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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2002

or

For the transition period from                              to                             

Commission file number 000-14517

TEXAS REGIONAL BANCSHARES, INC.
(Exact name of registrant as specified in its charter)

3900 North 10^th Street, 11^th 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

        There were 26,252,829 shares of the registrant's Class A Voting Common Stock, $1.00 par value, outstanding as of July 29, 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)

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

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Texas Regional Bancshares, Inc. and Subsidiaries
Condensed Consolidated Statements of Income and
Comprehensive Income
(Dollars in Thousands, Except Per Share Data)

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

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Texas Regional Bancshares, Inc. and Subsidiaries
Condensed Consolidated Statements of
Changes In Shareholders' Equity
(Dollars in Thousands)

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

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Texas Regional Bancshares, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Dollars in Thousands)

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

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TEXAS REGIONAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: BASIS OF PRESENTATION

        The accompanying unaudited condensed consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations, changes in shareholders' equity, and cash flows in conformity with accounting principles generally accepted in the United States of America. However, the condensed 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 six months ended June 30, 2002 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 condensed consolidated financial statements and notes thereto included in the Texas Regional Bancshares, Inc. and Subsidiaries ("Texas Regional" or the "Company") Annual Report on Form 10-K for the year ended December 31, 2001.

        The condensed consolidated financial statements include the accounts of Texas Regional Bancshares, Inc. (the "Parent") 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.

NEW ACCOUNTING PRONOUCEMENTS

        In June 2001, the Financial Accounting Standards Board issued Statement No. 141 ("Statement 141"), "Business Combinations", and Statement No. 142 ("Statement 142"), "Goodwill and Other Intangible Assets". Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Statement 141 also specifies criteria which must be met for intangible assets acquired in a purchase method business combination to be recognized and reported apart from goodwill. Statement 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with the Financial Accounting Standards Board's Statement No. 121 ("Statement 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". Financial Accounting Standards Board's Statement No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" supercedes Statement 121 and is effective for fiscal years beginning after December 15, 2001.

        The Company adopted the provisions of Statement 141 as of June 30, 2001 and Statement 142 effective January 1, 2002. The adoption of Statement 141 did not have any impact on the Company's consolidated financial statements. Upon adoption of Statement 142, the Company no longer amortizes goodwill. In accordance with Statement 142, the Company performed a transitional impairment test of goodwill during second quarter 2002, and will perform an annual impairment test of the goodwill in 2002 and thereafter. No transitional impairment losses were recognized or expected. See Note 6 for the effect of adoption of Statement 142.

        In August 2001, the Financial Accounting Standards Board issued Statement No. 144 ("Statement 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets", which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While Statement 144 supercedes Financial Accounting Standards Board Statement No. 121 ("Statement 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", it retains

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many of the fundamental provisions of Statement 121, establishes a single accounting model for long-lived assets to be disposed of by sale, and resolves certain implementation issues not previously addressed by Statement 121. Statement 144 also supersedes the accounting and reporting provisions of Financial Accounting Standards Board Opinion No. 30, ("Opinion No. 30") "Reporting the Results of Operation—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for the disposal of a segment of a business. However, it retains the requirement in Opinion No. 30 to report separately discontinued operations and extends the reporting to a component of an entity, rather than a segment of a business, that either has been disposed of or is classified as held for sale. Statement 144 is effective for fiscal years beginning after December 15, 2001. The Company adopted Statement 144 on January 1, 2002. The adoption of Statement 144 did not have an impact on the Company's consolidated financial statements.

RECLASSIFICATIONS

        Certain amounts in the prior year's presentation have been reclassified to conform to the current presentation. These reclassifications have no effect on previously reported net income.

NOTE 2: IMPAIRED LOANS

        Loans that the Company does not expect to collect the full principal and interest based on the terms of the original loan agreement are identified as impaired loans. These include loans that 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 $13.2 million at June 30, 2002 for which there was a related allowance for loan losses of $2.8 million. At June 30, 2002, the Company had $479,000 in impaired loans for which there was no related allowance for loan losses. The average recorded investment in impaired loans during the six months ended June 30, 2002 was $14.3 million. Interest income on impaired loans of $105,000 for cash payments received on nonaccrual loans was recognized during the six months ended June 30, 2002.

NOTE 3: COMMON STOCK

        On June 11, 2002, the Board of Directors approved a three-for-two stock split effected as a stock dividend to shareholders of record on June 21, 2002 and distributed on June 28, 2002. Additionally, the Board of Directors approved a cash dividend of $0.11 per share for shareholders of record on July 1, 2002 and payable on July 15, 2002.

NOTE 4: EARNINGS PER COMMON SHARE COMPUTATIONS

        The table below presents a reconciliation of basic and diluted earnings per share computations (dollars in thousands, except share data). The number of shares outstanding and related earnings per

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share amounts for 2002 and 2001 have been restated to retroactively give effect to the three-for-two stock split effected as a stock dividend declared and distributed during June 2002.

NOTE 5: MATERIAL BUSINESS COMBINATION

        On February 22, 2002, the Company acquired 100 percent of the outstanding common shares of Riverway Holdings, Inc. ("Riverway") located in Houston, Texas. The results of operations from the Houston branch have been included in the condensed consolidated financial statements since that date. The acquisition of Riverway gives Texas Regional a presence in the Houston metropolitan area, which adds a new market to Texas Regional's dominant market position in the Rio Grande Valley.

        The shareholders of Riverway received 1,176,157 shares of Texas Regional common stock in exchange for all of the outstanding shares of Riverway. Additionally, 100,000 shares (150,000 shares following the three-for-two stock split effected during June 2002) of Texas Regional were issued and held pursuant to a holdback escrow agreement pending the outcome of certain contingencies. The aggregate purchase price was $40.8 million. The value of the 1,176,157 shares issued is based on the average market price of Texas Regional common stock over the two-day period before and after the terms of the acquisition were agreed to and announced.

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        The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (dollars in thousands):

        All of the $8,744,000 of acquired intangible assets was assigned to core deposit premium intangible subject to amortization. The core deposit premium will be amortized over its estimated useful life of 10 years.

        The following table reflects the proforma results of operations for June 30, 2002 and 2001 as though the business combination had been completed as of January 1, 2001 (dollars in thousands, except share data):

NOTE 6: GOODWILL AND INTANGIBLE ASSETS—ADOPTION OF STATEMENT 142

        As of January 1, 2002, the Company had unamortized goodwill of $24.3 million and unamortized identifiable intangible assets of $11.7 million. In accordance with Statement 142, the Company discontinued the amortization of goodwill effective January 1, 2002. The Company evaluated its existing identifiable intangible assets and determined that no reclassifications were necessary to conform to the new criteria in Statement 141 for recognition apart from goodwill. In addition, the Company has evaluated the useful lives and residual values of its identifiable intangible assets and determined that no amortization period adjustments were necessary and no identifiable intangible assets had indefinite

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lives. Furthermore, the Company performed a transitional impairment test during second quarter 2002. No transitional impairment loss was recognized or expected.

        A reconciliation of previously reported net income and earnings per share to the amounts adjusted for the exclusion of goodwill amortization, net of tax, follows (dollars in thousands, except per share data). The earnings per share amounts for 2002 and 2001 have been restated to retroactively give effect to the three-for-two stock split effected as a stock dividend declared and distributed during June 2002.

        Changes in the carrying amount of goodwill are as follows (dollars in thousands):

        Information regarding the Company's intangible assets follows (dollars in thousands):

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        Amortization expense for the three and six months ended June 30, 2002 was $896,000 and $1.6 million, respectively, for identifiable intangibles and $362,000 and $477,000 for the three and six months ended June 30, 2002, respectively, for mortgage servicing rights. The amortization of mortgage servicing rights is included in Loan Servicing Income, Net on the condensed consolidated statements of income and comprehensive income. Estimated amortization expense for identifiable intangibles and mortgage servicing rights for the five succeeding fiscal years is as follows (dollars in thousands):

NOTE 7: RELATED PARTY TRANSACTION

        On March 12, 2002, the Company entered into an agreement with an affiliate of a Texas Regional Board member to purchase approximately 2.6 acres of land for $1.6 million. The property was purchased for a future branch location. The sale closed on May 28, 2002.

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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 within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the "safe harbor" created by these sections. 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: significant increases in competitive pressure in the banking industry; changes in the interest rate environment reducing margins; general economic conditions, either nationally or regionally, becoming 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 condensed 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. 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 active 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 primarily to receive and liquidate foreclosed assets.

        By authority of the Board of Directors of the Company, Texas Regional in May 2000 filed a Declaration Electing to be a Financial Holding Company with the Federal Reserve Bank of Dallas. The Declaration became effective in June 2000.

        Texas State Bank operates twenty-seven banking locations. Twenty-six banking locations are located 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. On February 22, 2002, the Company made its first acquisition outside of the Rio Grande Valley through the acquisition of Riverway Bank of Houston, Texas. On that date, the banking office of Riverway Bank became the Bank's twenty-seventh banking location. At June 30, 2002, Texas Regional had consolidated total assets of $3.5 billion, loans outstanding (net of unearned discount) of $2.1 billion, deposits of $3.0 billion, and shareholders' equity of $336.4 million.

        The Bank has also expanded the services that it provides to third party correspondent banks. The Bank's data processing center, for example, presently serves banks in the Rio Grande Valley in addition to providing data processing services for all of the Bank's banking locations. On January 31, 2002, the Bank acquired assets and data processing service contracts related to Frost National Bank's data operations center in Grapevine, Texas. Following that acquisition, the Bank now provides data processing services for 25 banks.

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FINANCIAL CONDITION

Cash and Cash Equivalents

        The Company 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 $99.5 million at June 30, 2002. By comparison, the Company had $95.7 million in cash and cash equivalents at December 31, 2001, an increase of $3.8 million or 4.0%.

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 accumulated other comprehensive income, net of applicable income taxes, until realized.

        At June 30, 2002 and December 31, 2001, 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.

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        The following table presents the amortized cost and estimated fair value of securities at June 30, 2002 and December 31, 2001 (dollars in thousands):

        Net unrealized holding gains on securities available for sale, net of related tax effect, of $10.1 million and $2.6 million for the six months ended June 30, 2002 and December 31, 2001, respectively, were reported in a separate component of shareholders' equity as accumulated other comprehensive income.

        Securities available for sale and securities held to maturity with carrying values of $1.0 billion and $514,000, respectively, at June 30, 2002 and $618.5 million and $794,000, respectively, at December 31, 2001 were pledged to secure public funds, trust assets on deposit and for other purposes required or permitted by law.

Loans Held for Sale

        Loans held for sale increased from $0 at December 31, 2001 compared to $37.7 million at June 30, 2002. These mortgage banking activities were assumed with the Riverway acquisition during first quarter 2002.

Loans Held for Investment

        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

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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.

        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 consumer 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. The effects of NAFTA 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 that NAFTA will continue to have a positive impact on the Company's growth and earnings prospects.

        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 June 30, 2002 of $5.0 million represented 0.2% of total loans. See "Nonperforming Assets" for additional information on cross-border credits.

        Total loans held for investment of $2.1 billion at June 30, 2002 increased $439.0 million or 25.7% compared to December 31, 2001 levels of $1.7 billion. The Riverway acquisition accounted for $347.0 million of the increase. The increase in total loans for the six months ended June 30, 2002 reflects growth in all loan categories except Agricultural Mortgage and is representative in part to the vitality of the Rio Grande Valley economy. The following table presents the composition of the loans held for investment portfolio (dollars in thousands):

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        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.

        Nonperforming assets consist of nonperforming (impaired) loans and other assets, primarily real estate, 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 unless the collateral provides more than adequate margin to ensure collection of that interest. A restructured loan is generally a loan that is accruing interest, but on which concessions in terms have been made as a result of deterioration in the borrower's financial condition. 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 $22.5 million at June 30, 2002 increased $647,000 or 3.0% compared to December 31, 2001 levels of $21.8 million. The increase was primarily due to a $1.5 million increase in foreclosed assets. Nonaccrual loans of $13.2 million at June 30, 2002 decreased $823,000 or 5.9% compared to $14.0 million at December 31, 2001. The decrease was attributable to a $1.2 million partial charge off on a loan. Cross-border nonaccrual loans at June 30, 2002 of $1.7 million remained unchanged compared to December 31, 2001.

        Foreclosed and other assets increased by $1.5 million or 18.9% to $9.3 million at June 30, 2002 compared to $7.8 million at December 31, 2001. The increase in foreclosed assets during 2002 was primarily attributable to the addition of foreclosed property totaling $1.3 million from one loan relationship. 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 June 30, 2002 and December 31, 2001 that are not classified as nonaccrual totaled $4.0 million and $12.2 million, respectively. The decrease in accruing loans past due 90 days or more at June 30, 2002 as compared to the year ended December 31, 2001 was primarily a result of four relationships totaling $7.1 million that were either current or paid off as of June 30, 2002. In addition, a relationship in the amount of $1.1 million was transferred to other real estate. The ratio of nonperforming assets plus accruing loans 90 days or more past due as a percent of total loans and foreclosed assets at June 30, 2002 decreased to 1.23% from 1.98% at December 31, 2001 due to the decrease in accruing loans 90 days or more past due.

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        An analysis of the components of nonperforming assets follows (dollars in thousands):