<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, 1996
/ / 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 (I.R.S. Employer
of Identification No.)
incorporation or
organization)
</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 8,708,898 shares $1 par
value, outstanding as of September 30, 1996.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 11 of the Texas Regional Bancshares, Inc. Third quarter Report
to Shareholders (September 30, 1996).
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 12 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, 1996).
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, 1996)
27. Financial Data Schedule
(b) Reports on Form 8-K.
None
<PAGE>
Texas Regional Bancshares, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
--------------------- -------------
(Dollars in Thousands) 1996 1995 1995
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Assets
Cash and Due From Banks $ 47,258 $ 26,356 $ 30,933
Federal Funds Sold 31,835 9,300 3,600
- --------------------------------------------------------------------------------------------------
Total Cash and Cash Equivalents 79,093 35,656 34,533
Securities Available for Sale 208,143 82,259 63,150
Securities Held to Maturity (Estimated Market Value of
$135,039 and $78,043 at September 30, 1996 and 1995,
respectively, and $68,962 at December 31, 1995) 134,840 77,800 68,491
Loans, Net of Unearned Discount of $1,611 and $1,293 at
September 30, 1996 and 1995, respectively and $1,272 at
December 31, 1995 705,801 394,607 450,854
Less Allowance for Loan Losses (9,921) (4,121) (4,542)
- --------------------------------------------------------------------------------------------------
Net Loans 695,880 390,486 446,312
Premises and Equipment, Net 36,193 17,400 18,374
Accrued Interest Receivable 15,619 6,444 6,319
Other Real Estate 1,405 1,413 1,273
Intangibles 24,906 5,674 5,711
Other Assets 17,041 2,155 2,606
- --------------------------------------------------------------------------------------------------
Total Assets $1,213,120 $ 619,287 $ 646,769
- --------------------------------------------------------------------------------------------------
Liabilities
Deposits
Demand $ 167,439 $ 108,140 $ 120,414
Savings 94,680 36,924 36,133
Money Market Checking and Savings 248,870 127,782 127,687
Time Deposits 555,241 280,856 295,497
- --------------------------------------------------------------------------------------------------
Total Deposits 1,066,230 553,702 579,731
Federal Funds Purchased and Securities Sold Under
Repurchase Agreements (Note 3) 408 750 757
Accounts Payable and Accrued Liabilities 22,951 4,091 3,561
- --------------------------------------------------------------------------------------------------
Total Liabilities 1,089,589 558,543 584,049
- --------------------------------------------------------------------------------------------------
Commitment and Contingencies (Note 6)
Shareholders' Equity
Preferred Stock; $1.00 par value, 10,000,000 Shares
Authorized; None Issued and Outstanding -- -- --
Common Stock - Class A; $1.00 par value, 20,000,000 Shares
Authorized; Issued and Outstanding, 8,708,898 shares at
September 30, 1996, 6,193,629 shares at September 30,
1995 and 6,196,791 shares at December 31, 1995 (Notes 2
and 5) 8,708 6,193 6,196
Paid-In Capital 78,605 29,204 29,239
Retained Earnings 36,193 25,368 27,168
Unrealized Gain (Loss) on Securities Available for Sale 25 (21) 117
- --------------------------------------------------------------------------------------------------
Total Shareholders' Equity 123,531 60,744 62,720
- --------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $1,213,120 $ 619,287 $ 646,769
- --------------------------------------------------------------------------------------------------
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>
Nine Months
Quarter Ended Ended
September 30, September 30,
-------------------- --------------------
(Dollars in Thousands, Except Per Share Data) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Interest Income
Loans, Including Fees $ 17,514 $ 9,452 $ 43,024 $ 26,807
Investment Securities
Taxable 4,856 1,837 9,324 4,945
Tax-Exempt 651 70 1,158 215
Federal Funds Sold 435 510 1,139 926
- --------------------------------------------------------------------------------------------------------
Total Interest Income 23,456 11,869 54,645 32,893
- --------------------------------------------------------------------------------------------------------
Interest Expense
Deposits 10,063 4,846 22,972 12,827
Federal Funds Purchased and Securities Sold Under
Repurchase Agreements 4 11 16 38
Short-Term Borrowing -- -- -- 16
- --------------------------------------------------------------------------------------------------------
Total Interest Expense 10,067 4,857 22,988 12,881
- --------------------------------------------------------------------------------------------------------
Net Interest Income 13,389 7,012 31,657 20,012
Provision for Loan Losses 549 372 1,326 1,060
- --------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 12,840 6,640 30,331 18,952
- --------------------------------------------------------------------------------------------------------
Noninterest Income
Service Charges on Deposit Accounts 1,380 899 3,486 2,517
Other Service Charges 261 192 733 688
Trust Service Fees 359 314 1,110 917
Investment Security Gains (Losses) 156 -- 157 (13)
Data Processing Service Fees 225 112 671 270
Other Operating Income 112 106 427 410
- --------------------------------------------------------------------------------------------------------
Total Noninterest Income 2,493 1,623 6,584 4,789
- --------------------------------------------------------------------------------------------------------
Noninterest Expense
Salaries and Employee Benefits 4,002 2,454 10,062 7,004
Net Occupancy Expense 545 277 1,367 790
Equipment Expense 906 535 2,306 1,464
Other Real Estate (Income) Expense, Net 1 60 (39) 152
Other Noninterest Expense 2,519 1,368 6,298 4,532
- --------------------------------------------------------------------------------------------------------
Total Noninterest Expense 7,973 4,694 19,994 13,942
- --------------------------------------------------------------------------------------------------------
Income Before Income Tax Expense 7,360 3,569 16,921 9,799
Income Tax Expense 2,205 1,292 5,535 3,494
- --------------------------------------------------------------------------------------------------------
Net Income $ 5,155 $ 2,277 $ 11,386 $ 6,305
- --------------------------------------------------------------------------------------------------------
Primary Earnings Per Common Share (Note 2)
Net Income $ 0.58 $ 0.37 $ 1.51 $ 1.02
Weighted Average Number of Common Shares Outstanding (In
Thousands) 8,837 6,223 7,563 6,209
- --------------------------------------------------------------------------------------------------------
Fully Diluted Earnings Per Common Share (Note 2)
Net Income $ 0.58 $ 0.36 $ 1.50 $ 1.01
Weighted Average Number of Common Shares Outstanding (In
Thousands) 8,844 6,242 7,570 6,220
- --------------------------------------------------------------------------------------------------------
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, 1995
And the Nine Months Ended September 30, 1996
<TABLE>
<CAPTION>
Unrealized
Class A Gain (Loss)
Voting on Securities Total
Common Paid-in Retained Available Shareholders'
(Dollars in Thousands) Stock Capital Earnings for Sale Equity
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 $ 6,193 $ 29,204 $ 20,921 $ (587) $ 55,731
Exercise of stock options, 3,162 shares
of Class A Voting Common Stock 3 35 -- -- 38
Change in Unrealized Gain (Loss) on
Securities Available for Sale -- -- -- 704 704
Class A Voting Common Stock Cash
Dividends -- -- (2,478) -- (2,478)
Net Income for the Year ended December
31, 1995 -- -- 8,725 -- 8,725
- ---------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 6,196 29,239 27,168 117 62,720
Change in Unrealized Gain (Loss) on
Securities Available for Sale -- -- -- (92) (92)
Class A Voting Common Stock Cash
Dividends -- -- (2,361) -- (2,361)
Sale of 2,510,000 shares of Class A
Voting Common Stock 2,510 49,343 -- -- 51,853
Exercise of stock options, 2,107 shares
of Class A Voting Common Stock 2 23 -- -- 25
Net Income for the Nine Months Ended
September 30, 1996 -- -- 11,386 -- 11,386
- ---------------------------------------------------------------------------------------------------------
Balance, September 30, 1996 $ 8,708 $ 78,605 $ 36,193 $ 25 $ 123,531
- ---------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
-6-
<PAGE>
Texas Regional Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended September 30, 1996 and 1995
<TABLE>
<S> <C> <C>
(Dollars in Thousands) 1996 1995
- -------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net Income $ 11,386 $ 6,305
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Depreciation, Amortization and Accretion, Net 1,997 1,480
Provision for Loan Losses 1,326 1,060
Provision for Estimated Losses on Other Real Estate and Other Assets 35 119
(Gain) Loss on Sale of Other Real Estate (123) 73
(Gain) Loss on Sale of Securities Available for Sale (157) 13
Gain on Sale of Fixed Assets (1) (1)
(Gain) Loss on Sale of Other Assets 28 (2)
Increase in Accrued Interest Receivable and Other Assets (12,440) (4,917)
Increase in Accounts Payable and Accrued Liabilities 10,838 1,258
- -------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 12,889 5,388
- -------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Proceeds from Sales of Securities Available for Sale 93,362 8,957
Proceeds from Maturing Securities Available for Sale 37,984 28,000
Purchases of Securities Available for Sale (99,117) (63,506)
Proceeds from Maturing Securities Held to Maturity 36,465 9,460
Purchases of Securities Held to Maturity (89,586) (15,622)
Proceeds from Sale of Loans 6,142 --
Purchases of Loans (2,012) (44,474)
Loan Origination and Advances (19,699) (11,459)
Recoveries of Charged-Off Loans 392 478
Proceeds from Sale of Other Assets 111 14
Proceeds from Sale of Other Real Estate 1,537 994
Proceeds from Sale of Fixed Assets 44 2
Purchases of Premises and Equipment (4,073) (3,385)
Net Cash Used in Mergers (Note 7) (15,404) --
- -------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (53,854) (90,541)
- -------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net Increase in Demand Deposits, Money Market Checking and Savings Accounts 6,045 3,764
Net Increase in Time Deposits 30,061 77,830
Proceeds from Sale of Common Stock 51,878 --
Net Increase (Decrease) in Securities Sold Under Repurchase Agreements (349) (399)
Net Decrease in Short-Term Borrowings -- (429)
Cash Dividends Paid on Class A Voting Common Stock (Note 7) (2,110) (1,734)
- -------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 85,525 79,032
- -------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 44,560 (6,121)
Cash and Cash Equivalents at Beginning of Year 34,533 41,777
- -------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Quarter $ 79,093 $ 35,656
- -------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Interest Paid $ 21,925 $ 12,157
Income Taxes Paid 6,462 3,063
Supplemental Schedule of Noncash Investing and Financing Activities
Foreclosure and Repossession in Partial Satisfaction of Loans Receivable 1,415 337
Loans Originated to facilitate Sale of Other Real Estate N/A N/A
The Company acquired First State Bank & Trust Co., Mission Texas and The Border Bank,
Hidalgo, Texas on May 14, 1996. Assets Acquired After Purchase Accounting Adjustments
are as follows:
Fair Value of Assets Acquired $ 554,240 N/A
Cash Paid for the Capital Stock (95,500) N/A
Liabilities Assumed 458,740 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 statements have been prepared
in accordance with the instructions to Form 10-Q and therefore do 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 unaudited consolidated financial
statements furnished reflect 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
unaudited consolidated financial statements include Texas Regional Bancshares,
Inc. and its subsidiary (the "Company"). Intercompany balances and transactions
have been eliminated.
NOTE 2 -- EARNINGS PER SHARE COMPUTATIONS
Earnings per share computations include the effects of common stock equivalents
applicable to the stock option contracts.
NOTE 3 -- SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Securities sold under repurchase agreements 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. These pledged securities are
segregated and maintained by a third party bank.
NOTE 4 -- INCOME TAXES
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 5 -- COMMON STOCK
On May 14, 1996, Texas Regional Bancshares, Inc. completed its public offering
of 2.5 million shares of the Company's Class A Voting Common Stock (priced at
$22.25). On May 14, 1996, Texas Regional Bancshares, Inc. also completed the
acquisition of First State Bank & Trust Co., Mission, Texas and The Border Bank,
Hidalgo, Texas, (the "Mergers"), through merger with Texas State Bank, the
principal operating subsidiary of Texas Regional Bancshares, Inc. The purchase
price of the Mergers was financed with a combination of proceeds from the 2.5
million share common equity offering and cash on the balance sheet of the
Company.
On September 10, 1996, the Board of Directors approved a $0.10 per share cash
dividend for shareholders of record on October 7, 1996 and payable on October
15, 1996.
NOTE 6 -- EMPLOYEE BENEFITS
With the consummation of the Mergers the Company acquired four existing separate
deferred compensation plans for the benefit of certain Texas State Bank
employees. The plans provide for retirement benefits to be paid to the specific
employee (or a designated beneficiary or estate if death occurs prior to payment
of the full amount of deferred compensation) on reaching age 65. One plan
entered into on December 10, 1963, commenced payments of approximately $13,000
each year on January 4, 1988, continuing annually thereafter through June 2003.
A second plan, entered into on September 1, 1979, provides for payments of
approximately $13,000 each year which was scheduled to commence on April 1,
1990, continuing annually thereafter through June 2005; however, the employee
elected to receive an amount less than that provided for in the plan over a
longer period of time. The third plan provides for a retirement benefit payable
of $50,000 per year commencing in March 1999 and continuing annually thereafter
for 20 years.
-8-
<PAGE>
The fourth plan provides for a retirement benefit payable of $13,350 each year
beginning March 15, 1995 and continuing annually thereafter for fourteen years.
The Bank owns and is the beneficiary of four life insurance policies on the
employees or former employees covered by the deferred compensation plans. The
life insurance policies' face values are amounts approximately equal to the
total benefits paid under the plans.
NOTE 7 -- ACQUISITION ACTIVITY
On May 14, 1996, Texas Regional Bancshares, Inc. completed its public offering
of 2.5 million shares of the Company's Class A Voting Common Stock (priced at
$22.25 per share). On May 14, 1996, Texas Regional Bancshares, Inc. completed
the Mergers. The purchase price of the Mergers was financed with a combination
of proceeds from the 2.5 million share common equity offering and cash on the
balance sheet of the Company. The Mergers were accounted for as a purchase.
During August 1995, Texas State Bank acquired two branch bank locations, one in
Rio Grande City, Texas, and the other in Roma, Texas (the "RGC/Roma Branch
Acquisitions"). 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 the RGC/Roma Branch Acquisitions were immaterial. This transaction was
accounted for as a purchase.
The Company's Consolidated Balance Sheet at June 30, 1996 reflects the assets
and liabilities of the Mergers and the RGC/Roma Branch Acquisitions. The results
of operations of the Mergers and the RGC/Roma Branch Acquisitions were included
in the Company's Consolidated Statements of Income from each respective date of
acquisition.
The following Unaudited Pro Forma Combined Condensed Statements of Income for
the nine months ended September 30, 1996 and 1995, assumes the Mergers and the
RGC/Roma Branch Acquisitions occurred January 1, 1995. Intangibles arising from
the Mergers and RGC/Roma Branch Acquisitions are approximately $20.0 million and
$4.1 million, respectively. The pro forma adjustments reflect the amortization
of the Core Deposit premium over a 10-year period and the Goodwill intangible
over a 15-year period, the reduced interest income on the $47.6 million net
purchase price ($99.5 million less $51.9 million) of the Acquisition and $4.25
million purchase price of the RGC/Roma Branch Acquisitions at an interest rate
of 5.43% and 5.93% for the nine months ended September 30, 1996 and 1995,
respectively and the tax effect of the prior two transactions using an effective
tax rate of 35% for 1996 and an effective tax rate of 34% for 1995. 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.
-9-
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Combined Condensed
Statements of Income
For the Nine Months Ended
September 30, 1996 (Unaudited) First
(Dollars in Thousands Texas State Border Pro Forma Pro Forma
Except Per Share Data) Regional Bank Bank Adjustments Balance
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Interest Income $ 41,003 $ 22,498 $ 6,607 $ (947) A $ 69,161
Interest Expense 16,363 9,752 3,460 -- 29,575
- ------------------------------------------------------------------------------------------------------------
Net Interest Income 24,640 12,746 3,147 (947) 39,586
Provision for Loan Losses 1,246 1,018 427 -- 2,691
- ------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for
Loan Losses 23,394 11,728 2,720 (947) 36,895
- ------------------------------------------------------------------------------------------------------------
Noninterest Income
Service Charges on Deposit Accounts 2,937 766 235 -- 3,938
Other Service Charges 677 100 37 -- 814
Trust Service Fees 1,082 53 -- -- 1,135
Other Operating Income 1,211 55 34 -- 1,300
- ------------------------------------------------------------------------------------------------------------
Total Noninterest Income 5,907 974 306 -- 7,187
- ------------------------------------------------------------------------------------------------------------
Noninterest Expense
Salaries and Employee Benefits 8,563 2,142 780 -- 11,485
Net Occupancy Expense 1,028 559 202 79B 1,868
Equipment Expense 2,048 347 96 -- 2,491
Other Noninterest Expense 4,613 2,709 1,042 609C 8,973
- ------------------------------------------------------------------------------------------------------------
Total Noninterest Expense 16,252 5,757 2,120 688 24,817
- ------------------------------------------------------------------------------------------------------------
Income Before Income Tax Expense 13,049 6,945 906 (1,635) 19,265
Income Tax Expense 4,162 2,172 234 (469) D 6,099
- ------------------------------------------------------------------------------------------------------------
Net Income $ 8,887 $ 4,773 $ 672 $ (1,166) $ 13,166
- ------------------------------------------------------------------------------------------------------------
Primary Earnings Per Common Share
Net Income $ 1.18 $ 1.49
Weighted Average Number of Common Shares
Outstanding (In Thousands) 7,563 8,844
- ------------------------------------------------------------------------------------------------------------
Fully Diluted Earnings Per Common Share
Net Income $ 1.17 $ 1.49
Weighted Average Number of Common Shares
Outstanding (In Thousands) 7,570 8,844
- ------------------------------------------------------------------------------------------------------------
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Combined Condensed
Statement of Income
For the Nine Months Ended
September 30, 1995 (Unaudited) First
(Dollars in Thousands, Texas RGC/Roma State Border Pro Forma Pro Forma
Except Per Share Data) Regional Branches Bank Bank Adjustments Balance
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Interest Income $ 32,095 $ 4,958 $ 16,630 $ 4,557 $ (2,267) A $ 55,973
Interest Expense 12,510 2,177 6,520 2,161 -- 23,368
- -----------------------------------------------------------------------------------------------
Net Interest Income 19,585 2,781 10,110 2,396 (2,267) 32,605
Provision for Loan Losses 1,054 6 217 72 -- 1,349
- ------------------------------------------------------------------------------------------------------------
Net Interest Income After
Provision for Loan Losses 18,531 2,775 9,893 2,324 (2,267) 31,256
- ------------------------------------------------------------------------------------------------------------
Noninterest Income
Service Charges on Deposit
Accounts 2,472 354 572 113 -- 3,511
Other Service Charges 678 73 101 30 -- 882
Trust Service Fees 917 -- 2 -- -- 919
Other Operating Income 664 39 98 -- -- 801
- ------------------------------------------------------------------------------------------------------------
Total Noninterest Income 4,731 466 773 143 -- 6,113
- ------------------------------------------------------------------------------------------------------------
Noninterest Expense
Salaries and Employee Benefits 6,903 1,119 1,391 560 -- 9,973
Net Occupancy Expense 770 137 288 136 159B 1,490
Equipment Expense 1,430 182 171 45 -- 1,828
Other Noninterest Expense 4,383 980 1,252 346 1,387C 8,348
- ------------------------------------------------------------------------------------------------------------
Total Noninterest Expense 13,486 2,418 3,102 1,087 1,546 21,639
- ------------------------------------------------------------------------------------------------------------
Income Before Income Tax Expense 9,776 823 7,564 1,380 (3,813) 15,730
Income Tax Expense 3,486 280 2,154 269 (1,095)D 5,094
- ------------------------------------------------------------------------------------------------------------
Net Income $ 6,290 $ 543 $ 5,410 $ 1,111 $ (2,718) $ 10,636
- ------------------------------------------------------------------------------------------------------------
Primary Earnings Per Common Share
Net Income $ 1.01 $ 1.22
Weighted Average Number of
Common Shares Outstanding (In
Thousands) 6,209 8,719
- ------------------------------------------------------------------------------------------------------------
Fully Diluted Earnings Per Common
Share
Net Income $ 1.01 $ 1.22
Weighted Average Number of
Common Shares Outstanding (In
Thousands) 6,220 8,730
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The Unaudited Pro Forma Combined Condensed Statements of Income for the nine
months ended September 30, 1996 and 1995 assume the Mergers and the RGC/Roma
Acquisition occurred January 1, 1995. In preparing the Unaudited Pro Forma
Combined Condensed Statements of Income, the following adjustments were made:
(A) To record a reduction in interest income on the $47.6 million net purchase
price ($99.5 million less $51.9 million) of the Mergers at an interest rate
of 5.43% for the nine months ended September 30, 1996.
To record a reduction in interest income on the $51.9 million net purchase
price ($99.5 million less $51.9 million) of the Mergers and $4.25 million
purchase price of the RGC/Roma Branch Acquisitions at an interest rate of
5.93% for the nine months ended September 30, 1995.
(B) To record depreciation on fair market value increases of depreciable fixed
assets acquired in the Mergers.
(C) To record amortization of the goodwill and core deposit premium recorded in
connection with the Mergers (for 1996 and 1995) and the RGC/Roma Branch
Acquisitions (for 1995 only).
(D) To record the effect of the pro forma adjustments using an effective tax
rate of 35% and 34% for the nine months ended September 30, 1996 and 1995,
respectively.
-11-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Net income for the three months ended September 30, 1996 was $5.2 million or
$0.58 per share, reflecting a net increase of $2.9 million or $0.22 per share
compared to net income of $2.3 million or $0.36 per share for the three months
ended September 30, 1995. Net income for the nine months ended September 30,
1996 was $11.4 million or $1.50 per share, reflecting a net increase of $5.1
million or $0.49 per share compared to net income of $6.3 million or $1.01 per
share for the nine months ended September 30, 1995. Earnings performance for the
three months ended September 30, 1996 compared to the three months ended
September 30, 1995 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, 1996 compared to nine months ended September 30, 1996 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.
On May 14, 1996, Texas Regional Bancshares, Inc. completed its public offering
of 2.5 million shares of the Company's Class A Voting Common Stock (priced at
$22.25 per share). On May 14, 1996, Texas Regional Bancshares, Inc. also
completed the acquisition of First State Bank & Trust Co., Mission, Texas and
The Border Bank, Hidalgo, Texas, (the "Mergers"), through merger with Texas
State Bank, (the "Bank") the principal operating subsidiary of Texas Regional
Bancshares, Inc. The purchase price of the Mergers was financed with a
combination of proceeds from the 2.5 million share common equity offering and
cash on the balance sheet of the Company. The Mergers included the assumption of
$241.8 million in loans and the assumption of $450.4 million in deposit
liabilities.
During August 1995, the Bank acquired two branch bank locations, one in Rio
Grande City, Texas, and the other in Roma, Texas (the "RGC/Roma Branch
Acquisitions"). The RGC/Roma Branch Acquisitions included the purchase of $43.7
million in loans and the assumption of approximately $79.7 million in deposit
liabilities of these branches.
The Mergers and the RGC/Roma Branch Acquisitions were accounted for as a
purchase; therefore, the results of operations of the two acquired banks and the
two branches are included in the consolidated financial statements from the date
of each respective acquisition. Accordingly, certain income statement and
balance sheet comparisons may not be appropriate.
The following table presents selected financial data regarding results of
operations:
<TABLE>
<CAPTION>
Condensed Quarterly Income Nine Months Ended
Statements Taxable Equivalent 1996 1995
Basis --------------------------------- -------------------- September 30,
(Dollars in Thousands, THIRD Second First Fourth Third --------------------
Except Per Share Data) QUARTER Quarter Quarter Quarter Quarter 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Interest Income $ 24,086 $ 18,621 $ 13,176 $ 12,804 $ 11,904 $ 55,883 $ 33,002
Interest Expense 10,067 7,640 5,281 5,171 4,857 22,988 12,881
- ---------------------------------------------------------------------------------------------------------------
Net Interest Income 14,019 10,981 7,895 7,633 7,047 32,895 20,121
Provision for Loan Losses 549 316 461 625 372 1,326 1,060
Noninterest Income 2,493 2,145 1,946 1,729 1,623 6,584 4,789
Noninterest Expense 7,973 6,707 5,314 5,035 4,694 19,994 13,942
- ---------------------------------------------------------------------------------------------------------------
Income Before Taxable-Equivalent
Adjustment and Income Tax
Expense 7,990 6,103 4,066 3,702 3,604 18,159 9,908
Taxable-Equivalent Adjustment 630 402 206 105 35 1,238 109
Income Tax Expense 2,205 2,024 1,306 1,177 1,292 5,535 3,494
- ---------------------------------------------------------------------------------------------------------------
Net Income $ 5,155 $ 3,677 $ 2,554 $ 2,420 $ 2,277 $ 11,386 $ 6,305
- ---------------------------------------------------------------------------------------------------------------
Net Income Per Common Share
Primary $ 0.58 $ 0.49 $ 0.41 $ 0.39 $ 0.37 $ 1.51 $ 1.02
Fully Diluted 0.58 0.49 0.41 0.39 0.36 1.50 1.01
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
-12-
<PAGE>
NET INTEREST INCOME
Taxable-equivalent net interest income was $14.0 million for the three months
ended September 30, 1996, an increase of $7.0 million or 98.9% compared to the
three months ended September 30, 1995 of $7.0 million. The net yield on total
interest-earning assets, also referred to as interest rate margin, of 5.12% for
the three months ended September 30, 1996 reflects a slight decrease of three
basis points compared to 5.15% for the three months ended September 30, 1995.
The interest rate margin of 5.22% for the nine months ended September 30, 1996
reflects a slight decrease of twelve basis points compared to 5.34% for the nine
months ended September 30, 1995. Average total loans as a percentage of average
total deposits for the three months and the nine months ended September 30, 1996
of 65.10% and 69.78%, respectively, reflect a decrease when compared to the
three months and nine months ended September 30, 1995 of 69.53% and 71.88%,
respectively. The ratios of loans to deposits as previously discussed reflects a
shift in the earnings mix of interest earnings assets, primarily attributable to
the Mergers, which has resulted in a slightly lower interest rate margin due to
earning assets being invested in lower yielding securities and federal funds
sold.
The following tables present for the three months ended September 30, 1996, June
30, 1996 and September 30, 1995 and for the nine months ended September 30,
1996, and September 30, 1995, 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 35% effective income tax rate for 1996 and
a 34% effective income tax rate for 1995.
-13-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
Summary of Interest-Earning ---------------------------------------------------------------------------------------------
Assets and Interest-Bearing September 30, 1996 June 30, 1996 September 30, 1995
Liabilities ------------------------------------ --------------------------------- --------------------
Taxable-Equivalent Basis Average Yield/ Average Yield/ 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 $ 236,520 $ 5,753 9.68% $ 219,886 $ 5,353 9.79% $ 117,378 $ 2,950
Real Estate 396,418 10,187 10.22 316,383 7,968 10.13 215,052 5,505
Consumer 69,782 1,793 10.22 54,633 1,348 9.92 40,081 997
- -----------------------------------------------------------------------------------------------------------------------------
Total Loans 702,720 17,733 10.04 590,902 14,669 9.98 372,511 9,452
- -----------------------------------------------------------------------------------------------------------------------------
Investment Securities
Taxable 311,355 4,856 6.20 188,087 2,750 5.88 130,504 1,837
Tax-Exempt 43,657 1,062 9.68 28,688 669 9.38 4,797 105
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment
Securities 355,012 5,918 6.63 216,775 3,419 6.34 135,301 1,942
- -----------------------------------------------------------------------------------------------------------------------------
Federal Funds Sold 32,336 435 5.35 39,492 534 5.44 34,971 510
- -----------------------------------------------------------------------------------------------------------------------------
Total Interest-Earning
Assets $1,090,068 24,086 8.79 $ 847,169 18,622 8.84 $ 542,783 11,904
- -----------------------------------------------------------------------------------------------------------------------------
Interest-Bearing Liabilities
Savings and Time Deposits
Savings $ 98,010 797 3.24 $ 71,487 557 3.13 $ 32,701 221
Money Market Checking and
Savings 251,692 1,761 2.78 190,602 1,328 2.80 131,691 899
Time Deposits 562,316 7,505 5.31 429,714 5,749 5.38 263,407 3,727
- -----------------------------------------------------------------------------------------------------------------------------
Total Savings and Time
Deposits 912,028 10,063 4.39 691,803 7,634 4.44 427,799 4,847
- -----------------------------------------------------------------------------------------------------------------------------
Federal Funds Purchased and
Securities Sold Under
Repurchase Agreements 416 4 383 495 6 4.88 997 10
Short-Term Borrowings -- -- -- -- -- -- 75 --
- -----------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing
Liabilities $ 912,434 10,067 4.39 $ 692,298 7,640 4.44 $ 428,871 4,857
- -----------------------------------------------------------------------------------------------------------------------------
Net Interest Income $ 14,019 $ 10,982 $ 7,047
- -----------------------------------------------------------------------------------------------------------------------------
Net Yield on Total
Interest-Earning Assets 5.12% 5.21%
- -----------------------------------------------------------------------------------------------------------------------------
* Annualized
<CAPTION>
Assets and Interest-Bearing
Liabilities
Taxable-Equivalent Basis Yield/
(Dollars in Thousands) Rate*
<S> <C>
- ------------------------------
Interest-Earning Assets
Loans
Commercial 9.97%
Real Estate 10.16
Consumer 9.87
- ------------------------------
Total Loans 10.07
- ------------------------------
Investment Securities
Taxable 5.58
Tax-Exempt 8.68
- ------------------------------
Total Investment
Securities 5.69
- ------------------------------
Federal Funds Sold 5.79
- ------------------------------
Total Interest-Earning
Assets 8.70
- ------------------------------
Interest-Bearing Liabilities
Savings and Time Deposits
Savings 2.68
Money Market Checking and
Savings 2.71
Time Deposits 5.61
- ------------------------------
Total Savings and Time
Deposits 4.50
- ------------------------------
Federal Funds Purchased and
Securities Sold Under
Repurchase Agreements 3.98
Short-Term Borrowings --
- ------------------------------
Total Interest-Bearing
Liabilities 4.49
- ------------------------------
Net Interest Income
- ------------------------------
Net Yield on Total
Interest-Earning Assets 5.15%
- ------------------------------
* Annualized
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
Summary of Interest-Earning ----------------------------------------------------------------------
Assets and Interest-Bearing September 30, 1996 September 30, 1995
Liabilities ----------------------------------- ---------------------------------
Taxable-Equivalent Basis Average Yield/ Average Yield/
(Dollars in Thousands) Balance Interest Rate* Balance Interest Rate*
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Interest-Earning Assets
Loans
Commercial $ 210,232 $ 15,265 9.70% $ 120,272 $ 8,919 9.91%
Real Estate 317,476 24,085 10.13 200,994 15,350 10.21
Consumer 55,964 4,231 10.10 34,819 2,538 9.75
- -----------------------------------------------------------------------------------------------------------------------
Total Loans 583,672 43,581 9.97 356,085 26,807 10.07
- -----------------------------------------------------------------------------------------------------------------------
Investment Securities
Taxable 204,989 9,324 6.08 121,552 4,945 5.44
Tax-Exempt 25,755 1,839 9.54 4,913 324 8.82
- -----------------------------------------------------------------------------------------------------------------------
Total Investment Securities 230,744 11,163 6.46 126,465 5,269 5.57
- -----------------------------------------------------------------------------------------------------------------------
Federal Funds Sold 28,152 1,139 5.40 20,871 926 5.93
- -----------------------------------------------------------------------------------------------------------------------
Total Interest-Earning Assets $ 842,568 55,883 8.86 $ 503,421 33,002 8.76
- -----------------------------------------------------------------------------------------------------------------------
Interest-Bearing Liabilities
Savings and Time Deposits
Savings $ 68,950 1,607 3.11 $ 29,361 585 2.66
Money Market Checking and Savings 192,688 4,018 2.79 127,991 2,585 2.70
Time Deposits 429,588 17,347 5.39 237,293 9,657 5.44
- -----------------------------------------------------------------------------------------------------------------------
Total Savings and Time Deposits 691,226 22,972 4.44 394,645 12,827 4.35
- -----------------------------------------------------------------------------------------------------------------------
Federal Funds Purchased and Securities Sold
Under Repurchase Agreements 532 16 4.02 1,191 38 4.27
Short-Term Borrowings -- -- -- 311 16 6.88
- -----------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities $ 691,758 22,988 4.44 $ 396,147 12,881 4.35
- -----------------------------------------------------------------------------------------------------------------------
Net Interest Income $ 32,895 $ 20,121
- -----------------------------------------------------------------------------------------------------------------------
Net Yield on Total
Interest-Earning Assets 5.22% 5.34%
- -----------------------------------------------------------------------------------------------------------------------
* 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, 1996 as compared to the nine month period ended
September 30, 1995. 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
1996 Compared to 1995 Net -------------------------------------
(Dollars in Thousands) Change Volume Rate Rate/Volume
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Interest Income
Loans, Including Fees $ 16,774 $ 17,141 $ (242) $ (125)
Investment Securities
Taxable 4,379 3,395 587 397
Tax-Exempt 1,515 1,375 27 113
Federal Funds Sold 213 323 (82) (28)
- -----------------------------------------------------------------------------------------------------------
Total Interest Income 22,881 22,234 290 357
- -----------------------------------------------------------------------------------------------------------
Interest Expense
Deposits 10,145 9,649 278 218
Federal Funds Purchased and Securities Sold Under
Repurchase Agreements (22) (21) (2) 1
Short-Term Borrowings (16) (16) -- --
- -----------------------------------------------------------------------------------------------------------
Total Interest Expense 10,107 9,612 276 219
- -----------------------------------------------------------------------------------------------------------
Net Interest Income Before Allocation of Rate/Volume 12,774 12,622 14 138
- -----------------------------------------------------------------------------------------------------------
Allocation of Rate/Volume -- 91 47 (138)
- -----------------------------------------------------------------------------------------------------------
Changes in Net Interest Income $ 12,774 $ 12,713 $ 61 $ --
- -----------------------------------------------------------------------------------------------------------
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three months ended September 30, 1996 of
$549,000 reflects an increase of $177,000 or 47.6% compared to $372,000 for the
three months ended September 30, 1995. The provision for loan losses for the
nine months ended September 30, 1996 of $1.3 million reflects an increase of
$266,000 or 25.1% compared to $1.1 million for the nine months ended September
30, 1995 and was primarily attributable to charged-off loans and new loan
growth. See "ALLOWANCE FOR LOAN LOSSES."
NONINTEREST INCOME
Noninterest income for the three months ended September 30, 1996 of $2.5 million
increased $870,000 or 53.6% compared to $1.6 million for the three months ended
September 30, 1995. All categories on noninterest income for the three months
ended September 30, 1996 reflect increased income when compared to the three
months ended September 30, 1995. Noninterest income for the nine months ended
September 30, 1996 of $6.6 million increased $1.8 million or 37.5% compared to
$4.8 million for the nine months ended September 30, 1995. All categories of
noninterest income for the nine months ended September 30, 1996 reflect
increased income compared to the nine months ended September 30, 1995. The
increase in Noninterest Income for the three months ended September 30, 1996
compared to three months ended September 30, 1995 and for the nine months ended
September 30, 1996 compared to the nine months ended September 30, 1995 is
primarily attributable to the Mergers, the RGC/Roma Branch Acquisitions,
increased fee income from Total Service Charges, Trust Service Fees and Data
Processing Service Fees. The increase in Service Charges on Deposit Accounts and
Other Service Charges were both impacted by the Mergers, the RGC/Roma Branch
Acquisitions and an increase in activity levels and additional volume. Trust
Service Fees of $1.1 million for the nine months ended September 30, 1996
reflect a net increase of $193,000 or 21.0% when compared to $917,000 for the
nine months ended September 30, 1995. 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 increase in Data Processing Service Fees is
primarily attributable to additional third party processing which began in the
fourth quarter of 1995.
-16-
<PAGE>
The following table summarizes the major noninterest income categories:
<TABLE>
<CAPTION>
1996 1995 Nine Months Ended
------------------------------------- ------------------------ September 30,
Noninterest Income Third Second First Fourth Third --------------------
(Dollars in Thousands) Quarter Quarter Quarter Quarter Quarter 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Service Charges on Deposit
Accounts $ 1,380 $ 1,167 $ 939 $ 955 $ 899 $ 3,486 $ 2,517
Other Service Charges 261 236 236 171 192 733 688
- -------------------------------------------------------------------------------------------------------------------------
Total Service Charges 1,641 1,403 1,175 1,126 1,091 4,219 3,205
Trust Service Fees 359 385 366 339 314 1,110 917
Investment Securities Gains
(Losses) 156 -- 1 (98) -- 157 (13)
Data Processing Service Fees 225 226 220 171 112 671 270
Other Operating Income 112 131 184 191 106 427 410
- -------------------------------------------------------------------------------------------------------------------------
Total $ 2,493 $ 2,145 $ 1,946 $ 1,729 $ 1,623 $ 6,584 $ 4,789
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
NONINTEREST EXPENSE
Noninterest expense for the three months ended September 30, 1996 of $8.0
million increased $3.3 million or 69.9% compared to the three months ended
September 30, 1995 of $4.7 million. Noninterest expense for the nine months
ended September 30, 1996 of $20.0 million increased $6.1 million or 43.4%
compared to the nine months ended September 30, 1995 of $13.9 million. The
increase in noninterest expense for the three months ended September 30, 1996
compared to the three months ended September 30, 1995 and for the nine months
ended September 30, 1996 compared to nine months ended September 30, 1995 was
primarily attributable to the Mergers, RGC/Roma Branch Acquisitions the
increased volume of business conducted by the Company. Although Noninterest
Expense has increased substantially, the efficiency ratios of 48.74% and 50.95%
for the three months ended and the nine months ended September 30, 1996,
respectively, reflect improvement when compared to efficiency ratios of 53.45%
and 55.33% for the three months ended and the nine months ended September 30,
1995, respectively.
The largest category of noninterest expense, Salaries and Employee Benefits
("Personnel"), of $4.0 million for the three months ended September 30, 1996
increased $1.5 million or 63.1% compared to the three months ended September 30,
1995. Personnel expense of $10.1 million for nine months ended September 30,
1996 increased $3.1 million or 43.7% compared to the $7.0 million for the nine
months ended September 30, 1995. Personnel expense increased for the three
months ended September 30, 1996 compared to the three months ended September 30,
1995 and for the nine months ended September 30, 1996 compared to the nine
months ended September 30, 1995 primarily due to the Mergers, RGC/Roma Branch
Acquisitions and staffing increases, including the staff acquired for the
Company's second banking location in Weslaco, Texas, (the "New Weslaco Banking
Location") and increases in payroll taxes, medical insurance premiums and
pension expenses for all employees.
Net Occupancy expense of $545,000 for the three months ended September 30, 1996
increased $268,000 or 96.8% compared to $277,000 for the three months ended
September 30, 1995. Net occupancy expense of $1.4 million for the nine months
ended September 30, 1996 increased $577,000 or 73.0% compared to $790,000 for
nine months ended September 30, 1995. The Net Occupancy expense increased for
the three months ended September 30, 1996 compared to the three months ended
September 30, 1995 and for the nine months ended September 30, 1996 compared to
the nine months ended September 30, 1995 primarily due to the occupancy expenses
associated with the Mergers, the RGC/ Roma Branch Acquisitions and the New
Weslaco Banking Location.
Equipment expense of $906,000 for the three months ended September 30, 1996
increased $371,000 or 69.3% compared to $535,000 for the three months ended
September 30, 1995. Equipment expenses of $2.3 million for the nine months ended
September 30, 1996 increased $842,000 or 57.5% compared to $1.5 million for the
nine months ended September 30, 1995. Equipment expense increased for the three
months ended September 30, 1996 as compared to the three months ended September
30, 1995 and for the nine months ended September 30, 1996 compared to the nine
months ended September 30, 1995 primarily due to expenses associated with the
Mergers, the RGC/Roma Branch Acquisitions and the New Weslaco Banking Location.
Total Other Noninterest Expense of $2.5 million for the three months ended
September 30, 1996 increased $1.2 million or 84.1% compared to $1.4 million for
the three months ended September 30, 1995. Total Other Noninterest Expenses of
$6.3 million for the nine months ended September 30, 1996 increased $1.8 million
or 39.0% compared to $4.5 million
-17-
<PAGE>
for the nine months ended September 30, 1995. Total Other Noninterest Expense
increased for the three months ended September 30, 1996 as compared to the three
months ended September 30, 1995 and for the nine months ended September 30, 1996
compared to the nine months ended September 30, 1995 primarily due to expenses
associated with the Mergers, the RGC/Roma Branch Acquisitions and the New
Weslaco Banking Location.
The following table displays the major noninterest expense categories:
<TABLE>
<CAPTION>
1996 1995 Nine Months Ended
------------------------------------- ------------------------ September 30,
Noninterest Expense Third Second First Fourth Third --------------------
(Dollars in Thousands) Quarter Quarter Quarter Quarter Quarter 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Salaries and Employee Benefits
Salaries and Wages $ 3,169 $ 2,680 $ 2,163 $ 2,076 $ 1,954 $ 8,012 $ 5,529
Employee Benefits 833 643 574 483 500 2,050 1,475
- -----------------------------------------------------------------------------------------------------------------------
Total Salaries and Employee
Benefits 4,002 3,323 2,737 2,559 2,454 10,062 7,004
- -----------------------------------------------------------------------------------------------------------------------
Net Occupancy Expense 545 505 317 279 277 1,367 790
- -----------------------------------------------------------------------------------------------------------------------
Equipment Expense 906 757 643 564 535 2,306 1,464
- -----------------------------------------------------------------------------------------------------------------------
Other Real Estate
(Income) Expense, Net
Rent Income (28) (25) (33) (22) (27) (86) (124)
(Gain) Loss on Sale (76) (48) -- (71) (6) (124) 74
Expense 70 43 23 48 34 136 83
Write-Downs 35 -- -- -- 59 35 119
- -----------------------------------------------------------------------------------------------------------------------
Total Other Real Estate
(Income) Expense, Net 1 (30) (10) (45) 60 (39) 152
- -----------------------------------------------------------------------------------------------------------------------
Other Noninterest Expense
Advertising and Public
Relations 283 305 212 187 203 800 585
Amortization of Intangibles 534 326 123 123 88 983 200
Data Processing and Check
Clearing 310 225 151 132 147 686 359
Director Fees 95 83 74 75 74 252 209
Franchise Tax 56 60 74 49 50 190 149
Insurance 79 58 43 39 38 180 189
FDIC Insurance 1 1 1 47 (29) 3 493
Legal and Professional 244 332 258 251 221 834 619
Stationery and Supplies 250 223 194 184 182 667 474
Telephone 93 73 67 77 66 233 173
Other Losses 238 136 122 239 117 496 385
Miscellaneous Expenses 336 330 308 275 211 974 697
- -----------------------------------------------------------------------------------------------------------------------
Total Other Noninterest
Expense 2,519 2,152 1,627 1,678 1,368 6,298 4,532
- -----------------------------------------------------------------------------------------------------------------------
Total $ 7,973 $ 6,707 $ 5,314 $ 5,035 $ 4,694 $ 19,994 $ 13,942
- -----------------------------------------------------------------------------------------------------------------------
</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 Mergers, the RGC/Roma Branch Acquisition and additional capital. Average
interest-earning assets for the three months ended September 30, 1996 of $1.1
billion increased $547.3 million or 100.8% compared to the three months ended
September 30, 1995 of $542.8 million. Average interest-earning assets for the
nine months ended September 30, 1996 of $842.6 million increased $339.1 million
or 67.4% compared to the nine months ended September 30, 1995 of $503.4 million.
-18-
<PAGE>
Average total deposits for the three months ended September 30, 1996 of $1.1
billion increased $543.8 million or 101.5% compared to the three months ended
September 30, 1996 of $535.7 million primarily due to the Mergers and the
RGC/Roma Branch Acquisition. Average total deposits for the nine months ended
September 30, 1996 of $836.4 million increased $341.1 million or 68.8% compared
to the nine months ended September 30, 1995 of $495.4 million.
The following table presents the consolidated average balance sheets:
<TABLE>
<CAPTION>
1996 1995 Nine Months Ended
-------------------------------- -------------------- September 30,
Average Balance Sheets Third Second First Fourth Third --------------------
(In Thousands) Quarter Quarter Quarter Quarter Quarter 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Assets
Loans $ 702,720 $ 590,902 $ 457,394 $ 412,841 $ 372,511 $ 583,672 $ 356,085
Investment Securities
Taxable 311,355 188,087 115,525 139,688 130,504 204,989 121,552
Tax-Exempt 43,657 28,688 4,920 4,889 4,797 25,755 4,913
Federal Funds Sold 32,336 39,492 12,628 16,615 34,971 28,152 20,871
- ---------------------------------------------------------------------------------------------------------
Total Interest-Earning
Assets 1,090,068 847,169 590,467 574,033 542,783 842,568 503,421
Cash and Due from Banks 48,723 46,135 35,081 31,520 31,538 43,313 31,028
Bank Premises and
Equipment, Net 36,244 27,996 18,680 17,739 16,535 27,640 15,907
Other Assets 48,260 31,507 16,215 15,967 14,419 31,994 12,687
Allowance for Loan Losses (10,061) (7,614) (4,804) (4,347) (4,331) (7,493) (4,095)
- ---------------------------------------------------------------------------------------------------------
Total $1,213,234 $ 945,193 $ 655,639 $ 634,912 $ 600,944 $ 938,022 $ 558,948
- ---------------------------------------------------------------------------------------------------------
Liabilities
Demand Deposits
Commercial and Individual $ 161,378 $ 146,191 $ 111,171 $ 95,864 $ 105,812 $ 139,580 $ 97,076
Public Funds 6,100 5,301 5,393 17,377 2,109 5,598 3,633
- ---------------------------------------------------------------------------------------------------------
Total Demand Deposits 167,478 151,492 116,564 113,241 107,921 145,178 100,709
- ---------------------------------------------------------------------------------------------------------
Savings
Commercial and Individual 97,440 70,943 36,872 36,810 32,332 68,409 29,237
Public Funds 570 544 481 547 369 541 124
Money Market Checking and
Savings Accounts
Commercial and Individual 190,837 147,083 107,433 106,498 104,128 148,451 100,342
Public Funds 60,855 43,519 28,337 25,577 27,563 44,237 27,649
Time Deposits
Commercial and Individual 474,521 383,318 285,402 273,127 246,797 379,980 219,579
Public Funds 87,795 46,396 11,332 11,662 16,610 49,608 17,714
- ---------------------------------------------------------------------------------------------------------
Total Interest-Bearing
Deposits 912,018 691,803 469,857 454,221 427,799 691,226 394,645
- ---------------------------------------------------------------------------------------------------------
Total Deposits 1,079,496 843,295 586,421 567,462 535,720 836,404 495,354
- ---------------------------------------------------------------------------------------------------------
Federal Funds Purchased and
Securities Sold Under
Repurchase Agreements 416 495 685 799 997 532 1,191
Short-Term Borrowings -- -- -- -- 75 -- 311
Other Liabilities 11,096 7,305 4,375 4,310 4,231 7,592 3,675
Shareholders' Equity 122,226 94,098 64,158 62,341 59,921 93,494 58,417
- ---------------------------------------------------------------------------------------------------------
Total $1,213,234 $ 945,193 $ 655,639 $ 634,912 $ 600,944 $ 938,022 $ 558,948
- ---------------------------------------------------------------------------------------------------------
</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, 1996 of $705.8 million increased $311.2 million or
78.9% compared to September 30, 1995 levels of $394.6 million and increased $7.4
million or 1.1% compared to June 30, 1996 levels of $698.4 million. The increase
in loans is partially attributable to the Mergers. The Company's commercial
loans are widely diversified by borrower and industry group. The minimal growth
in loans during the quarter ended September 30, 1996 compared to the quarter
ended June 30, 1996 was a result of seasonal payment on agricultural credits
carried by the recently acquired banks.
The following table presents the composition of the loan portfolio for the last
five quarters:
<TABLE>
<CAPTION>
1996 1995
--------------------------------- --------------------
Loan Portfolio Composition Third Second First Fourth Third
(In Thousands) Quarter Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Commercial $ 177,277 $ 178,171 $ 116,816 $ 112,042 $ 105,395
Commercial Tax-Exempt 39,533 35,572 34,401 34,419 397
- --------------------------------------------------------------------------------------------------------
Total Commercial Loans 216,810 213,743 151,217 146,461 105,792
- --------------------------------------------------------------------------------------------------------
Agricultural 21,392 32,742 28,447 25,097 19,247
- --------------------------------------------------------------------------------------------------------
Real Estate
Construction 45,053 44,520 28,682 29,967 25,998
Commercial Mortgage 224,010 217,514 136,057 129,953 128,979
Agricultural Mortgage 28,494 27,413 17,785 17,057 15,284
1-4 Family Mortgage 99,167 96,922 61,704 59,052 54,836
- --------------------------------------------------------------------------------------------------------
Total Real Estate 396,724 386,369 244,228 236,029 225,097
- --------------------------------------------------------------------------------------------------------
Consumer 70,875 65,580 43,167 43,267 44,471
- --------------------------------------------------------------------------------------------------------
Total Loans $ 705,801 $ 698,434 $ 467,059 $ 450,854 $ 394,607
- --------------------------------------------------------------------------------------------------------
</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
-20-
<PAGE>
such loans past due 90 days or more at September 30, 1996 of $3.4 million
reflects an increase of $3.2 million compared to the September 30, 1995 level of
$244,000. Accruing Loans, 90 days or more past due at September 30, 1996 consist
of 181 notes of which only four are in excess of $100,000, all of which are in
the process of collection.
Nonperforming assets at September 30, 1996 of $5.4 million increased $2.3
million or 76.8% compared to $3.0 million at September 30, 1995. Management
continues to emphasize maintaining a low level of nonperforming assets and
returning nonperforming assets to an earning status.
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>
1996 1995
------------------------------------- ------------------------
Nonperforming Assets Third Second First Fourth Third
(Dollars in Thousands) Quarter Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Nonaccrual Loans $ 3,801 $ 3,748 $ 2,855 $ 2,092 $ 1,519
Renegotiated Loans 2 4 5 6 8
- -------------------------------------------------------------------------------------------------------------------
Nonperforming Loans 3,803 3,752 2,860 2,098 1,527
Other Nonperforming Assets
(Primarily Other Real Estate) 1,551 1,976 1,463 1,489 1,502
- -------------------------------------------------------------------------------------------------------------------
Total Nonperforming Assets 5,354 5,728 4,323 3,587 3,029
Accruing Loans 90 Days or More Past Due 3,446 2,107 533 642 244
- -------------------------------------------------------------------------------------------------------------------
Total Nonperforming Assets and Accruing Loans
90 Days or More Past Due $ 8,800 $ 7,835 $ 4,856 $ 4,229 $ 3,273
- -------------------------------------------------------------------------------------------------------------------
Nonperforming Loans as a % of Total Loans 0.54% 0.54% 0.61% 0.47% 0.39%
Nonperforming Assets as a % of Total Loans and
Other Nonperforming Assets 0.76 0.82 0.92 0.79 0.76
Nonperforming Assets as a % of Total Assets 0.44 0.47 0.66 0.55 0.49
Nonperforming Assets and Accruing Loans 90 Days or
More Past Due as a % of Total Loans and Other
Nonperforming Assets 1.24 1.12 1.04 0.94 0.83
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses at September 30, 1996 of $9.9 million increased
$5.8 million or 140.7% compared to the September 30, 1995 balance of $4.1
million and decreased $26,000 or 0.3% compared to the June 30, 1996 balance of
$9.9 million. The allowance for loan losses at September 30, 1996 reflects an
additional reserve of $4.6 million attributable to loans acquired in the
Mergers. The allowance for loan losses at September 30, 1996 was 1.41% of loans
outstanding, net of unearned discount at September 30, 1996, up from 1.04% at
September 30, 1995. The allowance for loans losses as a percentage of
nonperforming assets was 185.30% at September 30, 1996, reflecting an increase
when compared to 136.1% at September 30, 1995.
-21-
<PAGE>
The following table summarizes the transactions in the allowance for loan
losses:
<TABLE>
<CAPTION>
1996 1995 Nine Months Ended
Allowance for Loan ------------------------------------- ------------------------ September 30,
Loss Activity Third Second First Fourth Third --------------------
(Dollars in Thousands) Quarter Quarter Quarter Quarter Quarter 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Balance at Beginning of Period $ 9,947 $ 4,890 $ 4,542 $ 4,121 $ 3,980 $ 4,542 $ 3,511
Balance from Acquisitions -- 4,647 -- -- 450 4,647 450
Provision for Loan Losses 549 316 461 625 372 1,326 1,060
Charge-Offs
Commercial 296 14 60 93 236 370 720
Agricultural 6 8 -- -- 405 14 416
Real Estate 35 24 4 50 -- 63 61
Consumer 380 53 106 119 85 539 181
- ----------------------------------------------------------------------------------------------------------------------
Total Charge-Offs 717 99 170 262 726 986 1,378
- ----------------------------------------------------------------------------------------------------------------------
Recoveries
Commercial 30 84 33 42 30 147 359
Agricultural -- -- -- 1 -- -- 65
Real Estate 37 59 7 -- 2 103 4
Consumer 75 50 17 15 13 142 50
- ----------------------------------------------------------------------------------------------------------------------
Total Recoveries 142 193 57 58 45 392 478
- ----------------------------------------------------------------------------------------------------------------------
Net Charge-Offs (Recoveries) 575 (94) 113 204 681 594 900
- ----------------------------------------------------------------------------------------------------------------------
Balance at End of Period $ 9,921 $ 9,947 $ 4,890 $ 4,542 $ 4,121 $ 9,921 $ 4,121
- ----------------------------------------------------------------------------------------------------------------------
Ratio of Allowance for Loan
Losses to Loans Outstanding,
Net of Unearned Discount 1.41% 1.42% 1.05% 1.01% 1.04%
Ratio of Allowance For Loan
Losses to Nonperforming Assets 185.30 173.66 113.12 126.62 136.05
Ratio of Net Charge-Offs
(Recoveries) to Average Total
Loans Outstanding, Net of
Unearned Discount 0.08 * 0.10 0.30 0.18
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not meaningful.
DEPOSITS
Total deposits at September 30, 1996 of $1.1 billion increased $512.5 million or
92.6% compared to the September 30, 1995 balance of $553.7 million and decreased
$22.4 million or 2.1% compared to June 30, 1996 of $1.1 billion. The increase in
total deposits from September 30, 1995 to September 30, 1996 is primarily
attributable to the Mergers. The decrease in deposits from June 30, 1996 to
September 30, 1996 is primarily attributable to the decline in Public Funds
deposits. Total Public Funds deposits at September 30, 1996 of $156.7 million
decreased $13.8 million or 8.1% compared to the June 30, 1996 level of $170.5
million.
-22-
<PAGE>
The following table presents the composition of total deposits for the last five
quarters:
<TABLE>
<CAPTION>
1996 1995
--------------------------------- --------------------
Total Deposits Third Second First Fourth Third
(In Thousands) Quarter Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Demand Deposits
Commercial and Individual $ 159,545 $ 169,838 $ 113,072 $ 113,345 $ 102,733
Public Funds 7,894 5,992 7,015 7,069 5,407
- ---------------------------------------------------------------------------------------------------
Total Demand Deposits 167,439 175,830 120,087 120,414 108,140
- ---------------------------------------------------------------------------------------------------
Interest-Bearing Deposits
Savings
Commercial and Individual 94,116 98,584 38,427 35,521 36,428
Public Funds 564 947 423 612 496
Money Market Checking and Savings
Commercial and Individual 180,051 182,527 106,861 105,409 103,704
Public Funds 68,819 66,834 20,361 22,278 24,078
Time Deposits
Commercial and Individual 475,846 467,194 287,827 285,545 265,728
Public Funds 79,395 96,686 12,008 9,952 15,128
- ---------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 898,791 912,772 465,907 459,317 445,562
- ---------------------------------------------------------------------------------------------------
Total Deposits $1,066,230 $1,088,602 $ 585,994 $ 579,731 $ 553,702
- ---------------------------------------------------------------------------------------------------
</TABLE>
CAPITAL AND LIQUIDITY
Shareholders' equity at September 30, 1996 of $123.5 million increased $62.8
million or 103.4% compared to the September 30, 1995 level of $60.7 million and
increased $60.8 million or 97.0% compared to the December 31, 1995 level of
$62.7 million. The increase in shareholders' equity at September 30, 1996
compared to September 30, 1995 and December 31, 1995 was primarily attributable
to a public offering of 2.5 million shares of the Company's Class A Voting
Common stock, (priced at $22.25 per share) and net income.
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, 1996 the approximate ratios were
12.30% for Tier 1 Capital, 13.53% for Total Capital and 8.32% for a Leverage
ratio.
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.
For the nine months ended September 30, 1996, liquidity was enhanced by net cash
provided by operating activities of $12.9 million and net cash provided by
financing activities of $85.5 million. The increase in net cash provided by
financing activities was primarily attributable to $51.9 million of proceeds
from the sale of stock and the $36.1 million net increase in deposits which was
primarily attributable to the Mergers. The increase in cash and cash equivalents
was offset by $53.9 million net cash used in investing activities which
consisted primarily of funding $21.7 million of purchases, originations and
advances of loans, net investment purchases (purchases less proceeds from sales
and maturities) of $20.9 million and $15.4 million net cash used in completing
the Mergers. As a result, net cash and cash equivalents at September 30, 1996 of
$79.1 million increased $44.6 million or 129.0% compared to net cash and cash
equivalents at December 31, 1995 of $34.5 million.
-23-
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
---------------------- ----------------------
Ratio Analysis (Annualized) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Return on Average Assets 1.69% 1.50% 1.62% 1.51%
Return on Average Shareholders' Equity 16.78 15.08 16.27 14.43
Dividend Payout Ratio 17.24 27.78 20.00 29.70
Net Interest Income to Total Average Earning Assets* 5.12 5.15 5.22 5.34
Efficiency Ratio* 48.74 53.45 50.95 55.33
Total Average Loans to Total Average Deposits 65.10 69.53 69.78 71.88
Average Equity to Average Assets 10.07 9.97 9.97 10.45
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Taxable-Equivalent Basis Assuming a 35% tax rate for 1996 and a 34% tax rate
for 1995.
<TABLE>
<CAPTION>
COMMON STOCK TRADING DATA (NASDAQ National Market System)
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Trading Volume (1996)
Price
September 30,
1996 $28.75 Book Value $14.18 July 320,182 shares
1996 price range $17.00-$29.25 Price/Book Value 202.8% August 401,300 shares
December 31, 1995 $17.25* September 213,025 shares
- -------------------------------------------------------------------------------------------------
</TABLE>
*Closing price.
-24-
<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>
<S> <C>
October 16, 1996 /s/ G. E. Roney
- ------------------------ -------------------------------------------
Date G. E. Roney
CHAIRMAN OF THE BOARD,
PRESIDENT & CHIEF
EXECUTIVE OFFICER
October 16, 1996 /s/ George R. Carruthers
- ------------------------ -------------------------------------------
Date George R. Carruthers
EXECUTIVE VICE PRESIDENT
& CHIEF FINANCIAL OFFICER
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF INCOME FOUND
ON PAGES 4 AND 5 OF FORM 10-Q FILED OCTOBER 16, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 47,258
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 31,835
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 208,143
<INVESTMENTS-CARRYING> 134,840
<INVESTMENTS-MARKET> 135,039
<LOANS> 705,801
<ALLOWANCE> 9,921
<TOTAL-ASSETS> 1,213,120
<DEPOSITS> 1,066,230
<SHORT-TERM> 0
<LIABILITIES-OTHER> 22,951
<LONG-TERM> 0
0
0
<COMMON> 8,708
<OTHER-SE> 114,823
<TOTAL-LIABILITIES-AND-EQUITY> 1,213,120
<INTEREST-LOAN> 43,024
<INTEREST-INVEST> 10,482
<INTEREST-OTHER> 1,139
<INTEREST-TOTAL> 54,645
<INTEREST-DEPOSIT> 22,972
<INTEREST-EXPENSE> 22,988
<INTEREST-INCOME-NET> 31,657
<LOAN-LOSSES> 1,326
<SECURITIES-GAINS> 157
<EXPENSE-OTHER> 19,994
<INCOME-PRETAX> 16,921
<INCOME-PRE-EXTRAORDINARY> 16,921
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,386
<EPS-PRIMARY> 1.51
<EPS-DILUTED> 1.50
<YIELD-ACTUAL> 5.22
<LOANS-NON> 3,801
<LOANS-PAST> 3,446
<LOANS-TROUBLED> 2
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,542
<CHARGE-OFFS> 986
<RECOVERIES> 392
<ALLOWANCE-CLOSE> 9,921
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1> Note 1-Tag 54: Includes 4,647 from acquisitions.
</FN>
</TABLE>
