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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
TEJAS BANCSHARES, INC.
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(Exact name of registrant as specified in its charter)
Texas 75-1950688
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
905 South Fillmore, Suite 701, Amarillo, Texas 79101
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (806) 373-7900
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Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None None
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value per share
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(Title of Class)
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ITEM 1. BUSINESS
GENERAL
TEJAS BANCSHARES, INC.
Tejas Bancshares, Inc. (the "Company") was incorporated as a Texas
corporation on June 22, 1983, to serve as a bank holding company, as defined
in the Bank Holding Company Act of 1956, as amended (the "BHC Act"). On
December 31, 1983 the Company became a bank holding company through the
acquisition of all of the issued and outstanding capital stock of Fritch
State Bank, a Texas banking association. As described herein, during 1997
Fritch State Bank relocated its main office to Amarillo, Texas, and converted
its charter from a Texas banking association to a national banking
association under the title "The First National Bank of Amarillo" (the
"Bank").
The Company owns all of the issued and outstanding capital stock of the
Bank.
As of December 31, 1997, the Company had, on a consolidated basis, total
assets of approximately $144,740,000, total deposits of approximately
$106,255,000, total loans of approximately $117,102,000 (net of unearned
discount and allowance for loan losses), and total stockholders' equity of
approximately $37,853,000.
The Company does not, as an entity, engage in separate business
activities of a material nature apart from the activities it performs for the
Bank. The primary activities of the Company are to provide assistance in the
management and coordination of its Bank's financial resources and to provide
capital, business development, long-range planning, and public relations
services for the Bank. The Bank operates under the day-to-day management of
its own officers and the Bank Board formulates its own policies with respect
to banking and business matters.
The Company's primary source of revenue is dividends from the Bank. Any
future dividend payments by the Bank will be determined by the Bank based on
its financial condition and such dividends may only be declared and paid in
compliance with applicable law and regulatory guidelines.
As a bank holding company, the Company is subject to regulation by the
Board of Governors of the Federal Reserve System (the "Federal Reserve") in
accordance with the requirements set forth in the BHC Act and by the rules
and regulations promulgated thereunder by the Federal Reserve.
THE FIRST NATIONAL BANK OF AMARILLO
The Bank is a national banking association with its main office in
Amarillo, Texas. The Bank opened for business on April 10, 1965 as a Texas
banking association and converted to a national banking association effective
June 30, 1997. As a national banking association, the Bank is subject to
regulation by the Comptroller of the Currency (the "Comptroller") in
accordance with the requirements set forth in the National Bank Act and the
rules and regulations promulgated
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thereunder by the Comptroller. As of December 31, 1997, the Bank had total
assets of approximately $143,981,000, total deposits of approximately
$107,139,000, total loans of approximately $117,102,000 (net of unearned
discount and allowance for loan losses), and total stockholders' equity of
approximately $36,373,000.
The Bank provides a full range of banking services to business,
industry, public and governmental organizations and individuals located in
Amarillo, Dalhart and Fritch, Texas. The Bank provides its customers with a
variety of commercial banking services. For businesses, the Bank offers
checking facilities, certificates of deposit, short-term loans for working
capital purposes, term loans for fixed assets and expansion needs and other
commercial loans suitable to the needs of its business customers. When the
borrowing needs of a customer exceed the Bank's lending limit, the Bank
participates with other banks in making the loan. Similarly, the Bank
provides other services for its customers through its correspondent and other
relationships with other financial institutions.
The individual services provided by the Bank include checking accounts,
savings accounts, certificates of deposit, Money Market Deposit accounts, NOW
accounts, IRA and qualified retirement plans, safe deposit facilities and
personal loan programs, including home improvement loans, short-term mortgage
loans and installment loans for the purchase of automobiles and other
consumer goods. The Bank also provides cashier's checks, travelers' checks,
money orders, wire transfers, and bank-by-mail services. The Bank does not
presently offer trust services.
CHANGE IN CONTROL OF THE COMPANY AND THE BANK
Effective May 23, 1997, Mr. Donald E. Powell, the Company's and the
Bank's President and Chief Executive Officer, acquired control of all of the
outstanding stock of the Company. Mr. Powell's acquisition of control of the
Company was accomplished pursuant to the terms of a Stock Purchase Agreement
by and among Mr. Powell, the Company and all of the shareholders of the
Company.
The Stock Purchase Agreement provided that the Company would repurchase
approximately 73% of its outstanding common stock from existing shareholders
and that Mr. Powell would acquire the remaining shares from one or more
shareholders. The aggregate purchase price for such shares to be received by
all of the shareholders of the Company was $2,163,697.45, and was determined
through arms'-length negotiations among the shareholders of the Company, the
Company and Mr. Powell. The Stock Purchase Agreement contemplated that
certain non-performing loan assets on the books of the Bank would be
transferred out of the Bank for the benefit of the Company's then-current
shareholders. Immediately prior to the closing of the Acquisition, not all
such non-performing loan assets had been transferred to the shareholders and
remained on the Bank's books. Accordingly, the aggregate purchase price for
the stock of the Company was adjusted downward, and Mr. Powell and the
Company on behalf of its shareholders entered into an agreement pursuant to
which any net recoveries on such non-performing assets received after the
effective date of the Acquisition would be subsequently transferred to the
Company's shareholders on a pro rata basis according to such shareholder's
respective ownership interest in the Company on the closing date of the
Acquisition. The
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aggregate value of such non-performing loan assets was approximately $79,000
as of May 23, 1997, the effective date of the Acquisition.
Immediately prior to consummation of the transaction, the Company had
9,195 shares of common stock, par value $10.00 per share, issued and
outstanding and owned by approximately 21 shareholders of the Company.
Pursuant to the Stock Purchase Agreement, the Company repurchased 6,695
shares of the common stock for $1,575,416.47, which shares were subsequently
canceled, thereby reducing the number of outstanding shares of the Company to
2,500. Simultaneously, Mr. Powell acquired the remaining 2,500 shares of the
Company's outstanding shares of common stock for $588,280.98 from a single
shareholder of the Company. As a result of these simultaneous transactions,
referred to herein as the "Acquisition," Mr. Powell's resulting ownership of
2,500 shares constituted ownership of all of the outstanding shares of the
Company.
The purchase price for the 6,695 shares repurchased by the Company,
$1,575,416.47 in the aggregate, was funded from (i) the proceeds of a
$1,000,000 loan to the Company by Mr. Powell, and (ii) a dividend paid to the
Company by the Bank. The loan to the Company from Mr. Powell, which,
pursuant to the terms of a promissory note given by the Company to Mr.
Powell, was to be repaid over a 10-year period, was secured by a pledge of
all of the capital stock of the Bank owned by the Company. The loan was
repaid in full on September 2, 1997.
Prior to acquiring a controlling interest in the Company, and an
indirect controlling interest in the Bank, Mr. Powell applied for, and
received regulatory approval of the Acquisition from the Federal Reserve Bank
of Dallas and the Texas Department of Banking.
Following completion of Mr. Powell's acquisition of all of the
outstanding stock of the Company, and in anticipation of intrastate public
offering of the Company's common stock, the Articles of Incorporation of the
Company were amended to (i) increase the authorized shares of common stock of
the Company from 10,000 shares to 20,000,000 shares, (ii) reduce the par
value of the common stock of the Company from $10.00 per share to $1.00 per
share, (iii) eliminate the preemptive rights of the shareholders of the
Company, and (iv) generally update the indemnification provisions presently
contained within the Company's organizational documents. As Mr. Powell was
the Company's sole shareholder following consummation of the Acquisition,
such amendments were approved by unanimous written consent following adoption
by the Company's Board of Directors.
In addition, on July 2, 1997, the Company effected a 77.4372-for-1 stock
dividend to all shareholders of record on June 30, 1997 (the "Stock
Dividend"). As a result of this stock dividend, Mr. Powell's 2,500 shares
were converted into 196,093 shares of the Company's common stock,
representing all of the current outstanding shares. The purpose and effect
of the Stock Dividend was to preserve Mr. Powell's investment in the Company
($588,280.98) in relation to the price of the shares offered to the public at
$3.00 per share. Mr. Powell's original $588,280.98 investment in the Company
is the economic equivalent of having purchased 196,093 shares (excluding a
fractional share interest) at $3.00 per share (196,093 shares x $3.00 =
$588.279). The conversion of Mr. Powell's 2,500 shares into 196,093 shares
was accomplished
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by declaring a dividend of 77.4372 shares for each share of Common Stock
outstanding (2,500 shares outstanding + (77.4372 x 2,500 shares) = 196,093).
Following the Stock Dividend, Mr. Powell's cost basis in such stock equaled
$3.00 per share, which is equivalent to the price of the Common Stock offered
in the public offering. Additional information regarding the public offering
is set forth in Item 10 to the Registration Statement on Form 10.
COMPETITION
The banking business in the Bank's trade area, which includes Amarillo,
Dalhart and Fritch, Texas, and surrounding areas within the Panhandle of
Texas, has become increasingly competitive over the past several years and
the level of competition facing the Company and the Bank may increase
further. The Company and the Bank experience competition in both lending and
attracting funds from other banks and non-bank financial institutions located
in their market area. Non-bank competitors with respect to deposits and
deposit-type accounts include savings and loan associations, credit unions,
securities firms, money market funds, life insurance companies and the mutual
funds industry. With respect to loans, the Bank encounters competition from
other banks, savings and loan associations, finance companies, insurance
companies, small loan and credit card companies, credit unions, pension
trusts and securities firms.
Recent legislation, court decisions and administrative actions have
expanded the areas of business activities in which bank and non-bank
financial institutions may engage. To the extent that such activities are
engaged in by others, the level of competition for the Company and the Bank
is expected to increase. Some competitors are not subject to the same degree
of regulation and supervision as the Company and the Bank.
Many of the banks and other financial institutions with which the
Company and Bank compete have capital resources and legal loan limits
substantially in excess of those maintained by the Company and Bank. Such
institutions can perform certain functions for their customers, including
trust, securities brokerage and international banking services, which the
Company and Bank presently do not offer directly. Although the Company may
offer these services through correspondent banks, the inability to provide
such services directly may be a competitive disadvantage.
The Company considers its principal competition in the commercial
banking business to be the other full service banks located in its primary
market areas. The products and services offered by the Company and its target
market are most similar to those of area banks and, to some extent, savings
associations.
The Bank seeks to provide a high level of personalized banking service
to professionals and owner-operated businesses, emphasizing quick and
flexible responses to customer demands. The Bank relies heavily on the
efforts of its officers, directors and existing shareholders for the
solicitation and referral of potential customers, and expects this to
continue for the foreseeable future.
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SUPERVISION AND REGULATION
Banking is a complex, highly regulated industry. The primary goals of
the bank regulatory scheme are to maintain a safe and sound banking system
and to facilitate the conduct of monetary policy. In furtherance of those
goals, Congress has created several largely autonomous regulatory agencies
and enacted myriad legislation that governs banks, bank holding companies and
the banking industry. Descriptions of and references to the statutes and
regulations below are brief summaries thereof, do not purport to be complete.
The descriptions are qualified in their entirety by reference to the
specific statutes and regulations discussed.
THE COMPANY
As a bank holding company under the BHC Act, the Company is registered
with and is subject to regulation by the Federal Reserve. Among other
things, applicable statutes and regulations require the Company to file
annual and other reports with and furnish information to the Federal Reserve,
which may make inspections of the Company.
The BHC Act provides that a bank holding company must obtain the prior
approval of the Federal Reserve for the acquisition of more than five percent
(5%) of the voting stock or substantially all the assets of any bank or bank
holding company. The Company currently does not have any formal agreements or
commitments with respect to any such transaction. However, the Company
evaluates opportunities to invest in or acquire other banks or bank holding
companies as such opportunities arise and may engage in one or more such
transactions in the future. In addition, the BHC Act restricts the extension
of credit by the Bank to the Company. The BHC Act also provides that, with
certain exceptions, a bank holding company may not (i) engage in any
activities other than those of banking or managing or controlling banks and
other authorized subsidiaries or (ii) own or control more than five percent
(5%) of the voting shares of any company that is not a bank, including any
foreign company. A bank holding company is permitted, however, to acquire
shares of any company, the activities of which the Federal Reserve, after due
notice and opportunity for hearing, has determined to be so closely related
to banking or managing or controlling banks as to be a proper incident
thereto. The Federal Reserve has issued regulations setting forth specific
activities that are permissible under that exception. The Company does not
currently have any agreements or commitments to engage in any such nonbanking
activities.
In approving acquisitions by bank holding companies of banks and
companies engaged in banking-related activities, the Federal Reserve
considers whether the performance of any such activity by an affiliate of the
holding company can reasonably be expected to produce benefits to the public,
such as greater convenience, increased competition or gains in efficiency,
that outweigh such possible adverse effects as undue consideration of
resources, decreased or unfair competition, conflicts of interest or unsound
banking practices. The Federal Reserve has cease-and-desist powers over
parent holding companies and nonbanking subsidiaries where their actions
would constitute a serious threat to the safety, soundness or stability of a
subsidiary bank. Federal regulatory agencies also have authority to regulate
debt obligations (other than commercial paper) issued by bank holding
companies. That authority includes the power to impose interest ceilings and
reserve requirements on such debt obligations. A bank holding company and
its subsidiaries
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are also prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, lease or sale of property or
furnishing of services.
A bank holding company is also permitted to acquire shares of a company
which furnishes or performs services for a bank holding company and to
acquire shares of the kinds and in the amounts eligible for investment by
national banking associations. The Board of Directors of the Company has not
at this time made any plans to make such investments.
Federal banking law provides that a bank holding company may acquire or
establish banks in any state of the United States. In addition, the Texas
banking laws permit a bank holding company which owns stock of a bank located
outside the State of Texas (an "Out-of-State Bank Holding Company") to
acquire a bank or bank holding company located in Texas. Such acquisition
may occur only if the Texas bank to be directly or indirectly controlled by
the Out-of-State Bank Holding Company has existed and continuously operated
as a bank for a period of at least five (5) years. In any event, however, a
bank holding company may not own or control banks in Texas the deposits of
which would exceed twenty percent (20%) of the total deposits of all
federally-insured deposits in Texas. The Board of Directors of the Company
has not at this time made any plans to acquire or establish banks in any
state other than Texas.
THE BANK
The Bank is subject to various requirements and restrictions under the
laws of the United States and the State of Texas, and to regulation,
supervision and regular examination by the Comptroller. The Bank is subject
to the power of the Comptroller to enforce compliance with applicable banking
statutes and regulations. Such requirements and restrictions include
requirements to maintain reserves against deposits, restrictions on the
nature and amount of loans may be made and the interest that may be charged
thereon and restrictions relating to investments and other activities of the
Bank.
DIVIDENDS. The Bank may generally pay dividends on its stock so long as
payment of such dividends is in compliance with applicable law and
regulation. A national bank may not pay dividends from its stated capital.
Additionally, if losses have been sustained at any time by a national bank
equal to or exceeding its undivided profits then on hand, no dividend can be
paid by the bank, and all dividends must be paid out of net profits then on
hand, after deducting expenses, including losses and provisions for loan
losses. The payment of dividends out of net profits of a national bank is
further limited by a provision of the National Bank Act that prohibits a
national bank from declaring a dividend on its shares of its stock until ten
percent of the bank's net profits are transferred to surplus each time
dividends are declared, unless such a transfer would increase the surplus of
the bank to an amount greater than the bank's capital. In addition, the
prior approval of the Comptroller is required if the total of all dividends
declared by a national bank in any calendar year exceeds the total of its net
profits for that year combined with its net profits for the two preceding
years, less any required transfers to surplus or to funds for the retirement
of any preferred stock. Additionally, under the provisions of 12 U.S. C.
Section 1818, the Comptroller has the right to prohibit the payment of
dividends by a national bank where such payment is deemed to be an unsafe and
unsound banking practice.
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TRANSACTIONS WITH AFFILIATES. Among the federal legislation applicable
to the Bank, the Federal Reserve Act, as amended by the Competitive Equality
Banking Act of 1987, prohibits the Bank from engaging in specified
transactions (including, for example, loans) with certain affiliates unless
the terms and conditions of such transactions are substantially the same or
at least as favorable to such banks, as those prevailing at the time for
comparable transactions with or involving other non-affiliated entities. In
the absence of such comparable transactions, any transaction between a bank
and its affiliates must be on terms and under circumstances, including credit
standards, that in good faith would be offered or would apply to
non-affiliated companies. In addition, certain transactions, referred to as
"covered transactions," between the Bank and its affiliates may not exceed
ten percent of the Bank's capital, and surplus per affiliate and an aggregate
of twenty percent of its capital and surplus for covered transactions with
all affiliates. Certain transactions with affiliates, such as loans, also
must be secured by collateral of specific types and amounts. Finally, the
Bank is prohibited from purchasing low quality assets from an affiliate. The
Company is an affiliate of the Bank.
LOANS TO INSIDERS. Federal law also constrains the types and amounts of
loans that any bank may make to its respective executive officers, directors
and principal shareholders. Among other things, such loans must be approved
by the Bank's Board of Directors in advance and must be on terms and
conditions as favorable to the Bank as those available to unrelated persons.
REGULATION OF LENDING ACTIVITIES. Loans made by the Bank are also
subject to numerous federal and state laws and regulations, including
truth-in-lending statutes, the Federal Consumer Credit Protection Act, the
Texas Consumer Credit Code, Texas Consumer Protection Code, the Equal Credit
Opportunity Act, the Real Estate Settlement Procedures Act and adjustable
rate mortgage disclosure requirements. Remedies to the borrower and
penalties to the Bank are provided for failure of the Bank to comply with
such laws and regulations. The scope and requirements of such laws and
regulations have expanded significantly in recent years.
BRANCH BANKING. Pursuant to the Texas Finance Code, all banks located
in the State of Texas are authorized to branch statewide. Accordingly, a
bank located anywhere in Texas has the ability, subject to regulatory
approval, to establish branch facilities near any of the Bank's facilities
and within its market areas. If other banks were to establish branch
facilities near the Bank or any of its facilities, it is uncertain whether
such branch facilities would have a materially adverse effect on the business
of the Bank.
In addition, in 1994 Congress adopted the Reigle-Neal Interstate Banking
and Branching Efficiency Act of 1994 (the "Reigle Act"). That statute
provides for nationwide interstate banking and branching. However, during
1995, the Texas legislature elected to opt out of the branching provisions
under the Reigle Act until 1999. Similarly, banks located in Texas are
generally prohibited from opening branches outside of Texas. The Texas
legislature will revisit that issues during the 1999 session. Therefore,
interstate branching will continue to be prohibited in Texas until at least
1999.
GOVERNMENTAL MONETARY POLICIES. The commercial banking business is
affected not only by general economic conditions but also by the monetary
policies of the Federal Reserve.
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Changes in the discount rate on member bank borrowings, control of
borrowings, control of borrowings at the "discount window," open market
operations, the imposition of and changes in reserve requirements against
member banks, deposits and assets of foreign branches, the imposition of and
changes in reserve requirements against certain borrowings by banks and their
affiliates, and the placing of limits on interest rates which member banks
may pay on time and savings deposits are some of the instruments of monetary
policy available to the Federal Reserve. Those monetary policies influence
to a significant extent the overall growth of the bank loans, investments and
deposits and the interest rates charged on loans or paid on time and savings
deposits. The nature of future monetary policies and the effect of such
policies on the future business and earnings of the Bank, therefore, cannot
be predicted accurately.
CAPITAL ADEQUACY. In 1983, Congress enacted the International Lending
Supervision Act, which, among other things, directed the Comptroller to
establish minimum levels of capital for national banks and to require
national banks to achieve and maintain adequate capital. Pursuant to this
authority, the Comptroller has promulgated capital adequacy regulations to
which all national banks, such as the Bank, are subject.
The Comptroller's capital adequacy regulations are based upon a risk
based capital determination, whereby a bank's capital adequacy is determined
in light of the risk, both on- and off-balance sheet, contained in the bank's
assets. Different categories of assets are assigned risk weightings and,
based thereon, are counted at a percentage (from 0% to 100%) of their book
value. The regulations divide capital between Tier 1 capital, or core
capital, and Tier 2 capital, or supplemental capital. Tier I capital
consists primarily of common stock, noncumulative perpetual preferred stock,
related surplus and minority interests in consolidated subsidiaries.
Goodwill and certain other intangibles are excluded from Tier 1 capital.
Tier 2 capital consists of varying percentages of the allowance for loan and
lease losses, all other types of preferred stock not included in Tier 1
capital, hybrid capital instruments and term subordinated debt. Investments
in and loans to unconsolidated banking and finance subsidiaries that
constitute capital of those subsidiaries, are excluded from capital. The sum
of Tier 1 and Tier 2 capital constitutes qualifying total capital. The Tier
1 component must comprise at least 50.00% of qualifying total capital.
Every national bank has to maintain a certain ratio of Tier 1 capital to
risk weighted assets (a "Core Capital Ratio") and a ratio of Tier 1 plus Tier
2 capital to risk weighted assets (a "Risk-Based Capital Ratio"). All banks
are required to achieve and maintain a minimum Core Capital Ratio of at least
4.00% and a minimum Risk-Based Capital Ratio of 8.00%.
As of December 31, 1997, the Bank's Core Capital Ratio was 29.21% and
its Risk-Based Capital Ratio was 30.47%. In addition, national banks are
generally required to achieve and maintain a Leverage Ratio of at least
4.00%. As of December 31, 1997, the Bank's Leverage Ratio was 28.31%.
FIRREA. The Financial Institutions Reform, Recovery and Enforcement Act
("FIRREA"), enacted in 1989, includes various provisions that affect or may
affect the Bank. Among other things, FIRREA generally permits bank holding
companies to acquire healthy thrifts as well as
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failed or failing thrifts. FIRREA also removed certain cross-marketing
prohibitions previously applicable to thrift and bank subsidiaries of a
common holding company. Furthermore, a multi-bank holding company may now
be required to indemnify the federal deposit insurance fund against losses it
incurs with respect to such company's affiliated banks, which in effect makes
a bank holding company's equity investments in healthy bank subsidiaries
available to the Federal Deposit Insurance Company (the "FDIC") to assist
such company's failing or failed bank subsidiaries.
In addition, pursuant to FIRREA, any depository institution that has
been chartered less than two years, has undergone a change in control within
the last two years, is not in compliance with the minimum capital
requirements of its primary federal banking regulator, or is otherwise in a
troubled condition must notify its primary federal banking regulator of the
proposed addition of any person to the board of directors or the employment
of any person as a senior executive officer of the institution at least 30
days before such addition or employment becomes effective. During such
30-day period, the applicable federal banking regulatory agency may
disapprove of the addition of employment of such director or officer. The
Bank is not presently subject to any such requirements.
FIRREA also expands and increases civil and criminal penalties available
for use by the appropriate regulatory agency against certain
"institution-affiliated parties" primarily including (i) management,
employees and agents of a financial institution, as well as (ii) independent
contractors such as attorneys and accountants and others who participate in
the conduct of the financial institution's affairs and who caused or are
likely to cause more than minimum financial loss to or a significant adverse
affect on the institution, who knowingly or recklessly violate a law or
regulation, breach a fiduciary duty or engage in unsafe or unsound practices.
Such practices can include the failure of an institution to timely file
required reports or the submission of inaccurate reports. Furthermore,
FIRREA authorizes the appropriate banking agency to issue cease and desist
orders that may, among other things, require affirmative action to correct
any harm resulting from a violation or practice, including restitution,
reimbursement, indemnifications or guarantees against loss. A financial
institution may also be ordered to restrict its growth, dispose of certain
assets or take other action as determined by the ordering agency to be
appropriate. As a result, the Comptroller now has greater enforcement power
than it has had since deregulation of the banking industry in 1978.
THE FDIC IMPROVEMENT ACT. The FDIC Improvement Act of 1991, enacted on
December 19, 1991, ("FDICIA") makes a number of reforms addressing the safety
and soundness of the deposit insurance system, supervision of domestic and
foreign depository institutions, and improvement of accounting standards.
This statute also limits deposit insurance coverage, implements changes in
consumer protection laws and calls for least-cost resolution and prompt
regulatory action with regard to troubled institutions.
FDICIA requires every national bank with total assets in excess of
$500,000,000 to have an annual independent audit made of the bank's financial
statements by a certified public accountant to verify that the financial
statements of the bank are presented in accordance with
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generally accepted accounting principles and comply with such other
disclosure requirements as prescribed by the Comptroller.
FDICIA also places certain restrictions on activities of banks depending
on their level of capital. FDICIA divides banks into five different
categories, depending on their level of capital. Under regulations recently
adopted by the Comptroller, a bank is deemed to be "well capitalized" if it
has a total Risk-Based Capital Ratio of 10.00% or more, a Core Capital Ratio
of 6.00% or more and a Leverage Ratio of 5.00% or more, and the bank is not
subject to an order or capital directive to meet and maintain a certain
capital level. Under such regulations, a bank is deemed to be "adequately
capitalized" if it has a total Risk-Based Capital Ratio of 8.00% or more, a
Core Capital Ratio of 4.00% or more and a Leverage Ratio of 4.00% or more
(unless it receives the highest composite rating at its most recent
examination and is not experiencing or anticipating significant growth, in
which instance it must maintain a Leverage Ratio of 3.00% or more). Under
such regulations, a bank is deemed to be "undercapitalized" if it has a total
Risk-Based Capital Ratio of less than 8.00%, a Core Capital Ratio of less
than 4.00% or a Leverage Ratio of less than 4.00%. Under such regulations, a
bank is deemed to be "significantly undercapitalized" if it has a Risk-Based
Capital Ratio of less than 6.00%, a Core Capital Ratio of less than 3.00% and
a Leverage Ratio of less than 3.00%. Under such regulations, a bank is deemed
to be "critically undercapitalized" if it has a Leverage Ratio of less than
or equal to 2.00%. In addition, the Comptroller has the ability to downgrade
a bank's classification (but not to "critically undercapitalized") based on
other considerations even if the Bank meets the capital guidelines. According
to these guidelines, the Bank was classified as "well capitalized" as of
December 31, 1997.
In addition, if a national bank is classified as undercapitalized, the
bank is required to submit a capital restoration plan to the Comptroller.
Pursuant to FDICIA, an undercapitalized national bank is prohibited from
increasing its assets, engaging in a new line of business, acquiring any
interest in any company or insured depository institution, or opening or
acquiring a new branch office, except under certain circumstances, including
the acceptance by the Comptroller of a capital restoration plan for the bank.
Furthermore, if a national bank is classified as undercapitalized, the
Comptroller may take certain actions to correct the capital position of the
bank; if a bank is classified as significantly undercapitalized or critically
undercapitalized, the Comptroller would be REQUIRED to take one or more
prompt corrective actions. These actions would include, among other things,
requiring: (i) sales of new securities to bolster capital; (ii) improvements
in management; (iii) limits on interest rates paid; (iv) prohibitions on
transactions with affiliates; (v) termination of certain risky activities;
and (vi) restrictions on compensation paid to executive officers. If a
national bank is classified as critically undercapitalized, FDICIA requires
the bank to be placed into conservatorship or receivership within ninety (90)
days, unless the Comptroller and the FDIC concur that other action would
better achieve the purposes of FDICIA regarding prompt corrective action with
respect to undercapitalized banks.
The capital classification of a bank affects the frequency of
examinations of the bank and impacts the ability of the bank to engage in
certain activities and affects the deposit insurance
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premiums paid by such bank. Under FDICIA, the Comptroller is required to
conduct a full-scope, on-site examination of every national bank at least
once every twelve months. An exception to this rule is made, however, that
provides that national banks (i) with assets of less than $100,000,000, (ii)
are categorized as "well capitalized," (iii) were found to be well managed
and its composite rating was outstanding and (iv) has not been subject to a
change in control during the last twelve months, need only be examined by the
Comptroller once every eighteen months.
Under FDICIA, banks may be restricted in their ability to accept
brokered deposits, depending on their capital classification. "Well
capitalized" banks are permitted to accept brokered deposits, but all banks
that are not well capitalized are not permitted to accept such deposits. The
FDIC may, on a case-by-case basis, permit banks that are adequately
capitalized to accept brokered deposits if the FDIC determines that
acceptance of such deposits would not constitute an unsafe or unsound banking
practice with respect to the bank.
In addition, under FDICIA, the FDIC is authorized to assess insurance
premiums on a bank's deposits at a variable rate depending on the probability
that the deposit insurance fund will incur a loss with respect to the bank.
(Under prior law, the deposit insurance assessment was a flat rate,
regardless of the likelihood of loss.) In this regard, the FDIC has issued
regulations for a transitional risk-based deposit assessment that determines
the deposit insurance assessment rates on the basis of the bank's capital
classification and supervisory evaluations. Each of these categories have
three subcategories, resulting in nine assessment risk classifications. The
three subcategories with respect to capital are "well capitalized,"
"adequately capitalized" and "less than adequately capitalized (which would
include "undercapitalized," "significantly undercapitalized" and "critically
undercapitalized" banks). The three subcategories with respect to
supervisory concerns are "healthy," "supervisory concern" and "substantial
supervisory concern." A bank is deemed "healthy" if it is financially sound
with only a few minor weaknesses. A bank is deemed subject to "supervisory
concern" if it has weaknesses that, if not corrected, could result in
significant deterioration of the bank and increased risk to the Bank
Insurance Fund. A bank is deemed subject to "substantial supervisory
concern" if it poses a substantial probability of loss to the Bank Insurance
Fund.
The federal banking agencies have established guidelines, effective
August 9, 1995, which prescribe standards for depository institutions
relating to internal controls, information systems, internal audit systems,
loan documentation, credit underwriting, interest rate exposure, asset
growth, and management compensation. The agencies may require an institution
which fails to meet the standards set forth in the guidelines to submit a
compliance plan. The agencies are also currently proposing standards for
asset quality and earnings. The Company cannot predict what effect such
guidelines will have on the Bank.
DEPOSIT INSURANCE. The Bank's deposits are insured up to $100,000 per
insured account by the Bank Insurance Fund of the FDIC (the "BIF"). As an
institution whose deposits are insured by BIF, the Bank will be required to
pay deposit insurance premiums to BIF in the amount of approximately $17,000
for the first two quarters of 1998. The Bank's deposit insurance assessments
may increase depending upon the risk category and subcategory, if any, to
which the
12
<PAGE>
Bank is assigned by the FDIC. Any increase in insurance assessments could
have an adverse effect on the Bank's earnings.
INTERSTATE BANKING LEGISLATION. The Reigle-Neal Interstate Banking and
Branching Efficiency Act of 1994 was enacted into law on September 29, 1994
(the "Reigle Act"). Such statute provides for nationwide interstate banking,
but does permit each state to make an election as to whether such state will
permit interstate branching. During its 1995 term, the Texas legislature
passed legislation providing that interstate branching will not be permitted
in Texas until at least 1999. Accordingly, banks located outside the State
of Texas are effectively prohibited from opening a branch in Texas.
Similarly, banks located in Texas are generally prohibited from opening
branches outside Texas. The Texas legislature is expected to revisit the
issue of interstate branching in the 1999 session and, until then, interstate
branching will be prohibited in Texas. Interstate banking (e.g.,
out-of-state holding companies acquiring Texas financial institutions),
however, cannot be prohibited and must be permitted by all the states,
subject to certain permissible state law limitations on the ages of the banks
to be acquired and limitations on the total amount of deposits within a state
that a bank holding company is permitted to control.
Management of the Company and the Bank cannot predict what other
legislation might be enacted or what other regulations might be adopted or
the effects thereof.
THE FOREGOING IS AN ATTEMPT TO SUMMARIZE SOME OF THE RELEVANT LAWS,
RULES AND REGULATIONS GOVERNING NATIONAL BANKS AND BANK HOLDING COMPANIES,
BUT DOES NOT PURPORT TO BE A COMPLETE SUMMARY OF ALL APPLICABLE LAWS, RULES
AND REGULATIONS GOVERNING BANKS AND BANK HOLDING COMPANIES.
ENVIRONMENTAL FACTORS
To date, the Company has not been required to perform any investigation
or clean up activities, nor has it been subject to any environmental claims.
There can be no assurance, however, that this will remain the case in the
future. In the ordinary course of its business, the Company from time to
time forecloses on properties securing loans. There is a risk that the
Company could be required to investigate and clean up hazardous or toxic
substances or chemical releases at such properties after acquisition by the
Company, and could be held liable to a governmental entity or to third
parties for property damage, personal injury, and investigation and cleanup
costs incurred by such parties in connection with the contamination. The
costs of investigation, remediation or removal of such substances may be
substantial, and the presence of such substances, or the failure to properly
remediate such property, may adversely affect the owner's ability to sell or
rent such property or to borrow using such property as collateral. Persons
who arrange for the disposal or treatment of hazardous or toxic substances
also may be liable for the costs of removal or remediation of such substances
at the disposal or treatment facility, whether or not the facility is owned
or operated by such person. In addition, the owner or former owners of a
contaminated site may be subject to common law claims by third parties
13
<PAGE>
based on damages and costs resulting from environmental contamination
emanating from such property.
In the course of its business, the Company may acquire properties as a
result of foreclosure. There is a risk that hazardous or toxic waste could
be found on such properties. In such event, the Company could be held
responsible for the cost of cleaning up or removing such waste, and such cost
could exceed the value of the underlying properties.
EMPLOYEES
The Company is a bank holding company and primarily conducts its
operations through its subsidiary, the Bank. The Company has no paid
employees. Certain Bank employees and directors conduct the Company's
business, but are not specifically compensated as Company employees. As of
March 6, 1998, the Bank had 69 full-time employees and 9 part-time employees.
Employees are provided with employee benefits, such as life and health
insurance plans. The Bank's employees are not represented by any collective
bargaining group. The Bank considers its relations with such employees to be
good.
DEPENDENCE ON KEY PERSONNEL
The Company's and the Bank's growth and development since completion of
the Acquisition on May 23, 1997 has been largely dependent upon the services
of Donald E. Powell, Chairman of the Board, President and Chief Executive
Officer. The loss of Mr. Powell's services for any reason could have a
material adverse effect on the Company and the Bank.
ITEM 2. FINANCIAL INFORMATION
SELECTED FINANCIAL DATA
The following table sets forth consolidated selected financial data
regarding the results of operations and financial condition of the Company
for the periods and at the dates indicated. Amounts are in thousands, except
for weighted average shares outstanding and pre-share data. The following
financial data is qualified by, and should be read in conjunction with, the
separate financial statements, reports, and other financial information
included elsewhere in this document. Certain consolidated financial data as
of and for the years ended 1997, 1996 and 1995 are based on and derived from
audited financial statements contained elsewhere in this document. Share
data has been adjusted to reflect the 77.4372-for-1 stock dividend effected
as of July 2, 1997.
14
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income $4,020 $1,146 $1,133 $994 $1,041
Interest expense 1,260 515 494 408 437
Net interest income 2,760 631 639 586 604
Provision for loan losses 2,700 97 (80) (70) (55)
Noninterest income 162 118 136 101 103
Noninterest expense 2,242 606 546 581 553
Income (loss) before income taxes (2,021) 46 309 176 209
Income taxes (benefit) (39) 7 103 53 66
Net income (loss) (1,981) 39 206 123 143
PER SHARE DATA
Net income (loss) (0.41) 0.20 1.05 0.63 0.20
Book value at end of period 2.84 2.91 2.85 2.40 2.29
Average common shares outstanding 4,824,792 712,035 712,035 712,035 712,035
BALANCE SHEET DATA (END OF PERIOD)
Total assets 144,740 18,212 18,502 17,903 18,560
Investment securities 5,085 10,303 13,308 13,207 12,509
Loans outstanding 117,102 1,464 1,859 1,418 1,495
Allowance for loan losses (2,748) (45) (22) (38) (55)
Total deposits 106,255 16,067 16,381 16,112 16,861
Stockholders' equity 37,853 2,068 2,031 1,709 1,633
SELECTED PERFORMANCE RATIOS
Return on average assets (3.57)% 0.21% 1.11% 0.68% 0.77%
Return on average equity (15.13)% 1.90% 10.86% 7.40% 8.76%
Net interest margin 5.54% 3.66% 3.72% 3.47% 3.28%
ASSET QUALITY RATIOS
Nonperforming loans to gross loans 0.00% 4.78% 0.00% 0.00% 0.00%
Nonperforming assets to stockholders'
equity 0.00% 3.38% 0.00% 0.00% 0.00%
Net charge-offs to average loans 0.00% 4.30% (4.37)% (3.67)% (4.01)%
Allowance to end-of-period loans 2.29% 3.07% 1.21% 2.65% 3.68%
Allowance to end-of-period
nonperforming loans N/A 64.53% N/A N/A N/A
LIQUIDITY AND CAPITAL RATIOS
(END OF PERIOD)
Loans to deposits 110.21% 9.11% 11.35% 8.80% 8.87%
Equity to assets 26.15% 11.36% 10.98% 9.55% 9.09%
Leverage capital ratio 26.15% 11.36% 10.98% 9.55% 8.80%
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results
of Operations of the Company analyzes the major elements of the Company's
consolidated balance sheets and statements of operations. This section
should be read in conjunction with the Company's consolidated financial
statements and accompanying notes and other detailed financial information
included herein.
GENERAL
The Company is a one-bank holding company that commenced operations on
December 31, 1983. The Bank, the Company's only subsidiary, originally began
operations as Fritch State Bank on April 10, 1965.
RESULTS OF OPERATIONS
The Company experienced a net loss was $1,981,415 for the year ended
December 31, 1997 as compared to earnings of $38,847 and $205,656 for the
years ended December 31, 1996 and 1995, respectively. Earnings for 1997,
1996 and 1995 were significantly influenced by activity in the allowance for
loan losses, as discussed below. The return on average assets for 1997, 1996
and 1995 was (3.57)%, 0.21% and 1.11%, respectively, and return on average
equity was (15.13)%, 1.90% and 10.86%, respectively.
NET INTEREST INCOME
The largest component of operating income is net interest income, which
is the difference between the income earned on assets and interest paid on
deposits. Net interest income is determined by the rates earned on the
Company's interest-earning assets and the rates paid on its interest-bearing
liabilities, the relative amounts of interest-earning assets and
interest-bearing liabilities, and the degree of mismatch and the maturity and
repricing characteristics of its interest-earning assets and interest-bearing
liabilities.
During the years ended December 31, 1997, 1996 and 1995 net interest
income was $2,759,399, $630,340 and $638,720, respectively. The increase in
net interest income from 1996 to 1997 of $2,129,059 (337.8%) is primarily due
to an increase in average interest-earning assets of approximately
$33,651,000, net of an increase in average interest-bearing liabilities of
approximately $16,715,000. The decrease in net interest income from 1995 to
1996 of $8,380 (1.3%) is primarily attributable to a slight decrease in the
net interest spread, the difference between the yield on earning assets and
the rate paid on interest-bearing liabilities, from 3.01% in 1995 to 2.93% in
1996.
The following table sets forth the average consolidated balance sheets
of the Company and subsidiary for the past three years along with an analysis
of net interest earnings for each major
16
<PAGE>
category of interest-earning assets and interest-bearing liabilities, the
average yield or rate paid on each category and net yield on interest-earning
assets:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------- ------------------------------- ------------------------------
Average Average Average Average Average Average Average Average Average
Balance (1) Interest Rate Balance (1) Interest Rate Balance (1) Interest Rate
----------- -------- ------- ----------- -------- ------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS
Loans
Commercial and agricultural $17,995,796 $1,402,875 7.80% $ 800,393 $ 65,589 8.19% $ 311,284 $ 29,403 9.45%
Real estate - mortgage 9,802,883 967,649 9.87% 210,570 22,646 10.75% 360,860 36,164 10.02%
Installment loans to
individuals 6,571,260 653,917 9.95% 637,431 65,102 10.21% 750,389 70,478 9.39%
----------- ---------- ----------- ---------- ------------ ----------
Total loans 34,369,939 3,024,441 8.80% 1,648,394 153,337 9.30% 1,422,533 136,045 9.56%
Securities
Taxable 8,284,534 547,719 6.61% 13,008,396 856,281 6.58% 13,054,399 839,907 6.43%
Nontaxable (2) - - 0.00% 100,000 13,333 13.33% 135,625 17,475 12.89%
Federal funds sold and other
interest-earning assets 8,149,589 447,378 5.49% 2,396,721 127,364 5.31% 2,502,466 145,275 5.81%
----------- ---------- ----------- ---------- ------------ ----------
Total interest-earning assets 50,804,062 4,019,538 7.91% 17,153,511 1,150,315 6.71% 17,115,023 1,138,702 6.65%
NONINTEREST- EARNING ASSETS
Cash and due from banks 4,718,760 1,208,987 1,101,113
Other assets 714,565 369,056 429,903
Less: allowance for loan losses (706,649) (43,663) (35,573)
----------- ----------- ------------
Total $55,530,738 $18,687,891 $18,610,466
----------- ----------- ------------
----------- ----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
Interest-bearing demand $ 7,244,335 $ 192,816 2.66% $ 4,857,209 $ 132,199 2.72% $4,936,488 $132,966 2.69%
Money market deposits 5,005,414 160,530 3.21% 978,617 29,250 2.99% 959,928 28,768 3.00%
Other savings deposits 1,282,500 35,507 2.77% 1,101,010 30,085 2.73% 1,167,087 31,509 2.70%
Time deposits 16,808,512 871,286 5.18% 6,689,379 323,908 4.84% 6,515,883 300,797 4.62%
----------- ---------- ----------- ---------- ------------ ----------
Total interest-bearing
liabilities 30,340,761 1,260,139 4.15% 13,626,215 515,442 3.78% 13,579,386 494,040 3.64%
NONINTEREST-BEARING LIABILITIES AND
STOCKHOLDERS' EQUITY
Demand deposits $11,894,019 $ 2,903,235 $ 3,068,411
Other 195,956 109,523 69,203
Stockholders' equity 13,100,002 2,048,918 1,893,466
----------- ----------- ------------
Total $55,530,738 $18,687,891 $18,610,466
----------- ----------- ------------
----------- ----------- ------------
Net interest income $2,759,399 $ 634,873 $644,662
---------- ---------- --------
---------- ---------- --------
Net yield on earning assets 5.43% 3.70% 3.77%
----- ----- -----
----- ----- -----
Tax equivalent adjustment (2) $ - $ 4,533 $ 5,942
</TABLE>
- -----------------
(1) For purposes of these computations, nonaccruing loans are included in the
daily average loan amounts outstanding.
(2) Taxable equivalent adjustment is computed using a 34% tax rate.
17
<PAGE>
The following table sets forth for the period indicated a summary of the
changes in interest earned and interest paid resulting from changes in volume
and changes in rates:
<TABLE>
<CAPTION>
1997 COMPARED TO 1996 1996 COMPARED TO 1995
---------------------------------------- -------------------------------------
VOLUME RATE NET VOLUME RATE NET
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNED ON
Loans
Commercial and agricultural $1,409,085 $(71,799) $1,337,286 $46,200 $(10,014) $36,186
Real estate - mortgage 1,031,620 (86,617) 945,003 (15,061) 1,543 (13,518)
Installment loans to individuals 606,033 (17,218) 588,815 (11,023) 5,647 (5,376)
---------- -------- ---------- ------- -------- -------
Total 3,046,738 (175,634) 2,871,104 20,116 (2,824) 17,292
Securities
Taxable (310,949) 2,387 (308,562) (3,525) 19,899 16,374
Nontaxable (13,333) - (13,333) (3,030) 297 (2,733)
Federal funds sold and
other interest-earning assets 305,712 14,302 320,014 (6,181) (11,730) (17,911)
---------- -------- ---------- ------- -------- -------
Total interest-earning assets 3,028,168 (158,945) 2,869,223 7,380 5,642 13,022
INTEREST-PAID ON
Deposits
Interest-bearing demand 64,971 (4,354) 60,617 $(2,135) $1,368 $(767)
Money market deposits 120,357 10,923 131,280 560 (78) 482
Other savings deposits 4,959 463 5,422 (1,784) 360 (1,424)
Time deposits 489,981 57,397 547,378 8,009 15,102 23,111
---------- -------- ---------- ------- -------- -------
Total interest-bearing liabilities 680,268 64,429 744,697 4,650 16,752 21,402
---------- -------- ---------- ------- -------- -------
Net interest income $2,347,900 $(223,374) $2,124,526 $2,730 $(11,110) $(8,380)
---------- -------- ---------- ------- -------- -------
---------- -------- ---------- ------- -------- -------
</TABLE>
The change in interest due to volume and rate has been allocated to volume
and rate changes in proportion to the relationship of the absolute dollar
amounts of the change in each.
OTHER OPERATING INCOME AND EXPENSE
Other Operating Income. Other operating income for 1997 increased by
$43,605 (37.0%) because of increased activity on deposit accounts. Other
operating income for 1996 decreased $18,685 (13.7%) compared to 1995.
Certain subsequent recoveries on bonds that were written down by
approximately $39,000 occurred during 1995.
OTHER OPERATING EXPENSES. During 1997, other operating expenses
increased by $1,636,055 (270.2%). The increase was attributable to the
overall growth of the Company, including an increase in 45 full-time
equivalent employees from 1996 to 1997, increases in costs to conduct banking
operations and significant start-up expenses related to the Bank's change in
domicile and charter. During 1996, other operating expenses increased
$59,151 (10.8%) over 1995. The increase was primarily attributable to
additional compensation of approximately $57,000 related to the transfer of
an insurance policy to the Bank's president.
SECURITIES PORTFOLIO
The objective of the Company in its management of the investment
portfolio is to maintain a portfolio of high quality, relatively liquid
investments with competitive returns. During 1997, the weighted average
yield on taxable securities was 6.61% as compared to 6.58% during 1996. The
Company primarily invests in U.S. Treasury securities and other U.S.
government agency obligations and mortgage-backed securities.
18
<PAGE>
The carrying values of the major classifications of securities were as
follows:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
---------------------------------------- ----------------------------------
1997 1996 1995 1997 1996 1995
---------- ---------- ---------- ---- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other U.S.
government agencies and
corporations $2,427,674 $306,340 $1,319,962 $- $6,940,511 $8,149,609
Mortgage-backed securities 2,546,770 1,600,986 1,879,626 - 1,327,785 1,659,888
States and political subdivisions 36,585 - - 77,453 249,259
Other securities 73,875 49,875 49,875 - - -
---------- ---------- ---------- ---- ---------- -----------
Total $5,084,904 $1,957,201 $3,249,463 $- $8,345,749 $10,058,756
---------- ---------- ---------- ---- ---------- -----------
---------- ---------- ---------- ---- ---------- -----------
</TABLE>
The following table sets forth the stated maturities of securities at
December 31, 1997, and the weighted average yields of such securities
(calculated on the basis of the cost and effective yield weighted for the
scheduled maturity of each security). Mortgage-backed securities (MBS) are
reported at their estimated average life.
<TABLE>
<CAPTION>
MATURING MATURING AFTER ONE MATURING AFTER FIVE MATURING
WITHIN ONE YEAR BUT WITHIN FIVE YEARS BUT WITHIN TEN YEARS OVER TEN YEARS
------------------- --------------------- -------------------- ----------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Treasury and other U.S.
government agencies and
corporations and MBS $2,201,555 6.12% $1,023,146 7.01% $1,446,170 6.80% $303,573 6.98%
States and political
subdivisions 36,585 5.68% - 0.00% - 0.00% - 0.00%
Other securities (1) - 0.00% - 0.00% - 0.00% 73,875 6.00%
---------- ---------- ---------- --------
Total $2,238,140 6.11% $1,023,146 7.01% $1,446,170 6.80% $377,448 6.78%
---------- ---------- ---------- --------
---------- ---------- ---------- --------
</TABLE>
(1) Security does not have a maturity date and is included in over ten years
column.
LOAN PORTFOLIO
At December 31, 1997 and 1996 net loans accounted for 80.9% and 7.8%,
respectively, of total assets. The increase from 1996 to 1997 was primarily
attributable to the previously discussed change of bank ownership, management
and philosophy.
The amount of loans outstanding at the indicated dates are shown in the
following table according to type of loans:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Commercial $45,901,834 $553,641 $480,177 $298,018 $346,875
Agriculture 15,381,803 - 575,000 - -
Real estate
Commercial 16,282,655 54,321 124,772 105,373 76,675
1-4 single family 18,069,332 114,156 139,453 352,634 313,583
Installment loans to individuals 24,359,581 822,872 611,210 711,905 799,790
------------ ---------- ---------- ---------- ----------
Total $119,995,205 $1,544,990 $1,930,612 $1,467,930 $1,536,922
------------ ---------- ---------- ---------- ----------
------------ ---------- ---------- ---------- ----------
</TABLE>
19
<PAGE>
The following table shows the maturity analysis of loans outstanding as of
December 31, 1997. Also provided are the amounts due after one year classified
according to the sensitivity to changes in interest rates:
<TABLE>
<CAPTION>
MATURING
MATURING AFTER ONE MATURING
WITHIN BUT WITHIN AFTER
ONE YEAR FIVE YEARS FIVE YEARS
----------- ----------- -----------
<S> <C> <C> <C>
Total loans $70,920,650 $31,940,003 $17,134,552
----------- ----------- -----------
----------- ----------- -----------
Loans maturing after one year with:
Predetermined interest rates $14,341,052 $15,902,283 $10,711,575
Floating or adjustable interest rates 56,579,598 16,037,720 6,422,977
----------- ----------- -----------
Total $70,920,650 $31,940,003 $17,134,552
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The following table summarizes the Bank's loan loss experience for each of
the last five years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE OF ALLOWANCE FOR LOAN
LOSSES AT THE BEGINNING OF YEAR $45,200 $22,574 $36,605 $55,381 $50,325
CHARGE-OFFS
Commercial - 3,826 1,000 - -
Real estate construction - - - 24 -
Real estate mortgage - - - - -
Installment 5,144 - 6,816 2,688 5,593
Agricultural - 79,001 - - -
---------- ------- ------- ------- -------
Total loan charge-offs 5,144 82,827 7,816 2,712 5,593
---------- ------- ------- ------- -------
RECOVERIES
Commercial $ 7,906 $ 396 $71,062 $25,507 $50,924
Real estate construction - - - 28,000 3,500
Real estate mortgage - - -
Installment 456 8,054 1,686 1,429 11,225
---------- ------- ------- ------- -------
Total loan recoveries 8,362 8,450 72,748 54,936 65,649
---------- ------- ------- ------- -------
NET RECOVERIES (CHARGE-OFFS) 3,218 (74,377) 64,932 55,224 60,056
PROVISION CHARGED (CREDITED)
TO OPERATIONS 2,700,000 97,003 (79,963) (70,000) (55,000)
---------- ------- ------- ------- -------
BALANCE AT END OF YEAR $2,748,418 $45,200 $22,574 $37,605 $55,381
---------- ------- ------- ------- -------
---------- ------- ------- ------- -------
RATIO OF NET CHARGE-OFFS DURING
THE PERIOD TO AVERAGE LOANS -
OUTSTANDING DURING THE PERIOD 0.00% 4.30% 4.37% 3.49% 3.79%
---------- ------- ------- ------- -------
---------- ------- ------- ------- -------
</TABLE>
20
<PAGE>
Risk elements include accruing loans past due ninety days or more,
nonaccrual loans, and loans which have been restructured to provide a reduction
or deferral of interest or principal for reasons related to the debtors
financial difficulties, potential problem loans and loan concentrations.
The following table summarizes the Bank's nonaccrual, past due and
restructured loans for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ------ ---- ---- ----
<S> <C> <C> <C> <C> <C>
LOANS ACCOUNTED FOR ON A
NONACCRUAL BASIS
Commercial $- $ - $- $- $-
Real estate construction - - - - -
Real estate mortgage - - - - -
Installment - - - -
Agricultural - - - -
--- ------- --- --- ---
Total $- $ - $- $- $-
--- ------- --- --- ---
--- ------- --- --- ---
ACCRUING LOANS WHICH ARE PAST DUE
90 DAYS OR MORE
Commercial $- $ - $- $- $-
Real estate construction - - - - -
Real estate mortgage - 63,864 - - -
Installment - 6,178 - - -
Agricultural - - - - -
--- ------- --- --- ---
Total $- $70,042 $- $- $-
--- ------- --- --- ---
--- ------- --- --- ---
</TABLE>
At December 31, 1997, the Bank had no foreign loans outstanding and no loan
concentrations, except for those indicated in the first table under "Loan
Portfolio," exceeding 10 percent of total loans.
Management believes all material restructured loans have been identified
based upon the Bank's loan data system and management's awareness of the loan
files and customer contact.
The Company has developed policies and procedures for evaluating the
overall quality of its credit portfolio and the timely identification of
potential problem credits. Management's judgment as to the adequacy of the
allowance is based upon a number of assumptions about future events which it
believes to be reasonable, but which may or may not be valid. Thus, there
can be no assurance that charge-offs in future periods will not exceed the
allowance for loan losses or that additional increases in the loan-loss
allowance will not be required. Activity in the allowance for loan losses
for 1997, 1996 and 1995 had a significant impact on earnings.
Additions to the allowance for loan losses, which are recorded as the
provision for loan losses on the Company's statements of earning, are made
periodically to maintain the allowance at an appropriate level based on
management's analysis of the potential risk in the loan portfolio. The
amount of the provision is a function of the level of loans outstanding, the
level of nonperforming loans, historical loan-loss experience, the amount of
loan losses actually charged
21
<PAGE>
off or recovered during a given period, and current and anticipated economic
conditions. The Company believes that it is conservative in the
identification and charge off of problems and in certain instances, the
Company has received recoveries on loans that were previously charged off.
At December 31, 1997, 1996 and 1995, the allowance for loan losses was
$2,748,418, $45,200 and $22,574, respectively, which represented 2.29% 3.09%
and 1.21% of outstanding loans at those respective dates. This compares to
peer group percentages of the allowance for loan losses to outstanding loans
of 1.47% 1.74% and 1.70% for 1997, 1996 and 1995, respectively.
During 1997, the Company recorded a provision for loan losses of
$2,700,000. The provision was made in connection with the growth of the loan
portfolio of $115,683,550 (8,154.1%). The increase in loans is attributable
to the change in ownership and an aggressive posture taken by management to
grow the Company. During the year, the Company hired nine new, experienced
loan officers who were successful in originating many loans. Because the
Company has a very limited loan loss history, the rapid growth in the loan
portfolio and the inherent uncertainties in lending, management believes that
a conservative approach to providing loan losses is prudent. The allowance
is subjective in nature and may be adjusted in the near term because of
changes in economic conditions or review by regulatory examiners. Management
expects that appropriate, additional future provisions will be made as the
loan portfolio grows.
During 1996, the Company recorded a provision for loan losses of
approximately $97,000. In the first quarter of 1996, information came to
light during an FDIC regulatory exam of the Bank regarding a certain $175,000
loan participation, and the Company recorded a provision of approximately
$19,000 related to such participation. Subsequent to March 31, 1996, the
loan participation continued to deteriorate and additional provisions of
approximately $60,000 were made. In late fiscal 1996, a settlement payment
of $52,000 was received and the remaining outstanding balance of
approximately $79,000 was charged off.
In fiscal year ended December 31, 1995, a credit provision to the
allowance for loan losses of $(79,963) was recognized. During 1995, the
Company received approximately $72,000 on a loan that had previously been
charged off. After this recovery, the Company reduced the allowance for loan
loss to management's best estimate of the adequacy of such allowance to
absorb possible losses on existing loans based on an assessment of general
loan-loss risk and asset quality as described above.
At December 31, 1997, 1996 or 1995, there were no significant impaired
loans or loans delinquent greater than 90 days.
Accrual of interest is discontinued on loans when management believes,
after considering economic and business conditions and collection efforts,
that a borrower's financial condition is such that the collection of interest
is doubtful. A delinquent loan is generally placed in nonaccrual status when
it becomes 90 days or more past due. At the time a loan is placed in
nonaccrual status, all interest which has been accrued on the loan but
remains unpaid is reversed and deducted from earnings as a reduction of
reported interest income. No additional interest is accrued on the loan
balance until the collection of both principal and interest becomes
reasonably certain.
22
<PAGE>
POTENTIAL PROBLEM LOANS. A potential problem loan is one in which
management has serious doubts about the borrower's future performance under
the terms of the loan contract. These loans are current as to principal and
interest and, accordingly, they are not included in nonperforming assets
categories. At December 31, 1997, the Company had no material loans
considered by management to be potential problem loans. The level of
potential problem loans is one factor to be used in the determination of the
adequacy of the allowance for loan losses.
DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES
DEPOSITS. Average total deposits were $42,234,780, $16,529,450 and
$16,647,797 during 1997, 1996 and 1995, respectively. Average
interest-bearing deposits were $30,340,761 in 1997 as compared to $13,626,215
in 1996 and $13,579,386 in 1995.
The average daily amount of deposits and rates paid on savings deposits
is summarized for the periods indicated in the following table.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
------------------- ------------------- -------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
----------- ----- ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
DEPOSITS
Noninterest-bearing demand $11,894,019 0.00% $2,903,235 0.00% $3,068,411 0.00%
Interest-bearing demand 7,244,335 2.66% 4,857,209 2.72% 4,936,488 2.69%
Money market deposits 5,005,414 3.21% 978,617 2.99% 959,928 3.00%
Other savings deposits 1,282,500 2.77% 1,101,010 2.73% 1,167,087 2.70%
Time deposits 16,808,512 5.18% 6,689,379 4.84% 6,515,883 4.62%
----------- ----------- -----------
Total $42,234,780 $16,529,450 $16,647,797
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Maturities of time certificates of deposits of $100,000 or more outstanding
as of December 31, 1997, are summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
3 months or less $14,618,138
Over 3 months through 6 months 4,326,805
Over 6 months through 12 months 6,560,936
Over 12 months 100,000
-----------
$25,605,879
-----------
-----------
</TABLE>
There were no deposits by foreign depositors at December 31, 1997, 1996 or
1995.
23
<PAGE>
SIGNIFICANT FINANCIAL RATIOS
The following table sets forth consolidated operating and capital ratios
for 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Return on average assets (3.57)% 0.21% 1.11%
Return on average equity (15.13)% 1.90% 10.86%
Average equity to average asset ratio 23.59 % 10.96% 10.17%
Dividend payout ratio to net income 0.00 % 0.00% 0.00%
</TABLE>
BORROWED FUNDS
The Company had no borrowed funds at December 31, 1997, 1996 or 1995.
CAPITAL
The Company and Bank are subject to various regulatory capital
requirements administered by banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Company and Bank must meet specific capital guidelines that
involve quantitative measures of the assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The Company's and Bank's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk weightings
and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and Bank to maintain minimum amounts and ratios
(set forth in the table below) of Total and Tier I Capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I Capital (as
defined) to average assets (as defined). Management believes, as of December
31, 1997 that the Company and Bank meet all capital adequacy requirements to
which they are subject.
24
<PAGE>
The Company and the Bank exceeded their regulatory capital ratios, as
set forth in the following table.
ANALYSIS OF CAPITAL
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE ACTION
ACTUAL ADEQUACY PURPOSES PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
IS GREATER IS GREATER
THAN OR THAN OR
EQUAL TO EQUAL TO
As of December 31, 1997
Total Capital (to Risk Weighted Assets):
Tejas Bancshares, Inc. $ 39,412,000 31.17% $ 10,116,000 8.0% N/A
The Bank 38,528,000 30.47% 10,116,000 8.0% $ 12,645,000 10.0%
Tier I Capital (to Risk Weighted Assets):
Tejas Bancshares, Inc. $ 37,817,000 29.91% $ 5,058,000 4.0% N/A
The Bank 36,933,000 29.21% 5,058,000 4.0% $ 7,587,000 6.0%
Tier I Capital (to Average Assets):
Tejas Bancshares, Inc. $ 37,597,000 28.98% $ 5,224,000 4.0% N/A
The Bank 36,969,000 28.31% 5,224,000 4.0% $ 6,530,000 5.0%
As of December 31, 1996
Total Capital (to Risk Weighted
Assets):
Tejas Bancshares, Inc. $ 2,101,000 51.5% $ 326,000 8.0% N/A
The Bank 2,044,000 50.1% 326,000 8.0% $ 408,000 10.0%
Tier I Capital (to Risk Weighted Assets):
Tejas Bancshares, Inc. $ 2,056,000 50.4% $ 163,000 4.0% N/A
The Bank 1,999,000 49.0% 163,000 4.0% $ 245,000 6.0%
Tier I Capital (to Average Assets):
Tejas Bancshares, Inc. $ 2,056,000 11.0% $ 747,000 4.0% N/A
The Bank 1,999,000 10.7% 747,000 4.0% $ 934,000 5.0%
</TABLE>
LIQUIDITY MANAGEMENT
Liquidity management involves monitoring the Company's sources and uses
of funds in order to meet its day-to-day cash flow requirements while
maximizing profits. Liquidity represents the ability of a Company to convert
assets into cash or cash equivalents without significant loss and to raise
additional funds by increasing liabilities. Liquidity management is made more
complicated because different balance sheet components are subject to varying
degrees of management control. For example, the timing of maturities of the
investment portfolio is very predictable and subject to a high degree of
control at the time investment decisions are made. However, net deposit
inflows and outflows are far less predictable and are not subject to nearly
the same degree of control.
The Company has maintained a level of liquidity that is adequate to
provide the necessary cash requirements. The Company's funds-sold position,
its primary source of liquidity, averaged $8,150,000 during the year ended
December 31, 1997. Management also has lined out potential purchasers of
loans as a tool to maintain liquidity. Management regularly reviews the
liquidity position of the Company and has implemented internal policies which
establish guidelines for sources of asset-based liquidity. Management
believes that the continued growth in the deposit base, will enable the
Company to meet its long-term liquidity needs.
25
<PAGE>
INTEREST-RATE RISK SENSITIVITY
The largest component of the Company's net income is derived from the
spread between yields on interest-earning assets and the cost of
interest-bearing liabilities. In a changing interest rate environment this
spread can widen or narrow depending on the relative repricing and maturities
of interest-earning assets and interest-bearing liabilities. It is the
Company's general policy to reasonably match the rate sensitivity of its
assets and liabilities in an effort to prudently manage interest-rate risk.
To accomplish this, the Company monitors its interest-rate sensitivity, or
risk, and matching more closely the cash flows and effective maturities or
repricings of its interest-sensitive assets and liabilities.
Interest rate sensitivity is a function of the repricing characteristics
of the Company's portfolio of assets and liabilities. These repricing
characteristics are the time frames at which interest-earning assets and
interest-bearing liabilities are subject to changes in interest rates either
at repricing, replacement or maturity. Sensitivity is measured as the
difference between the volume of assets and liabilities in the Company's
current portfolio that are subject to repricing in future time periods. The
differences at any given point in time is referred to as the interest
sensitivity "gap" and is usually calculated separately for various segments
of time and on a cumulative basis. Any excess of assets or liabilities
results in an interest sensitivity gap. A positive gap denotes net asset
sensitivity and a negative gap represents net liability sensitivity. An
institution is considered to have a negative gap if the amount of
interest-bearing liabilities maturing or repricing within a specified time
period exceeds the amount of interest-earning assets maturing or repricing
within the same period. If more interest-earning assets than
interest-bearing liabilities mature or reprice within a specified period,
then the institution is considered to have a positive gap. Accordingly, in a
rising interest rate environment in an institution with a negative gap, the
cost of its rate sensitive liabilities would theoretically rise at a faster
pace than the yield on its rate sensitive assets, thereby diminishing future
net interest income. In a falling interest rate environment, a negative gap
would indicate that the cost of rate sensitive liabilities would decline at a
faster pace than the yield on rate sensitive assets and improve net interest
income. For an institution with a positive gap, the reverse would be
expected.
The Company has sought to increase the sensitivity of its assets to
changing interest rates by emphasizing shorter term and/or adjustable rate
loans. The Company also originates fixed-rate mortgage loans, which are
generally sold in the secondary market. The Company manages the maturity and
repricing characteristics of its liabilities and has sought to keep the
interest sensitivity of its liabilities short by emphasizing shorter term
deposits.
The following table presents rate-sensitive assets and rate-sensitive
liabilities as of December 31, 1997, which mature or reprice in each of the
time periods shown. Except for the
26
<PAGE>
effects of prepayments, the table presents principal cash flows from
payments, maturity or repricing. This table does not necessarily indicate
the impact of general interest rate movements on the Company's net interest
income because the repricing of certain categories of assets and liabilities
is subject to competitive and other pressures beyond the Company's control.
As a result, certain assets and liabilities indicated as maturing or
otherwise repricing within a stated period may, in fact, mature or reprice at
different times and at different volumes.
December 31, 1997
(Dollars in thousands)
<TABLE>
3 Months 3 Months 1 Year 3 Years 5 Years Over
Assets Subject to Interest Rate or Less to 1 Year to 3 Years to 5 Years to 15 Years 15 Years Total
- ------------------------------- ------- --------- ---------- ---------- ----------- -------- -----
Adjustment
- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Loans
Combined - fixed rate
projected payments, floating
rate by repricing interval $80,702,246 $ 9,271,000 $ 5,481,564 $ 7,079,396 $ 16,217,846 $ 1,243,154 $119,995,206
Investments
Combined - fixed rate by
maturity, floating rate by
repricing interval, and
projected payments 1,020,485 3,293,936 420,400 0 79,871 270,212 5,084,904
Federal Funds Sold 3,400,000 -- -- -- -- -- 3,400,000
----------- ----------- ------------ ------------ ------------ ------------ ------------
Total $85,122,731 $12,564,936 $ 5,901,964 $ 7,079,396 $ 16,297,717 $ 1,513,366 $128,480,110
----------- ----------- ------------ ------------ ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------ ------------ ------------
Cumulative $85,122,731 $97,687,667 $103,589,631 $110,669,027 $126,966,743 $128,480,110
Liabilities Subject to Interest
- -------------------------------
Rate Adjustment
- ---------------
NOW Accounts $ 7,354,840 -- -- -- -- -- $ 7,354,840
Super NOW Accounts 5,973,686 -- -- -- -- -- 5,973,686
Money Market Accounts 15,154,993 -- -- -- -- -- 15,154,993
Savings Accounts 1,941,910 -- -- -- -- -- 1,941,910
Certificates of Deposit 19,404,239 18,266,694 887,680 0 0 0 38,558,613
----------- ----------- ------------ ------------ ------------ ------------ ------------
Total $49,829,668 $18,266,694 $ 887,680 $ 0 $ 0 $ 0 $ 68,984,042
----------- ----------- ------------ ------------ ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------ ------------ ------------
Cumulative $49,829,668 $68,096,362 $ 68,984,042 $68,984,042 $68,984,042 $ 68,984,042
Gap (Net Position of Assets
(Liabilities)) $35,293,063 $(5,701,758) $ 5,014,283 $ 7,079,396 $16,297,717 $ 1,513,366 $ 59,496,067
Cumulative Gap $35,293,063 $29,591,305 $ 34,605,588 $41,684,984 $57,982,701 $59,496,067
Rate Sensitive Assets as % of
Rate Sensitive Liabilities
(Cumulative) 170.83% 143.46% 150.16% 160.43% 184.05% 186.25% 186.25%
</TABLE>
27
<PAGE>
A static gap report consists of an inventory of the dollar amounts of
assets and liabilities that have the potential to mature or reprice within a
particular period. It does not consider the probability that potential
maturities or repricings of interest-sensitive accounts will occur, or to what
extent. Accordingly, although the table provides an indication of the Company's
gap position at a particular point in time, such measurements are not intended
to and do not provide a forecast of the effect of changes in market interest
rates on the Company's gap position and may differ from actual results after
December 31, 1997.
28
<PAGE>
IMPACT OF INFLATION
Unlike most industrial companies, the assets and liabilities of
financial institutions such as the Company and the Bank are primarily
monetary in nature. Therefore, interest rates have a more significant effect
on the Company's performance than do the effects of changes in the general
rate of inflation and change in prices. In addition, interest rates do not
necessarily move in the same direction or in the same magnitude as the prices
of goods and services.
YEAR 2000 ISSUES
The Company is in the process of addressing the possible exposures
related to the impact of the Year 2000 and is conducting a risk assessment
regarding how these issues will affect the operation of the Company and the
Bank. The Company's critical hardware and software applications are
supported by outside vendors with which the Company maintains continuing
discussions regarding Year 2000 compliance. Certain critical applications
have already been updated as Year 2000 compliant, with the balance of
critical applications scheduled to be updated by the end of 1998. As most of
the critical software is purchased from vendors which have either already
begun to make the necessary changes or will be doing so over the next year,
the Company is concentrating its efforts on initial testing of Year 2000
complaint systems.
During 1998, the Company will continue to assess its readiness for the
Year 2000 by forming a Year 2000 Committee to continue ongoing evaluation of
critical software and hardware applications and to expand the risk assessment
to include and evaluation of suppliers of goods and services and the Bank's
lending function. The Company is also developing contingency plans should
one or more suppliers of goods and services to the Company fail to meet their
respective Year 2000 compliance goals. Critical applications that are not
compliant will be replaced.
While internal staff will be assigned to evaluate and test systems and
applications, the Company anticipates that it may utilize outside resources
to test certain hardware and software applications for compliance with Year
2000 issues. The estimated cost of compliance, including reassignment of
existing staff and outside consulting fees, is not anticipated to be material
to the Company's financial condition in any single year.
FORWARD-LOOKING INFORMATION
The statements contained in this Form 10 that are not historical facts,
including, but not limited to, certain statements found in "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations," are forward-looking statements that involve a number of risks
and uncertainties. The actual results of the future events described in such
forward-looking statements in this Registration Statement could differ
materially from those stated in such forward-looking statements. Among the
factors that could cause actual results to differ materially are: general
economic conditions, competition, government regulations and possible future
litigation, as well as the risks and uncertainties discussed in this Form 10,
including, without limitation, the portions referenced above.
29
<PAGE>
ITEM 3. PROPERTIES
The Company's executive and administrative offices are located at 905
South Fillmore, in Amarillo, Texas. The Company has executed two leases with
an unaffiliated third party for this location, one for approximately 5,600
square feet on the seventh floor which is used for the Company's and the
Bank's executive and administrative offices, and one for approximately 2,100
square feet on the ground floor, which is used for retail banking
transactions. These leases generally expire in June 2004, and provide for
rent escalations tied to either increases in the lessor's operating expenses
or fluctuations in the consumer price index in the relevant geographic
market. The term of these leases may be renewed through June 2012. In
addition to the main office, the Bank maintains four (4) full-service branch
offices located in Amarillo (2 branches), Dalhart and Fritch, Texas.
AMARILLO, TEXAS
As described above, the Bank's main retail office is located on the
first floor of a seven-story office complex at 905 South Fillmore in downtown
Amarillo, Texas. The Bank leases approximately 7,700 square feet of office
space from an unaffiliated third party. This location offers a walk-in
lobby, but does not offer drive-in lanes.
On February 2, 1998 and February 17, 1998, respectively, the Bank opened
two (2) de novo, full-service branches in commercial areas of Amarillo,
Texas. One branch is located at the approximate intersection of U.S.
Interstate 40 and Washington Street and is highly visible to traffic
traveling nearby. The other branch is located at the approximate
intersection of 34th Avenue and Bell Street, also in a highly visible
location. The Bank constructed and owns each branch building and leases the
ground space from unaffiliated third parties. Each stand-alone branch
facility is approximately 2,500 square feet and has five (5) drive-through
lanes and one walk-up automated teller machine.
DALHART, TEXAS
On October 15, 1997, the Bank opened a de novo, full-service branch at
1723 Tennessee in Dalhart, Texas. The Dalhart branch, which offers four (4)
drive-through lanes and one drive-up automated teller machine, is located
within a strip shopping center in the business district of Dalhart, Texas and
is surrounded by other commercial businesses. This branch facility, which
occupies approximately 5,500 square feet, is leased from an unaffiliated
third party. The initial term of the lease is scheduled to expire in October
2002, but may be renewed through October 2012.
FRITCH, TEXAS
The Fritch, Texas branch of the Bank is located at 102 West Broadway
(Highway 136) in downtown Fritch, Texas. This branch facility consists of a
one-story brick building (approximately 3,230 square feet) with three (3)
drive-through lanes and one drive-up automated teller machine. The Fritch
branch facility is owned by the Bank.
30
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
COMMON STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information as of March 24, 1998,
regarding the number of shares of the common stock, par value $1.00 per share
(the "Common Stock") of the Company beneficially owned by all directors and
executive officers of the Company. Beneficial ownership includes shares, if
any, held in the name of the spouse, minor children or other relatives of the
holder living in such person's home, as well as shares, if any, held in the
name of another person under an arrangement whereby the holder can vest title
in himself at once or at some future time. Except as otherwise indicated,
the persons or entities listed below have sole voting and investment power
with respect to all shares of the Common Stock shown as beneficially owned by
them. Percentage ownership is based on 13,333,334 shares of Common Stock
issued and outstanding as of March 24, 1998.
<TABLE>
<CAPTION>
COMMON STOCK PERCENT OF
NAME BENEFICIALLY OWNED COMMON STOCK
---- ------------------ ------------
<S> <C> <C>
William H. Attebury 302,855(1) 2.27%
Danny H. Conklin 63,634 0.48%
Wales H. Madden, Jr. 70,301(2) 0.53%
Jay O'Brien 151,810(3) 1.14%
Donald E. Powell 364,897 2.74%
All executive officers and
directors as a group:
(5 persons) 953,497 7.15%
</TABLE>
- ---------------------
(1) Includes 151,508 shares owned by the Attebury Family Partnership of which
Mr. Attebury is the Managing partner with respect to which shares Mr.
Attebury exercises voting and investment authority, and an aggregate of
45,896 shares held by Mr. Attebury as custodian for eight of his
grandchildren (5,737 shares held for the benefit of each of the eight
grandchildren) with respect to which shares Mr. Attebury exercises voting
and investment authority.
(2) Includes 3,334 shares held in the Wales H. Madden IV Trust, of which Mr.
Madden serves as trustee, 3,334 shares held in the S. Hamilton Madden
Trust, of which Mr. Madden serves as trustee, and 63,633 shares owned by
Gore Creek Capital, Ltd., of which Mr. Madden is a limited partner and
exercises shared voting and investment authority with respect to such
shares.
(3) Includes 117,267 shares held in the Jay O'Brien Pension Trust. Does not
include 15,153 shares owned by Mr. O'Brien's spouse as separate property
with respect to which Mr. O'Brien disclaims beneficial ownership.
PRINCIPAL HOLDERS OF COMMON STOCK
To the best of the Company's knowledge, no shareholder beneficially owns
five percent (5%) or more of the outstanding shares of the Common Stock.
31
<PAGE>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
GENERAL
The following table lists the executive officers and directors of the
Company and the positions they hold with the Company and with the Bank.
Persons who hold positions with the Bank may be deemed to be executive
officers of the Company even though they do not hold positions with the
Company itself. Directors of the Company and the Bank hold office for a term
of one year or until their successors are duly elected and have qualified.
Executive officers of the Company are elected by the Company's Board of
Directors at the Company's annual meeting and hold office until the next
annual meeting of the Company's Board of Directors or until their respective
successors are duly elected and have qualified. The President of the Bank is
elected by the Bank Board at the Bank's annual meeting and holds office until
the next annual meeting of the Bank Board or until successor is duly elected
and has qualified.
<TABLE>
<CAPTION>
Name Age Position with the Company Position with the Bank
---- --- ------------------------- ----------------------
<S> <C> <C>
Donald E. Powell 56 Chairman of the Board, President and Chairman of the Board, President and
Chief Executive Officer Chief Executive Officer
William H. Attebury 69 Director Director
Danny H. Conklin 63 Director Director
Wales H. Madden, Jr. 70 Director Director
Jay O'Brien 53 Director Director
</TABLE>
Except for Danny H. Conklin who serves as a director of New Century
Energies, Inc. and Parallel Petroleum Company, none of the directors of the
Company hold other directorships in a company, or have been nominated to become
a director in a company, with a class of securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or subject to the requirements of Section 15(d) of the Exchange Act, or
any company registered as an investment company under the Investment Company Act
of 1940.
EXPERIENCE
The following is a brief description of each of the executive officers
and directors of the Company and the Bank, the positions they hold, and a
description of the principal occupations and business experience of each of
them during the past five years. Unless otherwise indicated, the principal
occupation listed for a person has been that person's occupation for at least
the past five years.
DONALD E. POWELL. (56) Prior to acquiring a controlling interest in
the Company in May 1997, Mr. Powell served as Chairman of the Board,
President and Chief Executive Officer of Boatmen's First National Bank of
Amarillo since March 1987, and in other capacities since July
32
<PAGE>
1971. In February 1997, Mr. Powell voluntarily resigned from his position
with Boatmen's First National Bank of Amarillo to pursue, among other things,
the Acquisition. Mr. Powell currently serves as Chairman of the Board of
Regents for the Texas A&M University System.
WILLIAM H. ATTEBURY. (69) Mr. Attebury was formerly a director with
Boatmen's First National Bank of Amarillo and served in that capacity from
1975 until February 1997 when he resigned. Mr. Attebury has served as a
director of the Company and the Bank since June 25, 1997. Mr. Attebury's
principal occupation is a private investor.
DANNY H. CONKLIN. (63) Mr. Conklin was formerly a director with
Boatmen's First National Bank of Amarillo and served in that capacity from
1983 until February 1997 when he resigned. Mr. Conklin has served as a
director of the Company and the Bank since June 25, 1997. Mr. Conklin's
principal occupation is a petroleum geologist.
WALES H. MADDEN, JR. (70) Mr. Madden was formerly a director with
Boatmen's First National Bank of Amarillo and served in that capacity from
1961 until February 1997 when he resigned. Mr. Madden has served as a
director of the Company and the Bank since June 25, 1997. Mr. Madden is an
attorney and a private investor.
JAY O'BRIEN. (53) Mr. O'Brien was formerly a director with Boatmen's
First National Bank of Amarillo from 1993 until February 1997 when he
resigned. Mr. O'Brien has served as a director of the Company and the Bank
since June 25, 1997. Mr. O'Brien's principal occupation is a cattleman.
There are no family relationships among any of the executive officers or
directors of the Company or the Bank. Executive officers are elected by the
Board of Directors on an annual basis and serve at the discretion of the
Board of Directors.
BOARD OF DIRECTORS
The Company had 5 directors as of December 31, 1997. Directors of the
Company are elected by the shareholders for a term of one year and until his
or her successor is duly elected and qualified. In the event of any vacancy,
the Board of Directors may fill such vacancy by vote of a majority of all the
Directors then in office, though less than a quorum. Directors so elected
shall serve for the unexpired term of their predecessors, and until their
successor is duly elected and qualified, unless sooner displaced.
Meetings of the Board of Directors are held regularly. The Board of
Directors held seven meetings in 1997. During 1997, all of the Company's
directors attended not less than 75% of the aggregate of the total number of
meetings of the Board of Directors.
33
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of each of the Company and the Bank currently do
not have any committees.
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company and the
Bank for the last three fiscal years to the Chief Executive Officer of the
Company and the Bank. There were no other officers of the Company or the Bank
who received compensation in excess of $100,000 during the last three fiscal
years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
-----------------------------------------
Other Annual All Other
Name and Principal Position Year Salary Bonus Compensation Compensation
--------------------------- ---- ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
DONALD E. POWELL(1) 1997 $ 0 $ 0 $ 0 $ 337(4)
President and Chief Executive Officer of 1996 N/A N/A N/A N/A
the Company and the Bank 1995 N/A N/A N/A N/A
J.H. (BUSTER) HODGES(2) 1997 $58,891 $ 0 $ 936(3) $ 0
President and Chief Executive Officer of 1996 $57,856 $ 0 $1,951(3) $57,302(5)
the Company and the Bank 1995 $56,540 $ 0 $2,415(3) $ 0
</TABLE>
(1) Mr. Powell became President and Chief Executive Officer of the Company and
the Bank upon completion of the Acquisition on May 23, 1997.
(2) Mr. Hodges retired from his position as President and Chief Executive
Officer of the Company and the Bank upon completion of the Acquisition on
May 23, 1997.
(3) Constitutes automobile allowance and insurance premiums paid by the Company
of $458 in 1996 and $665 in 1995.
(4) Membership dues in Amarillo Club paid by the Company during 1997 ($48.11
per month).
(5) Constitutes cash surrender value of a life insurance policy previously
owned and maintained by the Company and transferred to Mr. Hodges in
anticipation of the Acquisition.
COMPENSATION OF DIRECTORS
Directors of the Company and the Bank currently do not receive compensation
to serve in such capacities.
34
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationships exist between the Company's Board of
Directors or officers responsible for compensation decisions and the board of
directors or compensation committee of any company, nor has any such
interlocking relationship existed in the past.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INDEBTEDNESS OF MANAGEMENT
Certain of the officers, directors and principal shareholders of the
Company and the Bank, and their affiliates, have deposit accounts and other
transactions with the Bank, including loans in the ordinary course of
business. All loans or other extensions of credit made by the Bank to
officers, directors and principal shareholders of the Company, the Bank and
to affiliates of such persons were made in the ordinary course of business on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with independent
third parties and did not involve more than the normal risk taken by the
lender or present other unfavorable features. The extensions of credit by
the Bank to those persons have not, and do not currently, involve more than
the normal risk of collectibility or present other unfavorable features. At
December 31, 1997, the outstanding principal amount of indebtedness to the
Bank owed by directors and executive officers and their affiliates, who were
indebted to the Bank on that date, aggregated $10,550,806, which represented
approximately 28% of the Bank's equity capital accounts. The Bank expects to
continue to enter into transactions in the ordinary course of business on
similar terms with officers, directors and principal shareholders of the
Company, the Bank, and their affiliates.
In addition to such lending relationships, some of the executive
officers and directors of the Company, and some of their associates, have had
transactions with the Bank in the ordinary course of business, including the
following:
1. A&S Steel Buildings, Inc. served as a contractor with respect to
the construction of a branch of the Bank at 34th and Bell in Amarillo,
Texas. William H. Attebury's son, W. A. Attebury, is the president and a
shareholder of A&S Steel Buildings, Inc., owning approximately 45% of the
stock, and William H. Attebury's other four children each owning
approximately 7% of the stock of A&S Steel Buildings, Inc.
2. Alpha Three Cattle Company, owned by William H. Attebury (25%)
and his sons Edward A. Attebury (25%) and W. A. Attebury (50%), has a re-
advancing agricultural note with the Bank. The highest outstanding balance
on this note during 1997 was $1,800,000. The outstanding balance of the
note as of March 10, 1998 was paid down to $75,000.
All of the foregoing transactions were on substantially the same terms,
including interest rates and collateral to the extent applicable, as those
prevailing at the time for comparable
35
<PAGE>
transactions with other persons and did not involve more than normal risk of
collectibility or present other unfavorable features. Additional
transactions in the future may be expected to take place with the Bank in the
ordinary course of business.
ITEM 8. LEGAL PROCEEDINGS
The Company and the Bank are sometimes involved in various legal
proceedings in the normal course of their business. None of such matters,
either singularly or in the aggregate, would have, in the opinion of the
management of the Company and the Bank, a material adverse effect upon the
financial statements of the Company or the Bank.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Company's Common
Stock. Accordingly, there is no comprehensive record of trades or the prices
of any such trades. As a result, the prices reported for the Company's
Common Stock may not be reliable indicators of market value. There can be no
assurance that an active public trading market for the Company's Common Stock
will be created in the future. The following table reflects stock prices for
the Company's Shares, to the extent such information is available, and the
dividends declared with respect thereto during the preceding two years.
<TABLE>
<CAPTION>
1997 1996
------------------------------------- ----------------------------------
Price Range Price Range
------------------- -----------------
Low High Dividends Low High Dividends
----- ----- --------- --- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $ - $ - $ - $ - $ - $ -
2nd Quarter $3.00(1) $3.00(1) - - - -
3rd Quarter $3.00 $3.00 - - - -
4th Quarter - - - - - -
</TABLE>
(1) Adjusted to reflect 77.4372-for-1 stock dividend on July 2, 1997 to
shareholders of record on June 30, 1997.
None of the Company's shares of Common Stock (i) are subject to outstanding
options or warrants to purchase nor are there any securities convertible into
the Company's Common Stock, or (ii) are being or proposed to be publicly offered
by the Company.
The Company did not pay any cash dividends on its Common Stock in 1996
or 1997. The Company intends to retain all of its earnings to finance its
operations and does not anticipate paying cash dividends for the foreseeable
future. Any decision made by the Board of Directors
36
<PAGE>
to declare dividends in the future will depend on the Company's future
earnings, capital requirements, financial condition and other factors deemed
relevant by the Board of Directors.
The Company's ability to pay dividends is also subject to the
restrictions imposed by Texas law. Generally, Texas law prohibits
corporations from paying dividends if after giving effect to the
distribution, the corporation would insolvent or the distribution exceeds the
surplus of the corporation. See "Description of Registrant's Securities to
be Registered" under Item 1 of this Form 10.
The Company is also subject to the dividend restrictions applicable to
national banks because its principal source of income is from the dividends
paid by the Bank to the Company. Under the National Bank Act, dividends may
be paid only out of retained earnings as defined in the statute. The
approval of the Comptroller is required if the dividends for any year exceed
the net profits, as defined, for that year plus the retained net profits for
the preceding two years. In addition, unless a national bank's capital
surplus equals or exceeds the stated capital for its common stock, no
dividends may be declared unless the bank makes transfers from retained
earnings to capital surplus. See "Supervision and Regulation" under Item 1
of this Form 10.
The Bank serves as the Transfer Agent for the Company's Common Stock.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
Following completion of the Acquisition, and in anticipation of
significant growth and physical expansion of the Company and the Bank, the
Company took steps to raise additional capital by publicly offering shares of
its Common Stock solely to bona fide residents of the State of Texas pursuant
to Section 3(a)(11) of the Securities Act of 1993, as amended, and Rule 147
issued thereunder. Management of the Company sought to raise approximately
$40 million in a community offering principally to residents in the Panhandle
of Texas and solely to bona fide residents of the State of Texas so as to
qualify for the exemption noted in the preceding sentence.
On July 3, 1997, the Company filed an Application for Registration of
Securities under the Securities Act of Texas with the Texas Securities Board
to register up to 13,333,334 shares of the Company's Common Stock at an
offering price of $3.00 per share for an aggregate maximum offering price of
$40,000,002. After receiving some additional information from the Company,
the State Securities Board of Texas declared the Application for Registration
effective on August 1, 1997. The intrastate offering to bona fide residents
of the State of Texas was concluded on August 31, 1997 with the offering
being completely subscribed. Accordingly, the Company issued 13,333,334
shares of its Common Stock for $3.00 per share effective August 31, 1997.
The certificates representing shares of the Common Stock issued pursuant
to the intrastate offering bear a restrictive legend designed to prevent a
resale of such securities to a non-resident of the State of Texas for a
period of nine months following conclusion of the offering and advising each
holder thereof that such securities have not been registered under the
Securities Act of 1933, as amended,
37
<PAGE>
and are being issued by the Company pursuant to the intrastate offering
exception of such Act and Rule 147 thereunder.
No other shares of the Company's Common Stock has been issued by the
Company since February 29, 1984 or subsequent to conclusion of the intrastate
offering which concluded on August 31, 1997.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
GENERAL
The Company is authorized to issue 20,000,000 shares of common stock of
the par value of $1.00 per share (the "Common Stock"). As of March 24, 1998,
the Company had 13,333,334 shares of Common Stock issued and outstanding held
by approximately 1,039 holders of record. The Company does not have any
other securities outstanding. A more detailed description of the Common
Stock of the Company may be found in the Restated Articles of Incorporation,
copies of which are on file at the offices of the Company and with the
Secretary of State of Texas. The summary below is qualified in its entirety
by reference to such document, which is filed as an exhibit to this Form 10
Registration Statement.
COMMON STOCK
VOTING RIGHTS. All voting rights are vested in the holders of the
Common Stock. With respect to any matter that may be acted on by the
shareholders, each shareholder is entitled to one vote per share. The
presence, in person or by proxy, of the holders of a majority of the issued
and outstanding Common Stock entitled to vote at any meeting is necessary to
constitute a quorum to transact business at such meeting.
Shareholders of the Company do not have the right to cumulate their
votes for the election of Directors. Straight voting in the election of
directors requires that a shareholder only vote the number of shares that he
or she owns for each nominee, and not more. By contrast, under cumulative
voting, each shareholder is entitled to an aggregate number of votes equal to
the number of directors to be elected multiplied by the number shares of
common stock such shareholder owns. The shareholder may divide this
aggregate number of votes among the nominees for election as directors as he
or she chooses and may, for example, cast all of his or her votes for one
nominee. As a result of the denial of cumulative voting rights, shareholders
owning slightly over fifty percent of the Common Stock can, in effect, elect
all of the Directors of the Company.
The Restated Articles of Incorporation of the Company may be amended at
any regular or special meeting of the shareholders by the affirmative vote of
the holders of at least two-thirds of the outstanding shares of Common Stock
of the Company entitled to vote thereon, unless the vote of the holders of a
greater amount of stock is required by law. A merger, consolidation or
38
<PAGE>
liquidation of the Company also requires a two-thirds vote of all of the
shares of the Common Stock outstanding.
Under Texas law, the dissolution of a corporation requires the approval
of the holders of at least two-thirds of the total outstanding shares of the
corporation, and the holders of two-thirds of the outstanding shares of each
class or series entitled to vote thereon as a class, unless a different
amount, not less than a majority, is specified in the articles of
incorporation. The Articles of Incorporation of the Company do not provide
for a different amount of shares for approval of dissolution.
PREEMPTIVE RIGHTS. Under Texas law, the shareholders of a corporation
have a preemptive right to require additional, unissued, or treasury shares
of the corporation, except to the extent limited or denied by the articles of
incorporation. The Restated Articles of Incorporation of the Company do not
afford shareholders the preemptive right to acquire their pro rata share of
Common Stock (or any other securities) issued by the Company in the future.
Accordingly, any issuance and sale of Common Stock in the future will have a
dilutive effect upon the percentage ownership interest of shareholders of the
Company unless such shareholders purchase a pro rata share of Common Stock.
The Common Stock has no redemption, liquidation or conversion provisions.
DIVIDENDS. A Texas corporation may not make any distributions if (1)
after giving effect to the distribution, the corporation would be insolvent
or (2) the distribution exceeds the surplus of the corporation. Subject to
any other restrictions in the articles of incorporation, a corporation may
not make any distributions if, after giving effect to the distribution,
either (1) the corporation is able to pay its debts as they come due in the
usual course of business or the corporation's total assets would be less than
the sum of its total liabilities and the maximum amount that then would be
payable, in any liquidation, in respect to all outstanding shares having
preferential rights in liquidation. Holders of the Company's Common Stock
are entitled to receive dividends when, as and if declared by the Company's
Board of Directors, from assets legally available therefor based upon
conditions then existing, including the earnings of the Company, the
earnings, funding requirements and financial condition of the Bank and
applicable laws and regulations.
The Company is also restricted in its ability to pay dividends by, among
other things, guidelines and regulations of the Federal Reserve and federal
law. The Company is also subject to a Federal Reserve regulation that
requires the Company to receive the prior approval of the Federal Reserve
before paying a dividend on the Common Stock, if, after the payment of the
dividend, the debt-to-equity ratio of the Company would exceed thirty
percent. In addition, the Company's ability to pay dividends depends
primarily on the receipt of dividends from the Bank. The ability of the Bank
to pay dividends is restricted by the requirement that it maintain an
adequate level of capital as required by the Comptroller. The Bank is also
subject to statutory and regulatory restrictions on the payment of dividends.
There is no assurance that dividends paid by the Bank will be sufficient to
enable the Company to meet its obligations. See "SUPERVISION AND
REGULATION."
39
<PAGE>
The future dividend policy of the Company will be determined by the
Corporate Board in light of circumstances and conditions existing at the
time, including the earnings of the Company and the Bank, their funding
requirements and financial condition, applicable laws and regulations and
general business conditions. Such dividends, if any, will depend on the
future profitability of the Bank, and there is no guaranty that the Company
will pay any dividends or at any time in the future. Since completion of the
Acquisition in May 1997, the Company has not paid any cash dividends, and it
is not anticipated that cash dividends on the Common Stock will be declared
or paid in the foreseeable future.
LIQUIDATION RIGHTS. In the event of any voluntary or involuntary
dissolution, liquidation or winding-up of the affairs of the Company, after
payment or provision for the payment of (i) all debts and other liabilities
of the Company, (ii) expenses and (iii) any securities issued by the Company
that are senior to the Common Stock, the holders of all the outstanding
shares of Common Stock will be entitled to share, on a pro rata basis, in the
distribution of the Company's remaining assets. Neither a merger or
consolidation of the Company, nor the sale, lease or conveyance of all or
part of its property or business, will be deemed to be a liquidation,
dissolution or winding-up of the affairs of the Company as contemplated above.
The Company may be dissolved by the written consent of the holders of a
two-thirds majority of the Common Stock. Liquidation may also be effected in
whole or in part through the sale of all or a portion of the Company's
assets. A sale of substantially all of the assets of the Company would have
to be approved by shareholders owning two-thirds of the Common Stock.
BUSINESS COMBINATIONS
The Company is incorporated under the laws of the State of Texas and is
subject to the provisions of the Texas Business Corporation Act (the "TBCA").
Texas law generally permits a merger or share exchange involving the
corporation to become effective without the approval of the corporation's
shareholders if the articles of incorporation of the surviving corporation do
not change following the merger, the amount of the surviving corporation's
common stock to be issued or delivered under the plan of merger does not
exceed 20% of the total shares of outstanding voting stock immediately prior
to the merger, and the board of directors of the surviving corporation adopts
a resolution approving the plan of merger.
Where shareholder approval is required under Texas law, a merger must be
approved by the holders of two-thirds of the outstanding shares of the Texas
corporation entitled to vote thereon, unless there is a class of stock that
is entitled to vote as a class, in which event the merger must be approved by
the holders of two-thirds of the outstanding shares otherwise entitled to
vote, unless a different amount, not less than a majority is specified in the
articles of incorporation. The Company's Articles of Incorporation do not so
provide.
The Company is subject to the provisions of the Texas Business
Combination Law (the "Combination Law") (Articles 13.01 through 13.08 of the
TBCA), which provides that a Texas corporation such as the Company may not
engage in certain business combinations, including mergers, consolidations
and asset sales, with a person, or an affiliate or associate of such person,
40
<PAGE>
who is an "Affiliated Shareholder" (generally defined as the holder of 20% or
more of the corporation's voting shares) for a period of three years from the
date such person became an Affiliated Shareholder unless: (i) the business
combination or purchase or acquisition of shares made by the Affiliated
Shareholder was approved by the board of directors of the corporation before
the Affiliated Shareholder became an Affiliated Shareholder or (ii) the
business combination was approved by the affirmative vote of the holders of
at least two-thirds of the outstanding voting shares of the corporation not
beneficially owned by the Affiliated Shareholder, at a meeting of
shareholders called for that purpose (and not by written consent), not less
than six months after the Affiliated Shareholder became an Affiliated
Shareholder. The Combination Law is not applicable to: (i) the business
combination of a corporation: (a) where the corporation's original charter or
bylaws contain a provision expressly electing not to be governed by the
Combination Law, (b) that adopts an amendment to its charter or bylaws before
December 31, 1997, expressly electing not to be governed by the Combination
Law, or (c) that adopts an amendment to its charter or bylaws after December
31, 1997, by the affirmative vote of the holders, other than Affiliated
Shareholders, of at least two-thirds of the outstanding voting shares of the
corporation, expressly electing not to be governed by the Combination Law;
(ii) a business combination of a corporation with an Affiliated Shareholder
that became an Affiliated Shareholder inadvertently, if the Affiliated
Shareholder: (a) as soon as practicable divests itself of enough shares to no
longer be an Affiliated Shareholder and (b) would not at any time within the
three year period preceding the announcement of the business combination have
been an Affiliated Shareholder but for the inadvertent acquisition; (iii) a
business combination with an Affiliated Shareholder that was the beneficial
owner of 20% or more of the outstanding voting shares of the corporation on
December 31, 1996, and continuously until the announcement date of the
business combination; (iv) a business combination with an Affiliated
Shareholder who became an Affiliated Shareholder through a transfer of shares
of the corporation by will or intestate succession and continuously was such
an Affiliated Shareholder until the announcement date of the business
combination; and (v) a business combination of a corporation with a wholly
owned subsidiary if the subsidiary is not an affiliate or associate of the
Affiliated Shareholder other than reason of the Affiliated Shareholder's
beneficial ownership of the voting shares of the corporation. Neither the
Company's Articles of Incorporation nor the Company's Bylaws contain any
provision expressly provided that the Company will not be subject to the
Combination Law. The Combination Law may have the effect of inhibiting a
non-negotiated merger or other business combination involving the Company,
even if such event would be beneficial to the Company's shareholders.
FEDERAL AND STATE REGULATIONS
The Company and the Bank are subject to a variety of Federal statutes
and regulations applicable to national banking associations, including the
National Bank Act, all of which impact the operations of the Bank. See
"Supervision and Regulation" under Item 1 of this Form 10.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 2.02-1 of the TBCA authorizes corporations to indemnify any
party or threatened party to any threatened, pending or completed action,
suit or proceeding who is or was a director,
41
<PAGE>
officer, employee or agent of the corporation and any person who is or was
serving at the request of the corporation as a director, officer, partner,
venturer, proprietor, trustee, employee or agent of another corporation or
other enterprise if such individual acted in good faith and reasonably
believed that his or her conduct was in the corporation's best interests. In
the case of any criminal proceeding, the individual must have no reasonable
cause to believe that his or her conduct was unlawful in order for the
corporation to indemnify him or her. Texas law provides that no
indemnification shall be made with respect to any claim, issue or matter as
to which such person shall have been adjudged liable where the defendant's
conduct was judged to be willful or intentional misconduct in the performance
of his or her duty to the corporation, and will be limited to reasonable
expense actually incurred in connection with the proceeding where the
defendant is found liable to the corporation or liable for receipt of
improper personal benefits. Whether such director, officer, employee or
agent acted properly is determined by a majority of a quorum of non-party
directors, independent legal counsel opinion or by non-party shareholders. A
corporation may pay expenses incurred by a director or officer before final
disposition of an action or proceeding, but the director or officer must
repay such expenses if it is determined that he or she was not entitled to
indemnification. If such a person seeking indemnification is wholly
successful on the merits or otherwise, in connection with such a proceeding,
such indemnification is mandatory. The board of directors may determine
appropriate terms and conduct to pay an employee or agent. The corporation
may purchase insurance on a director, officer, employee or agent for
liability asserted against him or her whether or not the corporation could
indemnify that party.
The Company's Restated Articles of Incorporation contain provisions
which provide, among other things, that the Company shall indemnify certain
persons, including officers and directors, against judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with any action, suit or proceeding if such person(s) act in good
faith and in a manner reasonably believed to be in or not opposed to the best
interest of the Company, and, with respect to any criminal action or
proceeding, have no reasonable cause to believe his conduct was unlawful. As
to any action brought by or in the right of the Company such indemnification
is limited to expenses or advance payment thereof actually and reasonably
incurred in connection with the defense or settlement of the case, which
shall not be made, absent court approval, if determined that such person is
liable for negligence or misconduct in the performance of his duty to the
Company.
The Company is authorized to purchase and maintain insurance or make
other arrangements to protect itself or others, including, its officers and
directors from liability.
The indemnification provisions in the Company's Restated Articles of
Incorporation are individually limited to the extent that they are consistent
with applicable laws and regulations.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted of directors and officers of the Company
pursuant to the foregoing provisions or otherwise, the Company has been
advised that, although the validity and scope of the governing statute has
not been tested in court, in the opinion of the Securities and Exchange
Commission,
42
<PAGE>
such indemnification is against public policy as expressed in such Act and
is, therefore, unenforceable. In addition, indemnification may be limited by
state securities laws.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the financial statements, the report thereon, the
notes thereto and supplementary data commencing at page F-1 of this Form 10,
which financial statements, report, notes and data are incorporated herein by
reference.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
Consolidated Financial Statements
Page
----
Independent Auditors' Report F-3
Audited Financial Statements
Consolidated Balance Sheets F-4
Consolidated Statements of Operations F-6
Consolidated Statements of Stockholders' Equity F-7
Consolidated Statements of Cash Flows F-8
Summary of Significant Accounting Policies F-9
Notes to Consolidated Financial Statements F-12
EXHIBITS
EXHIBIT NO. DESCRIPTION
3.1 Restated Articles of Incorporation of Tejas Bancshares, Inc.
3.2 Amended and Restated Bylaws of Tejas Bancshares, Inc.
21.1 Subsidiary of Tejas Bancshares, Inc.
27.1 Financial Data Schedule
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
TEJAS BANCSHARES, INC.
(Registrant)
/s/ Donald E. Powell
-------------------------------------------
Donald E. Powell
President and Chief Executive Officer
Dated: April 10, 1998
44
<PAGE>
TEJAS BANCSHARES, INC.
AND SUBSIDIARY
Amarillo, Texas
CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
F-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
PAGE
<S> <C>
INDEPENDENT AUDITORS' REPORT . . . . . . . . . . . . . . . . . . . . . . . F-3
FINANCIAL STATEMENTS
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Operations . . . . . . . . . . . . . . . . F-6
Consolidated Statements of Stockholders' Equity . . . . . . . . . . . F-7
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . F-8
Summary of Significant Accounting Policies. . . . . . . . . . . . . . F-9
Notes to Consolidated Financial Statements. . . . . . . . . . . . . .F-12
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Tejas Bancshares, Inc.
Amarillo, Texas
We have audited the accompanying consolidated balance sheets of Tejas
Bancshares, Inc. and subsidiary as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended December 31, 1997, 1996 and 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 audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Tejas
Bancshares, Inc. and subsidiary as of December 31, 1997 and 1996 and the
results of their operations and their cash flows for the years ended December
31, 1997, 1996 and 1995 in conformity with generally accepted accounting
principles.
Clifton Gunderson P.L.L.C.
/s/ Clifton Gunderson P.L.L.C.
Amarillo, Texas
February 27, 1998
F-3
<PAGE>
TEJAS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
1997 1996
---- ----
<S> <S> <C>
Cash and due from banks $ 16,726,298 $ 1,885,224
Federal funds sold 3,400,000 4,300,000
Securities available-for-sale 5,084,904 1,957,201
Securities held-to-maturity - 8,345,749
Loans 119,850,682 1,463,914
Less allowance for loan losses (2,748,418) (45,200)
------------ -----------
Loans, net 117,102,264 1,418,714
------------ -----------
Bank premises and equipment
Land 39,000 39,000
Buildings 602,026 164,938
Furniture, fixtures and equipment 496,030 132,793
------------ -----------
Total, at cost 1,137,056 336,731
Less accumulated depreciation 274,800 220,573
------------ -----------
Net property and equipment 862,256 116,158
------------ -----------
Accrued interest receivable 1,160,948 153,571
Net deferred tax asset 324,709 -
Other assets 78,708 35,046
------------ -----------
TOTAL ASSETS $144,740,087 $18,211,663
------------ -----------
------------ -----------
</TABLE>
F-4
<PAGE>
TEJAS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1997 AND 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
1997 1996
---- ----
<S> <C> <C>
LIABILITIES
Deposits
Demand - noninterest bearing $ 37,270,616 $ 2,628,590
Demand - interest bearing 28,483,519 5,600,388
Time and savings 40,500,523 7,838,310
------------ -----------
Total deposits 106,254,658 16,067,288
Accrued interest payable 222,676 27,327
Federal income taxes payable 324,709 -
Net deferred tax liability - 32,022
Other liabilities 84,802 17,339
------------ -----------
Total liabilities 106,886,845 16,143,976
------------ -----------
STOCKHOLDERS' EQUITY
Common stock, $1 par value ($10 in 1996);
20,000,000 shares authorized (10,000 in 1996),
13,333,334 and 10,000 issued in 1997 and
1996, respectively 13,333,334 100,000
Paid-in capital 26,137,427 1,514,807
Retained earnings (deficit) (1,653,848) 603,189
Net unrealized holding gain on
available-for-sale securities, net
of tax of $(18,715) and $(6,046) in
1997 and 1996, respectively 36,329 11,736
------------ -----------
37,853,242 2,229,732
Less cost of treasury stock, 805 shares - (162,045)
------------ -----------
Total stockholders' equity 37,853,242 2,067,687
------------ -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $144,740,087 $18,211,663
------------ -----------
------------ -----------
</TABLE>
These consolidated financial statements should be read only in connection
with the accompanying summary of significant accounting policies
and notes to consolidated financial statements.
F-5
<PAGE>
TEJAS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 3,024,441 $ 153,337 $ 136,045
Interest and dividends on investment securities 547,719 865,081 851,440
Interest on federal funds sold 447,378 127,364 145,275
----------- ---------- ----------
Total interest income 4,019,538 1,145,782 1,132,760
INTEREST EXPENSE ON DEPOSITS 1,260,139 515,442 494,040
----------- ---------- ----------
Net interest income 2,759,399 630,340 638,720
PROVISION (CREDIT) FOR LOAN LOSSES 2,700,000 97,003 (79,963)
----------- ---------- ----------
Net interest income after provision
(credit) for loan losses 59,399 533,337 718,683
----------- ---------- ----------
OTHER OPERATING INCOME
Service charges 83,543 71,970 71,972
Other 77,967 45,935 64,618
----------- ---------- ----------
Total other operating income 161,510 117,905 136,590
----------- ---------- ----------
OTHER OPERATING EXPENSES
Salaries and employee benefits 1,027,236 337,423 272,390
Depreciation 119,853 18,639 18,478
Advertising 53,134 13,374 14,294
Occupancy expense 178,588 29,565 30,442
Federal Deposit Insurance Corporation
premiums, net 1,830 2,000 18,421
Professional fees 94,558 19,239 19,812
Supplies, stationery and office expenses 411,766 19,744 21,399
Taxes other than on income and salaries 6,106 4,925 4,209
Data processing 80,805 69,751 71,708
Postage 36,925 21,278 21,190
Other 231,046 69,644 54,088
----------- ---------- ----------
Total other operating expenses 2,241,637 605,582 546,431
----------- ---------- ----------
Earnings (loss) before income taxes (2,020,728) 45,660 308,842
INCOME TAXES (BENEFIT) (39,313) 6,813 103,186
----------- ---------- ----------
NET EARNINGS (LOSS) $(1,981,415) $ 38,847 $ 205,656
----------- ---------- ----------
----------- ---------- ----------
NET EARNINGS (LOSS) PER SHARE $ (0.41) $ 0.05 $ 0.29
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
These consolidated financial statements should be read only in connection
with the accompanying summary of significant accounting policies
and notes to consolidated financial statements.
F-6
<PAGE>
TEJAS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
NET UNREALIZED
HOLDING GAIN
(LOSS) ON
RETAINED AVAILABLE-
COMMON PAID-IN EARNINGS FOR-SALE TREASURY
STOCK CAPITAL (DEFICIT) SECURITIES STOCK TOTAL
----- ------- --------- ---------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 100,000 $ 1,514,807 $ 358,686 $(64,389) $ (162,045) $ 1,747,059
Net earnings - - 205,656 - - 205,656
Net change in unrealized
depreciation on available-
for-sale securities, net
of tax effects of $40,570 - - - 78,754 - 78,754
----------- ----------- ----------- --------- ------------ -----------
Balance at December 31, 1995 100,000 1,514,807 564,342 14,365 (162,045) 2,031,469
Net earnings - - 38,847 - - 38,847
Net change in unrealized
appreciation on available-
for-sale securities, net
of tax effects of $(1,354) - - - (2,629) - (2,629)
----------- ----------- ----------- --------- ------------ -----------
Balance at December 31, 1996 100,000 1,514,807 603,189 11,736 (162,045) 2,067,687
Net loss - - (1,981,415) - - (1,981,415)
Purchase of treasury stock
(6,695 shares) - - - - (1,575,417) (1,575,417)
Goodwill arising from
acquisition of the Company - 65,625 - - - 65,625
Retirement of treasury stock
(7,500 shares) (75,000) (1,580,433) (82,029) - 1,737,462 -
Reduction in par value from
$10 to $1 per share (22,500) 22,500 - - - -
Stock split effected in the
form of a dividend of
77.4372-for-1 193,593 - (193,593) - - -
Common stock issued
(13,333,334 shares), net of
issue costs of $159,558 13,333,334 26,507,110 - - - 39,840,444
Purchase and retirement of
common stock (196,093
shares) (196,093) (392,182) - - - (588,275)
Net change in unrealized
appreciation on available-
for-sale securities, net
of tax effects of $12,669 - - - 24,593 - 24,593
----------- ----------- ----------- --------- ------------ -----------
Balance at December 31, 1997 $13,333,334 $26,137,427 $(1,653,848) $ 36,329 $ - $37,853,242
----------- ----------- ----------- --------- ------------ -----------
----------- ----------- ----------- --------- ------------ -----------
</TABLE>
These consolidated financial statements should be read only in connection
with the accompanying summary of significant accounting policies
and notes to consolidated financial statements.
F-7
<PAGE>
TEJAS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ (1,981,415) $ 38,847 $ 205,656
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 119,853 18,639 18,478
Deferred income taxes (369,400) 6,813 103,186
Provision (credit) for loan losses 2,700,000 97,003 (79,963)
Gain on sale of land - (6,937) -
Amortization of premium or (accretion) of
discount relating to investment securities, net 13,594 (3,854) (8,654)
Change in:
Accrued interest receivable (1,007,377) 53,011 (49,209)
Other assets (43,663) 22,939 (1,056)
Accrued interest payable 195,349 (6,901) 8,791
Federal income taxes payable 324,709 - -
Other liabilities 67,463 (12,124) 11,987
------------- ----------- -----------
Net cash provided by operating activities 19,113 207,436 209,216
------------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and pay-downs
on securities held-to-maturity 1,900,277 4,619,770 3,418,465
Proceeds from maturities and pay-downs
on securities available-for-sale 3,365,437 1,277,418 928,511
Purchases of securities held-to-maturity - (2,892,048) (4,319,123)
Purchases of securities available-for-sale (24,000) - -
Change in loans to customers (118,383,550) 320,278 (375,224)
Expenditures for bank premises and equipment (800,325) (9,146) (10,770)
Proceeds from sale of land - 31,766 -
------------- ----------- -----------
Net cash provided (used) by investing activities (113,942,161) 3,348,038 (358,141)
------------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 90,187,370 (313,429) 267,997
Proceeds from sale of common stock, net of
issue costs of $159,558 39,840,444 - -
Proceeds from loan from stockholder 1,000,000 - -
Repayment of loan to stockholder (1,000,000) - -
Purchases of treasury stock (2,163,692) - -
------------- ----------- -----------
Net cash provided (used) by financing activities 127,864,122 (313,429) 267,997
------------- ----------- -----------
Net increase in cash and cash equivalents 13,941,074 3,242,045 119,072
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 6,185,224 2,943,179 2,824,107
------------- ----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 20,126,298 $ 6,185,224 $2,943,179
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
These consolidated financial statements should be read only in connection
with the accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-8
<PAGE>
TEJAS BANCSHARES, INC. AND SUBSIDIARY
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DECEMBER 31, 1997, 1996 AND 1995
NATURE OF OPERATIONS
Tejas Bancshares, Inc. (the Company) provides a variety of financial services
to individuals and corporate customers in the community of Amarillo, Texas
and the surrounding geographical area. The Company's primary deposit
products are demand deposits and time and savings accounts. Its primary
lending products are consumer, commercial, agriculture and real estate loans.
During 1997, the corporate structure of the Company changed significantly as
follows:
- - In May 1997, Mr. Donald E. Powell acquired control of all of the
outstanding common stock of the Company. In connection with the
acquisition, the Corporation repurchased 6,695 shares of its common stock
for approximately $1,575,400 and Mr. Powell acquired the remaining 2,500
shares of its common stock for approximately $588,300 and loaned the
Company $1,000,000 at the prime interest rate (8.5%). Goodwill in
connection with the acquisition amounted to approximately $65,600.
- - Following completion of the acquisition, the authorized shares of the
Company were increased from 10,000 to 20,000,000, the par value of the
common stock was reduced from $10 to $1 and 7,500 shares of treasury stock
were retired. The domicile of the Company's wholly-owned subsidiary,
Fritch State Bank, was also moved to Amarillo, Texas, and it was converted
to a national banking association named The First National Bank of Amarillo
(the Bank).
- - In July 1997, the Company's common stock was split 77.4372-for-1 in the
effect of a stock dividend. During August 1997, the Company completed an
offering of its common stock and issued 13,333,334 shares at an issue price
of $3 per share. Subsequent to the offering, Mr. Powell's original 196,093
shares were repurchased for approximately $588,300 and were retired and his
$1,000,000 loan was repaid.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary. All significant intercompany balances and
transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INVESTMENT SECURITIES
The Company classifies its investment securities in one of three categories;
trading, available-for-sale or held-to-maturity. Trading securities are bought
and held principally for the purpose of selling them in the near term. The
Company had no investment securities classified as trading at December 31, 1997
or December 31, 1996. Held-to-maturity securities are those in which the
Company has the ability and intent to hold the security until maturity. All
other securities not included in trading or held-to-maturity are classified as
available-for-sale.
F-9
<PAGE>
TEJAS BANCSHARES, INC. AND SUBSIDIARY
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DECEMBER 31, 1997, 1996 AND 1995
INVESTMENT SECURITIES (continued)
Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized holding gains
and losses on trading securities are included in earnings. Unrealized
holding gains and losses, net of the related tax effect, on
available-for-sale securities are excluded from earnings and are reported as
a separate component of stockholders' equity until realized. Transfers of
securities between categories are recorded at fair value at the date of
transfer. In connection with the aforementioned acquisition, during June
1997 the Company transferred all of its held-to-maturity securities (total
carrying value of approximately $6,436,000) to available-for-sale.
Unrealized holding gains and losses are recognized in earnings for transfers
into trading securities.
The unrealized holding gains or losses included in the separate component of
equity for securities transferred from available-for-sale to held-to-maturity
are maintained and amortized into earnings over the remaining life of the
security as an adjustment to yield in a manner consistent with the amortization
or accretion of premium or discount on the associated security. A decline in
the market value of any available-for-sale or held-to-maturity security below
cost that is deemed other than temporary is charged to earnings resulting in the
establishment of new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the related
security as an adjustment to yield using the effective interest method.
Dividend and interest income are recognized when earned. Realized gains and
losses for securities classified as available-for-sale and held-to-maturity are
included in earnings and are derived using the specific identification method
for determining the cost of securities sold.
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are stated at the amount of unpaid principal, reduced by an allowance for
loan losses and unearned income. Unearned income on installment loans is taken
into income over the term of the loan by the sum-of-the-months digits method.
The effect of not using the interest method is not material to the financial
position or results of operations of the Company. Interest on other loans is
calculated by using the simple interest method on daily balances of the
principal amount outstanding.
Impaired loans are measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate or the market price or
the fair value of the collateral if the loan is collateral dependent. The
accrual of interest on impaired loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due. When
interest accrual is discontinued, all unpaid accrued interest is reversed.
Interest payments received on nonaccrual loans are generally applied to
principal.
F-10
<PAGE>
TEJAS BANCSHARES, INC. AND SUBSIDIARY
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DECEMBER 31, 1997, 1996 AND 1995
LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that the collectibility of the principal is
unlikely. The allowance is an amount that management believes will be
adequate to absorb possible losses on existing loans that may become
uncollectible, based on evaluations of individual credits, prior loan loss
experience and general economic conditions. If management believes the
allowance is in excess of possible losses, a credit to the provision is made.
The allowance is subjective in nature and may be adjusted in the near term
because of changes in economic conditions or review by regulatory examiners.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated depreciation,
which is computed using the straight-line method over the estimated useful
lives of the assets.
INCOME TAXES
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 and operating loss and tax credit carryforwards. 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. 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.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
In the ordinary course of business, the Company has entered into
off-balance-sheet financial instruments consisting primarily of commitments
to extend credit. Such financial instruments are recorded in the
consolidated financial statements when they become payable.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers due from
banks and federal funds sold to be cash equivalents. Federal funds sold are
generally purchased and sold for one-day periods.
NET EARNINGS (Loss) PER SHARE
Net earnings (loss) per share are computed based on the weighted average
number of shares outstanding. For the years ended December 31, 1997, 1996
and 1995 the weighted average shares outstanding were 4,824,792, 712,035
and 712,035, respectively, after giving effect for the above-mentioned stock
split effected in the form of a dividend.
This information is an integral part of the accompanying
consolidated financial statements.
F-11
<PAGE>
TEJAS BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 1 - INVESTMENT SECURITIES
The amortized cost, gross unrealized holding gains, gross unrealized holding
losses and fair value for available-for-sale securities by major security type
at December 31, 1997, were as follows:
<TABLE>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST HOLDING GAINS HOLDING LOSSES FAIR VALUE
---- ------------- -------------- ----------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities $ 498,199 $ 1,140 $ - $ 499,339
Government agency securities 1,921,817 6,518 - 1,928,335
Mortgage-backed securities 2,499,384 48,476 (1,090) 2,546,770
State and political obligations 36,585 - - 36,585
Other securities 73,875 - - 73,875
---------- ------- ------- -----------
TOTAL AVAILABLE-FOR-SALE $5,029,860 $56,134 $(1,090) $5,084,904
---------- ------- ------- -----------
---------- ------- ------- -----------
</TABLE>
Maturities of investment securities classified as available-for-sale were as
follows at December 31, 1997 (maturities of mortgage-backed securities have been
presented based upon estimated cash flows, assuming no change in the current
interest rate environment). Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
AMORTIZED ESTIMATED
COST FAIR VALUE
---------- ----------
<S> <C> <C>
Available-for-sale:
Due one year or less $2,213,912 $2,238,140
Due from one to five years 1,012,070 1,023,146
Due after ten years 1,430,515 1,446,170
Other 373,363 377,448
---------- ----------
TOTAL AVAILABLE-FOR-SALE $5,029,860 $5,084,904
---------- ----------
---------- ----------
</TABLE>
The amortized cost, gross unrealized holding gains, gross unrealized holding
losses and fair value for available-for-sale and held-to-maturity securities
by major security type at December 31, 1996, were as follows:
<TABLE>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST HOLDING GAINS HOLDING LOSSES FAIR VALUE
---------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities $ 299,899 $ 6,441 $ - $ 306,340
Mortgage-backed securities 1,589,646 11,887 (547) 1,600,986
Other securities 49,875 - - 49,875
---------- ------- ------ ----------
TOTAL AVAILABLE-FOR-SALE $1,939,420 $18,328 $(547) $1,957,201
---------- ------- ------ ----------
---------- ------- ------ ----------
</TABLE>
F-12
<PAGE>
TEJAS BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 1 - INVESTMENT SECURITIES (CONTINUED)
<TABLE>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST HOLDING GAINS HOLDING LOSSES FAIR VALUE
---- ------------- -------------- ----------
<S> <C> <C> <C> <C>
Held-to-maturity:
U.S. Treasury securities $2,241,662 $11,857 $ - $2,253,519
Other U.S. government
agency obligations 4,698,849 31,999 - 4,730,848
State and political obligations 77,453 - - 77,453
Mortgage-backed securities 1,327,785 32,441 (3,033) 1,357,193
---------- ------- ------- ----------
TOTAL HELD-TO-MATURITY $8,345,749 $76,297 $(3,033) $8,419,013
---------- ------- ------- ----------
---------- ------- ------- ----------
</TABLE>
Investment securities with a carrying value of approximately $1,996,000 and
$3,262,000 at December 31, 1997 and 1996, respectively, were pledged to secure
public deposits as required or permitted by law.
NOTE 2 - LOANS
The major classification of loans are as follows:
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Real estate - primarily mortgage $ 34,351,987 $ 168,477
Agriculture 15,381,803 -
Commercial 45,901,834 553,641
Installment loans to individuals 24,359,581 822,872
Unearned income (144,523) (81,076)
------------ ----------
TOTAL LOANS $119,850,682 $1,463,914
------------ ----------
------------ ----------
</TABLE>
The Bank grants consumer, commercial, agriculture and real estate loans to
customers in primarily the community of Amarillo, Texas and the surrounding
geographical area. Although the Bank has a diversified loan portfolio, a
substantial portion of its debtors' ability to honor their commitments is
dependent upon the real estate and agricultural sectors.
The changes in the allowance for loan losses were as follows:
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
BALANCE AT BEGINNING OF YEAR $ 45,200 $ 22,574 $ 37,605
Provision charged (credited) to expense 2,700,000 97,003 (79,963)
Loans charged off (5,144) (82,827) (7,816)
Recoveries on loans previously charged off 8,362 8,450 72,748
---------- -------- --------
BALANCE AT END OF YEAR $2,748,418 $ 45,200 $ 22,574
---------- -------- --------
---------- -------- --------
</TABLE>
At December 31, 1997 and 1996 there were no material amounts of impaired loans.
F-13
<PAGE>
TEJAS BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 3 - DEPOSITS
The aggregate amount of time deposits in denominations of $100,000 or more was
approximately $25,606,000 and $945,000 at December 31, 1997 and 1996,
respectively.
At December 31, 1997, the scheduled maturities of all certificates of deposits
were substantially all within one year.
NOTE 4 - INCOME TAXES
The following is a summary of the components of income tax expense (benefit):
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current - federal $ 330,087 $ - $ -
Deferred (369,400) 6,813 103,186
--------- ------ --------
Total income tax expense (benefit) $ (39,313) $6,813 $103,186
--------- ------ --------
--------- ------ --------
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 842,379 $ -
Bank premises and equipment basis and
depreciation differences 90,776 -
Allowance for investment security losses 31,981 33,544
Net operating loss tax credit carryforward - 16,110
Other 22,313 -
Valuation allowance (644,015) -
--------- --------
343,424 49,654
--------- --------
Deferred tax liabilities:
Allowance for loan losses - (75,630)
Available-for-sale securities (18,715) (6,046)
--------- --------
(18,715) (81,676)
--------- --------
NET DEFERRED TAX ASSET (LIABILITY) $ 324,709 $(32,022)
--------- --------
--------- --------
</TABLE>
Because of the Company's limited history to generate substantial taxable income,
a valuation allowance has been established to limit the recognition of net
deferred tax assets to approximate the amount of taxes expected to be paid in
the current year.
F-14
<PAGE>
TEJAS BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 4 - INCOME TAXES (CONTINUED)
Total income taxes for the years ended December 31, 1997, 1996 and 1995 are
allocated $(39,313), $6,813 and $103,186, respectively, to income tax from
operations and $12,669, $(1,354) and $40,570, respectively, to stockholders'
equity for the tax effect of unrealized holding gains on available-for-sale
securities recognized for financial reporting purposes.
Total income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 34% in 1997, 1996 and 1995 to earnings (loss) before
income taxes as a result of the following:
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) $(687,048) $15,524 $105,006
Effect of valuation allowance 644,015 - -
Tax-exempt income (1,126) (5,001) (3,920)
Other, net 4,846 (3,710) 2,100
--------- ------- --------
TOTAL INCOME TAX EXPENSE (BENEFIT) $ (39,313) $ 6,813 $103,186
--------- ------- --------
--------- ------- --------
</TABLE>
NOTE 5 - TRANSACTIONS WITH RELATED PARTIES
The Company's directors and their associates, including companies and firms of
which they are officers or in which they and/or their families have an ownership
interest, are customers of the Company. The following is a summary of loan
activity with these parties for the year ended December 31, 1997:
<TABLE>
<S> <C>
Balances at beginning of period $ -
Advances 12,507,324
Repayment (1,956,518)
-----------
Balances at end of year $10,550,806
-----------
-----------
</TABLE>
The Company also has deposit activities with related parties in the normal
course of business which amounted to $3,735,935 at December 31, 1997. Amounts
at December 31, 1996 were not significant.
Other transactions with Mr. Donald E. Powell are described in the Summary of
Significant Accounting Policies.
NOTE 6 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash disbursed for interest for the years ended December 31, 1997, 1996 and 1995
was $1,064,790, $522,343, and $485,249, respectively. Cash disbursed for income
taxes was not significant for the years ended December 31, 1997, 1996 and 1995.
F-15
<PAGE>
TEJAS BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 6 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (CONTINUED)
During the year ended December 31, 1997, noncash investing activities consisted
of the recognition in stockholders' equity of the net unrealized holding gains
on available-for-sale securities of $24,593, net of deferred taxes of $12,669.
During the year ended December 31, 1996, noncash investing activities consisted
of the recognition in stockholders' equity of the net unrealized holding gains
on available-for-sale securities of $(2,629), net of deferred taxes of $(1,354).
During the year ended December 31, 1995, noncash investing activities consisted
of the recognition in stockholders' equity of the net unrealized holding gains
on available-for-sale securities of $78,754, net of deferred taxes of $40,570.
Other noncash transactions during 1997 included the retirement of treasury stock
having a carrying value of approximately $2,325,700, a stock split effected in
the form of a dividend of 77.4372-for-1, the reduction in par value from $10 to
$1 and the transfer of investments of approximately $6,436,000 from the
held-to-maturity category to the available-for-sale category in connection
with the acquisition previously discussed.
NOTE 7 - LEASE COMMITMENTS
The Company leases certain land and office space under noncancelable operating
leases expiring in various years through 2027. Certain leases contain renewal
options from five to ten years based on existing or escalated terms. Future
minimum lease payments under these leases are as follows:
<TABLE>
<S> <C>
1998 $ 135,300
1999 137,600
2000 149,700
2001 161,800
2002 157,600
Later years 838,100
----------
TOTAL $1,580,100
----------
----------
</TABLE>
Total rental expense for the year ended December 31, 1997 was approximately
$59,700. Rental expense for the years ended December 31, 1996 and 1995 was not
significant.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
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 variable interest rates, 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
Bank evaluates each customer's credit
F-16
<PAGE>
TEJAS BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
worthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary upon extension of credit is based on management's credit
evaluation. Collateral held varies but may include accounts receivable,
inventory, property, plant and equipment, and income-producing commercial
properties. The exposure to credit loss in the event of nonperformance by
the other party to the commitments to extend credit is represented by the
contractual amount. Unfunded loan commitments at December 31, 1997 were
approximately $54,063,000. Unfunded loan commitments were not material at
December 31, 1996. Management does not anticipate any losses as a result of
these transactions.
NOTE 9 - DISCLOSURE ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments, the results of applying such methods and
assumptions to the financial instruments and limitations inherent in fair
value estimates:
CASH, DUE FROM BANKS AND FEDERAL FUNDS SOLD
The assets are considered short-term instruments for which the carrying
amount is a reasonable estimate of fair value.
INVESTMENT SECURITIES
For investment securities, excluding restricted equity securities, fair value
is equal to the quoted market price, if available. If a quoted market price
is not available, fair value is estimated using quoted market prices for
similar securities or bid quotations received from securities dealers. The
carrying value of restricted equity securities approximate fair values.
Securities available-for-sale had a carrying value (which approximates fair
value) of approximately $5,085,000 and $1,957,000 at December 31, 1997 and
1996, respectively. Securities held-to-maturity had a carrying value of
approximately $8,346,000 and a fair value of approximately $8,419,000 at
December 31, 1996.
LOANS
Fair values of loans are estimated by discounting the future cash flows
through the estimated maturity using the current rates at which similar loans
would be made to borrowers with similar credit ratings. The carrying value
of loans, net of the allowance for loan losses, was $117,102,264 and
$1,418,714 at December 31, 1997 and 1996, respectively. The fair value of
loans at those dates was approximately the same as carrying value.
DEPOSITS
The fair value of demand deposits, both interest and noninterest bearing, and
savings accounts is the amount payable on demand at the reporting date. The
fair value of time deposits is estimated using the rates currently offered
for deposits of similar remaining maturities. At December 31, 1997 and 1996,
the carrying value of deposits was $106,254,658 and $16,067,288. The fair
value of deposits at those dates was approximately the same as carrying
value.
F-17
<PAGE>
TEJAS BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 9 - DISCLOSURE ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
LIMITATIONS
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 not 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 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.
NOTE 10 - REGULATORY MATTERS
The Company and Bank are subject to various regulatory capital requirements
administered by banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Company and Bank must meet specific capital guidelines that
involve quantitative measures of the assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The Company's and Bank's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk weightings
and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and Bank to maintain minimum amounts and ratios (set
forth in the table below) of Total and Tier I Capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I Capital (as
defined) to average assets (as defined). Management believes, as of December
31, 1997 that the Company and Bank meet all capital adequacy requirements to
which they are subject.
As of December 31, 1997, the most recent notification from the Bank's
regulator categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier I
risk-based and Tier I leverage ratios as set forth in the following table.
There are no conditions or events since that notification that management
believes have changed the Bank's category.
F-18
<PAGE>
TEJAS BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 10 - REGULATORY MATTERS (CONTINUED)
The Company's and Bank's actual capital amounts and ratios are presented in
the following table:
<TABLE>
TO BE WELL CAPITALIZED
FOR CAPITAL UNDER PROMP CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997 greater than greater than
or equal to or equal to
Total Capital (to Risk Weighted Assets):
Tejas Bancshares, Inc. $39,412,000 31.17% $10,116,000 8.0% N/A
The Bank 38,528,000 30.47% 10,116,000 8.0% $12,645,000 10.0%
Tier I Capital (to Risk Weighted Assets):
Tejas Bancshares, Inc. $37,817,000 29.91% $ 5,058,000 4.0% N/A
The Bank 36,933,000 29.21% 5,058,000 4.0% $ 7,587,000 6.0%
Tier I Capital (to Average Assets):
Tejas Bancshares, Inc. $37,597,000 28.98% $ 5,224,000 4.0% N/A
The Bank 36,969,000 28.31% 5,224,000 4.0% $ 6,530,000 5.0%
As of December 31, 1996
Total Capital (to Risk Weighted Assets):
Tejas Bancshares, Inc. $2,101,000 51.50% $ 326,000 8.0% N/A
The Bank 2,044,000 50.10% 326,000 8.0% $ 408,000 10.0%
Tier I Capital (to Risk Weighted Assets):
Tejas Bancshares, Inc. $2,056,000 50.40% $ 163,000 4.0% N/A
The Bank 1,999,000 49.00% 163,000 4.0% $ 245,000 6.0%
Tier I Capital (to Average Assets):
Tejas Bancshares, Inc. $2,056,000 11.00% $ 747,000 4.0% N/A
The Bank 1,999,000 10.70% 747,000 4.0% $ 934,000 5.0%
</TABLE>
There are certain regulatory guidelines on the amount of dividends that can be
paid by the Bank to the Company. These guidelines do not currently have a
significant effect on the amount of dividends paid by the Bank. The Bank is
also required to maintain certain daily reserve balances on hand in accordance
with requirements of the Board of Governors of the Federal Reserve System. For
the years ended December 31, 1997 and 1996, the Bank maintained average cash and
due from bank balances of approximately $4,720,000 and $1,210,000, respectively,
in order to satisfy such requirements.
NOTE 11 - PARENT COMPANY FINANCIAL INFORMATION
The condensed balance sheets, statements of operations and cash flows for Tejas
Bancshares, Inc. (parent only) follow:
F-19
<PAGE>
TEJAS BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 11 - PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
CONDENSED BALANCE SHEETS
<TABLE>
1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash on deposit with Bank $ 884,154 $ 56,881
Investment in Bank 36,969,088 2,010,806
----------- ----------
TOTAL ASSETS $37,853,242 $2,067,687
----------- ----------
----------- ----------
STOCKHOLDERS' EQUITY $37,853,242 $2,067,687
----------- ----------
----------- ----------
</TABLE>
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
INCOME
Dividend received from Bank $ 632,938 $ - $ -
Other - 6,937 -
----------- ------- --------
632,938 6,937 -
----------- ------- --------
EXPENSES
Other 82,417 11,727 1,657
EQUITY IN UNDISTRIBUTED
INCOME (LOSS) OF BANK (2,531,936) 43,637 207,313
----------- ------- --------
NET EARNINGS (LOSS) $(1,981,415) $38,847 $205,656
----------- ------- --------
----------- ------- --------
</TABLE>
F-20
<PAGE>
TEJAS BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 11 - PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net earnings (loss) $(1,981,415) $ 38,847 $ 205,656
Adjustments to reconcile net earnings (loss)
to net cash provided (used) by
operating activities:
Equity in undistributed loss (income)
of Bank 2,531,936 (43,637) (207,313)
Gain on sale of real estate - (6,937) -
----------- -------- ---------
Net cash provided (used) by
operating activities 550,521 (11,727) (1,657)
CASH FLOWS FROM
INVESTING ACTIVITIES
Proceeds from sale of real estate - 31,764 -
----------- -------- ---------
CASH FLOWS FROM
FINANCING ACTIVITIES
Purchase of treasury stock (2,163,692) - -
Proceeds from sale of common stock,
net of issue costs of $159,558 39,840,444 - -
Cash investment in Bank (37,400,000) - -
Proceeds from loan to stockholder 1,000,000 - -
Repayment of loan to stockholder (1,000,000) - -
----------- -------- ---------
Net cash provided by financing activities 276,752 - -
----------- -------- ---------
Increase (decrease) in cash 827,273 20,037 (1,657)
CASH, BEGINNING OF YEAR 56,881 36,844 38,501
----------- -------- ---------
CASH, END OF PERIOD $ 884,154 $ 56,881 $ 36,844
----------- -------- ---------
----------- -------- ---------
</TABLE>
F-21
This information is an integral part of the accompanying
consolidated financial statements.
<PAGE>
EXHIBIT LIST
NUMBER DESCRIPTION
------ -----------
3.1 Restated Articles of Incorporation of Tejas Bancshares, Inc.
3.2 Amended and Restated Bylaws of Tejas Bancshares, Inc.
21.1 Subsidiary of Tejas Bancshares, Inc.
27.1 Financial Data Schedule
<PAGE>
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
TEJAS BANCSHARES, INC.
<PAGE>
RESTATED ARTICLES OF INCORPORATION OF
TEJAS BANCSHARES, INC.
ARTICLE I.
The name of the corporation is Tejas Bancshares, Inc.
ARTICLE II.
The period of its duration is perpetual.
ARTICLE III.
The purpose or purposes for which the corporation is organized are:
(a) To act as a bank holding company.
(b) For any lawful purpose.
(c) To buy, sell, lease, and deal in services, personal property, and real
property.
(d) To do each and every thing necessary, suitable or proper for the
accomplishment of any of the purposes or for the attainment of any one
or more of the objects herein enumerated or which at any time appear
conducive to or expedient for the protection or benefit of the
corporation.
The foregoing clauses shall be construed as powers as well as objects and
purposes, and the matter expressed in each clause shall, unless herein otherwise
expressly provided, be in nowise limited by reference to or inference from the
terms of any other clause, but shall be regarded as independent objects,
purposes and powers, and shall not be construed to limit or restrict in any
manner the meaning of the general terms or the general powers of the
corporation.
ARTICLE IV.
The aggregate number of shares of stock which the corporation is authorized
to issue is twenty million (20,000,000) shares of common stock of the par value
of $1.00 per share.
ARTICLE V.
The corporation will not commence business until it has received for the
issuance of its shares consideration of the value of One Thousand Dollars
($1,000.00), consisting of money, labor done, or property actually received.
<PAGE>
ARTICLE VI.
Except as may be otherwise provided in Article 2.41 of the Texas
Business Corporation Act, no contract, act or transaction of the corporation
with any corporation, person or persons, firm, trust or association, or any
other corporation shall be affected or invalidated by the fact that any
director, officer or shareholder of this corporation is a party to, or is
interested in, such contract, act or transaction, or in any way connected
with any such person or persons, firm, trust or association, or is a
director, officer or shareholder of, or otherwise interested in, any such
other corporation, nor shall any duty to pay damages on account to this
corporation be imposed upon such director, officer or shareholder of this
corporation solely by reason of such fact, regardless of whether the vote,
action or presence of any such director, officer or shareholder may be, or
may have been, necessary to obligate this corporation on, or in connection
with, such contract, act or transaction, provided that if such vote, action
or presence is, or shall have been, necessary, such interest or connection
(other than an interest as a noncontrolling shareholder of any such other
corporation) be known or disclosed to the Board of Directors of this
corporation.
ARTICLE VII.
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 does not
eliminate or limit the liability of a director for:
(a) a breach of a director's duty of loyalty to the corporation or its
shareholders;
(b) an act or omission not in good faith that constitutes a breach of the
duty of the director to the corporation or an act or omission that
involves intentional misconduct or a knowing violation of the law;
(c) a transaction from which a director received an improper benefit,
whether or not the benefit resulted from an action taken within the
scope of the director's office, or
(d) an act or omission for which the liability of a director is expressly
provided for by statute.
If the Texas Civil Statutes are amended after approval by the corporation's
shareholders of this Article VII to authorize corporate action further
eliminating or limiting the personal liability of directors or eliminating or
limiting the personal liability of officers, the liability of a director or
officer of the corporation shall be eliminated or limited to the fullest
extent permitted by law. No repeal or modification of this Article VII by
the shareholders shall adversely affect any right or protection of a director
or officer of the corporation existing by virtue of this Article VII at the
time of such repeal or modification.
ARTICLE VIII.
The right to accumulate votes in the election of directors and/or
cumulative voting by any shareholder is hereby expressly denied.
<PAGE>
ARTICLE IX.
The address of the registered office of the corporation is 905 South
Filmore, Suite 101, Amarillo, Texas 79101, and the name of the registered
agent at such address is Donald E. Powell.
ARTICLE X.
The name and address of those who are currently serving as directors
until the next annual meeting of the shareholders or until their successors
are elected and qualified are as follows:
NAME ADDRESS
---- -------
Donald E. Powell P.O. Box 468
Amarillo, Texas 79101
William H. Attebury P.O. Box 7446
Amarillo, Texas 79114
Danny Conklin 730 FNB Place I
Amarillo, Texas 79101
Wales Madden P.O. Box 15288
Amarillo, Texas 79105
Jay O'Brien P.O. Box 15305
Amarillo, Texas 79105
The Board of Directors shall have the power to alter, amend or repeal the
bylaws of the corporation or to adopt new bylaws.
ARTICLE XI.
(a) The corporation shall indemnify and hold harmless any person who was,
is, or is threatened to be named a defendant or respondent in any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative, or investigative, any appeal in such action, suit,
or proceeding, and any inquiry or investigation that could lead to such an
action, suit, or proceeding by reason of the fact that he is or was a director
or officer of the corporation or, while a director or officer of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, venturer, proprietor, trustee, employee, Agent, or similar
functionary of another foreign or domestic corporation, partnership, joint
venture, sole proprietorship, trust, employee benefit plan or other enterprise,
against judgments, penalties (including excise and similar taxes), fines, and
reasonable expenses (including attorney's fees) actually incurred; provided that
he (i) conducted himself in good faith, (ii) reasonably believed, in the case of
conduct in his official capacity as a director or officer of the corporation,
that his conduct was in the corporation's best interests and, in all other
cases, that his conduct was at least
<PAGE>
not opposed to the corporation's best interests, and (iii) in the case of any
criminal proceeding, had no reasonable cause to believe his conduct was
unlawful; and provided further that (i) he was not found liable on the basis
that he improperly received a personal benefit, whether or not the benefit
resulted from an action taken in the person's official capacity and (ii) he
was not found liable to the corporation. A person found liable either to the
corporation or on the basis that personal benefit was improperly received by
him, may only be indemnified for reasonable expenses (including attorneys'
fees) actually incurred by the person in connection with the proceeding,
however, if that person was found liable for willful or intentional
misconduct in the performance of his duty to the corporation, the corporation
shall not indemnify him in any respect. Notwithstanding anything contained
in this Article XI which may be to the contrary, the corporation shall
indemnify a director or officer against reasonable expenses incurred by him
in connection with a proceeding in which he is a named defendant or
respondent because he was wholly successful, on the merits or otherwise, in
the defense of the proceeding. The indemnification of directors and officers
by the corporation herein provided shall be to the fullest extent authorized
or permitted by applicable law, as such law exists or may hereafter be
amended (but only to the extent that such amendment permits the corporation
to provide broader indemnification rights than permitted prior to the
amendment).
(b) The expenses of directors and officers incurred as a party to any
threatened, pending or completed proceeding, shall be paid by the corporation
as they are incurred and in advance of the final disposition of the
proceeding; provided, however, that the advance payment of expenses shall be
made only upon receipt by the corporation of both a written affirmation from
the director or officer of his good faith belief that he has met the standard
of conduct necessary for indemnification under the Act and an undertaking by
or on behalf of the director or officer to repay all amounts so advanced in
the event that it is ultimately determined by a final decision, order, or
decree of a court of competent jurisdiction that the director or officer has
not met those standards.
(c) Any director or officer may enforce his rights to indemnification
or advance payments for expenses in a suit brought against the corporation if
his request for indemnification or advance payments for expenses is wholly or
partially refused by the corporation or if there is no determination with
respect to such request within 60 days from receipt by the corporation of a
written notice from the director or officer for such a determination. If a
director or officer is successful in establishing in a suit his entitlement
to receive or recover an advancement of expenses or a right to
indemnification, in whole or in part, he shall also be indemnified by the
corporation for costs and expenses incurred in such suit. It shall be a
defense to any such suit (other than a suit brought to enforce a claim for
the advancement of expenses under Section (b) of this Article XI when the
required affirmation and undertaking have been received by the corporation)
that the claimant has not met the standard of conduct set forth in the Act.
Neither the failure of the corporation nor independent legal counsel to have
made a determination prior to the commencement of such suit that
indemnification of the director or officer is proper in the circumstances
because the director or officer has met the applicable standard of conduct
nor a determination by the corporation or by independent legal counsel that
the director or officer has not met such applicable standard of conduct shall
be a defense to the suit or create a presumption that the director or officer
has not met the applicable standard of conduct. In a suit brought by a
director or officer to enforce a right under this Section (c) or by the
corporation to recover an advancement of expenses pursuant to the terms of
an undertaking, the burden of proving that a
<PAGE>
director or officer is not entitled to be indemnified or is not entitled to
an advancement of expenses under this Section (c) or otherwise shall be on
the corporation.
(d) The right to indemnification and the payment or advancement of
expenses as they are incurred and in advance of the final disposition of an
action, suit, or proceeding shall not be exclusive of any other right to
which a person may be entitled under these Articles of Incorporation, the
bylaws, a resolution of shareholders or directors, an agreement, or
otherwise; provided, however, that all rights to indemnification and to the
payment or advancement of expenses are valid only to the extent that they are
consistent with the Act, as it may be limited by these Articles of
Incorporation. The right to indemnification under Section (a) hereof shall
continue for a person who has ceased to be a director or officer and shall
inure to the benefit of his heirs, next of kin, executors, administrators and
legal representatives.
(e) The corporation may purchase and maintain insurance or other
arrangement at its expense to protect itself, any director, officer,
employee, or Agent of the corporation or any person who is or was serving at
the request of the corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, Agent, or similar functionary of another
foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, against
any liability asserted against him and incurred by him in such a capacity or
arising out of his status as such a person, irrespective of whether or not
the corporation would have the power to indemnify him against that liability
under this Article XI. Without limiting the power of the corporation to
procure or maintain any kind of insurance or other arrangement, the
corporation may, for the benefit of persons indemnified by the corporation,
(i) create a trust fund, (ii) establish any form of self-insurance, (iii)
secure its indemnity obligation by grant of a security interest or other lien
on the assets of the corporation, or (iv) establish a letter of credit,
guaranty, or surety arrangement. The insurance or other arrangement may be
procured, maintained or established within the corporation or with any
insurer or other person deemed appropriate by the Board of Directors
regardless of whether all or part of the stock or other securities of the
insurer or other person are owned in whole or in part by the corporation.
(f) The corporation shall not be obligated to reimburse the amount of
any settlement unless it has agreed to such settlement. If any person shall
unreasonably fail to enter into a settlement of any proceeding within the
scope of Section (a) hereof, offered or assented to by the opposing party or
parties and which is acceptable to the corporation, then notwithstanding any
other provision of this Article XI, the indemnification obligation of the
corporation in connection with such action, suit, or proceeding shall be
limited to the total of the amount at which settlement could have been made
and the expenses incurred by such person prior to the time the settlement
could reasonably have been effected.
(g) The corporation may, but need not, to the extent authorized from
time to time by the Board of Directors, grant rights to indemnification and
to the advancement of expenses to any employee or Agent of the corporation or
to any director, officer, employee or Agent of any of its subsidiaries to the
fullest extent of the provisions of the Act and of this Article XI subject to
the imposition of such conditions or limitations as the Board of Directors of
the corporation may deem necessary or appropriate.
<PAGE>
(h) The provisions of this Article XI are valid only to the extent that
they are consistent with applicable laws and regulations. The invalidity of
any provision of this Article XI will not affect the validity of the
remaining provisions of Article XI.
ARTICLE XII.
No shareholder of this corporation shall, by reason of his holding shares of
any class of stock of this corporation, have any preemptive or preferential
right to purchase or subscribe for any shares of any class of stock of this
corporation, now or hereafter to be authorized, or any notes, debentures,
bonds or other securities convertible into or carrying options, warrants or
rights to purchase shares of any class, now or hereafter to be authorized,
whether or not the issuance of any such shares or such notes, debentures,
bonds or other securities would adversely affect the dividend or voting
rights of any such shareholder, other than such rights, if any, as the Board
of Directors, at its discretion, from time to time may grant, and at such
price as the Board of Directors at its discretion may fix; and the Board of
Directors may issue shares of any class of stock of this corporation or any
notes, debentures, bonds or other securities convertible into or carrying
options, or warrants or rights to purchase shares of any class without
offering any such shares of any class of such notes, debentures, bonds or
other securities, either in whole or in part, to the existing shareholders of
any class.
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
TEJAS BANCSHARES, INC.
<PAGE>
TEJAS BANCSHARES, INC.
AMENDED AND RESTATED BYLAWS
APPROVED BY THE BOARD OF DIRECTORS EFFECTIVE AS OF MARCH 31, 1998
ARTICLE I
OFFICES
Section 1. The registered office shall be located in the CITY OF
AMARILLO, COUNTY OF POTTER, STATE OF TEXAS.
Section 2. The corporation may also have offices at such other places,
either within or without the State of Texas, as the board of directors may
from time to time determine or as the business of the corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. All annual meetings of shareholders shall be held at the
offices of the corporation in the CITY OF AMARILLO, STATE OF TEXAS, or at
such other place, within or without the State of Texas, as may be designated
by the board of directors and stated in the notice of the meeting or in a
duly executed waiver of notice thereof. Special meetings of shareholders may
be held at such place, within or without the State of Texas, and at such time
as shall be stated in the notice of the meeting or in a duly executed waiver
of notice thereof.
Section 2. Annual meetings of shareholders, commencing with the year
1998 shall be held on the THIRD TUESDAY OF MAY, if not a legal
holiday, and if a legal holiday, then on the next secular day following at
10:00 a.m., or at such other date and time as may be designated by the board
of directors, at which the shareholders shall elect a board of directors and
transact such other business as may properly be brought before the meeting.
Section 3. Subject to applicable rules of the Securities and Exchange
Commission, all proposals of shareholders intended to be presented at the
annual meeting of shareholders must be received by the corporation at its
principal offices not less than 90 DAYS PRIOR TO THE DATE OF THE NEXT ANNUAL
SHAREHOLDERS' MEETING of each year, in order to be considered for inclusion
in the proxy statement and form of proxy for the next annual meeting.
Section 4. Special meetings of the shareholders may be called by the
president, the board of directors or the holders of not less than one-tenth
(l/10) of all shares entitled to vote at the meeting.
<PAGE>
Section 5. Written or printed notice stating the place, day and hour of
the meeting and, in the case of a special meeting, the purpose or purposes
for which the meeting is called, shall be delivered not less than ten (10)
nor more than fifty (50) days before the day of the meeting, either
personally or by mail, by or at the direction of the president, the
secretary, or the officer or person calling the meeting, to each shareholder
of record entitled to vote at such meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail addressed to
the shareholder at his address as it appears on the stock transfer books of
the corporation, with postage thereon prepaid. See also ARTICLE IV.
Section 6. Business transacted at any special meeting shall be confined
to the purposes stated in the notice thereof.
Section 7. The holders of a majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at meetings of
shareholders except as otherwise provided by law or by the articles of
incorporation. If, however, a quorum shall not be present or represented at
any meeting of the shareholders, the shareholders present in person or
represented by proxy shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might
have been transacted at the meeting as originally notified and called. The
shareholders present at a duly organized meeting may continue to transact
business notwithstanding the withdrawal of some shareholders prior to
adjournment, but in no event shall a quorum consist of the holders of less
than one-third (l/3) of the shares entitled to vote and thus represented at
such meeting.
Section 8. The vote of the holders of a majority of the shares entitled
to vote and represented at a meeting at which a quorum is present shall be
the act of the shareholders, unless the vote of a greater number is required
by law or the articles of incorporation.
Section 9. Each outstanding share, regardless of class, shall be
entitled to one vote on each matter submitted to a vote at a meeting of
shareholders, except to the extent that the voting rights of the shares of
any class are limited or denied by the articles of incorporation or the Texas
Business Corporation Act. At any election for directors, every shareholder
entitled to vote at any such election shall have the right to vote, in person
or by proxy, the number of shares owned by him for as many persons as there
are directors to be elected and for whose election he has a right to vote.
Section 10. A shareholder may vote in person or by proxy executed in
writing by the shareholder or by his duly authorized attorney-in-fact. No
proxy shall be valid after eleven (11) months from the date of its execution
unless otherwise provided in the proxy. Each proxy shall be revocable unless
expressly provided therein to be irrevocable, and unless otherwise made
irrevocable by law. Each proxy shall be filed with the Secretary of the
corporation prior to or at the time of the meeting. Any vote may be taken by
voice or by show of hands unless someone entitled to vote objects, in which
case written ballots shall be used.
<PAGE>
Section 11. The officer or agent having charge of the stock transfer
books shall make, at least ten (10) days before each meeting of shareholders,
a complete list of the shareholders entitled to vote at such meeting or any
adjournment thereof, arranged in alphabetical order, with the address of and
number of shares held by each, which list, for a period of ten (10) days
prior to such meeting, shall be kept on file at the registered office of the
corporation and shall be subject to inspection by any shareholder at any time
during the usual business hours. Such list shall also be produced and kept
open at the time and place of the meeting and shall be subject to the
inspection of any shareholder during the whole time of the meeting. The
original stock transfer books shall be prima facie evidence as to who are the
shareholders entitled to examine such list or transfer book or to vote at any
such meeting of shareholders.
Section 12. Any action required by the Act to be taken at any annual or
special meeting of shareholders, or any action which may be taken at any
annual or special meeting of shareholders, may be taken without a meeting,
without prior notice, and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holder or
holders of shares representing not less than the minimum number of votes that
would have been necessary to take such action at a meeting at which the
holders of all shares entitled to vote on the action were present and voted.
Section 13. Shareholders may participate in and hold a meeting by means
of conference telephone or similar communication equipment by means of which
all persons participating in the meeting can hear each other. Participation
in such a meeting shall constitute presence in person at the meeting, except
where a person participates in the meeting for the express purpose of
objecting to the transaction of any business on the ground the meeting is not
lawfully called or convened.
ARTICLE III
DIRECTORS
Section 1. The number of directors of the corporation shall not be less
than ONE (1) nor more than TWENTY-FIVE (25), and within that minimum and
maximum shall be such number as shall be from time to time specified by
resolution of the board of directors; provided, however, no director's term
shall be shortened by reason of a resolution reducing the number of
directors; and further provided that the number of directors constituting the
1998 board of directors shall be FIVE (5), and shall remain at such number
unless and until changed by resolution of the board of directors as
aforesaid. The directors shall be elected at the annual meeting of the
shareholders, except as provided in Section 2 or Section 3 of this Article,
and each director elected shall hold office for the term for which he is
elected and until his successor is elected and qualified. Directors need not
be residents of the State of Texas or shareholders of the corporation. Any
director may be removed at any time, with or without cause, at any special or
annual meeting of the shareholders, by the affirmative vote of a majority in
number of shares of the shareholders present, in person or by proxy, at such
meeting and entitled to vote for the election of such
<PAGE>
director if notice of intention to act upon such matter shall have been given
in the notice calling such meeting.
Section 2. Subject to Section 3, any vacancy occurring in the board of
directors may be filled by the affirmative vote of a majority of the
remaining directors though less than a quorum of the board of directors,
except that any vacancy in the board of directors resulting from the removal
of a director by the shareholders shall be filled only by the shareholders
entitled to vote at an annual meeting or a special meeting called for that
purpose. A director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office.
Section 3. A directorship to be filled by reason of an increase in the
number of directors either may be filled by the board of directors for a term
of office continuing only until the next election of one or more directors by
the shareholders or may be filled by election at an annual meeting or at a
special meeting of the shareholders entitled to vote called for that purpose;
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 4. The business and affairs of the corporation shall be managed
by its board of directors which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or
by the articles of incorporation or by these bylaws directed or required to
be exercised and done by the shareholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 5. Meetings of the board of directors, regular or special, may
be held either within or without the State of Texas.
Section 6. The first meeting of each newly elected board of directors
shall be held at such time and place as shall be fixed by the vote of the
shareholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of
the shareholders to fix the time and place of such first meeting of the newly
elected board of directors, or in the event such meeting is not held at the
time and place so fixed by the shareholders, the meeting may be held at such
time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the board of directors, or as shall be
specified in a written waiver signed by all of the directors.
Section 7. Regular meetings of the board of directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board of directors.
Section 8. Special meetings of the board of directors may be called by
the president and shall be called by the secretary on the written request of
TWO (2) directors or if there are FIVE (5) OR FEWER DIRECTORS, ON THE WRITTEN
REQUEST OF ONE (1) DIRECTOR. Written or oral notice of special meetings of
the board of directors shall be given to each director at least ONE (1) day
before the date of the meeting. Except as otherwise expressly provided by
law, neither the business to be
<PAGE>
transacted at, nor the purpose of, any regular or special meeting of the
board of directors need be specified in the notice or waiver of notice of
such meeting.
Section 9. A majority of the directors shall constitute a quorum for
the transaction of business and the act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the
board of directors, unless a greater number is required by law or by the
articles of incorporation. If a quorum shall not be present at any meeting
of the board of directors, the directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present. At such adjourned meeting at which
a quorum shall be present, any business may be transacted which might have
been transacted at the meeting as originally notified and called.
Section 10. Any action required or permitted to be taken at a meeting
of the board of directors or the executive committee may be taken without a
meeting if a consent in writing, setting forth the action taken, is signed by
all of the members of the board of directors or the executive committee, as
the case may be, and such consent shall have the same force and effect as a
unanimous vote at a meeting.
Section 11. Directors and committee members may participate in and hold
a meeting by means of conference telephone or similar communication equipment
by means of which all persons participating in the meeting can hear each
other. Participation in such a meeting shall constitute presence in person at
the meeting, except where a person participates in the meeting for the
express purpose of objecting to the transaction of any business on the ground
the meeting is not lawfully called or convened.
COMMITTEES OF DIRECTORS
Section 12. The board of directors, by resolution adopted by a majority
of the whole board, may designate from among its members an executive
committee and one or more other committees, each of which, to the extent
provided in such resolution, shall have and may exercise all of the authority
of the board of directors in the business and affairs of the corporation
except where the action of the board of directors is required by statute.
Vacancies in the membership of a committee shall be filled by the board of
directors at a regular or special meeting of the board of directors. The
executive committee shall keep regular minutes of its proceedings and report
the same to the board when required. The designation of any such committee
and the delegation thereto of authority shall not operate to relieve the
board of directors, or any member thereof, of any responsibility imposed upon
it or him by law.
COMPENSATION OF DIRECTORS
Section 13. The directors may be paid their expenses, if any, of
attendance at each meeting of the board of directors and may be paid a fixed
sum for attendance at each meeting of the board of directors or a stated
salary as director. No such payment shall preclude any director from serving
the corporation in any other capacity and receiving compensation therefor.
Members
<PAGE>
of special or standing committees may be allowed like compensation for
attending committee meetings.
CHAIRMAN OF THE BOARD
Section 14. The board of directors may, in its discretion, choose a
chairman of the board who shall preside at meetings of the shareholders and
of the directors and shall be an ex officio member of all standing
committees. The chairman of the board shall have such other powers and shall
perform such other duties as shall be designated by the board of directors.
The chairman of the board shall be a member of the board of directors but no
other officers of the corporation need be a director. The chairman of the
board shall serve until his successor is chosen and qualified, but he may be
removed at any time by the affirmative vote of a majority of the board of
directors.
ARTICLE IV
NOTICES
Section 1. Notices to shareholders shall be in writing and delivered
personally or mailed to the shareholders at their addresses appearing on the
books of the corporation. Notice by mail shall be deemed to be given at the
time when same shall be mailed.
Section 2. Notices to directors shall be either in writing or oral.
Notice in writing may be delivered personally, mailed, or telegrammed to
directors at their addresses appearing on the books of the corporation.
Notice by mail shall be deemed to be given at the time when same shall be
mailed. Notice by telegram shall be deemed delivered when same shall be
deposited at a telegraph office for transmission and all appropriate fees
therefor have been paid. Oral notice may be made in person or by telephone
to the director to be notified.
Section 3. Whenever any notice is required to be given to any
shareholder or director under the provisions of the statutes or of the
articles of incorporation or of these bylaws, a waiver thereof in writing
signed by the person or persons entitled to such notice, whether before or
after the time stated therein, shall be equivalent to the giving of such
notice.
Section 4. Attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting
for the express purpose of objecting to the transaction of any business on
the ground that the meeting is not lawfully called or convened.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall consist of a
president, one or more vice presidents, a secretary and a treasurer, each of
whom shall be elected by the board of directors. Any two or more offices may
be held by the same person.
<PAGE>
Section 2. The board of directors at its first meeting after each
annual meeting of shareholders shall choose a president, one or more vice
presidents, a secretary and a treasurer, none of whom need be a member of the
board.
Section 3. Such other officers and assistant officers and agents as may
be deemed necessary may be elected or appointed by the board of directors.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the board of directors.
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer or agent or member of
the executive committee elected or appointed by the board of directors may be
removed by the board of directors whenever in its judgment the best interests
of the corporation will be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed. Any
vacancy occurring in any office of the corporation by death, resignation,
removal or otherwise shall be filled by the board of directors.
THE PRESIDENT
Section 6. The president shall be the chief executive officer of the
corporation, shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the board of
directors are carried into effect. He shall have the power to vote all
shares of voting capital stock owned or controlled by the corporation, in
such manner as the board of directors may from time to time instruct, but if
no such instruction is given, then he shall vote such stock in the manner he
deems to be in the best interest of the corporation. He shall perform such
other duties and have such other authority and powers as the board of
directors may from time to time prescribe, and he may from time to time
delegate duties, authority and powers to the other officers of the
corporation. In the absence of the chairman of the board or in the event the
board of directors shall not have designated a chairman of the board, the
president shall preside at meetings of the shareholders and the board of
directors.
Section 7. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the corporation.
THE VICE PRESIDENTS
Section 8. The vice presidents in the order of their seniority, unless
otherwise determined by the board of directors, shall, in the absence or
disability of the president, perform the duties and exercise the powers of
the president. They shall perform such other duties and have such other
powers as the board of directors shall prescribe.
<PAGE>
THE SECRETARY AND ASSISTANT SECRETARY
Section 9. The secretary shall attend all meetings of the board of
directors and all meetings of the shareholders and record all the proceedings
of the meetings of the corporation and of the board of directors in a book to
be kept for that purpose and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the shareholders and special meetings of the board of directors,
and shall perform such other duties as may be prescribed by the board of
directors or president, under whose supervision he shall be. He shall keep
in safe custody the seal of the corporation and, when authorized by the board
of directors, affix the same to any instrument requiring it and, when so
affixed, it shall be attested by his signature or by the signature of the
treasurer or an assistant secretary.
Section 10. The assistant secretaries in the order of their seniority,
unless otherwise determined by the board of directors, shall, in the absence
or disability of the secretary, perform the duties and exercise the powers of
the secretary. They shall perform such other duties and have such other
powers as the board of directors may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 11. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all
moneys and other valuable effects in the name and to the credit of the
corporation in such depositories as may be designated by the board of
directors.
Section 12. He shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors
at its regular meetings or when the board of directors so requires, an
account of all his transactions as treasurer and of the financial condition
of the corporation.
Section 13. If required by the board of directors, he shall give the
corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the board of directors for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of
his death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his possession
or under his control belonging to the corporation.
Section 14. The assistant treasurers in the order of their seniority,
unless otherwise determined by the board of directors, shall, in the absence
or disability of the treasurer, perform the duties and exercise the powers of
the treasurer. They shall perform such other duties and have such other
powers as the board of directors may from time to time prescribe.
<PAGE>
ARTICLE VI
CERTIFICATES FOR SHARES
Section 1. The corporation shall deliver certificates representing all
shares to which shareholders are entitled; and such certificates shall be
signed by the president or a vice president, and the secretary or an
assistant secretary, of the corporation, and may be sealed with the seal of
the corporation or a facsimile thereof. No certificate shall be issued until
the consideration therefor has been fully paid. Each certificate
representing shares of the corporation shall state upon the face thereof that
the corporation is organized under the laws of the State of Texas, the name
of the person to whom issued, the number and class and the designation of the
series, if any, which such certificate represents, and the par value of each
share represented by such certificate or a statement that the shares are
without par value.
Section 2. If the corporation is authorized to issue shares of more
than one class, each certificate representing shares issued by the
corporation (l) shall conspicuously set forth on the face or back of the
certificate a full statement of (a) all of the designations, preferences,
limitations, and relative rights of the shares of each class authorized to be
issued and (b) if the corporation is authorized to issue shares of any
preferred or special class in series, the variations in the relative rights
and preferences of the shares of each such series to the extent they have
been fixed and determined and the authority of the board of directors to fix
and determine the relative rights and preferences of subsequent series; or
(2) shall conspicuously state on the face or back of the certificate that (a)
such a statement is set forth in the articles of incorporation on file in the
office of the Secretary of State and (b) the corporation will furnish a copy
of such statement to the record holder of the certificate without charge on
written request to the corporation at its principal place of business or
registered office.
Section 3. If the corporation has by its articles of incorporation
limited or denied the preemptive right of shareholders to acquire unissued or
treasury shares of the corporation, every certificate representing shares
issued by the corporation (l) shall conspicuously set forth upon the face or
back of the certificate a full statement of the limitation or denial of
preemptive rights contained in the articles of incorporation; or (2) shall
conspicuously state on the face or back of the certificate (a) that there is
on file in the office of the Secretary of State a full statement of the
limitation or denial of preemptive rights contained in the articles of
incorporation, and (b) that the corporation will furnish a copy of such
statement to any shareholder without charge upon written request to the
corporation at its principal place of business or registered office.
Section 4. The signatures of the president or vice president and the
secretary or assistant secretary upon a certificate may be live or a
facsimile thereof. In case any officer who has signed shall have ceased to
be such officer before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer at the date of
the issuance.
<PAGE>
LOST CERTIFICATES
Section 5. The board of directors may direct a new certificate for
shares to be issued in place of any certificate theretofore issued by the
corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate to have been
lost or destroyed. When authorizing such issuance of a new certificate, the
board of directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost or destroyed certificate, or
his legal representative, to advertise the same in such manner as it shall
require and/or to give the corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost or destroyed.
Section 6. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate endorsed or accompanied by proper evidence
of succession, assignment or authority to transfer, it shall be the duty of
the corporation to issue a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books.
RESTRICTION ON TRANSFER OF SECURITIES
Section 7. If the corporation issues any securities which are not
registered under the Securities Act of 1933, as amended, the transfer of any
such shall be restricted in accordance with the following legend:
"The securities represented by this [certificate or instrument]
have not been registered under The Securities Act of 1933, as amended
(the 'Act'), and may not be offered for sale, sold or transferred
unless a registration statement under the Act is then in effect with
respect to such securities or an exemption from the registration
requirement of the Act is then in fact applicable to such sale,
transfer or offer for sale."
If the securities are offered pursuant to the intrastate exemption from
registration contained in Section 3(a)(11) of the Securities Act of 1933, as
amended, the following language should be added to the legend:
<PAGE>
"In addition, these securities have been issued pursuant to the
intrastate offering exemption of the Act [Section 3(a)(11)] and Rule
147 thereunder, and may not, prior to nine months after the last sale
of any security issued by the corporation pursuant to the offering of
which these securities are a part, be sold to anyone not a resident of
the State of Texas."
If the securities are offered pursuant to Section 4(2) of the Act or
under Regulation D, promulgated by the Securities and Exchange Commission
under Sections 3(b) and 4(2) of the Act, the following language should be
added to the legend:
"In addition, these securities have been issued pursuant to
[Section 4(2) of the Act] or [Section 4(2) of the Act and Regulation D
thereunder] or [Regulation D under the Act] and may constitute
'restricted securities' as that term is defined in Rule 144 under the
Act and be subject to restrictions and reporting requirements on
resale or other transfer."
Similarly, if the corporation issues any securities which are not
registered under the securities laws of the state of incorporation of the
corporation (or other relevant state), the transfer of any such securities
shall, to the extent required by law, be restricted in accordance with the
appropriate legend placed upon the certificate or instrument evidencing the
same.
In the event any restriction on the transfer, or registration of the
transfer, of shares shall be imposed or agreed to by the corporation, each
certificate or instrument representing shares so restricted (l) shall
conspicuously set forth a full or summary statement of the restriction on the
face of the certificate or instrument; or (2) shall set forth such statement
on the back of the certificate or instrument and conspicuously refer to the
same on the face of the certificate or instrument; or (3) shall conspicuously
state on the face or back of the certificate or instrument that such a
restriction exists pursuant to a specified document and (a) that the
corporation will furnish to the record holder of the certificate or
instrument without charge upon written request to the corporation at its
principal place of business or registered office a copy of the specified
document, or (b) if such document is one required or permitted by law to be
and has been filed, that such specified document is on file in the office of
the Secretary of State and contains a full statement of such restriction.
CLOSING OF TRANSFER BOOKS AND FIXING RECORD DATE
Section 8. For the purpose of determining shareholders entitled to
notice of or to vote at any meeting of shareholders or any adjournment
thereof, or shareholders entitled to receive payment of any dividend on
shares, or in order to make a determination of shareholders for any other
proper purposes, the board of directors may provide that the stock transfer
books shall be closed for a stated period not to exceed, in any case, fifty
(50) days. If the stock transfer books shall be closed for the purpose of
determining shareholders entitled to notice of or to vote at a meeting of
shareholders, such books shall be closed for at least ten (10) days
immediately preceding such meeting. In lieu of closing the stock transfer
books, the board of directors may fix in advance a date as the record date
for any such determination of shareholders, such date in any case to be not
more than fifty (50) days, and, in case of a meeting of shareholders, not
less than ten (10) days, prior to the date on which the particular action
requiring such determination of shareholders is to be taken. If the stock
transfer books are not closed and no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting
of shareholders, or shareholders entitled to receive payment of a dividend on
shares or of interest or principal on indebtedness, the date on which the
notice of the meeting is mailed or the date on which the resolutions of the
board of directors declaring such dividend or authorizing such payment of
principal or interest is adopted, as the case may be, shall be the record
date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply
<PAGE>
to any adjournment thereof, except where the determination has been made
through the closing of stock transfer books and the stated period of closing
has expired.
REGISTERED SHAREHOLDERS
Section 9. The corporation shall be entitled to recognize the exclusive
rights of a person registered on its books as the owner of shares to receive
dividends or payments of interest and principal thereon, and to vote as the
owner of such share or shares, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part
of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of the State of Texas.
ARTICLE VII
GENERAL PROVISIONS
Section 1. The board of directors may declare and the corporation may
pay dividends on its outstanding shares in cash, property, or its own shares
pursuant to law and subject to the provisions of its articles of
incorporation.
Section 2. The board of directors may by resolution create a reserve or
reserves out of earned surplus for any proper purpose or purposes, and may
abolish any such reserve in the same manner.
REPORT TO SHAREHOLDERS
Section 3. The board of directors must, when requested by the holders
of at least one-third (l/3) of the outstanding shares of the corporation,
present written reports of the situation and amount of business of the
corporation.
CHECKS
Section 4. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons
as the board of directors may from time to time designate.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name of
the corporation, the year of its organization and the words "Corporate Seal
Texas." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced.
<PAGE>
ARTICLE VIII
AMENDMENT OF BYLAWS
These bylaws may be altered, amended or repealed or new bylaws may be
adopted at any meeting of the board of directors at which a quorum is
present, by the affirmative vote of a majority of the directors present at
such meeting (provided notice of the proposed alteration, amendment or repeal
is contained in the notice of the meeting), subject to repeal or change at
any meeting of the shareholders at which a quorum is present, by the
affirmative vote of a majority of the shareholders present at such meeting
(provided notice of the proposed alteration, amendment or repeal is contained
in the notice of the meeting).
<PAGE>
EXHIBIT 21.1
SUBSIDIARY OF THE REGISTRANT
<PAGE>
SUBSIDIARY OF THE REGISTRANT
-----------------------------------------
| TEJAS BANCSHARES, INC. |
| (a Texas corporation) |
-----------------------------------------
|
|
-----------------------------------------
| THE FIRST NATIONAL BANK OF AMARILLO |
| (a national banking association) |
-----------------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
DECEMBER 31, 1997 FORM 10 OF TEJAS BANCSHARES, INC. AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
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0
0
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</TABLE>
