UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1999
Commission File Number: 333-47939
FVNB CORP.
(Exact name of registrant as specified in its charter)
TEXAS 74-2871063
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 MAIN STREET
VICTORIA, TEXAS 77901
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (361) 573-6321
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based on the closing sales price of such stock as of March 21,
2000, was $47,152,665.
The number of shares of Common Stock, par value $0.01 per share, of the
Registrant outstanding as of March 21, 2000 was 2,372,892 shares.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents, in whole or in part, are specifically incorporated by
reference in the indicated Part of this Report on Form 10-K:
Annual Report to Shareholders For the Year Ended December 31, 1999 Part II
Proxy Statement for the 2000 Annual Meeting of Shareholders Part III
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FVNB CORP.
ANNUAL REPORT ON FORM 10-K
PAGE
PART I.
ITEM 1. Business...........................................................2
General........................................................2
Competition....................................................4
Supervision and Regulation.....................................4
ITEM 2. Properties........................................................10
ITEM 3. Legal Proceedings.................................................10
ITEM 4. Submission of Matters to a Vote of Security Holders...............11
PART II.
ITEM 5. Market for Registrant's Common Stock and Related Security Holder
Matters.......................................................... 11
ITEM 6. Selected Financial Data...........................................11
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................11
ITEM 7A. Quantitative and Qualitative Disclosure About Market Risks........11
ITEM 8. Financial Statements and Supplementary Data.......................12
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..........................................12
PART III.
ITEM 10. Directors and Executive Officers of the Registrant................12
ITEM 11. Executive Compensation............................................12
ITEM 12. Security Ownership of Certain Beneficial Owners and Management....12
ITEM 13. Certain Relationships and Related Transactions....................12
PART IV.
ITEM 14. Exhibits, Financial Schedules and Reports on Form 8-K.............13
FORWARD LOOKING STATEMENTS
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, and (v) 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.
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PART I
ITEM 1. BUSINESS
GENERAL
FVNB Corp. (the "Company") was initially organized in September 1998 as a
bank holding company for First Victoria National Bank. Currently, 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.
Chartered in 1890, First Victoria National Bank is located in Victoria,
Texas and offers all usual commercial banking services. The bank currently has
three locations in Victoria as well as full service branches in Calhoun County
and Taft, Texas. In addition, First Victoria National Bank has three wholly
owned operating subsidiaries: PMV, Inc., which is currently inactive, and 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 leasing
activities of the Company. As of December 31, 1999, First Victoria National Bank
had total assets of approximately $571,139,000; loans and leases, net of
unearned discount, of approximately $325,141,000; and total deposits of
approximately $487,389,000. First Victoria National Bank employed 222 people on
a full-time basis and 37 people on a part-time basis as of December 31, 1999.
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 CBOT Mortgage Company. Citizens Bank of Texas continues to
operate as an independent subsidiary and currently has three locations located
in New Waverly, Huntsville and The Woodlands, Texas. As of December 31, 1999,
Citizens Bank of Texas had total assets of approximately $85,296,000; loans and
leases, net of unearned discount, of approximately $62,352,000; and total
deposits of approximately $67,598,000. Citizens Bank of Texas employed 50 people
on a full-time basis and 6 people on a part-time basis as of December 31, 1999.
On January 27, 2000, the Company entered into a definitive agreement to
acquire Mid-Coast Savings Bank, SSB. Upon completion of the transaction, the
Mid-Coast Savings will merge with First Victoria National Bank, resulting in the
locations of Mid-Coast Savings being operated as branches of First Victoria
National Bank. The transaction is subject to regulatory approval and approval by
shareholders of Mid-Coast Savings Bank and is expected to be completed during
the second quarter of 2000. As of December 31, 1999, Mid-Coast Savings Bank had
two branches located in Edna and Ganado, Texas with total assets of
approximately $44,363,000 and loans and deposits of approximately $25,761,000
and $33,984,000, respectively.
As of December 31, 1999, the Company had total consolidated assets of
approximately $655,184,000; consolidated loans and leases, net of unearned
discount, of approximately $387,407,000; and total deposits of approximately
$554,820,000.
While the Subsidiary Banks' loan portfolios are diversified, a significant
portion of the total portfolio is in agriculture loans (approximately 19% of
total loans) and therefore, may be deemed seasonal with regard to funding
requirements. Also, the Subsidiary Banks have substantially no deposits from or
loans to foreign customers.
The Subsidiary Banks provide general commercial banking services to a
variety of businesses and individuals located in southeast Texas. Some of the
loan services available to customers include: agriculture, commercial, real
estate, home improvement, automobile, and personal loans. As of December 31,
loans and
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leases are classified in the following categories (in thousands). Included in
commercial and financial loans is a net lease receivable totaling approximately
$7,260,000 and $6,793,000 as of December 31, 1999 and 1998, respectively.
1999 1998
---- ----
AMOUNT % AMOUNT %
------ - ------ -
Commercial and financial $88,660 23% $63,255 22%
Mortgage real estate 157,693 41 106,410 36
Construction real estate 12,887 3 3,736 1
Agriculture 74,715 19 75,793 26
Consumer 53,574 14 43,776 15
------- -- ------- --
Total loans and leases 387,529 100% 292,970 100%
=== ===
Less
Unearned income (122) (108)
Allowance for loan and lease losses (4,573) (3,308)
------- -------
Net loans and leases $382,834 $289,554
======== ========
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 Company evaluates each customer's
credit-worthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the Company upon extension of credit is based on
management's credit evaluation of the counterparty. Standby letters of credit
are conditional commitments issued by the Company 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 prices and interest rates of the
commitments are determined by the market conditions prevailing at the time the
commitments are exercised.
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 amount of those instruments. As
of December 31, 1999 and 1998, the Subsidiary Banks had commitments to extend
credit of approximately $132,361,000 and $100,204,000 and standby letters of
credit of approximately $2,122,000 and $1,534,000 respectively. The following is
a breakdown of commitments by type as of December 31 (in thousands):
1999 1998
-------- --------
Commercial and financial $ 48,265 $ 35,279
Real estate 17,505 5,180
Agriculture 37,948 35,524
Consumer 28,643 24,221
-------- --------
Total $132,361 $100,204
======== ========
The Company does not anticipate that compliance with federal, state,
and local provisions relating to the protection of the environment will have a
material effect upon the capital expenditures, earnings, or competitive position
of the Company.
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In addition to loan services, the Subsidiary Banks also offer deposit
facilities and certificates of deposit for commercial customers and various
checking, wire transfers, safekeeping, safe deposit, credit card, and savings
and time deposit services for individuals.
First Victoria National Bank's Trust and Investment Management Department
also offers extensive trust services including estates, guardianships, personal
trust and investment services, and pension and retirement plans. Trust assets
and other properties, except cash deposits, held by First Victoria National Bank
in agency or other fiduciary capacities for its customers are not included in
the Company's financial statements. The book value of trust assets (unaudited)
was approximately $209,811,000 at December 31, 1999.
COMPETITION
The Company competes actively with other commercial banks and savings and
loan associations in southeast Texas, many of which are larger than the Company,
as well as with major regional banking and financial institutions headquartered
in other areas of Texas and the United States. Deposit deregulation has
intensified the competition for deposits among banks in recent years. The
Company, however, is generally competitive with all financial institutions in
its service area with respect to interest rates paid on time and savings
deposits, service charges on deposit accounts and interest rates charged on
loans. Additional competition is derived from credit unions, finance companies,
brokerage firms, insurance companies, retailers, trust companies and other
non-bank entities.
Under the Gramm-Leach-Bliley Act ("GLBA"), effective March 11, 2000,
banks, securities firms and insurance companies may affiliate under an entity to
be known as a financial holding company, which could then serve its customers'
varied financial needs through a single corporate structure. The GLBA may
significantly change the competitive environment in which the company and its
subsidiaries conduct business. The financial services industry is also likely to
become even more competitive as further technological advances enable more
companies to provide financial services. These technological advances may
diminish the importance of depository institutions and other financial
intermediaries in the transfer of funds between parties.
SUPERVISION AND REGULATIONS
GENERAL. In addition to the generally applicable state and Federal laws
governing businesses and employers, the Company and its bank subsidiaries are
further extensively regulated by special Federal and state laws governing
financial institutions. These laws comprehensively regulate the operations of
the Company's bank subsidiaries and include, among other matters, requirements
to maintain reserves against deposits; restrictions on the nature and amount of
loans that may be made and the interest that may be charged thereon;
restrictions on the amounts, terms and conditions of loans to directors,
officers, large shareholders and their affiliates; restrictions related to
investments in activities other than banking; and minimum capital requirements.
With few exceptions, state and Federal banking laws have as their principal
objective either the maintenance of the safety and soundness of the Federal
deposit insurance system or the protection of consumers, rather than the
specific protection of shareholders of the Company. Further, the earnings of the
Company are affected by the fiscal and monetary policies of the Federal Reserve
System, which regulates the national money supply in order to mitigate
recessionary and inflationary pressures. These monetary policies influence to a
significant extent the overall growth of bank loans, investments and deposits
and the interest rates charged on loans or paid on time and savings deposits.
The nature of future monetary policies and the effect of such policies on the
future earnings and business of the Company cannot be predicted.
FRB APPROVALS. The Company is a registered bank holding company within the
meaning of the Bank Holding Company Act of 1956, as amended ("BHCA"), and is
subject to supervision by the FRB and to a certain extent the Texas Department
of Banking (the "DOB"). The Company is required to file with the FRB annual
reports and other information regarding the business operations of itself and
its subsidiaries. It is also subject to examination by the FRB. Under the BHCA,
a bank holding company is, with limited
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exceptions, prohibited from acquiring direct or indirect ownership or control of
any voting stock of any company which is not a bank or bank holding company, and
must engage only in the business of banking, managing, controlling banks, and
furnishing services to or performing services for its subsidiary banks. One of
the exceptions to this prohibition is the ownership of shares of any company
provided such shares do not constitute more than 5% of the outstanding voting
shares of the company and so long as the FRB does not disapprove such ownership.
Another exception to this prohibition is the ownership of shares of a company
the activities of which the FRB has specifically determined to be so closely
related to banking, managing or controlling banks as to be a proper incident
thereto.
The BHCA and the Change in Bank Control Act of 1978 require that,
depending on the circumstances, either FRB approval must be obtained or notice
must be furnished to the FRB and not disapproved prior to any person or company
acquiring "control" of a bank holding company, such as the Company, subject to
certain exceptions for certain transactions. Control is conclusively presumed to
exist if an individual or company acquires 25% or more of any class of voting
securities of the bank holding company. Control is rebuttably presumed to exist
if a person acquires 10% or more but less than 25% of any class of voting
securities where the bank holding company, such as the Company, has registered
Securities under Section 12 of the Securities Exchange Act of 1934 (the
"Exchange Act").
As a bank holding company, the Company is required to obtain approval
prior to merging or consolidating with any other bank holding company, acquiring
all or substantially all of the assets of any bank or acquiring ownership or
control of shares of a bank or bank holding company if, after the acquisition,
the Company would directly or indirectly own or control 5% or more of the voting
shares of such bank or bank holding company.
FINANCIAL MODERNIZATION. On November 12, 1999, President Clinton signed
into law GLBA. This comprehensive legislation eliminates the barriers to
affiliations among banks, securities firms, insurance companies and other
financial service providers. GLBA provides for a new type of financial holding
company structure under which affiliations among these entities may occur,
subject to the regulation of the FRB and regulation of affiliates by the
functional regulators, including the Securities and Exchange Commission ("SEC")
and state insurance regulators. Under GLBA, a financial holding company may
engage in a broad list of financial activities and any non-financial activity
that the FRB determines is complementary to a financial activity and poses no
substantial risk to the safety and soundness of depository institutions or the
financial system. In addition, GLBA permits certain non-banking financial and
financially related activities to be conducted by financial subsidiaries of a
national bank. In addition, GLBA imposes strict new privacy disclosure and
opt-out requirements regarding the ability of financial institutions to share
personal non-public customer information with third parties.
Under GLBA, a bank holding company may become certified as a financial
holding company by filing a declaration with the FRB, together with a
certification that each of its subsidiary banks is well capitalized, is well
managed, and has at least a satisfactory rating under the Community Reinvestment
Act of 1977 ("CRA"). The Company has not, at this time, made any decision with
respect to whether it will elect to become a financial holding company under
GLBA.
INTERSTATE BANKING. In 1994, Congress enacted the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 ("Interstate Banking Act"), which
rewrote federal law governing the interstate expansion of banks in the United
States. Effective as of September 29, 1995, adequately capitalized, well managed
bank holding companies with FRB approval may acquire banks located in any state
in the United States, provided that the target bank meets the minimum age (up to
a maximum of five years, which is the maximum Texas has adopted) established by
the host state. Under the Interstate Banking Act, an anti-concentration limit
will bar interstate acquisitions that would give a bank holding company control
of more than ten percent (10%) of all deposits nationwide or thirty percent
(30%) of any one state's deposits, or such higher or lower percentage
established by the host state. The anti-concentration limit in Texas has been
set at twenty percent (20%) of all federally insured deposits in Texas.
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In addition to providing for interstate acquisitions of banks by bank
holding companies, the Interstate Banking Act provides for interstate branching
by permitting mergers between banks domiciled in different states beginning June
1, 1997. The Interstate Banking Act provides that states may opt out of
interstate branching by enacting non-discriminatory legislation prohibiting
interstate bank mergers before June 1, 1997. In 1995, Texas passed legislation
opting out of the interstate branching provisions of The Interstate Banking Act
until September 1999. In May 1998, the Texas DOB determined that the Texas
opt-out statute was not effective and the Texas DOB began accepting applications
for interstate branching transactions. During 1999, legislation implementing
interstate branching was adopted by the Texas legislature. No accurate
prediction can be made at this time as to how this legislation will affect the
Company and/or its bank subsidiaries.
FRB ENFORCEMENT POWERS. The FRB has certain cease-and-desist and
divestiture powers over bank holding companies and non-banking subsidiaries
where their actions would constitute a serious threat to the safety, soundness
or stability of a subsidiary bank. These powers may be exercised through the
issuance of cease-and-desist orders or other actions. In the event a bank
subsidiary experiences either a significant loan loss or rapid growth of loans
or deposits, the Company may be compelled by the FRB to invest additional
capital in the bank subsidiary. Further, the Company would be required to
guarantee performance of the capital restoration plan of any undercapitalized
bank subsidiary. The FRB is also empowered to assess civil money penalties
against companies or individuals who violate the BHCA in amounts up to
$1,000,000 per day, to order termination of non-banking activities of
non-banking subsidiaries of bank holding companies and to order termination of
ownership and control of a non-banking subsidiary. Under certain circumstances
the Texas Banking Commissioner may bring enforcement proceedings against a bank
holding company in Texas.
COMPANY DIVIDENDS. The FRB's policy discourages the payment of dividends
from borrowed funds and discourages payments that would affect capital adequacy.
The FRB has issued policy statements which generally state that bank holding
companies should serve as a source of financial and managerial strength to their
bank subsidiaries, and generally should not pay dividends except out of current
earnings, and should not borrow to pay dividends if the bank holding company is
experiencing capital or other financial problems.
CROSS-GUARANTEE PROVISIONS. The Financial Institutions Reform, Recovery
and Enforcement Act of 1989 ("FIRREA") contains a "cross-guarantee" provision
which generally makes commonly controlled insured depository institutions liable
to the FDIC for any losses incurred in connection with the failure of a commonly
controlled depository institution.
AUDIT REPORTS. Insured institutions with total assets of $500 million or
more must submit annual audit reports prepared by independent auditors to
federal and state regulators. In some instances, the audit report of the
institution's holding company can be used to satisfy this requirement. Auditors
must receive examination reports and other examination related correspondence.
In addition, financial statements prepared in accordance with generally accepted
accounting principles, management's certifications concerning responsibility for
the financial statements, internal controls and compliance with legal
requirements designated by the FDIC, and an attestation by the auditor regarding
the statements of management relating to the internal controls must be
submitted. For institutions with total assets of more than $3 billion,
independent auditors may be required to review quarterly financial statements.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
requires that independent audit committees be formed, consisting of outside
directors only. The committees of such institutions must include members with
experience in banking or financial management, must have access to outside
counsel, and must not include representatives of large customers. During 1999,
the SEC adopted new rules, which will become effective during 2000, to improve
the function of corporate audit committees. The new rules require, among other
things, that independent auditors review public companies' interim financial
information prior to filing with the SEC and that companies include in their
proxy statements certain information about their audit committees.
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GENERAL-BANK SUBSIDIARIES. As national banking associations, the
Subsidiary Banks are principally supervised, examined and regulated by the
Office of the Comptroller of the Currency (the "OCC"). The OCC regularly
examines such areas as capital adequacy, reserves, loan portfolio, investments
and management practices. The Bank must also furnish quarterly and annual
reports to the OCC, and the OCC may exercise cease and desist and other
enforcement powers over the Bank if its actions represent unsafe or unsound
practices or violations of law. Since the deposits of the Bank are insured by
the Bank Insurance Fund ("BIF") of the Federal Deposit Insurance Corporation
(the "FDIC"), the Bank is also subject to regulation and supervision by the
FDIC. Because the FRB regulates the Company, the FRB has supervisory authority
which affects the Bank.
DEPOSIT INSURANCE. The deposits of the Bank are insured by the FDIC
through the BIF to the extent provided by law. Under the FDIC's risk-based
insurance system, BIF-insured institutions are currently assessed premiums of
between zero and twenty seven cents per $100 of eligible deposits, depending
upon the institution's capital position and other supervisory factors. During
1996, Congress enacted legislation that, among other things, provides for
assessments against BIF-insured institutions that will be used to pay certain
Financing Corporation ("FICO") obligations. BIF and Savings Association
Insurance Fund payers are assessed pro rata for the FICO bond obligations.
CAPITAL ADEQUACY. The Company and its bank subsidiaries are currently
required to meet certain minimum regulatory capital guidelines utilizing total
capital-to-risk-weighted assets and Tier 1 Capital elements. At December 31,
1999 the Company's ratio of total capital-to-risk-weighted assets was 13.28%.
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. At least one-half of the minimum total capital must
be comprised of Tier 1 Capital elements. Tier 1 Capital of the Company is
comprised of common shareholders' equity. The core deposit intangibles and
goodwill of approximately $10,719,000 booked in connection with all the
financial institution acquisitions of the Company as of December 31, 1999 are
deducted from the sum of core capital elements when determining the capital
ratios of the Company.
In addition, the FRB has established minimum leverage ratio guidelines for
bank holding companies. These guidelines provide for a minimum leverage ratio of
Tier 1 capital to adjusted average quarterly assets ("leverage ratio") equal to
three percent for bank holding companies that meet certain specified criteria,
including having the highest regulatory rating. All other bank holding companies
will generally be required to maintain a leverage ratio of at least 4.00% to
5.00%. The Company's leverage ratio at December 31, 1999 was 8.40%. The
guidelines also provide that bank holding companies experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant reliance
on intangible assets. Furthermore, the guidelines indicate that the FRB will
continue to consider a "tangible Tier 1 leverage ratio" (deducting all
intangibles) in evaluating proposals for expansion or new activity. The FRB has
not advised the Company of any specific minimum leverage ratio or tangible Tier
1 leverage ratio applicable to it. Each of the Company's bank subsidiaries is
subject to similar capital requirements adopted by the OCC. The Subsidiary Banks
each had leverage ratios in excess of 5.00% as of December 31, 1999. As of that
date, the federal banking agencies had not advised the Bank of any specific
minimum leverage ratio applicable to it.
Effective December 19, 1992, the federal bank regulatory agencies adopted
regulations, which mandate a five-tier scheme of capital requirements and
corresponding supervisory actions to implement the prompt corrective action
provisions of FDICIA. The regulations include requirements for the capital
categories that will serve as benchmarks for mandatory supervisory actions.
Under the regulations, the highest of the five categories would be a
well-capitalized institution with a total risk-based capital ratio of 10.00%, a
Tier 1 risk-based capital ratio of 6.00% and a Tier 1 leverage ratio of 5.00%.
An institution would be prohibited from declaring any dividends, making any
other capital distribution or paying a management fee if the capital ratios drop
below the levels for an adequately capitalized institution, which are 8.00%,
4.00% and 4.00%, respectively. The corresponding provisions of FDICIA mandate
corrective actions be taken if a bank is undercapitalized. Based on capital
ratios as of December 31, 1999, the Subsidiary Banks were each classified as
"well capitalized" under the applicable regulations.
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In 1995, in accordance with FDICIA, the OCC modified its risk-based
capital adequacy guidelines to explicitly include a bank's exposure to declines
in the economic value of its capital due to changes in interest rates as a
factor that it will consider in evaluating a bank's capital adequacy. In 1996,
the bank regulatory agencies introduced risk-based examination procedures.
Effective January 1, 1997, the federal banking agencies jointly adopted
regulations that amend the risk-based capital standards to incorporate measures
for market risk. Applicable banking institutions will be required to adjust
their risk-based capital ratio to reflect market risk. On December 19, 1996, the
FFIEC revised the Uniform Financial Institutions Rating System commonly referred
to as the CAMEL rating system. A sixth component addressing sensitivity to
market risk was added. Sensitivity to market risk reflects the degree to which
changes in interest rates, foreign exchange rates, commodity prices or equity
prices can adversely affect a financial institution's earnings or economic
capital.
CONSERVATOR AND RECEIVERSHIP POWERS. FDICIA significantly expanded the
authority of the federal banking regulators to place depository institutions
into conservatorship or receivership to include, among other things, appointment
of the FDIC as conservator or receiver of an undercapitalized institution under
certain circumstances. In the event the Bank is placed into conservatorship or
receivership, the FDIC is required, subject to certain exceptions, to choose the
method for resolving the institution that is least costly to the BIF, such as
liquidation.
INSOLVENCY. The OCC has articulated in a regulation the standards the OCC
uses to determine when a national bank becomes insolvent. The regulation alters
the standards such that a bank would be deemed to be insolvent for regulatory
purposes when it lacks equity capital rather than when it lacks primary capital
(principally equity capital plus the allowance for loan losses). Under the
regulatory guidelines, the OCC is also authorized to declare a national bank
insolvent when the bank is unable to meet its obligations as they mature.
DEPOSITOR PREFERENCE. Because the Company is a legal entity separate and
distinct from its bank subsidiaries, its right to participate in the
distribution of assets of any subsidiary upon the subsidiary's liquidation or
reorganization will be subject to the prior claims of the subsidiary's
creditors. In the event of a liquidation of a subsidiary bank, the claims of
depositors and other general or subordinated creditors of the bank are entitled
to a priority of payment over the claims of holders of any obligation of the
institution to its shareholders, including any depository institution holding
company (such as the Company) or any shareholder or creditor thereof.
CRA. Under the Community Reinvestment Act ("CRA"), the OCC is required to
assess the record of each bank subsidiary to determine if the bank meets the
credit needs of its entire community, including low and moderate-income
neighborhoods served by the institution, and to take that record into account in
its evaluation of any application made by the bank for, among other things,
approval of the acquisition or establishment of a branch or other deposit
facility, an office relocation, a merger, or the acquisition of shares of
capital stock of another financial institution. The OCC prepares a written
evaluation of an institution's record of meeting the credit needs of its entire
community and assigns a rating. FIRREA requires federal banking agencies to make
public a rating of a bank's performance under the CRA. The Bank received either
an "outstanding" or "satisfactory" CRA rating in its most recently completed
examination. Further, there are fair lending laws which prohibit discrimination
in connection with lending decisions.
CONSUMER LAWS. In addition to the laws and regulations discussed herein,
the Bank is also subject to certain consumer laws and regulations that are
designed to protect consumers in transactions with banks. While the list set
forth herein is not exhaustive, these laws and regulations include the Truth in
Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the
Expedited Funds Availability Act, the Equal Credit Opportunity Act, and the Fair
Housing Act, among others. These laws and regulations mandate certain disclosure
requirements and regulate the manner in which financial institutions must deal
with customers when taking deposits or making loans to such customers. The
subsidiary banks must comply with the applicable provisions of these consumer
protection laws and regulations as part of their ongoing customer relations.
8
<PAGE>
AFFILIATE TRANSACTIONS. The Company, and its bank subsidiaries are
"affiliates" within the meaning of Section 23A of the Federal Reserve Act which
sets forth certain restrictions on loans and extensions of credit between a bank
subsidiary and affiliates, on investments in an affiliate's stock or other
securities, and on acceptance of such stock or other securities as collateral
for loans. Such restrictions prevent a bank holding company from borrowing from
any of its bank subsidiaries unless the loans are secured by specific
obligations. Further, such secured loans and investments by a bank subsidiary
are limited in amount, as to a bank holding company or any other affiliate, to
10% of such bank subsidiary's capital and surplus and, as to the bank holding
company and its affiliates, to an aggregate of 20% of such bank subsidiary's
capital and surplus. Certain restrictions do not apply to 80% or more owned
sister banks of bank holding companies. Section 23B of the Federal Reserve Act
requires that the terms of affiliate transactions be comparable to terms of
similar non-affiliate transactions.
INSIDER LOANS. The restrictions on loans to directors, executive officers,
principal shareholders and their related interests (collectively referred to
herein as "insiders") contained in the Federal Reserve Act and Regulation O
apply to all insured institutions and their subsidiaries and holding companies.
These restrictions include limits on loans to one borrower and conditions that
must be met before such a loan can be made. There is also an aggregate
limitation on all loans to insiders and their related interests. These loans
cannot exceed the institution's total unimpaired capital and surplus, and the
OCC may determine that a lesser amount is appropriate. Insiders are subject to
enforcement actions for knowingly accepting loans in violation of applicable
restrictions.
LENDING RESTRICTIONS. The operations of the bank subsidiaries are also
subject to lending limit restrictions pertaining to the extension of credit and
making of loans to one borrower. The scope and requirements of such laws and
regulations have been expanded significantly in recent years. Further, under the
BHCA and the regulations of the FRB thereunder, the Company and its subsidiaries
are prohibited from engaging in certain tie-in arrangements with respect to any
extension of credit or provision of property or services; however, recently the
FRB adopted a rule relaxing tying restrictions by permitting a bank holding
company to offer a discount on products or services if a customer obtains other
products or services from such company.
The interest rate and usury laws of most states, including laws of the
State of Texas, which laws are preempted to a certain extent by federal law,
generally limit the amount of interest which lenders, including the Bank, may
charge on loans. These limits may vary depending upon, among other things, the
identity, nature and location of the lender and the borrower, use of proceeds of
a loan, amount of the loan, type of collateral for the loan and the particular
state or federal law applicable thereto. However, there is currently no limit on
the rate of interest, which the Bank may be charged on its liabilities, other
than on certain types of deposits. Market rates of interest, adjusted for
required reserves, on certain types of liabilities may rise to a level which may
adversely affect interest margin and/or loan growth. During 1997, the Texas
Constitution was amended to permit home equity lending effective January 1,
1998.
DIVIDENDS. The ability of the Company to pay dividends is largely
dependent on the amount of cash derived from dividends declared by its bank
subsidiaries. The payment of dividends by any bank or bank holding company is
affected by the requirement to maintain adequate capital as discussed above. The
directors of a national bank are authorized to declare cash dividends on the
capital stock of the bank, and the amount of the dividend is within the board's
discretion. However, a dividend cannot be declared if: (1) it would exceed the
bank's profits (12 U.S.C. Sec. 60); (2) it would impair the bank's capital (12
U.S.C. Sec. 56); or (3) the bank is in default on the payment of any assessment
due to the FDIC (12 U.S.C. Sec. 1828). Net profits are defined as the remainder
of all earnings from current operations plus actual recoveries on loans,
investments, and other assets less all current operating expenses, actual
losses, accrued dividends on preferred stocks, if any, all federal and state
taxes and bad debts (12 U.S.C. Sec. 60). The OCC adopted a regulation effective
as of January 1, 1991, which prohibits the Bank from including its allowance for
loan losses as an element of net profits when calculating the dividends the Bank
may pay. Approval of the OCC will be required for any dividend paid by the Bank
to the shareholders if the total of all actual and proposed dividends declared
by the Bank in any calendar year exceeds the total of its net profits for that
year combined
9
<PAGE>
with its retained net profits for the preceding two years, less any required
transfers to surplus or a fund for the retirement of any preferred stock (12
U.S.C. Sec. 60). The OCC has also issued a banking circular emphasizing that the
level of cash dividends should bear a direct correlation to the level of a
national bank's current and expected earnings stream, the bank's need to
maintain an adequate capital base and other factors. Please see Note 11 to the
Notes to Consolidated Financial Statements contained in the Company's 1999
Annual Report to Shareholders for a discussion of the dividend paying capacity
of the Bank.
FINANCIAL SUBSIDIARIES. Under GLBA, a national bank may establish a
financial subsidiary and engage, subject to limitations on investment, in
activities that are financial in nature, other than insurance underwriting as
principal, insurance company portfolio investment, real estate development, real
estate investment and annuity issuance. To do so, a bank must be well
capitalized, well managed and have a CRA rating of satisfactory or better.
Subsidiary banks of a financial holding company or national banks with financial
subsidiaries must remain well capitalized and well managed in order to continue
to engage in activities that are financial in nature without regulatory actions
or restrictions, which could include divestiture of the financial in nature
subsidiary or subsidiaries. In addition, a bank may not acquire a company that
is engaged in activities that are financial in nature unless the bank and each
affiliated bank has a CRA rating of satisfactory or better.
INSTABILITY OF REGULATORY STRUCTURE. Various legislation, including
proposals to overhaul the bank regulatory system, expand the powers of banking
institutions and bank holding companies and limit the investments that a
depository institution may make with insured funds, is from time to time
introduced in Congress. Such legislation may change banking statutes and the
operating environment of the Company and the bank subsidiaries in substantial
and unpredictable ways. The Company cannot determine the ultimate effect that
GLBA will have or the effect that potential legislation, if enacted, or
implementing regulations with respect thereto, would have upon the financial
condition or results of operations of the Company or its subsidiaries.
ITEM 2. PROPERTIES
The principal executive offices of the Company are located at 101 S. Main
Street, Victoria, Texas in a building owned by First Victoria National Bank.
Property of the Company includes the main banking facility of First Victoria
National Bank and certain other properties. In addition, First Victoria National
Bank has two full-service branches in Victoria, Texas as well as full service
branches in Calhoun County, Texas and Taft, Texas. All properties on which the
banking offices of First Victoria National Bank are located are owned and there
are no encumbrances with respect thereto. Property of the Company also includes
the main banking facility of Citizens Bank of Texas located in New Waverly,
Texas. Citizens Bank of Texas also has full-service branches in Huntsville,
Texas and The Woodlands, Texas. The properties on which these banking facilities
are located are owned and there are no encumbrances with respect thereto. In
addition, Citizens Bank of Texas has two leased properties. The first, which is
partially subleased to an unrelated entity, is located in Huntsville, Texas and
serves as an annex to the main branch location. The second is located in Conroe,
Texas and is subleased to an unrelated entity.
ITEM 3. LEGAL PROCEEDINGS
The Subsidiary Banks of the Company are involved in various routine claims
and lawsuits which have arisen in the normal course of conducting a commercial
banking business. Management does not believe that the outcome of any of these
matters will have a material adverse effect on the Company's financial position
or results of operations.
10
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS
The Company's common stock is quoted in the National Market System (NMS)
of NASDAQ under the symbol FVNB. The number of shareholders of record of common
stock at March 21, 2000 was 629. The following table shows the range of high and
low quotes per share of common stock of the Company on the over-the-counter
market, as reported by NASDAQ. Prices quoted on the NASDAQ NMS reflect
inter-dealer prices, without retail markup, markdown or commission and may not
necessarily represent actual transactions.
1999 1998
------------------- ------------------
HIGH LOW HIGH LOW
------- ------- ------- -------
First Quarter $36.000 $32.000 $42.250 $39.000
Second Quarter 34.500 27.000 43.250 40.000
Third Quarter 33.000 29.000 39.500 30.000
Fourth Quarter 40.000 30.500 34.000 30.000
The average bid/ask price of the Company's common stock was $32.66 per
share on March 21, 2000. On January 26, 2000, the Board of Directors approved a
regular quarterly cash dividend of $.35 per share payable on February 18, 2000,
to shareholders of record as of February 4, 2000. The Company anticipates this
level of regular dividend payments to continue for the remainder of 2000. Total
dividends paid during 1999 and 1998 were $1.40 and $1.30 per share,
respectively. See "Capital" section (page 24) in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Shareholders'
Equity" (page 43) in Note 11 to the consolidated financial statements herein
incorporated by reference from FVNB Corp.'s 1999 Annual Report to Shareholders
for further discussion of the payment of dividends and restrictions.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Selected Financial Data"
located on page 55 of FVNB Corp.'s 1999 Annual Report to Shareholders is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information contained under the captions "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 11 through
26, inclusive, of FVNB Corp.'s 1999 Annual Report to Shareholders is
incorporated herein by reference.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information set forth under the caption "Interest Rate Sensitivity" on
pages 13 through 14 of FVNB Corp.'s 1999 Annual Report to Shareholders is
incorporated herein by reference.
11
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of FVNB Corp. and Independent Public
Accountants' Reports contained on pages 27 through 53, inclusive, of FVNB
Corp.'s 1999 Annual Report to Shareholders are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On February 16, 1999, the Board of Directors of the Company decided not to
renew the contract of Arthur Andersen LLP ("Arthur Andersen") as independent
accountants for the Company effective upon completion of the audit for the year
ended December 31, 1998. Arthur Andersen's report on the financial statements
for the past two years did not contain an adverse opinion or a disclaimer of
opinion, and was not qualified or modified as to uncertainty, audit scope, or
accounting principles. The decision to change accountants was approved by the
board of directors of the Company on February 16, 1999. During the Company's two
most recent fiscal years and any subsequent interim period preceding such change
in accountants, there were no disagreements with Arthur Andersen on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreement(s), if not resolved to the
satisfaction of Arthur Andersen, would have caused it to make a reference to the
subject matter of the disagreement(s) in connection with its report. The Company
engaged KPMG LLP as the independent accountants of the Company by action of the
Board of Directors of the Company on February 16, 1999, to be effective as of
the completion by Arthur Andersen of the audit for the year ended December 31,
1998.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the caption "Directors and Executive
Officers" of FVNB Corp.'s Proxy Statement, dated April 10, 2000, relating to its
2000 Annual Meeting of Shareholders is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Compensation of Officers and
Directors" of FVNB Corp.'s Proxy Statement, dated April 10, 2000, relating to
its 2000 Annual Meeting of Shareholders (excluding the performance graph,
Compensation and Retirement Committee report, and the 1998 FVNB Corp. Stock
Incentive Plan Committee report.) is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Beneficial Ownership of Bank
Common Stock" and "Directors and Executive Officers" of FVNB Corp.'s Proxy
Statement, dated April 10, 2000, relating to its 2000 Annual Meeting of
Shareholders is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Transactions" of FVNB
Corp.'s Proxy Statement, dated April 10, 2000, relating to its 2000 Annual
Meeting of Shareholders is incorporated herein by reference.
12
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. The following financial statements and independent public accountants'
reports have been incorporated in Item 8 of this report by reference to
pages 27 through 53 of FVNB Corp.'s 1999 Annual Report to Shareholders:
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Income for each of the three years ended
December 31, 1999
Consolidated Statements of Comprehensive Income for each of the three
years ended December 31, 1999
Consolidated Statements of Shareholders' Equity for each of the three
years ended December 31, 1999
Consolidated Statements of Cash Flows for each of the three years ended
December 31, 1999
Notes to Consolidated Financial Statements
Reports of Independent Public Accountants
2. No financial statement schedules are required to be filed as a part of
this report.
(b) On January 20, 2000, the Company filed a Form 8-K dated January 20, 2000.
The form reported that the Board of Directors of FVNB Corp. announced that
David M. Gaddis, who currently serves as President and Chief Executive
Officer of both First Victoria National Bank and FVNB Corp., will assume
full-time responsibilities as President and Chief Executive Officer of
FVNB Corp.
On January 28, 2000, the Company filed a Form 8-K dated January 27, 2000.
The purpose of the form was to announce that on January 26, 2000, the
Board of Directors of FVNB Corp. declared a cash dividend of $.35 per
share payable on February 18, 2000 to shareholders of record as of
February 4, 2000. The form also reported unaudited financial information
related to the fourth quarter of 1999.
On February 1, 2000, the Company filed a Form 8-K dated February 1, 2000.
The purpose of the form was to announce FVNB Corp.'s earnings for 1999 and
provide a consolidated financial summary for 1999 and unaudited financial
information related to the fourth quarter of 1999.
On February 2, 2000, the Company filed a Form 8-K dated February 1, 2000.
The purpose of the form was to announce that the Board of Directors of
FVNB Corp. had approved a definitive agreement to acquire Mid-Coast
Savings Bank, SSB. The definitive agreement was entered into on January
27, 2000, and is subject to regulatory approval and approval by the
shareholders of Mid-
Coast Savings. Upon completion of the transaction, the acquired bank will
merge with First Victoria National Bank, a subsidiary bank of FVNB Corp.,
and the two Mid-Coast Savings locations in Edna and Ganado, Texas will
operate as branches of First Victoria National Bank.
13
<PAGE>
(c) The following exhibits are filed as part of this report:
3.1+ Articles of Incorporation of the registrant [incorporated by
reference from exhibit 3.1 of the registrant's registration
statement on Form S-4. (333-47939) Filed on March 13, 1998.]
3.2+ Bylaws of the registrant [incorporated by reference from
exhibit 3.2 of the registrant's registration statement on Form
S-4. (333-47939) Filed on March 13, 1998.]
10.1*+ FVNB Corp. Stock Incentive Plan [incorporated by reference from
exhibit 10.1 of the registrant's registration statement on Form
S-4. (333-47939) Filed on March 13, 1998.]
10.2+ Agreement and Plan of Merger by and between FVNB Corp. and CBOT
Financial Corporation dated as of October 8, 1998 [incorporated
by reference from exhibit 10.2 of the registrant's Quarterly
Report on Form 10-Q filed on November 13, 1998.]
10(a)*+ First Victoria National Bank Board of Directors Deferred
Compensation Plan incorporated herein as an exhibit by
reference to the Annual Report, Exhibit 10(a) therein, under
the Securities Exchange Act of 1934, filed by the Bank on Form
10-K on March 25, 1997
10(b)*+ Employees' Profit Sharing Plan incorporated herein as an
exhibit by reference to the Annual Report, Exhibit 10(b)
therein, under the Securities Exchange Act of 1934, filed by
the Bank on Form 10-K on March 25, 1997
10(c)*+ Incentive Compensation Plan incorporated herein as an
exhibit by reference to the Annual Report, Exhibit 10(c)
therein, under the Securities Exchange Act of 1934, filed by
the Bank on Form 10-K on March 25, 1997
10(d)*+ Pension Plan incorporated herein as an exhibit by reference
to the Annual Report, Exhibit 10(d) therein, under the
Securities Exchange Act of 1934, filed by the Bank on Form 10-K
on March 25, 1997
10(e)*+ Officer Annual Incentive Plan, as revised July 2, 1997,
incorporated herein as an exhibit by reference to the Quarterly
Report, Exhibit 10(e) therein, under the Securities Exchange
Act of 1934, filed by the Bank on Form 10-Q on August 8, 1997
13** 1999 Annual Report to Shareholders
21 Subsidiaries of the Registrant
23 Accountants' Consents
27 Financial Data Schedule [The required Financial Data Schedule
has been included as Exhibit 27 of the Form 10-K filed
electronically with the Securities and Exchange Commission]
* These documents constitute compensatory plans or arrangements
** Deemed filed only with respect to those portions thereof incorporated herein
by reference
+ Previously filed
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 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.
MARCH 21, 2000 By: /s/ DAVID M. GADDIS
------------------ -------------------------------------
Date David M. Gaddis
President and Chief Executive Officer
MARCH 21, 2000 By: /s/ C. DEE HARKEY
------------------ -------------------------------------
Date C. Dee Harkey
Secretary and Principal Accounting Officer
15
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
DIRECTOR MARCH 21, 2000
- --------------------------------- ---------------------- ---------------
Michael S. Anderson Title Date
/S/ O. D. EDWARDS, JR. DIRECTOR MARCH 21, 2000
- --------------------------------- ---------------------- ---------------
O. D. Edwards, Jr. Title Date
DIRECTOR MARCH 21, 2000
- --------------------------------- ---------------------- ---------------
David P. Engel Title Date
/S/ DAVID M. GADDIS DIRECTOR MARCH 21, 2000
- --------------------------------- ---------------------- ---------------
David M. Gaddis Title Date
/S/ WALTER T. HAENGGI DIRECTOR MARCH 21, 2000
- --------------------------------- ---------------------- ---------------
Walter T. Haenggi Title Date
/S/ ROBERT L. HALEPESKA DIRECTOR MARCH 21, 2000
- --------------------------------- ---------------------- ---------------
Robert L. Halepeska Title Date
/S/ THOMAS LANE KELLER DIRECTOR MARCH 21, 2000
- --------------------------------- ---------------------- ---------------
Thomas Lane Keller Title Date
/S/ JAMES ROBERT "BOB" MCCAN DIRECTOR MARCH 21, 2000
- --------------------------------- ---------------------- ---------------
James Robert "Bob" McCan Title Date
/S/ J. E. MCCORD DIRECTOR MARCH 21, 2000
- --------------------------------- ---------------------- ---------------
J. E. McCord Title Date
/S/ THOMAS M. O'CONNOR DIRECTOR MARCH 21, 2000
- --------------------------------- ---------------------- ---------------
Thomas M. O'Connor Title Date
/S/ BILLY W. RUDDOCK DIRECTOR MARCH 21, 2000
- --------------------------------- ---------------------- ---------------
Billy W. Ruddock Title Date
/S/ ROGER WELDER DIRECTOR MARCH 21, 2000
- --------------------------------- ---------------------- ---------------
Roger Welder Title Date
16
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE
- ------- ----------- ----
13 ** 1999 Annual Report to Shareholders
21 Subsidiaries of the Registrant
23 Accountants' Consents
27 Financial Data Schedule
** Deemed filed only with respect to those portions thereof incorporated herein
by reference
17
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides additional detail on the
operating results and financial condition of the Company for the periods
indicated. The discussion should be read in conjunction with the audited
consolidated financial statements and notes of FVNB Corp. which present the
Company's results of operations for the years 1997 through 1999 and its
financial condition as of December 31, 1999 and 1998. Taxable-equivalent
adjustments assume a 34% federal income tax rate.
RESULTS OF OPERATIONS
Net income of the Company for 1999 was approximately $7.50 million, or
$3.16 per share. This compares to $6.07 million, or $2.56 per share, for 1998
and $4.99 million, or $2.10 per share, for 1997. The return on average assets of
1.18% and return on average equity of 12.72% for 1999 compare to 1.16% and 9.83%
for 1998 and 1.10% and 9.16% for 1997, respectively. The earnings summary for
the years ended December 31, is as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Total interest income* ......................... $ 44,837 $ 37,586 $ 33,089
Total interest expense ......................... 19,776 17,724 15,482
-------- -------- --------
Net interest income ....................... 25,061 19,862 17,607
Provision (credit) for loan and lease losses ... 86 0 (300)
Non-interest income ............................ 8,569 5,539 4,867
Non-interest expense ........................... 21,869 16,146 15,180
-------- -------- --------
Income before income taxes ................ 11,675 9,255 7,594
Taxable-equivalent adjustment* ................. 37 51 116
Income tax expense ............................. 4,136 3,132 2,487
-------- -------- --------
Net income ................................ $ 7,502 $ 6,072 $ 4,991
======== ======== ========
Basic earnings per share........................ $ 3.16 $ 2.56 $ 2.10
Diluted earnings per share...................... 3.05 2.56 2.10
Return on average assets ....................... 1.18% 1.16% 1.10%
Return on average equity ....................... 12.72% 9.83% 9.16%
</TABLE>
* TAX-EXEMPT INCOME IS RECORDED ON A FULLY TAXABLE-EQUIVALENT (FTE) BASIS.
RETURN ON AVERAGE ASSETS RETURN ON AVERAGE EQUITY
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
12
<PAGE>
NET INTEREST INCOME
NET INTEREST INCOME (FTE) NET INTEREST SPREAD (FTE)
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
Net interest income on a taxable equivalent basis amounted to approximately
$25,610,000 in 1999 compared to $19,862,000 and $17,608,000 in 1998 and 1997,
respectively. The changes in the components of net interest income are detailed
in the rate/volume analysis on page 57. This increase in net interest income of
approximately $5,748,000, or 28.94%, from 1998 to 1999 is due to overall growth
in the average volume of both earning assets and interest bearing liabilities
related primarily to the Company's acquisition of Citizens Bank of Texas, N.A.
and Citizens Mortgage Company in January 1999. The acquisition is discussed
further in Note 19 to the consolidated financial statements. In addition to this
overall growth, the Company experienced declining rates on interest-bearing
liabilities during 1999 resulting in lower interest costs as well as various
non-recurring interest recoveries related to loans that had been previously
charged off resulting in an increased yield on earning assets in 1999. Average
earning assets increased approximately $90,754,000, or 18.60%, from 1998 to 1999
while average interest bearing liabilities increased approximately $75,969,000,
or 19.19%, over the same period. Yields on earning assets increased
approximately 5 basis points from 7.70% in 1998 to 7.75% in 1999 while the
cost of interest bearing liabilities decreased approximately 41 basis points
from 4.48% in 1998 to 4.07% in 1999. Interest foregone on non-performing loans
increased from approximately $98,000 in 1998 to $156,000 in 1999. The effect of
the reversal of previously accrued interest on non-accrual loans increased from
approximately $31,000 in 1998 to $84,000 in 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 interest 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
13
<PAGE>
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. At December
31, 1999, the Company's cumulative one year repricing gap position was a
negative $78 million, or 13.48% of total average earning assets.
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.
Based on the current structure of the balance sheet as well as long term
objectives established by management, the Company's Board of Directors has
determined policy guidelines within which changes in net interest income and
market value of portfolio equity may fall with respect to changes in interest
rate risk. (Market value of portfolio equity is defined as the difference
between the fair values of financial assets and liabilities resulting from the
discounting of their respective future cash flows at current market rates.)
Based on simulation analysis performed as of December 31, 1999, the Company
would experience an increase in net interest income of approximately $1,578,100,
or 6.08%, and a decrease in market value of portfolio equity of approximately
$11,896,000, or 21.84%, in the event of a 200 basis point rise in interest
rates. Conversely, the Company would experience a decrease in net interest
income of approximately $1,653,900, or 6.37%, and an increase in market value of
portfolio equity of approximately $13,205,000, or 24.24%, in the event of a 200
basis point decline in interest rates. These results are within the limits
established by the Company's Board of Directors.
While future interest rates and the effects of changes in interest rates 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. In the event of a change in interest rates, prepayments and early
withdrawal levels could deviate significantly from those assumed in making the
calculations set forth above. Additionally, 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.
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
by management.
14
<PAGE>
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 with banks, and investment securities and loans which
are nearing maturity. At December 31, 1999, the Company's liquidity ratio,
defined as liquid assets as a percentage of deposits, was 32.89% compared to
40.23% at December 31, 1998. 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 Company. Interest-bearing
deposits (excluding certificates of deposit of $100,000 or more) totaled
approximately $368,063,000, or 66.34%, of total deposits, at December 31, 1999
compared to $302,992,000, or 66.63%, of total deposits, at December 31, 1998.
NON-INTEREST INCOME
NON-INTEREST INCOME
[GRAPHIC OMITTED]
Non-interest income was approximately $8,569,000 for the year ended
December 31, 1999 compared to $5,539,000 and $4,867,000 for the years ended
December 31, 1998 and 1997, respectively. This represents an increase of
approximately $3,030,000, or 54.70%, from 1998 to 1999 and $672,000, or 13.81%,
from 1997 to 1998.
During 1999, the Company sold various fixed rate investment securities with
a total book value of approximately $27,046,000 resulting in a net loss of
approximately $64,000. In addition, several called bonds with a total book value
of approximately $17,000,000 resulted in a net gain of approximately $4,000
during the same period. During 1998, the Company sold various investment
securities resulting in a net gain of approximately $41,000. These sales are
discussed in further detail in Note 4 to the consolidated financial statements.
Trust service fees increased approximately $228,000, or 15.21%, from 1998
to 1999 due primarily to a continued increase in the volume of accounts
serviced. Trust service fees also increased approximately $86,000, or 6.09%,
from 1997 to 1998 due primarily to an overall increase in the volume of accounts
serviced.
Service charges and fees on deposit accounts increased approximately
$1,007,000, or 30.48%, from 1998 to 1999 due primarily to additional fee income
recorded by the Company as a result of the acquisition of Citizens Bank of
Texas, N.A. and Citizens Mortgage Company ("the acquisition"). In addition, the
Company experienced increased fee income related to general growth in account
volumes and ATM usage. Service charges and fees on deposit accounts also
increased approximately $316,000, or 10.58%, from 1997 to 1998 also due to
growth in the volume of accounts being serviced as well as continued efforts to
improve fee collection rates.
Net losses on sales of assets increased from 1998 to 1999 by approximately
$57,000, or 356.25% due primarily to the addition of losses on sales of assets
recognized by the newly acquired Subsidiary Bank as well as an overall increase
in the sales of foreclosed assets during the year. Net losses on sales of assets
decreased from 1997 to 1998 by approximately $10,000, or 38.46%. This was due
primarily to a nonrecurring loss on the sale of assets by First Victoria
Community Development Corporation, a wholly owned operating subsidiary of First
Victoria National Bank, during 1997. Overall, the Company continues to
experience relatively small losses on the disposal of assets.
15
<PAGE>
Other non-interest income increased approximately $1,953,000, or 274.68%
from 1998 to 1999 due primarily to fee income resulting from the acquisition as
well as rental income recognized as the result of the operating lease of an
aircraft discussed in detail in Note 18 to the consolidated financial
statements. In addition, the Company experienced growth in commission fee income
related to its Prime Vest brokerage services during 1999. Other non-interest
income increased from 1997 to 1998 by approximately $161,000, or 29.27%, due
primarily to increased commission fee income as well as increased income related
to credit cards. In addition, the Company recognized nonrecurring fee income of
approximately $35,000 related to the transfer of securities out of safekeeping:
NON-INTEREST EXPENSE
NON-INTEREST EXPENSE
[GRAPHIC OMITTED]
The Company reported non-interest expense of approximately $21,869,000 for
the year ended December 31, 1999 compared to $16,146,000 and $15,180,000 in 1998
and 1997, respectively. This represents an increase of approximately $5,723,000,
or 35.45%, from 1998 to 1999 and $966,000, or 6.36%, from 1997 TO 1998.
Salaries and wages increased approximately $2,832,000 or 36.95% from 1998
to 1999. This is due primarily to the acquisition of Citizens Bank of Texas,
N.A. and Citizens Mortgage Company ("the acquisition") as well as normal ongoing
merit increases and increased expense related to the accrual of short-term
incentive programs compared to the prior year. Salaries and wages also increased
from 1997 to 1998 by approximately $550,000, or 7.73%. This increase is due
primarily to an increase in expense recorded for the accrual of short-term
incentive programs compared to the same period in 1997. Salaries related to the
addition of the Taft Branch facility in December 1997 as well as normal periodic
salary increases for officers and employees of the Company during 1998
contributed to this increase. Employee benefits increased approximately $95,000,
or 7.38% from 1998 to 1999 due primarily to the impact of the acquisition. This
additional expense was offset somewhat by lower costs associated with First
Victoria National Bank's pension plan in 1999 compared to 1998. Employee
benefits increased approximately $289,000, or 28.93%, from 1997 to 1998 due
primarily to increased costs related to group medical insurance. Detailed
discussion of the Company's employee benefit plans is included in Note 9 to the
consolidated financial statements.
Net occupancy expense increased approximately $170,000, or 14.42%, in 1999
due primarily to the acquisition offset by a decrease in expense related to
building repairs and maintenance as well as decreased depreciation expense as a
result of items becoming fully depreciated during the year. Net occupancy
expense also increased in 1998 by approximately $102,000, or 9.47%, due
primarily to the addition of expenses related to the operation of the Taft
Branch facility. Furniture and equipment expense increased approximately
$798,000, or 110.99% from 1998 to 1999. This increase was due primarily to the
acquisition as well as depreciation expense recognized on the aircraft recorded
on the Company's books as a result of the operating lease transaction discussed
in Note 18 to the consolidated financial statements. Furniture and equipment
expense increased approximately $70,000, or 10.79%, from 1997 to 1998. This was
due in part to the addition of the Taft Branch facility in December 1997 as well
as increased depreciation costs related to new asset purchases during 1998 and
expenses related to the repair and maintenance of existing equipment.
Communications and supplies expense as well as expense related to data
processing increased from 1998 to
16
<PAGE>
1999 by approximately $292,000, or 27.19%, and $173,000, or 17.25%,
respectively, due primarily to the acquisition. Expenses related to
communication and supplies increased approximately $79,000, or 7.94%, from 1997
to 1998 due primarily to the addition of the Taft Branch operation in December
1997 as well as the write-off of various obsolete forms and supplies during
1998. Data processing expense increased from 1997 to 1998 by approximately
$39,000, or 4.05%. This was due primarily to an increase in depreciation expense
related to the purchase of various computer equipment as well as software
maintenance costs. Marketing and advertising expense increased in 1999 by
approximately $134,000, or 23.67% due primarily to the acquisition as well as an
increased level of expense related to charitable contributions. Marketing and
advertising expense decreased slightly by approximately $18,000, or 3.08%, from
1997 to 1998 due to the internal development and design of various marketing and
ad campaigns throughout the year. Professional fees increased by approximately
$463,000, or 81.66% from 1998 to 1999. This increase was related 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 AICPA Statement of Position 98-5. Additional professional fees were also
recognized as a result of the acquisition. Professional fees decreased by
approximately $177,000, or 23.79%, in 1998 due primarily to the absence of
nonrecurring consulting and legal expense related to various employee benefit
plans and other issues. Expense associated with the operation of other real
estate has remained steady over the last three years as the amount of foreclosed
property held by the Company has been at a minimum.
FDIC insurance premium assessments increased approximately $11,000, or
22.45% as a result of increased deposits related to the acquisition. FDIC
insurance premiums remained steady from 1997 to 1998 increasing only $3,000, or
6.52%, over the period. The Company paid the minimum premium assessment
available under each fee structure for each of the three years presented.
Amortization of goodwill and intangibles increased in 1999 by approximately
$588,000, or 448.85% as a direct result of the acquisition of Citizens Bank of
Texas, N.A. by the Company in 1999. Likewise, amortization of goodwill and
intangibles increased approximately $120,000, or 1090.91% in 1998 as a direct
result of the acquisition of First Victoria National Bank's Taft branch
location. The Company's acquisitions are discussed in further detail in Note 19
to the consolidated financial statements.
The Company recorded current federal income tax expense of approximately
$2,027,000, $1,424,000 and $1,209,000 for 1999, 1998, and 1997, respectively. In
addition, the Company recognized deferred tax expense of approximately
$2,109,000, $1,708,000 and $1,278,000 for 1999,1998 and 1997, respectively. As
of December 31, 1999 and 1998, the Company had net deferred tax liabilities of
approximately $4,016,000 and $3,457,000, respectively, which are reflected in
other liabilities in the consolidated financial statements.
INVESTMENT SECURITIES
During 1999, the Company sold various fixed rate securities with a total
book value of approximately $27,046,000 resulting in a net loss of approximately
$64,000. These securities were sold primarily for liquidity purposes related to
loan funding as well as to restructure the investment portfolio in an effort to
improve overall yields. In addition, called bonds with a total book value of
approximately $17,000,000 resulted in a net gain of approximately $4,000 in the
same period. During 1998, the Company sold various fixed rate securities with a
total book value of $38,236,000 resulting in a net gain of approximately $7,000.
The securities were sold primarily for liquidity purposes as well as to improve
the Company's overall yield and potential tax position. Called bonds with a book
value of approximately $57,965,000 resulted in a gain of approximately $34,000
during 1998. During 1997, the Company sold various fixed rate securities with a
total book value of approximately $53,160,000. These securities were sold
primarily for liquidity purposes and resulted in a net loss of approximately
$58,000.
17
<PAGE>
AVERAGE SECURITIES AND YIELDS
[GRAPHIC OMITTED]
The average yield of the investment securities portfolio for the year ended
December 31, 1999 was 5.76%, compared to 6.11% for 1998. A comparison of
investment securities by category at amortized cost and approximate market value
as of December 31, is as follows (in thousands):
1999
-------------------
Amortized Market
Cost Value
-------- --------
U.S. Treasuries ................................. $ 193 $ 191
U.S. Government Agencies ........................ 111,253 107,534
Mortgage-backed securities and collateralized
mortgage obligations ........................... 48,168 46,833
State and political subdivisions ................ 1,290 1,281
Other ........................................... 2,937 2,937
-------- --------
Total ....................................... $163,841 $158,776
======== ========
1998
-------------------
Amortized Market
Cost Value
-------- --------
U.S. Treasuries .................................. $ 2,999 $ 3,032
U.S. Government Agencies ......................... 142,780 143,014
Mortgage-backed securities and collateralized
mortgage obligations ............................ 1,180 1,206
State and political subdivisions ................. 1,972 1,972
Other ............................................ 62,908 62,694
-------- --------
Total ........................................ $211,839 $211,918
======== ========
As of December 31, 1999 and 1998, the Company's entire investment portfolio
was classified as available-for-sale. As of December 31, 1999, this
classification resulted in an unrealized loss of approximately $5,065,000. This
was reflected as a decrease to investment securities of approximately $5,065,000
and a corresponding decrease to shareholders' equity and a net deferred tax
liability of approximately $3,343,000 and $1,722,000, respectively. As of
December 31, 1998, the classification resulted in an unrealized gain of
approximately $79,000. This was reflected as an increase investment 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.
18
<PAGE>
Investment securities with a par value of approximately $138,790,000 and
$84,550,000 at December 31, 1999 and 1998, respectively, were pledged to secure
public and trust deposits as required or permitted by law.
LOANS AND LEASES
AVERAGE LOANS AND LEASES
[GRAPHIC OMITTED]
Average loans and leases increased approximately $86,595,000, or 31.17%,
from 1998 to 1999. This was due primarily to the acquisition of Citizens Bank of
Texas, N.A. as well as continued strong business development efforts primarily
in the commercial and agriculture portfolios and continued steady growth in the
mortgage and consumer loan areas. Included in commercial and financial loans is
a net lease receivable totaling approximately $7,260,000 as of December 31,
1999. The following table classifies loans and leases, by type, as of December
31, (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------------- -------------- -------------- -------------- --------------
Amount % Amount % Amount % Amount % Amount %
--------- --- --------- --- --------- --- --------- --- --------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and financial .. $ 88,660 23% $ 63,255 22% $ 57,648 22% $ 34,471 17% $ 29,914 17%
Real estate--
Mortgage ............. 157,693 41 106,410 36 91,075 34 79,233 39 69,377 39
Construction ......... 12,887 3 3,736 1 3,738 1 4,101 2 2,008 1
Agriculture ............... 74,715 19 75,793 26 74,671 28 55,647 28 56,074 31
Consumer .................. 53,574 14 43,776 15 38,996 15 28,187 14 21,854 12
--------- --- --------- --- --------- --- --------- --- --------- ---
Total loans and leases 387,529 100% 292,970 100% 266,128 100% 201,639 100% 179,227 100%
=== === === === ===
Less--
Unearned income ...... (122) (108) (126) (185) (372)
Allowance for loan and
lease losses ... (4,573) (3,308) (2,861) (2,475) (2,182)
--------- --------- --------- --------- ---------
Net loans and leases . $ 382,834 $ 289,554 $ 263,141 $ 198,979 $ 176,673
========= ========= ========= ========= =========
</TABLE>
19
<PAGE>
ALLOWANCE FOR LOAN AND LEASE LOSSES
ALLOWANCE TO TOTAL LOANS AND LEASES
[GRAPHIC OMITTED]
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 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 December 31, 1999 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 regularly 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 at December 31, 1999, was
approximately $4,573,000, or 1.18%, of outstanding loans and leases. This
compares to $3,308,000, or 1.14%, of outstanding loans at December 31, 1998. The
allowance increased approximately $1,265,000, or 38.24%, while total loans and
leases net of discount increased approximately $94,545,000, or 32.28%, over the
same period. The net increase in the allowance during 1999 was due to the
balance in the allowance on the books of Citizens Bank of Texas at acquisition
totaling approximately $600,000 as well as net recoveries recognized during the
year. Net recoveries of approximately $579,000 in 1999 compare to net recoveries
of $447,000 and $686,000 in 1998 and 1997, respectively.
Pursuant to regulatory guidelines and as a further refinement of the
allocation process, the Company allocates the total allowance for loan and lease
losses to specific categories; however, the total allowance for loan and lease
losses was available to absorb any losses on all loans and leases in the
portfolio. The allowance for loan and lease losses was allocated to the
following categories as of December 31, (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
Amount %(1) Amount %(1) Amount %(1) Amount %(1) Amount %(1)
------ --- ------ --- ------ --- ------ --- ------ ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and financial $ 852 .2% $ 297 .1% $ 195 .1% $ 85 .0% $ 317 .2%
Real estate ............ 153 .1 158 .1 175 .1 521 .3 308 .2
Agriculture ............ 2,073 .5 2,179 .7 1,753 .7 1,634 .8 1,285 .7
Consumer ............... 1,495 .4 674 .2 738 .2 235 .1 272 .1
------ --- ------ --- ------ --- ------ --- ------ ---
$4,573 1.2% $3,308 1.1% $2,861 1.1% $2,475 1.2% $2,182 1.2%
====== === ====== === ====== === ====== === ====== ===
</TABLE>
(1) PERCENT OF ALLOWANCE IN EACH CATEGORY TO TOTAL LOANS AND LEASES.
20
<PAGE>
Following is an analysis of the allowance for loan and lease losses for the
years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year ......................... $ 3,308 $ 2,861 $ 2,475 $ 2,182 $ 2,470
Addition to reserve related to
subsidiary bank acquisition ........................ 600 0 0 0 0
Provision (credit) charged to operating expense ...... 86 0 (300) 0 (300)
Loans and leases charged off:
Commercial and financial .................... (324) (92) (42) (112) (5)
Real estate ................................. (14) (2) (11) (23) (231)
Agriculture ................................. (13) (140) 0 (9) (309)
Consumer .................................... (452) (290) (213) (78) (151)
------- ------- ------- ------- -------
Total charged off .................... (803) (524) (266) (222) (696)
------- ------- ------- ------- -------
Recoveries of loans and leases previously charged off:
Commercial and financial .................... 1,028 246 270 327 377
Real estate ................................. 78 157 619 125 161
Agriculture ................................. 168 510 16 23 96
Consumer .................................... 108 58 47 40 74
------- ------- ------- ------- -------
Total recoveries ..................... 1,382 971 952 515 708
------- ------- ------- ------- -------
Net loans and leases recovered ....................... 579 447 686 293 12
------- ------- ------- ------- -------
Balance at year end .................................. $ 4,573 $ 3,308 $ 2,861 $ 2,475 $ 2,182
======= ======= ======= ======= =======
Allowance for loan and lease losses as a
percentage of total loans ....................... 1.18% 1.14% 1.08% 1.23% 1.22%
Net charge-offs or recoveries as a percentage of
Average loans and leases outstanding ............ .16% .16% .29% .16% .01%
</TABLE>
NON-PERFORMING ASSETS
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 require that impaired loans that fall within the scope
of SFAS No. 114, as amended by SFAS No. 118, 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 amounted to approximately
$1,709,000 and $3,459,000 as of December 31, 1999 and 1998, respectively. This
decrease of approximately $1,750,000, or 50.59%, was due primarily to the
transfer of several loans classified as troubled-debt restructurings in 1998 to
fully performing status under current market rates in 1999. Approximately
$471,000 and $366,000 of the allowance for loan and lease losses was allocated
specifically to these loans as of December 31, 1999 and 1998, respectively. The
average balance of impaired loans and leases outstanding was approximately
$2,191,000 and $2,692,000 during 1999 and 1998, respectively.
21
<PAGE>
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 $297,000 and $104,000 at December 31, 1999 and 1998, respectively.
The Company recorded losses on the sales of foreclosed assets of approximately
$72,000 and $22,000 in 1999 and 1998, respectively. The Company recorded gains
on sales of foreclosed assets of approximately $29,000 in 1997.
NON-PERFORMING ASSETS
[GRAPHIC OMITTED]
Non-performing assets at December 31, 1999 totaled approximately
$2,006,000, a decrease of approximately $1,557,000, or 43.70%, from the amount
reported in 1998. The following table presents a breakdown of past due and
non-performing assets as of December 31 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Past due 90 days or more and still accruing:
Commercial and financial ................... $ 0 $ 1 $ 51 $ 34 $ 0
Real estate ................................ 66 0 2 118 43
Agriculture ................................ 57 134 18 12 0
Consumer ................................... 44 14 70 11 5
------ ------ ------ ------ ------
Total past due 90 days or more .......... $ 167 $ 149 $ 141 $ 175 $ 48
====== ====== ====== ====== ======
Non-Performing Assets:
Non-accrual:
Commercial and financial ................... $ 288 $ 313 $ 77 $ 163 $ 0
Real estate ................................ 1,063 972 898 598 757
Agriculture ................................ 326 700 853 871 505
Consumer ................................... 0 0 6 0 0
------ ------ ------ ------ ------
Total non-accrual ....................... 1,677 1,985 1,834 1,632 1,262
------ ------ ------ ------ ------
Restructured Loans and Leases:
Commercial and financial ................... 0 0 0 0 0
Real estate ................................ 32 750 750 750 0
Agriculture ................................ 0 724 789 811 0
Consumer ................................... 0 0 0 0 0
------ ------ ------ ------ ------
Total restructured loans and leases ..... 32 1,474 1,539 1,561 0
------ ------ ------ ------ ------
Real estate and other collateral acquired
through foreclosure ........................... 297 104 13 39 239
------ ------ ------ ------ ------
Total non-performing assets ............. $2,006 $3,563 $3,386 $3,232 $1,501
====== ====== ====== ====== ======
Non-performing assets as a percentage of loans
and leases and other non-performing assets .... .52% 1.22% 1.27% 1.60% .84%
</TABLE>
22
<PAGE>
DEPOSITS
AVERAGE DEPOSITS
[GRAPHIC OMITTED]
Total average deposits increased approximately $96,009,000, or 22.29%, from
1998 to 1999 and approximately $56,169,000, or 14.99% from 1997 to 1998. The
average amounts outstanding and average rates paid on deposits for the years
ended December 31, are set forth below (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- ---------------
Amount Rate Amount Rate Amount Rate
-------- ---- -------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Demand deposits ......... $ 90,231 0.00% $ 60,848 0.00% $ 54,642 0.00%
Savings accounts ........ 19,340 1.52 14,322 1.93 12,809 2.47
Interest on checking..... 81,789 2.61 73,441 2.90 67,579 3.34
Money market accounts ... 75,316 2.79 63,219 3.21 52,177 3.19
Time deposits ........... 260,108 4.89 218,945 5.36 187,399 5.33
-------- ---- -------- ---- -------- ----
Total average deposits $526,784 3.28% $430,775 3.76% $374,606 3.77%
======== ==== ======== ==== ======== ====
</TABLE>
SHORT- TERM BORROWINGS
The Company's primary source of short-term borrowings is federal funds
purchased from correspondent banks and securities sold under agreements to
repurchase.
December 31,
---------------------------
1999 1998 1997
------- ------- -------
Balance at end of period ...................... $ 3,750 $12,255 $10,300
Daily average amount outstanding .............. 19,340 8,034 7,974
Highest month-end balance ..................... 37,945 16,775 10,300
Weighted average interest rate ................ 4.88% 5.18% 5.24%
Weighted average interest rate on balance
outstanding at end of period .............. 4.19% 4.80% 5.62%
23
<PAGE>
CAPITAL
In March 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No.128 "Earnings Per Share" and No.129 "Disclosure of Information About
Capital Structure". These statements established standards for calculating
earnings per share and the reporting requirements for earnings per share and the
company's capital structure. The Company adopted these standards effective for
the year ended December 31,1997. The adoption of the standards had no material
impact on the Company's calculation or presentation of earnings per share.
On January 26,2000, the Company's Board of Directors declared a regular'
cash dividend of $.35 per share payable on February 18,2000 to shareholders of
record as of February 4,2000. The principal source of the Company's cash
revenues is dividends from First Victoria National Bank, and there are certain
limitations on the payment of dividends to the Company by First Victoria
National Bank. 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
defmed, 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 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 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 1999, 1998 and 1997 was 2,372,792.
CAPITAL RATIOS AT DECEMBER 31 BASIC EARNINGS PER SHARE
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
The Office of the Comptroller of the Currency ("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 December 31, 1999 and 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 earnings less
goodwill. At December 31, 1999 and 1998, the percent of total
capital-to-risk-weighted assets was 13.28% and 18.55%, respectively. The
Company's Tier I capital ratio as of December 31,1999 and 1998 was 12.23% and
17.54%, respectively, well in excess of the required ratios.
24
<PAGE>
Tier I leverage ratio is defined as a Company's Tier I capital divided by
its adjusted average total assets (net of allowance for loan and lease losses).
The minimum leverage rcitio 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 5.000/0 depending upon their particular
condition. At December 31, 1999 and 1998, the Company's Tier I leverage ratio
was 8.40% and 11.01 %, respectively, and exceeds the regulatory minimum.
THE YEAR 2000 ISSUE
The year 2000 issue involved certain assumptions that were incorporated
into the design of many existing computer programs. To conserve expensive
computer storage space, many older computer programs determined dates using only
two digits to identify the year. In some systems, the assumption that 1900 is
the century caused these programs to treat "00" as 1900 rather than 2000. This
assumption could have caused computer programs and hardware to fail entirely or
create erroneous or meaningless results. The Company relies heavily on software
applications that could have been affected by Year 2000 issues.
Achieving year 2000 compliance was one of the Company's highest priorities.
Senior management and the Board of Directors were actively involved in
overseeing Year 2000 compliance efforts to ensure that the Company adequately
handled 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 interagency
statement "Year 2000 Project Management Awareness". The Y ear 2000 Project Plan
consisted of five phases: awareness, assessment, renovation, validation, and
implementation. The program produced the appropriate level of preparedness,
consistent with the guidelines issued by federal banking regulators.
As of the date of this filing, the Company has not experienced any Year'
2000 problems that have affected its operations, the realization of financial
assets, or its results of operations. The Company will continue to monitor its
operations as well as open transactions with customers and vendors to ensure
that there are no undetected Year 2000 problems that could have a material
adverse effect on the Company or its operations. The Company believes that there
is no remaining significant risk or exposure to the Company as a result of the
Year 2000 issue.
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
25
<PAGE>
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, and (v) 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.
26
<PAGE>
FVNB CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks-- Note 3 ........................ $ 26,993 $ 27,504
Federal funds sold ...................................... 38,170 6,800
Investment securities -- Note 4: ........................ 158,776 211,918
Loans and lease receivable-- Note 5 (net of allowance
for loan and lease losses of $4,573 and $3,308 in
1999 and 1998, respectively)-- Note 5 ................. 382,834 289,554
Premises and equipment, net-- Note 6 ................... 30,693 9,404
Accrued interest receivable ............................. 4,758 4,931
Goodwill and intangibles-- Note 19 ...................... 10,719 1,821
Other assets-- Note 5 ................................... 2,241 1,232
--------- ---------
TOTAL ASSETS ...................................... $ 655,184 $ 553,164
========= =========
LIABILITIES
Deposits:
Demand ................................................ $ 90,857 $ 77,302
Savings, IOC, and money market accounts .............. 182,629 158,411
Time-- Note 10 ........................................ 281,334 219,027
--------- ---------
TOTAL DEPOSITS ................................... 554,820 454,740
--------- ---------
Federal funds purchased and securities sold
under agreements to repurchase ........................ 3,750 12,225
Other borrowings-- Note 13 .............................. 27,827 19,119
Other liabilities-- Note 7 .............................. 8,478 7,558
--------- ---------
TOTAL LIABILITIES ................................. 594,875 493,642
--------- ---------
Commitments and Contingent Liabilities -- Notes 8 and 15
SHAREHOLDERS' EQUITY -- Note 11:
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 ....................................... 47,946 43,764
Accumulated other comprehensive income--
net unrealized (losses) gains on investment
securities, net of tax ................................ (3,343) 52
--------- ---------
TOTAL SHAREHOLDERS' EQUITY ........................ 60,309 59,522
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .............. $ 655,184 $ 553,164
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
28
<PAGE>
FVNB CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Loans and lease receivable, including fees ................ $ 32,790 $ 24,961 $ 21,201
Investment securities:
Taxable ................................................ 10,138 10,936 10,553
Tax-exempt ............................................. 72 99 226
Dividends .............................................. 121 118 117
Federal funds sold ........................................ 1,678 1,419 875
Other ..................................................... 1 2 1
-------- -------- --------
TOTAL INTEREST INCOME .................................. 44,800 37,535 32,973
-------- -------- --------
INTEREST EXPENSE:
Deposits -- Note 10 ...................................... 17,256 16,176 14,221
Federal funds purchased and securities sold under
agreements to repurchase ............................. 957 416 424
Other borrowings-- Note 13 ................................ 1,563 1,132 837
-------- -------- --------
TOTAL INTEREST EXPENSE ................................. 19,776 17,724 15,482
-------- -------- --------
NET INTEREST INCOME .................................... 25,024 19,811 17,491
Provision (credit) for loan and lease losses-- Note 5 ..... 86 0 (300)
-------- -------- --------
NET INTEREST INCOME AFTER
PROVISION (CREDIT) FOR LOAN AND LEASE LOSSES ...... 24,938 19,811 17,791
-------- -------- --------
NON-INTEREST INCOME:
Net realized (losses) gains on sales of investment
securities ............................................... (60) 41 (58)
Trust service fees ........................................ 1,727 1,499 1,413
Service charges and fees on deposit accounts .............. 4,311 3,304 2,988
Loss on sale of assets-- Note 5 ........................... (73) (16) (26)
Other ..................................................... 2,664 711 550
-------- -------- --------
TOTAL NON-INTEREST INCOME .............................. 8,569 5,539 4,867
-------- -------- --------
NON-INTEREST EXPENSE:
Salaries and wages-- Note 9 ............................... 10,497 7,665 7,115
Employee benefits-- Note 9 ................................ 1,383 1,288 999
Net occupancy expense ..................................... 1,349 1,179 1,077
Furniture and equipment ................................... 1,517 719 649
Communication and supplies ................................ 1,366 1,074 995
Data processing ........................................... 1,176 1,003 964
Marketing and advertising ................................. 700 566 584
Professional fees ......................................... 1,030 567 744
FDIC insurance assessment ................................. 60 49 46
Operation of other real estate, net ....................... (1) 3 4
Amortization of goodwill and intangibles................... 719 131 11
Other ..................................................... 2,073 1,902 1,992
-------- -------- --------
TOTAL NON-INTEREST EXPENSE ............................. 21,869 16,146 15,180
-------- -------- --------
INCOME BEFORE INCOME TAXES ............................. 11,638 9,204 7,478
Income Tax Expense-- Note 7 ................................. 4,136 3,132 2,487
-------- -------- --------
NET INCOME ............................................. $ 7,502 $ 6,072 $ 4,991
======== ======== ========
Basic Earnings Per Share-- Note 11 ........................... $ 3.16 $ 2.56 $ 2.10
======== ======== ========
Diluted Earnings Per Share-- Note 11 ......................... $ 3.05 $ 2.56 $ 2.10
======== ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
29
<PAGE>
FVNB CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
NET INCOME ............................................. $ 7,502 $ 6,072 $ 4,991
======== ======== ========
Other comprehensive income, net of tax:
Net unrealized holding gains (losses) arising during
the period .............................................. (3,434) 490 (106)
Net realized (gains) losses reflected in net income ....... 39 (27) 38
COMPREHENSIVE INCOME ................................ $ 4,107 $ 6,535 $ 4,923
======== ======== ========
</TABLE>
FVNB CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Retained (Loss) Gain Total
Common Earnings on Securities Shareholders'
Stock Surplus (Note 11) (Note 4) Equity
-----------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 $ 5,932 $ 9,774 $ 37,731 $ (343) $ 53,309
Net income ............... 4,991 4,991
Dividends paid ........... (1,946) (1,946)
Change in unrealized
(losses) gains on
investment securities,
net of tax............... (68) (68)
-------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1997 5,932 9,774 40,776 (411) 56,071
Change incident to holding
company formation ..... (5,908) 5,908 0
Net income ............... 6,072 6,072
Dividends paid ........... (3,084) (3,084)
Change in unrealized
(losses) gains on
investment securities,
net of tax............... 463 463
-------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1998 $ 24 $ 15,682 $ 43,764 $ 52 $ 59,522
Net income ............... 7,502 7,502
Dividends paid ........... (3,320) (3,320)
Change in unrealized
(losses) gains on
investment securities,
net of tax............... 463 463
-------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1999 $ 24 $ 15,682 $ 47,946 $ (3,343) $ 60,309
======== ======== ======== ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
30
<PAGE>
FVNB CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................ $ 7,502 $ 6,072 $ 4,991
Adjustments to reconcile net income to net cash provided by
operating activities --
Net losses (gains) on sale of investment securities .... 60 (41) 58
Provision (credit) for loan and lease
and other real estate losses ........................ 86 0 (300)
Depreciation ........................................... 1,871 1,205 1,207
Premium amortization and discount accretion, net ....... 168 235 27
Pension expense ........................................ 161 323 297
Loss on sale of assets ................................. 73 16 26
Decrease (increase) in accrued interest receivable ..... 660 (730) (134)
Net change in other assets and other liabilities ....... 387 1,885 (347)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES ........... 10,968 8,965 5,825
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash provided by acquisition of subsidiaries .......... 7,098 0 0
Proceeds from saless of investment securities ............. 26,950 38,243 53,208
Proceeds from maturities of investment securities ......... 33,934 113,122 31,013
Purchase of investment securities ......................... (6,374) (192,415) (53,564)
Net increase in loans and leases receivable................ (37,041) (26,577) (63,931)
Additions to premises and equipment ....................... (19,645) (861) (1,527)
Proceeds from the sale of assets .......................... 408 36 72
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES . 5,330 (68,452) (34,729)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand, savings, IOC,
and money market accounts .............................. 697 19,571 11,994
Net increase in time deposits ............................. 16,951 19,140 21,019
Net (decrease) increase in federal funds purchased
and securities sold under agreements to repurchase ..... (8,475) 1,925 600
Net increase (decrease) in other borrowings ............... 8,708 6,491 (422)
Dividends paid ............................................ (3,320) (3,084) (1,946)
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES ........... 14,561 44,043 31,245
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS .............................. 30,859 (15,444) 2,341
Cash and cash equivalents, beginning of year .............. 34,304 49,748 47,407
CASH AND CASH EQUIVALENTS, END OF YEAR .............. $ 65,163 $ 34,304 $ 49,748
========= ========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
31
<PAGE>
FVNB CORP. AND SUBSIDIARIES
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, which was
accounted for using the purchase method of accounting, is discussed further in
Note 19 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
modera1e 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. The
Company used the specific identification method in computing all realized gains
and losses.
In June 1998, the Financial Accounting Standards Board issued SFAS No.133,
"Accounting for Derivative Instrun1ents 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
32
<PAGE>
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. Subsequently, in
June 1999, FASB Statement No.137, "Accounting for Derivative Instruments and
Hedging Activities -Deferral of the Effective Date of FASB Statement No.133, an
Amendment of FASB Statement No.133" was issued. This Statement defers the
effective date of FASB Statement No.133 for one year making it effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000.
LOANS AND LEASES RECEIVABLE -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 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 win 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 leases in accordance with SFAS No.13 "Accounting
for Leases". This standard addresses the accounting and reporting for leases by
lessees and lessors. In the case of a leveraged lease, the lessor records the
investment in the 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. In the case of an
operating lease, the lessor records the leased property at cost in premises and
equipment on the consolidated balance sheet. The property is depreciated using
the lessor's normal depreciation policy over the useful life of the asset.
Rental income is recorded over the lease term as it becomes receivable according
to the provision of the lease agreement.
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.
33
<PAGE>
PREMISES AND EQUIPMENT -Premises and equipment are stated 81t 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 furniture and 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 fmancial reporting and tax
reporting bases of assets and liabilities. The Company files an annual federal
income tax return on a consolidated basis with its subsidiaries.
GOODWILL AND INTANGIBLES -Goodwill and intangibles resulting from
acquisitions is amortized on a straight-Iine basis over the estimated period of
benefit, not to exceed fifteen years. The Company evaluates whether events and
circumstances have developed that warrant revision of the estimated benefit
periods.
RECOGNITION OF LOAN ORIGINATION FEES AND COSTS -Loan origination and
commitment fees and certain direct loan origination costs are analyzed on a
quarterly basis in accordance with SFAS No.91 "Accounting for Nonrefundable Fees
and Costs Associated with Originating or Acquiring Loans and Initial Direct
Costs of Leases." This standard requires the deferral of such commitment fees
and direct costs at origination with the net amount amortized as an adjustment
of the related loan ' s yield over the contractual life of the related loan.
Management of the Company believes that the Company's net loan origination costs
are not material and are, therefore, not accounted for using the deferral
method.
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 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 14 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.
34
<PAGE>
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. Management of the Company
believes that the Company 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 1999, 1998 and 1997 amounted to approximately $24,283,000, $17,320,000
and $15,423,000, respectively. Cash paid for federal income taxes amounted to
approximately $2,335,000, $1,190,000 and $1,598,000, during 1999, 1998 and 1997,
respectively. Noncash transactions representing the transfer of non-performing
loans to other real estate owned and foreclosed assets totaled approximately
$570,000, $164,000 and $69,000 during 1999,1998 and 1997, respectively.
(3) CASH AND DUE FROM BANKS: Cash and due from banks of approximately $6,756,000
and $7,522,000 at December 31, 1999 and 1998, respectively, were maintained to
satisfy regulatory requirements of the Federal Reserve Board.
(4) INVESTMENT SECURITIES: DURING 1999, the Company sold various fixed rate
investment securities with a total book value of approximately $27,046,000
resulting in a net loss of approximately $64,000. The securities were sold
primarily for liquidity and portfolio restructuring purposes and to fund loan
demand. In addition, there were several called bonds during the same period with
a total book value of approximately $17,000,000 resulting in a net gain of
approximately $4,000. During 1998, the Company sold various fIXed rate
investment securities with total book value of approximately $38,236,000. The
sale of the securities resulted in a net gain of approximately $7,000. The
securities were sold primarily for liquidity purposes and to improve the overall
yield of the investment portfolio as well as the Company's tax position. Called
bonds with a book value of approximately $57,965,000 resulted in a net gain of
approximately $34,000 during 1998. During 1997, the Company sold various fixed
rate securities with a total book value of approximately $53,160,000. These
securities were sold primarily for liquidity purposes and resulted in a net loss
of approximately $58,000.
As of December 31, 1999 and 1998, the Company's entire investment portfolio
was classified as available-for-sale. As of December 31, 1999, this
classification resulted in an unrealized loss of approximately $5,065,000. This
was reflected as a decrease to investment securities of approximately $5,065,000
and a corresponding decrease to shareholders' equity and a net deferred tax
liability of approximately $3,343,000 and $1,722,000, respectively. As of
December 31, 1998 the classification resulted in an unrealized gain of
approximately $79,000. This was reflected as an increase to investment
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.
35
<PAGE>
A comparison of investment securities at amortized cost and estimated
market values, as determined by an independent broker, is as follows (in
thousands):
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- -------- -------- --------
<S> <C> <C> <C> <C>
U.S. Treasuries ............................. $ 193 $ 0 $ (2) $ 191
U.S. Government Agencies .................... 111,253 0 (3,720) 107,534
Mortgage-backed securities and collateralized
mortgage obligations ................... 48,168 1 (1,335) 46,833
State and political subdivisions ............ 1,290 1 (10) 1,281
Other ....................................... 2,937 0 0 2,937
--------- -------- -------- --------
Total .................................... $ 163,841 $ 2 $ (5,067) $158,776
========= ======== ======== ========
<CAPTION>
December 31, 1998
-------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- -------- -------- --------
U.S. Treasuries ............................. $ 2,999 $ 33 $ 0 $ 3,032
U.S. Government Agencies .................... 142,780 485 (251) 143,014
Mortgage-backed securities and collateralized
mortgage obligations ................... 1,180 26 0 1,206
State and political subdivisions ............ 1,972 0 0 1,972
Other ....................................... 62,908 197 (411) 62,694
--------- -------- -------- --------
Total .................................... $ 211,839 $ 741 $ (662) $211,918
========= ======== ======== ========
</TABLE>
Investment securities with a par value of approximately $138,790,000 and
$84,550,000 at December 31, 1999 and 1998, respectively, were pledged to secure
public and trust deposits as required or permitted by law.
The amortized cost and estimated market value of investment securities at
December 31, by contractual maturity, are shown below, in thousands. Expected
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
Amortized Market Amortized Market
Cost Value Cost Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Due in one year or less .............. $ 1,883 $ 1,877 $ 70,514 $ 70,853
Due after one year through five years 83,892 81,258 72,909 73,010
Due after five years through ten years 30,000 28,889 8,285 8,179
Due after ten years .................. 48,066 46,752 60,131 59,876
-------- -------- -------- --------
Total ............................. $163,841 $158,776 $211,839 $211,918
======== ======== ======== ========
</TABLE>
(5) LOANS AND LEASES RECEIVABLE, ALLOWANCES FOR LOAN AND LEASE LOSSES AND
OTHER REAL ESTATE OWNED: The Subsidiary Banks grant agriculture, commercial,
real estate, and installment loans to customers primarily in southeast Texas.
Although the Subsidiary Banks have diversified loan and lease portfolios, a
substantial portion of its debtors' ability to honor their contracts is
dependent upon the agricultural economic sector.
36
<PAGE>
As of December 31, loans and leases are classified in the following
categories (in thousands):
1999 1998
--------- ---------
Commercial and financial ....................... $ 88,660 $ 63,255
Mortgage real estate ........................... 157,693 106,410
Construction real estate ....................... 12,887 3,736
Agriculture .................................... 74,715 75,793
Consumer ....................................... 53,574 43,776
--------- ---------
Total loans and leases receivable ........ 387,529 292,970
--------- ---------
Less --
Unearned income ............................. (122) (108)
Allowance for loan and lease losses ......... (4,573) (3,308)
--------- ---------
Net loans and leases receivable .......... $ 382,834 $ 289,554
========= =========
Transactions in the allowance for loan and lease losses for the years ended
December 31, were as follows (in thousands):
1999 1998 1997
------- ------- -------
Balance at beginning of year .................. $ 3,308 $ 2,861 $ 2,475
Addition to reserve related to subsidiary
bank acquisition.......................... 600 0 0
Provision (credit) for loan and lease losses 86 0 (300)
Loans and leases charged off ............... (803) (524) (266)
Recoveries of loans and leases charged off . 1,382 971 952
------- ------- -------
Balance at end of year ........................ $ 4,573 $ 3,308 $ 2,861
======= ======= =======
As of December 31, 1999 and 1998 First Victoria Leasing, Inc., a wholly
owned subsidiary of First Victoria National Bank, was an equity participant in
the leveraged lease of an aircraft. As First Victoria National Bank has no
general liability for the nonrecourse 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 (in thousands):
1999 1998
------- -------
Rentals receivable (net of principal and
interest on nonrecourse debt) ..... $ 5,772 $ 5,772
Estimated residual value ............... 6,375 6,375
Unearned and deferred income ........... (4,887) (5,354)
------- -------
Investment in leveraged leases ......... 7,260 6,793
Deferred income taxes .................. (4,513) (3,329)
------- -------
Net investment ......................... $ 2,747 $ 3,464
======= =======
A summary of the components of income from leveraged lease follows:
1999 1998
------- -------
Income before income taxes ............. $ 447 $ 628
Income tax benefit (expense)
Current ........................... 1,025 1,727
Deferred .......................... (1,184) (1,941)
------- -------
Net income from leveraged lease ........ $ 308 $ 414
======= =======
Minimum annual rentals receivable (net of principal and interest on
nonrecourse debt) under leveraged leases for the next five years beginning with
2000 are approximately $735,000 and an aggregate of approximately $5,037,000
thereafter.
37
<PAGE>
The allowance for loan and lease losses is maintained at a reasonable level
which management considers to be 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 Bank assesses 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 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 December 31, 1999 and 1998 was adequate to cover expected losses based on
economic circumstances known or anticipated at that time.
Loans and leases receivable on which the accrual of interest has been
discontinued amounted to approximately $2,013,000 and $1,985,000 at December 31,
1999 and 1998, respectively. The effect of the reversal of previously accrued
interest on interest income was approximately $84,000, $31,000, and $39,000 for
1999, 1998 and 1997, respectively. If during 1999, 1998 and 1997, interest had
been accrued at the contractual rates, interest income would have been increased
by approximately $156,000, $98,000 and $114,000, respectively. The Company had
restructured loans and leases receivable of approximately $32,000 and $1,474,000
as of December 31, 1999 and 1998, respectively. The effect on net interest
income resulting from the difference between the interest recognized on such
restructured loans and leases and the interest that would have been recognized
at the original rate was approximately $20,000 and $68,000 for 1998 and 1997,
respectively, and was not material for 1999. Interest income recorded on
restructured loans and leases for 1999, 1998 and 1997 was approximately $1,000,
$129,000 and $75,000, respectively.
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 $297,000 and $104,000 at December 31, 1999 and 1998, respectively.
The Company recorded a loss on the sale of foreclosed assets of approximately
$72,000 and $22,000 in 1999 and 1998, respectively. The Company recorded gains
on sales of foreclosed assets of approximately $29,000 in 1997.
Total impaired loans and leases on the Company's books (including
non-accrual and restructured loans and leases) amounted to approximately
$1,709,000 and $3,459,000 as of December 31, 1999 and 1998, respectively.
Approximately $471,000 and $366,000 of the allowance for loan and lease losses
was allocated specifically to these loans and leases as of December 31, 1999 and
1998, respectively. The average balance of impaired loans and leases
outstanding was approximately $2,191,000 and $2,692,000 during 1999 and 1998,
respectively.
38
<PAGE>
(6) PREMISES AND EQUIPMENT: The following is a summary of premises and
equipment as of December 31 (in thousands):
1999 1998
-------- --------
Land $ 2,978 $ 2,008
Buildings 15,031 13,146
Equipment and furniture 27,824 7,572
-------- --------
45,833 22,726
Less -- Accumulated depreciation (15,140) (13,322)
-------- --------
$ 30,693 $ 9,404
======== ========
Furniture and equipment at December 31, 1999 includes an aircraft with a
net book value of approximately $18,551,000 purchased as part of a lease
agreement as discussed in Note 18 to the consolidated financial statements.
(7) INCOME TAXES: The following represents a consolidated reconciliation
between income tax expense computed by applying the 34% statutory federal
income tax rate to income before income taxes and reported federal income tax
expense for the years ended December 31 (dollars in thousands):
1999 1998 1997
--------------- -------------- ----------------
Percentage Percentage Percentage
of Pretax of Pretax of Pretax
Amount Income Amount Income Amount Income
------ ------ ------ ------ ------ ------
Calculated tax expense $3,957 34.0% $3,129 34.0% $2,543 34.0%
Increase (decrease)
in taxes--
Tax-exempt interest (21) (.2) (29) (.3) (67) (.9)
Goodwill amortization 200 1.7 0 .0 0 .0
Other, net 0 .0 32 .3 11 .2
------ ------ ------ ------ ------ ------
$4,136 35.5% $3,132 34.0% $2,487 33.3%
====== ====== ====== ====== ====== ======
The Company recorded current federal income tax expense of approximately
$2,027,000, $1,424,000 and $1,209,000 for 1999, 1998 and 1997, respectively. In
addition, the Company recognized deferred tax expense of approximately
$2,109,000, $1,708,000 and $1,278,000 for 1999, 1998 and 1997, respectively.
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". The statement requires the use of the asset and
liability approach for financial accounting and reporting for income taxes. As
of December 31, 1999 and 1998, the Company had net deferred tax liabilities of
approximately $4,016,000 and $3,457,000, respectively, which are reflected in
other liabilities in the consolidated financial statements. The tax effect of
significant temporary differences at December 31, is as follows (in thousands):
1999 1998
------- -------
Allowance for loan and lease losses ......... $ (497) $ (362)
Deferred compensation ....................... 177 198
Discount accretion .......................... (96) (93)
Pension plan ................................ 149 208
Premises and equipment ...................... (359) (57)
Lease income ................................ (5,241) (3,329)
Other ....................................... 129 5
------- -------
Net deferred tax liability from operations (5,738) (3,430)
Net unrealized losses (gains) on
investment securities ...................... 1,722 (27)
------- -------
Net deferred tax liability ............... $(4,016) $(3,457)
======= =======
39
<PAGE>
(8) 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.
The Subsidiary Banks' exposure to credit loss, in the event of
nonperformance by the customer, for commitments to extend credit and standby
letters of credit is limited to the contractual amounts of those instruments. As
of December 31, 1999 and 1998, the Subsidiary Banks had commitments to extend
credit of approximately $132,361,000 and $100,204,000 and standby letters of
credit of approximately $2,122,000 and $1,534,000, respectively. The following
is a breakdown of commitments by type as of December 31, (in thousands):
1999 1998
-------- --------
Commercial and financial ................... $ 48,265 $ 35,279
Real Estate ................................ 17,505 5,180
Agriculture ................................ 37,948 35,524
Consumer ................................... 28,643 24,221
-------- --------
Total ................................ $132,361 $100,204
======== ========
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 by the Subsidiary Banks 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.
(9) EMPLOYEE BENEFITS: First Victoria National Bank's Employees' Profit Sharing
Plan is a 401(k) salary deferral plan, and, prior to January 1, 1998, employees
were eligible to defer up to 7% of their compensation. As of January 1, 1998,
employees were eligible 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 First Victoria National 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 First Victoria National Bank for 1999,
1998 and 1997 were approximately $137,000, $131,000 and $94,000, 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
1999 were approximately $12,000.
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 First
Victoria National Bank's attaining certain financial objectives established
annually by the Committee. Prior
40
<PAGE>
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 were
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 was earned. The performance units could be redeemed equally over the three
years following the award at the option of the participant. Performance units
entitled participants to receive a future payment in cash equal to the book
value of the Company common stock at the date of redemption. As of January 1,
1997, no further awards will be made pursuant to the Incentive Compensation
Plan. Accruals of additional expense for each unredeemed performance award will
continue to be made in future years to reflect increases in the book value per
share of common stock of the Company. Total expense of this plan recorded by the
First Victoria National Bank for 1999, 1998 and 1997 was approximately $8,000,
$18,000 and $20,000, respectively representing accruals for the increase in book
value per share of common stock related to previously awarded performance units.
No expense was recorded for cash awards or performance units during 1999, 1998
or 1997 under this plan.
On July 15, 1997, the Compensation and Retirement Committee 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. Expense of approximately
$1,091,000, $548,000 and $310,000 related to this plan was recorded during 1999,
1998, and 1997, respectively.
A noncontributory defined benefit pension plan covers First Victoria
National Bank's employees who meet specified age and length of service
requirements. 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.
The plan provides for a single benefit formula that is based on the
participant's final adjusted monthly compensation.
Total pension expense for the years ended December 31, was as follows (in
thousands):
1999 1998 1997
----- ----- -----
Service cost .................................. $ 423 $ 422 $ 312
Interest on projected benefit obligation ...... 469 462 458
Actual return on plan assets .................. (680) (577) (488)
Net amortization and deferral ................. (57) 16 15
----- ----- -----
Net periodic pension expense ............... $ 155 $ 323 $ 297
===== ===== =====
Assumptions used in the accounting for the years ended December 31, were:
1999 1998
----- -----
Discount rates ......................................... 7.75% 6.75%
Expected long-term rate of return on assets ............ 8.50% 8.50%
Rates of increase in compensation levels ............... 5.00% 4.50%
41
<PAGE>
The following table sets forth the plan's funded status as of December 31,
(in thousands):
1999 1998
------- -------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation, beginning of year ................ $ 6,679 $ 6,175
Service cost ......................................... 423 422
Interest cost ........................................ 469 462
Actuarial loss (gain) ................................ (999) 12
Benefits paid ........................................ (367) (392)
------- -------
Benefit obligation, end of year ...................... $ 6,205 $ 6,679
======= =======
CHANGE IN PLAN ASSETS
Fair value of plan assets, beginning of year ......... $ 8,899 $ 7,622
Actual return on plan assets ......................... 1,123 1,643
Company contribution ................................. 325 26
Benefits paid ........................................ (367) (392)
------- -------
Fair value of plan assets, end of year ............... $ 9,980 $ 8,899
======= =======
Funded status of plan ................................ $ 3,775 $ 2,220
Unrecognized actuarial loss .......................... (4,604) (3,277)
Unrecognized prior service cost ...................... 388 446
------- -------
Accrued benefit cost reflected in the statement
of financial position .............................. $ (441) $ (611)
======= =======
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.
Subsequently, on May 18, 1999, an additional 59,600 stock options were granted
to certain directors and officers at an exercise price of $32.50, which equaled
market price of the underlying stock at the date of grant. 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
December 31, 1999, options to acquire a total of 112,600 shares of common stock
of the Company remained outstanding. The following table represents a summary of
the status of stock options as of December 31:
<TABLE>
<CAPTION>
1999 1998
--------------------------- ---------------------------
Weighted Avg. Weighted Avg.
# of Shares Exercise Price # of Shares Exercise Price
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Balance at beginning of year $ 53,000 $ 33.00 $ 0 $ .00
Granted ................. 59,600 32.50 53,000 33.00
Exercised ............... 0 0 0 0
Forfeited ............... 0 0 0 0
----------- -------------- ----------- --------------
Balance at end of year ..... 112,600 $ 32.74 53,000 $ 33.00
=========== ============== =========== ==============
</TABLE>
In accordance with Statement 123, the fair value of stock options is
estimated on the date of the grant using the Black-Scholes option pricing model
for proforma footnote purposes with the following assumptions for options
granted during 1999: dividend yield of 3.31%, risk-free interest rate of 6.00%,
and expected option life of 10 years. Expected volatility was assumed to be
26.36% over the term of the options.
42
<PAGE>
At December 31, 1999, the range of exercise prices and weighted average
remaining contractual life of the outstanding options was $32.50 to $34.00, and
approximately nine years, respectively. As of December 31, 1999 44,000 options
were exercisable. At December 31, 1998, the range of exercise prices and
weighted average remaining contractual life of outstanding options was $33.00 to
$34.00, and approximately 10 years, respectively. No options were exercisable at
December 31, 1998.
As allowed by Statement 123, the Company applies APB No. 25 and related
interpretations in accounting for its stock compensation plans. Accordingly, no
compensation expense has been recognized for its stock options granted. Had the
fair value method of accounting under Statement 123 been applied to the
Company's stock option plans, the tax-effective impact would be as follows:
1999 1998
------- -------
Net income as reported .............. $ 7,502 $ 6,072
Estimated fair value of the
year's options granted, net of tax . (381) (182)
------- -------
Net income adjusted ................. $ 7,121 $ 5,890
======= =======
Adjusted basic earnings per share ... $ 3.00 $ 2.48
======= =======
Adjusted diluted earnings per share . $ 2.89 $ 2.48
======= =======
(10) DEPOSITS: Time certificates of deposit of $100,000 or more amounted to
approximately $95,900,000 and $74,446,000 at December 31, 1999 and 1998,
respectively. Interest expense for these deposits was approximately $4,664,000,
$4,199,000 and $3,421,000 for 1999, 1998 and 1997, respectively.
The scheduled maturities of all time deposits outstanding at December 31,
1999 were as follows (in thousands):
YEAR ENDED DECEMBER 31,
2000.................................. $ 174,003
2001.................................. 84,384
2002.................................. 12,544
2003.................................. 7,071
2004.................................. 2,605
Subsequent years...................... 727
---------
Total............................ $ 281,334
=========
(11) SHAREHOLDERS' EQUITY: On January 26, 2000, the Company's Board of Directors
declared a regular cash divided of $.35 per share payable on February 18, 2000
to shareholders of record as of February 4, 2000. The principal source of the
Company's cash revenues is dividends from First Victoria National Bank, and
there are certain limitations on the payment of dividends to the Company by
First Victoria National Bank. 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 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 standard cash dividend of the 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 1999, 1998, and 1997 was 2,372,792.
43
<PAGE>
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
1999 1998 1997
------ ------ ------
NUMERATOR:
Net income, as reported .......................... $7,502 $6,072 $4,991
Effect of dilutive securities .................... 0 0 0
------ ------ ------
Numerator for diluted earnings per common share .. $7,502 $6,072 $4,991
====== ====== ======
DENOMINATOR:
Denominator for basic earnings per share
-- weighted average shares ..................... 2,373 2,373 2,373
Effect of dilutive securities:
Outstanding stock options ..................... 90 0 0
------ ------ ------
Denominator for diluted earnings per share
-- adjusted weighted average shares
and assumed option exercises .................. 2,463 2,373 2,373
====== ====== ======
Basic earnings per share ......................... $ 3.16 $ 2.56 $ 2.10
Diluted earnings per share ....................... $ 3.05 $ 2.56 $ 2.10
As of December 31, 1999, the most recent notification from the Office of
the Comptroller of the Currency categorized the Subsidiary Banks as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Subsidiary 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
or events since that notification that management believes have changed the
Subsidiary Banks' category. Presented in the following table are the capital
ratios for the Company as of December 31, 1999 and 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 DECEMBER 31, 1999:
Total Capital
(to Risk Weighted Assets):
FVNB CORP .................. $ 57,508 13.28% $ 34,634 >8.00% $ 43,293 >10.00%
First Victoria National Bank 48,341 13.05% 29,631 >8.00% 37,039 >10.00%
Citizens Bank of Texas, N.A 9,270 14.79% 5,016 >8.00% 6,270 >10.00%
Tier I Capital
(to Risk Weighted Assets):
FVNB CORP .................. $ 52,935 12.23% $ 17,317 >4.00% $ 25,976 >6.00%
First Victoria National Bank 44,479 12.01% 14,816 >4.00% 22,224 >6.00%
Citizens Bank of Texas, N.A 8,559 13.65% 2,508 >4.00% 3,762 >6.00%
Tier I Capital
(To Average Assets):
FVNB CORP .................. $ 52,935 8.40% $ 25,202 >4.00% $ 31,503 >5.00%
First Victoria National Bank 44,479 7.95% 22,378 >4.00% 27,972 >5.00%
Citizens Bank of Texas, N.A 8,559 9.43% 3,630 >4.00% 4,537 >5.00%
</TABLE>
44
<PAGE>
<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 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% $ 20,947 >4.00% $ 26,184 >5.00%
First Victoria National Bank 38,869 7.16% 21,726 >4.00% 27,158 >5.00%
</TABLE>
In March 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128 "Earnings Per Share" and No. 129 "Disclosure of Information About
Capital Structure". These statements established standards for calculating
earnings per share and the reporting requirements for earnings per share and the
Company's capital structure. The Company adopted these standards effective for
the year ended December 31, 1997. The adoption of the standards had no material
impact on the Company's calculation or presentation of earnings per share or
disclosure.
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 Bank's 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 regulation to ensure capital adequacy
require the Subsidiary Banks to maintain minimum amounts and ratios (set forth
in the table above) 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 December 31, 1999, that
the Company has satisfied all capital adequacy requirements to which it is
subject.
(12) 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).
45
<PAGE>
An analysis of loans to directors and executive officers of the Company and
entities related to those individuals, is provided for the years ended December
31, in the following table (in thousands):
1999 1998
------- -------
Balance at the beginning of year ........ $ 3,820 $ 3,882
Additions ............................ 4,026 3,633
Reductions ........................... (4,301) (3,695)
------- -------
Balance at the end of year .............. $ 1,545 $ 3,820
======= =======
Approximately 25.10% of the Company's outstanding stock was owned by
principal shareholders, directors, and executive officers of the Company at
December 31, 1999. The aggregate deposits owned by principal shareholders,
directors, and executive officers of the Company at December 31, 1999 and 1998
amounted to approximately 1.97% and 2.66%, respectively, of total deposits.
(13) OTHER BORROWINGS: The following table represents the contractual principal
reductions due on other borrowings of the Company as of December 31, in
thousands. The weighted average contractual interest rate on the balances of
other borrowings outstanding was 6.69% and 6.30% as of December 31, 1999 and
1998, respectively. The balances are comprised of unsecured Federal Home Loan
Bank advances and debt related to the lease of an aircraft as discussed in Note
18 to the consolidated financial statements.
1999 1998
------- -------
Within one year ... $ 1,872 $ 4,124
One to two years .. 5,590 456
Two to three years 1,951 4,071
Three to four years 4,432 320
Four to five years 5,069 2,682
After five years .. 8,913 7,466
------- -------
Total .......... $27,827 $19,119
======= =======
(14) 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 receivable are determined by dividing
the loan portfolio into various groups having similar characteristics. The
expected future cash flows of each group 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 group are then discounted using current period end market rates for similar
deposits.
46
<PAGE>
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.
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 IOC 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 commitments to extend credit are estimated using current
interest rates and committed interest rates.
The following table represents the estimated fair values of the Company's
financial instruments as of December 31, in thousands:
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
Book Value Fair Value Book Value Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and due from banks ............... $ 26,993 $ 26,993 $ 27,504 $ 27,504
Federal funds sold .................... 38,170 38,170 6,800 6,800
Investment securities ................. 158,776 158,776 211,918 211,918
Loans and leases, net ................. 382,834 376,572 289,554 288,201
Accrued interest receivable ........... 4,758 4,758 4,931 4,931
Financial Liabilities:
Time deposits ......................... 281,334 281,614 219,027 220,762
Other deposits ........................ 273,486 273,486 235,713 235,713
-------- -------- -------- --------
Total deposits ..................... 554,820 555,100 454,740 456,475
Federal funds purchased and securities
sold under agreements to repurchase 3,750 3,750 12,225 12,225
Other borrowings ...................... 27,827 25,806 19,119 19,694
Accrued interest payable .............. 2,377 2,377 2,130 2,130
Off-Balance Sheet Instruments:
Commitments to extend credit .......... 0 132,361 0 100,204
</TABLE>
(15) 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.
(16) TRUST ASSETS: Trust assets and other properties, except cash deposits, held
by 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 $209,811,000 and $191,382,000 at December
31, 1999 and 1998, respectively.
47
<PAGE>
(17) PARENT COMPANY ONLY FINANCIALS: In September 1998, FVNB Corp. was formed as
a bank holding company. Presented below are separate condensed financial
statements for the FVNB Corp.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------
1999 1998
--------- ---------
CONDENSED (IN THOUSANDS)
BALANCE SHEETS
ASSETS:
<S> <C> <C>
Cash on hand ........................................................ $ 42 $ 17,405
Investment in and note receivable from subsidiaries ................. 60,399 40,743
Interest receivable ................................................. 0 1,223
Other assets ........................................................ 383 155
-------- --------
TOTAL ASSETS ................................................... $ 60,824 $ 59,526
======== ========
LIABILITIES:
Accounts payable .................................................... 184 4
Other liabilities ................................................... 331 0
-------- --------
TOTAL LIABILITIES .............................................. 515 4
-------- --------
SHAREHOLDERS' EQUITY:
Common stock ........................................................ 24 24
Surplus ............................................................. 15,682 15,682
Retained earnings ................................................... 47,946 43,764
Accumulated other comprehensive income--
net unrealized (losses) gains on investment securities, net of tax (3,343) 52
-------- --------
TOTAL SHAREHOLDERS' EQUITY ..................................... 60,309 59,522
-------- --------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY ....................... $ 60,824 $ 59,526
======== ========
<CAPTION>
Year Ended December 31,
------------------------
1999 1998
---------- ----------
CONDENSED (IN THOUSANDS)
INCOME STATEMENTS
INCOME:
<S> <C> <C>
Dividends from subsidiaries ....................................... $ 3,322 $ 20,933
Interest income ................................................... 4,852 1,409
---------- ----------
TOTAL INCOME ................................................. 8,174 22,342
---------- ----------
EXPENSES:
Professional fees ................................................. 160 46
Other expense ..................................................... 169 8
---------- ----------
TOTAL EXPENSE ................................................ 329 54
---------- ----------
Earnings before undistributed equity in
losses of subsidiaries and income tax benefit ................ 7,845 22,288
Income tax benefit .................................................. (112) 0
---------- ----------
EARNINGS BEFORE UNDISTRIBUTED EQUITY IN LOSSES OF SUBSIDIARIES 7,957 22,288
Undistributed equity in losses of subsidiaries .................... (452) (16,216)
---------- ----------
NET INCOME ................................................... $ 7,505 $ 6,072
========== ==========
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------
1999 1998
--------- ---------
CONDENSED (IN THOUSANDS)
STATEMENTS OF CASH FLOWS
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................ $ 7,505 $ 6,072
Adjustments to reconcile net income
to net cash provided by operating activities -
Undistributed equity in losses of subsidiaries .......... 452 16,216
Net change in other liabilities ......................... 510 4
Net change in other assets .............................. 993 (1,378)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES .......... 9,460 20,914
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for investments in and advances to subsidiaries .. (23,503) (425)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES .............. (23,503) (425)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short term borrowings ....................... 0 240
Repayments of short term borrowings ....................... 0 (240)
Dividends paid ............................................ (3,320) (3,084)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES .............. (3,320) (3,084)
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (17,363) 17,405
Cash and cash equivalents, beginning of year .............. 17,405 0
--------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR ............. $ 42 $ 17,405
========= =========
</TABLE>
(18) OPERATING LEASES: In June 1999, First Victoria Leasing, Inc., a wholly
owned operating subsidiary of First Victoria National Bank, became a participant
in an operating lease of an aircraft. As a result, the Company's consolidated
balance sheet reflects the aircraft at a book value of approximately $18,551,000
and related nonrecourse debt of approximately $12,831,000 at December 31, 1999.
The debt calls for monthly payments of $190,000 over an original term of
approximately seven years with a final balloon payment of approximately
$2,285,000 due in April 2006. The average rate on the debt was 7.09%. The
following table represents the contractual future rental income related to this
transaction that was receivable as of December 31 (in thousands):
1999
-------
Within one year ........................... $ 2,280
One to two years .......................... 2,280
Two to three years ........................ 2,280
Three to four years ....................... 2,280
Four to five years ........................ 2,280
After five years .......................... 3,040
-------
Total ............................ $14,440
=======
(19) 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
49
<PAGE>
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
have kept the name Citizens Bank of Texas.
(20) SUBSEQUENT EVENTS (UNAUDITED): On January 27, 2000, the Board of Directors
of FVNB Corp. approved a definitive agreement to acquire Mid-Coast Savings Bank,
SSB. Upon completion of the transaction, the acquired bank will merge with First
Victoria National Bank, resulting in the locations of Mid-Coast Savings being
operated as branches of First Victoria National Bank. The transaction is subject
to regulatory approval and approval by the shareholders of Mid-Coast Savings
Bank and is expected to be completed during the second quarter of 2000. As of
December 31, 1999, Mid-Coast Savings Bank had two branches located in Edna and
Ganado, Texas with total assets of approximately $44,363,000 and loans and
deposits of approximately $25,761,000 and $33,984,000, respectively.
50
<PAGE>
To the Shareholders and Board of Directors of
FVNB Corp.:
We have audited the accompanying consolidated balance sheet of FVNB Corp. and
subsidiaries (the Company) as of December 31, 1999 and the related consolidated
statements of income and comprehensive income, shareholders' equity and cash
flows for the year then end. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conduct our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FVNB Corp. and
subsidiaries as of December 31, 1999, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Houston, Texas
January 26, 2000
52
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
FVNB Corp.:
We have audited the consolidated balance sheet of FVNB Corp. and subsidiaries as
of December 31, 1998 and the related consolidated statements of income and
comprehensive income, shareholders' equity and cash flows for each of the two
years in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of FVNB Corp. and subsidiaries as
of December 31, 1998 and the results of their operations and their cash flows
for each of the two years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
(Arthur Anderson signature here)
/s/ ARTHUR ANDERSEN LLP
Houston, Texas
January 22,1999
53
<PAGE>
FINANCIAL STATISTICS
The following unaudited schedules and statistics are presented for
additional information and analysis.
SELECTED FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total interest income* ........ $ 44,837 $ 37,586 $ 33,089 $ 31,688 $ 31,204
Total interest expense ........ 19,776 17,724 15,482 15,742 14,804
----------- ----------- ----------- ----------- -----------
Net interest income ........ 25,061 19,862 17,607 15,946 16,400
Provision (credit) for loan and
lease losses ............. 86 0 (300) 0 (300)
----------- ----------- ----------- ----------- -----------
Net interest income after
provision (credit) ..... 24,975 19,862 17,907 15,946 16,700
Non-interest income ........... 8,629 5,498 4,925 4,454 4,156
Securities (losses) gains ..... (60) 41 (58) (9) 0
Non-interest expense .......... 21,869 16,146 15,180 14,279 13,882
----------- ----------- ----------- ----------- -----------
Income before income taxes . 11,675 9,255 7,594 6,112 6,974
Taxable-equivalent
adjustment * ............. 37 51 116 194 154
Income tax expense ............ 4,136 3,132 2,487 1,961 2,200
----------- ----------- ----------- ----------- -----------
Net income ................. $ 7,502 $ 6,072 $ 4,991 $ 3,957 $ 4,620
=========== =========== =========== =========== ===========
Per share data:
Dividends payout ratio ..... 44.25% 50.81% 38.99% 38.39% 37.51%
Basic earnings per share ... $ 3.16 $ 2.56 $ 2.10 $ 1.67 $ 1.95
Diluted earnings per share . $ 3.05 $ 2.56 $ 2.10 $ 1.67 $ 1.95
Dividends per share ........ $ 1.40 $ 1.30 $ .82 $ .64 $ .73
Total assets .................. $ 655,184 $ 553,164 $ 500,273 $ 462,265 $ 430,795
Weighted average number of
shares outstanding ** .... 2,372,792 2,372,792 2,372,792 2,372,792 2,372,792
Return on average assets ...... 1.18% 1.16% 1.10% .89% 1.10%
Return on average equity ...... 12.72% 9.83% 9.16% 7.67% 9.57%
</TABLE>
*TAX EXEMPT INCOME IS RECORDED ON A FULLY TAXABLE-EQUIVALENT BASIS.
**ACTUAL AMOUNTS, NOT IN THOUSANDS.
55
<PAGE>
LOAN AND LEASE MATURITY AND SENSITIVITY
The following table presents the principal maturities and rate sensitivity of
the loan and lease portfolio as of December 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------- --------------------------------------------
One to After One to After
One Five Five One Five Five
Year Years Years Total Year Years Years Total
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and
financial ..................... $ 44,486 $ 26,703 $ 19,150 $ 90,339 $ 33,195 $ 21,595 $ 8,465 $ 63,255
Real estate ........................ 42,794 77,537 48,570 168,901 35,472 45,616 29,058 110,146
Agriculture ........................ 67,711 6,671 333 74,715 68,851 6,055 887 75,793
Consumer ........................... 15,485 31,039 7,050 53,574 12,838 29,794 1,144 43,776
-------- -------- -------- -------- -------- -------- -------- --------
Total ......................... $170,476 $141,950 $ 75,103 $387,529 $150,356 $103,060 $ 39,554 $292,970
======== ======== ======== ======== ======== ======== ======== ========
Fixed interest rates ............... $ 28,665 $ 57,480 $ 34,995 $121,140 $ 22,688 $ 37,343 $ 18,586 $ 78,617
======== ======== ======== ======== ======== ======== ======== ========
Variable interest rates ............ $141,811 $ 84,470 $ 40,108 $266,389 $127,668 $ 65,717 $ 20,968 $214,353
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
INVESTMENT SECURITIES PORTFOLIO ANALYSIS
Set forth below is a breakdown of the total investment portfolio by
maturity (or anticipated call date) and yield at December 31, 1999 (dollars in
thousands). The restatement of municipal bond yields on a taxable-equivalent
basis has been computed using a 34% federal income tax rate. Al1 balances are
reflected at amortized cost
<TABLE>
<CAPTION>
Within Over One to Over Five to Over
One Year Five Years Ten Years Ten Years
---------------- ---------------- ---------------- ----------------
Amount Yield Amount Yield Amount Yield Amount Yield Total
-------- ----- -------- ----- -------- ----- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasuries .......... $ 193 5.07% $ 0 0.00% $ 0 0.00% $ 0 0.00% $ 193
U.S. Government
Agencies ............. 999 5.52 80,254 5.56 30,000 6.22 0 0.00 111,253
Mortgage-backed
securities and
collateralized
mortgage obligations 321 5.08 2,718 5.94 0 0.00 45,129 5.96 48,168
State and political
subdivisions ........ 370 6.24 920 6.78 0 0.00 0 0.00 1,290
Other .................... 0 0.00 0 0.00 0 0.00 2,937 4.74 2,937
-------- ---- -------- ---- -------- ---- -------- ---- --------
Total ....................... $ 1,883 5.54% $ 83,892 5.58% $ 30,000 6.22% $ 48,066 5.89% $163,841
======== ==== ======== ==== ======== ==== ======== ==== ========
</TABLE>
56
<PAGE>
RATE/VOLUME ANALYSIS
The following table analyzes the change in net interest income for each of
the last two years. Non-accruing loans have been included in assets for these
computations, thereby reducing yields on these investments. The allocation of
the rate/volume variance has been made, consistently for both periods presented
pro-rata on the percentage that volume and rate variances produce (dollars in
thousands).
<TABLE>
<CAPTION>
INCREASE (DECREASE) DUE TO
---------------------------------
INCREASE RATE/
(DECREASE) VOLUME RATE VOLUME
------- ------- ---------- -------
<S> <C> <C> <C> <C>
1999 COMPARED TO 1998:
Interest income:
Due from banks ............................ $ (1) $ 0 $ (1) $ 0
Federal funds sold ........................ 259 410 (117) (34)
Investment securities-taxable ............. (795) (196) (621) 22
Investment securities-tax-exempt * ........ (41) (30) (15) 4
Loans and leases .......................... 7,829 7,889 37 (97)
------- ------- ---------- -------
Total ......................................... 7,251 8,073 (717) (105)
------- ------- ---------- -------
Interest expense:
Deposits .................................. 1,080 2,956 (1,587) (289)
Federal funds purchased and securities sold
under agreements to repurchase ....... 541 585 (18) (26)
Other borrowings .......................... (118) (123) 6 (1)
------- ------- ---------- -------
Total ......................................... 1,503 3,418 (1,599) (316)
------- ------- ---------- -------
Net interest income before allocation of rate/volume 5,748 4,655 882 211
Allocation of rate/volume .......................... 0 177 34 (211)
------- ------- ---------- -------
Change in net interest income ................. $ 5,748 $ 4,832 $ 916 $ 0
======= ======= ========== =======
1998 COMPARED TO 1997:
Interest income:
Due from banks ............................ $ 1 $ 1 $ 0 $ 0
Federal funds sold ........................ 544 575 (19) (12)
Investment securities-taxable ............. 384 763 (349) (30)
Investment securities-tax-exempt* ......... (193) (187) (18) 12
Loans and leases .......................... 3,760 4,244 (346) (138)
------- ------- ---------- -------
Total ......................................... 4,496 5,396 (732) (168)
------- ------- ---------- -------
Interest expense:
Deposits .................................. 1,955 2,149 (179) (15)
Federal funds purchased and securities sold
under agreements to repurchase ....... (8) 3 (11) 0
Other borrowings .......................... 295 332 (27) (10)
------- ------- ---------- -------
Total ......................................... 2,242 2,484 (217) (25)
------- ------- ---------- -------
Net interest income before allocation of rate/volume 2,254 2,912 (515) (143)
Allocation of rate/volume .......................... 0 (174) 31 143
------- ------- ---------- -------
Change in net interest income ................. $ 2,254 $ 2,738 $ (484) $ 0
======= ======= ========== =======
</TABLE>
* TAXABLE-EQUIVALENT ADJUSTMENT BASED ON A 34% FEDERAL INCOME TAX RATE.
57
<PAGE>
AVERAGE BALANCE SHEETS AND INTEREST RATES (1)
<TABLE>
<CAPTION>
1999
------------------------------
(5) Interest
Average Income/ Yield/
ASSETS Balance Expense Cost
------------------------------
<S> <C> <C> <C>
Earning assets:
Due from banks ................................ $ 33 $ 1 2.99%
Federal funds sold ............................ 34,447 1,678 4.80
Investment securities, available-for-sale:
Taxable .................................... 178,139 10,259 5.76
Tax-exempt (2) ............................. 1,641 109 6.64
Loans and lease receivable (3) ................ 364,390 32,790 9.00
--------- --------- ----
Total earning assets .................... 578,650 44,837 7.75%
--------- --------- ----
Less allowance for loan and lease losses ......... (4,327)
Non-earning assets ............................... 65,654
---------
TOTAL ASSETS .................................. $ 639,977
=========
LIABILITIES
Interest bearing liabilities:
Deposits:
Savings, IOC, and money market
accounts .............................. $ 176,445 $ 4,533 2.57%
Time deposits .............................. 260,108 12,723 4.89
--------- --------- ----
Total interest bearing deposits ......... 436,553 17,256 3.95
Federal funds purchased and securities sold
under agreement to repurchase ........... 19,330 957 4.88
Other borrowings(4) ........................... 15,961 1,014 6.27
--------- --------- ----
Total interest bearing liabilities....... 471,844 19,227 4.07
--------- --------- ----
Non-interest bearing liabilities:
Demand deposits ............................... 90,231
Other liabilities ............................. 16,749
---------
Total non-interest bearing liabilities .. 106,980
Shareholders' Equity ............................. 61,153
---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY ..................... $ 639,977
=========
Net Interest Income .............................. $ 25,610
=========
Interest Differential ............................ 3.68%
====
Net Interest Margin .............................. 4.43%
====
</TABLE>
(1) DOLLARS IN THOUSANDS; INCOME AND RATES ON TAXABLE-EQUIVALENT BASIS;
AVERAGES COMPUTED ON A DAILY YEAR-TO-DATE BASIS.
(2) INCLUDES TAXABLE-EQUIVALENT ADJUSTMENTS BASED ON 34%.
(3) INCLUDES LOANS PLACED ON NON-ACCRUAL.
(4) EXCLUDES BORROWINGS RELATED TO AIRCRAFT DEBT FOR PRESENTATION PURPOSES.
(5) ALL AMOUNTS SHOWN AT AMORTIZED COST.
58
<PAGE>
1998 1997
------------------------------ -----------------------------------
(5) Interest (5) Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost
------------------------------ -----------------------------------
$ 36 $ 2 5.48% $ 15 $ 1 6.76%
26,726 1,419 5.24 16,118 875 5.35
181,303 11,054 6.10 169,353 10,670 6.30
2,036 150 7.37 4,413 343 7.77
277,795 24,961 8.99 232,866 21,201 9.10
--------- --------- ---- ---------- --------- ----
487,896 37,586 7.70% 422,765 33,090 7.83%
--------- --------- ---- ---------- --------- ----
(3,062) (2,749)
40,737 34,816
--------- ----------
$ 525,571 $ 454,832
========= ==========
$ 150,982 $ 4,434 2.94% $ 132,565 $ 4,237 3.20%
218,945 11,742 5.36 187,399 9,984 5.33
--------- --------- ---- ---------- --------- ----
369,927 16,176 4.37 319,964 14,221 4.44
8,033 416 5.11 7,974 424 5.24
17,915 1,132 6.23 12,823 837 6.44
--------- --------- ---- ---------- --------- ----
395,875 17,724 4.48 340,761 15,482 4.54
--------- --------- ---- ---------- --------- ----
60,848 54,642
6,923 4,296
--------- ----------
67,771 58,938
61,925 55,133
--------- ----------
$ 525,571 $ 454,832
========= ==========
$ 19,862 $ 17,608
========= =========
3.22% 3.29%
==== ====
4.07% 4.17%
==== ====
59
<PAGE>
COMMON STOCK MARKET PRICES AND DIVIDENDS
The Company's common stock is listed on the over-the-counter market, symbol
FVNB, and is quoted in the National Market System (NMS) of NASDAQ. The number of
shareholders of record of common stock at December 31, 1999 was 633. The
following table shows the range of high and low quotes per share of common stock
of the Company on the over-the-counter market, as reported by NASDAQ. Over-
the-counter market quotations reflect inter-dealer prices, without retail
markup, markdown or commission and may not necessarily represent actual
transactions.
1999 1998
--------------------- --------------------
High Low High Low
------- ------- ------- -------
First Quarter $36.000 $32.000 $42.250 $39.000
Second Quarter 34.500 27.000 43.250 40.000
Third Quarter 33.000 29.000 39.500 30.000
Fourth Quarter 40.000 32.500 34.000 30.000
Total dividends paid during 1999 and 1998 were $1.40 and $1.30 per share,
respectively. See "Capital" section (page 24) in the Financial Section and
"Shareholders' Equity" (page 43) in Note 11 to the consolidated financial
statements for further discussion of the payment of dividends and restrictions.
60
<PAGE>
DIRECTORS OF FVNB CORP.
[GRAPHIC OMITTED]
SEATED LEFT TO RIGHT: JAMES ROBERT McCAN, RANCHING; O.D. EDWARDS, JR., RANCHING,
FARMING, OIL & GAS; ROGER WELDER, VICE-CHAIRMAN OF THE BOARD, RANCHING, OIL &
GAS; MICHAEL S. ANDERSON, CHAIRMAN OF THE BOARD, ATTORNEY AT LAW;
WALTER T. HAENGGI, RANCHING; THOMAS LANE KELLER, CERTIFIED PUBLIC ACCOUNTANT
STANDING LEFT TO RIGHT: THOMAS M. O'CONNOR, RANCHING, FARMING; DAVID P. ENGEL,
MANAGING PARTNER, ENGEL INVESTMENTS, LLP; J.E. McCORD, RETIRED, REAL ESTATE
DEVELOPMENT; DAVID M. GADDIS, PRESIDENT & CHIEF EXECUTIVE OFFICER;
ROBERT L. HALEPESKA, EXECUTIVE VICE PRESIDENT, M.G. & LILLIE JOHNSON FOUNDATION;
BILLY W. RUDDOCK, RETIRED, FORMERLY EXECUTIVE ASSISTANT TO THE
PRESIDENT OF FIRST VICTORIA NATIONAL BANK
DIRECTORS OF FVNB CORP. ARE ALSO DIRECTORS
OF SUBSIDIARY FIRST VICTORIA NATIONAL BANK
62
<PAGE>
OFFICERS OF FVNB CORP.
DAVID M. GADDIS C. DEE HARKEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER SECRETARY AND PRINCIPAL
ACCOUNTING OFFICER
EXECUTIVE OFFICERS OF SUBSIDIARY BANKS
FIRST VICTORIA NATIONAL BANK
MICHAEL S. ANDERSON DAVID M. GADDIS
CHAIRMAN OF THE BOARD PRESIDENT & CHIEF EXECUTIVE OFFICER
JOHN E. "BUDDY" BILLUPS M. RUSSELL MARSHALL
EXECUTIVE VICE PRESIDENT & EXECUTIVE VICE PRESIDENT &
BUSINESS DEVELOPMENT MANAGER SENIOR TRUST OFFICER
* C. DEE HARKEY * KENNETH L. VICKERS
EXECUTIVE VICE PRESIDENT & EXECUTIVE VICE PRESIDENT &
CHIEF OPERATING OFFICER CHIEF LENDING OFFICER
CITIZENS BANK OF TEXAS, N.A.
ROGER D. LAWRENCE DEBRA K. MITCHAM
PRESIDENT & CHIEF EXECUTIVE OFFICER EXECUTIVE VICE PRESIDENT &
SENIOR OPERATIONS OFFICER
W. RUSSELL BARNETT JOE C. BOAZ
EXECUTIVE VICE PRESIDENT & EXECUTIVE VICE PRESIDENT
SENIOR LOAN OFFICER
DIRECTORS OF CITIZENS BANK OF TEXAS, N.A.
JOE C. BOAZ JOHN BURTON
DAVID M. GADDIS ROGER D. LAWRENCE
CHARLES MILSTEAD DEBRA K. MITCHAM
ADIVISORY DIRECTORS
W. RUSSELL BARNETT RAYMOND BELINOWSKI
STEPHEN DAWSON, SR. JOHN PARKER
*ADVISORY DIRECTORS OF FIRST VICTORIA NATIONAL BANK
63
<PAGE>
TRANSFER AGENT AND REGISTRANT
ChaseMellon Shareholder Services, L.L.C.
(1-800-635-9270)
85 Challenger Road
Overpeck Centre
Richfield Park, NJ 07660-2104
NASDAQ Symbol: FVNB
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG LLP
700 Louisiana, Suite 3100
Houston, Texas 77002
NOTICE OF ANNUAL MEETING
The Annual Meeting of Shareholders is scheduled for 2:00 P.M., Thursday, May
11, 2000 in Town Hall of First Victoria National Bank, 101 S. Main Street,
Victoria, Texas.
FORM 10-K
A copy of FVNB Corp.'s Form 10-K, as filed with the Securities and Exchange
Commission including the financial statements and schedules thereto (but not
including exhibits thereto), is available to shareholders at no charge. Please
direct requests to: C. Dee Harkey, Secretary, FVNB Corp., 101 S. Main Street,
P.O. Box 1338, Victoria, Texas 77902.
INVESTOR INQUIRIES
FVNB Corp. news releases, including earnings announcements, are available by fax
by calling 1-800-758-5804. The six digit code is 124759. This electronic,
menu-driven system allows callers to receive specific FVNB Corp. releases via
fax within minutes of request.
News releases from FVNB Corp. are also available on the World Wide Web at
http://www.prnewswire.com.
64
EXHIBIT 21
FVNB CORP. & SUBSIDIARIES
Organizational Structure as of March 28, 2000
1. FVNB Corp
A. FVNB Delaware Corporation, and its subsidiaries
1) First Victoria National Bank, and its subsidiaries
a) First Victoria Leasing
b) First Victoria Community Development Corporation
c) PMV, Inc.
2) Citizens Bank of Texas, and its subsidiary
a) Citizens Insurance Agency of Texas
3) CBOT Mortgage (dba Citizens Mortgage)
EXHIBIT 23.A
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
of FVNB Corp.:
We consent to the incorporation by reference in Registration Statement No.
333-75029 on Form S-8 of FVNB Corp. filed on March 25, 1999, of our report dated
January 26, 2000, relating to the consolidated balance sheet of FVNB Corp. and
subsidiaries as of December 31, 1999, and the related consolidated statements of
income and comprehensive income, shareholders' equity and cash flows for the
year then ended, which report is included in this December 31, 1999 annual
report on Form 10-K of FVNB Corp.
KPMG LLP
Houston, Texas
March 28, 2000
EXHIBIT 23.B
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
of FVNB Corp.:
We consent to the incorporation by reference in Registration Statement No.
333-75029 on Form S-8 of FVNB Corp. filed on March 25, 1999, of our report dated
January 22, 1999, relating to the consolidated balance sheets of FVNB Corp. and
subsidiaries as of December 31, 1998, and the related consolidated statements of
income and comprehensive income, shareholders' equity and cash flows for each of
the years in the two-year period ended December 31, 1998, which report is
included in this December 31, 1999 annual report on Form 10-K of FVNB Corp.
/s/ Arthur Andersen LLP
Houston, Texas
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE 1999 ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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