<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission File Number: 0-10196
INDEPENDENT BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
Texas 75-1717279
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
547 Chestnut Street
P. O. Box 3296
Abilene, Texas 79604
(Address of principal executive offices) (Zip Code)
(915) 677-5550
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements
for the past 90 days.
YES [ X ] NO
Indicate the number of shares outstanding of each of
the issuer's classes of common stock at March 31, 1996.
Class: Common Stock, par value $0.25 per share
Outstanding at March 31, 1996: 1,050,292 shares
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<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
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<PAGE>
INDEPENDENT BANKSHARES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents:
Cash and Due from Banks $ 10,371,000 $ 8,559,000
Federal Funds Sold 18,100,000 26,200,000
------------ ------------
Total Cash and Cash Equivalents 28,471,000 34,759,000
------------ ------------
Securities:
Available-for-sale 23,703,000 16,746,000
Held-to-maturity--Market Value of $43,702,000 for
March 31, 1996, and $39,384,000 for December 31, 1995 44,034,000 39,161,000
------------ ------------
Total Securities 67,737,000 55,907,000
------------ ------------
Loans:
Total Loans 85,779,000 85,281,000
Less:
Unearned Income on Installment Loans 3,091,000 3,354,000
Allowance for Possible Loan Losses 894,000 759,000
------------ ------------
Net Loans 81,794,000 81,168,000
------------ ------------
Premises and Equipment 4,247,000 4,155,000
Real Estate and Other Repossessed Assets 398,000 337,000
Accrued Interest Receivable 1,452,000 1,494,000
Other Assets 2,710,000 2,524,000
------------ ------------
Total Assets $186,809,000 $180,344,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing Demand Deposits $ 29,931,000 $ 33,267,000
Interest-bearing Demand Deposits 56,136,000 52,430,000
Interest-bearing Time Deposits 85,003,000 79,007,000
------------ ------------
Total Deposits 171,070,000 164,704,000
Notes Payable 707,000 849,000
Accrued Interest Payable 838,000 882,000
Other Liabilities 163,000 91,000
------------ ------------
Total Liabilities 172,778,000 166,526,000
------------ ------------
Stockholders' Equity:
Series C Preferred Stock 164,000 164,000
Common Stock 263,000 263,000
Additional Paid-in Capital 9,875,000 9,875,000
Retained Earnings 3,760,000 3,448,000
Unrealized Gain (Loss) on Available-for-sale Securities (31,000) 68,000
------------ ------------
Total Stockholders' Equity 14,031,000 13,818,000
------------ ------------
Total Liabilities and Stockholders' Equity $186,809,000 $180,344,000
============ ============
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
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<PAGE>
INDEPENDENT BANKSHARES, INC.
CONSOLIDATED INCOME STATEMENTS
QUARTERS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Interest Income:
Interest and Fees on Loans $1,960,000 $1,891,000
Interest on Securities 971,000 427,000
Interest on Federal Funds Sold 292,000 493,000
---------- ----------
Total Interest Income 3,223,000 2,811,000
---------- ----------
Interest Expense:
Interest on Deposits 1,463,000 1,106,000
Interest on Notes Payable 22,000 22,000
---------- ----------
Total Interest Expense 1,485,000 1,128,000
---------- ----------
Net Interest Income 1,738,000 1,683,000
Provision for Loan Losses 50,000 42,000
---------- ----------
Net Interest Income After Provision for Loan Losses 1,688,000 1,641,000
---------- ----------
Noninterest Income:
Service Charges 292,000 288,000
Trust Fees 53,000 55,000
Other Income 18,000 58,000
---------- ----------
Total Noninterest Income 363,000 401,000
---------- ----------
Noninterest Expenses:
Salaries and Employee Benefits 758,000 714,000
Net Occupancy Expense 168,000 168,000
Equipment Expense 160,000 171,000
Stationery, Printing and Supplies Expense 63,000 62,000
Professional Fees 58,000 83,000
Net Cost (Revenue) Applicable to Real Estate
and Other Repossessed Assets 5,000 (4,000)
Other Expenses 292,000 346,000
---------- ----------
Total Noninterest Expenses 1,504,000 1,540,000
---------- ----------
Income Before Federal Income Taxes 547,000 502,000
Federal Income Taxes 186,000 170,000
---------- ----------
Net Income $ 361,000 $ 332,000
========== ==========
Preferred Stock Dividends $ 17,000 $ 18,000
========== ==========
Net Income Available to Common Stockholders $ 344,000 $ 314,000
========== ==========
Primary Earnings per Common Share Available to Common Stockholders $ 0.33 $ 0.30
========== ==========
Fully Diluted Earnings Per Common Share Available to Common Stockholders $ 0.27 $ 0.25
========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
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<PAGE>
INDEPENDENT BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
QUARTERS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 361,000 $ 332,000
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Deferred Federal Income Tax Expense 77,000 160,000
Depreciation and Amortization 100,000 101,000
Provision for Loan Losses 50,000 42,000
Loss on Sales of Available-for-sale Securities 11,000 0
Gain on Sales of Premises and Equipment 0 (3,000)
Gain on Sales of Real Estate and Other Repossessed Assets (11,000) (14,000)
Writedown of Real Estate and Other Repossessed Assets 12,000 12,000
Decrease in Accrued Interest Receivable 42,000 115,000
Increase in Other Assets (186,000) (377,000)
Increase (Decrease) in Accrued Interest Payable (44,000) 127,000
Increase (Decrease) in Other Liabilities 72,000 (23,000)
----------- -----------
Net Cash Provided by Operating Activities 484,000 472,000
----------- -----------
Cash Flows from Investing Activities:
Proceeds from Maturities of Available-for-sale Securities 23,000 2,968,000
Proceeds from Maturities of Held-to-maturity Securities 10,115,000 542,000
Proceeds from Sales of Available-for-sale Securities 30,000 0
Purchases of Available-for-sale Securities (7,163,000) 0
Purchases of Held-to-maturity Securities (14,989,000) (2,000,000)
Net Increase in Loans (2,212,000) (2,701,000)
Additions to Premises and Equipment (188,000) (31,000)
Proceeds from Sales of Premises and Equipment 0 3,000
Proceeds from Sales of Real Estate and Other Repossessed Assets 175,000 145,000
Cash and Cash Equivalents Held by Peoples National Bank
on January 1, 1996 (Date of Acquisition) 1,265,000 0
----------- -----------
Net Cash Used in Investing Activities (12,944,000) (1,074,000)
----------- -----------
Cash Flows from Financing Activities:
Increase in Deposits 6,366,000 3,876,000
Repayment of Notes Payable (145,000) (29,000)
Payment of Cash Dividends (49,000) (41,000)
----------- -----------
Net Cash Provided by Financing Activities 6,172,000 3,806,000
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents (6,288,000) 3,204,000
Cash and Cash Equivalents at Beginning of Period 34,759,000 38,764,000
----------- -----------
Cash and Cash Equivalents at End of Period $28,471,000 $41,968,000
=========== ===========
Cash paid during the quarter for:
Interest $ 1,529,000 $ 1,001,000
Federal income taxes 35,000 5,000
Noncash investing activities:
Additions to real estate and other repossessed assets
during the quarter through foreclosures $ 270,000 $ 201,000
Sales of real estate and other repossessed
assets financed with loans 32,000 58,000
Transfer of real estate and other repossessed assets to loans 0 125,000
Increase (decrease) in unrealized gain/loss on
available-for-sale securities, net of tax (99,000) 69,000
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
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<PAGE>
INDEPENDENT BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
For information with regard to significant accounting
policies, reference is made to Notes to Consolidated Financial
Statements included in the Annual Report on Form 10-K for the year
ended December 31, 1995, which was filed with the Securities and
Exchange Commission pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934, as amended.
The accompanying financial statements reflect all adjustments
necessary to present a fair statement of the results
for the interim periods presented, and all adjustments are of a
normal recurring nature.
(2) Quasi-reorganization
In connection with the restructuring of its indebtedness
to a financial institution in Dallas, Texas, the Company effected
a quasi-reorganization as of December 31, 1989. A quasi-
reorganization is an elective accounting procedure under Generally
Accepted Accounting Principles ("GAAP") in which assets and
liabilities of the Company were restated to fair value and the
Company's accumulated deficit was reduced to zero. Under GAAP,
utilization of any of the Company's net operating loss
carryforwards subsequent to the quasi-reorganization date will not
be credited to future income. For periods prior to January 1,
1995, the tax effect of the utilization of the Company's net
operating loss carryforwards were credited directly to additional
paid-in capital. For periods subsequent to December 31, 1994, the
tax effect of the utilization of the Company's net operating loss
carryforwards have been and will be credited against the Company's
gross deferred tax asset. The reduction in the Company's deferred
tax asset during the first three months of 1996 and 1995
totaled $77,000 and $160,000, respectively.
(3) Notes Payable
The Company has a note payable to a financial institution
in Amarillo, Texas (the "Amarillo Bank"). This note (the
"Long-term Note") had an outstanding principal balance of $471,000
at March 31, 1996. The Long-term Note had a maturity of April 15,
1996. On April 15, 1996, the Company paid the Amarillo Bank
$100,000 to reduce the outstanding principal balance to $371,000
and the maturity date was extended to April 15, 1999. Equal
principal payments of $31,000, plus accrued interest, are now due
quarterly on January 15, April 15, July 15 and October 15. The
Long-term Note bears interest at the Amarillo Bank's floating base
rate plus 1% (9.25% at March 31, 1996) and is collateralized by
100% of the stock of First State Bank, N.A., Abilene, Texas
("First State, N.A., Abilene") and First State Bank, N.A., Odessa,
Texas ("First State, N.A., Odessa") (collectively, the "Banks").
The loan agreement between the Company and the Amarillo Bank
contains certain covenants that, among other things, restrict the
ability of the Company to incur additional debt, to create liens
on its property, to merge or to consolidate with any other person
or entity, to make certain investments, to purchase or sell assets
or to pay cash dividends on the common stock without
-6-
<PAGE>
the approval of the Amarillo Bank if the indebtedness due to the
Amarillo Bank is $1,000,000 or greater. The loan agreement also
requires the Company and the Banks to meet certain financial
ratios, all of which were met at March 31, 1996, and December 31,
1995.
In addition, at March 31, 1996, the Company had notes payable
to one current and two former directors of the Company aggregating
$221,000. These notes had an original face amount of $350,000 but
were discounted upon issuance because they bear interest at a
below-market interest rate (6%). The notes are payable in three
equal annual installments, plus accrued interest. The first annual
installment of $117,000 was made on March 1, 1996. The notes
represent a portion of the final settlement of certain litigation.
(4) Federal Income Taxes
In February 1992, the FASB issued Statement No. 109,
"Accounting for Income Taxes" ("FAS 109"), which required companies
to adopt the liability method for computing income taxes no later
than 1993. In applying the new method in 1993, the Company
established a gross deferred tax asset of $3,190,000, a portion of
which relates to federal tax net operating loss carryforwards and
deductible temporary differences arising prior to the company's
quasi-reorganization as of December 31, 1989. FAS 109 requires
that consideration be given to establishing a valuation allowance
against such deferred tax assets. The Company established a
valuation allowance of $2,290,000, resulting in a net deferred tax
asset of $900,000. As a result of the acquisition of Winters State
Bank, Winters, Texas ("Winters State"), the Company increased its
gross deferred tax asset and the related valuation allowance by
approximately $972,000 during 1993. This gross deferred tax asset
arose mainly due to net operating loss carryforwards and other
future deductible temporary differences. The Company reduced the
valuation allowance during 1995 by $1,600,000 and transferred such
amount to additional paid-in-capital due to the Company's belief,
based on the Company's recent earnings history, that it is more
likely than not that sufficient pre-tax income will be generated in
the foreseeable future to realize its net deferred tax asset.
Additionally, the Company reduced its gross deferred tax asset and
related valuation allowance by $708,000 as a result of the write-
off of a portion of the deferred tax asset related to the Winters
State net operating loss carryforwards that will not be utilized.
(5) Earnings Per Share
Primary earnings per common share is computed by dividing net
income available to common stockholders by the weighted average
number of shares and share equivalents outstanding during the
period. Because the Company's outstanding preferred stock is
cumulative, the dividends allocable to such preferred stock reduces
income available to common stockholders in the earnings per share
calculations. The Series C Preferred Stock issued in December 1990
was determined not to be a common stock equivalent and, therefore,
is not used to calculate primary earnings per common share. In
computing fully diluted earnings per common share for the quarters
ended March 31, 1996 and 1995, the conversion of the Series C
Preferred Stock was assumed, as the effect is dilutive. The
weighted average common shares
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<PAGE>
outstanding used in computing primary earnings per common share for
the quarters ended March 31, 1996 and 1995, was 1,055,000 and
1,042,000 shares, respectively. The weighted average common shares
outstanding used in computing fully diluted earnings per common
share for the quarters ended March 31, 1996 and 1995, was 1,357,000
and 1,348,000 shares, respectively.
(6) Acquisition of Subsidiary Bank
First State, N.A., Abilene completed the acquisition of
Peoples National Bank, Winters, Texas ("Peoples National")
effective January 1, 1996. At that date, Peoples National had
total assets of $5,505,000, total loans, net of unearned income of
$2,767,000, total deposits of $4,958,000 and stockholders' equity
of $525,000. This acquisition was accounted for using the
purchase method of accounting. A total of $260,000 of goodwill
was recorded as a result of this acquisition. Peoples National
was merged with and into First State, N.A., Abilene.
(7) Pending Acquisition
First State, N.A., Abilene has entered into an agreement, and
filed an application for approval, to purchase the loans and
certain other assets and assume the deposits and certain other
liabilities of the San Angelo, Texas branch of Coastal Banc ssb.
Consummation of this purchase and assumption transaction is subject
to, among other things, various regulatory approvals. If approved,
the transaction will probably be consummated during the second
quarter of 1996, at which time the Coastal Banc - San Angelo branch
will become a branch of First State, N.A., Abilene. At December
31, 1995, Coastal Banc - San Angelo had approximately $16,000,000
in total deposits and approximately $100,000 in total loans.
-8-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
This Quarterly Report on Form 10-Q contains certain forward-
looking statements and information relating to Independent
Bankshares, Inc. (the "Company") and its subsidiaries that are
based on the beliefs of the Company's management as well as
assumptions made by and information currently available to the
Company's management. When used in this report, the words
"anticipate," "believe," "estimate," "expect" and "intend" and
words or phrases of similar import, as they relate to the Company
or its subsidiaries or Company management, are intended to identify
forward-looking statements. Such statements reflect the current
view of the Company with respect to future events and are subject
to certain risks, uncertainties and assumptions related to certain
factors including, without limitation, competitive factors, general
economic conditions, customer relations, the interest rate
environment, governmental regulation and supervision, nonperforming
asset levels, loan concentrations, changes in industry practices,
one time events and other factors described herein. Based upon
changing conditions, should any one or more of these risks or
uncertainties materialize, or should any underlying assumptions
prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected or
intended. The Company does not intend to update these forward-
looking statements.
The Company
The Company is a multi-bank holding company that, at March 31,
1996, owned 100% of Independent Financial Corp. ("Independent
Financial") which, in turn, owned 100% of First State Bank,
National Association, Abilene, Texas ("First State, N.A., Abilene")
and First State Bank, National Association, Odessa, Texas ("First
State, N.A., Odessa") (collectively, the "Banks"). First State,
N.A., Abilene has two full-service banking locations in Abilene,
one in Stamford, Texas, and one in Winters, Texas, and First State,
N.A., Odessa has two full-service banking locations in Odessa.
First State, N.A., Abilene, acquired its two branches in Stamford
and Winters when two of the Company's former subsidiary banks, The
First National Bank in Stamford, Stamford, Texas ("First
National"), and The Winters State Bank, Winters, Texas ("Winters
State"), were merged into First State, N.A. Abilene, effective
November 1, 1994.
First State, N.A., Abilene acquired Peoples National Bank,
Winters, Texas ("Peoples National") effective January 1, 1996. The
existing location of Peoples National was subsequently closed and
merged with and into First State, N.A., Abilene's existing branch
facility in Winters.
General
The following discussion and analysis presents the more
significant factors affecting the Company's financial condition at
March 31, 1996, and December 31, 1995, and results of operations
for each of the quarters ended March 31, 1996 and 1995. This
discussion and analysis should be read in conjunction with the
Consolidated Financial Statements, notes thereto and other
financial information appearing elsewhere in this quarterly report.
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<PAGE>
Quasi-reorganization
In connection with the restructuring of its indebtedness to a
financial institution in Dallas, Texas, the Company effected a
quasi-reorganization as of December 31, 1989. A quasi-
reorganization is an elective accounting procedure under Generally
Accepted Accounting Principles ("GAAP") in which assets and
liabilities of the Company were restated to fair value and the
Company's accumulated deficit was reduced to zero. Under GAAP,
utilization of any of the Company's net operating loss
carryforwards subsequent to the quasi-reorganization date will not
be credited to future income. For periods prior to January 1,
1995, the tax effect of the utilization of the Company's net
operating loss carryforwards were credited directly to additional
paid-in capital. For periods subsequent to December 31, 1994, the
tax effect of the utilization of the Company's net operating loss
carryforwards have been and will be credited against the Company's
gross deferred tax asset. The tax effect of utilization of these
net operating losses during the first three months of 1996 and 1995
totaled $77,000 and $160,000, respectively.
Results of Operations
General
Net income for the quarter ended March 31, 1996, amounted to
$361,000 ($0.33 primary earnings per common share) compared to net
income of $332,000 ($0.30 primary earnings per common share) for
the quarter ended March 31, 1995.
Net Interest Income
Net interest income represents the amount by which interest
income on interest-earning assets, including securities and loans,
exceeds interest paid on interest-bearing liabilities, including
deposits and notes payable. Net interest income is the principal
source of the Company's earnings. Interest rate fluctuations, as
well as changes in the amount and type of interest-earning assets
and interest-bearing liabilities, combine to affect net interest
income.
Net interest income amounted to $1,738,000 for the first
quarter of 1996, an increase of $55,000, or 3.3%, from the first
quarter of 1995. Net interest income for the first quarter of 1995
was $1,683,000. The increase in 1996 was due to an increase in
average earning assets, which was offset by a reduction in the
Company's net interest margin as a result of increasing interest
rates being paid on certificates of deposit. The net interest
margin on a fully taxable-equivalent basis, was 4.11% for the first
quarter of 1996, compared to 4.54% for the first quarter of 1995.
At March 31, 1996, approximately $19,578,000, or 23.7%, of the
Company's total loans, net of unearned income, were tied to
fluctuations in the prime interest rate. Average rates paid for
various types of deposits, particularly certificates of deposit,
increased from March 31, 1995, to March 31, 1996. For example, the
average rate paid by the Company for certificates of deposit of
$100,000 or more increased to 5.18% during the first quarter of
1996 from 5.08% during the first quarter of 1995. The average rate
paid for certificates of deposit less than $100,000 also increased
from 4.80% in the first quarter of 1995 to 5.65% in the first
quarter
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<PAGE>
of 1996. Rates on other types of deposits, such as
interest-bearing demand, savings and money market deposits, fell
slightly from an average of 2.36% during the first quarter of 1995
to an average of 2.32% during the first quarter of 1996. Given the
fact that the Company's interest-bearing liabilities are subject to
repricing faster than its interest-earning assets in the very short
term, a rising interest rate environment would normally produce a
lower net interest margin than a falling interest rate environment.
As noted under "Analysis of Financial Condition - Interest Rate
Sensitivity" below, because the Company's interest-bearing demand,
savings and money market deposits are somewhat less rate-sensitive,
the Company's net interest margin does not necessarily decrease
significantly in a rising interest rate environment.
The following table presents the average balance sheets of the
Company for the quarters ended March 31, 1996 and 1995, and
indicates the interest earned or paid on the major categories of
interest-earning assets and interest-bearing liabilities on a fully
taxable-equivalent basis and the average rates earned or paid on
each major category. This analysis details the contribution of
interest-earning assets and the impact of the cost of funds on
overall net interest income.
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<PAGE>
<TABLE>
<CAPTION>
Quarter Ended March 31,
-----------------------
1996 1995
---- ----
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- -------- ------ ------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans, net of unearned income (1) $ 83,511 $1,960 9.39% $ 82,540 $1,891 9.16%
Securities (2) 64,010 971 6.07 32,281 428 5.30
Federal funds sold 21,527 292 5.43 33,537 493 5.88
-------- ------ ----- -------- ------ ----
Total interest-earning assets 169,048 3,223 7.63 148,358 2,812 7.58
-------- ------ ----- -------- ------ ----
Noninterest-earning assets:
Cash and due from banks 7,594 7,713
Premises and equipment 4,313 4,194
Accrued interest receivable
and other assets 4,891 3,009
Allowance for possible loan losses (875) (806)
-------- --------
Total noninterest-earning assets 15,923 14,110
-------- --------
Total assets $184,971 $162,468
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Demand, savings and money
market deposits $ 55,021 $ 319 2.32% $ 54,689 $ 323 2.36%
Time deposits 83,288 1,144 5.49 64,412 783 4.86
-------- ------ ----- -------- ------ ----
Total interest-bearing deposits 138,309 1,463 4.23 119,101 1,106 3.71
Notes payable 785 22 11.21 905 22 9.72
-------- ------ ----- -------- ------ ----
Total interest-bearing liabilities 139,094 1,485 4.27 120,006 1,128 3.76
-------- ------ ----- -------- ------ ----
Noninterest-bearing liabilities:
Demand deposits 30,577 29,381
Accrued interest payable and
other liabilities 1,215 1,796
-------- --------
Total noninterest-bearing liabilities 31,792 31,177
-------- --------
Total liabilities 170,886 151,183
Stockholders' equity 14,085 11,285
-------- --------
Total liabilities and
stockholders' equity $184,971 $162,468
======== ========
Net interest income $1,738 $1,684
====== ======
Interest rate spread (3) 3.36% 3.82%
===== ====
Net interest margin (4) 4.11% 4.54%
===== ====
______________________________
<FN>
(1) Nonaccrual loans are included in the Average Balance columns,
and income recognized on these loans, if any, is included in
the Interest Income/Expense columns. Interest income on loans
includes fees on loans, which are not material in amount.
(2) Nontaxable interest income on securities for 1995 was adjusted
to a taxable yield assuming a tax rate of 34%.
(3) The interest rate spread is the difference between the average
yield on interest-earning assets and the average cost of
interest-bearing liabilities.
(4) The net interest margin is equal to net interest income, on a
fully taxable-equivalent basis, divided by average interest-
earning assets.
</FN>
</TABLE>
The following table presents the changes in the components of
net interest income and identifies the part of each change due to
differences in the average volume of interest-earning
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<PAGE>
assets and interest-bearing liabilities and the part of each change
due to the average rate on those assets and liabilities. The
changes in interest due to both rate and volume in the table have
been allocated to volume or rate change in proportion to the
absolute amounts of the change in each.
<TABLE>
<CAPTION>
March 31, 1996 vs 1995
----------------------
Increase (Decrease) Due To
Changes In:
--------------------------
Volume Rate Total
------ ---- -----
(In thousands)
<S> <C> <C> <C>
Interest-earning assets:
Loans, net of unearned income (1) $ 22 $ 47 $ 69
Securities (2) 473 70 543
Federal funds sold (165) (36) (201)
---- ---- ----
Total interest income 330 81 411
---- ---- ----
Interest-bearing liabilities:
Deposits:
Demand, savings and money market deposits 2 (6) (4)
Time deposits 250 111 361
---- ---- ----
Total interest-bearing deposits 252 105 357
Notes payable (3) 3 0
---- ---- ----
Total interest expense 249 108 357
---- ---- ----
Increase (decrease) in net interest income $ 81 $(27) $ 54
==== ==== ====
______________________________
<FN>
(1) Nonaccrual loans have been included in average assets for the
purposes of the computations, thereby reducing yields.
(2) Information with respect to tax-exempt securities is provided
on a fully taxable-equivalent basis assuming a tax rate of
34%.
</FN>
</TABLE>
Provision for Loan Losses
The amount of the provision for loan losses is based on
periodic (not less than quarterly) evaluations of the loan
portfolio, especially nonperforming and other potential problem
loans. During these evaluations, consideration is given to such
factors as: management's evaluation of specific loans; the level
and composition of nonperforming loans; historical loss experience;
results of examinations by regulatory agencies; an internal asset
review process conducted by the Company that is independent of the
management of each Bank; expectations of future economic conditions
and their impact on particular industries and individual borrowers;
the market value of collateral; the strength of available
guarantees; concentrations of credits; and other judgmental
factors. The provision for loan losses for the quarter ended March
31, 1996, was $50,000, compared to $42,000 for the quarter ended
March 31, 1995. This represents an increase of $8,000, or 19.0%.
The reduced provisions in both quarters reflect the general
stabilization of the economic conditions in the Company's primary
service area. In addition, the overall quality of the Company's
loan portfolio has improved, necessitating generally lower
provisions.
-13-
<PAGE>
Noninterest Income
Noninterest income decreased $38,000, or 9.5%, from $401,000
during the first quarter of 1995 to $363,000 during the first
quarter of 1996.
Service charges on deposit accounts and on other types of
services are the major source of noninterest income to the Company.
This source of income increased from $288,000 in the first three
months of 1995 to $292,000 during the first three months of 1996,
a 1.4% increase.
Trust fees from the operation of the trust department of First
State, N.A., Odessa decreased $2,000, or 3.6%, from $55,000 during
the first three months of 1995 to $53,000 during the same period in
1996 as a result of a one-time fee that was charged by the trust
department for functioning as the executor of an estate during
1995, which was partially offset by increased fees collected due to
an increased amount of assets under management.
Other income is the sum of several small components of
noninterest income including insurance premiums earned on
automobiles financed through the Company's indirect installment
loan program and other sources of miscellaneous income. Other
income decreased $40,000, or 69.0%, from $58,000 during the first
quarter of 1995 to $18,000 during the first quarter of 1996
primarily due to a $17,000 decrease in insurance premium income as
a result of decreasing loan activity in that area and an $11,000
loss on sale of available-for-sale securities during 1996.
Noninterest Expenses
Noninterest expenses decreased $36,000, or 2.3%, from
$1,540,000 during the first quarter of 1995 to $1,504,000 during
the first quarter of 1996. The decrease from 1995 to 1996 was due
to a $77,000 decrease in Federal Deposit Insurance Corporation
("FDIC") insurance premiums primarily as a result of a reduction by
the FDIC of deposit insurance rates for banks.
Salaries and employee benefits increased $44,000, or 6.2%,
from $714,000 for the first quarter of 1995 to $758,000 for the
corresponding period of 1996. The increase was a result of the
acquisition of Peoples National effective January 1, 1996, and
overall salary increases effective January 1, 1996.
Net occupancy expense was $168,000 for the first three months
of 1996, which was the same amount of expense that was recorded for
the first three months of 1995.
Equipment expense decreased from $171,000 for the first
quarter of 1995 to $160,000 for the corresponding period in 1996,
representing a decrease of $11,000, or 6.4%. This decrease is a
result of a significant amount of furniture, fixtures and equipment
at First State, N.A., Odessa that became fully depreciated during
the latter part of 1995 and first quarter of 1996, thereby
decreasing depreciation expense associated with such assets.
Stationery, printing and supplies expense increased $1,000, or
1.6%, from $62,000 for the first three months of 1995 to $63,000
for the first three months of 1996, primarily due to the
acquisition of Peoples National effective January 1, 1996.
-14-
<PAGE>
Professional fees, which include legal and accounting fees,
decreased $25,000, or 30.1%, from $83,000 during the first quarter
of 1995 to $58,000 during the same period of 1996. The decrease
was due to legal expenses incurred by the Company in the first
quarter of 1995 regarding a lawsuit that was settled during the
second quarter of 1995. The suit involved a request for indemnity
and reimbursement of settlement costs and attorneys fees by a group
of former directors of a commercial bank that had been a
repossessed asset of a former subsidiary of the Company during the
mid-1980s. The former directors had incurred their expenses in
defense of litigation brought against them by the FDIC as a result
of the failure of the subject bank.
Net cost (revenue) applicable to real estate and other
repossessed assets consists of expenses associated with holding and
maintaining repossessed assets, the net gain or loss on the sales
of such assets, the write-down of the carrying value of the assets
and any rental income that is credited as a reduction in expense.
The Company recorded net cost of $5,000 during the first quarter of
1996 compared to $4,000 in net revenue during the first quarter of
1995 as a result of the gains on sales and income received on
various repossessed assets. The amount of real estate and other
repossessed assets has declined over the past few years.
Other noninterest expense includes, among many other items,
postage, advertising, insurance, directors' fees, dues and
subscriptions, regulatory examinations, travel and entertainment,
due from bank account charges and FDIC insurance expense. These
expenses decreased $54,000, or 15.6%, from $346,000 for the first
quarter of 1995 to $292,000 for the first quarter of 1996. A
reduction in FDIC insurance expense as noted above was the primary
reason for the decrease. This decrease was offset by a slight
increase in other expenses as a result of the acquisition of
Peoples National effective January 1, 1996.
Federal Income Taxes
The Company effected a quasi-reorganization as of December 31,
1989. As a result of this transaction, the Company's net operating
loss carryforwards existing at December 31, 1989, utilized
subsequent to the quasi-reorganization date will not be credited to
future income. For periods prior to January 1, 1995, the tax
effect of the utilization of the Company's net operating loss
carryforwards were credited directly to additional paid-in capital.
For periods subsequent to December 31, 1994, the tax effect of the
utilization of the Company's net operating loss carryforwards have
been and will be credited against the Company's gross deferred tax
asset. The Company accrued $186,000 and $170,000 in federal income
taxes in the first quarter of 1996 and 1995, respectively. See
"Quasi-reorganization" above.
Impact of Inflation
The effects of inflation on the local economy and on the
Company's operating results have been relatively modest for the
past several years. Because substantially all of the Company's
assets and liabilities are monetary in nature, such as cash,
securities, loans and deposits, their values are less sensitive to
the effects of inflation than to changing interest rates, which do
not necessarily change in accordance with inflation rates. The
Company tries to
-15-
<PAGE>
control the impact of interest rate fluctuations by managing the
relationship between its interest rate-sensitive assets and
liabilities. See "Analysis of Financial Condition - Interest Rate
Sensitivity" below.
Analysis of Financial Condition
Assets
Total assets increased $6,465,000, or 3.6%, from $180,344,000
at December 31, 1995, to $186,809,000 at March 31, 1996, primarily
due to the acquisition of Peoples National, which had total assets
of $5,505,000 at January 1, 1996, the date of acquisition.
Cash and Cash Equivalents
The amount of cash and cash equivalents decreased $6,288,000,
or 18.1%, from $34,759,000 at December 31, 1995, to $28,471,000 at
March 31, 1996, due to a decrease in federal funds sold, and a
corresponding increase in securities at March 31, 1996.
Securities
Securities increased $11,830,000, or 21.2%, from $55,907,000
at December 31, 1995, to $67,737,000 at March 31, 1996. The
increase in 1996 is primarily due to the reason noted above.
The board of directors of each Bank reviews all securities
transactions monthly and the securities portfolio periodically.
The Company's current investment policy provides for the purchase
of U.S. Treasury securities and federal agency securities having
maturities of five years or less and for the purchase of state,
county and municipal agencies' securities with maximum maturities
of 10 years. The Company's policy is to maintain a securities
portfolio with staggered maturities to meet its overall liquidity
needs. Municipal securities must be rated A or better. Certain
school district issues, however, are acceptable with a Baa rating.
Securities totalling $23,703,000 are classified as available-for-
sale and are carried at fair value at March 31, 1996. Securities
totalling $44,034,000 are classified as held-to-maturity and are
carried at amortized cost. The decision to sell securities
classified as available-for-sale is based upon management's
assessment of changes in economic or financial market conditions.
During the first quarter of 1996, the Company sold investments in
certain mutual funds obtained in the acquisition of Peoples
National because they did not meet the Company's investment
criteria. A loss of $11,000 was recorded on the sale of such
investments.
Certain of the Company's securities are pledged to secure
public and trust fund deposits and for other purposes required or
permitted by law. At March 31, 1996, the book value of U.S.
Treasury and other U.S. Government agency securities so pledged
amounted to $10,282,000, or 15.2% of the total securities
portfolio.
-16-
<PAGE>
The following table summarizes the amounts and the
distribution of the Company's securities held at the dates
indicated.
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
Amount % Amount %
------ - ------ -
(In thousands)
<S> <C> <C> <C> <C>
Carrying value:
U.S. Treasury securities $33,028 48.8% $32,297 57.8%
Obligations of other U.S. Government
agencies and corporations 28,086 41.5 23,021 41.2
Mortgage-backed securities 6,180 9.1 146 0.2
Other securities 443 0.6 443 0.8
------- ----- ------- -----
Total carrying value of securities $67,737 100.0% $55,907 100.0%
======= ===== ======= =====
Total market value of securities $67,405 $56,132
======= =======
</TABLE>
The market value of securities classified as held-to-maturity
is usually different from the reported carrying value of such
securities due to interest rate fluctuations that cause market
valuations to change.
The following table provides the maturity distribution and
weighted average interest rates of the Company's total securities
portfolio at March 31, 1996. The yield has been computed by
relating the forward income stream on the securities, plus or minus
the anticipated amortization of premiums or accretion of discounts,
to the carrying value of the securities. The book value of
securities classified as held-to-maturity is their cost, adjusted
for previous amortization or accretion.
<TABLE>
<CAPTION>
Estimated Weighted
Type and Maturity Grouping Principal Carrying Fair Average
at March 31, 1996 Amount Value Value Yield
- -------------------------- --------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury securities:
Within one year $14,000 $14,063 $14,073 5.97%
After one but within five years 19,100 18,965 18,988 5.74
------- ------- ------- ----
Total U.S. Treasury securities 33,100 33,028 33,061 5.84
------- ------- ------- ----
Obligations of other U.S. Government
agencies and corporations:
After one but within five years 28,000 28,086 27,842 6.23
------- ------- ------- ----
Total obligations of U.S. Government
agencies and corporations 28,000 28,086 27,842 6.23
------- ------- ------- ----
Mortgage-backed securities 5,996 6,180 6,059 6.07
------- ------- ------- ----
Other securities:
After one but within five years 5 5 5 5.50
After ten years 438 438 438 3.56
------- ------- ------- ----
Total other securities 443 443 443 3.59
------- ------- ------- ----
Total securities $67,539 $67,737 $67,405 6.01%
======= ======= ======= ====
</TABLE>
-17-
<PAGE>
Loan Portfolio
Total loans, net of unearned income, increased $761,000, or
0.9%, from $81,927,000 at December 31, 1995, to $82,688,000 at
March 31, 1996. The increase during the first quarter of 1996 was
a result of the purchase of Peoples National effective January 1,
1996.
The Banks primarily make installment loans to individuals and
commercial loans to small to medium-sized businesses and
professionals. The Banks offer a variety of commercial lending
products including revolving lines of credit, letters of credit,
real estate loans, working capital loans and loans to finance
accounts receivable, inventory and equipment. Typically, the
Banks' commercial loans have floating rates of interest, are for
varying terms (generally not exceeding five years), are personally
guaranteed by the borrower and are collateralized by real estate,
accounts receivable, inventory or other business assets.
Due to diminished loan demand in most areas during the early
1990's, the Banks instituted an installment loan program whereby
they began to purchase automobile loans from automobile dealerships
in the Abilene and Odessa/Midland, Texas areas. Under this
program, a dealership will agree to make a loan to a prospective
customer to finance the purchase of a new or used automobile. The
different financial institutions that have a pre-established
relationship with the particular dealership review the transaction,
including the credit history of the prospective borrower, and
decide if they would agree to purchase the loan from the dealership
and, if so, at what rate of interest. The dealership selects the
financial institution to which it decides to sell the loan. The
financial institution purchasing the loan has a direct loan to the
borrower collateralized by the automobile, and the dealership
realizes a profit based on the difference between the interest
rate quoted to the buyer by the dealership and the interest rate
at which the loan is purchased by the financial institution. At
March 31, 1996, the Company had approximately $29,824,000, net of
unearned income, of this type of loan outstanding.
The following table presents the Company's loan balances at
the dates indicated separated by loan types.
<TABLE>
<caption
March 31, December 31,
1996 1995
--------- ------------
(In thousands)
<S> <C> <C>
Loans to individuals $40,610 $39,868
Real estate loans 24,680 23,265
Commercial and industrial loans 17,344 19,510
Other loans 3,145 2,638
------- -------
Total loans 85,779 85,281
Less unearned income 3,091 3,354
------- -------
Loans, net of unearned
income $82,688 $81,927
======= =======
</TABLE>
Loan concentrations are considered to exist when there are
amounts loaned to a multiple number of borrowers engaged in similar
activities that would cause them to be similarly
-18-
<PAGE>
impacted by economic or other conditions. The Company had no
concentrations of loans at March 31, 1996, except for those
described in the above table. The Banks had no loans outstanding
to foreign countries or borrowers headquartered in foreign
countries at March 31, 1996.
Management of each Bank may renew loans at maturity when
requested by a customer whose financial strength appears to support
such renewal or when such renewal appears to be in the Company's
best interest. The Company requires payment of accrued interest in
such instances and may adjust the rate of interest, require a
principal reduction or modify other terms of the loan at the time
of renewal.
The following table presents the distribution of the maturity
of the Company's loans and the interest rate sensitivity of those
loans, excluding loans to individuals, at March 31, 1996. The
table also presents the portion of loans that have fixed interest
rates or interest rates that fluctuate over the life of the loans
in accordance with changes in the money market environment as
represented by the prime rate.
<TABLE>
<CAPTION>
One to Over Total
One Year Five Five Carrying
and Less Years Years Value
-------- ------ ----- --------
(In thousands)
<S> <C> <C> <C> <C>
Real estate loans $ 2,418 $16,092 $ 6,170 $24,680
Commercial and industrial loans 5,942 6,430 4,972 17,344
Other loans 1,662 690 793 3,145
------- ------- ------- -------
Total loans $10,022 $23,212 $11,935 $45,169
======= ======= ======= =======
With fixed interest rates $ 4,030 $13,178 $ 8,383 $25,591
With variable interest rates 5,992 10,034 3,552 19,578
------- ------- ------- -------
Total loans $10,022 $23,212 $11,935 $45,169
======= ======= ======= =======
</TABLE>
Allowance for Possible Loan Losses
Implicit in the Company's lending activities is the fact that
loan losses will be experienced and that the risk of loss will vary
with the type of loan being made and the creditworthiness of the
borrower over the term of the loan. To reflect the currently
perceived risk of loss associated with the Company's loan
portfolio, additions are made to the Company's allowance for
possible loan losses (the "allowance"). The allowance is created
by direct charges against income (the "provision" for loan losses),
and the allowance is available to absorb possible loan losses. See
"Results of Operations - Provision for Loan Losses" above.
The amount of the allowance equals the cumulative total of the
loan loss provisions made from time to time, reduced by loan
charge-offs, and increased by recoveries of loans previously
charged off. The Company's allowance was $894,000, or 1.08% of
loans, net of unearned income, at March 31, 1996, compared to
$759,000, or 0.93% of loans, net of unearned income, at December
31, 1995.
-19-
<PAGE>
Credit and loan decisions are made by management and the board
of directors of each Bank in conformity with loan policies
established by the board of directors of the Company. It is the
practice of the Company to charge off any loan or portion of a loan
when it is determined by management to be uncollectible due to the
borrower's failure to meet repayment terms, the borrower's
deteriorating or deteriorated financial condition, the depreciation
of the underlying collateral, when the loan is classified as a loss
by regulatory examiners or for other reasons. The Company charged
off $86,000 in loans during the first quarter of 1996. Recoveries
during the first quarter of 1996 were $22,000.
The following table presents the provisions for loan losses,
loans charged off and recoveries on loans previously charged off,
the amount of the allowance, the average loans outstanding and
certain pertinent ratios for the quarters ended March 31, 1996 and
1995.
<TABLE>
<CAPTION>
March 31,
---------
1996 1995
---- ----
(Dollars in thousands)
<S> <C> <C>
Analysis of allowance for possible loan losses:
Balance, at January 1 $ 759 $ 817
Acquisition of subsidiary bank 149 0
Provision for loan losses 50 42
------- -------
958 859
------- -------
Loans charged off:
Loans to individuals 46 51
Real estate loans 0 11
Commercial and industrial loans 40 0
Other loans 0 0
------- -------
Total charge-offs 86 62
------- -------
Recoveries of loans previously charged off:
Loans to individuals 8 5
Real estate loans 0 0
Commercial and industrial loans 14 12
Other loans 0 5
------- -------
Total recoveries 22 22
------- -------
Net loans charged off 64 40
------- -------
Balance, at March 31 $ 894 $ 819
======= =======
Average loans outstanding, net of unearned income $83,511 $82,540
======= =======
Ratio of net loan charge-offs to average loans outstanding,
net of unearned income (annualized) 0.31% 0.19%
Ratio of allowance for possible loan losses to total loans,
net of unearned income, at March 31 1.08 0.97
</TABLE>
Foreclosures on defaulted loans have resulted in the Company
acquiring real estate and other repossessed assets; however, the
amount of real estate and other repossessed assets being carried on
the Company's books is decreasing. Accordingly, the Company incurs
other expenses, specifically net costs applicable to real estate
and other repossessed assets, in maintaining, insuring and selling
such assets. The Company attempts to convert nonperforming loans
into interest-earning assets, although usually at a lower dollar
amount than the face value of such loans, either through
liquidation of the collateral securing the loan or through
intensified collection efforts.
-20-
<PAGE>
As the economies of the Banks' market areas have recovered and
stabilized, there has been a reduction in total loan losses and in
the amount of the provision necessary to maintain an adequate
balance in the allowance. This reflects not only the loan loss
trend, but management's assessment of the continued reduction of
credit risks associated with the loan portfolio.
The amount of the allowance is established by management based
upon estimated risks inherent in the existing loan portfolio.
Management reviews the loan portfolio on a continuing basis to
evaluate potential problem loans. This review encompasses
management's estimate of current economic conditions and the
potential impact on various industries, prior loan loss experience
and the financial condition of individual borrowers. Loans that
have been specifically identified as problem or nonperforming loans
are reviewed on at least a quarterly basis, and management
critically evaluates the prospect of ultimate losses arising from
such loans, based on the borrower's financial condition and the
value of available collateral. When a risk can be specifically
quantified for a loan, that amount is specifically allocated in the
allowance. In addition, the Company allocates the allowance based
upon the historical loan loss experience of the different types of
loans. Despite such allocation, both allocated and unallocated
allowances are available for charge-offs for all loans.
On January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan" ("FAS 114"). In accordance with FAS 114, any
change in the present value of such loans will be recognized as an
adjustment to the Company's allowance for possible loan losses.
The following table shows the allocations in the allowance and
the respective percentages of each loan category to total loans at
March 31, 1996, and December 31, 1995.
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
Amount Percent of Amount Percent of
of Loans by of Loans by
Allowance Category Allowance Category
Allocated to Loans, Allocated to Loans,
to Net of Un- to Net of Un-
Category earned Income Category earned Income
-------- ------------- -------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Loans to individuals $296 45.4% $136 44.6%
Real estate loans 171 29.8 197 28.4
Commercial and industrial loans 115 21.0 96 23.8
Other loans 66 3.8 59 3.2
---- ----- ---- -----
648 100.0% 488 100.0%
===== =====
Unallocated 246 271
---- ----
Total allowance for possible
loan losses $894 $759
==== ====
</TABLE>
Loan Review Process
The Company follows a loan review program to evaluate the
credit risk in its loan portfolio. Through the loan review
process, the Banks maintain an internally classified loan list
that, along with the list of nonperforming assets discussed below,
helps management assess the overall quality of the loan portfolio
and the adequacy of the allowance. Loans classified as
"substandard" are those loans with clear and defined weaknesses,
such as highly leveraged positions, unfavorable
-21-
<PAGE>
financial ratios, uncertain repayment sources or poor financial
condition, that may jeopardize recoverability of the loan. Loans
classified as "doubtful" are those loans that have characteristics
similar to substandard loans but also have an increased risk that
a loss may occur or at least a portion of the loan may require a
charge-off if liquidated at present. Although loans classified as
substandard do not duplicate loans classified as doubtful, both
substandard and doubtful loans may include some loans that are past
due at least 90 days, are on nonaccrual status or have been
restructured. Loans classified as "loss" are those loans that are
in the process of being charged off. At March 31, 1996,
substandard loans totaled $1,672,000, of which $294,000 were loans
designated as nonaccrual, 90 days past due or restructured, and
doubtful loans totalled $3,000, all of which were designated as
nonaccrual. There were no loans classified as loss at March 31, 1996.
In addition to the internally classified and nonperforming
loans, each Bank also has a "watch list" of loans that further
assists each Bank in monitoring its loan portfolio. A loan is
included on the watch list if it demonstrates one or more
deficiencies requiring attention in the near term or if the loan's
ratios have weakened to a point where more frequent monitoring is
warranted. These loans do not have all the characteristics of a
classified loan (substandard, doubtful or loss), but do have
weakened elements as compared with those of a satisfactory credit.
The Banks review these loans in assessing the adequacy of the
allowance. Substantially all of the loans on the watch list at
March 31, 1996, are current and paying in accordance with loan
terms. At March 31, 1996, watch list loans totaled $893,000
(including $177,000 of loans guaranteed by U.S. governmental
agencies). At such date, no watch list loans were designated as
nonaccrual or 90 days past due. See "Nonperforming Assets" below.
Nonperforming Assets
Nonperforming loans consist of past due, nonaccrual and
restructured loans. A past due loan is an accruing loan that is
contractually past due 90 days or more as to principal or interest
payments. Loans on which management does not expect to collect
interest in the normal course of business are placed on nonaccrual
or are restructured. When a loan is placed on nonaccrual, any
interest previously accrued but not yet collected is reversed
against current income unless, in the opinion of management, the
outstanding interest remains collectible. Thereafter, interest is
included in income only to the extent of cash received. A loan is
restored to accrual status when all interest and principal payments
are current and the borrower has demonstrated to management the
ability to make payments of principal and interest as scheduled.
A "troubled debt restructuring" is a restructured loan upon
which interest accrues at a below market rate or upon which certain
principal has been forgiven so as to aid the borrower in the final
repayment of the loan, with any interest previously accrued, but
not yet collected, being reversed against current income. Interest
is accrued based upon the new loan terms.
Nonperforming loans are fully or substantially collateralized
by assets, with any excess of loan balances over collateral values
allocated in the allowance. Assets acquired through foreclosure
are carried at the lower of cost or estimated fair value, net of
estimated costs of disposal, if any. See "Real Estate and Other
Repossessed Assets" below.
The following table lists nonaccrual, past due and
restructured loans and real estate and other repossessed assets at
March 31, 1996, and December 31, 1995.
-22-
<PAGE>
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
(In thousands)
<S> <C> <C>
Nonaccrual loans $251 $204
Accruing loans contractually
past due over 90 days 25 23
Restructured loans 84 65
Real estate and other repossessed
assets 398 337
---- ----
Total nonperforming assets $758 $629
==== ====
</TABLE>
The gross interest income that would have been recorded during
the first quarter of 1996 on the Company's nonaccrual loans if such
loans had been current, in accordance with the original terms
thereof and outstanding throughout the period or, if shorter, since
origination, was approximately $6,000. No interest income was
actually recorded (received) on loans that were on nonaccrual
during the first quarter of 1996.
A potential problem loan is a loan where information about
possible credit problems of the borrower is known, causing
management to have serious doubts as to the ability of the borrower
to comply with the present loan repayment terms and which may
result in the inclusion of such loan in one of the nonperforming
asset categories. The Company does not believe it has any
potential problem loans other than those reported in the above
table.
Real Estate and Other Repossessed Assets
Real estate and other repossessed assets consists of real
property and other assets unrelated to banking premises or
facilities. Income derived from this real estate and other
repossessed assets, if any, is generally less than that which would
have been earned as interest at the original contract rates on the
related loans. At March 31, 1996, and December 31, 1995, real
estate and other repossessed assets had an aggregate book value of
$398,000 and $337,000, respectively. Real estate and other
repossessed assets increased $61,000, or 18.1%, during the first
three months of 1996, due to the acquisition of Peoples National
effective January 1, 1996. Of the March 31, 1996 balance, $163,000
represents thirteen (13) repossessed automobiles, $101,000
represents various commercial properties and $134,000 represents
various residential properties. None of the individual parcels of
real estate are carried at more than $36,000.
Premises and Equipment
Premises and equipment increased $92,000, or 2.2%, during the
first quarter of 1996, from $4,155,000 at December 31, 1995, to
$4,247,000 at March 31, 1996. The increase was due to the
acquisition of Peoples National which was partially offset by
depreciation recorded on the Company's premises and equipment
during the first quarter of 1996.
-23-
<PAGE>
Accrued Interest Receivable
Accrued interest receivable consists of interest that has
accrued on loans and securities, but is not yet payable under the
terms of the related agreements. The balance of accrued interest
receivable decreased $42,000, or 2.8%, from $1,494,000 at December
31, 1995, to $1,452,000 at March 31, 1996. The decrease was a
result of a significant amount of interest paid on the Company's
securities on March 31, 1996. Of the total balance at March 31,
1996, $892,000, or 61.4%, was interest accrued on securities and
$560,000, or 38.6%, was interest accrued on loans. The amounts of
accrued interest receivable and percentages attributable to
securities and loans at December 31, 1995, were $920,000, or 61.6%,
and $574,000, or 38.4%, respectively.
Other Assets
The most significant component of other assets at March 31,
1996, is a net deferred tax asset of $1,876,000. The balance of
other assets increased $186,000, or 7.4%, to $2,710,000 at March
31, 1996, from $2,524,000 at December 31, 1995, as a result of the
recording of $260,000 in goodwill associated with the acquisition
of Peoples National, which was partially offset by a $61,000
decrease in the gross deferred tax asset due to the utilization of
a portion of the Company's net operating loss carryforwards.
Deposits
The Banks' lending and investing activities are funded almost
entirely by core deposits, 50.3% of which are demand, savings and
money market deposits at March 31, 1996. Total deposits increased
$6,366,000, or 3.9%, from $164,704,000 at December 31, 1995, to
$171,070,000 at March 31, 1996. The increase is due to an increase
in interest-bearing time deposits at the Banks, primarily as a
result of an increase in the rates paid on such deposits and the
acquisition of Peoples National, which had total deposits of
$4,958,000 at January 1, 1996. The Banks do not accept brokered
deposits.
The following table presents the average amounts of and the
average rates paid on deposits of the Company for the quarters
ended March 31, 1996 and 1995.
<TABLE>
<CAPTION>
Quarter Ended March 31,
-----------------------
1996 1995
---- ----
Average Average Average Average
Amount Rate Amount Rate
------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 30,577 --% $ 29,381 --%
Interest-bearing demand, savings
and money market deposits 55,021 2.32 54,689 2.36
Time deposits of less than $100,000 55,975 5.65 48,270 4.80
Time deposits of $100,000 or more 27,313 5.18 16,142 5.08
-------- ---- -------- ----
Total deposits $168,886 3.47% $148,482 2.98%
======== ==== ======== ====
</TABLE>
The maturity distribution of time deposits of $100,000 or more
at March 31, 1996, is presented below.
-24-
<PAGE>
<TABLE>
<CAPTION>
At March 31, 1996
-----------------
(In thousands)
<S> <C>
3 months or less $10,875
Over 3 through 6 months 6,334
Over 6 through 12 months 8,309
Over 12 months 1,848
-------
Total time deposits of $100,000
or more $27,366
=======
</TABLE>
The Banks experience limited reliance on time deposits of
$100,000 or more. Time deposits of $100,000 or more are a more
volatile source of funds than other deposits and are most likely to
affect the Company's future earnings because of interest rate
sensitivity. At March 31, 1996, deposits of $100,000 or more
represented approximately 14.6% of the Company's total assets,
compared to 13.2% of total assets at December 31, 1995.
Notes Payable
The Company's notes payable decreased $142,000, or 16.7%, from
$849,000 at December 31, 1995, to $707,000 at March 31, 1996. The
decrease represents the regular quarterly principal payment made by
the Company on the Long-term Note (as defined below under
"Liquidity - Notes Payable") on January 15, 1996, and the first of
three annual installments on notes payable to one current and two
former directors. See "Note 3: Notes Payable" to the Company's
Consolidated Financial Statements.
Accrued Interest Payable
Accrued interest payable consists of interest that has accrued
on deposits and notes payable, but is not yet payable under the
terms of the related agreements. The balance of accrued interest
payable decreased $44,000, or 5.0%, from $882,000 at December 31,
1995, to $838,000 at March 31, 1996. The decrease was a result of
a slight decrease in the interest rate environment during the first
three months of 1996.
Other Liabilities
The most significant components of other liabilities are
amounts accrued for various types of expenses. The balance of
other liabilities increased $72,000, or 79.1%, from $91,000 at
December 31, 1995, to $163,000 at March 31, 1996, primarily because
of an increase in federal income tax liability of the Company due
to the fact that, for alternative minimum tax purposes, all of the
Company's net operating loss carryforwards had been utilized at
December 31, 1995. As a result, the Company began paying federal
income taxes at the effective rate of approximately 20% during the
first quarter of 1996, as opposed to an effective rate of
approximately 2% which the Company had been paying since 1989. The
Company still has net operating loss carryforwards available for
regular federal income tax purposes.
-25-
<PAGE>
Interest Rate Sensitivity
Interest rate risk arises when an interest-earning asset
matures or when its rate of interest changes in a time frame
different from that of the supporting interest-bearing liability.
The Company seeks to minimize the difference between the amount of
interest-earning assets and the amount of interest-bearing
liabilities that could change interest rates in the same time frame
in an attempt to reduce the risk of significant adverse effects on
the Company's net interest income caused by interest rate changes.
The Company does not attempt to match each interest-earning asset
with a specific interest-bearing liability. Instead, as shown in
the table below, it aggregates all of its interest-earning assets
and interest-bearing liabilities to determine the difference
between the two in specific time frames. This difference is known
as the rate-sensitivity gap. A positive gap indicates that more
interest-earning assets than interest-bearing liabilities mature in
a time frame, and a negative gap indicates the opposite.
Maintaining a balanced position will reduce risk associated with
interest rate changes, but it will not guarantee a stable interest
rate spread because the various rates within a time frame may
change by differing amounts and occasionally change in different
directions. Management regularly monitors the interest sensitivity
position and considers this position in its decisions in regard to
interest rates and maturities for interest-earning assets acquired
and interest-bearing liabilities accepted.
The Company's objective is to maintain a ratio of interest-
sensitive assets to interest-sensitive liabilities that is as
balanced as possible. The following table shows that ratio to be
48.6% at the 90-day interval, 46.9% at the 180-day interval and
44.6% at the 365-day interval at March 31, 1996. Currently, the
Company is in a liability-sensitive position at the three
intervals. During a falling interest rate environment, as was the
case during most of the first quarter of 1996, this position
normally produces a higher net interest margin than in a rising
interest rate environment. However, because the Company had
$56,136,000 of interest-bearing demand, savings and money market
deposits at March 31, 1996, that are somewhat less rate-sensitive,
the Company's net interest margin does not necessarily increase in
a falling interest rate environment. Excluding these types of
deposits, the Company's interest-sensitive assets to interest-
sensitive liabilities ratio would have been 77.2% at March 31,
1996. The interest sensitivity position is presented as of a point
in time and can be modified to some extent by management as
changing conditions dictate.
-26-
<PAGE>
The following table shows the interest rate sensitivity
position of the Company at March 31, 1996.
<TABLE>
<CAPTION>
Volumes
Cumulative Volumes Subject to Subject to
Repricing Within Repricing
90 Days 180 Days 365 Days After 1 Year Total
------- -------- -------- ------------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $ 18,100 $ 18,100 $ 18,100 $ 0 $ 18,100
Securities 1,999 5,980 14,063 53,674 67,737
Loans, net of unearned income 21,875 23,583 27,050 55,638 82,688
-------- -------- -------- -------- --------
Total interest-earning assets 41,974 47,663 59,213 109,312 168,525
-------- -------- -------- -------- --------
Interest-bearing liabilities:
Demand, savings and money market
deposits 56,136 56,136 56,136 0 56,136
Time deposits 29,739 45,092 76,264 8,739 85,003
Notes payable 472 473 474 233 707
-------- -------- -------- -------- --------
Total interest-bearing liabilities 86,347 101,701 132,874 8,972 141,846
-------- -------- -------- -------- --------
Rate-sensitivity gap(1) $(44,373) $(54,038) $(73,661) $100,340 $ 26,679
======== ======== ======== ======== ========
Rate-sensitivity ratio(2) 48.6% 46.9% 44.6%
==== ==== ====
______________________________
<FN>
(1) Rate-sensitive interest-earning assets less rate-sensitive
interest-bearing liabilities.
(2) Rate-sensitive interest-earning assets divided by
rate-sensitive interest-bearing liabilities.
</FN>
</TABLE>
Selected Financial Ratios
The following table presents selected financial ratios
(annualized) for the quarters ended March 31, 1996 and 1995.
<TABLE>
<CAPTION>
Quarter Ended March 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Net income to:
Average assets 0.78% 0.82%
Average interest-earning assets 0.85 0.90
Average stockholders' equity 10.25 11.77
Dividend payout (1) to:
Net income 8.73 7.04
Average stockholders' equity 0.89 0.83
Average stockholders' equity to:
Average total assets 7.61 6.95
Average loans (2) 16.87 13.67
Average total deposits 8.34 7.60
Average interest-earning assets to:
Average total assets 91.39 91.32
Average total deposits 100.10 99.92
Average total liabilities 98.92 98.13
Ratio to total average deposits of:
Average loans (2) 49.45 55.59
Average noninterest-bearing deposits 18.11 19.79
Average interest-bearing deposits 81.89 80.21
Total interest expense to total interest income 46.08 40.13
_________________________
<FN>
(1) Dividends on Common Stock only.
(2) Before allowance for possible loan losses.
</FN>
</TABLE>
-27-
<PAGE>
Liquidity
The Banks
Liquidity with respect to a financial institution is the
ability to meet its short-term needs for cash without suffering an
unfavorable impact on its on-going operations. The need for the
Banks to maintain funds on hand arises principally from maturities
of short-term money market borrowings, deposit withdrawals,
customers' borrowing needs and the maintenance of reserve
requirements. Liquidity with respect to a financial institution
can be met from either assets or liabilities. On the asset side,
the primary sources of liquidity are cash and due from banks,
federal funds sold, maturities of securities and scheduled
repayments and maturities of loans. The Banks maintain adequate
levels of cash and near-cash investments to meet their day-to-day
needs. Cash and due from banks averaged $7,594,000 during the
first quarter of 1996 and $7,713,000 during the first quarter of
1995. These amounts comprised 4.1% and 4.7% of average total
assets during the first three months of 1996 and 1995,
respectively. The average level of securities and federal funds
sold was $85,537,000 during the first quarter of 1996 and
$65,818,000 during the first quarter of 1995. Recently, a larger
amount of the Banks' increasingly available funds has been invested
in securities, due to static loan demand in the Company's market
area.
The Banks sold $30,000 of securities during the quarter ended
March 31, 1996. There were no sales of securities during the
quarter ended March 31, 1995. At March 31, 1996, $14,063,000,
or 20.8%, of the Company's securities portfolio, excluding
mortgage-backed securities, matured within one year and
$47,056,000, or 69.5%, excluding mortgage-backed securities,
matured after one but within five years. The Banks' commercial
lending activities are concentrated in loans with maturities of
less than five years and with adjustable interest rates, while
their installment lending activities are concentrated in loans
with maturities of three to five years and with fixed interest
rates. The Banks' experience, however, has been that these
installment loans are paid off in an average of approximately
thirty months. At March 31, 1996, approximately $27,050,000,
or 32.7%, of the Company's loans, net of unearned income,
matured within one year and/or had adjustable interest rates.
Approximately $23,608,000, or 52.3%, of the Company's loans
(excluding loans to individuals) matured within one year and/or
had adjustable interest rates. See "Analysis of Financial
Condition - Loan Portfolio" above.
On the liability side, the principal sources of liquidity are
deposits, borrowed funds and the accessibility to money and capital
markets. Customer deposits are by far the largest source of funds.
During the first quarter of 1996, the Company's average deposits
were $168,886,000, or 91.3% of average total assets, compared to
$148,482,000, or 91.4% of average total assets, during the first
quarter of 1995. The Company attracts its deposits primarily from
individuals and businesses located within the market areas served
by the Banks. See "Analysis of Financial Condition - Deposits"
above.
The level of nonperforming assets has squeezed interest
margins and has resulted in noninterest expenses from net operating
costs and write-downs associated with nonperforming assets,
although the level of such nonperforming assets has been decreasing
over the past several years. In order to improve liquidity, the
Banks have implemented various cost-cutting and revenue-generating
measures and extended efforts to reduce nonperforming assets.
-28-
<PAGE>
The Company
The Company depends on the Banks for liquidity in the form of
cash flow, primarily to meet debt service and dividend requirements
and to cover other operating expenses. This cash flow from
subsidiaries comes from three sources: (1) dividends resulting from
earnings of the Banks, (2) current tax liabilities generated by the
Banks and (3) management and service fees for services performed
for the Banks.
The payment of dividends to the Company is subject to
applicable law and the scrutiny of regulatory authorities.
Dividends paid by the Banks to Independent Financial during the
first quarter of 1996 totaled $225,000. No dividends were paid by
the Banks to Independent Financial during the first quarter of
1995. Dividends paid by Independent Financial to the Company
during the first quarter of 1996 were $225,000. Independent
Financial paid dividends to the Company totaling $200,000 during
the same time period of 1995. At March 31, 1996, there were
approximately $1,039,000 in dividends available for payment to
Independent Financial by the Banks without regulatory approval.
The payment of current tax liabilities generated by the Banks
and management and service fees constituted 45% and 9%,
respectively, of the Company's cash flow during the first quarter
of 1996. Pursuant to a tax-sharing agreement, the Company's
subsidiaries pay to the Company an amount equal to their individual
tax liabilities on the accrual method of federal income tax
reporting. The accrual method generates more timely payments of
current tax liabilities by the Banks to the Company, increasing the
regularity of cash flow and shifting the time value of such funds
to the Company. In the event that certain Banks incur losses, the
Company may be required to refund tax liabilities previously
collected. Current tax liabilities totaling $220,000 were paid by
the Banks to the Company during the first three months of 1996,
compared to a total of $313,000 during the first three months of
1995, $81,000 of which represented the final settlement of tax
liabilities between the Company and the Banks for the year ended
December 31, 1993.
The Banks pay management fees to the Company for services
performed. These services include, but are not limited to,
financial and accounting consultation, attendance at the
subsidiaries' board meetings, audit and loan review services and
related expenses. The Banks paid a total of $43,000 in management
fees to the Company in each of the first quarter of 1996 and 1995.
The Company's fees must be reasonable in relation to the management
services rendered, and each Bank is prohibited from paying
management fees to the Company if the Bank would be
undercapitalized after any such distribution or payment.
From January 1, 1989 through December 31, 1995, the Company
collected federal income taxes from the Banks based on an effective
tax rate of approximately 34% and paid taxes to the federal
government at the rate of approximately 2% as a result of the
utilization of the Company's net operating loss carryforwards for
both regular tax and alternative minimum tax purposes. As of
December 31, 1995, the Company's net operating loss carryforwards
for alternative tax purposes had been fully utilized. As a result,
the Company began paying federal income taxes at the effective tax
rate of approximately 20% during the first quarter of 1996. The
Company still has net operating carryforwards available for regular
federal income tax purposes.
-29-
<PAGE>
The Company has a note payable to a financial institution in
Amarillo, Texas (the "Amarillo Bank"). This note (the "Long-term
Note") had an outstanding principal balance of $471,000 at
March 31, 1996. The Long-term Note has a maturity of April 15,
1996. On April 15, 1996, the Company paid the Amarillo Bank
$100,000 to reduce the outstanding principal balance to $371,000
and the maturity date was extended to April 15, 1999. Equal
principal payments of $31,000, plus accrued interest, are due
quarterly on January 15, April 15, July 15 and October 15. The
Long-term Note bears interest at the Amarillo Bank's floating base
rate plus 1% (9.25% at March 31, 1996) and is secured by 100% of
the stock of the Banks. The loan agreement between the Company and
the Amarillo Bank contains certain covenants that, among other
things, restrict the ability of the Company to incur additional
debt, to create liens on its property, to merge or to consolidate
with any other person or entity, to make certain investments, to
purchase or sell assets or to pay cash dividends on the common
stock without the approval of the Amarillo Bank if the indebtedness
due to the Amarillo Bank is $1,000,000 or greater. The loan
agreement also requires the Company and the Banks to meet certain
financial ratios, all of which have been met since the inception of
the loan agreement.
In addition, at March 31, 1996, the Company had notes payable
to one current and two former directors of the Company aggregating
$221,000. These notes had an original face amount of $350,000, but
were discounted upon issuance because they bear interest at a
below-market interest rate (6%). The notes are payable in three
equal annual installments, plus accrued interest. The first annual
installment of $117,000 was made on March 1, 1996. The notes
represent a portion of the final settlement of certain litigation.
Capital Resources
At March 31, 1996, stockholders' equity totaled $14,031,000,
or 7.5% of total assets, compared to $13,818,000, or 7.7% of total
assets, at December 31, 1995.
Bank regulatory authorities in the United States have issued
risk-based capital standards by which all bank holding companies
and banks are evaluated in terms of capital adequacy. These
guidelines relate a banking company's capital to the risk profile
of its assets. The risk-based capital standards require all banks
to have Tier 1 capital of at least 4% and total capital (Tier 1 and
Tier 2) of at least 8%, of risk-weighted assets. Tier 1 capital
includes common stockholders' equity, qualifying perpetual
preferred stock and minority interests in unconsolidated
subsidiaries, reduced by goodwill and net deferred tax assets in
excess of regulatory capital limits. Tier 2 capital may be
comprised of certain other preferred stock, qualifying debt
instruments and all or a part of the allowance for possible loan
losses.
Banking regulators have also issued leverage ratio
requirements. The leverage ratio requirement is measured as the
ratio of Tier 1 capital to adjusted quarterly average assets. The
following table provides a calculation of the Company's risk-based
capital and leverage ratios and a comparison of the Company's and
the Banks' risk-based capital ratios and leverage ratios to the
minimum regulatory requirements at March 31, 1996.
-30-
<PAGE>
<TABLE>
<CAPTION>
The Company March 31, 1996
----------- --------------
(Dollars in thousands)
<S> <C>
Tier 1 capital:
Common stockholders' equity, excluding unrealized loss on
available-for-sale securities $ 13,341
Preferred stockholders' equity (1) 690
Goodwill (256)
Net deferred tax asset in excess of regulatory capital
limits (2) (92)
--------
Total Tier 1 capital 13,683
--------
Tier 2 capital:
Allowance for possible loan losses (3) 894
--------
Total Tier 2 capital 894
--------
Total capital $ 14,577
========
Risk-weighted assets $ 90,389
========
Adjusted quarterly average assets $185,846
========
</TABLE>
<TABLE>
<CAPTION>
Minimum Actual
Regulatory Ratios for
The Company Requirement(4) March 31, 1996
- ----------- -------------- --------------
<S> <C> <C>
Tier 1 capital to risk-weighted assets ratio 4.00% 15.14%
Total capital to risk-weighted assets ratio 8.00 16.13
Leverage ratio 3.00 7.36
The Banks
- ---------
Tier 1 capital to risk-weighted assets ratio 4.00% 12.66 - 15.33%
Total capital to risk-weighted assets ratio 8.00 13.51 - 16.44
Leverage ratio 3.00 6.78 - 7.45
___________________________
<FN>
(1) Limited to 25% of total Tier 1 capital, with any remainder
qualifying as Tier 2 capital.
(2) The amount of the net deferred tax asset in excess of the
lesser of (i) 10% of Tier 1 capital or (ii) the amount
of the tax benefit from utilization of net operating loss
carryforwards expected to be realized within one year.
(3) Limited to 1.25% of risk-weighted assets.
(4) For top rated banking organizations.
</FN>
</TABLE>
The Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA") requires each federal banking agency to revise its
risk-based capital standards to ensure that those standards take
adequate account of interest rate risk, concentration of credit
risk and the risks of non-traditional activities, as well as
reflect the actual performance and expected risk of loss on multi-
family mortgages. The new law also required each federal banking
agency to specify the levels at which an insured institution would
be considered "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and
"critically undercapitalized." Under the FDIC's regulations, the
Company and the Banks were all "well capitalized" at March 31,
1996.
The Company's ability to generate capital internally through
retention of earnings and access to capital markets is essential
for satisfying the capital guidelines for bank holding companies as
prescribed by the Board of Governors of the Federal Reserve System.
-31-
<PAGE>
The payment of dividends on the Common Stock and Series C
Preferred Stock is determined by the Company's board of directors
in light of circumstances and conditions then existing, including
the earnings of the Company and the Banks, funding requirements and
financial condition, applicable loan covenants and applicable laws
and regulations. The Company's ability to pay cash dividends is
restricted by the requirement that it maintain a certain level of
capital as discussed above in accordance with regulatory guidelines
and by the terms of its loan agreement with the Amarillo Bank.
Holders of the Series C Preferred Stock are entitled to receive,
if, as and when declared by the Company's board of directors, out
of funds legally available therefor, quarterly cumulative cash
dividends at the annual rate of 10%. The Federal Reserve Board has
promulgated a policy prohibiting bank holding companies from paying
dividends on common stock unless such bank holding company can pay
such dividends from current earnings. The Federal Reserve Board
has asserted that this policy is also applicable to payment of
dividends on preferred stock. Such an interpretation may limit the
ability of the Company to pay dividends on the Series C Preferred
Stock.
The Company began paying quarterly cash dividends of $0.03 per
share on its Common Stock during the second quarter of 1994. The
Company also paid a 33-1/3% stock dividend payable to stockholders
on May 31, 1995. At its meeting held on April 17, 1996, the
Company's Board of Directors increased the Company's quarterly
Common Stock cash dividend to $0.05 per share effective for the
cash dividend payable on May 31, 1996, to holders of the Common
Stock on May 15, 1996.
Acquisition of Subsidiary Bank
First State, N.A., Abilene completed the acquisition of
Peoples National effective January 1, 1996. At that date, Peoples
National had total assets of $5,505,000, total loans, net of
unearned income of $2,767,000, total deposits of $4,958,000 and
stockholders' equity of $525,000. Peoples National was merged with
and into First State, N.A., Abilene.
Pending Acquisition
First State, N.A., Abilene has entered into an agreement, and
filed an application for approval, to purchase the loans and
certain other assets and assume the deposits and certain other
liabilities of the San Angelo, Texas branch of Coastal Banc ssb.
Consummation of this purchase and assumption transaction is subject
to, among other things, various regulatory approvals. If approved,
the transaction will probably be consummated during the second
quarter of 1996, at which time the Coastal Banc - San Angelo branch
will become a branch of First State, N.A., Abilene. At December
31, 1995, Coastal Banc - San Angelo had approximately $16,000,000
in total deposits and approximately $100,000 in total loans.
-32-
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is involved in various litigation proceedings
incidental to the ordinary course of business. In the opinion of
management, the ultimate liability, if any, resulting from such
litigation would not be material in relation to the Company's
financial position or results of operations.
Item 2. Changes in Securities.
None
Item 3. Defaults upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
-33-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: May 15, 1996 Independent Bankshares, Inc.
(Registrant)
By: /s/ Randal N. Crosswhite
Randal N. Crosswhite
Senior Vice President and
Chief Financial Officer
-34-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR INDEPENDENT BANKSHARES, INC. FOR THE THREE
MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 10,371,000
<INT-BEARING-DEPOSITS> 141,139,000
<FED-FUNDS-SOLD> 18,100,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 23,703,000
<INVESTMENTS-CARRYING> 44,034,000
<INVESTMENTS-MARKET> 43,702,000
<LOANS> 82,688,000<F1>
<ALLOWANCE> 894,000
<TOTAL-ASSETS> 186,809,000
<DEPOSITS> 171,070,000
<SHORT-TERM> 584,000
<LIABILITIES-OTHER> 1,001,000
<LONG-TERM> 123,000
164,000
164,000
<COMMON> 263,000
<OTHER-SE> 13,604,000
<TOTAL-LIABILITIES-AND-EQUITY> 186,809,000
<INTEREST-LOAN> 1,960,000
<INTEREST-INVEST> 971,000
<INTEREST-OTHER> 292,000
<INTEREST-TOTAL> 3,223,000
<INTEREST-DEPOSIT> 1,463,000
<INTEREST-EXPENSE> 1,485,000
<INTEREST-INCOME-NET> 1,738,000
<LOAN-LOSSES> 50,000
<SECURITIES-GAINS> (11,000)
<EXPENSE-OTHER> 1,504,000
<INCOME-PRETAX> 547,000
<INCOME-PRE-EXTRAORDINARY> 547,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 361,000
<EPS-PRIMARY> .33
<EPS-DILUTED> .27
<YIELD-ACTUAL> 4.11
<LOANS-NON> 251,000
<LOANS-PAST> 25,000
<LOANS-TROUBLED> 84,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 759,000
<CHARGE-OFFS> 86,000
<RECOVERIES> 22,000
<ALLOWANCE-CLOSE> 894,000
<ALLOWANCE-DOMESTIC> 894,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 246,000
<FN>
<F1>Net of unearned income on installment loans of 3,091,000
</FN>
</TABLE>
