<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 September 30, 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 November 13, 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 - September 30, 1995 and
December 31, 1994 3
Consolidated Statements of Income -
Three months and nine months ended September 30, 1995 and 1994 5
Consolidated Statements of Changes in Stockholders'
Equity - Nine months ended September 30, 1995 and 1994 6
Consolidated Statements of Cash Flows -
Three months and nine months ended September 30, 1995 and 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 19
Signatures 19
</TABLE>
2
<PAGE> 3
Part I. Financial Information
Item 1. Financial Statements
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
ASSETS: (Unaudited) (Audited)
-------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 12,516,932 $ 15,138,696
Interest bearing deposits with Federal Home Loan Bank 291,455 22,321
Federal funds sold 7,400,000 5,900,000
Securities available for sale: (Note 3)
U.S. Treasury securities 29,386,094 39,712,210
Mortgage pass-through and related securities 20,682,843 3,886,140
Other securities 568,700 504,100
-------------------------------------------------
Total securities available for sale 50,637,637 44,102,450
Securities held to maturity: (Note 4)
U.S. Government agencies 1,003,685 3,005,108
Obligations of states and political subdivisions 2,721,135 3,762,935
-------------------------------------------------
Total securities held to maturity 3,724,820 6,768,043
Loans (Notes 5 and 6) 106,633,714 97,625,038
Less: Unearned discount (4,633,653) (3,538,959)
Less: Allowance for loan losses (2,018,728) (1,990,638)
-------------------------------------------------
Net loans 99,981,333 92,095,441
Bank premises and equipment, net 4,670,097 4,852,202
Accrued interest receivable 1,326,115 1,483,449
Other real estate 644,411 764,756
Other assets 581,745 402,298
-------------------------------------------------
Total assets $ 181,774,545 $ 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>
September 30, December 31,
1995 1994
(Unaudited) (Audited)
-------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Demand $ 46,039,362 $ 43,932,959
Interest bearing transaction accounts 52,509,669 58,169,426
Savings 14,373,972 15,294,615
Certificates of deposit (Note 7) 45,740,314 40,261,543
-------------------------------------------------
Total deposits 158,663,317 157,658,543
Securities sold under agreements to repurchase 6,604,000 ----
Accrued interest payable 231,440 202,820
Dividends payable 100,000 100,000
Other liabilities 824,934 129,832
-------------------------------------------------
Total liabilities 166,423,691 158,091,195
-------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock, $5.00 par value;
4,000,000 shares authorized; 1,600,000
shares issued and outstanding 8,000,000 8,000,000
Retained earnings 7,492,970 6,497,204
Unrealized losses on securities available for sale (142,116) (1,058,743)
-------------------------------------------------
Total stockholders' equity 15,350,854 13,438,461
-------------------------------------------------
Total liabilities and stockholders' equity $ 181,774,545 $ 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 September 30, Nine Months Ended September 30,
Interest income: 1995 1994 1995 1994
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest on loans $ 2,215,244 $ 1,780,364 $ 6,421,031 $ 4,876,728
Interest on deposits with other banks 1,376 819 3,050 2,296
Interest on federal funds sold 221,378 63,017 554,763 229,114
Interest on securities available for sale:
U.S Treasury securities 396,439 520,759 1,308,833 1,521,849
Mortgage pass-through and related securities 170,072 56,928 290,251 260,795
Other securities 8,884 5,587 25,812 12,473
Interest on securities held to maturity:
U.S. Government agencies 37,134 97,585 186,935 296,671
States and political subdivisions 64,856 81,724 225,929 249,917
----------------------------------------------------------------------
Total interest income 3,115,383 2,606,783 9,016,604 7,449,843
----------------------------------------------------------------------
Interest expense:
Interest on deposits:
Interest bearing transaction accounts 435,589 358,157 1,398,281 938,909
Savings 123,039 119,860 383,955 308,889
Certificates of deposit 598,042 391,283 1,581,879 1,104,369
Federal funds purchased ---- 426 ---- 426
Securities sold with agreements to repurchase 29,360 ---- 51,245 ----
----------------------------------------------------------------------
Total interest expense 1,186,030 869,726 3,415,360 2,352,593
----------------------------------------------------------------------
Net interest income 1,929,353 1,737,057 5,601,244 5,097,250
Provision for loan losses ---- ---- (400,000) ----
----------------------------------------------------------------------
Net interest income after provision for loan
losses 1,929,353 1,737,057 6,001,244 5,097,250
----------------------------------------------------------------------
Other income:
Trust department income 276,395 255,144 881,519 840,821
Service charges 257,305 50,522 755,165 740,049
Credit card fees 53,140 39,764 140,327 103,290
Brokerage fees 57,260 30,841 172,544 30,841
Net gains on sale of securities available for sale ---- ---- ---- 165,081
Other income 124,129 150,588 310,274 307,700
----------------------------------------------------------------------
Total other income 768,229 726,859 2,259,829 2,187,782
----------------------------------------------------------------------
Other expenses:
Salaries and employee benefits 1,006,696 904,236 2,981,158 2,629,108
Net occupancy expense 222,620 205,024 704,381 609,148
Furniture and equipment expenses 163,667 143,034 513,567 455,925
Net cost to operate other real estate 48,575 73,495 100,767 234,456
Legal and professional fees 202,840 163,690 533,063 520,778
Insurance expenses 17,613 104,021 215,469 292,873
Advertising expenses 64,535 58,823 148,533 195,457
Other operating expenses 312,313 327,873 1,085,369 926,614
----------------------------------------------------------------------
Total other expense 2,038,859 1,980,196 6,282,307 5,864,359
----------------------------------------------------------------------
Income before income taxes 1,978,766 1,420,673
658,723 483,720
Applicable income taxes 228,324 (24,257) 683,000 193,743
----------------------------------------------------------------------
Net income $ 430,399 $ 507,977 $ 1,295,766 $ 1,226,930
======================================================================
Weighted average of common stock and common
stock equivalents outstanding 1,695,118 1,680,398 1,685,271 1,679,138
======================================================================
Net income per common share $ .25 $ .30 $ .77 $ .73
======================================================================
</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
Gains(Losses) 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 nine months
ended September 30, 1994 ---- ---- 1,226,930 ---- 1,226,930
Cash dividends, declared,
$.1875 per share ---- ---- (300,000) ---- (300,000)
Net change in unrealized gains
on securities available for
sale for the nine months ended
September 30, 1994 ---- ---- ---- (961,179) (961,179)
===========================================================================================
Balance at September 30, 1994 $ 8,000,000 $ ---- $ 6,007,959 $ (485,330) $ 13,522,629
===========================================================================================
Balance at January 1, 1995 $ 8,000,000 $ ---- $ 6,497,204 $ (1,058,743) $ 13,438,461
Net income for nine months
ended September 30, 1995 ---- ---- 1,295,766 ---- 1,295,766
Cash dividends, declared,
$.1875 per share ---- ---- (300,000) ---- (300,000)
Net change in unrealized losses
on securities available for
sale for the nine months ended
September 30, 1995 ---- ---- ---- 916,627 916,627
-------------------------------------------------------------------------------------------
Balance at September 30, 1995 $ 8,000,000 $ ---- $ 7,492,970 $ (142,116) $ 15,350,854
===========================================================================================
</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 September 30, Nine months ended September 30,
Cash flows from operating activities: 1995 1994 1995 1994
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 430,399 $ 507,977 $ 1,295,766 $ 1,226,930
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 164,822 128,845 488,397 389,111
Provision for loan losses ---- ---- (400,000) ----
Deferred Federal income tax benefit (427,428) ---- (266,798) ----
Loss on sale of property and equipment ---- ---- ---- ----
Gain on sale of securities available for sale ---- ---- ---- (165,081)
Gain (loss) on sale of other real estate ---- 4 (18,344) (2,859)
Net amortization of investment securities available
for sale and securities held to maturity 94,356 134,072 322,424 372,576
Valuation provisions for other real estate 30,000 60,000 90,000 192,832
Decrease (increase) in accrued interest receivable 61,788 220,752 157,334 249,202
Decrease (increase) in other assets 82,351 (249,977) (179,447) (445,047)
Increase (decrease) in accrued interest payable 55 (1,584) 28,620 (2,442)
Increase (decrease) in other liabilities 164,828 (16,260) 695,102 229,634
-----------------------------------------------------------------------
Net cash provided (used) by operating
activities 601,171 783,829 2,213,054 2,044,856
-----------------------------------------------------------------------
Cash flows from investing activities:
Net decrease (increase) in federal funds sold 8,050,000 (1,850,000) (1,500,000) 15,473,000
Proceeds from sales of securities available for ---- ---- ---- 3,392,102
sale
Proceeds from maturities of securities available 794,402 3,766,672 13,560,230 8,229,884
for sale
Proceeds from maturities of securities held to 3,039,999 160,000 3,039,999 2,136,602
maturity
Purchase of securities available for sale (17,236,442) ---- (19,231,192) (17,622,912)
Purchase of securities held to maturity ---- ---- ---- ----
Net increase in loans (1,699,041) (3,448,825) (8,277,358) (10,948,450)
Recoveries of charged-off loans 197,534 180,153 703,378 596,733
Purchase of bank premises and equipment (76,102) (440,282) (306,292) (1,108,893)
Proceeds from sale of bank premises and equipment ---- ---- ---- ----
Proceeds from sale of other real estate 42,788 69,700 136,777 209,946
-----------------------------------------------------------------------
Net cash provided (used) by investing
activities (6,886,862) (1,562,582) (11,874,458) 358,012
-----------------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in demand, interest bearing
transaction and savings accounts (1,325,396) 1,707,150 (4,473,997) (139,569)
Net increase (decrease) in certificates of deposit 1,736,417 (356,604) 5,478,771 1,548,895
Net increase (decrease) in securities sold with
agreements to repurchase 4,132,071 ---- 6,604,000 ----
Dividends paid (100,000) (100,000) (300,000) (300,000)
-----------------------------------------------------------------------
Net cash provided (used) by financing activities 4,443,092 1,250,546 7,308,774 1,109,326
-----------------------------------------------------------------------
Net increase (decrease) in cash and cash (1,842,599) 471,793 (2,352,630) 3,512,194
equivalents
Cash and cash equivalents at beginning of
period 14,650,986 11,788,719 15,161,017 8,748,318
-----------------------------------------------------------------------
Cash and cash equivalents at end of quarter $ 12,808,387 $ 12,260,512 $ 12,808,387 $ 12,260,512
=======================================================================
Supplementary Information:
Interest paid $ 1,185,975 $ 871,310 $ 3,386,740 $ 2,355,035
=======================================================================
Income taxes paid
$ 120,000 $ 34,500 $ 380,000 $ 188,100
=======================================================================
</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 was not significantly
different from primary net income per share for the periods presented and
therefore are not presented.
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 management strategy and such securities may be
sold in response to changes in interest rates, resultant prepayment risk and
other factors related to interest rate and resultant risk changes.
8
<PAGE> 9
Included in securities classified as securities available for sale are
mortgage pass-through and related securities which represent participating
interest in pools of long-term first mortgage loans originated and serviced
by the issuers of the securities. 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
September 30, 1995 and December 31, 1994 were as follows:
<TABLE>
<CAPTION>
September 30, 1995
-----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 29,327,749 $ 156,379 $ (98,034) $ 29,386,094
Mortgage pass-through and
related securities 20,711,490 44,170 (72,817) 20,682,843
Other securities 568,700 ---- ---- 568,700
-----------------------------------------------------------------------
$ 50,607,939 $ 200,549 $ (170,851) $ 50,637,637
=======================================================================
</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 $1,517,344 at September 30,
1995 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 investment purposes. Management is of the opinion
that the Company has the intention and ability to hold such securities to
maturity.
The amortized cost and approximate market value of securities classified
as held to maturity at September 30, 1995 and December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
September 30, 1995
-----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government agencies $ 1,003,685 $ 62,878 $ ---- $ 1,066,563
Obligations of states and
political subdivisions 2,721,135 156,439 (12) 2,877,562
-----------------------------------------------------------------------
$ 3,724,820 $ 219,317 $ (12) $ 3,944,125
=======================================================================
</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 $1,366,842 at September
30, 1995 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 as of September 30, 1995 and December 31, 1994
are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
----------------------------------------
<S> <C> <C>
Commercial and industrial $ 28,720,685 $ 26,819,212
Energy 1,221,034 2,017,322
Installment 36,679,231 28,766,338
Real estate-construction 1,346,346 1,228,717
Real estate-mortgage 38,083,294 38,183,212
Agricultural 551,015 585,414
Other 32,109 24,823
----------------------------------------
106,633,714 97,625,038
Unearned discount (4,633,653) (3,538,959)
----------------------------------------
102,000,061 94,086,079
Allowance for loan losses (2,018,728) (1,990,638)
----------------------------------------
$ 99,981,333 $ 92,095,441
========================================
</TABLE>
6. Allowance for Loan Losses
Transactions in the allowance for loan losses for the nine months ending
September 30, 1995, and for the year ended December 31, 1994 are summarized
as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
-------------------------------------------
<S> <C> <C>
Balance at beginning of period $ 1,990,638 $ 1,794,380
Loans charged-off (275,288) (455,179)
Recoveries on loans 703,378 951,437
-------------------------------------------
Net loans recovered 428,090 496,258
Provisions charged to operating expenses (400,000) (300,000)
-------------------------------------------
Balance at end of period $ 2,018,728 $ 1,990,638
===========================================
</TABLE>
7. Certificates of Deposit
Included in certificates of deposits are certificates of deposits in
denominations of $100,000 or more aggregating $12,239,423 and $10,502,219
at September 30, 1995 and December 31, 1994, respectively. Interest expense
on certificates of deposits in denominations of $100,000 or more amounted
to $426,076 and $292,271 for the nine months ended September 30, 1995 and
September 30, 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 September 30,
1995, options for all 160,000 shares were outstanding, all of which are
exercisable, as no options were exercised through that date. Expiration
dates are ten (10) years from the date of the grant.
11
<PAGE> 12
Item 2.
CORPUS CHRISTI BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion highlights the major changes affecting the operations
and condition of the Company for the quarter and nine months ended September
30, 1995 as compared to the same periods of 1994.
Overall Performance:
The Company had third quarter 1995 net income of $430,399, or $.25 net income
per share, down $77,578, compared to $507,977, or $.30 net income per share for
the same quarter of 1994. The Company had net income of $445,263, or $.26 net
income per share for the second quarter ended June 30, 1995.
The Company's net income for the nine months ended September 30, 1995 was
$1,295,766, or $.77 net income per share, up $68,836, compared to $1,226,930,
or $.73 net income per share, for the same period of 1994. The increase in net
income for the nine months period ended June 30,1995 compared to the same
period of 1994 is attributable in large part to the increase in net interest
income totaling $503,994 and to a $400,000 "negative" provision for loan losses
made during the nine months ended September 30, 1995.
Provision for Loan Losses
A factor in the Company's operating results during the third quarter of 1995
and the nine months ended September 30, 1995 was the provision for loan losses.
The Company made no provisions for loan losses during the third quarter ended
September 30, 1995 and had "negative" provisions for loan losses of $400,000
for the nine months ended September 30, 1995. The Company had no provisions for
loan losses for the third quarter ended September 30, 1994 and for the nine
months ended September 30, 1994. The "negative" provisions for loan losses made
during 1995 were the result of continued recoveries on loans previously charged
off, which resulted in an allowance for loan losses that exceeded the minimum
level determined necessary by the Company. The Company had net recoveries
totaling $428,090 for the nine months ended September 30, 1995 compared to net
recoveries totaling $289,050 for the same period 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.
12
<PAGE> 13
As the Company's 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 September 30,
1995, was adequate to absorb possible losses from the loans in the portfolio at
that date.
Nonperforming assets and past-due accounts:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
----------------------------------------------------
<S> <C> <C>
Nonperforming assets:
Nonaccrual loans $ 1,186,000 $ 312,657
Other real estate 644,411 764,756
----------------------------------------------------
$ 1,830,411 $ 1,077,413
====================================================
Accruing loans past due 90 days or more $ 104,299 $ ----
====================================================
</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
earning 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
September 30, 1995, nonaccrual loans totaled $1,186,000 compared to $312,657
and $471,226 at December 31, 1994 and September 30, 1994, respectively. Further
information regarding the balance of nonaccrual loans at September 30, 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 1,101,721 1,101,721
Reductions-principal payments (210,043) (389,618)
Reductions-interest payments (18,335) ----
Charge-offs ---- ----
Transferred to other real estate ---- ----
------------------------------------------------------
Nonaccrual loans at September 30, 1995 $ 1,186,000 $ 1,336,781
======================================================
</TABLE>
13
<PAGE> 14
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
September 30, September 30, Interest Prior Partial Reduction of
1995 1995 Income Charge-offs Principal
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Contractually past due with:
substantial performance $ 61,868 $ 105,090 $ ---- $ ---- $ 1,950
limited performance ---- ---- ---- ---- ----
no performance ---- ---- ---- ---- ----
Contractually current, however:
payment in full of principal
or interest in doubt 1,124,132 1,231,691 ---- 16,385
---------------------------------------------------------------------------------------------
$ 1,186,000 $ 1,336,781 $ ---- $ ---- $ 18,335
=============================================================================================
</TABLE>
Total nonperforming assets increased to $1,830,411 at September 30, 1995, up
$752,998, compared to $1,077,413 at December 31, 1994. Nonperforming assets at
September 30, 1994 totaled $1,429,287.
As part of the Credit Review Committee 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 September 30, 1995 and
December 31, 1994 not classified as nonaccrual, restructured, or past due 90
days and still accruing in the above table totaled $3.1 million and $4.2
million, respectively. Such loans totaled $3.8 million at September 30, 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 September 30, 1995 was $644,411, down $120,345, compared
to $764,756 at December 31, 1994. The decrease in other real estate during the
nine months ended September 30, 1995 was largely attributable to sales of other
real estate. Proceeds from sales of other real estate totaled $136,777 for the
nine months ended September 30, 1995. Other real estate totaled $958,061 at
September 30, 1994. 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
third quarter ended September 30, 1995, the Company made valuation provisions
for other real estate totaling $30,000 compared to $60,000 for the same quarter
of 1994. For the nine months ended September 30, 1995, the Company made
valuation provisions for other real estate totaling $90,000 compared to
$192,832 for the same period of 1994. In the opinion of management, this
appraisal process results in values which represent approximate current market
conditions at September 30, 1995.
14
<PAGE> 15
Net Interest Income
Net interest income (the difference between interest income and interest
expense) for the quarter ended September 30, 1995 was $1,929,353, up $192,296,
compared to $1,737,057 for the same quarter of 1994. Net interest income for
the nine months ended September 30, 1995 was $5,601,244, up $503,994, compared
to $5,097,250 for the same period of 1994. The increase for the third quarter
and the nine months ended September 30, 1995 was largely attributable to the
increase in the prime lending rate and the increase in earning assets.
Earning assets at September 30, 1995 were $162.9 million, up $18.5 million,
compared to $144.4 million at September 30, 1994. The yield on earning assets
at September 30, 1995 was 7.9% compared to 7.3% for the same period last year.
Interest-bearing liabilities at September 30, 1995 were $119.2 million, up
$13.2 million, compared to $106.0 million at September 30, 1994. Yields on
interest-bearing liabilities were 3.8% at September 30, 1995 compared to 3.2%
at September 30, 1994. Net interest income as a percentage of average earning
assets ("net interest margin") was 5.1% at September 30, 1995 compared to 4.9%
at September 30, 1994. The net interest margin averaged 4.7% in 1994.
Noninterest Income
Noninterest income for the nine months ended September 30, 1995 was $2,259,829,
up $72,047, compared to $2,187,782 for the same period of 1994. Trust fees for
the nine months ended September 30, 1995 were $881,519, up $40,698, compared to
$840,821 for the same period last year. The increase was largely attributable
to non-recurring estate and stock transfer fees collected during 1995 totaling
approximately $50,000. Service charges on deposit accounts were $755,165 for
the nine months ended September 30, 1995, up $15,116, compared to $740,049 for
the same period in 1994. The increase was largely attributable to an increase
in nonsufficient fund charges totaling $23,156. Credit card fees were $140,327
for the nine months ended September 30, 1995, up $37,037 compared to $103,290
for the same period last year. The increase in credit card fees was the result
of increased fees charged on Visa/Mastercard merchant services accounts during
late 1994. Brokerage fees were $172,544 for the nine months ended September 30,
1995, up $141,703, compared to $30,841 for the same period last year. The
increase in brokerage fees in 1995 compared to 1994 is due to the investment
services department operating only since September 1994. The Company had no
gains on sale of securities available for sale during the nine months ended
September 30, 1995. The net gains on sale of securities available for sale of
$165,081 during the nine months ended September 30,1994 were 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 and to position the Company to fund
future loan growth. Other income totaled $310,274 for the nine months ended
September 30, 1995, up $2,574, compared to $307,700 for the same period in
1994.
Noninterest income for the third quarter ended September 30, 1995 was $768,229,
up $41,370, compared to $726,859 for the same quarter of 1994.
15
<PAGE> 16
The following table details the changes in noninterest income for the nine
months ended September 30, 1995 as compared with the same period of 1994.
<TABLE>
<CAPTION>
Change for the
Nine Months Ended
September 30, September 30, September 30, 1995
1995 1994 Amount Percentage
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust department income $ 881,519 $ 840,821 $ 40,698 4.8
Service charges 755,165 740,049 15,116 2.0
Credit card fees 140,327 103,290 37,037 35.9
Brokerage fees 172,544 30,841 141,703 459.5
Net gains on sale of securities ---- 165,081 (165,081) (100.0)
available for sale
Other income 310,274 307,700 2,574 .1
----------------------------------------------------------------------------
Total noninterest income $ 2,259,829 $ 2,187,782 $ 72,047 3.3
============================================================================
</TABLE>
Noninterest expenses
The Company's noninterest expenses were $6,282,307 for the nine months ended
September 30, 1995, up $417,948, compared to $5,864,359 for the same period of
1994. Salaries and employee benefits for the nine months ended September 30,
1995 were $2,981,158, up $352,050, compared to $2,629,108 for the same period
of 1994. The increase in salaries and employee benefits was primarily
attributable to the increase in staff to operate the new South and West Banking
facilities opened in 1994, the additional staffing required to offer Saturday
banking during 1994, and to a three percent (3%) merit increase in salaries
approved in 1995. Net occupancy expenses were $704,381 for the nine months
ended September 30, 1995, up $95,233, compared to $609,148 for the same period
last year. Furniture and equipment cost totaled $513,567 for the nine months
ended September 30, 1995, up $57,642, compared to $455,925 for the same period
last year. The increase in net occupancy expenses and furniture and equipment
cost for the nine months ended September 30,1994 compared to the same period of
1994 was largely attributable to the opening of the South and West Banking
facility and to the additions of motor bank lanes at the Village Banking
Center. Net cost to operate other real estate was $100,767 for the nine months
ended September 30, 1995, down $133,689, compared to $234,456 for the same
period of 1994. The decrease in net cost to operate other real estate was
primarily attributable to a decrease in valuation provisions on other real
estate in 1995 totaling $102,832. Legal and professional fees were $533,063 for
the nine months ended September 30, 1995, up $12,285, compared to $520,778 for
the same period in 1994. Insurance expenses for the nine months ended September
30, 1995 were $215,469, down $77,404, compared to $292,873 for the same period
in 1994. The decrease in insurance expenses were primarily the results of a
third quarter 1995 FDIC insurance assessment refund totaling $94,961. This
refund was the result of a recent decision by the FDIC to lower the assessment
fee charged to banks on its deposits. Advertising expenses totaled $148,533 at
September 30, 1995, down $46,924, compared to $195,457 for the same period last
year. Other operating expenses totaled $1,085,369 for the nine months ended
September 30, 1995, up $158,755, compared to $926,614 for the same period last
year. The increase in other operating income was largely attributable to
increases in the Company's printing and mailing expenses related to its 1995
proxy and 1994 annual report totaling approximately $56,774; increases in
postage and freight charges totaling $36,397; increases in expenses related to
Visa/Mastercard merchant services totaling $28,332; and increases in automated
teller machine interchange fees totaling $40,706.
Noninterest expenses for the third quarter ended September 30, 1995 were
$2,038,859, up $58,663, compared to $1,980,196 for the same period last year.
16
<PAGE> 17
The following table details the changes in noninterest expenses for the nine
months ended June 30, 1995 as compared to the same period of 1994.
<TABLE>
<CAPTION>
Change for the
Nine Months Ended
September 30, September 30, September 30, 1995
1995 1994 Amount Percentage
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and employee benefits $ 2,981,158 $ 2,629,108 $ 352,050 13.4
Net occupancy expenses 704,381 609,148 95,233 15.6
Furniture and equipment expenses 513,567 455,925 57,642 12.6
Net cost to operate other real estate 100,767 234,456 (133,689) (57.0)
Legal and professional fees 533,063 520,778 12,285 2.4
Insurance expenses 215,469 292,873 (77,404) (26.4)
Advertising expenses 148,533 195,457 (46,924) (24.0)
Other operating expenses 1,085,369 926,614 158,755 17.1
----------------------------------------------------------------------------
Total noninterest expenses $ 6,282,307 $ 5,864,359 $ 417,948 7.1
============================================================================
</TABLE>
Liquidity
Generally, the Company's largest source of funds is provided through deposits.
Total deposits at September 30, 1995 were $158.7 million, up $1.0 million,
compared to $157.7 million at December 31, 1994. In addition, at September 30,
1995 and at December 31, 1994, the Company had approximately $7.4 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 $50.6 million at
September 30, 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 September 30, 1995,
the Company's ratio of net loans to total deposits was 63.0%, compared to 58.4%
at December 31, 1994. The Company's ratio of net loans to total deposits at
September 30, 1994 was 59.0%. At September 30, 1995, the Company's net loans to
total deposits ratio of 63.0% compares to peer banking institutions in Texas
with similar asset sizes which had net loans to total deposit ratios ranging
from a low of 36%, 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.
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 September 30, 1995, the Company and the Bank each had a Tier 1
capital ratio of 14.03%, combined Tier 1 and Tier 2 capital ratio of 15.37% and
leverage ratio of 8.5%. 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%.
17
<PAGE> 18
The Company's equity to assets ratio is one indicator that management uses to
monitor capital adequacy. At September 30, 1995, the Company's equity to assets
ratio was 8.5% compared to 8.4% at December 31, 1994. The Company's equity to
asset ratio at September 30, 1994 was 8.6%.
At September 30, 1995, the Company's subsidiary bank had an equity ratio of
8.5%, which exceeds the minimum requirement guideline of 6.0% by the Texas
Department of Banking.
Other Matters
On July 5, 1995, the Company announced that its subsidiary bank, Citizens State
Bank of Corpus Christi, Texas had entered into a definitive agreement to acquire
The First National Bank of Taft, Texas, a bank with approximately $43 million in
assets and located 20 miles from Corpus Christi, Texas. The purchase price of
the acquisition is approximately $8.5 million. The definitive agreement is
subject to certain conditions and approvals, which the Company believes will be
satisfied within a few weeks.
18
<PAGE> 19
PART II OTHER INFORMATION
Item 6. Exhibits and reports on Form-8K.
(a) Exhibits: See Index to Exhibits, Page 20.
(b) The Company was not required to file any report on Form 8-K
during the nine-month period ending September 30, 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: November 13, 1995 /s/John T. Wright, III
--------------------------------
John T. Wright, III
Chairman of the Board
Date: November 13, 1995 /s/R. Jay Phillips
--------------------------------
R. Jay Phillips
President and Chief Executive
Officer
Date: November 13, 1995 /s/Jimmy M. Knioum
--------------------------------
Jimmy M. Knioum
Treasurer
19
<PAGE> 20
CORPUS CHRISTI BANCSHARES, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Numbered
Pages
------------
<S> <C> <C>
27 Financial Data Schedule ________
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 12,516,932
<INT-BEARING-DEPOSITS> 291,455
<FED-FUNDS-SOLD> 7,400,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 50,637,637
<INVESTMENTS-CARRYING> 3,724,820
<INVESTMENTS-MARKET> 3,944,125
<LOANS> 102,000,061
<ALLOWANCE> 2,018,728
<TOTAL-ASSETS> 181,774,545
<DEPOSITS> 158,663,317
<SHORT-TERM> 6,604,000
<LIABILITIES-OTHER> 1,156,374
<LONG-TERM> 0
<COMMON> 8,000,000
0
0
<OTHER-SE> 7,350,854
<TOTAL-LIABILITIES-AND-EQUITY> 15,350,854
<INTEREST-LOAN> 6,421,031
<INTEREST-INVEST> 2,037,760
<INTEREST-OTHER> 557,813
<INTEREST-TOTAL> 9,016,604
<INTEREST-DEPOSIT> 3,364,115
<INTEREST-EXPENSE> 3,415,360
<INTEREST-INCOME-NET> 5,601,244
<LOAN-LOSSES> (400,000)
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,282,307
<INCOME-PRETAX> 1,978,766
<INCOME-PRE-EXTRAORDINARY> 1,978,766
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,295,766
<EPS-PRIMARY> .77
<EPS-DILUTED> .77
<YIELD-ACTUAL> 5.0
<LOANS-NON> 1,186,000
<LOANS-PAST> 104,299
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,085,706
<ALLOWANCE-OPEN> 1,990,638
<CHARGE-OFFS> 275,288
<RECOVERIES> 703,378
<ALLOWANCE-CLOSE> 2,018,728
<ALLOWANCE-DOMESTIC> 2,018,728
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
