UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file number 000-14517
TEXAS REGIONAL BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-2294235
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
POST OFFICE BOX 5910
3900 NORTH 10TH STREET, 11TH FLOOR
MCALLEN, TEXAS
(Address of principal executive 78502-5910
offices) (Zip Code)
(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 [ ]
There were 14,525,400 shares of the registrant's Class A Voting Common Stock,
$1.00 par value, outstanding as of April 23, 2000.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Texas Regional Bancshares, Inc. and Subsidiaries
Consolidated Balance Sheets March 31, December 31,
(Dollars in Thousands, Except Share Data) 2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
Assets
Cash and Due From Banks ......................................................................... $ 69,425 $ 66,819
Time Deposits ................................................................................... 3,965 5,077
Federal Funds Sold .............................................................................. 60,000 --
----------- -----------
Total Cash and Cash Equivalents ............................................................... 133,390 71,896
Securities Available for Sale, at Fair Value .................................................... 544,467 525,938
Securities Held to Maturity, at Amortized Cost (Fair Value of
$2,084 in 2000 and $8,071 in 1999) ............................................................ 2,053 8,010
Loans, Net of Unearned Discount of $4,804 in 2000 and $5,154 in 1999 ............................ 1,442,912 1,374,759
Less: Allowance for Loan Losses ................................................................. (17,666) (16,711)
----------- -----------
Net Loans ..................................................................................... 1,425,246 1,358,048
Premises and Equipment, Net ..................................................................... 76,622 75,583
Accrued Interest Receivable ..................................................................... 21,024 19,869
Other Real Estate ............................................................................... 5,257 5,268
Goodwill and Identifiable Intangibles ........................................................... 43,696 44,796
Other Assets .................................................................................... 13,559 11,282
----------- -----------
Total Assets .................................................................................. $ 2,265,314 $ 2,120,690
=========== ===========
Liabilities
Deposits
Demand ........................................................................................ $ 301,547 $ 285,866
Savings ....................................................................................... 124,780 118,758
Money Market Checking and Savings ............................................................. 423,421 377,458
Time Deposits ................................................................................. 1,190,212 1,103,264
----------- -----------
Total Deposits .............................................................................. 2,039,960 1,885,346
Federal Funds Purchased and Securities Sold Under Repurchase Agreements ......................... 13,604 34,608
Accounts Payable and Accrued Liabilities ........................................................ 19,297 12,548
----------- -----------
Total Liabilities ............................................................................. 2,072,861 1,932,502
----------- -----------
Commitments 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 14,525,400 Shares in 2000 and 14,524,739 Shares
In 1999 .................................................................................... 14,525 14,525
Paid-In Capital ............................................................................... 88,839 88,834
Retained Earnings ............................................................................. 104,615 98,277
Accumulated Other Comprehensive Loss .......................................................... (15,526) (13,448)
----------- -----------
Total Shareholders' Equity .................................................................. 192,453 188,188
----------- -----------
Total Liabilities and Shareholders' Equity .................................................... $ 2,265,314 $ 2,120,690
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 2
<PAGE>
<TABLE>
<CAPTION>
Texas Regional Bancshares, Inc. and Subsidiaries THREE MONTHS
Consolidated Statements of Income and Comprehensive Income ENDED MARCH 31,
-------------------------
(Dollars in Thousands, Except Per Share Data) 2000 1999
-------- --------
(Unaudited)
<S> <C> <C>
Interest Income
Loans, Including Fees ......................................................................... $ 33,559 $ 25,775
Securities
Taxable ..................................................................................... 7,724 6,387
Tax-Exempt .................................................................................. 579 486
Time Deposits ................................................................................. 69 6
Federal Funds Sold ............................................................................ 39 339
-------- --------
Total Interest Income ....................................................................... 41,970 32,993
-------- --------
Interest Expense
Deposits ...................................................................................... 18,526 14,269
Federal Funds Purchased and Securities
Sold Under Repurchase Agreements ............................................................ 286 93
-------- --------
Total Interest Expense ...................................................................... 18,812 14,362
-------- --------
Net Interest Income Before Provision for Loan Losses ............................................. 23,158 18,631
Provision for Loan Losses ........................................................................ 2,169 1,323
-------- --------
Net Interest Income After Provision for Loan Losses ........................................... 20,989 17,308
-------- --------
Noninterest Income
Service Charges on Deposit Accounts ........................................................... 2,754 2,071
Other Service Charges ......................................................................... 947 744
Trust Service Fees ............................................................................ 475 481
Data Processing Service Fees .................................................................. 584 495
Other Operating Income ........................................................................ 448 365
-------- --------
Total Noninterest Income .................................................................... 5,208 4,156
-------- --------
Noninterest Expense
Salaries and Employee Benefits ................................................................ 6,659 4,967
Net Occupancy Expense ......................................................................... 956 985
Equipment Expense ............................................................................. 1,427 1,223
Other Real Estate Expense, Net ................................................................ 31 93
Amortization of Goodwill and Identifiable Intangibles ......................................... 1,145 680
Other Noninterest Expense ..................................................................... 3,045 2,591
-------- --------
Total Noninterest Expense ................................................................... 13,263 10,539
-------- --------
Income Before Income Tax Expense ................................................................. 12,934 10,925
Income Tax Expense ............................................................................... 4,563 3,873
-------- --------
Net Income ....................................................................................... 8,371 7,052
Other Comprehensive Loss, Net of Tax
Unrealized Losses on Securities Available for Sale
Unrealized Holding Losses Arising During Period ............................................. (2,078) (1,320)
-------- --------
Total Other Comprehensive Loss ............................................................ (2,078) (1,320)
-------- --------
Comprehensive Income ............................................................................. $ 6,293 $ 5,732
======== ========
Net Income Per Common Share
Basic ......................................................................................... $ 0.58 $ 0.49
Diluted ....................................................................................... 0.57 0.48
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 3
<PAGE>
<TABLE>
<CAPTION>
Texas Regional Bancshares, Inc. and ACCUMULATED
Subsidiaries OTHER
Consolidated Statements of Changes COMMON COMPREHENSIVE TOTAL
In Shareholders' Equity STOCK - PAID-IN RETAINED INCOME SHAREHOLDERS'
(Dollars in Thousands) CLASS A CAPITAL EARNINGS (LOSS) EQUITY
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Three Months Ended March 31, 2000
Balance, Beginning of Period .............................. $ 14,525 $ 88,834 $ 98,277 $ (13,448) $ 188,188
Net Income ................................................ -- -- 8,371 -- 8,371
Unrealized Losses on Securities,
Net of Tax and Reclassification Adjustment .............. -- -- -- (2,078) (2,078)
--------- --------- --------- --------- ---------
Total Comprehensive Income .............................. -- -- 8,371 (2,078) 6,293
--------- --------- --------- --------- ---------
Exercise of Stock Options, 661 Shares of
Class A Common Stock .................................... -- 5 -- -- 5
Class A Common Stock Cash Dividends ....................... -- -- (2,033) -- (2,033)
--------- --------- --------- --------- ---------
Balance, End of Period .................................... $ 14,525 $ 88,839 $ 104,615 $ (15,526) $ 192,453
========= ========= ========= ========= =========
Three Months Ended March 31, 1999
Balance, Beginning of Period .............................. $ 14,405 $ 87,396 $ 74,864 $ 609 $ 177,274
Net Income ................................................ -- -- 7,052 -- 7,052
Unrealized Loss on Securities,
Net of Tax and Reclassification Adjustment .............. -- -- -- (1,320) (1,320)
--------- --------- --------- --------- ---------
Total Comprehensive Income .............................. -- -- 7,052 (1,320) 5,732
--------- --------- --------- --------- ---------
Class A Common Stock Cash Dividends ....................... -- -- (1,801) -- (1,801)
--------- --------- --------- --------- ---------
Balance, End of Period .................................... $ 14,405 $ 87,396 $ 80,115 $ (711) $ 181,205
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 4
<PAGE>
<TABLE>
<CAPTION>
Texas Regional Bancshares, Inc. and Subsidiaries THREE MONTHS
Consolidated Statements of Cash Flows ENDED MARCH 31,
-----------------------
(Dollars in Thousands) 2000 1999
--------- ---------
(UNAUDITED)
<S> <C> <C>
Cash Flows from Operating Activities
Net Income ...................................................................................... $ 8,371 $ 7,052
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities
Depreciation, Amortization and Accretion, Net ............................................... 2,548 1,348
Provision for Loan Losses ................................................................... 2,169 1,323
Provision for Estimated Losses on Other Real Estate and Other Assets ........................ 3 16
(Gain) Loss on Sale of Other Assets ......................................................... (37) 4
Gain on Sale of Other Real Estate ........................................................... (43) (207)
Gain on Sale of Premises and Equipment ...................................................... -- (36)
Decrease in Deferred Income Tax Asset ....................................................... (665) --
Decrease in Deferred Income Tax Liability ................................................... -- (515)
Increase in Accrued Interest Receivable and Other Assets .................................... (1,525) (1,240)
Increase in Accounts Payable and Accrued Liabilities ........................................ 4,740 4,288
--------- ---------
Net Cash Provided by Operating Activities .......................................................... 15,561 12,033
--------- ---------
Cash Flows from Investing Activities
Proceeds from Maturing Securities Available for Sale ............................................ 2,958 56,292
Purchases of Securities Available for Sale ...................................................... (22,759) (69,195)
Proceeds from Maturing Securities Held to Maturity .............................................. 5,940 1,000
Proceeds from Sale of Loans ..................................................................... 10 53
Purchases of Loans .............................................................................. (1,363) (1,542)
Loan Originations and Advances, Net ............................................................. (68,725) (55,520)
Recoveries of Charged-Off Loans ................................................................. 115 110
Proceeds from Sale of Premises and Equipment .................................................... 11 216
Purchases of Premises and Equipment ............................................................. (2,477) (1,300)
Proceeds from Sale of Other Real Estate ......................................................... 386 476
Proceeds from Sale of Other Assets .............................................................. 254 213
--------- ---------
Net Cash Used in Investing Activities .............................................................. (85,650) (69,197)
--------- ---------
Cash Flows from Financing Activities
Net Increase in Demand Deposits, Savings, Money
Market Checking and Savings Accounts .......................................................... 67,666 18,722
Net Increase in Time Deposits ................................................................... 86,948 32,844
Net Increase (Decrease) in Federal Funds Purchased
and Securities Sold Under Repurchase Agreements ............................................... (21,004) 1,601
Cash Dividends Paid on Class A Common Stock ..................................................... (2,032) (1,801)
Proceeds from the Sale of Common Stock .......................................................... 5 --
--------- ---------
Net Cash Provided by Financing Activities .......................................................... 131,583 51,366
--------- ---------
Increase (Decrease) in Cash and Cash Equivalents ................................................... 61,494 (5,798)
Cash and Cash Equivalents at Beginning of Period ................................................... 71,896 90,827
--------- ---------
Cash and Cash Equivalents at End of Period ......................................................... $ 133,390 $ 85,029
========= =========
</TABLE>
Page 5
<PAGE>
<TABLE>
<CAPTION>
Texas Regional Bancshares, Inc. and Subsidiaries THREE MONTHS
Consolidated Statements of Cash Flows ENDED MARCH 31,
------------------
(Dollars in Thousands) 2000 1999
------- -------
(UNAUDITED)
<S> <C> <C>
Supplemental Disclosures of Cash Flow Information
Interest Paid .......................................................................................... $18,623 $14,713
Income Taxes Paid ...................................................................................... -- 26
Supplemental Schedule of Noncash Investing and Financing Activities
Foreclosure and Repossession in Partial Satisfaction of Loans Receivable ............................... 1,067 3,211
Financing Provided For Sales of Other Real Estate ...................................................... 471 1,865
Net increase in security trades not settled ............................................................ 2,000 --
Net increase in dividends payable ...................................................................... 1 --
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 6
<PAGE>
TEXAS REGIONAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were prepared
in accordance with instructions for Form 10-Q and, therefore, do not include all
information and footnotes necessary for a complete presentation of financial
position, results of operations, changes in shareholders' equity, and cash flows
in conformity with generally accepted accounting principles. However, the
consolidated financial statements include all adjustments that, in the opinion
of management, are necessary for a fair presentation. All such adjustments were
of a normal and recurring nature. The results of operations and cash flows for
the three months ended March 31, 2000 and 1999 should not be considered
indicative of the results to be expected for the full year. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Texas Regional
Bancshares, Inc. and Subsidiaries (the "Company") Annual Report on Form 10-K for
the year ended December 31, 1999.
The consolidated financial statements include the accounts of Texas
Regional Bancshares, Inc. and its wholly owned subsidiaries, Texas Regional
Delaware, Inc. and Texas State Bank (the "Bank"). The Company eliminates all
significant intercompany transactions and balances in consolidation. The Company
accounts for its investments in subsidiaries on the equity method in the
Parent's financial statements.
The Financial Accounting Standards Board's Statement No. 133 ("Statement
133"), "Accounting for Derivative Instruments and for Hedging Activities," was
issued in June 1998. Statement 133 requires companies to recognize all
derivatives as either assets or liabilities in the statement of financial
condition and measure those instruments at fair value. Statement 133 requires
that changes in fair value of a derivative be recognized currently in earnings
unless specific hedge accounting criteria are met. The Financial Accounting
Standards Board's Statement No. 137 ("Statement 137"), "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective Date of
FASB Statement No. 133", deferred the effective date of Statement 133 to fiscal
years beginning after June 15, 2000. The Company will adopt Statement 133 on
January 1, 2001 and is evaluating the impact, if any, this statement may have on
its future consolidated financial statements.
NOTE 2: RECLASSIFICATION
Certain amounts in the 1999 consolidated financial statements have been
reclassified to conform to the 2000 presentation. These reclassifications have
no effect on previously reported net income.
NOTE 3: IMPAIRED LOANS
The Company identifies loans to be reported as impaired when such loans
are on nonaccrual status or are considered troubled debt restructurings due to
the granting of a below-market rate of interest or a partial forgiveness of
indebtedness on an existing loan. The balance of impaired loans was $9.0 million
at March 31, 2000 for which there was a related allowance for loan losses of
$1.8 million. At March 31, 2000, the Company had $476,000 in impaired loans for
which there was no related allowance for loan losses. The average recorded
investment in impaired loans during the three months ended March 31, 2000 was
$8.7 million. Interest income on impaired loans of $ 32,000 was recognized for
cash payments received during the three months ended March 31, 2000.
NOTE 4: COMMON STOCK
On March 14, 2000, the Board of Directors approved a cash dividend of
$0.14 per share for shareholders of record on April 3, 2000 and payable on April
14, 2000.
Page 7
<PAGE>
NOTE 5: EARNINGS PER COMMON SHARE COMPUTATIONS
The table below presents a reconciliation of basic and diluted earnings
per share computations.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
(Dollars in Thousands, Except Share Data) 2000 1999
----------- -----------
(UNAUDITED)
<S> <C> <C>
Net Income Available to Common Shareholders .................................................... $ 8,371 $ 7,052
----------- -----------
Weighted Average Number of Common Shares Outstanding
Used in Basic EPS Calculation ............................................................... 14,525,306 14,405,027
Add Assumed Exercise of Outstanding Stock Options as
Adjustments for Dilutive Securities ......................................................... 127,825 210,989
----------- -----------
Weighted Average Number of Common Shares
Outstanding Used in Diluted EPS Calculations ................................................ 14,653,131 14,616,016
----------- -----------
Basic EPS ...................................................................................... $ 0.58 $ 0.49
Diluted EPS .................................................................................... 0.57 0.48
----------- -----------
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS. This Management's Discussion and Analysis
includes forward-looking statements. These forward-looking statements involve
certain risks and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements. Such risks and
uncertainties include, but are not limited to, the following factors:
competitive pressure in the banking industry significantly increasing; changes
in the interest rate environment reducing margins; general economic conditions,
either nationally or regionally, are less favorable than expected, resulting in,
among other things, a deterioration in credit quality and an increase in the
provision for possible loan losses; changes in the regulatory environment;
changes in business conditions; volatility of rate sensitive deposits;
operational risks including data processing system failures or fraud;
asset/liability matching risks and liquidity risks; and changes in the
securities markets. Because of these uncertainties, actual future results may be
materially different from the results indicated by these forward-looking
statements. In addition, the Company's past results do not necessarily indicate
its future results.
Management's discussion and analysis of the Company's consolidated
financial condition and results of operations at the dates and for the periods
indicated follows. This discussion should be read in conjunction with the
Company's consolidated financial statements and the accompanying notes.
GENERAL
Texas Regional Bancshares, Inc. ("Texas Regional" or the "Company") is a
Texas business corporation incorporated in 1983 and headquartered in McAllen,
Texas. The Company is a bank holding company within the meaning of the Bank
Holding Company Act of 1956 and as such is registered with the Board of
Governors of the Federal Reserve System ("Federal Reserve Board"). Texas
Regional Delaware, Inc., incorporated under the laws of Delaware as a wholly
owned second tier bank holding company subsidiary, owns Texas State Bank (the
"Bank"), the Company's primary operating subsidiary. The Bank has two wholly
owned subsidiaries: (i) TSB Securities, Inc., incorporated in 1997 to provide
full service broker-dealer services and (ii) TSB Properties, Inc., incorporated
in 1998 to receive and liquidate foreclosed assets.
Texas State Bank operates twenty-six banking locations in the Rio Grande
Valley including four banking locations in McAllen (including its main office),
four banking locations in Brownsville, four banking locations in Harlingen,
three banking locations in Mission, two banking locations in Weslaco, and one
banking location each in Edinburg, Hidalgo, La Feria, Mercedes, Palm Valley,
Penitas, Raymondville, Rio Grande City and Roma. At March 31, 2000, Texas
Regional had consolidated total assets of $2.3 billion, loans (net of unearned
discount) of $1.4 billion, deposits of $2.0 billion, and shareholders' equity of
$192.5 million.
Page 8
<PAGE>
On October 1, 1999, the Company completed the acquisition of Harlingen
Bancshares, Inc. and its subsidiary, Harlingen National Bank. The acquisition
included its main office and three banking locations in Harlingen, Cameron
County, Texas; one banking location in La Feria, Cameron County, Texas; and one
banking location in Mercedes, Hidalgo County, Texas, with assets of $204.2
million, loans of $110.7 million, deposits of $183.6 million, and equity of
$19.9 million. The shareholders of Harlingen Bancshares, Inc. received aggregate
consideration of $34.0 million, including $1.0 million deposited into escrow
pending the outcome of certain contingencies. Simultaneously, the shareholders
of Harlingen Bancshares, Inc. or their affiliates purchased certain assets of
Harlingen Bancshares, Inc. for book value totaling $2.4 million. Texas Regional
also agreed to pay $1.0 million over a term of ten years in consideration of a
covenant not to compete from certain principals of Harlingen Bancshares, Inc.
Texas Regional accounted for the acquisition under the purchase method of
accounting; therefore, the results of operations are included in the
consolidated financial statements from the date of acquisition, October 1, 1999.
FINANCIAL CONDITION
CASH AND CASH EQUIVALENTS
The Company, through its main office and branches, offers a broad range of
commercial banking services to individuals and businesses in its service area.
It also acts as a correspondent to a number of banks in its service area,
providing check clearing, wire transfer, federal funds transactions, loan
participations and other correspondent services. The amount of cash and cash
equivalents held on any day is significantly influenced by temporary changes in
cash items in process of collection. The Company had cash and cash equivalents
totaling $133.4 million at March 31, 2000. Comparatively, the Company had $71.9
million in cash and cash equivalents at December 31, 1999, an increase of $61.5
million or 85.5%.
SECURITIES
Securities consist of U.S. Treasury, federal agency, mortgage-backed and
state, county and municipal securities. The Bank classifies debt and equity
securities into one of three categories: held to maturity, trading or available
for sale. At each reporting date, management reassesses the appropriateness of
the classification. Investments in debt securities are classified as Held to
Maturity and measured at amortized cost in the consolidated balance sheet only
if management has the positive intent and ability to hold those securities to
maturity. Securities that are bought and held principally for the purpose of
selling them in the near term are classified as Trading and measured at fair
value in the consolidated balance sheet with unrealized holding gains and losses
included in earnings. Securities not classified as either Held to Maturity or
Trading are classified as Available for Sale and measured at fair value in the
consolidated balance sheet with unrealized holding gains and losses reported in
a separate component of shareholders' equity, net of applicable income taxes
until realized.
At March 31, 2000 and December 31, 1999, no securities were classified as
Trading. 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.
Page 9
<PAGE>
The following table presents the amortized cost and estimated fair value
of securities at March 31, 2000 and December 31, 1999 (dollars in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Securities Available for Sale
March 31, 2000 (Unaudited)
U.S. Treasury .................................... $ 2,999 $ -- $ (1) $ 2,998
U.S. Government Agency ........................... 383,226 33 (16,574) 366,685
Mortgage-Backed .................................. 129,642 3 (5,498) 124,147
States and Political Subdivisions ................ 48,339 113 (2,148) 46,304
Other ............................................ 4,333 -- -- 4,333
-------- -------- -------- --------
Total .......................................... $568,539 $ 149 $(24,221) $544,467
======== ======== ======== ========
December 31, 1999
U.S. Treasury .................................... $ 2,999 $ 5 $ -- $ 3,004
U.S. Government Agency ........................... 359,558 18 (14,975) 344,601
Mortgage-Backed .................................. 131,699 5 (4,073) 127,631
States and Political Subdivisions ................ 48,198 164 (1,992) 46,370
Other ............................................ 4,332 -- -- 4,332
-------- -------- -------- --------
Total .......................................... $546,786 $ 192 $(21,040) $525,938
======== ======== ======== ========
Securities Held to Maturity
March 31, 2000 (Unaudited)
States and Political Subdivisions ................ $ 2,053 $ 33 $ (2) $ 2,084
-------- -------- -------- --------
Total .......................................... $ 2,053 $ 33 $ (2) $ 2,084
======== ======== ======== ========
December 31, 1999
U.S. Treasury .................................... $ 5,001 $ 17 $ -- $ 5,018
States and Political Subdivisions ................ 3,009 50 (6) 3,053
-------- -------- -------- --------
Total .......................................... $ 8,010 $ 67 $ (6) $ 8,071
======== ======== ======== ========
</TABLE>
Net unrealized holding losses, net of related tax effect, of $15.5 million
and $13.4 million at March 31, 2000 and December 31, 1999, respectively, on
securities available for sale are reported as a separate component of
shareholders' equity and as other comprehensive income.
Securities with carrying values of $524.5 million at March 31, 2000 and
$516.8 million at December 31, 1999 were pledged to secure public funds, trust
assets on deposit and for other purposes required or permitted by law.
LOANS
The Company manages its credit risk by establishing and implementing
strategies and guidelines appropriate to the characteristics of borrowers,
industries, geographic locations and risk products. Diversification of risk
within each of these areas is a primary objective. Policies and procedures are
developed to ensure that loan commitments conform to current strategies and
guidelines. Management continually refines the Company's credit policies and
procedures to address the risks in the current and prospective environment and
to reflect management's current strategic focus. The credit process is
controlled with continuous credit review and analysis, and review by internal
and external auditors and regulatory authorities. The Company's loans are widely
diversified by borrower and industry group.
Page 10
<PAGE>
The Company has collateral management policies in place so that collateral
lending of all types is approached on a basis consistent with safe and sound
standards. Valuation analysis is utilized to take into consideration the
potentially adverse economic conditions under which liquidation could occur.
Collateral accepted against the commercial loan portfolio includes accounts
receivable and inventory, marketable securities, equipment and agricultural
products. Autos, deeds of trust, life insurance and marketable securities are
accepted as collateral for the installment loan portfolio.
Management of the Company believes that the Company has benefited from
increased loan demand due to passage of the North American Free Trade Agreement
("NAFTA") and the strong population growth in the Rio Grande Valley. More
recently, the continued devaluation of the Mexican peso relative to the U.S.
dollar has reduced retail sales to residents of Mexico. However, the effects of
NAFTA and the devaluation have also increased cross-border trade and industrial
development including activity at twin manufacturing plants located on each side
of the border (referred to as maquiladoras) which benefit the Rio Grande Valley
economy. Management believes the on-going Mexican financial problems will not
have a material adverse effect on the Company's growth and earnings prospects,
in part because the Company presently has a low percentage of loans secured by
Mexican assets or that otherwise rely on collateral located in Mexico.
The extension of credits denominated in a currency other than that of the
country in which a borrower is located are called "cross-border" credits. The
Company has some dollar-denominated cross-border credits to individuals or
companies that are residents of, or domiciled in Mexico. The Company's total
cross-border credits at March 31, 2000 of $9.0 million represented 0.6% of total
loans. See "Nonperforming Assets" for additional information on cross-border
credits.
Total loans of $1.4 billion at March 31, 2000 increased $68.2 million or
5.0% compared to December 31, 1999 levels of $1.4 billion. The increase in total
loans for the three months ended March 31, 2000 reflects growth in all loan
categories except Commercial Tax-Exempt and Consumer loans and is representative
in part to the vitality of the Rio Grande Valley economy. The following table
presents the composition of the loan portfolio (dollars in thousands):
MARCH 31, DECEMBER 31,
2000 1999
---------- ----------
(UNAUDITED)
Commercial ................................... $ 433,461 $ 391,855
Commercial Tax-Exempt ........................ 7,759 22,160
---------- ----------
Total Commercial
Loans ...................................... 441,220 414,015
---------- ----------
Agricultural ................................. 63,778 59,437
---------- ----------
Real Estate
Construction ............................... 121,161 101,376
Commercial Mortgage ........................ 473,411 456,507
Agricultural
Mortgage ................................... 39,324 38,256
1-4 Family Mortgage ........................ 164,808 160,786
---------- ----------
Total Real Estate ......................... 798,704 756,925
---------- ----------
Consumer ..................................... 139,210 144,382
---------- ----------
Total Loans ................................ $1,442,912 $1,374,759
========== ==========
The Company's policy on maturity extensions and rollovers is based on
management's assessment of individual loans. Approvals for the extension or
renewal of loans without reduction of principal for more than one twelve-month
period are generally avoided, unless the loans are fully secured and properly
margined by cash or marketable securities, or are revolving lines subject to
annual analysis and renewal.
NONPERFORMING ASSETS
The Company has several procedures in place to assist in maintaining the
overall quality of its loan portfolio. The Bank has established underwriting
guidelines to be followed by its officers and monitors its delinquency levels
for any negative or adverse trends.
Page 11
<PAGE>
Nonperforming assets consist of nonaccrual loans, loans for which the
interest rate has been renegotiated below originally contracted rates and real
estate or other assets that have been acquired in partial or full satisfaction
of loan obligations. The Company's policy generally is to place a loan 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. The Company's classification of nonperforming loans includes
those loans for which management believes collection is doubtful. Management is
not aware of any specific borrower relationships that are not reported as
nonperforming where management has serious doubts as to the ability of such
borrowers to comply with the present loan repayment terms which would cause
nonperforming assets to increase materially.
Nonperforming assets of $15.0 million at March 31, 2000 increased
$698,000, 4.9% compared to December 31, 1999 levels of $14.3 million. Nonaccrual
loans of $9.0 million at March 31, 2000 increased $665,000 or 8.0% compared to
$8.3 million at December 31, 1999. The increase in nonaccrual loans during 2000
resulted from additions of credits secured primarily by real estate.
Cross-border nonaccrual loans at March 31, 2000 of $4.3 million did not change
from December 31, 1999 levels. The increase in foreclosed assets during 2000 was
primarily attributable to a higher amount of foreclosure loans with real estate
collateral, net of write downs and liquidations. Management actively seeks
buyers for all Other Real Estate. See "Noninterest Expense" below.
Loans which are contractually past due 90 days or more, which are both
well secured or guaranteed by financially responsible third parties and in the
process of collection, generally are not placed on nonaccrual status. The amount
of such loans past due 90 days or more at March 31, 2000 and December 31, 1999
that are not classified as nonaccrual totaled $3.2 million and $2.7 million,
respectively. The increase in accruing loans past due 90 days or more at March
31, 2000 as compared to the year ended December 31, 1999 is partly attributable
to the addition of a $1.0 million commercial loan. The ratio of Nonperforming
Assets Plus Accruing Loans 90 Days or More Past Due as a percent of Total Loans
and Foreclosed Assets at March 31, 2000 increased to 1.26% from 1.23% at
December 31, 1999 due primarily to the increase in both nonaccrual loans and
accruing loans past due 90 days or more.
An analysis of the components of nonperforming assets follows (dollars in
thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
Nonaccrual Loans ....................................................................... $ 9,006 $ 8,341
Renegotiated Loans ..................................................................... -- --
--------------- ---------------
Nonperforming Loans ................................................................. 9,006 8,341
Foreclosed Assets ...................................................................... 5,991 5,958
--------------- ---------------
Total Nonperforming Assets .......................................................... 14,997 14,299
Accruing Loans 90 Days or More Past Due ................................................ 3,224 2,697
--------------- ---------------
Total Nonperforming Assets and Accruing Loans
90 Days or More Past Due .......................................................... $ 18,221 $ 16,996
=============== ===============
Nonperforming Loans as a % of Total Loans .............................................. 0.62% 0.61%
Nonperforming Assets as a % of Total Loans and
Foreclosed Assets ................................................................... 1.04 1.04
Nonperforming Assets as a % of Total Assets ............................................ 0.66 0.67
Nonperforming Assets Plus Accruing Loans 90 Days
or More Past Due as a % of Total Loans and
Foreclosed Assets ................................................................... 1.26 1.23
=============== ===============
</TABLE>
Management regularly reviews and monitors the loan portfolio to identify
borrowers experiencing financial difficulties. Management believes that, at
March 31, 2000, all such loans had been identified and included in the
nonaccrual, renegotiated or 90 days or more past due loan totals reflected in
the table above. Management continues to emphasize maintaining a low level of
nonperforming assets and returning nonperforming assets to an earning status.
Page 12
<PAGE>
ALLOWANCE FOR LOAN LOSSES
Management analyzes the loan portfolio to determine the adequacy of the
allowance for loan losses and the appropriate provision required to maintain an
adequate allowance. In assessing the adequacy of the allowance, management
reviews the size, quality and risks of loans in the portfolio and considers
factors such as specific known risks, past experience, the status and amount of
nonperforming assets and economic conditions. A specific percentage is allocated
to total loans in good standing and not specifically reserved while additional
amounts are added for individual loans considered to have specific loss
potential. Loans identified as losses are charged-off. In addition, the loan
review committee of the Bank reviews the assessments of management in
determining the adequacy of the Bank's allowance for loan losses. Based on total
allocations, the provision is recorded to maintain the allowance at a level
deemed appropriate by management. 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.
The allowance for loan losses at March 31, 2000 totaled $17.7 million,
representing a net increase of $955,000 or 5.7% compared to $16.7 million at
December 31, 1999. Management believes that the allowance for loan losses at
March 31, 2000 adequately reflects the risks in the loan portfolio. Various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. Such agencies may
require the Bank to recognize additions to the allowance based on their
judgments of information available to them at the time of their examination.
The following table summarizes the activity in the allowance for loan
losses (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2000 1999
---------- ----------
(UNAUDITED)
<S> <C> <C>
Balance at Beginning of Period ............................................................... $ 16,711 $ 13,236
Provision for Loan Losses .................................................................... 2,169 1,323
Charge-Offs
Commercial ................................................................................ 540 613
Agricultural .............................................................................. 7 5
Real Estate ............................................................................... 147 20
Consumer .................................................................................. 635 358
---------- ----------
Total Charge-Offs ....................................................................... 1,329 996
---------- ----------
Recoveries
Commercial ................................................................................ 32 41
Agricultural .............................................................................. 1 3
Real Estate ............................................................................... 5 10
Consumer .................................................................................. 77 56
---------- ----------
Total Recoveries ........................................................................ 115 110
---------- ----------
Net Charge-Offs .............................................................................. 1,214 886
---------- ----------
Balance at End of Period ..................................................................... $ 17,666 $ 13,673
========== ==========
Ratio of Allowance for Loan Losses to
Loans Outstanding, Net of Unearned Discount ............................................... 1.22% 1.20%
Ratio of Allowance for Loan Losses to
Nonperforming Loans ....................................................................... 196.16 191.93
Ratio of Net Charge-Offs to Average Total
Loans Outstanding, Net of Unearned Discount ............................................... 0.35 0.32
========== ==========
</TABLE>
PREMISES AND EQUIPMENT, NET
Premises and equipment of $76.6 million at March 31, 2000 increased $1.0
million or 1.4% compared to $75.6 million at December 31, 1999. The increase for
the three months ended March 31, 2000 resulted primarily from additions in
computer equipment and software including equipment for the new check imaging
system.
Page 13
<PAGE>
GOODWILL AND IDENTIFIABLE INTANGIBLES
Intangibles of $43.7 million at March 31, 2000 decreased $1.1 million or
2.5% compared to $44.8 million at December 31, 1999. The net decrease for the
three months ended March 31, 2000 is attributable to amortization of existing
intangibles.
DEPOSITS
Total deposits of $2.0 billion at March 31, 2000 increased $154.6 million
or 8.2% compared to December 31, 1999 levels of $1.9 billion. The increase in
total deposits for the three months ended March 31, 2000 is primarily
attributable to growth in the volume of business conducted by the Company and
the vitality of the Rio Grande Valley economy. Furthermore, the deposit increase
included $38.7 million received from foreign customers on a short-term basis.
The following table presents the composition of total deposits (dollars in
thousands):
MARCH 31, DECEMBER 31,
2000 1999
---------- ----------
(UNAUDITED)
Demand Deposits
Commercial and Individual ...................... $ 294,624 $ 277,729
Public Funds ................................... 6,923 8,137
---------- ----------
Total Demand Deposits ........................ 301,547 285,866
---------- ----------
Interest-Bearing Deposits
Savings
Commercial and Individual .................... 124,507 118,512
Public Funds ................................. 273 246
Money Market Checking and Savings
Commercial and Individual .................... 359,641 298,668
Public Funds ................................. 63,780 78,791
Time Deposits
Commercial and Individual .................... 826,494 800,934
Public Funds ................................. 363,718 302,329
---------- ----------
Total Interest-Bearing Deposits .............. 1,738,413 1,599,480
---------- ----------
Total Deposits ............................. $2,039,960 $1,885,346
========== ==========
SHAREHOLDERS' EQUITY
Shareholders' equity increased by $4.3 million, or 2.3%, during the three
months ended March 31, 2000 due to comprehensive income of $6.3 million less
cash dividends of $2.0 million. Comprehensive income for the period included net
income of $8.4 million and unrealized loss on securities available for sale, net
of tax, of $2.1 million.
Page 14
<PAGE>
Bank holding companies are required to maintain capital ratios in
accordance with guidelines adopted by the Federal Reserve Board ("FRB"). The
guidelines are commonly known as Risk-Based Capital Guidelines. The table below
reflects various measures of regulatory capital (dollars in thousands):
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
--------------------------- --------------------------
AMOUNT RATIO AMOUNT RATIO
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Total Shareholders' Equity before unrealized
gains or losses on Securities Available for Sale ................ $ 207,979 $ 201,636
Less Goodwill and Other Deductions ................................. (43,696) (44,796)
----------- ----------- ----------- -----------
Total Tier I Capital ............................................... 164,283 156,840
Total Tier II Capital .............................................. 17,666 16,711
----------- ----------- ----------- -----------
Total Qualifying Capital ........................................... $ 181,949 $ 173,551
----------- ----------- ----------- -----------
Total Risk-Based Capital ........................................... $ 181,949 11.78% $ 173,551 11.94%
Total Risk-Based Capital Minimum ................................... 123,594 8.00 116,313 8.00
----------- ----------- ----------- -----------
Tier I Risk-Based Capital .......................................... 164,283 10.63 156,840 10.79
Tier I Risk-Based Capital Minimum .................................. 61,797 4.00 58,157 4.00
----------- ----------- ----------- -----------
Tier I Leverage Capital ............................................ 164,283 7.70 156,840 7.58
Tier I Leverage Capital Minimum .................................... 85,338 4.00 82,777 4.00
----------- ----------- ----------- -----------
</TABLE>
At March 31, 2000, the Company and the Bank met the criteria for
classification as a "well-capitalized" institution under the prompt corrective
action rules promulgated under the Federal Deposit Insurance Act. Designation as
a well-capitalized institution under these regulations does not constitute a
recommendation or endorsement of the Company or the Bank by Federal bank
regulators.
RESULTS OF OPERATIONS
NET INCOME
Net income available for common shareholders was $8.4 million and $7.1
million and earnings per diluted common share were $0.57 and $0.48 for the three
months ended March 31, 2000 and 1999, respectively. Net income increased due to
sustained loan growth. Return on assets averaged 1.56% and 1.61% while return on
shareholders' equity averaged 17.73% and 15.90% for the three months ended March
31, 2000 and 1999, respectively.
INTEREST INCOME
Total interest income for the three months ended March 31, 2000 was $42.0
million, an increase of $9.0 million or 27.2% from the three months ended March
31, 1999. This increase in interest income is due to a $342.2 million or 21.3%
increase in average earning assets to $1.9 billion for the three months ended
March 31, 2000 from the same period last year.
Interest income on loans increased $7.8 million or 30.2% to $33.6 million
for the three months ended March 31, 2000. A $287.6 million or 25.8% increase in
average loans outstanding over the same period in 1999 propelled this increase.
Interest income on securities increased to $8.3 million, a $1.4 million increase
from the prior comparable period. This increase was attributable to a $76.4
million increase in average securities, up 16.6% when compared to the three
months ended March 31, 1999.
INTEREST EXPENSE
Interest expense on deposits and other borrowings increased to $18.8
million for the three months ended March 31, 2000 compared to $14.4 million for
the same period in 1999. The increase in interest expense was attributable to a
$318.9 million increase in average interest-bearing liabilities from the prior
comparable period.
Page 15
<PAGE>
NET INTEREST INCOME
Net interest income, reported on a tax equivalent basis, was $23.6 million
for the three months ended March 31, 2000, compared with $19.0 million for the
same period in 1999, an increase of 24.1%. The increase in net interest income
during the three months ended March 31, 2000 was largely due to growth in
average interest-earning assets, primarily loans.
The net interest margin was 4.87% for the three months ended March 31,
2000, compared with 4.80% for the same period in 1999. This increase was
attributable to a thirty-three basis point increase in the yield on average
interest-earning assets to 8.76%, up from 8.43% for the same period last year.
In addition, the cost of average interest-bearing liabilities increased by
twenty-two basis points to 4.55% for the three months ended March 31, 2000.
The following table presents for periods indicated the total dollar amount of
interest income from average interest-earning assets and the resultant yields,
reported on a tax-equivalent basis, and the interest expense on average
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 tax rate for 2000 and 1999 (dollars in thousands):
Page 16
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------------
MARCH 31, 2000 MARCH 31, 1999
-------------------------------------------- -----------------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
Taxable-Equivalent Basis (1) BALANCE INTEREST RATE (2) BALANCE INTEREST RATE (2)
----------- ----------- ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-Earning Assets
Loans
Commercial ..................... $ 484,173 $ 11,432 9.50% $ 400,283 $ 8,908 9.03%
Real Estate .................... 776,616 18,565 9.61 592,200 13,857 9.49
Consumer ....................... 141,817 3,682 10.44 122,495 3,134 10.38
----------- ----------- ----------- ----------- ----------- -----------
Total Loans .................. 1,402,606 33,679 9.66 1,114,978 25,899 9.42
----------- ----------- ----------- ----------- ----------- -----------
Securities
Taxable ........................ 488,857 7,724 6.35 418,107 6,387 6.20
Tax-Exempt ..................... 48,210 889 7.42 42,548 731 6.97
----------- ----------- ----------- ----------- ----------- -----------
Total Securities ............. 537,067 8,613 6.45 460,655 7,118 6.27
----------- ----------- ----------- ----------- ----------- -----------
Time Deposits .................... 4,667 69 5.95 359 6 6.78
Federal Funds Sold ............... 2,570 39 6.10 28,741 339 4.78
----------- ----------- ----------- ----------- ----------- -----------
Total Interest-Earning Assets .. 1,946,910 42,400 8.76% 1,604,733 33,362 8.43%
----------- ----------- ----------- ----------- ----------- -----------
Cash and Due from Banks ............ 66,583 58,583
Premises and Equipment, Net ........ 75,998 69,816
Other Assets ....................... 83,988 57,945
Allowance for Loan Losses .......... (17,634) (13,445)
----------- ----------- ----------- ----------- ----------- -----------
Total Assets ..................... $ 2,155,845 $ 1,777,632
----------- ----------- ----------- ----------- ----------- -----------
Liabilities
Interest-Bearing Liabilities
Savings .......................... $ 120,890 $ 663 2.21% $ 109,364 $ 611 2.27%
Money Market Checking
And Savings .................... 390,632 2,908 2.99 300,228 2,140 2.89
Time Deposits .................... 1,130,332 14,955 5.32 927,095 11,518 5.04
----------- ----------- ----------- ----------- ----------- -----------
Total Savings and
Time Deposits ................ 1,641,854 18,526 4.54 1,336,687 14,269 4.33
----------- ----------- ----------- ----------- ----------- -----------
Federal Funds Purchased
and Securities Sold
Under Repurchase
Agreements ..................... 22,059 286 5.21 8,336 93 4.52
----------- ----------- ----------- ----------- ----------- -----------
Total Interest-Bearing
Liabilities .................. 1,663,913 18,812 4.55% 1,345,023 14,362 4.33%
----------- ----------- ----------- ----------- ----------- -----------
Demand Deposits .................... 288,935 237,796
Other Liabilities .................. 13,144 14,950
----------- ----------- ----------- ----------- ----------- -----------
Total Liabilities ................ 1,965,992 1,597,769
----------- ----------- ----------- ----------- ----------- -----------
Shareholders' Equity ............... 189,853 179,863
----------- ----------- ----------- ----------- ----------- -----------
Total Liabilities and
Shareholders' Equity ........... $ 2,155,845 $ 1,777,632
----------- ----------- ----------- ----------- ----------- -----------
Net Interest Income ................... $ 23,588 $ 19,000
----------- ----------- ----------- ----------- ----------- -----------
Net Yield on Total Interest
Earning Assets ..................... 4.87% 4.80%
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
(1) For analytical purposes, income from tax-exempt assets, primarily
securities issued by state and local governments or authorities, is
adjusted by an increment that equates tax-exempt income to interest from
taxable assets (assuming a 35% tax rate).
(2) Annualized.
Page 17
<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. 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. An analysis of changes
in net interest income follows (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 COMPARED TO 1999
-------------------------------------------------------
DUE TO CHANGE IN
NET ------------------------- RATE/
Taxable-Equivalent Basis (1) CHANGE VOLUME RATE VOLUME
---------- ---------- ---------- ----------
(UNAUDITED)
Interest Income
<S> <C> <C> <C> <C>
Loans ............................................................. $ 7,780 $ 6,953 $ 657 $ 170
Securities
Taxable ......................................................... 1,337 1,143 166 28
Tax-Exempt ...................................................... 158 105 47 6
Time Deposits in Bank ............................................. 63 73 (1) (9)
Federal Funds Sold ................................................ (300) (308) 94 (86)
---------- ---------- ---------- ----------
Total Interest Income ........................................... 9,038 7,966 963 109
---------- ---------- ---------- ----------
Interest Expense
Deposits .......................................................... 4,257 3,404 694 159
Federal Funds Purchased and
Securities Sold Under
Repurchase Agreements ........................................... 193 155 14 24
---------- ---------- ---------- ----------
Total Interest Expense .......................................... 4,450 3,559 708 183
---------- ---------- ---------- ----------
Net Interest Income Before Allocation of
Rate/Volume ....................................................... 4,588 4,407 255 (74)
Allocation of Rate/Volume ............................................ -- 250 (324) 74
---------- ---------- ---------- ----------
Changes in Net Interest Income ....................................... $ 4,588 $ 4,657 $ (69) $ --
---------- ---------- ---------- ----------
</TABLE>
(1)For analytical purposes, income from tax-exempt assets, primarily securities
issued by state and local governments or authorities, is adjusted by an
increment that equates tax-exempt income to interest from taxable assets
(assuming a 35% effective federal income tax rate for 2000 and 1999).
PROVISION FOR LOAN LOSSES
The Company recorded a provision for loan losses of $2.2 million for the
three months ended March 31, 2000, compared to $1.3 million in the three months
ended March 31, 1999. The provision for loan losses reflected an increase of
$846,000 or 63.9% for the first quarter 2000 compared to the same period in
1999. The increase resulted in part from an increase in average loans by 25.8%
compared to first quarter 1999. Net charge-offs totaled $1.2 million and
$886,000, respectively, for the three months ended March 31, 2000 and 1999 and
increased to 0.35% of average loans in 2000 compared to 0.32% of average loans
for 1999.
Management charges provisions for loan losses to earnings to bring the
total allowance for loan losses to a level deemed appropriate. Management bases
its decision on many factors which include historical experience, the volume and
type of lending conducted by the Company, the amount of nonperforming assets,
regulatory policies, generally accepted accounting principles, and general
economic conditions, particularly as they relate to the Company's lending area.
See "Allowance for Loan Losses."
NONINTEREST INCOME
Noninterest Income totaled $5.2 million for the three months ended March
31, 2000 compared to $4.2 million for 1999. Noninterest Income increased $1.0
million or 25.4% from 1999. The Noninterest Income growth in first quarter 2000
resulted primarily from the increased volume of business conducted by the
Company and, in part, because of the Harlingen Bancshares, Inc. acquisition in
fourth quarter 1999.
Page 18
<PAGE>
Total Service Charges of $3.7 million for the three months ended March 31,
2000 increased $886,000 or 31.5% compared to $2.8 million for the same period in
1999. The increase in Total Service Charges is attributable to increased account
transaction fees generated by deposit growth of 26.4% since first quarter 1999.
Trust Service Fees of $475,000 for the three months ended March 31, 2000
decreased $6,000 or 1.2% compared to $481,000 for comparable prior year period.
Although the fair market value of assets managed increased to $360.4 million at
March 31, 2000 compared to $328.9 million a year ago, trust fees slightly
decreased since the 1999 amount included $13,000 in nonrecurring commissions on
sale of real estate. Assets held by the trust department of the Bank in
fiduciary or agency capacities are not assets of the Company and are not
included in the consolidated balance sheets.
Data Processing Service Fees of $584,000 for the three months ended March
31, 2000 increased $89,000 or 18.0% compared to $495,000 for the same period
last year. This increase arose from the acquisition of one additional banking
client and increased utilization of services offered to existing clients since
first quarter 1999. The number of data processing clients as of March 31, 2000
and 1999 was 7 and 6, respectively.
Other Operating Income of $448,000 for the three months ended March 31,
2000 increased $83,000 or 22.7% compared to $365,000 for the same 1999 period.
The increase in Other Operating Income in first quarter 2000 was primarily
attributable to an increase in Check Order Charges by $50,000 or 43.4 %
resulting from an increase in the volume of deposit accounts, as well as a
$25,000 incentive rebate received from the check printing company during first
quarter 2000.
NONINTEREST EXPENSE
Noninterest Expense of $13.3 million for the three months ended March 31,
2000 increased $2.7 million or 25.8% compared to $10.5 million for 1999. The
efficiency ratio of expense to total revenue was 45.95% for the three months
ended March 31, 2000 compared to 45.11% for the same period in 1999. The
efficiency ratio is defined as Noninterest Expense (excluding other real estate
income and expense) divided by the total of taxable-equivalent Net Interest
Income and Noninterest Income (excluding any gains and losses on sale of
securities). The increase results primarily from higher personnel costs due to
an increase in the number of employees since first quarter 1999.
Salaries and Employee Benefits, the largest category of Noninterest
Expense, of $6.7 million for the three months ended March 31, 2000 increased
$1.7 million or 34.1% compared to the same period last year of $5.0 million. The
increase in 2000 over 1999 reflects increases in base salaries and higher levels
of staff, including the staff acquired as a result of the Harlingen Bancshares,
Inc. acquisition. The number of full-time equivalent employees of 883 at March
31, 2000 increased 17.3% from 753 at March 31, 1999. Salaries and Employee
Benefits averaged 1.24% of average assets for the three months ended March 31,
2000 compared to 1.13% for the three months ended March 31, 1999.
Net Occupancy Expense of $956,000 for the three months ended March 31,
2000 decreased $29,000 or 2.9% compared to $985,000 for 1999. Increased rental
income generated from the corporate headquarters building in McAllen, Texas,
contributed to the decrease in net Occupancy Expense during the three months
ended March 31, 2000.
Equipment Expense of $1.4 million for the three months ended March 31,
2000 increased $204,000 or 16.7% compared to $1.2 million for 1999. Depreciation
and other equipment expenses associated with a 10.0% increase in premises and
equipment since first quarter 1999, partly attributable to the Harlingen
Bancshares, Inc. acquisition, contributed to the increase in Equipment Expense
for the three months ended March 31, 2000.
Other Real Estate Expense, Net, includes rent income from foreclosed
properties, gain or loss on sale of other real estate properties and direct
expenses of foreclosed real estate including property taxes, maintenance costs
and write-downs. Write-downs of other real estate are required if the fair value
of an asset acquired in a loan foreclosure subsequently declines below its
carrying value. Other Real Estate Expense, Net of $31,000 for the three months
ended March 31, 2000 decreased $62,000 or 66.7% compared to $93,000 for the
three months ended March 31, 1999. The net decrease for first quarter 2000 is
primarily attributable a decrease in gains recognized on the sale of Other Real
Estate Owned and was partially offset by an increase in rental income generated
from foreclosed property. During first quarter 1999, the Bank recognized a gain
of $155,000 on the sale of one property. No large gains were recognized during
first quarter 2000. Management is actively seeking buyers for all Other Real
Estate.
Page 19
<PAGE>
Amortization of Goodwill and Identifiable Intangibles of $1.1 million for
the three months ended March 31, 2000 increased $465,000 or 68.4% compared to
$680,000 for the same period in 1999. The increase in Amortization of Goodwill
and Identifiable Intangibles during the three months ended March 31, 2000 was
due to the amortization of $21.0 million of goodwill and other intangibles added
during fourth quarter 1999 with the Harlingen Bancshares, Inc. acquisition.
A detailed summary of Noninterest Expense follows (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
2000 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
Salaries and Wages ....................................................................................... $ 5,272 $ 3,873
Employee Benefits ........................................................................................ 1,387 1,094
-------- --------
Total Salaries and Employee Benefits ................................................................ 6,659 4,967
-------- --------
Net Occupancy Expense .................................................................................... 956 985
-------- --------
Equipment Expense ........................................................................................ 1,427 1,223
-------- --------
Other Real Estate Expense, Net
Rent Income ........................................................................................... (160) (54)
Gain on Sale .......................................................................................... (43) (207)
Expenses .............................................................................................. 234 339
Write-Downs ........................................................................................... -- 15
-------- --------
Total Other Real Estate Expense, Net ................................................................ 31 93
-------- --------
Amortization of Goodwill and Identifiable Intangibles .................................................... 1,145 680
-------- --------
Other Noninterest Expense
Advertising and Public Relations ...................................................................... 583 303
Data Processing and Check Clearing .................................................................... 435 365
Director Fees ......................................................................................... 98 79
Franchise Tax ......................................................................................... (202) 122
Insurance ............................................................................................. 73 101
FDIC Insurance ........................................................................................ 96 46
Legal ................................................................................................. 168 179
Professional Fees ..................................................................................... 335 221
Postage, Delivery and Freight ......................................................................... 278 236
Printing, Stationery and Supplies ..................................................................... 486 396
Telephone ............................................................................................. 182 142
Other Losses .......................................................................................... 95 89
Miscellaneous Expense ................................................................................. 418 312
-------- --------
Total Other Noninterest Expense ..................................................................... 3,045 2,591
-------- --------
Total Noninterest Expense ................................................................................ $ 13,263 $ 10,539
-------- --------
</TABLE>
INCOME TAX EXPENSE
The Company recorded income tax expense of $4.6 million for the three
months ended March 31, 2000 compared to $3.9 million for the three months ended
March 31, 1999. The increase in income tax expense is due primarily to an
increased level of pretax income for first quarter 2000.
CAPITAL AND LIQUIDITY
Bank holding companies are required to maintain capital ratios in
accordance with guidelines adopted by the Federal Reserve Board ("FRB"). The
guidelines are commonly known as Risk-Based Capital Guidelines. On March 31,
2000, the Company exceeded all applicable capital requirements, having a total
risk-based capital ratio of 11.78%, a Tier I risk-based capital ratio of 10.63%,
and a leverage ratio of 7.70%.
Liquidity management assures that adequate funds are available to meet
deposit withdrawals, loan demand and maturing liabilities. Insufficient
liquidity can result in higher costs of obtaining funds, while excessive
liquidity can lead to a decline in earnings due to the cost of foregoing
alternative investments. The ability to renew and acquire additional deposit
liabilities is a major source of liquidity. The Company's principal sources of
funds are primarily within the local markets of the Bank and consist of
deposits, interest and principal payments on loans and securities, sales of
loans and securities and borrowings.
Page 20
<PAGE>
Cash and assets which are readily marketable, or which can be pledged, or
which will mature in the near future provide asset liquidity. These include
cash, federal funds sold, time deposits, U.S. Treasury, U.S. Government Agency
and mortgage-backed securities. At March 31, 2000, the Company's liquidity
ratio, defined as cash, U.S. Treasury, U.S. Government Agency, mortgage-backed
securities, time deposits and federal funds sold as a percentage of deposits,
was 31.8% compared to 32.1% at March 31, 1999.
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 nor does it
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 used, as necessary, to fund asset growth and meet short-term
liquidity needs.
During the three months ended March 31, 2000, funds for $22.8 million of
securities purchases and $68.7 million of net loan growth came from various
sources, including a net increase in deposits of $154.6 million and $8.9 million
in proceeds from maturing securities and $8.4 million of net income.
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.
EFFECTS OF INFLATION
Financial institutions are impacted differently by inflation than are
industrial companies. While industrial and manufacturing companies generally
have significant investments in inventories and fixed assets, financial
institutions ordinarily do not have such investments. As a result, financial
institutions are generally in a better position than industrial companies to
respond to inflationary trends by monitoring the spread between interest costs
and interest income yields through adjustments of maturities and interest rates
of assets and liabilities. In addition, inflation tends to increase demand for
loans from financial institutions as industrial companies attempt to maintain a
constant level of goods in inventory and assets. As consumers of goods and
services, financial institutions are affected by inflation as prices increase,
causing an increase in costs of salaries, employee benefits, occupancy expense
and similar items.
NEGATIVE IMPACT OF LITIGATION POSSIBLE
From time to time the Company is a party to legal proceedings including
matters involving commercial banking issues and other proceedings arising in the
ordinary course of business. Although not currently anticipated by management,
the Company's results could be materially impacted by legal and settlement
expenses related to such lawsuits.
YEAR 2000 PROJECT
The Year 2000 problem affects all companies. This problem is rooted in
storage constraints of systems developed in the 1960's and 1970's. Many computer
codes used only two-digit year codes, e.g., 98 instead of four digits, 1998.
Thus, many computer applications interpret the year "00" as 1900 and accordingly
need to be modified to process in the next century.
Over the past two years, the Company formalized and implemented a
comprehensive plan to address the Year 2000 problem which encompassed its
in-house and third party computer systems, vendors, customers, and business
partners. As of the date of this filing, the Company has not experienced any
Year 2000 problems that have affected its operations, the realization of
financial assets, or its results of operations. The Company believes that there
is no remaining significant risk or exposure to the Company as a result of the
Year 2000 issue.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Market risk is the exposure to loss resulting from changes in interest
rates, foreign currency exchange rates, commodity prices and equity prices. The
primary market risk to which the Company is exposed is interest rate risk.
Interest rate risk occurs when assets and liabilities reprice at different times
as interest rates change. For example, if
Page 21
<PAGE>
fixed-rate loans are funded with floating-rate deposits, the spread between loan
and deposit rates will decline or turn negative if rates increase. 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.
The Company's interest rate risk arises from transactions entered into for
purposes other than trading. 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 managed within the funds management policy of the
Company. The principal objectives of the funds management policy is to avoid
fluctuating net interest margins and to maintain consistent growth of net
interest income through periods of changing interest rates. The Board of
Directors oversees implementation of strategies to control interest rate risk.
The Company may take steps to alter its net sensitivity position by offering
deposit and/or loan structures that tend to counter the natural rate risk
profile of the Company. Funding positions are kept within predetermined limits
designed to ensure that risk-taking is not excessive and that liquidity is
properly managed. Because of the volatility of market rates and uncertainties,
there can be no assurance of the effectiveness of management programs to achieve
a targeted moderation of risk.
In order to measure earnings and fair value sensitivity to changing rates,
the Company utilizes three different measurement tools including static gap
analysis, simulation earnings, and market value sensitivity (fair value at
risk). The primary analytical tool used by the Company to quantify interest rate
risk is a simulation model to project changes in net interest income that result
from forecast changes in interest rates. This analysis estimates a percentage of
change in net interest income from the stable rate scenario under scenarios of
rising and falling market interest rates over a twelve month time horizon. The
prime rate serves as a "driver" and is made to rise (or fall) evenly in 100
basis point increments over the 12-month forecast interval. These simulations
incorporate assumptions regarding balance sheet growth and mix, pricing and the
repricing and maturity characteristics of the existing and projected balance
sheet. The following table summarizes the simulated change in net interest
income over a 12-month period as of March 31, 2000 and December 31, 1999
(dollars in thousands):
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN
NET INTEREST INCOME
CHANGES IN INTEREST ESTIMATED NET --------------------------------------
RATES (BASIS POINTS) INTEREST INCOME AMOUNT PERCENT
--------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
March 31, 2000
+100 ....................................................... $ 104,746 $ 2,045 2.0%
-- ....................................................... 102,701 -- --
-100 ....................................................... 100,018 (2,683) (2.6)
December 31, 1999
+100 ....................................................... 99,136 1,189 1.2
-- ....................................................... 97,947 -- --
-100 ....................................................... 95,954 (1,993) (2.0)
--------------- --------------- ---------------
</TABLE>
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. An immediate 100 basis point decline 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. Because of
uncertainties as to the extent of customer behavior, refinance activity,
absolute and relative loan and deposit pricing levels, competitor pricing and
market behavior, product volumes and mix, and other unexpected changes in
economic events impacting movements and volatility in market rates, there can be
no assurance that simulation results are reliable indicators of net interest
income under such conditions.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company faces ordinary routine litigation arising in the normal course
of business. In the opinion of management, liabilities (if any) arising from
such claims will not have a material adverse effect upon the business, results
of operations or financial condition of the Company.
Page 22
<PAGE>
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Quarterly Report on Form
10-Q:
(1) Exhibits -- The following exhibits are filed as a part of this
Quarterly Report on Form 10-Q:
10.21 Amendment No. 12 to Texas Regional Bancshares, Inc. Employee
Stock Ownership Plan (with 401(k) Provisions), adopted
December 22, 1999.
10.22 Amendment No. 13 to Texas Regional Bancshares, Inc. Employee
Stock Ownership Plan (with 401(k) Provisions), effective April
1, 2000.
27 Financial Data Schedule
(b) Reports of Form 8-K
No report on Form 8-K was filed by Texas Regional Bancshares, Inc. during the
three months March 31, 2000.
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.
(Registrant)
May 3, 2000 /s/ G. E. Roney
- -------------------- ---------------------------------
Glen E. Roney
Chairman of the Board, President
& Chief Executive Officer
May 3, 2000 /s/ R. T. Pigott, Jr.
- -------------------- ---------------------------------
R. T. Pigott, Jr.
Executive Vice President
& Chief Financial Officer
Page 23
EXHIBIT 10.21
AMENDMENT NUMBER 12 TO THE
TEXAS REGIONAL BANCSHARES, INC.
EMPLOYEE STOCK OWNERSHIP PLAN (WITH 401(K) PROVISIONS)
WHEREAS, as a result of the merger pursuant to which the Bank of Texas
merged with and into Texas State Bank, a wholly owned subsidiary of Texas
Regional Bancshares, Inc. (the "Corporation"), Texas State Bank has become the
successor employer to Bank of Texas for purposes of the Bank of Texas Profit
Sharing Plan and related Trust; and
WHEREAS, the Bank of Texas Profit Sharing Plan was submitted to the
Voluntary Compliance Resolution program offered by the Internal Revenue Service
for the purposes of correcting certain administrative and/or operational
problems; and
WHEREAS, in Amendment Number 10 to the Texas Regional Bancshares, Inc.
Employee Stock Ownership Plan (with 401(k) provisions)(the "ESOP"), the
Corporation agreed to merge the Bank of Texas Plan into the ESOP and the Trust
created pursuant to the Bank of Texas Plan (the "Bank of Texas Trust") into the
Texas Regional Bancshares, Inc., Employee Stock Ownership Trust (the "ESOT")
upon resolution of the administrative and/or operational problems in the Bank of
Texas Profit Sharing Plan pursuant to the Voluntary Compliance Resolution
("VCR") program; and
WHEREAS, the Corporation and the Trustees have determined that it is in
the best interest of the participants and beneficiaries of the ESOP and the Bank
of Texas Plan to rescind Amendment Number 10;
NOW THEREFORE, IT IS HEREBY AGREED THAT the Amendment Number 10 to the
ESOP shall be and is hereby rescinded effective as of July 13, 1999;
IT IS FURTHER AGREED THAT the amendment of the ESOP and the Bank of Texas
Plan, and the related ESOT and the Bank of Texas Trust, as provided in Amendment
Number 10 shall be and is hereby suspended and abated until further written
amendment adopted by the Corporation and the Trustees of the ESOP and the Bank
of Texas Plan.
EXECUTED on this the 22 day of December, 1999, to be effective as of July
13, 1999.
TEXAS REGIONAL BANCSHARES, INC.
BY: /S/ G.E. RONEY
----------------------------------------
Glen E. Roney
Chief Executive Officer & Trustee
BY: /S/ MORRIS ATLAS
----------------------------------------
Morris Atlas, Trustee
BY: /S/ FRANK N. BOGGUS
----------------------------------------
Frank N. Boggus, Trustee
Page 24
EXHIBIT 10.22
AMENDMENT NUMBER 13 TO THE
TEXAS REGIONAL BANCSHARES, INC.
EMPLOYEE STOCK OWNERSHIP PLAN (WITH 401(K) PROVISIONS)
Texas Regional Bancshares, Inc., a corporation organized and operating under
the laws of the State of Texas, and registered as a bank holding company under
the Bank Holding Company Act of 1956, as amended (the "Corporation"), hereby
adopts the following amendments to the Texas Regional Bancshares, Inc. Employee
Stock Ownership Plan (with 401(k) provisions) (the "Plan"), effective as of
April 1, 2000:
WHEREAS, the Plan is a stock bonus plan and also has a cash or deferred
arrangement ("CODA") that is qualified under Internal Revenue Code section
401(k); and
WHEREAS, the Plan currently requires that an employee complete one (1) year
of service with the Corporation and/or certain other corporations that have been
merged with or acquired by the Corporation prior to being eligible to
participate in both the stock bonus portion of the Plan and the CODA; and
WHEREAS, the Board of Directors of the Corporation has determined that it is
in the best interest of the participants and beneficiaries of the Plan to reduce
the service requirement for eligibility to participate in the CODA from one (1)
year of service to three (3) months of service;
NOW THEREFORE, IT IS HEREBY AGREED THAT the Texas Regional Bancshares, Inc.
Employee Stock Ownership Plan (with 401(k) provisions) (the "Plan"), is hereby
amended effective as of April 1, 2000 (the "Effective Date"), as follows:
1. AMENDMENT RELATED TO ELIGIBILITY TO PARTICIPATE IN CODA. Section 3(a) of
the Plan is hereby amended in its entirety to state as follows:
All Employees who are currently participating in the Texas Regional
Bancshares, Inc. Employee Stock Ownership Plan (with 401(k) Provisions) as
of the Effective Date shall continue to participate in the Plan. Each
other Employee, who has attained age twenty-one (21) shall become a
Participant in the 401(k) and 401(m) provisions of the Plan and shall be
eligible to make Salary Reduction Contributions and receive Employer
Discretionary Matching Contributions to the Plan on the first day of the
calendar month following his completion of three (3) consecutive months of
Service in which he is credited with at least 250 Hours of Service.
Additionally, each other Employee shall become eligible to begin receiving
Employer Discretionary Basic Contributions and Employer Discretionary
Optional Contributions on the January 1st or July 1st, whichever the case
may be, following his initial date of Service (the date an Employee is
first credited with an Hour of Service), provided that the Employee has
attained age twenty-one (21) and completed twelve (12) consecutive months
of Service in which he is credited with at least 1000 Hours of Service
during an eligibility computation period. For this purpose, the initial
eligibility computation period shall be the period of twelve (12)
consecutive months beginning on the Employee's initial date of Service and
thereafter shall be any twelve (12) consecutive month period commencing on
January 1st and July 1st subsequent to his initial date of Service. Each
succeeding eligibility computation period will begin with the Plan Year
which includes the first anniversary of an Employee's employment
commencement date, in which case an Employee will be credited with a year
of eligibility Service in each computation period that he completes at
least 1000 Hours of Service.
2. AMENDMENT RELATED TO ELIGIBILITY TO PARTICIPATE IN EMPLOYER
DISCRETIONARY MATCHING CONTRIBUTIONS. Section 3(b) of the Plan is hereby amended
in its entirety to state as follows:
A Participant is generally entitled to share in the allocations of
Employer Contributions and Forfeitures only for a Plan Year in which he is
credited with at least 1,000 Hours of Service (or in the case of Employer
Discretionary Matching Contributions, as described in Section 3(a) above)
and in which he was an Employee (or on Approved Absence) on the
Anniversary Date. In the event the preceding sentence causes the Plan to
benefit fewer than 49 Employees or cause the number of Employees
benefiting under the Plan to be less than forty percent (40%) of all
Page 25
<PAGE>
Employees of the Employer (if the Employer employs less than 125
Employees), each Participant shall share in the allocations of Employer
Contributions and Forfeitures for a Plan Year in which he did not incur a
Break in Service. A Participant shall also share in the allocations of
Employer Contributions for the Plan Year of his retirement, disability or
death (as provided in Sections 11 and 12).
3. AMENDMENT RELATED TO EMPLOYER DISCRETIONARY MATCHING CONTRIBUTIONS.
Section 4.1(a)(2) of the Plan is amended in its entirety to state as follows:
An Employer Discretionary Matching Contribution, in an amount determined
at the sole discretion of the Board of Directors, on behalf of each
Participant up to a maximum of one hundred percent (100%) of the
Participant's Salary Reduction Contributions, provided, however, that the
maximum Employer Matching Contribution shall be based on a Participant's
Salary Reduction Contribution of up to four percent (4%) of such
Participant's Compensation. For this purpose, a Participant's Compensation
for the first year of his eligibility to participate in the section 401(k)
and 401(m) provisions of the Plan shall be the Compensation of the
Participant from the date of his initial Salary Reduction Contributions to
the end of the Plan Year. As provided in Section 12(a), the interests of a
Participant in the Employer Marching Contributions allocated to his
account will always be 100% vested.
4. AMENDMENT RELATED TO EMPLOYEE SALARY REDUCTION CONTRIBUTIONS. Section
4.2(a), (b) and (c) of the Plan is hereby amended in its entirety to state as
follows:
(a) A Participant may authorize his Employer to contribute to the Trust on
his behalf Salary Reduction Contributions. Such Salary Reduction
Contributions shall be stated as a whole percentage, and shall not be
less than 1%, or more than 15%, of the Participant's Compensation. The
total amount of Salary Reduction Contributions for any Plan Year shall
not exceed $7,000, multiplied by any cost of living adjustment factor
prescribed by the Secretary of the Treasury under Section 415(d) of the
Code. Any Salary Reduction Contribution in excess of the aforementioned
limitation, plus income allocable thereto, shall be returned to the
Participant no later than the first April 15 following the close of the
tax year in which such contributions were made.
(b) Each Participant electing to have his Employer contribute Salary
Reduction Contributions on his behalf during the Plan Year shall file a
written notice with the Plan Administrator at least thirty (30) days
prior to the first calendar day of the month in which he becomes
eligible to participate in the cash or deferred arrangement (section
401(k) arrangement) of the Plan and intends such election to take
effect. This requirement shall be waived on adoption of the Plan and
each Participant shall be given a reasonable time to elect Salary
Reduction Contributions. Such written notice shall contain an election
of the percentage of his Compensation to be contributed and
authorization for his Employer to reduce his Compensation by such
amount. Salary Reduction Contributions may be suspended at any time by
giving prior written notice. After suspension, the Participant shall
not be eligible for further Salary Reduction Contributions until the
beginning of the next Plan Year. A Participant may change the
percentage of his Salary Reduction Contributions only as of the January
1st or July 1st of any Plan Year, but upon not less than thirty (30)
days prior written notice. A Participant shall be fully vested at all
times in the portion of his Account from Salary Reduction
Contributions.
(c) For any Plan Year, the Committee shall have the right to limit or
reduce the Salary Reduction Contributions of the Highly Compensated
Participants in order to insure that the Maximum Contribution
Percentage Limit under Code Section 401(k) is not exceeded.
Furthermore, in accordance with Regulation 1.401(k)-1(f), the Employer
may make additional Employer Discretionary Basic Contributions and/or
Employer Discretionary Matching Contributions or may redistribute or
recharacterize such contributions made during the Plan Year in order to
provide that the Maximum Deferral Percentage Limit under Code Section
401(k) is not exceeded. The Maximum Deferral Percentage Limit, under
Code Section 401(k) is equal to the greater of Limit 1 or Limit 2:
Page 26
<PAGE>
LIMIT 1. The actual deferral percentage of the highly compensated
participants may not exceed one hundred twenty-five percent
(125%) of the actual deferral percentage of all other
participants; or
LIMIT 2. The Actual Deferral Percentage of the Highly Compensated
Participants may not exceed the lesser of:
(a) The Actual Deferral Percentage of all other Participants,
plus two percent (2%); or
(b) The Actual Deferral Percentage of all other Participants,
multiplied by two hundred percent (200%).
Actual Deferral Percentage with respect to any specific group of
Participants for a Plan Year shall mean the average of the ratios
(calculated separately for each Participant in such group) of (A) the
amount of Salary Reduction Contributions paid into the Trust Fund on
behalf of each Participant for the portion of such Plan Year during which
a Participant is eligible to make Salary Reduction Contributions to (B)
the Participant's Compensation for such Plan Year. In the case of a Highly
Compensated Participant who is eligible to have Salary Reduction
Contributions paid into a trust fund to his account under two or more
plans maintained by the Employer, the Actual Deferral Percentage shall be
determined as if all such Salary Reduction Contributions were made under a
single arrangement.
Recharacterized excess contributions will remain subject to the
nonforfeitability requirements and distribution limitations that apply to
Salary Reduction Contributions.
The income allocable to excess contributions is equal to the sum of the
allocable gain or loss for the Plan Year end, if the Plan so provides, the
allocable gain or loss for the period between the end of the Plan Year and
the date of distribution (the "Gap Period"). The determination of income
for excess contributions will be determined under the method in Section
6(i).
Employer Discretionary Basic Contributions and Employer Discretionary
Matching Contributions may be treated as Salary Reduction Contributions
for purposes of the actual deferral percentage test of 401(k) only if such
contributions are nonforfeitable when made and subject to the same
distribution restrictions that apply to Salary Reduction Contributions.
Employer Discretionary Basic Contributions and Employer Discretionary
Matching Contributions which may be treated as Salary Reduction
Contributions must satisfy these requirements without regard to whether
they are actually taken into account as Salary Reduction Contributions.
Employer Discretionary Basic Contributions and/or Employer Discretionary
Matching Contributions may be treated as Salary Reduction Contributions
only if the conditions described in Section 1.401(k)-1(b)(5) of the
Regulations are satisfied.
Excess contributions will not be recharacterized with respect to a Highly
Compensated Participant to the extent that the recharacterized amounts, in
combination with employee contributions actually made by the Employee,
exceed the maximum amount of employee contributions (determined prior to
applying Section 401(m)(2)(A) of the Code) that the Employee is permitted
to make under the Plan in the absence of recharacterization.
IN WITNESS WHEREOF, the undersigned a duly authorized officer of Texas Regional
Bancshares, Inc., hereby certifies the adoption of this Amendment Number 13 of
the Texas Regional Bancshares, Inc. Employee Stock Ownership Plan (with 401(k)
provisions) effective as of April 1, 2000.
TEXAS REGIONAL BANCSHARES, INC.
By: /S/ G.E. RONEY
--------------------------------------
Glen E. Roney,
Chairman of the Board and
Chief Executive Officer
Page 27
<PAGE>
AGREED TO AND ACCEPTED BY:
/S/ G.E. RONEY , Trustee
- ---------------------------
G. E. Roney
/S/ MORRIS ATLAS , Trustee
- ---------------------------
Morris Atlas
/S/ FRANK N. BOGGUS , Trustee
- ---------------------------
Frank N. Boggus
Page 28
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets and Consolidated Statements of Income and
Comprehensive Income included herein and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 69,425
<INT-BEARING-DEPOSITS> 3,965
<FED-FUNDS-SOLD> 60,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 544,467
<INVESTMENTS-CARRYING> 2,053
<INVESTMENTS-MARKET> 2,084
<LOANS> 1,442,912
<ALLOWANCE> 17,666
<TOTAL-ASSETS> 2,265,314
<DEPOSITS> 2,039,960
<SHORT-TERM> 13,604
<LIABILITIES-OTHER> 19,297
<LONG-TERM> 0
0
0
<COMMON> 14,525
<OTHER-SE> 177,928
<TOTAL-LIABILITIES-AND-EQUITY> 2,265,314
<INTEREST-LOAN> 33,559
<INTEREST-INVEST> 8,303
<INTEREST-OTHER> 108
<INTEREST-TOTAL> 41,970
<INTEREST-DEPOSIT> 18,526
<INTEREST-EXPENSE> 18,812
<INTEREST-INCOME-NET> 23,158
<LOAN-LOSSES> 2,169
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 13,263
<INCOME-PRETAX> 12,934
<INCOME-PRE-EXTRAORDINARY> 12,934
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,371
<EPS-BASIC> 0.58
<EPS-DILUTED> 0.57
<YIELD-ACTUAL> 4.87
<LOANS-NON> 9,006
<LOANS-PAST> 3,224
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 16,711
<CHARGE-OFFS> 1,329
<RECOVERIES> 115
<ALLOWANCE-CLOSE> 17,666
<ALLOWANCE-DOMESTIC> 15,832
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,834
</TABLE>
