U.S. Securities and Exchange Commission
Washington, D.C. 20549
---------
FORM 10-Q
[x] QUARTERLY REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
---------
Commission File No. 0-24023
TEJAS BANCSHARES, INC.
State of Organization IRS Employer Identification
Texas No. 75-1950688
905 S. Fillmore, Suite 701
Amarillo, Texas 79101
Registrant's telephone number: 806-373-7900
---------
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. (1) Yes _X_
No ___ (2) Yes ___ No _X_
As of August 10, 1998, 13,333,334 shares of the Registrant's common stock were
outstanding.
<PAGE>
TEJAS BANCSHARES, INC.
INDEX
Page
----
Part I.
Item 1: Financial Information:
Condensed Consolidated Balance Sheets
at June 30, 1998 and December 31, 1997 1
Condensed Consolidated Statements of Operations and
Comprehensive Income for the three-month and
six-month periods ended June 30, 1998 and 1997 2
Condensed Consolidated Statements of Cash Flows for the
six-month periods ended June 30, 1998 and 1997 3
Notes to Condensed Consolidated Financial Statements 4
Item 2: Management's Discussion and Analysis of Financial
Condition And Results of Operations 5
Part II. Other Information 11
Signatures 12
<PAGE>
TEJAS BANCSHARES, INC. AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
June 30, 1998 and December 31, 1997
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997*
------------- -------------
<S> <C> <C>
Cash and due from banks $ 18,198,633 $ 16,726,298
Federal funds sold 31,800,000 3,400,000
Securities available-for-sale 5,402,044 5,084,904
Loans 149,514,065 119,850,682
Less allowance for loan losses (3,195,515) (2,748,418)
------------- -------------
Loans, net 146,318,550 117,102,264
------------- -------------
Bank premises and equipment, net 2,338,749 862,256
Accrued interest receivable 2,593,470 1,160,948
Net deferred tax asset 772,732 324,709
Other assets 217,186 78,708
------------- -------------
TOTAL ASSETS $ 207,641,364 $ 144,740,087
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Demand - noninterest bearing $ 43,556,880 $ 37,270,616
Demand - interest bearing 59,773,537 28,483,519
Time and savings 64,058,150 40,500,523
------------- -------------
Total deposits 167,388,567 106,254,658
------------- -------------
Accrued interest payable 591,425 222,676
Federal income taxes payable -- 324,709
Other liabilities 541,388 84,802
------------- -------------
Total liabilities 168,521,380 106,886,845
------------- -------------
STOCKHOLDERS' EQUITY
Common stock 13,333,334 13,333,334
Paid-in capital 26,137,427 26,137,427
Retained earnings (deficit) (382,600) (1,653,848)
Net unrealized holding gain on available-for-sale
securities, net of tax 31,823 36,329
------------- -------------
Total stockholders' equity 39,119,984 37,853,242
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 207,641,364 $ 144,740,087
============= =============
</TABLE>
* Condensed from audited financial statements.
These condensed financial statements should be read only in
connection with the accompanying notes to the condensed financial statements.
1
<PAGE>
TEJAS BANCSHARES, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Operations
and Comprehensive Income(Unaudited)
Three-month and six-month periods ended
June 30, 1998 and 1997
<TABLE>
<CAPTION>
Three-month periods ended Six-month periods ended
June 30, June 30,
------------------------------ ------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME AND FEES
Interest and fees on loans $ 3,188,132 $ 176,922 $ 5,985,538 $ 211,872
Interest and dividends on
investment securities 83,718 169,492 162,946 329,300
Interest on federal funds sold 353,157 78,522 454,626 158,566
----------- ----------- ----------- -----------
Total interest income 3,625,007 424,936 6,603,110 699,738
INTEREST EXPENSE ON DEPOSITS 1,145,794 211,276 2,009,864 339,685
----------- ----------- ----------- -----------
Net interest income 2,479,213 213,660 4,593,246 360,053
PROVISION FOR LOAN LOSSES 225,000 -- 450,000 --
----------- ----------- ----------- -----------
Net interest income after provision
for loan losses 2,254,213 213,660 4,143,246 360,053
OTHER OPERATING INCOME
Service charges 213,592 14,310 280,493 29,676
Other 112,681 6,208 147,841 17,606
----------- ----------- ----------- -----------
Total other operating income 326,273 20,518 428,334 47,282
OTHER OPERATING EXPENSES
Salaries and employee benefits 870,628 181,074 1,453,815 247,598
Depreciation 79,493 4,039 120,110 7,232
Advertising 104,639 3,835 203,462 6,322
Occupancy expense 90,883 7,403 169,345 15,078
Federal Deposit Insurance Corporation
premiums, net 13,874 506 17,294 506
Professional fees 83,061 27,806 113,557 33,120
Supplies, stationery and office expenses 188,393 5,542 408,355 10,067
Taxes other than on income and salaries 47,501 2,308 95,000 3,583
Data processing 174,288 17,086 205,487 37,534
Postage 34,733 6,180 53,064 11,964
Other 113,848 18,960 222,244 31,693
----------- ----------- ----------- -----------
Total other operating expenses 1,801,341 274,739 3,061,733 404,697
----------- ----------- ----------- -----------
Earnings (loss) before income taxes 779,145 (40,561) 1,509,847 2,638
INCOME TAXES (BENEFIT) 119,843 (4,572) 238,599 11,064
----------- ----------- ----------- -----------
NET EARNINGS (LOSS) 659,302 (35,989) 1,271,248 (8,426)
OTHER COMPREHENSIVE INCOME
Change in unrealized gains/
(losses) on securities, net of tax (1,473) 31,201 (4,506) 32,144
=========== =========== =========== ===========
COMPREHENSIVE INCOME $ 657,829 $ (4,788) $ 1,266,742 $ 23,718
=========== =========== =========== ===========
NET EARNINGS (LOSS) PER SHARE $ 0.05 $ (0.07) $ 0.10 $ (0.01)
=========== =========== =========== ===========
</TABLE>
These condensed financial statements should be read only in
connection with the accompanying notes to the condensed financial statements.
2
<PAGE>
TEJAS BANCSHARES, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six-month periods ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
Six-month periods
ended June 30,
----------------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ 1,271,248 $ (8,426)
Adjustments to reconcile net earnings (loss) to
net cash provided (used) by operating activities:
Depreciation 120,110 7,232
Deferred income taxes (445,701) (1,734)
Provision for loan losses 450,000 --
Amortization of premium or (accretion) of
discount relating to investment securities, net (2,501) (8,538)
Changes in:
Accrued interest receivable (1,432,522) (42,232)
Other assets (138,478) (49,975)
Accrued interest payable 368,749 18,682
Federal income taxes payable (324,709) --
Other liabilities 456,586 19,777
------------ ------------
Net cash provided (used) by operating activities 322,782 (65,214)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and pay-downs on
securities held to maturity -- 1,941,262
Proceeds from maturities and pay-downs on
securities available-for-sale 1,820,333 74,113
Purchases of securities available-for-sale (2,141,800) (24,000)
Change in loans to customers (29,666,286) (12,919,617)
Expenditures for bank premises and equipment (1,596,603) (20,012)
------------ ------------
Net cash used by investing activities (31,584,356) (10,948,254)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 61,133,909 10,327,390
Proceeds from loan from stockholder -- 1,000,000
Purchase of treasury stock -- (1,509,802)
------------ ------------
Net cash provided by financing activities 61,133,909 9,817,588
------------ ------------
Increase (decrease) in cash and cash equivalents 29,872,335 (1,195,880)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 20,126,298 6,185,224
============ ============
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 49,998,633 $ 4,989,344
============ ============
</TABLE>
These condensed financial statements should be read only in
connection with the accompanying notes to the condensed financial statements.
3
<PAGE>
TEJAS BANCSHARES, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
(1) General
See the Summary of Significant Accounting Policies included in the
consolidated financial statements in the Company's report on Form 10.
The unaudited condensed consolidated financial statements included herein
were prepared from the books of the Company in accordance with generally
accepted accounting principles and reflect all adjustments (consisting of
normal recurring accruals) which are, in the opinion of management,
necessary to a fair statement of the results of operations and financial
position for the interim periods. Such financial statements generally
conform to the presentation reflected in the Company's Annual Report to
Stockholders. The current interim period reported herein is included in the
fiscal year subject to independent audit at the end of that year and is not
necessarily an indication of the expected results for the fiscal year.
Effective January 1, 1998, the Company adopted the provisions of Financial
Accounting Standard No.130,"Reporting Comprehensive Income." Under this
standard, comprehensive income is now reported for all periods.
Comprehensive income includes both net income and other comprehensive
income. Other comprehensive income includes the change in unrealized gains
and losses on securities available for sale, net of tax.
(2) Net Earnings (Loss) Per Share
Net earnings (loss) per share are computed based on the weighted average
number of shares outstanding. For the three months ended June 30, 1998 and
1997, the weighted average shares outstanding were 13,333,334 and 489,846,
respectively. For the six-months ended June 30, 1998 and 1997, the weighted
average shares outstanding were 13,333,334 and 600,327, respectively.
(3) Incentive Stock Plan
On May 19, 1998, the Company's stockholders approved the Tejas Bancshares,
Inc. 1998 Incentive Stock Plan (the Plan). The Plan's objectives are to
attract, retain and provide incentive to employees, officers, directors and
to increase overall shareholder value. The number of shares reserved for
issuance under the plan is 1,333,333. The Plan provides for the grant of
both incentive stock options and non-qualified stock options as well as the
grant of restricted stock, stock appreciation rights, dividend equivalent
rights, stock awards and other stock based awards. During June 1998 the
Company finalized the granting of 509,600 (effective February 18, 1998) in
shares under incentive stock options to certain employees and officers at
the option price of $3.00 which is the fair market value of the common
stock of the Company as determined by a majority of the disinterested
directors of the Company.
This information is an integral part of the accompanying
condensed consolidated financial statements.
4
<PAGE>
TEJAS BANCSHARES, INC. AND SUBSIDIARY
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations - Three-Month and Six-Month Periods Ended June 30, 1998 as
Compared to the Three-Month and Six-Month Periods Ended June 30, 1997:
Revenues
Tejas Bancshares, Inc. and subsidiary (the Company) incurred net earnings for
the three months ended June 30, 1998 of $659,302 as compared to the loss of
$35,989 for the three months ended June 30, 1997. The Company's net earnings
were $1,271,248 for the six months ended June 30, 1998 as compared to a loss of
$8,426 for the six months ended June 30, 1997. Earnings for 1998 and 1997 were
significantly improved by substantial growth in loans and deposits and the
equity capital addition in the third quarter of 1997. The return on average
assets for the six-month period ended 1998 and 1997 was 1.48% and (.08)%,
respectively, and return on average equity was 6.65% and (.98)%, 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 six months ended June 30, 1998 and 1997 net interest income was
$4,593,246, and $360,053, respectively. The increase in net interest income from
1997 to 1998 of $4,233,193 (1,175%) is primarily due to an increase in average
interest-earning assets of approximately $137,953,000, net of an increase in
average interest-bearing liabilities of approximately $82,507,000. In addition,
the net yield on earning assets improved from 3.56% in 1997 to 5.85% in 1998.
The following table sets forth the average consolidated balance sheets of the
Company and subsidiary for the six months ended June 30, 1998 and 1997 along
with an analysis of net interest earnings for each major 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:
5
<PAGE>
<TABLE>
<CAPTION>
1998 1997
---------------------------------------- ---------------------------------------
Average Total Average Average Total Average
Balance(1) Interest Rate Balance(1) Interest Rate
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Loans
Commercial and agricultural $ 74,429,632 $ 3,261,692 8.84% $ 729,582 $ 37,193 10.28%
Real estate - mortgage 44,157,768 1,922,185 8.78% 1,646,140 72,264 8.85%
Installment loans to individuals 17,696,802 801,661 9.14% 2,073,833 102,415 9.96%
----------- --------- ---- ---------- ------- ----
Total loans 136,284,202 5,985,538 8.86% 4,449,555 211,872 9.60%
Securities Taxable 5,173,348 162,946 6.35% 10,075,930 329,300 6.59%
Federal funds sold and other
interest-earning assets 16,917,127 454,626 5.42% 5,896,685 158,566 5.42%
----------- --------- ---- ---------- ------- ----
Total interest-earning assets 158,374,677 6,603,110 8.41% 20,422,170 699,738 6.91%
NONINTEREST-EARNING ASSETS
Cash and due from banks 13,754,091 1,620,646
Other assets 4,135,154 289,537
Less: allowance for loan losses (2,948,745) (44,863)
------------- ------------
Total $ 173,315,177 $ 22,287,490
============= ============
INTEREST-BEARING
LIABILITIES
Interest-bearing demand $23,049,208 $ 280,528 2.45% $ 4,994,237 $ 67,158 2.71%
Money market deposits 24,498,440 408,991 3.37% 1,111,935 16,276 2.95%
Other savings deposits 2,886,048 39,194 2.74% 1,037,847 13,918 2.70%
Time deposits 48,783,393 1,281,151 5.30% 9,566,242 242,333 5.11%
----------- --------- ---- ---------- ------- ----
Total interest-bearing
liabilities 99,217,089 2,009,864 4.09% 16,710,261 339,685 4.10%
NONINTEREST-BEARING
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Demand deposits 34,882,876 3,501,925
Other 639,250 333,461
Stockholders' equity 38,575,962 1,741,843
------------- ------------
Total $ 173,315,177 $ 22,287,490
============= ============
Net interest income 4,593,246 360,053
Net yield on earning assets 5.85% 3.56%
==== ====
</TABLE>
(1) For purposes of these computations, nonaccruing loans are included in the
daily average loan amounts outstanding.
6
<PAGE>
Other Operating Income and Expenses
Other operating income for the three and six-month periods for 1998 increased by
$305,755 (1,490%) and $381,052 (806%), respectively because of increased
activity on deposit accounts. Other operating expenses increased during the
three and six-month periods for 1998 by $1,526,602 (556%) and $2,657,036 (657
%), respectively. The increase was attributable to the overall growth of the
Company, including a significant increase in employees from 1997 to 1998,
increases in costs to conduct banking operations and significant start-up
expenses related to the opening and operations of two branches. Additionally,
during the three month period for 1998 the Company granted a $150,000 bonus to
its Chief Executive Officer and made a provision of approximately $130,000
related to the termination of a contract with a data service provider.
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 the six-month period of 1998, the weighted average
yield on taxable securities was 6.35% as compared to 6.59% during 1997. The
Company primarily invests in U.S. Treasury securities and other U.S. government
agency obligations and mortgage-backed securities.
The amortized cost and estimated fair values of the major classifications of
available-for-sale securities at June 30, 1998 and December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
----------------------- -----------------------
Amortized Amortized
Cost Market Cost Market
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Treasury securities $ 249,404 $ 249,999 $ 498,199 $ 499,339
Government agencies 1,642,984 1,650,315 1,921,817 1,928,335
Mortgage backed securities 2,229,196 2,269,485 2,499,384 2,546,770
State and political obligations 36,585 16,569 16,569 36,585
Other securities 1,215,675 1,215,676 73,875 73,875
---------- ---------- ---------- ----------
Total securities $5,353,828 $5,402,044 $5,029,860 $5,084,904
========== ========== ========== ==========
</TABLE>
Loan Portfolio
At June 30, 1998, December 31, 1997, and June 30, 1997 net loans accounted for
70.5%, 80.1% and 51.0%, respectively, of total assets. The increase from June
30, 1997 to June 30, 1998 was primarily attributable to the previously reported
change of bank ownership, management and philosophy.
The amount of loans outstanding at June 30, 1998 and December 31, 1997 are shown
in the following table according to type of loans:
7
<PAGE>
June 30, December 31,
1998 1997
------------ ------------
Commercial $ 42,448,604 $ 45,901,834
Agriculture 41,452,487 15,381,803
Real estate
Commercial 29,886,074 16,282,655
1-4 single family 24,735,000 18,069,332
Installment loans to individuals 10,991,900 24,215,058
------------ ------------
Total $149,514,065 $119,850,682
============ ============
Provision and Allowance for Loan Losses
The following table summarizes the loan loss experience for the six months ended
June 30, 1998 and 1997:
1998 1997
----------- -----------
Balance of allowance for loan
losses at the beginning of period $ 2,748,418 $ 45,200
Provision charged (credited) to operations 450,000 --
----------- -----------
Charge-offs (17,780) (4,883)
Recoveries 14,877 1,662
----------- -----------
Balance at end of period $ 3,195,515 $ 41,979
=========== ===========
The Bank had no significant nonaccrual, past due or restructured loans at June
30, 1998.
Additions to the allowance for loan losses, which are recorded as the provision
for loan losses on the Company's statements of operations, 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 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 June 30, 1998 and December 31, 1997, the allowance for loan losses was
$3,195,515 and $2,748,418, respectively, which represented 2.14% and 2.29% of
outstanding loans at those respective dates.
During the three-month and six-month periods ended June 30, 1998, the Company
recorded provisions for loan losses of $225,000 and $450,000, respectively. The
provisions were made in connection with the growth of the loan portfolio of
$29,663,383 (24.8%) over the six-month period. The increase in loans is
attributable to the change in ownership and an aggressive posture taken by
management to grow the Company. During 1997, the Company hired nine new,
experienced loan officers who have been successful in originating many loans.
Because the Company has a very limited loan loss history, the rapid growth in
the loan portfolio and the
8
<PAGE>
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.
Capital
The Company and The First National Bank of Amarillo (The 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 June 30, 1998 that the
Company and Bank meet all capital adequacy requirements to which they are
subject.
The Company and the Bank exceeded their regulatory capital ratio at June 30,
1998, as set forth in the following table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------------------- -------------------------- -------------------------
Amount Ratio Amount Ratio Amount Ratio
------------ --------- ------------ -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
To Risk Weighted Assets:
Total Capital:
Tejas Bancshares, Inc. $ 41,175,000 $ 24.83% $ 13,265,000 > 8.0% N/A
The Bank 40,332,000 24.33% 13,264,000 > 8.0% 16,580,000 > 10.0%
Tier I Capital:
Tejas Bancshares, Inc. $ 39,088,000 $ 23.57% $ 6,632,000 > 4.0% N/A
The Bank 38,246,000 23.07% 6,632,000 > 4.0% 9,948,000 > 6.0%
To Average Assets
Tier I Capital:
Tejas Bancshares, Inc. $ 39,088,000 $ 20.38% $ 7,673,000 > 4.0% N/A
The Bank 38,246,000 19.94% 7,673,000 > 4.0% 9,591,000 > 5.0%
</TABLE>
9
<PAGE>
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 $16,917,000 during the six months ended June 30,
1998. Additionally, the Company arranged for $5,000,000 in funds purchased lines
during the six-month period. Management also has lined out potential purchasers
of loans as a tool to maintain liquidity. The company has numerous loan
participations with other parties, primarily financial institutions. Loan
participations are a common commercial banking arrangements whereby the Company
sells, on a nonrecourse basis, a portion of a loan to another party or parties.
These arrangements spread the risk between or among the parties and provide
liquidity to the company while reducing risk. Although no formal agreements or
commitments exist, management believes that additional loan participations in
the range of $75 million to $80 million could readily be sold for liquidity
purposes, if necessary. 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.
Deposits and Other Interest-Bearing Liabilities
Average total deposits were $134,099,965 and $20,212,186 during the six-month
periods for 1998 and 1997, respectively. Average interest-bearing deposits were
$99,217,089 in 1998 as compared to $16,710,261 in 1997.
The average daily amount of deposits and rates paid on savings deposits are
summarized for the six months ended June 30, 1998 and 1997 as indicated in the
following table:
<TABLE>
<CAPTION>
1998 1997
-------------------- --------------------
Amount Rate Amount Rate
------------ ----- ------------ -----
<S> <C> <C> <C> <C>
Deposits
Noninterest-bearing demand $ 34,882,876 0.00% $ 3,501,925 0.00%
Interest-bearing demand 23,049,208 2.45% 4,994,237 2.71%
Money market deposits 24,498,440 3.37% 1,111,935 2.95%
Other savings deposits 2,886,048 2.74% 1,037,847 2.70%
Time deposits 48,783,393 5.30% 9,566,242 5.11%
------------ ------------
Total $134,099,965 $ 20,212,186
============ ============
</TABLE>
10
<PAGE>
TEJAS BANCSHARES, INC. AND SUBSIDIARY
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
1. Election of directors
2. Ratification of the adoption of the 1998 Incentive Stock Plan.
3. Ratification the appointment of Clifton Gunderson P.L.L.C. as auditors for
the 1998 fiscal year.
The annual meeting of stockholders of the Company was held on May 19, 1998. At
such meeting, the adoption of an incentive stock plan was approved, the
appointment of auditors was ratified and each of the individuals named below was
elected to the Board of Directors of the Company to serve until the next annual
meeting of the stockholders of the Company:
<TABLE>
<CAPTION>
Number of Shares
------------------------------------------
For Withhold
------------ ------------
<S> <C> <C> <C>
Item #1 - Election of Directors:
Don Powell 8,751,934 74,243
William H. Attebury 8,751,934 74,243
Danny H. Conklin 8,751,934 74,243
Wales H. Madden, Jr. 8,748,600 77,577
Jay O'Brien 8,751,934 74,243
<CAPTION>
For Against Abstain
------------ ------------ -------------
Item # 2 - Ratification of the adoption
of the 1998 Incentive Stock Plan. 8,015,205 64,719 746,253
Item # 3 - Ratification of the appointment
of Clifton Gunderson, as auditors
for the 1998 fiscal year. 8,156,053 9,090 661,034
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10 Tejas Bancshares, Inc. 1998 Incentive Stock Plan
27 Financial Data Schedule for June 30, 1998
(b) Reports on Form 8-K
No form 8-K was filed with the SEC during the quarter ended June
30, 1998.
11
<PAGE>
TEJAS BANCSHARES, INC. AND SUBSIDIARY
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TEJAS BANCSHARES, INC.
DATE: August 10, 1998 BY: /s/ Donald E. Powell
---------------------------------------------
Donald E. Powell, Chief Executive Officer
DATE: August 10, 1998 BY: /s/ Jack Hall
---------------------------------------------
Jack Hall, Chief Financial Officer
12
EXHIBIT 10
Tejas Bancshares, Inc. 1998 Incentive Stock Plan
<PAGE>
INCENTIVE STOCK PLAN
I. Purpose
This 1998 Incentive Stock Plan (the "Plan") is intended to attract, retain
and provide incentives to Employees, officers, Directors and consultants of the
Company, and to thereby increase overall shareholders' value. The Plan generally
provides for the granting of stock, stock options, stock appreciation rights,
restricted shares, other stock-based awards or any combination of the foregoing
to the eligible participants.
II. Definitions
(a) "Award" includes, without limitation, stock options (including
incentive stock options within the meaning of Section 422(b) of the Code), stock
appreciation rights, stock awards, restricted share awards, dividend equivalent
rights, or other awards that are valued in whole or in part by reference to, or
are otherwise based on, the Common Stock ("other Common Stock-based Awards"),
all on a stand alone, combination or tandem basis, as described in or granted
under this Plan.
(b) "Award Agreement" means a written agreement setting forth the terms and
conditions of each Award made under this Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Change in Control" means:
(i) An acquisition by any person (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange
Act")) who is not as of the effective date of the Plan the beneficial
holder of at least 10% of the Company's then outstanding common stock, of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 30% or more of either (x) the then outstanding common
stock (the "Outstanding Company Common Stock") or (y) the combined voting
power of the then outstanding common stock entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
excluding, however, the following: (1) any acquisition of Outstanding
Company Common Stock by the Company, (2) any acquisition of Outstanding
Company Common Stock by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company or (3) any acquisition of Outstanding Company Common Stock by any
person pursuant to a transaction which complies with clauses (1), (2) and
(3) of subsection (iii) of this definition; or
(ii) A change in the composition of the Board such that the
individuals who, as of the effective date of the Plan, constitute the Board
(such Board shall be hereinafter referred to as the "Incumbent Board")
ceased for any reason to constitute at least a majority of the Board;
provided, however, for purposes of this definition, that any
1
<PAGE>
individual who becomes a Director subsequent to such effective date, whose
election, or nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of those individuals who are
Directors and who were also members of the Incumbent Board (or deemed to be
such pursuant to this proviso) shall be considered as though such
individual were a member of the Incumbent Board; but, provided further,
that any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents by
or on behalf of a person or legal entity other than the Board shall not be
so considered as a member of the Incumbent Board; or
(iii) The approval by the stockholders of the Company of a
reorganization, merger or consolidation or sale or other disposition of all
or substantially all of the assets of the Company ("Corporate
Transaction"); excluding, however, such a Corporate Transaction pursuant to
which (1) all or substantially all of the individuals and entities who are
the Beneficial Owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Corporate Transaction will beneficially own, directly or indirectly, more
than 60% of, respectively, the outstanding common stock, and the combined
voting power of the then outstanding common stock entitled to vote
generally in the election of directors, as the case may be, of the company
resulting from such Corporate Transaction (including, without limitation, a
corporation which as a result of such transaction owns the Company or all
or substantially all or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Corporate
Transaction, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (2) no person (other then
the Company, any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or
such corporation resulting from such Corporate Transaction) will
beneficially own, directly or indirectly, 30% or more of, respectively, the
outstanding shares of common stock of the corporation resulting form such
Corporate Transaction or the combined voting power of the outstanding
voting securities of such corporation entitled to vote generally in the
election of directors except to the extent that such ownership existed with
respect to the Company prior to the Corporate Transaction and (3)
individuals who were members of the Incumbent Board will constitute at
least a majority of the board of directors of the corporation resulting
from such Corporate Transaction; or
(iv) The approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
2
<PAGE>
(f) "Committee" means the Board or such committee of the Board as may be
designated by the Board from time to time to administer this Plan.
(g) "Common Stock" means the $1.00 par value Common Stock of the Company.
(h) "Company" means Tejas Bancshares, Inc.
(i) "Director" means a member of the Board.
(j) "Employee" means an employee of the Company or a Subsidiary.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(l) "Fair Market Value" means during such time as the Common Stock of the
Company is not publicly traded, the price per share of Common Stock of the
Company established by a fair market evaluation of the Common Stock of the
Company performed by an independent third party at the direction of the Company
in the preceding six (6) month period. In the event the Common Stock of the
Company becomes publicly traded, Fair Market Value shall mean the average of the
opening and closing price of the Common Stock on the day immediately preceding
the date of the grant. In the event the Common Stock of the Company is not
publicly traded and no evaluation is performed for the Company, or such
evaluation has not been performed in the preceding six (6) month period, the
Fair Market Value shall be as determined by a majority of the disinterested
directors of the Company.
(m) "Participant" means an Employee, officer, Director or consultant who
has been granted an Award under the Plan.
(n) "Plan Year" means a calendar year.
(o) "Subsidiary" means any corporation or other entity, whether domestic or
foreign, in which the Company has or obtains, directly or indirectly, a
proprietary interest of more than 50% by reason of stock ownership or otherwise.
III. Eligibility
Any Employee, officer, Director or consultant of the Company or Subsidiary
selected by the Committee is eligible to receive an Award pursuant to Section VI
hereof.
IV. Plan Administration
(a) Except as otherwise determined by the Board, the Plan shall be
administered by the Committee. The Board, or the Committee to the extent
determined by the Board, shall periodically make determinations with respect to
the participation of Employees, officers, Directors and consultants in the Plan
and, except as otherwise required by law or this Plan, the
3
<PAGE>
grant terms of Awards, including vesting schedules, retirement and termination
rights, payment alternatives such as cash, stock, contingent award or other
means of payment consistent with the purposes of this Plan, and such other terms
and conditions as the Board or the Committee deems appropriate which shall be
contained in an Award Agreement with respect to a Participant.
(b) The Committee shall have authority to interpret and construe the
provisions of the Plan and any Award Agreement and make determinations pursuant
to any Plan provision or Award Agreement which shall be final and binding on all
persons. No member of the Committee shall be liable for any action or
determination made in good faith, and the members shall be entitled to
indemnification and reimbursement in the manner provided in the Company's
Articles of Incorporation, as it may be amended from time to time.
(c) The Committee shall have the authority at any time to provide for the
conditions and circumstances under which Awards shall be forfeited. The
Committee shall have the authority to accelerate the vesting of any Award and
the time at which any Award becomes exercisable.
V. Capital Stock Subject to the Provisions of this Plan
(a) The capital stock subject to the provisions of this Plan shall be
shares of authorized but unissued Common Stock and shares of Common Stock held
as treasury stock. Subject to adjustment in accordance with the provisions of
Section X, and subject to Section V(c) below, the maximum number of shares of
Common Stock that shall be available for grants of Awards under this Plan shall
be 1,333,333.
(b) The grant of a restricted share Award shall be deemed to be equal to
the maximum number of shares which may be issued under the Award. Awards payable
only in cash will not reduce the number of shares available for Awards granted
under the Plan.
(c) There shall be carried forward and be available for Awards under the
Plan, in addition to shares available for grant under paragraph (a) of this
Section V, all of the following: (i) any unused portion of the limit set forth
in paragraph (a) of this Section V; (ii) shares represented by Awards which are
cancelled, forfeited, surrendered, terminated, paid in cash or expire
unexercised; and (iii) the excess amount of variable Awards which become fixed
at less than their maximum limitations.
VI. Awards Under This Plan
As the Board or Committee may determine, the following types of Awards and
other Common Stock-based Awards may be granted under this Plan on a stand alone,
combination or tandem basis:
(a) Stock Option. A right to buy a specified number of shares of Common
Stock at a fixed exercise price during a specified time. Unless otherwise
specifically provided in an
4
<PAGE>
Award Agreement, (i) the exercise price of each share of Common Stock covered by
a stock option shall not be less than the Fair Market Value of the Common Stock
on the date of the grant of such stock option, (ii) 10% of the shares covered by
the stock option shall become exercisable on each of the first, second, third,
fourth, fifth, sixth, and seventh anniversary of its grant and the remaining 30%
of such shares shall become exercisable on the eighth anniversary of its grant,
and (iii) each grant shall have a term of ten (10) years.
(b) Incentive Stock Option. An Award which may be granted only to Employees
in the form of a stock option which shall comply with the requirements of Code
Section 422 or any successor section as it may be amended from time to time. The
exercise price of any incentive stock option shall not be less than 100% of the
Fair Market Value of the Common Stock on the date of grant of the incentive
stock option Award. An Employee who owns stock representing 10% of the voting
power or value of all classes of stock of the Company or a Subsidiary shall only
be granted an incentive stock option (i) with an exercise price of at least 110%
of the Fair Market Value of the Common Stock on the date of the grant of such
option and (ii) that expires 5 years form the date of its grant. Subject to
adjustment in accordance with the provisions of Section X, the aggregate number
of shares which may be subject to incentive stock option Awards under this Plan
shall not exceed the maximum number of shares provided in paragraph (a) of
Section V above. To the extent that Code Section 422 requires certain provisions
to be set forth in a written plan, said provisions are incorporated herein by
this reference.
(c) Stock Option in lieu of Compensation Election. A right given a
Director, Officer or Employee to elect to exchange annual retainers, fees or
compensation for stock options.
(d) Stock Appreciation Right. A right which may or may not be contained in
the grant of a stock option or incentive stock option to receive the excess of
the Fair Market Value of a share of Common Stock on the date the option is
surrendered over the option exercise price or other specified amount contained
in the Award Agreement.
(e) Restricted Shares. A transfer of Common Stock to a Participant subject
to forfeiture until such restrictions, terms and conditions as the Committee may
determine are fulfilled.
(f) Dividend Equivalent Right. A right to receive dividends or their
equivalent in value in Common Stock, cash or in a combination of both with
respect to any new or previously existing Award.
(g) Stock Award. An unrestricted transfer of ownership of Common Stock.
(h) Other Stock-Based Awards. Other Common Stock-based Awards which are
related to or serve a similar function to those Awards set forth in this Section
VI.
5
<PAGE>
VII. Award Agreements
Each Award under the Plan shall be evidenced by an Award Agreement setting
forth the terms and conditions of the Award and executed by the Company and
Participant.
VIII. Other Terms and Conditions
(a) Assignability. Unless provided to the contrary in any Award, no Award
shall be assignable or transferable except by will, by the laws of descent and
distribution, and during the lifetime of a Participant, the Award shall be
exercisable only by such Participant. No Award granted under the Plan shall be
subject to execution, attachment or process.
(b) Termination of Employment or Other Relationship. The Committee shall
determine the disposition of the grant of each Award in the event of the
retirement, disability, death or other termination of a Participant's employment
or other relationship with the Company or a Subsidiary.
(c) Rights as a Stockholder. A Participant shall have no rights as a
stockholder with respect to shares covered by an Award until the date the
Participant is the holder of record. No adjustment will be made for dividends or
other rights for which the record date is prior to such date.
(d) No Obligation to Exercise. The grant of an Award shall impose no
obligation upon the Participant to exercise the Award.
(e) Payments by Participants. The Committee may determine that Awards for
which a payment is due from a Participant may be payable: (i) in U.S. dollars by
personal check, bank draft or money order payable to the order of the Company,
by money transfers or direct account debits; (ii) pursuant to a broker-assisted
"cashless exercise" program if established by the Company; (iii) with previously
owned Common Stock; (iv) by a combination of the methods described in (i)
through (iii) above; or (v) by such other methods as the Committee may deem
appropriate.
(f) Withholding. Except as otherwise provided by the Committee, (i) the
deduction of withholding and any other taxes required by law will be made from
all amounts paid in cash and (ii) in the case of payments of Awards in shares of
Common Stock, the Participant shall be required to pay the amount of any taxes
required to be withheld prior to receipt of such stock, or alternatively, a
number of shares the Fair Market Value of which equals the amount required to be
withheld may be deducted from the payment.
(g) Restrictions on Sale and Exercise. With respect to officers and
directors for purposes of Section 16 of the Exchange Act, and if required to
comply with rules promulgated thereunder, (i) no Award providing for exercise, a
vesting period, a restriction period or the attainment of performance standards
shall permit unrestricted ownership of Common Stock by the Participant for at
least six months from the date of grant, and (ii) Common Stock acquired
6
<PAGE>
pursuant to this Plan (other than Common Stock acquired as a result of the
granting of a "derivative security") may not be sold for at least six months
after acquisition.
(h) Change in Control. In the event of a Change in Control, all Awards
shall vest, become immediately exercisable and/or cease to be subject to any
risk of forfeiture, as the case may be.
IX. Termination, Modification and Amendments
(a) The Plan may from time to time be terminated, modified or amended by
the affirmative vote of the holders of a majority of the outstanding shares of
the capital stock of the Company present or represented and entitled to vote at
a duly held stockholders meeting.
(b) The Board may at any time terminate the Plan or from time to time make
such modifications or amendments of the Plan as it may deem advisable; provided,
however, that the Board shall not make any material amendments to the Plan which
require stockholder approval under applicable law, rule or regulation unless the
same shall be approved by the requisite vote of the Company's stockholders.
(c) No termination, modification or amendment of the Plan may adversely
affect the rights conferred by an Award without the consent of the recipient
thereof.
X. Recapitalization
The aggregate number of shares of Common Stock as to which Awards may be
granted to Participants, the number of shares thereof covered by each
outstanding Award, and the price per share thereof in each such Award, shall all
be proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a subdivision or consolidation of shares
or other capital adjustment, or the payment of a stock dividend or other
increase or decrease in such shares, effected without receipt of consideration
by the Company, or other change in corporate or capital structure; provided,
however, that any fractional shares resulting from any such adjustment shall be
eliminated. The Committee may also make the foregoing changes and any other
changes, including changes in the classes of securities available, to the extent
it is deemed necessary or desirable to preserve the intended benefits of the
Plan for the Company and the Participants in the event of any other
reorganization, recapitalization, merger, consolidation, spin-off, extraordinary
dividend or other distribution or similar transaction.
XI. No Right to Employment
No person shall have any claim or right to be granted an Award, and the
grant of an Award shall not be construed as giving a Participant the right to be
retained in the employ of, or in the other relationship with, the Company or a
Subsidiary. Further, the Company and
7
<PAGE>
each Subsidiary expressly reserve the right at any time to dismiss a Participant
free from any liability, or any claim under the Plan, except as provided herein
or in any Award Agreement issued hereunder.
XII. Governing Law
To the extent that federal laws do not otherwise control, the Plan shall be
construed in accordance with and governed by the laws of the State of Texas.
XIII. Savings Clause
This Plan is intended to comply in all aspects with applicable laws and
regulations, including, with respect to those Employees who are officers or
director for purposes of Section 16 of the Exchange Act, Rule 16b-3 under the
Exchange Act. In case any one more of the provisions of this Plan shall not in
any way be affected or impaired thereby and the invalid, illegal or
unenforceable provision shall be deemed null and void; however, to the extent
permissible by law, any provision which could be deemed null and void shall
first be construed, interpreted or revised retroactively to permit this Plan to
be construed in compliance with all applicable laws (including Rule 16b-3) so as
to foster the intent of this Plan.
XIV. Effective Date and Term
The Plan shall become effective upon adoption by the Board, subject to
approval of the Plan by the affirmative vote of the holders of a majority of the
outstanding shares of the capital stock of the Company entitled to vote thereon
within one year following adoption of the Plan by the Board. All Awards granted
prior to such approval by the stockholders shall be subject to such approval and
shall not be exercisable and/or transferable prior thereto. In the event such
approval is not obtained within such one-year period, the Plan and all Awards
granted thereunder shall be null and void. The Plan shall terminate on the tenth
anniversary of the date on which it becomes effective. No Award shall be granted
after the termination of the Plan.
8
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1998 FORM 10Q OF TEJAS BANCSHARES, INC. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 18,199
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 31,800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,402
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 149,514
<ALLOWANCE> 3,196
<TOTAL-ASSETS> 207,641
<DEPOSITS> 167,389
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,133
<LONG-TERM> 0
0
0
<COMMON> 13,333
<OTHER-SE> 25,787
<TOTAL-LIABILITIES-AND-EQUITY> 207,641
<INTEREST-LOAN> 5,986
<INTEREST-INVEST> 163
<INTEREST-OTHER> 455
<INTEREST-TOTAL> 6,603
<INTEREST-DEPOSIT> 2,010
<INTEREST-EXPENSE> 2,010
<INTEREST-INCOME-NET> 4,593
<LOAN-LOSSES> 450
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,062
<INCOME-PRETAX> 1,510
<INCOME-PRE-EXTRAORDINARY> 1,510
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,271
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
<YIELD-ACTUAL> 5.85
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,748
<CHARGE-OFFS> 18
<RECOVERIES> 15
<ALLOWANCE-CLOSE> 3,196
<ALLOWANCE-DOMESTIC> 3,196
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,196
</TABLE>
