<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________________ to ____________________
For Quarter Ended June 30, 1995 Commission File Number 0-8037
VICTORIA BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-1756447
(State or other jurisdiction of (I.R.S.Employer Identification Number)
incorporation or organization)
One O'Connor Plaza, Victoria, Texas 77902
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (512)573-9432
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of August 1, 1995
8,272,314 shares of common stock, $1.00 par value, issued and outstanding
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VICTORIA BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
------------- ------------
ASSETS (Unaudited)
<S> <C> <C>
Cash and Due From Banks $ 124,440 $ 118,713
Interest-Bearing Deposits with Banks 11 379
Investment Securities Held to Maturity 739,258 766,621
Investment Securities Available for Sale 82,518 121,477
---------- ----------
Total Investment Securities (Market Value of
$821,262 in June, 1995 and $869,387 in
December, 1994) 821,776 888,098
Trading Accounts 394 166
Federal Funds Sold and Other Short-Term Investments 141,612 121,087
Loans:
Total Loans, Net of Unearned Discount 618,058 598,076
Allowance for Loan Losses (9,696) (10,024)
---------- ----------
Net Loans 608,362 588,052
Premises and Equipment, Net 45,224 44,259
Other Real Estate and Other Loan Related Assets, Net 1,567 2,973
Other Assets 51,305 50,683
---------- ----------
TOTAL ASSETS $1,794,691 $1,814,410
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 360,426 $ 375,829
Interest-Bearing Transactional Accounts 588,602 644,037
Time 590,381 506,877
---------- ----------
Total Deposits 1,539,409 1,526,743
Federal Funds Purchased and Short-Term Borrowings 60,724 96,812
Long-term Debt 0 1,720
Other Liabilities 9,899 9,905
---------- ----------
Total Liabilities 1,610,032 1,635,180
---------- ----------
Stockholders' Equity:
Preferred Stock - $1 Par Value, 1,000,000 Shares
Authorized, None Outstanding; $7.50 Par Value
Authorized 1,000,000 Shares, Issued and Out-
standing 69,256 at December 31, 1994 0 519
Common Stock - $1 Par Value; Authorized 35,000,000
Shares; Issued and Outstanding 8,272,314 at
June 30, 1995 and 8,269,060 at December 31, 1994 8,272 8,269
Surplus 108,208 108,160
Unrealized Holding Losses, Net of Tax (44) (1,964)
Retained Earnings 68,223 64,246
---------- ----------
Total Stockholders' Equity 184,659 179,230
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,794,691 $1,814,410
========== ==========
</TABLE>
2
<PAGE> 3
VICTORIA BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATION
(In Thousands, Except For Per Share Amounts) (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
--------------------- --------------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $28,326 $25,301 $14,339 $13,205
Interest on Securities Held to Maturity 21,162 20,155 10,697 9,704
Interest on Securities Available for Sale 2,475 2,355 1,093 1,256
Interest on Trading Accounts 9 41 5 20
Interest on Federal Funds Sold and
Other Short-Term Investments 4,067 3,007 2,331 1,590
------- ------- ------- -------
TOTAL INTEREST INCOME 56,039 50,859 28,465 25,775
------- ------- ------- -------
INTEREST EXPENSE
Interest-Bearing Transactional Accounts 8,132 7,407 4,005 3,755
Time Deposits 13,605 8,556 7,666 4,312
Federal Funds Purchased and Short-Term Borrowings 2,187 1,856 1,038 944
Long-Term Debt 31 11 4 11
------- ------ ------- -------
TOTAL INTEREST EXPENSE 23,955 17,830 12,713 9,022
------- ------ ------- -------
NET INTEREST INCOME 32,084 33,029 15,752 16,753
Provision for Loan Losses 15 15 5 15
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 32,069 33,014 15,747 16,738
------- ------- ------- -------
NONINTEREST INCOME
Service Charges and Other Fees 7,965 7,433 4,159 3,755
Trust Services Income 3,399 2,287 1,713 1,086
Data Processing Income 1,433 1,610 719 809
Securities Gains (Losses) 122 (264) (9) (227)
Other Operating Income 1,706 2,293 840 1,152
------- ------- ------- -------
TOTAL NONINTEREST INCOME 14,625 13,359 7,422 6,575
------- ------- ------- -------
NONINTEREST EXPENSE
Salaries, Wages, and Employee Benefits 18,065 16,751 8,921 8,383
Net Occupancy Expense 3,551 3,452 1,764 1,762
Equipment Rental, Depreciation & Maintenance 2,407 2,509 1,243 1,251
FDIC Insurance 1,673 1,677 836 839
Other Operating Expense 9,977 9,107 5,287 4,802
------- ------- ------- -------
TOTAL NONINTEREST EXPENSE 35,673 33,496 18,051 17,037
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 11,021 12,877 5,118 6,276
Federal Income Tax Provision 3,651 4,525 1,720 2,186
------- ------- ------- ------
NET INCOME $ 7,370 $ 8,352 $ 3,398 $ 4,090
======= ======= ======= =======
PRIMARY EARNINGS PER SHARE $ 0.89 $ 1.01 $ 0.41 $ 0.49
======= ======= ======= =======
</TABLE>
3
<PAGE> 4
VICTORIA BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1995 1994
------ ------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 7,370 $ 8,352
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Loan Losses 15 15
Depreciation and Amortization 4,579 6,312
Realized Securities (Gains) Losses (122) 264
Decrease (Increase) in Trading Account Securities (228) 609
Origination of Available for Sale Loans (10,827) (19,902)
Proceeds from Sale of Available for Sale Loans 7,591 20,093
Increase in Accrued Receivables (485) (9,247)
Decrease in Accrued Payables (1,158) (2,876)
-------- --------
Net Cash Provided by Operating Activities 6,735 3,620
INVESTING ACTIVITIES
Proceeds from Maturities of Investment Securities
Held to Maturity 175,745 158,888
Proceeds from Maturities of Investment Securities
Available for Sale 8,085 1,067
Proceeds from Sales of Investment Securities
Available for Sale 50,456 39,492
Purchase of Investment Securities Held to Maturity (148,596) (81,912)
Purchase of Investment Securities Available for Sale (18,280) (47,475)
Net Payment for Acquisition Including Cash Acquired 2 0
Net Increase in Federal Funds Sold (20,525) (2,346)
Net Decrease in Other Short-Term Investments 216 31
Net Increase in Loans Held for Investment (16,619) (38,868)
Proceeds from Sales of Premises and Equipment 473 691
Purchases of Premises and Equipment (3,330) (3,442)
-------- --------
Net Cash Provided (Used) by Investing Activities 27,627 (26,126)
FINANCING ACTIVITIES
Net Decrease in Transactional Accounts (70,838) (33,906)
Net Increase (Decrease) in Time Deposits 83,504 (10,371)
Net Decrease in Federal Funds Purchased (26,525) (19,050)
Net Decrease in Other Short-Term Borrowings (9,563) (9,921)
Proceeds from Long-term Debt 0 1,955
Payments of Long-Term Debt (1,720) 0
Cash Dividends (3,393) (2,070)
Proceeds from Issuance of Common Stock 51 274
Redemption of Preferred Stock (519) 0
-------- --------
Net Cash Used by Financing Activities (29,003) (73,089)
Increase (Decrease) in Cash and Cash Equivalents 5,359 (43,343)
Cash and Cash Equivalents at Beginning of Period:
Cash and Due From Banks 118,713 148,907
Interest-Bearing Deposits with Banks 379 346
-------- --------
Total 119,092 149,253
Cash and Cash Equivalents at End of Period:
Cash and Due From Banks 124,440 104,860
Interest-Bearing Deposits with Banks 11 1,050
-------- --------
Total $124,451 $105,910
======== ========
Supplementary Information to Statements of Cash
Flows:
Interest Expense Payments $ 21,951 $ 18,123
Federal Income Tax Payments $ 3,268 $ 3,175
</TABLE>
4
<PAGE> 5
VICTORIA BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) The consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations,
although the Company believes that the disclosures are adequate to
make a fair presentation of the results of the interim periods. It is
suggested that these financial statements be read in conjunction with
the financial statements and the notes thereto in the Company's latest
Annual Report on Form 10-K. All information has been restated to
reflect the June 30, 1995, acquisition by the Company of United
Bancshares, Inc. ("United"), parent company of Rosenberg Bank & Trust
("Rosenberg"), accounted for as a pooling-of-interests. See Note 10.
On January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114 "Accounting by Creditors for Impairment
of a Loan" ("SFAS 114"), as amended by Statement of Financial
Accounting Standards No. 118 "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosure" ("SFAS 118").
Together, these standards require that when a loan is impaired, a
creditor shall measure impairment based on the present value of
expected future cash flows discounted at the loan's effective interest
rate, the fair value of the collateral if the loan is collateral
dependent or the loan's observable market price. A loan is considered
impaired when, based on current information and events, it is probable
that a creditor will be unable to collect all amounts due according to
the contractual terms of the loan agreement. The adoption of this
accounting standard did not have a material effect on the Company's
financial position or results of operations since the Company's
previous recognition and measurement policies regarding nonperforming
loans were materially consistent with the accounting requirements for
impaired loans.
(2) Principles of Consolidation
The consolidated financial statements for the Company include the
accounts of Victoria Bankshares, Inc., its subsidiary bank, and its
nonbanking subsidiaries, consolidated in accordance with generally
accepted accounting principles. All major items of income and expense
are recorded on the accrual basis of accounting, and all significant
intercompany accounts and transactions have been eliminated. In the
opinion of Management, the financial statements present fairly the
results of the periods presented. These statements have not been
audited by independent public accountants and are subject to year-end
audit and adjustment. Certain reclassifications have been made to
prior period amounts to conform with current period presentations.
5
<PAGE> 6
(3) Allowance for Loan Losses
An analysis of the allowance for loan losses for the six months ended
June 30, 1995 and 1994, follows (in thousands):
<TABLE>
<CAPTION>
June 30,
-----------------------
1995 1994
-------- --------
<S> <C> <C>
Balance at beginning of period $10,024 $ 9,974
Provision charged to operating expense 15 15
Loans charged off (627) (354)
Recoveries 284 384
------- -------
Balance at end of period $ 9,696 $10,019
======= =======
</TABLE>
On January 1, 1995, the Company adopted SFAS 114 as amended by SFAS
118. These standards require that when a loan is impaired, a
creditor shall measure impairment based on the present value of
expected future cash flows discounted at the loan's effective interest
rate, on a loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. The Company considers
consumer loans with balances less than $50,000 to be smaller-balance
homogeneous loans which are exempt from SFAS 114. The Company has
measured the impairment related to all of its impaired loans using the
fair value of the loan's collateral. The Company classifies loans as
impaired when it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. Loans which are 90 days or over past due are considered
impaired loans unless they are well secured and are in the process of
collection. Amounts received on impaired loans are applied, for
financial accounting purposes, first to principal and then to interest
after all principal has been collected. When collection of an
impaired loan is considered remote, the loan is charged-off against
the reserve for loan loss. The Company had previously measured the
allowance for credit losses using methods similar to the prescribed
method in SFAS No. 114. As a result, no additional provision was
required by the adoption of this pronouncement.
At June 30, 1995, the recorded investment in loans that are considered
impaired was $8.2 million. Included in this amount were $3.0 million
of impaired loans for which the related allowance for loan losses was
$1.3 million. Impaired loans of $5.2 million were carried at fair
value and as a result do not have a related allowance for loan losses.
The average recorded investment in impaired loans during the six
months ended June 30, 1995, was approximately $8.2 million and $8.0
million for the three months ended June 30, 1995.
The balance and the effect on interest income of impaired and
restructured loans by category for the six months ended June 30, 1995,
shown below. Due to the performing status of the troubled debt
restructurings as of the adoption of SFAS 114 they are not considered
impaired and, therefore, are presented separately in the following
table (in thousands):
6
<PAGE> 7
<TABLE>
<CAPTION>
June 30, 1995
--------------------------------
Impaired Restructured
-------- ------------
<S> <C> <C>
Principal amount at June 30, 1995 $8,198 $592
====== ====
Gross amount of interest that would
have been recorded at original rate 383 21
Amount of payments reflected in income 306 12
------ ----
Net impact on interest income $ 77 $ 9
====== ====
</TABLE>
At June 30, 1995 and 1994, the Company had $592 thousand and $643
thousand, respectively, of loans that resulted from troubled debt
restructurings.
(4) Allowance for Foreclosed Assets
An analysis of the allowance for foreclosed assets for the six months
ended June 30, 1995 and 1994 follows (in thousands):
<TABLE>
<CAPTION>
June 30,
---------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Balance at Beginning of Period $119 $159
Provision Charged to Operating Expense 0 20
Losses Charged to the Allowance (17) (41)
---- ----
Balance at the End of Period $102 $138
==== ====
</TABLE>
Foreclosed assets are comprised of property acquired through a
foreclosure proceeding or acceptance of a deed-in-lieu of foreclosure.
In accordance with SFAS 114 as amended, loan balances and
income/expense related to loans previously classified as in-substance
foreclosure, but for which the Company had not taken possession of the
collateral, have been reclassified to loans for all periods presented.
As of the periods presented, there were no in-substance foreclosures
for which the Company had taken possession of the collateral included
in foreclosed assets.
(5) Investment Securities
Investment securities are classified in one of three categories:
Held to Maturity. These securities are stated at cost adjusted for
amortization of premium and accretion of discount on a level yield
basis. Temporary changes in the market value of these investment
securities are not recognized since it is Management's intention and
the Company has the ability to hold these securities to maturity.
Available for Sale. These securities are stated at cost adjusted for
market value fluctuations and the amortization of premium and
accretion of discount on a level yield basis. Unrealized gains and
losses created by changes in the market values of these securities are
recognized as an adjustment to stockholders' equity, net of tax. The
specific historical cost method is used in determining realized gains
and losses from the sale of securities.
7
<PAGE> 8
Trading Accounts. Trading account assets are carried at market value.
Realized and unrealized gains and losses on trading accounts are
recognized currently in other operating income.
During the first six months of 1995, the Company had proceeds from
sales of investment securities available for sale of $50.5 million,
which includes net realized gains of $122 thousand. There were no
transfers between the held to maturity and the available for sale
category during the first six months of 1995 or 1994. The following
table shows as of June 30, 1995, the distribution of the Company's
investment securities (in thousands):
<TABLE>
<CAPTION>
Due Due
Due After One After Five Due
Within But Within But Within After
One Year Five Years Ten Years Ten Years Total
-------- ---------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
Amortized Cost:
Securities Held to Maturity $204,828 $351,639 $49,527 $133,264 $739,258
Securities Available for Sale 55,806 13,895 1,608 11,275 82,584
-------- -------- ------- -------- --------
Total 260,634 365,534 51,135 144,539 821,842
Market Value 260,321 364,492 51,090 145,359 821,262
</TABLE>
(6) Common Stock and Retained Earnings
Primary earnings per share were computed using the weighted average
number of shares of common stock outstanding. The weighted average
number of shares was 8,270,047 for the six months ended June 30, 1995
and 8,222,189 for the six months ended June 30, 1994.
The Company maintains a Stock Option Plan, which was originated in
1991, pursuant to which a total of 300,000 shares of the Company's
common stock has been reserved for issuance. To date, options to
acquire 279,839 shares of common stock have been granted and 229,529
remain outstanding. The stock options did not have a material
dilutive effect on the calculation of earnings per share and were,
therefore, not included in such calculations.
(7) Federal Income Taxes
At June 30, 1995, the Company's provision for federal income taxes was
$3.7 million compared to $4.5 million at June 30, 1994. The Company's
net deferred tax asset balance at June 30, 1995, was $969 thousand.
This net deferred tax asset is composed of the expected tax benefit
from the reversal of temporary differences between tax and book net
income. The existing net temporary differences will reverse during
future periods. The Company has not recorded a valuation allowance
against the deferred tax asset because it expects to fully utilize
these future benefits.
8
<PAGE> 9
The provision for federal income tax was as follows (in thousands):
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
1995 1994
------- ------
<S> <C> <C>
Current Expense $2,963 $4,823
Deferred Expense 688 298
------ ------
Total Tax Provision $3,651 $4,525
====== ======
</TABLE>
Taxes provided on consolidated income for the six months ended June
30, 1995 and 1994, were different than the amount computed by applying
the U. S. federal income tax statutory rate for the reasons noted
below (dollars in thousands):
<TABLE>
<CAPTION>
June 30,
-----------------------------------------------------
1995 1994
--------------------- ------------------------
Percent of Percent of
Pretax Pretax
Amount Income Amount Income
------- ---------- ------- ---------
<S> <C> <C> <C> <C>
Tax Provision Computed
at the Statutory Rate $3,857 35% $4,507 35%
Increase (Decrease) in
Provision Resulting From:
Tax Exempt Interest (347) (3%) (119) (1%)
Other 141 1% 137 1%
------ -- ------ --
Total Tax Provision $3,651 33% $4,525 35%
====== == ====== ==
</TABLE>
The components of and changes in the net deferred tax asset were as
follows (in thousands):
<TABLE>
<CAPTION>
Deferred
January 1, (Expense) June 30,
1995 Benefit 1995
----------- --------- -----------
<S> <C> <C> <C>
Net Tax Depreciation In Excess
of Book $(1,914) $ (52) $(1,966)
Discount Accretion (10) (1) (11)
Other Real Estate Provisions
In Excess of Realized Losses 529 (72) 457
Net Charge-Offs in Excess of
Provision for Loan Losses 3,018 (118) 2,900
Other Temporary Differences, Net 34 (445) (411)
------- ----- -------
Total Deferred Tax Asset 1,657 (688) 969
Valuation Allowance 0 0 0
------- ----- -------
Deferred Tax Asset, Net $ 1,657 $(688) $ 969
======= ===== =======
</TABLE>
(8) Statements of Cash Flows
For purposes of the statements of cash flows, the Company defines cash
and due from banks as cash and cash equivalents. Investment
securities held to maturity sold within 90 days of the stated maturity
have been treated as in-substance maturities. Also treated as
in-substance maturities are the investment securities in which the
Company has collected at least 85% of the principal outstanding at
acquisition due either to prepayments on the debt security or to
scheduled payments on a debt security payable in
9
<PAGE> 10
installments over its term. There were no securities transferred from
the held to maturity category to the available for sale category
except for an agency mortgage-back security of $810 thousand which
was acquired in the United acquisition and then subsequently sold
because it did not fall within the Company's investment policy
guidelines.
(9) Commitments and Contingencies
In the normal course of the subsidiaries' business, there are various
outstanding commitments and contingent liabilities, such as
commitments to extend credit, which are not reflected in the
accompanying financial statements. These instruments involve elements
of credit and interest rate risk in excess of the amounts recognized
in the consolidated balance sheets, but are limited to their notional
amounts. At June 30, 1995, the Company had outstanding standby
letters of credit of approximately $3,938,000 and commitments to
extend credit of approximately $154,205,000, which included
$78,550,000 of commitments to correspondent banks for federal fund
lines. The credit risks involved in these instruments are essentially
the same as those involved in extending loan facilities to customers.
The Company uses the same credit policies in making commitments and
conditional obligations as it does for normal balance sheet
instruments. The Company also has a contingent liability with respect
to the remaining balance of $6.7 million in student loans that the
Company sold with recourse in 1993. The Company has provided for
possible credit risk in each of the above transactions in its
allowance for loan losses and does not anticipate losses in excess of
such reserve as a result of these transactions.
The Company is involved in various legal proceedings that are in
various stages of litigation by the Company and its legal counsel.
Some of these actions allege "lender liability" claims on a variety of
theories and claim substantial actual and punitive damages. The
Company has determined, based on discussions with its counsel, that
any material loss in such action, individually or in the aggregate, is
remote or the damages sought, even if fully recovered, would not be
considered material. However, many of these matters are in various
stages of proceedings and further developments could cause Management
to revise its assessment of these matters.
(10) Acquisitions
On June 30, 1995, United merged with and into the Company. The merger
was consummated through the exchange of 306,383 shares of the
Company's common stock for all of the outstanding shares of common
stock of United. This transaction increased assets by approximately
$65 million and increased deposits by approximately $61 million. The
acquisition was accounted for as a pooling-of-interests. The
Company's prior period consolidated financial statements have been
restated to include the accounts of United. All intercompany accounts
have been eliminated.
10
<PAGE> 11
The effect of this acquisition was to increase previously reported
consolidated earnings by the following (in thousands):
<TABLE>
<CAPTION>
Victoria United
Bankshares, Bancshares,
Six Months Ended: Inc. Inc. Total
----------------- ----------- ----------- ---------
<S> <C> <C> <C>
June 30, 1995:
Net Interest Income $30,666 $1,418 $32,084
Net Income 7,210 160 7,370
June 30, 1994:
Net Interest Income $31,737 $1,292 $33,029
Net Income 8,201 151 8,352
Three Months Ended:
------------------
June 30, 1995:
Net Interest Income $15,032 $ 720 $15,752
Net Income 3,344 54 3,398
June 30, 1994:
Net Interest Income $16,102 $ 651 $16,753
Net Income 4,009 81 4,090
</TABLE>
In May 1995, the Company signed a Definitive Agreement to purchase
Cattlemen's Financial Services, Inc., that is expected to result in
the combination of their principal subsidiaries, Victoria Bank & Trust
and Cattlemen's State Bank. The acquisition is planned to close
during the third quarter of 1995. Cattlemen's State Bank has
approximately $110 million in total assets and two branches. This
acquisition is expected to be a cash transaction accounted for as a
purchase.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The following discussion highlights the major changes affecting the operations
and financial condition of Victoria Bankshares, Inc., and its subsidiaries (the
"Company") for the six months ended June 30, 1995.
OVERVIEW OF OPERATIONS
The Company reported net income of $7.4 million or $0.89 per share for the six
months of 1995 compared to net income of $8.4 million or $1.01 per share
reported for the same period in 1994. Second quarter net income was $3.4
million or $0.41 per share for June 30, 1995 compared to $4.1 million or $0.49
per share for the same period in 1994. The decline in net income is primarily
attributable to pressures on the net interest margin resulting from increased
funding costs. Funding costs continued to rise during the second quarter due
to the lag effect of prior increases in market interest rates on time deposits
and the shift in the deposit mix to higher-priced time deposits. Expenses
related to acquisitions and health insurance costs have partially offset the
Company's progress towards improved efficiency.
On June 30, 1995, United Bancshares, Inc., ("United") parent company of
Rosenberg Bank & Trust ("Rosenberg") merged with and into Victoria Bank & Trust
Company ("the Bank"). The merger was consummated through the exchange of
306,383 shares of the Company's common stock for all of the outstanding shares
of common stock of Rosenberg. This transaction increased assets by
approximately $65 million and increased deposits by approximately $61 million.
The acquisition was accounted for as a pooling-of-interests. The Company's
prior period consolidated financial statements have been restated to include
the accounts of this bank. All intercompany accounts have been eliminated.
In May 1995, the Company signed a Definitive Agreement to purchase Cattlemen's
Financial Services, Inc., that is expected to result in the combination of
their principal subsidiaries, Victoria Bank & Trust and Cattlemen's State Bank.
Cattlemen's State Bank has approximately $110 million in total assets and two
branches. This acquisition is expected to be a cash transaction accounted for
as a purchase.
NET INTEREST INCOME
Net interest income is the difference between income earned on interest-earning
assets and the interest expense incurred on interest-bearing liabilities. Net
interest income for the six months ended June 30, 1995, was $32.1 million, a
decrease of $945 thousand, or 2.9%, from the net interest income of $33.0
million for the same six months of 1994. The positive effect of improved asset
quality and loan growth was offset by the narrowing of the interest rate
spread, primarily resulting from increased funding costs.
The interest income on certain loans and investment securities is not subject
to Federal income tax. So that interest and rates on these types of assets can
be meaningfully compared to those that are taxable, an adjustment for taxable
equivalency, net of the estimated effect of interest expense disallowed, is
added to interest income. The taxable-equivalent adjustment was calculated
using the statutory Federal income tax rate of 35 percent. Taxable-equivalent
interest income for the six months ended June 30, 1995 and June 30, 1994, is as
follows (in thousands):
12
<PAGE> 13
<TABLE>
<CAPTION>
Six Months Ended
---------------------------
June 30, June 30,
1995 1994
----------- ----------
<S> <C> <C>
Interest Income-Book Basis $56,039 $50,859
Add Taxable-Equivalent
Interest Income 410 155
------- -------
Interest Income-Taxable
Equivalent Basis 56,449 51,014
Interest Expense 23,955 17,830
------- -------
Net Interest Income-Taxable
Equivalent Basis $32,494 $33,184
======= =======
</TABLE>
Taxable-equivalent interest income for the three months ended June 30, 1995,
and June 30, 1994, is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
June 30, June 30,
1995 1994
------------- -----------
<S> <C> <C>
Interest Income-Book Basis $28,465 $25,775
Add Taxable-Equivalent
Interest Income 205 102
------- -------
Interest Income-Taxable
Equivalent Basis 28,670 25,877
Interest Expense 12,713 9,022
------- -------
Net Interest Income-Taxable
Equivalent Basis $15,957 $16,855
======= =======
</TABLE>
Net interest income on a tax equivalent basis for the six months ended June 30,
1995, was $32.5 million, a decrease of $690 thousand or 2.1% from the net
interest income of $33.2 million for the six months of 1994. The net interest
spread is the difference between the average rates on interest-earning assets
and the average rates on interest-bearing liabilities. The interest rate
margin represents net interest income divided by average earning assets. These
ratios can also be used to analyze net interest income. Since a significant
portion of the Company's funding is derived from interest-free sources,
primarily demand deposits and total stockholders' equity, the effective rate
for all funding sources is lower than the rate paid on interest-bearing
liabilities alone. For the six months ended June 30, 1995, compared to June
30, 1994, the net interest spread was 3.29% and the net interest margin was
4.13% compared to 3.48% and 4.14%, respectively. The average interest rate
received on earning assets increased 82 basis points while the average rate
paid on interest-bearing liabilities increased 101 basis points when compared
to the first six months of 1994.
When comparing the three months ended June 30, 1995, to the three months ended
June 30, 1994, net interest income decreased $898 thousand. For the three
months ended June 30, 1995, compared to the three months ended June 30, 1994,
the net interest spread was 3.14% and the net interest margin was 4.02%
compared to 3.53% and 4.21%, respectively. The average interest rate received
on earning assets increased 75 basis points and the average rate paid on
interest-bearing liabilities increased 113 basis points when compared to the
second three months of 1994.
For the three months ended June 30, 1995, compared to the three months ended
March 31, 1995, net interest income decreased $576 thousand. For the three
months ended June 30, 1995, the net interest spread was 3.14% and the net
interest margin was 4.02% compared to 3.44% and 4.26% for the three months
ended March 31, 1995. The average interest rate received on earning assets
increased
13
<PAGE> 14
6 basis points and the average rate paid on interest-bearing liabilities
increased 36 basis points compared to the first three months of 1995.
The following tables show the calculation of the interest rate margin and
interest rate spread (dollars in thousands):
14
<PAGE> 15
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1995 June 30, 1994
-------------------------------------- ------------------------------------
Average Average Average Average
Assets Balance Interest Rate Balance Interest Rate
------ --------- -------- -------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans, Net of Unearned Discount(1) $ 605,262 $ 28,353 9.45% $ 574,570 $ 25,324 8.89%
Investment Securities
Held to Maturity:
Government, Agency & Other (2) 703,503 20,306 5.80% 770,678 19,893 5.26%
State, County & Municipal (1) 35,152 1,180 6.77% 1,808 394 8.40%
Investment Securities
Available for Sale (1)(3) 109,767 2,534 4.66% 107,633 2,355 4.41%
Trading Accounts 285 9 6.38% 1,591 41 5.20%
Federal Funds Sold and
Short-Term Investments 131,044 4,067 6.26% 161,501 3,007 3.75%
---------- ---------- ---------- ----------
Total Interest-Earning Assets 1,585,013 56,449 7.18% 1,617,781 51,014 6.36%
Noninterest-Earning Assets:
Cash and Due From Banks 116,712 122,480
Other Assets 98,589 87,617
Allowance for Loan Losses (9,951) (10,002)
---------- ----------
Total Assets $1,790,363 $1,817,876
========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Interest-Bearing Liabilities:
Interest-Bearing Transactional
Accounts $ 615,533 $ 8,132 2.66% $ 647,516 $ 7,407 2.31%
Time Deposits 548,227 13,605 5.00% 490,288 8,556 3.52%
Federal Funds Purchased and
Short-Term Borrowings 76,067 2,187 5.80% 110,714 1,856 3.38%
Long-Term Debt 988 31 6.41% 335 11 6.41%
---------- ---------- ---------- ----------
Total Interest-Bearing
Liabilities 1,240,815 23,955 3.89% 1,248,853 17,830 2.88%
Noninterest-Bearing Liabilities:
Demand Deposits 355,483 389,301
Other Liabilities (3) 10,159 8,839
---------- ----------
Total Liabilities 1,606,457 1,646,993
Stockholders' Equity (3) 183,906 170,833
---------- ----------
Total Liabilities and
Stockholders' Equity $1,790,363 $1,817,876
========== ==========
Net Interest Income $ 32,494 $ 33,184
========== ==========
Net Interest Spread 3.29% 3.48%
====== ======
Interest Rate Margin 4.13% 4.14%
====== ======
</TABLE>
(1) Interest and rates on loans and securities which are nontaxable for federal
income tax purposes are presented on a taxable equivalent basis using a
rate of 35%.
(2) Includes interest-bearing deposits with other banks.
(3) The average balance has been adjusted to exclude the effect of Statement of
Financial Accounting Standards No. 115.
15
<PAGE> 16
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1995 June 30, 1994
--------------------------------------- -------------------------------------
Average Average Average Average
Assets Balance Interest Rate Balance Interest Rate
------ ---------- -------- ------- ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans, Net of Unearned Discount(1) $ 610,882 $14,352 9.42% $ 587,812 $13,217 9.02%
Investment Securities
Held to Maturity
Government, Agency & Other (2) 700,014 10,269 5.88% 737,406 9,534 5.19%
State, County & Municipal (1) 35,031 592 6.78% 13,550 260 7.70%
Investment Securities Available
for Sale (1)(3) 99,201 1,121 4.53% 111,066 1,256 4.54%
Trading Accounts 303 5 6.62% 1,531 20 5.24%
Federal Funds Sold and
Short-Term Investments 148,542 2,331 6.29% 154,381 1,590 4.13%
----------- ------- ---------- -------
Total Interest-Earning Assets 1,593,973 28,670 7.21% 1,605,746 25,877 6.46%
Noninterest-Earning Assets:
Cash and Due From Banks 113,329 114,266
Other Assets 97,655 87,226
Allowance for Loan Losses (9,829) (10,024)
---------- ----------
Total Assets $1,795,128 $1,797,214
========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Interest-Bearing Liabilities:
Interest-Bearing Transactional
Accounts $ 600,683 $ 4,005 2.67% $ 644,725 $ 3,755 2.34%
Time Deposits 581,172 7,666 5.29% 486,162 4,312 3.56%
Federal Funds Purchased and
Short-Term Borrowings 70,115 1,038 5.94% 100,046 944 3.78%
Long-Term Debt 250 4 6.41% 666 11 6.62%
---------- ------- ---------- -------
Total Interest-Bearing
Liabilities 1,252,220 12,713 4.07% 1,231,599 9,022 2.94%
Noninterest-Bearing Liabilities:
Demand Deposits 347,237 382,793
Other Liabilities (3) 10,765 9,616
---------- ----------
Total Liabilities 1,610,222 1,624,008
Stockholders' Equity (3) 184,906 173,206
---------- ----------
Total Liabilities and
Stockholders' Equity $1,795,128 $1,797,214
========== ==========
Net Interest Income $15,957 $16,855
======= =======
Net Interest Spread 3.14% 3.53%
==== ====
Interest Rate Margin 4.02% 4.21%
==== ====
</TABLE>
(1) Interest and rates on loans and securities which are nontaxable for federal
income tax purposes are presented on a taxable equivalent basis using a
rate of 35%.
(2) Includes interest-bearing deposits with other banks.
(3) The average balance has been adjusted to exclude the effect of Statement of
Financial Accounting Standards No. 115.
16
<PAGE> 17
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1995 March 31, 1995
-------------------------------------- ------------------------------------
Average Average Average Average
Assets Balance Interest Rate Balance Interest Rate
------ ---------- -------- ------- ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans, Net of Unearned Discount(1) $ 610,882 $14,352 9.42% $ 599,579 $14,000 9.47%
Investment Securities
Held to Maturity
Government, Agency & Other (2) 700,014 10,269 5.88% 707,007 9,836 5.64%
State, County & Municipal (1) 35,031 592 6.78% 35,274 584 6.71%
Investment Securities Available
for Sale (1)(3) 99,201 1,121 4.53% 119,648 1,615 5.47%
Trading Accounts 303 5 6.62% 268 4 6.05%
Federal Funds Sold and
Short-Term Investments 148,542 2,331 6.29% 113,350 1,736 6.21%
--------- ------- ---------- -------
Total Interest-Earning Assets 1,593,973 28,670 7.21% 1,575,126 27,775 7.15%
Noninterest-Earning Assets:
Cash and Due From Banks 113,329 120,180
Other Assets 97,655 99,777
Allowance for Loan Losses (9,829) (10,074)
---------- ----------
Total Assets $1,795,128 $1,785,009
========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Interest-Bearing Liabilities:
Interest-Bearing Transactional
Accounts $ 600,683 $ 4,005 2.67% $ 630,547 $ 4,127 2.65%
Time Deposits 581,172 7,666 5.29% 514,915 5,939 4.68%
Federal Funds Purchased and
Short-Term Borrowings 70,115 1,038 5.94% 82,021 1,149 5.68%
Long-Term Debt 250 4 6.41% 1,814 27 6.41%
----------- -------- ----------- ---------
Total Interest-Bearing
Liabilities 1,252,220 12,713 4.07% 1,229,297 11,242 3.71%
Noninterest-Bearing Liabilities:
Demand Deposits 347,237 363,854
Other Liabilities (3) 10,765 9,366
----------- -----------
Total Liabilities 1,610,222 1,602,517
Stockholders' Equity (3) 184,906 182,492
----------- -----------
Total Liabilities and
Stockholders' Equity $1,795,128 $1,785,009
=========== ===========
Net Interest Income $ 15,957 $ 16,533
======== ========
Net Interest Spread 3.14% 3.44%
====== ======
Interest Rate Margin 4.02% 4.26%
====== ======
</TABLE>
(1) Interest and rates on loans and securities which are nontaxable for
federal income tax purposes are presented on a taxable equivalent basis
using a rate of 35%.
(2) Includes interest-bearing deposits with other banks.
(3) The average balance has been adjusted to exclude the effect of Statement of
Financial Accounting Standards No. 115.
17
<PAGE> 18
The amount of net interest income is the result of the relationship between the
volume of interest-earning assets and the rates earned, and the volume of
interest-bearing liabilities and the rates paid. The rate and volume
components associated with interest- earning assets and interest-bearing
liabilities can be segregated from each other to analyze the impact of these
components on the period changes in net interest income. Rate/volume variances
have been allocated to each category of interest-earning assets and
interest-bearing liabilities based on the percentage impact of rate and volume
on the total change of both components. Because of changes in the total mix of
the categories of interest-earning assets and interest-bearing liabilities, the
computations for each of the components does not equal the calculation for
interest-earning assets as a total and interest-bearing liabilities as a total.
The following tables analyze the changes attributable to the rate and volume
components of net interest income (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1995/JUNE 30, 1994 Total
(IN THOUSANDS) Net
Increase (Decrease) Due To Change In Increase
Average Volume Average Rate (Decrease)
----------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Loans $ 1,392 $1,637 $3,029
Investment Securities
Held to Maturity (873) 2,072 1,199
Investment Securities
Available for Sale 24 155 179
Trading Accounts (40) 8 (32)
Federal Funds Sold and
Short-Term Investments (650) 1,710 1,060
Interest-Earning Assets
as a Total (1,076) 6,511 5,435
Interest Expense:
Interest-Bearing
Transactional Accounts (380) 1,105 725
Time Deposits 1,104 3,945 5,049
Federal Funds Purchased and
Short-term Borrowings (707) 1,038 331
Long-term Debt 20 0 20
Interest-Bearing Liabilities
as a Total (115) 6,240 6,125
Net Interest Income (961) 271 (690)
</TABLE>
The paragraphs below describe the change in net interest income attributable to
rate and volume when comparing the six months ended June 30, 1995 to the six
months ended June 30, 1994.
The decrease in net interest income due to change in average volume is
attributable to a 2.0% decrease in the average volume of earning assets. The
decrease in average volume due to investment securities held to maturity and
fed funds sold in short-term investments more than offset the effect of the
increase in average loan volume. The volume of interest-bearing liabilities
decreased 0.6% as the effect of the decrease in volume of federal funds
purchased and short-term borrowings and interest-bearing transactional accounts
was only offset by the effect of the increase in higher costing time deposits.
18
<PAGE> 19
The increase in net interest income attributable to rate resulted partially
from the change in mix of average earning assets and average interest-bearing
liabilities. Even though the net interest spread decreased, the effect of
rates on net interest income was positive as the effect of the larger average
balance of earning assets offset the larger increase in interest-bearing
liability rates.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, 1995/JUNE 30, 1994 Total
(IN THOUSANDS) Net
Increase (Decrease) Due To Change In Increase
Average Volume Average Rate (Decrease)
----------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Loans $ 530 $ 605 $1,135
Investment Securities
Held to Maturity (207) 1,274 1,067
Investment Securities
Available for Sale (129) (6) (135)
Trading Accounts (19) 4 (15)
Federal Funds Sold and
Short-Term Investments (62) 803 741
Interest-Earning Assets
as a Total (182) 2,975 2,793
Interest Expense:
Interest-Bearing
Transactional Accounts (268) 518 250
Time Deposits 960 2,394 3,354
Federal Funds Purchased and
Short-term Borrowings (338) 432 94
Long-term Debt 21 (28) (7)
Interest-Bearing Liabilities
as a Total 151 3,540 3,691
Net Interest Income (333) (565) (898)
</TABLE>
The paragraphs below describe the change in net interest income attributable to
rate and volume when comparing the three months ended June 30, 1995, to the
three months ended June 30, 1994.
Net interest income decreased $898 thousand or 5.3% when comparing the three
months ended June 30, 1995, to the three months ended June 30, 1994. The
paragraphs below describe this change in net interest income attributable to
rate and volume during this period.
The decrease in net interest income attributable to volume resulted as earning
assets decreased 0.7%. The positive effect of increasing average loans was
offset by decreases in investment securities. Also, the decrease in average
volume of interest-bearing transactional accounts and fed funds purchased and
short-term borrowings was partially offset by an increase in the average volume
of time deposits, creating a 1.6% increase in the average volume of
interest-bearing liabilities. The Company anticipates the strength of the
local economy will continue and that loans will continue to grow.
The decrease in net interest income due to change in average rate is the result
of average interest-earning assets repricing slower than average
interest-bearing liabilities.
19
<PAGE> 20
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, 1995/MARCH 31, 1995 Total
(IN THOUSANDS) Net
Increase (Decrease) Due To Change In Increase
Average Volume Average Rate (Decrease)
---------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Loans $ 265 $ 87 $ 352
Investment Securities
Held to Maturity (103) 544 441
Investment Securities
Available for Sale (247) (247) (494)
Trading Accounts 1 0 1
Federal Funds Sold and
Short-Term Investments 552 43 595
Interest-Earning Assets
as a Total 347 548 895
Interest Expense:
Interest-Bearing
Transactional Accounts (199) 77 (122)
Time Deposits 821 906 1,727
Federal Funds Purchased and
Short-term Borrowings (174) 63 (111)
Long-term Debt (24) 1 (23)
Interest-Bearing Liabilities
as a Total 210 1,261 1,471
Net Interest Income 137 (713) (576)
</TABLE>
The paragraphs below describe the change in net interest income attributable to
rate and volume when comparing the three months ended June 30, 1995, to the
three months ended March 31, 1995.
The increase in net interest income attributable to average volume relates to a
1.2% increase in average earning assets during the second quarter of 1995. The
increase in average loan volume and fed funds sold and short-term investments
offset the decrease in investment securities.
The decrease in net interest income attributable to change in average rate
resulted as the average rate on interest-bearing liabilities was more
responsive to the increase in market rates than the average rate on
interest-earning assets. Rates paid on interest-bearing liabilities increased
36 basis points while rates earned on interest-earning assets increased 6 basis
points for the three months ended June 30, 1995, compared to the three months
ended March 31, 1995.
The Company anticipates continued increase in loan volume due to the strength
of regional economy and the rate on investment securities held to maturity to
continue to increase as upcoming maturities will be reinvested at higher rates.
Additionally, the rate on interest-bearing deposits could stabilize as the lag
effect of repricing time deposits subsides and the effect of the Federal
Reserve Board's July decrease in market rates are recognized. A potential
offset of these positive trends could be an increase in the cost of deposits if
customers continue to move from lower costing demand deposits and
interest-bearing transactional accounts to higher costing time deposits.
20
<PAGE> 21
PROVISION FOR LOAN LOSSES
Management determines an appropriate provision for loan losses based upon the
size, quality, and concentration characteristics of the loan portfolio using
both historical quantitative trends and Management's evaluation of qualitative
factors including economic and industry outlooks. The provision for loan
losses for the six month period ended June 30, 1995 and June 30, 1994 was $15
thousand. The allowance for loan losses was 1.6% of loans, net of unearned
discount, at June 30, 1995 and 1.7% of loans, net of unearned discount at June
30, 1994. The loan loss allowance as a percentage of impaired and other
nonperforming loans was 108.26% at June 30, 1995, as compared to 106.70% a year
earlier, reflecting loan growth which has not compromised asset quality as
nonperforming assets continue to decline. Nonperforming assets totaled $10.5
million at June 30, 1995, as compared with $11.7 million at December 31, 1994,
a 10.1% reduction.
NONINTEREST INCOME
Total noninterest income increased $1.3 million or 9.5% for the six months
ended June 30, 1995, as compared to the same period in 1994. The analysis
follows (in thousands):
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
1995 1994
-------- --------
<S> <C> <C>
Service Charges and Other Fees $ 7,965 $ 7,433
Trust Services Income 3,399 2,287
Data Processing Income 1,433 1,610
Securities Gains (Losses) 122 (264)
Other Operating Income:
Investment Product Income 501 570
Safe Deposit Income 280 297
Mortgage Banking Income 126 379
All Other Operating Income 799 1,047
------- -------
Total Noninterest Income $14,625 $13,359
======= =======
</TABLE>
The increase in noninterest income for the six months ended June 30, 1995, as
compared to the same period in 1994 is due primarily to trust services income
generated by the acquired trust business of the former Ameritrust Texas National
Association office located in Corpus Christi ("Corpus Christi Trust") from Texas
Commerce Bank National Association early in the third quarter of 1994. Trust
services income is dependent upon the market value of trust assets. Fluctuations
in stock and bond values may impact future trust services income levels. Service
charges and other fees increased as a result of income from a new ATM surcharge
that began in the fourth quarter in 1994. Also contributing to the increase
were securities gains during the first six months of 1995 in comparison to
securities losses incurred during the first six months of 1994. Security gains
incurred during the first half of 1995 resulted from sales of equity investments
by the Company's Small Business Administration ("SBA") licensed subsidiary and
in-substance maturities of securities held to maturity.
21
<PAGE> 22
These increases were partially offset by decreased data processing income as a
result of a decrease in the level of customers serviced by the Company's data
processing subsidiary. Investment product income also decreased as a result of
a lower level of sales of annuities, fixed income securities, and mutual funds.
Mortgage banking income decreased, even though mortgage origination increased,
as fees from the sale of mortgage loans into secondary markets decreased. This
occurred as the Company retained a higher percentage of the loans it originated
mainly in a newly introduced three-year adjustable rate product. All other
operating income decreased as a result of decreased income and gains from the
sale of other real estate due to lower levels of foreclosed properties.
NONINTEREST EXPENSE
Total noninterest expense increased $2.2 million or 6.5% for the six months
ended June 30, 1995, compared to the same period in 1994. The analysis follows
(in thousands):
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1995 1994
-------- --------
<S> <C> <C>
Salaries and Wages $13,758 $12,960
Retirement and Other Employee Benefits 4,307 3,791
Net Occupancy Expense 3,551 3,452
Equipment, Rental, Depreciation
and Maintenance 2,407 2,509
FDIC Insurance 1,673 1,677
Other Operating Expenses:
Legal Expense 524 440
Marketing Expense 568 829
Operating Supplies 1,237 1,090
Communications Expense 646 541
Postage Expense 669 617
Outside Service Expense 2,661 2,326
Amortization of Intangible Assets 995 707
All Other 2,677 2,557
------- -------
Total Noninterest Expense $35,673 $33,496
======= =======
</TABLE>
The largest increase in noninterest expense for the six months ended June 30,
1995, as compared to the same period in 1994, occurred in salaries and wages as
a result of the acquisition of the Corpus Christi Trust in the third quarter of
1994 and normal merit increases. Retirement and other employee benefits
increased due to increased health care expense as a result of rising health care
costs and increased claims. Amortization of intangibles, outside service
expense, communications expense, and operating supplies all increased primarily
as a result of the acquisition of the Corpus Christi Trust. Included in outside
service expenses are accounting and legal costs incurred with the acquisition of
United.
The Bank has been notified by the FDIC that its assessment rate for 1995 will
remain at the lowest level risk-based premium available. This assessment level
requires the Bank to be both well capitalized, as defined by the FDIC, and in
good standing with its regulators. The FDIC has indicated that due to stability
in the Bank Insurance Fund, insurance premiums may be reduced in the latter part
of 1995.
22
<PAGE> 23
PROVISIONS FOR FEDERAL INCOME TAXES
For the six months ended June 30, 1995 and 1994, the provision for federal
income taxes was $3.7 million and $4.5 million, respectively.
The Company had a net deferred tax asset of $969 thousand as of June 30, 1995.
This net deferred tax asset is composed of the expected tax benefits from the
reversal of the temporary differences between tax and book net income. The
existing net temporary differences will reverse during future periods. During
1993, the Company fully utilized all operating loss and tax credit
carryforwards, thus returning to a statutory tax rate. The Company did not
record a valuation allowance against the net deferred tax asset because it
expects to fully recognize these future benefits.
CAPITAL MANAGEMENT
The Federal Reserve Board maintains a system using the internationally
consistent risk-based capital adequacy guidelines to evaluate the capital
adequacy of bank holding companies. Under the risk-based capital guidelines,
different categories of assets are assigned different risk weights, based
generally on the perceived credit risk of the asset. These risk weights are
multiplied by corresponding asset balances to determine a "risk-weighted" asset
base. Certain off-balance sheet items are added to the risk- weighted asset
base by converting them to a balance sheet equivalent and assigning them the
appropriate risk weight.
The guidelines require that banking organizations achieve and maintain a
minimum ratio of total capital-to-risk-weighted assets of 8.0% (of which at
least 4.0% should be in the form of certain "Tier 1" elements). Total capital
is defined as the sum of "Tier 1" and "Tier 2" capital elements, with "Tier 2"
being limited to 100 percent of "Tier 1." For bank holding companies, "Tier 1"
capital includes, with certain restrictions, common stockholders' equity
excluding unrealized holding gains (losses), perpetual preferred stock and
minority interests in consolidated subsidiaries. "Tier 2" capital includes,
with certain limitations, certain forms of perpetual preferred stock, as well
as maturing capital instruments and the allowance for loan losses. The
following table summarizes the Company's "Tier 1" and total capital (dollars in
thousands):
<TABLE>
<CAPTION>
June 30, 1995 December 31, 1994
----------------------- ----------------------
Amount Ratio Amount Ratio
------ ------ ------ -----
<S> <C> <C> <C> <C>
Tier 1 Capital $159,588 18.42% $154,643 17.45%
Tier 1 Capital Minimum Requirement 34,645 4.00 35,453 4.00
-------- ----- -------- -----
Excess Tier 1 Capital $124,943 14.42 $119,190 13.45
======== ===== ======== =====
Total Capital 169,284 19.54 164,667 18.58
Total Capital Minimum Requirement 69,290 8.00 70,907 8.00
-------- ----- -------- -----
Excess Total Capital $ 99,994 11.54% 93,760 10.58%
======== ===== ======== =====
Risk Adjusted Assets, Net
of Intangible Assets $866,127 $886,335
======== ========
</TABLE>
The Company's "Tier 1" and total capital ratios both increased from December
31, 1994 to June 30, 1995 as a result of decreased risk adjusted assets due
primarily to a decrease in commercial paper and increased capital due to income
earned during the period. In addition to the risk-based capital guidelines,
the Federal
23
<PAGE> 24
Reserve Board and the FDIC use a "leverage ratio" as an additional tool to
evaluate capital adequacy. The "leverage ratio" is defined to be a company's
"Tier 1" capital divided by its total average assets. The "leverage ratio"
adopted by these federal banking regulators must equal or exceed 3.0% "Tier 1"
capital-to-total average assets for banks with a CAMEL Rating of 1; all other
institutions will be expected to maintain a 100 to 200 basis point
cushion--i.e., these institutions will be expected to maintain a "leverage
ratio" of 4.0% to 5.0%. The Company's "leverage ratio" increased to 9.04% at
June 30, 1995 from 8.67% at December 31, 1994, due to both an increase in "Tier
1" capital and a decrease in total average assets. The Company's "leverage
ratio" substantially exceeds the regulatory minimum.
The FDIC maintains rules on capital adequacy ranging in five categories from
critically undercapitalized to well-capitalized. A well-capitalized company is
one that maintains a Total Risk-based Capital Ratio of at least 10%, a Tier 1
Risk-based Ratio of at least 6%, and a leverage ratio of 5%. The Company's
ratios substantially exceed the regulatory minimums required under the well-
capitalized category.
LIQUIDITY MANAGEMENT
To a business enterprise, liquidity is the ability to generate cash to meet
financial obligations and respond to opportunities. For a banking
organization, these obligations arise from a wide variety of sources, most
prominent among them being withdrawals of deposits, repayment upon maturity of
purchased funds, payment of operating expenses, and payment of dividends.
Sources of liquidity are also maintained to enable the Company to take
advantage of opportunities in loan and investment markets and to provide
substantial flexibility against unforeseeable cash requirements that can occur
in times of volatile financial markets. The Company believes it has adequate
sources of liquidity.
An integral part of the Company's liquidity management is the funding of the
banking subsidiary, which derives its source of fundings predominately from
deposits within its marketing area. The customer base of deposits is
diversified between individuals, partnerships and corporations, public
entities, and correspondent banks. This diversification helps the Company
avoid the risk of dependence on large concentrations of funds. The Company
does not, as a matter of policy, place certificates of deposit through brokers.
The Parent Company, as of June 30, 1995, had $11.2 million in available for
sale securities, which can be used to provide liquid resources as well as
currently unanticipated capital needs of its subsidiaries. Additional sources
of liquidity for the parent company are dividends from subsidiaries which are
dependent on their earnings. The amount of retained earnings available to the
Parent Company from subsidiaries for payment of dividends without prior
regulatory approval was approximately $78,986,000 at June 30, 1995.
Cash dividends have been paid by the Parent Company for thirteen consecutive
quarters. In May 1995, the Company paid a $.16 per share quarterly dividend.
The board has declared a $.16 per share dividend payable August 15, 1995.
24
<PAGE> 25
INTEREST RATE SENSITIVITY
The objectives of monitoring and managing the interest rate risk position of
the balance sheet are to contribute to earnings and to minimize the adverse
changes in net interest income. The potential for earnings to be affected by
changes in interest rates is inherent in a financial institution.
Interest rate sensitivity is a measure of the changes in net interest income
due to the repricing characteristics of assets and liabilities. An asset
sensitive position in a given period will result in more assets than
liabilities being subject to repricing; therefore, market interest rate changes
will be reflected more quickly in asset rates. If interest rates decline, an
asset sensitive position will normally have an adverse effect on net interest
income. Conversely, in a liability sensitive position, where liabilities
reprice more quickly than assets in a given period, a decline in rates will
benefit net interest income.
One way to analyze interest rate risk is to evaluate the balance of the
interest rate sensitivity position. A mix of assets and liabilities that are
roughly equal in volume and repricing characteristics represents a matched
interest rate sensitivity position. Any excess of assets or liabilities
results in an interest rate sensitivity gap. The purpose of this analysis is
to be aware of the potential risk to future earnings resulting from the impact
of possible future changes in interest rates on currently existing net asset or
net liability positions. The following table presents the interest sensitivity
position of the Company at June 30, 1995 (dollars in thousands):
<TABLE>
<CAPTION>
Over One
Rate Sensitive Within Year and
--------------------------------------------------- Nonrate
30-Days 90-Days 180-Days One Year Total Sensitive Total
------- ------- -------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans, Net of Unearned Discount $278,736 $ 25,760 $ 34,879 $ 64,407 $403,782 $214,276 $ 618,058
Investment Securities 126,944 34,251 81,445 154,542 397,182 424,594 821,776
Federal Funds Sold and Other
Short-Term Investments 141,612 0 0 0 141,612 0 141,612
Other Earning Assets 405 0 0 0 405 0 405
-------- -------- -------- -------- -------- -------- ----------
Total Earning Assets 547,697 60,011 116,324 218,949 942,981 638,870 1,581,851
Interest-Bearing Liabilities:
Interest-Bearing Transactional
Accounts 279,212 0 0 0 279,212 148,790 588,602
Time Deposits 73,534 80,602 134,189 136,383 424,708 165,673 590,381
Fed Funds Purchased and Other
Short-Term Borrowings 60,724 0 0 0 60,724 0 60,724
Long-Term Debt 0 0 0 0 0 0 0
-------- -------- -------- -------- -------- -------- ----------
Total Interest-Bearing
Liabilities 413,470 80,602 134,189 136,383 764,644 $314,463 $1,239,707
-------- -------- -------- -------- -------- -------- ----------
Interest Sensitivity Gap $134,227 $(20,591) $(17,865) $ 82,566 $178,337
======== ======== ======== ======== ========
Cumulative Interest
Sensitivity Gap $134,227 $113,636 $ 95,771 $178,337
======== ======== ======== ========
Ratio of Earning Assets to
Interest-Bearing Liabilities 132.46% 74.45% 86.69% 160.54% 123.32%
======== ======== ======== ======== ========
</TABLE>
The Company had an asset sensitivity gap position in the 30-day period of
$134.2 million. The cumulative rate sensitive gap position at one year was an
asset sensitive position of $178.3 million, which indicates the Company may
benefit from rising interest rates; conversely falling interest rates may have
a negative impact upon the Company.
25
<PAGE> 26
The Company undertakes this interest rate sensitivity analysis to monitor the
potential risk on future earnings resulting from the impact of possible future
changes in interest rates on currently existing net asset or net liability
positions. However, this type of analysis is as of a point-in-time position,
when in fact that position can quickly change as market conditions, customer
needs, and management strategies change. Thus, interest rate changes do not
affect all categories of asset and liabilities equally or at the same time.
The Company's Asset and Liability Committee reviews monthly the consolidated
position along with simulation and duration models, and makes adjustments as
needed to control the Company's interest rate risk position.
The Company's investment policy does not permit the use of derivative financial
instruments or the purchase of structured notes.
LOAN PORTFOLIO
The following summary shows the composition of the loan portfolio at June 30,
1995, and December 31, 1994 (dollars in thousands):
<TABLE>
<CAPTION>
June 30, 1995 December 31, 1994
----------------------- ---------------------
Amount Percent Amount Percent
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Loans secured primarily by
real estate:
Construction & land development $ 19,056 3.07% $ 18,630 3.09%
Other real estate loans 258,257 41.60 244,592 40.59
Agricultural loans 46,364 7.47 36,861 6.12
Commercial & industrial loans 118,857 19.15 125,437 20.82
Consumer loans 174,754 28.15 174,375 28.94
Loans to financial institutions &
all other loans 3,499 0.56 2,671 0.44
-------- ------ -------- ------
Total Loans $620,787 100.00% $602,566 100.00%
====== ======
Less:
Unearned discount (2,729) (4,490)
Allowance for loan losses (9,696) (10,024)
-------- --------
Net Loans $608,362 $588,052
======== ========
</TABLE>
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents Management's estimate necessary to
provide for losses incurred in the loan portfolio. In making this
determination, Management analyzes the ultimate collectibility of the Company's
loan portfolio, incorporating feedback provided by the internal loan review
staff and provided by examinations performed by regulatory agencies.
Management makes an ongoing evaluation as to the adequacy of the allowance for
loan losses. To establish the appropriate level of the allowance, all loans
(including nonperforming loans), commitments to extend credit and standby
letters of credit are reviewed and classified as to potential loss exposure.
Specific allowances are then established for those loans, commitments to extend
credit or standby letters of credit with identified loss exposure and an
additional allowance is maintained based upon size, quality, and concentration
characteristics of the remaining loan portfolio using both historical
quantitative trends and Management's evaluation of qualitative factors
including future economic and industry outlooks.
Management determined that the appropriate level of the allowance was $9.7
million at June 30, 1995, $10.0 million at December 31, 1994, and $10.0 million
as of June 30, 1994. The allowance for loan losses is based on
26
<PAGE> 27
estimates, and ultimate losses will vary from the current estimates. These
estimates are reviewed periodically and as adjustments become necessary, they
are reported in earnings in the periods in which they occur. A detailed
analysis of the Company's allowance for loan losses is shown in the following
table (in thousands):
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------------
June 30, June 30,
1995 1994
------------- -------------
<S> <C> <C>
Balance of allowance for loan
losses at beginning of period $10,024 $ 9,974
Addition to allowance for purchased loans 0 0
Provision for loan losses 15 15
Charge-offs:
Real estate loans 142 68
Agricultural loans 0 4
Commercial & industrial loans 187 99
Consumer loans 298 183
Loans to financial institutions
and all other loans 0 0
------- -------
Total charge-offs 627 354
------- -------
Recoveries:
Real estate loans 82 106
Agricultural loans 0 53
Commercial & industrial loans 100 71
Consumer loans 102 154
Loans to financial institutions
and all other loans 0 0
------- -------
Total recoveries 284 384
------- -------
Net charge-offs (recoveries) 343 (30)
------- -------
Balance at end of period $ 9,696 $10,019
======= =======
Allowance for loan losses/Loans,
Net of unearned discount 1.57% 1.68%
======= =======
Allowance for loan losses/
Nonperforming loans 108.26% 106.70%
======= =======
</TABLE>
NONPERFORMING ASSETS
The Company's nonperforming assets consist of impaired loans, troubled debt
restructurings, loans 90 days past due and still accruing and other real estate
and other assets which have been repossessed or acquired through workout
situations.
The Company's financial statements are prepared on the accrual basis of
accounting, including the recognition of interest income on its loan portfolio,
unless a loan is identified as impaired and placed on a nonaccrual basis. A
loan is considered impaired when, based on current information and events, it
is probable that a creditor will be unable to collect all amounts due according
to the contractual terms of the loan agreement. The Company classifies loans
as impaired when there are serious doubts regarding the collectibility of
principal and interest or when payments become past due 90 days, except loans
which are well secured and in the process of collection. The standards require
that when a loan is impaired a
27
<PAGE> 28
creditor shall measure impairment based on the present value of expected future
cash flows discounted at the loan's effective interest rate, on a loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. The Company considers consumer loans with balances less
than $50,000 to be smaller-balance homogeneous loans which are exempt from SFAS
114. The Company has measured the impairment related to all of its impaired
loans using the fair value of the loan's collateral. Amounts received on
impaired loans are applied, for financial accounting purposes, first to
principal and then to interest after all principal has been collected. When
collection of an impaired loan is considered remote, the loan is charged-off
against the reserve for loan loss.
Troubled debt restructurings are those for which concessions, including
reduction of interest rates or deferral of interest or principal, have been
granted, due to the borrower's weakened financial condition. Interest on
restructured loans is generally accrued at the restructured rates when it is
anticipated that no loss of original principal will occur. As of June 30,
1995, all restructured loans were performing.
Loans 90 days past due and still accruing are well secured and in the process
of collection.
Other nonperforming assets, which are carried at the lower of cost or fair
value, less estimated costs to sell, consist of other real estate acquired
through loan foreclosures and other workout situations and other assets
acquired through repossession. In addition, other nonperforming assets include
loans which the Company has taken possession of the collateral, although not
formally foreclosed, are unlikely to be repaid through means other than
foreclosure and sale of the collateral. According to Company policy all other
real estate and in-substance foreclosures valued over $100 thousand are
appraised on an annual basis by an independent appraisal service.
The Company adopted Statement of Financial Accounting Standards No. 114
"Accounting by Creditors for Impairment of a Loan" ("SFAS 114") as amended by
Statement of Financial Accounting Standards No. 118 "Accounting by Creditors
for Impairment of a Loan/Income Recognition and Disclosure" ("SFAS 118") on
January 1, 1995. In accordance with SFAS 114, as amended, loan balances and
income/expense related to loans previously classified as in-substance
foreclosure, but for which the Company had not taken possession of the
collateral, have been reclassified to loans for all periods presented. As of
the periods presented, there were no in-substance foreclosures for which the
Company had taken possession of the collateral included in foreclosed assets.
At June 30, 1995, the recorded investment in loans that are considered impaired
under SFAS 114 was $8.2 million. Included in this amount is $3.0 million of
impaired loans for which the related allowance for credit losses is $1.3
million. Impaired loans of $5.2 million were carried at fair value and as a
result do not have an allowance for loan losses. The average recorded
investment in impaired loans during the six months ended June 30, 1995, was
approximately $8.2 million and $8.0 million for the three months ended June 30,
1995. For the six months ended June 30, 1995, the Company recognized interest
income on those impaired loans of $306 thousand.
The total amount of nonperforming assets, which includes loans past due 90 days
or more and still accruing at June 30, 1995, was $10.5 million as compared with
$11.7 million at December 31, 1994, reflecting a decrease of 10.1%.
Nonperforming assets as a percentage of total assets was 0.6% as of June 30,
1995 and 0.7% as of December 31, 1994.
28
<PAGE> 29
The following table discloses information regarding nonperforming assets at
June 30, 1995 and December 31, 1994. The Company's method for identifying
nonperforming assets in prior years is materially consistent with the
guidelines and requirements of SFAS 114 (in thousands).
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
IMPAIRED LOANS
Nonaccrual Loans:
Real Estate $ 6,654 $ 0
Energy 1 0
Agricultural 73 0
Commercial 564 0
Consumer 906 0
Troubled Debt Restructurings 0 0
OTHER NONPERFORMING
Nonaccrual Loans 0 9,145
Troubled Debt Restructurings 592 617
Other Real Estate 1,567 1,519
Loans Past Due 90 Days
or More and Still Accruing 166 427
------- -------
Total Nonperforming Assets $10,523 $11,708
======= =======
</TABLE>
LOAN CONCENTRATIONS
The economy of the market area served by the Company is characterized by
petroleum and natural gas production and related supplies and services,
petro-chemical operations, light and medium manufacturing operations,
agribusinesses, educational centers, and tourism. The agricultural businesses
are highly diversified, including beef and dairy cattle, poultry, cotton, and a
variety of grain crops. In general, real estate values, as well as real estate
development and sales activities, tend to reflect a region's economic
environment. Management believes that the loans in the real estate portfolio
are generally adequately supported by market prices or other credit factors.
Real estate loans totaled $277.3 million at June 30, 1995 (approximately 44.7%
of the loan portfolio), 2.6% of which were nonperforming. At December 31,
1994, real estate loans were $263.2 million (approximately 43.7% of the loan
portfolio), of which 3.1% were nonperforming. The majority of the Company's
real estate loans are secured by property located outside the major
metropolitan areas in which the Company operates. The Company's portfolio is
comprised of interim construction, residential, commercial building, farm
acreage, vacant lots, and land development loans. Residential loans made up
approximately 42.2% of the total real estate loans at June 30, 1995.
Consumer loans totaled $174.8 million at June 30, 1995 (approximately 28.2% of
the loan portfolio), 0.5% of which were nonperforming. These consumer loans
include $93.6 million in loans originated through automobile dealers. At
December 31, 1994, consumer loans totaled $174.4 million (approximately 28.9%
of the loan portfolio), 0.4% of which were nonperforming. Loans originated
through automobile dealers were approximately $84.5 million of this category at
December 31, 1994.
Agricultural loans, exclusive of loans secured by farm acreage which are
categorized by the Company as real estate loans, were $46.4 million at June 30,
1995 (approximately 7.5% of the loan portfolio), 0.2% of which were
29
<PAGE> 30
nonperforming. At December 31, 1994, agricultural loans totaled $36.9 million
(approximately 6.1% of the loan portfolio), of which 0.1% were nonperforming.
At June 30, 1995, the Company's commercial and industrial loans were $118.9
million (approximately 19.2% of the loan portfolio), 0.5% of which were
nonperforming. At December 31, 1994, commercial and industrial loans were
$125.4 million (approximately 20.8% of the loan portfolio), of which 0.6% were
nonperforming. The majority of the Company's commercial and industrial loans
are with businesses characterized by light and medium manufacturing operations
and other service companies. Included in the above figures, the Company's
energy loans were $1.3 million (approximately 0.2% of the loan portfolio), of
which 0.1% were nonperforming at June 30, 1995. At December 31, 1994, energy
loans totaled $1.7 million (approximately 0.3% of the loan portfolio), of which
2.3% were nonperforming.
30
<PAGE> 31
INVESTMENT SECURITIES
The amortized cost and market values of investment securities held to maturity
and available for sale, by type, together with unrealized gains and losses as
of the dates indicated are summarized as follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1995
-------------------------------------------------------
Amortized Market Unrealized Unrealized
Cost Value Gains Losses
--------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Securities Held to Maturity:
U. S. Government and
Government Agency $619,635 $618,793 $4,804 $ 5,646
State and Political
Subdivisions 33,497 33,871 440 66
Investment Grade
Corporate Bonds 81,842 81,907 361 296
Mortgage-Backed
Securities 4,284 4,173 1 112
-------- -------- ------ -------
Total $739,258 $738,744 $5,606 $ 6,120
======== ======== ====== =======
Securities Available for Sale:
U.S. Government
and Government Agency 78,098 77,985 233 346
State and Political Subdivisions 3,491 3,652 161 0
Other 995 881 36 150
-------- -------- ------ -------
Total $ 82,584 $ 82,518 $ 430 $ 496
======== ======== ====== =======
<CAPTION>
December 31, 1994
-------------------------------------------------------
Amortized Market Unrealized Unrealized
Cost Value Gains Losses
--------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Securities Held to Maturity:
U.S. Government and
Government Agency $634,621 $618,180 $809 $17,250
State and Political
Subdivisions 36,037 35,151 57 943
Investment Grade
Corporate Bonds 91,004 89,649 91 1,446
Mortgage-Backed
Securities 4,959 4,731 1 229
Other 199 199 0 0
-------- -------- ---- -------
Total $766,820 $747,910 $958 $19,868
======== ======== ==== =======
Securities Available for Sale:
U.S. Government
and Government Agency 113,279 110,440 0 2,839
State and Political Subdivisions 4,760 4,737 7 30
Other 6,436 6,300 26 162
-------- -------- ---- -------
Total $124,475 $121,477 $ 33 $ 3,031
======== ======== ==== =======
</TABLE>
31
<PAGE> 32
KEY RATIOS
The table below presents for the Company and its subsidiaries certain operating
ratios as of and for the six months ended:
<TABLE>
<CAPTION>
June 30,
------------------------
Operating Ratios 1995 1994
------ ------
<S> <C> <C>
Return on average assets 0.83% 0.93%
Return on average equity 8.12 9.86
Dividend payout ratio 44.30 24.64
Leverage ratio 9.04 8.49
</TABLE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
*27 - Financial Data Schedule.
--------------------------
*Filed herewith.
32
<PAGE> 33
PART II. - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its Annual Meeting of Shareholders on April 18, 1995. The
Company's shareholders voted on a proposal to amend the Amended and Restated
Bylaws, on the election of directors for the Company, and on the selection of
independent auditors for the current fiscal year.
In the vote to amend Article II and Article VIII of the Amended and Restated
Bylaws of the Corporation to establish three classes of directors with
staggered terms expiring each year and certain related changes concerning the
removal of directors and further amendments to the Board classification
provisions of the Bylaws, the results were as follows:
<TABLE>
<CAPTION>
Broker
For Against Abstain Nonvotes
-------- ------- ------- --------
<S> <C> <C> <C> <C>
To amend Article II and Article VIII
of the Amended and Restated Bylaws
of the Corporation to establish
three classes of directors with
staggered terms expiring each year
and certain related changes concerning
the removal of directors and further
amendments to the Board classifica-
tion provisions of the Bylaws: 5,452,415 968,435 35,374 565,480
</TABLE>
In the election of directors, voting was as follows:
SHARES VOTED BY PROXY - 7,021,704
<TABLE>
<CAPTION>
Withheld
Directors For Authority
--------- ---------
<S> <C> <C>
D. H. Braman, Jr. 6,785,717 235,987
R. W. Briggs, Jr. 6,804,211 217,493
Edwin W. Dentler 6,785,717 235,987
Ralph R. Gilster, III 6,784,717 236,987
R. J. Hewitt 6,785,806 235,898
Charles R. Hrdlicka 6,785,238 236,466
Jack R. Morrison 6,783,705 237,999
Dennis O'Connor 6,784,812 236,892
Tom O'Connor, Jr. 6,784,917 236,787
Munson Smith 6,800,817 220,887
</TABLE>
In the vote to approve the selection of Arthur Andersen LLP as independent
auditors of the Company for the current fiscal year, the results were as
follows:
<TABLE>
<CAPTION>
For Against Abstain
-------- ------- -------
<S> <C> <C> <C>
For the selection of
Arthur Andersen LLP
as independent auditors
for the current year: 6,978,314 16,555 26,835
</TABLE>
33
<PAGE> 34
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VICTORIA BANKSHARES, INC.
By:
---------------------------------
Gregory Sprawka
Executive Vice President,
Chief Financial Officer, and
Secretary-Treasurer (on behalf of
the registrant and as principal
financial and accounting officer)
Date:
----------------------
34
<PAGE> 35
Exhibit Index
<TABLE>
<S> <C>
27 - Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 124,440
<INT-BEARING-DEPOSITS> 11
<FED-FUNDS-SOLD> 141,612
<TRADING-ASSETS> 394
<INVESTMENTS-HELD-FOR-SALE> 82,518
<INVESTMENTS-CARRYING> 739,258
<INVESTMENTS-MARKET> 738,744
<LOANS> 618,058
<ALLOWANCE> 9,696
<TOTAL-ASSETS> 1,794,691
<DEPOSITS> 1,539,409
<SHORT-TERM> 60,724
<LIABILITIES-OTHER> 9,899
<LONG-TERM> 0
<COMMON> 8,272
0
0
<OTHER-SE> 176,387
<TOTAL-LIABILITIES-AND-EQUITY> 1,794,691
<INTEREST-LOAN> 28,326
<INTEREST-INVEST> 23,646
<INTEREST-OTHER> 4,067
<INTEREST-TOTAL> 56,039
<INTEREST-DEPOSIT> 21,737
<INTEREST-EXPENSE> 23,955
<INTEREST-INCOME-NET> 32,084
<LOAN-LOSSES> 15
<SECURITIES-GAINS> 122
<EXPENSE-OTHER> 35,673
<INCOME-PRETAX> 11,021
<INCOME-PRE-EXTRAORDINARY> 11,021
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,370
<EPS-PRIMARY> 0.89
<EPS-DILUTED> 0.89
<YIELD-ACTUAL> 4.13
<LOANS-NON> 8,198
<LOANS-PAST> 166
<LOANS-TROUBLED> 592
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 10,024
<CHARGE-OFFS> 627
<RECOVERIES> 284
<ALLOWANCE-CLOSE> 9,696
<ALLOWANCE-DOMESTIC> 7,854
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,842
</TABLE>
