<PAGE>
UNITED STATES
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 [FEE REQUIRED]
For the fiscal year ended: December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _________ to ________
Commission File Number 33-42286
HENDERSON CITIZENS BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-2371232
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
201 WEST MAIN STREET, P. O. BOX 1009 75653
HENDERSON, TEXAS (Zip Code)
(Address of principal executive offices)
(903) 657-8521
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
[Title of Each Class] [Name of Each Exchange on Which Registered]
NONE 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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) 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. [ X ]
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The aggregate market value of the voting stock held by nonaffiliates of the
registrant, based on the price of the voting stock in the most recent sale
transaction, which occurred on February 17, 1997, was $14,141,448. For purposes
of this computation, all officers, directors, and 5% beneficial owners of the
registrant are deemed to be affiliates. Further, the shares of registrant held
in trust by Citizens National Bank, Henderson, Texas are assumed to be held by
an affiliate of the registrant. Such determination should not be deemed an
admission that such officers, directors and beneficial owners are, in fact,
affiliates of the registrant.
Number of Shares outstanding of the registrant's common stock, as of March 3,
1997: 2,130,300
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1996 Annual Report to Shareholders are incorporated by reference
into Parts II and III. With the exception of such specific references as appear
in this report, the 1996 Annual Report to Shareholders is not deemed filed as
part of this report. (Index to Exhibits is located on page 25.)
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PART I
ITEM 1. BUSINESS
THE COMPANY
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Henderson Citizens Bancshares, Inc. (the "Company") was incorporated as a
Texas corporation on November 13, 1990 and is a second-tier bank holding
company, owning one hundred percent (100%) of the issued and outstanding shares
of the common stock of Henderson Citizens Delaware Bancshares, Inc. (the
"Delaware BHC"), and one hundred percent (100%) of the issued and outstanding
shares of the common stock of Waskom Bancshares, Inc. The Company organized the
Delaware BHC on December 27, 1991. Waskom Bancshares, Inc. is an inactive shell
corporation.
The Company also indirectly owns one hundred percent (100%) of the issued
and outstanding shares of the $5.00 par value per share common stock (the
"Citizens Bank Stock") of Citizens National Bank, Henderson, Texas (the
"Citizens Bank"), and one hundred percent (100%) of the issued and outstanding
shares of the $1.25 par value per share common stock (the "Waskom Common Stock")
of First State Bank, Waskom, Texas (the "Waskom Bank"). The Citizens Bank and
the Waskom Bank sometimes are referred to herein collectively as the "Subsidiary
Banks".
The Company's primary activity is to provide assistance to the Delaware BHC
and the Subsidiary Banks in the management and coordination of their financial
resources and to provide capital, business development, long-range planning and
public relations to the Delaware BHC and the Subsidiary Banks. The Delaware BHC
and the Subsidiary Banks operate under the day-to-day management of their own
officers, and each entities' individual boards of directors formulates its own
policies. A number of directors or officers of the Company are also directors
or officers of the Delaware BHC and the Subsidiary Banks. See "ITEM 10 --
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT." The Company conducts no
other activity than the operation of the Delaware BHC and, indirectly, the
Subsidiary Banks. The Company derives its revenues primarily from the operation
of the Subsidiary Banks in the form of dividends paid from the Subsidiary Banks
to the Delaware BHC and by the Delaware BHC to the Company. In addition, the
Company may receive tax benefits from any future losses of the Subsidiary Banks.
Neither the Company nor the Delaware BHC engage in any nonbanking
activities at this time. If, in the future, the Company proposes to engage in
any nonbanking activities through these corporations, it would be restricted to
those nonbanking activities permitted under guidelines of the Board of Governors
of the Federal Reserve System (the "Federal Reserve Board") and would need to
obtain regulatory approval for such activities. As of December 31, 1996, the
Company had, on a consolidated basis, total assets of $356,830,000, total
deposits of $320,673,000, total loans, (net of unearned discount and allowance
for loan losses) of $100,825,00 and total stockholders' equity of $31,988,000.
THE DELAWARE BHC
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The Delaware BHC is a wholly-owned subsidiary of the Company, organized in
1991 under the laws of the State of Delaware for the purpose of becoming an
intermediate bank holding company. The Delaware BHC owns 1,080,000 shares
(100.0%) of the issued and outstanding Citizens Bank Stock and 100,000 shares
(100.00%) of the issued and outstanding Waskom Bank Stock..
The primary purpose of the Delaware BHC is to limit the Texas franchise tax
liability of the Company. The Delaware BHC does not conduct any operations other
than providing assistance to the Subsidiary Banks and will derive its revenues
primarily from the operation of the Subsidiary Banks in the form of dividends.
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ACQUISITIONS
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On September 17, 1996, the Company completed its acquisition of all of the
issued and outstanding stock of Waskom Bancshares, Inc. and its majority-owned
subsidiary, the Waskom Bank. The Company acquired approximately 93% of the
stock of Waskom Bancshares, Inc. pursuant to the terms of a Stock Purchase
Agreement, dated as of May 24,1996. The Company acquired the remaining shares
of Waskom Bancshares, Inc. and the minority interest of the Waskom Bank not
owned by Waskom Bancshares, Inc. pursuant to the terms of Stock Purchase
Agreements between the Company and each of the holders representing a minority
interest in Waskom Bancshares, Inc. and the Waskom Bank. Such stock was
acquired for cash, and the aggregate purchase price of $3,463,000 was funded
with a combination of notes and cash. The stock of the Waskom Bank directly and
indirectly acquired by the Company through the acquisition of Waskom Bancshares,
Inc. was thereafter contributed to the Delaware BHC. Waskom Bancshares, Inc. is
an inactive subsidiary of the Company. The Delaware BHC currently operates the
Citizens Bank and the Waskom Bank as separate subsidiaries.
On October 10, 1996, the Company completed the repurchase of 29,700 shares
of its common stock (representing approximately 1.375% of its then outstanding
shares) in a privately-negotiated transaction from a single shareholder. Such
shares were purchased for $334,125 in the aggregate, or $11.25 per share. The
purchase price was paid in cash using available cash resources, and the Company
did not incur any debt in connection with the stock repurchase.
THE SUBSIDIARY BANKS
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General.
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The Citizens Bank opened for business in 1930 as Citizens National Bank of
Henderson, a national banking association chartered by the Office of the
Comptroller of the Currency (the "Comptroller") and was originally located at
101 East Main Street, Henderson, Texas. In 1973, the Citizens Bank moved to its
current location at 201 West Main Street. The Citizens Bank operates branch
offices in Henderson, Overton, Mount Enterprise, Jefferson, Malakoff, and
Chandler, Texas. At December 31, 1996, the Citizens Bank had approximately
$331,168,000 in assets, $300,171,000 in deposits, $95,916,000 in loans (net of
unearned discount), and $29,255,000 in shareholders' equity. The Citizens Bank
is regulated and supervised by the Comptroller.
The Waskom Bank was originally chartered on December 4, 1954, as a Texas
banking association. Its sole banking office is located at 745 Spur 156,
Waskom, Texas. At December 31, 1996, the Waskom Bank had approximately
$25,663,000 in assets, $21,596,000 in deposits, $6,057,000 in loans (net of
unearned discount, and $3,520,000 in shareholder's equity. The Waskom Bank is
regulated and supervised by the Federal Deposit Insurance Corporation (the
"FDIC") and the Texas Department of Banking (the "TDB").
Services. The Subsidiary Banks are full service banks offering a variety
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of services to satisfy the needs of the consumer and commercial customers in the
area. The Subsidiary Banks offer most types of loans, including commercial,
agribusiness, credit card, consumer, mortgage and real estate loans. The
Subsidiary Banks also provide a wide range of consumer banking services,
including savings and checking accounts, various savings programs and
installment, other personal loans, safe deposit boxes, automated teller
machines. The Citizens Bank also offers trust services and automated
clearinghouse payroll services. In 1992, the Citizens Bank began offering a
wide array of investment products, such as annuities, mutual funds and discount
brokerage services, to its customers. In 1994, the Citizens Bank began offering
a 24 hour automated telephone account inquiry system, which was complemented in
late 1995 by a loan by phone automated system. In January 1994 the Citizens Bank
began a Community Development Corporation ("CDC"), which is a subsidiary of the
bank, and offers affordable housing to lower income persons in Rusk County. In
May 1996 the CDC was approved to make loans in Marion and Henderson Counties.
Saturday drive up banking has been offered at the Malakoff location since
its acquisition in 1994, and Saturday drive up banking has been offered in
Henderson at the Southside branch since November 1995. Saturday drive up
banking has been offered at the Chandler branch since April 1996.
2
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Competition. The Citizens Bank services a large portion of the East Texas
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area with offices in Henderson, Overton, and Mount Enterprise, which includes
Rusk County, Jefferson, which includes Marion County, and Malakoff and Chandler,
which includes Henderson County. The Waskom Bank compliments the service area
of the Citizens Bank by servicing Harrison County in East Texas. The activities
in which the Subsidiary Banks engage are competitive. Each activity engaged in
involves competition with other banks, as well as with nonbanking financial
institutions and nonfinancial enterprises. In addition to competing with other
commercial banks within and outside their primary service areas, the Subsidiary
Banks compete with other financial institutions engaged in the business of
making loans or accepting deposits, such as savings and loan associations,
credit unions, industrial loan associations, insurance companies, small loan
companies, finance companies, mortgage companies, real estate investment trusts,
factors, certain governmental agencies, credit card organizations and other
enterprises. Additional competition for deposits comes from government and
private issuers of debt obligations and other investment alternatives for
depositors, such as money market funds and securities brokers. The Subsidiary
Banks also compete with suppliers of equipment in furnishing equipment financing
and leasing services.
Environmental Compliance. There are several federal and state statutes
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that govern the rights and obligations of financial institutions with respect to
environmental issues. Besides being directly liable under these statutes for
its own conduct, a bank may also be held liable under certain circumstances for
actions of borrowers or other third parties on property that collateralizes a
loan held by the bank. Such potential liability under the environmental
statutes may far exceed the original amount of a loan made by the bank secured
by the property. Currently, the Subsidiary Banks are not a party to any pending
legal proceedings under any environmental statute, nor are the Subsidiary Banks
aware of any instances that may give rise to such liability of the Subsidiary
Banks.
Employees. At December 31, 1996, the Citizens Bank employed approximately
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125 full-time and 12 part-time employees, and the Waskom Bank employed
approximately 12 full-time employees and 1 part-time employee.
SUPERVISION AND REGULATION
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The following discussion of the regulatory environment under which bank
holding companies and banks operate is intended only to provide the reader with
a summary of some of the more material regulatory constraints upon the operation
of bank holding companies and banks and does not purport to be a complete
discussion of all regulatory constraints.
Bank Holding Company Regulation. Both the Company and the Delaware BHC are
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registered bank holding companies under the Bank Holding Company Act of 1956
(the "Bank Holding Company Act") and are therefore subject to regulation and
examination by the Federal Reserve Board. The Federal Reserve Board has broad
oversight authority with respect to many aspects of the activities, operations
and expansion of bank holding companies. For example, the Federal Reserve Board
must grant prior approval of (i) certain acquisitions of banks or thrifts by
bank holding companies; (ii) the engagement by bank holding companies or their
subsidiaries in certain activities that are deemed to be closely related to
banking; and (iii) transactions regarding the transfer of ownership of a bank
holding company's stock that constitute a "change in bank control" under the
provisions of the Change in Bank Control Act of 1978.
In addition, bank holding companies are required to file annual and other
reports with, and furnish information regarding its business to the Federal
Reserve Board. The Federal Reserve Board has available to it several
administrative remedies including cease-and-desist powers over parent holding
companies and nonbanking subsidiaries where the actions of such companies would
constitute a serious threat to the safety, soundness or stability of a
subsidiary bank. The Federal Reserve Board also has the authority to regulate
debt obligations (other than commercial paper) issued by bank holding companies.
The Texas Banking Act and federal banking law provide that the Company and
the Delaware BHC are able to acquire or establish banks in any state of the
United States if that state's laws permit such acquisitions or establishments of
such banks. However, the board of directors of the Company and the Delaware BHC
have not at this time made any plans to acquire or establish banks whether
within the State of Texas or elsewhere.
3
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In addition, the Texas Banking Act permits a bank holding company owning
stock of a bank located outside the State of Texas (a "Foreign Holding Company")
to acquire a bank or bank holding company located in Texas. Until September 1,
2001, such acquisition may occur only if the Texas bank to be directly or
indirectly controlled by the Foreign Holding Company (i) was in existence on or
had its charter application filed before July 15, 1987 and has continuously
operated since such date, or (ii) has existed and continuously operated as a
bank for a period of at least five (5) years. In any event, however, a Foreign
Holding Company may not acquire a Texas bank or bank holding company, if after
the acquisition, the Foreign Holding Company would own or control banks in Texas
the deposits of which would exceed twenty-five percent (25%) of the total
deposits of all state and national banks located in Texas. Pursuant to a Texas
Attorney General opinion interpreting the relevant provisions of applicable law,
a Foreign Holding Company acquiring a bank or bank holding company located in
the State of Texas may not become involved in its day-to-day operations.
The Comptroller, the Federal Reserve Board and the FDIC have adopted risk-
based capital guidelines which took effect on December 31, 1990. These
guidelines set forth the calculation of banks and bank holding companies'
capital to asset ratios by assigning a weight to all assets, including off-
balance-sheet assets, and by defining the components that may be included in
capital. The guidelines establish a capital ratio that compares an
institution's qualifying capital base (the numerator of the risk-based capital)
to its risk-weighted assets (the denominator of the ratio).
The guidelines create two categories of capital: Tier 1, or core capital,
and Tier 2, or supplementary capital. Generally, Tier 1 capital consists
primarily of the sum of common stock and perpetual noncumulative preferred stock
less goodwill and certain percentages of other intangible assets. Tier 2
capital consists primarily of perpetual preferred stock not qualifying as Tier 1
capital, perpetual debt, mandatory convertible securities, subordinated debt,
convertible preferred stock with an original weighted average maturity of at
least five years and the allowance for loan and lease losses up to a maximum of
1.25% of risk weighted assets. The sum of Tier 1 and Tier 2 capital constitutes
qualifying total capital. The Tier 1 component must comprise at least 50% of
qualifying total capital. All assets are assigned a weighted risk factor from
0% to 100%. Risk-based capital ratios are calculated using risk-weighted
assets, which include both on-and off-balance sheet assets.
Banks and bank holding companies are required to maintain a ratio of total
capital to risk-weighted assets ("Total Capital Ratio") of at least 8.0%, and a
ratio of Tier 1 capital to risk weighted assets ("Tier 1 Capital Ratio") of at
least 4.0%. Under these guidelines, the Company had a Total Capital Ratio of
24.0% and a Tier 1 Capital Ratio of 23.2% at December 31, 1996.
In addition, banks and bank holding companies are required to maintain a
minimum leverage ratio of Tier 1 capital to average total consolidated assets
("Leverage Capital Ratio") of at least 3.0% for the most highly-rated,
financially sound banks and bank holding companies and a minimum Leverage Ratio
of at least 4.0% for all other banks. The Comptroller, the FDIC and the Federal
Reserve Board define Tier 1 capital in the same manner for both the leverage
ratio and the risk-based capital ratio. Adjusted total assets is comprised of
total assets less intangible assets. As of December 31, 1996, the Company's
Leverage Capital Ratio was 8.8%.
The ability of the Company to pay dividends is restricted by the
requirement that it maintain an adequate level of capital, on a consolidated
basis, in accordance with guidelines of the Federal Reserve Board. Funds
available for payment of dividends to its shareholders and other expenses will
be provided primarily from dividends to the Company from the Delaware BHC, which
will in turn, be received by the Delaware BHC from the Subsidiary Banks. The
ability of the Citizens Bank to pay dividends is restricted by provisions of the
National Bank Act, and the ability of the Waskom Bank to pay dividends is
restricted by provisions of the Texas Banking Act. See "ITEM 5. MARKET FOR
REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS -- Dividends."
4
<PAGE>
Bank Regulation. The Citizens Bank is chartered under the National Bank
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Act and is subject to regulation, supervision and examination by the Comptroller
and to regulation by both the Federal Reserve Board and the FDIC. The Waskom
Bank is chartered under the Texas Banking Act and is subject to supervision,
examination and regulation of both the TDB and the FDIC, and is subject to the
power of the TDB and the FDIC to enforce compliance with applicable banking
statutes and regulations. The majority of the Subsidiary Banks' operations and
activities are subject to regulation and supervision by one or more of the
regulatory authorities noted above. For example, activities and operations of
the Subsidiary Banks such as (i) extension of credit and lending activities,
(ii) deposit collection activities; (iii) dividend payments; (iv) branch office
operations; and (v) interstate expansion are regulated by at least one or more
these regulatory agencies.
The ability of the Subsidiary Banks to pay dividends are restricted by
provisions of the National Bank Act in the case of the Citizens Bank, and the
Texas Banking Act in the case of the Waskom Bank. Under the National Bank Act,
the Citizens Bank generally may pay dividends to the extent of net profits. The
prior approval of the Comptroller, or his designee, however, is required for any
dividend to a bank holding company by any affiliated national bank if the total
of all dividends, including any proposed dividend, declared by the national bank
in any calendar year exceeds the total of its net profits (as defined) for such
year combined with its retained net profits for the preceding two years, less
any required transfers to surplus. The Comptroller also has the authority to
prohibit a national bank from engaging in any activity that, in his opinion,
constitutes an unsafe or unsound practice in conducting its business. Under
certain circumstances relating to the financial condition of a national bank,
the Comptroller may determine that the payment of dividends would be an unsafe
or unsound practice. In addition, the Comptroller and the Federal Reserve Board
have recently expressed the view that national banks and bank holding companies
should refrain from dividend increases or reduce or eliminate dividends under
certain circumstances.
Under the Texas Banking Act, The Waskom Bank generally may not pay a
dividend reducing its capital and surplus without the prior approval of the
Banking Commissioner of the State of Texas. All dividends must be paid out of
net profits then on hand, after deducting expenses, including loses and
provisions for loan losses. Additionally, under provisions of the Federal
Deposit Insurance Act, the FDIC has the right to prohibit the payment of
dividends by a bank where such payment is deemed to be an unsafe and unsound
banking practice.
The ability of the Subsidiary Banks to pay dividends are also restricted by
the requirement that they each maintain adequate levels of capital in
accordance with guidelines promulgated from time to time by the Comptroller and
the FDIC, as applicable. Regulations adopted by the Comptroller and the FDIC
require banks to maintain minimum Tier 1 Capital Ratios of 4.0%, Total Capital
Ratios of 8.0%, and a Leverage Capital Ratios of at least 3.0% for the most
highly-rated, financially sound banks and at least 4.0% for all other banks.
Under the regulations, at December 31, 1996, the Subsidiary Banks had capital
ratios as follows:
<TABLE>
<CAPTION>
Tier 1 Total Leverage
Capital Ratio Capital Ratio Capital Ratio
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<S> <C> <C> <C>
Citizens Bank 23.5% 24.4% 9.0%
Waskom Bank 25.3% 25.5% 8.9%
</TABLE>
See "ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS -- Dividends."
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") became law on December 19, 1991, with the primary objective of
recapitalizing federal deposit insurance funds and making them more secure.
FDICIA reinforces the authority of federal regulatory agencies over banks,
changes bank accounting and auditing rules and establishes levels of
capitalization to be used in determining the extent of regulatory intervention
into a bank's activities and whether to approve proposals submitted by banks
(such as branch applications, acquisitions or entry into new lines of business).
FDICIA requires the establishment of safety and soundness standards, and
requires certain actions to be taken by the federal regulatory authorities in
dealing with problem banks. Subject to certain limitations, FDICIA requires
that banks be assessed for payments made by the
5
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FDIC on uninsured deposits of other institutions and prescribes FDIC assessments
based on the risks inherent in a bank's assets. Under FDICIA, a holding company
is required to guarantee compliance with any capital restoration plan entered
into by a subsidiary bank which is not "adequately capitalized" within the
meaning of FDICIA. FDICIA generally restricts activities of state-chartered
banks to those permissible for national banks, requires the adoption of uniform
real estate loan regulations, establishes certain safeguards against insider
abuses, and calls for regulations designed to limit the risks posed by one
bank's exposure to another bank.
The Financial Institution Reform, Recovery and Enforcement Act of 1989
("FIRREA") was signed into law on August 9, 1989. This legislation included
various provisions that affect or may affect the Company, the Delaware BHC and
the Subsidiary Banks. Among other things, FIRREA generally permits bank holding
companies to acquire healthy thrifts as well as failed or failing thrifts.
FIRREA also removed certain cross-marketing prohibitions previously applicable
to thrift and bank subsidiaries of a common holding company. Such changes could
increase the competition facing the Subsidiary Banks in their service areas.
Furthermore, a multi-bank holding company may now be required to indemnify the
federal deposit insurance fund against losses it incurs with respect to such
company's affiliated banks, which in effect makes a bank holding company's
equity investments in healthy bank subsidiaries available to the FDIC to assist
such company's failing or failed bank subsidiaries.
In addition, pursuant to FIRREA, any depository institution that is not in
compliance with the minimum capital requirements of its primary federal banking
regulator, or is otherwise in a troubled condition must notify its primary
federal banking regulator of the proposed addition of any person to the board of
directors or the employment of any person as a senior executive officer of the
institution at least 30 days before such addition or employment becomes
effective. During such 30-day period, the applicable federal banking regulatory
agency may disapprove of the addition of employment of such director or officer.
The Subsidiary Banks are not currently subject to any such requirements.
FIRREA also expanded and increased civil and criminal penalties available
for use by the appropriate regulatory agency against certain "institution-
affiliated parties" (primarily including management, employees and agents of a
financial institution, independent contractors such as attorneys and accountants
and others who participate in the conduct of the financial institution's
affairs) who knowingly or recklessly either violate a law or regulation, breach
a fiduciary duty or engage in unsafe or unsound practices. These practices can
include the failure of an institution to timely file required reports or the
submission of inaccurate reports. Furthermore, FIRREA authorized the
appropriate banking agency to issue cease and desist orders that may, among
other things, require affirmative action to correct any harm resulting from a
violation or practice, including restitution, reimbursement, indemnifications or
guarantee against loss. A financial institution may also be ordered to restrict
its growth, dispose of certain assets or take other action as determined by the
ordering agency to be appropriate.
In 1994, Congress adopted the Reigle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Reigle Act"). Such statute provides for nationwide
interstate banking, but does permit each state to make an election as to whether
such state will permit interstate branching. During its 1995 term, the Texas
legislature passed legislation providing that interstate branching will not be
permitted in Texas until at least 1999. Accordingly, banks located outside the
State of Texas are effectively prohibited from opening a branch in Texas.
Similarly, banks located in Texas are generally prohibited from opening branches
outside Texas. The Texas legislature is expected to revisit the issue of
interstate branching in the 1999 session and, until then, interstate branching
will be prohibited in Texas. Interstate banking (e.g., out-of-state holding
companies acquiring Texas financial institutions), however, cannot be prohibited
and must be permitted by all the states, subject to certain permissible state
law limitations on the ages of the banks to be acquired and limitations on the
total amount of deposits within a state that a bank holding company is permitted
to control.
6
<PAGE>
ITEM 2. PROPERTIES
THE CITIZENS BANK
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The Citizens Bank owns its main banking office and six branch offices. The
main office is a two-story, 33,000-square-foot office building located at 201
West Main Street, Henderson, Texas, and is the location where the majority of
the Citizens Bank's business is conducted. There is a six-lane drive-in
facility located directly behind the Citizens Bank. An automated teller machine
("ATM") is also located in a separate building at this address. The Citizens
Bank has five additional ATMs in Henderson, located in a grocery store at 2400
Highway 79 South, at a convenience store at 1414 West Main Street, at the local
hospital at 300 Wilson, at a general merchandise store at 2309 Highway 79 South,
and at a convenience store located at the traffic star which is the intersection
of U.S. Highways 79 and 259 and State Highways 64 and 43.
The Citizens Bank has six branch offices. The Southside branch office is
located at 1610 Highway 79 South, Henderson, Texas. The Southside branch office
contains approximately 4,200 square feet and has a three-lane drive-in facility.
The Overton branch office is located at 307 South Commerce Street, Overton,
Texas. The Overton branch has approximately 1,076 square feet, one drive-in
lane and one ATM. The Mount Enterprise branch office is located on Highway 84
in Mount Enterprise, Texas. The Mount Enterprise branch facility has
approximately 9,000 square feet, a two-lane drive-in facility, and one ATM. The
Jefferson branch office is located at 302 East Broadway, Jefferson, Texas. The
Jefferson branch office contains approximately 1,600 square feet and one drive-
in lane. The Citizens Bank also maintains an ATM located at a convenience store
at 105 South Walcott, Jefferson, Texas. The Malakoff branch is located at 115
West Royall Boulevard, Malakoff, Texas. The Malakoff branch facility has
approximately 10,000 square feet , a three-lane drive-in facility and one ATM.
The Chandler branch office is located at 105 Highway 31 East, Chandler, Texas.
The Chandler branch office contains approximately 1,600 square feet, one drive-
in lane and an ATM.
THE WASKOM BANK
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The Waskom Bank owns its sole banking office, which is located at 745 spur
156, Waskom, Texas. The building is a single story, brick building containing
approximately 6,000 square feet. One drive in lane is attached to the building
and one remote drive in lane is located on the property. Additionally, one
drive up ATM is located on the property.
There are no encumbrances on the properties discussed above.
ITEM 3. LEGAL PROCEEDINGS
To the knowledge of the management of the Company, excepting litigation in
the ordinary course of business, there are no material legal proceedings that
have been brought or threatened against the Company, the Delaware BHC or the
Subsidiary Banks.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A vote of the shareholders of the Company was not taken during the fourth
quarter of 1996.
7
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET FOR STOCK
There is no established public market for the shares of the $5.00 par value
per share common stock of the Company (the "Company Stock"). The following table
shows (i) the high and low sales price for each sale of the common stock of the
Company indicated for which the management of the Company had knowledge of the
prices involved through March 3, 1997, (ii) the number of such transactions for
the periods indicated, and (iii) the total number of shares traded in such
transactions. THESE PRICES REFLECT ONLY THE TRANSACTIONS WITH RESPECT TO WHICH
MANAGEMENT OF THE COMPANY HAS KNOWLEDGE OF THE PURCHASE PRICE. TRADE PRICES ARE
REPORTED ON AN INFORMAL BASIS, AND NO INDEPENDENT VERIFICATION OF THE TRADE
PRICES HAS BEEN MADE. THEY ARE THE RESULT OF ISOLATED TRANSACTIONS AND ARE NOT
NECESSARILY INDICATIVE OF THE ACTUAL OR MARKET VALUE OF SUCH SECURITIES.
<TABLE>
<CAPTION>
Company Stock
----------------------------------------
NUMBER OF NUMBER OF
TRANSACTIONS SHARES
1997 LOW HIGH REPRESENTED REPRESENTED
- ---- ----- ------ ------------ -----------
<S> <C> <C> <C> <C>
First Quarter
(Through March
1, 1997) 12.00 12.50 3 750
1996
- ----
First Quarter 12.00 12.00 3 732
Second Quarter 12.00 12.00 10 4,329
Third Quarter 12.00 12.00 5 1,190
Fourth Quarter 11.25 12.00 4 30,310
1995
- ----
First Quarter 12.75 12.75 4 3,980
Second Quarter 12.00 12.50 7 7,180
Third Quarter 12.00 13.00 9 3,400
Fourth Quarter 12.00 12.00 14 5,000
</TABLE>
As of March 3, 1997, there were 459 shareholders of record.
8
<PAGE>
DIVIDENDS
The Company declared three quarterly dividends on the Company stock during
1996 that approximated $345,600 (or $0.16 per share) per quarter for the first
three quarters of 1996, and the Company declared one quarterly dividend on the
Company stock that approximated $340,848 (or $0.16 per share). The Company paid
four quarterly dividends on the Company stock during 1996 that approximated
$345,600 (or $0.16 per share) for the fiscal year ended December 31, 1996. The
quarterly dividends were declared by the Board of Directors of the Company on
February 21, May 15, August 21, and November 20, respectively. The amount and
timing of future dividend payments will be determined by the Board and will
depend upon a number of factors, including the extent of funds legally available
therefore and the earnings, business prospects, acquisition opportunities, cash
needs, financial condition and regulatory and capital requirements of the
Company, the Delaware BHC and the Subsidiary Banks.
As a bank holding company, the Company's ability to pay dividends depends
upon the dividends it receives from the Delaware BHC. Dividends paid by the
Delaware BHC will depend on the ability of the Subsidiary Banks to pay
dividends. The ability of the Subsidiary Banks to pay dividends is restricted
by provisions of the National Bank Act, in the case of the Citizens Bank, and
the Texas Banking Act, in the case of the Waskom Bank.
Under the National Bank Act, a bank is generally able to pay dividends to
the extent of net profits, except that unless the bank's capital surplus equals
its stated capital, no dividend shall be declared until the bank has transferred
to capital surplus an amount not less than 10% of the net profits of the bank
earned since the last dividend was declared. In addition, the prior approval of
the Comptroller is required for any dividend if the total of all dividends,
including any proposed dividend, declared by the national bank in any calendar
year exceeds the total of its net profits for such year combined with its
retained net profits for the preceding two (2) years, less any required
transfers to surplus. The Comptroller also has the authority to prohibit a
national bank from engaging in any activity that, in his opinion, constitutes an
unsafe or unsound practice in conducting its business. Under certain
circumstances relating to the financial condition of a national bank, the
Comptroller may determine that the payment of dividends would be an unsafe or
unsound practice. In addition, the Comptroller and the Federal Reserve Board
have expressed the view that national banks and bank holding companies should
restrain or refrain from dividend increases or reduce or eliminate dividends
under certain circumstances.
Under the Texas Banking Act, the Waskom Bank generally may not pay a
dividend reducing its capital and surplus without the prior approval of the
Banking Commissioner of the State of Texas. All dividends must be paid out of
net profits then on hand, after deducting expenses, including loses and
provisions for loan losses. Additionally, under provisions of the Federal
Deposit Insurance Act, the FDIC has the right to prohibit the payment of
dividends by a bank where such payment is deemed to be an unsafe and unsound
banking practice.
The ability of the Company, the Delaware BHC, and the Subsidiary Banks to
pay dividends is also restricted by the requirement that they maintain adequate
levels of capital (on a consolidated basis, in the case of the Company and the
Delaware BHC) in accordance with guidelines promulgated from time to time by the
Comptroller, in the case of the Citizens Bank, the TDB in the case of the
Waskom Bank, and the Federal Reserve Board, in the case of the Company and the
Delaware BHC. The Comptroller, the Federal Reserve Board and the FDIC have
adopted risk-based capital guidelines. Federal Reserve Board guidelines require
the Company to maintain a Tier 1 Capital Ratio of at least 4.0%, a Total Capital
Ratio of at least 8.0% and a Leverage Capital Ratio of at least 4.0%. The
Company's Tier 1 Capital, Total Capital Ratio and Leverage Capital Ratio at
December 31, 1996 were 23.2%, 24.0% and 8.8%, respectively, and thus were above
the regulatory minimums. See "ITEM 1. BUSINESS -- Supervision and Regulation."
The ability of the Company (as a Texas corporation) to pay dividends is
restricted by Texas law, which provides that a corporation may pay dividends
only out of unreserved and unrestricted earnings surplus of the corporation and
is directly tied to the Subsidiary Banks' ability to pay dividends. As of
December 31, 1996, neither the Company nor the Subsidiary Banks had entered into
any agreement with any regulatory authority requiring the Company or the
Subsidiary Banks to maintain higher ratios than regulations normally require.
9
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Information in response to this requirement is presented on the inside
front cover page of the accompanying 1996 Annual Report to Shareholders, which
page is hereby incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The information required in response to this item is presented on pages 5
through 23 of the accompanying 1996 Annual Report to Shareholders, which pages
are hereby incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company and its
subsidiaries, included on pages 24 through 45 of the accompanying 1996 Annual
Report to Shareholders, are hereby incorporated by reference.
Independent Auditors' Report for the Years ended December 31, 1996, 1995
and 1994.
Consolidated Balance Sheets - December 31, 1996 and 1995.
Consolidated Statements of Income - Years ended December 31, 1996, 1995 and
1994.
Consolidated Statements of Stockholders' Equity - Years ended December 31,
1996, 1995 and 1994.
Consolidated Statements of Cash Flows - Years ended December 31, 1996, 1995
and 1994.
Notes to Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
10
<PAGE>
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information concerning the executive
officers and directors of the Company. Directors serve for one year terms
ending at the next annual meeting of shareholders or until their successors are
elected and qualified. Executive officers serve at the pleasure of the Company's
Board of Directors. Included in this table are the names, ages, and positions
held by each person listed. Further information concerning such persons follows
the table.
NAME (AGE) POSITIONS HELD WITH THE COMPANY
---------- -------------------------------
E. Landon Alford (61) Director and Chairman of the Board
R.M. Ballenger (76) Director
Stayton M. Bonner, Jr. (44) Director
David J. Burks (73) Director
Billy Crawford (72) Director
Sheila Gresham (42) Director
William A. Hurst (59) Vice President, Treasurer and Chief Financial
Officer
James Michael Kangerga (44) Director
J. Mark Mann (41) Director
Milton S. McGee, Jr. (47) Director, President and Chief Executive
Officer
Charles H. Richardson (75) Director
Nelwyn Richardson (47) Secretary
Rebecca G. Tanner (41) Chief Accounting Officer
Tony Wooster (52) Director
Alfred Wylie (70) Director
BUSINESS EXPERIENCE
- -------------------
E. LANDON ALFORD has served as a director of the Company since November
1990 and as a director of the Citizens Bank since 1958. Mr. Alford became the
Chairman of the Board of Directors of both the Company and the Citizens Bank
during July 1992. Mr. Alford has served on various Board of Directors'
committees at the Citizens Bank since 1958. Mr. Alford also serves as Chairman
of the Board of the Waskom Bank. Mr. Alford is also Chairman of the Board of
H.C.B. Inc., a Texas corporation ("HCB") and an affiliate of the Company. Mr.
Alford has been Managing Partner of Alford Investments since September 1959.
R. M. (MAX) BALLENGER has served as a director of the Company since
November 1990. Mr. Ballenger has served as a director of the Citizens Bank
since 1980 and has served on several committees of the Citizens Bank since 1980.
Mr. Ballenger also serves as a director of the Waskom Bank and HCB. Mr.
Ballenger has been the owner of Max Ballenger Real Estate & Lease Brokerage for
over 25 years.
STAYTON M. BONNER, JR. has served as director of the Company since November
1990 and as a director of the Citizens Bank since February 1984. Mr. Bonner has
served on various Board of Directors' committees at the Bank since February
1984. Mr. Bonner also serves as a director of the Waskom Bank and HCB. Mr.
Bonner has practiced law since September 1977, has served as a consultant for
Odyssey Management since June 1986 and has acted as Foundation Manager for the
R.F. and Jessie Shaw Foundation, Inc. since January 1988.
DAVID J. BURKS has served as a director of the Company since November 1990
and as a director of the Citizens Bank since 1980. He has served on several of
the Board of Directors' committees at the Citizens Bank since 1980. Mr. Burks
also serves as a director of the Waskom Bank and HCB. Mr. Burks served as
President of Burks Tires, Inc. from 1971 until his retirement in 1995.
BILLY CRAWFORD has served as a director of the Company since November 1990
and as a director of the Citizens Bank since February 1974. He has served on
several of the Citizens Bank Board of Directors' committees since February 1974.
Mr. Crawford also serves as a director of the Waskom Bank and HCB. Mr. Crawford
is a retired funeral director.
11
<PAGE>
SHEILA GRESHAM has served as a director of the Company and the Citizens
Bank, since February 1993. Ms. Gresham is currently serving on various
committees of the Board of Directors of the Citizens Bank. Ms. Gresham also
serves as a director of the Waskom Bank and HCB. Ms. Gresham has served as
President of Smith Chevrolet-Oldsmobile-Cadillac Company since August 1993, and
she served as President of Smith Chevrolet Company from February 1980 until
August 1993.
William A. Hurst has served as Executive Vice President and Cashier of the
Citizens Bank since February 1981 and as a member of the Investment Committee
since February 1986. Mr. Hurst has served as Vice President, Treasurer and
Chief Financial Officer of the Company since 1990. Mr. Hurst is also an officer
of HCB.
JAMES M. KANGERGA has served as a director of the Company since November
1990 and as a director of the Citizens Bank since March 1989. He has served on
numerous committees of the Citizens Bank Board of Directors since March 1989.
Mr. Kangerga also serves as a director of the Waskom Bank and HCB. Mr. Kangerga
has been a 50% owner and a real estate broker in Rusk County Investments, Inc.
since 1985. He has performed bookkeeping functions for Michael Kangerga & M
Kangerga & Bro. since 1980.
J. MARK MANN has served as a director of the Company and the Citizens Bank
since January 1992. Mr. Mann has served on various committees of the Board of
Directors of the Citizens Bank since his election to the Board of Directors.
Mr. Mann also serves as a director of the Waskom Bank and HCB. He has been a
partner with the law firm of Wellborn, Houston, Atkison, Mann, Sadler, and Hill
since 1981.
MILTON S. MCGEE, JR. has served as President, Chief Executive Officer and a
director of the Company since November 1990. In addition, Mr. McGee has served
as President, Chief Executive Officer and director of the Citizens Bank since
April 1990. He has served on various Committees of the Board of Directors of
the Citizens Bank since 1990. Mr. McGee also serves as the sole director of the
Delaware BHC and he has served in such position since February 1991. He also
has served in the following capacities: Chairman of the Board and Chief
Executive Officer of Kilgore Federal Savings & Loan Association from November
1989 to March 1990; President and Chief Executive Officer of NCNB Texas in
Henderson, Texas from July 1986 to November 1989; and President and Chief
Executive Officer of RepublicBank Brownwood from August 1983 to July 1986. Mr.
McGee also serves as a director of the Waskom Bank and HCB.
CHARLES H. RICHARDSON has served as a director of the Company since
November 1990 and as a director of the Citizens Bank since 1962. He has served
on several committees of the Board of Directors of the Citizens Bank since 1962.
Mr. Richardson also serves as a director of the Waskom Bank and HCB. Prior to
his retirement over six years ago, Mr. Richardson was a professor at Kilgore
College.
Nelwyn Richardson has served as Secretary of the Company since 1990. Ms.
Richardson has served as Senior Vice President of the Citizens Bank since 1995
and as Vice President since 1979. She has served on the Investment Committee
since 1986. Ms. Richardson is also an officer of HCB.
Rebecca G. Tanner has served as Chief Accounting Officer of the Company
since 1990. Ms. Tanner has served as Vice President and Controller of the
Citizens Bank since September 1991. Ms. Tanner served as an Assistant Vice
President at the Citizens Bank beginning in January 1990. Prior to that, Ms.
Tanner served as Assistant Vice President and Controller of NCNB Texas in
Henderson, Texas for approximately eleven years. Ms. Tanner is also an officer
of HCB.
TONY WOOSTER has served as a director of the Company and the Citizens Bank
since February 1993. He is currently serving on various committees of the Board
of Directors of the Citizens Bank. Mr. Wooster also serves as a director of the
Waskom Bank and HCB. Mr. Wooster is past President of the Henderson Economic
Development Corporation and previously served as the Mayor of the City of
Henderson from 1990 through 1992. Prior to 1990, Mr. Wooster was manager of
Morris Furniture Company.
ALFRED WYLIE has served as a director of the Company since November 1990
and as a director of the Citizens Bank since 1970. He served as Senior Vice
President and Trust Officer from 1984 until 1994 when he retired. Mr. Wylie has
been a member of various Board of Directors' committees at the Citizens Bank
since 1984. Mr. Wylie also serves as a director of the Waskom Bank and HCB.
12
<PAGE>
FAMILY RELATIONSHIPS
- --------------------
Charles Richardson, a director of the Company, HCB, the Citizens Bank and
the Waskom Bank, is the uncle of Stayton M. Bonner, Jr., who is also a director
of the Company, HCB, the Citizens Bank and the Waskom Bank. There are no other
family relationships between the members of the Board of Directors or executive
officers of the Company, the Citizens Bank or the Waskom Bank.
ITEM 11. EXECUTIVE COMPENSATION
Executive officers of the Company receive no compensation from the Company,
but are compensated for their services to the Company by the Citizens Bank by
virtue of the positions they hold in the Citizens Bank. The total compensation
for the periods indicated of Milton S. McGee, Jr., President and Chief Executive
Officer of the Company is set forth below:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation/(1)/
-------------------------------------------
Name and Principal All Other
Position Year Salary/(2)/ Bonus Compensation/(3)/
- ------------------ ---- ----------- ----- -----------------
<S> <C> <C> <C> <C>
Milton S. McGee, Jr. 1996 $157,716 $74,286 $21,734
President and Chief Executive 1995 149,143 62,907 20,545
Officer of the Company, the 1994 129,024 71,504 16,709
Citizens Bank, the Waskom Bank
and HCB
</TABLE>
/(1)/ Neither the Company nor the Citizens Bank has any long-term compensation
programs, so disclosure of such items is omitted.
/(2)/ Includes directors' fees.
/(3)/ Includes life insurance premiums paid on behalf of executive officers of
the Company and contributions made by the Citizens Bank to the executive
officer's account under the Citizens Bank's profit sharing plan.
Certain officers of the Company, HCB and the Subsidiary Banks receive
personal benefits in the form of club memberships, personal vacation and travel
expenses. The value of such benefits does not exceed the lesser of $50,000 or
10% of the total compensation reported for any such persons.
All directors of the Company, HCB and the Subsidiary Banks (except for the
Chairman of the Board) are paid a total of $1,000 per month for attending all
four Board of Directors' meetings (including committee meetings) and outside
directors receive an additional $500 in December. The Chairman of the Board
receives $2,000 per month for attending such meetings. The directors and
officers of the Company, the Citizens Bank and HCB are elected for terms of one
year.
13
<PAGE>
The Citizens Bank maintains a profit sharing plan pursuant to which each
salaried employee of the Citizens Bank who is 18 years old or older is eligible
for membership following completion of one year of service. The Board of
Directors of the Citizens Bank determines the amount of money that the Citizens
Bank will contribute to the profit sharing plan annually, in accordance with the
profitability of the Citizens Bank for the particular year or for previous
years. Contributions by the Citizens Bank are allocated to each member of the
plan in the same proportion as the member's compensation bears to the total
compensation of all members for that particular year. Contributions allocated
to the account of a member vest partially on an annual basis beginning in the
third year, with full vesting occurring after seven years of service. Members'
accounts are fully vested in the event of normal retirement, death or total
disability. The profit sharing plan is administered by the Citizens Bank. The
Citizens Bank trust department acts as trustee of the plan and invests the
Citizens Bank's contributions in specified assets as determined by the Board of
Directors of the Citizens Bank.
The Citizens Bank expensed approximately $281,000 to the profit sharing
plan in 1996, $251,000 in 1995 and $225,000 in 1994. The Citizens Bank's
contribution during 1996, 1995 and 1994 to the account of Milton S. McGee, Jr.
is as follows:
<TABLE>
<CAPTION>
Name of Individual
or Number in Group Contributions of the Citizens Bank
- ---------------------- ----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Milton S. McGee, Jr. $18,920 $17,204 $16,214
</TABLE>
On June 12, 1995, the Company entered into a Change in Control Agreement
(the "Severance Agreement") with Milton S. McGee, Jr., President of the Company
("McGee"). The Severance Agreement is designed to provide certain benefits to
McGee in the event there is a change in control of the Citizens Bank or the
Company. Specifically, the Severance Agreement provides that upon a Triggering
Termination (as defined in the Severance Agreement), McGee shall have the right
to receive a cash lump sum payment equal to 299% of his average annual
compensation paid by the Citizens Bank and the Company for the five (5)
preceding calendar years, provided, however, that such payment is to be reduced
to the extent that McGee would be subject to a tax pursuant to Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), as a result of
"parachute payments" (as defined in the Code) made pursuant to the Severance
Agreement or a deduction would not be allowed to the Company for all or any part
of such payments by reason of Section 280G(a) of the Code. In addition, for a
period of two years from the date of a Change in Control (as defined in the
Severance Agreement), or eighteen months from the date of the Triggering
Termination, if sooner (the "Benefits Period"), McGee shall continue to receive
all health, dental, disability, accident and life insurance plans or
arrangements made available by the Company or the Bank in which he or his
dependents were participating immediately prior to the date of his termination
as if he continued to be an employee of the Company and the Bank, to the extent
that participation in any one or more of such plans and arrangements is possible
under the terms thereof, provided that if McGee obtains employment with another
employer during the Benefits Period, such coverage shall be provided only to the
extent that the coverage exceeds the coverage of any substantially similar plans
provided by his new employer.
Under the terms of the Severance Agreement, a Triggering Termination would
occur upon the termination of McGee's employment with the Company or the
Citizens Bank on or after a Change in Control due to either: (i) his resignation
for Good Reason or (ii) his involuntary termination by the Citizens Bank or the
Company, provided that such involuntary termination (as defined in the Severance
Agreement) was not a Termination for Cause (as defined in the Severance
Agreement).
Under the terms of the Severance Agreement, a Change in Control means and
is deemed to have occurred if and when (i) any entity, person or group of
persons acting in concert, (other than the current members of the Board of
Directors of the Company (the "Board") or any of their descendants) becomes
beneficial owner of securities of the Company representing more than fifty
percent (50%) of the combined voting power of the Company or any successor
corporation; (ii) any entity, person or group of persons acting in concert,
(other than the Company or the current members of the Board or any of their
descendants) becomes beneficial owner of securities of the Citizens Bank
representing more than fifty percent (50%) of the combined voting power of the
Citizens Bank or any successor; (iii) the effective date of a merger or
consolidation of the Company or the Citizens Bank with one or more other
corporations or banks as a result of which the holders of the outstanding voting
stock of the Company
14
<PAGE>
immediately prior to the merger hold less than fifty percent (50%) of the
combined voting power of the surviving or resulting corporation or bank; or (iv)
the effective date of a transfer of all or substantially all of the property of
the Company or the Citizens Bank other than to an entity of which the Company or
the Citizens Bank owns at least eighty percent (80%) of the combined voting
power. Notwithstanding the foregoing, no Change in Control is deemed to have
occurred for purposes of the Severance Agreement as a result of any transaction
or series of transactions involving only the Company, the Citizens Bank, any
affiliate (within the meaning of Section 23A of the Federal Reserve Act of 1913,
as amended), or any of them, or any of their successors.
Under the terms of the Severance Agreement, resignation for Good Reason
means that McGee resigns from his position(s) with the Company or the Citizens
Bank as a result of any of the following: (i) the assignment to McGee without
his consent of any duties inconsistent with his positions, duties,
responsibilities and status with the Citizens Bank or the Company as in effect
immediately before a Change in Control or a detrimental change in his titles or
offices as in effect immediately before a Change in Control, or any removal of
McGee from or any failure to re-elect McGee to any of such positions, except in
connection with the termination of his employment for Cause or as a result of
his disability or death; (ii) a reduction of McGee's base salary or overall
compensation (other than as a result of year to year variations in bonuses or
overtime consistent with past practices) without the prior written consent of
McGee, which is not remedied within ten (10) calendar days after receipt by the
Company of written notice from McGee of such reduction; (iii) a determination by
McGee made in good faith that as a result of a Change in Control, he has been
rendered unable to carry out, or has been hindered in the performance of, any of
the authorities, powers, functions, responsibilities or duties attached to his
position with the Company or the Citizens Bank immediately prior to the Change
in Control, which situation is not remedied within thirty (30) calendar days
after receipt by the Company of written notice from McGee of such determination;
(iv) the Citizens Bank relocates its principal executive offices or requires
McGee to have as his principal location of work any location which is in excess
of thirty (30) miles from the current location of the Citizens Bank or to travel
away from his office in the course of discharging his responsibilities or duties
hereunder more than thirty (30) consecutive calendar days or an aggregate of
more than ninety (90) calendar days in any consecutive three hundred sixty-five
(365) calendar-day period without, in either case, his prior consent; or (v)
failure by the Company to require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company, by agreement in form and substance
satisfactory to McGee, expressly to assume and agree to perform the Severance
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place.
Under the terms of the Severance Agreement, Termination for Cause means
that McGee is involuntarily terminated from employment based upon his commission
of any of the following: (i) an intentional act of fraud, embezzlement or theft
in connection with his duties or in the course of his employment with the
Company or the Citizens Bank; (ii) intentional wrongful damage to property of
the Company or the Citizens Bank; (iii) intentional wrongful disclosure of trade
secrets or confidential information of the Company or the Citizens Bank; (iv)
willful violation of any law, rule or regulation (other than traffic violations
or similar offenses) or final cease and desist order; or (v) intentional breach
of fiduciary duty owed to the Company or the Citizens Bank involving personal
profit, provided, that no act, or failure to act, on the part of McGee is to be
deemed "intentional" unless done, or omitted to be done, by McGee not in good
faith and without reasonable belief that his action or omission was in the best
interest of the Company or the Citizens Bank.
Should McGee die prior to full payment of all benefits due under the
Severance Agreement, payment of any remaining benefits is to be made to his
beneficiaries designated in writing, or, if no designation is made, to his
estate. The Company has no obligation to reserve funds to fulfill its
obligations under the Severance Agreement, and the Company has not elected to
reserve any funds for such purpose. The Severance Agreement terminates on the
earlier of (i) McGee's sixty-fifth (65th) birthday, (ii) the fifth anniversary
of the first event that constitutes a Change in Control, or (iii) the fifth
anniversary of the date of execution of the Severance Agreement, provided,
however, that the Severance Agreement will not terminate pursuant to subsection
(iii) unless either party to the Severance Agreement notifies the other party
prior to any anniversary date of such agreement that the Severance Agreement is
to be terminated in accordance with subsection (iii). Upon such notice, the
termination date set forth in subsection (iii) is to be determined as if the
Severance Agreement had been executed on the immediately preceding anniversary
date of execution of such agreement.
The Company does not have any stock option or other executive compensation
plans.
15
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
- ----------------------
At March 3, 1997, the Company had 459 shareholders of record. The
following table sets forth information concerning the securities of the Company
owned beneficially at such time by each person, group or entity known by the
Company to own beneficially more than 5% of the shares of any class of such
securities.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP / PERCENT OF CLASS
OF HENDERSON CITIZENS BANCSHARES INC. COMMON STOCK
Name and Address of Number and Percent of Shares
Beneficial Owner Owned of Company Stock/(1)/
---------------- -----------------------------
<S> <C>
E. Landon Alford 138,228 / 6.49%
P. O. Box 67
Henderson, TX 75653
John R. Alford, Jr. 165,040 / 7.75%
P. O. Box 5219
Austin, TX 78763
Stayton M. Bonner, Jr. 189,902 / 8.91%/(2)/
P. O. Box 1833
Henderson, TX 75653
Michael Kangerga 132,978 / 6.24%
102 1/2 E. Main Street
Henderson, TX 75652
Ella Langdon Alford 165,044 / 7.75%
P. O. Box 10
Brixey, MO 65618
Citizens National Bank 177,120 / 8.31%/(3)/
and Stayton M. Bonner, Trustees
P. O. Box 1009
Henderson, TX 75653
</TABLE>
/(1)/ Unless otherwise indicated, all shares listed are held of record by the
individual indicated with sole power to vote and to dispose of such
shares. Percentages are based on 2,130,300 shares outstanding.
/(2)/ A total of 6,798 of these shares are held in trust for Mr. Bonner's three
minor sons, John S. Bonner, Stayton M. Bonner III and Walter N. Bonner
(2,266 shares each). Also included are 900 shares held in the name of
Bonner Brothers Partnership, the partners of which are Mr. Bonner's three
minor sons. Also includes 2,000 shares held in the name of Stayton M.
Bonner, Jr., Living Trust, for which Mr. Bonner has voting authority.
Also included are 44,280 shares held in trust for Mr. Bonner as a co-
beneficiary and co-trustee of the R.F. Shaw, S.M.B., Jr. Living Trust. In
addition, it appears that Mr. Bonner is also co-trustee with the Citizens
Bank on three other trusts of which he is not a beneficiary, which trusts
own an aggregate of 132,840 shares of Company Stock. The shares of Company
Stock held in all four of these trusts (the "Shaw Trusts") are voted
solely by Mr. Bonner. Therefore, the 177,120 shares of Company Stock held
in the four Shaw trusts are included in the total shares beneficially
owned by Mr. Bonner.
16
<PAGE>
/(3)/ The shares are held in four trusts for the benefit of various individuals.
Stayton M. Bonner, Jr., a director of the Citizens Bank and the Company,
is a beneficiary and co-trustee with the Citizens Bank of one of the
trusts, which owns 44,280 shares of Company Stock. In addition, it appears
that Mr. Bonner is also co-trustee with the Citizens Bank (but not a
beneficiary) of three such trusts, which own an aggregate of 132,840
shares, or 6.15%, of the Company Stock. The shares held in all four trusts
are voted solely by Mr. Bonner.
MANAGEMENT
- ----------
The following table sets forth the number of shares of the Company Stock
beneficially owned (i) by each director and advisory director of the Company and
(ii) by the directors and executive officers of the Company as a group as of
March 3, 1997.
<TABLE>
<CAPTION>
Number and Percent of Shares
Name Owned of Company Stock/(1)/
---- ----------------------------------
<S> <C>
E. Landon Alford 138,228 / 6.49%
R. M. Ballenger 800 / 0.04%
Stayton M. Bonner, Jr. 189,902 / 8.91%/(2)/
David J. Burks 9,775 / 0.46%
Billy Crawford 1,000 / 0.05%
Sheila Gresham 6,120 / 0.29%
James M. Kangerga 7,188 / 0.34%/(3)/
J. Mark Mann 5,710 / 0.27%/(4)/
Milton S. McGee, Jr. 6,698 / 0.31%/(5)/
Charles H. Richardson 24,160 / 1.13%/(6)/
Tony Wooster 1,800 / 0.08%/(7)/
Alfred Wylie 32,764 / 1.54%/(8)/
Directors and executive officers of 424,145 / 19.91%/(9)/
the Company as a group (12 Persons)
</TABLE>
/(1)/ Unless otherwise indicated, all shares listed are held of record by the
individual indicated with the sole power to vote and dispose of such
shares. Percentages are based on 2,130,300 shares outstanding.
/(2)/ A total of 6,798 of these shares are held in trust for Mr. Bonner's three
minor sons, John S. Bonner, Stayton M. Bonner III and Walter N. Bonner
(2,266 shares each). Also included are 900 shares held in the name of
Bonner Brothers Partnership, the partners of which are Mr. Bonner's three
minor sons. Also includes 2,000 shares held in the name of Stayton M.
Bonner, Jr., Living Trust, for which Mr. Bonner who has voting authority.
Also included are 44,280 shares held in trust for Mr. Bonner as a co-
beneficiary and co-trustee of the R.F. Shaw, S.M.B., Jr. Living Trust. In
addition, it appears that Mr. Bonner is also co-trustee with the Citizens
Bank on three other trusts of which he is not a beneficiary, which trusts
own an aggregate of 132,840 shares of Company Stock. The shares of Company
Stock held in all four of these trusts (the "Shaw Trusts") are voted
solely by Mr. Bonner. Therefore, the 177,120 shares of Company Stock held
in the four Shaw Trusts are included in the total shares beneficially
owned by Mr. Bonner.
17
<PAGE>
/(3)/ Includes 1,572 shares owned by CNB Co. as trustee for a self-directed
I.R.A. account for the benefit of James M. Kangerga, who has voting
authority for these shares.
/(4)/ Shares are held jointly by Mr. Mann and his wife, Debra Mann.
/(5)/ Includes 50 shares owned by Mr. McGee's minor son, Derek W. McGee.
Includes 6,648 shares held jointly by Mr. McGee and his wife, Sharla
McGee.
/(6)/ Includes 2,160 shares held jointly by Mr. Richardson and his wife, Ruebe
Gene Shaw Richardson.
/(7)/ Shares are held jointly by Mr. Wooster and his wife, Sue Wooster.
/(8)/ Includes 2,640 shares held by Mr. Wylie's wife, Gladys M. Wylie.
/(9)/ Any discrepancy between the actual total of the percentages and the stated
total percentage is due to rounding.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Subsidiary Banks have had, and are expected to have in the future,
banking transactions in the ordinary course of business with certain of the
Company's and the Subsidiary Bank's respective directors, executive officers and
their "associates." Management of the Company and the Subsidiary Banks believe
that all such loans have been made on substantially the same terms as those
prevailing at the time for comparable transactions, including interest rates and
collateral, with other persons and do not involve more than the normal risk of
collectability or present other unfavorable features, and that all such loans
are believed to be in compliance with the Financial Institutions Regulatory and
Interest Rate Control Act of 1978. See THE COMPANY CONSOLIDATED FINANCIAL
STATEMENTS, Footnote 6, reflected on page 36 of the 1996 Annual Report to
Shareholders.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents Filed as Part of Report.
1. Financial Statements
The consolidated financial statements for 1996, 1995 and 1994 as
listed in Item 8 of this report, together with the report of KPMG Peat
Marwick LLP dated March 4, 1997, appearing on pages 24 through 45 of
the accompanying 1996 Annual Report to Shareholders are incorporated
herein by reference.
2. Financial Statement Schedules
None
3. Exhibits
13.1 Henderson Citizens Bancshares, Inc. 1996 Annual Report to
Shareholders.
21.1 Subsidiaries of registrant.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the fourth quarter of
1996.
18
<PAGE>
(c) See the Exhibit Index attached hereto.
Management Contracts and Compensation Plans -- The following exhibits
listed in the Exhibit Index are identified below in response to Item 14(a)-
3 on Form 10-K:
Exhibit 10.2 Change in Control Agreement dated June 12, 1995 by and
between Henderson Citizens Bancshares, Inc. and Milton S.
McGee Jr.
19
<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.
HENDERSON CITIZENS BANCSHARES, INC.
By: /s/ Milton S. McGee, Jr.
------------------------------------------
Milton S. McGee, Jr., President
and Chief Executive Officer (Principal
Executive Officer)
By: /s/ William Hurst
------------------------------------------
William Hurst
Vice President, Treasurer and Chief
Financial Officer (Principal Financial
Officer)
By: /s/ Rebecca Tanner
------------------------------------------
Rebecca Tanner
Chief Accounting Officer (Principal
Accounting Officer)
Date: March 17, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ E. Landon Alford Director and Chairman of the March 17, 1997
- -------------------------- Board
E. Landon Alford
/s/ Milton S. McGee, Jr.
- -------------------------- Director, President and Chief March 17, 1997
Milton S. McGee, Jr. Executive Officer
/s/ R.M. Ballenger
- -------------------------- Director March 17, 1997
R. M. Ballenger
/s/ Stayton M. Bonner, Jr.
- -------------------------- Director March 17, 1997
Stayton M. Bonner, Jr.
/s/ D.J. Burks
- -------------------------- Director March 17, 1997
D. J. Burks
/s/ Billy Crawford
- -------------------------- Director March 17, 1997
Billy Crawford
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Sheila Gresham
- -------------------------- Director March 17, 1997
Sheila Gresham
/s/ James Michael Kangerga
- -------------------------- Director March 17, 1997
James Michael Kangerga
/s/ J. Mark Mann Director March 17, 1997
- --------------------------
J. Mark Mann
/s/ Charles H. Richardson Director March 17, 1997
- --------------------------
Charles H. Richardson
/s/ Tony Wooster Director March 17, 1997
- --------------------------
Director March 17, 1997
- --------------------------
Alfred Wylie
</TABLE>
21
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 BY REGISTRANTS WHICH HAVE NOT
REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
The following items will be sent to the shareholders of record of the
Company on or before March 28, 1997, and copies of such information shall be
sent to the Securities and Exchange Commission at such time:
(1) 1996 Annual Report to Shareholders
(2) Notice of Annual Meeting to Shareholders and Proxy Statement
(3) Proxy Card
22
<PAGE>
EXHIBIT INDEX
Exhibit
- --------------------------------------------------------------------------------
3.1 Articles of Incorporation of Henderson Citizens Bancshares, Inc.
(incorporated herein by reference from the Company's Registration Statement
on Form S-4 (Registration No. 33-42286) filed with the Securities and
Exchange Commission on August 16, 1991).
3.2 Bylaws of Henderson Citizens Bancshares, Inc. (incorporated herein by
reference from the Company's Registration Statement on Form S-4
(Registration No. 33-42286) filed with the Securities and Exchange
Commission on August 16, 1991).
4.1 Specimen Common Stock Certificate of Henderson Citizens Bancshares, Inc.
(incorporated herein by reference from the Company's Registration Statement
on Form S-4 (Registration No. 33-42286) filed with the Securities and
Exchange Commission on August 16, 1991).
10.1 Citizens National Bank of Henderson - Profit Sharing Plan (incorporated
herein by reference from the Company's Registration Statement on Form S-4
(Registration No. 33-42286) filed with the Securities and Exchange
Commission on August 16, 1991).
10.2 Change in Control Agreement dated June 12, 1995 by and between Henderson
Citizens Bancshares, Inc. and Milton S. McGee, Jr., President of Henderson
Citizens Bancshares, Inc. (incorporated herein by reference from the
Company's Annual Report on Form 10-K for the year ended December 31, 1995).
13.1 Henderson Citizens Bancshares, Inc. 1996 Annual Report to Shareholders.
21.1 Subsidiaries of registrant.
<PAGE>
EXHIBIT 21.1
------------
Henderson Citizens Bankshares, Inc.
Henderson Citizens Delaware Bankshares,Inc. (100%)
Citizens National Bank (100%)
First State Bank (100%)
Waskom Bankshares,Inc. (100%)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 12,413
<INT-BEARING-DEPOSITS> 3,892
<FED-FUNDS-SOLD> 1,150
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 145,740
<INVESTMENTS-CARRYING> 82,415
<INVESTMENTS-MARKET> 82,465
<LOANS> 103,185
<ALLOWANCE> 1,146
<TOTAL-ASSETS> 356,830
<DEPOSITS> 320,673
<SHORT-TERM> 1,762
<LIABILITIES-OTHER> 2,407
<LONG-TERM> 0
0
0
<COMMON> 10,800
<OTHER-SE> 21,188
<TOTAL-LIABILITIES-AND-EQUITY> 356,830
<INTEREST-LOAN> 7,642
<INTEREST-INVEST> 13,074
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 20,716
<INTEREST-DEPOSIT> 11,203
<INTEREST-EXPENSE> 11,203
<INTEREST-INCOME-NET> 9,513
<LOAN-LOSSES> 243
<SECURITIES-GAINS> 719
<EXPENSE-OTHER> 8,038
<INCOME-PRETAX> 4,454
<INCOME-PRE-EXTRAORDINARY> 4,454
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,344
<EPS-PRIMARY> 1.55
<EPS-DILUTED> 1.55
<YIELD-ACTUAL> 3.23
<LOANS-NON> 298
<LOANS-PAST> 33
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,019
<CHARGE-OFFS> 243
<RECOVERIES> 82
<ALLOWANCE-CLOSE> 1,146
<ALLOWANCE-DOMESTIC> 1,146
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 286
</TABLE>
