<PAGE> 1
FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[ X ] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 1995
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ______________ to ________________
Commission File No. 0-13668
CORPUS CHRISTI BANCSHARES, INC.
-------------------------------
(Exact name of Registrant as specified in its charter.)
Texas 74-2351663
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
2402 Leopard Street, Corpus Christi, Texas 78408
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(512) 887-3000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past twelve months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 11, 1995
- --------------------------------------------------------------------------------
Common Stock, $5.00 Par Value 1,600,000
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
1
<PAGE> 2
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
INDEX PAGE
NUMBER
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1995 and
December 31, 1994 3
Consolidated Statements of Income -
Three months ended March 31, 1995 and 1994 5
Consolidated Statements of Changes in Stockholder's
Equity - Three months ended March 31, 1995 and March 31,1994 6
Consolidated Statements of Cash Flows -
Three months ended March 31, 1995 and March 31, 1994 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 18
</TABLE>
2
<PAGE> 3
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
ASSETS: (Unaudited) (Audited)
-------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 12,663,755 $ 15,138,696
Interest bearing deposits with Federal Home Loan Bank 58,762 22,321
Federal funds sold 10,325,000 5,900,000
Securities available for sale: (Note 3)
U.S. Treasury securities 35,104,687 39,712,210
Mortgage pass-through and related securities 3,822,723 3,886,140
Other securities 551,400 504,100
-------------------------------------------------
Total securities available for sale 39,478,810 44,102,450
Securities held to maturity: (Note 4)
U.S. Government agencies 3,004,633 3,005,108
Obligations of states and political subdivisions 3,762,336 3,762,935
-------------------------------------------------
Total securities held to maturity 6,766,969 6,768,043
Loans (Notes 5 and 6) 101,760,704 97,625,038
Less: Unearned discount (4,054,286) (3,538,959)
Less: Allowance for loan losses (1,887,078) (1,990,638)
-------------------------------------------------
Net loans 95,819,340 92,095,441
Bank premises and equipment, net 4,826,149 4,852,202
Accrued interest receivable 1,283,154 1,483,449
Other real estate 663,411 764,756
Other assets 893,485 402,298
-------------------------------------------------
Total assets $ 172,778,835 $ 171,529,656
=================================================
</TABLE>
See accompanying notes to Consolidated Financial Statements.
3
<PAGE> 4
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
LIABILITIES AND STOCKHOLDERS' EQUITY: (Unaudited) (Audited)
-------------------------------------------------
<S> <C> <C>
Deposits:
Demand $ 43,177,788 $ 43,932,959
Interest bearing transaction accounts 57,499,690 58,169,426
Savings 15,080,211 15,294,615
Certificates of deposit (Note 7) 41,442,395 40,261,543
-------------------------------------------------
Total deposits 157,200,084 157,658,543
Securities sold under agreements to repurchase 403,000 ----
Accrued interest payable 218,254 202,820
Dividends payable 100,000 100,000
Other liabilities 540,790 129,832
-------------------------------------------------
Total liabilities 158,462,128 158,091,195
-------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock, $5.00 par value;
2,000,000 shares authorized; 1,600,000
shares issued and outstanding 8,000,000 8,000,000
Retained earnings 6,817,308 6,497,204
Unrealized losses on securities available for sale (500,601) (1,058,743)
-------------------------------------------------
Total stockholders' equity 14,316,707 13,438,461
-------------------------------------------------
Total liabilities and stockholders' equity $ 172,778,835 $ 171,529,656
=================================================
</TABLE>
See accompanying notes to Consolidated Financial Statements.
4
<PAGE> 5
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
Interest income: 1995 1994
-------------------------------------------------
<S> <C> <C>
Interest on loans $ 2,036,999 $ 1,459,044
Interest on deposits with Federal Home Loan Bank 821 170
Interest on federal funds sold 119,282 104,470
Interest and dividends on securities available for sale:
U.S. Treasury securities 481,377 440,704
Mortgage pass-through and related securities 57,736 162,244
Other securities 7,914 1,705
Interest on securities held to maturity:
U.S. Government agencies 74,901 101,501
State and Political subdivisions 80,537 84,097
-------------------------------------------------
Total interest income 2,859,567 2,353,935
-------------------------------------------------
Interest expense:
Interest on deposits:
Interest bearing transaction accounts 466,420 279,615
Savings 125,151 90,794
Certificates of deposit 451,644 353,295
Securities sold with agreements to repurchase 39 ----
-------------------------------------------------
Total interest expense 1,043,254 723,704
-------------------------------------------------
Net interest income 1,816,313 1,630,231
Provision for loan losses (200,000) ----
-------------------------------------------------
Net interest income after provision for loan losses 2,016,313 1,630,231
-------------------------------------------------
Other income:
Trust department income 310,583 256,428
Service charges 242,705 221,233
Credit card fees 40,675 28,253
Net gains on sale of securities available for sale ---- 165,081
Other income 132,808 95,602
-------------------------------------------------
Total other income 726,771 766,597
-------------------------------------------------
Other expenses:
Salaries and employee benefits 974,005 849,676
Occupancy expense 243,199 195,314
Furniture and equipment 178,444 158,501
Net cost to operate other real estate 14,444 80,907
Legal and professional fees 170,758 138,890
Insurance expenses 102,430 94,144
Advertising expenses 47,307 66,724
Other operating expenses 370,940 303,933
-------------------------------------------------
Total other expenses 2,101,527 1,888,089
-------------------------------------------------
Income before income taxes 641,557 508,739
Applicable income taxes 221,453 152,000
-------------------------------------------------
Net income $ 420,104 $ 356,739
=================================================
Weighted average of common stock and common
stock equivalents outstanding 1,679,436 1,681,492
=================================================
Net income per common share $ .25 $ .21
=================================================
</TABLE>
See accompanying notes to Consolidated Financial Statements.
5
<PAGE> 6
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Net
Unrealized
(Losses)
Gains on
Securities
Common Retained Available for
Stock Surplus Earnings Sale Total
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $ 8,000,000 $ ---- $ 5,081,029 $ ---- $ 13,081,029
Effect of adoption of Statement
115 as of January 1, 1994 ---- ---- ---- 475,849 475,849
Net income for three months
ended March 31, 1994 ---- ---- 356,739 ---- 356,739
Cash dividends, declared,
$.0625 per share ---- ---- (100,000) ---- (100,000)
Net change in unrealized losses
on securities available for sale
for the three months ended
March 31, 1994 ---- ---- ---- (454,816) (454,816)
------------------------------------------------------------------------------------------
Balance at March 31, 1994 $ 8,000,000 $ ---- $ 5,337,768 $ 21,033 $ 13,358,801
==========================================================================================
Balance at January 1, 1995 $ 8,000,000 $ ---- $ 6,497,204 $ (1,058,743) $ 13,438,461
Net income for three months
ended March 31, 1995 ---- ---- 420,104 ---- 420,104
Cash dividends, declared,
$.0625 per share ---- ---- (100,000) ---- (100,000)
Net change in unrealized losses
on securities available for sale
for the three months ended
March 31, 1995 ---- ---- ---- 558,142 558,142
------------------------------------------------------------------------------------------
Balance at March 31, 1995 $ 8,000,000 $ ---- $ 6,817,308 $ (500,601) $ 14,316,707
==========================================================================================
</TABLE>
See accompanying notes to Consolidated Financial Statements.
6
<PAGE> 7
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
Cash flows from operating activities: 1995 1994
------------------------------------------------
<S> <C> <C>
Net income $ 420,104 $ 356,739
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 159,454 127,144
Provision for loan losses (200,000) ----
Deferred Federal income tax expense 82,519 ----
Loss on sale of property and equipment ---- ----
Gain on sale of securities available for sale ---- (165,081)
Gain on sale of other real estate (18,344) ----
Net amortization of investment securities available for sale
and securities held to maturity 122,192 102,324
Valuation provisions for other real estate 30,000 72,832
Decrease in accrued interest receivable 200,295 258,727
Increase in other assets (491,187) (6,284)
Increase in accrued interest payable 15,434 8,883
Increase in other liabilities 410,958 211,369
------------------------------------------------
Net cash provided by operating activities 731,425 966,653
------------------------------------------------
Cash flows from investing activities:
Net decrease(increase) in federal funds sold (4,425,000) 8,593,000
Proceeds from sales of securities available for sale ---- 3,392,102
Proceeds from maturities of securities available for sale 6,916,895 3,204,412
Proceeds from maturities of securities held to maturity ---- 1,976,602
Purchase of securities available for sale (1,938,750) (12,906,544)
Purchase of securities held to maturity ---- ----
Net increase in loans (3,679,326) (247,358)
Recoveries of charged-off loans 155,427 168,176
Purchase of bank premises and equipment (133,401) (291,827)
Proceeds from sale of bank premises and equipment ---- ----
Proceeds from sale of other real estate 89,689 21,329
------------------------------------------------
Net cash provided (used) by investing activities (3,014,466) 3,909,892
------------------------------------------------
Cash flows from financing activities:
Net decrease in demand, interest bearing transaction
and savings accounts (1,639,311) (2,124,442)
Net increase in securities sold with agreements to
repurchase 403,000 ----
Net increase (decrease) in certificates of deposit 1,180,852 (76,944)
Dividends paid (100,000) (100,000)
------------------------------------------------
Net cash used by financing activities (155,459) (2,301,386)
------------------------------------------------
Net increase(decrease) in cash and cash equivalents (2,438,500) 2,575,159
Cash and cash equivalents at beginning of year 15,161,017 8,748,318
------------------------------------------------
Cash and cash equivalents at end of quarter $ 12,722,517 $ 11,323,477
================================================
Supplementary Information:
Interest paid $ 1,027,820 $ 714,804
================================================
Income taxes paid $ ---- $ 1,600
================================================
</TABLE>
See accompanying notes to Consolidated Financial Statements.
7
<PAGE> 8
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Consolidated Financial Statements herein have been prepared by Corpus
Christi Bancshares, Inc. (the "Company") without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. The
consolidated financial statements include all adjustments (including normal
recurring accruals) which, in the opinion of management, are necessary for
the fair presentation of the results of the periods presented. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations,
although the Company believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these financial
statements be read in conjunction with the consolidated financial
statements and the notes thereto in the Company's latest Annual Report on
Form 10-KSB.
2. Principles of Consolidation
The consolidated financial statements for the Company include the accounts
of Corpus Christi Bancshares, Inc. and its wholly owned subsidiaries,
C.S.B.C.C., Inc. and Citizens State Bank ("Bank"), consolidated in
accordance with generally accepted accounting principles. All major items
of income and expense are recorded on the accrual basis of accounting, and
all significant intercompany accounts and transactions have been
eliminated. In the opinion of management, the consolidated financial
statements present fairly the results of the periods presented. These
statements have not been examined by independent public accountants and are
subject to year-end audit and adjustments.
Statements of Cash Flows
For purposes of the consolidated statements of cash flows, the Company
considers cash, due from bank accounts and interest bearing deposits with
the Federal Home Loan Bank to be cash equivalent accounts.
Net Income Per Common Share
Primary net income per share is computed on the weighted average number of
shares of common stock outstanding, including common stock assumed
outstanding to reflect the potential dilutive effect of common stock
options. Fully diluted net income per share is computed on the weighted
average number of shares of common stock outstanding, including the common
stock assumed outstanding to reflect the maximum dilutive effect of common
stock options. Fully diluted net income per share is not applicable for the
periods presented because the effect is not dilutive.
3. Securities Available for Sale
Management determines the appropriate classification of securities at the
time of purchase. Securities to be held for sale for indefinite periods of
time and not intended to be held to maturity or on a long-term basis are
classified as securities available for sale and are carried at market
value.
The securities available for sale portfolio provides the Company with an
additional measure of liquidity and added flexibility in managing the
Company's asset liability strategy and such securities may be sold in
8
<PAGE> 9
response to changes in interest rates, resultant prepayment risk and other
factors related to interest rate and resultant risk changes.
Included in securities classified as securities available for sale are
mortgage pass-through and related securities which represent participating
interests in pools of long-term first mortgage loans originated and
serviced by the issuers of the securities. Mortgage pass-through and
related securities are carried at unpaid principal balances, adjusted for
unamortized premiums and unearned discounts. Other securities include
investments in the Federal Home Loan Bank of $521,400 and Texas Independent
Bank of $30,000 at March 31, 1995. Premiums and discounts are amortized
using the straight-line method over the remaining period to contractual
maturity. The net unrealized gains or losses on securities available for
sale are recorded as a separate component of stockholders' equity.
The amortized cost and market value of securities available for sale at
March 31, 1995 and December 31, 1994 were as follows:
<TABLE>
<CAPTION>
March 31, 1995
---------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 35,527,842 $ 57,269 $ (480,424) $ 35,104,687
Mortgage pass-through and
related securities 3,913,413 18,378 (109,068) 3,822,723
Other securities 551,400 ---- ---- 551,400
---------------------------------------------------------------------
$ 39,992,655 $ 75,647 $ (589,492) $ 39,478,810
=====================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
---------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 40,708,000 $ 2,477 $ (998,267) $ 39,712,210
Mortgage pass-through and
related securities 4,044,077 7,612 (165,549) 3,886,140
Other securities 504,100 ---- ---- 504,100
---------------------------------------------------------------------
$ 45,256,177 $ 10,089 $ (1,163,816) $ 44,102,450
=====================================================================
</TABLE>
Securities available for sale with market values of $4,559,141 and
$2,519,374 at March 31, 1995 and December 31, 1994, respectively, were
pledged to secure public deposits and for other purposes required or
permitted by law.
9
<PAGE> 10
4. Securities Held to Maturity
Securities held to maturity are stated at cost adjusted for amortization of
premium and accretion of discounts which are recognized as adjustments to
interest income. Management determines the appropriate classification of
securities at the time of purchase. Securities held to maturity are
acquired for long term investing purposes. Management is of the opinion
that the Company has the intention and ability to hold securities
classified as securities held to maturity until maturity.
The amortized cost and approximate market value of securities held to
maturity at March 31, 1995 and December 31, 1994 are as follows:
<TABLE>
<CAPTION>
March 31, 1995
--------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government agencies $ 3,004,633 $ 76,929 $ ---- $ 3,081,562
Obligations of states and political
subdivisions 3,762,336 84,940 (6,980) 3,840,296
--------------------------------------------------------------------
$ 6,766,969 $ 161,869 $ (6,980) $ 6,921,858
====================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
--------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government agencies $ 3,005,108 $ 72,705 $ ___ $ 3,077,813
Obligations of states and political
subdivisions 3,762,935 49,974 (34,604) 3,778,305
--------------------------------------------------------------------
$ 6,768,043 $ 122,679 $ (34,604) $ 6,856,118
====================================================================
</TABLE>
Securities held to maturity with amortized costs of $575,463 and $575,511 at
March 31, 1995 and December 31, 1994, respectively, were pledged to secure
public and trust-fund deposits and for other purposes required or permitted by
law.
10
<PAGE> 11
5. Loans
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
---------------------------------------
<S> <C> <C>
Commercial and Industrial $ 26,927,788 $ 26,819,212
Energy 1,849,902 2,017,322
Installment 32,251,044 28,766,338
Real estate-construction 881,987 1,228,717
Real estate-mortgage 39,175,623 38,183,212
Agricultural 641,096 585,414
Other 33,264 24,823
---------------------------------------
101,760,704 97,625,038
Unearned discount (4,054,286) (3,538,959)
---------------------------------------
97,706,418 94,086,079
Allowance for loan losses (1,887,078) (1,990,638)
---------------------------------------
$ 95,819,340 $ 92,095,441
=======================================
</TABLE>
6. Allowance for Loan Losses
Transactions in the allowance for loan losses for the periods ending March
31, 1995, and the year ended December 31, 1994 are summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
----------------------------------------
<S> <C> <C>
Balance at beginning of period $ 1,990,638 $ 1,794,380
Loans charged-off (58,987) (455,179)
Recoveries on loans 155,427 951,437
----------------------------------------
Net loans recovered 96,440 496,258
Provisions charged to operating expenses (200,000) (300,000)
----------------------------------------
Balance at end of period $ 1,887,078 $ 1,990,638
========================================
</TABLE>
7. Certificates of Deposit
Included in certificates of deposits are certificates of deposits in excess
of $100,000 aggregating $10,988,775 and $10,502,219 at March 31, 1995 and
December 31, 1994, respectively. Interest expense on certificates of
deposits in denominations of $100,000 or more amounted to $121,832 and
$87,198 for the months ended March 31, 1995 and March 31, 1994,
respectively.
8. Nonqualified Stock Option Plan
On October 20, 1993, the Board of Directors authorized 160,000 shares of
Company common stock for issuance under a nonqualified stock option plan
for directors and key officers who the Board of Directors believe have a
significant impact on the profitability of the Company. The options were
granted in 1993 at an option price of $5 per common share, the estimated
market value per common share on the date of the grant. At March 31, 1995,
options for all 160,000 shares were outstanding, all of which are
exercisable, as no options were exercised through March 31, 1995.
Expiration dates are ten (10) years from the date of the grant.
11
<PAGE> 12
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion highlights the major changes affecting the operations
and condition of the Company for the three months ended March 31, 1995 as
compared to the same quarter of 1994.
Overall Performance:
The Company's net earnings before taxes at March 31, 1995 was $641,557, up
$132,818, compared to $508,739 for the same quarter in 1994. Net income for the
quarter ended March 31, 1995 was $420,104, up $63,365, compared to $356,739 for
the same quarter of 1994. The increase in after tax earnings for the first
quarter of 1995 compared to the same period last year was attributable in large
part to the increase in net interest income totaling $186,082 and to a $200,000
"negative" provision for loan losses made during the first quarter of 1995.
Earnings per share for the first quarter ended March 31, 1995 was $.25 per
share compared to $.21 per share for the same quarter of 1994.
Provision for Loan Losses
A factor in the Company's operating results during the first quarter of 1995
was the provision for loan losses. The Company made a $200,000 "negative"
provision for loan losses as a result of continued improvement in credit
quality and recoveries on prior loans charged-off. The Company had no
provisions for loan losses in the first quarter of 1994. During the quarter
ended March 31, 1995, the Company had net recoveries totaling $96,440 compared
to net recoveries totaling $80,578 for the same quarter in 1994.
The allowance for loan losses is established through charges to operations in
the form of provisions for loan losses. Loan losses (or recoveries) are charged
(or credited) directly to the allowance for loan losses. The provision for loan
losses is determined by management, based upon considerations of several
factors including: (1) a continuing review by management of the portfolio with
particular emphasis on problem loans; (2) regular examination of the loan
portfolio; (3) loss experience on various types of loans in relation to
outstanding loans; and (4) an ongoing assessment of current and anticipated
economic conditions in the market place served by the subsidiary bank.
The Company's Credit Review Committee ("CRC"), independent consultants, and
Federal and State regulators, conduct periodic examinations of the Company's
subsidiary bank to make evaluations of the subsidiary bank's loan portfolio. In
addition, appropriate regulatory authorities, and independent consultants make
evaluations of the effectiveness of the Company's loan review and
administrative functions and make periodic reports to the Company's Board of
Directors.
As the CRC examines the loan portfolio, loans are assigned a risk grading
which is used to determine the reserve requirements for each loan. In addition
to these specific allocations of reserves, an appropriate amount is set aside
to recognize the likelihood that there are unidentified additional risks in
the portfolio.
While there is no precise method of predicting loan losses, it is the judgment
of the Company's management that the allowance for loan losses at March 31,
1995, was adequate to absorb possible losses from the loans in the portfolio at
that date.
12
<PAGE> 13
Nonperforming assets and past-due accounts are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
--------------------------------------------------
<S> <C> <C>
Nonperforming assets:
Nonaccrual loans $ 220,156 $ 312,657
Other real estate 663,411 764,756
--------------------------------------------------
$ 883,567 $ 1,077,413
==================================================
Accruing loans past due 90 days or more $ ---- $ ----
==================================================
</TABLE>
Generally, the accrual of income is discontinued when the full collection of
principal and interest is in doubt, or when the payment of principal or
interest has become contractually 90 days past due unless the obligation is
well secured and in the process of collection. Loans are not restored to full
earnings status until the borrower's ability to make payments of principal and
interest at original or prevailing market terms has been demonstrated through
substantial performance on the loan over an extended period of time. At March
31, 1995, nonaccrual loans totaled $220,156 compared to $312,657 and $653,611
at December 31, 1994 and March 31, 1994, respectively.
Further information regarding the balance of nonaccrual loans at March 31,
1995, and related interest payment information, is as follows:
<TABLE>
<CAPTION>
Book Contractual
Balance Balance
----------------------------------------------------
<S> <C> <C>
Nonaccrual loans at December 31, 1994 $ 312,657 $ 624,678
Additions ---- ----
Reductions-principal payments (81,360) (81,360)
Reductions-interest payments (11,141) ----
Charge-offs ---- ----
Transferred to other real estate ---- ----
----------------------------------------------------
Nonaccrual loans at March 31, 1995 $ 220,156 $ 543,318
====================================================
</TABLE>
The Company considers a nonaccrual loan to have substantial performance if
eighty (80%) percent of principal payment and interest is collected.
<TABLE>
<CAPTION>
Cash interest payments in 1995
applied as:
----------------------------------------------------
Book Balance Contractual
at Balance at Recoveries of
March 31, March 31, Interest Prior Partial Reduction of
1995 1995 Income Charge-offs Principal
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Contractually current, however,
payment in full or principal
or interest in doubt $ 220,156 $ 543,318 $ ---- $ ---- $ 11,141
==========================================================================================
</TABLE>
13
<PAGE> 14
Total nonperforming assets declined to $884 thousand at March 31, 1995, down
$216 thousand, compared to $1.1 million at December 31, 1994, a trend that has
continued since year-end 1988. Nonperforming assets at March 31, 1994 totaled
$1.9 million. The reduction in the level of nonperforming assets has been the
results of management's efforts to reduce the levels of nonperforming assets
and classified assets by reducing the risk associated with the lending process.
The credit process, from loan approval and origination through ongoing loan
reviews, has been strengthen through improved policy statements thus assuring
better credit underwriting.
As part of the CRC process, loans are graded according to risk. Loans having a
greater degree of risk, but not necessarily a greater potential for loss, are
placed on a watchlist. Such loans are performing and are either considered to be
collateralized or higher reserves are allocated for unsecured exposures. The
total amount of such loans at March 31, 1995 and December 31, 1994 not
classified as nonaccrual, restructured, or past due 90 days and still accruing
in the above table totaled $4.5 million and $4.2 million, respectively. Such
loans totaled $4.1 million at March 31, 1994.
In addition, a substantial amount of the Company's nonperforming assets are
attributable to other real estate located in the Corpus Christi, Texas area.
Other real estate at March 31, 1995 was $663,411, compared to $764,756 and
$1,263,819 at December 31, 1994 and March 31, 1994, respectively. Other real
estate has been adjusted to estimated fair value less estimated selling costs,
if lower than cost, and includes some income producing property.
With respect to other real estate, management of the Company believes it has
made appropriate valuations, using independent appraisers, of these properties
based on strict appraisal guidelines. The carrying value of other real estate
is reviewed at least annually and the valuation allowance is revised through
subsequent valuation provisions charged to other operating expenses. During the
quarter ended March 31, 1995, the Company made valuation provisions for other
real estate totaling $30,000 compared to $72,832 for the same quarter of 1994.
In the opinion of management, this appraisal process results in values which
represent current market conditions at March 31, 1995 and 1994.
Net Interest Income
Net interest income (the difference between interest income and interest
expense) at March 31, 1995 was $1,816,313, up $186,082, compared to $1,630,231
for the same quarter of 1994. The increase was largely attributable to the
increase in the volume of earning assets and higher interest rates paid on
loans.
Earning assets at March 31, 1995 was $154.1 million, up $9.8 million, compared
to $144.3 million at March 31, 1994. The yield on earning assets at March 31,
1995 was 7.8% compared to 6.7% for the same period last year. Interest-bearing
liabilities at March 31, 1995 were $114.4 million, up $8.3 million, compared to
$106.1 million at March 31, 1994. Yields on interest-bearing liabilities were
4.3% at March 31, 1995 compared to 2.8% at March 31, 1994.
Net interest income as a percentage of average earning assets ("net interest
margin") was 4.9% at March 31, 1995 compared to 4.7% at March 31, 1994. The net
interest margin averaged 4.7% during 1994.
14
<PAGE> 15
Noninterest Income
Noninterest income was $726,771 for the quarter ended March 31, 1995, down
$39,826 or 5.2%, compared to $766,597 for the same quarter of 1994. Trust
department income for the quarter ended March 31, 1995 was $310,583, up
$54,155, compared to $256,428 for the same period in 1994. The increase was
largely attributable to non recurring estate and stock transfer fees collected
during the first quarter of 1995 totaling approximately $50,000. Service
charges were $242,705 for the quarter ended March 31, 1995, up $21,472,
compared to $221,233 for the same period in 1994. The increase was largely
attributable to a increase in nonsufficient fund charges totaling $28,438.
Credit card fees were $40,675 for the quarter ended March 31, 1995, up
$12,422, compared to $28,253. The increase was the result of increased fees
charged on Visa/Mastercard merchant services accounts during 1994. The Company
had no net gains on sale of securities available for sale during the first
quarter of 1995 compared to $165,081 during the first quarter of 1994. The net
gain on sales of securities available for sale during the first quarter of
1994 was attributable to a restructuring of the securities available for sale
portfolio to capitalize on reinvestment in other securities without a
substantial reduction in interest rates or increased investment risk exposure.
Other income totaled $132,808 for the quarter ended March 31, 1995, up
$37,206, compared to $95,602 for the same period in 1994. The increase in
other income for the first quarter of 1995 was largely attributable to fees
generated from investment services totaling approximately $39,315.
The following table details the changes in noninterest income for the first
quarter of 1995 as compared with the first quarter of 1994.
<TABLE>
<CAPTION>
Change for
Quarter
March 31, March 31, Ended March 31,
1995 1994 Amount Percentage
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust department income $ 310,583 $ 256,428 $ 54,155 21.1%
Service charges 242,705 221,233 21,472 9.7%
Credit card fees 40,675 28,253 12,422 44.0%
Net gains on sale of securities available for sale ---- 165,081 (165,081) (100.0)%
Other income 132,808 95,602 37,206 38.9%
-------------------------------------------------------------------------
Total noninterest income $ 726,771 $ 766,597 $ (39,826) (5.2)%
========================================================================
</TABLE>
Noninterest expenses
The Company's noninterest expenses were $2,101,527, for the quarter ended March
31, 1995, up $213,438, compared to $1,888,089 for the same period of 1994.
Salaries and employee benefits for the quarter ended March 31, 1995 were
$974,005, up $124,329, compared to $849,675 for the same quarter of 1994. The
increase in salaries and employee benefits was primarily attributable to the
increase in staff to operate the new South Banking Facility opened in early
1994; the West Banking Center opened in late 1994; remodeling of the Village
Banking Center which added a motor bank facility; and staffing requirements
required to offer Saturday Banking. Occupancy expenses were $243,199 for the
quarter ended March 31, 1995, up $47,885, compared to $195,314 for the same
quarter in 1994. Furniture and equipment expenses totaled $178,444 for the
quarter ended March 31, 1995, up $19,943, compared to $158,501 for the same
quarter in 1994. The increase in occupancy expenses and furniture and equipment
expenses for the first quarter of 1995 compared to the same quarter in 1994 was
largely attributable to the opening of the South and West Banking facilities and
to the additions of motor bank lanes at the Village Banking Center. Net cost to
operate other real estate was $14,444 for the quarter ended March 31, 1995, down
$66,463, compared to $80,907 for the same quarter of 1994. The decrease in net
cost to operate other real estate was primarily attributable to the decrease in
valuation provisions totaling $42,832 in
15
<PAGE> 16
1995. Legal and professional fees were $170,758 for the quarter ended March 31,
1995, up $31,868, compared to $138,890 for the same period in 1994. The
increase was largely attributable to increases in legal fees related to the
Company totaling $20,135 and to increased consulting fees related to proxy
solicitation services provided to the Company totaling $22,612. Insurance
expenses for the quarter ended March 31, 1995 were $102,430, up $8,286,
compared to $94,144 for the same period in 1994. Advertising expenses totaled
$47,307 at March 31, 1995, down $19,417, compared to $66,724 for the same
quarter in 1994. Other operating expenses totaled $370,940 for the quarter
ended March 31, 1995, up $67,007, compared to $303,933 for the same period last
year. The increase in other operating expenses was largely attributable to
increased expenses related to postage and freight charges totaling $15,488,
operating losses on checking accounts totaling approximately $13,008 and
automated interchange fees totaling $11,014.
The following table details the changes in noninterest expenses for the first
quarter of 1995 as compared to the first quarter of 1994.
<TABLE>
<CAPTION>
Change for
Quarter
March 31, March 31, Ended March 31,
1995 1994 Amount Percentage
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and employee benefits $ 974,005 $ 849,676 $ 124,329 14.6%
Occupancy expenses 243,199 195,314 47,885 24.5%
Furniture and equipment expenses 178,444 158,501 19,943 12.6%
Net cost to operate other real estate 14,444 80,907 (66,463) (82.1)%
Legal and professional fees 170,758 138,890 31,868 22.9%
Insurance expenses 102,430 94,144 8,286 8.8%
Advertising expenses 47,307 66,724 (19,417) (29.1)%
Other operating expenses 370,940 303,933 67,007 22.0%
-------------------------------------------------------------------------
Total noninterest expenses $ 2,101,527 $ 1,888,089 $ 213,438 11.3%
=========================================================================
</TABLE>
Liquidity
Generally, the Company's largest source of funds is provided through deposits.
Total deposits at March 31, 1995 were $157.2 million, down $500 thousand,
compared to $157.7 million at December 31, 1994. Total deposits at March 31,
1994 were $144.6 million. In addition, at March 31, 1995 and at December 31,
1994, the Company had approximately $10.3 million and $5.9 million,
respectively, in federal funds sold that could be readily converted to cash.
Another source of liquidity, if the need arises, could come from the
liquidation of securities available for sale totaling $39.5 million at March
31, 1995.
Funds are also generated through loan payoffs. Currently, management believes
that it has an adequate level of liquidity to meet its financial obligations
that will arise during the normal course of business in the coming year.
One principal ratio measurement used by regulatory authorities to measure
liquidity is the ratio of net loans to total deposits. At March 31, 1995, the
Company's ratio of net loans to total deposits was 60.9%, compared to 58.4% at
December 31, 1994. The Company's ratio of net loans to total deposits at March
31, 1994 was 53.4%. At March 31, 1995, the Company's net loans to total
deposits ratio of 60.9% compared favorably to peer banking institutions in
Texas with similar asset sizes which had net loans to total deposit ratios
ranging from a low of 37%, median of 49% and a high of 63% at December 31,
1994. The Company's long-term strategy projects loan growth to 65% to 70% of
total deposits.
16
<PAGE> 17
Capital Resources
The Company and the Bank are required by federal regulations to meet certain
minimum regulatory guidelines utilizing a risk-based capital framework that
became effective on December 31, 1992. The Company and the Bank must have a
minimum ratio of Tier 1 capital to total risk-adjusted assets of not less than
4%, a ratio of combined Tier 1 and Tier 2 capital to total risk-adjusted assets
of not less than 8% and a leverage ratio of not less than 4%. For the purposes
of these ratios, stockholders' equity does not include unrealized gains or
losses on securities available for sale in accordance with regulatory
guidelines. At March 31, 1995, the Company and the Bank each had a Tier 1
capital ratio of 14.2%, combined Tier 1 and Tier 2 capital ratio of 15.5% and
leverage ratio of 8.6%. At December 31, 1994, the Company and the Bank each
had a Tier 1 capital ratio of 14.6%, combined Tier 1 and Tier 2 capital ratio
of 16.0% and leverage ratio of 8.4%.
The Company's equity to assets ratio is one indicator that management uses to
monitor capital adequacy. At March 31, 1995, the Company's equity to assets
ratio was 8.6% compared to 8.4% at December 31, 1994. The Company's equity to
asset ratio at March 31, 1994 was 8.4%.
At March 31, 1995, the Company's subsidiary bank had an equity ratio of 8.6%,
which exceeds the minimum requirement guideline of 6.0% specified by the Texas
Department of Banking.
Other Matters
On April 4, 1995, the Company announced that its subsidiary bank, Citizens
State Bank of Corpus Christi, Texas, has entered into an agreement in principle
and letter of intent to acquire The First National Bank of Taft, Texas. The
First National Bank had total assets of approximately $40 million at December
31, 1994, and is approximately 20 miles from Corpus Christi, Texas. The
proposed acquisition is subject to a due diligence investigation, the execution
of a definitive agreement and certain other conditions and approvals, including
approval by shareholders of First National Bank and regulatory authorities.
17
<PAGE> 18
PART II - OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K.
(a) Exhibits: See Index to Exhibits, Page 20.
(b) The Company was not required to file any report on Form 8-K
during the three-month period ending March 31, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORPUS CHRISTI BANCSHARES, INC.
REGISTRANT
Date: May 11, 1995 \s\ John T. Wright, III
-------------------------------------
John T. Wright, III
Chairman of the Board
Date: May 11, 1995 \s\ R. Jay Phillips
-------------------------------------
R. Jay Phillips
President and Chief Executive Officer
Date: May 11, 1995 \s\ Jimmy M. Knioum
-------------------------------------
Jimmy M. Knioum
Treasurer
18
<PAGE> 19
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
EXHIBITS
TO
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
-----------------
For the Quarter Ended March 31, 1995
Commission File Number 0-13668
-----------------
CORPUS CHRISTI BANCSHARES, INC.
19
<PAGE> 20
CORPUS CHRISTI BANCSHARES, INC.
INDEX TO EXHIBITS
Sequentially
Numbered
Pages
------------
27 Financial Data Schedule _____
20
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 12,663,755
<INT-BEARING-DEPOSITS> 58,762
<FED-FUNDS-SOLD> 10,325,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 39,478,810
<INVESTMENTS-CARRYING> 6,766,969
<INVESTMENTS-MARKET> 6,921,858
<LOANS> 97,706,418
<ALLOWANCE> 1,887,078
<TOTAL-ASSETS> 172,778,835
<DEPOSITS> 157,200,084
<SHORT-TERM> 403,000
<LIABILITIES-OTHER> 859,044
<LONG-TERM> 0
<COMMON> 8,000,000
0
0
<OTHER-SE> 6,316,707
<TOTAL-LIABILITIES-AND-EQUITY> 172,778,835
<INTEREST-LOAN> 2,036,999
<INTEREST-INVEST> 702,465
<INTEREST-OTHER> 120,103
<INTEREST-TOTAL> 2,859,567
<INTEREST-DEPOSIT> 1,043,215
<INTEREST-EXPENSE> 1,043,254
<INTEREST-INCOME-NET> 1,816,313
<LOAN-LOSSES> (200,000)
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,101,527
<INCOME-PRETAX> 641,557
<INCOME-PRE-EXTRAORDINARY> 641,557
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 420,104
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
<YIELD-ACTUAL> 4.9
<LOANS-NON> 220,156
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,523,435
<ALLOWANCE-OPEN> 1,990,638
<CHARGE-OFFS> 58,987
<RECOVERIES> 155,427
<ALLOWANCE-CLOSE> 1,887,078
<ALLOWANCE-DOMESTIC> 1,887,078
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
