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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 13E-4
Issuer Tender Offer Statement
(Pursuant to Section 13(e)(1) of the Securities Exchange Act of 1934)
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HENDERSON CITIZENS BANCSHARES, INC.
(Name of issuer)
HENDERSON CITIZENS BANCSHARES, INC.
(Name of Person(s) Filing Statement)
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Common Stock, par value, $5.00 per share
(Title of Class of Securities)
Not Applicable
(CUSIP Number of Class of Securities)
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MILTON S. MCGEE, JR.
President
Henderson Citizens Bancshares, Inc.
201 West Main Street, P.O. Box 1009
Henderson, TX 75653
(903) 657-8521
(Name, address and telephone number of person authorized to receive notices and
communications on behalf of the person(s) filing statement)
October 15, 1997
(Date tender offer first published, sent or given to security holders)
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Copy To:
BRIAN R. MAREK
Jenkens & Gilchrist, a Professional Corporation
Suite 3200
1445 Ross Avenue
Dallas, Texas 75202
(214) 855-4500
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CALCULATION OF FILING FEE
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TRANSACTION VALUATION* AMOUNT OF FILING FEE
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$2,030,000 $406.00
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* Calculated solely for purposes of determining the filing fee, based
upon the purchase of 140,000 shares at the maximum tender offer price
per share of $14.50.
/ / Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
Amount Previously Paid: N/A Filing Party: N/A
Form or Registration No.: N/A Date File: N/A
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This Issuer Tender Offer Statement on Schedule 13E-4 (the "Statement")
relates to the tender offer by Henderson Citizens Bancshares, Inc., a Texas
corporation (the "Company"), to purchase up to 140,000 shares of its common
stock, $5.00 par value per share (the "Shares"), at a price, net to the seller
in cash, of $14.50 per Share, without interest thereon, upon the terms and
subject to the conditions set forth in the Offer to Purchase, dated October 15,
1997 (the "Offer to Purchase"), and the related Letter of Transmittal (which, as
they may be amended from time to time, are herein collectively referred to as
the "Offer"). Copies of the Offer to Purchase and Letter of Transmittal are
filed as Exhibits (a)(1) and (a)(2), respectively, to this Statement.
ITEM 1. SECURITY AND ISSUER.
(a) The name of the issuer is HENDERSON CITIZENS BANCSHARES, INC., a Texas
corporation. The address of its principal executive offices is 201 West Main
Street, P.O. Box 1009, Henderson, Texas 75653.
(b) The information set forth on the cover page and in Section 4 "Number
of Shares; Proration; Extension of the Offer" and Section 15 "Transactions and
Arrangements Concerning the Common Stock" in the Offer to Purchase is
incorporated herein by reference. The Offer is being made to all holders of
Shares, including officers, directors and affiliates of the Company.
(c) The information set forth on the cover page and in Section 11 "Price
Range of Common Stock; Dividends" in the Offer to Purchase is incorporated
herein by reference
(d) This Statement is being filed by the Issuer at the address set forth
on the cover page of the Offer.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The information set forth in Section 12 "Source and Amount of Funds"
in the Offer to Purchase is incorporated herein by reference.
(b) Not applicable.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER.
(a)-(j) The information set forth on the cover page and in Sections 1
"Purpose of the Offer; Certain Effects of the Offer; Plans of the Company After
the Offer", Section 12 "Source and Amount of Funds", and Section 15
"Transactions and Arrangements Concerning the Common Stock" in the Offer to
Purchase is incorporated herein by reference.
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
The information set forth in Section 15 "Transactions and Arrangements
Concerning the Common Stock" in the Offer to Purchase is incorporated herein by
reference.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE ISSUER'S SECURITIES.
Not applicable.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in the cover page, Section 15 "Transactions
Concerning the Common Stock" and in Section 18 "Fees and Expenses" to the Offer
to Purchase is incorporated herein by reference.
ITEM 7. FINANCIAL INFORMATION.
(a)-(b) The information set forth (i) in Section 13 "Certain Information
About the Company" in the Offer to Purchase, (ii) in Section 14 "Certain Pro
Forma Financial Information; (iii) on pages 24 through 45 to the Company's
Annual Report on Form 10-K/A for the fiscal year ended December 31, 1996, filed
as Exhibit (g)(1) hereto, and (iv) on
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pages 2 through 11 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, filed as Exhibit (g)(2) hereto, are all
incorporated herein by reference.
ITEM 8. ADDITIONAL INFORMATION.
(a) Not applicable.
(b) The information set forth in Section 16 "Government Regulation" in the
Offer to Purchase is incorporated herein by reference.
(c) The information set forth in Section 1 "Purpose of the Offer; Certain
Effects of the Offer; Plans of the Company After the Offer" in the Offer to
Purchase is incorporated herein by reference.
(d) Not applicable.
(e) The information set forth in the Offer to Purchase and the related
Letter of Transmittal, copies of which are attached hereto as Exhibits (a)(1)
and (a)(2), respectively, is incorporated herein by reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Form of Offer to Purchase dated October 15, 1997.
(a)(2) Form of Letter of Transmittal with Substitute Form W-9.
(a)(3) Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
(a)(4) Form of Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees.
(a)(5) Form of Letter dated October 15, 1997 to shareholders from the
Company.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
(g)(1) Pages 24 through 45 of the Company's Annual Report on Form 10-K/A
for the fiscal year ended December 31, 1996 (incorporated by
reference).
(g)(2) Pages 2 through 11 of the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997, (incorporated by reference).
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
HENDERSON CITIZENS BANCSHARES, INC.
By: /s/ Rebecca G. Tanner
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Name: Rebecca G. Tanner
Title: Chief Accounting Officer
Dated: October 15, 1997
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
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99.(a)(1) Form of Offer to Purchase dated October 15, 1997.
99.(a)(2) Form of Letter of Transmittal with Substitute Form W-9.
99.(a)(3) Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees, dated October 15, 1997.
99.(a)(4) Form of Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees.
99.(a)(5) Form of Letter dated October 15, 1997 to Shareholders from the
Company.
99.(g)(1) Pages 24 through 45 to the Company's Annual Report on Form 10-K/A
for the fiscal year ended December 13, 1996 (incorporated by
reference from the Company's Form 10-K/A filed with the
Commission on April 2, 1997)
99.(g)(2) Part 1 of the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, incorporated by reference from the
Company's Form 10-Q filed with the Commission on August 11, 1997.
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Exhibit 99.(a)(1)
HENDERSON CITIZENS BANCSHARES, INC.
201 West Main Street
Henderson, Texas 75653
OFFER TO PURCHASE FOR CASH UP TO 140,000 SHARES
OF ITS COMMON STOCK
AT $14.50 NET PER SHARE
THE OFFER PERIOD WILL EXPIRE ON WEDNESDAY, NOVEMBER 12, 1997,
AT 5:00 P.M., CENTRAL STANDARD TIME, UNLESS THE OFFER IS EXTENDED.
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TO THE HOLDERS OF SHARES OF COMMON STOCK OF HENDERSON CITIZENS BANCSHARES, INC.:
Henderson Citizens Bancshares, Inc., a Texas corporation (the "Company"),
hereby offers to purchase up to 140,000 shares of the total issued and
outstanding shares (the "Shares") of its common stock, $5.00 par value per share
(the "Common Stock"), at $14.50 net per share to the Seller in cash, upon the
terms and conditions set forth herein and in the attached Letter of Transmittal
(which together constitute the "Offer"). See Section 4, herein. Tendering
shareholders will not be obligated to pay brokerage commissions, solicitation
fees or, subject to Instruction 7 of the Letter of Transmittal, stock transfer
taxes on the purchase of Shares by the Company. However, any tendering
shareholder or other payee who fails to complete fully and sign the box
captioned "Substitute Form W-9" included in the Letter of Transmittal may be
subject to a required tax withholding of 31% of the gross proceeds paid to the
shareholder or other payee pursuant to the Offer. See Section 2, herein. The
Company will pay all charges and expenses of Citizens National Bank, Henderson,
Texas (the "Depositary"), incurred in connection with the Offer.
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING TENDERED.
THE OFFER, HOWEVER, IS SUBJECT TO CERTAIN OTHER CONDITIONS. SEE SECTION 10
HEREIN.
Tenders pursuant to the Offer may be withdrawn (a) at any time prior to the
Expiration Date (including any extensions) and (b) if not yet accepted for
payment, after the expiration of forty (40) business days from the commencement
of the Offer (that is, December 11, 1997), until accepted for payment.
THE DATE OF THIS OFFER TO PURCHASE IS OCTOBER 15, 1997.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MAKING OF THE
OFFER. HOWEVER, SHAREHOLDERS MUST MAKE THEIR
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OWN DECISIONS WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER.
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO ANY
SHAREHOLDER WITH RESPECT TO THE OFFER AND NO PERSON HAS BEEN AUTHORIZED BY THE
COMPANY TO MAKE ANY SUCH RECOMMENDATION. SHAREHOLDERS SHOULD EVALUATE CAREFULLY
ALL OF THE INFORMATION CONTAINED OR REFERRED TO HEREIN AND MAKE THEIR OWN
DECISIONS AS TO WHETHER OR NOT TO TENDER SHARES PURSUANT TO THE OFFER.
SHAREHOLDERS ARE URGED TO CONSULT A TAX ADVISER CONCERNING THE FEDERAL AND ANY
STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF THE SALE OF SHARES TO THE COMPANY
PURSUANT TO THE OFFER.
IMPORTANT
Any shareholder desiring to tender all or any portion of his Shares should
either (i) complete and sign the Letter of Transmittal or a facsimile thereof in
accordance with the instructions in the Letter of Transmittal, mail or deliver
it with any required signature guarantee and any other required documents to the
Depositary, and either mail or deliver the stock certificates for such Shares to
the Depositary (with all such other documents) or (ii) request a broker, dealer,
commercial bank, trust company or other nominee to effect the transaction for
such shareholder. A shareholder having Shares registered in the name of a
broker, dealer, commercial bank, trust company or other nominee must contact
that broker, dealer commercial bank, trust company or other nominee if such
shareholder desires to tender such Shares. Shareholders who desire to tender
Shares and whose certificates for such are not immediately available or whose
other required documentation cannot be delivered to the Depositary, in either
case, by the Expiration Date of the Offer should tender such Shares by following
the procedures for guaranteed delivery set forth in Section 6. TO EFFECT A
VALID TENDER OF SHARES, SHAREHOLDERS MUST VALIDLY COMPLETE THE LETTER OF
TRANSMITTAL.
Questions and requests for assistance or requests for additional copies of
the Offer to Purchase and Letter of Transmittal, may be directed to Milton S.
McGee, Jr., President, Henderson Citizens Bancshares, Inc., 201 West Main
Street, Henderson, Texas 75653, (903) 657-8521.
THE COMPANY HAS NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON BEHALF
OF THE COMPANY AS TO WHETHER SHAREHOLDERS SHOULD TENDER OR REFRAIN FROM
TENDERING SHARES PURSUANT TO THE OFFER. THE COMPANY HAS NOT AUTHORIZED ANY
PERSON TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH
THE OFFER ON BEHALF OF THE COMPANY OTHER THAN THOSE CONTAINED IN THIS OFFER TO
PURCHASE OR IN THE LETTER OF TRANSMITTAL. DO NOT RELY ON ANY SUCH
RECOMMENDATION OR ANY SUCH INFORMATION OR REPRESENTATION, IF GIVEN OR MADE, AS
HAVING BEEN AUTHORIZED BY THE COMPANY.
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TABLE OF CONTENTS
SECTION PAGE
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SPECIAL FACTORS...............................................................1
1. Purpose of the Offer; Certain Effects of the Offer; Plans of
the Company After the
Offer...........................................................1
2. Federal Income Tax Consequences.................................2
3. Fairness of the Offer, Reports and Opinions.....................5
THE OFFER.....................................................................7
4. Number of Shares; Proration; Extension of the Offer.............7
5. Tenders by Holders of Fewer than One Hundred (100) Shares.......8
6. Procedure for Tendering Shares..................................8
7. Withdrawal Rights..............................................10
8. Purchase of Shares and Payment of Purchase Price...............10
9. Conditional Tender of Shares...................................11
10. Certain Conditions of the Offer................................11
11. Price Range of Common Stock; Dividends.........................12
12. Source and Amount of Funds.....................................13
13. Certain Information about the Company..........................13
14. Certain Pro Forma Financial Information........................16
15. Transactions and Arrangements Concerning the Common Stock......19
16. Government Regulation..........................................22
17. Extension of the Offer Period; Termination; Amendments.........22
18. Fees and Expenses..............................................23
19. Miscellaneous..................................................24
Appendix A Opinion of The Bank Advisory Group, Inc.......................A-1
iii
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SPECIAL FACTORS
1. PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER; PLANS OF THE
COMPANY AFTER THE OFFER
The principal purposes of this Offer are as follows:
First, the Company considers the repurchase of these Shares to be a good
investment of its capital, and therefore beneficial to the long-term interests
of the Company's remaining shareholders. The Company has experienced earnings
growth in recent years resulting in an accumulation of capital in excess of
current needs to support the continued growth of the Company. Purchase of
Shares by the Company will have the effect of increasing the current book value
per share of the Common Stock. In addition, the purchase should have the effect
of increasing future return on equity for the Company and increasing earnings
per share for those shareholders who elect to retain their shares.
Second, as the Common Stock is not listed for quotation on any significant
market or exchange, there is only limited trading activity with respect to the
Common Stock. The Offer will provide a means for shareholders to dispose of
medium to larger size blocks of stock in a timely and orderly manner. This
Offer will give shareholders an opportunity to sell some or all of their stock
at a fair price, without having to pay brokerage commissions or other
transaction costs.
The Company's purchase of Shares pursuant to the Offer will reduce the
number of Shares that might otherwise trade publicly and is likely to reduce the
number of shareholders. Prior to this Offer, there has been only limited
trading of the Common Stock. Depending on the number of shareholders of the
Company who tender all of their Shares, the Offer may have the effect of further
limiting, or eliminating, any available trading market for the Common Stock.
The absence of a trading market may make it difficult to sell Shares not
tendered to the Company following the Expiration Date and may have an adverse
effect on the price of the Common Stock.
In 1991, the Company filed a Registration Statement on Form S-4 with the
Securities and Exchange Commission (the "Commission") pursuant to the Securities
Act of 1933, as amended (the "Securities Act") to register its Common Stock to
be issued in connection with the Company's acquisition of Enterprise Bancshares,
Inc. on December 31, 1991. Section 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") requires companies having filed a
registration statement with the Commission pursuant to the Securities Act to
furnish certain information to its shareholders and to file periodic and current
reports (e.g., annual reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K) with the Commission as required by section 13 of
the Exchange Act. These periodic and current reports contain certain business
and financial information regarding the Company and its subsidiaries. The
Company began filing current reports with the Commission following the effective
date of the registration statement filed pursuant to the Securities Act and
continues to file such reports as required by section 13 of the Exchange Act.
See discussion at Section 13 - "Additional Information."
As of September 30, 1997, the Company had approximately 462 shareholders of
record. Section 15(d) of the Exchange Act, however, permits companies whose
number of shareholders of record is reduced to less than 300 persons to suspend
periodic reporting obligations under
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section 13 of the Exchange Act. The Company believes that its purchase of
Shares pursuant to the Offer may result in the Common Stock becoming eligible
for suspension of its reporting requirements under the Exchange Act.
Depending on the number of shareholders of the Company who elect to
participate in the Offer and who tender all of the Shares beneficially owned by
them, the Company may have fewer than 300 shareholders of record following
completion of the Offer. In the event that the Offer should result in the
Company having fewer than 300 shareholders of record, management of the Company
has indicated that it intends to suspend the Company's obligation to file
periodic reports with the Commission pursuant to the Exchange Act.
See Section 14 herein for pro forma financial statements showing the
effects of the Company's purchase of Shares pursuant to the Offer. To the
extent that Shares are purchased in the Offer, the proportionate equity interest
of nontendering shareholders in the Company will be increased. The Offer is not
conditioned upon any minimum number of Shares being tendered.
Shares purchased pursuant to the Offer will be retained as treasury stock
(unless and until the Company determines to retire such Shares) and be available
for issue without further shareholder action (except as required by applicable
law) for purposes including, but not limited to, the acquisition of other
businesses and raising of additional capital for use in the Company's business.
The Company has no current plan for issuance of Shares repurchased pursuant to
the Offer.
Following consummation of the Offer, the business and operations of the
Company will be continued by the Company substantially as they are currently
being conducted. The Company has no plans or proposals which relate to or would
result in: (a) the acquisition by any person of additional securities of the
Company or the disposition of securities of the Company; (b) an extraordinary
corporate transaction, such as a merger, reorganization or liquidation,
involving the Company or any of its subsidiaries; (c) a sale or transfer of a
material amount of assets of the Company or any of its subsidiaries; (d) any
change in its present Board of Directors (the "Board") or management of the
Company; (e) any material change in the present dividend rate or policy, or
indebtedness or capitalization of the Company; (f) any other material change in
the Company's corporate structure or business; or (g) any change in the
Company's Articles of Incorporation or Bylaws or any actions which may impede
the acquisition of control of the Company by any person.
Following expiration of the Offer, the Company may, in its sole discretion,
determine to purchase any remaining Shares through privately negotiated
transactions, open market purchases or otherwise, on such terms and at such
prices as the Company may determine from time to time, the terms of which
purchases or offers could differ from those of the Offer, except that the
Company will not make any such purchases of Shares until the expiration of ten
(10) business days after the termination of the Offer. Any possible future
purchases of Shares by the Company will depend on many factors, including the
market price of the Shares, the Company's business and financial position,
alternative investment opportunities available to the Company, the results of
the Offer and general economic and market conditions.
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2. FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based upon information provided by the Company,
the Internal Revenue Code of 1986, as amended and in effect on the date hereof
(the "Code"), existing and proposed regulations thereunder, reports of
congressional committees, judicial decisions and current administrative rulings
and practices. Any of these authorities could be repealed, overruled or
modified at any time after the date hereof. Any such change could be
retroactive and, accordingly, could modify the tax consequences discussed
herein. No ruling from the Internal Revenue Service with respect to the matters
discussed herein has been requested and there is no assurance that the Internal
Revenue Service would agree with the conclusions set forth in this discussion.
This discussion is for general information only and does not address the
federal income tax consequences that may be relevant to particular shareholders
of the Company in light of their personal circumstances or to certain types of
shareholders of the Company (such as dealers in securities, insurance companies,
foreign individuals and entities, financial institutions and tax-exempt
entities) who may be subject to special treatment under the federal income tax
laws. This discussion also does not address any tax consequences under state,
local or foreign laws.
GENERAL CONSEQUENCES
Sales of Common Stock by tendering shareholders pursuant to the Offer will
be taxable transactions for federal income tax purposes (and may be taxable
transactions under state, local or foreign tax laws as well). The federal
income tax consequences to a tendering shareholder may vary depending upon the
particular facts and circumstances of that individual. Accordingly, each
shareholder is urged to consult his own tax advisor with respect to the federal
income tax consequences to him of the sale of his Shares in connection with the
Offer, including the desirability of selling his Shares in the market instead of
to the Company pursuant to the Offer, or of selling some of his Shares pursuant
to the Offer and simultaneously disposing in the market of some or all of the
other stock of the Company which he might own.
Under the Code, a shareholder whose Shares are purchased pursuant to the
Offer will generally recognize gain or loss in an amount equal to the difference
between the cash received and such shareholder's adjusted basis for his Shares
redeemed, if (i) as a result of the sale, his stock interest in the Company is
completely terminated, (ii) as a result of the sale there is a substantially
disproportionate redemption to the selling shareholder, or (iii) the receipt of
cash in exchange for his Shares is deemed to be not essentially equivalent to a
dividend. These tests are discussed in greater detail below. Such gain or loss
generally will be treated as a capital gain or loss if the Shares are held as
capital assets, and generally will be treated as a long-term capital gain or
loss if the shareholder's holding period for such Shares is more than one year.
Furthermore, such long-term capital gain may qualify for a reduced rate of tax
if the tendering shareholder's holding period for such Shares is more than
eighteen months.
To determine whether the tests referred to above (and discussed herein) are
met, there must be taken into account both (a) any shares actually owned by such
shareholder and (b) any shares considered owned by such shareholder by reason of
certain constructive ownership rules set forth in sections 318 and 302(c) of the
Code. Under section 318 of the Code, a shareholder generally will be treated as
owning shares which he has the right to acquire under options and shares owned
(and,
3
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in some cases, constructively owned) by members of the tendering shareholder's
family and by related entities (such as corporations, partnerships, trusts and
estates) in which such shareholder, a member of his family or a related entity
has an interest.
IF NONE OF THE FOREGOING TESTS (DESCRIBED IN GREATER DETAIL BELOW) ARE
SATISFIED, THEN, WHETHER OR NOT A TENDERING SHAREHOLDER HOLDS HIS COMMON STOCK
AS A CAPITAL ASSET, THE ENTIRE AMOUNT OF THE CASH RECEIVED PURSUANT TO THE OFFER
WILL BE TREATED AS A DIVIDEND AND WILL BE TAXABLE AS ORDINARY INCOME TO THE
EXTENT OF THE CURRENT AND ACCUMULATED EARNINGS AND PROFITS OF THE COMPANY.
COMPLETE TERMINATION OF INTEREST
A termination of the stock interest of a tendering shareholder will have
occurred if, pursuant to the Offer, the Company purchases all of his Common
Stock and such shareholder does not own directly and is not deemed to own, under
the constructive ownership rules described above, any other stock of the
Company. If the Offer is prorated, the Shares that are not purchased by reason
of such proration must be taken into account in determining whether a
shareholder has achieved a complete termination of his interest in the Company.
If a shareholder would otherwise satisfy the complete termination requirement,
but for his constructive ownership of Shares held by family members, under
certain circumstances such shareholder may be entitled to disregard such
constructive ownership. A shareholder who has a complete termination of his
interest generally will receive capital gain or loss treatment provided that he
holds his Shares as capital assets.
SUBSTANTIALLY DISPROPORTIONATE REDEMPTION
A substantially disproportionate redemption occurs as to a particular
shareholder if the redemption results in the shareholder owning less than eighty
percent (80%) of the percentage of all of the outstanding Common Stock that he
owned immediately before the redemption and less than fifty percent (50%) of all
of the outstanding Common Stock. In applying these tests, the constructive
ownership rules discussed above will apply. A shareholder whose receipt of cash
pursuant to the Offer qualifies as a substantially disproportionate redemption
generally will receive capital gain or loss treatment provided that he holds his
Shares as capital assets.
NOT ESSENTIALLY EQUIVALENT TO A DIVIDEND
Even if there is not a complete termination of the shareholder's interest
and the receipt of cash by such shareholder fails to satisfy the "substantially
disproportionate" test, it is possible that the receipt of cash by such
shareholder pursuant to the Offer may be treated as "not essentially equivalent
to a dividend". Application of this test depends on the individual
shareholder's circumstances. Under the applicable judicial authorities, the
"not essentially equivalent to a dividend" test generally will be satisfied if,
as a result of the sale of Common Stock pursuant to the Offer, a shareholder has
realized a "meaningful reduction" in his proportionate interest in the Company,
taking into account the constructive ownership rules. The Internal Revenue
Service has indicated in a published ruling that a redemption qualified as "not
essentially equivalent to a dividend" where (i) the shareholder's relative stock
interest in the company was minimal, (ii) the shareholder exercised no control
over the affairs of the company and (iii) as a result of the redemption, the
shareholder experienced a reduction of his voting rights, rights to participate
in current earnings and surplus and rights to share in assets on
4
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liquidation. However, the Internal Revenue Service has also ruled that a
redemption of shares of a shareholder who held a minimal interest in the
corporation failed to qualify as "not essentially equivalent to a dividend"
where the pro-rata stock interest of the shareholder was not reduced as a result
of the redemption. Shareholders tendering Shares in this Offer should note that
the change in their relative stock interest in the Company may be affected by
any proration of the Offer. A shareholder who meets the requirements of the
"not essentially equivalent to a dividend" test generally will receive capital
gain or loss treatment provided that he holds his Shares as capital assets. ANY
SHAREHOLDER SEEKING TO RELY ON THE "NOT ESSENTIALLY EQUIVALENT TO A DIVIDEND"
TEST SHOULD CONSULT WITH HIS OWN TAX ADVISOR AS TO ITS APPLICATION IN HIS
PARTICULAR SITUATION.
TAXABLE DIVIDEND TREATMENT
If none of the three tests described above is satisfied, then the
shareholder generally will be treated as having received a dividend in an amount
equal to the cash received by him pursuant to the Offer. Such a dividend will
be taxable as ordinary income to the extent of current and accumulated earnings
and profits of the Company. In addition, a shareholder also will recognize gain
from the sale or exchange of property to the extent the cash received by him
pursuant to the Offer exceeds the Company's earnings and profits and the
shareholder's adjusted basis in his Common Stock. Corporate shareholders may be
entitled to the dividends-received deduction, except that the amount of the
deduction may be reduced under certain special tax rules.
BACKUP WITHHOLDING REQUIREMENTS
Under federal backup withholding rules, except in the case of certain
exempt taxpayers, the Depositary will be required to withhold and will withhold
thirty-one percent (31%) of the gross proceeds paid to a shareholder or other
payee pursuant to the Offer unless the shareholder provides his tax
identification number (employer identification number or social security
number), certifies that such number is correct, and certifies that he is not
subject to backup withholding under section 3406(a)(1)(C) of the Code. Each
shareholder should fully complete and sign Box F captioned "Substitute Form W-9"
included as part of the Letter of Transmittal, so as to provide the information
and certifications necessary to avoid backup withholding. See the Letter of
Transmittal and the Instructions thereto for further details.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY. EACH SHAREHOLDER OF THE COMPANY IS URGED TO CONSULT HIS OWN
TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO HIM OF THE PURCHASE
OF HIS COMMON STOCK PURSUANT TO THE OFFER, INCLUDING THE APPLICABILITY OF THE
CONSTRUCTIVE OWNERSHIP RULES, THE APPLICABILITY OF ANY STATE, LOCAL OR FOREIGN
TAX LAWS, CHANGES IN APPLICABLE TAX LAWS AND ANY PENDING OR PROPOSED
LEGISLATION.
3. FAIRNESS OF THE OFFER, REPORTS AND OPINIONS
Because of the absence of an established trading market for the Common
Stock, the Board determined the amount of consideration that should be paid for
each Share purchased pursuant to the Offer. The Board based its determination
on a number of factors, including among other things, a valuation of a minority
interest in the Company received from Bank Advisory Group, Inc., Austin,
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Texas. The Bank Advisory Group, Inc., in its role as independent financial
analyst, has rendered its opinion regarding the fairness, from the financial
perspective of both the selling shareholders (those accepting the Offer) and the
remaining shareholders (those electing not to accept the Offer) of the
consideration to be paid by the Company pursuant to the Offer. The opinion of
The Bank Advisory Group, Inc., attached hereto as APPENDIX A (the "Opinion"),
sets forth the matters considered in rendering the Opinion and should be read by
the shareholders in its entirety.
The Bank Advisory Group, Inc. is a well-recognized investment banking firm
engaged in the valuation of financial institutions and their securities in
connection with mergers, acquisitions, share exchanges, underwriting of
securities, private placements and other corporate transactions. The Bank
Advisory Group, Inc. was retained by the Company based primarily upon its
reputation in the industry on valuation matters. The Bank Advisory Group, Inc.
does not, and its officers, directors and shareholders do not, own any shares of
Common Stock. Prior to being retained by the Company in connection with this
matter, The Bank Advisory Group, Inc. has not provided financial advisory
services to the Company.
In preparing its valuation and its Opinion, The Bank Advisory Group, Inc.
considered the nature and history of the Company and its subsidiary banks,
Citizens National Bank, Henderson, Texas ("Citizens Bank") and First State Bank,
Waskom, Texas (the "Waskom Bank") (collectively referred to herein as the
"Subsidiary Banks"), the competitive and economic outlook for the Subsidiary
Banks' trade area and for the banking industry in general, the book value and
financial condition of the Company, its future earnings and dividend paying
capacity, the size of the minority block of Common Stock valued and the
prevailing market prices of comparable financial institutions' stock. The Bank
Advisory Group, Inc. relied primarily on three commonly recognized methods of
valuation: (i) net asset value, which is generally defined as the value of the
net worth of a bank or company, including every kind of property and value; (ii)
market value, which represents an analysis of the price a willing buyer and a
willing seller would agree upon in connection with the sale of a minority block
of stock in comparison with the market price at which a minority interest in
similar banking organizations is sold, as adjusted for the quality and quantity
of the comparable trade data, and (iii) investment value, which represents an
evaluation of the present value of a bank's or company's future earnings or cash
flow and the residual value that a minority investment in stock would be
anticipated to have.
For purposes of the valuation and the Opinion, The Bank Advisory Group,
Inc. relied without independent verification upon the accuracy and completeness
of all of the financial and other information provided to it by the Company.
Nonetheless, no limitations were imposed by the Company upon The Bank Advisory
Group, Inc. with respect to the scope of the information it requested or the
procedures it followed in rendering the valuation and its opinion. The Board
and management of the Company cooperated fully with The Bank Advisory Group,
Inc. in connection with its investigation.
The Bank Advisory Group, Inc. believes that its analysis must be considered
in its entirety and that selecting a portion of its analysis and the factors
considered by it, without considering all such factors and analyses, could
create a misleading view of the processes underlying its Opinion. The
preparation of the Opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description. In its analysis, The
Bank Advisory Group, Inc. made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the Company's control.
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In establishing the amount of consideration to be paid for the Shares
pursuant to the Offer, in addition to evaluation of the Opinion, the Board also
considered the growth rate and earnings of the Company and the Subsidiary Banks,
the book value and financial condition of the Company and the Subsidiary Banks,
the capital structure of the Company and the Subsidiary Banks, the competitive
and economic outlook for the trade area in which the Company and the Subsidiary
Banks operate and for the banking industry in general, the capital needs of the
Company and the Subsidiary Banks, and judgments as to future earnings and
dividends prospects for the Company and the Subsidiary Banks. The Board also
took into account the size of the block of Shares anticipated to be purchased.
Based on the fairness opinion of The Bank Advisory Group, Inc. and the
other factors mentioned above, the Company believes that the terms of the Offer
are fair to all shareholders. The Company however, encourages each shareholder
to make his or her own determination as to the fairness and adequacy of the
consideration to be paid by the Company in the Offer.
THE OFFER
4. NUMBER OF SHARES; PRORATION; EXTENSION OF THE OFFER
Upon the terms and subject to the qualifications and conditions described
herein and in the Letter of Transmittal, the Company will purchase up to 140,000
Shares which are duly tendered prior to 5:00 P.M., Central Standard Time, on
Wednesday, November 12, 1997 (the "Expiration Date"). The Company reserves the
right, at any time and from time to time, to extend the period of time during
which the Offer is open by giving oral or written notice(s) of such extension(s)
to the Depositary, in which event the "Expiration Date" shall be the latest time
and date on which the Offer, as so extended, shall expire. See Section 17 for a
description of the Company's right to extend the time during which the Offer is
open and to terminate or amend the Offer.
Subject to the conditions of the Offer, if 140,000 or fewer Shares are duly
tendered prior to the Expiration Date, the Company will purchase all Shares so
tendered. The Offer is not conditioned on any minimum number of shares being
tendered. In the event of an oversubscription of the Offer, Shares tendered
shall be purchased on a pro-rata basis, disregarding fractions, according to the
number of Shares tendered by each shareholder prior to the Expiration Date,
PROVIDED, HOWEVER, that:
(a) All Shares tendered prior to the Expiration Date by any
shareholder who owned beneficially as of September 30, 1997, an aggregate
of fewer than one hundred (100) Shares and who tenders all of such Shares
(partial tenders will not qualify for this preference) and completes Box E
captioned "Odd Lots" in the Letter of Transmittal shall be purchased in
full, prior to proration of Shares tendered by any other shareholder
(except that if more than the maximum number of Shares to be purchased are
tendered by such "odd lot" holders, Shares tendered by such holders shall
be purchased pro rata, with appropriate adjustments to avoid purchases of
fractional Shares);
(b) The Company reserves the right to purchase, prior to purchasing
any Shares to be purchased on a pro-rata basis, all Shares tendered by any
shareholder who has tendered all Shares beneficially owned by him or her
and, as a result of the contemplated prorating, would then own an aggregate
of fewer than one hundred (100) Shares; and
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(c) The Company reserves the right, in its sole discretion, to elect
to purchase any or all of the excess Shares tendered; and so long as this
excess number accepted by the Company does not exceed two percent (2%) of
the issued and outstanding Shares, no extension of the offer period and no
further notice to the shareholders will be required or given. If the
Company elects to purchase excess tendered Shares, but less than all of the
tendered Shares, then Shares tendered shall be purchased on a pro-rata
basis, as described above (subject to the exceptions noted in paragraphs
(a) and (b), above).
If (i) the Company increases or decreases the price to be paid for the
Shares, the Company increases the number of Shares being sought and such
increase in the number of Shares being sought exceeds two percent (2%) of the
outstanding Shares, or the Company decreases the number of Shares being sought
AND (ii) the Offer is scheduled to expire at any time earlier than the
expiration of a period ending on the tenth (10th) business day from, and
including, the date that notice of such increase or decrease is first published,
sent or given in the manner specified in Section 17, the Offer will be extended
until the expiration of such period of ten (10) business days. For purposes of
the Offer, a "business day" means any day other than a Saturday, Sunday or
federal holiday and consists of the time period from 12:01 a.m. through 12:00
midnight, Eastern Standard Time.
As of September 30, 1997, the Company had 2,115,680 Shares issued and
outstanding. The Company does not have any outstanding options, warrants or
similar rights to acquire additional shares of Common Stock. The 140,000 Shares
that the Company is offering to purchase represent approximately 6.6% of the
outstanding Shares. As of such date, there were approximately 462 holders of
record of Common Stock, of which approximately fewer than 81 holders each held
fewer than one hundred (100) Shares. Because certain shares are held in the
names of brokers and nominees, the Company is unable to determine the total
number of beneficial holders of fewer than one hundred (100) Shares or the
aggregate number of Shares they own.
This Offer to Purchase and the related Letter of Transmittal will be mailed
to record holders of Shares as of September 30, 1997 and will be furnished to
brokers, banks and similar persons whose names, or the names of whose nominees
appear on the Company's shareholder list.
5. TENDERS BY HOLDERS OF FEWER THAN ONE HUNDRED (100) SHARES
All Shares tendered for purchase by persons who beneficially held fewer
than one hundred (100) Shares on September 30, 1997, and who properly tender all
of their Shares prior to the Expiration Date, will be accepted before proration,
if any, of the purchase of other tendered Shares, but only if the Shares so
tendered do not exceed the maximum number of Shares to be purchased (see Section
1). Partial tenders will not qualify for this preference, and it is not
available to holders who beneficially own one hundred (100) or more Shares on
the Expiration Date even though such holders have separate stock certificates
for fewer than one hundred (100) Shares. Any shareholder owning fewer than one
hundred (100) Shares in the aggregate and who wishes to tender all such Shares
must complete Box E, captioned "Odd Lots", in the Letter of Transmittal. As
also indicated in Section 4, the Company has reserved the right, but will not be
obligated, to purchase all Shares properly tendered by any shareholder who has
tendered all Shares beneficially owned by him or her and as a result of
prorating would then own an aggregate of fewer than one hundred (100) Shares.
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6. PROCEDURE FOR TENDERING SHARES
For a shareholder to tender Shares pursuant to the Offer, certificates for
such Shares, together with a properly completed and duly executed Letter of
Transmittal and any other documents required by the Letter of Transmittal, must
be actually received prior to the Expiration Date by the Depositary at the
appropriate address set forth in the Letter of Transmittal, except as otherwise
provided below in this Section 6. DEPOSIT OF THESE MATERIALS IN THE MAIL ON THE
EXPIRATION DATE DOES NOT CONSTITUTE A TIMELY TENDER.
No signature guarantee is required unless Special Payment Instructions or
Special Delivery Instructions are given on the Letter of Transmittal.
If a shareholder desires to tender Shares pursuant to the Offer and such
shareholder's certificates are not immediately available or time will not permit
the Letter of Transmittal and other required documents to reach the Depositary
by the Expiration Date, such Shares may nevertheless be tendered, provided that
all of the following conditions are satisfied:
(a) such tenders are made by or through a member firm of a registered
national securities exchange, a member of the National Association of
Securities Dealers or a commercial bank, trust company, savings and loan
association or credit union with membership in an approved signature
guarantee medallion program pursuant to the Commission's Rule 17Ad-15
(herein, an "Eligible Institution");
(b) the Depositary receives (by hand, mail, telegram or acceptable
facsimile transmission), prior to the Expiration Date, a properly completed
and duly executed Guarantee of Delivery contained in the Letter of
Transmittal; and
(c) the certificates for all tendered Shares, together with a
properly completed and duly executed Letter of Transmittal and any other
documents required by the Letter of Transmittal, are received by the
Depositary within ten (10) business days after receipt by the Depositary of
such Guarantee of Delivery.
Payments for Shares tendered and purchased will be made only after receipt
by the Depositary of the certificate(s) therefor, a properly completed and duly
executed Letter of Transmittal and any other documents required by the Letter of
Transmittal.
THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING SHARE CERTIFICATES, IS
AT THE ELECTION AND RISK OF THE TENDERING SHAREHOLDER. IF DELIVERY IS BY MAIL,
INSURED, REGISTERED MAIL, RETURN RECEIPT REQUESTED, SHOULD BE CONSIDERED, AND
ENOUGH TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of any tender of Shares will be determined by the
Company, and its determination shall be final and binding. The Company reserves
the absolute right to reject any or all tenders determined by it not to be in
appropriate form or which would, in the opinion of the Company's counsel, be
unlawful. The Company also reserves the absolute right to waive any of the
conditions of the Offer or any defect or irregularity in any tender with respect
to any particular Shares or any particular shareholder, and
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<PAGE>
the Company's interpretations of the terms and conditions of the Offer will be
final and binding. Tenders will not be deemed to have been made until any
defects and any irregularities have been cured or waived. Neither the Company,
the Depositary nor any other person shall be obligated to give any such notice
nor incur any liability for failure to give any such notice. A tender of Shares
made pursuant to any one of the procedures set forth above will constitute an
agreement between the tendering shareholder and the Company in accordance with
the terms and subject to the conditions of this Offer.
If any tendered Shares are not purchased, or if less than all Shares
evidenced by a shareholder's certificate are tendered, certificates for
unpurchased Shares will be returned as promptly as practicable after the
expiration or termination of the Offer.
CERTIFICATES FOR SHARES, TOGETHER WITH A PROPERLY COMPLETED LETTER OF
TRANSMITTAL AND ANY OTHER DOCUMENTS REQUIRED BY THE LETTER OF TRANSMITTAL, MUST
BE DELIVERED TO THE DEPOSITARY AND NOT THE COMPANY. ANY SUCH SHARES DELIVERED
TO THE COMPANY WILL NOT BE DEEMED TO BE VALIDLY TENDERED.
7. WITHDRAWAL RIGHTS
Tenders made pursuant to the Offer are revocable and may be withdrawn (i)
at any time prior to the Expiration Date (including any extension of the Offer
period), and (ii) if not yet accepted for payment, after the expiration of 40
business days from the commencement of the Offer (that is, any time after
December 11, 1997), until the tender is accepted for payment.
To be effective, a notice of withdrawal in written, telegraphic or
facsimile form must be received in a timely manner by the Depositary at the
appropriate address set forth in the Letter of Transmittal. Any notice of
withdrawal must specify the name of the person having tendered the Shares to be
withdrawn, the number of Shares tendered, the number of Shares to be withdrawn
and, if certificates representing such Shares have been delivered to the
Depositary, the name of the registered holder(s) of such Shares, as set forth in
such certificates. If the certificates have been delivered to the Depositary,
the tendering shareholder must also submit the serial numbers of the particular
certificates for the Shares to be withdrawn and the signature on such
shareholder's notice of withdrawal must be guaranteed by an Eligible Institution
(as defined in Section 6).
All questions as to the form and validity (including the time of receipt)
of notices of withdrawal will be determined by the Company, in its sole
discretion, and its determination shall be final and binding on all parties.
Neither the Company nor the Depository or any other person is or will be
obligated to give notice of any defects or irregularities in any notice of
withdrawal, and none of them will incur any liability for failure to give any
such notice. Withdrawals may not be rescinded, and Shares properly withdrawn
shall not be deemed to be duly tendered for purposes of the Offer. Withdrawn
shares may, however, be re-tendered before the Expiration Date by again
following one of the procedures described in Section 6.
8. PURCHASE OF SHARES AND PAYMENT OF PURCHASE PRICE
Upon the terms and subject to the conditions of the Offer and as promptly
as practicable after the Expiration Date, the Company will accept for payment
and pay the Purchase Price for any and all Shares validly tendered. Thereafter,
payment for all Shares accepted for payment pursuant to the
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Offer will be made by the Depositary by check as promptly as practicable. In
all cases, payment for Shares accepted for payment pursuant to the Offer will be
made only after timely receipt by the Depositary of certificates for Shares.
The Company shall be deemed to have purchased Shares pursuant to the Offer
when, as and if it gives oral or written notice to the Depositary of its
acceptance for payment of such Shares, which notice, subject to the provisions
of the Offer, may be given at any time after the Expiration Date. However, in
the event of proration, the Company does not expect to be able to determine the
final proration factor and pay for tendered Shares until approximately ten (10)
business days after the Expiration Date. Certificates for all tendered Shares
not purchased (see Section 4) will be returned as soon as practicable after the
Expiration Date or termination of the Offer, without expense to the tendering
shareholder.
The Company will pay all stock transfer taxes, if any, payable on the
transfer to it of Shares purchased pursuant to the Offer. However, if payment
of the purchase price is to be made to, or (in the circumstances permitted by
the Offer) if unpurchased shares are to be registered in the name of any person
other than the registered holder, or if tendered certificates are registered in
the name of any person other than the person signing the Letter of Transmittal,
the amount of any stock transfer taxes (whether imposed on the registered holder
or such other person) payable on account of the transfer to such person will be
deducted from the purchase price unless satisfactory evidence of the payment of
such taxes, or exemption therefrom, is submitted.
The Depositary will act as agent for tendering shareholders for the purpose
of receiving payment from the Company and transmitting payment to tendering
shareholders. The Company will not pay interest on the purchase price.
ANY TENDERING SHAREHOLDER OR OTHER PAYEE WHO FAILS TO COMPLETE FULLY AND
SIGN THE BOX CAPTIONED "SUBSTITUTE FORM W-9" IN THE LETTER OF TRANSMITTAL MAY BE
SUBJECT TO REQUIRED BACKUP FEDERAL INCOME TAX WITHHOLDING OF THIRTY-ONE PERCENT
(31%) OF THE GROSS PROCEEDS PAID TO SUCH SHAREHOLDER OR OTHER PAYEE PURSUANT TO
THE OFFER. SEE SECTION 2.
9. CONDITIONAL TENDER OF SHARES
Under certain circumstances and subject to the exceptions set forth in
Section 4 above, the Company may prorate the number of Shares purchased pursuant
to the Offer. As discussed in Section 2, the number of Shares to be purchased
from a particular shareholder might affect the tax consequences to such
shareholder of such purchase and such shareholder's decision whether to tender.
Accordingly, a shareholder may tender Shares subject to the condition that a
specified minimum number must be purchased, if any are purchased. Any
shareholder desiring to make such a conditional tender should so indicate in Box
D captioned "Conditional Tender" on the Letter of Transmittal. It is the
tendering shareholder's responsibility to calculate such minimum number of
Shares. If the effect of accepting tenders on a pro-rata basis is to reduce the
number of Shares to be purchased from any shareholder below the minimum number
so specified, such tender will automatically be regarded as withdrawn, except as
provided in the next paragraph, and all Shares tendered by such shareholder will
be returned as soon as practicable thereafter.
If so many conditional tenders are withdrawn that the total number of
Shares to be purchased falls below 140,000, then to the extent feasible the
Company will select enough of such conditional tenders, which would otherwise
have been withdrawn, to purchase such desired number of Shares.
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In selecting among such conditional tenders, the Company will select by lot and
will limit its purchase in each case to the designated minimum number of Shares
to be purchased.
10. CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other term of the Offer, the Company may, at its
option, withdraw the Offer and shall not be required to accept for payment or
purchase or pay for any Shares tendered, if before termination of the Offer, any
of the following events shall have occurred (or shall have been determined by
the Company to have occurred) that, in the Company's judgment in any such case
and regardless of the circumstances giving rise thereto (including any action or
omission to act by the Company), makes it inadvisable to proceed with the Offer
or with such acceptance for payment or payment:
(a) there shall have been instituted or threatened any action or
proceeding before any court or administrative agency which (i) challenges
the acquisition of Shares pursuant to the Offer or otherwise relates in any
manner to the Offer or (ii) in the judgment of the Company could otherwise
materially and adversely affect the Company; or
(b) any action shall have been taken, or any statute, rule,
regulation or order shall have been proposed, enacted, enforced, or deemed
to be applicable to the Offer, by any government or governmental agency or
other regulatory administrative authority, domestic or foreign, which, in
the judgment of the Company would or might prohibit, restrict or delay
consummation of the Offer or materially impair the contemplated benefits of
the Offer to the Company; or
(c) there shall have occurred any commencement of armed hostilities
directly or indirectly involving the United States or there shall have
occurred any national emergency, banking moratorium or suspension of
payments by banks in the United States; or
(d) any change shall occur or be threatened in the business,
condition (financial or otherwise), operations, stock ownership, or
prospects of the Company or either of the Subsidiary Banks, which, in the
judgment of the Company, is or may be material to the Company or either of
the Subsidiary Banks, any of which, in the sole judgment of the Company,
makes it inadvisable to proceed with such acceptance, purchase or payment.
Any determination by the Company concerning any events described in this
Section 10 and any related judgment or decision by the Company regarding the
inadvisability of proceeding with the purchase of or payment for any Shares
tendered shall be final and binding upon all parties. The foregoing conditions
are for the sole benefit of the Company and may be asserted by the Company
regardless of the circumstances (including any action or inaction by the
Company) giving rise to any such condition or may be waived by the Company in
whole or in part. The Company's failure at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right, and each such
right shall be deemed an ongoing right that may be asserted at any time and from
time to time.
11. PRICE RANGE OF COMMON STOCK; DIVIDENDS
There is no established public market for the shares of the Common Stock.
The following table sets forth the range of the high and low sale prices of the
Common Stock for the periods indicated for which the management of the Company
had knowledge of the prices involved; the
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number of transactions represented during the periods indicated; the total
number of shares traded in such transactions; and the per-share dividends paid
and/or declared on the Common Stock for each of the quarters indicated. THESE
PRICES REFLECT ONLY THOSE 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 RESULT OF ISOLATED TRANSACTIONS AND ARE NOT NECESSARILY
INDICATIVE OF THE ACTUAL OR MARKET VALUE OF SUCH SECURITIES.
STOCK PRICES NUMBER OF NUMBER OF
------------ TRANSACTIONS SHARES DIVIDENDS
HIGH LOW REPRESENTED REPRESENTED PER SHARE
---- --- ----------- ----------- ---------
1995
- ----
1st Quarter. . . .$12.75 $12.75 4 3,980 $0.16
2nd Quarter. . . .$12.50 $12.00 7 7,180 $0.16
3rd Quarter. . . .$13.00 $12.00 9 3,400 $0.16
4th Quarter. . . .$12.00 $12.00 14 5,000 $0.16
1996
- ----
1st Quarter. . . .$12.00 $12.00 3 732 $0.16
2nd Quarter. . . .$12.00 $12.00 10 4,329 $0.16
3rd Quarter. . . .$12.00 $12.00 5 1,190 $0.16
4th Quarter. . . .$12.00 $11.25 4 30,310 $0.16
1997
- ----
1st Quarter. . . .$12.50 $12.00 8 1,550 $0.16
2nd Quarter. . . .$12.50 $12.00 20 23,700 $0.16
3rd Quarter. . . .$12.00 $12.00 1 400 $0.16
4th Quarter. . . . $-- $-- -- $ -- $ --
(through October 10)
12. SOURCE AND AMOUNT OF FUNDS
Assuming that the Company purchases 140,000 Shares in this Offer, at a
price of $14.50 per share, the total amount required to purchase the Shares
(exclusive of costs and expenses of this Offer) would equal $2,030,000. The
Company intends to pay for tendered Shares, as well as for the costs and
expenses of this Offer, from the general funds and working capital of the
Company. The Company will not incur any debt in connection with the Offer.
13. CERTAIN INFORMATION ABOUT THE COMPANY
GENERAL INFORMATION
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
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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.
Waskom Bancshares, Inc. is an inactive shell corporation.
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 one-bank holding company. The Delaware BHC owns all of the issued
and outstanding stock of the Subsidiary Banks. 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.
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, Citizens Bank moved to its
current location at 201 West Main Street. Citizens Bank operates branch offices
in Henderson, Overton, Mount Enterprise, Jefferson, Malakoff, and Chandler,
Texas. Citizens Bank also operates a trust office in Corsicana, Texas. At
June 30, 1997, Citizens Bank had approximately $323,943,000 in assets,
$292,169,000 in deposits, $96,946,000 in loans (net of unearned discount), and
$29,559,000 in shareholder's equity. Citizens Bank is regulated and supervised
by the Comptroller.
The Waskom Bank was originally chartered on November 26, 1954, as a Texas
banking association. Its sole banking office is located at 745 Spur 156,
Waskom, Texas. At June 30, 1997, the Waskom Bank had approximately $25,534,000
in assets, $21,748,000 in deposits, $6,395,000 in loans (net of unearned
discount), and $3,623,000 in shareholder's equity. The Waskom Bank is regulated
and supervised by the Federal Deposit Insurance Corporation and the Texas
Department of Banking.
The Subsidiary Banks are full service banks offering a variety 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 and other personal
loans. Citizens Bank also offers trust services, safe deposit boxes, automatic
teller machines and automated clearinghouse payroll services. In 1992, Citizens
Bank began offering a wide array of investment products, such as annuities,
mutual funds and discount brokerage services, to its customers. In 1994,
Citizens Bank began offering a twenty-four (24) hour automated telephone account
inquiry system, which was complemented in late 1995 by a loan by phone automated
system. In January 1994 Citizens Bank began a Community Development Corporation,
which is a subsidiary of the bank, and offers affordable housing to lower income
persons in the community. 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.
Citizens Bank services a large portion of the East Texas 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
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compliments the service area of 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.
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. The Company conducts
no other activity than the operation of the Delaware BHC and, indirectly, the
Subsidiary Banks. Neither the Company nor the Delaware BHC engage in any
nonbanking activities at this time. 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.
As of June 30, 1997, the Company had, on a consolidated basis, total assets
of approximately $349,180,000, total deposits of approximately $313,023,000,
total loans, (net of unearned discount and allowance for loan losses) of
approximately $102,146,000 and total shareholders' equity of approximately
$32,587,000.
HISTORICAL FINANCIAL INFORMATION
The following table sets forth certain summary historical consolidated
financial information of the Company and its subsidiaries. The historical
financial information for fiscal years 1995 and 1996 has been derived from, and
should be read in conjunction with, the audited consolidated financial
statements of the Company as reported in the Company's Annual Reports on Form
10-K for the fiscal years ended December 31, 1995 and December 31, 1996, which
reports are incorporated herein by this reference. In addition, the historical
financial information for the six months ended June 30, 1997 and 1996 is
unaudited. Such historical financial information for fiscal year 1997 is set
forth in the Company's Quarterly Report on Form 10-Q for the quarter and six
months ended June 30, 1997 and 1996, which report is incorporated herein by this
reference. The summary historical financial information should be read in
conjunction with, and is qualified in its entirety by reference to, the audited
and unaudited financial statements and the related notes thereto from which it
has been derived. Copies of reports may be inspected or obtained from the
Commission in the manner specified in "--Additional Information" below.
15
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
UNAUDITED
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
-------------- ------------
1997 1996 1996 1995
---- ---- ---- ----
(In thousands, except per share data)
INCOME STATEMENT DATA:
Total revenues . . . . . . . . . . . . $ 12,497 $ 11,924 $ 23,959 $ 22,355
Net (loss) income. . . . . . . . . . 1,571 1,905 3,344 2,464
Net income per common
share. . . . . . . . . . . . . . . . . 0.74 0.88 1.55 1.14
Weighted average number of common
shares . . . . . . . . . . . . . . . . 2,126 2,160 2,153 2,160
BALANCE SHEET DATA:
Total assets . . . . . . . . . . . . . $349,180 $319,726 $356,830 $326,879
Long-term debt . . . . . . . . . . . . -- -- -- --
Shareholders' equity . . . . . . . . . 32,587 31,019 31,988 31,206
Book value per common share. . . . . . 15.40 14.36 15.02 14.45
ADDITIONAL INFORMATION
Additional information concerning the Company is set forth in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, in the
Company's Proxy Statement dated March 25, 1997, and in the Company's Quarterly
Report on Form 10-Q for the six months ended June 30, 1997. Such reports are
available upon request from the Company. The Company also has filed a
Transaction Statement on Schedule 13E-3 and an Issuer Tender Offer Statement on
Schedule 13E-4 with the Commission, which includes certain additional
information relating to the Offer. Forms 10-K and 10-Q as well as other
periodic reports, proxy statements and other information are regularly filed by
the Company with the Commission. Such material may be inspected and copied at
prescribed rates at the Commission's public reference facilities at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the SEC. The Commission maintains an Internet Web site on
the World Wide Web at http://www.sec.gov., containing reports, proxy and
information statements and other information regarding companies who file
reports electronically with the Commission.
14. CERTAIN PRO FORMA FINANCIAL INFORMATION
The following summary unaudited consolidated pro forma balance sheets as of
December 31, 1996, and June 30, 1997, have been prepared on the assumption that
the Company acquired 140,000 shares of its Common Stock for $14.50 per share
pursuant to the Offer on December 31, 1996 and June 30, 1997, respectively. The
only pro forma effects on the balance sheets of the Company are (a) to reduce
assets and shareholders' equity by approximately $2,100,000 for the retirement
of the stock and related expenses and (b) to show the effect of the dividends
that would not have been declared and paid if the stock had been repurchased as
of December 31, 1996 and June 30, 1997.
16
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share data)
ASSETS:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
Cash and due from banks. . . . . . . . . . . . . . $ 11,974 $ 14,205
Federal funds sold . . . . . . . . . . . . . . . . 600 1,150
Cash and cash equivalents. . . . . . . . . . . . 12,674 15,455
Investment securities. . . . . . . . . . . . . . . 220,269 228,155
Loans, net of unearned discount and fees . . . . . 103,342 101,971
Less: allowance for loan losses. . . . . . . . . 1,196 1,146
------- -------
Net loans. . . . . . . . . . . . . . . . . . . 102,146 100,825
Premises and equipment, net. . . . . . . . . . . . 4,801 3,751
Accrued interest receivable. . . . . . . . . . . . 3,403 3,449
Other assets . . . . . . . . . . . . . . . . . . . 3,933 3,195
------- -------
Total assets . . . . . . . . . . . . . . . . . . $347,126 $354,730
------- -------
------- -------
LIABILITIES:
Deposits:
Noninterest-bearing demand . . . . . . . . . . . $ 32,501 $ 31,785
Savings and time . . . . . . . . . . . . . . . . 280,522 288,888
------- -------
Total deposits . . . . . . . . . . . . . . . . $313,023 $320,673
Accrued interest payable and other liabilities . . 3,570 4,169
------- -------
Total liabilities. . . . . . . . . . . . . . . . $316,593 $324,842
------- -------
SHAREHOLDERS EQUITY:
Common stock ($5.00 par value per share)
10,000,000 shares authorized; 1,976,080
would have been outstanding at June 30,
1997 and 1,990,300 would have been
outstanding at December 31, 1996). . . . . . . . $ 10,800 $ 10,800
Capital surplus. . . . . . . . . . . . . . . . . . 5,400 5,400
Net unrealized loss on securities available
for sale . . . . . . . . . . . . . . . . . . . . (824) (703)
Undivided profits. . . . . . . . . . . . . . . . . 17,763 16,825
------- -------
33,139 32,322
Less treasury stock, 183,920 shares and 169,700
shares, respectively, at cost at June 30, 1997
and December 31, 1996. . . . . . . . . . . . . . . (2,606) (2,434)
------- -------
Net shareholders equity . . . . . . . . . . . . 30,533 29,888
------- -------
Total liabilities and shareholders equity . . $347,126 $354,730
------- -------
------- -------
</TABLE>
The Company intends to pay for tendered Shares, as well as for the costs
and expenses of the Offer, from the general funds and working capital of the
Company. The Company will not incur any debt in connection with the Offer.
For the 140,000 shares assumed to have been repurchased on December 31,
1996, the pro forma balance sheet for June 30, 1997, includes an increase in
undivided profits of approximately
17
<PAGE>
$45,000 for the dividends that would not have been declared in February and May
1997 and paid in March and June 1997, on the assumed repurchased Shares.
The loss of interest income from funds used to repurchase the Shares
associated with this Offer are estimated to be immaterial, with an effect on the
Company's income statement equivalent to less than $0.03 and $0.02 per Share,
respectively, for the year ended December 31, 1996 and the six month period
ended June 30, 1997. Because there would have been only an immaterial effect on
the net income of the Company had the transaction occurred at the beginning of
1996 or 1997, the pro forma income statements would not be materially different
from the historical amounts included in the income statements for the year ended
December 31, 1996 and the six month period ended June 30, 1997. Therefore, no
pro forma income statements are presented for these two periods.
Pro forma earnings per share would be impacted by the assumed repurchase of
140,000 Shares by the immaterial effect on net income of the loss of interest
income from funds used to repurchase the Shares associated with this Offer and
by the reduction of the number of Shares outstanding. The pro forma book value
per share would also be impacted by the reduction in capital and reduction in
the number of Shares outstanding.
The following table shows the historical and pro forma average shares
outstanding and earnings per share for the year ended December 31, 1996 and the
six month period ended June 30, 1997 as if the repurchase had occurred on
January 1, 1996. Additionally, the historical and pro forma book value per
share as of December 31, 1996 and June 30, 1997 are presented as if the
repurchase had occurred on December 31, 1996 and June 30, 1997, respectively.
AS OF OR FOR THE AS OF OR FOR THE
SIX MONTH PERIOD ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
Average shares outstanding:
Historical. . . . . . . . 2,125,946 2,153,333
Pro forma . . . . . . . . 1,985,946 2,013,333
Earnings per share:
Historical. . . . . . . . $0.74 $1.55
Pro forma . . . . . . . . $0.77 $1.59
Book value per share
Historical. . . . . . . . $15.40 $15.02
Pro forma . . . . . . . . $15.45 $15.02
The Company and the Subsidiary Banks are both subject to regulatory
requirements regarding maintaining minimum capital. The following table shows
the historical capital ratios of the Company and each of the Subsidiary Banks at
December 31, 1996 and June 30, 1997 (with the pro forma ratios assuming that
140,000 Shares had been purchased by the Company at December 31, 1996) and the
minimum required regulatory ratios.
18
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
CITIZENS WASKOM CITIZENS WASKOM
BANK BANK COMPANY BANK BANK COMPANY
---- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Risk-based capital ratio:
Historical . . . . . . . . . 25.2% 27.5% 25.0% 24.4% 25.5% 24.0%
Pro forma . . . . . . . . . 24.0% 26.5% 23.8% 23.2% 24.5% 22.8%
Minimum required ratios to be
considered "well" capitalized 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
Leverage ratio:
Historical . . . . . . . . . 9.2% 9.1% 9.1% 9.0% 8.9% 8.8%
Pro forma . . . . . . . . . 8.7% 8.6% 8.6% 8.4% 8.4% 8.2%
Minimum required ratios to be
considered well capitalized 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
</TABLE>
The Company's pro forma financial statements should be read in conjunction
with the historical consolidated financial information incorporated herein by
reference and do not purport to be indicative of future earnings or financial
positions or of what earnings or financial position would have been had the
Offer been consummated as of the dates for which pro forma statements are
presented.
15. TRANSACTIONS AND ARRANGEMENTS CONCERNING THE COMMON STOCK
The following table sets forth information concerning transactions in the
Common Stock by the Company, its subsidiaries, its executive officers and
directors, which, if any, occurred during the period of sixty (60) business days
prior to the date of this Offer:
<TABLE>
<CAPTION>
DATE OF NUMBER PRICE MEANS OF EFFECTING
IDENTITY OF PERSON TRANSACTION OF SHARES PER SHARE TRANSACTION
------------------ ----------- --------- --------- -----------
<S> <C> <C> <C> <C>
Henderson Citizens
Bancshares, Inc. 8-14-97 400 $12.00 private transaction
</TABLE>
In addition to the foregoing, the following paragraphs provide information
concerning purchases of the Common Stock by the Company since the second full
fiscal year preceding the date of this Offer.
On October 10, 1996, the Company completed the repurchase of 29,700 shares
of 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.
In addition, during the period between April 24, 1997 and May 30, 1997, the
Company repurchased an aggregate of 14,220 shares of Common Stock (representing
approximately 0.6676% of its then outstanding shares) in a series of privately
negotiated transactions. Such shares were
19
<PAGE>
purchased at prices ranging from $12.00 to $12.50 per share. The purchase price
for these shares was paid in cash using available cash resources, and the
Company did not incur any debt in connection with such stock repurchases.
The following table sets forth the information concerning the number of
Shares owned beneficially as of October 15, 1997 by (i) the Company and the
Subsidiary Banks, and (ii) each director and executive officer of the Company
who owns Shares.
PERCENTAGE OF
NUMBER OF SHARES
BENEFICIAL OWNER SHARES OWNED OUTSTANDING(1)
---------------- ------------ -----------
Citizens National Bank 401(k) Plan 8,000 0.3781%
Directors:
F. Landon Alford 140,228(2) 6.6280%
R. M. Ballenger 800 0.0378%
Stayton M. Bonner, Jr. 145,622(3) 6.8830%
David J. Burks 9,775 0.4620%
Billy Crawford 1,000 0.0473%
Sheila Gresham 6,120 0.2893%
James M. Kangerga 9,188(4) 0.4343%
J. Mark Mann 5,710(5) 0.2699%
Milton S. McGee, Jr. 6,698(6) 0.3166%
Charles H. Richardson 24,160(7) 1.1419%
- ------------------------
(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 2,115,680 shares outstanding.
(2)Includes 2,000 shares held by Mr. Alford's spouse.
(3)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 Citizens National Bank on two
other trusts of which he is not a beneficiary, which trusts own an aggregate
of 88,560 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 132,840 shares of Company Stock held in the four Shaw Trusts
are included in the total shares beneficially owned by Mr. Bonner.
(4)Includes 2,722 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. Also includes 20 shares in the name of Mr. Kangerga's
minor children.
(5)Shares are held jointly by Mr. Mann and his wife.
(6)Includes 50 shares owned by Mr. McGee's minor son and 6,648 shares
held jointly by Mr. McGee and his wife.
(7)Includes 2,160 shares held jointly by Mr. Richardson and his wife.
20
<PAGE>
PERCENTAGE OF
NUMBER OF SHARES
BENEFICIAL OWNER SHARES OWNED OUTSTANDING
---------------- ------------ -----------
Tony Wooster 1,800(8) 0.0851%
Alfred Wylie 32,764(9) 1.5486%
Non-Director Executive Officers:
Bill Hurst 1,280 0.0605%
Nelwyn Richardson 280 0.0132%
Rebecca G. Tanner 80 0.0038%
------- --------
TOTAL 437,785 20.6924%
------- --------
------- --------
Executive officers and directors of the Company and the Subsidiary Banks
will be eligible to tender Shares pursuant to this Offer. However, as of the
date hereof, no executive officer or director of the Company or the Subsidiary
Banks has specifically indicated whether he or she intends to tender any Shares
pursuant to the Offer.
Except as set forth herein, neither the Company nor, to the Company's
knowledge, any of its executive officers or directors, or any of the executive
officers or directors of any of its subsidiaries, is a party to any contract,
arrangement, understanding or relationship relating, directly or indirectly, to
this Offer with any other person with respect to the Common Stock.
The Company may in the future purchase Shares in the open market, in
private transactions, through tender offers or otherwise. However, Rule 13e-4
under the Exchange Act prohibits the Company from making any purchases of Shares
until ten (10) business days after the Expiration Date, other than pursuant to
the Offer. Thereafter, any purchases the Company may choose to make may be on
the same terms as, or on terms more or less favorable to shareholders than, the
terms of the Offer. Any possible future purchases by the Company will depend on
numerous factors, including the market price of the Shares, the results of the
Offer, the Company's business and financial condition and general economic and
market conditions.
Except as disclosed in this Offer to Purchase, the Company currently has no
plans or proposals that relate to or would result in (a) the acquisition by any
person of additional securities of the Company or the disposition of securities
of the Company; (b) an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Company or any or all of its
subsidiaries; (c) a sale or transfer of a material amount of assets of the
Company or any of its subsidiaries; (d) any change in the present Board or
management of the Company; (e) any material change in the present dividend rate
or policy, or indebtedness or capitalization of the Company; (f) any other
material change in the Company's corporate structure or business; or (g) any
material change in the Company's Articles of Incorporation or Bylaws or any
actions which may impede the acquisition of control of the Company by any
person.
- ------------------------
(8)Shares are held jointly by Mr. Wooster and his wife.
(9)Includes 2,640 shares held by Mr. Wylie's wife.
21
<PAGE>
As discussed at Section 1 herein, this Offer may have the effect of
reducing the number of shareholders of the Company to a level that would permit
the Company to suspend the Company's obligation to file periodic and current
reports with the Commission pursuant to section 13 of the Exchange Act.
Management of the Company has indicated that it will elect to suspend the
Company's reporting obligations if a sufficient number of shareholders tender
all of their shares pursuant to this Offer.
16. GOVERNMENT REGULATION
The Company is not aware of any license or regulatory permit material to
its business that might be adversely affected by its acquisition of Shares as
contemplated in the Offer or of any approval or other action by any government
or governmental, administrative or regulatory authority or agency, domestic or
foreign, that would be required for the Company's acquisition or ownership of
Shares as contemplated by the Offer.
Under regulations promulgated by the Federal Reserve Board under the Bank
Holding Company Act of 1956, as amended, a bank holding company must give
written notice to the Federal Reserve Board before purchasing or redeeming its
equity securities if the gross consideration paid for the purchase or redemption
equals or exceeds ten percent (10%) of the company's consolidated net worth,
unless, (i) both before and following the redemption, the holding company meets
the thresholds established for "well capitalized" state member banks under
applicable regulations and (ii) the bank holding company received a composite
"1" or "2" rating at its most recent examination. Because the aggregate
consideration to be paid for Shares repurchased pursuant to the Offer will not
exceed ten percent (10%) of the Company's consolidated net worth, the Company is
not required to file a prior notice with the Federal Reserve Board. No approval
of any other federal, state or local governmental body is required with respect
to the Offer.
Should any such approval or other action be required, the Company currently
contemplates that it will seek such approval or other action. The Company
cannot predict whether it may determine that it is required to delay the
acceptance for payment of, or payment for, Shares tendered pursuant to the Offer
pending the outcome of any such matter. There can be no assurance that any such
approval or other action, if needed, would be obtained or would be obtained
without substantial conditions or that the failure to obtain any such approval
or other action might not result in adverse consequences to the Company's
business.
17. EXTENSION OF THE OFFER PERIOD; TERMINATION; AMENDMENTS
The Company reserves the right, in its sole discretion, at any time or from
time to time, and regardless of whether or not any of the events set forth in
Section 10 shall have occurred or shall be deemed by the Company to have
occurred, to extend the period of time during which the Offer is open (and
thereby delay acceptance for payment of, and payment for, any Shares) by giving
oral or written notice of extension to the Depositary and making a public
announcement thereof. The Company also reserves the right, in its sole
discretion, to terminate the Offer and not to purchase or pay for any Shares not
theretofore purchased or paid for upon the occurrence of any of the conditions
specified in Section 10 by giving oral or written notice of such termination to
the Depositary and making a public announcement thereof. The Company further
reserves the right, in its sole discretion, and regardless of whether any of the
events set forth in Section 10 shall have occurred or shall be deemed by the
Company to have occurred, to amend the Offer in any respect (including, without
limitation, by decreasing or increasing the consideration offered in the Offer
to holders of Shares or
22
<PAGE>
by decreasing or increasing the number of Shares being sought in the Offer).
Amendments to the Offer may be made at any time and from time to time effected
by public announcement thereof, such announcement, in the case of an extension,
to be issued no later than 9:00 A.M., Eastern Standard time, on the next
business day after the last previously scheduled or announced Expiration Date.
Any public announcement made pursuant to the Offer will be disseminated promptly
to shareholders in a manner reasonably designated to inform shareholders of such
change.
If the Company makes a material change in the terms of the Offer or the
information concerning the Offer, or if it waives a material condition of the
Offer, the Company will extend the Offer to the extent required by
Rules 13e-4(d)(2) and 13e-4(e)(2) promulgated under the Exchange Act, which
require that the minimum period during which an offer must remain open following
material changes in the terms of the offer or information concerning the offer
(other than a change in price or a change in percentage of securities sought)
will depend upon the facts and circumstances, including the relative materiality
of such terms or information. If (i) the Company increases or decreases the
price to be paid for Shares, the Company increases the number of Shares being
sought and such increase in the number of Shares being sought exceeds two
percent (2%) of the outstanding Shares, or the Company decreases the number of
Shares being sought, and (ii) the Offer is scheduled to expire at any time
earlier than the expiration of a period ending on the tenth (10th) business day
from, and including, the date that notice of such increase or decrease is first
published, sent or given, the Offer will be extended until the expiration of
such period of ten (10) business days.
18. FEES AND EXPENSES
The Depositary will receive reasonable and customary compensation for its
services, will be reimbursed for reasonable out-of-pocket expenses and will be
indemnified against certain liabilities in connection with the Offer, including
certain liabilities under the federal securities laws.
The Company will reimburse any broker or dealer, commercial bank or trust
company for customary handling and mailing expenses incurred in forwarding the
Offer. No such broker, dealer, commercial bank or trust company has been
authorized to act as an agent of the Company or the Depositary for purposes of
the Offer.
Other than as described above, the Company will not pay any solicitation
fees to any broker, dealer, bank, trust company or other person for any Shares
purchased in connection with the Offer. The Company will reimburse such persons
for customary handling and mailing expenses incurred in connection with the
Offer.
The Company will pay all stock transfer taxes, if any, payable on account
of the acquisition of the Shares by the Company pursuant to the Offer, except in
certain circumstances where special payment or delivery procedures are utilized
pursuant to Instruction 6 of the Letter of Transmittal.
The expenses incurred, or estimated to be incurred, by the Company in
connection with the Offer are set forth below. The Company will be responsible
for paying all such expenses.
23
<PAGE>
ESTIMATED EXPENSES THE COMPANY WILL INCUR
IN CONNECTION WITH THE OFFER.
Stationery and Postage $ 3,000.00
SEC Document
Conversion and Filing
Fee $ 2,000.00
Fairness Opinion $16,500.00
Legal Fees $15,000.00
Accounting Fees $10,000.00
Depository Fees $ 6,000.00
----------
Total $52,500.00
----------
----------
19. MISCELLANEOUS
The Offer is being made to all holders of Shares. The Company is not aware
of any state where the making of the Offer is prohibited by administrative or
judicial action pursuant to a valid state statute. If the Company becomes aware
of any valid state statute prohibiting the making of the Offer, the Company will
make a good faith effort to comply with such statute. If, after such good faith
effort, the Company cannot comply with such statute, the Offer will not be made
to, nor will tenders be accepted from or on behalf of, holders of Shares in such
state. In those jurisdictions whose securities, blue sky or other laws require
the Offer to be made by a licensed broker or dealer, the Offer shall be deemed
to be made on behalf of the Company by or one or more registered brokers or
dealers licensed under the laws of such jurisdiction.
HENDERSON CITIZENS BANCSHARES, INC.
24
<PAGE>
APPENDIX A
25
<PAGE>
[ON LETTERHEAD OF THE BANK ADVISORY GROUP, INC.]
October 15, 1997
Board of Directors
Henderson Citizens Bancshares, Inc.
Henderson, Texas
Gentlemen:
You have requested that The Bank Advisory Group, Inc. act as an independent
financial analyst and advisor to the common shareholders of Henderson Citizens
Bancshares, Inc., Henderson, Texas (the "Company"), in connection with a self
tender offer whereby the number of Company shareholders may be reduced to a
number sufficient to permit deregistration with the Securities and Exchange
Commission (the "Offer"). In our role as an independent financial analyst, you
have requested our opinion with regard to the fairness--from the perspective of
the tendering common shareholders of Company--of the per share cash price to be
paid for tendered shares in connection with the Offer, as outlined in the OFFER
TO PURCHASE dated October 15, 1997.
Our understanding is that Henderson Citizens Bancshares, Inc. proposes to
consummate the Offer pursuant to the following financial terms:
- Company will purchase up to 140,000 shares of its issued and
outstanding common stock (the "Shares") at $14.50 per share in the
form of cash..
- All Shares tendered by any shareholder who owned beneficially an
aggregate of fewer than one hundred (100) Shares and who tenders all
of such Shares shall be purchased in full.
- Company reserves the right to purchase, prior to purchasing Shares to
be purchased on a pro-rata basis, all Shares tendered by any
shareholder who has tendered all Shares beneficially owned by him or
her and, as a result of the contemplated prorating, would then own an
aggregate of fewer than one hundred (100) Shares.
A-1
<PAGE>
Board of Directors
Henderson Citizens Bancshares, Inc.
October 15, 1997
Page 2
- Company reserves the right, in its sole discretion, to elect to
purchase any or all of the excess Shares tendered; and so long as this
excess number accepted by Company does not exceed two percent (2%) of
the issued and outstanding Shares.
- In the event of an oversubscription of the Offer, Shares tendered
shall be purchased on a pro-rata basis, disregarding fractions,
according to the number of Shares tendered by each shareholder.
The Bank Advisory Group, Inc., as part of its line of professional services,
specializes in rendering valuation opinions of banks and bank holding companies
in connection with mergers and acquisitions nationwide. Prior to our retention
for this assignment, The Bank Advisory Group has not provided financial advisory
services to Company.
In connection with this opinion and with respect to Henderson Citizens
Bancshares, Inc., we have reviewed, among other things:
1. Audited consolidated financial statements for Company for the years
ended December 31, 1996 and 1995;
2. Consolidated financial statements for Company presented on form F.R.
Y-9C for the three years ended December 31, 1996, 1995, and 1994, and
for the quarter ended June 30, 1997, as filed with federal bank
regulatory agencies;
3. Reports of Condition and Income for Citizens National Bank, Henderson,
Texas and First State Bank, Waskom, Texas (the "Banks") for the years
ended December 31, 1996, 1995, and 1994, and for the quarter ended
June 30, 1997, as filed with federal bank regulatory agencies;
4. Internal financial statements for Banks, as of September 30, 1997;
5. The condition of the commercial banking industry, as indicated in
financial reports filed with various federal bank regulatory
authorities by all federally-insured commercial banks;
6. Certain internal financial analyses and forecasts for Banks prepared
by the management of Banks, including projections of future
performance;
7. For Banks, certain other summary materials and analyses with respect
to its respective loan portfolio, securities portfolio, deposit base,
fixed assets, and operations including, but not limited to: (i) a
schedule of loans and other assets identified by management as
deserving special attention or monitoring given the characteristics of
the loan/asset and the local economies, (ii) an analysis concerning
the adequacy of the loan loss reserve, (iii) a schedule of "other real
estate owned," including current
A-2
<PAGE>
Board of Directors
Henderson Citizens Bancshares, Inc.
October 15, 1997
Page 3
carrying values and recent appraisals, and (iv) a schedule of
securities, detailing book values, market values, and lengths to
maturity; and,
8. Such other information--including financial studies, analyses,
investigations, and economic and market criteria--that we deem
relevant to this assignment.
In connection with this opinion and with respect to the proposed Offer, we
further have reviewed, among other things:
1. The Offer to Purchase, in draft form dated October 10, 1997;
2. The price-to-equity and price-to-earnings multiples of banking
organizations based in the Southwestern region of the United States
that have publicly-traded common stocks, together with the financial
performance and condition of such banking organizations;
3. The financial terms and price levels for commercial banking
organizations with assets between $200 million and $500 million
recently acquired in the United States for 100% cash, together with
the financial performance and condition of such banking organizations;
and,
4. Such other information--including financial studies, analyses,
investigations, and economic and market criteria--that we deem
relevant to this assignment.
Based on our experience, we believe our review of, among other things, the
aforementioned items provides a reasonable basis for our opinion, recognizing
that we are expressing an informed professional opinion--not a certification of
value.
We have relied upon the information provided by the management of Company, or
otherwise reviewed by us, as being complete and accurate in all material
respects. Furthermore, we have not verified through independent inspection or
examination the specific assets or liabilities of Company or Banks. We have
also assumed that there has been no material change in the assets, financial
condition, results of operations, or business prospects of Banks since the date
of the last financial statements made available to us. We have met with the
management of Company for the purpose of discussing the relevant information
that has been provided to us.
Based on all factors that we deem relevant and assuming the accuracy and
completeness of the information and data provided to us, we conclude that the
cash consideration of $14.50 per share offered to the existing shareholders of
Company in connection with the Offer, is fair, from a financial standpoint, to
tendering shareholders of Company.
A-3
<PAGE>
Board of Directors
Henderson Citizens Bancshares, Inc.
October 15, 1997
Page 4
This opinion is available for disclosure to the shareholders of Company.
Accordingly, we hereby consent to the reference to this opinion and our Firm in
any disclosure materials provided to the shareholders of Company.
Respectfully submitted,
THE BANK ADVISORY GROUP, INC.
By /s/ J. Stephen Skaggs
-----------------------------------------
A-4
<PAGE>
THE OFFER WILL EXPIRE AT 5:00 P.M.
CENTRAL STANDARD TIME
ON NOVEMBER 12, 1997
LETTER OF TRANSMITTAL
TO ACCOMPANY SHARES OF COMMON STOCK
OF
HENDERSON CITIZENS BANCSHARES, INC.
(A TEXAS CORPORATION)
TENDERED PURSUANT TO OFFER TO PURCHASE
DATED OCTOBER 15, 1997
To: Citizens National Bank, Depositary
BY MAIL OR HAND DELIVERY TO:
Citizens National Bank
Attention: Trust Department
201 West Main Street
P.O. Box 1009
Henderson, Texas 75653
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS
Gentlemen:
The undersigned shareholder ("Shareholder" or the "undersigned") of
Henderson Citizens Bancshares, Inc., a Texas corporation (the "Company"),
hereby agrees to sell and tenders to the Company the number of shares of common
stock of the Company (the "Shares") indicated in Box A below and evidenced by
the share certificate(s) either enclosed herewith or guaranteed to be
transmitted as indicated below, to be purchased by the Company at a price of
$14.50 net per Share, in cash, to the Shareholder, subject to the terms and
conditions set forth in the Offer to Purchase dated October 15, 1997, and in
this Letter of Transmittal (which together constitute the "Offer"). The
undersigned acknowledges receipt and review of the Offer to Purchase.
The undersigned hereby sells, assigns and transfers to, or upon the order
of, the Company all Shares that are being tendered hereby that are purchased
pursuant to the Offer. The undersigned represents that the undersigned has full
authority to sell the tendered Shares and that such sale will convey to the
Company full legal and beneficial title thereto, free and clear of all liens,
charges and encumbrances and not subject to any adverse claim. Upon request,
the undersigned will execute any additional documents necessary to complete the
transfer.
The undersigned hereby irrevocably constitutes and appoints the Depositary
as the attorney-in-fact of the undersigned, with full power of substitution
(such power of attorney being deemed to be an irrevocable power coupled with an
interest), to (a) deliver certificates for the tendered Shares, together with
all accompanying evidences of transfer and authenticity, to or upon the order of
the Company upon receipt of the purchase price by the Depositary, as the
undersigned's agent, (b) present such certificates for transfer of the tendered
Shares on the Company's books and (c) receive all benefits and otherwise
exercise all rights of beneficial ownership of the tendered Shares, all in
accordance with the terms of the Offer.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned, and any obligation of the undersigned
hereunder shall be binding upon the heirs, personal
<PAGE>
representatives, successors and assignees of the undersigned. This tender is
revocable only to the extent and during the period stated in the Offer to
Purchase.
Unless otherwise indicated herein under Box B captioned "Special Payment
Instructions" or Box C captioned "Special Delivery Instructions," please issue
the check for the purchase price and the certificates for any unpurchased Shares
(and accompanying documents, as appropriate) in the name of the undersigned and
mail such check and any such certificates to the undersigned at the address
shown below the undersigned's signature. The undersigned recognizes that the
Company has no obligation, pursuant to the Special Payment Instructions, to
transfer any certificate for Shares from the name of the holder thereof if the
Company purchases none of the Shares represented by such certificate.
BOX A
- --------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
(See Instructions 4 and 5)
- --------------------------------------------------------------------------------
NAMES AND ADDRESSES OF CERTIFICATES TENDERED
REGISTERED HOLDERS (ATTACH SIGNED SCHEDULE IF NECESSARY)
- --------------------------------------------------------------------------------
CERTIFICATE NO. OF NO. OF SHARES
NO(S). SHARES TENDERED*
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL SHARES TENDERED
- --------------------------------------------------------------------------------
* If you desire to transfer fewer than all the shares evidenced by any
certificate listed above, please indicate in this column the number of
shares from such certificate that you desire to tender. Otherwise all
shares evidenced by such certificate will be deemed to have been tendered.
- --------------------------------------------------------------------------------
NOTE IF YOUR CERTIFICATES ARE LOST, PLEASE REFER TO INSTRUCTION 12 TO
THIS LETTER OF TRANSMITTAL.
<PAGE>
BOX B BOX C
- ------------------------------------- --------------------------------------
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 6 and 7) (See Instruction 7)
- ------------------------------------- --------------------------------------
To be completed ONLY if To be completed ONLY if
certificates for any unpurchased certificates for any unpurchased
Shares and/or a check are to be Shares and/or a check, issued
issued in the name of and sent to in the name of the undersigned, are
someone other than the undersigned. to be sent to someone other than
the undersigned or are to be sent
to the undersigned at an address
Issue / / Check / / Certificate(s) other than shown below the
to: undersigned's signature.
Name Mail / / Check / / Certificate(s)
-------------------------------- to:
Address Name
----------------------------- ----------------------------------
- ------------------------------------ Address
(include ZIP Code) -------------------------------
- ------------------------------------ --------------------------------------
(Tax Identification or (include ZIP Code)
Social Security Number)
(See Instruction 1)
- ------------------------------------- --------------------------------------
BOX D
- --------------------------------------------------------------------------------
CONDITIONAL TENDER
(See Instruction 8)
- --------------------------------------------------------------------------------
Minimum number of Shares which must be purchased, if any are purchased:
Shares.
- ----------
- --------------------------------------------------------------------------------
BOX E
- --------------------------------------------------------------------------------
ODD LOTS
(See Instruction 10)
- --------------------------------------------------------------------------------
This Section is to be completed ONLY if Shares are being tendered by or on
behalf of a person owning beneficially as of close of business on September 30,
1997, an aggregate of fewer than 100 Shares.
The undersigned either (check one):
[ ] Is the beneficial owner, as of the close of business on September
30, 1997, of an aggregate of fewer than 100 Shares, all of which
are being tendered; or
[ ] Is a broker, dealer, commercial bank, trust company or other
nominee which (i) is tendering, for the beneficial owner(s)
thereof, Shares with respect to which it is the record owner, and
(ii) believes, based upon representations made to it by each such
beneficial owner, that such beneficial owner owned beneficially
as of the close of business on September 30, 1997, an aggregate
of fewer than 100 Shares and is tendering all of such Shares.
<PAGE>
Box F
- --------------------------------------------------------------------------------
PAYER'S NAME: CITIZENS NATIONAL BANK
- --------------------------------------------------------------------------------
SUBSTITUTE Part 1 -- PLEASE PROVIDE Social Security Number or
Form W-9 YOUR TIN IN THE BOX AT Employer Identification Number
RIGHT AND CERTIFY BY / // // /-/ // /-/ // // // /
SIGNING AND DATING BELOW
------------------------------------------------------------
DEPARTMENT OF PART 2 -- / / Check the box if you are NOT subject to
THE TREASURY withholding under the provisions of section 3406 (a) (1)
INTERNAL REVENUE (C) of the Internal Revenue Code because (1) you have not
SERVICE been notified that you are subject to backup withholding as
a result of failure to report all interest or dividends or
(2) the Internal Revenue Service has notified you that you
are no longer subject to backup withholding.
------------------------------------------------------------
CERTIFICATION - UNDER THE PENALTIES OF
PERJURY, I CERTIFY THAT THE INFORMATION
PROVIDED ON THIS FORM IS TRUE, CORRECT
PAYER'S REQUEST AND COMPLETE.
FOR TAXPAYER
IDENTIFICATION SIGNATURE
NUMBER (TIN) -------------------------------
DATE , 1997 Part 3--
---------------- Awaiting TIN / /
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THE ABOVE FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER.
PLEASE REVIEW INSTRUCTION 9 AND GUIDELINES FOR COMPLETING
CERTIFICATION STATEMENTS IN BOX F FOR ADDITIONAL DETAILS.
<PAGE>
BOX G BOX H
- ------------------------------------- -------------------------------------
GUARANTEE OF DELIVERY SHAREHOLDER SIGN HERE
(See Instruction 3) (See Instruction 6)
- ------------------------------------- -------------------------------------
To be used ONLY if certificates IMPORTANT: Also complete Substitute
are not transmitted herewith. The Form W-9 (Box F), above
undersigned,
/ / a member of a registered ------------------------------
national securities exchange,
/ / a commercial bank or trust ------------------------------
company having an office, [Signature(s) of Owner(s)]
branch or agency in the United
States, [Please refer to Instruction 1 to
determine if your signature must
/ / a member of the National be guaranteed.]
Association of Securities
Dealers, Inc., Name(s):
---------------------------
guarantees delivery to the Depositary
of certificates in proper form for
transfer for the shares tendered by ---------------------------
this Letter within ten (10) business (Please Print)
days after delivery of this Letter to
the Depositary.
Address:
---------------------------
- -------------------------------------
(Firm Name -- Please Print)
---------------------------
- -------------------------------------
(Authorized Signature) ---------------------------
Area Code and
- ------------------------------------- Telephone No.
----------------------
- ------------------------------------- Tax Identification or
(Address) Social Security Number
-------------
- ------------------------------------- Signature(s) Medallion
(Area Code and Telephone Number) Guaranteed By*
(*If required, see Instruction 1)
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
<PAGE>
INSTRUCTIONS
FOR COMPLETION
OF
LETTER OF TRANSMITTAL
(Forming part of the Terms and Conditions of the Offer)
1. GUARANTEE OF SIGNATURES
No signature guarantee on the Letter of Transmittal (Box H) is required
unless special instructions have been given under Box B captioned "Special
Payment Instructions" or Box C captioned "Special Delivery Institutions." If
such special instructions have been given, signatures on this Letter of
Transmittal must be guaranteed by an institution, such as a commercial bank,
trust company, savings and loan association, credit union, or stockbroker or
other member of the National Association of Securities Dealers ("NASD") or of a
national securities exchange, provided such institution is a member of or a
participant in a signature guarantee medallion program pursuant to S.E.C. Rule
17Ad-15 ("Eligible Institution"). Citizens National Bank is an Eligible
Institution.
2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES
The Letter of Transmittal is to be used only if certificates are forwarded
herewith, unless delivery of certificates is guaranteed as described under
Instruction 3. Certificates for all tendered Shares, together with a properly
completed and duly executed Letter of Transmittal or facsimile thereof, and any
other documents required by this Letter of Transmittal, should be mailed or
delivered to Citizens National Bank, as Depositary, at the appropriate address
set forth herein prior to the Expiration Date, as defined in Section 4 of the
Offer to Purchase. ACTUAL DELIVERY to and receipt by the Depositary by the
Expiration Date is AN ABSOLUTE REQUIREMENT unless delivery is properly
guaranteed. DEPOSIT IN THE MAIL ON THE EXPIRATION DATE WILL NOT CONSTITUTE A
TIMELY TENDER.
3. GUARANTEE OF DELIVERY
Shares represented by certificates which are not immediately available may
be tendered by commercial banks or trust companies, by members of any national
securities exchange or by members of the NASD, acting on behalf of their
customers, if the commercial bank, trust company, exchange or NASD member will
execute this Letter of Transmittal in Box G above, provided the certificate
number(s) are set forth (if available). The adequacy of such Guarantee will be
determined solely in the discretion of the Company. Shares tendered pursuant to
such a Guarantee should be accompanied by a properly executed Letter of
Transmittal. The certificates for the tendered shares must be delivered to the
Depositary within ten (10) business days after the Depositary's receipt of the
Guarantee of Delivery.
4. INADEQUATE SPACE
If the space provided herein is inadequate, the certificate numbers and the
number of Shares should be listed on a separate schedule attached hereto.
5. PARTIAL TENDERS
If fewer than all the Shares evidenced by any certificate submitted are to
be tendered, fill in the number of Shares which are to be tendered in the column
entitled "Number of Shares Tendered." A new certificate for the remainder of the
Shares evidenced by your old certificate(s) will be sent to you, unless
otherwise provided in the appropriate section on this Letter of Transmittal, as
soon as practicable after the Expiration Date. All Shares represented by
certificates listed are deemed to have been tendered unless otherwise indicated.
<PAGE>
6. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS
6.1 If this Letter of Transmittal is signed by the owner of the
certificates tendered hereby, the signature must correspond with the name as
written on the face of the certificates, without any change whatsoever. If the
names on tendered certificates are not identical, it will be necessary to
complete, sign and submit as many separate Letters of Transmittal as there are
certificates in different names.
6.2 If the certificates tendered hereby are owned of record by two or
more joint owners, all owners must sign this Letter of Transmittal.
6.3 If any tendered certificates are registered in different names, it
will be necessary to complete, sign and submit a separate Letter of Transmittal
for each different registration.
6.4 When this Letter of Transmittal is signed by the owner(s) of the
certificates listed and transmitted hereby, no endorsements of certificates or
separate stock powers are required. If, however, the certificates for
unpurchased Shares are to be issued to a person other than the registered owner,
then endorsement of certificates transmitted hereby or separate stock powers is
required. See also Instruction 1, above, in such a circumstance.
6.5 If this Letter of Transmittal or any certificates or stock powers
are signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of a corporation or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and must submit proper
evidence satisfactory to the Company of their authority to so act, if requested.
7. STOCK TRANSFER TAXES
The Company will pay all stock transfer taxes, if any, applicable to the
transfer to it of Shares purchased pursuant to the Offer. If, however, payment
of the purchase price is to be made to, or (in circumstances permitted by the
Offer) if unpurchased Shares are to be registered in the name of, any person
other than the registered owner, or if tendered certificates are registered in
the name of any person other than the person(s) signing this Letter of
Transmittal, the amount of any stock transfer taxes (whether imposed on the
registered holder or such other person) payable on account of the transfer to
such person will be deducted from the purchase price, if satisfactory evidence
of the payment of such taxes, exemption therefrom, is not submitted.
8. CONDITIONAL TENDERS
A tendering shareholder may condition his or her tender of Shares on the
purchase by the Company of a specified number of the Shares tendered hereby, all
as described in the Offer to Purchase, particularly Section 9 thereof. Unless
such specified minimum is purchased by the Company pursuant to the terms of the
Offer, none of the Shares tendered hereby will be purchased. It is the
tendering shareholder's responsibility to calculate such minimum number of
Shares, and such shareholder is urged to consult his or her own tax adviser.
Unless Box D has been completed and a minimum specified, the tender will be
deemed unconditional.
9. SUBSTITUTE FORM W-9
Under federal income tax law, a shareholder whose tendered Shares are
accepted for payment is required by law to provide the Depositary (as payer)
with his or her correct taxpayer identification number, which is accomplished by
completing and signing Box F captioned "Substitute Form W-9." In addition, if a
<PAGE>
shareholder executes Box B captioned "Special Payment Instructions", a separate
Substitute Form W-9 should also be executed by the alternate payee. If the
Depositary is not provided with the correct taxpayer identification number, the
shareholder may be subject to a $50.00 penalty imposed by the Internal Revenue
Service. In addition, except in the case of certain exempt taxpayers, the
Depositary will be required to withhold, and will withhold, 31% of the gross
proceeds paid to that shareholder or other payee pursuant to the Offer, unless
the shareholder or other payee provides the Depositary with his taxpayer
identification number, certifies that such number is correct, and certifies that
he is not subject to backup withholding under section 3406(a)(l)(C) of the
Internal Revenue Code of 1986, as amended (the "Code"). The taxpayer
identification number is the social security number or employer identification
number of the shareholder or other payee. For further instructions on
determining the proper identification number to give to the Depositary, see the
Guidelines for Completing Certification Statements in Box F at the end of this
Letter of Transmittal. Each tendering shareholder or other payee should fully
complete and sign Box F captioned "Substitute Form W-9" and check the box in
part 2 of Substitute Form W-9, if so eligible, so as to provide the information
and certifications necessary to avoid backup withholding.
You may be, or may have been, notified that you are subject to backup
withholding under section 3406 (a)(1)(C) of the Code because you have
underreported interest or dividends or you were required to but failed to file a
return which would have included a reportable interest or dividend payment. IF
YOU HAVE BEEN SO NOTIFIED AND YOU HAVE NOT RECEIVED A SUBSEQUENT NOTICE FROM THE
INTERNAL REVENUE SERVICE ADVISING YOU THAT BACKUP WITHHOLDING HAS BEEN
TERMINATED, YOU MUST STRIKE OUT THE LANGUAGE ON THE SUBSTITUTE FORM W-9
CERTIFYING THAT YOU ARE NOT SUBJECT TO BACKUP WITHHOLDING. If you are subject
to backup withholding and you strike out the language on the Substitute W-9
certifying that you are not subject to backup withholding, you should
nonetheless provide your correct taxpayer identification number to the
Depositary and certify that it is correct.
Exempt shareholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. (In order for a foreign individual to qualify as an exempt
recipient, that shareholder must submit a statement, signed under penalty of
perjury, attesting to that individual's exempt status. Such statements can be
obtained from the Depositary.)
If backup withholding applies, the Depositary is required to withhold 31%
of any such payments made to the shareholder. Backup withholding is not an
additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be requested.
10. ODD LOTS
As described in Section 4 of the Offer to Purchase, if less than all Shares
tendered prior to the Expiration Date are to be purchased by the Company, the
Shares purchased first will consist of all Shares tendered by any shareholder
who owned beneficially as of September 30, 1997, an aggregate of fewer than 100
Shares and who tenders all of such Shares. This preference will not be
available unless Box E captioned "Odd Lots" is completed.
11. IRREGULARITIES
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of any tender of Shares will be determined by the
Company, which determination shall be final and binding. The Company reserves
the right to reject any tenders of Shares not in appropriate form or the
acceptance of or payment of which would, in the opinion of the Company's
counsel, be unlawful. The Company also reserves the right to waive any of the
conditions of the Offer or any defect in any tender, and the Company's
interpretations of
<PAGE>
the terms and conditions of the Offer (including these instructions) shall be
final and binding. The Company shall not be obligated to give notice of any
defects or irregularities in tenders and shall not incur any liability for
failure to give any such notice. Tenders will not be deemed to have been made
until all defects and irregularities have been cured or waived.
12. LOST CERTIFICATES
In the event that you are unable to deliver to the Depositary the
certificate(s) for your Shares due to the loss or destruction of such
certificate(s), such fact should be indicated on the face of the Letter of
Transmittal. In such event, the Depositary will forward additional
documentation that you must complete in order to effectively tender such lost or
destroyed certificate(s). There may be a fee to replace lost certificates.
Tenders will be processed after certificates are replaced.
13. ADDITIONAL INFORMATION AND COPIES
Additional information, as well as additional copies of the Offer to
Purchase and this Letter of Transmittal, may be obtained from the Depositary or
from the Company at the following address:
Henderson Citizens Bancshares, Inc.
201 West Main Street
Henderson, Texas 75653
(903) 657-8521
IMPORTANT: IF YOU DESIRE TO TENDER ANY OR ALL OF YOUR SHARES, THE LETTER OF
TRANSMITTAL OR FACSIMILE THEREOF (TOGETHER WITH CERTIFICATES AND OTHER REQUIRED
DOCUMENTS) MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE OF
THE OFFER. DEPOSIT OF SUCH MATERIALS IN THE MAIL ON THE EXPIRATION DATE WILL
NOT CONSTITUTE A TIMELY TENDER.
<PAGE>
GUIDELINES FOR COMPLETING CERTIFICATION STATEMENTS IN BOX F
CERTIFICATION
After you have read these instructions, place your signature and the
current date in the space provided in Box F. If you are exempt from backup
withholding, you should complete Box F of this Letter of Transmittal to avoid
possible erroneous backup withholding. Enter your correct Taxpayer
Identification Number ("TIN") in Part I, check the box in Part II, and sign and
date the form.
BACKUP WITHHOLDING
Backup withholding will apply if:
1. You fail to furnish us with your taxpayer identification number; or
2. The Internal Revenue Services notifies us that you furnished an
incorrect taxpayer identification number; or
3. You are notified that you are subject to backup withholding because
you have underreported interest or dividend income to the Internal
Revenue Service, or you were required to but failed to file a
return which would have included a reportable interest or dividend
payment; or
4. You fail to certify to us that you are not subject to backup
withholding or fail to certify your taxpayer identification number.
TAXPAYER IDENTIFICATION NUMBER
For individuals and sole proprietors, the TIN is the social security
number, which is a nine (9) digit number separated by two hyphens (i.e.
000-00-0000). For corporations, valid trusts, estates, pension trusts,
partnerships, associations, clubs and other organizations which are not
tax-exempt, the taxpayer number is the employer identification number, which is
a nine (9) digit number separated by only one hyphen (i.e. 00-0000000). The
following tables will help you determine the number to give us:
FOR THIS TYPE OF ACCOUNT GIVE THE SOCIAL SECURITY NUMBER OF:
1. An individual's account The individual
2. Two or more individuals (joint The individual whose name appears first
account) on the account caption
3. Husband and wife (joint account) The individual whose name appears first
on the account caption
4. Custodian account of a minor The minor
(Uniform Gift or Transfers to
Minors Act)
5. Account in the name of a guardian The ward, minor, or incompetent person
or committee for a designated
ward, minor, or incompetent
person
6. Sole proprietorship The owner
FOR THIS TYPE OF ACCOUNT GIVE THE EMPLOYER IDENTIFICATION
NUMBER OF:
1. Corporate The corporation
2. Valid trusts, estates, or pension The legal entity
trusts
3. Partnership account held in the The partnership
name of the business
<PAGE>
4. Association, club, or other The organization
organization which is not
tax-exempt
EXEMPTIONS FROM BACKUP WITHHOLDING
The following include some of the entities which are specifically exempt
from backup withholding on ALL payments:
- A corporation
- An organization exempt from tax under
section 501(a), or an individual
retirement plan (IRA)
- All foreign governments and entities
- A dealer in securities or commodities
required to register in the U.S.
- All federal, state and local
government entities
- A real estate investment trust
- Nonresident aliens
NOTE: Nonresident aliens are required to sign a Form W-8 or Substitute W-8 Bank
form, Certificate of Foreign Status.
PENALTIES
Under certain circumstances, you may be subject to penalties imposed by the
Internal Revenue Service, as follows:
1. The penalty for failure to furnish your taxpayer identification number
to us will be $50.00 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
2. If you make a false statement with no reasonable basis which results
in no imposition of backup withholding, you are subject to a penalty of $500.00.
3. If you falsify certifications or affirmations you may be subject to
criminal penalties including fines and/or imprisonment.
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Card, or Form SS-4,
Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
<PAGE>
OFFER BY
HENDERSON CITIZENS BANCSHARES, INC.
TO PURCHASE FOR CASH
UP TO
140,000 SHARES OF ITS COMMON STOCK
To Brokers, Dealers, Commercial Banks,
Trust Companies and Nominees: October 15, 1997
We are enclosing the material listed below relating to the offer by
Henderson Citizens Bancshares, Inc., a Texas corporation (the "Company"), to
purchase, upon the terms and subject to the conditions of the Offer to Purchase
dated October 15, 1997, and the related Letter of Transmittal (which together
constitute the "Offer"), up to a maximum of 140,000 shares of its common stock
(the "Shares") at a price of $14.50 net per Share to the selling shareholders.
Enclosed herewith are copies of the following documents:
1. Offer to Purchase dated October 15, 1997.
2. Letter of Transmittal (including Substitute Form W-9 Guidelines)
for your use and for the information of your clients;
3. Letter which may be sent to clients for whose account you hold
Shares in your name or the name of your nominee, with space provided for
obtaining such clients' instructions with regard to the Offer; and
4. Letter dated October 15, 1997, to the Company's shareholders.
Please advise us as to how many additional copies of these documents you
will require for distribution to your clients by contacting our Depositary,
Citizens National Bank, Henderson, Texas.
No fees or commissions will be payable to brokers, dealers or persons for
soliciting tenders of Shares pursuant to the Offer. However, the Company will
reimburse brokers, dealers, commercial banks, trust companies and other nominees
for their reasonable and necessary costs incurred in forwarding the Offer to
Purchase and related documents to beneficial owners of Shares held by such
entities as nominee or in a fiduciary capacity. Please forward invoices for
reimbursement to Newlyn Richardson, the Company's Corporate Secretary, 201 West
Main Street, Henderson, Texas, 75653. No such broker, dealer, bank, trust
company or other nominee has been authorized to act as the agent of the Company
or the Depositary.
We urge you to contact your clients promptly. Please note that the
withdrawal deadline, proration date and expiration date are all, Wednesday,
November 12, 1997, at 5:00 p.m. Central Standard time (unless extended).
As described in Section 6 of the Offer to Purchase, tenders may be made
without the concurrent deposit of stock certificates and any other required
documents, if such tenders are made by or through a broker or dealer which is a
member firm of a registered national securities exchange, a member of the
National Association of Securities Dealers, Inc. or a commercial bank or trust
company having an office, branch or agency in the United States. Certificates
for shares so tendered and any other required documents must be received within
ten (10) business days after the Depositary has previously received a properly
completed and duly executed Notice of Guaranteed Delivery.
Any questions or requests for assistance or additional copies of the Offer
to Purchase and the Letter of Transmittal may be directed to Milton S. McGee,
Jr., the Company's President, at (903) 657-8521.
Very truly yours,
HENDERSON CITIZENS BANCSHARES, INC.
- --------------------------------------------------------------------------------
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR
ANY OTHER PERSON THE AGENT OF THE COMPANY OR THE DEPOSITARY, OR AUTHORIZE YOU OR
ANY OTHER PERSON TO USE ANY DOCUMENT OR TO MAKE ANY STATEMENTS ON THEIR BEHALF
IN CONNECTION WITH THE OFFER, OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE
STATEMENTS CONTAINED THEREIN.
- --------------------------------------------------------------------------------
<PAGE>
OFFER BY
HENDERSON CITIZENS BANCSHARES, INC.
TO PURCHASE FOR CASH
UP TO
140,000 SHARES OF ITS COMMON STOCK
To Our Clients:
Enclosed for your consideration is an Offer to Purchase dated October 15,
1997, and a related Letter of Transmittal (which together constitute the
"Offer"), relating to the Offer by Henderson Citizens Bancshares, Inc. (the
"Company") to purchase up to a maximum of 140,000 shares of its common stock
(the "Shares"). The Offer to Purchase and the Letter of Transmittal are being
forwarded to you as the beneficial owner of Shares held by us in your account
but not registered in your name. A tender of such Shares can be made only by
us, since we are the holder of record, but only pursuant to your instructions.
We request your instructions as to whether you wish to tender any or all
Shares held by us for your account, pursuant to the terms and subject to the
conditions set forth in the Offer.
Your attention is called to the following:
1. Shareholders may tender Shares at a price of $14.50 net per
share.
2. The Offer is not conditioned upon any minimum number of Shares
being tendered, but up to 140,000 Shares may be purchased.
3. Tendering shareholders will not be obligated to pay brokerage
commissions, solicitation fees or (subject to Instruction 7 of the Letter
of Transmittal) stock transfer taxes on the purchase of Shares by the
Company pursuant to the Offer. However, backup withholding at a 31% rate
may be required (unless an exemption is proved or unless the required tax
identification information is provided). See Instruction 9 to the Letter
of Transmittal.
4. The withdrawal deadline, proration date and expiration date of
the Offer are all Wednesday, November 12, 1997, at 5:00 p.m., Central
Standard time (unless extended).
5. Shares must be validly tendered prior to Wednesday, November 12,
1997, at 5:00 p.m., Central Standard time, to ensure that at least a
portion of such Shares tendered will be purchased by the Company.
YOUR INSTRUCTIONS TO US SHOULD BE FORWARDED IN AMPLE TIME TO PERMIT US TO
SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE EXPIRATION OF THE OFFER.
If you wish to have us tender any or all of your Shares, please so instruct
us by completing, executing and returning to us the attached instruction form.
An envelope to return your instructions is enclosed. If you authorize us to
tender your Shares, all such Shares will be tendered unless otherwise
specified. The enclosed Letter of Transmittal is furnished to you for your
information only and cannot be used to tender Shares.
<PAGE>
INSTRUCTIONS
The undersigned acknowledge(s) receipt of your letter enclosing the Offer
to Purchase dated October 15, 1997, and the related Letter of Transmittal (which
together constitute the "Offer"), relating to the Offer by Henderson Citizens
Bancshares, Inc. (the "Company"), to purchase up to 140,000 shares of its common
stock (the "Shares").
This will instruct you to tender the number of Shares indicated (or, if no
number is indicated below, all Shares), which are held by you for the account of
the undersigned, pursuant to the terms and subject to the conditions set forth
in the Offer.
- --------------------------------------------------------------------------------
Aggregate number of Shares to be tendered* by us: _________________
*Unless otherwise indicated above, it will be assumed that all of your Shares
held by us are to be tendered.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ODD LOTS
/ / By checking this box, the undersigned represents that the undersigned owned
beneficially or of record as of
September 30, 1997, an aggregate of less than 100 Shares and is tendering
all such Shares.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGN HERE
Signature:
------------------------------------------------------------
Name(s):
------------------------------------------------------------
(Please Print or Type)
Address:
------------------------------------------------------------
------------------------------------------------------------
(City) (State) (Zip Code)
Area Code and
Telephone No.:( )
----------- ------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Tax identification or
Social Security Number:
---------------------------------------------------
Dated:
---------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[ON LETTERHEAD OF HENDERSON CITIZENS BANCSHARES, INC.]
October 15, 1997
Dear Shareholder:
Henderson Citizens Bancshares, Inc. (the "Company") is offering to purchase
up to 140,000 shares of its common stock at a price of $14.50 net per share, and
our records indicate that you own shares of this stock.
Enclosed for your consideration is an Offer to Purchase and a related
Letter of Transmittal. These enclosures contain detailed information concerning
the Offer, including its terms and conditions, the purpose of the Offer, the
procedures for tendering shares, and information relating to certain tax
consequences of selling shares pursuant to the Offer. We suggest that you read
the enclosed information carefully before deciding whether or not you wish to
tender your shares.
In reviewing the enclosed material, please bear in mind the following:
- The Offer expires at 5:00 P.M. Central Standard Time on Wednesday,
November 12, 1997. CITIZENS NATIONAL BANK, AS DEPOSITORY, MUST
RECEIVE THE CERTIFICATES REPRESENTING YOUR SHARES AND THE ACCOMPANYING
LETTER OF TRANSMITTAL BY THAT TIME.
- The sale of shares pursuant to the Offer is a taxable transaction
under present Federal income tax laws. You may wish to consult your
tax advisor regarding your own tax consequences of tendering shares,
including the application and effect of your state and local taxes.
- The Offer is not conditioned upon a minimum number of shares being
tendered.
- If more than 140,000 shares are tendered, the shares purchased by the
Company are to be prorated among tendering shareholders based upon the
total number of shares which have been tendered, unless the Company
elects to increase the number of shares accepted for tender, in
accordance with the terms of the Offer. The Company intends to
purchase all shares from holders owning fewer than 100 shares, to the
extent such shares are tendered.
Although the Company's Board of Directors has authorized the Offer, neither
the Board nor the Company makes any recommendation as to whether you should
tender all or any of your shares. You should make your own decision as to
whether to tender shares and, if so, how many shares to tender.
If after reviewing the information set forth in the Offer to Purchase and
Letter of Transmittal you wish to tender shares for purchase by the Company,
please either follow the instructions contained in the Offer to Purchase and
Letter of Transmittal or contact your broker, dealer, commercial bank, trust
company or other nominee to effect the tender for you.
If you should need additional information or assistance in connection with
this offer, please contact Milton S. McGee, Jr., the Company's President, at
(903) 657-8521.
Sincerely,
/s/ Milton S. McGee, Jr.
Milton S. McGee, Jr.
President
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Henderson Citizens Bancshares, Inc.:
We have audited the accompanying consolidated balance sheets of Henderson
Citizens Bancshares, Inc. and Subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Henderson Citizens
Bancshares, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Shreveport, Louisiana
March 4, 1997
24
<PAGE>
HENDERSON CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
ASSETS 1996 1995
---- ----
<S> <C> <C>
Cash and due from banks $ 12,413 8,916
Interest-bearing deposits with financial institutions 3,892 2,642
Federal funds sold 1,150 --
Securities:
Held to maturity, approximate market values of $82,465
in 1996 and $83,570 in 1995 82,415 82,750
Available for sale 145,740 143,700
--------- ---------
228,155 226,450
Loans, net 100,825 80,499
Premises and equipment, net 3,751 3,144
Accrued interest receivable 3,449 3,911
Other assets 3,195 1,317
--------- ---------
$ 356,830 326,879
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand - noninterest-bearing $ 31,785 28,435
NOW accounts 74,984 68,089
Money market and savings 45,484 46,206
Certificates of deposit and other time deposits 168,420 150,881
--------- ---------
Total deposits 320,673 293,611
Accrued interest payable 1,144 1,117
Other liabilities 3,025 945
--------- ---------
324,842 295,673
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 10,800 10,800
Capital surplus 5,400 5,400
Undivided profits 16,825 14,859
Net unrealized gains (losses) on securities available for sale,
net of income taxes (703) 147
--------- ---------
32,322 31,206
Less treasury stock, 29,700 shares at cost (334) --
--------- ---------
Total stockholders' equity 31,988 31,206
Commitments and contingencies
--------- ---------
$ 356,830 326,879
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
HENDERSON CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1996, 1995, and 1994
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest income:
Loans $ 7,642 6,149 4,479
Investment securities:
Taxable - available-for-sale 8,058 7,693 6,170
Taxable - held-to-maturity 3,182 4,261 2,678
Tax-exempt 1,390 1,582 1,425
Federal funds sold 117 174 18
Interest-bearing deposits with financial
institutions 327 487 176
--------- --------- ---------
Total interest income 20,716 20,346 14,946
--------- --------- ---------
Interest expense:
Deposits:
NOW accounts 2,015 2,210 1,640
Money market and savings 1,322 1,456 1,210
Certificates of deposit and other time deposits 7,839 7,870 4,253
Other borrowed funds 27 -- 24
--------- --------- ---------
Total interest expense 11,203 11,536 7,127
--------- --------- ---------
Net interest income 9,513 8,810 7,819
Provision (reduction of allowance) for loan losses 264 180 (150)
--------- --------- ---------
Net interest income after provision
(reduction of allowance) for loan losses 9,249 8,630 7,969
--------- --------- ---------
Other income:
Net gains (losses) on securities transactions 719 (128) (22)
Income from fiduciary activities 632 587 568
Service charges, commissions, and fees 1,148 934 845
Other 744 616 285
--------- --------- ---------
Total other income 3,243 2,009 1,676
--------- --------- ---------
Other expenses:
Salaries and employee benefits 4,770 4,205 3,592
Occupancy and equipment 927 781 585
Regulatory assessments 191 407 604
Other 2,150 2,163 1,578
--------- --------- ---------
Total other expenses 8,038 7,556 6,359
--------- --------- ---------
Income before income tax expense 4,454 3,083 3,286
Income tax expense 1,110 619 651
--------- --------- ---------
Net income $ 3,344 2,464 2,635
--------- --------- ---------
--------- --------- ---------
Net income per common share $ 1.55 1.14 1.22
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
HENDERSON CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996, 1995, and 1994
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Net
unrealized
gains (losses) Total
on securities Stock-
Preferred Common Capital Undivided available Treasury holders'
stock stock surplus profits for sale stock equity
----- ----- ------- ------- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1993 $ -- 10,800 5,400 12,525 435 -- 29,160
Net income -- -- -- 2,635 -- -- 2,635
Cash dividends ($0.64 per share) -- -- -- (1,383) -- -- (1,383)
Net change in unrealized losses
on securities available for sale -- -- -- -- (4,265) -- (4,265)
------ ------ ------ ------ ------ ------ ------
Balances at December 31, 1994 -- 10,800 5,400 13,777 (3,830) -- 26,147
Net income -- -- -- 2,464 -- -- 2,464
Cash dividends ($0.64 per share) -- -- -- (1,382) -- -- (1,382)
Net change in unrealized gains
on securities available for sale -- -- -- -- 3,977 -- 3,977
------ ------ ------ ------ ------ ------ ------
Balances at December 31, 1995 -- 10,800 5,400 14,859 147 -- 31,206
Net income -- -- -- 3,344 -- -- 3,344
Cash dividends ($0.64 per share) -- -- -- (1,378) -- -- (1,378)
Net change in unrealized losses
on securities available for sale -- -- -- -- (850) -- (850)
Purchase of 29,700 shares of
treasury stock -- -- -- -- -- (334) (334)
------ ------ ------ ------ ------ ------ ------
Balances at December 31, 1996 $ -- 10,800 5,400 16,825 (703) (334) 31,988
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
HENDERSON CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995, and 1994
(dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net income $ 3,344 2,464 2,635
Adjustments to reconcile net income to net cash
provided by operating activities:
Net amortization (accretion) of premium
(discount) on securities 589 (34) 774
Net (gains) losses on securities transactions (719) 128 22
Provision (reduction of allowance) for loan losses 264 180 (150)
Net (gains) losses on sales of premises and
equipment and other real estate -- -- (10)
Depreciation and amortization 375 421 406
Decrease (increase) in accrued interest receivable 624 (303) (1,240)
Decrease (increase) in other assets (74) 460 (859)
Increase (decrease) in accrued interest payable (14) 222 279
Increase (decrease) in other liabilities 430 404 (96)
------- ------- -------
Net cash provided by operating activities 4,819 3,942 1,761
------- ------- -------
Investing activities:
Proceeds from sales of available-for-sale securities 55,669 15,700 8,040
Proceeds from maturities, paydowns, and calls of
available-for-sale securities 25,473 31,372 28,117
Proceeds from maturities, paydowns, and calls of
securities held to maturity 15,995 20,636 6,655
Purchases of available-for-sale securities (74,142) (25,676) (50,118)
Purchases of securities held-to-maturity (11,291) (38,307) (40,776)
Net increase in loans (15,051) (16,895) (7,188)
Proceeds from sales, premises and equipment and
other real estate -- -- 25
Purchases of bank premises and equipment (756) (270) (463)
Cash received from acquisitions 1,544 -- 53,246
------- ------- -------
Net cash used by investing activities (2,559) (13,440) (2,462)
------- ------- -------
Financing activities:
Net increase (decrease) in deposits 5,349 8,089 (1,198)
Cash dividends paid (1,378) (1,382) (1,383)
Purchase of treasury stock (334) -- --
------- ------- -------
Net cash provided (used) by financing activities 3,637 6,707 (2,581)
------- ------- -------
Increase (decrease) in cash and cash equivalents 5,897 (2,791) (3,282)
Cash and cash equivalents at beginning of year 11,558 14,349 17,631
------- ------- -------
Cash and cash equivalents at end of year $ 17,455 11,558 14,349
------- ------- -------
------- ------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
HENDERSON CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995, and 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS -- Henderson Citizens Bancshares, Inc. (the "Company") through its
indirect subsidiaries, Citizens National Bank, Henderson, Texas and First
State Bank, Waskom, Texas (the "Banks"), provides a full range of banking
services to individual and corporate customers in east Texas. The
Company and the Banks are subject to regulations of certain federal and
state agencies and undergo periodic examinations by those regulatory
authorities.
BASIS OF PRESENTATION -- The consolidated financial statements have been
prepared in conformity with generally accepted accounting principles. In
preparing the consolidated financial statements, the Company is required
to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the balance sheet and income and
expenses for the period.
CASH AND CASH EQUIVALENTS -- For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, amounts due from banks, interest-
bearing deposits with financial institutions, and federal funds sold.
Generally federal funds are sold for one-day periods.
SECURITIES -- The Company accounts for its debt and marketable equity
securities under the provisions of Statement of Financial Accounting
Standards No. 115 (Statement 115), ACCOUNTING FOR CERTAIN INVESTMENTS IN
DEBT AND EQUITY SECURITIES. Under Statement 115, the Company classifies
its debt and marketable equity securities in one of three categories:
trading, available-for-sale, or held-to-maturity. Trading securities are
bought and held principally for the purpose of selling them in the near
term. Held-to-maturity securities are those securities in which the
Company has the ability and intent to hold until maturity. All other
securities not included in trading or held-to-maturity are classified as
available-for-sale.
Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for
the amortization or accretion of premiums or discounts. Unrealized
holding gains and losses on trading securities are included in earnings.
Unrealized holding gains and losses, net of the related income tax
effect, on available-for-sale securities are excluded from earnings and
are reported as a separate component of stockholders' equity until
realized. Transfers of securities between categories are recorded at
fair value at the date of transfer.
A decline in the market value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary is charged to
operations, resulting in the establishment of a new cost basis for the
security.
Premiums and discounts are amortized or accreted either over the life of
the related security as an adjustment to yield using the effective
interest method, or are periodically adjusted to reflect the actual
payment experience on the underlying mortgage loans, which does not
materially differ from the interest method. Dividend and interest income
are recognized when earned. Realized gains and losses for securities
classified as available-for-sale and held-to-maturity are included in
earnings and are derived using the specific identification method for
determining the cost of securities sold.
29
<PAGE>
HENDERSON CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
LOANS -- Interest on real estate, commercial, and industrial loans is
accrued as earned. Interest on installment loans is deferred and
recognized under the sum-of-the-digits method, which generally results in
level rates of return on principal balances outstanding.
A loan is considered impaired when based upon current information, it is
probable that a creditor will be unable to collect amounts due. If a
loan is impaired, then impairment is measured by (1) the present value of
expected future cash flows discounted at the loan's original effective
interest rate, or (2) the market price of impaired loans, or (3) the fair
value of collateral.
The accrual of income on loans is generally discontinued and all interest
income previously accrued and unpaid is deducted from income when a loan
becomes more than ninety days delinquent, or when certain factors
indicate reasonable doubt as to the timely collectibility of all amounts
due. A loan may remain on accrual status if it is in the process of
collection and is either well secured or guaranteed. Generally, loans on
which the accrual of income has been discontinued are designated as
nonaccruing loans, and includes all loans classified as "impaired" loans.
Generally, nonaccruing loans are returned to an accrual status only when
none of the principal or interest is due and unpaid and the full
collectibility of the outstanding loan balance is reasonably assured.
Cash receipts on nonaccruing loans are generally applied to the principal
balance until the remaining balance is considered fully collectible.
ALLOWANCE FOR LOAN LOSSES -- The allowance for loan losses is maintained at
a level believed adequate by management to absorb potential loan losses.
Management's determination of the adequacy of the allowance is based on
an evaluation of the relative risks inherent in the loan portfolio,
taking into consideration the nature, volume, and quality of the
portfolio, specific problem loans, past credit loss experience, current
and future economic conditions, results of internal review procedures,
and other relevant factors. This evaluation is inherently subjective as
it requires material estimates including the amounts and timing of future
cash flows expected to be received on impaired loans. The provision for
loan losses is charged to expense, and loans charged off, net of
recoveries, are charged directly to the allowance.
While the Company uses available information to recognize losses on loans,
future changes to the allowance may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the
Company's allowance for loan losses. Such agencies may require the
Company to record changes to the allowance based on their judgments about
information available to them at the time of their examination.
30
<PAGE>
PREMISES AND EQUIPMENT -- Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is provided over the estimated
useful lives of the respective assets on a straight-line basis.
Maintenance and repairs are charged to operating expense, and renewals
and betterments are capitalized. Gains or losses on dispositions are
reflected currently in the statement of income.
INCOME TAXES -- The Company uses the asset and liability method of
accounting for income taxes under which deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
NET INCOME PER COMMON SHARE -- Net income per common share is calculated
based on the weighted average number of shares outstanding during the
year. The weighted average common shares outstanding were 2,153,333 in
1996, and 2,160,000 shares in 1995 and 1994.
GOODWILL -- Goodwill, which represents the excess of purchase price over
fair value of net assets acquired, is amortized on a straight-line basis
over the expected periods to be benefited, generally five to fifteen
years. The Company assesses the recoverability of this intangible asset
by determining whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted future operating
cash flows of the acquired operation. The amount of goodwill impairment,
if any, is measured based on projected discounted future operating cash
flows using a discount rate reflecting the Company's average cost of
funds. The assessment of the recoverability of goodwill will be impacted
if estimated future operating cash flows are not achieved.
(2) ACQUISITIONS
On September 17, 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
being 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. Operations of Waskom Bancshares, Inc.
and First State Bank prior to the acquisition are not included in these
consolidated financial statements.
The following unaudited pro forma information reflects the results of
operations for the years ended December 31, 1996 and 1995, as though this
acquisition had occurred at the beginning of 1995 (in thousands of
dollars, except per share amounts):
31
<PAGE>
1996 1995
---- ----
Total interest income $ 21,836 21,945
------ ------
------ ------
Net interest income $ 10,080 9,642
------ ------
------ ------
Net income $ 3,457 2,630
------ ------
------ ------
Net income per share $ 1.61 1.22
------ ------
------ ------
On December 8, 1994, the Company acquired substantially all of the assets
and assumed substantially all of the liabilities of the Chandler and
Malakoff branches of NationsBank of Texas, National Association. In
addition to acquiring the assets and assuming the liabilities, the
Company received approximately $40 million in cash, which was net of
approximately $419,000 in premium paid for the deposits. The purchase
method of accounting was used to record the acquisition. The premium is
being amortized on a straight-line basis over five years. Operations of
the Chandler and Malakoff branches prior to the acquisition are not
included in these consolidated financial statements.
The following unaudited pro forma information reflects the results of
operations for the year ended December 31, 1994, as though this
acquisition had occurred at the beginning of 1994 (in thousands of
dollars, except per share amounts):
Total interest income $ 17,601
------
------
Net interest income $ 8,791
------
------
Net income $ 2,867
------
------
Net income per share $ 1.33
------
------
The Company also purchased certain assets and assumed certain liabilities
on September 23, 1994, of the Jefferson, Texas branch of Pacific
Southwest Bank, F.S.B. Assets purchased included loans and related
accrued interest receivable and fixed assets. Liabilities assumed
included all deposits and related accrued interest payable. In addition,
the Company received approximately $13 million in cash from Pacific
Southwest Bank, F.S.B., which was net of $125,000 in premium paid for the
deposits. The purchase method of accounting was used to record the
acquisition. The premium is being amortized on a straight-line basis
over five years. Operations of the Jefferson, Texas branch prior to the
acquisition are not included in these consolidated financial statements.
Pro forma information on the Jefferson, Texas branch acquisition is not
provided due to its insignificance.
32
<PAGE>
(3) CASH AND DUE FROM BANKS
The Banks are a member of the Federal Reserve System and are required to
maintain reserve balances in accordance with Federal Reserve Bank
requirements. Such reserve requirements totaled $2,854,000 at
December 31, 1995. There were no reserve requirements at December 31,
1996.
(4) REGULATORY MATTERS
Applicable federal and state regulations impose restrictions on the amounts
of dividends that may be declared by the Banks. In addition to the
formal statutes and regulations, regulatory authorities also consider the
adequacy of the Banks' total capital in relation to its assets, deposits,
and other such items.
National and state banks are generally required to obtain approval of the
regulatory agencies if dividends declared in any year exceed the profits
of that year combined with the net retained profits of the preceding two
years. For 1997, the Banks will be required to obtain approval of the
regulatory agencies before they can declare any dividends which exceed
1997 net income by approximately $430,000.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
was signed into law on December 19, 1991. The prompt corrective actions
of the FDICIA place restrictions on any insured depository institution
that does not meet certain requirements, including minimum capital
ratios. The restrictions are based on an institution's FDICIA defined
capital category and become increasingly more severe as an institution's
capital category declines. In addition to the prompt corrective action
requirements, FDICIA includes significant changes to the legal and
regulatory environment for insured depository institutions, including
reductions in insurance coverage for certain kinds of deposits, increased
supervision by the federal regulatory agencies, increased reporting
requirements for insured institutions, and new regulations concerning
internal controls, accounting, and operations.
The prompt corrective action regulations define specific capital categories
based on an institution's capital ratios. The capital categories in
declining order are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." To be considered "well capitalized," an institution
is required to have at least a 5% leverage ratio, a 6% Tier I risk-based
capital ratio, and a 10% total risk-based capital ratio. However, the
regulatory agencies may impose higher minimum standards on individual
institutions or may downgrade an institution from one category because of
safety and soundness concerns.
At December 31, 1996, Citizens National Bank, Henderson, Texas' leverage
ratio was 8.97%, Tier I risk-based ratio was 23.48%, and total risk-based
ratio was 24.38% and First State Bank, Waskom, Texas' leverage ratio was
8.88%, Tier I risk-based ratio was 25.29%, and total risk-based ratio was
25.50%.
33
<PAGE>
(5) SECURITIES
The amortized cost (carrying value) and approximate fair value of
securities held-to-maturity at December 31, 1996 and 1995, are summarized
as follows (in thousands of dollars):
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury $ 7,062 72 (58) 7,076
U.S. government agencies 10,215 67 (39) 10,243
State and municipal 34,069 263 (121) 34,211
Mortgage-backed securities
and collateralized mortgage
obligations 28,561 37 (191) 28,407
Other 2,508 20 -- 2,528
-------- -------- -------- --------
$ 82,415 459 (409) 82,465
-------- -------- -------- --------
-------- -------- -------- --------
December 31, 1995
--------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
---- ----- ------ -----
U.S. Treasury $ 7,087 122 (46) 7,163
U.S. government agencies 16,293 158 (38) 16,413
State and municipal 32,511 571 (34) 33,048
Mortgage-backed securities
and collateralized mortgage
obligations 24,318 123 (73) 24,368
Other 2,541 37 -- 2,578
-------- -------- -------- --------
$ 82,750 1,011 (191) 83,570
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The amortized cost and approximate fair value (carrying value) of
securities available-for-sale at December 31, 1996 and 1995, are
summarized as follows (in thousands of dollars):
34
<PAGE>
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury $ 53,963 313 (161) 54,115
U.S. government agencies 17,758 67 (109) 17,716
Mortgage-backed securities and
collateralized mortgage
obligations 73,734 323 (1,500) 72,557
Other securities 1,350 2 -- 1,352
-------- ------- ------- -------
$ 146,805 705 (1,770) 145,740
-------- ------- ------- -------
-------- ------- ------- -------
December 31, 1995
--------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
---- ----- ------ -----
U.S. Treasury $ 55,984 967 (84) 56,867
U.S. government agencies 21,354 71 (154) 21,271
Mortgage-backed securities and
collateralized mortgage
obligations 62,760 326 (906) 62,180
Other securities 3,380 3 (1) 3,382
-------- ------- ------- -------
$ 143,478 1,367 (1,145) 143,700
-------- ------- ------- -------
-------- ------- ------- -------
</TABLE>
The amortized cost and estimated fair value of securities at December 31,
1996, by contractual maturity, are shown below (in thousands of dollars).
Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
Securities Held-To-Maturity
------------------------------------------------
Net
Amortized Estimated unrealized
cost fair value gains (losses)
---- ---------- -------------
<S> <C> <C> <C>
Due in one year or less $ 8,834 8,870 36
Due after one year through five years 35,500 35,533 33
Due after five years through ten years 8,001 8,104 103
Due after ten years 1,228 1,259 31
Mortgage-backed securities and
collateralized mortgage obligations 28,852 28,699 (153)
------ ------ ------
$ 82,415 82,465 50
------ ------ ------
------ ------ ------
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Securities Held-To-Maturity
------------------------------------------------
Net
Amortized Estimated unrealized
cost fair value gains (losses)
---- ---------- -------------
<S> <C> <C> <C>
Due in one year or less $ 6,293 6,291 (2)
Due after one year through five years 66,778 66,892 114
Mortgage-backed securities,
collateralized mortgage obligations,
and other amortizing securities 73,734 72,557 (1,177)
-------- -------- --------
$ 146,805 145,740 (1,065)
-------- -------- --------
-------- -------- --------
</TABLE>
Proceeds from the sales of securities were $55,669,000 and $15,700,000 in
1996 and 1995, respectively. Gross gains of $763,000 and $216,000 were
recognized on those sales in 1996 and 1995, respectively. Gross losses
of $44,000 and $344,000 were recognized on sales in 1996 and 1995,
respectively.
Investment securities having a carrying value of $52,306,000 and
$49,357,000 at December 31, 1996 and 1995, respectively, were pledged to
secure public funds on deposit or for other purposes as required or
permitted by law.
During 1995 Citizens National Bank, Henderson, Texas transferred securities
having an amortized cost of $33,439,000 from its held-to-maturity
portfolio to its available-for-sale portfolio. At the time of the
transfer, these securities had net unrealized gains of approximately
$775,000. This transfer was made during the one time reassessment
allowed by the Financial Accounting Standards Board for the
reclassification of held-to-maturity and available-for-sale investment
security portfolios.
(6) LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of the loan portfolio at December 31, 1996 and 1995, is as
follows (in thousands of dollars):
1996 1995
---- ----
Real estate mortgage $ 46,211 34,009
Commercial and industrial 23,863 22,444
Installment and other 33,111 26,234
-------- -------
Total 103,185 82,687
-------- -------
Less:
Allowance for loan losses (1,146) (1,019)
Unearned discount (1,214) (1,169)
-------- -------
Loans, net $ 100,825 80,499
-------- -------
-------- -------
The Banks enter into various loans and other transactions in the ordinary
course of business with their directors, executive officers, and some of
their related business interests. In the opinion of management, these
loans and other transactions are made on
36
<PAGE>
substantially the same terms as those prevailing at the time for
comparable loans and similar transactions with other persons. The
amounts of these loans were $752,000 and $3,401,000 at December 31, 1996
and 1995, respectively. The change during 1996 reflects $380,000 in new
loans and $3,029,000 of repayments.
At December 31, 1996 and 1995, the Banks had discontinued the accrual of
interest on loans aggregating $147,000 and $99,000, respectively. Net
interest income for 1996 and 1995 would have been higher by $6,400 and
$5,000, respectively, had interest been accrued at contractual rates on
nonperforming loans.
At December 31, 1996 and 1995, the recorded investment in impaired loans
was $147,000 and $99,000, respectively. The average recorded investment
in impaired loans for 1996 and 1995 approximated $116,000 and $166,000,
respectively. Interest income recognized on these impaired loans
approximated $4,700 and $11,000 for 1996 and 1995, respectively. 1994
information on these impaired losses was not available but was
insignificant.
Changes in the allowance for loan losses are summarized as follows (in
thousands of dollars):
1996 1995 1994
---- ---- ----
Balance, January 1 $ 1,019 997 1,014
Provision (reduction of allowance) for
loan losses 264 180 (150)
Addition due to acquisition 24 -- --
Loans charged off (243) (247) (62)
Recoveries on loans 82 89 195
------ ------ ------
Balance, December 31 $ 1,146 1,019 997
------ ------ ------
------ ------ ------
During 1994, the Banks reduced loans through the repossession of other real
estate and assets by $11,000. There were no such reductions in 1995 and
1996.
(7) PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1996 and 1995, are summarized as
follows (in thousands of dollars):
Estimated December 31,
--------------
useful lives 1996 1995
------------ ----- ----
Land -- $ 442 422
Bank buildings 40 years 3,297 3,120
Furniture, fixtures, and equipment 5-10 years 2,947 2,530
Construction in progress 302 8
------ ------
6,988 6,080
Less accumulated depreciation (3,237) (2,936)
------ ------
Premises and equipment, net $ 3,751 3,144
------ ------
------ ------
37
<PAGE>
Amounts charged to operating expenses for depreciation were $375,000,
$312,000, and $233,000, in 1996, 1995, and 1994, respectively.
(8) TIME DEPOSITS
Included in certificates of deposit and other time deposits at December 31,
1996 and 1995, were $53,609,000 and $43,166,000, respectively, of
certificates of deposit in denominations of $100,000 or more. Interest
expense on time deposits of $100,000 or more amounted to $2,281,000,
$2,348,000, and $1,335,000, for the years ended December 31, 1996, 1995,
and 1994, respectively.
At December 31, 1996, the scheduled maturities of time deposits are as
follows (dollars in thousands):
Years ending December 31:
1997 $143,922
1998 11,554
1999 8,483
2000 3,476
2001 985
--------
$168,420
--------
--------
During 1996, 1995, and 1994, the Banks made interest payments of
$11,149,000, $11,314,000, and $6,847,000, respectively, to depositors and
other banks.
(9) INCOME TAXES
Federal income tax expense (benefit) applicable to income before tax for
the years ended December 31, 1996, 1995, and 1994, is as follows (in
thousands of dollars):
1996 1995 1994
------ ----- -----
Current $ 979 769 422
Deferred 131 (150) 229
------ ------ -----
$1,110 619 651
------ ------ -----
------ ------ -----
Income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 34% in 1996, 1995, and 1994, to pretax income
when compared to actual income tax expense as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense $ 1,519 1,048 1,117
Increase (decrease) in income taxes resulting
from:
Tax-exempt interest (471) (465) (481)
Other 62 36 15
------ ------ ------
Actual income tax $ 1,110 619 651
------ ------ ------
------ ------ ------
Effective tax rate 24.9% 20.1 19.8
------ ------ ------
------ ------ ------
</TABLE>
38
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1996 and 1995, are presented below (in thousands of
dollars):
1996 1995
---- ----
Deferred tax assets:
Allowance for loan losses $ -- 60
Organizational costs 48 12
Accrued liabilities 40 34
Unrealized loss on securities available-for-sale 362 --
---- ----
Total gross deferred tax assets 450 106
Less valuation allowance -- --
---- ----
Net deferred tax assets 450 106
---- ----
Deferred tax liabilities:
Investment securities 67 48
Premises and equipment - depreciation 122 8
Unrealized gain on securities available-for-sale -- 75
Other assets 22 42
---- ----
Total deferred tax liabilities 211 173
---- ----
Net deferred tax asset (liability) $ 239 (67)
---- ----
---- ----
No valuation allowance was recorded against the gross deferred tax asset
because management believes that it is more likely than not the gross
deferred tax asset will be realized in full. The Company based its
conclusion on various factors, including ongoing profitable operations as
well as significant taxes available in the carryback period.
Included in other liabilities and other assets, respectively, in the
accompanying consolidated balance sheets are current federal income taxes
payable of $164,000 and $110,000 at December 31, 1996 and 1995,
respectively. A net deferred federal income tax asset of $239,000 is
included in other assets at December 31, 1996, and a net deferred federal
income tax liability of $67,000 is included in other liabilities at
December 31, 1995.
Income taxes paid during 1996, 1995, and 1994, totaled $995,000, $205,000,
and $460,000, respectively.
(10) PROFIT SHARING PLAN
The Company has a 401(k) savings plan which covers substantially all full-
time employees with one year of service. With respect to employer
contributions, vesting under the plan begins in the third year and
participants become fully vested after seven years. Contributions are at
the discretion of the Board of Directors. The Company expensed $281,000,
$251,000, and $225,000 related to the plan for the years ended
December 31, 1996, 1995, and 1994, respectively.
39
<PAGE>
(11) TRANSACTIONS WITH AFFILIATE
The Company is affiliated with H.C.B., Inc. (HCB). The Board of Directors
for both the Company and HCB are the same. HCB has been used in part to
own certain assets that supervisory agencies have generally not permitted
banks to own directly for extended periods of time. During the years
ended 1996, 1995, and 1994, the Company charged HCB a management fee of
$15,000, $13,500, and $6,000, respectively for various services provided
to HCB. The amount charged was considered to be the fair value of those
services rendered. During 1996, 1995 and 1994, Citizens National Bank
Henderson, Texas' trust department charged HCB an additional $6,530,
$4,600 and $3,200, respectively, for management services related to
HCB's mineral interests.
During 1995, HCB purchased real estate from the Company for $43,000. In
1994, HCB financed the sale of certain other real estate properties
through loans totaling $23,000.
(12) COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on
the Company's financial position and results of operations.
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 (Statement 107),
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires that the
Company disclose estimated fair values for its financial instruments.
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Company's entire
holdings of a particular financial instrument. Because no market exists
for a significant portion of the Company's financial instruments, fair
value estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments, and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment
and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. The following methods and
assumptions were used to estimate the fair value of each class of
financial instruments for which it is practicable to estimate that value:
CASH, DUE FROM BANKS, INTEREST-BEARING DEPOSITS WITH FINANCIAL
INSTITUTIONS, AND FEDERAL FUNDS SOLD -- For these short-term investments,
the carrying amount is a reasonable estimate of fair value.
40
<PAGE>
SECURITIES -- The fair value, which approximates the estimated market
values, of longer-term securities and mortgage-backed securities, except
certain state and municipal securities, is estimated based on bid prices
published in financial newspapers or bid quotations received from
securities dealers. The fair value, which approximates the estimated
market values, of certain state and municipal securities is not readily
available through market sources other than dealer quotations, so fair
value estimates are based on quoted market prices of similar instruments,
adjusted for differences between the quoted instruments and the
instruments being valued.
LOANS -- Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type such as
commercial, commercial real estate, residential mortgage, and consumer.
The carrying amounts of performing loans that were funded or will mature
within three months of the balance sheet date approximate the fair values
of those loans. Additionally, the carrying amounts of adjustable rate
loans that reprice within ninety days also approximate the fair values of
those loans. The fair values of the remaining performing and
nonperforming loans are calculated by discounting scheduled cash flows
through the estimated maturity, using estimated market discount rates
that reflect the credit and interest rate risk inherent in the loans.
The estimate of maturity is based on the Company's historical experience
with repayments for each loan classification, modified, as required, by
an estimate of the effect of current economic and lending conditions.
DEPOSITS -- The fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, savings, NOW accounts, and money
market accounts, is equal to the amount payable as of December 31, 1996
and 1995. The fair value of certificates of deposit is based on the
discounted value of contractual cash flows. The discount rate is
estimated using the rates currently offered for deposits of similar
remaining maturities.
INTEREST ACCRUALS -- The fair values of the Company's accrued interest
receivable and accrued interest payable amounts approximate their
carrying values due to the short maturity of these financial instruments.
The estimated fair values of the Company's financial instruments at
December 31, 1996 and 1995, are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995
-------------------------- --------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 12,413 12,413 8,916 8,916
Interest-bearing deposits with
financial institutions 3,892 3,892 2,642 2,642
Federal funds sold 1,150 1,150 -- --
Securities 228,155 228,205 226,450 226,706
Loans, net 100,825 99,410 80,499 79,688
Accrued interest receivable 3,449 3,449 3,911 3,911
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
1996 1995
-------------------------- --------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Financial liabilities:
Deposits:
Demand - noninterest-bearing $ 31,785 31,785 28,435 28,435
NOW accounts 74,984 74,984 68,089 68,089
Money market and savings 45,484 45,484 46,206 46,206
Certificates of deposit and other
time deposits 168,420 168,692 150,881 151,620
Accrued interest payable 1,144 1,144 1,117 1,117
</TABLE>
(14) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Banks are a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit and standby letters of credit. Those instruments involve, to
varying degrees, elements of credit risk in excess of the amount
recognized in the balance sheets. The contractual or notional amounts of
those instruments reflect the extent of involvement the Bank has in
particular classes of financial instruments.
The Banks' exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual or
notional amount of those instruments. The Banks use the same credit
policies in making commitments and conditional obligations as it does for
on-balance sheet instruments.
Contractual or
notional amount
at December 31, 1996
--------------------
Financial instruments whose contractual amounts
represent credit risk:
Commitments to extend credit $ 12,212,000
Standby letters of credit 327,000
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Banks
evaluate each customer's creditworthiness on a case-by-case basis. The
amount and nature of collateral obtained, if deemed necessary by the
Banks upon extension of credit, is based on management's credit
evaluation of the counter-party. Such collateral may include accounts
receivable; inventory; property, plant, and equipment; real estate; and
income-producing commercial and oil and gas properties.
42
<PAGE>
Standby letters of credit are conditional commitments issued by the Banks
to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private short-term
borrowing arrangements. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan
facilities to customers. The Banks hold collateral supporting those
commitments for which collateral is deemed necessary.
(15) CONCENTRATION OF CREDIT RISK
The Banks grant real estate, commercial, and industrial loans to customers
primarily in Henderson, Texas, and surrounding areas of east Texas.
Although the Banks have a diversified loan portfolio, a substantial
portion (approximately 44% at December 31, 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 Banks typically require
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 Banks.
The Banks had $3,293,000 and $2,642,000 on deposit with the Federal Home
Loan Bank of Dallas at December 31, 1996 and 1995, respectively.
(16) PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
The financial information below summarizes the financial position of
Henderson Citizens Bancshares, Inc. (parent company only) as of December
31, 1996 and 1995, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1996.
BALANCE SHEETS
(Parent Only)
December 31, 1996 and 1995
(dollars in thousands)
ASSETS 1996 1995
------ ---- ----
Cash in subsidiary bank $ 1,062 346
Investment in subsidiaries 32,791 31,181
Other assets 13 25
------ ------
Total assets $ 33,866 31,552
------ ------
------ ------
43
<PAGE>
BALANCE SHEETS, CONTINUED
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
------------------------------------ ---- ----
<S> <C> <C>
Liabilities:
Dividends declared $ 341 346
Accounts payable 26 --
Other liabilities 1,511 --
-------- --------
1,878 346
Stockholders' equity:
Preferred stock -- --
Common stock 10,800 10,800
Capital surplus 5,400 5,400
Undivided profits 16,825 14,859
Net unrealized gains (losses) on securities available
for sale (703) 147
Less treasury stock (334) --
-------- --------
Total stockholders' equity 31,988 31,206
-------- --------
Total liabilities and stockholders' equity $ 33,866 31,552
-------- --------
-------- --------
</TABLE>
STATEMENTS OF INCOME
(Parent Only)
Years ended December 31, 1996, 1995, and 1994
(dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Dividends, including dividends paid by subsidiary
banks $ 4,368 1,384 1,389
Operating expenses 27 -- --
------ ------ ------
Income before income tax benefit and
equity in undistributed earnings of
subsidiaries 4,341 1,384 1,389
Income tax expense 12 23 12
------ ----- ------
Income before equity in undistributed
earnings of subsidiaries 4,329 1,361 1,377
Equity in undistributed earnings of subsidiaries (985) 1,103 1,258
------ ----- ------
Net income $ 3,344 2,464 2,635
------ ----- ------
------ ----- ------
</TABLE>
44
<PAGE>
HENDERSON CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
STATEMENTS OF CASH FLOWS
(Parent Only)
Years ended December 31, 1996, 1995, and 1994
(dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net income $ 3,344 2,464 2,635
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiaries 985 (1,103) (1,258)
Decrease in other assets 12 11 12
Increase (decrease) in accounts payable and
dividends declared 21 -- 1
------ ------ ------
Net cash provided by operating
activities 4,362 1,372 1,390
Investing activities - purchase of subsidiary (1,934) -- --
Financing activities:
Cash dividends paid (1,378) (1,382) (1,383)
Purchase of treasury stock (334) -- --
------ ------ ------
Net cash used by financing activities (1,712) (1,382) (1,383)
Increase (decrease) in cash 716 (10) 7
Cash at beginning of year 346 356 349
------ ------ ------
Cash at end of year $ 1,062 346 356
------ ------ ------
------ ------ ------
</TABLE>
45
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
HENDERSON CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
June 30, 1997 and December 31, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Assets 1997 1996
------ -------- --------
<S> <C> <C>
Cash and due from banks $ 8,028 12,413
Interest-bearing deposits with
other financial institutions 6,000 3,892
Federal funds sold 600 1,150
Securities:
Held-to-maturity, approximate market
value of $75,748 in 1997 and
$82,465 in 1996 75,802 82,415
Available-for-sale 144,467 145,740
-------- --------
220,269 228,155
Loans, net 102,146 100,825
Premises and equipment, net 4,801 3,751
Accrued interest receivable 3,403 3,449
Other assets 3,933 3,195
-------- --------
$349,180 356,830
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Demand - non interest-bearing 32,501 31,785
Interest-bearing transaction accounts 71,370 74,984
Money market and savings 44,091 45,484
Certificates of deposit and other
time deposits 165,061 168,420
-------- --------
Total deposits 313,023 320,673
-------- --------
Accrued interest payable 1,586 1,144
Notes payable 844 1,511
Other liabilities 1,140 1,514
-------- --------
316,593 324,842
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 10,800 10,800
Surplus 5,400 5,400
Retained earnings 17,717 16,825
Net unrealized losses on securities
available for sale, net of income taxes (824) (703)
-------- --------
33,093 32,322
Less treasury stock, 43,920 shares in
1997 and 29,700 shares in 1996, at
cost (506) (334)
-------- --------
Total stockholders' equity 32,587 31,988
Commitments and contingencies
-------- --------
$349,180 356,830
======== ========
</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 Six months
ended June 30 ended June 30
----------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income:
Loans $ 2,129 1,756 4,224 3,400
Securities
Taxable - available-for-sale 2,336 2,775 4,530 5,585
Taxable - held-to-maturity 592 1,326
Tax-exempt 462 389 899 780
Federal funds sold 33 17 86 71
Interest-bearing deposits with other
financial institutions 53 49 158 167
---------- ---------- ---------- ----------
Total interest income 5,605 4,986 11,223 10,003
---------- ---------- ---------- ----------
Interest expense:
Deposits:
Transaction accounts 473 476 990 1,007
Money market and savings 317 316 639 646
Certificates of deposit and
other time deposits 2,112 1,899 4,192 3,845
Other 13 -- 26 --
---------- ---------- ---------- ----------
Total interest expense 2,915 2,691 5,847 5,498
---------- ---------- ---------- ----------
Net interest income 2,690 2,295 5,376 4,505
Provision for loan losses 83 70 170 120
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 2,607 2,225 5,206 4,385
---------- ---------- ---------- ----------
Other income:
Gains (losses) on securities
transactions, net (26) 123 (64) 763
Income from fiduciary activities 150 154 288 318
Service charges, commissions,
and fees 449 331 892 649
Other 83 92 158 191
---------- ---------- ---------- ----------
Total other income 656 700 1,274 1,921
---------- ---------- ---------- ----------
Other expenses:
Salaries and employee benefits 1,404 1,182 2,666 2,245
Occupancy and equipment 253 212 486 418
Regulatory assessments 34 46 60 86
Other 632 504 1,235 994
---------- ---------- ---------- ----------
Total other expenses 2,323 1,944 4,447 3,743
---------- ---------- ---------- ----------
Income before income taxes 940 981 2,033 2,563
Income tax expense 204 230 462 658
---------- ---------- ---------- ----------
Net income $ 736 751 1,571 1,905
========== ========== ========== ==========
Net income per common share $ .35 .35 .74 .88
========== ========== ========== ==========
Average number of shares
outstanding 2,121,640 2,160,000 2,125,946 2,160,000
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
HENDERSON CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(unaudited)
Six months ended June 30, 1997 and 1996
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Net Unrealized
Losses on
Securities Total
Preferred Common Retained Available Treasury Stockholder's
Stock Stock Surplus Earnings for Sale Stock Equity
--------- ------ ------- -------- -------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 $ -- 10,800 5,400 14,859 147 -- 31,206
Net income -- -- -- 1,905 -- -- 1,905
Net change in unrealized losses
on securities available for sale -- -- -- -- (1,401) -- (1,401)
Cash dividends ($.32 per share) -- -- -- (691) -- -- (691)
--------- ------ ------- -------- -------------- -------- -------------
Balances at June 30, 1996 $ -- 10,800 5,400 16,073 (1,254) -- 31,019
========= ====== ======= ======== ============== ======== =============
Balances at December 31, 1996 $ -- 10,800 5,400 16,825 (703) (334) 31,988
Net income -- -- -- 1,571 -- -- 1,571
Net change in unrealized losses
on securities available for sale -- -- -- -- (121) -- (121)
Cash dividends ($.32 per share) -- -- -- (679) -- -- (679)
Purchase of 14,220 shares
of treasury stock -- -- -- -- -- (172) (172)
--------- ------ ------- -------- -------------- -------- -------------
Balances at June 30, 1997 $ -- 10,800 5,400 17,717 (824) (506) 32,587
========= ====== ======= ======== ============== ======== =============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
HENDERSON CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(unaudited)
Six months ended June 30, 1997 and 1996
(dollars in thousands)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Operating activities:
Net income $ 1,571 1,905
Adjustments to reconcile net income
to net cash provided by operating
activities:
Net amortization of securities 190 334
Net (gains) losses on
securities transactions 64 (763)
Provision for loan losses 170 120
Depreciation and amortization 296 225
Decrease in accrued interest
receivable 46 681
Increase in other assets (775) (8)
Increase (decrease) in accrued
interest payable 442 (62)
Decrease in other liabilities (374) (179)
------- -------
Net cash provided by operating
activities 1,630 2,253
------- -------
Investing activities:
Proceeds from maturities and paydowns
of held-to-maturity securities 11,568 4,469
Purchases of held-to-maturity
securities (5,130) (4,787)
Proceeds from sales of
available-for-sale securities 14,958 40,662
Proceeds from maturities and
paydowns of available-for-sale
securities 5,757 16,848
Purchases of available-for-sale
securities (19,705) (44,521)
Net (increase) in loans (1,490) (6,560)
Purchases of bank premises and
equipment (1,247) (239)
------- -------
Net cash provided by (used
in) investing activities 4,711 5,872
------- -------
Financing activities:
Net decrease in deposits (7,650) (6,725)
Payment on notes payable (667) --
Cash dividends paid (679) (691)
Purchase of treasury stock (172) --
------- -------
Net cash used in financing
activities (9,168) (7,416)
------- -------
Increase (decrease) in cash
and cash equivalents (2,827) 709
Cash and cash equivalents at beginning
of period 17,455 11,558
------- -------
Cash and cash equivalents at end of period $14,628 12,267
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
ACTIVITIES
Income taxes paid, net of refunds $ 590 555
======= =======
Interest paid $ 5,405 5,560
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
HENDERSON CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1997
(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, 1996 and 1995, and for each of the years in the three year
period ended December 31, 1996 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 June 30, 1997, 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 $ 7,050 49 (65) 7,034
U.S. Government agencies 10,179 40 (45) 10,174
State and municipal 33,552 285 (108) 33,729
Mortgage-backed securities
and collateralized
mortgage obligations 24,021 15 (227) 23,809
Other securities 1,000 2 -- 1,002
--------- ---------- ---------- -------
$ 75,802 391 (445) 75,748
========= ========== ========== =======
</TABLE>
The amortized cost and approximate market values (carrying value) of
securities available-for-sale at June 30, 1997, 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 $ 51,957 184 (109) 52,032
U.S. Government agencies 22,237 28 (92) 22,173
Other securities 368 -- -- 368
Mortgage-backed securities
and collateralized
mortgage obligations 71,154 446 (1,705) 69,895
--------- ---------- ---------- -------
$ 145,716 658 (1,906) 144,468
========= ========== ========== =======
</TABLE>
6
<PAGE>
HENDERSON CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1997
(3) LOANS AND ALLOWANCE FOR LOAN LOSSES
-----------------------------------
The composition of the Company's loan portfolio is as follows (in thousands
of dollars):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------- -----------
<S> <C> <C>
Commercial and industrial $ 25,225 23,863
Real estate mortgage 48,545 46,211
Installment and other 30,569 33,111
--------- ----------
Total 104,339 103,185
Less:
Allowance for loan losses (1,196) (1,146)
Unearned discount (998) (1,214)
--------- ----------
Loans, net $ 102,145 100,825
========= ==========
</TABLE>
Changes in the allowance for loan losses for the six months ended June 30,
1997 and 1996 are summarized as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
Balance, January 1 $ 1,146 1,019
Provision charged to
operating expense 170 120
Loans charged off (176) (57)
Recoveries on loans 56 39
--------- ----------
Balance, June 30 $ 1,196 1,121
========= ==========
</TABLE>
7
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF HENDERSON CITIZENS BANCSHARES, INC.
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
The following discussion and analysis of the financial condition and results of
operations of the Company and its primary bank subsidiaries, Citizens National
Bank and First State Bank, 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 six months of 1997 was $1,571,000 compared to
$1,905,000 for the same period in 1996 primarily caused by changes in gains and
losses on securities transactions. The decline in net income was offset by the
acquisition of Waskom Bancshares, Inc., and its majority owned subsidiary, First
State Bank, Waskom in late 1996 and the establishment of a trust office in
Corsicana in March, 1997 (see "Acquisitions" below). During the first six
months of 1997, net interest income increased due to increased loan demand and
improved spreads and margins. The Company made a provision of $170,000 to the
allowance for loan losses during the first six months of 1997. A provision of
$120,000 was made for loan losses during the same period in 1996. The Company
experienced losses on securities transactions totaling approximately $64,000 in
the first six months of 1997 compared to gains of $763,000 in the first six
months of 1996. Other income, excluding gains on securities transactions, for
the first six months of 1997 was $1,338,000 compared to $1,158,000 for the same
period in 1996 due to increased volumes. Total other expenses for the first six
months of 1997 were $4,447,000 compared to $3,743,000 for the same period in
1996. Income tax expense for the first six months of 1997 and 1996 was $462,000
and $658,000, respectively.
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%. The remaining balance on the note payable as
of June 30, 1997 is $844,000. This transaction resulted in approximately
$1,337,000 in goodwill, which is being 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.
On March 24, 1997, the Company expanded its trust operations by establishing a
trust department in Corsicana, Texas. Three new employees were hired as a
result of this transaction.
NET INTEREST INCOME
- -------------------
For the six months ended June 30, 1997, net interest income was $5,376,000
compared to $4,505,000 for the first six months of 1996. Approximately $468,000
of the increase in net interest income is due to the Waskom acquisition. The
remainder of the increase is the result of an increase in loan volumes and
improved net interest margins and spreads.
Net interest income for the three month period ended June 30, 1997 was
$2,690,000 compared to $2,295,000 in 1996. Approximately $240,000 of the
increase in 1997 is a result of the Waskom acquisition. The remainder of the
increase is the result of improved loan demand and improved net interest margins
and spreads.
PROVISION FOR LOAN LOSSES
- -------------------------
During the first six months of 1997, the Company increased its allowance for
loan losses through a provision of $170,000. The Company increased its allowance
for loan losses during the same period of 1996 by $120,000. The Company
experienced net charge offs of $120,000 in the first six months of 1997 compared
to net charge offs of $18,000 in the same period in 1996.
8
<PAGE>
For the three month period ended June 30, 1997, the Company increased its
allowance through a provision of $83,000. The Company increased its allowance
for loan losses during the same period in 1996 by $70,000.
See additional information related to the Company's loan operations in the
Allowance for Loan Loss section below.
OTHER INCOME AND EXPENSES
- -------------------------
Non-interest income, excluding securities losses was $1,338,000 for the first
six months of 1997 as compared to $1,158,000 in the first six months of 1996.
This increase is due to increases in service charges and volumes. Approximately
$106,000 is related to the Waskom acquisition. The Company experienced losses
on securities transactions for the first six months of 1997 of $64,000 which
compares to gains on securities transactions for the first six months of 1996 of
$763,000. The gain in 1996 was the result of the sale of certain taxable
securities consistent with the Company's portfolio management policy. Other
expenses for the six month period ended June 30, 1997 were $4,447,000 compared
to $3,743,000 during the same period in 1996. The increase is due primarily to
general salary and benefit increases. Approximately $423,000 of the increase in
other expenses is related to the Waskom acquisition, and approximately $58,000
is related to the establishment of the trust office in Corsicana.
For the three months ended June 30, 1997, non-interest income, excluding
securities losses was $682,000 compared to $577,000 for the same period in 1996
due primarily from increases in service charges. The Company experienced losses
on securities transactions in the three months ended June 30, 1997 of
approximately $26,000 compared to gains on securities transactions of $123,000
for the three months ended June 30, 1996.
INCOME TAXES
- ------------
Income tax expense for the first six months of 1997 was $462,000, compared to
$658,000 in the same period in 1996. The effective tax rate for the first six
months of 1997 and 1996, respectively, was 22.7% and 25.7%. In 1996, the higher
effective rate was due to the large gain on securities transactions and its
effect on tax-exempt income as a percent of income. The effective tax rate
decreased in 1997 due to the effect of increased tax exempt income from
municipal securities.
Income tax expense for the three months ended June 30, 1997 and June 30, 1996
were $204,000 and $230,000, respectively.
FINANCIAL CONDITION
- -------------------
The Company's total assets at June 30, 1997 of $349,180,000 decreased from the
total assets at December 31, 1996 of $356,830,000. Total deposits were
$313,023,000 at June 30, 1997, compared to the December 31, 1996 total of
$320,673,000.
Equity capital of the Company, excluding unrealized gains or losses on
securities available for sale, as a percentage of total assets was 9.6% at June
30, 1997 compared to 9.2% at December 31, 1996. The risk-based Tier I and Tier
II capital ratios and the leverage ratio of Citizens National Bank amounted to
24.3%, 25.2% , and 9.2%, respectively at June 30, 1997 compared to 23.5%,
24.4%, and 9.0%, respectively, at December 31, 1996. At June 30, 1997, First
State Bank had Tier I and Tier II capital ratios and a leverage ratio of 27.1%,
27.5%, AND 9.1%, RESPECTIVELY, COMPARED TO 25.3%, 25.5%, AND 8.9%, RESPECTIVELY
AT DECEMBER 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At June 30 1997, cash and cash equivalents for the Company of $14,628,000
decreased from the December 31, 1996 amount of $17,455,000. The Company's
stockholders' equity of $32,587,000 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 1996.
9
<PAGE>
ALLOWANCE FOR LOAN LOSSES
- -------------------------
The allowance for loan losses at June 30, 1997 and December 31,1996 was 1.15%
and 1.11% 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 June 30,
1997 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, 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 management's 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 Six Months Ended
June 30,
1997 1996
------ ------
<S> <C> <C>
Balance at beginning of period $1,146 1,019
Charge-offs:
Commercial, financial, and agricultural 57 10
Real estate-mortgage 1 --
Installment loans to individuals 118 47
------ ------
176 57
Recoveries:
Commercial, financial, and agricultural 32 20
Installment loans to individuals 24 19
------ ------
56 39
------ ------
Net charge-offs 120 18
------ ------
Additions charged to operations 170 120
------ ------
Balance at end of period $1,196 1,121
====== ======
Ratio of net charge-offs during the period
to average loans outstanding during the
period .10% .01%
====== ======
</TABLE>
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.
10
<PAGE>
As of June 30, 1997 and 1996, the Company had $92,000 in nonaccrual loans. The
total of accruing loans which are contractually past due 90 days or more as to
principal or interest at June 30, 1997 is $18,000 compared to $67,000 as of June
30, 1996. Other real estate totaled $175,000 at June 30, 1997. At June 30,
1996, the Company did not have any other real estate.
The following is a summary of the Company's problem loans as of June 30, 1997
and 1996.
<TABLE>
<CAPTION>
At June 30,
1997 1996
---- ----
(dollars in thousands)
<S> <C> <C>
Nonaccrual loans $ 92 92
Restructured loans -- --
Other impaired loans -- --
Other real estate 175 --
---- ----
Total nonperforming loans 267 92
==== ====
Loans past due 90+ days and still 18 67
accruing
==== ====
Other potential problem loans -- --
==== ====
Income that would have been recorded in
accordance with original terms 5 2
Less income actually recorded -- --
---- ----
Loss of income $ 5 2
==== ====
</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
46.5% at June 30, 1997) 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 note 3 to
the consolidated financial statements.
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.
11
