<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: September 30, 1996 Commission file number: 33-42286
HENDERSON CITIZENS BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Texas 6712 75-2371232
- ------------------------------------ ----------------------------------- --------------------------
<S> <C> <C>
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
201 West Main Street, P.O. Box 1009
Henderson, Texas 75653
(903) 657-8521
(Address, including ZIP code, and telephone number, including
area code, of registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
--- ---
At September 30, 1996, 2,160,000 shares of Common Stock, $5.00 par value, were
outstanding.
1
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
HENDERSON CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
September 30, 1996 and December 31, 1995
(dollars in thousands)
<TABLE>
<CAPTION>
Assets 1996 1995
------ --------- ---------
<S> <C> <C>
Cash and due from banks $ 10,755 8,916
Interest-bearing deposits with other financial institutions 4,824 2,642
Federal funds sold 2,650 --
Securities:
Held-to-maturity , approximate market value of $80,953
in 1996 and $83,570 in 1995 81,672 82,750
Available-for-sale 138,900 143,700
--------- ---------
220,572 226,450
Loans, net 97,169 80,499
Premises and equipment, net 3,497 3,144
Accrued interest receivable 3,102 3,911
Other assets 3,815 1,317
--------- ---------
$ 346,384 326,879
========= =========
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Demand - non interest-bearing 30,237 28,435
NOW accounts 74,711 68,089
Money market and savings 48,324 46,206
Certificates of deposit and other time deposits 157,994 150,881
--------- ---------
Total deposits 311,266 293,611
--------- ---------
Accrued interest payable 1,111 1,117
Notes payable 1,511 --
Other liabilities 944 945
--------- ---------
314,832 295,673
--------- ---------
Stockholders' equity:
Preferred stock, $5 par value; 2,000,000 shares authorized,
none issued or outstanding -- --
Common stock, $5 par value; 10,000,000 shares authorized,
2,160,000 issued and outstanding 10,800 10,800
Capital surplus 5,400 5,400
Undivided profits 16,448 14,859
Net unrealized gains (losses) on securities available
for sale, net of income taxes (1,096) 147
--------- ---------
Total stockholders' equity 31,552 31,206
Commitments and contingencies
--------- ---------
$ 346,384 326,879
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
HENDERSON CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(unaudited)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months Nine months
ended September 30 ended September 30
---------------------------------------------
1996 1995 1996 1995
---- ---- ---- ----
Interest Income:
<S> <C> <C> <C> <C>
Loans 2,100 1,614 5,500 4,560
Securities
Taxable 2,709 2,959 8,294 8,952
Tax-exempt 251 371 1,031 1,104
Federal funds sold 7 45 78 120
Interest-bearing deposits with other
financial institutions 57 119 224 409
--------- --------- --------- ---------
Total interest income 5,124 5,108 15,127 15,145
--------- --------- --------- ---------
Interest expense:
Deposits:
NOW accounts 493 556 1,500 1,645
Money market and savings 329 347 975 1,108
Certificates of deposit and other time deposits 1,892 2,018 5,737 5,840
--------- --------- --------- ---------
Total interest expense 2,714 2,921 8,212 8,593
--------- --------- --------- ---------
Net interest income 2,410 2,187 6,915 6,552
Provision for loan losses 60 30 180 123
Net interest income after provision for
--------- --------- --------- ---------
loan losses 2,350 2,157 6,735 6,429
--------- --------- --------- ---------
Other income:
Gains (losses) on securities transactions, net (13) 41 750 (158)
Income from fiduciary activities 140 135 458 411
Service charges, commissions, and fees 493 358 1,142 1,073
Other (30) 10 161 63
--------- --------- --------- ---------
Total other income 590 544 2,511 1,389
--------- --------- --------- ---------
Other expenses:
Salaries and employee benefits 1,099 918 3,344 2,933
Occupancy and equipment 248 189 666 577
Regulatory assessments 87 16 173 352
Other 588 549 1,582 1,557
--------- --------- --------- ---------
Total other expenses 2,022 1,672 5,765 5,419
--------- --------- --------- ---------
Income before income taxes 918 1,029 3,481 2,399
Income tax expense 197 244 855 505
--------- --------- --------- ---------
Net income 721 785 2,626 1,894
========= ========= ========= =========
Net income per common share (2,160,000
--------- --------- --------- ---------
outstanding) 0.33 0.36 1.21 0.88
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
HENDERSON CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(unaudited)
Nine months ended September 30, 1996 and 1995
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Net Unrealized
Gains (Losses)
on Securities Total
Preferred Common Capital Undivided Available Stockholder's
Stock Stock Surplus Profits for Sale Equity
---------- ---------- ---------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994 $ -- 10,800 5,400 13,777 (3,830) 26,147
Net income -- -- -- 1,894 -- 1,894
Net change in unrealized losses
on securities available for sale -- -- -- -- 3,378 3,378
Cash dividends ($.48 per share) -- -- -- (1,037) -- (1,037)
---------- ---------- ---------- ---------- -------------- --------------
Balances at September 30, 1995 $ -- 10,800 5,400 14,634 (452) 30,382
========== ========== ========== ========== ============== ==============
Balances at December 31, 1995 $ -- 10,800 5,400 14,859 147 31,206
Net income -- -- -- 2,626 -- 2,626
Net change in unrealized losses
on securities available for sale -- -- -- -- (1,243) (1,243)
Cash dividends ($.48 per share) -- -- -- (1,037) -- (1,037)
---------- ---------- ---------- ---------- -------------- --------------
Balances at September 30, 1996 $ -- 10,800 5,400 16,448 (1,096) 31,552
========== ========== ========== ========== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
HENDERSON CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(unaudited)
Nine months ended September 30, 1996 and 1995
(dollars in thousands)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Operating activities:
Net income $ 2,626 1,894
Adjustments to reconcile net income to net cash
provided by operating activities:
Net amortization (accretion) of premium (discount) on securities 505 (163)
Provision for loan losses 180 123
Net (gains) losses on securities transactions (750) 158
Depreciation and amortization 348 313
Decrease in accrued interest receivable 971 398
Increase (decrease) in other assets (555) 59
Increase (decrease) in accrued interest payable (47) 156
Increase (decrease) in other liabilities (140) 294
-------- --------
Net cash provided by operating activities 3,138 3,232
-------- --------
Investing activities:
Proceeds from maturities, paydowns and calls of held-to-maturity securities 10,824 19,576
Purchases of held-to-maturity securities (5,221) (28,649)
Proceeds from sales of available-for-sale securities 50,645 13,093
Proceeds from maturities and paydowns of available-for-sale securities 19,999 23,914
Purchases of available-for-sale securities (57,459) (21,798)
Net increase in loans (11,311) (9,016)
Purchases of bank premises and equipment (393) (207)
Net cash received to purchase assets and assume liabilities of acquired bank 1,544 --
-------- --------
Net cash provided by (used in) investing activities 8,628 (3,087)
-------- --------
Financing activities:
Net increase (decrease) in deposits (4,058) 6,724
Cash dividends paid (1,037) (1,037)
-------- --------
Net cash provided by (used in) financing activities (5,095) 5,687
-------- --------
Increase in cash and cash equivalents 6,671 5,832
Cash and cash equivalents at beginning of period 11,558 14,349
-------- --------
Cash and cash equivalents at end of period $ 18,229 20,181
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES
Income taxes paid, net of refunds $ 775 --
-------- --------
Interest paid, net of amounts capitalized $ 8,218 8,437
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
HENDERSON CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1996
(1) Basis of Presentation
---------------------
The accompanying consolidated financial statements are unaudited, but
include all adjustments, consisting of normal recurring accruals, which
management considers necessary for a fair presentation of the financial
position, results of operations, and cash flows.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to Securities and
Exchange Commission rules and regulations. The consolidated financial
statements and footnotes included herein should be read in conjunction
with the Company's annual consolidated financial statements as of
December 31, 1995 and 1994, and for each of the three years in the period
ended December 31, 1995 included in the Company's Form 10-K.
(2) Securities
----------
The amortized cost (carrying value) and approximate market values of
securities held-to-maturity at September 30, 1996, are summarized as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury $ 7,068 55 (137) 6,986
U.S. Government agencies 14,238 36 (129) 14,145
State and municipal 31,015 170 (224) 30,961
Mortgage-backed securities
and collateralized mortgage
obligations 26,835 4 (514) 26,325
Other securities 2,516 20 -- 2,536
---------- ---------- ---------- ----------
$ 81,672 285 (1,004) 80,953
========== ========== ========== ==========
</TABLE>
The amortized cost and approximate market values (carrying value) of securities
available-for-sale at September 30, 1996, are summarized as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury $ 47,030 82 (483) 46,629
U.S. Government agencies 18,075 3 (208) 17,870
Mortgage-backed securities
and collateralized mortgage
obligations 73,910 209 (1,284) 72,835
Other securities 1,565 1 - 1,566
---------- ---------- ---------- ----------
$ 140,580 295 (1,975) 138,900
========== ========== ========== ==========
</TABLE>
6
<PAGE>
HENDERSON CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1996
(3) Loans and Allowance for Loan Losses
-----------------------------------
The composition of the Company's loan portfolio is as follows (in thousands
of dollars):
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
--------------- --------------
<S> <C> <C>
Commercial, financial and agricultural $ 21,783 22,444
Real estate mortgage 44,573 34,009
Installment and other 33,261 26,234
--------------- --------------
Total 99,617 82,687
Less:
Allowance for loan losses (1,147) (1,019)
Unearned discount (1,301) (1,169)
--------------- --------------
Loans, net $ 97,169 80,499
=============== ==============
</TABLE>
Changes in the allowance for loan losses for the three months ended
September 30, 1996 and 1995 summarized as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995
--------------- --------------
<S> <C> <C>
Balance, January 1 $ 1,019 997
Provision for loan losses 180 123
Loans charged off (135) (158)
Recoveries on loans 59 74
Increase due to acquisition 24 --
--------------- --------------
Balance, September 30 $ 1,147 1,036
=============== ==============
</TABLE>
(4) Acquisitions
--------------
On August 31, 1996, the Company acquired substantially all of the outstanding
shares of Waskom Bancshares, Inc. and its majority owned subsidiary, First State
Bank, Waskom, Texas. Pursuant to the purchase agreement, the Company paid
$3,463,000, $1,511,000 of which was paid as a note payable due upon demand
having an interest rate of 6.10%. This transaction resulted in approximately
$1,337,000 in goodwill, which is to be amortized over fifteen years on a
straight line basis. The transaction was accounted for using the purchase method
of accounting. This acquisition resulted in an increase in total assets of
$24,075,000 and total deposits of $21,714,000.
7
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF HENDERSON CITIZENS BANCSHARES, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
The following discussion and analysis of the financial condition and results of
operations of the Company should be read in conjunction with the financial
statements and the notes thereto, and other financial and statistical
information appearing elsewhere in this report.
Results of Operations
- ---------------------
Net income for the first nine months of 1996 was $2,626,000 compared to
$1,894,000 for the same period in 1995. The Company experienced gains on
securities transactions totaling approximately $750,000 in the first nine months
of 1996 from the sale of certain available-for-sale Treasury securities. In the
first nine months of 1995, the Company had net securities losses of
approximately $158,000. Net interest income for the first nine months of 1996
has improved over the same period in 1995 due to improving margins related to
increased loan demand, and change in deposit mix and slightly lower interest
rates on deposit accounts. Increased interest income from loans was offset by
decreased interest income on taxable securities due to the sale of U.S Treasury
securities in January 1996 in which a gain was recognized and the proceeds were
reinvested at lower rates. With the increase in loan demand, the Company made a
provision of $180,000 to the allowance for loan losses during the first nine
months of 1996. A provision of $123,000 was made for loan losses during the same
period in 1995. Other income, excluding gains on securities transactions, for
the first nine months of 1996 was $1,761,000 compared to $1,547,000 for the same
period in 1995. Total other expenses for the first nine months of 1996 were
$5,765,000 compared to $5,419,000 for the first nine months in 1995. Income tax
expense for the first nine months of 1996 was $855,000 compared to $505,000 for
the same period in 1995.
Acquisition
- -----------
On August 31, 1996, the Company acquired substantially all of the outstanding
shares of Waskom Bancshares, Inc. and its majority owned subsidiary, First State
Bank, Waskom, Texas. Pursuant to the purchase agreement, the Company paid
$3,463,000, $1,511,000 of which was paid as a note payable due upon demand
having an interest rate of 6.10%. This transaction resulted in approximately
$1,337,000 in goodwill, which is to be amortized over fifteen years on a
straight line basis. The transaction was accounted for using the purchase method
of accounting. This acquisition resulted in an increase in total assets of
$24,075,000 and total deposits of $21,714,000.
Net Interest Income
- -------------------
For the nine months ended September 30, 1996 net interest income was $6,915,000
compared to $6,552,000 for the first nine months of 1995. Interest income from
loans has increased due to volume increases. This increase has been offset
somewhat by a decrease in interest income from taxable investments due to the
sale of certain taxable securities in January 1996. Interest expense for the
first nine months of 1996 was $381,000 less than the first nine months of 1995
due to change in deposit mix from higher yielding deposits to lower yielding
deposits and slightly lower interest rates due to repricing of certificates of
deposit.
Net interest income for the three month period ended September 30, 1996 was
$2,410,000 compared to $2,187,000 in 1995. The increase is likewise the result
of improved loan demand and a decrease in interest income from taxable
investments due to the sale of certain taxable securities. Interest expense
decreased in the three months ended September 30, 1996 compared to the three
months ended September 30, 1995 due to volume decreases, change in deposit mix,
and slightly lower interest rates due to repricing of certificates of deposit.
8
<PAGE>
Provision for Loan Losses
- -------------------------
For the nine months ended September 30, 1996, the Company increased its
allowance for loan losses through a provision of $180,000 compared to the nine
months ended September 30, 1995 in which the Company had a provision for loan
losses of $123,000. The Company experienced net charge offs of $76,000 in the
first nine months of 1996 compared to net charge offs of $84,000 in the same
period 1995.
During the three months ended September 30, 1996, the Company increased its
allowance for loan losses through a provision of $60,000. The Company increased
its allowance for loan losses during the same period in 1995 by $30,000.
See additional information related to the Companys loan operations in the
Allowance for Loan Loss section below.
Other Income and Expenses
- -------------------------
Non-interest income, excluding securities losses was $1,761,000 for the first
nine months of 1996 as compared to $1,547,000 in the first nine months of 1995.
This increase is due to increases in fiduciary income and other fees. Gains on
securities transactions for the first nine months of 1996 was $750,000 compared
to a loss of $158,000 for the same period in 1995. The gain in 1996 was the
result of the sale of certain taxable securities consistent with the Companys
portfolio management policy. Other expenses for the nine month period ended
September 30, 1996 were $5,765,000 compared to $5,419,000 during the same period
in 1995. The change is primarily due to general salary and benefit increases,
occupancy expenses increases and decreased regulatory assessments.
Non-interest income, excluding securities losses, was $603,000 for the three
months ended September 30, 1996 compared to $503,000 for the three months ended
September 30, 1995. The increase is due to increases in service charges and
other fees. For the three months ended September 30, 1996, the Company
experienced a loss on securities transactions of $13,000. For the three months
ended September 30, 1995 the Company had a gain of $41,000. Other expenses for
the three months September 30, 1996 were $2,022,000 compared to $1,672,000 for
the three months ended September 30, 1995. The increase was recognized in all
categories of other expense including salary and benefits, occupancy, regulatory
assessments and other.
Income Taxes
- ------------
Income tax expense for the first nine months of 1996 was $855,000, compared to
$505,000 in the same period in 1995. The effective tax rate for the first nine
months of 1996 and 1995, respectively, was 24.6% and 21.1%. The increase in 1996
in the effective rate was due to the large gain on securities transactions. The
effective tax rate is expected to decrease over the remainder of 1996 due to the
effect of tax exempt income from municipal securities.
Income tax expense for the three months ended September 30, 1996 and September
30, 1995 respectively, were $197,000 and $244,000.
Financial Condition
- -------------------
The Company's total assets at September 30, 1996 totaled $346,384,000, an
increase of $19,505,000 compared to the total assets at December 31, 1995 of
$326,879,000. Total deposits were $311,266,000 at September 30, 1996, compared
to the December 31, 1995 total of $293,611,000. These increases were caused
primarily by the acquisition of First State Bank, Waskom, Texas in September
1996. Total assets and deposits of First State Bank, Waskom, Texas, totaled
$26,482,000, and $22,595,000, respectively, at September 30, 1996.
Equity capital of the Company, excluding unrealized gains or losses on
securities available for sale, as a percentage of total assets was 9.4% at
September 30, 1996 compared to 9.5% at December 31, 1995. The risk-based Tier I
and Tier II capital ratios and the leverage ratio of the Company amounted to
22.3%, 23.1% , and 9.0% respectively at September 30, 1996 compared to 24.3%,
25.1%, and 9.5% respectively, at December 31, 1995.
9
<PAGE>
Liquidity and Capital Resources
- -------------------------------
At September 30, 1996, cash and cash equivalents for the Company of $18,229,000
increased from the December 31, 1995 amount of $11,558,000. Approximately
$4,386,000 of the increase is related to the Waskom acquisition. At
September 30, 1996, the market value of the Company's available-for-sale
securities had declined from the December 31, 1995 market values due to
increases in bond interest rates.
The Company's stockholders' equity of $31,552,000 remains at a level considered
to be adequate by management. Profits in excess of dividends paid to
shareholders is reflected in the increase in undivided profits from 1995. The
net change in unrealized losses on the Company's available-for-sale securities
totaling $1,243,000 has had a negative impact on the Company's stockholders
equity since December 31, 1995 due to an increase in bond interest rates
experienced in the first nine months of 1996.
Allowance for Loan Losses
- -------------------------
The allowance for loan losses at September 30, 1996 and December 31, 1995 was
1.16% and 1.25% of outstanding loans, respectively. By its nature, the process
through which management determines the appropriate level of the allowance
requires considerable judgment. The determination of the necessary allowance,
and correspondingly the provision for loan losses, involves assumptions about
projections of national and local economic conditions, the composition of the
loan portfolio, and prior loss experience, in addition to other considerations.
As a result, no assurance can be given that future losses will not vary from the
current estimates. However, management believes that the allowance at
September 30, 1996 is adequate to cover losses inherent in its loan portfolio.
A migration analysis and an internal classification system for loans also helps
identify potential problems, if any loans that are not identified otherwise.
From these analyses, management determines which loans are potential candidates
for nonaccrual status, including impaired loan status, or charge-off. Management
continually reviews loans and classifies them consistent with the Comptroller's
guidelines to help ensure that an adequate allowance is maintained.
The allocation of the allowance for loan losses is based upon the inherent risks
in the various components of the loan portfolio. Amounts allocated to each
component are determined based on managements evaluations of concentrations of
credit risks, current and anticipated economic conditions, historical analyses,
and classification and estimated loss exposure assigned to specific credits.
These reserve allocations are subject to change as various economic conditions
dictate. The following table is an analysis of the Allowance for Loan Losses.
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
1996 1995
----------- -----------
<S> <C> <C>
Balance at beginning of period $ 1,019 997
Charge-offs:
Commercial, financial, and agricultural 10 64
Installment loans to individuals 125 94
----------- -----------
135 158
Recoveries:
Commercial, financial, and agricultural 20 31
Installment loans to individuals 39 43
----------- -----------
59 74
Net charge-offs (76) (84)
Addition due to acquisition 24 --
Additions charged to operations 180 123
----------- -----------
Balance at end of period $ 1,147 1,036
=========== ===========
Ratio of net charge-offs during
the period to average loans outstanding
during the period .09% .12%
=========== ===========
</TABLE>
10
<PAGE>
Non Accrual, Past Due and Restructured Loans
- --------------------------------------------
The Company's policy is to discontinue the accrual of interest income on loans
whenever it is determined that reasonable doubt exists with respect to timely
collectibility of interest and principal. Loans are placed on nonaccrual status
if either material deterioration occurs in the financial position of the
borrower, payment in full of interest or principal is not anticipated, payment
in full of interest or principal is past due 90 days or more unless well
secured, payment in full of interest or principal on a loan is past due 180 days
or more, regardless of collateral, or the loan in whole or in part is classified
as doubtful. A loan may remain on accrual status if it is in the process of
collection and is either guaranteed or well-secured. When a loan is placed on
nonaccrual status, interest is no longer accrued or included in interest income
and previously accrued income is reversed.
As of September 30, 1996, the Company had $164,000 in nonaccrual loans compared
to $171,000 as of the same period in 1995. The total of accruing loans which
are contractually past due 90 days or more as to principal or interest at
September 30, 1996 is $118,000 compared to $594,000 as of September 30, 1995.
Other real estate totaled $151,000 at September 30, 1996.
The following is a summary of the Company's problem loans as of September 30,
1996 and 1995.
<TABLE>
<CAPTION>
At September 30,
1996 1995
---------- ----------
(dollars in thousands)
<S> <C> <C>
Nonaccrual loans $ 164 171
Restructured loans -- --
Other impaired loans -- --
Other real estate 151 --
---------- ----------
Total nonperforming loans 315 171
========== ==========
Loans past due 90+ days and still accruing 118 594
========== ==========
Other potential problem loans -- --
========== ==========
Income that would have been recorded in
accordance with original terms 4 12
Less income actually recorded -- --
---------- ----------
Loss of income $ 4 12
========== ==========
</TABLE>
Concentration of Credit Risk
- ----------------------------
The Company grants real estate, commercial, and industrial loans to customers
primarily in Henderson, Texas, and surrounding areas of east Texas. Although the
Company has a diversified loan portfolio, a substantial portion (approximately
45% at September 30, 1996) of its loans are secured by real estate and its
ability to fully collect its loans is dependent upon the real estate market in
this region. The Company typically requires collateral sufficient in value to
cover the principal amount of the loan. Such collateral is evidenced by
mortgages on property held and readily accessible to the Company. See additional
information related to the composition of the Company's loan portfolio included
in footnote number 3, page 7 in the notes to consolidated financial statements.
11
<PAGE>
Recent Accounting Pronouncements
- --------------------------------
Effective January 1, 1996 the Company implemented SFAS No. 122, Accounting for
Mortgage Servicing Rights, (Statement 122) which amended Statement No. 65 to
require entities with mortgage banking operations to recognize as separate
assets rights to service mortgage loans for others, regardless of how these
servicing rights were acquired. Entities with mortgage banking operations that
acquire mortgage servicing rights through either the purchase or origination of
mortgage loans and sells those loans with servicing rights retained must
allocate the total cost of the mortgage loans to the mortgage servicing rights
and the loans (without the mortgage servicing rights) based on their relative
fair values. Statement 122 has been implemented prospectively. The impact of
implementing Statement 122 was not significant to the financial condition or
results of operations of the Company.
Corporate Objectives
- --------------------
It is the philosophy of the Company to continue to remain independent in
ownership, to foster its image as the community leader in banking, to increase
its market share through selected acquisitions and aggressive marketing, to
maintain a sound earning-asset portfolio, and to assess liquidity needs while
maximizing its profitability and return to its shareholders.
12
<PAGE>
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
As of August 31, 1996, the Company acquired substantially all of the
outstanding shares of Waskom Bancshares, Inc. And First State Bank, Waskom,
Texas. See managements discussion and analysis for more details of the
transaction.
Item 6. Exhibits and Reports on Form 8-K.
None
13
<PAGE>
Signatures
Pursuant to the requirements 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.
HENDERSON CITIZENS BANCSHARES, INC.
Date: By:
------------------- ---------------------------
Milton S. McGee, Jr., CPA
President
Date: By:
------------------- ---------------------------
Rebecca G. Tanner, CPA
Chief Accounting Officer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 10,755
<INT-BEARING-DEPOSITS> 4,225
<FED-FUNDS-SOLD> 2,650
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<INVESTMENTS-CARRYING> 81,672
<INVESTMENTS-MARKET> 80,953
<LOANS> 97,169
<ALLOWANCE> 1,147
<TOTAL-ASSETS> 346,384
<DEPOSITS> 311,266
<SHORT-TERM> 1,612
<LIABILITIES-OTHER> 1,954
<LONG-TERM> 0
0
0
<COMMON> 10,800
<OTHER-SE> 20,752
<TOTAL-LIABILITIES-AND-EQUITY> 346,384
<INTEREST-LOAN> 5,500
<INTEREST-INVEST> 9,627
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 15,127
<INTEREST-DEPOSIT> 8,212
<INTEREST-EXPENSE> 8,212
<INTEREST-INCOME-NET> 6,915
<LOAN-LOSSES> 180
<SECURITIES-GAINS> 750
<EXPENSE-OTHER> 5,765
<INCOME-PRETAX> 3,481
<INCOME-PRE-EXTRAORDINARY> 3,481
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<NET-INCOME> 2,626
<EPS-PRIMARY> 1.21
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<YIELD-ACTUAL> 0
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<LOANS-PAST> 118
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 615
<ALLOWANCE-OPEN> 1,043
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<RECOVERIES> 59
<ALLOWANCE-CLOSE> 1,147
<ALLOWANCE-DOMESTIC> 1,147
<ALLOWANCE-FOREIGN> 0
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</TABLE>
