VICTORIA BANKSHARES INC, 10-K, 1996-03-29

VICTORIA BANKSHARES INC
10-K, 1996-03-29
STATE COMMERCIAL BANKS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
_______________
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

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
incorporation or organization) Identification No.)

One O'Connor Plaza 77902
Victoria, Texas (Zip Code)
(Address of principal executive offices

Registrant's telephone number, including area code: (512) 573-9432
_______________
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1 Par Value

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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

The aggregate market value of the Common Stock held by nonaffiliates
of the registrant as of March 22, 1996 was $305,900,973.

The number of shares of Common Stock of the registrant outstanding as
of March 22, 1996 was 8,323,836.

===============================================================================

<PAGE> 2

PART I

ITEM 1
BUSINESS

GENERAL

Victoria Bankshares, Inc. (the "Company") is a bank holding company
organized under the laws of the State of Texas in 1973 and registered under the
Bank Holding Company Act of 1956, as amended (the "BHCA"). The Company's
primary subsidiary is Victoria Bank & Trust Company (the "Bank"), a commercial
bank which commenced operations in 1875. The Company also conducts operations
through four other nonbank subsidiaries (collectively referred to as the
"Nonbank Subsidiaries"). At December 31, 1995, the Company and its
subsidiaries had consolidated total assets of $1.96 billion, net loans
outstanding of $703 million, total deposits of $1.66 billion, and stockholders'
equity of $190.3 million.

A special meeting of the shareholders of the Company will be held on
April 2, 1996, to consider and vote upon a proposal to approve the Agreement
and Plan of Merger dated November 12, 1995, between the Company and Norwest
Corporation ("Norwest"). The Plan of Merger has been approved by the boards of
both companies and is pending regulatory approval. Norwest will issue 1.05
shares of Norwest common stock in exchange for each share of the Company's
common stock. The exchange will be tax-free for the Company's shareholders and
will be accounted for by Norwest as a pooling- of-interests.

Norwest is a $72.1 billion company providing banking, mortgage,
investments, insurance, and other financial services through 3,042 stores in
all 50 states, Canada, the Caribbean, Central America, and elsewhere
internationally.

During 1995, the Company made two acquisitions which increased the
Company's assets by approximately $165 million. See "ACQUISITIONS."

The Bank offers a full range of banking services including checking and
savings accounts, business loans, personal loans, residential mortgage loans,
loans for education, health and similar expenditures, other consumer oriented
financial services, safe deposit, and night depository facilities. In
addition, a full-time depository service is available for checking and savings
accounts whereby customers may make deposits and withdrawals from a network of
automatic teller machines. As of March 1996, the Bank has 42 branch offices in
33 communities and 22 counties of South Central Texas (see "BUSINESS
ACTIVITIES"). A total of 103 automated teller machines in 53 cities provide
24-hour "Transact" banking services to customers. Through the Bank's
membership in the Pulse and Cirrus networks, customers have 24-hour access to
their accounts throughout the United States. The Bank also offers
correspondent

<PAGE> 3

banking, trust, investment and custodial services. The Company's
goal is to provide quality financial services to the communities within which
the branch offices are located.

As a bank holding company, the Company owns the Bank and furnishes
services for the Bank. The Company assists in the management of and
coordinates the financial resources of the Bank. The Bank derives its sources
of funds predominantly from deposits within its market area. The customer base
for deposits is diversified between correspondent banks, individuals,
partnerships, corporations and public entities, which assists the Company in
avoiding dependence on large concentrations of funds. The principal office of
the Bank located in Victoria provides assistance with respect to various
aspects of the branch offices' operations, including business development,
advertising, loan policies and procedures, loan review, data and item
processing, auditing, budgetary planning, and legal and regulatory compliance.

As a holding company, the Company's principal sources of cash flow are
the dividends it receives from its subsidiaries and the proceeds from the sales
and maturities of investment securities. Other sources may include the
Company's access to capital markets through equity offerings, borrowings, and
similar traditional funding sources. It is the Company's current policy to
provide additional capital funds, if necessary, to the Bank by direct
financings at the Company level rather than at the Bank level. The Company was
paid $6.9 million in dividends during 1995 from a subsidiary. At December 31,
1995, the Company held $179 thousand in the AIM Short-term Investment Company
(U. S. Treasury) Fund and $8.7 million in securities available for sale, both
of which are used for corporate purposes, including short-term liquidity
requirements. For information as to legal restrictions on the ability of the
subsidiaries to pay dividends to the Company, see "SUPERVISION AND REGULATION."

The Company continues to be well-capitalized. At December 31, 1995,
the Company's leverage ratio of 8.8% substantially exceeded the 4.0% regulatory
requirement. Additionally, the Company's risk-based capital ratio of 16.3%
substantially exceeded the 8.0% regulatory requirement. See "SUPERVISION AND
REGULATION."

Presented below are selected consolidated average balances of the
Company and its subsidiaries (in thousands):

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Loans, net of unearned discount . . . . . . . . . . . $ 639,932 $ 585,172 $ 496,220
Investment securities and time
deposits with banks . . . . . . . . . . . . . . . . 841,835 875,009 896,956
Total interest-earning assets . . . . . . . . . . . . 1,645,960 1,611,361 1,606,258
Total assets . . . . . . . . . . . . . . . . . . . . 1,858,414 1,813,093 1,802,433
Deposits . . . . . . . . . . . . . . . . . . . . . . 1,572,164 1,523,821 1,508,316
Stockholders' equity . . . . . . . . . . . . . . . . 186,153 173,941 151,162

</TABLE>

3
<PAGE> 4

For certain financial information relating to the Company and its
subsidiaries, please refer to Part II Item 7 "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY"
on pages 17 through 48 herein and the financial statements of the Company
included on pages 50 through 73 herein.

4
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BUSINESS ACTIVITIES

GEOGRAPHIC SERVICE AREA
The Company's principal office is located in the City of Victoria,
Texas, which is situated between Houston and Corpus Christi, Texas, and has a
population of approximately 61,000. The largest communities served by the
Company are Corpus Christi with a population of approximately 272,000 and
Bryan/College Station with a population of approximately 120,000. Other branch
offices are generally located in smaller and mid-sized communities in Texas,
within a region outlined by the cities of Houston, Bryan/College Station,
Austin, San Antonio, and Corpus Christi.

COMMERCIAL BANKING
The Bank provides commercial banking services and facilities to small
and medium size commercial businesses, including loans, deposit facilities,
certificates of deposit, lines of credit, letters of credit, and cash
management services.

REAL ESTATE LENDING
The Bank provides permanent financing for residential properties,
including multifamily dwellings, commercial projects, and agricultural
properties as well as the origination of mortgage loans for sale in the
secondary market. The Bank also provides a source of financing for real estate
developers and others engaged in construction and land development in central
and southern Texas.

CONSUMER BANKING
The Bank provides consumer banking services to individuals, including
savings programs, installment lending services, financing of new cars through a
network of auto dealers, investment services, checking accounts, money market
deposit accounts, and safe deposit facilities. Most of the branch offices also
participate in the Company's automated banking network. The branch offices
also provide the "Money-In-The-Bank Loan Line" which provides customer access
to preapproved credit lines through automated teller machines. The Bank's
customers are provided with convenient, around-the-clock service through the
use of Transact Infoline, a telephone service that allows customers to perform
many banking transactions from the convenience of their own homes.

AGRICULTURAL LENDING

The Bank provides financing to a diversified group of agricultural
businesses for working capital requirements, equipment purchases, and similar
requirements.

CORRESPONDENT BANKING
The Bank acts as a correspondent for banks in Texas which maintain
deposits and receive from the Bank a full range of correspondent banking
services, including check clearing, transfer of funds, loan participations,
data processing, investment advice, safekeeping, and securities custody and
clearance. The Bank also offers seminars on new developments in the banking
industry.

5
<PAGE> 6

TRUST AND ASSET MANAGEMENT

The Bank provides trust and fiduciary management and advisory services
to businesses, individuals, and charitable trusts. These services include
investment account management for employee benefit plans and individuals and
the administration of personal estates and trusts. Estate administration
services include helping individuals establish estate plans including wills,
powers of attorney, and investment strategies, and serving as executor under
their wills.

NONBANK SUBSIDIARIES

The Company has five wholly owned Nonbank Subsidiaries: Transact
Financial Corporation (mortgage loans); Central Computers, Inc. (data
processing for commercial banks); Victoria Capital Corporation (investments in
small businesses); Victoria Securities Corporation (discount brokerage
services); and Victoria Financial Services, Inc. (second tier holding
company). Victoria Financial Services, Inc., owns 100% of the banking
subsidiary, Victoria Bank & Trust Company. The Bank owns 100% of Central
Computers, Inc., and Victoria Capital Corporation.

The Company has liquidated two of its inactive subsidiaries V.B.I.,
Inc. and Transact Financial Corporation as of October 31, 1995 and February 29,
1996, respectively.

ACQUISITIONS

On June 30, 1995, United Bancshares, Inc. ("United"), parent company of
Rosenberg Bank & Trust ("Rosenberg"), 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 consolidated assets by approximately $65 million and
increased consolidated 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.

On August 25, 1995, the Company acquired Cattlemen's Financial
Services, Inc. The transaction was accounted for as a purchase. The Company
acquired approximately $100 million in assets and assumed $93 million in
liabilities, paying a premium of $6.7 million over the book value of the net
assets. The principal subsidiary of Cattlemen's Financial Services, Inc., is
Cattlemen's State Bank. Cattlemen's State Bank has two branches and a mortgage
production office, all of which are located in Austin, Texas.

6
<PAGE> 7

EMPLOYEES

As of December 31, 1995, the Company and its subsidiaries had
approximately 915 full-time employees and approximately 216 part-time
employees. The Company considers its employee relations to be good and is not
subject to any collective bargaining agreement.

COMPETITION

The banking business in Texas is highly competitive. The Bank is the
ninth largest bank chartered to do business in the State of Texas and the
Company is the second largest publicly traded bank holding company headquartered
in Texas. Each activity engaged in and geographic market served involves
competition with other banks, as well as with nonbanking financial institutions
and nonfinancial enterprises. The Bank competes with other banks in its efforts
to obtain deposits and make loans, in scope and type of services offered, in
rates paid on deposits and charged on loans, and in other aspects of banking.

The Bank also competes with savings and loan associations, credit
unions, insurance companies, small loan companies, consumer finance companies,
mortgage companies, department stores, and credit card organizations. There is
active competition for the provision of various types of fiduciary and
investment advisory services from bank and trust companies, insurance
companies, investment counseling firms, mutual funds, and other similar
entities.

The Bank competes with other financial institutions for new depositors
and loan customers through radio, newspaper, and television advertising and
through individual contacts by bank employees. The participation of the Bank
in community activities also aids in the promotion of the Bank. Customers of
all of the branch offices are made aware of products and services in order to
maintain customer relationships and service customer needs.

In addition to competition from other banks and financial institutions
headquartered in central and southern Texas, the Bank competes, in the
marketing of certain financial services to large customers, with banks located
in the major urban areas of Texas and elsewhere. These competing urban banks
are generally larger than the Company in terms of capital, services, and
personnel.

REGIONAL ECONOMY

<PAGE> 8

Austin in 1995, the Company expanded into areas positively affected by
major educational centers.

In general, real estate values, as well as real estate development and
sales activities, tend to reflect a region's economic environment. The Texas
real estate environment continues to show signs of improvement. Management
believes that the loans in the real estate portfolio are adequately supported
by market prices or other credit factors.

At December 31, 1995, the Company's loans secured primarily by real
estate consisted of (i) loans for commercial and residential construction and
land development (none of which are located in major Texas metropolitan areas)
which constituted 2.8% of the total loan portfolio and (ii) other real estate
loans (including loans for 1-4 family, multi-family, and nonfarm/nonresidential
properties) which constituted 41.1% of the total loan portfolio. The remaining
loan portfolio categories and the percentage of each to the total loan portfolio
at December 31, 1995, consisted of the following: loans to oil and gas
producers and related service businesses, 0.2%; agricultural loans (other than
loans secured by agricultural real property), 5.7%; other commercial and
industrial loans, 20.4%; consumer loans, 29.6%; and all other loans (including
loans to financial institutions), 0.5%.

ECONOMIC ENVIRONMENT

General economic conditions impact the banking industry. The credit
quality of the Company's loan portfolio necessarily reflects, among other
things, the general economic conditions in the areas in which it conducts its
business. The continued financial success of the Company depends to some
extent on factors that are beyond the Company's control, including national and
local economic conditions, the supply and demand for investment funds, interest
rates, regulatory policies and federal, state and local laws affecting these
matters. Improvement in general economic conditions that affects the region in
which the Company operates could have a favorable effect on the Company's
financial condition and results of operations. Conversely, a deterioration in
general economic conditions could have an adverse effect.

The policies of regulatory authorities, including the monetary policy
of the Board of Governors of the Federal Reserve System ("Federal Reserve
Board"), have a significant effect on the operating results of bank holding
companies and their subsidiaries. Among the means available to the Federal
Reserve Board to affect the money supply are open market operations in U.S.
Government securities, changes in the discount rate on member bank borrowings,
and changes in reserve requirements against member bank deposits. These means
are used in varying combinations to influence overall growth and distribution
of bank loans, investments and deposits, and their use may affect interest
rates charged on loans or paid for deposits.

8
<PAGE> 9

Federal Reserve Board monetary policies have materially affected the
operating results of commercial banks in the past and are expected to continue
to do so in the future. The nature of future monetary policies and the effect
of such policies on the business and earnings of the Company cannot be
predicted.

SUPERVISION AND REGULATION

BANK HOLDING COMPANY REGULATION

The Company and its second-tier holding company are bank holding
companies registered under the BHCA and are subject to supervision by the
Federal Reserve Board. As bank holding companies, they are required to file an
annual report with the Federal Reserve Board and such additional information as
the Federal Reserve Board may require pursuant to the BHCA. The Federal
Reserve Board may make examinations of the Company or any of its nonbanking
subsidiaries. The Federal Reserve Board has issued regulations under the BHCA
that require a bank holding company to serve as a source of financial and
management strength to its subsidiary banks. As a result, the Federal Reserve
Board, pursuant to such regulations, may require the Company to stand ready to
use its resources to provide adequate capital funds to the Bank during periods
of financial stress or adversity.

Acquisitions by Bank Holding Companies

The BHCA prohibits the Company from acquiring direct or indirect
control of more than 5.0% of the outstanding shares of any class of voting stock
or substantially all of the assets of any bank or merging or consolidating with
another bank holding company without prior approval of the Federal Reserve
Board. Similar restrictions apply to acquisition of control of shares of stock
of the Company or its second-tier holding company by other bank holding
companies.

The Texas Banking Act permits out-of-state bank holding companies to
acquire certain existing banks and bank holding companies in Texas. One of the
conditions for such acquisitions is that after the acquisition, the
out-of-state bank holding company may not control national or state banks in
Texas whose aggregate deposits exceed 20% of the total deposits held by all
national and state banks domiciled in Texas. Acquisitions of state and
national banks by out-of-state bank holding companies have increased and
likely will continue to increase the competition that the Company faces in
acquiring depository institutions in Texas.

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
provides for the acquisition of banks by out-of-state holding companies
regardless of state laws concerning such acquisitions (except for certain age
and deposit concentration limits) and permits interstate branching beginning on
June 1, 1997. States have the ability to opt-out of the interstate branching,
but

<PAGE> 10

not the interstate banking provisions of the Act. Texas has passed
legislation to opt out of interstate branching.

The BHCA prohibits the Company from engaging in, or from acquiring
ownership or control of, more than 5.0% of the outstanding shares of any class
of voting stock of any company engaged in a nonbanking activity unless such
activity has been determined by the Federal Reserve Board to be so closely
related to banking as to be a proper incident thereto. The BHCA does not place
territorial restrictions on the activities of such nonbanking-related
activities.

Capital Adequacy

The Federal Reserve Board has adopted a system using the
internationally consistent risk-based capital adequacy guidelines to evaluate
the capital adequacy of bank holding companies. In addition to the risk-based
capital guidelines, the Federal Reserve Board, the Comptroller of the Currency,
and the Federal Deposit Insurance Corporation ("FDIC") have adopted the use of
a leverage ratio as an additional tool to evaluate the capital adequacy of
banks and 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, which previously were not expressly considered in capital adequacy
computations, are added to the risk-weighted asset base by converting them to a
balance sheet equivalent and assigning them to the appropriate risk weight.
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, qualifying perpetual preferred stock and minority
interests in consolidated subsidiaries. "Tier 2" capital includes, with
certain limitations, perpetual preferred stock, capital instruments, and the
reserve for possible loan losses.

The guidelines require 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 "Tier 1" capital
elements). At December 31, 1995, the Company's ratio of total
capital-to-risk-weighted assets was approximately 16.3%, 15.3% of which was
"Tier 1" capital. Both ratios significantly exceed regulatory minimums.

The leverage ratio is defined to be a company's "Tier 1" capital

divided by its adjusted average total assets. The leverage ratio adopted by
the federal banking agencies requires a 3.0% "Tier 1"
capital-to-adjusted-total-assets for institutions with a CAMEL rating of 1. All
other institutions are expected to maintain a 100 to 200 basis point cushion;
i.e., these institutions are expected

<PAGE> 11

to maintain a leverage ratio of 4.0% to 5.0%. The Company's leverage ratio at
December 31, 1995, was 8.8%, exceeding the regulatory minimum.

The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") required the Federal Reserve Board to revise its risk-based capital
standards to take into account interest rate risk, concentration of credit risk
and the risks of nontraditional activities, as well as to reflect the actual
performance and expected risk of loss on multi-family mortgages.

Dividends

Federal Reserve Board policy discourages the payment of dividends by a
bank holding company from borrowed funds as well as payments that would
adversely affect capital adequacy. In addition, FDICIA provides that the
appropriate federal banking agency may prohibit a bank holding company
controlling a "significantly undercapitalized" institution (as referenced
below) from paying dividends without prior approval by the Federal Reserve
Board.

BANK REGULATION

Deposits in the Bank are insured by the FDIC. The Bank is not a
member of the Federal Reserve system and is a state-chartered institution;
therefore, the Bank is subject to supervision and regulation by both the FDIC
and the Texas Department of Banking.

Capital Adequacy

The FDIC has adopted regulations establishing minimum requirements for
the capital adequacy of insured institutions such as the Bank. The
requirements address both risk-based capital and leverage ratios, and are
essentially parallel to those for the Company.

The FDIC's risk-based capital guidelines require state banks to have a
ratio of "Tier 1" or core capital-to-total risk-weighted assets of 4.0% and a
ratio of total capital-to-total risk-weighted assets of 8.0%. As of December
31, 1995, the Bank's ratio of "Tier 1" capital-to-total risk-weighted assets
was 15.26% and its ratio of total capital-to-total risk-weighted assets was
16.26%. These ratios have decreased from 17.45% and 18.58%, respectively, as
of December 31, 1994.

The FDIC's leverage capital guidelines require that state banks
maintain "Tier 1" capital of no less than 5.0% of total adjusted assets, except
in the case of certain highly rated banks for which the requirement is 3.0% of
total adjusted assets. As of December 31, 1995, the Bank's ratio of "Tier 1"
capital-to-total adjusted assets was 8.76%. This ratio has increased from
8.67% as of December 31, 1993.

<PAGE> 12

The FDIC may, in certain circumstances, establish higher minimum
requirements than those described above; for example, when a bank has been
receiving special regulatory attention or has a high susceptibility to interest
rate risk. In any event, banks with capital ratios below the required minimums
are subject to certain administrative actions, including the termination of
deposit insurance upon notice and hearing, or a temporary suspension of
insurance without a hearing in the event the institution has no tangible
capital.

Prompt Corrective Action

Pursuant to FDICIA, each federal banking agency has specified by
regulation the levels at which an insured institution would be considered "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." In addition, the
applicable federal bank regulator for a depository institution could, under
certain circumstances, reclassify a "well capitalized" institution as
"adequately capitalized" or require an "adequately capitalized" or
"undercapitalized" institution to comply with supervisory actions as if it were
in the next lower category. Such a reclassification could be made if the
regulatory agency determines that the institution is in an unsafe or unsound
condition (which could include unsatisfactory examination ratings).

Undercapitalized institutions, as well as significantly and critically
undercapitalized institutions, are required to submit capital restoration plans
to their appropriate federal regulator and are subject to restrictions on
operations, including prohibitions on branching, engaging in new activities,
paying management fees, making capital distributions such as dividends, and
growing without regulatory approval. Moreover, in order for an undercapitalized
institution's capital restoration plan to be accepted by its federal regulator,
a company controlling such undercapitalized depository institution will be
required to guarantee its subsidiary's compliance with the capital restoration
plan up to an amount equal to the lesser of 5.0% of such subsidiary
institution's assets or the amount of the capital deficiency when such
institution first fails to meet the plan. The Company is a controlling company
of the Bank for these purposes. Increasingly stringent restrictions on
operations are made applicable to an institution if it becomes significantly or
critically undercapitalized, or if it does not submit, or comply with, an
acceptable capital restoration plan.

The Bank is considered "well capitalized" for prompt corrective action
purposes.

<PAGE> 13

Bank Dividends

Dividends paid by the Bank provide substantially all of the Company's
cash flow. Under Texas law, a state-chartered bank may pay dividends from
undivided profits, the part of equity capital equal to the balance of its net
profit, income, gains and losses since the date of formation minus subsequent
distributions to shareholders, and transfer to surplus or capital under share
dividends or by board resolution. At December 31, 1995, there was an aggregate
of approximately $72.3 million available for the payment of dividends by all
subsidiaries to the Company without prior regulatory approval.

The payment of dividends by the Bank may be affected by other
regulatory requirements, such as the maintenance of adequate capital, FDICIA
specifically prohibits the payment of dividends by an insured bank, if after
the payment, the bank would be "undercapitalized."

Deposit Insurance Assessments

In 1993, the FDIC began implementing a risk-related assessment scheme
for all insured depository institutions. Assessments are based on capital and
supervisory measures, with the strongest institutions presently paying $.04 for
every $100 of deposits and the weakest institutions paying $.27 for every $100
of deposits. In November 1995, the FDIC Board of Governors voted to reduce the
insurance premiums paid on deposits covered by the Bank Insurance Fund for the
highest rated institutions to an annual minimum of $2,000 effective for the
first semiannual period of 1996.

Under the risk-related scheme, the FDIC assigns each institution to
one of three capital groups (well capitalized, adequately capitalized or
undercapitalized, in each case as these terms are defined for purposes of
prompt corrective action rules described above) and further assigns such
institution to one of three subgroups within a capital group corresponding to
the FDIC's judgment of its strength based on supervisory evaluations, including
examination reports, statistical analysis and other information relevant to
gauging the risk posed by the institution. Only "well capitalized"
institutions may be placed in the lowest assessment category. The Bank has
been notified by the FDIC that its assessment rate for 1996 will remain at the
lowest risk-based premium available.

13
<PAGE> 14
STATISTICAL INFORMATION

The following statistical and other information is provided as part of
the Management Discussion and Analysis of the Financial Condition and Results
of Operations on the pages indicated.

<TABLE>
<CAPTION>
Page No.
--------

<S> <C> <C>
I. Distribution of Average Assets, Liabilities
and Stockholders' Equity; Interest Rates and
Interest Differential . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-21,38-39
II. Investment Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-36,47-48
III. Loan Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,46-47
IV. Summary of Loan Loss Experience . . . . . . . . . . . . . . . . . . . . . . . 30-31
V. Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19-20,27-28,43-45
VI. Short-Term Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

</TABLE>
ITEM 2
PROPERTIES

The principal offices of the Bank are located in One O'Connor Plaza,
which the Bank leases, and 120 Main Place, which the Bank owns free and clear
of any mortgage. The Company's offices are located in One O'Connor Plaza. The
Company and its subsidiaries occupy approximately 83% of the 134,000 square
feet of rentable floor space contained in 120 Main Place. The balance of the
space is leased to other tenants. The Company owns adequate facilities for
each of its branch office locations.

The Bank leases all of One O'Connor Plaza, a twelve-story office
building, under a net lease, with a remaining primary lease term of 15 years,
from Plaza Associates, a Texas general partnership. The principal partners of
Plaza Associates consist of seven children or grandchildren and three trusts
for the benefit of children or grandchildren of certain principal shareholders
of the Company. The lease commenced in 1985, and is a long-term triple net
lease, with a primary term of 25 years and six renewal terms of five years
each, exercisable at the option of the Bank, with annual rentals of
approximately $2.5 million during the first 15 years and approximately $3.0
million during the next ten years and rentals for renewal terms at fair market
value. The Bank has an option at the end of the primary term and each renewal
term to purchase the property at its fair market value. The Bank occupies
approximately 68% of the 157,000 rentable square feet in the building and
subleases the remaining space to other tenants. A portion (21%) of the
building is subleased to the principal shareholders of the Company. The
Company believes that the terms of its lease from Plaza Associates, and the
sublease to principal shareholders of the Company, are as favorable as those
which could have been obtained from an unaffiliated third party.

The Bank provides both commercial and consumer lending services,
banking services, including checking and savings

14
<PAGE> 15

accounts, and safe deposit facilities. The Bank's facilities include parking
garages adjacent to One O'Connor Plaza and 120 Main Place. The Bank's branch
office located in north Victoria provides six drive-in banking lanes, which
include one lane for commercial customers and one drive-up automatic teller
machine. The fourth local branch office is located in northeast Victoria, and
it has seven drive-in banking lanes, which include one lane for commercial
customers and one drive-up automatic teller machine.

ITEM 3
LEGAL PROCEEDINGS

The Company is involved in various legal actions that are in various
stages of litigation and investigation by the Company and its legal counsel.
Some of these actions allege various "lender liability" claims on a variety of
theories and claim substantial actual and punitive damages. After reviewing
all actions pending or threatened involving the Company, management believes
that while the resolution of any matter may have an impact on the financial
results of the period in which the matter is settled, their ultimate resolution
will not have a material adverse effect upon the business or consolidated
financial position of the Company. However, these matters are in various
stages of proceedings and future developments could cause management to revise
its assessment of these matters. No material legal actions were terminated
during the fourth quarter of 1995.

ITEM 4
SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS

No matters were submitted to a vote of security holders of the
Company during the fourth quarter of the fiscal year covered by this Report.

PART II

ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS

Certain information concerning the Common Stock of the Company is
included on page 74 herein.

ITEM 6
SELECTED FINANCIAL DATA

Selected financial data is presented below. The selected financial
data should be read in conjunction with Management's Discussion and Analysis of
the Financial Condition and Results of Operations of the Company presented
elsewhere herein.

15
<PAGE> 16
SELECTED FINANCIAL DATA
VICTORIA BANKSHARES, INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Operating Results:
Interest Income ............... $ 118,841 $ 105,022 $ 101,784 $ 104,923 $ 121,770
Interest Expense .............. 51,404 38,452 37,054 43,316 69,073
Provision for Loan Losses...... 165 15 155 511 265
Net Interest Income After
Provision for Loan Losses ... 67,272 66,555 64,575 61,096 52,432
Noninterest Income............. 29,629 27,523 27,063 23,752 21,251
Noninterest Expense............ 74,208 68,374 70,047 63,298 59,738
Income Before Taxes
and Items Below.............. 22,693 25,704 21,591 21,549 13,945
Federal Income Tax............. 7,551 8,752 7,231 2,053 420
Extraordinary Items............ -0- -0- -0- 34 -0-
Cumulative Effect of Change
in Accounting Method......... -0- -0- 4,774 -0- (268)
Net Income..................... 15,142 16,952 19,134 19,530 13,257
Per Share Amounts:
Net Income..................... 1.83 2.05 2.47 2.64 1.80
Cash Dividends................. 0.73 0.52 0.40 0.31 0.03
Book Value..................... 22.89 21.68 21.12 18.05 15.67
Average Balances:
Demand Deposits................ 370,052 384,972 379,372 321,042 288,684
Interest-Bearing Transactional
Accounts..................... 618,577 645,113 608,923 485,984 428,957
Time Deposits.................. 583,535 493,736 520,124 514,212 608,189
Investment Securities.......... 841,835 876,479 896,716 842,643 843,954
Net Loans...................... 629,777 575,133 485,403 388,297 387,237
Long-Term Debt................. 733 1,037 1,644 5,560 12,880
Total Assets................... 1,857,782 1,814,026 1,802,639 1,589,441 1,592,029
Total Equity................... 185,738 174,547 151,201 124,922 108,564
Net Income as a Percent of:
Average Total Assets........... 0.82% 0.93% 1.06% 1.23% 0.83%
Average Total Equity........... 8.15% 9.71% 12.65% 15.63% 12.21%
Selected Average Ratios:
Net Loans to Total Deposits.... 40.06% 37.74% 31.98% 28.88% 30.81%
Demand Deposits to
Total Deposits............... 23.54% 25.26% 25.15% 24.29% 21.77%
Equity to Assets............... 10.00% 9.62% 8.39% 7.86% 6.82%
</TABLE>

16
<PAGE> 17
ITEM 7

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

1995 COMPARED TO 1994

The following discussion highlights the major changes affecting the
operations and financial condition of the Company for the two years ended
December 31, 1995. Unless the context otherwise requires, the "Company" refers
to Victoria Bankshares, Inc., and its subsidiaries. The discussion should be
read in conjunction with the consolidated financial statements, accompanying
notes, and selected financial data appearing elsewhere in this report.

OVERVIEW OF OPERATIONS

The Company reported net income of $15.1 million for the year ended
1995 compared to net income of $17.0 million reported for the year ended 1994.
Earnings per share were $1.83 for 1995 compared to $2.05 for 1994. The decline
in net income is primarily attributable to pressures on the net interest margin
resulting from increased funding costs and higher noninterest expenses due to
acquisition related expenses.

A special meeting of the shareholders of the Company will be held on
April 2, 1996, to consider and vote upon a proposal to approve the Agreement
and Plan of Merger dated November 12, 1995, between the Company and Norwest.
The Plan of Merger has been approved by the boards of both companies and is
pending regulatory approval. Norwest will issue 1.05 shares of Norwest common
stock in exchange for each share of the Company's common stock. The exchange
will be tax-free for the Company's shareholders and will be accounted for by
Norwest as a pooling-of-interests.

The Company continues to be well capitalized. At December 31, 1995,
the Company's ratio of total capital-to-risk-weighted-assets was 16.26% and
its leverage ratio was 8.76%, both of which significantly exceed the minimum
regulatory requirements.

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. The interest income on certain loans and investment securities is
not subject to Federal income tax. For analytical purposes, at December 31,
1995 and December 31, 1994 and 1993, the interest income and rates on these
types of assets are adjusted to a "fully taxable equivalent" basis, net of the

<PAGE> 18

effect of any interest expense disallowed. The fully taxable equivalent
adjustment was calculated using the Company's statutory Federal income tax rate
of 35%. Adjusted interest income is as follows (in thousands):

<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
Interest Income-Book Basis . . . . . . . . . . . $118,841 $105,022 $101,784
Taxable-Equivalent Adjustment . . . . . . . . . . 851 410 542
-------- -------- --------
Interest Income-Taxable
Equivalent Basis . . . . . . . . . . . . . . . 119,692 105,432 102,326
Interest Expense . . . . . . . . . . . . . . . . 51,404 38,452 37,054
-------- -------- --------
Net Interest Income-Taxable
Equivalent Basis . . . . . . . . . . . . . . . $ 68,288 $ 66,980 $ 65,272
======== ======== ========

</TABLE>

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 paid for all funding sources is lower than the rate
paid on interest-bearing liabilities alone. As the following table
illustrates, the interest rate spread decreased 16 basis points to 3.29% in
1995 from 3.45% in 1994 and the interest rate margin decreased 1 basis point to
4.15% in 1995 from 4.16% in 1994 (dollars in thousands).

18
<PAGE> 19
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------------
1995 1994 1993
------------------------------ ------------------------------- ---------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-Earning Assets:
Loans, Net of Unearned
Discount(2) . . . . . . $ 639,932 $60,783 9.50% $ 585,172 $ 52,819 9.03% $ 496,220 $ 43,126 8.69%
Investment Securities
Held to Maturity:
Taxable (1) . . . . . . 710,048 41,699 5.87 744,199 40,152 5.40 891,201 51,816 5.81
Tax-Exempt (2) . . . . . 38,627 2,543 6.58 19,822 1,439 7.26 5,755 521 9.05
Investment Securities
Available for
Sale (2)(3) . . . . . . 93,160 4,652 4.99 110,988 4,439 4.00 0 0 0.00
Trading Accounts . . . . . 167 10 6.26 1,042 57 5.50 1,337 67 5.01
Federal Funds Sold and
Short-Term Investments . 164,026 10,005 6.10 150,138 6,526 4.35 211,745 6,795 3.21

----------- -------- ------ ----------- -------- ------ ----------- -------- -----
Total Interest-
Earning Assets . . . . 1,645,960 119,692 7.27 1,611,361 105,432 6.54 1,606,258 102,326 6.34
----------- -------- ------ ----------- -------- ------ ----------- -------- -----

Noninterest-Earning Assets:
Cash and Due From Banks . 121,374 119,418 121,216
Other Assets . . . . . . . 101,235 92,353 85,776
Allowance for Loan Losses. (10,155) (10,039) (10,817)
----------- ----------- -----------
Total Assets . . . . . $1,858,414 $1,813,093 $1,802,433
=========== =========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities:
Interest-Bearing
Transactional
Accounts . . . . . . . $ 618,577 $ 15,891 2.57% $ 645,113 $ 15,536 2.41% $ 608,923 $ 14,065 2.31%
Time Deposits . . . . . . 583,535 30,442 5.22 493,736 18,667 3.78 520,125 19,144 3.68
Federal Funds Purchased
and Short-Term
Borrowings . . . . . . . 87,522 5,024 5.74 104,964 4,183 3.99 129,203 3,752 2.90
Long-Term Debt . . . . . . 733 47 6.41 1,037 66 6.41 1,644 93 5.65
----------- -------- ------ ---------- -------- ------ ---------- -------- -----
Total Interest Bearing
Liabilities . . . . 1,290,367 51,404 3.98 1,244,850 38,452 3.09 1,259,895 37,054 2.94
----------- -------- ------ ----------- -------- ------ ---------- -------- -----
Noninterest-Bearing
Liabilities:
Demand Deposits . . . . . 370,052 384,972 379,268
Other Liabilities (3) . . 11,842 9,330 12,108
---------- ---------- ----------
Total Liabilities . . . . . 1,672,261 1,639,152 1,651,271
---------- ---------- ----------
Stockholders' Equity (3) . 186,153 173,941 151,162
---------- ---------- ----------
Total Liabilities and
Stockholders' Equity . $1,858,414 $1,813,093 $1,802,433
========== ========== ==========
Net Interest Income . . . . . $ 68,288 $ 66,980 $ 65,272
======== ======== ========
Net Interest Spread . . . . . 3.29% 3.45% 3.40%
====== ====== =====
Interest Rate Margin . . . . 4.15% 4.16% 4.06%
====== ====== =====
</TABLE>
________________________________

(1) Includes interest-bearing deposits with other banks.
(2) 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%.
(3) The 1995 and 1994 average balance has been adjusted to exclude the effect
of Statement of Financial Accounting Standards No. 115.

<PAGE> 20

The level of net interest income is the result of the relationship
between the total volume and mix of interest-earning assets and the rates
earned, and the total volume and mix 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 to analyze the
year-to-year changes in net interest income. Changes due to rate/volume
variances have been allocated between changes due to average volume and changes
due to average rate based on the percentage of each to the total change of both
categories. Because of changes in the mix of the components of interest-earning
assets and interest-bearing liabilities, the computations for each of the
components do not equal the calculation for interest-earning assets as a total
and interest-bearing liabilities as a total. The following table analyzes the
changes attributable to the rate and volume components of net interest income
(in thousands):

<TABLE>
<CAPTION>
1995/1994 1994/1993
------------------------------ -------------------------------
Increase Increase
(Decrease) Due to (Decrease) Due to
Change in Total Change in Total
------------------ Net ----------------- Net
Average Average Increase Average Average Increase
Volume Rate (Decrease) Volume Rate (Decrease)
-------- ------- ---------- --------- ------- ----------

<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans . . . . . . . . . . . . . . . . . . . $ 5,109 $ 2,855 $ 7,964 $ 7,953 $ 2,127 $10,080
Investment Securities Held to Maturity . . 39 2,612 2,651 (7,351) (3,651) (11,002)
Investment Securities Available for Sale . (683) 896 213 4,439 0 4,439
Trading Accounts . . . . . . . . . . . . . (54) 7 (47) (15) 5 (10)
Federal Funds Sold and
Other Short-Term Investments . . . . . . 649 2,830 3,479 (2,293) 2,023 (270)
Interest-Earning Assets as a Total . . . 2,401 11,859 14,260 325 2,912 3,237

Interest Expense:
Interest-Bearing Transactional
Accounts . . . . . . . . . . . . . . . . (655) 1,010 355 857 613 1,470
Time Deposits . . . . . . . . . . . . . . . 3,813 7,962 11,775 (988) 511 (477)
Federal Funds Purchased and
Short-Term Borrowings . . . . . . . . . . (779) 1,620 841 (792) 1,222 430
Long-Term Debt . . . . . . . . . . . . . . (20) 1 (19) (38) 1 1 (27)
Interest-Bearing Liabilities as a Total . 1,406 11,546 12,952 (442) 1,838 1,396

Net Interest Income . . . . . . . . . . . . . $ 995 $ 313 $ 1,308 $ 767 $ 1,074 $ 1,841
</TABLE>

CHANGES DUE TO VOLUME

The increase in net interest income due to the change in average
volume is attributable primarily to the growth in loan volume from 36.3% of
average interest-earning assets at December 31, 1994, to 38.9% at December 31,
1995. This increase was partially offset by the increase in the average volume
of time deposits. Time deposits, typically the highest cost of the deposit
category, increased from 39.7% of average interest-bearing liabilities at
December 31, 1994, to 45.2% at December 31, 1995.

CHANGES DUE TO RATES

The increase in net interest income due to the change in average rates
occurred even though the net interest spread

<PAGE> 21

decreased as the effect of rates on interest income was larger than the effect
of rates on interest expense. This is due to the average balance of
interest-earning assets being proportionately larger than the average balance of
interest-bearing liabilities.

PROVISION FOR LOAN LOSSES

The provision for loan losses is an amount added to the allowance
against which loan losses are charged. 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 1995 was $165 thousand
and for 1994 was $15 thousand. The increase over 1994 was primarily due to the
increase in the size of the portfolio. Relatively low levels of nonperforming
loans and net charge-offs should continue. However, the provision for loan
losses may need to be increased in the future if loan growth continues as
expected.

During 1995, the Company recorded net charge-offs to the allowance
for loan losses of $557 thousand, up from a net recovery of $35 thousand in
1994. The allowance for loan losses at December 31, 1995, was 1.5% of loans,
net of unearned discount, compared to 1.7% at December 31, 1994. The allowance
as a percent of nonperforming loans was 125.2% at December 31, 1995, as
compared to 98.4% a year earlier.

NONINTEREST INCOME

Noninterest income totaled $29.6 million in 1995, up $2.1 million or
7.7% from December 31, 1994. The following table presents a comparative
analysis of the major components of noninterest income (in thousands):

<TABLE>
<CAPTION>
December 31,
------------------------------------------
Increase
1995 1994 (Decrease)
------- ------- ----------
<S> <C> <C> <C>
Service Charges and Other Fees . . . . . . . . . . . . . . . $16,202 $15,393 $ 809
Trust Services Income . . . . . . . . . . . . . . . . . . . . 6,908 5,556 1,352
Data Processing Income . . . . . . . . . . . . . . . . . . . 2,745 3,201 (456)
Securities Gains (Losses) . . . . . . . . . . . . . . . . . . 57 (796) 853
Other Operating Income:
Investment Product Income . . . . . . . . . . . . . . . . 1,081 1,395 (314)
Safe Deposit Income . . . . . . . . . . . . . . . . . . . 591 589 2
Mortgage Banking Income . . . . . . . . . . . . . . . . . 503 619 (116)
All Other Operating Income . . . . . . . . . . . . . . . 1,542 1,566 (24)
-------- ------- -------

Total Noninterest Income . . . . . . . . . . . . . . . . $29,629 $27,523 $2,106
======== ======= =======

</TABLE>

Service charges and other fees increased 5.3% in 1995 resulting mainly
from the acquisition of Cattlemen's during the second quarter of 1995 and
income from a new ATM surcharge that began in the fourth quarter of 1994.

<PAGE> 22

Trust services income increased 24.3% during 1995 as the assets under
management increased $70.0 million to $1.1 billion. The increase in income can
be attributed primarily to a full year's effect on income from the acquisition
of the former Ameritrust Texas National Association office located in Corpus
Christi from Texas Commerce Bank National Association ("Corpus Christi Trust")
during the third quarter of 1994.

Data processing income decreased 14.2% as a result of a decrease in
the level of customers serviced by the Company's data processing subsidiary.

Securities gains totaled $57 thousand during 1995 as compared to
losses of $796 thousand in 1994. The gains in 1995 resulted from the sales of
equity investments by the Company's Small Business Administration ("SBA")
licensed subsidiary and in-substance maturities of securities held to maturity.
The losses in 1994 were due mainly to losses of $446 thousand on dispositions
of two equity investments held by the SBA licensed subsidiary. Also
contributing to the 1994 losses were sales of securities held as available for
sale in order to improve total return.

Other operating income, which includes investment product income,
mortgage banking income, and safe deposit income, decreased 10.8% in the
aggregate during 1995. The decrease in investment product income is
attributable to decreases in total commissions from a lower level of sales of
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. These decreases were partially offset by a
slight increase in safe deposit income as a result of the acquisition of
Cattlemen's.

NONINTEREST EXPENSE

Total noninterest expense increased $5.8 million or 8.5% to $74.2
million in 1995 from $68.4 million in 1994. This increase resulted primarily
from acquisition expenses, including conversions of Cattlemen's in the second
quarter of 1995 and a full year's expense related to the acquired Corpus
Christi Trust in the third quarter of 1994. Excluding expenses related to
acquisitions, total noninterest expense increased 4.2%. The following table
presents a comparative analysis of the major components of noninterest expense
(in thousands):

22
<PAGE> 23

<TABLE>
<CAPTION>
December 31,
-------------------------------------------
Increase
1995 1994 (Decrease)
------- ------- ----------
<S> <C> <C> <C>
Salaries and Wages . . . . . . . . . . . . . . . . . . . . . . $28,526 $26,536 $ 1,990
Retirement and Other
Employee Benefits . . . . . . . . . . . . . . . . . . . . . 8,827 7,394 1,433
Net Occupancy Expense . . . . . . . . . . . . . . . . . . . . . 7,407 7,197 210
Equipment Rental, Depreciation, and
Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . 5,286 5,072 214
FDIC Insurance . . . . . . . . . . . . . . . . . . . . . . . . 1,749 3,335 (1,586)
Other Operating Expenses
Taxes Other Than Income . . . . . . . . . . . . . . . . . . 492 344 148
Marketing Expense . . . . . . . . . . . . . . . . . . . . . 1,327 1,550 (223)
Operating Supplies . . . . . . . . . . . . . . . . . . . . 2,563 2,260 303
Communication Expense . . . . . . . . . . . . . . . . . . . 1,436 1,189 247
Postage Expense . . . . . . . . . . . . . . . . . . . . . . 1,325 1,193 132
Outside Service Expense . . . . . . . . . . . . . . . . . . 7,212 5,683 1,529
Amortization of Intangible Assets . . . . . . . . . . . . . 2,438 1,702 736
All Other . . . . . . . . . . . . . . . . . . . . . . . . . 5,620 4,919 701
------- ------- --------

Total Noninterest Expense . . . . . . . . . . . . . . . . $74,208 $68,374 $ 5,834
======= ======= ========

</TABLE>

Salaries and wages increased 7.5% during 1995 as a result of the 1995
acquisition of Cattlemen's, the 1994 acquisition of Corpus Christi Trust, and
normal merit increases.

Retirement and other employee benefits increased 19.4% during 1995
primarily due to increased health care expenses as a result of rising health
care costs and increased claims, as well as the acquisitions mentioned above.

Net occupancy expense increased 2.9% during 1995 primarily as a result
of the timing of the 1994 Corpus Christi Trust acquisition and the 1995
Cattlemen's acquisition.

Equipment rental, depreciation, and maintenance expense increased 4.2%
during 1995 resulting primarily from the installation of a Platform system at
branch offices in 1995 and increased expenses related to acquisitions.

FDIC insurance expense decreased $1.6 million or 47.6% during 1995 due
to a partial refund received in September 1995 from the FDIC on assessments
paid for the second quarter of 1995 and a reduction in the assessment rate paid
for the third quarter of 1995. The Bank has been notified by the FDIC that its
assessment rate for 1996 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.
In November 1995, the FDIC Board of Directors voted to reduce the insurance
premiums paid on deposits covered by the Bank Insurance Fund for the highest
rated institutions to an annual minimum of $2,000 effective for the first
semiannual period of 1996.

Taxes other than income, primarily Texas franchise tax, increased
43.0% during 1995 primarily as a result of increased

<PAGE> 24

taxable capital (as defined by law) at the Company and the 1995 acquisition of
Rosenberg.

Operating supplies, communication, and postage expenses all increased
during 1995 as a result of the 1994 acquisition of Corpus Christi Trust and the
1995 acquisition of Cattlemen's.

Outside service expense increased 26.9% during 1995 primarily due to
the 1995 expenses incurred as a result of the conversion relating to the 1995
acquisitions of Rosenberg, Cattlemen's, and the impending merger with Norwest.

Amortization of intangible assets increased 43.2% primarily as a
result of the 1995 acquisition of Cattlemen's and the full year's effect of the
1994 acquisition of Corpus Christi Trust.

All other noninterest expense increased 14.3% due primarily to
increases in software license and maintenance expenses and seminars and
training expenses.

INCOME TAXES

For the year ended December 31, 1995, the Company's provision for
federal income taxes was $7.6 million compared to $8.8 million for the year
ended December 31, 1994.

The Company had a net deferred tax liability of $709 thousand as of
December 31, 1995. This net deferred tax liability is composed of the expected
tax payments from the reversal of the temporary differences between tax and
book net income and the gross-up of core deposit intangibles acquired from
Cattlemen's. The existing net temporary differences will reverse during future
periods.

CAPITAL MANAGEMENT

The Federal Reserve Board has adopted 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, which previously were not
expressly considered in capital adequacy computations, are added to the
risk-weighted asset base by converting them to a balance sheet equivalent and
assigning them to the appropriate risk weight.

The guidelines require that banking organizations achieve minimum
ratios 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"

<PAGE> 25
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, 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.

At December 31, 1995, the Company's ratios of "Tier 1" and total
capital to risk-weighted assets were 15.25% and 16.26%, respectively. Both
ratios significantly exceed regulatory minimums.

The following table summarizes the Company's Tier 1 and Total Capital
(dollars in thousands):
<TABLE>
<CAPTION>
December 31, 1995
----------------------------
Amount Ratio
---------- ------

Tier 1 Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 160,186 15.26%
Tier 1 Capital Minimum Requirement . . . . . . . . . . . . . . . . . . . . . 41,996 4.00
----------- ------

Excess Tier 1 Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 118,190 11.25%
=========== ======

Total Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 170,763 16.26%
Total Capital Minimum Requirement . . . . . . . . . . . . . . . . . . . . . . 83,992 8.00
----------- ------

Excess Total Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 86,771 8.26%
=========== ======

Risk Adjusted Assets,
Net of Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,049,904
===========
</TABLE>

In addition to the risk-based capital guidelines, the Federal Reserve
Board and the FDIC use a "leverage ratio" as an additional tool to evaluate the
capital adequacy of banks and bank holding companies. The "leverage ratio" is
defined to be a company's "Tier 1" capital divided by its adjusted average
total assets. The leverage ratio adopted by the federal banking agencies
requires a ratio of 3.0% 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 at December 31, 1995, was 8.8%, which
also significantly exceeds the regulatory minimum.

The FDIC maintains final rules on capital adequacy ranging in five
categories from critically undercapitalized to well-capitalized. A
well-capitalized company is one that maintains total capital to risk-weighted
assets of at least 10%, a "Tier 1" total capital to risk-weighted assets 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.

25
<PAGE> 26
LIQUIDITY MANAGEMENT

To a business enterprise, liquidity is the ability to generate cash to
meet financial obligations and 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.

The Company's sources of liquidity as a whole include cash and cash
equivalents, available for sale securities and federal funds sold ("liquid
assets"), as well as new deposits, proceeds of additional borrowings, and
proceeds from additional sales of stock.

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.

The Company paid cash dividends of $6.0 million and $4.1 million to
holders of common stock during 1995 and 1994, respectively. The Company has
paid cash dividends for fifteen consecutive quarters. In March 1994, cash
dividends were increased from $.10 per share to $.13 per share, representing a
30% increase. In January 1995, the Company declared a $.16 per share quarterly
dividend, an increase of 23%, and a special $.09 per share dividend. In each
subsequent quarter of 1995 the Company paid a $.16 per share quarterly
dividend. In January 1996, the Company declared a $.16 per share dividend and
a special $.09 per share dividend which was paid on February 22, 1996.

The Parent Company, as of December 31, 1995, has $13.7 million in
short-term and medium-term securities which can be used to provide liquid
resources as well as currently unanticipated capital needs of its subsidiaries.

An integral part of the Company's liquidity management is the funding
of the Bank, which derives its source of fundings predominately from deposits
within its marketing area. The customer base for deposits is diversified among
correspondent banks, individuals, partnerships and corporations, and public
entities. This diversification helps the Company avoid dependence on large
concentrations of funds. The Company does not, as a matter of policy, place
certificates of deposit through brokers. The Company's percentage of time
certificates of deposit over $100,000 to time deposits increased to 20.2% in
1995 from 19.8% in 1994. This increase was the result of customers moving funds
into time deposits as interest rates increased during 1995.

<PAGE> 27

The table below sets forth the maturity distribution of certificates
of deposit of $100,000 or more issued by the Bank (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------
Remaining Maturity 1995 1994
--------- ---------

<S> <C> <C>
Maturing in 3 Months or Less . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,874 $ 41,272
Maturing in Over 3 Through 6 Months . . . . . . . . . . . . . . . . . . . . . . . 22,168 20,535
Maturing in Over 6 Through 12 Months . . . . . . . . . . . . . . . . . . . . . . 37,356 23,641
Maturing in Over 12 Months . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,666 14,739
--------- --------

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126,064 $100,187
========= ========

</TABLE>

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 the relationship between changes in
market interest rates and 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 being subject to repricing; therefore,
market interest rate changes will be reflected more quickly in asset rates. If
interest rates rise, such a position will have a positive effect on net
interest income. Conversely, in a liability sensitive position, where
liabilities reprice more quickly than assets in a given period, a rise in rates
will have an adverse effect on 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 represents a matched interest rate
sensitivity position. Any excess of assets or liabilities in a particular
period results in an interest rate sensitivity gap. The following table
presents the interest rate sensitivity position of the Company at December 31,
1995 (dollars in thousands).

27
<PAGE> 28
<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 . . $298,814 $ 28,789 $ 33,831 $ 78,057 $ 439,491 $ 274,154 $ 713,645
Investment Securities . . . . . . 111,118 64,156 67,935 139,447 382,656 442,041 824,697
Federal Funds Sold and Other
Short-Term Investments . . . . . . 178,760 9,950 -0- -0- 188,710 -0- 188,710
Other Earning Assets . . . . . . . 150 -0- -0- -0- 150 -0- 150
--------- --------- --------- --------- ---------- ---------- -----------

Total Earning Assets . . . . . . . 588,842 102,895 101,766 217,504 1,011,007 716,195 1,727,202

Interest-Bearing Liabilities:
Interest-Bearing Transactional
Accounts . . . . . . . . . . . . 303,248 -0- -0- -0- 303,248 336,774 640,022
Time Deposits . . . . . . . . . . . 69,366 90,277 114,361 245,776 519,780 103,445 623,225
Fed Funds Purchased and Other
Short-Term Borrowings . . . . . . . 94,181 -0- -0- -0- 94,181 -0- 94,181
Long-Term Debt . . . . . . . . . . -0- -0- -0- -0- -0- -0- -0-
--------- --------- --------- --------- ---------- ---------- -----------

Total Interest-Bearing
Liabilities . . . . . . . . . . . 466,795 90,277 114,361 245,776 917,209 $ 440,219 $1,357,428
--------- --------- --------- --------- ---------- ---------- -----------

Interest Sensitivity Gap . . . . . $122,047 $ 12,618 $(12,595) $(28,272) $ 93,798
========= ========= ========= ========= ==========

Cumulative Interest
Sensitivity Gap . . . . . . . . . $122,047 $134,665 $122,070 $ 93,798
========= ========= ========= =========
Ratio of Earning Assets to
Interest-Bearing Liabilities . . 126.15% 113.98% 88.99% 88.50% 110.23%
========= ========= ========= ========= ==========
</TABLE>

The Company had an asset sensitivity gap position in the 30-day period
of $122.0 million. The cumulative rate sensitive gap position at one year was
an asset sensitive position of $93.8 million, which indicates that the Company
may benefit from rising interest rates; conversely falling interest rates may
have a negative impact upon the Company.

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 assets and liabilities equally or
at the same time.

The Company's Asset and Liability Committee reviews monthly the
consolidated rate sensitivity positions 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.

28
<PAGE> 29
LOAN PORTFOLIO

The Company's loans are widely diversified by borrower and industry
group. The following summary shows the composition of the loan portfolio for
the five years ended December 31, 1995 (dollars in thousands):

<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
----------------- ----------------- ----------------- ----------------- -----------------

Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans Secured Primarily by
Real Estate:
Construction and
Land Development ....... $ 19,990 2.79% $ 18,565 3.08% $ 25,012 4.41% $ 13,696 3.43% $ 11,752 2.84%
Other Real Estate
Loans .............. 293,980 41.10 245,162 40.69 221,394 39.00 144,244 36.16 158,474 38.36
Agricultural ............. 40,409 5.65 38,131 6.33 35,540 6.26 26,813 6.72 24,975 6.05
Commercial and Industrial
Loans .................. 145,984 20.41 121,617 20.18 113,631 20.01 83,668 20.97 96,123 23.27
Consumer Loans ........... 211,573 29.57 175,938 29.20 167,124 29.44 123,111 30.86 109,895 26.60
Loans to Financial
Institutions and
all Other Loans ........ 3,429 0.48 3,154 0.52 4,980 0.88 7,408 1.86 11,901 2.88
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Total Loans .............. 715,365 100.00% 602,567 100.00% 567,681 100.00% 398,940 100.00% 413,120 100.00%
======= ======= ======= ======= =======
Less:
Unearned Discount ...... (1,720) (4,491) (9,161) (8,403) (7,881)
Allowance for Loan
Losses ............... (10,577) (10,024) (9,974) (10,081) (11,550)
-------- -------- -------- -------- --------
Net Loans ................ $703,068 $588,052 $548,546 $380,456 $393,689
======== ======== ======== ======== ========

</TABLE>
Maturities in the Company's loan portfolio at December 31, 1995, are
summarized below (in thousands):

<TABLE>
<CAPTION>
Due Due
Due in After One After
One Year Through Five
or Less Five Years Years Total
-------- ---------- -------- --------

<S> <C> <C> <C> <C>
Loans Secured Primarily by Real Estate:
Construction and Land Development . . . . . . . . . . . . $ 19,990 $ -0- $ -0- $ 19,990
Other Real Estate Loans . . . . . . . . . . . . . . . . . 37,313 91,732 164,935 293,980
Agricultural . . . . . . . . . . . . . . . . . . . . . . . 31,275 8,988 146 40,409
Commercial and Industrial Loans . . . . . . . . . . . . . . 80,219 59,857 5,908 145,984
Consumer Loans . . . . . . . . . . . . . . . . . . . . . . 86,475 124,052 1,046 211,573
Loans to Financial Institutions and all Other Loans . . . . 1,101 2,013 315 3,429
-------- -------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . $256,373 $286,642 $172,350 $715,365
======== ======== ======== ========
</TABLE>

The maturities presented above are based upon contractual maturities.
The Company has no set rollover policy. Many of these loans are made on a
short-term basis with the possibility of renewal at time of maturity. All
loans, however, are reviewed on a continuous basis for creditworthiness. The
total amount of loans due after one year which have fixed, floating, or
adjustable rates is as follows (in thousands):

<TABLE>
<CAPTION>
December 31, 1995
-----------------
<S> <C>
Loans Having Predetermined Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . $234,336
Loans Having Floating or Adjustable Interest Rates . . . . . . . . . . . . . . . . . . . . . . . 224,656
--------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $458,992
========
</TABLE>

<PAGE> 30

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 the 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.

The determination by Management of the appropriate level of the
allowance amounted to $10.6 million at December 31, 1995. The allowance for
loan losses is based on estimates, and ultimate losses will vary from the
current estimates. These estimates are reviewed monthly and as adjustments,
either positive or negative, become necessary they are reported in earnings in
the periods in which they become known. A detailed analysis of the Company's
allowance for loan losses for the past five years is shown below (in
thousands):

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
1995 1994 1993 1992 1991
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance of Allowance for Loan
Losses at Beginning of Period . $10,024 $ 9,974 $10,081 $11,550 $13,338
Allowance on Purchased Loans . . 945 15 155 511 265
Provision for Loan Losses . . . . 165 0 300 0 160
Charge-offs:
Real Estate Loans . . . . . . . 365 172 397 1,394 1,093
Agricultural Loans . . . . . . 22 4 20 66 69
Commercial and Industrial
Loans . . . . . . . . . . . 260 142 422 926 953
Consumer Loans . . . . . . . . 580 573 900 916 1,073
Loans to Financial Institutions
and all Other Loans . . . . . 0 0 0 0 935
-------- -------- ------- ------- -------
Total Charge-Offs . . . . . 1,227 891 1,739 3,302 4,123
-------- -------- ------- ------- -------

Recoveries:
Real Estate Loans . . . . . . . 293 324 290 132 439
Agricultural Loans . . . . . . -0- 53 6 19 71
Commercial and Industrial
Loans . . . . . . . . . . . 148 138 474 406 1,062
Consumer Loans . . . . . . . . 229 411 407 540 274
Loans to Financial Institutions
and all Other Loans . . . . . -0- 0 0 225 64
-------- -------- ------- ------- -------
Total Recoveries . . . . . 670 926 1,177 1,322 1,910
-------- -------- ------- ------- -------

Net Charge-Offs (Recoveries) . . 557 (35) 562 1,980 2,213
-------- -------- ------- ------- -------

Balance at End of Period . . . . $10,577 $10,024 $ 9,974 $10,081 $11,550
======== ======== ======= ======= =======
</TABLE>

<PAGE> 31

The following table reflects certain historical statistics of the
Company relating to the relationship among loans (net of unearned discount),
net charge-offs, and the allowance for loan losses (dollars in thousands):

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Balances:
Average Loans, Net of
Unearned Discount . . . . . . . $639,932 $585,172 $496,220 $399,423 $399,797
Loans, Net of Unearned Discount . 713,645 598,076 558,520 390,675 405,239
Net Charge-Offs (Recoveries) . . 557 (35) 562 1,980 2,213
Allowance for Loan Losses . . . . 10,577 10,024 9,974 10,081 11,550
Nonperforming Assets . . . . . . 10,093 11,708 18,876 30,601 40,157
Nonperforming Loans . . . . . . . 8,449 10,189 13,074 21,784 27,003
Ratios:
Net Charge-Offs (Recoveries) to:
Average Loans, Net of
Unearned Discount . . . . . . . 0.09% (.01%) .11% .50% .55%
Loans, Net of Unearned Discount . 0.08% (.01%) .10% .51% .54%
Allowance for Loan Losses . . . . 5.27% (.35%) 5.63% 19.64% 19.15%
Allowance for Loan Losses to:
Loans, Net of Unearned Discount . 1.48% 1.68% 1.79% 2.58% 2.84%
Nonperforming Loans . . . . . . . 125.19% 98.38% 76.29% 46.28% 42.77%

</TABLE>
The table below shows an allocation of the allowance for loan losses
by major categories of loans for the five years ended December 31, 1995.
Definitions of types of loans are based on bank regulatory agency instructions
for "Call Reports." Historically, the allowance for loan losses related to
commitments to extend credit and standby letters of credit has not been
material. Allocations as of year-end, which are not indicative of conditions
at any other date and do not restrict or dictate allocations at future dates,
are as follows (dollars in thousands):

<TABLE>
<CAPTION>
Commercial Financial
Real and Institutions
Estate Agricultural Industrial Consumer and Other Unallocated Total
------ ------------ ---------- -------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1995:
Allowance . . . . $3,489 $ 497 $1,656 $2,967 $ 11 $1,957 $10,577
Percentage of Loans 1.11% 1.23 1.13% 1.40 .32% 1.48%
December 31, 1994:
Allowance . . . . 2,884 283 1,424 3,596 23 1,814 10,024
Percentage of Loans 1.09% .74 1.17% 2.04% .73% 1.66%
December 31, 1993:
Allowance . . . . 3,164 395 1,809 2,797 29 1,780 9,974
Percentage of Loans 1.28% 1.11% 1.59% 1.67% .58% 1.76%
December 31, 1992:
Allowance . . . . 2,803 344 1,778 3,249 117 1,790 10,081
Percentage of Loans 1.77% 1.28% 2.13% 2.64% 1.58% 2.53%
December 31, 1991:
Allowance . . . . 3,578 475 2,887 2,526 140 1,944 11,550
Percentage of Loans 2.19% 1.90% 3.00% 2.30% 1.18% 2.85%

</TABLE>

All percentages are calculated using loans net of unearned discount.

NONPERFORMING ASSETS

The Company's nonperforming assets consist of nonperforming loans,
other real estate, and other repossessed assets.

<PAGE> 32

NONPERFORMING LOANS

The Company's nonperforming loans consist of impaired loans,
nonaccrual loans, troubled debt restructurings, and loans 90 days past due and
still accruing.

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.

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/or 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 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 allowances for loan losses.

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
December 31, 1995, all restructured loans were performing in accordance with
the restructured terms.

Loans 90 days past due and still accruing are well secured and in the
process of collection.

<PAGE> 33

OTHER NONPERFORMING ASSETS

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 not 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.

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.

The following table discloses information regarding nonperforming
assets for each of the last five years (in thousands):

<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
IMPAIRED LOANS
Nonaccrual Loans:
Real Estate . . . . . . . . . $ 5,947 $ -0- $ -0- $ -0- $ -0-
Energy . . . . . . . . . . . -0- -0- -0- -0- -0-
Agricultural . . . . . . . . 169 -0- -0- -0- -0-
Commercial . . . . . . . . . 685 -0- -0- -0- -0-
Troubled Debt
Restructurings . . . . . . . . -0- -0- -0- -0- -0-
OTHER NONPERFORMING
Nonaccrual Loans (1,2) . . . . 610 9,145 12,003 16,824 23,184
Troubled Debt
Restructurings (1,3) . . . . 569 617 599 723 767
Other Real Estate and Other
Loan Related Assets . . . . . 1,644 1,519 2,807 3,117 5,967
Loans 90 Days or More Past
Due and Still Accruing . . . 469 427 472 4,209 1,312
-------- ------- ------- ------- -------
Total Nonperforming Assets . . $ 10,093 $11,708 $15,881 $24,873 $31,230
======== ======= ======= ======= =======
</TABLE>

(1) See also Note 5 of Notes to Financial Statements for interest foregone.
(2) For 1995, these loans are not considered impaired since they are part of a
small balance homogeneous portfolio which are exempt from SFAS 114.
(3) For 1995, these troubled debt restructurings were performing in accordance
with their restated terms as of the date of adoption of SFAS 114.

Total nonperforming assets, which include nonperforming loans and
other nonperforming assets, totaled $10.1 million or 1.4% of total loans and
other nonperforming assets at December 31, 1995, as compared with $11.7 million
or 2.0% of total loans and other nonperforming assets at December 31, 1994.
Total nonperforming assets represented 0.5% and 0.6% of the total assets at
December 31, 1995 and December 31, 1994, respectively. The total

<PAGE> 34
amount of loans past due 90 days or more and still accruing, totaled $469
thousand at December 31, 1995, compared to $427 thousand at December 31, 1994.

LOAN CONCENTRATIONS AND REGIONAL ECONOMY

The economy of the market area served by the Company is characterized
by petroleum and natural gas production and sales of related supplies and
services, petrochemical operations, light and medium manufacturing operations,
agribusiness, and tourism. The agricultural businesses are highly diversified,
including beef and dairy cattle, poultry, cotton, and a variety of grain crops.
Also, through the acquisition of the Bryan Bank in 1993 and Cattlemen's in 1995,
the Company expanded into areas positively affected by a major educational
centers. In general, real estate values, as well as real estate development and
sales activities, tend to reflect a region's economic environment. The Texas
real estate environment continues to show improvement. Management believes that
the loans in the real estate portfolio are generally adequately supported by
market prices or other credit factors. The Company has no foreign loans, and,
therefore, is not directly affected by current international developments.

Real estate loans totaling $314.0 million comprised approximately
43.9% of the loan portfolio at December 31, 1995, of which 2.1% was
nonperforming. At December 31, 1994, real estate loans totaled $263.7 million
comprising 43.8% of the loan portfolio, of which 3.1% was nonperforming. The
majority of the Company's real estate loans are secured by property located in
the nonmetropolitan areas in which the Company operates. The Company's real
estate loan portfolio is comprised of interim construction, residential,
commercial building, farm acreage, vacant lot, and land development loans.
Permanent residential loans make up approximately 44% of the total real estate
loans.

Consumer loans totaled $211.6 million at December 31, 1995
(approximately 29.6% of the loan portfolio), 0.3% of which were nonperforming.
These consumer loans include approximately $106.6 million in loans originated
through automobile dealers. At December 31, 1994, consumer loans totaled
$175.9 million (approximately 29.2% of the loan portfolio), 0.5% of which were
nonperforming.

Agricultural loans, exclusive of loans secured by farm acreage which
are categorized by the Company as real estate loans, totaled $40.4 million at
December 31, 1995, or approximately 5.7% of the Company's loan portfolio, of
which 0.5% were nonperforming. At December 31, 1994, agricultural loans
totaled $38.1 million comprising approximately 6.3% of the Company's loan
portfolio, of which 0.5% were nonperforming. Risks in this area revolve
around price fluctuations and possible crop failures brought on by severe
weather.

<PAGE> 35

The Company's energy loans, included in the commercial and industrial
loan category, were approximately $1.5 million at December 31, 1995, or 0.2% of
the loan portfolio of which all were performing. At December 31, 1994, energy
loans totaled $1.7 million comprising approximately .3% of the loan portfolio,
of which 2.3% were nonperforming. The majority of the Company's energy loan
portfolio are loans to energy service companies as opposed to loans secured by
oil and gas reserves.

INVESTMENT SECURITIES

The book and market values of investment securities held by the
Company as of the dates indicated are summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Book Value:
Held to Maturity:
U. S. Government and
Government Agency . . . . . . . . . . . . . . $576,204 $634,621 $703,951
State and Political
Subdivisions . . . . . . . . . . . . . . . . . 65,528 36,037 4,978
Investment Grade Corporate Bonds . . . . . . . 26,551 91,004 114,196
Mortgage-Backed Securities . . . . . . . . . . 3,301 4,959 9,343
Other (1) . . . . . . . . . . . . . . . . . . . -0- -0- -0-
Available for Sale:
U.S. Government and Govt. Agency . . . . . . . 118,454 110,440 82,522
State and Political Subdivisions . . . . . . . 3,685 4,737 -0-
Investment Grade Corporate Bonds . . . . . . . 30,406 -0- -0-
Other (1) . . . . . . . . . . . . . . . . . . . 568 6,300 6,836
-------- -------- --------
Total . . . . . . . . . . . . . . . . . . . $824,697 $888,098 $921,826
======== ======== ========
Market Value: . . . . . . . . . . . . . . . . . . . . $828,284 $869,387 $932,947
======== ======== ========
</TABLE>
_____________________

(1) Includes Federal Reserve Stock, other bonds, and corporate stocks.

The investment portfolio, which is the largest segment of the
Company's earning asset base (48%), is being managed to minimize interest rate
risk, maintain sufficient liquidity and maximize return. Investment securities
held to maturity are purchased with the intent and ability of the Company to
hold them to maturity as evidenced by the strong capital position of the
Company and short maturity of the portfolio. The Company's financial planning
anticipates income streams based on normal maturity and reinvestment. The
short duration of the portfolio provides adequate liquidity through normal
maturities. Investment securities available for sale are purchased with the
intent to provide liquidity and to increase returns. The Company does not
engage in trading in either the investment securities held to maturity or
investment securities available for sale categories.

Held to maturity securities with unrealized gains at December 31, 1995,
constituted 64.2% of the portfolio, securities with unrealized losses
constituted 35.1% of the portfolio with the remaining portfolio consisting of
securities with no unrealized gains or losses. At December 31, 1994, securities
with unrealized gains constituted 13.8% of the portfolio, securities with
unrealized losses constituted 86.1% of the portfolio, and the remaining
portfolio consisted of securities with no unrealized

<PAGE> 36

gains or losses. At December 31, 1995, available for sale securities had an
aggregate unrealized holding loss of $431 thousand. The unrealized holding
losses, net of tax, of $279 thousand are recorded in stockholders equity. At
December 31, 1994, available for sale securities had an aggregate unrealized
holding loss of $3.0 million. The unrealized holding losses, net of tax, of
$2.0 million are recorded in stockholders' equity. See Note 4 to the Financial
Statements.

The average maturity of the portfolio was 1.70 years at December 31,
1995, compared to 1.73 years at December 31, 1994. These average maturities
take into consideration both expected prepayments and cash flows. The relative
short duration of the portfolio improves the liquidity of the Company and
minimizes the interest rate risk associated with a longer maturity portfolio.
All of the securities are investment grade or better with over 84% of the
portfolio being U.S. Government or Government Agency obligations.

The following table shows as of December 31, 1995, the distribution
and yields of the Company's investment securities. These values represent
contractual maturities, but actual repayments and yields are dependent upon
monthly cash flows and prepayments. The yields have been calculated using
weighted average amortized cost and are not presented on a fully taxable
equivalent basis (dollars in thousands).

<TABLE>
<CAPTION>
US Govt. State & Investment Mortgage-
& Govt. Political Grade Corp. Backed
Agency Subdivision Bonds Securities Other Total
------- ----------- ----------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Due Within One Year
Market Value . . . . . . . . . . $210,951 $ 1,833 $25,944 $ -0- $ 568 $239,296
Book Value:
Held to Maturity . . . . . . . 177,696 1,825 -0- -0- -0- 179,521
Available for Sale . . . . . . 32,651 -0- 25,944 -0- 568 59,163
Yield . . . . . . . . . . . . . . 5.66% 6.47% 5.81% 0.00% 5.00% 5.68%
Due After One But Within Five Years .
Market Value . . . . . . . . . . $283,215 $35,747 $31,089 $ -0- $ -0- $350,051
Book Value:
Held to Maturity . . . . . . . 208,990 35,012 26,551 -0- -0- 270,553
Available for Sale . . . . . . 72,534 310 4,462 -0- -0- 77,306
Yield . . . . . . . . . . . . . . 5.85% 7.06% 5.64% 0.00% 0.00% 5.95%
Due After Five But Within Ten Years
Market Value . . . . . . . . . . $ 22,015 $30,455 $ -0- $ -0- $ -0- $ 52,470
Book Value:
Held to Maturity . . . . . . . 20,665 28,497 -0- -0- -0- 49,162
Available for Sale . . . . . . 1,570 1,714 -0- -0- -0- 3,284
Yield . . . . . . . . . . . . . . 6.05% 7.15% 0.00% 0.00% 0.00% 6.68%
Due After Ten Years
Market Value . . . . . . . . . . $181,412 $ 1,853 $ -0- $ 3,202 $ -0- $186,467
Book Value:
Held to Maturity . . . . . . . 168,853 194 -0- 3,301 -0- 172,348
Available for Sale . . . . . . 11,699 1,661 -0- -0- -0- 13,360
Yield . . . . . . . . . . . . . . 6.92% 8.70% 0.00% 6.62% 0.00% 6.93%
</TABLE>

ACQUISITIONS

On June 30, 1995, United Bancshares, Inc., parent company of Rosenberg
Bank & Trust, merged with and into the Company. The merger was consummated
through the exchange of 306,383 shares of

<PAGE> 37

the Company's common stock for all of the outstanding shares of common stock of
United. This transaction increased consolidated assets by approximately $65
million and increased consolidated 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.

1994 COMPARED TO 1993

The following discussion highlights the major changes affecting the
operations and financial condition of the Company for the two years ended
December 31, 1994. Unless the context otherwise requires, the "Company" refers
to Victoria Bankshares, Inc., and its subsidiaries. The discussion should be
read in conjunction with the consolidated financial statements, accompanying
notes, and selected financial data appearing elsewhere in this report.

OVERVIEW OF OPERATIONS

For the year ended December 31, 1994, the Company reported earnings of
$17.0 million compared to $19.1 million for the year ended December 31, 1993, a
decrease of 11.4%. Primary earnings per share were $2.05 for 1994 compared to
$2.32 for 1993. Excluding the recognition of two nonrecurring items in 1993,
core earnings for the year ended 1994 increased $1.1 million or 6.8% compared
to 1993. The nonrecurring items in 1993 included the recognition of a $4.8
million benefit recorded as a result of the adoption of Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" and a $2.8 million
($1.8 million after-tax) restructuring charge. The primary factors
contributing to the 1994 core earnings were an increase in net interest income
resulting from improved asset quality, loan growth, and the growth of
noninterest income mainly as a result of the acquisition of a $365 million
trust portfolio.

On February 28, 1993, the Company acquired from the Federal Deposit
Insurance Corporation ("FDIC") the New First City Bryan/College Station ("Bryan
Bank"). This acquisition, the largest in the Company's history, increased
loans by approximately 32.6%, core deposits by approximately 17.9%, and trust
assets under management by approximately 27.3%. Also, on October 8, 1993, the

37
<PAGE> 38

Company acquired from another bank holding company a branch office in Richmond
("Richmond Branch"). Even though smaller in size ($41 million in deposits and
$16 million in loans) the potential of this acquisition results from the
expansion into Fort Bend County which has been one of the fastest growing
counties in the United States during the 80's and 90's. The Bryan Bank
acquisition had a greater effect on the financial results of 1993 than the
Richmond Branch acquisition due to size and timing during the year.

The Company continues to be well-capitalized. At December 31, 1994,
the Company's ratio of total capital-to-risk-weighted-assets was 18.58% and
its leverage ratio was 8.7%, both of which significantly exceed the minimum
regulatory requirements.

NET INTEREST INCOME

Net interest income and net interest spread is the difference between
income earned on interest-earning assets and the interest expense incurred on
interest-bearing liabilities. For analytical purposes, net interest income for
1994 and 1993 is adjusted to a "fully taxable equivalent" basis to recognize
the income tax savings on tax-exempt items. Net interest income increased to
$66.6 million in 1994, an increase of 2.8% from the $64.7 million reported in
1993.

Interest income foregone on nonperforming loans declined to $82
thousand in 1994 as compared to $359 thousand in 1993.

As the table presented on page 19 illustrates, the interest rate
margin increased 10 basis points to 4.16% in 1994 from 4.06% in 1993.

The table presented on page 20 analyzes the changes attributable to
the rate and volume components of net interest income.

Changes Due to Volume

The increase in net interest income due to the change in average
volume is attributable primarily to the growth in loan volume from 30.9% of
average interest-earning assets at December 31, 1993, to 36.3% at December 31,
1994. This increase was partially offset by the decrease in the average volume
of total investments and federal funds sold and short-term investments.
Average interest-bearing transaction accounts, typically the lowest cost of the
interest-bearing liability category, increased from 48.3% of average
interest-bearing liabilities at December 31, 1993, to 51.8% at December 31,
1994. Overall, average interest-earning assets grew 0.3% from December 31,
1993, to December 31, 1994, while average interest-bearing liabilities
decreased 1.2% for the same period. Average noninterest-bearing liabilities
and stockholders' equity, by comparison, grew 4.7% from December 31, 1993, to
December 31, 1994.

38
<PAGE> 39

CHANGES DUE TO RATES

The decrease in net interest income due to the change in average rates
results from the change in average rates on loans being more sensitive to the
increase in market rates than was the change due to average rates on interest-
bearing deposits. Additionally, the increase in interest income due to the
change in average rates was reduced as a result of the decreasing investment
portfolio yield as maturing securities were reinvested at lower rates.

PROVISION FOR LOAN LOSSES

The provision for loan losses was $15 thousand in 1994 as compared to
$155 thousand in 1993. This decrease was due to decreases in nonperforming
loans and net charge-offs.

During 1994, the Company recorded net recoveries of $35 thousand, up
from net charge-offs of $562 thousand in 1993. The ratio of net recoveries to
average loans, net of unearned discount, for 1994 was .01%, up from .11% in net
charge-offs to average loans net of unearned discount in 1993. Reflecting
improved loan portfolio quality, the allowance for loan losses at December 31,
1994, was 1.7% of loans, net of unearned discount, compared to 1.8% at December
31, 1993. The allowance as a percent of nonperforming loans was 98.4% at
December 31, 1994, as compared to 76.3% a year earlier.

NONINTEREST INCOME

Noninterest income totaled $27.5 million in 1994, up $0.5 million or
1.7% from December 31, 1993. The following table presents a comparative
analysis of the major components of noninterest income (in thousands):

<TABLE>
<CAPTION>
December 31,
------------------------------------------
Increase
1994 1993 (Decrease)
------- ------- ----------
<S> <C> <C> <C>
Service Charges and Other Fees . . . . . . . . . . . . . . . $15,393 $14,694 $ 699
Trust Services Income . . . . . . . . . . . . . . . . . . . . 5,556 4,230 1,326
Data Processing Income . . . . . . . . . . . . . . . . . . . 3,201 3,196 5
Securities Gains (Losses) . . . . . . . . . . . . . . . . . . (796) 103 (899)
Other Operating Income
Investment Product Income . . . . . . . . . . . . . . . . 1,395 1,615 (220)
Safe Deposit Income . . . . . . . . . . . . . . . . . . . 589 523 66
Mortgage Banking Income . . . . . . . . . . . . . . . . . 619 703 (84)
All Other Operating Income . . . . . . . . . . . . . . . 1,566 1,999 (433)
------- ------- -------

Total Noninterest Income . . . . . . . . . . . . . . . . $27,523 $27,063 $ 460
======= ======= =======

</TABLE>

Service charges and other fees increased 4.8% in 1994 resulting mainly
from a full year's effect on income from the acquisitions of the Richmond
Branch on October 8, 1993, and the Bryan Bank on February 28, 1993. These
acquisitions, therefore, only affected the income for three months and ten
months, respectively, during 1993.

39
<PAGE> 40

Trust services income increased 31.3% during 1994 as the assets under
management increased $338.5 million to $1.0 billion. This increase can be
attributed to the acquisition of the former Corpus Christi Trust which added
approximately $365 million in trust assets during the third quarter of 1994 and
$1.0 million in trust fees during 1994. Also contributing to the increase was
the timing of the acquisition of the Bryan Bank as mentioned above.

Securities losses totaled $796 thousand during 1994 as compared to
gains of $103 thousand in 1993 due mainly to losses of $446 thousand on
dispositions of two equity investments held by the Company's SBA licensed
subsidiary. Also contributing to the losses were sales of securities held as
available for sale in order to improve total return.

Other operating income, which includes investment product income, safe
deposit income, and mortgage banking income, decreased 8.4% in the aggregate
during 1994. The decrease in investment product income was attributable to
decreases in total commissions from a lower level of sales of fixed income
securities and mutual funds due to the softness in the bond and equity markets
offset partially by increased income from annuity sales to customers. Mortgage
banking income decreased due to the decreased refinancings resulting from
increases in interest rates. These decreases were partially offset by
increased safe deposit income as a result of the timing of 1993 acquisitions.

NONINTEREST EXPENSE

Total noninterest expense decreased $1.7 million or 2.4% to $68.4
million in 1994 from $70.0 million in 1993. This decrease resulted primarily
from the 1993 restructuring charge offset partially by a full year's effect in
1994 of expenses from the 1993 acquisition of the Bryan Bank and Richmond
Branch and the 1994 acquisition of the Corpus Christi Trust. The 1993
restructuring charge consisted of $2.6 million in retirement and other employee
benefits and $0.2 million in salaries and wages. This restructure
resulted in excess of $2.0 million of expense growth savings in 1994. The
following table presents a comparative analysis of the major components of
noninterest expense (in thousands):

40
<PAGE> 41

<TABLE>
<CAPTION>
December 31,
-----------------------------------------
Increase
1994 1993 (Decrease)
------- ------- ----------
<S> <C> <C> <C>
Salaries and Wages . . . . . . . . . . . . . . . . . . . . . . $26,536 $25,646 $ 890
Retirement and Other Employee Benefits . . . . . . . . . . . . 7,394 10,689 (3,295)
Net Occupancy Expense . . . . . . . . . . . . . . . . . . . . . 7,197 6,889 308
Equipment Rental, Depreciation, and Maintenance . . . . . . . . 5,072 4,769 303
FDIC Insurance . . . . . . . . . . . . . . . . . . . . . . . . 3,335 3,142 193
Other Operating Expenses
Taxes Other Than Income . . . . . . . . . . . . . . . . . . 344 390 (46)
Marketing Expense . . . . . . . . . . . . . . . . . . . . . 1,550 1,402 148
Operating Supplies . . . . . . . . . . . . . . . . . . . . 2,260 2,186 74
Communication Expense . . . . . . . . . . . . . . . . . . . 1,189 1,132 57
Postage Expense . . . . . . . . . . . . . . . . . . . . . . 1,193 1,123 70
Outside Service Expense . . . . . . . . . . . . . . . . . . 5,683 6,277 (594)
Amortization of Intangible Assets . . . . . . . . . . . . . 1,702 1,225 477
All Other . . . . . . . . . . . . . . . . . . . . . . . . . 4,919 5,177 (258)
------- ------- --------

Total Noninterest Expense . . . . . . . . . . . . . . . . $68,374 $70,047 $(1,673)
======= ======= ========
</TABLE>

The previously mentioned restructuring resulted in expense growth
savings in salaries and wages in 1994. These savings, however, were offset due
to staffing increases related to the timing of the 1993 acquisitions, the 1994
acquisition, and normal merit increases.

Retirement and other employee benefits decreased 30.8% during 1994
primarily as a result of the nonrecurring restructuring charge in 1993 for
expenses relating to an early retirement program and decreased employee health
care expense as a result of an overfunding of the health care plan at year-end
1993.

Net occupancy expense increased 4.5% during 1994 primarily as a result
of the timing of the 1993 acquisitions and the 1994 acquisition.

Equipment rental, depreciation, and maintenance expense increased 6.4%
during 1994 resulting primarily from an increase in equipment rental expenses
due to upgrades and increased capacity by the data processing subsidiary to
accommodate the growth from acquisitions. The timing of the 1993 acquisitions
and the 1994 acquisition also contributed to this increase.

FDIC insurance expense increased $193 thousand or 6.1% during 1994 due
to increased deposits obtained in the 1993 acquisitions.

Taxes other than income decreased 11.8% during 1994 as a result of
decreases in ad valorem taxes on premises and personal property due to a refund
for prior year taxes and a reduction of current year taxes, both resulting from
a correction of the appraised tax values on various bank assets.

Marketing, operating supplies, communication, and postage expenses all
increase during 1994 as a result of the timing of acquisitions.

<PAGE> 42

Outside service expense decreased 9.5% during 1994 primarily due to
the 1993 expenses incurred as a result of the conversions relating to the 1993
acquisitions.

Amortization of intangible assets increased 38.9% primarily as a
result of the 1994 acquisition of the Corpus Christi Trust and the full year's
effect of the 1993 acquisitions.

All other noninterest expense decreased 5.0% due primarily to a
reduction in expenses related to other loan related assets as a result of a
decrease in the level of foreclosed property.

INCOME TAXES

For the year ended December 31, 1994, the Company's provision for
federal income taxes was $8.8 million compared to $7.2 million for the year
ended December 31, 1993. On January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes," resulting
in the Company recording a deferred tax asset of $4.8 million at the beginning
of 1993. After recognition of these deferred tax assets, the Company returned
to a statutory tax rate.

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING METHOD

During 1993, the Company recognized $4.8 million as the cumulative
effect of change in accounting method as the result of the adoption of
Financial Accounting Standards No. 109 discussed earlier.

CAPITAL MANAGEMENT

At December 31, 1994, the Company's ratios of "Tier 1" and total
capital to risk-weighted assets were approximately 17.45% and
18.58%, respectively. Both ratios significantly exceed regulatory minimums.

The following table summarizes the Company's Tier 1 and Total Capital
(dollars in thousands):

<TABLE>
<CAPTION>
December 31, 1994
-----------------------------
Amount Ratio
-------- ------

<S> <C> <C>
Tier 1 Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $154,643 17.45%
Tier 1 Capital Minimum Requirement . . . . . . . . . . . . . . . . . . . . 35,453 4.00
-------- ------

Excess Tier 1 Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . $119,190 13.45%
======== ======

Total Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $164,667 18.58%
Total Capital Minimum Requirement . . . . . . . . . . . . . . . . . . . . . 70,907 8.00
-------- ------

Excess Total Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 93,760 10.58%
======== ======

Risk Adjusted Assets,
Net of Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $886,335
========

</TABLE>

<PAGE> 43

The Company's leverage ratio at December 31, 1994, was 8.7%, which
also significantly exceeds the regulatory minimum. The Company's ratios
substantially exceed levels required under the well-capitalized category.

LIQUIDITY MANAGEMENT - CONSOLIDATED COMPANY

Sources of liquidity are also maintained to enable the Company to take
advantage of opportunities in loan, deposit, and securities 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. The banking subsidiary derives its source of
fundings predominately from deposits within its marketing area. The customer
base for deposits is diversified between correspondent banks, individuals,
partnerships and corporations, and public entities. This diversification helps
the Company avoid dependence on large concentrations of funds. The Company does
not, as a matter of policy, place certificates of deposit through brokers. The
Company's percentage of time certificates of deposit over $100,000 to time
deposits decreased to 19.8% in 1994 from 18.8% in 1993. These decreases were
the result of customers moving funds into more liquid interest-bearing demand
deposit accounts or other forms of investments.

The table below sets forth the maturity distribution of certificates
of deposit of $100,000 or more issued by the Bank (in thousands):

<TABLE>
<CAPTION>
December 31,
-----------------------------
Remaining Maturity 1994 1993
-------- --------
<S> <C> <C>
Maturing in 3 Months or Less . . . . . . . . . . . . . . . . . . . . . . . $ 41,272 $ 42,162
Maturing in Over 3 Through 6 Months . . . . . . . . . . . . . . . . . . . . 20,535 21,340
Maturing in Over 6 Through 12 Months . . . . . . . . . . . . . . . . . . . 23,641 18,792
Maturing in Over 12 Months . . . . . . . . . . . . . . . . . . . . . . . . 14,739 10,988
-------- --------

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,187 $ 93,282
======== ========
</TABLE>

43
<PAGE> 44

LIQUIDITY MANAGEMENT - PARENT COMPANY

The liquidity of a bank holding company is dependent upon the ability
of its subsidiaries to pay dividends, intercompany charges for actual services
rendered by the holding company, and the holding company's access to capital
markets through equity offerings, borrowings, and similar traditional funding
sources. The ability of a holding company's subsidiaries to pay such amounts
is dependent upon their future earnings.

The Parent Company, as of December 31, 1994, has $12.4 million in
short-term and medium-term government securities which can be used to provide
liquid resources as well as currently unanticipated capital needs of its
subsidiaries.

Dividends from subsidiaries are dependent on future earnings. The
amount of retained earnings available to the Parent Company from subsidiaries
for payment of dividends without prior regulatory approval was approximately
$68,706,000 at December 31, 1994. The Parent Company received $5.5 million in
dividends in 1994 from subsidiaries. Cash dividends of $4.1 million and $2.9
million were paid by the Parent Company to holders of common stock during 1994
and 1993, respectively. The Company has paid dividends for eleven consecutive
quarters. During the first quarter of 1994, the Company declared a dividend of
$.13 per share representing a 30% increase.

INTEREST RATE SENSITIVITY

Interest rate sensitivity is the relationship between changes in
market interest rates and 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 being subject to repricing; therefore,
market interest rate changes will be reflected more quickly in asset rates. If
interest rates decline, such a 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.

<PAGE> 45

The following table presents the interest rate sensitivity position of
the Company at December 31, 1994 (dollars in thousands).

<TABLE>
<CAPTION>
Over One
Rate Sensitive Within Year and
--------------------------------------------------------- Nonrate
30-Day 90-Day 180-Day One Year Total Sensitive Total
------- ------- ------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans, Net of Unearned
Discount . . . . . . . . . . . $245,790 $ 34,334 $ 41,415 $ 62,396 $383,935 $214,141 $ 598,076
Investment Securities . . . . . . 117,711 64,784 58,010 122,110 362,615 525,483 888,098
Federal Funds Sold and Other
Short-Term Investments . . . . 121,087 -0- -0- -0- 121,087 -0- 121,087
Other Earning Assets . . . . . . 545 -0- -0- -0- 545 -0- 545
-------- -------- -------- -------- -------- -------- ----------
Total Earning Assets . . . . 485,133 99,118 99,425 184,506 868,182 739,624 1,607,806

Interest-Bearing Liabilities:
Interest-Bearing Transactional
Accounts . . . . . . . . . . . 329,787 -0- -0- -0- 329,787 314,250 644,037
Time Deposits . . . . . . . . . . 75,623 95,790 112,189 114,551 398,153 108,724 506,877
Fed Funds Purchased and Other
Short-Term Borrowings . . . . . 96,666 26 39 81 96,812 -0- 96,812
Long-Term Debt . . . . . . . . . -0- -0- -0- -0- -0- 1,720 1,720
-------- -------- -------- -------- -------- -------- ----------
Total Interest-Bearing
Liabilities 502,076 95,816 112,228 114,632 824,752 424,694 1,249,446
-------- -------- -------- -------- -------- -------- ----------
Interest Sensitivity Gap . . . . . $(16,943) $ 3,302 $(12,803) $ 69,874 $ 43,430
======== ======== ======== ======== ========
Cumulative Interest Sensitivity Gap $(16,943) $(13,641) $(26,444) $ 43,430
======== ======== ======== ========
Ratio of Earning Assets to
Interest-Bearing Liabilities . . 96.63% 103.45% 88.59% 160.96% 105.27%
======== ======== ======== ======== ========

</TABLE>

The Company had a negative interest rate sensitivity gap position in
the 30-day period of $16.9 million. The cumulative rate sensitive gap position
at one year was a positive $43.4 million, which indicates that the Company may
benefit from rising interest rates; conversely falling interest rates may have
a negative impact upon the Company.

The Company undertakes this 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. Additionally, interest rate changes do not
affect all categories of assets and liabilities equally or at the same time.

The Company's Asset and Liability Committee reviews monthly the
Company's consolidated rate sensitivity positions, and makes adjustments as
needed to control the amount of interest rate risk the Company is willing to
bear during changing economic cycles and to improve its overall profit
potential.

45
<PAGE> 46
LOAN PORTFOLIO

The Company's loans are widely diversified by borrower and industry
group. The summary presented on page 29 presents information on the
composition of the loan portfolio.

Maturities in the Company's loan portfolio at December 31, 1994, are
summarized below (in thousands):
<TABLE>
<CAPTION>
Due Due
Due in After One After
One Year Through Five
or Less Five Years Years Total
-------- ---------- ------- --------

<S> <C> <C> <C> <C>
Loans Secured Primarily by Real Estate:
Construction and Land Development . . . . . . . . . . . $ 17,756 $ 210 $ 599 $ 18,565
Other Real Estate Loans . . . . . . . . . . . . . . . . 38,977 95,440 108,786 243,203
Agricultural . . . . . . . . . . . . . . . . . . . . . . . 32,513 6,699 82 39,294
Commercial and Industrial Loans . . . . . . . . . . . . . . 69,023 45,837 8,144 123,004
Consumer Loans . . . . . . . . . . . . . . . . . . . . . . 77,275 95,554 1,262 174,091
Loans to Financial Institutions and all Other Loans . . . . 1,136 1,025 510 2,671
-------- -------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $236,680 $244,765 $119,383 $600,828
======== ======== ======== ========

</TABLE>
The maturities presented above are based upon contractual maturities.
The Company has no set rollover policy. Many of these loans are made on a
short-term basis with the possibility of renewal at time of maturity. All
loans, however, are reviewed on a continuous basis for creditworthiness. The
total amount of loans due after one year which have fixed, floating, or
adjustable rates is as follows (in thousands):

<TABLE>
<CAPTION>
December 31, 1994
-----------------

<S> <C>
Loans Having Predetermined Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . . $208,497
Loans Having Floating or Adjustable Interest Rates . . . . . . . . . . . . . . . . . . . . . 155,651
--------

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $364,148
========
</TABLE>

NONPERFORMING ASSETS

The Company's nonperforming assets consist of nonaccrual loans and
troubled debt restructurings, other real estate, other assets which have been
repossessed or acquired through workout situations, and loans foreclosed in-
substance.

Total nonperforming assets, which include nonperforming loans and other
nonperforming assets, totaled $11.7 million or 2.0% of total loans and other
nonperforming assets at December 31, 1994, as compared with $18.9 million or
3.3% of total loans and other nonperforming assets at December 31, 1993. Total
nonperforming assets represented 0.6% and 1.0% of the total assets at December
31, 1994 and December 31, 1993, respectively. The total amount of loans past
due 90 days or more and still accruing, totaled $427 thousand at December 31,
1994, compared to $472 thousand at December 31, 1993.

46
<PAGE> 47

LOAN CONCENTRATIONS

Real estate loans totaling $263.7 million comprised approximately
43.8% of the loan portfolio at December 31, 1994, of which 3.1% was
nonperforming. At December 31, 1993, real estate loans totaled $246.4 million
comprising 43.4% of the loan portfolio, of which 4.4% was nonperforming. The
majority of the Company's real estate loans are secured by property located in
the nonmetropolitan areas in which the Company operates. The Company's real
estate loan portfolio is comprised of interim construction, residential,
commercial building, farm acreage, vacant lot, and land development loans.
Permanent residential loans make up approximately 40% of the total real estate
loans.

Consumer loans totaled $175.9 million at December 31, 1994
(approximately 29.2% of the loan portfolio), .5% of which were nonperforming.
These consumer loans include approximately $84.5 million in loans originated
through automobile dealers. At December 31, 1993, consumer loans totaled
$167.1 million (approximately 29.4% of the loan portfolio), 0.6% of which were
nonperforming. Student loans were $2.7 million and loans originated through
automobile dealers were approximately $72.1 million of this category in 1993.

Agricultural loans, exclusive of loans secured by farm acreage which
are categorized by the Company as real estate loans, totaled $38.1 million at
December 31, 1994, or approximately 6.3% of the Company's loan portfolio, of
which 0.5% were nonperforming. At December 31, 1993, agricultural loans
totaled $35.5 million comprising approximately 6.3% of the Company's loan
portfolio, of which 1.6% were nonperforming. Risks in this area revolve around
price fluctuations and possible crop failures brought on by severe weather.

The Company's energy loans, included in the commercial and industrial
loan category, were approximately $1.7 million at December 31, 1994, or .3% of
the loan portfolio, of which 2.3% were nonperforming. At December 31, 1993,
energy loans totaled $1.6 million comprising approximately 0.3% of the loan
portfolio, of which all were performing. The majority of the Company's energy
loan portfolio are loans to energy service companies as opposed to loans on oil
and gas reserves.

INVESTMENT SECURITIES

Securities with unrealized gains at December 31, 1994, constituted
13.8% of the portfolio, unrealized losses constituted 86.1% of the portfolio
with the remaining portfolio consisting of securities with no unrealized gains
or losses. The unrealized holding losses, net of tax, of $1.5 million are
recorded in stockholders' equity. At December 31, 1993, unrealized gains
constituted 62.5% of the portfolio, unrealized losses constituted

47
<PAGE> 48

21.1% of the portfolio, and the remaining portfolio consisted of securities
with no unrealized gains or losses.

The average maturity of the portfolio was 1.73 years at December 31,
1994, compared to 1.78 years at December 31, 1993. These average maturities
take into consideration both expected prepayments and cash flows. The relative
short duration of the portfolio improves the liquidity of the Company and
minimizes the interest rate risk associated with a longer maturity portfolio.
All of the securities are investment grade or better with over 83% of the
portfolio being U.S. Government or Government Agency obligations.

The following table shows as of December 31, 1995, the distribution and
yields of the Company's investment securities. These values represent
contractual maturities, but actual repayments and yields are dependent upon
monthly cash flows and prepayments. The yields have been calculated using
weighted average amortized cost and are not presented on a fully taxable
equivalent basis (dollars in thousands).

<TABLE>
<CAPTION>
US Govt. State & Investment Mortgage-
& Govt. Political Grade Corp. Backed
Agency Subdivision Bonds Securities Other Total
------- ----------- ----------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Due Within One Year
Market Value . . . . . . . . . . $190,945 $ 7,278 $30,602 $ -0- $ 6,300 $235,125
Book Value:
Held to Maturity . . . . . . . 163,296 7,284 30,791 -0- -0- 201,371
Available for Sale . . . . . . 29,036 -0- -0- -0- 6,300 35,336
Yield . . . . . . . . . . . . . . 4.87% 7.92% 4.80% 0.00% 4.18% 4.92%
Due After One But Within Five Years
Market Value . . . . . . . . . . $408,745 $ 9,691 $50,211 $ 1,610 $ -0- $470,257
Book Value:
Held to Maturity . . . . . . . 347,326 9,551 51,175 1,633 -0- 409,685
Available for Sale . . . . . . 72,161 302 -0- -0- -0- 72,463
Yield . . . . . . . . . . . . . . 5.48% 7.66% 5.49% 0.00% 0.00% 5.52%
Due After Five But Within Ten Years
Market Value . . . . . . . . . . $ 22,724 $20,863 $ 8,836 $ 4,265 $ -0- $ 56,688
Book Value:
Held to Maturity . . . . . . . 23,535 19,008 9,038 4,528 -0- 56,109
Available for Sale . . . . . . -0- 2,554 -0- -0- -0- 2,554
Yield . . . . . . . . . . . . . . 6.00% 7.36% 5.56% 0.00% 0.00% 6.46%
Due After Ten Years
Market Value . . . . . . . . . . $ 88,611 $ 2,056 $ -0- $16,451 $ -0- $107,118
Book Value:
Held to Maturity . . . . . . . 91,862 194 -0- 7,400 -0- 99,456
Available for Sale . . . . . . -0- 1,881 -0- 9,243 -0- 11,124
Yield . . . . . . . . . . . . . . 6.59% 6.25% 0.00% 7.05% 0.00% 6.61%

</TABLE>

48
<PAGE> 49
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PART IV

(a) 1. Financial Statements

REPORT OF MANAGEMENT

The Management of Victoria Bankshares, Inc. is responsible for the
preparation, integrity, and objectivity of the consolidated financial
statements of the Company. The financial statements and notes have been
prepared by the Company in accordance with generally accepted accounting
principles and, in the judgment of Management, present fairly and consistently
the Company's financial position and results of operations. The financial
information contained elsewhere in this annual report is consistent with that
in the financial statements. The financial statements and other financial
information in this annual report include amounts that are based on
Management's best estimates and judgments and give due consideration to
materiality.

The Company maintains a system of internal accounting controls to
provide reasonable assurance that assets are safeguarded and that transactions
are executed in accordance with Management's authorization and recorded
properly to permit the preparation of financial statements in accordance with
generally accepted accounting principles.

The Internal Audit Division of the Company reviews, evaluates,
monitors, and makes recommendations on both administrative and accounting
controls, which acts as an integral, but independent, part of the system of
internal controls.

The Company's independent accountants were engaged to perform an audit
of the consolidated financial statements. This audit provides an objective
outside review of Management's responsibility to report operating results and
financial condition. Working with the Company's internal auditors, they review
and make tests as appropriate of the data included in the financial statements.

The Board of Directors discharges its responsibility for the Company's
financial statements through its Audit Committee, which is composed solely of
outside directors. The Audit Committee meets periodically with the independent
accountants, internal auditors, and Management. Both the independent
accountants and internal auditors have direct access to the Audit Committee to
discuss the scope and results of their work, the adequacy of internal accounting
controls, and the quality of financial reporting.

Charles R. Hrdlicka Gregory Sprawka
Chairman of the Board Chief Financial Officer

49
<PAGE> 50
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS

To the Stockholders
and the Board of Directors
of Victoria Bankshares, Inc.

We have audited the accompanying consolidated balance sheets of
Victoria Bankshares, Inc. (a Texas corporation) and subsidiaries as of December
31, 1995 and 1994, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1995. 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 consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by Management, as well as
evaluating the overall consolidated 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
Victoria Bankshares, Inc., and subsidiaries as of December 31, 1995 and 1994,
and the results of their operations and cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles.

As discussed in Note 1 to the consolidated financial statements,
effective January 1, 1993, the Company changed its method of accounting for
income taxes in accordance with Statement of Financial Accounting Standards No.
109.

Houston, Texas Arthur Andersen LLP
January 22, 1996

50
<PAGE> 51

CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------
VICTORIA BANKSHARES, INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)(NOTE 1)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1994
----------- ----------
<S> <C> <C>
ASSETS
Cash and Due from Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 141,086 $ 118,713
Interest-Bearing Deposits with Banks . . . . . . . . . . . . . . . . . . . . . . . . 150 379
Investment Securities Held to Maturity (Note 4) . . . . . . . . . . . . . . . . . . . 671,584 766,621
Investment Securities Available for Sale (Note 4) . . . . . . . . . . . . . . . . . . 153,113 121,477
----------- -----------
Total Investment Securities (Market Value of $828,284
in 1995 and $869,188 in 1994) . . . . . . . . . . . . . . . . . . . . . . . . 824,697 888,098
Trading Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -0- 166
Federal Funds Sold and Other Short-Term
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188,710 121,087
Loans (Notes 3 and 5):
Total Loans, Net of Unearned Discount . . . . . . . . . . . . . . . . . . . . . . . 713,645 598,076
Allowance for Loan Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,577) (10,024)
----------- -----------
Net Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703,068 588,052
Premises and Equipment, Net (Notes 3 and 6) . . . . . . . . . . . . . . . . . . . . . 45,892 44,259
Other Real Estate, Net (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,644 2,973
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,747 50,683
------------ ----------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,962,994 $1,814,410
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 8):
Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 398,586 $ 375,829
Interest-Bearing Transactional Accounts . . . . . . . . . . . . . . . . . . . . . . 640,022 644,037
Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 623,225 506,877
----------- -----------
Total Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,661,833 1,526,743
Federal Funds Purchased (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . 76,375 82,700
Short-Term Borrowings (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . 17,806 14,112
Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,671 9,905
Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -0- 1,720
----------- -----------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,772,685 1,635,180
----------- -----------

Commitments and Contingencies (Note 12)
Stockholders' Equity (Notes 3 and 10):
Preferred Stock--$1.00 Par Value, 1,000 Shares
Authorized; None Outstanding; $7.50 Par Value,
Authorized 1,000,000 Shares; Issued and
Outstanding 69,256 at December 31, 1994 . . . . . . . . . . . . . . . . . . . . -0- 519
Common Stock--$1.00 Par Value, Authorized 35,000,000
Shares; Issued and Outstanding 8,314,143 Shares
in 1995 and 8,269,060 Shares in 1994 . . . . . . . . . . . . . . . . . . . . . . 8,314 8,269
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,926 108,160
Unrealized Holding Losses, Net of Tax (Note 4) . . . . . . . . . . . . . . . . . . (279) (1,964)
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,348 64,246
----------- -----------
Total Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 190,309 179,230
----------- -----------
Total Liabilities and Stockholders' Equity . . . . . . . . . . . . . . . . . . . $1,962,994 $1,814,410
=========== ===========
</TABLE>
________________________________________________________________________________

The Accompanying Notes to Financial Statements are an integral part of
these statements.

51
<PAGE> 52
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------
VICTORIA BANKSHARES, INC. AND SUBSIDIARIES
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)(NOTE 1)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>

Year Ended December 31,
-----------------------------------------
1995 1994 1993
-------- -------- ---------
<S> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans . . . . . . . . . . . . . . . . . . . . $ 60,734 $ 52,829 $ 42,749
Interest on Securities Held to Maturity . . . . . . . . . . . . . . 43,555 41,171 52,173
Interest on Securities Available for Sale . . . . . . . . . . . . . 4,537 4,439 -0-
Interest on Trading Accounts . . . . . . . . . . . . . . . . . . . 10 57 67
Interest on Federal Funds Sold and
Other Short-Term Investments . . . . . . . . . . . . . . . . . . 10,005 6,526 6,795
--------- --------- ---------
Total Interest Income . . . . . . . . . . . . . . . . . . . . 118,841 105,022 101,784
--------- --------- ---------
INTEREST EXPENSE
Interest on Interest-Bearing Transactional
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,891 15,536 14,065
Interest on Time Deposits (Note 8) . . . . . . . . . . . . . . . . 30,442 18,667 19,144
Interest on Federal Funds Purchased
and Short-Term Borrowings (Note 9) . . . . . . . . . . . . . . . 5,024 4,183 3,752
Interest on Long-Term Debt . . . . . . . . . . . . . . . . . . . . 47 66 93
--------- --------- ---------
Total Interest Expense . . . . . . . . . . . . . . . . . . . . 51,404 38,452 37,054
--------- --------- ---------
NET INTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . . . 67,437 66,570 64,730
Provision for Loan Losses (Note 5) . . . . . . . . . . . . . . . 165 15 155
--------- --------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES . . . . . . . . . . . . . . . . . . . . . . . . . 67,272 66,555 64,575
--------- --------- ---------
NONINTEREST INCOME
Service Charges and Other Fees . . . . . . . . . . . . . . . . . . 16,202 15,393 14,694
Trust Services Income . . . . . . . . . . . . . . . . . . . . . . . 6,908 5,556 4,230
Data Processing Income . . . . . . . . . . . . . . . . . . . . . . 2,745 3,201 3,196
Securities Gains (Losses) . . . . . . . . . . . . . . . . . . . . . 57 (796) 103
Other Operating Income . . . . . . . . . . . . . . . . . . . . . . 3,717 4,169 4,840
--------- --------- ---------
Total Noninterest Income . . . . . . . . . . . . . . . . . . . 29,629 27,523 27,063
--------- --------- ---------
NONINTEREST EXPENSE
Salaries and Wages . . . . . . . . . . . . . . . . . . . . . . . . 28,526 26,536 25,646
Retirement and Other Employee
Benefits (Note 13) . . . . . . . . . . . . . . . . . . . . . . . 8,827 7,394 10,689
Net Occupancy Expense . . . . . . . . . . . . . . . . . . . . . . . 7,407 7,197 6,889
Equipment Rental, Depreciation and Maintenance . . . . . . . . . . 5,286 5,072 4,769
FDIC Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 1,749 3,335 3,142
Other Operating Expense . . . . . . . . . . . . . . . . . . . . . . 22,413 18,840 18,912
--------- --------- ---------
Total Noninterest Expense . . . . . . . . . . . . . . . . . . 74,208 68,374 70,047
--------- --------- ---------
INCOME BEFORE INCOME TAXES AND ITEMS BELOW . . . . . . . . . . . . 22,693 25,704 21,591
Federal Income Tax Provision (Note 11) . . . . . . . . . . . . . 7,551 8,752 7,231
--------- --------- ---------
INCOME BEFORE ITEMS BELOW . . . . . . . . . . . . . . . . . . . . . 15,142 16,952 14,360
Cumulative Effect of Change in
Accounting Method (Note 11) . . . . . . . . . . . . . . . . . . -0- -0- 4,774
--------- --------- ---------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,142 $ 16,952 $ 19,134
========= ========= =========
PER SHARE (Note 10):
Income Before Cumulative Effect of Change
in Accounting Method . . . . . . . . . . . . . . . . . . . . . . $ 1.83 $ 2.05 $ 1.85
======== ========= =========
Cumulative Effect of Change in Accounting
Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.00 $ 0.00 $ 0.62
========= ========= =========
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.83 $ 2.05 $ 2.47
========= ========= =========
Cash Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.73 $ 0.52 $ 0.40
========= ========= =========
</TABLE>
________________________________________________________________________________

The Accompanying Notes to Financial Statements are an integral part of these
statements.

52
<PAGE> 53
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
VICTORIA BANKSHARES, INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)(NOTE 1)

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Unrealized
Holding Total
Preferred Stock Common Stock Gains Stock-
---------------- ------------------- (Losses) Retained holders'
Shares Amount Shares Amount Surplus Net of Tax Earnings Equity
------ ------ --------- ------- ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992
as previously reported . . . . . . . . -0- $ -0- 7,080,621 $70,806 $ 26,287 $ -0- $32,570 $129,663
Acquisition in 1995 Accounted for
as a Pooling-of-Interests (Note 15) . . 69,256 519 306,383 306 173 2,682 3,680
------- ----- --------- ------- -------- ------- ------- --------
BALANCE AT DECEMBER 31, 1992
as restated . . . . . . . . . . . . . . 69,256 519 7,387,004 71,112 26,460 -0- 35,252 133,343
Cash Dividend (Note 10) . . . . . . . . . (2,939) (2,939)
Issuance of Common Stock . . . . . . . . 835,000 8,350 9,745 18,095
Mark-to-Market of Available
for Sale Securities, Net . . . . . . . 224 224
Net Income . . . . . . . . . . . . . . . 19,134 19,134
------- ----- --------- ------- -------- ------- ------- --------
BALANCE AT DECEMBER 31, 1993 . . . . . . 69,256 519 8,222,004 79,462 36,205 224 51,447 167,857
Cash Dividend (Note 10) . . . . . . . . . (4,153) (4,153)
Mark-to-Market of Available
for Sale Securities, Net . . . . . . . (2,188) (2,188)
Exercise of Stock Options . . . . . . . . 46,891 469 293 762
Change in Par Value . . . . . . . . . . . (71,662) 71,662 0
Net Income . . . . . . . . . . . . . . . 16,952 16,952
------- ----- --------- ------- -------- -------- ------- --------
BALANCE AT DECEMBER 31, 1994 . . . . . . 69,256 519 8,268,895 8,269 108,160 (1,964) 64,246 179,230
Cash Dividend (Note 10) . . . . . . . . . (6,040) (6,040)
Redemption of Preferred Stock . . . . . . (69,256) (519) (519)
Mark-to-Market of Available
for Sale Securities, Net . . . . . . . 1,685 1,685
Exercise of Stock Options . . . . . . . . 45,248 45 766 811
Net Income . . . . . . . . . . . . . . . 15,142 15,142
------- ----- --------- ------- -------- ------- ------- --------
BALANCE AT DECEMBER 31, 1995 . . . . . . -0- $ -0- 8,314,143 $ 8,314 $108,926 $ (279) $73,348 $190,309
======= ===== ========= ======= ======== ======= ======= ========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The Accompanying Notes to Financial Statements are an integral part of these
statements.

53
<PAGE> 54
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
VICTORIA BANKSHARES, INC. AND SUBSIDIARIES
(IN THOUSANDS)(NOTE 1)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1995 1994 1993
-------- -------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income . . . . . . . . . . . . . . . . . . . . . . . $ 15,142 $ 16,952 $ 19,134
Adjustments to Reconcile Net Income
to Net Cash Provided by
Operating Activities:
Provision for Loan Losses . . . . . . . . . . . . 165 15 155
Depreciation, Amortization and Accretion . . . . . 8,678 10,452 8,955
Realized Securities (Gains) Losses . . . . . . . . (57) 796 (103)
Decrease (Increase) in Trading
Account Securities . . . . . . . . . . . . . . 166 1,060 (802)
Origination of Available for Sale Loans . . . . . (34,079) (34,166) (35,137)
Proceeds from Sale of Available for Sale Loans . . 30,492 36,168 33,706
Decrease (Increase) in Accrued Receivables . . . . 1,273 (103) 1,628
Increase (Decrease) in Accrued Payables . . . . . 2,767 790 (3,134)
--------- --------- ---------
Net Cash Provided by Operating Activities . . . . . . . . 24,547 31,964 24,402
INVESTING ACTIVITIES
Proceeds from Maturities of Investment Securities - Held
to Maturity . . . . . . . . . . . . . . . . . . . . . 272,572 261,364 369,400
Proceeds from Maturities of
Investment Securities - Available for Sale . . . . . 33,885 4,833 -0-
Proceeds from Sales of Investment Securities - Available
for Sale . . . . . . . . . . . . . . . . . . . . . . 113,394 48,867 15,540
Purchase of Investment Securities -
Held to Maturity . . . . . . . . . . . . . . . . . . (270,675) (212,293) (467,631)
Purchase of Investment Securities -
Available for Sale . . . . . . . . . . . . . . . . . (55,514) (79,722) -0-
Cash Acquired from Acquisitions (Note 15) . . . . . . . . 4,521 341 12,675
Payments for Acquisitions . . . . . . . . . . . . . . . . (13,100) (9,091) (17,250)
Net Decrease (Increase) in Federal Funds Sold . . . . . . (64,123) 11,562 231,522
Net Decrease in Other Short-Term Investments . . . . . . 2,025 1,158 6,115
Net Increase in Loans . . . . . . . . . . . . . . . . . . (51,069) (41,780) (52,934)
Proceeds from Sales of Premises and Equipment . . . . . . 670 658 109
Purchases of Premises and Equipment . . . . . . . . . . . (4,424) (5,890) (13,195)
--------- --------- ---------
Net Cash Provided (Used)
by Investing Activities . . . . . . . . . . . . . . . (31,838) (19,993) 84,351
FINANCING ACTIVITIES
Net Increase (Decrease) in Transactional Accounts . . . . (39,188) (27,601) 13,759
Net Increase (Decrease) in Time Deposits . . . . . . . . 82,251 10,221 (93,313)
Net Decrease in Federal Funds Purchased . . . . . . . . . (6,325) (24,075) (4,874)
Net Increase in Short-Term Borrowings . . . . . . . . . . 165 859 3,149
Proceeds from Long-Term Debt . . . . . . . . . . . . . . -0- 1,970 -0-
Payments and Retirements of Long-Term Debt . . . . . . . (1,720) (77) (4,000)
Cash Dividends (Note 10) . . . . . . . . . . . . . . . . (6,040) (4,153) (2,939)
Redemption of Preferred Stock . . . . . . . . . . . . . . (519) -0- -0-
Net Proceeds from Issuance of Common Stock . . . . . . . 811 762 18,095
--------- --------- ---------
Net Cash Provided (Used) by Financing Activities . . . . 29,435 (42,094) (70,123)
Increase (Decrease) in Cash and
Cash Equivalents . . . . . . . . . . . . . . . . . . 22,144 (30,123) 38,630
Cash and Cash Equivalents at Beginning of Year:
Cash and Due from Banks . . . . . . . . . . . . . 118,713 148,869 110,486
Interest-Bearing Deposits with Banks . . . . . . . 379 346 99
--------- --------- ---------
Total . . . . . . . . . . . . . . . . . . . . 119,092 149,215 110,585
--------- --------- ---------
Cash and Cash Equivalents at End of Year:
Cash and Due from Banks . . . . . . . . . . . . . 141,086 118,713 148,869
Interest-Bearing Deposits with Banks . . . . . . 150 379 346
--------- --------- ---------
Total . . . . . . . . . . . . . . . . . . . . $141,236 $119,092 $149,215
========= ========= =========
SUPPLEMENTARY INFORMATION TO STATEMENTS OF CASH FLOWS
Interest Expense Payments . . . . . . . . . . . . . . $ 47,906 $ 37,533 $ 37,334
========= ========= =========
Federal Income Tax Payments . . . . . . . . . . . . . $ 7,240 $ 6,903 $ 5,117
========= ========= =========

- ------------------------------------------------------------------------------------------------------
</TABLE>
The Accompanying Notes to Financial Statements are an integral part of these
statements.

<PAGE> 55
NOTES TO FINANCIAL STATEMENTS
VICTORIA BANKSHARES, INC. AND SUBSIDIARIES

NOTE 1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of Victoria Bankshares, Inc. and
its subsidiaries (the Company) conform to generally accepted accounting
principles; the more significant of these policies are described below.

Principles of Consolidation--

The consolidated financial statements include the accounts of Victoria
Bankshares, Inc., its subsidiary bank, and 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 1995, the Company recorded an acquisition accounted for as a
pooling-of-interests. See Note 15. Acquisitions. All information in prior
period consolidated financial statements has been restated to include this
event.

Nature of Operations--

The Company operates 42 branch offices in 33 communities and 22
counties in south central Texas. The Company derives its sources of funds
predominantly from deposits within its market area. The Company offers a full
range of banking services including checking and savings accounts, business
loans, personal loans, residential mortgage loans, other consumer oriented
financial services, safe deposit, and night depository facilities.

Investment Securities--

On December 31, 1993, the Company adopted Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities." Under the Statement, 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.

55
<PAGE> 56

-- Available for Sale

These securities are stated at market value. 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.

-- Trading Accounts

Trading account assets are carried at market value. Realized and
unrealized gains and losses on trading account assets are recognized currently
in other operating income.

Provision for Loan Losses--

A provision for loan losses is included in expense based upon
Management's evaluation of the loan portfolio under existing economic
conditions. The provision for loan losses is based on estimates, and ultimate
losses may 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 become known.

Premises and Equipment--

Banking premises and equipment are stated at cost, less accumulated
depreciation, computed on a straight-line basis over the estimated useful lives
of the related assets, ranging from one to forty years. Upon the sale or
retirement of banking premises and equipment, the cost and accumulated
depreciation applicable thereto are removed from the accounts and the resulting
profit or loss is reflected in income. Repairs, maintenance, and minor
improvements are charged to operations as incurred.

Goodwill and Acquired Intangible Assets--

Assets and liabilities related to business combinations accounted for
as purchase transactions are recorded at their respective fair values.
Acquired intangible assets include core deposit and trust relationships. The
excess of purchase price over such fair values (goodwill and acquired
intangible assets) totaling $39,332,000 less accumulated amortization of
$7,196,000 at December 31, 1995, and $30,927,000 less accumulated amortization
of $4,809,000 at December 31, 1994, is included in other assets. The core
deposit intangibles acquired from Cattlemen's Financial Services, Inc.
("Cattlemen's") is being amortized using the sum-of-the-years' digit method
over eight years. Goodwill and other acquired intangible assets are being
amortized using the straight-line method over periods which range from 15 to 20
years. The amortization expense of goodwill and identifiable intangibles was
$2.4 million for 1995, $1.7 million for 1994, and $1.2 million for

<PAGE> 57

1993. As of the end of each accounting period, the Company employs both
quantitative and qualitative factors including current profitability, current
economic conditions, and projected profitability in assessing the
recoverability of goodwill.

Income Taxes--

The Company files a consolidated federal income tax return using the
accrual basis of accounting. On January 1, 1993, the Company adopted Statement
of Financial Accounting Standards No. 109 "Accounting for Income Taxes." As a
result of this adoption, the Company recorded a deferred tax asset of $4.8
million in January 1993. Deferred taxes are provided for temporary differences
in income and expense items that are recognized differently for tax purposes
than for financial reporting purposes.

Nonperforming Loans--

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.

Other Real Estate--

Real estate acquired in settlement of loans is carried at the lower of
fair value minus estimated costs to sell or cost. This determination is made
on an individual asset basis. A valuation allowance is used to record
deficiencies between cost and fair values minus estimated selling costs.
Increases or decreases in the valuation allowance are charged to expense. As
mentioned above, the Company adopted SFAS 114 as amended by SFAS 118 effective
January 1, 1995. As a result, loans classified as "in-substance foreclosure"
were reclassified to nonperforming loans at that time.

<PAGE> 58

Statements of Cash Flows--

For purposes of the statements of cash flows, the Company defines cash
and due from banks and interest-bearing deposits with banks as cash and cash
equivalents. Investment securities classified as 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 debt security or to scheduled payments
on a debt security payable in installments over its term.

Reclassifications--

Certain reclassifications have been made to previously reported
amounts to make them consistent with current reporting.

Use of Estimates--

The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

58
<PAGE> 59
NOTE 2 - PARENT COMPANY FINANCIAL STATEMENTS

Condensed financial information for Victoria Bankshares, Inc. (Parent
Company only) was as follows:

CONDENSED BALANCE SHEETS (IN THOUSANDS)
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
December 31,
--------------------------------
1995 1994
-------- ---------
<S> <C> <C>
ASSETS
Cash and Time Deposits with Subsidiary . . . . . . . . . . . . . . . . $ 2,719 $ 98
Investment in Subsidiaries, at Equity
in Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 168,549 157,162
Investment Securities Held to Maturity . . . . . . . . . . . . . . . . 7,004 7,013
Investment Securities Available for Sale . . . . . . . . . . . . . . . 8,694 10,176
Other Short-Term Investments . . . . . . . . . . . . . . . . . . . . . 179 2,367
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,769 3,779
-------- --------

Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $191,914 $180,595
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,605 $ 1,365
-------- --------

Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 1,605 1,365
-------- --------

Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . 190,309 179,230
-------- --------

Total Liabilities and Stockholders' Equity . . . . . . . . . . . . $191,914 $180,595
======== ========
</TABLE>

CONDENSED STATEMENTS OF OPERATIONS (IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------------------------------------
1995 1994 1993
-------- --------- ---------
<S> <C> <C> <C>
INCOME
Dividends Received from Subsidiary . . . . . . . . . . $ 19,998 $ 5,608 $ 4,191
Other Dividends and Interest . . . . . . . . . . . . . 1,200 991 709
Other Operating Income . . . . . . . . . . . . . . . . 195 155 8
-------- -------- --------

Total Income . . . . . . . . . . . . . . . . . . . 21,393 6,754 4,908
-------- -------- --------
EXPENSE
Interest on Long-Term Debt . . . . . . . . . . . . . . 28 -0- 293
Salaries and Employee Benefits . . . . . . . . . . . . 491 408 366
Other . . . . . . . . . . . . . . . . . . . . . . 1,122 739 699
-------- -------- --------

Total Expense . . . . . . . . . . . . . . . . . . 1,641 1,147 1,358
-------- -------- --------

Income Before Items Below . . . . . . . . . . . . . . . 19,752 5,607 3,550
Federal Income Tax Provision (Benefit) . . . . . . . . (99) 57 1,031
-------- -------- --------
Income Before Item Below . . . . . . . . . . . . . . . 19,851 5,550 2,519
Equity in Undistributed Earnings of Subsidiaries . . . (4,709) 11,402 16,615
-------- -------- --------

NET INCOME . . . . . . . . . . . . . . . . . . . . . . $ 15,142 $ 16,952 $ 19,134
======== ======== ========

</TABLE>

59
<PAGE> 60

CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------------------------------------
1995 1994 1993
-------- -------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income . . . . . . . . . . . . . . . . . . . . . . $ 15,142 $ 16,952 $ 19,134
Adjustments to Reconcile
Net Income to Net Cash Provided by Operating
Activities:
Equity in Undistributed
Earnings of Subsidiaries . . . . . . . . . . . 4,709 (11,402) (16,615)
Other Operating Activities . . . . . . . . . . . . (374) 359 (151)
-------- -------- --------
Net Cash Provided
by Operating Activities . . . . . . . . . . . . . . 19,477 5,909 2,368

INVESTING ACTIVITIES
Investment in Subsidiaries . . . . . . . . . . . . . . (14,681) -0- -0-
Purchase of Investment
Securities Available for Sale . . . . . . . . . . . (3,457) (10,176) -0-
Proceeds from Maturities
of Investments Available for Sale . . . . . . . . . 3,200 -0- -0-
Proceeds from Sales of Available for Sale Securities . 2,256 -0- -0-
Net (Increase) Decrease in
Other Short-Term Investments . . . . . . . . . . . 2,188 7,724 (4,542)
-------- -------- --------
Net Cash Used by Investing Activities . . . . . . . . . (10,494) (2,452) (4,542)

FINANCING ACTIVITIES
Proceeds from Issuance of Short-Term Borrowings . . . . -0- 25 100
Proceeds from Issuance of Long-Term Borrowings . . . . 50 -0- -0-
Payment and Retirements of Short-Term Borrowings . . . -0- (55) (101)
Payments and Retirements
of Long-Term Borrowings . . . . . . . . . . . . . . (664) -0- (13,000)
Cash Dividends . . . . . . . . . . . . . . . . . . . . (6,040) (4,153) (2,939)
Redemption of Preferred Stock . . . . . . . . . . . . . (519) -0- -0-
Net Proceeds from Issuance
of Common Stock . . . . . . . . . . . . . . . . . . 811 762 18,095
-------- -------- --------

Net Cash Provided (Used)
by Financing Activities . . . . . . . . . . . . . . (6,362) (3,421) 2,155
Increase (Decrease) in Cash
and Cash Equivalents . . . . . . . . . . . . . . . 2,621 36 (19)
Cash and Cash Equivalents
at Beginning of Year . . . . . . . . . . . . . 98 62 81
-------- -------- --------
Cash and Cash Equivalents
at End of Year . . . . . . . . . . . . . . . . $ 2,719 $ 98 $ 62
======== ======== ========

SUPPLEMENTARY INFORMATION TO
STATEMENTS OF CASH FLOWS
Interest Expense Payments . . . . . . . . . . . . . . . $ 28 $ 37 $ 325
======== ======== ========

Federal Income Tax Payments . . . . . . . . . . . . . . $ 7,240 $ 6,903 $ 5,117
======== ======== ========

</TABLE>

NOTE 3. RELATED PARTY TRANSACTIONS

Approximately 39% of the Company's outstanding stock was owned and
controlled by officers, directors, and principal stockholders of the Company at
December 31, 1995.

It has been, and is, the policy of the bank subsidiary to extend
credit to executive officers, directors, principal stockholders and their
affiliated entities to meet their business and personal requirements on terms
and conditions comparable to other loans of like quality and risk. The
aggregate amounts of such loans, including indirect amounts guaranteed by such
persons and entities, totaled $6,293,000 and $2,008,000 at December 31, 1995
and 1994, respectively.

In 1984, Victoria Bank & Trust Company, the principal subsidiary of
the Company, leased a twelve-story office building under a net lease, with a
lease term of 25 years, from a general

<PAGE> 61

partnership. The partners consist of individuals and three trusts related to
principal stockholders of the Company. Presently, principal stockholders serve
as trustees for the trusts. The lease rates are $2.5 million per annum through
1999 and $3.0 million per annum from 2000 through 2009. A portion of the
building is subleased to the principal stockholders of the Company.

NOTE 4. INVESTMENT SECURITIES

Securities with an approximate par value of $220,116,000 and
$162,125,000 at December 31, 1995 and 1994, respectively, were pledged to
secure public and trust deposits and for other purposes as required or
permitted by law.

The amortized cost and market values of the investment securities held
to maturity and available for sale, by type, together with unrealized gains and
losses, were as follows (in thousands):
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1995
----------------------------------------------------------------
Amortized Market Unrealized Unrealized
Cost Value Gains Losses
--------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Securities Held to Maturity:
U.S. Government and Government Agency $576,204 $579,138 $ 4,780 $ 1,846
State and Political Subdivisions . . 65,528 66,204 754 78
Investment Grade Corporate Bonds . . 26,551 26,627 149 73
Mortgage-Backed Securities . . . . . 3,301 3,202 -0- 99
-------- -------- ---------- ----------
Total . . . . . . . . . . . . . . . . $671,584 $675,171 $ 5,683 $ 2,096
======== ======== ========== ==========
Securities Available for Sale:
U.S. Government and Government Agency 118,957 118,454 1,003 1,506
State and Political Subdivisions . . 3,487 3,685 198 -0-
Investment Grade Corporate Bonds . . 30,429 30,406 38 61
Other . . . . . . . . . . . . . . . . 671 568 47 150
-------- -------- ---------- ----------
Total . . . . . . . . . . . . . . . . $153,544 $153,113 $ 1,286 $ 1,717
======== ======== ========== ==========

- ------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<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
-------- -------- ---------- ----------
Total . . . . . . . . . . . . . . . . $766,621 $747,711 $ 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>

During 1995, the Company had proceeds from sales of investment
securities available for sale of $113.4 million. There was $107.0 million in
investment securities transferred from the held to maturity category to the
available for sale category on December 27, 1995, as allowed by the Financial
Accounting Standards Board. Also transferred from the held to maturity
category to the available for sale category was approximately $10.4 million of
securities acquired in 1995 subsidiary acquisitions. The securities were then
subsequently sold because they did not fall within the Company's investment
policy guidelines. There were no

<PAGE> 62

significant gains or losses recognized on the sale of these securities. The
Company recorded gross realized gains of $57 thousand resulting from the
disposition of two equity investments by the Company's Small Business
Administration ("SBA") licensed subsidiary and the loss on the sales of
available for sale U.S. Treasury Notes that were sold in order to improve total
return. During 1994, the Company had proceeds from sales of investment
securities of $48.9 million, which included gross realized losses of $796
thousand which resulted from the sale of two equity securities held by the SBA
licensed subsidiary.

The following table shows, as of December 31, 1995, the distribution
of the Company's investment securities (in thousands):

- -------------------------------------------------------------------------------------------------------------

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 . . $179,522 $270,552 $49,162 $172,348 $671,584
Securities Available for Sale . 59,616 78,232 3,096 12,600 153,544
-------- -------- ------- -------- --------
Total . . . . . . . . . . . . 239,138 348,784 52,258 184,948 825,128
Market Value . . . . . . . . . . 239,296 350,051 52,470 186,467 828,284

- -------------------------------------------------------------------------------------------------------------
</TABLE>

The information provided above is based on contractual maturity.
Expected maturities will differ from actual maturities because issuers may have
the right to call or prepay obligations without penalty. There was no
investment concentration of a single issuer, except the United States
Government and its Agencies, that exceeded 10% of equity as of December 31,
1995 and 1994.

NOTE 5. LOANS AND ALLOWANCE FOR LOAN LOSSES AND ALLOWANCE FOR
FORECLOSED ASSETS

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

<PAGE> 63

allowance for loan losses. The Company had previously measured the allowance
for loan 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 December 31, 1995, the recorded investment in loans that are
considered impaired was $6.8 million. Included in this amount were $1.9
million of impaired loans for which the related allowance for loan losses was
$0.9 million. Impaired loans of $4.9 million were carried at the lower of cost
or fair value and as a result do not have a related allowance for loan losses.
The average recorded investment in impaired loans during the twelve months
ended December 31, 1995, was approximately $8.4 million.

At December 31, 1995 and 1994, the Company had $569 thousand and $617
thousand, respectively, of loans that resulted from troubled debt
restructurings.

An analysis of the loans outstanding follows (in thousands):

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
December 31,
---------------------------------
1995 1994
-------- --------
<S> <C> <C>
Commercial and Industrial . . . . . . . . . . . . . . . . . . . . . . $145,984 $125,437
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211,573 174,375
Real Estate--Construction . . . . . . . . . . . . . . . . . . . . . . 23,807 18,630
Real Estate--Mortgage . . . . . . . . . . . . . . . . . . . . . . . . 290,163 244,592
Agricultural . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,409 36,861
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,429 2,671
-------- --------
715,365 602,566
Less: Unearned Discount . . . . . . . . . . . . . . . . . . . . . . (1,720) (4,490)
Allowance for Loan Losses . . . . . . . . . . . . . . . . . (10,577) (10,024)
-------- --------
Net Loans . . . . . . . . . . . . . . . . . . . . . . . . $703,068 $588,052
======== ========
- -------------------------------------------------------------------------------------------------------------
</TABLE>

The Company's loan portfolio concentrations are described in this
paragraph. At December 31, 1995, the Company's loans secured primarily by real
estate consisted of (i) loans for commercial and residential construction and
land development (none of which are located in major Texas metropolitan areas)
which constituted 2.8% of the total loan portfolio and (ii) other real estate
loans (including loans for 1-4 family, multi-family, and nonfarm/nonresidential
properties) which constituted 41.1% of the total loan portfolio. The remaining
loan portfolio categories and the percentage of each to the total loan
portfolio at December 31, 1995, consisted of the following: loans to oil and
gas producers and related service businesses, 0.2%; agricultural loans (other
than loans secured by agricultural real property), 5.7%; other commercial and
industrial loans, 20.4%; consumer loans, 29.6%; and all other loans (including
loans to financial institutions), 0.5%.

63
<PAGE> 64
An analysis of the allowance for loan losses follows (in thousands):

- -------------------------------------------------------------------------------------------------------------
December 31,
---------------------------------------------------
1995 1994 1993
------------ -------- --------
<S> <C> <C> <C>
Balance at Beginning of Year . . . . . . . . . . . $ 10,024 $ 9,974 $ 10,081
Allowance on Purchased Loans . . . . . . . . . . . 945 -0- 300
Provision Charged to Expense . . . . . . . . . . . 165 15 155
Loans Charged Off . . . . . . . . . . . . . . . . . (1,227) (891) (1,739)
Recoveries . . . . . . . . . . . . . . . . . . . . 670 926 1,177
-------- -------- --------
Balance at End of Year . . . . . . . . . . . . . . $ 10,577 $ 10,024 $ 9,974
======== ======== ========

- --------------------------------------------------------------------------------------------------------------
</TABLE>

An analysis of the allowance for foreclosed assets follows (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
December 31,
------------------------------------
1995 1994
------------ -----------

<S> <C> <C>
Balance at Beginning of Year . . . . . . . . . . . . . . . . . . . . $ 119 $ 159
Provision Charged to Operating Expense . . . . . . . . . . . . . . . 265 20
Losses Charged to Allowance . . . . . . . . . . . . . . . . . . . . . (84) (60)
Recovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 -0-
----------- -----------
Balance at End of Year . . . . . . . . . . . . . . . . . . . . . . . $ 338 $ 119
=========== ===========
- --------------------------------------------------------------------------------------------------------------
</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.

The balance and the effect on interest income of impaired loans for
1995, nonaccrual loans for 1994 and 1993, and restructured loans for all years
are shown below. Due to the performing status in accordance with the restated
terms of the troubled debt restructurings as of the adoption of SFAS 114, they
are not considered impaired and, therefore, are presented separately.

- -------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------------------------------
1995 1994 1993
----------------------- -------------------------- --------------------------
Impaired Restructured Nonaccrual Restructured Nonaccrual Restructured
--------- ------------ ----------- ------------ ----------- ------------

<S> <C> <C> <C> <C> <C> <C>
Principal Amount at Year-end . . $ 6,801 $569 $ 9,145 $617 $12,003 $599
======= ==== ======= ==== ======= ====

Gross Amount of Interest
That Would Have Been
Recorded at Original Rate . . . $ 698 $ 71 $ 601 $ 74 $ 659 $ 78
Amount of Payments Reflected
in Income . . . . . . . . . . . 683 55 538 55 321 57
------- ---- ------- ---- ------- ----
Net Impact on Interest Income . . $ 15 $ 16 $ 63 $ 19 $ 338 $ 21
======= ==== ======= ==== ======= ====

- -------------------------------------------------------------------------------------------------------------------
</TABLE>

64
<PAGE> 65

NOTE 6. PREMISES AND EQUIPMENT
Premises and equipment consisted of the following (in thousands):

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
December 31,
---------------------------------------
1995 1994
--------- ---------
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,006 $ 8,402
Buildings and Improvements . . . . . . . . . . . . . . . . . . 49,999 47,749
Equipment and Furniture . . . . . . . . . . . . . . . . . . . . 32,719 28,861
-------- ---------
90,724 85,012
Less: Accumulated Depreciation . . . . . . . . . . . . . . . . (44,832) (40,753)
-------- ---------
Premises and Equipment, Net . . . . . . . . . . . . . . . . $ 45,892 $ 44,259
======== =========

- -----------------------------------------------------------------------------------------------------------
</TABLE>

NOTE 7. LEASE COMMITMENTS

In the normal course of business, the Company and its subsidiaries
have entered into operating leases for real property and equipment. Management
expects that, in the normal course of business, leases that expire will be
renewed or replaced by other leases. The aggregate future minimum lease
payments by year, under noncancelable operating leases with initial or
remaining terms of one year or more, at December 31, 1995, are as follows (in
thousands):

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Lease Sublease
Payments Receipts Net
-------- -------- --------
<S> <C> <C> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,280 $ 941 $ 2,339
1997 . . . . . . . . . . . . . . . . . . . . . . . . . 2,996 802 2,194
1998 . . . . . . . . . . . . . . . . . . . . . . . . . 2,913 464 2,449
1999 . . . . . . . . . . . . . . . . . . . . . . . . . 2,732 -0- 2,732
2000 . . . . . . . . . . . . . . . . . . . . . . . . . 3,103 -0- 3,103
Later Years . . . . . . . . . . . . . . . . . . . . . . 26,946 -0- 26,946
-------- -------- --------
Total Minimum Lease Payments . . . . . . . . . . . . . $ 41,970 $ 2,207 $ 39,763
======== ======== ========

- -----------------------------------------------------------------------------------------------------------
</TABLE>
Total net rental expense on operating leases for the years ended
December 31, 1995, 1994, and 1993 was $2,369,000, $2,149,000 and $2,000,000,
respectively. See Note 3.

NOTE 8. TIME DEPOSITS

Time certificates of deposit of $100,000 and over aggregated
$126,064,000 and $99,987,000 at December 31, 1995 and 1994, respectively.
Interest expense on this type of deposit amounted to $2,447,000, $3,535,000,
and $3,729,000 for the years ended December 31, 1995, 1994, and 1993,
respectively.

<PAGE> 66

NOTE 9. FEDERAL FUNDS PURCHASED AND SHORT-TERM BORROWINGS

Information with respect to federal funds purchased and short-term
borrowings is as follows (in thousands):

<S> <C> <C> <C>
Balance at End of Period:
Federal Funds Purchased . . . . . . . . . . . . . . . . $ 76,375 $ 82,700 $106,775
Securities Sold Under Agreements to Repurchase . . . . 17,806 13,339 12,435
Other Short-Term Borrowings . . . . . . . . . . . . . . -0- 773 644
-------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . $ 94,181 $ 96,812 $119,854
======== ======== ========
Daily Average Amount Outstanding . . . . . . . . . . . . $ 87,339 $104,336 $128,552
Highest Month-End Balance . . . . . . . . . . . . . . . . 106,524 119,383 130,337
Weighted Average Interest Rate . . . . . . . . . . . . . 5.75% 3.99% 2.90%
Weighted Average Interest Rate on Balance
Outstanding at End of Period . . . . . . . . . . . . 5.68% 4.59% 2.81%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 10. COMMON STOCK AND RETAINED EARNINGS

Per share information was computed using the weighted average number
of shares of common stock outstanding. The weighted average number of shares
was 8,274,085 for the year ended December 31, 1995, 8,244,358 for the year
ended December 31, 1994, and 7,730,155 for the year ended December 31, 1993.

Primary earnings per share were computed using the weighted average
number of shares of common stock outstanding. For the stock options (see Note
13), the amount of dilution to be included in earnings per share data is
computed using the treasury stock method. The stock options did not have a
material dilutive effect on the calculation of earnings per share and were,
therefore, not included.

Preferred stock dividends of $22,000, $44,000, and $43,000 for 1995,
1994, and 1993, respectively, were deducted from net income in computing
primary earnings per share.

The amount of undistributed retained earnings of the Company's
subsidiaries was approximately $81,372,000 at December 31, 1995. Dividends
paid by the Company's subsidiary bank are subject to restrictions by certain
regulatory agencies. The amount of retained earnings available to the Parent
Company from subsidiaries for payment of dividends without prior regulatory
approval was approximately $72,396,000 at December 31, 1995.

During 1994, the Company's articles of incorporation were amended to
increase the authorized number of shares of capital stock to 36,000,000,
consisting of 1,000,000 shares of Preferred Stock and 35,000,000 shares of
Common Stock, and to change the par value from $10 per share to $1 per share.

<PAGE> 67

NOTE 11. FEDERAL INCOME TAX

The provision for Federal income tax was as follows (in thousands):

The significant temporary differences between tax and financial
reporting include allowances for loan losses, provisions/write-downs of
foreclosed property, accelerated depreciation and the core deposit intangible
gross-up.

The amounts were different from the amounts computed by applying the
U. S. Federal income tax statutory rate for the reasons noted below (in
thousands):

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------------------------
1995 1994 1993
---------------- ----------------- -----------------
Amount % Amount % Amount %
------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Tax Provision Computed
at the Statutory Rate . . . . . . . . . . . . $ 7,943 35% $ 8,997 35% $ 7,552 35%
Increase (Decrease) In Provision
Resulting from:
Tax Exempt Interest . . . . . . . . . . . . (754) (3%) (429) (2%) (201) (1%)
Other . . . . . . . . . . . . . . . . . . . 362 1% 184 1% (120) 0%
-------- ------ -------- ------ -------- ------
Total Tax Expense . . . . . . . . . . . . $ 7,551 33% $ 8,752 34% $ 7,231 34%
======== ====== ======== ====== ======= ======
- --------------------------------------------------------------------------------------------------------------
</TABLE>

The components of and changes in the net deferred tax asset
(liability) were as follows (in thousands):

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
January 1, December 31,
1995 Activity 1995
------------ --------- ------------
<S> <C> <C> <C>
Net Tax Depreciation In Excess of Book . . . . . . . . . $(1,914) $ 91 $(1,823)
Discount Accretion . . . . . . . . . . . . . . . . . . . (10) 6 (4)
Other Real Estate Provisions In Excess
of Realized Losses . . . . . . . . . . . . . . . . . 529 (20) 509
Provision for Loan Losses In Excess of
Net Charge-offs . . . . . . . . . . . . . . . . . . . 3,018 40 3,058
Other Temporary Differences, Net . . . . . . . . . . . . 34 (749) (715)
------- ------- -------
Net Deferred Tax Asset . . . . . . . . . . . . . . . . . 1,657 (632) 1,025
Valuation Allowance . . . . . . . . . . . . . . . . . 0 0 0
Core Deposit Intangible Gross-Up . . . . . . . . . . 0 (1,734) (1,734)
------- ------- -------
Total Net Deferred Tax Asset (Liability) . . . . . . . . $ 1,657 $(2,366) $ (709)
======= ======= =======
- --------------------------------------------------------------------------------------------------------------
</TABLE>

NOTE 12. COMMITMENTS AND CONTINGENCIES

In the normal course of the subsidiaries' business, there are various
outstanding commitments and contingent liabilities, such as

67
<PAGE> 68

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 December 31, 1995, the
Company had outstanding standby letters of credit of $4,247,000 and commitments
to extend credit were $171,917,000, of which $67,750,000 included commitments to
correspondent banks for federal fund lines. The credit risks involved in these
instruments are similar to 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 $5.9 million in student loans that the Company sold with recourse in 1993.
The Company has provided for possible credit risk in these transactions in its
allowance for loan losses and does not anticipate losses in excess of such
allowance as a result of these transactions.

The Company is involved in various legal actions that are in various
stages of litigation and investigation by the Company and its legal counsel.
Some of these actions allege various "lender liability" claims on a variety of
theories and claim substantial actual and punitive damages. After reviewing
all actions pending or threatened involving the Company, Management believes
that, while the resolution of any matter may have an impact on the financial
results of the period in which the matter is settled, the ultimate resolution
of these matters will not have a material adverse effect upon the business or
consolidated financial position of the Company. However, many of these matters
are in various stages of proceedings and further developments could cause
Management to revise their assessment of these matters.

NOTE 13. EMPLOYEE BENEFITS

The Company participates in a pension plan covering substantially all
employees with one or more years of service. The benefits are based on years
of service and the employee's compensation during the last five years of
employment. The Company's funding policy is to contribute annually an amount
to maintain the current minimum funding standard or higher. Contributions are
intended to provide not only for benefits attributed to service to date, but
also for those expected to be earned in the future. In 1992, the Company
amended its pension plan to provide a fixed supplemental pension benefit
payment to current retirees and future retirees in lieu of providing
company-paid retiree health coverage. The formula provides a payment in
addition to normal pension payments based on years of service and not on level
of compensation. Benefits paid will have no relationship to the current or
future costs of health insurance. Total pension cost was approximately
$839,000, $623,000, and $808,000, respectively, for the years ended December
31, 1995, 1994, and 1993.

68
<PAGE> 69

The following table sets forth the plan's funded status and amounts
recognized in the Company's financial statements at December 31, 1995 and 1994
(in thousands):

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
December 31,
---------------------------
1995 1994
-------- --------

<S> <C> <C>
Actuarial Present Value of Accumulated Plan Benefit
Obligation, Including Vested Benefits of $22,445 and
$19,911 in December 1995 and 1994, Respectively . . . . . . . . . . . . . . $24,700 $21,935
======= =======
Projected Benefit Obligation for Service Rendered to Date . . . . . . . . . . $27,172 $23,789
Plan Assets at Fair Value, Primarily Listed Stocks
and U. S. Treasury Securities . . . . . . . . . . . . . . . . . . . . . . . 27,723 22,428
------- -------
Plan Assets Over (Under) the Projected Benefit Obligation . . . . . . . . . . 551 (1,361)
Unrecognized Net Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,600 2,148
Unrecognized Prior Service Cost to be Recognized Over
Approximately 15 Years from January 1, 1987 . . . . . . . . . . . . . . . . 1,223 1,325
Unrecognized Net Assets to be Recognized
Over Approximately 15 Years from January 1, 1987 . . . . . . . . . . . . . (549) (636)
------- -------
Prepaid Pension Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,825 $ 1,476
======= =======
- -------------------------------------------------------------------------------------------------------------
</TABLE>

Net periodic pension cost for the years ended December 31, 1995,
1994, and 1993, included the following components (in thousands):

<TABLE>

- -------------------------------------------------------------------------------------------------------------
December 31,
------------------------------------------------
1995 1994 1993
-------- --------- ----------
<S> <C> <C> <C>
Service Cost--Benefits Earned During the Period . . . . . $ 931 $ 911 $ 978
Interest Cost on Projected Benefit Obligation . . . . . . 1,820 1,739 1,556
Expected Return on Plan Assets . . . . . . . . . . . . . (1,927) (2,042) (1,749)
Amortization of Prior Service Cost . . . . . . . . . . . 102 102 110
Transition Asset Amortization . . . . . . . . . . . . . . (87) (87) (87)
------- ------- --------
Net Periodic Pension Cost . . . . . . . . . . . . . . . $ 839 $ 623 $ 808
======= ======= ========
- -------------------------------------------------------------------------------------------------------------
</TABLE>

The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.0% at December 31, 1995
and 7.50% at December 31, 1994 and 6.75% at December 31, 1993. The rate of
increase in future compensation levels was 5.0% at December 31, 1995, December
31, 1994 and December 31, 1993. The expected long-term rate of return on
assets was 8.5% at December 31, 1995 and 1994 and 8.0% at December 31, 1993.

In 1990, the Company and its subsidiaries established a nonqualified
supplemental executive retirement plan for certain executive officers to
restore pension benefits to a pre-1986 Tax Reform Act level. The cost related
to the plan was approximately $200,000 for 1995, $140,000 for 1994, and $49,000
for 1993.

The Company and its subsidiaries have a contributory, trusteed 401(k)
plan and a noncontributory profit-sharing plan covering substantially all
employees with one or more years of service. The

69
<PAGE> 70

rate of employer contribution is 25% of the employee contribution up to 5% of
eligible salaries, with additional incentive contributions based on earnings of
the Company. Contributions to these plans by the Company during the three years
ended December 31, 1995, 1994 and 1993 were $1,766,000, $1,868,000, and
$2,050,000, respectively.

In addition to providing retirement benefits, the Company and its
subsidiaries provide access to health care and life insurance benefits for
retired employees. Substantially all of the Company's employees may become
eligible to purchase health care benefits if they reach normal retirement age
while working for the Company; life insurance coverage ceases at the age of 65.
Those and similar benefits for active employees are provided through a
self-insured fund which has reinsured individual and aggregate stop-loss
amounts. Annual premium amounts are based on the claims experience of the plan
and costs of reinsurance. The premiums for the three years ended December 31,
1995, 1994 and 1993, were $2,647,000, $1,740,000, and $2,095,000, respectively.

The Company maintains a 1991 Stock Option Plan, pursuant to which a
total of 300,000 shares of the Company's common stock has been reserved for
issuance. The option price is 100% of the fair market value of the Company's
common stock on the date of grant. The Plan is administered by a Stock Option
Committee comprised of nonparticipating outside directors of the Company. The
following table shows the history of the plan:

<TABLE>
<CAPTION>
Number Price
of Shares per Share
--------- ---------
<S> <C> <C>
Granted:
June 18, 1991 102,839 $10.75
November 24, 1993 152,000 26.75
December 20, 1994 12,000 22.63
January 3, 1995 10,000 22.13
August 25, 1995 18,000 27.88
Exercised:
During 1994 (46,891) 10.75
During 1995 (46,255) 10.75
-------
Outstanding:
December 31, 1995 201,693
=======
</TABLE>

NOTE 14. DISCLOSURES ABOUT FAIR VALUE OF 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:

70
<PAGE> 71

CASH, SHORT-TERM INVESTMENTS, AND SHORT-TERM BORROWINGS

For those short-term instruments, the carrying amount is a reasonable
estimate of fair value.

INVESTMENT SECURITIES HELD TO MATURITY, INVESTMENT SECURITIES AVAILABLE FOR
SALE, AND TRADING ACCOUNT ASSETS

For all types of securities, fair values are based on quoted market
prices or dealer quotes, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar
securities.

LOANS

The fair value of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities.

DEPOSITS

The fair value of demand deposits and interest-bearing transactional
accounts is the carrying amount payable at the reporting date. The fair value
of fixed-maturity time deposits is estimated using the rates currently offered
for deposits of similar remaining maturities.

LONG-TERM DEBT

The long-term debt of the Company is at a fixed rate. The fair value
is estimated by the current redemption value of this debt.

COMMITMENTS TO EXTEND CREDIT, STANDBY LETTERS OF CREDIT, AND FINANCIAL
GUARANTEES WRITTEN

The fair value of commitments is estimated using fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of the counterparties.
Included in the commitment to extend credit are $67.8 million and $76.0 million
at December 31, 1995 and December 31, 1994, respectively, of variable rate
federal fund lines for which no fees are assessed as all are secured by U. S.
Treasury securities. The fair value of guarantees and letters of credit is
based on fees currently charged for similar agreements or on the estimated cost
to terminate them or otherwise settle the obligations with the counterparties
at the reporting date.

71
<PAGE> 72

The estimated fair values of the Company's financial instruments are
as follows (in thousands):
<TABLE>
<CAPTION>

- -----------------------------------------------------------------------------------------------------------------
December 31, December 31,
1995 1994
------------------------- -----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and Short-term Investments $ 329,946 $ 329,946 $ 240,179 $ 240,179
Trading Accounts . . . . . . . . -0- -0- 166 166
Securities Available for Sale . 153,113 153,113 121,477 121,477
Investment Securities . . . . . 671,584 675,171 766,621 747,713
Loans . . . . . . . . . . . . . 713,645 598,076
Less: Allowance for Loan Losses (10,577) (10,024)
---------- -----------

Net Loans . . . . . . . . . 703,068 696,525 588,052 576,928

FINANCIAL LIABILITIES:
Deposits . . . . . . . . . . . . $1,661,833 $1,664,387 $1,526,743 $1,522,904
Federal Funds Purchased and
Short-term Borrowings . . . . 94,181 94,181 96,812 96,812
Long-term Debt . . . . . . . . . -0- -0- 1,720 1,636

Contract Asset/ Contract Asset/
Amount (Liabilities) Amount (Liabilities)
---------- ------------- ---------- -------------
UNRECOGNIZED FINANCIAL INSTRUMENTS:
Commitments to Extend Credit . . $ 171,917 $ (525) $ 164,374 $ (408)
Standby Letters of Credit . . . 4,247 (64) 3,542 (53)
Financial Guarantees Written . . 5,892 (283) 8,857 (425)

- -----------------------------------------------------------------------------------------------------------------
</TABLE>

NOTE 15. ACQUISITIONS

On August 25, 1995, the Company acquired Cattlemen's Financial
Services, Inc. ("Cattlemen's"). The transaction was accounted for as a
purchase. The Company acquired approximately $100 million in assets and
assumed $93 million in liabilities, paying a premium of $6.7 million over the
book value of the net assets. The principal subsidiary of Cattlemen's
Financial Services, Inc., was Cattlemen's State Bank.

NOTE 16. PENDING MERGER

<PAGE> 73
approved by the boards of both companies and is pending regulatory approval.
Norwest will issue 1.05 shares of Norwest common stock in exchange for each
share of the Company's common stock. The exchange will be accounted for by
Norwest as a pooling-of-interests.

NOTE 17. SUMMARY OF QUARTERLY FINANCIAL RESULTS (UNAUDITED)

Consolidated operating results for the Company for each quarter of 1995 and
1994 are summarized as follows (in thousands except per share amounts):

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter
---- --------- --------- --------- ---------

<S> <C> <C> <C> <C>
Interest Income . . . . . . . . . . . . $27,574 $28,465 $30,126 $32,676
Interest Expense . . . . . . . . . . . 11,242 12,713 13,297 14,152
-------- -------- -------- --------
Net Interest Income . . . . . . . . . . 16,332 15,752 16,829 18,524
Provision for Loan Losses . . . . . . . 10 5 50 100
-------- -------- -------- --------
Net Interest Income After
Provision for Loan Losses . . . . . 16,322 15,747 16,779 18,424
Noninterest Income . . . . . . . . . . 7,203 7,422 7,367 7,637
Noninterest Expense . . . . . . . . . . 17,622 18,051 18,152 20,383
-------- -------- -------- --------
Income Before Tax . . . . . . . . . . . 5,903 5,118 5,994 5,678
Federal Income Tax
Expense . . . . . . . . . . . . . 1,931 1,720 1,982 1,918
-------- -------- -------- --------
Net Income . . . . . . . . . . . . . . $ 3,972 $ 3,398 $ 4,012 $ 3,760
======== ======== ======== ========
NET INCOME PER SHARE . . . . . . . . . $0.48 $0.41 $0.48 $0.46
====== ====== ====== ======

- -------------------------------------------------------------------------------------------------------------
First Second Third Fourth
1994 Quarter Quarter Quarter Quarter
- --------------------------- --------- --------- --------- ---------

Interest Income . . . . . . . . . . . . $25,084 $25,775 $26,695 $27,468
Interest Expense . . . . . . . . . . . 8,808 9,022 9,885 10,737
-------- -------- -------- --------
Net Interest Income . . . . . . . . . . 16,276 16,753 16,810 16,731
Provision for Loan Losses . . . . . . . -0- 15 -0- -0-
-------- -------- -------- --------
Net Interest Income After
Provision for Loan Losses . . . . . 16,276 16,738 16,810 16,731
Noninterest Income . . . . . . . . . . 6,784 6,575 7,200 6,964
Noninterest Expense . . . . . . . . . . 16,459 17,037 17,419 17,459
-------- -------- -------- --------
Income Before Tax . . . . . . . . . . . 6,601 6,276 6,591 6,236
Federal Income Tax
Expense . . . . . . . . . . . . . . 2,339 2,186 2,269 1,958
-------- -------- -------- --------
Net Income . . . . . . . . . . . . . . $ 4,262 $ 4,090 $ 4,322 $ 4,278
======== ======== ======== ========
NET INCOME PER SHARE . . . . . . . . . $0.52 $0.49 $0.52 $0.52
====== ====== ====== ======
- -------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE> 74

- -------------------------------------------------------------------------------
QUOTATIONS AND CASH DIVIDENDS ON CAPITAL STOCK
(Not covered by Report of Independent Public Accountants)

The common stock, symbol VICT, of Victoria Bankshares, Inc. is traded
in the over-the-counter market and is quoted in the National Market System
(NMS) of NASDAQ, the nationwide network of the National Association of
Securities Dealers Automated Quotations System. As of December 31, 1995, there
were 2,983 holders of record of common stock.

The following table shows the range of high and low prices per share
of common stock of the Company in the over-the-counter market, as reported by
NASDAQ.

<TABLE>
<CAPTION>
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C>
High-Low Price . . . . . . . . . . . . 26 1/2-21 3/4 26 1/2-23 3/4 29 3/4-25 3/4 37-28 3/4
Dividends Per Share . . . . . . . . . . .25 .16 .16 .16

1994
High-Low Price . . . . . . . . . . . . 27 3/4-23 3/4 27 1/4-24 29-25 1/4 27-21 3/4
Dividends Per Share . . . . . . . . . . .13 .13 .13 .13
- ------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE> 75

ITEM 9
CHANGES IN AND DISAGREEMENTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT

DIRECTORS

The names of the directors, their present offices with the Company, the
principal occupation or employment of each, the year each director first became
a director of the Company or of the Bank, if earlier, and the number and
percentage of shares of Common Stock of the Company beneficially owned by each
director at March 15, 1996, are set forth below. Beneficial ownership of
Common Stock is direct and the named director has sole voting and investment
power with respect to the shares reflected as owned by him unless otherwise
specified.

75
<PAGE> 76
<TABLE>
<CAPTION>
Number of
Year Shares and
Year Principal First Nature of
Director and Office Term Occupation Became Beneficial Percent
With Company Expires Age or Employment Director Ownership of Class
- --------------------- ------- --- ------------- -------- ----------- --------

<S> <C> <C> <C> <C> <C> <C>
Dennis O'Connor 1996 89 Oil and Gas; 1929 663,791 7.97%
Senior Chairman of Investments;
the Board - Emeritus Ranching (1)

Tom O'Connor, Jr. 1996 80 Oil and Gas; 1939 964,968 11.59%
Chairman of the Investments;
Executive Committee Ranching (1)

Charles R. Hrdlicka 1996 57 Chairman of 1986 3,196 *
Chairman of the Board, President
Board, President and Chief Execu-
and Chief Executive tive Officer of
Officer the Company and
the Bank

Edwin W. Dentler 1997 63 Retired Chief 1981 13,497 (4) *
Financial
Officer of the
Company;
Investments

Jack R. Morrison 1997 73 Certified 1972 9,408 *
Public
Accountant

Munson Smith 1997 69 Partner, 1995 1,095 *
Anderson, Smith
Null, Stofer &
Murphree, LLP

D. H. Braman, Jr. 1998 51 Oil and Gas; 1967 613,299 (2) 7.37%
Vice Chairman Investments;
of the Board Ranching (1)

R. J. Hewitt 1998 67 Oil and Gas; 1956 391,601 (3) 4.70%
Vice Chairman Investments (1)
of the Board

R. W. Briggs, Jr. 1998 62 Chairman, The 1972 246,320 2.96%
Fordyce Company

Ralph R. Gilster, III 1998 31 Oil and Gas; 1994 315,031 (5) 3.78%
Investments (1)

</TABLE>
_______________
* Less than 1%.

(1) Messrs. Dennis O'Connor, Tom O'Connor, Jr., Braman, Hewitt and Gilster
have various interests in a number of closely held partnerships, joint
ventures and corporations engaged in either cattle-raising or oil and
gas operations in which the O'Connor-Braman family interests are
involved.

<PAGE> 77

(2) Includes 106,949 shares owned by one trust for the benefit of Mr.
Braman's child, of which Mr. Braman is trustee and with respect to
which he exercises sole voting and investment power. Mr. Braman
disclaims beneficial ownership of all such shares.

(3) Includes (i) 144 shares held by Mr. Hewitt as custodian for Mr. James
N. Stofer's child, as to which Mr. Hewitt exercises sole voting and
investment power, and (ii) 1,456 shares owned by Mr. Hewitt's wife.
Mr. Hewitt disclaims beneficial ownership of all such shares.

(4) Includes 290 shares owned by Mr. Dentler's wife, as to which he
disclaims beneficial ownership.

(5) Includes 230,327 shares owned by two trusts for the benefit of Mr.
Gilster's two sisters, of which Mr. Gilster is co-trustee and with
respect to which he exercises shared voting and investment power. Mr.
Gilster disclaims beneficial ownership of these shares.

Each of the above-named directors has been engaged in the principal
occupation or employment indicated above for more than the past five years.
All directors have served continuously for more than five years, except for Mr.
Gilster, who was elected a director during 1994, and Mr. Smith, who was elected
in 1995.

Dennis O'Connor and Tom O'Connor, Jr. are brothers, Mr. Braman is
their nephew, Mr. Hewitt is the son of Dennis O'Connor, and Mr. Gilster is the
grandson of Tom O'Connor, Jr.

The Board of Directors of the Company held four regular meetings and
eight special meetings during the last fiscal year. During the last fiscal
year each of the incumbent directors of the Company, except for Dennis O'Connor
and Tom O'Connor, Jr., attended at least seventy-five percent of the total
number of Board meetings and the total number of meetings held by the
committees of the Board on which he served.

The Company has an Audit Committee of the Board of Directors of which
Messrs. Morrison (Chairman), Briggs and Hewitt are the members. The functions
of the Audit Committee include reviewing the scope and results of the annual
audit, annual FDICIA requirements, and making inquiries as to the adequacy of
the Company's accounting, financial and operating controls. The Audit
Committee met one time during the past fiscal year.

The Company has a Compensation Committee of the Board of Directors of
which Messrs. Hewitt (Chairman), Briggs and Morrison are members. The
Committee has the responsibility for reviewing overall compensation of the
Company, including employee benefits and stock options. The Committee met
three times during 1995.

77
<PAGE> 78

The Company has a Nominating Committee of the Board of Directors of
which Messrs. Hewitt (Chairman), Briggs and Morrison are members. The
Committee met one time during 1995. The Committee is responsible for (i)
considering and recommending to the shareholders directors for election as
director, (ii) considering and recommending to the Board of Directors persons
to fill director vacancies and newly created directorships, (iii) recruiting
potential director candidates, (iv) recommending changes to the whole Board of
Directors concerning the responsibilities and composition of the Board of
Directors and its committees, and (v) reviewing shareholders' suggestions of
directors that are submitted in accordance with the Bylaws of the Company.

EXECUTIVE OFFICERS OF THE COMPANY

The names, ages, and positions of the executive officers of the Company
and its subsidiaries are set forth below.

<TABLE>
<CAPTION>
Executive Officer & Position Position with
With Company Age Subsidiaries
- ---------------------------- --- ------------------------------------

<S> <C>
Charles R. Hrdlicka 57 Chairman of the Board, President,
Chairman of the Board, Chief Executive Officer, and
President, Chief Executive Director of the Bank; Director of
Officer and Director Victoria Securities Corporation;
Director of Central Computers, Inc.;
Director of Victoria Capital
Corporation; and Director and
President of Victoria Financial
Services, Inc.

Malcolm L. Duke 51 Executive Vice President of the
Executive Vice President Bank; Chairman of the Board,
Operations Administration Chief Executive Officer and
Director of Central Computers, Inc.

John H. Freeman, III 42 Executive Vice President of the Bank;
Executive Vice President - Director of Victoria Securities
General Banking Group Corporation; Director of Central
Computers, Inc.

David H. Jones 58 Executive Vice President and
Executive Vice President - Executive Trust Officer of the Bank;
Trust and Investment Services Senior Vice President and Director
of Victoria Capital Corporation;
President, Chief Executive Officer
and Director of Victoria Securities
Corporation

</TABLE>

78
<PAGE> 79
<TABLE>
<CAPTION>
Executive Officer & Position Position with
With Company Age Subsidiaries
- ---------------------------- --- ------------------------------------

<S> <C>
J. Dugan Smith 36 Executive Vice President of the
Executive Vice President - Bank; Senior Vice President and
Credit Administration Director of Victoria Capital
Corporation; Vice President and
Director of Victoria Financial
Services, Inc.; Director of Transact
Financial Corporation

Gregory Sprawka 45 Executive Vice President and
Executive Vice President, Chief Chief Financial Officer of the
Financial Officer, and Bank; Chairman of the Board,
Secretary-Treasurer President and Director of Transact
Financial Corporation;
Treasurer and Director of
Victoria Capital Corporation;
Secretary-Treasurer and Director
of Victoria Securities Corporation;
Chief Financial Officer, Secretary-
Treasurer, and Director of
Central Computers; and
Secretary-Treasurer and
Director of Victoria Financial
Services, Inc.

Frank J Warrington 52 Senior Vice President - Audit
Senior Vice President - Administration of the Bank
Audit Administration

</TABLE>
Each executive officer has served for more than five years as an
executive officer of the Company or the Bank except for Mr. Freeman. Mr.
Freeman served as Senior Vice President and Regional Manager with Bank United
in Houston prior to his election as Executive Vice President - General Banking
Group in 1995.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Based solely on a review of Forms 3 and 4 and amendments thereto
furnished to the Company during its most recent fiscal year and Form 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year, and written representations from reporting persons that no Form 5
was required, the Company believes that all reporting was done on a timely
basis, except for a Form 4 for T. Michael O'Connor, a director of the Bank,
which was filed eight days late.

79
<PAGE> 80
ITEM 11
EXECUTIVE COMPENSATION

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION(1)

OVERVIEW AND COMPENSATION PHILOSOPHY

The Compensation Committee of the Board of Directors of the Company (the
"Committee") is composed of R. J. Hewitt (who serves as the Chairman of the
Committee), R. W. Briggs, Jr. and Jack R. Morrison. All three of these members
are outside directors, and each has served on the Committee since its formation
in 1988.

This Committee Report is intended to describe in general terms the
process the Committee undertakes and the matters it considers in determining
the appropriate compensation for the Company's executive officers, including
the executive officers that are named in the enclosed Summary Compensation
Table (the "Named Executives"). This Report also describes these processes and
considerations in more detail with respect to the 1995 compensation of Charles
R. Hrdlicka, the Chairman of the Board, President, and Chief Executive Officer
of the Company.

The Company believes that compensation of its executive officers should
reflect and support the Company's strategic goals, the primary goal being the
creation of long-term value for the Company's shareholders, consistent with
protecting the interests of Victoria's depositors. The Committee believes that
these goals are best supported by:

* Rewarding individuals for outstanding contributions to the
Company's success.

* Compensating its executive officers competitively with the
compensation of similarly situated executive officers, in
order to attract and retain well-qualified executive officers.

* More closely aligning the interest of the executive officers with
those of the Company's shareholders, consistent with protecting
the interests of Victoria's depositors.

- -------------------------------

(1) Notwithstanding filings by the Company with the Securities and
Exchange Commission ("SEC") that have incorporated or may incorporate by
reference other SEC filings in their entirety, this Compensation Committee
Report on Executive Compensation shall not be incorporated by reference into
such filings and shall not be deemed to be "filed" with the SEC except as
specifically provided otherwise or to the extent required by Item 402 of
Regulation S-K.

80
<PAGE> 81

COMPONENTS OF EXECUTIVE OFFICER COMPENSATION

The Committee regularly reviews the various components of the Company's
executive compensation to ensure that they are consistent with the Company's
objectives, as described above. The principal elements of the compensation
program for executive officers are explained below:

BASE SALARY -- The Committee, in determining the appropriate base
salaries of its executive officers, generally considers the recent performance
of the Company and its long and short term outlook (taking into account
general business and industry conditions, among other things), and the roles of
the individual executive officers with respect to such performance and outlook.
Aspects of the Company's performance that the Committee considers particularly
important in setting compensation include earnings, earnings per share, expense
control, regulatory compliance, operating efficiency, improved net interest
margins, stock price and market share. The Committee also considers the
particular executive officer's specific responsibilities, and the performance
of such officer and the Company in those areas of responsibility. Also
significant in the Committee's deliberations is the level of compensation paid
by similarly situated financial institutions.

During the third quarter of 1994, the Committee, in conjunction with the
full Board of Directors, increased the base salaries of Messrs. Jones, Smith,
and Sprawka. These increases were in recognition of additional
responsibilities assumed by these officers as a result of a Company management
reorganization related to the retirement and resignations of three executive
officers during 1994.

In setting 1995 executive officer compensation, the Committee requested
that the Chairman of the Board of the Company make recommendations to the
Committee regarding the advisability and proposed amount of adjustments to the
base salaries for the Company's executive officers (other than the Chairman of
the Board), including the Named Executives.

At the Committee meeting of December 20, 1994, the Committee considered
the following in recommending base salary increases for the Company's executive
officers, including the Named Executives:

o The Chairman of the Board's recommendations for base salary
increases.

o The Company's solid performance during 1994 with respect to
virtually all of the above-mentioned criteria. The Committee
recognized the effect of 1993's nonrecurring items (i.e. the
change in the method of accounting for income taxes and the
one-time restructuring charge) and the Company's positioning for
the future.

81
<PAGE> 82

o A study completed during 1993 by a task force of senior officers,
which established job grades and compensation ranges for all
positions Company-wide. A national consulting firm, Hewitt
Associates (not associated with Mr. R. J. Hewitt), was engaged to
assist the task force with sources of external information and
lend objectivity to the process.

o Market salary survey data from the Financial Institution
Compensation Survey by Watt Company for 1994.

BONUSES -- Bonuses are based in large part on the same considerations as
are applicable to base salary -- i.e., the desire to remain competitive with
compensation paid by similarly situated companies, and the desire to recognize
and reward, and thereby encourage, good performance by the Company and its
executive officers. At its November 30, 1995 meeting, the Committee reviewed
the Chairman of the Board's recommendation for 1995 bonuses and the performance
of the Company during 1995. Noting the continued solid performance of the
Company related to many of the above-mentioned criteria, specifically
regulatory compliance, net margins, and improved net interest margins and stock
price, the Committee granted bonuses to the executive officers to reflect their
contribution to the success of the Company during 1995.

STOCK OPTION PROGRAM -- The Committee believes that the best way to
more closely align the interests of the Company's executive officers with
those of its shareholders is to encourage the ownership of stock in the
Company by its executive officers. This objective is accomplished in part
through the Company's 1991 Stock Option Plan which was approved by the Company's
shareholders at the 1992 annual meeting. Pursuant to the 1991 Stock Option Plan,
executive officers are eligible to receive stock options from time to time,
giving them the right to purchase shares of Common Stock of the Company at a
specified price in the future. The Committee determined that in light of the
number of stock options granted to the Named Executives in 1993, it recommended
the grant of stock options only to newly Named Executive John H. Freeman in
1995.

OTHER ITEMS -- The Committee also is charged with determining the annual
profit threshold that the Company is required to meet before the Company will
contribute profit-sharing amounts to the Company's 401(k) Profit Sharing Plan.
This Plan is open to participation by all employees of the Company who have
been employed by the Company for at least one year, and not just to executive
officers. In addition, the Committee has certain responsibilities with respect
to the Company's Supplemental Executive Retirement Plan, which is designed to
provide to the Company's executive officers benefits that, but for the
operation of certain restrictions imposed by ERISA, they would have been
entitled to receive pursuant to the Company's qualified defined benefit pension
plan (as described herein). At the November 30, 1995 meeting, the Committee
determined to limit covered

<PAGE> 83

compensation under this Plan to the executive officers' 1996 base salary,
effective January 1, 1996.

DISCUSSION OF 1995 COMPENSATION FOR THE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER

In determining the appropriate base salary for Mr. Hrdlicka, the
Chairman, President and Chief Executive Officer of the Company, the Committee
generally undertook the same process and considered the same factors as are
described above with respect to executive officers generally.

At the February 1995 meeting a raise of $25,000 was recommended for 1995
by the Committee. Mr. Hrdlicka has led the Company effectively during a
difficult period in the Texas banking industry and through the Company's
restructuring. Consequently, the Committee determined it was important to
compensate Mr. Hrdlicka in a manner commensurate with his performance in order
to encourage his continued service to the Company.

The Committee awarded Mr. Hrdlicka a bonus of $35,000 at the November
1995 meeting. This bonus recognized the Company's performance during 1995 as
described earlier, specifically regulatory compliance and the additional
responsibilities Mr. Hrdlicka has performed since he was named President on
June 24, 1994.

Mr. Hrdlicka's Total Cash Compensation (Base Salary and Bonus) in 1995
was between the 50th and 75th percentile of Total Compensation of chief
executive officers of financial institutions of similar size to the Company.
The Committee believes Mr. Hrdlicka's compensation package is reasonable and
competitive by industry standards.

MEMBERS OF THE COMPENSATION COMMITTEE
R. J. Hewitt, Chairman
R. W. Briggs, Jr.
Jack R. Morrison

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Messrs. Hewitt, Briggs and Morrison are the only persons who have served
on the Compensation Committee of the Board of Directors at any time during the
1995 fiscal year. No member of the Compensation Committee was, during the 1995
fiscal year, an officer or employee of the Company or any of its subsidiaries,
or was formerly an officer of the Company or any of its subsidiaries or had any
relationships with the Company requiring disclosure by the Company under Item
404 of Regulation S-K, except that Mr. Morrison was formerly employed by
the Bank as the head of the Trust Division. He retired from the Bank on June
1, 1984, and is currently receiving pension benefits from the Company.

83
<PAGE> 84

During the Company's 1995 fiscal year, no executive officer of the
Company served as (i) a member of the Compensation Committee (or other board
committee performing equivalent functions or, in the absence of any such
committee, the entire board of directors) of another entity, one of whose
executive officers served on the Company's Compensation Committee, (ii) a
director of another entity, one of whose executive officers served on the
Company's Compensation Committee, or (iii) a member of the Compensation
Committee (or other board committee performing equivalent functions or, in the
absence of any such committee, the entire board of directors) of another
entity, one of whose executive officers served as a director of the Company.

COMPENSATION OF EXECUTIVE OFFICERS

A summary of the compensation of the Named Executives is provided as follows:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------- ------------

(a) (b) (c) (d) (e) (f) (g)
Other Securities
Name and Annual Underlying All
Principal Salary Bonus Compensation Options Other
Position Year ($) ($) ($) (1) (#) Compensation (2)
- -------------------- ---- ------- ------ ------------ ------------ ----------------

<S> <C> <C> <C> <C> <C> <C>
Charles R. Hrdlicka 1995 375,000 35,000 26,671 -0- 11,602
Chmn. of the Board, 1994 350,000 50,000 30,412 -0- 13,862
President and Chief 1993 311,000 40,000 19,085 55,000 19,296
Executive Officer

David H. Jones 1995 155,000 15,500 10,734 -0- 11,602
Exec. Vice President 1994 135,539 20,000 8,299 -0- 12,526
1993 110,000 15,000 8,076 15,000 12,716

John H. Freeman, III 1995 150,000 15,000 22,170 10,000 -0-
Exec. Vice President

Malcolm L. Duke 1995 149,000 10,000 11,020 -0- 11,524
Exec. Vice President 1994 143,000 10,000 9,956 -0- 13,215
1993 137,000 10,000 9,773 12,000 15,838

Gregory Sprawka 1995 130,000 13,000 9,708 -0- 10,054
Exec. Vice Pres., 1994 116,875 10,000 5,820 -0- 10,801
Chf. Fin. Ofcr. and 1993 100,000 10,000 5,912 10,000 11,561
Secretary-Treasurer

J. Dugan Smith 1995 130,000 13,000 7,488 -0- 10,055
Exec. Vice President 1994 114,154 10,000 7,529 -0- 10,277
1993 100,000 10,000 6,573 10,000 11,561
</TABLE>

84
<PAGE> 85

(1) These amounts represent the cost of group life insurance coverage in
excess of $50,000 and club dues. In addition, these amounts include
the non-business portion of car allowance paid in 1995 which was $5,197,
$7,077, $5,527, $8,181, $7,485 and $6,981 for Messrs. Hrdlicka, Jones,
Freeman, Duke, Sprawka and Smith, respectively. Also, these amounts
include $16,228 and $360 paid to Mr. Hrdlicka and Mr. Jones,
respectively, pursuant to the decision by the Company to pay highly
compensated executive officers in cash their portion of the Company's
40l(k) Profit Sharing contributions which could not be deferred because
of restrictions imposed by the Employee Retirement Income Security Act
("ERISA"). Also $11,400 was paid to Mr. Freeman for relocation
expenses.

(2) Includes the Company's contribution to the 401(k) profit-sharing
defined contribution plan (described below) for profits and 25% match
to participants' contribution.

The following table shows options granted to Named Executives for
fiscal year 1995 and the potential value at their expiration date (10 years),
assuming annual increases of 5% and 10%, respectively.

OPTIONS GRANTED IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
Potential Realizable
Number of Percent of Value at Assumed
Securities Total Options Stock Price Appreciation
Underlying Granted to Exercise for Option Terms
Options Employees in Price Expiration ------------------------
Name Granted Fiscal Year (per share) Date 5% 10%
---- ---------- ------------ ----------- ---------- ------------------------
(#) (%) ($) ($) ($)
------------------------
<S> <C> <C> <C> <C> <C> <C>
John H. Freeman, III 10,000 35.7 22.125 01/03/05 139,100 352,600

</TABLE>

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION VALUES

<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of Securities
Underlying Unexercised Value of Unexercised In-the-
Options Held at FY-End (#) Money Options at FY-End ($)
--------------------------- ----------------------------
Shares
Acquired Value
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
# $

<S> <C> <C> <C> <C> <C> <C>
Charles R. Hrdlicka 24,279 (1) 567,521 -0- 55,000 (2) -0- 426,250 (2)

David H. Jones -0- -0- -0- 15,000 (2) -0- 116,250 (2)

John H. Freeman, III -0- -0- -0- 10,000 (3) -0- 123,750 (3)

Malcolm L. Duke 3,400 (1) 72,675 8,693 (1) 12,000 (2) 206,459 (1) 93,000 (2)

Gregory Sprawka 4,419 (1) 71,805 -0- 10,000 (2) -0- 77,500 (2)

J. Dugan Smith 4,419 (1) 94,456 -0- 10,000 (2) -0- 77,500 (2)

</TABLE>
(1) Options were issued June 18, 1991 and vested on June 18, 1994. The
exercise price of each of the options is $10.75.
(2) Options were issued November 24, 1993 and vest on November 24, 1996.
The exercise price of each of the options is $26.75.
(3) See "Options Granted in Last Fiscal Year."

85
<PAGE> 86

401(k) PROFIT SHARING DEFINED CONTRIBUTION PLAN

For many years the Company maintained a profit sharing plan in which
substantially all of the employees of the Company and its subsidiaries were
eligible to participate upon completion of one year of employment. The Company
adopted a Section 401(k) defined contribution plan effective January 1, 1987,
for the benefit of employees of the Company and its subsidiaries who elect to
participate. Effective January 1, 1990, the profit sharing and 401(k) plans
were merged into a single plan and will be referred to as the "401(k) profit
sharing plan" or the "plan".

The plan provides for the making of contributions by the Company from
its current and accumulated earnings in such amount as is determined by the
Company. Such Company contributions are allocated to participating employees
on the basis of covered compensation. Generally, covered compensation is all
compensation paid to an employee for services rendered, including overtime and
401(k) salary reductions but excluding bonuses and commissions. During 1994,
the plan was amended to include all compensation, including bonuses and
commissions, for non-highly-compensated employees as defined by the Internal
Revenue Service up to the current dollar threshold established by the Internal
Revenue Service. The 1995 limit was $66,000.

Employees may elect to (i) reduce their covered compensation by an
amount equal to from one percent to fifteen percent thereof, and (ii) have the
Company contribute such amount to the plan as salary deferral contributions on
behalf of the employee. The Company provides supplemental contributions to the
plan on behalf of the participant equal to a maximum of 25% of the first 5% of
the salary deferral contributions made on his behalf, such percentage to be
determined annually by the Board.

A participant's right to salary deferral contributions made on his
behalf is fully vested at all times. Employee contributions which were made to
the profit sharing plan in prior years became vested immediately upon
contribution. Employer contributions vest in annual increments of 20%,
beginning upon the completion of three years of active service, or if earlier,
upon death, retirement, attainment of age 65 or disability. Generally, amounts
may not be withdrawn from the plan by a participant until death, total
disability, termination of employment or retirement. The plan was
amended in 1995 to provide for vesting of all participants upon change of
control.

PENSION PLAN

For many years, the Company and its participating subsidiaries have
maintained a qualified defined benefit pension plan in which all regular
employees participate. The full expense of the pension plan is borne by the
Company and its subsidiaries. The aggregate contribution which the Company and
its subsidiaries elected to

<PAGE> 87

contribute to the pension plan for 1994 was 5.0% of the covered compensation of
plan participants. Covered compensation is the compensation of plan
participants for the prior fiscal year, including base salary, overtime, and
salary reductions contributed to the 401(k) plan, but excluding bonuses and
commissions. During 1994, the plan was amended to include all compensation,
including bonuses and commissions for non-highly-compensated employees as
defined by the Internal Revenue Service up to the current dollar threshold
established by the Internal Revenue Service. The 1995 limit was $66,000.

Benefits payable under the qualified pension plan become vested upon
the completion of five years of accredited service or upon reaching age 62,
whichever first occurs. The amount of benefit payable is based upon a
participant's age, years of accredited service and compensation. Effective
January 1, 1989, the plan's benefit formula was amended to comply with the Tax
Reform Act of 1986 (the "1986 Act"). Upon termination or retirement, a
participant will be entitled to the greater of the benefit computed based upon
(i) a formula based on accredited service and final average compensation and
(ii) a formula based on accredited service, final average compensation as of
December 31, 1988, and career average compensation on and after January 1,
1989.

The Company established a nonqualified deferred compensation plan for
highly compensated executives. Pursuant to such plan, pension benefit
shortfalls under the qualified pension plan resulting from the Internal Revenue
Code Section 415 limitation on maximum annual benefits, the Section 401(a)(17)
limitation on annual compensation and the Section 401(1) provisions on permitted
integration are generally restored to pre-1986 Act levels. Benefit eligibility
conditions and payment forms are identical to those contained in the qualified
pension plan. The plan was amended effective January 1, 1994 to provide for a
pension benefit equal to 2% of the latest annual salary up to a maximum of 20
years of service. This is reduced by the benefits received from the qualified
pension plan. Additionally, upon change in control the plan terminates all
participants will be vested in their accrued plan benefits, and the plan will be
liquidated. The amount set aside for the plan for the year 1995 was $200,000
for all participants in the plan (22 persons including the executive officers of
the Company). Also, voluntary deferral of salary and bonuses by the
participants in the plan will be allowed. The plan was amended during 1995 to
terminate the deferral of salary and bonus portions of the plan.

The following table sets forth, on a straight life annuity basis,
estimated annual retirement benefits payable in aggregate under the qualified
and nonqualified pension plans to persons in specified compensation and
years-of-service categories. Computation of the estimated annual pension
benefit is based on the Social Security law in effect at January 1, 1994, and
assumes the employee retires at age 65 (the normal retirement age under the

<PAGE> 88

plan) in 2005. As Social Security benefits increase, the amounts shown in the
table will decrease.

<TABLE>
<CAPTION>
Assumed Years of Service
Final -------------------------------------------------------
Average Thirty
Compensation Ten Twenty Or More
------------ ------- -------- --------
<S> <C> <C> <C>
$ 50,000 . . . . . . . . . . . . . $10,000 $ 20,000 $ 20,000
75,000 . . . . . . . . . . . . . 15,000 30,000 30,000
100,000 . . . . . . . . . . . . . 20,000 40,000 40,000
150,000 . . . . . . . . . . . . . 30,000 60,000 60,000
250,000 . . . . . . . . . . . . . 50,000 100,000 100,000
350,000 . . . . . . . . . . . . . 70,000 140,000 140,000
</TABLE>

As of December 31, 1995, the following executive officers had the
following years of accredited service under the pension plans: Mr.
Hrdlicka--9; Mr. Duke--8; Mr. Jones--5; Mr. Freeman--0; Mr. Smith--8; and Mr.
Sprawka--8.

EXECUTIVE RETENTION/SEVERANCE AGREEMENTS

On September 5, 1995, the Company entered into executive
retention/severance agreements with its six executive officers including Messrs.
Charles R. Hrdlicka, Chairman and Chief Executive Officer; David Jones,
Executive Vice President - Trust and Investments; John H. Freeman III, Executive
Vice President - General Banking; Malcolm Duke, executive Vice President -
Operations and Administration; Dugan Smith, Executive Vice President - Credit
Administration; and Gregory Sprawka, Executive Vice President and Chief
Financial Officer - Finance and Treasury. The executive retention/severance
agreements are intended to reward the officers for continued service to the
Company, including continued cooperation and effort to accommodate and
facilitate a change in corporate control of the Company. In consideration for
this continued cooperation and effort to accommodate a change of control, the
agreements provide for the payment of a cash bonus in an amount equal to
one-half the officer's base compensation and severance benefits in the event of
an involuntary termination of employment other than by reason of death,
disability, or for cause as such terms are defined in the executive
retention/severance agreements, or termination of employment by the officer for
good cause as such term is defined in the executive retention/severance
agreements. Upon any such termination of employment, in addition to
compensation benefits already earned, the officer will be entitled to receive
two times the officer's annual base pay as of the Effective Time. No such
payments, however, can exceed the amount deductible for income tax purposes
under the Code.

Upon a change of control, the bonuses due Messrs. Hrdlicka, Jones,
Duke, Freeman, Smith, and Sprawka will be $187,500, $81,375, $77,500, $78,500,
$68,600, and $68,500, respectively. If pursuant to the provisions described
above, severance payments are required to be made to Messrs. Hrdlicka, Jones,
Duke, Freeman, Smith, and Sprawka, the amounts of such payments will be
$750,000, $325,000, $310,000, $314,000, $274,000, and $274,000, respectively.

<PAGE> 89

OTHER EMPLOYEE BENEFITS

The Company provides a group health insurance plan, a flexible benefit
plan (Section 125 Plan) along with the normal vacation and sick pay benefits.

TOTAL INVESTMENT RETURNS TO SHAREHOLDERS

The chart shown below depicts the total return to shareholders during
the period beginning December 31, 1989, and ending December 31, 1995, and
compares these returns against two indices. The definition of total return
includes appreciation in market value of the stock as well as the actual cash
dividends paid to shareholders. The comparative indices utilized are the
Standard & Poor's Composite -- 500 Stock Index, which is a broad nationally
recognized index of stock performance, and the NASDAQ Bank Stock
Index, which includes all companies listed on NASDAQ having the industry
classification of banks. The chart assumes that the value of the investment in
the Company's Common Stock and in each of the two indices was $100 on December
31, 1990, and that all dividends were reinvested.

<TABLE>
<CAPTION>
Nasdaq Bank
Stock Index S&P 500 Victoria
----------- ------------ --------

<S> <C> <C> <C>
1990 100.00 100.00 100.00
1991 164.09 130.47 200.00
1992 238.85 140.41 378.40
1993 272.39 154.56 433.02
1994 271.52 156.60 351.82
1995 404.35 215.45 573.97

</TABLE>
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT

As of March 22, 1996, the number of shares and percentage of Company
stock beneficially owned by each of the directors of the Company are set
forth on page 76. As of March 22, 1996, the number of shares and percentage of
Company stock beneficially owned by each of the Named Executives and the
directors and executive officers of the Company as a group are listed below.

89
<PAGE> 90
<TABLE>
<CAPTION>
Percent
Name of
of Beneficial Owner No. of Shares Class
--------------------- ------------- -------
<S> <C> <C>
Charles R. Hrdlicka 3,917 *

David H. Jones 1,002 *

John H. Freeman -0- *

Malcolm L. Duke 3 *

Gregory Sprawka -0- *

J. Dugan Smith 3 *

Directors and Executive
Officers as a Group
(15 persons) 3,223,935 38.73%
</TABLE>

_______________
* Less than 1%.

PRINCIPAL HOLDERS OF SECURITIES

As of March 15, 1996, the following persons were known by the Company
to own beneficially more than five percent of the Company's outstanding Common
Stock, the only class of voting securities outstanding:

<TABLE>
<CAPTION>
No. of Shares Percent
Name and Address and Nature of of
of Beneficial Owner Beneficial Ownership Class
-------------------- -------------------- -------
<S> <C> <C>
Dennis O'Connor 663,791 (1) 7.97%
One O'Connor Plaza
Victoria, Texas

Tom O'Connor, Jr. 964,968 (1) 11.59%
One O'Connor Plaza
Victoria, Texas

D. H. Braman, Jr. 613,299 (1) 7.36%
One O'Connor Plaza
Victoria, Texas
</TABLE>

_______________
(1) See "Directors" for further information.

ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Some of the Company's officers and directors and members of their
families are, as they have been in the past, customers of the Bank, and some of
the Company's officers and directors, and

<PAGE> 91

members of their families, are directors, officers, or principals in entities
which are, as they have been in the past, customers of the Bank. As such
customers, they have had transactions in the ordinary course of business with
the Bank, including borrowings, all of which were on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons and did not involve more than a
normal risk of collectibility or present any other unfavorable features to
the Bank.

The Bank leases office space from Plaza Associates, a Texas general
partnership, the owner of the twelve-story One O'Connor Plaza office building
and the land on which it is located in Victoria, Texas. The principal general
partners of Plaza Associates are two children of D. H. Braman, Jr., five
grandchildren of Tom O'Connor, Jr. and three trusts for the benefit of two
grandchildren of Tom O'Connor, Jr. and one child of D. H. Braman, Jr. D. H.
Braman, Jr. and Ralph R. Gilster, III serve as trustees for certain of these
trusts. See "Directors and Executive Officers of Registrant" and "Principal
Holders of Securities" for information regarding the relationships of Messrs.
Braman and Gilster to the Company. The Bank's lease on One O'Connor Plaza
covers the entire office building. The lease commenced in 1985, is a long-term
triple net lease with a primary term of 25 years and six renewal terms of five
years each, exercisable at the option of the Bank, with annual rentals of
$2,540,208 during the first 15 years and $2,989,580 during the next ten years
and rentals for renewal terms at fair market value. The Bank has an option at
the end of the primary term and each renewal term to purchase the property at
its fair market value.

Approximately 21% of the space in One O'Connor Plaza is subleased by
the Bank to a partnership, of which Dennis O'Connor, Tom O'Connor, Jr. and D.
H. Braman, Jr. are partners, under a sublease with a three-year term commencing
in August 1, 1985 with an option for 17 additional months, and annual rentals
of $770,742, subject to adjustment based upon the actual costs of operating the
building.

Approximately 3% of the space in 120 Main Place, Victoria, Texas,
owned by the Bank, is leased to The Fordyce Company, of which R. W. Briggs, Jr.
is Chairman, at an annual rental of $58,762, which expires in 1997.

The firm of Anderson, Smith, Null, Stofer & Murphree ("ASNS&M"), of
which Munson Smith is a partner, received $236,372 for legal services rendered
to the Company and its subsidiaries during the year ended December 31, 1995.
ASNS&M also subleases approximately 6% of One O'Connor Plaza from the Bank. The
sublease, effective February 1, 1995 and expiring January 31, 1997 with three
one-year options to renew, calls for annual lease payments of $151,739, subject
to adjustments based on actual cost.

<PAGE> 92

ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 10-K

(a)1. Financial Statements are provided on pages 49 through 74 herein.

2. Financial Statement Schedules

All financial statement schedules have been omitted because the
information is either not applicable or presented in the related
financial statements.

3. Exhibits

2.1 - Agreement and Plan of Merger between the Company, Norwest
Corporation and Norwest Sub Corporation dated November 12,
1995 (incorporated by reference to Exhibit 2 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995 [File No. 0-8037]).

3.1 - Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1994 [File No. 0-8037]).

**3.2 - Amended and Restated Bylaws of the Company adopted April
18, 1995.

10.1 - Dividend Reinvestment and Stock Purchase Plan of the
Company (incorporated by reference to the Prospectus
included in the Registration Statement of the Company on
Form S-3 filed with the Commission on September 5, 1985
[File No. 33-00091]).

**10.2 - Lease Agreement, dated July 18, 1995, between Victoria
Bank & Trust Company and the Estate of Thos. O'Connor.

10.3 - Purchase and Sale Agreement, dated as of December 21,
1984, between Victoria Bank & Trust Company and Plaza
Associates (incorporated by reference to Exhibit 10(d) to
the Registration Statement of the Company on Form S-15
filed with the Commission on January 25, 1985 [File No.
2-95482]).

10.4 - Lease Agreement, effective November 1, 1992, between
Victoria Bank & Trust Company and The Fordyce Company
(incorporated by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1992 [File No. 0-8037]).

**10.5 - Lease Agreement, dated February 1, 1995, between Victoria
Bank & Trust Company and Anderson, Smith, Null, Stofer &
Murphee, LLP.

**10.6 - Amended and Restated Nonqualified Deferred Compensation
Plan of the Company, effective December 19, 1995.*

92
<PAGE> 93

10.7 - Trust agreement by and between Victoria Bankshares, Inc.,
and Victoria Bank & Trust Company effective January 1,
1994 (incorporated by reference to Exhibit 10.6 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994 [File No. 0-8037]).

10.8 - Stock Option Plan of the Company (incorporated by
reference to Exhibit 20 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1991 [File No.
0-8037]).*

**10.9 - Form of Executive Retention/Severance Agreement entered
into on September 5, 1995, with Messrs. Hrdlicka, Jones,
Freeman, Duke, Sprawka, and Smith.*

**21 - List of Subsidiaries of the Company as of March 22, 1996.

**23.1 - Consent of Independent Public Accountants - Arthur
Andersen LLP.

**27 - Financial Data Schedule

____________________
*Management contract or compensatory plan or arrangement.
**Filed herewith.

(b) Reports on Form 8-K: None.

93
<PAGE> 94
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

VICTORIA BANKSHARES, INC.

By: /s/ Gregory Sprawka
-------------------------------
Gregory Sprawka
Executive Vice
President and Chief Financial
Officer and
Secretary-Treasurer

DATE: March 29, 1996

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
*
*
*
/s/ Charles R. Hrdlicka Chairman of the Board and *
- ----------------------------- Chief Executive Officer *
(Charles R. Hrdlicka) and Director (Principal *
Executive Officer) *
*
*
*
/s/ Gregory Sprawka Executive Vice President and * March 29, 1996
- ----------------------------- Chief Financial Officer, *
(Gregory Sprawka) Secretary-Treasurer *
(Principal Financial and *
Accounting Officer) *
*
*

</TABLE>

<PAGE> 95
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ D. H. Braman, Jr. Director *
- ----------------------------- *
(D. H. Braman, Jr.) *
*
*
/s/ R. W. Briggs, Jr. Director *
- ----------------------------- *
(R. W. Briggs, Jr.) *
*
*
/s/ Edwin W. Dentler Director *
- ----------------------------- *
(Edwin W. Dentler) *
*
*
/s/ R. J. Hewitt Director *
- ----------------------------- *
(R. J. Hewitt) *
*
*
Director *
- ------------------------------ *
(Ralph R. Gilster, III) *
*
*
/s/ Jack R. Morrison Director * March 29, 1996
- ----------------------------- *
(Jack R. Morrison) *
*
*
Director *
- ----------------------------- *
(Dennis O'Connor) *
*
*
/s/ Tom O'Connor, Jr. Director *
- ----------------------------- *
(Tom O'Connor, Jr.) *
*
*
/s/ Munson Smith Director *
- ----------------------------- *
(Munson Smith) *
*
</TABLE>

95
<PAGE> 96
INDEX TO EXHIBITS

2.1 - Agreement and Plan of Merger between the Company, Norwest
Corporation and Norwest Sub Corporation dated November 12,
1995 (incorporated by reference to Exhibit 2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995 [File No. 0-8037]).

3.1 - Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1994 [File No. 0-8037]).

**3.2 - Amended and Restated Bylaws of the Company adopted April 18,
1995.

10.1 - Dividend Reinvestment and Stock Purchase Plan of the Company
(incorporated by reference to the Prospectus included in the
Registration Statement of the Company on Form S-3 filed with
the Commission on September 5, 1985 [File No. 33-00091]).

**10.2 - Lease Agreement, dated July 18, 1995, between Victoria Bank &
Trust Company and the Estate of Thos. O'Connor.

10.3 - Purchase and Sale Agreement, dated as of December 21, 1984,
between Victoria Bank & Trust Company and Plaza Associates
(incorporated by reference to Exhibit 10(d) to the
Registration Statement of the Company on Form S-15 filed with
the Commission on January 25, 1985 [File No. 2-95482]).

10.4 - Lease Agreement, effective November 1, 1992, between Victoria
Bank & Trust Company and The Fordyce Company (incorporated by
reference to Exhibit 10.4 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992 [File No.
0-8037]).

**10.5 - Lease Agreement, dated February 1, 1995, between Victoria
Bank & Trust Company and Anderson, Smith, Null, Stofer, and
Murphee, LLP.

**10.6 - Amended and Restated Nonqualified Deferred Compensation plan
of the Company effective December 19, 1995.*

10.7 - Trust agreement by and between Victoria Bankshares, Inc., and
Victoria Bank & Trust Company, effective January 1, 1994
(incorporated by reference to Exhibit 10.6 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1994 [File No. 0-8037]).

10.8 - Stock Option Plan of the Company (incorporated by reference to
Exhibit 20 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1991 [File No. 0-8037]).*

**10.9 - Form of Executive Retention/Severance Agreement entered into
on September 5, 1995, with Messrs. Hrdlicka, Jones, Freeman,
Duke, Sprawka, and Smith.*

<PAGE> 97

**21 - List of Subsidiaries of the Company as of March 22, 1996.

**23.1 - Consent of Independent Public Accountants - Arthur Andersen
LLP.

**27 - Financial Data Schedule

____________________
*Management contract or compensatory plan or arrangement.
**Filed herewith.

<PAGE> 1

AMENDED AND RESTATED BYLAWS

VICTORIA BANKSHARES, INC.
(Adopted April 18, 1995)

ARTICLE I

SHAREHOLDERS

Section 1. Annual Meeting. The annual meeting of shareholders shall
be held on the third Tuesday in April of each year at 10:30 a.m., if not a
legal holiday, and, if a legal holiday, then on the next succeeding business
day, for the purpose of electing directors. Any business may be transacted at
an annual meeting, except as otherwise provided by law or by these bylaws. Any
shareholder may present a shareholder resolution or propose other business to
be brought before a meeting of shareholders only if such shareholder has given
timely notice in proper written form of the shareholder's intent to present
such resolution or propose such other business and such written notice is by
personal delivery or by first class United States mail, postage pre-paid, to
the Secretary of the Corporation at the principal office of the Corporation no
later than forty-five (45) days nor more than sixty (60) days prior to the
annual meeting of shareholders; provided, however, that in the event that less
than fifty-five (55) days' notice of the date of the meeting is given to
shareholders, such written notice shall be delivered or mailed, as prescribed,
not later than the close of business on the tenth (10th) day following the day
on which notice of the meeting was mailed to the shareholders. Each such
notice shall set forth: (i) the name and address of the shareholder who
intends to present a shareholder resolution or propose business; (ii) the class
and number of shares of capital stock of the Corporation that are beneficially
owned by such shareholder; (iii) a representation that the shareholder is a
holder of record of stock of the Corporation entitled to vote at such meeting
and, if applicable, intends to appear in person or by proxy at the meeting to
present the shareholder resolution or propose the business specified in the
notice; (iv) a full description of the shareholder resolution or business to be
brought before the shareholder meeting; and (v) the reasons for presenting the
shareholder resolution or for conducting the proposed business at a shareholder
meeting, and any material interest in such business of such shareholder or of
the person on whose behalf such proposal is made. A shareholder resolution or
proposed business shall not be presented at the meeting unless made in
accordance with the procedures set forth herein. The person presiding at the
meeting shall, if the facts warrant, determine and declare to the meeting that
a shareholder resolution or matter was not presented in accordance with the
Bylaws, and if such person should so determine, shall so declare to the meeting
and the defective resolution or matter shall be disregarded.

Section 2. Special Meeting. A special meeting of shareholders may be
called at any time by the holders of at least ten percent (10.0%) of the
outstanding stock entitled to be voted at such meeting, by the Board of
Directors, by the Chairman of the Board, any Vice-Chairman of the Board or by
the President. Only such business shall be transacted at a special meeting as
may be stated or indicated in the notice of such meeting. All such special
meetings shall be
<PAGE> 2
presided over by the Chairman of the Board, or in his or her absence or
inability or refusal to act in such capacity, by any Vice-Chairman of the Board
or, in their absence or inability or refusal to act in such capacity, by the
President.

Section 3. Place. The annual meeting of shareholders may be held at
any place within or without the State of Texas designated by the Board of
Directors. Special meetings of shareholders may be held at any place within or
without the State of Texas designated by the Board of Directors. Any meeting
may be held at any place within or without the State of Texas designated in a
waiver of notice of such meeting signed by the shareholders. Meetings of
shareholders shall be held at the principal office of the Corporation unless
another place is designated for meetings in the manner provided herein.

Section 4. Notice. Written or printed notice stating the place, day
and hour of each meeting of shareholders and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not
less than ten (10) nor more than sixty (60) days before the date of the
meeting, either personally or by mail, to each shareholder of record entitled
to vote at such meeting.

Section 5. Quorum. The holders of at least a majority of the
outstanding stock entitled to vote thereat and present in person or by proxy,
shall constitute a quorum. Except as otherwise required by law, the Articles
of Incorporation or these bylaws, the act of a majority of the stock at any
meeting at which a quorum is present shall be the act of the shareholders'
meeting. The shareholders present at any meeting, though less than a quorum,
may adjourn the meeting and any business may be transacted at the adjournment
that could be transacted at the original meeting. No notice of adjournment,
other than the announcement at the meeting, need be given.

Section 6. Proxies. At all meetings of shareholders, a shareholder
may vote either in person or by proxy executed in writing by the shareholder or
by his or her duly authorized attorney-in-fact. Such proxies shall be filed
with the Secretary of the Corporation before or at the time of the meeting.
The Secretary, or in his or her absence the person serving as secretary of the
meeting, shall determine the validity of the proxies and the qualification of
voters. No proxy shall be valid after eleven (11) months from the date of its
execution unless otherwise provided in the proxy. Each proxy shall be
revocable unless expressly provided therein to be irrevocable or unless
otherwise made irrevocable by law.

Section 7. Voting of Shares. Each outstanding share of a class
entitled to vote upon a matter submitted to a vote at a meeting of shareholders
shall be entitled to one (1) vote on such matter.

Section 8. Officers. The Chairman of the Board or, in his or her
absence, any Vice-Chairman of the Board, or, in the absence of all such
foregoing officers, the President shall preside at and the Secretary shall keep
the records of each meeting of shareholders, and in the

- 2 -
<PAGE> 3
absence of either such presiding officer or the Secretary, his or her duties
shall be performed by some person appointed by the meeting.

Section 9. List of Shareholders. A complete list of shareholders
entitled to vote at each shareholders' meeting, arranged in alphabetical order,
with the address of and number of shares held by each, shall be prepared by the
Secretary and filed at the registered office of the Corporation and subject to
inspection by any shareholder during usual business hours for a period of ten
(10) days prior to such meeting and shall be produced at such meeting and at
all time during such meeting be subject to inspection by any shareholder.

ARTICLE II

BOARD OF DIRECTORS

Section 1. Number and Term of Office. The business and property of
the Corporation shall be managed and controlled by the Board of Directors and
subject to the restrictions imposed by law, by the Articles of Incorporation,
or by these bylaws, they may exercise all the powers of the Corporation.

The number of directors which shall constitute the entire Board of
Directors shall be determined from time to time by resolution of the Board of
Directors (provided that no decrease in the number of directors which would
have the effect of shortening the term of an incumbent director may be made by
the Board of Directors). If the Board of Directors makes no such
determination, the number of directors shall be the number set forth in the
Articles of Incorporation. Each director shall hold office for the term for
which the director is elected and until the director's successor shall have
been elected and qualified or until the director's earlier death, resignation
or removal.

Unless otherwise provided in the Articles of Incorporation, directors
need not be residents of the State of Texas nor shareholders of the
Corporation.

The directors shall, except as hereinafter otherwise provided, be
elected at the annual meeting of shareholders. Nominations of persons for
election to the Board of Directors may be made by the Board of Directors or a
committee appointed by the Board of Directors for the purpose of nominating
candidates or by any shareholder entitled to vote for the election of directors
generally. However, any shareholder entitled to vote in the election of
directors generally may nominate one or more persons for election as directors
only if written notice of such shareholder's intent to make such nomination or
nominations has been given by notice in writing, either by personal delivery or
by first class United States mail, postage pre-paid, to the Secretary of the
Corporation at the principal office of the Corporation no later than forty-five
(45) days nor more than sixty (60) days prior to any meeting of the
shareholders called for the election of directors; provided, however, that in
the event that less than fifty-five (55) days' notice of the date of the
meeting is given to shareholders, such written notice shall be delivered or
mailed, as prescribed, not later than the close of business on the tenth (10th)
day following

- 3 -
<PAGE> 4
the day on which notice of the meeting was mailed to shareholders. Each such
notice shall set forth: (i) the name and address of the shareholder proposing
to make such nomination or nominations; (ii) a description of all arrangements
or understandings between the shareholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the shareholder; (iii) the name, age, business
experience, principal occupation or employment and other qualifications of the
person or persons to be nominated; and (iv) the consent of each nominee to
serve as a director of the Corporation if so elected. No shareholder
nomination shall be effective unless made in accordance with the procedures set
forth herein. The person presiding at the meeting shall, if the facts warrant,
determine and declare to the meeting that a shareholder nomination was not made
in accordance with the Bylaws, and if such person should so determine, shall so
declare to the meeting and the defective nomination shall be disregarded.

Section 2. Term, Removal and Vacancies. The Board of Directors shall
be divided into three classes, as nearly equal in number as possible, with the
term of office of one class expiring each year. At the annual meeting of
shareholders in 1995, three directors of the first class shall be elected to
hold office for a term expiring at the next succeeding annual meeting, three
directors of the second class shall be elected to hold office for a term
expiring at the second succeeding annual meeting, and four directors of the
third class shall be elected to hold office for a term expiring at the third
succeeding annual meeting. At each annual meeting of shareholders, the
respective successors to the class of directors whose term shall then expire
shall be elected to hold office for a term expiring at the third succeeding
annual meeting. Any increase or decrease in the number of directors elected by
holders of common stock shall be apportioned among the classes of directors so
as to make each class as nearly equal in number as is practicable.

Notwithstanding any other provision of the articles of incorporation
or these bylaws (and notwithstanding the fact that some lesser percentage may
be specified by law, the articles of incorporation or these bylaws), any
director or the entire board of directors may be removed only for cause and
only by the affirmative vote of the holders of sixty- six and two-thirds
percent (66 2/3%) of all the shares of stock of the Corporation entitled to
vote at a meeting of shareholders, voting together as a single class.

Any vacancies in the board of directors, for any reason, and any newly
created directorships resulting from any increase in the number of directors
(to the extent permitted by law) shall be filled by the board of directors,
acting by not less than a majority of the directors then in office, even if
less than a quorum (which majority may consist of a sole remaining director).
Any directors so chosen to fill any such vacancies or newly created
directorships shall, unless otherwise required by law, hold office until the
next election of the class for which such directors shall have been chosen and
until their respective successors shall be duly elected and qualified.

Section 3. Meeting of Directors. The directors may hold their
meetings and may have an office and keep the books of the Corporation, except
as otherwise provided by statute, in such

- 4 -
<PAGE> 5
place or places in the State of Texas, or outside the State of Texas, as the
Board of Directors may from time to time determine.

Section 4. First Meeting. Each newly elected Board of Directors may
hold its first meeting for the purpose of organization and the transaction of
business, if a quorum is present, immediately after and at the same place as
the annual meeting of the shareholders, and no notice of such meeting shall be
necessary.

Section 5. Election of Officers. At the first meeting of the Board
of Directors in each year at which a quorum shall be present, held next after
the annual meeting of shareholders, the Board of Directors shall proceed to the
election of the officers of the Corporation.

Section 6. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as shall be designated from
time to time by resolution of the Board of Directors. Notice of such regular
meetings shall not be required.

Section 7. Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board, any
Vice-Chairman of the Board, the President or by a majority of the directors for
the time being in office.

Section 8. Notice. The Secretary shall give notice of each special
meeting in person, or by mail or telegraph at least two (2) days before the
meeting to each director. The attendance of a director at any meeting shall
constitute a waiver of notice of such meeting, except where a director attends
a meeting for the express purpose of objecting to the transaction of any
business on the grounds that the meeting is not lawfully called or convened.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the Board of Directors need be specified in the notice or
waiver of notice of such meeting.

At any meeting at which every director shall be present, even though
without notice, any business may be transacted.

Section 9. Quorum. A majority of the total number of directors shall
constitute a quorum for the transaction of business, but if at any meeting of
the Board of Directors there be less than a quorum present, a majority of those
present or any director solely present may adjourn the meeting from time to
time without further notice. The act of a majority of the directors present at
a meeting at which a quorum is in attendance shall be the act of the Board of
Directors, unless the act of a greater number is required by the Articles of
Incorporation or by these bylaws.

Section 10. Order of Business. At meetings of the Board of
Directors, business shall be transacted in such order as from time to time the
Board may determine. At all meetings of the Board of Directors, the Chairman
of the Board,

- 5 -
<PAGE> 6
or, in his or her absence, any Vice-Chairman of the Board, or in the absence of
all such officers, the President, or, in his or her absence, a chairman chosen
by the Board from among the directors present shall preside.

The Secretary of the Corporation shall act as secretary of the
meetings of the Board of Directors, but in the absence of the Secretary, the
presiding officer may appoint any person to act as secretary of the meeting.

Section 11. Compensation. Directors as such shall not receive any
stated salary for their service, but rather the directors shall receive such
retainers, fees, incentive compensation and expenses as shall be determined
from time to time by resolution of the Board; provided, that nothing contained
herein shall be construed to preclude any director from serving the Corporation
in any other capacity or receiving compensation therefor.

Section 12. Presumption of Assent. A director who is present at a
meeting of the Board of Directors at which action on any corporate matter is
taken shall be presumed to have assented to the action unless the director's
dissent shall be entered in the minutes of the meeting or unless the director
shall file a written dissent to such action with the person acting as secretary
of the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a director who voted in
favor of such action.

Section 13. Approval or Ratification of Acts or Contracts by
Shareholders. The Board of Directors in its discretion may submit any act or
contract for approval or ratification at any annual meeting of the
shareholders, or at any special meeting of the shareholders called for the
purpose of considering any such act or contract, and any act or contract that
shall be approved or be ratified by the vote of the shareholders holding a
majority of the issued and outstanding shares of stock of the Corporation
entitled to vote and present in person or by proxy at such meeting (provided
that quorum is present), shall be as valid and as binding upon the Corporation
and upon all the shareholders as if it has been approved or ratified by every
shareholder of the Corporation.

ARTICLE III

COMMITTEES

Section 1. Designation; Powers. The Board of Directors, by
resolution adopted by a majority of the full Board of Directors, may designate
from among its members an executive committee and one or more other committees,
each of which, to the extent provided in such resolution, shall have and may
exercise all of the authority of the Board of Directors, except that no such
committee shall have the authority of the Board of Directors in reference to
amending the Articles of Incorporation, approving a plan of merger or
consolidation, recommending to the shareholders the sale, lease, or exchange of
all or substantially all of the property and assets of the Corporation
otherwise than in the usual and regular course of its business, recommending to
the shareholders a voluntary dissolution of the Corporation or a revocation
thereof, amending, altering, or repealing the bylaws of the Corporation or
adopting new bylaws for the Corporation, filling vacancies of the Board of
Directors or any such committee, filling any directorship to be filled by
reason of an increase in the number of Directors, electing or removing officers
or members of any such committee, fixing the compensation of any member of such
committee, or

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<PAGE> 7
altering or repealing any resolution of the Board of Directors which by its
terms provides that it shall not be so amendable or repealable; and, unless
such resolution expressly so provides, no such committee shall have the power
or authority to declare a dividend or to authorize the issuance of shares of
the Corporation. The members of any committee and its chairman shall be
nominated by the Chairman of the Board, or in his or her absence the officer
presiding, and shall be elected by the Board.

Section 2. Procedure; Meetings; Quorum. Any committee designated
pursuant to Section 1 of this Article shall choose its own secretary, shall fix
its own rules or procedures, and shall meet at such times and at such place or
places as may be provided by such rules, or by resolution of such committee or
resolution of the Board of Directors. At every meeting of any such committee,
the presence of a majority of all the members thereof shall constitute a quorum
and the affirmative vote of a majority of the members present shall be
necessary for the adoption by it of any resolution.

Section 3. Substitution of Members. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of such committee. In
the absence or disqualification of a member of a committee, the member or
members present at any meeting and not disqualified from voting, whether or not
constituting a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of the absent or disqualified
member.

ARTICLE IV

OFFICERS

Section 1. Number, Titles and Term of Office. The officers of the
Corporation shall be a Senior Chairman of the Board, a Chairman of the Board
and Chief Executive Officer, a President and Chief Operating Officer, one (1)
or more Executive Vice-Presidents, one (1) or more Vice-Presidents, a
Secretary, a Treasurer and such other officers as the Board of Directors may
from time to time elect or appoint. The Board at its option may from time to
time elect a Senior Chairman of the Board Emeritus, which office shall be an
honorary one. Each officer shall hold office until the officer's successor
shall have been duly elected and qualified or until the officer's death or
until the officer shall resign or shall have been removed in the manner
hereinafter provided. One (1) person may hold more than one (1) office, except
that neither any Chairman of the Board nor the President shall hold the office
of Secretary. Every type of Chairman of the Board, every Vice-Chairman of the
Board and the President shall be chosen from among the directors of the
Corporation; none of the other officers need be a director.

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<PAGE> 8
Section 2. Removal. Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board of Directors whenever in its
judgment the best interest of the Corporation will be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the
person so removed. Election or appointment of an officer or agent shall not of
itself create contract rights.

Section 3. Vacancies. A vacancy in the office of any officer may be
filled by vote of a majority of the directors for the unexpired portion of the
term.

Section 4. Powers and Duties of the Senior Chairman of the Board.
The Senior Chairman of the Board shall have such powers and duties as from time
to time may be assigned to the Senior Chairman of the Board by the Board of
Directors.

Section 5. Powers and Duties of the Chairman of the Board and Chief
Executive Officer. The Chairman of the Board shall be the Chief Executive
Officer of the Corporation and, subject to the powers of the Board of
Directors, shall have general executive charge, management and control of the
properties and operations of the Corporation in the ordinary course of its
business with all such powers with respect to such properties and operations as
may be reasonably incident to such responsibilities; shall preside at all
meetings of the shareholders and of the Board of Directors; may agree upon and
execute all division and transfer orders, bonds, contracts and other
obligations in the name of the Corporation, and may sign all certificates for
shares of capital stock of the Corporation.

Section 6. Powers and Duties of the Vice-Chairmen of the Board. In
the absence of the Chairman of the Board, the Vice-Chairmen of the Board, in
the order of their election, shall preside at all meetings of the shareholders
and of the Board of Directors. The Vice-Chairmen of the Board shall have such
other powers and duties as designated in these bylaws and as from time to time
may be assigned to them by the Board of Directors.

Section 7. Powers and Duties of the President and Chief Operating
Officer. The President shall be the Chief Operating Officer of the Corporation
and, subject to the powers of the Board of Directors and the Chairman of the
Board and Chief Executive Officer, shall have general charge, management and
control of the operations of the Corporation in the ordinary course of its
business, with all such powers with respect to such operations as may be
reasonably incident to such responsibilities; shall preside in the absence of
the Chairman and all the Vice-Chairmen of the Board at all meetings of the
shareholders and of the Board of Directors; in the absence of the Chairman, may
agree upon and execute all division and transfer orders, bonds, contracts and
other obligations in the name of the Corporation, and may sign all certificates
for shares of capital stock of the Corporation.

Section 8. Executive Vice-Presidents and Vice-Presidents. In the
absence of the Chairman and the President or in the event of their inability or
refusal to act, any Executive Vice-President or any Vice-President shall
perform the duties of the Chairman and the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the

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<PAGE> 9
Chairman and the President. The Executive Vice-Presidents and the
Vice-Presidents shall perform such other duties and have such other powers as
the Board of Directors may from time to time prescribe.

Section 9. Treasurer. The Treasurer shall have custody of all the
funds and securities of the Corporation which come into the Treasurer's hands.
When necessary or proper, the Treasurer may endorse on behalf of the
Corporation for collection checks, notes and other obligations and shall
deposit the same to the credit of the Corporation in such bank or banks or
depositories as shall be designated in the manner prescribed by the Board of
Directors; the Treasurer may sign all receipts and vouchers for payments made
to the Corporation, either alone or jointly with such other officer as is
designated by the Board of Directors. Whenever required by the Board of
Directors, the Treasurer shall render a statement of the Treasurer's cash
account; the Treasurer shall enter or cause to be entered regularly in the
books of the Corporation to be kept by the Treasurer for that purpose full and
accurate accounts of all moneys received and paid out on account of the
Corporation; the Treasurer shall perform all acts incident to the position of
Treasurer subject to the control of the Board of Directors; the Treasurer
shall, if required by the Board of Directors, give such bond for the faithful
discharge of his or her duties in such form as the Board of Directors may
require.

Section 10. Assistant Treasurers. Each Assistant Treasurer shall
have the usual powers and duties pertaining to such office, together with such
other powers and duties as may be assigned to an Assistant Treasurer by the
Board of Directors. The Assistant Treasurers shall exercise the powers of the
Treasurer during the officer's absence or inability to act.

Section 11. Secretary. The Secretary shall keep the minutes of all
meetings of the Board of Directors and the minutes of all meetings of the
shareholders, in books provided for that purpose; the Secretary shall attend to
the giving and serving of all notices; the Secretary may sign with the Chairman
or the President, or any other officer so authorized in these bylaws, in the
name of the Corporation, all contracts of the Corporation and affix the seal of
the Corporation thereto; the Secretary may sign with the Chairman or the
President or any other officer so authorized by these bylaws all certificates
for shares of the capital stock of the Corporation; the Secretary shall have
charge of the certificate books, transfer books and stock ledgers, and such
other books and papers as the Board of Directors may direct, all of which shall
at all reasonable times be open to inspection of any director upon application
at the office of the Corporation during business hours, and the Secretary shall
in general perform all duties incident to the office of Secretary, subject to
the control of the Board of Directors.

Section 12. Assistant Secretaries. Each Assistant Secretary shall
have the usual powers and duties pertaining to such office, together with such
other powers and duties as may be assigned to an Assistant Secretary by the
Board of Directors or the Secretary. The Assistant Secretaries shall exercise
the powers of the Secretary during that officer's absence or inability to act.

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<PAGE> 10
ARTICLE V

INDEMNIFICATION AND INSURANCE

The Corporation shall indemnify and advance expenses to all directors,
advisory directors, officers, employees and agents (and former directors,
advisory directors, officers, employees and agents) of the Corporation and its
subsidiaries, and to all persons who are or were serving at the request of the
Corporation as a director, advisory director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise, to the maximum extent allowed by the Texas
Business Corporation Act and other applicable law.

If the Texas Business Corporation Act or other applicable law is
amended after adoption of this provision of the Bylaws by the Board of
Directors to authorize corporate action further expanding the Corporation's
power to indemnify, then the Corporation shall be and hereby is authorized to
indemnify the persons named above to the fullest extent permitted by the Texas
Business Corporation Act or other applicable law, as so amended.

The Corporation shall also have the power to purchase and maintain at
its cost and expense insurance on behalf of such persons to the fullest extent
permitted by the Texas Business Corporation Act and other applicable law.

ARTICLE VI

CAPITAL STOCK

Section 1. Certificates of Shares. The certificates for shares of
the capital stock of the Corporation shall be in such form as shall be approved
by the Board of Directors. The certificates shall be signed by the Chairman,
the President, any Executive Vice-President or any Vice-President, and also by
the Secretary or an Assistant Secretary or by the Treasurer or an Assistant
Treasurer and may be sealed with the seal of this Corporation or a facsimile
thereof. Any or all the signatures on the certificates may be a facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if such person were such
officer, transfer agent or registrar at the date of issue. The certificates
shall be consecutively numbered and shall be entered in the books of the
Corporation as they are issued and shall exhibit the holder's name and the
number of shares.

Section 2. Transfer of Shares. The shares of stock of the
Corporation shall be transferable only on the books of the Corporation by the
holders thereof in person or by their duly authorized attorneys or legal
representatives, upon surrender and cancellation of certificates for a like
number of shares.

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<PAGE> 11
Section 3. Closing of Transfer Books. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders,
or any adjournment thereof, or entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the Board of Directors of the Corporation may provide that the stock transfer
books shall be closed for a stated period but not to exceed sixty (60) days in
any case. If the stock transfer books shall be closed for the purpose of
determining shareholders entitled to notice of or to vote at a meeting of
shareholders, such books shall be closed for at least ten (10) days immediately
preceding such meeting. In lieu of closing the stock transfer books the Board
of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than sixty
(60) days and, in case of a meeting of shareholders, not less than ten (10)
days prior to the date on which the particular action requiring such
determination of shareholders is to be taken. If the stock transfer books are
not closed and no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a dividend, the date on which the notice of the
meeting is mailed or the date on which the resolution of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be the record
date for such determination of shareholders.

Section 4. Regulations. The Board of Directors shall have power and
authority to make all such rules and regulation as they may deem expedient
concerning the issue, transfer and registration or the replacement of
certificates.

ARTICLE VII

MISCELLANEOUS PROVISIONS

Section 1. Offices. Until the Board of Directors otherwise
determines, the registered office of the Corporation required by the Texas
Business Corporation Act to be maintained in the State of Texas, shall be the
principal place of business of the Corporation, but such registered office may
be changed from time to time by the Board of Directors in the manner provided
by law and need not be identical to the principal place of business of the
Corporation. The Corporation may also have at such other places both within
and without the State of Texas as the Board of Directors may from time to time
determine.

Section 2. Fiscal Year. The fiscal year of the Corporation shall be
such as the Board of Directors shall, by resolution, establish.

Section 3. Seal. The seal of the Corporation shall be such as from
time to time may be approved by the Board of Directors. In the absence or in
the event of the inability to act of the Secretary and the Assistant Secretary,
the Chairman or the President may by written order empower any officer of the
Corporation other than themselves to affix the corporate seal whenever the
corporate seal is required to be affixed to any instrument.

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<PAGE> 12
Section 4. Notice and Waiver of Notice. Whenever any notice
whatsoever is required to be given under the provisions of these bylaws, said
notice shall be deemed to be sufficient if given by depositing the same in a
post office box in a sealed postpaid wrapper addressed to the person entitled
thereto at such person's post office address, as it appears on the books of the
Corporation, and such notice shall be deemed to have been given on the day of
such mailing. A waiver of notice, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.

Section 5. Resignations. Any director, committee member or officer
may resign at any time. Such resignations shall be made in writing and shall
take effect at the time specified therein, or, if no time be specified, at the
time of its receipt by the President or Secretary. The acceptance of a
resignation shall not be necessary to make it effective, unless expressly so
provided in the resignation.

Section 6. Securities of Other Corporations, Contracts and Deeds.
The Chairman of the Board, any Vice- Chairman of the Board, the President, and
Executive Vice-President and any Vice-President of the Corporation shall have
power and authority to transfer, endorse for transfer, vote, consent or take
any other action with respect to any securities of another issue which may be
held or owned by the Corporation; to make, execute and deliver any waiver,
proxy or consent with respect to any such securities; and to make, execute and
deliver any contract, deed or other conveyance on any type of lien instrument
on behalf of the Corporation.

Section 7. Facsimile Signatures. In addition to the provisions for
the use of facsimile signatures elsewhere specifically authorized in these
bylaws, facsimile signatures of any officer or officers of the Corporation may
be used whenever and as authorized by the Board of Directors.

Section 8. Books and Records. The Corporation shall keep correct and
complete books and records of account and shall keep minutes of the proceedings
of its shareholders and Board of Directors and shall keep at its registered
office or principal place of business, or at the office of its transfer agent
or registrar, a record of its shareholders, giving the names and addresses of
all shareholders and the number and class of the shares held by each. Any
books, records, and minutes may be in written form or in any other form capable
of being converted into written form within a reasonable time.

Section 9. Reliance Upon Books, Reports and Records. Neither a
director nor a member of any committee shall be liable if, in the exercise of
ordinary care, the director or committee member relied and acted in good faith
upon financial statements or other information of the Corporation represented
to the director or committee member to be correct in all material respects by
the Chairman or the President or by the officer of the Corporation having
charge of its books of account, or reported by an independent public or
certified public accountant or firm of such accountants to present fairly the
financial position of the Corporation, nor shall the director or committee
member be so liable if, in the exercise of ordinary care and in good faith,

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<PAGE> 13
in determining the amount available for payment of a dividend or other
distribution, the director or committee member considered the assets of the
Corporation to be of their book value.

Section 10. Action Without a Meeting or Telephone Conference Meeting.
Any action permitted or required by law, the Articles of Incorporation or these
bylaws, to be taken at a meeting of the shareholders, the Board of Directors or
any committee designated by the Board of Directors may be taken without a
meeting if a consent in writing, setting forth the action to be taken is signed
by all the shareholders or members of the Board of Directors or committee, as
the case may be. Such consent shall have the same force and effect as a
unanimous vote at a meeting, and may be stated as such in any document or
instrument filed with the Secretary of State. Subject to the requirements by
law for notice of meetings, unless otherwise restricted by the Articles of
Incorporation, shareholders, members of the Board or Directors or members of
any committee designated by the Board of Directors, may participate in and hold
a meeting of such shareholders, Board of Directors or committee, as the case
may be, by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in such meeting shall constitute presence in person at such
meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.

ARTICLE VIII

AMENDMENTS

Section 1. Amendment to Bylaws. These bylaws may be altered,
amended, or repealed by the affirmative vote of the holders of a majority of
the outstanding stock at any annual meeting, or at any special meeting if
notice of the proposed amendment be contained in the notice of said special
meeting, or by the affirmative vote of a majority of the full Board of
Directors at any regular or special meeting, provided notice of said proposed
amendment be contained in the notice of the special meeting.

Notwithstanding any other provisions of these bylaws, no amendment to
these bylaws shall amend, alter, change or repeal any of the provisions of this
Article VIII or Article II, Section 2, of these bylaws, unless such amendment,
alteration, change or repeal shall receive either (i) the affirmative vote of
the holders of not less than eighty percent (80%) of all shares of stock of the
Corporation entitled to vote at a meeting of shareholders, voting together as a
single class, or (ii) the affirmative vote of a majority of directors in
office.

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<PAGE> 1
THE STATE OF TEXAS Section
COUNTY OF VICTORIA Section

LEASE AGREEMENT

This Lease Agreement is made and entered into this 18th day of July,
1995, by and between VICTORIA BANK AND TRUST, a Texas Banking Corporation,
hereinafter referred to as Lessor, whose address for the purposes hereof is One
O'Connor Plaza, Victoria, Texas 77902, and THE ESTATE OF THOMAS O'CONNOR, a
Partnership, hereinafter referred to as Lessee, whose address for the purposes
hereof is One O'Connor Plaza, Suite 1100, Victoria, Texas 77902:

WITNESSETH:

I. Leased Premises

Leased Premises. Subject to and upon the terms, provisions and
conditions hereinafter set forth, and each in consideration of the duties,
covenants, and obligations of the other hereunder, Lessor does hereby lease,
demise and let to Lessee and Lessee does hereby lease from Lessor those certain
premises (hereinafter called the Leased Premises) in the building known as
VICTORIA BANK AND TRUST COMPANY, One O'Connor Plaza (herein called the
Building), Victoria, Texas, the Leased Premises being more particularly
described as 36,570.93 square feet of "Net Rentable Area" as hereinafter
defined, on the 9th, 10th, 11th floors and the basement of the Building.

The computation of Lessee's Net Rentable Area shall be made using the
definitions set forth in Exhibit A attached hereto and made a part hereof in
the following manner:

a. In the case of a single tenant floor, the Adjusted
Gross Area is computed by deducting from the Gross Area of that floor the
Prorate Area on such floor, if any. From the Adjusted Gross Area there is
deducted the Vertical Penetrations to arrive at the Rentable Area; to which is
added the Prorate Add, resulting in the Net Rentable Area of that floor all of
which is attributable to the single tenant.

b. In the case of a multi tenant floor, the Rentable
Area is divided among the tenants along the mid-point of the interior walls
separating each tenant from other tenants or from common areas (as defined in
Useable Area Deduct), with each tenant being allocated a proportionate part of
such common areas as part of that tenant's Rentable Area; then the Prorate Add
for such floor is allocated to all tenants in proportion to their shares of the
Rentable Area for such floor, thus resulting in a Net Rentable Area for each
tenant.

No deductions in determining Net Rentable Area are made for columns or
projections necessary to the Building.

The Net Rentable Area in the Leased Premises has be calculated on the
basis of the foregoing definitions and is hereby stipulated for all purposes
hereof to be 36,528.06 square feet, whether the same should be more or less.

II. Term

1. Term. Subject to and upon the terms and conditions set forth
herein, this Lease shall be for a primary term of three (3) years, commencing
on the 1st day of August, 1995. Lessee shall have the option to extend the term
hereof for an additional period of seventeen (17) months, commencing upon the
expiration of the primary

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<PAGE> 2
term; provided that, in order to exercise such option, Lessee shall give
written notice to Lessor of its election to extend not later than the date that
is ninety (90) days prior to the expiration of the primary term. The Base
Rental stated herein and the other terms and conditions of this Lease shall
continue to apply during any extension of the primary term hereof.

2. Use. The Leased Premises are to be used and occupied by Lessee
solely for the purpose of office space and for no other purpose.

3 Base Rental. Lessee hereby agrees to pay a base annual rental
(hereinafter called Base Rental) in the sum of $21.10 per square foot of Net
Rentable Area in the Leased Premises per year. Lessee shall also pay, as
additional rent, all such other sums of money as shall become due and payable
by Lessee to Lessor under this Lease. Lessor shall have the same remedies of
default for the payment of additional rent as are available to Lessor in the
case of a default in the payment of Base Rental. Such Base Rental, adjusted in
accordance with the provision of Paragraph 4 of this Article II hereinbelow,
shall be due and payable in twelve (12) equal installments on the first day of
each calendar month during the initial term and any extensions or renewals
thereof, beginning on the lst day of August 1995. Lessee hereby agrees to so
pay such Base Rental timely, and in no event, more than 10 days after the date
on which it is due, to Lessor at Lessor's address as provided herein (or such
other address as may be designated by Lessor from time to time) in advance
monthly as set out above, without demand, counterclaim, or setoff. All past due
installments of Base Rental shall bear interest from 10 days after the due date
until paid at the lesser of (i) three percent (3%) per annum over the base rate
of interest announced from time to time, or (ii) the maximum lawful rate.

4. Base Rental Adjustment. The Base Rental Adjustment shall be
calculated in accordance with the following factors:

a. Lessee's Base Rental includes a component applicable
to Operating Costs (hereafter defined) equal to $6.75 per square foot of Net
Rentable Area. This amount is an estimate of Operating Costs of operating the
Building and the parking garage (Parking Garage) located adjacent to the
Building and the real estate upon which both are located (Land) all of which is
collectively referred to as the Complex.

b. Prior to the commencement of each calendar year of
Lessee's occupancy, Lessor shall provide an estimate of Operating Costs for
said calendar year. Lessee shall pay a Base Rental for said calendar year
adjusted upward or downward, as appropriate, by the amount of difference
between the prior calendar year's estimated costs.

c. Within 150 days, or as soon thereafter as possible.
after the conclusion of each calendar year of the term of this Lease, Lessor
shall furnish to Lessee an audited statement of Lessor's Operating Costs for
said calendar year. A lump sum payment will be made from Lessor to Lessee or
from Lessee to Lessor, as appropriate, within 30 days of the delivery of such
audited statement equal to the difference in actual Operating Costs and
estimated Operating Costs for the just-completed calendar year. The effect of
this reconciliation payment is that Lessee will pay during the term of this
Lease its share of Operating Costs and no more.

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<PAGE> 3
5. Operating Costs Defined. "Operating Costs" as said term is
used herein shall consist of all operating expenses of the Complex, which shall
be computed on the accrual basis and shall consist of all expenditures by
Lessor to maintain all facilities in operation from the beginning of the term
of this Lease and such additional facilities in subsequent years as may be
determined by Lessor to be necessary or generally beneficial to the project.
All operating expenses shall be determined in accordance with generally
accepted accounting principles which shall be consistently applied. The term
"operating expenses" as used herein shall mean all expenses, costs and
disbursements (but not replacement of capital investment items except as
specifically provided below nor specific cost especially billed to and paid by
specific tenants) of every kind and nature which Lessor shall pay or become
obligated to pay because of or in connection with the ownership, management,
and operation of the Complex, including but not limited to, the following:

a. Wages and salaries and related expenses and benefits
of all on-site and off-site employees engaged in the operation, maintenance, or
access control, of the Complex and personnel who may provide traffic control
relating to ingress and egress to and from the Parking Garage to the adjacent
public streets. All taxes, insurance and benefits relating to employees
providing these services shall be included.
b. All supplies, tools, equipment, and materials used in
operating and maintenance of the Complex.

c. Cost of all utilities for the Complex, including the
cost of water and power, hearing, lighting, air conditioning, and ventilating
for the Complex.

d. Cost of all maintenance and service agreements for
the Complex and the equipment therein, including, but not limited to alarm
service, window cleaning, elevator maintenance, and janitorial service.

e. Cost of all insurance relating to the Complex,
including but not limited to the cost of casualty, rental abatement, and
personal injury and property liability insurance applicable to the Complex and
Lessor's personal property used in connection with the operation of the
Complex.

f. All taxes and assessments and governmental charges
with respect to the Complex and its operation whether federal, state, county,
or municipal, and whether they be by taxing districts or authorities presently
taxing the Complex or by others, subsequently created or otherwise, and any
other taxes and assessments attributable to the Complex and its operation. This
item shall not include any taxes, assessment and charges relating to the
banking business of Lessor and the personal property used in connection
therewith. Lessee shall promptly pay all ad valorem taxes levied against
Lessee's personal property

g. Cost of repairs and general maintenance for the
Complex.

h. Amortization of the cost of installation of capital
investment items which are primarily for the purpose of reducing operating
costs or which may be required by governmental authority.

i. All landscape maintenance costs for the Land.

j. Any lease payment made by Lessor for any equipment
used in the operation and maintenance of the Complex.

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<PAGE> 4
k. Lessor's central accounting costs and audit fees
attributable to the Complex.

l. Any management fee charged Lessor by the entity
selected by Lessor in its discretion to manage the Complex, which entity may be
a third party or Lessor's own trust department.

Notwithstanding any other provision herein to the contrary, it
is agreed that in the event the Building is not fully occupied during any year
of the lease term, an adjustment shall be made in computing the Basic Costs for
such year so that the Basic Costs shall be computed for such year as though the
Building had been fully occupied during such year.

Lessee at its expense shall have the right at all reasonable
times to audit Lessor's books and records relating to this Lease for any year
or years for which additional rental payments become due; or at Lessor's sole
discretion Lessor will provide such audit prepared by a certified public
accountant.

III. Utilities

1. Utilities. Lessor shall use its reasonable best efforts to
cause public utilities to furnish the electricity, gas, and water utilized in
operating any and all facilities serving the Leased Premises.

2. Services to the Premises. Lessor shall provide (as part of the
Operating Costs of the Complex) while Lessee is occupying the Leased Premises.
the following:

a. Hot and cold water at those points of supply provided
for general use of other tenants in the Building; central heat and air
conditioning in season, at such temperatures and in such amounts and at such
times as are considered by Lessor to be standard (subject, however, to
modification in hours of operation, temperatures, or otherwise due to
governmental laws, rules, or regulations), but such service at times during the
week days other than normal business hours for the Building, and on Saturday
afternoons, Sundays, and holidays to be furnished only upon the request of
Lessee, who shall bear the entire cost thereof; routine maintenance and
electric lighting service for all public areas, special service areas and
Prorate Areas of the Building in the manner and to the extent deemed by Lessor
to be standard.

b. Janitor service on a five (5) day week basis at no
extra charge; provided, however, if Lessee's floor covering or other
improvements are other than "Building Standard,' (as used herein refers to
Building Standard Improvements and services as designated by Lessor at Lessor's
sole discretion) Lessor shall clean the same provided Lessee shall pay to
Lessor the additional cleaning cost over the cost of cleaning Building Standard
floor coverings or other improvements, if any, attributable thereto, as
additional rent. Lessee shall pay said additional rent within ten (10) days of
presentation of a statement therefor by Lessor. and Lessee's failure to pay
shall constitute default thereunder.

c. Electrical facilities to furnish sufficient power for
typewriters, voice writers, calculating machines, and other machines of similar
low electrical consumption (total consumption not to exceed one watt per square
foot of Net Rentable Area per month); but not including electricity required
for duplicating and electronic data processing equipment, special lighting in
excess of Building Standard, and any other item of electrical equipment which
(singly) consumes more than 0.5 kilowatts at rated capacity or requires a
voltage other than 120 volts single

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<PAGE> 5
phase; and provided that if the installation of said electrical equipment
requires additional air conditioning capacity above that provided by the
Building Standard system, then the additional air conditioning installation and
operating costs will be the obligation of Lessee.

d. All Building Standard fluorescent bulb replacement in
all areas and all incandescent bulb replacement in public areas, toilet and
rest room areas and stairwells.

e. Access control to the Building during weekends and
after normal working hours during the week; provided, Lessor shall not be
liable to Lessee for losses due to theft, burglary or damage or injury to
Lessee or its property caused by persons gaining access to the Building or the
Leased Premises.

Failure by Lessor to any extent to furnish the foregoing defined
services, or any cessation thereof, resulting from causes beyond the reasonable
control of Lessor shall not render Lessor liable in any respect for damages to
either person or property, nor be construed as an eviction of Lessee, nor work
an abatement of rent. nor relieve Lessee from fulfillment of any covenant or
agreement hereof. Should any of the equipment or machinery used in connection
with the Complex break down, or for any cause cease to function properly,
Lessee shall have no claim for rebate or abatement of rent or damages on
account of an interruption in service occasioned thereby or resulting
therefrom.

4. Keys and Locks. Lessor shall furnish Lessee two (2) keys for
each corridor door entering the Leased Premises. Additional keys will be
furnished at a charge by Lessor on an order signed by Lessee or Lessee's
authorized representative. All such keys shall remain the property of Lessor.
No additional locks shall be allowed on any door of the Leased Premises without
Lessor's permission, and Lessee shall not make, or permit to be made any
duplicate keys, except those furnished by Lessor. Upon termination of this
Lease, Lessee shall surrender to Lessor all keys of the Leased Premises, and
give to Lessor the explanation of the combination of all locks for safes, safe
cabinets, and vault doors, if any, in the Leased Premises.

5. Graphics. Lessor shall provide and install, at Lessee's cost,
all letters or numerals on doors in the Leased Premises; all such letters or
numerals shall be in Building Standard graphics, and no other shall be used or
permitted on the Leased Premises. Lessor also agrees to provide and install, at
Lessee's expense, a listing of Lessee's name and office number on the Building
Directory Board.

6. Peaceful Enjoyment. Lessee shall, and may peacefully have,
hold, and enjoy the Leased Premises, subject to the other terms hereof,
provided that Lessee pays the rental and other sums herein recited to be paid
by Lessee and performs all of Lessee's covenants and agreements herein
contained. It is understood and agreed that this covenant and any and all other
covenants of Lessor contained in the Lease shall be binding upon Lessor and its
successors only with respect to breaches occurring during its and their
respective ownership of the Lessor's interest hereunder.

7. Parking. Lessee shall have the right at all times during the
term of this Lease to designate at lease vehicles to park in the Parking
Garage. No specific spaces in the Parking Garage are to be assigned to Lessee
but Lessor will issue to Lessee the aforesaid number of parking stickers, each
of which will authorized parking in

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<PAGE> 6
the Parking Garage of a vehicle on which the sticker is displayed, or Lessor
will provide a reasonable alternative means of identifying and controlling
vehicles authorized to be parked in the Parking Garage. Lessor may designate
the area within which such vehicles may be parked, and Lessor may change such
designations from time to time. Lessor may make, modify, and enforce rules and
regulations relating to the parking of automobiles in the Parking Garage and
Lessee will abide by and cause its agents, employees and invitees to comply
with such rules and regulations. Vehicles parked in specially designated areas
in or around the Building or parked in violation of rules and regulations
relating to the parking of vehicles shall be towed away at their owner's risk
and expense. Upon written request by Lessor, Lessee shall furnish within ten
(10) days to Lessor the license numbers of all vehicles of Lessee or Lessee's
employees. Lessor shall not be liable for any property damage or bodily injury
arising from use of parking facilities by Lessee or its agents, employees, or
invitees.

As the Basic Parking Charge, Lessee covenants and agrees to pay Lessor
during the initial term of this Lease, as additional rental hereunder, the sum
of $35.00 plus tax per month for each of the parking stickers to be issued by
Lessor as herein provided, such sum to be payable monthly in advance on the
first day of each and every calendar month during the term of this Lease, and a
pro rata portion of such sum shall be payable for the first and last partial
calendar month in the event the term of this Lease commences on a date other
than the first day of calendar month. Lessee's obligation to pay the Basic
Parking Charge shall be considered an obligation to pay rent. Default in
payment of the Basic Parking Charge (after notice as hereinafter provided)
shall be deemed a default in payment of rent.

IV. Repairs by Lessor

1. Repairs by Lessor. Unless otherwise stipulated herein, Lessor
shall not be required to make any improvements or repairs of any kind or
character on the Leased Premises during the term of this Lease, except such
repairs as may be required for normal maintenance operations. The obligation of
Lessor to maintain and repair the Leased Premises shall be limited to Building
Standard Improvements. Any additional leasehold improvements will, at Lessee's
written request, be repaired and maintained by Lessor at Lessee's. expense, at
a cost or charge equal to the costs incurred therefor plus an additional charge
of fifteen percent (15%) for administrative cost recovery. Lessee shall
promptly upon Lessor's billing therefor reimburse Lessor for any services
rendered pursuant to this Paragraph 1.

2. Repairs by Lessee. Lessee shall at its own cost and expense,
repair or replace any damage or injury done to the Building, or any part
thereof, caused by Lessee or Lessee's agents, contractors, employees, invitees,
or visitors; provided, however, if Lessee fails to make such repairs or
replacements, Lessor may do so, and Lessee shall repay the cost thereof to the
Lessor on demand, except as provided in Article V, Paragraph 12.

3. Care of the Leased Premises. Lessee shall not commit or allow
any waste or damage to be committed on any portion of the Leased Premises, and
shall at the termination of this Lease, by lapse of time or otherwise, deliver
up said Leased Premises to Lessor in as good condition as at date of possession
by Lessee, ordinary wear and tear excepted, and upon such termination of this
Lease, Lessor shall have the right to reenter and resume possession of the
Leased Premises.

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<PAGE> 7
4. Assignment or Sublease. Lessee may not assign this Lease or
sublet the Leased Premises or any part thereof without the prior written
consent of Lessor.

5. Alterations, Additions, Improvements. Lessee may, at its own
expense and with the prior written consent of Lessor, make alterations of and
additions to that portion of the Leased Premises and construct additional
leasehold improvements to that portion of the Leased Premises (all collectively
refer-red to as "Additional Improvements"). Lessee shall own all Original
Leasehold Improvements and all Additional Improvements paid for by Lessee other
than (i) Additional Improvements which become an integral part of the Leased
Premises and (ii) alterations and other Additional Improvements constituting
replacements or repairs to the Leased Premises; and Lessee shall have the right
at any time to remove such Lessee owned improvements; provided, however, that
Lessee shall repair any damage to the Leased Premises and restore that portion
of the Leased Premises from which such Lessee owned improvements were removed
to a condition reasonably equivalent to the original Building Standard
Improvements.

6. Legal Use and Violation of Insurance Coverage. Lessee shall
not occupy or use, or permit any portion of the Leased Premises to be occupied
or used, for any business or purpose which is unlawful, disreputable or deemed
to be extra-hazardous on account of fire, or permit anything to be done which
would in any way increase the rate of fire insurance coverage on said Building
and/or its contents.

7. Laws and Regulations; Rules of Building. Lessee will comply
with all laws, ordinances, orders, rules, and regulations (state, federal,
municipal, and other agencies or bodies having any jurisdiction thereof)
relating to use, condition or occupancy of the Leased Premises. Lessee will
comply with the rules of the Building adopted by Lessor from time to time for
the safety, care and cleanliness of the Leased Premises and for preservation of
good order therein, all of which will be sent by Lessor to Lessee in writing
and shall be thereafter carried out and observed by Lessee.

8. Entry for Repairs and Inspection. Lessee will permit Lessor or
its agents or representatives to enter into and upon any part of the Leased
Premises at all reasonable hours to inspect same, clean or make repairs,
alterations or additions thereto, as Lessor may deem necessary or desirable,
and to exhibit the Leased Premises to prospective tenants, and Lessee shall not
be entitled to any abatement or reduction of rent by reason thereof.

9. Nuisance. Lessee agrees to conduct its business and control
its agents. employees. invitees and visitors in such manner as not to create
any nuisance, or interfere with, annoy or disturb any other tenant or Lessor in
his operation of the Building.

10. Subordination to Mortgage. This Lease is subject and
subordinate to any mortgage or deed of trust which may now or hereafter
encumber all or any part of the Complex, the Land, or Lessor's interest herein,
and to all renewals, modifications, consolidations, replacements, and
extensions thereof. This clause shall be self-operative and no further
instrument of subordination need be required by any mortgagee. In confirmation
of such subordination, however, Lessee shall at Lessor's request execute
promptly any appropriate certificate or instrument that Lessor may request.
Lessee hereby constitutes and appoints Lessor the Lessee's attorney-in-fact to
execute any

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<PAGE> 8
such certificate or instrument for an on behalf of Lessee. In the event of the
enforcement by the trustee or the beneficiary under any such mortgage or deed
of trust of the remedies provided for by law or by such mortgage or deed of
trust, Lessee, will, upon request of any person or party succeeding to the
interest of Lessor as a result of such enforcement, automatically become the
Lessee of such successor in interest without change in the terms and provisions
of such Lease; provided, however, that such successor in interest shall not be
bound by (i) any payment of rent or additional rent for more than one month in
advance except prepayments in the nature of security for the performance by
Lessee of its obligations under this Lease or (ii) any amendment or
modification of this Lease made without the written consent of such trustee or
such beneficiary or such successor in interest. Upon request by such successor
in interest, Lessee shall execute and deliver an instrument or instruments
confirming the attornment here in provided for.

11. Estoppel Certificate or Three-Party Agreement. At Lessor's
request, Lessee will execute either an estoppel certificate addressed to
Lessor's mortgagee or a three-party agreement among Lessor, Lessee and said
mortgagee, certifying as to such facts (if true) and agreeing to such notice
provisions and other matters as said mortgagee may reasonably require in
connection with Lessor's financing.

12. Payments by Lessee. Lessee covenants and agrees to pay all
rent and sums provided to be paid to Lessor hereunder at the times and manner
herein provided.

V. Condemnation and Loss or Damage

1. Condemnation and Loss or Damage. If the Leased Premises shall
be taken or condemned for any public purpose to the extent as to render the
Leased Premises untenantable, this Lease shall, at the option of either party,
forthwith cease and terminate. All proceeds from any taking or condemnation of
the Leased Premises shall belong to and be paid to Lessor and Lessee, as their
interests may appear.

2. Damages from Certain Causes. Lessor shall not be liable or
responsible to Lessee for any loss or damage to any property or person
occasioned by theft, fire, act of God, public enemy, injunction, riot, strike,
insurrection, war, court order, requisition or order of governmental body or
authority, or for any damage or inconvenience which may arise through repair or
alteration of any party of the Building, or failure to make sure repairs.

3. Holding Over. In the event of holding over by Lessee after
expiration or termination of this Lease without the written consent of Lessor,
Lessee shall pay as Base Rental to Lessor the prevailing market rate in the
Complex. No holding over by Lessee after the term of this Lease shall operate
to extend the Lease; in the event of any unauthorized holding over, Lessee
shall indemnify Lessor against all claims for damages by any other tenant to
whom Lessor may have leased all or any part of the Leased Premises effective
upon the termination of this Lease. Any holding over with the consent of Lessor
in writing shall thereafter constitute this Lease a lease from month to month,
but in no way does this clause constitute consent of Lessor to any holding over
by Lessee.

4. Fire Clause. In the event of a fire or other casualty in the
Leased Premises, Lessee shall immediately give notice thereof to Lessor. If the
Leased Premises through no fault or neglect of Lessee, its agents,

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<PAGE> 9
employees, invitees, or visitors, shall be partially destroyed by fire or other
casualty so as to render the Leased Premises untentantable, the rental provided
for herein shall abate thereafter as to the portion of the Leased Premises
rendered untenantable until such time as the Leased Premises are made
tenantable as deter-mined by Lessor (but in no event shall Lessor's obligation
exceed Building Standard Improvements). If the Leased Premises, through no
fault or neglect of Lessee, its agents, employees, invitees, or visitors, shall
be totally destroyed by fire or other casualty and Lessor shall decide not to
rebuild. then Lessor may terminate this Lease and all rent owed up to the time
of such damage, destruction or termination shall be paid by Lessee and
thenceforth this Lease shall cease and come to an end.

5. Attorney's Fees. In the event Lessee makes default in the
performance of any of the terms, covenants, agreements or conditions contained
in this Lease and Lessor places the enforcement of this Lease, or any part
thereof, or the collection of any rent due, or to become due hereunder, or
recovery of the possession of the Leased Premises in the hands of an attorney,
or files suit upon the same, Lessee agrees to pay Lessor's reasonable
attorney's fees.

6. Assignment by Lessor. Lessor shall have the right to transfer
and assign, in whole or in part, all its rights and obligations hereunder and
in the Complex and property referred to herein, and in such event and upon its
transferee's assuming Lessor's obligations hereunder, no further liability or
obligation shall thereafter accrue against Lessor hereunder.

7. Default by Lessee. If default shall be made in the payment of
any sum to be paid by Lessee under this Lease, and default shall continue for
ten (10) days, or default shall be made in the performance of any of the other
covenants or conditions which Lessee is required to observe and to perform, and
such default shall continue for twenty (20) days, or if the interest of Lessee
under this Lease shall be levied on under execution or other legal process, or
if any petition shall be filed by or against Lessee to declare Lessee a
bankrupt or to delay, reduce or modify Lessee's debts or obligations, or if any
petition shall be filed or other action taken to reorganize or modify Lessee's
capital structure if Lessee be a corporation or other entity, or if Lessee be
declared insolvent according to law, or if any assignment of Lessee's property
shall be made for the benefit of creditors, or if a receiver or trustee is
appointed for Lessee or its property, or if Lessee shall abandon the Leased
Premises during the term of this Lease or any renewals or extensions thereof,
then Lessor may treat the occurrence of any one or more of the foregoing events
as a breach of this Lease (provided that no such levy, execution, legal process
or petition filed against Lessee shall constitute a breach of this Lease if
Lessee shall vigorously contest the same by appropriate proceedings and shall
remove or vacate the same within thirty (30) days from the date of its creation
or service or filing) and thereupon, at Lessor's option, may have any one or
more of the following described remedies in addition to all other rights and
remedies available at law or in equity:

a. Lessor may terminate this Lease and forthwith
repossess the Leased Premises and be entitled to recover forthwith as damages a
sum of money equal to the total of (i) the cost of recovering the Leased
Premises, (ii) the unpaid rent earned at the time of termination, plus
interest thereon from that date at the lesser. of three percent

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<PAGE> 10
(3%) per annum over the prime rate of interest announced from time to time
(iii) the balance of the rent for the remainder of the term, and (iv) any other
sum of money and damages owed by Lessee to Lessor.

b. Lessor may terminate Lessee's right of possession
(but not the Lease) and may repossess the Leased Premises by forcible entry or
detainer suit or otherwise, without demand or notice of any kind to Lessee and
without terminating this Lease, in which event Lessor may, but shall be under
no obligation to do so, relet the same for the account of Lessee for such rent
and upon such terms as shall be satisfactory to Lessor. For the purpose of such
reletting Lessor is authorized to decorate or to make any repairs, changes,
alterations or additions in or to the Leased Premises that may be necessary or
convenient, and (i) if Lessor shall fail or refuse to relet the Leased
Premises, or (ii) if the same are relet and a sufficient sum shall not be
realized from such reletting after paying the unpaid basic and additional rend
due hereunder but unpaid at the time of reletting plus ten percent (10%) per
annum thereon, no such reletting shall be construed as an election on the part
of Lessor to terminate this Lease unless a written notice of such intention is
given by Lessor to Lessee. Notwithstanding any such reletting without
termination, Lessor may at any time thereafter elect to terminate this Lease,
for such previous breach.

8. Non-Waiver. Failure of Lessor to declare any default
immediately upon occurrence thereof, or delay in taking action in connection
therewith, shall not waive such default, but Lessor shall have the right to
declare any such default at any time and take such action as might be lawful or
authorized hereunder, either in law or in equity. Further, failure of Lessor
to present any item for payment, including but not limited to any Base Rental
Adjustment, immediately upon occurrence thereof, or delay in taking action in
connection therewith, shall not waive any rights of Lessor with respect to such
item.

9. Casualty Insurance. Lessor shall maintain fire and extended
coverage insurance on the base building portion of the Building and on Building
Standard Improvements within the Lessee's premises. Said insurance shall be
maintained with an insurance company authorized to do business in Texas, in
amounts desired by Lessor and at the expense of Lessor and payments for losses
thereunder shall be made solely to Lessor. Lessee shall maintain at its expense
fire and extended coverage insurance on all of its personal property, including
removable trade fixtures, located in the Leased Premises which exceed Building
Standard. If the annual premiums to be paid by Lessor shall exceed the standard
rates because of Lessee's operations, contents of the Leased Premises, or
improvements with respect to the Leased Premises beyond Building Standard which
result in extra-hazardous exposure, Lessee shall promptly pay the excess amount
of the premium upon request by Lessor.

10. Liability Insurance. Lessor shall, at its expense, maintain a
policy or policies of comprehensive general liability insurance with the
premiums thereon fully paid on or before the due date, issued by and binding
upon some solvent insurance company, such insurance to afford minimum
protection (said insurance to inure to the benefit of Lessor) of not less than
Three Hundred Thousand Dollars ($300,000.00) in respect of personal injury or
death in respect to any one occurrence, and of not less than One Hundred
Thousand Dollars ($100,000.00) for property damage in any one occurrence.
Lessee shall at its expense, maintain a policy or policies of comprehensive
general liability insurance with the premiums thereon fully paid on or before
due date, issued by and binding upon a solvent

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<PAGE> 11
insurance company, such insurance to afford Lessee minimum protection of not
less than Three Hundred Thousand Dollars ($300,000.00) in respect of personal
injury or death in respect to any one occurrence, and of not less than One
Hundred Thousand Dollars ($100,000.00) for property damage in any one
occurrence.

11. Hold Harmless. Lessor shall not be liable to Lessee, or to
Lessee's agents, servants, employees, customers or invitees for any damage to
person or property caused by any act or omission or neglect of Lessee, its
agents, servants to employees, and Lessee agrees to indemnify and hold Lessor
harmless from all liability and claims for any such damage or injury. Lessee
shall not be liable to Lessor, or to Lessor's agents, servants, employees,
customers or invitees for any damage to person or property caused by act,
omission or neglect of Lessor, and Lessor agrees to hold Lessee harmless from
all claims for such damage.

12. Waiver of Subrogation Rights. Anything in this Lease to the
contrary notwithstanding, Lessor and lessee each hereby waive any and all
rights of recovery, claim, action or cause of action, against the other, its
agents, officers, or employees, for any loss or damage that may occur to the
Leased Premises or any improvements thereto, the Complex or any improvements
thereto, or any personal property of such party therein, by reason of fire, the
elements, or any cause which could be insured against under the terms of
standard fire and extended coverage insurance policies referred to in Article
V, Paragraph 9, hereof, regardless of cause or origin, including negligence of
the other party hereto, its agents, officers or employees, and each covenants
that no insurer under such policies shall hold any right of subrogation against
such other party.

VI. Binding Nature

1. Binding Nature. This Lease shall be binding upon and inure to
the benefit of the successor and assigns of Lessor, and shall be binding upon
and inure to the benefit of Lessee, its successors, and, to the extent
assignment may be approved by Lessor hereunder, Lessee's assigns. The pronouns
of any gender shall include the other genders, and either the singular or the
plural shall include the other.

2. Legal Construction. All rights and remedies of Lessor under
this Lease shall be cumulative and none shall exclude any other rights or
remedies allowed by law; and this lease is declared to be a Texas contract, and
all of the terms thereof shall be construed according to the laws of the State
of Texas.

3. Alteration. This Lease may not be altered, changed or amended,
except by an instrument in writing, signed by Lessor and Lessee.

IN TESTIMONY WHEREOF, the parties hereto have executed this Lease in
multiple counterparts as of the date aforesaid.

LESSOR:
VICTORIA BANK & TRUST

By: /s/ MALCOLM L. DUKE
-----------------------------------------
Malcolm L. Duke, Executive Vice President

LESSEE:
THE ESTATE OF THOMAS O'CONNOR

By: /s/ DENNIS O'CONNOR
-----------------------------------------
Dennis O'Connor, Partner

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<PAGE> 12
EXHIBIT "A"

DEFINITIONS FOR COMPUTING
NET RENTABLE AREA

Gross Area means all of the area enclosed by the exterior walls of the
Building, measured from the inside face of the glazing, the central plan
located in the parking garage, and the enclosed elevated walkway between the
building and the parking garage.

Prorate Area means those areas necessary to the operations of the
Building and the convenience of all tenants, including elevators servicing all
floors in the Building, mechanical rooms, and central mechanical rooms
servicing all floors in the Building, the central plan located in the parking
garage, ground and second floor lobbies, public corridors, elevated walkways,
emergency control rooms, and Building engineer's offices.

Adjusted Gross Area means the Gross Area less the Prorate Area.

Vertical Penetration means those openings through the floors necessary
to accommodate Building stairs, fire towers, elevator shafts, flues, vents,
vertical pipe shafts, and ducts. Excluded from this are openings for the
specific use of a particular tenant, such as special stairs, elevators, and
dumbwaiters.

Rentable Area means the Adjusted Gross area less the Vertical
Penetrations.

Prorate Add means that percentage of the Prorate Area allocated to
each floor based on that floor's Rentable Area.

Net Rentable Area means the Rentable Area per floor plus that floor's
share of the Prorate Area.

<PAGE> 1
THE STATE OF TEXAS Section
COUNTY OF VICTORIA Section

LEASE AGREEMENT

This Lease Agreement is made and entered into this 1st day of
February, 1995 by and between VICTORIA BANK AND TRUST, a Texas Banking
Corporation, hereinafter referred to as Lessor, whose address for the purposes
hereof is One O'Connor Plaza, Victoria, Texas 77902, and ANDERSON, SMITH, NULL,
STOFER, & MURPHREE, L.L.P., hereinafter referred to as Lessee, whose address
for the purposes hereof is One O'Connor Plaza, 7th Floor, Victoria, Texas
77902. This lease is effective as of February 1, 1995:

WITNESSETH:

I. Leased Premises

Leased Premises. Subject to and upon the terms, provisions and
conditions hereinafter set forth, and each in consideration of the duties,
covenants, and obligations of the other hereunder, Lessor does hereby lease,
demise and let to Lessee and Lessee does hereby lease from Lessor those certain
premises (hereinafter called the Leased Premises) in the building known as
VICTORIA BANK AND TRUST COMPANY, One O'Connor Plaza (herein called the
Building), Victoria, Texas, the Leased Premises being more particularly
described as 9,789.61 square feet of "Net Rentable Area" as hereinafter
defined, on the 7th floor of the Building.

The computation of Lessee's Net Rentable Area shall be made using the
definitions set forth in Exhibit A attached hereto and made a part hereof in
the following manner: the Rentable Area is divided among the tenants along the
mid-point of the interior walls separating each tenant from other tenants or
from common areas (as defined in Useable Area Deduct), with each tenant being
allocated a proportionate part of such common areas as part of that tenant's
Rentable Area; then the Prorate Add for such floor is allocated to all tenants
in proportion to their shares of the Rentable Area for such floor, thus
resulting in a Net Rentable Area for each tenant.

No deductions in determining Net Rentable Area are made for columns or
projections necessary to the Building. Lessee is currently occupying all of
it's Net Rentable Area and acknowledges the boundaries of same.

The Net Rentable Area in the Leased Premises has been calculated on
the basis of the foregoing definitions and is hereby stipulated for all
purposes hereof to be 9,789.61 square feet, whether the same should be more or
less. Lessee will have the ability to acquire additional space on the 7th floor
of One O'Connor Plaza after September 1, 1995, at which time the rental amount
will be adjusted based on the Net Rentable Area in the Leased Premises per
year.

II. Term

1. Term. Subject to and upon the terms and conditions set forth
herein, this Lease shall continue in force for a term of twenty-four (24)
months, beginning February 1, 1995 and ending on January 31, 1997, with three
(3) additional one (1) year options to renew. Lessee must give written notice
to Lessor of Lessee's intention to exercise an option at least sixty (60) days
prior to the expiration of the primary term and sixty (60) days prior to the
expiration of an option year, if applicable.

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<PAGE> 2
2. Use. The Leased Premises are to be used and occupied by Lessee
solely for the purpose of office space and for no other purpose.

3. Base Rental. Lessee hereby agrees to pay a base annual rental
(hereinafter called Base Rental) in the sum of $15.50 per square foot of Net
Rentable Area as defined herein on the Leased Premises per year. Lessee shall
also pay, as additional rent, all such other sums of money as shall become due
and payable by Lessee to Lessor under this lease. Lessor shall have the same
remedies of default for the payment of additional rent as are available to
Lessor in the case of a default in the payment of Base Rental. Such Base
Rental, as may be adjusted in accordance with the provisions of Paragraph 4 of
this Article II hereinbelow, shall be due and payable in twelve (1 2) equal
installments on the first day of each calendar month during the initial term
and any extensions or renewals thereof, beginning on February 1, 1995. Lessee
also has the option to pay 50% of the Base Rental on the lst and 15th of each
calendar month. Lessee hereby agrees to so pay such Base Rental timely and in
no event more than 10 days after the date on which it is due at Lessor's
address as provided herein (or such other address as may be designated by
Lessor from time to time) in advance as set out above, without demand,
counterclaim, or setoff. All past due installments of Base Rental shall bear
interest from 10 days after the due date until paid at the lesser of (i) three
percent (3%) per annum over the base rate of interest announced from time to
time, or (ii) the maximum lawful rate.

4. Base Rental Adjustment. The Base Rental Adjustment shall be
calculated in accordance with the following factors:

a. Lessee's Base Rental includes an Operating Cost
component (hereinafter defined) equal to $6.75 per square foot of Net Rentable
Area. This amount is Lessor's actual Operating Cost for the year 1994 for
operating the Building and the parking garage (Parking Garage) located adjacent
to the Building and the real estate upon which both are located (Land) all of
which is collectively referred to as the Complex. Lessee acknowledges that
Operating Costs may increase yearly.

b. Prior to the commencement of each calendar year of
Lessee's occupancy, Lessor shall provide an estimate of its Operating Costs for
said calendar year. Lessee's Base Rental for said calendar year may be adjusted
upward or downward based upon the difference between the prior year's actual
Operating Costs and the upcoming calendar year's estimated Operating Costs.
Lessee acknowledges that it's Base Rental may be increased or decreased
according to Lessor's estimate of Operating Costs for any given year.

c. Within 150 days, or as soon thereafter as possible,
after the conclusion of each calendar year of the term of this Lease, Lessor
shall furnish to Lessee an audited statement of Lessor's Operating Costs for
said calendar year. A lump sum payment will be made from Lessor to Lessee or
from Lessee to Lessor, as appropriate, within 30 days of the delivery of such
audited statement. Such payment will be equal to the difference between actual
Operating Costs and the estimated Operating Costs for the just-completed
calendar year. The effect of this reconciliation payment is to assure that
Lessee will pay during the term of this Lease its share of Operating

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<PAGE> 3
Costs and no more. If actual Operating Costs are more than estimated Operating
Costs, Lessee will pay Lessor the difference. If actual Operating Costs are
less than estimated Operating Costs, Lessor will pay Lessee the difference.

5. Operating Costs Defined. "Operating Costs" as said term is
used herein shall consist of all operating expenses of the Complex, which shall
be computed on the accrual basis and shall consist of all expenditures by
Lessor to maintain all facilities in operation from the beginning of the term
of this Lease and such additional facilities in subsequent years as may be
determined by Lessor to be necessary or generally beneficial to the complex.
All operating expenses shall be determined in accordance with generally
accepted accounting principles which shall be consistently applied. The term
"operating expenses" as used herein shall mean all expenses, costs and
disbursements (but not replacement of capital investment items except as
specifically provided below nor specific costs specifically billed to and paid
by specific tenants) of every kind and nature which Lessor shall pay or become
obligated to pay because of or in connection with the ownership, management,
and operation of the Complex, including but not limited to, the following:

a. Wages and salaries and related expenses and benefits
of all on-site and off-site employees engaged in the operation, maintenance, or
access control of the Complex and personnel who may provide traffic control
relating to ingress and egress to and from the Parking Garage to the adjacent
public streets. All taxes, insurance and benefits relating to employees
providing these services shall be included.

b. All supplies, tools, equipment, and materials used in
operating and maintenance of the Complex.

c. Cost of all utilities for the Complex, including the
cost of water and power, hearing, lighting, air conditioning, and ventilating
for the Complex.

g. Cost of repairs and general maintenance for the
Complex.

h. Amortization of the cost of installation of capital
investment items which are primarily for the purpose of reducing operating
costs or which may be required by governmental authority.

i. All landscape maintenance costs for the Land.

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<PAGE> 4
j. Any lease payment made by Lessor for any equipment
used in the operation and maintenance of the Complex.

k. Lessor's central accounting costs and audit fees
attributable to the Complex.

l. Any management fee charged Lessor by the entity
selected by Lessor in its discretion to manage the Complex, which entity may be
a third party or Lessor's own trust department.

III. Utilities

2. Services to the Premises. Lessor shall provide (as part of the
Operating Costs of the Complex) while Lessee is occupying the Leased Premises,
the following:

b. Janitor service on a five (5) day week provided,
however, if Lessee's floor covering or other improvements are other than
"Building Standard," (as used herein refers to Building Standard Improvements
and services as designated by Lessor at Lessor's sole discretion) Lessor shall
clean the same provided Lessee shall pay to Lessor the additional cleaning cost
over the cost of cleaning Building Standard floor coverings or other
improvements, if any, attributable thereto, as additional rent as set forth
above. -Lessee shall pay said additional rent within ten (10) days of
presentation of a statement therefor by Lessor, and Lessee's failure to pay
shall constitute default thereunder.

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<PAGE> 5
data processing equipment, special lighting in excess of Building Standard, and
any other item of electrical equipment which (singly) consumes more than 0.5
kilowatts at rated capacity or requires a voltage other than 120 volts single
phase; and provided that if the installation of said electrical equipment
requires additional air conditioning capacity above that provided by the
Building Standard system, then the additional air conditioning installation and
operating costs will be the obligation of Lessee.

d. All Building Standard fluorescent bulb replacement in
all areas and all incandescent bulb replacement in public areas, toilet and
rest room areas and stairwells.

Failure by Lessor to any extent to furnish the foregoing defined
services, or any cessation thereof, resulting from causes beyond the reasonable
control of Lessor shall not render Lessor liable in any respect for damages to
Lessee or any person or property, nor be construed as an eviction of Lessee,
nor work an abatement of rent, nor relieve Lessee from fulfillment of any
covenant or agreement hereof. Should any of the equipment or machinery used in
connection with the Complex break down, or for any cause cease to function
properly, Lessee shall have no claim for rebate or abatement of rent or damages
on account of an interruption in service occasioned thereby or resulting
therefrom.

4. Keys and Locks. Lessor shall furnish Lessee two (2) keys for
each corridor door entering the Leased Premises. Additional keys will be
furnished at a charge by Lessor following a written order signed by Lessee or
Lessee's authorized representative. All such keys shall remain the property of
Lessor. No additional locks shall be allowed on any door of the Leased Premises
without Lessor's permission, and Lessee shall not make, or permit to be made
any duplicate keys. All keys must be furnished by Lessor. Upon termination of
this Lease, Lessee shall surrender to Lessor all keys of the Leased Premises,
and give to Lessor the explanation of the combination of all locks for safes,
safe cabinets, and vault doors, if any, in the Leased Premises.

5. Graphics. Lessor shall provide and install, at Lessee's cost,
all letters or numerals on doors in the Leased Premises and all such letters or
numerals shall be in Building Standard graphics, and no other shall be used or
permitted on the Leased Premises. Lessor also agrees to provide and install, at
Lessee's expense, a listing of Lessee's name and office number on the Building
Directory Board.

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7. Parking. Lessee shall have the right at all times during the
term of this Lease to designate at least 25 vehicles to park in the Parking
Garage. No specific spaces in the Parking Garage are to be assigned to Lessee
but Lessor will issue to Lessee the aforesaid number of parking stickers, each
of which will authorize parking in the Parking Garage of a vehicle on which the
sticker is displayed. or Lessor will provide a reasonable alternative means of
identifying and controlling vehicles authorized to be parked in the Parking
Garage. Lessor may designate the area within which such vehicles may be parked,
and Lessor may change such designations from time to time. Lessor may make,
modify, and enforce rules and regulations relating to the parking of
automobiles in the Parking Garage and Lessee will abide by and cause its
agents, employees and invitees to comply with such rules and regulations.
Vehicles parked in specially designated areas in or around the Building or
parked in violation of rules and regulations relating to the parking of
vehicles shall be towed away at their owner's risk and expense. Upon written
request by Lessor, Lessee shall furnish within ten (10) days to Lessor the
license numbers of all vehicles of Lessee or Lessee's employees. Lessor shall
not be liable for any property damage or bodily injury arising from use of
parking facilities by Lessee or its agents, employees, or invitees.

As a Basic Parking Charge, Lessee covenants and agrees to pay Lessor
during the initial term and any option terms of this Lease, as additional
rental hereunder, the sum of $35.00 plus tax per month for each of the parking
stickers to be issued by Lessor as herein provided, such sum to be payable
monthly in advance on the first day of each and every calendar month during the
term of this Lease, and a pro rata portion of such sum shall be payable for the
first and last partial calendar month in the event the term of this Lease
commences on a date other than the first day of calendar month. Lessee's
obligation to pay the Basic Parking Charge shall be considered an obligation to
pay rent. Default in payment of the Basic Parking Charge (after notice as
hereinafter provided) shall be deemed a default in payment of rent.

IV. Repairs by Lessor

1. Repairs by Lessor. Unless otherwise stipulated herein, Lessor
shall not be required to make any improvements or repairs of any kind or
character on the Leased Premises during the term of this Lease, except such
repairs as may be required for normal maintenance operations. The obligation of
Lessor to maintain and repair the Leased Premises shall be limited to Building
Standard Improvements. Any additional leasehold improvements will, at Lessee's
written request, be repaired and maintained by Lessor at Lessee's expense, at a
cost or charge equal to the costs incurred therefore plus an additional charge
of fifteen percent (15%) for administrative cost recovery. Lessee shall
promptly upon Lessor's billing therefore reimburse Lessor for any services
rendered pursuant to this Paragraph 1, and any such sums shall be considered
additional rent hereunder.

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3. Care of the Leased Premises. Lessee shall not commit or allow
any waste or damage to be committed on any portion of the Leased Premises, and
shall at the termination of this Lease, by lapse of time or otherwise, deliver
up said Leased Premises to Lessor in as good condition as at date of possession
by Lessee, ordinary wear and tear excepted, and upon such termination of this
Lease, Lessor shall have the right to reenter and resume possession of the
Leased Premises.

4. Assignment or Sublease. Lessee may not assign this Lease or
sublet the Leased Premises or any part thereof without the prior written
consent of Lessor.

5. Alterations, Additions, Improvements. Lessee may, at its own
expense and with the prior written consent of Lessor, make alterations of and
additions to the I-eased Premises and construct additional leasehold
improvements to the Leased Premises (all collectively referred to as
"Additional Improvements"). Lessee shall own all Additional Improvements paid
for by Lessee other than (i) Additional Improvements which become an integral
part of the Leased Premises and (ii) alterations and other Additional
Improvements constituting replacements or repairs to the Leased Premises; and
Lessee shall have the right at any time to remove such Lessee owned
improvements; provided, however, that Lessee shall repair any damage to the
Leased Premises and restore that portion of the Leased Premises from which such
Lessee owned improvements were removed to a condition reasonably equivalent to
the original Building Standard Improvements.

8. Entry for Repairs and Inspection. Lessee will permit Lessor or
its agents or representatives to enter into and upon any part of the Leased
Premises at all reasonable hours to inspect same, clean or make repairs,
alterations or additions thereto, as Lessor may deemed necessary or desirable,
and to exhibit the Leased Premises to prospective tenants, and Lessee shall not
be entitled to any abatement or reduction of rent by reason thereof.

9. Nuisance. Lessee agrees to conduct its business and control
its agents, employees, invitees and visitors in such manner as not to create
any nuisance, or interfere with, annoy or disturb any other tenant or Lessor in
his operation of the Building.

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to all renewals, modifications, consolidations, replacements, and extensions
thereof. This clause shall be selfoperative and no further instrument of
subordination need be required by any mortgagee. In confirmation of such
subordination, however, Lessee shall at Lessor's request execute promptly any
appropriate certificate or instrument that Lessor may request. Lessee hereby
constitutes and appoints Lessor the Lessee's attorney-in-fact to execute any
such certificate or instrument for an on behalf of Lessee. In the event of the
enforcement by the trustee or the beneficiary under any such mortgage or deed
of trust of the remedies provided for by law or by such mortgage or deed of
trust, Lessee, will, upon request of any person or party succeeding to the
interest of Lessor as a result of such enforcement, automatically become the
Lessee of such successor in interest without change in the terms and provisions
of such Lease; provided, however, that such successor in interest shall not be
bound by (i) any payment of rent or additional rent for more than one month in
advance except prepayments in the nature of security for the performance by
Lessee of its obligations under this Lease or (ii) any amendment or
modification of this Lease made without the written consent of such trustee or
such beneficiary or such successor in interest. Upon request by such successor
in interest, Lessee shall execute and deliver an instrument or instruments
confirming the attornment here in provided for.

12. Payments by Lessee. Lessee covenants and agrees to pay all
rent and sums provided to be paid to Lessor hereunder at the times and manner
herein provided.

V. Condemnation and Loss or Damage

1. Condemnation and Loss or Damage. If the Leased Premises shall
be taken or condemned for any public purpose to the extent as to render the
Leased Premises untentantable, this Lease shall, at the option of either party,
forthwith cease and terminate. All proceeds from any taking or condemnation of
the Leased Premises shall belong to and be paid to Lessor and Lessee, as their
interests may appear.

3. Holding Over. In the event of holding over by Lessee after
expiration or termination of this Lease without the written consent of Lessor,
Lessee shall pay as Base Rental to Lessor the prevailing market rate in the
Complex. No holding over by Lessee after the term of this Lease shall operate
to extend the Lease and in the event of any unauthorized holding over, Lessee
shall indemnify Lessor against all claims for damages by any other person or
entity to whom Lessor may have leased all or any part of the Leased Premises
effective upon the termination of

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this Lease. Any holding over with the consent of Lessor in writing shall
constitute a lease from month to month subject to the terms and conditions of
this lease, but in no way does this clause constitute consent of Lessor to any
holding over by Lessee.

4. Fire Clause. In the event of a fire or other casualty in the
Leased Premises, Lessee shall immediately give notice thereof to Lessor. If the
Leased Premises shall be partially destroyed by fire or other casualty so as to
render the Leased Premises untenantable, the rental provided for herein shall
abate thereafter as to the portion of the Leased Premises rendered untenantable
until such time as the Leased Premises are made tenantable as determined by
Lessor (but in no event shall Lessor's obligation exceed Building Standard
Improvements). If the Leased Premises shall be totally destroyed by fire or
other casualty and Lessor shall decide not to rebuild, then Lessor may
terminate this Lease and all rent owed up to the time of such damage,
destruction or termination shall be paid by Lessee and thenceforth this Lease
shall cease and come to an end.

6. Assignment by Lessor. Lessor shall have the right to transfer
and assign, in whole or in part, all its rights and obligations hereunder and
in the Complex and property referred to herein. In the event of such an
assignment or transfer Lessor shall have no further liability or obligation to
Lessee under the terms of this lease.

7. Default by Lessee. If default shall be made in the payment of
any sum to be paid by Lessee under this Lease, whether Base Rent, additional
rent, or otherwise, and if such default shall continue for ten (10) days, or
should default occur in the performance of any of the other covenants or
conditions which Lessee is required to observe and to perform, and if such
default shall continue for twenty (20) days, or if the interest of Lessee under
this Lease shall be levied on under execution or other legal process, or if any
petition shall be filed by or against Lessee to declare Lessee a bankrupt or to
delay, reduce or modify Lessee's debts or obligations, or if any petition shall
be filed or other action taken to reorganize or modify Lessee's capital
structure if Lessee be a corporation or other entity, or if Lessee be declared
insolvent according to law, or if any assignment of Lessee's property shall be
made for the benefit of creditors, or if a receiver or trustee is appointed for
Lessee or its property, or if Lessee shall abandon the Leased Premises during
the term of this Lease or any renewals or extensions thereof, then Lessor may
treat the occurrence of any one or more of the foregoing events as a breach, of
this Lease (provided that no such levy, execution, legal process or petition
filed against Lessee shall constitute a breach of this Lease if Lessee shall
vigorously contest the same by appropriate proceedings and shall remove or
vacate the same within thirty (30) days from the date of its creation or
service or filing) and thereupon, at Lessor's option, may have any one or more
of the following described remedies in addition to all other rights and
remedies available at law or in equity:

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<PAGE> 10
a. Lessor may terminate this Lease and forthwith
repossess the Leased Premises and be entitled to recover forthwith as damages a
sum of money equal to the total of (i) the cost of recovering the Leased
Premises, (ii) the unpaid rent earned at the time of termination, plus interest
thereon from that date at the lesser of three percent (3%) per annum over the
prime rate of interest announced from time to time or the maximum rate allowed
by law (iii) the balance of the rent for the remainder of the term, and (iv)
any other sum of money and damages owed by Lessee to Lessor.

b. Lessor may terminate Lessee's right of possession
(but not the Lease) and may repossess the Leased Premises by forcible entry or
detainer suit or otherwise, without demand or notice of any kind to Lessee and
without terminating this Lease, in which event Lessor may, but shall be under
no obligation to do so, relet the same for the account of Lessee for such rent
and upon such terms as shall be satisfactory to Lessor. For the purpose of such
reletting Lessor is authorized to decorate or to make any repairs, changes,
alterations or additions in or to the Leased Premises that may be necessary or
convenient. If Lessor shall fail or refuse to relet the Leased Premises or if
the same are relet and a sufficient sum shall not be realized from such
reletting after paying the unpaid basic and additional rent due hereunder and
unpaid at the time of reletting plus ten percent (10%) per annum thereon Lessee
shall remain liable for the balance. No such reletting shall be construed as an
election on the part of Lessor to terminate this Lease unless a written notice
of such intention is given by Lessor to Lessee. Notwithstanding any such
reletting; without termination, Lessor may at any time thereafter elect to
terminate this Lease, for such previous breach.

8. Non-Waiver. Failure of Lessor to declare any default
immediately upon occurrence thereof, or delay in taking action in connection
therewith, shall not waive such default, but Lessor shall have the right to
declare any such default at any time and take such action as might be lawful or
authorized hereunder, either in law or in equity. Further, failure of Lessor
to present any item for payment, including but not limited to any Base Rental
Adjustment or additional rent, immediately upon occurrence thereof, or delay in
taking action in connection therewith, shall not waive any rights of Lessor
with respect to such item.

9. Casualty Insurance. Lessor shall maintain fire and extended
coverage insurance on the base building portion of the Building and on Building
Standard Improvements within the Lessee's Premises. Said insurance shall be
maintained with an insurance company authorized to do business in Texas, in
amounts desired by Lessor and at the expense of Lessor and payments for losses
thereunder shall be made solely to Lessor. Lessee shall maintain at. its
expense fire and extended coverage insurance on all of its personal property,
including removable trade fixtures, located in the Leased Premises which exceed
Building Standard. If the annual premiums to be paid by Lessor shall exceed the
standard rates because of Lessee's operations, contents within the Leased
Premises, or improvements with respect to the Leased Premises beyond Building
Standard which result in extrahazardous exposure, Lessee shall promptly pay, as
additional rent the excess amount of the premium upon request by Lessor.

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10. Liability Insurance. Lessor shall, at its expense, maintain a
policy or policies of comprehensive general liability insurance with the
premiums thereon fully paid on or before the due date, issued by and binding
upon some solvent insurance company, such insurance to afford minimum
protection (said insurance to inure to the benefit of Lessor) of not less than
Three Hundred Thousand Dollars ($300,000.00) in respect of personal injury or
death in respect to any one occurrence, and of not less than One Hundred
Thousand Dollars ($100,000.00) for property damage in any one occurrence.
Lessee shall at its expense, maintain a policy or policies of comprehensive
general liability insurance with the premiums thereon fully paid on or before
due date, issued by and binding upon a solvent insurance company, such
insurance to afford Lessee minimum protection of not less than Three Hundred
Thousand Dollars ($300,000.00) for personal injury or death in respect to any
one occurrence, and of not less than One Hundred Thousand Dollars ($100,000.00)
for property damage in any one occurrence.

11. Hold Harmless. Lessor shall not be liable to Lessee, or to
Lessee's agents, servants, employees, customers or invitees for any damage to
person or property caused by any act or omission or neglect of Lessee, its
agents, servants or employees, and Lessee agrees to indemnify and hold Lessor
harmless from all liability and claims for any such damage or injury. Lessee
shall not be liable to Lessor, or to Lessor's agents, servants, employees,
customers or invitees for any damage to person or property caused by act,
omission or neglect of Lessor, and Lessor agrees to hold Lessee harmless from
all claims for such damage.

12. Waiver of Subrogation Rights. Nothing in this Lease to the
contrary, Lessor and Lessee each hereby waive any and all rights of recovery,
claim, action or cause of action, against the other, its agents, officers. or
employees, for any loss or damage that may occur to the Leased Premises or any
improvements thereto, the Complex or any improvements thereto, or any personal
property of such party therein, by reason of fire, the elements, or any cause
which could be insured against under the terms of standard fire and extended
coverage insurance policies referred to in Article V, Paragraph 9, hereof,
regardless of cause or origin, including negligence of the other party hereto,
its agents, officers or employees, and each covenants that no insurer under
such policies shall hold any right of subrogation against such other party.

VI. Binding Nature

3. Alteration. This Lease may not be altered, changed or amended,
except by an instrument in writing, signed by Lessor and Lessee.

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IN TESTIMONY WHEREOF, the parties hereto have executed this Lease in
multiple counterparts as of the date aforesaid.

LESSOR:

VICTORIA BANK & TRUST

By: /s/ MALCOLM L. DUKE
-------------------------------------------
Malcolm L. Duke
Executive Vice President

LESSEE:

ANDERSON, SMITH, NULL, STOFER & MURPHREE L.L.P.

By: /s/ MUNSON SMITH
-------------------------------------------
Munson Smith
Managing Partner

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EXHIBIT "A"

DEFINITIONS FOR COMPUTING
NET RENTABLE AREA

Adjusted Gross Area means the Gross Area less the Prorate Area.

Rentable Area means the Adjusted Gross area less the Vertical
Penetrations.

Prorate Add means that percentage of the Prorate Area allocated to
each floor based on that floor's Rentable Area.

Net Rentable Area means the Rentable Area per floor plus that floor's
share of the Prorate Area.

<PAGE> 1
VICTORIA BANKSHARES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE> 2
VICTORIA BANKSHARES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

TABLE OF CONTENTS

<TABLE>
<S> <C>
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
1.1 Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
1.2 Accrued Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
1.3 Actuarial Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
1.4 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
1.5 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
1.6 Bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
1.7 Bonus Deferral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
1.8 Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-2
1.9 Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-2
1.10 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-2
1.11 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-2
1.12 Considered Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-2
1.13 Credited Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-2
1.14 Deferral Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-3
1.15 Discretionary Employer Contribution . . . . . . . . . . . . . . . . . . . . . . . I-3
1.16 Early Retirement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-3
1.17 Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-3
1.18 Hour of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-3
1.19 Limit Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-3
1.20 Limit Year Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-4
1.21 Matching Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-4
1.22 Normal Retirement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-4
1.23 Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-4
1.24 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-4
1.25 Plan Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-4
1.26 Profit Sharing Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . I-4
1.27 Profit Sharing Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-4
1.28 Qualified Plan Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-4
1.29 Salary Deferral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-4
1.30 Salary Deferral Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . I-4
1.31 Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-4
1.32 Total and Permanent Disability . . . . . . . . . . . . . . . . . . . . . . . . . . I-4
1.33 Vesting Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-5

ARTICLE II ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1
2.1 Initial Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1
2.2 Frozen Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1
2.3 Renewed Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1
</TABLE>

-i-
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE III ENTITLEMENT TO RETIREMENT BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . III-1
3.1 Normal Retirement Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-1
3.2 Late Retirement Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-1
3.3 Early Retirement Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-1
3.4 Disability Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-1
3.5 Severance Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-1
3.6 Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-2
3.7 Form and Time of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-3
3.8 Beneficiary Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-4

ARTICLE IV SALARY AND BONUS DEFERRALS AND COMPANY
CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-1
4.1 Salary Deferral Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-1
4.2 Bonus Deferral Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-1
4.3 Effect of Code Sections 401(k) and 401(m) . . . . . . . . . . . . . . . . . . . . IV-1
4.4 Effectiveness of Deferral Agreement . . . . . . . . . . . . . . . . . . . . . . . IV-1
4.5 Matching Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-1
4.6 Profit Sharing Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . IV-1
4.7 Establishing the Participant's Account . . . . . . . . . . . . . . . . . . . . . IV-2
4.8 Crediting Salary and Bonus Deferrals . . . . . . . . . . . . . . . . . . . . . . IV-2
4.9 Crediting Profit Sharing and Matching Contributions . . . . . . . . . . . . . . . IV-2
4.10 Basis for Determining Benefits . . . . . . . . . . . . . . . . . . . . . . . . . IV-2
4.11 Effect of Salary and Bonus Deferrals . . . . . . . . . . . . . . . . . . . . . . IV-2

ARTICLE V DISTRIBUTION OF SALARY AND BONUS DEFERRALS AND
PROFIT SHARING AND MATCHING CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . V-1
5.1 Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-1
5.2 Total and Permanent Disability . . . . . . . . . . . . . . . . . . . . . . . . . V-1
5.3 Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-1
5.4 Termination Prior to Death, Disability or Retirement . . . . . . . . . . . . . . V-1
5.5 Payment on Specified Event . . . . . . . . . . . . . . . . . . . . . . . . . . . V-1
5.6 Payment Upon Unforeseeable Emergency . . . . . . . . . . . . . . . . . . . . . . V-2

ARTICLE VI EVENTS CAUSING FORFEITURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI-1
6.1 Termination of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI-1
6.2 Forfeiture For Cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI-1
6.3 Forfeiture for Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . VI-1

ARTICLE VII ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VII-1
7.1 Committee Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VII-1
7.2 Committee Organization and Voting . . . . . . . . . . . . . . . . . . . . . . . . VII-1
7.3 Powers of the Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VII-1
7.4 Reimbursement of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . VII-2
7.5 Committee Discretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VII-2

ARTICLE VIII ADOPTION BY SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VIII-1
8.1 Procedure for and Status After Adoption . . . . . . . . . . . . . . . . . . . . VIII-1
8.2 Termination of Participation By Adopting Subsidiary . . . . . . . . . . . . . . VIII-1

</TABLE>

-ii-
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE IX AMENDMENT AND/OR TERMINATION AND CHANGE OF
CONTROL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IX-1
9.1 Amendment or Termination of the Plan . . . . . . . . . . . . . . . . . . . . . . IX-1
9.2 No Retroactive Effect on Awarded Benefits . . . . . . . . . . . . . . . . . . . . IX-1
9.3 Effect of Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . IX-1
9.4 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IX-1

ARTICLE X FUNDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . X-1
10.1 Payments Under This Agreement Are the Obligation of the Company . . . . . . . . . X-1
10.2 Agreement May be Coordinated with Life Insurance Owned by the Company or a
Rabbi Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . X-1
10.3 Participants Must Rely Only on General Credit of the Company . . . . . . . . . . X-1

ARTICLE XI MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XI-1
11.1 Responsibility for Distributions and Withholding of Taxes . . . . . . . . . . . . XI-1
11.2 Limitation of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XI-1
11.3 Distributions to Incompetents or Minors . . . . . . . . . . . . . . . . . . . . . XI-1
11.4 Nonalienation of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . XI-1
11.5 Reliance Upon Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . XI-2
11.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XI-2
11.7 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XI-2
11.8 Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XI-2
11.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XI-2
11.10 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XI-2

</TABLE>

-iii-
<PAGE> 5
VICTORIA BANKSHARES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

WHEREAS, it is in the best interest of Victoria Bankshares, Inc. and
its subsidiaries to retain a select group management personnel; and

WHEREAS, Congress has from time to time limited the amounts of
retirement benefits available to the more highly compensated employees in
relationship to their pay; and

WHEREAS, Victoria Bankshares, Inc. and its subsidiaries has found it
in their best interest to supplement the retirement pay of a select group of
management personnel so as to retain their services and to offer a further
incentive to maintain and increase their standard of performance; and

WHEREAS, Victoria Bankshares, Inc. previously established a
supplemental executive retirement plan effective January 1, 1989; and

WHEREAS, Victoria Bankshares, Inc. has determined that said
supplemental executive retirement plan should be amended and restated in its
entirety effective January 1, 1994;

NOW, THEREFORE, Victoria Bankshares, Inc. hereby amends and restates
its supplemental executive retirement plan effective January 1, 1994 as
follows:
<PAGE> 6
ARTICLE I

DEFINITIONS

1.1 Account. "Account" shall mean the ledger account maintained by the
Company to record the amount due the Participant under Article IV of this Plan.
The Account at any given time shall reflect the Bonus Deferrals, Salary
Deferrals, Matching Contributions and Profit Sharing Contributions and any
earnings on amounts credited to the Account.

1.2 Accrued Benefit. "Accrued Benefit" means, as of a given date an
amount equal to 2% of the Participant's Limit Year Compensation multiplied by
the Participant's years of Credited Service, not to exceed twenty.

1.3 Actuarial Conversion. "Actuarially Equivalent," "Equivalent
Actuarial Value," "Actuarial Equivalent," and similar terms mean equality in
value of the aggregate amounts expected to be received under different forms of
payment based upon the same mortality and interest rate assumptions. Unless
specifically provided otherwise under the provisions hereof, the mortality and
interest rate assumptions used under the Plan shall be as follows:

(a) The mortality assumptions shall be based upon the "Unisex
Pension Mortality Table Projected to 1984" (UP-1984 Table); and

(b) The interest rate assumption shall be six percent.

The term "single-sum value" means the actuarially computed present value, as of
a given date, of the periodic payments for which it is determined based upon
the interest and mortality assumptions specified in this Section. Unless
specifically provided otherwise under the provisions hereof, the single-sum
value as of a given date of a Participant's Accrued Benefit that is scheduled
to commence at a later date shall be discounted for both interest and mortality
from such scheduled commencement date to such given date.

1.4 Beneficiary. "Beneficiary" means a person or entity designated by
the Participant under the terms of this Plan to receive any amounts distributed
under the Plan upon the death of the Participant. If no such person or entity
is so designated, "Beneficiary" shall mean the Participant's estate.

1.5 Board of Directors. "Board of Directors" means the Board of
Directors of Victoria Bankshares, Inc.

1.6 Bonus. "Bonus" shall mean all bonuses awarded to the Participant,
if any, as determined by the Board of Directors at its sole discretion.

1.7 Bonus Deferral. "Bonus Deferral" shall mean the amount of the
Bonus the Participant elects to defer under the terms of this Plan.

I-1
<PAGE> 7
1.8 Change of Control. "Change of Control" means, as determined by the
Committee in place immediately prior to the Change of Control, the occurrence
of one or more of the following events:

(a) Any "person", including a "syndication" or "group" as
those terms are used in Section 13(d)(3) of the Securities Exchange
Act of 1934, is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 40% or more of
the combined voting power of the Company's then outstanding voting
securities;

(b) The Company is merged or consolidated with another
corporation and immediately after giving effect to the merger or
consolidation less than 80% of the outstanding voting securities of
the surviving or resulting entity are then beneficially owned in the
aggregate by (i) the stockholders of the Company immediately prior to
such merger or consolidation, or (ii) if a record date has been set to
determine the stockholders of the Company entitled to vote on such
merger or consolidation, the stockholders of the Company as of such
record date;

(c) If at any time during a calendar year a majority of the
directors of the Company are not persons who were directors at the
beginning of the calendar year (unless the lack of majority is the
result of the death of one or more directors); and

(d) the Company transfers substantially all of its assets to
another corporation which is a less than 80% owned Subsidiary of the
Company.

1.9 Committee. "Committee" means the persons who are from time to time
serving as members of the committee administering this Plan.

1.10 Company. "Company" means Victoria Bankshares, Inc., any
Subsidiary which adopted the Victoria Bankshares, Inc. Pension Plan prior to
January 1, 1989, and any Subsidiary adopting the Plan.

1.11 Compensation. "Compensation" means the annual base salary payable
to the Participant as of the first day of the Plan Year. Provided, however, in
the event a Participant has Salary Deferrals under Article IV, then the
Participant's Compensation shall be deemed to include the amounts so deferred
by the Participant.

1.12 Considered Compensation. "Considered Compensation" means the
amount of compensation taken into account under the Profit Sharing Plan, as it
may be amended from time to time. Provided, however, that for purposes of this
Plan, the term "Considered Compensation" shall not be limited by the
limitations imposed under Section 401(a)(17) of the Internal Revenue Code, as
it may be amended from time to time.

I-2
<PAGE> 8
1.13 Credited Service. "Credited Service" shall mean the total period
of an Employee's service with Victoria Bankshares, Inc., computed in completed
months, during the period beginning on the date he first performs an Hour of
Service and ending on his Normal Retirement Date or, if earlier, his date of
actual retirement or termination of service, or, where applicable, ending on
such other date as is specified hereunder; provided, however, that the
following provisions shall apply with respect to any period of such an
employee's service which would be included in his Credited Service in
accordance with the provisions above:

(a) Any complete calendar month or portion thereof that the
employee is absent from the service of the Company will be excluded
from his Credited Service unless he receives regular Compensation from
the Company for all or any portion of such calendar month and except
as otherwise provided below;

(b) Any absence due to the Employee's engagement in military
service will, except as provided below, be included in his Credited
Service if such absence is covered by a leave of absence granted by
the Company or is by reason of compulsory military service and
provided that he returns to the active service of the Company within
the period of time during which he has reemployment rights under any
applicable Federal law or within 60 days from and after discharge or
separation from such compulsory engagement if no Federal law is
applicable; and

(c) Any period of service while the employee was employed by
Victoria Loan & Investment Company shall be included in his Credited Service.

1.14 Deferral Agreement. "Deferral Agreement" shall mean the agreement
entered into by the Participant from time to time setting forth his Bonus and
Salary Deferrals under the Plan.

1.15 Discretionary Employer Contribution. "Discretionary Employer
Contribution" means the Company's Discretionary Employer Contribution, if any,
made under the Profit Sharing Plan on the basis of the Participant's Considered
Compensation.

1.16 Early Retirement Date. "Early Retirement Date" means the date on
which a Participant retires from the service of the Company prior to his Normal
Retirement Date (i) on or after the date as of which he has both attained the
age of 55 years and completed five years of Vesting Service or (ii) on or after
attaining age 62.

1.17 Employee. "Employee" means all common law employees of the
Company.

1.18 Hour of Service. "Hour of Service" means an hour for which an
employee is directly or indirectly paid, or is entitled to payment, by the
Company (including any predecessor business of any Company conducted as a
corporation, partnership, or proprietorship) for the performance of duties.

1.19 Limit Year. "Limit Year" means the Plan Year designated by the
Board of Directors in its sole discretion that will be used to determine the
Participant's

I-3
<PAGE> 9
Compensation for purposes of the Plan. Although the Board of Directors retains
the right to change the Limit Year in its sole discretion, no such change shall
reduce the Accrued Benefit of any Participant in violation of Section 9.2 of
the Plan.

1.20 Limit Year Compensation. "Limit Year Compensation" means the
Participant's Compensation from the Company during the Limit Year.

1.21 Matching Contribution. "Matching Contribution" means the matching
contribution made to the Participant's Account under this Plan pursuant to
Section 4.4 of the Plan.

1.22 Normal Retirement Date. "Normal Retirement Date" means the first
day of the month coincident with or next following the date on which a
Participant attains the age of 65 years.

1.23 Participant. "Participant" means the person or persons employed
by the Company during the Plan Year and participating in the Plan.

1.24 Plan. "Plan" means the Victoria Bankshares, Inc. Supplemental
Executive Retirement Plan set forth in this document, as amended from time to
time.

1.25 Plan Year. "Plan Year" means calendar year.

1.26 Profit Sharing Contribution. "Profit Sharing Contribution" means
the contribution made to the Participant's Account under this Plan pursuant to
Section 4.5 of the Plan.

1.27 Profit Sharing Plan. "Profit Sharing Plan" means the Victoria
Bankshares, Inc. Profit Sharing Thrift Plan, as it may be amended from time to
time.

1.28 Qualified Plan Benefit. "Qualified Plan Benefit" means the
benefit that would be paid or payable to the Participant or his Beneficiary
under the Victoria Bankshares, Inc. Pension Plan, excluding only the post
retirement supplemental benefit payable thereunder, as it may be amended or
superseded from time to time.

1.29 Salary Deferral. "Salary Deferral" shall mean the amount of
Compensation the Participant elects to defer under the terms of this Plan, or
allocated to his Account pursuant to Section 4.3.

1.30 Salary Deferral Contributions. "Salary Deferral Contributions"
shall mean the Participant's 401(k) pre-tax contributions under the Profit
Sharing Plan.

1.31 Subsidiary. "Subsidiary" means any wholly owned subsidiary of
Victoria Bankshares, Inc.

1.32 Total and Permanent Disability. "Total and Permanent Disability"
means a disability due to sickness or injury that results in the Participant
being completely unable to engage in any substantial gainful employment by any
of the Companies. A

I-4
<PAGE> 10
Participant shall be considered fully recovered from his disability if he is no
longer disabled as provided above. Notwithstanding the immediately preceding
provisions of this Section, Total and Permanent Disability does not include a
disability which is the result of:

(a) excessive and habitual use by the Participant of drugs;

(b) injury or disease sustained by the Participant while
willfully and illegally participating in fights, riots, civil
insurrections, or while committing a felony;

(d) injury or disease sustained by the Participant which was
diagnosed or discovered subsequent to the date his employment was
terminated; or

(e) injury or disease sustained by the Participant as a result
of an act of war, whether or not such act arises from a formally
declared state of war.

All determinations regarding the existence or nonexistence of a Total and
Permanent Disability and the cause thereof shall be made by the Committee. The
Committee shall require satisfactory proof, which may be in the form of a
certificate from a duly licensed physician selected by the Committee, that a
Participant has become disabled as provided herein before commencement of
payment of a Disability Benefit. Any opinion of the Committee rendered in
accordance with the provisions of this Section shall be final and conclusive,
and shall not be subject to review by anyone.

1.33 Vesting Service. "Vesting Service" means the total period of
elapsed time with Victoria Bankshares, Inc. (including absences which do not
constitute a termination of service), computed in years and days, during the
period beginning on the date the Employee first performs an Hour of Service and
ending on his date of retirement or termination of service, or, where
applicable, ending on such other date as specified hereunder; provided,
however, that:

(a) no more than 12 months of absence shall be included as
Vesting Service with respect to any continuous absence of longer than
12 months, except that the period of any absence which is included in
the Participant's Credited Service will also be included in his
Vesting Service; and

(b) any period of service while the Employee was included by
Victoria Loan & Investment Company shall be included as Vesting
Service.

I-5
<PAGE> 11

ARTICLE II

ELIGIBILITY

2.1 Initial Eligibility. The individuals who shall be eligible to
participate in the Plan shall be such Employees as the Board of Directors shall
determine from time to time.

2.2 Frozen Participation. If an Employee who is a Participant in this
Plan later becomes ineligible to continue to participate in this Plan but still
is employed by an adopting Company, his retirement benefit under Article III of
this Plan, to the extent then accrued, will be frozen. He will later be
entitled to the frozen Accrued Benefit under Article III of this Plan, should
he fulfill the requirements of Article III, at the time and in the form set out
in that Article. A Participant's Bonus and Salary Deferral and Profit Sharing
and Matching Contributions will be payable in accordance with Article V, but
will not be subject to the vesting provisions of that Article or the forfeiture
events described in Article VI. However, if any of the events described in
Article VI should occur, he will then forfeit the frozen benefit other than his
Bonus and Salary Deferral and Profit Sharing and Matching Contributions.

2.3 Renewed Eligibility. If an Employee who is a Participant in this
Plan becomes ineligible to continue to participate but remains employed by an
adopting Company and then later again becomes eligible to participate, the
Participant will be given Credited Service for the intervening period and will
be treated for all purposes as though he had not had his participation in the
Plan interrupted. Thereafter, subject to Section 2.2, he will become entitled
to benefits as before should he fulfill the requirements of Article III or he
may, subject to Section 2.2, forfeit his benefits should any of the events
described in Article VI occur.

II-1
<PAGE> 12
ARTICLE III

ENTITLEMENT TO RETIREMENT BENEFITS

3.1 Normal Retirement Benefit. A Participant who retires on his Normal
Retirement Date shall be entitled to a monthly amount equal to the Accrued
Benefit minus the Qualified Plan Benefit.

3.2 Late Retirement Benefit. The monthly benefit payable to a
Participant who retires after his Normal Retirement Date shall be equal to the
Accrued Benefit minus the Qualified Plan Benefit.

3.3 Early Retirement Benefit. The monthly benefit payable to a
Participant who retires on his Early Retirement Date shall be equal to the
Accrued Benefit which the Participant has accrued as of his Early Retirement
Date minus the Qualified Plan Benefit. Provided, however, if the Participant's
Early Retirement Date is prior to age 60 his Accrued Benefit shall be reduced
5/12% for each month by which the payment precedes age 60.

3.4 Disability Benefit. The monthly benefit payable to a Participant
who separates from service with the Companies due to Total and Permanent
Disability after completion of one year of Credited Service and prior to his
Normal Retirement Date and who attains his Normal Retirement Date without
recovering from his Total and Permanent Disability shall be equal to (a) minus
(b) where (a) is the Accrued Benefit to which he would have been entitled on
his Normal Retirement Date if he had remained in the service of the Company,
with no change in his last regular monthly rate of Compensation, until his
Normal Retirement Date, and (b) is his Qualified Plan Benefit.

3.5 Severance Benefit. If a Participant's service with the Companies
is terminated prior to his Normal Retirement Date and after the date on which
the Participant has completed five years of Vesting Service for any reason
other than his death, early retirement, or disability retirement, he will be
entitled to a monthly benefit equal to (a) minus (b) where (a) is the
Participant's Accrued Benefit determined as of the date of termination of his
service, and (b) is the Participant's Qualified Plan Benefit. In the event that
payment of a Severance Benefit commences prior to the Participant's Normal
Retirement Date, the amount determined under clause (a) of the immediately
preceding sentence shall be reduced to its Actuarial Equivalent of the benefit
that would be payable as of the Participant's Normal Retirement Date.

III-1
<PAGE> 13
3.6 Death Benefit.

(a) Before Normal Retirement Date While in Service or Disabled.

(1) Without a Surviving Spouse. The Beneficiary of an
unmarried Participant who dies prior to attaining his Normal
Retirement Date while in the service of the Company or while suffering
from a Total and Permanent Disability shall be eligible for a death
benefit. The amount of the death benefit shall be (A) a percentage of
the larger of (i) his Compensation for the calendar year of his death
or Total and Permanent Disability, if earlier, or (ii) his annual rate
of compensation at the date of death or Total and Permanent
Disability, if earlier, minus (B) the Actuarial Equivalent of the
Participant's Qualified Plan Benefit. The percentage referred to in
the immediately preceding sentence shall be determined in accordance
with the following schedule:

<TABLE>
<CAPTION>
Years of Vesting
Service at Date of Death Percentage Payable
<S> <C>
Less than 2 20%
2 but not 3 40%
3 but not 4 60%
4 but not 5 80%
5 or more (or after 100%
attaining his
Early Retirement Date)
</TABLE>

(2) With a Surviving Spouse. The surviving spouse of a
Participant who dies prior to attaining his Normal Retirement Date
while in the service of the Company or while suffering from a Total
and Permanent Disability, and to whom the Participant was married for
at least one year at the date of his death unless the Participant's
death resulted from external accidental cause, in which case the one
year requirement is waived, shall be eligible for a death benefit. The
monthly benefit shall be equal to (A) a percentage of 50% of the
Accrued Benefit computed on the basis of the Participant's Limit Year
Compensation at his date of death and the Credited Service the
Participant would have had at his Normal Retirement Date as though he
had continued in the service of the Company on a full-time basis,
minus (B) the Participant's Qualified Plan death Benefit. The
percentage referred to in the immediately preceding sentence shall be
100 percent if the Participant dies after attaining his Early
Retirement Date, and shall be determined in accordance with the
schedule set forth in paragraph (1) above in any other case.

(3) Disabled Participants. A Participant who has incurred a
Total and Permanent Disability shall be credited with Vesting Service,
Credited Service, and Compensation as though he had continued in the
service of the Company on a full-time basis and continued to receive
Compensation at his last regular monthly rate of Compensation prior to
his disability.

III-2
<PAGE> 14
(4) Minimum Payment to Surviving Spouse. If the Actuarially
Equivalent lump sum value determined under paragraph (2) is less than
the amount determined under paragraph (1), the difference shall be
paid to the surviving spouse in a lump sum, or in equal monthly
installments for a period not in excess of 120 months, at the
discretion of the surviving spouse.

(5) The surviving spouse to whom the Participant has not been
married for at least one year prior to his death shall receive a death
benefit calculated in accordance with paragraph (1).

(b) On or After Normal Retirement Date. The surviving spouse of a
Participant who dies after attaining his Normal Retirement Date while in the
service of the Company, and to whom the Participant was married for at least
one year on the date of his death unless the Participant's death resulted from
external accidental cause in which case the one year requirement is waived,
shall be eligible for a death benefit. If there is no surviving spouse eligible
for the death benefit under the immediately preceding sentence, the Beneficiary
of a Participant who dies after attaining his Normal Retirement Date while in
the service of the Company shall be eligible for a death benefit. The amount of
the death benefit shall be (A) a monthly amount, the actuarial value of which
is equal to the single-sum value of the Accrued Benefit to which the
Participant would have been entitled had he retired on the day before the date
of his death, minus (B) the Participant's Qualified Plan Benefit.

3.7 Form and Time of Payment. Except as otherwise provided in this
Section, the monthly benefit payable to a Participant, surviving spouse, or
Beneficiary will begin on the first day of the month coincident with or next
following the later of the Participant's Normal Retirement Date or date of
actual retirement, or death, as the case may be. Any Early Retirement Benefit
payable to a Participant will become payable on the Participant's Early
Retirement Date. At the written request of the Participant filed with the
Committee at least 30 days prior to the effective date thereof, a Severance
Benefit may commence on the first day of any month which is prior to the
Participant's Normal Retirement Date and on or after the date on which he
attained the age of 55 years. The death benefit payable under Section 3.6 shall
be made or commenced on the first day of the month coincident with or next
following the Participant's date of death.

Except as otherwise provided in this Section, the last payment of any
monthly benefit hereunder shall be made as of the first day of the month in
which the death of the Participant, surviving spouse, or Beneficiary occurs.
Provided, however, a Participant may elect any form of payment that is
otherwise provided for under the Victoria Bankshares, Inc. Pension Plan, which
is Actuarially Equivalent to the life annuity benefit provided for in the
preceding sentence. Any death benefit payable under Section 3.6(a)(1) shall be
paid to the Beneficiary in a lump sum, or in equal monthly installments for a
period not in excess of 120 months, at the discretion of the Beneficiary.

Notwithstanding the immediately preceding provisions of this Section,
the Committee may, in its discretion, direct that any benefit payable under the
Plan be paid

III-3
<PAGE> 15
in a lump sum, provided that the single-sum value of such benefit is not more
than $10,000.

3.8 Beneficiary Designation. Each Participant upon entering the Plan
shall file with the Committee a designation of one or more Beneficiaries to
whom any death benefit provided by the Plan will be payable. The designation
will be effective upon receipt by the Committee of a properly executed form
which the Committee has approved for that purpose. The Participant may from
time to time revoke or change any designation of Beneficiary by filing another
approved Beneficiary designation form with the Committee. If there is no valid
designation of Beneficiary on file with the Committee at the time of the
Participant's death or if all of the Beneficiaries designated in the last
Beneficiary designation have predeceased the Participant or otherwise cease to
exist, the Beneficiary will be the Participant's estate. A Beneficiary must
survive the Participant by 60 days in order to be considered to be living on
the date of the Participant's death. If any Beneficiary survives the
Participant but dies or otherwise ceases to exist before receiving all payments
due under the Plan, the balance of the payments, which would have been paid to
that Beneficiary will, unless the Participant's designation provides otherwise,
be distributed to the individual deceased Beneficiary's estate or to the
Participant's estate in the case of a Beneficiary which is not an individual.

III-4
<PAGE> 16
ARTICLE IV

SALARY AND BONUS DEFERRALS AND COMPANY CONTRIBUTIONS

4.1 Salary Deferral Election. The Participant may elect, within 30
days after becoming eligible to participate in the Plan, or prior to the
beginning of any future Plan Year, the percentage, if any, of his Compensation
to be earned during the remainder of the initial Plan Year or the ensuing Plan
Year, whichever is applicable, that is to be deferred under his Deferral
Agreement under this Plan. Once a Deferral Agreement has been made as to the
amount of the deferral for the remainder of the initial Plan Year or for any
future Plan Year, it shall be irrevocable for the remainder of the initial Plan
Year or for the entire ensuing Plan Year, whichever is applicable.

4.2 Bonus Deferral Election. The Participant may elect, within 30 days
after becoming eligible to participate in the Plan, the percentage, if any, of
his Bonus to be paid with regard to the initial Plan Year or the ensuing Plan
Year, whichever is applicable, that is to be deferred under his Deferral
Agreement under this Plan. Once a Deferral Agreement has been made as to the
amount of the deferral for the initial Plan Year or for any future Plan Year,
it shall be irrevocable for the remainder of the initial Plan Year or for the
entire ensuing Plan Year, whichever is applicable.

4.3 Effect of Code Sections 401(k) and 401(m). In the event a
Participant shall have all or a part of his Salary Deferral Contributions under
the Profit Sharing Plan discontinued during a Plan Year, the Participant shall
fully participate in this Plan to the extent of such discontinued Salary
Deferral Contributions under the Profit Sharing Plan, including the right to
Matching Contributions under Section 4.5 of this Plan.

4.4 Effectiveness of Deferral Agreement. The Deferral Agreement shall
be effective only upon receipt by the Committee of the Participant's Deferral
Agreement on such form as will be determined by the Committee from time to
time. If the Committee fails to receive a properly filed election form during
the election period, the Participant shall be deemed to have elected not to
defer any part of his Bonus or Compensation for that Plan Year.

4.5 Matching Contributions. Subject to Sections 4.3 and 4.11, the
Company shall make a Matching Contribution to the Participant's Account each
Plan Year equal to the amount that the Participant would have been entitled to
under the Profit Sharing Plan if the Participant's Salary Deferral
Contributions under the Profit Sharing Plan had not been limited by Sections
401(a)(17), 402(g), 401(k) or 415 of the Internal Revenue Code, and the amounts
deferred by the Participant under Sections 4.1 and 4.2 of the Plan were treated
as Salary Deferral Contributions under the Profit Sharing Plan; reduced by the
Matching Contributions made under the Profit Sharing Plan.

4.6 Profit Sharing Contributions. Subject to Sections 4.3 and 4.11,
the Company shall make a Profit Sharing Contribution on behalf of each
Participant equal to the Discretionary Employer Contribution the Participant
would have been entitled

IV-1
<PAGE> 17
to under the Profit Sharing Plan as a Discretionary Employer Contribution
thereunder, had the Participant's Considered Compensation not been limited by
Section (a)(17) of the Code; reduced by the Discretionary Employer Contribution
allocated to the Participant under the Profit Sharing Plan.

4.7 Establishing the Participant's Account. The Company shall
establish an Account for the Participant which will reflect the amount of the
Company's obligation to the Participant at any given time under Article TV of
this Plan.

4.8 Crediting Salary and Bonus Deferrals. The Salary Deferral, if any,
shall be allocated to the Participant's Account as of the last day of each
month in which the Participant would have received the amount deferred but for
his election to defer. The Bonus Deferral, if any, shall be allocated to the
Participant's Account as of the date selected by the Sponsor for the payment of
the Bonus.

4.9 Crediting Profit Sharing and Matching Contributions. The Matching
Contribution, if any and the Profit Sharing Contribution, if any, shall be
allocated to the Participant's Account within sixty days of the date by which
Matching Contributions and Discretionary Employer Contributions are allocated
to the Participant's Account under the Profit Sharing Plan.

4.10 Basis for Determining Benefits. The Salary Deferral, if any, the
Bonus Deferral, if any, and the Profit Sharing and Matching Contributions, if
any, under this Plan, when allocated to the Account of the Participant shall be
treated as it were earning an amount equal to the expected rate of return of
the Victoria Bankshares, Inc. Pension Plan as it may be amended from time to
time.

4.11 Effect of Salary and Bonus Deferrals. In the event a Participant
shall have any portion of a benefit under this Plan, the Victoria Bankshares,
Inc. Pension Plan or the Profit Sharing Plan, reduced as a result of Salary or
Bonus Deferrals under Sections 4.1, 4.2 or 4.3 of this Plan, then such benefit
shall be reinstated under this Plan.

IV-2
<PAGE> 18
ARTICLE V

DISTRIBUTION OF SALARY AND BONUS DEFERRALS AND PROFIT
SHARING AND MATCHING CONTRIBUTIONS

5.1 Death. Upon the death of the Participant, the Participant's
Beneficiary or Beneficiaries shall receive the value of all amounts credited to
the Participant's Account at the time of his death. Distribution shall be made
in the manner and at the time specified by the Participant in his Deferral
Agreement; provided that any such election shall be made in accordance with the
provisions of Sections 4.1 and 4.2 of the Plan. In the event no election is
made by the Participant, distribution shall be made within 90 days after the
Participant's death.

5.2 Total and Permanent Disability. Upon the Total and Permanent
Disability of the Participant, the Participant shall receive the value of all
amounts credited to his Account at the date of Total and Permanent Disability.
Distribution shall be made in the manner and at the time specified by the
Participant in his Deferral Agreement; provided that any such election shall be
made in accordance with the provisions of Sections 4.1 and 4.2 of the Plan. In
the event no election is made by the Participant, distribution shall be made
within 90 days after the Participant becomes Disabled.

5.3 Retirement. Upon the normal, early or late retirement of the
Participant, the Participant shall receive the value of all amounts credited to
his Account at the date of his Retirement. Distribution shall be made in the
manner and at the time specified by the Participant in his Deferral Agreement;
provided that any such election shall be made in accordance with the provisions
of Sections 4.1 and 4.2 of the Plan. In the event no election is made by the
Participant, distribution shall be made within 90 days after the Participant's
retirement.

5.4 Termination Prior to Death, Disability or Retirement. Upon the
Participant's termination from the employ of the Company prior to death, Total
and Permanent Disability or normal, early, or late retirement, the Participant
shall receive the value of all amounts credited his Account at the date of his
termination. Distribution shall be made in the manner and at the time specified
by the Participant in his Deferral Agreement; provided that any such election
shall be made in accordance with the provisions of Sections 4.1 and 4.2 of the
Plan. In the event no election is made by the Participant, distribution shall
be made within 90 days after the Participant's termination.

5.5 Payment on Specified Event. The Participant shall receive in one
lump-sum that portion or those portions of his Account on the date or dates
specified in his Deferral Agreement or the balance of his Account, if less. Any
amounts distributed under his Deferral Agreement pursuant to this Section 5.5
shall immediately reduce the Participant's Account for purposes of any further
income accrual and for distributions on or after that date.

IV-3
<PAGE> 19
5.6 Payment Upon Unforeseeable Emergency. In the event of an
unforeseeable emergency that is caused by an event beyond the control of the
Participant, and that would result in severe financial hardship to the
Participant if early withdrawal were not permitted, the Participant may,
notwithstanding the preceding provisions of this Article V, receive a
distribution from his Account in an amount not to exceed the lesser of (i) the
amount in the Participant's Account at the time of the unforeseeable emergency
or (ii) the amount necessary to meet the emergency. It is the intent of the
Company that this Section 5.6 be interpreted in a manner consistent with
Internal Revenue Service Revenue Procedure 92-65, as it may be amended or
superseded from time to time.

IV-4
<PAGE> 20
ARTICLE VI

EVENTS CAUSING FORFEITURE

6.1 Termination of Employment. Termination of employment for any
reason prior to the Participant's vesting under Article III will cause the
Participant and his Beneficiaries to forfeit his or her interest in and under
this Plan, other than his or her Account derived from Bonus or Salary
Deferrals, Profit Sharing or Matching Contributions or amounts allocated to his
Account pursuant to Section 4.3.

6.2 Forfeiture For Cause. If the Committee finds, after full
consideration of the facts presented on behalf of both the Company and a former
Participant, that the Participant was discharged by the Company for fraud,
embezzlement, theft, commission of a felony, proven dishonesty in the course of
his employment by the Company which damaged the Company, or for disclosing
trade secrets of the Company, the benefit accrued for the benefit of the
Participant and/or his Beneficiaries other than his or her Account derived from
Bonus or Salary Deferrals, Profit Sharing or Matching Contributions or amount
allocated to his Account pursuant to Section 4.3, will be forfeited even though
it may have been previously vested under Article III. The decision of the
Committee as to the cause of a former Participant's discharge and the damage
done to the Company will be final. No decision of the Committee will affect the
finality of the discharge of the Participant by the Company in any manner.
Notwithstanding the foregoing, the forfeiture created by this Section 6.2 will
not apply to a Participant or former Participant discharged during the Plan
Year in which a Change of Control occurs, or during the next Plan Year
following the Plan Year in which a Change of Control occurs unless an
arbitrator selected to review the Committee's findings, agrees with the
Committee's determination to apply the forfeiture. The arbitrator will be
selected by permitting the Company and the Participant to strike one name each
from a panel of three names obtained by the Participant from the American
Arbitration Association. The person whose name is remaining will be the
arbitrator.

6.3 Forfeiture for Competition. If at the time a distribution is being
made or is to be made to a Participant or former Participant, the Committee
finds after full consideration of the facts presented on behalf of the Company
and the Participant or former Participant, that the Participant or former
Participant at any time within two years from his termination of employment
from all Companies which adopted this Plan and without written consent of the
Company, directly or indirectly owns, operates, manages, controls or
participates in the ownership, management, operation or control of or is
employed by, or is paid as a consultant or other independent contractor by a
business which competes or at any time did compete with the Company by which he
was formerly employed in a trade area served by the Company at the time
distributions are being made or to be made and in which the Participant or
former Participant had represented the Company while employed by it; and if the
Participant or former Participant continues to be so engaged 60 days after
written notice has been given to him, the Committee will forfeit amounts
otherwise due the Participant or former Participant other than his or her
Account derived from Bonus or Salary Deferrals,

VI-1
<PAGE> 21
Profit Sharing or Matching Contributions or amounts allocated to his Account
pursuant to Section 4.3 even though it may have been previously vested under
Article III. Notwithstanding the foregoing, the forfeiture created by this
Section 6.3 will not apply to any Participant or former Participant whose
termination of employment from all Companies which adopted this Plan occurs
during the Plan Year in which a Change of Control occurs or during the next
Plan Year following the Plan Year in which a Change of Control occurs.

VI-2
<PAGE> 22
ARTICLE VII

ADMINISTRATION

7.1 Committee Appointment. The Committee will be appointed by the
Board of Directors. Each Committee member will serve until his or her
resignation or removal. The Board of Directors will have the sole discretion to
remove any one or more Committee members and appoint one or more replacement or
additional Committee members from time to time.

7.2 Committee Organization and Voting. The Committee will select from
among its members a chairman who will preside at all of its meetings and will
elect a secretary without regard to whether that person is a member of the
Committee. The secretary will keep all records, documents and data pertaining
to the Committee's supervision and administration of the Plan. A majority of
the members of the Committee will constitute a quorum for the transaction of
business and the vote of a majority of the members present at any meeting will
decide any question brought before the meeting. In addition, the Committee may
decide any question by vote, taken without a meeting, of a majority of its
members. A member of the Committee who is also a Participant will not vote or
act on any matter relating solely to himself.

7.3 Powers of the Committee. The Committee will have the exclusive
responsibility for the general administration of the Plan according to the
terms and provisions of the Plan and will have all powers necessary to
accomplish those purposes, including but not by way of limitation the right,
power and authority:

(a) to make rules and regulations for the administration of
the Plan which are not inconsistent with its terms and provisions;

(b) to construe all terms, provisions, conditions and
limitations of the Plan and its construction of the Plan made in good
faith and without discrimination in favor of or against any
Participant will be final as to all parties;

(d) to correct any defect, supply any omission or reconcile
any inconsistency that may appear in the Plan in the manner and to the
extent it deems expedient to carry the Plan into effect for the
greatest benefit of all parties at interest and its judgment in those
matters will be final as to all parties;

(e) to determine all controversies relating to the
administration of the Plan, including but limited to:

(1) differences of opinion arising between the Company and a
Participant except when the difference of opinion relates to the entitlement
to, the amount of, or

VII-I
<PAGE> 23
the method of timing of payment of a benefit affected by a Change of Control,
in which event it shall be decided by judicial action; and

(2) any question it deems advisable to determine in order to promote
the uniform administration of the Plan for the benefits of all parties at
interest; and

(f) to delegate by written notice those clerical and
recordation duties of the Committee, as it deems necessary or advisable for the
proper and efficient administration of the Plan.

7.4 Reimbursement of Expenses. The Committee will serve without
compensation for their services but will be reimbursed by Victoria Bankshares,
Inc. for all expenses properly and actually incurred in the performance of
their duties under the Plan.

7.5 Committee Discretion. The Committee, in exercising any power or
authority granted under this Plan or in making any determination under this
Plan shall perform or refrain from performing those actions using its sole
discretion and judgment. Any decision made by the Committee or any refraining
to act or any act taken by the Committee in good faith shall be final and
binding on all parties. The Committee's decision shall never be subject to de
novo review. Notwithstanding the foregoing, the Committee's decisions,
refraining to act, or acting is to be subject to judicial review for those
incidents occurring during the Plan Year in which a Change of Control occurs
and during the Plan Year following a Change of Control.

VII-2
<PAGE> 24
ARTICLE VIII

ADOPTION BY SUBSIDIARIES

8.1 Procedure for and Status After Adoption. Any Subsidiary may, with
the approval of the Committee, adopt this Plan by appropriate action of its
board of directors. The terms of the Plan will apply separately to each
Subsidiary adopting the Plan and its Participants in the same manner as is
expressly provided for Victoria Bankshares, Inc. and its Participants except
that the powers of the Board of Directors and the Committee under the Plan will
be exercised by the Board of Directors of Victoria Bankshares, Inc. alone.
Victoria Bankshares, Inc. and each Subsidiary adopting the Plan will bear the
cost of providing plan benefits for its own Participants. It is intended that
the obligation of Victoria Bankshares, Inc. and each Subsidiary with respect to
its Participants will be the sole obligation of the Company that is employing
the Participant and will not bind any other Company.

8.2 Termination of Participation By Adopting Subsidiary. Any
Subsidiary adopting the Plan may, by appropriate action of its board of
directors, terminate its participation in the Plan. The Committee may, in its
discretion, also terminate a Subsidiary's participation in the Plan at any
time. The termination of the participation in this Plan by a Subsidiary will
not, however, affect the rights of any Participant who is working or has worked
for the Subsidiary as to benefits previously accrued by the Participant under
the Plan without his consent.

VIII-1
<PAGE> 25
ARTICLE IX

AMENDMENT AND/OR TERMINATION
AND CHANGE OF CONTROL

9.1 Amendment or Termination of the Plan. The Board of Directors may
amend or terminate this Plan at any time by an instrument in writing without
the consent of any adopting Company.

9.2 No Retroactive Effect on Awarded Benefits. No amendment will
affect the rights of any Participant to the benefit provided in Article III
previously accrued by the Participant. Further, no amendment will affect a
Participant's rights under any provision relating to a Change of Control after
a Change of Control has previously occurred without his consent. However, the
Board of Directors shall retain the right at any time to (i) change in any
manner or to discontinue the death benefit provided in Article III and OD to
change in any manner the retirement benefit provided in Article III but only as
to accruals after the date of the amendment.

9.3 Effect of Change of Control. In the event of a Change of Control
of the Company, this Plan shall automatically terminate effective as of the
Change of Control. The Accrued Benefit and Accounts of each Participant shall
be paid out in accordance with the provisions of Section 9.4, as soon as
administratively practicable following the Change of Control.

9.4 Effect of Termination. If the Plan is terminated, whether as the
result of a Change of Control or otherwise, no death benefit will be provided
with respect to Participants who die after the date of termination and no
further retirement benefit will accrue. The retirement benefit and Accounts
accrued to the date of termination will be payable to all Plan Participants in
an Actuarially Equivalent lump sum payment as soon as administratively
practicable following the Plan's termination.

IX-1
<PAGE> 26
ARTICLE X

FUNDING

10.1 Payments Under This Agreement Are the Obligation of the Company.
The Company will pay the benefits due the Participants under this Plan; however
should it fail to do so when a benefit is due, the benefit will be paid by the
trustee of that certain trust agreement, by and between Victoria Bankshares,
Inc. and Victoria Bank & Trust Company. In any event, if the trust fails to pay
for any reason, the Company still remains liable for the payment of all
benefits provided by this Plan.

10.2 Agreement May be Coordinated with Life Insurance Owned by the
Company or a Rabbi Trust. It is specifically recognized by both the Company
and the Participants that the Company may, but is not required to, purchase
life insurance so as to accumulate assets sufficient to fund the obligations of
the Company under this Plan and that the Company may, but is not required to
contribute any policy or policies it may purchase and any amount it finds
desirable to a trust established to accumulate assets sufficient to fund the
obligations of the Company under this Plan. However, under all circumstances,
the Participants will have no rights to any of those policies; and, likewise,
under all circumstances, the rights of the Participants to the assets held in
the trust will be no greater than the rights expressed in this agreement.
Nothing contained in any trust agreement which creates any funding trust or
trusts will constitute a guarantee by the Company that assets of the Company
transferred to that trust or those trusts will be sufficient to pay any
benefits under this Plan or would place the Participant in a secured position
ahead of general creditors should the Company become insolvent or bankrupt. Any
trust agreement prepared to fund the Company's obligations under this agreement
must specifically set out these principles so it is clear in that trust
agreement or those trust agreements that the Participants in this Plan are only
unsecured general creditors of the Company in relation to their benefits under
this Plan.

10.3 Participants Must Rely Only on General Credit of the Company. It
is also specifically recognized by both the Company and the Participants that
this Plan is only a general corporate commitment and that each Participant must
rely upon the general credit of the Company for the fulfillment of its
obligations hereunder. Under all circumstances the rights of Participants to
any asset held by the Company will be no greater than the rights expressed in
this agreement. Nothing contained in this agreement will constitute a guarantee
by the Company that the assets of the Company will be sufficient to pay any
benefits under this Plan or would place the Participant in a secured position
ahead of general creditors of the Company. Though the Company may establish a
trust to accumulate assets to fulfill its obligations, the Plan and any such
trust will not create any lien, claim, encumbrance, right, title or other
interest of any kind whatsoever in any Participant in any asset held by the
Company, contributed to any such trust or otherwise designated to be used for
payment of any of its obligations created in this agreement. No policy or other
specific asset of the Company has been or will be set aside, or will in any way
be transferred to any trust or will be pledged in any way for the performance
of the Company's obligations under this Plan

X-1
<PAGE> 27
which would remove the policy or asset from being subject to the general
creditors of the Company.

X-2
<PAGE> 28
ARTICLE XI

MISCELLANEOUS

11.1 Responsibility for Distributions and Withholding of Taxes. The
Committee will furnish information to the Company last employing the
Participant concerning the amount and form of distribution to any Participant
entitled to a distribution so that the Company may make or cause the Rabbi
Trust to make the distribution required. It will also calculate the deductions
from the amount of the benefit paid under the Plan for any taxes required to be
withheld by federal, state or local government and will cause them to be
withheld. If a Participant has accrued a benefit under the Plan while in the
service of more than one Company, each Company for which the Participant was
working will reimburse the disbursing agent for the amount attributable to the
benefit earned while the Participant was in the Credited Service of that
Company if it has not already provided that funding to the disbursing agent.

11.2 Limitation of Rights. Nothing in this Plan will be construed:

(a) to give a Participant any right with respect to any
benefit except in accordance with the terms of this Plan;

(b) to limit in any way the right of the Company to terminate
a Participant's employment with the Company at any time;

(c) to evidence any agreement or understanding, expressed or
implied, that the Company will employ a Participant in any particular
position or for any particular remuneration; or

(d) to give a Participant or any other person claiming through
him any interest or right under this Plan other than that of any
unsecured general creditor of the Company.

11.3 Distributions to Incompetents or Minors. Should a Participant
become incompetent or should a Participant designate a Beneficiary who is a
minor or incompetent, the Committee is authorized to pay the funds due to the
parent of the minor or to the guardian of the minor or incompetent or directly
to the minor or to apply those funds for the benefit of the minor or
incompetent in any manner the Committee determines in its sole discretion.

11.4 Nonalienation of Benefits. No right or benefit provided in this
Plan will be transferable by the Participant except, upon his death, to a named
Beneficiary as provided in this Plan. No right or benefit under this Plan will
be subject to anticipation, alienation, sale, assignment, pledge, encumbrance
or charge, and any attempt to anticipate, alienate, sell, assign, pledge,
encumber, or charge the same will be void. No right or benefit under this Plan
will in any manner be liable for or subject to any debts, contracts,
liabilities or torts of the person entitled to such benefits. If any
Participant, spouse, or Beneficiary becomes bankrupt or attempts to anticipate,
alienate,

XI-1
<PAGE> 29
sell, assign, pledge, encumber or charge any right or benefit under this Plan,
that right or benefit will, in the discretion of the Committee, cease. In that
event, the Committee may have the Company hold or apply the right or benefit or
any part of it to the benefit of the Participant, spouse, or Beneficiary, his
or her spouse, children or other dependents or any of them in any manner and in
any proportion the Committee believes to be proper in its sole and absolute
discretion, but is not required to do so.

11.5 Reliance Upon Information. The Committee will not be liable for
any decision or action taken in good faith in connection with the
administration of this Plan. Without limiting the generality of the foregoing,
any decision or action taken by the Committee when it relies upon information
supplied it by any officer of the Company, the Company's legal counsel, the
Company's actuary, the Company's independent accountants or other advisors in
connection with the administration of this Plan will be deemed to have been
taken in good faith.

11.6 Severability. If any term, provision, covenant or condition of
the Plan is held to be invalid, void or otherwise unenforceable, the rest of
the Plan will remain in full force and effect and will in no way be affected,
impaired or invalidated.

11.7 Notice. Any notice or filing required or permitted to be given to
the Committee or a Participant will be sufficient if in writing and hand
delivered or sent by U.S. mail to the principal office of the Company or to the
residential mailing address of the Participant. Notice will be deemed to be
given as of the date of hand delivery or if delivery is by mail, as of the date
shown on the postmark.

11.8 Gender. Whenever any words are used in this Plan in the
masculine, feminine, or neuter gender they are to be construed as though they
were also used in another gender in all cases where they would so apply.

11.9 Governing Law. The Plan will be construed, administered and
governed in all respects by the laws of the State of Texas.

11.10 Effective Date. This amendment and restatement of the Plan win
be operative and effective on January 1, 1994.

IN WITNESS WHEREOF, the Company has executed this document to evidence
the Plan as adopted by the Board of Directors effective January 1, 1994.

VICTORIA BANKSHARES, INC.

By /s/ Charles R. Hrdlicka
------------------------------------

XI-2
<PAGE> 30
TRUST UNDER VICTORIA BANKSHARES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

This Agreement made this 3rd day of January , 1994, by and between
Victoria Bankshares, Inc. (the "Company") and Victoria Bank & Trust Company
(the "Trustee");

WITNESSETH:

WHEREAS, effective January 1, 1989, the Company has heretofore adopted
the nonqualified deferred compensation plan known as the Victoria Bankshares,
Inc. Supplemental Executive Retirement Plan (the "Plan"); and

WHEREAS, a number of the wholly owned subsidiaries of the Company (the
"Subsidiaries") have likewise adopted the Plan for the benefit of certain of
their employees; and

WHEREAS, the Company has incurred or expects to incur liability under
the terms of the Plan with respect to the individuals participating in the
Plan; and

WHEREAS, the Company has previously established a trust to fund the
Plan (the "Prior Trust"); and

WHEREAS, subsequent to the adoption of the Prior Trust, the Internal
Revenue Service promulgated Revenue Procedure 92-64 providing for the adoption
of a model rabbi trust; and

WHEREAS, the Company previously amended the existing trust
(hereinafter called "Trust") as a complete amendment and restatement of the
Prior Trust so as to establish a trust to comply with Revenue Procedure 92-64;
and

WHEREAS, the Company has determined that the Trust should be amended
to further protect the Participant's benefits in the event of a Change of
Control; and

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WHEREAS, the Company wishes to contribute to the Trust additional
assets that shall be held therein, subject to the claims of Company's creditors
in the event of Company's insolvency, as herein defined, until paid to Plan
participants and their beneficiaries in such manner and at such times as
specified in the Plan; and

WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plan
as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of 1974;
and

WHEREAS, it is the intention of Company to make contributions to the
Trust to provide itself with a source of assets to assist it in the meeting of
its liabilities under the Plan;

NOW, THEREFORE, the parties do hereby establish the Trust as a
complete amendment and restatement of the Prior Trust and agree that the Trust
shall be comprised, held and disposed of as follows:

Section 1. Definitions

(a) Board of Directors. "Board of Directors" means the Board of
Directors of Victoria Bankshares, Inc.

(b) Change of Control. "Change of Control" means, as determined by the
Committee in place immediately prior to the Change of Control, the occurrence
of one or more of the following events:

(a) Any "Person", including a "syndication" or "group" as
those terms are used in Section 13(d)(3) of the Securities Exchange
Act of 1934, is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 20% or more of
the combined voting power of the Company's then outstanding voting
securities;

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<PAGE> 32
(b) The Company is merged or consolidated with another
corporation and immediately after giving effect to the merger or
consolidation either (i) less than 80% of the outstanding voting
securities of the surviving or resulting entity are then beneficially
owned in the aggregate by (x) the stockholders of the Company
immediately prior to such merger or consolidation, or (y) if a record
date has been set to determine the stockholders of the Company
entitled to vote on such merger or consolidation, the stockholders of
the Company as of such record date, or (ii) the Board of Directors, or
similar governing body, of the surviving or resulting entity does not
have as a majority of its members the persons specified in clause (c)
(i) and (ii) below;

(c) If at any time the following do not constitute a majority
of the Board of Directors of the Company (or any successor entity
referred to in clause N above) :

(i) persons who are directors of the Company on
January 1, 1994; and

(ii) persons who, prior to their election as a
director of the Company (or successor entity if applicable)
were nominated, recommended or endorsed by a formal resolution
of the Board of Directors of the Company;

(d) If at any time during a calendar year a majority of the
directors of the Company are not persons who were directors at the
beginning of the calendar year; and

(e) the Company transfers substantially all of its assets to
another corporation which is a less than 80% owned Subsidiary of the
Company.

(c) Committee. "Committee" means the persons who are from time to time
serving as members of the committee administering the Plan.

(d) Company. "Company" means Victoria Bankshares, Inc. and any
Subsidiary adopting the Plan and the Trust by adopting this agreement.
Provided, however, with regard to the resignation or removal of the Trustee,
Company shall refer only to Victoria Bankshares, Inc.

(e) Participant. "Participant" shall mean those employees of a Company
who are eligible for and are participating in the Plan.

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(f) Plan. "Plan" means the Victoria Bankshares, Inc. Supplemental
Executive Retirement Plan.

(g) Plan Year. "Plan Year" means the calendar year.

(h) Subsidiary. "Subsidiary" means any wholly owned subsidiary of
Victoria Bankshares, Inc..

(i) Trust. "Trust" means the Victoria Bankshares, Inc. Supplemental
Executive Retirement Trust, as created by this agreement and as amended from
time to time.

(j) Trustee. "Trustee" means Victoria Bank & Trust Company, or any
successor or successors as shall be appointed by the Board of Directors upon
the resignation or removal of the previous person or entity serving as trustee
under this agreement.

Section 2. Terms of Trust

(a) Funds deposited by the Company with Trustee in trust shall be the
principal of the Trust to be held, administered and disposed of by Trustee as
provided in this Trust Agreement.

(b) This restated Trust is irrevocable.

(c) The Trust is intended to be a grantor trust, of which Company is
the grantor, within the meaning of subpart E, part 1, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.

(d) The principal of the Trust, and any earnings thereon shall be held
separate and apart from other funds of Company and shall be used exclusively
for the uses and purposes of Plan Participants and general creditors as herein
set forth. Plan Participants and their beneficiaries shall have no preferred
claim on, or any beneficial

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<PAGE> 34
ownership interest in, any assets of the Trust. Any rights created under the
Plan and this Trust Agreement shall be mere unsecured contractual rights of
Plan Participants and their beneficiaries against Company. Any assets held by
the Trust will be subject to the claims of Company's general creditors under
federal and state law in the event of Insolvency, as defined in Section 4(a)
herein.

(e) Company, in its sole discretion, may at any time, or from time to
time, make additional deposits of cash or other property in trust with Trustee
to augment the principal to be held, administered and disposed of by Trustee as
provided in this Trust Agreement. Neither Trustee nor any Plan Participant or
beneficiary shall have any right to compel such additional deposits.

Section 3. Payments to Plan Participants and Their Beneficiaries.

(a) Committee shall deliver to Trustee a schedule (the "Payment
Schedule") that indicates the amounts payable in respect of each Plan
Participant (and his or her beneficiaries) , that provides a formula or other
instruction, acceptable to Trustee for determining the amounts so payable, the
form in which such amount is to be paid (as provided for or available under the
Plan) , and the time of commencement for payment of such amounts. Except as
otherwise provided herein, Trustee shall make payments to the Plan Participants
and their beneficiaries in accordance with such Payment Schedule. The Trustee
shall make provision for the reporting and withholding of any federal, state or
local taxes that may be required to be withheld with respect to the payment of
benefits pursuant to the terms of the Plan and shall pay amounts withheld to
the appropriate taxing authorities or determine that such amounts have been
reported, withheld and paid by Company.

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<PAGE> 35
(b) The entitlement of a Plan Participant or his or her beneficiaries
to benefits under the Plan shall be determined by Committee or such party as it
shall designate under the Plan, and any claim for such benefits shall be
considered and reviewed under the procedures set out in the Plan.

(c) Company may make payment of benefits directly to Plan Participants
or their beneficiaries as they become due under the terms of the Plan. Company
shall notify Trustee of its decision to make payment of benefits directly prior
to the time amounts are payable to Participants or their beneficiaries. In
addition, if the principal of the Trust, and any earnings thereon, are not
sufficient to make payments of benefits in accordance with the terms of the
Plan, Company shall make the balance of each such payment as it falls due.
Trustee shall notify Company where principal and earnings are not sufficient.

Section 4. Trustee Responsibility Regarding Payments to Trust
Beneficiary When Company Is Insolvent.

(a) Trustee shall cease payment of benefits to Plan Participants and
their beneficiaries if the Company is Insolvent. Company shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) Company is unable to
pay its debts as they become due, or (ii) Company is subject to a pending
proceeding as a debtor under the United States Bankruptcy Code.

(b) At all times during the continuance of this Trust, as provided in
Section 2(d) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of Company under federal and state law as set forth
below.

(1) The Board of Directors and the Chief Executive Officer of
Company shall have the duty to inform Trustee in writing of Company's
Insolvency. If a

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<PAGE> 36
person claiming to be a creditor of Company alleges in writing to
Trustee that Company has become Insolvent, Trustee shall determine
whether Company is Insolvent and, pending such determination, Trustee
shall discontinue payment of benefits to Plan Participants or their
beneficiaries.

(2) Unless Trustee has actual knowledge of Company's
Insolvency, or has received notice from Company or a person claiming
to be a creditor alleging that Company is Insolvent, Trustee shall
have no duty to inquire whether Company is Insolvent. Trustee may in
all events rely on such evidence concerning Company's solvency as may
be furnished to Trustee and that provides Trustee with a reasonable
basis for making a determination concerning Company's solvency.

(3) If at any time Trustee has determined that Company is
Insolvent, Trustee shall discontinue payments to Plan Participants or
their beneficiaries and shall hold the assets of the Trust for the
benefit of Company's general creditors. Nothing in this Trust
Agreement shall in any way diminish any rights of Plan Participants or
their beneficiaries to pursue their rights as general creditors of
Company with respect to benefits due under the Plan or otherwise.

(4) Trustee shall resume the payment of benefits to Plan
Participants or their beneficiaries in accordance with Section 3 of
this Trust Agreement only after Trustee has determined that Company is
not Insolvent (or is no longer Insolvent).

(c) Provided that there are sufficient assets, if Trustee discontinues
the payment of benefits from the Trust pursuant to Section 4(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include

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<PAGE> 37
the aggregate amount of all payments due to Plan Participants or their
beneficiaries under the terms of the Plan for the period of such
discontinuance, less the aggregate amount of any payments made to Plan
Participants or their beneficiaries by Company in lieu of the payments provided
for hereunder during any such period of discontinuance.

Section 5. Payments to Company.

Except as provided in Section 4 hereof, after the Trust has become
irrevocable, Company shall have no right or power to direct Trustee to return
to Company or to divert to others any of the Trust assets before all payment of
benefits have been made to Plan Participants and their beneficiaries pursuant
to the terms of the Plan.

Section 6. Investment Authority.

In no event may Trustee invest in securities (including stock or
rights to acquire stock) or obligations issued by Company, other than a de
minimis amount held in common investment vehicles in which Trustee invests. All
rights associated with assets of the Trust shall be exercised by Trustee or the
person designated by Trustee, and shall in no event be exercisable by or rest
with Plan Participants.

Section 7. Disposition of Income.

During the term of this Trust, all income received by the Trust, net
of expenses and taxes, shall be accumulated and reinvested.

Section 8. Accounting by Trustee.

(a) The Trustee will keep all records necessary in the conduct of the
Trust. The Trustee's books and records of the Trust fund are open to inspection
by the Company at all reasonable times during business hours of the Trustee.

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<PAGE> 38
(b) Within sixty (60) days after the close of each Plan Year, or such
other times as requested by the Committee and as of the date of the removal or
resignation of the Trustee, the Trustee must render to the Committee an
accounting and report of the Trust fund for the Plan Year or other period that
is applicable since the previous accounting. The report is to reflect the
transactions for the period covered, the cost of assets and investments, the
fair market value of the assets held in the Trust and the amount held for the
funding of each Company's obligation to each Participant as of the end of the
Plan Year or such other date as is applicable. The report is to be open for
inspection for ninety (90) days after its receipt by the Committee and if
objections are not filed within that period of time, it is assumed that the
report is approved. That approval will constitute a full and complete discharge
and release to the Trustee by each Company, all of the Participants and all
other persons having or claiming any interest in the Trust fund.

Section 9. Responsibility of Trustee.

(a) The Trustee, has the exclusive responsibility for all of the Trust
funds and all the powers necessary to receive, hold, preserve, protect,
conserve, manage and invest the Trust funds as provided generally in this
agreement and to pay all costs and expenses. The Trustee will be responsible
only for the sums actually received by it as Trustee and will not be
responsible for determining the amount which might be contributed to the Trust
or for collecting any contributions from any Company.

(b) Except as set forth in the following paragraph, the Trustee is
required to invest the Trust assets solely in U.S. Treasury obligations which
mature in three years or less unless and until the Committee (i) issues a
different investment direction, (ii) directs the Trustee to assume full
investment responsibilities for the Trusts or (iii)

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<PAGE> 39
directs the Trustee to accept the direction of one or more investment managers
appointed by the Committee. If the Committee issues an investment direction,
permits the Trustee to assume full investment responsibility or appoints one or
more investment managers to direct the investment of a portion of the Trust
assets, the Trustee is authorized and empowered to hold any asset, whether or
not productive of income or whether consisting of wasting assets, and to invest
in any assets of any kind or nature, whether real, personal or mixed, whether
tangible or intangible, in any rights or interests in property, or in any
evidence or indicia of property, including but not limited to the following
types of properties or interests therein, or anything of a similar character,
kind or class: insurance contracts, fees, beneficial interests, leaseholds,
bonds, whether taxable or non-taxable, mutual funds, mortgages, leases, notes,
whether secured or not, obligations, savings accounts, certificates of deposit
or like investments with the commercial department of any bank, including any
bank acting as Trustee, common, pooled or collective trust funds which any
corporate trustee or any other corporation may now have or in the future may
adopt, or options, rights or warrants which entitle the Trustee to subscribe to
or purchase securities, so long as the investments are made in accordance with
the laws of the state of the situs of the Trusts and the terms of this
agreement.

When the Trustee receives funds to be invested or determines that
assets in the Trust should be sold and the proceeds held for a period of time
pending reinvestment or other purpose, the funds may be held uninvested in cash
or invested in short term investments such as certificates of deposit with the
Trustee, U. S. Treasury bills, savings accounts with the Trustee, commercial
paper or other similar assets which may

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<PAGE> 40
be offered by the Trustee and as may be determined by the Trustee in its sole
discretion.

(c) The Trustee has, subject to the requirements of Sections (a) and
(b) of this Section 9, the following powers, duties and obligations relating to
the receipt, preservation, conservation, protection, management, investment and
reinvestment of both principal and income and disposition of the Trust, in
addition to all of the powers, duties and obligations of the Trustee under
common law and the Texas Trust Code until the situs of the Trust is removed to
another state in which event the laws of the state of the situs of the Trustee
will then govern:

(i) To keep any and all securities and other property in its
name provided that its fiduciary capacity is disclosed;

(ii) To vote, either in person or by proxy, any share of stock
held as a part of the assets of the Trust funds;

(iii) To collect the principal and income of the Trust funds
as the same may become due and payable and to give binding receipt
therefor;

(iv) To take any action, whether by legal proceeding,
compromise, or otherwise, as the Trustee in its sole discretion deems
to be in the best interest of the Trust if there is a default in the
payment of any principal or income of the Trust at any time;

(v) To invest, sell and reinvest Trust assets in any assets
it selects within the limits described in Sections (a) and (b) of this
Section 9;

(vi) To borrow from or loan such sums as the Trustee considers
necessary or desirable, and for that purpose to mortgage or pledge all
or any part of the property of the Trust;

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<PAGE> 41
(vii) To substitute insureds on any policy held by the Trust;
and

(viii) To employ such accountants, lawyers, brokers, or other
agents as the Trustee deems advisable in administering the Trust fund.

The Trustee will not be required to take any legal action to collect, preserve
or maintain any Trust property unless it has been indemnified either by the
Trust, or by a grantor Company with respect to any expenses or losses to which
it may be subjected by taking that action. Any property acquired by the Trustee
through the enforcement or compromise of any claim or claims it has as Trustee
will become a part of the Trust fund.

(d) All persons dealing with the Trustee are entitled to rely upon the
representations of the Trustee as to its authority and are released from any
duty to inquire into its authority for taking or omitting any action or to
verify that any money paid or other property delivered to the Trustee is used
by the Trustee for trust purposes. Any action of the Trustee under the Trust
will be conclusive evidence of the facts recited in it. All persons will be
fully protected when acting or relying upon any notice, resolution,
instruction, direction, order, certificate, opinion, letter, telegram or other
document believed by those persons to be genuine, to have been signed by the
Trustee, and to be the act of the Trustee.

(e) The Trustee may engage and consult with legal counsel of its
choice, who may be counsel for a Company or Trustee's own general counsel, with
respect to the meaning or construction of this agreement or the Trustee's
obligations or duties under this agreement.

(f) The Trustee will not be required to give bond or other security
for the faithful performance of its duties unless required by a law which
cannot be waived; and

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the Trustee will not be required to make any inventory, return, or report to
any court unless required by a law which cannot be waived.

(g) Trustee shall have, without exclusion, all powers conferred on
Trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the
Trust, Trustee shall have no power to name a beneficiary of the policy other
than the Trust, to assign the policy (as distinct from conversion of the policy
to a different form) other than to a successor Trustee, or to loan to any
person the proceeds of any borrowing against such policy.

(h) Notwithstanding any powers granted to Trustee pursuant to this
Trust Agreement or to applicable law, Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.

Section 10. Liability of the Trustee.

(a) The Trustee will not be liable to the Trust or to any person
having a beneficial interest in the Trust for any losses or decline in value
which may be incurred upon any investment of the Trust fund, or for failure of
the fund to produce any or greater earnings, interest, or profits, so long as
the Trustee acts in good faith.

(b) The Trustee will not be liable for any act or omission by it
because of a direction of the Committee, a Company or agent appointed by either
of them except to the extent required by any applicable state or federal law,
which liability cannot be waived. When the Trustee has made any payment out of
the Trust fund at the direction of the Committee, a Company or any agent
appointed by either of them, it will not be responsible for the correctness of
the amount of the payment to the recipient,

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<PAGE> 43
or the method by which it is paid. The Trustee is also protected in relying
upon any certificate, notice, resolution, consent, order, or other
communication purporting to have been signed on behalf of the Committee, a
Company or an agent appointed by either of them which it believes to be
genuine, without any obligation on the part of the Trustee to ascertain whether
or not the provisions of this agreement are being fulfilled.

(c) The Trustee shall be indemnified and held harmless from any loss,
liability, claim, cost or expense (including attorney's fees, court costs, and
other costs in defending a lawsuit) arising out of its acting as Trustee of the
Trust except for bad faith or gross negligence. The Trustee shall not be liable
for the actions of any other fiduciary or the failure of any other fiduciary to
take action in a given situation.

(d) The Trustee may, in its sole discretion, withhold from
distribution all or any part of the fund which the Trustee considers necessary
and proper for the payment of taxes under present or future laws, which the
Trustee is obligated to pay or withhold.

(e) The Trustee will not be required to prepare, file, or distribute
any tax return or other report required by a governmental agency under state or
federal law. All such returns or reports shall be the obligation of Victoria
Bankshares, Inc.

(f) If at any time the Trustee is in doubt concerning the course which
it should follow in connection with any matter relating to the administration
of the Trust, it may request the advice of the Committee and be protected in
relying upon the written advice or direction given by the Committee.

Section 11. Compensation and Expenses of Trustee.

The Trustee will receive such compensation for services rendered as is
agreed upon from time to time between the Trustee and Victoria Bankshares, Inc.
Likewise,

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<PAGE> 44
the Trustee will be reimbursed for expenses properly and actually incurred in
the performance of its duties under this Trust Agreement. The Trustee's
compensation and the expenses of the Trust will be paid by Victoria Bankshares,
Inc., which may then recharge the appropriate amount to each grantor Company
but should it fail to do so the Trustee is authorized to charge such
compensation and expenses to the Trust.

Section 12. Resignation, Removal and Substitution of Trustee.

(a) Trustee may resign at any time by written notice to Company, which
shall be effective 60 days after receipt of such notice unless Company and
Trustee agree otherwise.

(b) Trustee may be removed by Company on 60 days notice or upon
shorter notice accepted by Trustee.

(c) Any vacancy in the office of Trustee created by the resignation or
removal of the Trustee will not terminate the Trust. Upon removal or
resignation of the Trustee, the Board of Directors must appoint a successor
Trustee.

(d) The appointment of a successor Trustee will be accomplished by the
delivery to the resigning or removed Trustee, as the case may be, of a written
appointment of the successor Trustee by the Board of Directors and the written
acceptance of the appointment by the successor Trustee. Any successor Trustee
must be an entity authorized and empowered to conduct a trust business in the
state of the situs of the Trust. This agreement will then be applicable to each
successor Trustee.

(e) If the Trustee resigns or is removed during the Plan Year in which
a Change of Control occurs or during the following Plan Year, notwithstanding
anything to the contrary in this Agreement, the Board of Directors must receive
the consent of a majority in interest of the Participants for whose account
assets are held under the

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<PAGE> 45
terms of this Agreement in order to appoint a successor Trustee. If the Board
of Directors cannot obtain the consent of a majority in interest of the
Participants to any Trustee acceptable to it, then an arbitrator will select
the new Trustee, which will be appointed by the Board of Directors. The
arbitrator will be selected by permitting each of the Company and the
Participants (by a vote of the majority in interest) to strike one name each
from a panel of three names selected by the Committee and obtained from the
American Arbitration Association. The person whose name is remaining win be the
arbitrator.

(f) Any successor Trustee, after acknowledging acceptance of this
agreement, the Trust assets and the accounting of the retiring Trustee, will be
vested with all the estates, titles, rights, powers, duties, and discretions
granted to the retiring Trustee. The retiring Trustee must execute and deliver
all assignments or other instruments necessary or advisable for the transfer of
all Trust assets as are reasonably required by the successor Trustee.

(g) Any corporation into which any corporate Trustee or any successor
corporate Trustee may be merged or consolidated, or any corporation resulting
from any merger or consolidation to which any corporate Trustee or any
successor corporate Trustee may be a party, or any corporation to which all or
substantially all of the trust business of any corporate Trustee or any
successor corporate Trustee may be transferred, will be a successor of such
Trustee under this agreement without the filing of any instrument or the
performance of any other act.

(h) Upon resignation or removal of Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the
successor Trustee. The

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<PAGE> 46
transfer shall be completed within 60 days after receipt of notice of
resignation, removal or transfer, unless Company extends the time limit.

(i) If Trustee resigns or is removed, a successor shall be appointed,
in accordance with Section 12 hereof, by the effective date of resignation or
removal under paragraphs (a) or (b) of this section. If no such appointment has
been made, Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. AU expenses of Trustee in
connection with the proceeding shall be allowed as administrative expenses of
the Trust.

Section 13. Adoption by Subsidiaries.

(a) Any Subsidiary which pursuant to Section 1501 of the Internal
Revenue Code of 1986, as amended, files a consolidated return with respect to
an affiliated group that includes Victoria Bankshares, Inc. may, with the
approval of the Committee, adopt this Trust by appropriate action of its board
of directors. The terms of the Trust win apply to each Subsidiary adopting the
Trust and to its Participants in the same manner as is expressly provided for
Victoria Bankshares, Inc. and its Participants except that the powers of the
Board of Directors and the Committee under the Plan and this Trust will be
exercised by the Board of Directors of Victoria Bankshares, Inc. alone.

(b) Subject to the conditions set forth in Section 14(e) , any
Subsidiary adopting the Trust may, by appropriate action of its board of
directors, terminate its participation in the Trust. The Committee may, in its
discretion, also terminate a Subsidiary's participation in this Trust at any
time. The termination of the participation in this Trust by a Subsidiary will
not, however, adversely affect the rights of any Participant who is working or
has worked for the Subsidiary with regard to benefits previously accrued by the
Participant under the Plan.

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<PAGE> 47
Section 14. Amendment or Termination.

(a) This Trust Agreement may be amended by a written instrument
executed by Trustee and Victoria Bankshares, Inc. Notwithstanding the
foregoing, no such amendment shall conflict with the terms of the Plan or shall
make the Trust revocable after it has become irrevocable in accordance with
Section 2(b) hereof. No amendment will change a Participant's rights under any
provision of this Trust after a Change of Control has occurred without the
affected Participant's consent as to assets contributed to the Trust before the
Change of Control and as to the accumulation of income and appreciation
applicable to those assets.

(b) The Trust shall not terminate until the date on which Plan
Participants and their beneficiaries are no longer entitled to benefits
pursuant to the terms of the Plan, unless sooner revoked in accordance with
Section 2(b) hereof. Upon termination of the Trust any assets remaining in the
Trust shall be returned to Company.

(c) Each Subsidiary, other than Victoria Bankshares, Inc., will be
deemed to have adopted any amendment made by Victoria Bankshares, Inc. No
amendment will increase the duties of the Trustee without its written consent.

(d) Victoria Bankshares, Inc. agrees to make any amendment to this
agreement as may be necessary to maintain compliance with the various federal
and state laws and any amendment may be made retroactively.

(e) A Subsidiary may terminate its participation in the Trust only by
executing and delivering to the Trustee a notice of termination which evidences
the consent of Victoria Bankshares, Inc. to such termination and which
specifies the date on which its participation in the Trust will terminate. Upon
such termination, the Committee shall determine the portion of the Trust fund
allocable to Participants

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<PAGE> 48
employed by such Company on the basis of the advice of its actuarial
consultant. The Committee shall then direct the Trustee whether to continue to
hold such portion for the benefit of such Participants under this Trust,
transfer such portion to a successor trust similar to this Trust, or distribute
such portion to such Participants.

(f) The Trust created by this agreement will not terminate with
respect to a given Company in the event it consolidates or merges and is not
the surviving corporation, sells substantially all of its assets, is a party to
a reorganization in which its employees and substantially all of its assets are
transferred to another entity, liquidates or dissolves if there is a successor
corporation. Instead, the Trust will continue until it has fulfilled the
obligations to its Participants as set forth in Section 3, at which time it
will automatically terminate. Provided, however, in the event of a Change of
Control, in accordance with Article IX of the Plan, the benefits of all
Participants will be paid out as set forth therein, at which time the Trust
will terminate.

Section 15. Notices and Directions.

(a) The Trustee will not be bound by any certificate, notice,
resolution, consent, order, information or other communication unless and until
it has been received at a location which is mutually agreeable to the parties
and is in writing, signed by a person designated pursuant to Section 15(b) .

(b) The Trustee, in all matters pertaining to its management,
investment and distribution of the Trust, when it acts in good faith, may rely
upon any such notice, resolution, instruction, direction, order, certificate,
opinion, letter, telegram or other document believed by the Trustee to be
genuine, to have been signed by a proper representative of the Committee or
other party permitted to issue a direction to it. In

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this connection, each Company and the Committee shall furnish to the Trustee
the name and signature of the person or persons who are entitled to act on
behalf of the Company when communicating with or directing the Trustee on
matters relating to the Trust.

(c) In the event of a levy by a judgment creditor or in the event of a
Company's insolvency during the term of the Trust, that Company's board of
directors and chief executive officer must give written notice to the Trustee
within a reasonable time not to exceed three days of the levy or of a finding
of insolvency, as the case may be. For this purpose "insolvency" means the
earlier of: becoming subject to proceedings as a debtor under the federal
Bankruptcy Code, the general assignment by that Company to or for the benefit
of its creditors, or the inability of that Company to pay its debts as they
mature.

Section 16. Miscellaneous.

(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.

(b) Benefits payable to Plan Participants and their beneficiaries
under this Trust Agreement may not be anticipated, assigned (either at law or
in equity) , alienated, pledged, encumbered or subjected to attachment,
garnishment, levy, execution or other legal or equitable process.

(d) The adoption and maintenance of the Trust created under this
agreement will not be deemed to be a contract between a Company and the
Participants employed

-20-
<PAGE> 50
by it which gives the Participants the right to be retained in the employment
of the Company, to interfere with the rights of the Company to discharge its
Participants at any time, or to interfere with the Participants' rights to
terminate their employment at any time.

(e) Whenever the context requires such, words of the masculine gender
used herein shall include the feminine and the neuter; and words used in the
singular shall include the plural.

(f) The Trustee, Victoria Bankshares, Inc., or any one or more
Companies or Participants may at any time initiate a legal action or proceeding
for the settlement of the account of the Trustee, or for the determination of
any question or for instructions. The only necessary parties to any such action
or proceeding are the Trustee, Victoria Bankshares, Inc., and the Company or
Companies or Participant or Participants concerned; however, any other person
or persons may be included as parties defendant at the election of the Trustee,
Victoria Bankshares, Inc., and the Company or Companies or Participant or
Participants concerned.

(g) Each provision of this agreement is severable and if any provision
is found to be void or against public policy, it will not affect the validity
of any other provision hereof.

-21-
<PAGE> 51
Section 17. Effective Date.

The effective date of this Trust Agreement shall be January 1, 1994.

VICTORIA BANKSHARES, INC.

By /s/ Charles R. Hrdlicka
------------------------------------

VICTORIA BANK & TRUST COMPANY

By /s/ David Jones
------------------------------------
Trust Officer

-22-
<PAGE> 52
FIRST AMENDMENT TO
VICTORIA BANKSHARES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

THIS AGREEMENT by Victoria Bankshares, Inc., a Texas
corporation (the "Company") ,

WITNESSETH:

WHEREAS, effective January 1, 1994, the Company executed the
amended and restated nonqualified deferred compensation plan known as "Victoria
Bankshares, Inc. Supplemental Executive Retirement Plan" (the "SERP") ; and

WHEREAS, the Company retained the right in Section 9.1 of the
SERP to amend the SERP from time to time; and

WHEREAS, effective as of January 1, 1994 the Company amended
and restated the irrevocable grantor "rabbi" trust that had been created to
fund benefits payable under the SERP; and

WHEREAS, the Company has determined that the SERP should be
amended to reflect the establishment of a second trust agreement between the
Company and Victoria Bank & Trust Company (the "Trustee") to provide for
payment of salary deferrals, bonus deferrals, profit sharing contributions,
matching contributions and earnings attributable thereto pursuant to Section
4.10 of the SERP, under said second irrevocable grantor "rabbi" trust (the
"Deferral Trust") established between the Company and the Trustee; and

WHEREAS, the Board of Directors of the Company approved
resolutions on the 18th day of April, 1995, to amend the SERP to provide for the
funding of said salary deferrals, bonus deferrals, profit sharing
contributions, matching contributions and earnings attributable thereto under
the Deferral Trust;

NOW, THEREFORE, the parties hereto agree that the SERP is
hereby amended, effective as of January 1, 1995, as follows:

(1) Section 9.3 of the SERP is hereby amended in its entirety to read
as follows:

9.3 Effect of Change of Control. In the event of a Change of
Control of the Company, this Plan shall automatically terminate
effective as of the Change of Control. In determining the benefit of
each Participant who is in the active employment of the Company as of
the Change of Control under Article III, whether a normal retirement
benefit,

-1-
<PAGE> 53
late retirement benefit, early retirement benefit, disability benefit
or severance benefit, as the case may be, the benefit shall be 100%
vested and nonforfeitable. Further, each active Participant shall
receive the greater of (a) or (b) below, where (a) and (b) are equal
to:

(a) the benefit to which each Participant was entitled to on the
day immediately preceding the Change of Control, assuming the
Participant had terminated employment with the Company as of
the date immediately preceding the Change of Control;

and

(b) the benefit determined under (a) above, utilizing years of
Credited Service the Participant would have at Normal
Retirement Date, and utilizing the rate of Compensation that
was in effect as of the day immediately prior to Change of
Control.

Each former Participant or Beneficiary who is entitled to a retirement benefit,
disability benefit or severance benefit, as the case may be, shall be 100%
vested in their anticipated benefit. In addition, the benefits and Accounts of
each Participant shall be paid out in accordance with the provisions of Section
9.4, as soon as administratively practicable following the Change of Control.

(2) Section 10.1 of the SERP is hereby amended in its entirety to read as
follows.

10.1 Payments under this agreement are the obligations of the
Company. The Company will pay the benefits to the Participants under
this Plan; however, should it fail to do so and a benefit is due, the
benefit will be paid, in the case of Participant's Accounts
established as a result of Salary Deferral Contributions, Bonus
Deferral Contributions, Profit Sharing Contributions, Matching
Contributions and earnings attributable thereto credited pursuant to
Section 4.10 of the Plan, by the Trustee of that certain Trust
Agreement, entered into by and between Victoria Bankshares, Inc. and
Victoria Bank & Trust Company effective January 1, 1995; and in the
case of all other benefits payable under the Plan, shall be paid by
the Trustee of that certain distinct and separate Trust Agreement,
entered into by and between Victoria Bankshares, Inc. and Victoria
Bank & Trust Company effective January 1, 1994 (collectively referred
to as the "Trust", "Trusts" or "Rabbi Trusts") . In any event, if
either Trust fails to pay for any reason, the Company remains liable
for the payment of all benefits provided by this Plan.

-2-
<PAGE> 54
IN WITNESS WHEREOF, the Company has executed this Agreement this 18th
day of April, 1995.

VICTORIA BANKSHARES, INC.

By /s/ Charles R. Hrdlicka
-------------------------------------
President

/s/ Gregory Sprawka
-------------------------------------
Secretary

-3-
<PAGE> 55
SECOND AMENDMENT TO
VICTORIA BANKSHARES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
AND TERMINATION AGREEMENT TO
VICTORIA BANKSHARES, INC. DEFERRAL TRUST

THIS AGREEMENT between Victoria Bankshares, Inc., a Texas
corporation (the "Company") and Victoria Bank & Trust Company (the "Trustee"),

WITNESSETH:

WHEREAS, effective January 1, 1994, the Company executed the
amended and restated nonqualified deferred compensation plan known as 'Victoria
Bankshares, Inc. Supplemental Executive Retirement Plan" (the "SERP") ; and
WHEREAS, the Company has established an amended and restated trust to fund the
SERP effective January 1, 1994 (the "Pension Trust") , such trust constituting
an irrevocable grantor rabbi trust; and

WHEREAS, the Company established effective January 1, 1995 an
additional irrevocable grantor rabbi trust (the "Deferral Trust"l so as to
allow for funding of Accounts under the SERP attributable to salary deferral
contributions, bonus deferral contributions, matching contributions, profit
sharing contributions and earnings attributable thereto (collectively the
"Contributions") under a separate trust instrument from the Pension Trust; and

WHEREAS, the Company retained the right in Section 9.1 of the
SERP to amend the SERP from time to time; and

WHEREAS, the Company and the Trustee reserved the right in
Section 14 of the Deferral Trust to amend or terminate the trust within certain
limitations; and

WHEREAS, the Company has determined that the SERP should be
amended to terminate all Contributions; and

WHEREAS, the Company has likewise determined that all
Contributions and accumulation of income thereon should be immediately
distributed to all SERP participants as soon as administratively practicable;
and

WHEREAS, the Company and the Trustee have agreed that the
Deferral Trust (but not the Pension Trust, which shall be unaffected) shall be
terminated so as to provide for a full and immediate distribution of all
Contributions and accumulation of income thereon to Participants; and

-1-
<PAGE> 56
WHEREAS, the Board of Directors of the Company approved
resolutions on the 19th day of December, 1995, to amend the SERP and terminate
the Deferral Trust to provide for the termination and distribution of said
Contributions and accumulation of income thereon;

NOW, THEREFORE, the parties hereto agree that the SERP is
hereby amended, effective as of December 19, 1995, as follows:

(1) Article IV of the Plan is hereby amended by adding the following
Section 4.12 at the end thereof.

4.12 Termination of Deferrals. Notwithstanding the preceding
provisions of this Article IV to the contrary, effective as of the date of
execution of this Second Amendment, all salary deferrals (including excess
401(k) contributions) , bonus deferrals, matching contributions and profit
sharing contributions shall immediately terminate, and no further contributions
shall be made on and after that date. Provided, however, that all amounts that
would have been deferred hereunder but for this Section 4.12 shall instead be
paid to the affected Participants in cash at the time the deferrals would
otherwise have taken place hereunder.

(2) Article V of the Plan is hereby amended by adding the following
Section 5.7 at the end thereof.

5.7 Distribution of AR Accounts. Notwithstanding the preceding
provisions of this Article V to the contrary, effective as of the date of
execution of this Second Amendment and Deferral Trust Termination Agreement
(this "Agreement") , all Participants shall receive the value of all amounts
credited to their accounts including accumulated income in the Deferral Trust
as of the date of execution of this Agreement regardless of any elections
previously made by the Participants, and all such accounts shall be distributed
in a single lump sum payment as soon as administratively practicable following
the date of execution of this Agreement.

(3) The Deferral Trust is hereby terminated effective as of December
19, 1995, and assets distributed as amended above.

-2-
<PAGE> 57
IN WITNESS WHEREOF, the Company and the Trustee have executed this
Agreement this 19th day of December, 1995.

VICTORIA BANKSHARES, INC.

By /s/ Charles R. Hrdlicka
-------------------------------------
Chairman and CEO
COMPANY

VICTORIA BANK & TRUST COMPANY

By /s/ David Jones
-------------------------------------
Trust Officer
TRUSTEE

-3-

<PAGE> 1
EXECUTIVE RETENTION / SEVERANCE AGREEMENT

This Executive Retention/Severance Agreement (this "Agreement") is
entered into this 5th day of September, 1995, by and between Greg Sprawka
("Employee") and Victoria Blankshares, Inc. (the "Company").

WITNESSETH:

WHEREAS, the Employee is currently employed by the Company; and

WHEREAS, the Company desires to reward Employee for his continued
service to the Company including continued cooperation and effort to
accommodate and facilitate a change in corporate control of the Company should
one occur; and

WHEREAS, the Company and Employee desire to agree with respect to the
obligations of the Company to Employee upon such a change of control of the
Company, including its obligations in the event of the severance of the
employment relationship under certain circumstances within the two year period
following such a change of control;

NOW, THEREFORE, in consideration of the foregoing premises, the
continuing employment of the Employee by the Company following the date hereof
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereby agree as follows:

ARTICLE I
DEFINITIONS

1.1 Board of Directors. The term "Board of Directors" shall mean
the Board of Directors of Victoria Bankshares, Inc.

1.2 Change of Control. The term "Change of Control" shall mean the
occurrence of one or more of the following events:

(a) Any "person!', including a "syndication" or
"group" as those terms are used in Section 13(d)(3) of the
Securities Exchange Act of 1934, is or becomes the beneficial
owner, directly or indirectly, of securities of the Company
representing 40% or more of the combined voting power of the
Company's then outstanding voting securities;

(b) The Company is merged or consolidated with
another corporation and immediately after giving effect to the
merger or consolidation less than 80% of the outstanding
voting securities of the surviving or resulting entity are
then beneficially owned in the aggregate by (i) the
stockholders of the Company immediately prior to such merger
or consolidation, or (ii) if a record date has been set
<PAGE> 2
to determine the stockholders of the Company entitled to vote
on such merger or consolidation, the stockholders of the
Company as of such record date;

(c) If at any time during a calendar year a
majority of the directors of the Company are not persons who
were directors at the beginning of the calendar year (unless
the lack of majority is the result of the death of one or more
directors); and

(d) the Company transfers substantially all of
its assets to another corporation which is a less than 80%
owned Subsidiary of the Company.

1.3 Code. The term "Code" shall mean the Internal Revenue Code of
1986, as amended from time to time.

1.4 Company. The term "Company" shall mean Victoria Bankshares,
Inc.. or any successor.

1.5 Compensation. The term "Compensation" shall mean the
Employee's annual base pay as in effect immediately prior to a Change of
Control, including any taxable deferrals of the Employee under plans maintained
by the Company under Section 125 or 401(k) of the Code or any salary deferrals
the Employee may have made under the SERP.

1.6 Employee. The term 'Employee" shall mean Greg Sprawka.

1.7 SERP. The term "SERP" shall mean the Victoria Bankshares, Inc.
Supplemental Executive Retirement Plan, as it may be amended from time to time.

ARTICLE II
BONUS UPON CHANGE OF CONTROL

2.1 Bonus Upon Change of Control. Upon a Change of Control,
Employee shall be entitled to a bonus payment equal to one half the Employee's
Compensation, provided that the Employee remains in the employment of the
Company through the Change of Control. Should a subsequent Change of Control
occur prior to the expiration of two (2) years following a Change of Control, a
new two (2) year period shall commence effective as of the subsequent Change of
Control, entitling the Employee to an additional bonus should a subsequent
Change of Control occur. The bonus will be payable in a single sum within
fifteen (15) days following the Change of Control (and subsequent Change of
Control, if applicable).
<PAGE> 3
ARTICLE III
TERMINATION OF EMPLOYMENT

3.1 Termination by the Company Without Cause. Subject to the
provisions of this Section 3.1, the employment of Employee may be terminated by
the Company without cause (as defined in Section 3.3 below) without prior
written notice thereof given to Employee. In the event of termination pursuant
to this Section 3.1 within two (2) years following a Change of Control (or
subsequent Change of Control, if applicable), Employee shall be entitled to a
severance benefit under this Agreement equal to two (2) years' Compensation.
The benefit will be payable in a single sum within fifteen (15) days following
the Employee's termination by the Company without cause.

3.2 Voluntary Termination by Employee for Good Reason. Following a
Change of Control, Employee may at any time within the two (2) year period
following a Change of Control (or subsequent Change of Control, if applicable)
voluntarily terminate his employment for "good reason" (as defined below). In
the event of such voluntary termination for "good reason," the Company shall
pay Employee, within 15 days of such termination, the benefits that would be
payable under Section 3.1 above if the Employee's termination by the Company
was without cause.

For purposes of this Agreement, "good reason" shall mean the
occurrence of any of the following events:

(a) Removal from the offices Employee holds on the date
of a Change of Control or a material reduction in
Employee's authority or responsibility, but not
including termination of Employee for cause," as
defined below;

(b) A reduction in the Employee's Compensation within two
(2) years following a Change of Control;

(d) The Company otherwise committing a material breach of
this Agreement.

3.3. Termination by the Company for Cause. The Company may
terminate the employment of Employee at any time following a Change of Control
if such termination is for "cause" (as defined below), by delivering to
Employee written notice describing the cause of termination 30 days before the
effective date of such termination and by granting Employee at least 30 days to
cure such cause. In the event the employment of Employee is terminated for
"cause," Employee shall be entitled only to Compensation earned pro rata to the
date of such termination with no entitlement to any other benefits besides
those payable without regard to this Agreement. Except as otherwise provided in
this Agreement, the determination of whether Employee shall be terminated for
"cause" shall be made by the Board of Directors of the Company, in the

-3-
<PAGE> 4
reasonable exercise of its business judgment, and shall be limited to the
occurrence of the following events:

(a) Conviction of or a plea of nolo contenders to the
charge of a felony (which, through lapse of time or
otherwise, is not subject to appeal);

(b) Willful refusal without proper legal cause to
perform, or gross negligence in performing,
Employee's duties and responsibilities;

(d) The unauthorized absence of Employee from work (other
than for sick leave or disability) for a period of 30
working days or more during any period of 45 working
days during the term of this Agreement.

3.4 Termination Upon Death or Permanent Disability. In the event
that Employee dies within two (2) years following a Change of Control (or
subsequent Change of Control, if applicable), this Agreement shall terminate
upon Employee's death. Likewise, if Employee becomes unable to perform the
essential functions of his position with the Company, with or without
reasonable accommodation, on account of illness, disability, or other reason
whatsoever for a period of more than six consecutive or nonconsecutive months
in any twelve-month period, the employment of Employee shall terminate
effective upon such incapacity, and Employee (or his legal representatives)
shall be entitled only to the Compensation earned pro rata to the date of such
termination with no entitlement to any other benefits besides those payable
without regard to this Agreement.

3.5 Voluntary Termination by Employee. Employee may terminate his
employment at any time. In the event of such voluntary termination other than
for "good reason" (as defined above) within two (2) years following a Change of
Control (or subsequent Change of Control, if applicable), Employee shall be
entitled to his Compensation earned pro rata to the date of his resignation,
but no other benefits besides those payable without regard to this Agreement
shall be payable. On or after the date the Company receives a notice of
Employee's voluntary termination without good reason, the Company may, at its
option, pay Employee his Compensation through the effective date of his
resignation (not to exceed 30 days) and terminate his employment immediately.

3.6 Exclusivity of Termination Provisions. The provisions of this
Agreement regarding the parties' respective obligations in the event Employee's
employment is terminated within two (2) years following a Change of Control (or
subsequent Change of Control, if applicable), are intended to be exclusive and
in lieu of any other rights or remedies to which Employee or the Company may
otherwise be entitled at law, in equity or otherwise. It is also agreed that,
although the personnel policies and fringe benefit programs of the Company may
be unilaterally modified from time to time, the

-4-
<PAGE> 5
provisions of this Agreement are not subject to modification, whether orally,
impliedly or in writing, unless any such modification is mutually agreed upon
and signed by the parties. Provided, however, should the Company modify its
fringe benefit programs with respect to all similarly situated employees
following a Change of Control, those modifications shall apply to Employee.

3.7 Restrictions on any Portion of Total Payments Determined to be
Excess Parachute Payments. In the event that any payment or benefit from any
agreement whatsoever, received or to be received by Employee in connection with
a Change of Control would not be deductible, whether in whole or in part, by
the Company or any affiliated company, as a result of Section 28OG of the Code,
the benefits payable under this Agreement shall first be reduced until no
portion of the total payments is not deductible as a result of Section 28OG of
the Code, or the benefits payable under this Agreement have been reduced to
zero. In determining this limitation: (a) no portion of the total payments
which Employee has waived in writing prior to the date of the payment of
benefits under this Agreement will be taken into account, (b) no portion of the
total payments which tax counsel, selected by the Company's independent
auditors and acceptable to Employee, determines not to constitute a "parachute
payment" within the meaning of Section 280G(b)(2) of the Code will be taken
into account, W no portion of the total payments which tax counsel, selected by
the Company's independent auditors and acceptable to Employee, determines to be
reasonable compensation for services rendered within the meaning of Section
28OG(b)(4) of the Code will be taken into account, and (d) the value of any
non-cash benefit or any deferred payment or benefit included in the total
payments will be determined by the Company's independent auditors in accordance
with Sections 28OG(d)(3) and (4) of the Code.

ARTICLE IV
ARBITRATION

Any controversy of any nature whatsoever, including but not limited to
tort claims or contract disputes, between the parties to this Agreement or
between the Employee, his heirs, executors, administrators, legal
representatives, successors, and assigns and the Company and its affiliates,
arising out of or related to, any resignation from or termination of such
employment and/or the terms and conditions of this Agreement, including the
implementation, applicability and interpretation thereof, shall, upon the
written request of one party served upon the other, be submitted to and settled
by arbitration in accordance with the provisions of the Federal Arbitration
Act, 9 U.S.C. 1-15, as amended. Each of the parties to this Agreement shall
appoint one person as an arbitrator to hear and determine such disputes, and if
they should be unable to agree, then the two arbitrators shall chose a third
arbitrator from a panel made up of experienced arbitrators selected pursuant to
the procedures of the American Arbitration Association (the "AAA") and, once
chosen, the third arbitrator's decision shall be final, binding and conclusive
upon the parties to this Agreement. Each party shall be responsible for the
fees and expenses of its arbitrator and the fees and expenses of the third
arbitrator shall be shared equally by the parties. The terms of the commercial
arbitration rules of AAA shall apply except to the extent they conflict with
the provisions of this paragraph. It is further agreed that any of the parties
hereto may

-5-
<PAGE> 6
petition the United States District Court for the Southern District of Texas,
Victoria Division, for a judgment to be entered upon any award entered through
such arbitration proceedings.

ARTICLE V
MISCELLANEOUS

5.1 Complete Agreement. This Agreement constitutes the entire
agreement between the parties and cancels and supersedes all other agreements
between the parties which may have related to the subject matter contained in
this Agreement.

5.2 Modification; Amendment; Waiver. No modification, amendment or
waiver of any provisions of this Agreement shall be effective unless approved
in writing by both parties. The failure at any time to enforce any of the
provisions of this Agreement shall in no way be construed as a waiver of such
provisions and shall not affect the right of either party thereafter to enforce
each and every provision hereof in accordance with its terms.

5.3 Governing Law; Jurisdiction. This Agreement and performance
under it, and all proceedings that may ensue from its breach, shall be
construed in accordance with and under the laws of the State of Texas, to the
extent not preempted by the laws of the United States.

5.4 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be held to
be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.

5.5 Assignment. The rights and obligations of the parties under
this Agreement shall be binding upon and inure to the benefit of their
respective successors, assigns, executors, administrators and heirs, provided,
however, that neither the Company nor Employee may assign any duties under this
Agreement without the prior written consent of the other.

5.6 Limitation. This Agreement shall not confer any right or
impose any obligation on the Company to continue the employment of Employee in
any capacity, or limit the right of the Company or Employee to terminate
Employee's employment.

5.7 Attorneys' Fees and Costs. If any action at law or in equity
is brought to enforce or interpret the terms of this Agreement or any
obligation owing thereunder, venue will be in Victoria County, Texas and the
prevailing party shall be entitled to reasonable attorney's fees and all costs
and expenses of suit, including, without limitation, expert and accountant
fees, actuarial fees, and such other relief which a court of competent
jurisdiction may deem appropriate.

-6-
<PAGE> 7
5.8 Notices. All notices and other communications under this
Agreement shall be in writing and shall be given in person or by either
personal delivery, overnight delivery, or first class mail, certified or
registered with return receipt requested, with postage or delivery charges
prepaid, and shall be deemed to have been duly given when delivered personally,
upon actual receipt, and on the next business day when sent via overnight
delivery, or three days after mailing first class, certified or registered with
return receipt requested, to the respective persons named below:

If to the Company: Victoria Bankshares, Inc.
One O'Connor Plaza
Victoria, Texas 77902
Attn: Chief Executive Officer

If to the Employee: Addresses of Executive Officers

IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the day and year indicated above.

COMPANY:

VICTORIA BANKSHARES, INC.

By
---------------------------------------

Title
------------------------------------

EMPLOYEE:

------------------------------------------

-7-

<PAGE> 1
Exhibit 21

Subsidiaries of Victoria Bankshares, Inc.
as of March 22, 1996

<TABLE>
<CAPTION>
Jurisdiction of
Incorporation
or Organization
---------------
<S> <C>
Victoria Bank & Trust Company Texas
Central Computers, Inc. Texas
Victoria Capital Corporation Texas
Victoria Securities Corporation Texas
Victoria Financial Services, Inc. Delaware

</TABLE>

Victoria Securities Corporation, and Victoria Financial Services, Inc.,
are 100% owned by Victoria Bankshares, Inc. Victoria Capital Corporation and
Central Computers, Inc., are wholly owned subsidiaries of Victoria Bank & Trust
Company. Victoria Financial Services, Inc., owns 100% of Victoria Bank & Trust
Company.

<PAGE> 1

Exhibit 23.1

Consent of Independent Public Accountants

As independent public accountants, we hereby consent to the incorporation of
our report dated January 22, 1996 in this Form 10-K, into the Company's
previously filed Registration Statement File No. 33-48171.

Arthur Andersen LLP

Houston, Texas
January 22, 1996

<ARTICLE> 9
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 141,086
<INT-BEARING-DEPOSITS> 150
<FED-FUNDS-SOLD> 188,710
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 153,113
<INVESTMENTS-CARRYING> 671,584
<INVESTMENTS-MARKET> 675,171
<LOANS> 713,645
<ALLOWANCE> 10,577
<TOTAL-ASSETS> 1,962,994
<DEPOSITS> 1,661,833
<SHORT-TERM> 94,181
<LIABILITIES-OTHER> 16,671
<LONG-TERM> 0
<COMMON> 8,314
0
0
<OTHER-SE> 181,995
<TOTAL-LIABILITIES-AND-EQUITY> 1,962,994
<INTEREST-LOAN> 60,734
<INTEREST-INVEST> 48,102
<INTEREST-OTHER> 10,005
<INTEREST-TOTAL> 118,841
<INTEREST-DEPOSIT> 46,333
<INTEREST-EXPENSE> 51,404
<INTEREST-INCOME-NET> 67,437
<LOAN-LOSSES> 165
<SECURITIES-GAINS> 57
<EXPENSE-OTHER> 74,208
<INCOME-PRETAX> 22,693
<INCOME-PRE-EXTRAORDINARY> 22,693
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,142
<EPS-PRIMARY> 1.83
<EPS-DILUTED> 1.83
<YIELD-ACTUAL> 4.15
<LOANS-NON> 7,411
<LOANS-PAST> 469
<LOANS-TROUBLED> 569
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 10,024
<CHARGE-OFFS> 1,227
<RECOVERIES> 670
<ALLOWANCE-CLOSE> 10,577
<ALLOWANCE-DOMESTIC> 8,620
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,957

</TABLE>