing activities:
Dividends paid (400,000) (300,000) (400,000)
-----------------------------------------
Net cash used by financing activities (400,000) (300,000) (400,000)
-----------------------------------------
Net increase (decrease) in cash (61,858) 191,134 1,123
Cash at beginning of year 203,920 12,786 11,663
-----------------------------------------
Cash at end of year $ 142,062 $ 203,920 $ 12,786
=========================================
</TABLE>
50
<PAGE> 1
EXHIBIT 21
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
29
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 18,568,553
<INT-BEARING-DEPOSITS> 114,615
<FED-FUNDS-SOLD> 6,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 81,269,216
<INVESTMENTS-CARRYING> 5,862,524
<INVESTMENTS-MARKET> 6,095,695
<LOANS> 104,533,850
<ALLOWANCE> 2,542,513
<TOTAL-ASSETS> 223,867,363
<DEPOSITS> 200,897,910
<SHORT-TERM> 5,459,000
<LIABILITIES-OTHER> 1,455,756
<LONG-TERM> 0
0
0
<COMMON> 8,000,000
<OTHER-SE> 8,054,697
<TOTAL-LIABILITIES-AND-EQUITY> 223,867,363
<INTEREST-LOAN> 8,757,687
<INTEREST-INVEST> 3,090,863
<INTEREST-OTHER> 740,514
<INTEREST-TOTAL> 12,589,064
<INTEREST-DEPOSIT> 4,653,331
<INTEREST-EXPENSE> 4,818,160
<INTEREST-INCOME-NET> 7,770,904
<LOAN-LOSSES> (600,000)
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,453,381
<INCOME-PRETAX> 2,973,014
<INCOME-PRE-EXTRAORDINARY> 2,973,014
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,935,069
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.15
<YIELD-ACTUAL> 4.7
<LOANS-NON> 1,185,565
<LOANS-PAST> 134,350
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,062,924
<ALLOWANCE-OPEN> 1,990,638
<CHARGE-OFFS> 475,134
<RECOVERIES> 1,369,464
<ALLOWANCE-CLOSE> 2,542,513
<ALLOWANCE-DOMESTIC> 2,542,513
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
