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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)  

ý
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 
For the quarterly period ended September 30, 2002

 
or

o
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
(State or other jurisdiction of incorporation or organization)		   74-2294235
(I.R.S. Employer Identification No.)
     

3900 North 10th Street, 11th Floor
McAllen, Texas 78501
(Address of principal executive 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 ý    No o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o    No o Not yet applicable ý

        There were 26,336,880 shares of the registrant's Class A Voting Common Stock, $1.00 par value, outstanding as of November 13, 2002.


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Texas Regional Bancshares, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars in Thousands, Except Share Data)
  September 30, 2002
   December 31, 2001
  
 
   (Unaudited)

    
  
Assets              
  Cash and Due From Banks   $ 107,175   $ 95,606  
  Interest-Bearing Deposits at Other Banks     391     96  
  Federal Funds Sold     11,300     —  
   
 
 
    Total Cash and Cash Equivalents     118,866     95,702  
  Time Deposits     596     495  
  Securities Available for Sale, at Fair Value     1,079,036     654,721  
  Securities Held to Maturity, at Amortized Cost (Fair Value of $453 in 2002 and $950 in 2001)     414     914  
  Loans Held for Sale     41,089     —  
  Loans Held for Investment, Net of Unearned Discount of $1,318 in 2002 and $2,116 in 2001     2,189,039     1,710,001  
  Less: Allowance for Loan Losses     (26,827 )   (21,050 )
   
 
 
    Net Loans     2,162,212     1,688,951  
  Premises and Equipment     88,168     75,576  
  Accrued Interest Receivable     28,294     22,728  
  Other Real Estate     8,809     7,085  
  Goodwill     24,775     24,256  
  Identifiable Intangibles     18,830     11,742  
  Other Assets     32,761     8,642  
   
 
 
    Total Assets   $ 3,603,850   $ 2,590,812  
   
 
 
Liabilities              
  Deposits              
    Demand   $ 422,701   $ 330,864  
    Savings     129,342     118,042  
    Money Market Checking and Savings     789,276     561,087  
    Time Deposits     1,639,457     1,225,884  
   
 
 
      Total Deposits     2,980,776     2,235,877  
  Other Borrowed Money     234,490     70,709  
  Accounts Payable and Accrued Liabilities     28,466     18,967  
   
 
 
    Total Liabilities     3,243,732     2,325,553  
   
 
 
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 26,326,900 Shares in 2002 and 16,236,481 Shares in 2001		     26,327     16,236  
  Paid-In Capital     181,265     137,027  
  Retained Earnings     131,948     109,412  
  Accumulated Other Comprehensive Income, Net of Tax     20,578     2,584  
   
 
 
    Total Shareholders' Equity     360,118     265,259  
   
 
 
    Total Liabilities and Shareholders' Equity   $ 3,603,850   $ 2,590,812  
   
 
 

The accompanying notes are an integral part of the condensed consolidated financial statements.

2

Texas Regional Bancshares, Inc. and Subsidiaries
Condensed Consolidated Statements of Income and
Comprehensive Income
(Dollars in Thousands, Except Per Share Data)
  Three Months Ended September 30,
   Nine Months Ended September 30,
  2002
   2001
   2002
   2001
 
   (Unaudited)
Interest Income                        
  Loans Held for Sale   $ 609   $ —   $ 1,465   $ —
  Loans Held for Investment, Including Fees     39,714     36,250     114,556     112,226
  Securities                        
    Taxable     10,754     8,615     31,239     26,315
    Tax-Exempt     767     578     2,093     1,652
  Interest-Bearing and Time Deposits     27     18     54     73
  Federal Funds Sold     36     147     92     425
   
 
 
 
    Total Interest Income     51,907     45,608     149,499     140,691
   
 
 
 
Interest Expense                        
  Deposits     16,673     19,786     48,935     64,748
  Federal Funds Purchased and Securities Sold Under Repurchase Agreements     1,072     581     2,932     1,739
  Federal Home Loan Bank Advances     593     19     1,182     233
  Trust Preferred Securities     326     —     800     —
  Subordinated Debentures     110     —     267     —
   
 
 
 
    Total Interest Expense     18,774     20,386     54,116     66,720
   
 
 
 
Net Interest Income Before Provision for Loan Losses     33,133     25,222     95,383     73,971
Provision for Loan Losses     2,950     2,783     8,655     5,709
   
 
 
 
  Net Interest Income After Provision for Loan Losses     30,183     22,439     86,728     68,262
   
 
 
 
Noninterest Income                        
  Service Charges on Deposit Accounts     5,261     4,753     14,713     12,018
  Other Service Charges     1,229     796     3,916     2,651
  Trust Service Fees     743     620     2,040     1,866
  Net Realized Gains on Sales of Securities Available for Sale     1,885     656     2,961     906
  Data Processing Service Fees     1,676     823     4,784     2,365
  Loan Servicing Income, Net     84     —     661     —
  Other Noninterest Income     435     355     1,099     1,222
   
 
 
 
    Total Noninterest Income     11,313     8,003     30,174     21,028
   
 
 
 
Noninterest Expense                        
  Salaries and Employee Benefits     9,412     7,310     27,875     21,513
  Net Occupancy Expense     1,481     1,142     4,157     3,321
  Equipment Expense     2,362     1,827     6,326     4,952
  Other Real Estate Expense, Net     152     157     314     369
  Amortization of Goodwill     —     574     —     1,721
  Amortization of Identifiable Intangibles     961     533     2,526     1,601
  Other Noninterest Expense, Net     5,134     3,475     15,030     11,024
   
 
 
 
    Total Noninterest Expense     19,502     15,018     56,228     44,501
   
 
 
 
Income Before Income Tax Expense     21,994     15,424     60,674     44,789
Income Tax Expense     7,732     5,328     20,745     15,653
   
 
 
 
Net Income     14,262     10,096     39,929     29,136
Other Comprehensive Income, Net of Tax                        
  Net Unrealized Gains on Securities Available for Sale
Net Unrealized Holding Gains Arising During Period		     11,656     5,788     19,919     10,552
    Less: Reclassification Adjustment for Net Realized Gains Included in Net Income     1,225     426     1,925     589
   
 
 
 
      Total Other Comprehensive Income     10,431     5,362     17,994     9,963
   
 
 
 
Comprehensive Income   $ 24,693   $ 15,458   $ 57,923   $ 39,099
   
 
 
 
Net Income Per Common Share                        
  Basic   $ 0.54   $ 0.42   $ 1.54   $ 1.21
  Diluted     0.54     0.41     1.53     1.20

The accompanying notes are an integral part of the condensed consolidated financial statements.

3

Texas Regional Bancshares, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes In Shareholders' Equity
(Dollars in Thousands)
  Common Stock— Class A
   Paid-In Capital
   Retained Earnings
   Accumulated Other Comprehensive Income (Loss)
   Total Shareholders' Equity
  
 
   (Unaudited)

  
Nine Months Ended September 30, 2002                                
  Balance, Beginning of Period   $ 16,236   $ 137,027   $ 109,412   $ 2,584   $ 265,259  
  Net Income     —     —     39,929     —     39,929  
  Unrealized Gains on Securities, Net of Tax and Reclassification Adjustment     —     —     —     17,994     17,994  
   
 
 
 
 
 
    Total Comprehensive Income     —     —     39,929     17,994     57,923  
   
 
 
 
 
 
  Exercise of Stock Options, 165,048 Shares of Class A Common Stock     165     3,932     —     —     4,097  
  Three-For-Two Stock Split     8,749           (8,770 )   —     (21 )
  Tax Effect of Nonqualified Stock Options Exercised and Disqualifying Dispositions On Qualified Stock Options     —     703     —     —     703  
  Purchase of Riverway Holdings, Inc.     1,177     39,603     —     —     40,780  
  Class A Common Stock Cash Dividends     —     —     (8,623 )   —     (8,623 )
   
 
 
 
 
 
  Balance, End of Period   $ 26,327   $ 181,265   $ 131,948   $ 20,578   $ 360,118  
   
 
 
 
 
 
Nine Months Ended September 30, 2001                                
  Balance, Beginning of Period   $ 16,091   $ 134,084   $ 79,691   $ (2,162 ) $ 227,704  
  Net Income     —     —     29,136     —     29,136  
  Unrealized Gain on Securities, Net of Tax and Reclassification Adjustment     —     —     —     9,963     9,963  
   
 
 
 
 
 
    Total Comprehensive Income     —     —     29,136     9,963     39,099  
   
 
 
 
 
 
  Exercise of Stock Options, 143,435 Shares of Class A Common Stock     143     2,106     —     —     2,249  
  Tax Effect of Nonqualified Stock Options Exercised and Disqualifying Dispositions On Qualified Stock Options     —     793     —     —     793  
  Class A Common Stock Cash Dividends     —     —     (7,249 )   —     (7,249 )
   
 
 
 
 
 
  Balance, End of Period   $ 16,234   $ 136,983   $ 101,578   $ 7,801   $ 262,596  
   
 
 
 
 
 

The accompanying notes are an integral part of the condensed consolidated financial statements.

4

 
   Nine Months
Ended September 30,
  
Texas Regional Bancshares, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Dollars in Thousands)
 
  2002
   2001
  
 
   (Unaudited)

  
Cash Flows from Operating Activities              
  Net Income   $ 39,929   $ 29,136  
  Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities              
    Depreciation, Amortization and Accretion, Net     10,142     7,333  
    Provision for Loan Losses     8,655     5,709  
    Provision for Estimated Losses on Other Real Estate and Other Assets     49     9  
    Deferred Tax Expense (Benefit)     364     (982 )
    Net Realized Gains on Sale of Securities Available for Sale     (2,961 )   (906 )
    (Gain) Loss on Sale of Other Assets     (19 )   34  
    Gain on Sale of Other Real Estate     (164 )   (60 )
    (Gain) Loss on Disposal of Premises and Equipment     338     (41 )
    Gain on Sale of Loans Held for Sale     (74 )   —  
    Net Decrease in Loans Held for Sale     8,255     —  
    Increase in Accrued Interest Receivable and Other Assets     (4,089 )   (13,556 )
    Increase (Decrease) in Accounts Payable and Accrued Liabilities     222     (1,414 )
   
 
 
Net Cash Provided by Operating Activities     60,647     25,262  
   
 
 
Cash Flows from Investing Activities              
  Net (Increase) Decrease in Time Deposits     (5 )   1,482  
  Proceeds from Sales of Securities Available for Sale     252,124     100,876  
  Proceeds from Maturing Securities Available for Sale     113,005     255,724  
  Purchases of Securities Available for Sale     (522,138 )   (394,890 )
  Proceeds from Maturing Securities Held to Maturity     500     732  
  Loan Originations and Advances, Net     (143,350 )   (71,847 )
  Recoveries of Charged-Off Loans     656     352  
  Proceeds from Sale of Premises and Equipment     32     41  
  Purchases of Premises and Equipment     (12,907 )   (3,744 )
  Proceeds from Sale of Other Real Estate     350     541  
  Proceeds from Sale of Other Assets     811     618  
  Purchase of Data Processing Contracts     (849 )   —  
  Net Cash Provided by Merger     17,349     —  
   
 
 
Net Cash Used in Investing Activities     (294,422 )   (110,115 )
   
 
 
Cash Flows from Financing Activities              
  Net Increase in Demand Deposits, Savings, Money Market Checking and Savings Accounts     80,344     64,663  
  Net Increase in Time Deposits     159,998     29,930  
  Net Increase (Decrease) in Other Borrowed Money     20,667     (14,337 )
  Cash Dividends Paid on Class A Common Stock     (8,146 )   (7,260 )
  Cash Dividends Paid on Fractional Shares     (21 )   —  
  Proceeds from the Sale of Common Stock     4,097     2,249  
   
 
 
Net Cash Provided by Financing Activities     256,939     75,245  
   
 
 
Increase (Decrease) in Cash and Cash Equivalents     23,164     (9,608 )
Cash and Cash Equivalents at Beginning of Period     95,702     79,498  
   
 
 
Cash and Cash Equivalents at End of Period   $ 118,866   $ 69,890  
   
 
 
Supplemental Disclosures of Cash Flow Information:              
  Interest Paid   $ 54,787   $ 68,210  
  Income Taxes Paid     21,749     16,976  
Supplemental Schedule of Noncash Investing and Financing Activities:              
  Foreclosure and Repossession in Partial Satisfaction of Loans Receivable     4,823     6,622  
  Financing Provided for Sales of Other Real Estate     1,346     896  
  Net Increase in Security Trades Not Settled     139     10,213  
  Net Increase (Decrease) in Dividends Payable     477     (11 )