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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the Fiscal Year Ended December 31, 1994 -- Commission
File Number 0-15732; OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the Transition Period from _______________ to
_______________.
Texas Security Bancshares, Inc.
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(Exact name of registrant as specified in its charter)
Texas 75-1653291
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
777 West Rosedale, Fort Worth, Texas 76104
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(Address of principal executive offices)
(817) 347-8100
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $2.50 par value
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was authorized to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the shares of common stock, $2.50 par
value, held by non-affiliates of the registrant at February 28, 1995 was
$18,507,639.
The number of shares of common stock, $2.50 par value, outstanding at
February 28, 1995, was 2,616,723 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement dated March 6, 1995, filed
pursuant to Regulation 14A of the Securities Exchange Act of 1934 for the 1995
Annual Meeting of Shareholders of Texas Security Bancshares, Inc., are
incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS.
THE CORPORATION. Texas Security Bancshares, Inc. (the "Corporation"), a
corporation incorporated under the laws of the state of Texas in 1979, is a bank
holding company registered under the Bank Holding Company Act of 1956, as
amended (the "BHC Act"). The Corporation owns, indirectly, through a wholly-
owned subsidiary, all of the issued and outstanding shares of capital stock of
one state banking corporation, Central Bank & Trust, Fort Worth, Texas (the
"Subsidiary Bank").
At December 31, 1994 the Corporation had consolidated total assets of
$884,867,571, consolidated total loans of $272,825,001, consolidated total
deposits of $726,247,915 and consolidated total stockholders' equity of
$55,326,307.
The Corporation provides advice and services to the Subsidiary Bank and
coordinates its activities in the areas of accounting, auditing, public
relations, insurance, business development, credit and loan administration,
financial planning, asset and liability management, employee benefit programs,
and compliance with governmental regulations. The Subsidiary Bank is engaged in
general commercial banking and consumer banking.
The Corporation's major source of income is dividends received from the
Subsidiary Bank. Dividend payments by the Subsidiary Bank are based upon the
Subsidiary Bank's earnings, deposits and capital.
The Corporation's business is neither seasonal in nature nor in any
manner related to or dependent upon patents, licenses, franchises or concessions
and the Corporation has not spent material amounts on research activities.
THE SUBSIDIARY BANK. The Subsidiary Bank was founded in 1947 and is
currently in its 48th year of operation. The services offered by the Subsidiary
Bank are generally those offered by commercial banks of comparable size in their
respective areas. Some of the major services are described below.
COMMERCIAL BANKING. The Subsidiary Bank provides general commercial
banking services for corporate and other business clients located in Tarrant
County and Dallas County, Texas. Loans are made for a wide variety of purposes,
including interim construction and mortgage financing on real estate and
financing of equipment and inventories.
CONSUMER BANKING. The Subsidiary Bank provides a full range of consumer
banking services, including checking accounts, "NOW" and "money market"
accounts, savings programs, installment and real estate loans, money transfers
and safe deposit facilities.
TRUST SERVICES. The Subsidiary Bank's trust department offers a full
range of trust services to the public, including administrating estates and
personal trusts and managing investment accounts for individuals, employee
benefit plans and charitable foundations.
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SECURITIES SERVICES. The Subsidiary Bank provides discount brokerage
services through which customers can buy or sell listed and over-the-counter
preferred and common stock on a cash basis. The Subsidiary Bank also purchases
and sells municipal and government securities, as well as beneficial interests
in various mutual funds, for the account of its customers.
MORTGAGE BANKING. In 1994 the Subsidiary Bank acquired Havran Mortgage
Corporation and began providing mortgage banking services to its customers. Such
services consist of originating and servicing home mortgage loans.
Certain information with respect to the Subsidiary Bank as of December
31, 1994 is set forth in the following table.
<TABLE>
<CAPTION>
As of December 31, 1994
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Stock-
Total Total Total holders'
Assets Loans Deposits Equity
------------ ------------ ------------ ------------
<S> <C> <C> <C>
$884,289,047 $272,825,001 $726,439,750 $56,056,343
</TABLE>
ACQUISITIONS. During the past five years the Subsidiary Bank has
successfully completed numerous bank acquisitions. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Acquisitions."
As a result of such acquisitions and the merger of the Subsidiary Bank
and North Fort Worth Bank, the Subsidiary Bank now operates sixteen (16) full
service branch banking facilities in Tarrant County and Dallas County, Texas.
COMPETITION. There is significant competition among bank holding
companies in Tarrant County and Dallas County, Texas and the Corporation
believes that such competition among bank holding companies will continue to
increase in the future.
Additionally, the Subsidiary Bank encounters intense competition in its
commercial banking business, primarily from other banks located in its market
area, many of which have far greater assets and financial resources. The
Subsidiary Bank also encounters intense competition in its commercial banking
business from savings and loan associations, credit unions, factors, insurance
companies, commercial and captive finance companies and certain other types of
financial institutions located in other major metropolitan areas in the United
States, many of which are larger in terms of capital, resources and personnel.
EMPLOYEES. As of December 31, 1994 the Corporation and the Subsidiary
Bank collectively had a total of 390 full-time employees and 75 part-time
employees.
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SUPERVISION AND REGULATION.
--------------------------
GENERAL. The Corporation and the Subsidiary Bank are extensively
regulated under federal and state law. These laws and regulations are generally
intended to protect depositors, not shareholders.
To the extent that the following information describes statutory or
regulatory provisions, it is qualified in its entirety by reference to the
particular statutory and regulatory provisions. Any change in applicable laws or
regulations may have a material effect on the business and prospects of the
Corporation and the Subsidiary Bank. The operations of the Corporation and the
Subsidiary Bank may be affected by legislative changes and by the policies of
various regulatory authorities. The Corporation is unable to predict the nature
or the extent of the effects on its business and earnings that fiscal or
monetary policies, economic control or new federal or state legislation may have
in the future.
FEDERAL BANK HOLDING COMPANY REGULATION. The Corporation is a bank
holding company within the meaning of the BHC Act and as such, is subject to
regulation, supervision and examination by the Board of Governors of the Federal
Reserve System (the "FRB"). A bank holding company is required to file with the
FRB an annual report and to provide such additional information regarding its
business operations and those of its subsidiaries as the FRB may require.
With certain limited exceptions, the BHC Act requires every bank holding
company to obtain the prior approval of the FRB before: (i) acquiring direct or
indirect ownership or control of any voting shares of another bank or bank
holding company if, after such acquisition, it would own or control more than
five percent (5%) of such shares (unless it already owns or controls the
majority of such shares); (ii) acquiring all or substantially all of the assets
of another bank or bank holding company; or (iii) merging or consolidating with
another bank holding company. The FRB will not approve any acquisition, merger
or consolidation that would have a substantially anti-competitive result, unless
the anti-competitive effects of the proposed transaction are clearly outweighed
by a greater public interest in meeting the convenience and needs of the
community to be served. The FRB also considers capital adequacy and other
financial and managerial factors in reviewing acquisitions or mergers.
With certain exceptions, the BHC Act also prohibits a bank holding
company from acquiring or retaining direct or indirect ownership or control of
more than five percent (5%) of the voting shares of any company which is not a
bank or bank holding company, or from engaging directly or indirectly in
activities other than those of banking, managing or controlling banks, or
providing services for its subsidiaries. The principal exceptions to these
prohibitions involve certain non-bank activities which, by statute or by FRB
regulation or order, have been identified as activities closely related to the
business of banking or of managing or controlling banks. In making this
determination, the FRB considers whether the performance of such activities by a
bank holding company can be expected to produce benefits to the public such as
greater convenience, increased competition or gains in efficiency of resources,
which can be expected to outweigh the risks of possible adverse effects such as
decreased or unfair competition, conflicts of interest or unsound banking
practices.
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At the present time, the BHC Act generally prohibits bank holding
companies located in Texas from acquiring or establishing banks located outside
of the state in which the operations of such bank holding company's subsidiaries
are principally conducted unless the laws of such state expressly authorize out-
of-state bank holding companies to acquire or establish banks in such state.
Texas law permits the acquisition of banks domiciled in Texas by out-of-state
bank holding companies. However, an out-of-state bank holding company cannot own
or control (i) a newly formed bank, (ii) both a bank and a savings and loan
association located in Texas, or (iii) both a bank and a non-bank located in
Texas. Texas banks acquired by an out-of-state bank holding company must be
adequately capitalized and the board of directors of any such bank must have a
Texas resident majority (which majority does not include insiders of the bank or
the bank holding company). Unlike similar laws which have been adopted in other
states, Texas law does not limit the geographic region of out-of-state bank
holding companies that may acquire a Texas bank, nor does it require a
reciprocal law in the out-of-state bank holding company's home state. The lack
of such requirements significantly increases the number of bank holding
companies eligible to invest in Texas. An out-of-state bank holding company
seeking to acquire ownership or control of a Texas state bank, national bank
located in Texas or any bank holding company owning or controlling a state bank
or a national bank located in Texas must obtain the prior approval of both the
FRB and the Banking Commissioner of Texas.
The Riegle-Neal Interstate Banking and Branching Act of 1994 (the
"Interstate Banking Act") was signed into law by President Clinton on September
29, 1994. The Interstate Banking Act will allow adequately capitalized and
managed bank holding companies to acquire banks in any state commencing
September 29, 1995, regardless of whether the acquisition would be prohibited by
applicable state law. As discussed above, Texas law permits the acquisition of
banks domiciled in Texas by out-of-state bank holding companies. Under the
Interstate Banking Act a bank holding company and its insured depository
institution affiliates may not complete an acquisition which would cause it to
control more than 10% of total deposits in insured depository institutions
nationwide or to control 30% or more of total deposits in insured depository
institutions in the home state of the target bank. However, state deposit
concentration caps adopted by various states, such as the State of Texas, which
limit control of in-state insured deposits to a greater extent than the
Interstate Banking Act will be given effect. The State of Texas has adopted a
deposit concentration cap of 25% of in-state insured deposits. Additionally,
state minimum age provisions will be honored; provided, however, acquisitions
may be approved when the target bank has been in existence for at least five
years, notwithstanding state provisions to the contrary. The minimum age
provision adopted by the State of Texas is five years and therefore this
provision will not be preempted by the federal provision.
The Interstate Banking Act will also allow out-of-state branches through
interstate mergers commencing June 1, 1997, provided each bank involved in the
merger is adequately capitalized and managed. States are permitted, however, to
pass legislation providing for either earlier approval of mergers with out-of-
state banks or "opting-out" of interstate mergers entirely, provided such
legislation applies equally to all out-of-state banks. The Interstate Banking
Act also provides for interstate mergers involving an out-of-state bank's
acquisition of a branch of an insured bank without the acquisition of the entire
bank, if permitted under the laws of the state where the branch is located. The
deposit concentration caps and the minimum age provisions applicable to
interstate bank acquisitions also apply to interstate bank mergers. It is
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impossible to predict at this time what legislation will be adopted by the Texas
State Legislature in response to the Interstate Banking Act.
The Interstate Banking Act also provides for de novo branches in a state
if that state expressly elects to permit de novo branching on a non-
discriminatory basis. A "de novo branch" is defined as a branch office of a
national or state bank that is originally established as a branch and does not
become a branch as a result of an acquisition, conversion, merger or
consolidation. De novo interstate branching is subject to the same conditions
applicable to interstate mergers under the Interstate Banking Act, other than
deposit concentration limits.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on extensions of credit to the
bank holding company or its subsidiaries, on investments in their securities and
on the use of their securities as collateral for loans to any borrower. These
regulations and restrictions may limit the Corporation's ability to obtain funds
from the Subsidiary Bank for its cash needs, including funds for payment of
dividends, interest and operating expenses.
Under the BHC Act and certain regulations of the FRB, a bank holding
company and its subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit or lease or sale of
property or furnishing of services. For example, the Subsidiary Bank may not
generally require a customer to obtain other services from the Subsidiary Bank
or the Corporation, and may not require that customer to promise not to obtain
other services from a competitor, as a condition to an extension of credit to
the customer.
Additionally, under the BHC Act the FRB is endowed with cease and desist
powers over bank holding companies and non-banking subsidiaries to forestall
activities which represent unsafe or unsound practices or constitute violations
of law. The FRB is also empowered to assess civil penalties against companies or
individuals who violate the BHC Act in amounts up to $25,000 for each day's
violation, to order termination of non-banking activities of non-banking
subsidiaries of bank holding companies and to order termination of ownership and
control of a non-banking subsidiary by a bank holding company.
The FRB has adopted risk-based capital standards and a minimum leverage
ratio applicable to bank holding companies. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations - Capital."
STATE BANK REGULATION. The Subsidiary Bank is a state banking
corporation organized under the laws of the state of Texas pursuant to the
provisions of the Texas Banking Code of 1943, as amended (the "Texas Banking
Code").
The Subsidiary Bank, as a Texas state bank that is not a member of the
FRB, is subject to regulation and supervision, of which regular bank
examinations are a part, by the Banking Commissioner of Texas and the Federal
Deposit Insurance Corporation (the "FDIC").
The FDIC has adopted risk-based capital standards and proposed a minimum
leverage ratio for state nonmember banks which are substantially similar to the
risk-based capital
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standards and the minimum leverage ratio adopted by the FRB for bank holding
companies. See "Item 1. Business - Supervision and Regulation: Federal Bank
Holding Company Regulation." and "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Capital."
The interest and usury laws of the state of Texas, which laws are
preempted to a certain extent by federal law, generally limit the amount of
interest which lenders, including the Subsidiary Bank, may charge on loans. This
limit may vary depending upon, among other things, the identity, nature and
location of the lender and the particular state or federal law applicable
thereto, and the type of loan.
The Subsidiary Bank is also subject to certain restrictions on
extensions of credit to executive officers, directors, principal shareholders or
any related interest of such persons. Extensions of credit (i) must be made on
substantially the same terms, including interest rates and collateral as, and
following credit underwriting procedures that are not less stringent than, those
prevailing at the time for comparable transactions with persons not covered
above and who are not employees, and (ii) must not involve more than the normal
risk of repayment or present other unfavorable features. The Subsidiary Bank is
also subject to certain lending limits and restrictions on overdrafts to such
persons. A violation of these restrictions may result in the assessment of
substantial civil monetary penalties on the Subsidiary Bank or any officer,
director, employee, agent or other person participating in the conduct of the
affairs of the Subsidiary Bank, the imposition of a cease and desist order, and
other regulatory sanctions.
Texas state banks are now permitted to engage in unlimited branch
banking within the state of Texas. A state bank seeking to establish a branch
must obtain prior approval from the Banking Commissioner of Texas.
DEPOSIT INSURANCE. As an FDIC member institution, the deposits of the
Subsidiary Bank are currently insured to a maximum of $100,000 per depositor
through the Bank Insurance Fund ("BIF"), administered by the FDIC, and the
Subsidiary Bank is required to pay semi-annual deposit insurance premium
assessments to the FDIC.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") included provisions to reform the federal deposit insurance system,
including the implementation of risk-based deposit insurance premiums, and
permits the FDIC to make special assessments on insured depository institutions,
in amounts determined by the FDIC to be necessary to give it adequate assessment
income to repay amounts borrowed from the U.S. Treasury and other sources or for
any other purpose the FDIC deems necessary. Pursuant to FDICIA, the FDIC
implemented a transitional risk-based insurance premium system on January 1,
1993 which became the permanent risk-based premium system on January 1, 1994.
Generally, under this system, banks are assessed insurance premiums according to
how much risk they are deemed to present the BIF. Such premiums currently range
from 0.23% of insured deposits to 0.31% of insured deposits. Banks with higher
levels of capital and involving a low degree of supervisory concern are assessed
lower premiums than banks with lower levels of capital or involving a higher
degree of supervisory concern. The Subsidiary Bank is currently being assessed
at the rate of $0.23 per $100 of deposits.
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CORRECTIVE MEASURES FOR CAPITAL DEFICIENCIES. FDICIA requires the
banking regulators to take "prompt corrective action" with respect to capital-
deficient institutions. In addition to requiring the submission of a capital
restoration plan, FDICIA contains broad restrictions on certain activities of
undercapitalized institutions involving asset growth, acquisitions, branch
establishment, and expansion into new lines of business. With certain
exceptions, an insured depository institution is prohibited from making capital
distributions, including dividends, and is prohibited from paying management
fees to control persons if the institution would be undercapitalized after any
such distribution or payment.
As an institution's capital decreases, the powers of the banking
regulators become greater. A significantly undercapitalized institution is
subject to mandated capital raising activities, restrictions on interest rates
paid and transactions with affiliates, removal of management, and other
restrictions. The regulators have very limited discretion in dealing with a
critically undercapitalized institution and are required to appoint a receiver
or conservator if the capital deficiency is not corrected promptly.
INTERNAL OPERATING REQUIREMENTS. Under FDICIA, each federal banking
agency is required to prescribe, by regulation, non-capital safety and soundness
standards for institutions under its authority. The federal banking agencies,
including the FDIC and the FRB, have recently proposed standards covering
internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, fees and benefits, and standards for asset quality and earnings
sufficiency. An institution which fails to meet those standards would be
required to develop a plan acceptable to the agency, specifying the steps that
the institution will take to meet the standards. Failure to submit or implement
such a plan may subject the institution to regulatory sanctions. Under the
proposed regulations of the FRB, a bank holding company would be required to
ensure that its subsidiary bank returns to compliance with the safety and
soundness standards if a deficiency is detected. The Corporation believes the
Subsidiary Bank already meets substantially all the standards which have been
proposed, and therefore does not believe the implementation of these regulatory
standards will materially affect the Corporation's business operations.
MONETARY POLICY. The earnings of a bank holding company are affected by
the policies of regulatory authorities, including the FRB, in connection with
the FRB's regulation of the money supply. Various methods employed by the FRB
are open market operations in United States government securities, changes in
the discount rate on member bank borrowings and changes in reserve requirements
against member bank deposits. These methods are used in varying combinations to
influence overall growth and distribution of bank loans, investments and
deposits, and their use may also affect interest rates charged on loans or paid
on deposits. The monetary policies of the FRB have had a significant effect on
the operating results of commercial banks in the past and are expected to
continue to do so in the future.
ITEM 2. PROPERTIES.
The Corporation's executive offices, containing approximately 2,027
square feet of space, are located in a three-story building located at 777 West
Rosedale, Fort Worth, Texas and are leased from the Subsidiary Bank.
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The Subsidiary Bank conducts its banking business in both owned and
leased facilities. The Subsidiary Bank's main offices are located in its own
one-story building, containing approximately 18,000 square feet, located at 777
West Rosedale, Fort Worth, Texas. The Subsidiary Bank also owns a connecting
three-story tower (occupied by the Corporation) which contains approximately
76,000 square feet. The Subsidiary Bank also owns a drive-in facility across the
street from its main banking facility, as well as a partially improved six acre
tract of land located adjacent to its main banking facility. The Subsidiary Bank
also owns a three-story building containing approximately 47,000 square feet, on
approximately 2.6 acres of land, located at 8851 West Highway 80, Fort Worth,
Texas. Approximately 29,000 square feet of space are being used by the
Subsidiary Bank for operations and item processing.
The Subsidiary Bank owns the following properties on which it operates
branch banking facilities:
A one-story building containing approximately 4,000 square feet, on
approximately one acre of land, located at 8800 Highway 80 West, Fort
Worth, Texas.
A one-story building containing approximately 5,550 square feet, on
approximately one acre of land, located at 200 Mansfield Highway,
Kennedale, Texas.
A four-story building containing approximately 52,000 square feet,
on approximately 3.5 acres of land, located at 2315 North Main Street,
Fort Worth, Texas, together with a drive-in facility located on
approximately one acre of land across the street from the branch
facility.
A one-story building containing approximately 4,000 square feet, on
approximately 2.2 acres of land, located at the corner of N.E. Loop 820
and Blue Mound Road, Fort Worth, Texas.
A one-story building containing approximately 5,400 square feet, on
approximately two acres of land, located at 6700 Industrial Park
Boulevard, Fort Worth, Texas.
A one-story building containing approximately 5,000 square feet, on
approximately 2.31 acres of land, located at 1326 N.W. 19th Street,
Grand Prairie, Texas.
A two-story building containing approximately 22,886 square feet, on
approximately 2.54 acres of land, located at 4900 E. Belknap Street,
Haltom City, Texas, together with a drive-in facility located on
approximately 1.8 acres of land across the street from the branch
facility.
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A one-story building containing approximately 2,205 square feet, on
approximately 0.94 acre of land, located at 5604 Broadway Avenue, Haltom
City, Texas.
A one-story building containing approximately 32,000 square feet, on
approximately 4.642 acres of land, located at 201 East Abram Street,
Arlington, Texas, with a separate motor bank facility of approximately
2,400 square feet.
The Subsidiary Bank also leases the following properties on which it
operates branch banking facilities:
Office space consisting of approximately 3,800 square feet, located
at 300 West Seventh Street in downtown Fort Worth, Texas.
Office space consisting of approximately 1,600 square feet, located
at 5324 Wedgmont Circle North, Fort Worth, Texas.
A 1.12 acre tract of land located at 3100 Hulen, Fort Worth, Texas;
all improvements located thereon, consisting of a one-story building
containing approximately 3,500 square feet, are owned by the Subsidiary
Bank.
Office space consisting of approximately 13,495 square feet, located
at 101 Loop 820 North at White Settlement Road, White Settlement, Texas.
Office space consisting of approximately 2,000 square feet, located
at 6003 I-20, Arlington, Texas.
Office space consisting of approximately 2,293 square feet, located
at 6112 McCart, Fort Worth, Texas.
Office space consisting of approximately 5,398 square feet, located
at 1600 Airport Freeway, Bedford, Texas.
ITEM 3. LEGAL PROCEEDINGS.
In the opinion of management, the disposition of all outstanding legal
actions will not have a material adverse effect on the Corporation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of 1994.
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ITEM 4A. EXECUTIVE OFFICERS OF THE CORPORATION.
The executive officers of the Corporation, each elected to serve at the
pleasure of the Board of Directors until the next annual meeting of the Board of
Directors to be held on April 5, 1995, their respective ages, and their present
position with the Corporation are as follows:
<TABLE>
<CAPTION>
Position With Position
Name Age Corporation Held Since
---- --- ------------- ----------
<S> <C> <C> <C>
J. Andy Thompson 51 Chairman of the Board of Directors, 1988
Chief Executive Officer and Director
Stuart W. Murff 43 President 1994
Michael J. Tyler 42 Senior Vice President, Chief Financial 1989
Officer and Treasurer
Brian W. Garrison 49 Vice Chairman of the Subsidiary Bank 1992
Tom F. Turner 56 President of the Subsidiary Bank 1981
</TABLE>
The business experience of each of these executive officers during the
past five (5) years is set forth below:
Mr. J. Andy Thompson is currently serving as the Chairman of the Board
of Directors and Chief Executive Officer of the Corporation. He has served as
Chairman of the Executive Committee since April 1990. From April 1993 to April
1994 he served as President of the Corporation. He has served as a director of
Central Bank & Trust since January 1975, and served as a director of North Fort
Worth Bank from January 1974 until its merger with and into Central Bank & Trust
in March 1992. In January 1988 he became Chairman of the Board and Chief
Executive Officer of Central Bank & Trust; he also served as Chairman of the
Board and Chief Executive Officer of North Fort Worth Bank from January 1988
until its merger with and into Central Bank & Trust in March 1992. Mr. Thompson
is also managing partner of Thompson Financial, Ltd.
Mr. Stuart W. Murff has served as President of the Corporation since
April 1994 and as Vice Chairman of Central Bank & Trust since February 1993.
From 1982 to 1993 he served as a principal in a bank consulting firm, as well as
president of a bank data processing company. He has served as a director of
Central Bank & Trust since January 1993.
Mr. Michael J. Tyler has been serving as the Senior Vice President and
Chief Financial Officer of the Corporation since June 1989, and as Treasurer
since April 1990. He has served as Executive Vice President of Central Bank &
Trust since January 1992. He served as Vice President of Central Bank & Trust
from September 1990 to December 1991.
Mr. Brian W. Garrison has served as the Vice Chairman of Central Bank &
Trust since January 1992. He served as the President of the Corporation from
July 1989 to April 1993 and
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as a director of the Corporation from August 1989 to April 1993. He has served
as a director of Central Bank & Trust since December 1990 and served as
President and a director of North Fort Worth Bank from July 1990 until its
merger with and into Central Bank & Trust in March 1992.
Mr. Tom F. Turner has served as President of Central Bank & Trust since
November 1981 and has served as a director of Central Bank & Trust since
December 1981. From April 1991 to April 1993 he also served as a director of the
Corporation.
No family relationships exist among the executive officers and directors
of the Corporation, except as follows: J. Andy Thompson, Fred D. Thompson, Jr.
and C. Rhea Thompson are brothers. Fred D. Thompson, Jr. is the father of Kelly
R. Thompson, and J. Andy Thompson and C. Rhea Thompson are the uncles of Kelly
R. Thompson.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
MARKET INFORMATION. There is no established public trading market for
the issued and outstanding shares of common stock, $2.50 par value (the "Common
Stock"), of the Corporation, and the management of the Corporation expects that
no established trading market will exist for shares of Common Stock in the
foreseeable future. Accordingly, there exists no published information with
respect to market prices. From time to time, however, moderate numbers of shares
of Common Stock are purchased and sold. The following table sets forth the
number of shares of Common Stock traded and the average price of such shares for
the periods indicated. Due to the limited trading volume, however, the specified
sales prices may not reflect true market value.
The table below sets forth the range of high and low sales prices by
quarter for 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
- ------------------------------- -------------------------------
Quarter High Low Quarter High Low
- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
First $18.00 $18.00 First $12.88 $12.60
Second $21.50 $20.50 Second $16.00 $15.50
Third $21.50 $21.50 Third $17.25 $16.00
Fourth $22.00 $21.50 Fourth $18.00 $17.25
</TABLE>
SHAREHOLDERS. At the close of business on February 14, 1995 there were
455 shareholders of record of Common Stock of the Corporation.
12
<PAGE>
DIVIDENDS. The following table sets forth the annual cash dividends
declared and paid per share of Common Stock since the commencement of fiscal
year 1993.
<TABLE>
<CAPTION>
1994 1993
- -------------------------------- --------------------------------
Quarter Amount Per Share Quarter Amount Per Share
- -------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
First $235,505 $0.09 First $156,140 $0.06
Second 261,672 0.10 Second 182,163 0.07
Third 261,672 0.10 Third 208,187 0.08
Fourth 261,672 0.10 Fourth 209,338 0.08
</TABLE>
Although the Board of Directors intends to continue to pay quarterly
cash dividends in the future, there can be no assurance that cash dividends will
be paid in the future or, if paid, that such cash dividends will be comparable
to cash dividends previously paid by the Corporation, since future dividend
policy is subject to the discretion of the Board of Directors of the Corporation
and will depend upon a number of factors, including future earnings of the
Corporation, the financial condition of the Corporation, the Corporation's cash
needs, general business conditions and the amount of dividends paid to the
Corporation by the Subsidiary Bank.
The appropriate regulatory authorities are authorized to prohibit banks
and bank holding companies from paying dividends which would constitute an
unsafe and unsound banking practice. The Subsidiary Bank and the Corporation are
not currently subject to any regulatory restrictions on the payment of
dividends.
The amount of dividends which will be paid to the Corporation by the
Subsidiary Bank will be subject to the discretion of the Board of Directors of
the Subsidiary Bank as well as dependent upon the level of earnings of the
Subsidiary Bank, continued capital adequacy of the Subsidiary Bank, and
compliance with regulatory requirements.
Under its loan agreement with The Frost National Bank, pursuant to which
the Corporation obtained a $12,500,000 line of credit for the purpose of
financing the acquisition of financial institutions in Texas and for general
corporate purposes, the Corporation may not declare or pay any dividends which
are in excess of $1,500,000 in the aggregate per year.
13
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA
The following table sets forth certain highlights from the Corporation's
audited year-end consolidated financial statements for the last six years:
SELECTED FINANCIAL DATA
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31, 5 Year Annual
---------------------------------------------------------- Compound
1994 1993 1992 1991 1990 1989 Growth Rate
-------- -------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets $884,868 $735,759 $637,905 $572,047 $574,655 $503,270 11.95%
Loans 272,825 235,610 190,652 179,733 203,850 207,348 5.64
Deposits 726,248 676,364 586,086 525,627 529,487 459,965 9.57
Stockholders' equity 55,326 52,222 44,624 39,164 36,784 35,319 9.39
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 5 Year Annual
---------------------------------------------------------- Compound
1994 1993 1992 1991 1990 1989 Growth Rate
-------- -------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest income $ 49,390 $ 43,638 $ 43,401 $ 46,443 $ 46,368 $ 45,293 1.75%
Total interest expense 19,491 16,092 18,370 26,014 27,749 27,525 (6.67)
Provision for loan losses 500 200 2,200 2,865 4,008 5,210 (37.42)
Net income 8,022 8,093 6,085 3,073 2,416 736 61.24
</TABLE>
Although these statistics are satisfactory indicators of general trends,
the daily average balance sheets are more meaningful for analysis purposes than
December 31 data because they minimize the effect of day-to-day fluctuations
that are common to bank balance sheets. Also, average balances for earning
assets and interest-bearing liabilities can be related directly to the
components of interest income and interest expense on the statements of
operations. This provides the basis for analysis of rates earned and paid, and
sources of increases and decreases in net interest income as derived from
changes in volumes and rates. The schedule on the next page presents
consolidated average balance sheets for the most recent three years in a format
that highlights earning assets and interest-bearing liabilities. Following the
consolidated average balance sheets are comparative consolidated statements of
operations for the past six years.
14
<PAGE>
CONDENSED CONSOLIDATED AVERAGE BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31, 2 Year Annual
-------------------------------- Compound
1994 1993 1992 Growth Rate
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
Assets
- ------
Earning assets:
Loans $252,678 $217,872 $183,747 17.27%
Interest-bearing demand deposits
in other banks 542 1,347 619 (6.43)
Federal funds sold 21,663 11,678 12,735 30.42
Investment securities:
Taxable 416,484 393,285 345,405 9.81
Tax-exempt 42,005 34,199 30,648 17.07
-------- -------- -------- ------
Total investment securities 458,489 427,484 376,053 10.42
-------- -------- -------- ------
Total earning assets 733,372 658,381 573,154 13.12
-------- -------- -------- ------
Cash and due from banks 40,880 36,503 26,825 23.45
Other assets 36,905 29,738 28,732 13.33
Less allowance for loan losses (3,886) (4,504) (4,698) (9.05)
-------- -------- -------- ------
$807,271 $720,118 $624,013 13.74%
======== ======== ======== ======
Liabilities and Stockholders' Equity
- ------------------------------------
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand $234,293 $202,189 $157,009 22.16%
Savings 71,787 68,463 51,408 18.17
Time 257,142 266,049 263,619 (1.24)
-------- -------- -------- ------
Total interest-bearing deposits 563,222 536,701 472,036 9.23
Short-term borrowings 55,168 3,729 2,472 372.41
-------- -------- -------- ------
Total interest-bearing liabilities 618,390 540,430 474,508 14.16
-------- -------- -------- ------
Noninterest-bearing demand deposits 130,532 127,295 103,903 12.08
Other liabilities 3,849 3,518 3,409 6.26
Stockholders' equity 54,500 48,875 42,193 13.65
-------- -------- -------- ------
$807,271 $720,118 $624,013 13.74%
======== ======== ======== ======
Ratio of earning assets to interest-
bearing liabilities 1.19 1.22 1.21
======== ======== ========
Earning assets as a percent of total assets 90.85% 91.43% 91.85%
======== ======== ========
Stockholders' equity as a percent of total assets 6.75% 6.79% 6.76%
======== ======== ========
</TABLE>
15
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended December 31, 5 Year Annual
--------------------------------------------------------- Compound
1994 1993 1992 1991 1990 1989 Growth Rate
------- ------- ------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest income $49,390 $43,638 $43,402 $46,443 $46,368 $45,293 1.75%
Total interest expense 19,491 16,092 18,370 26,014 27,749 27,525 (6.67)
------- ------- ------- ------- ------- ------- ------
Net interest income 29,899 27,546 25,032 20,429 18,619 17,768 10.97
Provision for loan losses 500 200 2,200 2,865 4,008 5,210 (37.42)
------- ------- ------- ------- ------- ------- ------
Net interest income after
provision for loan losses 29,399 27,346 22,832 17,564 14,611 12,558 18.54
------- ------- ------- ------- ------- ------- ------
Noninterest income:
Service charges and fees 8,263 7,882 6,493 5,265 4,390 3,767 17.01
Gains on sales of
investment securities -- -- 432 1,109 8 3 --
Other income 784 164 164 163 218 195 32.09
------- ------- ------- ------- ------- ------- ------
Total noninterest income 9,047 8,046 7,089 6,537 4,616 3,965 17.93
------- ------- ------- ------- ------- ------- ------
Noninterest expenses:
Salaries and employee benefits 15,137 13,719 10,983 9,396 8,253 7,635 14.67
Net occupancy expense 2,661 2,842 1,961 1,716 1,630 1,632 10.27
Equipment and data
processing expense 2,810 2,604 1,953 1,551 1,368 1,387 15.17
Other real estate owned expense
(income), net (76) 144 1,511 2,202 662 769 --
Marketing expense 886 875 745 729 680 757 3.20
Early retirement expense -- 118 -- -- 507 -- --
Other operating expense 6,356 6,075 5,416 4,368 3,562 3,607 11.99
------- ------- ------- ------- ------- ------- ------
Total noninterest expenses 27,774 26,377 22,569 19,962 16,662 15,787 11.96
------- ------- ------- ------- ------- ------- ------
Income before income
taxes, extraordinary item and
cumulative effect of change in
accounting for income taxes 10,672 9,015 7,352 4,139 2,565 736 70.72
------- ------- ------- ------- ------- ------- ------
Provision for income taxes 2,650 2,292 1,623 1,725 149 -- --
------- ------- ------- ------- ------- ------- ------
Income before extraordinary
item and cumulative effect of change
in accounting for income taxes 8,022 6,723 5,729 2,414 2,416 736 61.24
------- ------- ------- ------- ------- ------- ------
Extraordinary item (1) -- -- 356 659 -- -- --
Cumulative effect of change in
accounting for income taxes -- 1,370 -- -- -- -- --
------- ------- ------- ------- ------- ------- ------
Net income $ 8,022 $ 8,093 $ 6,085 $ 3,073 $ 2,416 $ 736 61.24%
======= ======= ======= ======= ======= ======= ======
Earnings per share:
Net income before extraordinary item
and cumulative effect of change
in accounting for income taxes $ 3.07 $ 2.58 $ 2.20 $ 0.93 $ 0.92 $ 0.28 61.43%
Extraordinary item -- -- 0.14 0.25 -- -- --
Cumulative effect of change in
accounting for income taxes -- 0.53 -- -- -- -- --
------- ------- ------- ------- ------- ------- ------
Net income $ 3.07 $ 3.11 $ 2.34 $ 1.18 $ 0.92 $ 0.28 61.43%
======= ======= ======= ======= ======= ======= ======
Cash dividends per share $ 0.39 $ 0.29 $ 0.24 $ 0.24 $ 0.24 $ 0.24 10.20%
======= ======= ======= ======= ======= ======= ======
Weighted average number
of shares outstanding 2,617 2,603 2,602 2,603 2,624 2,623 (0.05)%
======= ======= ======= ======= ======= ======= ======
</TABLE>
______________________
(1) The extraordinary item represents a reduction of Federal income taxes
arising from utilization of net operating loss carryforwards.
16
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion highlights the major changes affecting the
operations and financial condition of the Corporation for the three years ended
December 31, 1994. The discussion should be read in conjunction with the
consolidated financial statements, accompanying notes, and selected financial
data appearing elsewhere in this report.
ACQUISITIONS
Effective March 1, 1994, Central Bank & Trust acquired certain assets
(primarily single family residential mortgage loans) and assumed certain
liabilities (primarily short-term notes payable) of Havran Mortgage Corporation.
The acquisition resulted in an increase in both consolidated loans and short-
term borrowings of approximately $1.5 million at the date of acquisition. The
acquisition was accounted for as a purchase with the assets and liabilities
recorded at their fair values as of the purchase date. The acquisition has
improved the Corporation's ability to efficiently provide real estate mortgage
loans to customers.
On February 5, 1993, Central Bank & Trust acquired certain assets
(primarily cash equivalents, premises and equipment, investment securities, and
certain nonclassified loans) and assumed certain liabilities (primarily customer
deposits) of an insolvent banking association, American Bank of Haltom City
("American"), Haltom City, Texas. The transaction resulted in an increase in
consolidated assets and liabilities of approximately $94 million at the
acquisition date. The acquisition has improved operating efficiencies and
results by increasing market share within Tarrant County. Further details of
this transaction are provided in the Form 8-K filing dated February 5, 1993. The
acquisition of American was accounted for as a purchase with the assets and
liabilities recorded at their fair market values as of the purchase date.
Accordingly, the accompanying consolidated financial statements include the
results of operations of American from February 5, 1993.
On February 6, 1992, Central Bank & Trust acquired certain assets
(primarily cash equivalents, investment securities, and consumer loans) and
assumed certain liabilities (primarily customer deposits) of an insolvent
banking association, Landmark Bank of Fort Worth (Landmark), Fort Worth, Texas.
The transaction resulted in the increase in consolidated deposits and loans of
approximately $74 million and $8 million, respectively. Further details of this
transaction are provided in the Form 8-K filing dated February 6, 1992.
On March 6, 1992, the operations of the Corporation's two wholly owned
banking subsidiaries, North Fort Worth Bank and Central Bank & Trust, were
merged together under the name of Central Bank & Trust. For purposes of
Management's Discussion and Analysis, the two subsidiaries will collectively be
referred to as the "Subsidiary Bank." The merging of the two subsidiaries has
provided greater opportunities in the areas of marketing, product delivery and
operating efficiencies.
17
<PAGE>
OVERVIEW OF 1994 PERFORMANCE
Texas Security Bancshares, Inc. reported net income for the year ended
December 31, 1994 of $8,021,940 or $3.07 per share. For the year ended December
31, 1993, net income was $8,093,343 or $3.11 per share. 1993 results include a
one-time adjustment for $1,370,000 or $0.53 per share relating to accounting for
income taxes. 1993 earnings excluding the adjustment were $6,723,343 or $2.58
per share.
Net interest income increased to $29,898,715 in 1994 from $27,546,040 in
1993. This increase resulted as increases in deposits and short-term borrowings
allowed the Corporation to increase its earning assets. The increase in net
interest income also occurred despite a ten basis point decrease from 1993 in
the Corporation's net interest margin (net yield on earning assets).
The Corporation's noninterest income rose by $1,000,458 over the 1993
level. The increase is primarily attributable to service charges and fees on
customer deposit accounts which increased as the customer deposit base grew and
due to income from the Corporation's significantly expanded mortgage lending
operations. Income from investment services declined in 1994 as market
volatility and rising interest rates made traditional bank products more
appealing to customers.
Noninterest expenses increased by $1,396,536 over 1993. The increases
are primarily due to the continued increases in officer and employee
compensation and the expenses associated with the Corporation's investment in
technology and systems for the future.
NET INTEREST INCOME
Net interest income, the principal source of earnings, is the amount of
income generated by earning assets (primarily loans and investment securities)
reduced by total interest costs of the funds (primarily deposits) obtained to
carry them.
A summary of average earning assets and interest-bearing liabilities of
each major type together with interest earned and incurred are presented for the
last three years in the following table.
The presentation of net interest income is a "taxable equivalent" basis
to adjust for the tax-favored status of earnings from certain loans and
investments, the majority of which are obligations of state and local
governments.
18
<PAGE>
SUMMARY OF EARNING ASSETS AND INTEREST-BEARING LIABILITIES
(Dollars in Thousands)
<TABLE>
<CAPTION>
1994 1993 1992
------------------------ ------------------------- --------------------------
Average Yield or Rate Average Yield or Rate Average Yield or Rate
Volume Interest Paid Volume Interest Paid Volume Interest Paid
-------- -------- ----- --------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans, including fees(1)(2)(3) $252,678 $21,945 8.68% $217,872 $18,955 8.70% $183,747 $17,781 9.68%
Interest-bearing deposits
in other banks 542 20 3.69 1,347 45 3.34 619 24 3.88
Federal funds sold 21,663 993 4.58 11,678 354 3.03 12,735 452 3.55
Investment securities:
Taxable 416,484 24,097 5.79 393,285 22,138 5.63 345,405 22,969 6.65
Tax-exempt(1) 42,005 3,922 9.34 34,199 3,472 10.15 30,648 3,361 10.97
-------- ------- ---- -------- ------- ----- -------- ------- -----
Total investment securities 458,489 28,019 6.11 427,484 25,610 5.99 376,053 26,330 7.00
-------- ------- ---- -------- ------- ----- -------- ------- -----
Total earning assets(1) $733,372 $50,977 6.95% $658,381 $44,964 6.83% $573,154 $44,587 7.78%
-------- ------- ---- -------- ------- ----- -------- ------- -----
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand $234,293 $ 5,596 2.39% $202,189 $ 4,432 2.19% $157,009 $ 4,648 2.96%
Savings 71,787 1,597 2.22 68,463 1,646 2.40 51,408 1,553 3.02
Time 257,142 9,833 3.82 266,049 9,897 3.72 263,619 12,068 4.58
-------- ------- ---- -------- ------- ----- -------- ------- -----
Total interest-bearing
deposits 563,222 17,026 3.02 536,701 15,975 2.98 472,036 18,269 3.87
Short-term borrowings 55,168 2,465 4.47 3,729 117 3.14 2,472 101 4.09
-------- ------- ---- -------- ------- ----- -------- ------- -----
Total interest-bearing
liabilities $618,390 19,491 3.15% $540,430 16,092 2.98% $474,508 18,370 3.87%
-------- ------- ---- -------- ------- ----- -------- ------- -----
Net interest spread 3.80% 3.85% 3.91%
======= ===== =====
Net interest income and net
yield on earning assets(1) $31,486 4.29% $28,872 4.39% $26,217 4.57%
======= ======== ======= ===== ======= =====
</TABLE>
____________________________________
(1) Presented on a taxable equivalent basis using a 34% Federal income tax rate.
(2) Including nonaccrual loans, thereby reducing yield.
(3) Net of unearned discount.
19
<PAGE>
Presented below is a comparison of net interest income and the net
interest margin on a taxable equivalent basis (using a 34% Federal income tax
rate) for the last three years:
<TABLE>
<CAPTION>
(Dollars in Thousands)
-------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Total interest income $49,390 $43,638 $43,401
Taxable equivalent adjustment on tax-exempt income 1,587 1,326 1,186
------- ------- -------
Total interest income on taxable equivalent basis 50,977 44,964 44,587
Total interest expense 19,491 16,092 18,370
------- ------- -------
Net interest income on taxable equivalent basis $31,486 $28,872 $26,217
======= ======= =======
</TABLE>
The Corporation's taxable-equivalent net interest income increased
$2.614 million due to increases in earning assets and deposit volumes. The
average yield on earning assets was 6.95% in 1994, compared to 6.83% in 1993.
The average cost of interest-bearing liabilities was 3.15% in 1994 compared to
2.98% in 1993. Thus, the net interest spread was 3.80% in 1994 compared to 3.85%
in 1993, a decrease of five basis points.
The net yield on earning assets in 1994 was at 4.29%, a decrease of ten
basis points from 4.39% in 1993. The Corporation's interest-bearing liabilities
remain more sensitive to rate changes than the Corporation's earning assets. In
1994, the rate increases on interest-bearing liabilities were greater than the
increases in yields on loans and investment securities. The net yield on earning
assets is expected to decline further in 1995 based on an anticipated increase
in short-term interest rates.
The following table presents the changes in the components of the net
interest margin on a taxable equivalent basis and identifies the part of each
change in such components due to differences in the average volume of earning
assets and interest-bearing liabilities, and due to differences in the average
rate on those assets and liabilities for each of the last two years. Nonaccrual
loans have been included in assets for purposes of computations, thereby
reducing yields. The allocation of the rate/volume variance has been made on a
pro rata basis on the percentage that volume and rate variances produce in each
category.
20
<PAGE>
ANALYSIS OF CHANGES IN THE NET INTEREST MARGIN
(Dollars in Thousands)
<TABLE>
<CAPTION>
1994 Compared to 1993
- ---------------------
Due to Due to Changes
Increase Changes Changes in Rates/
(Decrease) in Volume in Rates Volume
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Interest income from earning assets:
Loans, including fees $ 2,990 $3,028 $ (33) $ (5)
Interest-bearing deposits in other banks (25) (27) 5 (3)
Federal funds sold 639 303 181 155
Investment securities - taxable 1,959 1,306 617 36
Investment securities - tax-exempt
on taxable equivalent basis 450 792 (279) (63)
------- ------ ------- -----
Total 6,013 5,402 491 120
------- ------ ------- -----
Interest expense:
Interest-bearing demand deposits 1,164 704 397 63
Savings deposits (49) 80 (123) (6)
Time deposits (64) (332) 277 (9)
Short-term borrowings 2,348 1,614 50 684
------- ------ ------- -----
Total 3,399 2,066 601 732
------- ------ ------- -----
Net interest margin before allocation
of rates/volume 2,614 3,336 (110) (612)
Allocation of rates/volume -- (633) 21 612
------- ------ ------- -----
Change in net interest margin $ 2,614 $2,703 $ (89) $ --
======= ====== ======= =====
</TABLE>
<TABLE>
<CAPTION>
1993 Compared to 1992
- ---------------------
Due to Due to Changes
Increase Changes Changes in Rates/
(Decrease) in Volume in Rates Volume
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Interest income from earning assets:
Loans, including fees $ 1,174 $3,302 $(1,795) $(333)
Interest-bearing deposits in other banks 22 28 (3) (4)
Federal funds sold (99) (38) (66) 6
Investment securities - taxable (831) 3,184 (3,526) (489)
Investment securities - tax-exempt
on taxable equivalent basis 111 389 (250) (28)
------- ------ ------- -----
Total 377 6,865 (5,640) (848)
------- ------ ------- -----
Interest expense:
Interest-bearing demand deposits (215) 1,337 (1,206) (347)
Savings deposits 93 515 (317) (105)
Time deposits (2,171) 111 (2,261) (21)
Short-term borrowings 15 51 (24) (11)
------- ------ ------- -----
Total (2,278) 2,014 (3,808) (484)
------- ------ ------- -----
Net interest margin before allocation
of rates/volume 2,655 4,851 (1,832) (364)
Allocation of rates/volume -- (585) 221 364
------- ------ ------- -----
Change in net interest margin $ 2,655 $4,266 $(1,611) $ --
======= ====== ======= =====
</TABLE>
21
<PAGE>
PROVISION FOR LOAN LOSSES, ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY
Inherent with the extension of credit is a degree of risk taking. The
primary factors influencing the amount of risk and loss associated with the
lending function are economic conditions and lending practices.
Management recognized that it is not possible to predict loan losses
with complete certainty, but strives to reduce the amount of loss by responsible
lending procedures and loan review processes. Credit risk management, through
extensive evaluation of new credit requests to determine if the extension of
credit is prudent, has been strengthened. Further control of risk and assessment
of the overall quality of the loan portfolio is accomplished by ongoing internal
review as well as periodic reviews by external independent loan reviewers,
external auditors and regulatory agency examiners.
In conjunction with the reviews, the Corporation utilizes: (a)
historical loan loss experience; (b) the evaluation of underlying collateral for
secured loans; (c) expected loan growth; (d) portfolio composition; (e) current
and forecasted local and national economic conditions to establish an allowance
for loan losses and the provision necessary to maintain it at an adequate level.
The allowance for loan losses is used to cover future loan losses.
Recoveries of loans previously charged-off, in addition to periodic charges to
operating expense, increase the balance in the allowance while it is decreased
by loan charge-offs.
The Texas economy, in general, continued a recovery which began in 1993.
Growth was experienced by small and medium size companies and, overall, Texas
was second nationally behind only Florida in job creation.
In 1994, the real estate market, as a whole, continued to improve. The
most encouraging news came from the areas of residential, retail and industrial
markets. The Dallas/Fort Worth area currently rates as one of the top
residential markets in the U.S. with sales of single-family homes remaining
strong. The apartment market maintained over 90% occupancy in 1994, which
resulted in higher rental rates and new development. The retail market reported
approximately 85% occupancy in 1994 with increasing rent levels. The industrial
market has improved to above 90% occupancy. However, the office market is still
having problems due to tenant downsizing, competition from liquidation
properties and declining rental rates in some areas.
With the improving economy, the Corporation achieved moderate loan
growth for the second consecutive year. Most of the growth came from small and
medium size companies and from new or refinanced real estate mortgages. The
Corporation's loan portfolio, although concentrated in real estate, does not
have any industry concentrations and is primarily extended to user occupied
property.
22
<PAGE>
Based upon current information and conditions, management believes the known
risks in the existing loan portfolio have been properly evaluated and the
allowance is at a satisfactory level. Subsequent evaluations, however, could
necessitate changes in the balance of the allowance.
The following table presents the provision for loan losses, loans charged-off,
recoveries of loans previously charged-off, the amounts of the allowance for
loan losses, the loans outstanding and certain pertinent ratios for the periods
indicated (dollars in thousands).
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1994 1993 1992 1991 1990
--------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 4,072 $ 4,663 $ 4,351 $ 5,074 $ 3,698
--------- -------- -------- -------- --------
Charge-offs:
Commercial and financial loans 913 1,151 1,039 993 632
Real estate loans 230 287 1,398 2,371 1,421
Installment loans 335 290 417 908 919
--------- -------- -------- -------- --------
Total 1,478 1,728 2,854 4,272 2,972
--------- -------- -------- -------- --------
Recoveries:
Commercial and financial loans 419 662 548 244 104
Real estate loans 241 100 200 187 31
Installment loans 118 175 218 253 205
--------- -------- -------- -------- --------
Total 778 937 966 684 340
--------- -------- -------- -------- --------
Net charge-offs:
Commercial and financial loans 494 489 491 749 528
Real estate loans (11) 187 1,198 2,184 1,390
Installment loans 217 115 199 655 714
--------- -------- -------- -------- --------
Total 700 791 1,888 3,588 2,632
--------- -------- -------- -------- --------
Provision charged to earnings 500 200 2,200 2,865 4,008
--------- -------- -------- -------- --------
Balance at end of year $ 3,872 $ 4,072 $ 4,663 $ 4,351 $ 5,074
========= ======== ======== ======== ========
Amount of loans outstanding
at end of year $ 272,825 $235,610 $190,652 $179,733 $203,850
========= ======== ======== ======== ========
Average amount of loans outstanding:
Commercial and financial loans $ 82,714 $ 69,708 $ 50,570 $ 36,342 $ 42,170
Real estate loans 154,599 129,266 111,295 115,185 125,878
Installment loans 15,365 18,898 21,882 39,435 39,399
--------- -------- -------- -------- --------
Total $ 252,678 $217,872 $183,747 $190,962 $207,447
========= ======== ======== ======== ========
Ratios:
Net charge-offs to average loans:
Commercial and financial loans 0.60% 0.70% 0.97% 2.06% 1.25%
Real estate loans (0.01)% 0.14% 1.08% 1.90% 1.10%
Installment loans 1.41% 0.61% 0.91% 1.66% 1.81%
--------- -------- -------- -------- --------
Total 0.28% 0.36% 1.03% 1.88% 1.27%
========= ======== ======== ======== ========
Balance in allowance at end of year
to outstanding loans at end of year 1.42% 1.73% 2.45% 2.42% 2.49%
========= ======== ======== ======== ========
</TABLE>
-23-
<PAGE>
In 1994, the provision for loan losses was $500,000 and net charge-offs
totaled $700,000, or 0.28% of average loans. In 1993, the provision amounted to
$200,000 with net charge-offs amounting to $791,000 or 0.36% of average loans.
At December 31, 1994, the allowance for loan losses was $3.872 million,
or 1.42% of year-end loans, compared to $4.072 million, or 1.73% at December 31,
1993. The allowance at the close of 1994 provided coverage for 109% of
nonaccrual and restructured loans compared to 192% at the end of 1993 and 111%
at the end of 1992.
The following table shows the allowance for loan losses by loan category
for the past three years (dollars in thousands):
ALLOWANCE FOR LOAN LOSSES BY LOAN CATEGORY
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------
1994 1993 1992
----------------------- ----------------------------- ----------------------
Percent of Percent of Percent of
Loans in Each Loans in Each Loans in Each
Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans
------- -------------- ------------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and financial loans $ 427 34.08% $ 534 32.00% $ 724 30.05%
Real estate loans 1,180 60.46 860 61.21 1,065 59.57
Installment loans 103 5.46 217 6.79 397 10.38
Unallocated 2,162 -- 2,461 -- 2,477 --
------ ------ ------ ------ ------ ------
Total allowance for loan losses $3,872 100.00% $4,072 100.00% $4,663 100.00%
====== ====== ====== ====== ====== ======
</TABLE>
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 114 ("Statement No. 114"), "Accounting by
Creditors for Impairment of a Loan" and Statement of Financial Accounting
Standards No. 118 ("Statement No. 118"), "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures." Both statements are effective
for fiscal years beginning after December 15, 1994 and will be applied on a
prospective basis. Statement No. 114 requires that impaired loans within the
scope of the statement be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. Impairment shall be recognized by creating a valuation
allowance with a corresponding charge to the provision for loan losses.
Statement No. 118 amends Statement No. 114 and allows the use of existing
methods for recognizing interest income on impaired loans. The effect of
adopting these statements is not considered material.
Nonperforming assets (loans accounted for on a nonaccrual basis,
restructured loans and other real estate owned) at December 31, 1994 totaled
$3.911 million, a 58.98% increase from the $2.460 million reported at the close
of 1993. Nonperforming assets at December 31, 1993 decreased 65.76% from the
$7.185 million reported at the close of 1992.
24
<PAGE>
The following table summarizes the nonperforming assets as of December
31 for each of the last five years (dollars in thousands).
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $3,339 $2,105 $3,935 $4,829 $3,812
Other real estate owned, net 352 336 2,991 4,066 4,029
Restructured loans 220 19 259 -- 955
------ ------ ------ ------ ------
Total $3,911 $2,460 $7,185 $8,895 $8,796
====== ====== ====== ====== ======
As a percent of total loans and other
real estate owned 1.43% 1.04% 3.71% 4.84% 4.23%
Interest on above loans included
in earnings $ 169 $ 36 $ 201 $ 244 $ 172
====== ====== ====== ====== ======
Accrued interest on above loans
not recorded in earnings $ 147 $ 150 $ 179 $ 247 $ 393
====== ====== ====== ====== ======
</TABLE>
Nonaccrual loans are those on which the accrual of interest has been
suspended and on which interest is recorded as earned when it is received. Loans
are placed on nonaccrual status when principal or interest is past due 90 days
or more, and the loan is not both well-secured and in the process of collection,
or immediately, if in the opinion of management, full collection of principal or
interest is unlikely. At the time a loan is placed on nonaccrual status,
interest previously recorded but not collected is reversed and charged against
current income.
Other real estate owned includes properties for which the Corporation
has foreclosed and taken title. In April 1992, the American Institute of
Certified Public Accountants issued Statement of Position 92-3 "Accounting for
Foreclosed Assets" (SOP 92-3) which is effective for annual financial statements
for periods ending on or after December 15, 1992. Under SOP 92-3 there is a
refutable presumption that foreclosed assets are held for sale. All of the
Corporation's foreclosed assets are held for sale, as required by regulatory
guidelines. SOP 92-3 requires that foreclosed assets held for sale be carried at
the lower of fair value, net of estimated selling costs, or cost. Because the
Corporation previously carried its foreclosed assets on a similar basis, the
effect of implementation of SOP 92-3 was not significant.
Any write-downs in properties acquired in satisfaction of debts are
charged to the allowance for loan losses at the date of acquisition. Estimates
for costs to sell, expenses incurred in maintaining other real estate owned and
subsequent write-downs to reflect declines in the fair value of the property are
included in other real estate owned expense (income), net.
Management provides for possible future declines in real estate values
through periodic specific write-downs. These charges to earnings are made based
upon updated periodic independent appraisals and internal evaluations of
property and market conditions.
25
<PAGE>
Restructured loans are loans on which the interest and/or the principal
has been reduced due to a deterioration in the borrower's financial condition. A
restructured loan is neither on nonaccrual status nor 90 days past due.
The Corporation has no nonperforming assets which are energy related.
Management is not aware of any potential problem loans which are not included in
nonperforming loans to which serious doubts exist as to the ability of the
borrower to substantially comply with the present repayment terms.
The following schedule presents loan amounts past due 90 days or more
and not classified as non-performing as of the dates indicated by the type of
loan (dollars in thousands).
<TABLE>
<CAPTION>
December 31,
---------------------------------
1994 1993 1992 1991 1990
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Commercial and financial loans $ 10 $ -- $ 54 $ 159 $ 247
Real estate loans 18 524 12 165 383
Installment loans 20 6 36 172 214
----- ----- ----- ----- -----
Total $ 48 $ 530 $ 102 $ 496 $ 844
===== ===== ===== ===== =====
</TABLE>
In 1994, the amount of interest on the above loans that was included in
income was approximately $4,200.
The Corporation's problem loan monitoring program examines on a monthly
basis the status and specific action plan for resolution or liquidation of all
major nonperforming assets.
NONINTEREST INCOME
Noninterest income represents service charges and fees earned by the
Subsidiary Bank, trust fees, gains on sales of investment securities and other
miscellaneous fee income, including income from mortgage lending operations.
Noninterest income increased 12.44% to $9.047 million in 1994 and 13.50% in 1993
to $8.046 million from the respective preceding years. Increases in service
charges and fees are largely due to the increased customer deposit base.
The increase in trust fees is attributable to new personal and
institutional business generated. The decrease in investment services income in
1994 from 1993 is due primarily to the increase in the number of bank customers
shifting to traditional bank products due to the increased stock market
volatility and to rising interest rates.
Other noninterest income increased primarily due to gains on sales of
mortgage loans from the Corporation's expanded mortgage lending operations.
26
<PAGE>
The following table summarizes the changes in noninterest income during
the past two years (dollars in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1994 1993 1992
----------------- ----------------- ------
Amount % Change Amount % Change Amount
------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C>
Service charges and fees $7,166 12.62% $6,363 17.77% $5,403
Trust fees 621 29.11 481 82.20 264
Investment services 476 (54.14) 1,038 25.67 826
Gains on sales of investment securities -- -- -- -- 432
Other noninterest income 784 378.05 164 -- 164
------ ------ ------ ----- ------
Total noninterest income $9,047 12.44% $8,046 13.50% $7,089
====== ====== ====== ===== ======
</TABLE>
NONINTEREST EXPENSES
Noninterest expenses were $27.773 million in 1994, up 5.29% from the
$26.377 million incurred in 1993. Noninterest expenses in 1993 increased 16.87%
from the $22.569 million incurred in 1992.
The largest item of noninterest expenses, salaries and employee
benefits, increased $1,418,000, or 10.34% from 1993 to 1994 and $2,736,000, or
24.91% from 1992 to 1993. Higher personnel expenses for 1994 and 1993 reflect an
increase in staffing levels from acquisition and branch expansion activities in
addition to merit adjustments, averaging 3.5%, and increased costs associated
with Corporate provided employee benefits.
Net occupancy expense decreased $181,000 or 6.37% from 1993 to 1994
compared to an increase of $881,000 or 44.93% from 1992 to 1993. The Corporation
added new banking facilities in 1994 and 1993. In 1993, facilities management
was outsourced, increasing net occupancy expense. In 1994, facilities management
was brought back in-house, shifting expense from net occupancy to salaries and
employee benefits.
Equipment and data processing expense in 1994 increased by $206,000 or
7.91% over 1993 expense levels. Equipment and data processing expense in 1993
increased by $651,000 or 33.33% from 1992 expense levels primarily due to an
increase in depreciation expense resulting from the purchase of a new ATM
processing system.
Other real estate owned expense (income), net decreased $220,000 or
152.78% from 1993 and decreased $1,367,000 or 90.47% from 1992 to 1993. The high
level of expense in 1992 is attributed to write-downs in the carrying value of
foreclosed property to reflect declining market values. Other real estate owned
expenses have decreased as the number of properties held has declined.
Federal deposit insurance fees in 1994 increased $121,000 or 8.74% over
1993 and $146,000 or 11.78% between 1993 and 1992. The increase in both 1994 and
1993 was attributable to the increase in average deposits.
27
<PAGE>
The early retirement expense in 1993 of $118,000 represents the cost of
providing lump sum and increased future pension benefits to employees who
elected to take voluntary early retirement under a plan offered to them in the
fourth quarter of 1993.
Communications expense and stationery and supplies expense increased
$78,000 or 6.28% and decreased $76,000 or 8.25%, respectively, in 1994 from
1993. Communications expense in 1993 increased $293,000 or 30.84% from 1992 and
stationery and supplies expense increased $141,000 or 18.08% in the same period.
The increases in 1993 are the result of expanded banking operations.
The following table summarizes the changes in noninterest expenses for
the past three years (dollars in thousands):
ANALYSIS OF CHANGES IN NONINTEREST EXPENSES
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------
1994 1993 1992
---------------------------- ---------------------------- --------
$ % $ %
Amount Change Change Amount Change Change Amount
-------- -------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits $15,137 $1,418 10.34% $13,719 $ 2,736 24.91% $10,983
Net occupancy expense 2,661 (181) (6.37) 2,842 881 44.93 1,961
Equipment and data processing
expense 2,810 206 7.91 2,604 651 33.33 1,953
Other real estate owned expense (76) (220) (152.78) 144 (1,367) (90.47) 1,511
Federal deposit insurance fees 1,506 121 8.74 1,385 146 11.78 1,239
Marketing expense 886 11 1.26 875 130 17.45 745
Early retirement expense -- (118) (100.00) 118 118 -- --
Other taxes 129 (25) (16.23) 154 150 3,750.00 4
Legal and professional 940 (8) (0.84) 948 (120) (11.24) 1,068
Communications 1,321 78 6.28 1,243 293 30.84 950
Stationery and supplies 845 (76) (8.25) 921 141 18.08 780
Insurance 409 40 10.84 369 68 22.59 301
Other expenses 1,205 150 14.22 1,055 (19) (1.77) 1,074
------- ------ ------- ------- ------- --------- -------
Total noninterest expenses $27,773 $1,396 5.29% $26,377 $ 3,808 16.87% $22,569
======= ====== ======= ======= ======= ========= =======
</TABLE>
INCOME TAXES
In 1994, the Corporation recorded income tax expense of $2,650,000. This
compares to $2,292,000 recorded in 1993 and $1,622,953 recorded in 1992. The
1992 amount includes the tax effect of net operating loss carryforwards of
$356,094.
In 1991, the Corporation recorded state income tax expense of $172,241
resulting from changes in the state franchise tax legislation enacted in
September, 1991. In 1992, the expense recorded in 1991 was reversed due to
subsequent clarifications in regulations regarding taxable state income.
28
<PAGE>
Effective January 1, 1993, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," ("Statement No. 109") on a prospective basis.
Statement No. 109 requires a change from the deferred method of accounting for
income taxes under Accounting Principles Board Opinion 11 to the asset and
liability method. The effect of initially applying this pronouncement has been
recorded as the cumulative effect of change in accounting for income taxes in
the Corporation's consolidated statement of operations for the year ended
December 31, 1993. Adopting the statement resulted in an increase in the
Corporation's deferred tax asset of $1,370,000.
The Corporation has recorded a net deferred tax asset of $3,626,813 and
$1,839,000 at December 31, 1994 and 1993, respectively. The Corporation is not
dependent on future taxable income as a basis for realization of the deferred
tax asset. The Corporation believes it is more likely than not that the entire
deferred tax asset will be realized or settled, and accordingly, no valuation
allowance has been recorded as of December 31, 1994 and 1993.
CAPITAL
The Corporation recognizes the importance of proper capitalization. The
continuing philosophy is to maintain a highly capitalized organization operating
with capital levels well in excess of those required by regulatory agencies.
In January 1989, the Federal Reserve Board issued guidelines to United
States banking organizations for the application of a risk-based capital
framework. The guidelines classify capital into two tiers, referred to as Tier 1
and Tier 2. Tier 1 consists of core capital elements less certain intangible
assets, while Tier 2 includes the allowance for loan losses, but is limited to
100% of Tier 1 and 1.25% of risk-weighted adjusted assets. The denominator or
asset portion of risk based capital aggregates generic classes of balance sheet
and off-balance-sheet exposures, each weighted by one of four factors, ranging
from 0% to 100%, based upon the relative risk of the exposure class.
The final Federal Reserve Board guidelines took effect at year-end 1992
and require a minimum capital of 8%, of which at least 4% must be Tier 1.
In 1990, the Federal Reserve Board issued guidelines that set forth the
leverage standards to be applied to banking organizations in conjunction with
the risk-based capital framework adopted in 1989. The leverage standard requires
a minimum ratio of 3% Tier 1 capital to average total adjusted assets, as
defined. However, regulators are given wide discretion to set a level
appropriate for each bank, with most banks expected to maintain a leverage
capital ratio of 4% to 5%.
Amendments to the capital rules for the adoption of the Financial
Accounting Standards Board's ("FASB") Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," have not yet been adopted and as such, net unrealized losses on
available-for-sale securities resulting from the accounting change have been
excluded from the computation of Tier 1 (and total) capital.
29
<PAGE>
The following table presents the Corporation's risk-based and leverage
capital ratios for 1994 and 1993 (dollars in thousands):
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Tier 1 (Core Capital)
Stockholders' equity $ 55,326 $ 52,222
Plus: Unrealized loss on securities
available-for-sale 3,898 --
Less: Excess cost over net assets acquired (908) (992)
-------- --------
Total Tier 1 Capital 58,316 51,230
-------- --------
Tier 2 (Supplementary Capital)
Eligible portion of allowance for loan losses 3,872 3,846
-------- --------
Total risk-based capital $ 62,188 $ 55,076
======== ========
Total risk-weighted assets $370,252 $307,718
======== ========
Tier 1 capital ratio 15.75% 16.65%
Total risk-based capital ratio 16.80% 17.90%
======== ========
Leverage capital ratio 7.22% 7.12%
======== ========
</TABLE>
The above capital ratios, under all regulatory measurements, are in
excess of required minimum levels. In 1991 the Texas State Banking Department
issued a 6% minimum leverage capital ratio standard for all state banks.
LIQUIDITY
Liquidity is defined as the Corporation's ability to meet deposit
withdrawals, provide for the legitimate credit needs of customers, and take
advantage of certain investment opportunities as they arise. While maintaining
adequate liquid assets to fulfill these functions, it must also maintain
compatible levels of maturity and rate concentrations between its sources of
funds and earning assets. The liability structure of the Corporation is short-
term in nature and the asset structure is likewise oriented towards maturities.
The Corporation's primary internal source of liquidity is its short-term
marketable assets, primarily federal funds sold, and United States Government
and Agency securities maturing within the next twelve months.
The Corporation maintains liquidity levels well in excess of regulatory
guidelines of 20-25%. As of December 31, 1994, the Corporation's liquidity
ratio, computed under the Texas State Banking Department formula, was 71% for
Central Bank & Trust. In addition, the Corporation maintained liquidity levels
in excess of regulatory guidelines at December 31, 1993 and 1992.
30
<PAGE>
INVESTMENT PORTFOLIO
The following schedule presents the book value of the consolidated
investment securities portfolio as of December 31 for the last three years.
BOOK VALUE OF INVESTMENT SECURITIES
(Dollars in Thousands)
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
U.S. Treasury $ 99,563 $ 97,725 $127,653
U.S. Government agencies 27,417 31,440 63,935
FHLB stock 3,482 3,322 --
State and political subdivisions 53,374 39,493 31,556
Mortgage-backed securities 320,852 237,691 150,941
-------- -------- --------
Totals $504,688 $409,671 $374,085
======== ======== ========
</TABLE>
The investment portfolio, including Federal funds sold, as a percentage
of total assets was 59.87% at December 31, 1994, 58.26% at December 31, 1993,
61.84% at December 31, 1992.
Mortgage-backed securities represent 63.57% of the total investment
portfolio as of December 31, 1994 up from 58.02% at December 31, 1993. The
mortgage-backed securities are backed by U.S. or Federal Agency guarantees
limiting the credit risk associated with mortgage loans. Mortgage-backed
securities do possess other risks, namely uncertain yields due to repayment
uncertainties.
The following schedule presents the consolidated investment securities
portfolio at December 31, 1994, classified according to maturities, along with
the weighted average interest yield for each range of maturities. The weighted
average yields on tax-exempt obligations are computed on a taxable equivalent
basis using a 34% Federal income tax rate. FHLB stock is excluded from the
schedule as it has no specified maturity. Mortgage-backed securities are
included with maturities based on estimated prepayments.
MATURITIES AND AVERAGE YIELD
(Dollars in Thousands)
<TABLE>
<CAPTION>
Under 1 Year 1-5 Years 6-10 Years Total
----------------- ------------------ ----------------- -----------------
Amount Yield Amount Yield Amount Yield Amount Yield
------- ------ -------- ------ -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasuries $17,966 5.18% $ 81,597 6.07% $ -- --% $ 99,563 5.91%
U.S. Government agencies -- -- 24,890 6.63 2,527 5.04 27,417 6.48
State and political
subdivisions 4,922 12.70 16,669 10.02 31,783 8.05 53,374 9.09
Mortgage-backed
securities 46,626 6.36 194,347 6.37 79,879 5.93 320,852 6.26
------- ----- -------- ----- -------- ---- -------- ----
Total $69,514 6.50% $317,503 6.50% $114,189 6.50% $501,206 6.50%
======= ===== ======== ===== ======== ==== ======== ====
</TABLE>
31
<PAGE>
The fair value of the investment portfolio is always different from the
amortized cost of the portfolio due to interest rate fluctuations which cause
fair market valuations to change. As of December 31, 1994, the amortized cost of
the Corporation's investment portfolio exceeded the fair value by $22,015,000 or
4.3%, while as of December 31, 1993, the fair value of the investment portfolio
exceeded amortized cost by $5,657,000 or 1.4%. The decline in fair value
relative to amortized cost was due to the rapid rise in short-term interest
rates in 1994.
Effective January 1, 1994, the Company adopted the FASB's Statement of
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("Statement No. 115"). Statement No. 115 addresses the
accounting and reporting for investments in equity securities that have readily
determinable fair values and all investments in debt securities.
In accordance with Statement No. 115, these investments are classified
at the time of purchase into one of three categories as follows:
- Held-to-Maturity Securities - Debt securities that the Company has the
positive intent and ability to hold to maturity are reported at
amortized cost.
- Trading Securities - Debt and equity securities that are bought and
held principally for the purpose of selling them in the near term are
to be reported at fair value, with unrealized gains and losses
included in earnings.
- Available-for-Sale Securities - Debt and equity securities not
classified as either held-to-maturity securities or trading securities
are reported at fair value with unrealized gains and losses excluded
from earnings and reported as a separate component of stockholders'
equity (net of tax effects).
The Company does not have any securities classified as trading as of
December 31, 1994.
Investment securities have been generally acquired with the intent to
hold them to maturity, as management believes the Company has the ability to do
so. After reviewing Statement No. 115 and considering the implications of
selling securities classified as held-to-maturity, management has classified a
portion of the investment portfolio as available-for-sale. Recording such
securities classified as available-for-sale at fair value upon the adoption of
Statement No. 115 resulted in an increase in stockholders' equity of $2,025,625,
net of tax of $1,043,503. Subsequent decreases in the fair value of securities
classified as available-for-sale have decreased stockholders' equity by
$5,923,154, net of tax of $3,051,316.
The Corporation does not own any investment securities of any one issuer
which is a state or political subdivision of which aggregate adjusted cost
exceed 10% of consolidated stockholders' equity as of December 31, 1994 or 1993.
32
<PAGE>
LOANS
The following schedule presents the Corporation's loan balances at the
date indicated according to loan type.
DISTRIBUTION OF LOANS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Commercial and financial $ 93,003 $ 75,515 $ 57,939 $ 54,099 $ 40,858
Real estate:
Construction 3,355 4,338 2,240 2,542 5,529
Mortgage 162,481 141,198 112,603 107,550 117,220
Installment 17,153 18,999 19,943 17,388 42,275
Overdrafts 151 184 72 119 138
-------- -------- -------- -------- --------
Total loans 276,143 240,234 192,797 181,698 206,020
Less unearned discount (3,318) (4,624) (2,145) (1,965) (2,170)
-------- -------- -------- -------- --------
Total loans, net of unearned discount $272,825 $235,610 $190,652 $179,733 $203,850
======== ======== ======== ======== ========
</TABLE>
Net loans increased $37.215 million or 15.80% between year-end 1993 and
1994, compared to an increase of $44.958 million or 23.58% between year-end 1992
and 1993. The increase in 1994 is attributable to new and refinanced real estate
mortgages resulting from an improved economy and is also attributable to
continued increased emphasis on commercial lending.
The following table presents the distribution of commercial, financial
and real estate construction loans at December 31, 1994 based on scheduled
principal repayments. The table also presents the portion of these loans that
are sensitive to interest rates (dollars in thousands).
<TABLE>
<CAPTION>
Due in One Year
One Year Through After
or Less Five Years Five Years Total
-------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Commercial and financial loans $52,891 $34,632 $5,480 $93,003
Real estate construction loans 1,859 911 585 3,355
------- ------- ------ -------
Total $54,750 $35,543 $6,065 $96,358
======= ======= ====== =======
With fixed interest rates $30,459 $28,122 $4,268 $62,849
======= ======= ====== =======
With floating interest rates $24,291 $ 7,421 $1,797 $33,509
======= ======= ====== =======
</TABLE>
33
<PAGE>
DEPOSITS
The most important source of the Corporation's funds is the deposits of
the Subsidiary Bank. The types of deposits that were in the Subsidiary Bank on a
daily average basis and the related rate paid during each of the last three
years are shown in the following table (dollars in thousands).
<TABLE>
<CAPTION>
1994 1993 1992
------------------ ------------------ ------------------
Average Average Average
Average Rate Average Rate Average Rate
Volume Paid Volume Paid Volume Paid
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand $130,532 -- $127,295 -- $103,903 --
Interest-bearing demand 234,293 2.39% 202,189 2.19% 157,009 2.96%
Savings 71,787 2.22 68,463 2.40 51,408 3.02
Time 257,142 3.82 266,049 3.72 263,619 4.58
-------- ---- -------- ---- -------- ----
Total $693,754 2.45% $663,996 2.41% $575,939 3.17%
======== ==== ======== ==== ======== ====
</TABLE>
Total average deposits were $693.754 million in 1994 compared to
$663.996 million in 1993 and $575.939 million in 1992. Interest-bearing demand
deposits continue to increase as the rates on these products are competitive
with those offered by other financial institutions and with similar investments
alternatives.
SHORT-TERM BORROWINGS
During 1994, the Corporation began selling securities under agreements
to repurchase ("repurchase agreements") and began borrowing from the Federal
Home Loan Bank ("FHLB"). The Corporation initiated the repurchase agreements
primarily as a service to customers, while borrowing from the FHLB provided a
new source of funds for increasing earning assets.
At December 31, 1994, short-term borrowings included repurchase
agreements totaling $59,137,190 ($34,137,190 with customers and $25,000,000 with
the FHLB), with a weighted average interest rate of 5.47%, and a FHLB advance
for $25,000,000 with an interest rate of 5.90%. The repurchase agreements with
customers have a maturity of one day and are repricable on daily basis, while
the repurchase agreements with the FHLB mature and reprice monthly.
The maximum amount of repurchase agreements outstanding at any month-end
during 1994 was $89,821,319 and the maximum FHLB advance during 1994 was
$25,000,000. The average amounts outstanding and the weighted average interest
rates were approximately $30,284,000 and $24,110,000 and 4.46% and 4.36% for the
repurchase agreements and the FHLB advance, respectively.
34
<PAGE>
INTEREST RATE SENSITIVITY
Asset/liability management involves the maintenance of an appropriate
balance between interest-sensitive assets and interest-sensitive liabilities to
reduce interest rate exposure while also providing liquidity to satisfy the cash
flow requirement of operations to meet customers' fluctuating demands for funds,
either in terms of loan requests or deposit withdrawals.
A volatile rate environment combined with industry deregulation has
placed an increased emphasis on interest rate sensitivity management. Interest-
sensitive earning assets and interest-bearing liabilities are those which have
yields or rates which are subject to change within a future time period due to
maturity of the instrument or changes in the rate environment. Gap refers to the
difference between the rate sensitive assets and rate sensitive liabilities.
Interest rate sensitivity management seeks to protect earnings by
maintaining an appropriate balance between interest-sensitive earning assets and
interest-bearing liabilities in order to minimize fluctuations in the net
interest margin and net earnings in periods of volatile interest rates.
35
<PAGE>
The following table quantifies the interest rate sensitivity of both
earning assets and interest-bearing liabilities as of December 31, 1994.
INTEREST RATE SENSITIVITY ANALYSIS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Repriced
After
Due in Due in Due in Total One Year or
30 Days 31 to 91 Days to Rate Non-Rate
or Less 90 Days One Year Sensitive Sensitive Total
--------- --------- --------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans, net of unearned
discount $ 63,875 $ 20,150 $ 72,262 $ 156,287 $116,538 $272,825
Interest-bearing deposits
in other banks 268 -- -- 268 -- 268
Federal funds sold 25,100 -- -- 25,100 -- 25,100
Investment securities:
Taxable 79,897 6,386 61,899 148,182 303,133 451,315
Tax-exempt 355 4,060 2,725 7,140 46,233 53,373
--------- --------- --------- --------- -------- --------
Total investment securities 80,252 10,446 64,624 155,322 349,366 504,688
--------- --------- --------- --------- -------- --------
Total earning assets $ 169,495 $ 30,596 $ 136,886 $ 336,977 $465,904 $802,881
--------- --------- --------- --------- -------- --------
Interest-bearing liabilities:
Interest-bearing demand $ 252,960 $ -- $ -- $ 252,960 $ -- $252,960
Savings 67,146 -- -- 67,146 -- 67,146
Time deposits less than
$100,000 33,210 30,796 74,777 138,783 73,516 212,299
Time deposits greater than
$100,000 9,216 10,209 18,350 37,775 15,608 53,383
Short-term borrowings 89,599 -- -- 89,599 -- 89,599
Note payable 500 -- -- 500 -- 500
--------- --------- --------- --------- -------- --------
Total interest-bearing
liabilities $ 452,631 $ 41,005 $ 93,127 $ 586,763 $ 89,124 $675,887
--------- --------- --------- --------- -------- --------
Interest sensitivity gap $(283,136) $ (10,409) $ 43,759 $(249,786) $376,780 $126,994
========= ========= ========= ========= ======== ========
Cumulative gap $(283,136) $(293,545) $(249,786)
========= ========= =========
Relationship of gap to total
earning assets (35.27)% (36.56)% (31.11)%
========= ========= =========
</TABLE>
36
<PAGE>
PERFORMANCE SUMMARY
The table below presents the return on average assets and the return on
average equity for the Corporation over the last three years. Return on average
assets is calculated by dividing net income by average assets for the year. The
return on average equity ratio is calculated by dividing net income by average
stockholders' equity for the year. The dividend payout ratio is computed by
dividing cash dividends declared by net income. The average stockholders' equity
to average total assets is calculated by dividing average stockholders' equity
by average total assets for the year.
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Return on average assets 0.99% 1.12% 0.98%
Return on average equity 14.72 16.56 14.42
Dividend payout ratio 12.72 9.34 10.26
Average stockholders' equity
to average total assets 6.75 6.79 6.76
</TABLE>
37
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATE
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS: PAGE
-------------------------------------------- ----
Independent Auditor's Report.......................... 39
Consolidated Balance Sheets as of December 31, 1994
and 1993............................................ 40
Consolidated Statements of Operations for the years
ended December 31, 1994, 1993 and 1992.............. 42
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1994, 1993
and 1992............................................ 44
Consolidated Statements of Cash Flows for the years
ended December 31, 1994, 1993 and 1992.............. 45
Notes to Consolidated Financial Statements............ 47
-38-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Texas Security Bancshares, Inc.
Fort Worth, Texas:
We have audited the consolidated financial statements of Texas Security
Bancshares, Inc. and subsidiaries (the Company) as listed in the accompanying
index. 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 Texas Security
Bancshares, Inc. and subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in note 1 to the consolidated financial statements, the Company
changed its method of accounting for investment securities in 1994 to adopt the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." As discussed in notes 1 and 11, the Company changed its
method of accounting for income taxes in 1993 to adopt the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
/s/ KPMG Peat Marwick LLP
Fort Worth, Texas
February 2, 1995
-39-
<PAGE>
TEXAS SECURITY BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1994 and 1993
<TABLE>
<CAPTION>
ASSETS 1994 1993
- ------ ------------ -----------
<S> <C> <C>
Cash and due from banks (note 2) $ 49,348,407 44,342,492
Interest-bearing demand deposits in other banks 267,925 840,164
Federal funds sold 25,100,000 19,000,000
------------ -----------
Total cash and cash equivalents 74,716,332 64,182,656
------------ -----------
Investment securities (estimated fair values of
$487,247,577 and $415,328,565
at December 31, 1994 and 1993,
respectively) (note 3) 504,687,973 409,671,181
Loans (note 4):
Loans, net of unearned discount 272,825,001 235,609,690
Less allowance for loan losses 3,871,653 4,071,798
------------ -----------
Net loans 268,953,348 231,537,892
------------ -----------
Premises and equipment, net (note 5) 21,090,898 18,225,380
Accrued interest receivable 7,028,363 6,031,169
Other real estate owned, net (note 6) 352,211 335,729
Excess of cost over net assets acquired,
net of applicable amortization 907,752 992,112
Federal income taxes receivable (note 11) 523,524 278,524
Deferred Federal income taxes, net (note 11) 3,626,813 1,839,000
Other assets 2,980,357 2,665,108
------------ -----------
$884,867,571 735,758,751
============ ===========
</TABLE>
(Continued)
-40-
<PAGE>
TEXAS SECURITY BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
- ------------------------------------ ------------ -----------
<S> <C> <C>
Deposits (note 7):
Noninterest-bearing demand $140,459,818 128,396,155
Interest-bearing demand 252,959,937 220,795,751
Savings 67,145,836 73,264,574
Time, $100,000 and over 53,383,374 46,345,399
Other time 212,298,950 207,561,812
------------ -----------
Total deposits 726,247,915 676,363,691
------------ -----------
Short-term borrowings (note 8) 89,598,888 3,153,679
Note payable (note 9) 500,000 -
Dividends payable 261,672 209,338
Accrued interest payable 1,982,687 1,269,961
Other liabilities (note 12) 10,950,102 2,539,664
------------ -----------
Total liabilities 829,541,264 683,536,333
------------ -----------
Stockholders' equity (note 10):
Common stock, $2.50 par value, 5,000,000
shares authorized, 2,616,723 shares issued
and outstanding 6,541,808 6,541,808
Additional paid-in capital 16,578,010 16,578,010
Retained earnings 36,104,018 29,102,600
Unrealized loss on investment securities
available-for-sale, net of $2,007,813 deferred
Federal income taxes in 1994 (3,897,529) -
------------ -----------
Total stockholders' equity 55,326,307 52,222,418
Commitments and contingencies (notes 9, 11, 13 and 14)
$884,867,571 735,758,751
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-41-
<PAGE>
TEXAS SECURITY BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
------------ ---------- ----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans (note 4) $21,690,425 18,810,058 17,738,129
Interest and dividends on investment securities
(note 3) 26,685,769 24,429,031 25,187,218
Interest on deposits in other banks 20,365 45,357 23,780
Interest on Federal funds sold 992,953 353,650 452,249
----------- ---------- ----------
Total interest income 49,389,512 43,638,096 43,401,376
----------- ---------- ----------
Interest expense:
Interest on interest-bearing demand deposits 5,596,270 4,432,475 4,647,753
Interest on savings deposits 1,596,835 1,646,236 1,553,093
Interest on time deposits (note 7) 9,832,881 9,896,721 12,067,624
Interest on short-term borrowings 2,455,936 116,624 101,328
Interest on note payable 8,875 - -
----------- ---------- ----------
Total interest expense 19,490,797 16,092,056 18,369,798
----------- ---------- ----------
Net interest income 29,898,715 27,546,040 25,031,578
Provision for loan losses (note 4) 500,000 200,000 2,200,000
----------- ---------- ----------
Net interest income after provision for loan losses 29,398,715 27,346,040 22,831,578
----------- ---------- ----------
Noninterest income:
Service charges and fees 8,262,716 7,882,492 6,492,779
Gains on sales of investment securities - - 431,841
Other income 783,891 163,657 163,975
----------- ---------- ----------
Total noninterest income 9,046,607 8,046,149 7,088,595
----------- ---------- ----------
</TABLE>
(Continued)
-42-
<PAGE>
TEXAS SECURITY BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations, Continued
<TABLE>
<CAPTION>
1994 1993 1992
------------- ---------- -----------
<S> <C> <C> <C>
Noninterest expenses:
Salaries and employee benefits $15,137,241 13,837,101 10,983,158
Net occupancy expense 2,661,128 2,841,755 1,961,288
Equipment and data processing expense 2,810,248 2,603,631 1,952,619
Communications expense 1,321,311 1,243,218 949,645
Other real estate owned expense (income), net (note 6) (75,912) 144,384 1,510,688
Federal deposit insurance fees 1,505,748 1,385,034 1,239,109
Legal and professional 940,174 947,893 1,067,937
Stationery and supplies 845,378 920,974 780,392
Marketing expense 885,986 874,997 745,510
Other operating expense (note 12) 1,742,080 1,577,859 1,378,358
----------- ---------- ----------
Total noninterest expenses 27,773,382 26,376,846 22,568,704
----------- ---------- ----------
Income before income taxes, extraordinary
item and cumulative effect of change in
accounting for income taxes 10,671,940 9,015,343 7,351,469
----------- ---------- ----------
Provision (benefit) for income taxes (note 11):
Current:
Federal 2,430,000 2,177,000 2,023,100
State - - (172,241)
Deferred - Federal 220,000 115,000 (584,000)
Tax effect of net operating loss carryforwards - - 356,094
----------- ---------- ----------
Total provision for income taxes 2,650,000 2,292,000 1,622,953
----------- ---------- ----------
Income before extraordinary item and
cumulative effect of change in
accounting for income taxes 8,021,940 6,723,343 5,728,516
Extraordinary item - reduction of Federal income
taxes arising from utilization of net operating
loss carryforwards (note 11) - - 356,094
Cumulative effect of change in accounting for income
taxes (note 11) - 1,370,000 -
----------- ---------- ----------
Net income $ 8,021,940 8,093,343 6,084,610
=========== ========== ==========
Earnings per share:
Income before extraordinary item and cumulative
effect of change in accounting for income taxes $ 3.07 2.58 2.20
Extraordinary item - - 0.14
Cumulative effect of change in accounting for
income taxes - 0.53 -
----------- ---------- ----------
Net income $ 3.07 3.11 2.34
=========== ========== ==========
Weighted average number of shares outstanding 2,616,723 2,603,082 2,602,333
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-43-
<PAGE>
TEXAS SECURITY BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Additional Unrealized
----------- -----------
Common Paid-In Retained Treasury Gains/
Stock Capital Earnings Stock (Losses) Total
----------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991 $6,516,208 16,411,139 16,305,035 (68,708) - 39,163,674
Net income - - 6,084,610 - - 6,084,610
Cash dividends - $.24
per share - - (624,560) - - (624,560)
Retirement of treasury stock,
4,150 shares (10,375) (58,333) - 68,708 - -
---------- ---------- ---------- -------- ---------- ----------
Balance, December 31, 1992 6,505,833 16,352,806 21,765,085 - - 44,623,724
Net income - - 8,093,343 - - 8,093,343
Cash dividends - $.29
per share - - (755,828) - - (755,828)
Issuance of common stock,
14,390 shares (note 10) 35,975 225,204 - - - 261,179
---------- ---------- ---------- -------- ---------- ----------
Balance, December 31, 1993 6,541,808 16,578,010 29,102,600 - - 52,222,418
Net income - - 8,021,940 - - 8,021,940
Cash dividends - $.39 per share - - (1,020,522) - - (1,020,522)
Cumulative effect of change
in accounting for investment
securities, net of $1,043,503
deferred Federal income
taxes (note 1 (c)) - - - - 2,025,625 2,025,625
Change in unrealized
gains/(losses) on investment
securities available-for-sale,
net of $3,051,316 deferred
Federal income taxes
(note 1 (c)) - - - - (5,923,154) (5,923,154)
---------- ---------- ---------- -------- ---------- ----------
Balance, December 31, 1994 $6,541,808 16,578,010 36,104,018 - (3,897,529) 55,326,307
========== ========== ========== ======== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-44-
<PAGE>
TEXAS SECURITY BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
-------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 8,021,940 8,093,343 6,084,610
Adjustments to reconcile net income to net cash
provided by operating activities:
Provisions for loan losses and losses on other
real estate owned, net 400,216 673,423 3,425,305
Depreciation 2,330,089 2,041,453 1,547,067
Amortization 184,360 174,298 124,739
Gains on sales of investment securities - - (431,841)
Net gain on sales of loans (277,431) - -
Net gain on sales of premises and equipment (11,503) (19,440) (19,686)
Net gain on sales of other real estate owned (44,173) (337,731) (41,786)
Premium amortization and discount accretion, net 1,393,717 3,744,558 2,097,502
Deferred Federal income taxes, net 220,000 (1,255,000) (584,000)
Changes in operating assets and liabilities:
Decrease (increase) in accrued interest receivable (997,194) 688,498 466,948
Increase in Federal income taxes receivable (245,000) (243,205) (35,319)
Decrease (increase) in other assets (246,786) (903,869) 180,506
Increase (decrease) in accrued interest payable 712,726 (32,787) (616,982)
Decrease in Federal income taxes payable - - (113,581)
Increase in other liabilities 8,410,438 610,238 143,714
------------- ------------ ------------
Net cash provided by operating activities 19,851,399 13,233,779 12,227,196
------------- ------------ ------------
Cash flows from investing activities:
Cash and cash equivalents received (paid) in acquisitions (1,679,778) 73,590,958 57,401,662
Net decrease in interest-bearing time deposits in
other banks - 12,320 -
Proceeds from maturities and principal reductions of
investment securities:
Available-for-sale 103,743,230 - -
Held-to-maturity 30,907,587 218,291,453 69,640,357
Proceeds from sales of investment securities - - 10,696,615
Purchases of investment securities:
Available-for-sale (98,884,722) - -
Held-to-maturity (138,640,610) (256,543,296) (112,905,887)
Net increase in loans (59,240,712) (29,549,687) (5,834,192)
Proceeds from sales of loans 23,578,258 - -
Proceeds from sales of premises and equipment 17,934 41,545 26,100
Purchases of premises and equipment (5,108,052) (4,029,532) (1,421,156)
Proceeds from sales of other real estate owned 127,897 1,459,651 1,190,880
Cost of capital improvements for other real estate owned - - (124,385)
------------- ------------ ------------
Net cash provided by (used in) investing activities (145,178,968) 3,273,412 18,669,994
------------- ------------ ------------
</TABLE>
(Continued)
-45-
<PAGE>
TEXAS SECURITY BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1994 1993 1992
------------- ----------- ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from note payable $ 500,000 - -
Net increase (decrease) in deposits 49,884,224 (3,118,019) (14,190,877)
Net increase (decrease) in short-term borrowings 86,445,209 (653,640) 525,779
Dividends paid (968,188) (702,630) (624,567)
Proceeds from issuance of common stock - 261,179 -
------------ ---------- -----------
Net cash provided by (used in)
financing activities 135,861,245 (4,213,110) (14,289,665)
------------ ---------- -----------
Net increase in cash and cash equivalents 10,533,676 12,294,081 16,607,525
Cash and cash equivalents at beginning of year 64,182,656 51,888,575 35,281,050
------------ ---------- -----------
Cash and cash equivalents at end of year $ 74,716,332 64,182,656 51,888,575
============ ========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest was $18,778,071, $16,124,843 and $18,986,780 in 1994,
1993 and 1992, respectively.
Cash paid for Federal income taxes was $2,675,000, $2,420,205 and $2,172,000
in 1994, 1993 and 1992, respectively.
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING ACTIVITIES:
Loans transferred to other real estate owned in 1994, 1993 and 1992 were
$164,493, $559,642 and $1,687,745, respectively.
Other real estate owned transferred to premises and equipment during 1994 and
1993 totaled $40,000 and $1,000,000, respectively.
Proceeds from sales of other real estate owned financed through loans were
$124,001, $619,300 and $513,200 in 1994, 1993 and 1992, respectively.
Net unrealized losses on investment securities available-for-sale and the
related net increase in deferred Federal income taxes as of December 31,
1994 were $5,905,342 and $2,007,813, respectively.
During 1994 investment securities were transferred from available-for-sale to
held-to-maturity. At the date of the transfer, the amortized cost and fair
value of these securities were $100,979,079 and $99,508,729, respectively.
See accompanying notes to consolidated financial statements.
-46-
<PAGE>
TEXAS SECURITY BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BUSINESS
Texas Security Bancshares, Inc. (the "Company"), a bank holding
company, provides a full range of banking services to individual and
corporate customers through its subsidiaries and branch banks. The
Company is subject to competition from other financial institutions.
The Company is also subject to the regulations of certain Federal and
state agencies and undergoes periodic examinations by those regulatory
authorities.
(b) BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements include the accounts of Texas
Security Bancshares, Inc. and its subsidiaries, Central Bank & Trust,
Texas Security Bancshares Corporation, and TSB Operations Corporation.
On March 6, 1992, the operations of the Company's two wholly owned
banking subsidiaries, North Fort Worth Bank and Central Bank & Trust,
were merged together under the name of Central Bank & Trust. All
significant intercompany balances and transactions have been
eliminated in consolidation.
On February 6, 1992, Central Bank & Trust acquired certain assets and
assumed certain liabilities of an insolvent banking association,
Landmark Bank of Fort Worth, Fort Worth, Texas, through a purchase and
assumption agreement with the Federal Deposit Insurance Corporation.
The acquisition resulted in an increase in consolidated deposits and
loans of approximately $74 million and $8 million, respectively, at
the date of acquisition.
On February 5, 1993, Central Bank & Trust entered into a purchase and
assumption agreement with the Federal Deposit Insurance Corporation to
acquire certain assets (primarily cash equivalents, premises and
equipment, investment securities, and certain nonclassified loans) and
assume certain liabilities (primarily customer deposits) of an
insolvent banking association, American Bank of Haltom City
("American"), Haltom City, Texas. The transaction resulted in an
increase in the Company's consolidated assets and liabilities of
approximately $94 million at the acquisition date.
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
consolidated financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets
and liabilities as of the date of the balance sheet and income and
expenses for the period. Actual results could differ significantly
from those estimates.
Material estimates that are particularly susceptible to significant
change in the near-term relate to the determination of the allowances
for loan losses and losses on other real estate owned. In connection
with the determination of the allowances for loan losses and losses on
other real estate owned, management normally obtains independent
appraisals for significant properties.
A substantial portion of the Company's loans are secured by real
estate in local markets. In addition, other real estate owned is
located in this same market. Accordingly, the ultimate collectibility
of a substantial portion of the Company's loan portfolio and the
recovery of the carrying amount of other real estate owned are
susceptible to changes in local market conditions.
-47-
<PAGE>
TEXAS SECURITY BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(b) BASIS OF FINANCIAL STATEMENT PRESENTATION, CONTINUED
Management believes that the allowance for loan losses and losses on
other real estate owned are adequate. While management uses available
information to recognize losses on loans and other real estate owned,
future provisions for losses on loans and other real estate owned may
be necessary based on changes in local economic conditions. In
addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowances for
loan losses and losses on other real estate owned. Such agencies may
require the Company to record additional provisions for losses based
on their judgments about information available to them at the time of
their examination.
(c) INVESTMENT SECURITIES
Prior to January 1, 1994, all investment securities were recorded at
cost, adjusted for amortization of premiums and accretion of discounts
using methods approximating the interest method over the remaining
period to contractual maturity, adjusted for anticipated prepayments.
Effective January 1, 1994, the Company adopted the Financial
Accounting Standards Board's ("FASB") Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("Statement No. 115"). Statement No. 115
addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and all
investments in debt securities.
In accordance with Statement No. 115, these investments are classified
at the time of purchase into one of three categories as follows:
. Held-to-Maturity Securities - Debt securities that the Company has
the positive intent and ability to hold to maturity are reported at
amortized cost.
. Trading Securities - Debt and equity securities that are bought and
held principally for the purpose of selling them in the near term
are to be reported at fair value, with unrealized gains and losses
included in earnings.
. Available-for-Sale Securities - Debt and equity securities not
classified as either held-to-maturity securities or trading
securities are reported at fair value, with unrealized gains and
losses excluded from earnings and reported as a separate component
of stockholders' equity (net of tax effects).
The Company does not have any securities classified as trading as of
December 31, 1994.
Investment securities have been generally acquired with the intent to
hold them to maturity, as management believes the Company has the
ability to do so. After reviewing Statement No. 115 and considering
the implications of selling securities classified as held-to-maturity,
management has classified a portion of the investment portfolio as
available-for-sale. Recording such securities classified as available-
for-sale at fair value upon the adoption of Statement No. 115 resulted
in an increase in stockholders' equity of $2,025,625, net of tax of
$1,043,503. Subsequent decreases in the fair value of securities
classified as available-for-sale have decreased stockholders' equity
by $5,923,154, net of tax of $3,051,316.
-48-
<PAGE>
TEXAS SECURITY BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(c) INVESTMENT SECURITIES, CONTINUED
Mortgage-backed securities, which include privately issued
collateralized mortgage obligations, represent participating interests
in pools of long-term first mortgage loans originated and serviced by
the issuers of the securities. Privately issued collateralized
mortgage loans originated are debt securities that are secured by
mortgage loans or other mortgage-backed securities.
In the case that investment securities are sold, gains and losses are
computed under the specific identification method.
(d) LOANS
Loans held for sale (primarily real estate mortgage loans - see note
4) are carried at the lower of cost or market determined on an
aggregate basis. Cost of loans sold is determined on a specific
identification basis and gains or losses on sales of loans held for
sale are recognized at settlement dates. Net fees and costs associated
with originating and acquiring loans held for sale are deferred and
are included in the basis for determining the gain or loss on sales of
loans held for sale.
Unearned discount is recognized as income over the terms of the loans
in decreasing amounts related to declining balances of the loans which
approximates the interest method.
Loan origination and commitment fees, as well as certain direct loan
origination and commitment costs, are deferred and amortized as a
yield adjustment over the lives of the related loans using the
interest method.
Nonaccrual loans are loans on which the accrual of interest ceases
when the collection of principal or interest payments is determined to
be doubtful by management. It is the general policy of the Company to
discontinue the accrual of interest when principal or interest
payments are delinquent 90 days or more. Any unpaid amounts previously
accrued on these loans are reversed from income, and thereafter
interest is recognized only to the extent payments are received.
Reduced rate loans are loans that have been restructured to provide
for a reduction of the originally contracted rate of interest as a
result of the weakening in the financial position of the borrower.
Interest income on these loans is accrued at the reduced rate.
The allowance for loan losses is established through a provision for
loan losses charged to expense. Loans are charged off against the
allowance when management believes that the collectibility of the
principal is unlikely. Recoveries of amounts previously charged off
are credited to the allowance. The charge to operations is based on
management's evaluation of the loan portfolio, including such factors
as the volume and character of loans outstanding, past loss
experience, and general economic conditions.
(e) PREMISES AND EQUIPMENT
Premises and equipment are carried at cost less accumulated
depreciation. Depreciation is calculated principally on the straight-
line method over the estimated useful lives the of assets.
-49-
<PAGE>
TEXAS SECURITY BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(f) OTHER REAL ESTATE OWNED
Other real estate owned consists primarily of properties the Company
has foreclosed upon and taken title. At the time of foreclosure, other
real estate owned is recorded at the lower of the Company's cost of
acquisition or the asset's fair value, less estimated costs to sell,
which becomes the property's new basis. Any write-downs based on the
asset's fair value at date of acquisition are charged to the allowance
for loan losses. Estimates for cost to sell, expenses incurred in
maintaining other real estate owned and subsequent write-downs to
reflect declines in fair value of the property are included in other
real estate owned expense.
(g) EXCESS OF COST OVER NET ASSETS ACQUIRED
The excess of the acquisition cost over net assets acquired is being
amortized over periods ranging from ten to fifteen years using the
straight-line method.
(h) INCOME TAXES
The Company files a consolidated tax return under the consolidation
provisions of the Internal Revenue Code. Generally, the consolidated
tax liability is settled between the Company and its subsidiaries as
if each had filed a separate return. Payments are made to the Company
by its subsidiaries with net tax liabilities on a separate return
basis. Subsidiaries with losses or excess tax credits on a separate
return basis receive payment for these benefits when they are usable
in the consolidated return.
Effective January 1, 1993, the Company adopted the Financial
Accounting Standards Board's Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("Statement No.
109"), on a prospective basis. Through December 31, 1992, the Company
accounted for income taxes under Accounting Principles Board Opinion
11 ("APB 11"). Statement No. 109 requires a change from the deferred
method of accounting for income taxes under APB 11 to the asset and
liability method. Under the deferred method, annual income tax expense
is matched with pretax accounting income by providing deferred taxes
at current tax rates for timing differences between the determination
of net income for financial reporting and tax purposes. The objective
of the asset and liability method is to establish deferred tax assets
and liabilities for the temporary differences between the financial
reporting basis and the tax basis of the Company's assets and
liabilities at enacted tax rates expected to be in effect when such
amounts are realized or settled. Deferred tax assets are to be
recognized for temporary differences that will result in deductible
amounts in future years and for tax loss carryforwards, if, in the
opinion of management, it is more likely than not that the deferred
tax assets will be realized or settled.
(i) RETIREMENT PLANS
The Company has a pension plan covering substantially all employees.
It is the policy of the Company to fund the maximum amount that can be
deducted for Federal income tax purposes but in amounts not less than
the minimum amounts required by law.
The Company also has a savings plan under Section 401(k) of the
Internal Revenue Code, also covering substantially all employees.
Under this plan, employee contributions are partially matched by the
Company. The Company's contributions are paid to the plan
administrator each month.
-50-
<PAGE>
TEXAS SECURITY BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(i) RETIREMENT PLANS, CONTINUED
Effective January 1, 1994, the Company established a pension plan
covering only designated employees. This plan is being administered as
an unfunded plan that is not intended to meet the qualification
requirements of section 401(a) of the Internal Revenue Code.
(j) FAIR VALUES OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board Statement No. 107, "Disclosures
about Fair Value of Financial Instruments" ("Statement No. 107"),
requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which
it is practicable to estimate that value. In cases where quoted market
prices are not available, fair values are based on estimates using
present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in
immediate settlement of the instrument. Statement No. 107 excludes
certain financial instruments and all nonfinancial instruments from
its disclosure requirements. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value of the
Company.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
. Cash and cash equivalents: The carrying amounts reported in the
balance sheet for cash and short-term instruments approximate those
assets' fair values.
. Investment securities (including mortgage-backed securities): Fair
values for investment securities are based on quoted market prices,
where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments.
. Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on
carrying values. The fair values for other loans (e.g., commercial
real estate and rental property mortgage loans, commercial and
industrial loans, financial institution loans, and agricultural
loans) are estimated using discounted cash flow analysis, using
interest rates currently being offered for loans with similar terms
to borrowers of similar credit quality. Loan fair value estimates
include judgments regarding future expected loss experience and
risk characteristics. The carrying amount of accrued interest
receivable approximates its fair value.
. Deposits: The fair values disclosed for demand deposits (e.g.,
interest and noninterest checking, passbook savings, and certain
types of money market accounts) are, by definition, equal to the
amount payable on demand at the reporting date (i.e., their
carrying amounts). The carrying amounts for variable-rate, fixed-
term money market accounts and certificates of deposits approximate
their fair values at the reporting date. Fair values for fixed rate
certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated contractual maturities on
such time deposits. The carrying amount of accrued interest payable
approximates its fair value.
-51-
<PAGE>
TEXAS SECURITY BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(j) FAIR VALUES OF FINANCIAL INSTRUMENTS, CONTINUED
. Short-term borrowings: The carrying amounts of short-term
borrowings approximate their fair values.
. Note payable: The carrying amount of the note payable approximates
its fair value.
(k) EARNINGS PER SHARE
Earnings per share is computed on the basis of the weighted average
number of shares outstanding each year. The effect of stock options
for the years presented is not material.
(l) STATEMENTS OF CASH FLOWS
The Company considers all cash and due from banks, interest-bearing
demand deposits in other banks, and Federal funds sold to be cash
equivalents for purposes of the statements of cash flows.
(2) CASH AND DUE FROM BANKS
Cash and due from banks includes reserve balances that the Company is
required to maintain with a Federal Reserve bank. These required reserves
are based principally on deposits outstanding and were approximately
$7,169,000 at December 31, 1994 and $7,487,000 at December 31, 1993.
(3) INVESTMENT SECURITIES
The amortized cost and fair values of investment securities as of December
31, 1994 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Available-for-sale
- ------------------
U.S. Treasury $ 97,311,873 13,771 (2,826,601) 94,499,043
U.S. Government agencies 22,406,793 37,262 (554,354) 21,889,701
FHLB stock 3,482,000 - - 3,482,000
Mortgage-backed securities 44,483,114 - (1,244,872) 43,238,242
------------ ----------- ----------- -----------
$167,683,780 51,033 (4,625,827) 163,108,986
============ =========== =========== ===========
Held-to-maturity
- ----------------
U.S. Treasury $ 5,064,335 - (108,085) 4,956,250
U.S. Government agencies 5,527,355 - (189,230) 5,338,125
State and political subdivisions 53,373,479 801,097 (1,195,706) 52,978,870
Mortgage-backed securities 277,613,818 35,686 (16,784,158) 260,865,346
------------ ----------- ----------- -----------
$341,578,987 836,783 (18,277,179) 324,138,591
============ =========== =========== ===========
</TABLE>
-52-
<PAGE>
TEXAS SECURITY BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) INVESTMENT SECURITIES, CONTINUED
During 1994, investment securities with amortized cost of $100,979,079 were
transferred from available-for-sale to held-to-maturity. The securities
were transferred at their fair value at the date of the transfer,
$99,508,729. The unrealized loss associated with those securities remains
in stockholders' equity and is being amortized over the estimated lives of
those securities. The portion amortized during 1994 was $139,796.
The amortized cost and fair values of investment securities as of December
31, 1993 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
U.S. Treasury $ 97,724,626 2,089,872 (34,152) 99,780,346
U.S. Government agencies 31,440,522 1,080,313 - 32,520,835
FHLB stock 3,321,900 - - 3,321,900
State and political subdivisions 39,493,334 2,408,124 (30,659) 41,870,799
Mortgage-backed securities 237,690,799 1,204,169 (1,060,283) 237,834,685
------------ ---------- ---------- -----------
$409,671,181 6,782,478 (1,125,094) 415,328,565
============ ========== ========== ===========
</TABLE>
The amortized cost and fair values of investment securities at December 31,
1994, by contractual maturity, are shown below. FHLB stock is excluded from
the contractual maturities as it has no specific maturity. In addition,
mortgage-backed securities are excluded from the contractual maturities
because they generally have contractual maturities greater than ten years,
but have significantly shorter expected maturities as a result of
prepayments. Management anticipates the actual maturities of mortgage-
backed securities to be one to five years.
<TABLE>
<CAPTION>
Available-for-sale Held-to-maturity
------------------ -----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------------------ ------------- ----------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $ 18,152,239 17,965,933 4,922,264 4,986,576
Due after one year through five years 101,566,427 98,422,811 24,733,273 24,994,948
Due after five years through ten years - - 34,309,632 33,291,721
------------ ------------ ----------- -----------
119,718,666 116,388,744 63,965,169 63,273,245
FHLB stock 3,482,000 3,482,000 - -
Mortgage-backed securities 44,483,114 43,238,242 277,613,818 260,865,346
------------ ------------ ----------- -----------
$167,683,780 163,108,986 341,578,987 324,138,591
============ ============ =========== ===========
Interest and dividend income on investment securities consists of the
following:
1994 1993 1992
------------ ---------- ----------
U.S. Treasury $ 5,222,908 6,183,362 8,006,507
U.S. Government agencies 2,090,263 3,374,851 5,197,782
FHLB stock 160,188 10,126 -
State and political subdivisions 2,588,327 2,291,440 2,218,340
Mortgage-backed securities 16,624,083 12,569,252 9,764,589
------------ ----------- ----------
$ 26,685,769 24,429,031 25,187,218
============ ========== ==========
</TABLE>
-53-
<PAGE>
TEXAS SECURITY BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) INVESTMENT SECURITIES, CONTINUED
The Company has entered into an agreement to loan certain available-for-sale
securities to approved brokerage firms and other borrowers for which the
Company receives a fee. The total par value of investment securities loaned
under this agreement was $57,325,000 at December 31, 1994. Securities valued
at 102% of the securities loaned collateralize this loan agreement.
Investment securities with amortized cost of approximately $36,649,000 and
$29,715,000 at December 31, 1994 and 1993, respectively, were pledged to
secure deposits as required or permitted by law. In addition, at December
31, 1994 and 1993, investment securities with amortized cost of
approximately $23,997,000 and $24,266,000, respectively, were pledged to
secure available federal funds lines (see note 13). Also, at December 31,
1994, investment securities with amortized cost of approximately $78,270,000
collateralized the Company's repurchase agreements (see note 8).
(4) LOANS AND ALLOWANCE FOR LOAN LOSSES
Major classifications of loans as of December 31, 1994 and 1993 are
summarized as follows:
<TABLE>
<CAPTION>
1994 1993
------------ -----------
<S> <C> <C>
Commercial and financial $ 93,002,868 75,514,787
Real estate construction 3,355,110 4,337,802
Real estate mortgage 162,481,042 141,198,305
Installment 17,152,868 18,999,154
Overdrafts 150,701 183,775
------------ -----------
276,142,589 240,233,823
Less unearned discount 3,317,588 4,624,133
------------ -----------
$272,825,001 235,609,690
============ ===========
</TABLE>
The carrying value of loans, net of the allowance for loan losses, totaled
$268,953,348 and $231,537,892 as of December 31, 1994 and 1993,
respectively. The fair value of the loans amounted to approximately
$268,414,000 and $235,402,000 as of December 31, 1994 and 1993,
respectively.
At December 31, 1994, the Company had approximately $6,016,000 of real
estate mortgage loans classified as held for sale. Cost approximates fair
value for these loans as of December 31, 1994. Prior to 1994, the Company
had no loans classified as held for sale.
Nonaccrual and reduced rate loans amounted to approximately $3,559,000 and
$2,125,000 at December 31, 1994 and 1993, respectively. If interest on these
loans had been accrued normally, additional income earned would approximate
$147,000 and $150,000 for the years ended December 31, 1994 and 1993,
respectively.
Certain officers and directors of the Company and certain entities and
individuals related to such persons incurred indebtedness, in the form of
loans, as customers. These loans were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other customers and did not involve more than
the normal risk of collectibility.
-54-
<PAGE>
TEXAS SECURITY BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) LOANS AND ALLOWANCE FOR LOAN LOSSES, CONTINUED
Following is a summary of activity during 1994 for such loans:
<TABLE>
<CAPTION>
<S> <C>
Balance, December 31, 1993 $ 7,846,077
New loans 2,490,035
Repayments 3,195,962
-----------
Balance, December 31, 1994 $ 7,140,150
===========
A summary of changes in the allowance for loan losses for the years ended December 31,
1994, 1993 and 1992 is as follows:
1994 1993 1992
----------- ---------- ----------
Balance at beginning of year $ 4,071,798 4,662,845 4,351,167
Additions (deductions):
Provision 500,000 200,000 2,200,000
Recoveries of loans previously charged off 777,383 937,407 965,932
Loans charged off (1,477,528) (1,728,454) (2,854,254)
----------- ---------- ----------
Balance at end of year $ 3,871,653 4,071,798 4,662,845
=========== ========== ==========
</TABLE>
(5) PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1994 and 1993 consist of:
<TABLE>
<CAPTION>
1994 1993
----------- ----------
<S> <C> <C>
Land $ 4,757,615 4,047,382
Buildings and leasehold improvements 17,965,652 15,855,528
Furniture, fixtures and equipment 11,905,905 9,597,344
----------- ----------
34,629,172 29,500,254
Less accumulated depreciation 13,538,274 11,274,874
----------- ----------
$21,090,898 18,225,380
=========== ==========
</TABLE>
(6) OTHER REAL ESTATE OWNED
A summary of other real estate owned at December 31, 1994 and 1993 is as
follows:
<TABLE>
<CAPTION>
1994 1993
---------- ---------
<S> <C> <C>
Acquired in settlement of loans $ 567,550 565,869
Other 1,083,585 1,302,076
---------- ---------
1,651,135 1,867,945
Less allowance for losses on other
real estate owned 1,298,924 1,532,216
---------- ---------
$ 352,211 335,729
========== =========
</TABLE>
-55-
<PAGE>
TEXAS SECURITY BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) OTHER REAL ESTATE OWNED, CONTINUED
A summary of changes in the allowance for losses on other real estate owned
for the years ended December 31, 1994, 1993 and 1992 is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year $1,532,216 2,564,761 1,853,441
Additions (deductions):
Provision (99,784) 473,423 1,225,305
Disposition of properties (133,508) (1,505,968) (513,985)
---------- ---------- ----------
Balance at end of year $1,298,924 1,532,216 2,564,761
========== ========== ==========
</TABLE>
(7) DEPOSITS
The carrying amounts and fair values of deposits as of December 31,
1994 and 1993 consisted of the following:
<TABLE>
<CAPTION>
1994 1993
--------------------------- -------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Noninterest-bearing demand $140,459,818 140,459,818 128,396,155 128,396,155
Interest-bearing demand 252,959,937 252,959,937 220,795,751 220,795,751
Savings 67,145,836 67,145,836 73,264,574 73,264,574
Certificates of deposit, less than $100,000 168,144,682 166,531,844 164,506,772 165,224,743
Certificates of deposit, $100,000 and over 47,320,730 46,912,181 40,865,342 40,960,990
Other time 50,216,912 49,734,076 48,535,097 49,337,054
------------ ------------ ----------- -----------
$726,247,915 723,743,692 676,363,691 677,979,267
============ ============ =========== ===========
</TABLE>
Interest expense on certificates of deposit for $100,000 and over amounted to
approximately $1,685,000, $1,612,000 and $2,421,000 in 1994, 1993 and 1992
respectively.
(8) SHORT-TERM BORROWINGS
Short-term borrowings as of December 31, 1994 and 1993 are summarized as
follows:
<TABLE>
<CAPTION>
1994 1993
----------- ---------
<S> <C> <C>
Securities sold under agreement
to repurchase ("repurchase agreements") $59,137,190 -
FHLB advance 25,000,000 -
Treasury tax and loan note 5,461,698 3,153,679
----------- ---------
$89,598,888 3,153,679
=========== =========
</TABLE>
The maximum amount of repurchase agreements outstanding at any month-end
during 1994 was $89,821,319. The average amount of repurchase agreements
outstanding during 1994 was $30,284,000. The securities collateralizing
these agreements have been delivered to other financial institutions for
safekeeping (see note 3).
-56-
<PAGE>
TEXAS SECURITY BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) SHORT-TERM BORROWINGS, CONTINUED
The FHLB advance is unsecured and matures January 25, 1995.
(9) NOTE PAYABLE
At December 31, 1994, the Company had borrowed $500,000 under the terms of
a $12,500,000 revolving line of credit. This line is secured by 100% of the
stock of Central Bank & Trust and has a variable interest rate equal to the
lending bank's prime rate (8.5% at December 31, 1994) and matures April
1996. Any outstanding balance on the maturity date will convert to term
debt with principal and interest payments due quarterly based on a five
year amortization.
(10) STOCK OPTIONS
The Company offers a stock option plan under a plan approved by the Board
of Directors, for officers and key employees of the Company. This plan
permits the granting of up to an aggregate of 250,000 shares at prices not
to be less than fair market value on the date of the grant. All options are
exercisable over a period of five to ten years. A summary of the stock
options transactions follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ -------- ------
<S> <C> <C> <C>
Options outstanding at beginning of year 27,760 42,150 42,150
Options granted - 11,110 -
Options exercised - (14,390) -
Options canceled - (11,110) -
------ ------- ------
Options outstanding at end of year at prices
ranging from $16.50 to $19.80 per share 27,760 27,760 42,150
====== ======= ======
</TABLE>
(11) INCOME TAXES
The consolidated Federal income tax expense for the years presented differs
from the "expected" consolidated Federal income tax expense for those
years, computed by applying the statutory U.S. Federal Corporate tax rate
of 34% to income before income taxes, extraordinary item and cumulative
effect of change in accounting for income taxes, as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ---------- ----------
<S> <C> <C> <C>
Computed "expected" Federal tax expense at 34% $3,628,460 3,065,217 2,499,499
Tax-exempt interest (964,088) (821,721) (721,073)
Alternative minimum tax (credits) - - (100,529)
State income taxes - - 58,562
Other (14,372) 48,504 58,735
---------- --------- ---------
Federal income tax expense 2,650,000 2,292,000 1,795,194
State income tax expense (benefit) - - (172,241)
---------- --------- ---------
Total provision for income taxes $2,650,000 2,292,000 1,622,953
========== ========= =========
</TABLE>
-57-
<PAGE>
TEXAS SECURITY BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) INCOME TAXES, CONTINUED
The tax effects of temporary differences that give rise to significant
portions of the net deferred tax asset, including the deferred tax
liability, at December 31, 1994 and 1993 are presented below:
<TABLE>
<CAPTION>
1994 1993
----------- ----------
<S> <C> <C>
Allowance for loan losses $1,316,362 1,384,411
Allowance for losses on other real estate owned 513,907 584,386
Deferred compensation 253,402 163,692
Other 163,015 77,815
Unrealized loss on investment securities
available-for-sale 2,007,813 -
Premises and equipment (372,686) (371,304)
Prepaid FDIC assessment (255,000) -
---------- ---------
Net deferred tax asset $3,626,813 1,839,000
========== =========
</TABLE>
As discussed in note 1(h), the Company adopted Statement No. 109 as of
January 1, 1993. The cumulative effect of this change in accounting for
income taxes of $1,370,000 is determined as of January 1, 1993 and is
reported separately in the consolidated statement of operations for the
year ended December 31, 1993. Based on the Company's historical ability to
generate taxable income exclusive of reversing timing differences,
management of the Company believes it is more likely than not that the
entire deferred tax asset will be realized or settled, and accordingly, no
valuation allowance has been recorded as of December 31, 1994 and 1993.
Consolidated deferred Federal income tax benefits for the year ended
December 31, 1992 result from the following timing differences in financial
and tax reporting:
<TABLE>
<CAPTION>
<S> <C>
Provision for loan losses and losses on other
real estate owned $(882,115)
Depreciation (25,579)
Sales of other real estate owned 130,857
Deferred compensation expense (65,988)
Alternative minimum tax adjustments 237,166
Tax benefits not recognized subject to future realization -
Other 21,659
---------
$(584,000)
=========
</TABLE>
The Company utilized net operating loss carryforwards for financial
reporting purposes in 1992 to offset Federal income tax expense of
$356,094. This amount is reported as an extraordinary item in the
accompanying consolidated statements of operations.
-58-
<PAGE>
TEXAS SECURITY BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) EMPLOYEE BENEFITS
The Company participates in a noncontributory defined benefit plan
("qualified plan") covering substantially all employees, after one year of
continuous employment. The benefits are primarily based on years of service
and earnings, except where limited by section 401(a)(17) of the Internal
Revenue Code.
Effective January 1, 1994, the Company established a pension plan
("nonqualified plan") covering only designated employees. This plan is
being administered as an unfunded plan that is not intended to meet the
qualification requirements of Section 401(a) of the Internal Revenue Code.
The benefits of this plan are also primarily based on years of service and
earnings.
The following is a summary of the plans' funded status as of December 31,
1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
-------------------------- ----------
Nonqualified Qualified Qualified
Plan Plan Plan
------------- ----------- -----------
<S> <C> <C> <C>
Plan assets (principally marketable securities)
at estimated fair value $ - 7,493,823 8,187,036
Projected benefit obligation (including
accumulated benefit obligation of $41,172 at
December 31, 1994 for the nonqualified plan
and $5,545,994 and $5,995,170 at December 31,
1994 and 1993, respectively, for the qualified plan) (372,273) (6,659,103) (7,056,010)
--------- ---------- ----------
(372,273) 834,720 1,131,026
Unamortized net asset existing at date of
adoption of FASB Statement No. 87 - (489,797) (568,746)
Unamortized net liability existing at date of
plan initiation 231,763 - -
Unrecognized prior service cost - (225,139) (10,602)
Expense under FASB Statement No. 88 due to
special termination benefits offered with an
early retirement program - - (118,466)
Unrecognized net loss (gain) from actuarial experience 90,510 (462,706) (719,498)
--------- ---------- ----------
Net pension liability - included in other liabilities $ (50,000) (342,922) (286,286)
========= ========== ==========
</TABLE>
The weighted-average discount rate and the rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 8.50% and 5.00%, respectively, in 1994,
and 7.25% and 4.50%, respectively, in 1993. The weighted-average expected
long-term rate of return on plan assets was 8.5% in 1994 and 1993. The
vested benefit obligation was $23,700 at December 31, 1994 for the
nonqualified plan and $5,053,246 and $5,541,222 at December 31, 1994 and
1993, respectively, for the qualified plan.
-59-
<PAGE>
TEXAS SECURITY BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) EMPLOYEE BENEFITS, CONTINUED
The net pension income (expense) includes the following components:
<TABLE>
<CAPTION>
1994 1993 1992
---------- --------- ---------
<S> <C> <C> <C>
Service cost $(340,688) (214,150) (216,203)
Interest cost on projected benefit obligation (506,662) (490,780) (469,145)
Actual return (loss) on plan assets (124,144) 466,783 307,307
Other - net 864,858 274,351 397,286
--------- -------- --------
$(106,636) 36,204 19,245
========= ======== ========
</TABLE>
During 1993, the Company offered a voluntary early retirement opportunity,
enabling certain employees to elect early retirement. The early retirement
opportunity, which was accounted for under Statement of Financial
Accounting Standards No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination
Benefits", resulted in a charge to other operating expense in 1993 of
$118,466.
In 1993, the Company implemented a savings plan under Section 401(k) of the
Internal Revenue Code which covers substantially all employees after one
year of continuous employment. Under this plan, the employees may
contribute up to 15% of their pre-tax earnings into various savings
alternatives. The Company matches one-half of each employee's contribution
up to 6% of the employee's earnings. The Company's contribution expense
under this plan totaled approximately $194,000 and $115,000 in 1994 and
1993, respectively.
The Company does not provide post-retirement or post-employment health and
life insurance benefits to its employees.
(13) COMMITMENTS AND CONTINGENCIES
In the normal course of business, various commitments and contingent
liabilities are outstanding, such as standby letters of credit and
commitments to extend credit, which are not reflected in the consolidated
financial statements. Management does not anticipate any significant losses
as a result of these transactions. Commitments to extend credit totaled
approximately $58,670,000 and standby letters of credit totaled
approximately $2,143,000 at December 31, 1994 (see note 14).
The Company and its subsidiaries are defendants in various legal
proceedings arising in connection with their business. It is the best
judgment of management that neither the consolidated financial position nor
results of operations of the Company will be materially affected by the
final outcome of these legal proceedings.
At December 31, 1994, Central Bank & Trust had three unused Federal Funds
lines of credit with other banks. One line, in the amount of $20,000,000,
has a variable interest rate based on the lending bank's daily Federal
funds rate, and is due on demand, or if no demand is made, the line matures
on March 1, 1995. This line is collateralized by investment securities with
amortized cost of approximately $23,997,000 as of December 31, 1994.
The second line, also in the amount of $20,000,000, has a variable interest
rate based on the lending bank's daily Federal funds rate, and matures
April 30, 1995. Central Bank & Trust would be required to pledge U.S.
Treasury or U.S. Government agency securities equal to 110% of any advances
drawn on the line.
-60-
<PAGE>
TEXAS SECURITY BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) COMMITMENTS AND CONTINGENCIES, CONTINUED
The third line is in the amount of $15,000,000 and has a variable interest
rate based on the lending bank's daily federal funds rate. This line would
require collateral of U.S. Treasury or U.S. Government agency securities
equal to 120% of any advances drawn on the line if the line has an amount
outstanding for five consecutive days. This line matures July 31, 1995.
Additionally, the Company has two $1,000,000 lines of credit for the
issuance of standby letters of credit. Both of these lines mature in 1995.
(14) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
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. These financial instruments include commitments to extend credit
and standby letters of credit. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amounts
recognized in the consolidated balance sheets.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instruments for commitments to extend credit
and standby letters of credit is represented by the contractual notional
amount of those instruments (see note 13). The Company uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements. The Company
evaluates each customer's credit worthiness on a case-by-case basis. The
amount and type of collateral obtained, if deemed necessary by the Company
upon extension of credit, varies and is based on management's credit
evaluation of the counterparty.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Standby
letters of credit generally have fixed expiration dates or other
termination clauses and may require payment of a fee. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. The Company's policy
for obtaining collateral and the nature of such collateral is essentially
the same as that involved in making commitments to extend credit.
-61-
<PAGE>
TEXAS SECURITY BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(15) PARENT COMPANY INFORMATION
The following is condensed financial information for the parent company, Texas
Security Bancshares, Inc.:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
- ------------------------
December 31,
----------------------------
1994 1993
----------- ----------
<S> <C> <C>
Assets
- -------
Cash and cash equivalents $ 197,096 1,143,629
Investment in wholly owned subsidiaries, at equity 56,087,887 51,372,520
Federal income taxes receivable - 147
Deferred Federal income taxes, net 149,042 109,042
Other assets, including premises and equipment 422,930 400,790
----------- ----------
$56,856,955 53,026,128
=========== ==========
Liabilities and Stockholders' Equity
- ------------------------------------
Notes payable $ 500,000 -
Other liabilities 1,030,648 803,710
----------- ----------
1,530,648 803,710
Stockholders' Equity 55,326,307 52,222,418
----------- ----------
$56,856,955 53,026,128
=========== ==========
CONDENSED STATEMENTS OF OPERATIONS
- ----------------------------------
Years ended December 31,
--------------------------------------------
1994 1993 1992
----------- ---------- -----------
<S> <C> <C> <C>
Income:
Dividends from subsidiaries $ - - 1,975,000
Other 72,943 66,101 274,849
----------- ---------- -----------
Total income 72,943 66,101 2,249,849
----------- ---------- -----------
Expenses:
Salaries and employee benefits 665,453 524,621 1,031,528
Other 318,046 435,825 728,681
----------- ---------- -----------
Total expenses 983,499 960,446 1,760,209
----------- ---------- -----------
Income (loss) before Federal income tax
benefit and equity in undistributed
income of subsidiaries (910,556) (894,345) 489,640
Federal income tax benefit 319,600 319,540 773,000
----------- ---------- -----------
Income (loss) before equity in undistributed
income of subsidiaries (590,956) (574,805) 1,262,640
Equity in undistributed income of subsidiaries 8,612,896 8,668,148 4,821,970
----------- ---------- -----------
Net income $ 8,021,940 8,093,343 6,084,610
=========== ========== ===========
</TABLE>
-62-
<PAGE>
TEXAS SECURITY BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(15) PARENT COMPANY INFORMATION, CONTINUED
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
- -----------------------------------
Years ended December 31,
--------------------------------------------
1994 1993 1992
----------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 8,021,940 8,093,343 6,084,610
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 30,412 44,449 230,742
Changes in operating assets and liabilities:
Increase in investment in subsidiaries (8,612,896) (8,668,148) (4,818,445)
Decrease in amount due from subsidiaries - 4,200 133,399
Decrease in Federal income taxes receivable 147 19,743 24,154
Increase in deferred Federal income taxes (40,000) (109,042) -
Decrease (increase) in other assets (41,468) 29,979 867,118
Increase in other liabilities 174,604 5,688 180,646
----------- ---------- -----------
Net cash provided by (used in)
operating activities (467,261) (579,788) 2,702,224
----------- ---------- -----------
Cash flows from investing activities:
Proceeds from sales of investment securities - - 182,855
Payments received on mortgage loans receivable - - 337,380
Purchases of premises and equipment (11,084) (9,424) (104,112)
Proceeds from sales of premises and equipment - - 26,100
----------- ---------- -----------
Net cash provided by (used in)
investing activities (11,084) (9,424) 442,223
----------- ---------- -----------
Cash flows from financing activities:
Proceeds from notes payable 500,000 - -
Principal payments on notes payable - - (712,449)
Dividends paid (968,188) (702,630) (624,560)
Issuance of common stock - 261,179 -
----------- ---------- -----------
Net cash used in financing activities (468,188) (441,451) (1,337,009)
----------- ---------- -----------
Net increase (decrease) in cash (946,533) (1,030,663) 1,807,438
Cash at beginning of year 1,143,629 2,174,292 366,854
----------- ---------- -----------
Cash at end of year $ 197,096 1,143,629 2,174,292
=========== ========== ===========
</TABLE>
-63-
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no disagreements with accountants on any matter of
accounting principles or practices or financial statement disclosures during
the twenty-four (24) month period ended December 31, 1994.
-64-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information set forth under the caption "PROPOSAL NO. 1: ELECTION OF
DIRECTORS" on pages 4 through 7 of the Corporation's Proxy Statement dated March
6, 1995, relating to the 1995 Annual Meeting of Shareholders of the Corporation,
the information set forth under the caption "STOCK OWNERSHIP--Compliance with
Section 16(a) of the Securities Exchange Act of 1934" on pages 12 through 13 of
such Proxy Statement, and the information set forth under the caption "EXECUTIVE
OFFICERS OF THE CORPORATION" on pages 11 and 12 of Part I of this report is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under the caption "EXECUTIVE COMPENSATION AND
OTHER INFORMATION" on pages 13 through 27 of the Corporation's Proxy Statement
dated March 6, 1995, relating to the 1995 Annual Meeting of Shareholders of the
Corporation, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information with respect to shareholders of the Corporation who are
known to be beneficial owners of more than five percent (5%) of the outstanding
shares of Common Stock of the Corporation set forth under the caption "STOCK
OWNERSHIP--By Others" on pages 11 through 12 of the Corporation's Proxy
Statement dated March 6, 1995, relating to the 1995 Annual Meeting of
Shareholders of the Corporation, is incorporated herein by reference. The
information relating to the beneficial ownership of the outstanding shares of
Common Stock of the Corporation by its directors and executive officers set
forth under the caption "STOCK OWNERSHIP--By Management" on pages 8 through 10
of the Corporation's Proxy Statement dated March 6, 1995, relating to the 1995
Annual Meeting of Shareholders of the Corporation, is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth under the caption "CERTAIN TRANSACTIONS" on page
27 of the Corporation's Proxy Statement dated March 6, 1995, relating to the
1995 Annual Meeting of Shareholders of the Corporation, is incorporated herein
by reference.
65
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) FINANCIAL STATEMENTS. The following financial statements are included
in "Part II, Item 8. Financial Statements and Supplementary Data":
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1994 and 1993
Consolidated Statements of Operations for the years ended December 31,
1994, 1993 and 1992
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1993 and 1992
Notes to Consolidated Financial Statements
(2) FINANCIAL STATEMENT SCHEDULES. All schedules are omitted because they
are not applicable or the required information is shown in the
financial statements or notes thereto.
(3) EXHIBITS. The following exhibits are filed as a part of this report:
3(a) Articles of Incorporation of the Corporation, and all amendments
thereto (incorporated herein by reference to Exhibit 3.1 to the
Corporation's Registration Statement on Form 10 filed April 30,
1987)
3(b) Articles of Amendment to the Articles of Incorporation of the
Corporation filed with the Secretary of State of Texas on May 11,
1988 (incorporated herein by reference to Exhibit 3(b) to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1988 filed April 5, 1989)
3(c) Restated Bylaws of the Corporation (incorporated herein by
reference to Exhibit 3.2 to the Corporation's Registration
Statement on Form 10 filed April 30, 1987); as amended January
19, 1993 (incorporated herein by reference to Exhibit 3(c) to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1992 filed April 15, 1993)
66
<PAGE>
10(a) Texas Security Bancshares, Inc.'s 1988 Incentive Stock Option
Plan (incorporated herein by reference to Exhibit 10(c) to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1988 filed April 5, 1989)
10(b) Texas Security Bancshares, Inc.'s Executives' Deferred
Compensation Plan (incorporated herein by reference to Exhibit
10.4 to the Corporation's Registration Statement on Form 10 filed
April 30, 1987)
10(c) Purchase and Assumption Agreement by and between the Federal
Deposit Insurance Corporation, in its capacity as Receiver for
Landmark Bank of Fort Worth, Fort Worth, Texas and in its
corporate capacity and Central Bank & Trust dated February 6,
1992 (incorporated herein by reference to Exhibit 2.01 to the
Corporation's Current Report on Form 8-K dated February 6, 1992
and filed February 21, 1992)
10(d) Indemnity Agreement by and between the Federal Deposit Insurance
Corporation and Central Bank & Trust dated February 6, 1992
(incorporated herein by reference to Exhibit 2.02 to the
Corporation's Current Report on Form 8-K dated February 6, 1992
and filed February 21, 1992)
10(e) Comprehensive Banking System License and Service Agreement
between the Corporation and Citicorp. Information Resources,
Inc., dated March 27, 1991 (incorporated herein by reference to
Exhibit 10(m) to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1991 filed March 30, 1992)
10(f) Purchase and Assumption Agreement by and between the Federal
Deposit Insurance Corporation, in its capacity as Receiver for
American Bank of Haltom City, Haltom City, Texas and in its
corporate capacity and Central Bank & Trust dated February 5,
1993 (incorporated herein by reference to Exhibit 2.01 to the
Corporation's Current Report on Form 8-K dated February 5, 1993
and filed February 16, 1993)
10(g) Indemnity Agreement by and between the Federal Deposit Insurance
Corporation and Central Bank & Trust dated February 5, 1993
(incorporated herein by reference to Exhibit 2.02 to the
Corporation's Current Report on Form 8-K dated February 5, 1993
and filed February 16, 1993)
10(h) Retirement Trust for Employees of Texas Security Bancshares, Inc.
and Affiliates as Amended and Restated effective January 1, 1993
(incorporated herein by reference to Exhibit 10(i) to the
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 and filed March 30, 1994)
10(i) Retirement Plan for Employees of Texas Security Bancshares, Inc.
and Affiliates as Amended and Restated effective January 1, 1989
(incorporated herein by
67
<PAGE>
reference to Exhibit 10(j) to the Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993 and filed
March 30, 1994)
10(j) First Supplement to Retirement Plan for Employees of Texas
Security Bancshares, Inc. and Affiliates as Amended and Restated
effective January 1, 1989 (incorporated herein by reference to
Exhibit 10(k) to the Corporation's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993 and filed March 30, 1994)
10(k) Second Supplement to Retirement Plan for Employees of Texas
Security Bancshares, Inc. and Affiliates as Amended and Restated
effective January 1, 1989 (incorporated herein by reference to
Exhibit 10(l) to the Corporation's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993 and filed March 30, 1994)
10(l) Third Supplement to Retirement Plan for Employees of Texas
Security Bancshares, Inc. and Affiliates as Amended and Restated
effective January 1, 1989 (incorporated herein by reference to
Exhibit 10(m) to the Corporation's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993 and filed March 30, 1994)
10(m) Amendment One to Retirement Plan for Employees of Texas Security
Bancshares, Inc. and Affiliates as Amended and Restated effective
January 1, 1989*
10(n) Amendment Two to Retirement Plan for Employees of Texas Security
Bancshares, Inc. and Affiliates as Amended and Restated effective
January 1, 1989*
10(o) Executive Deferred Compensation Plan of Texas Security
Bancshares, Inc. (incorporated herein by reference to Exhibit
10(n) to the Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 and filed March 30, 1994)
10(p) Executive Deferred Compensation Plan of Central Bank & Trust
(incorporated herein by reference to Exhibit 10(o) to the
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 and filed March 30, 1994)
10(q) Letter agreement between Texas Security Bancshares, Inc. and
Brian W. Garrison regarding additional payment in conjunction
with the Executive Deferred Compensation Plan of Central Bank &
Trust, dated July 26, 1993 (incorporated herein by reference to
Exhibit 10(p) to the Corporation's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993 and filed March 30, 1994)
10(r) Restoration Retirement Plan for Certain Employees of Texas
Security Bancshares, Inc. and Affiliates, effective as of January
1, 1994*
68
<PAGE>
10(s) Trust Agreement for Restoration Retirement Plan for Certain
Employees of Texas Security Bancshares, Inc. and Affiliates,
effective as of January 1, 1994*
10(t) Loan Agreement by and between Texas Security Bancshares, Inc., as
borrower, and The Frost National Bank, as lender, dated October
12, 1994; Revolving Credit Note in the original principal amount
of $12,500,000; and related Security Agreement-Pledge*
11 Computation of Earnings Per Common Share*
21 Subsidiaries of the Corporation*
24 Special Power of Attorney*
27 Financial Data Schedule*
- ----------------------------------------
* Filed herewith.
(b) REPORTS ON FORM 8-K.
-------------------
No reports on Form 8-K were filed by the Corporation during the last
quarter of 1994.
69
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TEXAS SECURITY BANCSHARES, INC.
DATE: March 23, 1995 /s/ J. Andy Thompson
---------------------------------------
J. Andy Thompson, Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on this 23rd day of March, 1995.
SIGNATURE TITLE
--------- -----
/s/ J. Andy Thompson Chairman of the Board and Chief Executive
-------------------- Officer and Director (Principal Executive
J. Andy Thompson Officer)
/s/ Michael J. Tyler Senior Vice President, Chief Financial
-------------------- Officer and Treasurer (Chief Accounting
Michael J. Tyler Officer & Chief Financial Officer)
Richard L. Brown* Director
--------------------
Richard L. Brown
Ervin D. Cruce* Director
--------------------
Ervin D. Cruce
Nancy W. Smith* Director
--------------------
Nancy W. Smith
70
<PAGE>
C. Rhea Thompson* Director
--------------------------------------
C. Rhea Thompson
F. D. Thompson, Jr.* Director
--------------------------------------
F. D. Thompson, Jr.
Kelly R. Thompson* Director
--------------------------------------
Kelly R. Thompson
/s/ J. Andy Thompson
--------------------------------------
*J. Andy Thompson, as Attorney-in-
Fact for each of the persons indicated
71
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE NO.
- ------- ----------- --------
<S> <C> <C>
10(m) Amendment One to Retirement Plan for Employees of ___
Texas Security Bancshares, Inc. and Affiliates as
Amended and Restated effective January 1, 1989
10(n) Amendment Two to Retirement Plan for Employees of ___
Texas Security Bancshares, Inc. and Affiliates as
Amended and Restated effective January 1, 1989
10(r) Restoration Retirement Plan for Certain Employees of ___
Texas Security Bancshares, Inc. and Affiliates, effective
as of January 1, 1994
10(s) Trust Agreement for Restoration Retirement Plan for ___
Certain Employees of Texas Security Bancshares, Inc.
and Affiliates, effective as of January 1, 1994
10(t) Loan Agreement by and between Texas Security ___
Bancshares, Inc., as borrower, and The Frost National
Bank, as lender, dated October 12, 1994; Revolving
Credit Note in the original principal amount of
$12,500,000; and related Security Agreement-Pledge
11 Computation of Earnings Per Common Share ___
21 Subsidiaries of the Corporation ___
24 Special Power of Attorney ___
27 Financial Data Schedule ___
</TABLE>
<PAGE>
EXHIBIT 10(M)
AMENDMENT ONE TO
RETIREMENT PLAN FOR EMPLOYEES OF
TEXAS SECURITY BANCSHARES, INC. AND AFFILIATES
AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1989
WHEREAS, effective as of January 1, 1993, the Retirement Plan for
Employees of Texas Security Bancshares, Inc. and Affiliates was amended and
restated in its entirety;
WHEREAS, by the terms of Section 6.4 of the amended and restated plan
(hereinafter referred to as the "Plan"), the Plan may be amended; and
WHEREAS, it is deemed desirable to amend the Plan in order to improve
the pre-retirement death benefits and preserve certain minimum benefits for
Participants whose benefits were restricted due to the lowering of the
compensation level under Section 401(a)(17) of the Internal Revenue Code and
make other changes required by recent laws and regulations;
NOW, THEREFORE, the Plan is hereby amended effective as of the
applicable dates specified below, with respect to employees in active service on
or after such dates, as follows:
1. Effective as of January 1, 1994, the second through the last paragraphs of
Section 1.1(A)(7) of the Plan shall be amended to read as follows:
"The IRC Section 401(a)(17) Annual Compensation Limit with respect to
any given calendar year or other specified 12-consecutive-month period shall be
equal to $200,000 or such increased or decreased amount, as the case may be,
that applies as of the January 1 coincident with or immediately preceding the
beginning of such given calendar year or other specified 12-consecutive-month
period, pursuant to the provisions of Section 401(a)(17) of the Internal Revenue
Code as amended (including the amendment under the Omnibus Budget Reconciliation
Act of 1993 which decreased the limit with respect to contributions to the Plan
and to benefits accruing under the Plan after December 31, 1993 to $150,000 for
12-month periods beginning in and prior to 1994), and rules and regulations
issued with respect thereto.
In the event that Compensation under the Plan is determined based on a
period of time that contains fewer than 12 calendar months, the IRC Section
401(a)(17) Annual Compensation Limit for that period of time shall be equal to
the IRC Section 401(a)(17) Annual Compensation Limit for the calendar year
during which such period of time begins multiplied by the fraction in which the
numerator is the number of full months in such period of time and the
denominator is 12.
In determining the IRC Section 401(a)(17) Annual Compensation Limit of
an individual who is a member of the family of a 5-percent owner or of a Highly
Compensated Employee who is in the group consisting of the 10 Highly Compensated
Employees paid the greatest compensation during the year, the rules of Section
414(q)(6) of the Internal Revenue Code shall apply, except that in applying such
rules for the purposes of this section, the term 'family' shall include only the
spouse of the employee and any lineal descendants who have not attained the age
of 19 years before the close of such year. If the total Compensation of the
affected family members exceeds the IRC Section 401(a)(17) Annual Compensation
Limit, then the IRC Section 401(a)(17) Annual Compensation Limit that applies to
each individual family member shall be determined (except for the purpose of
determining the portion of his Compensation which is under the integration
level) by multiplying the IRC Section 401(a)(17) Annual Compensation by the
fraction in which the numerator is the Compensation prior to the application of
the IRC Section 401(a)(17) Annual Compensation Limit of such individual family
member and the denominator is the sum of the Compensation prior to the
application of the IRC Section 401(a)(17) Annual Compensation Limit of all of
the affected family members.
Any provisions herein to the contrary notwithstanding, a Participant's
accrued benefit as of December 31, 1993 shall not be reduced due to the IRC
Section 401(a)(17) Annual Compensation Limit imposed effective as of January 1,
1994 on the amount of his Compensation. In the event that the IRC Section
401(a)(17) Annual Compensation Limit is reduced effective as of any date
subsequent to January 1, 1994, a Participant's accrued benefit immediately prior
to
<PAGE>
the date that such reduction becomes effective shall not be reduced due to the
reduction in such limit."
2. Effective as of January 1, 1994, Section 1.1(A)(34) of the Plan shall be
amended to read as follows:
"(34) 'Qualified Preretirement Survivor Annuity' shall mean the death
benefit that may be payable to the spouse of a Participant prior to the Annuity
Starting Date as described in Sections 2.4(A)(3), 2.4(B) or 4.1(D) hereof,
whichever is applicable."
3. Effective as of January 1, 1994, Section 2.3(G) of the Plan shall be amended
to read as follows:
"(G) Benefit Payable in the Event of Death of Disabled Participant
Prior to Disability Retirement Income Commencement Date: In the event that a
Participant dies after he has been determined to be totally and permanently
disabled by the Committee and prior to his Disability Retirement Income
Commencement Date, and prior to his recovery from his total and permanent
disability if he has not attained his Normal Retirement Age as of the date of
his death, his surviving spouse, or if he has no surviving spouse, his
Beneficiary, will receive the death benefit, determined and payable in the
manner described in Section 2.4(B) hereof, that would have been payable on
behalf of the Participant under the provisions of Section 2.4(B) if:
(1) he had remained in the service of the Employer until the date of his
death, with no change in his last regular monthly rate of Compensation
after becoming disabled, and based upon the Monthly Covered
Compensation that applied to him at the date of termination of his
service due to disability instead of at the date of his death; and
(2) the provisions of the Plan as in effect on the date of termination of
his service due to disability had continued without change to the date
of his death.
Such death benefit will be payable on behalf of such Participant only if he
would have reached his Initial Vesting Date on or prior to the date of his death
if he had remained in the service of the Employer until the date of his death."
4. Effective as of January 1, 1994, Section 2.4(B) of the Plan shall be
amended to read as follows:
"(B) Benefit Payable in Event of Death While in Service:
(1) Prior to Normal Retirement Date:
(a) If the service of a Participant is terminated by reason of his
death on or after his Initial Vesting Date and prior to his Required Beginning
Date, there shall be payable to the Participant's surviving spouse or, if he has
no surviving spouse, to his designated Beneficiary, a monthly retirement income,
beginning on the Participant's Normal Retirement Date, in an amount that is the
actuarial equivalent of the monthly retirement income that would have been
payable to such surviving spouse (or, if applicable, to such designated
Beneficiary), commencing on the Participant's Earliest Annuity Commencement
Date, under the provisions of 2.4(A) hereof, if:
(i) the Participant's service had been terminated on the date of
his death for a reason other than his disability retirement or death;
(ii) the Participant had survived during the period, if any,
between the date of his death and his Earliest Annuity Commencement
Date and, for the purposes of determining the amount of monthly
retirement income that is payable under Section 2.4(A) commencing at
his Earliest Annuity Commencement Date, had waived any qualified
-2-
<PAGE>
preretirement survivor annuity death benefit coverage under Section
2.4(A)(3) during such period;
(iii) the Participant had elected that his retirement income
payments under Section 2.2 or 2.4(A), whichever is applicable,
commence on his Earliest Annuity Commencement Date and be paid under
either (aa) if the Participant has a surviving spouse at the date of
his death, the Qualified Joint and 50% Survivor Annuity Option or (bb)
if he has no surviving spouse at the date of his death, Option 3 with
his designated Beneficiary as the joint pensioner and a specified
percentage of 50%; and
(iv) the Participant had died on his Earliest Annuity Commencement
Date immediately after such commencement of payments under such
option.
(b) If a Participant's service is terminated by reason of his death
prior to his Initial Vesting Date, no death benefit shall be payable on his
behalf under the Plan.
(2) On or After Normal Retirement Date:
(a) If the service of a Participant is terminated by reason of his
death on or after his Normal Retirement Date, there shall be payable to the
Participant's designated Beneficiary, subject to the Qualified Preretirement
Survivor Annuity requirements described in Section 4.1(D), the monthly
retirement income, beginning on the first day of the month coincident with or
next following the date of his death, which can be provided on an actuarially
equivalent basis by the single-sum value, determined immediately prior to the
Participant's death, of the monthly retirement income which the Participant
would have been entitled to receive under the provisions of Section 2.1(B)
hereof if he had retired from the service of the Employer on the date of his
death.
(b) Except as provided in Section 2.4(B)(3) below and subject to the
provisions of Section 2.4(B)(4) below, the monthly retirement income payments
under this Section 2.4(B)(2) shall be payable for the life of the Beneficiary
designated or selected under Section 5.2 to receive such benefit, and, in the
event of such Beneficiary's death within a period of 10 years after the
Participant's death, the same monthly amount shall be payable for the remainder
of such 10-year period in the manner and subject to the provisions of Section
5.3.
(3) A Participant may elect, or, in the event that a specific election
has not been made by the Participant and filed with the Committee prior to his
death, his spouse or, if applicable, his designated Beneficiary may elect, in
writing filed with the Committee, that, in lieu of payment of the benefit
provided under this Section 2.4(B)(1) or (2) (or, if applicable, under Section
2.3(G) or 2.4(A)(3) hereof) in the manner described in Section 2.4(B)(1) or (2)
above, such benefit will be paid on an actuarially equivalent basis to his
spouse or, if applicable, his designated Beneficiary commencing on the first day
of any month that is on or after the date of the Participant's death and is on
or prior to the Participant's Required Beginning Date and is payable in
accordance with one of the options described below:
Option A: A monthly retirement income in equal amounts that is payable to
his spouse or, if applicable, his Beneficiary for his lifetime.
Option B: A retirement income in equal amounts that is payable for a 10-
year certain period. In the event of the spouse's or, if
applicable, the Beneficiary's death prior to the expiration of
such 10-year certain period, the same amount shall be payable for
the remainder of the 10-year certain period in the manner and
subject to the provisions of Section 5.3 hereof.
Option C: A combination of Option A and Option B.
-3-
<PAGE>
Provided, however, that payment of any such benefit shall be subject
to the provisions of Section 2.4(B)(4) below.
(4) Any form of payment applicable to the death benefit provided under
Section 2.4(B)(2), which has been designated by a Participant prior to January
1, 1984 under the terms of the Superseded Plan and which satisfies the
transitional rule in Section 242(b)(2) of the Tax Equity and Fiscal
Responsibility Act of 1982 (P.L. 97-248), will continue in effect on and after
the Effective Date of the Plan with respect to the death benefits provided under
Section 2.4(B)(2) unless such designated form of payment has been or is
subsequently revoked or changed (a change of Beneficiaries under the designation
will not be considered to be a revocation or change of such form of payment so
long as the change in Beneficiaries does not alter, directly or indirectly, the
period over which distributions are to be made under such form of payment);
provided, however, if a Participant, whose death occurs on or after his Normal
Retirement Date, had been married to his spouse throughout the one-year period
immediately preceding his death and he had designated a person other than his
spouse as his Beneficiary and such spouse has not consented to such other person
being designated, the provisions of Section 4.1(D) hereof shall apply with
respect to payments due his surviving spouse, if any. Subject to the preceding
sentence and except to the extent otherwise permissible under Section 401(a)(9)
of the Internal Revenue Code and regulations issued pursuant thereto, the
benefit payable under Section 2.4(B)(1) or (2) on behalf of any Participant must
be payable in a manner that satisfies the restrictions of Section 401(a)(9) of
the Internal Revenue Code and must:
(a) commence not later than the Participant's Required Beginning Date;
provided, however, if the Beneficiary is not the Participant's spouse,
distribution must commence not later than one year after the date of the
Participant's death or, if the Participant's surviving spouse was his
Beneficiary and such surviving spouse dies prior to the commencement of benefit
payments, distribution must commence not later than one year after the date of
such surviving spouse's death;
and
(b) be distributed to the Participant's Beneficiary over one or a
combination of the following periods:
(i) the life of his Beneficiary;
or
(ii) a period certain not extending beyond the life
expectancy of the Beneficiary;
provided, however, if the Participant has no designated Beneficiary or if the
designated Beneficiary is not a living person, such benefit must be distributed
in its entirety to the Beneficiary not later than the fifth anniversary of the
date of (i) the Participant's death or (ii) the death of the Participant's
spouse, whichever death is the later to occur. Any amount payable to a child of
the Participant shall be treated for the purposes of this Section 2.4(B)(4) as
if it had been payable to the surviving spouse of the Participant if such amount
that is payable to the child will become payable to such surviving spouse upon
such child's reaching majority (or upon the occurrence of such other designated
event permitted under regulations issued with respect to Section 401(a)(9) of
the Internal Revenue Code).
(5) If the service of a Participant is terminated by reason of his
death on or after his Required Beginning Date, no benefit will be payable to his
Beneficiary under the provisions of Section 2.4(B)(2). Additional retirement
income payments may be payable, however, after the Participant's death to his
joint pensioner or other Beneficiary, depending upon the form of payment of the
retirement income that the Participant was receiving immediately prior to his
death and taking into account the increase, if any, that would have applied
under the provisions of Section 2.1(D) hereof to the amount of retirement income
payable to the Participant commencing as of the first day of the month
coincident
-4-
<PAGE>
with or next following the date of the Participant's death if the Participant
had retired immediately prior to his death and had survived to such day."
5. Effective as of January 1, 1993, A new Section 4.1(I) shall be added to
the Plan immediately following Section 4.1(H), as follows:
"(I) Direct Rollover Options for Eligible Rollover Distributions: This
section applies to distributions made on or after January 1, 1993.
Notwithstanding any provision of the Plan to the contrary that would otherwise
limit a distributee's election under this section, a distributee may elect, at
the time and in the manner prescribed by the plan administrator, to have any
portion of an eligible rollover distribution paid directly to an eligible
retirement plan specified by the distributee in a direct rollover. The
following definitions apply to this section:
(a) Eligible rollover distribution: An eligible rollover distribution is
any distribution of all or any portion of the balance of the credit of
the distributee, except that an eligible rollover distribution does
not include:
(i) any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the distributee or the joint
lives (or joint life expectancies) of the distributee and the
distributee's designated beneficiary, or for a specified period
of 10 years or more;
(ii) any distribution to the extent such distribution is required
under Section 401(a)(9) of the Internal Revenue Code; and
(iii) the portion of any distribution that is not includable in gross
income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities).
(b) Eligible retirement plan: An eligible retirement plan is an
individual retirement account described in Section 408(a) of the
Internal Revenue Code, an individual retirement annuity described in
Section 408(b) of said Code, an annuity plan described in Section
403(a) of said Code, or a qualified trust described in Section 401(a)
of said Code, that accepts the distributee's eligible rollover
distribution. However, in the case of an eligible rollover
distribution to the surviving spouse, an eligible retirement plan is
an individual retirement account or individual retirement annuity.
(c) Distributee: A distributee includes an employee or former employee.
In addition, the employee's or former employee's surviving spouse and
the employee's or former employee's spouse or former spouse who is the
alternate payee under a qualified domestic relations order, as defined
in Section 414(p) of the Internal Revenue Code, are distributees with
regard to the interest of the spouse or former spouse.
(d) Direct rollover: A direct rollover is a payment by the Plan to the
eligible retirement plan specified by the distributee.
Any options set forth in this section shall automatically become
inoperative and of no effect upon a ruling by the Treasury Department that the
options set forth herein are no longer required."
6. Effective as of January 1, 1989, the second sentence of the second
paragraph of Section 5.8 of the Plan shall be deleted and the following
sentences inserted in lieu thereof:
"In the event that (i) such notification is mailed to such person and his
designated Beneficiary, (ii) the Committee is not furnished with evidence of
such person's continued life and proper mailing address or with evidence of his
death
-5-
<PAGE>
within three years of the date such notification was mailed and (iii) the
Committee is unable to find any person to whom payment is due under the
provisions of the Plan within three years of the date such notification was
mailed, all retirement income and other benefit payments due shall be forfeited
at the end of such three-year period following the date such notification was
mailed. In the event claim for any forfeited benefit is subsequently made by
any such person to whom payment is due under the Plan prior to the distribution
of the assets upon termination of the Plan, such forfeited benefits due such
person shall be restored. If the Plan is terminated prior to the end of such
three-year period or, if longer, the escheat period under applicable state law,
the Committee shall direct the transfer of any such person's unclaimed benefit
to an Individual Retirement Account established under Section 408 of the
Internal Revenue Code on behalf of such person."
7. Effective as of January 1, 1989, a new Item (C) shall be added to Section
6.4 of the Plan as follows:
"(C) No amendment shall be effective to the extent it eliminates or reduces
any Plan benefits or rights that are protected under Section 411(d)(6) of the
Internal Revenue Code unless such protected benefits or rights are preserved
with respect to benefits accrued to the date of such amendment or unless such
reduction or elimination is otherwise permitted by the Internal Revenue
Service."
8. Effective as of January 1, 1994, a new Supplement, which shall be
identified as "Fourth Supplement to Retirement Plan for Employees of Texas
Security Bancshares, Inc. and Affiliates" shall be added to the Plan as follows:
"FOURTH SUPPLEMENT
-----------------
TO
--
RETIREMENT PLAN FOR EMPLOYEES OF
--------------------------------
TEXAS SECURITY BANCSHARES, INC. AND AFFILIATES
----------------------------------------------
As it Applies to Participants in the Plan
on December 31, 1993 Whose
Compensation Prior to 1994 is Restricted by
IRC Section 401(a)(17) Annual Compensation Limit
------------------------------------------------
(A) FOURTH SUPPLEMENT FORMS A PART OF PLAN
(1) This FOURTH SUPPLEMENT TO RETIREMENT PLAN FOR EMPLOYEES OF TEXAS SECURITY
BANCSHARES, INC. AND AFFILIATES (herein referred to as the "Fourth Supplement")
forms a part of the Retirement Plan for Employees of Texas Security Bancshares,
Inc. and Affiliates as in effect on and after January 1, 1994.
(2) All terms used in the Fourth Supplement that are not defined in Section
(B) shall have the meanings assigned to them in the provisions of the Plan
unless otherwise qualified by the context. There shall be no duplication of
benefits provided under the Plan and this Fourth Supplement, and the actuarially
equivalent benefits payable under one shall be inclusive of the actuarially
equivalent benefits payable under the other unless specifically provided
otherwise in the provisions of the Plan or this Fourth Supplement.
(B) MINIMUM MONTHLY ACCRUED BENEFIT APPLICABLE TO PARTICIPANTS WHOSE
COMPENSATION PRIOR TO 1994 IS RESTRICTED BY IRC SECTION 401(a)(17) ANNUAL
COMPENSATION LIMIT
The provisions of this Fourth Supplement shall apply only to those
Participants in the active service of the Employer on or after January 1, 1994
who were Participants in the Plan as of December 31, 1993, whose Credited
Service includes service which was accrued prior to January 1, 1994 with an
Employer participating in the Plan as of December 31, 1993 and whose
Compensation during any calendar year, or other specified 12-consecutive-month
period, beginning prior to 1994 exceeded $150,000.
-6-
<PAGE>
(1) Definitions: The following terms used in this Section (B) shall have the
meanings stated below unless a different meaning is plainly required by the
context.
(a) 'Post-1993 IRC Section 401(a)(17) Annual Compensation Limit' shall
mean the IRC Section 401(a)(17) Annual Compensation Limit that applies to the
applicable calendar year or other specified 12-consecutive-month period under
Section 401(a)(17) of the Internal Revenue Code after the Omnibus Budget
Reconciliation Act of 1993 amendment to such section which reduced such limit
with respect to benefits accruing under the Plan after December 31, 1993 to
$150,000 for 12-month periods beginning in and prior to 1994.
(b) 'Pre-1994 IRC Section 401(a)(17) Annual Compensation Limit' shall
mean the IRC Section 401(a)(17) Annual Compensation Limit that applied to the
applicable calendar year or other specified 12-consecutive-month period under
Section 401(a)(17) of the Internal Revenue Code prior to the Omnibus Budget
Reconciliation Act of 1993 amendment to such section.
(2) Minimum Accrued Benefit After December 31, 1993: The Accrued Deferred
Monthly Retirement Income Commencing at Normal Retirement Date (or the accrued
monthly normal retirement income, if applicable) which a Participant to whom the
provisions of this Second Supplement are applicable, has accrued as of any given
date after December 31, 1993 shall not be less than the sum of:
(a) the Accrued Deferred Monthly Retirement Income Commencing at Normal
Retirement Date (or the accrued monthly normal retirement income if his Normal
Retirement Date is prior to January 1, 1994) that he had accrued as of December
31, 1993 under the provisions of the Plan as in effect as of December 31, 1993
(where the Pre-1994 IRC Section 401(a)(17) Annual Compensation Limit shall be
applied but the Post-1993 IRC Section 401(a)(17) Annual Compensation Limit shall
be ignored in the calculation of such benefit);
plus
(b) an amount equal to the sum of:
(i) 1% of his Final Average Monthly Compensation determined as of
such given date (after applying the Post-1993 IRC Section
401(a)(17) Annual Compensation Limit to the Compensation used
to compute such rate) multiplied by the excess, if any, of
(aa) his number of years of Credited Service determined as of
such given date that are not in excess of 10 years, over (bb)
his number of years of Credited Service determined as of
December 31, 1993 that are not in excess of 10 years;
plus
(ii) 1-1/3% of his Final Average Monthly Compensation determined
as of such given date (after applying the Post-1993 IRC
Section 401(a)(17) Annual Compensation Limit to the
Compensation used to determine such rate) multiplied by the
excess, if any, of (aa) his number of years of Credited
Service as of such given date that are in excess of 10 years
but are not in excess of 30 years, over (bb) his number of
years of Credited Service determined as of December 31, 1993
that are in excess of 10 years but are not in excess of 30
years;
plus
(iii) 0.65% of his Final Average Monthly Compensation determined as
of such given date (after applying the Post-1993 IRC Section
401(a)(17) Annual Compensation Limit to the Compensation used
to determine such rate) that is in excess of the Monthly
Covered Compensation that applies to him multiplied by the
excess, if any, of (aa) his num-
-7-
<PAGE>
ber of years of Credited Service determined as of such given
date, subject to a maximum of 30 years, over (bb) his number
of years of Credited Service determined as of December 31,
1993.
(3) Minimum Early Retirement Benefit After December 31, 1993: The accrued
early monthly retirement income which a Participant to whom the provisions of
this Fourth Supplement are applicable, has accrued as of his Early Retirement
Date after December 31, 1993 shall not be less than the sum of:
(a) the monthly early retirement income that he had accrued as of
December 31, 1993 under the provisions of the Plan as in effect as
of December 31, 1993 (where the Pre-1994 IRC Section 401(a)(17)
Annual Compensation Limit shall be applied but the Post-1993 IRC
Section 401(a)(17) Annual Compensation Limit shall be ignored in
the calculation of such benefit) based upon his attained age as of
his Early Retirement Date;
plus
(b) the product of:
(i) the sum of:
(aa) 1% of his Final Average Monthly Compensation determined
as of his Early Retirement Date (after applying the
Post-1993 IRC Section 401(a)(17) Annual Compensation
Limit to the Compensation used to compute such rate)
multiplied by the excess, if any, of (I) his number of
years of Credited Service determined as of his Early
Retirement Date that are not in excess of 10 years,
over (II) his number of years of Credited Service
determined as of December 31, 1993 that are not in
excess of 10 years;
plus
(bb) 1-1/3% of his Final Average Monthly Compensation
determined as of his Early Retirement Date (after
applying the Post-1993 IRC Section 401(a)(17) Annual
Compensation Limit to the Compensation used to
determine such rate) multiplied by the excess, if any,
of (aa) his number of years of Credited Service
determined as of his Early Retirement Date that are in
excess of 10 years but are not in excess of 30 years,
over (bb) his number of years of Credited Service
determined as of December 31, 1993 that are in excess
of 10 years but are not in excess of 30 years;
multiplied by
(ii) the factor, specified in Schedule A in Section 2.2(B) of the
Plan, based upon the number of full months by which the
Participant's Early Retirement Date precedes his Normal
Retirement Date;
plus
(c) the product of:
(i) 0.65% of his Final Average Monthly Compensation determined as
of his Early Retirement Date (after applying the Post-1993
IRC Section 401(a)(17) Annual Compensation Limit to the
Compensation used to determine such rate) that is in excess
of the Monthly Covered Compensation
-8-
<PAGE>
that applies to him multiplied by the excess, if any, of (aa)
his number of years of Credited Service determined as of his
Early Retirement Date, subject to a maximum of 30 years, over
(bb) his number of years of Credited Service determined as of
December 31, 1993;
multiplied by
(ii) the factor, specified in Schedule B in Section 2.2(B) of the
Plan, based upon the number of full months by which the
Participant's Early Retirement Date precedes his Normal
Retirement Date.
(C) RIGHT TO AMEND OR TERMINATE FOURTH SUPPLEMENT
The provisions of Sections 6.4 and 6.5 of the Plan with respect to amendment
and termination thereof shall apply with equal force to this Fourth Supplement."
IN WITNESS WHEREOF, TEXAS SECURITY BANCSHARES, INC. has caused this
instrument to be executed by its duly authorized officers on this _____ day of
__________________, 1994.
(CORPORATE SEAL)
ATTEST: TEXAS SECURITY BANCSHARES, INC.
Karen Larsen Sweeney By /s/ J. Andy Thompson
- ------------------------- --------------------
Secretary Title:
-9-
<PAGE>
EXHIBIT 10(N)
AMENDMENT TWO TO
RETIREMENT PLAN FOR EMPLOYEES OF
TEXAS SECURITY BANCSHARES, INC. AND AFFILIATES
AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1989
WHEREAS, effective as of January 1, 1989, the Retirement Plan for
Employees of Texas Security Bancshares, Inc. and Affiliates was amended and
restated in its entirety;
WHEREAS, by the terms of Section 6.4 of the amended and restated plan
(hereinafter referred to as the "Plan"), the Plan may be amended;
WHEREAS, the Plan has been amended on the 21st day of June, 1994; and
WHEREAS, it is deemed desirable to amend the Plan further in order to
improve the pre-retirement death benefits;
NOW, THEREFORE, the Plan is hereby amended effective as of September
1, 1994, with respect to employees in active service on or after such date, as
follows:
1. Section 2.3(G) of the Plan shall be amended to read as follows:
"(G) Benefit Payable in the Event of Death of Disabled Participant
Prior to Disability Retirement Income Commencement Date: In the event that a
Participant dies after he has been determined to be totally and permanently
disabled by the Committee and prior to his Disability Retirement Income
Commencement Date, and prior to his recovery from his total and permanent
disability if he has not attained his Normal Retirement Age as of the date of
his death, his Beneficiary, will receive the death benefit, determined and
payable in the manner described in Section 2.4(B) hereof, that would have been
payable on behalf of the Participant under the provisions of Section 2.4(B) if:
(1) he had remained in the service of the Employer until the date of
his death, with no change in his last regular monthly rate of Compensation after
becoming disabled, and based upon the Monthly Covered Compensation that applied
to him at the date of termination of his service due to disability instead of at
the date of his death; and
(2) the provisions of the Plan as in effect on the date of termination
of his service due to disability had continued without change to the date of his
death.
Such death benefit will be payable on behalf of such Participant only if he
would have reached his Initial Vesting Date on or prior to the date of his death
if he had remained in the service of the Employer until the date of his death."
2. Section 2.4(B) of the Plan shall be amended to read as follows:
"(B) Benefit Payable in Event of Death While in Service:
(1) If the service of a Participant is terminated by reason of his
death on or after his Initial Vesting Date and prior to his Required Beginning
Date, there shall be payable to the Participant's designated Beneficiary, the
monthly retirement income, beginning on the first day of the month coincident
with or next following the date of the Participant's death, that can be provided
on an actuarially equivalent basis by an amount equal to:
(a) if the Participant's service is terminated by reason of his
death prior to his Normal Retirement Date, the single-sum
value, determined as of the date of his death, of either (i)
if the Participant had not both attained the age of 55 years
and completed five years of Vesting Service as of the date
of his death, the Accrued Deferred Monthly Retirement Income
Commencing at Normal Retirement Date that the Participant
has accrued to the date of his death or (ii) if the
Participant had both attained the age of 55 years and
completed five years of Vesting Service as of the date of
his death, the monthly early retirement income that would
have been payable on
<PAGE>
his behalf under Section 2.2 hereof if he had not died but
had retired under the provisions of that section on the date
of his death;
or
(b) if the Participant's service is terminated by reason of his
death on or after his Normal Retirement Date, the single-sum
value, determined as of the date of his death, of the
monthly retirement income that the Participant would have
been entitled to receive under the provisions of Section
2.1(B) hereof if he had not died but had retired from the
service of the Employer on the date of his death.
(2) Except as provided in Section 2.4(B)(3) below and subject to the
provisions of Section 2.4(B)(4) below, the monthly retirement income payments
under this Section 2.4(B) shall be payable for the life of the Beneficiary
designated or selected under Section 5.2 hereof to receive such benefit, and in
the event of the death of such Beneficiary, within a period of 10 years after
the Participant's death, the same monthly amount shall be payable for the
remainder of such 10-year period in the manner and subject to the provisions of
Section 5.3 hereof.
(3) A Participant may elect, or, in the event that a specific election
has not been made by the Participant and filed with the Committee prior to his
death, his designated Beneficiary (or in the case of the benefit payable under
Section 2.4(A)(3) hereof, his surviving spouse), may elect, in writing filed
with the Committee, that, in lieu of payment of the benefit provided under this
Section 2.4(B) (or, if applicable, under Section 2.3(G) or 2.4(A)(3) hereof) in
the manner described above, such benefit will be paid on an actuarially
equivalent basis to the such designated Beneficiary (or said surviving spouse in
the case of the benefit payable under Section 2.4(A)(13) hereof, commencing on
the first day of any month that is on or after the date of the Participant's
death and is on or prior to the Participant's Required Beginning Date and is
payable in accordance with one of the options described below:
Option A: A monthly retirement income in equal amounts that is payable
to the designated Beneficiary (or, if applicable, the
surviving spouse) for his lifetime.
Option B: A retirement income in equal amounts that is payable for a
10-year certain period. In the event of the death of the
designated Beneficiary (or, if applicable, the surviving
spouse), prior to the expiration of such 10-year certain
period, the same amount shall be payable for the remainder
of the 10-year certain period in the manner and subject to
the provisions of Section 5.3 hereof.
Option C: A combination of Option A and Option B.
Provided, however, that payment of any such benefit shall be subject to the
provisions of Section 2.4(B)(4) below.
(4) Except to the extent otherwise permissible under Section 401(a)(9)
of the Internal Revenue Code and regulations issued pursuant thereto, the
benefit payable under this Section 2.4(B) (or, if applicable, under Section
2.3(G) or 2.4(A)(3) hereof) on behalf of any Participant must be payable in a
manner that satisfies the restrictions of Section 401(a)(9) of the Internal
Revenue Code and rulings and regulations issued with respect thereto and must:
(a) commence not later than the Participant's Required Beginning
Date; provided, however, if distribution is not being made
to a surviving spouse, distribution must commence not later
than one year after the date of the Participant's death or,
if distribution is being made to
-2-
<PAGE>
a surviving spouse and such surviving spouse dies prior to
the commencement of benefit payments, distribution must
commence not later than one year after the date of such
surviving spouse's death;
and
(b) be distributed to the Participant's designated Beneficiary
(or, if applicable, his surviving spouse) over one or a
combination of the following periods:
(i) the life of such person;
or
(ii) a period certain not extending beyond the life
expectancy of such person;
provided, however, if the Participant has no designated Beneficiary or if the
designated Beneficiary is not a living person, such benefit must be distributed
in its entirety not later than the fifth anniversary of (i) the date of the
Participant's death or (ii) the death of the Participant's spouse, whichever
death is the later to occur. Any amount payable to a child of the Participant
shall be treated for the purposes of this Section 2.4(B)(4) as if it had been
payable to the surviving spouse of the Participant if such amount that is
payable to the child will become payable to such surviving spouse upon such
child's reaching majority (or upon the occurrence of such other designated event
permitted under regulations issued with respect to Section 401(a)(9) of the
Internal Revenue Code). The death benefit payable to the surviving spouse under
Section 2.4(A)(3) (and in the event that the death benefit payable under Section
2.3(G) or 2.4(B) hereof on behalf of a Participant whose death occurs prior to
his Normal Retirement Date is payable to the Participant's surviving spouse, the
retirement income payable to such surviving spouse under Section 2.3(G) or
2.4(B) hereof) shall be deferred and be payable on an actuarially equivalent
basis to such surviving spouse commencing on the Participant's Normal Retirement
Date, if such surviving spouse is then living, unless (i) the surviving spouse
consents or elects in writing to receive such benefit commencing as of a date
that is prior to the Participant's Normal Retirement Date and is on or after the
date of the Participant's death or (ii) a lump-sum payment is payable to his
surviving spouse under the provisions of Section 3.2 hereof.
(5) If the service of a Participant is terminated by reason of his
death on or after his Required Beginning Date, no benefit will be payable to his
Beneficiary under the provisions of this Section 2.4(B). Additional retirement
income payments may be payable, however, after the Participant's death to his
joint pensioner or other Beneficiary, depending upon the form of payment of the
retirement income that the Participant was receiving immediately prior to his
death and taking into account the increase, if any, that would have applied
under the provisions of Section 2.1(D) hereof to the amount of retirement income
payable to the Participant commencing as of the first day of the month
coincident with or next following the date of the Participant's death if the
Participant had retired immediately prior to his death and had survived to such
day."
3. Section 4.1(D) of the Plan shall be amended to read as follows:
"(D) Qualified Preretirement Survivor Annuity: If a deceased Participant,
whose death occurs on or after his Initial Vesting Date and prior to his Annuity
Starting Date had been married to his spouse throughout the one-year period
immediately preceding his death and he had designated a person other than his
spouse as his Beneficiary to receive the benefits described in Section 2.3(G) or
2.4(B) hereof, whichever is applicable, and such spouse has not validly
consented to such other person being designated as the Beneficiary, the
Participant shall be deemed to have:
(1) revoked his prior designation of Beneficiary;
-3-
<PAGE>
(2) designated such spouse as his Beneficiary to receive a portion of
the death benefit payable on his behalf under Section 2.3(G) or 2.4(B),
whichever is applicable;
(3) specified that the portion of the benefit provided under Section
2.3(G) or 2.4(B) that is payable to his surviving spouse will be payable as an
actuarially equivalent monthly income payable on the first day of each month
with the first payment being due (only if said spouse is then living) on the
Participant's Normal Retirement Date or the first day of the month coincident
with or next following the date of the Participant's death, whichever is later,
and with the last payment being the payment due immediately preceding such
spouse's death;
(4) specified that the portion of the benefit provided under Section
2.3(G) or 2.4(B) that is payable to the surviving spouse shall have an
actuarially equivalent single-sum value, determined as of the date of his death,
equal to the single-sum value, determined as of the date of his death, of the
monthly retirement income that would be payable to his surviving spouse,
commencing on the Participant's Earliest Annuity Commencement Date, under the
Qualified Joint and 50% Survivor Annuity Option if:
(a) the Participant's service had been terminated on the date of
his death for a reason other than disability retirement or
death;
(b) the Participant had died immediately after such commencement
of payments (one-half of the initial payment which would
have been due the Participant on his Earliest Annuity
Commencement Date shall be included in the determination of
such single-sum value); and
(5) designated such other person (or persons) that was named as his
Beneficiary under such revoked designation as the Beneficiary to receive the
remaining portion of such benefit payable on his behalf under and in accordance
with the provisions of Section 2.3(G) or 2.4(B) hereof.
In lieu of the payment of such benefit to the surviving spouse of a
Participant in the form of the monthly income described in Section 4.1(D)(3)
above commencing at the Participant's Normal Retirement Date, such benefit may
be paid on an actuarially equivalent basis to the Participant's spouse in such
other manner and form permitted under Section 2.4(B) hereof and commencing on
such other date permitted under Section 2.4(B) hereof as the surviving spouse
may elect in writing filed with the Committee. For the purposes of Sections
4.1(D)(3) and 4.1(D)(4) above, the Earliest Annuity Commencement Date of a
deceased disabled Participant on whose behalf a death benefit is payable under
Section 2.3(G) hereof and the monthly retirement income that would be payable to
his surviving spouse, commencing on his Earliest Annuity Commencement Date,
under the Qualified Joint and 50% Survivor Annuity Option, shall be determined
as though such Participant had recovered from his total and permanent disability
and had reentered the service of the Employer immediately prior to his death.
Except to the extent that it is otherwise permissible under the provisions
of Section 417 (or any other applicable section) of the Internal Revenue Code or
regulations or rulings issued pursuant thereto for such a spouse to elect to
waive his right to the qualified preretirement survivor annuity, the consent of
the Participant's spouse to another person being designated as the Beneficiary
of the Participant shall be valid for the purposes of this Section 4.1(D) only
if such consent satisfies the requirements of Section 4.1(E) hereof and the
Participant was given a written explanation of the Qualified Preretirement
Survivor Annuity (containing the information described in the paragraph below)
prior to obtaining such consent; provided, further, in the event that the
Participant's death occurs on or after the beginning of the Plan Year in which
he attained the age of 35 years, such consent in order to be valid must have
been given on or after the beginning of the Plan Year in which the Participant
attained the age of 35 years.
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<PAGE>
The Committee shall provide each Employee, who is a Participant in the
Plan, within the one-year period immediately following (a) the beginning of the
Plan Year in which he will attain the age of 32 years or (b) the date on which
he becomes a Participant in the Plan, whichever is later, or as soon thereafter
as is administratively practicable, with written notification of (i) the terms
and conditions upon which the Qualified Preretirement Survivor Annuity described
above will be payable to his surviving spouse, (ii) the Participant's right to
designate at any time prior to his death a person other than his spouse as his
Beneficiary and the effect that such a designation will have on the Qualified
Preretirement Survivor Annuity, (iii) the rights of the Participant's spouse in
the event that the spouse does not consent to such designation and (iv) the
right of the Participant to change his Beneficiary designation in accordance
with the provisions of Section 5.2 hereof at any time prior to his death and the
effect that such a change will have upon the Qualified Preretirement Survivor
Annuity.
If the Beneficiary of a Participant is his spouse but the Participant
elects, pursuant to the provisions of Section 2.4(B) hereof, an actuarially
equivalent form of payment of the benefit provided under such applicable section
that does not provide for monthly payments during the lifetime of his spouse in
an amount at least as great as the minimum qualified preretirement survivor
annuity required under Section 417 of the Internal Revenue Code, the Committee
shall inform such Participant that such election will constitute an election not
to receive a benefit which has the effect of a qualified preretirement survivor
annuity provided under a qualified joint and survivor annuity as described in
Section 417 of the Internal Revenue Code, and the consent of the Participant's
spouse shall be required in order for such an election to become effective.
There shall be no duplication between the benefits provided under Sections
2.3(G) and 2.4(B) and under the Qualified Preretirement Survivor Annuity
described in this Section 4.1(D), but the benefits under each shall be inclusive
of the benefits under the other."
4. Section 5.2 of the Plan shall be amended to read as follows:
"5.2 - BENEFICIARIES
Subject to the provisions of the following paragraphs of this section, each
Participant may, on a form provided for that purpose, signed and filed with the
Committee, designate a Beneficiary to receive the benefit, if any, which may be
payable to his Beneficiary under the Plan in the event of his death, and each
designation may be revoked by such Participant by signing and filing with the
Committee a new designation of Beneficiary form; provided, however, that only
the spouse of the Participant may be the Beneficiary to receive the Qualified
Preretirement Survivor Annuity provided in Section 2.4(A)(3) hereof..
If a deceased Participant, who has been married to his spouse throughout
the one-year period immediately preceding his death, has designated a person
other than his spouse as his Beneficiary and such spouse has not validly
consented in accordance with the provisions of Sections 4.1(D) and 4.1(E) hereof
to such other person being designated as the Beneficiary, the provisions of
Section 4.1(D) hereof, relating to the Qualified Preretirement Survivor Annuity
payable to his surviving spouse, will apply in the event of his death on or
after his Initial Vesting Date, and the Participant will automatically be deemed
to have changed his designation of Beneficiary to the extent necessary to comply
with the provisions of Section 4.1(D).
If a deceased Participant who had a spouse at the date of his death failed
to designate a Beneficiary in accordance with the provisions of this section, he
shall be deemed to have designated his spouse as his Beneficiary. If a deceased
Participant who had no spouse at the date of his death failed to designate a
Beneficiary in accordance with the provisions of this section or if a deceased
Participant (whether or not he has a surviving spouse at the date of his death)
had previously designated a Beneficiary but no designated Beneficiary is
surviving at the date of his death, the death benefit, if any, that may be
payable under the Plan with respect to such deceased Participant may be paid, in
the
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<PAGE>
discretion of the Committee but subject to the provisions of Sections 4.1(D) and
4.1(E) hereof if the spouse of such deceased Participant is surviving, either
to:
(a) any one or more of the persons comprising the group consisting of the
Participant's spouse, the Participant's descendants, the Participant's
parents or the Participant's heirs-at-law, and the Committee may
direct the payment of the entire benefit to any member of such group
or the apportionment of such benefit among any two or more of them in
such shares as the Committee, in its sole discretion, shall determine;
or
(b) the estate of such deceased Participant;
or in the event the Committee does not so direct any of such payments, the
Committee may elect to have a court of applicable jurisdiction determine to whom
a payment or payments shall be paid. Any payment made to any person pursuant to
the provisions of this Section 5.2 shall operate as a complete discharge of all
obligations under the Plan with respect to such deceased Participant and shall
not be subject to review by anyone but shall be final, binding and conclusive on
all persons ever interested hereunder."
IN WITNESS WHEREOF, TEXAS SECURITY BANCSHARES, INC. has caused this
instrument to be executed by its duly authorized officers on this 19th day of
December, 1994.
(CORPORATE SEAL)
ATTEST: TEXAS SECURITY BANCSHARES, INC.
/s/ Karen Larsen Sweeney By /s/ J. Andy Thompson
- ------------------------------- ---------------------------------
Secretary Title: Chairman/CEO
-----------------------------
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<PAGE>
EXHIBIT 10(R)
RESTORATION RETIREMENT PLAN
FOR CERTAIN EMPLOYEES OF
TEXAS SECURITY BANCSHARES, INC. AND AFFILIATES
1. Introduction
The following are the provisions of the RESTORATION RETIREMENT PLAN FOR
CERTAIN EMPLOYEES OF TEXAS SECURITY BANCSHARES, INC. AND AFFILIATES (hereinafter
referred to as the "Restoration Plan") which is established by TEXAS SECURITY
BANCSHARES, INC. (hereinafter referred to as the "Company"), effective as of
January 1, 1994, in order to provide for the payment of retirement and
retirement-related benefits to a certain select group of highly compensated
employees who are participants in the RETIREMENT PLAN FOR EMPLOYEES OF TEXAS
SECURITY BANCSHARES, INC. AND AFFILIATES (hereinafter referred to as the "Basic
Plan") as in effect from time to time on and after the effective date hereof and
whose benefits under the Basic Plan are restricted because of the application of
the limitations of Section 401(a)(17) and/or Section 415 of the Internal Revenue
Code of 1986, as amended (hereinafter referred to as the "Code"). The Company
intends and desires by the adoption of this Restoration Plan to recognize the
value of the past and present services of employees covered by the Restoration
Plan and to encourage and assure their continued service to the Employer by
making more adequate provision for their future retirement security.
2. Definitions
As used herein, the term "Participant" means an individual who has become a
participant in this Restoration Plan in accordance with the provisions of
Section 4 hereof and whose interest hereunder has not been fully paid. The term
"Employer" shall include the Company, Central Bank and Trust, and any other
Controlled Group Member. All other terms used in this Restoration Plan shall
have the same meaning assigned to them under the provisions of the Basic Plan
unless otherwise qualified by the context.
3. Administration
This Restoration Plan shall be administered by a committee appointed by the
Board of Directors of the Company from time to time (hereinafter referred to as
the "Committee"). The Committee shall administer the Restoration Plan in a
manner consistent with the administration of the Basic Plan, as from time to
time amended and in effect, except that this Restoration Plan shall be
administered as an unfunded plan that is not intended to meet the qualification
requirements of Section 401(a) of the Code. The Committee shall have full power
and authority to interpret, construe, and administer this Restoration Plan and
the Committee's interpretations and construction thereof, and actions
thereunder, including the amount or recipient of the payment to be made, shall
be binding and conclusive on all persons for all purposes, subject to any rights
of the Participant to make a claim for benefits under Title I of the Employee
Retirement Income Security Act of 1974, as amended.
4. Eligibility
Participation in this Restoration Plan shall be limited to those employees
of the Employer who (a) are Participants in the Basic Plan on or after January
1, 1994 and (b) are designated as Participants hereunder by the Company.
Initially as of January 1, 1994, the Company has designated the following
individuals as Participants: J. A. Thompson, Brian Garrison, Tom Turner and
Stuart Murff. The Company may subsequently designate other individuals as
Participants by resolution of its Board of Directors. No person shall have an
automatic right to be selected as a Participant or to continue as an active
Participant once selected.
5. Amount of Benefit Provided Under Restoration Plan
The monthly benefit payable to or on behalf of a Participant under this
Restoration Plan shall be an amount equal to:
(a) the monthly benefit, if any, that would have been payable to such
Participant, or on his behalf to his Beneficiary or Beneficiaries, as
of his date of termination of employment with the Employer, under the
Basic Plan as in effect on the date of termination of his em-
<PAGE>
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ployment with the Employer, if the provisions of the Basic Plan had
been administered without regard to the limitations imposed by Section
415 of the Code and without the limitation imposed by Section
401(a)(17) of the Code on the amount of his Compensation under the
Basic Plan;
minus
(b) the monthly benefit that is actually payable to such Participant, or
on his behalf to his Beneficiary or Beneficiaries, as of his date of
termination of employment with the Employer, under the Basic Plan as
in effect on the date of his termination of employment with the
Employer.
6. Payment of Restoration Plan Benefit
The benefit payable to a Participant, or on his behalf to his Beneficiary,
under this Restoration Plan shall be payable in coincident with and in the same
manner as the payment of the benefits to such Participant or Beneficiary under
the Basic Plan; provided, however, in the event that the Participant's service
with the Employer is terminated as a result of the "Sale of TSB" (as defined
below), the benefit shall be payable in a lump-sum amount as of the
Participant's termination of service. The Beneficiary or Beneficiaries of a
Participant under the Basic Plan shall be the Beneficiary or Beneficiaries of
such Participant under this Restoration Plan. For the purposes of this
Restoration Plan, a Participant's service with an Employer shall not be
considered to have terminated so long as such Participant is in the employment
of the Employer or a Controlled Group Member.
In the event that a Participant's benefits under the Basic Plan commence
prior to his date of termination of employment with the Employer, his benefit
under this Restoration Plan, shall be determined as though his employment had
terminated on the date of commencement of his benefits under the Basic Plan.
Upon his actual termination of employment with the Employer, his benefit under
this Restoration Plan shall be redetermined to take into account any additional
benefits that accrue for the period the Participant remains employed with the
Employer.
A Participant's rights under this Restoration Plan, including his rights to
vested benefits, shall be the same as his rights under the Basic Plan, except
that he shall not be entitled to any payments from the trust fund maintained
under the Basic Plan on the basis of any benefits to which he may be entitled
under this Restoration Plan. All benefits payable under this Restoration Plan
to or on behalf of Participants shall be paid from the general assets of the
Company. The Company shall not be required to set aside any funds to discharge
its obligations hereunder, but the Company may set aside such funds if it
chooses to do so. Any and all funds so set aside shall remain subject to the
claims of the general creditors of the Company, present and future. No
Participant, his Beneficiary or Beneficiaries, or any other person shall have,
under any circumstances, any interest whatever in any particular property or
assets of the Employer by virtue of this Restoration Plan, and the rights of the
Participant, his Beneficiary or Beneficiaries, or any other person who may claim
a right to receive benefits under this Restoration Plan shall be no greater than
the rights of an unsecured general creditor of the Company.
For the above purposes, the term "Sale of TSB" shall mean:
(i) the merger or consolidation of Texas Security Bancshares, Inc. with, or
sale of all or substantially all of the assets of Texas Security Bancshares,
Inc. to, another corporation or entity, whether in one or a series of related
transactions, and as a result of which merger, consolidation or sale less than
twenty percent (20%) of the voting stock or other interest in the surviving or
acquiring corporation or entity, as the case may be, continues to be owned by
shareholders who were shareholders of Texas Security Bancshares, Inc.
immediately prior to such merger, consolidation or sale; or
<PAGE>
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(ii) the merger or consolidation of Central Bank and Trust with, or sale of
all or substantially all of the assets of the Central Bank and Trust to, another
corporation or entity, whether in one or a series of related transactions, and
as a result of which merger, consolidation or sale less than twenty percent
(20%) of the voting stock or other interest in the surviving or acquiring
corporation or entity, as the case may be, continues to be owned by shareholders
who were shareholders of the Central Bank and Trust immediately prior to such
merger, consolidation or sale; or
(iii) the acquisition, directly or indirectly, by a third party (or group
of third parties acting in concert) of more than eighty percent (80%) of the
outstanding voting stock of Texas Security Bancshares, Inc., whether in one or a
series of related transactions, but excepting any third party (or group of third
parties acting in concert) who owns of record and beneficially more than thirty
percent (30%) of the outstanding voting stock of Texas Security Bancshares, Inc.
as of January 1, 1994; or
(iv) the acquisition, directly or indirectly, by a third party (or group of
third parties acting in concert) of more than eighty percent (80%) of the
outstanding voting stock of Central Bank and Trust, whether in one or a series
of related transactions, but excepting any third party (or group of third
parties acting in concert) who owns of record and beneficially more than thirty
percent (30%) of the outstanding voting stock of Central Bank and Trust as of
January 1, 1994; or
(v) any combination of any of the following.
7. Merger, Consolidation, or Acquisition
In the event of a merger, consolidation, or acquisition where the Company
is not the surviving corporation, unless the successor or acquiring corporation
shall agree in writing to maintain this Restoration Plan, this Restoration Plan
shall terminate.
8. Amendment and Termination
The Board of Directors of the Company may at any time amend or terminate
this Restoration Plan. If this Restoration Plan should be amended or
terminated, the Company shall remain liable for any benefits accrued by its
employees under this Restoration Plan (determined in the case of a Participant
in the active service of the Employer on the basis of such Participant's
presumed termination of service as of the date of such amendment or termination)
as of the date of such action but the offset for the Basic Plan in Section 5(b)
hereof shall be determined as of the Participant's actual date of termination of
service or, if earlier, as of the effective date of termination of the Basic
Plan. This Restoration Plan shall automatically terminate as of the effective
date of termination of the Basic Plan. In the event of termination of this
Restoration Plan, payment of the accrued benefits shall be made in a lump-sum
amount as of the date of termination of this Restoration Plan.
9. Restrictions on Assignment
The benefits provided hereunder are intended for the personal security of
persons entitled to payment under this Restoration Plan and are not subject in
any manner to the debts or other obligations of the persons to whom they are
payable. The interest of a Participant or his Beneficiary or Beneficiaries may
not be sold, transferred, assigned, or encumbered in any manner, either
voluntarily or involuntarily, and any attempt so to anticipate, alienate, sell,
transfer, assign, pledge, encumber, or charge the same shall be null and void;
neither shall the benefits hereunder be liable for or subject to the debts,
contracts, liabilities, engagements, or torts of any person to whom such
benefits or funds are payable, nor shall they be subject to garnishment,
attachment, or other legal or equitable process nor shall they be an asset in
bankruptcy, except that no amount shall be payable hereunder until and unless
any and all amounts representing debts or other obligations owed to any Employer
by the employee with respect to whom such amount would otherwise be payable
shall have been fully paid and satisfied.
<PAGE>
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10. Continued Employment
Nothing contained in this Restoration Plan shall be construed as conferring
upon any employee the right to continue in the employment of the Employer in any
capacity.
11. Liability of Committee
Unless resulting from his own fraud or willful misconduct, no member of the
Committee shall be liable for any loss arising out of any action taken or
failure to act by the Committee or a member thereof in connection with this
Restoration Plan. The Committee and any individual member of the Committee and
any agent thereof shall be fully protected in relying upon the advice of the
following professional consultants or advisors employed by the Employer or the
Committee: any attorney insofar as legal matters are concerned, any accountant
insofar as accounting matters are concerned, and any actuary insofar as
actuarial matters are concerned.
12. Indemnification
The Employers hereby jointly and severally indemnify and agree to hold
harmless the members of the Committee and all directors, officers and employees
of an Employer against any loss, claim, cost, expense (including attorneys'
fees), judgment or liability arising out of any action taken or failure to act
by the Committee or such individual in connection with this Restoration Plan;
provided, however, that this indemnity shall not apply to an individual if such
loss, claim, cost, expense, judgment or liability is due to such individual's
fraud or willful misconduct.
13. Change in Participation Status
Notwithstanding any provision herein to the contrary, in the event that the
Company, in its sole discretion, determines, for any reason, that a Participant
is no longer eligible for participation in this Restoration Plan, such
Participant shall cease to be an active Participant in this Restoration Plan as
of the date such determination is made by the Company and he shall not accrue
any additional benefits under this Restoration Plan. Payment of his accrued
benefits shall be deferred until his termination of employment with the
Employer. In the event his employment is terminated while he is in an ineligible
status, his benefit under Section 5 hereof shall be determined as of the date he
became ineligible (determined on the basis of such Participant's presumed
termination of service on the date he became ineligible but the offset for the
Basic Plan in Section 5(b) shall be determined as of the actual date of his
termination of service).
14. Termination of Service for Dishonesty
If a Participant's service with the Employer is terminated because of
dishonest conduct injurious to the Employer, or if dishonest conduct injurious
to the Employer committed by a Participant is determined by the Employer during
the lifetime of the Participant and within one year after his service with the
Employer is terminated, the Committee may terminate such Participant's interest
and benefits under this Restoration Plan.
The dishonest conduct injurious to an Employer committed by a Participant
shall be determined and decided by the Committee only after a full investigation
of such alleged dishonest conduct and an opportunity has been given the
Participant or his representative to appear before the Committee to present his
case. The decision made by the Committee in such cases shall be final and
binding on all Participants and other persons affected by such decision.
15. Claims Procedure
(a) Any person claiming a benefit, requesting an interpretation or ruling
under this Restoration Plan, or requesting information under this Restoration
Plan shall present the request in writing to the Committee which shall respond
in writing as soon as practicable.
<PAGE>
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(b) If the claim or request is denied, the written notice of denial shall
state:
(i) The reasons for denial, with specific reference to the
provisions on which the denial is based.
(ii) A description of any additional material or information
required and an explanation of why it is necessary.
(iii) An explanation of the claim review procedure.
(c) Any person whose claim or request is denied or who has not received a
response within thirty (30) days may request review by notice given in writing
to the Committee who may, but shall not be required to, grant the claimant a
hearing. On review, the claimant may have representation, examine pertinent
documents, and submit issues and comments in writing.
(d) The decision on review shall normally be made within sixty (60) days.
If an extension of time is required for a hearing or other special
circumstances, the claimant shall be so notified and the time limit shall be one
hundred twenty (120) days. The decision shall be in writing and shall state the
reasons and the relevant Restoration Plan provisions. All decisions on review
shall be final and bind all parties concerned.
16. Law Governing
This Restoration Plan shall be construed in accordance with and governed by
the laws of the State of Texas, except to the extent preempted by applicable
federal law.
17. Severability
In the event any provision of this Restoration Plan shall be held invalid
for any reason, any illegality or invalidity shall not affect the remaining
parts of the Restoration Plan, but the Restoration Plan shall be construed and
enforced as if the illegal or invalid provision had never been inserted.
18. Effective Date
This Restoration Plan shall be effective as of January 1, 1994.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed by its duly authorized officers on the _____ day of _________________,
1994, to be effective as of January 1, 1994.
TEXAS SECURITY BANCSHARES, INC.
By \s\ J. Andy Thompson
----------------------------------
Title: Chairman of the Board
------------------------------
<PAGE>
EXHIBIT 10(S)
TRUST AGREEMENT FOR RESTORATION PLAN
FOR CERTAIN EMPLOYEES OF
TEXAS SECURITY BANCSHARES, INC. AND AFFILIATES
This agreement made this 19th day of December, 1994, by and between
Texas Security Bancshares, Inc. (hereinafter called the "Company") and Central
Bank and Trust (hereinafter called the "Trustee");
WHEREAS, the Company has adopted the nonqualified deferred
compensation plan identified as the RESTORATION PLAN FOR CERTAIN EMPLOYEES OF
TEXAS SECURITY BANCSHARES, INC. AND AFFILIATES (hereinafter called the "Plan");
WHEREAS, the Company has incurred or expects to incur liability under
the terms of the Plan with respect to the individuals participating in the Plan;
WHEREAS, the Company wishes to establish a trust (hereinafter called
the "Trust") and to contribute to the Trust assets that shall be held therein,
subject to the claims of the Company's creditors in the event of the Company's
Insolvency, as herein defined, until paid to Plan participants and their
beneficiaries in such manner and at such times as specified in the Plan;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plan
as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of 1974;
WHEREAS, it is the intention of the Company to make contributions to
the Trust to provide itself with a source of funds to assist it in meeting its
liabilities under the Plan;
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
1. Establishment of Trust
(a) The Company hereby deposits with the Trustee in trust $_________,
which shall become the principal of the Trust to be held, administered and
disposed of by the Trustee as provided in this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which the Company
is the grantor, within the meaning of subpart E, part I, subchapter J, chapter
1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(d) The principal of the Trust and any earnings thereon shall be held
separate and apart from other funds of the Company and shall be used exclusively
for the uses and purposes of Plan participants and general creditors as herein
set forth. Plan participants and their beneficiaries shall have no preferred
claim on, or any beneficial ownership interest in, any assets of the Trust. Any
rights created under the Plan and this Trust Agreement shall be mere unsecured
contractual rights of Plan participants and their beneficiaries against the
Company. Any assets held by the Trust will be subject to the claims of the
Company's general creditors under federal and state law in the event of
Insolvency, as defined in Section 3(a) herein.
(e) The Company, in its sole discretion, may at any time, or from time
to time, make additional deposits of cash or other property in trust with the
Trustee to augment the principal to be held, administered and disposed of by the
Trustee as provided in this Trust Agreement. Neither the Trustee nor any Plan
participant or beneficiary shall have any right to compel such additional
deposits.
(f) Upon a Triggering Event, as defined in Section 12(d) herein, the
Company shall, as soon as possible, but in no event longer than 30 days
following the Triggering Event make an irrevocable contribution to the trust in
an amount that is sufficient to pay each Plan participant or beneficiary the
benefits to which Plan participants or their beneficiaries would be entitled
pursuant to the
<PAGE>
-2-
terms of the Plan (determined, in the case of a participant in the active
service of the Company or an Employer in the Plan on the basis of such
participant's presumed termination of service as of the date of the Triggering
Event) as of the date on which the Triggering Event occurred.
2. Payments to Plan Participants and Their Beneficiaries
(a) The Company shall deliver to the Trustee a schedule (the "Payment
Schedule") that indicates the amounts payable in respect of each Plan
participant (and his or her beneficiaries), that provides a formula or other
instructions acceptable to the Trustee for determining the amounts so payable,
the form in which such amount is to be paid (as provided for or available under
the Plan), and the time of commencement for payment of such amounts. Except as
otherwise provided herein, the Trustee shall make payments to the Plan
participants and their beneficiaries in accordance with such Payment Schedule.
The Trustee shall make provision for the reporting and withholding of any
federal, state or local taxes that may be required to be withheld with respect
to the payment of benefits pursuant to the terms of the Plan and shall pay
amounts withheld to the appropriate taxing authorities or determine that such
amounts have been reported, withheld and paid by the Company.
(b) The entitlement of a Plan participant or his or her beneficiaries
to benefits under the Plan shall be determined by the Company or such party as
it shall designate under the Plan, and any claim for such benefits shall be
considered and reviewed under the procedures set out in the Plan.
(c) The Company may make payment of benefits directly to Plan
participants or their beneficiaries as they become due under the terms of the
Plan. The Company shall notify the Trustee of its decision to make payment of
benefits directly prior to the time amounts are payable to participants or their
beneficiaries. In addition, if the principal of the trust, and any earnings
thereon, are not sufficient to make payments of benefits in accordance with the
terms of the Plan, the Company shall make the balance of each such payment as it
falls due. The Trustee shall notify the Company where principal and earnings
are not sufficient.
3. Trustee Responsibility Regarding Payments to Trust Beneficiary When Company
is Insolvent
(a) The Trustee shall cease payment of benefits to Plan participants and
their beneficiaries if the Company is Insolvent. The Company shall be
considered "Insolvent" for purposes of this Trust Agreement if (i) the Company
is unable to pay its debts as they become due, or (ii) the Company is subject to
a pending proceeding as a debtor under the United States bankruptcy Code, or
(iii) the Company is determined to be insolvent by applicable federal and/or
state regulatory agencies.
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of the Company under federal and state law as set
forth below.
(1) The Board of Directors and the Chief Executive Officer of the
Company shall have the duty to inform the Trustee in writing of the Company's
Insolvency. If a person claiming to be a creditor of the Company alleges in
writing to the Trustee that the Company has become Insolvent, the Trustee shall
determine whether the Company is insolvent and, pending such determination, the
Trustee shall discontinue payment of benefits to Plan participants or their
beneficiaries.
(2) Unless the Trustee has actual knowledge of the Company's
Insolvency, or has received notice from the Company or a person claiming to be a
creditor alleging that the Company is Insolvent, the Trustee shall have no duty
to inquire whether the Company is Insolvent. The Trustee may in all events rely
on such evidence concerning the Company's solvency as may be furnished to the
Trustee and that provides the Trustee with a reasonable basis for making a
determination concerning the Company's solvency.
<PAGE>
-3-
(3) If at any time the Trustee has determined that the Company is
Insolvent, the Trustee shall discontinue payments to Plan participants or their
beneficiaries and shall hold the assets of the Trustee for the benefit of the
Company's general creditors. Nothing in this Trust Agreement shall in any way
diminish any rights of Plan participants or their beneficiaries to pursue their
rights as general creditors of the Company with respect to benefits due under
the Plan or otherwise.
(c) Provided that there are sufficient assets, if the Trustee discontinues
the payment of benefits from the Trust pursuant to Section 3(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
participants or their beneficiaries under the terms of the Plan for the period
of such discontinuance, less the aggregate amount of any payments made to Plan
participants or their beneficiaries by the Company in lieu of the payments
provided for hereunder during any such period of discontinuance.
4. Investment Authority
In no event may the Trustee invest in securities (including stock or rights
to acquire stock) or obligations issued by the Company, other than a de minimis
amount held in common investment vehicles in which the Trustee invests. All
rights associated with assets of the Trust shall be exercised by the Trustee or
the person designated by the Trustee, and shall in no event be exercisable by or
rest with Plan participants.
5. Disposition of Income
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
6. Accounting by Trustee
The Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such specific records as shall be agreed upon in writing between the
Company and the Trustee. Within 60 days following the close of each calendar
year and with 60 days after the removal or resignation of the Trustee, the
Trustee shall deliver to the Company a written account of its administration of
the Trust during such year or during the period from the close of the last
preceding year to the date of such removal or resignation, setting forth all
investments, receipts, disbursements and other transactions effected by it,
including a description of all securities and investments purchased and sold
with the cost or net proceeds of such purchases or sales (accrued interest paid
or receivable being shown separately), and showing all cash, securities and
other property held in the Trust at the end of such year or as of the date of
such removal or resignation, as the case may be.
7. Responsibility of Trustee
(a) The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that the
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by the Company which is contemplated by,
and in conformity with, the terms of the Plan or this Trust and is given in
writing by the Company. In the event of a dispute between the Company and a
party, the Trustee may apply to a court of competent jurisdiction to resolve the
dispute.
(b) If the Trustee undertake or defends any litigation arising in
connection with this Trust, the Company agrees to indemnify the Trustee against
the Trustee's costs, expenses and liabilities (including, without limitation,
attorneys' fees and expenses) relating thereto and to be primarily liable for
such payments. If the Company does not pay such costs, expenses and liabilities
in a reasonably timely manner, the Trustee may obtain payment from the Trust.
<PAGE>
-4-
(c) The Trustee may consult with legal counsel (who may also be counsel for
the Company generally) with respect to any of its duties or obligations
hereunder.
(d) The Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.
(e) The Trustee shall have, without exclusion, all powers conferred on
trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the Trust,
the Trustee shall have no power to name a beneficiary of the policy other than
the Trust, to assign the policy (as distinct from conversion of the policy to a
different form) other than to a successor Trustee, or to loan to any person the
proceeds of any borrowing against such policy.
(f) However, notwithstanding the provisions of Section 7(e) above, the
Trustee may loan to the Company the proceeds of any borrowing against an
insurance policy held as an asset of the Trust.
(g) Notwithstanding any powers granted to the Trustee pursuant to this
Trust Agreement or to applicable law, the Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
8. Compensation and Expenses of Trustee
The Company shall pay all administrative and Trustee's fees and expenses.
If not so paid, the fees and expenses shall be paid from the Trust.
(a) The Trustee may resign at any time by written notice to the Company,
which shall be effective 30 days after receipt of such notice unless the Company
and the Trustee agree otherwise.
(b) The Trustee may be removed by the Company on 30 days notice or upon
shorter notice accepted by the Trustee.
(c) Upon resignation or removal of the Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the successor
Trustee. The transfer shall be completed within 30 days after receipt of notice
of resignation, removal or transfer, unless the Company extends the time limit.
(d) If the Trustee resigns or is removed, a successor shall be appointed,
in accordance with Section 10 hereof, by the effective date of resignation or
removal under paragraphs (a) or (b) of this section. If no such appointment has
been made, the Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses of the Trustee in
connection with the proceeding shall be allowed as administrative expenses of
the Trust.
10. Appointment of Successor
If the Trustee resigns or is removed in accordance with Section 9(a) or (b)
hereof, the Company may appoint any third party, such as a bank trust department
or other party that may be granted corporate trustee powers under state law, as
a successor to replace the Trustee upon resignation or removal. The appointment
shall be effective when accepted in writing by the new Trustee, who shall have
all of the rights and powers of the former Trustee, including ownership rights
in the Trust assets. The former Trustee shall execute any instrument necessary
or reasonably requested by the Company or the successsor Trustee to evidence the
transfer.
11. Amendment or Termination
(a) This Trust Agreement may be amended by a written instrument executed by
the Trustee and the Company. Notwithstanding the foregoing, no such amendment
shall conflict with the terms of the Plan or shall make the Trust revocable.
<PAGE>
-5-
(b) Except as provided in Section 11(c) below, the Trust shall not
terminate until the date on which Plan participants and their beneficiaries are
no longer entitled to benefits pursuant to the terms of the Plan. Upon
termination of the Trust any assets remaining in the Trust shall be returned to
the Company.
(c) Upon written approval of participants or beneficiaries entitled to
payment of benefits pursuant to the terms of the Plan, the Company may terminate
this Trust prior to the time all benefit payments under the Plan have been made.
All assets in the Trust at termination shall be returned to the Company.
(d) Sections 1(f), 11(a) through 11(d) and 12(d) of this Trust Agreement
may not be amended by the Company for two years following a "Triggering Event."
12. Miscellaneous
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Plan participants and their beneficiaries under
this Trust Agreement may not be anticipated, assigned (either by law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in accordance
with the laws of the state of Texas.
(d) For purposes of this Trust, "Triggering Event" shall mean the
occurrence of any one of the following events:
(1) the termination of the Retirement Plan for Employees of Texas
Securities Bancshares, Inc. and Affiliates;
(2) the "Sale of TSB"; or
(3) any other event which the Committee appointed under the Plan, in
its sole discretion, shall declare to constitute a Triggering Event.
For the above purposes, the term "Sale of TSB" shall mean:
(i) the merger or consolidation of Texas Security Bancshares, Inc.
with, or sale of all or substantially all of the assets of Texas Security
Bancshares, Inc. to, another corporation or entity, whether in one or a
series of related transactions, and as a result of which merger,
consolidation or sale less than twenty percent (20%) of the voting stock or
other interest in the surviving or acquiring corporation or entity, as the
case may be, continues to be owned by shareholders who were shareholders of
Texas Security Bancshares, Inc. immediately prior to such merger,
consolidation or sale; or
(ii) the merger or consolidation of Central Bank and Trust with, or
sale of all or substantially all of the assets of the Central Bank and
Trust to, another corporation or entity, whether in one or a series of
related transactions, and as a result of which merger, consolidation or
sale less than twenty percent (20%) of the voting stock or other interest
in the surviving or acquiring corporation or entity, as the case may be,
continues to be owned by shareholders who were shareholders of the Central
Bank and Trust immediately prior to such merger, consolidation or sale; or
(iii) the acquisition, directly or indirectly, by a third party (or
group of third parties acting in concert) of more than eighty percent (80%)
of the outstanding voting stock of Texas Security Bancshares, Inc., whether
in one or a series of related transactions, but excepting any third party
(or group of third parties acting in concert) who owns of record and
beneficially more than thirty percent (30%) of the outstanding voting stock
of Texas Security Bancshares, Inc. as of January 1, 1994; or
<PAGE>
-6-
(iv) the acquisition, directly or indirectly, by a third party (or
group of third parties acting in concert) of more than eighty percent (80%)
of the outstanding voting stock of Central Bank and Trust, whether in one
or a series of related transactions, but excepting any third party (or
group of third parties acting in concert) who owns of record and
beneficially more than thirty percent (30%) of the outstanding voting stock
of Central Bank and Trust as of January 1, 1994; or
(v) any combination of any of the foregoing.
(e) The Trustee shall determine the manner and amount of payments to be
made to the participants or their beneficiaries and shall make such payments in
accordance with the terms of the Plan. Notwithstanding anything to the contrary
contained herein or in the Plan, (i) in the event that the Internal Revenue
Service prevails in its claim that amounts contributed to and held in the Trust
Fund, and/or earnings thereon, constitute taxable income to the participant or
his or her beneficiary for any taxable year of him or her, prior to the taxable
year in which such contributions and/or earnings are distributed to him or her,
or (ii) in the event that legal counsel satisfactory to the Company, the Trustee
and the applicable participant or his beneficiary renders an opinion that the
Internal Revenue Service would likely prevail in such a claim, the assets in the
Trust Fund shall be immediately distributed to the participant or his
beneficiary. For purposes of this section, the Internal Revenue Service shall
be deemed to have prevailed in a claim if such claim is upheld by a court of
final jurisdiction, or if the Trustee, based upon an opinion of legal counsel
satisfactory to the Company, the Trustee and the participant or his beneficiary,
fails to appeal a decision of the Internal Revenue Service, or a court of
applicable jurisdiction, with respect to such claim, to an appropriate Internal
Revenue Service appeals authority or to a court of higher jurisdiction within
the appropriate time period.
IN WITNESS WHEREOF, TEXAS SECURITY BANCSHARES, INC. and CENTRAL BANK AND
TRUST, acting by and through their duly authorized officers, have cause this
instrument to be executed on the day and year first above written.
(CORPORATE SEAL)
ATTEST: TEXAS SECURITY BANCSHARES, INC.
/s/ Karen Larsen Sweeney By /s/ J. Andy Thompson
- ------------------------ -----------------------------
Secretary
Title: Chairman/CEO
---------------------------
(CORPORATE SEAL)
ATTEST: CENTRAL BANK AND TRUST, as Trustee
/s/ Judy K. Brown By /s/ Jim Palmer
- ------------------------ -----------------------------
Title:__________________
<PAGE>
-7-
ACKNOWLEDGMENT
--------------
STATE OF TEXAS )
Re: TEXAS SECURITY BANCSHARES, INC.
COUNTY OF TARRANT )
BEFORE ME, the undersigned, a Notary Public, on this day personally
appeared Andy Thompson, an officer of Texas Securities Bancshares, Inc., known
to me to be the person and officer whose name is subscribed to the foregoing
instrument and acknowledged to me that the same was the act of the said Texas
Securities Bancshares, Inc., a corporation, and that he executed the same as the
act of such corporation for the purposes and consideration therein expressed,
and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 1st day of February, 1995
(NOTARY SEAL)
/s/ Linda Fuhrman
----------------------------------
Notary Public
My commission expires 10-27-95
--------
STATE OF TEXAS )
Re: CENTRAL BANK AND TRUST
COUNTY OF TARRANT )
BEFORE ME, the undersigned, a Notary Public, on this day personally
appeared Jim Palmer, an officer of Central Bank and Trust, known to me to be the
person whose name is subscribed to the foregoing instrument and acknowledged to
me that the same was the act of the said Central Bank and Trust, a corporation,
and that he executed the same as the act of such corporation for the purposes
and consideration therein expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 7th day of February, 1994.
(NOTARY SEAL)
/s/ Glenda R. Moore
-----------------------------------
Notary Public
My commission expires 10-05-96
--------
<PAGE>
EXHIBIT 10(T)
LOAN AGREEMENT
THIS LOAN AGREEMENT (hereinafter called "this Agreement") is made and
entered into this 12th day of October, 1994, by and between TEXAS SECURITY
BANCSHARES, INC., having its principal place of business at 777 West Rosedale,
Fort Worth, Texas 76104 (hereinafter called "Borrower"), and THE FROST NATIONAL
BANK, a national banking association, with its main banking offices located at
100 West Houston Street, P.O. Box 1600, San Antonio, Texas 78296 (hereinafter
called "Lender").
WHEREAS, Borrower is desirous of obtaining a loan from Lender in the
aggregate principal amount of TWELVE MILLION FIVE HUNDRED THOUSAND AND NO/100
DOLLARS ($12,500,000.00) for the purpose of financing the acquisitions of
financial institutions in Texas and for general corporate purposes; and,
WHEREAS, Lender is desirous of making such loan to Borrower in the
principal amount of TWELVE MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS
($12,500,000.00) for the purposes set forth above, but on the terms, conditions
and covenants hereafter contained.
NOW, THEREFORE, subject to all terms, conditions and covenants hereinafter
set forth and in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.1. DEFINITIONS.
-----------
The terms defined in this Article I (except as otherwise expressly provided
in this Agreement) for all purposes shall have the following meanings:
"Advance" shall mean the amounts requested by Borrower from time to time as
set forth in Section 2.01 of this Agreement.
"Advance Request Form" means a certificate, in substantially the form of
Exhibit "A" hereto, properly completed and signed by Borrower requesting an
Advance.
"Available Amount" shall mean the sum available to Advance to the Borrower
which is equal to the Maximum Loan Amount less the unpaid principal balance of
the Note.
"Book Value" shall mean, for any share of stock, the bank's Equity Capital
divided by the total number of such bank's shares outstanding.
"Business Day" shall mean a day on which Lender is open for transaction of
its general banking business.
"Cash Flow Coverage" shall mean the ratio of (i) net income plus
depreciation and amortization, to (ii) and current maturities of long-term debt;
all as determined in accordance with GAAP.
"CBT" shall mean Central Bank & Trust, a state banking association whose
offices are located at 777 West Rosedale, Fort Worth, Texas 76104.
"Closing Date" shall mean the date this Agreement is executed by all
parties hereto which shall be the day and year first written above unless
otherwise indicated. Unless otherwise agreed to by the parties, the Closing
shall take place at the offices of Munsch Hardt Kopf Harr & Dinan, 1445 Ross
Avenue, 4000 Fountain Place, Dallas, Texas 75202.
"Collateral" shall have the meaning ascribed to it in Section 2.3.
"Consolidated Net Worth" means, at any particular time, all amounts which,
in conformity with GAAP, would be included as stockholders' equity on a
consolidated balance sheet of Borrower and its Subsidiaries.
LOAN AGREEMENT - Page 1
<PAGE>
"Equity Capital" shall mean the Tier I Capital as defined by The Federal
Reserve Regulations.
"Event of Default" means any event specified in Section 6.1 of this
Agreement, or any other event specified elsewhere in this Agreement as an "Event
of Default", provided that any requirement in connection with such event for the
giving of notice or lapse of time or any other condition has been satisfied.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and/or in statements of
the Financial Accounting Standards Board and/or their respective successors and
which are applicable in the circumstances as of the date in question.
Accounting principles are applied on a "consistent basis" when the accounting
principles observed in a current period are comparable in all material respects
to those accounting principles applied in a preceding period.
"Highest Lawful Rate" shall mean the maximum rate of nonusurious interest
allowed from time to time by Law. Unless changed in accordance with Law, the
applicable rate ceiling under Texas law shall be the indicated (weekly) rate
ceiling from time to time in effect as provided in Tex. Rev. Civ. Stat. Ann.
Art. 5069-1.04, as amended; but in no event shall Tex. Rev. Civ. Stat. Ann. Art.
5069 ch. 15 (which regulates certain revolving loan accounts and revolving
triparty accounts) apply to the Loan.
"Insider" shall mean an "executive officer," "director," or "person who
directly or indirectly or in concert with one or more persons, owns, controls,
or has the power to vote more than 10% of any class of voting securities" (as
such terms are defined in the Financial Institutions Regulatory and Interest
Rate Control Act of 1978, as amended, or in regulations promulgated pursuant
thereto) of Borrower or any Subsidiary.
"Law" shall mean all statutes, laws, ordinances, regulations, orders,
writs, injunctions, or decrees of the United States, any state or commonwealth,
any municipality, any territory or possession, or any Tribunal.
"Loan" shall mean the credit extended to Borrower pursuant to Section 2.1
of this Agreement.
"Loan Documents" shall mean this Agreement, the Note, the Security
Instruments, and all other documents or instruments executed and delivered
pursuant to or in connection with this Agreement, the Note and the Security
Instruments and any future amendments hereto or thereto.
"Maximum Loan Amount" shall mean $12,500,000.00.
"Net Income" shall mean that amount of income remaining after deducting
expenses (including provision for loan and lease losses) and payments of all
taxes incurred on said income and after deducting securities transactions, all
as calculated in accordance with GAAP and regulatory accounting principles, to
the extent each is applicable.
"Non-Performing Loans" means loans on nonaccrual, loans on which the
interest rate has been reduced other than to reflect the then prevailing market
interest rates due to the troubled condition of borrower and are loans which
have been past due for ninety (90) days or more.
"Note" shall mean the promissory note evidencing the Loan executed
simultaneously herewith, such Note to be in form and content satisfactory to
Lender in its sole discretion, and any promissory note issued in substitution
therefor or in renewal or extension or rearrangement thereof.
"Obligated Party" shall mean Borrower and any other Person in the future
who is or becomes a party to any agreement that guarantees or secures payment
and performance of the Obligations or any part thereof.
"Obligations" shall mean the outstanding principal amounts of the Note and
interest accrued thereon, and any and all other indebtedness, liabilities and
LOAN AGREEMENT - Page 2
<PAGE>
obligations whatsoever of Borrower to Lender hereunder or under the Note and/or
the Security Instruments, whether direct or indirect, absolute or contingent,
due or to become due, and whether now existing or hereafter arising, and
howsoever evidenced or acquired, whether joint or several, and whether evidenced
by note, draft, acceptance, guaranty, open account, letter of credit, surety
agreement or otherwise.
"Person" shall mean any individual, firm, corporation, association,
partnership, joint venture, trust or other entity, or Tribunal.
"Prime Rate" shall mean the variable rate of interest per annum established
by The Frost National Bank from time to time and referred to as its "prime
rate". Such rate is set by Lender as a general reference rate of interest,
taking into account such factors as Lender may deem appropriate, it being
understood that many of Lender's commercial or other loans are priced in
relation to such rate, that it is not necessarily the lowest or best rate
actually charged to any customer and that Lender may make various commercial or
other loans at rates of interest having no relationship to such rate.
"Security Instruments" shall mean any and all security agreements,
financing statements, pledges, hypothecations, or other instruments, documents,
or agreements of any sort creating or perfecting liens or in any other way
securing repayment or performance of the Obligations.
"Subsidiary" means any corporation or bank of which more than fifty (50%)
of the issued and outstanding securities having ordinary voting power for the
election of a majority of directors is owned or controlled, directly or
indirectly, by Borrower, by Borrower with one or more Subsidiaries, or by just
one or more Subsidiaries. On Closing Date, Borrower had two Subsidiaries, TSBC
and TSB Operations Corporation, a Texas corporation.
"Taxes" shall mean all taxes, assessments, fees, or other charges from time
to time or at any time imposed by any Laws or by any Tribunal.
"TSBC" shall mean Texas Security Bancshares Corporation, a Delaware
corporation, whose offices are located in the State of Delaware.
"Tribunal" shall mean any state, federal, regulatory, or other court or
governmental department, commission, board, bureau, agency or instrumentality.
1.2. OTHER DEFINITIONAL PROVISIONS. All definitions contained in this
Agreement are equally applicable to the singular and plural forms of the terms
defined. The words "hereof," "herein," and "hereunder" and words of similar
import referring to this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. Unless otherwise specified, all
Article and Section references pertain to this Agreement. All accounting terms
not specifically defined herein shall be construed in accordance with GAAP.
ARTICLE II
LOAN, SECURITY AND CONDITIONS PRECEDENT
---------------------------------------
2.1. THE LOAN. Subject to the terms and conditions of this Agreement,
Lender agrees to loan ("Loan") to Borrower the principal amount of Twelve
Million Five Hundred Thousand and No/100 Dollars ($12,500,000.00) for the
purpose of financing the acquisitions of financial institutions in Texas and for
other general corporate purposes.
2.2. THE NOTE. The obligation of Borrower to pay the Loan shall be
evidenced by a Note executed by Borrower and payable to the order of Lender, in
the principal amount of the Loan bearing interest at the variable rate per annum
equal to the Prime Rate.
(A) PRINCIPAL. The Borrower shall pay principal in accordance with
the terms of the Note, with the maturity date of the Loan being as set forth in
the Note. On Closing Date, the principal balance of the Note shall be due and
payable on April 30, 1996. The Lender agrees to lend to Borrower from the
Closing Date until April 30, 1996, such amounts as Borrower may from time to
time request (each such amount being herein called an "Advance") so long as each
Advance does
LOAN AGREEMENT - Page 3
<PAGE>
not exceed the Available Amount and the aggregate amount of Advances outstanding
at any time does not exceed the Maximum Loan Amount. The amount of principal
owing under the Note at any given time shall be the aggregate amount of all
Advances theretofore made, minus all payments of principal theretofore received
by Lender and applied to the Note.
(B) INTEREST. The Borrower shall pay interest in accordance with the
terms of the Note, which shall never exceed the Highest Lawful Rate. On Closing
Date, interest shall be due and payable on the last day of each month,
commencing November 30, 1994 and continuing regularly thereafter through and
including April 30, 1996. Unpaid and past due principal and interest shall bear
interest from its due date until paid at the lesser of (i) the Prime Rate plus
four percent (4.0%) per annum, or (ii) the Highest Lawful Rate. The unpaid
principal balance of the Loan from time to time outstanding shall bear interest
before maturity at the varying rate per annum equal to the lesser of (i) the
Highest Lawful Rate, or (ii) the Prime Rate, with adjustments in such varying
rate to be made on the same date as any change in such Prime Rate and
adjustments due to changes in the Highest Lawful Rate to be made on the
effective date of any change in the Highest Lawful Rate. Interest paid or
agreed to be paid shall not exceed the maximum amount permissible under
applicable Laws and, in any contingency whatsoever, if Lender shall receive
anything of value deemed interest under applicable Laws which would exceed the
maximum amount of interest permissible under applicable Laws, the excessive
interest shall be applied first to the reduction of unpaid principal under the
Loan, then to reduce other indebtedness of Borrower to Lender, with the
remainder of such excessive interest to be refunded to Borrower if such
excessive interest exceeds unpaid principal. Interest shall be computed on the
basis of actual days elapsed during which unpaid principal is outstanding, but
as if each calendar year consisted of three hundred sixty (360) days unless such
calculation would result in a usurious rate, in which case interest shall be
calculated on a per annum basis of a year of three hundred sixty-five (365) or
three hundred sixty-six (366) days, as the case may be, subject to the
provisions hereof limiting interest to the maximum amount permitted by
applicable Laws.
(C) REQUEST FOR ADVANCE. Borrower may request an Advance in writing
by the execution and delivery of an Advance Request Form to Lender in person or
via telecopy by no later than 10:00 a.m. (San Antonio, Texas time) on the date
the requested Advance is to be funded. Each Advance must be in an amount at
least equal to the lesser of (i) the Available Amount, or (ii) $500,000.00. The
Lender, at its option, may make an Advance on the oral request of Borrower, but
such request must be confirmed in writing signed by an authorized officer of
Borrower, within two (2) Business Days after the date such Advance is funded.
If all conditions precedent to lending as set forth herein have been met, Lender
will on the date requested make such Advance available to Borrower in
immediately available funds at Lender's office in San Antonio, Texas.
(D) PREPAYMENT. Borrower reserves the option of prepaying the
principal of the Note, in whole or in part, at any time after the date hereof
without penalty. All amounts of principal so prepaid and received by the holder
of the Note shall be applied to the next principal installment due under the
Note.
(E) EXTENSION. Provided that no Event of Default has occurred and is
continuing at the maturity date of the Loan (April 30, 1996), at Borrower's
option the Lender agrees to renew and extend the Loan to be payable in twenty
equal quarterly installments of principal plus interest accruing at the Prime
Rate.
2.3. SECURITY FOR THE LOAN. To secure full and complete payment and
performance of the Obligations, Borrower shall execute and deliver or cause to
be executed and delivered the following property ("Collateral") to secure the
Obligations:
(i) Pursuant to the terms of the Security Instruments, Borrower
shall cause TSBC to pledge and grant to Lender a first priority security
interest in 200,000 shares of common stock of CBT (representing 100% of
the issued and outstanding shares of such stock) evidenced by Certificate
Number 232 for 120,000 shares and Certificate Number 233 for
LOAN AGREEMENT - Page 4
<PAGE>
80,000 shares and all products and proceeds thereof to the extent provided
in the Security Instruments. Lender shall retain possession of the
certificate(s) representing said common stock, together with stock powers
executed in blank by TSBC.
2.4. CONDITIONS PRECEDENT TO CLOSING. The obligation of Lender to make the
Loan shall be subject to the conditions precedent that Lender shall have
received on or before the day of the Closing of the Loan, dated as of the date
of the Loan, the following documents, in form and substance satisfactory to
Lender:
(A) NOTE. The Note executed by Borrower.
(B) SECURITY INSTRUMENTS. The Security Instruments executed by
Borrower, TSBC or any other Obligated Party granting to Lender a security
interest in the Collateral.
(C) STOCK CERTIFICATES. All stock certificates pledged as Collateral
for the Loan.
(D) STOCK POWERS, UCC-1. The executed stock powers and financing
statements to evidence the security interest granted in the Security
Instruments.
(E) RESOLUTIONS. Corporate resolutions of the Board of Directors of
Borrower, certified by the Secretary or Senior Vice President of such
corporation, which resolution authorize the execution, delivery and performance
by Borrower of this Agreement and the other Loan Documents. Included in said
resolutions or by separate document, the Lender shall receive a certificate of
incumbency certified by the Secretary of Borrower and its Subsidiaries
certifying the names of each officer authorized to execute this Agreement and
the other Loan Documents, together with specimen signatures of such officers.
(F) ARTICLES OF INCORPORATION. The Articles of Incorporation of
Borrower and TSBC and the Articles of Association of CBT certified by the
Secretary of such entities to be true and correct.
(G) BYLAWS. The Bylaws of Borrower, TSBC and CBT certified by the
Secretary of such entities to be true and correct.
(H) GOVERNMENT CERTIFICATES. Certificate of Good Standing of Borrower
issued by the Comptroller of Public Accounts of the State of Texas; Certificate
of Existence of Borrower issued by the Secretary of State of Texas; Certificates
of Existence and Good Standing of TSBC issued by the State of Delaware; and
certificate of good standing of CBT from the appropriate regulatory authority.
(I) OPINION OF BORROWER'S COUNSEL. Lender shall have received from
Borrower's counsel an opinion satisfactory in form and substance to Lender and
its counsel regarding (i) the due organization of the Borrower, TSBC and CBT,
and (ii) the enforceability of Loan Documents.
(J) FINANCIAL STATEMENTS. Borrower and its Subsidiaries shall have
each delivered to Lender such financial statements as shall have been requested
by Lender, in form and substance satisfactory to Lender in its sole discretion.
(K) PROCEEDINGS. All corporate proceedings of Borrower and TSBC in
connection with their organization and the transactions contemplated by this
Agreement and all documents incident thereto shall be satisfactory in form and
substance to Lender and its counsel; and Lender shall have received copies of
all documents or other evidence which Lender or its counsel may reasonably
request in connection with said transactions and copies of records and all
corporate proceedings (including without limitation written resolutions of the
Board of Directors of Borrower duly authorizing the execution and delivery of
this Agreement, the promissory note(s), and the other Loan Documents and the
performance of their respective terms and written resolutions of the Board of
Directors of TSBC duly authorizing the pledge of the CBT stock) in connection
therewith, all in form and substance satisfactory to Lender an its counsel.
LOAN AGREEMENT - Page 5
<PAGE>
(L) ADDITIONAL PAPERS. Borrower shall have delivered to Lender such
other documents, records, instruments, papers, opinions, and reports, as shall
have been requested by Lender, to evidence the status or organization or
authority of Borrower or to evidence or secure payment of the Obligations, all
in form satisfactory to Lender and its counsel.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
To induce Lender to enter into this Agreement and upon which Lender has
relied in entering into this Agreement and consummating the transactions herein
described, Borrower represents and warrants to Lender that:
3.1. DUE ORGANIZATION. Borrower is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Texas; Borrower is
duly authorized, qualified and licensed under all applicable Laws to conduct its
businesses; and Borrower has full power, capacity, authority and legal right to
conduct the businesses in which it does now, and propose to, engage; and
Borrower has full power, capacity, authority and legal right to execute and
deliver and to perform and observe the provisions of this Agreement, and the
other Loan Documents, to which it is a party, all of which have been duly
authorized and approved by all necessary corporate action. CBT is a state
banking association duly organized, validly existing and in good standing under
the laws of the State of Texas. TSBC is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Delaware; TSBC is
duly authorized, qualified and licensed under all applicable Laws to conduct its
business; and TSBC has full power, capacity, authority and legal right to
execute and deliver and to perform and observe the provisions of the Security
Instruments it is executing, all of which have been duly authorized and approved
by all necessary corporate action.
3.2. LITIGATION. Except as set forth in a letter to Lender, no action,
suit or proceeding against or affecting Borrower or any Subsidiary is known to
be pending, or to the knowledge of Borrower threatened, in any court or before
any governmental agency or department, which, if adversely determined, could
result in a final judgment or liability of a material amount not fully covered
by insurance, or which may result in any material or adverse change in the
business, or in the condition, financial or otherwise, of Borrower. There are
no outstanding judgments against Borrower or any Subsidiary.
3.3. COMPLIANCE WITH OTHER INSTRUMENTS. There is no default in the
performance of any material obligation, covenant, or condition contained in any
agreement to which Borrower is a party which has not been waived. Neither
Borrower nor any Subsidiary is in default with respect to any Law of any
Tribunal which would have a material adverse effect on Borrower or any
Subsidiary. The execution, delivery and performance of the terms of this
Agreement, the Note and the other Loan Documents by Borrower will not violate
the provisions of any applicable Law, Borrower's By-laws or Articles of
Incorporation, or any order or regulation of any governmental authority to which
the Borrower is subject, and will not conflict with or result in a breach of any
of the terms of any agreement or instrument to which Borrower is a party or by
which Borrower is bound, or constitute a default thereunder, or result in the
creation of a lien, charge, or encumbrance of any nature upon any of Borrower's
properties or assets except as contemplated in this Agreement.
3.4. NO DEFAULT. No Event of Default specified in Article VI has occurred
and is continuing.
3.5. CORPORATE AUTHORIZATION. Borrower's and TSBC's Board of Directors
have duly authorized the execution and delivery of this Agreement and the other
Loan Documents to which each is a party and the performance of their respective
terms and no consent of the stockholders of Borrower, TSBC or any other Person
is a prerequisite thereto or if a prerequisite thereto, the same has been duly
obtained. This Agreement and all other Loan Documents are valid, binding, and
enforceable obligations of Borrower in accordance with their respective terms
except as may be limited by bankruptcy or similar laws.
LOAN AGREEMENT - Page 6
<PAGE>
3.6. DISCLOSURE. Neither this Agreement nor any other document,
certificate, Loan Document or statement furnished to Lender by or on behalf of
Borrower in connection herewith is known to contain any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein and therein not misleading.
3.7. OWNERSHIP OF SUBSIDIARIES. Borrower owns 100% of TSBC which is
evidenced by Certificate No. 1 for 100,000 shares and Borrower owns 100% of TSB
Operations Corporation as evidenced by Certificate No. 1 for 1,000 shares. TSBC
owns 100% of the issued and outstanding common stock of CBT. Borrower does not
own, directly or indirectly, any stock or any interest in any other Person
except as described above.
3.8. FEDERAL RESERVE BOARD REGULATIONS. Borrower is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation G, T, U, or X of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of the Loan will be used to purchase
or carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock. Neither Borrower nor any agent acting
on its behalf has taken or will take any action which might cause this Agreement
to violate any regulation of the Board of Governors of the Federal Reserve
System or to violate the Securities Act of 1933 or the Securities Exchange Act
of 1934, as amended.
3.9. STOCK AND STOCK AGREEMENTS. CBT does not have any class of stock
authorized other than common stock. Further, Borrower has furnished to Lender
copies of all buy-sell agreements, stock redemption agreements, voting trust
agreements and all other agreements and contracts involving the stock of CBT of
which it is aware and there are not any agreements or terms of any agreements to
which CBT is a party which alter, impair, affect or abrogate the rights of
Lender or the Obligations of Borrower under this Agreement or any other Loan
Document.
3.10. FINANCIAL STATEMENTS. The consolidated financial statements of
Borrower furnished to Lender were prepared in accordance with regulatory
accounting principles or GAAP, as indicated upon such statements, and such
statements fairly present, as appropriate, the consolidated financial conditions
and the results of operations of Borrower as of, and for the portion of the
fiscal year ending on, the date or dates thereof. There were no material or
adverse events or liabilities, direct or indirect, fixed or contingent, of
Borrower as of the date or dates of such financial statements and known to
Borrower, which are not reflected therein or in the notes thereto. Except for
transactions directly related to, or specifically contemplated by, the Loan
Documents and transactions heretofore disclosed in writing to Lender, there have
been no material or adverse changes in the respective financial conditions of
Borrower and/or its Subsidiaries from those shown in such financial statements
between such date or dates and the date hereof, nor has Borrower or any
Subsidiaries incurred any material or adverse liability, direct or indirect,
fixed or contingent, except as previously disclosed in writing to Lender.
3.11. TAXES. All federal, state, foreign, and other Tax returns of
Borrower and each Subsidiary required to be filed have been filed, and all
federal, state, foreign, and other Taxes imposed upon Borrower and each
Subsidiary which are due and payable have been paid or adequate reserves for
payment thereof have been provided.
3.12. TITLE TO COLLATERAL. Borrower represents that TSBC owns, and with
respect to Collateral delivered after the date hereof, TSBC will own, legally
and beneficially, the Collateral free of any lien or claim or any right or
option on the part of any third person to purchase or otherwise acquire the
Collateral or any part thereof, except for the first priority lien granted
pursuant to the Loan Documents. The Collateral is not subject to any
restriction on transfer or assignment except for compliance with applicable
federal and state laws and regulations promulgated thereunder. TSBC has the
unrestricted right to pledge the Collateral as contemplated hereby. All of the
Collateral has been, and with respect to Collateral delivered after the date
hereof, will be duly and validly issued and fully paid and nonassessable.
LOAN AGREEMENT - Page 7
<PAGE>
3.13. USE OF LOAN PROCEEDS. All loan proceeds or funds furnished by
Lender to Borrower shall be used solely for the purpose specified in Article II
of this Agreement.
ARTICLE IV
AFFIRMATIVE COVENANTS
---------------------
While any part of the Obligations remains unpaid and unless otherwise
waived in writing by Lender:
4.1. ACCOUNTS, REPORTS AND OTHER INFORMATION. Borrower shall maintain, and
cause each Subsidiary to maintain, a standard system of accounting in accordance
with regulatory accounting principles or GAAP, as applicable, and Borrower shall
furnish to Lender the following:
(A) QUARTERLY STATEMENTS. As soon as available, but no more than
thirty (30) days after the end of each fiscal quarter, (i) an Officer's
Certificate setting forth the information required to establish whether Borrower
and CBT were in compliance with the financial covenants and ratios set forth in
Article V hereof during the period covered and that signer or signers have
reviewed the relevant terms in this Agreement and have made, or caused to be
made under their supervision, a review of the transactions of such entity from
the beginning of the accounting period covered by the financial statements being
delivered therewith to the date of the Officer's Certificate and that such
review has not disclosed any Event of Default, violation or breach in the due
observance of any covenant, agreement or provision of this Agreement; (ii) to
the best of their ability, copies of the Uniform Bank Performance Report for
each Subsidiary prepared by the Federal Financial Institutions Examination
Council; (iii) an Officer's Certificate of CBT setting forth their evaluation of
the adequacy of the allowance for loan losses; and (iv) such other information
as Lender shall reasonably request.
(B) ANNUAL STATEMENTS. As soon as available, but no more than one
hundred twenty (120) days after the end of each fiscal year (i) a current
listing of CBT's internal watch list and/or problem loan listing (e.g., loans
rated "watch," OAEM, Substandard and Doubtful with all such information to be
held in confidence by the Lender); (ii) copies of consolidated balance sheets,
statements of income and retained earnings and statement of cash flows of
Borrower, setting forth in each case, in comparative form, figures for the
previous calendar year, all in reasonable detail; and (iii) an opinion by an
independent certified public accountant selected by Borrower, and acceptable to
Lender, which opinion shall state that said consolidated financial statements
have been prepared in accordance with GAAP and that such accountant's audit of
such financial statements has been made in accordance with generally accepted
auditing standards and that said financial statements present fairly the
consolidated financial condition of Borrower and the results of their
operations; and (iv) such other information as Lender may reasonably request.
(C) ANNUAL REPORT. As soon as available, but no more than one hundred
twenty (120) days after the end of each fiscal year of Borrower, a copy of the
Federal Reserve Board Form Y-6 Annual Report of Borrower, as filed with the
Board of Governors of the Federal Reserve System.
(D) CALL REPORTS. As soon as available, but no more than forty-five
(45) days after the call date, copies of all FFIEC Call Reports furnished by
each Subsidiary bank to the appropriate Tribunal.
4.2. EXISTENCE. Borrower and its Subsidiaries shall maintain their
respective existence as a corporation and all of its privileges, franchises,
agreements, qualifications and rights that are necessary or desirable in the
ordinary course of business; and Borrower shall cause each of its Subsidiaries
to maintain and preserve their respective good standing with all Tribunals.
4.3. OBSERVANCE OF TERMS. Borrower shall: (i) pay the principal and
interest on the Note in accordance with its terms; and (ii) observe, perform,
and comply with every covenant, term and condition herein expressed or implied
on the part of Borrower to be observed, performed or complied with.
LOAN AGREEMENT - Page 8
<PAGE>
4.4. COMPLIANCE WITH APPLICABLE LAWS. Borrower and each Subsidiary shall
substantially comply with the requirements of all applicable Laws of any
Tribunal, noncompliance of which would have a material adverse effect on
Borrower or any Subsidiary.
4.5. INSPECTION. Borrower and each Subsidiary shall permit any
representatives of Lender to visit, review and/or inspect any of its properties
and assets at any reasonable time and to examine all books of account, records,
reports, examinations and other papers (subject to applicable confidentiality
requirements), to make copies therefrom at the expense of Borrower, and to
discuss the affairs, finances and accounts of Borrower and each Subsidiary with
their respective employees and officers at all such reasonable times and as
often as may be reasonably requested. The Lender agrees to keep in confidence
the records and information provided by Borrower to Lender.
4.6. CHANGE. Borrower shall promptly notify Lender of: (i) all litigation
affecting Borrower which is not adequately covered by insurance where the amount
in controversy exceeds $100,000.00; (ii) any change in the beneficial or legal
ownership of twenty percent (20%) or more of the issued and outstanding common
stock of Borrower or any Subsidiary; and (iii) any other matter which could have
a material or adverse effect on the financial condition or operations of
Borrower or any Subsidiary.
4.7. MANAGEMENT. Borrower shall and shall cause each Subsidiary to,
maintain management satisfactory to Lender provided that such management shall
be satisfactory to Lender if, in Lender's good faith judgment, such management
demonstrates ability at least equal to present management and operates Borrower
and its Subsidiaries in a manner consistent with their present operations.
4.8. PAYMENT OF TAXES. Borrower and its Subsidiaries shall pay all lawful
Taxes imposed upon them or upon their income or profits or upon any of their
property before the same shall be delinquent; provided, however, that neither
Borrower nor any Subsidiary shall be required to pay and discharge any such
Taxes: (i) so long as the validity thereof shall be contested in good faith by
appropriate proceedings diligently pursued and such liable party shall set aside
on its books adequate reserves with respect thereto and shall pay any such Taxes
before any of its property shall be sold to satisfy any lien which has attached
as a security therefor; and (ii) if Lender has been notified of such
proceedings.
4.9. INSURANCE. Borrower shall, and shall cause any Subsidiary to, keep
all property of a character usually insured by Persons engaged in the same or
similar businesses, adequately insured by financially sound and reputable
insurers, and shall furnish Lender evidence of such insurance immediately upon
request in form satisfactory to Lender.
4.10. COMPLIANCE WITH ERISA. Borrower and each Subsidiary shall comply,
if applicable, with the provisions of the Employee Retirement Income Security
Act of 1974, as amended, and furnish to Lender, upon Lender's request, such
information concerning any plan of Borrower or any Subsidiary subject to said
Act as may be reasonably requested. Borrower and each Subsidiary shall notify
Lender immediately of any fact or action arising in connection with any plan
which might constitute grounds for the termination thereof by the Pension
Benefit Guaranty Corporation or for the appointment by the appropriate United
States district court of a trustee or administrator for such plan.
4.11. FINANCIAL CONDITION. Subject to the provisions of Article V hereof,
Borrower shall cause each Subsidiary to maintain the ratios of assets to
liabilities, loans to deposits, loan loss reserves and liquidity at percentages
acceptable to all Tribunals having jurisdiction over such Subsidiary.
4.12. MAINTENANCE OF PRIORITY OF LIENS. Borrower shall and shall cause
TSBC to, perform such acts and shall duly authorize, execute, acknowledge,
deliver, file, and record such additional assignments, security agreements, and
other agreements, documents, instruments, and certificates as Lender may deem
necessary or appropriate in order to perfect and maintain the liens on the
Collateral in favor of Lender and preserve and protect the rights of Lender.
LOAN AGREEMENT - Page 9
<PAGE>
4.13. MAINTENANCE OF PROPERTIES. Borrower shall maintain, and cause each
Subsidiary to maintain, its assets and properties in good condition and repair.
4.14. FDIC INSURANCE. Borrower shall cause each banking Subsidiary to
maintain federal deposit insurance and to be a member of the Federal Deposit
Insurance Corporation.
4.15. NOTICES. Borrower shall promptly notify, and shall cause each
Subsidiary to promptly notify, Lender of (i) the occurrence of an Event of
Default, or of any event that with notice or lapse of time or both would be an
Event of Default, (ii) the commencement of any action, suit, or proceeding
against Borrower or any Subsidiary that might have a material adverse effect on
the business, financial condition, or operations of Borrower or any Subsidiary,
and (iii) any other matter that might have a material adverse effect on the
business, financial condition, or operations of Borrower or any Subsidiary.
ARTICLE V
NEGATIVE COVENANTS
------------------
While any part of the Obligations remains unpaid and unless waived in
writing by Lender:
5.1. CAPITAL. The Borrower shall not permit the Equity Capital of CBT to,
at any time, be less than the greater of (i) five percent (5.0%) of total assets
(adjusted for any differences between Tier I Capital and stockholder's equity as
defined by GAAP), or (ii) the minimum regulatory requirement granted to CBT.
5.2. LOAN LOSS RESERVE. The Borrower shall maintain CBT's loan loss
reserve at all times to be the greater of: (i) one and one quarter percent
(1.25%) of CBT's gross loans, or (ii) regulatory minimum reserve requirements;
provided that, if a bank regulatory agency having jurisdiction over CBT requires
CBT to reduce their loan loss reserve to an amount less than the amount in
clause (i) above, then maintenance of a loan loss reserve equal to the amount
required by such regulatory agency shall be adequate.
5.3. CONSOLIDATED NET WORTH. The Borrower shall not permit its
Consolidated Net Worth to at any time be less than Forty-Five Million Dollars
($45,000,000.00).
5.4. RETURN ON EQUITY. The Borrower shall maintain at all times a minimum
return on Equity Capital of 8.0% and shall cause CBT to maintain a minimum
return on Equity Capital of 10.0%.
5.5. CASH FLOW COVERAGE. The Borrower shall cause CBT to maintain at all
times a Cash Flow Coverage of at least 1.5 to 1.0.
5.6. CONTROL. There shall be no change in the control of Borrower or any
Subsidiary. For purposes of this Section, the term "control" shall mean the
power to, directly or indirectly vote twenty percent (20%) or more of any
voting stock.
5.7. DIVIDENDS. Borrower shall not declare or pay any dividends or make
any payment on account of any class of the capital stock of Borrower now or
hereafter outstanding, make any distribution of cash or property to holders of
any shares of such stock which is in excess of $1,500,000.00 in the aggregate
per year.
5.8. BUSINESS. Borrower and each Subsidiary shall not engage, directly or
indirectly, in any business other than the businesses permitted by statute and
the regulations of the appropriate governmental and regulatory agencies or
Tribunals.
5.9. OTHER LIENS, DISPOSITION OF ASSETS. Borrower or any Subsidiary shall
not create or suffer to exist a lien or security interest upon, or otherwise
dispose of or encumber, any Collateral or security securing Borrower's payment
and performance of the Obligations, nor will Borrower or any Subsidiary sell,
LOAN AGREEMENT - Page 10
<PAGE>
lease, or otherwise dispose of their assets or investments, unless such sale
shall be in the ordinary course of business and for full and fair consideration.
5.10. LIMITATION ON DEBT. Borrower (parent company only) shall not
create, incur, assume, become or be liable in any manner in respect of, or
suffer to exist, any debt except:
(a) debt created under this Agreement;
(b) borrowed indebtedness (excluding debt created under this
Agreement) not at to exceed $1,000,000.00 at any one time outstanding; and
(c) contingent liability upon negotiable instruments endorsed for the
purpose of collection in the ordinary course of business.
5.11. ACQUISITIONS, MERGERS, AND DISSOLUTIONS. Borrower shall not, and
Borrower shall not permit any Subsidiary to, directly or indirectly, acquire all
or any substantial portion of the property, assets, or stock of, or interest in,
any Person, or merge or consolidate with any Person, or dissolve or liquidate
which is not in the ordinary course of business without notifying Lender within
thirty (30) days before the closing.
5.12. ISSUANCE OF STOCK. CBT shall not authorize or issue shares of stock
of any class, common or preferred, or any warrant, right or option pertaining to
its capital stock or issue any security convertible into capital stock.
ARTICLE VI
DEFAULT
-------
6.1. EVENTS OF DEFAULT. Each of the following shall be deemed an "Event of
-----------------
Default":
(a) Failure by Borrower to pay or perform any part or component of the
Obligations, when due or declared due and such failure continues for three (3)
days; or,
(b) Any representation or warranty made or deemed made by Borrower or
any other Person in any Loan Documents, or in any certificate or financial or
other statement furnished at any time to Lender shall be false, misleading or
erroneous in any material respect as of the date made, deemed made, or
furnished; or,
(c) Failure to observe, perform or comply with any of the covenants,
terms, or agreements contained in this Agreement or any other Loan Document; or,
(d) Failure by Borrower or any Subsidiary to pay any of its
indebtedness in excess of $250,000 as the same becomes due (other than
indebtedness being actively contested in good faith and for which adequate
reserves have been established in accordance with generally accepted accounting
principles) or any indebtedness (other than the Note) in excess of $250,000
becomes due by its terms and remains unpaid or is or may be declared to be due
and payable prior to its expressed maturity by reason of any default; or,
(e) Borrower or any Subsidiary shall file a petition for bankruptcy,
liquidation or any answer seeking reorganization, rearrangement, readjustment of
its debts or for any other relief under any applicable bankruptcy, insolvency,
or similar act or law, now or hereafter existing, or any action consenting to,
approving of, or acquiescing in, any such petition or proceeding; or the
appointment by consent or acquiescence of, a receiver, trustee, liquidator, or
custodian for all or a substantial part of its property; or the making of an
assignment for the benefit of creditors; or the inability to pay its debts as
they mature; or take any corporate action to authorize any of the foregoing; or,
(f) Filing of an involuntary petition against Borrower or any
Subsidiary seeking reorganization, rearrangement, readjustment or liquidation of
its debts or for any other relief under any applicable bankruptcy, insolvency or
other similar act or law, now or hereafter existing; or the involuntary appoint-
LOAN AGREEMENT - Page 11
<PAGE>
ment of a receiver, trustee, liquidator or custodian of all or a substantial
part of its property, and such involuntary proceeding remains unvacated,
undismissed or unstayed for a period of thirty (30) days; or the issuance of a
writ of attachment, execution, sequestration or similar process against any part
of its property and same remains unbonded, undischarged, or undismissed for a
period of fifteen (15) days from the date of notice; or,
(g) Final judgment for the payment of money in excess of $100,000
shall be rendered against Borrower or any Subsidiary and the same shall remain
undischarged for a period of thirty (30) days during which execution shall not
be effectively stayed; or,
(h) The occurrence of any substantial impairment of the Book Value of
any Collateral or security delivered to Lender in connection with this Agreement
or any other Loan Document; or,
(i) An event occurs which has a material adverse effect on the
financial condition or operation of the Borrower or its Subsidiaries; or,
(j) A change in control of Borrower or any Subsidiary (as such or
similar term is used in the Texas Banking Code of 1943 and in the Financial
Institutions Regulatory and Interest Rate Control Act) shall occur, or action to
change such control shall be commenced, without the prior written consent of
Lender (which consent may be given or withheld in Lender's sole discretion); or,
(k) This Agreement or any other Loan Document shall cease to be in
full force and effect or shall be declared null and void or the validity or
enforceability thereof shall be contested or challenged by Borrower or any
Subsidiary or any of their respective shareholders or directors, or Borrower or
any Obligated Party shall deny that it has any further liability or obligation
under any of the Loan Documents; or,
(l) Receipt by any Subsidiary of a notice from the Federal Deposit
Insurance Corporation of intent to terminate status as an insured bank; or,
(m) The filing by any Subsidiary of an application for relief pursuant
to section 13(c) of 13(i) of the Federal Deposit Insurance Act, as amended, or
similar relief from any Tribunal; or,
(n) The filing by any Subsidiary of an application for capital
forbearance or similar relief from any Tribunal.
6.2. REMEDIES UPON DEFAULT. At any time after fifteen (15) days from the
date of written notice of the occurrence of an Event of Default in Sections
6.1(b), (c), (d), (h), (i) or (j) or immediately upon the occurrence of any
Event of Default set forth in Sections 6.1(a), (e) (f), (g), (k), (l), (m), (n),
at the option of Lender, the obligation of Lender to extend credit to Borrower
pursuant hereto shall immediately terminate and the principal of and interest
accrued on the Note if not earlier demanded, shall be immediately and
automatically forthwith DEMANDED and due and payable without any notice or
demand of any kind, and the same shall be due and payable immediately without
any notice, presentment, acceleration, demand, protest, notice of acceleration,
notice of intent to accelerate, notice of intent to demand, notice of protest or
notice of any kind (except notice required by law which has not been waived
herein), all of which are hereby waived. Upon the occurrence of any Event of
Default and after all applicable grace and cure periods, Lender may exercise all
rights and remedies available to it in law or in equity, under any Loan Document
or otherwise.
6.3. PROHIBITION OF TRANSFER, ASSIGNMENT AND ASSUMPTION. This Agreement
pertains to the extension of debt financing and financial accommodations for the
benefit of the Borrower and the Subsidiaries and, except as provided in Section
7.19, cannot be transferred to, assigned to or assumed by any other person or
entity either voluntarily or by operation of law. In the event any Borrower or
any Subsidiary becomes a debtor under the Bankruptcy Code of the United States
or under the law of any foreign country, any trustee or debtor in possession may
not assume or assign this agreement nor delegate the performance of any
provision hereunder.
LOAN AGREEMENT - Page 12
<PAGE>
ARTICLE VII
MISCELLANEOUS
-------------
7.1. NOTICES. Unless otherwise provided herein, all notices,
requests, consents and demands shall be in writing and sent via telecopy (with
telephonic verification of receipt) and delivered in person via over night
delivery or mailed, postage prepaid, properly addressed as follows:
If intended for Borrower, to:
-----------------------------
Texas Security Bancshares, Inc.
777 West Rosedale
Fort Worth, Texas 76104
Attn: Michael J. Tyler
Telephone: (817) 347-8800
Telecopy: (817) 870-2410
If intended for Lender, to:
---------------------------
The Frost National Bank
100 West Houston Street
P.O. Box 1600
San Antonio, Texas 78296
Attn: Jerry L. Crutsinger
Vice President
Telephone: (214) 954-9050
Telecopy: (214) 954-9052
or to such other person or address as either party shall designate to the other
from time to time in writing forwarded in like manner. All such notices,
requests, consents and demands shall be deemed to have been given or made when
sent via telecopy or delivered in person, or if mailed when deposited in the
mails.
7.2. PLACE OF PAYMENT. All sums payable hereunder to Lender shall be
paid at Lender's banking office at 100 West Houston Street, San Antonio, Bexar
County, Texas, on the date due. If any payment falls due on other than a
Business Day, then such due date shall be extended to the next succeeding
Business Day, and such amount shall be payable in respect to such extension.
7.3. SURVIVAL OF AGREEMENT. All covenants, agreements,
representations and warranties made in this Agreement shall survive the
execution and delivery of this Agreement in the making of the Loan. All
statements contained in any certificate or other instrument delivered by
Borrower hereunder shall be deemed to constitute representations and warranties
made by Borrower. Lender agrees that with respect to any information that
Lender is required to hold in confidence pursuant to this Agreement, such
agreement shall survive the termination of this Agreement.
7.4. NO WAIVER. No waiver or consent by Lender with respect to any
act or omission of Borrower or any Subsidiary on one occasion shall constitute a
waiver or consent with respect to any other act or omission by Borrower or any
Subsidiary on the same or any other occasion, and no failure on the part of
Lender to exercise and no delay in exercising any right hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise by Lender of any
right hereunder preclude any other or further right of exercise thereof or the
exercise of any other right. The rights and remedies provided for in this
Agreement and the other Loan Documents are cumulative and not exclusive of any
rights and remedies provided by Law.
7.5. ACCOUNTING TERMS. All accounting and financial terms used
herein, and the compliance with each covenant herein which relates to financial
matters, shall be determined in accordance with regulatory accounting principles
or GAAP.
7.6. LENDER NOT IN CONTROL. None of the covenants or other
provisions contained in the Agreement shall, or shall be deemed to, give Lender
the right or power to exercise control over the affairs and/or management of
Borrower, any Subsidiary or Obligated Party, the power of Lender being limited
to those rights generally given to lenders; provided that, if Lender becomes the
owner of any
LOAN AGREEMENT - Page 13
<PAGE>
stock or other equity interest in Borrower or any Subsidiary whether through
foreclosure or otherwise, Lender shall be entitled to exercise such legal rights
as it may have by being an owner of such stock, or other equity interest in
Borrower or any Subsidiary.
7.7. JOINT VENTURE, PARTNERSHIP, ETC. None of the covenants or other
provisions contained in this Agreement shall, or shall be deemed to, constitute
or create a joint venture, partnership or any other association, affiliation, or
entity between Borrower, or any Subsidiary, or Obligated Party and Lender.
7.8. SUCCESSORS AND ASSIGNS. All covenants and agreements contained
in this Agreement and all other Loan Documents shall bind and inure to the
benefit of the respective successors and assigns of the parties hereto, except
that neither Borrower nor any Subsidiary or Obligated Party may assign its
rights herein, in whole or in part.
7.9. EXPENSES. Borrower agrees to reimburse Lender for its out-of-
pocket expenses, including reasonable attorneys' fees, in connection with the
negotiation, preparation, administration and enforcement of this Agreement or
any of the Loan Documents, making the Loan hereunder, and in connection with
amendments, consents and waivers hereunder.
7.10. GOVERNING LAW. THIS AGREEMENT, THE NOTE, AND ALL OTHER LOAN
DOCUMENTS SHALL BE DEEMED CONTRACTS UNDER THE LAWS OF THE STATE OF TEXAS AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE STATE OF TEXAS, EXCEPT TO THE EXTENT THAT FEDERAL LAWS MAY APPLY. THIS
AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS SHALL BE DEEMED TO HAVE BEEN
MADE AND TO BE PERFORMED IN SAN ANTONIO, BEXAR COUNTY, TEXAS.
7.11. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future Laws effective during
the term of this Agreement, such provision shall be fully severable; this
Agreement shall be construed and enforced as if such illegal, invalid and
unenforceable provision had never comprised a part of this Agreement; and
remaining provisions of this Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision or by
its severance from this Agreement.
7.12. MODIFICATION OR WAIVER. No modification or waiver of any
provision of this Agreement, the Note, or any Loan Document shall be effective
unless such modification or waiver shall be in writing and executed by a duly
authorized officer of Lender.
7.13. RIGHT OF SETOFF. Nothing in this Agreement shall be deemed a
waiver of Lender's right of Lender's lien or setoff against the Borrower's
deposits.
7.14. INDEMNIFICATION. Borrower hereby indemnifies Lender and each
affiliate thereof and their respective officers, directors and employees,
attorneys, and agents from, and holds each of them harmless against, any and all
losses, liabilities, claims, damages, costs and expenses (including attorneys'
fees) to which any of them may become subject which arise from or relate to any
of the Loan Documents or any of the transactions contemplated thereby or from
any investigation, litigation or other proceeding, including, without
limitation, any threatened investigation, litigation or other proceeding
relating to any of the foregoing; provided however, Borrower's indemnity does
not apply to any actions arising as a result of the Lender's gross negligence or
wilful misconduct . Without limiting any provision of this Agreement or of any
other Loan Document, it is the express intention of the parties hereto that each
Person to be indemnified under this section shall be indemnified from and held
harmless against any and all losses, liabilities, claims, damages, costs, and
expenses (including attorneys' fees) arising out of or resulting from the sole
or contributory negligence of the Person to be indemnified. This section shall
not apply to claims arising after the date the Loan is paid in full.
7.15. WAIVER OF DTPA. Neither the Borrower nor its Subsidiary is in
a significantly disparate bargaining position and they have both been
represented by legal counsel in this transaction. The Borrower and its
Subsidiaries hereby waive the applicability of the Texas Deceptive Trade
Practices Act (other than
LOAN AGREEMENT - Page 14
<PAGE>
(S)17.555) to the transaction and any and all rights or remedies that may be
available to the Borrower or any Subsidiary in connection with this transaction.
7.16. COUNTERPARTS. This Agreement may be executed simultaneously in
multiple counterparts, all of which together shall constitute one and the same
instrument.
7.17. HEADINGS. The headings, captions, and arrangements used in
this Agreement are for convenience only and shall not affect the interpretation
of this Agreement.
7.18. MAXIMUM INTEREST RATE. No provision of this Agreement or of
the Note shall require the payment or the collection of interest in excess of
the maximum permitted by applicable law. If any excess of interest in such
respect is hereby provided for, or shall be adjudicated to be so provided, in
the Note or otherwise in connection with this loan transaction, the provisions
of this Section shall govern and prevail and neither Borrower nor any other
Obligated Party shall be obligated to pay the excess amount of such interest or
any other excess sum paid for use, forbearance, or detention of sums loaned
pursuant hereto. In the event Lender ever receives, collects, or applies as
interest any such sum, such amount which would be in excess of the maximum
amount permitted by applicable law shall be applied as a payment and reduction
of the principal of the indebtedness evidenced by the Note; and, if the
principal of the Note has been paid in full, any remaining excess shall
forthwith be paid to Borrower.
7.19. ASSIGNMENT, PARTICIPATION, OR PLEDGE BY LENDER. Lender may
from time to time, without notice to Borrower or any Obligated Party: (i) pledge
or encumber or assign to the Federal Reserve Bank or any affiliate of Lender all
of Lender's right, title and interest in and to this Agreement, the Loan
Documents and/or the collateral securing the Loan; or (ii) sell a participation
or joint venture interest in all or any part of Lender's right, title, and
interest in and to this Agreement, the Loan Documents and/or such collateral;
and Borrower and each Obligated Party hereby expressly consent to any such
future transaction. Each participant or joint venturer shall be entitled to
receive all information regarding the creditworthiness of Borrower or any
Obligated Party, including, without limitation, all information required to be
disclosed to a participant or joint venturer pursuant to any Law of any
Tribunal.
7.20. ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
CONSTITUTE THE ENTIRE AGREEMENT, UNDERSTANDING, REPRESENTATIONS AND WARRANTIES
OF THE PARTIES HERETO AND SUPERSEDE ALL PRIOR AGREEMENTS, ARRANGEMENTS AND
UNDERSTANDINGS BETWEEN THE PARTIES. SHOULD A CONFLICT IN ANY TERMS, CONDITIONS
OR COVENANTS EXIST BETWEEN THIS AGREEMENT AND ANY OF THE LOAN DOCUMENTS, THIS
AGREEMENT SHALL BE CONTROLLING.
IN WITNESS HEREOF, Borrower and Lender, by and through their duly
authorized officers, have caused this Agreement to be executed the day and year
first above written.
BORROWER: TEXAS SECURITY BANCSHARES, INC.
By: /s/ Stuart W. Murff
-------------------
Its:
-------------------
By: /s/ Michael J. Tyler
--------------------
Its:
-------------------
LENDER: THE FROST NATIONAL BANK
By: /s/ Jerry L. Crutsinger
-----------------------
Its: Vice President
----------------------
LOAN AGREEMENT - Page 15
<PAGE>
The undersigned is executing this page to evidence its consent to the
foregoing and to acknowledge the terms and conditions of this Agreement which
shall be controlling over the Loan which is secured by the Security Instruments
executed by the undersigned.
TEXAS SECURITY BANCSHARES CORPORATION
By: /s/ J. Andy Thompson
--------------------
Its: President
-------------------
LOAN AGREEMENT - Page 16
<PAGE>
REVOLVING CREDIT NOTE
Effective
$12,500,000.00 DALLAS, TEXAS October 12, 1994
For value received, TEXAS SECURITY BANCSHARES, INC., a Texas corporation,
whose address is 777 West Rosedale, Fort Worth, Texas 76104 (herein called
"Borrower"), promises to pay to the order of THE FROST NATIONAL BANK, a national
banking association (herein called "Lender"), at its offices at 100 West Houston
Street, P.O. Box 1600, San Antonio, Texas 78296, in lawful money of the United
States of America, the sum of TWELVE MILLION FIVE HUNDRED THOUSAND AND NO/100
DOLLARS ($12,500,000.00), together with interest on the unpaid principal balance
from the date advanced until paid in full at a variable rate per annum which is
equal to the Prime Rate but in no event to exceed the Highest Lawful Rate.
1. Payment Terms. All accrued and unpaid interest shall be due and
payable on the last day of each month commencing November 30, 1994 and
continuing regularly thereafter through and including April 30, 1996. All
unpaid principal shall be due and payable on April 30, 1996.
2. Revolving Principal Balance. It is contemplated that by reason of
prepayments hereon there may be times when no indebtedness is owing hereunder;
but notwithstanding such occurrences, this note shall remain valid and shall be
in full force and effect as to loans or advances made pursuant to and under the
terms of this note subsequent to each such occurrence. All loans or advances and
all payments or prepayments made hereunder on account of principal or interest
may be endorsed (and shall so be endorsed prior to any transfer of this note) by
the holder hereof on a schedule attached hereto and made a part hereof for all
purposes. In the event that the unpaid principal amount hereof at any time, for
any reason, exceeds the maximum amount hereinabove specified, Borrower covenants
and agrees to immediately pay to the Lender the excess principal amount, such
excess principal amount shall in all respects be deemed to be included among the
loans or advances made pursuant to the other terms of this note and shall bear
interest at the rates hereinabove stated.
3. Request for Advance. Prior to maturity, unless expressly agreed
otherwise pursuant to the terms of any written agreement between Borrower and
Lender and executed in connection herewith (in which case the terms of such
written agreement shall control over the terms of this note but to the extent
the terms of this note are not inconsistent with the terms of such written
agreement, the terms of this note shall apply) the holder hereof may, at its
option, make loans or advances hereunder: (i) pursuant to the terms of any such
written agreement, or (ii) at the oral or written request of any of the
undersigned or of any officer or agent of Borrower designated by or acting under
the authority of resolutions of the board of directors of Borrower, a duly
certified or executed copy of which shall be furnished to the holder hereof,
until written notice of the revocation of such authority is received by the
holder hereof. Each Advance must be in an amount at least equal to the lesser
of (i) the Available Amount, or (ii) $500,000.00. Borrower covenants and agrees
to furnish to the holder hereof written confirmation of any such oral request
within two (2) days of the resulting loan or advance, but any such loan or
advance shall be deemed to be made under and entitled to the benefits of this
note irrespective of any failure by Borrower to furnish such written
confirmation. Any loan or advance shall be conclusively presumed to have been
made under the terms of this note to or for the benefit of Borrower when made
pursuant to the terms of any written agreement executed in connection herewith
between Borrower and Lender, or in accordance with such requests and directions,
or when said advances are deposited to the credit of the account of Borrower
with Lender regardless of the fact that persons other than those authorized
hereunder may have authority to draw against such account.
4. Events of Default. The Borrower shall be in default under this note
upon occurrence of any Event of Default set forth in the Loan Agreement.
REVOLVING CREDIT NOTE - Page 1
<PAGE>
5. Remedies. Upon the occurrence of any Event of Default and after any
applicable notice and opportunity to cure provisions provided in the Loan
Agreement, and at any time thereafter, thereupon at the option of Lender (i) all
obligations, if any, of the Lender hereunder, shall immediately cease and
terminate unless and until the Lender shall reinstate same in writing; (ii) the
obligation of Lender to extend credit to Borrower pursuant hereto shall
immediately terminate and the principal of and interest accrued on the Note
shall be immediately DEMANDED and forthwith due without notice of any kind;
(iii) the Lender may commence collection and/or foreclosure proceedings under
the terms and conditions of the Loan Documents or under applicable laws; and
(iv) Lender may exercise its rights of set-off against any deposits of Borrower
held by Lender.
6. Default Rate Interest. All past due principal and interest shall bear
interest from its due date until paid at the lesser of (i) Prime Rate plus four
percent (4.0%) per annum, or (ii) Highest Lawful Rate.
7. Interest Calculations. Adjustments in the interest rate shall be made
on the date as any change in such Prime Rate and adjustments due to changes in
the Highest Lawful Rate to be made on the effective date of any change in the
Highest Lawful Rate. Interest shall be computed on a per annum basis of a year
of 360 days and for the actual number of days (including the first but excluding
the last day) elapsed unless such calculation would result in a usurious rate,
in which case interest shall be calculated on a per annum basis of a year of 365
or 366 days, as the case may be.
8. Collection Costs. If this note is not paid at maturity whether by
acceleration or otherwise and is placed in the hands of an attorney for
collection, or suit is filed hereon, or proceedings are had in probate,
bankruptcy, receivership, reorganization, arrangement or other legal proceedings
for collection hereof, Borrower agrees to pay Lender its collection costs,
including a reasonable amount for attorney's fees, but in no event to exceed the
maximum amount permitted by law or otherwise allowed by a court of competent
jurisdiction in an unappealable judgment. Borrower hereby expressly waives
bringing of suit and diligence in taking any action to collect any sums owing
hereon and in the handling of any collateral or security.
9. Usury Savings. It is the intention of Borrower and Lender to conform
strictly to applicable usury laws. Accordingly, if the transactions
contemplated hereby would be usurious under applicable law, then, in that event,
notwithstanding anything to the contrary herein or in any agreement entered into
in connection with or as security for this note, it is agreed as follows: (i)
the aggregate of all consideration which constitutes interest under applicable
law that is taken, reserved, contracted for, charged or received under this note
or under any of the other Loan Documents or otherwise in connection with this
note shall under no circumstances exceed the maximum amount of nonusurious
interest allowed by applicable law, and any excess shall be credited on this
note by the holder hereof (or, to the extent that this note shall have been or
would thereby be paid in full, then it shall be applied to any other
indebtedness of Borrower to Lender, or to the extent all other indebtedness has
been or would thereby be paid in full, refunded to Borrower); and (ii) in the
event that maturity of this note is accelerated by reason of an election by the
holder hereof resulting from any default hereunder or otherwise, or in the event
of any required or permitted prepayment, then such consideration that
constitutes interest may never include more than the maximum amount of
nonusurious interest allowed by applicable law, and excess interest, if any,
provided for in this note or otherwise shall be canceled automatically as of the
date of such acceleration or prepayment and, if theretofore prepaid, shall be
credited on this note (or, to the extent that this note shall have been or would
thereby be paid in full, then it shall be applied to any other indebtedness of
Borrower to Lender, or to the extent all other indebtedness has been or would
thereby be paid in full, refunded to Borrower).
10. Prepayment. Borrower reserves the option of prepaying the principal
of this note, in whole or in part, at any time after the date hereof without
penalty. All amounts of principal so prepaid and received by the holder of the
note shall be applied to the next principal installment due under this note.
REVOLVING CREDIT NOTE - Page 2
<PAGE>
11. Waivers by Borrower. Except as set forth in the Loan Agreement, the
Borrower waives presentment, protest, notice of acceleration, demand, notice of
intent to accelerate, notice of protest and all other notices of any kind all of
which are hereby expressly waived by the Borrower, and Borrower hereby consents
to and agrees to remain liable hereon regardless of any renewals, extensions for
any period or rearrangements hereof, or partial payments hereon, or any release
or substitution of any collateral or security hereof, in whole or in part, with
or without notice, from time to time, before or after maturity.
12. Governing Law. This note shall be construed under and governed by the
laws of the State of Texas (including applicable federal law).
13. Definitions. All capitalized terms not otherwise defined herein shall
have the meaning ascribed to them in that certain Loan Agreement of event date
herewith between Borrower and Lender.
14. Other Controlling Agreements. This note is subject to all the terms
and conditions of the Loan Agreement executed in connection herewith.
15. FINAL AGREEMENT. THIS NOTE, AND ALL OTHER LOAN DOCUMENTS EXECUTED IN
CONNECTION HEREWITH, REPRESENT THE FINAL AND ENTIRE AGREEMENT BETWEEN THE
PARTIES, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, SUBSEQUENT OR
CONTEMPORANEOUS ORAL AGREEMENTS. THERE ARE NO UNWRITTEN ORAL AGREEMENT BETWEEN
THE PARTIES.
EXECUTED as of, although not necessarily on, the date first written above.
BORROWER: TEXAS SECURITY BANCSHARES, INC.
By: /s/ Stuart W. Murff
-----------------------------
Its:
-----------------------------
By: //s Michael J. Tyler
------------------------------
Its:
------------------------------
REVOLVING CREDIT NOTE - Page 3
<PAGE>
SECURITY AGREEMENT - PLEDGE
The undersigned, TEXAS SECURITY BANCSHARES CORPORATION, a Delaware
corporation, whose address is 2500 West Fourth Street, Suite 11, Wilmington,
Delaware, 19899 (hereinafter called "Pledgor"), gives, grants, transfers and
conveys to THE FROST NATIONAL BANK, whose address is 100 West Houston Street,
P.O. Box 1600, San Antonio, Texas 78296 (hereinafter called "Secured Party"), a
security interest in the collateral described and identified below, to secure
performance and payment of any and all Obligations of Texas Security Bancshares,
Inc., a Texas corporation ("Debtor") under that certain Loan Agreement of even
date herewith between Debtor and Secured Party ("Loan Agreement") including,
without limitation, that certain Revolving Credit Note in the original principal
amount of $12,500,000.00.
A. COLLATERAL. The Collateral of this Security Agreement is 200,000 shares of
common stock of Central Bank & Trust of Fort Worth, Texas evidenced by
certificate(s) no. 232 and 233, deposited with Secured Party contemporaneously
with the execution of this Security Agreement, and all other property
previously, presently or in the future deposited with Secured Party. Collateral
includes, without limitation, all stock rights, rights to subscribe, liquidating
dividends, stock dividends, dividends paid in stock, new securities, or other
property which Pledgor may hereafter become entitled to receive on account of
such securities or other property, and in the event Pledgor receives any such
property, Pledgor will immediately deliver same to Secured Party to be held by
Secured Party in the same manner as the property originally deposited as
Collateral. The Collateral of this Security Agreement also includes the
proceeds of any and all property described above, as well as any renewal of,
replacements of, or substitutions for such Collateral. The Secured Party agrees
that prior to the expiration of all cure periods following the occurrence of an
Event of Default, the Pledgor shall have the authority to vote all common stock
pledged and shall further have the right to receive all proceeds (i.e., cash
dividends) from the Collateral, provided however, after all applicable grace and
cure periods have expired following the occurrence and continuation of an Event
of Default, all voting rights shall be granted to Secured Party and all proceeds
shall be paid directly to the Secured Party.
B. PAYMENT OF INDEBTEDNESS. Debtor shall pay to Secured Party any sum or sums
due or which may become due pursuant to any term note or notes now or hereafter
executed by Debtor to evidence Debtor's Obligations to Secured Party, in
accordance with the terms of such Loan Agreement and the terms of this Security
Agreement. Pledgor and Debtor shall pay to Secured Party on demand all expenses
and expenditures, including reasonable attorneys fees and other legal expenses
incurred or paid by Secured Party in exercising or protecting its interests,
rights and remedies under this Security Agreement, plus interest thereon at the
rate of ten percent (10%) per annum.
C. REPRESENTATIONS. Pledgor represents, warrants and agrees that:
1. All financial or credit statements and Collateral deposited with or
relied upon by Secured Party prior to, contemporaneously with, or
subsequent to execution of this Security Agreement are or will be
true, correct, complete, valid and genuine.
2. All investment securities, instruments, chattel paper, and any like
property delivered to Secured Party as Collateral:
(a) are genuine, free from adverse claims or other security
interests, default, pre-payment or defenses;
(b) all persons appearing to be obligated thereon have authority and
capacity to contract and are bound thereon as they appear to be
from the face thereof; and
(c) the same comply with applicable laws concerning form, content and
manner of preparation and execution.
SECURITY AGREEMENT - PLEDGE
Page 1
<PAGE>
3. Pledgor owns the Collateral and has the right to transfer any interest
therein; the Collateral is not subject to the interest of any third
person. Pledgor will defend the Collateral and its proceeds against
the claims and demands of all third persons.
D. FURTHER AGREEMENTS. Pledgor agrees that:
1. Secured Party's duty with reference to the Collateral shall be solely
to use reasonable care in the custody and preservation of the
Collateral in Secured Party's possession.
2. Demand, notice, protest and all demands and notices of any action
taken by Secured Party under this Security Agreement or in connection
with any note or notes, except as otherwise provided in the Loan
Agreement and this Security Agreement, are hereby waived, and any
indulgence of Secured Party, substitution for, exchange of or release
of Collateral, in whole or in part, or addition or release of any
person liable on the Collateral is hereby assented and consented to.
3. Secured Party shall not be responsible in any way for any depreciation
in the value of the Collateral, nor shall any duty or responsibility
whatsoever (except as required by applicable Law) rest upon Secured
Party to take necessary steps to preserve rights against prior parties
or to enforce collection of the Collateral by legal proceedings or
otherwise, the sole duty of Secured Party, its successors and assigns,
being to receive collections, remittances and payments on such
Collateral as and when made and received by Secured Party, and at
Secured Party's option, applying the amount or amounts so received,
after deduction of any collection costs incurred, as payment upon any
indebtedness of Pledgor to Secured Party pursuant to the provisions of
this Security Agreement, or holding the same for the account and order
of Pledgor.
E. EVENTS OF DEFAULT. Pledgor shall be in default under this Security
Agreement upon the occurrence of any Event of Default set forth in the Loan
Agreement.
F. ASSIGNMENT. This Security Agreement, Secured Party's rights hereunder or
the indebtedness hereby secured may be assigned from time to time, and in any
such case the assignee shall be entitled to all of the rights, privileges and
remedies granted in this Security Agreement to Secured Party.
G. REMEDIES. Upon the occurrence of an Event of Default and at any time after
any applicable grace, notice and opportunity to cure provisions provided in the
Loan Agreement:
1. Secured Party may declare all obligations secured hereby immediately
due and payable.
2. Secured Party shall have, then or at any time thereafter, the rights
and remedies provided in the Uniform Commercial Code in force in the
State of Texas at the date of execution of this Security Agreement.
3. In addition to the rights and remedies referred to above, Secured
Party may in its sole discretion, sell, assign and deliver all or any
part of the Collateral at public or private sale and bid and become
purchaser at any public sale. If notice to Pledgor is required by the
Uniform Commercial Code of Texas for public or private sale of
Collateral, Secured Party may give written notice to Pledgor five (5)
days prior to the date of public sale of the Collateral or prior to
the date after which private sale of the Collateral will be made, by
mailing such notice to Pledgor at the address designated in this
Security Agreement.
Secured Party may apply the proceeds of any disposition of Collateral available
for satisfaction of Debtor's indebtedness and the expenses of sale in any order
of preference which Secured Party, in its sole discretion, chooses. Debtor
shall
SECURITY AGREEMENT - PLEDGE
PAGE 2
<PAGE>
remain liable for any deficiency. Secured Party may at any time demand, sue
for, collect or make any compromise or settlement with reference to the
Collateral as Secured Party, in its sole discretion, chooses. Secured Party may
delay exercising or omit to exercise any right or remedy under this Security
Agreement without waiving that or any other past, present or future right or
remedy, except in writing signed by Secured Party.
H. MISCELLANEOUS. All capitalized terms not otherwise defined herein shall
have the meaning ascribed to them in the Loan Agreement. The terms "Debtor" and
"Pledgor" as used in this instrument shall be construed as singular or plural to
correspond with the number of persons executing this instrument as such. The
pronouns used in this instrument are in the masculine gender but shall be
construed as feminine or neuter as occasion may require. "Secured Party,"
"Debtor" and "Pledgor" as used in this instrument include the heirs, executors
or administrators, successors, representatives, receivers, trustees, and
assigns of those parties. If more than one person executes this instrument as
Pledgor, their obligations under this instrument shall be joint and several.
Terms used in this instrument which are defined in the Texas Uniform Commercial
Code are used with the meanings as therein defined. The law governing this
secured transaction shall be that of the State of Texas. This Security
Agreement is subject to all the terms and conditions of the Loan Agreement. If
any provision of this Security Agreement contradicts any provision of the Loan
Agreement, the Loan Agreement shall be controlling.
EXECUTED, this 12th day of October, 1994.
PLEDGOR: TEXAS SECURITY BANCSHARES CORPORATION
By: /s/ J. Andy Thompson
------------------------------
Its: President
------------------------------
DEBTOR: TEXAS SECURITY BANCSHARES, INC.
By: /s/ Stuart W. Murff
------------------------------
Its:
------------------------------
By: /s/ Michael J. Tyler
------------------------------
Its:
------------------------------
SECURITY AGREEMENT - PLEDGE
<PAGE>
EXHIBIT 11
Texas Security Bancshares, Inc.
Exhibit 11
Schedule of Computation of Net Income Per Share
<TABLE>
<CAPTION>
1994 1993 1992
---------- --------- ---------
<S> <C> <C> <C>
PRIMARY
Net income per common share $8,021,940 8,093,343 6,084,610
========== ========= =========
Weighted average number of common
shares outstanding during the year 2,616,723 2,603,082 2,602,333
Add: Common equivalent shares
(determined using the "treasury stock"
method) representing shares issuable
upon exercise of employee stock
options 0 0 0
---------- --------- ---------
Weighted average number of shares
used in calculation of primary
income per common share 2,616,723 2,603,082 2,602,333
========== ========= =========
Primary income per common share $ 3.07 3.11 2.34
========== ========= =========
FULLY DILUTED
Weighted average number of shares
used in calculation of primary
income per common share 2,616,723 2,603,082 2,602,333
Add (deduct): incremental shares
representing:
Shares issuable upon exercise of
stock options included in primary
calculation above 0 0 0
Shares issuable upon exercise of
stock options based on year-end
market price 0 0 0
---------- --------- ---------
Weighted average number of shares
used in calculation of fully diluted
income per common share 2,616,723 2,603,082 2,602,333
========== ========= =========
Fully diluted income per common share $ 3.07 3.11 2.34
========== ========= =========
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
STATE OF
SUBSIDIARY INCORPORATION
---------- -------------
<S> <C>
Texas Security Bancshares Corporation Delaware
Central Bank & Trust Texas
TSB Operations Corporation Texas
</TABLE>
<PAGE>
EXHIBIT 24
SPECIAL POWER OF ATTORNEY
THE STATE OF TEXAS )
) KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF TARRANT )
THAT WE, the undersigned, of Tarrant County, Texas, have made, constituted,
and appointed, and by these presents do make, constitute, and appoint J. Andy
Thompson, Ervin D. Cruce and F. D. Thompson, Jr., and each of them severally,
our true and lawful attorneys and agents to execute in our name, place and stead
(in any such capacity) the Annual Report on Form 10-K of Texas Security
Bancshares, Inc. ("Form 10-K") for the fiscal year ended December 31, 1994, each
of said attorneys and agents to have power to act with or without the other and
to have full power and authority to do and perform in the name of and on behalf
of each of the undersigned, as the case may be, every act whatsoever necessary
or advisable to be done in the premises as fully and to all intents and purposes
as any of the undersigned might or could do in person, such power to extend to
the execution of any amendment to the Form 10-K.
WITNESS OUR HANDS this 22nd day of February, 1995.
\s\ Richard L. Brown
------------------------------------
Richard L. Brown
\s\ Ervin D. Cruce
------------------------------------
Ervin D. Cruce
\s\ Stuart W. Murff
------------------------------------
Stuart W. Murff
\s\ Nancy W. Smith
------------------------------------
Nancy W. Smith
\s\ C. Rhea Thompson
------------------------------------
C. Rhea Thompson
\s\ F. D. Thompson, Jr.
------------------------------------
F. D. Thompson, Jr.
\s\ J. Andy Thompson
------------------------------------
J. Andy Thompson
\s\ Kelly R. Thompson
------------------------------------
Kelly R. Thompson
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED BALANCE SHEETS OF TEXAS SECURITY BANCSHARES, INC. AND
SUBSIDIARIES AS OF DECEMBER 31, 1994 AND 1993, AND THE RELATED
CONSOLIDATED STATEMENTS OF OPERATIONS, STOCKHOLDERS' EQUITY AND CASH
FLOWS FOR EACH OF THE YEARS IN THE THREE-YEAR PERIOD ENDED DECEMBER
31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 49,348,407
<INT-BEARING-DEPOSITS> 267,925
<FED-FUNDS-SOLD> 25,100,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 163,108,986
<INVESTMENTS-CARRYING> 341,578,987
<INVESTMENTS-MARKET> 324,138,591
<LOANS> 272,825,001
<ALLOWANCE> 3,871,653
<TOTAL-ASSETS> 884,867,571
<DEPOSITS> 726,247,915
<SHORT-TERM> 89,598,888
<LIABILITIES-OTHER> 13,194,461
<LONG-TERM> 500,000
<COMMON> 6,541,808
0
0
<OTHER-SE> 48,784,499
<TOTAL-LIABILITIES-AND-EQUITY> 884,867,571
<INTEREST-LOAN> 21,690,425
<INTEREST-INVEST> 26,685,769
<INTEREST-OTHER> 1,013,318
<INTEREST-TOTAL> 49,389,512
<INTEREST-DEPOSIT> 17,025,986
<INTEREST-EXPENSE> 19,490,797
<INTEREST-INCOME-NET> 29,898,715
<LOAN-LOSSES> 500,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 27,773,382
<INCOME-PRETAX> 10,671,940
<INCOME-PRE-EXTRAORDINARY> 8,021,940
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,021,940
<EPS-PRIMARY> 3.07
<EPS-DILUTED> 3.07
<YIELD-ACTUAL> 4.29
<LOANS-NON> 3,339,000
<LOANS-PAST> 48,000
<LOANS-TROUBLED> 220,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,071,798
<CHARGE-OFFS> 1,477,528
<RECOVERIES> 777,383
<ALLOWANCE-CLOSE> 3,871,653
<ALLOWANCE-DOMESTIC> 1,710,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,162,000
</TABLE>
