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 September 30, 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)
956/631-5400
(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 13,110,639 shares $1 par
value, outstanding as of October 20, 1997.
<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 4. Submission of Matters to a Vote of Security Holders.
None
Item 6.
(a) Exhibits
10.13 Amendment Number 1 to Glen E. Roney Deferred Compensation Plan
effective March 11, 1997, which amendment is effective June 25,
1997.
10.14 Amendment Number 2 to Glen E. Roney Deferred Compensation Plan
effective March 11, 1997, which amendment is effective July 25,
1997.
27. Financial Data Schedule
(b) Reports on Form 8-K
None
2
<PAGE>
CONSOLIDATED BALANCE SHEETS (Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
------------------- --------------
(Dollars in Thousands) 1997 1996 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Cash and Due From Banks $ 52,143 $ 47,258 $ 56,100
Federal Funds Sold 20,085 31,835 10,515
- -----------------------------------------------------------------------------------------------
Total Cash and Cash Equivalents 72,228 79,093 66,615
Securities Available for Sale 281,579 208,143 192,301
Securities Held to Maturity (Estimated Market Value
of $73,165 and $135,039 at September 30, 1997
and 1996, respectively, and $126,896 at
December 31, 1996) 72,498 134,840 125,835
Loans, Net of Unearned Discount of $2,173 and
$1,611 at September 30, 1997 and 1996, respectively
and $1,607 at December 31, 1996 831,447 705,801 757,656
Less Allowance for Loan Losses (9,898) (9,921) (10,031)
- -----------------------------------------------------------------------------------------------
Net Loans 821,549 695,880 747,625
Premises and Equipment, Net 42,192 36,193 37,054
Accrued Interest Receivable 15,583 15,619 13,743
Other Real Estate 2,479 1,405 742
Intangibles 24,629 24,906 26,318
Other Assets 5,030 17,041 20,344
- -----------------------------------------------------------------------------------------------
Total Assets $1,337,767 $1,213,120 $1,230,577
===============================================================================================
Liabilities
Deposits
Demand $ 170,089 $ 167,439 $ 168,728
Savings 86,928 94,680 94,852
Money Market Checking and Savings 216,635 248,870 234,927
Time Deposits 711,116 555,241 593,228
- -----------------------------------------------------------------------------------------------
Total Deposits 1,184,768 1,066,230 1,091,735
Federal Funds Purchased and Securities
Sold Under Repurchase Agreements 108 408 632
Accounts Payable and Accrued Liabilities 11,408 22,951 10,062
- -----------------------------------------------------------------------------------------------
Total Liabilities 1,196,284 1,089,589 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, 13,105,896
at September 30, 1997 and 8,708,898 at September 30,
1996 and December 31, 1996, (Notes 2 and 4) 13,106 8,708 8,708
Paid-In Capital 79,030 78,605 78,605
Retained Earnings 48,398 36,193 40,315
Unrealized Gain (Loss) on Securities Available for Sale 949 25 520
- -----------------------------------------------------------------------------------------------
Total Shareholders' Equity 141,483 123,531 128,148
- -----------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $1,337,767 $1,213,120 $1,230,577
===============================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
Texas Regional Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Nine Months
Quarter Ended Ended
September 30, September 30,
---------------- -------------------
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income
Loans, Including Fees $20,115 $17,514 $58,524 $43,024
Investment Securities
Taxable 4,970 4,856 14,599 9,324
Tax-Exempt 341 651 1,091 1,158
Federal Funds Sold 549 435 1,131 1,139
- ---------------------------------------------------------------------------------------------
Total Interest Income 25,975 23,456 75,345 54,645
- ---------------------------------------------------------------------------------------------
Interest Expense
Deposits 12,057 10,063 33,407 22,972
Federal Funds Purchased and
Securities Sold Under Repurchase Agreements 2 4 23 16
- ---------------------------------------------------------------------------------------------
Total Interest Expense 12,059 10,067 33,430 22,988
- ---------------------------------------------------------------------------------------------
Net Interest Income 13,916 13,389 41,915 31,657
Provision for Loan Losses 695 549 1,771 1,326
- ---------------------------------------------------------------------------------------------
Net Interest Income After Provision
for Loan Losses 13,221 12,840 40,144 30,331
- ---------------------------------------------------------------------------------------------
Noninterest Income
Service Charges on Deposit Accounts 1,471 1,380 4,373 3,486
Other Service Charges 341 261 975 733
Trust Service Fees 425 359 1,250 1,110
Investment Securities Gains (Losses) 212 156 517 157
Data Processing Service Fees 260 225 794 671
Other Operating Income 168 112 633 427
- ---------------------------------------------------------------------------------------------
Total Noninterest Income 2,877 2,493 8,542 6,584
- ---------------------------------------------------------------------------------------------
Noninterest Expense
Salaries and Employee Benefits 3,579 4,002 11,612 10,062
Net Occupancy Expense 614 545 1,800 1,367
Equipment Expense 925 906 2,655 2,306
Other Real Estate (Income) Expense, Net 95 1 125 (39)
Intangible Asset Amortization 563 534 1,689 983
Impairment Loss (Note 5) - - 630 -
Other Noninterest Expense 2,107 1,985 6,225 5,315
- ---------------------------------------------------------------------------------------------
Total Noninterest Expense 7,883 7,973 24,736 19,994
- ---------------------------------------------------------------------------------------------
Income Before Income Tax Expense 8,215 7,360 23,950 16,921
Income Tax Expense 2,755 2,205 8,136 5,535
- ---------------------------------------------------------------------------------------------
Net Income $ 5,460 $ 5,155 $15,814 $11,386
=============================================================================================
Primary Earnings Per Common Share (Note 2)
Net Income $ 0.41 $ 0.39 $ 1.19 $ 1.00
Weighted Average Number of Common Shares
Outstanding (In Thousands) 13,336 13,256 13,308 11,345
- ---------------------------------------------------------------------------------------------
Fully Diluted Earnings Per Common Share (Note 2)
Net Income $ 0.41 $ 0.39 $ 1.19 $ 1.00
Weighted Average Number of Common Shares
Outstanding (In Thousands) 13,348 13,267 13,323 11,354
=============================================================================================
</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 Nine Months Ended September 30,
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
Exercise of stock options,
31,071 shares of Class A
Common Stock 31 425 - - 456
Change in Unrealized Gain
(Loss) on Securities
Available for Sale - - - 429 429
Class A Common Stock
Cash Dividends - - (3,360) - (3,360)
Class A Common Stock
3 for 2 Stock Split 4,367 (4,371) - (4)
Net Income for the Nine Months
Ended September 30, 1997 - - 15,814 - 15,814
- -----------------------------------------------------------------------------------------------
Balance, September 30, 1997 $13,106 $79,030 $48,398 $ 949 $141,483
===============================================================================================
</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)
For the Nine Months Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
(Dollars in Thousands) 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income $15,814 $ 11,386
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities
Depreciation, Amortization and Accretion, Net 2,359 1,997
Provision for Loan Losses 1,771 1,326
Provision for Estimated Losses on Other Real Estate and Other Assets 43 35
Gain on Sales of Other Real Estate (37) (123)
Gain on Sales of Securities Available for Sale (517) (157)
Gain on Sales of Premises and Equipment (1) (1)
Impairment Loss (Note 5) 630 -
(Gain) Loss on Sale of Other Assets (12) 28
(Increase) Decrease in Accrued Interest Receivable and Other Assets 15,066 (12,440)
Increase in Accounts Payable and Accrued Liabilities 539 10,838
- -----------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 35,655 12,889
- -----------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Proceeds from Sales of Securities Available for Sale 55,737 93,362
Proceeds from Maturing Securities Available for Sale 38,677 37,984
Purchases of Securities Available for Sale (182,551) (99,117)
Proceeds from Maturing Securities Held to Maturity 53,360 36,465
Purchases of Securities Held to Maturity - (89,586)
Proceeds from Sale of Loans 46 6,142
Purchases of Loans (490) (2,012)
Loan Originations and Advances (78,657) (19,699)
Recoveries of Charged-Off Loans 584 392
Proceeds from Sale of Other Assets 205 111
Proceeds from Sale of Other Real Estate 879 1,537
Proceeds from Sale of Premises and Equipment 1 44
Purchases of Premises and Equipment (8,005) (4,073)
Net Cash Used in Acquisitions - (15,404)
- -----------------------------------------------------------------------------------------------
Net Cash Used In Investing Activities (120,214) (53,854)
- -----------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net Increase (Decrease) in Demand, Savings, Money
Market Checking and Savings Deposit Accounts (24,855) 6,045
Net Increase in Time Deposits 117,888 30,061
Net Decrease in Securities Sold
Under Repurchase Agreements (524) (349)
Proceeds from Sale of Common Stock 456 51,878
Cash Dividends Paid on Common Stock (Note 4) (2,793) (2,110)
- -----------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 90,172 85,525
- -----------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 5,613 44,560
Cash and Cash Equivalents at Beginning of Year 66,615 34,533
- -----------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Quarter $72,228 $ 79,093
===============================================================================================
Supplemental Disclosures of Cash Flow Information
Interest Paid $32,699 $ 21,925
Income Taxes Paid 9,077 6,462
Supplemental Schedule of Noncash Investing and Financing Activities
Foreclosure and Repossession in Partial Satisfaction of Loans Receivable 2,822 1,415
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
Cash Paid for the Capital Stock - (95,500)
Liabilities Assumed - 458,740
===============================================================================================
</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
(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.
(2) EARNINGS PER COMMON SHARE COMPUTATIONS
Earnings per common share computations include the effects of common stock
equivalents applicable to the stock option contracts.
In February 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share, which is required to
be adopted on December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share ("EPS") to
restate all prior periods. It replaces the presentation of primary EPS with a
presentation of basic EPS. Basic EPS excludes dilution and is computed by
dividing income available to common shares by the weighted-average number of
common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the
earnings of the entity. Diluted EPS is computed similarly to fully diluted EPS
pursuant to Opinion 15.
This Statement is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods; earlier application is not
permitted. This Statement requires restatement of all prior-period EPS data
presented.
(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.
(4) COMMON STOCK
On September 9, 1997, the Board of Directors approved a cash dividend of $0.11
per share for shareholders of record on October 8, 1997 and payable on October
15, 1997.
7
<PAGE>
The Company's Board of Directors had authorized a stock split of three shares of
its $1.00 par value Common Stock for each two shares outstanding. To effect the
split, the Board of Directors declared a stock dividend of one-half share of
Common Stock for each share of Common Stock outstanding, payable August 21,
1997, to stockholders of record on July 31, 1997. In lieu of issuing fractional
shares in connection with the split, the Company has elected to provide for a
cash payment. The quarterly cash dividend of $0.11 per share will remain
unchanged.
(5) IMPAIRMENT LOSS
An impairment loss of $630,000 was recorded during the three months ended June
30, 1997 to reflect the impairment of an existing bank building. Construction of
a new bank building in McAllen, Texas has started. The new bank building will be
the headquarters for Texas State Bank and Texas Regional Bancshares, Inc. and is
being constructed next to our existing bank site. Upon completion of the new
bank building, the existing building will be demolished to make room for
parking. The amount of the impairment loss was the book value of the building at
June 30, 1997.
(6) ACQUISITION ACTIVITY
The Company signed a definitive agreement on October 15, 1997, to acquire TB&T
Bancshares, Inc. ("TB&T"), and its subsidiary, Texas Bank & Trust of
Brownsville, Texas. At September 30, 1997 TB&T has assets of $43.6 million and
equity of $4.0 million. It is anticipated that the transaction will close during
the first quarter of 1998 and will be accounted for under the
pooling-of-interests method of accounting. The definitive agreement provides for
the exchange of a maximum of 308,076 shares of the Company for all of the
outstanding shares of TB&T. This is based upon an exchange ratio of 0.1522126
Company shares for each of the 1,695,775 outstanding TB&T shares (or
approximately 258,118 Company shares in the aggregate) to be delivered at
closing, and 0.0294605 Company shares for each TB&T share (approximately 49,958
shares in the aggregate) to be placed in escrow for distribution to the
shareholder or for return to the Company based upon the resolution of certain
claims against TB&T's subsidiary, Texas Bank & Trust. The definitive agreement
is subject to receipt of TB&T shareholder approval, approval by appropriate
regulators and satisfaction of certain other conditions.
The Company signed a definitive agreement on October 20, 1997, to acquire
Brownsville Bancshares, Inc. and its subsidiary, Brownsville National Bank of
Brownsville, Texas. At September 30, 1997 Brownsville Bancshares, Inc. has
assets of $98.6 million, and equity of $12.2 million. It is anticipated that the
transaction will close during the first quarter of 1998 and will be accounted
for under the pooling-of-interests method of accounting. The definitive
agreement provides for the exchange of a maximum of 985,000 shares of the
Company for all of the outstanding shares of Brownsville Bancshares. This is
based upon an exchange ratio of 3.06608 Company shares for each of the 308,917
outstanding Brownsville Bancshares, Inc. shares or approximately 947,164 shares
in aggregate. In addition, the Company has agreed to issue approximately 37,836
Company shares in consideration of and in exchange for the cancellation of
outstanding Brownsville Bancshares options. The definitive agreement is subject
to receipt of Brownsville Bancshares shareholder approval, approval by
appropriate regulators and satisfaction of certain other conditions.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Net income for the three months ended September 30, 1997 was $5.5 million or
$0.41 per share, reflecting a net increase of $305,000 or $0.02 per share
compared to net income of $5.2 million or $0.39 per share for the three months
ended September 30, 1996. Net income for the nine months ended September 30,
1997 was $15.8 million or $1.19 per share, reflecting a net increase of $4.4
million or $0.19 per share compared to net income of $11.4 million or $1.00 per
share for the nine months ended September 30, 1996. Earnings increased for the
three months ended September 30, 1997 compared to the three months ended
September 30, 1996 which reflected an improvement in net interest income,
noninterest income and noninterest expense partially offset by an increase in
the provision for loan losses. Earnings increased for the nine months ended
September 30, 1997 compared to the nine months ended September 30, 1996 which
reflected an increase in net interest income and noninterest income reduced by
an increase in the provision for loan losses and noninterest expense. A more
detailed description of the results of operations is included in the
presentation that follows.
The following table presents selected financial data regarding results of
operations:
<TABLE>
<CAPTION>
Nine Months
Condensed Quarterly Income 1997 1996 Ended
Statements Taxable-Equivalent Basis* ----------------------- --------------- September 30,
(Dollars in Thousands, Third Second First Fourth Third -----------------
Except Per Share Data) Quarter Quarter Quarter Quarter Quarter 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income $26,343 $25,612 $24,542 $23,973 $24,086 $76,497 $55,883
Interest Expense 12,059 10,870 10,501 10,260 10,067 33,430 22,988
- -----------------------------------------------------------------------------------------------
Net Interest Income 14,284 14,742 14,041 13,713 14,019 43,067 32,895
Provision for Loan Losses 695 463 613 794 549 1,771 1,326
Noninterest Income 2,877 2,771 2,894 2,811 2,493 8,542 6,584
Noninterest Expense 7,883 8,864 7,989 7,968 7,973 24,736 19,994
- -----------------------------------------------------------------------------------------------
Income Before Taxable-Equivalent
Adjustment and Income Tax 8,583 8,186 8,333 7,762 7,990 25,102 18,159
Taxable-Equivalent Adjustment 368 383 401 392 630 1,152 1,238
Applicable Income Tax Expense 2,755 2,692 2,689 2,377 2,205 8,136 5,535
- -----------------------------------------------------------------------------------------------
Net Income $ 5,460 $ 5,111 $ 5,243 $ 4,993 $ 5,155 $15,814 $11,386
===============================================================================================
Net Income Per Common Share
Primary $ 0.41 $ 0.38 $ 0.39 $ 0.38 $ 0.39 $ 1.19 $ 1.00
Fully Diluted 0.41 0.38 0.39 0.38 0.39 1.19 1.00
===============================================================================================
</TABLE>
* Taxable-Equivalent basis assuming a 35% tax rate.
The Company paid cash and used the purchase method in accounting for its recent
acquisitions which has resulted in the creation of intangible assets. These
intangible assets are deducted from capital in the determination of regulatory
capital. Thus, "cash" earnings represent the regulatory capital generated during
the year and can be viewed as net income excluding intangible amortization, net
of tax. While the definition of "cash" earnings may vary by company, we believe
this definition is appropriate as it measures the per share growth of regulatory
capital, which impacts the amount available for dividends and acquisitions.
9
<PAGE>
The following table reconciles reported net income to net income excluding
intangible assets amortization ("cash" earnings):
<TABLE>
<CAPTION>
Nine Months
Cash Earnings 1997 1996 Ended
Taxable-Equivalent Basis* ------------------------ ----------------- September 30,
(Dollars in Thousands, Third Second First Fourth Third -----------------
Except Per Share Data) Quarter Quarter Quarter Quarter Quarter 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Reported Net Income $5,460 $5,111 $5,243 $4,993 $5,155 $15,814 $11,386
Intangible Amortization 563 563 563 610 534 1,689 983
Income Tax Adjustment (111) (111) (111) (111) (111) (333) (223)
- -----------------------------------------------------------------------------------------------
Cash Earnings $5,912 $5,563 $5,695 $5,492 $5,578 $17,170 $12,146
===============================================================================================
Cash Earnings Per Common Share
Primary $ 0.44 $ 0.42 $ 0.43 $ 0.41 $ 0.42 $ 1.29 $ 1.07
Fully Diluted 0.44 0.42 0.43 0.41 0.42 1.29 1.07
Cash Earnings Return on
Average Assets 1.78% 1.77% 1.85% 1.79% 1.83% 1.80% 1.73%
Cash Earnings Return on
Average Shareholders' Equity 16.81 16.67 17.68 17.31 18.16 17.05 17.35
===============================================================================================
</TABLE>
* Taxable-Equivalent basis assuming a 35% tax rate.
NET INTEREST INCOME
Taxable-equivalent net interest income was $14.3 million for the three months
ended September 30, 1997, an increase of $265,000 or 1.9% compared to the three
months ended September 30, 1996 of $14.0 million. The Net Yield on Total
Interest-Earning Assets of 4.75% for the three months ended September 30, 1997
declined 37 basis points when compared to 5.12% for the three months ended
September 30, 1996. The decline in net interest income for the three months
ended September 30, 1997 compared to the three months ended September 30, 1996
was primarily attributable to the increased cost of funds. The rate of the Total
Interest-Bearing Liabilities for the three months ended September 30, 1997 of
4.78% reflets a net increase of 39 basis points when compared to 4.39% for the
three months ended Septembe 30, 1996. The increased rate was a result of higher
rates paid for funds during the quarter in comparison to previous quarters.
The Net Yield on Total Interest-Earning Assets of 5.01% for the nine months
ended September 30, 1997 declined 21 basis points when compared to 5.22% for the
nine months ended September 30, 1996. The decline in net yield on net interest
income for the three and nine months ended September 30, 1997 compared to the
three and nine months ended September 30, 1996 was primarily attributable to the
increased cost of funds recorded in the third quarter of 1997 due to strong
competition for funding.
The Total Interest-Earning Assets average balance for the nine months ended
September 30, 1997 of $1.2 billion increased $307.5 million or 36.5% compared to
the Total Interest Earning Assets average balance of $842.6 million for the nine
months ended September 30, 1996. Total Interest-Bearing Liabilities average
balance of $960.0 million for the nine months ended September 30, 1997 increased
$268.2 million or 38.8% compared to the Total Interest-Bearing Liabilities
average balance of $691.8 million for the nine months ended September 30, 1996.
The net increase in Total Interest-Earning Assets average balance compared to
the net increase in Total Interest-Bearing Liabilities average balance for the
nine months ended September 30, 1997 compared to the nine months ended September
30, 1996 is the primary reason for the improved earnings and is a result of the
Mergers and an increased volume of business conducted by the Company.
10
<PAGE>
The following tables present for the three months ended September 30, 1997, and
September 30, 1996 and the nine months ended September 30, 1997, and September
30, 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 September 30, 1997 September 30, 1996
and Interest-Bearing 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 $ 282,817 $ 7,005 9.83% $ 236,520 $ 5,753 9.68%
Real Estate 462,539 11,310 9.70 396,418 10,187 10.22
Consumer 78,906 1,990 10.01 69,782 1,793 10.22
- ---------------------------------------------------------------------------------------------
Total Loans 824,262 20,305 9.77 702,720 17,733 10.04
- ---------------------------------------------------------------------------------------------
Investment Securities
Taxable 304,929 4,970 6.47 311,355 4,856 6.20
Tax-Exempt 23,534 519 8.75 43,657 1,062 9.68
- ---------------------------------------------------------------------------------------------
Total Investment Securities 328,463 5,489 6.63 355,012 5,918 6.63
- ---------------------------------------------------------------------------------------------
Federal Funds Sold 39,130 549 5.57 32,336 435 5.35
- ---------------------------------------------------------------------------------------------
Total Interest-Earning Assets $1,191,855 26,343 8.77 $1,090,068 24,086 8.79
- ---------------------------------------------------------------------------------------------
Interest-Bearing Liabilities
Savings $ 87,582 711 3.22 $ 98,010 797 3.24
Money Market Checking and Savings 219,352 1,589 2.87 251,692 1,761 2.78
Time Deposits 694,155 9,757 5.58 562,316 7,505 5.31
- ---------------------------------------------------------------------------------------------
Total Savings and Time Deposits 1,001,089 12,057 4.78 912,028 10,063 4.39
- ---------------------------------------------------------------------------------------------
Federal Funds Purchased and
Securities Sold Under Repurchase
Agreements 147 2 5.40 416 4 3.83
- ---------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities $1,001,236 12,059 4.78 $ 912,434 10,067 4.39
- ---------------------------------------------------------------------------------------------
Net Interest Income $14,284 $14,019
- ---------------------------------------------------------------------------------------------
Net Yield on Total
Interest-Earning Assets 4.75% 5.12%
=============================================================================================
</TABLE>
* Annualized
11
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------------------------------
Summary of Interest-Earning Assets September 30, 1997 September 30, 1996
and Interest-Bearing 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 $ 278,507 $20,321 9.76% $210,232 $ 15,265 9.70%
Real Estate 444,083 33,157 9.98 317,476 24,085 10.13
Consumer 75,324 5,622 9.98 55,964 4,231 10.10
- -----------------------------------------------------------------------------------------------
Total Loans 797,914 59,100 9.90 583,672 43,581 9.97
- -----------------------------------------------------------------------------------------------
Investment Securities
Taxable 300,551 14,599 6.49 204,989 9,324 6.08
Tax-Exempt 24,644 1,667 9.04 25,755 1,839 9.54
- -----------------------------------------------------------------------------------------------
Total Investment Securities 325,195 16,266 6.69 230,744 11,163 6.46
- -----------------------------------------------------------------------------------------------
Federal Funds Sold 27,000 1,131 5.60 28,152 1,139 5.40
- -----------------------------------------------------------------------------------------------
Total Interest-Earning Assets $1,150,109 76,497 8.89 $842,568 55,883 8.86
- -----------------------------------------------------------------------------------------------
Interest-Bearing Liabilities
Savings $ 90,472 2,178 3.22 $ 68,950 1,607 3.11
Money Market Checking and Savings 222,722 4,722 2.83 192,688 4,018 2.79
Time Deposits 646,175 26,507 5.48 429,588 17,347 5.39
- -----------------------------------------------------------------------------------------------
Total Savings and Time Deposits 959,369 33,407 4.66 691,226 22,972 4.44
- -----------------------------------------------------------------------------------------------
Federal Funds Purchased and
Securities Sold Under Repurchase
Agreements 603 23 5.10 532 16 4.02
- -----------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities $ 959,972 33,430 4.66 $691,758 22,988 4.44
- -----------------------------------------------------------------------------------------------
Net Interest Income $43,067 $ 32,895
- -----------------------------------------------------------------------------------------------
Net Yield on Total
Interest-Earning Assets 5.01% 5.22%
===============================================================================================
</TABLE>
* Annualized
12
<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, 1997 as compared to the nine month period ended
September 30, 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
Nine Months Ended September 30, Due to Change in
1997 Compared to 1996 Net ---------------------------------------
(Dollars in Thousands) Change Volume Rate Rate/Volume
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income
Loans, Including Fees $15,519 $15,991 $ (346) $(126)
Investment Securities
Taxable 5,275 4,350 620 305
Tax-Exempt (172) (79) (98) 5
Federal Funds Sold (8) (47) 41 (2)
- ------------------------------------------------------------------------------------------
Total Interest Income 20,614 20,215 217 182
- ------------------------------------------------------------------------------------------
Interest Expense
Deposits 10,435 8,913 1,116 406
Federal Funds Purchased
and Securities Sold
Under Repurchase Agreements 7 2 4 1
- ------------------------------------------------------------------------------------------
Total Interest Expense 10,442 8,915 1,120 407
- ------------------------------------------------------------------------------------------
Net Interest Income Before
Allocation Of Rate/Volume 10,172 11,300 (903) (225)
- ------------------------------------------------------------------------------------------
Allocation of Rate/Volume - (216) (9) 225
- ------------------------------------------------------------------------------------------
Changes in Net Interest Income $10,172 $11,084 $(912) $ -
==========================================================================================
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses reflects management's judgement of the cost
associated with credit risk inherent in the loan portfolio. The provision for
loan losses for the three months ended September 30, 1997 of $695,000 reflects
an increase of $146,000 or 26.6% compared to $549,000 for the three months ended
September 30, 1996. The provision for loan losses for the nine months ended
September 30, 1997 of $1.8 million reflects an increase of $445,000 or 33.6%
compared to $1.3 million for the nine months ended September 30, 1996. See
"ALLOWANCE FOR LOAN LOSSES."
NONINTEREST INCOME
Noninterest income for the three months ended September 30, 1997 of $2.9 million
increased $384,000 or 15.4% compared to $2.5 million for the three months ended
September 30, 1996. Noninterest income for the nine months ended September 30,
1997 of $8.5 million increased $2.0 million or 29.7% compared to $6.6 million
for the nine months ended September 30, 1996. The increase in Noninterest Income
for the three months ended September 30, 1997 compared to the three months ended
September 30, 1996 and for the nine months ended September 30, 1997 compared to
the nine months ended September 30, 1996 is primarily attributable to the
Mergers, investment securities gains and an increase in the volume of business
conducted by the Company. The increase in Total Service Charges was impacted by
the Mergers and an increase in activity
13
<PAGE>
levels and additional volume. The increase in Trust Service Fees is attributable
to an increase in the number of trust accounts. The increase in Data Processing
Service Fees is attributable to an increased volume of business.
The following table summarizes the major noninterest income categories:
<TABLE>
<CAPTION>
Nine Months
1997 1996 Ended
---------------------- ----------------- September 30,
Noninterest Income Third Second First Fourth Third ----------------
(Dollars in Thousands) Quarter Quarter Quarter Quarter Quarter 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Service Charges on Deposit Accounts $1,471 $1,462 $1,440 $1,496 $1,380 $4,373 $3,486
Other Service Charges 341 303 331 270 261 975 733
- -----------------------------------------------------------------------------------------------
Total Service Charges 1,812 1,765 1,771 1,766 1,641 5,348 4,219
Trust Service Fees 425 435 390 395 359 1,250 1,110
Investment Securities Gains (Losses) 212 134 171 244 156 517 157
Data Processing Service Fees 260 272 262 239 225 794 671
Other Operating Income 168 165 300 167 112 633 427
- -----------------------------------------------------------------------------------------------
Total $2,877 $2,771 $2,894 $2,811 $2,493 $8,542 $6,584
===============================================================================================
</TABLE>
NONINTEREST EXPENSE
Noninterest expense for the three months ended September 30, 1997 of $7.9
million decreased $90,000 or 1.1% compared to the three months ended September
30, 1996 of $8.0 million. Noninterest expense for the nine months ended
September 30, 1997 of $24.7 million increased $4.7 million or 23.7% compared to
the nine months ended September 30, 1996 of $20.0 million. The decrease in
noninterest expense for the three months ended September 30, 1997 compared to
three months ended September 30, 1996 was primarily attributable to a decline in
Total Salaries and Exmployee Benefits. The increase in noninterest expense for
the nine months ended September 30, 1997 compared to nine months ended September
30, 1996 was primarily attributable to the Mergers, impairment loss and the
increased volume of business conducted by the Company.
The largest category of noninterest expense, Salaries and Employee Benefits
("Personnel"), of $3.6 million for the three months ended September 30, 1997
decreased $423,000 or 10.6% compared to $4.0 million for the three months ended
September 30, 1996. Personnel expense of $11.6 million for nine months ended
September 30, 1997 increased $1.6 million or 15.4% compared to the $10.1 million
for the nine months ended September 30, 1996. Personnel expense decreased for
the three months ended September 30, 1997 compared to the three months ended
September 30, 1996 was primarily attributable to revised estimates for
performance pay and ESOP contribution for year 1997. The increase in Personnel
expense for the nine months ended September 30, 1997 compared to the nine months
ended September 30, 1996 was primarily due to the Mergers.
Net occupancy expense of $614,000 for the three months ended September 30, 1997
increased $69,000 or 12.7% compared to $545,000 for the three months ended
September 30, 1996. Net occupancy expense of $1.8 million for the nine months
ended September 30, 1997 increased $433,000 or 31.7% compared to $1.4 million
for nine months ended September 30, 1996. The Net Occupancy expense increased
for the three months ended September 30, 1997 compared to the three months ended
September 30, 1996 and for the nine months ended September 30, 1997 compared to
the nine months ended September 30, 1996 primarily due to the occupancy expenses
associated with the Mergers.
Equipment expense of $925,000 for the three months ended September 30, 1997
increased $19,000 or 2.1% compared to $906,000 for the three months ended
September 30, 1996. Equipment expenses of $2.7 million for the nine months ended
September 30, 1997 increased $349,000 or 15.1% compared to $2.3 million for the
nine months ended September 30, 1996. Equipment expense increased for the three
months ended September 30, 1997 as compared to the three months ended
14
<PAGE>
September 30, 1996 and for the nine months ended September 30, 1997 compared to
the nine months ended September 30, 1996 primarily due to expenses associated
with the Mergers.
The Intangible Asset Amortization expense for the three and nine months ended
September 30, 1997 increased when compared to the three and nine months ended
September 30, 1996. The increase in Intangible Asset Amortizatin expense was due
to the amortization of goodwill and core deposit premium associated with the
Mergers.
An impairment loss of $630,000 was recorded during the three months ended June
30, 1997 to reflect the impairment of an existing bank building. Construction of
a new bank building in McAllen, Texas has started. The new bank building will be
the headquarters for Texas State Bank and Texas Regional Bancshares, Inc. and is
being constructed next to our existing bank site. Upon completion of the new
bank building, the existing building will be demolished to make room for
parking. The amount of the impairment loss was the book value of the building at
June 30, 1997.
Most other Noninterest Expense categories reflect a net increase when comparing
three and nine months ended September 30, 1997 to three and nine months ended
September 30, 1996 and were primarily attributable to an increased volume of
business, primarily due to the Mergers.
15
<PAGE>
The following table displays the major noninterest expense categories:
<TABLE>
<CAPTION>
Nine Months
1997 1996 Ended
----------------------- -------------- September 30,
Noninterest Expense Third Second First Fourth Third --------------
(Dollars in Thousands) Quarter Quarter Quarter Quarter Quarter 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and Employee Benefits
Salaries and Wages $2,883 $3,205 $3,269 $3,021 $3,169 $ 9,357 $ 8,012
Employee Benefits 696 809 750 831 833 2,255 2,050
- -----------------------------------------------------------------------------------------------
Total Salaries and Employee Benefits 3,579 4,014 4,019 3,852 4,002 11,612 10,062
- -----------------------------------------------------------------------------------------------
Net Occupancy Expense 614 607 579 584 545 1,800 1,367
- -----------------------------------------------------------------------------------------------
Equipment Expense 925 895 835 859 906 2,655 2,306
- -----------------------------------------------------------------------------------------------
Other Real Estate (Income) Expense, Net
Rent Income (10) (30) (13) (21) (28) (53) (86)
(Gain) Loss on Sale 11 - (48) (79) (76) (37) (124)
Expense 70 75 46 64 70 191 136
Write-Downs 24 - - 8 35 24 35
- -----------------------------------------------------------------------------------------------
Total Other Real Estate (Income)
Expense, Net 95 45 (15) (28) 1 125 (39)
- -----------------------------------------------------------------------------------------------
Intangible Assets Amortization 563 563 563 610 534 1,689 983
- -----------------------------------------------------------------------------------------------
Impairment Loss - 630 - - - 630 -
- ----------------------------------------------------------------------------------------------
Other Noninterest Expense
Advertising and Public Relations 300 296 324 397 283 920 800
Data Processing and Check Clearing 191 229 219 256 310 639 686
Director Fees 73 87 98 91 95 258 252
Franchise Tax 123 156 94 55 56 373 190
Insurance 88 50 67 15 79 205 180
FDIC Insurance 35 35 33 - 1 103 3
Legal 308 255 119 210 123 682 479
Professional 152 154 177 235 121 483 355
Postage, Delivery and Freight 139 147 157 130 110 443 333
Stationery and Supplies 233 223 247 240 250 703 667
Telephone 90 98 99 113 93 287 233
Other Losses 160 115 113 131 238 388 496
Miscellaneous Expenses 215 265 261 218 226 741 641
- -----------------------------------------------------------------------------------------------
Total Other Noninterest Expense 2,107 2,110 2,008 2,091 1,985 6,225 5,315
- -----------------------------------------------------------------------------------------------
Total $7,883 $8,864 $7,989 $7,968 $7,973 $24,736 $19,994
===============================================================================================
</TABLE>
BALANCE SHEET ANALYSIS
Total average assets for the three months ended September 30, 1997 of $1.3
billion increased $105.7 million or 8.7% compared to the three months ended
September 30, 1996 of $1.2 billion. Total average assets for the nine months
ended September 30, 1997 of $1.3 billion increased $337.6 million or 36.0%
compared to the nine months ended September 30, 1996 of $938.0 million. The
increase in total assets was primarily attributable to the Mergers, deposit
growth and new capital.
16
<PAGE>
Average total deposits for the three months ended September 30, 1997 of $1.2
billion increased $89.4 million or 8.3% compared to the three months ended
September 30, 1996 of $1.1 billion. Average total deposits for the nine months
ended September 30, 1997 of $1.1 billion increased $293.7 million or 35.1%
compared to the nine months ended September 30, 1996 of $836.4 million. The
increase in average total deposits is primarily attributable to the Mergers and
deposit growth.
17
<PAGE>
The following table presents the consolidated average balance sheets:
<TABLE>
<CAPTION>
Nine Months
1997 1996 Ended
--------------------------------- ------------------ September 30,
Average Balance Sheets Third Second First Fourth Third -------------------
(Dollars in Thousands) Quarter Quarter Quarter Quarter Quarter 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Loans $ 824,262 $ 795,066 $ 774,414 $ 727,308 $ 702,720 $ 797,914 $583,672
Investment Securities
Taxable 304,929 297,526 299,198 312,409 311,355 300,551 204,989
Tax-Exempt 23,534 23,895 26,503 28,539 43,657 24,644 25,755
Federal Funds Sold 39,130 18,411 23,459 30,716 32,336 27,000 28,152
- -------------------------------------------------------------------------------------------------------
Total Interest-Earning
Assets 1,191,855 1,134,898 1,123,574 1,098,972 1,090,068 1,150,109 842,568
Cash and Due from Banks 48,689 49,441 48,501 45,201 48,723 48,877 43,313
Bank Premises and Equipment,
Net 40,388 38,555 37,415 36,544 36,244 38,786 27,640
Other Assets 48,421 49,170 47,258 47,790 48,260 48,283 31,994
Allowance for Loan Losses (10,397) (10,575) (10,237) (10,073) (10,061) (10,403) (7,493)
- -------------------------------------------------------------------------------------------------------
Total $1,318,956 $1,261,489 $1,246,511 $1,218,434 $1,213,234 $1,275,652 $938,022
=======================================================================================================
Liabilities
Demand Deposits
Commercial and
Individual $ 162,846 $ 165,287 $ 164,497 $ 160,368 $ 161,378 $ 164,210 $139,580
Public Funds 4,975 7,074 7,436 7,214 6,100 6,495 5,598
- -------------------------------------------------------------------------------------------------------
Total Demand Deposits 167,821 172,361 171,933 167,582 167,478 170,705 145,178
- -------------------------------------------------------------------------------------------------------
Savings
Commercial and Individual 86,936 90,129 92,335 93,925 97,440 89,800 68,409
Public Funds 646 687 683 665 570 672 541
Money Market Checking
and Savings Accounts
Commercial and Individual 186,984 182,621 181,009 185,143 190,837 183,538 148,451
Public Funds 32,368 38,364 46,820 59,621 60,855 39,184 44,237
Time Deposits
Commercial and Individual 556,643 507,707 497,489 482,923 474,521 520,613 379,980
Public Funds 137,512 124,567 114,607 89,361 87,795 125,562 49,608
- -------------------------------------------------------------------------------------------------------
Total Interest-Bearing
Deposits 1,001,089 994,075 932,943 911,638 912,018 959,369 691,226
- -------------------------------------------------------------------------------------------------------
Total Deposits 1,168,910 1,116,436 1,104,876 1,079,220 1,079,496 1,130,074 836,404
- -------------------------------------------------------------------------------------------------------
Federal Funds Purchased and
Securities Sold Under
Repurchase Agreements 147 1,131 531 432 416 603 532
Other Liabilities 10,342 10,108 10,480 12,548 11,096 10,310 7,592
Shareholders' Equity 139,557 133,814 130,624 126,234 122,226 134,665 93,494
- -------------------------------------------------------------------------------------------------------
Total $1,318,956 $1,261,489 $1,246,511 $1,218,434 $1,213,234 $1,275,652 $938,022
=======================================================================================================
</TABLE>
18
<PAGE>
RISK ANALYSIS OF THE LOAN PORTFOLIO
Total loans at September 30, 1997 of $831.4 million increased $125.6 million or
17.8% compared to September 30, 1996 levels of $705.8 million. The increase in
total loans in the three months ended September 30, 1997 compared to total loans
at September 30, 1996 is primarily attributable to the volume of business
conducted by the Company. The Company's loans are widely diversified by borrower
and industry group.
The following table presents the composition of the loan portfolio for the last
five quarters:
<TABLE>
<CAPTION>
1997 1996
-------------------------------- ----------------------
Loan Portfolio Composition Third Second First Fourth Third
(Dollars in Thousands) Quarter Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $210,366 $209,300 $205,531 $198,752 $177,277
Commercial Tax-Exempt 31,330 33,046 34,086 34,777 39,533
- -----------------------------------------------------------------------------------------------
Total Commercial Loans 241,696 242,346 239,617 233,529 216,810
- -----------------------------------------------------------------------------------------------
Agricultural 39,845 41,953 41,792 32,639 21,392
- -----------------------------------------------------------------------------------------------
Real Estate
Construction 57,919 55,704 54,443 47,400 45,053
Commercial Mortgage 277,890 274,061 254,501 243,198 224,010
Agricultural Mortgage 29,745 28,554 28,317 28,803 28,494
1-4 Family Mortgage 103,821 100,983 101,732 100,301 99,167
- -----------------------------------------------------------------------------------------------
Total Real Estate 469,375 459,302 438,993 419,702 396,724
- -----------------------------------------------------------------------------------------------
Consumer 80,531 77,019 73,031 71,786 70,875
- -----------------------------------------------------------------------------------------------
Total Loans $831,447 $820,620 $793,433 $757,656 $705,801
===============================================================================================
</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
September 30, 1997 nonaccrual loans of $8.4 million reflect an increase of $4.6
million or 121.4% compared to nonaccrual loans of $3.8 million at September 30,
1996. These nonaccrual credits are secured primarily by real estate.
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 September 30, 1997 of $2.4 million
reflects an improvement of $1.0 million compared to the September 30, 1996 level
of $3.4 million and reflects an improvement of $4.0 million or 62.2% compared to
the June 30, 1997 level of $6.4 million.
Total cross-border credits of $7.8 million or 0.9% of total loans outstanding at
September 30, 1997 reflect a slight increase when compared to the total
cross-border credits at June 30, 1997
19
<PAGE>
of $7.6 million. Total nonaccrual cross-border credits of $2.9 million at
September 30, 1997. remain unchanged when compared to June 30, 1997.
At September 30, 1997, the Company has a $8.3 million recorded investment in
impaired loans for which there was a related allowance for loan losses of
$833,000. At September 30, 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 nine months ended September 30, 1997
was $8.7 million. The Company recorded interest income of $136,000 on its
impaired loans during the nine months ended September 30, 1997.
Management continues to emphasize maintaining a low level of nonperforming
assets and returning nonperforming assets to an earning status.
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 Third Second First Fourth Third
(Dollars in Thousands) Quarter Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual Loans $ 8,415 $ 6,824 $ 6,469 $ 6,445 $3,801
Renegotiated Loans - - - 1 2
- -----------------------------------------------------------------------------------------------
Nonperforming Loans 8,415 6,824 6,469 6,446 3,803
Foreclosed Assets
(Primarily Other Real Estate) 2,688 2,767 1,078 945 1,551
- -----------------------------------------------------------------------------------------------
Total Nonperforming Assets 11,103 9,591 7,547 7,391 5,354
Accruing Loans 90 Days or More Past Due 2,431 6,436 7,497 4,089 3,446
- -----------------------------------------------------------------------------------------------
Total Nonperforming Assets and Accruing
Loans 90 Days or More Past Due $13,534 $16,027 $15,044 $11,480 $8,800
===============================================================================================
Nonperforming Loans as a % of Total Loans 1.01% 0.83% 0.82% 0.85% 0.54%
Nonperforming Assets as a % of Total
Loans and Foreclosed Assets 1.33 1.16 0.95 0.97 0.76
Nonperforming Assets as a % of Total Assets 0.83 0.75 0.60 0.60 0.44
Nonperforming Assets and Accruing
Loans 90 Days or More Past Due
as a % of Total Loans and Foreclosed Assets 1.62 1.95 1.89 1.51 1.24
===============================================================================================
</TABLE>
20
<PAGE>
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses at September 30, 1997 of $9.9 million decreased
$23,000 compared to the September 30, 1996 balance of $9.9 million and decreased
$543,000 or 5.2% compared to the June 30, 1997 balance of $10.4 million. The
allowance for loan losses was 1.19% of loans outstanding, net of unearned
discount at September 30, 1997, down from 1.41% at September 30, 1996. The
allowance for loan losses as a percentage of nonperforming assets was 89.15% at
September 30, 1997 from 185.30% at September 30, 1996.
21
<PAGE>
The following table summarizes the transactions in the allowance for loan
losses:
<TABLE>
<CAPTION>
Nine Months
1997 1996 Ended
----------------------- ----------------- September 30,
Allowance for Loan Loss Activity Third Second First Fourth Third ----------------
(Dollars in Thousands) Quarter Quarter Quarter Quarter Quarter 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at Beginning of Period $10,441 $10,237 $10,031 $9,921 $9,947 $10,031 $4,542
Balance from Acquisitions - - - - - - 4,647
Provision for Loan Losses 695 463 613 794 549 1,771 1,326
Charge-Offs
Commercial 935 165 491 513 296 1,591 370
Agricultural 155 47 - 144 6 202 14
Real Estate 25 1 6 19 35 32 63
Consumer 214 223 226 120 380 663 539
- -----------------------------------------------------------------------------------------------
Total Charge-Offs 1,329 436 723 796 717 2,488 986
- -----------------------------------------------------------------------------------------------
Recoveries
Commercial 38 12 37 13 30 87 147
Agricultural 1 34 - - - 35 -
Real Estate 1 60 219 58 37 280 103
Consumer 51 71 60 41 75 182 142
- -----------------------------------------------------------------------------------------------
Total Recoveries 91 177 316 112 142 584 392
- -----------------------------------------------------------------------------------------------
Net Charge-Offs (Recoveries) 1,238 259 407 684 575 1,904 594
- -----------------------------------------------------------------------------------------------
Balance at End of Period $9,898 $10,441 $10,237 $10,031 $9,921 $ 9,898 $9,921
- -----------------------------------------------------------------------------------------------
Ratio of Allowance for Loan
Losses to Loans Outstanding,
Net of Unearned Discount 1.19% 1.27% 1.29% 1.32% 1.41% 1.19% 1.41%
Ratio of Allowance For Loan
Losses to Nonperforming Assets 89.15 108.86 135.64 135.72 185.30 89.15 185.30
Ratio of Net Charge-Offs (Recoveries)
to Average Total Loans Outstanding,
Net of Unearned Discount 0.60 0.13 0.21 0.37 0.33 0.32 0.14
===============================================================================================
</TABLE>
* Not meaningful.
PREMISES AND EQUIPMENT, NET
Premises and equipment of $42.2 million at September 30, 1997 increased $6.0
million or 16.6% compared to $36.2 million at September 30, 1996 and increased
$5.1 million or 13.9% compared to $37.1 million at December 31, 1996. The net
increase for September 30, 1997 compared to September 30, 1996, is primarily
attributable to remodeling and construction of new drive-in facilities for the
Harlingen and Sharyland branch locations, construction of a new branch facility
in Edinburg, Texas and the new headquarters bank building in McAllen, Texas.
DEPOSITS
Total deposits at September 30, 1997 of $1.2 billion increased $118.5 million or
11.1% compared to the September 30, 1996 balance of $1.1 billion and increased
$52.4 million or 4.6% compared to June 30, 1997 of $1.1 billion. Total public
funds deposits at September 30, 1997 of $177.5 million increased $20.8 million
or 13.3% compared to the September 30, 1996 level of $156.7 million and
increased $7.2 million or 4.2% compared to the June 30, 1997 level of $170.3
million.
22
<PAGE>
The following table presents the composition of total deposits for the last five
quarters:
<TABLE>
<CAPTION>
1997 1996
--------------------------------- ------------------------
Total Deposits Third Second First Fourth Third
(Dollars in Thousands) Quarter Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Demand Deposits
Commercial and Individual $ 166,578 $ 160,334 $ 167,362 $ 162,650 $ 159,545
Public Funds 3,511 6,723 8,153 6,078 7,894
- -----------------------------------------------------------------------------------------------
Total Demand Deposits 170,089 167,057 175,515 168,728 167,439
- -----------------------------------------------------------------------------------------------
Interest-Bearing Deposits
Savings
Commercial and Individual 86,309 87,965 93,340 94,114 94,116
Public Funds 619 700 679 738 564
Money Market Checking and Savings
Commercial and Individual 182,406 192,889 182,413 181,495 180,051
Public Funds 34,229 30,438 36,409 53,432 68,819
Time Deposits
Commercial and Individual 572,009 520,890 501,995 490,294 475,846
Public Funds 139,107 132,415 127,624 102,934 79,395
- -----------------------------------------------------------------------------------------------
Total Interest-Bearing
Deposits 1,014,679 965,297 942,460 932,007 898,791
- -----------------------------------------------------------------------------------------------
Total Deposits $1,184,768 $1,132,354 $1,117,975 $1,091,735 $1,066,230
===============================================================================================
</TABLE>
CAPITAL AND LIQUIDITY
Shareholders' equity at September 30, 1997 of $141.5 million increased $18.0
million or 14.5% compared to the September 30, 1996 level of $123.5 million and
increased $13.3 million or 10.4% compared to the December 31, 1996 level of
$128.1 million. The increase in shareholders' equity at September 30, 1997
compared to September 30, 1996 and December 31, 1996 was primarily attributable
to net income, partially offset by dividends.
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.
23
<PAGE>
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 13.53% and 12.29% at September 30, 1997 and
1996, respectively. The Company's Total Risk-Based Capital Ratio was
approximately 14.68% and 13.53% at September 30, 1997 and 1996, respectively.
The Company's Leverage Capital Ratio was 8.97% and 8.33% at September 30, 1997
and 1996, respectively. Based on capital ratios, the Company is within the
definition of "well capitalized" for Federal Reserve purposes as of September
30, 1997.
The following table presents the Company's risk-based capital calculation:
Nine Months
Ended September 30,
Risk-Based Capital ---------------------
(Dollars in Thousands) 1997 1996
- -------------------------------------------------------------------------------
Total Shareholders' Equity before unrealized
gains or losses on Securities Available for Sale $141,483 $123,531
Less Goodwill and Other Deductions 25,512 24,862
- -------------------------------------------------------------------------------
Total Tier I Capital 115,971 98,669
Total Tier II Capital 9,898 9,921
- -------------------------------------------------------------------------------
Total Qualifying Capital $125,869 $108,590
===============================================================================
Risk Adjusted Assets (Including Off-Balance
Sheet Exposure) $857,309 $802,579
===============================================================================
Tier I Capital Ratio 13.53% 12.29%
Total Capital Ratio 14.68 13.53
Leverage Capital Ratio 8.97 8.33
===============================================================================
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 nine months ended September 30, 1997, liquidity was enhanced by net cash
provided by operating activities of $35.7 million and net cash provided by
financing activities of $90.2 million. The increase in net cash provided by
financing activities was primarily attributable to the $93.0 million net
increase in deposits. The increase in cash and cash equivalents was offset by
$120.2 million net cash used in investing activities. The investing activities
consisted primarily of funding $79.1 million of purchases, originations and
advances of loans, $34.8 million of net purchases (ie. net of sales proceeds and
maturing bond proceeds) of securities available for sale and securities held to
maturity and purchasing $8.0 million of premises and equipment. As a result, net
cash and cash equivalents at September 30, 1997 of $72.2 million increased $5.6
million or 8.4% compared to net cash and cash equivalents at December 31, 1996
of $66.6 million.
24
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
------------------ -------------------
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Performance Ratios
Return On Average Assets (1) 1.64% 1.69% 1.66% 1.62%
Return On Average Shareholders' Equity (1) 15.52 16.78 15.70 16.27
Loan to Deposit Ratio 70.18 64.16 70.18 64.16
Demand Deposit to Total Deposit Ratio 14.36 15.70 14.36 15.70
Net Interest Income to Average Interest-
Earning Assets (2) 4.75 5.12 5.01 5.22
Total Average Loans to Total Average Deposits 70.52 65.10 70.61 69.78
Average Equity to Average Assets 10.58 10.07 10.56 9.97
Efficiency Ratio (2) 45.95 48.74 48.17 50.95
Common Stock Data
Dividend Payout Ratio 26.83 25.64 27.73 30.00
Number of Shares Outstanding at Month
End (in Thousands) 13,106 13,063 13,106 13,063
Other Statistics
Number of Full-Time Equivalent Employees 547 510 547 510
===============================================================================================
</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>
Price
September 30, 1997 $31.25 Book Value $10.80 July 492,845 shares
1997 Price Range $19.00 - $31.50 Price/Book Value 2.89x August 381,746 shares
September 817,227 shares
==============================================================================================
</TABLE>
25
<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.
October 21, 1997 /s/ G. E. RONEY
Date G. E. Roney
Chairman of the Board,
President & Chief
Executive Officer
October 21, 1997 /s/ George R. Carruthers
Date George R. Carruthers
Executive Vice President
& Chief Financial Officer
26
EXHIBIT 10.13
Amendment Number 1 to
GLEN E. RONEY
DEFERRED COMPENSATION PLAN
Effective March 11, 1997
The Glen E. Roney Deferred Compensation Plan effective March 11, 1997, is
hereby amended, which amendment is effective June 25, 1997, as follows:
The Employee and the Company agree that Paragraphs 1 and 2 of the Plan are
hereby amended to read as follows:
1. RETIREMENT BENEFIT. Provided that the Employee has retired or his
employment has otherwise terminated, and provided Employee otherwise complies
with the terms and provisions hereof (including the requirement of continued
employment, subject to the exceptions provided in paragraph 6 hereof), beginning
on the later of (a) October 30, 2002, or (b) the day following the date of the
termination of Employee's employment with the Company (the "Late Retirement
Date"), the Company will make payments to Employee in accordance with this
section 1.
1.1. IF PAYMENTS COMMENCE ON OCTOBER 30, 2002. In the event Employee's
employment by the Company has terminated prior to October 30, 2002, and payments
are to commence on October 30, 2002, the Company shall pay to Employee $100,000
per year, commencing on such date and continuing regularly on the same calendar
day of each year thereafter, until the Employee has been paid the aggregate sum
of $1,500,000.
1.2. IF PAYMENTS COMMENCE AFTER OCTOBER 30, 2002. In the event payments are
to commence after October 30, 2002, the Company shall pay to Employee:
1.2.1. LUMP SUM CATCH-UP AMOUNT. On the Late Retirement Date a lump
sum equal to the amount of money that would have been paid to Employee had
payments commenced on October 30, 2002 (the "Catch-Up Amount"), and in
addition, the Company shall pay to Employee $100,000 per year commencing on
October 30 of the year next following the Late Retirement Date and
continuing regularly on the same calendar day of each year thereafter
(including the Catch-Up Amount and all other payments) the aggregate sum of
$1,500,000; and
1
<PAGE>
1.2.2. LOST EARNINGS PAYMENTS. On the Late Retirement Date, the
Company shall pay Employee an amount intended to compensate for Employee's
lost earning potential on the Catch-Up Amount, calculated as follows:
ANNUAL PERIODS. For each full twelve month period beginning on
October 30, 2002 and ending on the Late Retirement Date, an amount
equal to the effective yield on assets held in the Trust Under Glen E.
Roney Deferred Compensation Plan effective March 11, 1997 referred to
in section 7 hereof, for that twelve month period, multiplied by the
amount of money that Employee would have received pursuant to
paragraph 1.2.1. above on or prior to the beginning of such period if
payments had commenced as of October 30, 2002. Effective yield on
assets shall be the actual earnings on, and net change in asset value
of, assets in such trust divided by the average balance of assets in
the trust during the relevant period; and
PARTIAL FINAL PERIOD. For any final partial year, the amount for
such partial year equal to the effective yield on assets held in the
Trust Under Glen E. Roney Deferred Compensation Plan effective March
11, 1997 referred to in section 7 hereof, for that partial year,
multiplied by the amount of money that Employee would have received
pursuant to paragraph 1.2.1. above on or prior to the beginning of
such period if payments had commenced as of October 30, 2002,
multiplied by a fraction the numerator of which is the number of days
from October 30 immediately preceding such date to the Late Retirement
Date, and the denominator of which is 365. Effective yield on assets
shall be the actual earnings on, and net change in asset value of,
assets in such trust divided by the average balance of assets in the
trust during the relevant period.
In the event that the Employee should die after said payments have commenced but
before the aggregate amount herein provided is fully paid, the unpaid balance of
payments due will continue to be paid by the Company to those beneficiaries
designated in paragraph 2 below.
2
<PAGE>
2. DEATH BENEFIT. Should the Employee die while in the employ of the
Company (subject to the exceptions provided in paragraph 3(a) hereof), before
payments to the employee pursuant to section 1.2 above have commenced, the
Company, beginning at a date to be determined by the Company but within 30 days
from the date of death, will (if the date of death is prior to October 30, 2002)
commence payments of $100,000 per year until the aggregate sum of $1,500,000 has
been paid, or (if the date of death is on or after October 30, 2002) pay the
amounts provided in section 1.2 above, in either such case to the following
beneficiary or beneficiaries:
Rita K. Roney, provided that if Rita K. Roney does not survive the
Employee for a period of a least thirty (30) days, such sum shall be
payable to the Employee's estate.
The beneficiary or beneficiaries named herein may be changed (without the
consent of any prior beneficiary) at any time by the Employee by written
notification to the Company. The Employee's date of death shall be treated as
the date of termination of the Employee's employment by the Company for purposes
of calculation of payments due.
EXECUTED as of the date first written above.
TEXAS STATE BANK OF McALLEN
By: /s/ PAUL S. MOXLEY
Name: Paul S. Moxley
Title: President
/s/ GLEN E. RONEY
Glen E. Roney
3
EXHIBIT 10.14
Amendment Number 2
GLEN E. RONEY
DEFERRED COMPENSATION PLAN
Effective March 11, 1997
The Glen E. Roney Deferred Compensation Plan effective March 11, 1997, and
amended June 25, 1997, is hereby amended, which amendment is effective July 25,
1997, as follows:
The Employee and the Company agree that Paragraphs 1, 3(a) and 7 of the Plan
are hereby amended to read as follows:
1. RETIREMENT BENEFIT. Provided that the Employee has retired or his
employment has otherwise terminated, and provided Employee otherwise complies
with the terms and provisions hereof (including the requirement of continued
employment, subject to the exceptions provided in paragraph 6 hereof), beginning
on the later of (a) October 30, 2002, or (b) the day following the date of the
termination of Employee's employment with the Company (the "Late Retirement
Date"), the Company will make payments to Employee in accordance with this
section 1.
1.1 IF PAYMENTS COMMENCE ON OCTOBER 30, 2002. In the event Employee's
employment by the Company has terminated prior to October 30, 2002, and payments
are to commence on October 30, 2002, the Company shall pay to Employee $100,000
per year, commencing on such date and continuing regularly on the same calendar
day of each year thereafter, until the Employee has been paid the aggregate sum
of $1,500,000.
1.2 IF PAYMENTS COMMENCE AFTER OCTOBER 30, 2002. In the event payments are
to commence after October 30, 2002, the Company shall pay to Employee:
1.2.1. LUMP SUM CATCH-UP AMOUNT. On the Late Retirement Date a lump sum
equal to the amount of money that would have been paid to Employee had
payments commenced on October 30, 2002 (the "Catch-Up Amount"), and in
addition, the Company shall pay to Employee $100,000 per year commencing on
October 30 of the year next following the Late Retirement Date and
continuing regularly on the same calendar day of each year thereafter, until
the Employee has been paid under this paragraph (including the Catch-Up
Amount and all other payments) the aggregate sum of $1,500,000; and
1
<PAGE>
1.2.2. LOST EARNINGS PAYMENTS. On the Late Retirement Date, the Company
shall pay Employee an amount intended to compensate for Employee's lost
earning potential on the Catch-Up Amount, calculated as follows:
ANNUAL PERIODS. For each full twelve month period beginning on October
30, 2002 and ending on the Late Retirement Date, an amount equal to the
percentage increase (if any) in the Standard and Poor's 500 Index over the
relevant twelve-month period, multiplied by the amount of money that
Employee would have received pursuant to paragraph 1.2.1. above on or prior
to the beginning of such period if payments had commenced as of October 30,
2002. If there has been a decrease in the Standard and Poor's 500 Index over
the relevant period, the Lost Earnings Payment for that period shall be
zero. For purposes hereof, the Standard and Poor's 500 Index shall be
determined with reference to the "S&P 500" index as reported under the
Markets Diary column in the Wall Street Journal as of a date as close as
reasonably practicable to the relevant date.
PARTIAL FINAL PERIOD. For any final partial year, the amount for such
partial year equal to the percentage increase (if any) in the Standard and
Poor's 500 Index for that partial year, multiplied by the amount of money
that Employee would have received pursuant to paragraph 1.2.1 above on or
prior to the beginning of such period if payments had commenced as of
October 30, 2002, multiplied by a fraction the numerator of which is the
number of days from October 30 immediately preceding such date to the Late
Retirement Date, and the denominator of which is 365. If there has been a
decrease in the Standard and Poor's 500 Index over the relevant period, the
Lost Earnings Payment for that period shall be zero. For purposes hereof,
the Standard and Poor's 500 Index shall be determined with reference to the
"S&P 500" index as reported under the Markets Diary column in the Wall
Street Journal as of a date as close as reasonably practicable to the
relevant date.
2
<PAGE>
In the event that the Employee should die after said payments have commenced but
before the aggregate amount herein provided is fully paid, the unpaid balance of
payments due will continue to be paid by the Company to those beneficiaries
designated in paragraph 2 below.
3. CONDITIONS. The obligations of the Company under the terms hereof are
subject to the following conditions and requirements:
a. The obligation of the Company to make payments as herein provided is
conditioned upon the employment of the Employee by the Company or one or more of
its subsidiaries continuously under the earlier of the date of Employee's death
or October 29, 2002, except that such requirement and limitation shall not be
applicable (and the Employee shall not be required to be continuously employed
by the Company) if, prior to such date, (i) the Employee's annual cash
compensation paid by the Company is substantially reduced from the cash
compensation paid by the Company to the Employee during 1993, or (ii) Employee's
duties on behalf of the Company are modified such that Employee is no longer
performing the function of Chief Executive Officer of the Company, or (iii)
Employee ceases his employment as a result of a disability that makes it
impossible for Employee to carry on his duties as Chief Executive Officer of the
Company, or (iv) Employee is discharged by the Company without cause. In the
event that Employee's employment is terminated as a result of one of the
conditions specified in (i) through (iv), then Employee's retirement benefit
shall be paid as specified in Paragraph 1, beginning on the later of (a) October
30, 2002, or (b) the day following the date of the termination of Employee's
employment with the Company.
7. TRUST. The Employee acknowledges that he has the status of a general
unsecured creditor of the Company, and the Plan constitutes a mere promise by
the Company to make benefit payments in the future. Any trust created by the
Company and any assets held by the trust to assist the Company in meeting its
obligations under the Plan will conform to the terms of the model trust
described in Revenue Procedure 96-64. It is the intention of the parties that
this deferred compensation plan be unfunded for tax purposes and for purposes of
Title I of ERISA. The Company has executed and partially funded a trust in the
form of that certain Trust Under Glen E. Roney Deferred Compensation Plan
effective March 11, 1997, attached hereto as Annex A, which is intended to
conform to the terms of the model trust described in Revenue Procedure 96-64.
EXECUTED as of July 25, 1997.
TEXAS STATE BANK OF McALLEN
By: /s/ PAUL S. MOXLEY
Name: Paul S. Moxley
Title: President
/s/ GLEN E. RONEY
Glen E. Roney
3
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME, INCLUDED HEREIN
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-START> JAN-01-1997
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 52,143
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 20,085
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 281,579
<INVESTMENTS-CARRYING> 72,498
<INVESTMENTS-MARKET> 73,165
<LOANS> 831,447
<ALLOWANCE> (9,898)
<TOTAL-ASSETS> 1,337,767
<DEPOSITS> 1,184,768
<SHORT-TERM> 0
<LIABILITIES-OTHER> 11,516
<LONG-TERM> 0
0
0
<COMMON> 13,106
<OTHER-SE> 128,377
<TOTAL-LIABILITIES-AND-EQUITY> 1,337,767
<INTEREST-LOAN> 58,524
<INTEREST-INVEST> 15,690
<INTEREST-OTHER> 1,131
<INTEREST-TOTAL> 75,345
<INTEREST-DEPOSIT> 33,407
<INTEREST-EXPENSE> 33,430
<INTEREST-INCOME-NET> 41,915
<LOAN-LOSSES> 1,771
<SECURITIES-GAINS> 517
<EXPENSE-OTHER> 24,736
<INCOME-PRETAX> 23,950
<INCOME-PRE-EXTRAORDINARY> 23,950
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,814
<EPS-PRIMARY> 1.19
<EPS-DILUTED> 1.19
<YIELD-ACTUAL> 5.01
<LOANS-NON> 8,415
<LOANS-PAST> 2,431
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 9,898
<CHARGE-OFFS> 2,488
<RECOVERIES> 584
<ALLOWANCE-CLOSE> 2,898
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
