UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of The
Securities Exchange Act of 1934
For the Quarterly period Ended March 31, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from
___________ to___________
Commission File No. 0-14517
Texas Regional Bancshares, Inc.
(Exact name of registrant as specified in its charter)
Texas 74-2294235
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
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 April 7, 1997.
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The information called for by Item 1. are included herein.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information called for by Item 2. are included herein.
PART II. OTHER INFORMATION
Item 6.
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None
2
<PAGE>
Texas Regional Bancshares, Inc. and Subsidiary
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS (UNAUDITED) March 31, December 31,
------------------- --------------
(Dollars in Thousands) 1997 1996 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Cash and Due From Banks $ 48,625 $ 31,547 $ 56,100
Federal Funds Sold 23,000 13,200 10,515
- -----------------------------------------------------------------------------------------------
Total Cash and Cash Equivalents 71,625 44,747 66,615
Securities Available for Sale 210,693 57,453 192,301
Securities Held to Maturity (Estimated Market Value of
$110,673 and $56,081 at
March 31, 1997 and 1996,
respectively, and $126,896 at December 31, 1996) 110,356 55,913 125,835
Loans, Net of Unearned Discount of $1,667 and $1,263 at
March 31, 1997 and 1996, respectively and $1,607 at
December 31, 1996 793,433 467,059 757,656
Less Allowance for Loan Losses (10,237) (4,890) (10,031)
- -----------------------------------------------------------------------------------------------
Net Loans 783,196 462,169 747,625
Premises and Equipment, Net 37,700 18,964 37,054
Accrued Interest Receivable 16,076 6,724 13,743
Other Real Estate 929 1,353 742
Intangibles 25,755 5,588 26,318
Other Assets 4,690 2,975 20,344
- -----------------------------------------------------------------------------------------------
Total Assets $1,261,020 $655,886 $1,230,577
===============================================================================================
Liabilities
Deposits
Demand $ 175,515 $120,087 $ 168,728
Savings 94,019 38,850 94,852
Money Market Checking and Savings 218,822 127,222 234,927
Time Deposits 629,619 299,835 593,228
- -----------------------------------------------------------------------------------------------
Total Deposits 1,117,975 585,994 1,091,735
Federal Funds Purchased and Securities
Sold Under Repurchase Agreements 504 600 632
Accounts Payable and Accrued Liabilities 11,737 4,729 10,062
- -----------------------------------------------------------------------------------------------
Total Liabilities 1,130,216 591,323 1,102,429
- -----------------------------------------------------------------------------------------------
Commitment and Contingencies
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
at March 31, 1997 and 6,196,791 at March 31, 1996
and 8,708,898 at December 31, 1996, (Notes 2 and 4) 8,708 6,196 8,708
Paid-In Capital 78,605 29,239 78,605
Retained Earnings 44,600 29,102 40,315
Unrealized Gain (Loss) on Securities Available for Sale (1,109) 26 520
- -----------------------------------------------------------------------------------------------
Total Shareholders' Equity 130,804 64,563 128,148
- -----------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $1,261,020 $655,886 $1,230,577
===============================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
<TABLE>
<CAPTION>
Texas Regional Bancshares, Inc. and Subsidiary Three Months
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Ended March 31,
------------------------
(Dollars in Thousands, Except Per Share Data) 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Interest Income
Loans, Including Fees $18,646 $11,011
Investment Securities
Taxable 4,788 1,718
Tax-Exempt 395 71
Federal Funds Sold 312 170
- -----------------------------------------------------------------------------------------
Total Interest Income 24,141 12,970
- -----------------------------------------------------------------------------------------
Interest Expense
Deposits 10,495 5,275
Federal Funds Purchased and
Securities Sold Under Repurchase Agreements 6 6
- -----------------------------------------------------------------------------------------
Total Interest Expense 10,501 5,281
- -----------------------------------------------------------------------------------------
Net Interest Income 13,640 7,689
Provision for Loan Losses 613 461
- -----------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 13,027 7,228
- -----------------------------------------------------------------------------------------
Noninterest Income
Service Charges on Deposit Accounts 1,440 939
Other Service Charges 331 236
Trust Service Fees 390 366
Investment Security Gains (Losses) 171 1
Data Processing Service Fees 262 220
Other Operating Income 300 184
- -----------------------------------------------------------------------------------------
Total Noninterest Income 2,894 1,946
- -----------------------------------------------------------------------------------------
Noninterest Expense
Salaries and Employee Benefits 4,019 2,737
Net Occupancy Expense 579 317
Equipment Expense 835 643
Other Real Estate (Income) Expense, Net (15) (10)
Other Noninterest Expense 2,571 1,627
- -----------------------------------------------------------------------------------------
Total Noninterest Expense 7,989 5,314
- -----------------------------------------------------------------------------------------
Income Before Income Tax Expense 7,932 3,860
Income Tax Expense 2,689 1,306
- -----------------------------------------------------------------------------------------
Net Income $ 5,243 $ 2,554
=========================================================================================
Primary Earnings Per Common Share (Note 2)
Net Income $ 0.59 $ 0.41
Weighted Average Number of Common Shares
Outstanding (In Thousands) 8,864 6,290
- -----------------------------------------------------------------------------------------
Fully Diluted Earnings Per Common Share (Note 2)
Net Income $ 0.59 $ 0.41
Weighted Average Number of Common Shares
Outstanding (In Thousands) 8,864 6,295
=========================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
Texas Regional Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
For the Year Ended December 31, 1996
And the Three Months Ended March 31, 1997
<TABLE>
<CAPTION>
Unrealized
Gain (Loss) Total
Class A on Securities Share-
Common Paid-in Retained Available holders'
(Dollars in Thousands) Stock Capital Earnings for Sale Equity
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ 6,196 $29,239 $27,168 $ 117 $ 62,720
Exercise of stock options,
2,107 shares of Class A
Common Stock 2 23 - - 25
Change in Unrealized Gain
(Loss) on Securities
Available for Sale - - - 403 403
Class A Common Stock
Cash Dividends - - (3,232) - (3,232)
Sale of 2,510,000 shares of
Class A Common Stock 2,510 49,343 - - 51,853
Net Income - - 16,379 - 16,379
- -----------------------------------------------------------------------------------------------
Balance, December 31, 1996 8,708 78,605 40,315 520 128,148
Change in Unrealized Gain
(Loss) on Securities
Available for Sale - - - (1,629) (1,629)
Class A Common Stock
Cash Dividends - - (958) - (958)
Net Income for the Three Months
Ended March 31, 1997 - - 5,243 - 5,243
- -----------------------------------------------------------------------------------------------
Balance, March 31, 1997 $ 8,708 $78,605 $44,600 $(1,109) $130,804
===============================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
Texas Regional Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
(Dollars in Thousands) 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income $ 5,243 $ 2,554
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities
Depreciation, Amortization and Accretion, Net 783 555
Provision for Loan Losses 613 461
Provision for Estimated Losses on Other Real Estate and Other Assets 19 -
Gain on Sales of Other Real Estate (48) -
Gain on Sale of Securities Available for Sale (171) (1)
(Gain) Loss on Sale of Premises and Equipment (1) 2
Loss on Sale of Other Assets 5 9
Increase in Accrued Interest Receivable and Other Assets 13,817 (707)
Increase in Accounts Payable and Accrued Liabilities 2,485 1,214
- -----------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 22,745 4,087
- -----------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Proceeds from Sales of Securities Available for Sale 9,397 7,497
Proceeds from Maturing Securities Available for Sale 32,552 -
Purchases of Securities Available for Sale (62,722) (1,956)
Proceeds from Maturing Securities Held to Maturity 15,460 13,500
Purchases of Securities Held to Maturity - (1,001)
Proceeds from Sale of Loans 39 3,254
Purchases of Loans (232) (1,488)
Loan Originations and Advances (36,791) (18,271)
Recoveries of Charged-Off Loans 316 57
Proceeds from Sale of Other Assets 59 99
Proceeds from Sale of Other Real Estate 315 48
Proceeds from Sale of Premises and Equipment 1 2
Purchases of Premises and Equipment (1,370) (1,100)
- -----------------------------------------------------------------------------------------------
Net Cash Provided by (Used In) Investing Activities (42,976) 641
- -----------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net Increase (Decrease) in Demand, Savings, Money
Market Checking and Savings Deposit Accounts (10,151) 1,925
Net Increase in Time Deposits 36,391 4,338
Net Decrease in Securities Sold
Under Repurchase Agreements (128) (157)
Cash Dividends Paid on Class A Common Stock (Note 4) (871) (620)
- -----------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 25,241 5,486
- -----------------------------------------------------------------------------------------------
Increase in Cash and Cash Equivalents 5,010 10,214
Cash and Cash Equivalents at Beginning of Year 66,615 34,533
- -----------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Quarter $71,625 $44,747
===============================================================================================
Supplemental Disclosures of Cash Flow Information
Interest Paid $10,440 $ 5,366
Income Taxes Paid - 43
Supplemental Schedule of Noncash Investing and Financing Activities
Foreclosure and Repossession in Partial Satisfaction of Loans Receivable $ 484 $ 130
===============================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<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 COMMON SHARE COMPUTATIONS
Earnings per common share computations include the effects of common stock
equivalents applicable to the stock option contracts.
NOTE 3-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 4-COMMON STOCK
On March 11, 1997, the Board of Directors approved an increased cash dividend of
$0.11 per share for shareholders of record on April 8, 1997 and payable on April
15, 1997.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Net income for the three months ended March 31, 1997 was $5.2 million or $0.59
per share, reflecting a net increase of $2.7 million or $0.18 per share,
compared to net income of $2.6 million or $0.41 per share for the three months
ended March 31, 1996 and reflects a net increase of $250,000 or $0.03 per share
compared to net income of $4.9 million or $0.56 per share for the three months
ended December 31, 1996. Earnings performance for the three months ended March
31, 1997 compared to the three months ended March 31, 1996 reflected an increase
in net interest income and an increase in noninterest income, partially offset
by an increase in provision for loan losses and noninterest expense. Earnings
performance for the three months ended March 31, 1997 compared to three months
ended December 31, 1996 reflected an increase in net interest income and an
increase in noninterest income reduced by an increase in noninterest expense. A
more detailed description of the results of operations is included in the
material that follows.
On May 14, 1996, Texas Regional Bancshares, Inc. ("Texas Regional" or the
"Corporation") completed its secondary public offering of 2.5 million shares of
the Company's Class A 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. (collectively, the
"Company"). 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.
The Mergers were accounted for as purchases; therefore, the results of
operations of the two acquired banks 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 1997 1996
Statements Taxable-Equivalent Basis ---------- ---------------------------------------------
(Dollars in Thousands, First Fourth Third Second First
Except Per Share Data) Quarter Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Income $ 24,542 $23,973 $24,086 $18,621 $13,176
Interest Expense 10,501 10,260 10,067 7,640 5,281
- ---------------------------------------------------------------------------------------------
Net Interest Income 14,041 13,713 14,019 10,981 7,895
Provision for Loan Losses 613 794 549 316 461
Noninterest Income 2,894 2,811 2,493 2,145 1,946
Noninterest Expense 7,989 7,968 7,973 6,707 5,314
- ---------------------------------------------------------------------------------------------
Income Before Taxable-Equivalent
Adjustment and Income Tax 8,333 7,762 7,990 6,103 4,066
Taxable-Equivalent Adjustment 401 392 630 402 206
Applicable Income Tax Expense 2,689 2,377 2,205 2,024 1,306
- ---------------------------------------------------------------------------------------------
Net Income $ 5,243 $ 4,993 $ 5,155 $ 3,677 $ 2,554
=============================================================================================
Net Income Per Common Share
Primary $ 0.59 $ 0.56 $ 0.58 $ 0.49 $ 0.41
Fully Diluted 0.59 0.56 0.58 0.49 0.41
=============================================================================================
</TABLE>
* Taxable-Equivalent basis assuming a 35% tax rate.
NET INTEREST INCOME
Taxable-equivalent net interest income was $14.0 million for the three months
ended March 31, 1997, a net increase of $6.1 million or 77.8% compared to the
three months ended March 31, 1996 of $7.9 million and reflects a net increase of
$328,000 or 2.4% compared to net interest income of $13.7 million for the three
months ended December 31, 1996. The increase in net interest income for the
three months ended March 31, 1997 compared to the three months ended March 31,
1996 was primarily attributable to the increase in the volume of
interest-earning assets exceeding the increase in volume of interest-bearing
liabilities and the change in the mix of earnings assets. The increase in net
interest income for the three months ended March 31, 1997 compared to three
months ended December 31, 1996 was primarily attributable to the change in the
mix of interest-earning assets. The average loan balance for the three months
ended March 31, 1997 of $774.4 million increased $47.1 million or 6.5% compared
to the average loan balance
8
<PAGE>
for the three months ended December 31, 1996. The increase in the average
balance of loans outstanding improved earnings. Total average Interest-Earning
Assets for the three months ended March 31, 1997 of $1.1 billion increased $24.6
million or 2.2% compared to the average Total Interest-Earning Assets balance
for the three months ended December 31, 1996.
The net yield on total interest-earning assets, also referred to as interest
rate margin, of 5.07% for the three months ended March 31, 1997 reflects a
decrease of 31 basis points compared to 5.38% for the three months ended March
31, 1996 and reflects an increase of 11 basis points compared to 4.96% for the
three months ended December 31, 1996. The decline in the interest rate margin
for the three months ended March 31, 1997 compared to the three months ended
March 31, 1996 was primarily attributable to the change in the mix of earning
assets as a result of the Mergers. The increase in the interest rate margin for
the three months ended March 31, 1997 compared to the three months ended
December 31, 1996 was due to the change in the mix of earning assets, primarily
loan growth.
The following table presents for the three months ended March 31, 1997, December
31, 1996 and March 31, 1996, 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.
<TABLE>
<CAPTION>
Three Months Ended
Summary of Interest-Earning ---------------------------------------------------------------------------
Assets and Interest-Bearing March 31, 1997 December 31, 1996 March 31, 1996
Liabilities ---------------------------------------------------------------------------
Taxable-Equivalent Basis Average Yield/ Average Yield/ Average Yield/
(Dollars in Thousands) Balance Interest Rate* Balance Interest Rate* Balance Interest Rate*
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets
Loans
Commercial $ 274,018 $ 6,531 9.67% $ 248,996 $ 6,042 9.65% $174,290 $ 4,176 9.64%
Real Estate 428,240 10,538 9.98 406,908 10,163 9.94 239,627 5,929 9.95
Consumer 72,156 1,770 9.95 71,404 1,849 10.30 43,477 1,074 9.94
- ----------------------------------------------------------------------------------------------------------
Total Loans 774,414 18,839 9.87 727,308 18,054 9.88 457,394 11,179 9.83
- ----------------------------------------------------------------------------------------------------------
Investment Securities
Taxable 299,198 4,788 6.49 312,409 4,916 6.26 115,525 1,718 5.98
Tax-Exempt 26,503 603 9.23 28,539 588 8.20 4,920 109 8.83
- ----------------------------------------------------------------------------------------------------------
Total Investment Securities 325,701 5,391 6.71 340,948 5,504 6.42 120,445 1,827 6.10
- ----------------------------------------------------------------------------------------------------------
Federal Funds Sold 23,459 312 5.39 30,716 415 5.37 12,628 170 5.41
- ----------------------------------------------------------------------------------------------------------
Total Interest-Earning
Assets $1,123,574 24,542 8.86 $1,098,972 23,973 8.68 $590,467 13,176 8.97
- ----------------------------------------------------------------------------------------------------------
Interest-Bearing Liabilities
Savings $ 93,018 741 3.23 $ 94,590 767 3.23 $ 37,353 253 2.72
Money Market Checking and
Savings 227,829 1,595 2.84 244,764 1,745 2.84 135,770 929 2.75
Time Deposits 612,096 8,159 5.41 572,284 7,744 5.38 296,734 4,093 5.55
- ----------------------------------------------------------------------------------------------------------
Total Savings and Time
Deposits 932,943 10,495 4.56 911,638 10,256 4.48 469,857 5,275 4.52
- ----------------------------------------------------------------------------------------------------------
Federal Funds Purchased and
Securities Sold Under
Repurchase Agreements 531 6 4.58 432 4 3.68 685 6 3.52
- ----------------------------------------------------------------------------------------------------------
Total Interest-Bearing
Liabilities $ 933,474 10,501 4.56 $ 912,070 10,260 4.48 $470,542 5,281 4.51
- ----------------------------------------------------------------------------------------------------------
Net Interest Income $14,041 $13,713 $ 7,895
- ----------------------------------------------------------------------------------------------------------
Net Yield on Total
Interest-Earning Assets 5.07% 4.96% 5.38%
==========================================================================================================
</TABLE>
* Annualized
9
<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 three month
period ended March 31, 1997 as compared to the three month period ended March
31, 1996. 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
Three Months Ended March 31, Due to Change in
1997 Compared to 1996 Net ---------------------------------------
(In Thousands) Change Volume Rate Rate/Volume
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income
Loans, Including Fees $7,660 $7,748 $ (47) $ (41)
Investment Securities
Taxable 3,070 2,731 131 208
Tax-Exempt 494 474 4 16
Federal Funds Sold 142 146 (2) (2)
- ------------------------------------------------------------------------------------------
Total Interest Income 11,366 11,099 86 181
- ------------------------------------------------------------------------------------------
Interest Expense
Deposits 5,220 5,204 3 13
Federal Funds Purchased
and Securities Sold
Under Repurchase Agreements - (1) 2 (1)
- ------------------------------------------------------------------------------------------
Total Interest Expense 5,220 5,203 5 12
- ------------------------------------------------------------------------------------------
Net Interest Income Before
Allocation Of Rate/Volume 6,146 5,896 81 169
- ------------------------------------------------------------------------------------------
Allocation of Rate/Volume - 159 10 (169)
- ------------------------------------------------------------------------------------------
Changes in Net Interest Income $6,146 $6,055 $ 91 $ -
==========================================================================================
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three months ended March 31, 1997 of
$613,000 reflects an increase of $152,000 or 33.0% compared to $461,000 for the
three months ended March 31, 1996 and was primarily attributable to new loan
growth. See "Allowance For Loan Losses."
NONINTEREST INCOME
Noninterest income for the three months ended March 31, 1997 of $2.9 million
increased $948,000 or 48.7% compared to $1.9 million for the three months ended
March 31, 1996 and increased $83,000 or 3.0% compared to $2.8 million for the
three months ended December 31, 1996. The increase in noninterest income for the
three months ended March 31, 1997 compared to the three months ended March 31,
1996 is primarily attributable to the increased volume of business conducted by
the Company as a result of the Mergers. All categories of noninterest income for
the three months ended March 31, 1997 increased when compared to three months
ended March 31, 1996. Noninterest income for the three months ended March 31,
1997 reflects a modest increase when compared to the three months ended December
31, 1996.
10
<PAGE>
The following table summarizes the major noninterest income categories:
<TABLE>
<CAPTION>
1997 1996
------------ ------------------------------------------
Noninterest Income First Fourth Third Second First
(In Thousands) Quarter Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service Charges on Deposit Accounts $1,440 $1,496 $1,380 $1,167 $ 939
Other Service Charges 331 270 261 236 236
- -----------------------------------------------------------------------------------------------
Total Service Charges 1,771 1,766 1,641 1,403 1,175
Trust Service Fees 390 395 359 385 366
Investment Securities Gains (Losses) 171 244 156 - 1
Data Processing Service Fees 262 239 225 226 220
Other Operating Income 300 167 112 131 184
- -----------------------------------------------------------------------------------------------
Total $2,894 $2,811 $2,493 $2,145 $1,946
===============================================================================================
</TABLE>
NONINTEREST EXPENSE
Noninterest expense for the three months ended March 31, 1997 of $8.0 million
increased $2.7 million or 50.3% compared to the three months ended March 31,
1996 of $5.3 million and increased $21,000 or 0.3% compared to the three months
ended December 31, 1996 of $8.0 million. The increase for the three months ended
March 31, 1997 compared to the three months ended March 31, 1996 was primarily
attributable to the increased volume of business conducted by the Company as a
result of the Mergers.
The largest category of noninterest expense, Salaries and Employee Benefits
("Personnel"), of $4.0 million for the three months ended March 31, 1997
increased $1.3 million or 46.8% compared to the three months ended March 31,
1996 and $167,000 or 4.3% compared to the three months ended December 31, 1996.
Personnel expense increased for the three months ended March 31, 1997 compared
to the three months ended March 31, 1996 primarily due to staffing increases,
including the staff acquired as a result of the Mergers. Personnel expense
increased for the three months ended March 31, 1997 compared to the three months
ended December 31, 1996 primarily due to staffing increases.
Net Occupancy expense of $579,000 for the three months ended March 31, 1997
increased $262,000 or 82.6% compared to $317,000 for the three months ended
March 31, 1996 and decreased $5,000 or 0.9% compared to $584,000 for the three
months ended December 31, 1996. The Net Occupancy expense increase for the three
months ended March 31, 1997 compared to the three months ended March 31, 1996 is
primarily due to the occupancy expenses associated with the Mergers.
Equipment expense of $835,000 for the three months ended March 31, 1997
increased $192,000 or 30.0% compared to $643,000 for the three months ended
March 31, 1996 and decreased $24,000 or 2.8% compared to the three months ended
December 31, 1996. Equipment expense increased for the three months ended March
31, 1997 as compared to the three months ended March 31, 1996 primarily due to
expenses associated with the Mergers.
Other Noninterest expense of $2.6 million for the three months ended March 31,
1997 increased $944,000 or 58.0% compared to $1.6 million for the three months
ended March 31, 1996 and decreased $130,000 or 4.8% compared to the three months
ended December 31, 1996. Other Noninterest expense increased for the three
months ended March 31, 1997 as compared to the three months ended March 31, 1996
primarily due to an increased volume of business and the additional amortization
of intangibles as a result of the Mergers.
11
<PAGE>
The following table displays the major noninterest expense categories:
<TABLE>
<CAPTION>
1997 1996
--------- -----------------------------------------
Noninterest Expense First Fourth Third Second First
(Dollars in Thousands) Quarter Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and Employee Benefits
Salaries and Wages $3,269 $3,021 $3,169 $2,680 $2,163
Employee Benefits 750 831 833 643 574
- ---------------------------------------------------------------------------------------------
Total Salaries and Employee Benefits 4,019 3,852 4,002 3,323 2,737
- ---------------------------------------------------------------------------------------------
Net Occupancy Expense 579 584 545 505 317
- ---------------------------------------------------------------------------------------------
Equipment Expense 835 859 906 757 643
- ---------------------------------------------------------------------------------------------
Other Real Estate (Income) Expense, Net
Rent Income (13) (21) (28) (25) (33)
Gain on Sale (48) (79) (76) (48) -
Expense 46 64 70 43 23
Write-Downs - 8 35 - -
- ---------------------------------------------------------------------------------------------
Total Other Real Estate (Income)
Expense, Net (15) (28) 1 (30) (10)
- ---------------------------------------------------------------------------------------------
Other Noninterest Expense
Advertising and Public Relations 324 397 283 305 212
Amortization of Intangibles 563 610 534 326 123
Data Processing and Check Clearing 219 256 310 225 151
Director Fees 98 91 95 83 74
Franchise Tax 94 55 56 60 74
Insurance 67 15 79 58 43
FDIC Insurance 33 - 1 1 1
Legal and Professional 296 445 244 332 258
Postage, Delivery and Freight 157 130 110 125 98
Stationery and Supplies 247 240 250 223 194
Telephone 99 113 93 73 67
Other Losses 113 131 238 136 122
Miscellaneous Expenses 261 218 226 205 210
- ---------------------------------------------------------------------------------------------
Total Other Noninterest Expense 2,571 2,701 2,519 2,152 1,627
- ---------------------------------------------------------------------------------------------
Total $7,989 $7,968 $7,973 $6,707 $5,314
=============================================================================================
</TABLE>
BALANCE SHEET ANALYSIS
Average interest-earning assets of $1.1 billion for the three months ended March
31, 1997 increased $533.1 million or 90.3% compared to $590.5 million for the
three months ended March 31, 1996 and $24.6 million or 2.2% compared to $1.1
billion for three months ended December 31, 1996. Management's continued focus
on lending has resulted in average loans increasing $317.0 million or 69.3% to
$774.4 million for the three months ended March 31, 1997 compared to the three
months ended March 31, 1996 levels of $457.4 million and increased $47.1 million
or 6.5% compared to the three months ended December 31, 1996 levels of $727.3
million. Total average investments increased $205.3 million to $325.7 million
for the three months ended March 31, 1997 compared to three months ended March
31, 1996 of $120.4 million and decreased $15.2 million or 4.5% compared to the
three months ended December 31, 1996 levels of $340.9 million. Total average
assets increased $590.9 million or 90.1% to $1.2 billion for the three months
ended March 31, 1997 compared to three months ended March 31, 1996 levels of
$655.6 and $28.1 million or 2.3% compared to the three months ended December 31,
1996 levels of $1.2 billion.
Average interest-bearing deposits increased $463.1 million or 98.6% to $932.9
million for the three months ended March 31, 1997 compared to the three months
ended March 31, 1996 levels of $469.9 million and $21.3 million or 2.3% compared
to the three months ended December 31, 1996 levels of $911.6 million.
Average Total Demand Deposits increased $55.4 million or 47.5% to $171.9 million
for the three months ended March 31, 1997 compared to the three months ended
March 31, 1996 levels of $116.6 million and increased $4.4 million or 2.6%
compared to $167.6 million for the three months ended December 31, 1996.
12
<PAGE>
Management attributes the strong growth in average assets and deposits for the
three months ended March 31, 1997 compared to the three months ended March 31,
1996 primarily to the Mergers.
The following table presents the consolidated average balance sheets:
<TABLE>
<CAPTION>
1997 1996
---------- -------------------------------------------
Average Balance Sheets First Fourth Third Second First
(In Thousands) Quarter Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Loans $ 774,414 $ 727,308 $ 702,720 $590,902 $457,394
Investment Securities
Taxable 299,198 312,409 311,355 188,087 115,525
Tax-Exempt 26,503 28,539 43,657 28,688 4,920
Federal Funds Sold 23,459 30,716 32,336 39,492 12,628
- -----------------------------------------------------------------------------------------------
Total Interest-Earning Assets 1,123,574 1,098,972 1,090,068 847,169 590,467
Cash and Due from Banks 48,501 45,201 48,723 46,135 35,081
Bank Premises and Equipment, Net 37,415 36,544 36,244 27,996 18,680
Other Assets 47,258 47,790 48,260 31,507 16,215
Allowance for Loan Losses (10,237) (10,073) (10,061) (7,614) (4,804)
- -----------------------------------------------------------------------------------------------
Total $1,246,511 $1,218,434 $1,213,234 $945,193 $655,639
- -----------------------------------------------------------------------------------------------
Liabilities
Demand Deposits
Commercial and Individual $ 164,497 $ 160,368 $ 161,378 $146,191 $111,171
Public Funds 7,436 7,214 6,100 5,301 5,393
- -----------------------------------------------------------------------------------------------
Total Demand Deposits 171,933 167,582 167,478 151,492 116,564
- -----------------------------------------------------------------------------------------------
Savings
Commercial and Individual 92,335 93,925 97,440 70,943 36,872
Public Funds 683 665 570 544 481
Money Market Checking
and Savings Accounts
Commercial and Individual 181,009 185,143 190,837 147,083 107,433
Public Funds 46,820 59,621 60,855 43,519 28,337
Time Deposits
Commercial and Individual 497,489 482,923 474,521 383,318 285,402
Public Funds 114,607 89,361 87,795 46,396 11,332
- -----------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 932,943 911,638 912,018 691,803 469,857
- -----------------------------------------------------------------------------------------------
Total Deposits 1,104,876 1,079,220 1,079,496 843,295 586,421
- -----------------------------------------------------------------------------------------------
Federal Funds Purchased and
Securities Sold Under
Repurchase Agreements 531 432 416 495 685
Other Liabilities 10,480 12,548 11,096 7,305 4,375
Shareholders' Equity 130,624 126,234 122,226 94,098 64,158
- -----------------------------------------------------------------------------------------------
Total $1,246,511 $1,218,434 $1,213,234 $945,193 $655,639
===============================================================================================
</TABLE>
13
<PAGE>
RISK ANALYSIS OF THE LOAN PORTFOLIO
Total loans at March 31, 1997 of $793.4 million increased $326.4 million or
69.9% compared to March 31, 1996 levels of $467.1 million and increased $35.8
million or 4.7% compared to December 31, 1996 levels of $757.7 million. The
increase in total loans at March 31, 1997 compared to total loans at March 31,
1996 is primarily attributable to the Mergers.
The increase in loans in general for the three months ended March 31, 1997
compared to the three months ended December 31 ,1996, was primarily attributable
to Management's efforts to improve the mix of earning assets by increasing loan
volume. The Company's loans are widely diversified by borrower and industry
group. Loan demand remains strong which is reflective of the positive economic
growth in the Company's trade area.
The following table presents the composition of the loan portfolio for the last
five quarters:
<TABLE>
<CAPTION>
1997 1996
----------- ----------------------------------------------
Loan Portfolio Composition First Fourth Third Second First
(In Thousands) Quarter Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $205,531 $198,752 $177,277 $178,171 $116,816
Commercial Tax-Exempt 34,086 34,777 39,533 35,572 34,401
- -----------------------------------------------------------------------------------------------
Total Commercial Loans 239,617 233,529 216,810 213,743 151,217
- -----------------------------------------------------------------------------------------------
Agricultural 41,792 32,639 21,392 32,742 28,447
- -----------------------------------------------------------------------------------------------
Real Estate
Construction 54,443 47,400 45,053 44,520 28,682
Commercial Mortgage 254,501 243,198 224,010 217,514 136,057
Agricultural Mortgage 28,317 28,803 28,494 27,413 17,785
1-4 Family Mortgage 101,732 100,301 99,167 96,922 61,704
- -----------------------------------------------------------------------------------------------
Total Real Estate 438,993 419,702 396,724 386,369 244,228
- -----------------------------------------------------------------------------------------------
Consumer 73,031 71,786 70,875 65,580 43,167
- -----------------------------------------------------------------------------------------------
Total Loans $793,433 $757,656 $705,801 $698,434 $467,059
===============================================================================================
</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. At March
31, 1997 seven loan relationships each in excess of $100,000 totaling $5.5
million accounted for 84.8% of the total nonaccrual loans. These seven
nonaccrual credits are secured primarily by real estate, and management believes
that it is unlikely that any material loss will be incurred.
Loans which are contractually past due 90 days or more which are both well
secured or guaranteed by financially responsible third parties and are in the
process of collection generally are not placed on nonaccrual status. The amount
of such loans past due 90 days or more at March 31, 1997 of $7.5 million
reflects an increase of $7.0 million compared to the March 31, 1996 level of
$533,000 and reflects an increase of $3.4 million or 83.3% compared to the
December 31, 1996 level of $4.1 million. The increase in loans past due 90 days
or more at March 31, 1997 compared to past due loans 90 days or more at March
31, 1996 and December 31, 1996 is primarily attributable to twelve loan
relationships each in excess of $100,000 totaling $4.2 million accounted for
56.4% of the total loan past due 90 days or more. These twelve loans past due 90
days or more are secured primarily by real estate and management believes that
it is unlikely that any material loss will be incurred.
Total cross-border credits of $7.7 million or 0.97% of total loans outstanding
at March 31, 1997 remain unchanged when compared to the total cross-border
credits at December 31, 1996. Total nonaccrual cross-border credits of $3.4
million at March 31, 1997 remain unchanged when compared to the total nonaccrual
cross-border credits at December 31, 1996. However, included in the $3.4 million
increase of accruing loans past due 90 days or more at March 31, 1997 compared
to December 31, 1996, are two cross-border credits totaling $1.2 million which
14
<PAGE>
management expects to be worked out during the second quarter of 1997. Total
nonaccrual and past due 90 days or more cross-border credits of $4.6 million
represent 59.7% of total cross-border credits at March 31, 1997.
At March 31, 1997, the Company had a $6.5 million recorded investment in
impaired loans for which there was a related allowance for loan losses of
$526,000. At March 31, 1997, the Company has a $149,000 investment in impaired
loans for which there was no related allowance for loan losses. The average
level of impaired loans during the three months ended March 31, 1997 was $7.1
million. The Company recorded interest income of $24,000 on its loans during the
three months ended March 31, 1997.
An analysis of the components of nonperforming assets for the last five quarters
is presented in the following table:
<TABLE>
<CAPTION>
1997 1996
--------- ----------------------------------------
Nonperforming Assets First Fourth Third Second First
(Dollars in Thousands) Quarter Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual Loans $ 6,469 $ 6,445 $3,801 $3,748 $2,855
Renegotiated Loans - 1 2 4 5
- -----------------------------------------------------------------------------------------------
Nonperforming Loans 6,469 6,446 3,803 3,752 2,860
Foreclosed Assets
(Primarily Other Real Estate) 1,078 945 1,551 1,976 1,463
- -----------------------------------------------------------------------------------------------
Total Nonperforming Assets 7,547 7,391 5,354 5,728 4,323
Accruing Loans 90 Days or More Past Due 7,497 4,089 3,446 2,107 533
- -----------------------------------------------------------------------------------------------
Total Nonperforming Assets and Accruing
Loans 90 Days or More Past Due $15,044 $11,480 $8,800 $7,835 $4,856
- -----------------------------------------------------------------------------------------------
Nonperforming Loans as a % of Total Loans 0.82% 0.85% 0.54% 0.54% 0.61%
Nonperforming Assets as a % of Total
Loans and Foreclosed Assets 0.95 0.97 0.76 0.82 0.92
Nonperforming Assets as a % of Total Assets 0.60 0.60 0.44 0.47 0.66
Nonperforming Assets and Accruing
Loans 90 Days or More Past Due
as a % of Total Loans and Foreclosed Assets 1.89 1.51 1.24 1.12 1.04
===============================================================================================
</TABLE>
Management continues to emphasize maintaining a low level of nonperforming
assets and returning nonperforming assets to an earning status.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses at March 31, 1997 of $10.2 million increased $5.3
million or 109.3% compared to the March 31, 1996 balance of $4.9 million and
increased $206,000 or 2.1% compared to the December 31, 1996 balance of $10.0
million. The allowance for loan losses at March 31, 1997 is 1.29% of loans
outstanding, net of unearned discount. Management believes that the allowance
for loan losses at March 31, 1997, adequately reflects the risks in the loan
portfolio. 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.
15
<PAGE>
The following table summarizes the transactions in the allowance for loan
losses:
<TABLE>
<CAPTION>
1997 1996
---------- --------------------------------------------
Allowance for Loan Loss Activity First Fourth Third Second First
(Dollars in Thousands) Quarter Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at Beginning of Period $10,031 $9,921 $9,947 $4,890 $4,542
Balance from Acquisitions - - - 4,647 -
Provision for Loan Losses 613 794 549 316 461
Charge-Offs
Commercial 491 513 296 14 60
Agricultural - 144 6 8 -
Real Estate 6 19 35 24 4
Consumer 226 120 380 53 106
- -----------------------------------------------------------------------------------------------
Total Charge-Offs 723 796 717 99 170
- -----------------------------------------------------------------------------------------------
Recoveries
Commercial 37 13 30 84 33
Agricultural - - - - -
Real Estate 219 58 37 59 7
Consumer 60 41 75 50 17
- -----------------------------------------------------------------------------------------------
Total Recoveries 316 112 142 193 57
- -----------------------------------------------------------------------------------------------
Net Charge-Offs (Recoveries) 407 684 575 (94) 113
- -----------------------------------------------------------------------------------------------
Balance at End of Period $10,237 $10,031 $9,921 $9,947 $4,890
- -----------------------------------------------------------------------------------------------
Ratio of Allowance for Loan
Losses to Loans Outstanding,
Net of Unearned Discount 1.29% 1.32% 1.41% 1.42% 1.05%
Ratio of Allowance For Loan
Losses to Nonperforming Assets 135.64 135.72 185.30 173.66 113.12
Ratio of Net Charge-Offs (Recoveries)
to Average Total Loans Outstanding,
Net of Unearned Discount 0.21 0.37 0.33 * 0.10
===============================================================================================
</TABLE>
* Not meaningful.
PREMISES AND EQUIPMENT, NET
Premises and equipment of $37.7 million at March 31, 1997 increased $18.7
million or 98.8% compared to $19.0 million at March 31, 1996 and increased
$646,000 or 1.73% compared to $37.1 million at December 31, 1996. The net
increase for March 31, 1997 compared to March 31, 1996, is primarily
attributable to the Mergers. The net increase for March 31, 1997 compared to
December 31, 1996 is primarily attributable to progress payments of $981,000 for
remodeling and construction of new drive-in facilities for the Harlingen and
Sharyland branch locations, and $106,000 of architect fees for the new
headquarters bank building in McAllen.
DEPOSITS
Total deposits at March 31, 1997 of $1.1 billion increased $532.0 million or
90.8% compared to the March 31, 1996 levels of $586.0 million and increased
$26.2 million or 2.4% compared to December 31, 1996 levels of $1.1 billion. The
increase in total deposits from March 31, 1996 to March 31, 1997 is primarily
attributable to the Mergers.
16
<PAGE>
The following table presents the composition of total deposits for the last five
quarters:
<TABLE>
<CAPTION>
1997 1996
------------ -----------------------------------------------
Total Deposits First Fourth Third Second First
(In Thousands) Quarter Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Demand Deposits
Commercial and Individual $ 167,362 $ 162,650 $ 159,545 $169,838 $113,072
Public Funds 8,153 6,078 7,894 5,992 7,015
- -----------------------------------------------------------------------------------------------
Total Demand Deposits 175,515 168,728 167,439 175,830 120,087
- -----------------------------------------------------------------------------------------------
Interest-Bearing Deposits
Savings
Commercial and Individual 93,340 94,114 94,116 98,584 38,427
Public Funds 679 738 564 947 423
Money Market Checking and Savings
Commercial and Individual 182,413 181,495 180,051 182,527 106,861
Public Funds 36,409 53,432 68,819 66,834 20,361
Time Deposits
Commercial and Individual 501,995 490,294 475,846 467,194 287,827
Public Funds 127,624 102,934 79,395 96,686 12,008
- -----------------------------------------------------------------------------------------------
Total Interest-Bearing
Deposits 942,460 932,007 898,791 912,772 465,907
- -----------------------------------------------------------------------------------------------
Total Deposits $1,117,975 $1,091,735 $1,066,230 $1,088,602 $585,994
===============================================================================================
</TABLE>
CAPITAL AND LIQUIDITY
Shareholders' equity at March 31, 1997 of $130.8 million increased $66.2 million
or 102.6% compared to the March 31, 1996 level of $64.6 million and increased
$2.7 million or 2.1% compared to the December 31, 1996 level of $128.1 million.
The increase from March 31, 1996 to March 31, 1997 was attributable to the sale
of 2.5 million shares of the Corporation's Class A Common Stock and earnings,
reduced primarily by dividends paid on Class A Common Stock.
The Company is dependent on dividend and interest income from the Bank and the
sale of stock for its liquidity. Applicable Federal Reserve Board regulations
provide that bank holding companies are permitted by regulatory authorities to
pay cash dividends on their common or preferred stock if consolidated earnings
and consolidated capital are within regulatory guidelines.
The risk-based capital standards as established by the Federal Reserve Board of
Governors apply to Texas Regional and Texas State Bank. The numerator of the
risk-based capital ratio for bank holding companies includes Tier I capital,
consisting of common shareholders' equity and qualifying cumulative and
noncumulative perpetual preferred stock; and Tier II capital, consisting of
other preferred stock, reserve for possible loan losses and certain subordinated
and term-debt securities. Goodwill is deducted from Tier I capital. At no time
is Tier II capital allowed to exceed Tier I capital in the calculation of total
capital. The denominator or asset portion of the risk-based ratio aggregates
generic classes of balance sheet and off-balance sheet exposures, each weighted
by one of four factors, ranging from 0% to 100%, based on the relative risk of
the exposure class.
Ratio targets are set for both Tier I and Total Capital (Tier I plus Tier II
capital). The minimum level of Tier I capital to total assets is 4.0% and the
minimum Total Capital Ratio is 8.0%. The Federal Reserve Board has guidelines
for a Leverage Ratio that is designed as an additional evaluation of capital
adequacy of banks and bank holding companies. The Leverage Ratio is defined to
be the company's Tier I capital divided by its quarterly average total assets
less goodwill and other intangible assets. An insured depository institution is
"well capitalized" for purposes of FDICIA if its Total Capital Ratio is equal to
or greater than 10%, and Tier I Capital Ratio is equal to or greater than 6%,
and Leverage Capital Ratio is equal to or greater than 5%. The Company's Tier I
Capital Ratio was approximately 13.15% and 11.66% as of March 31, 1997 and 1996,
respectively. The Company's Total Risk-Based Capital Ratio was approximately
14.40% and 12.63% as of March 31, 1997 and 1996, respectively. The Company's
Leverage Capital Ratio was approximately 8.69% and 9.07% at March 31, 1997 and
1996, respectively. Based on capital ratios, the Company is within the
definition of "well capitalized" for Federal Reserve purposes as of March 31,
1997.
17
<PAGE>
Liability liquidity is provided by access to core funding sources, principally
various customers' interest bearing and noninterest bearing deposit accounts in
the Company's 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 three months ended March 31, 1997, liquidity was enhanced primarily by
net cash provided by operating activities of $22.7 million and financing
activities of $25.2 million offset by net cash used in investing activities of
$43.0 million. The increase in net cash provided by operating activities was
primarily attributable to the collection of receivables originated by $15.3
million of bond sales prior to year ended December 31, 1996 and $5.2 million net
income for the three months ended March 31, 1997. The increase in net cash
provided by financing activities was primarily attributable to the $26.2 million
net increase in deposits. As a result, net cash and cash equivalents at March
31, 1997 of $71.6 million increased $5.0 million or 7.5% compared to net cash
and cash equivalents at December 31, 1996 of $66.6 million.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
Three Months Ended
March 31,
------------------ December 31,
Ratio Analysis 1997 1996 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Return On Average Assets (1) 1.71% 1.57% 1.62%
Return On Average Shareholders' Equity (1) 16.28 16.01 16.11
Dividend Payout Ratio 18.64 24.39 19.23
Net Yield on Total Interest-Earning Assets (2) 5.07 5.38 5.14
Efficiency Ratio(2) 47.74 54.11 50.41
Total Average Loans to Total Average Deposits 70.09 78.00 69.40
Average Equity to Average Assets 10.48 9.79 10.41
==============================================================================================
</TABLE>
(1) Annualized
(2) Taxable-Equivalent Basis Assuming a 35% Effective Income Tax Rate.
<TABLE>
<CAPTION>
COMMON STOCK TRADING DATA (NASDAQ National Market System)
- ----------------------------------------------------------------------------------------------
Trading Volume (1997)
<S> <C> <C> <C> <C>
Price
March 31, 1997 $32.50 Book Value $15.02 January 372,306 shares
1997 price range $31.75 - $36.75 Price/Book Value 2.16% February 337,800 shares
March 216,121 shares
==============================================================================================
</TABLE>
18
<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.
April 29, 1997 /s/ G. E. RONEY
Date G. E. Roney
Chairman of the Board,
President & Chief
Executive Officer
April 29, 1997 /s/ GEORGE R. CARRUTHERS
Date George R. Carruthers
Executive Vice President
& Chief Financial Officer
19
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidatd Balance Sheets, Consolidated Statements of Income, included herein
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 48,625
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 23,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 210,693
<INVESTMENTS-CARRYING> 110,356
<INVESTMENTS-MARKET> 110,673
<LOANS> 793,433
<ALLOWANCE> 10,237
<TOTAL-ASSETS> 1,261,020
<DEPOSITS> 1,117,975
<SHORT-TERM> 504
<LIABILITIES-OTHER> 11,737
<LONG-TERM> 0
0
0
<COMMON> 8,708
<OTHER-SE> 122,096
<TOTAL-LIABILITIES-AND-EQUITY> 1,261,020
<INTEREST-LOAN> 18,646
<INTEREST-INVEST> 5,183
<INTEREST-OTHER> 312
<INTEREST-TOTAL> 24,141
<INTEREST-DEPOSIT> 10,495
<INTEREST-EXPENSE> 10,501
<INTEREST-INCOME-NET> 13,640
<LOAN-LOSSES> 613
<SECURITIES-GAINS> 171
<EXPENSE-OTHER> 7,989
<INCOME-PRETAX> 7,932
<INCOME-PRE-EXTRAORDINARY> 7,932
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,243
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.59
<YIELD-ACTUAL> 5.07
<LOANS-NON> 6,469
<LOANS-PAST> 7,497
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 10,031
<CHARGE-OFFS> 723
<RECOVERIES> 316
<ALLOWANCE-CLOSE> 10,237
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
