<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
<TABLE>
<S> <C>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended September 30, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ------------------- to -------------------
</TABLE>
Commission File No. 0-14517
TEXAS REGIONAL BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 74-2294235
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
</TABLE>
P.O. BOX 5910
3700 N. TENTH, SUITE 301
MCALLEN, TEXAS 78502
(Address of principal executive offices)
210/631-5400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class A Voting Common Stock 6,193,629 shares $1 par value, outstanding as of
October 23, 1995.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The information called for by Item 1. is Incorporated herein by reference to
pages 4 through 12 of the Texas Regional Bancshares, Inc. Third quarter Report
to Shareholders (September 30, 1995).
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information called for by Item 2. is incorporated herein by reference to
pages 13 through 24 ("Management's Discussion and Analysis of Financial
Condition and Results of Operations"), of the Texas Regional Bancshares, Inc.
Third quarter Report to Shareholders (September 30, 1995).
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
19 Texas Regional Bancshares, Inc. Third Quarter Report to Shareholders
(September 30, 1995)
27. Financial Data Schedule
(b) Reports on Form 8-K
None
-2-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Texas Regional Bancshares, Inc.
<TABLE>
<CAPTION>
DATE
-------------------
<C> <S> <C>
/s/ G. E. RONEY
------------------------------------- Chairman of the Board, President & Chief Executive October 31, 1995
G. E. Roney Officer
/s/ GEORGE R. CARRUTHERS
------------------------------------- Executive Vice President & Chief Financial Officer October 31, 1995
George R. Carruthers
</TABLE>
-3-
<PAGE>
TEXAS REGIONAL
BANCSHARES, INC.
[LOGO]
1995 THIRD
QUARTER
REPORT
S E P T E M B E R 3 0 , 1 9 9 5
<PAGE>
Texas Regional Bancshares, Inc.
Texas Regional Bancshares, Inc. is a registered bank holding company
headquartered in McAllen, Texas. Its wholly-owned subsidiary, Texas State Bank,
operates a total of eight full-service banking locations in the Rio Grande
Valley of Texas. Four locations are in the city of McAllen, one each in the
cities of Harlingen, Rio Grande City, Roma and Weslaco.
TEXAS STATE BANK
3900 N. 10th
P.O. Box 4797
McAllen, Texas 78502
(210) 631-5401
TEXAS STATE BANK - KERRIA*
3700 N. 10th, Suite 301
P.O. Box 4797
McAllen, Texas 78502
(210) 631-5400
TEXAS STATE BANK - SOUTH*
900 E. Jackson Avenue
P.O. Box 4797
McAllen, Texas 78502
(210) 971-6800
TEXAS STATE BANK - WEST*
2250 Nolana
P.O. Box 4797
McAllen, Texas 78502
(210) 631-7101
TEXAS STATE BANK - HARLINGEN*
521 N. 77 Sunshine Strip
P.O. Box 191
Harlingen, Texas 78551
(210) 430-5000
TEXAS STATE BANK - RIO GRANDE CITY*
100 N. Britton
Drawer M
Rio Grande City, Texas 78582
(210) 487-5681
TEXAS STATE BANK - ROMA*
1004 E. Highway 83
P.O. Box 961
Roma, Texas 78584
(210) 849-7003
TEXAS STATE BANK - WESLACO*
500 S. Missouri
P.O. Box 8008
Weslaco, Texas 78599
(210) 968-4511
Members:
Federal Deposit Insurance Corporation
Federal Reserve System
Texas Regional Bancshares, Inc.
*Branch Locations
[LOGO]
<PAGE>
F I N A N C I A L H I G H L I G H T S ( U N A U D I T E D )
<TABLE>
<CAPTION>
Texas Regional Bancshares, Inc. and Subsidiary
<S> <C> <C> <C>
(Dollars in Thousands, Except Per Share Data) 1995 1994 % Change
- ---------------------------------------------------------------------------------------
For the Nine Months Ended September 30:
Net Income $ 6,305 $ 4,904 28.6%
Return on Average Assets 1.51% 1.32% 14.4
Return on Average Shareholders' Equity 14.43 13.26 8.8
Per Common Share
Net Income -- Fully Diluted $ 1.01 $ 0.79 27.8
Book Value at Month End 9.81 8.74 12.2
Cash Dividends Declared Per Common Share 0.30 0.16 87.5
Weighted Average Shares Outstanding (in
Thousands) 6,220 5,979 4.0
- ---------------------------------------------------------------------------------------
Capital Ratios at September 30:
Tier 1 Capital Ratio 12.63% 15.24% (17.1)%
Total Capital Ratio 13.58 16.23 (16.3)
Equity to Assets Ratio 9.81 10.56 (7.1)
Leverage Ratio 7.99 10.30 (22.4)
- ---------------------------------------------------------------------------------------
Balances at September 30:
Total Assets $ 619,287 $ 513,023 20.7%
Loans 394,607 314,946 25.3
Investment Securities 160,059 134,825 18.7
Earning Assets 563,966 464,271 21.5
Deposits 553,702 454,264 21.9
Shareholders' Equity 60,744 54,152 12.2
- ---------------------------------------------------------------------------------------
Average Balances at September 30:
Total Assets $ 558,948 $ 497,595 12.3%
Loans 356,085 304,728 16.9
Investment Securities 126,465 128,425 (1.5)
Earning Assets 503,421 444,204 13.3
Deposits 495,354 444,057 11.6
Shareholders' Equity 58,417 49,446 18.1
- ---------------------------------------------------------------------------------------
</TABLE>
-1-
<PAGE>
LOGO
T E X A S R E G I O N A L
B A N C S H A R E S , I N C .
B O A R D O F D I R E C T O R S
-----------------------------------------------------------------------------
GLEN E. RONEY -- Chairman of the Board, President & Chief
Executive Officer
------------------------------------------------------------------
MORRIS ATLAS -- Senior & Managing Partner, Atlas & Hall, L.L.P.
------------------------------------------------------------------
FRANK N. BOGGUS -- Chairman of the Board, Boggus Motor Company
------------------------------------------------------------------
JAMES W. COLLINS -- General Partner, Rioco Partners, Ltd
------------------------------------------------------------------
ROBERT G. FARRIS -- President, Valley Transit Company
------------------------------------------------------------------
JOE M. KILGORE -- Partner, McGinnis, Lochridge & Kilgore, L.L.P.
------------------------------------------------------------------
C. KENNETH LANDRUM, M.D. -- Retired
------------------------------------------------------------------
JULIE G. UHLHORN -- Chairman of the Board, Rio Grande Equipment
Company
------------------------------------------------------------------
PAUL G. VEALE, SR., CPA -- Investments
------------------------------------------------------------------
JACK WHETSEL -- Investments
------------------------------------------------------------------
A D V I S O R Y D I R E C T O R S
-----------------------------------------------------------------------------
DANNY L. BUTTERY -- President, Texas State Bank, Harlingen, Texas
------------------------------------------------------------------
FRANK A. KAVANAGH -- President, Texas State Bank, Weslaco, Texas
------------------------------------------------------------------
PAUL S. MOXLEY -- President & Secretary of the Board of Directors,
Texas State Bank, McAllen, Texas
------------------------------------------------------------------
O F F I C E R S
-----------------------------------------------------------------------------
GLEN E. RONEY -- Chairman of the Board, President & Chief
Executive Officer
------------------------------------------------------------------
GEORGE R. CARRUTHERS, JR. -- Executive Vice President & Chief
Financial Officer
------------------------------------------------------------------
NANCY F. SCHULTZ -- Senior Vice President & Secretary/Treasurer
------------------------------------------------------------------
ANN M. SEFCIK -- Controller & Assistant Secretary
------------------------------------------------------------------
-2-
<PAGE>
- --------------------------------------------------------------------------------
T O O U R S H A R E H O L D E R S
WE ARE PLEASED TO REPORT NET INCOME OF $2.3 MILLION FOR THE THIRD QUARTER OF
1995 OR $0.36 PER SHARE, COMPARED WITH $2.0 MILLION OR $0.32 PER SHARE REPORTED
FOR THE THIRD QUARTER OF 1994. NET INCOME WAS $6.3 MILLION FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1995, OR $1.01 PER SHARE, COMPARED WITH NET INCOME OF $4.9
MILLION OR $0.79 PER SHARE REPORTED FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1994.
DURING AUGUST 1995, TEXAS STATE BANK, A SUBSIDIARY OF TEXAS REGIONAL
BANCSHARES, INC., ACQUIRED TWO BRANCH BANK LOCATIONS, ONE IN RIO GRANDE CITY,
TEXAS, AND THE OTHER IN ROMA, TEXAS. THE TRANSACTION INCLUDED THE PURCHASE OF
$43.7 MILLION IN LOANS AND THE ASSUMPTION OF APPROXIMATELY $79.7 MILLION IN
DEPOSIT LIABILITIES OF THESE BRANCHES. THIS TRANSACTION WAS ACCOUNTED FOR AS A
PURCHASE.
CONSISTENT WITH MANAGEMENT'S ONGOING EFFORTS TO EXPAND OUR PRESENCE IN THE RIO
GRANDE VALLEY, A NEW 4,000 SQUARE FOOT FULL-SERVICE BANKING FACILITY WITH A FIVE
LANE MOTOR BANK AND A DRIVE-UP ATM LANE WILL BE CONSTRUCTED IN WESLACO, TEXAS.
THIS NEW BANKING FACILITY IS EXPECTED TO OPEN IN JANUARY 1996.
THE OUTLOOK FOR THE REGIONAL ECONOMY OF THE MARKETS WE SERVE IS ONE OF
MODERATE, YET STEADY GROWTH. THE PESO DEVALUATION IN MEXICO HAS HAD A TEMPORARY
IMPACT ON THE RETAIL TRADE SEGMENT OF THE RIO GRANDE VALLEY ECONOMY. MANAGEMENT
DOES NOT BELIEVE THAT THE FINANCIAL UNCERTAINTIES IN MEXICO WILL MATERIALLY
AFFECT THE COMPANY'S FUTURE PROGRESS.
BUILDING SHAREHOLDER VALUE IS OUR PRIMARY GOAL. THIS IS BEING ACCOMPLISHED
THROUGH THE CONTINUED EFFORT AND DEDICATION OF OUR EMPLOYEES, OFFICERS AND
DIRECTORS. WE APPRECIATE THE LOYAL SUPPORT OF OUR FRIENDS AND BANK CUSTOMERS.
VERY TRULY YOURS,
[/S/ G. E. RONEY]
G. E. RONEY
CHAIRMAN OF THE BOARD
-3-
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
Texas Regional Bancshares, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
-------------------- -------------
(Dollars in Thousands) 1995 1994 1994
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Assets
Cash and Due From Banks $ 26,356 $ 25,488 $ 40,477
Federal Funds Sold 9,300 14,500 1,300
- ---------------------------------------------------------------------------------------------------
Total Cash and Cash Equivalents 35,656 39,988 41,777
Securities Available for Sale 82,259 72,163 54,814
Securities Held to Maturity (Estimated Market Value of
$78,043 and $61,334 at September 30, 1995 and 1994,
respectively, and $69,626 at December 31, 1994) 77,800 62,662 72,014
Loans, Net of Unearned Discount of $1,293 and $793 at
September 30, 1995 and 1994, respectively and $774 at
December 31, 1994 394,607 314,946 339,939
Less Allowance for Loan Losses (4,121) (3,771) (3,511)
- ---------------------------------------------------------------------------------------------------
Net Loans 390,486 311,175 336,428
Premises and Equipment, Net 17,400 15,479 15,268
Accrued Interest Receivable 6,444 4,637 4,538
Other Real Estate 1,413 2,382 2,342
Intangibles 5,674 2,038 1,909
Other Assets 2,155 2,499 2,744
- ---------------------------------------------------------------------------------------------------
Total Assets $ 619,287 $ 513,023 $ 531,834
- ---------------------------------------------------------------------------------------------------
Liabilities
Deposits
Demand $ 108,140 $ 95,058 $ 99,643
Savings 36,924 29,598 28,689
Money Market Checking and Savings 127,782 131,842 140,750
Time Deposits 280,856 197,766 203,026
- ---------------------------------------------------------------------------------------------------
Total Deposits 553,702 454,264 472,108
Federal Funds Purchased and Securities Sold Under Repurchase
Agreements (Note 4) 750 895 1,149
Short-Term Borrowings -- 429 429
Accounts Payable and Accrued Liabilities 4,091 3,283 2,417
- ---------------------------------------------------------------------------------------------------
Total Liabilities 558,543 458,871 476,103
- ---------------------------------------------------------------------------------------------------
Commitment and Contingencies (Notes 8 and 9)
Shareholders' Equity
Preferred Stock; Cumulative $1.00 par value, $100
Liquidation Value, 10,000,000 Shares Authorized; None
Issued and Outstanding
(Note 6) -- -- --
Common Stock -- Class A; $1.00 par value, 20,000,000 Shares
Authorized; Issued and Outstanding, 6,193,629 (Notes 2 and
7) 6,193 6,193 6,193
Paid-In Capital 29,204 29,204 29,204
Retained Earnings 25,368 19,135 20,921
Unrealized Loss on Securities Available for Sale (21) (380) (587)
- ---------------------------------------------------------------------------------------------------
Total Shareholders' Equity 60,744 54,152 55,731
- ---------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 619,287 $ 513,023 $ 531,834
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
-4-
<PAGE>
Texas Regional Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
(Dollars in Thousands, Except Per Share Data) 1995 1994 1995 1994
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Interest Income
Loans, Including Fees $ 9,452 $ 7,126 $ 26,807 $ 20,298
Investment Securities
Taxable 1,837 1,503 4,945 4,211
Tax-Exempt 70 55 215 178
Federal Funds Sold 510 195 926 349
- ----------------------------------------------------------------------------------------------------------
Total Interest Income 11,869 8,879 32,893 25,036
- ----------------------------------------------------------------------------------------------------------
Interest Expense
Deposits 4,846 3,007 12,827 8,298
Federal Funds Purchased and Securities Sold Under Repurchase
Agreements 11 2 38 12
Short-Term Borrowing -- 8 16 24
Note Payable -- -- -- 16
- ----------------------------------------------------------------------------------------------------------
Total Interest Expense 4,857 3,017 12,881 8,350
- ----------------------------------------------------------------------------------------------------------
Net Interest Income 7,012 5,862 20,012 16,686
Provision for Loan Losses 372 220 1,060 630
- ----------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 6,640 5,642 18,952 16,056
- ----------------------------------------------------------------------------------------------------------
Noninterest Income
Service Charges on Deposit Accounts 899 791 2,517 2,251
Other Service Charges 192 204 688 670
Trust Service Fees 314 277 917 866
Investment Security Losses -- -- (13) --
Data Processing Service Fees 112 65 270 187
Other Operating Income 106 73 410 284
- ----------------------------------------------------------------------------------------------------------
Total Noninterest Income 1,623 1,410 4,789 4,258
- ----------------------------------------------------------------------------------------------------------
Noninterest Expense
Salaries and Employee Benefits 2,454 2,003 7,004 6,009
Net Occupancy Expense 277 253 790 694
Equipment Expense 535 418 1,464 1,222
Other Real Estate Expense, Net 60 29 152 60
Other Noninterest Expense 1,368 1,318 4,532 4,735
- ----------------------------------------------------------------------------------------------------------
Total Noninterest Expense 4,694 4,021 13,942 12,720
- ----------------------------------------------------------------------------------------------------------
Income Before Income Tax Expense 3,569 3,031 9,799 7,594
Income Tax Expense 1,292 1,058 3,494 2,690
- ----------------------------------------------------------------------------------------------------------
Net Income $ 2,277 $ 1,973 $ 6,305 $ 4,904
- ----------------------------------------------------------------------------------------------------------
Primary Earnings Per Common Share (Note 2)
Net Income $ 0.37 $ 0.32 $ 1.02 $ 0.82
Weighted Average Number of Common Shares Outstanding (In
Thousands) 6,223 6,221 6,209 5,654
- ----------------------------------------------------------------------------------------------------------
Fully Diluted Earnings Per Common Share (Note 2)
Net Income $ 0.36 $ 0.32 $ 1.01 $ 0.79
Weighted Average Number of Common Shares Outstanding (In
Thousands) 6,242 6,221 6,220 5,979
- ----------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
-5-
<PAGE>
Texas Regional Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
For the Year Ended December 31, 1994
And the Nine Months Ended September 30, 1995
<TABLE>
<CAPTION>
Unrealized
Class A Gain (Loss)
Convertible Voting on Securities Total
Preferred Common Paid-In Retained Available Shareholders'
(Dollars in Thousands) Stock Stock Capital Earnings for Sale Equity
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 $ 74 $ 4,186 $ 20,063 $ 15,481 $ 179 $ 39,983
Conversion of 74,172 shares
of Preferred Stock Into
979,009 shares of Class A
Voting Common Stock (74) 979 (905) -- -- --
Redemption of 356 shares of
Preferred Stock at $104.00
per share -- -- (36) (1) -- (37)
Change in Unrealized Gain
(Loss) on Securities
Available for Sale -- -- -- -- (766) (766)
Sale of 1,028,291 shares of
Class A Voting Common Stock -- 1,028 10,082 -- -- 11,110
Preferred Stock Dividends -- -- -- (258) -- (258)
Class A Voting Common Stock
Cash Dividends -- -- -- (1,486) -- (1,486)
Net Income for the Year
Ended December 31, 1994 -- -- -- 7,185 -- 7,185
- --------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 -- 6,193 29,204 20,921 (587) 55,731
Change in Unrealized Gain
(Loss) on Securities
Available for Sale -- -- -- -- 566 566
Class A Voting Common Stock
Cash Dividends -- -- -- (1,858) -- (1,858)
Net Income for the Nine
Months Ended September 30,
1995 -- -- -- 6,305 -- 6,305
- --------------------------------------------------------------------------------------------------------------
Balance, September 30, 1995 $ -- $ 6,193 $ 29,204 $ 25,368 $ (21) $ 60,744
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-6-
<PAGE>
Texas Regional Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended September 30, 1995 and 1994
<TABLE>
<CAPTION>
(Dollars in Thousands) 1995 1994
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net Income $ 6,305 $ 4,904
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Depreciation, Amortization and Accretion, Net 1,480 1,613
Provision for Loan Losses 1,060 630
Provision for Estimated Losses on Other Real Estate and Other Assets 119 45
Net Loss on Sale of Other Real Estate 73 21
Loss on Sale of Securities Available for Sale 13 --
(Gain) Loss of Sale of Fixed Assets (1) 8
Gain on Sale of Other Assets (2) --
Increase in Accrued Interest Receivable and Other Assets (4,917) (1,296)
Increase in Accounts Payable and Accrued Liabilities 1,258 1,451
- -------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 5,388 7,376
- -------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Proceeds from Sales of Securities Available for Sale 8,957 2,498
Proceeds from Maturing Securities Held to Maturity 9,460 872
Proceeds from Maturing Securities Available for Sale 28,000 27,600
Purchases of Securities Held to Maturity (15,622) (21,861)
Purchases of Securities Available for Sale (63,506) (17,882)
Proceeds from Sale of Loans -- 1,119
Purchases of Loans (44,474) (1,778)
Loan Origination and Advances (11,459) (25,108)
Recoveries of Charged-Off Loans 478 145
Proceeds from Sale of Other Assets 14 107
Proceeds from Sale of Other Real Estate 994 883
Proceeds from Sale of Fixed Assets 2 --
Purchases of Premises and Equipment (3,385) (1,709)
- -------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (90,541) (35,114)
- -------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net Increase in Demand Deposits, Money Market Checking and Savings Accounts 3,764 5,016
Net Increase in Time Deposits 77,830 19,727
Proceeds from Sale of Common Stock -- 11,110
Net Increase (Decrease) in Securities Sold Under Repurchase Agreements (399) 895
Net Decrease in Short-Term Borrowings (429) (60)
Repayment of Note Payable -- (1,150)
Cash Dividends Paid on Preferred Stock -- (258)
Redemption of Preferred Stock (Note 6) -- (37)
Cash Dividends Paid on Class A Voting Common Stock (Note 7) (1,734) (991)
- -------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 79,032 34,252
- -------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents (6,121) 6,514
Cash and Cash Equivalents at Beginning of Year 41,777 33,474
- -------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Quarter $ 35,656 $ 39,988
- -------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Interest Paid $ 12,157 $ 8,276
Income Taxes Paid 3,063 2,436
Supplemental Schedule of Noncash Investing and Financing Activities
Foreclosure and Repossession in Partial Satisfaction of Loans Receivable 337 882
Loans Originated to facilitate Sale of Other Real Estate N/A N/A
- -------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
-7-
<PAGE>
Texas Regional Bancshares, Inc. and Subsidiary
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial information has been prepared
in accordance with the instructions to Form 10-Q and therefore does not include
all information and footnotes necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. However, the information furnished reflects all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods. All such adjustments were
of a normal and recurring nature. The consolidated financial information
includes Texas Regional Bancshares, Inc. and its subsidiary (the "Company").
Intercompany balances and transactions have been eliminated.
NOTE 2 -- EARNINGS PER SHARE COMPUTATIONS
Primary earnings per share is computed by dividing net income less preferred
stock dividends, by the weighted average number of common stock and common stock
equivalents outstanding during the period.
NOTE 3 -- IMPACT OF NEW ACCOUNTING STANDARDS
Effective January 1, 1995, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan"
and the amendment thereof, SFAS No. 118, "Accounting by Creditors for Impairment
of a Loan-Income Recognition and Disclosures". Under SFAS No. 114, a loan is
considered impaired when, based upon current information and events, it is
probable that a creditor will be unable to collect all amounts due according to
the contractual terms of the loan agreement. SFAS No. 114 requires that an
impaired loan be valued utilizing (i) the present value of expected future cash
flows discounted at the effective interest rate of the loan, (ii) the fair value
of the underlying collateral, or iii) the observable market price of the loan.
SFAS No. 118 amended SFAS No. 114 by expanding the related disclosure
requirements and permitting use of existing methods for recognizing interest
income on impaired loans.
Loans which were restructured prior to the adoption of Statement No. 114 and
which are performing in accordance with the renegotiated terms are not required
to be reported as impaired. Loans restructured subsequent to the adoption of
Statement No. 114 are required to be reported as impaired in the year of
restructuring. Thereafter, such loans can be removed from the impaired loan
disclosure if the loans were paying a market rate of interest at the time of
restructuring and are performing in accordance with their renegotiated terms.
For loans covered by this statement, the Company makes an assessment for
impairment when and while such loans are on nonaccrual or when the loan has been
restructured. When a loan with unique risk characteristics has been identified
as being impaired, the amount of impairment will be measured by the Company
using discounted cash flows, except when it is determined that the sole
(remaining) source of repayment for the loan is the operation or liquidation of
the underlying collateral. In such case, the current fair value of the
collateral, reduced by costs to sell, will be used in place of discounted cash
flows. At the time a loan is placed on nonaccrual status, interest previously
recognized but uncollected is reversed and charged against current income.
Subsequent interest payments received on nonaccrual loans are either applied
against principal or reported as income, depending upon management's assessment
of the ultimate collectability of principal.
In management's opinion, the adoption of SFAS No. 114 and SFAS No. 118 has not
had, and is not anticipated to have, a material effect on the Company's results
of operations.
At September 30, 1995, the Company had a $715,000 recorded investment in
impaired loans for which there was a related allowance for loan losses of
$29,000. At September 30, 1995, there were no impaired loans for which there was
no related allowance for loan losses. The average level of impaired loans during
the nine months ended September 30, 1995 was $718,000. The Company recorded
interest income of $19,000 on its impaired loans during the nine months ended
September 30, 1995.
-8-
<PAGE>
NOTE 4 -- SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Securities sold under agreements to repurchase are comprised of customer deposit
agreements with maturities ranging from overnight to six months. These
obligations are not federally insured, but are collateralized by a security
interest in various investment securities. The pledged securities are segregated
and maintained by a third party bank.
NOTE 5 -- INCOME TAX
Deferred income tax assets and liabilities are computed for differences between
the financial statements and the tax basis of assets and liabilities that have
future tax consequences using the currently enacted tax laws and rates that
apply to the periods in which they are expected to effect taxable income.
Valuation allowances are established, if necessary, to reduce the deferred tax
assets to the amount that will more likely than not be realized. Income tax
expense is the current tax payable or refundable for the period plus or minus
the net change in the deferred tax assets and liabilities.
NOTE 6 -- PREFERRED STOCK
On March 21, 1994, the Board of Directors adopted a resolution calling for
redemption on April 22, 1994, of all issued and outstanding Preferred Stock,
including the Company's First Series Convertible Preferred Stock, Series 1990
Convertible Preferred Stock and Series 1991 Convertible Preferred Stock (herein
collectively called the "Preferred Stock") at a redemption price of $104 per
share plus all accrued and unpaid dividends through the date fixed for
redemption. The Preferred Stock was convertible into 13.2 shares of Class A
Voting Common Stock for each share of Preferred Stock held. Effective April 22,
1994, 356 shares of Preferred Stock were redeemed and 74,172 shares of Preferred
Stock were converted into 979,009 shares of Class A Voting Common Stock.
On February 14, 1995, the Board of Directors of the Corporation approved an
amendment to the Articles of Incorporation to eliminate the series of shares
known as the First Preferred, the Series 1990 Preferred and the Series 1991
Preferred shares of the Corporation, and further provided for the elimination of
all references thereto from the Articles of Incorporation. As a result of the
elimination of the series of Preferred shares, the shares resume status as
authorized but unissued shares of Preferred Stock for which the Board has the
authority to determine the designations, preferences, limitations and relative
rights.
NOTE 7 -- COMMON STOCK
On March 16, 1994, the Company completed its public offering of 1.2 million
shares of the Company's Class A Voting Common Stock and began trading in the
Nasdaq National Market, under the trading symbol of "TRBS." The Company had
granted the Underwriters a 30-day option to purchase up to 180,000 additional
shares of Class A Voting Common Stock solely to cover over-allotments, if any.
On April 15, 1994, the Underwriters exercised their option and purchased 28,291
additional shares of Class A Voting Common Stock.
On September 12, 1995, the Board of Directors approved a $0.10 per share cash
dividend for shareholders of record on October 2, 1995 and payable on October
12, 1995.
NOTE 8 -- EMPLOYEE BENEFITS
In 1984, the Company adopted a target benefit pension plan covering
substantially all of its employees. In December 1990, the Company restated its
target benefit pension plan as an Employee Stock Ownership Plan (with section
401(k) provisions) (the "KSOP"). The Company received a favorable determination
letter, in which the Internal Revenue Service stated that the plan, as designed,
was in compliance with the applicable requirements of the Internal Revenue Code.
Employer contributions to the KSOP are determined at the sole discretion of the
Board of Directors.
In March 1986, the shareholders of the Company approved three separate stock
plans involving the Class A Voting Common Stock, providing for the issuance of
up to 253,434 shares to certain key employees for their purchase and 10,000
shares as part of a bonus plan for employees of the Company. One option plan,
the Texas Regional Bancshares, Inc. 1985 Non-Statutory Stock Option Plan,
provides for the sale of up to 126,717 shares to the chief executive officer at
a price to be determined by a committee of directors on the date of grant;
another, the Texas Regional Bancshares, Inc. Incentive Stock Option Plan,
provides for the sale of up to 126,717 shares at fair market value at the date
the options are granted, to key employees of the Company. The third plan
provides for up to 10,000 shares to be distributed as employee bonuses, without
payment of consideration by the employees.
-9-
<PAGE>
On May 10, 1994, options to acquire up to 126,717 Class A Voting Common shares
at $12.00 per share were granted to Glen E. Roney, Chairman of the Board,
President & Chief Executive Officer pursuant to the Texas Regional Bancshares,
Inc. 1985 Non-Statutory Stock Option Plan exercisable commencing May 10, 1995.
In addition, options to acquire up to 49,433 Class A Voting Common shares at
$12.00 per share were granted to certain key employees of the Company pursuant
to the Texas Regional Bancshares, Inc. Incentive Stock Option Plan exercisable
commencing May 10, 1995 including options to acquire 8,333 shares granted to
Glen E. Roney. The Incentive Stock Option Plan expired in September 1995. Any
options outstanding under this Plan, at the time of its termination, remain in
effect until the options shall have been exercised or the expiration date of the
option, whichever is earlier. The options to acquire 49,433 Class A Voting
Common Stock were awarded May 10, 1994, and expire on May 10, 2000.
NOTE 9 -- ACQUISITION ACTIVITY
During August 1995, Texas State Bank, a subsidiary of Texas Regional Bancshares,
Inc., acquired two branch bank locations, one in Rio Grande City, Texas, and the
other in Roma, Texas. The transaction included the purchase of $43.7 million in
loans and the assumption of approximately $79.7 million in deposit liabilities
of these branches. Investment securities were not acquired. Purchase accounting
adjustments for the purchase of loans and the assumption of deposit liabilities
of these branches were immaterial. This transaction was accounted for as a
purchase.
The following Unaudited Pro Forma Combined Condensed Statements of Income for
the twelve months ended December 31, 1994, and nine months ended September 30,
1995, assumes the acquisition occurred January 1, 1994. Intangibles arising from
acquisition totaled $3.9 million. The pro forma adjustments reflect the
amortization of the intangibles over a 15-year period, the reduced interest
income on the $4.25 million purchase price at Texas Regional Bancshares, Inc.'s
average federal funds sold rate of 4.52% for the twelve months ended at December
31, 1994, and 5.93% for the nine months ended at September 30, 1995, and the tax
effect of the prior two transactions using an effective tax rate of 34%. The pro
forma results do not necessarily represent the actual results that would have
occurred and should not be considered indicative of future results of
operations.
-10-
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Combined Condensed
Statements of Income
For the Twelve Months Ended
December 31, 1994 (Unaudited) Texas Regional
(Dollars in Thousands, Bancshares, Pro Forma Pro Forma
Except Per Share Data) Inc. Branches Adjustments Balance
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Interest Income
Loans, Including Fees $ 28,005 $ 4,985 $ -- $ 32,990
Investment Securities 6,107 1,290 (192) 7,205
Federal Funds Sold 519 154 -- 673
- ------------------------------------------------------------------------------------------------------
Total Interest Income 34,631 6,429 (192) 40,868
- ------------------------------------------------------------------------------------------------------
Interest Expense
Deposits 11,619 2,243 -- 13,862
Borrowings 71 1 -- 72
- ------------------------------------------------------------------------------------------------------
Total Interest Expense 11,690 2,244 -- 13,934
- ------------------------------------------------------------------------------------------------------
Net Interest Income 22,941 4,185 (192) 26,934
Provision for Loan Losses 1,085 218 -- 1,303
- ------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for
Loan Losses 21,856 3,967 (192) 25,631
- ------------------------------------------------------------------------------------------------------
Noninterest Income
Service Charges on Deposit Accounts 3,035 555 -- 3,590
Other Service Charges 904 151 -- 1,055
Trust Service Fees 1,161 0 -- 1,161
Other Operating Income 672 (39) -- 633
- ------------------------------------------------------------------------------------------------------
Total Noninterest Income 5,772 667 -- 6,439
- ------------------------------------------------------------------------------------------------------
Noninterest Expense
Salaries and Employee Benefits 8,015 1,929 -- 9,944
Net Occupancy Expense 961 191 -- 1,152
Equipment Expense 1,648 310 -- 1,958
Other Noninterest Expense 5,883 1,579 259 7,721
- ------------------------------------------------------------------------------------------------------
Total Noninterest Expense 16,507 4,009 259 20,775
- ------------------------------------------------------------------------------------------------------
Income Before Income Tax Expense 11,121 625 (451) 11,295
Income Tax Expense 3,936 198 (153) 3,981
- ------------------------------------------------------------------------------------------------------
Net Income $ 7,185 $ 427 $ (298) $ 7,314
- ------------------------------------------------------------------------------------------------------
Primary Earnings Per Common Share
Net Income $ 1.19 $ 1.21
Weighted Average Number of Common Shares
Outstanding (In Thousands) 5,791 5,791
- ------------------------------------------------------------------------------------------------------
Fully Diluted Earnings Per Common Share
Net Income $ 1.16 $ 1.18
Weighted Average Number of Common Shares
Outstanding (In Thousands) 6,035 6,035
- ------------------------------------------------------------------------------------------------------
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Combined Condensed
Statements of Income
For the Nine Months Ended
September 30, 1995 (Unaudited) Texas Regional
(Dollars in Thousands, Bancshares, Pro Forma Pro Forma
Except Per Share Data) Inc. Branches Adjustments Balance
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Interest Income
Loans, Including Fees $ 26,216 $ 3,559 $ -- $ 29,775
Investment Securities 5,160 -- -- 5,160
Federal Funds Sold 719 1,399 (177) 1,941
- --------------------------------------------------------------------------------------------------------
Total Interest Income 32,095 4,958 (177) 36,876
- --------------------------------------------------------------------------------------------------------
Interest Expense
Deposits 12,456 2,177 -- 14,633
Borrowings 54 -- -- 54
- --------------------------------------------------------------------------------------------------------
Total Interest Expense 12,510 2,177 -- 14,687
- --------------------------------------------------------------------------------------------------------
Net Interest Income 19,585 2,781 (177) 22,189
Provision for Loan Losses 1,054 6 -- 1,060
- --------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for
Loan Losses 18,531 2,775 (177) 21,129
- --------------------------------------------------------------------------------------------------------
Noninterest Income
Service Charges on Deposit Accounts 2,472 354 -- 2,826
Other Service Charges 678 73 -- 751
Trust Service Fees 917 -- -- 917
Other Operating Income 664 39 -- 703
- --------------------------------------------------------------------------------------------------------
Total Noninterest Income 4,731 466 -- 5,197
- --------------------------------------------------------------------------------------------------------
Noninterest Expense
Salaries and Employee Benefits 6,903 1,119 -- 8,022
Net Occupancy Expense 770 137 -- 907
Equipment Expense 1,430 182 -- 1,612
Other Noninterest Expense 4,383 980 195 5,558
- --------------------------------------------------------------------------------------------------------
Total Noninterest Expense 13,486 2,418 195 16,099
- --------------------------------------------------------------------------------------------------------
Income Before Income Tax Expense 9,776 823 (372) 10,227
Income Tax Expense 3,486 280 (126) 3,640
- --------------------------------------------------------------------------------------------------------
Net Income $ 6,290 $ 543 $ (246) $ 6,587
- --------------------------------------------------------------------------------------------------------
Primary Earnings Per Common Share
Net Income $ 1.01 $ 1.06
Weighted Average Number of Common Shares
Outstanding (In Thousands) 6,209 6,209
- --------------------------------------------------------------------------------------------------------
Fully Diluted Earnings Per Common Share
Net Income $ 1.01 $ 1.06
Weighted Average Number of Common Shares
Outstanding (In Thousands) 6,220 6,220
- --------------------------------------------------------------------------------------------------------
</TABLE>
-12-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Net income for the three months ended September 30, 1995 was $2.3 million or
$0.36 per share, reflecting a net increase of $304,000 or $0.04 per share
compared to net income of $2.0 million or $0.32 per share for the three months
ended September 30, 1994. Net income for the nine months ended September 30,
1995 was $6.3 million or $1.01 per share, reflecting a net increase of $1.4
million or $0.22 per share compared to net income of $4.9 million or $0.79 per
share for the nine months ended September 30, 1994. Earnings performance for the
three months ended September 30, 1995 compared to the three months ended
September 30, 1994 reflected an improvement in net interest income and
noninterest income, partially offset by an increase in noninterest expense and
provision for loan losses. Earnings performance for the nine months ended
September 30, 1995 compared to nine months ended September 30, 1994 reflected an
increase in net interest income and noninterest income reduced by an increase in
noninterest expense and provision for loan losses. A more detailed description
of the results of operations is included in the presentation that follows.
During August 1995, Texas State Bank, a subsidiary of Texas Regional Bancshares,
Inc., acquired two branch bank locations, one in Rio Grande City, Texas, and the
other in Roma, Texas (the "Acquisition"). The Acquisition included the purchase
of $43.7 million in loans and the assumption of approximately $79.7 million in
deposit liabilities of these branches. This transaction was accounted for as a
purchase; therefore, the results of operations of the two branches are included
in the consolidated financial statements from the date of acquisition.
The following table presents selected financial data regarding results of
operations:
<TABLE>
<CAPTION>
Condensed Statements of Income 1995 1994 Nine Months Ended
Taxable-Equivalent Basis --------------------------------- ------------------------ September 30,
(Dollars in Thousands, Except THIRD Second First Fourth Third --------------------
Per Share Data) QUARTER Quarter Quarter Quarter Quarter 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Interest Income $ 11,904 $ 10,880 $ 10,218 $ 9,629 $ 8,908 $ 33,002 $ 25,126
Interest Expense 4,857 4,295 3,729 3,340 3,017 12,881 8,350
- ------------------------------------------------------------------------------------------------------------------
Net Interest Income 7,047 6,585 6,489 6,289 5,891 20,121 16,776
Provision for Loan Losses 372 322 366 455 220 1,060 630
- ------------------------------------------------------------------------------------------------------------------
Net Interest Income After
Provision for Loan Losses 6,675 6,263 6,123 5,834 5,671 19,061 16,146
Noninterest Income 1,623 1,576 1,590 1,514 1,410 4,789 4,258
Noninterest Expense 4,694 4,654 4,594 3,787 4,021 13,942 12,720
- ------------------------------------------------------------------------------------------------------------------
Income Before
Taxable-Equivalent Adjustment
and Income Tax 3,604 3,185 3,119 3,561 3,060 9,908 7,684
Taxable-Equivalent Adjustment 35 35 39 34 29 109 90
Applicable Income Tax Expense 1,292 1,109 1,093 1,246 1,058 3,494 2,690
- ------------------------------------------------------------------------------------------------------------------
Net Income $ 2,277 $ 2,041 $ 1,987 $ 2,281 $ 1,973 $ 6,305 $ 4,904
- ------------------------------------------------------------------------------------------------------------------
Net Income Per Common Share
Primary $ 0.37 $ 0.33 $ 0.32 $ 0.37 $ 0.32 $ 1.02 $ 0.82
Fully Diluted 0.36 0.33 0.32 0.37 0.32 1.01 0.79
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
NET INTEREST INCOME
Taxable-equivalent net interest income was $7.0 million for the three months
ended September 30, 1995, an increase of $1.2 million or 19.6% compared to the
three months ended September 30, 1994 of $5.9 million. The interest rate margin
of 5.15% for the three months ended September 30, 1995 reflects a slight
increase of two basis points compared to 5.13% for the three months ended
September 30, 1994. The increase in net interest income for the three months
ended September 30, 1995 compared to the three months ended September 30, 1994
was primarily attributable to the increase in the base lending rates and volume
of interest-earning assets exceeding the increase in base deposit rates and the
-13-
<PAGE>
increase in volume of interest-bearing liabilities. The increase in net interest
income for the nine months ended September 30, 1995 compared to nine months
ended September 30, 1994 was also primarily attributable to the increase in the
base lending rates and the change in the mix of interest-earning assets.
The average loan balance for the nine months ended September 30, 1995 of $356.1
million increased $51.4 million or 16.9% compared to the average loan balance
for the nine months ended September 30, 1994. The increase in the average
balance of loans outstanding improved earnings.
The following tables present for the three months ended September 30, 1995, June
30, 1995 and September 30, 1994 and the nine months ended September 30, 1995,
and September 30, 1994, the total dollar amount of interest income from average
interest-earning assets and the resultant yields, reported on a tax-equivalent
basis, as well as the interest-bearing liabilities, expressed both in dollars
and rates. Average balances are derived from average daily balances and the
yields and costs are established by dividing income or expense by the average
balance of the asset or liability. Income and yield on interest-earning assets
include amounts to convert tax-exempt income to a taxable-equivalent basis,
assuming a 34% effective income tax rate.
<TABLE>
<CAPTION>
Three Months Ended
Summary of Interest-Earning ------------------------------------------------------------------------------------------
Assets and Interest-Bearing September 30, 1995 June 30, 1995 September 30, 1994
Liabilities --------------------------------- --------------------------------- --------------------
Taxable-Equivalent Basis AVERAGE Average Average
(Dollars in Thousands) BALANCE Interest Rate* Balance Interest Rate* Balance Interest
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Interest-Earning Assets
Loans
Commercial $ 117,378 $ 2,950 9.97% $ 122,127 $ 3,070 10.08% $ 104,423 $ 2,165
Real Estate 215,052 5,505 10.16 196,642 5,047 10.29 174,637 4,287
Consumer 40,081 997 9.87 32,696 794 9.74 29,156 674
- -------------------------------------------------------------------------------------------------------------------------
Total Loans 372,511 9,452 10.07 351,465 8,911 10.17 308,216 7,126
- -------------------------------------------------------------------------------------------------------------------------
Investment Securities
Taxable 130,504 1,837 5.58 118,675 1,591 5.38 126,900 1,503
Tax-Exempt 4,797 105 8.68 4,919 106 8.64 3,717 84
- -------------------------------------------------------------------------------------------------------------------------
Total Investment
Securities 135,301 1,942 5.69 123,594 1,697 5.51 130,617 1,587
- -------------------------------------------------------------------------------------------------------------------------
Federal Funds Sold 34,971 510 5.79 17,821 272 6.12 16,969 195
- -------------------------------------------------------------------------------------------------------------------------
Total Interest-Earning
Assets $ 542,783 $ 11,904 8.70% $ 492,880 $ 10,880 8.85% $ 455,802 $ 8,908
- -------------------------------------------------------------------------------------------------------------------------
Interest-Bearing Liabilities
Savings $ 32,701 $ 221 2.68% $ 27,364 $ 181 2.65% $ 29,920 $ 194
Money Market Checking and
Savings 131,691 899 2.71 120,895 812 2.69 130,905 802
Time Deposits 263,407 3,727 5.61 235,609 3,280 5.58 196,932 2,011
- -------------------------------------------------------------------------------------------------------------------------
Total Savings and Time
Deposits 427,799 4,847 4.50 383,868 4,273 4.46 357,757 3,007
- -------------------------------------------------------------------------------------------------------------------------
Federal Funds Purchased and
Securities Sold Under
Repurchase Agreements 997 10 3.98 1,228 14 4.57 314 2
Short-Term Borrowings 75 -- -- 429 8 7.48 431 8
- -------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing
Liabilities $ 428,871 $ 4,857 4.49% $ 385,525 $ 4,295 4.47% $ 358,502 $ 3,017
- -------------------------------------------------------------------------------------------------------------------------
Net Interest Income $ 7,047 $ 6,585 $ 5,891
- -------------------------------------------------------------------------------------------------------------------------
Net Yield on Total
Interest-Earning Assets 5.15% 5.36%
- -------------------------------------------------------------------------------------------------------------------------
* Annualized
<CAPTION>
Assets and Interest-Bearing
Liabilities
Taxable-Equivalent Basis
(Dollars in Thousands) Rate*
<S> <C>
- -----------------------------
Interest-Earning Assets
Loans
Commercial 8.23%
Real Estate 9.74
Consumer 9.17
- -----------------------------
Total Loans 9.17
- -----------------------------
Investment Securities
Taxable 4.70
Tax-Exempt 8.97
- -----------------------------
Total Investment
Securities 4.82
- -----------------------------
Federal Funds Sold 4.56
- -----------------------------
Total Interest-Earning
Assets 7.75%
- -----------------------------
Interest-Bearing Liabilities
Savings 2.57%
Money Market Checking and
Savings 2.43
Time Deposits 4.05
- -----------------------------
Total Savings and Time
Deposits 3.33
- -----------------------------
Federal Funds Purchased and
Securities Sold Under
Repurchase Agreements 2.53
Short-Term Borrowings 7.36
- -----------------------------
Total Interest-Bearing
Liabilities 3.34%
- -----------------------------
Net Interest Income
- -----------------------------
Net Yield on Total
Interest-Earning Assets 5.13%
- -----------------------------
* Annualized
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------------------------------------------
Summary of Interest-Earning Assets September 30, 1995 September 30, 1994
and Interest-Bearing Liabilities --------------------------------- ---------------------------------
Taxable-Equivalent Basis AVERAGE Average
(Dollars in Thousands) BALANCE Interest Rate* Balance Interest Rate*
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Interest-Earning Assets
Loans
Commercial $ 120,272 $ 8,919 9.91% $ 106,699 $ 6,466 8.10%
Real Estate 200,994 15,350 10.21 170,045 11,911 9.37
Consumer 34,819 2,538 9.75 27,984 1,921 9.18
- ---------------------------------------------------------------------------------------------------------------------
Total Loans 356,085 26,807 10.07 304,728 20,298 8.91
- ---------------------------------------------------------------------------------------------------------------------
Investment Securities
Taxable 121,552 4,945 5.44 124,448 4,211 4.52
Tax-Exempt 4,913 324 8.82 3,977 268 9.01
- ---------------------------------------------------------------------------------------------------------------------
Total Investment Securities 126,465 5,269 5.57 128,425 4,479 4.66
- ---------------------------------------------------------------------------------------------------------------------
Federal Funds Sold 20,871 926 5.93 11,051 349 4.22
- ---------------------------------------------------------------------------------------------------------------------
Total Interest-Earning Assets $ 503,421 $ 33,002 8.76% $ 444,204 $ 25,126 7.56%
- ---------------------------------------------------------------------------------------------------------------------
Interest-Bearing Liabilities
Savings $ 29,361 $ 585 2.66% $ 29,952 $ 567 2.53%
Money Market Checking and Savings 127,991 2,585 2.70 131,733 2,311 2.35
Time Deposits 237,293 9,657 5.44 189,578 5,420 3.82
- ---------------------------------------------------------------------------------------------------------------------
Total Savings and Time Deposits 394,645 12,827 4.35 351,263 8,298 3.16
- ---------------------------------------------------------------------------------------------------------------------
Federal Funds Purchased and Securities
Sold Under Repurchase Agreements 1,191 38 4.27 502 12 3.20
Short-Term Borrowings 311 16 6.88 438 24 7.33
Note Payable -- -- -- 345 16 6.20
- ---------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities $ 396,147 $ 12,881 4.35% $ 352,548 $ 8,350 3.17%
- ---------------------------------------------------------------------------------------------------------------------
Net Interest Income $ 20,121 $ 16,776
- ---------------------------------------------------------------------------------------------------------------------
Net Yield on Total
Interest-Earning Assets 5.34% 5.05%
- ---------------------------------------------------------------------------------------------------------------------
* Annualized
</TABLE>
-15-
<PAGE>
The following table presents the effects of changes in volume, rate and
rate/volume on interest income and interest expense for major categories of
interest-earning assets and interest-bearing liabilities for the nine month
period ended September 30, 1995 as compared to the nine month period ended
September 30, 1994. Nonaccrual loans are included in assets, thereby reducing
yields. See "NONPERFORMING ASSETS". The allocation of the rate/volume variance
has been made pro rata on the percentage that volume and rate variances produce
in each category.
<TABLE>
<CAPTION>
Analysis of Changes in Net Interest Income
Taxable-Equivalent Basis
Nine Months Ended September 30, Due to Change in
1995 Compared to 1994 -------------------------------------
(Dollars in Thousands) Net Change Volume Rate Rate/Volume
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Interest Income
Loans, Including Fees $ 6,509 $ 3,423 $ 2,644 $ 442
Investment Securities
Taxable 734 (98) 856 (24)
Tax-Exempt 56 63 (6) (1)
Federal Funds Sold 577 310 141 126
- --------------------------------------------------------------------------------------------------------------
Total Interest Income 7,876 3,698 3,635 543
- --------------------------------------------------------------------------------------------------------------
Interest Expense
Deposits 4,529 1,025 3,126 378
Federal Funds Purchased and Securities Sold Under
Repurchase Agreements 26 16 4 6
Short-Term Borrowings (8) (7) (1) --
Note Payable (16) (16) -- --
- --------------------------------------------------------------------------------------------------------------
Total Interest Expense 4,531 1,018 3,129 384
- --------------------------------------------------------------------------------------------------------------
Net Interest Income Before Allocation of Rate/Volume 3,345 2,680 506 159
- --------------------------------------------------------------------------------------------------------------
Allocation of Rate/Volume -- 234 (75) (159)
- --------------------------------------------------------------------------------------------------------------
Changes in Net Interest Income $ 3,345 $ 2,914 $ 431 $ --
- --------------------------------------------------------------------------------------------------------------
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three months ended September 30, 1995 of
$372,000 reflects an increase of $152,000 or 69.1% compared to $220,000 for the
three months ended September 30, 1994. The provision for loan losses for the
nine months ended September 30, 1995 of $1.1 million reflects an increase of
$430,000 or 68.3% compared to $630,000 for the nine months ended September 30,
1994 and was primarily attributable to charged-off loans and new loan growth.
See "ALLOWANCE FOR LOAN LOSSES."
In January 1995, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan" and the
amendment thereof, SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosures". In management's opinion, the adoption
of SFAS No. 114 and SFAS No. 118 is not anticipated to have a material effect on
the Company's results of operations.
NONINTEREST INCOME
Noninterest income for the three months ended September 30, 1995 of $1.6 million
increased $213,000 or 15.1% compared to $1.4 million for the three months ended
September 30, 1994. All categories on noninterest income, except Other Service
Charges, for the three months ended September 30, 1995 reflect increased income
when compared to the three months ended September 30, 1994. The decline in Other
Service Charges is primarily attributable to a decline in foreign currency
exchange fees. The recent events in Mexico, primarily the peso devaluation, has
resulted in a lower volume and spread on peso exchange fee activity. Noninterest
income for the nine months ended September 30, 1995 of $4.8 million increased
$531,000 or 12.5% compared to $4.3 million for the nine months ended September
30, 1994. All categories of noninterest income, except Investment Securities
Gains (Losses), for the nine months ended September 30, 1995 reflect increased
income compared to the nine months ended September 30, 1994. The increase in
Service Charges on Deposit Accounts and Other Service Charges were both impacted
by an increase in activity levels and
-16-
<PAGE>
additional volume. Trust Service Fees of $917,000 for the nine months ended
September 30, 1995 reflect a net increase of $51,000 or 5.9% when compared to
$866,000 for the nine months ended September 30, 1994. The increase in Trust
Service Fees is attributable to increases in both the number of trust accounts
and the book value of assets managed.
The following table summarizes the major noninterest income categories:
<TABLE>
<CAPTION>
1995 1994 Nine Months Ended
------------------------------------- ------------------------ September 30,
Noninterest Income THIRD Second First Fourth Third --------------------
(Dollars in Thousands) QUARTER Quarter Quarter Quarter Quarter 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Service Charges on Deposit
Accounts $ 899 $ 837 $ 781 $ 784 $ 791 $ 2,517 $ 2,251
Other Service Charges 192 223 273 234 204 688 670
Trust Service Fees 314 316 287 295 277 917 866
Investment Securities Gains
(Losses) -- -- (13) 8 -- (13) --
Data Processing Service Fees 112 85 73 68 65 270 187
Other Operating Income 106 115 189 125 73 410 284
- -------------------------------------------------------------------------------------------------------------------------
Total $ 1,623 $ 1,576 $ 1,590 $ 1,514 $ 1,410 $ 4,789 $ 4,258
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
NONINTEREST EXPENSE
Noninterest expense for the three months ended September 30, 1995 of $4.7
million increased $673,000 or 16.7% compared to the three months ended September
30, 1994 of $4.0 million.
Noninterest expense for the nine months ended September 30, 1995 of $13.9
million increased $1.2 million or 9.6% compared to the nine months ended
September 30, 1994 of $12.7 million. The increase in noninterest expense for the
nine months ended September 30, 1995 compared to nine months ended September 30,
1994 was primarily attributable to the increased volume of business conducted by
the Company.
Other Real Estate (Income) Expense, Net includes rental income, gain or loss on
sale of other real estate properties and direct expenses of foreclosed real
estate, including property taxes, maintenance costs, and write-downs.
Write-downs of other real estate acquired in a loan foreclosure are required if
the fair value of an asset, less estimated closing costs, subsequently declines
below its carrying value. The increase in Other Real Estate (Income) Expense,
Net for the nine months ended September 30, 1995 compared to the nine months
ended September 30, 1994 is primarily attributable to the net loss recognized on
the sale of Other Real Estate during 1995 and an increase in write-downs.
Management is actively seeking buyers for all Other Real Estate and is of the
opinion that the carrying value of said real estate approximates the estimated
fair value less estimated closing costs.
FDIC insurance refund for the three months ended September 30, 1995 of $29,000
reflects a net decrease of $279,000 or 111.6% when compared to $250,000 expense
for three months ended September 30, 1994. On August 8, 1995, the FDIC Board of
Directors voted to reduce the deposit insurance premiums paid by most members of
the Bank Insurance Fund, effective as of June 1, 1995. As a result, the overpaid
assessments for the period June 1 to September 30 and interest (totaling
$297,000) was refunded on September 15, 1995. The Company continues to receive
the most favorable risk classification for purposes of determining the annual
deposit insurance assessment rate.
-17-
<PAGE>
The following table displays the major noninterest expense categories:
<TABLE>
<CAPTION>
1995 1994 Nine Months Ended
------------------------------------- ------------------------ September 30,
Noninterest Expense THIRD Second First Fourth Third --------------------
(Dollars in Thousands) QUARTER Quarter Quarter Quarter Quarter 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Salaries and Employee Benefits
Salaries $ 1,954 $ 1,808 $ 1,767 $ 1,606 $ 1,588 $ 5,529 $ 4,728
Employee Benefits 500 484 491 400 415 1,475 1,281
- -----------------------------------------------------------------------------------------------------------------------
Total Salaries and Employee
Benefits 2,454 2,292 2,258 2,006 2,003 7,004 6,009
- -----------------------------------------------------------------------------------------------------------------------
Net Occupancy Expense 277 260 253 267 253 790 694
- -----------------------------------------------------------------------------------------------------------------------
Equipment Expense 535 498 431 426 418 1,464 1,222
- -----------------------------------------------------------------------------------------------------------------------
Other Real Estate (Income)
Expense, Net
Rent Income (27) (26) (71) (49) (30) (124) (88)
(Gain) Loss on Sale (6) (1) 81 (19) 14 74 21
Expenses 34 27 22 16 30 83 82
Write-Downs 59 60 -- 67 15 119 45
- -----------------------------------------------------------------------------------------------------------------------
Total Other Real Estate
(Income) Expense, Net 60 60 32 15 29 152 60
- -----------------------------------------------------------------------------------------------------------------------
Other Noninterest Expense
Advertising and Public
Relations 203 144 238 297 127 585 396
Amortization of Intangibles 88 56 56 56 56 200 168
Data Processing and Check
Clearing 147 104 108 78 81 359 282
Director Fees 74 67 68 68 68 209 199
Franchise Tax 50 49 50 39 39 149 120
Insurance 38 67 84 72 82 189 242
FDIC Insurance (29) 261 261 250 250 493 723
Legal and Professional 221 207 191 266 145 619 740
Stationery and Supplies 182 170 122 122 102 474 416
Telephone 66 58 49 54 45 173 148
Other (Gains) Losses 117 124 144 (499) 104 385 637
Other 211 237 249 270 219 697 664
- -----------------------------------------------------------------------------------------------------------------------
Total Other Noninterest
Expense 1,368 1,544 1,620 1,073 1,318 4,532 4,735
- -----------------------------------------------------------------------------------------------------------------------
Total $ 4,694 $ 4,654 $ 4,594 $ 3,787 $ 4,021 $ 13,942 $ 12,720
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
BALANCE SHEET ANALYSIS
The Company continues to experience growth as is reflected by the increase in
total average assets presented below. The growth is primarily attributable to
the Acquisition. Average interest-earning assets for the three months ended
September 30, 1995 of $542.8 million increased $87.0 million or 19.1% compared
to the three months ended September 30, 1994 of $455.8 million. Average
interest-earning assets for the nine months ended September 30, 1995 of $503.4
million increased $59.2 million or 13.3% compared to the nine months ended
September 30, 1994 of $444.2 million. The increase in total average assets was
funded primarily by deposit growth from the Acquisition.
Average total deposits for the three months ended September 30, 1995 of $535.7
million increased $84.8 million or 18.8% compared to the three months ended
September 30, 1995 of $451.0 million primarily due to the Acquisition. Average
total deposits for the nine months ended September 30, 1995 of $495.4 million
increased $51.3 million or 11.6% compared to the nine months ended September 30,
1994 of $444.1 million.
-18-
<PAGE>
The following table presents the consolidated average balance sheets:
<TABLE>
<CAPTION>
1995 1994 Nine Months Ended
------------------------------- -------------------- September 30,
Average Balance Sheets THIRD Second First Fourth Third --------------------
(Dollars in Thousands) QUARTER Quarter Quarter Quarter Quarter 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Assets
Loans $ 372,511 $ 351,465 $ 344,279 $ 321,968 $ 308,216 $ 356,085 $ 304,728
Investment Securities
Taxable 130,504 118,675 115,477 130,304 126,900 121,552 124,448
Tax-Exempt 4,797 4,919 5,023 4,525 3,717 4,913 3,977
Federal Funds Sold 34,971 17,821 9,821 12,807 16,969 20,871 11,051
- ------------------------------------------------------------------------------------------------------
Total
Interest-Earning
Assets 542,783 492,880 474,600 469,604 455,802 503,421 444,204
Cash and Due from Banks 31,538 29,871 31,675 30,977 28,813 31,028 30,197
Bank Premises and
Equipment, Net 16,535 15,573 15,613 15,361 15,535 15,907 15,357
Other Assets 14,419 11,845 11,797 11,715 11,903 12,687 11,511
Allowance for Loan
Losses (4,331) (4,211) (3,743) (3,630) (3,852) (4,095) (3,674)
- ------------------------------------------------------------------------------------------------------
Total Assets $ 600,944 $ 545,958 $ 529,942 $ 524,027 $ 508,201 $ 558,948 $ 497,595
- ------------------------------------------------------------------------------------------------------
Liabilities and
Shareholders'
Equity
Demand Deposits
Commercial and
Individual $ 105,812 $ 92,804 $ 92,612 $ 93,793 $ 90,407 $ 97,076 $ 90,121
Public Funds 2,109 5,582 3,208 3,053 2,789 3,633 2,673
- ------------------------------------------------------------------------------------------------------
Total Demand
Deposits 107,921 98,386 95,820 96,846 93,196 100,709 92,794
- ------------------------------------------------------------------------------------------------------
Savings 32,701 27,364 28,018 29,308 29,920 29,361 29,952
Money Market Checking
and Savings Accounts
Commercial and
Individual 104,128 95,042 101,856 110,481 109,411 100,342 109,425
Public Funds 27,563 25,853 29,531 28,580 21,494 27,649 22,308
Time Deposits
Commercial and
Individual 246,797 218,479 193,461 180,065 176,745 219,579 169,545
Public Funds 16,610 17,130 19,402 18,741 20,187 17,714 20,033
- ------------------------------------------------------------------------------------------------------
Total
Interest-Bearing
Deposits 427,799 383,868 372,268 367,175 357,757 394,645 351,263
- ------------------------------------------------------------------------------------------------------
Total Deposits 535,720 482,254 468,088 464,021 450,953 495,354 444,057
- ------------------------------------------------------------------------------------------------------
Federal Funds Purchased
and Securities Sold
Under Repurchase
Agreements 997 1,228 1,348 1,098 314 1,191 502
Short-Term Borrowings 75 429 429 430 431 311 438
Note Payable -- -- -- -- -- -- 345
Other Liabilities 4,231 3,626 3,168 3,188 3,237 3,675 2,807
Shareholders' Equity 59,921 58,421 56,909 55,290 53,266 58,417 49,446
- ------------------------------------------------------------------------------------------------------
Total Liability and
Shareholders'
Equity $ 600,944 $ 545,958 $ 529,942 $ 524,027 $ 508,201 $ 558,948 $ 497,595
- ------------------------------------------------------------------------------------------------------
</TABLE>
-19-
<PAGE>
RISK ANALYSIS OF THE LOAN PORTFOLIO
The Company manages its credit risk by establishing and implementing strategies
and guidelines appropriate to the characteristics of borrowers, industries,
geographic locations and risk products. Diversification of risk within each of
these areas is a primary objective. Policies and procedures are developed to
ensure that loan commitments conform to current strategies and guidelines.
Management continues to refine the Company's credit policies and procedures to
address the risks in the current and prospective environment and to reflect
management's current strategic focus. The credit process is controlled with
continuous review and analysis by independent credit review, internal and
external auditors and regulatory authorities.
The Company has collateral management policies in place to ensure that
collateral lending of all types is approached on a basis consistent with safe
and sound standards. Valuation analysis is utilized to take into consideration
the potentially adverse economic conditions under which liquidation could occur.
Collateral accepted against the commercial loan portfolio includes accounts
receivable and inventory, marketable securities, equipment, and agricultural
products. Autos, deeds of trust, life insurance, and marketable securities are
accepted as collateral for the installment loan portfolio.
Total loans at September 30, 1995 of $394.6 million increased $79.7 million or
25.3% compared to September 30, 1994 levels of $314.9 million and increased
$44.1 million or 12.6% compared to June 30, 1995 levels of $350.5 million. The
increase in loans is partially attributable to the Acquisition. The Company's
commercial loans are widely diversified by borrower and industry group.
The following table presents the composition of the loan portfolio for the last
five quarters:
<TABLE>
<CAPTION>
1995 1994
------------------------------- --------------------
Loan Portfolio Composition THIRD Second First Fourth Third
(Dollars in Thousands) QUARTER Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Commercial $ 105,792 $ 99,961 $ 106,655 $ 101,866 $ 91,828
Agricultural 19,247 17,325 19,982 17,199 12,872
Real Estate
Construction 25,998 23,228 20,720 18,809 16,913
Commercial Mortgage 128,979 114,232 113,120 113,677 107,531
Agricultural Mortgage 15,284 12,771 12,277 10,263 10,043
1-4 Family Mortgage 54,836 49,704 49,524 47,425 45,415
Consumer 44,471 33,242 32,132 30,700 30,344
- ----------------------------------------------------------------------------------------------------
Total $ 394,607 $ 350,463 $ 354,410 $ 339,939 $ 314,946
- ----------------------------------------------------------------------------------------------------
</TABLE>
NONPERFORMING ASSETS
Nonperforming assets are comprised of loans for which the accrual of interest
has been discontinued, loans for which the interest rate has been reduced to
less than normal rates due to a serious weakening in the borrower's financial
condition, and other assets which consist of real estate and other property
which have been acquired in partial or full satisfaction of loan obligations and
which are awaiting disposition. A loan is generally placed on nonaccrual status
when payment of principal or interest is contractually past due 90 days, or
earlier when concern exists as to the ultimate collection of principal and
interest. At the time a loan is placed on nonaccrual status, interest previously
accrued but uncollected is reversed and charged against current income.
Loans which are contractually past due 90 days or more which are both well
secured or guaranteed by financially responsible third parties and in the
process of collection generally are not placed on nonaccrual status. The amount
of such loans past due 90 days or more at September 30, 1995 of $244,000
reflects a decrease of $98,000 or 28.7% compared to the September 30, 1994 level
of $342,000.
Nonperforming assets at September 30, 1995 of $3.0 million decreased $2.2
million or 41.9% compared to $5.2 million at September 30, 1994. Management
continues to emphasize maintaining a low level of nonperforming assets and
returning nonperforming assets to an earning status.
-20-
<PAGE>
The Company's classification of nonperforming loans includes those loans where
management believes collection is doubtful. Management is not aware of any
specific borrower relationships that are not reported as nonperforming where
management has serious doubts as to the ability of such borrowers to comply with
the present loan repayment terms which would cause nonperforming assets to
increase materially.
An analysis of the components of nonperforming assets for the last five quarters
is presented in the following table:
<TABLE>
<CAPTION>
1995 1994
---------------------------------- ----------------------
Nonperforming Assets THIRD Second First Fourth Third
(Dollars in Thousands) QUARTER Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Nonaccrual Loans $ 1,519 $ 1,490 $ 1,753 $ 2,435 $ 2,787
Renegotiated Loans 8 9 11 13 14
- ------------------------------------------------------------------------------------------------------------
Nonperforming Loans 1,527 1,499 1,764 2,448 2,801
Other Nonperforming Assets
(Primarily Other Real Estate) 1,502 1,762 1,700 2,364 2,415
- ------------------------------------------------------------------------------------------------------------
Total Nonperforming Assets 3,029 3,261 3,464 4,812 5,216
Accruing Loans 90 Days or More Past Due 244 879 306 226 342
- ------------------------------------------------------------------------------------------------------------
Total Nonperforming Assets Plus Accruing
Loans 90 Days or More Past Due $ 3,273 $ 4,140 $ 3,770 $ 5,038 $ 5,558
- ------------------------------------------------------------------------------------------------------------
Nonperforming Loans as a % of Total Loans 0.39% 0.43% 0.50% 0.72% 0.89%
Nonperforming Assets as a % of Total Loans and
Other Nonperforming Assets 0.76 0.93 0.97 1.41 1.64
Nonperforming Assets as a % of Total Assets 0.49 0.60 0.64 0.90 1.02
Nonperforming Assets Plus Accruing Loans 90 Days
or More Past Due as a % of Total Loans And
Other Nonperforming Assets 0.83 1.18 1.06 1.47 1.75
- ------------------------------------------------------------------------------------------------------------
</TABLE>
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses at September 30, 1995 of $4.1 million increased
$350,000 or 9.3% compared to the September 30, 1994 balance of $3.8 million and
increased $141,000 or 3.5% compared to the June 30, 1995 balance of $4.0
million. The allowance for loan losses at September 30, 1995 compared to
September 30, 1994 reflects a reserve which was increased by management for the
Acquisition, charge-offs and loan growth. The allowance for loan losses at
September 30, 1995 is 1.04% of loans outstanding, net of unearned discount. The
allowance for loan losses is maintained at a level considered appropriate by
management and is based on the ongoing assessment of the risk inherent in the
loan portfolio, as well as the possible impact of uncertain events. While
management uses available information to recognize losses on loans, there can
be no assurance that future additions to the allowance will not be necessary.
-21-
<PAGE>
The following table summarizes the transactions in the allowance for loan
losses:
<TABLE>
<CAPTION>
1995 1994 Nine Months Ended
Allowance for Loan ------------------------------------- ------------------------ September 30,
Loss Activity THIRD Second First Fourth Third ------------------------
(Dollars in Thousands) QUARTER Quarter Quarter Quarter Quarter 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Balance at Beginning of
Period $ 3,980 $ 3,995 $ 3,511 $ 3,771 $ 3,754 $ 3,511 $ 3,435
Balance of Purchased
Branches 450 -- -- -- -- 450 --
Provision for Loan Losses 372 322 366 455 220 1,060 630
Charge-Offs
Commercial 236 420 64 25 115 720 194
Agricultural 405 11 -- 744 37 416 37
Real Estate -- 12 49 -- 50 61 103
Consumer 85 66 30 27 46 181 105
- ----------------------------------------------------------------------------------------------------------------------
Total Charge-Offs 726 509 143 796 248 1,378 439
- ----------------------------------------------------------------------------------------------------------------------
Recoveries
Commercial 30 81 248 62 36 359 101
Agricultural -- 64 1 -- -- 65 4
Real Estate 2 2 -- 4 1 4 6
Consumer 13 25 12 15 8 50 34
- ----------------------------------------------------------------------------------------------------------------------
Total Recoveries 45 172 261 81 45 478 145
- ----------------------------------------------------------------------------------------------------------------------
Net Charge-Offs
(Recoveries) 681 337 (118) 715 203 900 294
- ----------------------------------------------------------------------------------------------------------------------
Balance at End of Period $ 4,121 $ 3,980 $ 3,995 $ 3,511 $ 3,771 $ 4,121 $ 3,771
- ----------------------------------------------------------------------------------------------------------------------
Ratio of Allowance for Loan
Losses to Loans
Outstanding, Net of
Unearned Discount 1.04% 1.14% 1.13% 1.03% 1.20%
Ratio of Allowance For Loan
Losses to Nonperforming
Assets 136.05 122.05 115.33 72.96 72.30
Ratio of Net Charge-Offs to
Average Total Loans
Outstanding, Net of
Unearned Discount 0.18 0.09 (0.03) 0.22 0.07
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
DEPOSITS
Total deposits at September 30, 1995 of $553.7 million increased $99.4 million
or 21.9% compared to the September 30, 1994 balance of $454.3 million and
increased $73.2 million or 15.2% compared to June 30, 1995 of $480.5 million.
The increase in total deposits from June 30, 1995 to September 30, 1995 is
primarily attributable to the Acquisition.
-22-
<PAGE>
The following table presents the composition of total deposits for the last
five quarters:
<TABLE>
<CAPTION>
1995 1994
------------------------------- --------------------
Total Deposits THIRD Second First Fourth Third
(Dollars in Thousands) QUARTER Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Demand Deposits
Commercial and Individual $ 102,733 $ 97,593 $ 94,735 $ 97,597 $ 92,133
Public Funds 5,407 4,395 2,661 2,046 2,925
- ----------------------------------------------------------------------------------------------------
Total Demand Deposits 108,140 101,988 97,396 99,643 95,058
- ----------------------------------------------------------------------------------------------------
Interest-Bearing Deposits
Savings 36,924 27,346 27,520 28,689 29,598
Money Market Checking and Savings
Commercial and Individual 103,704 94,096 97,728 106,062 109,999
Public Funds 24,078 20,540 23,886 34,688 21,843
Time Deposits
Commercial and Individual 265,728 221,100 211,123 184,177 177,808
Public Funds 15,128 15,462 18,332 18,849 19,958
- ----------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 445,562 378,544 378,589 372,465 359,206
- ----------------------------------------------------------------------------------------------------
Total Deposits $ 553,702 $ 480,532 $ 475,985 $ 472,108 $ 454,264
- ----------------------------------------------------------------------------------------------------
</TABLE>
CAPITAL AND LIQUIDITY
Shareholders' equity at September 30, 1995 of $60.7 million increased $6.6
million or 12.2% compared to the September 30, 1994 level of $54.2 million. The
increase was attributable to earnings and the decrease in unrealized loss on
securities available for sale, reduced by dividends paid on Class A Voting
Common Stock.
On March 21, 1994, the Board of Directors adopted a resolution calling for
redemption on April 22, 1994 of all issued and outstanding Preferred Stock,
including the Company's First Series Convertible Preferred Stock, Series 1990
Convertible Preferred Stock and Series 1991 Convertible Preferred Stock (herein
collectively called the "Preferred Stock") at a redemption price of $104 per
share plus all accrued and unpaid dividends through the date fixed for
redemption. The Preferred Stock was convertible into 13.2 shares of Class A
Voting Common Stock for each share of Preferred Stock held. Effective April 22,
1994, 356 shares of Preferred Stock were redeemed and 74,172 shares of
Preferred Stock were converted into 979,009 shares of Class A Voting Common
Stock.
The risk-based capital standards as established by the Federal Reserve Board
require all bank holding companies to meet a minimum ratio of qualifying Total
Capital to weighted risk assets of 8.0%, of which at least 4.0% should be in
the form of Tier I Capital. Under these regulations, a well-capitalized
institution is defined as having a Tier 1 ratio of 6.0%, a Total Capital ratio
of 10.0% and a Leverage ratio of 5.0%. At September 30, 1995 the approximate
ratios were 12.6% for Tier 1 Capital, 13.6% for Total Capital and 8.0% for a
Leverage ratio.
Asset liquidity is provided by cash and assets which are readily marketable, or
which can be pledged, or which will mature in the near future. These include
cash, federal funds sold and U.S. Government-backed securities. At September
30, 1995, the Company's liquidity ratio, defined as cash, U.S.
Government-backed securities, and federal funds sold as a percentage of
deposits was 34.1% compared to 34.1% at June 30, 1995 and 37.1% at September
30, 1994.
Liability liquidity is provided by access to core funding sources, principally
various customers' interest bearing and noninterest bearing deposit accounts in
the Company's natural trade area. The Company does not have or solicit brokered
deposits. Federal funds purchased and short-term borrowings are additional
sources of liquidity. These sources of liquidity are short-term in nature and
are not used to fund asset growth.
-23-
<PAGE>
For the nine months ended September 30, 1995, liquidity was enhanced by net
cash provided by operating activities of $5.4 million and net cash provided by
financing activities of $79.0 million. The increase in net cash provided by
financing activities was primarily attributable to the $81.6 million net
increase in deposits which was primarily attributable to the Acquisition. The
increase in cash and cash equivalents was offset by $90.5 million net cash used
in investing activities. The investing activities consisted primarily of
funding $55.9 million of purchases, originations and advances of loans and
purchasing $3.4 million of premises and equipment. As a result, net cash and
cash equivalents at September 30, 1995 of $35.7 million decreased $6.1 million
or 14.7% compared to net cash and cash equivalents at December 31, 1994 of $41.8
million.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
Ratio Analysis (Annualized) 1995 1994 1995 1994
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Return on Average Assets 1.50% 1.54% 1.51% 1.32%
Return on Average Equity 15.08 14.70 14.43 13.26
Dividend Payout Ratio 27.78 50.00 29.70 20.25
Net Interest Income to Total Average Earning Assets* 5.15 5.13 5.34 5.05
Efficiency Ratio* 53.45 54.68 55.33 60.19
Total Average Loans to Total Average Deposits 69.53 68.35 71.88 68.62
Average Equity to Average Assets 9.97 10.48 10.45 9.94
- -----------------------------------------------------------------------------------------------------
</TABLE>
* Taxable-Equivalent Basis Assuming a 34% Tax Rate.
<TABLE>
<CAPTION>
COMMON STOCK TRADING DATA (NASDAQ National Market System)
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Trading Volume (1995)
Price
September 30, 1995 $16.50 Book Value $9.81 July 60,354 shares
1995 price range $11.25 - $16.50 Price/Book Value 168.2% August 134,245 shares
September 53,857 shares
- ----------------------------------------------------------------------------------------------------
</TABLE>
-24-
<PAGE>
Investor Inquiries
Analysts, investors and others desiring
additional financial data about Texas
Regional Bancshares, Inc. may contact
George R. Carruthers, Jr. at
(210) 632-7613.
Transfer Agent and Registrar
Texas Regional Bancshares, Inc.
3700 N. 10th, Suite 300
McAllen, Texas 78501
Attn: Ann Sefcik
NASDAQ Symbol: TRBS
Shares of Texas Regional Bancshares, Inc.
common stock are traded on the NASDAQ
National Market System under the
symbol
TRBS.
<PAGE>
--------------
BULK RATE
U.S. POSTAGE
PAID
MCALLEN, TX
PERMIT NO. 171
--------------
[logo] TEXAS REGIONAL
BANCSHARES, INC.
P.O. BOX 5910
3700 NORTH 10TH
MCALLEN, TEXAS 78502
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME FOUND ON
PAGES 4, 5, 15, 21 AND 22 OF THE COMPANY'S 10-Q FOR THE YEAR TO DATE, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 26,356
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 9,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 82,259
<INVESTMENTS-CARRYING> 77,800
<INVESTMENTS-MARKET> 78,043
<LOANS> 394,607
<ALLOWANCE> 4,121
<TOTAL-ASSETS> 619,287
<DEPOSITS> 553,702
<SHORT-TERM> 750
<LIABILITIES-OTHER> 4,091
<LONG-TERM> 0
<COMMON> 6,193
0
0
<OTHER-SE> 54,551
<TOTAL-LIABILITIES-AND-EQUITY> 619,287
<INTEREST-LOAN> 26,807
<INTEREST-INVEST> 5,160
<INTEREST-OTHER> 926
<INTEREST-TOTAL> 32,893
<INTEREST-DEPOSIT> 12,827
<INTEREST-EXPENSE> 12,881
<INTEREST-INCOME-NET> 20,012
<LOAN-LOSSES> 1,060
<SECURITIES-GAINS> (13)
<EXPENSE-OTHER> 13,942
<INCOME-PRETAX> 9,799
<INCOME-PRE-EXTRAORDINARY> 9,799
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,305
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.01
<YIELD-ACTUAL> 5.34
<LOANS-NON> 1,519
<LOANS-PAST> 244
<LOANS-TROUBLED> 8
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,511
<CHARGE-OFFS> 1,378
<RECOVERIES> 478
<ALLOWANCE-CLOSE> 4,121
<ALLOWANCE-DOMESTIC> 4,121
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
