FVNB CORP, 10-Q, 1999-05-14

FVNB CORP
10-Q, 1999-05-14
NATIONAL COMMERCIAL BANKS

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ___________________ TO __________________

COMMISSION FILE NUMBER ___________________

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

FVNB CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

TEXAS
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
74-2871063
(I.R.S. EMPLOYER IDENTIFICATION NO.)

101 S. MAIN STREET,
VICTORIA, TEXAS 77901
(Address of principal executive offices, including Zip Code)

(512) 573-6321
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

N/A
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED
SINCE LAST REPORT)

Indicate by check mark whether the bank (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 bank was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by a check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. FVNB Corp. has 2,372,792
shares of common stock, $.01 par value, outstanding as of May 3, 1999.

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

<PAGE>
PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
========================================================================================
<S> <C> <C>
ASSETS
Cash and due from banks--Note 3 ....................... $ 23,960 $ 27,504
Federal funds sold .................................... 35,200 6,800
Investment securities--Note 4
Available-for-sale ................................. 186,089 211,918
Loans and lease receivable--Note 5 (net of
allowance for loan and lease losses
of $3,931 and $3,308) .............................. 353,125 289,554
Premises and equipment, net--Note 6 ................... 12,834 9,404
Accrued interest receivable ........................... 6,665 4,931
Goodwill and intangibles .............................. 10,907 1,919
Other assets--Note 5 .................................. 2,016 1,134
--------- ---------
TOTAL ASSETS ....................................... $ 630,796 $ 553,164
========= =========
LIABILITIES
Deposits:
Demand ............................................. $ 82,780 $ 77,302
Savings, NOW, and money market accounts ............ 174,608 158,411
Time--Note 7 ....................................... 252,255 219,027
--------- ---------
TOTAL DEPOSITS .................................. 509,643 454,740
Federal funds purchased and securities sold
under agreements to repurchase ..................... 37,945 12,225
Other borrowings--Note 14 ............................. 16,145 19,119
Other liabilities--Note 8 ............................. 8,025 7,558
--------- ---------
TOTAL LIABILITIES ............................... 571,758 493,642
--------- ---------
Commitments and Contingent Liabilities--Notes 9 and 10

SHAREHOLDERS' EQUITY--NOTE 15:
Common stock ($.01 par value; 20,000,000 shares
authorized; 2,372,792 shares issued and outstanding) 24 24
Surplus ............................................... 15,682 15,682
Retained earnings ..................................... 44,443 43,764
Accumulated other comprehensive (loss) income ......... (1,111) 52
--------- ---------
TOTAL SHAREHOLDERS' EQUITY ......................... 59,038 59,522
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............ $ 630,796 $ 553,164
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.

2
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

THREE MONTHS ENDED
MARCH 31,
---------------------
1999 1998
=============================================================================
INTEREST INCOME:
Loans and lease receivable, including fees ...... $ 7,178 $ 6,033
Investment securities:
Taxable ...................................... 2,821 2,828
Tax-exempt ................................... 20 33
Dividends .................................... 28 29
Federal Funds sold .............................. 313 278
Other ........................................... 1 1
-------- --------
TOTAL INTEREST INCOME ..................... 10,361 9,202
-------- --------
INTEREST EXPENSE:
Deposits--Note 7 ................................ 4,139 3,942
Federal funds purchased and securities sold under
agreements to repurchase ...................... 277 117
Other borrowings ................................ 283 242
-------- --------
TOTAL INTEREST EXPENSE ....................... 4,699 4,301
-------- --------
NET INTEREST INCOME .......................... 5,662 4,901
Provision for loan and lease losses--Note 5 ..... 5 0
-------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN AND LEASE LOSSES .... 5,657 4,901
-------- --------
NON-INTEREST INCOME:
Gains on sales of investment securities ......... 9 0
Trust service fees .............................. 536 408
Service charges and fees on deposit accounts .... 952 749
Gain (loss) on sale of assets--Note 5 ........... 2 (14)
Other ........................................... 283 166
-------- --------

TOTAL NON-INTEREST INCOME .................... 1,782 1,309
-------- --------
NON-INTEREST EXPENSE:
Salaries and wages--Note 11 ..................... 2,354 1,931
Employee benefits--Note 11 ...................... 465 292
Net occupancy expense ........................... 306 313
Furniture and equipment ......................... 234 188
Communication and supplies ...................... 328 279
Data processing ................................. 294 255
Professional fees ............................... 288 125
FDIC insurance assessment ....................... 21 11
Marketing and advertising ....................... 160 134
Other ........................................... 638 470
-------- --------
TOTAL NON-INTEREST EXPENSE ................... 5,088 3,998
-------- --------
INCOME BEFORE INCOME TAXES ................... 2,351 2,212
Expense--Note 8 .............................. 842 744
-------- --------
NET INCOME ................................... $ 1,509 $ 1,468
======== ========
Other comprehensive income, net of tax
Unrealized (losses) gains on securities:
Net unrealized holding (losses) gains arising
during the period net of realized (losses)
gains reflected in net income ............ (1,163) 1
-------- --------
COMPREHENSIVE INCOME ......................... $ 346 $ 1,469
======== ========
Basic earnings per share ........................... $ .64 $. 61
======== ========
Diluted earnings per share ......................... $ .62 $. 61
======== ========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.

3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 1998
=================================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net Income .......................................................... $ 1,509 $ 1,468
Adjustments to reconcile net income to net cash
provided by operating activities --
Net gain on sale of investment securities ..................... (9) 0
Provision for loan and lease and other real estate losses ..... 5 0
Depreciation .................................................. 330 310
Premium amortization and discount accretion, net .............. 59 (40)
Pension expense ............................................... 90 76
Net (gain) loss on sale of assets ............................. (2) 14
Increase in accrued interest receivable ....................... (1,247) (1,352)
Net change in other assets and other liabilities .............. 153 305
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES .................. 888 781
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:

Net cash provided by acquisition of subsidiaries .................... 7,098 0
Proceeds from sales of investment securities, available-for-sale .... 19,583 0
Proceeds from maturities of investment securities, available-for-sale 11,339 23,305
Purchase of investment securities, available-for-sale ............... (165) (37,981)
Net increase in loans to customers .................................. (8,186) (12,342)
Additions to premises and equipment ................................. (243) (255)
Proceeds from sale of assets ........................................ 155 9
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ........ 29,581 (27,264)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:

Net decrease in demand, NOW,
savings and money market accounts ................................ (15,401) (3,259)
Net (decrease) increase in time deposits ............................ (12,128) 18,310
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase ................... 25,720 (5,375)
Net (decrease) increase in other borrowed funds ..................... (2,974) 3,386
Dividends paid ...................................................... (830) (593)
-------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ........... (5,613) 12,469
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......... 24,856 (14,014)

Cash and cash equivalents beginning of year ......................... 34,304 49,748
-------- --------
CASH AND CASH EQUIVALENTS END OF PERIOD ....................... $ 59,160 $ 35,734
======== ========

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.

4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The accounting and reporting
policies of FVNB Corp. (Parent Company) and subsidiaries (collectively, the
Company) conform to generally accepted accounting principles and practices
within the banking industry and require management to make certain estimates and
assumptions that affect the amounts reported in the consolidated financial
statements related to 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 the estimates. A description of the more significant accounting
policies follows:

PRINCIPLES OF CONSOLIDATION -- In September 1998, FVNB Corp. was organized
as a bank holding company for First Victoria National Bank. As a result of the
reorganization, shareholders of First Victoria National Bank became shareholders
of FVNB Corp. In addition, the par value of common stock outstanding changed
from $2.50 per share to $.01 per share. Total authorized shares outstanding also
changed from 5,000,000 to 20,000,000. These changes are reflected retroactively
for each period shown in the consolidated financial statements. No revaluation
of the assets and liabilities was made as a result of this reorganization.
Subsequently, in January 1999, the Company completed the acquisition and merger
into FVNB Corp. of CBOT Financial Corporation, the parent company of Citizens
Bank of Texas, N.A. and Citizens Mortgage Company. Citizens Bank of Texas will
continue to operate as an independent subsidiary of the Parent Company. Existing
banking facilities located in New Waverly, Huntsville and The Woodlands, Texas
will keep the name Citizens Bank of Texas, N.A. The acquisition is discussed
further in Note 17 to the consolidated financial statements.

The consolidated financial statements of the Company include the accounts
of First Victoria National Bank and Citizens Bank of Texas, N.A. (collectively
the Subsidiary Banks) and their respective wholly owned subsidiaries as well as
Citizens Mortgage Company. The wholly owned subsidiaries of First Victoria
National Bank include PMV, Inc., which was established for the purpose of
acquiring, managing and liquidating assets acquired in satisfaction of debts
previously contracted; First Victoria Community Development Corporation, which
was established for the purpose of acquiring, developing, rehabilitating,
managing, renting and selling housing units primarily to benefit low and
moderate income residents of the local area and to promote and invest in such
community development projects; and First Victoria Leasing, Inc., which was
established for the purpose of transacting and accounting for leasing activities
of the Bank. Citizens Bank of Texas, N.A. has one wholly owned operating
subsidiary, Citizens Insurance Agency of Texas.

INVESTMENT SECURITIES -- The Company accounts for investment securities in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115
"Accounting for Certain Investments in Debt and Equity Securities". This
standard requires the classification of securities into one of three categories:
held-to-maturity, available-for-sale, or trading. Investments shall be
classified as held-to-maturity and measured at amortized cost only if the
reporting enterprise has the positive intent and ability to hold those
securities to maturity. Securities that are bought and held principally for the
purpose of selling them in the near term shall be classified as trading
securities. Unrealized holding gains and losses related to trading securities
shall be included in earnings. Investments not classified as trading securities
or held-to-maturity securities shall be classified as available-for-sale
securities. Securities that would be sold in response to changes in market
interest rates and the securities' prepayment risk, needs for liquidity, or
changes in the availability and yield on alternative investments are classified
as available-for-sale. Available-for-sale securities are reported at fair value
and any unrealized holding gains and losses are excluded from earnings and
recorded as a net amount as a separate component of shareholders' equity (net of
tax effect), and included in other comprehensive income until realized.

In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities", effective
for all fiscal quarters of all fiscal years ending after June 15, 1999. The
Statement established accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting. Management of the Company believes that the Statement's impact
on the consolidated financial statements will be immaterial.

LOANS AND LEASE RECEIVABLES -- Interest earned on commercial, agriculture
and real estate loans is accrued daily, based upon the principal amounts
outstanding. Interest on consumer loans is recorded on the level yield method.
The recognition of income on a loan is discontinued, and previously accrued
interest is reversed, when

5
<PAGE>
- --------------------------------------------------------------------------------

interest or principal payments become 90 days or more past due unless, in the
opinion of management, the outstanding principal and interest are both well
secured and in the process of collection. Loans to customers whose financial
conditions have deteriorated and for which management has serious doubt as to
the ability of the borrowers to comply with their loan repayment terms are
considered for non-accrual status whether or not the loans are 90 days or more
past due. Subsequent cash payments received are applied to the principal balance
or recorded as interest income, depending upon management's assessment of the
ultimate collectibility of the loan. If cash payments received relate to a loan
previously charged off in whole or in part, payments not applied to the
remaining principal balance are recorded as recoveries.

The Company accounts for impaired loans in accordance with SFAS No. 114
"Accounting by Creditors for Impairment of a Loan", as amended by SFAS No. 118
"Accounting by Creditors for Impairment of a Loan -- Income Recognition and
Disclosure". These standards address the accounting by creditors for impairment
of certain loans as well as the accounting for troubled debt restructurings. A
loan is 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. Loans that fall within the scope of
these standards are measured based on the present value of expected future cash
flows for each loan discounted at the loan's effective interest rate or, as a
practical expedient, at the loan's observable market price or the fair value of
the collateral if the loan is collateral dependent.

The Company accounts for leveraged leases in accordance with SFAS No. 13
"Accounting for Leases". This standard addresses the accounting and reporting
for leases by lessees and lessors. The lessor records the investment in the
leveraged lease as the gross rental receivable (net of principal and interest on
nonrecourse debt) and the estimated residual value net of unearned and deferred
income. The investment less deferred taxes is used for computing income earned.
Income is recognized based on the cash flow over the lease term and the rate of
return on the positive net investment.

ALLOWANCE FOR LOAN AND LEASE LOSSES -- The allowance for loan and lease
losses is established by a charge to income as a provision for loan and lease
losses. Actual loan and lease losses or recoveries are charged or credited
directly to this allowance. The provision for loan and lease losses is based on
management's estimate of the amounts required to maintain an allowance adequate
to reflect losses inherent in the loan portfolio at the balance sheet date;
however, ultimate losses may vary from the current estimates. These estimates
are reviewed periodically and adjustments are reported in earnings in the period
in which they become known.

PREMISES AND EQUIPMENT -- Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is calculated on the straight-line
method, based on the estimated useful lives of the assets. Repairs and
maintenance are charged to expense as incurred, and expenditures for renewals
and improvements which materially increase the value of the property and have a
benefit over more than one accounting period are capitalized. Estimated useful
lives are 15 - 40 years for premises and 3 - 10 years for equipment.

INCOME TAXES -- The Company accounts for income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes". This standard allows the
recognition of deferred tax assets and liabilities based on the expected future
tax consequences of existing differences between financial reporting and tax
reporting bases of assets and liabilities.

RECOGNITION OF LOAN ORIGINATION FEES AND COSTS -- Loan origination and
commitment fees and certain direct loan origination costs are deferred and the
net amount amortized as an adjustment of the related loan's yield over the
contractual life of the related loan. If a commitment expires unexercised, the
commitment fee is recognized as income.

FAIR VALUE OF FINANCIAL INSTRUMENTS -- Financial instruments are defined
as cash, evidence of an ownership in an entity, or a contract that conveys or
imposes on an entity the contractual right or obligation to either receive or
deliver cash or another financial instrument. Fair value is defined as the
amount at which a financial instrument could be exchanged in a current
transaction between willing parties, other than in a forced sale or liquidation,
and is best evidenced by a quoted market price if one exists.

The Company operates as a going concern and except for its investment
securities portfolio, no active market exists for its financial instruments.
Much of the information used to determine fair value is highly subjective and
judgmental in nature and therefore the results may not be precise. The
subjective factors include, among other things, estimates of cash flows, risk
characteristics, credit quality, and interest rates, all of which are subject to
change. Since the fair value is estimated as of the balance sheet date, the
amounts which will actually be realized or

6
<PAGE>
- --------------------------------------------------------------------------------

paid upon settlement or maturity of the various instruments could be
significantly different. Fair value estimates, methods, and assumptions for
financial instruments, are set forth in Note 16 to the consolidated financial
statements.

COMPREHENSIVE INCOME -- Effective January 1, 1998 the Company adopted
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income." Statement 130 establishes new rules for the reporting and display of
comprehensive income and its components. The adoption of this Statement requires
unrealized gains or losses on the Company's investment portfolio be
included in other comprehensive income.

EARNINGS PER SHARE DATA -- Basic earnings per share is computed by
dividing net income by the weighted average number of common shares outstanding
during the year. For each period presented, fully diluted earnings per share was
computed by dividing net income by the weighted average number of common shares
outstanding plus the incremental shares that would have been outstanding under
the 1998 FVNB Corp. Stock Incentive Plan, upon the assumed exercise of these
dilutive stock options.

STOCK BASED COMPENSATION -- The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) and related interpretations in accounting for its employee stock options.
Under APB 25, because the exercise price of employee stock options equals the
market price of the underlying stock on the date of the grant, no compensation
expense is recorded. The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (Statement 123).

SEGMENTS DISCLOSURE -- Statement of Financial Accounting Standards
("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related
Information" requires that public business enterprises report certain
information about its operating segments in order to provide information about
the different types of business activities in which an enterprise engages. FVNB
Corp. operates in only one segment, commercial banking, and therefore the
disclosures required by SFAS No. 131 are not applicable.

(2) STATEMENT OF CASH FLOWS: For purposes of reporting cash flows, cash and cash
equivalents include cash and due from banks and federal funds sold. Generally,
federal funds are purchased and sold for one-day periods. Cash paid for interest
during the three months ended March 31, 1999 and 1998 was approximately
$4,494,000 and $3,872,000, respectively. The Company paid no federal income
taxes during the three months ended March 31, 1999 and 1998. Non-cash
transactions representing the transfer of non-performing loans to other real
estate owned and foreclosed assets totaled approximately $365,000 and $18,000
for the three months ended March 31, 1999 and 1998, respectively.

(3) CASH AND DUE FROM BANKS: Cash and due from banks of approximately $5,632,000
and $7,522,000 at March 31, 1999 and December 31, 1998, respectively, were
maintained to satisfy regulatory reserve requirements.

(4) INVESTMENT SECURITIES: As of March 31, 1999, the Company's entire investment
portfolio was classified as available-for-sale and this classification resulted
in an unrealized loss of approximately $1,683,000. This was reflected as a
decrease to available-for-sale securities of approximately $1,683,000 and a
corresponding decrease to shareholders' equity and a deferred tax asset of
approximately $1,111,000 and $572,000, respectively. As of December 31, 1998,
the classification resulted in an unrealized gain of approximately $79,000. This
was reflected as an increase to available-for-sale securities of approximately
$79,000 and a corresponding increase to shareholders' equity and a deferred tax
asset of approximately $52,000 and $27,000, respectively.

During the three months ended March 31, 1999 the Company sold three fixed
rate securities with a total book value of approximately $19,574,000 resulting
in a net gain of approximately $9,000. The securities were sold primarily for
liquidity purposes and to improve the overall yield of the investment portfolio.
In addition, there was one called bond during the same period with a book value
of $5,000,000 resulting in no gain or loss. The Company sold no investment
securities during the three months ended March 31, 1998.

7
<PAGE>
- --------------------------------------------------------------------------------

A comparison of investment securities at book and market values, as
determined by an independent broker, is as follows (in thousands):

<TABLE>
<CAPTION>
MARCH 31, 1999
---------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasuries .................................... $ 196 $ 0 $ (1) $ 195
U.S. Government Agencies ........................... 123,234 124 (1,526) 121,832
Mortgaged-backed securities and collateralized
mortgage obligations .......................... 60,305 113 (418) 60,000
State and political subdivisions ................... 1,776 26 (1) 1,801
Other .............................................. 2,261 0 0 2,261
-------- -------- -------- --------
Total .................................... $187,772 $ 263 $ (1,946) $186,089
======== ======== ======== ========

DECEMBER 31, 1998
----------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
Available-for-sale:
U.S. Treasuries .................................... $ 2,999 $ 33 $ 0 $ 3,032
U.S. Government Agencies ........................... 142,780 485 (251) 143,014
Mortgaged-backed securities and collateralized
mortgage obligations .......................... 62,908 197 (411) 62,694
State and political subdivisions ................... 1,180 26 0 1,206
Other .............................................. 1,972 0 0 1,972
-------- -------- -------- --------
Total .................................... $211,839 $ 741 $ (662) $211,918
======== ======== ======== ========
</TABLE>

The amortized cost and estimated market value of investment securities at
March 31, 1999 and December 31, 1998, by contractual maturity, are shown below
in thousands. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.

MARCH 31, 1999
------------------------
AVAILABLE-FOR-SALE
------------------------
AMORTIZED MARKET
COST VALUE
--------- ---------
Due in one year or less ..................... $ 33,757 $ 33,813
Due after one year through five years ....... 72,242 71,251
Due after five years through ten years ...... 25,523 25,079
Due after ten years ....................... 56,250 55,946
-------- --------
Total .................................... $187,772 $186,089
======== ========

DECEMBER 31, 1998
-------------------------
AVAILABLE-FOR-SALE
-------------------------
AMORTIZED MARKET
COST VALUE
--------- ----------
Due in one year or less ..................... $ 70,514 $ 70,853
Due after one year through five years ....... 72,909 73,010
Due after five years through ten years ...... 8,285 8,179
Due after ten years ......................... 60,131 59,876
-------- --------
Total .................................... $211,839 $211,918
======== ========

Securities with a par value of approximately $91,231,000 and $84,550,000
at March 31, 1999 and December 31, 1998, respectively, were pledged to secure
public and trust deposits as required or permitted by law.

8
<PAGE>
- --------------------------------------------------------------------------------

(5) LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES AND OTHER REAL
ESTATE OWNED: The Subsidiary Banks make agriculture, commercial, real estate,
and installment loans to customers primarily in Victoria and surrounding
counties. Although the Subsidiary Banks have a diversified loan and lease
portfolio, a substantial portion of its debtors' ability to honor their
contracts is dependent upon the agricultural economic sector. Loans and leases
are classified in the following categories (in thousands):

MARCH 31, DECEMBER 31
1999 1998
--------- -----------
Commercial and financial ................... $ 88,140 $ 63,255
Mortgage real estate ....................... 132,449 106,410
Construction real estate ................... 11,573 3,736
Agriculture ................................ 74,533 75,793
Consumer ................................... 50,771 43,776
--------- ---------
Total loans and leases ............... 357,466 292,970
Less -
Unearned income ......................... (410) (108)
Allowance for loan and lease losses ..... (3,931) (3,308)
--------- ---------
Net loans and leases ................. $ 353,125 $ 289,554
========= =========

As of March 31, 1999 and December 31, 1998, First Victoria Leasing, Inc. a
wholly owned subsidiary of First Victoria Leasing, Inc. was an equity
participant in the leveraged lease of an aircraft. As First Victoria National
Bank has no general liability for the non-recourse debt attributable to the
acquisition of such asset, the debt has been offset against the related rentals
receivable. The net investment in leveraged lease consists of the following (in
thousands):

MARCH 31, DECEMBER 31
1999 1998
---------- -------------
Rentals receivable (net of principal and
interest on non-recourse debt) ............. $ 5,772 $ 5,772
Estimated residual value ..................... 6,375 6,375
Unearned and deferred income ................. (5,229) (5,354)
------- -------
Investment in leveraged lease ................ 6,918 6,793
Deferred income taxes ........................ (3,628) (3,329)
------- -------

Net Investment ............................ $ 3,290 $ 3,464
======= =======

A summary of the components of income from the leveraged lease follows for
the three months ended March 31, 1999 and 1998:

1999 1998
------- -------
Income before income taxes........... $ 126 $ 173
Income tax expense................... (43) (59)
------- -------
Net income from leveraged lease...... $ 83 $ 114
======= =======

Transactions in the allowance for loan and lease losses for the three
months ended March 31, 1999 and 1998 were as follows (in thousands):

1999 1998
------- -------
Balance at beginning of period ................. $ 3,308 $ 2,861
Addition to reserve related to subsidiary
bank acquisition .......................... 600 0
Provision for loan and lease losses ........ 5 0
Loans and leases charged off ................ (75) (71)
Recoveries of loans and leases charged off .. 93 95
------- -------
Balance at end of period ....................... $ 3,931 $ 2,885
======= =======

9
<PAGE>
- --------------------------------------------------------------------------------

The allowance is maintained at a reasonable level which management
considers adequate to cover estimated losses inherent in the loan and lease
portfolio. The Company's methodology is based on the ongoing assessment of the
risks inherent in the loan and lease portfolio, as well as on the possible
impact of known and potential problems in certain off-balance sheet financial
instruments and uncertainties. The components that comprise the allowance
include basically two areas -- (1) specific allowances on loans and leases, and
(2) a general allowance based upon a historical moving average and amounts for
factors which are considered areas of additional risk. Management of the
Subsidiary Banks assess the adequacy of the allowance for loan and lease losses
quarterly using a three step procedure. First, loans and leases are reviewed and
categorized as to potential risk based upon an internal grading. Specific
allowances are then established for any loans and leases with identified loss
potential after consideration of third-party appraisals of collateral value and
management assessments of current economic conditions, guarantor support, cash
flows, and other circumstances, as appropriate. Second, a general allowance is
determined based upon the historical loss experience of the portfolio as a
whole. These estimates are based upon historical data related to type of loan,
risk assessment, historical loss experience and other factors. Third, the
historical loss experience is adjusted based on estimates of losses in the
portfolio as a whole that cannot be identified with specific loans and leases,
taking into consideration local and national economic trends, volume of past due
and seriously delinquent loans and leases, non-performing loans and leases, loan
and lease concentrations, and other similar factors. These considerations are
not limited to previous collection experience and include estimates of the
effect of changing business trends and other environmental conditions. As
conditions are continually changing, it is necessary for management to review
the loan portfolio and market conditions quarterly and make appropriate
adjustments to the allowance. Management believes that the allowance for loan
and lease losses at March 31, 1999 and December 31, 1998 was adequate to cover
expected losses based on economic circumstances known or anticipated at that
time.

Loans and leases on which the accrual of interest has been discontinued
amounted to approximately $2,266,000 and $1,985,000 at March 31, 1999 and
December 31, 1998, respectively. The effect of the reversal of previously
accrued interest on interest income was approximately $39,000 and $2,000 for the
three months ended March 31, 1999 or 1998. If during the three months ended
March 31, 1999 and 1998 interest had been accrued at the stated rates, interest
income would have increased by approximately $52,000 and $41,000, respectively.
As of March 31, 1999, restructured loans and leases totaled approximately
$514,000. The effect on net interest income resulting from the difference
between the interest recognized on such loans and leases and the interest that
would have been recognized at the original rate was approximately $1,000 for the
three months ended March 31, 1999. Interest income recorded on restructured
loans and leases was approximately $10,000 for the three months ended March 31,
1999. As of December 31, 1998, restructured loans and leases totaled
approximately $1,474,000.

Foreclosed assets are carried in other assets at the lower of loan
balance or estimated fair value less estimated selling costs and totaled
approximately $391,000 and $104,000 at March 31, 1999 and December 31, 1998,
respectively. The Company recorded gains and losses, respectively, on sales of
foreclosed assets of approximately $2,000 and $13,000 for the three months ended
March 31, 1999 and 1998, respectively.

Total impaired loans and leases on the Company's books (including
non-accrual and restructured loans and leases) amounted to approximately
$2,780,000 and $3,459,000 as of March 31, 1999 and December 31, 1998,
respectively. Approximately $522,000 and $366,000 of the allowance for loan and
lease losses was allocated specifically to these loans and leases as of March
31, 1999 and December 31, 1998, respectively. The average balance of impaired
loans outstanding during the three months ended March 31, 1999 was approximately
$3,123,000. The average balance of impaired loans outstanding during 1998 was
approximately $2,692,000.

(6)PREMISES AND EQUIPMENT: The following is a summary of premises and equipment
(in thousands):

MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
Land.......................................... $ 2,978 $ 2,008
Buildings..................................... 14,866 13,146
Furniture and equipment....................... 8,663 7,572
-------- --------
26,507 22,726
Accumulated depreciation...................... (13,673) (13,322)
-------- --------
$ 12,834 $ 9,404
======== ========

10
<PAGE>
- --------------------------------------------------------------------------------

(7)DEPOSITS: Time certificates of deposit of $100,000 or more amounted to
approximately $89,906,000 and $74,446,000 at March 31, 1999 and December 31,
1998, respectively. Interest expense for these deposits was approximately
$1,187,000 and $1,000,000 for the three months ended March 31, 1999 and 1998,
respectively.

(8)INCOME TAXES: The Company recorded current federal income tax expense of
approximately $605,000 and $746,000 for the three months ended March 31, 1999
and 1998, respectively. In addition, the Company recorded deferred tax expense
of approximately $237,000 and a deferred tax benefit of approximately $2,000 for
the three months ended March 31, 1999 and 1998, respectively. As of March 31,
1999 and December 31, 1998, the Company had net deferred tax liabilities of
approximately $3,227,000 and $3,457,000, which were reflected in other
liabilities on the consolidated financial statements.

(9) COMMITMENTS: The Subsidiary Banks are parties to financial instruments with
off-balance-sheet risk in the normal course of business to meet the financial
needs of its customers. These financial instruments include commitments to
extend credit and standby letters of credit. Those instruments involve elements
of credit and interest rate risk which are not recognized in the consolidated
financial statements.

Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
that may require payment of a fee. The total commitment amounts do not
necessarily represent future cash requirements, since the commitments may expire
without being drawn upon. The Subsidiary Banks evaluate each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary, upon extension of credit, is based on management's credit
evaluation of the counterparty. Standby letters of credit are conditional
commitments issued by the Subsidiary Banks to guarantee performance of a
customer to a third party. The credit risk involved in issuing letters of credit
is essentially the same as that involved in extending loan facilities to
customers. Collateral held varies, but may include accounts receivable,
inventory, equipment or real estate.

The Subsidiary Banks' exposure to credit loss, in the event of
non-performance by the customer, for commitments to extend credit and standby
letters of credit is limited to the contractual amounts of those instruments. As
of March 31, 1999 and December 31, 1998, the Subsidiary Banks had commitments to
extend credit of approximately $121,738,000 and $100,204,000 and standby letters
of credit of approximately $1,573,000 and $1,534,000, respectively. The
following is a breakdown of commitments by type (in thousands):

MARCH 31, DECEMBER 31,
1999 1998
---------- --------------
Commercial and financial .............. $ 41,992 $ 35,279
Real Estate ........................... 16,899 5,180
Agriculture ........................... 35,982 35,524
Consumer .............................. 26,865 24,221
-------- --------
Total ........................... $121,738 $100,204
======== ========

(10) LITIGATION: In the normal course of business, the Company has become
involved in routine claims and lawsuits, but management does not believe that
the outcome of any of these matters will have a material adverse effect on the
Company's financial condition or results of operations.

(11) EMPLOYEE BENEFITS: First Victoria National Bank's Employees' Profit Sharing
Plan is a 401(k) salary deferral plan which allows employees to defer up to 10%
of their compensation. In addition, participants are allowed to borrow up to 50%
of their vested portion for specific purposes identified in the plan. Based upon
the employee's contribution, First Victoria National Bank contributes a matching
amount equal to 50% of the employee's contribution, not to exceed 5% of
compensation. At the discretion of the Board of Directors, additional amounts
can be contributed annually to the plan by the Subsidiary Bank. All employees
with at least one year of service are eligible to participate in the plan and
employer contributions become fully vested after 7 years of service by the
employee. The plan is administered by the Trust and Investment Management
Department of First Victoria National Bank and is prohibited from investing in
the common stock of the Company. Contributions to the plan by the First Victoria
National Bank for the three months ended March 31, 1999 and 1998 were
approximately $34,000 and $33,000, respectively. Citizens Bank of Texas
maintains a 401(k) salary deferral plan in which employees are allowed to defer
up to 6% of their compensation. Based upon the employee's contribution, Citizens
Bank of Texas contributes a matching amount equal to 25% of the employee's
contribution. Expenses related to the plan during the first three months of 1999
were not material.

11
<PAGE>
- --------------------------------------------------------------------------------

First Victoria National Bank's Incentive Compensation Plan is
administered by the Compensation and Retirement Committee of the Board of
Directors (the "Committee"). The Committee determines which officers may
participate in the plan and the extent of their participation. All awards are
contingent upon the bank's attaining certain financial objectives established
annually by the Committee. Prior to 1997, the plan provided for a portion of an
annual award to be distributed in cash with the remainder in the form of
performance units. Performance units are determined by dividing the portion of
the award to be paid in performance units by the book value per share of common
stock at the end of the year in which the award is earned. The performance units
may be redeemed equally over the three years following the award at the option
of the participant. Performance units entitle participants to receive a future
payment in cash equal to the book value of the Company common stock at the date
of redemption. Accruals of additional expense for each unredeemed performance
award will be made in future years to reflect increases in the book value per
share of common stock of the Company. Total expense of the plan recorded by the
Company for the three months ended March 31, 1999 and 1998 was approximately
$1,000 and $5,000, respectively, representing accruals for the increase in book
value per share of common stock related to previously awarded performance units.

On July 15, 1997, the Compensation and Retirement Committee of First
Victoria National Bank approved an Officer Annual Incentive Plan effective as of
January 1, 1997. The revised plan is administered by the Committee and all
awards are payable entirely in cash and are contingent upon First Victoria
National Bank's attaining various growth and financial objectives to be
determined annually. Expenses of approximately $134,000 and $120,000 related to
this plan were recorded during the first three months of 1999 and 1998,
respectively.

First Victoria National Bank maintains a noncontributory defined benefit
pension plan that covers the Subsidiary Bank's employees who meet specified age
and length of service requirements and provides for a single benefit formula
that is based on the participant's final adjusted monthly compensation. The plan
holds assets comprised of U.S. Treasury bonds, U.S. Government agency
securities, corporate bonds, notes and common stock. Funding is limited to the
maximum amounts that are available for deduction for federal income tax
purposes. Expenses of approximately $89,000 and $75,000 related to this plan
were recorded during the first three months of 1999 and 1998, respectively.
Citizens Bank of Texas also maintains a pension plan for its employees. Expenses
related to the plan during the first three months of 1999 were not material.

In March 1998 the Company adopted the 1998 FVNB Corp. Stock Incentive
Plan (the "1998 Plan") which provides for the granting of incentive stock
options, stock appreciation rights, restricted stock and other stock-based
awards to directors, officers and key employees responsible for the direction
and management of the Company or the Subsidiary Banks. On September 15, 1998 a
total of 52,000 stock options were granted to certain directors and officers at
an exercise price of $33.00, which equaled market price of the underlying stock
on September 15, 1998. An additional 1,000 options were granted on December 15,
1998 at an exercise price of $34.00, which also equaled market price of the
underlying stock on December 15, 1998. Options have a six- month vesting period
for directors and a ratable three-year vesting period for officers. All options
expire ten years from the date of grant. As of March 31, 1999, options to
acquire 53,000 shares of common stock of the Company remain outstanding.

(12)TRUST ASSETS: Trust assets and other properties, except cash deposits, held
by the First Victoria National Bank in agency or other fiduciary capacities for
its customers are not assets of the Company and, accordingly, are not included
in the accompanying consolidated financial statements. The book value of trust
assets (unaudited) was approximately $197,503,000 and $191,382,000 at March 31,
1999 and December 31, 1998, respectively.

(13)RELATED PARTY TRANSACTIONS: In the ordinary course of business, the
Subsidiary Banks make loans to certain directors and executive officers of the
Company, and entities related to those individuals, on substantially the same
terms and conditions as loans to unrelated parties (see Note 5). An analysis of
loans to certain directors and executive officers of the Company and entities
related to those individuals, is provided for the three months ended March 31,
in the following table (in thousands):

1999 1998
------- -------
Balance at beginning of year ................. $ 3,820 $ 3,882
Additions ................................. 1,152 732
Reductions ................................ (1,994) (466)
------- -------
Balance at end of period ..................... $ 2,978 $ 4,148
======= =======

12
<PAGE>
- --------------------------------------------------------------------------------

Approximately 34.01% of the Company's outstanding stock was owned by
principal shareholders, directors, and executive officers of the Company at
March 31, 1999. Included in that amount was approximately 9.23% which was held
by Oster and Company, the nominee for stock held in trust by First Victoria
National Bank.

The aggregate deposits owned by principal shareholders, directors, and
executive officers of the Company at March 31, 1999 and December 31, 1998
amounted to approximately 2.17% and 2.66%, respectively, of total deposits.

(14)OTHER BORROWINGS: The following table represents the contractual principal
reductions due on the other borrowings of the Company as of March 31, 1999 and
December 31, 1998, in thousands. The weighted average contractual rate on the
balances of other borrowings outstanding was 6.40% and 6.30% as of March 31,
1999 and December 31, 1998, respectively. The balances shown are comprised
entirely of Federal Home Loan Bank advances.

MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
Within one Year ............................ $ 1,261 $ 4,124
One to two years ........................... 2,710 456
Two to three years ......................... 1,784 4,071
Three to four years ........................ 1,298 320
Four to five years ......................... 3,164 2,682
After 5 years .............................. 5,928 7,466
------- -------
Total ................................ $16,145 $19,119
======= =======

(15)SHAREHOLDERS' EQUITY: On January 19, 1999, the Parent Company's Board of
Directors declared a regular cash dividend of $.35 per share that was paid on
February 11, 1999 to shareholders of record as of January 28, 1999. In addition,
on April 20, 1999 the Parent Company's Board of Directors declared a regular
cash dividend of $.35 per share payable on May 13, 1999 to shareholders of
record as of April 29, 1999. The principal source of the Parent Company's cash
revenues is dividends from First Victoria National Bank. There are certain
limitations on the payment of dividends to the Parent Company by the Subsidiary
Banks. The prior approval of the Office of the Comptroller of the Currency
("OCC") is required if the total of all dividends declared by a national bank in
any calendar year would exceed the bank's net profits, as defined, for that year
combined with its retained net profits for the preceding two calendar years less
any required transfers to surplus. In order to fund the acquisition of Citizens
Bank of Texas, First Victoria National Bank paid a dividend to the Parent
Company for which it was required to receive the prior approval of the OCC. The
OCC approved the special dividend and it approved future quarterly dividends to
fund the standard cash dividend of the Parent Company, provided that First
Victoria National Bank's net income during future quarters is sufficient to
support such quarterly dividends. The weighted average number of shares
outstanding during 1998 and the three months ended March 31, 1999 was 2,372,792.

The Parent Company and the Subsidiary Banks are subject to various
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory -- and possibly
additional discretionary -- actions by regulators which, if undertaken, could
have a direct material effect on the Subsidiary Banks' financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Subsidiary Banks must meet specific capital guidelines
that involve quantitative measures of the Subsidiary Banks' assets, liabilities
and certain off-balance-sheet items as calculated under regulatory accounting
practices. The Subsidiary Banks' capital amounts and classifications are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.

Quantitative measures established by regulations to ensure capital
adequacy require the Subsidiary Banks to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined) and of Tier I capital (as
defined) to average assets (as defined). Management believes, as of March 31,
1999, that the Subsidiary Banks have satisfied all capital adequacy requirements
to which they are subject.

As of March 31, 1999, the most recent notification from the Office of
the Comptroller of the Currency categorized each of the Subsidiary Banks as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the banks must maintain minimum total
risk-based capital, Tier I risk-based capital and Tier I leverage ratios as set
forth in the table below (dollars in thousands). There are no conditions

13
<PAGE>
- --------------------------------------------------------------------------------

or events since that notification that management believes have changed the
Subsidiary Banks' categories. Presented below are the capital ratios for the
Company as of March 31, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION-PROVISION
-------------------------- ------------------------ ------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
AS OF MARCH 31, 1999:
Total Capital
(to Risk Weighted Assets):
FVNB Corp. $53,173 13.32% $31,946 >=8.00% $39,932 >=10.00%
First Victoria National Bank 44,186 13.18% 26,827 >=8.00% 33,534 >=10.00%
Citizens Bank of Texas, N.A. 7,818 13.53% 4,622 >=8.00% 5,778 >=10.00%
Tier I Capital
(to Risk Weighted Assets):
FVNB Corp. $49,242 12.33% $15,973 >=4.00% $23,959 >=6.00%
First Victoria National Bank 40,868 12.19% 13,413 >=4.00% 20,120 >=6.00%
Citizens Bank of Texas, N.A. 8,401 14.54% 2,311 >=4.00% 3,467 >=6.00%
Tier I Capital
(to Average Assets):
FVNB Corp. $49,242 7.88% $24,994 >=4.00% $31,242 >=5.00%
First Victoria National Bank 40,868 7.81% 20,929 >=4.00% 26,161 >=5.00%
Citizens Bank of Texas, N.A. 8,401 9.97% 3,372 >=4.00% 4,214 >=5.00%

AS OF DECEMBER 31, 1998:
Total Capital
(to Risk Weighted Assets):
FVNB Corp. 60,957 18.55% 26,288 >=8.00% 32,860 >=10.00%
First Victoria National Bank 42,177 12.84% 26,276 >=8.00% 32,845 >=10.00%
Tier I Capital
(to Risk Weighted Assets):
FVNB Corp. 57,649 17.54% 13,144 >=4.00% 19,716 >=6.00%
First Victoria National Bank 38,869 11.83% 13,138 >=4.00% 19,707 >=6.00%
Tier I Capital
(to Average Assets):
FVNB Corp. 57,649 11.01% 20,935 >=4.00% 26,169 >=5.00%
First Victoria National Bank 38,869 7.16% 21,726 >=4.00% 27,158 >=5.00%

</TABLE>

(16)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.

The fair values of investment securities 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.

The fair values of loans and leases are determined by dividing the loan
portfolio into various groups having similar characteristics. The expected
future cash flows of each grouping are then discounted using current period end
market rates for similar loans. The assigned discount rate may or may not be the
contractual rate in effect with the obligor. The rate is that at which a loan
with similar credit risk and terms would be entered into at the balance sheet
date and is determined using the Company's internal credit quality ranking and
pricing system.

The fair values of time deposits are determined by dividing the deposits
into groups having similar characteristics. The expected future cash flows of
each grouping are then discounted using current period end market rates for
similar deposits.

The fair values of other borrowings are determined by dividing the
borrowings into groups having similar characteristics. The future cash flows of
each grouping are then discounted using current period end market rates for
similar borrowings.

14
<PAGE>
- --------------------------------------------------------------------------------

The fair values of cash and due from banks, federal funds sold, federal
funds purchased and securities sold under agreements to repurchase, and accrued
interest payable and receivable are assumed to approximate book value due to
their short term nature. The fair values of demand deposits, savings deposits,
and money market and NOW accounts are also assumed to approximate book value and
reflect the amounts payable on demand as of the period end date.

The fair values of letters of credit and loan commitments are estimated
using fees charged to enter into similar agreements. The estimated fair values
of these instruments are not deemed to be significant.

The following table represents the estimated fair values of the
Company's financial instruments, in thousands:

<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
----------------------------- ----------------------------
BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and due from banks ........................... $ 23,960 $ 23,960 $ 27,504 $ 27,504
Federal funds sold ................................ 35,200 35,200 6,800 6,800
Investment securities, available-for-sale ......... 186,089 186,089 211,918 211,918
Loans and leases, net ............................. 353,125 352,723 289,554 288,201
Accrued interest receivable ....................... 6,665 6,665 4,931 4,931
Financial Liabilities:
Time deposits ..................................... 252,255 253,580 219,027 220,762
Other deposits .................................... 257,388 257,388 235,713 235,713
-------- -------- -------- --------
Total deposits .......................... 509,643 510,968 454,740 456,475
Federal funds purchased and securities
sold under agreements to repurchase ............. 37,945 37,945 12,225 12,225
Other borrowings .................................. 16,145 16,521 19,119 19,694
Accrued interest payable .......................... 2,335 2,335 2,130 2,130

</TABLE>

(17)ACQUISITIONS: On January 29, 1999, the Parent Company paid approximately
$17,384,000 to acquire CBOT Financial Corporation, the parent company of
Citizens Bank of Texas, N.A. and Citizens Mortgage Company. The Parent Company
acquired net loans of approximately $55,755,000 and deposits of approximately
$82,432,000. Total intangible assets associated with the acquisition were
approximately $9,221,000. Citizens Bank of Texas will continue to operate as an
independent subsidiary of the Parent Company. The existing banking facilities
located in New Waverly, Huntsville and The Woodlands, Texas will keep the name
Citizens Bank of Texas.

15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------

The following discussion and analysis presents the significant changes
in the results of operations and financial condition for the periods indicated.
The discussion should be read in conjunction with the consolidated financial
statements and notes and supplemental data included in this report.

ACQUISITIONS

On January 29, 1999, the Parent Company paid approximately $17,384,000 to
acquire CBOT Financial Corporation, the parent company of Citizens Bank of
Texas, N.A. and Citizens Mortgage Company. The Parent Company acquired net loans
of approximately $55,755,000 and deposits of approximately $82,432,000. Total
intangible assets associated with the acquisition were approximately $9,221,000.
Citizens Bank of Texas will continue to operate as an independent subsidiary of
the Parent Company. The existing banking facilities located in New Waverly,
Huntsville and The Woodlands, Texas will keep the name Citizens Bank of Texas.

RESULTS OF OPERATIONS

For the three months ended March 31, 1999, the Company recorded net
income of approximately $1,509,000, or $.64 basic earnings per share, compared
to approximately $1,468,000, or $.61 basic earnings per share, for the same
period in 1998. The return on average assets of .96% and return on average
equity of 10.74% for the first three months of 1999 compare to amounts of 1.17%
and 10.52%, respectively, for the same period in 1998.

NET INTEREST INCOME

Net interest income, for the three months ended March 31, 1999, amounted
to approximately $5,662,000 compared to $4,901,000 for the same period in 1998.
Average earning assets increased approximately $109,983,000, or 23.25%, from
$473,092,000 at March 31, 1998, to $583,075,000 at March 31, 1999. The
corresponding yields on these assets decreased approximately 69 basis points
from 7.90% to 7.21% over the same period. Average interest bearing liabilities
increased approximately $92,083,000 or 23.85%, from $386,134,000 at March 31,
1998 to $478,217,000 at March 31, 1999. The corresponding cost of funds
decreased over the same period by approximately 53 basis points from 4.52% to
3.99%. The significant growth in both earning assets and interest bearing
liabilities was due primarily to the acquisition of Citizens Bank of Texas by
FVNB Corp. in January 1999.

INTEREST RATE SENSITIVITY

The Company's general strategy with regard to asset/liability and
interest rate risk management is to match maturities and amounts of interest
rate sensitive assets with maturities and amounts of interest rate sensitive
liabilities in such a manner as to minimize risk exposure resulting from changes
in market rates. While matching interest rate sensitivity will provide some
insulation from adverse changes in market rates, it will not assure a stable net
interest spread, as yields and rates may change simultaneously but in varying
degrees. Such changes in market rates and spreads could materially affect the
overall net interest income spread even in situations where asset/liability
sensitivities are perfectly matched.

The Company calculates and monitors interest rate sensitivity in various
ways. One method of calculating interest rate sensitivity is through gap
analysis. A gap is the difference between the amount of interest rate sensitive
assets and interest rate sensitive liabilities that reprice or mature in a given
time period. Positive gaps occur when interest rate sensitive assets exceed
interest rate sensitive liabilities, and negative gaps occur when interest rate
sensitive liabilities exceed interest rate sensitive assets. A positive gap
position in a period of rising interest rates should normally have a positive
effect on net interest income since assets will generally reprice faster than
liabilities. Conversely, net interest income should normally contract somewhat
in a period of declining interest rates. This type of analysis should be used
with caution, however, since gap positions at any given time may be quickly
changed by management in response to market conditions.

Since market rate changes do not affect all categories of assets and
liabilities equally or at the same time, simulation analysis is also employed by
the Company to supplement its gap analysis and further quantify interest rate
risk exposure in various rate environments. On an ongoing basis, the Company
reviews its internal pricing strategies in conjunction with its gap position in
order to appropriately price deposit and loan products in response to
anticipated market rate conditions. In addition, various investment securities
are considered for purchase that include a balance of short term fixed rate
instruments to limit exposure in a stable rate environment as well as variable
rate instruments to guard against exposure to falling interest margins in a
rising rate environment.

15
<PAGE>
- --------------------------------------------------------------------------------

While future interest rates and their effects on portfolio equity cannot
be accurately predicted, it is not expected that future changes in rates will
have a material adverse impact on the Company's net interest income or portfolio
equity. Calculations of the potential impact of hypothetical interest rate
changes are based on numerous assumptions including levels of market rates,
prepayments and deposit runoffs and should not be considered indicative of
actual results. Although certain assets and liabilities may have similar
maturity or periods of repricing they may react at different times and in
different degrees to changes in the market interest rates. The interest rates on
certain types of assets and liabilities may fluctuate in advance of changes in
market interest rates, while rates on other types of assets and liabilities may
lag behind changes in market interest rates. Certain assets, such as adjustable
rate mortgage loans, generally have features which restrict changes in interest
rates on a short term basis and over the life of the asset. Additionally, an
increased credit risk may result as the ability of many borrowers to service
their debt may decrease in the event of an interest rate increase. During the
three months ended March 31, 1999, there have been no material changes in the
Company's market risk.

NON-INTEREST INCOME

Total non-interest income for the three months ended March 31, 1999, was
approximately $1,782,000 compared to $1,309,000 for the same period in 1998.
This represents an increase of approximately $473,000, or 36.13%. During the
three months ended March 31, 1999 the Company sold three fixed rate securities
resulting in a net gains of approximately $9,000 as discussed in Note 4 to the
consolidated financial statements. The Company sold no investment securities
during the first three months of 1998. Trust service fees increased
approximately $128,000, or 31.37% from 1998 to 1999 due primarily to an overall
increase in the volume of accounts as well as the recognition of various annual
fee assessments during the first quarter of 1999. Service charges and fees on
deposit accounts increased approximately $203,000, or 27.10%, while other
non-interest income also increased approximately $117,000, or 70.48%. Each of
these increases was due primarily to additional fee income recorded by the
Company as result of the acquisition of Citizens Bank of Texas and Citizens
Mortgage Company. Gains or losses recorded by the Company related to the sale of
assets was not significant during the three months ended March 31, 1999 or 1998.

NON-INTEREST EXPENSE

Total non-interest expense for the three months ended March 31, 1999,
was approximately $5,088,000 compared to $3,998,000 for the same period in 1998.
This represents an increase of approximately $1,090,000, or 27.26%. Salaries and
wages increased approximately $423,000, or 21.91%, from 1998 to 1999 due
primarily to the acquisition of Citizens Bank of Texas and Citizens Mortgage
Company as well as normal ongoing merit increases. Employee benefits increased
approximately $173,000, or 59.25%, due primarily to higher costs associated with
group medical insurance recorded during the first three months of 1999 by First
Victoria National Bank as well the impact of the acquisition. Net occupancy
expense decreased approximately $7,000, or 2.24% due primarily to a decrease in
expenses related to security services and building repairs and maintenance at
First Victoria National Bank offset by the impact of the acquisition. Furniture
and equipment expense increased approximately $46,000, or 24.47% due primarily
to the acquisition. This was offset somewhat by the impact of reduced expense on
furniture and equipment that became fully depreciated during 1998 at First
Victoria National Bank's North Branch facility. Communication and supplies
expense as well as expense related to data processing increased approximately
$49,000, or 17.56%, and $39,000, or 15.29%, respectively, due primarily to the
acquisition. Professional fees increased approximately $163,000, or 130.40% from
1998 to 1999 due primarily to the write-off of organizational costs by the
Company in January 1999 related to legal services performed during the formation
of the Parent Company as required by SOP 98-5. FDIC insurance premium
assessments increased slightly during the first three months of 1999 due to the
addition of Citizens Bank of Texas as did expenses related to marketing and
advertising which increased approximately $26,000, or 19.40% during the first
three months of 1999 compared to the same period in 1998. Other non-interest
expense increased approximately $168,000, or 35.74%, due primarily to the
amortization of goodwill recognized as a result of the purchase of Citizens Bank
of Texas.

ALLOWANCE FOR LOAN AND LEASE LOSSES

The allowance for loan and lease losses is maintained at a level
considered appropriate by management and is based on the ongoing assessment of
the risks inherent in the loan and lease portfolio, as well as on the possible
impact of known and potential problems in certain off-balance sheet financial
instruments and uncertainties. In evaluating the adequacy of the allowance,
management incorporates such factors as local and national economic trends,
volume of past due and seriously delinquent loans, non-performing loans, loan
concentrations, and other similar factors. These considerations are not limited
to previous collection experience but also include estimates of the effect of
changing business trends and other environmental conditions. The determination
of the adequacy of the

16
<PAGE>
- --------------------------------------------------------------------------------

allowance for loan and lease losses can be made only on a judgmental basis.
Management of the Company believes that the allowance for loan and lease losses
at March 31, 1999 and December 31, 1998 was adequate to cover expected losses
based on economic circumstances known or anticipated at that time. As conditions
are continually changing, it is necessary for management to review the loan and
lease portfolio and market conditions and make appropriate adjustments to the
allowance. Any necessary changes to the allowance resulting from revised loss
estimates will be reflected in future earnings.

The allowance for loan and lease losses was approximately $3,931,000 or
1.11%, of total loans and leases at March 31, 1999, compared to $3,308,000, or
1.14%, of loans and leases at December 31, 1998. Net recoveries of loans
previously charged-off were approximately $18,000 and $24,000 for the three
months ended March 31, 1999 and 1998, respectively.

The Company accounts for impaired loans and leases in accordance with
SFAS No. 114 "Accounting by Creditors for Impairment of a Loan" as amended by
SFAS No. 118 "Accounting by Creditors for Impairment of a Loan -- Income
Recognition and Disclosure". These standards address the accounting by creditors
for the impairment of certain loans and leases as well as the accounting for
troubled debt restructurings. A loan and lease is 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 original contractual terms of the loan
or lease agreement. The standards allow impaired loans that fall within the
scope of SFAS No. 114, as amended by SFAS No. 118, to be measured based on the
present value of expected future cash flows for each loan or lease discounted at
the effective interest rate or, as a practical expedient, at the observable
market price or the fair value of the collateral if the loan is collateral
dependent. Total impaired loans and leases on the Company's books (including
non-accrual and restructured loans) amounted to approximately $2,780,000 and
$3,459,000 as of March 31, 1999 and December 31, 1998, respectively. As of March
31, 1999 and December 31, 1998, approximately $522,000 and $366,000,
respectively, of the allowance for loan and lease losses was allocated
specifically to these loans.

Following is an analysis of the allowance for loan and lease losses for
the three months ended March 31, (in thousands):

1999 1998
------- -------
Balance at beginning of year ........................... $ 3,308 $ 2,861
Addition to reserve related to bank acquisition ........ 600 0
Provision (credit) charged to operating expense ........ 5 0
Loans and leases charged off:
Commercial and financial ......................... (2) (2)
Real estate ...................................... 0 0
Agriculture ...................................... 0 0
Consumer ......................................... (73) (69)
------- -------
Total charged off .......................... (75) (71)
------- -------
Recoveries of loans and leases previously charged off:
Commercial and financial ......................... 50 67
Real estate ...................................... 6 16
Agriculture ...................................... 0 0
Consumer ......................................... 37 12
------- -------
Total recoveries ........................... 93 95
------- -------
Net loans and leases recovered ......................... 18 24
------- -------
Balance at end of quarter .............................. $ 3,931 $ 2,885
======= =======
Allowance for loan and lease losses as a
percentage of total loans and leases ............ 1.11% 1.04%
Net recoveries as a percentage of average
loans and leases outstanding ..................... .01% .01%

17
<PAGE>
- --------------------------------------------------------------------------------

NON-PERFORMING ASSETS

March 31,
--------------------
Past due 90 days or more and still accruing: 1999 1998
------- -------
Commercial and financial ................... $ 213 $ 97
Real estate ................................ 879 51
Agriculture ................................ 18 64
Consumer ................................... 48 99
------ ------
Total past due 90 days or more ........... $1,158 $ 311
====== ======
Non-accrual:
Commercial and financial ................... $ 353 $ 73
Real estate ................................ 867 837
Agriculture ................................ 932 614
Consumer ................................... 114 6
------ ------
Total non-accrual ........................ 2,266 1,530
------ ------
Restructured Loans:
Commercial and financial ................... 0 0
Real estate ................................ 0 750
Agriculture ................................ 514 782
Consumer ................................... 0 0
------ ------
Total restructured loans ................. 514 1,532
Real estate and other collateral acquired
through foreclosure ............................ 391 9
------ ------
Total non-performing assets .............. $3,171 $3,071
====== ======
Non-performing assets as a percentage of
loans and other non-performing assets ............ .90% 1.10%

Foreclosed assets are carried in other assets at the lower of the loan
balance or estimated fair value less estimated selling costs and totaled
approximately $391,000 and $104,000 at March 31, 1999 and December 31, 1998,
respectively. The Company recorded gains and losses, respectively, on sales of
foreclosed assets of approximately $2,000 and $13,000 for the three months ended
March 31, 1999 and 1998, respectively.

LIQUIDITY

Liquidity is the Company's ability to meet potential depositor
withdrawals, to provide for customer credit needs, to maintain adequate
statutory reserve levels, and to take full advantage of investment opportunities
as they arise. The liquidity position of the Company is continuously monitored
and adjustments are made to the balance between sources and uses of funds as
deemed appropriate.

Asset liquidity is provided by cash and assets which are readily
marketable or which will mature in the near future ("liquid assets"). These
include federal funds sold, time deposits in banks, investment securities and
loans which are nearing maturity. At March 31, 1999, the Company's liquidity
ratio defined as liquid assets as a percentage of deposits was 32.87%. Liability
liquidity is provided by access to funding sources, principally core depositors
and correspondent banks which maintain accounts with and sell federal funds to
the Subsidiary Banks.

CAPITAL

On January 19, 1999, the Parent Company's Board of Directors declared a
regular cash dividend of $.35 per share that was paid on February 11, 1999 to
shareholders of record as of January 28, 1999. In addition, on April 20, 1999,
the Parent Company's Board of Directors declared a regular cash dividend of $.35
per share payable on May 13, 1999 to shareholders of record as of April 29,
1999. The principal source of the Parent Company's cash revenues is dividends
from First Victoria National Bank, and there are certain limitations on the
payment of dividends to the Parent Company by the Subsidiary Banks. The prior
approval of the Office of the Comptroller of the Currency ("OCC") is required if
the total of all dividends declared by a national bank in any calendar year
would exceed the bank's net profits, as defined, for that year combined with its
retained net profits for the preceding two calendar years less any required
transfers to surplus. In order to fund the acquisition of Citizens Bank of
Texas, First Victoria National Bank paid a dividend to the Parent Company for
which it was required to receive the prior approval of the OCC. The OCC approved
the special dividend and it approved future quarterly dividends to fund the
standard cash dividend of the Parent Company, provided that First Victoria
National Bank's net income during future quarters is sufficient to support such
quarterly dividends.

18
<PAGE>
- --------------------------------------------------------------------------------

The Office of the Comptroller ("OCC") and the Federal Deposit Insurance
Corporation ("FDIC") have issued comprehensive guidelines implementing
risk-based capital requirements. The guidelines make regulatory capital
requirements more sensitive to differences in risk profiles among banking
organizations, take off-balance sheet exposure into account in assessing capital
adequacy and encourage the holding of liquid, low-risk assets. Under these
guidelines, at March 31, 1999 and December 31, 1998, the Company was required to
maintain a minimum ratio of total capital-to-risk-weighted assets of 8.00% of
which at least 4.00% must be in the form of Tier I capital. Tier I capital is
comprised of the Company's common stock, surplus and retained exclusive of
goodwill. As of March 31, 1999 the Company had approximately $10,907,000 related
to branch and bank acquisitions. At March 31, 1999 and December 31, 1998, the
percent of total capital-to-risk-weighted assets was 13.32% and 18.55%,
respectively, and currently exceeds the regulatory requirements. The Company's
Tier I capital ratio as of March 31, 1999 and December 31, 1998 was 12.33% and
17.54%, respectively, and well in excess of the required ratios.

Tier I leverage ratio is defined as the Company's Tier I capital divided
by its adjusted average total assets (net of allowance for loan losses). The
minimum leverage ratio is 3.00% for banking organizations carrying the highest
regulatory rating. Other institutions are expected to maintain a leverage ratio
of at least 4.00% to 5.00% depending upon their particular condition. At March
31, 1999 and December 31, 1998, the Company's Tier I leverage ratio was 7.88%
and 11.01%, respectively, which exceeds the regulatory minimum.

THE YEAR 2000 ISSUE

This section contains forward-looking statements that have been prepared
on the basis of the Company's best judgments and currently available
information. These forward-looking statements are inherently subject to
significant business, third-party and regulatory uncertainties and other
contingencies, many of which are beyond the control of the Company. In addition,
these forward-looking statements are based on the Company's current internal
assessments and remediation plans, incorporating certain representations of
third-party servicers, and are subject to change. Accordingly, there can be no
assurance that the Company's results of operations will not be adversely
affected by difficulties or delays in the Company's or third parties' Year 2000
readiness efforts.

The Year 2000 issue involves certain assumptions that were incorporated
into the design of many existing computer programs. To conserve expensive
computer storage space, many older computer programs determine dates using only
two digits to identify the year. In some systems, the assumption that 1900 is
the century causes these programs to treat "00" as 1900 rather than 2000. This
assumption could cause computer programs and hardware to fail entirely or create
erroneous or meaningless results. The Company relies heavily on software
applications that could be affected by Year 2000 issues.

Achieving Year 2000 compliance is one of the Company's highest
priorities. Senior management and the Board of Directors have been actively
involved in overseeing Year 2000 compliance efforts to ensure that the Company
adequately handles all required aspects of the century date change, including
application systems, system interfaces, operations and facilities. To that end,
the Board adopted a Year 2000 Project Plan which was developed using the
guidelines outlined in the Federal Financial Institutions Examination Council's
("FFIEC") interagency statement "Year 2000 Project Management Awareness". The
Year 2000 Project Plan consists of five phases: awareness, assessment,
renovation, validation and implementation. The plan called for completion of all
necessary renovation by December 31, 1998, with validation and testing to be
completed by March 31, 1999. The Company's Year 2000 Steering Committee, led by
the Year 2000 Senior Officer and the Year 2000 Project Leader, is responsible
for implementing and monitoring the Year 2000 Project Plan, with the Board of
Directors receiving progress reports quarterly. Management believes that its
program is producing the appropriate level of preparedness, consistent with the
guidelines issued by federal banking regulators.

The Company has contacted its major computer service providers and has
received assurances that those services will function properly on and after
January 1, 2000. Testing by the Company to validate those assurances began in
the third quarter of 1998 and, as of March 31, 1999, was substantially complete
for both in-house applications and service providers. Certain computer hardware
and software, including some systems with embedded technology, required
revisions or replacement to be Year 2000 compliant. Those replacements and
revisions are substantially complete. Currently, the Company estimates the final
cost of its Year 2000 compliance plan, excluding normal salary costs for Company
personnel working on the project, to be less than $300,000. These costs, with
the exception of capital expenditures, are being expensed as incurred, and were
approximately $275,000 for 1998, including capital expenditures. Additional
costs incurred during 1999 are expected to be approximately $25,000, including
capital expenditures. The anticipated costs of compliance and expected
completion dates are based upon management's best estimates which were derived
utilizing assumptions of future events including the continued availability of
certain resources, plans for third party vendor remediation, availability of
testing facilities and other factors beyond the control of the Company.

19
<PAGE>
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Regardless of the Year 2000 compliance of the Company's systems, there
is no complete assurance that the Company will not be adversely affected to the
extent that other entities not affiliated with the Company fail to properly
address this issue. In an effort to minimize this possibility, active
communication has been ongoing between the Company and its external service
providers and intermediaries. Public awareness sessions were hosted by the
Company for its customers and other interested parties during 1998 and will
continue throughout 1999. In addition, the Company has sent correspondence and
informational brochures to customers and suppliers, and such communications will
continue throughout 1999. In addition, a risk reduction program was initiated
during 1998 to address potential Year 2000 exposure in the loan portfolio. An
assessment was also made to evaluate risks inherent within the depositor base.
Even with the Company's best efforts to achieve Year 2000 compliance,
significant business interruptions or failures by key business customers,
suppliers, trading partners or governmental agencies resulting from the effects
of Year 2000 issues could have a material adverse impact on the Company.

No matter how well an organization prepares, something may go wrong. As
a normal course of business, the Company has contingency plans in place to
ensure business resumption and continuation in the event of unforeseen problems.
Specifically, the Company has adopted contingency plans for the failure of its
mission critical systems in the event of unforeseen disruptions in the Company's
data processing capabilities. The Company is reviewing its contingency plans to
ensure that they adequately address possible Year 2000 disruptions as well.
Generally, the plans focus on strategies that would be implemented in the event
of Year 2000 related problems. These strategies include the ability to continue
to safely operate the Company and to execute customer transactions in the event
of area wide interruptions due to loss of power or telecommunications, or
problems with the Company's computer systems. These plans are subject to testing
and review procedures in conjunction with the Year 2000 plan and are expected to
be completed by June 30, 1999.

While the Company will have contingency plans in place to address a
temporary disruption in these services, there can be no assurance that any
disruption or failure will be only temporary, that the Company's contingency
plans will function as anticipated, or that the results of operations, financial
condition, or liquidity of the Company will not be adversely affected in the
event of a prolonged disruption or failure.

Additionally, there can be no assurance that the FFIEC or other federal
regulators will not issue new regulatory requirements that require additional
work by the Company and, if issued, that new regulatory requirements will not
increase the cost or delay the completion of the Company's Year 2000 Project.

Federal bank regulators have enforcement powers with respect to Year
2000 compliance. Failure to implement an acceptable Year 2000 readiness plan
could result in the disapproval of expansion applications filed with bank
regulatory agencies or the imposition of cease and desist orders or civil money
penalties.

FORWARD-LOOKING INFORMATION

Certain matters discussed in this report, excluding historical
information, include forward-looking statements. Although the Company believes
such forward-looking statements are based on reasonable assumptions, no
assurance can be given that every objective will be reached. The words
"estimate", "expect", "intend" and "project", as well as other words or
expressions of similar meaning are intended to identify forward-looking
statements. Readers are cautioned not to place undue reliance on forward-looking
statements, which speak only as of the date of this report. Such statements are
based on current expectations, are inherently uncertain, are subject to risks
and should be viewed with caution. Actual results and experience may differ
materially from the forward-looking statements as a result of many factors.

Factors that could cause actual results to differ materially from any
results projected, forecasted, estimated or budgeted by the Company in
forward-looking statements include among others, the following possibilities:
(i) changes in local, state, national and international economic conditions,
(ii) changes in the capital markets utilized by the Company and its
subsidiaries, including changes in the interest rate environment that may reduce
margins, (iii) changes in state and/or federal laws and regulations to which the
Company and its subsidiaries, as well as customers, competitors and potential
competitors, are subject, including banking, tax, securities, insurance and
employment laws and regulations, (iv) the loss of senior management or operating
personnel and the potential inability to hire qualified personnel at reasonable
compensation levels, (v) the Company's inability to complete its Year 2000
action plan on a timely basis, and (vi) increased competition from both within
and without the banking industry. It is not possible to foresee or identify all
such factors. The Company makes no commitment to update any forward-looking
statement, or to disclose any facts, events or circumstances after the date
hereof that may affect the accuracy of any forward-looking statements.

20
<PAGE>
- --------------------------------------------------------------------------------

AVERAGE BALANCE SHEETS AND INTEREST RATES (1)

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------------------
1999 1998
--------------------------------------- ----------------------------------
(4) INTEREST (4) INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE COST BALANCE EXPENSE COST
----------- ----------- ----------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Due from banks ................................. $ 18 $ 1 22.22% $ 56 $ 1 7.13%
Federal funds sold ............................. 30,361 313 4.12 20,463 278 5.43
Investment securities, available-for-sale:
Taxable ................................... 199,034 2,849 5.73 181,378 2,857 6.31
Tax-exempt (2) ............................ 1,820 30 6.59 2,687 50 7.44
Loans and leases (3) ........................... 351,842 7,178 8.27 268,508 6,033 9.11
--------- --------- ------- --------- --------- ------
Total earning assets ................. 583,075 10,370 7.21 473,092 9,219 7.90
--------- --------- ------- --------- --------- ------
Less allowance for loan and lease losses ............. (3,931) (2,886)
Non-earning assets ................................... 53,493 40,905
--------- ---------
TOTAL ASSETS .................... $ 632,637 $ 511,111
========= =========
LIABILITIES
Interest bearing liabilities:
Deposits:
Savings, NOW, & MMA accounts .............. $ 185,462 1,009 2.21 $ 149,670 1,122 3.04
Time deposits ............................. 251,686 3,130 5.04 212,321 2,820 5.39
--------- --------- ------- --------- --------- ------
Total interest bearing deposits ...... 437,148 4,139 3.84 361,991 3,942 4.42
Federal funds purchased and securities sold
under agreements to repurchase ............ 23,017 277 4.81 8,827 117 5.30
Other borrowings ............................... 18,052 283 6.27 15,316 242 6.32
--------- --------- ------- --------- --------- ------
Total interest bearing liabilities ... 478,217 4,699 3.99 386,134 4,301 4.52
--------- --------- ------- --------- --------- ------
Non-interest bearing liabilities:
Demand deposits ................................ 89,162 62,536
Other liabilities .............................. 8,514 5,519
--------- ---------
Total non-interest bearing
liabilities ..................... 97,676 68,055
Shareholders' Equity ................................. 56,744 56,922
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY ............... $ 632,637 $ 511,111
========= =========
Net Interest Income .................................. $ 5,671 $ 4,918
========= =========
Interest Differential ................................ 3.22% 3.38%
======= ======
Net Interest Margin .................................. 3.94% 4.22%
======= ======
</TABLE>
- -----------------
(1) DOLLARS IN THOUSANDS AND INCOME AND RATES ON TAX-EQUIVALENT BASIS.
(2) INCLUDES TAX EQUIVALENT ADJUSTMENTS BASED ON 34%
(3) INCLUDES LOANS PLACED ON NON-ACCRUAL.
(4) ALL AMOUNTS SHOWN AT AMORTIZED COST.

21
<PAGE>
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

PART II. OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the period
covered by this report.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a) On January 24, 1999 the Company filed a Form 8-K announcing that the Board
of Directors of FVNB Corp. had declared a regular cash dividend of $.35
per share payable on February 11, 1999 to shareholders of record as of
January 28, 1999.

On January 29, 1999 the Company filed a Form 8-K announcing the completion
of the acquisition and merger into FVNB Corp. of CBOT Financial
Corporation, the parent company of Citizens Bank of Texas, N.A. and
Citizens Mortgage Company.

On February 16, 1999 the Company filed a Form 8-K announcing that the
Board of Directors of the Company had decided not to renew the contract of
Arthur Andersen LLP as independent accountants for FVNB Corp. effective
upon completion of the current audit for the year ended December 31, 1998.
The decision was in no way related to any disagreement between the Company
and Arthur Andersen LLP.

In addition, on April 21, 1999 the Company filed a Form 8-K dated April
20, 1999. The purpose of the form was to report that the Board of
Directors of FVNB Corp. had declared a regular cash dividend of $.35 per
share payable on May 13, 1999 to shareholders of record as of April 29,
1999.

b) The following exhibits are filed as part of this report:

* 27 Financial Data Schedule

22
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

FVNB CORP.

MAY 14, 1999 By: /s/ DAVID M. GADDIS
Date David M. Gaddis
President and Chief Executive Officer

MAY 14, 1999 By: /s/ C. DEE HARKEY
Date C. Dee Harkey
Secretary,
Principal Accounting and Financial
Officer

<ARTICLE> 9
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 23,960
<INT-BEARING-DEPOSITS> 426,863
<FED-FUNDS-SOLD> 35,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 186,089
<INVESTMENTS-CARRYING> 187,772
<INVESTMENTS-MARKET> 186,089
<LOANS> 353,125
<ALLOWANCE> 3,931
<TOTAL-ASSETS> 630,796
<DEPOSITS> 509,643
<SHORT-TERM> 37,945
<LIABILITIES-OTHER> 8,025
<LONG-TERM> 16,145
0
0
<COMMON> 24
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 630,796
<INTEREST-LOAN> 7,178
<INTEREST-INVEST> 2,869
<INTEREST-OTHER> 314
<INTEREST-TOTAL> 10,361
<INTEREST-DEPOSIT> 4,139
<INTEREST-EXPENSE> 4,699
<INTEREST-INCOME-NET> 5,662
<LOAN-LOSSES> 5
<SECURITIES-GAINS> 9
<EXPENSE-OTHER> 5,088
<INCOME-PRETAX> 2,351
<INCOME-PRE-EXTRAORDINARY> 2,351
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,509
<EPS-PRIMARY> .64
<EPS-DILUTED> .62
<YIELD-ACTUAL> 7.21
<LOANS-NON> 2,266
<LOANS-PAST> 1,158
<LOANS-TROUBLED> 514
<LOANS-PROBLEM> 391
<ALLOWANCE-OPEN> 3,931
<CHARGE-OFFS> 75
<RECOVERIES> 93
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 3,931
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,409

</TABLE>