-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AzQ9sammBQjvy5UhIsW4WCYDp2gH7n/w59HxmBamVY9PmmWuSU9GXcxMZzcLIXog XrOn8UO2QE8GQIG6h2AryA== 0000890566-98-000997.txt : 19980518 0000890566-98-000997.hdr.sgml : 19980518 ACCESSION NUMBER: 0000890566-98-000997 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEXAS REGIONAL BANCSHARES INC CENTRAL INDEX KEY: 0000787648 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 742294235 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14517 FILM NUMBER: 98624302 BUSINESS ADDRESS: STREET 1: 3700 N TENTH STE 301 STREET 2: PO BOX 5910 CITY: MCALLEN STATE: TX ZIP: 78501 BUSINESS PHONE: 9566315400 MAIL ADDRESS: STREET 1: P O BOX 5910 STREET 2: P O BOX 5910 CITY: MCALLEN STATE: TX ZIP: 78501-5910 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15 (d) of The Securities Exchange Act of 1934 For the Quarterly period Ended March 31, 1998 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ___________ to ___________ Commission File No. 0-14517 Texas Regional Bancshares, Inc. (Exact name of registrant as specified in its charter) Texas 74-2294235 (State or other jurisdiction of (IRS employer incorporation or organization) identification number) P.O. Box 5910 3700 N. Tenth, Suite 301 McAllen, Texas 78502 (Address of principal executive offices) 956/631-5400 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class A Voting Common Stock 14,409,145 shares $1 par value, outstanding as of May 4, 1998. PART I. FINANCIAL INFORMATION. Item 1. Financial Statements Texas Regional Bancshares, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, -------------------------------- ------------- 1998 1997 1997 -------- --------- --------- (Dollars in Thousands) Assets Cash and Due From Banks .............................. $ 67,826 $ 55,461 $ 62,268 Federal Funds Sold ................................... 22,820 37,309 18,985 Time Deposits ........................................ 2,072 295 100 ----------- ----------- ----------- Total Cash and Cash Equivalents .................... 92,718 93,065 81,353 Securities Available for Sale ........................ 364,496 221,644 324,177 Securities Held to Maturity (Estimated Market Value of $50,990 and $152,828 at March 31, 1998 and 1997, respectively, and $93,311 at December 31, 1997) .................. 50,577 152,952 92,744 Loans, Net of Unearned Discount of $3,460 and $2,257 at March 31, 1998 and 1997, respectively and $2,753 at December 31, 1997 ....... 1,017,776 857,387 951,316 Less Allowance for Loan Losses ....................... (12,115) (11,000) (11,291) ----------- ----------- ----------- Net Loans .......................................... 1,005,661 846,387 940,025 Premises and Equipment, Net .......................... 61,510 40,889 52,443 Accrued Interest Receivable .......................... 18,407 17,405 16,033 Other Real Estate .................................... 4,020 1,079 3,124 Intangibles .......................................... 28,967 25,755 24,066 Other Assets ......................................... 5,505 4,829 4,804 ----------- ----------- ----------- Total Assets ....................................... $ 1,631,861 $ 1,404,005 $ 1,538,769 =========== =========== =========== Liabilities Deposits Demand ............................................. $ 229,862 $ 198,956 $ 208,423 Savings ............................................ 109,176 106,651 101,688 Money Market Checking and Savings .................. 255,944 237,039 242,839 Time Deposits ...................................... 851,055 701,610 809,833 ----------- ----------- ----------- Total Deposits ................................... 1,446,037 1,244,256 1,362,783 Federal Funds Purchased and Securities Sold Under Repurchase Agreements .................... 1,540 504 1,801 Accounts Payable and Accrued Liabilities ............. 17,846 13,057 12,630 ----------- ----------- ----------- Total Liabilities .................................. 1,465,423 1,257,817 1,377,214 ----------- ----------- ----------- Commitment and Contingencies Shareholders' Equity Preferred Stock; $1.00 Par Value, 10,000,000 Shares Authorized; None Issued and Outstanding ..... -- -- -- Common Stock - Class A; $1.00 Par Value, 50,000,000 Shares Authorized; Issued and Outstanding, 14,403,484 at March 31, 1998 and December 31,1997 and 14,356,192 at March 31, 1997, (Notes 3 and 5) .. 14,403 14,356 14,403 Paid-In Capital ...................................... 87,468 86,620 87,078 Retained Earnings .................................... 63,420 46,384 59,167 Accumulated Other Comprehensive Income ............... 1,147 (1,172) 907 ----------- ----------- ----------- Total Shareholders' Equity ......................... 166,438 146,188 161,555 ----------- ----------- ----------- Total Liabilities and Shareholders' Equity ......... $ 1,631,861 $ 1,404,005 $ 1,538,769 =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. Texas Regional Bancshares, Inc. and Subsidiaries CONSOLIDATED STATEMENTS of INCOME and COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended March 31, ---------------------------- 1998 1997 --------- --------- (Dollars in Thousands, Except Per Share Data) Interest Income Loans, Including Fees .................................... $23,521 $ 20,209 Investment Securities Taxable ................................................ 6,303 5,548 Tax-Exempt ............................................. 364 419 Time Deposits ............................................ 18 2 Federal Funds Sold ....................................... 356 503 ------- -------- Total Interest Income .................................. 30,562 26,681 ------- -------- Interest Expense Deposits ................................................. 13,939 11,589 Federal Funds Purchased and Securities Sold Under Repurchase Agreements ............ 28 6 ------- -------- Total Interest Expense ................................. 13,967 11,595 ------- -------- Net Interest Income ........................................ 16,595 15,086 Provision for Loan Losses .................................. 941 623 ------- -------- Net Interest Income After Provision for Loan Losses .... 15,654 14,463 ------- -------- Noninterest Income Service Charges on Deposit Accounts ...................... 1,829 1,685 Other Service Charges .................................... 586 396 Trust Service Fees ....................................... 447 390 Investment Security Gains (Losses) ....................... 222 171 Data Processing Service Fees ............................. 341 262 Other Operating Income ................................... 537 315 ------- -------- Total Noninterest Income ............................... 3,962 3,219 ------- -------- Noninterest Expense Salaries and Employee Benefits ........................... 4,667 4,609 Net Occupancy Expense .................................... 778 665 Equipment Expense ........................................ 1,134 900 Other Real Estate (Income) Expense, Net .................. 55 (19) Intangible Asset Amortization ............................ 621 563 One Time Charge - Acquisitions (Note 6) .................. 682 -- Other Noninterest Expense ................................ 2,590 2,349 ------- -------- Total Noninterest Expense .............................. 10,527 9,067 ------- -------- Income Before Income Tax Expense ........................... 9,089 8,615 Income Tax Expense ......................................... 3,246 2,914 ------- -------- Net Income ................................................. 5,843 5,701 Other Comprehensive Income - Unrealized Gains (Losses) on Investment Securities Available for Sale .............. 240 (1,640) ------- -------- Comprehensive Income ....................................... $ 6,083 $ 4,061 ======= ======== Basic Earnings Per Common Share (Note 3) Net Income ............................................... $ 0.41 $ 0.40 Weighted Average Number of Common Shares Outstanding (In Thousands) ............................. 14,403 14,356 Diluted Earnings Per Common Share (Note 3) Net Income ............................................... $ 0.40 $ 0.39 Weighted Average Number of Common Shares Outstanding (In Thousands) ............................. 14,648 14,589 ======= ========
The accompanying notes are an integral part of the consolidated financial statements. Texas Regional Bancshares, Inc. and Subsidiaries CONSOLIDATED STATEMENTS of CHANGES in SHAREHOLDERS' EQUITY (UNAUDITED) For the Year Ended December 31, 1997 And the Three Months Ended March 31, 1998
Accumulated Class A Other Total Common Paid-in Retained Comprehensive Shareholders' Stock Capital Earnings Income Equity --------- ---------- ---------- ------------- ------------- (Dollars in Thousands) Balance, December 31, 1996 ..................... $10,000 $ 86,620 $ 46,225 $ 468 $ 143,313 Exercise of stock options, 35,814 shares of Class A Common Stock .................................. 36 458 -- -- 494 Other Comprehensive Income for 1997 ...................................... -- -- -- 439 439 Class A Common Stock Cash Dividends - Texas Regional Bancshares, Inc. ............... -- -- (4,803) -- (4,803) Common Stock Cash Dividends - Acquisitions ..... -- -- (1,006) -- (1,006) Class A Common Stock 3-for-2 Stock Split ....... 4,367 -- (4,371) -- (4) Net Income ..................................... -- -- 23,122 -- 23,122 ------- -------- -------- ------ --------- Balance, December 31, 1997 ..................... 14,403 87,078 59,167 907 161,555 Other Comprehensive Income for 1998 ...................................... -- -- -- 240 240 Class A Common Stock Cash Dividends ................................ -- -- (1,590) -- (1,590) Cash Dividends Paid on Fractional Shares ....... -- (8) -- -- (8) Tax Effect of Nonqualified Stock Options Exercised ..................................... -- 398 -- -- 398 Net Income for the Three Months Ended March 31, 1998 .......................... -- -- 5,843 -- 5,843 ------- -------- -------- ------ --------- Balance, March 31, 1998 ........................ $14,403 $ 87,468 $ 63,420 $1,147 $ 166,438 ======= ======== ======== ====== =========
The accompanying notes are an integral part of the consolidated financial statements. Texas Regional Bancshares, Inc. and Subsidiaries CONSOLIDATED STATEMENTS of CASH FLOWS (Unaudited) Three Months Ended March 31, 1998 and 1997
1998 1997 --------- -------- (Dollars in Thousands) Cash Flows from Operating Activities Net Income ................................................................... $ 5,843 $ 5,701 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities Depreciation, Amortization and Accretion, Net ............................ 802 841 Provision for Loan Losses ................................................ 941 623 Provision for Estimated Losses on Other Real Estate and Other Assets ..... -- 19 Gain on Sales of Other Real Estate ....................................... (34) (48) Gain on Sale of Securities Available for Sale ............................ (222) (171) (Gain) Loss on Sale of Premises and Equipment ............................ (159) (1) (Gain) Loss on Sale of Other Assets ...................................... (4) 5 (Increase) Decrease in Accrued Interest Receivable and Other Assets ...... (1,358) 13,968 Increase in Accounts Payable and Accrued Liabilities ..................... 2,408 2,616 -------- -------- Net Cash Provided by Operating Activities ...................................... 8,217 23,553 -------- -------- Cash Flows from Investing Activities Proceeds from Sales of Securities Available for Sale ......................... 47,999 12,897 Proceeds from Maturing Securities Available for Sale ......................... 47,704 23,552 Purchases of Securities Available for Sale ................................... (74,124) (67,698) Proceeds from Maturing Securities Held to Maturity ........................... 979 18,675 Purchases of Securities Held to Maturity ..................................... -- (2,335) Proceeds from Sale of Loans .................................................. -- 39 Purchases of Loans ........................................................... (294) (232) Loan Originations and Advances ............................................... (42,290) (39,829) Recoveries of Charged-Off Loans .............................................. 169 320 Proceeds from Sale of Other Assets ........................................... 155 59 Proceeds from Sale of Other Real Estate ...................................... 167 315 Proceeds from Sale of Premises and Equipment ................................. 447 1 Purchases of Premises and Equipment .......................................... (7,583) (1,383) -------- -------- Net Cash Provided by (Used In) Investing Activities ............................ (26,671) (46,619) -------- -------- Cash Flows from Financing Activities Net Increase (Decrease) in Demand, Savings, Money Market Checking and Savings Deposit Accounts ............................... 14,106 (8,885) Net Increase in Time Deposits ................................................ 12,690 37,505 Net Decrease in Securities Sold Under Repurchase Agreements ................................................ (1,085) (128) Cash Dividends Paid on Class A Common Stock (Note 5) ......................... (1,442) (1,074) Cash Dividends Paid on Fractional Shares ..................................... (8) -- Tax Effect of Nonqualified Stock Options Exercised ........................... 398 -- Net Cash and Cash Equivalents Received from Acquisition ...................... 5,160 -- -------- -------- Net Cash Provided by Financing Activities ...................................... 29,819 27,418 -------- -------- Increase in Cash and Cash Equivalents .......................................... 11,365 4,352 Cash and Cash Equivalents at Beginning of Year ................................. 81,353 88,713 -------- -------- Cash and Cash Equivalents at End of Quarter .................................... $ 92,718 $ 93,065 ======== ======== Supplemental Disclosures of Cash Flow Information Interest Paid ................................................................ $ 13,656 $ 11,545 Income Taxes Paid ............................................................ 4,143 173 Supplemental Schedule of Noncash Investing and Financing Activities Foreclosure and Repossession in Partial Satisfaction of Loans Receivable ..... $ 1,005 $ 503 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. Texas Regional Bancshares, Inc. and Subsidiaries NOTES to UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1-BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. However, the unaudited consolidated financial statements furnished reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods. All such adjustments were of a normal and recurring nature. The unaudited consolidated financial statements include Texas Regional Bancshares, Inc. and its subsidiaries (the "Company"). Intercompany balances and transactions have been eliminated. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, ("Statement 130") "Reporting Comprehensive Income." Statement 130 establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. Statement 130 requires that an enterprise (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. Statement 130 is effective for fiscal years beginning after December 15, 1997. The provisions of Statement 130 were adopted by the Company as of January 1, 1998. The adoption of Statement 130 did not have a material impact on the Company's financial position, results of operation, or liquidity. NOTE 2-IMPAIRED LOANS At March 31, 1998, the Company had a $7.9 million recorded investment in impaired loans for which there was a related allowance for loan losses of $846,000. At March 31, 1998, the Company has no investments in impaired loans for which there was no related allowance for loan losses. The average level of impaired loans during the three months ended March 31, 1998 was $8.2 million. The Company recorded interest income of $30,000 on its loans during the three months ended March 31, 1998. NOTE 3-EARNINGS PER COMMON SHARE COMPUTATIONS The number of shares outstanding and related earnings per share ("EPS") amounts have been restated to retroactively give effect for the 1997 three-for-two stock split. The table below presents a reconciliation of basic and diluted earnings per share computations for the three months ended March 31, 1998 and 1997. (Dollars in thousands, except per share data) 1998 1997 ----------- ----------- Net income available to common shareholders .......... $ 5,843 $ 5,701 ----------- ----------- Weighted average number of common shares outstanding used in basic EPS calculation ...................... 14,403,484 14,356,192 Add assumed exercise of outstanding stock options as adjustments for dilutive securities ................ 244,724 232,682 ----------- ----------- Weighted average number of common shares outstanding used in diluted EPS calculations ....... 14,648,208 14,588,874 ----------- ----------- Basic EPS ............................................ $ 0.41 $ 0.40 Diluted EPS .......................................... 0.40 0.39 =========== =========== NOTE 4-INCOME TAX Deferred income tax assets and liabilities are computed for differences between the financial statements and the tax basis of assets and liabilities that have future tax consequences using the currently enacted tax laws and rates that apply to the periods in which they are expected to effect taxable income. Valuation allowances are established, if necessary, to reduce the deferred tax assets to the amount that will more likely than not be realized. Income tax expense is the current tax payable or refundable for the period plus or minus the net change in the deferred tax assets and liabilities. NOTE 5-COMMON STOCK On March 10, 1998, the Board of Directors approved a cash dividend of $0.11 per share for shareholders of record on April 8, 1998 and payable on April 15, 1998. NOTE 6-ACQUISITIONS On February 19,1998, the Company completed the acquisition of three bank holding companies and their three subsidiary banks. The acquisition of Brownsville Bancshares, Inc. and its subsidiary, Brownsville National Bank, includes two banking locations in Brownsville, Cameron County, Texas, with assets of approximately $100.1 million, equity of $12.1 million, loans of $42.6 million, and deposits of $87.2 million. This acquisition was achieved by the exchange of 984,806 shares of Texas Regional stock for all of the outstanding shares of Brownsville Bancshares, Inc. and cancellation of outstanding stock options. Brownsville National Bank was merged with and into Texas State Bank. The second acquisition was TB&T Bancshares, Inc. and its subsidiary, Texas Bank and Trust of Brownsville, Cameron County, Texas. Texas Bank and Trust of Brownsville assets totaled approximately $44.9 million, equity of $4.1 million, loans of $21.9 million, and deposits of $40.3 million. This acquisition was achieved by exchange of 308,039 shares of Texas Regional stock for all of the outstanding shares of TB&T Bancshares, Inc., a portion of which are retained in a holdback escrow account pending resolution of certain claims. Texas Bank and Trust of Brownsville was merged with and into Texas State Bank. The third acquisition was Raymondville Bancorp, Inc. and its subsidiary, Bank of Texas. Bank of Texas is headquartered in Raymondville, Willacy County, Texas, with one additional banking facility in Brownsville, Texas. The shareholder of Raymondville Bancorp, Inc. received cash consideration of $9.6 million in this acquisition, and Texas Regional paid $100,000 in consideration for a covenant not to compete. Texas Regional discharged approximately $330,000 of existing Raymondville Bancorp, Inc. indebtedness. Bank of Texas assets total approximately $63.7 million, equity of $5.1 million, loans of $25.5 million, and deposits of $56.5 million. Bank of Texas was merged with and into Texas State Bank. The acquisition of Brownsville Bancshares, Inc. and TB&T Bancshares, Inc. are accounted for under the pooling-of-interest method of accounting, and as such, the enclosed financial information has been restated for all periods presented to include the results of operations and financial position of these acquired entities. The acquisition of Raymondville Bancorp, Inc. was accounted for under the purchase method of accounting; therefore, the results of operations are included in the consolidated financial statements from the date of acquisition, February 19, 1998. The One Time Charge - Acquisitions cost of $682,000 were expenses related to effecting business combinations accounted for by the pooling-of-interests method. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Financial Review Texas Regional Bancshares, Inc. and Subsidiaries Results of Operations Net income for the three months ended March 31, 1998 was $5.8 million or $0.40 per share, reflecting a net increase of $142,000 or $0.01 per share, compared to net income of $5.7 million or $0.39 per share for the three months ended March 31, 1997 and reflects a net increase of $25,000 compared to net income of $5.8 million or $0.40 per share for the three months ended December 31, 1997. Earnings performance for the three months ended March 31, 1998 compared to the three months ended March 31, 1997 reflected an increase in net interest income and an increase in noninterest income, partially offset by an increase in provision for loan losses and noninterest expense. Earnings performance for the three months ended March 31, 1998 compared to three months ended December 31, 1997 reflected an increase in net interest income and noninterest income offset by an increase in noninterest expense. A more detailed description of the results of operations is included in the material that follows. On February 19,1998, Texas Regional Bancshares, Inc. (the "Corporation") completed the acquisition of three bank holding companies and their three subsidiary banks. Each of the three subsidiary banks acquired were merged with and into Texas State Bank (the "Bank"), the principal operating subsidiary of the Corporation (collectively, the "Company"). The acquisition of Brownsville Bancshares, Inc. and TB&T Bancshares, Inc. were accounted for under the pooling-of-interest method of accounting, and as such, the enclosed financial information has been restated for all periods presented to include the results of operations and financial position of these acquired entities. The acquisition of Raymondville Bancorp, Inc. (the "Raymondville Acquisition") was accounted for under the purchase method of accounting; therefore, the results of operations are included in the consolidated financial statements from the date of acquisition, February 19, 1998. The following table presents selected financial data regarding results of operations: Condensed Quarterly Income Statements Taxable-Equivalent Basis (Dollars in Thousands, Except Per Share Data)
1998 1997 -------- --------------------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter -------- -------- --------- --------- --------- Interest Income ........................ $30,915 $29,992 $28,977 $28,237 $27,094 Interest Expense ....................... 13,967 13,818 13,207 11,998 11,595 ------- ------- ------- ------- ------- Net Interest Income .................... 16,948 16,174 15,770 16,239 15,498 Provision for Loan Losses .............. 941 1,166 695 463 623 Noninterest Income ..................... 3,962 3,403 3,231 3,119 3,219 Noninterest Expense .................... 10,527 9,229 8,958 9,916 9,067 ------- ------- ------- ------- ------- Income Before Taxable-Equivalent Adjustment and Income Tax ............ 9,442 9,182 9,348 8,979 9,027 Taxable-Equivalent Adjustment .......... 353 367 380 395 413 Applicable Income Tax Expense .......... 3,246 2,997 3,004 2,945 2,914 ------- ------- ------- ------- ------- Net Income ............................. $ 5,843 $ 5,818 $ 5,964 $ 5,639 $ 5,701 ======= ======= ======= ======= ======= Net Income Per Common Share Basic ................................ $ 0.41 $ 0.40 $ 0.41 $ 0.39 $ 0.40 Diluted .............................. 0.40 0.40 0.41 0.39 0.39 ======= ======= ======= ======= =======
* Taxable-Equivalent basis assuming a 35% tax rate. The Company paid cash and used the purchase method in accounting for certain recent acquisitions which has resulted in the creation of intangible assets. These intangible assets are deducted from capital in the determination of regulatory capital. Thus, "cash" earnings represent the regulatory capital generated during the year and can be viewed as net income excluding intangible amortization, net of tax. While the definition of "cash" earnings may vary by company, we believe this definition is appropriate as it measures the per share growth of regulatory capital, which impacts the amount available for dividends and acquisitions. The following table reconciles reported net income to net income excluding intangible assets amortization ("cash" earnings): Cash Earnings Taxable-Equivalent Basis* (Dollars in Thousands, Except Per Share Data)
1998 1997 --------- ---------------------------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Reported Net Income ............. $ 5,843 $ 5,818 $ 5,964 $ 5,639 $ 5,701 Intangible Amortization ......... 621 563 563 563 563 Income Tax Adjustment ........... (123) (111) (111) (111) (111) --------- --------- --------- --------- --------- Cash Earnings ................... $ 6,341 $ 6,270 $ 6,416 $ 6,091 $ 6,153 ========= ========= ========= ========= ========= Cash Earnings Per Common Share Basic ......................... $ 0.44 $ 0.44 $ 0.45 $ 0.42 $ 0.43 Diluted ....................... 0.43 0.43 0.44 0.42 0.42 Cash Earnings Return on Average Assets ................. 1.62% 1.65% 1.74% 1.74% 1.80% Cash Earnings Return on Average Shareholders' Equity ... 15.59 15.46 16.38 16.37 17.08 ========= ========= ========= ========= =========
* Taxable-Equivalent basis assuming a 35% effective income tax rate. NET INTEREST INCOME Taxable-equivalent net interest income was $16.9 million for the three months ended March 31, 1998, a net increase of $1.5 million or 9.4% compared to the three months ended March 31, 1997 of $15.5 million and reflects a net increase of $774,000 or 4.8% compared to net interest income of $16.2 million for the three months ended December 31, 1997. The increase in net interest income for the three months ended March 31, 1998 compared to the three months ended March 31, 1997 and the three months ended December 31, 1997, primarily reflects the increase in the volume of interest-earning assets exceeding the increase in volume of interest-bearing liabilities, partially attributable to the Raymondville Acquisition. The net yield on total interest-earning assets, also referred to as net interest margin, of 4.81% for the three months ended March 31, 1998 reflects a decrease of 21 basis points compared to 5.02% for the three months ended March 31, 1997 and reflects a decrease of 15 basis points compared to 4.96% for the three months ended December 31, 1997. The decline in the net interest margin for the three months ended March 31, 1998 compared to the three months ended March 31, 1997 and three months ended December 31, 1997, was primarily attributable to the increase in deposit costs as a result of competition. The following table presents for the three months ended March 31, 1998, December 31, 1997 and March 31, 1997, the total dollar amount of interest income from average interest-earning assets and the resultant yields, reported on a tax-equivalent basis, as well as the interest-bearing liabilities, expressed both in dollars and rates. Average balances are derived from average daily balances and the yields and costs are established by dividing income or expense by the average balance of the asset or liability. Income and yield on interest-earning assets include amounts to convert tax-exempt income to a taxable-equivalent basis, assuming a 35% effective income tax rate. Summary of Interest-Earning Assets and Interest-Bearing Liabilities Taxable-Equivalent Basis (Dollars in Thousands)
Three Months Ended ----------------------------------------------------------------------------------------------------- March 31, 1998 December 31, 1997 March 31, 1997 --------------------------------- ------------------------------ ------------------------------- Average Yield/ Average Yield/ Average Yield/ Balance Interest Rate* Balance Interest Rate* Balance Interest Rate* ----------- --------- --------- --------- -------- -------- ---------- -------- -------- Interest-Earning Assets Loans Commercial ............... $ 342,401 $ 8,010 9.49% $ 312,806 $ 7,484 9.49% $ 294,880 $ 7,059 9.71% Real Estate .............. 539,122 13,146 9.89 517,403 12,909 9.90 462,752 11,369 9.96 Consumer ................. 100,544 2,537 10.23 89,796 2,352 10.39 78,029 1,974 10.26 ---------- ------- ---------- ---------- ------- ---------- ---------- ------- ---------- Total Loans ................ 982,067 23,693 9.78 920,005 22,745 9.81 835,661 20,402 9.90 ---------- ------- ---------- ---------- ------- ---------- ---------- ------- ---------- Investment Securities Taxable .................. 392,570 6,303 6.51 382,206 6,179 6.41 350,226 5,548 6.42 Tax-Exempt ............... 27,666 545 7.99 26,012 533 8.13 28,283 638 9.13 ---------- ------- ---------- ---------- ------- ---------- ---------- ------- ---------- Total Investment Securities 420,236 6,848 6.61 408,218 6,712 6.52 378,509 6,186 6.63 ---------- ------- ---------- ---------- ------- ---------- ---------- ------- ---------- Time Deposits .............. 1,167 18 6.25 101 2 6.62 295 2 3.32 Federal Funds Sold ......... 25,752 356 5.61 37,825 533 5.59 38,311 503 5.33 ---------- ------- ---------- ---------- ------- ---------- ---------- ------- ---------- Total Interest-Earning Assets ................... $1,429,222 30,915 8.77 $1,366,149 29,992 8.71 $1,252,776 27,093 8.77 ---------- ------- ---------- ---------- ------- ---------- ---------- ------- ---------- Interest-Bearing Liabilities Savings .................... $ 104,425 767 2.98 $ 99,389 786 3.14 $ 105,306 830 3.20 Money Market Checking and Savings ................... 252,859 1,844 2.96 245,865 2,037 3.29 245,654 1,720 2.84 Time Deposits .............. 838,400 11,328 5.48 798,039 10,966 5.45 683,881 9,039 5.36 ---------- ------- ---------- ---------- ------- ---------- ---------- ------- ---------- Total Savings and Time Deposits .................. 1,195,684 13,939 4.73 1,143,293 13,789 4.78 1,034,841 11,589 4.54 ---------- ------- ---------- ---------- ------- ---------- ---------- ------- ---------- Federal Funds Purchased and Securities Sold Under Repurchase Agreements ... 2,004 28 5.67 2,111 29 5.45 540 6 4.51 ---------- ------- ---------- ---------- ------- ---------- ---------- ------- ---------- Total Interest-Bearing Liabilities .............. $1,197,688 13,967 4.73 $1,145,404 13,818 4.79 $1,035,381 11,595 4.54 ---------- ------- ---------- ---------- ------- ---------- ---------- ------- ---------- Net Interest Income ........ $16,948 $16,174 $15,498 ---------- ------- ---------- ---------- ------- ---------- ---------- ------- ---------- Net Yield on Total Interest-Earning Assets ... 4.81% 4.96% 5.02% ========== ======= ========== ========== ======= ========== ========== ======= ==========
* Annualized The following table presents the effects of changes in volume, rate and rate/volume on interest income and interest expense for major categories of interest-earning assets and interest- bearing liabilities for the three month period ended March 31, 1998 as compared to the three month period ended March 31, 1997. Nonaccrual loans are included in assets, thereby reducing yields. See "Nonperforming Assets". The allocation of the rate/volume variance has been made pro rata on the percentage that volume and rate variances produce in each category. Analysis of Changes in Net Interest Income Taxable-Equivalent Basis Three Months Ended March 31, 1998 Compared to March 31, 1997 (In Thousands)
Due to Change in Net ---------------------------------------------- Change Volume Rate Rate/Volume ------- -------- ------- ----------- Interest Income Loans, Including Fees ................ $ 3,291 $ 3,574 $(247) $ (36) Investment Securities Taxable ............................ 755 670 78 7 Tax-Exempt ......................... (93) (14) (80) 1 Time Deposits ........................ 16 7 2 7 Federal Funds Sold ................... (147) (165) 26 (8) ------- ------- ----- ----- Total Interest Income ............... 3,822 4,072 (221) (29) ------- ------- ----- ----- Interest Expense Deposits ............................. 2,350 1,801 485 64 Federal Funds Purchased and Securities Sold Under Repurchase Agreements ........ 22 8 6 8 ------- ------- ----- ----- Total Interest Expense ................. 2,372 1,809 491 72 ------- ------- ----- ----- Net Interest Income Before Allocation Of Rate/Volume ............ 1,450 2,263 (712) (101) ------- ------- ----- ----- Allocation of Rate/Volume .............. -- (85) (16) 101 ------- ------- ----- ----- Changes in Net Interest Income ......... $ 1,450 $ 2,178 $(728) $-- ======= ======= ===== =====
PROVISION FOR LOAN LOSSES The provision for loan losses for the three months ended March 31, 1998 of $941,000 reflects an increase of $318,000 or 51.0% compared to $623,000 for the three months ended March 31, 1997 and was primarily attributable to new loan growth. See "Allowance For Loan Losses." NONINTEREST INCOME Noninterest income for the three months ended March 31, 1998 of $4.0 million increased $743,000 or 23.1% compared to $3.2 million for the three months ended March 31, 1997 and increased $559,000 or 16.4% compared to $3.4 million for the three months ended December 31, 1997. The increase in noninterest income for the three months ended March 31, 1998 compared to the three months ended March 31, 1997 and three months ended December 31, 1997 was primarily attributable to the increased volume of business conducted by the Company, including the Raymondville Acquisition. The Other Operating Income for the three months ended March 31, 1998 of $537,000 includes a gain on the sale of bank real estate of $158,000. The following table summarizes the major noninterest income categories: Noninterest Income (In Thousands)
1998 1997 ------ ----------------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Service Charges on Deposit Accounts ....... $1,829 $1,836 $1,751 $1,737 $1,685 Other Service Charges ..................... 586 440 409 361 396 ------ ------ ------ ------ ------ Total Service Charges ..................... 2,415 2,276 2,160 2,098 2,081 Trust Service Fees ........................ 447 441 425 435 390 Investment Securities Gains (Losses) ...... 222 214 215 134 171 Data Processing Service Fees .............. 341 286 260 272 262 Other Operating Income .................... 537 186 171 180 315 ------ ------ ------ ------ ------ Total .................................... $3,962 $3,403 $3,231 $3,119 $3,219 ====== ====== ====== ====== ======
NONINTEREST EXPENSE Noninterest expense for the three months ended March 31, 1998 of $10.5 million increased $1.5 million or 16.1% compared to the three months ended March 31, 1997 of $9.1 million and increased $1.3 million or 14.1% compared to the three months ended December 31, 1997 of $9.2 million. The increase for the three months ended March 31, 1998 compared to the three months ended March 31, 1997 was primarily attributable to the increased volume of business conducted by the Company, including the Raymondville Acquisition. The largest category of noninterest expense, Salaries and Employee Benefits ("Personnel"), of $4.7 million for the three months ended March 31, 1998 reflected a slight increase of $58,000 or 1.3% compared to the three months ended March 31, 1997 and an increase of $346,000 or 8.0% compared to the three months ended December 31, 1997. Personnel expense increased for the three months ended March 31, 1998 compared to the three months ended December 31, 1997 primarily due to staffing increases, including the staff acquired as a result of the Raymondville Acquisitions. Net Occupancy expense of $778,000 for the three months ended March 31, 1998 increased $113,000 or 17.0% compared to $665,000 for the three months ended March 31, 1997 and increased $173,000 or 28.6% compared to $605,000 for the three months ended December 31, 1997. The Net Occupancy expense increase for the three months ended March 31, 1998 compared to the three months ended March 31, 1997 and three months ended December 31, 1997 was primarily due to the occupancy expenses associated with the Raymondville Acquisition and the new Edinburg branch which was opened for business in December 1997. Equipment expense of $1.1 million for the three months ended March 31, 1998 increased $234,000 or 26.0% compared to $900,000 for the three months ended March 31, 1997 and increased $210,000 or 22.7% compared to the three months ended December 31, 1997. Equipment expense increased for the three months ended March 31, 1998 as compared to the three months ended March 31, 1997 primarily due to expenses associated with the equipment acquired to service the Company's increasing customer base and partially due to the Raymondville Acquisition. The One Time Charge - Acquisitions cost of $682,000 were expenses related to effecting business combinations accounted for by the pooling-of-interests method. Other Noninterest expense of $2.6 million for the three months ended March 31, 1998 increased $241,000 or 10.3% compared to $2.3 million for the three months ended March 31, 1997 and decreased $242,000 or 9.3% compared to the three months ended December 31, 1997. Other Noninterest expense increased for the three months ended March 31, 1998 as compared to the three months ended March 31, 1997 primarily due to an increased volume of business conducted by the Company. The following table displays the major noninterest expense categories: Noninterest Expense (Dollars in Thousands)
1998 1997 --------- ----------------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter -------- ------- -------- -------- -------- Salaries and Employee Benefits Salaries and Wages ........................ $ 3,814 $ 3,584 $ 3,392 $ 3,706 $ 3,762 Employee Benefits ......................... 853 737 779 885 847 -------- ------- ------- ------- ------- Total Salaries and Employee Benefits ..... 4,667 4,321 4,171 4,591 4,609 -------- ------- ------- ------- ------- Net Occupancy Expense ....................... 778 605 721 696 665 -------- ------- ------- ------- ------- Equipment Expense ........................... 1,134 924 989 965 900 -------- ------- ------- ------- ------- Other Real Estate (Income) Expense, Net Rent Income ............................... (14) (9) (12) (32) (18) Gain on Sale .............................. (34) (78) 11 -- (48) Expense ................................... 103 71 72 77 47 Write-Downs ............................... -- -- 24 -- -- -------- ------- ------- ------- ------- Total Other Real Estate (Income) Expense, Net ........................... 55 (16) 95 45 (19) -------- ------- ------- ------- ------- Intangible Asset Amortization ............... 621 563 563 563 563 -------- ------- ------- ------- ------- Impairment Loss ............................. -- -- -- 630 -- -------- ------- ------- ------- ------- One Time Charge - Acquisitions .............. 682 -- -- -- -- -------- ------- ------- ------- ------- Other Noninterest Expense Advertising and Public Relations .......... 322 390 319 320 343 Data Processing and Check Clearing ........ 295 286 257 292 285 Director Fees ............................. 124 122 120 132 141 Franchise Tax ............................. 137 133 133 165 102 Insurance ................................. 92 85 101 62 79 FDIC Insurance ............................ 38 34 35 40 41 Legal Fees ................................ 348 333 323 265 129 Professional Fees ......................... 173 205 181 184 205 Postage, Delivery and Freight ............. 204 177 162 169 181 Stationery and Supplies ................... 341 272 258 255 271 Telephone ................................. 132 109 103 110 111 Other Losses .............................. 56 383 169 120 165 Miscellaneous Expenses .................... 328 303 258 312 296 -------- ------- ------- ------- ------- Total Other Noninterest Expense ......... 2,590 2,832 2,419 2,426 2,349 -------- ------- ------- ------- ------- Total ................................... $ 10,527 $ 9,229 $ 8,958 $ 9,916 $ 9,067 ======== ======= ======= ======= =======
BALANCE SHEET ANALYSIS Average interest-earning assets of $1.4 billion for the three months ended March 31, 1998 increased $176.4 million or 14.1% compared to $1.3 billion for the three months ended March 31, 1997 and $63.1 million or 4.6% compared to $1.4 billion for three months ended December 31, 1997. Management's continued focus on lending has resulted in average loans increasing $146.4 million or 17.5% to $982.1 million for the three months ended March 31, 1998 compared to the three months ended March 31, 1997 levels of $835.7 million and increased $62.1 million or 6.7% compared to the three months ended December 31, 1997 levels of $920.0 million. Total average investments increased $41.7 million to $420.2 million for the three months ended March 31, 1998 compared to three months ended March 31, 1997 of $378.5 million and increased $12.0 million or 2.9% compared to the three months ended December 31, 1997 levels of $408.2 million. Total average assets increased $198.8 million or 14.3% to $1.6 billion for the three months ended March 31, 1998 compared to three months ended March 31, 1997 levels of $1.4 billion and $76.3 million or 5.1% compared to the three months ended December 31, 1997 levels of $1.5 billion. The net increase in each of the categories discussed was partially attributable to the Raymondville Acquisition. Average interest-bearing deposits increased $160.8 million or 15.5% to $1.2 billion for the three months ended March 31, 1998 compared to the three months ended March 31, 1997 levels of $1.0 billion and $52.4 million or 4.6% compared to the three months ended December 31, 1997 levels of $1.1 billion. Average Total Demand Deposits increased $14.4 million or 7.5% to $207.9 million for the three months ended March 31, 1998 compared to the three months ended March 31, 1997 levels of $193.5 million and increased $17.3 million or 9.1% compared to $190.6 million for the three months ended December 31, 1997. Management attributes the strong growth in average assets and deposits for the three months ended March 31, 1998 compared to the three months ended March 31, 1997 primarily to the on-going marketing efforts of the Company and partially due to the Raymondville Acquisition. The following table presents the consolidated average balance sheets: Average Balance Sheets (In Thousands)
1998 1997 ---------- ----------------------------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Assets Loans ................................ $ 982,067 $ 920,005 $ 887,852 $ 859,795 $ 835,661 Investment Securities Taxable ............................ 392,570 382,206 355,967 351,496 350,226 Tax-Exempt ......................... 27,666 26,012 25,319 25,678 28,283 Federal Funds Sold ................... 25,752 37,825 53,693 28,449 38,311 Time Deposits ........................ 1,167 101 279 295 295 ----------- ----------- ----------- ----------- ----------- Total Interest-Earning Assets ........ 1,429,222 1,366,149 1,323,110 1,265,713 1,252,776 Cash and Due from Banks .............. 58,155 55,450 55,469 56,176 54,956 Bank Premises and Equipment, Net ..... 57,234 49,021 43,531 41,727 40,635 Other Assets ......................... 52,292 49,056 50,220 50,876 48,932 Allowance for Loan Losses ............ (11,775) (10,874) (11,131) (11,333) (11,004) ----------- ----------- ----------- ----------- ----------- Total ................................ $ 1,585,128 $ 1,508,802 $ 1,461,199 $ 1,403,159 $ 1,386,295 ----------- ----------- ----------- ----------- ----------- Liabilities Demand Deposits Commercial and Individual ........... $ 202,143 $ 185,582 $ 185,301 $ 186,947 $ 185,915 Public Funds ........................ 5,777 5,047 5,008 7,143 7,559 ----------- ----------- ----------- ----------- ----------- Total Demand Deposits ................ 207,920 190,629 190,309 194,090 193,474 ----------- ----------- ----------- ----------- ----------- Savings Commercial and Individual .......... 103,715 98,733 98,974 102,612 104,623 Public Funds ....................... 710 656 646 687 683 Money Market Checking and Savings Accounts Commercial and Individual .......... 207,380 198,447 204,491 200,322 198,834 Public Funds ....................... 45,479 47,418 32,368 38,364 46,820 Time Deposits Commercial and Individual .......... 660,936 661,291 629,647 580,711 569,176 Public Funds ....................... 177,464 136,748 137,610 124,665 114,705 ----------- ----------- ----------- ----------- ----------- Total Interest-Bearing Deposits ...... 1,195,684 1,143,293 1,103,736 1,047,361 1,034,841 ----------- ----------- ----------- ----------- ----------- Total Deposits ....................... 1,403,604 1,333,922 1,294,045 1,241,451 1,228,315 ----------- ----------- ----------- ----------- ----------- Federal Funds Purchased and Securities Sold Under Repurchase Agreements .............. 2,004 2,111 152 1,148 540 Other Liabilities .................... 14,585 11,867 11,573 11,311 11,313 Shareholders' Equity ................. 164,935 160,902 155,429 149,249 146,127 ----------- ----------- ----------- ----------- ----------- Total ................................ $ 1,585,128 $ 1,508,802 $ 1,461,199 $ 1,403,159 $ 1,386,295 =========== =========== =========== =========== ===========
RISK ANALYSIS OF THE LOAN PORTFOLIO Total loans at March 31, 1998 of $1.0 billion increased $160.4 million or 18.7% compared to March 31, 1997 levels of $857.4 million and increased $66.5 million or 7.0% compared to December 31, 1997 levels of $951.3 million. The increase in total loans at March 31, 1998 compared to total loans at March 31, 1997 and December 31 ,1997, was primarily attributable to Management's efforts to improve the mix of earning assets and the Raymondville Acquisition. The Company's loans are widely diversified by borrower and industry group. Loan demand remains strong which is reflective of the positive economic growth in the Company's trade area. The following table presents the composition of the loan portfolio for the last five quarters: Loan Portfolio Composition (In Thousands)
1998 1997 ----------- ----------------------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Commercial ................... $ 270,730 $249,819 $232,083 $232,477 $227,594 Commercial Tax-Exempt ........ 29,426 29,024 31,330 33,046 34,086 ---------- -------- -------- -------- -------- Total Commercial Loans ....... 300,156 278,843 263,413 265,523 261,680 ---------- -------- -------- -------- -------- Agricultural ................. 57,956 51,346 39,899 42,064 41,912 ---------- -------- -------- -------- -------- Real Estate Construction ............... 65,413 69,477 59,661 57,549 55,932 Commercial Mortgage ........ 323,058 304,215 294,293 289,334 270,756 Agricultural Mortgage ...... 35,068 31,949 30,630 29,448 29,217 1-4 Family Mortgage ........ 128,196 122,043 120,724 117,720 118,765 ---------- -------- -------- -------- -------- Total Real Estate ............ 551,735 527,684 505,308 494,051 474,670 ---------- -------- -------- -------- -------- Consumer ..................... 107,929 93,443 86,720 83,332 79,125 ---------- -------- -------- -------- -------- Total Loans .................. $1,017,776 $951,316 $895,340 $884,970 $857,387 ========== ======== ======== ======== ========
NONPERFORMING ASSETS Nonperforming assets are comprised of loans for which the accrual of interest has been discontinued, loans for which the interest rate has been reduced to less than normal rates due to a serious weakening in the borrower's financial condition, and other assets which consist of real estate and other property which have been acquired in partial or full satisfaction of loan obligations and which are awaiting disposition. A loan is generally placed on nonaccrual status when payment of principal or interest is contractually past due 90 days, or earlier when concern exists as to the ultimate collection of principal and interest. At the time a loan is placed on nonaccrual status, interest previously accrued but uncollected is reversed and charged against current income. Nonperforming assets at March 31, 1998 of $12.1 million increased $4.2 million or 52.9% when compared to the March 31, 1997 balance of $7.9 million and increased $383,000 or 3.2% when compared to the December 31, 1997 balance of $11.7 million Nonperforming assets as a percentage of total loans and foreclosed assets increased to 1.18% at March 31, 1998 compared to 0.92% at March 31, 1997. Management continues to emphasize maintaining a low level of nonperforming assets and returning nonperforming assets to an earning status. Loans which are contractually past due 90 days or more which are both well secured or guaranteed by financially responsible third parties and in are the process of collection generally are not placed on nonaccrual status. The amount of such loans past due 90 days or more at March 31, 1998 of $5.7 million reflects a decrease of $2.3 million compared to the March 31, 1997 level of $8.0 million and reflects an increase of $2.4 million or 72.9% compared to the December 31, 1997 level of $3.3 million. The increase in loans past due 90 days or more at March 31, 1998 compared to past due loans 90 days or more at December 31, 1997 is primarily attributable to loans secured by real estate. Management believes that no material loss will be incurred. Total cross-border credits of $7.6 million or 0.75% of total loans outstanding at March 31, 1998 reflect a slight decline when compared to the total cross-border credits of $7.7 million at March 31, 1997 and December 31, 1997. Total nonaccrual cross-border credits of $2.9 million at March 31, 1998 reflect a decrease of $500,000 when compared to the $3.4 million balance at March 31, 1997 and remain unchanged when compared to the total nonaccrual cross-border credits at December 31, 1997. The decrease in cross-border nonaccrual credits was due to loan collections. An analysis of the components of nonperforming assets for the last five quarters is presented in the following table: Nonperforming Assets (Dollars in Thousands)
1998 1997 --------- ----------------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Nonaccrual Loans ................................ $ 7,887 $ 8,355 $ 8,615 $ 7,024 $ 6,665 Renegotiated Loans .............................. -- -- -- -- -- ------- ------- ------- ------- ------- Nonperforming Loans ............................. 7,887 8,355 8,615 7,024 6,665 Foreclosed Assets (Primarily Other Real Estate) .................. 4,182 3,331 2,868 2,930 1,228 ------- ------- ------- ------- ------- Total Nonperforming Assets ...................... 12,069 11,686 11,483 9,954 7,893 Accruing Loans 90 Days or More Past Due ......... 5,683 3,287 3,139 6,658 8,004 ------- ------- ------- ------- ------- Total Nonperforming Assets and Accruing Loans 90 Days or More Past Due .................. $17,752 $14,973 $14,622 $16,612 $15,897 ------- ------- ------- ------- ------- Nonperforming Loans as a % of Total Loans ....... 0.77% 0.88% 0.96% 0.79% 0.78% Nonperforming Assets as a % of Total Loans and Foreclosed Assets .................... 1.18 1.22 1.28 1.12 0.92 Nonperforming Assets as a % of Total Assets .... 0.74 0.76 0.78 0.70 0.56 Nonperforming Assets and Accruing Loans 90 Days or More Past Due as a % of Total Loans and Foreclosed Assets .... 1.74 1.57 1.63 1.87 1.85 ======= ======= ======= ======= =======
ALLOWANCE FOR LOAN LOSSES The allowance for loan losses at March 31, 1998 of $12.1 million increased $1.1 million or 10.1% compared to the March 31, 1997 balance of $11.0 million and increased $824,000 or 7.3% compared to the December 31, 1997 balance of $11.3 million. The allowance for loan losses at March 31, 1998 is 1.19% of loans outstanding, net of unearned discount. Management believes that the allowance for loan losses at March 31, 1998, adequately reflects the risks in the loan portfolio. While management uses available information to recognize losses on loans, there can be no assurance that future additions to the allowance will not be necessary. The following table summarizes the transactions in the allowance for loan losses: Allowance for Loan Loss Activity (Dollars in Thousands)
1998 1997 ---------- ---------------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Balance at Beginning of Period ............... $11,291 $10,599 $11,187 $11,000 $10,806 Balance from Acquisitions .................... 308 -- -- -- -- Provision for Loan Losses .................... 941 1,166 695 463 623 Charge-Offs Commercial ................................. 228 170 950 165 493 Agricultural ............................... 13 275 155 47 -- Real Estate ................................ 120 27 25 1 6 Consumer ................................... 233 165 247 244 251 ------- ------- ------- ------- ------- Total Charge-Offs ............................ 594 637 1,377 457 750 ------- ------- ------- ------- ------- Recoveries Commercial ................................. 124 39 40 16 41 Agricultural ............................... -- 13 1 34 -- Real Estate ................................ 2 70 1 60 219 Consumer ................................... 43 41 52 71 61 ------- ------- ------- ------- ------- Total Recoveries ............................. 169 163 94 181 321 ------- ------- ------- ------- ------- Net Charge-Offs .............................. 425 474 1,283 276 429 ------- ------- ------- ------- ------- Balance at End of Period ...................................... $12,115 $11,291 $10,599 $11,187 $11,000 ------- ------- ------- ------- ------- Ratio of Allowance for Loan Losses to Loans Outstanding, Net of Unearned Discount .................... 1.19% 1.19% 1.18% 1.26% 1.28% Ratio of Allowance For Loan Losses to Nonperforming Assets .............. 100.38 96.62 92.30 112.39 139.36 Ratio of Net Charge-Offs (Recoveries) to Average Total Loans Outstanding, Net of Unearned Discount .................... 0.18 0.20 0.57 0.13 0.21 ======= ======= ======= ======= =======
PREMISES AND EQUIPMENT, NET Premises and equipment of $61.5 million at March 31, 1998 increased $20.6 million or 50.4% compared to $40.9 million at March 31, 1997 and increased $9.1 million or 17.3% compared to $52.4 million at December 31, 1997. The net increase for March 31, 1998 compared to March 31, 1997, is primarily attributable to the $15.1 million for construction in progress of the Company's new headquarters in McAllen, Texas and partially attributable to the $3.3 million recorded for the Raymondville Acquisition. The net increase for March 31, 1998 compared to December 31, 1997 is primarily attributable to progress payments of $6.0 million for the new headquarters bank building in McAllen and partially attributable to the $3.3 million recorded for the Raymondville Acquisition. DEPOSITS Total deposits at March 31, 1998 of $1.5 billion increased $201.8 million or 16.2% compared to the March 31, 1997 levels of $1.2 million and increased $83.3 million or 6.1% compared to December 31, 1997 levels of $1.4 billion. The increase in total deposits at March 31, 1998 compared to March 31, 1997 is primarily attributable to on-going marketing and business development efforts and partially attributable to the $56.5 million of deposits recorded for the Raymondville Acquisition. The following table presents the composition of total deposits for the last five quarters: Total Deposits (In Thousands)
1998 1997 ------------ ------------------------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Demand Deposits Commercial and Individual .......... $ 223,048 $ 203,325 $ 189,253 $ 181,593 $ 190,785 Public Funds ....................... 6,814 5,098 3,532 6,755 8,171 ---------- ---------- ---------- ---------- ---------- Total Demand Deposits ................ 229,862 208,423 192,785 188,348 198,956 ---------- ---------- ---------- ---------- ---------- Interest-Bearing Deposits Savings Commercial and Individual .......... 108,462 100,917 98,310 100,171 105,972 Public Funds ....................... 714 771 619 700 679 Money Market Checking and Savings Commercial and Individual .......... 213,813 203,292 199,056 210,395 200,630 Public Funds ....................... 42,131 39,547 34,229 30,438 36,409 Time Deposits Commercial and Individual .......... 667,222 647,959 644,426 594,117 573,888 Public Funds ....................... 183,833 161,874 139,205 132,513 127,722 ---------- ---------- ---------- ---------- ---------- Total Interest-Bearing Deposits ........................... 1,216,175 1,154,360 1,115,845 1,068,334 1,045,300 ---------- ---------- ---------- ---------- ---------- Total Deposits ....................... $1,446,037 $1,362,783 $1,308,630 $1,256,682 $1,244,256 ========== ========== ========== ========== ==========
CAPITAL AND LIQUIDITY Shareholders' equity at March 31, 1998 of $166.4 million increased $20.3 million or 13.9% compared to the March 31, 1997 level of $146.2 million and increased $4.9 million or 3.0% compared to the December 31, 1997 level of $161.6 million. The increase in shareholders' equity was primarily attributable to earnings, reduced by dividends paid on Class A Common Stock. The Company is dependent on dividend and interest income from the Bank and the sale of stock for its liquidity. Applicable Federal Reserve Board regulations provide that bank holding companies are permitted by regulatory authorities to pay cash dividends on their common or preferred stock if consolidated earnings and consolidated capital are within regulatory guidelines. The risk-based capital standards as established by the Federal Reserve Board of Governors apply to Texas Regional and Texas State Bank. The numerator of the risk-based capital ratio for bank holding companies includes Tier I capital, consisting of common shareholders' equity and qualifying cumulative and noncumulative perpetual preferred stock; and Tier II capital, consisting of other preferred stock, reserve for possible loan losses and certain subordinated and term-debt securities. Goodwill is deducted from Tier I capital. At no time is Tier II capital allowed to exceed Tier I capital in the calculation of total capital. The denominator or asset portion of the risk-based ratio aggregates generic classes of balance sheet and off-balance sheet exposures, each weighted by one of four factors, ranging from 0% to 100%, based on the relative risk of the exposure class. Ratio targets are set for both Tier I and Total Capital (Tier I plus Tier II capital). The minimum level of Tier I capital to total assets is 4.0% and the minimum Total Capital Ratio is 8.0%. The Federal Reserve Board has guidelines for a Leverage Ratio that is designed as an additional evaluation of capital adequacy of banks and bank holding companies. The Leverage Ratio is defined to be the company's Tier I capital divided by its quarterly average total assets less goodwill and other intangible assets. An insured depository institution is "well capitalized" for purposes of FDICIA if its Total Capital Ratio is equal to or greater than 10%, and Tier I Capital Ratio is equal to or greater than 6%, and Leverage Capital Ratio is equal to or greater than 5%. The Company's Tier I Capital Ratio was approximately 12.97% and 13.79% as of March 31, 1998 and 1997, respectively. The Company's Total Risk-Based Capital Ratio was approximately 14.13% and 15.04% as of March 31, 1998 and 1997, respectively. The Company's Leverage Capital Ratio was approximately 8.77% and 8.93% at March 31, 1998 and 1997, respectively. Based on capital ratios, the Company is within the definition of "well capitalized" for Federal Reserve purposes as of March 31, 1998. Liability liquidity is provided by access to core funding sources, principally various customers' interest bearing and noninterest bearing deposit accounts in the Company's trade area. The Company does not have or solicit brokered deposits. Federal funds purchased and short-term borrowings are additional sources of liquidity. These sources of liquidity are short-term in nature, and are not used to fund asset growth. For the three months ended March 31, 1998, liquidity was enhanced primarily by net cash provided by operating activities of $8.2 million and financing activities of $29.8 million offset by net cash used in investing activities of $26.7 million. The increase in net cash provided by operating activities was primarily attributable to $5.8 million net income for the three months ended March 31, 1998. The increase in net cash provided by financing activities was primarily attributable to the $26.8 million net increase in deposits. As a result, net cash and cash equivalents at March 31, 1998 of $92.7 million increased $11.4 million or 14.0% compared to net cash and cash equivalents at December 31, 1997 of $81.4 million. SELECTED FINANCIAL DATA
Three Months Ended ------------------------------------- March 31, December 31, --------------------- ------------- Ratio Analysis (Annualized) 1998 1997 1997 Return On Average ----- ------ ------ Assets ........................................... 1.49% 1.67% 1.53% Return On Average Shareholders' Equity ........... 14.37 15.82 14.35 Dividend Payout Ratio ............................ 27.50 28.21 27.50 Net Yield on Total Interest-Earning Assets* ...... 4.81 5.02 4.96 Efficiency Ratio* ................................ 50.62 48.99 47.75 Total Average Loans to Total Average Deposits .... 69.97 68.03 68.97 Average Equity to Average Assets ................. 10.41 10.54 10.66 ===== ===== =====
* Taxable-Equivalent Basis Assuming a 35% Effective Income Tax Rate.
COMMON STOCK TRADING DATA (Nasdaq National Market System) - ---------------------------------------------------------------------------------------------- Trading Volume (1998) Price March 31, 1998 $33.56 Book Value $11.56 January 673,093 shares 1998 price range $27.00 - $35.63 Price/Book Value 2.90% February 518,694 shares December 31, 1997 $30.50 March 705,881 shares ==============================================================================================
Item 3. Quantitative and Qualitative Disclosures About Market Risk. The funds management policy of the Company is to maintain a reasonably balanced position of rate sensitive assets and liabilities to avoid adverse changes in net interest income. Changes in net interest income occur when interest rates on loans and investments change in a different time period from that of changes in interest rates on liabilities, or when the mix and volume of interest-earning assets and interest-bearing liabilities change. In order to measure earnings and fair value sensitivity to changing rates, the Company uses three different measure tools including static gap analysis, simulation earnings, and market value sensitivity (fair value at risk). The static gap represents the dollar amount of difference between rate sensitive assets and rate sensitive liabilities within a given time period. Static gap analysis is the simplest representation of the Company's interest rate sensitivity. However, it cannot reveal the impact of factors such as administered rates (e.g., the prime lending rate), pricing strategies on consumer and business deposits, changes in balance sheet mix, or the effect of various options embedded in balance sheet instruments. Accordingly, the Funds Management Committee conducts simulations of net interest income under a variety of market interest rate scenarios. These simulations which consider forecasted balances sheet changes, and forecasted changes in interest rate spreads provide the Committee with an estimate of earnings at risk for given changes in interest rates. At March 31, 1998, based on these simulations, earnings at risk to an immediate 100 basis points rise in market interest rates was estimated to be less than 4.2 percent of projected 1998 after-tax net income. An immediate 100 basis point rise in interest rates is a hypothetical rate scenario, used to calibrate risk, and does not necessarily represent management's current view of future market developments. All the measurements of risk described above are made based upon the Company's business mix and interest rate exposures at the particular point in time. The exposures change continuously as a result of the Corporation's ongoing business and its risk management initiatives. While management believes these measures provide a meaningful representation of the Company's interest rate sensitivity, they do not necessarily take in account all business developments that have an effect on net income, such as changes in credit quality or the size and composition of the balance sheet. The Company does not currently engage in trading activities or use derivative instruments to control interest rate risk. Even though such activities may be permitted with the approval of the Board of Directors, the Company does not intend to engage in such activities in the immediate future. Interest rate risk is the most significant market risk affecting the Company. Other types of market risk, such as foreign currency exchange rate risk and commodity price risk, do not arise in the normal course of the Company's business activities. FORWARD-LOOKING STATEMENTS The Company may from time to time make forward-looking statements with respect to earnings per share, credit quality, company objectives and other financial and business matters. The Company cautions the reader that these forward-looking statements are subject to numerous assumptions, risk and uncertainties, including economic conditions; actions taken by the Federal Reserve Board; legislative and regulatory actions and reforms; competition; as well as other reasons, all of which change over time. Actual results may differ materially from forward-looking statements. PART II. OTHER INFORMATION Item 6. (a) Exhibits 27. Financial Data Schedule (b) Reports on Form 8-K None 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. May l3, 1998 /s/ G. E. Roney Date G. E. Roney Chairman of the Board, President & Chief Executive Officer May 13, 1998 /s/ George R. Carruthers Date George R. Carruthers Executive Vice President & Chief Financial Officer EX-27 2
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME, INCLUDED HEREIN AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. U.S. DOLLARS 3-MOS DEC-31-1998 MAR-31-1998 1 67,826 2,072 22,820 0 364,496 50,577 50,990 1,017,776 (12,115) 1,631,861 1,446,037 1,540 17,846 0 0 0 14,403 152,035 1,631,861 23,521 6,667 374 30,562 13,939 13,967 16,595 941 222 10,527 9,089 9,089 0 0 5,843 0.41 0.40 4.81 7,887 5,683 0 0 11,291 594 169 12,115 0 0 0
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