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 June 30, 1998
[ ] 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
3900 N. Tenth, 11th Floor
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 14,411,583 shares $1 par value, outstanding as
of July 23, 1998.
<PAGE>
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements
Texas Regional Bancshares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS (UNAUDITED) June 30, December 31,
---------------------------- ------------
(Dollars in Thousands) 1998 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
Assets
Cash and Due From Banks ....................................................... $ 56,489 $ 50,985 $ 62,268
Federal Funds Sold ............................................................ 78,000 25,625 18,985
Time Deposits ................................................................. 1,574 295 100
----------- ----------- -----------
Total Cash and Cash Equivalents ............................................. 136,063 76,905 81,353
Securities Available for Sale ................................................. 374,113 233,039 324,177
Securities Held to Maturity (Estimated Market Value
of $20,902 and $143,747 at June 30, 1998 and 1997,
respectively, and $93,311 at December 31, 1997) ............................. 20,640 143,140 92,744
Loans, Net of Unearned Discount of $4,237 and $2,474 at
June 30, 1998 and 1997, respectively and $2,753 at
December 31, 1997 ........................................................... 1,013,018 884,970 951,316
Less Allowance for Loan Losses ................................................ (12,038) (11,187) (11,291)
----------- ----------- -----------
Net Loans ................................................................... 1,000,980 873,783 940,025
Premises and Equipment, Net ................................................... 67,078 41,883 52,443
Accrued Interest Receivable ................................................... 18,919 17,678 16,033
Other Real Estate ............................................................. 3,881 2,728 3,124
Intangibles ................................................................... 28,318 25,192 24,066
Other Assets .................................................................. 7,350 5,691 4,804
----------- ----------- -----------
Total Assets .................................................................... $ 1,657,342 $ 1,420,039 $ 1,538,769
=========== =========== ===========
Liabilities
Deposits
Demand ...................................................................... $ 225,120 $ 188,348 $ 208,423
Savings ..................................................................... 104,897 100,871 101,688
Money Market Checking and Savings ........................................... 256,785 240,833 242,839
Time Deposits ............................................................... 880,389 726,630 809,833
----------- ----------- -----------
Total Deposits .............................................................. 1,467,191 1,256,682 1,362,783
Federal Funds Purchased and Securities
Sold Under Repurchase Agreements ............................................. 4,401 228 1,801
Accounts Payable and Accrued Liabilities ...................................... 14,072 11,155 12,630
----------- ----------- -----------
Total Liabilities ............................................................... 1,485,664 1,268,065 1,377,214
----------- ----------- -----------
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, 50,000,000
Shares Authorized; Issued and Outstanding,
14,409,145 at June 30, 1998, 14,356,192 at June 30,
1997 and 14,403,484 at December 31, 1997 (Note 5) ........................... 14,409 14,356 14,403
Paid-In Capital ............................................................... 87,556 86,620 87,078
Retained Earnings ............................................................. 68,594 50,759 59,167
Accumulated Other Comprehensive Income ........................................ 1,119 239 907
----------- ----------- -----------
Total Shareholders' Equity .................................................. 171,678 151,974 161,555
----------- ----------- -----------
Total Liabilities and Shareholders' Equity .................................. $ 1,657,342 $ 1,420,039 $ 1,538,769
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Texas Regional Bancshares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS of INCOME and Quarter Ended Six Months
COMPREHENSIVE INCOME (UNAUDITED) June 30, Ended June 30,
------------------------ --------------------------
(Dollars in Thousands, Except Per Share Data) 1998 1997 1998 1997
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Interest Income
Loans, Including Fees .......................................... $ 24,644 $21,391 $ 48,165 $ 41,601
Investment Securities
Taxable ...................................................... 6,021 5,661 12,324 11,208
Tax-Exempt ................................................... 375 377 739 796
Time Deposits .................................................. 33 6 51 8
Federal Funds Sold ............................................. 345 407 701 910
-------- ------- -------- --------
Total Interest Income ........................................ 31,418 27,842 61,980 54,523
-------- ------- -------- --------
Interest Expense
Deposits ....................................................... 13,954 11,982 27,893 23,571
Federal Funds Purchased and
Securities Sold Under
Repurchase Agreements ....................................... 84 16 112 22
-------- ------- -------- --------
Total Interest Expense ....................................... 14,038 11,998 28,005 23,593
-------- ------- -------- --------
Net Interest Income .............................................. 17,380 15,844 33,975 30,930
Provision for Loan Losses ........................................ 981 463 1,922 1,086
-------- ------- -------- --------
Net Interest Income After
Provision for Loan Losses ................................... 16,399 15,381 32,053 29,844
-------- ------- -------- --------
Noninterest Income
Service Charges on Deposit Accounts ............................ 1,941 1,737 3,770 3,422
Other Service Charges .......................................... 516 361 1,102 757
Trust Service Fees ............................................. 430 435 877 825
Investment Security Gains (Losses) ............................. 198 134 420 305
Data Processing Service Fees ................................... 344 272 685 534
Other Operating Income ......................................... 194 180 731 495
-------- ------- -------- --------
Total Noninterest Income ..................................... 3,623 3,119 7,585 6,338
-------- ------- -------- --------
Noninterest Expense
Salaries and Employee Benefits ................................. 4,390 4,591 9,057 9,200
Net Occupancy Expense .......................................... 842 696 1,620 1,361
Equipment Expense .............................................. 1,090 965 2,224 1,865
Other Real Estate (Income) Expense, Net ........................ (61) 45 (6) 26
Intangible Asset Amortization .................................. 681 563 1,302 1,126
Impairment Loss ................................................ -- 630 -- 630
One Time Charge - Acquisitions (Note 6) ........................ 46 -- 728 --
Other Noninterest Expense ...................................... 2,650 2,426 5,240 4,775
-------- ------- -------- --------
Total Noninterest Expense .................................... 9,638 9,916 20,165 18,983
-------- ------- -------- --------
Income Before Income Tax Expense ................................. 10,384 8,584 19,473 17,199
Income Tax Expense ............................................... 3,624 2,945 6,870 5,859
-------- ------- -------- --------
Net Income ....................................................... 6,760 5,639 12,603 11,340
Other Comprehensive Income -
Unrealized Gains (Losses) on Investment
Securities Available for Sale ................................. (28) 1,411 212 (668)
-------- ------- -------- --------
Comprehensive Income ............................................. $ 6,732 $ 7,050 $ 12,815 $ 10,672
======== ======= ======== ========
Basic Earnings Per Common Share (Note 3)
Net Income ..................................................... $ 0.47 $ 0.39 $ 0.87 $ 0.79
Weighted Average Number of Common Shares
Outstanding (In Thousands) ................................... 14,408 14,356 14,406 14,356
-------- ------- -------- --------
Diluted Earnings Per Common Share (Note 3)
Net Income ..................................................... $ 0.46 $ 0.39 $ 0.86 $ 0.78
Weighted Average Number of Common Shares
Outstanding (In Thousands) ................................... 14,651 14,585 14,649 14,587
======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Texas Regional Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS of CHANGES in SHAREHOLDERS' EQUITY (UNAUDITED) For the
Year Ended December 31, 1997 And the Six Months Ended June 30, 1998
<TABLE>
<CAPTION>
Accumulated Total
Class A Other Share
Common Paid-in Retained Comprehensive holders'
(Dollars in Thousands) Stock Capital Earnings Income Equity
------- -------- -------- ------ ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 ............................. $10,000 $ 86,620 $ 46,225 $ 468 $ 143,313
Exercise of stock options,
35,814 shares of Class A
Common Stock .......................................... 36 458 -- -- 494
Other Comprehensive Income
for 1997 .............................................. -- -- -- 439 439
Class A Common Stock Cash Dividends -
Texas Regional Bancshares, Inc. ....................... -- -- (4,803) -- (4,803)
Common Stock Cash Dividends - Acquisitions ............. -- -- (1,006) -- (1,006)
Class A Common Stock 3-for-2 Stock Split ............... 4,367 -- (4,371) -- (4)
Net Income ............................................. -- -- 23,122 -- 23,122
------- -------- -------- ------ ---------
Balance, December 31, 1997 ............................. 14,403 87,078 59,167 907 161,555
Exercise of Stock Option,
5,661 Shares of Class A
Common Stock .......................................... 6 88 -- -- 94
Other Comprehensive Income
for 1998 .............................................. -- -- -- 212 212
Class A Common Stock
Cash Dividends ........................................ -- -- (3,176) -- (3,176)
Cash Dividends Paid on Fractional Shares ............... -- (8) -- -- (8)
Tax Effect of Nonqualified Stock Options
Exercised ............................................. -- 398 -- -- 398
Net Income for the Six Months
Ended June 30, 1998 ................................... -- -- 12,603 -- 12,603
------- -------- -------- ------ ---------
Balance, June 30, 1998 ................................. $14,409 $ 87,556 $ 68,594 $1,119 $ 171,678
======= ======== ======== ====== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Texas Regional Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS of CASH FLOWS (Unaudited)
Six Months Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
(Dollars in Thousands) 1998 1997
--------- --------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income .................................................................................. $ 12,603 $ 11,340
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities
Depreciation, Amortization and Accretion, Net ........................................... 1,811 1,672
Provision for Loan Losses ............................................................... 1,922 1,086
Provision for Estimated Losses on Other Real Estate and Other Assets .................... 7 19
Gain on Sales of Other Real Estate ...................................................... (233) (48)
Gain on Sale of Securities Available for Sale ........................................... (420) (305)
Gain on Sale of Premises and Equipment .................................................. (159) (1)
(Gain) Loss on Sale of Other Assets ..................................................... 33 (2)
Impairment Loss ....................................................................... -- 630
(Increase) Decrease in Accrued Interest Receivable and Other Assets ..................... (3,038) 13,422
Decrease in Accounts Payable and Accrued Liabilities .................................... (1,345) (16)
--------- --------
Net Cash Provided by Operating Activities ..................................................... 11,181 27,797
--------- --------
Cash Flows from Investing Activities
Proceeds from Sales of Securities Available for Sale ........................................ 118,237 31,657
Proceeds from Maturing Securities Available for Sale ........................................ 50,149 37,775
Purchases of Securities Available for Sale .................................................. (156,375) (95,836)
Proceeds from Maturing Securities Held to Maturity .......................................... 30,981 31,793
Purchases of Securities Held to Maturity .................................................... -- (10,542)
Proceeds from Sale of Loans ................................................................. 2,033 46
Purchases of Loans .......................................................................... (297) (232)
Loan Originations and Advances .............................................................. (42,445) (69,885)
Recoveries of Charged-Off Loans ............................................................. 471 502
Proceeds from Sale of Other Assets .......................................................... 426 137
Proceeds from Sale of Other Real Estate ..................................................... 1,752 563
Proceeds from Sale of Premises and Equipment ................................................ 461 1
Purchases of Premises and Equipment ......................................................... (14,201) (3,863)
--------- --------
Net Cash Used In Investing Activities ......................................................... (8,808) (77,884)
--------- --------
Cash Flows from Financing Activities
Net Increase (Decrease) in Demand, Savings, Money
Market Checking and Savings Deposit Accounts .............................................. 5,926 (21,187)
Net Increase in Time Deposits ............................................................... 42,024 62,233
Net Increase (Decrease) in Securities Sold
Under Repurchase Agreements ............................................................... 1,776 (426)
Cash Dividends Paid on Class A Common Stock (Note 5) ........................................ (3,033) (2,341)
Cash Dividends Paid on Fractional Shares .................................................... (8) --
Tax Effect of Nonqualified Stock Options Exercised .......................................... 398 --
Proceeds from the Sale of Common Stock ...................................................... 94 --
Net Cash and Cash Equivalents Received from Acquisition ..................................... 5,160 --
--------- --------
Net Cash Provided by Financing Activities ..................................................... 52,337 38,279
--------- --------
Increase (Decrease) in Cash and Cash Equivalents .............................................. 54,710 (11,808)
Cash and Cash Equivalents at Beginning of Year ................................................ 81,353 88,713
--------- --------
Cash and Cash Equivalents at End of Quarter ................................................... $ 136,063 $ 76,905
========= ========
Supplemental Disclosures of Cash Flow Information
Interest Paid ............................................................................... $ 27,723 $ 23,511
Income Taxes Paid ........................................................................... 8,148 6,850
Supplemental Schedule of Noncash Investing and Financing Activities
Foreclosure and Repossession in Partial Satisfaction of Loans Receivable .................... 2,528 2,511
========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Texas Regional Bancshares, Inc. and Subsidiaries
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 subsidiaries (the "Company"). Intercompany balances and
transactions have been eliminated.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, ("Statement 130") "Reporting
Comprehensive Income." Statement 130 establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains,
and losses) in a full set of general-purpose financial statements. Statement 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position.
Statement 130 is effective for fiscal years beginning after December 15, 1997.
The provisions of Statement 130 were adopted by the Company as of January 1,
1998. The adoption of Statement 130 did not have a material impact on the
Company's financial position, results of operation, or liquidity.
NOTE 2-IMPAIRED LOANS
At June 30, 1998, the Company had a $8.1 million recorded investment in impaired
loans for which there was a related allowance for loan losses of $880,000. At
June 30, 1998, the Company had $288,000 in impaired loans for which there was no
related allowance for loan losses. The average level of impaired loans during
the three months ended June 30, 1998 was $8.7 million. The Company recorded
interest income of $70,000 on its impaired loans during the six months ended
June 30, 1998.
NOTE 3-EARNINGS PER COMMON SHARE COMPUTATIONS
The number of shares outstanding and related earnings per share ("EPS") amounts
have been restated to retroactively give effect for the 1997 three-for-two stock
split.
The table below presents a reconciliation of basic and diluted earnings per
share computations for the six months ended June 30, 1998 and 1997.
(Dollars in thousands, except per share data) 1998 1997
----------- -----------
Net income available to common shareholders .......... $ 12,603 $ 11,340
----------- -----------
Weighted average number of common shares outstanding
used in basic EPS calculation ...................... 14,405,898 14,356,192
Add assumed exercise of outstanding stock options as
adjustments for dilutive securities ................ 243,482 230,725
----------- -----------
Weighted average number of common shares
outstanding used in diluted EPS calculations ....... 14,649,380 14,586,917
----------- -----------
Basic EPS ............................................ $ 0.87 $ 0.79
Diluted EPS .......................................... 0.86 0.78
=========== ===========
<PAGE>
NOTE 4-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 5-COMMON STOCK
On June 9, 1998, the Board of Directors approved a cash dividend of $0.11 per
share for shareholders of record on July 1, 1998 and payable on July 15, 1998.
NOTE 6-ACQUISITIONS
On February 19,1998, the Company completed the acquisition of three bank holding
companies and their three subsidiary banks. The acquisition of Brownsville
Bancshares, Inc. and its subsidiary, Brownsville National Bank, includes two
banking locations in Brownsville, Cameron County, Texas, with assets of
approximately $100.1 million, equity of $12.1 million, loans of $42.6 million,
and deposits of $87.2 million. This acquisition was achieved by the exchange of
984,806 shares of Texas Regional stock for all of the outstanding shares of
Brownsville Bancshares, Inc. and cancellation of outstanding stock options.
Brownsville National Bank was merged with and into Texas State Bank.
The second acquisition was TB&T Bancshares, Inc. and its subsidiary, Texas Bank
and Trust of Brownsville, Cameron County, Texas. Texas Bank and Trust of
Brownsville had assets of approximately $44.9 million, equity of $4.1 million,
loans of $21.9 million, and deposits of $40.3 million. This acquisition was
achieved by exchange of 308,039 shares of Texas Regional stock for all of the
outstanding shares of TB&T Bancshares, Inc., a portion of which are retained in
a holdback escrow account pending resolution of certain claims. Texas Bank and
Trust of Brownsville was merged with and into Texas State Bank.
The third acquisition was Raymondville Bancorp, Inc. and its subsidiary, Bank of
Texas. Bank of Texas is headquartered in Raymondville, Willacy County, Texas,
with one additional banking facility in Brownsville, Texas. The shareholder of
Raymondville Bancorp, Inc. received cash consideration of $9.6 million in this
acquisition, and Texas Regional paid $100,000 in consideration for a covenant
not to compete. Texas Regional discharged approximately $330,000 of existing
Raymondville Bancorp, Inc. indebtedness. Bank of Texas had assets of
approximately $63.7 million, equity of $5.1 million, loans of $25.5 million, and
deposits of $56.5 million. Bank of Texas was merged with and into Texas State
Bank.
The acquisition of Brownsville Bancshares, Inc. and TB&T Bancshares, Inc. are
accounted for under the pooling-of-interests method of accounting, and as such,
the enclosed financial information has been restated for all periods presented
to include the results of operations and financial position of these acquired
entities. The acquisition of Raymondville Bancorp, Inc. was accounted for under
the purchase method of accounting; therefore, the results of operations are
included in the consolidated financial statements from the date of acquisition,
February 19, 1998. The One Time Charge - Acquisitions cost of $728,000 was
expenses related to effecting business combinations accounted for by the
pooling-of-interests method.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Financial Review
Texas Regional Bancshares, Inc. and Subsidiaries
Results of Operations
Net income for the three months ended June 30, 1998 was $6.8 million or $0.46
per share, reflecting a net increase of $1.1 million or $0.07 per share,
compared to net income of $5.6 million or $0.39 per share for the three months
ended June 30, 1997 and reflects a net increase of $917,000 compared to net
income of $5.8 million or $0.40 per share for the three months ended March 31,
1998. Net income for the six months ended June 30, 1998 was $12.6 million or
$0.86 per share, reflecting a net increase of $1.3 million or $0.08 per share,
compared to $11.3 million or $0.78 per share for the six months ended June 30,
1997. Earnings performance for the six months ended June 30, 1998 compared to
the six months ended June 30, 1997 reflected an increase in net interest income
and an increase in noninterest income, partially reduced by an increase in
provision for loan loss and noninterest expense. Earnings performance for the
three months ended June 30, 1998 compared to three months ended June 30, 1997
reflected an increase in net interest income and noninterest income, and a
decrease in noninterest expense, partially reduced by an increase in provision
for loan losses. A more detailed description of the results of operations is
included in the material that follows.
On February 19,1998, Texas Regional Bancshares, Inc. (the "Corporation")
completed the acquisition of three bank holding companies and their three
subsidiary banks. Each of the three subsidiary banks acquired were merged with
and into Texas State Bank (the "Bank"), the principal operating subsidiary of
the Corporation (collectively, the "Company"). The acquisition of Brownsville
Bancshares, Inc. and TB&T Bancshares, Inc. are accounted for under the
pooling-of-interest method of accounting, and as such, the enclosed financial
information has been restated for all periods presented to include the results
of operations and financial position of these acquired entities. The acquisition
of Raymondville Bancorp, Inc. (the "Raymondville Acquisition") was accounted for
under the purchase method of accounting; therefore, the results of operations
are included in the consolidated financial statements from the date of
acquisition, February 19, 1998.
The following table presents selected financial data regarding results of
operations:
<TABLE>
<CAPTION>
Condensed Quarterly Income 1998 1997 Six Months Ended
Statements Taxable-Equivalent Basis* ------------------- --------------------------------- -------------------
(Dollars in Thousands, Second First Fourth Third Second June 30,
Except Per Share Data) Quarter Quarter Quarter Quarter Quarter 1998 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income ................................ $31,792 $30,915 $29,992 $28,977 $28,237 $62,707 $55,331
Interest Expense ............................... 14,038 13,967 13,818 13,207 11,998 28,005 23,593
------- ------- ------- ------- ------- ------- -------
Net Interest Income ............................ 17,754 16,948 16,174 15,770 16,239 34,702 31,738
Provision for Loan Losses ...................... 981 941 1,166 695 463 1,922 1,086
Noninterest Income ............................. 3,623 3,962 3,403 3,231 3,119 7,585 6,338
Noninterest Expense ............................ 9,638 10,527 9,229 8,958 9,916 20,165 18,983
------- ------- ------- ------- ------- ------- -------
Income Before Taxable-Equivalent
Adjustment and Income Tax .................... 10,758 9,442 9,182 9,348 8,979 20,200 18,006
Taxable-Equivalent Adjustment .................. 374 353 367 380 395 727 808
Applicable Income Tax Expense .................. 3,624 3,246 2,997 3,004 2,945 6,870 5,859
------- ------- ------- ------- ------- ------- -------
Net Income ..................................... $ 6,760 $ 5,843 $ 5,818 $ 5,964 $ 5,639 $12,603 $11,340
======= ======= ======= ======= ======= ======= =======
Net Income Per Common Share
Basic ........................................ $ 0.47 $ 0.41 $ 0.40 $ 0.41 $ 0.39 $ 0.87 $ 0.79
Diluted ...................................... 0.46 0.40 0.40 0.41 0.39 0.86 0.78
======= ======= ======= ======= ======= ======= =======
</TABLE>
* Taxable-Equivalent basis assuming a 35% tax rate.
The Company paid cash and used the purchase method in accounting for certain
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
<PAGE>
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.
The following table reconciles reported net income to net income excluding
intangible assets amortization ("cash" earnings):
<TABLE>
<CAPTION>
Cash Earnings 1998 1997 Six Months Ended
Taxable-Equivalent Basis* ----------------------- ------------------------------------ ------------------------
Dollars in Thousands, Second First Fourth Third Second June 30,
Except Per Share Data) Quarter Quarter Quarter Quarter Quarter 1998 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Reported Net Income ................... $ 6,760 $ 5,843 $ 5,818 $ 5,964 $ 5,639 $ 12,603 $ 11,340
Intangible Amortization ............... 681 621 563 563 563 1,302 1,126
Income Tax Adjustment ................. (135) (123) (111) (111) (111) (258) (222)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Cash Earnings ......................... $ 7,306 $ 6,341 $ 6,270 $ 6,416 $ 6,091 $ 13,647 $ 12,244
========== ========== ========== ========== ========== ========== ==========
Cash Earnings Per Common Share
Basic ............................... $ 0.51 $ 0.44 $ 0.44 $ 0.45 $ 0.42 $ 0.95 $ 0.85
Diluted ............................. 0.50 0.43 0.43 0.44 0.42 0.93 0.84
Cash Earnings Return on
Average Assets ....................... 1.81% 1.62% 1.65% 1.74% 1.74% 1.72% 1.77%
Cash Earnings Return on
Average Shareholders' Equity ......... 17.27 15.59 15.46 16.38 16.37 16.45 16.72
========== ========== ========== ========== ========== ========== ==========
</TABLE>
* Taxable-Equivalent basis assuming a 35% effective income tax rate
NET INTEREST INCOME
Taxable-equivalent net interest income was $17.8 million for the three months
ended June 30, 1998, a net increase of $1.5 million or 9.3% compared to the
three months ended June 30, 1997 of $16.2 million and reflects a net increase of
$806,000 or 4.8% compared to net interest income of $16.9 million for the three
months ended March 31, 1998. The increase in net interest income for the three
months ended June 30, 1998 compared to the three months ended June 30, 1997 and
the three months ended March 31, 1998, primarily reflects the increase in the
average volume of interest-earning assets exceeding the increase in average
volume of interest-bearing liabilities, partially attributable to the
Raymondville Acquisition.
The net yield on total interest-earning assets, also referred to as net interest
margin, of 4.90% for the three months ended June 30, 1998 reflects a decrease of
25 basis points compared to 5.15% for the three months ended June 30, 1997 and
reflects an increase of 9 basis points compared to 4.81% for the three months
ended March 31, 1998. The decline in the net interest margin for the three
months ended June 30, 1998 compared to the three months ended June 30, 1997, was
primarily attributable to the decline in loan yield and an increase in deposit
costs, both as a result of competition.
The following tables present for the three months ended June 30, 1998, March 31,
1998 and June 30, 1997 and the six months ended June 30, 1998 and 1997, 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.
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
Summary of Interest-Earning -------------------------------------------------------------------------------------
Assets and Interest-Bearing June 30, 1998 March 31, 1998 June 30, 1997
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 ................................ $ 356,459 $ 8,413 9.47% $ 342,401 $ 8,010 9.49% $ 302,122 $ 7,330 9.73%
Real Estate ............................... 554,606 13,592 9.83 539,122 13,146 9.89 476,488 12,173 10.25
Consumer .................................. 111,476 2,807 10.10 100,544 2,537 10.23 81,186 2,081 10.28
---------- ------- ----- ---------- ------- ----- ---------- ------- -----
Total Loans ................................. 1,022,541 24,812 9.73 982,067 23,693 9.78 859,795 21,584 10.07
---------- ------- ----- ---------- ------- ----- ---------- ------- -----
Investment Securities
Taxable ................................... 376,057 6,021 6.42 392,570 6,303 6.51 351,496 5,661 6.46
Tax-Exempt ................................ 28,420 581 8.20 27,666 545 7.99 25,678 579 9.04
---------- ------- ----- ---------- ------- ----- ---------- ------- -----
Total Investment Securities ................. 404,477 6,602 6.55 420,236 6,848 6.61 377,174 6,240 6.64
---------- ------- ----- ---------- ------- ----- ---------- ------- -----
Time Deposits ............................... 1,852 33 7.15 1,167 18 6.25 295 6 8.16
Federal Funds Sold .......................... 25,197 345 5.49 25,752 356 5.61 28,449 407 5.74
---------- ------- ----- ---------- ------- ----- ---------- ------- -----
Total Interest-Earning
Assets .................................... $1,454,067 31,792 8.77 $1,429,222 30,915 8.77 $1,265,713 28,237 8.95
---------- ------- ----- ---------- ------- ----- ---------- ------- -----
Interest-Bearing Liabilities
Savings ..................................... $ 106,929 776 2.91 $ 104,425 767 2.98 $ 103,299 818 3.18
Money Market Checking and
Savings .................................... 256,978 1,851 2.89 252,859 1,844 2.96 238,686 1,667 2.80
Time Deposits ............................... 842,550 11,327 5.39 838,400 11,328 5.48 705,376 9,497 5.40
---------- ------- ----- ---------- ------- ----- ---------- ------- -----
Total Savings and Time
Deposits ................................... 1,206,457 13,954 4.64 1,195,684 13,939 4.73 1,047,361 11,982 4.59
---------- ------- ----- ---------- ------- ----- ---------- ------- -----
Federal Funds Purchased and
Securities Sold Under
Repurchase Agreements .................... 6,515 84 5.17 2,004 28 5.67 1,148 16 5.24
---------- ------- ----- ---------- ------- ----- ---------- ------- -----
Total Interest-Bearing
Liabilities ............................... $1,212,971 14,038 4.64 $1,197,688 13,967 4.73 $1,048,509 11,998 4.59
---------- ------- ----- ---------- ------- ----- ---------- ------- -----
Net Interest Income ......................... -- $17,754 -- -- $16,948 -- -- $16,239 --
---------- ------- ----- ---------- ------- ----- ---------- ------- -----
Net Yield on Total
Interest-Earning Assets .................... -- -- 4.90% -- -- 4.81% -- -- 5.15%
========== ======= ===== ========== ======= ===== ========== ======= =====
</TABLE>
* Annualized
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
Summary of Interest-Earning ---------------------------------------------------------------------------------
Assets and Interest-Bearing June 30, 1998 June 30, 1997
Liabilities -------------------------------------- -----------------------------------
Taxable-Equivalent Basis Average Yield/ Average Yield/
(Dollars in Thousands) Balance Interest Rate* Balance Interest Rate*
- --------------------------------------------------------------------------------------------------------------------
Interest-Earning Assets
Loans
<S> <C> <C> <C> <C> <C> <C>
Commercial ................... $ 349,469 $16,423 9.48% $ 298,521 $14,390 9.72%
Real Estate .................. 546,907 26,738 9.86 469,658 23,542 10.11
Consumer ..................... 106,040 5,344 10.16 79,616 4,055 10.27
- --------------------------------------------------------------------------------------------------------------------
Total Loans .................... 1,002,416 48,505 9.76 847,795 41,987 9.99
- --------------------------------------------------------------------------------------------------------------------
Investment Securities
Taxable ...................... 384,268 12,324 6.47 350,865 11,208 6.44
Tax-Exempt ................... 28,045 1,126 8.10 26,973 1,218 9.09
- --------------------------------------------------------------------------------------------------------------------
Total Investment Securities .... 412,313 13,450 6.58 377,838 12,426 6.63
- --------------------------------------------------------------------------------------------------------------------
Time Deposits .................. 1,511 47 6.27 295 8 5.47
Federal Funds Sold ............. 25,473 705 5.58 33,353 910 5.50
- --------------------------------------------------------------------------------------------------------------------
Total Interest-Earning
Assets ....................... $1,441,713 62,707 8.77 $1,259,281 55,331 8.86
- --------------------------------------------------------------------------------------------------------------------
Interest-Bearing Liabilities
Savings ........................ $ 105,684 1,543 2.94 $ 104,297 1,648 3.19
Money Market Checking and
Savings ....................... 254,930 3,695 2.92 242,151 3,387 2.82
Time Deposits .................. 840,486 22,655 5.44 694,688 18,536 5.38
- --------------------------------------------------------------------------------------------------------------------
Total Savings and Time
Deposits ...................... 1,201,100 27,893 4.68 1,041,136 23,571 4.57
- --------------------------------------------------------------------------------------------------------------------
Federal Funds Purchased and
Securities Sold Under
Repurchase Agreements ....... 4,272 112 5.29 846 22 5.01
- --------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing
Liabilities .................. $1,205,372 28,005 4.69 1,041,982 23,593 4.57
- --------------------------------------------------------------------------------------------------------------------
Net Interest Income ............ $34,702 $31,738
- --------------------------------------------------------------------------------------------------------------------
Net Yield on Total
Interest-Earning Assets ....... 4.85% 5.08%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
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 six month
period ended June 30, 1998 as compared to the six month period ended June 30,
1997. 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 are produced in each
category.
<PAGE>
Analysis of Changes in Net Interest Income
Taxable-Equivalent Basis
<TABLE>
<CAPTION>
Six Months Ended June 30,1998 Due to Change in
Compared to June 30, 1997 Net -----------------------------------------
(In Thousands) Change Volume Rate Rate/Volume
------- ------- ------- -----
<S> <C> <C> <C> <C>
Interest Income
Loans, Including Fees .................................. $ 6,518 $ 7,660 $ (967) $(175)
Investment Securities
Taxable .............................................. 1,116 1,067 52 (3)
Tax-Exempt ........................................... (92) 48 (132) (8)
Time Deposits .......................................... 39 33 1 5
Federal Funds Sold ..................................... (205) (215) 13 (3)
------- ------- ------- -----
Total Interest Income ................................. 7,376 8,593 (1,033) (184)
------- ------- ------- -----
Interest Expense
Deposits ............................................... 4,322 3,625 568 129
Federal Funds Purchased
and Securities Sold
Under Repurchase Agreements .......................... 90 85 1 4
------- ------- ------- -----
Total Interest Expense ................................... 4,412 3,710 569 133
------- ------- ------- -----
Net Interest Income Before
Allocation Of Rate/Volume .............................. 2,964 4,883 (1,602) (317)
------- ------- ------- -----
Allocation of Rate/Volume ................................ -- (275) (42) 317
------- ------- ------- -----
Changes in Net Interest Income ........................... $ 2,964 $ 4,608 $(1,644) $ --
======= ======= ======= =====
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses for the six months ended June 30, 1998 of $1.9
million reflects an increase of $836,000 or 77.0% compared to $1.1 million for
the six months ended June 30, 1997 and was primarily attributable to new loan
growth. See "Allowance For Loan Losses."
NONINTEREST INCOME
Noninterest income for the three months ended June 30, 1998 of $3.6 million
increased $504,000 or 16.2% compared to $3.1 million for the three months ended
June 30, 1997 and decreased $339,000 or 8.6% compared to $4.0 million for the
three months ended March 31, 1998. Noninterest income for the six months ended
June 30, 1998 of $7.6 million increased $1.2 million or 19.7% compared to $6.3
million for the six months ended June 30, 1997. The increase in noninterest
income for the six months ended June 30, 1998 compared to the six months ended
June 30, 1997 was primarily attributable to the increased volume of business
conducted by the Company, including the Raymondville Acquisition. The Other
Operating Income for the six months ended June 30, 1998 of $731,000 includes a
gain on the sale of bank real estate of $158,000 during the three months ended
March 31, 1998.
<PAGE>
The following table summarizes the major noninterest income categories:
<TABLE>
<CAPTION>
1998 1997 Six Months
------------------- ------------------------------- ------------------
Noninterest Income Second First Fourth Third Second Ended June 30,
(In Thousands) Quarter Quarter Quarter Quarter Quarter 1998 1997
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Service Charges on Deposit Accounts ............ $1,941 $1,829 $1,836 $1,751 $1,737 $3,770 $3,422
Other Service Charges .......................... 516 586 440 409 361 1,102 757
------ ------ ------ ------ ------ ------ ------
Total Service Charges .......................... 2,457 2,415 2,276 2,160 2,098 4,872 4,179
Trust Service Fees ............................. 430 447 441 425 435 877 825
Investment Securities Gains (Losses) ........... 198 222 214 215 134 420 305
Data Processing Service Fees ................... 344 341 286 260 272 685 534
Other Operating Income ......................... 194 537 186 171 180 731 495
------ ------ ------ ------ ------ ------ ------
Total ......................................... $3,623 $3,962 $3,403 $3,231 $3,119 $7,585 $6,338
================================================ ====== ====== ====== ====== ====== ====== ======
</TABLE>
NONINTEREST EXPENSE
Noninterest expense for the three months ended June 30, 1998 of $9.6 million
decreased $278,000 or 2.8% compared to the three months ended June 30, 1997 of
$9.9 million and decreased $889,000 or 8.4% compared to the three months ended
March 31, 1998 of $10.5 million. The decrease for the three months ended June
30, 1998 compared to the three months ended June 30, 1997 was primarily
attributable to the impairment loss of $630,000 recorded in the three months
ended June 30, 1997. Noninterest expense for the six months ended June 30, 1998
of $20.2 million increased $1.2 million or 6.2% compared to the six months ended
June 30, 1997 of $19.0 million and was primarily attributable to an increased
volume of business.
The largest category of noninterest expense, Salaries and Employee Benefits
("Personnel"), of $4.4 million for the three months ended June 30, 1998
reflected a slight decrease of $201,000 or 4.4% compared to the three months
ended June 30, 1997 and a decrease of $277,000 or 5.9% compared to the three
months ended March 31, 1998. Personnel expense decreased for the six and three
months ended June 30, 1998 compared to the six and three months ended June 30,
1997 primarily due to a reduction in incentive pay during the three months ended
June 30, 1998.
Net Occupancy expense of $842,000 for the three months ended June 30, 1998
increased $146,000 or 21.0% compared to $696,000 for the three months ended June
30, 1997 and increased $64,000 or 8.2% compared to $778,000 for the three months
ended March 31, 1998. The Net Occupancy expense increase for the six and three
months ended June 30, 1998 compared to the six and three months ended June 30,
1997 was primarily due to the occupancy expenses associated with the
Raymondville Acquisition and the new Edinburg branch which was opened for
business in December 1997.
Equipment expense of $1.1 million for the three months ended June 30, 1998
increased $125,000 or 13.0% compared to $965,000 for the three months ended June
30, 1997 and decreased $44,000 or 3.9% compared to the three months ended March
31, 1998. Equipment expense increased for the six and three months ended June
30, 1998 as compared to the six and three months ended June 30, 1997 primarily
due to expenses associated with the equipment acquired to service the Company's
increasing customer base and partially due to the Raymondville Acquisition.
The One Time Charge - Acquisitions cost of $728,000 was expenses related to
effecting business combinations accounted for by the pooling-of-interests
method.
Other Noninterest expense of $2.7 million for the three months ended June 30,
1998 increased $224,000 or 9.2% compared to $2.4 million for the three months
ended June 30, 1997 and increased $60,000 or 2.3% compared to the three months
ended March 31, 1998. Other Noninterest expense increased for the six and three
months ended June 30, 1998 as compared to the six and three months ended June
30, 1997 primarily due to an increased volume of business conducted by the
Company.
<PAGE>
The following table displays the major noninterest expense categories:
<TABLE>
<CAPTION>
1998 1997 Six Months
---------------- -------------------------
Noninterest Expense Second First Fourth Third Second Ended June 30,
(Dollars in Thousands) Quarter Quarter Quarter Quarter Quarter 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and Employee Benefits
Salaries and Wages $ 3,444 $ 3,814 $3,584 $3,392 $3,706 $ 7,258 $7,468
Employee Benefits 946 853 737 779 885 1,799 1,732
- -----------------------------------------------------------------------------------------------
Total Salaries and
Employee Benefits 4,390 4,667 4,321 4,171 4,591 9,057 9,200
- -----------------------------------------------------------------------------------------------
Net Occupancy Expense 842 778 605 721 696 1,620 1,361
- -----------------------------------------------------------------------------------------------
Equipment Expense 1,090 1,134 924 989 965 2,224 1,865
- -----------------------------------------------------------------------------------------------
Other Real Estate (Income)
Expense, Net
Rent Income (4) (14) ( 9) (12) (32) (18) (50)
Gain (Loss) on Sale (199) (34) (78) 11 - (233) (48)
Expense 137 103 71 72 77 240 124
Write-Downs 5 - - 24 - 5 -
- -----------------------------------------------------------------------------------------------
Total Other Real Estate
(Income) Expense, Net (61) 55 (16) 95 45 (6) 26
- -----------------------------------------------------------------------------------------------
Intangible Asset Amortization 681 621 563 563 563 1,302 1,126
- -----------------------------------------------------------------------------------------------
Impairment Loss - - - - 630 - 630
- -----------------------------------------------------------------------------------------------
One Time Charge - Acquisitions 46 682 - - - 728 -
- -----------------------------------------------------------------------------------------------
Other Noninterest Expense
Advertising and Public Relations 299 322 390 319 320 621 663
Data Processing and Check Clearing 286 295 286 257 292 581 577
Director Fees 48 124 122 120 132 172 273
Franchise Tax 191 137 133 133 165 328 267
Insurance 102 92 85 101 62 194 141
FDIC Insurance 42 38 34 35 40 80 81
Legal Fees 333 348 333 323 265 681 394
Professional Fees 156 173 205 181 184 329 389
Postage, Delivery and Freight 214 204 177 162 169 418 350
Stationery and Supplies 424 341 272 258 255 765 526
Telephone 127 132 109 103 110 259 221
Other Losses 110 56 383 169 120 166 285
Miscellaneous Expenses 318 328 303 258 312 646 608
- -----------------------------------------------------------------------------------------------
Total Other Noninterest Expense 2,650 2,590 2,832 2,419 2,426 5,240 4,775
- -----------------------------------------------------------------------------------------------
Total $9,638 $10,527 $9,229 $8,958 $9,916 $20,165 $18,983
===============================================================================================
</TABLE>
<PAGE>
BALANCE SHEET ANALYSIS
Average interest-earning assets of $1.5 billion for the three months ended June
30, 1998 increased $188.4 million or 14.5% compared to $1.3 billion for the
three months ended June 30, 1997 and $24.8 million or 1.7% compared to $1.4
billion for three months ended March 31, 1998. Management's continued focus on
lending has resulted in average loans increasing $162.7 million or 18.9% to $1.0
billion for the three months ended June 30, 1998 compared to the three months
ended June 30, 1997 levels of $859.8 million and increased $40.5 million or 4.1%
compared to the three months ended March 31, 1998 levels of $982.1 million.
Total loans of $1.0 billion at June 30, 1998 were flat when compared to total
loans at March 31, 1998. Loan growth for the three months ended June 30, 1998
was affected by several significant paydowns. The Rio Grande Valley is
experiencing drought conditions which could reduce agricultural related
business. Total average investments increased $27.3 million to $404.5 million
for the three months ended June 30, 1998 compared to three months ended June 30,
1997 of $377.2 million and decreased $15.8 million or 3.8% compared to the three
months ended March 31, 1998 levels of $420.2 million. Total average assets
increased $209.2 million or 15.0% to $1.6 billion for the six months ended June
30, 1998 compared to six months ended June 30, 1997 levels of $1.4 billion. The
net increase in each of the categories discussed was primarily attributable to
the increased volume of business conducted by the Company and partially
attributable to the Raymondville Acquisition.
Average interest-bearing deposits increased $159.1 million or 15.2% to $1.2
billion for the three months ended June 30, 1998 compared to the three months
ended June 30, 1997 levels of $1.0 billion and $10.8 million or 0.9% compared to
the three months ended March 31, 1998 levels of $1.2 billion.
Average Total Demand Deposits increased $31.4 million or 16.2% to $225.5 million
for the three months ended June 30, 1998 compared to the three months ended June
30, 1997 levels of $194.1 million and increased $17.5 million or 8.4% compared
to $207.9 million for the three months ended March 31, 1998.
Management attributes the strong growth in average assets and deposits for the
three months ended June 30, 1998 compared to the three months ended June 30,
1997 primarily to the on-going marketing efforts of the Company and partially
due to the Raymondville Acquisition.
<PAGE>
The following table presents the consolidated average balance sheets:
<TABLE>
<CAPTION>
1998 1997 Six Months
------------------ ------------------------------ ----------------------
Average Balance Sheets Second First Fourth Third Second Ended June 30,
(In Thousands) Quarter Quarter Quarter Quarter Quarter 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Loans $1,022,541 $ 982,067 $ 920,005 $ 887,852 $ 859,795 $1,002,416 $ 847,738
Investment Securities
Taxable 376,057 392,570 382,206 355,967 351,496 384,268 350,869
Tax-Exempt 28,420 27,666 26,012 25,319 25,678 28,045 26,981
Time Deposits 1,852 1,167 101 279 295 1,511 295
Federal Funds Sold 25,197 25,752 37,825 53,693 28,449 25,473 33,367
- ---------------------------------------------------------------------------------------------------
Total Interest-Earning
Assets 1,454,067 1,429,222 1,366,149 1,323,110 1,265,713 1,441,713 1,259,249
Cash and Due
from Banks 58,515 58,155 55,450 55,469 56,176 58,336 55,567
Bank Premises
and Equipment, Net 64,253 57,234 49,021 43,531 41,727 60,763 41,181
Other Assets 58,284 52,292 49,056 50,220 50,876 55,304 49,904
Allowance for
Loan Losses (12,527) (11,775) (10,874) (11,131) (11,333) (12,153) (11,169)
- ---------------------------------------------------------------------------------------------------
Total $1,622,591 $1,585,128 $1,508,802 $1,461,199 $1,403,159 $1,603,963 $1,394,732
- ---------------------------------------------------------------------------------------------------
Liabilities
Demand Deposits
Commercial and
Individual $ 219,241 $ 202,143 $ 185,582 $ 185,301 $ 186,947 $ 210,739 $ 186,431
Public Funds 6,209 5,777 5,047 5,008 7,143 5,994 7,351
- ---------------------------------------------------------------------------------------------------
Total Demand Deposits 225,450 207,920 190,629 190,309 194,090 216,733 193,783
- ---------------------------------------------------------------------------------------------------
Savings
Commercial and
Individual 106,124 103,715 98,733 98,974 102,612 104,926 103,618
Public Funds 805 710 656 646 687 758 685
Money Market Checking
and Savings Account
Commercial and
Individual 216,310 207,380 198,447 204,491 200,322 211,870 199,578
Public Funds 40,668 45,479 47,418 32,368 38,364 43,060 42,592
Time Deposits
Commercial and
Individual 662,010 660,936 661,291 629,647 580,711 663,900 574,947
Public Funds 180,540 177,464 136,748 137,610 124,665 176,586 119,685
- ---------------------------------------------------------------------------------------------------
Total Interest-Bearing
Deposits 1,206,457 1,195,683 1,143,293 1,103,736 1,047,361 1,201,100 1,041,101
- ---------------------------------------------------------------------------------------------------
Total Deposits 1,431,907 1,403,603 1,333,922 1,294,045 1,241,451 1,417,833 1,234,883
- ---------------------------------------------------------------------------------------------------
Federal Funds Purchased
and Securities Sold Under
Repurchase Agreements 6,515 2,004 2,111 152 1,148 4,272 844
Other Liabilities 14,503 14,585 11,867 11,573 11,311 14,544 11,313
Shareholders' Equity 169,667 164,935 160,902 155,429 149,249 167,314 147,688
- ---------------------------------------------------------------------------------------------------
Total $1,622,591 $1,585,128 $1,508,802 $1,461,199 $1,403,159 $1,603,963 $1,394,732
===================================================================================================
</TABLE>
<PAGE>
RISK ANALYSIS OF THE LOAN PORTFOLIO
Total loans at June 30, 1998 of $1.0 billion increased $128.0 million or 14.5%
compared to June 30, 1997 levels of $885.0 million and decreased $4.8 million or
0.5% compared to March 31, 1998 levels of $1.0 billion. The increase in total
loans at June 30, 1998 compared to total loans at June 30, 1997, was primarily
attributable to Management's efforts to improve the mix of earning assets and
the Raymondville Acquisition. The decrease in total loans for June 30, 1998
compared to March 31, 1998 was attributable to several significant paydowns. The
Company's loans are widely diversified by borrower and industry group. Loan
demand remains good 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>
1998 1997
---------------------- ----------------------------------
Loan Portfolio Composition Second First Fourth Third Second
(In Thousands) Quarter Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $275,738 $ 270,730 $249,819 $232,083 $232,477
Commercial Tax-Exempt 27,196 29,426 29,024 31,330 33,046
- -----------------------------------------------------------------------------------------------
Total Commercial Loans 302,934 300,156 278,843 263,413 265,523
- -----------------------------------------------------------------------------------------------
Agricultural 44,772 57,956 51,346 39,899 42,064
- -----------------------------------------------------------------------------------------------
Real Estate
Construction 61,556 65,413 69,477 59,661 57,549
Commercial Mortgage 324,332 323,058 304,215 294,293 289,334
Agricultural Mortgage 35,044 35,068 31,949 30,630 29,448
1-4 Family Mortgage 130,258 128,196 122,043 120,724 117,720
- -----------------------------------------------------------------------------------------------
Total Real Estate 551,190 551,735 527,684 505,308 494,051
- -----------------------------------------------------------------------------------------------
Consumer 114,122 107,929 93,443 86,720 83,332
- -----------------------------------------------------------------------------------------------
Total Loans $1,013,018 $1,017,776 $951,316 $895,340 $884,970
===============================================================================================
</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.
Nonperforming assets at June 30, 1998 of $12.4 million increased $2.4 million or
24.5% when compared to the June 30, 1997 balance of $10.0 million and increased
$327,000 or 2.7% when compared to the March 31, 1998 balance of $12.1 million.
Nonperforming assets as a percentage of total loans and foreclosed assets
increased to 1.22% at June 30, 1998 compared to 1.12% at June 30, 1997.
Management continues to emphasize maintaining a low level of nonperforming
assets and returning nonperforming assets to an earning status.
Loans which are contractually past due 90 days or more which are both well
secured or guaranteed by financially responsible third parties and in are the
process of collection generally are not placed on nonaccrual status. The amount
of such loans past due 90 days or more at June 30, 1998 of $6.9 million reflects
an increase of $204,000 compared to the June 30, 1997 level of $6.7 million and
reflects an increase of $1.2 million or 20.7% compared to the March 31, 1998
level of $5.7 million.
<PAGE>
Management has identified two potential problem loan relationships totaling $8.5
million. Management has allocated specific reserves totaling $1.5 million to the
potential problem loans. The specific $1.5 million allocation of reserves is
from previously unallocated reserves. Management believes that the specific
reserves allocated to the potential problem loans adequately reflects the risk
inherent in such loans. Less than ten percent of the potential problem loans are
past due at June 30, 1998. The potential problem loans are not listed in the
table below.
Management is aggressively pursing resolution of nonaccrual, accruing loans 90
days or more past due and potential problem loans.
Total cross-border credits of $8.1 million or 0.8% of total loans outstanding at
June 30, 1998 reflect a slight increase when compared to the total cross-border
credits of $7.6 million at June 30, 1997 and March 31, 1998. Total nonaccrual
cross-border credits of $2.9 million at June 30, 1998 remain unchanged when
compared to the total nonaccrual cross-border credits at March 31, 1998 and June
30, 1997.
An analysis of the components of nonperforming assets for the last five quarters
is presented in the following table:
<TABLE>
<CAPTION>
1998 1997
------------------ ------------------------------
Nonperforming Assets Second First Fourth Third Second
(Dollars in Thousands) Quarter Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual Loans $ 8,393 $ 7,887 $ 8,355 $ 8,615 $ 7,024
Renegotiated Loans - - - - -
- -----------------------------------------------------------------------------------------------
Nonperforming Loans 8,393 7,887 8,355 8,615 7,024
Foreclosed Assets
(Primarily Other Real Estate) 4,003 4,182 3,331 2,868 2,930
- -----------------------------------------------------------------------------------------------
Total Nonperforming Assets 12,396 12,069 11,686 11,483 9,954
Accruing Loans 90 Days or More Past Due 6,862 5,683 3,287 3,139 6,658
- -----------------------------------------------------------------------------------------------
Total Nonperforming Assets and Accruing
Loans 90 Days or More Past Due $19,258 $17,752 $14,973 $14,622 $16,612
- -----------------------------------------------------------------------------------------------
Nonperforming Loans as a % of Total Loans 0.83% 0.77% 0.88% 0.96% 0.79%
Nonperforming Assets as a % of Total
Loans and Foreclosed Assets 1.22 1.18 1.22 1.28 1.12
Nonperforming Assets as a % of Total Assets 0.75 0.74 0.76 0.78 0.70
Nonperforming Assets and Accruing
Loans 90 Days or More Past Due
as a % of Total Loans and Foreclosed Assets 1.89 1.74 1.57 1.63 1.87
===============================================================================================
</TABLE>
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses at June 30, 1998 of $12.0 million increased
$851,000 or 7.6% compared to the June 30, 1997 balance of $11.2 million and
decreased $77,000 or 0.6% compared to the March 31, 1998 balance of $12.1
million. The allowance for loan losses at June 30, 1998 is 1.19% of loans
outstanding, net of unearned discount. Management believes that the allowance
for loan losses at June 30, 1998, 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.
<PAGE>
The following table summarizes the transactions in the allowance for loan
losses:
<TABLE>
<CAPTION>
1998 1997 Six Months
--------------- ------------------------ Ended June 30,
Allowance for Loan Loss Activity Second First Fourth Third Second --------------
(Dollars in Thousands) Quarter Quarter Quarter Quarter Quarter 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at Beginning of Period $12,115 $11,291 $10,599 $11,187 $11,000 $11,291 $10,806
Balance from Acquisitions - 308 - - - 308 -
Provision for Loan Losses 981 941 1,166 695 463 1,922 1,086
Charge-Offs
Commercial 300 228 170 950 165 528 658
Agricultural 630 13 275 155 47 643 47
Real Estate 111 120 27 25 1 231 7
Consumer 319 233 165 247 244 552 495
- -----------------------------------------------------------------------------------------------
Total Charge-Offs 1,360 594 637 1,377 457 1,954 1,207
- -----------------------------------------------------------------------------------------------
Recoveries
Commercial 47 124 39 40 16 171 57
Agricultural - - 13 1 34 - 34
Real Estate 195 2 70 1 60 197 279
Consumer 60 43 41 52 71 103 132
- -----------------------------------------------------------------------------------------------
Total Recoveries 302 169 163 94 181 471 502
- -----------------------------------------------------------------------------------------------
Net Charge-Offs 1,058 425 474 1,283 276 1,483 705
- -----------------------------------------------------------------------------------------------
Balance at End of Period $12,038 $12,115 $11,291 $10,599 $11,187 $12,038 $11,187
- -----------------------------------------------------------------------------------------------
Ratio of Allowance for Loan
Losses to Loans Outstanding,
Net of Unearned Discount 1.19% 1.19% 1.19% 1.18% 1.26%
Ratio of Allowance For Loan
Losses to Nonperforming Assets 97.11 100.38 96.62 92.30 112.39
Ratio of Net Charge-Offs
to Average Total Loans Outstanding,
Net of Unearned Discount 0.42 0.18 0.20 0.57 0.13
===============================================================================================
</TABLE>
PREMISES AND EQUIPMENT, NET
Premises and equipment of $67.1 million at June 30, 1998 increased $25.2 million
or 60.2% compared to $41.9 million at June 30, 1997 and increased $5.6 million
or 9.1% compared to $61.5 million at March 31, 1998. The net increase for June
30, 1998 compared to June 30, 1997, is primarily attributable to the $18.2
million for construction in progress of the Company's new headquarters in
McAllen, Texas and partially attributable to the $3.3 million recorded for the
Raymondville Acquisition. The net increase for June 30, 1998 compared to March
31, 1998 is primarily attributable to progress payments of $3.7 million for the
new headquarters bank building in McAllen.
DEPOSITS
Total deposits at June 30, 1998 of $1.5 billion increased $210.5 million or
16.8% compared to the June 30, 1997 levels of $1.3 million and increased $21.2
million or 1.5% compared to March 31, 1998 levels of $1.4 billion. The increase
in total deposits at June 30, 1998 compared to June 30, 1997 is attributable to
on-going marketing and business development efforts, the $56.5 million of
deposits recorded for the Raymondville Acquisition, and a $73.4 million increase
in public funds (demand deposits, savings, money market checking and savings and
time deposits). The increase in total deposits at June 30, 1998 compared to
total deposits at March 31, 1998 was primarily attributable to a $10.3 million
increase in public funds.
The following table presents the composition of total deposits for the last five
quarters:
<TABLE>
<CAPTION>
1998 1997
------------------- -----------------------------------
Total Deposits Second First Fourth Third Second
(In Thousands) Quarter Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Demand Deposits
Commercial and Individual $219,720 $ 223,048 $ 203,325 $ 189,253 $ 181,593
Public Funds 5,400 6,814 5,098 3,532 6,755
- -----------------------------------------------------------------------------------------------
Total Demand Deposits 225,120 229,862 208,423 192,785 188,348
- -----------------------------------------------------------------------------------------------
Interest-Bearing Deposits
Savings
Commercial and Individual 104,011 108,462 100,917 98,310 100,171
Public Funds 886 714 771 619 700
Money Market Checking and Savings
Commercial and Individual 215,331 213,813 203,292 199,056 210,395
Public Funds 41,454 42,131 39,547 34,229 30,438
Time Deposits
Commercial and Individual 684,303 667,222 647,959 644,426 594,117
Public Funds 196,086 183,833 161,874 139,205 132,513
- -----------------------------------------------------------------------------------------------
Total Interest-Bearing
Deposits 1,242,071 1,216,175 1,154,360 1,115,845 1,068,334
- -----------------------------------------------------------------------------------------------
Total Deposits $1,467,191 $1,446,037 $1,362,783 $1,308,630 $1,256,682
===============================================================================================
</TABLE>
CAPITAL AND LIQUIDITY
Shareholders' equity at June 30, 1998 of $171.7 million increased $19.7 million
or 13.0% compared to the June 30, 1997 level of $152.0 million and increased
$5.2 million or 3.2% compared to the March 31, 1998 level of $166.4 million. The
increase in shareholder equity was primarily attributable to earnings, reduced
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
<PAGE>
was approximately 13.43% and 13.85% as of June 30, 1998 and 1997, respectively.
The Company's Total Risk-Based Capital Ratio was approximately 14.56% and 15.07%
as of June 30, 1998 and 1997, respectively. The Company's Leverage Capital Ratio
was approximately 8.93% and 9.18% at June 30, 1998 and 1997, respectively. Based
on capital ratios, the Company is within the definition of "well capitalized"
for Federal Reserve purposes as of June 30, 1998.
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 six months ended June 30, 1998, liquidity was enhanced primarily by net
cash provided by operating activities of $11.2 million and financing activities
of $52.3 million offset by net cash used in investing activities of $8.8
million. The increase in net cash provided by operating activities was primarily
attributable to $12.6 million net income for the six months ended June 30, 1998.
The increase in net cash provided by financing activities was primarily
attributable to the $48.0 million net increase in deposits. As a result, net
cash and cash equivalents at June 30, 1998 of $136.1 million increased $54.7
million or 67.3% compared to net cash and cash equivalents at December 31, 1997
of $81.4 million.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------- ---------------
Ratio Analysis (Annualized) 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Return On Average
Assets 1.67% 1.61% 1.58% 1.64%
Return On Average Shareholders' Equity 15.98 15.15 15.19 15.48
Dividend Payout Ratio 23.91 18.80 25.58 18.80
Net Yield on Total Interest-Earning Assets* 4.90 5.15 4.85 5.08
Efficiency Ratio* 45.80 51.35 48.18 50.19
Total Average Loans to Total Average Deposits 71.41 69.26 70.70 68.65
Average Equity to Average Assets 10.46 10.64 10.43 10.59
==============================================================================================
</TABLE>
* Taxable-Equivalent Basis Assuming a 35% Effective Income Tax Rate.
<TABLE>
<CAPTION>
COMMON STOCK TRADING DATA (Nasdaq National Market System)
- ----------------------------------------------------------------------------------------------
Trading Volume (1998)
Price
<S> <C> <C> <C>
June 30, 1998 $32.75 Book Value $11.91 April 615,477 shares
1998 price range $27.00 - $35.63 Price/Book Value 2.75x May 280,587 shares
December 31, 1997 $30.50 June 503,459 shares
==============================================================================================
</TABLE>
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The funds management policy of the Company is to maintain a reasonably balanced
position of rate sensitive assets and liabilities to avoid adverse changes in
net interest income. Changes in net interest income occur when interest rates on
loans and investments change in a different time period from that of changes in
interest rates on liabilities, or when the mix and volume of interest-earning
assets and interest-bearing liabilities change. In order to measure earnings and
fair value sensitivity to changing rates, the Company uses three different
measure tools including static gap analysis, simulation earnings, and market
value sensitivity (fair value at risk).
The static gap represents the dollar amount of difference between rate sensitive
assets and rate sensitive liabilities within a given time period. Static gap
analysis is the simplest representation of the Company's interest rate
sensitivity. However, it cannot reveal the impact of factors such as
administered rates (e.g., the prime lending rate), pricing strategies on
consumer and business deposits, changes in balance sheet mix, or the effect of
various options embedded in balance sheet instruments. Accordingly, the Funds
Management Committee conducts simulations of net interest income under a variety
of market interest rate scenarios. These simulations which consider forecasted
balances sheet changes, and forecasted changes in interest rate spreads provide
the Committee with an estimate of earnings at risk for given changes in interest
rates.
At June 30, 1998, based on these simulations, earnings at risk to an immediate
100 basis points rise in market interest rates was estimated to be less than 3.5
percent of projected 1998 after-tax net income. An immediate 100 basis point
rise in interest rates is a hypothetical rate scenario, used to calibrate risk,
and does not necessarily represent management's current view of future market
developments.
All the measurements of risk described above are made based upon the Company's
business mix and interest rate exposures at the particular point in time. The
exposures change continuously as a result of the Corporation's ongoing business
and its risk management initiatives. While management believes these measures
provide a meaningful representation of the Company's interest rate sensitivity,
they do not necessarily take in account all business developments that have an
effect on net income, such as changes in credit quality or the size and
composition of the balance sheet.
The Company does not currently engage in trading activities or use derivative
instruments to control interest rate risk. Even though such activities may be
permitted with the approval of the Board of Directors, the Company does not
intend to engage in such activities in the immediate future.
Interest rate risk is the most significant market risk affecting the Company.
Other types of market risk, such as foreign currency exchange rate risk and
commodity price risk, do not arise in the normal course of the Company's
business activities.
FORWARD-LOOKING STATEMENTS
The Company may from time to time make forward-looking statements with respect
to earnings per share, credit quality, company objectives and other financial
and business matters. The Company cautions the reader that these forward-looking
statements are subject to numerous assumptions, risk and uncertainties,
including economic conditions; actions taken by the Federal Reserve Board;
legislative and regulatory actions and reforms; competition; as well as other
reasons, all of which change over time. Actual results may differ materially
from forward-looking statements.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of the Corporation was held on April
27, 1998. The following matters were submitted to a vote of the
Corporation's shareholder.
1) Election of Directors:
Election of all eight director nominees was approved.
<TABLE>
<CAPTION>
Nominees Total Votes For Total Votes Withheld Total Votes Against
-------- --------------- -------------------- -------------------
<S> <C> <C>
Morris Atlas 12,026,238 173,694 -
Frank N. Boggus 12,025,188 174,744 -
Robert G. Farris 12,022,008 177,924 -
Joe M. Kilgore 12,025,188 174,744 -
C. Kenneth Landrum M.D. 12,025,338 174,594 -
G. E. Roney 12,023,904 174,744 1,284
Julie G. Uhlhorn 12,023,591 173,694 2,647
Jack Whetsel 12,025,338 174,594 -
</TABLE>
2) Approval of the 1997 Nonstatutory Stock Option Plan
Total Votes For 10,038,426
Total Votes Withheld 170,209
Total Votes Against 1,991,297
3) Approval of the 1997 Incentive Stock Optional Plan
Total Votes For 12,098,443
Total Votes Withheld 18,226
Total Votes Against 83,261
4) Increase authorized shares
Total Votes For 10,126,920
Total Votes Withheld 18,092
Total Votes Against 2,054,920
Item 6.
(a) Exhibits
10.16 Amendment No. 9 to Texas Regional Bancshares, Inc. Employee
Stock Ownership Plan (with 401(k) provisions), adopted June 9,
1998.
27. Financial Data Schedule
(b) Reports on Form 8-K
None
<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.
July 27, 1998 /s/ G. E. Roney
- ----------------------- ------------------------
Date G. E. Roney
Chairman of the Board,
President & Chief
Executive Officer
July 27, 1998 /s/ George R. Carruthers
- ----------------------- ------------------------
Date George R. Carruthers
Executive Vice President &
Chief Financial Officer
EXHIBIT 10.16
AMENDMENT NUMBER 9 TO
TEXAS REGIONAL BANCSHARES, INC.
EMPLOYEE STOCK OWNERSHIP PLAN WITH 401(K) PROVISIONS
WHEREAS, the Texas Regional Bancshares, Inc. Employee Stock Ownership Plan
(with 401(k) provisions) (the "KSOP" or the "Plan") presently provides that the
Plan may not distribute the Participant's accrued benefit in any form other than
Qualified Joint and Survivor Annuity (or a qualified preretirement survivor
annuity) without the consent of the Participant's spouse (or surviving spouse),
except where the present value of the nonforfeitable benefit does not exceed
$3,500. Effective for plan years beginning after August 5, 1997 Congress
increased the limit on involuntary cash outs of joint and survivor annuity
benefits to $5,000.
WHEREAS, the Board of Directors desires to further amend the Plan to comply
with the increased involuntary cash out benefits.
NOW, THEREFORE, it is hereby resolved and agreed that effective as of the
Plan Year beginning January 1, 1998, the Plan is hereby amended as follows:
The second sentence in Section 15(c) of the Plan is hereby deleted and
substituted therefor by the following language:
"The Plan may not distribute the Participant's accrued benefit in any form
other than Qualified Joint and Survivor Annuity (or a qualified
preretirement survivor annuity) without the consent of the Participant's
spouse (or surviving spouse), except where the present value of the
nonforfeitable benefit does not exceed $5,000."
FURTHER RESOLVED, that the officers of the Company be, and hereby are,
authorized and directed to take any and all actions as may be deemed necessary,
appropriate or advisable in accordance with the foregoing.
EXECUTED June 9, 1998, but effective as herein provided for the Plan Year
beginning January 1, 1998.
TEXAS REGIONAL BANCSHARES, INC.
By: /s/ G.E. Roney
------------------------------
G.E. Roney
Chairman of the Board
<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
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 56,489
<INT-BEARING-DEPOSITS> 1,574
<FED-FUNDS-SOLD> 78,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 374,113
<INVESTMENTS-CARRYING> 20,640
<INVESTMENTS-MARKET> 20,902
<LOANS> 1,013,018
<ALLOWANCE> (12,038)
<TOTAL-ASSETS> 1,657,342
<DEPOSITS> 1,467,191
<SHORT-TERM> 4,401
<LIABILITIES-OTHER> 14,072
<LONG-TERM> 0
0
0
<COMMON> 14,409
<OTHER-SE> 157,269
<TOTAL-LIABILITIES-AND-EQUITY> 1,657,342
<INTEREST-LOAN> 48,165
<INTEREST-INVEST> 13,063
<INTEREST-OTHER> 752
<INTEREST-TOTAL> 61,980
<INTEREST-DEPOSIT> 27,893
<INTEREST-EXPENSE> 28,005
<INTEREST-INCOME-NET> 33,975
<LOAN-LOSSES> 1,922
<SECURITIES-GAINS> 420
<EXPENSE-OTHER> 20,165
<INCOME-PRETAX> 19,473
<INCOME-PRE-EXTRAORDINARY> 19,473
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,603
<EPS-PRIMARY> 0.87
<EPS-DILUTED> 0.86
<YIELD-ACTUAL> 4.85
<LOANS-NON> 8,393
<LOANS-PAST> 6,862
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 8,512
<ALLOWANCE-OPEN> 11,291
<CHARGE-OFFS> 1,954
<RECOVERIES> 471
<ALLOWANCE-CLOSE> 12,038
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
