<PAGE>
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, 1995 -- 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 .
--------------- ---------------
Central Bancorporation, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 75-1653291
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
777 West Rosedale, Fort Worth, Texas 76104
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(817) 347-8100
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $2.50 par value
- --------------------------------------------------------------------------------
(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 29, 1996 was $20,480,434.
The number of shares of common stock, $2.50 par value, outstanding at
February 29, 1996 was 2,616,723 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement dated March 7, 1996, filed
pursuant to Regulation 14A of the Securities Exchange Act of 1934 for the 1996
Annual Meeting of Shareholders of Central Bancorporation, Inc., are
incorporated by reference into Part III.
<PAGE>
PART I
ITEM 1. BUSINESS.
The Corporation. Central Bancorporation, 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, 1995 the Corporation had consolidated total assets of
$926,633,767, consolidated total loans of $331,146,028, consolidated total
deposits of $804,499,829 and consolidated total stockholders' equity of
$67,328,911.
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 49th 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,
Dallas and Johnson counties, 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.
- 2 -
<PAGE>
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, 1995
is set forth in the following table.
<TABLE>
<CAPTION>
As of December 31, 1995
- -----------------------------------------------------------
Stock-
Total Total Total holders'
Assets Loans Deposits Equity
------- ------ -------- -------
<S> <C> <C> <C>
$925,888,015 $331,146,028 $804,909,959 $69,850,292
</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 twenty (20)
full service branch banking facilities in Tarrant, Dallas and Johnson
counties, Texas.
Competition. There is significant competition among bank holding
-----------
companies in Tarrant, Dallas and Johnson counties, 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, 1995 the Corporation and the Subsidiary
---------
Bank collectively had a total of 436 full-time employees and 86 part-time
employees.
Supervision and Regulation.
--------------------------
General. The Corporation and the Subsidiary Bank are subject to the
generally applicable state and federal laws governing businesses and
employers. The Corporation and the Subsidiary Bank are further extensively
regulated by special state and federal laws and
- 3 -
<PAGE>
regulations applicable only to financial institutions and their parent
companies. Virtually all aspects of the Corporation's and Subsidiary Bank's
operations are subject to specific requirements or restrictions and general
regulatory oversight, from laws regulating consumer finance transactions, such
as the Truth in Lending Act, the Home Mortgage Disclosure Act and the Equal
Credit Opportunity Act, to laws regulating collections and confidentiality,
such as the Fair Debt Collection Practices Act, the Fair Credit Reporting Act
and the Right to Financial Privacy Act. With few exceptions, state and
federal banking laws have as their principal objective either the maintenance
of the safety and soundness of financial institutions and the federal deposit
insurance system or the protection of consumers or classes of consumers,
rather than the specific protection of shareholders of the Corporation.
To the extent that the following discussion describes statutory or
regulatory provisions, it is qualified in its entirety by reference to the
particular statute or regulation. Any change in applicable laws, regulations
or policies of various regulatory authorities may have a material effect on
the business, operations and prospects of the Corporation and the Subsidiary
Bank. The Corporation is unable to predict the nature or the extent of the
effects on its business or 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"). The Corporation is required to file
reports with the FRB, and to furnish such other information as the FRB may
require pursuant to the BHC Act, and to subject itself to examination by the
FRB. The FRB has the authority to issue orders to bank holding companies to
cease and desist from unsound banking practices and violations of conditions
imposed by, or violations of agreements with, the FRB. The FRB is also
empowered to assess civil monetary penalties against companies or individuals
who violate the BHC Act or orders or regulations thereunder, to order
termination of non-banking activities of non-bank subsidiaries of bank holding
companies, and to order termination of ownership and control of a non-banking
subsidiary by a bank holding company. Certain violations may also result in
criminal penalties.
The FRB takes the position that a bank holding company is required
to serve as a source of financial and managerial strength to its subsidiary
banks and may not conduct its operations in an unsafe or unsound manner. In
addition, it is the FRB's position that, in serving as a source of strength to
its subsidiary banks, a bank holding company should stand ready to use
available resources to provide adequate capital funds to its subsidiary banks
during periods of financial stress or adversity and should maintain the
financial flexibility and capital-raising capacity to obtain additional
resources for assisting its subsidiary banks. A bank holding company's
failure to meet its obligations to serve as a source of strength to its
subsidiary banks will generally be considered by the FRB to be an unsafe and
unsound banking practice or a violation of the FRB regulations, or both. This
doctrine has become known as the "source of strength" doctrine. In addition,
statutory changes in the Federal Deposit Insurance Act (the "FDIA") made by
the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
now require the holding company parent of an undercapitalized bank to
guarantee, up to certain limits, the bank's compliance with a capital
restoration plan approved by the bank's primary federal supervisory agency.
- 4 -
<PAGE>
The BHC Act and the Change in Bank Control Act, together with
regulations promulgated by the FRB, require that, depending on the particular
circumstances, either FRB approval must be obtained or notice must be
furnished to the FRB and not disapproved prior to any person or company
acquiring "control" of a bank holding company, such as the Corporation,
subject to certain exemptions for certain transactions. Control is
conclusively presumed to exist if an individual or company acquires 25% or
more of any class of voting securities of the bank holding company. Control
is rebuttably presumed to exist if a person acquires 10% or more but less than
25% of any class of voting securities and either the bank holding company has
registered securities under Section 12 of the Securities Exchange Act of 1934,
as amended, or no other person will own a greater percentage of that class of
voting securities immediately after the transaction. The regulations provide
a procedure for challenge of the rebuttable control presumption. Control is
rebuttably presumed not to exist if a company acquires less than 5% of any
class of voting securities of a bank or a bank holding company.
As a bank holding company, the Corporation is required to obtain
approval prior to merging or consolidating with any other bank holding
company, acquiring all or substantially all of the assets of any bank or
acquiring ownership or control of shares of a bank or bank holding company if,
after the acquisition, the Corporation would directly or indirectly own or
control 5% or more of the voting shares of such bank or bank holding company.
The Corporation is also prohibited from acquiring a direct or
indirect interest in or control of more than 5% of the voting shares of any
company which is not a bank or bank holding company and from engaging directly
or indirectly in activities other than those of banking, managing or
controlling banks or furnishing services to its subsidiary banks, except that
it may engage in and may own shares of companies engaged in certain activities
found by the FRB to be so closely related to banking or managing and
controlling banks as to be a proper incident thereto. These activities
include, among others, operating a mortgage, finance, credit card, or
factoring company; performing certain data processing operations; providing
investment and financial advice; acting as an insurance agent for certain
types of credit-related insurance; leasing personal property on a full-payout,
non-operating basis; and providing certain stock brokerage and investment
advisory services. In approving acquisitions or the addition of activities,
the FRB considers whether the acquisition or the additional activities can
reasonably be expected to produce benefits to the public, such as greater
convenience, increased competition, or gains in efficiency, that outweigh such
possible adverse effects as undue concentration of resources, decreased or
unfair competition, conflicts of interest or unsound banking practices. In
considering any application for approval of an acquisition or merger, the FRB
is also required to consider the financial and managerial resources of the
companies and the banks concerned, as well as the applicant's record of
compliance with the Community Reinvestment Act of 1977 (the "CRA").
As of September 30, 1995, the Riegle-Neal Interstate Banking and
Branching Act of 1994 (the "Interstate Banking Act") allows adequately
capitalized and managed bank holding companies to acquire banks in any state,
regardless of whether the acquisition would be prohibited by applicable state
law. An out-of-state bank holding company seeking to acquire ownership or
control of a Texas state bank, a 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. In addition, under the
- 5 -
<PAGE>
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 Texas, which limit
control of in-state insured deposits to a greater extent than the Interstate
Banking Act will be given effect. Texas has adopted a deposit concentration
cap of 25% of in-state insured deposits; therefore, the Texas state deposit
concentration cap will lower the otherwise applicable 30% federal deposit
concentration cap. Additionally, state provisions regarding the minimum years
the target has been in existence 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 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.
Texas has passed legislation to "opt out" of interstate mergers entirely until
1999. 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.
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.
The Subsidiary Bank is subject to certain limitations on
transactions by and between such Subsidiary Bank and other banks and non-bank
companies in the same holding company structure, including limitations on
extensions of credit (including guarantees of loans) by the Subsidiary Bank to
affiliates, investments in the stock or other securities of the Corporation by
the Subsidiary Bank, and the nature and amount of collateral that the
Subsidiary Bank may accept from any affiliate to secure loans extended to an
affiliate. The Corporation, as an affiliate of the Subsidiary Bank, is also
subject to these restrictions. Additionally, under the BHC Act and the FRB's
regulations, 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.
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."
- 6 -
<PAGE>
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"). Requirements and restrictions
imposed upon the Subsidiary Bank include the requirement that reserves be
maintained against deposits, restrictions on the nature and amount of loans
which can be made, restrictions on its business activities, restrictions on
the payment of dividends to its shareholders and numerous capital
requirements.
The FDIC has adopted risk-based capital standards and proposed a
minimum leverage ratio for state non-member banks which are substantially
similar to the risk-based capital 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 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.
Federal and Texas state laws generally limit the amount of interest
and fees which lenders, including the Subsidiary Bank, may charge regarding
loans. The applicable law, and the applicable limits, may vary depending
upon, among other things, the identity, nature and location of the lender and
the type of loan or collateral. In Texas, the maximum interest rate
applicable to most loans changes with changes in the average auction rate for
United States Treasury Bills, but does not decline below 18% or rise above 24%
(except for certain loans in excess of $250,000 for which the maximum annual
rate may not rise above 28%).
Texas state banks are permitted to engage in unlimited branch
banking, subject to the prior approval from the Banking Commissioner of Texas
to establish any branch.
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.
- 7 -
<PAGE>
FDICIA requires the FDIC to establish a schedule to increase (over a
period of not more than 15 years) the reserve ratio of the BIF to 1.25% of
insured deposits, and impose higher deposit insurance premiums of BIF members,
if necessary, to achieve that ratio. Generally, banks are assessed insurance
premiums according to how much risk they are deemed to present to BIF. Such
premiums ranged from 0.23% of insured deposits to 0.31% of insured deposits in
1994 and 1995. Banks with higher levels of capital and which have earned a
low degree of supervisory concern are assessed lower premiums than banks with
lower levels of capital or a higher degree of supervisory concern. During
1994 and most of 1995 the Subsidiary Bank was assessed at the rate of $0.23
per $100 of deposits. On August 8, 1995, the FDIC voted to significantly
reduce the deposit insurance premium paid by most banks but to keep existing
assessment rates intact for savings associations. Under the new rate
structure, which went into effect in October 1995, the highest rated
institutions insured by BIF paid $0.04 per $100 of domestic deposits. Based
on the risk category applicable to the Subsidiary Bank, the premium paid by
the Subsidiary Bank for the balance of 1995 was $0.04 per $100 of deposits.
On November 14, 1995, the FDIC announced that commencing in 1996 it would
eliminate insurance deposit premiums for all but the banks warranting the
highest level of supervisory concern.
Corrective Measures for Capital Deficiencies. FDICIA requires the
FDIC to take "prompt corrective action" with respect to any state non-member
bank which does not meet specified minimum capital requirements. The
applicable regulations establish five capital levels, ranging from "well-
capitalized" to "critically undercapitalized," and require or permit the FDIC
to take supervisory action regarding any state non-member bank that is not at
least "adequately capitalized." Under these regulations, which became
effective December 19, 1992, a state non-member bank is considered well
capitalized if it has a total risk-based capital ratio of 10% or greater, a
Tier I risk-based capital ratio of 6% or greater, and a leverage ratio of 5%
or greater, and it is not subject to an order, written agreement, capital
directive or prompt corrective action directive to meet and maintain a
specific capital measure. A state non-member bank is considered "adequately
capitalized" if it has a total risk-based capital ratio of 8% or greater, a
Tier I risk-based capital ratio and leverage ratio of 4% or greater (or a
leverage ratio of 3% or greater if the institution is rated composite 1 in its
most recent report of examination, subject to appropriate federal banking
agency guidelines), and the institution does not meet the definition of an
undercapitalized institution. A state non-member bank is considered
"undercapitalized" if it has a total risk-based capital ratio of less than 8%,
a Tier I risk-based capital ratio of less than 4%, or a leverage ratio of less
than 4% (or a leverage ratio of less than 3% if the institution is rated
composite 1 in its most recent report of examination, subject to appropriate
federal banking agency guidelines). A "significantly undercapitalized"
institution is one which has a total risk-based capital ratio of less than 6%,
a Tier I risk-based capital ratio of less than 3%, or a leverage ratio of less
than 3%. A "critically undercapitalized" institution is one which has a ratio
of tangible equity to total assets of equal to or less than 2%.
With certain exceptions, state non-member banks will be prohibited
from making capital distributions or paying management fees if the payment of
such distributions or fees will cause them to become undercapitalized.
Furthermore, undercapitalized state non-member banks will be required to file
capital restoration plans with the FDIC. Undercapitalized state non-member
banks also will be subject to restrictions on growth, acquisitions, branching
and engaging in new lines of business unless they have an approved capital
plan that permits
- 8 -
<PAGE>
otherwise. The FDIC also may, among other things, require an undercapitalized
state non-member bank to issue shares or obligations, which could be voting
stock, to recapitalize the institution or, under certain circumstances, to
divest itself of any subsidiary.
The FDIC is authorized to take various enforcement actions against
any significantly undercapitalized state non-member bank and any
undercapitalized state non-member bank that fails to submit an acceptable
capital restoration plan or fails to implement a plan accepted by the FDIC.
The powers include, among other things, requiring the institution to be
recapitalized, prohibiting asset growth, restricting interest rates paid,
requiring prior approval of capital distributions by any bank holding company
which controls the institution, requiring divestiture by the institution of
its subsidiaries or by the holding company of the institution itself,
requiring a new election of directors, and requiring the dismissal of
directors and officers.
Significantly and critically undercapitalized state non-member banks
may be subject to more extensive control and supervision. The FDIC may
prohibit any such institutions from, among other things, entering into any
material transaction not in the ordinary course of business, amending their
charters or bylaws, or engaging in certain transactions with affiliates. In
addition, critically undercapitalized institutions generally will be
prohibited from making payments of principal or interest on outstanding
subordinated debt. Within ninety (90) days of a state non-member bank's
becoming critically undercapitalized, the FDIC must appoint a receiver or
conservator unless certain findings are made with respect to the prospect for
the institution's continued viability.
Based on its capital ratios as of December 31, 1995, the Subsidiary
Bank was classified as "well capitalized" under the applicable regulations.
The Corporation does not believe that FDICIA's prompt corrective action
regulations will have any material effect on the activities or operations of
the Subsidiary Bank. However, if the Subsidiary Bank were to become
undercapitalized and these restrictions were to be imposed, the restrictions,
either individually or in the aggregate, could have a significant adverse
effect on the operations of the Subsidiary Bank.
Internal Operating Requirements. FDICIA contains numerous other
provisions, including new accounting, auditing and reporting requirements, the
termination (beginning in 1995) of the "too big to fail" doctrine except in
special cases, new regulatory standards in areas such as asset quality,
earnings and compensation and revised regulatory standards for the powers of
state chartered banks, real estate lending, bank closures and capital
adequacy.
Community Reinvestment Act of 1977. Under the CRA, a bank's
applicable regulatory authority (which is the FDIC for the Subsidiary Bank) is
required to assess the record of each financial institution which it regulates
to determine if the institution meets the credit needs of its entire
community, including low- and moderate-income neighborhoods served by the
institution, and to take that record into account in its evaluation of any
application made by such institution for, among other things, approval of the
acquisition or establishment of a branch or other deposit facility, an office
relocation, a merger, or the acquisition of shares of capital stock of another
financial institution. The regulatory authority prepares a written evaluation
of an institution's record of meeting the credit needs of its entire community
and assigns a rating. The Subsidiary Bank has undertaken significant actions
to comply with the CRA, and has
- 9 -
<PAGE>
received a "satisfactory" commendation in its most recent review by federal
regulators with respect to its compliance with the CRA. Both the United
States Congress and the banking regulatory authorities have proposed
substantial changes to the CRA and fair lending laws, rules and regulations,
and there can be no certainty as to the effect, if any, that any such changes
would have on the Subsidiary Bank.
Monetary Policy. Banks are affected by the credit policies of other
monetary authorities, including the FRB, which affect the national supply of
bank credit. Such policies influence overall growth of bank loans,
investments and deposits and may also affect interest rates charged on loans
and 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.
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 West Highway 80, 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.
- 10 -
<PAGE>
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.
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 3,525 square feet, located
at 2820 South Hulen Street, Fort Worth, Texas.
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.
- 11 -
<PAGE>
Office space consisting of approximately 6,150 square feet, located
at 110 North Main Street, Cleburne, Texas.
Office space, consisting of approximately 500 square feet each,
located in Winn Dixie grocery stores at the following locations:
2700 Eighth Avenue, Fort Worth, Texas.
3220 North Main, Fort Worth, Texas.
6479 Camp Bowie Boulevard, Fort Worth, 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 1995.
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 3, 1996, 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 52 Chairman of the Board of Directors, 1988
Chief Executive Officer and Director
Stuart W. Murff 44 President and Director 1994
Michael J. Tyler 43 Senior Vice President, Chief 1989
Financial Officer and Treasurer
Brian W. Garrison 50 Vice Chairman of the Subsidiary Bank 1992
Tom F. Turner 57 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:
- 12 -
<PAGE>
Mr. J. Andy Thompson is currently serving as 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 was also managing partner of Thompson Financial, Ltd. from
1983 to June 1995.
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 served as 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 Vice Chairman of Central Bank & Trust
since January 1992. He served as President of the Corporation from July 1989
to April 1993 and 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.
- 13 -
<PAGE>
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 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
- ------------------------ ------------------------
Quarter High Low Quarter High Low
- ------------------------ ------------------------
<S> <C> <C> <C> <C> <C>
First $22.25 $22.00 First $18.00 $18.00
Second $22.25 $22.25 Second $21.50 $20.50
Third $23.50 $23.25 Third $21.50 $21.50
Fourth $23.50 $23.00 Fourth $22.00 $21.50
</TABLE>
Shareholders. At the close of business on February 29, 1996 there were
------------
472 shareholders of record of Common Stock of the Corporation.
Dividends. The following table sets forth the annual cash dividends
---------
declared and paid per share of Common Stock since the commencement of fiscal
year 1994:
<TABLE>
<CAPTION>
1995 1994
- ------------------------------ ----------------------------
Quarter Amount Per Share Quarter Amount Per Share
- ------------------------------ ----------------------------
<S> <C> <C> <C> <C> <C>
First $261,672 $0.10 First $235,505 $0.09
Second $261,672 $0.10 Second 261,672 0.10
Third $261,672 $0.10 Third 261,672 0.10
Fourth $261,672 $0.10 Fourth 261,672 0.10
</TABLE>
- 14 -
<PAGE>
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.
- 15 -
<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
1995 1994 1993 1992 1991 1990 Growth Rate
-------- -------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets $926,634 $881,566 $735,759 $637,905 $572,047 $574,655 10.03%
Loans 331,146 272,825 235,610 190,652 179,733 203,850 10.19
Deposits 804,500 722,946 676,364 586,086 525,627 529,487 8.73
Stockholders' equity 67,329 55,326 52,222 44,624 39,164 36,784 12.85
December 31, 5 Year Annual
---------------------------------------------------------- Compound
1995 1994 1993 1992 1991 1990 Growth Rate
-------- -------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest income $ 59,790 $ 49,390 $ 43,638 $ 43,402 $ 46,443 $ 46,368 5.22%
Total interest expense 27,789 19,491 16,092 18,370 26,014 27,749 0.03
Provision for loan losses 900 500 200 2,200 2,865 4,008 (25.82)
Net income 9,517 8,022 8,093 6,085 3,073 2,416 31.55
</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.
- 16 -
<PAGE>
CONDENSED CONSOLIDATED AVERAGE BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31, 2 Year Annual
------------------------------ Compound
1995 1994 1993 Growth Rate
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
Assets
- ------
Earning assets:
Loans $302,003 $252,678 $217,872 17.73%
Interest-bearing demand deposits
in other banks 234 542 1,347 (58.32)
Federal funds sold 19,682 21,663 11,678 29.82
Investment securities:
Taxable 421,755 416,484 393,285 3.56
Tax-exempt 76,320 42,005 34,199 49.39
-------- -------- -------- ------
Total investment securities 498,075 458,489 427,484 7.94
-------- -------- -------- ------
Total earning assets 819,994 733,372 658,381 11.60
-------- -------- -------- ------
Cash and due from banks 41,538 40,880 36,503 6.67
Other assets 37,602 36,905 29,738 12.45
Less allowance for loan losses (4,200) (3,886) (4,504) (3.43)
-------- -------- -------- ------
$894,934 $807,271 $720,118 11.48%
======== ======== ======== ======
Liabilities and Stockholders' Equity
- ------------------------------------
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand $286,634 $234,293 $202,189 19.07%
Savings 66,740 71,787 68,463 (1.27)
Time 272,897 257,142 266,049 1.28
-------- -------- -------- ------
Total interest-bearing deposits 626,271 563,222 536,701 8.02
Short-term borrowings 59,205 55,168 3,729 298.46
-------- -------- -------- ------
Total interest-bearing liabilities 685,476 618,390 540,430 12.62
-------- -------- -------- ------
Noninterest-bearing demand deposits 141,975 130,532 127,295 5.61
Other liabilities 5,645 3,849 3,518 26.67
Stockholders' equity 61,838 54,500 48,875 12.48
-------- -------- -------- ------
$894,934 $807,271 $720,118 11.48%
======== ======== ======== ======
Ratio of earning assets to interest-
bearing liabilities 1.20 1.19 1.22
======== ======== ========
Earning assets as a percent of total assets 91.63% 90.85% 91.43%
======== ======== ========
Stockholders' equity as a percent of total assets 6.91% 6.75% 6.79%
======== ======== ========
</TABLE>
- 17 -
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended December 31, 5 Year Annual
---------------------------------------------------------- Compound
1995 1994 1993 1992 1991 1990 Growth Rate
-------- -------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest income $59,790 $49,390 $43,638 $43,402 $46,443 $46,368 5.22%
Total interest expense 27,789 19,491 16,092 18,370 26,014 27,749 0.03
------- ------- ------- ------- ------- ------- ------
Net interest income 32,001 29,899 27,546 25,032 20,429 18,619 11.44
Provision for loan losses 900 500 200 2,200 2,865 4,008 (25.82)
------- ------- ------- ------- ------- ------- ------
Net interest income after
provision for loan losses 31,101 29,399 27,346 22,832 17,564 14,611 16.31
------- ------- ------- ------- ------- ------- ------
Noninterest income:
Service charges and fees 9,343 8,263 7,882 6,493 5,265 4,390 16.31
Gains on sales of
investment securities 133 - - 432 1,109 8 75.45
Other income 928 784 164 164 163 218 33.60
------- ------- ------- ------- ------- ------- ------
Total noninterest income 10,404 9,047 8,046 7,089 6,537 4,616 17.65
------- ------- ------- ------- ------- ------- ------
Noninterest expenses:
Salaries and employee benefits 16,377 15,226 13,719 10,983 9,396 8,253 14.69
Net occupancy expense 2,826 2,712 2,842 1,961 1,716 1,630 11.63
Equipment and data
processing expense 3,242 2,815 2,604 1,953 1,551 1,368 18.84
Other real estate owned expense
(income), net (123) (76) 144 1,511 2,202 662 -
Marketing expense 992 886 875 745 729 680 7.85
Early retirement expense - - 118 - - 507 -
Other operating expense 5,951 6,211 6,075 5,416 4,368 3,562 10.81
------- ------- ------- ------- ------- ------- ------
Total noninterest expenses 29,265 27,774 26,377 22,569 19,962 16,662 11.92
------- ------- ------- ------- ------- ------- ------
Income before income
taxes, extraordinary item and
cumulative effect of change in
accounting for income taxes 12,240 10,672 9,015 7,352 4,139 2,565 36.69
Provision for income taxes 2,723 2,650 2,292 1,623 1,725 149 -
------- ------- ------- ------- ------- ------- ------
Income before extraordinary
item and cumulative effect of change
in accounting for income taxes 9,517 8,022 6,723 5,729 2,414 2,416 31.55
Extraordinary item/1/ - - - 356 659 - -
Cumulative effect of change in
accounting for income taxes - - 1,370 - - - -
------- ------- ------- ------- ------- ------- ------
Net income $ 9,517 $ 8,022 $ 8,093 $ 6,085 $ 3,073 $ 2,416 31.55%
======= ======= ======= ======= ======= ======= ======
Earnings per share:
Net income before extraordinary item
and cumulative effect of change
in accounting for income taxes $ 3.64 $ 3.07 $ 2.58 $ 2.20 $ 0.93 $ 0.92 31.66%
Extraordinary item - - - 0.14 0.25 - -
Cumulative effect of change in
accounting for income taxes - - 0.53 - - - -
------- ------- ------- ------- ------- ------- ------
Net income $ 3.64 $ 3.07 $ 3.11 $ 2.34 $ 1.18 $ 0.92 31.66%
======= ======= ======= ======= ======= ======= ======
Cash dividends per share $ 0.40 $ 0.39 $ 0.29 $ 0.24 $ 0.24 $ 0.24 10.76%
======= ======= ======= ======= ======= ======= ======
Weighted average number
of shares outstanding 2,617 2,617 2,603 2,602 2,603 2,624 (0.05)%
======= ======= ======= ======= ======= ======= ======
</TABLE>
______________________
/1/ The extraordinary item represents a reduction of Federal income taxes
arising from utilization of net operating loss carryforwards.
- 18 -
<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, 1995. The discussion should be read in conjunction with the consolidated
financial statements, accompanying notes, and selected financial data appearing
elsewhere in this report.
ACQUISITIONS
In November 1995, the Corporation entered into an agreement and plan of
reorganization to acquire First American Savings Bank (First American), Bedford,
Texas. The transaction is anticipated to close February 29, 1996. It is
expected to result in an increase in the Corporation's consolidated assets of
approximately $150 million at the acquisition date. The acquisition will be
accounted for as a purchase with, to the extent possible, the assets and
liabilities of First American recorded at their fair market values as of the
purchase date. The acquisition is expected to improve the Corporation's market
share, particularly in Northeast Tarrant County, provide real estate development
and interim construction lending expertise and enhance the Corporation's
mortgage servicing operation.
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.
- 19 -
<PAGE>
OVERVIEW OF 1995 PERFORMANCE
Central Bancorporation, Inc. reported record high net income for the year
ended December 31, 1995 of $9,516,914 or $3.64 per share. For the years ended
December 31, 1994 and 1993, net income was $8,021,940 or $3.07 per share and
$8,093,343 or $3.11 per share, respectively. 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 $32,000,894 in 1995 from $29,898,715 in 1994.
This increase resulted as increases in deposits and other funding sources
allowed the Corporation to increase its average earning assets by $86.622
million over the 1994 level. The increase in net interest income also occurred
despite a five basis point decrease from 1994 in the Corporation's net interest
margin (net yield on earning assets).
The Corporation's noninterest income rose by $1,357,341 over the 1994 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
increased fee income from the Corporation's trust and investment services
operations.
Noninterest expenses increased by $1,491,546 over 1994 despite a $672,609
reduction in Federal deposit insurance assessments. The increases are primarily
due to the continued increases in officer and employee compensation and the
expenses associated with the Corporation's expansion and investment in
technology and systems for the future.
The results in 1994 when compared to 1993 included: net interest income was
up $2,052,675 due to an increased level of earning assets; noninterest income
increased $1,000,458, primarily from service charges and fees on a larger
customer deposit account base and from increased income on significantly
expanded mortgage lending operations; and noninterest expenses increased
$1,396,536, primarily due to increases in salaries and employee benefits.
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.
- 20 -
<PAGE>
SUMMARY OF EARNING ASSETS AND INTEREST-BEARING LIABILITIES
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------- ----------------------------- ------------------------------
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/ $302,003 $28,155 9.32% $252,678 $ 21,945 8.68% $217,872 $ 18,955 8.70%
Interest-bearing deposits
in other banks 234 13 5.56 542 20 3.69 1,347 45 3.34
Federal funds sold 19,682 1,173 5.96 21,663 993 4.58 11,678 354 3.03
Investment securities:
Taxable 421,755 26,687 6.33 416,484 24,097 5.79 393,285 22,138 5.63
Tax-exempt/1/ 76,320 6,505 8.52 42,005 3,922 9.34 34,199 3,472 10.15
-------- ------- ------ -------- -------- ------- -------- -------- -------
Total investment securities 498,075 33,192 6.66 458,489 28,019 6.11 427,484 25,610 5.99
-------- ------- ------ -------- -------- ------- -------- -------- -------
Total earning assets/1/ $819,994 $62,533 7.63% $733,372 $50,977 6.95% $658,381 $44,964 6.83%
-------- ------- ------ -------- ------- ------- -------- ------- ------
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand $286,634 $ 8,972 3.13% $234,293 $ 5,596 2.39% $202,189 $ 4,432 2.19%
Savings 66,740 1,565 2.34 71,787 1,597 2.22 68,463 1,646 2.40
Time 272,897 13,995 5.13 257,142 9,833 3.82 266,049 9,897 3.72
-------- ------- ------ -------- -------- ------- -------- -------- -------
Total interest-bearing
deposits 626,271 24,532 3.92 563,222 17,026 3.02 536,701 15,975 2.98
Short-term borrowings 59,205 3,257 5.50 55,168 2,465 4.47 3,729 117 3.14
-------- ------- ------ -------- -------- ------- -------- -------- -------
Total interest-bearing
liabilities $685,476 27,789 4.05% $618,390 19,491 3.15% $540,430 16,092 2.98%
-------- ------- ------ -------- ------- ------- -------- -------- -------
Net interest spread 3.58% 3.80% 3.85%
======= ======= =======
Net interest income and net
yield on earning assets/1/ $34,744 4.24% $31,486 4.29% $ 28,872 4.39%
======= ======= ======= ======= ======== =======
</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.
- 21 -
<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)
---------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Total interest income $59,790 $49,390 $43,638
Taxable equivalent adjustment on tax-exempt income 2,743 1,587 1,326
------- ------- -------
Total interest income on taxable equivalent basis 62,533 50,977 44,964
Total interest expense 27,789 19,491 16,092
------- ------- -------
Net interest income on taxable equivalent basis $34,744 $31,486 $28,872
======= ======= =======
</TABLE>
The Corporation's taxable-equivalent net interest income increased by
$3.258 million from 1994 due to increases in earning assets and deposit volumes.
The average yield on earning assets was 7.63% in 1995, compared to 6.95% in
1994. The average cost of interest-bearing liabilities was 4.05% in 1995
compared to 3.15% in 1994. Thus, the net interest spread was 3.58% in 1995
compared to 3.80% in 1994, a decrease of twenty-two basis points.
The net yield on earning assets in 1995 was at 4.24%, a decrease of
five basis points from 4.29% in 1994. The Corporation's interest-bearing
liabilities remain more sensitive to rate changes than the Corporation's earning
assets. In 1995, 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 remain at or slightly above the level
achieved in 1995 as the yield curve is expected to remain relatively flat in
1996.
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.
- 22 -
<PAGE>
ANALYSIS OF CHANGES IN THE NET INTEREST MARGIN
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 Compared to 1994
- --------------------- 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 $ 6,210 $4,284 $ 1,612 $ 314
Interest-bearing deposits in other banks (7) (11) 10 (6)
Federal funds sold 180 (91) 298 (27)
Investment securities - taxable 2,590 305 2,256 29
Investment securities - tax-exempt
on taxable equivalent basis 2,583 3,204 (342) (279)
------- ------ ------- -----
Total 11,556 7,691 3,834 31
------- ------ ------- -----
Interest expense:
Interest-bearing demand deposits 3,376 1,251 1,738 387
Savings deposits (32) (112) 86 (6)
Time deposits 4,162 602 3,354 206
Short-term borrowings 792 180 570 42
------- ------ ------- -----
Total 8,298 1,921 5,748 629
------- ------ ------- -----
Net interest margin before allocation
of rates/volume 3,258 5,770 (1,914) (598)
Allocation of rates/volume - (896) 298 598
------- ------ ------- -----
Change in net interest margin $ 3,258 $4,874 $(1,616) $ -
======= ====== ======= =====
</TABLE>
<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>
- 23 -
<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 recognizes 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. Job
growth remains strong in Texas, including the Dallas/Fort Worth area.
Unemployment in the area is below 5%, well below the national rate.
In 1995 , 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 remains 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 1995, which resulted in higher rental
rates and new development. The retail market reported approximately 87%
occupancy in 1995 with new development continuing but at a slower rate. The
industrial market has improved to 95% occupancy and the demand for industrial
space is at an all time high. However, the office market is still having
problems as many older buildings in downtown Dallas and downtown Fort Worth
remain completely vacant.
With the improving economy, the Corporation achieved moderate loan growth for
the third 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.
- 24 -
<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,
----------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 3,872 $ 4,072 $ 4,663 $ 4,351 $ 5,074
-------- -------- -------- -------- --------
Charge-offs:
Commercial and financial loans 284 913 1,151 1,039 993
Real estate loans 414 230 287 1,398 2,371
Installment loans 268 335 290 417 908
-------- -------- -------- -------- --------
Total 966 1,478 1,728 2,854 4,272
-------- -------- -------- -------- --------
Recoveries:
Commercial and financial loans 493 419 662 548 244
Real estate loans 226 241 100 200 187
Installment loans 147 118 175 218 253
-------- -------- -------- -------- --------
Total 866 778 937 966 684
-------- -------- -------- -------- --------
Net charge-offs:
Commercial and financial loans (209) 494 489 491 749
Real estate loans 188 (11) 187 1,198 2,184
Installment loans 121 217 115 199 655
-------- -------- -------- -------- --------
Total 100 700 791 1,888 3,588
-------- -------- -------- -------- --------
Provision charged to earnings 900 500 200 2,200 2,865
-------- -------- -------- -------- --------
Balance at end of year $ 4,672 $ 3,872 $ 4,072 $ 4,663 $ 4,351
======== ======== ======== ======== ========
Amount of loans outstanding
at end of year $331,146 $272,825 $235,610 $190,652 $179,733
======== ======== ======== ======== ========
Average amount of loans outstanding:
Commercial and financial loans $109,606 $ 82,714 $ 69,708 $ 50,570 $ 36,342
Real estate loans 175,334 154,599 129,266 111,295 115,185
Installment loans 17,063 15,365 18,898 21,882 39,435
-------- -------- -------- -------- --------
Total $302,003 $252,678 $217,872 $183,747 $190,962
======== ======== ======== ======== ========
Ratios:
Net charge-offs to average loans:
Commercial and financial loans (0.19)% 0.60% 0.70% 0.97% 2.06%
Real estate loans 0.11% (0.01)% 0.14% 1.08% 1.90%
Installment loans 0.71% 1.41% 0.61% 0.91% 1.66%
-------- -------- -------- -------- --------
Total 0.03% 0.28% 0.36% 1.03% 1.88%
======== ======== ======== ======== ========
Balance in allowance at end of year
to outstanding loans at end of year 1.41% 1.42% 1.73% 2.45% 2.42%
======== ======== ======== ======== ========
</TABLE>
- 25 -
<PAGE>
In 1995, the provision for loan losses was $900,000 and net charge-offs
totaled $100,000, or 0.03% of average loans. In 1994, the provision amounted to
$500,000 with net charge-offs amounting to $700,000 or 0.28% of average loans.
At December 31, 1995, the allowance for loan losses was $4.672 million, or
1.41% of year-end loans, compared to $3.872 million, or 1.42% at December 31,
1994. The allowance at the close of 1995 provided coverage for 274% of
nonaccrual and restructured loans compared to 109% at the end of 1994 and 192%
at the end of 1993.
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,
-------------------------------------------------------------------------
1995 1994 1993
---------------------- ---------------------- ----------------------
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 $ 288 38.21% $ 427 34.08% $ 534 32.00%
Real estate loans 1,270 57.15 1,180 59.36 860 61.21
Installment loans 26 4.64 103 6.56 217 6.79
Unallocated 3,088 - 2,162 - 2,461 -
------ ------ ------ ------ ------ ------
Total allowance for loan losses $4,672 100.00% $3,872 100.00% $4,072 100.00%
====== ====== ====== ====== ====== ======
</TABLE>
As discussed previously, the Corporation's methodology for
establishing the level of the allowance for loan losses includes applying
historical loan loss percentages. In the current favorable economic climate,
this approach tends to reflect a relatively high unallocated component of the
allowance. The Corporation uses a consistent approach to consider what is
believed to be the inherent credit risk in the loan portfolio. While it is not
possible to predict loan losses with complete certainty, the amounts allocated
to categories of loans approximate the anticipated amount of charge-offs for the
following year.
Effective January 1, 1995, the Corporation adopted the Financial
Accounting Standards Board's Statement of Financial Accounting Standards
("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan" ("Statement
No. 114"), as amended by SFAS No. 118, "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures." 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. Management, considering current
information and events regarding the borrowers ability to repay their
obligations, considers a loan to be impaired when it is probable that the
Corporation will be unable to collect all amounts due according to the
contractual terms of the loan agreement. The Corporation generally follows the
same guidelines for classifying a loan as impaired as it does for placing a loan
on nonaccrual status. The Corporation applies
- 26 -
<PAGE>
impairment measurement methods on a loan-by-loan basis. The adoption of
Statement No. 114 does not impact the comparability of the following table.
Nonperforming assets (loans accounted for on a nonaccrual basis,
restructured loans and other real estate owned) at December 31, 1995 totaled
$1.836 million, a 53.06% decrease from the $3.911 million reported at the close
of 1994. Nonperforming assets at December 31, 1994, increased 58.98% from the
$2.460 million reported at the close of 1993.
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,
-------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $1,480 $3,339 $2,105 $3,935 $4,829
Other real estate owned, net 129 352 336 2,991 4,066
Restructured loans 227 220 19 259 -
------ ------ ------ ------ ------
Total $1,836 $3,911 $2,460 $7,185 $8,895
====== ====== ====== ====== ======
As a percent of total loans and other
real estate owned 0.55% 1.43% 1.04% 3.71% 4.84%
Interest on above loans included
in earnings $ 36 $ 169 $ 36 $ 201 $ 244
====== ====== ====== ====== ======
Accrued interest on above loans
not recorded in earnings $ 146 $ 147 $ 150 $ 179 $ 247
====== ====== ====== ====== ======
</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. All of the Corporation's foreclosed assets are held
for sale, as required by regulatory guidelines. Statement of Position 92-3,
"Accounting for Foreclosed Assets," requires that foreclosed assets held for
sale be carried at the lower of fair value, net of estimated selling costs, or
cost. 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.
- 27 -
<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,
---------------------------------
1995 1994 1993 1992 1991
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Commercial and financial loans $ 77 $ 10 $ - $ 54 $ 159
Real estate loans 242 18 524 12 165
Installment loans 47 20 6 36 172
----- ----- ----- ----- -----
Total $ 366 $ 48 $ 530 $ 102 $ 496
===== ===== ===== ===== =====
</TABLE>
In 1995, the amount of interest on the above loans that was included in income
was approximately $35,000.
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, income from investment services, gains on sales of
investment securities and other miscellaneous fee income, including income from
mortgage lending operations. Noninterest income increased 15.00% to $10.404
million in 1995 and 12.44% in 1994 to $9.047 million from the respective
preceding years. Increases in service charges and fees are largely due to the
increased customer deposit base.
The increases in trust fees are attributable to new personal and institutional
business generated. The decrease in investment services income in 1994 from
1993 was 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. As rates fell in 1995, the bond and stock markets began
providing very attractive yields and customers again increased their use of
investment services.
Other noninterest income increased in 1994 primarily due to gains on sales of
mortgage loans from the Corporation's expanded mortgage lending operations.
- 28 -
<PAGE>
The following table summarizes the changes in noninterest income during the
past two years (dollars in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1995 1994 1993
------------------ ----------------- ------
Amount % Change Amount % Change Amount
------- --------- ------ --------- ------
<S> <C> <C> <C> <C> <C>
Service charges and fees $ 7,897 10.20% $7,166 12.62% $6,363
Trust fees 892 43.64 621 29.11 481
Investment services 811 70.38 476 (54.14) 1,038
Gains on sales of investment securities 133 - - - -
Other noninterest income 671 (14.41) 784 378.05 164
------- ------ ------ ------ ------
Total noninterest income $10,404 15.00% $9,047 12.44% $8,046
======= ====== ====== ====== ======
</TABLE>
NONINTEREST EXPENSES
Noninterest expenses were $29.265 million in 1995, up 5.37% from the $27.773
million incurred in 1994. Noninterest expenses in 1994 increased 5.29% from the
$26.377 million incurred in 1993.
The largest item of noninterest expenses, salaries and employee benefits,
increased $1,151,000, or 7.56% from 1994 to 1995 and $1,507,000 or 10.98% from
1993 to 1994. Higher personnel expenses for 1995 and 1994 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 increased $114,000 or 4.20% from 1994 to 1995 compared
to a decrease of $130,000 or 4.57% from 1993 to 1994. The Corporation added new
banking facilities in 1995 and 1994. 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 1995 increased by $427,000 or 15.17%
over 1994 expense levels. The increase is primarily attributable to
depreciation expense on new equipment and new furniture for new and remodeled
banking centers. Equipment and data processing expense in 1994 increased by
$211,000 or 8.10% from 1993 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 $47,000 or 61.84% from
1994 and decreased $220,000 or 152.78% from 1993 to 1994. Other real estate
owned expenses have decreased as the number of properties held has declined.
Federal deposit insurance fees in 1995 decreased $673,000 or 44.69% from 1994
and increased $121,000 or 8.74% between 1994 and 1993. The decrease in 1995 is
attributable to a reduction in the Federal deposit insurance premium. The
increase in 1994 was attributable to the increase in average deposits.
- 29 -
<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.
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,
------------------------------------------------------------------
1995 1994 1993
-------------------------- -------------------------- -------
$ % $ %
Amount Change Change Amount Change Change Amount
-------- -------- ------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits $16,377 $1,151 7.56% $15,226 $1,507 10.98% $13,719
Net occupancy expense 2,826 114 4.20 2,712 (130) (4.57) 2,842
Equipment and data processing
expense 3,242 427 15.17 2,815 211 8.10 2,604
Other real estate owned expense
(income), net (123) (47) 61.84 (76) (220) (152.78) 144
Federal deposit insurance fees 833 (673) (44.69) 1,506 121 8.74 1,385
Marketing expense 992 106 11.96 886 11 1.26 875
Early retirement expense - - - - (118) (100.00) 118
Other taxes 153 24 18.60 129 (25) (16.23) 154
Legal and professional 1,058 118 12.55 940 (8) (0.84) 948
Communications 1,358 37 2.80 1,321 78 6.28 1,243
Stationery and supplies 916 71 8.40 845 (76) (8.25) 921
Insurance 229 (35) (13.26) 264 (105) (28.46) 369
Other operating expense 1,404 199 16.51 1,205 150 14.22 1,055
------- ------ ------ ------- ------ ------- -------
Total noninterest expenses $29,265 $1,492 5.37% $27,773 $1,396 5.29% $26,377
======= ====== ====== ======= ====== ======= =======
</TABLE>
- 30 -
<PAGE>
INCOME TAXES
In 1995, the Corporation recorded income tax expense of $2,723,000. This
compares to $2,650,000 recorded in 1994 and $2,292,000 recorded in 1993.
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 $2,297,102 and
$3,626,813 at December 31, 1995 and 1994, 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, 1995 and 1994.
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%.
- 31 -
<PAGE>
The following table presents the Corporation's risk-based and leverage capital
ratios for 1995 and 1994 (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Tier 1 (Core Capital)
Stockholders' equity $ 67,329 $ 55,326
Plus: Unrealized loss on securities
available-for-sale, net of taxes 365 3,898
Less: Excess cost over net assets acquired (741) (908)
-------- --------
Total Tier 1 Capital 66,953 58,316
-------- --------
Tier 2 (Supplementary Capital)
Eligible portion of allowance for loan losses 4,672 3,872
-------- --------
Total risk-based capital $ 71,625 $ 62,188
======== ========
Total risk-weighted assets $417,727 $370,252
======== ========
Tier 1 capital ratio 16.03% 15.75%
Total risk-based capital ratio 17.15% 16.80%
======== ========
Leverage capital ratio 7.23% 7.22%
======== ========
</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.
The acquisition of First American in 1996 is expected to reduce the
leverage capital ratio of the subsidiary bank below the required 6% level for
approximately 90 days. The subsidiary bank has received permission from the
Texas State Banking Department for this occurrence.
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.
Central Bancorporation, Inc. has drawn on its revolving line of credit to
meet its liquidity needs in 1995 and 1994. Dividends may also be received from
the subsidiary bank, although such dividends are subject to regulatory
restrictions. As of December 31, 1995, the subsidiary bank could declare
dividends up to approximately $14,700,000 without prior regulatory approval.
- 32 -
<PAGE>
To complete the acquisition of First American in 1996, Central
Bancorporation, Inc. will take an additional advance on its line of credit and
receive a cash dividend from the subsidiary bank.
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>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
U.S. Treasury $119,011 $ 99,563 $ 97,725
U.S. Government agencies 26,190 27,417 31,440
FHLB stock 2,838 3,482 3,322
State and political subdivisions 96,654 53,374 39,493
Mortgage-backed securities 70,687 100,222 72,966
Collateralized mortgage obligations 195,670 220,630 164,725
-------- -------- --------
Totals $511,050 $504,688 $409,671
======== ======== ========
</TABLE>
The investment portfolio, including Federal funds sold, as a percentage of
total assets was 55.15% at December 31, 1995, 60.10% at December 31, 1994 and
58.26% at December 31, 1993.
Mortgage-backed securities and collateralized mortgage obligations
represent 52.12% of the investment portfolio as of December 31, 1995 down from
63.57% at December 31, 1994. The mortgage-backed securities and collateralized
mortgage obligations are backed by U.S. or Federal Agency guarantees limiting
the credit risk associated with mortgage loans. Mortgage-backed securities and
collateralized mortgage obligations do possess other risks, namely uncertain
yields due to repayment uncertainties. Purchases of these types of securities
in the last two years have been limited to securities with expected lives of 5
years or less and low premiums to reduce credit risk and to minimize any adverse
effect on yield due to prepayments.
- 33 -
<PAGE>
The following schedule presents the consolidated investment securities
portfolio at December 31, 1995, 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 Over 10 Years Total
--------------- --------------- --------------- ------------- ---------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
-------- ----- -------- ----- -------- ----- ------ ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasuries $ 35,383 6.98% $ 83,628 5.54% $ - - $ - - $119,011 5.97%
U.S. Government agencies 19,066 6.68% 7,124 7.26% - - - - 26,190 6.81%
State and political
subdivisions 3,505 7.61% 24,826 6.10% 67,602 5.37% 721 6.78% 96,654 5.64%
Mortgage-backed
securities 33,881 5.97% 19,843 6.71% 16,963 5.46% - - 70,687 6.06%
Collateralized mortgage
obligations 47,819 6.40% 82,500 6.38% 65,351 6.52% - - 195,670 6.43%
-------- ----- -------- ----- -------- ----- ------ ----- -------- -----
Total $139,654 6.51% $217,921 6.08% $149,916 5.88% $ 721 6.78% $508,212 6.14%
======== ===== ======== ===== ======== ===== ====== ===== ======== =====
</TABLE>
The fair value of the investment portfolio is always different from the
amortized cost of the portfolio primarily due to interest rate fluctuations
which cause fair market valuations to change. As of December 31, 1995, the fair
value of the Corporation's investment portfolio exceeded the amortized cost by
$2,291,000 or 0.45% while as of December 31, 1994, the amortized cost of the
investment portfolio exceeded the fair value by $22,015,000 or 4.3%. The
increase in fair value relative to amortized cost was due to the decline in
interest rates in 1995.
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).
- 34 -
<PAGE>
The Company does not have any securities classified as trading as of
December 31, 1995.
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. As of December 31, 1995, stockholders' equity has been
reduced by the net unrealized losses on investment securities available-for-
sale, amounting to $365,150, net of tax of $188,102.
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, 1995 or 1994.
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,
-----------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Commercial and financial $124,364 $ 92,973 $ 75,515 $ 57,939 $ 54,099
Purchased receivables 2,158 30 - - -
Real estate:
Construction 9,324 3,355 4,338 2,240 2,542
Mortgage 180,266 162,481 141,198 112,603 107,550
Installment 17,764 17,153 18,999 19,943 17,388
Overdrafts 126 151 184 72 119
-------- -------- -------- -------- --------
Total loans 334,002 276,143 240,234 192,797 181,698
Less unearned discount (2,856) (3,318) (4,624) (2,145) (1,965)
-------- -------- -------- -------- --------
Total loans, net of unearned discount $331,146 $272,825 $235,610 $190,652 $179,733
======== ======== ======== ======== ========
</TABLE>
Net loans increased $58.321 million or 21.38% between year-end 1994 and 1995,
compared to an increase of $37.215 million or 15.80% between year-end 1993 and
1994. The increase in 1995 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 portfolio of commercial and financial loans is very diversified as to
industry. Borrowing commercial customers consist primarily of small businesses
(sales less than $50
- 35 -
<PAGE>
million) and professional and executives. Exposure to businesses in high risk
industries is minimal.
Approximately 50% of the real estate mortgage loans are for permanent
residential mortgages with the remainder being commercial loans, primarily on
owner occupied properties.
Approximately 10% of the loans are unsecured, although the portfolio does not
include credit card loans.
The following table presents the distribution of commercial, financial and
real estate construction loans at December 31, 1995 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,
including purchased receivables $79,143 $40,986 $6,393 $126,522
Real estate construction loans 8,275 652 397 9,324
------- ------- ------ --------
Total $87,418 $41,638 $6,790 $135,846
======= ======= ====== ========
With fixed interest rates $49,058 $34,756 $6,785 $ 90,599
======= ======= ====== ========
With floating interest rates $38,360 $ 6,882 $ 5 $ 45,247
======= ======= ====== ========
</TABLE>
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>
1995 1994 1993
------------------ ------------------ --------
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 $141,975 - $130,532 - $127,295 -
Interest-bearing demand 286,634 3.13% 234,293 2.39% 202,189 2.19%
Savings 66,740 2.34 71,787 2.22 68,463 2.40
Time 272,897 5.13 257,142 3.82 266,049 3.72
-------- ---- -------- ---- -------- ----
Total $768,246 3.19% $693,754 2.45% $663,996 2.41%
======== ==== ======== ==== ======== ====
</TABLE>
Total average deposits were $768.246 million in 1995 compared to
$693.754 million in 1994 and $663.996 million in 1993. 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.
- 36 -
<PAGE>
As of December 31, 1995, time deposits greater than $100,000 mature as
follows (dollars in thousands):
<TABLE>
<CAPTION>
Within Three Six to Over
Three to Six Twelve Twelve
Months Months Months Months Total
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Time certificates of deposit $11,062 $8,859 $16,597 $14,248 $50,766
Other time deposits 219 106 646 4,939 $ 5,910
</TABLE>
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, 1995, short-term borrowings included repurchase agreements
totaling $37,286,628, with a weighted average interest rate of 4.85%. The
repurchase agreements with customers have a maturity of one day and are
repricable on daily basis.
The maximum amount of repurchase agreements outstanding at any month-end
during 1995 was $83,100,794 and the maximum FHLB advance during 1995 was
$25,000,000. The average amounts outstanding and the weighted average interest
rates were approximately $52,992,095 and $2,083,333 and 5.54% and 4.92% for the
repurchase agreements and the FHLB advance, respectively.
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. The
Corporation uses a simulation model to assist in managing interest rate risk.
The model projects future net interest income based on the balance sheet
structure and varying interest rate scenarios. Results are compared to limits
the Asset/Liability Committee has established on the amount of earnings that may
be put at risk due to changes in interest rates. The simulation results are
generally well within the established limits.
- 37 -
<PAGE>
The following table quantifies the interest rate sensitivity of both
earning assets and interest-bearing liabilities as of December 31, 1995.
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 $ 83,143 21,461 73,524 178,128 153,018 331,146
Interest-bearing deposits
in other banks 173 - - 173 - 173
Federal funds sold - - - - - -
Investment securities:
Taxable 48,375 12,158 78,089 138,622 275,774 414,396
Tax-exempt 35 2,809 663 3,507 93,147 96,654
-------- -------- -------- -------- ------- -------
Total investment securities 48,410 14,967 78,752 142,129 368,921 511,050
-------- -------- -------- -------- ------- -------
Total earning assets $131,726 36,428 152,276 320,430 521,939 842,369
-------- -------- -------- -------- ------- -------
Interest-bearing liabilities:
Interest-bearing demand $311,725 - - 311,725 - 311,725
Savings 76,042 - - 76,042 - 76,042
Time deposits
(less than) $100,000 26,458 22,223 86,426 135,107 77,520 212,627
Time deposits
(greater than) $100,000 5,917 5,876 25,886 37,679 18,997 56,676
Short-term borrowings 44,420 - - 44,420 - 44,420
Note payable 2,500 - - 2,500 - 2,500
-------- -------- -------- -------- ------- -------
Total interest-bearing
liabilities $467,062 28,099 112,312 607,473 96,517 703,990
-------- -------- -------- -------- ------- -------
Interest sensitivity gap (335,336) 8,329 39,964 (287,043) 425,422 138,379
======== ======== ======== ======== ======= =======
Cumulative gap (335,336) (327,007) (287,043)
======== ======== ========
Relationship of gap to total
earning assets (39.81)% (38.82)% (34.08)%
======== ======== ========
</TABLE>
In developing the classifications used for this table, it was necessary to
make certain assumptions in assigning assets and liabilities to different
maturity categories. For example, interest-bearing demand and savings are
subject to immediate withdrawal and as such are presented as repricing in 30
days or less even though their balances have historically not shown significant
sensitivity to changes in interest rates.
- 38 -
<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>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Return on average assets 1.06% 0.99% 1.12%
Return on average equity 15.39 14.72 16.56
Dividend payout ratio 11.00 12.72 9.34
Average stockholders' equity
to average total assets 6.91 6.75 6.79
</TABLE>
- 39 -
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements: Page
------------------------------------------- ----
Independent Auditors' Report................................... 41
Consolidated Balance Sheets as of December 31, 1995
and 1994.................................................... 42
Consolidated Statements of Operations for the years
ended December 31, 1995, 1994 and 1993...................... 44
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1995, 1994
and 1993.................................................... 46
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993...................... 47
Notes to Consolidated Financial Statements..................... 49
- 40 -
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholders
Central Bancorporation, Inc.
Fort Worth, Texas:
We have audited the consolidated financial statements of Central Bancorporation,
Inc. (formerly 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 Central
Bancorporation, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in note 1 to the consolidated financial statements, the Company
changed its method of accounting for impairment of loans receivable in 1995 to
adopt the provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 114 "Accounting By Creditors for Impairment
of a Loan", as amended by Statement of Financial Accounting Standards No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosure." As discussed in note 1, 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." Also 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 1, 1996
- 41 -
<PAGE>
CENTRAL BANCORPORATION, INC. AND SUBSIDIARIES
(formerly Texas Security Bancshares, Inc. and Subsidiaries)
Consolidated Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
Assets 1995 1994
- ------ ------------ -----------
<S> <C> <C>
Cash and due from banks (note 2) $ 51,682,644 46,046,386
Interest-bearing demand deposits in other banks 172,617 267,925
Federal funds sold - 25,100,000
------------ -----------
Total cash and cash equivalents 51,855,261 71,414,311
------------ -----------
Investment securities available-for-sale (note 3) 155,601,882 163,108,986
Investment securities held-to-maturity (fair values of
$357,180,631 and $324,138,591 at December 31, 1995
and 1994, respectively) (note 3) 355,447,926 341,578,987
Loans (note 4):
Loans, net of unearned discount 331,146,028 272,825,001
Less allowance for loan losses 4,671,819 3,871,653
------------ -----------
Net loans 326,474,209 268,953,348
------------ -----------
Premises and equipment, net (note 5) 22,281,915 21,090,898
Accrued interest receivable 9,443,032 7,028,363
Other real estate owned, net (note 6) 129,160 352,211
Excess of cost over net assets acquired,
net of applicable amortization 741,068 907,752
Federal income taxes receivable (note 11) - 523,524
Deferred Federal income taxes, net (note 11) 2,297,102 3,626,813
Other assets 2,362,212 2,980,357
------------ -----------
$926,633,767 881,565,550
============ ===========
</TABLE>
(Continued)
- 42 -
<PAGE>
CENTRAL BANCORPORATION, INC. AND SUBSIDIARIES
(formerly Texas Security Bancshares, Inc. and Subsidiaries)
Consolidated Balance Sheets, Continued
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1995 1994
- ------------------------------------ ------------- ------------
<S> <C> <C>
Deposits (note 7):
Noninterest-bearing demand $147,430,934 137,157,797
Interest-bearing demand 311,724,814 252,959,937
Savings 76,041,682 67,145,836
Time, $100,000 and over 56,675,896 53,383,374
Other time 212,626,503 212,298,950
------------ -----------
Total deposits 804,499,829 722,945,894
------------ -----------
Short-term borrowings (note 8) 44,419,993 89,598,888
Note payable (note 9) 2,500,000 500,000
Dividends payable 261,672 261,672
Accrued interest payable 2,502,361 1,982,687
Federal income taxes payable (note 11) 39,476 -
Other liabilities (note 12) 5,081,525 10,950,102
------------ -----------
Total liabilities 859,304,856 826,239,243
------------ -----------
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 44,574,243 36,104,018
Unrealized loss on investment securities
available-for-sale, net of deferred Federal income
taxes of $188,102 and $2,007,813 at December 31,
1995 and 1994, respectively (365,150) (3,897,529)
------------ -----------
Total stockholders' equity 67,328,911 55,326,307
Commitments and contingencies (notes 9, 11, 13, 14 and 15)
------------ -----------
$926,633,767 881,565,550
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
- 43 -
<PAGE>
CENTRAL BANCORPORATION, INC. AND SUBSIDIARIES
(formerly Texas Security Bancshares, Inc. and Subsidiaries)
Consolidated Statements of Operations
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ---------- ----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans (note 4) $27,624,426 21,690,425 18,810,058
Interest and dividends on investment securities
(note 3) 30,980,575 26,685,769 24,429,031
Interest on deposits in other banks 12,868 20,365 45,357
Interest on Federal funds sold 1,172,513 992,953 353,650
----------- ---------- ----------
Total interest income 59,790,382 49,389,512 43,638,096
----------- ---------- ----------
Interest expense:
Interest on interest-bearing demand deposits 8,972,035 5,596,270 4,432,475
Interest on savings deposits 1,564,805 1,596,835 1,646,236
Interest on time deposits (note 7) 13,994,985 9,832,881 9,896,721
Interest on short-term borrowings 3,115,719 2,455,936 116,624
Interest on note payable 141,944 8,875 -
----------- ---------- ----------
Total interest expense 27,789,488 19,490,797 16,092,056
----------- ---------- ----------
Net interest income 32,000,894 29,898,715 27,546,040
Provision for loan losses (note 4) 900,000 500,000 200,000
----------- ---------- ----------
Net interest income after provision for loan losses 31,100,894 29,398,715 27,346,040
----------- ---------- ----------
Noninterest income:
Service charges and fees 9,343,305 8,262,716 7,882,492
Gains on sales of investment securities 133,176 - -
Other income 927,467 783,891 163,657
----------- ---------- ----------
Total noninterest income 10,403,948 9,046,607 8,046,149
----------- ---------- ----------
</TABLE>
(Continued)
- 44 -
<PAGE>
CENTRAL BANCORPORATION, INC. AND SUBSIDIARIES
(formerly Texas Security Bancshares, Inc. and Subsidiaries)
Consolidated Statements of Operations, Continued
<TABLE>
<CAPTION>
1995 1994 1993
------------- ----------- ----------
<S> <C> <C> <C>
Noninterest expenses:
Salaries and employee benefits $16,376,594 15,226,382 13,837,101
Net occupancy expense 2,825,738 2,712,437 2,841,755
Equipment and data processing expense 3,242,380 2,814,811 2,603,631
Communications expense 1,357,728 1,321,311 1,243,218
Other real estate owned expense (income), net (note 6) (122,918) (75,912) 144,384
Federal deposit insurance fees 833,139 1,505,748 1,385,034
Legal and professional 1,058,009 940,174 947,893
Stationery and supplies 915,644 845,378 920,974
Marketing expense 992,258 885,986 874,997
Other operating expense 1,786,356 1,597,067 1,577,859
----------- ---------- ----------
Total noninterest expenses 29,264,928 27,773,382 26,376,846
----------- ---------- ----------
Income before income taxes and
cumulative effect of change in
accounting for income taxes 12,239,914 10,671,940 9,015,343
----------- ---------- ----------
Provision (benefit) for Federal income taxes (note 11):
Current 3,213,000 2,430,000 2,177,000
Deferred (490,000) 220,000 115,000
----------- ---------- ----------
Total provision for Federal income taxes 2,723,000 2,650,000 2,292,000
----------- ---------- ----------
Income before cumulative effect of change
in accounting for income taxes 9,516,914 8,021,940 6,723,343
Cumulative effect of change in accounting for income
taxes (note 11) - - 1,370,000
----------- ---------- ----------
Net income $ 9,516,914 8,021,940 8,093,343
=========== ========== ==========
Earnings per share:
Income before cumulative effect of change in
accounting for income taxes $ 3.64 3.07 2.58
Cumulative effect of change in accounting for
income taxes - - 0.53
----------- ---------- ----------
Net income $ 3.64 3.07 3.11
=========== ========== ==========
Weighted average number of shares outstanding 2,616,723 2,616,723 2,603,082
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
- 45 -
<PAGE>
CENTRAL BANCORPORATION, INC. AND SUBSIDIARIES
(formerly Texas Security Bancshares, Inc. and Subsidiaries)
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Additional Unrealized
Common Paid-In Retained Gains/
Stock Capital Earnings (Losses) Total
---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
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
Net income - - 9,516,914 - 9,516,914
Cash dividends - $.40 per share - - (1,046,689) - (1,046,689)
Change in unrealized gains/(losses)
on investment securities available-
for-sale, net of $1,819,711 deferred
Federal income taxes (note 1(c)) - - - 3,532,379 3,532,379
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1995 $6,541,808 16,578,010 44,574,243 (365,150) 67,328,911
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
- 46 -
<PAGE>
CENTRAL BANCORPORATION, INC. AND SUBSIDIARIES
(formerly Texas Security Bancshares, Inc. and Subsidiaries)
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 9,516,914 8,021,940 8,093,343
Adjustments to reconcile net income to net cash
provided by operating activities:
Provisions for loan losses and losses on other
real estate owned, net 942,554 400,216 673,423
Depreciation 2,739,178 2,330,089 2,041,453
Amortization 166,684 184,360 174,298
Gains on sales of available-for-sale investment securities (133,176) - -
Net gain on sales of premises and equipment (7,948) (11,503) (19,440)
Net gain on sales of other real estate owned (205,626) (44,173) (337,731)
Premium amortization and discount accretion, net 841,126 1,393,717 3,744,558
Deferred Federal income taxes, net (490,000) 220,000 (1,255,000)
Changes in operating assets and liabilities:
Net increase in loans held for sale (405,898) (766,001) -
Decrease (increase) in accrued interest receivable (2,414,669) (997,194) 688,498
Decrease (increase) in Federal income taxes receivable 523,524 (245,000) (243,205)
Decrease (increase) in other assets 618,145 (246,786) (903,869)
Increase (decrease) in accrued interest payable 519,674 712,726 (32,787)
Increase in Federal income taxes payable 39,476 - -
Increase (decrease) in other liabilities (5,868,577) 8,410,438 610,238
------------ ------------ ------------
Net cash provided by operating activities 6,381,381 19,362,829 13,233,779
------------ ------------ ------------
Cash flows from investing activities:
Cash and cash equivalents received (paid) in acquisitions - (1,679,778) 73,590,958
Net decrease in interest-bearing time deposits in
other banks - - 12,320
Proceeds from maturities and principal reductions of
investment securities:
Available-for-sale 25,933,028 103,743,230 -
Held-to-maturity 46,431,526 30,907,587 218,291,453
Proceeds from sales of available-for-sale investment securities 30,228,601 - -
Purchases of investment securities:
Available-for-sale (44,123,081) (98,884,722) -
Held-to-maturity (60,487,769) (138,640,610) (256,543,296)
Net increase in loans (58,354,994) (35,173,884) (29,549,687)
Proceeds from sales of premises and equipment 13,291 17,934 41,545
Purchases of premises and equipment (3,935,538) (5,108,052) (4,029,532)
Proceeds from sales of other real estate owned 1,026,154 127,897 1,459,651
------------ ------------ ------------
Net cash provided by (used in) investing activities (63,268,782) (144,690,398) 3,273,412
------------ ------------ ------------
</TABLE>
(Continued)
- 47 -
<PAGE>
CENTRAL BANCORPORATION, INC. AND SUBSIDIARIES
(formerly Texas Security Bancshares, Inc. and Subsidiaries)
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------ -----------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from note payable $ 2,000,000 500,000 -
Net increase (decrease) in deposits 81,553,935 51,541,234 (8,077,050)
Net increase (decrease) in short-term borrowings (45,178,895) 86,445,209 (653,640)
Dividends paid (1,046,689) (968,188) (702,630)
Proceeds from issuance of common stock - - 261,179
------------ ----------- ----------
Net cash provided by (used in)
financing activities 37,328,351 137,518,255 (9,172,141)
------------ ----------- ----------
Net increase (decrease) in cash and cash equivalents (19,559,050) 12,190,686 7,335,050
Cash and cash equivalents at beginning of year 71,414,311 59,223,625 51,888,575
------------ ----------- ----------
Cash and cash equivalents at end of year $ 51,855,261 71,414,311 59,223,625
============ =========== ==========
</TABLE>
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest was $27,269,814, $18,778,071 and $16,124,843 in 1995,
1994 and 1993, respectively.
Cash paid for Federal income taxes was $2,650,000, $2,675,000 and $2,420,205
in 1995, 1994 and 1993, respectively.
Supplemental Disclosures of Noncash Investing Activities:
Loans transferred to other real estate owned in 1995, 1994 and 1993 were
$1,000,021, $164,493 and $559,642, 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
$359,990, $124,001 and $619,300 in 1995, 1994 and 1993, respectively.
Net unrealized losses on investment securities available-for-sale and the
related net increase in deferred Federal income taxes were $553,252 and
$188,102, respectively, as of December 31, 1995, compared to $5,905,342
and $2,007,813, respectively, as of December 31, 1994.
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.
- 48 -
<PAGE>
CENTRAL BANCORPORATION, INC. AND SUBSIDIARIES
(formerly Texas Security Bancshares, Inc. and Subsidiaries)
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Business
Central Bancorporation, Inc. (the "Company"), a bank holding company
(formerly Texas Security Bancshares, Inc.), provides a full range of
banking services to individual and corporate customers through its
subsidiaries and branch banks. As of December 31, 1995, the subsidiary
bank, Central Bank & Trust, operated 20 branch banks in and around
Tarrant County, Texas.
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 Central
Bancorporation, Inc. and its subsidiaries, Central Bank & Trust,
Central Bancorporation of Delaware, Inc. (formerly Texas Security
Bancshares Corporation) and TSB Operations Corporation. All
significant intercompany balances and transactions have been
eliminated in consolidation.
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.
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 these same markets. 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.
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.
- 49 -
<PAGE>
CENTRAL BANCORPORATION, INC. AND SUBSIDIARIES
(formerly 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, 1995.
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. As of December 31, 1995,
stockholders' equity has been reduced by the net unrealized losses on
investment securities available-for-sale, amounting to $365,150, net
of tax of $188,102.
- 50 -
<PAGE>
CENTRAL BANCORPORATION, INC. AND SUBSIDIARIES
(formerly 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 obligations 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.
Effective January 1, 1995, the Company adopted FASB Statement of
Financial Accounting Standards ("SFAS") No. 114, "Accounting by
Creditors for Impairment of a Loan" ("Statement No. 114"), as amended
by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosure." Management, considering current
information and events regarding the borrowers ability to repay their
obligations, considers a loan to be impaired when it is probable that
the Company will be unable to collect all amounts due according to
the contractual terms of the loan agreement. Generally, impaired
loans are on nonaccrual and, accordingly, cash receipts are applied
to reduce the principal amount of such loans until the principal has
been recovered and are recognized as interest income thereafter.
- 51 -
<PAGE>
CENTRAL BANCORPORATION, INC. AND SUBSIDIARIES
(formerly Texas Security Bancshares, Inc. and Subsidiaries)
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
(d) Loans, continued
When a loan is considered to be impaired, the amount of the
impairment is measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or the
fair value of the collateral if the loan is collateral dependent.
The Company applies impairment measurement methods on a loan-by-loan
basis. Impairment losses are included in the allowance for loan
losses.
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 of the assets.
(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.
The Financial Accounting Standards Board has issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("Statement No. 121"), which
establishes accounting standards for the impairment of long-lived
assets such as premises and equipment, certain identifiable
intangibles and goodwill. Statement No. 121 requires an impairment
loss to be recognized to the extent the carrying amount exceeds the
fair value of the asset. The Company will be required to adopt
Statement No. 121 as of January 1, 1996. The provisions of Statement
No. 121 will not have a material effect on the consolidated financial
condition or operating results of the Company.
- 52 -
<PAGE>
CENTRAL BANCORPORATION, INC. AND SUBSIDIARIES
(formerly Texas Security Bancshares, Inc. and Subsidiaries)
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
(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 FASB 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.
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.
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.
- 53 -
<PAGE>
CENTRAL BANCORPORATION, INC. AND SUBSIDIARIES
(formerly Texas Security Bancshares, Inc. and Subsidiaries)
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
(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 discounted cash flows 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 sheets 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
(see note 3).
. 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 (see note 4).
. 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 (see note 7).
. 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.
- 54 -
<PAGE>
CENTRAL BANCORPORATION, INC. AND SUBSIDIARIES
(formerly Texas Security Bancshares, Inc. and Subsidiaries)
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
(k) Dividends from Subsidiaries
One of the primary sources of funds for Central Bancorporation, Inc.
is cash dividends from the subsidiary bank, Central Bank & Trust
(CB&T). The amount of dividends that CB&T may declare is subject to
regulatory restrictions. As of December 31, 1995, CB&T could declare
dividends up to approximately $14,700,000 without prior regulatory
approval.
(l) 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.
(m) 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.
(n) Reclassifications
Certain amounts in 1994 and 1993 have been reclassified to conform
with the 1995 presentation.
(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 cash on hand, and were
approximately $1,320,000 at December 31, 1995 and $7,169,000 at December
31, 1994.
- 55 -
<PAGE>
CENTRAL BANCORPORATION, INC. AND SUBSIDIARIES
(formerly Texas Security Bancshares, Inc. and Subsidiaries)
Notes to Consolidated Financial Statements
(3) INVESTMENT SECURITIES
The amortized cost and fair values of investment securities as of December
31, 1995 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 $113,577,747 740,479 (336,039) 113,982,187
U.S. Government agencies 26,023,702 203,197 (36,555) 26,190,344
FHLB stock 2,837,700 - - 2,837,700
Collateralized mortgage obligations 12,604,252 14,953 (27,554) 12,591,651
------------ ---------- ----------- -----------
$155,043,401 958,629 (400,148) 155,601,882
============ ========== =========== ===========
Held-to-maturity
- ----------------
U.S. Treasury $ 5,028,182 31,193 - 5,059,375
State and political subdivisions 96,654,216 3,620,917 (136,970) 100,138,163
Mortgage-backed securities 70,687,400 529,330 (527,597) 70,689,133
Collateralized mortgage obligations 183,078,128 707,728 (2,491,896) 181,293,960
------------ ---------- ----------- -----------
$355,447,926 4,889,168 (3,156,463) 357,180,631
============ ========== =========== ===========
</TABLE>
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 30,573,815 - (808,736) 29,765,079
Collateralized mortgage obligations 13,909,299 - (436,136) 13,473,163
------------ ----------- ----------- -----------
$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 70,456,986 35,686 (3,609,948) 66,882,724
Collateralized mortgage obligations 207,156,832 - (13,174,210) 193,982,622
------------ ----------- ----------- -----------
$341,578,987 836,783 (18,277,179) 324,138,591
============ ========== =========== ===========
</TABLE>
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 amounts amortized during 1995 and
1994 were $218,821 and $139,796, respectively.
- 56 -
<PAGE>
CENTRAL BANCORPORATION, INC. AND SUBSIDIARIES
(formerly Texas Security Bancshares, Inc. and Subsidiaries)
Notes to Consolidated Financial Statements
(3) INVESTMENT SECURITIES, Continued
During 1995, the Company realized gross gains of $133,176 on sales of
available-for-sale investment securities.
The amortized cost and fair values of investment securities at December
31, 1995, 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 and collateralized mortgage
obligations 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
and collateralized mortgage obligations 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 $ 49,057,817 49,420,656 8,533,399 8,593,430
Due after one year through five years 90,543,632 90,751,875 24,826,287 25,750,860
Due after five years through ten years - - 67,601,634 70,140,139
Due after ten years - - 721,078 713,109
------------ ----------- ----------- -----------
139,601,449 140,172,531 101,682,398 105,197,538
FHLB stock 2,837,700 2,837,700 - -
Mortgage-backed securities - - 70,687,400 70,689,133
Collateralized mortgage obligations 12,604,252 12,591,651 183,078,128 181,293,960
------------ ----------- ----------- -----------
$155,043,401 155,601,882 355,447,926 357,180,631
============ =========== =========== ===========
</TABLE>
Interest and dividend income on investment securities consists of the
following:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
U.S. Treasury $ 6,349,870 5,222,908 6,183,362
U.S. Government agencies 1,884,835 2,090,263 3,374,851
FHLB stock 185,002 160,188 10,126
State and political subdivisions 4,293,470 2,588,327 2,291,440
Mortgage-backed securities 4,873,609 5,337,778 4,023,768
Collateralized mortgage obligations 13,393,789 11,286,305 8,545,484
----------- ---------- ----------
$30,980,575 26,685,769 24,429,031
=========== ========== ==========
</TABLE>
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 $21,164,000 at
December 31, 1995. Securities valued at 102% of the securities loaned
collateralized this loan agreement.
- 57 -
<PAGE>
CENTRAL BANCORPORATION, INC. AND SUBSIDIARIES
(formerly Texas Security Bancshares, Inc. and Subsidiaries)
Notes to Consolidated Financial Statements
(3) INVESTMENT SECURITIES, Continued
Investment securities with a carrying value of approximately $52,784,000
and $36,649,000 at December 31, 1995 and 1994, respectively, were pledged
to secure deposits as required or permitted by law. In addition, at
December 31, 1995 and 1994, investment securities with a carrying value of
approximately $21,441,000 and $23,997,000, respectively, were pledged to
secure available federal funds lines (see note 13). Also, at December 31,
1995, investment securities with a carrying value of approximately
$43,615,000 collateralized the Company's repurchase agreements (see
note 8).
(4) LOANS AND ALLOWANCE FOR LOAN LOSSES
Major classifications of loans as of December 31, 1995 and 1994 are
summarized as follows:
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Commercial and financial $124,363,546 92,972,210
Purchased receivables 2,158,176 30,658
Real estate construction 9,323,941 3,355,110
Real estate mortgage 180,266,307 162,481,042
Installment 17,763,672 17,152,868
Overdrafts 126,034 150,701
------------ -----------
334,001,676 276,142,589
Less unearned discount 2,855,648 3,317,588
------------ -----------
$331,146,028 272,825,001
============ ===========
</TABLE>
The carrying value of loans, net of the allowance for loan losses, totaled
$326,474,209 and $268,953,348 as of December 31, 1995 and 1994,
respectively. The fair value of the loans amounted to approximately
$326,625,000 and $268,414,000 as of December 31, 1995 and 1994,
respectively.
At December 31, 1995 and 1994, the Company had approximately $1,172,000
and $766,000, respectively, of real estate mortgage loans classified as
held for sale. Cost approximates fair value for these loans as of
December 31, 1995 and 1994.
Nonaccrual and reduced rate loans amounted to approximately $1,707,000 and
$3,559,000 at December 31, 1995 and 1994, respectively. If interest on
these loans had been accrued normally, additional income earned would
approximate $146,000 and $147,000 for the years ended December 31, 1995
and 1994, respectively.
As discussed in note 1(d), the Company adopted Statement No. 114 as of
January 1, 1995. As of December 31, 1995, the recorded investment in
impaired loans was approximately $1,480,000, including approximately
$914,000 for which there was a related allowance for loan losses totaling
approximately $193,000 as determined under the provisions of Statement No.
114 and approximately $566,000 for which there was no related allowance
as determined in accordance with Statement No. 114. The impairment
measurement for all impaired loans was based on the fair value of the
underlying collateral. The average recorded investment in impaired loans
during 1995 was approximately $2,315,000. No interest income was
recognized on loans considered to be impaired. Interest income recorded
on a cash basis for loans previously on nonaccrual and for which all
principal has been collected totaled approximately $170,000.
- 58 -
<PAGE>
CENTRAL BANCORPORATION, INC. AND SUBSIDIARIES
(formerly Texas Security Bancshares, Inc. and Subsidiaries)
Notes to Consolidated Financial Statements
(4) LOANS AND ALLOWANCE FOR LOAN LOSSES, Continued
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.
Following is a summary of activity during 1995 for such loans:
<TABLE>
<CAPTION>
<S> <C>
Balance, December 31, 1994 $ 7,140,150
Advances 2,787,380
Repayments (3,925,172)
Other changes, due to changes in
related party status 4,285,867
-----------
Balance, December 31, 1995 $10,288,225
===========
</TABLE>
A summary of changes in the allowance for loan losses for the years ended
December 31, 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year $3,871,653 4,071,798 4,662,845
Additions (deductions):
Provision 900,000 500,000 200,000
Recoveries of loans previously charged off 865,930 777,383 937,407
Loans charged off (965,764) (1,477,528) (1,728,454)
---------- ---------- ----------
Balance at end of year $4,671,819 3,871,653 4,071,798
========== ========== ==========
</TABLE>
(5) PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1995 and 1994 consist of:
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Land $ 5,117,615 4,757,615
Buildings and leasehold improvements 19,718,467 17,965,652
Furniture, fixtures and equipment 13,892,452 11,905,905
----------- ----------
38,728,534 34,629,172
Less accumulated depreciation 16,446,619 13,538,274
----------- ----------
$22,281,915 21,090,898
=========== ==========
</TABLE>
- 59 -
<PAGE>
CENTRAL BANCORPORATION, INC. AND SUBSIDIARIES
(formerly Texas Security Bancshares, Inc. and Subsidiaries)
Notes to Consolidated Financial Statements
(6) OTHER REAL ESTATE OWNED
A summary of other real estate owned at December 31, 1995 and 1994 is as
follows:
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Acquired in settlement of loans $ 65,559 567,550
Other 1,083,585 1,083,585
---------- ---------
1,149,144 1,651,135
Less allowance for losses on other
real estate owned 1,019,984 1,298,924
---------- ---------
$ 129,160 352,211
========== =========
</TABLE>
A summary of changes in the allowance for losses on other real estate owned
for the years ended December 31, 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- -----------
<S> <C> <C> <C>
Balance at beginning of year $1,298,924 1,532,216 2,564,761
Additions (deductions):
Provision 42,554 (99,784) 473,423
Disposition of properties (321,494) (133,508) (1,505,968)
---------- --------- ----------
Balance at end of year $1,019,984 1,298,924 1,532,216
========== ========= ==========
</TABLE>
(7) DEPOSITS
The carrying amounts and fair values of deposits as of December 31, 1995
and 1994 consisted of the following:
<TABLE>
<CAPTION>
1995 1994
------------------------- ------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Noninterest-bearing demand $147,430,934 147,430,934 137,157,797 137,157,797
Interest-bearing demand 311,724,814 311,724,814 252,959,937 252,959,937
Savings 76,041,682 76,041,682 67,145,836 67,145,836
Certificates of deposit, less than $100,000 165,382,720 166,728,721 168,144,682 166,531,844
Certificates of deposit, $100,000 and over 50,766,023 51,074,362 47,320,730 46,912,181
Other time 53,153,656 54,226,809 50,216,912 49,734,076
------------ ----------- ----------- -----------
$804,499,829 807,227,322 722,945,894 720,441,671
============ =========== =========== ===========
</TABLE>
Interest expense on certificates of deposit for $100,000 and over amounted
to approximately $2,612,000, $1,685,000 and $1,612,000 in 1995, 1994 and
1993, respectively.
- 60 -
<PAGE>
CENTRAL BANCORPORATION, INC. AND SUBSIDIARIES
(formerly Texas Security Bancshares, Inc. and Subsidiaries)
Notes to Consolidated Financial Statements
(8) SHORT-TERM BORROWINGS
Short-term borrowings as of December 31, 1995 and 1994 are summarized as
follows:
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Securities sold under agreements
to repurchase ("repurchase agreements") $37,286,628 59,137,190
Federal funds purchased 2,000,000 -
FHLB advance - 25,000,000
Treasury tax and loan note 5,133,365 5,461,698
----------- ----------
$44,419,993 89,598,888
=========== ==========
</TABLE>
The maximum amount of repurchase agreements outstanding at any month-end
during 1995 was $83,100,794. The average amount of repurchase agreements
outstanding during 1995 was $52,992,095. The securities collateralizing
these agreements have been delivered to other financial institutions for
safekeeping (see note 3).
(9) NOTE PAYABLE
The Company had outstanding borrowings of $2,500,000 and $500,000 as of
December 31, 1995 and 1994, respectively, 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, 1995) 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.
The loan agreement with the lending bank contains certain covenants
establishing minimum levels for tangible equity capital, return on equity,
allowance for loan losses, and cash flow. The covenants also restrict the
amount of dividend payments and the debt level of Central Bancorporation,
Inc.. The Company is in compliance with these covenants as of December
31, 1995.
(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>
1995 1994 1993
------- ------ --------
<S> <C> <C> <C>
Options outstanding at beginning of year 27,760 27,760 42,150
Options granted - - 11,110
Options exercised - - (14,390)
Options canceled (2,500) - (11,110)
------ ------ -------
Options outstanding at end of year at prices
ranging from $16.50 to $19.80 per share 25,260 27,760 27,760
====== ====== =======
</TABLE>
- 61 -
<PAGE>
CENTRAL BANCORPORATION, INC. AND SUBSIDIARIES
(formerly Texas Security Bancshares, Inc. and Subsidiaries)
Notes to Consolidated Financial Statements
(10) STOCK OPTIONS, Continued
The Financial Accounting Standards Board has issued SFAS No. 123,
"Accounting for Stock-Based Compensation" ("Statement No. 123"), which
establishes a fair value based method of accounting for stock-based
compensation plans. Entities are encouraged to adopt all provisions of
Statement No. 123 and are required to comply with the disclosure
requirements of Statement No. 123. Statement No. 123 is effective for
financial statements for fiscal years beginning after December 15, 1995.
The provisions of Statement No. 123, if adopted, would not have a material
effect on the consolidated financial condition or operating results of the
Company.
(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% (35% for taxable income in excess of $10 million) to income
before income taxes and cumulative effect of change in accounting for
income taxes, as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ---------- ----------
<S> <C> <C> <C>
Computed "expected" Federal tax expense $ 4,183,970 3,635,179 3,065,217
Tax-exempt interest (1,612,167) (964,088) (821,721)
Other 151,197 (21,091) 48,504
----------- --------- ---------
Total provision for Federal income taxes $ 2,723,000 2,650,000 2,292,000
=========== ========= =========
</TABLE>
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, 1995 and 1994 are presented below:
<TABLE>
<CAPTION>
1995 1994
------------ ----------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $1,588,418 1,316,362
Allowance for losses on other real estate owned 355,635 513,907
Deferred compensation 337,715 253,402
Unrealized loss on investment securities
available-for-sale 188,102 2,007,813
Other 259,869 241,062
---------- ---------
Gross deferred tax assets 2,729,739 4,332,546
---------- ---------
Deferred tax liabilities:
Premises and equipment (380,414) (372,686)
Prepaid FDIC assessment - (255,000)
Other (52,223) (78,047)
---------- ---------
Gross deferred tax liabilities (432,637) (705,733)
---------- ---------
Net deferred tax asset $2,297,102 3,626,813
========== =========
</TABLE>
- 62 -
<PAGE>
CENTRAL BANCORPORATION, INC. AND SUBSIDIARIES
(formerly Texas Security Bancshares, Inc. and Subsidiaries)
Notes to Consolidated Financial Statements
(11) INCOME TAXES, Continued
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, 1995 and 1994.
(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,
1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
--------------------------- --------------------------
Qualified Nonqualified Qualified Nonqualified
Plan Plan Plan Plan
------------ ------------- ----------- -------------
<S> <C> <C> <C> <C>
Plan assets (principally marketable
securities) at estimated fair value $ 8,436,103 - 7,493,823 -
Projected benefit obligation (including
accumulated benefit obligation of
$6,143,190 and $5,545,994 at
December 31, 1995 and 1994,
respectively, for the qualified plan
and $125,131 and $41,142 at
December 31, 1995 and 1994,
respectively, for the nonqualified plan) (7,719,923) (390,472) (6,659,103) (372,273)
----------- ------------ ---------- ------------
716,180 (390,472) 834,720 (372,273)
Unamortized net asset existing at date of
adoption of FASB Statement No. 87 (410,848) - (489,797) -
Unamortized net liability existing at date
of plan initiation - 215,208 - 231,763
Unrecognized prior service cost (207,420) - (225,139) -
Unrecognized net loss (gain) from
actuarial experience (485,528) 57,712 (462,706) 90,510
----------- ------------ ---------- ------------
Net pension liability - included in
other liabilities $ (387,616) (117,552) (342,922) (50,000)
=========== ============ ========== ============
</TABLE>
- 63 -
<PAGE>
CENTRAL BANCORPORATION, INC. AND SUBSIDIARIES
(formerly Texas Security Bancshares, Inc. and Subsidiaries)
Notes to Consolidated Financial Statements
(12) EMPLOYEE BENEFITS, Continued
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 7.25% and 4.50%, respectively, in 1995,
and 8.50% and 5.00%, respectively, in 1994. The weighted-average expected
long- term rate of return on plan assets was 8.50% in 1995 and 1994. The
vested benefit obligation was $5,561,353 and $5,053,246 at December 31,
1995 and 1994, respectively, for the qualified plan and $58,060 and
$23,700 at December 31, 1995 and 1994, respectively, for the nonqualified
plan.
The net pension income (expense) includes the following components:
<TABLE>
<CAPTION>
1995 1994 1993
----------- --------- ---------
<S> <C> <C> <C>
Service cost $ (333,840) (340,688) (214,150)
Interest cost on projected benefit obligation (548,692) (506,662) (490,780)
Actual return (loss) on plan assets 1,368,405 (124,144) 466,783
Other - net (598,119) 864,858 274,351
---------- -------- --------
$ (112,246) (106,636) 36,204
========== ======== ========
</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 $223,000, $194,000 and $115,000 in
1995, 1994 and 1993, respectively.
In 1993, the Company implemented a deferred compensation plan for the
purpose of attracting and retaining key employees. The amount of deferred
compensation for each participant is determined based on earnings per share
of the Company and the relative importance of the participant's position's
contribution to increases in earnings per share. Distributions under the
plan would be made upon the occurrence of a triggering event, as defined in
the plan agreement. Triggering events include termination of employment
with the Company for reasons other than "cause" as defined in the plan, the
death or disability of the participant, expiration of the plan or the sale
of the Company. The Company's deferred compensation expense under this
plan totaled $294,000, $220,000 and $151,000 in 1995, 1994 and 1993,
respectively. The maximum contingent liability under this plan
approximated $1,786,000 as of December 31, 1995.
- 64 -
<PAGE>
CENTRAL BANCORPORATION, INC. AND SUBSIDIARIES
(formerly Texas Security Bancshares, Inc. and Subsidiaries)
Notes to Consolidated Financial Statements
(12) EMPLOYEE BENEFITS, Continued
The Company has entered into deferred compensation agreements with certain
key individuals in the organization. Under the terms of the agreements,
unless the agreements are terminated by the Company, the individuals, upon
reaching their retirement date as defined in the agreements, would receive
specified monthly benefits for ten years. Although the benefit obligation
is unsecured and payable from the Company's general assets, the Company
does have life insurance policies which are intended as funding sources for
the obligations. The Company's deferred compensation expense under these
agreements totaled approximately $41,000, $37,000 and $32,000 in 1995, 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 $66,433,000 and standby letters of credit totaled
approximately $2,263,000 as of December 31, 1995 (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, 1995, Central Bank & Trust had three unused Federal Funds
lines of credit with other banks. One line, in the amount of $10,000,000,
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, 1996. This line is collateralized by investment securities
with a carrying value of approximately $21,441,000 as of December 31, 1995.
The second line, in the amount of $30,000,000, has a variable interest rate
based on the lending bank's daily Federal funds rate, and matures April 30,
1996. This line is unsecured up to $10,000,000. For advances above
$10,000,000, 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.
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 110% of any advances drawn on the line if the line has an amount
outstanding for five consecutive days. This line matures July 31, 1996.
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 1996.
- 65 -
<PAGE>
CENTRAL BANCORPORATION, INC. AND SUBSIDIARIES
(formerly Texas Security Bancshares, Inc. and Subsidiaries)
Notes to Consolidated Financial Statements
(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.
(15) SUBSEQUENT EVENT
In November 1995, the Company entered into an agreement and plan of
reorganization to acquire First American Savings Bank (First American),
Bedford, Texas. The transaction is anticipated to close February 29, 1996.
The transaction is expected to result in an increase in the Company's
consolidated assets of approximately $150 million at the acquisition date.
The acquisition will be accounted for as a purchase with, to the extent
possible, the assets and liabilities of First American recorded at their
fair market values as of the purchase date.
- 66 -
<PAGE>
CENTRAL BANCORPORATION, INC. AND SUBSIDIARIES
(formerly Texas Security Bancshares, Inc. and Subsidiaries)
Notes to Consolidated Financial Statements
(16) PARENT COMPANY INFORMATION
The following is condensed financial information for the parent company,
Central Bancorporation, Inc.:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
- ------------------------
December 31,
-------------------------
1995 1994
------------ -----------
<S> <C> <C>
Assets
------
Cash and cash equivalents $ 415,764 197,096
Investment in wholly owned subsidiaries, at equity:
Bank and bank holding company subsidiaries 69,879,940 56,086,887
Nonbank subsidiary 1,000 1,000
Deferred Federal income taxes, net 209,042 149,042
Other assets, including premises and equipment 502,688 422,930
----------- ----------
$71,008,434 56,856,955
=========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Note payable $ 2,500,000 500,000
Other liabilities 1,179,523 1,030,648
----------- ----------
3,679,523 1,530,648
Stockholders' Equity 67,328,911 55,326,307
----------- ----------
$71,008,434 56,856,955
=========== ==========
CONDENSED STATEMENTS OF OPERATIONS
- ----------------------------------
Years ended December 31,
------------------------------------
1995 1994 1993
----------- ---------- ---------
Total income $ 18,535 72,943 66,101
----------- ---------- ---------
Expenses:
Salaries and employee benefits 756,163 665,453 524,621
Other 405,632 318,046 435,825
----------- ---------- ---------
Total expenses 1,161,795 983,499 960,446
----------- ---------- ---------
Loss before Federal income tax
benefit and equity in undistributed
income of subsidiaries (1,143,260) (910,556) (894,345)
Federal income tax benefit 399,500 319,600 319,540
----------- ---------- ---------
Loss before equity in undistributed
income of subsidiaries (743,760) (590,956) (574,805)
Equity in undistributed income of bank
and bank holding company subsidiaries 10,260,674 8,612,896 8,668,148
----------- ---------- ---------
Net income $ 9,516,914 8,021,940 8,093,343
=========== ========== =========
</TABLE>
- 67 -
<PAGE>
CENTRAL BANCORPORATION, INC. AND SUBSIDIARIES
(formerly Texas Security Bancshares, Inc. and Subsidiaries)
Notes to Consolidated Financial Statements
(16) PARENT COMPANY INFORMATION, Continued
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
-----------------------------------
Years ended December 31,
--------------------------------------
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 9,516,914 8,021,940 8,093,343
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 19,223 30,412 44,449
Changes in operating assets and liabilities:
Increase in investment in bank and
bank holding company subsidiaries (10,260,674) (8,612,896) (8,668,148)
Decrease in amount due from bank subsidiary - - 4,200
Decrease in Federal income taxes receivable - 147 19,743
Increase in deferred Federal income taxes (60,000) (40,000) (109,042)
Decrease (increase) in other assets (95,381) (41,468) 29,979
Increase in other liabilities 148,875 174,604 5,688
------------ ---------- ----------
Net cash used in operating activities (731,043) (467,261) (579,788)
------------ ---------- ----------
Cash flows from investing activities:
Purchases of premises and equipment (3,600) (11,084) (9,424)
------------ ---------- ----------
Net cash used in investing activities (3,600) (11,084) (9,424)
------------ ---------- ----------
Cash flows from financing activities:
Proceeds from note payable 2,000,000 500,000 -
Dividends paid (1,046,689) (968,188) (702,630)
Issuance of common stock - - 261,179
------------ ---------- ----------
Net cash provided by (used in)
financing activities 953,311 (468,188) (441,451)
------------ ---------- ----------
Net increase (decrease) in cash and cash equivalents 218,668 (946,533) (1,030,663)
Cash and cash equivalents at beginning of year 197,096 1,143,629 2,174,292
------------ ---------- ----------
Cash and cash equivalents at end of year $ 415,764 197,096 1,143,629
============ ========== ==========
</TABLE>
- 68 -
<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, 1995.
- 69 -
<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 6 of the Corporation's Proxy Statement dated March
7, 1996, relating to the 1996 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 page 11 of such Proxy
Statement, and the information set forth under the caption "EXECUTIVE OFFICERS
OF THE CORPORATION" on pages 12 and 13 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 11 through 26 of the Corporation's Proxy Statement
dated March 7, 1996, relating to the 1996 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 9 and 10 of the Corporation's Proxy Statement
dated March 7, 1996, relating to the 1996 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 7 through 9 of the Corporation's
Proxy Statement dated March 7, 1996, relating to the 1996 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
26 of the Corporation's Proxy Statement dated March 7, 1996, relating to the
1996 Annual Meeting of Shareholders of the Corporation, is incorporated herein
by reference.
- 70 -
<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 Auditor's Report
Consolidated Balance Sheets as of December 31, 1995 and 1994
Consolidated Statements of Operations for the years ended December
31, 1995, 1994 and 1993
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended December
31, 1995, 1994 and 1993
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) Articles of Amendment to the Articles of Incorporation of the
Corporation filed with the Secretary of State of Texas on April 10,
1995*
3(d) Amended and Restated Bylaws of the Corporation*
10(a) Central Bancorporation, 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)
- 71 -
<PAGE>
10(b) Central Bancorporation, 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) 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(d) Retirement Trust for Employees of Central Bancorporation, 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 filed March 30, 1994)
10(e) Retirement Plan for Employees of Central Bancorporation, Inc. and
Affiliates as Amended and Restated effective January 1, 1989
(incorporated herein by reference to Exhibit 10(j) to the
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 filed March 30, 1994)
10(f) First Supplement to Retirement Plan for Employees of Central
Bancorporation, 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 filed March 30, 1994)
10(g) Second Supplement to Retirement Plan for Employees of Central
Bancorporation, 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 filed March 30, 1994)
10(h) Third Supplement to Retirement Plan for Employees of Central
Bancorporation, 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 filed March 30, 1994)
10(i) Amendment One to Retirement Plan for Employees of Central
Bancorporation, 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, 1994 filed March 28, 1995)
10(j) Amendment Two to Retirement Plan for Employees of Central
Bancorporation, Inc. and Affiliates as Amended and Restated effective
January 1, 1989 (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, 1994 filed March 28, 1995)
10(k) Amendment Three to Retirement Plan for Employees of Central
Bancorporation, Inc. and Affiliates as Amended and Restated effective
January 1, 1989 and
- 72 -
<PAGE>
Amendment One to Retirement Trust for Employees of Central
Bancorporation, Inc. and Affiliates as Amended and Restated Effective
January 1, 1993*
10(l) Amendment Four to Retirement Plan for Employees of Central
Bancorporation, Inc. and Affiliates as Amended and Restated effective
January 1, 1989*
10(m) Executive Deferred Compensation Plan of Central Bancorporation, 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 filed March 30, 1994)
10(n) 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 filed March 30, 1994)
10(o) Letter agreement between Central Bancorporation, 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 filed March 30, 1994)
10(p) Restoration Retirement Plan for Certain Employees of Central
Bancorporation, Inc. and Affiliates, effective as of January 1, 1994
(incorporated herein by reference to Exhibit 10(r) to the
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 filed March 28, 1995)
10(q) Trust Agreement for Restoration Retirement Plan for Certain Employees
of Central Bancorporation, Inc. and Affiliates, effective as of
January 1, 1994 (incorporated herein by reference to Exhibit 10(s) to
the Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 filed March 28, 1995)
10(r) Loan Agreement by and between Central Bancorporation, 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 (incorporated
herein by reference to Exhibit 10(t) to the Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994 filed
March 28, 1995)
10(s) Agreement and Plan of Reorganization by and between Central
Bancorporation,Inc. and First American Savings Bank, S.S.B. and
joined in by Patsy R. Smith, dated November 9, 1995 (incorporated
herein by reference to Exhibit 2.01 to the Corporation's Current
Report on Form 8-K for event dated February 29, 1996 filed March 15,
1996)
10(t) Agreement and Plan of Merger between New Bedford Bank, S.S.B. and
First American Savings Bank, S.S.B. and joined in by Central
Bancorporation, Inc., dated January 23, 1996 (incorporated herein by
reference to Exhibit 2.02 to the
- 73 -
<PAGE>
Corporation's Current Report on Form 8-K for event dated February 29,
1996 filed March 15, 1996)
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 1995.
- 74 -
<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.
CENTRAL BANCORPORATION, INC.
DATE: March 25, 1996 /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 25th day of March, 1996.
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
- 75 -
<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
- 76 -
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description Page No.
- --------- ----------- --------
<S> <C> <C>
3(c) Articles of Amendment to the Articles of Incorporation of ___
the Corporation filed with the Secretary of State of Texas
on April 10, 1995
3(d) Amended and Restated Bylaws of the Corporation ___
10(k) Amendment Three to Retirement Plan for Employees of ___
Central Bancorporation, Inc. and Affiliates as Amended
and Restated effective January 1, 1989 and Amendment
One to Retirement Trust for Employees of Central
Bancorporation, Inc. And Affiliates as Amended and
Restated Effective January 1, 1993
10(l) Amendment Four to Retirement Plan for Employees of ___
Central Bancorporation, Inc. and Affiliates as Amended
and Restated effective January 1, 1989
11 Computation of Earnings Per Common Share ___
21 Subsidiaries of the Corporation ___
24 Special Power of Attorney ___
27 Financial Data Schedule ___
</TABLE>
<PAGE>
EXHIBIT 3(c)
ARTICLES OF AMENDMENT TO THE
ARTICLES OF INCORPORATION OF
TEXAS SECURITY BANCSHARES, INC.
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation:
ARTICLE ONE
The name of the corporation is Texas Security Bancshares, Inc.
ARTICLE TWO
The following amendment to the Articles of Incorporation was adopted
by the shareholders of the corporation on April 5, 1995.
The amendment alters or changes Article One of the original or amended
Articles of Incorporation and the full text of each provision altered or changed
is as follows:
"ARTICLE ONE: NAME
------------------
The name of the Corporation is Central Bancorporation, Inc."
ARTICLE THREE
The number of shares of the corporation outstanding at the time of
such adoption was 2,616,723; and the number of shares entitled to vote thereon
was 2,616,723.
The designation and number of outstanding shares of each class
entitled to vote thereon as a class were as follows:
<TABLE>
<CAPTION>
CLASS NUMBER OF SHARES
------------ ----------------
<S> <C>
Common Stock 2,616,723
</TABLE>
ARTICLE FOUR
The number of shares voted for such amendment was 2,194,156; and the
number of shares voted against such amendment was 2,777.
<TABLE>
<CAPTION>
CLASS NUMBER OF SHARES VOTED
------------ ----------------------
For Against
--------- -------
<S> <C> <C>
Common Stock 2,194,156 2,777
</TABLE>
<PAGE>
ARTICLE FIVE
The Amendment does not provide for any exchange, reclassification or
cancellation of issued shares.
ARTICLE SIX
The amendment does not effect a change in the amount of stated
capital.
DATED April 7, 1995.
TEXAS SECURITY BANCSHARES, INC.
By: /s/ Stuart W. Murff
----------------------------------
Stuart W. Murff, President
- 2 -
<PAGE>
EXHIBIT 3(d)
BYLAWS OF
CENTRAL BANCORPORATION, INC.
A Texas Corporation
ARTICLE ONE: OFFICES
1.01 Registered Office and Agent. The registered office and registered
---------------------------
agent of CENTRAL BANCORPORATION, INC. (the "Corporation") shall be as designated
from time to time by the appropriate filing by the Corporation with the office
of the Secretary of State of the state of Texas.
1.02 Other Offices. The Corporation may also have offices at such other
-------------
places, both within and without the state of Texas, as the board of directors
may from time to time determine or the business of the Corporation may require
or as may be desirable.
ARTICLE TWO: SHAREHOLDERS
2.01 Annual Meetings. The annual meeting of shareholders of the
---------------
Corporation shall be held annually on the first Wednesday in April at such time
and place within or without the state of Texas as shall be designated from time
to time by the board of directors and stated in the notice of the meeting or in
an executed waiver of notice thereof. At such meeting, the shareholders shall
elect directors and transact such other business as may properly be brought
before the meeting.
2.02 Special Meetings. Special meetings of shareholders, for any purpose
----------------
or purposes, may be called at any time by the chairman of the board or the
president and shall be called by the chairman of the board, the president or the
secretary at the request in writing of the board of directors or at the request
in writing of shareholders owning at least twenty-five percent (25%) of all
shares entitled to vote at such meeting. A request for a special meeting shall
state the purpose or purposes of the proposed meeting. The person receiving the
written request shall within five (5) days from the date of its receipt cause
notice of the meeting to be given in the manner provided in Section 2.03. If
the person does not give notice of the meeting within five (5) days after the
date of receipt of written request, the person or persons calling the meeting
may fix the time of meeting and give notice in the manner provided in Section
2.03. Business transacted at any special meeting of shareholders shall be
limited to the purposes stated in the notice of such meeting or in an executed
waiver of notice thereof. Special meetings of shareholders may be held at such
times and places, within or without the state of Texas, as shall be designated
by the person or persons calling such special meeting as provided in this
Section 2.02 and stated in the notices of the meetings or in executed waivers of
notice thereof. If no place for a meeting is designated, it shall be held at
the registered office of the Corporation.
<PAGE>
2.03 Notice. (a) Written or printed notice stating the place, day and
------
hour of each meeting of shareholders, and, in case of a special meeting (or if
otherwise required by law), the purpose or purposes for which the meeting is
called, shall be delivered (unless otherwise required by law) not less than ten
(10) nor more than sixty (60) days before the date of the meeting, either
personally or by mail, by or at the direction of the chairman of the board, the
president, the secretary, or the person calling the meeting, to each shareholder
of record entitled to vote at such meeting.
(b) Any notice required to be given to any shareholder, under any
provision of the Texas Business Corporation Act, the articles of incorporation
or these bylaws, need not be given to the shareholder if (i) notice of two
consecutive annual meetings and all notices of meetings held during the period
between those annual meetings, if any, or (ii) all (but in no event less than
two) payments (if sent by first class mail) of distributions or interest on
securities during a twelve (12) month period have been mailed to that person,
addressed at his address as shown on the records of the Corporation, and have
been returned undeliverable. If such a person delivers to the Corporation a
written notice setting forth his then current address, the requirement that
notice be given to that person shall be reinstated.
2.04 Voting List. At least ten (10) days before each meeting of
-----------
shareholders, the secretary shall prepare a complete list of shareholders
entitled to vote at such meeting, or any adjournment thereof, arranged in
alphabetical order, including the address of each shareholder and the number of
shares held by each shareholder. For a period of at least ten (10) days prior
to such meeting, such list shall be kept on file at the registered office or the
principal place of business of the Corporation and shall be subject to
inspection by any shareholder during usual business hours. Such list shall be
produced at such meeting, and at all times during such meeting shall be subject
to inspection by any shareholder. The original stock transfer books shall be
prima facie evidence as to who are the shareholders entitled to examine such
list or stock transfer books or to vote at any meeting of shareholders.
2.05 Quorum. (a) The holders of a majority of the shares issued and
------
outstanding and entitled to be voted, present in person or represented by proxy,
shall constitute a quorum at all meetings of shareholders, except as otherwise
provided by law, the articles of incorporation or these bylaws.
(b) If a quorum is present at a meeting of shareholders, the
shareholders represented in person or by proxy at the meeting may conduct such
business as may be properly brought before the meeting until it is adjourned,
and the subsequent withdrawal from the meeting of any shareholder or the refusal
of any shareholder represented in person or by proxy to vote shall not affect
the presence of a quorum at the meeting, except as may otherwise be provided by
the articles of incorporation or by these bylaws.
- 2 -
<PAGE>
(c) If, however, a quorum shall not be present or represented at a
meeting of the shareholders, the holders of a majority of the shares represented
in person or by proxy and entitled to vote shall have the power, unless
otherwise provided in the articles of incorporation or these bylaws, to adjourn
the meeting from time to time and to such place, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally called.
2.06 Majority/Plurality Vote. (a) When a quorum is present at any
-----------------------
meeting of shareholders, the act of the shareholders relative to any matter
(except the election of directors, see Section 2.06(b) below, and except in
cases where a different vote is required by express provision of law, the
articles of incorporation or these bylaws, in which cases such express provision
shall govern and control the decision of such matters) shall be decided by a
majority of the votes cast by the holders of shares entitled to vote on that
matter at the meeting.
(b) Directors shall be elected by a plurality of the votes cast by
the holders of shares entitled to vote in the election of directors at a meeting
of shareholders at which a quorum is present, unless otherwise provided in the
articles of incorporation or these bylaws.
2.07 Method of Voting; Proxies. (a) Each outstanding share, regardless
-------------------------
of class, shall be entitled to one vote on each matter submitted to a vote at a
meeting of shareholders, except as otherwise provided by law.
(b) Shareholders are prohibited in the articles of incorporation from
cumulating their votes in any election of directors of the Corporation.
(c) At any meeting of shareholders, a shareholder having the right to
vote may vote either in person or by proxy executed in writing by the
shareholder. A telegram, telex, cablegram or similar transmission by the
shareholder, or photographic, photostatic, facsimile or similar reproduction of
a writing executed by the shareholder, shall be treated as an execution in
writing for purposes of this Section 2.07. No proxy shall be valid after eleven
(11) months from the date of its execution, unless otherwise provided in the
proxy. Each proxy shall be revocable unless the proxy form conspicuously states
that the proxy is irrevocable and the proxy is coupled with an interest.
(d) Any vote may be taken by voice or show of hands unless a
shareholder entitled to vote, either in person or by proxy, objects, in which
case written ballots shall be used.
(e) Treasury shares, shares of the Corporation's own stock owned by
another corporation (the majority of the voting stock of which is owned or
controlled by the Corporation) and
- 3 -
<PAGE>
shares of the Corporation's own stock held by a corporation in a fiduciary
capacity shall not be voted (directly or indirectly) at any meeting and shall
not be counted in determining the total number of outstanding shares at any
given time.
(f) Shares held by an administrator, executor, guardian or
conservator may be voted by him, so long as such shares forming a part of the
estate are in the possession and forming part of the estate being served by him,
either in person or by proxy, without transfer of such shares into his name.
Shares standing in the name of a trustee may be voted by him, either in person
or by proxy, but no trustee shall be entitled to vote shares held by him without
a transfer of such shares into his name as trustee.
(g) Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without transfer of such shares into his name if authority to do
so is contained in an appropriate order of the court by which such receiver was
appointed.
(h) Shares standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent or proxy as the bylaws of such
corporation may authorize or, in the absence of such authorization, as the board
of directors of such corporation may determine.
(i) A shareholder whose shares are pledged shall be entitled to vote
such shares until the shares have been transferred into the name of the pledgee,
and thereafter the pledgee shall be entitled to vote such shares.
2.08 Closing of Transfer Books; Record Date. (a) For the purpose of
--------------------------------------
determining shareholders entitled to notice of, or to vote at, any meeting of
shareholders or any adjournment thereof, or entitled to receive a distribution
(other than a distribution involving a purchase or redemption by the Corporation
of any of its own shares) or a share dividend, or in order to make a
determination of shareholders for any other proper purpose (other than
determining shareholders entitled to consent to action by shareholders proposed
to be taken without a meeting of shareholders), the board of directors may
provide that the stock transfer books of the Corporation shall be closed for a
stated period but not to exceed, in any case, sixty (60) days. If the stock
transfer books shall be closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders, such books shall
be closed for at least ten (10) days immediately preceding such meeting. In
lieu of closing the stock transfer books, the board of directors may fix in
advance a date as a record date for the determination of shareholders, such date
not to be more than sixty (60) days and, in the case of a meeting of
shareholders, not less than ten (10) days prior to the date on which the
particular action requiring such determination of shareholders is to be taken.
If the stock transfer books are not closed and if no record date is fixed for
the determination of shareholders entitled to notice of or to vote at a meeting
of shareholders, or sharehold-
- 4 -
<PAGE>
ers entitled to receive a distribution (other than a distribution involving a
purchase or redemption by the Corporation of any of its own shares) or a share
dividend, the date on which the notice of the meeting is mailed or the date on
which the resolution of the board of directors declaring such distribution or
share dividend is adopted, as the case may be, shall be the record date for such
determination of shareholders. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this Section
2.08, such determination shall be applied to any adjournment thereof except when
the determination has been made through the closing of the stock transfer books
and the stated period of closing has expired, in which case the board of
directors shall make a new determination as provided in this Section 2.08(a).
(b) Whenever action by shareholders is proposed to be taken by
consent in writing without a meeting of shareholders, the board of directors may
fix a record date for the purpose of determining shareholders entitled to
consent to that action, which record date shall not precede, and shall not be
more than ten (10) days after, the date upon which the resolution fixing the
record date is adopted by the board of directors; provided, however, that the
board of directors may not so fix a record date if a record date shall have
previously been fixed or determined pursuant to the provisions of this Section
2.08(b). If no record date has been fixed by the board of directors and prior
action of the board of directors is not required by the Texas Business
Corporation Act, the record date for determining shareholders entitled to
consent to action in writing without a meeting shall be the first date on which
a signed written consent setting forth the action taken or proposed to be taken
is delivered to the Corporation by delivery to its registered office, registered
agent, principal place of business, transfer agent, registrar, exchange agent,
or an officer or agent of the Corporation having custody of the books in which
proceedings of meetings of shareholders are recorded. Delivery shall be by hand
or by certified mail, return receipt requested. Delivery to the Corporation's
principal place of business shall be addressed to the president or the principal
executive officer of the Corporation. If no record date shall have been fixed
by the board of directors and prior action of the board of directors is required
by the Texas Business Corporation Act, the record date for determining
shareholders entitled to consent to action in writing without a meeting shall be
at the close of business on the date on which the board of directors adopts a
resolution taking such prior action.
2.09 Presiding Officials at Meetings. Unless some other person or persons
-------------------------------
are elected by a majority of the votes cast by the holders of shares entitled to
vote at a meeting of shareholders, the chairman of the board of directors shall
preside at and the secretary shall prepare minutes of each meeting of
shareholders.
- 5 -
<PAGE>
ARTICLE THREE: DIRECTORS
3.01 Management. (a) The powers of the Corporation shall be exercised
----------
under the authority of, and the business and affairs of the Corporation shall be
managed under the direction of, the board of directors, who may exercise all
such powers of the Corporation and do all such lawful acts and things as are not
by law, by the articles of incorporation or by these bylaws directed or required
to be done by the shareholders.
(b) In the discharge of any duty imposed or power conferred upon a
director of the Corporation, including as a member of a committee, the director
may in good faith and ordinary care rely upon the statements, valuations or
information referred to in Article 2.38-3 of the Texas Business Corporation Act
or upon other information, opinions, reports or statements, including financial
statements and other financial data, concerning the Corporation or another
person, that were prepared or presented by (i) one or more officers or employees
of the Corporation, (ii) legal counsel, public accountants, investment bankers,
or other persons as to matters the director reasonably believes are within the
person's professional or expert competence, or (iii) a committee of the board of
directors of which the director is not a member. A director is not relying in
good faith within the meaning of the preceding sentence if the director has
knowledge concerning the matter in question that makes reliance otherwise
permitted by the above sentence unwarranted.
3.02 Number; Election; Term; Qualification. The initial board of
-------------------------------------
directors shall consist of the number of directors named in the articles of
incorporation. Thereafter, the number of directors which shall constitute the
entire board of directors shall be determined by resolution of the board of
directors or by the shareholders at the annual meeting, but shall never be less
than one (1) nor more than fifteen (15). The number of directors may be
increased or decreased from time to time as provided in these bylaws, but no
decrease shall have the effect of shortening the term of any incumbent director.
The directors shall be elected in accordance with Sections 2.06 and 2.07 at each
annual meeting of shareholders by the holders of shares entitled to vote in the
election of directors, except as provided in Section 3.04. Each director
elected shall hold office until the next annual meeting of shareholders and
until his successor is elected and qualified, or until his earlier death,
resignation, retirement, disqualification or removal. No director need be a
shareholder or a resident of the state of Texas.
3.03 Removal. At any meeting of shareholders called expressly for that
-------
purpose, any director or the entire board of directors may be removed, with or
without cause, by a vote of the holders of a majority of the shares then
entitled to vote on the election of directors.
3.04 Vacancies; Increases in Number. Any vacancy occurring in the board
------------------------------
of directors may be filled by election at an annual or
- 6 -
<PAGE>
special meeting of shareholders called for that purpose or by a majority of the
remaining directors, though less than a quorum. A director elected to fill a
vacancy shall be elected to serve for the unexpired term of his predecessor in
office. Any directorship to be filled by reason of any increase in the number
of directors may be filled by election at an annual or special meeting of
shareholders called for that purpose, or by the board of directors for a term of
office continuing only until the next election of one or more directors by the
shareholders, provided that the board of directors may not fill more than two
such directorships during the period between any two successive annual meetings
of shareholders.
3.05 Advisory Directors. The board of directors may, from time to time,
------------------
appoint up to six (6) advisory directors of the Corporation. Such advisory
directors, if any, shall not be considered in determining the number of regular
directors provided herein. Such advisory directors shall be entitled to attend
meetings of the board of directors and participate in discussions thereat, but
shall not be entitled to vote. Advisory directors shall, by resolution of the
board of directors, be entitled to receive a fixed sum and expenses of
attendance, if any, for attending meetings of the board of directors, or a
stated salary.
3.06 Honorary Directors. After the age of seventy (70), members of the
------------------
board of directors may be invited to become honorary directors of the
Corporation. Such honorary directors, if any, shall not be considered in
determining the number of regular directors provided herein. Such honorary
directors shall be entitled to attend meetings of the board of directors and
participate in discussions thereat, but shall not be entitled to vote. Honorary
directors shall, by resolution of the board of directors, be entitled to receive
a fixed sum and expenses of attendance, if any, for attending meetings of the
board of directors, or a stated salary.
3.07 Meetings. The board of directors of the Corporation may hold
--------
meetings, both regular and special, within or without the state of Texas.
3.08 First Meeting. Each newly elected board of directors shall hold its
-------------
first meeting for the purpose of organization and the transaction of business,
if a quorum is present, immediately after and at the same place as the annual
meeting of shareholders, and no notice of such meeting shall be necessary,
unless by the unanimous consent of the directors then elected and serving such
time and place shall be changed.
3.09 Regular Meetings. Regular meetings of the board of directors may be
----------------
held, with or without notice, at such times and places as may be designated from
time to time by resolution of the board of directors.
3.10 Special Meetings. Special meetings of the board of directors may be
----------------
called by the chairman of the board or the president on not less than four (4)
hours' notice to each director. Special meetings shall be called by the
chairman of the board, the
- 7 -
<PAGE>
president or secretary in like manner and on like notice on the written request
of a majority of the directors. Except as otherwise expressly provided by
statute, the articles of incorporation or these bylaws, neither the business to
be transacted at nor the purpose of any special meeting need be specified in a
notice or waiver of notice.
3.11 Quorum; Majority Vote. At all meetings of the board of directors, a
---------------------
majority of the directors fixed in the manner provided in these bylaws shall
constitute a quorum for the transaction of business. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the board of directors. If a quorum is not present at a meeting, a majority of
the directors present may adjourn the meeting from time to time, without notice
other than an announcement at the meeting, until a quorum is present. The vote
of a majority of the directors present at a meeting at which a quorum is in
attendance shall be the act of the board of directors, unless the vote of a
different number is required by law, the articles of incorporation or these
bylaws.
3.12 Procedure; Minutes. At meetings of the board of directors, business
------------------
shall be transacted in such order as the board of directors may determine from
time to time. The chairman of the board of directors shall preside at the
meeting and the secretary shall act as the secretary thereof. The secretary of
the meeting shall prepare minutes of the meeting for placement in the minute
books of the Corporation.
3.13 Presumption of Assent. A director of the Corporation who is present
---------------------
at any meeting of the board of directors at which action on any matter is taken
shall be presumed to have assented to the action unless his dissent shall be
entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as secretary of the meeting before
the adjournment thereof or shall forward any dissent by certified mail to the
secretary of the Corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director who voted in favor of such
action.
3.14 Compensation. Directors, in their capacity as directors, may
------------
receive, by resolution of the board of directors, a fixed sum and expenses of
attendance, if any, for attending meetings of the board of directors, or a
stated salary. No director shall be precluded from serving the Corporation in
any other capacity or receiving compensation therefor. Directors shall not
receive compensation for any regular or special meeting of the board of
directors conducted or attended by telephone or other electronic means.
3.15 Interested Directors and Officers. No contract or transaction
---------------------------------
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers or have a financial interest, shall be void or voidable solely for
- 8 -
<PAGE>
this reason, solely because the director or officer is present at or
participates in the meeting of the board or committee thereof which authorizes
the contract or transaction, or solely because his or their votes are counted
for such purposes, if:
(1) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the board of
directors or the committee, and the board or committee in good faith
authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though the disinterested
directors are less than a quorum; or
(2) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the shareholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the shareholders; or
(3) The contract or transaction is fair as to the Corporation as of
the time it is authorized, approved or ratified by the board of directors,
a committee thereof, or the shareholders.
3.16 Resignation. Any director may resign at any time by written notice
-----------
to the Corporation. Any such resignation shall take effect at the date of
receipt of such notice or at such other time as may be specified therein, and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective. Any director who does not, for any reason,
stand for election at any meeting of shareholders called for such purpose shall
be conclusively deemed to have resigned, effective as of the date of such
meeting, for all purposes, and the Corporation need not receive any written
notice to evidence such resignation.
ARTICLE FOUR: COMMITTEES
4.01 Designation. The board of directors may, by resolution adopted by a
-----------
majority of the entire board of directors, from time to time designate from
among the members of the board of directors executive and other committees.
Each committee shall consist of one or more directors appointed by resolution
adopted by a majority of the entire board of directors. The board of directors
may designate one or more of its members as alternate members of any committee,
who may, subject to limitations imposed by the board of directors, replace
absent or disqualified members at any meeting of that committee. The number of
committee members may be increased or decreased from time to time by resolution
adopted by a majority of the entire board of directors. Each committee member
shall serve as such until the expiration of his term as a director or his
earlier resignation, unless sooner removed as a committee member or as a
director.
4.02 Authority. (a) The executive committee, unless expressly restricted
---------
in the resolution adopted by a majority of the
- 9 -
<PAGE>
entire board of directors establishing the executive committee, shall have and
may exercise all of the authority of the board of directors in the management of
the business and affairs of the Corporation. Each other committee, to the
extent expressly provided for in the resolution adopted by a majority of the
entire board of directors establishing such committee, shall have and may
exercise all of the authority of the board of directors in the management of the
business and affairs of the Corporation. However, no committee shall have the
authority of the board of directors in reference to:
(1) amending the articles of incorporation;
(2) proposing a reduction of the stated capital of the Corporation;
(3) approving a plan of merger or share exchange;
(4) recommending to the shareholders the sale, lease or exchange of
all or substantially all of the property and assets of the Corporation
otherwise than in the usual and regular course of its business;
(5) recommending to the shareholders a voluntary dissolution of the
Corporation or a revocation thereof;
(6) amending, altering or repealing these bylaws or adopting new
bylaws;
(7) filling vacancies in the board of directors;
(8) filling vacancies in or designating alternate members of any such
committee;
(9) filling any directorship to be filled by reason of an increase in
the number of directors;
(10) electing or removing officers of the corporation or members or
alternate members of any such committee;
(11) fixing the compensation of any member or alternate member of
such committee; and
(12) altering or repealing any resolution of the board of directors
which by its terms provides that it shall not be amendable or repealable.
(b) In the resolution adopted by a majority of the entire board of
directors establishing an executive or other committee, the board of directors
may expressly authorize such committee to declare dividends or to authorize the
issuance of shares of the Corporation.
4.03 Committee Changes. The board of directors shall have the power at
-----------------
any time to fill vacancies in, to change the number or membership of, and to
discharge any committee.
- 10 -
<PAGE>
4.04 Regular Meetings. Regular meetings of any committee may be held,
----------------
with or without notice, at such times and places as may be designated from time
to time by resolution of the committee.
4.05 Special Meetings. Special meetings of any committee may be called by
----------------
any member of the committee on not less than twelve (12) hours' notice to each
committee member. Except as otherwise expressly provided by statute, the
articles of incorporation or these bylaws, neither the business to be transacted
at nor the purpose of any special meeting need be specified in a notice or
waiver of notice.
4.06 Quorum; Majority Vote. At all meetings of any committee, a majority
---------------------
of the number of committee members designated by the board of directors shall
constitute a quorum for the transaction of business. The vote of a majority of
the committee members present at any meeting at which a quorum is in attendance
shall be the act of the committee, unless the vote of a different number is
required by law, the articles of incorporation, these bylaws or the resolution
establishing such committee. If a quorum is not present at a meeting of any
committee, a majority of the committee members present may adjourn the meeting
from time to time, without notice other than an announcement at the meeting,
until a quorum is present.
4.07 Minutes. Each committee shall cause minutes of its proceedings to be
-------
prepared and shall report the same to the board of directors upon the request of
the board of directors. The minutes of the proceedings of each committee shall
be delivered to the secretary of the Corporation for placement in the minute
books of the Corporation.
4.08 Compensation. Each committee member who is not an officer of the
------------
Corporation may, by resolution of the board of directors, be allowed a fixed sum
and expenses of attendance, if any, for attending any committee meetings, or a
stated salary.
4.09 Responsibility. The designation of any committee and the delegation
--------------
of authority to it shall not operate to relieve the board of directors or any
director of any responsibility imposed upon it or such director by law.
4.10 Resignation. Any committee member may resign at any time by written
-----------
notice to the Corporation. Any such resignation shall take effect at the date
of receipt of such notice or at such other time as may be specified therein,
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
ARTICLE FIVE: GENERAL PROVISIONS RELATING TO MEETINGS
5.01 Notice. Whenever by law, the articles of incorporation or these
------
bylaws notice is required to be given to any shareholder, director or committee
member and no provision is made as to how such notice shall be given, it shall
be construed to mean that
- 11 -
<PAGE>
notice may be given either (a) in person, (b) in writing, by mail, postage
prepaid, (c) except in the case of a shareholder, by telegram, telex, cablegram,
telecopier, telephone or similar means, or (d) by any other method permitted by
law. Any notice required or permitted to be given hereunder (other than
personal notice) shall be addressed to such shareholder, director or committee
member at his address as it appears on the books on the Corporation or, in the
case of a shareholder, on the stock transfer records of the Corporation or a
such other place as such shareholder, director or committee member is known to
be at the time notice is mailed or transmitted. Any notice required or
permitted to be given by mail shall be deemed to be delivered and given at the
time when the same is deposited in the United States mail, postage prepaid. Any
notice required or permitted to be given by telegram, telex, cablegram,
telecopier, telephone or similar means shall be deemed to be delivered and given
at the time transmitted.
5.02 Waiver of Notice. Whenever by law, the articles of incorporation or
----------------
these bylaws any notice is required to be given to any shareholder, director or
committee member of the Corporation, a waiver thereof in writing signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be equivalent to the giving of such notice. Attendance of
a director, committee member or shareholder at a meeting shall constitute a
waiver of notice of such meeting, except where a director, committee member or
shareholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the ground that
the meeting is not lawfully called or convened.
5.03 Telephone and Similar Meetings. Unless otherwise provided by the
------------------------------
articles of incorporation, subject to the provisions required or permitted by
law and these bylaws for notice of meetings, shareholders, directors or
committee members may participate in and hold a meeting by means of a conference
telephone or similar communications equipment by means of which persons
participating in the meeting can hear each other. Participation in such a
meeting shall constitute presence in person at such meeting, except where a
person participates in the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the ground that
the meeting is not lawfully called or convened.
5.04 Action Without Meeting. (a) Any action required to be taken at an
----------------------
annual or special meeting of the shareholders, or any action which may be taken
at an annual or special meeting of the shareholders, may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing setting forth the action so taken shall have been signed by the holder
or holders of shares having not less than the minimum number of votes that would
be necessary to take such action at a meeting at which the holders of all shares
entitled to vote on the action were present and voted, and such consent shall
have the same force and effect as a vote of the shareholders at a meeting. The
consent may be in more than one counterpart so long as each shareholder signs
- 12 -
<PAGE>
one of the counterparts. Every written consent signed by the holders of less
than all the shares entitled to vote with respect to the action that is the
subject of the consent shall bear the date of signature of each shareholder who
signs the consent. No written consent signed by the holders of less than all
the shares entitled to vote with respect to the action that is the subject of
the consent shall be effective to take such action unless, within sixty (60)
days after the date of the earliest dated consent delivered to the Corporation
as provided herein, a consent or consents signed by the holder or holders of
shares having not less than the minimum number of votes that would be necessary
to take such action are delivered to the Corporation by delivery to its
registered office, registered agent, principal place of business, transfer
agent, registrar, exchange agent, or an officer or agent of the Corporation
having custody of the minute books of the Corporation. Delivery shall be by
hand or by certified mail, return receipt requested. Delivery to the
Corporation's principal place of business shall be addressed to the president or
principal executive officer of the Corporation. A telegram, telex, cablegram or
similar transmission by a shareholder, or a photographic, photostatic, facsimile
or similar reproduction of a writing signed by a shareholder, shall be regarded
as signed by a shareholder for purposes of this Section 5.04. Prompt notice of
the taking of any action by the shareholders without a meeting by less than
unanimous written consent shall be given to those shareholders who did not
consent in writing to the action.
(b) If any action by shareholders is taken by written consent, any
articles or documents filed with the Secretary of State of the state of Texas as
a result of the taking of the action shall state, in lieu of any statement
required by the Texas Business Corporation Act concerning any vote of
shareholders, that written consent has been given in accordance with the
provisions of Article 9.10A of the Texas Business Corporation Act and that
written notice required by such article has been given.
(c) Any action required or permitted to be taken at a meeting of the
board of directors or any committee may be taken without a meeting if a consent
in writing setting forth the action so taken is signed by all members of the
board of directors or the committee, as the case may be. Such consent shall
have the same force and effect as a unanimous vote at a meeting and may be
stated as such in any document or instrument filed with the Secretary of State
of the state of Texas. The consent may be in more than one counterpart so long
as each director signs one of the counterparts.
ARTICLE SIX: OFFICERS AND OTHER AGENTS
6.01 Officers. (a) The Corporation shall have a chairman of the board, a
--------
president, one or more vice presidents (and, in the case of each vice president,
with such descriptive title, if any, as the board of directors shall determine),
a secretary, a treasurer, and such other officers and agents as the board of
directors may deem desirable. The board of directors shall elect a chairman of
the board, a president, vice president, treasurer, and secretary
- 13 -
<PAGE>
at its first meeting at which a quorum shall be present after the annual meeting
of shareholders or whenever a vacancy exists. In connection with the election
of such officers, the board of directors shall designate one or two of such
officers as the chief executive officer and the chief operating officer of the
Corporation. The board of directors then, or from time to time, may also elect
or appoint one or more other officers or agents as it shall deem advisable.
Each officer and agent shall hold office for the term for which he is elected or
appointed and until his successor has been elected or appointed and qualified.
Unless otherwise provided in the resolution of the board of directors electing
or appointing an officer or agent, his term of office shall extent to and expire
at the meeting of the board of directors following the next annual meeting of
shareholders or until his earlier death, resignation, retirement,
disqualification or removal. Any two or more offices may be held by the same
person. No officer or agent need be a shareholder, a director or a resident of
the state of Texas.
(b) In the discharge of any duty imposed or power conferred upon an
officer of the Corporation, the officer may in good faith and ordinary care rely
upon information, opinions, reports or statements, including financial
statements and other financial data, concerning the Corporation or another
person, that were prepared or presented by (i) one or more other officers or
employees of the Corporation including members of the board of directors, or
(ii) legal counsel, public accountants, investment bankers, or other persons as
to matters the officer reasonably believes are within the person's professional
or expert competence. An officer is not relying in good faith within the
meaning of the preceding sentence if the officer has knowledge concerning the
matter in question that makes reliance otherwise permitted by the above sentence
unwarranted.
6.02 Authority. Officers shall have such authority and perform such
---------
duties in the management of the Corporation as are provided in these bylaws or
as may be determined by resolution of the board of directors not inconsistent
with these bylaws.
6.03 Removal; Resignation. (a) Any officer or agent elected or appointed
--------------------
by the board of directors may be removed by the board of directors at any time,
with or without cause by the affirmative vote of a majority of the board of
directors whenever in the judgment of the board of directors, the best interests
of the Corporation will be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed. Election or
appointment of an officer or agent shall not of itself create contract rights.
(b) Any officer may resign at any time by giving written notice to
the Corporation. Any such resignation shall take effect at the date of receipt
of such notice or at such other time as may be specified therein, and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
- 14 -
<PAGE>
6.04 Vacancies. Any vacancy occurring in any office of the Corporation
---------
may be filled by the board of directors for the unexpired portion of the term.
6.05 Compensation. The compensation, if any, of officers shall be fixed,
------------
increased or decreased from time to time by the board of directors or pursuant
to its direction.
6.06 Chairman of the Board. The chairman of the board shall have general
---------------------
and active management of the business of the Corporation, subject to the
direction of the board of directors. The chairman shall preside at all meetings
of the shareholders and the board of directors, shall see that all orders and
resolutions of the board of directors are carried into effect and shall perform
such other duties and have such other authority and powers as the board of
directors may from time to time prescribe.
6.07 President. The president, subject to the supervision of the chairman
---------
of the board, shall have general management of the business and affairs of the
Corporation in the ordinary course of its business with all such powers with
respect to such business and affairs as may be reasonably incident to such
responsibilities including, but not limited to, the power to employ, discharge
or suspend employees and agents of the Corporation, to fix the compensation of
employees and agents, and to suspend, with or without cause, any officer of the
Corporation pending final action by the board of directors with respect to
continued suspension, removal or reinstatement of such officer.
6.08 Vice Presidents. Each vice president shall have such powers and
---------------
duties as may be prescribed from time to time by the board of directors or as
may be delegated from time to time by the president and (in the order as
designated by the board of directors, or in the absence of such designation, as
determined by the length of time each has held the office of vice president
continuously) shall exercise the powers of the president during that officer's
absence or inability to act.
6.09 Treasurer. The treasurer shall have custody of the Corporation's
---------
funds and securities, shall keep full and accurate accounts of receipts and
disbursements, and shall deposit all moneys and valuable effects in the name and
to the credit of the Corporation in such depository or depositories as may be
designated by the board of directors. The treasurer shall supervise the audit
of all payrolls and vouchers of the Corporation, receive, audit, and consolidate
all operating and financial statements of the Corporation and its various
departments, shall supervise the accounting and auditing practices of the
Corporation, and shall have charge of matters relating to taxation.
Additionally, the treasurer shall have the power to endorse for deposit,
collection or otherwise all checks, drafts, notes, bills of exchange, and other
commercial paper payable to the Corporation and to give proper receipts and
discharges for all payments to the Corporation. The treasurer shall perform
such other duties as may be prescribed
- 15 -
<PAGE>
from time to time by the board of directors or as may be delegated from time to
time by the president.
6.10 Assistant Treasurers. Each assistant treasurer shall perform such
--------------------
duties as may be prescribed from time to time by the board of directors or as
may be delegated from time to time by the president. The assistant treasurers
(in the order as designated by the board of directors or, in the absence of such
designation, as determined by the length of time each has held the office of
assistant treasurer continuously) shall exercise the powers of the treasurer
during that officer's absence or inability to act.
6.11 Secretary. The secretary shall maintain minutes of all meetings of
---------
the board of directors, of any committee, and of the shareholders, or consents
in lieu of such minutes, in the minute books of the Corporation, and shall cause
notice of such meetings to be given when requested by any person authorized to
call such meetings. The secretary may sign with the chairman of the board or
president, in the name of the Corporation, all contracts of the Corporation and
affix the seal of the Corporation thereto. The secretary shall have charge of
the certificate books, stock transfer books, and stock papers as the board of
directors may direct, all of which shall at all reasonable times be open to
inspection by any director at the office of the Corporation during business
hours. The secretary shall perform such other duties as may be prescribed from
time to time by the board of directors or as may be delegated from time to time
by the president.
6.12 Assistant Secretaries. Each assistant secretary shall perform such
---------------------
duties as may be prescribed from time to time by the board of directors or as
may be delegated from time to time by the president. The assistant secretaries
(in the order designated by the board of directors or, in the absence of such
designation, as determined by the length of time each has held the office of
assistant secretary continuously) shall exercise the powers of the secretary
during that officer's absence or inability to act.
ARTICLE SEVEN: CERTIFICATES AND SHAREHOLDERS
7.01 Certificates of Shares. (a) The Corporation shall deliver
----------------------
certificates representing shares to which shareholders are entitled.
Certificates representing shares shall be numbered and shall be entered in the
books of the Corporation as they are issued. They shall be signed by the
president or any vice president, and by the secretary or any assistant secretary
or by the treasurer (if any) or any assistant treasurer, and may be sealed with
the seal of the Corporation or a facsimile thereof. Any or all of the officer
signatures upon the certificates may be facsimiles. If any officer who has
signed or whose facsimile signature has been used on any such certificate ceases
to be such officer of the Corporation before said certificate is issued, such
certificate may nevertheless be issued by the Corporation with the same effect
as though the person who signed such certificate or whose facsimile signature
has been used thereon had been such officer at the date of its issuance.
Certificates for shares shall be in such form as
- 16 -
<PAGE>
shall be in conformity to law and as may be prescribed from time to time by the
board of directors.
(b) Each certificate representing shares issued by the Corporation
(i) shall conspicuously set forth on the face or back of the certificate a full
statement of the limitation or denial of preemptive rights contained in the
articles of incorporation, or (ii) shall conspicuously state on the face or back
of the certificate that (a) such a statement is set forth in the articles of
incorporation on file in the office of the Secretary of State of the state of
Texas and (b) the Corporation will furnish a copy of such statement to the
record holder of the certificate without charge on request to the Corporation at
its principal place of business or registered office.
(c) All certificates surrendered to the Corporation for transfer
shall be cancelled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
cancelled, except that in the case of a lost, stolen, destroyed or mutilated
certificate a new one may be issued therefor pursuant to the provisions of
Section 7.06 of these bylaws.
(d) Certificates shall not be issued for fractional shares of stock.
7.02 Issuance. Shares with or without par value may be issued for such
--------
consideration and to such persons as the board of directors may from time to
time determine, except in the case of shares with par value the consideration
must be at least equal to the par value of such shares. Shares may not be
issued until the full amount of the consideration has been paid.
7.03 Consideration for Shares. The consideration for the issuance of
------------------------
shares shall consist of any tangible or intangible benefits to the Corporation,
including cash, promissory notes, services performed, contracts for services to
be performed, or other securities of the Corporation. In the absence of fraud
in the transaction, the judgment of the board of directors as to the value of
consideration received shall be conclusive. When consideration, fixed as
provided by law, has been paid, the shares shall be deemed to have been issued
and shall be considered fully paid and nonassessable. The consideration
received for shares shall be allocated by the board of directors, in accordance
with law, between stated capital and capital surplus accounts.
7.04 Transfer of Shares. Shares of stock of the Corporation shall be
------------------
transferable only on the books of the Corporation by the shareholders thereof in
person or by their duly authorized attorneys or legal representatives. Upon
surrender to the Corporation or the transfer agent of the Corporation of a
certificate representing shares duly endorsed or accompanied by proper evidence
of succession, assignment or authority to transfer, and otherwise meeting all
legal requirements for transfer, the Corporation or its transfer agent shall
issue a new certificate to the person entitled
- 17 -
<PAGE>
thereto, cancel the old certificate, and record the transaction upon its books.
7.05 Restriction on Transfer of Shares. If the Corporation issues any
---------------------------------
shares which are not registered under the Securities Act of 1933 or registered
or qualified under any applicable state securities laws, the Corporation may
restrict transfer of the shares and may place an appropriate legend on the
certificates representing the shares restricting transfer and requiring an
opinion of counsel acceptable to the Corporation regarding compliance with
applicable securities laws.
7.06 Lost, Destroyed or Stolen Certificates. The Corporation shall issue
--------------------------------------
a new certificate in place of any certificate for shares previously issued if
the registered owner of the certificate:
(a) Claim. Makes proof in affidavit form that a previously issued
-----
certificate for shares has been lost, destroyed or stolen;
(b) Timely Request. Requests the issuance of a new certificate before
--------------
the Corporation has notice that the certificate has been acquired by a purchaser
for value in good faith and without notice of an adverse claim;
(c) Bond. Gives a bond in such form, and with such surety or
----
sureties, with fixed or open penalty, as the board of directors may direct, in
its discretion, to indemnify the Corporation (and its transfer agent and
registrar, if any) against any claim that may be made on account of the alleged
loss, destruction or theft of the certificate; and
(d) Other Requirements. Satisfies any other reasonable requirements
------------------
imposed by the board of directors.
When a certificate has been lost, destroyed or stolen, and the
shareholder of record fails to notify the Corporation within a reasonable time
after he has notice of it, and the Corporation registers a transfer of the
shares represented by the certificate before receiving such notification, the
shareholder of record is precluded from making any claim against the Corporation
for the transfer or for a new certificate.
7.07 Registered Shareholders. The Corporation shall be entitled to
-----------------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive distributions of share dividends, to vote, to receive
notifications, and otherwise exercise all the rights and powers of an owner, and
shall not be bound to recognize any equitable or other claim to or interest in
such shares on the part of any other person, whether or not it shall have actual
or other notice thereof, except as otherwise provided by law.
- 18 -
<PAGE>
7.08 Preemptive Rights. No shareholder or other person shall have any
-----------------
preemptive rights whatsoever.
ARTICLE EIGHT: MISCELLANEOUS PROVISIONS
8.01 Dividends. Subject to provisions of the statutes and the articles of
---------
incorporation, dividends may be declared by the board of directors at any
meeting and may be paid in cash, in property, or in shares of stock of the
Corporation. Such declaration and payment shall be at the discretion of the
board of directors.
8.02 Reserves. The board of directors may create out of funds of the
--------
Corporation legally available therefor such reserve or reserves as the board of
directors from time to time, in its discretion, considers proper to provide for
meeting contingencies, to equalize dividends or to repair or maintain any
property of the Corporation, or for such other purpose as the board of directors
shall consider beneficial to the Corporation. The board of directors may modify
or abolish any such reserve in the manner in which it was created.
8.03 Contracts. Subject to the provisions of Article Six, the board of
---------
directors may authorize any officer or agent to enter into any contract or
agreement of any nature whatsoever, including without limitation, any contract,
deed, bond, mortgage, guaranty, deed of trust, security agreement, pledge
agreement, act of pledge, collateral mortgage, collateral chattel mortgage or
any other document or instrument of any nature whatsoever, and to execute and
deliver any such contract, agreement, document or other instrument of any nature
whatsoever for and in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
8.04 Deposits. All funds of the Corporation not otherwise employed shall
--------
be deposited from time to time in such banks, trust companies or other
depositories as the board of directors may select.
8.05 Books and Records. The Corporation shall keep books and records of
-----------------
account and shall keep minutes of the proceedings of its shareholders, its board
of directors, and each committee of its board of directors. The Corporation
shall keep at its registered office or principal place of business, or at the
office of its transfer agent or registrar, a record of the original issuance of
shares issued by the Corporation and a record of each transfer of those shares
that have been presented to the Corporation for registration of transfer. Such
records shall contain the names and addresses of all past and current
shareholders of the Corporation and the number and class or series of shares
issued by the Corporation held by each of them. Any books, records, minutes and
share transfer records may be in written form or in any other form capable of
being converted into written form within a reasonable time. The principal place
of business of the Corporation, or the
- 19 -
<PAGE>
office of its transfer agent or registrar, may be located outside the state of
Texas.
8.06 Fiscal Year. The fiscal year of the Corporation shall be fixed by
-----------
the board of directors; provided, that if such fiscal year is not fixed by the
board of directors it shall be the calendar year.
8.07 Seal. The seal, if any, of the Corporation shall be in such form as
----
may be approved from time to time by the board of directors. The seal may be
used by causing it or a facsimile thereof to be impressed or affixed or in any
manner reproduced.
8.08 Securities of Other Corporations. The chairman of the board, the
--------------------------------
president or any vice president of the Corporation shall have the power and
authority to transfer, endorse for transfer, vote, consent or take any other
action with respect to any securities of another issuer which may be held or
owned by the Corporation and to make, execute and deliver any waiver, proxy or
consent with respect to any such securities.
8.09 Amendment of Bylaws. These bylaws may be altered, amended or
-------------------
repealed, or new bylaws may be adopted (subject to the shareholders repealing or
changing the action of the board of directors, or making new bylaws, at an
annual or special meeting called and held as provided in these bylaws) at any
regular or special meeting of the board of directors, without prior notice, by
resolution adopted thereat.
8.10 Invalid Provisions. If any part of these bylaws shall be held
------------------
invalid or inoperative for any reason, the remaining parts, so far as it is
possible and reasonable, shall remain valid and operative.
8.11 Headings. The headings used in these bylaws are for convenience only
--------
and do not constitute matter to be construed in the interpretation of these
bylaws.
8.12 Indemnification. The Corporation shall indemnify to the fullest
---------------
extent permitted by law any person who was, is or is threatened to be made a
named defendant or respondent in any action, suit or proceeding, whether civil,
criminal, administrative, arbitrative or investigative, or in any appeal in such
an action, suit or proceeding, by reason of the fact that he or she is or was a
director, advisory director or officer of the Corporation, against all expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such director, advisory director or officer
in connection with any such action, suit or proceeding. The Corporation may
indemnify other persons, as permitted by law. The Corporation shall pay or
reimburse expenses to directors, advisory directors and officers and may pay or
reimburse expenses to other persons, as permitted by law. The Corporation may
purchase and maintain insurance, create a trust fund, establish any form of
self-insurance, secure its indemnity obligation by grant of a security interest
or other lien
- 20 -
<PAGE>
on the assets of the Corporation, establish a letter of credit, guaranty or
surety arrangement, or other arrangement on behalf of directors, advisory
directors, officers or other persons, against any liability asserted against
such persons in their capacities as directors, advisory directors, officers or
otherwise, of the Corporation, whether or not the Corporation would have the
power to indemnify such directors, advisory directors, officers or other persons
against such liability, as permitted by law.
*******************
I, the undersigned, being the Secretary of the Corporation, do hereby
certify that the foregoing are the bylaws of said Corporation, as adopted by the
Board of Directors of said Corporation on the 18th day of December, 1995.
/s/ Karen Larsen Sweeney
------------------------
Karen Larsen Sweeney
- 21 -
<PAGE>
EXHIBIT 10(k)
AMENDMENT THREE TO
------------------
RETIREMENT PLAN FOR EMPLOYEES OF
--------------------------------
TEXAS SECURITY BANCSHARES, INC. AND AFFILIATES
----------------------------------------------
As Amended and Restated Effective January 1, 1989
-------------------------------------------------
and
---
AMENDMENT ONE TO
----------------
RETIREMENT TRUST FOR EMPLOYEES OF
---------------------------------
TEXAS SECURITY BANCHSHARES, INC. AND AFFILIATES
-----------------------------------------------
As Amended and Restated Effective January 1, 1993
-------------------------------------------------
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, effective as of January 1, 1993, the Retirement Trust
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 reerred to as the "Plan"), and Article IX of the amended
and restated trust agreement (hereinafter referred to as the "Trust
Agreement"), the Plan and Trust Agreement may be amended;
WHEREAS, it is deemed desirable to amend the Plan and Trust
Agreement in order to reflect the name change of the Plan Sponsor;
NOW, THEREFORE, the Plan and Trust Agreement are hereby amended
effective as of May 1, 1995, as follows:
I. AMENDMENT TO PLAN
-----------------
Wherever the name "Texas Security Bancshares, Inc." appears
in the Plan and any Supplement thereto (including wherever it
appears within the names of the Plan, Trust Agreement and any
Supplement to the Plan), it shall be changed, effective with
respect to periods of time on and after April 1, 1995, to "Central
Bancorporation, Inc."
<PAGE>
II. AMENDMENT TO TRUST AGREEMENT
----------------------------
Wherever the name "Texas Security Bancshares, Inc." appears
in the Trust Agreement (including wherever it appears within
the names of the Plan and Trust Agreement), it shall be changed,
effective with respect to periods of time on and after April
1, 1995, to "Central Bancorporation, Inc."
IN WITNESS WHEREOF, CENTRAL BANCORPORATION, INC. has caused
this instrument to be executed by its duly authorized officers on this 5th
day of July, 1995.
(CORPORATE SEAL)
ATTEST: CENTRAL BANCORPORATION, INC.
/s/ Karen Larsen Sweeney By /s/ J. Andy Thompson
- ------------------------ -------------------------
Secretary Title: Chairman of the Board
---------------------
-2-
<PAGE>
EXHIBIT 10(l)
AMENDMENT FOUR TO
-----------------
RETIREMENT PLAN FOR EMPLOYEES OF
--------------------------------
CENTRAL BANCORPORATION, INC. AND AFFILIATES
-------------------------------------------
As Amended and Restated Effective January 1, 1989
-------------------------------------------------
WHEREAS, effective as of January 1, 1989, the Texas Security Bancshares,
Inc. (the "Plan Sponsor") (now known as Central Bancorporation, Inc.) and
Central Bank and Trust adopted the Retirement Plan for Employees of Texas
Securities Bancshares, Inc. and Affiliates as an amendment and restatement
in its entirety of their existing plan;
WHEREAS, by the terms of Section 6.4 of the amended and restated plan, said
plan may be amended by the Plan Sponsor; and
WHEREAS, said plan has been amended on the 21st of June, 1994, effective
in part as of January 1, 1989, in part of as January 1, 1993 and in part
as of January 1, 1994; on the 19th day of December, 1994, effective as of
September 1, 1994; and on the 5th day of July, 1995, effective as of May
1, 1995;
WHEREAS, the aforementioned amendment as of May 1, 1995 changed the
name of the said plan to "Retirement Plan for Employees of Central
Bancorporation, Inc. and Affiliates" (the "Plan") in order to reflect the
Plan Sponsor's new name;
WHEREAS, the Plan Sponsor deems it desirable to amend the Plan in order
to add and modify certain provisions to comply with current Internal Revenue
Service rulings and regulations;
NOW, THEREFORE, the Plan is hereby amended, effective as of October
1, 1995, as follows:
A. A new paragraph shall be added to Section 1.1(A)(2) of the Plan
as the last paragraph of such section, and such new paragraph shall read
as follows:
"The Annuity Starting Date in the case of the benefit payable
under Section 3.2 hereof shall be the first day of the month
coincident with or next following the date of termination of
the Participant's service; provided, however, if payment is
not required under the provisions of Section 3.2 as of the first
day of the month coincident with or next following the date
of termination of his service but the Committee establishes,
in accordance with a uniform policy applied without discrimination,
a subsequent date as of which a calculation shall be made to
determine if a cash-out shall be required as of such subsequent
date under the provisions of Section 3.2, the Annuity Starting
Date shall be such subsequent date established by the Committee
if payment on behalf of such Participant is made under Section
3.2 as of such subsequent date."
<PAGE>
B. Section 1.1(B)(2) of the Plan shall be changed to read as follows:
1. Any of the provisions of Subsection (1) above to the contrary
notwithstanding, if payment to any Participant (or his
Beneficiary) is either (i) an actuarially equivalent lump-sum
distribution or (ii) any other actuarially equivalent form of
distribution that provides payments in the form of a decreasing
annuity or that provides payments for a period less than the
life of the Participant (or, in the case of a preretirement
death benefit payable to the Beneficiary of a Participant prior
to the commencement of retirement income payments to the
Participant, for a period less than the life of such
Beneficiary), the amount of payment under either of these forms
of distribution shall not be less than the actuarially
equivalent amount determined using:
a. if the Annuity Starting Date is prior to October 1,
1995, the mortality assumptions specified in Subsection
(1)(a) above and the interest rate that was being used
by the Pension Benefit Guaranty Corporation for purposes
of determining the present value of a lump-sum
distribution on plan termination (as determined under
Sections 411(a)(11) and 417 of the Internal Revenue
Code and regulations issued pursuant thereto) as of
the first day of the Plan Year during which the Annuity
Starting Date occurs; or
b. if the Annuity Starting Date is on or after October
1, 1995, the mortality table prescribed by the Secretary
of the Treasury in accordance with Section 417(e)(3)
of the Internal Revenue Code and regulations and rulings
issued pursuant thereto (which as of October 1, 1995
is a fixed blend of 50% of the male mortality rates
and 50% of the female mortality rates from the 1983
Group Annuity Mortality Table), and the interest rate
assumption shall be the annual rate of interest on
30-year Treasury securities for the second calendar
month immediately preceding the first day of the Plan
Year during which the Annuity Starting Date occurs."
C. Section 4.1(A)(2) of the Plan shall be changed to read as follows:
1. Actuarial Assumptions: The mortality assumptions that are
---------------------
used to compute the actuarially equivalent maximum amount of retirement
income permitted under this Section 4.1(A) on and after the first
day of the first limitation year beginning in 1995 shall be based
upon the mortality table prescribed by the Secretary of Treasury pursuant
to Section 415(b)(2)(E) of the Internal Revenue Code (which as of
the first day of the first limitation year beginning in 1995 is a
fixed blend of 50% of the male mortality rates and 50% of the female
mortality rates from the 1983 Group Annuity Mortality Table). The
interest rate assumptions that are used to
-2-
<PAGE>
compute, the actuarially equivalent maximum amounts of retirement income
permitted under the provisions of this Section 4.1(A) shall be the same
as those that are used in computing actuarially equivalent benefits
payable on behalf of a Participant upon his retirement or termination of
service and upon the exercise of optional forms of retirement income
under the Plan except that:
a. the interest rate assumption shall not be less than
5% for the purposes of converting the maximum retirement
income to a form other than a straight life annuity (with
no ancillary benefits); provided, however, for the
purposes of converting the maximum retirement income to
any form of benefit which is subject to Section 417(e)(3)
of the Internal Revenue Code (which shall include lump-
sum distributions and other forms of distribution that
provide payments in the form of a decreasing annuity or
that provide payments for a period less than the life of
the recipient), such minimum interest rate assumption
that applies on and after the first day of the first
limitation year beginning in 1995 shall (in lieu of 5%)
be the annual rate of interest on a 30-year Treasury
securities for the second calendar month immediately
preceding the first day of the Plan Year during which the
Annuity Starting Date occurs (the "IRC Section 417(e)(3)
applicable interest rate");
b. the interest rate assumption shall not be greater than 5%
for the purposes of adjusting the maximum retirement
income payable to a Participant who is over the social
security retirement age within the meaning of Section
415(b)(8) of the Internal Revenue Code (or age 65 in the
case of a governmental plan or a plan maintained by a tax
exempt organization) so that it is actuarially equivalent
to such a retirement income commencing at the social
security retirement age (or age 65 in the case of a
governmental plan or a plan maintained by a tax exempt
organization); and
c. the factor for adjusting the maximum permissible
retirement income to a Participant who is less than age
62 years so that it is actuarially equivalent to such a
retirement income commencing at age 62 years shall be
equal to (i) the factor for determining actuarial
equivalence for early retirement under the Plan or
(ii) an actuarially computed reduction factor determined
using an interest rate assumption of 5% or, if the
Annuity Starting Date is on or after the first day of the
first limitation year beginning in 1995 and the form of
distribution is subject to Section 417(e)(3) of the
Internal Revenue Code, the IRC Section 417(e)(3)
applicable interest rate, as the case may be, and the
mortality assumptions specified in the first sentence of
- 3 -
<PAGE>
this Section 4.1(A)(2) (except that the mortality
decrement shall be ignored if a death benefit at least
equal to the single-sum value of the Participant's
Accrued Deferred Monthly Retirement Income Commencing at
Normal Retirement Date would be payable under the Plan on
behalf of the Participant if he remained in the service
of the Employer and his service were to be terminated by
reason of his death prior to his Normal Retirement Date),
whichever factor will provide the greater reduction. The
factor for determining actuarial equivalence for early
retirement under the Plan for any given age below age 62
years shall be determined by dividing the early
retirement adjustment factor that applies under the Plan
at such given age by the early retirement adjustment
factor that applies under the Plan at age 62 years."
D. The period at the end of the last sentence of Section 4.1(H) of the
Plan shall be deleted and a semicolon inserted in lieu thereof, and the
following clause shall be added to such sentence immediately following such
semicolon:
"provided, however, such preservation shall not be required if,
under rules or regulations of the Internal Revenue Service, such
reduction or elimination or such change in actuarial assumptions
(without the preservation described above in this subsection) may
be made without violating the anticutback rules of Section
411(d)(6) of the Internal Revenue Code."
IN WITNESS WHEREOF, CENTRAL BANCORPORATION, INC. has caused this
instrument to be executed by its duly authorized officers on this 18th day of
September, 1995.
(CORPORATE SEAL)
ATTEST: CENTRAL BANCORPORATION, INC.
/s/ Karen Larsen Sweeney By /s/ Stuart W. Murff
- ----------------------------------- -----------------------------------
Secretary
Title: President
----------------------------
- 4 -
<PAGE>
Exhibit 11
Central Bancorporation, Inc.
Schedule of Computation of Net Income Per Share
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
PRIMARY
Net income per common share $9,516,914 8,021,940 8,093,343
---------- --------- ---------
Weighted average number of common
shares outstanding during the year 2,616,723 2,616,723 2,603,082
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 2,616,723 2,603,082
---------- --------- ---------
Primary income per common share $ 3.64 3.07 3.11
---------- --------- ---------
FULLY DILUTED
Weighted average number of shares
used in calculation of primary
income per common share 2,616,723 2,616,723 2,603,082
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 2,616,723 2,603,082
---------- --------- ---------
Fully diluted income per common share $ 3.64 3.07 3.11
---------- --------- ---------
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
State of
Subsidiary Incorporation
- ---------------------------------------- -------------
<S> <C>
Central Bancorporation of Delaware. Inc. 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 Nancy W.
Smith, F. D. Thompson, Jr. and J. Andy Thompson, 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 Central Bancorporation,
Inc. (the "Form 10-K") for the fiscal year ended December 31, 1995, 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 17thday of January, 1996.
/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
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 51,682,644
<INT-BEARING-DEPOSITS> 172,617
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 155,601,882
<INVESTMENTS-CARRYING> 355,447,926
<INVESTMENTS-MARKET> 357,180,631
<LOANS> 331,146,028
<ALLOWANCE> 4,671,819
<TOTAL-ASSETS> 926,633,767
<DEPOSITS> 804,499,829
<SHORT-TERM> 44,419,993
<LIABILITIES-OTHER> 7,885,034
<LONG-TERM> 2,500,000
0
0
<COMMON> 6,541,808
<OTHER-SE> 60,787,103
<TOTAL-LIABILITIES-AND-EQUITY> 926,633,767
<INTEREST-LOAN> 27,624,426
<INTEREST-INVEST> 30,980,575
<INTEREST-OTHER> 1,185,381
<INTEREST-TOTAL> 59,790,382
<INTEREST-DEPOSIT> 24,531,825
<INTEREST-EXPENSE> 27,789,488
<INTEREST-INCOME-NET> 32,000,894
<LOAN-LOSSES> 900,000
<SECURITIES-GAINS> 133,176
<EXPENSE-OTHER> 29,264,928
<INCOME-PRETAX> 12,239,914
<INCOME-PRE-EXTRAORDINARY> 9,516,914
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,516,914
<EPS-PRIMARY> 3.64
<EPS-DILUTED> 3.64
<YIELD-ACTUAL> 4.24
<LOANS-NON> 1,480,000
<LOANS-PAST> 366,000
<LOANS-TROUBLED> 227,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,872,000
<CHARGE-OFFS> 966,000
<RECOVERIES> 866,000
<ALLOWANCE-CLOSE> 4,672,000
<ALLOWANCE-DOMESTIC> 1,584,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,088,000
</TABLE>
